28th Apr 2006 12:07
Lewis(John) PLC28 April 2006 John Lewis plc Preliminary Results for the Year to 28 January 2006 Statement by the Chairman, Sir Stuart Hampson In a year characterised by gloomy statements from retailers about the worstconditions for a decade, the Partnership increased its sales by 8 per cent andtranslated this into a profit before bonus and tax of £252m - an increase of 10per cent on last year. This positive outcome rested heavily on very strongtrading in the last three months of the year. These financial results came alongside customer surveys by Verdict and Which?rating John Lewis and Waitrose as the UK's two favourite retailers - anendorsement of what we've achieved over the last year and a firm foundation forthe year ahead. The rate of distribution of Partnership Bonus was increased to 15% of Partners'pay (compared with 14% last year), at a total cost of £120m (last year £106m).This, together with an £86m charge for our final salary pension scheme (lastyear £84m), demonstrates the full sharing amongst 64,000 Partners of the fruitsof our collective success. £95m has been retained for reinvestment in thebusiness (last year £89m). Waitrose It was a memorable year for Waitrose, with the impact of recent acquisitionsshowing through strongly in sales and profit. At the end of the year we had 173branches compared with 166 in January 2005, and the last two years have seen atotal of 30 branches added to our estate - an increase of 33 per cent in sellingspace. The maturing effect of this investment will continue to accelerate oursales line for some time to come as new customers test out our offer and likewhat they find. Gross sales for Waitrose rose to £3.3bn (+13 per cent), fuelled significantly bylike-for-like sales in excess of 4 per cent - well ahead of the overall marketperformance and a credit to the standards of presentation and customer serviceachieved in our shops as well as to the ongoing innovation and diligence in ourbuying teams. Alongside this core growth we have benefited from the ex-Safeway branchesacquired in 2004 and those added during the year at Durham, East Grinstead,Hersham, Lewes, St Katharine Docks and Wilmslow, as well as the new branches wedeveloped at Droitwich and Lichfield. The performance of our new shops has beenan encouraging sign of the customer appeal of the Waitrose offer in all parts ofthe country. We announced on 9 March that we had acquired five supermarkets from Somerfield,including our first Scottish locations for Waitrose. The stores are atMorningside and Comely Bank in Edinburgh, Buxton in Derbyshire and the Barbicanand Balham in London. We will take ownership of the stores on a phased basis andexpect to complete the process during May. Although we remain a relatively small player in the grocery sector, ourdifferentiated approach represents real consumer choice, and we continue toreceive a warm welcome from local authorities looking at developing the retailcredentials of their towns. Scale continues to deliver advantages in buying terms, but there have also beennumerous examples of improvements in supply chain and branch productivity andefficiency, which have offset the additional cost of operating a thirddistribution centre and the unwelcome additions of property costs and fuelprices. Divisional profit increased by 19 per cent to £231m. John Lewis The well documented challenges of non-food retailing resulted in the firsthalf-year seeing a 1 per cent sales decline for John Lewis - a slow pace whichcontinued right through the autumn. The division focused on basic tradingpriorities - improvements in our assortment, better availability, strongerpresentation and the informative and courteous service which we see as the heartof a department store offer. This drove greater footfall into our shops andachieved higher rates of conversion. It was as though a switch was thrown inNovember. Our sales built steadily all the way through to Christmas andcontinued strongly in January - a performance which secured our place at the topof the Christmas trading table. We opened our new department store in the Trafford Centre in May - the first newspace for John Lewis for four years - and we now are well placed to continue todevelop our trade in the Manchester conurbation. Less