John Lewis Partnership plc Annual Report and Accounts 2014


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Pensions The Partnership has adopted ‘IAS 19 revised’ in the year, which changes the way in which pension costs are recognised in the income statement. Consequently the comparative income statement for 2012/13 has been restated with an increase in operating profit of £1.0m and an increase in finance costs of £67.3m. Profit before tax therefore has decreased by £66.3m.


In 2013/14, the pension operating cost before exceptional item was £167.7m, an increase of £30.7m or 22.4% on the prior year, reflecting changes to financial assumptions and growth in scheme membership. Pension finance costs were £35.3m, an increase of £6.2m or 21.3% on the restated prior year pension finance costs, reflecting a higher accounting pension deficit at the beginning of the year than at the beginning of the previous year. As a result, total pension costs before exceptional item were £203.0m, an increase of £36.9m or 22.2%. The exceptional item includes £8.0m for an increase in future pension liabilities, resulting in total pension costs of £211.0m.


The total accounting pension deficit at 25 January 2014 was £1,003.4m, an increase of £181.3m (22.1%). Net of deferred tax, the deficit was £820.3m. The accounting valuation of pension fund liabilities increased by £422.2m (11.1%) to £4,218.2m, while pension fund assets increased by £240.9m (8.1%) to £3,214.8m, including an £85m one-off cash contribution made by the Partnership in January 2014.


The triennial actuarial valuation of our non-contributory defined benefit final salary scheme as at 31 March 2013 has concluded with a deficit of £840.0m. We have agreed to increase the ongoing contribution rate to 16.4% of members’ gross taxable pay, up from 12.2%, and put in place a plan to eliminate the deficit over a 10 year period through the one-off contribution made in January 2014 and annual deficit reduction contributions of £44.3m. The balance of the deficit is expected to be met by investment returns on the scheme’s assets.


The pension is one of the most important benefits offered to Partners, but also accounts for the greatest single investment


made each year by the Partnership. We are undertaking a review of the pension scheme to ensure that it can remain fair to Partners and sustainable from a business perspective. A draft proposal was published earlier this year to move to a defined benefit/defined contribution hybrid scheme, where future pension risk is shared between Partners and the Partnership. Partners remain at the centre of the review as co-owners of the business and have the opportunity to share their views. The proposal will be further developed over the course of 2014, with a decision expected to be agreed by Partnership Council and the Partnership Board towards the end of the year.


Financing Net finance costs on borrowings and investments decreased by £1.2m (2.0%) to £58.8m. After including the financing elements of pensions and long service leave and non-cash fair value adjustments, net finance costs decreased by £15.6m (14.2%) to £94.5m.


At 25 January 2014, net debt was £485.8m, an increase of £113.9m (30.6%). In January 2014 we repaid a £100m bond from available cash and agreed a new £150m short term bilateral borrowing facility, which was undrawn at year end.


Full information in relation to our liquidity and funding position is in note 20 to the consolidated financial statements.


Taxation The effective tax rate in the year was 19.8% which is lower than 23.8% recorded in the prior year. This principally reflects the impact on deferred tax of the change in future corporation tax rates, along with the decrease in the underlying statutory rate of corporation tax.


PRINCIPLE 3:


The Partnership aims to make sufficient profit from its trading operations to sustain its commercial vitality, to finance its continued development, to distribute a share of those profits each year to its members, and to enable it to undertake other activities consistent with its ultimate purpose.


PARTNERSHIP BONUS


Our Partners shared £202.5m, which represents 15% of pay


Helen Weir, Finance Director


THE JOHN LEWIS PARTNERSHIP


OUR PERFORMANCE


GOVERNANCE


FINANCIAL STATEMENTS


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