Dave Forsey Chief Executive 19 July 2012 - Sports Direct International

100 / FINANCIAL STATEMENTS AND NOTES
notes to the Financial Statements
For the 53 weeks ended 29 April 2012
27. Financial Instruments Continued
(b) Derivatives: foreign currency forward purchase contracts
The most significant exposure to foreign exchange fluctuations relates to purchases made in foreign currencies, principally the US dollar. The
Group’s policy is to reduce substantially the risk associated with foreign currency spot rates by using forward fixed rate currency purchase
contracts, taking into account any foreign currency cash flows. The Group does not hold or issue derivative financial instruments for trading
purposes, however if derivatives do not qualify for hedge accounting they are accounted for as such and accordingly any gain or loss is
recognised immediately in the income statement.
The carrying values of forward foreign currency purchase contracts were as follows:
29 April 2012
(£’000)
24 April 2011
(£’000)
Fair value of derivative financial instruments - assets / (liabilities) 4,356 (5,984)
The Sterling principal amounts of forward foreign currency purchase contracts and contracted forward rates were as follows:
29 April 2012
(£’000)
24 April 2011
(£’000)
US dollar purchases 371,986 320,000
Contracted rates 1.61-1.65 1.56-1.65
US dollar sales (40,000) -
Contracted rates 1.53-1.54 -
Euro sales (24,678) (33,451)
Contracted rates 1.13-1.14 1.13-1.14
At 29 April 2012 £372m of forward US dollar purchase contracts qualified for hedge accounting and the loss on fair valuation of these contracts
of £6.8m has therefore been recognised in other comprehensive income. This amount is split between a loss of £1.3m recognised in the period,
a gain of £5.8m reclassified and reported in net profit and a gain of £2.2m recognised in inventories.
Forward foreign currency purchase and sale contracts generally have a maturity at inception of approximately 12 months.
At 29 April 2012 £60m of purchase contracts and £3.5m of sale contracts had a maturity at inception of greater than 12 months
(2011: £60 million of purchase contracts).
(c) Sensitivity analysis
Foreign currency sensitivity analysis
The Group’s principal foreign currency exposures are to US dollars and the Euro. The table below illustrates the hypothetical sensitivity of the
Group’s reported profit and equity to a 5% increase and decrease in the US dollar / Sterling and Euro / Sterling exchange rates at the year end
date, assuming all other variables remain unchanged. The figures have been calculated by comparing the fair values of outstanding foreign
currency contracts at the current exchange rate to those if exchange rates moved as illustrated. The income statement figures include the
profit effect of any relevant derivatives which are not in a designated cash flow hedge. The impact on US dollar related hedging instruments is
included in equity.
Positive figures represent an increase / (decrease) in profit or equity:
29 April 2012
(£’000)
Income statement Equity
24 April 2011
(£’000)
29 April 2012
(£’000)
24 April 2011
(£’000)
Sterling strengthens by 5%
US dollar 810 849 (4,284) (3,674)
Euro (559) (219) (559) (219)
Sterling weakens by 5%
US dollar (851) (892) (4,498) 3,858
Euro 587 230 587 230