RNS Number : 1877D
Lewis(John) PLC
11 September 2008
John Lewis plc
Unaudited condensed Interim Financial Statements for the half year to 26 July 2008
Strict Stock Exchange Embargo: 7:30am
11 September 2008
PARTNERSHIP INVESTS FOR THE FUTURE DURING THE DOWNTURN
Chairman's Statement
After the initial shock of the credit crunch last summer, the economic climate has become progressively more difficult, consumer
confidence has hit a record low and the retail market has slowed markedly.
Our first half performance reflects the challenging trading environment, our response to those conditions, a particularly strong
performance in the first half of 2007 and our continued investment in growing and developing our business.
The Partnership's sales were �3.27bn for the first half of this year, an increase of 3.6% versus the prior year. Underlying operating
profit, which excludes the impact of property disposals, fell by nearly 20% to �121m. Operating profit fell by 22% to �125m and profit
before tax decreased by 27% to �108m. Our balance sheet remains strong, our borrowings low and our operational cash flow has held up well.
We have responded to the difficult trading conditions by investing in the long-term development and growth of the business - opening new
stores, driving available sales opportunities, investing in margin, product and service while containing costs. We have maintained market
share, supported long-standing relationships with suppliers and customers and continue to invest in our Partners. This determined and
balanced approach will ensure the long-term health of the business and enable us to emerge from the current downturn stronger and more
competitive than before.
Waitrose
Waitrose has invested in strengthening its customer offer - further improving the quality of our products, introducing new, innovative
ranges and investing in price and customer service. We have reformulated many of our products to enhance their quality and achieved the
highest ever rating in taste tests.
�30m was invested in lower prices and increased promotional activity to build our value proposition and we are investing almost �2m to
improve customer service. We have continued to support British farmers and ensured that customers are protected from the full effect of
price inflation by absorbing some of the price increases. Sales of our premium range 'As Good as Going Out' are up 33%, sales of beef up 5%
and sales of prime Aberdeen Angus dry aged beef up 134%.
Waitrose opened three new 'market town' shops and plans to trial a new convenience shop format in the autumn. New instore communications
have modernised the look of the estate and the business has been structured to capitalise on new formats and opportunities.
Total sales were �2.0bn, up 5.5% on last year. Like-for-like food sales were up 2.5% for the half year, with gross margin slightly
lower.
Excluding the impact of property gains, underlying profit was down 3% at �100m. Including property gains, which were more significant
last year, operating profit fell by 8%, or �9m, to �103m.
John Lewis
John Lewis gained market share in Fashion and held share in Home & Electricals. Sales in Fashion grew by 5% and by 1% in Electricals,
offsetting 5% lower sales in Home which reflects the decline in the housing sector. John Lewis Direct thrived with sales up 30% as we
increased the number of lines available for national delivery to over 36,000.
We prioritised our customer service proposition and introduced free delivery across the UK on purchases from our shops and online. We
have been judicious in containing costs and held like-for-like branch costs at last year's level.
Our commitment to 'Never Knowingly Undersold' has been strengthened, particularly in TVs and Electricals where we have matched intense
competitor activity. Customers have responded positively to our price matching promise.
The relocation of our shop in Liverpool exceeded expectations and we had a successful opening in Leicester last week. The steps we've
taken in the first half and the division's commitment to the long term leaves it well placed for Christmas.
John Lewis edged sales forward by 0.5% to �1.24bn. Like-for-like sales were down 1%. Operating profit fell by �21m or 34%, to �40m.
Greenbee
Our Greenbee operation continues to build its customer base and expand its product range, with a successful launch of car insurance in
July. Commission and advertising income was up by 89%, with an especially encouraging response in home insurance, where we achieved market
beating conversion and renewal rates for new and existing policies respectively. The partnership cardTM continues to make good progress,
with further growth in our card base. In June this year the card was awarded Credit Card of the Year by Which?
Corporate costs
Corporate costs increased on a like-for-like basis in line with the level of wage inflation but increased by �3m overall, reflecting the
one-off investment in our finance transformation project, together with an increased investment in IT infrastructure, the benefits of which
will come through in future years.
Pensions
The total charge for our non-contributory final salary defined benefit scheme was �50m, an increase of �8m, or 19%, on last year. This
reflects the impact of worsening economic conditions on the assumptions used to calculate the pensions cost, together with an increase in
pension liabilities. Waitrose bore �5m of the additional cost, the John Lewis charge was up �2.5m, and the remaining �0.5m was attributable
to Corporate.
