Sep 19 - The John Lewis Partnership has released the interim results: gross Partnership sales of £3.39bn, up 3.5%, or £114.0m; operating profit, excluding property profits, £126.2m, up 0.2%, or £0.3m; Operating profit £126.2m, down 3.1%, or £4.0m;Profit before tax £86.3m, down 19.6%, or £21.0m; operational cashflow was £285.2m, up 12.5%, or £31.6m.
Waitrose
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Gross sales £2.18bn, up 7.4% or £149.8m. Like-for-like sales up 1.8% (excluding petrol)
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Operating profit, excluding property profits, £121.1m, up 18.7%, or £19.1m
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Operating profit £121.1m, up 15.7%, or £16.4m
John Lewis
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Gross sales £1.21bn, down 2.9%, or £35.8m. Like-for-like sales down 4.7%
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Operating profit, excluding property profits, £20.9m, down 49.0%, or £20.1m
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Operating profit £20.9m, down 50.9%, or £21.7m
Charlie Mayfield, Chairman of the John Lewis Partnership, commented:
'We're pleased with our first half performance, the result of our early response to the downturn, the slight easing of trading conditions and, crucially, the action we've taken to build momentum in every part of the business. We moved from flat sales in the first quarter to a 7 per cent increase in the second, which gives us confidence in the power of the significant initiatives to drive the business forward.
In Waitrose, we opened 17 new shops, including the first two Waitrose stores in Welcome Break service stations, launched the extremely popular essential Waitrose range, invested significantly in our online grocery service WaitroseDeliver, trialled new formats and entered into a ground-breaking deal with Duchy Originals that will strengthen our premium offer.
John Lewis opened a new state of the art distribution centre in Milton Keynes, the second 'John Lewis Foodhall from Waitrose' at Bluewater, prepared the new stores in Cardiff and Poole for opening in the second half and invested in its value range and online fashion.
Our ability to carry through this significant investment programme, even in a sharp downturn, reflects the strength of our balance sheet and the long term approach of the Partnership to business success. The speed and precision with which these plans have been implemented are a defining feature of the enterprise of our Partners and their willingness to engage in change.
We believe that trading conditions this year will continue to be better than expected. However, 2010 may be difficult and we foresee a slow, drawn out economic recovery. Trading in the first six weeks has been encouraging and we are confident that the Partnership is well-placed to trade strongly and maintain momentum.'
Chairman's statement
By the beginning of this year we had adjusted to the severe recessionary conditions and anticipated that 2009 would be another very difficult trading year. The economic environment has turned out to be better than we originally expected and although conditions remain challenging, we have seen an encouraging response to the steps we have taken to reposition the Partnership to the new retail environment.
In the first half of the year we have speeded up the pursuit of profitable growth opportunities, accelerated our brand development and strengthened customer trust, while controlling costs tightly and managing our cash efficiently. These initiatives and confident trading by our 69,000 Partners are reflected in today's results.
In every area of our business we have generated considerable forward momentum, which will reap rewards for Partners in the future. This is evident in our ambitious investment in multi-channel, new online concepts, new shops and formats, new products and increased collaboration between John Lewis and Waitrose in every aspect of our business.
As the retail landscape undergoes rapid change and we see technology accelerating change in how people shop, the Partnership is well placed to meet customers' heightened expectations and to gain market share.
Financial results
The Partnership reported gross sales of £3.39bn for the first half of the year, an increase of £114.0m, or 3.5 per cent on last year.
Operating profit, before property profits, was £126.2m, an increase of £0.3m, or 0.2 per cent on last year, representing an operating profit margin of 3.73 per cent (2008/09 3.85 per cent).
Including property profits, operating profit decreased by £4.0m, or 3.1 per cent on last year, representing an operating profit margin of 3.73 per cent (2008/09 3.98 per cent).
Profit before Partnership Bonus and tax was £86.3m, a decrease of £21.0m, or 19.6 per cent, on last year, driven by net finance costs which were £39.9m, £17.0m, or 74.2 per cent higher than last year.
