TIDM45GD
RNS Number : 2349Z
Lewis(John) PLC
17 September 2020
John Lewis plc
UNAUDITED RESULTS FOR HALF YEARED 25 JULY 2020
17 September 2020
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
LETTER FROM SHARON WHITE TO PARTNERS
Dear Partner,
I wanted to share with you the Group's financial results for the
first half of the year.
I could not be more proud of how Partners have responded to the
impact of the pandemic. From the initial lockdown that saw all John
Lewis stores close, to surging demand in Waitrose and a huge shift
to home delivery in both brands; through to the reopening of John
Lewis stores; the easing of lockdown and continued focus on social
distancing and other safety measures.
It was with a great deal of sadness that we took the decision
not to reopen eight John Lewis stores, and plan to close three
Waitrose stores at Ipswich Corn Exchange, Caldicot and Shrewsbury,
while selling Waitrose Wolverhampton to Tesco. I want to pay
tribute to the dedication of Partners in those stores who have
served customers, their communities and the Partnership for many
years.
We will, all of us, have stories of how lockdown has affected
family, friends and fellow Partners. It continues to test our
physical and mental resilience. My biggest priority - always - is
the safety of Partners and customers.
Through it all Partners have day in, day out demonstrated the
values of the Partnership: 'Do right'; 'We not me'; 'Be yourself.
Always'; 'All or nothing'; and 'Give more than you take'. This is
shown in the fact that we:
-- Served, on average, over 2.5m customers a week across John Lewis and Waitrose
-- Donated 110,000 care packages and gifts to NHS staff
-- Reopened our textiles factory Herbert Parkinson to make 12,000 protective gowns for the NHS
-- Set aside 25% of home delivery slots for vulnerable and elderly people
-- Committed GBP2.7m to charities and local communities, which
has helped to fund food to homeless shelters and food banks.
Customer satisfaction is high in both brands, though we know we
have room to improve. Waitrose has also won The Grocer magazine
Store of the Week 13 times this year, more than any other
supermarket.
OUR HALF-YEAR RESULTS
As a Partnership, we have the great advantage that we are able
to take a long-term view. We can take the right decisions for the
long-term benefit of our customers and our Partners; we can be
bolder and more innovative than conventional companies, even in
these challenging times.
Constitutionally, we are required to make 'sufficient' not
'maximum' profit to invest back into the business and in our
Partners. We are driven to make a difference to people's lives and
create positive social change. In that sense, we are a social
enterprise.
The pandemic has brought forward changes in consumer shopping
habits which might have taken five years into five months. Both
brands entered the crisis with strong and established online
businesses and in the case of Waitrose, plans for expansion well
underway in preparation for the end of the relationship with Ocado.
Our digital businesses, powered by Partners, have been key to
underpinning our first half performance.
In the first six months of this year, the Group made a loss [1]
of GBP(55)m, about the same as this time last year, a creditable
performance in the circumstances and ahead of expectations in our
April trading update.
Sales were a touch higher than last year - up 1%. But shoppers
spent more on less profitable lines such as laptops and loo rolls.
We benefited from Government support through the furlough scheme,
which we exited at the end of July, and business rates, which
helped to offset GBP50m of additional pandemic-related costs like
safety equipment.
Our cash and bank facilities position - the money we have to pay
our bills - is strong. At the half year, we had GBP2.1bn compared
to GBP1.5bn at the start of the crisis, mainly as a result of new
borrowings.
We are expecting our debt ratio - our total net debts as a
proportion of our cash flow - to worsen from 3.9 times - the
position in January this year. We expect it to return to under 4
times in two to three years and we continue to target a level of
around 3 times in the medium term.
In John Lewis, online sales growth was strong at 73%, helping to
offset the impact of shop closures, with overall sales [2] down
(10)% on last year.
Sales momentum is starting to build in reopened stores, with
sales down around 30% on last year, ahead of expectations. Stores
in retail parks are down by around 15% and are doing better than
city centres, especially London which is down around 40%. Home
working has had a big impact on what people are buying - more TVs
and tablets, fewer trousers and trainers.
Online now accounts for more than 60% of sales, from 40% before
the pandemic. As a result of this pronounced shift to digital we
had to reassess how much shops contribute to whether our customers
buy online with us or not.
Before the crisis we believed that shops contributed around GBP6
of every GBP10 spent online. We now think that figure is, on
average, around GBP3. This has the effect of reducing the book
value of John Lewis shops by about GBP470m, known as an
'impairment'. This is a technical adjustment in our accounts and
has no impact on our underlying profits or cash in the bank. There
is some judgement here. If shops drove 10% more online sales in
future, the impairment would be around GBP400m; 10% less and it
would be around GBP570m.
In Waitrose, like-for-like sales were up almost 10% on last
year. The early days of stockpiling pasta and long life milk have
given way to a varied basket with more fresh produce and a return
to the weekly shop. Demand for online shopping remains strong and
we are now delivering around 170,000 weekly orders, up from around
60,000 before the pandemic. The average basket size is four times
bigger for home deliveries than in store.
LOOKING AHEAD TO THE SECOND HALF OF THE YEAR
Early weeks of trading have been encouraging in both brands. In
John Lewis our new Home collection has launched and a bigger revamp
for this key category is set for next spring. Services previously
only available in store - personal and home styling, beauty and
nursery advice - can now be accessed online as well and take-up is
high.
Waitrose has seen a strong pick-up in demand since the end of
our relationship with Ocado on 1 September. Waitrose.com orders
were up 9% in the first week. Waitrose.com is now a GBP1bn
annualised business and we will further expand capacity by around
50% to 250,000 orders a week. We have also entered into a trial
partnership with Deliveroo, which has seen very positive early
results. Up to 500,000 customers in five areas can now get 30
minute deliveries, with plans to add 25 more localities.
With the whole country having had such a challenging year, we
want to help families to celebrate their best Christmas (or other
festivals this winter that may be special to them). John Lewis
opened its Christmas shop early this year. Sales of Christmas trees
and baubles are both markedly up on last year. Alongside our
Essential range, which features items such as our whole turkey and
shortcrust mince pies, Waitrose is launching 350 new own-brand
foods for Christmas - from No.1 British Venison Wellington and
Heston from Waitrose Chocolate Bucks Fizz Candles.
The outlook for the second half is clearly uncertain given the
broader macroeconomy. Christmas trade is also particularly
important to profits in John Lewis and I would ask Partners to do
everything we can to serve customers brilliantly both in John Lewis
and Waitrose. In April, we set out a worst case scenario for the
full year of a sales fall of 5% in Waitrose and 35% in John Lewis.
That remains our worst case view. We now believe the most likely
outcome will be a small loss or a small profit for the year. As I
have mentioned previously, we are targeting GBP100m head office
savings, and we are aiming to make these savings as early as
possible this financial year and next.
IMPLICATIONS FOR BONUS
I said to Partners in April that I could not see the
circumstances in which we would be able to pay a bonus next March.
The Partnership Board has now confirmed that there will not be a
bonus next year given our profit outlook.
I know this will come as a blow to Partners who have worked so
hard this year. The decision in no way detracts from the commitment
and dedication that you have shown.
Outside of exceptional circumstances, we would now expect to
begin paying a bonus again once our profits exceed GBP150m and our
debt ratio falls below 4 times. Once our profits rise above GBP300m
and a debt ratio below 3 times, we would expect to pay a bonus of
at least 10%.
The Group found itself in a similar position in 1948 when the
bonus was halted following the Second World War. We came through
then to be even stronger than before and we will do so again.
STRATEGY REVIEW
We are making good progress with our strategic review of the
Group, which aims to recover profitability over the next three to
five years.
We are advancing plans for how we will:
-- modernise our purpose, making it even more relevant for customers,
-- simplify how we work and reduce costs,
-- become a stronger retailer with more focus on digital,
-- broaden our financial services and expand into more services
such as rent, reuse and recycle, housing and outdoor living,
-- grow through partnerships with those who respect our ethos.
The new strategy is already taking shape and we will set out
more details for Partners in October.
We should be confident about our future. We have two of the best
loved brands on the high street. Purpose is fundamental to
everything we do and believe in - tackling inequality, improving
sustainability and wellbeing - at a time when customers are more
thoughtful than ever before about what they buy and who they buy
with.
Thank you for everything you are doing. It is a privilege to be
a Partner.
Sharon
Partner & Chairman
FINANCIAL OVERVIEW
A glossary of financial and non-financial terms is included
below. All performance measures throughout this document are
presented after the adoption of IFRS 16.
2020/21 2019/20 Change
GBPm GBPm %
==================================== ======= ======= ======
Total trading sales [3] 5,567 5,505 1.1%
Revenue 4,919 4,788 2.7%
Trading operating profit [4] 739 815 (9.3)%
Loss before PB, tax and exceptional
items (55) (52) (5.8)%
Exceptional items (580) 244 n/m
(Loss)/profit before tax (635) 192 n/m
Total net debts 2,335 2,390 (2.3)%
Liquidity 2,076 1,153 80.1%
===================================== ======= ======= ======
Our first half performance includes Government support of GBP55m
of furlough money and GBP51m from the business rates holiday. This
was set against lost trade from the closure of our John Lewis
shops, which we estimate is over GBP200m of sales, as well as
additional costs related to the pandemic of around GBP50m,
including the cost of providing safety equipment, extra donations
to charities and local communities, and increased benefits to
Partners.
