Half Yearly Report

RNS Number : 7809S

Lewis(John) PLC

16 September 2010

 

John Lewis plc

 

Unaudited condensed Interim Financial Statements for the half year to 31 July 2010

Strict Embargo: 7:00am

16 September 2010

 

JOHN LEWIS PARTNERSHIP REPORTS STRONG FIRST HALF YEAR PERFORMANCE

 

Chairman's statement

We finished last year strongly and carried that momentum into 2010 with continued sales and profit growth, market share gains and powerful customer advocacy for both the John Lewis and Waitrose brands. Both divisions delivered above expectations in a difficult, relatively flat market.

 

The decisions and actions taken throughout the recession - investing in existing stores, in new formats and in multi-channel, and developing strategic partnerships to take our brands to new customers and new areas - are now having an impact at the operating level.

 

The investments we made in value have been especially important. In Waitrose, the success of the essential range and promotional pricing, such as for the Delia and Heston campaigns, generated growth. Likewise, John Lewis has placed great emphasis on value with new ranges, a successful spring advertising campaign and the recent launch of Never Knowingly Undersold online.

 

We are also managing substantial reorganisations in parts of our business to ensure that the Partnership remains competitive and that our Partners remain at the heart of our service offering. This has been a difficult period for the Partners affected by change and I want to thank them for their patience and commitment throughout.

 

Ultimately, it has once again been the hard work and dedication of all our Partners in a tough trading environment which has delivered these impressive results.

 

Financial Results

 

The Partnership delivered gross sales of £3.81bn for the first half of the year, an increase of £421.0m, or +12.4% on last year, and operating profit of £145.2m, an increase of £19.0m, or +15.1% on last year. Together these represent an operating profit margin of 3.81% (2009/10 3.73%). Profit before tax was £111.2m, an increase of £24.2m, or +27.8%, on last year.

 

Trading Performance

Waitrose

Waitrose has delivered consistent and significant outperformance of the market throughout the first six months of the year. Gross sales were up 11.3% (£245.2m) to £2.42bn and food only like-for-like (LFL) sales grew by 3.9%, excluding petrol - this compares to an overall market average for the period of around 1%. Growth accelerated through the half, with LFL sales up 3.3% in Q1 and 4.5% in Q2. Operating profit increased by £7.5m (6.2%) to £127.8m. Underlying operating profit[1] increased by £4.0m, or 3.1%, to £132.6m.

 

 

Waitrose stepped up its marketing initiatives with the launch in March of its campaign featuring Delia Smith and Heston Blumenthal. This is already paying dividends, attracting 370,000 more customer transactions in the first eight weeks with customers putting additional items in their trolleys and spending more per transaction.

 

Through the addition of new space and strategic partnerships Waitrose is extending its reach. Nine new branches were opened in the first six months of the year, which represents an additional 75,000 sq ft (1.7%) of selling space. Three of these new shops are in the convenience format, including a new small-format branch in Cambridge. The branch opening programme is weighted towards the second half of the year, with 15 branches planned, including eight convenience stores. As a result Waitrose welcomed 1,100 new Partners and plans to create 1,300 more new jobs in the second half of the year. In June the intention was announced to purchase five shops in the Channel Islands. Subject to regulatory approval, these branches are set to open in spring 2011.

 

Two key strategic partnerships have taken Waitrose to many more customers in a range of settings. Seven Waitrose outlets in Welcome Break service stations were opened during the period, taking the total to 12, and these shops are performing ahead of expectations. The trial with Boots is showing encouraging results at this early stage. There are now 11 Boots stores offering Waitrose 'food for now' and another three where customers can buy Waitrose 'food for later'. Seven Waitrose shops currently offer Boots health and toiletries ranges.

 

The Waitrose Deliver online service continues to grow and is now in 133 branches. Online grocery sales were up 54% in the period.

 

The 'everyday to gourmet' offer makes Waitrose accessible and attractive to a broader range of customers. The essential Waitrose range gives customers a clear entry price point with no compromise on quality and is established as a firm favourite. It now accounts for 17% of sales.