happily, we have also hadto take the difficult decision to close Caleys, our branch in Windsor. Closureprovisions, together with the opening costs of Trafford, led to additional costsof £2m for the year. The importance of being a multi-channel retailer becomes ever more evident. JohnLewis Direct increased its sales by nearly 70 per cent - performing stronglythroughout the year but delivering outstanding sales levels in the Christmastrading period without letting service and delivery standards slip. This part ofour business is now firmly in profit. We are increasingly aware of the boost toour department store sales which results from the catalogues and on-lineinformation associated with John Lewis Direct, and this year's experience givesus growing confidence in our ability to build trade through all channels on thebasis of trust in the John Lewis brand. Sales of audio/TV and electrical kitchen appliances were a driving force for thedivision, particularly since the introduction of the John Lewis-branded range,but clothing also fared well. Furnishing sales were generally more difficultthrough the year against a background of a slow housing market, but the finalquarter saw a welcome change of trend. Despite the shift in balance of merchandise sales, gross margin increased inpercentage terms. Branch operating costs were well controlled, and furtherinvestment has been made during the year in initiatives to improve branchproductivity. Higher head office costs reflect the strengthened teams now beingestablished to cope with the growth of the division as new selling space comeson stream over the next few years. Manufacturing continued to be loss-making, but the restructuring undertakenduring the year (with one-off costs of more than £3m) has provided a platformfor us to establish a viable operation for the future in testing marketconditions. Divisional profit had been down 21 per cent at the half-year stage, but thestrong performance in the final quarter pulled the full year figure up to £192m,just 6 per cent down on last year. Excluding the one-off costs taken by thedivision, profit was broadly level with the previous year - a fine result insuch tough circumstances. Pensions and other costs Our pension charge increased by £2m to £86m, and our readiness to keep open ournon-contributory final salary scheme now makes us unique in retailing - anexample of our being 'an employer of distinction' which we are proud tomaintain. The extension of Long Leave arrangements required provisions of £4m, and thereis also a £3m additional charge resulting from the actuarial valuation of thisliability. These extra costs have been included in the divisional profitfigures.Corporate and shared services costs fell by 3 per cent. Employment The average number of Partners employed during the year was 63,700 and the totalat the end of the year was 64,300 (1,100 more than a year earlier, with thesplit 57% Waitrose, 41% John Lewis and 2% for corporate departments). Capital expenditure Capital spending in 2005/6 was £288m compared with £556m in the previous year -inflated by the acquisition of stores from Morrisons. This year there has been asubstantial net cash inflow to the business due to a strong sales performanceand tighter working capital management. After this investment, net debt hasfallen by £52m to £324m. Ocado Ocado's popularity with customers continued to win sales throughout the year asit expanded its geographical coverage, and it too enjoyed a powerful Christmasseason which has carried over into the new year. As explained at the time of thehalf-year results, a change in accounting rules means that we shall no longerneed to mark Ocado's losses against our own profits, to the extent that theinvestment is held at nil value, and this shows in the reduced charge for theyear. The year ahead Both divisions have made a healthy start to the new trading year. At Waitrosethe increase at week 12 is 9 per cent, with like-for-like sales continuing toadvance by 4 per cent. At John Lewis the robust pre-Christmas performance hascarried over to the new year, and sales are currently showing an 11 per centincrease. There's every indication that the year ahead will be a tough one, with thehousing market remaining flat and indications of rising