Interim Results
18 September 2003 - 11:34AM
UK Regulatory
RNS Number:8979P
Lewis(John) PLC
18 September 2003
John Lewis plc
Interim Results for the Half Year to 26 July 2003
Statement by the Chairman, Sir Stuart Hampson
PROFITS CONTINUE TO MOVE AHEAD
The benefits of having two businesses in different sectors showed through in our
first-half trading. Both divisions continued the improvement in operating
performance we saw last year, but, whereas for John Lewis this was achieved
against weather, war and general market weakness, particularly in London,
Waitrose basked in the sunshine and powered ahead, especially in fresh food.
Partnership sales increased by 7% to #2.3bn. Heavy one-off costs associated with
new shop development and reorganisation have been a feature of this half-year,
but we have nevertheless managed to move trading profit before pensions ahead by
3% and are well on track for further growth at the full year. With so much
riding on the second half, profit before tax at the half-way stage can give a
distorted view. This year's result received an eye-catching boost from a
reduction in the planned losses in our e-commerce ventures, interest due on a
taxation refund and a one-off gain from the transfer of our customer accounts
operation. This first half increase of 25% to #42m was a welcome recovery after
a similar decline last year.
John Lewis
For the half-year, total sales moved ahead to #1.03bn - more than 2% above last
year. This was achieved with no new branches to help us.
It was a roller-coaster ride for sales through our department stores, with
strong performance in April and June offset by slower progress in the other
months. In a year when record-breaking weather has hit the headlines, it's
impossible to ignore the impact on footfall of a succession of sunny week-ends,
but that was far from the whole story: the war in Iraq, a faltering housing
market and wider economic uncertainty have all dented customer confidence. The
division met these challenges well through tight control of costs, further
improvements in margin and better stock management.
The overall performance compares well with the sector, particularly taking into
account the challenges faced by our flagship shop in Central London, where sales
were minus 7.5% over the half-year. We have invested significantly there, but
our expectations of sales return have been frustrated by a combination of
nervousness about terrorist activity, the prolonged closure of the Central Line
and the deterrent effect of congestion charging.
By contrast, there were encouraging results from shops which had benefited from
major refurbishments - plus 13% at John Lewis Edinburgh, plus 19% at John Lewis
Nottingham and plus 11% at Peter Jones. John Lewis Direct, the e-commerce and
direct sales operation, continued to build strongly, with sales some 80% higher
than in 2002.
Important strides were taken in the continuing drive to improve efficiency and
reduce our cost base behind the scenes, but in the short term the changes in
maintenance and cash offices resulted in a charge of over #4m for anticipated
reorganisation costs.
Textile production continues to be a troubled sector, and the difficulties of
our commercial customers have set back our hopes of sales and profit recovery.
Waitrose
While department store Partners saw lost footfall on sunny week-ends, Waitrose
seized the opportunity with strong fresh food assortments and well-maintained
availability - even during peak demand.
The 11% increase in sales to #1.3bn benefited from new space in the four
branches opened in the second half of last year and three opened since January
(at Belgravia, Mill Hill and Portishead). Mill Hill's opening was particularly
timely, as it helped us cope following a major fire at Finchley which closed
that branch for eight weeks of the half-year. We have also continued to pursue
extensions to successful trading branches wherever possible, with completions in
this half at Whetstone and Weybridge. On a like-for-like measure our increase of
over 5% puts us at the top end of sector performance.
It was good to see our established branches using improved systems and reduced
stock-holding to achieve positive gearing. Their fine sales performance was
matched by excellent control of costs and gains in productivity and the lowest
level of wastage for five years - all improvements which we will be aiming to
sustain over the year as a whole. These gains in branch trading profit enabled
Waitrose to cover significant development activity as well as higher pre-opening
costs during the half-year.
Customer accounts
At the end of June we transferred our customer account operation to HFC Bank
plc, a member of the HSBC Group. We no longer have to finance over #200m of
customer account receivables on our own balance sheet, and we gained a premium
payment of #27m from HFC, half of which is being accounted for this year. These
two factors will more than compensate over the rest of the year for the loss of
interest income, mainly affecting the John Lewis operating profit figures. An
exceptional net credit of just over #4m shows in these half-year accounts, but
this will be offset by #1m of operating costs associated with the new venture
which will be recorded in the second half.
Costs
Lower interest charges stem partly from the transfer of our customer accounts
operation, just referred to, but more significantly from the ending of a
challenge which the Inland Revenue had mounted to our tax treatment of a
property transaction undertaken in 1996. Our tax charge is reduced by #10m as a
result of the refund we expect to receive shortly.
