TIDM45GD
RNS Number : 0410M
Lewis(John) PLC
12 September 2019
John Lewis plc
Unaudited results for the half year ended 27 July 2019
Thursday 12 September 2019
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
Focus on long-term investment and success despite short-term
profit pressures
FINANCIAL OVERVIEW
2019/20 2018/19 Change
GBPm GBPm %
========================================== ======= ======= ======
Gross sales 5,420.2 5,486.6 (1.2)
(Loss)/Profit before PB, tax, exceptional
items and IFRS 16 (25.8) 1.0 n/m
Total net debts 2,389.8 2,859.0 (16.4)
Revenue 4,788.0 4,856.7 (1.4)
Profit before tax 191.6 6.2 n/m
========================================== ======= ======= ======
Throughout this document, alternative performance measures
related to profit for 2019/20 are presented before IFRS 16
adjustments related to depreciation expenses on right-of-use assets
and, where relevant, interest charges on lease liabilities, and
before the removal of operating lease rental expenses. This is to
provide a more meaningful comparison to 2018/19. In addition in
2018/19 a charge of GBP0.4m has been reclassified from exceptional
items to non-exceptional operating expenses. A glossary of
financial and non-financial terms is included below.
Sir Charlie Mayfield, Partner and Chairman of the John Lewis
Partnership, commented:
"The re-drawing of the UK retail landscape continues apace.
While trading conditions have continued to be difficult, we have
accelerated our differentiation strategy and significantly
strengthened our balance sheet. The Group made a loss before
Partnership Bonus, tax, exceptionals and IFRS 16 of GBP(25.8)m,
down GBP26.8m. Within that, operating profit before exceptionals
and IFRS 16 improved in Waitrose & Partners by GBP14.1m to
GBP110.1m, largely due to property profits this year, but we also
saw an improvement in gross margins and a strong operational
performance. In John Lewis & Partners, operating losses before
exceptionals and IFRS 16 increased by GBP42.5m to GBP(61.8)m,
reflecting lower sales in categories with more considered
purchasing, cost inflation (including non-management Partner pay)
well ahead of the level of sales growth and higher IT costs. Our
Profit before tax, which includes exceptional income and the charge
from adopting IFRS 16 (further details below) was GBP191.6m, up
GBP185.4m.
We have continued to strengthen our balance sheet position.
Total net debts have reduced by GBP469.2m compared to July 2018.
This is due to strong cash generation and tight cash management as
well as the decision to close our final salary defined benefit
pension scheme. The latter is also the main contributor to our
exceptional income. Our accounting pension deficit (post tax) has
reduced to GBP62.8m (July 2018: GBP171.3m, January 2019: GBP404.7m)
and our triennial actuarial valuation as at 31 March 2019 is
currently underway. We have also maintained a strong liquidity
position at GBP1,153m at July 2019, our highest liquidity position
at this time of year for more than 10 years and up GBP116m compared
to last year. This is lower than January 2019 due to the
cyclicality of cash in our business through the year and because we
repaid a GBP275m bond in April 2019.
As we continue with our strategy to compete through
differentiation, not scale, we have maintained investment in
Partners and innovation, despite profit pressures, and have seen
encouraging results in several areas. In John Lewis & Partners
we have seen strong sales growth in Fashion and Beauty and have
grown market share significantly as customers responded to our
investment in own-brand redesign, new brands, advisory services and
personalised shopping experiences. In Waitrose & Partners,
despite a weak grocery market, we had a good trading performance
with only a marginal decline in like-for-like sales, and continued
improvement in gross margins, benefiting from 47 completed category
reviews. We also saw strong online grocery sales growth of 10.7%,
well ahead of the market. In addition, our focus on innovation in
areas that matter to our customers and us, was demonstrated by our
successful trial of Waitrose Unpacked, which provides customers
with new ways of shopping whilst supporting waste reduction.
Partners play an important role in our differentiation strategy
and empowering them so that they are able to create more value for
our business is a priority. We continue to invest in non-management
Partner pay, well ahead of the level of sales growth. Our average
hourly rate of pay for non-management Partners at GBP9.59, is up
4.7% from January 2019 and is 16.8% above the National Living Wage.
In addition, the first half year also saw the greatest single
investment we have made in leadership development reaching more
than 7,500 people managers. In Waitrose & Partners, we launched
the School of Food with 2,000 Partners having attended and a
further 2,000 will do so in the second half. In a similar vein we
are developing our first John Lewis Service Academy.
Outlook
We have historically made the majority of our profits in the
second half of the year. Although we expect retail conditions to
remain challenging, we are pressing on with key areas of innovation
such as Waitrose Unpacked and the renewal of key ranges in areas
like Menswear and Home. Over the next 12 months, we will also
accelerate our transformation of the Group to deliver innovation
faster and increase emphasis on the competitive difference of
Partners.
However, should the UK leave the EU without a deal, we expect
the effect to be significant and it will not be possible to
mitigate that impact. In readiness, we have ensured our financial
resilience and taken steps to increase our foreign currency
hedging, to build stock where that is sensible, and to improve
customs readiness. However, Brexit continues to weigh on consumer
sentiment at a crucial time for the sector as we enter the peak
trading period.
After a thorough process, I was delighted to announce in June
that Sharon White will be the sixth Chairman of the John Lewis
Partnership. She is an inspirational leader with the skills to take
the Partnership forward and will take up her position in early
2020."
STRATEGIC PROGRESS
The structural changes in retail remain a challenge and an
opportunity. Excess capacity of physical space coupled with subdued
consumer confidence are adding to sales and margin pressure. In
addition, a number of key operational costs continue to grow ahead
of inflation. Our response is to build brands which remain
consistently appealing to our customers so that we create more
differentiated, valuable and long-term relationships with them. We
continue to innovate in the products and services that we offer.
Alongside this we are challenging and empowering Partners to seize
opportunities to create significantly more value for our
business.
Differentiation on products
In John Lewis & Partners, we saw our strongest sales growth
in areas in which we have made the greatest investment. We launched
our second season of own-brand Womenswear following the full
redesign of our range last year; own-brand Womenswear sales have
grown 5.7%. In Beauty, we also outperformed the market by 8.6%. In
Home, we are redesigning every part of our range and have started
with the relaunch of Upholstery. Having grown the size of our Home
design team by 50% over the last 18 months, we will launch 3,000
new own-brand products this autumn. In addition, this month sees
the relaunch of own-brand Menswear and the launch of our first ever
own-brand Gift Food.
In Waitrose & Partners, we have completed 47 category
reviews, with strong improvements in profitability and availability
across these categories. We also launched our largest ever summer
food range - Scrumptious Summer, which consisted of 200 products.
Demonstrating our commitment to reducing waste, we trialled
Waitrose Unpacked. Following a positive response from customers, we
are extending the trial and introducing elements of it into three
more shops. Looking ahead, we will complete our category reviews
and will relaunch Waitrose 1 with 150 new product lines.
Investment in service excellence
We made additional service enhancements and have seen
improvements in customer satisfaction ratings in Waitrose &
Partners whilst customer experience ratings in John Lewis &
Partners have remained high. To improve the speed and convenience
of online shopping, John Lewis & Partners' customers can now
return purchases to Waitrose & Partners delivery drivers at the
same time as they receive their groceries. Our Click & Collect
service is loved by our customers, giving us confidence to explore
this area further. As such, we have trialled the service in six
Co-ops and eight Booths shops. We will extend these trials further
to 50 Co-op shops before the end of October. In Waitrose &
Partners, we have plans to further strengthen our online
capabilities this year with our new customer fulfilment centre in
Enfield, as we build towards trebling the size of our online
grocery operation to a GBP1bn business over the next three years.
In mid-May, we announced a proposal to explore opportunities around
automated online fulfilment with Today Development Partners (TDP).
We have recently decided not to continue with that relationship and
will instead pursue our online ambitions utilising existing
expertise across the Group.
We continued to roll out several advisory services including the
trial of our Beauty Studio and rollout of personal styling
experiences in John Lewis & Partners, which saw women's
personal styling sales increase 34%. Building on this, we will
launch a new men's personal styling experience at our Oxford Street
flagship store this autumn. Our ambition to create a truly
differentiated business in home improvement was supported by the
expansion of Home Solutions and its integration with Opun. In
October we will launch our first World of Design in our
Peterborough shop, bringing together our Home Stylist expertise in
one new dedicated space at the heart of our Home departments. We
will also explore how shops can become ever more meaningful in our
customers' lives as Partner-led services and immersive experiences
from both our brands will take centre stage on every floor in a new
concept in Southampton from November onwards. In Waitrose &
Partners, we are trialling a new deli proposition in 10 branches
which offers antipasti, unique charcuterie and cured meats.
Investment in Partners
We invested significantly in leadership development, with more
than 7,500 people managers across the Group attending a series of
one day "Empowered Leadership" events in May to support our service
ambitions. This marked the start of a broader programme of training
for people managers. In Waitrose & Partners, we are building
the passion and expertise of our Partners through the Waitrose
School of Food and in John Lewis & Partners we are developing
our first John Lewis Service Academy, equipping customer-facing
Partners with what we believe to be the future skills of
retail.
We are also expanding our apprenticeship programme, introducing
new apprenticeships including Butchery, Fishmonger, Chef
Specialisms, Customer Service, Vehicle maintenance and repair, and
three senior leadership schemes. Among the apprentices that have
completed their programmes in this half year, 83% passed with
distinction where that was an achievable grade.
In line with our strategy, we continue to transform our
organisation and in the year ahead we will accelerate our move
towards 'one Partnership', obsessed with our customers. We have
also made a number of divestments of shops and assets in the first
half of the year.
Transforming sharing of knowledge and power
Alongside organisational change we are also focused on
transforming our sharing of knowledge and power. In April, the
Partnership Council, which is a body of democratically elected
representatives that represent the views of Partners across the
business, voted in support of changes to the Constitution which
will ensure that the way in which power is shared across the
business is fit for purpose in the future. These changes included
the appointment of two new independent directors and a new enhanced
role for President of Partnership Council.
In May the Partnership Council also unanimously agreed changes
to our pension scheme. This concluded a year-long review and
consultation with Partners. Our non-contributory final salary
defined benefit section of our pension scheme will therefore close
to future accrual next year and will be replaced by a defined
contribution pension offer that is market-leading in retail.
PROFIT AND FINANCIAL STRENGTH
Our Group loss before PB, tax, exceptionals and IFRS 16 was
GBP(25.8)m compared to GBP1.0m profit last year. The decline was
principally due to the increase in operating losses before
exceptionals and IFRS 16 in John Lewis & Partners, down
GBP42.5m to GBP(61.8)m which was driven by:
-- the impact of subdued consumer confidence. This was mainly on
sales, particularly in Home and Electricals where demand for more
considered purchases has remained depressed, but also in increased
marketing costs as we responded to soft consumer demand;
-- additional IT costs. We have steadily increased IT investment
over the last few years to set ourselves up for the future. A
number of significant new systems have become operational through
the course of last year resulting in incremental maintenance,
support and depreciation costs this year; and
-- cost inflation well ahead of the level of sales growth,
including the investment in non-management Partner pay.
