14th Sep 2006 09:39
Lewis(John) PLC14 September 2006 John Lewis plc Interim report 2006 Chairman's statement The Partnership's sales reached £3bn in the first six months of this year, andthis sales increase of 11 per cent has been converted into a 25 per centincrease in operating profit to £112m and profit before tax to £97m.This profit growth is grounded on sales progress - by being right in line withour customers' expectations for product and service - but we've also madesignificant efficiency advances in on-shelf availability, stock-holding, andproductivity - all sound elements for confidence in the continuing success ofour business. John Lewis Sales through department stores and direct channels were just below £1.2bn - anincrease of £0.1bn, 11 per cent on last year or 9 per cent on a like for likebasis. This was a result of strong all round performance. Five branches achievedsales growth of more than 10 per cent (Peter Jones, Edinburgh, Glasgow, Solihulland Southampton). Oxford Street performed particularly well (+ 5 per cent),despite the disruption from the start of the major refurbishment project. Salescontinued to surge ahead at John Lewis Direct, up 70 per cent on last year. Continuing improvements to our product ranges, high impact promotions, focusedmarketing and better availability lie at the heart of our trading success. Costswere well controlled, and margin was maintained. Divisional profits were £79m (+55 per cent) which was a significant bounce back from last year's fall - and +22per cent on a two year basis. Sales in Electrical, Home and Technology continued to make a strongcontribution. The World Cup gave a boost to sales of flat-panel televisions, anddemand remains strong. Our reputation for service, advice and value continues togive us a market lead in an extremely competitive sector. However, sales growthhas been much more evenly spread across categories. Sales of furniture have beenparticularly buoyant, with the majority of our range now available for deliverywithin seven days. Core strengths such as Linens and Cookshop have performedwell, Lighting and Bathroom Accessories show further signs of revival in thehome furnishings market, and after a difficult start to the season we achievedrecord sales in Garden Furniture ranges, including a positive response to ourJohn Lewis branded barbecues. In fashion we have seen continued healthy growth. Men's casual wear hasperformed particularly well, both in branded ranges and own brand. Sales inbeauty were consistently ahead of last year. In womenswear, brands, fashionaccessories and swimwear/holiday shop performed best. The strongest performancein childrens wear came from Nursery and baby wear. The supply chain performed particularly well, and we see clear benefits from theinvestment we have made in merchandising. We finished the half with lower stocksthan last year, better stockturn and significantly reduced levels of old anddormant lines. Availability was up across the business. Increases in energy costs have added almost £3m to the division's bill this halfyear. However, that was offset by good cost control in branches and aproductivity improvement of 12 per cent. Our manufacturing branches continue to face testing market conditions but movedback into profit compared with last year's losses. Waitrose Waitrose has continued to show impressive sales growth both from establishedbranches and from the new additions to its portfolio. Like-for-like food saleswere more than 5 per cent ahead of last year, and total sales were just short of£1.8bn, +11 per cent.The most notable event of the half year was the arrival of Waitrose in Scotland,with two branches in Edinburgh getting off to a flying start and continuing tocause a stir among the food shoppers of the Scottish capital. Three otherbranches were acquired from Somerfield - at Balham, Barbican andBuxton, along with a further acquired branch at Biggin Hill. A newly builtbranch opened at Bloomsbury in July gave further reinforcement to our Londonpresence. Product development and innovation remain key to our customer appeal. 