unemployment. Retailingin 2006 is not for the faint-hearted, but I'm confident we have the will, theskill and the stamina to build on last year's firm foundation. Mr Ian Alexander The death of Ian Alexander, our Deputy Chairman and Finance Director, on 27November 2005 was a great loss to the Partnership. He made a substantialcontribution during his long Board membership, and he will be sorely missed bythe Board and Partners throughout the business. Sir Stuart Hampson, Chairman John Lewis plc Preliminary Results for the Year to 28 January 2006 Consolidated income statement for the year ended 28 January 2006-------------------- ---------- ---------Unaudited Year to Year to 28 January 2006 29 January 2005 £m £m-------------------- ---------- ---------Gross sales 5,764.4 5,333.6-------------------- ---------- ---------Revenue 5,149.3 4,757.5Cost of sales (3,438.4) (3,168.0)-------------------- ---------- ---------Gross profit 1,710.9 1,589.5Other operating income 33.0 29.1-------------------- ---------- ---------Operating expenses before exceptionalitems and pension costs (1,376.8) (1,277.5)Exceptional items - 16.5Pension costs (85.5) (83.6)-------------------- ---------- ---------Total operating expenses (1462.3) (1344.6)-------------------- ---------- ---------Operating profit 281.6 274.0Finance costs (45.4) (44.7)Finance income 10.5 14.1-------------------- ---------- ---------Share of post tax operating loss ofassociate (5.6) (14.1)-------------------- ---------- ---------Exceptional gain 10.8 -on dilution of interest in associate-------------------- ---------- ---------Net gain/(loss) in respect of associate 5.2 (14.1)-------------------- ---------- ---------Profit before Partnership bonus and tax 251.9 229.3Partnership bonus (120.3) (105.8)-------------------- ---------- ---------Profit before tax 131.6 123.5Taxation (36.7) (34.3)-------------------- ---------- ---------Profit for the period 94.9 89.2-------------------- ---------- --------- Consolidated statement of recognised income and expenses for the year ended 28 January 2006-------------------- ---------- ---------Unaudited Year to Year to 28 January 2006 29 January 2005 £m £m-------------------- ---------- ---------Actuarial gains / (losses) on definedbenefit pension schemes 11.7 (59.5)Movement of deferred tax on pension scheme (3.4) 17.9-------------------- ---------- ---------Net gains/(losses) not recognised in theincome statement 8.3 (41.6)Profit for the period 94.9 89.2-------------------- ---------- ---------Total recognised income and expense forthe period 103.2 47.6Adoption of IAS 32 and IAS 39 (5.5)-------------------- ---------- --------- 97.7-------------------- ---------- --------- Consolidated balance sheet as at 28 January 2006 -------------------- --------- ----------Unaudited 2006 2005 £m £m-------------------- --------- ----------Non-current assetsIntangible assets 52.2 36.8Property, plant and equipment 2,682.5 2,575.0Trade and other receivables 20.4 11.5Investment in associate - 13.1-------------------- --------- ---------- 2,755.1 2,636.4-------------------- --------- ----------Current assetsInventories 324.3 340.0Trade and other receivables 121.2 111.6Derivative financial instruments 4.1 -Cash and cash equivalents 282.8 194.4-------------------- --------- ---------- 732.4 646.0-------------------- --------- ---------- Total assets 3,487.5 3,282.4-------------------- --------- ---------- Current liabilitiesBorrowings and overdrafts (100.3) (39.9)Trade and other payables (660.9) (622.4)Current tax payable (23.4) (5.7)Finance lease liabilities (0.8) (0.6)Provisions (44.5) (33.2)-------------------- --------- ---------- (829.9) (701.8)-------------------- --------- ---------- Non-current liabilitiesBorrowings (506.4) (530.0)Trade and other payables (29.0) (24.2)Finance lease liabilities (31.9) (31.0)Provisions (76.7) (63.3)Deferred tax liabilities (127.9) (138.0)Retirement benefit obligations (479.0) (485.0)-------------------- --------- ---------- (1,250.9) (1,271.5)-------------------- --------- ---------- Total liabilities (2,080.8) (1,973.3)-------------------- --------- ----------Net assets 1,406.7 1,309.1-------------------- --------- ---------- EquityShare capital 6.7 9.0Share premium 0.9 1.1Other reserves 1.4 1.4Retained