Waitrose & Partners grew operating profits before
exceptionals and IFRS 16 by GBP14.1m to GBP110.1m, with the
increase largely due to property profits of GBP12.1m this year.
Excluding this, profits were still ahead of last year with an
improvement in gross margins and a strong operational performance
offsetting the investment in non-management Partner pay and higher
marketing costs.
This year we have adopted IFRS 16, the new accounting standard
for leases, using the modified retrospective approach on
transition. Our last year results are therefore not restated.
Whilst IFRS 16 has decreased our reported Profit before tax by
GBP26.5m for the half year, due to the length of our lease
portfolio, it does not change the underlying economics of our
business and it has no quantitative impact to cash flows. Further
details of the impact of IFRS 16 are included below.
After including exceptional income of GBP243.9m (2018/19:
GBP5.2m) and the charge from adopting IFRS 16, our Profit before
tax was GBP191.6m, up GBP185.4m on last year. Exceptional items
this half year mainly include income of GBP249.0m following the
approved changes to our pension offer, which removed the future
link with final salary on defined benefit pensions and instead
increases future pensions up to retirement in line with inflation.
In addition there was income of GBP20.9m from the reversal of
previous branch impairments, income of GBP10.0m from a legal
settlement and charges of GBP37.5m for strategic restructuring and
redundancy costs. Further details of exceptional items are included
below.
We remain focused on maintaining a strong and flexible balance
sheet. We have reduced our total net debts by GBP469.2m compared to
July 2018 and one of our key priorities remains to reduce our Debt
Ratio to around three times cash flow within four years.
In addition we have built up and maintained a strong liquidity
position (GBP1,153m at July 2019), despite repaying our GBP275m
bond in April 2019 and despite cash being at a cyclical intra-year
low point. Our strong liquidity ensures we have adequate reserves
as a defence against economic uncertainty and also enables us to
maintain strong levels of investment in the business. Capital
investment forms the major part of our business investment and at
GBP127.8m it was slightly lower than last half year's GBP141.4m. We
have also invested significantly in products and services, in
leadership training, in change costs associated with restructuring
and transformation of the business, and a greater proportion of our
IT investment is revenue investment.
ADDITIONAL FINANCIAL INFORMATION
Waitrose & Partners John Lewis & Partners
-------------------------- ======================== ==========================
2019/20 2018/19 Change 2019/20 2018/19 Change
GBPm GBPm % GBPm GBPm %
========================== ======= ======= ====== ======= ======= ========
Gross sales 3,365.4 3,393.2 (0.8)% 2,054.8 2,093.4 (1.8)%
LFL sales (0.4)% (2.3)%
Revenue 3,170.8 3,193.4 (0.7)% 1,617.2 1,663.3 (2.8)%
Operating profit/(loss)
before exceptional items
and IFRS 16 110.1 96.0 14.7% (61.8) (19.3) (220.2)%
Operating profit/(loss) 100.8 94.4 6.8% (34.9) (33.5) (4.2)%
========================== ======= ======= ====== ======= ======= ========
Note: Waitrose & Partners like-for-like sales excludes
fuel
Exceptional items
Exceptional income totalled GBP243.9m (2018/19: GBP5.2m) with
GBP23.1m charge in Waitrose & Partners (2018/19: GBP1.6m),
GBP13.7m income in John Lewis & Partners (2018/19: charge of
GBP14.2m) and GBP253.3m income in Group (2018/19: GBP21.0m).
Further detail is included in the following table:
2019/20 2018/19
GBPm GBPm
======================================= ======= =======
Strategic restructuring and redundancy
programmes (37.5) (8.2)
Branch impairments 20.9 (12.6)
John Lewis & Partners supply chain 1.5 -
Pay provision - 26.0
Defined benefit pension closure 249.0 -
Legal settlement 10.0 -
243.9 5.2
======================================= ======= =======
Further details explaining each of the exceptional items is
included within Note 4 below.
In 2018/19 there was a charge of GBP0.4m for head office
restructuring and redundancies in Waitrose & Partners, which
was previously reflected as exceptional items and has subsequently
been reclassified to non-exceptional operating expenses.
Net finance costs
Net finance costs increased by GBP56.3m to GBP88.0m, principally
due to the interest charge on outstanding lease liabilities
following the adoption of IFRS 16 this year. Excluding the impact
of IFRS 16, net finance costs increased GBP4.4m to GBP36.1m. This
increase is principally driven by higher long leave finance costs
arising from volatility in the market driven assumptions, which has
been partly offset by reduced interest costs on borrowings,
following the repayment of financial debt, an increase in returns
from short-term investments and reduced pension finance costs due
to a lower accounting pension deficit at the beginning of the year
compared to the beginning of the previous year.
ENQUIRIES
For further information please contact:
John Lewis Partnership
Simon Fowler, Partner & Director of Communications, 07710
398460
Clayton Hirst, Partner & Group Head of Corporate Affairs,
07947 708167
Katie Robson, Partner & Group Senior External Communications
Manager, 07764 693023
Citigate Dewe Rogerson
Simon Rigby, 07771 784446
Jos Bieneman, 07834 336650
Ellen Wilton, 07921 352851
John Lewis & Partners
Gillian Taylor, Partner & Head of Communications, 07919
057931
Waitrose & Partners
Graeme Buck, Partner & Head of Communications, 07703
379561
Gill Smith, Partner & Senior Corporate PR Manager, 07887
898133
Debt investors
Lynn Lochhead, Partner & Head of Treasury & Corporate
Finance, 07834 770684
GLOSSARY OF FINANCIAL AND NON-FINANCIAL TERMS
This glossary gives an explanation of financial and
non-financial terms included in the results statement
TERM DEFINITION
=====================================================================
Above market These are Partner benefits which are higher than
reward those typically paid by our competitors, as a result
of the Partnership model. Above market rewards principally
includes pensions, long leave, Partner discount
and costs of our democracy. This measure is important
for adjusting our financial Key Performance Indicators
(KPIs) to be able to assess them against our competitors.
===================== =====================================================================
Adjusted cash Operating profit before PB, exceptional items, depreciation,
flow amortisation, but after IFRS 16, interest and tax.
This measure is important to assess our Debt Ratio.
===================== =====================================================================
Average NMP hourly Average non-management Partner hourly pay for Partners
rate of pay on permanent contracts and aged 18 years old and
over.
===================== =====================================================================
Capital investment Cash outflows in relation to additions to tangible
fixed assets (property, plant, and equipment), and
intangible assets (IT software) recognised on the
balance sheet.
===================== =====================================================================
Debt Ratio Comparison of our Total net debts to Adjusted cash
flow. This measure is important as it provides an
indication of our ability to repay our debts.
===================== =====================================================================
Exceptional items Items of income and/or expense which are significant
by virtue of their size and nature are presented
as exceptional items. The separate reporting of
exceptional items helps to provide an indication
of the Group's underlying business performance.
===================== =====================================================================
Full-time equivalent The hours worked by one Partner on a full time basis.
(FTE) The concept converts the hours worked by several
part-time Partners into the hours worked by full-time
Partners to enable like-for-like comparisons of
resource.
===================== =====================================================================
Gross sales Total sales of goods and services including sale
or return sales and VAT, net of Partnership discount
2019/20 2018/19
GBPm GBPm
Gross sales 5,420.2 5,486.6
less:
Sale or return sales (128.1) (114.4)
Value added tax (504.1) (515.5)
-------- --------
Revenue 4,788.0 4,856.7
-------- --------
===================== =====================================================================
IFRS 16 adjustments The 2019/20 half year is the first period in which
the Group has adopted the new accounting standard
IFRS 16 - Leases. The adjustments required to reflect
the pre-IFRS 16 profit measures are set out below.
The Group adopted the modified retrospective approach
on transition to IFRS 16 and therefore the 2018/19
half year measures have not been restated.
2019/20 2018/19
GBPm GBPm
Add back of operating lease 91.5 -
rental expenses
IFRS 16 depreciation expenses (66.1) -
IFRS 16 operating adjustment 25.4 -
-------- --------
IFRS 16 interest charges (51.9) -
-------- --------
IFRS 16 adjustment (26.5) -
-------- --------
===================== =====================================================================
Like-for-like Comparison of sales between two periods in time
(LFL) sales (e.g. this year to last year), removing the impact
of branch openings and closures. Waitrose & Partners
like-for-like sales excludes fuel.
===================== =====================================================================
Liquidity The cash and undrawn committed credit facilities
we have available to us, which we can use to settle
liabilities as they fall due.
===================== =====================================================================
(Loss)/Profit Loss or profit before PB, tax, exceptional items
before PB, tax, and IFRS 16. This measure is important as it allows
exceptional items for a comparison of underlying profit performance.
and IFRS 16 2019/20 2018/19
GBPm GBPm
(Loss)/Profit before PB, tax,
exceptional items and IFRS 16 (25.8) 1.0
Exceptional items 243.9 5.2
IFRS 16 adjustment (26.5) -
-------- --------
Profit before tax 191.6 6.2
-------- --------
===================== =====================================================================
Market comparator John Lewis & Partners - British Retail Consortium
(BRC) market
Waitrose & Partners - Kantar Worldpanel
===================== =====================================================================
n/m Not meaningful
===================== =====================================================================
Non-management Level 9 and Level 10 Partners, excluding Assistant
Partners (NMP) Section Managers in Waitrose & Partners
===================== =====================================================================
Operating profit Operating profit before PB, exceptional items and
before exceptional IFRS 16. This measure is important as it allows
items and IFRS for a comparison of underlying operating profit
16 performance.
2019/20 W&P JL&P Group Total
GBPm GBPm GBPm GBPm
Operating profit/(loss)
before exceptional
items and IFRS 16 110.1 (61.8) (38.0) 10.3
Exceptional items (23.1) 13.7 253.3 243.9
IFRS 16 operating
adjustment 13.8 13.2 (1.6) 25.4
------- -------- -------- ------
Operating profit/(loss) 100.8 (34.9) 213.7 279.6
------- -------- -------- ------
2018/19 W&P JL&P Group Total
GBPm GBPm GBPm GBPm
Operating profit/(loss)
before exceptional
items and IFRS 16 96.0 (19.3) (44.0) 32.7
Exceptional items (1.6) (14.2) 21.0 5.2
IFRS 16 operating - - - -
adjustment
------ -------- -------- ------
Operating profit/(loss) 94.4 (33.5) (23.0) 37.9
------ -------- -------- ------
===================== =====================================================================
PB Partnership Bonus
===================== =====================================================================
Profit per average Profit before PB and exceptional items but after
FTE IFRS 16 and tax, adjusted for above market reward,
divided by the average number of full-time equivalent
Partners. This measure is important as it provides
the best indication of Partner productivity.
