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15 Sep 2016

John Lewis Partnership plc interim results for the half year ended 30 July 2016

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Unaudited condensed Interim Financial Statements for the half year ended 30 July 2016

For press release with full financial summary please click here 

 

Sir Charlie Mayfield, Chairman of John Lewis Partnership, commented:

'We have grown gross sales and market share across both Waitrose and John Lewis, but our profits are down. This reflects market conditions and, in particular, steps we are taking to adapt the Partnership for the future. These are not as a consequence of the EU referendum result, which has had little quantifiable impact on sales so far. Instead there are far reaching changes taking place in society, in retail and in the workplace that have much greater implications.

Our ownership structure makes it especially important that we manage the Partnership carefully and thoughtfully for the long term and our plans anticipate the impact of these bigger changes. Evidence of that is already showing within these results and will become increasingly evident as we implement our long-term strategy.'

Key points

  • Solid gross sales growth of 3.1% with increased market shares (4) and rising customer numbers in challenging markets
  • PBT before exceptional items down 14.7% to £81.9m as we respond to the deep structural changes in the retail market. Our commitment to competitive pricing, excellent service, maintaining pay differentials and investing for the long term have held back profits. We expect these pressures to continue through this year and next
  • Exceptional charge of £25.0m for the write-down of property assets no longer intended to be developed and related costs, following a strategic review (2015/16: income of £128.0m following the sale of the Clearings building)
  • Net debt of £549.3m, £115.3m (17.3%) lower than 1 August 2015 and consistent with our strategy of strengthening our balance sheet. Increase in net debt since January 2016 of £176.8m (47.5%)
  • Accounting pension deficit of £1,453.7m, £512.1m (54.4%) higher than January 2016, reflecting a significant decrease in the real discount rate used to value the liabilities due to historically low bond yields. Net of deferred tax, the deficit was £1,209.1m

 

Chairman's overview

In the first half of the year, the Partnership's gross sales grew 3.1% to £5.27bn. Waitrose gross sales grew 2.2% and John Lewis gross sales by 4.5%, with both brands growing market share and customer numbers. PBT before exceptionals was down by 14.7% with lower operating profits in Waitrose and John Lewis and higher financing costs for our long leave scheme, partly offset by reduced pension operating costs.

Our first half profits are always lower and often more volatile than in the second half which typically accounts for at least two-thirds of our annual profits. We have also decided to prioritise a number of key areas of investment including in IT, our distribution network and in pay, as well as making a shift towards our existing stores in Waitrose which has resulted in exceptional property asset write-downs. These decisions form part of our strategy to get ahead of the significant changes that are affecting the wider retail market and we are confident they will position us well for the future.

Our focus further into the future is reflected in every aspect of the Partnership's strategy, which was launched internally last year and described in detail in our Annual Report. It has three main themes.

The first is to strengthen our financial position, both to increase the resilience of our balance sheet to market shocks and to build our financial firepower to invest in new growth in the future. In the last six months we have taken a number of steps in this direction. In April 2016 we implemented changes to our pension benefit, agreed in 2015, which will reduce the Partnership's future risk exposure. We will also reduce capital expenditure to approximately £460m this year, 7% lower than last year, as part of our planned reduction in net debt, which has improved by 17% since last year. We also continue to make progress with the priority we have placed on improving productivity.

Secondly, we have anticipated the significant changes in how customers are choosing to shop and we are renewing our focus on strengthening the appeal of our two well-loved brands. This includes continuing with a greater proportion of investment in IT and our supply chain – both are critical to improving service and convenience. We are also increasing our focus on innovation. Examples this half include the launch of the Waitrose 1 premium range and a new own-brand luxury womenswear label, Modern Rarity, in John Lewis. We are also developing a series of initiatives to explore new growth opportunities and will make further announcements on these in due course.

Thirdly, we are committed to creating better jobs, for better performing Partners, on better pay. We intend to ensure Partners' pay remains well above the National Living Wage on average, and in this year's pay review in March, rates increased by 5.1% on average for our lowest paid Partners. Additional annualised pay costs for our lowest paid Partners will be £33m greater as a result, whereas had we simply complied with the National Living Wage, costs would have been only £3m higher than last year. However, higher pay depends on better productivity and greater contribution and we anticipate that this will mean we will have fewer Partners over time as compared to today. We are developing comprehensive plans to enhance job design, progression pathways and development support.

Outlook 2016/17

For the first six weeks of the second half, Partnership gross sales are up 3.8%. Waitrose gross sales have increased by 5.0% (1.4% like-for-like, excluding petrol) and John Lewis gross sales are 2.0% higher than last year (0.7% like-for-like). While we expect to trade well compared to the market, the structural changes in retail will not ease.

Our PBT before exceptional items is down 14.7% in the first half as we respond to the changes in the retail market. Our commitment to competitive pricing, excellent service, increasing pay and investing for the long term have held back profits. We expect the trading pressures to continue through this year and next. The EU referendum result has had little quantifiable impact on sales in the first half, but the uncertainty of leaving the EU will remain and the full impact of this change is yet to become clear.

Financial Results

In the first six months of the year, the Partnership delivered solid gross sales growth with both Waitrose and John Lewis increasing their market shares and customer numbers. Partnership gross sales (inc VAT) were £5.27bn, an increase of £157.7m, or 3.1%, on last year. Revenue, which is adjusted for sale or return sales and excludes VAT, was £4.67bn, up by £124.2m or 2.7%.

