TIDM45GD
RNS Number : 6924Q
Lewis(John) PLC
14 September 2017
John Lewis plc
Unaudited condensed Interim Financial Statements for the half
year ended 29 July 2017
Thursday 14 September 2017
These results are for John Lewis plc only and do not represent
the results for John Lewis Partnership plc which can be found on
the John Lewis Partnership website or at
johnlewispartnership.co.uk/financials/our-results.html
Financial Summary
Waitrose John Lewis Group
GBPm YoY change GBPm YoY change GBPm YoY change
-------- ----------- -------- ----------- ----- -----------
Gross sales(1) 3,324.2 2.3% 2,070.9 2.3% 5,395.1 2.3%
LFL sales(2) 0.7% 0.1%
Revenue 3,131.1 2.2% 1,645.3 2.4% 4,776.4 2.2%
Operating profit
before exceptional
items(3)(4) 100.8 (17.4)% 50.2 38.7% 125.4 (12.8)%
Operating profit(3) 88.1 (8.5)% 29.1 (10.2)% 69.0 (39.3)%
PBT(5) before
exceptional items(3)(4) 83.3 (4.8)%
PBT(3)(5) 26.9 (53.1)%
Net debt 317.0 28.4%
------------------------------ -------- ----------- ---- -------- ----------- ------------ -----------
Sir Charlie Mayfield, Chairman of John Lewis Partnership,
commented: "Gross sales were up 2.3% in both Waitrose and John
Lewis; a solid performance in a difficult market. Our Group profit
before tax and exceptional items was down 4.8%, but this was
flattered by property profits and after excluding these it was down
17.4%.
As we anticipated in our full year results statement in March,
the first half of this year has seen inflationary pressures driven
by exchange rates and political uncertainty. These have dampened
customer demand, especially in categories connected to the housing
market. Against that backdrop, our market share(6) gains in Fashion
stood out. The exchange rate driven increase in cost prices has
also put pressure on margin. We have chosen to hold back on
increasing prices across many areas.
Our results also reflect the acceleration of our strategy to
ensure the Group's success in the future. This has included:
changing the way we operate Waitrose branches, creating new
flexible team structures with broader responsibilities; further
changes in John Lewis to adapt the business for the future; and
moving from divisional to Group functions across Finance, Personnel
and IT. As a result, we incurred exceptional costs of GBP56.4m.
Given the key role our Partners play, we are very focussed on
managing the risk of these changes carefully.
Sales growth has continued in the first few weeks of the second
half. We are well set for our all-important seasonal peak, but we
expect the headwinds that have dampened consumer demand and put
pressure on margins to continue into next year. In addition, we
will incur higher pension accounting charges in the second half
year, as a result of low market interest rates. These will all
impact our full year profits."
(1) Gross sales includes sale or return sales and VAT
(2) Waitrose like-for-like sales excludes fuel
(3) Includes property profits of GBP0.9m in Waitrose and
GBP10.5m in John Lewis (2016/17: GBP0.5m in Waitrose). Excluding
property profits, operating profit before exceptionals down 17.8%
in Waitrose and up 9.7% in John Lewis, and Group PBT before
exceptionals down 17.4%
(4) Exceptional charges totalling GBP56.4m with GBP12.7m in
Waitrose, GBP21.1m in John Lewis and GBP22.6m in Group.
Restructuring and redundancy costs totalling GBP0.7m in Waitrose,
GBP3.8m in John Lewis and GBP0.6m in Group for 2016/17 were
previously reflected as non-exceptional operating expenses in the
first half of last year and have subsequently been reclassified to
exceptional items
(5) Profit before tax
(6) British Retail Consortium
Financial key points
-- Gross sales growth of 2.3% and increased customer numbers
-- Profit before tax and exceptional items down 4.8% to GBP83.3m
-- Exceptional charge of GBP56.4m mainly for restructuring and
redundancy costs (2016/17: charge of GBP30.1m for the write-down of
property and other assets, and related costs, and for restructuring
and redundancy costs)
-- Net debt of GBP317.0m, GBP125.7m (28.4%) lower than 30 July
2016, reflecting our focus on cash generation and the reduction in
capital investment. Increase in net debt since January 2017 of
GBP170.6m (116.5%), as expected due to seasonality of our cash
flows
-- Accounting pension deficit, net of deferred tax, of
GBP881.3m, GBP23.8m (2.8%) higher than January 2017 with additional
deficit contributions largely offsetting the impact of further
decreases in the real discount rate used to value the liabilities.
The estimated actuarial pension deficit is GBP290m at July 2017
Chairman's overview and strategic update
Group gross sales grew by 2.3% to GBP5.40bn, with Waitrose and
John Lewis gross sales both up by 2.3%, and with both brands
increasing customer numbers as we continued to deliver great
service and launch new brands and products. Our customer net
promoter scores, which measure service experience, remain strong in
both Waitrose and John Lewis.
Group PBT before exceptional items was down 4.8% to GBP83.3m.
Operating profit, before exceptional items and property profits,
was up 10% in John Lewis, while in Waitrose it was down 18%, held
back by lower margin due to higher cost prices, very few of which
were passed on to our customers. We also incurred higher pension
accounting charges(7) due to the effect of lower market interest
rates. Conversely we benefitted from higher property profits and
lower accounting charges for our long leave scheme(7) .
As we explained in our Christmas trading statement in January,
and again in March in our full year results, we are making a number
of changes this year as part of accelerating our strategy to ensure
the Group's future success. In Waitrose branches we are reducing
management numbers and creating new flexible team structures with
broader responsibilities. In John Lewis we are adapting the
business to allow us to better serve our customers as their needs
change. We are also moving from running some of our key support
operations on a divisional basis and consolidating them to create
leaner and more efficient Group functions across Finance, Personnel
and IT. We have incurred exceptional charges of GBP56.4m in the
first half of the year, mainly for restructuring and redundancy
costs.
We have also continued to invest in pay, with the average hourly
rate of pay for non-management Partners increasing to GBP8.87 after
the April 2017 pay review. Since the year end, we have entered into
discussions with HMRC with regards to our pay arrangements which
have technically not complied with the National Minimum Wage
regulations. As we work through this we continue to hold a
provision, as described in our full year results.
(7) Pension accounting charges are GBP9.2m higher and long leave
accounting charges are GBP12.5m lower than the six months ended
July 2016, largely due to volatility in the market driven
assumptions used to determine the respective costs
Our strategy has three main objectives: 1) stronger brands and
new growth; 2) better jobs, for better performing Partners, on
better pay; and 3) financial sustainability.
Stronger brands and new growth
There are three aspects to this objective. The first is
developing an increasingly distinct product proposition loved by
customers. During the first half year we launched our first
in-house denim lifestyle brand for women - AND/OR - and our first
Spring/Summer collection for modern rarity in John Lewis, while in
Waitrose we successfully re-launched our Food to Go range and a
significant proportion of our Ready Meal range. The John Lewis own
brand developments continue to perform comfortably ahead of our
expectations and across the total John Lewis product mix, the John
Lewis brand is the number one in total sales. In Waitrose, our
essential Waitrose brand makes up 21% of sales by volume.
Secondly, we are systematically improving the quality of the
experience and service proposition across both Waitrose and John
Lewis. In Waitrose, 68 of our branches have received investment in
the first half of this year, including the roll-out of fresh sushi
counters which are now in over 50 of our branches. In John Lewis,
large-scale refurbishments are underway in Nottingham and Edinburgh
as well as 43 propositional enhancement projects across our full
estate and our most service-led and experiential shop to date will
open in Oxford in October this year.
Thirdly, we are extending the use of technology to enhance our
ability to engage customers directly in shops and across all
channels. Before our Peak trading period, we will continue the
roll-out of Partner hand-held devices across all of our shops,
which provide product information, stock enquiries and direct
ordering capability, providing a platform for a range of enhanced
customer services. Waitrose has also successfully trialled and will
roll-out multi-functional devices in branches to make life easier
for Partners and increase efficiency. We are also rolling out
'auto-check in' technology across Waitrose to support Click &
Collect, which now accounts for over half of all John Lewis online
orders.
The second half year will see acceleration in all of these
areas, with a major campaign on essential Waitrose, where we are
lowering the price of hundreds of lines, and Only Here - our high
impact visual Autumn/Winter John Lewis campaign, which launched on
1 September.
Better jobs, for better performing Partners, on better pay
We have anticipated major and accelerating changes in the
workplace as a result of technology changing both the way customers
shop and how Partners add most value. It has never been more
important that we equip Partners for the changing nature of work.
