RNS Number:8102V
Lewis(John) PLC
30 April 2007
John Lewis plc
Preliminary Results for the Year to 27 January 2007
This confirms the unaudited results released to the Stock Exchange on 8 March
2007
Statement by the Chairman, Charlie Mayfield
Profits stride forward
The Partnership has been widely recognised as the retail pace-setter over the
last year, and this has been borne out by an excellent set of financial results
and a major stride forward in the Partnership's profits.
Consistently strong trading throughout 2006/07 saw sales increase by 10.6%,
#611.8m, to #6.4bn, and good cost management translated this into a final figure
for profit before Partnership Bonus and tax of #319.3m - an increase of 26.8% on
last year.
For the second year running we have been able to match these powerful financial
results with two impressive votes of confidence from shoppers, as the Verdict
and Which? customer surveys again rated John Lewis and Waitrose as the UK's two
favourite retailers. We were also voted Retailer of the Year by a Retail Week
panel of our High Street competitors.
It is through the power of Partners working together that we've been able to
keep up this pace and make so many improvements in every part of the business,
and all our Partners are to be congratulated on this fine performance.
The Board has decided that #155.2m should be distributed as Partnership Bonus at
a rate of 18%. This, together with the #85.1m charge for our pension fund and
other Partner benefits of around #60m (discount in the shops, dining room
subsidy, residential clubs and leisure activities), brings the total sum shared
by Partners this year to some #300m.
These results show how our Partnership model can provide the profitability to
create a sustainable and ambitiously expanding business, can win the approval
and loyalty of our customers and can reward the achievement of our Partners
through provision for a good pension in retirement and a Bonus worth over 9
weeks' pay.
John Lewis
John Lewis has had a simply stunning year, with retail sales up by #256.1m,
10.6%, to #2.7bn and most categories gaining market share. The star performer is
again Electrical and Home Technology, which achieved sales growth of 22.8%, but
there were also excellent performances in the homeware and clothing
directorates. There were no new branch openings this year and like-for-like
sales growth was more than 10.3%. All branches played a part in the year-on-year
improvement, with particularly strong growth from Solihull, Edinburgh, Peter
Jones and Southampton.
Our sales performance was mainly driven by the substantial investments we have
made over recent years in line with a clear strategic direction, together with
significant operational improvements in 2006. These included call-centre
productivity gains, better stock availability and supply chain efficiency and
improvements to our delivery proposition.
Further margin improvements were secured over the year, and in the branches
operating costs were well controlled, compensating for a #3.6m increase in the
division's utility costs.
John Lewis Direct achieved a 64.0% increase in sales, and it's now a well
established, integral and profitable part of our business.
Despite the large number of initiatives and projects underway and the growth in
trade this year, central divisional costs were held to last year's level, with
pay increases and other inflation covered by savings elsewhere.
Following significant restructuring within the manufacturing operations, they
have managed, despite a #1.1m, 6.9%, fall in external sales, to generate a small
net profit of #1.4m, compared with a loss of #5.7m last year.
Property profits amounted to #8.8m compared with #1.7m last year, with most of
this year's gain relating to the disposal of Caleys in August.
Divisional profit has increased by #71.9m, 37.5%, from #191.6m to #263.5m, an
outstanding result.
Waitrose
It's been another year of successful growth for Waitrose with branches being
acquired from both Somerfield and Morrisons, including two in Scotland, and the
additional purchase of a new distribution centre at Aylesford. At the end of the
year we had 183 branches compared with 173 in January 2006. The last three years
have seen a net increase of 40 branches and 43% in selling space. The maturing
effect of this investment will continue to accelerate our sales line for some
time to come as new customers test out our offer and like what they find.
Sales for Waitrose rose by #357.0m, 10.7%, to #3.7bn, fuelled significantly by
like-for-like sales growth in excess of 5% - ahead of the overall market
performance of 4% and a credit both to the standards of presentation and
customer service achieved in our shops and also to the ongoing innovation and
diligence in our buying teams. We again achieved recognition for these
successes, gaining a large number of prestigious awards for our customer
service, our food and wine and for our sourcing policies.
