John Lewis Partnership Annual Report and Accounts 2015

Notes to the consolidated financial statements (continued) John Lewis Partnership plc Annual Report and Accounts 2015

152

21 Management of financial risks (continued)

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.

2015 Income

Statement +/- £m

UK interest rates +/- 1% (2014: +/- 1%)

US dollar exchange rate +/-10% (2014: +/- 10%) Euro exchange rate +/- 10% (2014: +/- 10%)

22 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.

22.1 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 31 January 2015, 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.

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

2015

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

Assets £m

9.6

Liabilities £m

(6.6)

Assets £m

0.7 2014

Liabilities £m

(5.9)

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.

1.4 0.4 1.3

Equity +/- £m

–

10.7 8.8

Income

Statement +/- £m

1.7 0.4 0.1

Equity +/- £m

–

9.3 9.6

2014

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