TIDM45GD
RNS Number : 0488F
Lewis(John) PLC
05 March 2020
John Lewis plc announces the unaudited results for 52 weeks
ended 25 January 2020 for John Lewis Partnership plc
John Lewis Partnership plc is the ultimate holding company of
John Lewis plc
Thursday 5 March 2020
UNAUDITED RESULTS FOR YEARED 25 JANUARY 2020
Note: A glossary of financial and non-financial terms is
included at the end of this document.
LETTER FROM SHARON WHITE TO PARTNERS
Dear Partner,
I am writing to you today as a fellow co-owner of the John Lewis
Partnership to share our financial results for 2019/20.
We are the largest employee-owned business in the UK and amongst
the largest in the world. We are to all intents and purposes a
social enterprise; the profits that we make are reinvested into the
business - for our customers and our Partners.
Our constitution requires us to make sufficient profit to keep
the Partnership going, not the highest amount possible, and to put
our customers and our Partners ahead of profit.
Throughout 2019 Partners right across the business have shown
incredible passion for and commitment to our customers, and
continue to do so. I have seen this first hand in all the visits I
have made since I became Chairman - from our contact centre in
Hamilton to our textile mill at Herbert Parkinson; from our
distribution centre at Magna Park to our Waitrose store in Mill
Hill.
FINANCIAL PERFORMANCE AND BONUS
With the hard work of Partners, we made GBP123m of profit [1] in
2019/20, which is 23% less than we made in 2018/19. This is a
weaker performance than we had hoped for, driven by significantly
reduced profitability in John Lewis. Despite a solid performance in
Waitrose, it is our third year of declining profit across the
Partnership as a whole. This year we saw a one-off reduction in the
value of our John Lewis shops of GBP123m, principally as a result
of shops playing less of a role in driving online purchases.
Profits in 2019/20 were at the lower end of what we had
forecast. We are, therefore, awarding a bonus this year of 2%. I
believe this is prudent and affordable and it recognises the
contribution made by Partners working in the business today without
creating risk for our future sustainability. The result is that we
are able to continue to invest in our customers and pay down more
of our debt - this year our total net debts has fallen as a ratio
of cash flow from 4.3 to 3.9 times.
The Partnership's strengths
We have considerable strengths as a business:
-- We have passionate and committed Partners who have huge creativity and innovation.
-- We have two of the best loved brands among UK customers.
Waitrose is the Which? supermarket of the year [2] and John Lewis
recently topped a YouGov poll [3] for the high street's most
recommended brand.
-- We are a 'purpose-led' business that aims to put people and
the planet before profit. We do not make out to be perfect but we
do seek to take an ethical approach to business and help our
customers to shop more sustainably.
-- Our co-ownership model means we can invest for the long-term benefit of our customers.
Looking back on the last year, I am particularly proud of the
investment we make each year in community and environmental
projects. Examples include our 'Unpacked' trial that reduces the
amount of plastics used for fresh food and staples in our Waitrose
shops, which we will be extending this year, and our partnership
with the charity Fareshare that gave festive meals to more than
1,500 people who might otherwise have gone without.
Priorities for the year ahead
There are areas of the business where we know we need to serve
customers better. In John Lewis we will be refreshing our home
offering, introducing more inspirational and contemporary ranges
with improved pricing and delivery. We will also be making
improvements to John Lewis online to make it easier to shop.
We will be investing significantly in Waitrose.com, ahead of our
partnership with Ocado ending in September. Sales growth through
Waitrose.com was 13% up in 2019/20. We are also recruiting 2,400
new Partners and building a new fulfilment centre in Enfield to
meet increased demand for Waitrose products online.
All of us are aware of the challenges in retail. New technology
means that shoppers have never had so much choice, value and
convenience. That is to be celebrated. And there is great
opportunity for retailers who have an intimate understanding of
their customers to respond to them in an agile fashion. Every
Partner can make a difference this year by focusing relentlessly on
service - wherever they are in the business. If we get it right,
customers will return to shop with us and we'll earn their lifelong
loyalty.