Partnership operating profit was £113.7m, down £159.2m, or 58.3% on last year. This includes an exceptional charge of £25.0m in Waitrose for the write-down of property assets no longer intended to be developed and related costs, following a strategic review re-prioritising future investment spend towards existing stores (2015/16: income of £128.0m following the sale of the Clearings building). Excluding the exceptional items, operating profit was £138.7m, down £6.2m or 4.3% on last year.

Profit before tax was £56.9m, down by £167.1m, or 74.6% on last year. Excluding the exceptional items it was £81.9m, down by £14.1m or 14.7%.

Waitrose

In a market that remains challenging, we grew gross sales, market share and customer numbers. Gross sales increased by 2.2% to £3.25bn, while like-for-like sales decreased by 1.0%. Online grocery sales grew by 4.3%. Our share of the market(5)was up to 5.2% and we had, on average, 250,000 more customer transactions a week compared to last year.

Operating profit before exceptional items was down 10.5% to £121.3m, impacted not only by the market conditions but also increases in pay to maintain differentials, investment in IT and higher supply chain costs following the transition to our new National Distribution Centre operation.

Including the exceptional item of £25.0m for the write-down of property assets that we now no longer intend to develop and related costs, operating profit was down 28.9% to £96.3m.

We opened seven new branches in the first half of the year, five core supermarkets and two convenience branches, and we closed one convenience branch. In the second half and beyond our Modern Waitrose strategy continues as we plan to increase both the depth and pace of investment in our existing stores. This will enable us to get the best value from our estate and to put even greater focus on what sets Waitrose apart: high quality and high service. As we shift the focus of our investment towards our existing branches the rate of new space growth will slow.

Hospitality sales grew by 7.1% and we now have 121 cafes, 81 bakery grazing areas, seven wine bars and nine juice bars in our branches. As customers' shopping and eating patterns change hospitality will play a big part in our branch programme; our next step will be to trial new concepts in our shops at Barbican, Chandlers Ford and Twyford during the second half.

We will continue to innovate with high quality, high provenance products. A highlight of the first half of this year was the launch of the Waitrose 1 premium range which underlines our leadership in this area and brings together in one brand the very best of Waitrose. The sales uplift in products in this range has been encouraging, up 19.4% on last year.

We now have 6.4 million myWaitrose cardholders, an increase of 7.5% in the last six months, with customers continuing to respond positively to the range of offers and rewards.

Overseas, we already export Waitrose products to 58 countries. A new export deal with Alibaba Group has given us the opportunity to export to China for the first time; and a partnership with online retailer, British Corner Shop, means that people in more than 100 countries are now able to buy over 2,000 Waitrose product lines.

(5) Kantar 12 week Grocery data

For more information view the unaudited condensed interim financial statements for the Half-year ended 30 July 2016 (PDF 518KB).


Notes to editors

The John Lewis Partnership - operates 46 John Lewis shops across the UK, johnlewis.com, 350 Waitrose shops,waitrose.com and business to business contracts in the UK and abroad. The business has annual gross sales of over £11bn. It is the UK's largest example of an employee-owned business where all 88,900 staff are Partners in the business.

Waitrose - winner of the Best Supermarket1 and Best Food Retailer2 awards- currently has 349 shops in England, Scotland, Wales and the Channel Islands, including 60 convenience branches, and another 27 shops at Welcome Break locations. It 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.  Waitrose also exports its products to 58 countries worldwide and has eight shops which operate under licence in the Middle East. Waitrose's omnichannel business includes the online grocery service Waitrose.com, as well as specialist online shops includingwaitrosecellar.com for wine and waitrosekitchen.com for cookware, utensils and kithchen gadgets.

¹ Which? Customer Survey
² Verdict Customer Satisfaction Awards

John Lewis - John Lewis operates 46 John Lewis shops across the UK (32 department stores, 12 John Lewis at home and shops at St Pancras International and Heathrow Terminal 2) as well as johnlewis.com. John Lewis  'Best In-Store Experience 2016', 'Best Clothing Retailer 2016,' 'Best Electricals Retailer 2016,' 'Best Furniture Retailer 2016,' 'Best Homewares Retailer 2016' and 'Best Click & Collect Retailer 2016'1, typically stocks more than 350,000 separate lines in its department stores across fashion, home and technology. Johnlewis.com stocks over 280.000 products and is consistently ranked one of the top online shopping destinations in the UK. John Lewis Insurance offers a range of comprehensive insurance products - home, car, wedding and event, travel and pet insurance and life cover - delivering the values of expertise, trust and customer service expected from the John Lewis brand.

1Verdict Consumer Satisfaction Awards 2016

You can follow John Lewis on the following social media channels:
www.johnlewis.com/twitter 
www.johnlewis.com/facebook 
www.johnlewis.com/youtube.


General information

For further information please contact:

Citigate Dewe Rogerson
Simon Rigby / Jos Bieneman
Telephone: 020 7638 9571

John Lewis Partnership 
Simon Fowler
Director of Communications
Mobile: 07710 398460

Katie Robson
Group Senior External Communications Manager 
Mobile: 07764 675608

John Lewis
Peter Cross
Director, Communications
Mobile: 07764 697674

Gillian Taylor
Head of External Communications
Mobile: 07919 057931

Waitrose
Christine Watts
Communications Director
Mobile: 07764 676414

Graeme Buck
Head of Communications 
Mobile: 07703 379561

Debt investors 
Alan Drew 
Group Head of Treasury 
Mobile: 07525 582955

Lynn Lochhead
Assistant Group Treasurer
Mobile: 07834 770684

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