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IMI plc
SECTION 4 – CAPITAL STRUCTURE AND FINANCING COSTS
Continued
4.4.6.2 Valuation methodology
Cash and cash equivalents, bank overdrafts, trade payables and trade receivables are carried at their book values as this approximates to their fair value due to
the short-term nature of the instruments.
Long-term and short-term borrowings, apart from any which are subject to hedging arrangements, are carried at amortised cost as it is the intention that they will not
be repaid prior to maturity, where this option exists. The fair values are evaluated by the Group based on parameters such as interest rates and relevant credit spreads.
Long-term borrowings which are subject to hedging arrangements are valued using appropriate discount rates to value the relevant hedged cash flows.
Derivative assets and liabilities, including foreign exchange forward contracts, interest rate swaps and metal hedges, are valued using comparable observed market
prices and a valuation model using foreign exchange spot and forward rates, interest rate curves and forward rate curves for the underlying commodities.
Investments are primarily in publically-quoted pooled funds held to fund overseas pension liabilities. The fair value is based on the price quotation at the reporting date.
4.4.6.3 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.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
4.4.7 Market risk sensitivity analysis on financial instruments
This section shows how the fair value of financial instruments presented can change for a given change in market rates.
The values shown in the table below are estimates of the impact on financial instruments only. The underlying risks that these financial instruments have been
acquired to hedge will move in an opposite direction.
4.4.7.1 Overview
In estimating the sensitivity of the financial instruments all other variables are held constant to determine the impact on profit before tax and equity. The analysis is
for illustrative purposes only, as in practice market rates rarely change in isolation.
Actual results in the future may differ materially from these estimates due to the movements in the underlying transactions, actions taken to mitigate any potential
losses, the interaction of more than one sensitivity occurring, and further developments in global financial markets. As such this table should not be considered
as a projection of likely future gains and losses in these financial instruments.
4.4.7.2 Financial derivatives sensitivity table
The outputs from the sensitivity analysis are estimates of the impact of market risk assuming that the specified changes occur only to the financial derivatives
and do not reflect the opposite movement from the impact of the specific change on the underlying business that they are designed to hedge.
1%
1%
10%
10%
decrease
increase
10%
10% decrease in increase in
in interest
in interest
weakening strengthening base metal
base metal
rates
rates
in Sterling in Sterling
costs
costs
£m
£m
£m
£m
£m
£m
At 31 December 2014
Impact on income statement (loss)/gain
-
-
(1.4)
1.4
(0.1)
0.1
Impact on equity (loss)/gain
-
-
(52.1)
52.1
-
-
At 31 December 2013
Impact on income statement (loss)/gain
-
-
(2.8)
2.8
(0.1)
0.1
Impact on equity (loss)/gain
-
-
(63.5)
63.5
-
-