===================== =====================================================================
Return on invested Operating profit before PB and exceptional items,
capital (ROIC) but after IFRS 16, adjusted for above market reward
and a notional tax charge (at the statutory marginal
tax rate for the year), as a proportion of average
operating net assets. This is important because
it demonstrates how effectively we are utilising
our assets.
===================== =====================================================================
Revenue investment Investment spend recognised directly in the income
statement
===================== =====================================================================
Total net debts The Group's borrowings and overdrafts, lease liabilities,
derivative financial instruments and IAS 19 pension
deficit net of deferred tax, less any liquid cash,
short-term deposits and investments.
The 2018/19 figure has not been restated for IFRS
16 and instead includes the comparative figures
for finance lease liabilities and the present value
of future rentals payable under operating leases
calculated using a 5% discount rate.
2019/20 2018/19
GBPm GBPm
Borrowings and overdrafts 717.5 863.5
Amounts owed to Parent in respect
of SIP shares 47.2 62.1
Finance lease liabilities - 22.4
Derivative financial instruments (19.5) (7.5)
Pension deficit (net of deferred
tax) 62.8 171.3
IFRS 16 lease liabilities 2,102.2 -
Present value of operating
leases - 2,164.0
Liquid cash, short-term deposits
and investments (520.4) (416.8)
-------- --------
Total net debts 2,389.8 2,859.0
-------- --------
===================== =====================================================================
John Lewis plc
Unaudited condensed Interim Financial Statements for the half
year ended 27 July 2019
Consolidated income statement
for the half year ended 27 July 2019
Notes Half year to Half year to Year to
27 July 2019* 28 July 2018 26 January 2019
GBPm GBPm GBPm
------ ---------------------------------------------------------- --------------- -------------- -----------------
5 Gross sales 5,420.2 5,486.6 11,724.1
------ ---------------------------------------------------------- --------------- -------------- -----------------
6 Revenue 4,788.0 4,856.7 10,316.7
Cost of sales (3,222.1) (3,298.4) (6,931.0)
------ ---------------------------------------------------------- --------------- -------------- -----------------
Gross profit 1,565.9 1,558.3 3,385.7
Other operating income 60.4 56.2 112.1
Operating expenses before exceptional items and
Partnership Bonus (1) (1,590.0) (1,580.8) (3,272.1)
Share of loss of joint venture (net of tax) (0.6) (1.0) (0.7)
------ ---------------------------------------------------------- --------------- -------------- -----------------
5 Operating profit before exceptional items and Partnership 35.7 32.7 225.0
Bonus
4 Exceptional items (1) 243.9 5.2 2.1
------ ---------------------------------------------------------- --------------- -------------- -----------------
5 Operating profit before Partnership Bonus 279.6 37.9 227.1
7 Finance costs (95.4) (37.6) (80.3)
7 Finance income 7.4 5.9 13.6
Profit before Partnership Bonus and tax 191.6 6.2 160.4
Partnership Bonus - - (44.7)
------ ---------------------------------------------------------- --------------- -------------- -----------------
Profit before tax 191.6 6.2 115.7
8 Taxation (6.6) (1.9) (39.7)
------ ---------------------------------------------------------- --------------- -------------- -----------------
Profit for the period 185.0 4.3 76.0
------ ---------------------------------------------------------- --------------- -------------- -----------------
5 (Loss)/profit before Partnership Bonus, tax, exceptional items and IFRS 16 (25.8) 1.0 158.3
---------------------------------------------------------------------------- ------- ----
* The Group has initially applied IFRS 16 at 27 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated and the cumulative effect
of applying IFRS 16 is recognised in Retained earnings at the date
of initial application (see note 2).
(1) Prior year reclassification from exceptionals to operating
expenses GBP0.4m, see note 2.
Consolidated statement of comprehensive income
for the half year ended 27 July 2019
Notes Half year to Half year to Year to
27 July 2019* 28 July 2018 26 January 2019
GBPm GBPm GBPm
------- --------------------------------------------------------- --------------- -------------- -----------------
Profit for the period 185.0 4.3 76.0
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss:
12 Remeasurement of defined benefit pension scheme 161.2 487.0 272.7
8 Movement in deferred tax on pension scheme (29.7) (90.0) (55.3)
8 Movement in current tax on pension scheme 2.3 7.2 7.1
Items that may be reclassified subsequently to profit or
loss:
Fair value gain on cash flow hedges 21.1 33.3 21.8
8 Movement in deferred tax on cash flow hedges (3.2) (4.9) (4.1)
(Loss)/gain on foreign currency translations (0.8) - 0.2
----------------------------------------------------------------- --------------- -------------- -----------------
Other comprehensive income for the period 150.9 432.6 242.4
----------------------------------------------------------------- --------------- -------------- -----------------
Total comprehensive income for the period 335.9 436.9 318.4
----------------------------------------------------------------- --------------- -------------- -----------------
* The Group has initially applied IFRS 16 at 27 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated and the cumulative effect
of applying IFRS 16 is recognised in Retained earnings at the date
of initial application (see note 2).
Consolidated balance sheet
as at 27 July 2019
Notes 27 July 2019* 28 July 2018 26 January 2019
GBPm GBPm GBPm
------ ----------------------------------------- -------------- ------------- ----------------
Non-current assets
9 Intangible assets and goodwill 504.1 505.7 512.1
9 Property, plant and equipment 3,658.9 3,850.9 3,809.7
9 Right-of-use assets 1,908.6 - -
Trade and other receivables 16.5 60.6 58.4
14 Derivative financial instruments 2.6 2.5 0.2
Investment in and loans to joint venture 2.1 2.3 2.7
6,092.8 4,422.0 4,383.1
------ ----------------------------------------- -------------- ------------- ----------------
Current assets
Inventories 611.4 609.2 657.6
Trade and other receivables(1) 271.6 272.0 259.3
Current tax receivable 52.5 19.0 -
14 Derivative financial instruments 20.6 11.5 6.8
10 Assets held for sale 38.4 15.4 23.1
Short-term investments 164.4 166.2 265.4
Cash and cash equivalents 488.4 370.3 716.8
------ ----------------------------------------- -------------- ------------- ----------------
1,647.3 1,463.6 1,929.0
------ ----------------------------------------- -------------- ------------- ----------------
Total assets 7,740.1 5,885.6 6,312.1
------ ----------------------------------------- -------------- ------------- ----------------
Current liabilities
14 Borrowings and overdrafts - (275.0) (274.9)
Trade and other payables(1) (1,480.1) (1,497.6) (1,660.7)
Current tax payable - - (7.7)
14 Lease liabilities (90.2) - -
14 Finance lease liabilities(**) - (0.7) (0.5)
11 Provisions (101.3) (108.6) (112.3)
14 Derivative financial instruments (3.5) (6.3) (7.5)
------ ----------------------------------------- -------------- ------------- ----------------
(1,675.1) (1,888.2) (2,063.6)
------ ----------------------------------------- -------------- ------------- ----------------
Non-current liabilities
14 Borrowings (717.5) (588.5) (713.8)
Trade and other payables (51.5) (259.4) (258.6)
14 Lease liabilities (2,012.0) - -
14 Finance lease liabilities(**) - (21.7) (20.6)
11 Provisions (148.9) (130.9) (134.7)
14 Derivative financial instruments (0.2) (0.2) (2.0)
12 Retirement benefit obligations (56.2) (186.9) (468.1)
Deferred tax liability (127.1) (81.1) (36.2)
(3,113.4) (1,268.7) (1,634.0)
------ ----------------------------------------- -------------- ------------- ----------------
Total liabilities (4,788.5) (3,156.9) (3,697.6)
------ ----------------------------------------- -------------- ------------- ----------------
Net assets 2,951.6 2,728.7 2,614.5
------ ----------------------------------------- -------------- ------------- ----------------
Equity
Share capital 6.7 6.7 6.7
Share premium 0.3 0.3 0.3
Other reserves 14.4 7.1 0.9
Retained earnings 2,930.2 2,714.6 2,606.6
Total equity 2,951.6 2,728.7 2,614.5
------ ----------------------------------------- -------------- ------------- ----------------
* The Group has initially applied IFRS 16 at 27 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated and the cumulative effect
of applying IFRS 16 is recognised in Retained earnings at the date
of initial application (see note 2).
(**) Finance lease liabilities are shown for comparative
purposes only and are no longer applicable under IFRS 16 (see note
2).
(1) Reclassified (see note 2).
Consolidated statement of changes in equity
for the half year ended 27 July 2019
Notes Share Share Capital Hedging Foreign Retained Total
capital premium reserve reserve currency earnings equity
translation
reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Balance at 27 January
2018 6.7 0.3 1.4 (16.9) (0.1) 2,306.1 2,297.5
Profit for the period - - - - - 4.3 4.3
Remeasurement of defined
12 benefit pension scheme - - - - - 487.0 487.0
Fair value gains on cash
flow hedges - - - 33.3 - - 33.3
Tax on above items
recognised
in equity - - - (4.9) - (82.8) (87.7)
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Total comprehensive income
for the period - - - 28.4 - 408.5 436.9
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Hedging gains transferred
to cost of inventory - - - (5.7) - - (5.7)
Balance at 28 July 2018 6.7 0.3 1.4 5.8 (0.1) 2,714.6 2,728.7
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Balance at 27 January
2018 6.7 0.3 1.4 (16.9) (0.1) 2,306.1 2,297.5
Profit for the year - - - - - 76.0 76.0
Remeasurement of defined
12 benefit pension scheme - - - - - 272.7 272.7
Fair value gains on cash
flow hedges - - - 21.8 - - 21.8
Tax on above items
recognised
in equity - - - (4.1) - (48.2) (52.3)
Gain on foreign currency
translations - - - - 0.2 - 0.2
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Total comprehensive income
for the year - - - 17.7 0.2 300.5 318.4
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Hedging gains transferred
to cost of inventory - - - (1.4) - - (1.4)
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Balance at 26 January
2019 6.7 0.3 1.4 (0.6) 0.1 2,606.6 2,614.5
2 Restatement for IFRS 16 - - - - - 4.8 4.8
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Balance at 27 January
2019* 6.7 0.3 1.4 (0.6) 0.1 2,611.4 2,619.3
Profit for the period - - - - - 185.0 185.0
Remeasurement of defined
12 benefit pension scheme - - - - - 161.2 161.2
Fair value gains on cash
flow hedges - - - 21.1 - - 21.1
Tax on above items
recognised
in equity - - - (3.2) - (27.4) (30.6)
Loss on foreign currency
translations - - - - (0.8) - (0.8)
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Total comprehensive income
for the period - - - 17.9 (0.8) 318.8 335.9
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Hedging gains transferred
to cost of inventory - - - (3.6) - - (3.6)
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
Balance at 27 July 2019 6.7 0.3 1.4 13.7 (0.7) 2,930.2 2,951.6
------ ----------------------------- --------- --------- --------- --------- ------------- ---------- --------
* The Group has initially applied IFRS 16 at 27 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated and the cumulative effect
of applying IFRS 16 is recognised in Retained earnings at the date
of initial application (see note 2).
