Our website uses cookies. If you continue to use this website we will assume you consent to the use of cookies for this purpose. Find out how to manage cookies.

13 September, 2012

John Lewis Partnership plc - Interim results for the half year ended 28 July 2012

“An encouraging trading performance with robust sales and profit recovery”


Financial Highlights

The John Lewis Partnership

· Gross sales of £4.4bn, up £353.8m, 8.7%

· Revenue of £3.9bn, up £309.7m, 8.6%

· Group operating profit of £163.5m up £52.0m, 46.6%

· Profit before tax of £144.5m, up £54.1m, 59.8%

Waitrose

· Gross sales of £2.8bn, up £172.8m, 6.6%

· Like-for-like sales (excluding petrol) up 2.2%

· Revenue of £2.6bn, up £162.6m, 6.6%

· Operating profit of £142.0m, up £31.8m, 28.9%

John Lewis

· Gross sales of £1.6bn, up £181.0m, 12.8%

· Like-for-like sales up 9.2%

· Revenue of £1.3bn, up £147.1m, 12.9%

· johnlewis.com gross sales of £375.8m, up £113.2m, 43.1%

· Operating profit of £45.6m, up £29.8m, 188.6%

Operational Highlights

Waitrose

· 10 new branches opened (four supermarkets and six convenience stores)

· Selling space increased by 2.0%.

· 2,700 new and improved products launched

· Online sales growing by 50%

John Lewis

· Two new “John Lewis at home” shops opened in Newbury and Chichester

· Strong outperformance of johnlewis.com

· Click & collect now in all John Lewis shops and 194 Waitrose shops

· Significant market share gains in each of three main categories


Charlie Mayfield, Chairman of John Lewis Partnership, commented:

“The Partnership has delivered strong growth in the first half with gross sales up by 8.7% and profit before tax up by almost 60%. Waitrose increased gross sales by 6.6% and operating profit by almost 29%. John Lewis, where profits are often more volatile in the first half, grew gross sales by nearly 13% and operating profit more than doubled. Both Waitrose and John Lewis increased their market shares.

Three key factors lie behind these excellent results.

Firstly, we benefited from the more favourable conditions created by a number of one-off events, such as the Diamond Jubilee, the lead up to the London 2012 Olympic and Paralympic Games and the anniversary of the VAT increase which depressed sales last year.

Secondly, our trading teams performed particularly well, with clearly differentiated products backed by outstanding service. In Waitrose we launched more products than ever before and extended the Brand Price Match. In John Lewis we took market share in all categories and launched a series of innovative design collaborations.

And thirdly, we saw an acceleration in sales and profit from the longstanding focus we have had on developing our multi-channel operations and from improving the efficiency of our business. Multichannel sales made a vital contribution across both John Lewis and Waitrose and we extended the reach and appeal of our offer with the extension of Click & collect to most Waitrose shops. We also saw the benefits of changes made in the branch operations in both Waitrose and John Lewis, and an increasing contribution to greater efficiency from our Partnership Services division.”

2012/13 Outlook

“Consumer demand remains fragile, but has stabilised and we continue to see opportunities to grow market share. We have seen a good start to the second half. After 6 weeks, Partnership gross sales are 10.3% higher than last year. Waitrose gross sales have increased by 8.7% (4.5% like-for-like) and John Lewis gross sales are 13.1% higher than last year (8.5% like-for-like).

Our rate of growth will remain positive but will be slower in the second half and, with further investment planned in that period to strengthen our business for the longer term, the rapid rate of profit increase is not expected to be carried through to the full year. This is consistent with our long term commitment to building the Partnership for the future.”


Financial Results

In the first six months of the year the Partnership has traded strongly in a tough market, and achieved robust sales and profit growth. Both Waitrose and John Lewis grew sales ahead of their respective markets, increasing their market share.

The Partnership grew sales strongly with gross sales of £4.4bn, an increase of £354m, or 8.7%, on last year and revenue of £3.9bn, up by £310m or 8.6%. Operating profit was £163.5m, an increase of £52.0m, or 46.6% on last year, as a result of improved gross margin and good cost control. Operating profit margin increased by 1.1% to 4.2%. Profit before tax was £144.5m, an increase of £54.1m, or 59.8%, on last year.

