TIDM45GD
RNS Number : 1381T
Lewis(John) PLC
16 March 2023
John Lewis plc announces the unaudited results for the year
ended 28 January 2023 for John Lewis Partnership plc.
John Lewis Partnership plc is the ultimate holding company of
John Lewis plc.
Thursday 16 March 2023
JOHN LEWIS PARTNERSHIP UNAUDITED RESULTS
FOR THE YEARED 28 JANUARY 2023 - LETTER FROM THE CHAIRMAN
Dear Partner
You've been exceptional in what has been another very tough
year. Two years of pandemic and now a cost of living crisis.
I know you're feeling the impact of higher inflation, and I hope
the GBP500 (pro rata) cost of living payment and free food over the
winter helped.
Inflation has had a big impact on the Partnership and sent our
costs soaring - up almost GBP180m on last year. We haven't sat on
our hands. We've been working hard to drive out costs. Negotiating
better deals with suppliers and simplifying ranges in both
brands.
Shoppers felt the pain of inflation. Sales ([1]) were
GBP12.25bn, a 2% dip on the year: a combination of strong sales at
John Lewis and a decline of 3% at Waitrose, reflecting that we had
more customers - 20 million of them, 800,000 more than last year -
but they bought less. The big online growth of the pandemic years
was partly reversed. Shoppers shifted some of their grocery
spending to the discounters.
It is also the case that we had some set-backs. Product supply
challenges and a major fire in our Brinklow warehouse hit
availability in Waitrose last summer. This was recovered through
autumn and availability is now strong.
All in all, this has made for a tough set of results. We made a
loss ([2]) of GBP78m. When you add in exceptional costs - the
biggest one being a write down in the value of Waitrose stores -
the loss ([3]) was GBP234m. Our balance sheet remains strong -
GBP1bn of cash and access to a GBP420m credit facility, like an
overdraft, if we need it.
I am sorry that the loss means we won't be able to share a bonus
this year or do as much as we would like on pay. We'll continue to
help with the cost of living in other ways - the financial
assistance fund will stay at GBP800,000 (a doubling) and there is
support for travel, childcare and living costs.
Far from diverting us from the Partnership Plan, the economic
backdrop has galvanised us to go faster. The Plan is about two
things - increasing the appeal of our brands and building on them
to diversify into new services. Last year, we invested more than
GBP500m in our transformation.
Waitrose is expanding in the all important convenience market
through tie-ups with Dobbies (garden centres) and Shell, and
getting exclusive brands (Gail's, Plants by Deliciously Ella). John
Lewis has set out a clear pricing approach (good, better, best),
brought stronger styling and design to own-brand Fashion and Home
and introduced over 200 new brands. Both brands relaunched - John
Lewis (for all life's moments), Waitrose (food to feel good
about).
Great customer service is at the core of who we are, and always
will be. John Lewis was voted top UK retailer for customer service.
Waitrose won more Grocer 33 Store of the Week awards than any other
supermarket.
A new GBP500m venture with abrdn secured investment in our
'build to rent' property business. And financial services - a
business we've been in for nearly 20 years - is growing well, with
popular products like our relaunched pet insurance. 600,000
customers joined our new Partnership (credit) Card. Not a smooth
process for everyone, but customers are - on average - now spending
more than before.
Those of you who have been in the Partnership for a while will
know that the business expanded rapidly between 2000 and 2015,
going from 151 to 379 stores. We now have catch-up investment to
make and have the potential to modernise the business at greater
pace.
Given the economic backdrop, it would have been easy to step
back from our principles where these carry a price tag. That is not
the Partnership way. Instead we chose to invest in British farmers
so they did not have to compromise on their high animal welfare
standards. We launched a programme to provide jobs for young people
who have grown up in the care system, and the 'Building Happier
Futures' fund has raised over GBP1m.
Looking ahead, the external environment is no less uncertain.
Even as headline inflation is starting to fall, the Partnership is
still seeing costs rise.
Faced with a more challenging environment, we have adapted the
Partnership Plan to improve the profitability of the business,
tripling our target for efficiency savings from GBP300m to GBP900m
(by January 2026). The mantra for the year is cost out, margins up
and customer focus .
We're showing renewed confidence. A GBP100m price investment in
Waitrose - demonstrating that value with values (quality and
sustainability) go hand in hand. John Lewis Horsham has undergone a
multimillion pound revamp and is testing new concepts like play
spaces for children that will be tested in other stores. Going big
this spring on nursery, childrenswear and advice for families.
Simplifying the way we run Waitrose shops - less time on
process, more time with customers. Investing in data and loyalty so
we can give customers more of what they want. More simplification
of our ranges. Sale of Partnership assets will give us more money
to invest in our transformation.
As we need to become more efficient and productive, that will
have an impact on our number of Partners. That's a massive regret
to me personally. It would be difficult enough in any business.
