TIDM45GD
RNS Number : 6162A
Lewis(John) PLC
13 September 2018
John Lewis plc
Unaudited condensed Interim Financial Statements for the half
year ended 28 July 2018
Thursday 13 September 2018
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
www.johnlewispartnership.co.uk/financials.html
Financial summary(1)
Gross sales(2) Profit before tax and Total net debts(5)
exceptional items(3)(4)
GBP5,486.6m GBP1.4m GBP700m lower
(up 1.6%) (down 98.5%) vs July 2017
------------------------ -----------------------------
Revenue Profit before tax(3)(4) Net debt(6)
------------------------ -----------------------------
GBP4,856.7m GBP6.2m GBP342m
(up 1.5%) (down 80.1%) (GBP25m higher vs July 2017)
------------------------ -----------------------------
Sir Charlie Mayfield, Chairman of the John Lewis Partnership,
commented: "These are challenging times in retail. Our profits
before exceptionals are in line with what we said they would be at
our Strategy Update in June. We're continuing to improve our offer
for customers while ensuring we have the financial strength to
continue developing our business going forward. This is reflected
in both brands continuing to grow sales and customer numbers, and
our total net debts(5) reducing.
Profits before exceptionals are always lower and more volatile
in the first half than the second half. It is especially so this
half year, driven mainly by John Lewis & Partners where gross
margin has been squeezed in what has been the most promotional
market we've seen in almost a decade. The pressure on gross margin
has predominantly been from our commitment to maintain price
competitiveness. This reflects our decision not to pass on to our
customers all cost price inflation from a weaker exchange rate and
from our Never Knowingly Undersold promise, where we have seen an
unprecedented level of price matching as other retailers have
discounted heavily. Gross margin was also affected by a sales mix
shift towards electronics rather than big ticket items in Home. In
addition, John Lewis & Partners profits were impacted by the
costs of new shops and higher IT costs as we continued to invest
for future growth, and from lower property profits compared to last
year.
In Waitrose & Partners, profits were down on last year, but
from Q1 to Q2 there has been marked improvement in like-for-like
sales(6) as well as good progress in rebuilding gross margin, and
we are on track for profit growth for the full year.
At Group level we have also borne additional costs, particularly
as a result of greater investment in cyber security and data
protection, which have impacted our overall profits. Despite the
reduction in profits, our total net debts have reduced. Our
accounting pension deficit has more than halved since January 2018
to GBP171.3m (net of deferred tax) and our estimated actuarial
pension deficit of GBP89m represented a funding level of over 98%.
Total net debts are GBP700m less than last year and we continue to
maintain a strong liquidity position. This is all consistent with
our plans to ensure a strong financial position in order to invest
in our strategy of differentiation at a rate of GBP400m-GBP500m per
year.
Our Group structure and our Partners are key differentiators for
us in a highly competitive and changing retail market. The launch
last week of John Lewis & Partners and Waitrose & Partners
reflects our ambition for the future and the critical difference of
our Partners."
(1) 2017/18 comparatives have been restated (see note 2 -
Accounting policies for further details)
(2) Gross sales includes sale or return sales and VAT (see note
5 - Segmental reporting for further details)
(3) Includes property profits of GBPnil (2017/18: GBP11.4m with
GBP0.9m in Waitrose & Partners and GBP10.5m in John Lewis &
Partners)
(4) Exceptional income of GBP4.8m mainly includes GBP26.0m
income from the release of the pay provision for National Minimum
Wage compliance as the methodology for calculating the liability
has been clarified following discussions with HMRC, offset by a
GBP9.1m charge for restructuring and redundancy costs and a
GBP12.6m branch impairment charge. 2017/18 exceptional charge of
GBP65.4m mainly for restructuring and redundancy costs and branch
impairments
(5) Total net debts represents the total borrowings of the
Partnership including net debt adjusted for an estimate of
non-liquid cash, the accounting pension deficit net of deferred
tax, and the present value of future rentals payable under
operating leases discounted at 5%
(6) For definitions see the glossary on pages 147-148 of the
John Lewis Partnership 2018 Annual Report and Accounts
Outlook 2018/19
With the level of uncertainty facing consumers and the economy,
in part due to ongoing Brexit negotiations, forecasting is
particularly difficult but we continue to expect full year profits
to be substantially lower than last year for the Group as a whole.
We expect profit growth in Waitrose & Partners will be offset
by the continuing margin pressure in John Lewis & Partners and
by incremental costs of investment. We are continuing with our
plans for the future in this half and have great confidence in the
attractiveness and potential of our offer across Waitrose &
Partners and John Lewis & Partners as we approach the final
quarter.
Strategy update
At our Strategy Update in June we set out our plans to grow
through differentiation rather than scale, recognising and
enhancing the role that Partners play in driving our difference and
competitiveness, and to secure the financial strength to ensure we
are able to maintain a rate of investment of GBP400m-GBP500m per
year, which we see as crucial to our long-term success, despite
near-term pressures on profitability.
Growth through differentiation
Waitrose & Partners
At our Strategy Update we set out our key differentiation
priorities: product innovation, range tailoring, health and
wellbeing, doing the right thing and service.
-- Product innovation and range tailoring
o Increased own brand and exclusive products, developing 1,781
products, including 91 vegan and vegetarian lines. New ranges
include revamped Cooks' Ingredients which launched yesterday,
featuring innovative items such as black limes, zhoug and kimchi
paste.
o Boosted product development with our new Food Innovation
Studio which opened at our Bracknell head office last month,
doubling the number of chefs with more than twice the space of
previous facilities. The Studio will in future offer Partner
learning opportunities, helping to fulfil our vision of every
Partner becoming a Food Ambassador.
o Completed two successful range reviews in the areas of sliced
bread and cheese, and plan to carry out an average of four range
reviews each month between now and year end.
-- Service
o Continued to add to the Partner service we offer our customers
and we now have trained 95 Healthy Eating Specialists and 800
Baristas.
o Increased online grocery sales, up 23%, with profit growing
and a significant year-on-year increase in customer experience
ratings from our Net Promoter Score of our most loyal
customers.
-- Health and wellbeing
o Developed our health and wellbeing offer in products and
services with our Good Health marque added to more than 1,600
lines. Our 17 shop health checks trial with BUPA has also just
concluded and we are currently evaluating the results.
-- Doing the right thing
o Removed disposable cups from the free tea and coffee offer to
myWaitrose members, so avoiding the use of more than 52 million
takeaway cups a year. By the end of 2018 we will not be using black
packaging for our meat, fish, fruit and vegetables, a big step
towards removing it from all own-label packaging by 2019. This
progresses our commitment for all our packaging to be widely
recyclable, reusable or home compostable by 2025.
John Lewis & Partners
In the first half John Lewis & Partners has grown sales,
customer numbers and market share(7) , and substantially increased
our overall customer experience ratings as measured by our Net
Promoter Score.
Fashion sales were up 1.2% and we outperformed the market,
growing market share strongly in Womenswear, with sales up 4.1% and
a particularly strong performance in Own-Brand, with sales up
12.3%. We outperformed the market in Electricals and Home
Technology (EHT), driven by particularly strong performance in
Electricals where sales were up 7.8%. The Home market continues to
be challenging with sales down 4.2% impacted by a fall in demand
for big ticket and bespoke items.
We have continued to invest in our customer proposition, both by
strengthening our points of difference and by maintaining the level
of service our customers expect from us, despite the adverse impact
of low consumer confidence and price promotion in the market on our
margin.
-- Unique and desirable products:
o Recently launched John Lewis & Partners Womenswear, our
largest own brand collection to date, a significant step forward in
our plan to build a GBP500m own-brand fashion business.
o Offered customers more brands as the exclusive High Street
partner, including Madewell, J Crew, Stuart Weitzman in Fashion and
Footwear and Proenza Schouler in Beauty.
o House, our trend-led, affordable home range, performed well
with particularly strong sales since its relaunch in July.
