Marks and Spencer Group plc

Hi everybody and welcome to the M&S annual results for 2021. Before I come on to the presentation, I just wanted to say a massive thank you to all our colleagues who worked so incredibly hard in a very, very challenging year. They were getting up every single morning to commute to work, to keep the business going. And with that, dealing with, we should remember, store closures, space closures redundancies dealing with a bow wave of surplus stock and Honestly, it's just been a humbling experience to be part of so I just want to say a massive. Thank you To all of the people who worked so hard to get M&S to the place it is now with that running through the seam of the presentation that you're going to see today is our never the same again strategy. So what do we mean by that? Look, it boils down to the fact that we decided at the outset of the pandemic that the risk of change was far less than the risk of no change. So the time has come when If the decisions we were hovering over or thinking about or nettles that need to be grasped that have got put off or something we were thinking of doing in two years' time, we just said, now's the time, now's the moment, and we have to move faster and make it happen. So MS2, the management rationalization, the brands project launch, the Ocado switchover, the Sparx project and relaunching Sparx and making it the amazing, outcome it is today, that all adds up to the fact that we're emerging as a reshaped business from the pandemic. You know, somewhere in the media somebody said, I think in a slightly cynical way, that Marks & Spencer is a never-ending transformation. And I think a bit of that's true. Businesses today constantly have to go through a process of self-disruption. It doesn't end, and at M&S that's even more so. And yes, we did need to change, and yes, it has been said before. But the acid test, is it really happening this time? And I think that you will see from this presentation that we are now in a new phase, that the business is emerging from the chrysalis of COVID as a reshape business. And I think for the first time for three and a half years, we can say there is a lot to feel confident about. And there's enough green shoots and points of light in this presentation to believe that M&S is on the verge of becoming a growing business again. Now, Steve's going to introduce the presentation. Owen's going to go through the gory financial detail. And some of it is quite gory, but we're coming out in a good place. And then Steve's going to talk about the future and the strategy. Thank you.

Good morning and welcome to the M&S full year results presentation. Firstly, I hope you and your families are well. If you're watching the presentation on Wednesday the 26th of May, there'll be a conference call for analysts and investors at 9.30 a.m. And details of this are on the results release. This presentation is split into two parts. First, Owen Tonge, our CFO, will take you through the results for the year. I will then talk about how we've used this period of disruption as a catalyst to accelerate the transformation to ensure a reshaped M&S emerges from the crisis. In a year of disruption, our performance was resilient. Despite the heavy impact from COVID restrictions, we delivered an adjusted profit before tax of over £40 million. In addition, a strong focus on cash preservation resulted in healthy reduction in net debt. Underlying growth in food was strong and Ocado Retail made a substantial contribution. Clothing at home and international were impacted by store closures, the collapse in footfall and shifts in product mix. However, we managed stock effectively and online growth of over 50% resulted in strong profitability in that channel. Importantly, from the outset of the crisis, we recognised the pandemic would increase the market trends that we were already facing into. And as a result, we went faster and further in our transformation through the Never the Same Again program to forge a reshaped M&S. Our food business is strong. It's positioned to deliver underlying growth and progressively recover in hospitality and convenience. In clothing and home, a reshaped product engine and improved online capability is gaining traction with customers. And as we will have seen in our results this morning, there are some encouraging early signs with group sales in growth compared to the same period two years ago. Three years ago, I spoke to you about where the business was. I was clear that M&S needed to face facts about the deep-seated issues it failed to address over many years. A complex corporate culture and structure behind the curve in digital, lacking style and value in clothing and home, underperforming in food with a high cost to serve, and a store estate not fit for the future. I set out a three-phase strategy that began with fixing the basics. And while there'll always be a list of things to sort out in any trading business, through our Never the Same Again program, we've gone further and faster in our transformation. You can see this where I am today at our London Stratford store. I spoke to shareholders from here last year at the AGM, and since then, it's changed significantly. It's buzzing again with more shoppers, of course. Our food hall has been renewed, showcasing more of our range in an inspiring way. Our new clothing and home ranges are looking more contemporary and stylish, with a much stronger value message. And while our focus on complimentary brands is definitely online first, we're trialing some of them here, and as you can see, they look great. Before Owen talks about last year's result, this short clip highlights some of the ways we've fundamentally changed the business over the past three years. We're moving to our next phase of our transformation, and now is the right time to get us set up for the future growth and reinvest in the brand. So I'm pleased today to be joined by Owen, who's taken on strategy and transformation planning as part of his remit as Chief Financial Officer. Also joining are Katie Bickerstaff and Stuart Machen, our new Joint Chief Operating Officers. And with their support, I'll be better able to concentrate on building the M&S of the future and our path to growth. In addition, Mel Smith, who is the CEO of Ocado Retail and former strategy director at M&S, will be joining us.