The Partnership Council agreed improvements to the pension scheme in June, reducing the waiting period for membership to three years
from five years. This enfranchises some 12,000 additional Partners in the scheme. We are also introducing a defined contribution scheme in
the waiting period and implementing 'LEAF', a form of risk sharing in relation to increasing life expectancy. These changes take effect from
1 October 2008, and the net cost of these improvements of �6m will be reflected in the full-year results.
Second-half outlook
After 6 weeks, Partnership sales are up 2.5% on last year. Waitrose sales are up by 2.4% (down 1.1% like-for-like). In John Lewis the
second half of the year started with stronger sales at the beginning of August followed by a more muted period during the Olympics. Sales at
the end of week 6 are up 2.7% on last year (0.4% like-for-like).
Conditions for the rest of the year will continue to be challenging with ongoing pressures on consumer spend. In response, Partners will
be concentrating on excellent execution in all our trading operations. Our Christmas ranges will build on the excellent performances we saw
last year in both Waitrose and John Lewis.
In Waitrose we will continue with product innovation and with promotional strategies that improve price perception. In the second half
John Lewis is much less dependent on 'home', from both a sales and a profit perspective, and our strongly performing fashion and gift
businesses play a much greater role.
We look forward to continued success from our development programme including our latest department store opening in Leicester, and new
Waitrose branches at White City and Crewkerne. Later this year our first Waitrose operated by Finefare Foods Ltd in the Burj Mall Dubai is
scheduled to open under a licensing deal with the United Arab Emirates based supermarket chain.
We remain cautious about the outlook for the rest of 2008 and 2009. Our long-term approach to the Partnership, with our strong
commitment to Partners and customer service, positions us well to ride out the downturn and take advantage of the recovery in confidence
when it comes.
Charlie Mayfield
Chairman
Where this interim report contains forward-looking statements, these are made by the directors in good faith based on the information
available to them up to the time of their approval of this report. These statements should be treated with caution due to the inherent
uncertainties underlying any such forward-looking information.
Further information
John Lewis Partnership
Susan Donovan, Director of Communications 020 7592 6292
Citigate Dewe Rogerson
Simon Rigby 020 7638 9571
John Lewis
Helen Dickinson, Head of Press and PR 020 7592 6274
Louise Thomson, Press and Public Relations Manager, Corporate 020 7592 6223
Waitrose
Dara Grogan, Head of Communications 07764 676351
Gill Smith, Senior PR Manager, Corporate 07887 898133
John Lewis plc Interim Report 2008
Consolidated income statement
for the half year ended 26 July 2008
Half year to Half year to Year to
26 July 2008 28 July 2007 26 January 2008
Continuing operations �m �m �m
Gross sales 3,273.1 3,160.7 6,762.8
Revenue 2,940.5 2,830.0 6,052.2
Cost of sales (1,985.2) (1,877.0) (4,007.6)
Gross profit 955.3 953.0 2,044.6
Other operating income 22.8 19.9 41.6
Operating expenses (852.7) (813.1) (1,675.9)
Operating profit 125.4 159.8 410.3
Finance costs (21.6) (19.8) (39.2)
Finance income 4.2 3.5 8.6
Share of post tax loss of - (5.1) (8.0)
associate
Exceptional gain on dilution of - 8.0 8.0
interest in associate
Net gain in respect of associate - 2.9 -
Profit before Partnership bonus 108.0 146.4 379.7
and tax
Partnership bonus - - (181.1)
Profit before tax 108.0 146.4 198.6
Taxation (32.2) (37.4) (59.4)
Profit after tax from continuing 75.8 109.0 139.2
operations
Profit/(loss) from discontinued - 0.3 (9.1)
operations
Profit for the period 75.8 109.3 130.1
The presentation of prior half year results has been amended in respect of discontinued operations, as detailed in the Annual Report and
Accounts for the year to January 2008.
