Press releases
John Lewis Partnership plc Results for the year ended 31 January 2009
Unaudited results for year to 31 January 2009
This does not constitute a preliminary announcement
Strict Stock Exchange Embargo, 9.30am
Wednesday 11 March 2009
'A sound performance in difficult conditions'
John Lewis Partnership*
- Sales up £204.7m, 3%, to £6.97bn
- Operating profit down £71.4m, 18%, to £323.5m
- Profit before exceptional items down £100.2m, 26%, to £279.6m
- Profit before Partnership bonus and tax was £407m, an increase of £27.2m, or 7.2%. This includes the £127.4m gain on the disposal of Ocado
- Partnership Bonus payment of £125.5m; 13% of salary (equal to just under 7 weeks' pay)
* Notes:
1. Trading year 2008/09 was a 53-week year; trading year 2007/08 was a 52-week year.
2. Operating profit and net finance costs for the trading year 2007/08 have been restated in respect of the presentation of pension financing costs and divisional profits have been restated to reflect a revised basis of allocation of group costs.
John Lewis
- Sales marginally down by 0.1% £2.81bn
- Operating profit excluding property gains, fell by £54.6m, 27.4%, to £144.4m. Including property gains, operating profit fell by £53.5m, 26.8%, to £146m
- Like-for-like sales down 3.4%
- John Lewis Direct sales up £64.8m, 24.2% to £332.9m
- Successful opening in Leicester and new relocated shop in Liverpool
- Sustained investment in 'Never Knowingly Undersold'
- Remain committed to growth and plans for Cardiff, Stratford and Bluewater on track
Waitrose
- Sales up £206.3m, 5.2%, to just over £4bn
- Operating profit excluding property gains, fell by £7.4m, 3.4%, to £211.6m. Including property gains, operating profit fell by £13m, 5.7%, to £214.6m
- Like-for-like growth of 0.4% (excluding petrol)
- Retained customers and invested £30m in price competitiveness
- Strong cost control – variable costs fell by 10 basis points as percentage of sales
- Continued expansion - 11 new shops in 2008 and further 22 in 2009
- Essential Waitrose launched - over 1,400 everyday products
Charlie Mayfield, Chairman of John Lewis Partnership, commented:
'It was a very tough year and we met the challenges of the deteriorating conditions. We controlled costs tightly, traded confidently and stayed true to our customer promise of quality and price competitiveness.
'Our customers stayed loyal to John Lewis and Waitrose and our Partners worked harder than ever to provide the highest possible standards of customer service. The bonus announced today is well deserved and has been hard earned by all our Partners.
'We think 2009 will be another very difficult trading year. We've set an ambitious pace for change and continue to have the appetite and funds to expand and enhance our offer.
'Above all we have the unique asset of our 69,000 motivated and experienced Partners to drive sales and profitability for the long term.'
A sound and confident performance
As the economic downturn gained momentum, the focus of the Partnership has been to achieve the right balance between continuing to meet the needs and expectations of our customers and Partners while making sufficient profit to support our growth plans, by controlling our costs tightly and managing our cash efficiently. The Partnership's full-year results reflect a sound performance, given the continuing and unexpected deterioration in the economic and trading environment over the year, which impacted both sales and profit.
Financial Results
The Partnership's sales were £6.97bn for the 53-week year, an increase of £204.7m, or 3.0% on last year (52 weeks' trading).
Operating profit was £323.5m (2007–08 £394.9m), a decrease of £71.4m, or 18.1% on last year, representing an operating profit margin of 4.6% (2007–08 5.8%).
Before the exceptional gain on the transfer of the Partnership's interest in Ocado to our pension scheme, profit before Partnership Bonus and tax was £279.6m, a decrease of £100.2m, or 26.4%, on last year.
Including the £127.4m gain on the disposal of our shareholding in Ocado, which is one-off and exceptional in nature, and was therefore excluded from determining Bonus, Profit before Partnership Bonus and tax was £407m, an increase of £27.2m, or 7.2%, on last year.
Our Partners have worked very hard to produce today's results and, as co-owners of the Partnership, every Partner, regardless of their role or seniority, will receive the same percentage of annual pay as a cash bonus. Partners will share £125.5m in cash, which is 13% of pay or the equivalent of just under 7 weeks' pay. Bonus flexes from year to year, reflecting the actual annual performance of our business.
