John Lewis Partnership plc Interim results for the half year ended 27 July 2013
Unaudited condensed Interim Financial Statements for the half year ended 27 July 2013
Strict Stock Exchange Embargo, 7.00am
'Strong first-half trading performance'
The John Lewis Partnership
- Gross sales of £4.73bn, up £323.2m (7.3%)
- Revenue of £4.22bn, up £293.2m (7.5%)
- Profit of £115.8m before tax1 and exceptional item, up £4.4m (3.9%)
- Exceptional item of £47.3m following review of holiday pay policy
- Profit before tax1 of £68.5m, down £42.9m (38.5%)
- Net debt of £493.4m, £96.2m (16.3%) lower than July 2012
- Gross sales of £3.02bn, up £217.8m (7.8%)
- Like-for-like sales (excluding petrol) up 6.9%
- Revenue of £2.85bn, up £210.1m (8.0%)
- Waitrose.com gross sales up 40.6%
- Operating profit of £160.2m, up £18.2m (12.8%)
- Gross sales of £1.71bn, up £105.4m (6.6%)
- Like-for-like sales up 5.1%
- Revenue of £1.37bn, up £83.1m (6.5%)
- johnlewis.com gross sales of £439.9m, up £64.1m (17.1%)
- Operating profit before restructuring costs2 of £50.1m, up £4.5m (9.9%)
- Operating profit of £34.7m, down £10.9m (23.9%)
1 Profit before tax for 2012/13 has been restated for IAS 19 revised (see note 2 of the interim statement for further details).
2 Restructuring costs were £15.4m for streamlining John Lewis department store management structures and a new distribution infrastructure.
- Customer transactions grew by 9.3% with 50% of customers now holding a myWaitrose card
- Opened four new branches and a distribution centre in Leyland
- Waitrose.com capacity in London set to more than double with second dark store
- 1,800 new and improved products launched
- Additionally launched 5,000 product gardening range
- Recognised for omni-channel leadership
- Market share gains in each of our categories led by EHT
- Delivered £1bn annual online sales milestone one year early
- Launch of new enhanced and upgraded johnlewis.com website
- Announced new £97m distribution centre in Milton Keynes to open in 2015
- Net 800 new jobs created
Sir Charlie Mayfield, Chairman of John Lewis Partnership, commented:
'The Partnership has had a strong first half with sales up 7.3% and profit before exceptionals up by 3.9%, slightly ahead of our expectations due to a good trading performance in both businesses.
I am particularly pleased that both Waitrose and John Lewis again increased their market shares significantly during the first half. Year-on-year, we grew our customer numbers by 6%, helped especially by initiatives such as myWaitrose and our market leading omni-channel offer in John Lewis.
We are committed as a Partnership to developing our business for the long term, building the capabilities of our Partners and being innovative in products and services for our customers. As part of this, we have made further encouraging progress in what I referred to in March as our "quiet revolution" – the investment and restructuring in areas of our retail operations, supply chain, IT and support functions. That has included rolling out 'My Performance', a new online system that ensures every Partner has an individual personal development plan. We also moved johnlewis.com successfully onto a new platform, opened a new Waitrose distribution centre in Leyland and announced a new John Lewis distribution centre in Milton Keynes.
There are some fundamental changes taking place in retail and the range and scale of these investments demonstrate our determination to take full advantage of the market opportunities that they bring.'
As expected, the market has shown signs of improvement. After six weeks of the second half, Partnership gross sales are 5.3% higher than last year. Waitrose gross sales have increased by 4.8% (4.4% like-for-like, excluding petrol) and John Lewis gross sales are 6.2% higher than last year (5.1% like-for-like).
Looking ahead, I'm encouraged by progress this year and am confident of the plans we have in place for Christmas. Despite a strong second half last year, both during the Olympics and at Christmas, I expect us to trade positively in the second half.
In the first six months of the year the Partnership traded strongly and achieved robust growth in sales and profit before exceptionals. Both Waitrose and John Lewis grew sales well ahead of their respective markets, increasing their market shares.
Partnership gross sales (inc VAT) were £4.73bn, an increase of £323.2m, or 7.3%, on last year. Revenue, which is adjusted for sale or return sales and excludes VAT, was £4.22bn, up by £293.2m, or 7.5%.