 

Product innovation continues apace: Duchy Originals from Waitrose is now in branches with over 150 products available and a total of 200 before the end of the year. This best-of-British organic range joins Seriously (indulgent desserts) and Menu From (restaurant-quality ready meals) to create an unmatched top tier offer. A significant new development for Waitrose is the opening this autumn of its Cookery School.

 

John Lewis

John Lewis opened the current year following a successful Christmas. This momentum has been maintained so far in 2010, with trade for the first six months well ahead of 2009 and our own expectations. Gross sales were up 14.5% (£175.8m) at £1.38bn and LFL sales were up 12.3%. Gross sales also increased on 2008 by 11.2%. Operating profit rose by £15.6m (76.8%) to £35.9m. Underlying operating profit increased by £17.7m, or 59.4%, to £47.5m.

 

John Lewis won share in each of its three markets. Fashion sales grew by 19.3%, helped by further brand introductions; Home recovered well after a tough 2009 and increased its sales by 16.7%; and in Electricals & Home Technology (EHT), the World Cup helped sales to grow by 6.7%.

 

The high street shops recovered strongly during the half year, but online sales were at the heart of John Lewis' performance with 36.1% growth against a market performance of 16.7%. John Lewis has made real progress online as demonstrated by its sales figures and as recognised by the industry through the 'online retailer of the year' award from Which? It has made important progress to unite Partners behind this multi-channel opportunity and the latest step is the decision to extend "Never Knowingly Undersold" to johnlewis.com.

 

After four years of successful development, Greenbee, our direct services arm, has been transferred to the John Lewis division. Relaunching later this month under the new name of John Lewis Insurance, the operation will continue to develop a range of insurance products.

 

John Lewis is also addressing the efficiency of its operating model this year, by continuing its Branch of the Future programme. This work has been extremely challenging for many John Lewis Partners and their professionalism has been impressive.

 

Investment is continuing at a fast pace throughout the business. The 'John Lewis at home' shop in Poole continues to trade well and a second trial shop in Croydon has just opened, with further branches planned this year in Swindon and Tunbridge Wells. Investment has increased in our department stores, with the new womenswear concept being extended to 10 shops by the autumn. Reading is half way through its refurbishment. John Lewis remains on track for the opening of its new shop at the Olympic site in Stratford, in September 2011.

 

Capital Expenditure

Capital spending in the first six months of the year was £154.8m, with Waitrose investing £101.7m primarily on new and acquired branches, and John Lewis investing £48.4m primarily on the new Stratford and Croydon shops, the refurbishment at Reading, Magna Park, the Enfield Combined Service Building and the roll out of the new womenswear concept.

 

In addition, £4.7m was invested centrally, mainly in internally developed systems, maintaining and modernising our IT infrastructure and in the refurbishment of our holiday centres.

 

Financing

Cash generated from operations during the period was £275.3m. We remain committed to our focus on efficient cash, working capital and credit risk management.

 

In July of this year the Partnership issued a £300m bond repayable in 2025 and bought back £158m of the bond due in 2012, which reduced our average cost of borrowing, extended our borrowing maturity and reduced our refinancing risk. At the end of the first six months net debt was £608.2m, which in relation to our balance sheet strength is well within our risk tolerance. The Partnership balance sheet remains strong with substantial capacity to increase our borrowings should we wish to, and we remain well within the limits of the financial covenants in our bank facilities and bonds.

 

Our finance costs fell by £5.2m (13.3%) to £34.0m, principally as a result of reduced pension and long leave financing costs, partially offset by the premium on buying back £158m of the bond due in 2012.

 

Pensions

At the start of the year our Pension Fund deficit (on an accounting basis) stood at £904.6m, and we have taken a number of steps to reduce this. We made a one-off cash contribution to the Pension Fund of £150m in March 2010. The Stock Exchange listing of Ocado in July crystallised the Pension Fund's equity holding, and the Fund realised £100m from the sale of part of its stake. At the end of July the Pension Fund accounting deficit stood at £567.9m, down by £336.7m. Net of deferred tax the deficit was £408.9m.