-- Exceptional service:
o Successfully trialled a number of concepts at our Westfield
White City shop, including an Experience Desk and a new range of
Personal Styling appointments tailored to the occasions customers
are shopping for. These will be rolled out to a further 15 shops by
the end of the second half.
o Completed the replatforming of our website and continued the
investment in our digital capabilities that sets us apart from our
competitors. With 39% of our sales made online, these improvements
will help customers shop with us more easily and includes upgraded
search functionality, a smoother checkout process and the ability
for customers to see product availability in our shops across our
digital platforms.
o Completed the roll out of two-hour delivery windows which
improved communications with customers and contributed to record
levels of customer satisfaction. Live online delivery tracking has
also proved popular, resulting in 1.5 million additional visits to
our website.
(7) BRC market
Partners at the heart
The inherent strength of the Group is our Partners, who are at
the heart of our customer proposition, and how we can unlock
Partner potential. We have been:
-- Strengthening pay for performance and structuring Partner pay
ranges in line with newly-designed jobs. Our average hourly rate of
base pay for non-management Partners is now GBP9.17.
-- Developing our apprenticeships programme with around 500
apprentices enrolled in our retail, LGV driving, vehicle
maintenance and hospitality schemes. A further 300 apprentices are
expected to join in the next six months across existing and new
programmes being rolled out across our head offices and shops, in
areas such as human resources, taxation, project management,
procurement, leadership, farming, digital and sewing
machinists.
At this time of disruption in the sector, it has never been more
important to invest in the wellbeing and resilience of Partners,
who are at the heart of our business success. To this end, the John
Lewis Partnership has set itself a bold ambition to become
Britain's Healthiest Workplace by 2025, which goes back to our
founding principles, as well as being a fundamental condition of
unlocking the potential of our Partners. We have already taken a
number of important steps.
We have launched a Wellbeing Champions Network with more than
150 Partners recruited in more than 60 locations across the
country. This will encourage and empower Partners to look after
their health and wellbeing, provide information on available
support and resources, and create a positive movement for change.
In support of this we are launching innovative preventative tools
for Partners. One example is Unmind, a health platform and app
which already has more than 3,500 users. We are also re-igniting
our community spirit by reviewing what we do in our dining rooms
and how we use this space for social interaction as well as healthy
food.
Profit and sustained investment
As we anticipated and highlighted in our Strategy Update in
June, our Profit before tax and exceptional items was GBP1.4m, down
GBP95.1m or 98.5% on last half year. After including exceptional
income of GBP4.8m (2017/18: exceptional charge of GBP65.4m), our
Profit before tax was GBP6.2m, down GBP24.9m or 80.1% on last half
year.
We plan to maintain investment at the rate of GBP400m-GBP500m
per year and capital investment forms a major part of that.
Operating capital investment, which excludes the acquisition of
freeholds of our trading branches, was GBP142.4m, a slight decrease
of GBP6.7m or 4.5% on last half year.
We remain focused on and committed to the long-term financial
sustainability of the Group, building our return on capital in
order to share the rewards of this with Partners on the platform of
a strong and flexible balance sheet. We measure this through our
three annual Key Performance Indicators (KPIs)(8) : Return on
Invested Capital (ROIC), Debt Ratio and Profit per average FTE(9)
Partner.
-- Our financial priority remains to reduce our Debt Ratio to
around three times cash flow within around five years. This is one
of the reasons that has led us to hold back Partnership Bonus in
recent years, but as a result we are in a much stronger position to
weather the pressures currently affecting UK retail. In addition, a
pension review is currently progressing with any changes to our
future pension benefit expected to be agreed in 2019.
-- We expect profit this year to be substantially lower than in
2017/18, and this will be reflected in ROIC and Profit per average
FTE Partner performance. Lower profits will also impact our Debt
Ratio, but we remain focused on further reducing our total net
debts. Our Debt Ratio will also be impacted by the accounting
pension deficit at January 2019, which will be determined using
market interest rates at that time. The reduction in the accounting
pension deficit at July 2018 has been mainly due to an improvement
in the real discount rate used to value the liabilities and an
increase in pension fund assets.
-- The actions we are taking are aimed at restoring ROIC and
Profit per average FTE Partner to levels that will support
increased investment and improved Bonus levels over the medium
term, while maintaining a robust balance sheet position. This will
take a lot of hard work from all of our Partners, but we are
confident in our commitment, drive and ability to deliver the
Partnership's strategy.
(8) For definitions of KPIs see page 3 of our Financial
Statements for the year ended 27 January 2018
(9) Full-time equivalent
Additional financial information
Waitrose & Partners John Lewis & Partners
2018/19 2017/18 YoY change 2018/19 2017/18 YoY change
GBPm GBPm GBPm GBPm
------- ------- ---------- ------- ------- ----------
Gross sales 3,393.2 3,324.2 2.1% 2,093.4 2,077.2 0.8%
LFL sales(10) 2.6% (1.2)%
Revenue 3,193.4 3,131.1 2.0% 1,663.3 1,651.6 0.7%
Operating profit/(loss)
before exceptional items 96.4 109.8 (12.2)% (19.3) 54.4 n/m(11)
Operating profit/(loss) 94.4 88.1 7.2% (33.5) 33.3 n/m(11)
(10) Waitrose & Partners like-for-like sales excludes fuel
(11) Not meaningful
Net finance costs
Net finance costs decreased by GBP10.4m reflecting (i) the
capitalisation of borrowing costs for qualifying assets which
relate to a number of our significant multi-year capital projects,
(ii) lower pension finance costs due to a lower accounting pension
deficit and nominal discount rate used to determine the finance
cost at the beginning of the year compared to the beginning of the
previous year, as well as early payment of cash contributions, and
(iii) lower long leave finance costs arising from volatility in
market driven assumptions.
Exceptional items
Exceptional income totalled GBP4.8m (2017/18: charge of
GBP65.4m) with GBP2.0m charge in Waitrose & Partners (2017/18:
GBP21.7m), GBP14.2m charge in John Lewis & Partners (2017/18:
GBP21.1m) and GBP21.0m income in Group (2017/18: charge of
GBP22.6m). Further detail is included in the following table:
2018/19 2017/18
GBPm GBPm
Restructuring and redundancy (a) (9.1) (55.5)
Branch impairments (b) (12.6) (9.0)
Pay provision (c) 26.0 -
Strategic review (d) 0.5 (0.9)
4.8 (65.4)
------- -------
a) Charge of GBP9.1m for restructuring and redundancy costs,
principally in relation to our branch, retail and head office
operations. In 2017/18, the restructuring and redundancy charge of
GBP55.5m was principally in relation to branch, distribution and
retail operations as well as functional restructurings in Finance,
Personnel and IT, as we moved from divisional to Partnership
functions.
b) Charge of GBP12.6m for branch impairment in John Lewis &
Partners following the signing of a lease contract. In 2017/18
there was a charge of GBP9.0m for branch impairments in Waitrose
& Partners, which was previously reflected as non-exceptional
operating expenses and has subsequently been reclassified to
exceptional items (see note 2 - Accounting policies for further
details).
c) In 2016/17, a GBP36.0m provision was recorded as an
exceptional charge to cover the potential costs of complying with
the National Minimum Wage Regulations. Discussions with HMRC are
now advanced and the methodology for calculating the liability has
been clarified, resulting in a GBP26.0m release of the provision in
this half year. The ultimate resolution of the liability may result
in an amount that is different from that provided.
d) During this half year provisions no longer required of
GBP0.5m, previously recorded within exceptional items as part of
the strategic review in 2016/17, were reversed. In 2017/18, there
was a net charge of GBP0.9m.