Waitrose

Waitrose’s gross sales grew strongly, up 6.6% (£172.8m) to £2.8bn underpinned by like-for-like sales growth of 2.2% and new branch openings this half year and in the second half of last year. Operating profit grew by 28.9% to £142.0m. A number of investments in the future strength of the business have been made over the last couple of years, including convenience, Waitrose.com and in the Channel Islands. The positive impact of these, along with increased efficiency and the benefits of growth, are seen in this profit performance which in turn provides a platform for further increases in investment in the second half.

Waitrose’s market share increased by 0.2% to 4.6% and has consistently outperformed the market over the last three years. In April, Waitrose was voted Favourite Food & Grocery retailer at Verdict’s annual Consumer Satisfaction Awards and in May won Good Housekeeping’s 'Favourite Supermarket' Award for the fifth year running.

A tight focus on efficiency and managing costs, together with continued sales growth, gave us the opportunity to extend our Brand Price Match in May this year. Prices on branded grocery products are now identical to Tesco’s, excluding promotions. This important move - together with at least 1,000 promotions each week and the continuing strength and range development of essential Waitrose - reinforces the value offer for customers.

Product innovation and quality underpinned by service and value is pivotal to our success. This year reflects the highest-ever rate of product innovation, with 2,700 new and improved products launched in the first half and a further 2,200 planned in the second half.

We continued to extend the reach of Waitrose within the UK. Four new supermarkets and six Little Waitrose convenience branches were opened in the half. This brings the total estate to 282 shops, including 34 convenience shops, at the end of July. Waitrose is also now present in 17 Welcome Break motorway services, having recently opened at Fleet North. In the second half, we have already opened new shops in Bedford and Alton, with seven more openings planned this financial year, including two more convenience shops.

The investment made in Waitrose.com continues to bear fruit with online sales growing by 50%. Deliveries are available from 147 branches and from our customer fulfilment centre in Acton, West London. During the first half of the year, Waitrose.com continued to be the fastest growing major UK online grocery retailer, according to Kantar Worldpanel data.


John Lewis

John Lewis’ gross sales grew strongly, up 12.8% (£181.0m) to £1.6bn underpinned by strong growth from Electricals and Home Technology (EHT) and multichannel sales. Like-for-like sales grew by 9.2%. Operating profit grew by 188.6% to £45.6m.

We made significant market share gains in each of our three main categories. Sales in EHT were ahead by 31.8%, Home increased by 6.2% and Fashion saw good growth of 7.2%. A series of events, including the Diamond Jubilee, helped drive sales, with John Lewis’ role as the ‘Official Department Store of the London 2012 Olympic and Paralympic Games’ having a positive impact in the run up to the Games. The strong growth in EHT was supported by customer confidence in our price matching position, particularly during the digital switchover in London, and the product expertise of our Partners, and when compared to last year when the increase in VAT in January 2011 dampened sales. In April, John Lewis was voted ‘Best Electrical Retailer’ at Verdict’s annual awards.

Product innovation, brand partnerships with suppliers such as with Apple, and our continued commitment to being Never Knowingly Undersold contributed to our market share gains. The John Lewis brand continues to be strengthened through design collaborations with designers such as Alice Temperley in Fashion and 15 design ‘luminaries’ in our Home ‘Design Collective’ - including Bethan Grey, Matthew Hilton and Sebastian Conran. In addition, our new own-brand ‘House’, offers affordable style in home accessories enabling us to meet the needs of even more customers.

johnlewis.com had another strong half and is a significant contributor to our success, growing sales by over 40% and now accounts for 24% of total John Lewis sales. Our multi-channel operation continues to go from strength-to-strength, with customers appreciating the ease of shopping across a variety of channels from smartphones to in-store internet kiosks.

‘Click & collect’ continues to be extremely popular. Customers can now pick up online purchases made before 7pm, the next afternoon after 2pm from all 37 John Lewis and 194 Waitrose branches. Year on year, the Click & collect service has grown by 114%, with purchases collected at Waitrose outlets accounting for 34% of sales.

We also continued the expansion of our selling space, opening two new ‘at home’ branches in Newbury and Chichester. Next month a new format full-line department store will open in Exeter, with a John Lewis ‘pop-up’ shop trading on the main high street for six weeks before the opening to give shoppers a preview of our product range. In November, a new ‘at home’ branch will open in Ipswich, sharing the same entrance, atrium and mezzanine cafe with a new Waitrose.