Consolidated statement of recognised income & expense
for the half year ended 26 July 2008
Half year to Half year to Year to
26 July 2008 28 July 2007 26 January 2008
�m �m �m
Actuarial (losses)/gains on (152.5) 26.7 (123.4)
defined benefit pension schemes
Movement of deferred tax on 42.7 (0.7) 26.3
pension scheme
Net gain on cash flow hedges 0.1 0.2 0.9
Net (losses)/gains not (109.7) 26.2 (96.2)
recognised in the income
statement
Profit for the period 75.8 109.3 130.1
Total recognised income and (33.9) 135.5 33.9
expense for the period
Consolidated balance sheet
for the half year ended 26 July 2008
26 July 2008 28 July 2007 26 January 2008
�m �m �m
Non-current assets
Intangible assets 74.1 64.1 66.9
Property, plant and equipment 3,086.7 2,951.4 3,021.8
Deferred tax asset 6.9 - -
Trade and other receivables 31.0 19.4 31.3
Investment in associate - 2.9 -
3,198.7 3,037.8 3,120.0
Current assets
Inventories 343.6 318.7 344.9
Trade and other receivables 163.7 115.2 211.5
Current tax receivable - - 10.1
Derivative financial instruments 1.8 0.1 3.7
Cash and cash equivalents 111.2 110.5 121.6
620.3 544.5 691.8
Total assets 3,819.0 3,582.3 3,811.8
Current liabilities
Borrowings and overdrafts (139.7) (109.5) (58.4)
Trade and other payables (647.5) (607.8) (842.9)
Current tax payable (36.1) (43.1) -
Finance lease liabilities (0.5) (1.9) (0.7)
Provisions (59.6) (50.6) (54.3)
Derivative financial instruments (0.3) (1.9) -
(883.7) (814.8) (956.3)
Non-current liabilities
Borrowings (403.1) (401.1) (404.6)
Trade and other payables (45.0) (26.5) (40.1)
Finance lease liabilities (29.6) (29.4) (30.1)
Provisions (96.6) (96.6) (97.7)
Deferred tax liabilities - (32.3) (45.1)
Retirement benefit obligations (711.0) (396.0) (554.0)
(1,285.3) (981.9) (1,171.6)
Total liabilities (2,169.0) (1,796.7) (2,127.9)
Net assets 1,650.0 1,785.6 1,683.9
Equity
Share capital 6.7 6.7 6.7
Share premium 0.3 0.6 0.3
Other reserves 2.2 1.4 2.1
Retained earnings 1,640.8 1,776.9 1,674.8
Total equity 1,650.0 1,785.6 1,683.9
Consolidated cash flow statement
for the half year ended 26 July 2008
Half year to Half year to Year to
26 July 2008 28 July 2007 26 January 2008
�m �m �m
Cash generated from operations 267.4 252.3 559.4
Taxation received/(paid) 4.7 (23.3) (58.3)
Partnership bonus paid (181.8) (155.2) (153.8)
Finance costs paid (4.9) (4.8) (9.7)
Net cash inflow/(outflow) from - 0.3 (0.4)
discontinued operations
Net cash generated from 85.4 69.3 337.2
operating activities
Cash flows from investing
activities
Purchase of property, plant (153.2) (169.9) (341.1)
and equipment
Purchase of intangible assets (17.2) (10.4) (23.4)
Proceeds from sale of 8.3 16.3 16.8
property, plant and equipment
Net proceeds from sale of - - 0.8
subsidiaries, net of cash
disposed
Finance income received 4.9 5.7 7.4
Net cash (outflow)/inflow from - (0.1) 0.1
investing activities -
discontinued operations
Net cash used in investing (157.2) (158.4) (339.4)
activities
Cash flows from financing
activities
Finance costs in respect of (19.1) (19.1) (29.6)
bonds
Payment of capital element of (0.7) (0.3) (0.8)
finance leases
Premium paid on options - (0.2) (0.2)
Payments to preference (0.1) (0.1) (0.1)
shareholders
Cash inflow/(outflow) from 75.0 (36.3) (100.0)
borrowings
Net cash from/(used in) 55.1 (56.0) (130.7)
financing activities
Decrease in net cash and cash (16.7) (145.1) (132.9)
equivalents
Net cash and cash equivalents 63.2 196.1 196.1
at beginning of period
Cash and cash equivalents at 46.5 51.0 63.2
end of period
Cash and cash equivalents
comprise:
Cash 64.3 69.9 71.9
Short term deposits 46.9 40.6 49.7
Bank overdraft (64.7) (59.5) (58.4)
46.5 51.0 63.2
The presentation of prior half year cash flow has been amended in respect of discontinued operations, as detailed in the Annual Report and
Accounts for the year to January 2008.
Notes to the financial statements
1 Basis of preparation
_________________________________________________________________________ ___________________________
These interim financial statements were approved by the Board on 11 September 2008. They are unaudited, and do not comprise statutory
accounts within the meaning of Section 240 of the Companies Act 1985.