Consolidated statement of cash flows
for the half year ended 27 July 2019
Notes Half year to Half year to Year to
27 July 2019* 28 July 2018 26 January 2019
GBPm GBPm GBPm
------- --------------------------------------------------------- --------------- -------------- -----------------
13 Cash generated from operations before Partnership Bonus 187.0 66.5 595.0
Net taxation paid (8.4) (15.4) (33.9)
Pension deficit reduction payments (12.0) (37.1) (37.1)
Finance costs paid (55.0) (0.6) (1.8)
Net cash generated from operating activities before Partnership
Bonus 111.6 13.4 522.2
----------------------------------------------------------------- --------------- -------------- -----------------
Partnership Bonus paid (45.8) (74.7) (74.9)
----------------------------------------------------------------- --------------- -------------- -----------------
Net cash generated from/(used in) operating activities after
Partnership Bonus 65.8 (61.3) 447.3
----------------------------------------------------------------- --------------- -------------- -----------------
Cash flows from investing activities
Purchase of property, plant and equipment (61.4) (67.1) (143.9)
Purchase of intangible assets (66.4) (74.3) (166.2)
Proceeds from sale of property, plant and equipment and
intangible assets 73.9 2.7 13.6
Finance income received 3.7 0.9 2.4
Cash outflow from investment in and loans to joint venture - (0.4) (0.5)
Cash inflow/(outflow) from short-term investments 101.2 - (99.0)
Cash outflow from acquisition of trade and assets - (1.0) (1.0)
Net cash from/(used in) investing activities 51.0 (139.2) (394.6)
----------------------------------------------------------------- --------------- -------------- -----------------
Cash flows from financing activities
Finance costs paid in respect of bonds (23.0) (23.0) (54.2)
Finance costs paid in respect of financial instruments (3.2) (1.9) (0.5)
Payment of capital element of leases (44.0) - -
Payment of capital element of finance leases(**) - (0.4) (1.7)
Cash (outflow)/inflow from borrowings (275.0) - 124.4
Net cash (used in)/from financing activities (345.2) (25.3) 68.0
----------------------------------------------------------------- --------------- -------------- -----------------
(Decrease)/increase in net cash and cash equivalents (228.4) (225.8) 120.7
Net cash and cash equivalents at beginning of the period 716.8 596.1 596.1
Effect of exchange rate changes on cash and cash - (0.2) -
equivalents
Net cash and cash equivalents at end of the period 488.4 370.1 716.8
----------------------------------------------------------------- --------------- -------------- -----------------
Net cash and cash equivalents comprise:
Cash at bank and in hand 161.6 118.3 128.2
Short-term deposits 326.8 252.0 588.6
Bank overdrafts - (0.2) -
488.4 370.1 716.8
----------------------------------------------------------------- --------------- -------------- -----------------
* The Group has initially applied IFRS 16 at 27 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated and the cumulative effect
of applying IFRS 16 is recognised in Retained earnings at the date
of initial application (see note 2).
(**) The payment of the capital element of finance leases is
shown for comparative purposes only and is no longer applicable
under IFRS 16 (see note 2).
Notes to the financial statements
1 Basis of preparation
This condensed set of interim financial statements was approved
by the Board on 11 September 2019. The condensed set of interim
financial statements is unaudited, but has been reviewed by the
auditor and their review report is set out at the end of this
document. They do not comprise statutory accounts within the
meaning of Section 434 of the Companies Act 2006. The comparative
information for the half year to or as at 28 July 2018 has not been
audited, but has been reviewed in accordance with the International
Standard on Review Engagements (UK and Ireland) 2410.
The results for the half year to 27 July 2019 have been prepared
using the discrete period approach, considering the half year as an
accounting period in isolation. The tax charge is based on the
effective rate estimated for the full year, which has been applied
to the profits in the first half year.
The Group's published financial statements for the year ended 26
January 2019 have been reported on by the Group's auditor and filed
with the Registrar of Companies. The report of the auditor was
unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under section 498 of the Companies
Act 2006.
This condensed set of interim financial statements for the half
year ended 27 July 2019 has been prepared in accordance with IAS 34
'Interim Financial Reporting' as adopted by the European Union. The
condensed set of interim financial statements should be read in
conjunction with the financial statements for the year ended 26
January 2019, which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union.
This is the first set of the Group's interim financial
statements in which IFRS 16 has been applied. Changes to
significant accounting policies are described in note 2.
Going concern
Having reviewed the Group's principal risks, operating budgets,
investment plans and financing arrangements, the Directors are
satisfied that it is appropriate to adopt the going concern basis
in preparing the condensed set of interim financial statements.
2 Accounting policies
The Group's results for the half year to 27 July 2019 have been
prepared on a basis consistent with the Group's accounting policies
published in the financial statements for the year ended 26 January
2019, with the exception of the items noted below. The changes in
accounting policies will also be reflected in the Group's
consolidated financial statements as at and for the year ending 25
January 2020.
IFRS 16 'Leases', applicable from 27 January 2019
IFRS 16 'Leases' specifies how to recognise, measure, present
and disclose leases and replaces IAS 17 'Leases'. The Group adopted
IFRS 16 from 27 January 2019 using a modified retrospective
transition approach, under which the cumulative effect of initial
application is recognised in Retained earnings at 27 January 2019.
The comparative information presented for the year ended 26 January
2019 and the half year ended 28 July 2018 has not been restated and
therefore continues to be shown under IAS 17.
The main impact of IFRS 16 for the Group is the recognition of
all future Lease liabilities on the Balance sheet. Corresponding
Right-of-use assets have also been recognised on the Balance sheet
representing the economic benefits of the Group's right to use the
underlying leased assets. The Group's activities as a lessor are
not material and therefore the Group has not recognised any changes
to lessor accounting as a result of the transition to IFRS 16.
Definition of a lease
Previously the Group determined at contract inception whether an
arrangement was or contained a lease under IFRIC 4 'Determining
Whether an Arrangement contains a Lease'. Under IAS 17 'Leases',
classification of leases between operating or finance leases was
determined based on an assessment of whether the lease transferred
substantially all of the risks and rewards of ownership.
The Group now assesses whether a contract is or contains a lease
based on the new definition of a lease. Under IFRS 16, a contract
is or contains a lease if the contract conveys a right to control
the use of an identified asset for a period of time in exchange for
consideration.
On transition to IFRS 16, the Group did not elect to apply the
practical expedient to grandfather the assessment of which
contracts are leases. At inception or on reassessment of a contract
that contains a lease component, the Group allocates the
consideration in the contract to each lease and non-lease component
on the basis of their relative stand-alone prices.
Significant accounting policies
IFRS 16 - Leases
Under IFRS 16, the Group recognises Right-of-use assets and
Lease liabilities at the lease commencement date. The Lease
liabilities are initially measured at the present value of the
lease payments that are not yet paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group's incremental
borrowing rate. Generally, the Group uses the incremental borrowing
rate as the discount rate and this rate is determined on a
portfolio basis, in relation to asset type and location.
Lease liabilities are subsequently measured at amortised cost
and are increased by the interest charge and decreased by the lease
payments made. Lease liabilities are remeasured when there is a
change in future lease payments arising from a change in an index
or rate, a change in the estimate of the amount expected to be
payable under a residual value guarantee, or as appropriate,
changes in the assessment of whether a renewal or purchase option
is reasonably certain to be exercised or a break clause is
reasonably certain not to be exercised.
The Group has applied judgement to determine the lease term for
those lease contracts that include a renewal or break option. The
assessment of whether the Group is reasonably certain to exercise a
renewal option or reasonably certain not to exercise a break option
significantly impacts the value of Lease liabilities and
Right-of-use assets recognised on the Balance sheet.
Right-of-use assets are initially measured at cost, which is an
amount equal to the corresponding Lease liabilities adjusted for
any lease payments made at or before the commencement date, less
any lease incentives received. Right-of-use assets are subsequently
measured at cost less any accumulated depreciation and impairment
losses, adjusted for certain remeasurements of the Lease
liabilities. Depreciation is calculated on a straight-line basis
over the expected useful economic life of a lease which is taken as
the lease term.
IAS 17 - Operating leases
For all periods prior to 26 January 2019, the Group classified
the majority of its property leases as operating leases under IAS
17. Operating lease rental payments were recognised as an expense
in the income statement on a straight-line basis over the lease
term.
IAS 17 - Finance leases
For all periods prior to 26 January 2019, the Group classified
its vehicle and equipment leases as finance leases under IAS 17.
These leases are on terms that transfer to the Group substantially
all the risks and rewards of ownership. The accounting treatment
for finance leases under IAS 17 is similar to the accounting
treatment for leases under IFRS 16. Leased assets are capitalised
at inception at fair value or, if lower, at the present value of
the minimum lease payments. Lease payments are apportioned between
finance charges and a reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the
liability. The interest element of the finance lease rentals is
charged to the income statement and the capitalised leased assets
are depreciated over the shorter of the estimated useful life of
the asset or the lease term.
For finance leases, the carrying amounts of the Right-of-use
assets and the Lease liabilities on transition at 27 January 2019
were equal to the carrying amounts of the finance lease assets and
finance lease liabilities recognised at the 26 January 2019 year
end under IAS 17.
The Group also previously held finance leases in relation to the
building elements of a small number of long leasehold property
leases. The land elements of these leases remained classified as
operating leases under IAS 17. Under IFRS 16, there is no longer a
distinction between operating and finance leases. As a result,
these property leases have been remeasured on transition to account
for the land and building elements as part of the same lease, with
future lease payments discounted at the incremental borrowing rate
applicable on 27 January 2019. The existing finance lease assets
and finance lease liabilities in relation to these property leases
have been written off to reserves on transition.
Exemptions on transition to IFRS 16
On transition to IFRS 16, the Group elected to apply the
following practical expedients on a lease by lease basis:
-- Applying a single discount rate to a portfolio of leases with
reasonably similar characteristics;
-- Excluding initial direct costs from measuring the
Right-of-use assets at the transition date;
-- Using hindsight when determining the lease term where the
contract contains options to break or renew;
-- For leases determined to be onerous before the transition
date, relying on this assessment as an indicator of impairment as
an alternative to performing an impairment review; and
-- Applying the exemption for recognising Right-of-use assets
and Lease liabilities on the Balance sheet for leases where the
underlying asset is of low value.