Partnership Services and Corporate

Partnership Services, our newly established business support division, made good progress driving efficiency gains in the half. We are achieving encouraging improvements in the efficiency of process operations, with a productivity improvement of 7% in accounts payable and 3% in payroll. We have also seen benefits in working capital, and significant savings through better procurement of goods not for resale.

A number of significant central transformation programmes are underway, principally within our Personnel and IT functions. The programmes are designed to increase both the efficiency and effectiveness of our support functions. The costs of these programmes are the primary factor behind the year on year increase in Corporate costs. This trend is expected to continue into the second half of the year.

Looking ahead, recent investments in our contact centre will help Partners and suppliers with simpler access to expert Partners and faster resolution of queries. In the second half, we will transfer our central IT function to Partnership Services, as a part of developing efficient and effective business support services at scale.

Investment in the future

Capital spending in the first six months of the year was £162.4m, a decrease of £91.4m (36.0%). Year on year this reduction largely reflects lower capital expenditure in Waitrose, as in 2011 there were more branch openings, including the five in the Channel Islands, and a major branch refurbishment programme, including Canary Wharf, was weighted towards the first half.

Waitrose invested £79.9m, mainly on new branches opening this year together with two extensions and investment in the implementation of a new warehouse management system to drive productivity in our supply chain, and also a number of retail systems improvements to aid efficiency and enhance the flexibility of our offer.

John Lewis invested £67.0m, with the mix of investment continuing to reflect the business strategy of opening new space, refurbishing key regional shops and investing in the IT and distribution infrastructure to support multichannel trading.

In addition, £15.5m was invested centrally, mainly in maintaining and modernising our IT platforms and head office buildings.

Financing

Net finance costs on borrowings and investments increased by £0.4m (1.3%) to £30.1m. After including the financing elements of pensions and long service leave and non-cash fair value adjustments, net finance costs decreased by £2.1m (10.0%) to £19.0m.

At 28 July 2012, net debt was £589.6m, an increase of £12.3m (2.1%) in the half year but £171.2m (22.5%) better than 30 July 2011. During the half year we repaid bonds of £142m from available cash. The Partnership balance sheet is strong with substantial capacity to increase our borrowings should we wish to. We also remain well within the limits of the financial covenants in our bank facilities and bonds.


Pensions

Included within operating profit, the accounting charge for pensions was £68.7m, up £7.1m or 11.5% on the prior year reflecting the change in the financial assumptions and growth in scheme membership.

The total accounting pension deficit at July 2012 increased by £198.6m (31.1%) to £836.7m. Net of deferred tax the deficit was £665.2m. The accounting valuation of pension fund liabilities increased by £242.0m (7.6%) to £3,417.0m, while pension fund assets increased by £43.4m (1.7%) to £2,580.3m.

On the current actuarial cash funding basis, we estimate that our defined benefit final salary schemes ended the half year with a small deficit of approximately £30m. In addition there are approximately £10m of unfunded pension liabilities. The next formal valuations of the schemes will be in March 2013.

Corporate Social Responsibility

In March 2012, the Corporate Research Foundation certified the Partnership as one of Britain’s Top Employers for our outstanding working conditions.

Community Matters, the famous “green token” scheme that has donated more than £11m to over 32,000 charities, was honoured in January with a Big Society Award; and our involvement with our local communities was further extended through Partner Volunteering. This will contribute approximately 75,000 paid hours each year by our business to the benefit of our local communities. Community Matters was extended to all John Lewis shops in May this year, and our community rooms initiative has been extended across the majority of our shops providing space for use by local charities and community groups, free of charge.

As recognised by Business in the Community’s Award for Excellence 2012, the Partnership continues to invest in low carbon distribution. In March, we were awarded Gold in the Transport for London Fleet Operators Recognition Scheme.

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 07525 272377


Citigate Dewe Rogerson

Simon Rigby / Nicola Swift 020 7638 9571

John Lewis
Helen Dickinson, Director, Communications 07785 952567

Louise Cooper, Senior Manager, Corporate, Digital & Branch PR 07808 574117

Waitrose

Christine Watts, Communications Director 07764 676414
Gill Smith, Senior Manager, Corporate PR 07887 898133

Notes to Editors:

The John Lewis Partnership - The John Lewis Partnership operates 37 John Lewis shops across the UK (29 department stores and eight John Lewis at home), johnlewis.com and 284 Waitrose supermarkets. The business has annual gross sales of over £8.7bn. It is the UK's largest example of worker co-ownership where all 80,000 staff are Partners in the business.