We are taking several steps to address this including providing
more time for development and strengthening career development
support.
In the first half year, sales per average FTE(8) Partner
increased by 7.1% to GBP90,200. Partners have worked hard and been
resourceful in achieving this, and were assisted by deployment of
more technology and the introduction of more productive ways to
organise and to operate the Group.
We have continued to invest in pay. Average hourly pay for
non-management Partners increased to GBP8.87 following the pay
review in April.
The second half year will see acceleration across this theme,
including a re-launch of our Partner Development website and the
creation of nine apprenticeship schemes covering areas such as
retail and hospitality management, and distribution operations. We
have already launched LGV Driver and Vehicle Maintenance Technician
apprenticeships and plan to launch another four schemes by the
autumn meaning that we are on track to have 500 apprentices
enrolled by March 2018.
(8) Full time equivalent
Financial sustainability
We continue to target a long-term Debt ratio(9) of around three
times. To strengthen our balance sheet we made GBP83.7m of pension
deficit reduction contributions and acquired the freehold of one of
our trading branches at a cost of GBP22.1m, thereby reducing our
future operating lease commitments. In August 2017, given the
Group's strong liquidity position, we made a cash payment of
GBP53.6m to the pension scheme to prepay approximately five months
of normal contributions. Net debt has reduced by 28.4% compared to
last year.
Despite this, we continue to expect, our Debt ratio to worsen at
January 2018 compared to last year due to the challenging trading
conditions combined with the impact of higher pension accounting
charges and restructuring costs as we adapt the Group for the
future. Our Debt ratio will also be impacted by the accounting
pension deficit at January 2018, which will be determined using
market interest rates at that time.
(9) The Debt ratio is a measure of the Group's total debt
relative to its cash flow and stood at 4.0x on 28 January 2017. For
definition see page 3 of our 2017 Annual Report and Accounts
Outlook 2017/18
For the first six weeks of the second half, Group gross sales
were up 2.4%. Waitrose gross sales were up 1.2% (0.4%
like-for-like, excluding fuel) and John Lewis gross sales were up
4.5% (2.6% like-for-like). We are well set for our all-important
seasonal peak, but expect the headwinds that have dampened consumer
demand and put pressure on margins to continue into next year.
Our full year profits will depend, as they always do, on the
final quarter which typically accounts for well over half of our
profits before exceptional items. We expect margin pressure to
continue into the second half year and we will incur higher pension
accounting charges, as a result of low market interest rates at the
start of the year. These will impact our overall profits.
Financial Results
In the first six months of the year, Group gross sales were
GBP5.40bn, an increase of GBP120.8m, or 2.3%, on last year. Revenue
was GBP4.78bn, up by GBP105.0m or 2.2%.
Group operating profit was GBP69.0m, down GBP44.7m, or 39.3% on
last year. This includes an exceptional charge of GBP56.4m, as
explained in the table below (2016/17 exceptional charge of
GBP30.1m). Group operating profit before exceptional items was
GBP125.4m, down GBP18.4m or 12.8% on last year.
Exceptional items 2017/18 2016/17
GBPm GBPm
Restructuring and redundancy (a) (55.5) (5.1)
Strategic review (b) (0.9) (25.0)
(56.4) (30.1)
-------- --------
a) Charge of GBP55.5m for restructuring and redundancy costs,
principally in relation to our branch, distribution and retail
operations as well as functional restructurings in Finance,
Personnel and IT, as we move from divisional to Group
functions.
b) Charge of GBP0.9m in Waitrose for a further write-down of a
property that is no longer intended to be developed following the
strategic review carried out during the prior year.
Profit before tax was GBP26.9m, down GBP30.5m, or 53.1% on last
year. Excluding the exceptional items it was GBP83.3m, down GBP4.2m
or 4.8%.
Waitrose
Gross sales were up by 2.3% to GBP3.32bn and like-for-like sales
were up 0.7%. Operating profit before exceptional items was down by
17.4%, held back by lower margin due to higher cost prices, very
few of which were passed on to our customers. However this was
offset by strong cost control across Waitrose including significant
improvements in productivity.
Our Head Office costs were down 2.4% on last year and we saw an
improvement in productivity in our shops, with items sold per hour
up by 1.6%. Improved branch productivity is being driven by the
successful roll-out of our flexible working programme. This has
been happening throughout the first half of the year and will be
completed by the end of September. This new model enables Partners
to work across the entire shop where appropriate so that we can be
even more responsive to customer needs. The early signs are
encouraging both in terms of customer feedback and in productivity
uplift.
In line with our strategy of investing more heavily in our
existing estate we are on track to achieve a range of improvements
in 130 of our branches, with 68 having received investment in the
first half of this year. A further 62 are due to receive investment
in the second half of the year.
Food service is an important strategic focus as it gives
customers additional reasons to visit our branches. We have
appointed our first-ever Director of Food Service to build on our
progress to date - which includes sushi counters in over 50
branches - and to develop the capabilities to achieve our potential
in this market. We have also invested significantly in our website,
including in a more efficient and intuitive search facility. Our
e-commerce grocery operation made good progress with our continued
priority of growing our loyal core of online customers helping to
build profitable sales growth of 4.3%. Our convenience shops also
achieved strong results with sales up by 14.6% and 3.3% on a
like-for-like basis.
Overseas, we export Waitrose products to 58 countries, and sales
were up 9.1%, achieved through additional volume with existing
customers.
The essential Waitrose range remains a strong differentiator. We
have just launched a major campaign to remind customers of the
quality and value of essential Waitrose, highlighted by lower
prices on hundreds of lines.
In the half year we opened two convenience shops in Faringdon
and Bromsgrove as well as a core supermarket in Haywards Heath. We
have since opened convenience shops in Addlestone and, today, at
Finchley Central. We closed our convenience shops in Cardiff, Queen
Street and Palmers Green. We will be opening two more branches in
Winchmore Hill and Banbury in the second half and closing four more
branches in line with our previous announcement.
Looking ahead we continue to focus on our Waitrose points of
difference by developing new products and further enhancing our
customer experience through our team of Partners. We are well
placed for Christmas trading with a high quality range of inspiring
and delicious food for the festive period.
John Lewis
In a market that remains challenging, John Lewis has delivered
gross sales of GBP2.07bn, up 2.3% and like-for-like sales up 0.1%.
We have also grown market share and customer numbers. Operating
profit before exceptional items increased by 38.7% to GBP50.2m.
This included property profits of GBP10.5m, and after excluding
these, it grew 9.7% to GBP39.7m.
Sales during the Clearance period were particularly strong, with
a compelling customer offer, up 4.5% compared to last year, with
EHT a standout up 8.1%.
In the first half year, Fashion was up 3.5%, gaining market
share, with standout performances in Womenswear, up 5.8%, and
Beauty, up 10.0%. Despite a tougher market, Home sales remained
flat. EHT was up 2.5%, supported by strong sales in Communication
Technology, up 10.4%, with Wearable Technology, Mobile, and Imaging
performing well.
Online sales represented 37.3% of total merchandise sales, up
from 34.5% last year. We maintained our investment across all
online channels, with the roll-out of mobile-optimised online
buying guides and plans to launch digital myJL gift vouchers
available to customers via our app later this year.
Our shops are an invitation to customers to experience our brand
and as part of our Summer-long National Treasures campaign, we
hosted more than 150 customer events in our shops. These included
customer styling sessions with Vogue, bespoke afternoon tea in our
Wedgwood Tea Room at Peter Jones, and scent and wellbeing
workshops.
We integrated Fashion into our 50,000 sq ft cutting edge
photography and content studio based in Origin Park, London,
enabling us to respond faster than ever to the growing customer
demand for inspirational, design-led content.
Only Here, our high impact visual Autumn/Winter campaign,
launched on 1 September. It supports our ambition for 50% of our
products to be exclusive to John Lewis, and celebrates the very
best of our new season products, collections and brands that can
only be found at John Lewis.
In addition to the roll-out of Partner hand-held devices across
all of our shops, we are introducing new initiatives to enhance the
customer experience including: two hour delivery slots,
self-service Click & Collect kiosks in Waitrose and the ability
to see more detailed product information and branch stock
availability through the John Lewis app.
We are confident that our relentless focus on the customer and
differentiating our brand from our competitors will set us up for
success in the second half, where the majority of our sales and
profit are delivered.
