Unaudited condensed Interim Financial Statements for the half year ended 28 July 2012
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John Lewis Partnership plc Interim results for the half year ended 28 July 2012
'An encouraging trading performance with robust sales and profit recovery'
The John Lewis Partnership
- Gross sales of £4.4bn, up £353.8m, 8.7%
- Revenue of £3.9bn, up £309.7m, 8.6%
- Group operating profit of £163.5m up £52.0m, 46.6%
- Profit before tax of £144.5m, up £54.1m, 59.8%
- Gross sales of £2.8bn, up £172.8m, 6.6%
- Like-for-like sales (excluding petrol) up 2.2%
- Revenue of £2.6bn, up £162.6m, 6.6%
- Operating profit of £142.0m, up £31.8m, 28.9%
- Gross sales of £1.6bn, up £181.0m, 12.8%
- Like-for-like sales up 9.2%
- Revenue of £1.3bn, up £147.1m, 12.9%
- johnlewis.com gross sales of £375.8m, up £113.2m, 43.1%
- Operating profit of £45.6m, up £29.8m, 188.6%
- 10 new branches opened (four supermarkets and six convenience stores)
- Selling space increased by 2.0%
- 2,700 new and improved products launched
- Online sales growing by 50%
- Two new “John Lewis at home” shops opened in Newbury and Chichester
- Strong outperformance of johnlewis.com
- Click & collect now in all John Lewis shops and 194 Waitrose shops
- Significant market share gains in each of three main categories
Charlie Mayfield, Chairman of John Lewis Partnership, commented:
'The Partnership has delivered strong growth in the first half with gross sales up by 8.7% and profit before tax up by almost 60%. Waitrose increased gross sales by 6.6% and operating profit by almost 29%. John Lewis, where profits are often more volatile in the first half, grew gross sales by nearly 13% and operating profit more than doubled. Both Waitrose and John Lewis increased their market shares.
Three key factors lie behind these excellent results.
Firstly, we benefited from the more favourable conditions created by a number of one-off events, such as the Diamond Jubilee, the lead up to the London 2012 Olympic and Paralympic Games and the anniversary of the VAT increase which depressed sales last year.
Secondly, our trading teams performed particularly well, with clearly differentiated products backed by outstanding service. In Waitrose we launched more products than ever before and extended the Brand Price Match. In John Lewis we took market share in all categories and launched a series of innovative design collaborations.
And thirdly, we saw an acceleration in sales and profit from the longstanding focus we have had on developing our multi-channel operations and from improving the efficiency of our business. Multi-channel sales made a vital contribution across both John Lewis and Waitrose and we extended the reach and appeal of our offer with the extension of Click & collect to most Waitrose shops. We also saw the benefits of changes made in the branch operations in both Waitrose and John Lewis, and an increasing contribution to greater efficiency from our Partnership Services division.'
'Consumer demand remains fragile, but has stabilised and we continue to see opportunities to grow market share. We have seen a good start to the second half. After 6 weeks, Partnership gross sales are 10.3% higher than last year. Waitrose gross sales have increased by 8.7% (4.5% like-for-like) and John Lewis gross sales are 13.1% higher than last year (8.5% like-for-like).
Our rate of growth will remain positive but will be slower in the second half and, with further investment planned in that period to strengthen our business for the longer term, the rapid rate of profit increase is not expected to be carried through to the full year. This is consistent with our long term commitment to building the Partnership for the future.'
In the first six months of the year the Partnership has traded strongly in a tough market, and achieved robust sales and profit growth. Both Waitrose and John Lewis grew sales ahead of their respective markets, increasing their market share.
The Partnership grew sales strongly with gross sales of £4.4bn, an increase of £354m, or 8.7%, on last year and revenue of £3.9bn, up by £310m or 8.6%. Operating profit was £163.5m, an increase of £52.0m, or 46.6% on last year, as a result of improved gross margin and good cost control. Operating profit margin increased by 1.1% to 4.2%. Profit before tax was £144.5m, an increase of £54.1m, or 59.8%, on last year.
Waitrose's gross sales grew strongly, up 6.6% (£172.8m) to £2.8bn underpinned by like-for-like sales growth of 2.2% and new branch openings this half year and in the second half of last year. Operating profit grew by 28.9% to £142.0m. A number of investments in the future strength of the business have been made over the last couple of years, including convenience, Waitrose.com and in the Channel Islands. The positive impact of these, along with increased efficiency and the benefits of growth, are seen in this profit performance which in turn provides a platform for further increases in investment in the second half.
Waitrose's market share increased by 0.2% to 4.6% and has consistently outperformed the market over the last three years. In April, Waitrose was voted Favourite Food & Grocery retailer at Verdict's annual Consumer Satisfaction Awards and in May won Good Housekeeping's 'Favourite Supermarket' Award for the fifth year running.