It's particularly tough in the Partnership, when everything we do
is with one goal in mind: 'happier people, happier business and
happier world'.
We're not just employees; together we own the Partnership.
That's a huge responsibility as well as privilege - in the good
times and when it's tough. I feel it acutely. By seizing the
opportunities to transform, we will secure the Partnership's future
for another 100 years.
Sharon White
Partner and Chairman
Notes
A glossary of financial and non-financial terms is included at
the end of this document.
JOHN LEWIS PARTNERSHIP UNAUDITED RESULTS
FOR THE YEARED 28 JANUARY 2023 - SUMMARY
STEPPING UP OUR TRANSFORMATION
-- Attracted more customers. Partnership customers up 4% to 20.3
million, Waitrose customers up 7% to 13.7 million, John Lewis
customers up 0.5% to 11.7 million.
-- Customers benefited from Waitrose expansion into the
convenience market while John Lewis brought stronger styling and
design to own-brand Fashion and Home.
-- Total Partnership sales were GBP12.25bn, down 2%: Waitrose
sales were GBP7.31bn, down 3%; and John Lewis sales were GBP4.94bn,
up 0.2%.
-- Loss before exceptional items ([4]) and tax GBP78m, down from
profit(4) of GBP181m last year, principally due to economic
backdrop and inflationary pressures.
-- Loss before tax was GBP234m, down from a loss of GBP27m last
year, largely due to property write downs.
-- The impact of inflation was felt across the business, adding
GBP179m to our costs in the year.
-- The Partnership is stepping up its transformation. We
delivered over GBP300m of cost savings in the last two years; new
target to save another GBP600m by January 2026.
-- Strong balance sheet with GBP1.0bn of cash; total liquidity
GBP1.5bn; borrowings of GBP650m; total net debts (including
GBP1.9bn of leases) of GBP1.7bn.
-- Spent GBP32m to support our Partners with a cost of living payment and free food over winter.
-- Expect market and consumer conditions to remain uncertain.
PROGRESS WITH OUR PARTNERSHIP PLAN
We're entering the third year of the Partnership Plan, our
strategy to transform and grow. This has been a challenging year.
We've been transforming our business during the worst cost of
living crisis for more than 40 years, which is hitting the
Partnership and our customers hard.
At our half year results, we said that we would need a
substantial strengthening of performance, beyond what we usually
achieve in the second half, to generate sufficient profit to share
a Partnership Bonus with Partners. Despite positive momentum over
peak, we did not achieve the uplift in performance required in the
second half. The full year loss means we won't be able to
distribute a bonus this year.
This coming year, we are prioritising where we invest our time
and money to deliver three critical priorities: cost out, margins
up and customer focus.
We're responding at pace to the economic environment and the
changing needs of our customers. This requires long term structural
change to ensure we are thriving for another 100 years. In support,
we are more than trebling our original efficiency saving target to
GBP900m by January 2026. We have a clear path to achieve this, and
in doing so return to healthy profit. It's all in service of
creating a modern, relevant business that's loved by our customers
and delivers greater rewards to Partners, owners of the
Partnership.
We're on track across many areas of our Plan, which gives us
great confidence. We have already secured over GBP300m efficiency
savings since the start of our Plan, achieving the target we set
out. We grew customer numbers by 4% this year meaning that 20
million people shopped with us, spending over GBP12bn. This
underlines the importance of our brands at the heart of British
retail.
We look ahead from a position of strength and the fundamentals
of our business - growing customer base, strong liquidity and
balance sheet - are strong.
Our values
Our values as a co-owned business make us different. We have
stood by these values despite the challenges this year. Faced with
increasing costs, we have not compromised on ethics and
sustainability - from animal welfare to our commitment to buy
British - while also helping customers manage tighter budgets.
In addition to recently announcing a GBP100m investment in
lowering Waitrose prices, we gave over GBP100m in rewards through
the MyWaitrose loyalty scheme. We provided an even greater choice
of high quality Meal Deals during the year, and Essentials
maintained its position as the largest value range of any
grocer.
In John Lewis, we made a GBP500m price investment (versus
GBP386m last year), expanded our value and quality focused ANYDAY
range, and launched Black Friday and Christmas Shops earlier to
help customers spread the cost. We lowered the limit on interest
free credit purchases from GBP1,000 (single item) to GBP500 (per
basket) across multiple categories, allowing customers greater
access to instalment credit.
Underlining our commitment to our farmers, we pledged and
substantially paid an extra GBP56m to invest in our long-standing
UK suppliers to maintain high standards as they struggled with
significantly rising costs. We won more Compassion in World Farming
awards than any other retailer.
Our Building Happier Futures programme, a long term commitment
to young people who are care experienced or in care, resonated with
our customers and raised GBP1.2m. In addition, our customers and
Partners donated GBP4.6m, to which we added a further GBP5.0m, to
local charities including FareShare and Home-Start, to support
those in need within our communities and beyond.