Enquiries
For further information please contact:
John Lewis Partnership
Simon Fowler, Partner & Director of Communications, 07710
398460
Clayton Hirst, Partner & Group Head of Corporate Affairs,
07947 708167
Sarah Henderson, Partner & Group Senior External
Communications Manager, 07764 676036
Citigate Dewe Rogerson
Simon Rigby, Joint Managing Director, 07771 784446
Jos Bieneman, Director, 07834 336650
Ellen Wilton, Associate Director, 07921 352851
John Lewis & Partners
Gillian Taylor, Partner & Head of External Communications,
07919 057931
Emily Dimmock, Partner & Senior Communications Manager,
Corporate, 07712 545677
Waitrose & Partners
Graeme Buck, Partner & Head of Communications, 07703
379561
Gill Smith, Partner & Senior Corporate PR Manager, 07887
898133
Debt investors
Alan Drew, Partner & Head of Treasury and Corporate Finance,
07525 582955
Notes to editors
The John Lewis Partnership operates 50 John Lewis & Partners
shops across the UK, johnlewis.com, 352 Waitrose & Partners
shops, waitrose.com and business to business contracts in the UK
and abroad. The business has annual gross sales of over GBP11.5bn.
It is the UK's largest example of an employee-owned business where
all 83,000 staff are Partners in the business.
Waitrose & Partners has 352 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 & Partners exports products to more than 50
countries worldwide and has nine shops which operate under licence
in the Middle East. Waitrose & Partners 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 & Partners has been awarded the 'Sustainable Fish
Counter of the Year' award from the Marine Stewardship Council,
'Deli Cheese Retailer of the Year 2018' (cheese counter) award at
the International Cheese & Dairy Awards and 'Drinks Retailer of
the Year' award from the Drinks Business Awards 2018.
John Lewis & Partners operates 50 John Lewis & Partners
shops across the UK (36 department stores, 12 John Lewis &
Partners at home and shops at St Pancras International and Heathrow
Terminal 2) as well as johnlewis.com. John Lewis & Partners
stocks around 350,000 separate lines in its department stores and
johnlewis.com across fashion, home and technology. This year John
Lewis & Partners won 'Best Multichannel Retailer 2018', 'Best
Clothing Retailer 2018', and 'Best Furniture Retailer 2018' at the
GlobalData Customer Satisfaction Awards 2018. John Lewis Finance
offers a range of comprehensive financial services products -
including Insurance, Foreign Currency, International Payments and
the Partnership Card - delivering the values of expertise, trust
and customer service expected from the John Lewis & Partners
brand. www.johnlewisfinance.com
Consolidated income statement
for the half year ended 28 July 2018
Notes Half year to Half year to Year to
28 July 2018 29 July 2017 27 January 2018
(restated, see note 2) (restated, see note 2)
GBPm GBPm GBPm
------ ------------------------------------------ -------------- ------------------------ ------------------------
5 Gross sales 5,486.6 5,401.4 11,609.5
------ ------------------------------------------ -------------- ------------------------ ------------------------
5 Revenue 4,856.7 4,782.7 10,215.8
Cost of sales (3,298.4) (3,224.3) (6,847.7)
------ ------------------------------------------ -------------- ------------------------ ------------------------
Gross profit 1,558.3 1,558.4 3,368.1
Other operating income 56.2 53.4 111.3
Operating expenses before exceptional
items and Partnership Bonus (1,580.4) (1,472.3) (3,115.9)
Share of loss of joint venture (net of
tax) (1.0) (0.9) (1.0)
------ ------------------------------------------ -------------- ------------------------ ------------------------
5 Operating profit before exceptional items 33.1 138.6 362.5
and Partnership Bonus
4 Exceptional items 4.8 (65.4) (111.3)
------ ------------------------------------------ -------------- ------------------------ ------------------------
5 Operating profit before Partnership Bonus 37.9 73.2 251.2
6 Finance costs (37.6) (48.5) (85.2)
6 Finance income 5.9 6.4 14.1
Profit before Partnership Bonus and tax 6.2 31.1 180.1
Partnership Bonus - - (74.0)
------ ------------------------------------------ -------------- ------------------------ ------------------------
Profit before tax 6.2 31.1 106.1
7 Taxation (1.9) (8.7) (31.3)
------ ------------------------------------------ -------------- ------------------------ ------------------------
Profit for the period 4.3 22.4 74.8
------ ------------------------------------------ -------------- ------------------------ ------------------------
5 Profit before Partnership Bonus, tax and exceptional items 1.4 96.5 291.4
------------------------------------------------------------ ---- -----
Consolidated statement of comprehensive income/(expense)
for the half year ended 28 July 2018
Notes Half year to Half year to Year to
28 July 2018 29 July 2017 27 January 2018
(restated, see note 2) (restated, see note 2)
GBPm GBPm GBPm
------- ----------------------------------------- -------------- ------------------------ ------------------------
Profit for the period 4.3 22.4 74.8
Other comprehensive income/(expense):
Items that will not be reclassified to
profit or loss:
11 Remeasurement of defined benefit 487.0 (82.8) 247.5
pension scheme
7 Movement in deferred tax on pension (90.0) (2.0) (57.4)
scheme
7 Movement in current tax on pension 7.2 16.1 17.2
scheme
Items that may be reclassified
subsequently to profit or loss:
Net gain/(loss) on cash flow hedges(1) 33.3 (8.7) (30.9)
7 Movement in deferred tax on cash (4.9) 1.5 5.9
flow hedges
Gain on currency translations - - 0.4
------------------------------------------------- -------------- ------------------------ ------------------------
Other comprehensive income/(expense) for the
period 432.6 (75.9) 182.7
------------------------------------------------- -------------- ------------------------ ------------------------
Total comprehensive income/(expense) for the
period 436.9 (53.5) 257.5
------------------------------------------------- -------------- ------------------------ ------------------------
(1) Presentation has changed as a result of IFRS 9. See note 2.