The bill for our non-contributory final salary pension scheme was #34m for the
half year (6% higher than in 2002); changes agreed last year to contain the cost
of the scheme, balanced by improvements for lower-paid members, will have a
neutral effect on pension costs this year.
The 1% hike in employers' National Insurance contributions in April cost us #2m.
The share of losses borne by our associate company Ocado reduced by nearly 18%
to under #8m. Ocado is making encouraging progress, improving its operational
efficiency, extending its reach and consistently receiving highly favourable
comment for the quality of the service it operates in partnership with Waitrose.
Looking ahead
Against the background described above, we should be encouraged that our
recovery of profits continues to be well on track, but, as ever, it's our
performance in the second half year which counts.
For John Lewis the exceptionally hot Summer weather has taken an inevitable toll
on August sales, but we have had better trade since then. After 7 weeks of the
second half, sales have recovered towards 2% up on last year, with Oxford Street
still below the average at minus 6%. Over the second half the division will
benefit from the recently opened second stage of Peter Jones and the
introduction of 7 day trading in another four shops. We are also increasing our
marketing activity following the completion of the rebranding of shops as John
Lewis and the associated progress on refurbishment. A major regional TV campaign
starts this week. All this means we are well placed to build on our first-half
performance, with the major cloud on the horizon remaining the uncertain outlook
for customer demand in London.
Waitrose could not have started the half-year better: at week 7 sales were 12%
ahead of last year. A deliberate focusing of new branch opening into the first
half leaves just one relocation in prospect - moving our already successful
supermarket in Romsey to much larger premises in the town. With the first Laser
2 refurbishments at Westbury Park, Brent Cross, Caterham and Brighton complete,
a further thirteen branches are due this 'face-lift' in the current half-year.
We expect to continue to perform well in a sector dominated by speculation about
consolidation.
Sir Stuart Hampson
Chairman
18 September 2003
Consolidated profit and loss account
for the half year to 26 July 2003
Before Exceptional Half year Half year Year to 25
Exceptional Items (Note 4) to 26 July to 27 July January
Items 2003 2002 2003
#m #m #m #m #m
Turnover 2,330.8 - 2,330.8 2,181.6 4,698.6
Value added tax (215.5) - (215.5) (204.2) (452.5)
2,115.3 - 2,115.3 1,977.4 4,246.1
Cost of sales (1,456.5) - (1,456.5) (1,351.2) (2,895.5)
Gross profit 658.8 - 658.8 626.2 1,350.6
Operating expenses (559.2) (4.3) (563.5) (534.0) (1,084.0)
Pension costs (34.4) - (34.4) (32.6) (67.5)
Trading profit 65.2 (4.3) 60.9 59.6 199.1
Share of operating loss of (7.5) - (7.5) (9.1) (19.5)
associate
Total operating profit 57.7 (4.3) 53.4 50.5 179.6
Exceptional gain on disposal - 4.3 4.3 - -
of account card operation
Net interest payable (18.0) 2.5 (15.5) (16.8) (34.1)
Profit before Partnership 39.7 2.5 42.2 33.7 145.5
bonus and taxation
Partnership bonus - - - - (67.6)
Profit on ordinary activities 39.7 2.5 42.2 33.7 77.9
before taxation
Tax on profit on ordinary (14.9) 10.3 (4.6) (14.0) (36.7)
activities
Profit for the period 24.8 12.8 37.6 19.7 41.2
Dividends - non equity - - - (0.1) (0.4)
interests
Profit retained 24.8 12.8 37.6 19.6 40.8
There were no recognised gains and losses other than the profits for the periods
shown above and, accordingly, a statement of total recognised gains and losses
is not presented.
There is no material difference between reported profits and profits on a
historical cost basis.