Our Partners
Our Partners have been exceptional in embracing the
opportunities and challenges this year has brought. During the
year, we distributed GBP27m from cash reserves to support our
Partners with the cost of living crisis (a GBP500 payment pro
rata), provided free meals across the business over winter at a
cost of GBP5m and doubled the financial assistance fund for
Partners facing hardship, to GBP800k.
Our customers - Waitrose
2022 saw many Covid shopping behaviours unwinding at the same
time as consumer confidence dropped to record lows. After more than
trebling in size from 2019/20 to 2021/22, our online business
started to normalise, significantly down on Covid peak but
decidedly up on pre-Covid levels, and the balance of trade returned
to shops. Frequency of visits was up and we served nearly a million
more customers year-on-year (up by 7%). As inflationary pressures
grew, customers shopped carefully on a budget so basket size
declined by 15% in branch against last year, versus a market
decline of around 13%. Having grown 23% in 2021 and been 17% of
trade, online demand normalised through 2022 settling at around 14%
of trade. All of Waitrose sales decline this year came from online,
branch sales were flat.
Product innovation continued at pace with the launch of 779 new
products including the exclusive listing of Plants by Deliciously
Ella. The biggest launches of the year included our Cooks
Ingredients range, which relaunched with 40 new products and our
Summer Food Festival range of 71 products from around the
world.
Customers benefited from over GBP100m in personalised money-off
rewards through our loyalty programme, MyWaitrose, which now has
nine million members (up by 3%). We relaunched free coffee for
members to strong positive feedback (240,000 drinks per week, 12%
higher than the comparable period in 2019/20). The rollout of the
John Lewis 'shop within a Waitrose shop' continues - we added 50
shops taking the total to 88, with more planned this year.
We have expanded Waitrose's presence with third parties, growing
our convenience offer: 32 Dobbies Food Halls are now open and we
expect to roll out to 50 branches by May 2023. Our Partnership with
Deliveroo has expanded; now in 222 shops and customers can choose
up to 2,500 products. We've seen strong growth of this proposition,
with orders up 33% year-on-year, many of which are to a new,
younger customer base. We began supplying 13 convenience stores in
Scotland and Jersey and opened 11 new Waitrose shops at Shell
forecourts taking the total to 80, with plans for more this
financial year.
Our industry leading proposition saw Waitrose win more Grocer 33
Store of the Week awards than any other grocer.
Our customers - John Lewis
In stores, online and through our App, we saw resilience in
total John Lewis customer numbers, up 0.5% compared to last year.
From an already strong base, we grew market share in Fashion, which
combined signature own-labels, and new brand launches. We launched
our new mid-tier own label range in September, and expanded our
entry range ANYDAY, with 600k customers trying it for the first
time. Of our 2.7 million ANYDAY customers, over 70% also bought
from our mid-tier John Lewis & Partners range and more than 75%
bought items from our branded ranges, during the year.
The strength of our offer and expertise is also evident in the
record number of personal styling appointments, with over 60,000 in
the year, and nursery advice appointments, at over 21,000. We are
committed to reducing waste and launched our new fashion rental
service with over 3,000 customers registered on the site. We also
partnered with thelittleloop to offer 1,500 John Lewis own-brand
childrenswear products to rent.
Retiring our pledge, Never Knowingly Undersold, enabled us to
provide even better value for all customers through a GBP500m
investment in price. Examples include the launch of Black Friday
earlier than ever and more personalised offers with our loyalty
card, My John Lewis. The card's five million members shopped more
frequently, 2.5 times more than non members, and spent more with
us.
We invested significantly this year to improve our digital
capabilities to inspire customers and be more convenient: including
in stores, online, through our App and our contact centres.
Enhancing the in-store experience, we invested GBP5.4m in 27 shops
with store designs using fresh new colours, as well as making it
easier for customers to shop and find seasonal newness in store. We
also partnered with our suppliers to deliver over 180 enhancements
across our shop estate. Ten thousand Partners completed courses at
the School Of Service, our retail training academy, and we were
named top retailer for customer service by The Institute of
Customer Service.
We made it easier than ever for our customers to shop with us
over the peak Christmas period; our supply chain teams were able
quickly and confidently to extend our pre-Christmas guaranteed
delivery and Click & Collect cut off dates beyond many of our
competitors, showing the strength of our two brands working
together for customers when they need us most.
Our business - Lean Simple Fast
Our Lean Simple Fast transformation programme - a key pillar of
our Partnership Plan - has helped our performance this year. We've
made GBP308m of cumulative cost savings over the past two years,
with GBP181m delivered in the year.
Note: GBP19m of the savings delivered in 2022/23 are one off in
nature resulting in net ongoing cumulative savings of GBP289m
Savings have been made in a number of areas of the business. We
categorise savings into three buckets for reporting:
simplification; margin efficiency improvement and other operating
costs.