ADDITIONAL FINANCIAL INFORMATION
Waitrose John Lewis
------------------------- ======================== =========================
2020/21 2019/20 Change 2020/21 2019/20 Change
GBPm GBPm % GBPm GBPm %
========================= ======= ======= ====== ======= ======= =======
Total trading sales 3,707 3,446 7.6% 1,860 2,059 (9.7)%
LFL sales(i) 9.6% (9.5)%
Revenue 3,440 3,176 8.3% 1,479 1,612 (8.3)%
Trading operating profit 586 530 10.6% 153 285 (46.3)%
========================= ======= ======= ====== ======= ======= =======
Note (i) Waitrose like-for-like sales excludes fuel
EXCEPTIONAL ITEMS
Exceptional costs totalled GBP(580)m (2019/20: exceptional
income of GBP244m). Further details are included in the following
table:
2020/21 2019/20
GBPm GBPm
======================================= ======= =======
Strategic restructuring and redundancy
programmes
Head office reviews (13) (10)
Physical estate (105) (27)
Shop operations - (1)
======= =======
(118) (38)
Branch impairments - Waitrose 9 8
Branch impairments - John Lewis (471) 13
John Lewis supply chain - 2
Defined benefit pension closure - 249
Legal settlement - 10
=======
(580) 244
======================================= ======= =======
Further details explaining each of the exceptional items is
included within Note 4 below.
NET FINANCE COSTS
Net finance costs decreased by GBP11m to GBP77m, principally
driven by:
-- lower long leave financing costs due to less volatility in
the market driven assumptions related to our long leave Partner
scheme compared to last year.
-- reduced interest costs on borrowings.
ENQUIRIES
John Lewis Partnership
Chris Wynn, Partner & Director of Corporate Communications,
07980 242019, chris.wynn@johnlewis.co.uk
Sarah Henderson, Partner & Senior External Communications
Manager, 07764 676036, sarah.henderson@johnlewis.co.uk
Debt investors
Lynn Lochhead, Partner & Head of Treasury and Corporate
Finance, investor.relations@johnlewis.co.uk
NOTES TO EDITORS
The John Lewis Partnership owns and operates two of Britain's
best-loved retail brands - John Lewis and Waitrose. Started as a
radical idea nearly a century ago, the Partnership is the largest
employee-owned business in the UK and amongst the largest in the
world, with over 80,000 employees who are all Partners in the
business. For all intents and purposes, the Partnership is a social
enterprise; the profits made are reinvested into the business - for
customers and Partners. John Lewis operates 42 shops plus one
outlet across the UK as well as johnlewis.com . Waitrose has 335
shops in England, Scotland, Wales and the Channel Islands,
including 61 convenience branches, and another 27 shops at Welcome
Break locations. Waitrose exports products to more than 50
countries worldwide and has 12 shops which operate under licence in
the UAE. The retailer's omni-channel 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.
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 rewards 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 lease adjusted interest
and tax. This measure is important to assess our
Debt Ratio.
======================= ===================================================================
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.
======================= ===================================================================
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 Group'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.
======================= ===================================================================
Impairment A reduction in the value of an asset due to a 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.
======================= ===================================================================
Long leave The long leave scheme provides Partners up to six
months' paid leave after 25 years' Partnership service.
======================= ===================================================================
Loss before PB, Loss or profit before PB, tax and exceptional items.
tax and exceptional This measure is important as it allows for a comparison
items of underlying profit performance.
2020/21 2019/20
GBPm GBPm
Loss before PB, tax and exceptional
items (55) (52)
Exceptional items (580) 244
-------- --------
(Loss)/profit before tax (635) 192
-------- --------
======================= ===================================================================
n/m Not meaningful.
======================= ===================================================================
Non-management Level 9 and Level 10 Partners, excluding Assistant
Partners (NMP) Section Managers in Waitrose.
======================= ===================================================================
PB Partnership Bonus
======================= ===================================================================
Profit per average Profit before PB and exceptional items but after
FTE tax, adjusted for above market reward, divided by
the average number of full-time equivalent Partners.
This measure is important as it provides the best
indication of Partner productivity.
======================= ===================================================================
Return on invested Operating profit before PB and exceptionals, adjusted
capital (ROIC) 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.
The measure is important as it demonstrates how
effectively we are utilising our assets.
======================= ===================================================================
Revenue investment Investment spend recognised directly in the income
statement.
======================= ===================================================================
Total net debts The Group'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.
2020/21 2019/20
GBPm GBPm
Borrowings and overdrafts 1,169 718
Amounts owed to Parent in respect
of SIP shares 36 47
Derivative financial instruments - (20)
Pension deficit (after deferred
tax) 534 63
Lease liabilities 2,059 2,102
Liquid cash, short-term deposits
and investments (1,463) (520)
-------- --------
Total net debts 2,335 2,390
-------- --------
======================= ===================================================================
Total trading Total trading sales represents the full customer
sales sales value, including VAT, that is used to assess
ongoing sales performance. It is before adjustments
for sale or return sales and other accounting adjustments.
2020/21 Waitrose John Lewis Group
GBPm GBPm GBPm
Total trading sales 3,707 1,860 5,567
Value added tax (211) (303) (514)
-------- ---------- -----
Sale or return, concessions
and other accounting adjustments (56) (78) (134)
-------- ---------- -----
Revenue 3,440 1,479 4,919
-------- ---------- -----
2019/20 Waitrose John Lewis Group
GBPm GBPm GBPm
Total trading sales 3,446 2,059 5,505
Value added tax (199) (335) (534)
-------- ---------- -----
Sale or return, concessions
and other accounting adjustments (71) (112) (183)
-------- ---------- -----
Revenue 3,176 1,612 4,788
-------- ---------- -----
======================= ===================================================================
Trading operating Trading operating profit represents operating profits
profit used to assess the performance of the John Lewis
and Waitrose brands and determine the allocation
of resources to them. It excludes centrally managed
costs, including fixed property costs and depreciation.
2020/21 Waitrose John Lewis Group
GBPm GBPm GBPm
Trading operating profit 586 153 739
Centrally managed costs (524)
Depreciation and amortisation (193)
Exceptional items (580)
-------- ---------- -----
Net finance costs (77)
-------- ---------- -----
Loss before tax (635)
-------- ---------- -----
2019/20 Waitrose John Lewis Group
GBPm GBPm GBPm
Trading operating profit 530 285 815
Centrally managed costs (570)
Depreciation and amortisation (209)
Exceptional items 244
-------- ---------- -----
Net finance costs (88)
-------- ---------- -----
Profit before tax 192
-------- ---------- -----
===================== ===================================================================
John Lewis plc
Unaudited condensed Interim Financial Statements for the half
year ended 25 July 2020
Consolidated income statement
for the half year ended 25 July 2020
Notes Half year to Half year to Year to
25 July 2020 27 July 2019 25 January 2020
GBPm GBPm GBPm
------ ----------------------------------------------------------- -------------- -------------- -----------------
6 Revenue 4,919.4 4,788.0 10,151.3
Cost of sales (3,433.2) (3,222.1) (6,789.2)
------ ----------------------------------------------------------- -------------- -------------- -----------------
Gross profit 1,486.2 1,565.9 3,362.1
Other operating income 51.3 60.4 125.1
Operating expenses before exceptional items and
Partnership Bonus (1,515.5) (1,590.0) (3,256.9)
Share of loss of joint venture (net of tax) (0.4) (0.6) (0.2)
------ ----------------------------------------------------------- -------------- -------------- -----------------
5 Operating profit before exceptional items and Partnership 21.6 35.7 230.1
Bonus
4 Exceptional items (579.6) 243.9 107.4
------ ----------------------------------------------------------- -------------- -------------- -----------------
5 Operating (loss)/profit before Partnership Bonus (558.0) 279.6 337.5
7 Finance costs (84.7) (95.4) (175.0)
7 Finance income 8.2 7.4 13.7
(Loss)/profit before Partnership Bonus and tax (634.5) 191.6 176.2
Partnership Bonus - - (30.9)
------ ----------------------------------------------------------- -------------- -------------- -----------------
(Loss)/profit before tax (634.5) 191.6 145.3
8 Taxation 75.0 (6.6) (37.7)
------ ----------------------------------------------------------- -------------- -------------- -----------------
(Loss)/profit for the period (559.5) 185.0 107.6
------ ----------------------------------------------------------- -------------- -------------- -----------------
(Loss)/profit before Partnership Bonus, tax, and exceptional items (54.9) (52.3) 68.8
-------------------------------------------------------------------- ------- -------
Consolidated statement of comprehensive income
for the half year ended 25 July 2020
Notes Half year to Half year to Year to
25 July 2020 27 July 2019 25 January 2020
GBPm GBPm GBPm
------- ---------------------------------------------------------- -------------- -------------- -----------------
(Loss)/profit for the period (559.5) 185.0 107.6
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss:
12 Remeasurement of defined benefit pension scheme (206.3) 161.2 (193.6)
8 Movement in deferred tax on pension scheme 47.5 (29.7) 30.4
8 Movement in current tax on pension scheme 0.5 2.3 2.5
Items that may be reclassified subsequently to profit or
loss:
Fair value gain/(loss) on cash flow hedges 18.4 21.1 (8.7)
8 Movement in deferred tax on cash flow hedges (2.6) (3.2) 3.2
(Loss)/gain on foreign currency translations - (0.8) 0.3
------------------------------------------------------------------ -------------- -------------- -----------------
Other comprehensive (expense)/income for the period (142.5) 150.9 (165.9)
------------------------------------------------------------------ -------------- -------------- -----------------
Total comprehensive (expense)/income for the period (702.0) 335.9 (58.3)