Thanks, Steve, and good morning to everyone. It goes without saying that this has been an unprecedented year, with these results spanning the beginning of the first national lockdown in the UK through towards the end of the third national lockdown, and the associated impacts are evident in our results. Group sales were down nearly 12%, Yet in the face of material headwinds, the group delivered an adjusted profit before tax of 41.6 million. And this is compared to the loss we predicted when we set out our original scenario a year ago. There is a lot to unpick in the performance. And as you will see in the results release, there were a number of significant movements relating to COVID within the adjusted results, including government support of 306 million. The performance on cash was good, and critically, we reduced debt over the period. And of course, if we remember, we at one stage had worried debt might materially increase. I will now take you through the results in a little more detail, starting with food. Like for like sales were slightly up on the year, but the underlying performance was strong. Our hospitality business was closed for a large part of the year and our food business is also exposed to travel and office locations with a high dependence on convenience and food on the move and these were of course impacted significantly. Therefore, excluding hospitality and franchise, you'll see we delivered strong underlying growth. In summary, the repurposing of space towards core categories, together with the ongoing transformation of our ranges, helped to offset the loss of convenience trade. It's worth noting that these sales do not benefit from a direct online grocery presence, which for us are reported through Okada Retail. You can see that performance excluding hospitality and franchise was largely consistent across the year, including through the lockdowns at over 5% ahead of total like-for-like performance. Operating profit decreased 10% and margin was therefore down in the year. There's a lot to unpick here. Firstly, we saw an adverse gross margin mix impact, driven by the lower hospitality and convenience sales. This was partially offset by the benefit of business rates relief. In costs, we had the benefit of more efficient staffing and furlough support, although this was less than the related wages of furloughed colleagues. We did also see increased COVID costs such as door hosts and social distancing measures in our supply chain. And finally, we absorbed a number of Brexit headwinds in the fourth quarter. Turning now to the contribution from Ocado Retail. This has been an exceptional period for grocery online and Ocado Retail performed strongly. As already reported by Ocado Group, the business benefited from higher than normal basket size and a consistent trading profile across the week. The exceptional item relates to business interruption insurance receipts due to the Andover fire. Overall, Ocado Retail generated a substantial contribution to group results, driven by this top line growth, as well as excellent CFC and delivery efficiencies and reduced marketing costs. Moving on to clothing and home. The overall result for the year was heavily impacted by lockdown and restrictions. As you can see from the numbers in the graphic opposite. The business also saw a steep decline in formal and occasion wear, which is partly offset by outperformance in casual clothing, kids and home. Similar to food, stores in high streets, shopping centres and city centres created an extra drag on the sales performance. As you can see, the online business built momentum through the year as we implemented MS2 and were able to capitalise on the change in customer shopping patterns. This was a result of strong traffic, active customer growth, improving frequency and lower returns, as well as a good service and fulfilment performance. Overall, clothing, home and operating loss of 129 million. At a headline view, while online profitability increased to 14%, this was insufficient to offset the decline in store sales. Going into more detail, you will of course see that gross profit was down significantly as a result of the reduced store sales, with the margin rate reflecting an increased mix of clearance sales as we manage stock flow. As I will outline later, better than expected sell through of seasonal stock has resulted in a reduced COVID inventory provision at year end. Operating costs reduced overall with effective management of staff costs supported by the furlough scheme, which partly covered the cost of furlough colleagues, good cost control elsewhere and indeed the benefits of business rates relief. Higher fulfillment costs online to service growth were partly offset by lower distribution costs to store. Some of these additional costs were also recovered in higher delivery income reported in revenue. Moving on to international, performance reflected the pandemic impact and lockdowns across markets, partly offset by a strong shift to online sales. Clothing at home reflected slower store sales in the Republic of Ireland and a robust performance with partners to manage the effects of the pandemic, partly offset by online sales, which more than doubled, as you'll see in the graphic here. Food sales were more resilient, particularly in the Middle East and Asia, as COVID refocused customer demand to favour eating in. This helped to offset a weaker performance in travel franchise sales in Europe and disruption from Brexit in quarter four. Overall, operating profit was sharply down. Gross profit declined due to lower store sales, only partially mitigated by online growth. Store staffing and other store costs declined as we benefited from government support and rent relief. Distribution costs increased as a result of the growth of online sales and costs incurred as a result of Brexit, offset by lower distribution costs to stores. Turning to the group profit outturn, as discussed, headwinds in the food business and the decline in the clothing and home in international businesses were only partially offset by the strong contribution from Ocado Retail. M&S Bank contribution declined due to a significant decrease in income from credit card and travel money sales as a result of the pandemic. Lower net interest was driven by an increased pension credit. And overall, the group delivered a 41.6 million adjusted profit before tax. Adjusting item charges in the period were 243 million, which I will cover next. And that left a total loss before tax of 201.2 million. Within adjusting items, we have booked a charge for the organisational restructuring announced in August as part of the agenda to reduce costs and change our ways of working. Store estate charges reflect the accelerated rotation programme with a new self-funding principle, which Steve will talk more about. Adjusting items also include the release of the COVID stock provision following better-than-anticipated sell-through of clothing and home stock, as mentioned earlier. Turning to cash flow, you may recall at the start of the year, we had anticipated drawings against our credit facilities of around 300 to 350 million by the end of the year. But in fact, we generated cash in the period and net debt fell. This firstly was a result of better than expected EBITDA, the drivers of which I have already discussed. There are a number of other important points to note. Firstly, we had a strong working capital performance in the period due to an extension in supplier terms in clothing and home, strong Easter trading, a reduction in food franchise receivables and other initiatives. CapEx levels were much lower in the year as a result of careful management of discretionary spending due to the pandemic. It is worth noting that the cash flow contains both CapEx booked in the year and prior year accruals. Adjusting items largely relate to the organizational restructuring. There are, of course, other ups and downs, but overall, a financial net debt reduction of around 300 million in the period is robust in the context of the trading backdrop. it is worth noting that our lease obligations also reduced. We continue to do a lot of work on our leases and further colour is included as an appendix slide in the pack. As a result of cash generation and preservation, we have more than 1.5 billion of headroom against our facilities at year end, which puts us in a robust position for the coming year. Our balance of maturities on our debt is also well spread, and we have already refinanced our December 2021 maturity during the year. Now, turning to the outlook. Since year end, overall trading has been ahead of the comparable period in 19-20 and our central case for the year ahead, with even stronger results in the five weeks since most of our UK stores reopened. Whilst we are encouraged by this performance, it is unclear how the recovery will develop, whether consumer activity will sustain a clothing home, and what the eventual pace and shape of recovery in hospitality and convenience in food will be. Therefore, our central case for the current year assumes a gradual return to more normal customer behaviour. In this central case, UK costs normalised to levels broadly consistent with 19-20, underpinned by the benefit of the restructuring. This will largely offset an increase in base pay rates, costs related to transformation, and higher variable costs such as online fulfilment. We have a strong programme of capacity growth at Ocado Retail, but expect some normalisation with respect to its economics. International continues to face headwinds with ongoing disruption in various markets. The business is also exposed to additional costs following Brexit, largely due to the administrative burden on exports of food, particularly to the island of Ireland. Capital investment for the group will increase to similar levels to 19-20. As we invest in the transformation, we start a programme of store maintenance and accelerate rotation. Our central case is therefore that we will generate adjusted profit before tax of between 300 to 350 million. And our ambition is to further reduce debt. As I've touched on before, our capital allocation model remains unchanged. The priority is to invest in the transformation. As we recover balance sheet metrics consistent with investment grade, we will of course assess the reintroduction of dividends. Although as we focus on restoring profitability, this is unlikely in the current year. Overall, we believe the business is set up well for the medium term. And with that, I will now hand you back to Steve, who's going to talk more about the progress on the transformation and our plans looking ahead. Thank you, Owen.

Now, in this section, I'll be joined by Stuart, Katie and Mel, who will give you more detail on how we forged a reshaped M&S through our Never the Same Again programme. A strong food business positioned for growth with broader appeal and greater reach. A successful transition to M&S products on Ocado retail and growing capacity. An omnichannel clothing and home business powered by strengthened and reshaped product engine is beginning to emerge and grasping the opportunities seeded by the pandemic to accelerate the rotation of the store estate. There are ambitious plans for our international business focused on partnerships and online growth. Firstly, M&S Food. Now, the objective for food is to protect the magic of the M&S brand by investing in our unique focus on own brand innovation, modernizing the end-to-end supply chain and cost base, and growing through larger, more relevant stores. Stuart is now going to talk about how M&S Food has been reshaped, and he's over at our Clapham store today, one of the first renewal stores from 2019, which has delivered positive sales growth since then.

Thanks Steve and hello everyone. As you know, the M&S Food Strategy is about protecting the magic and modernising the rest. Protecting the magic means developing innovative products of outstanding quality, offering customers something truly unique. And we do this at consistent, trusted, great everyday prices that represent exceptional value. Over the past year we've developed more than 1,900 new lines, of which over 700 were for the launch of our partnership with Ocado. We're broadening our appeal with families by developing areas such as organic and core grocery products, as well as repurposing our popular programmes such as dine-in for a family of four. At the same time, we have invested strongly in value with the launch of our Remarksable programme, a range of store cupboard staples at everyday low prices. That M&S great quality at trusted everyday value. They have helped us drive our value perception to its highest level in almost three years and now represent around 10% of our total sales volume. Whilst we protect the magic of our unique products, we need to modernize how we bring them to customers. We do this through mns.com, through Ocado, and of course, through our wonderful stores. At the heart of our store strategy is our store renewal programme, like this store in Clapham. But renewal is not just about store design. Customers love these new formatted stores because they carry a fuller range, more innovative concepts and a real focus around produce, bakery and core grocery. By the end of June, we aim to have 23 stores in this new renewal format but also 40 by the end of the financial year. To reach new customers, we've also shifted our marketing spend towards more brand building and towards social and social media. In fact, we've increased our social media spend by over 35% in the past 12 months. As we begin to come out of this pandemic, we're also building on our traditional strengths in food on the move, hospitality and convenience. But we recognise we can only do this if we modernise the rest. modernise our systems, our processes and our operations to give us the flexibility and efficiency that we need. That's why we've removed over £180 million from the cost of goods over the past two years, which we've reinvested in value or offset against inflation. We've also delivered more than 20 million pound of Ocado synergies. Having restructured our store operations last year, we are now focused on driving further efficiency. Through Project Vanguard, we have modernized our replenishment processes in store and added 3% to sales against our control stores in just the first phase of this rollout. This rollout of Vanguard will be completed by this year. The next stage of efficiencies will be supported by upgrading our systems to drive down waste through much improved forecasting and ordering technology. We've made some great progress in our food business over the past two and a half years, but there is so much more opportunity. We are determined to accelerate our transformation at pace and deliver a bigger, better and fresher food business. Steve, back to you. Thanks Stuart.