Group
Group includes the net operating costs for our Group offices and
shared services, Group-wide initiatives and transformation
programmes, our JLP Ventures operations, and certain pension
operating costs. Overall net costs (before exceptional items)
increased by GBP11.2m to GBP25.6m, largely due to the increase in
pension operating costs.
Investment in the future
Capital investment in the first half of the year was GBP171.2m,
a decrease of GBP29.3m (14.6%) on the previous year. This includes
GBP22.1m for the acquisition of the freehold for one of our trading
branches, and excluding this, our operating capital investment was
GBP149.1m, a decrease of GBP51.4m (25.6%). We expect our full year
operating capital investment to also remain below the previous
year's spend.
Investment in Waitrose was GBP61.1m, down GBP13.3m (17.9%) on
the previous year, and in John Lewis investment was GBP78.1m, down
GBP37.6m (32.5%). Our investment continues to be focussed in IT and
distribution, which now represents 62% of our operating capital
investment, up from 55% last year.
Pensions
The pension operating cost was GBP107.5m, an increase of
GBP11.1m or 11.5% on the prior year costs, reflecting the
substantial decline in the real discount rate used to determine the
cost to -0.50% at the beginning of the year from 0.70% at the
beginning of the previous year, partly offset by the impact of our
move to a hybrid defined benefit and defined contribution pension
scheme in April last year. Pension finance costs were GBP12.9m, a
decrease of GBP1.9m or 12.8% on the prior year, reflecting a
reduction in the nominal discount rate used to determine the
finance cost at the beginning of the year from the beginning of the
previous year. As a result, total pension costs were GBP120.4m, an
increase of GBP9.2m or 8.3% on the prior year. We expect that our
full year total pension costs will be approximately GBP25m higher
than the previous year.
Following the conclusion of the triennial actuarial valuation of
our defined benefit pension scheme at 31 March 2016, we agreed the
ongoing contribution rate for the defined benefit pension of 10.4%
of members' gross taxable pay, down from 16.4%, and put in place a
plan to eliminate the deficit of GBP479m over a 10 year period. As
a result, in the first half of the year, we made deficit reduction
contributions of GBP83.7m, and our total cash contributions to the
pension scheme totalled GBP138.9m, a decrease of GBP0.4m or 0.3% on
the previous year. At 29 July 2017, the estimated actuarial pension
deficit has reduced to GBP290m.
The total accounting pension deficit at 29 July 2017 was
GBP1,042.3m, an increase of GBP28.6m (2.8%) since 28 January 2017.
Net of deferred tax, the deficit was GBP881.3m, an increase of
GBP23.8m (2.8%). Pension fund assets increased by GBP237.4m (4.7%)
to GBP5,282.7m, while the accounting valuation of pension fund
liabilities increased by GBP266.0m (4.4%) to GBP6,325.0m.
Financing
At 29 July 2017, net debt was GBP317.0m, GBP125.7m (28.4%) lower
than 30 July 2016, reflecting our focus on cash generation and the
reduction in capital investment. Net debt is GBP170.6m (116.5%)
higher than January 2017, as expected due to seasonality of our
cash flows.
Net finance costs on borrowings and investments decreased by
GBP0.6m (2.1%) to GBP28.0m. After including the financing elements
of pensions and long service leave and non-cash fair value
adjustments, net finance costs decreased by GBP14.2m (25.2%) to
GBP42.1m.
Sustainability
We are clear about our responsibilities as a retailer and have
made significant progress across our broad strategic aims: to be
the happiest, healthiest retailer; to enhance community wellbeing;
to source and sell with integrity; and to deliver more with
less.
Waitrose made advances in its aim for all own brand packaging to
be widely recyclable, reusable or home compostable by 2025. We also
donated GBP500,000 from the carrier bag fund to the Marine
Conservation Society to support beach and river clean ups during
2017 and 2018, in addition to our ongoing support for the UK
Dementia Research Institute.
John Lewis continued to demonstrate leadership on the Human
Rights agenda. In August, we released the names and addresses of
the factories where all our own brand clothing, accessories,
footwear and homeware products are made in support of better
transparency in the retail sector as part of the Clean Clothes
Campaign. Further to that, as part of an ambitious circular economy
strategy, through the Furniture Reuse Network, John Lewis also
collected and re-used over 1,000 sofas. We also trialled a
responsible recycling scheme for used laptops, mobile phones,
tablets and PCs, collaborating with the British Heart Foundation as
part of a wider EU initiative to address critical raw material
recycling.
Enquiries
For further information please contact:
John Lewis Partnership
Simon Fowler, Director of Communications, 07710 398460
Sarah Henderson, Group Senior External Communications Manager,
07764 676036
Citigate Dewe Rogerson
Simon Rigby / Jos Bieneman, 020 7638 9571
John Lewis
Gillian Taylor, Head of External Communications, 07919
057931
Katie Robson, Senior External Communications Manager, 07764
675608
Waitrose
Christine Watts, Communications Director, 07764 676414
Graeme Buck, Head of Communications, 07703 379561
Debt investors
Alan Drew, Group Head of Treasury & Corporate Finance, 07525
582955
Lynn Lochhead, Deputy Head of Treasury, 07834 770684
Notes to editors
The John Lewis Partnership operates 48 John Lewis shops across
the UK, johnlewis.com, 353 Waitrose shops, waitrose.com and
business to business contracts in the UK and abroad. The business
has annual gross sales of over GBP11bn. It is the UK's largest
example of an employee-owned business where all 84,000 staff are
Partners in the business.
Waitrose has 353 shops in England, Scotland, Wales and the
Channel Islands, including 65 convenience branches, and another 27
shops at Welcome Break locations. It combines the convenience of a
supermarket with the expertise and service of a specialist shop -
dedicated to offering quality food that has been responsibly
sourced, combined with high standards of customer service. Waitrose
also exports products to 58 countries worldwide and has eight shops
which operate under licence in the Middle East. Waitrose's
omnichannel business includes the online grocery service,
waitrose.com, as well as specialist online shops including
waitrosecellar.com for wine and waitroseflorist.com for plants and
flowers.
In recent months, Waitrose has been awarded the much-coveted
European-wide Compassion in World Farming 'Best Retailer Award',
Soil Association's 'Best Organic Supermarket Award 2017' and The
Drinks Business' 'Retail Buying Team of the Year Award'.
John Lewis operates 48 John Lewis shops across the UK (34
department stores, 12 John Lewis at home and shops at St Pancras
International and Heathrow Terminal 2) as well as johnlewis.com.
John Lewis, 'Best In-Store Experience 2017', 'Best Furniture
Retailer 2017', 'Best Homewares Retailer 2017'* stocks around
350,000 separate lines in its department stores and johnlewis.com
across fashion, home and technology. Johnlewis.com is consistently
ranked one of the top online shopping destinations in the UK. John
Lewis Insurance offers a range of comprehensive insurance products
- home, car, wedding and event, travel and pet insurance and life
cover - delivering the values of expertise, trust and customer
service expected from the John Lewis brand.