Consolidated balance sheet
as at 28 July 2018
Notes 28 July 2018 29 July 2017 27 January 2018
(restated, see note 2) (restated, see note 2)
GBPm GBPm GBPm
------ ----------------------------------------- ------------- ----------------------- -----------------------
Non-current assets
8 Intangible assets and goodwill 505.7 448.6 495.7
8 Property, plant and equipment 3,850.9 4,013.6 3,971.2
Trade and other receivables 60.6 60.9 65.3
14 Derivative financial instruments 2.5 2.0 -
Investment in and loans to joint venture 2.3 3.0 2.9
Deferred tax asset - 58.4 28.0
------ ----------------------------------------- ------------- ----------------------- -----------------------
4,422.0 4,586.5 4,563.1
------ ----------------------------------------- ------------- ----------------------- -----------------------
Current assets
Inventories 609.2 608.1 661.5
Trade and other receivables 314.1 284.1 291.9
Current tax receivable 19.0 1.9 -
14 Derivative financial instruments 11.5 7.2 5.2
9 Assets held for sale 15.4 8.3 -
Short-term investments 166.2 60.0 166.0
Cash and cash equivalents 370.3 510.8 596.2
------ ----------------------------------------- ------------- ----------------------- -----------------------
1,505.7 1,480.4 1,720.8
------ ----------------------------------------- ------------- ----------------------- -----------------------
Total assets 5,927.7 6,066.9 6,283.9
------ ----------------------------------------- ------------- ----------------------- -----------------------
Current liabilities
13 Borrowings and overdrafts (275.0) - (0.1)
Trade and other payables (1,539.7) (1,556.6) (1,786.6)
Current tax payable - - (9.7)
13 Finance lease liabilities (0.7) (0.9) (0.7)
10 Provisions (108.6) (182.6) (167.9)
14 Derivative financial instruments (6.3) (7.9) (19.8)
------ ----------------------------------------- ------------- ----------------------- -----------------------
(1,930.3) (1,748.0) (1,984.8)
------ ----------------------------------------- ------------- ----------------------- -----------------------
Non-current liabilities
13 Borrowings (588.5) (864.3) (862.8)
Trade and other payables (259.4) (266.4) (252.1)
13 Finance lease liabilities (21.7) (23.0) (22.6)
10 Provisions (130.9) (135.5) (122.7)
14 Derivative financial instruments (0.2) (0.9) (4.0)
11 Retirement benefit obligations (186.9) (1,042.3) (731.3)
Deferred tax liability (81.1) - (6.1)
(1,268.7) (2,332.4) (2,001.6)
------ ----------------------------------------- ------------- ----------------------- -----------------------
Total liabilities (3,199.0) (4,080.4) (3,986.4)
------ ----------------------------------------- ------------- ----------------------- -----------------------
Net assets 2,728.7 1,986.5 2,297.5
------ ----------------------------------------- ------------- ----------------------- -----------------------
Equity
Share capital 6.7 6.7 6.7
Share premium 0.3 0.3 0.3
Other reserves 7.1 1.8 (15.6)
Retained earnings 2,714.6 1,977.7 2,306.1
Total equity 2,728.7 1,986.5 2,297.5
------ ----------------------------------------- ------------- ----------------------- -----------------------
Consolidated statement of changes in equity
for the half year ended 28 July 2018
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 28
January 2017 6.7 0.3 1.4 8.1 (0.5) 2,037.4 2,053.4
Restatement for
2 IFRS 15 - - - - - (13.4) (13.4)
Balance at 28
January 2017 (1) 6.7 0.3 1.4 8.1 (0.5) 2,024.0 2,040.0
Profit for the
period (1) - - - - - 22.4 22.4
11 Remeasurement of - - - - - (82.8) (82.8)
defined benefit
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 (1) 6.7 0.3 1.4 0.9 (0.5) 1,977.7 1,986.5
------ ----------------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Balance at 28
January 2017 6.7 0.3 1.4 8.1 (0.5) 2,037.4 2,053.4
Restatement for
2 IFRS 15 - - - - - (13.4) (13.4)
Balance at 28
January 2017 (1) 6.7 0.3 1.4 8.1 (0.5) 2,024.0 2,040.0
Profit for the
year (1) - - - - - 74.8 74.8
11 Remeasurement of - - - - - 247.5 247.5
defined benefit
pension scheme
Fair value
losses on cash
flow hedges - - - (22.8) - - (22.8)
- transfers
to
inventories - - - (8.1) - - (8.1)
Tax on above
items recognised
in equity - - - 5.9 - (40.2) (34.3)
Gain on currency
translations - - - - 0.4 - 0.4
------ ----------------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Balance at 27
January 2018 (1) 6.7 0.3 1.4 (16.9) (0.1) 2,306.1 2,297.5
Profit for the
period - - - - - 4.3 4.3
Other
comprehensive
income/
(expense) for
the period:
11 Remeasurement - - - - - 487.0 487.0
of defined
benefit
pension
scheme
Fair value
gains on cash
flow
hedges(2) - - - 33.3 - - 33.3
Tax on above
items
recognised in
equity - - - (4.9) - (82.8) (87.7)
------ ----------------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Total
comprehensive
income for the
period - - - 28.4 - 408.5 436.9
------ ----------------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
Hedging gains
transferred to
cost of
inventory(2) - - - (5.7) - - (5.7)
Balance at 28
July 2018 6.7 0.3 1.4 5.8 (0.1) 2,714.6 2,728.7
------ ----------------- ----------- ----------- ----------- ----------- ------------ ----------- ------------
(1) Restated, see note 2.
(2) Presentation has changed as a result of IFRS 9. See note
2.
-
Consolidated statement of cash flows
for the half year ended 28 July 2018
Notes Half year to Half year to Year to
28 July 2018 29 July 2017 27 January 2018
(restated, see note 2) (restated, see note 2)
GBPm GBPm GBPm
------- ----------------------------------------- -------------- ------------------------ ------------------------
Cash generated from operations before
12 Partnership Bonus 66.5 182.9 637.3
Net taxation paid (15.4) (21.4) (44.1)
Pension deficit reduction payments (37.1) (83.7) (89.8)
Finance costs paid (0.6) (0.5) (2.5)
Net cash generated from operating activities
before Partnership Bonus 13.4 77.3 500.9
------------------------------------------------- -------------- ------------------------ ------------------------
Partnership Bonus paid (74.7) (89.1) (89.2)
------------------------------------------------- -------------- ------------------------ ------------------------
Net cash (used in)/generated from operating
activities after Partnership Bonus (61.3) (11.8) 411.7
------------------------------------------------- -------------- ------------------------ ------------------------
Cash flows from investing activities
Purchase of property, plant and equipment (67.1) (102.0) (228.5)
Purchase of intangible assets (74.3) (69.2) (169.8)
Proceeds from sale of property, plant and
equipment and intangible assets 2.7 45.0 68.0
Finance income received 0.9 0.6 1.7
Cash outflow from investment in and (0.4) - -
loans to joint venture
Cash outflow to short-term investments - - (106.0)
Cash outflow from acquisition of trade (1.0) - -
and assets
Net cash used in investing activities (139.2) (125.6) (434.6)
------------------------------------------------- -------------- ------------------------ ------------------------
Cash flows from financing activities
Finance costs paid in respect of bonds (23.0) (23.0) (54.2)
Finance (costs paid)/income in respect of
financial instruments (1.9) (1.9) 0.7
Payment of capital element of finance leases (0.4) (0.6) (1.2)
Net cash used in financing activities (25.3) (25.5) (54.7)
------------------------------------------------- -------------- ------------------------ ------------------------
Decrease in net cash and cash equivalents (225.8) (162.9) (77.6)
Net cash and cash equivalents at beginning of
the period (1) 596.1 673.7 673.7
Effect of exchange rate changes on cash (0.2) - -
and cash equivalents
Net cash and cash equivalents at end of the
period 370.1 510.8 596.1
------------------------------------------------- -------------- ------------------------ ------------------------
Net cash and cash equivalents comprise:
Cash at bank and in hand 118.3 119.5 128.4
Short-term deposits 252.0 391.3 467.8
Bank overdrafts (0.2) - (0.1)
370.1 510.8 596.1
------------------------------------------------- -------------- ------------------------ ------------------------
(1) Reclassified, see note 2.
Notes to the financial statements
1 Basis of preparation
This condensed set of interim financial statements was approved
by the Board on 12 September 2018. The condensed set of interim
financial statements is unaudited, but has been reviewed by the
auditor and their review report is set out at the end of these
interim financial statements. 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 29
July 2017 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 28 July 2018 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 27
January 2018 have 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 28 July 2018 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 27 January 2018, 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.
2 Accounting policies
The Group's results for the half year to 28 July 2018 have been
prepared on a basis consistent with the Group's accounting policies
published in the financial statements for the year ended 27 January
2018, with the exception of the items noted below. The changes in
accounting policies will also be reflected in the Group's
consolidated financial statements as at and for the year ending 26
January 2019.
IFRS 15 'Revenue from Contracts with Customers', applicable from
28 January 2018
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaces IAS
18 'Revenue and related interpretations'. The Group adopted IFRS 15
from 28 January 2018 using a fully retrospective approach.
The main impact for the Group on adoption was in respect of the
timing of revenue recognition of free service guarantees in John
Lewis & Partners, principally for certain electrical products.
Under IAS 18, the full sale value paid by the customer was
recognised in the income statement at the time of sale and a
provision was recorded on the Balance sheet for the expected
liability for future repair costs under the warranty. Under IFRS
15, the free warranty is considered a separate performance
obligation, therefore the Group allocates a portion of the
consideration received to providing the warranty. The allocation is
based on the stand alone selling prices of the product and the
relative fair value of the warranty which includes an associated
profit margin. The amount allocated to free warranties is then
recorded as deferred income on the Balance sheet and released to
revenue over the period of the warranty.
