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John Lewis Partnership plc Interim Report 2009


Chairman’s statement continued

Capital expenditure

Capital spending was £281.5m with Waitrose investing £198.2m, mainly on new stores, and John Lewis investing £68.5m, mostly on the new stores in Cardiff and Poole, the new Distribution Centre at Magna Park, Milton Keynes, and improvements to our multi-channel offering. £14.8m of expenditure was incurred centrally in efficiency projects including the new Oracle finance systems, investment in the clubs, and renewing and maintaining our IT infrastructure.

Financing

Cash generated from operations was £285.2m, 12.5% better than last year’s £253.6m. Our focus has been on tight cost control and effective cash and working capital management.

At the end of the first half, net debt rose £148.3m to £580.7m, reflecting the increased capital investment during the year, including the purchase of 13 ex Somerfield stores, which leaves the Partnership with substantial headroom on our facilities which total £1.275bn. We remain well within the limits allowed by our bank and bond covenants.

We saw an increase in underlying finance costs on net borrowings, which were £21.0m, £4.1m, or 24.3% higher than last year. The increase mainly reflects the interest payable on the £275m Bond that was issued in April 2009.

Trading performance

Waitrose

Waitrose delivered a very strong performance, mainly as a result of the introduction of the new essential Waitrose range, the successful conversion of the Somerfield acquired stores and free delivery driving rapid online growth. Gross sales were up by £149.8m, 7.4% to £2.18bn. Like-for-like sales grew 1.8%, excluding petrol. We have built momentum in the growth in like-for-like food sales, up 0.6% in Q1 and 3.4% in Q2 – up 2.0% for the half.

Operating profit, before exceptional items, property profits, launch and other one-off costs, grew by £21.4m, or 20.1%, to £127.8m. Store opening costs of £8.0m were incurred in the first half and £12.0m was invested in the launch of the essential Waitrose range.

Complementing the launch of essential Waitrose for everyday staples, which broadened the appeal of Waitrose, was the successful launch of the new ‘Seriously’ brand of indulgent food products. This got off to a positive start and reinforced the Waitrose position as the top premium food retailer, which will now be further strengthened by ‘Duchy Originals from Waitrose’. These two new initiatives form the bedrock of Waitrose top tier strategy.
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