------------------------------------------------------------------ -------------- -------------- -----------------
Consolidated balance sheet
as at 25 July 2020
Notes 25 July 2020 27 July 2019 25 January 2020
GBPm GBPm GBPm
------ ----------------------------------------- ------------- ------------- ----------------
Non-current assets
9 Intangible assets and goodwill 476.7 504.1 495.5
9 Property, plant and equipment 2,999.6 3,658.9 3,535.4
9 Right-of-use assets 1,569.0 1,908.6 1,854.9
Trade and other receivables 18.3 16.5 16.5
14 Derivative financial instruments 1.7 2.6 0.1
Investment in and loans to joint venture 2.1 2.1 2.5
Deferred tax asset 85.1 - 0.2
5,152.5 6,092.8 5,905.1
------ ----------------------------------------- ------------- ------------- ----------------
Current assets
Inventories 557.9 611.4 612.9
Trade and other receivables 307.0 271.6 321.0
Current tax receivable 20.7 52.5 -
14 Derivative financial instruments 10.8 20.6 4.8
10 Assets held for sale 14.1 38.4 1.5
Short-term investments 25.3 164.4 317.2
Cash and cash equivalents 1,551.0 488.4 598.3
------ ----------------------------------------- ------------- ------------- ----------------
2,486.8 1,647.3 1,855.7
------ ----------------------------------------- ------------- ------------- ----------------
Total assets 7,639.3 7,740.1 7,760.8
------ ----------------------------------------- ------------- ------------- ----------------
Current liabilities
14 Borrowings and overdrafts (298.3) - -
Trade and other payables (1,568.8) (1,480.1) (1,625.2)
Current tax payable - - (9.0)
14 Lease liabilities (119.2) (90.2) (95.4)
11 Provisions (146.7) (101.3) (108.6)
14 Derivative financial instruments (9.1) (3.5) (18.7)
------ ----------------------------------------- ------------- ------------- ----------------
(2,142.1) (1,675.1) (1,856.9)
------ ----------------------------------------- ------------- ------------- ----------------
Non-current liabilities
14 Borrowings (870.5) (717.5) (718.5)
Trade and other payables (42.1) (51.5) (46.8)
14 Lease liabilities (1,940.1) (2,012.0) (1,999.5)
11 Provisions (170.3) (148.9) (144.9)
14 Derivative financial instruments (3.1) (0.2) (3.9)
12 Retirement benefit obligations (623.8) (56.2) (417.4)
Deferred tax liability - (127.1) (20.4)
(3,649.9) (3,113.4) (3,351.4)
------ ----------------------------------------- ------------- ------------- ----------------
Total liabilities (5,792.0) (4,788.5) (5,208.3)
------ ----------------------------------------- ------------- ------------- ----------------
Net assets 1,847.3 2,951.6 2,552.5
------ ----------------------------------------- ------------- ------------- ----------------
Equity
Share capital 6.7 6.7 6.7
Share premium 0.3 0.3 0.3
Other reserves (0.2) 14.4 (12.8)
Retained earnings 1,840.5 2,930.2 2,558.3
Total equity 1,847.3 2,951.6 2,552.5
------ ----------------------------------------- ------------- ------------- ----------------
Consolidated statement of changes in equity
for the half year ended 25 July 2020
Notes Share Capital Capital Hedging Foreign Retained Total
capital redemption reserve reserve currency earnings equity
reserve translation
reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- --------------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
Balance at 26 January
2019 6.7 0.3 1.4 (0.6) 0.1 2,606.6 2,614.5
Adjustment on initial
application of IFRS
16(1) - - - - - 4.8 4.8
Balance at 27 January
2019 6.7 0.3 1.4 (0.6) 0.1 2,611.4 2,619.3
Profit for the period - - - - - 185.0 185.0
12 Remeasurement - - - - - 161.2 161.2
of defined
benefit
pension scheme
Fair value gains on
cash flow hedges - - - 21.1 - - 21.1
Tax on above items
recognised in equity - - - (3.2) - (27.4) (30.6)
Loss on foreign
currency translations - - - - (0.8) - (0.8)
----------------------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
Total comprehensive
income for the period - - - 17.9 (0.8) 318.8 335.9
----------------------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
Hedging gains
transferred to cost
of inventory - - - (3.6) - - (3.6)
Balance at 27 July
2019 6.7 0.3 1.4 13.7 (0.7) 2,930.2 2,951.6
----------------------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
Balance at 27 January
2019 6.7 0.3 1.4 (0.6) 0.1 2,611.4 2,619.3
Profit for the year - - - - - 107.6 107.6
12 Remeasurement - - - - - (193.6) (193.6)
of defined
benefit
pension scheme
Fair value loss on
cash flow hedges - - - (8.7) - - (8.7)
Tax on above items
recognised in equity - - - 3.2 - 32.9 36.1
Gain on foreign
currency translations - - - - 0.3 - 0.3
----------------------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
Total comprehensive
(loss)/income for the
year - - - (5.5) 0.3 (53.1) (58.3)
----------------------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
Hedging gains
transferred to cost
of inventory - - - (8.5) - - (8.5)
----------------------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
Balance at 25 January
2020 6.7 0.3 1.4 (14.6) 0.4 2,558.3 2,552.5
Loss for the period - - - - - (559.5) (559.5)
12 Remeasurement - - - - - (206.3) (206.3)
of defined
benefit
pension scheme
Fair value gains on
cash flow hedges - - - 18.4 - - 18.4
Tax on above items
recognised in equity - - - (2.6) - 48.0 45.4
Total comprehensive
income/(loss) for the
period - - - 15.8 - (717.8) (702.0)
----------------------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
Hedging gains
transferred to cost
of inventory - - - (3.2) - - (3.2)
Balance at 25 July
2020 6.7 0.3 1.4 (2.0) 0.4 1,840.5 1,847.3
----------------------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
(1) The Group applied IFRS 16 at 27 January 2019, using the
modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative effect of applying
IFRS 16 is recognised in retained earnings at the date of initial
application which was 27 January 2019.
Consolidated statement of cash flows
for the half year ended 25 July 2020
Notes Half year to Half year to Year to
25 July 2020 27 July 2019 25 January 2020
GBPm GBPm GBPm
------- ---------------------------------------------------------- -------------- -------------- -----------------
13 Cash generated from operations before Partnership Bonus 294.6 187.0 698.7
Net taxation paid (14.6) (8.4) (17.2)
Pension deficit reduction payments (2.5) (12.0) (12.8)
Finance costs paid (56.9) (55.0) (109.0)
------------------------------------------------------------------ -------------- -------------- -----------------
Net cash generated from operating activities before Partnership
Bonus 220.6 111.6 559.7
------------------------------------------------------------------ -------------- -------------- -----------------
Partnership Bonus paid (31.4) (45.8) (45.8)
Net cash generated from operating activities after Partnership
Bonus 189.2 65.8 513.9
------------------------------------------------------------------ -------------- -------------- -----------------
Cash flows from investing activities
Purchase of property, plant and equipment (39.3) (61.4) (191.5)
Purchase of intangible assets (42.5) (66.4) (146.7)
Proceeds from sale of property, plant and equipment and
intangible assets 139.6 73.9 174.9
Finance income received 3.1 3.7 4.9
Cash inflow/(outflow) from short-term investments 291.1 101.2 (51.4)
Net cash from/(used in) investing activities 352.0 51.0 (209.8)
------------------------------------------------------------------ -------------- -------------- -----------------
Cash flows from financing activities
Finance costs paid in respect of bonds - (23.0) (54.2)
Finance costs paid in respect of financial instruments (2.8) (3.2) (0.7)
Payment of capital element of leases (34.0) (44.0) (92.7)
Cash inflow/(outflow) from borrowings 448.3 (275.0) (275.0)
Net cash from/(used in) financing activities 411.5 (345.2) (422.6)
------------------------------------------------------------------ -------------- -------------- -----------------
Increase/(decrease) in net cash and cash equivalents 952.7 (228.4) (118.5)
Net cash and cash equivalents at beginning of the period 598.3 716.8 716.8
Net cash and cash equivalents at end of the period 1,551.0 488.4 598.3
------------------------------------------------------------------ -------------- -------------- -----------------
Net cash and cash equivalents comprise:
Cash at bank and in hand 129.6 161.6 151.2
Short-term deposits 1,421.4 326.8 447.1
1,551.0 488.4 598.3
------------------------------------------------------------------ -------------- -------------- -----------------
Notes to the financial statements
1 Basis of preparation
This condensed set of interim financial statements was approved
by the Board on 16 September 2020. The condensed set of interim
financial statements is unaudited, but has been reviewed by the
auditor and their review report is set out on page 33. 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 27 July 2019 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 25 July 2020 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 25
January 2020 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 25 July 2020 has been prepared in accordance with 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 financial statements for the year ended 25
January 2020, which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union. Changes to significant accounting policies are
described in note 2.
Going concern
In determining the appropriate basis of preparation of the
condensed set of interim financial statements for the period ended
25 July 2020, the Directors are required to consider whether the
Group can continue in operational existence for the foreseeable
future and for at least 12 months from the approval of these
financial statements. The Board has concluded that it is
appropriate to adopt the going concern basis, having undertaken a
rigorous assessment of the financial forecasts with specific
consideration to the trading position of the Group in the context
of the current Covid-19 pandemic in the UK, for the reasons set out
below.
As at 25 July 2020, the Group had total assets less current
liabilities of GBP5.5bn and net assets of GBP1.8bn. Liquidity as at
that date was GBP2.1bn, made up of cash and cash equivalents,
short-term investments and undrawn committed credit facilities of
GBP500m. This increase compared to the year end liquidity position
of GBP1.4bn has been achieved through the active measures
undertaken to strengthen the Group's liquidity position in response
to the spread of Covid-19 during the first half of 2020/21. In
addition to a number of operational cash preservation actions
taken, the following has been completed:
-- securing GBP300m from the Government's COVID Corporate
Financing Facility (CCFF) maturing in March 2021, which, subject to
certain conditions, can be extended for a further year;
-- obtaining two new medium term loans of GBP75m each maturing
in November 2022 and December 2022 respectively;
-- generating GBP135m proceeds (exc VAT) on the sale and leaseback of 11 Waitrose stores;
-- renegotiating the revolving credit facilities covenants for the year end 2020/21 test;
-- extending GBP385m of the GBP450m revolving credit facility,
which was due to expire in November 2021, to November 2022; GBP65m
will remain as expiring in November 2021; and
-- extending a GBP50m bilateral credit facility from March 2021 to September 2022.