The impact of these changes is a decrease in revenue recognised
at the point of sale and a decrease in the Provisions held in
relation to the warranties. In addition, there is an increase in
the Deferred income liability held in Trade and other payables on
the Balance sheet.
The opening Balance sheet position and comparative periods have
been restated through Retained earnings to reflect the decrease in
Provisions and the increase in Deferred income liability, as well
as the impact of taxation.
As at 28 January 2017:
-- There is a decrease of GBP13.4m to brought forward retained
earnings as a result of the full retrospective approach.
As at 27 January 2018:
-- The Deferred tax asset balance of GBP25.5m has increased to GBP28.0m;
-- The Provisions balance of GBP345.7m has decreased to GBP290.6m;
-- The Trade and other payables balance of GBP1,970.6m has increased to GBP2,038.7m;
-- The impact on net assets is a decrease of GBP10.5m; and
-- There is a net impact on the income statement of GBP2.9m
increase in profitability for the full year.
2 Accounting policies (continued)
As at 29 July 2017:
-- The Deferred tax asset balance of GBP56.0m has increased to GBP58.4m;
-- The Provisions balance of GBP380.8m has decreased to GBP318.1m;
-- The Trade and other payables balance of GBP1,747.9m has increased to GBP1,823.0m;
-- The impact on net assets is a decrease of GBP10.0m; and
-- There is a net impact on the income statement of GBP3.4m
increase in profitability for the half year.
IFRS 9 'Financial Instruments', applicable from 28 January
2018
The adoption of IFRS 9 has no material impact on the Group's
financial statements. Under IAS 39, the cash flow hedge reserve
relating to cash flow hedges of foreign currency risk associated
with forecast inventory purchases were subsequently reclassified to
inventory and the amount was presented within the Statement of
other comprehensive income/(expense). Under IFRS 9, the amounts
accumulated in the cash flow hedge reserve are instead included
directly in the initial cost of the inventory item when it is
recognised and are no longer presented within the Statement of
other comprehensive income/(expense). Prior year balances have not
been restated.
A number of other new standards are effective from 28 January
2018, but they do not have a material effect on the Group's
financial statements.
Change in accounting policy: Exceptional items
During the half year, the Directors have reviewed the accounting
policy for Exceptional items. As part of this review, the Directors
have changed the accounting policy for Exceptional items to improve
the transparency and clarity of the application of the policy, as
follows:
The separate reporting of exceptional items helps to provide an
indication of the Partnership's underlying business performance.
Exceptional items relate to certain costs or incomes that
individually or, if of a similar type, in aggregate, are
significant by virtue of their size and nature and are separately
reported to help users of the financial statements understand the
underlying business performance of the Partnership.
In assessing whether an item is exceptional, the nature of the
item is considered. This assessment includes, both individually and
collectively, each of the following:
-- Whether the item is outside of the principal activities of the business;
-- The specific circumstances which have led to the item arising;
-- The likelihood of recurrence; and
-- If the item is likely to recur, whether the item is unusual by virtue of its size.
No restatement of items disclosed in prior periods is required
as a result of this change in accounting policy.
Non-exceptional operating expenses and exceptional items
In the half year to 29 July 2017, branch impairment costs
totalling GBP9.0m in Waitrose & Partners were reflected as
non-exceptional operating expenses as, at that time, they did not
meet the Group's policy for presentation as exceptional. These were
subsequently reclassified to exceptional for the year to 27 January
2018 as they then met the Group's policy for presentation as
exceptional. Therefore, the comparative for the half year to 29
July 2017 has been restated. This has resulted in an increase in
Exceptional items from GBP56.4m as previously reported to GBP65.4m
at 29 July 2017, and an increase in Operating profit before
exceptional items and Partnership Bonus from GBP129.6m as restated
for IFRS 15 to GBP138.6m at 29 July 2017.
Reclassification of short-term investments and cash and cash
equivalents
Following a review of the Group's short-term deposits, certain
deposits previously presented as cash and cash equivalents at
January 2018 are now considered short-term investments due to the
risk of variability in value of these funds. As a result, GBP46.0m
of deposits previously classified as cash and cash equivalents have
been reclassified to short-term investments in the current and
comparative periods, impacting the Balance sheet, Cash flow
statement and related notes to the accounts. There is no impact on
Current assets, Cash generated from operations or Net debt. There
is no impact on the Balance sheet as at 29 July 2017, as no such
investments were held at that date.
Standards issued but not yet effective
IFRS 16 'Leases', applicable for the period beginning 27 January
2019
IFRS 16 'Leases' specifies how to recognise, measure, present
and disclose leases. The standard will be effective for the Group
for the year ending 25 January 2020 and its adoption is expected to
have a very significant impact to the Group's Consolidated income
statement and Consolidated balance sheet. The Group intends to
adopt the modified retrospective approach on transition. This will
require an adjustment to equity as at 27 January 2019, however
prior year comparatives will not be restated.
2 Accounting policies (continued)
On adoption of IFRS 16, the main impact will be the recognition
of right-of-use assets and lease liabilities on the Consolidated
balance sheet for all applicable leases. Going forward, a
straight-line depreciation expense will be recognised in the income
statement in relation to the right-of-use assets and an amortising
interest charge will be recognised in the income statement in
relation to the lease liabilities. The interest charge will be
front-loaded in the earlier periods of a lease as the interest
element unwinds. This will replace the operating lease expense
currently recognised in the income statement under IAS 17. Overall,
this is expected to result in a material reduction in profit before
tax and may result in a material reduction in net assets on the
Consolidated balance sheet. There will be no quantitative impact to
cash flows, however the classification of cash flows between
operating activities and financing activities will change. The
effect of these changes will also be reflected in the Group's KPIs
including the Debt Ratio, Return on invested capital and Group
profit per average FTE (Full Time Equivalent).
The Group's IFRS 16 project is governed by a Steering Group
which oversees the relevant project work streams, approves key
decisions and provides regular updates to the Audit and Risk
Committee. During the half year to 28 July 2018, work has
progressed regarding establishing an appropriate discount rate
methodology, collecting and validating the Group's complete
portfolio of lease data and implementing an IT system solution to
record and calculate the IFRS 16 impact. Ahead of January 2019, the
Group will finalise data collection and validation for the Group's
complete portfolio of lease data, embed a strong internal control
environment over the IFRS 16 process, finalise the relevant
accounting policies and refresh the applicable discount rates and
lease data records for any changes in the period before transition.
Until that time, and given the complexity of the judgements
involved, it remains impractical to provide a reliable,
quantitative estimate of the impact on the consolidated interim
financial statements.
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 7 to 9 of the John Lewis plc Financial
Statements for the year ended 27 January 2018, 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. All risks remain
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;
-- External 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: Partners and their engagement are key
to the success of our co-ownership model. Commercial decisions made
to secure the economic success of the business as well as external
pressures on Partners could unconsciously impact Partners belief
in, and commitment to, our co-ownership model.
