48 2GM Saturday October 17 2020 | the times
Business
Route to growth
The John Lewis Partnership has set
out plans to improve its fortunes after
slumping to a £635 million pre-tax
loss during the first half.6 Targeting £200 million in annual
profits in two years, rising to
£400 million by 2025.6 £300 million of annual savings by
2022 and £1 billion of investment in
online and stores over five years.6 Expand beyond its rewards-based
credit card into savings and insurance,
starting with home cover next year.6 Expansion into affordable housing.
The group has identified 20 Waitrose
sites that could accommodate flats
above or next to them.6 Within five years all John Lewis
products will have a “buy back” or
“take back” option.ther into gardening and adopting more
sustainable practices such as rental and
resale.
The group’s “never knowingly under-
sold” price-match pledge will be re-
placed by a new policy next year and it
suggested a shift in emphasis at its
department stores towards homeware,
nursery and electrical goods.
Pippa Wicks, head of the John Lewis
chain, said there were signs consumerswere Christmas shopping: “My think-
ing is that actually people are bringing
forward buying for Christmas because
they want to make sure they can get it.”
Ms Wicks said the store was “seeing
terrific sales” of its festive range and “a
lot of early buying of gift products”. She
added: “Certainly it’s going to be an
online Christmas, we’re running at 60
per cent online. I expect that to con-
tinue, it might even go up a bit.”1
The Boeing 737 Max is on
course to return to Britain’s
skies before the year is out
after Europe’s aviation safety chief
declared it safe to fly. Patrick Ky,
executive director of the European
Union Aviation Safety Agency,
said that an overhaul of a faulty
flight control system had met the
watchdog’s requirements. Page 472
PWC has reportedly resigned
as auditor to the fashion
retailer Boohoo over concerns
about the risks of continuing to
work for the online group,
according to the Financial Times.
Boohoo, which is under scrutiny
over suppliers paying workers
below the minimum wage, said
PWC had not resigned. Page 473
The petrol station group
whose owners are buying a
majority stake in Asda said
that it can withstand any new
shutdowns. EG Group, which is
controlled by the billionaire Issa
brothers and TDR Capital, the
private equity firm, said it would
continue to prosper. Page 474
Dame Sharon White,
chairman of the John Lewis
Partnership, announced her
strategy for the store group. This
included generating 40 per cent of
profits from areas such as financial
services and housing by 2030,
pushing profits to £400 million.5
Audit fees for the Big Four
accountancy firms rose by
6.9 per cent last year as they
faced tougher regulations. The
combined UK auditing income of
Deloitte, PWC, EY and KPMG
rose to £2.3 billion. Fees rose by
1.7 per cent in the previous year.6
Payments of up to £50 million
a month for test-and-trace in
Britain and Australia and
revenues from housing asylum
seekers who cannot be repatriated
because of travel restrictions
boosted profits at Serco. Page 507
Talktalk’s handling of its
£1.1 billion takeover approach
has come under scrutiny amid
concerns about the independence
of its board and the interests of
minority shareholders. The shares
are tightly held, with Sir Charles
Dunstone owning 29.86 per cent,
followed by Toscafund, with
29.09 per cent. Page 508
Moody’s has lowered the UK’s
sovereign debt rating, citing
weakening economic and
fiscal strength stemming from
Brexit woes and coronavirus-
induced shocks. The rival agency
Standard & Poor’s warned that
some of the world’s richest nations
face downgrades. Page 519
Tim Martin, the chairman of
JD Wetherspoon , said that
the government’s strategy of
“tightening and tinkering with
regulations” had pushed the
country into quasi-lockdown as
the pub company reported its first
annual loss since 1984. Page 5210
Investors pulled over
£1 billion from Merian
Global Investors during
the third quarter following its
troublesome acquisition by Jupiter
Fund Management. Jupiter funds
under management were £55.7
billion at the end of September,
boosted by £16.6 billion as a resultof buying Merian. Page 53
Need to know
Finance and
housing open
new doors at
John Lewis
Ben Martin Senior City Correspondent
The chairman of the John Lewis Part-
nership insisted that the group was not
over-reaching itself as she set out plans
to expand the business beyond retail
and push profits to £400 million.
Dame Sharon White announced her
strategy yesterday for the owner of
John Lewis department stores and
Waitrose grocers. This included seek-
ing to generate 40 per cent of profits
from areas such as financial services
and affordable housing by 2030.
She dismissed suggestions that the
employee-owned group risked spread-
ing itself too thin and said: “I’m really
confident. I don’t see these as diluting
the brand, I don’t see these as over-
stretch, I see these as a very natural
extension and a deepening of the rela-
tionship we have with customers.”
Dame Sharon, 53, who was previous-
ly head of Ofcom, the telecoms regula-
tor, took charge at the John Lewis
Partnership in February just before the
coronavirus crisis hit. The group was
grappling with falling profits before the
pandemic but the virus has worsened
its predicament.