Waitrose - Waitrose, Britain's favourite supermarket*, has 284 shops in the UK and Channel Islands and is consistently achieving sales growth significantly ahead of the market**. Its strong performance has been driven by the success of the essential Waitrose range, Brand Price Match, an unmatchable top tier of products and free delivery for online shopping, as well as a long term commitment to sourcing the UK's finest local and regional foods. Waitrose own-label ranges accounts for 54% of sales. 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

* Which? Annual Supermarket Satisfaction Survey, Favourite Food & Grocery Retailer at Verdict's annual Consumer Satisfaction Awards; Favourite Supermarket at Good Housekeeping Awards

** Kantar Worldpanel

John Lewis - John Lewis, 'Britain's favourite electricals retailer 2012'* and 'Best Multichannel Retailer 2011' **, typically stocks more than 350,000 separate lines in its department stores. The website stocks over 200,000 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 offers 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. John Lewis is proud to have been the official department store provider to the London 2012 Olympic and Paralympic Games.

* Verdict Consumer Satisfaction Index, April 2012
** Ecommerce Awards for Excellence 2011


John Lewis Partnership plc Interim Report 2012

Consolidated income statement

for the half year ended 28 July 2012

Half year to

Half year to

Year to

28 July 2012

30 July 2011

28 January 2012

Continuing operations

£m

£m

£m

Gross sales

4,405.9

4,052.1

8,729.5

Revenue

3,925.6

3,615.9

7,758.6

Cost of sales

(2,635.4)

(2,439.9)

(5,166.5)

Gross profit

1,290.2

1,176.0

2,592.1

Other operating income

30.7

29.4

59.6

Operating expenses

(1,157.4)

(1,093.9)

(2,258.4)

Operating profit

163.5

111.5

393.3

Finance costs

(40.4)

(37.7)

(72.3)

Finance income

21.4

16.6

32.8

Profit before Partnership bonus and tax

144.5

90.4

353.8

Partnership bonus

-

-

(165.2)

Profit before tax

144.5

90.4

188.6

Taxation

(34.6)

(23.4)

(52.4)

Profit for the period

109.9

67.0

136.2

(a)

(b) Consolidated statement of comprehensive expense

(c) for the half year ended 28 July 2012

Half year to

Half year to

Year to

28 July 2012

30 July 2011

28 January 2012

£m

£m

£m

Profit for the period

109.9

67.0

136.2

Other comprehensive expense:

Actuarial loss on defined benefit

pension schemes

(207.1)

(87.5)

(254.8)

Movement of deferred tax on

pension schemes

44.0

20.7

48.4

Movement of current tax on

pension schemes

-

-

6.5

Net (loss)/gain on cash flow hedges

(2.2)

(1.0)

0.2

Total comprehensive expense for the period

(55.4)

(0.8)

(63.5)


Consolidated balance sheet

as at 28 July 2012

28 July 2012

30 July 2011

28 January 2012

£m

£m

£m

Non-current assets

Intangible assets

178.6

141.4

164.3

Property, plant and equipment

3,794.2

3,710.3

3,798.4

Trade and other receivables*

48.5

48.5

51.3

Deferred tax asset

22.5

-

-

4,043.8

3,900.2

4,014.0

Current assets

Inventories

463.3

427.0

465.2

Trade and other receivables*

215.7

184.7

213.3

Derivative financial instruments

3.5

5.0

2.7

Cash and cash equivalents

433.5

404.7

550.8

1,116.0

1,021.4

1,232.0

Total assets

5,159.8

4,921.6

5,246.0

Current liabilities

Borrowings and overdrafts

(175.0)

(238.8)

(302.1)

Trade and other payables

(994.5)

(843.2)

(1,134.8)

Current tax payable

(38.0)

(12.6)

(9.3)

Finance lease liabilities

(1.8)

(0.9)

(0.6)

Provisions

(88.4)

(83.1)

(90.6)

Derivative financial instruments

(4.0)

(2.2)

(2.5)

(1,301.7)

(1,180.8)

(1,539.9)

Non-current liabilities

Borrowings

(814.3)

(900.9)

(799.2)

Trade and other payables

(96.2)

(74.3)

(85.8)

Finance lease liabilities

(31.5)

(27.6)

(26.4)

Provisions

(125.9)

(117.8)

(115.6)

