TIDM45GD
RNS Number : 5344Z
Lewis(John) PLC
15 September 2022
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
JOHN LEWIS PLC UNAUDITED INTERIM RESULTS FOR THE 26 WEEKSED 30
JULY 2022
15 September 2022
JOHN LEWIS PLC UNAUDITED INTERIM RESULTS
FOR THE 26 WEEKSED 30 JULY 2022
RESULTS SUMMARY
-- Our business resilience and employee-owned model means we can
prioritise support for our Partners, customers, communities and
suppliers during unprecedented cost of living crisis.
-- First half loss ([1]) of GBP99m, or GBP92m before exceptional
costs, largely due to the combination of cost inflation not fully
passed on to customers, impact of cost of living crisis, unwinding
of Covid shopping patterns and investments to support Partners,
customers and suppliers.
-- Announcing a one-off cost of living support payment - GBP500
for full-time Partners, less for part-time; increasing lowest rates
of pay for Partners; free food over the winter and doubling our
financial assistance fund to help with bills; committed GBP16m to
Britain's pig farmers; GBP2m support and 2.8 million meals to
vulnerable communities.
-- Doubling down on Partnership Plan with investments in John
Lewis and Waitrose with customer numbers up and a strong focus on
value. Sales ([2]) up in John Lewis by 3% like-for-like ([3]) to
GBP2.1bn; down in Waitrose by 5% like-for-like to GBP3.6bn.
-- Cost savings of GBP90m in the half; expanding 'Lean Simple
Fast' efficiency programme (part of the Partnership Plan) to
improve margins and productivity given inflationary headwinds.
-- Progress on diversification - new and relaunched financial
products and plans to build rental homes taking shape.
-- Strong balance sheet with GBP1.5bn of cash and credit
facilities to help weather further shocks.
-- Outlook for the rest of the year is highly uncertain owing to
the cost of living crisis and its impact on discretionary spending
as well as criticality of our Christmas trading period.
Dear Partners,
This is an incredibly sad time for our country. The death of Her
Majesty The Queen - who for 70 years has been a constant figure in
the nation's life - is profoundly upsetting. Our thoughts are with
King Charles III and The Royal Family at this time.
Today, the Group is reporting its half year results. I said at
our end of year results in March that the outlook for this year was
uncertain: war had just broken out in Ukraine and inflation was
elevated and looked to be persistent.
No one could have predicted the scale of the cost of living
crisis that has materialised, with energy prices and inflation
rising ahead of anyone's expectations. As a business, we have faced
unprecedented cost inflation across grocery and general
merchandise.
I know Partners throughout the business are really feeling it,
after two tough years of the pandemic and necessary - but difficult
- restructuring. My great thanks to everyone for your continuing
commitment in these times of uncertainty. I know it has not been
easy.
We are responding to the cost of living crisis by supporting
those who need it and by stepping up our efficiency programme. We
are forgoing profit by making choices based on the sort of business
we are, led by our Purpose - 'Working in Partnership for a happier
world' - by helping our Partners, customers, communities and
suppliers.
Performance
This half year we made a loss before tax and exceptional items
of GBP92m, compared to a profit of GBP69m in the same period last
year and a loss of GBP52m three years prior (i.e. the last
pre-Covid half). This is before exceptional items, principally
reducing the size of our London office space. Including exceptional
items, we made a loss before tax of GBP99m (loss before tax of
GBP29m in 2021/22 and a profit before tax of GBP192m in 2019/20,
which included the benefit of closing the defined benefit pension
scheme).
It is not unusual for us to make a loss in the first half of the
year - we have done so in three of the last four half years. Our
trading is heavily skewed to Christmas with most of our profits
coming in the last quarter of the year.
The loss was largely due to two main factors:
-- Inflation has affected consumer spending. We have more
customers year-on-year in both brands (up 6% in Waitrose and 4% in
John Lewis) but they are spending less. Inflation has increased our
costs, which means we have to do more to meet our original
efficiency targets because we have not passed on all of the
increased costs to our customers;
-- Post-pandemic customer trends . We have seen in-store
spending rebound compared to last year. Online remains elevated
compared to pre-pandemic levels; we believe this shift is
permanent. We have seen customers move their discretionary spending
from high margin, big ticket household items to restaurants and
holidays - from dining room furniture to dining out.
Waitrose
Waitrose sales were GBP3.6bn, down 5% like-for-like on a year
ago (down 5% in total); up 7% on a like-for-like basis on three
years ago (up 4% in total). During the pandemic, Waitrose benefited
from bigger baskets as customers were restricted by the pandemic,
dining out less and doing fewer shops.
Customer numbers have held up, transactions were up 14%
year-on-year, but basket sizes are smaller by nearly a fifth.
Online shopping continues to be important, accounting for 15% of
sales; significantly up on before the pandemic and 5% below the
pandemic peak of around 20%. Nearly seven in ten baskets include a
product from the Essential range. Total customer numbers are 13.4
million, up 6% year-on-year.
Waitrose Trading operating profit fell by GBP93m to GBP432m due
to a combination of volume decline and inflationary pressures being
partially offset by a more favourable profit mix and cost
savings.
John Lewis
John Lewis sales were GBP2.1bn, up 3% like-for-like on last year
(up 3% in total). Against three years ago, John Lewis sales were up
13% like-for-like (up 4% in total). This has been driven by a
return to shops. The share of sales in shops has averaged 41% for
the half year, compared to 26% last half year, during the pandemic,
and 60% before Covid. City Centre stores have come back most
strongly with the return to more office working.
Fashion has been the best performing category, growing 25%
compared to last year with strong performance in holiday wear, as
people returned to travel and summer breaks. Conversely, our home
and technology categories, which performed strongly during the
pandemic, declined year-on-year.
The impact of the cost of living - and specifically growing
concerns about inflation and energy costs - is evident in patterns
of spending. ANYDAY - our great value own-brand - saw sales rise
28% on last half year. Energy saving items also attracted high
demand - air fryers up 56%; smart thermostats up 8%. Customer
numbers have been strong, with half a million more people shopping
with John Lewis than a year ago. Total customer numbers are 12.2
million, up 4% year-on-year.
John Lewis Trading operating profit has been maintained at
GBP295m compared to last year.
Response to the cost of living crisis
Partners : We are the lifeblood of the business - not just
employees but owners. We have doubled (to GBP800,000) financial
assistance for Partners facing hardship. We are making an active
choice to spend GBP45m to help our Partners, in addition to the
April 2022 pay increase and Bonus:
-- We will provide free food at work for 14 weeks over winter;
-- In response to Partners' opinion and the direct influence of
our Partnership Council, especially its Partner Committee, we are
making a one-off cost of living payment to Partners equal to GBP500
per full-time Partner (pro-rated for part-time Partners);
-- We are increasing the entry level pay for Partners by 4%, costing GBP10m in the second half.
Customers : We have been extremely considered about how and
where we pass on cost inflation to our customers. For example, over
95% of school uniform items have had a price freeze or reduction
this year, conscious that these are an essential item. In John
Lewis, following the retirement of 'Never Knowingly Undersold', we
are investing GBP500m into prices during the financial year. We
improved point of sale credit for big ticket items and are testing
a new loans product through our financial services arm. Customers
benefited from GBP46m in money-off vouchers through the MyWaitrose
loyalty scheme and we have just refreshed our My John Lewis loyalty
programme. Customers continue to have great opportunities to shop
value through Essential Waitrose and ANYDAY ranges.
Suppliers : We took the decision to invest GBP16m in British pig
farmers to ensure not just their survival but their ability to
continue to meet high animal welfare standards.
Communities : In the half we donated more than GBP2m to
charities to help families through challenging times, and provided
the equivalent of 2.8 million meals through FareShare.
Partnership Plan - Year 2
We continue to deliver our five-year Partnership Plan, which
we're adapting to contend with the cost of living crisis. For
example, we are expanding our existing efficiency programme - known
as Lean Simple Fast. Our immediate focus is on simplifying business
processes, making products easier to return to get products back on
sale quicker and improving the way stock moves round the business.
We were originally targeting a cost reduction of GBP300m by year 2
of the Plan, this financial year. We are forecasting to achieve
this and intend to exceed it significantly over the life of the
Plan. Savings in this first half year were GBP90m.
We are also significantly investing in our brands:
-- John Lewis relaunched earlier this month for 'All Life's
Moments' alongside a complete refresh of our main John Lewis &
Partners mid-tier brand;
-- Waitrose relaunches soon with an even sharper focus on quality, service and sustainability;
-- The rollout of the John Lewis 'shop within a Waitrose shop'
continues - expanding from 49 currently to 88 stores by the end of
the year;
-- The trial of a new concept John Lewis format launches early in 2023;
-- Our new partnership with Dobbies and an expanded partnership
with Deliveroo are taking Waitrose to new customers;
-- We are making good progress with our plans to diversify the
business. In financial services, we are trialling a new loan
product and relaunched our pet insurance product. Plans to develop
rental homes ('build to rent') are taking shape.
Outlook
The outlook is uniquely uncertain. We believe we are well placed
to navigate the current inflationary headwinds. First, we have a
strong balance sheet, which helps us navigate through trading
volatility with total liquidity at GBP1.5bn (cash of GBP1.1bn and
facilities of GBP0.4bn). Second, the loyalty of our customers and a
deep understanding of their changing habits and needs. Third, the
dedication of our Partners who provide great service for our
customers.
A successful Christmas is key for the business given the first
half. We will need a substantial strengthening of performance,
beyond what we usually achieve in the second half, to generate
sufficient profit to share a Partnership Bonus with Partners. Much
will depend on the wider economic outlook and consumer
sentiment.
For our part, we want to give our customers a memorable and
affordable Christmas, with Christmas markets in 13 John Lewis
stores and 60 new Waitrose products.
Time and again we have been tested as a Group. We have always
come through - and stronger - by being mindful of the challenges
but also open to new opportunities. We will do so again.
Sharon White
Partner and Chairman
Notes
A glossary of financial and non-financial terms is included at
the end of this document.
JOHN LEWIS PLC UNAUDITED INTERIM RESULTS
FOR THE 26 WEEKSED 30 JULY 2022 - DETAIL
Understanding our financial performance
Group performance
This half year we made a loss before tax and exceptional items
of GBP92m, compared to a profit of GBP69m in the same period last
year and a loss of GBP52m three years prior (i.e. the last
pre-Covid half). This is before exceptional items, principally
reducing the size of our London office space. Including exceptional
items, we made a loss before tax of GBP99m (loss before tax of
GBP29m in 2021/22 and a profit before tax of GBP192m in 2019/20,
which included the benefit of closing the defined benefit pension
scheme).