As set out in the January 2020 year end financial statements,
despite the Group's position at the end of the financial year, it
is now clear that the increasing effects of Covid-19 will result in
a material reduction in our expectations for revenue and profit for
the next financial period ending 30 January 2021. In particular,
across John Lewis, mainly due to the closure of all our branches
for a 12 week period from 24 March 2020, it is expected that both
sales and margin will decline significantly year on year for the
year-ended 30 January 2021. Early indications since branches began
to reopen in June 2020, are that in-branch sales are encouraging.
Following a detailed consultation process, on 9 July 2020, the John
Lewis Partnership announced the decision to permanently close eight
John Lewis stores.
Waitrose, on the other hand, has seen an increase in sales above
our budget and business plan ('Plan') as a result of increased
grocery spend. Both Waitrose stores and its online activities
continued to operate during the lockdown period given that they
were designated by the UK Government as part of an 'essential
industry'. Since the half year, Waitrose has seen a continuation of
the favourable year on year sales growth albeit online sales growth
has reduced and branch trading has improved, likely due to lockdown
restrictions easing. Nevertheless, the full impact of the Covid-19
outbreak is unknown at this time and is unpredictable, and our key
priority continues to be the health and wellbeing of our Partners
and customers, while we maintain our high standards of service.
Accordingly, the Directors have reviewed the rapidly evolving
situation relating to Covid-19 and revised the financial targets
for the period to 29 January 2022. The output of the revised
financial targets are a range of profit targets with the most
ambitious delivering an additional GBP70m of profit by 2023/24. For
prudence, the going concern assessment uses the low end of the
range reflecting a cautious plan for Group sales and profits/losses
due to the ongoing uncertainty over current trading, customer
behaviour and the depth and longevity of a UK recession. This plan
has been developed prior to finalising the Strategic Review
options. The Directors have further modelled a more severe downside
scenario that covers the period to 29 January 2022, representing an
increasingly severe but plausible scenario and including the
impacts of the following assumptions:
-- a further, deeper recession throughout the assessment period
resulting in a further reduction in sales, as well as a reduction
in margin across both brands;
-- the effects of a "no deal" Brexit including negative foreign exchange and tariff impacts;
-- a further lockdown and trading restriction over the Christmas
period which assumes that John Lewis stores are closed throughout
Q4 but that online sales remain operational, albeit dampened due to
a reduction in seasonal sales and gifting over peak;
-- Waitrose remains operational both in store and online, albeit
with sales and margin pulled back from current trading levels which
are significantly ahead of last year; and
-- a number of one-off events e.g. a regulatory and data breach,
increasing pension deficit and project under delivery.
The severe downside modelled has a significant adverse impact on
sales, margin and cash flow. In response, the Directors have
identified GBP1.2bn of mitigations, all within management's
control, to reduce costs and optimise the Group's cash flow,
liquidity and covenant headroom, the majority of which would only
be triggered in the event of the severe downside scenario
materialising. Amongst these are the following mitigating actions:
reducing capital and investment expenditure through postponing or
pausing projects and change activity; deferring or cancelling
discretionary spend (including discretionary Partner benefits);
freezing non-essential recruitment and reducing marketing spend;
and reducing the supply pipeline to improve our working capital
position.
The Group has GBP2.2bn in total liquidity available, at the date
of approval of the condensed set of interim financial statements,
with GBP500m consisting of undrawn committed credit facilities of
which GBP65m expires in November 2021 and the remaining GBP435m
expires beyond the going concern assessment period. The GBP300m
from the Government's COVID Corporate Financing Facility (CCFF)
matures in March 2021 and a GBP75m term loan that matures in
November 2021, but beyond this the Group has no other debt or
facilities that mature within the going concern assessment
period.
The severe downside scenario modelled by management
pre-mitigating actions indicates that a number of the Group's
covenants relating to the bonds, term loans and undrawn committed
credit facilities would breach at the end of the going concern
assessment period due to the reduction in profits and net assets
modelled. However, whilst the scenario indicates breaches, the same
scenario indicates that post mitigating actions, the cash low point
under such a scenario would be GBP805m, our covenants would not
breach, the bonds would not be required to be repaid and the
committed credit facilities would remain undrawn. The Group would
prefer to retain the option to utilise its facilities, therefore,
covenant compliance will continue to be monitored closely.
The Directors have assessed the Group's financial commitments
and consider that, in the severe downside scenario, after taking
into account mitigations, cash generated from operations and
existing facilities, the business would have sufficient liquidity
to continue to operate and to discharge its liabilities as they
fall due over the going concern assessment period.
The Directors also reviewed reverse stress test scenarios which
concluded that a further unbudgeted cost of GBP1.2bn would need to
be incurred in 2020/21 or GBP800m in 2021/22 for the identified
mitigations not to be sufficient to maintain cash headroom. If
outcomes are unexpectedly significantly worse, the Directors would
need to consider what additional mitigating actions were needed,
for example, accessing the value of our asset base to support
liquidity.
The Directors, after reviewing the Group's operating budgets,
investment plans and financing arrangements, consider that the
Company and Group have sufficient financing available at the date
of approval of this report. Accordingly, 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 25 July 2020 have been
prepared on a basis consistent with the Group's accounting policies
published in the financial statements for the year ended 25 January
2020.
A number of amendments to, and the interpretation of, existing
accounting standards became effective during the period, none of
which have had a significant impact on the condensed interim
financial statements.
During the half year ended 25 July 2020, the Group has
recognised grant income receipts due from the UK Government's
Coronavirus Job Retention Scheme of GBP54.8m. The Group accounts
for government grants on an accruals basis and has elected to
present receipts relating to government grants as a deduction in
reporting the related expense.
3 Risks and uncertainties
The Group has a formal risk identification process, which
includes a rigorous analysis of internal and external risks at the
Executive Team, Audit and Risk Committee and Partnership Board
level. Since the publication of the January 2020 year end financial
statements (see pages 9 - 13; from the Partnership website
www.johnlewispartnership.co.uk), the principal risks from year end
2019/20 have evolved as a result of changes in leadership,
significant Executive focus; and the unprecedented change
experienced across the external environment as a result of
Covid-19, and the changes made by the Group to respond. This has
resulted in both new risks and changes to current risk scores. The
current principal risks and uncertainties affecting the Group are
set out below and remain relevant for the second half of the
financial year.
Covid-19 continues to be the most significant external risk
currently facing the Group, impacting our customers, Partners,
supply chain, stores and online operations. The Group has
proactively responded to Covid-19, for example by implementing
personal protective equipment and social distancing measures across
all of our shops and supply chain; increasing Waitrose online
delivery capacity; prioritising our vulnerable customers; and
protecting our liquidity through securing short-term loans, sale
and leaseback of 11 Waitrose stores and reducing operating and
marketing costs. The priority continues to be to protect the safety
and wellbeing of our customers and Partners and support the
community.
Principal Risks:
-- External environment: External changes impact the delivery of
our BAU operations or strategic objectives;
-- Retail economics: Our strategy and business model are not fit for the market we are in;
-- Proposition: Failure to deliver profitable, market-leading
propositions to inspire our customers and maintain competitive
advantage;
-- Partner differentiation: The responsibilities and benefits of
membership are not sufficiently felt and experienced by Partners
and/or do not drive a distinctive and better business in service of
our purpose;
-- Information security: The Group suffers a loss of key
customer, Partner and or commercially sensitive data leading to
financial, regulatory, legal, operational and reputational
issues;
-- Liquidity: The Group has insufficient cash when needed to
support operating cash flows and our investment plan;
-- Change delivery: Change programmes do not realise the desired
benefits and drives unforeseen cost and consequences;
-- Customer experience: Customers do not receive differentiated,
excellent customer service across touchpoints; and
-- Regulatory non-compliance: Failure to comply with key regulatory requirements.
Looking forward to the second half of the year, the Group will
continue to monitor global Covid-19 developments, Government and
Public Health England guidance and respond appropriately, whilst
maintaining customer service and protecting Partners, local
communities and trade. The Group will also continue to proactively
plan for and manage our response to the UK's exit from the EU and
future trade deals as Government information becomes clearer.
4 Exceptional items
Half year to Half year to Year to
25 July 2020 27 July 2019 25 January 2020
Operating Taxation Operating Taxation Operating Taxation
(expenses)/ credit/ (expenses)/ credit/ (expenses)/ credit/
income (charge) income (charge) income (charge)
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Strategic
restructuring
and redundancy
programmes
Head office
reviews (12.6) 1.2 (10.2) 4.3 (35.6) 6.6
Physical
estate (105.5) 12.9 (26.6) 6.9 (27.4) 6.2
Shop
operations 0.2 - (0.7) 0.3 (0.7) 0.1
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
(117.9) 14.1 (37.5) 11.5 (63.7) 12.9
Pay provision (0.3) 0.1 - - - -
Branch
impairments -
Waitrose 9.3 (1.2) 8.3 - 13.3 (1.7)
Branch
impairments -
John Lewis (470.7) 61.0 12.6 - (110.3) 13.9
John Lewis
supply chain - - 1.5 (0.6) 9.1 (0.8)
Legal
settlement - - 10.0 (1.9) 10.0 (1.9)
Pension closure - - 249.0 (42.3) 249.0 (42.3)
(579.6) 74.0 243.9 (33.3) 107.4 (19.9)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Strategic restructuring and redundancy programmes
As set out in our January 2020 financial statements, the Group
is currently undergoing an unprecedented level of internal change.