earnings 1,397.7 1,297.6-------------------- --------- ----------Total equity 1,406.7 1,309.1-------------------- --------- ---------- Consolidated cash flow statement for the year ended 28 January 2006---------------------- --------- ---------Unaudited Year to 28 Year to 29 January 2006 January 2005 £m £m---------------------- --------- --------- Cash generated fromoperations 483.7 453.7 Taxation paid (32.5) (29.3) Partnership bonus paid (105.8) (87.3) Finance costs paid (11.9) (5.2)---------------------- --------- --------- Net cash generated fromoperating activities 333.5 331.9---------------------- --------- --------- Cash flows from investing activities Purchase of property,plant and equipment (255.7) (534.8) Purchase of intangibleassets (27.9) (12.0) Proceeds from sale ofproperty, plant andequipment 14.6 50.8 Proceeds from sale ofother assets - 3.3 Loans (advanced to)/repaidby associate 16.2 (8.6) Finance income received 12.7 8.5---------------------- --------- --------- Net cash used in investingactivities (240.1) (492.8)---------------------- --------- --------- Cash flows from financing activities Interest paid on bonds (34.8) (15.6) Payment of capital elementof finance leases (0.5) (2.1) Payment to preferenceshareholders (0.1) (0.3) Cash inflow fromborrowings 20.0 30.0---------------------- --------- --------- Net cash used in financingactivities (15.4) 12.0---------------------- --------- --------- Increase/(decrease) in netcash and cash equivalents 78.0 (148.9) Net cash and cashequivalents at beginningof period 154.5 303.4---------------------- --------- --------- Net cash and cashequivalents at end ofperiod 232.5 154.5---------------------- --------- --------- Net cash and cash equivalents comprise: Cash 71.9 79.4 Short term deposits 210.9 115.0 Bank overdraft (50.3) (39.9)---------------------- --------- --------- 232.5 154.5---------------------- --------- --------- Accounting convention and basis of consolidation The accounts are prepared under the historical cost convention, with exceptionof certain land and buildings which are included at their revalued amounts andfinancial instruments not designated as hedging instruments which are carried atfair value, and in accordance with Companies Act 1985 and applicable accountingstandards. The consolidated income statement and balance sheet include theaccounts of the company and all its subsidiary and associated undertakings. Thegroup's share of the profit or loss of associated undertakings is included inthe consolidated income statement, and the share of net assets is included inthe consolidated balance sheet, using the equity accounting method. The resultsincluded are based on the latest audited accounts, or management accounts wheretheir accounting date is not co-terminous with the group's year end. Prior to 30 January 2005 the John Lewis Partnership plc group ("the group")prepared its financial statements under UK Generally Accepted AccountingPrinciples (UK GAAP). From 30 January 2005 the group is required to prepare itsconsolidated financial statements in accordance with International FinancialReporting Standards (IFRS), as adopted by the European Union and implemented inthe UK. The group's date of transition to IFRS is 1 February 2004, and the 2004/05 comparatives have been restated to IFRS. The financial information set out in this statement does not constitute thecompany's statutory accounts for the year ended 28 January 2006 or 29 January2005. Statutory accounts for 2004/05, which were prepared under UK GAAP, havebeen delivered to the registrar of companies, and those for 2005/06, preparedunder accounting standards adopted by the EU, were approved on by the Board on27 April 2006 and will be delivered in due course. The auditors have reported onthose accounts; their reports were unqualified, did not include references toany matters to which the auditors drew attention by way of emphasis withoutqualifying their reports and did not contain statements under section 237(2) or(3) of the Companies Act 1985. Segmental reporting The Partnership is organised in three main business segments. John Lewis Retail,John Lewis Other and Waitrose. Corporate and other costs are allocated to thebusiness segments based on the use they make of corporate facilities andservices. The business is carried on in the United Kingdom and gross salesderive almost entirely from that source. Accordingly, the group had presented nosecondary segmental analysis. Gross sales and operating profit derive fromcontinuing operations, there having been no discontinued operations oracquisitions in the year.