Discussions are in progress with the Pension Fund Trustees in respect of the triennial actuarial valuation of the Fund (as at 31 March 2010). The substantial special contributions made by the Partnership, in the order of £400m, have gone a long way towards mitigating any actuarial deficit.

Corporate Social Responsibility

The Partnership values its relationships with its Partners, customers, suppliers, the environment and the wider community.  We have already achieved some important milestones this year such as retaining Platinum status in the Business in the Community's Corporate Responsibility Index and achieving the Carbon Trust Standard for our action in reducing carbon emissions. On shop energy consumption, in both Waitrose and John Lewis we exceeded targets for 2009/10 (22% and 23% reduction per-square-foot respectively against a 2003/04 baseline).

 

We are committed to reducing our environmental impact and promoting good environmental practice; dealing fairly with our suppliers; selling responsibly sourced, quality products; and making a positive contribution to the communities where we trade.

 

Download our recently-published CSR report, A Shared Passion, at www.johnlewispartnership.co.uk/ourresponsibilities.

 

2010/11 Outlook

After six weeks of the second half of the year, Partnership gross sales are 9.9% higher than last year. Waitrose gross sales have increased by 8.9% (3.9% LFL) and John Lewis gross sales are 11.7% higher than last year (8.8% LFL).

 

For the remainder of this year and into 2011, we anticipate more challenging trading conditions as higher taxes and public spending cuts begin to bite and household disposable incomes come under pressure.

 

However, the Partnership's ownership model enables us to focus on the long term and we will continue to move ahead with our plans. Despite the economic headwinds, and tougher comparables in the second half, we remain confident that both Waitrose and John Lewis will continue to grow ahead of the market.

 

 

Charlie Mayfield

Chairman

 

 

Where this interim report contains forward-looking statements, these are made by the directors in good faith based on the information available to them up to the time of their approval of this report. These statements should be treated with caution due to the inherent uncertainties underlying any such forward-looking information.

 

Further information

 

John Lewis Partnership

Andrew Moys, Director of Communications 020 7592 6292

 

Citigate Dewe Rogerson

Simon Rigby / George Cazenove / Nicola Smith 020 7282 2993

Simon Rigby (mobile) 07771 784 446

George Cazenove (mobile) 07834 767 054

 

Waitrose

Christine Watts, Communications Director 07764 676 414

Gill Smith, Senior PR Manager, Corporate 01344 825 165

 

John Lewis

Helen Dickinson, Head of Press and PR 07785 952 567

Louise Cooper, Press and Public Relations Manager, Corporate 020 7592 6223/

07808 574 117

 

Notes to editors

 

The John Lewis Partnership - The John Lewis Partnership operates 30 John Lewis shops across the UK (28 department stores and two John Lewis at home), johnlewis.com and 231 Waitrose supermarkets. The business has an annual turnover of over £7.4bn. It is the UK's largest example of worker co-ownership where all 70,000 staff are Partners in the business.

 

Waitrose - Waitrose has shops in England, Scotland and Wales. Its strong performance has been driven by the success of the essential Waitrose range, an unmatchable top tier of products including the new Duchy Originals from Waitrose and free delivery driving rapid online growth. Regularly voted 'Britain's favourite supermarket'*, Waitrose combines the convenience of a supermarket with the expertise and service of a specialist shop - dedicated to offering quality food that has been responsibly sourced combined with high standards of customer service. (www.waitrose.com)

 

* Telegraph Magazine Shop Awards - Best for Food & Drink; BBC Watchdog - Britain's Favourite Supermarket; Good Housekeeping Awards - Favourite Supermarket; Grocer Gold Awards - Grocer of the Year

 

John Lewis - John Lewis, 'Britain's favourite retailer 2009'* and 'Multiple Department Store of the Year 2009' ** typically stocks more than 350,000 separate lines in its department stores. The website stocks over 100,000 products focused on the best of fashion, beauty, home and giftware and electrical items including online exclusives. johnlewis.com is consistently ranked one of the top online shopping destinations in the UK. (www.johnlewis.com). John Lewis Insurance will offer a range of comprehensive insurance products - home, car, wedding and event, travel and pet insurance and life cover - delivering the usual values of expertise, trust and customer service expected from the John Lewis brand.