The results for the half year to 26 July 2008 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 26 January 2008 have been reported on by the group's auditors and filed
with the Registrar of Companies. The report of the auditors was unqualified and did not contain any statement under Section 237 of the
Companies Act 1985.
This condensed consolidated interim financial information for the half year ended 26 July 2008 has been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting', as adopted by the
European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements
for the year ended 26 January 2008, which have been prepared in accordance with International Financial Reporting Standards as adopted by
the European Union.
2 Accounting policies
________________________________________________________________________________ _____________________
The group's results for the half year to 26 July 2008 have been prepared on a basis consistent with the group's accounting policies
published in the financial statements for the year ended 26 January 2008. These accounting policies reflect International Financial
Reporting Standards (IFRS) and interpretations that are expected to be applicable to the group for its 2008/09 financial statements. It is
possible that there will be changes to these standards and interpretations before the end of the group's 2008/09 financial year, which might
require adjustments to this information before it is included in the financial statements for the year ended 31 January 2009.
3 Risks and uncertainties
_________________________________________________________________________ ____________________________
The principal risks and uncertainties affecting the group were identified as part of the Business Review, set out on pages 23 to 26 of
the John Lewis Annual Report and Accounts 2008, a copy of which is available on the group's website www.johnlewispartnership.co.uk. These
risks remain relevant for the second half of the current financial year and comprise: economic; regulatory and political; financial and
treasury; pensions; fraud and compliance; operational; health and safety; and business continuity and disaster recovery.
4 Segmental reporting
_________________________________________________________________________ ____________________________
The Partnership is organised into two business segments, John Lewis and Waitrose.
John Lewis Waitrose Group
�m �m �m
26 July 2008
Gross sales 1,244.7 2,028.4 3,273.1
Adjustment for sale or return sales (51.7) - (51.7)
Value added tax (173.5) (107.4) (280.9)
Revenue 1,019.5 1,921.0 2,940.5
Divisional operating profit* 40.0 102.7 142.7
Group costs** (8.6) (8.7) (17.3)
Operating profit 31.4 94.0 125.4
28 July 2007
Gross sales 1,238.1 1,922.6 3,160.7
Adjustment for sale or return sales (54.4) - (54.4)
Value added tax (173.5) (102.8) (276.3)
Revenue 1,010.2 1,819.8 2,830.0
Divisional operating profit* 61.0 112.1 173.1
Group costs** (6.6) (6.7) (13.3)
Operating profit 54.4 105.4 159.8
26 January 2008
Gross sales 2,812.7 3,950.1 6,762.8
Adjustment for sale or return sales (103.0) - (103.0)
Value added tax (394.7) (212.9) (607.6)
Revenue 2,315.0 3,737.2 6,052.2
Divisional operating profit* 208.3 234.7 443.0
Group costs** (16.4) (16.3) (32.7)
Operating profit 191.9 218.4 410.3
The presentation of prior half year results has been amended in respect of discontinued operations, as detailed in the Annual Report and
Accounts for the year to January 2008.
* Divisional operating profit is after charging certain corporate costs based on the business segments' usage of corporate facilities
and services. The basis of allocation has been revised and prior year figures have been amended accordingly.
** Group costs include other corporate overheads, finance transformation costs and Greenbee investment.
5 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. The estimated full year effective tax rate for the year to 31 January 2009 is 29.8% (the estimated tax rate for the period to 28
July 2007 was 25.5%). The increase on last year is mainly because last year's tax charge was reduced by a one-off deferred tax credit,
restating the brought forward deferred tax provision for a reduction in the rate of corporation tax from 30% to 28%, effective from 1 April
2008.
6 Capital expenditure
Property,
plant and Intangible
equipment Assets
Net book values at 26 January 2008 3,021.8 66.9
Additions 155.9 17.2
Disposals (5.5) -
Depreciation and amortisation (85.5) (10.0)
Net book values at 26 July 2008 3,086.7 74.1
Property, plant and equipment additions include �50.7m in respect of store development in John Lewis and �72.5m in Waitrose. Disposals
relate to the sale of a number of surplus properties.
Intangible assets additions primarily relate to internally developed IT systems.
7 Investment in associate
_________________________________________________________________________ _____________________________
Investments at 26 July 2008 represent 0.1% of the ordinary shares and 37.4% of the Convertible Preference Shares of Ocado Limited which
equates to 24.1% of the issued share capital.
In accordance with accounting rules, losses are only consolidated to the extent that the investment in an associate is reduced to zero.