The partnership can trace its history
to 1864. It has about 80,000 employees,
known as partners, 42 John Lewis
shops and 335 Waitrose stores.
Annual pre-tax profits fell by
about a quarter to £146 million in
2019-20 and it swung to a
£635 million first-half loss in the
six months to July 25 after writing
down the value of John Lewis
shops by about £470 million. It
confirmed in September it
would not pay a staff bo-
nus for the first time
since 1953 and it is clos-
ing eight John Lewis
department stores,
putting 1,300 jobs atrisk. Dame Sharon is targeting £200
million in annual profits in the next two
years and £400 million by 2025 as part
of a five-year plan.
The first phase of the strategy will be
driven by £300 million of annual sav-
ings, which will include the £100 mil-
lion of cuts her predecessor, Sir Charlie
Mayfield, set out a year ago and which
involved the loss of about 75 head office
jobs.
Asked whether the new cost-saving
drive would involve more job losses,
Dame Sharon said: “We’re not talking
today about job cuts.” While this left the
door open for redundancies at a later
date, Patrick Lewis, the finance direct-
or, said that supply chain efficiencies
will drive the savings.
The partnership plans to invest £1 bil-
lion over the five years to accelerate its
shift online and it forecast that the John
Lewis business will be up to 70 per cent
digital by the end of the overhaul. Wait-
rose’s online business has this year
grown from about 50,000 to more than
190,000 deliveries per week and it
wants to push this to 250,000.
Dame Sharon shed more light on
initiatives the partnership had said
were under review in July, which will
push it into higher-margin areas.
It has identified 20 sites
where flats could be built
above or alongside Waitrose
shops and rented out. It will
submit planning permis-
sion for two sites in greater
London next year. This will
significantly expand the
partnership’s role as a land-
lord to more than 150 flats
and houses.
The group also
wants to offer sav-
ings such as junior
Isas and insurance
products alongside
its existing Partner-
ship credit card.
Other initiatives
include a push fur-Big Four raise fees after regulator tightens rules
Tom Ball
Audit fees for the Big Four accountancy
firms rose by 6.9 per cent last year as
they increased prices in the face of
tougher regulations.
The combined UK auditing income
of Deloitte, PWC, EY and KPMG rose
to £2.3 billion, with fees growing at
more than four times the 1.7 per cent
rate reported in the previous year,
according to the latest annual review by
the Financial Reporting Council (FRC),
the industry regulator.
Fees rose by 7.1 per cent overall for the
Big Four, despite a 20.8 per cent fall in
the amount of fees they made from
providing consulting advice to audit
clients, which the regulator described
as a “positive market shift”.
The figures will raise fresh concernsabout the hegemony of the Big Four,
which three government-sponsored
reports have sought to address follow-
ing a string of accounting scandals in
recent years.
They continue to dominate the
auditing of the UK’s largest listed busi-
nesses, working with all of the FTSE
100 companies and all but ten of the
FTSE 250, the regulator found.
The audit income of challenger
firms, which include BDO, Grant
Thornton and Mazars, grew by 2 per
cent last year.
The business department is expected
to consult publicly on implementing
the recommendations from the three
reports aimed at improving competi-
tion and standards.
Last year the global accounting
giants launched a review of their clientlists, purging those deemed to be too
risky, after a string of corporate failures.
The Big Four group’s roster of listed
audit clients has shrunk by 46 from 353
a year earlier, Adviser Rankings’ data
shows.
EY told its clients, including Sains-bury’s, Royal Bank of Scotland, Stan-
dard Chartered and Vodafone, that
“unprecedented market forces” would
mean an increase in audit fees.
The FRC said the drop in non-audit
fees to clients demonstrated the effec-tiveness of new restrictions that
attempt to separate the accountancy
firms’ auditing and consultancy activi-
ties by banning them from non-essen-
tial consulting work for audit clients in
the FTSE 350. This is aimed at remov-
ing potential conflicts of interest.
David Rule, executive director of
supervision at the FRC, said: “The latest
data across the firms reveals some wel-
come market developments as the FRC
continues to drive audit quality im-
provements. New ethical standards in-
troduced by the FRC have also sought
to reduce possible conflicts of interest
between audit and non-audit work.
“Improving choice and resilience in
the market also remains a major focus
ahead of wider government reform and
planned operational separation of the
audit practices of the Big Four.ӣ2.3bn
Big Four’s UK auditing income last year
Dame Sharon White
said the plans were a
“natural extension”16-17 19-20 22-23 25-26
Profits
£400m
£200m
0
Number of shops
Looking ahead
Number of staff
John Lewis & Partners
Waitrose & Partners
42
335
80,000
Profit aim
Profit aim
New services Retail
16-17 19-20 22-23 25-26
Sales
5
£10bn
0
Sales aim £11bn+
Online Branch
40%
60%
Forecast Forecast