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Financial statements Marks and Spencer Group plc Annual report and financial statements 2013 105
Overview Strategic review Financial review Governance Financial statements and other information
21 Financial instruments continued
2% decrease
in interest
rates
£m
2% increase
in interest
rates
£m
20%
weakening
in sterling
£m
20%
strengthening
in sterling
£m
At 31 March 2012
Impact on income statement: gain 1.5 0.8 – –
Impact on other comprehensive income: (loss)/gain (5.3) 3.0 70.2 (46.8)
At 30 March 2013
Impact on income statement: gain/(loss) 3.7 (5.6) – –
Impact on other comprehensive income: (loss)/gain (6.9) 3.5 100.8 (67.2)
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
–Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
–Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
–Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data. Unlisted equity investments are included in Level 3. The fair value of embedded derivatives is
determined using the present value of the estimated future cash flows based on financial forecasts. The nature of the valuation
techniques and the judgement around the inputs mean that a change in assumptions could result in significant change in the
fair value of the instrument.
As at the end of the reporting period, the Group held the following financial instruments measured at fair value:
2013 2012
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Assets measured at fair value
Financial assets at fair value through
profit and loss
– Trading derivatives – 3.6 – 3.6 – 53.7 – 53.7
Derivatives used for hedging – 78.3 – 78.3 – 37.4 – 37.4
Embedded derivatives (note 5) – – 25.9 25.9 – – 20.1 20.1
Available-for-sale financial assets
– Equity securities – – 3.0 3.0 – – 3.0 3.0
Short term investments – 10.7 – 10.7 254.4 254.4
Liabilities measured at fair value
Financial liabilities at fair value through
profit and loss
– Trading derivatives – (0.9) – (0.9) – (54.9) – (54.9)
Derivative used for hedging – (25.9) – (25.9) – (32.8) – (32.8)
There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value
measurements in the current or prior years.
The following table presents the changes in Level 3 instruments:
2013
£m
2012
£m
Opening balance 23.1 8.7
Gains recognised in the income statement 5.8 14.4
Closing balance 28.9 23.1
The gains recognised in the income statement relate to the valuation of the embedded derivative in a lease contract. A discount
unwind on the put option over a non-controlling interest of £nil (last year £1.0m) has been recorded within underlying interest
charges, with the fair value movement of the put option of £nil (last year £15.6m) and the fair value movement of the embedded
derivative of £5.8m (last year £0.2m) treated as adjustment to reported profit (see note 5).
Fair value of financial instruments
With the exception of the Group’s fixed rate bond debt and the Partnership liability to the Marks & Spencer UK Pension scheme,
there were no material differences between the carrying value of non-derivative financial assets and financial liabilities and their fair
values as at the balance sheet date.
The carrying value of the Group’s fixed rate bond debt was £2,076.5m (last year £2,171.6m); the fair value of this debt was
£2,196.6m (last year £2,121.7m). The carrying value of the Partnership liability to the Marks & Spencer UK Pension scheme is
£622.6m and the fair value of this liability is £606.0m.