Now while an expanded opportunity through our store channel is a core part of the growth story for M&S Food, the acquisition of 50% of Ocado Retail was a transformational step. And through successfully executing the switchover from Waitrose in September of last year, we've bought M&S Food online for the first time. Ocado Retail opens up huge new opportunities for M&S by giving us access to the fastest growing channel of the market, which I believe will see a permanent increase in share of the market as a result of the pandemic. Importantly, this is through a sustainably profitable model supported by the best technology and online distribution. This is evidenced by the resilient operational performance and profitability delivered by the Ocado Retail team over the past year. M&S regularly represents about half of all fresh sales on Ocado, reflecting the popularity of M&S products and the work led by Stuart and the food team on innovation and development of core categories. Mel Smith is up at Ocado retail in Hatfield and she's going to talk about our future plans for growth.

In my previous role as strategy director at M&S, I led the creation of the Ocado Retail joint venture. I absolutely knew that bringing together M&S's incredible food together with Ocado's innovative technology would deliver an unbeatable customer proposition. Ocado Retail has the widest range in the market at almost 40,000 products, double our nearest competitors, and we have the freshest food with the shortest chain from our suppliers to our customers. Our partnership with M&S and our relationships with unique small suppliers and all the brands our customers love means we have the most differentiated range in the market. Our service is unrivaled. We have a track record of 95% of orders delivered on time, come rain or shine, and 99% of items delivered exactly as ordered pre-pandemic. That's why our customers love us and we have the best net promoter score in the market. Our revenue growth of 44% to a market share of 1.7% in the past year is absolutely proof that our partnership was the right decision. Switching to M&S was an incredible undertaking, especially in the midst of a global pandemic. But the switchover was a huge success. M&S sales penetration is over 25%, significantly above pre-switchover levels. The traditional M&S Heartland products like ready meals and desserts, as well as outstanding fresh produce, meat and poultry, have become an absolute mainstay in our customers' baskets. We are rapidly expanding our capacity to reach more customers than ever before. In February, we opened a new automated Mini Customer Fulfillment Centre at Bristol, the first to go live since our formation. Mini CFCs bring the efficiency benefits of our automated fulfillment model to areas of lower population density. Our sites at Andover and Perfleet will open later this year, and next year we will open our seventh CFC at Bicester. This means we'll be able to serve many more customers. At peak capacity, these four sites will collectively add over 200,000 orders per week, increasing our capacity by around 50%. We also plan to rapidly expand our Zoom immediacy proposition with a minimum of 12 new sites being sought across London and major UK cities. These will fulfill more missions and give customers new ways to shop with us. This is just the start of what our incredible partnership will deliver for both our customers and shareholders. We have begun to explore opportunities for further collaboration across new product development, data and joint sourcing. And we will continue to work closely together to deliver growth for both M&S and Ocado. Our partnership has brought together the best of food and technology, and I'm looking forward to continuing on our journey to serve more customers and create even more value for our shareholders. I'd like to finish by saying an enormous thank you to all of our colleagues for their dedication and support over the last year feeding the nation. We could not have done it without you. Thank you.

Thanks Mel. It's been a year of huge upheaval in the clothing and home market. However, we've ended the year with a much stronger team led by Richard Price and a reshaped product engine powering an improved online trading platform. We've learned the lessons from operating as a pure play and an omni-channel business is starting to emerge. The clothing and home product engine has been reshaped around new trading principles. And by autumn, we expect option count to be down by around 25% on three years ago. The ranges are more contemporary, and we believe there's been a marked improvement in style and value perception. In addition, we're beginning to partner with a curated range of guest brands. This helps us build strength in hero categories and relevance where we're weaker. For the brands, we offer an effective and efficient route to over 20 million customers, and we're already trading with over 20 partners, and the customer response has been positive. In addition, we acquired the Jaeger brand in January. Its British heritage and reputation for tailoring and style makes it a good fit for M&S. Having a product engine is, of course, only one part of the story. As you've seen, one of my priorities as part of fixing the basics has been investing in our data and digital capability. We've built out a comprehensive customer data engine, transitioned our web platform to the cloud, and relaunched Sparx as a fully digital proposition through the M&S app. to capitalise on this at the half year we created MS2, bringing together our online, digital and data teams to prioritise online growth and capitalise on our omnichannel advantage. Katie is down in our Clips Causeway store to explain our plan for MS2.

Thank you, Steve. I'm here today in my local store to talk to you about how we're going to use our omnichannel advantage to transform and grow online at Marks & Spencer. Over the past year, M&S.com delivered 53% revenue growth in UK clothing and home and had over 9 million active customers at year end, a bigger active customer base in the UK clothing and home business than any other omnichannel retailer. Despite large customer numbers, we're not yet number one in the market, giving us a huge opportunity for growth. Through MS2, we now have the ambition and real opportunity to push our online sales participation to well over 40% of the total clothing and home business over the next three years. Our plan for this is made up of three parts. First and foremost, delivering the best online offer and supporting this with brilliant digital selling and maximising our omnichannel advantage through our great service. Having the best online offer is all about sourcing the best own label product and complementary brands which offer brilliant value for money and have strong sustainability credentials. And thinking online first rather than aligning with the way the stores have historically traded. This means more focus ranges in our stores with online options and sizes in some categories. working with the right third-party brands, creating a halo effect, getting the sourcing model right in scale categories Marks & Spencer's is famous for, such as knitwear and lingerie, with test and repeat for seasonal fashion. The relaunch of the Sparks Loyalty Programme and the Marks & Spencer app are at the heart of first-class digital selling. We have relaunched Sparks, which is free to join, as a digital membership scheme. It now has over 10 million members and has helped us to drive 3.5 million app downloads, putting the Marks & Spencers ecosystem onto your phone. For MarksandSpencers.com, this creates better traffic efficiency. We know that our app customers are the lowest cost to acquire and have higher annual spend than any other. For our customers, Sparks enables us to personalise the whole Marks and Spencers offer when browsing online or in-store, based on our knowledge of their shopping habits over time. We have built new services into the app, such as Book and Shop in Food, allowing customers to skip potential queues during the pandemic. and Scan and Shop, enabling quick and easy contactless checkout. In-store services such as video-powered retailing allows customers directly to contact colleagues in-store, creating a contactless but full-service customer journey. As an illustration, in this store during lockdown, we were doing around 70 digital bra fits a week, with a higher average order value than our in-store bra fit. We're already planning more innovation on the app. In the summer, we'll launch Sparks Pay, bringing the ability to pay directly at the checkout using a credit product developed with our partner HSBC. So what about service? The last year has taught us that we can do so much more when we harness the power of our stores to drive online fulfillment. We shipped over 10% of orders from store, and this helped us to drive 100% growth in online sales in quarter four alone. We think there is a great opportunity to permanently increase the proportion of orders fulfilled from store stock. Many of our stores can act as micro fulfillment centers, enabling rapid click and collect for our customers. Back to you, Steve.