A tight focus on efficiency and managing costs, together with continued sales growth, gave us the opportunity to extend our Brand Price Match in May this year. Prices on branded grocery products are now identical to Tesco's, excluding promotions. This important move - together with at least 1,000 promotions each week and the continuing strength and range development of essential Waitrose - reinforces the value offer for customers.
Product innovation and quality underpinned by service and value is pivotal to our success. This year reflects the highest-ever rate of product innovation, with 2,700 new and improved products launched in the first half and a further 2,200 planned in the second half.
We continued to extend the reach of Waitrose within the UK. Four new supermarkets and six Little Waitrose convenience branches were opened in the half. This brings the total estate to 282 shops, including 34 convenience shops, at the end of July. Waitrose is also now present in 17 Welcome Break motorway services, having recently opened at Fleet North. In the second half, we have already opened new shops in Bedford and Alton, with seven more openings planned this financial year, including two more convenience shops.
The investment made in Waitrose.com continues to bear fruit with online sales growing by 50%. Deliveries are available from 147 branches and from our customer fulfilment centre in Acton, West London. During the first half of the year, Waitrose.com continued to be the fastest growing major UK online grocery retailer, according to Kantar Worldpanel data.
John Lewis' gross sales grew strongly, up 12.8% (£181.0m) to £1.6bn underpinned by strong growth from Electricals and Home Technology (EHT) and multi-channel sales. Like-for-like sales grew by 9.2%. Operating profit grew by 188.6% to £45.6m.
We made significant market share gains in each of our three main categories. Sales in EHT were ahead by 31.8%, Home increased by 6.2% and Fashion saw good growth of 7.2%. A series of events, including the Diamond Jubilee, helped drive sales, with John Lewis' role as the 'Official Department Store of the London 2012 Olympic and Paralympic Games' having a positive impact in the run up to the Games. The strong growth in EHT was supported by customer confidence in our price matching position, particularly during the digital switchover in London, and the product expertise of our Partners, and when compared to last year when the increase in VAT in January 2011 dampened sales. In April, John Lewis was voted 'Best Electrical Retailer' at Verdict's annual awards.
Product innovation, brand partnerships with suppliers such as with Apple, and our continued commitment to being Never Knowingly Undersold contributed to our market share gains. The John Lewis brand continues to be strengthened through design collaborations with designers such as Alice Temperley in Fashion and 15 design 'luminaries' in our Home 'Design Collective' - including Bethan Grey, Matthew Hilton and Sebastian Conran. In addition, our new own-brand 'House', offers affordable style in home accessories enabling us to meet the needs of even more customers.
johnlewis.com had another strong half and is a significant contributor to our success, growing sales by over 40% and now accounts for 24% of total John Lewis sales. Our multi-channel operation continues to go from strength-to-strength, with customers appreciating the ease of shopping across a variety of channels from smartphones to in-store internet kiosks.
'Click & collect' continues to be extremely popular. Customers can now pick up online purchases made before 7pm, the next afternoon after 2pm from all 37 John Lewis and 194 Waitrose branches. Year on year, the Click & collect service has grown by 114%, with purchases collected at Waitrose outlets accounting for 34% of sales.
We also continued the expansion of our selling space, opening two new 'at home' branches in Newbury and Chichester. Next month a new format full-line department store will open in Exeter, with a John Lewis 'pop-up' shop trading on the main high street for six weeks before the opening to give shoppers a preview of our product range. In November, a new 'at home' branch will open in Ipswich, sharing the same entrance, atrium and mezzanine cafe with a new Waitrose.
Partnership Services and Corporate
Partnership Services, our newly established business support division, made good progress driving efficiency gains in the half. We are achieving encouraging improvements in the efficiency of process operations, with a productivity improvement of 7% in accounts payable and 3% in payroll. We have also seen benefits in working capital, and significant savings through better procurement of goods not for resale.
A number of significant central transformation programmes are underway, principally within our Personnel and IT functions. The programmes are designed to increase both the efficiency and effectiveness of our support functions. The costs of these programmes are the primary factor behind the year on year increase in Corporate costs. This trend is expected to continue into the second half of the year.
Looking ahead, recent investments in our contact centre will help Partners and suppliers with simpler access to expert Partners and faster resolution of queries. In the second half, we will transfer our central IT function to Partnership Services, as a part of developing efficient and effective business support services at scale.
Investment in the future
Capital spending in the first six months of the year was £162.4m, a decrease of £91.4m (36.0%). Year on year this reduction largely reflects lower capital expenditure in Waitrose, as in 2011 there were more branch openings, including the five in the Channel Islands, and a major branch refurbishment programme, including Canary Wharf, was weighted towards the first half.
Waitrose invested £79.9m, mainly on new branches opening this year together with two extensions and investment in the implementation of a new warehouse management system to drive productivity in our supply chain, and also a number of retail systems improvements to aid efficiency and enhance the flexibility of our offer.