Future Partnership will slim down our head office functions and
promote closer working between Partners in Waitrose and John Lewis.
It will cut costs and over time make it easier for customers to
shop across the two brands. As we restructure, we will take care
not to lose the distinctive nature of the two brands.
Strategic review
We need to reverse our profit decline and return to growth so
that we can invest more in our customers and in our Partners. This
will require a transformation in how we operate as a Partnership
and could take three to five years to show results. We are stepping
into a vital new phase for the Partnership and I have no doubt we
will come through it stronger.
Last month I spoke at Partnership Council about the Strategic
Review of the Partnership that we are now launching. The review is
being led by the executive team but all Partners - those of us who
are active in the democracy and those who are not - will have the
chance to contribute and shape our future. Further details will
follow.
The Strategic Review will focus on how we strengthen our core
retail business and develop new services outside retail. As part of
this we will also look at 'right sizing' our store estate across
both brands, through a combination of new formats and new
locations; repurposing and space reductions of existing stores; and
closures, where necessary. Over the last few years we have reviewed
Waitrose stores that were no longer viable and today we are
announcing three Waitrose stores that will close later this year at
Helensburgh, Four Oaks and Waterlooville. These decisions are never
taken lightly and every Partner who wishes to stay in the
Partnership will be actively supported to do so.
At the outset of the Strategic Review I want to make clear that
we will:
-- Continue to be an employee-owned Partnership.
-- Retain our two brands - John Lewis and Waitrose.
-- Put exceptional customer service at the heart of what we do -
whether in store, online or in customers' homes.
-- Focus on quality and value, with Partners empowered to offer
products and services that are more local.
-- Put even greater emphasis on sustainability.
The Strategic Review will be completed by the autumn and we will
give a further update with our half year results. At the end of the
review every Partner will be clear on the concrete plan and what
the future means for their area and for the Partnership.
These are the most challenging but exciting times in retail for
a generation. Together we have the opportunity to secure the
Partnership not just for the next five years but for the next
100.
Best wishes
Sharon
Partner & Chairman
FINANCIAL OVERVIEW
2019/20 2018/19 Change
GBPm GBPm %
========================================= ======= ======= =======
Gross sales 11,545 11,724 (1.5)%
Profit before PB, tax, exceptional items
and IFRS 16 123 160 (23.1)%
Adjusted cash flow 621 618 0.5%
Total net debts 2,451 2,682 (8.6)%
Revenue 10,151 10,317 (1.6)%
Profit before tax 146 117 24.8%
Cash generated from operations before
PB 713 611 16.7%
========================================== ======= ======= =======
Throughout this document, alternative performance measures
related to profit for 2019/20 are presented before IFRS 16
adjustments related to depreciation expenses on right-of-use assets
and, where relevant, interest charges on lease liabilities, and
before the removal of operating lease rental expenses. This is to
provide a more meaningful comparison to 2018/19. A glossary of
financial and non-financial terms is included at the end of this
document.
Our Partnership profit before Bonus, tax, exceptionals and IFRS
16 was GBP123m, a weaker performance than we had hoped for, driven
by significant operating profit decline in John Lewis, which was
partly offset by operating profit growth in Waitrose, and lower net
Group costs and finance costs.
John Lewis operating profits before exceptionals and IFRS 16
were down GBP75m to GBP40m, driven by weaker sales in Home and
Electricals, IT investment to enable accelerated development of our
customer proposition, and growth in non-management Partner pay well
ahead of inflation, which was only partly offset by productivity
improvements.
Waitrose operating profits before exceptionals and IFRS 16 grew
by GBP10m to GBP213m. After excluding property profits of GBP16m
(2018/19: GBPnil), it was down GBP6m, with the improvement in gross
margins and a strong operational performance being offset by cost
inflation, including investment in non-management Partner pay.
This year we adopted IFRS 16, the new accounting standard for
leases, using the modified retrospective approach on transition.
