Annual Report 2010 in PDF - BBA Aviation

17. Derivative fnancial instruments – continued
The following assumptions were made in calculating the sensitivity analysis:
— the balance sheet sensitivity to interest rates relates only to derivative instruments as cash and debt balances are carried at amortised
cost and so their carrying value does not change as interest rates move;
— changes in the carrying value of derivative fnancial instruments designated as cash fow hedges or net investment hedges are
assumed to be recorded fully in equity;
— the sensitivity of accrued interest to movements in interest rates is calculated on net foating rate exposures on debt, cash and
derivative instruments;
— changes in the carrying value of derivative fnancial instruments not in hedging relationships only afect the income statement;
— all other changes in the carrying value of derivative fnancial instruments designated as hedges are fully efective with no impact
on the income statement;
— all debt is foating rate for the accrued interest part of the calculation;
— the foating rate leg of any swap or any foating rate debt is treated as not having any interest rate already set, therefore a change
in the interest rates afects a full 12-month period for the accrued interest portion of the sensitivity calculations;
— the sensitivity of foreign exchange rates only looks at the outstanding foreign exchange forward book and the currency bank account
balances at plc company only as at the balance sheet date and assumed this is the position for a full 12-month period;
— the sensitivity of a 10% movement in foreign exchange rates has been used due to the fact that historically rates can move by
approximately 10% per annum; and
— the sensitivity of a 1% movement in interest rates has been used as over the last three years foating $ interest rates have moved
by on average 1% per annum.
Using the above assumptions the following table shows the illustrative efect on the income statement and equity that would result from
reasonably possible movements in foreign currency exchange rates and interest rates, before the efects of tax.
2010 2009
Income Income
Statement Equity Statement Equity
–/+ £m –/+ £m –/+ £m –/+ £m
£/$ FX rates – £ strengthens 10% – 21.3 – 26.9
£/$ FX rates – £ weakens 10% – (26.0) – (32.9)
£/Euro FX rates – £ strengthens 10% – 10.6 – 4.4
£/Euro FX rates – £ weakens 10% – (13.0) – (5.4)
Interest rates +1.00% (2.3) 6.3 (2.6) 7.7
Interest rates –1.00% N/A* (6.5) 3.4 (8.1)
*Due to underlying interest rates being low, the sensitivity of the income statement to interest rates reducing by 1% is not relevant for 2010.
The foreign exchange analysis in the sensitivity table above illustrates the impact of movements in foreign exchange rates on foreign currency
transactional exposures and does not include the impact on the translation of the Group’s overseas income statement and balance sheet. The
translation impact on proft before tax in the Group’s income statement from the movement in exchange rates is approximately £0.5 million for
each 1 cent movement in the £/$ exchange rate.
Consolidated Financial Statements — 113