* Verdict Consumer Satisfaction Awards 2017
You can follow John Lewis on the following social media
channels:
www.johnlewis.com/twitter
www.johnlewis.com/facebook
www.johnlewis.com/youtube
Consolidated income statement
for the half year ended 29 July 2017
Notes Half year to Half year to Year to
29 July 2017 30 July 2016 28 January 2017
GBPm GBPm GBPm
------ ----------------------------------------------------------- -------------- -------------- -----------------
5 Gross sales 5,395.1 5,274.3 11,374.2
------ ----------------------------------------------------------- -------------- -------------- -----------------
5 Revenue 4,776.4 4,671.4 10,026.2
Cost of sales (3,222.2) (3,095.4) (6,633.1)
------ ----------------------------------------------------------- -------------- -------------- -----------------
Gross profit 1,554.2 1,576.0 3,393.1
Other operating income 53.4 46.4 92.6
Operating expenses before exceptional items and
Partnership Bonus (1,481.3) (1,478.6) (3,010.3)
Share of (loss)/profit of joint venture (net of tax) (0.9) - 0.3
------ ----------------------------------------------------------- -------------- -------------- -----------------
5 Operating profit before exceptional items and Partnership 125.4 143.8 475.7
Bonus
4 Exceptional items (56.4) (30.1) 171.2
------ ----------------------------------------------------------- -------------- -------------- -----------------
5 Operating profit before Partnership Bonus 69.0 113.7 646.9
6 Finance costs (48.5) (57.8) (108.6)
6 Finance income 6.4 1.5 1.9
Profit before Partnership Bonus and tax 26.9 57.4 540.2
Partnership Bonus - - (89.4)
------ ----------------------------------------------------------- -------------- -------------- -----------------
Profit before tax 26.9 57.4 450.8
7 Taxation (7.9) (15.0) (97.9)
------ ----------------------------------------------------------- -------------- -------------- -----------------
Profit for the period 19.0 42.4 352.9
------ ----------------------------------------------------------- -------------- -------------- -----------------
5 Profit before Partnership Bonus, tax and exceptional items 83.3 87.5 369.0
--- ------------------------------------------------------------ ----- ----- ------
Consolidated statement of comprehensive income/(expense)
for the half year ended 29 July 2017
Notes Half year to Half year to Year to
29 July 2017 30 July 2016 28 January 2017
GBPm GBPm GBPm
------- ---------------------------------------------------------- -------------- -------------- -----------------
Profit for the period 19.0 42.4 352.9
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss:
11 Remeasurement of defined benefit pension scheme (82.8) (564.0) (432.6)
7 Movement in deferred tax on pension scheme (2.0) 101.5 46.1
7 Movement in current tax on pension scheme 16.1 - 24.7
Items that may be reclassified subsequently to profit or
loss:
Net (loss)/gain on cash flow hedges (8.7) 14.0 (1.1)
7 Movement in deferred tax on cash flow hedges 1.5 (2.7) 0.3
Loss on currency translations - (0.4) (0.6)
------------------------------------------------------------------ -------------- -------------- -----------------
Other comprehensive expense for the period (75.9) (451.6) (363.2)
------------------------------------------------------------------ -------------- -------------- -----------------
Total comprehensive expense for the period (56.9) (409.2) (10.3)
------------------------------------------------------------------ -------------- -------------- -----------------
Consolidated balance sheet
as at 29 July 2017
Notes 29 July 2017 30 July 2016 28 January 2017
GBPm GBPm GBPm
------ ----------------------------------------- ------------- ------------- ----------------
Non-current assets
8 Intangible assets 448.6 402.1 432.7
8 Property, plant and equipment 4,013.6 4,146.3 4,112.4
Trade and other receivables 60.9 64.6 61.2
14 Derivative financial instruments 2.0 - 0.1
Investment in and loans to joint venture 3.0 - 3.9
Deferred tax asset 56.0 133.6 48.2
------ ----------------------------------------- ------------- ------------- ----------------
4,584.1 4,746.6 4,658.5
------ ----------------------------------------- ------------- ------------- ----------------
Current assets
Inventories 608.1 589.6 627.8
Trade and other receivables 284.1 258.0 242.6
Current tax receivable 1.9 - -
14 Derivative financial instruments 7.2 25.6 15.3
9 Assets held for sale 8.3 6.8 8.1
Short-term investments 60.0 25.0 60.0
Cash and cash equivalents 510.8 403.8 673.7
------ ----------------------------------------- ------------- ------------- ----------------
1,480.4 1,308.8 1,627.5
------ ----------------------------------------- ------------- ------------- ----------------
Total assets 6,064.5 6,055.4 6,286.0
------ ----------------------------------------- ------------- ------------- ----------------
Current liabilities
13 Borrowings and overdrafts - (0.3) -
Trade and other payables (1,521.3) (1,523.6) (1,745.6)
Current tax payable - (17.6) (18.6)
13 Finance lease liabilities (0.9) (1.5) (1.2)
10 Provisions (205.5) (118.3) (167.7)
14 Derivative financial instruments (7.9) (3.5) (7.2)
------ ----------------------------------------- ------------- ------------- ----------------
(1,735.6) (1,664.8) (1,940.3)
------ ----------------------------------------- ------------- ------------- ----------------
Non-current liabilities
13 Borrowings (864.3) (867.9) (862.7)
Trade and other payables (226.6) (218.1) (219.7)
13 Finance lease liabilities (23.0) (23.9) (23.3)
10 Provisions (175.3) (172.5) (171.8)
14 Derivative financial instruments (0.9) - (1.1)
11 Retirement benefit obligations (1,042.3) (1,453.7) (1,013.7)
(2,332.4) (2,736.1) (2,292.3)
------ ----------------------------------------- ------------- ------------- ----------------
Total liabilities (4,068.0) (4,400.9) (4,232.6)
------ ----------------------------------------- ------------- ------------- ----------------
Net assets 1,996.5 1,654.5 2,053.4
------ ----------------------------------------- ------------- ------------- ----------------
Equity
Share capital 6.7 6.7 6.7
Share premium 0.3 0.3 0.3
Other reserves 1.8 21.3 9.0
Retained earnings 1,987.7 1,626.2 2,037.4
Total equity 1,996.5 1,654.5 2,053.4
------ ----------------------------------------- ------------- ------------- ----------------
Consolidated statement of changes in equity
for the half year ended 29 July 2017
Notes Share Share Capital Hedging Foreign Retained Total
capital premium reserve reserve currency earnings equity
translation
reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ---------------------------------- -------- -------- -------- -------- ------------ --------- --------
Balance at 30 January 2016 6.7 0.3 1.4 8.9 0.1 2,046.3 2,063.7
Profit for the period - - - - - 42.4 42.4
11 Remeasurement of defined benefit - - - - - (564.0) (564.0)
pension scheme
Fair value gains on cash flow hedges - - - 21.1 - - 21.1
- transfers to inventories - - - (7.5) - - (7.5)
* transfers to property,
plant and equipment - - - 0.4 - - 0.4
Tax on above items recognised in equity - - - (2.7) - 101.5 98.8
Loss on currency translations - - - - (0.4) - (0.4)
Balance at 30 July 2016 6.7 0.3 1.4 20.2 (0.3) 1,626.2 1,654.5
------------------------------------------ -------- -------- -------- -------- ------------ --------- --------
Balance at 30 January 2016 6.7 0.3 1.4 8.9 0.1 2,046.3 2,063.7
Profit for the year - - - - - 352.9 352.9
11 Remeasurement of defined benefit - - - - - (432.6) (432.6)
pension scheme
Fair value losses on cash flow hedges - - - (30.3) - - (30.3)
- transfers to inventories - - - 28.2 - - 28.2
- transfers to property,
plant and equipment - - - 1.0 - - 1.0
Tax on above items recognised in equity - - - 0.3 - 70.8 71.1
Loss on currency translations - - - - (0.6) - (0.6)
------------------------------------------ -------- -------- -------- -------- ------------ --------- --------
Balance at 28 January 2017 6.7 0.3 1.4 8.1 (0.5) 2,037.4 2,053.4
Profit for the period - - - - - 19.0 19.0
11 Remeasurement of defined benefit - - - - - (82.8) (82.8)
pension scheme
Fair value losses on cash flow hedges - - - (1.4) - - (1.4)
- transfers to inventories - - - (7.3) - - (7.3)
Tax on above items recognised in equity - - - 1.5 - 14.1 15.6
Balance at 29 July 2017 6.7 0.3 1.4 0.9 (0.5) 1,987.7 1,996.5
------------------------------------------ -------- -------- -------- -------- ------------ --------- --------
Consolidated statement of cash flows
for the half year ended 29 July 2017
Notes Half year to Half year to Year to
29 July 2017 30 July 2016 28 January 2017
GBPm GBPm GBPm
------- ---------------------------------------------------------- -------------- -------------- -----------------
12 Cash generated from operations before Partnership Bonus 182.9 203.7 908.2
Net taxation paid (21.4) (25.3) (49.8)
Pension deficit reduction payments (83.7) - (124.8)
Finance costs paid (0.5) (0.6) (2.4)
Net cash generated from operating activities before Partnership
Bonus 77.3 177.8 731.2
------------------------------------------------------------------ -------------- -------------- -----------------
Partnership Bonus paid (89.1) (144.5) (144.8)
------------------------------------------------------------------ -------------- -------------- -----------------
Net cash (used in)/generated from operating activities after
Partnership Bonus (11.8) 33.3 586.4
------------------------------------------------------------------ -------------- -------------- -----------------
Cash flows from investing activities
Purchase of property, plant and equipment (102.0) (131.2) (265.6)
Purchase of intangible assets (69.2) (69.3) (153.7)
Proceeds from sale of property, plant and equipment and
intangible assets 45.0 1.9 13.7
Finance income received 0.6 1.1 1.7
Cash outflow from investment in and loans to joint venture - - (3.6)
Cash outflow from short-term investments - (15.0) (50.0)
Net cash used in investing activities (125.6) (212.5) (457.5)
------------------------------------------------------------------ -------------- -------------- -----------------
Cash flows from financing activities
Finance costs paid in respect of bonds (23.0) (24.9) (56.0)
Finance costs paid in respect of interest rate swaps (1.9) - -
Payment of capital element of finance leases (0.6) (1.9) (2.8)
Payments to preference shareholders - - (0.4)
Cash outflow from borrowings - (57.8) (63.4)
Net cash used in financing activities (25.5) (84.6) (122.6)
------------------------------------------------------------------ -------------- -------------- -----------------
(Decrease)/increase in net cash and cash equivalents (162.9) (263.8) 6.3
Net cash and cash equivalents at beginning of the period 673.7 667.3 667.3
Effect of exchange rate changes on cash and cash equivalents - - 0.1
------------------------------------------------------------------ -------------- -------------- -----------------
Net cash and cash equivalents at end of the
period 510.8 403.5 673.7
------------------------------------------------------------------ -------------- -------------- -----------------
Net cash and cash equivalents comprise:
Cash at bank and in hand 119.5 117.0 115.2
Short-term deposits 391.3 286.8 558.5
Bank overdrafts - (0.3) -
510.8 403.5 673.7
------------------------------------------------------------------ -------------- -------------- -----------------
Notes to the financial statements
1 Basis of preparation
This condensed set of interim financial statements was approved
by the Board on 13 September 2017. The condensed set of interim
financial statements is unaudited, but has been reviewed by the
auditor and their review report is set out on page 29. They do not
comprise statutory accounts within the meaning of Section 434 of
the Companies Act 2006. The comparative information for the half
year to or as at 30 July 2016 has not been audited, but has been
reviewed in accordance with the International Standard on Review
Engagements (UK and Ireland) 2410.