'Blossomand Bloom' has set a new quality benchmark for our horticulture offer, and sincethe relaunch sales have grown by 20 per cent, increasing our market share by 10per cent. Our emphasis on fresh foods has benefited from re-investment in ourestablished branches through the Store Improvement Programme, with increasedability to stock a wider product range feeding through to valuable sales growth.Gross margins edged slightly ahead against a year ago, despite our continuedinvestment in making sure we remain competitive on price. Our establishedbranches have done a fine job of containing costs while also working hard toimprove on the service and product knowledge which is a key point of differencefor Waitrose. Branch pay costs were controlled, with improvements in underlyinglabour efficiency, and we saw continued dilution in central costs. Offsettingthese improvements were major increases in utility costs (+£6m - over 80 percent) and in rent and rates (+£6m, 17%). In addition our recent acquisitionshave led to increased pre-opening and re-organisation costs (+£3m, 87%).Divisional profit therefore increased only marginally to £108m, but on a twoyear basis the growth was 17 per cent. Against a background of continuing fierce competition for sales among the 'bigfour' supermarket chains, we continue to benefit from customers seeking higherlevels of product reassurance, underlining the value of our long-standing agendafor product sustainability and the importance of supplier relationships. TheWaitrose Foundation has been a prominent example of this unique approach, andour animal husbandry standards have won endorsement from Compassion in WorldFarming and the RSPCA. Waitrose holds a 17 per cent share of the organic market(four times greater than our overall market share), with sales of organicproduce running 16 per cent ahead of last year. Ocado The number of weekly deliveries made by Ocado continues to rise, reaching 50,000per week before the summer holidays. The business remains confident that thisgrowth in transactions will continue to improve operational profitability overthe next year. There was no shortage of investors when Ocado raised fundsearlier this year, and the valuation placed on the business at that timeresulted in a notional profit of £18m on the Partnership's shareholding, partlyoffset by our share of Ocado's losses (£14m). Neither of these elements affectthe Partnership's own cash flows or our ultimate ability to distribute profits. Pensions £49m was paid during the half year to maintain our non contributory final salaryscheme. Outlook for the second half At the end of week 6 (to 9 September), Partnership sales stood at +12 per centon last year. John Lewis has continued to show its sparkling form throughout thesummer and has so far scored +15 per cent (+16 per cent on a like-for-likebasis). Waitrose has looked back with some envy to the warm late summer weatherof last year which gave a real boost to its sales, but it has still managed toadvance by 10 per cent (+4 per cent on a like-for-like basis).John Lewis looks forward to the completion of the first stage of the OxfordStreet refurbishment project at the end of October. Given how well sales haveheld up during this disruptive period, we have high hopes for the unveiling ofthe first stage of this dramatic transformation of our flagship shop at thestart of December. More generally, we have to recognise that the comparablefigures become much tougher from November onwards - the start of the currentstrong run by our department stores. Nonetheless, we believe we will trade wellin this second half, although our rate of growth is bound to slow as we approachChristmas. At Waitrose we shall add a further six acquired branches in the weeks ahead - atEastbourne, Formby, Hexham, Lymington, Parkstone and Southampton. We shall alsoopen a new branch at Ampthill. We've seen our competitors keen to copy ourapproach on organics and on locally produced food, but the deeply rootedrelationships between Waitrose and our supplier base, the innovation of ourBracknell team and the continuing focus on service in our shops will ensure thedistinctiveness of our offer enable us to earn the loyalty of our customers inthe build up to Christmas. The economic climate does not favour retailing at present, and both divisionswill be challenged on costs while also ensuring that we have sufficient Partnersfocused on winning sales, thereby keeping our edge on customer service andtaking advantage of the trust our customers place in us. The enormous effortsand enthusiasm of our Partners continue to move forward our business which is'powered by our principles'. It will be a challenging second half to the year,but I remain confident that we will continue to improve on last year'sperformance. Sir Stuart HampsonChairman14 September 2006 John Lewis plc Consolidated income statement for the half year ended 29 July 2006 --------------------- --------- --------- ---------- Half year Half year Year to to to 29 July 30 July 28 January 2006 2005 2006 £m £m £m --------------------- --------- --------- ----------Gross sales 2,969.0 2,686.0 