March 7, 2019 / 9:43 AM / 9 months ago

John Lewis cuts staff bonus ahead of Brexit

LONDON (Reuters) - Britain’s John Lewis Partnership said it is as ready as it can be for Brexit, whatever scenario, after reporting a 45 percent drop in full year profit and cutting its staff bonus to the lowest level in 66 years on Thursday.

FILE PHOTO: John Lewis and Waitrose employees wait for the announcement of their 2015 bonus in central London, March 12, 2015. Britain'sREUTERS/Neil Hall/File Photo

Despite predicting trading conditions would remain tough, the employee-owned retailer’s chairman forecast operating profit would grow in the full 2019-20 year. He cautioned though that the department stores arm may report a first half loss.

John Lewis Partnership, which runs the eponymous department stores business and up-market supermarket Waitrose, said it had built up record liquidity of 1.5 billion pounds to mitigate risks and maintain annual investment at 400-500 million pounds.

With just 22 days until Britain is due to leave the EU on March 29, Prime Minister Theresa May is still seeking changes to her Brexit deal in order to win the backing of parliament.

She has promised lawmakers they will get a say over whether to seek an extension to the Article 50 exit negotiation period if her deal and a no-deal outcome are rejected next week.

Charlie Mayfield, the partnership’s chairman, said he was hopeful a no-deal Brexit would be avoided but was still planning for the worst.

“We’ve built up a financial position which is resilient we think against pretty much any scenario but that doesn’t mean to say it’s pleasant,” he told reporters.

“If those (no deal) scenarios came about they would be extremely unfortunate and damaging, not just to us but to many companies.”

Mayfield said the main risk to the partnership from an unmanaged Brexit was a sharp fall in consumer confidence and the impact that would have on trading.

PROMOTIONAL MARKET

The partnership reported profit before tax and one off items of 160 million pounds in the year to Jan. 26 2019, down from 292.8 million pounds made in 2017-18. It had warned on profit last June when it refined its strategy, saying it would focus on differentiating its businesses through innovation and services rather than on scale.

As a result the partnership will pay its workers, which it calls partners, a bonus of 3 percent of salary. It paid 5 percent last year.

While operating profit grew 18 percent at Waitrose, it slumped 56 percent at the department stores arm.

The department stores outcome reflected weak demand for higher margin home products as the UK housing market dipped, and what Managing Director Paula Nickolds said was “the most promotional market for at least a decade”.

FILE PHOTO: Charlie Mayfield, Chairman of John Lewis Partnership, speaks at the Institute of Directors convention in London, Britain, October 6, 2015. REUTERS/Toby Melville/File Photo

Britain’s department store sector has been under intense pressure from weak demand and rising costs for several years.

BHS went bust in 2016, House of Fraser was bought out of administration last year by Mike Ashley’s Sports Direct and Debenhams has issued a raft of profit warnings and is closing stores.

Last week Waitrose said it would end its supply deal with online grocer Ocado in 2020. Ocado has instead tied-up with Marks & Spencer, while Waitrose plans to focus on growing its own Waitrose.com delivery service.

Reporting by James Davey and Kate Holton; editing by Andy Bruce and Emelia Sithole-Matarise

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