The results for the half year to 29 July 2017 have been prepared
using the discrete period approach, considering the half year as an
accounting period in isolation. The tax charge is based on the
effective rate estimated for the full year, which has been applied
to the profits in the first half year.
The Group's published financial statements for the year ended 28
January 2017 has been reported on by the Group's auditor and filed
with the Registrar of Companies. The report of the auditor was
unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under section 498 of the Companies
Act 2006.
This condensed set of interim financial statements for the half
year ended 29 July 2017 has been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and IAS 34 'Interim Financial Reporting' as adopted by
the European Union. The condensed set of interim financial
statements should be read in conjunction with the Annual Report and
Accounts for the year ended 28 January 2017, which has been
prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union.
Going concern
Having reviewed the Group's principal risks, operating budgets,
investment plans and financing arrangements, the Directors are
satisfied that it is appropriate to adopt the going concern basis
in preparing the condensed set of interim financial statements.
Supplier income
Within trade receivables is accrued rebate income of GBP23.9m
(28 January 2017: GBP9.8m, 30 July 2016: GBP18.6m). During the
interim period, supplier income was received in line with estimates
recorded at 28 January 2017. There has been no change in the
criteria used to recognise supplier income, though at the half year
specific judgement is required to estimate the amount that will be
received from suppliers in relation to annual agreements. These
judgements have been based on management's best estimates of full
year purchases using the latest information available.
2 Accounting policies
The Group's results for the half year to 29 July 2017 have been
prepared on a basis consistent with the Group's accounting policies
published in the financial statements for the year ended 28 January
2017.
Restatement
In assessing whether income and expense items met the Group's
criteria as exceptional for the year to 28 January 2017,
restructuring and redundancy costs totalling GBP0.7m in Waitrose,
GBP3.8m in John Lewis and GBP0.6m in Partnership Services and Group
which were reflected as non-exceptional operating expenses in the
half year to 30 July 2016, were subsequently reclassified to
exceptional. This has resulted in an increase in Exceptional items
from GBP25.0m as previously reported to GBP30.1m and an increase in
Operating profit before exceptional items and Partnership Bonus
from GBP138.7m as previously reported to GBP143.8m as at 30 July
2016.
3 Risks and uncertainties
The principal and other significant risks and uncertainties
affecting the Group were identified as part of the Group Strategic
Report, set out on pages 32 to 35 of the John Lewis Partnership
Annual Report and Accounts 2017, a copy of which is available on
the Partnership's website www.johnlewispartnership.co.uk.
The Partnership has a formal risk identification process, which
includes a rigorous analysis of internal and external risks both at
a Divisional Board and Partnership Board level. The Partnership
added one further risk to its principal risk portfolio, Ownership
model strain, with all other risks remaining relevant for the
second half of the financial year.
-- Competition: failure to deliver our customer promise and not
maintain our competitive advantage due to: competitor actions
putting pressure on market value, our margin and threatening our
volumes in grocery; and the growth of online business models in the
general merchandise sector, mean customers focus more on value for
money and less on loyalty;
-- Operating model strain: increasing external pressures such as
the ongoing move to online and increased spend on IT (depreciation)
create strain on our operating model;
-- Information security: a breach of Partner or customer data
due to the external threat to cause disruption or access sensitive
data;
-- Pension obligations: increases in the pension liabilities,
driven by an increase in the real discount rate for example, and a
significant devaluation in the assets being held could cause a
significant increase in the size of the pension deficit;
-- Change delivery: the complex nature and scale of
interdependencies of the change programmes may affect our ability
to implement programmes/projects to time, budget and quality,
ability to manage, and ability to embed the change into the
business and realise the benefits;
-- Economic environment: external economic pressures, due to the
impact of government policy, Brexit, a static economy and a lack of
pay increases, reduce our customers' spending power and harm our
suppliers' financial resilience; and
-- Ownership model strain: decisions and leadership actions
undertaken in the current commercial context, whilst securing the
economic success of the business, could unconsciously impact
Partners' belief in, and commitment to, our co-ownership model. The
resulting reduction in Partner engagement could compromise
individual Partner performance, collective productivity and brand
advocacy (Principle 1), thus losing the competitive advantage of
our co-ownership model.
4 Exceptional items
Half year to Half year to Year to
29 July 2017 30 July 2016 28 January 2017
Operating Operating Operating
expenses Taxation expenses Taxation (expenses)/income Taxation
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ---------- --------- ---------- --------- ------------------- ---------
Restructuring and redundancy (a) (55.5) 10.2 (5.1) 1.0 (20.7) 3.9
Strategic review (b) (0.9) - (25.0) - (42.9) 5.1
Reduction in pension obligation (c) - - - - 270.0 (48.6)
Pay provision (d) - - - - (36.0) 7.1
Profit on disposal of items previously
recognised as exceptional (e) - - - - 0.8 (0.1)
(56.4) 10.2 (30.1) 1.0 171.2 (32.6)
---------------------------------------- ---------- --------- ---------- --------- ------------------- ---------
At 29 July 2017, the Group recognised an exceptional charge of
GBP56.4m, as follows:
a) A charge of GBP55.5m for restructuring and redundancy costs,
principally in relation to our branch, distribution and retail
operations as well as functional restructurings in Finance,
Personnel and IT, as we move from divisional to Group
functions.
b) A charge of GBP0.9m in Waitrose for a further write-down of a
property that is no longer intended to be developed following the
strategic review carried out during the prior year.
At 28 January 2017, the Group recognised the following items as
exceptional income and expenses:
a) Exceptional restructuring and redundancy costs of GBP20.7m
were recognised principally in relation to distribution and contact
centres and head office operations.
b) Following a strategic review, the Group recognised an
exceptional charge of GBP42.9m in Waitrose. This is in relation to
the write-down of property, other assets and related costs that are
no longer intended to be developed or are now being exited.
GBP27.5m relates to strategic land holdings, GBP13.9m relates to
stores, and abortive property project costs and GBP1.5m relates to
other assets.
c) On 20 January 2017, the Group announced a change to the
annual discretionary increase for pension in retirement built up
before 6 April 1997, resulting in an exceptional past service
credit in the year to 28 January 2017 of GBP270.0m.
d) An exceptional charge of GBP36.0m was recorded in relation to
payments and associated costs in connection with some of our pay
practices which have technically not complied with the National
Minimum Wage (NMW) Regulations. This charge principally relates to
payments that are required to be made to recipient Partners and
former Partners for the previous six years. This has come about in
the main because our pay averaging arrangements do not meet the
strict timing requirements of the NMW Regulations; although
Partners will, over the course of a year, usually have received the
correct pay, in some months where greater than average hours are
worked they will have been paid less than the hourly rate
stipulated in the NMW Regulations.