One of the biggest challenges we have had to face into is our legacy estate of full line stores. While we've already closed or relocated around 60 of these in recent years, the effect of the pandemic means we now need to move faster. The good news is that there has rarely been a better time to acquire new space. We have 17 new or extended full-line stores in planning, including a number of former Debenhams sites over the next two years. Our strategy for rotating the estate has been developed on the basis of stress tests, regional modelling and efficiency requirements. As a result, we're planning to reduce our full-line store base from 255 to around 180 in a selection of prime and core markets. This will be achieved by relocating around 35 full line stores to new premises and relocating 45 to a food store and closing in 30 markets. The economic case for rotation is strong. As an illustration, we consolidated two stores in Northampton and Kettering into a modern spacious store with parking at Rushland Lakes. These were ageing stores with heavily declining light for light sales and no business case for investment. Not only did the disposal proceeds of one store largely fund the closure cost of the other, but the cash contribution of the new unit generates a very healthy payback on the net capital invested. Even more importantly, the new store was in its second year of like-for-like growth before COVID. As many of you know, our lease structures have historically made us less flexible than we would have ideally liked to be. However, we believe we can fund the future cash closure costs linked to the rotation programme through the disposable of some of our freehold and long leasehold stores for redevelopment. These opportunities arise where the development value of the land is higher than for its use for pure retail. This includes the Marble Arch proposal that we've already announced, and we are in active discussions on multiple store and retail warehouse opportunities. This gives us confidence of a strong path to funding the costs of rotation of the estate. And overall, we expect to release at least 200 million of funds in this way. Turning now to international. The objective of the international business is to deliver market-relevant products to our partners, great digital service, and to drive online growth through MS2. It's been a challenging year in our international markets. India is still heavily impacted by the pandemic and Brexit has added cost and complexity to our EU operations, which we're working hard to mitigate. However, as in the UK, the crisis has in many ways accelerated changes we're already making. We have an ambition to more than double international online retail sales and build on the strong performance of last year. This will be delivered by up-weighting digital marketing, expanding categories further with major marketplaces, and entering into new markets such as the 46 countries announced in March. As the business scales, we expect to build local warehouse and fulfilment capacity to drive more rapid customer service and lower costs. For our partners, we've implemented a fully digital showroom, transforming their ability to create curated ranges relevant to their markets. We've also begun to roll out digital stores with innovations similar to the UK. And we're increasing flexibility, efficiency and speed to market through an export hub at Hemel Hempstead Warehouse. This has been a year like no other for M&S in our 137 year history. The fact we delivered a resilient trading performance is due in no small part to the extraordinary efforts of my colleagues. I want to thank all of them for the contribution they've made. It's also been the year where our transformation accelerated through the Never the Same Again programme has moved into the next phase from fixing the basics to forging a reshaped business. We have the right team in place and I'm optimistic for the future. Food is strong and is well positioned to deliver underlying growth and progressively recover in hospitality and convenience. Customers are responding well to M&S Food Online and Ocado Retail has exciting growth plans which will benefit the whole group. the reshaped clothing and home products engine is gaining traction with customers. Through MS2, our online capability is growing in the UK and in our international markets, so we can begin to see an omni-channel clothing and home business emerging. Our Sparx loyalty program offers huge potential to develop our relationship with our customers and grow our data engine. We have a clear plan and real opportunity to accelerate the rotation of the store estate. The cost base has been reshaped with an even greater focus on cash, working capital and returns. It's early days, but the trading in the first six weeks of the financial year has been encouraging and ahead of our central case. I'm optimistic from the year ahead as we move on from fixing the basics, accelerate changing the trading businesses and build a trajectory for future growth. Thank you.

Good morning, everybody. Thanks for joining us. Look, I'm here with Steve Rowe, Owen Tong, our Finance Director, Fraser and the rest of the team. And just to say, we'll take a number of questions now. We're available through the day to cover other questions. Obviously, the team has got a lot to track on. I want to just say at the beginning that this is quite an important announcement for us. Obviously, you'll see within it that we've attempted to cover in some depth the impact of the pandemic, but more importantly, to talk about, to give you some idea of the reshaped M&S as it's emerged We have said now we're moving on from the first phase of our transformation. It's only the first phase. You might say it's never ending, but actually we think a lot of work still to do, but we are through fixing the basics. And you've seen in our recent analysis, we're now moving on to, I think, a more aggressive period of change at M&S and growth. With that, We've produced quite a fulsome statement, perhaps not quite as encyclopedic as Simon Wilson, but we're at the races. And I hope you've been able to get through it, because there's quite a lot of material. So we're very happy to elaborate on that. But the reason for doing that is because we feel that we're a bit of an inflection point. And it's impossible to see that in a sense because everything performance-wise is clouded by the pandemic and it's very hard to pick out underlying trends. It's quite hard inside the business, let alone outside. But we do feel that we're at an election point, we're at a different stage, there's a lot of no excitement in the business about the prospects for the year. And although we've produced some indication as to what we expect during the course of the year, we have to recognise that none of us really know, not just because of the pandemic, because a lot of what we've done in the last three years is sort of untested and unproven. And we hope we're going to be pleasantly surprised, but we'll see how it goes.

So, Steve, anything else you want to add before we start? No, I think the only other thing, obviously, is to point out that since we've reopened, we are pleased with our trading performance. The reshaping work that Stuart had done in food is paying dividends with customers reacting to the more relevant and family-oriented ranges, more than 2,000 lines launched, best value credentials we've ever had. And in clothing, despite the fact that what customers want is totally reshaped from last year, we're seeing strong sales in our core as lingerie, kids wear, And indeed, in our casual areas, where we've got good shares, and areas like that. And we are pleased with how the stores have reopened.

Yeah, it's very hard to read again, because the pattern is distorted in both businesses, as people are still going back to work. But with just a very few weeks, we've seen some encouraging performance. OK, let's take a question from somebody Charlie from Exane. Would it be helpful, can you introduce yourself so everybody else knows who you are?

Yeah, good morning guys. It's Charlie Muir-Sands from Exane BNP Paribas. Thank you very much for taking my questions. I've got loads but I will of course keep it the limited number given everybody else wants to ask too. The first question relates to that very helpful guidance with respect to the budget of 350 million of adjusted pre-tax profits. Can you just... You've obviously given a colour around the sort of environments you'd anticipate being able to deliver that in, but can you just sketch out a sort of a top-line scenario that would allow you to reach that? And you talk about some normalisation of capex, You could help a bit more detail there. And at 325 million, approximately how much do you think you would reduce your net debt by? Thank you.

Very good question, Charlie. Definitely one spelling, I think.

I give that a go. I give that a go. I think actually the key word actually for this year is, as I'll call it, normalization. So the 300 to 350 assumes a gradual recovery of activity in both our food and our clothing and home business. So in food, we're assuming a kind of a gradual recovery of our hospitality business. since the reopen last week, and also a slow coming back of our convenience business. And in clothing home, we all have to, we're not 100% sure exactly how activity is going to recover through the year, but the 300 to 350 model assumes a kind of gradual recovery. We are, as Steve said, a little bit ahead of that, but I think we're also just conscious that the first few weeks of this financial year are really unusual. I mean, reopening after a lockdown and all the pent-up demand, it's not a data point I want to kind of direct people to. It also, the 300 to 350 also assumes a normalization of our cost base to levels somewhat similar to 19, 20. And it does assume the business rates will be at a lot lower level in this financial year than last financial year. So I think they are the kind of primary building blocks. It's helpful to be ahead. On a cash side of things, the two big components I'll talk to you about is, again, I'll use the word normalization of CapEx back to 1920 pre-pandemic levels. And in 1920, just to give you a number of 329 million. So that's kind of the in and around the ballpark we're looking at. We're expecting a sort of flattish working capital position. And if you put all that together, that's really targeting a modest reduction in net debt, but still a reduction. Okay. Great, thank you.