Deferred tax liabilities

-

(68.9)

(32.1)

Retirement benefit obligations

(836.7)

(479.3)

(638.1)

(1,904.6)

(1,668.8)

(1,697.2)

Total liabilities

(3,206.3)

(2,849.6)

(3,237.1)

Net assets

1,953.5

2,072.0

2,008.9

Equity

Share capital

0.6

0.6

0.6

Other reserves

4.4

5.4

6.6

Retained earnings

1,948.5

2,065.6

2,001.7

Non-controlling interest

-

0.4

-

Total equity

1,953.5

2,072.0

2,008.9

*The comparatives have been re-presented in respect of current and non-current trade and other receivables as explained in note 1.

Consolidated statement of changes in equity

for the half year ended 28 July 2012

Capital

Non-

Share

redemption

Capital

Hedging

Retained

controlling

Total

4

capital

reserve

reserve

reserve

earnings

interest

equity

£m

£m

£m

£m

£m

£m

£m

Balance at 29 January 2011

0.6

5.0

1.4

-

2,065.4

0.4

2,072.8

Profit for the period

-

-

-

-

67.0

-

67.0

Actuarial loss on defined benefit pension schemes

-

-

-

-

(87.5)

-

(87.5)

Tax on above items recognised in equity

-

-

-

-

20.7

-

20.7

Fair value losses on cash flow hedges

-

-

-

(1.2)

-

-

(1.2)

- transfers to inventories

-

-

-

0.2

-

-

0.2

Balance at 30 July 2011

0.6

5.0

1.4

(1.0)

2,065.6

0.4

2,072.0

Balance at 29 January 2011

0.6

5.0

1.4

-

2,065.4

0.4

2,072.8

Profit for the period

-

-

-

-

136.2

-

136.2

Actuarial loss on defined benefit pension schemes

-

-

-

-

(254.8)

-

(254.8)

Tax on above items recognised in equity

-

-

-

-

54.9

-

54.9

Reclassification to borrowings

-

-

-

-

-

(0.4)

(0.4)

Fair value gains on cash flow hedges

-

-

-

0.4

-

-

0.4

- transfers to inventories

-

-

(0.2)

-

-

(0.2)

Balance at 28 January 2012

0.6

5.0

1.4

0.2

2,001.7

-

2,008.9

Profit for the period

-

-

-

-

109.9

-

109.9

Actuarial loss on defined benefit pension schemes

-

-

-

-

(207.1)

-

(207.1)

Tax on above items recognised in equity

-

-

-

-

44.0

-

44.0

Fair value losses on cash flow hedges

-

-

-

(1.0)

-

-

(1.0)

- transfers to inventories

-

-

-

(1.2)

-

-

(1.2)

Balance at 28 July 2012

0.6

5.0

1.4

(2.0)

1,948.5

-

1,953.5


Statement of consolidated cash flows

for the half year ended 28 July 2012

Half year to

Half year to

Year to

28 July 2012

30 July 2011

28 January 2012

£m

£m

£m

Cash generated from operations

357.3

238.2

759.1

Net taxation (paid)/received

(16.5)

1.1

(33.7)

Partnership bonus paid

(164.2)

(194.5)

(194.5)

Finance costs paid

(1.0)

(1.2)

(2.3)

Net cash generated from operating activities

175.6

43.6

528.6

Cash flows from investing activities

Purchase of property, plant and

equipment

(113.3)

(184.6)

(425.7)

Purchase of intangible assets

(39.5)

(44.9)

(88.4)

Proceeds from sale of property,

plant and equipment

1.4

0.3

11.8

Finance income received

0.9

1.4

2.4

Net cash used in investing activities

(150.5)

(227.8)

(499.9)

Cash flows from financing activities

Finance costs paid in respect of

bonds

(27.4)

(25.1)

(54.7)

Payment of capital element of

finance leases

(0.6)

(0.3)

(0.7)

Payments to preference

shareholders

(0.1)

(0.1)

(0.2)

Payments to SIP shareholders

(1.7)

(1.3)

(1.3)

Cash (outflow)/inflow from

borrowings

(127.5)

71.5

71.5

Net cash (used in)/ generated from financing activities

(157.3)

44.7

14.6

(Decrease)/increase in net cash and

cash equivalents

(132.2)

(139.5)