 

* Verdict consumer satisfaction index, January 2010

** The Drapers Awards for fashion retail, October 2009

 

John Lewis plc Interim Report 2010

 

Consolidated income statement

for the half year ended 31 July 2010

	Half year to	Half year to	Year to
	31 July 2010	1 August 2009	30 January 2010
Continuing operations	£m	£m	£m
Gross sales	3,808.1	3,387.1	7,421.5
Revenue	3,431.8	3,099.2	6,734.6
Cost of sales	(2,303.6)	(2,108.1)	(4,460.4)
Gross profit	1,128.2	991.1	2,274.2
Other operating income	34.3	27.6	51.1
Operating expenses	(1,017.3)	(892.5)	(1,937.3)
Operating profit	145.2	126.2	388.0
Finance costs	(36.3)	(42.4)	(87.6)
Finance income	2.3	3.2	5.8
Profit before Partnership bonus and tax	111.2	87.0	306.2
Partnership bonus	-	-	(151.3)
Profit before tax	111.2	87.0	154.9
Taxation	(35.9)	(29.3)	(48.3)
Profit for the period	75.3	57.7	106.6

 

The presentation of prior half year results has been re-presented in respect of swap interest, as explained in note 5.

 

Consolidated statement of comprehensive income/(expense)

for the half year ended 31 July 2010

	Half year to	Half year to	Year to
	31 July 2010	1 August 2009	30 January 2010
	£m	£m	£m
Profit for the period	75.3	57.7	106.6
Other comprehensive income/(expense):
Actuarial gain/(loss) on defined benefit pension schemes	181.8	(191.9)	(160.4)
Movement of deferred tax on pension schemes	(94.3)	53.7	22.3
Movement of current tax on pension schemes	43.4	-	22.6
Net loss on cash flow hedges	(1.4)	(9.6)	(9.3)
Total comprehensive income/(expense) for the period	204.8	(90.1)	(18.2)

 

Consolidated balance sheet

as at 31 July 2010

 

	31 July 2010	1 August 2009	30 January 2010
	£m	£m	£m
Non-current assets
Intangible assets	95.3	93.2	92.5
Property, plant and equipment	3,423.9	3,340.4	3,391.0
Trade and other receivables	41.9	46.5	42.5
Deferred tax asset	-	71.2	41.9
	3,561.1	3,551.3	3,567.9
Current assets
Inventories	382.2	344.3	399.0
Trade and other receivables	174.9	146.7	167.4
Current tax receivable	16.6	-	-
Derivative financial instruments	11.8	18.2	13.6
Cash and cash equivalents	435.6	333.1	560.0
	1,021.1	842.3	1,140.0
Total assets	4,582.2	4,393.6	4,707.9
Current liabilities
Borrowings and overdrafts	(101.2)	(63.8)	(115.6)
Trade and other payables	(751.4)	(684.6)	(928.5)
Current tax payable	-	(26.7)	(1.6)
Finance lease liabilities	(0.6)	(0.6)	(0.7)
Provisions	(73.9)	(71.8)	(68.5)
Derivative financial instruments	(3.7)	(2.8)	(2.4)
	(930.8)	(850.3)	(1,117.3)
Non-current liabilities
Borrowings	(922.5)	(794.4)	(787.2)
Trade and other payables	(51.6)	(50.4)	(49.8)
Finance lease liabilities	(27.5)	(28.8)	(28.5)
Provisions	(121.8)	(105.3)	(116.3)
Deferred tax liabilities	(51.1)	-	-
Retirement benefit obligations	(567.9)	(932.0)	(904.6)
	(1,742.4)	(1,910.9)	(1,886.4)
Total liabilities	(2,673.2)	(2,761.2)	(3,003.7)
Net assets	1,909.0	1,632.4	1,704.2
Equity
Share capital	6.7	6.7	6.7
Share premium	0.3	0.3	0.3
Other reserves	(1.6)	(0.5)	(0.2)
Retained earnings	1,903.6	1,625.9	1,697.4
Total equity	1,909.0	1,632.4	1,704.2