Consolidated balance sheet as at 26 July 2003
26 July 2003 27 July 2002 25 January 2003
#m #m #m
Fixed assets
Intangible assets - goodwill 1.4 3.8 2.6
Tangible assets 1,927.5 1,863.8 1,917.3
Investment in associate 26.8 33.0 34.6
1,955.7 1,900.6 1,954.5
Current assets
Stocks 313.8 310.9 315.3
Debtors 131.9 370.5 366.1
Cash at bank and in hand 277.5 45.8 70.5
723.2 727.2 751.9
Creditors
Amounts falling due within one (509.2) (686.3) (630.9)
year
Net current assets 214.0 40.9 121.0
Total assets less current 2,169.7 1,941.5 2,075.5
liabilities
Creditors
Amounts falling due after more (500.0) (350.0) (450.0)
than one year
Provisions for liabilities and (152.2) (132.8) (145.6)
charges
Net assets 1,517.5 1,458.7 1,479.9
Capital and reserves
Called up share capital - 6.8 6.8 6.8
equity
- non equity 2.2 2.2 2.2
Total share capital 9.0 9.0 9.0
Share premium account 1.8 1.8 1.8
Revaluation reserve 238.6 241.5 238.6
Other reserves 1.4 1.4 1.4
Profit and loss account 1,266.7 1,205.0 1,229.1
Total shareholders' funds 1,517.5 1,458.7 1,479.9
(including non equity
interests)
Consolidated cash flow statement for the half year to 26 July 2003
Half year to Half year to Year to
26 July 2003 27 July 2002 25January
2003
#m #m #m
Net cash inflow from operating 49.3 29.2 245.2
activities
Returns on investments and servicing
of finance
Interest received 13.3 4.6 1.0
Interest paid (28.7) (20.6) (32.3)
Preference dividends paid - (0.1) (0.4)
Net cash outflow from returns on (15.4) (16.1) (31.7)
investments and servicing of finance
Taxation (14.2) (14.1) (30.9)
Capital expenditure and financial
investment
Purchases of tangible fixed assets (83.7) (133.0) (232.8)
Proceeds of sales of tangible fixed 0.7 4.9 6.6
assets
Net cash outflow from capital (83.0) (128.1) (226.2)
expenditure and financial investment
Acquisitions and disposals
Net proceeds of disposal of account 258.3 - -
card operation
Investment in associate - (17.7) (30.0)
Net cash inflow/ (outflow) from 258.3 (17.7) (30.0)
acquisitions and disposals
Equity dividends paid (0.2) (0.2) (0.2)
Net cash inflow/(outflow) before 194.8 (147.0) (73.8)
liquid resources and financing
Management of liquid resources (short (201.5) 118.5 (37.5)
term loans/deposits)
Financing
Inception of loans - 15.0 115.0
Net cash inflow from financing - 15.0 115.0
Increase/(decrease) in cash in the (6.7) (13.5) 3.7
period
Notes to the financial statements
1 This interim statement in respect of the 26 weeks to 26 July 2003 has been
prepared on the basis of accounting policies consistent with those set out in
the Report & Accounts for the 52 weeks to 26 January 2003.
2 The interim results were approved by the Board on 18 September 2003 and are
unaudited.
3 The financial information included in this interim report does not comprise
statutory accounts within the meaning of section 240 of the Companies Act 1985.
4 The taxation charge for the half year is based on the estimated effective rate
of tax for the year to 31 January 2004.
5 Exceptional items
2003 2002
Exceptional items comprise the following #m #m
charges and credits
Operating expenses - reorganisation costs (4.3) -
within John Lewis division
Gain on disposal of account card 4.3 -
operation
Interest receivable on corporation tax 2.5 -
refund
Corporation tax refund due 10.3 -
12.8 -
6 Reconciliation of trading profit to net cash inflow from operating activities
Half year to Half year to Year to 25
26 July 2003 27 July 2002 January 2003
#m #m #m
Trading profit 60.9 59.6 199.1
Depreciation 60.2 54.0 111.9
Amortisation of goodwill 1.2 1.1 2.3
Increase in debtors (9.0) (22.1) (8.6)
Increase in creditors 0.9 2.5 6.5
Movement in provisions 1.1 0.3 4.6
(Increase)/decrease in stocks 1.5 (8.9) (13.3)
Partnership bonus paid for previous (67.6) (57.3) (57.3)
year
Cash flow from operations 49.3 29.2 245.2
7 Analysis of net debt
At 25January Cash flow Other At 26 July
2003 changes 2003
#m #m #m #m
Cash balances 61.0 5.5 - 66.5
Overdrafts (15.3) (12.2) - (27.5)
45.7 (6.7) - 39.0
Debt due within one year (50.0) - 50.0 -
Debt due after one year (450.0) - (50.0) (500.0)
Short term loans 9.5 201.5 - 211.0
Net debt (444.8) 194.8 - (250.0)
For further information contact:
Helen Dickinson, Head of Press and PR - Tel: 020 7592 6274
Helen Simmonds, Press and PR Officer - Tel: 020 7592 6223
This information is provided by RNS
The company news service from the London Stock Exchange
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