Our last year results are therefore not restated. Whilst IFRS 16
has decreased our reported Profit before tax by GBP53m, primarily
due to the length of our lease portfolio, it does not change the
underlying economics of our business and it has no impact on cash
flows. Further details of the impact of IFRS 16 were included in
our half-year results statement issued in September 2019.
After including exceptional income of GBP107m (2018/19: GBP2m),
Partnership Bonus and the charge for adopting IFRS 16, our Profit
before tax was GBP146m, up GBP29m or 25% on last year. Further
details of exceptional items are included in Additional Financial
Information, below.
Continued cash generation alongside our decision to close our
final salary defined benefit pension scheme, enabled us to reduce
total net debts by more than GBP230m. Our Debt Ratio improved to
3.9 times and we remain on track to reduce it to around three times
cash flow within four years. We have also maintained a strong
liquidity position at over GBP1.4bn, despite repaying our GBP275m
bond in April 2019.
OUTLOOK
We are confident that our new products and services and focus on
outstanding customer service will reinforce the strength of our
brands. We are planning for the market to remain volatile, but
expect continued cash generation, allowing us to further strengthen
our balance sheet and maintain our level of investment.
ADDITIONAL FINANCIAL INFORMATION
Waitrose John Lewis
------------------------ ======================== =========================
2019/20 2018/19 Change 2019/20 2018/19 Change
GBPm GBPm % GBPm GBPm %
======================== ======= ======= ====== ======= ======= =======
Gross sales 6,760.1 6,835.0 (1.1)% 4,784.7 4,889.1 (2.1)%
LFL sales(i) (0.2)% (1.8)%
Revenue 6,369.7 6,429.5 (0.9)% 3,781.6 3,887.2 (2.7)%
Operating profit/(loss)
before PB, exceptional
items and IFRS 16 212.7 203.2 4.7% 39.5 114.7 (65.6)%
Operating profit/(loss)
before PB(ii) 211.9 199.2 6.4% (37.0) 92.6 n/m
======================== ======= ======= ====== ======= ======= =======
Note (i) Waitrose like-for-like sales excludes fuel
(ii) Operating profit/(loss) before PB is after including
exceptional items and the adjustment for IFRS 16
EXCEPTIONAL ITEMS
Exceptional income totalled GBP107.4m (2018/19: GBP2.1m) with
GBP30.6m charge in Waitrose (2018/19: GBP4.0m), GBP101.0m charge in
John Lewis (2018/19: GBP22.1m) and GBP239.0m income in Group
(2018/19: GBP28.2m). Further detail is included in the following
table:
2019/20 2018/19
GBPm GBPm
======================================= ======= =======
Strategic restructuring and redundancy
programmes (a)
Head office reviews (35.6) (19.3)
Physical estate (27.4) (5.1)
Shop operations (0.7) (6.7)
======= =======
(63.7) (31.1)
Branch impairments - Waitrose (b) 13.3 -
Branch impairments - John Lewis (c) (110.3) (12.6)
John Lewis supply chain (d) 9.1 0.5
Pay provision (e) - 30.3
Defined benefit pension closure (f) 249.0 -
Legal settlement (g) 10.0 15.0
=======
107.4 2.1
======================================= ======= =======
(a) Net charge of GBP63.7m (2018/19: GBP31.1m) for redundancy
costs, project costs, onerous contract, asset impairments,
accelerated depreciation and closure costs in relation to either
the transformation of pan-Partnership functions and other head
office operations, the programme of optimising our existing estate,
or the review of our shop operating models.
(b) In 2017/18 a charge of GBP35.7m was recognised for branch
impairments in Waitrose. A credit of GBP13.3m has been released as
a result of improved branch performance.
(c) Net charge of GBP110.3m in relation to a GBP122.9m charge
for branch impairments in John Lewis, principally reflecting a
reassessment of the role that shops play in driving online
purchases, and a credit of GBP12.6m for the release of an
impairment charge previously recognised in 2018/19.
