Pension and insurance costs hit John Lewis as profits tumble

Rising pension costs and soaring insurance premiums in the wake of 11 September were blamed for a sharp fall in half-year profits at the John Lewis Partnership, the department store group which also owns Waitrose supermarkets.

The retail group said its insurance costs would double this year to £12m and that it is now considering carrying some of the risk itself rather than paying huge premiums to insurance companies. Ian Alexander, the finance director, said other companies might follows suit.

Pension costs totalled £32.6m in the six months to 27 July as the company was forced to make up for falling stock markets. John Lewis said it remained committed to its final salary pension scheme. Sir Stuart Hampson, the chairman, said: "We think it is important for staff to have certainty as they approach their retirement rather than relying on what happens to the stock market on the day they leave. It is a point of difference for us."

Though underlying profit in the first half was up 2 per cent to £102m, pre-tax profits were down 24 per cent to £33.7m after pension and interest costs. The company is running behind its sales estimate for the year but said this had been balanced by a 0.5 per cent increase in department store margins. The 26 department stores saw like-for-like sales rise 4 per cent.

The company said capital expenditure would reach £250m this year but fall after as it has completed its most expensive store refits. The group is planning to open two John Lewis At Home stores later this year. These combine a branch of Waitrose with an edited range of household goods. The first opens in Canary Wharf, in London's Docklands, next week.