Financial statements Notes to the Consolidated Financial Statements continued For the 52 weeks ended 26 June 2021 17 Financial risk management continued The Group has a syndicated Revolving Credit Facility (RCF) of £165m which is maturing in March 2023. There is also an optional accordion facility of £75m. The terms of the RCF are consistent with normal practice and include covenants in respect of leverage (net debt to be no greater than 2.5× EBITDA before exceptional items and IFRS 16 impact) and fixed charge cover (EBITDAR before exceptional items and IFRS 16 impact to be no less than 1.75× fixed charges), both of which were met comfortably as at 26 June 2021 as shown below. In addition, the Group maintains £10m of uncommitted overdraft facilities with one syndicate partner bank. The gearing ratio and banking covenants, on a pre-IFRS 16 basis, were as follows: 2021 2020 £’m £’m Total borrowings (note 18) – 45.0 Less: unamortised debt issue costs (note 18) (0.2) (0.4) Less: cash and cash equivalents (note 15) (128.6) (90.0) Net (cash) (128.8) (45.4) Total equity 281.2 173.4 Total capital 152.4 128.0 Gearing ratio (84.5%) (35.5%) Operating profit excluding IFRS 16 impact 163.1 112.8 Add: Depreciation and amortisation of property, plant and equipment and intangible assets (note 3) 31.8 33.2 Add: Loss on disposal and impairment of property, plant and equipment and intangible assets (note 3) 2.5 1.5 EBITDA excluding IFRS 16 impact 197.4 147.5 Leverage ratio (0.65) (0.31) EBITDA excluding IFRS 16 impact 197.4 147.5 Rent 53.9 47.5 EBITDAR excluding IFRS 16 impact 251.3 195.0 Net interest excluding lease liabilities (note 5) 3.3 1.4 Rent 53.9 47.5 Fixed charges 57.2 48.9 Fixed charge cover 4.4 4.0 The gearing and net debt ratios are negative due to the Group being in a net cash position at the period end date. DERIVATIVES: HEDGE INEFFECTIVENESS Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. For hedges of foreign currency purchases, the Group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item. The Group therefore performs a qualitative assessment of effectiveness. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical derivative method to assess effectiveness. In hedges of foreign currency purchases, ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated, or if there are changes in the credit risk of the Group or the derivative counterparty. MARKET RISK The Group uses a combination of foreign currency options and foreign currency forwards to hedge its exposure to foreign currency risk. Under the Group’s policy the critical terms of the forwards and options must align with the hedged items. The Group only designates the spot component of foreign currency forwards in hedge relationships. The spot component is determined with reference to relevant spot market exchange rates. The differential between the contracted forward rate and the spot market exchange rate is defined as the forward points. It is discounted where material. 208 DUNELM GROUP PLC ANNUAL REPORT & ACCOUNTS 2021