43.3

Net cash and cash equivalents at

beginning of period

490.7

447.4

447.4

Net cash and cash equivalents at

end of period

358.5

307.9

490.7

Net cash and cash equivalents comprise:

Cash

121.1

115.7

83.6

Short term investments

312.4

289.0

467.2

Bank overdraft

(75.0)

(96.8)

(60.1)

358.5

307.9

490.7


Notes to the financial statements

1 Basis of preparation

These interim financial statements were approved by the Board on 12 September 2012. 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 28 July 2012 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 comparatives have been re-presented in respect of the split of receivables on credit sale agreements for the Partnership’s car finance scheme for partners between current trade and other receivables and non-current trade and other receivables, to be on a consistent basis to the current half year. For the year ended 28 January 2012 and the half year ended 30 July 2011, £9.5m and £8.0m has been reported in non-current trade and other receivables respectively. These were previously reported in current trade and other receivables.

The group’s published financial statements for the year ended 28 January 2012 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 28 July 2012 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 28 January 2012, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The Directors, after reviewing the group’s operating budgets, investments plans and financing arrangements, consider that the company and group have, at the date of this report, sufficient financing available for the estimated requirements for the foreseeable future and, accordingly, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing the interim financial statements.

2 Accounting policies

The group’s results for the half year to 28 July 2012 have been prepared on a basis consistent with the group’s accounting policies published in the financial statements for the year ended 28 January 2012.

These accounting policies reflect IFRS and interpretations that are expected to be applicable to the group for its 2012/13 financial statements. It is possible that there will be changes to these standards and interpretations before the end of the group’s 2012/13 financial year, which might require adjustments to this information before it is included in the financial statements for the year ended 26 January 2013.

3 Risks and uncertainties

The principal and other significant risks and uncertainties affecting the group were identified as part of the Business Review, set out on pages 23 to 25 of the John Lewis Partnership Annual Report and Accounts 2012, 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 the most significant risks for the period are the impact of continuing difficult economic conditions on customer spending and competitive pressures.


4 Segmental reporting

The group’s operating segments have been identified as Waitrose, John Lewis and Corporate and other. Corporate and other principally includes corporate and shared services overheads, transformation costs and Partnership Services. The operating profit of each segment is reported 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.

Waitrose

John Lewis

Corporate and other

Group

£m

£m

£m

£m

Half year to 28 July 2012

Gross sales

2,805.9

1,600.0

-

4,405.9

Adjustment for sale or return sales

-

(61.0)

-

(61.0)

Value added tax

(168.4)

(250.9)

-

(419.3)

Revenue

2,637.5

1,288.1

-

3,925.6

Operating profit excluding property profits

142.0

45.6

(24.1)

163.5

Property profits

-

-

-

-

Operating profit

142.0

45.6

(24.1)

163.5

Finance costs

-

-

(40.4)

(40.4)

Finance income

-

-

21.4

21.4

Profit before tax

142.0

45.6

(43.1)

144.5

Waitrose

John Lewis

Corporate and other

Group

£m

£m

£m

£m

Half year to 30 July 2011

Gross sales

2,633.1

1,419.0

-

4,052.1

Adjustment for sale or return sales

-

(56.5)

-

(56.5)

Value added tax

(158.2)

(221.5)

-

(379.7)

Revenue

2,474.9

1,141.0

-

3,615.9

Operating profit excluding property profits

110.2

15.8

(14.5)

111.5

Property profits

-

-

-

-

Operating profit

110.2

15.8

(14.5)

111.5

Finance costs

-

-

(37.7)

(37.7)

Finance income

-

-

16.6

16.6

Profit before tax

110.2

15.8

(35.6)

90.4


4 Segmental reporting (continued)

Waitrose

John Lewis

Corporate and other

Group

£m

£m

£m

£m

Year to 28 January 2012

Gross sales

5,400.4

3,329.1

-

8,729.5

Adjustment for sale or return sales

-

(120.7)

-

(120.7)

Value added tax

(328.1)

(522.1)

-

(850.2)

Revenue

5,072.3

2,686.3

-

7,758.6

Operating profit excluding property profits

260.6

156.4

(25.2)

391.8

Property profits

-

1.5

-

1.5

Operating profit

260.6

157.9

(25.2)

393.3

Finance costs

-

-

(72.3)

(72.3)

Finance income

-

-

32.8

32.8

Partnership bonus

-

-

(165.2)

(165.2)

Profit before tax

260.6

157.9

(229.9)

