106


John Lewis Partnership plc Annual Report and Accounts 2014


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED


20 Management of financial risks (continued) 20.7 Sensitivity analysis


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 and euro to sterling exchange rates. The level of sensitivities chosen, being 1% movement in Sterling interest rates and a 10% movement in sterling when compared to the US dollar and euro, 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 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. 2014


Income Statement +/- £m


UK interest rates +/- 1% (2013: +/- 1%)


US dollar exchange rate +/-10% (2013: +/- 10%) Euro exchange rate +/- 10% (2013: +/- 10%)


1.7 0.4 0.1


Equity +/- £m


9.3 9.6


Income Statement +/- £m


2013


Equity +/- £m


– 3.6 – 0.4 9.3 0.5 4.9


21 Derivative financial instruments and financial liabilities We use cash flow hedges to manage the risk of adverse currency movements. We also hold bonds and preference stock. These cash flow hedges, bonds and preference stock are classified as derivative financial instruments and financial liabilities under IFRS.


This note details the fair value of these financial instruments and financial liabilities, together with the valuation techniques and key assumptions made in determining the fair value, as required by IFRS. The fair value, as defined by IFRS, represents the amount that would be received from the sale of an asset or paid to pass on a liability in an orderly transaction between willing market participants.


21.1 Basis of fair value


Fair value estimation The different levels per the IFRS 13 fair value hierarchy have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities


Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)


During the year ended 25 January 2014, there have been no transfers between any levels of the IFRS 13 fair value hierarchy and there were no reclassifications of financial assets as a result of a change in the purpose or use of those assets.


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