Consequently as at 26 July 2008, the Partnership deferred �5.7m of the total losses in Ocado.
8 Reconciliation of profit before tax to cash generated from operations
Half year to Half year to Year to
26 July 2008 28 July 2007 26 January 2008
�m �m �m
Profit before tax 108.0 146.4 198.6
Amortisation of intangible 10.0 8.2 17.7
assets
Depreciation 85.5 83.2 169.2
Net finance costs 17.4 16.3 30.6
Net gain in respect of - (2.9) -
associate
Partnership bonus provision - - 181.1
Profit on disposal of (2.8) (7.3) (0.2)
property, plant and equipment
Decrease in inventories 1.3 30.9 1.3
Decrease/(increase) in 47.1 17.5 (91.7)
receivables
(Decrease)/increase in (7.8) (25.9) 58.0
payables
Increase/(decrease) in 4.5 (18.3) (10.4)
retirement benefit obligations
Increase in provisions 4.2 4.2 5.2
Cash generated from operations 267.4 252.3 559.4
The presentation of prior half year figures has been amended in respect of discontinued operations, as detailed in the Annual Report and
Accounts for the year to January 2008.
9 Reconciliation of changes in equity
Share capital Share premium Capital reserve Hedging reserve Retained earnings Total equity
�m �m �m �m �m �m
Balance at 27 January 2007 6.7 0.6 1.4 (0.2) 1,641.6 1,650.1
Profit for the period - - - - 130.1 130.1
Transfers - (0.3) - - 0.3 -
Actuarial losses - - - - (123.4) (123.4)
Tax on items recognised in - - - - 26.3 26.3
equity
Net gain on cash flow hedges - - - 1.1 - 1.1
Transfer to property, plant - - - (0.2) - (0.2)
and equipment
Dividends - - - - (0.1) (0.1)
Balance at 26 January 2008 6.7 0.3 1.4 0.7 1,674.8 1,683.9
Profit for the period - - - - 75.8 75.8
Actuarial gains - - - - (152.5) (152.5)
Tax on items recognised in - - - - 42.7 42.7
equity
Net gain on cash flow hedges - - - 0.1 - 0.1
Balance at 26 July 2008 6.7 0.3 1.4 0.8 1,640.8 1,650.0
10 Reconciliation of net cash flow to net debt
Half year to Half year to Year to
26 July 2008 28 July 2007 26 January 2008
�m �m �m
Net decrease in cash in the (13.9) (15.3) (12.2)
period
Cash (inflow)/outflow from (75.0) 50.0 100.0
debt and lease financing
Cash inflow from liquid (2.9) (129.8) (120.7)
resources
Movement in debt for the (91.8) (95.1) (32.9)
period
Opening net debt (341.4) (307.7) (307.7)
Non cash movements 1.6 2.7 (0.8)
Closing net debt (431.6) (400.1) (341.4)
11 Capital commitments
_________________________________________________________________________ ______________________________
At 26 July 2008 contracts had been entered into for future capital expenditure of �26.8m (2007: �49.1m).
12 Related party transactions
_________________________________________________________________________ ______________________________
During the period John Lewis plc entered into transactions with other group companies in respect of the supply of goods for resale and
associated services �6.6m (2007: �8.2m), purchase of goods for resale �6.5m (2007: �7.1m), the supply of IT and related services �17.3m
(2007: �11.2m), and the hire of vehicles of �8.8m (2007: �3.9m).
In addition, John Lewis plc settled other transactions on behalf of group companies for administrative convenience, such as payroll and
supplier settlement. All such transactions were charged at cost to the relevant group company. It is not practical to quantify these non
trading recharges.
During the period the group entered into transactions with its associate company, Ocado Limited, for the supply of goods totalling
�21.3m (2007: �26.2m) and the provision of distribution and other services totalling �0.7m (2007: �0.4m). Included within trade and other
receivables is a balance of �4.7m (2007: �2.9m) due from Ocado Limited in respect of these transactions. Included within trade and other
payables is a balance of �3.4m (2007: �2.9m) due to Ocado in connection with the supply of goods.
Statement of directors' responsibilities
The directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the
European Union, and that the interim management report herein includes a fair review of the information required by the Disclosure and
Transparency Rules (DTR) of the Financial Services Authority, paragraphs DTR 4.2.7 and DTR 4.2.8.
For and by Order of the Board
Charlie Mayfield, Chairman
Marisa Cassoni, Finance Director
11 September 2008
This information is provided by RNS
The company news service from the London Stock Exchange
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