188.6

Waitrose

John Lewis

Corporate and other

Group

£m

£m

£m

£m

28 July 2012

Segment assets

2,722.3

1,677.5

760.0

5,159.8

Segment liabilities

(660.9)

(523.1)

(2,022.3)

(3,206.3)

Net assets

2,061.4

1,154.4

(1,262.3)

1,953.5

30 July 2011

Segment assets

2,619.3

1,643.6

658.7

4,921.6

Segment liabilities

(522.2)

(459.2)

(1,868.2)

(2,849.6)

Net assets

2,097.1

1,184.4

(1,209.5)

2,072.0

28 January 2012

Segment assets

2,713.9

1,648.5

883.6

5,246.0

Segment liabilities

(591.6)

(538.8)

(2,106.7)

(3,237.1)

Net assets

2,122.3

1,109.7

(1,223.1)

2,008.9


5 Net finance costs

Half year to

Half year to

Year to

28 July 2012

30 July 2011

28 January 2012

£m

£m

£m

Finance costs

Total finance costs in respect

of borrowings

31.0

31.0

62.7

Fair value measurements and other

0.4

0.9

3.1

Net finance costs arising on other

employee benefit schemes

9.0

5.8

6.5

Total finance costs

40.4

37.7

72.3

Finance income

Total finance income in respect

of investments

(0.9)

(1.3)

(2.4)

Fair value measurements and other

(1.4)

(0.1)

(0.1)

Net finance income arising on defined benefit retirement schemes

(19.1)

(15.2)

(30.3)

Total finance income

(21.4)

(16.6)

(32.8)

Net finance costs

19.0

21.1

39.5

Half year to

Half year to

Year to

28 July 2012

30 July 2011

28 January 2012

£m

£m

£m

Total finance costs in respect

of borrowings

31.0

31.0

62.7

Total finance income in respect

of investments

(0.9)

(1.3)

(2.4)

Net finance costs in respect of

borrowings and investments

30.1

29.7

60.3

Fair value measurements and other

(0.1)

0.8

3.0

Net finance income arising on

defined benefit retirement

schemes

(19.1)

(15.2)

(30.3)

Net finance costs arising on other

employee benefit schemes

9.0

5.8

6.5

Net finance costs

19.0

21.1

39.5

6 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. The estimated full year effective tax rate for the year to 26 January 2013 is 28.4% (the estimated tax rate for the period to 30 July 2011 was 30.4%). The decrease on last year is mainly because of the reduction in the main rate of corporation tax for the year to 26 January 2013 and the impact of substantially enacted changes to the main rate of corporation tax on deferred tax balances.


7 Capital expenditure

Property, plant and equipment

Intangible assets

Total capital expenditure

£m

£m

£m

Net book values at 28 January 2012

3,798.4

164.3

3,962.7

Additions

122.9

39.5

162.4

Disposals

(2.1)

(4.1)

(6.2)

Depreciation and amortisation

(125.0)

(21.1)

(146.1)

Net book values at 28 July 2012

3,794.2

178.6

3,972.8

Property, plant and equipment additions include £55.8m in respect of store acquisitions and development in Waitrose and £42.5m in respect of store development in John Lewis.

Intangible assets additions primarily relate to internally developed IT systems.

8 Retirement benefit obligations

The principal pension scheme operated by the Partnership is a defined benefit scheme, providing benefits based on the final pensionable pay.

Pension commitments have been calculated based on the most recent actuarial valuations, as at 31 March 2010, which have been updated by the actuaries to assess the assets and liabilities of the scheme as at 28 July 2012.

Scheme assets are stated at market value at 28 July 2012. The following financial assumptions have been used:

Half year to

Half year to

Year to

28 July 2012

30 July 2011

28 January 2012

£m

£m

£m

Discount rate

4.35%

5.40%

4.95%

Future retail price inflation (RPI)

2.50%

3.30%

2.80%

Future consumer price inflation (CPI)

1.80%

2.30%

2.00%

Increase in earnings

3.00%

3.80%

3.30%

Increase in pensions - in payment

2.30%

3.10%

2.60%

Increase in pensions - deferred

1.80%

2.30%

2.00%

The movement in the defined benefit liability in the period is as follows:

Half year to

Half year to

Year to

28 July 2012

30 July 2011

28 January 2012

£m

£m

£m

Net defined benefit liability at beginning of period

(638.1)

(414.0)