Simplification - meaning driving productivity in everything we
do. This includes activities such as restructures, streamlining
processes and leveraging technology. Savings to date required
difficult changes for our Partners but have been critical to
supporting our business, minimising price increases to customers
and funding our transformation. We delivered our shop leadership
transformation, simplifying management structures across our shops,
alongside Head Office Transformation, affecting many Partner jobs
across our London and Bracknell offices. We have begun making a
series of process improvements across our shops, delivering returns
already including self check outs and changes to night shift
processes to improve pick rate productivity for Waitrose.com
orders, helping customers receive less substitutions.
Margin efficiency improvements - increasing margins across the
range of products and services we sell. This includes working with
suppliers to become more efficient across sourcing, manufacture,
packaging and distribution of products. Margin gains have already
been secured across many categories in both John Lewis and
Waitrose. Examples in Waitrose include product changes in one
frozen line range to improve taste quality, changing packaging
sizes - but not the product size - to save over 12,000kg of
cardboard each year and reduce distribution mileage by a third. In
John Lewis, we've seen margin growth from range optimisation,
supplier tendering and product quality reviews.
Other operating costs - cost efficiencies across operating costs
not for onward sale to customers, such as property, technology and
supply chain costs. We've delivered significant savings across our
property estate through rates and lease reviews and in other areas
through supplier tendering and rationalisation.
Despite significant progress on our Lean Simple Fast programme,
we have seen the effects of high inflation - which cost the
business GBP179m this year - eating into the savings we have
achieved so far. Our efficiency ambitions have had to adapt, and we
have now set out a clear pathway to triple the scale of our plans
to GBP900m of savings by January 2026.
We have identified new measures and many are already in train.
In respect of margin efficiency improvements, we will build on the
examples of savings already achieved across all ranges of products
we sell. In simplification, we will be trialling new ways of
working in our shops and unlocking changes to how we operate to
improve our availability for customers across both brands. This
remains a high priority for the Partnership and is our route to
greater profit to invest in customers and Partners.
Our diversification
In December, we agreed a GBP500m joint venture with global
investment company abrdn to deliver around 1,000 new homes across
three local communities. The deal marks a milestone in the
Partnership's plans to use its significant property assets to build
much-needed rental homes and to diversify our business. We are
currently progressing public consultations in Bromley and West
Ealing. We are continuing to assess further potential sites that
would be suitable for development.
Income in John Lewis Financial Services was up 22% on last year.
During the year, we acquired 409k new customers (gross), with
Partnership Card, Point of Sale credit and Travel Money performing
particularly well. Since the completion of the Partnership Card
transfer, which wasn't easy for all customers given the scale of
the change, we have seen average weekly spend of these customers
increase by over 20% towards the end of last year. Our pet
insurance product relaunched in Q2 and offers an annual video
health check for pets, winning a Which? Best Buy. We will shortly
launch the trial of a new proposition that helps parents invest for
the long term future of their children with a John Lewis Junior
ISA.
With over 20 million customers, loyalty card members (comprising
nine million at Waitrose and five million at John Lewis), 360
stores, over 500 million website visits per year and 2.7 million
readers of Waitrose Food Magazine per month, our physical and
digital estate is uniquely placed to offer opportunities for third
party brands to engage with our customers through our channels. We
have significant plans to develop this business further.
UNDERSTANDING OUR PERFORMANCE
The Partnership's principal internal measure of trading
performance is Profit/loss before Partnership Bonus, tax and
exceptionals (PBTBE). This comprises Trading operating profit for
our brands, combined with other operating costs managed centrally
(such as costs of our head offices, IT, net finance costs, property
costs, depreciation and investment expenses).
Our PBTBE has been reconciled to the Partnership's statutory
measure of Loss before tax in the Glossary, and the principal
differences are exceptional items and Partnership Bonus.
The loss before tax and exceptional items was GBP78m in the
year, down from a GBP181m profit in 2021/22. Our loss before tax
but after exceptional items was GBP234m, versus a loss before tax
of GBP27m in 2021/22.
Note: The chart shows our Profit/(loss) before Partnership
Bonus, tax and exceptionals since 2018/19, with 2019/20 shown twice
as that is the year we adopted IFRS 16 (lease accounting standard)
which reduced our profits that year by GBP53m. The period from
2018/19 to 2019/20 is shown before the adoption of IFRS 16, and the
periods 2019/20 to 2021/22 are shown after the adoption of IFRS
16.
Year-on-year movement in Partnership PBTBE
Our loss before tax and exceptional items is GBP259m lower than
last year, primarily due to:
-- Waitrose Trading operating profit declining by GBP126m.
Figures include GBP29m of Lean Simple Fast savings delivered in the
year. Key factors are outlined later in this section;
-- John Lewis Trading operating profit declining by GBP82m.