Since the 28 January 2017 year end, the Group has entered into
discussions with HMRC with regards to our pay arrangements. The
complexity involved in applying the NMW Regulations to our pay
arrangements means that the ultimate resolution of the liability
may result in an amount that is different from our best estimate
and any difference will be reflected in the period in which new
information becomes available.
e) Exceptional operating income of GBP0.8m was recognised on
finalisation of a prior year property disposal, which was
previously recorded as exceptional.
In assessing whether income and expense items met the Group's
criteria as exceptional for the year to 28 January 2017,
restructuring and redundancy costs totalling GBP0.7m in Waitrose,
GBP3.8m in John Lewis and GBP0.6m in Partnership Services and Group
which were reflected as non-exceptional operating expenses in the
half year to 30 July 2016, were subsequently reclassified to
exceptional. Refer to note 2 for further details.
5 Segmental reporting
The Group's three reporting segments are Waitrose, John Lewis
and Group. The activities of Partnership Services became part of
the responsibility of the Group Division on 29 January 2017. Prior
to this, the Group reporting segment was known as Partnership
Services and Group. The Group reporting segment includes the
operating costs for our Group offices and shared services, costs
for transformation programmes, our JLP Ventures operations, and
certain pension operating costs. The operating profit of each
segment is reported after charging relevant Group costs based on
the business segments' usage of these facilities and services, and
after exceptional items.
Waitrose's business is not subject to highly seasonal
fluctuations although there is an increase in trading in the fourth
quarter of the year. There is a more marked increase in the fourth
quarter for the John Lewis business.
Waitrose John Lewis Group Total
GBPm GBPm GBPm GBPm
------------------------------------- --------- ----------- ------- ---------
Half year to 29 July 2017
Gross sales 3,324.2 2,070.9 - 5,395.1
Adjustment for sale or return
sales - (110.4) - (110.4)
Value added tax (193.1) (315.2) - (508.3)
------------------------------------- --------- ----------- ------- ---------
Revenue 3,131.1 1,645.3 - 4,776.4
------------------------------------- --------- ----------- ------- ---------
Operating profit before exceptional
items, Partnership Bonus
and profit on sale of property(1) 99.9 39.7 (25.6) 114.0
Profit on sale of property 0.9 10.5 - 11.4
------------------------------------- --------- ----------- ------- ---------
Operating profit before exceptional
items and Partnership Bonus 100.8 50.2 (25.6) 125.4
Exceptional items (12.7) (21.1) (22.6) (56.4)
------------------------------------- --------- ----------- ------- ---------
Operating profit before Partnership
Bonus 88.1 29.1 (48.2) 69.0
Finance costs (48.5)
Finance income 6.4
Profit before tax 26.9
Taxation (7.9)
------------------------------------- --------- ----------- ------- ---------
Profit for the period 19.0
------------------------------------- --------- ----------- ------- ---------
Profit before Partnership
Bonus, tax and exceptional
items 83.3
-------------------------------- -----
29 July 2017
Segment assets 2,865.4 2,066.3 1,132.8 6,064.5
Segment liabilities (772.9) (803.5) (2,491.6) (4,068.0)
-------------------------- -------- -------- ---------- ----------
Net assets/(liabilities) 2,092.5 1,262.8 (1,358.8) 1,996.5
-------------------------- -------- -------- ---------- ----------
(1) Included within Operating profit before exceptional items,
Partnership Bonus and profit on sale of property is a share of loss
of joint venture of GBP0.9m (28 January 2017: GBP0.3m profit; 30
July 2016: GBPnil).
Waitrose John Lewis Partnership Total
Services
and Group
GBPm GBPm GBPm GBPm
------------------------------------- --------- ----------- ------------ --------
Half year to 30 July 2016
Gross sales 3,250.6 2,023.7 - 5,274.3
Adjustment for sale or return
sales - (106.7) - (106.7)
Value added tax (186.2) (310.0) - (496.2)
------------------------------------- --------- ----------- ------------ --------
Revenue 3,064.4 1,607.0 - 4,671.4
------------------------------------- --------- ----------- ------------ --------
Operating profit before exceptional
items, Partnership Bonus
and profit on sale of property 121.5 36.2 (14.4) 143.3
Profit on sale of property 0.5 - - 0.5
------------------------------------- --------- ----------- ------------ --------
Operating profit before exceptional
items and Partnership Bonus 122.0 36.2 (14.4) 143.8
Exceptional items (25.7) (3.8) (0.6) (30.1)
------------------------------------- --------- ----------- ------------ --------
Operating profit before Partnership
Bonus 96.3 32.4 (15.0) 113.7
Finance costs (57.8)
Finance income 1.5
Profit before tax 57.4
Taxation (15.0)
------------------------------------- --------- ----------- ------------ --------
Profit for the period 42.4
------------------------------------- --------- ----------- ------------ --------
Profit before Partnership
Bonus, tax and exceptional
items 87.5
-------------------------------- -----
30 July 2016
Segment assets 2,955.9 2,096.8 1,002.7 6,055.4
Segment liabilities (777.4) (790.1) (2,833.4) (4,400.9)
-------------------------- -------- -------- ---------- ----------
Net assets/(liabilities) 2,178.5 1,306.7 (1,830.7) 1,654.5
-------------------------- -------- -------- ---------- ----------
Waitrose John Lewis Partnership Total
Services
and Group
GBPm GBPm GBPm GBPm
------------------------------------- --------- ----------- ------------ ----------
Year to 28 January 2017
Gross sales 6,633.2 4,741.0 - 11,374.2
Adjustment for sale or return
sales - (229.2) - (229.2)
Value added tax (387.7) (731.1) - (1,118.8)
------------------------------------- --------- ----------- ------------ ----------
Revenue 6,245.5 3,780.7 - 10,026.2
------------------------------------- --------- ----------- ------------ ----------
Operating profit before exceptional
items, Partnership Bonus
and profit on sale of property(1) 252.7 241.5 (21.0) 473.2
Profit on sale of property 0.8 1.7 - 2.5
------------------------------------- --------- ----------- ------------ ----------
Operating profit before exceptional
items and Partnership Bonus 253.5 243.2 (21.0) 475.7
Exceptional items (47.3) (11.8) 230.3 171.2
------------------------------------- --------- ----------- ------------ ----------
Operating profit before Partnership
Bonus 206.2 231.4 209.3 646.9
Finance costs (108.6)
Finance income 1.9
Partnership Bonus (89.4)
------------------------------------- --------- ----------- ------------ ----------
Profit before tax 450.8
Taxation (97.9)
------------------------------------- --------- ----------- ------------ ----------
Profit for the year 352.9
------------------------------------- --------- ----------- ------------ ----------
Profit before Partnership
Bonus, tax and exceptional
items 369.0
-------------------------------- ------
28 January 2017
Segment assets 2,946.1 2,136.9 1,203.0 6,286.0
Segment liabilities (789.5) (908.7) (2,534.4) (4,232.6)
-------------------------- -------- -------- ---------- ----------
Net assets/(liabilities) 2,156.6 1,228.2 (1,331.4) 2,053.4
-------------------------- -------- -------- ---------- ----------
(1) Included within Operating profit before exceptional items,
Partnership Bonus and profit on sale of property is a share of
profit of joint venture of GBP0.3m.