Note: The chart shows our (loss)/profit before Partnership
Bonus, tax and exceptional items since 2018/19. The 2019/20 year is
presented twice as that is the year we adopted IFRS 16 (lease
accounting standard) which reduced our profits that half year by
GBP26m. All subsequent periods are post adoption of IFRS 16
Waitrose John Lewis
-------------------------------------- ------------------------------------
Jul Jul Jul % vs % vs Jul Jul Jul % vs % vs
22 21 19 Jul Jul 22 21 19 Jul Jul
21 19* 21 19*
--------------------- ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total trading
sales (GBPm) 3,584 3,792 3,446 (5)% 4% 2,136 2,082 2,059 3% 4%
---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total trading sales
LFL (GBPm)** 3,584 3,792 3,345 (5)% 7% 2,129 2,071 1,876 3% 13%
---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Revenue (GBPm) 3,311 3,515 3,176 (6)% 4% 1,637 1,638 1,613 0% 1%
---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Trading operating
profit (GBPm) 432 525 530 (18)% (18)% 295 295 285 0% 4%
---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Trading operating
profit (%) 12% 14% 15% 14% 14% 14%
---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
* As a consequence of the distortions to trade and our cost base
over the last two years, we continue to compare our first half
result to the most recent pre-Covid half year in 2019/20
** Our LFL definition is outlined in the Glossary section
Waitrose performance
Waitrose sales fell 5% on a like-for-like basis (down 5% in
total) but were up 7% like-for-like compared to three years ago (up
4% in total).
We had an exceptional first half last year, strongly
outperforming the market as we continued to serve more customers
especially online during the pandemic. As customers have returned
to pre-pandemic shopping patterns - shopping around, convenience,
eating out more and taking holidays - so our outperformance has
naturally reversed: our market share has fallen from 5.0% to 4.7%
([4]) .
Waitrose Trading operating profit fell by GBP93m to GBP432m
largely due to:
-- Volume decline of 10%, driven largely by the shift in
customer behaviour mentioned above as well as some availability
shortages in the half;
-- Partially offsetting this we saw a rebalancing of trade, with
more customers returning to shops, which drove a more favourable
profit mix. The introduction of online delivery charging in Q3 last
year improved profitability in online;
-- Inflation pressures across the Waitrose cost base, including
pay, supply chain costs and product costs. We've experienced
extreme levels of inflation in the price we have to pay for our
products. Despite a lot of hard work from the commercial teams and
from our suppliers, average cost price inflation through the first
half was +4%, but had reached +8% as we ended the half and has
since continued to rise. Tackling costs on behalf of our customers
is a priority for the foreseeable future;
-- Offsetting these pressures, we delivered GBP25m of cost
savings within Waitrose Trading operating profit, principally
driven by long-term work to improve the efficiency of our sourcing
and the initial benefits of restructuring of management teams
across our shops. In addition we saw lower direct costs of Covid in
the half.
A significant factor in our year-on-year volume decline has come
from normalisation in the online channel, with participation of
total sales dropping back to 15% from 18% last year. Where we were
able to disproportionately grow online during the pandemic,
annualising that, our performance was always going to skew the
numbers this half. Online demand has now stabilised at three times
pre-pandemic levels.
The cost of living crisis to gether with the aftermath of
lockdown restrictions is changing shopping habits. Customers
continue to choose Waitrose for quality, value, ethics and service
but more frequently they are shopping between our value, mid-tier
and premium ranges to manage tighter budgets. In addition, despite
total transactions (in-store and online) increasing by 14%
year-on-year, we saw a step down in basket sizes with an 18%
reduction in the average basket value.
The success of our 1,000 strong Essential Waitrose range shows
how cheaper choices don't have to mean low quality. In the first
half, nearly seven in ten customers had an Essential range item in
their basket. The relaunch of the MyWaitrose loyalty scheme is
further helping customers cut costs on the products they buy most
often.
In-store and online convenience top-up shopping is growing;
Waitrose has 57 convenience stores across the UK and a successful
partnership with Deliveroo, which is now in 220 sites. In the first
half, we announced the launch of our partnership with Dobbies
garden centres, with two foodhalls opened to date and a further 48
planned within the next 18 months. Our extension into more
convenient market segments, together with supplier partnerships,
will help us reach new customers.
Building on the combined strength of our two brands, we
continued the roll out of John Lewis 'shop in shops' to a further
11 Waitrose stores in the first half of the year, taking the total
to 49 and plans to reach 88 by year end. Almost all general
merchandise in Waitrose stores is now from John Lewis providing
greater operating synergies and exposure for our brands to more
customers.
Our focus on innovation saw the launch of nearly 300 new
products this year. We won the Grocer Gold Award for service,
Grocer Gold Awards 2022: own-label range of the year for the
Levantine Table and picked up nine Grocer 33 wins in the first half
of the year.
John Lewis performance
John Lewis sales grew by 3% like-for-like on last year (up 3% in
total) and up 13% like-for-like compared to three years ago (up 4%
in total).
John Lewis Trading operating profit at GBP295m was flat on last
year. Key factors within this result include:
-- Strong sales, with customers able to shop in our stores for
the full half, following national lockdown which saw our shops
closed for part of last year. Customers were able to take advantage
of our great service, inspiration and personal advice;
-- We delivered GBP22m of cost savings within John Lewis Trading
operating profit as part of our plan to become a leaner, simpler,
faster business. In addition we saw lower direct costs of Covid in
the half;
-- These improvements in performance were offset by inflation
across the John Lewis cost base, including pay, product costs and
freight. For own-brand products, higher costs directly impacted
margin, with not all cost increases passed onto customers.
During the half, we announced GBP500m of investment in quality
and value and retired our Never Knowingly Undersold price policy,
which had become increasingly obsolete. The move enables John Lewis
to take the lead on value, rather than just responding to other
retailers, an increasingly important lever as customers manage
tighter budgets.
ANYDAY remains our most successful ever own-brand launch,
designed for longevity and offering everyday style and great value.
In the first half of the year, we expanded the range in swimwear,
kidswear and new outdoor furniture. There are now over 2,000 ANYDAY
products. Three million customers have shopped the range since its
launch in April 2021, and it has helped attract over 800,000 new
and reactivated customers.
Channel mix for the year was 59% online and 41% shops, compared
to 74% and 26% for last half year. Since the removal of enforced
lockdown related closures, we have seen a stabilisation of the
online/shop mix at close to 60:40%. That compares to a pre-pandemic
ratio of 40:60%, reflecting the longer term effects of the pandemic
on customer behaviour and closure of 16 stores in the last two
years.
We expect this shape of trade to continue, with our shops
playing a critical role in driving both customer experience and
excitement and supporting our online business, through giving our
customers convenient Click & Collect, browsing and returns
options.
Creating and investing in a more seamless virtual and in-store
experience from store to John Lewis app to online, for example the
launch of our 'in-store' mode in the Jo hn Lewis app, is bearing
fruit. In the first half, the John Lewis app share of online
revenue was over 26% compared to 22% last year. Visits to the John
Lewis app are up 4% year-on-year; adopters are more loyal to the
brand, typically spending an additional 15% in their first
year.
In stores, we are better at showcasing new products and seasonal
items and we have launched our new brand promise, For All Life's
Moments, which encapsulates our commitment to always be there for
our customers.
After two years of strong technology sales, driven largely by
the effects of the pandemic shaping greater working from home and
more time at home generally, we saw a deterioration in demand for
technology this half. This was counterbalanced by a rise in the
demand for fashion, as customers sought new season fashion in
response to greater travel, leisure, socialising and customers
returning to offices, post easing of the pandemic restrictions.
Categories such as travel have seen year-on-year growth of +291%,
swimwear +104% and sunglasses +24% as a consequence.
Financial Services performance
John Lewis Financial Services continues to grow. We have seen
increased customer numbers, up 11% on last year, supported by a
rebound in our foreign exchange business. We relaunched our pet
insurance product, improved point of sale credit for big ticket
items and are testing a new loans product. Across our savings
offer, we have seen a growth in the number of customers using
savings products, up by over 165%. Our transition of the
Partnership Card has progressed well. We continue to see strong
momentum of customers using our point of sale credit offer in John
Lewis, with first half spending over GBP50m, up 46% compared to the
first half last year.
Our focus in the second half is on continuing to grow this part
of the business and on the relaunch of the Partnership Card.
Key Group profit movements vs last year
First half PBTBE is GBP161m lower than last year. This is
primarily due to:
-- Waitrose Trading operating profit declining by GBP93m. Key
factors for this are outlined earlier in this section;
-- John Lewis Trading operating profit was flat year-on-year.
Key movements are outlined earlier in this section;
-- Within the Waitrose and John Lewis Trading operating profit
figures, cost savings of GBP47m were delivered. In addition, GBP43m
of cost savings were achieved across other operating costs. In
total, GBP90m of combined cost reduction was delivered in the half
as part of our ongoing plans to become a leaner, simpler and faster
business. This has been critical to help offset some of the
exceptional inflationary pressures we have seen in the half;
-- Government support was GBP58m lower as the business rates
relief scheme ended in 2021. This was used to offset the impact of
Covid on the Group, including trade disruption from closure
restrictions and additional direct costs of GBP25m, costs which
were absorbed in Trading operating profit in John Lewis and
Waitrose last year;
-- In the first half, we booked GBP20m of store impairment
relating to higher discount rates in both grocery and general
merchandise, and sales prospects in a handful of Waitrose shops
where we do not believe post-pandemic trade will recover to
previous levels;
-- We continue to invest strongly in our Partnership Plan,
incurring GBP12m higher operating cost this year related to the
costs of change across our business;
-- Of the GBP21m other movements, the largest contributor is a
GBP10m recovery of overpaid taxes included as income in last year's
first half performance.
Key profit movements vs 2019/20
As a consequence of the pandemic related distortions to trade
and our cost base over the last two years, we continue to compare
our first half result to the most recent pre-Covid half year in
2019/20.
First half PBTBE is GBP40m lower than 2019/20, prior to the
pandemic. This is primarily due to:
-- Waitrose Trading operating profit declining by GBP98m.
Despite sales growth of 4%, a key factor behind the decrease in
profit is the shift to the lower profit online channel where mix of
trade has increased from 5% to 15% over the period. In addition,
within Waitrose Trading operating profit we delivered GBP55m of
cost savings compared to 2019/20. These improvements were more than
offset by inflation across pay, supply chain and shop operating
costs;
-- John Lewis Trading operating profit grew by GBP10m, despite
the closure of 16 shops since the first half of 2019/20.
Like-for-like sales have increased by 13% over the period, as
customers have transitioned online. Cost savings of GBP33m compared
to 2019/20 were offset by inflation across the cost base.
