Page 10


Business review

Review of performance (continued)


Net finance costs

Net finance costs which reflect the cost of our debt plus the interest element of our pension and long leave increased by £39.4m, from £43.7m to £83.1m. The financing element of pension costs is the difference between the return on the scheme assets and the interest cost, which are market driven. Depending on the position of external markets at the balance sheet dates, these can change materially from one year to the next. They have increased by £19.2m, from £5.4m last year to £24.6m this year. Long service leave obligation resulted in finance costs of £15.6m in the current year compared to a £0.2m gain in the prior year. This explains most of the increase in net finance costs compared with last year. Excluding pensions and long service leave, net finance costs increased by £4.4m, 11.4%, from £38.5m to £42.9m, mainly due to interest payable on the £275m Bond issued in March 2009 of £18.8m, offset by a decrease in floating interest payable on interest rate swaps and medium term loans (down £7.0m), a reduction in the year end foreign currency fair value re-measurement (£1.6m credit) and a reduction in the dividend payable on shares issued in connection with the Partnership’s BonusSave Scheme, Share Incentive Plan (SIP) shares (down £0.2m from £1.4m to £1.2m).

Pension charge

We continue to maintain an open noncontributory final salary defined benefit pension scheme. We now have 43,000 active members, 23,000 pensioners and dependants and 28,000 deferred pensioners in the Scheme.

Day-to-day management of the funds is delegated to a number of investment managers under the guidance of the trustees. The assets of the schemes are held in separate funds administered by the trustees. The Partnership takes a long term view of its pensions liabilities but recognises that there are significant risks in increasing longevity, the effect of age discrimination legislation, and continuing volatility in investment markets.

The pension accounting charge of £98.9m for the year to 30 January 2010 was marginally up (£0.7m) on last year. Actual pension cash contributions in respect of the year were £107.1m, compared to £93.2m for last year, reflecting contribution rates agreed following the last actuarial valuation, together with increased membership of the scheme.

A defined contribution scheme is also available in the three year period for Partners waiting to enter the defined benefit scheme, to provide benefits during this period. The Partnership will match contributions made by Partners, up to 6% of pensionable pay. (Continued on page 11...)


(Graph of Net finance costs (£m)(1) over last five years)

(Graph of Interest cover (times)(1)(2) over last five years)

(1) Operating expenses and net finance costs have been restated in respect of the change in allocation of the financing element of long service leave costs, as explained in note 1 to the accounts.
(2) Interest cover is based on net finance costs excluding pensions, long service leave and fair value adjustments.

(Graph of Pension charge (£m) over last five years)