Chairman’s statement

continued

Financing

Cash generated from operations during the period was £238.2m. We remain committed to our focus on efficient cash, working capital and credit risk management.

On 7 March, we launched an innovative financing product, the John Lewis Partnership Bond which offered a competitive fixed return to investors, 4.5% plus 2% in John Lewis Partnership gift vouchers. This was well received and the gross proceeds were £57.8m. At the end of the first six months net debt was £760.8m. The Partnership balance sheet remains strong with substantial capacity to increase our borrowings should we wish to, and we remain well within the limits of the financial covenants in our bank facilities and bonds.

Our net finance costs fell by £13.6m (39.2%) to £21.1m. Finance costs on borrowings have increased by £5.2m, reflecting a net increase of £142m in our Bonds, together with the launch of the Retail Bond of £57.8m. Last year we paid a premium of £9.2m on the partial buyback of the 2012 Bond. These costs have been partly offset by a net credit on pension and long leave financing costs of £9.4m, compared to a charge of £1.7m last year.

Pensions

The triennial actuarial valuation of our main non-contributory defined benefit final salary pension scheme as at 31 March 2010 resulted in a surplus of £83m, which we estimate has grown to £112m at 30 July 2011. The triennial actuarial valuation is the basis on which the Partnership manages and funds the pension liability. The pension scheme adopts a prudent but active investment strategy and the Board is comfortable with the current funding level.

The total accounting pension deficit at 30 July 2011, which assumes more cautious investment returns than the actuarial basis of valuation, increased by £65.3m (15.8%) to £479.3m. The accounting valuation of pension fund liabilities increased by £145.0m (5.0%) to £3,025.0m, while pension fund assets increased by £79.7m (3.2%) to £2,545.7m. Net of deferred tax the deficit was £381.8m.

The Pension Fund took the opportunity in February to sell its remaining stake in Ocado for £150.5m, an uplift of £23m on the January 2011 value.

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