 

Consolidated statement of changes in equity

for the half year ended 31 July 2010

	Share	Share	Capital	Hedging	Retained	Total
	capital	premium	reserve	reserve	earnings	equity
	£m	£m	£m	£m	£m	£m
Balance at 31 January 2009	6.7	0.3	1.4	7.7	1,706.4	1,722.5
Profit for the period	-	-	-	-	57.7	57.7
Actuarial loss on defined benefit pension schemes	-	-	-	-	(191.9)	(191.9)
Tax on above items recognised in equity	-	-	-	-	53.7	53.7
Fair value losses on cash flow hedges	-	-	-	(7.9)	-	(7.9)
- transfers to property, plant and equipment	-	-	-	(1.3)	-	(1.3)
- transfers to inventories	-	-	-	(0.4)	-	(0.4)
Balance at 1 August 2009	6.7	0.3	1.4	(1.9)	1,625.9	1,632.4
Balance at 31 January 2009	6.7	0.3	1.4	7.7	1,706.4	1,722.5
Profit for the period	-	-	-	-	106.6	106.6
Actuarial loss on defined benefit pension schemes	-	-	-	-	(160.4)	(160.4)
Tax on above items recognised in equity	-	-	-	-	44.9	44.9
Fair value gains on cash flow hedges	-	-	-	(8.1)	-	(8.1)
- transfers to property, plant and equipment	-	-	-	(1.3)	-	(1.3)
- transfers to inventories	-	-	-	0.1	-	0.1
Dividends	-	-	-	-	(0.1)	(0.1)
Balance at 30 January 2010	6.7	0.3	1.4	(1.6)	1,697.4	1,704.2
Profit for the period	-	-	-	-	75.3	75.3
Actuarial loss on defined benefit pension schemes	-	-	-	-	181.8	181.8
Tax on above items recognised in equity	-	-	-	-	(50.9)	(50.9)
Fair value losses on cash flow hedges	-	-	-	(1.5)	-	(1.5)
- transfers to property, plant and equipment	-	-	-	-	-	-
- transfers to inventories	-	-	-	0.1	-	0.1
Balance at 31 July 2010	6.7	0.3	1.4	(3.0)	1,903.6	1,909.0

 

Statement of consolidated cash flows

for the half year ended 31 July 2010

	Half year to	Half year to	Year to
	31 July 2010	1 August 2009	30 January 2010
	£m	£m	£m
Cash generated from operations	275.3	295.2	657.3
Net taxation paid	(12.0)	(16.4)	(39.8)
Partnership bonus paid	(151.2)	(124.3)	(124.3)
Special Contribution to the Pension Scheme	(150.0)	-	-
Finance costs paid	(0.2)	(6.5)	(1.1)
Net cash (used in)/generated from operating activities	(38.1)	148.0	492.1
Cash flows from investing activities
Purchase of property, plant and equipment	(139.2)	(258.5)	(410.3)
Purchase of intangible assets	(16.3)	(19.7)	(33.2)
Proceeds from sale of property, plant and equipment	0.4	0.4	7.1
Finance income received	2.1	2.8	5.4
Net cash used in investing activities	(153.0)	(275.0)	(431.0)
Cash flows from financing activities
Finance costs paid in respect of bonds	(56.8)	-	(10.5)
Payment of capital element of finance leases	(0.3)	(0.4)	(0.6)
Payments to preference shareholders	(0.1)	(0.1)	(0.1)
Cash inflow from borrowings	138.3	275.0	272.7
Net cash generated from financing activities	81.1	274.5	261.5
(Decrease)/increase in net cash and cash equivalents	(110.0)	147.5	322.6
Net cash and cash equivalents at beginning of period	444.4	121.8	121.8
Net cash and cash equivalents at end of period	334.4	269.3	444.4
Net cash and cash equivalents comprise:
Cash	76.6	66.1	84.1
Short term deposits	359.0	267.0	475.9
Bank overdraft	(101.2)	(63.8)	(115.6)
	334.4	269.3	444.4

 

Notes to the financial statements

 

These interim financial statements were approved by the Board on 15 September 2010. They are unaudited, and do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The results for the half year to 31 July 2010 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 30 January 2010 have been reported on by the group's auditors and filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain any statement under Chapter 3 of Part 16 of the Companies Act 2006.