Following a recent review of the Partnership's holiday pay policy, an exceptional cost of £47.3m was recognised in the first half, being expected costs of £40.0m for payments to Partners and associated expenses, and £7.3m for an increase in future pensions liabilities.
Profit before tax and exceptional item was £115.8m, an increase of £4.4m, or 3.9%, on last year.
Gross sales in the first half were up by 7.8% to £3.02bn and like-for-like sales grew by 6.9%. A large proportion of this uplift is attributable to strong volume growth. Operating profit grew ahead of sales, slightly exceeding our expectations for the first half, up by 12.8% to £160.2m.
Waitrose has outperformed the market for over four years and our market share now stands at 4.9 per cent, 0.3 per cent higher than a year ago. Outstanding value combined with quality, trusted provenance, high standards of service and innovative marketing led to a strong overall performance.
As part of our strong focus on value, we continue to offer sharper pricing through essential Waitrose, more promotions, Brand Price Match with Tesco on all branded lines (excluding promotions) and consistent price matching with Sainsbury's on thousands of every day branded items.
Customer transactions grew by 9.3% in the first half. There are more than 5.1m customer visits each week and over 2.5m customers now hold a myWaitrose card. Carefully targeted and personalised offers and deals, together with free tea and coffee and regular discounts on every day staples, have helped strengthen our customer relationships and drive volume.
Product innovation also continued across the business and launches in the first half included the Heston from Waitrose Barbecue range, Seriously from Waitrose desserts and chocolate bars and fresh additions to Menu from Waitrose ready meals. A particularly exciting development has been the introduction of our gardening range with new brand ambassador Alan Titchmarsh. We now have outdoor gardening pods in 44 branches showcasing our new horticulture products and together with a dedicated website, Waitrosegarden.com, we offer more than 5,000 gardening lines. Horticulture is proving particularly popular with Waitrose customers and sales of our new ranges are exceeding our expectations.
The shopping experience is also being enhanced by the services offered at our new concierge-style welcome desks. We now have these in 40 branches and by the year end expect these to have been introduced into 91 branches in total. We are currently trialling services such as flower wrapping and dry cleaning, and will continue to develop these and other initiatives that underline our commitment to service. For example, shoppers will be able to browse our full assortment and click and collect their groceries or products from johnlewis.com using iPads available at these desks.
We opened four new branches (two core, two convenience) in the first half and relocated one branch. We plan to open a further six core branches and three convenience stores in the second half. This autumn will see Waitrose reach the significant milestone of our 300th shop, in Helensburgh, near Glasgow. We now have 56 convenience shops, including our 19 Welcome Break branches. During the half year we renewed our successful franchise partnership with Welcome Break for a further 10 years and also began providing food and snacks on Eurostar services to and from Europe.
Waitrose.com performed strongly with sales up 40.6% and we continue to invest in our online business. Investment in the capacity for our branches to fulfil Waitrose.com orders has resulted in a 40% increase in online delivery slots nationwide. We plan to open a second dark store to support the London area and we expect this to be up and running by the second half of 2014, more than doubling our capacity to handle online orders in the capital.
To support our growth in the north of England and Scotland, our purpose-built distribution centre in Leyland, Lancashire opened in July. This 360,000 square foot warehouse is currently servicing 35 branches but has the capacity to support up to 100 branches in the longer term. In the half year we welcomed the first 185 Partners in Leyland and a further 500 to new branches.
The first half of 2013 has seen John Lewis build on last year's performance to deliver a gross sales increase of 6.6% to £1.71bn. Operating profit before restructuring costs was up 9.9% to £50.1m, reflecting the robust sales performance and a strong focus on controlling costs. Restructuring costs in the first half were £15.4m for streamlining our department store management structures and a new distribution infrastructure, both of which demonstrate our commitment to long-term efficiency in a fast-changing sector. Operating profit including these costs was down 23.9% to £34.7m.
John Lewis has significantly outperformed the market with like-for-like sales up 5.1% against the BRC's 1.7%. Sales growth both in shops (+3.4%) and online (+17.1%) reflects our position as Britain's leading omni-channel retailer. Our growth was fuelled by market share gains across each of our categories, which was particularly pleasing as last half year benefitted from a number of significant one-off events, including the digital switchover and Jubilee.