-- In total, including cost savings reported within Waitrose and
John Lewis Trading operating profit and across other operating
costs, GBP156m of combined cost reduction was delivered in the half
compared to the first half of 2019/20;
-- In the first half, we booked GBP20m of store impairment
relating to higher discount rates and a handful of Waitrose shops,
where we do not believe post-pandemic trade will recover to
previous levels. In 2019/20, there were no impairments reported in
PBTBE at the half.
Delivering a leaner, simpler, faster Group
We are progressing with our ambitions to become a leaner,
simpler, faster business. Our activity to drive profit improvement
through a combination of margin improvement and cost reduction is
well under way. Cost savings of GBP90m have supported the
performance this half compared to last half. These have been driven
by restructuring activity completed last year, as well as improving
our cost of sales and property cost savings.
When the plan was launched, we were originally targeting a cost
reduction of GBP300m by the end of this year and are on track to
hit that target. We are not immune from the growing challenges
presented by the inflationary environment in the UK, the cost of
living crisis this is fuelling and the possibility of a UK
recession. Faced with these dynamics, we are significantly
increasing the speed and expanding the scope and size of our lean,
simple and fast ambitions beyond our previous GBP300m target. This
will be critical to growing and sustaining our profit in such an
inflationary environment.
With this revised ambition in mind, we are currently mobilising
work around four priority programmes, which include simplifying our
shop processes and an end to end review of John Lewis returns
processes.
Cash and liquidity
We continue to manage cash prudently given the uncertain
environment. It also ensures that there is adequate funding
available to withstand material volatility in trading, particularly
important to the Group as we do not have access to equity markets
owing to our ownership model.
Our total liquidity at the half year end remains strong at
GBP1.5bn, including GBP1.1bn cash and short-term investments, and
undrawn bank facilities of GBP420m. This is required to deliver the
Partnership Plan and meet our obligations. Our Total net debts
remain at historically low levels - we carry GBP1.6bn of Total net
debts including leases, with GBP350m of financial borrowings due to
be repaid in the next three years. Due to our strong liquidity
position, we repaid term loans totalling GBP150m during the first
half of this year, which were due to mature in the second half.
Total net debts have increased since January 2022 from GBP1.4bn to
GBP1.6bn. While there has been a reduction in gross debt,
predominantly driven by GBP150m of early loan repayments, this has
been more than offset by the total cash outflow during the
half.
Liquidity has dropped by GBP0.4bn, reflecting repayment of
GBP150m term loans, a net operating cash outflow of GBP91m, after
taking into account Partnership Bonus payment of GBP46m, as well as
continued capital investment. Net operating cash outflow has
deteriorated compared to last half year largely due to weaker
profit performance and increased investment in working capital, as
we recover from global supply chain disruption that impacted the
industry throughout 2021 and secure stocks for the second half.
Our debt ratio at the end of last year was 2.3x; we do not
update our debt ratio at the half year due to the seasonality of
our annual performance.
Jul 22 Jan 22 Jul 21
--------- --------
Total liquidity (GBPm) 1,475 1,931 1,925
Total net debts (GBPm) (1,635) (1,413) (1,693)
Debt ratio (year end - 2.3x -
only)
------------------------- --------- -------- ---------
Pensions
Our accounting position reflects the gap between the market
value of pension assets held by our defined benefit scheme and our
pension liabilities. At January 2022, we had an accounting pension
surplus before deferred tax of GBP474m (GBP331m post deferred tax).
At the half year, this has improved to GBP642m (GBP459m post
deferred tax).
The improvement since January 2022 of GBP168m pre-tax is due to
a reduction in the present value of pension liabilities offset by a
reduction in value of associated liability linked investments,
designed to limit the pension schemes exposure to discount rate and
inflation. The valuation of liabilities has decreased as a result
of higher discount rates being used to assess present values of
future payments, in line with market projections reflecting
expectations of interest rate rises. While the impact of higher
inflation has increased the liabilities, this is more than offset
by the increased discount rate.
Our pension valuation is derived from a number of assumptions,
any of which can change the overall valuation substantially given
the large size of the scheme. The valuation is at a point in time
and changes in market conditions can substantially affect this
position in the future. The pension scheme is subject to a
triennial valuation which is underway as at 31 March 2022.
ENQUIRIES
John Lewis plc
Chris Wynn, Partner & Director of Communications, 07980
242019, chris.wynn@johnlewis.co.uk
Parveen Johal, Partner & Senior Communications Manager,
07768 568644, parveen.johal@johnlewis.co.uk
Media Relations team, 01344 825 080,
pressoffice@johnlewis.co.uk
Debt investors: Lynn Lochhead, Partner & Head of Treasury,
investor.relations@johnlewis.co.uk
GLOSSARY
Throughout the interim results, alternative performance measures
(APMs) have been reported. These are non-GAAP measures and are
presented to provide stakeholders with additional financial
information on the performance of the Group. These APMs should not
be viewed in isolation or as an alternative to the equivalent GAAP
measure.
The measures detailed below are not defined by UK-adopted IFRS
and therefore may not be directly comparable with other companies'
APMs - this includes those in the retail industry.
Reconciliation of Total trading sales to Revenue
Waitrose John Lewis Group
26 weeks to 30 July 2022 GBPm GBPm GBPm
------------------------------------ -------- ---------- -----
Total trading sales 3,584 2,136 5,720
Deduct:
Value added tax (209) (347) (556)
Sale or return and other accounting
adjustments (64) (152) (216)
------------------------------------ -------- ---------- -----
Revenue 3,311 1,637 4,948
------------------------------------ -------- ---------- -----
Waitrose John Lewis Group
26 weeks to 31 July 2021 GBPm GBPm GBPm
------------------------------------ -------- ---------- -----
Total trading sales 3,792 2,082 5,874
Deduct:
Value added tax (221) (338) (559)
Sale or return and other accounting
adjustments (56) (106) (162)
------------------------------------ -------- ---------- -----
Revenue 3,515 1,638 5,153
------------------------------------ -------- ---------- -----
Reconciliation of Operating (loss)/profit to PBTBE
26 weeks 26 weeks
to to
30 July 31 July
2022 2021
GBPm GBPm
-------------------------------------------- -------- --------
Operating (loss)/profit (59) 47
Add back:
Exceptional items 7 98
Deduct:
Net finance costs (40) (76)
-------------------------------------------- -------- --------
(Loss)/profit before Partnership Bonus, tax
and exceptional items (92) 69
-------------------------------------------- -------- --------
Reconciliation of Loss before tax to PBTBE
26 weeks 26 weeks
to 30 July to 31 July
2022 2021
GBPm GBPm
-------------------------------------------- ----------- -----------
Loss before tax (99) (29)
Add back:
Exceptional items 7 98
-------------------------------------------- ----------- -----------
(Loss)/profit before Partnership Bonus, tax
and exceptional items (92) 69
-------------------------------------------- ----------- -----------
APM DEFINITION, PURPOSE AND RECONCILIATION
-------------------- -------------------------------------------------------------
Adjusted cash Not updated at half year. Operating profit before
flow Partnership Bonus, exceptional items, depreciation
and amortisation, but after lease adjusted interest
and tax. This measure is important to assess our
debt ratio. 52 weeks
to 53 weeks
29 January to 30 January
2022 2021
GBPm GBPm
Operating profit/(loss) 118 (360)
add back
Depreciation, amortisation
and write-offs 483 525
Exceptional items 161 648
Partnership Bonus 46 -
less
Lease adjusted interest (144) (149)
Tax (52) (40)
----------- --------------
Adjusted cash flow 612 624
----------- --------------
==================== =============================================================
Debt ratio Not updated at half year . 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.
52 weeks
to 53 weeks
29 January to 30 January
2022 2021
GBPm GBPm
Total net debts 1,413 2,097
Adjusted cash flow 612 624
----------- --------------
Debt ratio 2.3x 3.4x
--------------
==================== =============================================================
(Loss)/profit (Loss)/profit before Partnership Bonus, tax and exceptional
before Partnership items. This measure is important as it allows for
Bonus, tax and a comparison of underlying profit performance.
exceptional items 26 weeks 52 weeks
(PBTBE) 26 weeks to to
to 30 July 31 July 29 January
2022 2021 2022
GBPm GBPm GBPm
PBTBE (92) 69 181
Exceptional items (7) (98) (161)
Partnership Bonus - - (46)
----------- -------- -----------
Loss before tax (99) (29) (26)
----------- -------- -----------
==================== =============================================================
APM DEFINITION, PURPOSE AND RECONCILIATION
------------------ -------------------------------------------------------------
Total liquidity The cash, short-term investments and undrawn committed
credit facilities we have available to us, which
we can use to settle liabilities as they fall due.
================== =============================================================
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. This measure
is important to assess our debt ratio (not updated
at half year).
26 weeks 52 weeks
to to
30 July 29 January
2022 2022
GBPm GBPm
Borrowings and overdrafts (640) (792)
Amounts owed to Parent in
respect of SIP shares (19) (23
Derivative financial instruments 22 (1)
Lease liabilities (1,939) (1,988)
Liquid cash, short-term deposits
and investments 941 1,391
-------- -----------
Total net debts (1,635) (1,413)
-------- -----------
================== =============================================================
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 adjustment
for sale or return sales and other accounting adjustments.
A reconciliation between Total trading sales and
Revenue is provided above.
================== =============================================================
Trading operating Trading operating profit represents operating profits
profit (TOP) 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.
26 weeks to 30 July Waitrose John Lewis Group
2022 GBPm GBPm GBPm
Trading operating profit 432 295 727
Centrally managed costs
incl property (535)
-------- ---------- -----
Depreciation and amortisation (244)
-------- ---------- -----
Net finance costs (40)
-------- ---------- -----
PBTBE (92)
-------- ---------- -----
Exceptional items (7)
-------- ---------- -----
Loss before tax (99)
-------- ---------- -----
26 weeks to 31 July Waitrose John Lewis Group
2021 GBPm GBPm GBPm
Trading operating profit 525 295 820
Centrally managed costs
incl property (431)
-------- ----------
Depreciation and amortisation (244)
-------- ----------
Net finance costs (76)
-------- ---------- -----
PBTBE 69
-------- ----------
Exceptional items (98)
-------- ---------- -----
Loss before tax (29)
-------- ---------- -----
================== =============================================================
TERM DEFINITION
------------------------ -----------------------------------------------------------
Amortisation An expense recorded to write down intangible assets
to their residual values over their useful economic
lives (UELs).
======================== ===========================================================
Assets Something of value that the Group owns, benefits
from, or has use of, in generating income or cash.
======================== ===========================================================
Balance sheet A financial statement that shows assets, liabilities
and capital/equity at a particular point in time,
giving a summary of what the Group/Company owns
and what it owes.
======================== ===========================================================
Capital investment/ Cash outflows in relation to additions to tangible
expenditure assets (property, plant and equipment), and intangible
assets (IT software) recognised on the balance sheet.