Yeah, thanks. Thanks, John. May I ask one more? Yes, of course. This is a much shorter question. As you flagged in the results, you've got 9 million online customers, which is more than any of your multi-channel peers or rivals, but you don't have the biggest revenue base in the UK online. What are the key levers you think you can pull to monetize that better, sell more to those 9 million customers?

I'll turn it to you. First of all, Setting up MS2 last year was really the combination of a huge amount of work that's been going on, whether it be the data engine, the transformation of Sparks, the substantial improvements in Donington, which means we can really become a multi-channel, omni-channel business, if you like, with digital first. And we see that over a period of time, 40%, probably 50% ultimately of the business in the UK will move online. And we are well positioned to take that. What leaders we present, first of all, there is the sheer volume of customers and our customer base continues to grow. Secondly, the data engine and Sparks, we've got more than 20 million customers on that data engine. It's one of the largest customer databases in the UK. And within that, we've got real detail with 10 and a half million customers now on Sparks, step change in the year by Katie and the team. We've got 2.5 million app users now live and running. Again, step change this year. And that personalized detail is really important. Alongside that, the work that we've been doing with Richard and the product engineers is key. Absolutely making sure that the right products in terms of style value is fundamental. And then enhancing that really did drive in the platform that we've got, the marketplace platform capabilities we've got, with now 20 brands and growing, It is really step-changing how customers think about our online proposition.

Okay. Thanks, Charlie. We're going to come to Simon Bowler, but before we do so, I've got a technical announcement. It says here that if you want to ask a question, please press star 2. I'm not quite sure I know what that means. Anyway, if anyone wants to ask a question, press star 2. We'll move to Simon Bowler from Numix.

Yeah, hi, all thanks. I managed to get the start to eat as I've seen Charlie did as well. A couple of questions on the store side, if that's OK. Firstly, on the food stores, you've spoken to wanting to transform 40 of them by the end of the current fiscal year. How broad is that programme ultimately going to look and over what sort of timeframe? Secondly, if I've understood correctly, it sounds like 45 of your full-time stores are going to convert into food only. Is that correct? And I guess, why do you think that's an opportunity now? Because previously, parking and the type of space have been spoken about as reasons to not go down that route. And then finally, over what time frame are you expecting to reduce your full-time store estate to the 180 that you're now targeting?

Owen, do you want to come back? Yeah, I mean, why don't I take the last part of those questions just to make sure the numbers are kind of clear. So you're right in saying that we will be converting some of those full-line stores to food only. If you just take a step back here for a second, what we've done here is a significant amount of modelling as to what we think we need from a clothing home footprint over the next 10 years actually is what our modeling has been done over. That's not to say that we will be able to move, we will be able to move faster, but our modeling has been done over 10 years and that's given us an answer to what we think we need for closing your home space, right? So in some of those locations, it means that we don't need a closing your home full line store, but the food offering is very, very strong. So that's why we would actually relocate just to a food only store. So that's the explanation. And to answer your question, we've said over 10 years, the modeling's done over 10 years. We are moving quite aggressively. You'll see we're actually talking about opening up 17 new full-line stores over the next two years. So we are going to be making it going quite fast to actually really push this relocation. There are restrictions on us because you've got leases and you've got to make sure you manage this in a sensible financial way. you know, if we see good opportunities to relocate, we will take them. I think your first question was on renewals, was it? So, I mean, the 40 there is taking into account the combination of stores we have renewed, we will renew, and also new food stores, which we've used in the renewal format. So, I mean, we now have a much better data set for us to actually really run against And at the moment, it's very encouraging what we're getting out of the renewal stores, both in terms of sales uplift, but also more efficient stores as well.

So the renewal format is what we put into the new. So we're opening today. I didn't know this because Stuart Machen sent me a video. Our new store in Paisley, covered, incidentally, in Scottish flags, which is in the renewal format. Yes, on the estate, as Owen said, I think the headline is we've published a model that obviously is a functional opportunity. So at the moment, we're seeing good opportunities and probably moving ahead of where the model might otherwise sit. If it becomes tougher, then obviously that makes it harder to move forward. But where the good opportunity is to relocate, which because we're safer in the same market at the moment than we probably are, and we have a different position with landlords. We may be able to move faster in some cases. Okay, thanks, Simon. Clive, the great Clive Black.

The very great Archie Norman. This is going well. Can you hear me?

Yes, I can hear you, Dr. Black.

Morning. Thanks for taking the question. I'll be original and just ask one question. In terms of clothing and home, you've given indications of the reduction in the range over the last few years. And this has been representative of real cultural problems in M&S and not having the courage to buy deep. I just wonder where you see yourself at the moment in terms of range assortment. And perhaps you could give us more colour about whether you've become braver. Sure.

Look, I think the numbers start to speak themselves. We have over a period of time now cut the range back substantially and even since 2018, the number of lines in Women's Wear has gone down by another 25%. And if you walk to our stores now, you can physically see it. We are cleaner, clearer in our layouts and our range construction. Now, by the way, that doesn't mean it's finished. We've got more to do and we need to make sure that the range is appropriate for that omni-channel business I talked about earlier. But we can see real strides. And again, a look back helps. The way that this affects the business is not only in availability and revenue and clarity of customers, but of course, in reduced. And the level of terminal stock in this business has come down substantially over the last few years. And again, despite the impact of COVID, we are very clean, and this is helped by having few excuse. Of course, retailers look at their sales as much as anything else, and the team haven't had over a long period of time. progressively positive sales. We saw that start to change before the outbreak of the pandemic. We talked about really being close to the second quarter of women's wear growth, lingerie record market shares, growth in kids wear. Last year was a bit of a lost year on that. But the work the teams have done over the period gives me confidence that we have reshaped the range, improved the style credentials, lowered prices where it matters, and worked on those deep buys. And the the increases in the buys of our top lines is substantive. Is that finished? No, but every day the team becomes more confident in what it's doing, and you can feel it. It's tangible in this business.

Can you give some colour, Steve, on the examples of the increase in depth? I mean, I get the range rationalisation, but the commitment to depth.

Yes, we'll get the exact number, but the concentration is big on the top 100 lines in each area, and the buyers there are more than 30% up. I mean, I've walked those with the women's wear team, looking at the autumn ranges last week, and they're phenomenal. And again, you can feel the confidence. We've still got open to buy because we've got more flexibility into the ranges. And as we walk into the autumn season, the work we did on the category management and the way that we are thinking about buying across the group. We've got an academy into clothing, which has got 11 modules, 1,400 people have been through those already. Again, it starts to stand those the way we operate. I think the question is, this has been historically a recurring question in Marks & Spencer. I think the way we think and the way we work, we are starting to embed this for the future.