In relation specifically to vehicle leases, the Group has also
elected to apply the exemption for short-term leases and therefore
will not recognise Right-of-use assets and Lease liabilities on the
Balance sheet for vehicle leases of less than 12 months.
Transition
The Group's lease portfolio is principally comprised of property
leases of land and buildings in relation to Waitrose & Partners
and John Lewis & Partners stores, distribution centres and head
offices. The leases typically run for terms between five and 100
years and may include break clauses or options to renew beyond the
non-cancellable periods. The majority of the Group's lease payments
are subject to market review, usually every five years, and some
lease agreements include rental payments contingent on turnover or
economic indices. These contingent lease payments are excluded from
the calculation of Lease liabilities under IFRS 16.
The opening balance sheet position as at 27 January 2019 has
been restated on transition to IFRS 16. The Group recognised
additional Right-of-use assets, Lease liabilities and Deferred tax
liabilities as well as a reduction in Prepayments, Deferred income,
Provisions and Finance lease assets and liabilities, recognising
the difference in Retained earnings. The impact on transition is
summarised below. Comparative periods have not been restated.
GBPm 27 January
2019
Lease liabilities - current (87.7)
-----------
Lease liabilities - non-current (2,011.4)
-----------
Right-of-use assets 1,947.6
-----------
Net adjustment to existing rent Prepayments, Deferred income
and Provisions 150.8
-----------
Net adjustment to existing Finance lease assets and Finance
lease liabilities 6.5
-----------
Deferred tax liabilities (1.0)
-----------
Retained earnings (4.8)
-----------
When measuring Lease liabilities on transition to IFRS 16, the
Group discounted lease payments using its incremental borrowing
rate at 27 January 2019. The weighted-average rate applied is
5.1%.
GBPm 27 January
2019
Minimum lease payments under non-cancellable operating leases
at 26 January 2019 3,666.0
-----------
Minimum lease payments under non-cancellable finance leases
at 26 January 2019 36.5
-----------
Discounted using the incremental borrowing rate at 27 January
2019 2,090.1
-----------
Assessment of lease term on transition 5.5
-----------
Leases recognised under IFRS 16, previously not identified
as leases under IAS 17 3.5
-----------
Lease liabilities recognised at 27 January 2019 2,099.1
-----------
Impacts for the period
As a result of initially applying IFRS 16, the Group recognised
GBP1,908.6m of Right-of-use assets and GBP2,102.2m of Lease
liabilities as at 27 July 2019. The Group also recognised a
depreciation charge of GBP66.1m and interest costs of GBP51.9m in
relation to the leases recognised under IFRS 16. This replaced an
operating lease expense that would have otherwise been recognised
under IAS 17 of GBP91.5m.
The carrying amounts of Right-of-use assets are set out
below:
GBPm Property Vehicles Equipment Assets associated Total
with service
agreements
Balance at 27 January
2019 1,942.7 0.3 1.1 3.5 1,947.6
--------- --------- ---------- ------------------ --------
Balance at 27 July
2019 1,904.3 0.2 0.9 3.2 1,908.6
--------- --------- ---------- ------------------ --------
During the period to 27 July 2019, the Group entered into sale
and leaseback transactions in relation to four properties. The gain
on sale relating to these transactions was GBP12.1m, see note 9 for
further information.
Reclassification of non-exceptional operating expenses and
exceptional items
In the half year to 28 July 2018, restructuring and redundancy
costs totalling GBP0.4m in Waitrose & Partners were reflected
as exceptional items. These were subsequently reclassified to
non-exceptional operating expenses for the year to 26 January 2019
as they were no longer considered to meet the Group's policy for
presentation as exceptional. Therefore, the comparative for the
half year to 28 July 2018 has been restated. This has resulted in
an increase in net exceptional items from GBP4.8m income as
previously reported to GBP5.2m income at 28 July 2018, and a
decrease in Operating profit before exceptional items and
Partnership Bonus from GBP33.1m to GBP32.7m at 28 July 2018.
Reclassification of BonusSave receivable
John Lewis Partnership plc operates the BonusSave scheme (the
scheme), a Share Incentive Plan (SIP) which allows Partners to
elect to invest part of their Partnership Bonus back into the
Partnership. The scheme is operated by John Lewis Partnership Trust
Limited which purchases SIP shares on behalf of Partners who have
chosen to invest a portion of their Partnership Bonus for this
purpose.
Where there are an excess number of shares in issue the shares
are not cancelled, instead John Lewis plc provides a loan to the
scheme in order to cover the cash outflows resulting from
redemptions, and they are held as "unallocated" shares within the
Plan. John Lewis plc holds a receivable in respect of the loan made
to the scheme for these unallocated shares.
Following a review of the scheme at January 2019, John Lewis
Partnership plc concluded that control of the scheme is held by
John Lewis Partnership plc and accordingly the scheme is now
consolidated within the Partnership's consolidated financial
statements. This has resulted in a reclassification of the
receivable held by John Lewis plc in respect of the loan made to
the BonusSave scheme for unallocated shares from Other receivables
to an Intercompany receivable from the BonusSave scheme. The
BonusSave scheme does not form part of the Group's consolidated
financial statements. There is no impact on the Income statement,
Cash generated from operating activities after Partnership Bonus or
Net debt.
3 Risks and uncertainties
The principal and other significant risks and uncertainties
affecting the Group were identified as part of the Group Strategic
Report, set out on pages 7 to 9 of the John Lewis plc financial
statements for the year ended 26 January 2019, a copy of which is
available on the Partnership's website
www.johnlewispartnership.co.uk.
The Group has a formal risk identification process, which
includes a rigorous analysis of internal and external risks both at
a Divisional Board and Partnership Board level. All risks remain
relevant for the second half of the financial year.
-- Competitive customer proposition: failure to deliver our
customer promise and not maintain our competitive advantage due to:
competitor actions putting pressure on market value, our margin and
threatening our volumes in grocery; and the growth of online
business models in the general merchandise sector, means customers
focus more on value for money and are less loyal;
-- Operating model strain: increasing external pressures, such
as the ongoing move to online and increased spend on IT create
strain on our operating model;
-- Information security: a breach of Partner or customer data
due to an external threat causing disruption or access to sensitive
data;
-- Pension obligations: increases in the pension liabilities,
driven by a decrease in the real discount rate for example, and a
significant devaluation in the assets being held could cause a
significant increase in the size of the pension deficit;
-- Change delivery: the complex nature and scale of
interdependencies of the change programmes may affect our ability
to implement programmes/projects on time, to budget and quality,
our ability to manage, and our ability to embed the change into the
business and realise the benefits;
-- External environment: external economic pressures, due to the
impact of government policy, Brexit, a weaker economy and lower pay
increases, reduce our customers' spending power and harm our
suppliers' financial resilience; and
-- Ownership model strain: Partners and their engagement are key
to the success of our employee ownership model. Commercial
decisions made to secure the economic success of the business as
well as external pressures on Partners could unconsciously impact
Partners belief in, and commitment to, our employee ownership
model.
4 Exceptional items
Half year to Half year to Year to
27 July 2019 28 July 2018 26 January 2019
Operating Taxation Operating Taxation Operating Taxation
(expenses)/ credit/ (expenses)/ credit/ (expenses)/ credit/
income (charge) income (charge) income (charge)
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Strategic
restructuring
and redundancy
programmes
Head office
reviews (1) (10.2) 4.3 (6.6) 1.9 (19.3) 3.7
Physical
estate (26.6) 6.9 (0.7) 0.2 (5.1) 1.5
Shop
operations (0.7) 0.3 (0.9) 0.3 (6.7) 1.3
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
(37.5) 11.5 (8.2) 2.4 (31.1) 6.5
Branch 8.3 - - - - -
impairments -
Waitrose &
Partners
Branch
impairment -
John Lewis &
Partners 12.6 - (12.6) - (12.6) 1.2
John Lewis &
Partners
supply chain 1.5 (0.6) - - 0.5 (0.1)
Pay provision - - 26.0 (5.0) 30.3 (5.6)
Legal
settlement 10.0 (1.9) - - 15.0 (2.9)
Pension closure 249.0 (42.3) - - - -
243.9 (33.3) 5.2 (2.6) 2.1 (0.9)
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
(1) Reclassified exceptionals, see note 2.
Strategic restructuring and redundancy programmes
As set out in our January 2019 financial statements, in order to
meet our One Partnership Profit objective, the Group is currently
undergoing an unprecedented level of internal change. Given the
scale of these changes, the programmes of activity will take a
number of years to deliver. Over the life of the programme they are
significant in value and, given the level of change, they are
significant in nature and therefore the Group considers them
exceptional items. Further detail on the nature and expected length
of each programme is included within the 2019 financial statements.
The financial impact of these for July 2019 and July 2018 is
detailed below:
Head office: The transformation of pan-Partnership functions and
other head office operations continues at pace. As at July 2019 we
have incurred expenses of GBP10.2m (July 2018: GBP6.6m) in relation
to this programme. The expense includes project costs, onerous
contracts and, where announced, redundancy costs.
Physical estate: We have continued with our programme of
optimising our existing estate and as at July 2019 we have
recognised a net exceptional expense of GBP26.6m (July 2018:
GBP0.7m). The net expense includes the impairment of assets
(reflecting the shortening of the useful economic life),
accelerated depreciation of buildings, fixtures and fittings and
management's best estimate of closure costs, where applicable,
including onerous leases, dilapidations and, where closure has been
approved and announced, redundancy costs. Where incomes in relation
to previously estimated costs have been realised in the year, these
have been shown net, reflecting that the original expenses were
shown as exceptional.
Shop operations: The review of our shop operating models is now
largely complete with costs of GBP0.7m (July 2018: GBP0.9m)
recognised this half year. The expenses in the current year
principally include redundancy costs where announced, as specific
elements of our shop operating models are restructured.
Included within operating expenses, and not separately reported
as exceptional, are GBP0.7m of restructuring and redundancy costs
which are considered by the Group to be separate from our strategic
programmes and part of the underlying business performance.
Branch impairments (Waitrose & Partners)
During 2017/18 a charge of GBP35.7m for branch impairments in
Waitrose & Partners was recognised. At July 2019 at credit of
GBP8.3m (July 2018: GBPnil) has been released as a result of
improved branch performance.
Branch impairment (John Lewis & Partners)
Following the signing of a lease contract in 2018, a charge of
GBP12.6m was recorded in relation to branch impairment in John
Lewis & Partners. This impairment has now been released due to
changes in circumstances and a credit of GBP12.6m has been
recognised at July 2019.