Figures include GBP47m of Lean Simple Fast savings delivered in the
year. Key factors are outlined later in this section;
-- Other cost savings relate to the Lean Simple Fast savings
below Trading operating profit amounting to GBP62m in year. Added
to the cost savings shown in Waitrose and John Lewis Trading
operating profit, the combined net saving is GBP138m in year
(GBP181m of gross savings offset by non recurring savings from last
year of GBP43m);
-- Prior year business rates relief - Our business rates costs
are GBP58m higher this year following the end of the business rates
relief scheme utilised to offset Covid costs. This tax relief was
used last year to offset higher operating costs across the business
specific to Covid;
-- Transformation costs - Higher investment in the Partnership
Plan transformation, leading to an additional GBP38m of non
recurring revenue expenditure;
-- Other operating cost inflation - Exceptionally high rates of
inflation in our other operating costs (below Trading operating
profit), such as utility costs increases, added GBP42m of cost.
Total inflation on operating costs (including elements presented in
Trading operating profit of our brands) amounted to GBP179m,
including GBP87m in pay;
-- Financing costs - A combination of higher rates of interest
earned on short term deposits along with lower pension and long
leave costs reduced financing charges by GBP42m;
-- Other movements of GBP17m principally relate to new property
costs this year for expansion of our supply chain network to
support future growth.
Trading operating profit by brand
* We report sales using two measures: in total and
like-for-like. 'In total' is the comparison between the statutory
balances for two periods of time (e.g. this year to last year).
'Like-for-like' sales are the 'in total' sales after adjustments to
remove the impact of shop openings and closures. Waitrose
like-for-like sales excludes fuel. Like-for-like sales gives a
better comparison of our underlying performance
** As a consequence of the distortions to trade and our cost
base over the last two years, we continue to compare our result to
the most recent pre-Covid year in 2019/20
Waitrose performance
Waitrose sales for the year were GBP7.3bn, down 3% like-for-like
and in total compared to last year. This equates to a reduction in
market share ([5]) from 5.0% to 4.7%. Trading operating profit fell
by GBP126m to GBP894m, due to five key drivers: challenging trading
dynamics, inflation pressure and one-off cost inefficiencies,
partially offset by cost savings and profit growth from new
propositions. These are described further below.
1. Trading dynamics - Despite customer numbers increasing by 7%
in the year, sales volumes were down 10% in the year. There are a
number of factors driving this including record online volume gains
from last year in part reversing and a consumer shift to
convenience, where we're looking to grow our presence in future. We
also saw customers putting fewer items in their basket (basket size
down 15% in shops) and switching to lower priced products.
High online volumes last year have now normalised to lower
levels, albeit well above pre pandemic levels. Online sales this
year represented just over 14% of Waitrose sales at average orders
per week of 168k. This compares to 17% last year at average weekly
orders of 213k. This 27% drop in online volumes was expected and
contributed significantly to the movement in market share during
the year.
As the UK increasingly returns to pre-Covid working patterns,
with growing hybrid or office-based working we have seen,
consistent with the wider market, healthy growth in convenience
channels, for example with market growth of 32% in 'Food to Go'
categories. We are looking to increase our presence in the
convenience market through partnerships with third parties such as
Deliveroo, Dobbies, Shell and local convenience shops to bolster
and enhance our convenience reach for our customers.
As a consequence of low consumer confidence, pressure on
household incomes amid the cost of living crisis, we have seen
customers trading down to cheaper ranges; seeking to make their
money go further and shifting their purchase behaviour with smaller
baskets but more frequent shopping. Secondly, we saw an increase in
customer marketing through vouchers and other customer promotions
as customers began to spread their spend across supermarkets,
convenience channels and eating out.
2. Inflation - Across our Waitrose operations, and excluding the
effect of input cost inflation on goods we sell, inflation
increased our cost base in Waitrose by GBP67m this year.
3. One-off cost inefficiencies - We embedded a new merchandising
system across our buying to supply chain processes, dealt with a
fire at one of our largest distribution sites in Milton Keynes and
faced a combination of raw material shortages across the network.
These challenges led to a period of reduced availability and
created one-off supply chain, shop labour and increased wastage
costs as we recovered and improved our position throughout the
second half of the year. As we exit the year, many of these
challenges are behind us, we have significantly improved
availability and delivered a pleasing performance with strong
availability over the festive period.
While items 1-3 above led to a decrease in Waitrose Trading
operating profit in the year, these were partially offset by:
4. Lean Simple Fast cost savings - During the year, Waitrose
delivered a further GBP29m of permanent net savings in addition to
savings made in previous periods as part of our Lean Simple Fast
programme. These savings were predominantly through supplier
negotiations on the cost of goods we sell and savings from the shop
leadership transformation (which streamlined management structures)
announced the previous year.
5. New propositions - such as Dobbies, Deliveroo and Shell
launched and/or expanded in the last 12 months contributing to
Trading operating profit growth.