- In Electricals and Home Technology (EHT), a focus on innovation delivered a record market share of 7.6% and a sales increase of 15.7%.
- In Fashion, growth of 4.2% was boosted by the strength of our own-brand collections: John Lewis & Co was presented at Men's Fashion Week and we announced that Somerset by Alice Temperley will expand into lingerie and childrenswear.
- In Home, our strong market position was enhanced with the growth of HOUSE which is now our biggest brand in Home. We have recently launched 'Any Shape, Any Fabric', where customers can choose from over 112,000 upholstery combinations. This key initiative is led by our Lancashire factory, Herbert Parkinson, and further supports our commitment to increase sales of UK-made products by 15% by 2015.
johnlewis.com passed the significant milestone of £1bn annual online sales on a rolling 52 week basis - a full year ahead of target. In line with our ambition to stay at the forefront of e-commerce, we have made a significant investment in a new web platform which went live during the first half. Over 40% of traffic now comes from mobile phones or tablets. In July we relaunched our transactional mobile app and since then sales via the app have grown quickly and we are preparing for what we anticipate will be the UK's first “mobile Christmas”. With convenience and availability playing a critical role in customer choice, we announced the opening of a second distribution centre in Milton Keynes as well as a trial to enable customers to pick up purchases in 1,500 Collect Plus locations.
In recognition of the evolving role of our shops, we have focused on creating an increasingly inspirational shopping experience. The first Little Waitrose at John Lewis in Watford opened in June, four more Kuoni travel concessions opening this autumn and upcoming partnerships with hospitality brands are all part of our ambition to redefine the 21st century department store. We are building new shops in Ashford, York and Birmingham, and have announced plans to open in Oxford as well as in Heathrow Terminal 2. Ongoing refurbishment of existing shops continues with the introduction of Beauty and Fashion into a remodelled John Lewis High Wycombe.
Our efforts were recognised by customers and peers with John Lewis receiving Which?'s Best Retailer, Oracle Retail Week's Retailer of the Year, and Customer Service awards from Verdict and the Institute of Customer Service. In addition, more than 1,000 of our Partners achieved accredited qualifications as part of the 'University of John Lewis'.
Partnership Services and Corporate
Corporate and other includes the operating costs for our Corporate offices, Partnership Services, transformation programmes and certain pension operating costs. Year-on-year these costs increased by £9.1m to £32.7m with this being entirely due to the increase in pension operating costs resulting from changes in financial assumptions. Corporate and Partnership Services net operating costs were both down year-on-year.
The first half saw the introduction of My Performance, a new online system to ensure every Partner has an annual appraisal linked to a personal development plan. The new format aims to give Partners more control over their own development and progression, and therefore improve overall business performance.
Partnership Services, the Partnership's business services division, continued to make a significant contribution to our efficiency during the first half, driving benefits through better procurement of not-for-resale goods and services and continued efficiencies in processing operations. The division's scope has also expanded to include IT Application Development and Support, Personnel Policy Advice, Occupational Health, Resourcing and Pensions Administration. These areas will benefit from Partnership Services' process management and improvement expertise as we move forward.
Investment in the future
Capital spending in the first six months of the year was £167.8m, an increase of £5.4m (3.3%). We expect an acceleration in capital spending in the second half of the year.
Waitrose invested £101.0m, mainly on new branch openings and the new Leyland regional distribution centre, together with investment in supply chain systems to drive productivity and a number of retail systems improvements to aid efficiency and enhance the flexibility of our offer.
John Lewis invested £53.2m, with the mix of investment continuing to reflect the business strategy of investing in new shops for the future, refurbishing key regional shops and investing in the IT and distribution infrastructure to support omni-channel trading.
In addition, £13.6m was invested centrally, mainly in maintaining and modernising our IT platforms and head office buildings.
At this half year the Partnership has adopted 'IAS 19 revised', which changes the basis on which pension finance costs are recognised in the income statement. Consequently the comparative income statement for 2012/13 has been restated with an increase in operating profit of £0.5m, an increase in finance costs of £33.6m and therefore a decrease in profit before tax of £33.1m.