I think because, Clive, this is to do with the comics and culture confidence, it does tend to be an odd year journey. But one of the helpful things about the pandemic is because obviously, were faced with a very different demand pattern. It made reducing the option counts sort of inherited. So we were able to make decisions because we had to make them. And what emerged from that was very encouraging for people. So you'll see an improvement now. There's a further improvement in the autumn, and that's not the end of the story. I think Richard Price would say quite a lot further to go. But it is now for the Not the first time, but it is now. There's a streak of confidence going through the buying team. Very good. Thank you, Greg. Shall we go to Xavier and then Richard Chamberlain?

Yes, good morning. Thank you for speaking. Thank you for the good question. Two, if I may. You talked about the costs, the one of course you had to change the organization and that's part of the strategy program. So can we get a sense of the cost savings you are expecting midterms and how it's helping the overall profitability of the group going forward? The second question is about Tocado and your first experience actually of selling food online. What are you learning from Ocado and what kind of impact could you potentially expect to see in your store from your online experience?

Well, why don't I take the question on cost and maybe see if you want to take the learnings from Ocado on us. So first of all, I'll start off with the restructuring that we announced. So the big part of the restructuring was what we announced in our UK business in August last year, that drives about £115 million of benefit that we will get the full year effect of in this financial year. So that's obviously the big component from a people cost perspective. There's still plenty of costs to go after in our overall cost base. particularly in our supply chain, in both food and in clothing and home. And I think you'll start to see more of that through this year and into next year also. And as we continue to rotate the store estate, we hopefully will start to improve, start to see benefits in our property costs as well. So I think the, you know, we said we were going to come back to a similar cost base in this year as in 19-20. The moving parts there are the benefit from the restructuring offset by the fact that we've announced a really quite a big pay increase for our frontline staff to 950 and other inflation. And also we are continuing to invest in the transformation. So I think, you know, our call space isn't quite right this financial year because on the top line, we're still seeing recovery, but we're normalizing back to 19, 20 levels. But I'd like, you know, I'd like to see, and I expect to see that leverage more in the medium term.

So in terms of Ricardo, the first thing we've got to recognize is the transition that the team made in September was first class. This was probably one of the most complex transitions you've seen for a long time in the retail arena. And our food team did a phenomenal job with the client team. And the movement was swift. The dropout customers last year was minimal. And I think that's really important because a number of our competitive customers have picked up MS products And what we have delivered is the full range of M&S online for the first time. It should be also recognised that, of course, the sales for Mercado are not shown within our revenues for Mercado. Our brand penetration is moving on quite steadily. Of course, COVID did restrict the number of new customers we could put on there, so it's been a limited migration from our customers at the moment. The capacity was full. But we've already seen us become more than 50% of the cold chain, if I ask you. We're ahead of Waitrose in terms of our total penetration for last year. And we see a further opportunity with product development. What have we learned? Well, we can see what's selling in a different way and much faster way. We can also see customer feedback in a more open way. The ratings and commentary on Ocado, we read and use and the food development do. And, of course, we start to continue to gather a more joint value of the customer. Our customer was spending $3 billion online with other people. Only $450 million of that was in Ocado. And this is a tremendous opportunity as we open up the offer across the estate, again, to develop an omnichannel business. So there's much to do.

So just on perspective here, as Steve said, the transition to take over the waitress supply was a massive piece of work. So I would say we're at a very early stage in learning what we can make out of the joint venture. And one of the things that's really very apparent is that the way you trade food online is different from the way you trade it in the store. And that's one of the advantages of having a joint venture. is a card who can trade in their way as an online field play, backed by M&S and powered by the M&S brand. And the way we trade in shops is slightly different. That's, of course, a different model from what Tesco or Sainfis or others have, because in a sense, their online representation is, in a sense, a representation of what they have in the large stores. But I think we've got lots and lots to do and lots of learning and stuff to iron out still, so it's very out of date. Okay, let's take Richard Chamberlain, and then I'd like to come to Geoff Duddle. Richard.

Thank you. Good morning, Chabs. A couple from me then, please. Can I ask one on international online sales? How important in percentage terms are those now, and how do you see the outlook for international online sales? The second one's on UK clothing and home online. I see that the average order value fell a little bit last year. Have you started to see, in recent weeks, an average order value moving up again as people are starting to buy into the higher-priced items? Thanks a lot.

The average order value is actually a category-mixed conversation more than anything, Richard. Of course, what we've seen is less pen and paper tailoring. And therefore, the average price of garments has come down. We're actually selling more individual singles in each order than we previously were. And look, the customer's changing, right? I mean, we don't quite know where tailoring is going to go. It's a long-term trajectory into decline that's been accelerated. I mean, this time two years ago, Archie would have been suited and booted next to me. But what gives us opportunity is to really push on with our casual wear range and continue to reshape the work that Gill and Wes have been driving. And, you know, we are market leaders in things like chinos and smart separate. So lots of opportunities still. And we won't get too hung up on where suits end up. We will see that when we get people back to work in September.

Well, look, do you want me to take the international online? Just give you the numbers. Maybe you can talk about the actual. In terms of numbers, it accounted for about 21% of reported sales in international. So it was 165 million. It's obviously growing quite strongly internationally. Ireland is doing very well. India actually is starting to do well. And we've rolled out in marketplaces as well and also expanded into 46 new countries. So we've a lot of hope there. I mean, I think it's going to take a good bit of time to drive real scale in online, but there's a lot of things to be very positive about in terms of the momentum there. Okay.

Thank you, Richard. Okay. Now, Jeff, we entitled our presentation Never the Same Again, but our analysts' talks are never going to be the same again because there's a risk that this is your last hurrah.

Is that right? This is. Good morning. It is. Good morning. I feel there's no more fitting way to finish a career as a sell-side analyst covering the retail sector than Marks & Spencer's prelims. I have timed it around that. So you're entitled to a free hit. OK. So a couple of questions, please. The first one is, presumably, I would assume there's a lot of modeling behind the plan to move to 180 full line stores. And the question on that is, what proportion of the clothing market are you assuming is going to be online long term to drive that 180 number? And then the second question is about the 110 stores that are likely to be closed. How many of those are our own freehold? And what implications does that have with the relationship with the pension fund and the Scottish Limited Partnership?

Well, I try actually all those questions. You might ink in a little bit of colour. I mean, the modelling we assumed that we go to 50-50 in terms of store sales and online. So that's the kind of underpin assumption. Obviously, that's above and beyond what our target is for MS2, but it's kind of proven modeling in terms of requirements for your store space. In terms of your second question, I think the best way to think about the element of freehold in the 110 stores is that, say it another way, we expect to have about £260 million of cash costs from the store rotations that we talked about of the 110. And from that, we expect to... generate nearly that amount or largely that amount through the disposal of freeholds, Marble Arch being obviously the big, more notable one that we've announced, but we're working on a number of other ones. And so I'd almost kind of just carry it like that in terms of actually cash flow, because I don't think it's not really, there's only a smallish handful of those 110 that we're going to actually generate significant cash from in terms of freehold realizations. And then in terms of the SLP, I think it's a bit of a balancing act. I won't deny it's a bit of a balancing act. The pension scheme is in good nick. So it's very well funded. It has a path to buy out. It's relatively well de-risked, both in terms of capital market risk, but also actually longevity risk. We actually... did a number of buy-ins actually in the financial year just gone. So really what we're working with the pension scheme is a solvency cover. And so the SOP is in place for, in primary, in place for that purpose. So it's a balancing act between substituting assets out to generate cash to fund the rotation and having sufficient in there to maintain solvency. And at the current property levels, I feel I can do that. And so now if property levels go up, that gives me a bit more, I get more room to maneuver, but at the current property levels, I just, I feel I can maintain that balance in that. That's great. Thank you very much.