4 Exceptional items
Half year to Half year to Year to
28 July 2018 29 July 2017 27 January 2018
(restated, see note 2)
Operating Taxation Operating Taxation Operating Taxation
(expenses)/ credit/ (charge) expenses credit (expenses)/ credit
income GBPm income
GBPm GBPm GBPm GBPm GBPm
------------------- ------------------ ------------------ ------------- ----------- ------------------ ---------
Restructuring and
redundancy (a) (9.1) 2.5 (55.5) 10.2 (72.8) 13.7
Branch impairment (12.6) - - - - -
- John Lewis &
Partners (b)
Pay provision (c) 26.0 (5.0) - - - -
Strategic review
(d) 0.5 (0.1) (0.9) - (2.3) 0.4
Branch impairments
- Waitrose &
Partners (e) - - (9.0) - (38.9) 4.5
Profit on disposal - - - - 2.7 -
of items
previously
recognised as
exceptional (f)
4.8 (2.6) (65.4) 10.2 (111.3) 18.6
------------------- ------------------ ------------------ ------------- ----------- ------------------ ---------
At 28 July 2018, the Group recognised a net exceptional credit
of GBP4.8m, as follows:
a) Charges of GBP9.1m have been recorded for restructuring and
redundancy costs, principally in relation to our branch, retail and
head office operations. Charges of GBP72.8m for the full year to
January 2018 and GBP55.5m for the half year to July 2017
principally related to branch, distribution and retail operations
as well as functional restructuring in Finance, Personnel and
IT.
b) Following the signing of a lease contract, a charge of
GBP12.6m has been recorded in relation to branch impairment in John
Lewis & Partners.
c) In 2016/17, a GBP36.0m provision was recorded as an
exceptional charge to cover the potential costs of complying with
the National Minimum Wage Regulations. Discussions with HMRC are
now advanced and the methodology for calculating the liability has
been clarified, resulting in a GBP26.0m release of the provision in
the period. The ultimate resolution of the liability may result in
an amount that is different from that provided.
d) During the half year, provisions no longer required of
GBP0.5m previously recorded within exceptional items as part of the
strategic review in 2016/17, were reversed. Net charges for the
full year to January 2018 and half year to July 2017 were GBP2.3m
and GBP0.9m respectively.
In addition to the items noted above, during the year to 27
January 2018 and half year to 29 July 2017, the Group recognised
the following items as exceptional income and expenses:
e) Continued uncertainty with respect to Brexit outcomes and
changes to the grocery market led us to review our approach and
assumptions with respect to the possible impairment of Waitrose
& Partners stores, where margins have trended significantly
lower. This resulted in an impairment charge of GBP9.0m for first
half and GBP38.9m for the full year 2017/18, which given the nature
of the exercise in 2017/18 and the size of the charge, was included
within exceptional items.
f) Income of GBP2.7m was recognised for the full year upon
finalisation of a 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 27 January 2018, branch
impairment costs totalling GBP9.0m in Waitrose & Partners which
were reflected as non-exceptional operating expenses in the half
year to 29 July 2017, were subsequently reclassified as
exceptional. Refer to note 2 for further details.
5 Segmental reporting
The Group's three reporting segments are Waitrose &
Partners, John Lewis & Partners 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/(loss) 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.
The Waitrose & Partners 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 & Partners business.
Waitrose John Lewis Group Total
& Partners & Partners
GBPm GBPm GBPm GBPm
------------------------------------- ------------ ------------ ------- --------
Half year to 28 July 2018
Gross sales 3,393.2 2,093.4 - 5,486.6
Adjustment for sale or return
sales - (114.4) - (114.4)
Value added tax (199.8) (315.7) - (515.5)
------------------------------------- ------------ ------------ ------- --------
Revenue 3,193.4 1,663.3 - 4,856.7
------------------------------------- ------------ ------------ ------- --------
Operating profit before exceptional
items, Partnership Bonus
and net profit on sale of
property (1) 96.4 (19.3) (44.0) 33.1
Net profit on sale of property - - - -
------------------------------------- ------------ ------------ ------- --------
Operating profit before exceptional
items and Partnership Bonus 96.4 (19.3) (44.0) 33.1
Exceptional items (2.0) (14.2) 21.0 4.8
------------------------------------- ------------ ------------ ------- --------
Operating profit before Partnership
Bonus 94.4 (33.5) (23.0) 37.9
Finance costs (37.6)
Finance income 5.9
Profit before tax 6.2
Taxation (1.9)
------------------------------------- ------------ ------------ ------- --------
Profit for the period 4.3
------------------------------------- ------------ ------------ ------- --------
Profit before Partnership
Bonus, tax and exceptional
items 1.4
-------------------------------- ----
28 July 2018
Segment assets 2,844.9 2,059.6 1,023.2 5,927.7
Segment liabilities (803.9) (772.1) (1,623.0) (3,199.0)
-------------------------- -------- -------- ---------- ----------
Net assets/(liabilities) 2,041.0 1,287.5 (599.8) 2,728.7
-------------------------- -------- -------- ---------- ----------
(1) Included within Operating profit before exceptional items,
Partnership Bonus and net profit on sale of property is a GBP1.0m
share of loss of a joint venture in John Lewis & Partners (27
January 2018: GBP1.0m loss; 29 July 2017: GBP0.9m loss), and an
impairment credit in Waitrose & Partners of GBP0.4m (27 January
2018: GBPnil; 29 July 2017: GBPnil).
5 Segmental reporting (continued)
Waitrose John Lewis Group Total
& Partners & Partners
(1)
GBPm GBPm GBPm GBPm
------------------------------------- ------------ ------------ ------- ---------
Half year to 29 July 2017
Gross sales (1) 3,324.2 2,077.2 - 5,401.4
Adjustment for sale or return
sales - (110.4) - (110.4)
Value added tax (193.1) (315.2) - (508.3)
------------------------------------- ------------ ------------ ------- ---------
Revenue (1) 3,131.1 1,651.6 - 4,782.7
------------------------------------- ------------ ------------ ------- ---------
Operating profit before exceptional
items, Partnership Bonus and
net profit on sale of property
(1, 2) 108.9 43.9 (25.6) 127.2
Net profit on sale of property 0.9 10.5 - 11.4
------------------------------------- ------------ ------------ ------- ---------
Operating profit before exceptional
items and Partnership Bonus
(1) 109.8 54.4 (25.6) 138.6
Exceptional items (21.7) (21.1) (22.6) (65.4)
------------------------------------- ------------ ------------ ------- ---------
Operating profit before Partnership
Bonus (1) 88.1 33.3 (48.2) 73.2
Finance costs (48.5)
Finance income 6.4
Profit before tax (1) 31.1
Taxation (8.7)
------------------------------------- ------------ ------------ ------- ---------
Profit for the period (1) 22.4
------------------------------------- ------------ ------------ ------- ---------
Profit before Partnership Bonus,
tax and exceptional items (1) 96.5
------------------------------------- -----
29 July 2017
Segment assets (1) 2,865.4 2,066.3 1,135.2 6,066.9
Segment liabilities (1) (772.9) (815.9) (2,491.6) (4,080.4)
-------------------------- -------- -------- ---------- ----------
Net assets/(liabilities)
(1) 2,092.5 1,250.4 (1,356.4) 1,986.5
-------------------------- -------- -------- ---------- ----------
(1) Restated, see note 2.
(2) Included within Operating profit before exceptional items,
Partnership Bonus and net profit on sale of property is a GBP0.9m
share of loss of a joint venture in John Lewis & Partners.