6 Net finance costs
Half year Half year Year to
to to 28 January
29 July 2017 30 July 2016 2017
GBPm GBPm GBPm
----------------------------------------- -------------- -------------- ------------
Finance costs
Finance costs in respect of borrowings (30.9) (29.4) (58.8)
Fair value measurements and other (1.2) (2.4) (2.8)
Net finance costs arising on defined
benefit and other
employee benefit schemes (16.4) (26.0) (47.0)
----------------------------------------- -------------- -------------- ------------
Total finance costs (48.5) (57.8) (108.6)
----------------------------------------- -------------- -------------- ------------
Finance income
Finance income in respect of cash
and short-term
Investments 2.9 0.8 1.7
Fair value measurements and other 3.5 0.7 0.2
Total finance income 6.4 1.5 1.9
----------------------------------------- -------------- -------------- ------------
Net finance costs (42.1) (56.3) (106.7)
----------------------------------------- -------------- -------------- ------------
Half year Half year Year to
to to 28 January
29 July 2017 30 July 2016 2017
GBPm GBPm GBPm
----------------------------------------- -------------- -------------- ------------
Finance costs in respect of borrowings,
excluding interest rate swaps (28.9) (29.4) (58.8)
Net interest receivable in respect 0.3 - -
of interest rate swaps
Finance income in respect of cash
and short-term
investments, excluding interest
rate swaps 0.6 0.8 1.7
----------------------------------------- -------------- -------------- ------------
Net finance costs in respect of
borrowings and short-
term investments (28.0) (28.6) (57.1)
Fair value measurements and other 2.3 (1.7) (2.6)
Net finance costs arising on defined
benefit retirement
Scheme (12.9) (26.0) (29.6)
Net finance costs arising on other
employee benefit
Schemes (3.5) - (17.4)
----------------------------------------- -------------- -------------- ------------
Net finance costs (42.1) (56.3) (106.7)
----------------------------------------- -------------- -------------- ------------
7 Income taxes
Income tax expense is recognised based on management's best
estimate of the full year effective tax rate based on estimated
full year profits. Legislation to reduce the standard rate of
corporation tax from 18% to 17% from 1 April 2020 was included in
the Finance Bill 2016 and substantively enacted on 6 September
2016.
8 Property, plant and equipment and Intangible assets
Property, plant Intangible Total
and equipment assets
GBPm GBPm GBPm
-------------------------------- ---------------- ----------- --------
Net book value at 28 January
2017 4,112.4 432.7 4,545.1
Additions 88.2 69.2 157.4
Depreciation and amortisation
* (153.4) (53.3) (206.7)
Disposals and write-offs (25.3) - (25.3)
Transfers to assets held for
sale (8.3) - (8.3)
Net book value at 29 July 2017 4,013.6 448.6 4,462.2
-------------------------------- ---------------- ----------- --------
* Depreciation and amortisation for the period ending 29 July
2017 includes a net impairment charge of GBP8.2m (GBP9.0m net
impairment charge to land and buildings, and GBP0.8m net impairment
reversal to intangible assets).
Intangible assets primarily relate to internally developed
computer software.
The impairment review methodology is unchanged from that
described in the Annual Report and Accounts for the year ended 28
January 2017.
Key assumptions in the calculations are the discount rate,
long-term growth rate and expected sales performance and branch
costs. The discount rate is based on the Group's pre-tax weighted
average cost of capital of 7% to 8% (28 January 2017: 7% to 9%; 30
July 2016: 8% to 9%).
9 Assets held for sale
At 29 July 2017, one property asset is recorded as held for sale
totalling GBP8.3m in the Waitrose Division. It is expected to be
disposed of within 12 months.
At 28 January 2017, one property asset was recorded as held for
sale totalling GBP8.1m in the John Lewis Division. The property
asset was sold in March 2017.
At 30 July 2016, two property assets were recorded as held for
sale totalling GBP6.8m. One property asset was disposed of in
December 2016 in the John Lewis Division and one property asset was
disposed of in August 2016 in the Waitrose Division.
10 Provisions
Long Service Customer Insurance Reorganisation Other Total
leave guarantee refunds claims
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ----------- --------- ---------- --------------- ------ --------
At 28 January 2017 (140.1) (64.8) (35.1) (26.3) (16.5) (56.7) (339.5)
------------------------------ -------- ----------- --------- ---------- -------------- ------- --------
Charged to income statement (6.3) (7.4) (31.4) (9.8) (52.4) (6.5) (113.8)
Released to income statement - 2.8 - - 3.1 1.6 7.5
Utilised 3.4 6.7 35.1 3.6 9.9 6.3 65.0
At 29 July 2017 (143.0) (62.7) (31.4) (32.5) (55.9) (55.3) (380.8)
Of which:
Current (30.2) (22.8) (31.4) (17.2) (55.3) (48.6) (205.5)
Non-current (112.8) (39.9) - (15.3) (0.6) (6.7) (175.3)
------------------------------ -------- ----------- --------- ---------- -------------- ------- --------
The Group has a long leave scheme, open to all Partners, which
provides up to six months paid leave after 25 years' service. There
is no proportional entitlement for shorter periods of service. The
provision for the liabilities under the scheme is assessed on an
actuarial basis, reflecting Partners' expected service profiles,
and using economic assumptions consistent with those used for the
Group's retirement benefits, with the exception of the discount
rate, where a rate appropriate to the shorter duration of the long
leave liability is used, so as to accrue the cost over Partners'
service periods.
Provisions for service guarantee costs reflect the Group's
expected liability for future repair costs for warranties and
extended warranties based on estimated failure rates and unit
repair costs for the classes of goods sold.
Provisions for customer refunds reflect the Group's expected
liability for returns of goods sold based on experience of rates of
return.
Provisions for insurance claims are in respect of the Group's
employer's, public and vehicle third-party liability insurances and
extended warranty products.
Provisions for insurance claims are based on reserves held in
the Group's captive insurance company, JLP Insurance Limited. These
reserves are established using independent actuarial assessments
wherever possible, or a reasonable assessment based on past claims
experience.
Provisions for reorganisations reflect restructuring and
redundancy costs, principally in relation to our branch,
distribution and retail operations as well as functional
restructurings as we move from divisional to Group functions.
Other provisions include property related costs and pay
provisions.
The exact timing of utilisation of these provisions will vary
according to the individual circumstances. However, the Group's
best estimate of utilisation is provided above.
11 Retirement benefit obligations
The pension scheme operated by the Group is the John Lewis
Partnership Trust for Pensions. The scheme includes a funded final
salary defined benefit pension scheme, providing pension and death
benefits to members, and is open to new members. All contributions
to the defined benefit section of the scheme are funded by the
Group. The pension scheme also includes a defined contribution
section. Contributions to the defined contribution section of the
scheme are made by both Partners and the Group.
Pension commitments have been calculated based on the most
recent actuarial valuations, as at 31 March 2016, which have been
updated by the actuaries to reflect the assets and liabilities of
the scheme as at 29 July 2017. The next triennial actuarial
valuation of the scheme will take place as at 31 March 2019.
Scheme assets are stated at market value at 29 July 2017.
The following financial assumptions have been used:
29 July 2017 30 July 2016 28 January
2017
Discount rate 2.60% 2.45% 2.90%
Future retail price inflation
(RPI) 3.15% 2.70% 3.40%
Future consumer price inflation
(CPI) 2.15% 1.70% 2.40%
Increase in earnings 3.30% 3.17% 3.50%
Increase in pensions - in payment
Pre-April 1997 1.65% 2.60% 1.75%
April 1997 - April 2016 2.95% 2.60% 3.10%
Post-April 2016 1.65% 1.45% 1.75%
Increase in pensions - deferred 2.15% 1.70% 2.40%
----------------------------------- ------------- ------------- -----------
The movement in the net defined benefit liability in the period
is as follows:
Half year Half year Year to
to to 28 January
29 July 2017 30 July 2016 2017
GBPm GBPm GBPm
-------------------------------------- -------------- -------------- ------------
Net defined benefit liability
at beginning of period (1,013.7) (941.6) (941.6)
Operating (cost)/credit (71.8) (72.6) 140.9
Interest cost on pension liabilities (86.9) (94.4) (187.9)
Interest income on assets 74.0 79.6 158.3
Contributions 138.9 139.3 249.2
Total losses recognised in equity (82.8) (564.0) (432.6)
-------------------------------------- -------------- -------------- ------------
Net defined benefit liability
at end of period (1,042.3) (1,453.7) (1,013.7)
-------------------------------------- -------------- -------------- ------------
The post-retirement mortality assumptions used in valuing the
pension liabilities were based on the 'S2 Light' (28 January 2017:
'S2 Light'; 30 July 2016: 'S2 Light') series standard tables. Based
on scheme experience, the probability of death at each age was
multiplied by 127% for males and 106% for females (28 January 2017:
127% for males and 106% for females; 30 July 2016: 127% for males
and 106% for females). Future improvements in life expectancy have
been allowed for in line with the standard CMI model projections
subject to a long-term trend of 1.25% (28 January 2017: 1.25%; 30
July 2016: 1.25%).