Okay.

Well, look, thank you, Jeff. And can I just say that, you know, you've been an incredibly well-respected commentator and analyst in the marketplace for many years, and you haven't always been entirely complimentary about M&S, but that was probably with very good reason. So I wanted to say, you know, I hope you stay in touch and wish you well in whatever you plan to do next.

Thank you.

Okay, thanks, Jeff. Shall we come on to Georgina Johanna from JP Morgan? And then we'll go to Andy.

Hi, good morning. Two questions for me, please. The first was just around the sort of gradual trend to normalised behaviour that you talked about in your central case. You referenced that in hospitality and franchising food. I mean, should we take to mean from that that You're expecting a return to normal of food to go. And how should we be thinking about that longer term if there's obviously a sort of a longer term structural shift to more working from home and so on? How would you expect that to play out? And how do you model that, please? My second question is around the brand that you're bringing into the clothing and home offer. And if you could just explain and provide a little bit of detail so far, what sort of model is that on, please? Is it mainly wholesale products? Or is it more of a sort of a marketplace basis? And do you actually have the tech in place to offer that on a larger scale on sort of a risk-free basis from a stock perspective, please?

That's already what we say about normalised behaviour. Where are we in the pandemic? I think we're mid-pandemic. We're not at the end of this. We're still seeing changes in behaviour all the time. We had the reopening, which has gone well for us. We've got another moment coming, Freedom Day, whatever you want to call it, on the 21st of June. We're not expecting material changes then, frankly, because we're walking into summer. And then, of course, we've got a September moment when people are largely going back to work, back to school. And we still don't know what's going to happen with any of these lockdowns, etc. So how long? I don't know. But there are moments coming. We have seen some changes in behaviour that we think are permanent. You know, there is a longer-term decline in formal work, but that's been going on. It's been accelerated. But, of course, there are still lots of special occasions which people want to dress up for. So, you know, it will move and change in terms of garments. In food, I think we've repositioned the business strongly to take advantage of that. So we have a very good concentration in food on the move and on ready meals. We're still strong in those areas. But what we've seen is a movement to more of a core shop, more scratch-scooping items, more grocery, more frozen. And since we've reopened, we've not seen slippage in that or any substantial slippage in that, which is good for the long term.

I think when we talk about... I'm sure there's people in the background.

What we think will happen is there will be a slow... Guys, I'm sure there's people in the background. If you're not speaking, can you turn your mics off, please? Thank you. What we think will happen is there will be some movement back into those categories over a period of time, probably hospitality first rather than food on the move. And food on the move is really going to be about work patterns and how that changes. But we've got other alternatives from businesses, and we'll see over a period of time how that moves. Brands-wise. Look, this is really important. We have started a program of adding brands to our platform. It is a platform that's capable of handling more brands. And the first one was Noblesse Child, which is a sustainable fashion brand. We sold out. We then added collaborations with Ghost and Damaris, and they've gone really strongly. And we've added now about 20 brands, which we think are additive to us, and we've seen new customers because of them. And at the moment, I think it's too early to call which ones are the strongest, but we are pleasing the performance. It should also be noted, we bought Jaeger, which we think is a very strong brand, perhaps neglected more recently, and is a very good adjacent business to us. Strong British retailing manufacturing credentials, strong tailoring credentials, a lot of heritage. And whilst the range we've looked online is not a full rebound as it comes to the autumn. The sales have been very strong indeed, and we're looking forward to the team's work coming out in the autumn.

Yeah, and just in terms of structures, I think we're kind of looking at all structures in terms of how we're taking the brand, Georgina. From a tech side of perspective, I think we're working on in terms of elements of changes or tech to deal with things like drop ship, et cetera, and so on. I don't think that's a big deal. I think the bigger challenge, which is going to be a big challenge for everyone, is how we manage our supply chain going forward and how we plan for fulfillment for brands as well as our own label business. But that's part of our plans.

Thanks for the colour. Just to follow up, then, so I'm clear. At the moment, then, you're buying these products on a wholesale basis?

Yes, we are. It's important, Georgina, that we've got our house brands. So you've got Paruna. I shouldn't forget about those. They're really very important to us. Autograph, et cetera, Blue Harbor. And then on top of that, we've got Jaeger, which is early stages, but we're quite excited about. Then we've got collaborations and third-party brands, and it's going to be a hybrid structure. And we've gone from zero a year ago to quite an exciting position today. So if you like, it's gone from pilots to projects to strategy, and the way the strategy unfolds, to some extent, we're still developing. Okay. Thank you, Georgina. Shall we take... Anne Critchlow from Societe Generale.

Thanks very much. I've got two questions, please. The first is just a follow-up on Georgina's question. Are you finding that the new customers you're adding, the external brands, are also adding in marks and sensor products into their baskets, just to get an idea of whether you're going to get new incremental business if you're in labels? And also just to confirm that the stock risk sits with you in this wholesale model. so you can't return products back to the brand, for example. And then my second question is on Ocado. I think we had 70 million synergies penciled into the medium term. Do you think you can now surpass that? Because I think you're actually a bit ahead of the curve, aren't you, with 24 million this year? Thank you.

Yeah, the synergies, I mean, we're on track. I mean, it starts to eventually blend into our overall cost-saving initiatives in food, but... In terms of the numbers that we would have been targeting, we're still on track for this. We obviously delivered, the financial year just gone, 21.4 million, and we're looking for another step up into this financial year. So I'd go as far as to say, yes, we're still on track on the aspects and synergies as we originally planned for them. Do you want to talk?

Yeah, so in terms of the current model, where we are doing wholesale, yes, there is an agreement about the internal stocks with us. But we're doing both. We are doing both. And as we progress this, we'll choose different models for different partners. So some of those we do and some of those we don't. In terms of... Does it bring in... I'm sorry, the new customer. So basically, we've seen a number of customers that have shopped at Marks & Spencer but not shopped at Women's Wear move into particularly the dress range and the casual wear. And so that's an additive basket to M&S. And that was about 12% of the first range. We'll continue to assess that. About 30% of the customers were totally brand new. That's quite rare for us. You have to remember that we've got 30 million adults shopping this every year. There aren't many more new ones out there. And that is interesting because they're shopping not just the brands, but they have also shopped across other areas. Now, it's very early. But what we are delighted with is, first of all, the pick-up rate, secondly, the high-advice as we get in, and thirdly, no rejection of that plus M&S.

Great. Thank you.

Okay, thank you, Kate. Now, time's marching on. We've got about another five minutes or so, but I wanted to get in a couple more. And we'll come back to people later on, obviously, if I have to do that. So shall we add on Cochrane from Deutsche Bank? Love to hear from you.

Good morning, thanks. So a question on online. In terms of the online fulfilment, How are you thinking about fulfilling from clothing at home, but from stores in the future? How does that fit into your overall strategy? And then secondly, do you think that the higher volumes that you've seen online has delivered a step change, a sustainable step change in profitability for the online business? Thanks.

Do you want to talk about the property? Obviously, everything's been pretty strong, much in our favor in terms of the online profitability in the financial year just gone. So you'll see that we've quoted a number of 14% on an operating profit margin, which is obviously very, very strong. Now, I just have to kind of caveat a little bit here is that that assumes a certain level of allocation of costs from the overall clothing and home business. So it's very hard to do a like for like in terms of a, let's say, pure play operating profit number. But it's still obviously quite strong. And I think we're pretty happy with that. We actually think there's still more to go after in the call space. Like in that financial year, there were very inefficient ways of fulfilling calls. that we chose to use because of the pandemic. And maybe when Steve talks a little bit about the future, he can pick up on that. But I should also flag that that actually also had a very favorable returns, low returns rate. So what I guess my model at the moment on this same allocated basis is that if you get to a more normal returns rate, we're looking at a sort of early double digit operating profit margin. which is obviously very, very healthy and very, very strong, which we're happy about. But in terms of stores and fulfillment?

