Investor Presentaiton

154 Notes to the Consolidated Financial Statements 4.7 Financial risk management (continued) 4.7 Financial risk management (continued) Capital structure, financing and risk management 4 155 Annual Report 2023 Woolworths Group FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES THAT ARE NOT MEASURED AT FAIR VALUE ON A RECURRING BASIS The carrying value of cash and cash equivalents, financial assets, bank and other loans, and non-interest bearing monetary financial liabilities of the Group approximate their fair value. ESTIMATION OF FAIR VALUES At each reporting period, the Group reviews any material adjustments for level 3 fair values and assesses whether any evidence can be obtained from third parties to support the conclusion that these valuations meet the requirements of the Standards, including the level in the fair value hierarchy in which the valuations should be classified. Any material valuation adjustments are reported to the Board. The following summarises the major methods and assumptions used in estimating the fair values of financial assets and liabilities categorised within level 2 and level 3 of the fair value hierarchy: The fair value of foreign exchange contracts is determined using a discounted cash flow model where future cash flows are estimated based on market forward exchange rates as at the end of the reporting period and the contract forward rate, discounted by the observable yield curves of the respective currency; The fair value of foreign currency options is determined using a Black-Scholes model; The fair value of cross currency and interest rate swaps is determined using a discounted cash flow model where future cash flows are estimated based on market forward interest rates and in the case of cross currency swaps, market forward exchange rates as at the end of the reporting period and the contract rates, discounted by the observable yield curves, adjusted to reflect the credit risk of the various respective counterparties; The fair value of the power purchase arrangement is determined using a discounted cash flow model where the future cash flows are estimated primarily based on forecast forward market prices, discounted at the Group's incremental cost of debt; The fair value of convertible and SAFE notes is determined using a Black-Scholes model or a Monte Carlo simulation model; The fair value of unlisted equity securities is determined using the pricing from the latest external fundraising ofthe unlisted entity which represents the current market value of the investment or, where this is not available, using an appropriate model such as a discounted cash flow model based on estimated future cash flows, discountedat a rate that reflects the relative risks of the investment; and The fair value of put option liabilities over non-controlling interests is determined as the present value of the amounts expected to be paid at the time of exercise, discounted at the Group's cost of debt. LEVEL 3 SENSITIVITY ANALYSIS SAFE notes and unlisted equity securities Reasonably possible changes at the reporting date to the significant unobservable inputs would not have resulted ina material change in the values of the SAFE notes and unlisted equity securities. Put option liabilities over non-controlling interests Reasonably possible changes at the reporting date to the following significant unobservable inputs, assuming all other variables remain constant, could result in a change in the value of the put option liabilities as follows: QUANTIUM PFD MYDEAL 5% change in three-year trailing average revenue growth at the date of exercise could result in an increase or decrease of $34 million, subject to a floor. 2% change in the three-year trailing average EBITDA margin could result in an increase or decrease of $14 million, subject to a floor. 20% change in the expected EBITDA at the time of exercise could result in an increase or decrease of $103 million, subject to a floor. 20% change in either the LTM GTV at the time of exercise or two-year average delivered margin at the time of exercise could result in an increase or decrease of approximately $16 million. Significant Accounting Policies Derivatives Derivatives are initially recognised at fair value. Subsequently, at each reporting date, the derivatives are remeasured at fair value and the gain or loss on remeasurement is recognised in the Consolidated Statement of Profit or Loss, unless the derivatives are designated as the hedging instrument in a cash flow hedge where the gain or loss is recognised in other comprehensive income. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not due to be realised or settled within 12 months. Cash flow hedge A cash flow hedge is a hedge of an exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss. Where a derivative is designated as the hedging instrument in a cash flow hedge, the effective part of any gain or loss on the derivative is recognised in other comprehensive income and accumulated in a separate cash flow hedge reserve within equity. When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability. If the forecast transaction subsequently results in the recognition of a financial asset or a financial liability, then the associated gains and losses that were accumulated in equity will be reclassified into profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss. The ineffective part of any derivative designated as the hedging instrument in a cash flow hedge is recognised immediately in the Consolidated Statement of Profit or Loss. When a hedging instrument expires or is sold, terminated, or exercised, but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss accumulated in equity is reclassified immediately into the Consolidated Statement of Profit or Loss. Gains or losses removed from equity during the period in relation to interest rate hedge instruments are recognised within finance costs in the Consolidated Statement of Profit or Loss. Fair value hedge A fair value hedge is a hedge of an exposure to changes in fair value of a recognised asset or liability that is attributable to a particular risk and could affect profit or loss. Where a derivative is designated as the hedging instrument in a fair value hedge, the gain or loss on the hedging instrument is recognised in the Consolidated Statement of Profit or Loss, together with the gain or loss on the hedged item attributable to the hedged risk, in the line item relating to the hedged item. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised in the Consolidated Statement of Profit or Loss from that date. 1 highlights Performance 2 review Business 3 Directors' Report 4 Report Financial LO Other information