Marks and Spencer Group plc

Welcome to the Marks and Spencer interim results for 2022. I'm wearing my Jaeger zip-neck top today because, of course, we've turned the temperature down in the building a bit, so it's a bit chilly. Sign of the times. Anyway, it's a tough old world out there. I don't think there's ever been a time in my career where the macro factors have been more formative on how the business is performing, and it's what we're all talking about. But we can only do what we can do, and I hope you'll get the impression today that we're really driving this business, irrespective of all the noise in the outside world. Here's my view on it. I think we are now in the consumer crunch period. I think we can already see that. I think it's been very well socialized. And actually, one thing people underestimate is customers have been hearing about this. They've seen it on their television screens for months now. What is less well ingested is the cost of doing business crunch. so right across retail manufacturing distribution we're seeing rising cost of operating it's not just wages it's the energy cost it's the transport costs it's the packaging costs and so on some of that still to come through and so that means that all of us have got to run faster up the down escalator look I think we know that winter is coming the customer knows that and we've already seen a few falling leaves so we have are seeing people change but our trading in the first half has been relatively strong. We've seen good growth, partly growth in market share, and even though in food you can see signs where volumes across the industry are going negative, you can see signs of trading down for discounters, our own remarkable range has been, well, we've had difficulty keeping up with the volume of demand. The Marks & Spencer customer isn't just any customer. I mean, it's partly the brand strength, but also most of our customers probably are either in employment. On average, most of them have slightly above average earnings. The majority of our customers, after all, are not that exposed to high levels of mortgage, partly because a significant portion are retired. and tend to be a slightly older demographic. So we do think that, whilst we're not insulated, we've got some protection in that regard. The second point to make is that our cost of doing business has been too high for years. We're making a lot of changes, and there's a lot of stuff that's happening, and I hope you'll see this in the presentation, which will allow us to reduce our costs faster than some of our perhaps more well-oiled competitors. So just two or three examples of that. I am very excited about what we're doing now with store rotation. I know it sounds rather old-fashioned, you know, the idea of opening great new stores and closing old ones, but for Marks & Spencer this is really powerful. Secondly, online, so a moving volume into online. On average, and depending on how you account for it, and there's not any exact science, Our online business is roughly as profitable as the store business. You could say it's more profitable. As we move more volume in, it becomes more profitable. And the third thing to say is that we've invested a lot of money into omnichannel data and digital data engine. We'll translate that investment into driving sales. And actually, we do believe that we could end up in a... market leading position or certainly a position well ahead of many of our competitors in that respect and we're beginning to get there. So those are really exciting things and I do want I don't want us to get too consumed with what's happening in the macro environment, because our job is to change M&S for the future. That's what the team are doing. The scope for improvement here is tremendous. We've got a new leadership team, which is very dynamic, very fast-paced. We've got a lot of good things happening, and that's why we're looking forward to the year ahead, and we believe we're going to come out of it stronger than ever.

Thank you, Archie. Well, good morning, everyone. Welcome to the M&S half-year results presentation. If you're watching this on November the 9th, there is a conference call for analysts and investors at 9.45am. There are four parts to today's presentation. Firstly, I will share an overview of today's results. Then Owen will walk you through the financial detail. Katie and I will then talk to you about the commercial plans driving our performance in the period, and importantly, how we're building resilience to the downturn as we reshape M&S for growth. I will then come back to talk to you about our guidance for the balance of the year and what we are doing to accelerate change and build further resilience to the macro headwinds ahead. So now to the results. Trading in the first half has been robust. Sales have grown ahead of the market in both food and clothing and home, with profit before tax and adjusting items of 205 million. We generated very strong sales growth and market share gains in clothing and home, and importantly maintained our full price mix from last year, which helped to deliver a margin of just under 10%. In food, sales were strong and volume outperformed the market as we kept our shape. But profit was down as we invested in trusted value, reflecting the market-wide inflationary headwinds, and we also absorbed higher costs in a number of areas, partly due to timing. International delivered a bounce back in sales and a recovery in profit, despite continuing to absorb Brexit-related costs and the exit from several markets. And as already reported, the Ocado retail result reflected normalising customer trends, increased costs from new capacity, as well as inflationary headwinds. We exited the period with a strong balance sheet and cash position and access to liquidity, having completed the important strategic acquisition of our food logistics provider, GIST. This gives us control of our supply chain and one of our biggest cost levers for the first time. Over now to Owen, who will walk you through the detail of these financial results.

