Chairman’s statement

The Partnership has made good progress in the first half. Sales grew strongly and, as expected, profits were lower than in the same period in 2010 as we accelerated investment in our growth plans. Our capital expenditure increased by £99m to £254m in the first half.

Sales in both Waitrose and John Lewis grew well ahead of their respective markets. Waitrose has now been the fastest growing supermarket for over two years and in John Lewis we gained market share in our three key areas of electrical and home technology (EHT), fashion and home.

We have often said we are a business with a long-term outlook. Our sales momentum today has much to do with decisions taken to invest during similarly difficult market conditions in 2008 and 2009. Our profit performance in the first half reflects not only the extremely challenging trading conditions particularly in John Lewis, but also the significant investments we are making to accelerate growth and to seize the opportunities created by the structural shifts in how customers are shopping.

We accelerated our opening of new shops, with 16 new shops versus 9 last year, an increase of 220,000 square feet of new space.

We also accelerated our spending on systems and supply chain to increase our capacity to serve customers in the new ways they want to shop. In Waitrose we relaunched our online platform and will soon open a new customer fulfilment centre in Acton to support deliveries within the M25 and in John Lewis we added extra capacity for in-house picking and delivery of customer orders.

In the convenience market, we continued the roll-out of Little Waitrose with 8 more shops and 12 more planned in the second half, 2 more John Lewis at home shops planned for the second half and we will extend our popular Click and Collect service to 116 locations from next month.

In the face of increasing pressure on household budgets we increased our focus on offering value across all our ranges. In Waitrose we absorbed the majority of inflation within our prices, and in John Lewis, ‘Never Knowingly Undersold’ meant we met our promise to offer the best value both on the high street and online compared to ‘bricks and mortar’ competitors.

Financial Results

The Partnership delivered gross sales of £4.05bn for the first half of the year, an increase of £244.0m or 6.4% on last year, but operating profit at £111.5m, was down £33.7m or 23.2% on last year. Together these represent an operating profit margin of 2.75% (2010/11 3.81%). Profit before tax was £90.4m, a decrease of £20.1m, or 18.2%, on last year.

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