John Lewis & Partners supply chain
In 2017, a review of the John Lewis & Partners supply chain
led to significant redundancy and restructuring provisions which
were recognised as exceptional. During the year to January 2019, a
credit of GBP1.5m (July 2018: GBPnil) was recognised as actual
costs incurred have been smaller than anticipated.
Pay provision
In 2017, a GBP36.0m provision was recorded as an exceptional
charge to cover the potential costs of complying with the National
Minimum Wage Regulations. During 2018, the methodology for
calculating the liability was clarified and the project finalised,
resulting in a GBP30.3m release of the provision. There is no pay
provision charge in the half year to July 2019.
Legal settlement
The Group reached a settlement in relation to an ongoing legal
dispute, receiving income of GBP10.0m (July 2018: GBPnil.). Due to
the size and nature of this settlement, this income has been
recognised as exceptional.
Pension Closure
Following the decision by Partnership Council on 15 May 2019 to
close the Group's defined benefit section of the pension scheme to
future accrual from April 2020, a past service credit of GBP249.0m
has been recognised for the reduction in the pension obligation.
Following closure, members' deferred pensions will now increase
annually by inflation, which is generally lower than the previous
pay growth assumption. Given the size and non-recurring nature of
this credit, this income has been recognised as exceptional.
5 Segmental reporting
The Group's three reporting segments are Waitrose &
Partners, John Lewis & Partners and Group. The Group reporting
segment includes the operating costs for our Group functions, costs
for transformation programmes, our JLP Ventures operations, and
certain pension operating costs. The operating profit/(loss) of
each segment is reported after charging relevant Group costs based
on the business segments' usage of these facilities and services,
and after exceptional items.
The Waitrose & Partners business is not subject to highly
seasonal fluctuations although there is an increase in trading in
the fourth quarter of the year. There is a more marked increase in
the fourth quarter for the John Lewis & Partners business.
Waitrose John Lewis Group Total
& Partners & Partners
GBPm GBPm GBPm GBPm
------------------------------------ ------------ ------------ ------- --------
Half year to 27 July 2019
(*)
Gross sales 3,365.4 2,054.8 - 5,420.2
Adjustment for sale or return
sales - (128.1) - (128.1)
Value added tax (194.6) (309.5) - (504.1)
------------------------------------ ------------ ------------ ------- --------
Revenue 3,170.8 1,617.2 - 4,788.0
------------------------------------ ------------ ------------ ------- --------
Operating profit/(loss) before
exceptional items, Partnership
Bonus and net profit on sale
of property (1) 111.8 (49.6) (39.8) 22.4
Net profit on sale of property 12.1 1.0 0.2 13.3
------------------------------------ ------------ ------------ ------- --------
Operating profit/(loss) before
exceptional items and Partnership
Bonus 123.9 (48.6) (39.6) 35.7
Exceptional items (23.1) 13.7 253.3 243.9
------------------------------------ ------------ ------------ ------- --------
Operating profit/(loss) before
Partnership Bonus 100.8 (34.9) 213.7 279.6
Finance costs (95.4)
Finance income 7.4
Profit before tax 191.6
Taxation (6.6)
------------------------------------ ------------ ------------ ------- --------
Profit for the period 185.0
------------------------------------ ------------ ------------ ------- --------
Loss before Partnership Bonus,
tax, exceptional items and
IFRS 16 (25.8)
----------------------------------- -------
27 July 2019 (*)
Segment assets 4,049.5 2,716.3 974.3 7,740.1
Segment liabilities (2,097.4) (1,433.4) (1,257.7) (4,788.5)
-------------------------- ---------- ---------- ---------- ----------
Net assets/(liabilities) 1,952.1 1,282.9 (283.4) 2,951.6
-------------------------- ---------- ---------- ---------- ----------
* The Group has initially applied IFRS 16 at 27 January 2019,
which requires the recognition of Right-of-use assets and Lease
liabilities for lease contracts that were previously classified as
operating leases. As a result the Group recognised GBP1.9bn of
Right-of-use assets and GBP2.1bn of Lease liabilities from those
lease contracts. The assets and liabilities are included in the
results of the individual reporting segments presented above as at
27 July 2019. The Group has applied IFRS 16 using the modified
retrospective approach, under which comparative information is not
restated (see note 2).
(1) Included within Operating profit before exceptional items,
Partnership Bonus and net profit on sale of property is a GBP0.6m
share of loss of a joint venture in John Lewis & Partners.
Waitrose John Lewis Group Total
& Partners & Partners
GBPm GBPm GBPm GBPm
------------------------------------ ------------ ------------ ------- --------
Half year to 28 July 2018
Gross sales 3,393.2 2,093.4 - 5,486.6
Adjustment for sale or return
sales - (114.4) - (114.4)
Value added tax (199.8) (315.7) - (515.5)
------------------------------------ ------------ ------------ ------- --------
Revenue 3,193.4 1,663.3 - 4,856.7
------------------------------------ ------------ ------------ ------- --------
Operating profit/(loss) before
exceptional items, Partnership
Bonus and net profit on sale
of property (1,2) 96.0 (19.3) (44.0) 32.7
Net profit on sale of property - - - -
------------------------------------ ------------ ------------ ------- --------
Operating profit/(loss) before
exceptional items and Partnership
Bonus (2) 96.0 (19.3) (44.0) 32.7
Exceptional items (2) (1.6) (14.2) 21.0 5.2
------------------------------------ ------------ ------------ ------- --------
Operating profit/(loss) before
Partnership Bonus 94.4 (33.5) (23.0) 37.9
Finance costs (37.6)
Finance income 5.9
Profit before tax 6.2
Taxation (1.9)
------------------------------------ ------------ ------------ ------- --------
Profit for the period 4.3
------------------------------------ ------------ ------------ ------- --------
Profit before Partnership Bonus,
tax and exceptional items 1.0
------------------------------------- ----
28 July 2018
Segment assets 2,844.9 2,059.6 981.1 5,885.6
Segment liabilities (803.9) (772.1) (1,580.9) (3,156.9)
-------------------------- -------- -------- ---------- ----------
Net assets/(liabilities) 2,041.0 1,287.5 (599.8) 2,728.7
-------------------------- -------- -------- ---------- ----------
(1) Included within Operating profit before exceptional items,
Partnership Bonus and net profit on sale of property is a GBP1.0m
share of loss of a joint venture in John Lewis & Partners.
(2) Reclassification from exceptionals to operating expenses of
GBP0.4m, see note 2.
Waitrose John Lewis Group Total
& Partners & Partners
GBPm GBPm GBPm GBPm
------------------------------------ ------------ ------------ ------- ----------
Year to 26 January 2019
Gross sales 6,835.0 4,889.1 - 11,724.1
Adjustment for sale or return
sales - (259.0) - (259.0)
Value added tax (405.5) (742.9) - (1,148.4)
------------------------------------ ------------ ------------ ------- ----------
Revenue 6,429.5 3,887.2 - 10,316.7
------------------------------------ ------------ ------------ ------- ----------
Operating profit/(loss) before
exceptional items, Partnership
Bonus and net profit on sale
of property (1) 202.5 113.4 (93.8) 222.1
Net profit on sale of property 0.7 1.3 0.9 2.9
------------------------------------ ------------ ------------ ------- ----------
Operating profit/(loss) before
exceptional items and Partnership
Bonus 203.2 114.7 (92.9) 225.0
Exceptional items (4.0) (22.1) 28.2 2.1
------------------------------------ ------------ ------------ ------- ----------
Operating profit/(loss) before
Partnership Bonus 199.2 92.6 (64.7) 227.1
Finance costs (80.3)
Finance income 13.6
Partnership Bonus (44.7)
------------------------------------ ------------ ------------ ------- ----------
Profit before tax 115.7
Taxation (39.7)
------------------------------------ ------------ ------------ ------- ----------
Profit for the year 76.0
------------------------------------ ------------ ------------ ------- ----------
Profit before Partnership Bonus,
tax and exceptional items 158.3
------------------------------------- ------
26 January 2019
Segment assets 2,839.8 2,105.7 1,366.6 6,312.1
Segment liabilities (793.7) (877.3) (2,026.6) (3,697.6)
-------------------------- -------- -------- ---------- ----------
Net assets/(liabilities) 2,046.1 1,228.4 (660.0) 2,614.5
-------------------------- -------- -------- ---------- ----------
(1) Included within Operating profit before exceptional items,
Partnership Bonus and net profit on sale of property is a GBP0.7m
share of loss of a joint venture in John Lewis & Partners.
6 Revenue
Disaggregation of revenue from contracts with customers
The revenue recognition policy is unchanged from that described
in the financial statements for the year ended 26 January 2019.
We analyse our revenue between goods and services. Goods are
split into four major product lines: Grocery, Home, Fashion and
Electricals and Home Technology (EHT). Services compromise free
service guarantees on selected goods. This presentation is
consistent with how our Partnership Board and Divisional Management
Boards review performance throughout the year.
Half year to 27 July 2019 Half year to Year to
GBPm 28 July 2018 26 January 2019
GBPm GBPm
-------------------------- -------------------------- -------------- -----------------
Major product lines
-------------------------- -------------------------- -------------- -----------------
Goods
-------------------------- -------------------------- -------------- -----------------
- Grocery 3,170.8 3,193.4 6,429.5
-------------------------- -------------------------- -------------- -----------------
- Home 465.0 482.0 1,085.8
-------------------------- -------------------------- -------------- -----------------
- Fashion 506.0 500.5 1,215.7
-------------------------- -------------------------- -------------- -----------------
- EHT 557.6 578.0 1,393.6
-------------------------- -------------------------- -------------- -----------------
Services
-------------------------- -------------------------- -------------- -----------------
- Free service guarantee 13.3 19.4 41.3
-------------------------- -------------------------- -------------- -----------------
Other revenue 75.3 83.4 150.8
-------------------------- -------------------------- -------------- -----------------
4,788.0 4,856.7 10,316.7
-------------------------- -------------------------- -------------- -----------------
7 Net finance costs
Half year Half year Year to
to to 26 January
27 July 28 July 2018 2019
2019
GBPm GBPm GBPm
-------------------------------------------- ---------- -------------- ------------
Finance costs
Finance costs in respect of borrowings
and lease liabilites(1,2) (75.7) (26.8) (57.1)
Fair value measurements and other (2.5) (2.1) (5.9)
Net finance costs arising on defined
benefit and other
employee benefit schemes (17.2) (8.7) (17.3)
-------------------------------------------- ---------- -------------- ------------
Total finance costs (95.4) (37.6) (80.3)
-------------------------------------------- ---------- -------------- ------------
Finance income
Finance income in respect of cash
and short-term
investments(3) 5.6 4.2 10.1
Fair value measurements and other 1.8 1.7 3.5
Total finance income 7.4 5.9 13.6
-------------------------------------------- ---------- -------------- ------------
Net finance costs (88.0) (31.7) (66.7)
-------------------------------------------- ---------- -------------- ------------
(1) Finance costs in respect of borrowings include interest payable
on interest rate swaps of GBP2.9m (July 2018: GBP2.8m) and Lease liabilities
of GBP52.3m (July 2018: GBP0.4m). (2) The Group has initially applied
IFRS 16 at 27 January 2019, using the modified retrospective approach.