This condensed consolidated interim financial information for the half year ended 31 July 2010 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting', as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 30 January 2010, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

 

The group's results for the half year to 31 July 2010 have been prepared on a basis consistent with the group's accounting policies published in the financial statements for the year ended 30 January 2010.

These accounting policies reflect IFRS and interpretations that are expected to be applicable to the group for its 2010/11 financial statements. It is possible that there will be changes to these standards and interpretations before the end of the group's 2010/11 financial year, which might require adjustments to this information before it is included in the financial statements for the year ended 29 January 2011.

 

The principal risks and uncertainties affecting the group were identified as part of the Business Review, set out on pages 24 to 26 of the John Lewis Annual Report and Accounts 2010, a copy of which is available on the group's website www.johnlewispartnership.co.uk. These risks remain relevant for the second half of the current financial year and comprise: economic; regulatory and political; financial and treasury; pensions; human resources; customer offer; fraud and compliance; operational; health and safety; and business continuity and disaster recovery.

The group's operating segments have been identified as John Lewis, Waitrose and Corporate and other. Corporate and other includes corporate and shared services overheads, finance transformation costs and Greenbee operations. The operating profit of each segment is after charging relevant corporate and shared service costs based on the business segments' usage of corporate and shared service facilities and services.

Waitrose's business is not subject to highly seasonal fluctuations although there is an increase in trading in the fourth quarter of the year. There is a more marked increase in the fourth quarter for the John Lewis business.

	John Lewis	Waitrose	Corporate and other	Group
	£m	£m	£m	£m
Half year to 31 July 2010
Gross sales	1,384.7	2,423.4	-	3,808.1
Adjustment for sale or return sales	(51.0)	-	-	(51.0)
Value added tax	(193.2)	(132.1)	-	(325.3)
Revenue	1,140.5	2,291.3	-	3,431.8
Operating profit excluding property profits	35.9	127.8	(18.5)	145.2
Property profits	-	-	-	-
Operating profit	35.9	127.8	(18.5)	145.2
Finance costs	-	-	(36.3)	(36.3)
Finance income	-	-	2.3	2.3
Profit before tax	35.9	127.8	(52.5)	111.2
Half year to 1 August 2009
Gross sales	1,208.9	2,178.2	-	3,387.1
Adjustment for sale or return sales	(40.4)	-	-	(40.4)
Value added tax	(147.3)	(100.2)	-	(247.5)
Revenue	1,021.2	2,078.0	-	3,099.2
Operating profit excluding property profits	20.3	120.3	(14.4)	126.2
Property profits	-	-	-	-
Operating profit	20.3	120.3	(14.4)	126.2
Finance costs	-	-	(42.4)	(42.4)
Finance income	-	-	3.2	3.2
Profit before tax	20.3	120.3	(53.6)	87.0

The comparatives have been re-presented to allocate certain shared service overheads on a consistent basis to the current year.

 

The presentation of prior half year results has been re-presented in respect of swap interest, as explained in note 5.

