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John Lewis Partnership plc Annual Report and Accounts 2014


107


21.2 Fair value of derivative financial instruments The fair value of derivative financial instruments is as follows:


2014


Fair value of derivative financial instruments Currency derivatives – cash flow hedge


Assets £m


0.7


Liabilities £m


(5.9)


Assets £m


4.2 2013


Liabilities £m


(0.6)


The fair value of a derivative financial instrument represents the difference between the value of the outstanding contracts at their contracted rates and a valuation calculated using the forward rates of exchange and interest rates prevailing at the balance sheet date.


The fair value of the derivative financial instruments held by the Partnership are classified as level 2 under the IFRS 13 fair value hierarchy, as all significant inputs to the valuation model used are based on observable market data and are not traded in an active market.


Specific valuation techniques used to value the financial instruments include quoted market prices. There have been no changes in valuation techniques from the prior year.


21.3 Fair value of financial assets and liabilities held at amortised cost


The following table compares the Partnership’s liabilities held at amortised cost, where there is a difference between carrying value (CV) and fair value (FV):


2014 £m


CV


Financial liabilities Listed bonds


Preference stock


(569.8) (4.6)


FV


(695.4) (3.9)


CV


(669.3) (4.6)


2013 £m


FV


(826.8) (3.3)


The fair values of the Partnership’s listed bonds and preference stock have been determined by reference to market price quotations and are classified as Level 1 under the IFRS 13 fair value hierarchy.


For other financial assets and liabilities, there are no material differences between carrying value and fair value.


22 Retirement benefit obligations We operate a defined benefit pension scheme, open to all Partners, subject to length of service, providing benefits based on final pensionable pay. The consolidated balance sheet includes a retirement benefit obligation which is the expected obligations of the scheme, offset by assets held by the scheme to meet these obligations. The expected obligations are calculated by an actuary using a number of financial assumptions whilst the assets are held at fair value.


This note details the financial assumptions used, together with amounts recorded in the consolidated balance sheet and income statement in relation to the pension scheme.


The principal pension scheme operated by the Partnership is the John Lewis Partnership Trust for Pensions. The scheme is a funded final salary defined benefit pension scheme, providing pensions and death benefits to members, and is open to new members. All contributions to the scheme are funded by the Partnership.


The scheme is governed by a Trustee which is independent of the Partnership. The Trustee is responsible for the operation and governance of the scheme, including making decisions regarding the scheme’s investment strategy.


The scheme is subject to a full actuarial valuation every three years on assumptions agreed between the Trustee and the Partnership. The most recent valuation was carried out by an independent professionally qualified actuary as at 31 March 2013 and resulted in a funding deficit of £840.0m. The market value of the assets of the scheme as at 31 March 2013 was £3,169.0m. The actuarial valuation showed that these assets were sufficient to cover 79% of the benefits which had accrued to members.


Following this valuation, the Partnership and the Trustee agreed to increase the normal future annual contribution rate to 16.4% of gross taxable pay of members and put in place a plan to eliminate the deficit over a 10 year period through deficit reduction contributions of £44.3m per year, in addition to a one-off contribution of £85.0m made in January 2014. The balance of the deficit is expected to be met by investment returns on the scheme assets. Total contributions to the scheme in 2015 under this agreement are expected to be £197.0m.


The next triennial actuarial valuation of the scheme will take place as at 31 March 2016.


The cost of the scheme to the Partnership depends upon a number of assumptions about future events. Future contributions may be higher (or lower) than those currently agreed if these assumptions are not borne out in practice or if different assumptions are appropriate in the future.


THE JOHN LEWIS PARTNERSHIP


OUR PERFORMANCE


GOVERNANCE


FINANCIAL STATEMENTS


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