Given the scale of these changes, the programmes of activity will
take a number of years to deliver. Over the life of the programme
they are significant in value and, given the level of change, they
are significant in nature and therefore the Group considers them
exceptional items. Further detail on the nature and expected length
of each programme is included within the 2020 financial statements.
The financial impact of these for July 2020 and July 2019 is
detailed below:
Head office: The transformation of pan-Partnership functions and
other head office operations continues. This includes the review of
a number of functions which began at the end of 2017. Given the
scale of the change, the delivery of these reviews was expected to
take four years, and are now well progressed. As at year end
January 2020 we expected that these costs would continue over the
next two years, however, Covid-19 has caused some delay and these
reviews are now expected to be finalised within the next three
years. As at July 2020 we have incurred expenses of GBP12.6m (July
2019: GBP10.2m) in relation to these reviews. The expense incurred
includes redundancy costs, where announced, and consultancy
fees.
Physical estate: We have continued with our programme of
optimising our existing estate. This includes ensuring that the
size and shape of our physical estate is delivering on both our
customer proposition, and financial returns. This programme
commenced in 2017. As at year end January 2020 we expected that the
programme would last for approximately five years. Although,
Covid-19 has caused some delay, we still expect the associated
costs and income of this programme to be largely complete in this
timeframe.
Accordingly, we have continued this half year with our programme
of optimising our existing estate, including branch closure, and as
at July 2020 we have recognised a net exceptional expense of
GBP105.5m (July 2019: GBP26.6m). The net charge includes the
impairment of assets (reflecting the shortening of the useful
economic life), accelerated depreciation of buildings and fixtures
& fittings, and management's best estimate of closure costs
including onerous leases, dilapidations and, where closure has been
approved and announced, redundancy costs. The impairment charge of
the recently announced JL branch closures are included in this
category. Where credits in relation to previously estimated costs
have been realised in the period, these have been shown net,
reflecting that the original charges were shown as exceptional.
Shop operations: Alongside the assessment of our physical
estate, we also identified that the way in which we run and manage
our shops would require adjustment. In order to improve the
customer experience and efficiencies in our stores, we have made a
number of changes in our shop operating models. This has included
reviewing store management structures, the centralisation of
certain functions, and aligning regional offerings in order to
deliver a more flexible, multi-skilled and productive model.
This programme is now largely complete and expected to finalise
within a year. As at July 2020 income of GBP0.2m (July 2019:
GBP0.7m charge) has been recognised. This period, a small credit
occurred due to the release of redundancy provisions relating to
prior year, reflecting that the original charges were shown as
exceptional.
Included within operating expenses, and not separately reported
as exceptional, are GBP1.4m of restructuring and redundancy costs
which are considered by the Group to be separate from our strategic
programmes and part of the underlying business performance.
Branch impairments (Waitrose)
At July 2020 a credit of GBP9.3m (July 2019: GBP8.3m credit) has
been released as a result of improved branch performance where
branch impairment had previously been charged as exceptional.
Branch impairments (John Lewis)
At the year-end Jan 2020 as a result of challenging trading
conditions and management's reassessment of the allocation of
online sales to impairment CGUs an exceptional impairment charge of
GBP122.9m was recognised. The Covid-19 pandemic in the first half
of the year has further impacted trade and the implementation of
lockdown and closure of JL branches has led to a surge in online
orders. We believe the change in shopping behaviour over this
period has accelerated the more gradual transition to online
previously witnessed and a fundamental shift in shopping patterns
has taken place. As such the percentage allocation of online sales
to branches was further reviewed and together with the impact of a
revised trading forecast, an impairment charge of GBP470.7m (July
2019: GBP12.6m credit), was recognised at the half year end. See
note 9 for further detail. By virtue of the size of the charge, and
that the circumstances which have led to the charge arising are
unique and unusual, the charge has been recognised as
exceptional.
Pay provision
In 2017 it was identified that there were potential costs of
complying with the National Minimum Wage Regulations. The final
payment arising from this investigation was made in May 2020 for
GBP0.3m. There are no future charges or income expected in relation
to this.
The Group's response to Covid-19
For the Group, consideration has been given as to whether costs
and income relating to Covid-19 meet the definition of exceptional
items and whether, individually or collectively, they are
significant by virtue of their size and nature. Whilst these
criteria are met in a number of cases (for example, furlough income
and costs of personal protective equipment), given the diverse
actions arising in response to the Covid-19 pandemic, isolating and
quantifying all individual items of cost and income in an even
handed way is difficult to achieve and could be misleading. On this
basis, it has been deemed not appropriate to classify costs or
income associated with Covid-19 as exceptional.
5 Segmental reporting
IFRS 8 requires operating segments to be identified based on the
way in which the Group's internal financial reporting is organised
and regularly reviewed by the chief operating decision-maker (CODM)
to allocate resources and to assess the performance of the
different operating segments. The Group's reporting segments are
determined based on the business activities of its brands (John
Lewis and Waitrose) for which operating results are reviewed by the
CODM.
The Group adopted a new organisational structure on 3 February
2020 to improve synergies between brands; allowing more costs and
resources to be managed centrally. At the same date, the internal
decision making process was reorganised and the CODM changed from
the Partnership Board to the Executive Team.
The Executive Team reviews the operating performance for each
Brand (John Lewis and Waitrose) in the Group, creating new non-GAAP
measures known as Total trading sales and Trading Operating Profit
("TOP").
Total trading sales represents the full customer sales value
including VAT as reported weekly to the Executive Team, before
adjustments for sale or return sales and other accounting
adjustments.
TOP is based on operating profit, but excludes centrally managed
costs. These centrally managed costs are outside of the direct
influence and control of the brands and are reviewed by the
Executive Team at a Group level in aggregate. TOP is used to assess
the performance of the John Lewis and Waitrose brands and determine
the allocation of resources to those segments.
Centrally managed costs include all fixed property costs of the
Group, head office costs, and one-off adjusting items. One-off
adjusting items are those that do not meet the Group's definition
of "exceptional items", because they are considered to be relevant
to the principal activities of the business. However, these are
removed from the trading operating profit of each brand, as they
are non-recurring in a business-as-usual scenario, and this allows
management to better assess their underlying performance.
As the Group's reportable segments have changed, the comparative
information for 2019 has been restated to reflect this. In
addition, as part of the new Group structure we have taken the
opportunity to rationalise sales and margin reporting across the
Group. Therefore, the trade of four Foodhalls which had been
included in the John Lewis segment will now be reported within
Waitrose, and the general merchandise sales of the Canary Wharf
Waitrose store will now be reported within John Lewis.
The Waitrose business is not subject to highly seasonal
fluctuations although there is an increase in trading in the fourth
quarter of the year. There is a more marked increase in the fourth
quarter for the John Lewis business.
John Lewis Waitrose Group
GBPm GBPm GBPm
-------------------------------------------- ----------- --------- ---------
Half year to 25 July 2020
Total trading sales 1,860.3 3,706.7 5,567.0
Value added tax (302.5) (210.8) (513.3)
Sale or return, concessions and other
accounting adjustments (78.2) (56.1) (134.3)
Revenue 1,479.6 3,439.8 4,919.4
-------------------------------------------- ----------- --------- ---------
Trading Operating Profit 152.9 585.7 738.6
-------------------------------------------- ----------- --------- ---------
Centrally managed costs including property (524.3)
Depreciation and amortisation (192.7)
-------------------------------------------- ----------- --------- ---------
Operating profit before exceptional items 21.6
and Partnership Bonus
Exceptional items (579.6)
-------------------------------------------- ----------- --------- ---------
Operating loss before Partnership Bonus (558.0)
Finance costs (84.7)
Finance income 8.2
-------------------------------------------- ----------- --------- ---------
Loss before Partnership Bonus and tax (634.5)
Partnership Bonus -
-------------------------------------------- ----------- --------- ---------
Loss before tax (634.5)
-------------------------------------------- ----------- --------- ---------
John Lewis Waitrose Group
GBPm GBPm GBPm
-------------------------------------------- ----------- --------- ---------
Half year to 27 July 2019
Total trading sales 2,059.1 3,445.5 5,504.6
Value added tax (335.1) (199.2) (534.3)
Sale or return, concessions and other
accounting adjustments (111.5) (70.8) (182.3)
Revenue 1,612.5 3,175.5 4,788.0
-------------------------------------------- ----------- --------- ---------
Trading Operating Profit 285.1 530.0 815.1
-------------------------------------------- ----------- --------- ---------
Centrally managed costs including property (570.0)
Depreciation and amortisation (209.4)
-------------------------------------------- ----------- --------- ---------
Operating profit before exceptional items 35.7
and Partnership Bonus
Exceptional items 243.9
-------------------------------------------- ----------- --------- ---------
Operating profit before Partnership Bonus 279.6
Finance costs (95.4)
Finance income 7.4
-------------------------------------------- ----------- --------- ---------
Profit before Partnership Bonus and tax 191.6
Partnership Bonus -
-------------------------------------------- ----------- --------- ---------
Profit before tax 191.6
-------------------------------------------- ----------- --------- ---------
John Lewis Waitrose Group
GBPm GBPm GBPm
-------------------------------------------- ----------- --------- ----------
Year to 25 January 2020
Total trading sales 4,829.9 6,917.3 11,747.2
Value added tax (784.3) (400.3) (1,184.6)
Sale or return, concessions and other
accounting adjustments (267.6) (143.7) (411.3)
Revenue 3,778.0 6,373.3 10,151.3
-------------------------------------------- ----------- --------- ----------
Trading Operating Profit 733.6 1,063.2 1,796.8
-------------------------------------------- ----------- --------- ----------
Centrally managed costs including property (1,159.1)
Depreciation and amortisation (407.6)
-------------------------------------------- ----------- --------- ----------
Operating profit before exceptional items 230.1
and Partnership Bonus
Exceptional items 107.4
-------------------------------------------- ----------- --------- ----------
Operating profit before Partnership Bonus 337.5
Finance costs (175.0)
Finance income 13.7
-------------------------------------------- ----------- --------- ----------
Profit before Partnership Bonus and tax 176.2
Partnership Bonus (30.9)
-------------------------------------------- ----------- --------- ----------
Profit before tax 145.3
-------------------------------------------- ----------- --------- ----------
6 Revenue
Disaggregation of revenue from contracts with customers
The revenue recognition policy is unchanged from that described
in the financial statements for the year ended 25 January 2020.