(d) Net income of GBP9.1m principally in relation to the
disposal of a property as part of the John Lewis supply chain
restructure.
(e) In 2018/19 there was a release of GBP30.3m following
rectification payments and discussions with HMRC, from a provision
recorded in 2016/17 to cover the potential costs of complying with
the National Minimum Wage Regulations.
(f) Income of GBP249.0m for the reduction in pension obligations
following the decision to close the defined benefit pension scheme.
This removed the future link with final salary and instead
increases in future pensions up to retirement will be in line with
inflation.
(g) Income of GBP10.0m (2018/19: GBP15.0m) following the
Partnership reaching a settlement in relation to an ongoing legal
dispute.
Further disclosure of exceptional items will be included in the
Annual Report and Accounts 2020 which will be published in
April.
NET FINANCE COSTS
Net finance costs increased by GBP94.6m to GBP161.6m,
principally due to the interest charge on outstanding lease
liabilities following the adoption of IFRS 16 this year. Excluding
the impact of IFRS 16, net finance costs reduced by GBP8.9m to
GBP58.1m. This reduction is principally driven by reduced interest
costs on borrowings following the repayment of financial debt and
reduced pension finance costs due to a lower pension accounting
deficit at the beginning of the year compared to the beginning of
the previous year, partly offset by higher long leave finance costs
arising from volatility in market driven assumptions.
ENQUIRIES
For further information please contact:
John Lewis Partnership
Clayton Hirst, Partner & Head of Corporate and Public
Affairs, 020 7592 6199
Debt investors
Lynn Lochhead, Partner & Head of Treasury and Corporate
Finance, 0207 798 3443
GLOSSARY OF FINANCIAL AND NON-FINANCIAL TERMS
This glossary gives an explanation of financial and
non-financial terms included in the results statement
TERM DEFINITION
=============================================================================================
Above market These are Partner benefits which are higher than
reward those typically paid by our competitors, as a result
of the Partnership model. Above market reward principally
includes pensions, long leave, Partner discount
and costs of our democracy. This measure is important
for adjusting our financial Key Performance Indicators
(KPIs) to be able to assess them against our competitors.
=========================== =============================================================================================
Adjusted cash Operating profit before PB, exceptional items, depreciation
flow and amortisation, but after IFRS 16, interest and
tax. 2018/19 definition, which is before IFRS 16,
is operating profit before PB, exceptional items,
depreciation, amortisation and average one year
lease payments, but after lease adjusted interest
and tax.
This measure is important to assess our Debt Ratio.
2019/20 2018/19
GBPm GBPm
Operating profit before PB
and exceptional items 231.5 227.0
add back:
Depreciation, amortisation
and write-offs 552.7 414.4
Average one year lease payments - 190.7
less:
Lease adjusted interest (145.1) (175.1)
Tax (18.1) (39.2)
-------- --------
Adjusted cash flow 621.0 617.8
-------- --------
=========================== =============================================================================================
Average NMP hourly Average non-management Partner hourly pay for Partners
rate of pay on permanent contracts and aged 18 years old and
over.
=========================== =============================================================================================
Capital investment Cash outflows in relation to additions to tangible
fixed assets (property, plant, and equipment), and
intangible assets (IT software) recognised on the
balance sheet.
=========================== =============================================================================================
Debt Ratio Comparison of our Total net debts to Adjusted cash
flow. This measure is important as it provides an
indication of our ability to repay our debts.
2019/20 2018/19
GBPm GBPm
Total net debts 2,451.2 2,682.2
Adjusted cash flow 621.0 617.8
Debt ratio 3.9 4.3
=========================== =============================================================================================
Exceptional items Items of income and/or expense which are significant
by virtue of their size and nature are presented
as exceptional items. The separate reporting of
exceptional items helps to provide an indication
of the Partnership's underlying business performance.
=========================== =============================================================================================
Full-time equivalent The hours worked by one Partner on a full time basis.
(FTE) The concept converts the hours worked by several
part-time Partners into the hours worked by full-time
Partners to enable like-for-like comparisons of
resource.