5,764.4--------------------- --------- --------- ----------Revenue 2,655.1 2,411.3 5,149.3Cost of sales (1,798.6) (1,635.0) (3,438.4)--------------------- --------- --------- ----------Gross profit 856.5 776.3 1,710.9Other operating income 21.3 18.4 33.0--------------------- --------- --------- ----------Operating expenses beforepension costs (723.5) (662.9) (1,376.8)Pension costs (42.8) (42.6) (85.5)--------------------- --------- --------- ----------Total operating expenses (766.3) (705.5) (1,462.3)--------------------- --------- --------- ----------Operating profit 111.5 89.2 281.6Finance costs (22.0) (21.4) (45.4)Finance income 3.6 4.9 10.5--------------------- --------- --------- ----------Share of post tax operatingloss of associate (13.9) (5.6) (5.6)Exceptional gain on dilutionof interest in associate 18.0 10.8 10.8--------------------- --------- --------- ----------Net gain/(loss) in respect ofassociate 4.1 5.2 5.2--------------------- --------- --------- ----------Profit before Partnershipbonus and tax 97.2 77.9 251.9Partnership bonus - - (120.3)--------------------- --------- --------- ----------Profit before tax 97.2 77.9 131.6Taxation (30.1) (19.9) (36.7)--------------------- --------- --------- ----------Profit for the period 67.1 58.0 94.9--------------------- --------- --------- ---------- Consolidated statement of recognised income and expenses for the half year ended 29 July 2006 --------------------- --------- --------- ---------- Half year Half year Year to to to 29 July 30 July 28 January 2006 2005 2006 £m £m £m --------------------- --------- --------- ----------Actuarial gains / (losses) ondefined benefit pensionschemes 48.8 33.3 11.7Movement of deferred tax onpension scheme (14.6) (9.5) (3.4)--------------------- --------- --------- ----------Net gains/(losses) notrecognised in the incomestatement 34.2 23.8 8.3Profit for the period 67.1 58.0 94.9--------------------- --------- --------- ----------Total recognised income andexpense for the period 101.3 81.8 103.2Adoption of IAS 32 and IAS 39 (5.5) (5.5)--------------------- --------- --------- ---------- 76.3 97.7 --------------------- --------- --------- ---------- Consolidated balance sheet as at 29 July 2006 --------------------- --------- --------- ---------- 29 July 30 July 28 January 2006 2005 2006 £m £m £m --------------------- --------- --------- ----------Non-current assetsIntangible assets 58.2 40.6 52.2Property, plant and equipment 2,739.5 2,611.5 2,682.5Trade and other receivables 19.1 19.2 20.4Investment in associate 4.1 - ---------------------- --------- --------- ---------- 2,820.9 2,671.3 2,755.1 --------------------- --------- --------- ----------Current assetsInventories 314.9 326.1 324.3Trade and other receivables 117.4 123.0 121.2Derivative financialinstruments 1.3 4.2 4.1Cash and cash equivalents 142.5 130.2 282.8--------------------- --------- --------- ---------- 576.1 583.5 732.4 --------------------- --------- --------- ----------Total assets 3,397.0 3,254.8 3,487.5--------------------- --------- --------- ---------- Current liabilitiesBorrowings and overdrafts (58.6) (145.0) (100.3)Trade and other payables (549.1) (450.4) (660.9)Current tax payable (22.6) (6.3) (23.4)Finance lease liabilities (0.6) (0.6) (0.8)Provisions (39.1) (34.1) (44.5)--------------------- --------- --------- ---------- (670.0) (636.4) (829.9) --------------------- --------- --------- ---------- Non-current liabilitiesBorrowings (504.2) (505.8) (506.4)Trade and other payables (27.0) (23.8) (29.0)Finance lease liabilities (31.3) (30.7) (31.9)Provisions (88.9) (68.3) (76.7)Deferred tax liabilities (144.8) (151.2) (127.9)Retirement benefit obligations (423.0) (453.3) (479.0)--------------------- --------- --------- ---------- (1,219.2) (1,233.1) (1,250.9) --------------------- --------- --------- ----------Total liabilities (1,889.2) (1,869.5) (2,080.8)--------------------- --------- --------- ----------Net assets 1,507.8 1,385.3 1,406.7--------------------- --------- --------- ---------- EquityShare capital 6.7 6.7 6.7Share premium 0.9 1.1 0.9Other reserves 1.4 1.4 1.4Retained earnings 1,498.8 1,376.1 1,397.7--------------------- --------- --------- ----------Total equity 1,507.8 1,385.3 1,406.7--------------------- --------- --------- ---------- Consolidated cash flow statement for the half year ended 29 July 2006 --------------------- --------- --------- ---------- Half year to Half year to Year to 28 29 July 30 July January 2006 2005 2006 £m £m £m --------------------- --------- --------- ---------- Cash generatedfromoperations 230.0 101.3 483.7Taxation paid (28.6) (17.5) (32.5)Partnershipbonus paid (120.3) (105.8) (105.8)Finance costspaid (4.5) (6.5) (11.9)--------------------- --------- --------- ----------Net cashgenerated fromoperatingactivities 76.6 (28.5) 333.5--------------------- --------- --------- ----------Cash flows from investingactivitiesPurchase ofproperty,plant andequipment (143.3) (110.6) (255.7)Purchase ofintangibleassets (11.6) (5.3) (27.9)Proceeds fromsale ofproperty,plant andequipment 0.5 2.7 14.6Loans(advancedto)/repaid byassociate - 16.2 16.2Finance incomereceived 4.5 10.7 12.7--------------------- --------- --------- ----------Net cash usedin investingactivities (149.9) (86.3) (240.1)--------------------- --------- --------- ----------Cash flows from financingactivitiesInterest paidon bonds (24.2) (24.2) (34.8)Payment ofcapitalelement offinance leases (0.8) (0.2) (0.5)Payments toequityshareholders (0.2) - -Payments topreferenceshareholders (0.1) (0.1) (0.1)Cashinflow/(outflow)fromborrowings (50.0) 20.0 20.0--------------------- --------- --------- ----------Net cash usedin financingactivities (75.3) (4.5) (15.4)--------------------- --------- --------- ----------Increase/(decrease) in netcash and cashequivalents (148.6) (119.3) 78.0Net cash andcashequivalents atbeginning ofperiod 232.5 154.5 154.5--------------------- --------- --------- ----------Net cash andcashequivalents atend of period 83.9 35.2 232.5--------------------- --------- --------- ----------Net cash and cash equivalentscomprise:Cash 78.6 89.2 71.9Short termdeposits 63.9 41.0 210.9Bankoverdrafts (58.6) (95.0) (50.3)--------------------- --------- --------- ---------- 83.9 35.2 232.5 --------------------- --------- --------- ---------- Notes to the financial statements 1 Basis of preparation These interim financial statements were approved by the Board on 14 September2006. They are unaudited, and do not comprise statutory accounts within themeaning of Section 240 of the Companies Act 1985. The results for the half year to 29 July 2006 have been prepared using thediscrete period approach, considering the half year as an accounting period inisolation. The tax charge is based on the effective rate estimated for the fullyear, which has been applied to the profits in the first half year. The group's published financial statements for the year ended 28 January 2006have been reported on by the group's auditors and filed with the Registrar ofCompanies. The report of the auditors was unqualified and did not contain astatement under Section 237 (2) or (3) of the Companies Act 1985. Accounting policies The group's results for the half year to 29 July 2006 have been prepared on abasis consistent with the group's accounting policies published in the financialstatements for the year ended 28 January 2006. These accounting policies reflectInternational Financial Reporting Standards (IFRS) and interpretations that areexpected to be applicable to the group for its 2006/07 financial statements. Itis possible that there will be changes to these standards and interpretationsbefore the end of the group's 2006/07 financial year, which might requireadjustments to this information before it is included in the 2007 Report &Accounts. 2 Segmental reportingThe Partnership is organised in three main business segments. John Lewis Retail,John Lewis Other, principally manufacturing, and Waitrose. -------------- -------- -------- -------- ------- -------- John Lewis John John Waitrose Group Retail Lewis Lewis Other Total £m £m £m £m £m -------------- -------- -------- -------- ------- --------29 July 2006Total sales 1,166.1 18.0 1,184.1 1,795.1 2,979.2Inter-segmentsales - (10.2) (10.2) - (10.2)-------------- -------- -------- -------- ------- --------Gross sales 1,166.1 7.8 1,173.9 1,795.1 2,969.0Adjustment forsale or returnsales (51.7) - (51.7) - (51.7)Value addedtax (163.9) (0.9) (164.8) (97.4) (262.2)-------------- -------- -------- -------- ------- --------Revenue 950.5 6.9 957.4 1,697.7 2,655.1-------------- -------- -------- -------- ------- --------Divisionalprofit 78.3 0.6 78.9 107.8 186.7Corporate andother costs (17.2) - (17.2) (15.2) (32.4)Pension costs (24.9) (0.6) (25.5) (17.3) (42.8)-------------- -------- -------- -------- ------- --------Operatingprofit 36.2 - 36.2 75.3 111.5-------------- -------- -------- -------- ------- -------- 30 July 2005Total sales 1,054.1 17.4 1,071.5 1,623.1 2,694.6Inter-segmentsales - (8.6) (8.6) - (8.6)-------------- -------- -------- -------- ------- --------Gross sales 1,054.1 8.8 1,062.9 1,623.1 2,686.0Adjustment forsale or returnsales (42.2) - (42.2) - (42.2)Value addedtax (146.1) - (146.1) (86.4) (232.5)-------------- -------- -------- -------- ------- --------Revenue 