Our year 2017/2018

We make Profit through our trading operations, through building great relationships with our Customers, and through unlocking the potential of our Partners.

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It's safe to say 2017/18 was a year that reflected both a challenging retail landscape and our determination that the Partnership should take bold steps to prepare for the future.

As part of a routine trading update in January 2017 we said that whilst we expected to post an increase in profits for 2016/17, the following year was likely to be more challenging, and as a result, the Partnership Bonus announced in March 2017 would be significantly lower than in previous years. We explained this was for three reasons. Firstly, we anticipated intensifying pressures on margin as a result of weaker Sterling. Secondly, we knew 2017/18 would be a year of significant change with high exceptional costs; and thirdly the Board was likely to decide to retain more cash in order to ensure we continued to invest in the future and continued to strengthen our balance sheet. 

These predictions for 2017/18 turned out to be largely accurate. This year, profit before Partnership Bonus, tax and exceptional items was down 21.9 per cent to £289.2 million, largely due to lower gross margins in Waitrose, driven by the weaker exchange rate and our commitment to competitive pricing. An adverse movement in exceptional items of £282.5 million led to profit before Partnership Bonus and tax reducing by 67.2 per cent. This included an exceptional charge of £111.3 million, mainly for restructuring and redundancy costs, and Waitrose branch impairments.

During the year, we saw a greater level of internal change than at any time in over a decade. Many roles were directly affected by organisational changes of one kind or another and sadly Partners left the business when their roles were made redundant.

Alongside these changes we pressed on with our shop investment plans, where we completed 127 projects of varying scale in Waitrose shops, and completed 91 projects in John Lewis shops. We also enhanced our ability to engage with customers directly in shops by rolling out technology to improve processes and support Partners, including handheld devices in John Lewis shops. Some of these changes caused significant disruption during the year, especially in Waitrose shops, but I am pleased to say both Waitrose and John Lewis traded well, especially over the important Christmas peak. John Lewis in particular outperformed the market with share growth in Fashion, Home, and Electronics and Home Technology.

Looking forward, I expect market conditions to remain challenging and we will accelerate the delivery of our plans for the future. These plans centre on the same three goals from our It's Your Business 2028 strategy – further strengthening our brand appeal to customers, creating better jobs for better performing Partners on better pay, and strengthening our financial position. In support of our strategy, we embedded our Corporate Responsibility Framework which outlines our aims to source and sell with integrity, unlock Partner potential and deliver more with less.

Inspirational products will play a greater role across Waitrose and John Lewis. It supports our ambition for 50 per cent of our products to be own-brand or exclusive to John Lewis. We will be building quickly on the success in Fashion with sub-brands such as AND/OR and modern rarity, while continuing to develop our Home assortments. In Waitrose, Good Health will be a predominant driver of our range and product development, and we have announced that all own-label packaging will be recyclable, reusable or home compostable by 2025.

I would like to acknowledge the hard work of our Partners throughout the year. Their dedication and focus on delivering great service and unrivalled experiences for our customers has been hugely important. Looking ahead, Partners will play an even greater role in delivering a value added experience for customers. Examples of how we are bringing this to life include our Experience Desks in John Lewis, which have been successfully rolled out in five shops, and Waitrose Partners playing a greater role as advocates for great food. We are backing this activity with a continuing focus on training, skills and pay, with average hourly pay increasing to £9.16 for non-management Partners following the April 2018 pay review. We are also increasing our Partner training and development opportunities. As an example, we will increase the number of apprentices from more than 350 in 2017/18, adding a further 500 in 2018/19.

Financially, our Debt Ratio worsened in 2017/18 as a result of lower profits. Despite this, our strong cash flow enabled us to reduce our total net debt. Our progress has been championed and supported by the Board. On that note, I would like to personally thank Baroness Hogg for the valuable contribution she has made as Non-Executive Director and for chairing the Audit and Risk Committee, as her term of office concludes on 31 May 2018.

Our unique blend of product and service continues to lead the market. Building more quickly on our strategy for the future will be important in the year ahead, and I am confident we will make good progress. In times of change, Principle 1, the ultimate purpose described in our Constitution, remains unchanged and at the heart of all we do. It is our culture of democratic vitality created by all Partners, acting as passionate co-owners, which will continue to set us apart from other businesses both now and in the future. While the world of 2028 may be very different to today, one thing is certain – the Partnership of 2028 will still be owned by Partners and will remain a business of people. As ever, it remains our task as the current generation to ensure we hand over a successful business to Partners of the future.

Sir Charlie Mayfield
Chairman, John Lewis Partnership