We analyse our revenue between goods and services. Goods are
split into four major product lines: Grocery, Home, Fashion and
Electricals and Home Technology (EHT). Services comprise free
service guarantees on selected goods. This presentation is
consistent with how our Executive Team reviews performance.
Half year Half year Year to
to 25 to 27 25 January
July 2020 July 2019 2020
GBPm GBPm GBPm
--------------------------- ----------- ----------- ------------
Major product lines
--------------------------- ----------- ----------- ------------
Goods
-------------------------- ----------- ----------- ------------
- Grocery 3,430.2 3,170.8 6,369.7
-------------------------- ----------- ----------- ------------
- Home 390.1 465.0 1,052.7
-------------------------- ----------- ----------- ------------
- Fashion 383.5 506.0 1,216.5
-------------------------- ----------- ----------- ------------
- EHT 668.9 557.6 1,350.8
-------------------------- ----------- ----------- ------------
Services
-------------------------- ----------- ----------- ------------
- Free service guarantee 13.3 13.3 26.8
-------------------------- ----------- ----------- ------------
- Other revenue 33.4 75.3 134.8
-------------------------- ----------- ----------- ------------
4,919.4 4,788.0 10,151.3
-------------------------- ----------- ----------- ------------
7 Net finance costs
Half year Half year Year to
to to 25 January
25 July 27 July 2019 2020
2020
GBPm GBPm GBPm
---------------------------------------- ---------- -------------- ------------
Finance costs
Finance costs in respect of borrowings
and lease liabilities(1) (74.1) (75.7) (145.9)
Fair value measurements and other (2.5) (2.5) (3.6)
Net finance costs arising on defined
benefit retirement scheme (3.9) (4.4) (6.9)
Net finance costs arising on other
employee benefit schemes (4.2) (12.8) (18.6)
---------------------------------------- ---------- -------------- ------------
Total finance costs (84.7) (95.4) (175.0)
---------------------------------------- ---------- -------------- ------------
Finance income
Finance income in respect of cash
and short-term
investments(2) 5.2 5.6 11.4
Fair value measurements and other 3.0 1.8 2.3
Total finance income 8.2 7.4 13.7
---------------------------------------- ---------- -------------- ------------
Net finance costs (76.5) (88.0) (161.3)
---------------------------------------- ---------- -------------- ------------
(1) Finance costs in respect of borrowings and lease liabilities include
interest payable on interest rate swaps of GBP2.8m (July 2019: GBP2.9m)
and lease liabilities of GBP53.7m (July 2019: GBP52.3m). (2) Finance
income in respect of cash and short-term investments includes interest
receivable on interest rate swaps of GBP3.1m (July 2019: GBP3.2m).
Capitalised borrowing costs totalled GBP0.9m (July 2019:
GBP2.4m) of which GBP0.8m (July 2019: GBP2.3m) were capitalised
within intangible assets and GBP0.1m (July 2019: GBP0.1m) were
capitalised within property, plant and equipment.
8 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 separately. The effective
tax rate at the half year is higher than would be expected for the
full-year. This is as a result of a significant number of discrete
items at the half year.
There is a deferred tax prior year adjustment of GBP1.3m
resulting from a change in the tax rate that deferred tax is
recognised at. Legislation was previously enacted (Finance Act
2016) to reduce the corporation tax rate from 19% to 17% from 1
April 2020, however the Government announced in the Spring Budget
on 11 March 2020 that the corporation tax rate would remain at 19%.
The rate of 19% was substantively enacted on 17 March 2020 when the
resolution was passed. As at 25 January 2020 the legislation had
not yet been amended and therefore the substantively enacted rate
for the purposes of determining the deferred tax recognition rate
for assets and liabilities expected to reverse in periods
overlapping 1 April 2020 remained at 17%. The prior year adjustment
updates the recognition rate from 17% to 19% for the period.
9 Property, plant and equipment, intangible assets, and right-of-use assets
Property, Intangible Right-of-use Total
plant and assets assets
equipment
GBPm GBPm GBPm GBPm
------------------------------- ----------- ----------- ------------- --------
Net book value at 25 January
2020 3,535.4 495.5 1,854.9 5,885.8
Additions (1) 36.5 52.3 88.5 177.3
Depreciation and amortisation
(2) (444.5) (65.1) (274.5) (784.1)
Disposals and write-offs (114.7) (6.0) (99.9) (220.6)
Transfers to assets held
for sale (see note 10) (13.1) - - (13.1)
Net book value at 25 July
2020 2,999.6 476.7 1,569.0 5,045.3
------------------------------- ----------- ----------- ------------- --------
(1) For the period ended 25 July 2020, additions for the year
include the non-cash capital expenditure accrual on property, plant
and equipment of GBP8.2m (January 2020: GBP26.6m) and intangible
assets of GBP2.4m (January 2020: GBP1.9m).
(2) For the period ended 25 July 2020 depreciation and
amortisation includes a net impairment charge of GBP274.7m to land
and buildings (January 2020: GBP85.3m), GBP42.1m to fixtures and
fittings (January 2020: GBP14.4m), GBP1.1m to intangible assets
(January 2020: GBP16.4m) and GBP205.7m to right-of-use assets
(January 2020: GBP23.0m).
Intangible assets primarily relate to internally developed
computer software.
Right-of-use assets are recognised in relation to the Group's
leases, representing the economic benefits of the Group's right to
use the underlying leased assets. The Group's lease portfolio is
principally comprised of property leases of land and buildings in
relation to Waitrose and John Lewis stores, distribution centres
and head offices. The Group also holds a number of vehicle and
equipment leases and service agreements deemed to meet the
definition of a lease under IFRS 16.
The impairment review methodology is unchanged from that
described in the financial statements for the year ended 25 January
2020. The impairment review compares the recoverable amount for
each Cash Generating Unit (CGU) to the carrying value on the
balance sheet; this includes right-of-use assets. The key
assumptions in the calculations are the discount rate, expected
sales and margin performance, the allocation of online sales to
stores in the determination of the John Lewis (JL) branch Cash
Generating Unit (CGU) and market valuations considered in fair
value less costs of disposal calculations. The discount rate is a
pre-tax rate derived from the Group's weighted average cost of
capital and is 7% (Jan 2020: 7%) in Waitrose and 10% (Jan 2020: 7%)
in John Lewis.
The impact of the Covid-19 pandemic has had differing impacts on
the Group's two brands and has most significantly impacted the
trade in JL branches and online. The Covid-19 pandemic resulted in
a UK lockdown and social distancing measures which have triggered
an acceleration of change in customer shopping behaviour. We have
been witnessing a move to online for general merchandise over a
number of years and the pace of transition has accelerated
significantly during lockdown. We anticipate that when 'normal'
returns, the proportion of sales arising from online and branch
channels will be reweighted to favour online and a significant
proportion of JL customers who shop across both channels will
retain a predominantly online shopping pattern with reduced visits
to physical branches. This has led to a revision of both the
Group's financial targets and also how we allocate online sales to
CGUs for the purpose of impairment testing of JL branches.
Following the impairment review, the Group recognised a net
impairment charge arising from branch performance and trading
conditions as an exceptional item of GBP461.4m across property,
plant and equipment and right-of-use assets; GBP470.7m charge in
John Lewis and GBP9.3m credit in Waitrose. Additionally, GBP56.2m
was recognised in relation to our Physical Estate programme and
represents the impairment of assets in our branch closure programme
and the exit of a Head Office location. A further GBP4.9m relating
to Waitrose branches was charged but not recognised as exceptional.
The total impairment charge at the half year is GBP522.5m.
John Lewis branch impairment
Trade restrictions implemented on 23 March 2020 by the UK
Government in response to the Covid-19 pandemic represent an
impairment trigger. As such all JL branches have been tested for
impairment.
The impairment review performed considers the Value in Use (VIU)
of a CGU compared to the carrying value in the first instance and
subsequently the fair value less cost to dispose if the VIU is
lower than the CGU carrying value.
The calculations use a post-tax cash flow based on a 5 year plan
approved by the Board. The forecasts are then extrapolated beyond
the five-year period using a long-term growth rate of 2.0%. The
plan has been prepared post the implementation and lifting of
restrictions following the pandemic but ahead of the outcome of an
internal Strategic review which is currently ongoing. The key
assumptions in this plan are the recovery of JL branch sales from
the impact of Covid-19 restrictions, year on year sales growth and
margin assumptions. The plan differentiates between online and
branch sales growth, which is relevant to our branch CGUs which
continue to include an allocation of online sales. The
appropriateness of these assumptions will be further reviewed at
the year end, following the announcement of the John Lewis
Partnership Strategic Review which is currently underway.
The JL branch impairment is most sensitive to changes in sales
and margin forecasts and the allocation of online sales, and
therefore sensitivity analysis has focused on these aspects of the
impairment evaluation.