======================== ===========================================================
Cash flow (statement A financial statement that shows how changes in
of) balance sheet accounts, income and expenses affect
cash and cash equivalents. It breaks the analysis
down to operating, investing and financing activities.
It is a measure of cash generation, working capital
efficiency and capital discipline of the business.
======================== ===========================================================
Click & Collect A service offered through Johnlewis.com to enable
customers to buy or order goods and collect from
a local Waitrose or John Lewis.
======================== ===========================================================
Committed credit Similar to a personal overdraft, this is an agreement
facilities with banks to provide the Group with additional
funds as and when we might require.
======================== ===========================================================
Cost of sales The cost to the business of producing and purchasing
goods sold over a specific period of time.
======================== ===========================================================
Debt Money the Group has borrowed which it is required
to repay.
======================== ===========================================================
Depreciation An expense recorded to write down non-current assets
to their residual values over their useful economic
lives (UELs).
======================== ===========================================================
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.
======================== ===========================================================
Financial year The period of 364 days, or 52 weeks, running from
30 January 2022 to 28 January 2023.
======================== ===========================================================
GAAP Generally Accepted Accounting Practice. Non-GAAP
measures are those which are not required under
UK-adopted IFRS, but are included to enhance the
relevance and usefulness of the financial statements.
======================== ===========================================================
Impairment A reduction in the value of an asset due to a fall
in the expected future economic benefits generated
by the asset.
======================== ===========================================================
Investment Total investment spend includes capital investment,
revenue investment, restructuring and redundancy
costs, and lease disposal costs.
======================== ===========================================================
Lease A contract in which one party lends land, property
or services to another for a specified period of
time, usually in return for payment.
======================== ===========================================================
Like-for-like Comparison of sales between two periods in time
(LFL) sales (e.g. this year to last year), removing the impact
of shop openings and closures. Waitrose like-for-like
sales excludes fuel.
======================== ===========================================================
Liquid cash Immediately available cash in bank.
======================== ===========================================================
Margin (gross) The difference between a product or service's selling
price and its cost of purchase/production.
======================== ===========================================================
TERM DEFINITION
------------------------ -----------------------------------------------------------
Net finance costs Interest payable on our borrowings, our defined
benefit pension scheme and long leave scheme, offset
by interest received from investments.
======================== ===========================================================
Operating profit/(loss) Profit/(loss) earned by the Group over a specific
period of time, before accounting for net finance
costs and tax.
======================== ===========================================================
Partners (members) The name given to all employees of the John Lewis
Partnership.
======================== ===========================================================
Pension surplus/deficit The accounting pension surplus or deficit presented
(accounting) in the balance sheet represents the difference between
the fair value of the plan assets and the present
value of the defined benefit obligation at the balance
sheet date. It is presented in accordance with the
requirements of IAS 19, which requires all companies
to assume their pension fund grows at a standard
rate reflecting a relatively low level of risk.
======================== ===========================================================
Profit/(loss) Profit/(loss) generated by the Group over a specific
before tax (PBT period of time, before accounting for tax.
or LBT)
======================== ===========================================================
Restructuring A change to internal organisational structures,
designed to streamline processes and create more
efficient and cost-effective ways of working.
======================== ===========================================================
Revenue investment Investment spend recognised directly in the income
statement.
======================== ===========================================================
Short-term investments Cash placed with financial institutions (such as
banks) for a period of between three months and
a year. The Group receives more interest on these
short-term investments compared to immediately accessible
cash kept in bank accounts.
======================== ===========================================================
Trading operating Trading operating profit divided by Total trading
profit % sales.
======================== ===========================================================
Value added tax A tax on the sales value of a product or service
(VAT) which is collected by HMRC.
======================== ===========================================================
Working capital The cash the Group utilises as part of its day-to-day
trading operations. This includes aspects such as
the money tied up in stock, the money we owe to
suppliers for goods we haven't yet paid for, and
any money we may be owed from customers and suppliers.
======================== ===========================================================
Consolidated income statement for the 26 weeks to 30 July 2022
(unaudited)
26 weeks 26 weeks 52 weeks
to to to
30 July 31 July 29 January
Notes 2022 2021 2022
GBPm GBPm GBPm
----- --------------------------------------- --------- --------- -----------
6 Revenue 4,948.0 5,152.8 10,837.5
Cost of sales (3,423.7) (3,512.5) (7,359.4)
----- --------------------------------------- --------- --------- -----------
Gross profit 1,524.3 1,640.3 3,478.1
Other operating income 59.6 50.2 108.1
Operating and administrative expenses (1,642.8) (1,644.1) (3,469.5)
--------------------------------------- --------- --------- -----------
of which:
4 Exceptional items (net) (6.8) (97.9) (160.8)
Partnership Bonus - - (46.4)
--------------------------------------- --------- --------- -----------
Share of (loss)/profit of joint venture
(net of tax) (0.2) 0.5 1.0
----- --------------------------------------- --------- --------- -----------
5 Operating (loss)/profit (59.1) 46.9 117.7
7 Finance costs (70.9) (79.9) (155.2)
7 Finance income 30.8 4.4 10.3
----- --------------------------------------- --------- --------- -----------
Loss before tax (99.2) (28.6) (27.2)
Taxation 20.2 (11.8) (41.1)
----- --------------------------------------- --------- --------- -----------
Loss for the period (79.0) (40.4) (68.3)
----- --------------------------------------- --------- --------- -----------
(Loss)/profit before Partnership Bonus,
5 tax and exceptional items (92.4) 69.3 180.0
----- --------------------------------------- --------- --------- -----------
Consolidated statement of comprehensive income for the 26 weeks
to 30 July 2022 (unaudited)
26 weeks 26 weeks 52 weeks
to to to
30 July 31 July 29 January
Notes 2022 2021 2022
GBPm GBPm GBPm
----- ---------------------------------------------- -------- -------- -----------
Loss for the period (79.0) (40.4) (68.3)
----- ---------------------------------------------- -------- -------- -----------
Other comprehensive income/(expense):
Items that will not be reclassified to profit
or loss:
Remeasurement of defined benefit pension
11 scheme 161.3 484.8 1,116.9
Movement in deferred tax on pension scheme (46.8) (81.1) (241.2)
Movement in current tax on pension scheme - 1.0 1.9
Items that may be reclassified subsequently
to profit or loss:
Fair value gain/(loss) on cash flow hedges 32.7 (8.5) (2.1)
Cash flow hedge loss reclassified and reported
in the consolidated income statement (2.7) - (1.0)
Movement in deferred tax on cash flow hedges - (0.5) (3.5)
Loss on foreign currency (0.2) - -
----- ---------------------------------------------- -------- -------- -----------
Other comprehensive income for the period 144.3 395.7 871.0
----- ---------------------------------------------- -------- -------- -----------
Total comprehensive income for the period 65.3 355.3 802.7
----- ---------------------------------------------- -------- -------- -----------
Consolidated balance sheet as at 30 July 2022 (unaudited)
30 July 31 July 29 January
Notes 2022 2021 2022
GBPm GBPm GBPm
----- ---------------------------------------- --------- --------- ----------
Non-current assets
9 Intangible assets 440.9 456.4 446.0
9 Property, plant and equipment 2,891.3 2,941.2 2,927.4
9 Right-of-use assets 1,405.0 1,515.6 1,473.3
Trade and other receivables 15.2 15.8 15.8
13 Derivative financial instruments 5.9 0.8 1.7
Investment in and loans to joint venture 4.2 3.7 4.4
Deferred tax asset - 14.1 0.5
11 Retirement benefit surplus 658.1 - 492.8
----- ---------------------------------------- --------- --------- ----------
5,420.6 4,947.6 5,361.9
----- ---------------------------------------- --------- --------- ----------
Current assets
Inventories 722.7 629.7 655.7
Trade and other receivables 342.5 312.4 331.7
Current tax receivable 5.3 0.3 -
13 Derivative financial instruments 24.9 5.5 6.0
Short-term investments 110.3 391.8 95.3
Cash and cash equivalents 944.6 1,032.8 1,415.4
----- ---------------------------------------- --------- --------- ----------
2,150.3 2,372.5 2,504.1
----- ---------------------------------------- --------- --------- ----------
Total assets 7,570.9 7,320.1 7,866.0
----- ---------------------------------------- --------- --------- ----------
Current liabilities
13 Borrowings and overdrafts - - (150.0)
Trade and other payables (1,684.4) (1,618.4) (1,806.9)
Current tax payable - - (0.5)
13 Lease liabilities (160.4) (135.8) (156.6)
10 Provisions (99.5) (207.7) (140.8)
13 Derivative financial instruments (4.5) (20.3) (8.4)
----- ---------------------------------------- --------- --------- ----------
(1,948.8) (1,982.2) (2,263.2)
----- ---------------------------------------- --------- --------- ----------
Non-current liabilities
13 Borrowings (639.7) (794.5) (641.6)
Trade and other payables (28.0) (41.3) (30.0)
13 Lease liabilities (1,778.9) (1,879.8) (1,831.7)
10 Provisions (152.6) (169.6) (161.2)
13 Derivative financial instruments (4.1) (0.6) (0.8)
121 Retirement benefit obligations (15.7) (163.9) (19.3)
Deferred tax liability (202.8) (5.2) (177.5)
----- ---------------------------------------- --------- --------- ----------
(2,821.8) (3,054.9) (2,862.1)
----- ---------------------------------------- --------- --------- ----------
Total liabilities (4,770.6) (5,037.1) (5,125.3)
----- ---------------------------------------- --------- --------- ----------
Net assets 2,800.3 2,283.0 2,740.7
----- ---------------------------------------- --------- --------- ----------
Equity
Share capital 6.7 6.7 6.7
Share premium 0.3 0.3 0.3
Other reserves 25.4 (11.4) 1.3
Retained earnings 2,767.9 2,287.4 2,732.4
----- ---------------------------------------- --------- --------- ----------
Total equity 2,800.3 2,283.0 2,740.7
----- ---------------------------------------- --------- --------- ----------
Consolidated statement of changes in equity for the 26 weeks to
30 July 2022 (unaudited)
Share Share Capital Hedging Foreign Retained Total
capital premium reserve reserve currency earnings equity
translation
reserve
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Balance at 30 January
2021 6.7 0.3 1.4 (14.5) 0.4 1,923.1 1,917.4
Loss for the period - - - - - (40.4) (40.4)
Remeasurement of defined
11 benefit pension scheme - - - - - 484.8 484.8
Fair value loss on cash
flow hedges - - - (8.5) - - (8.5)
Tax on above items recognised
in equity - - - (0.5) - (80.1) (80.6)
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Total comprehensive income/(expense)