John Lewis performance
John Lewis sales for the year were GBP4.9bn, up GBP16m (0.3%) on
a like-for-like basis with last year and up GBP12m (0.2%) in total.
We maintained our market share with volumes up 1% for the year,
supported by a strong performance from our branches, which were up
20%. John Lewis Trading operating profit fell by GBP82m to GBP676m,
due to trading dynamics and inflation, partially offset by cost
savings.
1. Trade dynamics and inflation - Our omnichannel strength and
multi category offer allowed us to maintain market share and
customer numbers.
After two challenging years for our shops, with Covid enforced
closures, followed by Covid restrictions for our Partners and
customers, we saw a pleasing return of footfall (up 34%
like-for-like on last year) and sales to our shops this year. In
online, we continue to see strong growth in our App, with traffic
to the App up 13% in the year. Over a quarter of online sales are
now through the App.
Footfall to our shops grew 34% (reaching 100 million for the
first time since before Covid), while online traffic was down 5% on
last year (albeit more than half a billion visits to our online
channels), highlighting the value of both channels working in
combination for our customers. The number of omnichannel customers
(i.e. customers using both channels in the year) was up 4% and is
now 21% of our customer base. In combination, this led to a channel
mix rebalancing from pandemic levels of approximately 70:30
online/shops back to almost 60:40.
Our split of sales across categories reshaped to close to the
last full year pre-pandemic with Fashion and Technology our largest
sales (by value) categories at 37% and 36% of our sales mix
respectively. Home has been relatively consistent for the last four
years at 27%. The strength of our highly curated mixed category
offer helped us offset trading headwinds in certain categories like
Technology - where the Covid boom in home technology sales has
subsided - and larger Home purchases where we saw a pull back from
customers due to the cost of living climate. Instead, we saw
strength in sales across Fashion and Beauty this year as customers
enjoyed more holidays and social occasions. As part of our
commitment to value, we invested in price in certain key categories
across Fashion and Home, meaning we did not pass on all product
cost inflation on to our customers.
Across our John Lewis operations, and excluding the effect of
input cost inflation on goods we sell, inflation increased our cost
base in John Lewis by GBP70m this year. Freight costs alone were
GBP26m higher in the year than previously, as pressure on global
supply chains created spikes in cost.
The effects of trading dynamics and inflation were partially
offset by:
2. Lean Simple Fast cost savings - During the year John Lewis
delivered a further GBP47m of permanent net savings in addition to
savings made in previous periods as part of our Lean Simple Fast
programme. These savings were predominantly through supplier
negotiations, savings from the shop leadership transformation
announced last year, and improved productivity in our shops.
Financial Services
Our financial services results are reported within the Trading
operating profit of John Lewis. Income was up 22%, supported by
Partnership Card and rebound of Travel Money after two subdued
years of customer travel.
Exceptional items
During the year, we took the difficult decision to close two
Waitrose branches and also reduce the space at both our Bracknell
and London offices. We paid our Partners a onetime cost of living
payment of GBP500 per Partner (pro-rated), amounting to GBP27m.
Additionally, we have recorded a net impairment charge for the year
of GBP113m against the value of our store estate. This is a
non-cash accounting adjustment reflecting the performance in
Waitrose. Together, these have totalled a net charge of GBP156m
(2022: GBP161m charge).
Cash and liquidity
Our total liquidity at the year end remains strong at GBP1.5bn,
including GBP1.0bn cash and short-term investments, and undrawn
bank facilities of GBP420m. This allows us to invest with
confidence in our Partnership Plan and meet our obligations. We
carry GBP1.7bn of Total net debts including GBP1.9bn of leases and
a pension deficit of GBP69m on an accounting basis, with GBP350m of
financial borrowings due to be repaid in the next two years (GBP50m
term loan maturing in December 2023 and GBP300m bond maturing in
January 2025).
Liquidity has dropped by GBP473m from last year end. Our plans
for 2022/23 anticipated much of the reduction as we sought to
invest strongly in our Plan and repay GBP150m of term loans in the
year. We had been operating with elevated cash positions from
raising additional debt during the pandemic, all of which have now
been repaid. In 2022/23, we paid a GBP46m bonus and GBP27m cost of
living support payment to our Partners.
Despite weaker trading this year, we have positive cash
generated from operations before Partnership Bonus of GBP348m
(2021/22: GBP679m).
Our debt ratio at the end of the year was 4.1x, increasing from
the previous year's unusually low position at 2.3x. We expect our
debt ratio to improve in 2023/24.
2022/23 2021/22 2020/21 2019/20 2018/19*
Total liquidity
(GBPm) 1,458 1,931 2,019 1,415 1,482
-------- -------- -------- -------- ---------
Total net debts
(GBPm)** (1,711) (1,413) (2,097) (2,436) (2,682)
-------- -------- -------- -------- ---------
Debt ratio 4.1x 2.3x 3.4x 3.9x 4.3x
-------- -------- -------- -------- ---------
* The 2018/19 figure has not been restated for IFRS 16 and
instead includes the comparative figures for finance lease
liabilities and the present value of future rentals payable under
operating leases calculated using a 5% discount rate.