For the JL business, there is significant ongoing market
uncertainty, and therefore a range of forecast scenarios have been
included in the 5 year plan and considered by the John Lewis
Partnership Board. The output of the scenarios are a range of
profit targets with the most ambitious delivering an additional
GBP70m of profit by 2023/2024. The impairment model uses the mid
range representing our 'best estimate' of likely profit. Using the
more cautious growth scenario increases the JL branch impairment by
GBP77m, and the more optimistic scenario would reduce the JL branch
impairment by GBP38m.
Judgement is required as to whether online sales (and associated
costs) should be attributed to John Lewis stores for the purposes
of impairment testing. Management believes that a proportion of
online sales, made by customers who shop both online and in branch
("omni-channel"), should be attributed to John Lewis stores. This
reflects the role our stores play in providing customers with an
opportunity to browse, touch and feel our product range before
purchasing online. The merchandising of the product offer in our
physical estate provides inspiration for our customers who may then
choose to purchase online (in particular for larger items and more
considered purchases in our Home offer). For these reasons, John
Lewis allocates online sales to stores based on Click and Collect
online sales, and also a further proportion of online sales to
reflect the role the store plays in facilitating online purchases.
This further allocation is based on evidence of a physical
touchpoint with the store through previous purchasing behaviour. In
light of the significant shift in customer shopping behaviour from
branches to online through the pandemic, and our expectation that a
proportion of customers will adopt a predominantly online shopping
pattern in the future, we have reassessed and reduced our
allocation of online sales to stores. We continue to allocate Click
and Collect online sales but have reviewed and reduced the
proportion of online sales we allocate based on the customers'
physical touch point with the store. The allocations of the sales
and the weighting of the drivers (ie Click & Collect versus
greater allocation to reflect the role the branch plays in
facilitating online sales) varies by store.
Given the pace of change in customer behaviour and the
transition to online purchasing, we have run sensitivities to
reflect what a further shift in customer shopping behaviour and
therefore online allocation would generate in terms of impairment.
If an additional 10% of online sales were allocated to branch CGUs
this reduces the impairment charge by GBP76m, whereas a 10%
reduction from the current assumption of online allocation would
result in an increased impairment charge of GBP100m. If the online
allocation assumptions were reduced such that only online sales
serviced through in store Click and Collect were allocated to CGUs,
this would further increase the impairment provision by
GBP225m.
External market valuations are regularly obtained by the Group
and used within the consideration of fair value less cost to
dispose. In light of the Covid-19 pandemic and in consideration of
the available market for department store properties, these
valuations have been reassessed at the half year end and where
applicable revised down. If the valuations were to reduce by a
further 10% this would increase the impairment charge by GBP3m.
The discount rate used in the calculation of cash flows is
derived from the JL Weighted Average Cost of Capital (WACC). This
has increased since the year end. A number of factors have
contributed to this increase as the markets respond to the Covid-19
pandemic; the Group's underlying bond rates have increased, the
Group's gross debt has increased and the increase in average
comparative equity betas used in our calculations have risen to
reflect the higher level of risk in the market for general
merchandise. A reduction in the discount rate assumption of 100 bps
would decrease the JL impairment charge by GBP7m, and an increase
of 100 bps would increase the impairment charge by GBP12m.
Waitrose branch impairment
The impairment calculations for Waitrose branches use a post-tax
cash flow based on a 5 year plan approved by the Board. The
forecasts are then extrapolated beyond the five-year period using a
long-term growth rate of 2.0%. The key assumptions in this plan are
the stabilisation of sales following the disruption of lockdown,
year on year sales growth and margin assumptions. Future growth
assumptions for Waitrose include the trading uplift seen during the
Covid-19 pandemic. The appropriateness of these assumptions will be
further reviewed at the year end, following the announcement of the
John Lewis Partnership Strategic Review which is currently
underway. Waitrose online sales are allocated directly to the
branch that the online order is picked and fulfilled from. Online
sales are therefore included in the Waitrose CGUs and as the sales
are directly attributable to branch activity, this is not
considered a key judgement.
The Waitrose charge of GBP0.4m is a net charge and includes
releases of previous impairment charges following the exit of
previously impaired branches and impairment reversals due to
improved branch performance which has been judged to be
sustainable. These reversals have been offset by new impairment
charges, principally relating to branches approved for closure but
also including specific performance deterioration on a small number
of branches.
The discount rate used in the calculation of cash flows is
derived from the Waitrose Weighted Average Cost of Capital (WACC).
This remains unchanged from the year end due to the increase in the
Group's debt to equity ratio offset by the relative strength of the
grocery market and lower equity betas for comparator companies.
The Waitrose impairment estimation is most sensitive to changes
in the sales growth and margin assumptions. The below sensitivities
reflect realistic and reasonable variations to the forecast
currently used by the business:
-- Reducing the growth rate assumptions for years 1 to 5 by 200
bps would result in an additional impairment charge of GBP5.3m;
-- Reducing the long-term growth rate to nil would result in an
additional impairment charge of GBP0.8m;
-- Reducing the gross margin growth assumptions in years 1 to 5
by 30 bps would result in an additional impairment charge of
GBP2.8m; and
-- Increasing the discount rate by 100 bps would result in an
additional impairment charge of GBP1.4m.
10 Assets held for sale
At 25 July 2020, four property assets in Waitrose were recorded
as held for sale with a total carrying value of GBP14.1m. It is
expected that the sale of these property assets will complete
within the next 12 months.
At 25 January 2020 three property assets in Waitrose were
recorded as held for sale with a total carrying value of
GBP1.5m.
At 27 July 2019, seven property assets in Waitrose (GBP36.2m)
and three in John Lewis (GBP2.2m) were recorded as held for sale
with a total carrying value of GBP38.4m.
11 Provisions
Long Customer Insurance Reorganisation Other Total
leave refunds claims
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- --------- ---------- --------------- ------- --------
At 25 January 2020 (153.5) (28.8) (25.3) (21.9) (24.0) (253.5)
------------------------------ -------- --------- ---------- --------------- ------- --------
Charged to income statement (11.8) (24.5) (8.7) (46.3) (28.5) (119.8)
Released to income statement 6.5 - - 1.2 2.8 10.5
Utilised 3.2 28.8 3.8 9.2 0.8 45.8
At 25 July 2020 (155.6) (24.5) (30.2) (57.8) (48.9) (317.0)
Of which:
Current (35.4) (24.5) (12.0) (57.8) (17.0) (146.7)
Non-current (120.2) - (18.2) - (31.9) (170.3)
------------------------------ -------- --------- ---------- --------------- ------- --------
The Group has a long leave scheme, open to all Partners, which
provides up to six months paid leave after 25 years' service. There
is no proportional entitlement for shorter periods of service. The
provision for the liabilities under the scheme is assessed on an
actuarial basis, reflecting Partners' expected service profiles,
salary growth, National Insurance and overtime earnings
assumptions. The real discount rate applied differs from the real
discount rate used for the Group's retirement benefit obligations
(note 12) as it reflects a rate appropriate to the shorter duration
of the long leave liability 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.
The provisions are based on reserves held in the Group's captive
insurance company, JLP Insurance Limited. These reserves are
established using independent actuarial assessments wherever
possible, or a reasonable assessment based on past claims
experience.
Provisions for reorganisations reflect restructuring and
redundancy costs, principally in relation to our branch,
distribution and retail operations as well as head office and
central function restructuring.
Other provisions primarily include property related costs.
12 Retirement benefit obligations
The pension scheme operated by the Partnership is the John Lewis
Partnership Trust for Pensions. The scheme includes a defined
benefit section, providing pensions and death benefits to members.
All contributions to the defined benefit section of the scheme are
funded by the Partnership. The scheme also includes a defined
contribution section. Contributions to the defined contribution
section of the scheme are made by both Partners and the
Partnership.
On 1 April 2020, the defined benefit section of the scheme
closed to future accrual. Following closure, members' deferred
pensions will now increase annually by inflation up to five per
cent per annum (measured using CPI), which is generally lower than
the previous pay growth assumption, resulting in a reduction of the
defined benefit obligation.
Pension commitments have been calculated based on the most
recent actuarial valuation, as at 31 March 2019, which has been
updated by the actuaries to reflect the assets and liabilities of
the scheme as at 25 July 2020. The next triennial actuarial
valuation of the scheme will take place as at 31 March 2022.
Scheme assets are stated at market value at 25 July 2020.
The market values of properties included within scheme assets
have been updated for the half year ended 25 July 2020. As Level 3
assets, there is a high level of uncertainty associated with
property valuations which are based on unobservable inputs. This
uncertainty has become more significant as a result of Covid-19. To
improve transparency, the external valuation report for the half
year ended 25 July 2020 includes a 'material valuation uncertainty'
clause in order to highlight that less certainty can be attached to
the valuation than would otherwise be the case under normal market
conditions. This does not invalidate the valuation or mean the
valuation cannot be relied upon. A percentage decrease in the index
underlying the valuation of 10% would result in a GBP46m decrease
in the property assets valuation. Having reviewed the asset values
at 25 July 2020, of which property assets represent 6.8% of the
total, the Directors consider that the valuations continue to
represent the best estimate of fair value at the half year end
date, in the context of current economic conditions.