4 Segmental reporting (continued)

	John Lewis	Waitrose	Corporate and other	Group
	£m	£m	£m	£m
Year to 30 January 2010
Gross sales	2,889.2	4,532.3	-	7,421.5
Adjustment for sale or return sales	(116.5)	-	-	(116.5)
Value added tax	(355.3)	(215.1)	-	(570.4)
Revenue	2,417.4	4,317.2	-	6,734.6
Operating profit excluding property profits	164.7	266.6	(43.5)	387.8
Property profits	-	0.2	-	0.2
Operating profit	164.7	266.8	(43.5)	388.0
Finance costs	-	-	(87.6)	(87.6)
Finance income	-	-	5.8	5.8
Partnership bonus	-	-	(151.3)	(151.3)
Profit before tax	164.7	266.8	(276.6)	154.9
31 July 2010
Segment assets	1,539.6	2,312.7	729.9	4,582.2
Segment liabilities	(387.2)	(461.9)	(1,824.1)	(2,673.2)
Net assets	1,152.4	1,850.8	(1,094.2)	1,909.0
1 August 2009
Segment assets	1,545.7	2,255.6	592.3	4,393.6
Segment liabilities	(311.5)	(483.5)	(1,966.2)	(2,761.2)
Net assets	1,234.2	1,772.1	(1,373.9)	1,632.4
30 January 2010
Segment assets	1,552.3	2,271.7	883.9	4,707.9
Segment liabilities	(406.9)	(454.2)	(2,142.6)	(3,003.7)
Net assets	1,145.4	1,817.5	(1,258.7)	1,704.2

The comparatives have been re-presented to allocate certain shared service overheads on a consistent basis to the current year.

5 Net finance costs

	Half year to	Half year to	Year to
	31 July 2010	1 August 2009	30 January 2010
	£m	£m	£m
Finance costs
Total finance costs in respect of borrowings	25.0	22.0	46.9
Premium paid on bond redemption	9.2	-	-
Fair value measurements and other	0.2	-	0.5
Net finance costs arising on defined benefit retirement schemes	-	12.2	24.6
Net finance costs arising on other employee benefit schemes	1.9	8.2	15.6
Total finance costs	36.3	42.4	87.6
Finance income
Total finance income in respect of investments	(1.1)	(1.7)	(3.7)
Fair value measurements and other	(1.0)	(1.5)	(2.1)
Net finance income arising on defined benefit retirement schemes	(0.2)	-	-
Total finance income	(2.3)	(3.2)	(5.8)
Net finance costs	34.0	39.2	81.8
	Half year to	Half year to	Year to
	31 July 2010	1 August 2009	30 January 2010
	£m	£m	£m
Total finance costs in respect of borrowings	25.0	22.0	46.9
Premium paid on bond redemption	9.2	-	-
Total finance income in respect of investments	(1.1)	(1.7)	(3.7)
Net finance costs in respect of borrowings and investments	33.1	20.3	43.2
Fair value measurements and other	(0.8)	(1.5)	(1.6)
Net finance (income)/costs arising on defined benefit retirement schemes	(0.2)	12.2	24.6
Net finance costs arising on other employee benefit schemes	1.9	8.2	15.6
Net finance costs	34.0	39.2	81.8

 

The comparatives for the half year to 1 August 2009 have been re-presented to show swap interest receivable alongside the equivalent swap interest payable, consistent with the presentation in the current year and as at 30 January 2010. This was previously included within interest receivable.

Income tax expense is recognised based on management's best estimate of the full year effective tax rate based on estimated full year profits. The estimated full year effective tax rate for the year to 29 January 2011 is 32.3% (the estimated tax rate for the period to 1 August 2009 was 34.0%). The decrease on last year is mainly because last year's tax charge included disallowable costs and depreciation on assets that did not qualify for tax relief.

7 Capital expenditure

	Property, plant and equipment	Intangible assets
	£m	£m
Net book values at 30 January 2010	3,391.0	92.5
Additions	138.6	16.2
Disposals	(0.3)	(0.4)
Depreciation and amortisation	(105.4)	(13.0)
Net book values at 31 July 2010	3,423.9	95.3

Property, plant and equipment additions include £15.8m in respect of store development in John Lewis and £67.4m in respect of store acquisitions and development in Waitrose.

Intangible assets additions primarily relate to internally developed IT systems.