Alongside this core growth we benefited from maturing sales at the ex-Safeway
branches acquired in 2004 and 2005 and from acquisitions and relocations during
the year at Biggin Hill, Balham, Barbican, Buxton, Comely Bank, Morningside,
Southampton, Formby, Eastbourne, Parkstone, Hexham and Lymington. We also
developed new branches at Bloomsbury and Ampthill. The performance of our new
shops has been a very positive sign of the customer appeal of the Waitrose offer
in all parts of England and for the first time in Scotland.
Our greater scale continued to deliver advantages in buying terms and in central
costs, and the information provided by our new stock system combined with
excellent stock management in the branches delivered a significant reduction in
wastage costs. Property profits of #3.1m were realised, compared with #1.9m last
year. The level of change in the business drove some significant additional
costs, including reorganisation costs of #6.7m and an increase of #9.6m in
utilities, largely driven by the doubling of electricity rates in October 2005.
Overall divisional profit increased by #12.3m, 5.3%, to #243.7m - a strong
result and one in which all Waitrose Partners can take great pride.
Ocado
Ocado has continued to grow its sales and develop its business during the year.
It had a good Christmas, with sales up 60% in the final week.
We have recorded a book profit on our shareholding in Ocado of #18.0m, compared
with #10.8m last year, reflecting the fund-raising early in the year. This gain
is entirely offset by our share of Ocado's trading losses, #9.5m for this year
and #8.5m brought forward from last year.
Capital expenditure
Capital spending in 2006/07 was #393.4m compared with #287.6m in the previous
year - of which #105m related to new stores acquired by Waitrose. This
demonstrates the significant investments we are making to expand and develop the
Partnership.
Cash flow and net debt
We reduced our net debt by #16.2m to #307.7m due to the strong sales performance
and tighter management of our cash and assets, in particular as a result of both
divisions reducing their working capital. The Partnership generated over #520m
in operating cash flow for the year.
Partnership Bonus
We have more Partners in the business now, particularly in Waitrose, and this,
together with higher pay rates, has moved the cost of each 1% of Bonus 7.5%
higher. The Board's decision on the bonus raises the total distributed to #155.2
m.
Outlook for 2007/08
Both divisions have made an encouraging start to what is expected to be a more
challenging new trading year. At John Lewis 13 week sales are currently showing
5% growth, while at Waitrose the increase is 9%, with like-for-like sales
continuing to advance by 4%.
We have an ambitious development programme for the year, with John Lewis Oxford
Street completing its major refurbishment, Cambridge targeting an opening in
time for Christmas trading, a pressing pace of openings scheduled for 2008 in
Liverpool and Leicester, and progressively greater physical evidence of the
branches which will follow on after that. Waitrose will add three new branches
in Cheadle Hulme, Windsor and Rickmansworth, with major extensions being
completed in Maidenhead, and John Barnes and numerous other extension and
refurbishment projects. Greenbee is poised to add life cover to its range of
products from April, with other new services in prospect. All this is evidence
of the progress towards the doubling in size of our business in the next ten
years which is now embedded in our Business Plan.
Charlie Mayfield, Chairman
John Lewis plc
Preliminary Results for the Year to 27 January 2007
Consolidated income statement for the year ended 27 January 2007
---------------------------- ---------- ----------
Year to Year to
27 January 28 January
2007 2006
Restated*
#m #m
---------------------------- ---------- ----------
Gross sales 6,376.2 5,764.4
---------------------------- ---------- ----------
Revenue 5,698.4 5,149.3
Cost of sales (3,794.1) (3,438.4)
---------------------------- ---------- ----------
Gross profit 1,904.3 1,710.9
Other operating income 36.6 33.0
---------------------------- ---------- ----------
Operating expenses before pension costs (1,501.5) (1,376.8)
Pension costs (85.1) (85.5)
---------------------------- ---------- ----------
Total operating expenses (1,586.6) (1,462.3)
---------------------------- ---------- ----------
Operating profit 354.3 281.6
Finance costs (42.7) (45.4)
Finance income 7.7 10.5
---------------------------- ---------- ----------
Share of post tax operating loss of (18.0) (5.6)
associate
Exceptional gain on dilution of interest in
associate 18.0 10.8
---------------------------- ---------- ----------
Net gain in respect of associate - 5.2
---------------------------- ---------- ----------
Profit before Partnership bonus and tax 319.3 251.9
Partnership bonus (155.2) (120.3)
---------------------------- ---------- ----------
Profit before tax 164.1 131.6
Taxation (55.6) (42.5)
---------------------------- ---------- ----------
Profit for the year 108.5 89.1
---------------------------- ---------- ----------
* Prior year results have been restated in respect of deferred tax