for the period - - - (9.0) - 364.3 355.3
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Transfers to inventories - - - 10.3 - - 10.3
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Balance at 31 July 2021 6.7 0.3 1.4 (13.2) 0.4 2,287.4 2,283.0
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Balance at 30 January
2021 6.7 0.3 1.4 (14.5) 0.4 1,923.1 1,917.4
Loss for the year - - - - - (68.3) (68.3)
Remeasurement of defined
11 benefit pension scheme - - - - - 1,116.9 1,116.9
Fair value loss on cash
flow hedges - - - (2.1) - - (2.1)
Cash flow hedge loss reclassified
and reported in the consolidated
income statement - - - (1.0) - - (1.0)
Tax on above items recognised
in equity - - - (3.5) - (239.3) (242.8)
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Total comprehensive income/(expense)
for the period - - - (6.6) - 809.3 802.7
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Transfers to inventories - - - 20.6 - - 20.6
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Balance at 29 January
2022 6.7 0.3 1.4 (0.5) 0.4 2,732.4 2,740.7
Loss for the period - - - - - (79.0) (79.0)
Remeasurement of defined
11 benefit pension scheme - - - - - 161.3 161.3
Fair value gain on cash
flow hedges - - - 32.7 - - 32.7
Cash flow hedge loss reclassified
and reported in the consolidated
income statement - - - (2.7) - - (2.7)
Tax on above items recognised
in equity - - - - - (46.8) (46.8)
Loss on currency translations - - - - (0.2) - (0.2)
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Total comprehensive income/(expense)
for the period - - - 30.0 (0.2) 35.5 65.3
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Transfers to inventories - - - (5.7) - - (5.7)
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Balance at 30 July 2022 6.7 0.3 1.4 23.8 0.2 2,767.9 2,800.3
----- ------------------------------------ -------- -------- -------- -------- ------------ --------- -------
Consolidated statement of cash flows for the 26 weeks to 30 July
2022 (unaudited)
26 weeks 52 weeks
to 26 weeks to
30 July to 29 January
Notes 2022 31 July 2021 2022
GBPm GBPm GBPm
----- ------------------------------------------- -------- ------------- -----------
Cash generated from operations before
13 Partnership Bonus 16.4 233.3 668.7
Net taxation (paid)/received (7.0) 5.6 2.1
Pension deficit reduction payments (5.0) (5.0) (10.0)
Finance costs paid (48.9) (53.0) (105.5)
----- ------------------------------------------- -------- ------------- -----------
Net cash (used in)/generated from operating
activities before Partnership Bonus (44.5) 180.9 555.3
----- ------------------------------------------- -------- ------------- -----------
Partnership Bonus paid (46.1) - -
Net cash (used in)/generated from operating
activities after Partnership Bonus (90.6) 180.9 555.3
----- ------------------------------------------- -------- ------------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (91.8) (77.4) (205.7)
Purchase of intangible assets (61.6) (53.3) (109.1)
Proceeds from sale of property, plant
and equipment and intangible assets 1.1 10.9 11.0
Finance income received 2.8 0.3 0.9
Cash outflow from short-term investments (15.0) (391.5) (95.0)
----- ------------------------------------------- -------- ------------- -----------
Net cash used in investing activities (164.5) (511.0) (397.9)
----- ------------------------------------------- -------- ------------- -----------
Cash flows from financing activities
Finance costs paid in respect of bonds - - (31.1)
Finance (costs paid)/income received
in respect of financial instruments (2.9) (2.5) 1.0
Payment of capital element of leases (62.8) (77.8) (155.1)
Cash outflow from borrowings (150.0) (75.0) (75.0)
----- ------------------------------------------- -------- ------------- -----------
Net cash used in financing activities (215.7) (155.3) (260.2)
----- ------------------------------------------- -------- ------------- -----------
Decrease in net cash and cash equivalents (470.8) (485.4) (102.8)
Net cash and cash equivalents at beginning
of the period 1,415.4 1,518.2 1,518.2
----- ------------------------------------------- -------- ------------- -----------
Net cash and cash equivalents at end
of the period 944.6 1,032.8 1,415.4
----- ------------------------------------------- -------- ------------- -----------
Net cash and cash equivalents comprise:
Cash at bank and in hand 158.1 162.8 162.5
Short-term deposits 786.5 870.0 1,252.9
----- ------------------------------------------- -------- ------------- -----------
944.6 1,032.8 1,415.4
----- ------------------------------------------- -------- ------------- -----------
Notes to the financial statements (unaudited)
1 Basis of preparation
This condensed set of interim financial statements was approved
by the Board on 14 September 2022. The condensed set of interim
financial statements do not comprise statutory accounts within the
meaning of Section 434 of the Companies Act 2006. The condensed set
of interim financial statements is unaudited and has not been
reviewed by the auditor. The comparative information for the 26
weeks to, or as at, 31 July 2021 has not been audited or
reviewed.
The results for the 26 weeks to 30 July 2022 have been prepared
using the discrete period approach, considering the interim period
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 loss in the 26 weeks to 30 July 2022.
The Group's published financial statements for the 52 weeks to
29 January 2022 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 26
weeks ended 30 July 2022 has been prepared in accordance with
UK-adopted IAS 34 'Interim Financial Reporting'. The condensed set
of interim financial statements should be read in conjunction with
the Annual Report and Accounts for the 52 weeks to 29 January 2022,
which have been prepared in accordance with UK-adopted
International Financial Reporting Standards (UK-adopted IFRS).
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
30 July 2022, the Directors are required to consider whether the
Group can continue in operational existence for a period of 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, for the reasons set out below.
As at 30 July 2022, the Group had total assets less current
liabilities of GBP5.6bn and net assets of GBP2.8bn. Liquidity as at
that date remains strong at GBP1.5bn, made up of cash and cash
equivalents, short-term investments and an undrawn syndicated
credit facility of GBP0.4bn. This is lower than at January 2022,
reflecting that due to our strong liquidity position, we repaid
early term loans totalling GBP150m during the first half of this
year which were due to mature in the second half.
The Directors have modelled a severe downside scenario to cover
the going concern assessment period, being for the 12 month period
ending September 2023. In addition, the Directors have modelled a
further period to January 2024 in order to ensure that the entire
trading year is considered as this aligns with our bond covenants.
For the purposes of the going concern assessment, it is assumed
that all Group borrowings are repaid at their maturity date and
that no further refinancing or funding is undertaken.The severe
downside case represents an increasingly severe but plausible
scenario which includes the impact of the high levels of inflation
facing the UK economy.
In this severe downside scenario, Waitrose and John Lewis remain
operational both in-store and online, albeit with sales and margin
pulled back from current trading levels due to a UK economic
recession throughout the assessment period. This results in a
reduction in sales, as well as a reduction in margin across both
brands. It also includes a number of one-off events, e.g. a
regulatory and data security breach, higher impairment charge, a
decrease in pension scheme assets and under-delivery of key
activities of the Partnership Plan. The impact of the severe
downside adjustments has been reviewed against the Group's
projected cash position and financial covenants. Should these
occur, mitigating actions would be required to ensure that the
Group remains liquid and financially viable.
Going concern (continued)
The severe downside model has a significant adverse impact on
sales, margin, costs and cash flow. In response, the Directors have
identified available mitigations in the going concern assessment
period, all within management's control, to reduce costs and
optimise the Group's cash flow, liquidity and covenant headroom.
The majority of these mitigations would only be triggered in the
event of the severe downside scenario materialising. Mitigating
actions include, but are not limited to, reducing capital and
investment expenditure through postponing or pausing projects and
change activity; deferring or cancelling discretionary spend
including discretionary Partner benefits; and reducing marketing
spend.
The Group has a syndicated credit facility of GBP420m which
matures in 2026 and is at present undrawn. This syndicated credit
facility contains one financial performance covenant, which is a
profit based covenant ('Fixed Charge Cover'). The severe downside
scenario modelled indicates that without mitigating actions this
would breach at the next balance sheet date due to the reduction in
profits modelled. However, whilst the scenario indicates this
covenant would breach, the model also shows that post mitigating
actions the cash low point would recover to GBP681m and the
covenants would not breach and therefore the syndicated credit
facility would remain undrawn. The Group seeks to retain the option
to utilise its syndicated credit facility, therefore, covenant
compliance will continue to be monitored closely. If considered
necessary, the Group will seek a covenant relaxation from its bank
group, or take other actions to replace the level of liquidity
support provided by the syndicated credit facility.
The severe downside detailed above is deemed by the Directors to
provide a severe but plausible stress test on our ability to adopt
the going concern basis. This includes a significant reduction in
2022/23 performance and reduced trading performance across both
brands, resulting in a pre-mitigation cash reduction to forecast.
We have made our assessment based on our best view of the severe
but plausible downside scenario that we might face. 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.
Consequently, the Directors have concluded that the Group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
condensed set of interim financial statements and therefore have
prepared the financial statements on a going concern basis.
2 Accounting policies
The Group's results for the 26 weeks to 30 July 2022 have been
prepared on a basis consistent with the Group's accounting policies
published in the financial statements for the 52 weeks to 29
January 2022.
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.
3 Risks and uncertainties
The Group has a formal risk identification process, which
includes a rigorous analysis of internal and external risks within
leadership teams, at the Executive Team, Audit and Risk Committee,
Ethics and Sustainability Committee and the Group Board. The
principal risks and uncertainties affecting the Group were reported
in the Strategic Report, set out on pages 33 to 39 of the John
Lewis Partnership Annual Report and Accounts 2022, a copy of which
is available on the Partnership's website
www.johnlewispartnership.co.uk . The majority of risks remain
relevant for the second half of the financial year with two notable
exceptions:
-- External Environment: Greater focus was required on the Group
's response to the external environment rather than the impact that
external pressures had on our 'business as usual' (BAU) operations.
Consequently, the External Environment risk was replaced in Q1
2022/23 by two new risks:
-- 'Insufficient Profit to Achieve Our Purpose', to facilitate
targeted management of the financial levers that can be pulled in
response to external pressures, and;
-- 'Strategic Resilience', ensuring sufficient focus on our
response to the changes in the external environment, fast enough to
secure the future success of the Group.
-- Liquidity: This was removed as a principal risk in Q4 2021/22
when the risk reached appetite as a result of securing the GBP420m
Revolving Credit Facility (RCF) which comprised the main mitigating
action, and ending the financial year in a stronger cash position
than expected. The risk continues to be managed by the Finance
Leadership Team and has been managed effectively down from a
principal risk.
As the threat of Covid-19 reduces, inflation, recession,
consumer confidence, high demand for resources in key skill areas,
supply chain disruption and rising energy costs continue to
challenge the pace of our strategy delivery and remain our
focus.