We have changed the presentation of pension and long leave costs, with comparative periods restated accordingly, to bring us into line with common practice. Operating profit continues to include the cost of providing pension and long leave benefits for existing Partners. The financing element, which depends on the external markets and can change materially from one year to the next, particularly in volatile markets, has increased by £15.6m to £20.4m and is now included within financing costs.
During the first half we invested about £100m in Partner benefits, such as pension, long leave, shopping discount, catering subsidy and leisure spending, including costs for our new holiday centre at Bala Lake in Wales and Partners in Sport.
Capital expenditure
Capital spending was £281.5m with Waitrose investing £198.2m, mainly on new stores, and John Lewis investing £68.5m, mostly on the new stores in Cardiff and Poole, the new Distribution Centre at Magna Park, Milton Keynes, and improvements to our multi-channel offering. £14.8m of expenditure was incurred centrally in efficiency projects including the new Oracle finance systems, investment in the clubs, and renewing and maintaining our IT infrastructure.
Financing
Cash generated from operations was £285.2m, 12.5 per cent better than last year's £253.6m. Our focus has been on tight cost control and effective cash and working capital management.
At the end of the first half, net debt rose £148.3m to £580.7m, reflecting the increased capital investment during the year, including the purchase of 13 ex Somerfield stores, which leaves the Partnership with substantial headroom on our facilities which total £1.275bn. We remain well within the limits allowed by our bank and bond covenants.
We saw an increase in underlying finance costs on net borrowings, which were £21.0m, £4.1m, or 24.3 per cent higher than last year. The increase mainly reflects the interest payable on the £275m Bond that was issued in April 2009.
Trading performance
Waitrose
Waitrose delivered a very strong performance, mainly as a result of the introduction of the new essential Waitrose range, the successful conversion of the Somerfield-acquired stores and free delivery driving rapid online growth. Gross sales were up by £149.8m, 7.4 per cent to £2.18bn. Like-for-like sales grew 1.8 per cent, excluding petrol. We have built momentum in the growth in like-for-like food sales, up 0.6 per cent in Q1 and 3.4 per cent in Q2 - up 2.0 per cent for the half.
Operating profit, before exceptional items, property profits, launch and other one-off costs, grew by £21.4m, or 20.1 per cent, to £127.8m. Store opening costs of £8.0m were incurred in the first half and £12.0m was invested in the launch of the essential Waitrose range.
Complementing the launch of essential Waitrose for everyday staples, which broadened the appeal of Waitrose, was the successful launch of the new 'Seriously' brand of indulgent food products. This got off to a positive start and reinforced the Waitrose position as the top premium food retailer, which will now be further strengthened by 'Duchy Originals from Waitrose'. These two new initiatives form the bedrock of Waitrose top tier strategy.
In April, Waitrose became the first UK supermarket to abolish delivery charges for online shopping with WaitroseDeliver, currently available in 113 Waitrose branches. This move has contributed to a 84 per cent increase in orders, with sales up 77 per cent.
We increased our space by 4 per cent with the opening of 15 new and acquired shops and the opening of the first two Waitrose shops in Welcome Break service stations, creating 1,500 new jobs. The trial of our new convenience and market town formats have been encouraging, as has our second shop in Dubai.
Customers responded well to Waitrose's support for the 'End of the Line' campaign which underlined our commitment to selling only sustainable species of fish. We also launched a new range of homeware products on Waitrose.com in collaboration with John Lewis and this development has made a promising start.
We invested £14.0m in price and promotions including the essential Waitrose range and customers responded positively with promotional participation up from 18 per cent to 22 per cent, an increase of 4 per cent on the prior half year. Efficiency and productivity improved, as all costs including wastage were well controlled.
Taken together, these developments ensure Waitrose is relevant and increasingly accessible to more and more customers, giving them the confidence that they can come to Waitrose for the most comprehensive everyday to gourmet food range in the UK.