Consolidated statement of recognised income and expenses
for the year ended 27 January 2007
---------------------------- ---------- ----------
Year to Year to
27 January 28 January
2007 2006
Restated*
#m #m
---------------------------- ---------- ----------
Actuarial gains on defined benefit pension 42.2 11.7
schemes
Movement on deferred tax on pension scheme (12.7) (3.4)
Net loss on cash flow hedges (0.2) -
---------------------------- ---------- ----------
Net gain not recognised in the income 29.3 8.3
statement
Profit for the period 108.5 89.1
---------------------------- ---------- ----------
Total recognised income and expenses for 137.8 97.4
the year ---------- ----------
----------------------------
Effect of change in accounting policy 111.7
---------------------------- ---------- ----------
* Prior year results have been restated in respect of deferred tax
Consolidated balance sheet as at 27 January 2007
---------------------------- ---------- ----------
2007 2006
Restated*
#m #m
---------------------------- ---------- ----------
Non-current assets
Intangible assets 61.3 52.2
Property, plant and equipment 2,869.2 2,682.5
Trade and other receivables 19.7 20.4
---------------------------- ---------- ----------
2,950.2 2,755.1
---------------------------- ---------- ----------
Current assets
Inventories 349.6 324.3
Trade and other receivables 134.5 121.2
Derivative financial instruments 1.5 4.1
Cash and cash equivalents 248.0 282.8
---------------------------- ---------- ----------
733.6 732.4
---------------------------- ---------- ----------
Total assets 3,683.8 3,487.5
---------------------------- ---------- ----------
Current liabilities
Borrowings and overdrafts (151.9) (100.3)
Trade and other payables (763.7) (660.8)
Current tax payable (18.9) (23.4)
Finance lease liabilities (1.3) (0.8)
Provisions (52.2) (44.5)
Derivative financial instruments (1.1) (0.1)
---------------------------- ---------- ----------
(989.1) (829.9)
---------------------------- ---------- ----------
Non-current liabilities
Borrowings (403.8) (506.4)
Trade and other payables (37.0) (29.0)
Finance lease liabilities (30.3) (31.9)
Provisions (90.8) (76.7)
Deferred tax liabilities (41.7) (22.0)
Retirement benefit obligations (441.0) (479.0)
---------------------------- ---------- ----------
(1,044.6) (1,145.0)
---------------------------- ---------- ----------
Total liabilities (2,033.7) (1,974.9)
---------------------------- ---------- ----------
Net assets 1,650.1 1,512.6
---------------------------- ---------- ----------
Equity
Share capital 6.7 6.7
Share premium 0.6 0.9
Other reserves 1.2 1.4
Retained earnings 1,641.6 1,503.6
---------------------------- ---------- ----------
Total equity 1,650.1 1,512.6
---------------------------- ---------- ----------
* Prior year results have been restated in respect of deferred tax
Consolidated cash flow statement for the year ended 27 January 2007
---------------------------- ---------- ----------
Year to Year to
27 January 28 January
2007 2006
#m #m
---------------------------- ---------- ----------
Cash generated from operations 587.9 483.7
Taxation paid (53.1) (32.5)
Partnership bonus paid (120.3) (105.8)
Finance costs paid (11.1) (11.9)
---------------------------- ---------- ----------
Net cash generated from operating
activities 403.4 333.5
---------------------------- ---------- ----------
Cash flows from investing activities
Purchase of property, plant and
equipment (364.4) (255.7)
Purchase of intangible assets (23.7) (27.9)
Proceeds from sale of property, plant
and equipment 26.4 14.6
Loans repaid by associate - 16.2
Finance income received 7.9 12.7
---------------------------- ---------- ----------
Net cash used in investing activities (353.8) (240.1)
---------------------------- ---------- ----------
Cash flows from financing activities
Finance costs in respect of bonds (34.8) (34.8)
Payment of capital element of finance
leases (1.1) (0.5)
Payments to preference shareholders (0.1) (0.1)
Cash inflow/(outflow) from borrowings (50.0) 20.0
---------------------------- ---------- ----------
Net cash used in financing activities (86.0) (15.4)
---------------------------- ---------- ----------
Increase/(decrease) in net cash and cash
equivalents (36.4) 78.0
Net cash and cash equivalents at
beginning of period 232.5 154.5
---------------------------- ---------- ----------
Net cash and cash equivalents at end of
period 196.1 232.5
---------------------------- ---------- ----------
Net cash and cash equivalents comprise:
Cash 77.6 71.9
Short term deposits 170.4 210.9
Bank overdraft (51.9) (50.3)
---------------------------- ---------- ----------
196.1 232.5
---------------------------- ---------- ----------
Accounting convention and basis of consolidation
The accounts are prepared under the historical cost convention, with the
exception of certain land and buildings which are included at their revalued
amounts and financial instruments not designated as hedging instruments which
are carried at fair value, and in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and with those
parts of the Companies Act 1985 applicable to companies reporting under IFRS.