Our principal risks are:
-- 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: Loss of key customer, Partner and/or
commercially sensitive data leading to financial, regulatory,
legal, operational and reputational issues;
-- Insufficient Profit to Achieve Our Purpose: Risk that we
won't make sufficient profit to achieve our Purpose; the impact of
which would be a combination of reduced competitiveness and
ultimately commercial failure, loss of Partner faith and democratic
vitality due to lack of suitable Partner rewards endangering our
Group model, and inability to maintain our distinctive
character;
-- Change Delivery: Change does not realise the desired benefits
and drives unforeseen cost and consequences;
-- Customer Experience: Customers do not receive differentiated,
excellent customer service across touchpoints;
-- Regulatory Non-compliance: Failure to comply with key regulatory requirements;
-- Ethics and Sustainability: Failure to live up to our ethics and sustainability ambition;
-- Partner Wellbeing: Partners' sense of wellbeing is threatened
by societal and organisational uncertainty and change.
Looking forward to the second half of the year, the Group will
continue to monitor the Bank of England warnings of UK economic
recession expected to land in Q4 2022/23 and the impact of the cost
of living increase on consumer behaviour. Emerging risks around
business resilience and Partner retention will be monitored and
mitigating actions taken.
4 Exceptional items
26 weeks to 26 weeks to 52 weeks to
30 July 2022 31 July 2021 29 January 2022
Operating Taxation Operating Taxation Operating Taxation
(expenses)/ (charge)/ (expenses)/ credit/ (expenses)/ credit/
income credit income (charge) income (charge)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------------ ---------- ------------ --------- ------------ ---------
Strategic restructuring
and redundancy programmes
Physical estate (4.7) (0.3) (63.4) 6.8 (108.0) 2.5
Shop operations (2.2) (0.5) (41.3) 9.9 (41.4) 7.9
Head office reviews 0.1 - 7.4 (1.7) 11.7 (2.2)
----------------------------- ------------ ---------- ------------ --------- ------------ ---------
(6.8) (0.8) (97.3) 15.0 (137.7) 8.2
----------------------------- ------------ ---------- ------------ --------- ------------ ---------
Store impairments - John
Lewis - 0.1 (0.6) (2.6) (23.1) 3.0
Store impairments - Waitrose - - - 0.1 - -
----------------------------- ------------ ---------- ------------ --------- ------------ ---------
(6.8) (0.7) (97.9) 12.5 (160.8) 11.2
----------------------------- ------------ ---------- ------------ --------- ------------ ---------
Strategic restructuring and redundancy programmes
The Partnership Plan is a five year plan that envisages a
significant level of transformation to ensure the Group is thriving
for both Partners and customers. Some of this transformation is in
the form of restructuring.
The costs incurred over the life of the change programmes
outlined are significant in value and, given the level of change,
they are significant in nature. Therefore, the Group considers them
exceptional items to provide a more meaningful view of the Group's
underlying business performance.
During the first half of the year, the Group has updated our
plans for the future of our London head office, whilst progressing
with the restructuring programmes to our physical estate, shop
operations and head office functions announced in previous periods.
These programmes present significant deviations from normal
operations for the Group, in terms of their size and nature, and
are therefore presented as exceptional items. The financial impacts
of these programmes are detailed below.
Physical estate: Since 2017, we have been working on our
programme of rebalancing 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.
With the launch of the Partnership Plan and the acceleration of
change we have seen in customer shopping behaviour, we have
refocused on the need to ensure our stores reflect how our
customers want to shop - 'right space, right place' - and as a
result we anticipate these changes will extend to 2025/26.
In the 2021/22 financial year, we negotiated the early surrender
of the leasehold interest in the London head office. Since January
2022, plans for the use of this office space have developed and we
have recognised an impairment charge of GBP7.9m, following the
announcement to close seven floors.
In the 2021/22 financial year, we also announced the closure of
eight John Lewis stores along with a customer distribution hub.
These change programmes have progressed since January 2022 and, in
the 26 weeks to 30 July 2022, we have recognised net income of
GBP2.3m from the release of related provisions, as well as net
gains of GBP0.9m on the disposal of related stores.
4 Exceptional items (continued)
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 in order to deliver
a more flexible, multi-skilled and productive model.
In July 2021, we announced the proposal to redesign management
structures in Waitrose and John Lewis shops to be simpler and more
flexible. This change programme has progressed since January 2022
and, in the 26 weeks to 30 July 2022, we have recognised a net
charge of GBP2.2m.
Head office reviews: The redundancy programmes related to the
transformation of head office operations have continued this year.
This is part of the wider review of a number of pan Group functions
which began at the end of 2017. These change programmes have
progressed since January 2022 and, in the 26 weeks to 30 July 2022,
we have recognised net income of GBP0.1m from the release of
related provisions.
Store impairments - John Lewis
At July 2022, there was no charge to exceptional items (January
2022: GBP23.1m charge; July 2021: GBP0.6m charge). See note 9 for
further detail.
Store impairments - Waitrose
At July 2022, there was no charge to exceptional items (January
2022: nil; July 2021: nil). See note 9 for further detail.
5 Segmental reporting
The Group's reporting segments are determined based on the
internal financial reporting to the chief operating decision-maker
(CODM) and is split by the business activities of its brands (John
Lewis and Waitrose). The Executive Team reviews the operating
performance for each brand (John Lewis and Waitrose) in the Group,
using 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.
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.
Waitrose John Lewis Group
GBPm GBPm GBPm
------------------------------------------------ -------- ---------- -------
26 weeks to 30 July 2022
Total trading sales 3,583.4 2,136.4 5,719.8
Value added tax (208.5) (346.9) (555.4)
Sale or return and other accounting adjustments (63.6) (152.8) (216.4)
------------------------------------------------ -------- ---------- -------
Revenue 3,311.3 1,636.7 4,948.0
------------------------------------------------ -------- ---------- -------
Trading operating profit(1) 431.7 295.0 726.7
------------------------------------------------ -------- ---------- -------
Other operating and administrative expenses(2) (785.8)
------------------------------------------------ -------- ---------- -------
of which:
Exceptional items (net) (6.8)
Partnership Bonus -
------------------------------------------------ -------- ---------- -------
Operating loss (59.1)
Finance costs (70.9)
Finance income 30.8
------------------------------------------------ -------- ---------- -------
Loss before tax (99.2)
------------------------------------------------ -------- ---------- -------
Loss before Partnership Bonus, tax and
exceptional items (92.4)
------------------------------------------------ -------- ---------- -------
(1) Included in Trading operating profit is other operating
income of which GBP55.7m (split between operating segments:
GBP35.7m John Lewis and GBP20.0m Waitrose) represents further
income from external customers. This is reported to the CODM
separately as part of other income and expenses.
(2) Included in Other operating and administrative expenses is
GBP243.5m of depreciation and amortisation.
5 Segmental reporting (continued)
Waitrose John Lewis Group
GBPm GBPm GBPm
------------------------------------------------ -------- ---------- -------
26 weeks to 31 July 2021
Total trading sales 3,792.5 2,081.7 5,874.2
Value added tax (221.2) (337.8) (559.0)
Sale or return and other accounting adjustments (56.5) (105.9) (162.4)
------------------------------------------------ -------- ---------- -------
Revenue 3,514.8 1,638.0 5,152.8
------------------------------------------------ -------- ---------- -------
Trading operating profit(1) 524.6 295.0 819.6
------------------------------------------------ -------- ---------- -------
Other operating and administrative expenses(2) (772.7)
------------------------------------------------ -------- ---------- -------
of which:
Exceptional items (net) (97.9)
Partnership Bonus -
------------------------------------------------ -------- ---------- -------
Operating profit 46.9
Finance costs (79.9)
Finance income 4.4
------------------------------------------------ -------- ---------- -------
Loss before tax (28.6)
------------------------------------------------ -------- ---------- -------
Profit before Partnership Bonus, tax and
exceptional items 69.3
------------------------------------------------ -------- ---------- -------
(1) Included in Trading operating profit is other operating
income of which GBP46.5m (split between operating segments:
GBP31.6m John Lewis and GBP14.9m Waitrose) represents further
income from external customers. This is reported to the CODM
separately as part of other income and expenses.
(2) Included in Other operating and administrative expenses is
GBP244.3m of depreciation and amortisation.
Waitrose John Lewis Group
GBPm GBPm GBPm
------------------------------------------------ -------- ---------- ---------
52 weeks to 29 January 2022
Total trading sales 7,535.9 4,925.6 12,461.5
Value added tax (439.6) (797.5) (1,237.1)
Sale or return and other accounting adjustments (112.7) (274.2) (386.9)
------------------------------------------------ -------- ---------- ---------
Revenue 6,983.6 3,853.9 10,837.5
------------------------------------------------ -------- ---------- ---------
Trading operating profit(1) 1,019.6 757.7 1,777.3
------------------------------------------------ -------- ---------- ---------
Other operating and administrative expenses(2) (1,659.6)
------------------------------------------------ -------- ---------- ---------
of which:
Exceptional items (net) (160.8)
Partnership Bonus (46.4)
------------------------------------------------ -------- ---------- ---------
Operating profit 117.7
Finance costs (155.2)
Finance income 10.3
------------------------------------------------ -------- ---------- ---------
Loss before tax (27.2)
------------------------------------------------ -------- ---------- ---------
Profit before Partnership Bonus, tax
and exceptional items 180.0
------------------------------------------------ -------- ---------- ---------
(1) Included in trading operating profit is other operating
income of which GBP101.2m (split between operating segments:
GBP30.8m Waitrose and GBP70.4m John Lewis) represents further
income from external customers. This is reported to the CODM
separately as part of other income and expenses.
(2) Included in Other operating and administrative expenses is
GBP481.7m of depreciation and amortisation.
6 Revenue
Disaggregation of revenue from contracts with customers
The revenue recognition policy is unchanged from that described
in the Annual Report and Accounts for the 52 weeks to 29 January
2022.
We analyse our revenue between goods and services. Goods are
split into four major product lines: Grocery, Home, Fashion and
Technology. Services comprise free service guarantees on selected
goods. This presentation is consistent with how our Executive Team
reviews performance. In line with our five year Partnership Plan,
we expect our service offering to increase in the coming year and,
as such, will keep this reporting under review including the
classification of commission income from other services as other
income rather than revenue.