The average life expectancies were as follows:
29 July 2017 28 January 2017
Men Women Men Women
----------------------------------------------------------------- ------ ------- -------- --------
Average life expectancy for a 65 year old (in years) 21.6 24.1 21.6 24.1
Average life expectancy at age 65, for a 50 year old (in years) 22.8 25.5 22.8 25.5
----------------------------------------------------------------- ------ ------- -------- --------
12 Reconciliation of profit before tax to cash generated from operations before Partnership Bonus
Half year Half year Year to
to to 28 January
29 July 30 July 2016 2017
2017
GBPm GBPm GBPm
----------------------------------------- ---------- -------------- ------------
Profit before tax 26.9 57.4 450.8
Amortisation of intangible assets* 53.3 55.0 108.8
Depreciation* 153.4 171.9 319.7
Share of loss/(profit) of joint venture
(net of tax) 0.9 - (0.3)
Net finance costs 42.1 56.3 106.7
Partnership Bonus - - 89.4
Fair value losses/(gains) on derivative
financial instruments 1.3 (1.0) (1.9)
(Profit)/loss on disposal of property,
plant and equipment and intangible
assets (11.6) 3.8 (0.3)
Decrease/(increase) in inventories 19.7 32.3 (5.9)
Increase in receivables (39.8) (33.6) (15.4)
(Decrease)/increase in payables (117.7) (61.5) 89.6
Increase/(decrease) in retirement
benefit obligations 16.6 (66.7) (265.3)
Increase/(decrease) in provisions 37.8 (10.2) 32.3
----------------------------------------- ---------- -------------- ------------
Cash generated from operations before
Partnership Bonus 182.9 203.7 908.2
----------------------------------------- ---------- -------------- ------------
* Includes net impairment charges and reversals. Refer to note
8.
13 Analysis of net debt
28 January Cash flow Other non- 29 July
2017 cash movements 2017
GBPm GBPm GBPm GBPm
---------------------------------- ----------- ---------- ---------------- --------
Non-current assets
Derivative financial instruments 0.1 - 1.9 2.0
0.1 - 1.9 2.0
---------------------------------- ----------- ---------- ---------------- --------
Current assets
Cash and cash equivalents 673.7 (162.9) - 510.8
Short-term investments 60.0 - - 60.0
Derivative financial instruments 15.3 9.1 (17.2) 7.2
749.0 (153.8) (17.2) 578.0
---------------------------------- ----------- ---------- ---------------- --------
Current liabilities
Finance leases (1.2) 0.6 (0.3) (0.9)
Derivative financial instruments (7.2) (1.7) 1.0 (7.9)
---------------------------------- ----------- ---------- ---------------- --------
(8.4) (1.1) 0.7 (8.8)
---------------------------------- ----------- ---------- ---------------- --------
Non-current liabilities
Borrowings (875.0) - - (875.0)
Unamortised bond transaction
costs 12.3 - (0.7) 11.6
Fair value adjustment for
hedged element on bonds - - (0.9) (0.9)
Finance leases (23.3) - 0.3 (23.0)
Derivative financial instruments (1.1) - 0.2 (0.9)
(887.1) - (1.1) (888.2)
---------------------------------- ----------- ---------- ---------------- --------
Total net debt (146.4) (154.9) (15.7) (317.0)
---------------------------------- ----------- ---------- ---------------- --------
Reconciliation of net cash flow to net debt
Half year to Half year to Year to
29 July 2017 30 July 2016 28 January
2017
GBPm GBPm GBPm
------------------------------ -------------- -------------- ------------
(Decrease)/increase in net
cash and cash equivalents
in the period (162.9) (263.8) 6.3
Cash outflow from movement
in debt, lease financing
and derivative financial
instruments 8.0 59.7 95.4
Cash outflow from short-term
investments - 15.0 50.0
------------------------------ -------------- -------------- ------------
Movement in net debt for
the period (154.9) (189.1) 151.7
Opening net debt (146.4) (266.0) (266.0)
Non-cash movements (15.7) 12.4 (32.1)
------------------------------ -------------- -------------- ------------
Closing net debt (317.0) (442.7) (146.4)
------------------------------ -------------- -------------- ------------
14 Management of financial risks
The principal financial risks to which the Group is exposed are
capital and long term funding risk, liquidity risk, interest rate
risk, foreign currency risk, credit risk, and energy risk.
This condensed set of interim financial statements does not
include all risk management information and disclosures required in
the annual financial statements and should be read in conjunction
with the Annual Report and Accounts for the year ended 28 January
2017. During the half year to 29 July 2017, the Group has continued
to apply the financial risk management process and policies as
detailed in the Annual Report and Accounts for the year ended 28
January 2017.
Valuation techniques and assumptions applied in determining the
fair value of each class of asset or liability are consistent with
those used as at 28 January 2017 and reflect the current economic
environment.
Fair value estimation
The different levels per the IFRS 13 fair value hierarchy have
been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities
Level 2: Inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from
prices)
Level 3: Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs)
During the half year to 29 July 2017, there have been no
transfers between any levels of the IFRS 13 fair value hierarchy
and there were no reclassifications of financial assets as a result
of a change in the purpose or use of those assets.
The fair value of a derivative financial instrument represents
the difference between the value of the outstanding contracts at
their contracted rates and a valuation calculated using the forward
rates of exchange and interest rates prevailing at the balance
sheet date. The fair value of the derivative financial instruments
held by the Group are classified as Level 2 under the IFRS 13 fair
value hierarchy, as all significant inputs to the valuation model
used are based on observable market data and are not traded in an
active market. At 29 July 2017, the net fair value of derivative
financial instruments was GBP0.4m, asset (28 January 2017: GBP7.1m,
asset; 30 July 2016: GBP22.1m, asset).
The following table compares the Group's liabilities held at
amortised cost, where there is a difference between carrying value
(CV) and fair value (FV):
29 July 2017 30 July 2016 28 January 2017
GBPm GBPm GBPm GBPm GBPm GBPm
CV FV CV FV CV FV
----------------------- -------- -------- -------- ---------- -------- --------
Financial liabilities
Listed bonds (863.4) (989.5) (865.7) (1,006.9) (862.7) (997.3)
Preference Stock - - (2.3) (2.0) - -
----------------------- -------- -------- -------- ---------- -------- --------
The fair values of the Group's listed bonds and Preference Stock
have been determined by reference to market price quotations and
classified as Level 1 under the IFRS 13 fair value hierarchy. In
November 2016, the Group cancelled and repaid its 5% first and 7%
Cumulative Preference Stock. For other financial assets and
liabilities, there are no material differences between carrying
value and fair value.
15 Capital commitments
At 29 July 2017 contracts had been entered into for future
capital expenditure of GBP28.6m (28 January 2017: GBP19.5m; 30 July
2016: GBP36.2m) of which GBP26.8m (28 January 2017: GBP18.7m; 30
July 2016: GBP31.9m) relates to property, plant and equipment and
GBP1.8m (28 January 2017: GBP0.8m; 30 July 2016: GBP4.3m) relates
to intangible assets.
16 Related party transactions
There have been no material changes to the principal
subsidiaries listed in the Annual Report and Accounts for the year
ended 28 January 2017. All related party transactions arise during
the ordinary course of business. There were no material changes in
the transactions or balances during the half year ended 29 July
2017.
17 Events after the balance sheet date
On 18 August 2017, the Group made contributions into the pension
fund of GBP53.6m. This was a prepayment of 5 months of normal
pension payments for 2017/18. No accounting has been recorded in
the period ended 29 July 2017 in respect of these payments.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
-- the condensed set of interim financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting, as
adopted by the EU; and
-- the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first 26 weeks of the financial year and their impact on the
condensed set of interim financial statements; and a description of
the principal risks and uncertainties for the remaining 26 weeks of
the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
26 weeks of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
For and by Order of the Board
Sir Charlie Mayfield, Chairman
Patrick Lewis, Group Finance Director
13 September 2017
Independent review report to John Lewis plc
Conclusion
We have been engaged by John Lewis plc (the Company) to review
the condensed set of interim financial statements in the
half-yearly financial report for the 26 weeks ended 29 July 2017
which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated
statement of changes in equity, the condensed consolidated
statement of cash flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of interim financial
statements in the half-yearly financial report for the 26 weeks
ended 29 July 2017 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of interim financial
statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
The annual financial statements of the Company are prepared in
accordance with International Financial Reporting Standards as
adopted by the EU. The Directors are responsible for preparing the
condensed set of interim financial statements included in the
half-yearly financial report in accordance with IAS 34 as adopted
by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of interim financial statements in the
half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Michael Maloney
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
13 September 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SFFFWDFWSELU
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