5 Segmental reporting (continued)
Waitrose John Lewis Group Total
& Partners & Partners
(1)
GBPm GBPm GBPm GBPm
------------------------------------- ------------ ------------ -------- ----------
Year to 27 January 2018
Gross sales (1) 6,753.7 4,855.8 - 11,609.5
Adjustment for sale or return
sales - (254.6) - (254.6)
Value added tax (399.0) (740.1) - (1,139.1)
------------------------------------- ------------ ------------ -------- ----------
Revenue (1) 6,354.7 3,861.1 - 10,215.8
------------------------------------- ------------ ------------ -------- ----------
Operating profit before exceptional
items, Partnership Bonus and
net profit on sale of property
(1, 2) 169.1 247.3 (67.3) 349.1
Net profit on sale of property 2.9 10.5 - 13.4
------------------------------------- ------------ ------------ -------- ----------
Operating profit before exceptional
items and Partnership Bonus
(1) 172.0 257.8 (67.3) 362.5
Exceptional items (52.2) (21.3) (37.8) (111.3)
------------------------------------- ------------ ------------ -------- ----------
Operating profit before Partnership
Bonus (1) 119.8 236.5 (105.1) 251.2
Finance costs (85.2)
Finance income 14.1
Partnership Bonus (74.0)
------------------------------------- ------------ ------------ -------- ----------
Profit before tax (1) 106.1
Taxation (31.3)
------------------------------------- ------------ ------------ -------- ----------
Profit for the year (1) 74.8
------------------------------------- ------------ ------------ -------- ----------
Profit before Partnership Bonus,
tax and exceptional items (1) 291.4
------------------------------------- ------
27 January 2018
Segment assets (1) 2,890.1 2,150.8 1,243.0 6,283.9
Segment liabilities (1) (784.9) (902.0) (2,299.5) (3,986.4)
-------------------------- -------- -------- ---------- ----------
Net assets/(liabilities)
(1) 2,105.2 1,248.8 (1,056.5) 2,297.5
-------------------------- -------- -------- ---------- ----------
(1) Restated, see note 2.
(2) Included within Operating profit before exceptional items,
Partnership Bonus and net profit on sale of property is a GBP1.0m
share of loss of a joint venture in John Lewis & Partners.
6 Net finance costs
Half year Half year Year to
to to 27 January
28 July 29 July 2017 2018
2018
GBPm GBPm GBPm
-------------------------------------------- ---------- -------------- ------------
Finance costs
Finance costs in respect of borrowings (26.8) (30.9) (54.2)
Fair value measurements and other (2.1) (1.2) (1.8)
Net finance costs arising on defined
benefit and other
employee benefit schemes (8.7) (16.4) (29.2)
-------------------------------------------- ---------- -------------- ------------
Total finance costs (37.6) (48.5) (85.2)
-------------------------------------------- ---------- -------------- ------------
Finance income
Finance income in respect of cash
and short-term
investments 4.2 2.9 6.8
Fair value measurements and other 1.7 3.5 7.3
Total finance income 5.9 6.4 14.1
-------------------------------------------- ---------- -------------- ------------
Net finance costs (31.7) (42.1) (71.1)
-------------------------------------------- ---------- -------------- ------------
Half year Half year Year to
to to 27 January
28 July 29 July 2017 2018
2018
GBPm GBPm GBPm
-------------------------------------------- ---------- -------------- ------------
Finance costs in respect of borrowings,
excluding interest rate swaps (24.0) (28.9) (49.5)
Net interest receivable in respect
of interest rate swaps 0.2 0.3 0.7
Finance income in respect of cash
and short-term investments, excluding
interest rate swaps 1.2 0.6 1.4
-------------------------------------------- ---------- -------------- ------------
Net finance costs in respect of borrowings
and short-term investments (22.6) (28.0) (47.4)
Fair value measurements and other (0.4) 2.3 5.5
Net finance costs arising on defined
benefit retirement scheme (8.5) (12.9) (25.3)
Net finance income arising on other
employee benefit schemes (0.2) (3.5) (3.9)
-------------------------------------------- ---------- -------------- ------------
Net finance costs (31.7) (42.1) (71.1)
-------------------------------------------- ---------- -------------- ------------
Borrowing costs totalling GBP4.8m have been capitalised within
Intangible assets (GBP4.2m) and Property, plant and equipment
(GBP0.6m) in the half year to 28 July 2018. In the year to 27
January 2018, borrowing costs totalling GBP8.4m were capitalised
within Intangible assets (GBP7.2m) and within Property, plant and
equipment (GBP1.2m).
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 excluding any discrete items. The tax charge on
discrete items at half year is calculated and disclosed
separately.
8 Property, plant and equipment, Intangible assets and goodwill
Property, plant Intangible Total
and equipment assets and
goodwill
GBPm GBPm GBPm
-------------------------------- ---------------- ------------ --------
Net book value at 27 January
2018 3,971.2 495.7 4,466.9
Additions 45.7 78.4 124.1
Acquisition-related goodwill - 1.8 1.8
Depreciation and amortisation
(1) (149.1) (57.5) (206.6)
Disposals and write-offs (1.5) (12.7) (14.2)
Transfers to assets held for
sale (see note 9) (15.4) - (15.4)
Net book value at 28 July 2018 3,850.9 505.7 4,356.6
-------------------------------- ---------------- ------------ --------
(1) Depreciation and amortisation for the period ending 28 July
2018 includes a net impairment charge of GBP23.9m (GBP12.3m net
impairment charge to land and buildings, and GBP11.6m net
impairment charge to intangible assets).
Intangible assets primarily relate to internally developed
computer software.
Goodwill relates to the provisional calculation of the surplus
of consideration over the assets and liabilities acquired as part
of the acquisition of the trade of Opun Group Limited on 1 June
2018.
The impairment review methodology is unchanged from that
described in the Annual Report and Accounts for the year ended 27
January 2018.
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 8.0% (27 January 2018: 8.0%; 29 July
2017: 7.0% to 8.0%).
9 Assets held for sale
At 28 July 2018, three property assets were recorded as held for
sale totalling GBP6.0m in Waitrose & Partners and GBP9.4m, in
John Lewis & Partners. Two of these property assets were
disposed of subsequent to the half year end and it is expected that
the remaining property asset will be disposed of in 2019/20.
At 27 January 2018, no property assets were recorded as held for
sale.
At 29 July 2017, one property asset was recorded as held for
sale totalling GBP8.3m in Waitrose & Partners.
10 Provisions
Long Customer Insurance Reorgani-sation Other Total (1)
leave refunds claims GBPm
GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- --------- ---------- ---------------- ------- ----------
At 27 January 2018 (139.6) (39.4) (25.0) (30.2) (56.4) (290.6)
------------------------------ -------- --------- ---------- ---------------- ------- ----------
Charged to income statement (6.1) (30.2) (8.5) (6.1) (4.0) (54.9)
Released to income statement 4.1 - - 1.8 30.5 36.4
Utilised 3.4 39.4 3.2 20.5 3.1 69.6
At 28 July 2018 (138.2) (30.2) (30.3) (14.0) (26.8) (239.5)
Of which:
Current (29.5) (30.2) (14.2) (13.4) (21.3) (108.6)
Non-current (108.7) - (16.1) (0.6) (5.5) (130.9)
------------------------------ -------- --------- ---------- ---------------- ------- ----------
(1) Restated, see note 2.
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 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, retail and
head office operations.
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 28 July 2018. The next triennial actuarial
valuation of the scheme will take place as at 31 March 2019.
Scheme assets are stated at market value at 28 July 2018.
The following financial assumptions have been used:
28 July 2018 29 July 2017 27 January
2018
Discount rate 2.90% 2.60% 2.75%
Future retail price inflation
(RPI) 3.10% 3.15% 3.25%
Future consumer price inflation
(CPI) 2.10% 2.15% 2.25%
Increase in earnings 3.20% 3.30% 3.45%
Increase in pensions - in payment
Pre-April 1997 1.65% 1.65% 1.70%
April 1997 - April 2016 2.90% 2.95% 3.00%
Post-April 2016 1.65% 1.65% 1.70%
Increase in pensions - deferred 2.10% 2.15% 2.25%
----------------------------------- ------------- ------------- -----------
The movement in the net defined benefit liability in the period
is as follows:
Half year Half year Year to
to to 27 January
28 July 2018 29 July 2017 2018
GBPm GBPm GBPm
-------------------------------------- -------------- -------------- ------------
Net defined benefit liability
at beginning of period (731.3) (1,013.7) (1,013.7)
Operating cost (72.5) (71.8) (144.0)
Interest cost on pension liabilities (84.6) (86.9) (173.7)
Interest income on assets 76.1 74.0 148.4
Contributions 138.4 138.9 204.2
Total gains/(losses) recognised
in equity 487.0 (82.8) 247.5
-------------------------------------- -------------- -------------- ------------
Net defined benefit liability
at end of period (186.9) (1,042.3) (731.3)
-------------------------------------- -------------- -------------- ------------
The post-retirement mortality assumptions used in valuing the
pension liabilities were based on the 'S2 Light' (27 January 2018:
'S2 Light'; 29 July 2017: '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 (27 January 2018:
127% for males and 106% for females; 29 July 2017: 127% for males
and 106% for females). Future improvements in life expectancy have
been allowed for in line with the latest CMI model projections
subject to a long-term trend of 1.25% (27 January 2018: 1.25%; 29
July 2017: 1.25%).