The pensions service cost before exceptional item was £84.0m, an increase of £15.8m or 23.2% on the prior year, reflecting changes to financial assumptions and growth in scheme membership.
The pension finance costs for the half year were £17.7m, an increase of £3.2m or 22.1% on the restated prior year finance costs.
The total accounting pension deficit at 27 July 2013 was £908.6m, an increase of £86.5m (10.5%) since 26 January 2013. Net of deferred tax, the deficit was £748.2m. The accounting valuation of pension fund liabilities increased by £177.3m (4.7%) to £3,973.3m, while pension fund assets increased by £90.8m (3.1%) to £3,064.7m.
Our pension scheme review, announced in March, is now well underway and is expected to conclude towards the end of 2014, after consultation with Partners.
Net finance costs on borrowings and investments decreased by £0.6m (2.0%) to £29.5m. After including the financing elements of pensions, together with long service leave and other non-cash fair value adjustments, net finance costs decreased by £6.2m (11.8%) to £46.4m.
At 27 July 2013, net debt was £493.4m, an increase of £121.5m (32.7%) in the half year but £96.2m (16.3%) lower than 28 July 2012.
Corporate Social Responsibility
Corporate Social Responsibility is an integral part of how the Partnership does business and we continue to innovate to reduce our environmental impact. We are the only UK retailer to have any shops rated as 'Outstanding' by BREEAM (Building Research Establishment Environmental Assessment Method), our transport team continues to work with leading academic institutions to decrease our transport-related emissions and we are pioneering 'closed-loop' solutions for plastic waste.
Our focus on securing long-term sustainable supply chains has helped Waitrose achieve the ambitious target of 100% certified sustainable palm oil in its own brand products and we are now focusing on a similar approach for soya ingredients. The John Lewis Foundation has been working with cotton growers in India to help them practice more sustainable farming methods and is this year funding educational programmes in supplier communities in India. This year we are again offering thousands of work placements to young people from the UK and the Golden Jubilee Trust - our flagship volunteering programme - continues to support Partners who are donating time to UK charities. Five years ago Waitrose launched Community Matters - our 'green token' scheme - which has supported over 40,000 local good causes chosen by customers and this scheme has now been rolled out to all John Lewis shops.
Notes to editors
The John Lewis Partnership - The John Lewis Partnership operates 39 John Lewis shops across the UK (30 department stores and 9 John Lewis at home), johnlewis.com, 257 Waitrose supermarkets, 37 Waitrose convenience stores, waitrose.com and business to business contracts in the UK and abroad. The business has annual gross sales of over £9.5bn. It is the UK's largest example of worker co-ownership where all 85,500 staff are Partners in the business.
Waitrose - Waitrose has 294 shops in the UK and Channel Islands and is consistently achieving sales growth significantly ahead of the market both in its branches and its online grocery service, Waitrose.com*. Its strong performance has been driven by the success of the essential Waitrose range, Brand Price Match, an unmatchable top tier of products and free delivery for online shopping and its popular myWaitrose card, as well as a long term commitment to sourcing the UK's finest local and regional foods. 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. Waitrose is the holder of the Good Housekeeping Favourite Supermarket award, was Best Food and Grocery Retailer in Verdict's Consumer Satisfaction Awards and gained the title of Best Supermarket in the Which? supermarket satisfaction survey. (www.waitrose.com)
*Kantar World panel
John Lewis - John Lewis, 'Retailer of the Year 2013' ¹ , 'The Nation's Best Retailer'² and 'Best Retailer 2013'³, 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.
¹ Oracle Retail Week Awards 2013
² Verdict Consumer Satisfaction Awards 2013
³ Which? Awards 2013
For more information view the John Lewis Partnership interim report 2013 (PDF 669KB).
For further information please contact:
John Lewis Partnership
Director of Communications
Telephone: 07525 272377
Citigate Dewe Rogerson
Simon Rigby / Nicola Swift
Telephoe: 020 7638 9571
Peter Cross, Director, Communications
Telephone: 07764 697674
Louise Cooper, Senior Manager, Corporate, Digital & Branch PR
Telephone: 07808 574117
Christine Watts, Communications Director
Telephone: 07764 676414
Gill Smith, Senior Manager, Corporate PR
Telephone: 07887 898133