 

8 Reconciliation of profit before tax to cash generated from operations

	Half year to	Half year to	Year to
	31 July 2010	1 August 2009	30 January 2010
	£m	£m	£m
Profit before tax	111.2	87.0	154.9
Amortisation of intangible assets	13.0	11.6	24.4
Depreciation	105.4	97.1	189.9
Net finance costs	34.0	39.2	81.8
Partnership bonus provision	-	-	151.3
Loss on disposal of tangible and intangible assets	0.3	0.7	2.1
Decrease/(increase) in inventories	16.8	8.0	(46.7)
Increase in receivables	(7.2)	(5.6)	(24.2)
(Decrease)/increase in payables	(2.4)	54.9	129.5
Decrease in retirement benefit obligations*	(4.8)	(2.1)	(10.4)
Increase in provisions	9.0	4.4	4.7
Cash generated from operations	275.3	295.2	657.3

 

\* The movement in retirement benefit obligations excludes the special contribution of £150m to the Pension Scheme, which is reported in the Statement of consolidated cash flows.

 

9 Analysis of net debt

	30 January 2010	Cash flow	Other non-cash movements	31 July 2010
	£m	£m	£m	£m
Current assets
Cash and cash equivalents	560.0	(124.4)	-	435.6
Derivative financial instruments	13.6	-	(1.8)	11.8
	573.6	(124.4)	(1.8)	447.4
Current liabilities
Bank overdrafts	(115.6)	14.4	-	(101.2)
Finance leases	(0.7)	0.3	(0.2)	(0.6)
Derivative financial instruments	(2.4)	-	(1.3)	(3.7)
	(118.7)	14.7	(1.5)	(105.5)
Non-current liabilities
Borrowings	(777.3)	(142.0)	-	(919.3)
Unamortised bond transaction costs	2.8	3.7	(0.1)	6.4
Fair value adjustment for hedged risk on bonds	(12.7)	-	3.0	(9.7)
Finance leases	(28.5)	-	1.0	(27.5)
	(815.7)	(138.3)	3.9	(950.1)
Total net debt	(360.8)	(248.0)	0.6	(608.2)

 

Reconciliation of net cash flow to net debt

	Half year to	Half year to	Year to
	31 July 2010	1 August 2009	30 January 2010
	£m	£m	£m
(Decrease)/increase in cash in the period	(110.0)	147.5	322.6
Cash inflow from increase in debt and lease financing	(138.0)	(274.6)	(272.1)
Movement in debt for the period	(248.0)	(127.1)	50.5
Opening net debt	(360.8)	(402.3)	(402.3)
Non-cash movements	0.6	(9.7)	(9.0)
Closing net debt	(608.2)	(539.1)	(360.8)

 

 

At 31 July 2010 contracts had been entered into for future capital expenditure of £63.1m (2009: £89.5m).

 

During the period John Lewis plc entered into transactions with other group companies in respect of the supply of goods for resale and associated services £14.5m (2009: £9.4m), purchase of goods for resale £14.0m (2009: £13.5m), the supply of IT and related services £18.6m (2009: £17.8m), and the hire of vehicles £5.8m (2009: £5.0m).

 

In addition, John Lewis plc settled other transactions on behalf of group companies for administrative convenience, such as payroll and supplier settlement. All such transactions were charged at cost to the relevant group company. It is not practical to quantify these recharges.

 

 

In June 2010 the Partnership entered into a contract with Sandpiper CI to acquire five supermarkets in the Channel Islands. Subject to regulatory approval, this is expected to become unconditional in October 2010 and operational control of the stores is expected to pass to the Partnership on a phased basis from February 2011 to March 2011. The total cost of these stores, including conversion costs, taxes and fees to be paid by the Partnership, is expected to be in the region of £165m.

 

Statement of directors' responsibilities

 

The directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by the Disclosure and Transparency Rules (DTR) of the Financial Services Authority, paragraphs DTR 4.2.7R and DTR 4.2.8R.

 

For and by Order of the Board

 

Charlie Mayfield, Chairman

 

Marisa Cassoni, Finance Director

 

15 September 2010

 

 [1] Underlying operating profit excludes profits and losses on the disposal of properties, the costs of significant restructuring, branch opening costs and other one-off items that are material and infrequent in nature.

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