Under this approach, comparative information is not restated and the
cumulative effect of applying IFRS 16 is recognised in Retained earnings
at the date of initial application (see note 2). (3) Finance income
in respect of cash and short-term investments includes interest receivable
on interest rate swaps of GBP3.2m (July 2018: GBP3.0m).
Half year Half year Year to
to to 26 January
27 July 28 July 2018 2019
2019
GBPm GBPm GBPm
-------------------------------------------- ---------- -------------- ------------
Finance costs in respect of borrowings
and lease liabilities, excluding interest
rate swaps(1) (72.8) (24.0) (51.4)
Net interest receivable in respect
of interest rate swaps 0.3 0.2 0.4
Finance income in respect of cash
and short-term investments, excluding
interest rate swaps 2.4 1.2 4.0
-------------------------------------------- ---------- -------------- ------------
Net finance costs in respect of borrowings
and short-term investments (70.1) (22.6) (47.0)
Fair value measurements and other (0.7) (0.4) (2.4)
Net finance costs arising on defined
benefit retirement scheme (4.4) (8.5) (17.0)
Net finance costs arising on other
employee benefit schemes (12.8) (0.2) (0.3)
-------------------------------------------- ---------- -------------- ------------
Net finance costs (88.0) (31.7) (66.7)
-------------------------------------------- ---------- -------------- ------------
(1) The Group has initially applied IFRS 16 at 27 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated and the cumulative effect
of applying IFRS 16 is recognised in Retained earnings at the date
of initial application (see note 2).
Capitalised borrowing costs totalled GBP2.4m (July 2018:
GBP4.8m) of which GBP2.3m (July 2018: GBP4.2m) were capitalised
within Intangible assets and GBP0.1m (July 2018: 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 and disclosed separately.
The effective tax rate at the half year is lower than would be
expected for the full year. This is as a result of a significant
number of discrete items at the half 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 26 January
2019 3,809.7 512.1 - 4,321.8
Restatement for IFRS 16 (14.6) - 1,947.6 1,933.0
Net book value at 26 January
2019(*) 3,795.1 512.1 1,947.6 6,254.8
Additions (1,2) 44.9 66.4 37.1 148.4
Depreciation and amortisation
(3) (125.8) (72.4) (66.1) (264.3)
Disposals and write-offs
(4) (40.0) (2.0) (10.0) (52.0)
Transfers to assets held
for sale (see note 10) (15.3) - - (15.3)
Net book value at 27 July
2019 3,658.9 504.1 1,908.6 6,071.6
------------------------------- ----------- ----------- ------------- --------
(*) The Group has initially applied IFRS 16 at 27 January 2019,
which requires the recognition of Right-of-use assets for Lease
contracts that were previously classified as operating leases. As a
result the Group recognised GBP1,908.6m of Right-of-use assets from
those lease contracts as at 27 July 2019. The Group has applied
IFRS 16 using the modified retrospective approach, under which
comparative information is not restated (see note 2).
(1) For the period ending 27 July 2019, additions for the year
include the non-cash capital expenditure accrual on property, plant
and equipment of GBP12.1m (January 2019: GBP28.7m) and intangible
assets of GBP4.8m (January 2019: GBP7.1m).
(2) Within the Right-of-use asset additions in the period, there
is GBP20.2m arising from the leaseback of buildings recognised at
the proportion of the previous carrying amount of each building
(GBP32.9m) that relates to the rights to use the building retained
by the Group. Therefore, the Group has only recognised a GBP12.1m
gain that related to the rights transferred to the buyer-lessor in
the period.
(3) For the period ending 27 July 2019 depreciation and
amortisation includes a net impairment charge of GBP2.6m to land
and buildings (January 2019: GBP18.6m), and GBPnil to intangible
assets (January 2019: GBP2.0m).
(4) For the period ending 27 July 2019 disposals and write-offs
includes intangible write-offs of GBP0.6m (January 2019:
GBP18.8m)
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 & Partners and John Lewis & Partners
stores, distribution centres and head offices. The Group also holds
a number of vehicle and equipment leases and service agreements
deemed to meet the definition of a lease under IFRS 16.
The impairment review methodology described in the financial
statements for the year ended 26 January 2019 has been updated for
the impact of transitioning to IFRS 16. Right-of-use assets are
included in the net book value of the Group's cash-generating units
and rent payments excluded from the discounted cash flow models
used to calculate value in use for the period of the relevant lease
term. All other aspects of the impairment review methodology remain
unchanged from that described in the financial statements for the
year ended 26 January 2019.
Key assumptions in the calculations are the discount rate,
long-term growth rate and expected sales performance and branch
costs. The discount rate is based on the Group's pre-tax weighted
average cost of capital of 7.0% (July 2018: 8.0%) in Waitrose &
Partners and 8.0% (July 2018: 8.0%) in John Lewis &
Partners.
10 Assets held for sale
At 27 July 2019, seven property assets in Waitrose &
Partners (GBP36.2m) and three in John Lewis & Partners
(GBP2.2m) were recorded as held for sale with a total carrying
value of GBP38.4m. Three of these properties have been sold since
the half-year end and the remaining seven are expected to complete
within the next 12 months.
At 26 January 2019 five property assets in Waitrose &
Partners (GBP13.7m) and one in John Lewis & Partners (GBP9.4m)
were recorded as held for sale with a total carrying value of
GBP23.1m.
At 28 July 2018 two property assets in Waitrose & Partners
(GBP6.0m) and one in John Lewis & Partners (GBP9.4m) were
recorded as held for sale with a total carrying value of
GBP15.4m.
11 Provisions
Long Customer Insurance Reorganisation Other Total
leave refunds claims
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- --------- ---------- --------------- ------- --------
At 26 January 2019 (141.8) (34.3) (24.9) (24.5) (21.5) (247.0)
------------------------------ -------- --------- ---------- --------------- ------- --------
Restatement for IFRS 16 - - - - 4.0 4.0
------------------------------ -------- --------- ---------- --------------- ------- --------
At 27 January 2019* (141.8) (34.3) (24.9) (24.5) (17.5) (243.0)
------------------------------ -------- --------- ---------- --------------- ------- --------
Charged to income statement (14.7) (23.5) (7.9) (12.9) (8.4) (67.4)
Released to income statement - - 1.0 2.9 0.6 4.5
Utilised 2.7 34.3 2.7 14.6 1.4 55.7
At 27 July 2019 (153.8) (23.5) (29.1) (19.9) (23.9) (250.2)
Of which:
Current (35.4) (23.5) (9.3) (19.9) (13.2) (101.3)
Non-current (118.4) - (19.8) - (10.7) (148.9)
------------------------------ -------- --------- ---------- --------------- ------- --------
*The Group has initially applied IFRS 16 at 27 January 2019. The
Group has applied IFRS 16 using the modified retrospective approach
and taken the exemption to reclassify onerous lease provisions as
impairments to the Right-of-use assets on transition as at 27
January 2019. As a result the opening balance of Provisions has
been restated as at 27 January 2019 (see note 2).
The Group has a long leave scheme, open to all Partners, which
provides up to six months paid leave after 25 years' service. There
is no proportional entitlement for shorter periods of service. The
provision for the liabilities under the scheme is assessed on an
actuarial basis, reflecting Partners' expected service profiles,
and using economic assumptions consistent with those used for the
Group's retirement benefits, with the exception of the real
discount rate, where a rate appropriate to the shorter duration of
the long leave liability is used, so as to accrue the cost over
Partners' service periods.
Provisions for customer refunds reflect the Group's expected
liability for returns of goods sold based on experience of rates of
return.
Provisions for insurance claims are in respect of the Group's
employers, public and vehicle third-party liability insurances. The
provisions are based on reserves held in the Group's captive
insurance company, JLP Insurance Limited. These reserves are
established using independent actuarial assessments wherever
possible, or a reasonable assessment based on past claims
experience.
Provisions for reorganisations reflect restructuring and
redundancy costs, principally in relation to our branch,
distribution and retail operations as well as functional
restructuring in head office functions.
Other provisions include property related costs and pay
provisions.
12 Retirement benefit obligations
The pension scheme operated by the Partnership is the John Lewis
Partnership Trust for Pensions. The scheme includes a defined
benefit section, providing pensions and death benefits to members.
All contributions to the defined benefit section of the scheme are
funded by the Partnership. The scheme also includes a defined
contribution section. Contributions to the defined contribution
section of the scheme are made by both Partners and the
Partnership.
On 15 May 2019, the Partnership Council voted in favour of
proposals by the Partnership Board to close the defined benefit
section of the scheme to future accrual from 1 April 2020.
Following closure, members' deferred pensions will now increase
annually by inflation up to five per cent per annum (measured using
CPI), which is generally lower than the previous pay growth
assumption, resulting in a reduction of the defined benefit
obligation. The accounting impact of the closure was a reduction in
the defined benefit obligation of GBP156.0m. This reflects a past
service gain of GBP249.0m, recognised as an exceptional credit at
27 July 2019, representing the break in future salary linkage. The
gain is partially offset by a GBP93.0m actuarial loss, recognised
through equity. This reflects a decrease in future expected
commutation of the defined benefit pensions (i.e. exchanging
defined benefit pensions for tax free cash), as the defined
contribution element of Partners' total pension entitlement
increases.
As part of the ongoing triennial actuarial valuation of the
scheme, underlying membership data has been updated as at 31 March
2019. This has resulted in an actuarial gain, recognised through
equity, of GBP174.2m, reflecting the difference between actual
experience compared to assumptions made in estimating the
liability. Pension commitments recognised in these financial
statements have been calculated based on that updated membership
data. The 31 March 2019 triennial actuarial valuation is currently
in progress.
Scheme assets are stated at market value at 27 July 2019.