During the year, 11,000 Partners joined our defined benefit pension scheme as a result of our decision to reduce the waiting period to three years (from five); a defined contribution scheme was introduced to provide benefits during the waiting period. In addition, £66m was invested in Partner benefits, such as discount, catering subsidy and leisure spending, including set up costs for our new holiday centre at Bala Lake in Wales, taking the number of holiday centres to five.
Trading Performance
Trading conditions worsened markedly during the year as the problems in the financial sector reduced consumer confidence to a low level. Our response was to play to our strengths and to improve our price competitiveness appropriately, which allowed us to continue to trade with confidence. We have maintained our commitment to quality and the distinctiveness of our customer offer both in Waitrose and John Lewis, while simultaneously responding to greater price competition. We managed costs tightly, and we saw our customers' reacting more and more positively to our initiatives through the year. Customers rated Waitrose and John Lewis as their most preferred retailers in independent surveys by Which?, Verdict and BBC Watchdog.
We saw the benefit in our profits from the improved trading performance as the year drew to a close. This, together with maintaining our strong balance sheet, has allowed us to continue to invest in areas we see as important for the future. In particular, we have developed and trialled new shop formats to reach more customers, strengthened our multi-channel offer and modernised our distribution operations.
Waitrose
In a challenging market Waitrose grew sales by 5.2% to just over £4bn for the first time. Like-for-like sales grew 0.4%, excluding petrol. Operating profit, before property gains, fell by £7.4m, or 3.4%, to £211.6m, reflecting our determination to invest in retaining our customers and growing our presence. After property gains, operating profit fell £13m, or 5.7%, to £214.6m.
We invested heavily in price, with over £30m in price reductions and 8,400 promotions, an increase of 25% on the prior year. Our investment in price was greater, in proportion to our size, than our competitors. We also communicated these changes more clearly and directly, showing competitors' prices in store for the first time. We invested in product quality and innovation with £9m spent on product development, and we re-introduced 'Forgotten Cuts' – a range of lesser known, economical cuts of meat such as ox cheeks, beef skirt and lamb shoulder shanks. Waitrose only stocks 100% British fresh pork and last year we maintained our long-term support for UK agriculture by becoming the first major retailer to source 100% of our bacon from Britain. The customer response was encouraging with an increase in our primary shoppers.
Strong control over our variable costs, which fell by 10 basis points as a percentage of sales, was achieved by focusing on efficiency but at the same time we continued to invest in service, stretching our lead over our competitors. These savings were offset by an increase in overheads, primarily £6m of higher utility costs, driven by external market forces.
We continued to grow strongly with 11 new stores in the UK in 2008, including two new market town shops and our first new convenience shop format. We also converted an existing branch to become a third market town shop. We opened two Waitrose shops in Dubai under a licensing agreement with Finefare Food Market. Our online service Waitrose Deliver is now available in 94 branches, growing in parallel with Ocado, with whom Waitrose has a supply relationship. Our buying alliance with Booths, announced in September 2008, will allow us to build economies of scale and boost profitability in the long term. In 2009 we plan to open a further 22 shops (eight new and 14 acquired branches), employ 4,000 new Partners and extend three existing stores. This will take our estate to 220 stores in the UK and, with further investment in our price commitment and the launch of 'Essential Waitrose', we will continue to improve value for customers through 2009.
John Lewis
Sales have held up well against an uncertain and turbulent market, especially in fashion and electrical and home technology (EHT). However, sales in home-related categories were down significantly as a result of the collapse in the housing market. Total sales were slightly down by 0.1% at £2.81bn. Like-for-like sales were down 3.4%. Operating profit was down £53.5m, or 26.8% to £146.0m.
We saw total sales growth of 4.7% in Fashion and 2.9% in EHT, offset by a decline of 6.7% in Home, the area of our trade most directly affected by the housing market. In Fashion and EHT we increased market share. Fashion sales were boosted by a combination of continued success in attracting new brands, and much improved design and value in JL branded clothing and accessories. Success in EHT reflected great availability and an unstinting commitment to Never Knowingly Undersold. Our multi-channel strategy continued to be a major advantage with sales up 24.2% in John Lewis Direct, helped by an increase in the number of lines available and a range of new services including 'Click and Collect' and Express delivery.