865.8 8.8 874.6 1,536.7 2,411.3-------------- -------- -------- -------- ------- --------Divisionalprofit 52.7 (1.7) 51.0 107.3 158.3Corporate andother costs (13.8) - (13.8) (12.7) (26.5)Pension costs (24.8) (0.5) (25.3) (17.3) (42.6)-------------- -------- -------- -------- ------- --------Operatingprofit 14.1 (2.2) 11.9 77.3 89.2-------------- -------- -------- -------- ------- -------- 28 January 2006Total sales 2,407.0 35.0 2,442.0 3,341.5 5,783.5Inter-segmentsales - (19.1) (19.1) - (19.1)-------------- -------- -------- -------- ------- --------Gross sales 2,407.0 15.9 2,422.9 3,341.5 5,764.4Adjustment forsale or returnsales (92.8) - (92.8) - (92.8)Value addedtax (337.8) (1.9) (339.7) (182.6) (522.3)-------------- -------- -------- -------- ------- --------Revenue 1,976.4 14.0 1,990.4 3,158.9 5,149.3-------------- -------- -------- -------- ------- --------Divisionalprofit 197.6 (6.0)* 191.6 231.4 423.0Corporate andother costs (29.6) - (29.6) (26.3) (55.9)Pension costs (49.5) (1.3) (50.8) (34.7) (85.5)-------------- -------- -------- -------- ------- --------Operatingprofit 118.5 (7.3) 111.2 170.4 281.6-------------- -------- -------- -------- ------- -------- * Includes £3m in redundancy costs 3 Investment in associate In April 2006, Ocado issued new shares to investors outside the Partnership. Asa consequence the Partnership's holding in Ocado reduced, which as in the prioryear has given rise to a credit on dilution of interest in the income statementof £18.0m (2005: £10.8m). In accordance with accounting rules, losses are only consolidated to the extentthat the investment in an associate is reduced to zero. Consequently in the yearto 28 January 2006, the Partnership only consolidated £5.6m of the total lossesin Ocado, the remaining £8.5m being deferred. Following the £18.0m creditarising on dilution of interest in the half year to 29 July 2006, thePartnership has recognised both its share of the losses in Ocado for the halfyear to 29 July 2006 of £5.4m and the £8.5m of losses that were deferred as atlast year end. 4 Reconciliation of profit before tax to cash generated from operations ---------------------- ----------- Half year Half year Year to 28 ---------------------- to 29 July to 30 July January 2006 2006 £m 2005 £m £m --------- --------- ----------- Profit beforetax 97.0 77.9 131.6Amortisationof intangibleassets 7.0 4.0 10.7Depreciation 77.6 68.9 142.3Net financecosts 18.4 16.6 34.9Share of(profit)/lossof associate (4.1) (5.2) (5.2)Partnershipbonusprovision - - 120.3(Profit)/losson disposal ofproperty,plant andequipment 0.2 - (2.9)(Increase)/decrease ininventories 10.1 13.4 15.0(Increase)/decrease inreceivables 3.5 (24.2) (21.3)Increase/(decrease) inpayables 13.5 (57.1) 33.6Increase/(decrease) inprovisions 6.8 7.0 24.7---------------------- --------- --------- -----------Cash generatedfromoperations 230.0 101.3 483.7---------------------- --------- --------- ----------- 5 Reconciliation of changes in equity Half year to Half year to Year to 28 ---------------------- 29 July 2006 30 July 2005 January 2006 £m £m £m --------- --------- ---------- Opening equity 1,406.7 1,309.1 1,309.1Adoption ofIAS 32 & IAS39 - (5.5) (5.5)---------------------- --------- --------- ---------- 1,406.7 1,303.6 1,303.6Profit/(loss)for the period 67.1 58.0 94.9Actuarialgains/(losses) 48.8 33.3 11.7Tax on itemsrecognised inequity (14.6) (9.5) (3.4)Dividends paid (0.2) (0.1) (0.1)---------------------- --------- --------- ----------Closing equity 1,507.8 1,385.3 1,406.7---------------------- --------- --------- ---------- 6 Reconciliation of net cash flow to net debt Half year to Half year to Year to 28 ---------------------- 29 July 2006 30 July 2005 January 2006 £m £m £m --------- --------- ---------- Increase/(decrease) in cashin the period (1.6) (45.2) (17.9)Cashinflow/(outflow) fromincrease indebt and leasefinancing 50.0 (20.0) (20.0)Cash(inflow)/outflowfromincrease/(decrease) inliquidresources (147.0) (74.0) 95.9Other non cashmovements 2.2 - (0.6)---------------------- --------- --------- ----------Movement indebt for theperiod (96.4) (139.2) 57.4Opening netdebt (323.9) (375.5) (375.5)Adoption ofIAS 32 and IAS39 - (5.8) (5.8)---------------------- --------- --------- ----------Closing netdebt (420.3) (520.5) (323.9)---------------------- --------- --------- ---------- Enquiries: John Lewis Partnership 020 7592 6292Susan Donovan, Director of Communications Citigate Dewe Rogerson 020 7638 9571 Simon Rigby / Sara Batchelor This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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