The consolidated income statement and balance sheet include the accounts of the
company and all its subsidiary and associated undertakings. The group's share of
the profit or loss of associated undertakings is included in the consolidated
income statement, and the share of net assets is included in the consolidated
balance sheet, using the equity accounting method. The results included are
based on the latest audited accounts, or management accounts where their
accounting date is not co-terminous with the group's year end.
The financial information set out in this statement does not constitute the
company's statutory accounts for the year ended 27 January 2007 or 28 January
2006. Statutory accounts for 2005/06, have been delivered to the registrar of
companies, and those for 2006/07, were approved on by the Board on 26 April 2007
and will be delivered in due course. The auditors have reported on those
accounts; their reports were unqualified, did not include references to any
matters to which the auditors drew attention by way of emphasis without
qualifying their reports and did not contain statements under section 237(2) or
(3) of the Companies Act 1985. The financial information for the year ended 28
January 2006 is derived from the statutory accounts for that year except for the
restatement in respect of deferred tax.
Deferred tax is an accounting entry based on the differences between the
carrying amount of an asset in the accounts and its tax value ("tax base"), and
is in principle intended to reflect the future tax consequences of recovery of
the carrying amount. In accordance with advice from our auditors as to what was
considered best practice for the financial statements for the year ended 28
January 2006, the group determined the deferred tax on buildings on the basis
that the expected manner of recovery was primarily through use. In the financial
statements for the year ended 27 January 2007, in light of evolving
interpretation of IAS 12 by the auditing profession we have been advised this
"single use" basis is no longer considered appropriate and, accordingly, the
group has revisited the expected manner of recovery and adopted a basis whereby
the recovery of the depreciable amount through use, followed by the recovery of
the residual value through disposal is used.
Accordingly, the group has changed its accounting policy to apply this "dual
recovery" basis for the determination of deferred tax on buildings, which has
been effected retrospectively.
This change in accounting policy has no impact on the cash flow statement nor on
profit before tax, which is the income statement line after Partnership bonus,
for the year ended 27 January 2007 and the year ended 28 January 2006. For the
group, this change has increased taxation in the income statement by #1.6m for
the year ended 27 January 2007 and increased taxation in the income statement by
35.8m for the year ended 28 January 2006. The change in accounting policy
reduces non-current deferred tax liabilities and increased net assets by #105.9m
at 28 January 2006 and by #111.7m at 29 January 2005.
Segmental reporting
The Partnership is organised in three main business segments. John Lewis Retail,
John Lewis Other and Waitrose. Corporate and other costs are allocated to the
business segments based on the use they make of corporate facilities and
services. The business is carried on in the United Kingdom and gross sales
derive almost entirely from that source. Accordingly, the group had presented no
secondary segmental analysis. Gross sales and operating profit derive from
continuing operations, there having been no discontinued operations or
acquisitions in the year.