** The movement in total net debts is explained in the
Glossary.
Pensions
At the year end, we had an IAS 19 accounting pension deficit of
GBP69m (GBP75m after deferred tax), compared to a surplus of
GBP474m in January 2022 (GBP331m post deferred tax). The accounting
position reflects the gap between the market value of pension
assets held by our defined benefit scheme and the IAS 19 value of
our pension liabilities. At the year end, IAS 19 pension
liabilities were GBP4,490m, down from GBP6,752m at January 2022,
with the reduction largely attributable to an increase in the
discount rate as a result of increasing interest rates, partly
offset by this year's inflation figure being higher than expected.
The market value of pension assets was GBP4,421m, down from
GBP7,226m at January 2022. The reduction was largely due to a fall
in the value of liability driven investments designed to hedge
interest rate and inflation risks related to the pension scheme's
liabilities (as measured on an actuarial basis).
Following positive progress over most of 2022, the pension
scheme was affected by extreme market volatility in September and
October following the UK government's 'mini budget', which created
significant instability in the economy and financial markets. In
order to preserve suitable liquidity within the Trust's assets, the
hedge (designed to protect against movements in interest rates and
inflation) was reduced from 100% to 75% of assets. The Trustee is
currently in the process of increasing this back towards the 100%
target and expects to be back to this level of hedging within the
next few months. The Trustee continues to manage scheme risks
carefully and appropriately and the pension scheme remains liquid
and well funded despite the earlier market volatility.
At the year end, the scheme was in an estimated technical
provisions surplus of GBP120m on a 2019 actuarial valuation basis.
It is the actuarial valuation, not the accounting position of the
scheme, that is used to judge the cash contributions from the
Partnership to the scheme. We are in the closing stages of
finalising the March 2022 triennial actuarial valuation. We expect
the results of the 2022 valuation to show that the funding position
of the scheme and the estimated time period to low dependency (also
known as self sufficiency) have improved since the 2019 valuation,
and this may mean that no deficit contributions will be required
ahead of the next triennial valuation in 2025. The Partnership and
the Trustee are working together on a long term funding and
investment strategy that will seek to improve the funding strength
of the scheme even further.
ENQUIRIES
John Lewis Partnership
Parveen Johal, Partner & Senior Communications Manager,
07768 568644, parveen.johal@johnlewis.co.uk
Brunswick, Jonathan Glass / Fiona Micallef-Eynaud, 020 7404
5959, jlp@brunswickgroup.com
Debt investors: Lynn Lochhead, Partner & Head of Treasury,
investor.relations@johnlewis.co.uk
GLOSSARY OF FINANCIAL AND NON-FINANCIAL TERMS
This glossary gives an explanation of financial and
non-financial terms included in the results statement. Where
applicable tables have been included to give a year-on-year
comparison.
Adjusted cash flow
Operating profit before Partnership Bonus, exceptional items,
depreciation and amortisation, but after lease adjusted interest
and tax. This measure is important to assess our Debt ratio.
2022/23 2021/22
GBPm GBPm
--------------------------- ------- -------
Operating (loss)/profit (159) 118
add back
Depreciation, amortisation
and write-offs 481 484
Exceptional items (net) 156 161
Partnership Bonus - 46
less
Lease adjusted interest (102) (144)
Tax 39 (52)
--------------------------- ------- -------
Adjusted cash flow 415 613
--------------------------- ------- -------
Capital investment
Cash outflows in relation to additions to tangible assets
(property, plant and equipment), and intangible assets (IT
software) recognised on the balance sheet.
Debt ratio
Comparison of our Total net debts to Adjusted cash flow. This
measure is important as it provides an indication of our ability to
repay our debts.
2022/23 2021/22
GBPm GBPm
------------------- ------- -------
Total net debts (1,711) (1,413)
Adjusted cash flow 415 613
------------------- ------- -------
Debt ratio (4.1) (2.3)
------------------- ------- -------
Exceptional items
Items of income and/or expense which are significant by virtue
of their size and nature are presented as exceptional items. The
separate reporting of exceptional items helps to provide an
indication of the Partnership's underlying business
performance.
Investment
Total investment spend includes capital investment, revenue
investment, restructuring and redundancy costs, and lease disposal
costs.
Like-for-like (LFL) sales
Comparison of sales between two periods in time (e.g. this year
to last year), removing the impact of shop openings and closures
and the impact of a 53rd week for 2020/21. Waitrose like-for-like
sales excludes fuel.
Profit/loss before Partnership Bonus, tax and exceptional items
(PBTBE)
Profit/loss before Partnership Bonus, tax and exceptional items.
This measure is important as it allows for a comparison of
underlying profit performance.