=========================== =============================================================================================
Gross sales Total sales of goods and services including sale
or return sales and VAT, net of Partnership discount.
2019/20 2018/19
GBPm GBPm
Gross sales 11,544.8 11,724.1
less:
Sale or return sales (275.6) (259.0)
Value added tax (1,117.9) (1,148.4)
---------- ----------
Revenue 10,151.3 10,316.7
---------- ----------
=========================== =============================================================================================
IFRS 16 adjustments The 2019/20 year end is the first year in which
the Partnership has adopted the new accounting standard
IFRS 16 - Leases. The adjustments required to reflect
the pre-IFRS 16 profit measures are set out below.
The Partnership adopted the modified retrospective
approach on transition to IFRS 16 and therefore
the 2018/19 year end measures have not been restated.
2019/20 2018/19
GBPm GBPm
Add back of operating lease 185.5 -
rental expenses
IFRS 16 depreciation expenses (134.7) -
IFRS 16 operating adjustment 50.8 -
-------- --------
IFRS 16 interest charges (103.5) -
-------- --------
IFRS 16 adjustment (52.7) -
-------- --------
=========================== =============================================================================================
Impairment A reduction in the value of an asset due to fall
in the expected future economic benefits generated
by the asset.
=========================== =============================================================================================
Like-for-like Comparison of sales between two periods in time
(LFL) sales (e.g. this year to last year), removing the impact
of branch openings and closures. Waitrose like-for-like
sales excludes fuel.
=========================== =============================================================================================
Liquidity The cash and undrawn committed credit facilities
we have available to us, which we can use to settle
liabilities as they fall due.
=========================== =============================================================================================
Market comparator John Lewis - British Retail Consortium (BRC) market.
Waitrose - Kantar Worldpanel.
=========================== =============================================================================================
n/m Not meaningful.
=========================== =============================================================================================
Non-management Level 9 and Level 10 Partners, excluding Assistant
Partners (NMP) Section Managers in Waitrose.
=========================== =============================================================================================
Operating profit Operating profit before PB, exceptionals and IFRS
before PB, exceptionals 16. This measure is important as it allows for a
and IFRS 16 comparison of underlying operating performance.
2019/20 Waitrose John Lewis Group Partnership
GBPm GBPm GBPm GBPm
Operating profit/(loss)
before PB, exceptionals
and IFRS 16 212.7 39.5 (71.5) 180.7
-------- ---------- ------ -----------
IFRS 16 operating
adjustment 29.8 24.5 (3.5) 50.8
-------- ---------- ------ -----------
Operating profit/(loss)
before PB and exceptionals 242.5 64.0 (75.0) 231.5
-------- ---------- ------ -----------
Exceptional items (30.6) (101.0) 239.0 107.4
-------- ---------- ------ -----------
Operating profit/(loss)
before PB 211.9 (37.0) 164.0 338.9
-------- ---------- ------ -----------
2018/19 Waitrose John Lewis Group Partnership
GBPm GBPm GBPm GBPm
Operating profit/(loss)
before PB, exceptionals
and IFRS 16 203.2 114.7 (90.9) 227.0
-------- ---------- ------ -----------
IFRS 16 operating - - - -
adjustment
-------- ---------- ------ -----------
Operating profit/(loss)
before PB and exceptionals 203.2 114.7 (90.9) 227.0
-------- ---------- ------ -----------
Exceptional items (4.0) (22.1) 28.2 2.1
-------- ---------- ------ -----------
Operating profit/(loss)
before PB 199.2 92.6 (62.7) 229.1
-------- ---------- ------ -----------
========================= =============================================================================================
PB Partnership Bonus
========================= =============================================================================================
Profit before Profit before PB, exceptionals and IFRS 16. This
PB, tax, exceptional measure is important as it allows for a comparison
items and IFRS of underlying profit performance. 2019/20 2018/19
16 GBPm GBPm
Profit before PB, tax, exceptional
items and IFRS 16 122.6 160.0
------- -------
IFRS 16 adjustment (52.7) -
------- -------
Profit before PB, tax and exceptional
items 69.9 160.0
Exceptional items 107.4 2.1
--------------------------------------
Partnership Bonus (30.9) (44.7)
------- -------
Profit before tax 146.4 117.4
------- -------
========================= =============================================================================================
Profit per average Profit before PB and exceptional items but after
FTE IFRS 16 and tax, adjusted for above market reward,
divided by the average number of full-time equivalent
Partners. 2018/19 definition is before IFRS 16.