John Lewis invested £67.0m, with the mix of investment continuing to reflect the business strategy of opening new space, refurbishing key regional shops and investing in the IT and distribution infrastructure to support multi-channel trading.
In addition, £15.5m was invested centrally, mainly in maintaining and modernising our IT platforms and head office buildings.
Net finance costs on borrowings and investments increased by £0.4m (1.3%) to £30.1m. After including the financing elements of pensions and long service leave and non-cash fair value adjustments, net finance costs decreased by £2.1m (10.0%) to £19.0m.
At 28 July 2012, net debt was £589.6m, an increase of £12.3m (2.1%) in the half year but £171.2m (22.5%) better than 30 July 2011. During the half year we repaid bonds of £142m from available cash. The Partnership balance sheet is strong with substantial capacity to increase our borrowings should we wish to. We also remain well within the limits of the financial covenants in our bank facilities and bonds.
Included within operating profit, the accounting charge for pensions was £68.7m, up £7.1m or 11.5% on the prior year reflecting the change in the financial assumptions and growth in scheme membership.
The total accounting pension deficit at July 2012 increased by £198.6m (31.1%) to £836.7m. Net of deferred tax the deficit was £665.2m. The accounting valuation of pension fund liabilities increased by £242.0m (7.6%) to £3,417.0m, while pension fund assets increased by £43.4m (1.7%) to £2,580.3m.
On the current actuarial cash funding basis, we estimate that our defined benefit final salary schemes ended the half year with a small deficit of approximately £30m. In addition there are approximately £10m of unfunded pension liabilities. The next formal valuations of the schemes will be in March 2013.
Corporate Social Responsibility
In March 2012, the Corporate Research Foundation certified the Partnership as one of Britain's Top Employers for our outstanding working conditions.
Community Matters, the famous 'green token' scheme that has donated more than £11m to over 32,000 charities, was honoured in January with a Big Society Award; and our involvement with our local communities was further extended through Partner Volunteering. This will contribute approximately 75,000 paid hours each year by our business to the benefit of our local communities. Community Matters was extended to all John Lewis shops in May this year, and our community rooms initiative has been extended across the majority of our shops providing space for use by local charities and community groups, free of charge.
As recognised by Business in the Community's Award for Excellence 2012, the Partnership continues to invest in low carbon distribution. In March, we were awarded Gold in the Transport for London Fleet Operators Recognition Scheme.
Charlie Mayfield, Chairman
Where this interim report contains forward-looking statements, these are made by the directors in good faith based on the information available to them up to the time of their approval of this report. These statements should be treated with caution due to the inherent uncertainties underlying any such forward-looking information.
Notes to editors
The John Lewis Partnership - The John Lewis Partnership operates 37 John Lewis shops across the UK (29 department stores and eight John Lewis at home), johnlewis.com and 284 Waitrose supermarkets. The business has annual gross sales of over £8.7bn. It is the UK's largest example of worker co-ownership where all 81,000 staff are Partners in the business.
Waitrose - Waitrose, Britain's favourite supermarket*, has 284 shops in the UK and Channel Islands and is consistently achieving sales growth significantly ahead of the market**. Its strong performance has been driven by the success of the essential Waitrose range, Brand Price Match and an unmatchable top tier of products, as well as a long term commitment to sourcing the UK's finest local and regional foods. Waitrose own-label ranges account for 54% of sales. Waitrose 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.
* Which? Annual Supermarket Satisfaction Survey, Favourite Food & Grocery Retailer at Verdict's annual Consumer Satisfaction Awards; Favourite Supermarket at Good Housekeeping Awards
** Kantar Worldpanel
John Lewis - John Lewis, 'Britain's favourite electricals retailer 2012'* and 'Best Multichannel Retailer 2011' **, typically stocks more than 350,000 separate lines in its department stores. The website stocks over 200,000 products focused on the best of fashion, beauty, home and giftware and electrical items including online exclusives. johnlewis.com is consistently ranked one of the top online shopping destinations in the UK. (www.johnlewis.com). John Lewis Insurance offers a range of comprehensive insurance products - home, car, wedding and event, travel and pet insurance and life cover - delivering the usual values of expertise, trust and customer service expected from the John Lewis brand. John Lewis is proud to have been the official department store provider to the London 2012 Olympic and Paralympic Games.
* Verdict Consumer Satisfaction Index, April 2012
** Ecommerce Awards for Excellence 2011
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John Lewis Partnership
Director of Communications
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Citigate Dewe Rogerson
Simon Rigby/Nicola Swift
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Telephone: 07785 952567
Senior Manager, Corporate, Digital & Branch PR
Telephone: 07808 574117
Telephone: 07764 676414
Senior Manager, Corporate PR
Telephone: 07887 898133