Our new shop in Leicester is building a firm foundation in this new location, and sales of our shop in Liverpool, following its relocation, exceeded expectations. John Lewis Cambridge celebrated a successful first year in its new location. Our shop in Oxford Street traded well in the face of increasing competition from the new Westfield shopping centre.
Our profits fell as a direct consequence of the decline in sales in established shops and the cost of new openings. Our margin held up well, despite greater price competition. Our commitment to value and price through Never Knowingly Undersold proved particularly successful and the reductions in price were rewarded with higher volumes and increased market share, especially in TVs.
We remain committed to opening new shops. We will open our new store in Cardiff in September – the first John Lewis in Wales. Construction is also well under way on our new shop at the Olympic site in Stratford, which is scheduled to open in 2011. Beyond that our plans have been delayed but we are working actively with developers to maintain our rate of growth. Within our existing estate, a full refurbishment is under way at Bluewater, where we will open our second 'John Lewis Foodhall from Waitrose' during the autumn. This year we will also open our new distribution centre at Magna Park, Milton Keynes, helping to streamline our branches while improving service to our customers. We enter the trading year with a trusted brand, and confident that the decisions we have taken leave us well placed going forward.
Greenbee
We have continued to develop the range of financial services, travel products and event tickets we offer through Greenbee and we launched Greenbee Car Insurance in July. Our customers have responded enthusiastically to Greenbee: 81% of customers rate our services as 'Very good' or 'Excellent'. Our renewal rate of 86% in Home Insurance indicates the strength of its appeal. The partnership card™ won the Which? Award for Best Credit Card Provider and has since won the Card Industry Award for Best Achievement in Customer Service. Customer spending on the partnership card remains strong.
Capital Expenditure
Capital spending in 2008–09 increased by £41m to £404m, compared with £363m last year. Waitrose invested £234m, mainly on 11 new stores acquired or built during the year. John Lewis invested £140m, mostly on the new stores in Liverpool and Leicester, Magna Park, the division's new distribution centre and the West London service building. In addition, £30m of expenditure was incurred centrally, mainly in driving efficiency projects including the new Oracle finance systems which have recently been successfully implemented in Waitrose and our head office, and investment in maintaining and modernising our Information Technology platforms.
Financing
Despite the shortfall in profits, cash generated was better than last year at £591.0m, which was a £44.7m, or 8.2% improvement. Our focus has been on tight cost control and effective cash management, including working capital and project management.
During 2008, the Partnership replaced £200m of maturing bank facilities with £295m of new facilities, most of which are for a five-year period, and took out a two-year 'bridging loan' facility of up to £250m to finance the cost of acquiring food supermarkets from Somerfield. At the year end, net borrowings were up £41m to £378m, reflecting the increased capital investment during the year, which leaves the Partnership with substantial headroom on our facilities of £1.25bn and we remain well within the limits allowed by our bank and bond covenants.
Net finance costs have increased by £28.8m, from £15.1m to £43.9m, mainly because we have changed the presentation of pension costs (with last year's results restated) to bring us into line with common practice. We continue to charge to operating profit the annual cost of providing pension benefits for Partners, £98.2m, which is broadly in line with last year. The financing element is the difference between the return on the scheme assets and the financing costs, which are market driven. Depending on the external markets, these can change materially from one year to the next. They have increased by £21.6m, from a credit of £16.2m last year to a charge of £5.4m this year. This explains most of the increase in net finance costs compared with last year. Excluding pensions, net finance costs have increased by £7.2m, 23%, from £31.3m to £38.5m, because of the increase in average borrowings which led to a higher interest charge (up £2.5m), and more significantly, due to a £4.7m year end valuation of foreign currency balances.
Corporate Social Responsibility
Sustainability will continue to be at the heart of our agenda even in these recessionary times. We maintain our objectives of 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 trade; and providing worthwhile and satisfying employment in a successful business.