This measure is important as it provides the best
indication of Partner productivity.
2019/20 2018/19
GBPm GBPm
Profit before PB, tax and
exceptional items 69.9 160.0
Tax (18.1) (39.2)
Above market reward 160.0 183.3
-------- --------
211.8 304.1
-------- --------
Average FTEs 59,700 60,800
Profit per average FTE (GBPk) 3.5 5.0
Profit per average FTE declined by GBP1.5k, with
GBP0.9k due to the impact of the adoption of IFRS
16 in 2019/20.
=========================== =============================================================================================
Return on invested Operating profit before PB and exceptional items,
capital (ROIC) but after IFRS 16, adjusted for above market rewards
and a notional tax charge (at the statutory marginal
tax rate for the year), as a proportion of average
operating net assets. 2018/19 definition, which
is before IFRS 16, is operating profit before PB
and exceptionals, adjusted for above market rewards,
a notional interest on leases (at a 5% interest
rate on lease liabilities) and a notional tax charge
(at the statutory marginal tax rate for the year),
as a proportion of average operating net assets,
adjusted to reflect the value of leased assets.
The measure is important as it demonstrates how
effectively we are utilising our assets.
2019/20 2018/19
GBPm GBPm
Operating profit before PB
and exceptional items 231.5 227.0
Above market rewards 160.0 183.3
Notional interest on leases - 105.1
Notional tax (74.4) (97.9)
--------- --------
317.1 417.5
--------- --------
Net assets 2,543.5 2,620.0
add back:
Borrowings and overdrafts 762.6 1,047.2
Finance lease liabilities - 21.1
Pension deficit (net of deferred
tax) 378.0 404.7
IFRS 16 lease liabilities 2,094.9 -
Present value of operating
leases - 2,076.4
Operational cash 489.0 479.8
less:
Cash and short term investments (915.5) (982.2)
--------- --------
Operating net assets 5,352.5 5,667.0
--------- --------
Average operating net assets 5,512.2* 5,684.5
ROIC 5.8% 7.3%
* includes increase in opening net assets of GBP4.8m
on adoption of IFRS 16
ROIC declined by 1.5%, with 0.8% due to the impact
of the adoption of IFRS 16 in 2019/20.
=========================== =============================================================================================
Revenue investment Investment spend recognised directly in the income
statement.
=========================== =============================================================================================
Total net debts The Partnership's borrowings and overdrafts, lease
liabilities, derivative financial instruments and
IAS 19 pension deficit (net of deferred tax), less
any liquid cash, short-term deposits and investments.
The 2018/19 figure has not been restated for IFRS
16 and instead includes the comparative figures
for finance lease liabilities and the present value
of future rentals payable under operating leases
calculated using a 5% discount rate.
2019/20 2018/19
GBPm GBPm
Borrowings and overdrafts 762.6 1,047.2
Finance lease liabilities - 21.1
Derivative financial instruments 17.7 2.5
Pension deficit (after deferred
tax) 378.0 404.7
IFRS 16 lease liabilities 2,094.9 -
Present value of operating leases - 2,076.4
Liquid cash, short-term deposits
and investments (802.0) (869.7)
-------- --------
Total net debts 2,451.2 2,682.2
-------- --------
=========================== =============================================================================================
[1] Profit before Partnership Bonus, tax, exceptional items and
IFRS 16
[2] Which? annual supermarket survey - Published 22 February
2020
[3] YouGov High Street Recommended Rankings - Published 19
February 2020
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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