-------------- -------- -------- -------- -------- --------
John Lewis John John Waitrose Group
Retail Lewis Lewis
Other Total
27 January 2007 #m #m #m #m #m
-------------- -------- -------- -------- -------- --------
Gross Sales 2,663.1 14.6 2,677.7 3,698.5 6,376.2
-------------- -------- -------- -------- -------- --------
Revenue 2,188.3 12.8 2,201.1 3,497.3 5,698.4
Divisional
profit 262.1 1.4 263.5 243.7 507.2
Corporate and
other costs (35.6) - (35.6) (32.2) (67.8)
Pension costs (49.3) (1.2) (50.5) (34.6) (85.1)
-------------- -------- -------- -------- -------- --------
Operating
Profit 177.2 0.2 177.4 176.9 354.3
-------------- -------- -------- -------- -------- --------
28 January 2006
-------------- -------- -------- -------- -------- --------
Gross Sales 2,407.0 15.9 2,422.9 3,341.5 5,764.4
-------------- -------- -------- -------- -------- --------
Revenue 1,976.4 14.0 1,990.4 3,158.9 5,149.3
Divisional
profit 197.6 (6.0) 191.6 231.4 423.0
Corporate and
other costs (29.6) - (29.6) (26.3) (55.9)
Pension costs (49.5) (1.3) (50.8) (34.7) (85.5)
-------------- -------- -------- -------- -------- --------
Operating
profit 118.5 (7.3) 111.2 170.4 281.6
-------------- -------- -------- -------- -------- --------
Reconciliation of profit before tax to cash generated from operations
---------------------------- ---------- ----------
Year to Year to
27 January 28 January
2007 2006
#m #m
---------------------------- ---------- ----------
Profit before tax 164.1 131.6
Amortisation of intangible assets 14.6 10.7
Depreciation 165.2 142.3
Net finance costs 35.0 34.9
Net gain in respect of associate - (5.2)
Partnership bonus provision 155.2 120.3
(Profit)/loss on disposal of property,
plant and equipment (8.6) (2.9)
(Increase)/decrease in inventories (25.3) 15.0
(Increase)/decrease in receivables (12.7) (21.3)
Increase/(decrease) in payables 74.4 27.9
Increase/(decrease) in retirement benefit
obligations 4.2 5.7
Increase/(decrease) in provisions 21.8 24.7
---------------------------- ---------- ----------
Cash generated from operations 587.9 483.7
---------------------------- ---------- ----------
Reconciliation of net cash flow to net debt
---------------------------- ---------- ----------
Year to Year to
27 January 28 January
2007 2006
#m #m
---------------------------- ---------- ----------
Increase/(decrease) in cash in the year 4.1 (17.9)
Cash (inflow)/outflow from debt and lease
financing 50.0 (20.0)
Cash (inflow)/outflow from liquid
resources (40.5) 95.9
---------------------------- ---------- ----------
Movement in debt for the year 13.6 58.0
Opening net debt (323.9) (381.9)
Non cash movements 2.6 -
---------------------------- ---------- ----------
Closing net debt (307.7) (323.9)
---------------------------- ---------- ----------
Reconciliation of changes in equity
--------------- ------- ------- -------- ------- ------- ------
Share Share Capital Hedging Retained Total
capital premium reserve reserve earnings equity
#m #m #m #m #m #m
--------------- ------- ------- -------- ------- ------- ------
Balance at 29
January 2005,
as reported 6.7 1.1 1.4 - 1,294.4 1,303.6
Deferred tax
restatement - - - - 111.7 111.7
--------------- ------- ------- -------- ------- ------- ------
Balance at 29
January 2005,
as restated 6.7 1.1 1.4 - 1,406.1 1,415.3
Profit for the
year - - - - 89.1 89.1
Transfers - (0.2) - - 0.2 -
Actuarial gains - - - - 11.7 11.7
Tax on items
recognised in
equity - - - - (3.4) (3.4)
Dividends - - - - (0.1) (0.1)
--------------- ------- ------- -------- ------- ------- ------
Balance as at
28 January
2006 6.7 0.9 1.4 - 1,503.6 1,512.6
--------------- ------- ------- -------- ------- ------- ------
Profit for the
year - - - - 108.5 108.5
Transfers - (0.3) - - 0.3 -
Actuarial gains - - - - 42.2 42.2
Tax on items
recognised in
equity - - - - (12.7) (12.7)
Net loss on
cash flow
hedges - - - (0.2) - (0.2)
Dividends - - - - (0.3) (0.3)
--------------- ------- ------- -------- ------- ------- ------
Balance at 27
January 2007 6.7 0.6 1.4 (0.2) 1,641.6 1,650.1
--------------- ------- ------- -------- ------- ------- ------
This information is provided by RNS
The company news service from the London Stock Exchange
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