The following financial assumptions have been used:
25 July 2020 27 July 2019 25 January
2020
Discount rate 1.50% 2.30% 1.90%
Future retail price inflation
(RPI) 2.70% 3.10% 2.80%
Future consumer price inflation
(CPI) 1.90% 2.10% 2.00%
Increase in pensions - in payment
Pre-April 1997 1.55% 1.65% 1.60%
April 1997 - April 2016 2.60% 2.90% 2.70%
Post-April 2016 1.55% 1.65% 1.60%
Increase in pensions - deferred 1.90% 2.10% 2.00%
----------------------------------- ------------- ------------- -----------
The movement in the net defined benefit liability in the period
is as follows:
Half year Half year Year to
to to 25 January
25 July 2020 27 July 2019 2020
GBPm GBPm GBPm
-------------------------------------- -------------- -------------- ------------
Net defined benefit liability
at beginning of period (417.4) (468.1) (468.1)
Operating cost/Pension expense (23.0) (56.5) (116.1)
Past service gain as a result
of closure - 249.0 249.0
Interest cost on pension liabilities (64.1) (82.0) (159.3)
Interest income on assets 60.2 77.6 152.4
Contributions 26.8 62.6 118.3
Total (losses)/gains recognised
in equity (206.3) 161.2 (193.6)
-------------------------------------- -------------- -------------- ------------
Net defined benefit liability
at end of period (623.8) (56.2) (417.4)
-------------------------------------- -------------- -------------- ------------
The post-retirement mortality assumptions used in valuing the
pension liabilities were based on the 'S2 Light' (25 January 2020:
'S2 Light'; 27 July 2019: '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 (25 January 2020:
127% for males and 106% for females; 27 July 2019: 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% (25 January 2020: 1.25%; 27
July 2019: 1.25%). The average life expectancies assumed were as
follows:
25 July 2020 25 January 2020
Men Women Men Women
----------------------------------------------------------------- ------ ------- -------- --------
Average life expectancy for a 65 year old (in years) 21.0 23.3 21.0 23.3
Average life expectancy at age 65, for a 50 year old (in years) 21.9 24.5 21.9 24.5
----------------------------------------------------------------- ------ ------- -------- --------
13 Reconciliation of loss before tax to cash generated from operations before Partnership Bonus
Half year Half year Year to
to to 25 January
25 July 27 July 2019 2020
2020
GBPm GBPm GBPm
----------------------------------------- ---------- -------------- ------------
(Loss)/profit before tax (634.5) 191.6 145.3
Amortisation and write offs of
intangible assets (1) 65.1 73.0 151.7
Depreciation (1) 719.0 191.9 517.7
Share of loss of joint venture
(net of tax) 0.4 0.6 0.2
Net finance costs 76.5 88.0 161.3
Partnership Bonus - - 30.9
Fair value (gains)/losses on derivative
financial instruments 1.2 (0.7) 0.3
Profit on disposal of property,
plant and equipment and intangible
assets (10.0) (12.3) (37.1)
Decrease in inventories 53.6 44.9 45.8
Decrease/(increase) in receivables 23.0 (39.5) (31.4)
Decrease in payables (42.1) (101.8) (39.5)
Decrease in retirement benefit
obligations (1.3) (243.1) (238.4)
Increase/(decrease) in provisions 43.7 (5.6) (8.1)
----------------------------------------- ---------- -------------- ------------
Cash generated from operations
before Partnership Bonus 294.6 187.0 698.7
----------------------------------------- ---------- -------------- ------------
(1) Includes net impairment charges. Refer to note 9.
14 Analysis of net debt
25 January Cash flow Other non- 25 July
2020 cash movements 2020
GBPm GBPm GBPm GBPm
---------------------------------- ----------- --------------------- ---------------- --------------------
Non-current assets
Derivative financial instruments 0.1 - 1.6 1.7
0.1 - 1.6 1.7
---------------------------------- ----------- --------------------- ---------------- --------------------
Current assets
1, 551
Cash and cash equivalents 598.3 952.7 - .0
Short-term investments 317.2 (291.1) (0.8) 25.3
Derivative financial instruments 4.8 (3.3) 9.3 10.8
920.3 658.3 8.5 1,587.1
---------------------------------- ----------- --------------------- ---------------- --------------------
Current liabilities
Borrowings and overdrafts - (298.3) - (298.3)
Lease liabilities (95.4) 86.2 (110.0) (119.2)
Derivative financial instruments (18.7) 1.4 8.2 (9.1)
---------------------------------- ----------- --------------------- ---------------- --------------------
(114.1) (210.7) (101.8) (426.6)
---------------------------------- ----------- --------------------- ---------------- --------------------
Non-current liabilities
Borrowings (725.1) (150.0) - (875.1)
Unamortised bond transaction
costs 9.4 0.8 (0.6) 9.6
Fair value adjustment for
hedged element on bonds (2.8) - (2.2) (5.0)
Lease liabilities (1,999.5) - 59.4 (1,940.1)
Derivative financial instruments (3.9) - 0.8 (3.1)
(2,721.9) (149.2) 57.4 (2,813.7)
---------------------------------- ----------- --------------------- ---------------- --------------------
Total net debt (1,915.6) 298.4 (34.3) (1,651.5)
---------------------------------- ----------- --------------------- ---------------- --------------------
During the period ended 25 July 2020 the Group has agreed an 18
month extension on a GBP50m Bilateral Revolving Credit Facility,
and a 12 month extension on GBP385m of a GBP450m Syndicated
Revolving Credit Facility. Covenants on the Bilateral and
Syndicated facilities were also negotiated on more favourable
terms.
In addition, the Group entered into two additional term loans of
GBP75m each and new sale & leaseback transactions were
undertaken, raising GBP136.2m.
In May 2020 the Group's application to the Bank of England &
HM Treasury 'COVID Corporate Financing Facility' (CCFF) was
approved and GBP300m was drawn down.
Reconciliation of net cash flow to net debt
Half year to Half year to Year to
25 July 2020 27 July 2019 25 January
2020
GBPm GBPm GBPm
------------------------------------- -------------- -------------- ------------
Increase/(decrease) in net
cash and cash equivalents
in the period 952.7 (228.4) (118.5)
Cash (inflow)/outflow from
movement in short-term investments (291.1) (101.2) 51.4
Cash (inflow)/outflow from
borrowings (448.3) 275.0 -
Cash outflow from movement
in other net debt items 85.1 94.7 462.1
------------------------------------- -------------- -------------- ------------
Cash movement in net debt
for the period 298.4 40.1 395.0
Opening net debt (1,915.6) (30.1) (30.1)
Adjustment on initial application
of IFRS 16(1) - (2,078.0) (2,078.0)
Non-cash movements in net
debt for the period (34.3) (79.4) (202.5)
------------------------------------- -------------- -------------- ------------
Closing net debt (1,651.5) (2,147.4) (1,915.6)
------------------------------------- -------------- -------------- ------------
(1) The Group applied IFRS 16 at 27 January 2019, using the
modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative effect of applying
IFRS 16 is recognised in retained earnings at the date of initial
application which was 27 January 2019.
15 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 financial statements for the year ended 25 January 2020.
During the half year to 25 July 2020, the Group has continued to
apply the financial risk management process and policies as
detailed in the financial statements for the year ended 25 January
2020.
Valuation techniques and assumptions applied in determining the
fair value of each class of asset or liability are consistent with
those used as at 25 January 2020 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 25 July 2020, 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 25 July 2020, the net fair value of derivative
financial instruments was GBP0.3m, asset (25 January 2020:
GBP17.7m, liability; 27 July 2019: GBP19.5m, 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):
25 July 2020 27 July 2019 25 January 2020
GBPm GBPm GBPm GBPm GBPm GBPm
CV FV CV FV CV FV
----------------------- -------- -------- -------- -------- -------- --------
Financial liabilities
Listed bonds (590.4) (580.0) (590.1) (630.9) (590.6) (645.7)
----------------------- -------- -------- -------- -------- -------- --------
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.
16 Capital commitments
At 25 July 2020 contracts had been entered into for future
capital expenditure of GBP31.3m (25 January 2020: GBP20.2m; 27 July
2019: GBP64.4m) of which GBP22.1m (25 January 2020: GBP14.3m; 27
July 2019: GBP52.8m) relates to property, plant and equipment and
GBP9.2m (25 January 2020: GBP5.9m; 27 July 2019: GBP11.6m) relates
to intangible assets.
17 Related party transactions
There have been no material changes to the principal
subsidiaries listed in the Annual Report and Accounts for the year
ended 25 January 2020. 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 25 July
2020.
18 Subsequent events
On 16 September 2020, Waitrose informed Partners that three
shops will close later this year at Ipswich Corn Exchange, Caldicot
and Shrewsbury, while selling Waitrose Wolverhampton to Tesco. No
accounting for potential redundancies was recorded for the half
year ended 25 July 2020 in respect of these shop disposals on the
basis that the announcement to Partners was after the half year
end.
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.
For and by Order of the Board
Sharon White , Chairman
Patrick Lewis , Executive Director, Finance
16 September 2020
Independent review report to John Lewis plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly report for the 26 weeks
ended 25 July 2020 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 financial statements
in the half-yearly report for the 26 weeks ended 25 July 2020 is
not prepared, in all material respects, in accordance with IAS 34
Interim Financial Reporting as adopted by the EU.
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 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 annual financial statements of the company are prepared in
accordance with International Financial Reporting Standards as
adopted by the EU. The condensed set of financial statements
included in this half-yearly report has been prepared 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 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. 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
16 September 2020
[1] Loss before Partnership Bonus, tax and exceptional items
[2] Total trading sales
[3] Total trading sales represents the full customer sales
value, including VAT, that is used to assess ongoing sales
performance. It is before adjustments for sale or return sales and
other accounting adjustments.
[4] Trading operating profit represents operating profits used
to assess the performance of the John Lewis and Waitrose brands and
determine the allocation of resources to them. It excludes
centrally managed costs, including fixed property costs and
depreciation.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
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END
IR BQLLFBKLXBBE
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September 17, 2020 02:45 ET (06:45 GMT)
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