26 weeks 26 weeks 52 weeks
to 30 July to 31 July to 29 January
2022 2021 2022
GBPm GBPm GBPm
-------------------- ----------- ----------- --------------
Major product lines
-------------------- ----------- ----------- --------------
Goods
- Grocery 3,298.6 3,512.9 6,899.7
- Home 485.2 501.7 1,119.8
- Fashion 526.3 430.4 1,127.9
- Technology 606.3 660.9 1,577.2
-------------------- ----------- ----------- --------------
Services
- Free warranty 1.8 12.7 4.7
-------------------- ----------- ----------- --------------
Other revenue 29.8 34.2 108.2
-------------------- ----------- ----------- --------------
4,948.0 5,152.8 10,837.5
-------------------- ----------- ----------- --------------
7 Net finance costs
26 weeks 26 weeks 52 weeks
to to to
30 July 31 July 29 January
2022 2021 2022
GBPm GBPm GBPm
--------------------------------------- -------- -------- -----------
Finance costs
Finance costs in respect of borrowings
and lease liabilities(1) (68.2) (72.3) (143.7)
Fair value measurements and other (2.7) (0.8) (2.8)
Net finance costs arising on defined
benefit retirement scheme - (5.0) (8.7)
Net finance costs arising on other
employee benefit schemes - (1.8) -
--------------------------------------- -------- -------- -----------
Total finance costs (70.9) (79.9) (155.2)
--------------------------------------- -------- -------- -----------
Finance income
Finance income in respect of cash and
short-term investments(2) 6.8 3.4 7.2
Fair value measurements and other 2.1 1.0 3.1
Net finance income arising on defined
benefit retirement scheme 5.4 - -
Net finance income arising on other
employee benefit schemes 16.5 - -
--------------------------------------- -------- -------- -----------
Total finance income 30.8 4.4 10.3
--------------------------------------- -------- -------- -----------
Net finance costs (40.1) (75.5) (144.9)
--------------------------------------- -------- -------- -----------
(1) Finance costs in respect of borrowings and lease liabilities
include interest payable on interest rate swaps of GBP2.9m (July
2021: GBP2.5m; January 2022: GBP5.0m) and lease liabilities of
GBP68.2m (July 2021: GBP49.2m; January 2022: GBP97.3m).
(2) Finance income in respect of cash and short-term investments
includes interest receivable on interest rate swaps of GBP3.1m
(July 2021: GBP3.1m; January 2022: GBP6.1m).
Capitalised borrowing costs totalled GBP0.1m (July 2021: GBP0.3m
; January 2022: GBP0.6m) of which GBP0.1m (July 2021: GBPnil;
January 2022: GBPnil) were capitalised within intangible assets and
GBPnil (July 2021: GBP0.3m; January 2022: GBP0.6m) 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 for the 26 weeks to 30 July 2022 is lower than would be
expected for the full year. This is as a result of a significant
number of discrete items expected at the full year.
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 29 January
2022 2,927.4 446.0 1,473.3 4,846.7
Additions(1) 86.7 60.7 20.4 167.8
Depreciation and amortisation(2) (121.6) (65.2) (84.4) (271.2)
Disposals and write-offs (1.2) (0.6) (4.3) (6.1)
--------------------------------- ---------- ---------- ------------ -------
Net book value at 30 July
2022 2,891.3 440.9 1,405.0 4,737.2
--------------------------------- ---------- ---------- ------------ -------
(1) For the period ended 30 July 2022, additions for the year
include the non-cash capital expenditure accrual on property, plant
and equipment of GBP29.0m (January 2022: GBP34.1m) and intangible
assets of GBP1.6m (January 2022: GBP2.6m).
(2) For the period ended 30 July 2022, depreciation and
amortisation includes net impairment charges of GBP13.5m to
right-of-use assets (January 2022: GBP15.9m charge) and GBP14.8m to
land and buildings (January 2022: GBP21.5m charge), and an
impairment release of GBP0.6m to fixtures and fittings (January
2022: GBP1.8m release).
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 (JL) 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.
In accordance with IAS 36, the Group reviews its property,
plant, intangible assets and right-of-use assets for impairment at
least annually or whenever events or circumstances indicate that
the value on the balance sheet may not be recoverable. The
impairment review methodology is unchanged from that described in
the Annual Report and Accounts for the 52 weeks to 29 January
2022.
The tangible impairment review compares the recoverable amount
for each Cash Generating Unit (CGU), typically a store, to the
carrying value on the balance sheet; this includes right-of-use
assets. It 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 VIU calculation is based on four year cash flow
projections using the latest forecast data. For JL, different
growth expectations are applied to online and store sales. The
forecasts are then extrapolated beyond the four year period using a
long-term growth rate of 2% for both Waitrose and JL. The
recoverable amounts of all impaired Waitrose CGUs are based on the
VIU. For JL, there are two CGUs for which the recoverable amounts
are the fair value less cost to dispose. The recoverable amounts of
all other impaired JL CGUs are based on the VIU.
The key assumptions in the calculations are the expected sales
and margin performance, cost inflation, the allocation of online
sales and associated costs to stores in the determination of the JL
store CGU, the market valuations considered in fair value less cost
to dispose calculations and the discount rate. The latest view of
future trading for both Waitrose and JL is based on finding a "new
normal" after the disruption of the lockdowns and social
restrictions as a result of the Covid-19 pandemic. The Group
continues to monitor what the current economic challenges might
mean for the long term and it has carefully considered the impacts
of current trends - inflation, cost of living crisis and early
stages of recession - against long-term performance
expectations.
Following the impairment review, the Group recognised in
operating expenses a net impairment charge of GBP15.1m for Waitrose
stores and an impairment charge of GBP4.7m for JL stores. For JL,
charges have historically met the criteria for recognition as
exceptional items given changing customer behaviour, but the
charges for this half year do not meet those same criteria. The
Group has also recognised an impairment charge of GBP7.9m in
exceptional items for its London office. The total impairment
charge for the 26 weeks to 30 July 2022 is GBP27.7m.
The existing provisions have an underlying reduction due to
utilisation of the provision, which is principally due to store
exits: GBP7.4m for JL and GBP0.4m for Waitrose.
9 Property, plant and equipment, Intangible assets, and Right-of-use assets (continued)
John Lewis store impairment
The impact of the JL impairment review is a charge of GBP4.7m to
operating expenses, largely due to a higher discount rate. There
were no reversals of impairment charges.
Cash forecasts
The calculations use a post-tax cash flow based on a four year
plan approved by the Group Board. The key assumptions in this plan
are the recovery of JL store sales from the impact of Covid-19
restrictions, year-on-year sales growth, margin rates and cost
inflation. The plan differentiates between online and store sales,
which is relevant to our store CGUs that continue to include an
allocation of online sales and associated costs.
For the JL business, there is ongoing market uncertainty and
changing customer behaviours. The JL impairment estimation is most
sensitive to changes in sales and margin forecasts, as well as the
allocation of online sales and costs, and therefore sensitivity
analysis has focused on these aspects of the impairment evaluation.
Management's review of historical forecasts shows an average
variance for the sales growth of 2.7%. Reducing the sales growth by
this percentage would increase the JL impairment provision by
GBP14.5m.
Online allocation
Judgement is required as to whether online sales and associated
costs should be attributed to JL stores for the purposes of
impairment evaluation. Our allocation of a proportion of online
sales, made by customers who shop both online and in store
(omnichannel), is supported by the omnichannel approach embedded in
our strategy, management and operation of our stores. It 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, online
sales are allocated to stores based on Click & 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. The allocations of the
sales and weighting of the drivers (ie Click & Collect versus
further allocation to reflect the role the store plays in
facilitating online sales) varies by store.
Given the pace of change in customer behaviour and the
transition to online purchasing, as well as the sensitivity of the
JL impairment to the online allocation, management continue to
consider how further changes could impact impairment. If the online
allocation assumptions were reduced such that only online sales
serviced through in-store Click & Collect were allocated to
CGUs, this would further increase the impairment provision by
GBP123.6m. If no online sales were attributed to the CGUs, the
impairment provision would increase by GBP172.9m.
Market valuations
External market valuations are regularly obtained by the Group
and used within the consideration of fair value less cost to
dispose. This is an annual exercise completed ahead of each year
end that considers the available market for department store
properties.
Discount rate
The pre-tax discount rate of 13% (January 2022: 12%) used in the
calculation of cash flows is derived from the JL Weighted Average
Cost of Capital (WACC). This has increased since last year end,
reflecting higher market inflation expectations and increased
perceived risk in the bond market. An increase in the discount rate
of 100 bps would increase the JL impairment charge by GBP6.7m.
9 Property, plant and equipment, Intangible assets, and Right-of-use assets (continued)
Waitrose store impairment
The impact of the Waitrose impairment review is a net charge of
GBP15.1m within operating expenses. It includes the release of a
previous impairment charge of GBP5.9m due to improved store
performance which has been judged to be sustainable. This reversal
has been more than offset by new impairment charges of GBP21.0m
relating to the higher discount rate and performance deterioration
on a small number of stores.
The impairment calculations for Waitrose stores use a post-tax
cash flow based on a four year plan approved by the Board. The key
assumptions in this plan are the stabilisation of sales following
the pandemic disruption, year-on-year sales growth, margin rates
and cost inflation. Waitrose online sales are allocated directly to
the store that the online order is picked and fulfilled from.
Online sales are therefore included in the Waitrose CGUs as the
sales are directly attributable to store activity; this is not
considered a key judgement.
The Waitrose customer fulfilment centres (CFCs) have been
included in the impairment review alongside the store CGUs in a way
that reflects the commercial reality that the CFCs are designed to
serve specific regional postcodes of the UK alongside the
stores.
The Waitrose impairment estimation is most sensitive to changes
in the sales and margin forecasts. Management's review of
historical forecasts shows an average variance for the sales growth
of 0.6%. Reducing the sales growth by this percentage would
increase the Waitrose impairment provision by GBP3.0m.
The pre-tax discount rate of 11% (January 2022: 10%) used in the
calculation of cash flows is derived from the Waitrose WACC which
has increased from last year end, reflecting higher market
inflation expectations and increased perceived risk in the bond
market. An increase in the discount rate of 100 bps would increase
the Waitrose impairment provision by GBP9.0m.
10 Provisions
Long Customer Insurance Reorganisation Other Total
leave refunds claims
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------- -------- --------- -------------- ------ -------
At 29 January 2022 (144.4) (24.8) (24.3) (49.6) (58.9) (302.0)
------------------- ------- -------- --------- -------------- ------ -------
Charged to income
statement (6.4) (23.4) (9.3) (3.7) (7.6) (50.4)
Released to income
statement 19.2 - - 3.2 5.0 27.4
Utilised 4.1 24.8 3.3 40.5 0.2 72.9
------------------- ------- -------- --------- -------------- ------ -------
At 30 July 2022 (127.5) (23.4) (30.3) (9.6) (61.3) (252.1)
------------------- ------- -------- --------- -------------- ------ -------
Of which:
Current (32.7) (23.4) (13.4) (9.6) (20.4) (99.5)
Non-current (94.8) - (16.9) - (40.9) (152.6)
------------------- ------- -------- --------- -------------- ------ -------
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 discount rate applied differs from the discount
rate used for the Group's retirement benefit obligations (note 11)
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 held for reorganisation relate to strategic
restructuring and redundancy programmes; principally in relation to
the ongoing review of the Group's physical estate, our shop
management reorganisation, as well as head office and central
function restructuring.
