Page 12


Business review

Review of performance (continued)


(...Continued from page 11)

The accounting liabilities of the Pension Funds were calculated to be £2,853m (2009: £2,352m). Together, this resulted in an IAS 19 pension fund deficit of £905m (2009: £730m).

We have taken a number of steps to address the pension deficit. In 2008/09 we transferred our stake in Ocado into the Pension Fund and introduced a life expectancy adjustment factor (LEAF) to reduce mortality risk. In 2009/10 we made a one-off £95m contribution to the Fund, which it invested in an arrangement with the Partnership that promises either payment of £100m to the Pension Fund in 21 years or an amount equal to the size of the deficit at that time, whichever is lower. In addition the Pension Fund will receive an annual return on its investment. On 25 March 2010 the company paid a one-off lump sum cash contribution to the Pension Fund of £150m. In total these actions have provided an additional £400m of security for the pension fund members.

Tax

The tax charge increased compared with last year reflecting improved performance and a higher effective tax rate of 31.5%, compared to last year’s rate of 17.1%, mainly because of the non-taxable gain on the sale of the investment in Ocado in 2008/09.

Capital expenditure

Capital spending in 2009/10 increased by £41m to £445m, compared with £404m last year. Waitrose invested £303m, mainly on 25 new stores acquired or built during the year. John Lewis invested £112m, mostly on the new stores in Cardiff and Poole, and Magna Park, the division’s new distribution centre in Milton Keynes. In addition, £30m of expenditure was incurred centrally, mainly on efficiency projects, investment in maintaining and modernising our Information Technology platforms and refurbishment work at the residential clubs and central offices.

Cash flow and net debt

We generated £647.6m in operating cash flow (before Partnership bonus) up 10.5% on the prior year. Our gearing ratio reduced slightly to 23.6% with year-end net debt decreasing by £30.0m to £402.4m.

This enabled us to fund our bonus of £151.3m and our one-off cash contribution to the pension fund of £150.0m in March.

(Photo captioned: John Lewis Cardiff, the largest department store in Wales, was a major investment for the business)


(Graph of Capital expenditure (£m))

(Graph of Operating cash flow and net debt (£m))

(Graph of Gearing ratio %)