John Lewis Partnership Annual Report and Accounts 2015

Annual Report and Accounts 2015

John Lewis Partnership plc

151

21 Management of financial risks (continued)

21.3 Interest rate risk In order to manage the risk of interest rate fluctuations on the Partnership’s financial debt and cash, the Partnership targets a ratio of fixed and floating rate debt in line with the Partnership Board approved treasury policy. An analysis of the Partnership’s financial liabilities is detailed in note 24. Exposures to interest rate fluctuations are managed using interest rate derivatives. The Partnership did not have any interest rate derivatives in place at year end.

21.4 Foreign currency risk

The Partnership uses derivative financial instruments to manage exposures to movements in exchange rates arising from transactions with overseas based suppliers and retailers. Foreign exchange management committees exist for each of the John Lewis and Waitrose divisions and they meet regularly to oversee the foreign exchange purchasing activities for each division. Foreign currency exposures are hedged primarily using forward foreign exchange contracts covering up to 100% of forecast exposures on a rolling basis. Forward foreign exchange contracts used to hedge forecast currency requirements are designated as cash flow hedges with fair value movements recognised in equity. Derivative financial instruments that were designated as cash flow hedges during the year were effective. At the balance sheet date, the notional value of open forward foreign currency contracts of £231.7m (2014: £213.7m) had been entered into to hedge purchases in foreign currencies which will mature over the next 18 months.

21.5 Credit risk

The Partnership has no significant exposure to an individual customer’s credit risk due to transactions being principally of a high volume, low value and short maturity. Cash deposits and other financial instruments give rise to credit risk on the amounts due from counterparties. These risks are managed by restricting such transactions to an approved list of counterparties, who have a credit rating not less than a Standard & Poor’s equivalent ‘A’ rating for investments and ‘BBB’ for the provision of operational cash management services. Appropriate credit limits are designated to each counterparty.

The Partnership considers its maximum exposure to credit risk is as follows:

2015 £m

Trade and other receivables Cash and cash equivalents

Derivative financial instruments 21.6 Energy risk

The Partnership operates risk management processes for the Partnership’s energy costs associated with its activities. The Partnership’s energy policy is reviewed by an energy committee which meets regularly to review pricing exposure to electricity and gas consumption and determines strategy for forward purchasing and hedging of energy costs using flexible purchase contracts.

21.7 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, provide a reasonable basis to measure sensitivity whilst not being the Partnership’s view of what is likely to happen in the future.

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.

131.6 339.8 9.6

481.0

2014 £m

116.5 358.9 0.7

476.1

Introduction

Partnership difference

Principles

Strategy

Performance

Governance

Financial statements

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