11 Retirement benefit obligations (continued)
The average life expectancies were as follows:
28 July 2018 27 January 2018
Men Women Men Women
----------------------------------------------------------------- ------ ------- -------- --------
Average life expectancy for a 65 year old (in years) 21.4 23.7 21.5 23.8
Average life expectancy at age 65, for a 50 year old (in years) 22.3 24.8 22.5 25.0
----------------------------------------------------------------- ------ ------- -------- --------
12 Reconciliation of profit before tax to cash generated from operations before Partnership Bonus
Half year Half year Year to
to to 27 January
28 July 29 July 2017 2018
2018
GBPm GBPm GBPm
----------------------------------------- ---------- -------------- ------------
Profit before tax (1) 6.2 31.1 106.1
Amortisation and write offs of
intangible assets (2) 70.2 53.3 114.1
Depreciation (2) 149.1 153.4 323.3
Share of loss of joint venture
(net of tax) 1.0 0.9 1.0
Net finance costs 31.7 42.1 71.1
Partnership Bonus - - 74.0
Fair value (gains)/losses on derivative
financial instruments (0.7) 1.3 0.2
Loss/(profit) on disposal of property,
plant and equipment and intangible
assets 0.1 (11.6) (15.8)
Decrease/(increase) in inventories 52.3 19.7 (33.7)
Increase in receivables (16.7) (39.8) (52.1)
(Decrease)/increase in payables
(1) (146.6) (124.0) 7.6
(Decrease)/increase in retirement
benefit obligations (28.8) 16.6 29.5
(Decrease)/increase in provisions
(1) (51.3) 39.9 12.0
----------------------------------------- ---------- -------------- ------------
Cash generated from operations before
Partnership Bonus 66.5 182.9 637.3
----------------------------------------- ---------- -------------- ------------
(1) Restated, see note 2.
(2) Includes net impairment charges. Refer to note 8.
13 Analysis of net debt
27 January Cash flow Other non- 28 July
2018 cash movements 2018
GBPm GBPm GBPm GBPm
---------------------------------- ----------- ---------- ---------------- --------
Non-current assets
Derivative financial instruments - - 2.5 2.5
- - 2.5 2.5
---------------------------------- ----------- ---------- ---------------- --------
Current assets
Cash and cash equivalents
(1) 596.2 (225.7) (0.2) 370.3
Short-term investments
(1) 166.0 - 0.2 166.2
Derivative financial instruments 5.2 (1.8) 8.1 11.5
767.4 (227.5) 8.1 548.0
---------------------------------- ----------- ---------- ---------------- --------
Current liabilities
Borrowings and overdraft (0.1) (0.1) (275.0) (275.2)
Unamortised bond transaction
costs - - 0.2 0.2
Finance leases (0.7) 0.4 (0.4) (0.7)
Derivative financial instruments (19.8) 8.5 5.0 (6.3)
---------------------------------- ----------- ---------- ---------------- --------
(20.6) 8.8 (270.2) (282.0)
---------------------------------- ----------- ---------- ---------------- --------
Non-current liabilities
Borrowings (875.0) - 275.0 (600.0)
Unamortised bond transaction
costs 11.1 - (0.8) 10.3
Fair value adjustment for
hedged element on bonds 1.1 - 0.1 1.2
Finance leases (22.6) - 0.9 (21.7)
Derivative financial instruments (4.0) - 3.8 (0.2)
(889.4) - 279.0 (610.4)
---------------------------------- ----------- ---------- ---------------- --------
Total net debt (142.6) (218.7) 19.4 (341.9)
---------------------------------- ----------- ---------- ---------------- --------
(1) Reclassified, see note 2.
Reconciliation of net cash flow to net debt
Half year to Half year to Year to
28 July 2018 29 July 2017 27 January
2018
GBPm GBPm GBPm
--------------------------------- -------------- -------------- ------------
Decrease in net cash and
cash equivalents in the period
(1) (225.8) (162.9) (77.6)
Cash outflow to short-term
investments (1) - - 106.0
Cash outflow from movement
in other net debt items 7.1 8.0 9.3
--------------------------------- -------------- -------------- ------------
Cash movement in net debt
for the period (218.7) (154.9) 37.7
Opening net debt (142.6) (146.4) (146.4)
Non-cash movements 19.4 (15.7) (33.9)
--------------------------------- -------------- -------------- ------------
Closing net debt (341.9) (317.0) (142.6)
--------------------------------- -------------- -------------- ------------
(1) Reclassified, see note 2.
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 John Lewis plc Financial Statements for the year ended 27
January 2018. During the half year to 28 July 2018, the Group has
continued to apply the financial risk management process and
policies as detailed in the John Lewis plc Financial Statements for
the year ended 27 January 2018.
Valuation techniques and assumptions applied in determining the
fair value of each class of asset or liability are consistent with
those used as at 27 January 2018 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 28 July 2018, 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 28 July 2018, the net fair value of derivative
financial instruments was GBP7.5m, asset (27 January 2018:
GBP18.6m, liability; 29 July 2017: GBP0.4m, 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):
28 July 2018 29 July 2017 27 January 2018
GBPm GBPm GBPm GBPm GBPm GBPm
CV FV CV FV CV FV
----------------------- -------- -------- -------- -------- -------- --------
Financial liabilities
Listed bonds (864.5) (931.2) (863.4) (989.5) (863.9) (982.6)
----------------------- -------- -------- -------- -------- -------- --------
The fair values of the Group's listed bonds have been determined
by reference to market price quotations and classified as Level 1
under the IFRS 13 fair value hierarchy. For other financial assets
and liabilities, there are no material differences between carrying
value and fair value.
15 Capital commitments
At 28 July 2018 contracts had been entered into for future
capital expenditure of GBP74.2m (27 January 2018: GBP36.0m; 29 July
2017: GBP28.6m) of which GBP63.6m (27 January 2018: GBP29.3m; 29
July 2017: GBP26.8m) relates to property, plant and equipment and
GBP10.6m (27 January 2018: GBP6.7m; 29 July 2017: GBP1.8m) relates
to intangible assets.
16 Related party transactions
There have been no material changes to the principal
subsidiaries listed in the John Lewis plc Financial Statements for
the year ended 27 January 2018. 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 28 July 2018.
17 Events after the balance sheet date
On 30 August 2018, John Lewis & Partners announced changes
to the Financial Administration operating model in John Lewis &
Partners branches and the Systems Support and Business Protection
management models. No accounting was recorded for the half year
ended 28 July 2018 in respect of these changes.
In September 2018, the Partnership reached a settlement in
relation to an ongoing legal dispute and is due to receive GBP15.0m
in the second half of the 2018/19 financial year. As conclusion of
the litigation was after 28 July 2018 and the outcome was uncertain
at that time, no accounting was recorded for the half year ended 28
July 2018 in respect of this income.
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
12 September 2018
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 report for the 26 weeks ended 28 July 2018 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 report for the 26 weeks ended 28 July
2018 is not prepared, in all material respects, in accordance with
the recognition and measurement requirements of 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 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 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 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 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
12 September 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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