Thanks to the efforts and support of our Partners we are making good progress with significant structural initiatives including our End to End Supply Chain and Head Office reviews. These actions will help Waitrose to continue to deliver growth.
John Lewis
Trade held up well considering the challenging economic environment and improved as the half progressed. Gross sales were down £35.8m, 2.9 per cent, to £1.21bn. Like-for-like sales were down 4.7 per cent. Operating profit, excluding property profit, was down £20.1m, or 49.0 per cent to £20.9m, still significantly better than expected. The first half of the year represents a small part of our annual profit and was impacted by lower sales of 6.7 per cent in established shops, resulting in lower gross profit despite good cost control. This, together with higher costs for the new Liverpool and Leicester department stores, Magna Park pre-opening expenses, higher energy costs, and £3.4m of investment in change and growth initiatives contributed to a lower operating profit.
Operating profit, before exceptional items, property profits, opening and other one-off costs, was £33.9m, down £14.0m or 29.3 per cent.
Our online offer is prospering with strong sales in John Lewis Direct, up 11.6 per cent to £151.5m, helped by an increase in the number of lines available and the positive performance of our new services including 'Click and Collect' and Express delivery. We have ambitious plans for its accelerated development. We launched our new online fashion website at the beginning of September which will build to 100,000 lines in the second half, and we are trialling 'Click and Collect' with Waitrose.
We saw total sales growth of 2.2 per cent in Fashion, offset by a decline of 2.5 per cent in Electrical and Home Technology and 8.1 per cent in Home, the area of our trade most directly affected by the housing market. In Fashion and Electricals we continued to win market share. All areas were underpinned by an excellent operational performance with record availability and further public acclaim for our service standards in winning the Which? and Institute of Customer Service awards.
Gross margin held up well despite continued price competition. Our commitment to 'Never Knowingly Undersold' is absolute. Indeed we are strengthening our price position by launching a new value range of products, improving our price matching process and extending the offer to include an emphasis on quality and service as key differentiators.
Our plans for the long term strengthening of the division are on course. As part of our £22.0m refurbishment programme in Bluewater we opened our second 'John Lewis Foodhall from Waitrose' in August which has been very well received by customers. We will open our new store in Cardiff in September and our new 'at home' format in Poole in October. Construction is also well under way on our new branch at the Olympic site in Stratford, which is scheduled to open in 2011. In June we opened our new distribution centre at Magna Park, Milton Keynes, which is already operating well. We have also launched our new magazine Edition .
Most importantly for Partners we continue to navigate the difficult decisions around 'Branch of the Future' and the Stevenage closure with great care. Taken together, these and the growth programmes position us well to serve our customers in the multi-channel future.
Greenbee
Greenbee continues to build scale with sales in the first half up 47.0 per cent on last year, driven largely by growth in our Home, Car and Pet Insurance products and supported by broader marketing activity. We continue to look for ways to improve the online experience for customers and deliver improved conversion rates. Our Travel offer continues to be strengthened with Wine Tours and Gourmet Breaks, in collaboration with the Waitrose buying team, launched this month.
Corporate Social Responsibility
Being a responsible business is core to our DNA and sustainability is at the heart of our business agenda.
Our Corporate Social Responsibility framework is built around reducing our environmental impact and promoting good environmental practice; dealing fairly with our suppliers and selling responsibly sourced, quality products; making a positive contribution to the communities where we do business; and providing worthwhile and satisfying employment in a successful business.
2009/10 outlook
The second half has started well for the Partnership. After six weeks, Partnership sales are up 6.2 per cent on last year. Waitrose sales increased by 11.3 per cent and John Lewis sales are 1.3 per cent lower.
However, we expect trading conditions for the remainder of 2009, and into 2010, to continue to be difficult.
We will maintain the momentum in our plans and the ambitious pace of change. In the second half of the year we expect to invest a further £189.0m (first half £278.2m) in strengthening the business and creating a platform for growth. We remain committed to offering outstanding service and competitive pricing, and will continue to invest in existing and new shops and formats, develop our multi-channel offer and improve the efficiency of our business.