City Snapshot: John Lewis Partnership scraps staff bonus as it suffers £635m loss

Top story

The John Lewis Partnership has scrapped its annual staff bonus as it suffered a first half loss of £635m amid restructuring costs and heavy writedowns of its John Lewis store estate.

Across the group, the Partnership made an underlying loss of £55m, up 5.8% from £52m last year and a “creditable performance in the circumstances”.

However, £580m of exceptional costs – including £118m of restructuring and redundancy costs and a £471m writedown of it John Lewis Estate – meant pre tax losses ballooned to £635m from a profit of £192m in the same period last year (which was driven by a £244m one-off pensions gain).

As a result chairman Sharon White confirmed that the group will not pay its staff an annual bonus next March.

Outside of exceptional circumstances bonus payments will not be resumed until profits exceed £150m and its debt ratio falls below four times.

Total sales across the group were up 1.1% to £5.6bn, driven by 7.6% sales growth at Waitrose to £3.7bn and like for like sales growth at the supermarket of 9.6%.

John Lewis sales were down 9.7% to £1.9bn.

Waitrose’s trading profit was up 10.6% to £586m, while John Lewis’ collapsed by 46.3% to £153m.

The group said that at Waitrose the early days of stockpiling pasta and long life milk have given way to a varied basket with more fresh produce and a return to the weekly shop.

Demand for online shopping remains strong and it is now delivering around 170,000 weekly orders, up from around 60,000 before the pandemic. The average basket size is four times bigger for home deliveries than in store.

In John Lewis, online sales growth was strong at 73%, helping to offset the impact of shop closures.

However, sales momentum is starting to build in reopened stores, with sales down around 30% on last year, ahead of expectations. Stores in retail parks are down by around 15% and are doing better than city centres, especially London which is down around 40%.

Chairman Sharon White said the early weeks of the second half have been “encouraging in both brands”.

Waitrose has seen a strong pick-up in demand since the end of its relationship with Ocado on 1 September. Waitrose.com orders were up 9% in the first week and is now a £1bn annualised business, with further capacity expansion of 50% to 250,000 orders a week planned.

It has also entered into a trial partnership with Deliveroo, which has seen “very positive early results”. Up to 500,000 customers in five areas can now get 30 minute deliveries, with plans to add 25 more localities.

In John Lewis its new Home collection has launched and a bigger revamp for this key category is set for next spring. Services previously only available in store - personal and home styling, beauty and nursery advice - can now be accessed online as well and take-up is high.

“The outlook for the second half is clearly uncertain given the broader macroeconomy. Christmas trade is also particularly important to profits in John Lewis and I would ask Partners to do everything we can to serve customers brilliantly both in John Lewis and Waitrose.

“In April, we set out a worst case scenario for the full year of a sales fall of 5% in Waitrose and 35% in John Lewis. That remains our worst case view. We now believe the most likely outcome will be a small loss or a small profit for the year. As I have mentioned previously, we are targeting £100m head office savings, and we are aiming to make these savings as early as possible this financial year and next.”

Morning update

Soaring food sales during the coronavirus lockdown period have boosted overall first half revenues for the Co-operative Group.

Total revenues in the 26 weeks to 4 July were up 7.6% to £5.8bn driven by the strong performance of its food and wholesale arms during the period.

Revenues in food rose 5.2% to £3.9bn, with a like for like sales increase of 9.9% in the second quarter as customers shopped closer to home and ate out less frequently during lockdown.

Like-for-like sales (excluding fuel) were up 8.8% over the first half, representing 7th year of like-for-like growth as its market share increased 0.5 percentage points to 7.1% - the highest it has been for two decades – peaking in the 12 weeks prior to 14 June

Meanwhile, Nisa wholesale revenues increased 13.9% to £801m, also benefitting from local shopping in lockdown and range improvements under Co-op ownership.

This strong sales growth saw underlying profit in its food business increase by 46% to £175m.

The Co-op said it did incur significant additional costs in excess of £40m as a result of Covid-19 including protective equipment, colleague reward and absence as well as making stores safe. Additionally, margin rate was impacted by a customer shift leading to higher mix of lower margin items such as beers, wines and spirits and a reduction in higher margin food to go.

However, despite these pressures, strong cost control and increased productivity in stores and logistics meant the sales growth converted into strong profitability.

Co-op also received £33m government support in first half in business rates relief and furlough payments for limited number of colleagues

That meant group underlying operating profit doubled to £121m, while group profit before tax was up 35% at £27m

Elsewhere, its Funeralcare revenue increased 3.5% to £148m, 22% increase in volume offset by reduced average revenue per funeral due to Covid-19 restrictions

Legal services revenue flat year-on-year at £19m with increased demand for will and divorce services.

Co-op CEO Steve Murrells commented: “We are living in unprecedented times, but the response of our Co-op has been exceptional and I’m immensely proud of my 60,000 colleagues who’ve helped to feed and care for the nation during this difficult period. We’ve shown how our co-operative approach to doing business provides enhanced value for our customer-members and the communities in which they live. At a time of crisis, our country needs a strong and progressive Co-op and these results evidence that we are ready to deliver even more for our key stakeholders.