2022/23 2021/22
GBPm GBPm
-------------------------------------- ------- -------
(Loss)/profit before tax, Partnership
Bonus and exceptional items (78) 181
Exceptional items (156) (162)
Partnership Bonus - (46)
-------------------------------------- ------- -------
Loss before tax (234) (27)
-------------------------------------- ------- -------
Revenue investment
Investment spend recognised directly in the income
statement.
Total liquidity
The cash, short term investments and undrawn committed credit
facilities we have available to us, which we can use to settle
liabilities as they fall due.
Total net debts
The Partnership's borrowings and overdrafts, lease liabilities,
derivative financial instruments and IAS 19 pension deficit (net of
deferred tax), less any liquid cash, short-term deposits and
investments.
2022/23 2021/22
GBPm GBPm
------------------------------------- ------- -------
Borrowings and overdrafts (655) (815)
Derivative financial instruments - (1)
Pension deficit (after deferred tax) (75) -
Lease liabilities (1,903) (1,988)
Liquid cash, short-term deposits
and investments 922 1,391
------------------------------------- ------- -------
Total net debts (1,711) (1,413)
------------------------------------- ------- -------
Total trading sales
Total trading sales represents the full customer sales value,
including VAT, that is used to assess ongoing sales performance. It
is before adjustment for sale or return sales and other accounting
adjustments. A reconciliation between Total trading sales and
Revenue is provided below.
Trading operating profit
Trading operating profit represents operating profits used to
assess the performance of the John Lewis and Waitrose brands and
determine the allocation of resources to them. It excludes
centrally managed costs, including fixed property costs and
depreciation.
Waitrose John Lewis Partnership
2022/23 GBPm GBPm GBPm
------------------------------ -------- ---------- -----------
Trading operating profit 894 676 1,570
------------------------------
Centrally managed costs
incl property (1,085)
------------------------------
Depreciation and amortisation (488)
Net finance costs (75)
------------------------------ -------- ---------- -----------
PBTBE (78)
------------------------------
Exceptional items (156)
------------------------------
Partnership Bonus -
------------------------------ -------- ---------- -----------
Loss before tax (234)
------------------------------ -------- ---------- -----------
Waitrose John Lewis Partnership
2021/22 GBPm GBPm GBPm
------------------------------ -------- ---------- -----------
Trading operating profit 1,020 758 1,778
------------------------------
Centrally managed costs
incl property (970)
------------------------------
Depreciation and amortisation (482)
------------------------------
Net finance costs (145)
------------------------------ -------- ---------- -----------
PBTBE 181
Exceptional items (162)
------------------------------
Partnership Bonus (46)
------------------------------ -------- ---------- -----------
Loss before tax (27)
------------------------------ -------- ---------- -----------
Total operating profit %
Trading operating profit divided by Total trading sales.
Reconciliation of Total trading sales to Revenue
Waitrose John Lewis Partnership
2022/23 GBPm GBPm GBPm
-------- ---------- -----------
Total trading sales 7,312 4,938 12,250
Deduct:
Value added tax (425) (800) (1,225)
Sale or return and other
accounting adjustments (137) (354) (491)
------------------------- -------- ---------- -----------
Revenue 6,750 3,784 10,534
------------------------- -------- ---------- -----------
Waitrose John Lewis Partnership
2021/22 GBPm GBPm GBPm
------------------------- -------- ---------- -----------
Total trading sales 7,536 4,926 12,462
Deduct:
Value added tax (439) (798) (1,237)
Sale or return and other
accounting adjustments (113) (274) (387)
------------------------- -------- ---------- -----------
Revenue 6,984 3,854 10,838
------------------------- -------- ---------- -----------
Reconciliation of Operating (loss)/profit to PBTBE
2022/23 2021/22
GBPm GBPm
---------------------------------- ------- -------
Operating (loss)/profit (159) 119
Add back:
Exceptional items 156 161
Partnership Bonus - 46
Deduct:
Net finance costs (75) (145)
---------------------------------- ------- -------
(Loss)/profit before Partnership
Bonus, tax and exceptional items (78) 181
---------------------------------- ------- -------
Reconciliation of Loss before tax to PBTBE
2022/23 2021/22
GBPm GBPm
---------------------------------------- ------- -------
Loss before tax (234) (26)
Add back:
Exceptional items 156 161
Partnership Bonus - 46
---------------------------------------- ------- -------
(Loss)/profit before Partnership Bonus,
tax and exceptional items (78) 181
---------------------------------------- ------- -------
([1]) All references to sales are Total trading sales which
includes VAT, sale or return and other accounting adjustments
([2]) Loss/profit before Partnership Bonus, tax and exceptional
items (PBTBE)
([3]) Loss before tax
([4]) Loss/profit before Partnership Bonus, tax and exceptional
items (PBTBE)
([5]) Source: Kantar data 52 weeks to 22 January 2023 and 52
weeks to 23 January 2022
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