Yeah, so it goes back to our online capability and donning to it. It's not very long ago where that facility couldn't do more than 200,000 singles a day without falling over. We've just come through a year where we've been running about 400,000 singles a day. And frankly, they're taking it in their stride. I mean, it's been tight on occasion, but we fixed this. Is it how we wanted to operate? No. Is there more to do in terms of speeding up and giving customers an even faster service? Yes, there is. Now, we've been supplementing Donington with an in-store pick, which we call BOSS, bought online, shipped from store. And frankly, that wasn't optimized in the early part of the year. We've been doing an awful lot of work on this. What we now see clearly is a way to ship more from store. at a much lower cost and a much faster service. Now, we will start to work on how we blend that with the facility at Donington to increase capacity, but increase capacity in a cost-effective way. And this is the work that Katie and the team at MS2 are really driving on there, how we actually maximise, optimise the fact that M&S is a truly omnichannel business, and it's an advantage that we have over many pure plays, and we've got to take that really start to use it as a real advantage in terms of customer proposition.

So, Adam, at the high level, our concept here is, people say omni-channel, because apparently that's a better idea than multi-channel. But what we really mean is that customers should be able to come to us and shop whichever way suits them. So you can order and have it delivered to home tomorrow. You can order and have it delivered to home at a specific time in a few days' time. You can order and have it delivered to a store near you to pick up. You can order from the store and have it delivered to home, potentially. We don't know, but we could see that. Maybe you could order this morning to have it delivered to your pair of socks delivered this afternoon. Maybe you could order and go in in half an hour and pick it up from the store. We don't know. Our concept is that you should be able to shop multiple different ways. Some customers will want, you know, the The clothing and home equivalent of rapid, somewhat specific time. And we can see, as a result of the pandemic, partly, and the work we've done, the way of automating and increasing the efficiency of all these routes to fulfillment. And that's what should ultimately give us an advantage over, in that sense, over the hill play and some of our competition, if we don't have the store presence. OK. Now, we've got slightly ambiguous problems. We've still got a number of questions outstanding, and we're running out of time. So I just wanted Tony, for all time's sake, no session like this to be complete without Tony Charette. So Tony, far away.

Thank you, Archie. Just to let you know, I'm not bottling out like Mr. Rattle. Keep going. Assuming you're going to go on forever. Well, we'll try and match each other, Archie. But yeah, two questions. First of all, Owen, can you tell us what we should be forecasting for the adjusting items this year? Sorry, I know that's a bit of an old question, but let's have a new answer. Because in addition to the property stuff, you've talked about making some cost cuts, which presumably are going to have some upfront costs. And maybe there'll be some offsetting property profits. Leading on from that, the sale and leaseback negotiations re-Marble Arch. What do they tell you about the carrying value of Marble Arch and maybe other properties within the portfolio? And the last question is, where do you see the marketing cost ratio sort of settling in clothing and home as you move more to online? I note your comments about paid search and all that sort of stuff. That's it. Good question.

Mostly for Owen, I think.

Yeah, so I'll take the adjusting items. So, I mean, I think obviously as it stands today, I think the places where I'd still expect some types of adjusting items would be a little bit in our store state as we kind of roll forward another year. So I'd expect that, albeit at a much lower level. And also there is a little bit of restructuring still to be done. And we also did, and then the other place is our supply chain, which we've got still some work we're doing on supply chain. around moving to the single-tier network, which we're completing through this year. I think from a cash perspective, maybe it might be easier to look at it from that perspective. We've got the restructuring in the Republic of Ireland, which we announced in the 53rd week in the P&L, in the financial year just gone. So that hits the cash flow about £15 million of that. We've got about 30 million pounds of the store rotation, which hits that. And then we've got about 20 million pounds in supply chain. So that's kind of a way to think about it, Picasso, as we stand today. But I mean, look, we're, you know, I would always be careful a little bit about adjusting items because you don't know what you don't know in some cases. But I feel we're going to a more kind of normalized basis on adjusting items. kind of reflecting change that a normal business would have. I would flag one aspect, which we flagged in the statement, is that there's a lot of work going on in terms of our European businesses post-Brexit, particularly in the island of Ireland and France. And it's too early days to talk about restructuring items coming out of that, but I do flag that some may come from that. Second question was what have we learned from Marble Arch? I mean, I think we've learned that assets in prime locations have got good development value. And so I'm not sure we've learned much else other than that. We're still quite excited about what we think we can generate in terms of cash from that. We don't have a load of marble arches, so we'll just be clear. But in certain other prime locations, I think there is some still decent value to generate in terms of development. And third question? Marketing costs. I mean, I think what you're seeing in the trend of marketing costs actually is a move from traditional marketing costs to more PPC and more... digital-driven marketing. So I think we're going to continue to see that trend through this financial year. We're actually quite happy with the effectiveness of our PPC. I think one of the things, we haven't spoken about it very much, is we've really changed our approach in terms of how we're targeting customers and targeting awareness. And that bore a great response towards the second half of last financial year. I mean, Our online business is up 106% in the fourth quarter. But that's a combination of us really driving it quite hard and much more efficient marketing.

Tony, one of the things you haven't mentioned, we're actually working really well with Google, particularly on how to optimize our online search. We've taken some of the shackles off the team. Traditionally, you put a budget behind this, and once I spend it, I spend it. Online search, you can really just set a return on spend targets and allow them to play until they almost... you get to the edge of those targets, and we've been a bit more free with that, and that's paid dividends in terms of how we think. I think the other thing to mention is don't underestimate the power of this data engine. 20 million customers. We now have detail across five channels. We have detail on more than 1,500 attributes, and this will start to change our relationship and make it a much more personal relationship, in the true sense of the word, than we've ever had. And if you think about this, when... you compare this to other schemes. I mean, you really are talking about one of the biggest loyalty schemes down in the UK. But with more granular detail than I think many have against more categories. So we will start to really deploy that again through MS2 to drive the business where we think it's good. But not just for us, but for the customer. And that's a really different way of doing it. Okay.

Thank you, Danny. Sorry, Archie. Could I just ask... Is the marketing cost going to go up or down as a percentage of closing home sales?

I think that's it. Marginally down. Marginally down. Yeah, marginally down.

Marginally down to an artificial ticket. Shifting away, Tony, from above-the-line big-ticket items to a different shape. Much more than being pushed to the paid search, which, again, we can... The whole thing about 50% of your marketing money is good, but you just don't know which 50% it is. The paid search is actually what you get for return. Yeah.

Some of this is evolving. We wouldn't want to be too defensive about it. It's got to be the same. Thank you, everybody. I'm going to call a halt there because the team had to get on to another presentation in a moment, so it's not that we wouldn't like to go on for the rest of the day, but we simply can't. Apologies to those we haven't got to. Fraser's here. He's made a note of all your well, not your questions, but your names, and we'll make sure we get back to you during the day. So apologies if we didn't get around to everybody, but really appreciate your questions, and thank you for joining us today, and look forward to talking to you all soon. Okay, thank you. Thanks very much. Thank you.