John Lewis Partnership plc annual report and accounts 2012
Notes to the accounts continued
22 Management of financial risks (continued)
The following analysis illustrates the sensitivity of the Partnership’s financial instruments to changes in market variables, namely UK interest rates and the US dollar, euro and Hong Kong dollar to sterling exchange rates. The level of sensitivities chosen, being 2% movement in Sterling interest rates and a 10% movement in Sterling when compared to the US dollar, euro and Hong Kong dollar, reflects the Partnership’s view of reasonable possible changes to these variables which existed at the year end.
The analysis excludes the impact of movements in market variables on the carrying value of pension and other post-retirement obligations and provisions.
The analysis has been prepared on the basis that the amount of net debt, the ratio of fixed to floating rate borrowings and the proportion of financial instruments in foreign currencies are constant throughout the year, based on positions as at the year end.
The following assumptions have been made in calculating the sensitivity analysis:
• the sensitivity of interest costs to movements in interest rates is calculated using floating rate debt and investment balances prevailing at the year end;
• changes in the carrying value of derivative financial instruments designated as fair value hedges arising from movements in interest rates are assumed to have no effect on net assets;
• changes in the carrying value of derivative financial instruments not in hedging relationships are assumed only to affect the income statement; and
• all derivative financial instruments designated as hedges are assumed to be fully effective.
Income statement +/- £m (2012) | Equity +/- £m (2012) | Income statement +/- £m (2011) | Equity +/- £m (2011)
UK interest rates +/– 2% (2011: +/– 5%) | 3.1 | – | 6.1 | –
US dollar exchange rate +/– 10% (2011: +/– 15%) | 0.4 | 0.2 | 0.4 | –
Euro exchange rate +/– 10% (2011: +/– 10%) | 0.6 | 0.2 | 0.5 | –
Hong Kong dollar exchange rate +/– 10% (2011: +/– 15%) | – | – | – | –
23 Derivative financial instruments
All financial assets and liabilities are held at amortised cost with the exception of derivative financial instruments which are held at fair value.
Details of the Partnership’s derivative financial instruments, used to manage the financial risks as identified in note 22, are as follows:
Table showing Derivative financial instruments
Fair value of derivative financial instruments | 2012 Assets (£m) | 2012 Liabilities (£m) | 2011 Assets (£m) | 2011 Liabilities (£m) |
Interest rate swap – fair value hedge – | – | 7.0 | –
Currency derivatives – cash flow hedge 2.7 | 2.5 | 1.6 | 1.0
2.7 | 2.5 | 8.6 | 1.0