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Annual Report and Accounts 2015


John Lewis Partnership plc


149


21 Management of financial risks


The principal financial risks that we are exposed to relate to the capital structure and long-term funding structure of the Partnership and also to the markets and counterparties we are exposed to in our operations. These risks can be summarised as: capital and funding risk, liquidity risk, interest rate risk, foreign currency risk, energy risk and credit risk. This note details how each of these risks are managed.


21.1 Capital and long-term funding risk


The Partnership’s objectives when managing capital (defined as net debt plus equity) are to safeguard its ability to continue as a going concern, provide returns for its Partners and to maintain a prudent level of debt funding. The Partnership is a long-term business, held in trust for the benefit of its Partners. The co-ownership model means that it is not able to raise equity externally.


The Partnership manages capital to ensure an appropriate balance between investing in Partner, customer and profit. The policy is to maintain a prudent capital structure, consistent with the financial risk profile of an investment grade credit rating. Although the Partnership does not have an external credit rating, it routinely monitors its capital and liquidity requirements using leverage and performance ratios commonly used by rating agencies to assess risk, whilst maintaining an appropriate level of committed debt headroom and a smooth debt maturity profile to reduce refinancing risk and ensure continuity of funding. The Partnership borrows centrally to meet the requirements of its Divisions using a mix of funding including capital market issues and bank facilities. The Partnership further diversified its funding sources through the issue of a Partnership bond to its Partners and customers in April 2011. Other forms of borrowing include assets acquired via finance leases, assets obtained for use via operating leases, Share Incentive Plan shares as part of the BonusSave scheme and a small amount of cumulative preference stock.


21.2 Liquidity risk


Liquidity requirements are managed in line with short and long-term cash flow forecasts and reviewed against the Partnership’s debt portfolio and maturity profile. Surplus cash is invested in interest bearing current accounts, term deposits and money market funds with sufficient, prudent, liquidity determined by the above mentioned cash flow forecasts. The Partnership actively reviews and manages its sources of debt and committed credit facilities. In January 2014, the Partnership entered into an 18 month £150m bilateral borrowing facility. At the year end the Partnership had undrawn committed revolving borrowings facilities of £475m (2014: £475m). In addition to these facilities, the Partnership has listed bonds totalling £875m (2014: £575m) of which £275m mature in 2019, £300m in 2025 and £300m in 2034. The Partnership has a retail bond, the ‘Partnership bond’, issued in April 2011 and maturing in 2016, which raised gross proceeds of £58m. The bonds are not subject to repricing, and their maturity profiles are set out in note 24.


The Partnership’s bank borrowing facilities contain financial covenants. Throughout the year the Partnership maintained comfortable headroom against its covenants and is expected to do so into the foreseeable future.


The Partnership’s total committed sources of available funds at the date of signing these accounts are £1,408m (2014: £1,108m).


Introduction


Partnership difference


Principles


Strategy


Performance


Governance


Financial statements


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