We continue to source 100% of our electricity from sustainable sources. We build in an environmentally responsible way, ensuring that all new and refurbished Waitrose and John Lewis shops incorporate the principles of our Sustainable Construction Framework. Under its guidelines we have met a number of important targets, such as recycling over 90% of building waste produced during the construction of new department stores in Liverpool and Leicester. Waitrose reduced carrier bag usage by 80 million bags, a 37.5% reduction, and is on track to achieve a 50% reduction this spring. John Lewis has made progress, too, in reducing carrier bag usage by providing a variety of reusable bags and introducing a reusable Bag for Life in all shops in March 2008, as well as standard plastic bags made from 95% recycled material.
The Partnership invests annually the equivalent of around 1.5% of our pre-tax profits in our communities. The Golden Jubilee Trust, our employee volunteering scheme, has, since 2000, supported 382 Partners who have given over 160,000 hours to more than 379 UK charities. In 2008, Waitrose launched Community Matters, which invites customers in each of our 198 shops to vote for one of three local charities or community groups in their area. In every shop £1,000 per month is shared between the charities in proportion to the votes they receive. John Lewis Partners raised money for their 2008 Charity of the Year: the Wallace and Gromit Children's Foundation, which helps to improve the quality of life for children in hospitals and hospices across the UK.
2009/10 outlook
After five weeks, Partnership sales are 1.6% lower than last year. Waitrose sales increased by 1.6% (-0.6% like-for-like) and John Lewis sales are 6.8% lower than last year (-8.8% like-for-like).
We expect trading conditions for 2009 to continue to be very tough, with ongoing pressures on consumer spend and low consumer confidence. As a result, we anticipate that price competition will be as intense as last year and we are well prepared to meet these challenges.
We will maintain the momentum in our plans and the Partnership has started the year by setting an ambitious pace of change. We have recently announced a three-year programme in John Lewis to reorganise our branch structures and the launch of a new Essential Waitrose range, which will offer over 1,400 everyday quality products at very competitive prices.
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.
Our unique ownership structure means that we have highly motivated and experienced Partners who are determined to serve our customers well, drive sales growth and rebuild our profitability for the long term providing the confidence we have that the Partnership will remain resilient through the recession and emerge even stronger as markets improve.
Notes to editors
The John Lewis Partnership - The John Lewis Partnership operates 27 department stores across the UK, johnlewis.com, 198 Waitrose supermarkets and Greenbee.com, a direct services company. The business has an annual turnover of over £6.9bn. It is the UK's largest example of worker co-ownership where all 69,000 staff are Partners in the business.
John Lewis - John Lewis, 'Britain's favourite retailer 2008'* typically stocks more than 350,000 separate lines. The website stocks more than 37,000 lines focused on the best of home and giftware, electrical items including online exclusives and fashion brands. johnlewis.com is consistently ranked one of the top online shopping destinations in the UK. We currently offer free delivery on all items purchased through our website. (www.johnlewis.com )
* Verdict consumer satisfaction index, January 2009
Waitrose - Waitrose, voted 'Britain's favourite supermarket' in three independent surveys so far this year† combines the convenience of a supermarket with the expertise and service of a specialist shop. It offers fresh and frozen foods, wines and groceries as well as delicatessen, cheese, fresh fish, meat, patisserie and hot-food counters. Waitrose is dedicated to offering quality food that has been responsibly sourced combined with high standards of customer service. (www.waitrose.com)
† Which? Survey, January 2009; BBC Watchdog viewer survey, February 2009; Good Housekeeping Awards, February 2009
Greenbee.com - Greenbee.com offers a range of financial, travel and leisure services selected by the John Lewis Partnership. These include home, travel, pet, wedding and event and car insurance products, life cover and a phone and broadband package, along with travel offers and the latest theatre, event, music and sport tickets. (www.greenbee.com)
Further information
Download the unaudited results for the year to 31 January 2009 (PDF size: 46KB).
John Lewis Partnership
Susan Donovan
Director of Communications
Telephone: 020 7592 6292
Citigate Dewe Rogerson
Simon Rigby / Deborah Saw / George Cazenove
Telephone: 020 7638 9571
John Lewis
Helen Dickinson
Head of Press and PR
Telephone: 020 7592 6274
Louise Cooper
Press and PR Manager, Corporate
Telephone: 020 7592 6223
Waitrose
Dara Grogan, Head of Communications
Telephone: 07764 676 351
Nina Arnott, Senior PR Manager, Corporate
Telephone: 07764 693 567
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