John Lewis Partnership Annual Report and Accounts 2015

Annual Report and Accounts 2015

John Lewis Partnership plc

173

Area of focus

For each cash generating unit (‘CGU’), which is defined as a branch, the Directors assess on an annual basis whether there are any impairment triggers that would indicate that the CGU is overvalued.

For branches where triggers are identified, the value in use is compared to the carrying value and an impairment charge is recorded where the carrying value exceeds the value in use. In the current year, more branches triggered for impairment than in the prior year and impairments were recorded on 19 branches. The impairment charge was £10.3m, made up of small impairments across several branches, principally in the core, non-convenience estate. See note 11 and page 105 of the Audit and Risk Committee report for more details.

We focussed on this area because of the materiality of these assets and because of the judgement required in determining whether there are any impairment triggers. In addition, where triggers were identified for certain CGUs, calculating the value in use of those CGUs involves subjective judgements by the Directors, particularly regarding short- and long-term growth rates and operating margins.

How our audit addressed the area of focus Impairment of property, plant and equipment and finite-lived intangible assets

We tested the Directors’ assessment of impairment triggers and were satisfied that it appropriately took into account both internal and external impairment indicators, including the trading performance of each branch and competitor activity.

No impairment triggers were identified in John Lewis. Where impairment triggers were identified in Waitrose, we audited the value-in-use models, including comparing the forecasts in them to the latest approved budgets.

We challenged the Directors’ key assumptions, in particular the long- term strategic growth rate, by comparing the assumptions to recent results both for the Partnership and the retail sector as a whole. We were satisfied with management’s rationale for adopting a slightly higher long-term growth rate than the industry average, based on the Partnership’s recent outperformance of the industry.

We performed sensitivity analysis around the key drivers being the discount rate and long-term growth rates of the cash flow forecasts to ascertain the extent of change in those assumptions that either individually or collectively would be required for the relevant asset to be impaired.

We then considered the likelihood of such movement in those key assumptions arising based on our knowledge of the Partnership and of the retail industry amongst other factors. We were satisfied that the key assumptions reflect reasonable expectations for each branch, and take into account whether the branch is core or convenience.

Introduction

Partnership difference

Principles

Strategy

Performance

Governance

Financial statements

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