The following financial assumptions have been used:
27 July 2019 28 July 2018 26 January
2019
Discount rate 2.30% 2.90% 2.80%
Future retail price inflation
(RPI) 3.10% 3.10% 3.15%
Future consumer price inflation
(CPI) 2.10% 2.10% 2.15%
Increase in earnings n/a 3.20% 3.25%
Increase in pensions - in payment
Pre-April 1997 1.65% 1.65% 1.65%
April 1997 - April 2016 2.90% 2.90% 2.95%
Post-April 2016 1.65% 1.65% 1.65%
Increase in pensions - deferred 2.10% 2.10% 2.15%
----------------------------------- ------------- ------------- -----------
The movement in the net defined benefit liability in the period
is as follows:
Half year Half year Year to
to to 26 January
27 July 2019 28 July 2018 2019
GBPm GBPm GBPm
-------------------------------------- -------------- -------------- ------------
Net defined benefit liability
at beginning of period (468.1) (731.3) (731.3)
Operating cost/Pension expense (56.5) (72.5) (140.7)
Past service gain as a result 249.0 -
of closure -
Interest cost on pension liabilities (82.0) (84.6) (169.2)
Interest income on assets 77.6 76.1 152.2
Contributions 62.6 138.4 148.2
Total gains recognised in equity 161.2 487.0 272.7
-------------------------------------- -------------- -------------- ------------
Net defined benefit liability
at end of period (56.2) (186.9) (468.1)
-------------------------------------- -------------- -------------- ------------
The post-retirement mortality assumptions used in valuing the
pension liabilities were based on the 'S2 Light' (26 January 2019:
'S2 Light'; 28 July 2018: '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 (26 January 2019:
127% for males and 106% for females; 28 July 2018: 127% for males
and 106% for females). Future improvements in life expectancy have
been allowed for in line with the latest CMI model projections
subject to a long-term trend of 1.25% (26 January 2019: 1.25%; 28
July 2018: 1.25%).
The average life expectancies assumed were as follows:
27 July 2019 26 January 2019
Men Women Men Women
----------------------------------------------------------------- ------ ------- -------- --------
Average life expectancy for a 65 year old (in years) 20.9 23.3 21.1 23.5
Average life expectancy at age 65, for a 50 year old (in years) 21.8 24.4 22.0 24.6
----------------------------------------------------------------- ------ ------- -------- --------
13 Reconciliation of profit before tax to cash generated from operations before Partnership Bonus
Half year Half year Year to
to to
27 July 28 July 2018 26 January
2019* 2019
(restated,
see
note 2)
GBPm GBPm GBPm
----------------------------------------- ---------- -------------- -------------
Profit before tax 191.6 6.2 115.7
Amortisation and write offs of
intangible assets (1) 73.0 70.2 141.7
Depreciation (1) 191.9 149.1 287.5
Share of loss of joint venture
(net of tax) 0.6 1.0 0.7
Net finance costs 88.0 31.7 66.7
Partnership Bonus - - 44.7
Fair value (gains)/losses on derivative
financial instruments (0.7) (0.7) 2.1
(Profit)/loss on disposal of property,
plant and equipment and intangible
assets (12.3) 0.1 1.4
Decrease in inventories 44.9 52.3 3.9
(Increase)/decrease in receivables (39.5) (16.7) 8.3
Decrease in payables (101.8) (146.6) (60.5)
(Decrease)/increase in retirement
benefit obligations (243.1) (28.8) 29.6
Decrease in provisions (5.6) (51.3) (46.8)
----------------------------------------- ---------- -------------- -------------
Cash generated from operations
before Partnership Bonus 187.0 66.5 595.0
----------------------------------------- ---------- -------------- -------------
* The Group has initially applied IFRS 16 at 27 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated. In applying IFRS 16, in
relation to the leases that were previously classified as operating
leases, the Group recognised depreciation and interest costs,
instead of an operating lease expense (see note 2). During the half
year to 27 July 2019, in relation to those leases, the Group
recognised GBP66.1m of depreciation charges and GBP51.9m of
additional interest costs from leases.
(1) Includes net impairment charges. Refer to note 9.
14 Analysis of net debt
26 January Restatement 27 January Cash flow Other non- 27 July
2019 for IFRS 2019* cash movements 2019
16
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ------------ ----------- ---------- ---------------- ----------
Non-current assets
Derivative financial
instruments 0.2 - 0.2 - 2.4 2.6
0.2 - 0.2 - 2.4 2.6
------------------------------ ----------- ------------ ----------- ---------- ---------------- ----------
Current assets
Cash and cash equivalents 716.8 - 716.8 (228.4) - 488.4
Short-term investments 265.4 - 265.4 (101.2) 0.2 164.4
Derivative financial
instruments 6.8 - 6.8 (5.2) 19.0 20.6
989.0 - 989.0 (334.8) 19.2 673.4
------------------------------ ----------- ------------ ----------- ---------- ---------------- ----------
Current liabilities
Borrowings and overdrafts (275.0) - (275.0) 275.0 - -
Unamortised bond transaction
costs 0.1 - 0.1 - (0.1) -
Leases - (87.7) (87.7) 97.0 (99.5) (90.2)
Finance leases (0.5) 0.5 - - - -
Derivative financial
instruments (7.5) - (7.5) 2.9 1.1 (3.5)
------------------------------ ----------- ------------ ----------- ---------- ---------------- ----------
(282.9) (87.2) (370.1) 374.9 (98.5) (93.7)
------------------------------ ----------- ------------ ----------- ---------- ---------------- ----------
Non-current liabilities
Borrowings (725.0) - (725.0) - - (725.0)
Unamortised bond transaction
costs 10.4 - 10.4 - (0.5) 9.9
Fair value adjustment
for hedged element
on bonds 0.8 - 0.8 - (3.2) (2.4)
Leases - (2,011.4) (2,011.4) - (0.6) (2,012.0)
Finance leases (20.6) 20.6 - - - -
Derivative financial
instruments (2.0) - (2.0) - 1.8 (0.2)
(736.4) (1,990.8) (2,727.2) - (2.5) (2,729.7)
------------------------------ ----------- ------------ ----------- ---------- ---------------- ----------
Total net debt (30.1) (2,078.0) (2,108.1) 40.1 (79.4) (2,147.4)
------------------------------ ----------- ------------ ----------- ---------- ---------------- ----------
* The Group has initially applied IFRS 16 at 27 January 2019,
which requires the recognition of Lease liabilities on the balance
sheet for lease contracts that were previously classified as
operating leases. As a result the Group recognised GBP2.1bn of
Lease liabilities from those lease contracts as at 27 July 2019.
The Group has applied IFRS 16 using the modified retrospective
approach, under which comparative information is not restated (see
note 2).
Reconciliation of net cash flow to net debt
Half year to Half year to Year to
27 July 2019* 28 July 2018 26 January
2019
GBPm GBPm GBPm
----------------------------- --------------- -------------- ------------
(Decrease)/increase in net
cash and cash equivalents
in the period (228.4) (225.8) 120.7
Cash outflow from movement
in short-term investments (101.2) - 99.0
Cash outflow from borrowing 275.0 - -
Cash outflow/(inflow) from
movement in other net debt
items 94.7 7.1 (120.2)
----------------------------- --------------- -------------- ------------
Cash movement in net debt
for the period 40.1 (218.7) 99.5
Opening net debt (30.1) (142.6) (142.6)
Restatement for IFRS 16 (2,078.0) - -
Non-cash movements in net
debt for the period (79.4) 19.4 13.0
----------------------------- --------------- -------------- ------------
Closing net debt (2,147.4) (341.9) (30.1)
----------------------------- --------------- -------------- ------------
* The Group has initially applied IFRS 16 at 27 January 2019,
which requires the recognition of Lease liabilities on the balance
sheet for lease contracts that were previously classified as
operating leases. As a result the Group recognised GBP2.1bn of
Lease liabilities from those lease contracts as at 27 July 2019.
The Group has applied IFRS 16 using the modified retrospective
approach, under which comparative information is not restated (see
note 2).
15 Management of financial risks
The principal financial risks to which the Group is exposed are
capital and long term funding risk, liquidity risk, interest rate
risk, foreign currency risk, credit risk, and energy risk.
This condensed set of interim financial statements does not
include all risk management information and disclosures required in
the annual financial statements and should be read in conjunction
with the financial statements for the year ended 26 January 2019.
During the half year to 27 July 2019, the Group has continued to
apply the financial risk management process and policies as
detailed in the financial statements for the year ended 26 January
2019.
Valuation techniques and assumptions applied in determining the
fair value of each class of asset or liability are consistent with
those used as at 26 January 2019 and reflect the current economic
environment.
Fair value estimation
The different levels per the IFRS 13 fair value hierarchy have
been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities
Level 2: Inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from
prices)
Level 3: Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs)
During the half year to 27 July 2019, 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 27 July 2019, the net fair value of derivative
financial instruments was GBP19.5m, asset (26 January 2019:
GBP2.5m, liability; 28 July 2018: GBP7.5m, asset).
The following table compares the Group's liabilities held at
amortised cost, where there is a difference between carrying value
(CV) and fair value (FV):
27 July 2019 28 July 2018 26 January 2019
GBPm GBPm GBPm GBPm GBPm GBPm
CV FV CV FV CV FV
----------------------- -------- -------- -------- -------- -------- --------
Financial liabilities
Listed bonds (590.1) (630.9) (864.5) (931.2) (864.5) (858.2)
----------------------- -------- -------- -------- -------- -------- --------
The fair values of the Group's listed bonds have been determined
by reference to market price quotations and classified as Level 1
under the IFRS 13 fair value hierarchy. For other financial assets
and liabilities, there are no material differences between carrying
value and fair value.
16 Capital commitments
At 27 July 2019 contracts had been entered into for future
capital expenditure of GBP87.8m (26 January 2019: GBP44.1m; 28 July
2018: GBP74.2m) of which GBP76.2m (26 January 2019: GBP33.0m; 28
July 2018: GBP63.6m) relates to property, plant and equipment and
GBP11.6m (26 January 2019: GBP11.1m; 28 July 2018: GBP10.6m)
relates to intangible assets.
17 Related party transactions
There have been no material changes to the principal
subsidiaries listed in the John Lewis plc financial statements for
the year ended 26 January 2019. All related party transactions
arise during the ordinary course of business. There were no
material changes in the transactions or balances during the half
year ended 27 July 2019.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
-- the condensed set of interim financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU; and
-- the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first 26 weeks of the financial year and their impact on the
condensed set of interim financial statements; and a description of
the principal risks and uncertainties for the remaining 26 weeks of
the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
26 weeks of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
For and by Order of the Board
Sir Charlie Mayfield, Chairman
Patrick Lewis, Group Finance Director
11 September 2019
Independent review report to John Lewis plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
26 weeks ended 27 July 2019 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the 26 weeks ended 27 July
2019 is not prepared, in all material respects, in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU and the
Disclosure Guidance and Transparency Rules ("the DTR") of the UK's
Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed financial statements.
Brexit is one of the most significant economic events for the UK,
and at the date of this report its effects are subject to
unprecedented levels of uncertainty of outcomes, with the full
range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in
relation to Brexit.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
The annual financial statements of the company are prepared in
accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted by the
EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Michael Maloney
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
11 September 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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