----------- ------- ----- ------- ------- ------ ------Unaudited John Lewis John Lewis John Lewis Waitrose Unallocated Group Retail Other Total £m £m £m £m £m £m ----------- ------- ----- ------- ------- ------ ------28 January2006Gross 2,407.0 15.9 2,422.9 3,341.5 - 5,764.4Sales ------- ----- ------- ------- ------ ----------------- Revenue 1,976.4 14.0 1,990.4 3,158.9 - 5,149.3 Divisionalprofit 197.6 (6.0)* 191.6 231.4 - 423.0Corporateand (29.6) - (29.6) (26.3) (55.9)other costsPension (49.5) (1.3) (50.8) (34.7) - (85.5)costs ------- ----- ------- ------- ------ -----------------OperatingProfit 118.5 (7.3) 111.2 170.4 - 281.6----------- ------- ----- ------- ------- ------ ------ 29 January2005Gross 2,358.6 19.6 2,378.2 2,955.4 - 5,333.6Sales ------- ----- ------- ------- ------ ----------------- Revenue 1,943.7 17.1 1,960.8 2,796.7 - 4,757.5 Divisionalprofit 206.2 (2.1) 204.1 194.5 - 398.6Corporateand (31.8) - (31.8) (25.7) (57.5)other costsExceptionalitems 10.5 (8.1) 2.4 14.1 - 16.5Pension (50.2) (1.1) (51.3) (32.3) - (83.6)costs ------- ----- ------- ------- ------ -----------------Operatingprofit 134.7 (11.3) 123.4 150.6 - 274.0----------- ------- ----- ------- ------- ------ ------* Includes£3m inredundancycosts Reconciliation of profit before tax to cash generated from operations------------------------Unaudited Year to 28 Year to 29------------------------ January 2006 £m January 2005 £m --------- --------- Profit before tax 131.6 123.5 Amortisation ofintangible assets 10.7 9.3 Depreciation 142.3 131.3 Net finance costs 34.9 30.6 Share of(profit)/loss ofassociate (5.2) 14.1 Partnership bonusprovision 120.3 105.8 (Profit)/loss ondisposal ofproperty, plant andequipment (2.9) (21.2) (Profit)/loss ondisposal of otherassets - (5.4) (Increase)/decreasein inventories 15.0 (10.8) (Increase)/decreasein receivables (21.3) (27.7) Increase/(decrease)in payables 33.6 80.9 Increase/(decrease)in provisions 24.7 23.3------------------------ --------- --------- Cash generated fromoperations 483.7 453.7------------------------ --------- --------- Reconciliation of net cash flow to net debt Unaudited Year to 28 Year to 29------------------------ January 2006 £m January 2005 £m --------- --------- Increase/(decrease)in cash in the year (17.9) 50.1 Cash inflow fromincrease in debt andlease financing (20.0) (30.0) Cash(inflow)/outflowfrom increase inliquid resources 95.9 (199.0)------------------------ --------- --------- Movement in debt forthe year 58.0 (178.9) Opening net debt (375.5) (196.6) Adoption of IAS 32and IAS 39 (6.4) ------------------------- --------- --------- Closing net debt (323.9) (375.5)------------------------ --------- --------- Reconciliation of changes in equity --------------- ------- ------- -------- ------- -------Unaudited Share capital Share premium Capital Retained Total equity redemption earnings reserve £m £m £m £m £m--------------- ------- ------- -------- ------- ------- Balance at 31January 2004 9.0 1.4 1.4 1,249.9 1,261.7Profit/(loss)for the year - - - 89.2 89.2Transfers - (0.3) - 0.3 -Actuariallosses - - - (59.5) (59.5)Tax on itemsrecognised inequity - - - 17.9 17.9Dividends - - - (0.2) (0.2)--------------- ------- ------- -------- ------- -------Balance as at29 January2005 9.0 1.1 1.4 1,297.6 1,309.1Adoption ofIAS 32 & IAS39 (2.3) - - (3.2) (5.5)--------------- ------- ------- -------- ------- -------Balance as at30 January2005 6.7 1.1 1.4 1,294.4 1,303.6Profit/(loss)for the year - - - 94.9 94.9Transfers - (0.2) - 0.2 -Actuariallosses - - - 11.7 11.7Tax on itemsrecognised inequity - - - (3.4) (3.4)Dividends - - - (0.1) (0.1)--------------- ------- ------- -------- ------- -------Balance at 28January 2006 6.7 0.9 1.4 1,397.7 1,406.7--------------- ------- ------- -------- ------- ------- Reconciliation of net assets and profit under UK GAAP to IFRS Prior to 30 January 2005 John Lewis plc ("the group") prepared its consolidatedfinancial statements under