Other provisions primarily include property-related costs.
11 Retirement benefit obligations
The pension scheme operated by the Group 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 Group. The defined benefit section of the scheme
closed to new members and future accrual on 1 April 2020 and all
active members of the scheme moved to become deferred members.
The scheme also includes a defined contribution section.
Contributions to the defined contribution section of the scheme are
made by both Partners and the Group.
Pension commitments recognised in these financial statements
have been calculated based on the most recent completed actuarial
valuations, as at 31 March 2019, which have been updated by the
actuaries to reflect the assets and liabilities of the scheme as at
30 July 2022. The 31 March 2022 triennial actuarial valuation is
currently in progress.
Scheme assets are stated at market value at 30 July 2022.
The following financial assumptions have been used:
30 July 31 July 29 January
2022 2021 2022
------------------------------------ ------- ------- ----------
Discount rate 3.60% 1.70% 2.30%
Future retail price inflation (RPI) 3.00% 3.05% 3.30%
Future consumer price inflation
(CPI) 2.55% 2.60% 2.85%
Increase in pensions - in payment
Pre-April 1997 1.85% 1.85% 1.95%
April 1997 - April 2016 2.85% 2.85% 3.05%
Post-April 2016 1.85% 1.85% 1.95%
Increase in pensions - deferred 2.55% 2.60% 2.85%
------------------------------------- ------- ------- ----------
The movement in the net defined benefit surplus/(liability) in
the period is as follows:
26 weeks 52 weeks
to to
26 weeks to 31 July 29 January
30 July 2022 2021 2022
GBPm GBPm GBPm
----------------------------------------------- ------------- -------- -----------
Net defined benefit asset/(liability)
at beginning of period 473.5 (646.9) (646.9)
Operating cost/Pension expense (4.6) (3.9) (7.6)
Interest cost on pension liabilities (76.5) (57.1) (114.0)
Interest income on assets 82.0 52.1 104.1
Contributions 6.7 7.1 21.0
Total gains recognised in equity 161.3 484.8 1,116.9
----------------------------------------------- ------------- -------- -----------
Net defined benefit asset/(liability)
at end of period 642.4 (163.9) 473.5
----------------------------------------------- ------------- -------- -----------
of which:
Total funded defined benefit asset/(liability)
at end of period 658.1 (143.2) 492.8
Defined benefit obligation for
unfunded arrangements (15.7) (20.7) (19.3)
----------------------------------------------- ------------- -------- -----------
11 Retirement benefit obligations (continued)
The post-retirement mortality assumptions used in valuing the
pension liabilities were based on the 'S2 Light' (29 January 2022:
'S2 Light'; 31 July 2021: '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 who were non
pensioners and 130% for males and 109% for females who were
pensioners (29 January 2022: 127% for males and 106% for females
who were non pensioners and 130% for males and 109% for females who
were pensioners; 31 July 2021: 127% for males and 106% for females
who were non pensioners and 130% for males and 109% for females who
were pensioners). 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% (29 January 2022: 1.25%; 31 July
2021: 1.25%). The average life expectancies assumed were as
follows:
29 January
30 July 2022 31 July 2021 2022
Men Women Men Women Men Women
Average life expectancy for a
65 year old (in years) 20.9 23.3 20.9 23.3 21.0 23.4
Average life expectancy at age
65, for a 50 year old (in years) 21.9 24.6 21.9 24.6 22.0 24.7
---------------------------------- ------ ------ ------ ------ ----- -----
12 Reconciliation of loss before tax to cash generated from operations before Partnership Bonus
26 weeks 26 weeks 52 weeks
to to to
30 July 31 July 29 January
2022 2021 2022
GBPm GBPm GBPm
------------------------------------------- -------- -------- -----------
Loss before tax (99.2) (28.6) (27.2)
Amortisation and write offs of intangible
assets(1) 65.8 64.9 129.4
Depreciation(1) 206.0 187.2 387.9
Share of loss/(profit) of joint venture
(net of tax) 0.2 (0.5) (1.0)
Net finance costs 40.1 75.5 144.9
Partnership Bonus - - 46.4
Fair value losses/(gains) on derivative
financial instruments 0.1 (1.2) (1.2)
(Profit)/loss on disposal of property,
plant and equipment and intangible assets (2.6) 2.3 51.6
(Increase)/decrease in inventories (70.0) 14.2 (12.9)
Increase in receivables (2.5) (50.1) (70.5)
(Decrease)/increase in payables (91.0) (51.7) 77.3
Increase/(decrease) in retirement benefit
obligations 2.9 1.8 (3.4)
(Decrease)/increase in provisions (33.4) 19.5 (52.6)
------------------------------------------- -------- -------- -----------
Cash generated from operations before
Partnership Bonus 16.4 233.3 668.7
------------------------------------------- -------- -------- -----------
(1) Includes net impairment charges
13 Analysis of net debt
29 January Cash flow Other non- 30 July
2022 cash movements 2022
GBPm GBPm GBPm GBPm
--------------------------------- ---------- --------- --------------- ---------
Non-current assets
Derivative financial instruments 1.7 - 4.2 5.9
--------------------------------- ---------- --------- --------------- ---------
1.7 - 4.2 5.9
--------------------------------- ---------- --------- --------------- ---------
Current assets
Cash and cash equivalents 1,415.4 (470.8) - 944.6
Short-term investments 95.3 15.0 - 110.3
Derivative financial instruments 6.0 (4.6) 23.5 24.9
--------------------------------- ---------- --------- --------------- ---------
1,516.7 (460.4) 23.5 1,079.8
--------------------------------- ---------- --------- --------------- ---------
Current liabilities
Borrowings and overdrafts (150.0) 150.0 - -
Lease liabilities (156.6) 108.9 (112.7) (160.4)
Derivative financial instruments (8.4) 1.2 2.7 (4.5)
--------------------------------- ---------- --------- --------------- ---------
(315.0) 260.1 (110.0) (164.9)
--------------------------------- ---------- --------- --------------- ---------
Non-current liabilities
Borrowings (650.0) - (650.0)
Unamortised bond transaction
costs 7.4 - (0.8) 6.6
Fair value adjustment for
hedged element on bonds 1.0 - 2.7 3.7
Lease liabilities (1,831.7) - 52.8 (1,778.9)
Derivative financial instruments (0.8) - (3.3) (4.1)
--------------------------------- ---------- --------- --------------- ---------
(2,474.1) - 51.4 (2,422.7)
--------------------------------- ---------- --------- --------------- ---------
Total net debt (1,270.7) (200.3) (30.9) (1,501.9)
--------------------------------- ---------- --------- --------------- ---------
During the period ended 30 July 2022, two term loans totaling
GBP150m were repaid.
Reconciliation of net cash flow
to net debt
------------------------------------- --------- --------- -----------
26 weeks 26 weeks 52 weeks
to to to
30 July 31 July 29 January
2022 2021 2022
GBPm GBPm GBPm
------------------------------------- --------- --------- -----------
(Decrease)/increase in net cash and
cash equivalents in the period (470.8) (485.4) (102.8)
Cash outflow/(inflow) from movement
in short-term investments 150.0 391.5 75.0
Cash outflow/(inflow) from borrowing 15.0 75.0 95.0
Cash outflow from movement in other
net debt items 105.5 137.5 274.1
------------------------------------- --------- --------- -----------
Cash movement in net debt for the
period (200.3) 118.6 341.3
Opening net debt (1,270.7) (1,405.5) (1,405.5)
Non-cash movements in net debt for
the period (30.9) (113.2) (206.5)
------------------------------------- --------- --------- -----------
Closing net debt (1,501.9) (1,400.1) (1,270.7)
------------------------------------- --------- --------- -----------
14 Management of financial risks
The principal financial risks to which the Group is exposed are
capital and long-term funding risk, liquidity risk, interest rate
risk, foreign currency risk, credit risk, and energy risk.
This condensed set of interim financial statements does not
include all risk management information and disclosures required in
the annual financial statements and should be read in conjunction
with the Annual Report and Accounts for the 52 weeks to 29 January
2022. During the 26 weeks to 30 July 2022, the Group has continued
to apply the financial risk management process and policies as
detailed in the Annual Report and Accounts for the 52 weeks to 29
January 2022.
Valuation techniques and assumptions applied in determining the
fair value of each class of asset or liability are consistent with
those used as at 29 January 2022 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 26 weeks to 30 July 2022, 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 30 July 2022, the net fair value of derivative
financial instruments was GBP22.2m, liability (29 January 2022:
GBP1.5m, liability; 31 July 2021: GBP14.6m, liability).
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):
30 July 2022 31 July 2021 29 January 2022
GBPm GBPm GBPm GBPm GBPm GBPm
CV FV CV FV CV FV
---------------------- ------- ------- ------- ------- -------- -------
Financial liabilities
Listed bonds (593.4) (542.4) (592.0) (659.8) (592.6) (619.5)
---------------------- ------- ------- ------- ------- -------- -------
The fair values of the Group's listed bonds have been determined
by reference to market price quotations and classified as Level 1
under the IFRS 13 fair value hierarchy. For other financial assets
and liabilities, there are no material differences between carrying
value and fair value.
15 Capital commitments
At 30 July 2022, contracts had been entered into for future
capital expenditure of GBP64.7m (29 January 2022: GBP23.3m; 31 July
2021: GBP49.2m) of which GBP51.8m (29 January 2022: GBP20.8m; 31
July 2021: GBP44.1m) relates to property, plant and equipment and
GBP12.9m (29 January 2022: GBP2.5m; 31 July 2021: GBP5.1m) relates
to intangible assets.
16 Related party transactions
There have been no material changes to the principal
subsidiaries listed in the Annual Report and Accounts for the 52
weeks to 29 January 2022. All related party transactions arise
during the ordinary course of business. There were no material
changes in the transactions or balances during the 26 weeks to 30
July 2022.
17 Subsequent events
There are no disclosable subsequent events.
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 UK-adopted IAS 34 Interim Financial Reporting.
There have been no changes to the directors of John Lewis plc to
those listed in the financial statements for the year ended 29
January 2022.
For and by order of the Board
Sharon White and Bérangère Michel
Directors, John Lewis plc
14 September 2022
([1]) Loss before tax
([2]) All references to sales are Total trading sales which
includes VAT, sale or return and other non-cash accounting
adjustments
([3]) We report sales using two measures: in total and
like-for-like. 'In total' is the comparison between the statutory
balances for two periods of time (e.g. this year to last year).
'Like-for-like' sales are the 'in total' sales after adjustments to
remove the impact of shop openings and closures. Waitrose
like-for-like sales excludes fuel. Like-for-like sales gives a
better comparison of our underlying performance
([4]) Source: Kantar, 28 weeks to 7 August 2022
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