“The coming months and years remain uncertain, and we know our own Co-op will not be immune to the pressures the recession brings to family budgets and to local and national economies. We will continue to invest within our core businesses to ensure that our Co-op value resonates within Co-op households and local communities.”

Chair Allan Leighton added: “During the first half of 2020 we have shown that commerciality and co-operability can thrive and feed off one another, when both are given the same level of focus and importance. The Co-op is a different kind of business, but one whose enduring value can best be evidenced during times of need and hardship. In the difficult times ahead, we will ensure that our Co-op continues to make the world a fairer place to live in.”

During the second half the group said competition is set to intensify in food but it remains well positioned. It has resumed its store opening programme and will invest £130m in opening 50 stores, giving 15 stores significant extensions, and giving 100 further outlets major makeovers, creating 1,000 jobs before the end of the year.

Elsewhere, Tesco meat packer Hilton Food Group has posted a 38.6% jump in first half sales to £1.26bn on a spike in demand during the coronavirus crisis.

Performance in the period saw volume growth of 22.6% attributable to its new Australian facility, increased UK participation with Tesco and increased home consumption driven by Covid.

In Europe turnover increased by 14.9% on a constant currency basis reflecting the higher volumes and also increases in raw material prices.

Taking full control of its previous JV with Woolworths in Australia and the opening of a new facility in Brisbane meant Australian revenues rose to £338.1m from £7.6m.

Operating profit for the first 28 weeks of 2020 was up 17.9% to £31.5m despite coronavirus related costs, driven by volume growth.

Operating margin was lower at 13.2p per kg (2019: 13.8p per kg) and the margin was 2.5% (down from 2.9%) mainly due to higher Australia unit revenues, more resourcing and also Covid-related costs.

Executive chairman Robert Watson commented: “I am extremely proud of the commitment and resilience shown by the entire Hilton team to step up and adapt quickly to the challenges caused by Covid-19 in order to safeguard our people, keep our facilities open and support our customers. This response underpinned a strong performance with volume and profit growth demonstrating the robustness and sustainability of our business.

“Hilton continues to invest in new facilities in Belgium and New Zealand which, together with the further development of our fish and vegetarian categories will ensure future growth. As with all businesses there remain uncertainties concerning the full impact of Covid-19 including potential recessionary risks but our wide geographical spread and the fact we serve the food retail sector make us believe we are well placed to meet any future challenges.”

It said its financial position remains strong and it continue to explore opportunities to invest and grow the business both domestically and in overseas markets with both new and existing customers.

Full year results are expected to be in line with the board’s expectations.

Supermarket property investor Supermarket Income REIT has posted its annual accounts, revealing 4.3% growth in our portfolio value to £539.4m.

The increase in value has driven the group’s net asset value up from 97p at 30 June 2019 to 101 pence as at 30 June 2020.

All directly owned properties have contractual, upward-only, inflation-linked rental uplifts and average rental increases during the year were 2.5%.

The group said it has a high degree of certainty of income through its long leases to tenants with undoubted covenants. Throughout the COVID-19 crisis this has been borne out as we collected 100% of rents with no defaults, deferrals, or rent reductions.

Reflecting the growth in total assets, earnings increased by 65% to £16.7m.

At year end it had a net loan to value ratio of 22.3% as at 30 June 2020, with a weighted current cost of debt of 2.0%.

During the year it raised £239.8m in equity placings and made a number of significant acquisitions, including three Sainsbury’s supermarkets for £148.8m and a portfolio of nine supermarkets for £188.9m.

Chairman Nick Hewson commented: “This has been another year of solid performance by the Group in which we have generated a Total Shareholder Return of 11.6%. Since our IPO in July 2017, we have delivered a total return to shareholders of 24.0%. In an environment where income has become increasingly scarce, our highly specific investment strategy continues to provide our investors with stable, long-term, inflation-protected income, confirming our belief that supermarket real estate assets remain one of the most compelling asset classes in the UK investment market.”

On the markets this morning, the FTSE 100 is down 0.9% to 6,026.3pts.

Risers so far include Hilton Food Group, up 1.2% to 1,212p, Stock Spirits, up 1.2% to 217p and PayPoint, up 1% to 632.5p.

Fallers include Marston’s, down 2.8% to 44.7p, WH Smith, down 2.4% to 1,121p, FeverTree, down 2.2% to 2,348p and Supermarket Income REIT, down 2% to 108.8p.

Yesterday in the City

The FTSE 100 ended the day down 0.4% to 6,078.5pts yesterday.

Ocado continued to build on its share price surge on Tuesday, rising a further 1.3% to 2,641p yesterday while its partner Marks & Spencer rose 2.6% to 112.1p.

Other risers included Carr’s, back up 13.4% to 116.3p after Tuesday’s blip, FeverTree, up 9.9% to 2,400p after a share price tip in the The Times, Pets at Home, up 3.8% to 311.4p, C&C Group, up 1.8% to 225p and Devro, up 1.5% to 178.6p.

The day’s fallers included SSP Group, down 6.2% to 204.2p, Bakkavor, down 5.9% to 64p, Morrisons, down 4% to 171p and Naked Wines, down 3.2% to 430p.