(414.0)

Operating cost

(64.5)

(58.7)

(117.4)

Interest cost on liabilities

(77.4)

(80.1)

(160.2)

Expected return on assets

96.5

95.3

190.5

Contributions

53.9

65.7

117.8

Total losses recognised in equity

(207.1)

(87.5)

(254.8)

Net defined benefit liability at end

of period

(836.7)

(479.3)

(638.1)


9 Reconciliation of profit before tax to cash generated from operations

Half year to

Half year to

Year to

28 July 2012

30 July 2011

28 January 2012

£m

£m

£m

Profit before tax

144.5

90.4

188.6

Amortisation of intangible assets

21.1

14.9

32.3

Depreciation

125.0

121.2

241.0

Net finance costs

19.0

21.1

39.5

Partnership bonus

-

-

165.2

Loss/(profit) on disposal of tangible

and intangible assets

4.8

(0.3)

3.9

Decrease/(increase) in inventories

1.9

(5.0)

(43.2)

Decrease/(increase) in receivables

0.4

18.9

(12.6)

Increase/(decrease) in payables

30.7

(13.2)

143.1

Increase/(decrease) in retirement

benefit obligations

10.7

(6.9)

(0.4)

(Decrease)/increase in provisions

(0.8)

(2.9)

1.7

Cash generated from operations

357.3

238.2

759.1

10 Analysis of net debt

28 January 2012

Cash flow

Other

non-cash movements

28 July 2012

£m

£m

£m

£m

Current assets

Cash and cash equivalents

550.8

(117.3)

-

433.5

Derivative financial instruments

2.7

-

0.8

3.5

553.5

(117.3)

0.8

437.0

Current liabilities

Borrowings and overdrafts

(302.1)

127.1

-

(175.0)

Finance leases

(0.6)

0.6

(1.8)

(1.8)

Derivative financial instruments

(2.5)

-

(1.5)

(4.0)

(305.2)

127.7

(3.3)

(180.8)

Non-current liabilities

Borrowings

(805.4)

(14.5)

(0.4)

(820.3)

Unamortised bond transaction

costs

6.2

-

(0.2)

6.0

Fair value adjustment for hedged

risk on bonds

-

-

-

-

Finance leases

(26.4)

-

(5.1)

(31.5)

(825.6)

(14.5)

(5.7)

(845.8)

Total net debt

(577.3)

(4.1)

(8.2)

(589.6)


10 Analysis of net debt (continued)

Reconciliation of net cash flow to net debt

Half year to

Half year to

Year to

28 July 2012

30 July 2011

30 January 2012

£m

£m

£m

(Decrease)/increase in cash in

the period

(132.2)

(139.5)

43.3

Cash outflow/(inflow) from

movement in debt and lease

financing

128.1

(71.2)

(70.8)

Movement in debt for the period

(4.1)

(210.7)

(27.5)

Opening net debt

(577.3)

(548.4)

(548.4)

Non-cash movements

(8.2)

(1.7)

(1.4)

Closing net debt

(589.6)

(760.8)

(577.3)

11 Management of financial risks

The principal financial risks to which the Partnership is exposed are liquidity risk, interest rate risk, foreign currency risk, credit risk, capital risk, energy risk and insurable risk.

These interim financial statements do not include all risk management information and disclosures required in the annual financial statements and should be read in conjunction with the Annual Report and Accounts for the year ended 28 January 2012. During the half year to 28 July 2012, the Partnership has continued to apply the financial risk management process and policies as detailed in the Annual Report and Accounts for the year ended 28 January 2012.

Valuation techniques and assumptions applied in determining fair values of each class of asset or liability are consistent with those used as at 28 January 2012 and reflect the current economic environment.

During the half year to 28 July 2012 there have been no transfers between any levels of the IFRS 7 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.

12 Capital commitments

At 28 July 2012 contracts had been entered into for future capital expenditure of £35.8m (2011: £80.8m).

13 Related party transactions

There have been no material changes to the principal subsidiaries listed in the Annual Report and Accounts for the year ended 28 January 2012. All related party transactions arise during the ordinary course of business and are on an arm’s length basis. There were no material transactions or balances between the group and its key management personnel during the half year ended 28 July 2012.


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

Helen Weir, Finance Director

12 September 2012

For more information contact:

Christine Watts
Communications Director
t:01344 825985
e: christine.watts@waitrose.co.uk