UK Generally Accepted Accounting Principles (UKGAAP). From 30 January 2005 the group is required to prepare its consolidatedfinancial statements in accordance with International Financial ReportingStandards (IFRS), as adopted by the European Union and implemented in the UK.The group's date of transition to IFRS is 1 February 2004, and the 2004/05comparatives have been restated to IFRS. The principal adjustments on transition to IFRS were as follows: Recognition on the balance sheet of the net pension deficit in connection withthe group's defined benefit pension schemes, together with a provision for thecost of long service leave; Revaluation of freehold and long leasehold property and reassessment of theirassociated residual values; Classification of certain leases as finance leases, and the amortisation oflease inducements over the full term of the related lease; Recognition of a small number of impairments, following a review carried out atthe date of transition; Capitalisation of the cost of internally developed IT systems, which hadpreviously been expensed as incurred. The group published its estimated restatement of information under IFRS inSeptember 2005. There have been a number of small changes resulting in anincrease in net assets of £0.6m, compared to that expected at the time of therestatement announcement. The main changes were a reduction of £2.6m to theproperty revaluation gain, a reclassification of £4.2m between property, plantand equipment and intangible assets, and reductions in provisions for deferredtax liabilities of £1.9m, and a retirement benefit obligation of £1.0m. The reconciliation of income and net assets from UK GAAP to IFRS is as follows:----------------------------- ---------Unaudited £mReconciliation of income from UK GAAP to IFRS(net of deferred tax effects)----------------------------- ---------Profit retained under UK GAAP 70.3Pensions and employee benefits (2.8)Property valuation 17.9Finance leases and operating lease inducements (3.0)Impairments 2.3Capitalisation of internally developed IT assets 4.5----------------------------- ---------Profit retained under IFRS 89.2Actuarial losses under defined benefit schemes (59.5)Tax on items recognised directly in equity 17.9Dividends (0.2)----------------------------- ---------Total recognised income and expense under IFRS 47.4----------------------------- --------- ----------------------------- --------- --------Unaudited 29 January 2005 1 February 2004 Reconciliation of net assets from UK GAAP to £m £mIFRS(net of deferred tax effects)----------------------------- --------- --------Net assets under UK GAAP 1,611.5 1,541.5Pensions and employee benefits (365.9) (321.4)Property valuation 95.1 77.2Finance leases and operating leaseinducements (33.9) (30.8)Impairments (19.6) (21.9)Intangible assets 21.9 17.4----------------------------- --------- --------Net assets under IFRS 1,309.1 1,261.9----------------------------- --------- --------Adoption of IAS 32 and IAS 39 (5.5)Net assets at 30 January 2005 under IFRS 1,303.6----------------------------- --------- -------- As indicated above, the group adopted IAS 32 and IAS 39 on 30 January 2005. Theresultant adjustments to net assets were as follows: Unaudited £m------------------------------------ --------Adjustment to valuation of stocks (0.4)Fair value of forward exchange contracts (0.6)Fair value adjustment on loans to associate (2.2)Reclassification of preference stock from equity to non-currentliabilities (2.3)------------------------------------ --------Adoption of IAS 32 and IAS 39 (5.5)------------------------------------ -------- For further information: John Lewis PartnershipSusan Donovan, Director of Communications Tel: 020 7592 6292Helen Dickinson, Head of Press & PR Tel: 020 7592 6274Helen Megaw, Corporate Press Manager Tel: 020 7592 6223 Hogarth PartnershipJames Longfield/Georgina Briscoe Tel: 020 7357 9477 Notes to Editors The John Lewis Partnership (www.johnlewispartnership.co.uk) is one of the UK'stop ten retail businesses with 27 John Lewis department stores and 174 Waitrosesupermarkets. It is also the country's largest example of worker co-ownershipwhere all 64,000 staff are Partners in the business. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Comw.bk.a.25