So, the group headlines for the half. Group revenue was up 9% and the group delivered an adjusted profit before tax of £205.5 million, which demonstrates a robust performance. It's worth noting that last year's profit figure included £47.5 million of UK business rates relief. Net debt, whilst down year on year, has increased since year end. This was driven by a free cash outflow given our acquisition of Gist and the expected movement in working capital. I'll start with our food business. Firstly, as I've said before, M&S food reported sales do not include our direct online grocery business interest, with these sales reported through Ocado Retail instead. Total food sales were up 5.6%, with like-for-like sales contributing 3% of this growth, and new space and new business, including our partnership with Costa Coffee, delivering the remainder. Sales were driven by increasing price inflation and mixed through the period. Although volumes continued to outperform the market, they were down in core baskets due to the market reversion post-pandemic. They are still strongly ahead of pre-COVID levels. The continuing recovery of our franchise and hospitality businesses provided a tailwind in the half as expected. These parts of our business attract smaller baskets, so our overall average basket size is down compared to last year. Operating profit decreased compared to last year, but it is important to understand the detail. Firstly, given the highly inflationary environment, like most of the market, we have seen a decrease in gross margin. Although we had the improving margin mix from our recovery and hospitality business, this was therefore more than offset by cost inflation and our decision to invest in trusted value for customers. In store staffing, ongoing efficiencies enabled by technology improvements in store more than offset pay inflation. Within other store costs, last year the food business received £19.7 million of business rates relief, which was not repeated this year. This contributed 60 of the 70 basis points impact you can see here. In addition, we have seen inflation in our energy and other store running costs. And in our supply chain costs, in the first half, we saw the annualisation of the increase in labour costs, which started to build as a result of labour shortages in the market last autumn. And we also felt the impact of higher fuel costs. These impacts were partly offset by productivity efficiencies. Central food costs reflect our investments in technology, data and digital initiatives, which are weighted towards H1 this year, as well as marketing spend. Overall, stripping out the impact of business rates relief from the comparative, operating margin in the half reflects our decision to protect customers, investing in trusted value and not passing through the full effect of inflation in cost of goods. Also, increased supply chain costs from H2 last year, which we are acting at pace to address, starting with the acquisition of GIST. And finally, the first half weighted nature of investments. Turning now to the contribution from Okada Retail. The revenue performance has already been reported in some detail as part of Okada Retail's quarterly trading updates. But as a recap, revenue declined over this period as the increase in active customers and order numbers was offset by the decrease in average basket size to pre-pandemic levels. The M&S brand remains consistently over 25% of Ocado's sales and a growing share. We've moved into growth over the period as we annualised against the temporary closure of our Aerith CFC after a fire last July which gave a softer comparative. EBITDA reflects this reversion to more normal shopping habits amongst customers, but it also reflects the lower operational leverage of new CRFCs, which are currently underutilized. And of course, industry-wide pressures within fulfillment and delivery costs. These impacts were partially offset by lower administration costs. reflecting the release of management long-term incentive provisions given current trading. We had a number of exceptional items in the period, mostly relating to insurance income for our Andover and Aerith CFCs. Overall, M&S Group's share of Ocado retail loss after tax was £0.7 million in the period. Moving on to clothing and home. Overall, sales were up around 14% on both a total and like-for-like basis. This was driven by volume growth, price inflation and product mix. Store sales continued to recover back towards pre-pandemic levels. Alongside this, the online business had a robust performance. Going into a bit more detail, online performance was driven by higher traffic and average order value, due largely to product mix, which helped offset a slight reduction in conversion. Returns rates were higher year on year, as expected, driven by the increasing penetration of third-party brands, as well as product mix and customer behavior. Encouragingly, when compared to 19-20 levels of returns, the main driver of the increase is brands. Our stores showed a strong continuing recovery as footfall, transactions and basket size were all up year on year, and we saw positive performance across all store formats. In total, Clothing at Home generated an operating profit almost 10% higher than last year, or over 30% when excluding rates relief from last year's figure. Looking at the detail, gross profit was down, driven by headwinds in raw materials and the unhedged portion of currency, partially offset by sourcing improvements. Full price performance for the business continues to be strong. However, it's worth noting that as we grow our third-party brands business, which is mostly online, it has a dilutive effect on gross margin. Across all cost lines, the impact of inflation and our investments was offset to some extent or another by increased leverage from higher sales. In-store staffing and other store costs, it's the same story as our food business. Naturally, the cost pressures in other store costs from not having rates relief this year and energy inflation more heavily impacted our stores business compared to online. Within distribution and warehousing, better fixed cost leverage along with a favourable delivery mix offset inflation and the additional cost of servicing third-party brands. And finally, within central costs, again, fixed cost leverage and lower depreciation offset a number of additional costs. This included investments in technology, data and digital initiatives, additional costs to support third-party brands and higher marketing activity. These investments are all heavily weighted towards our online business. Overall, a very strong performance. with a decrease in gross margin offset through better fixed cost leverage, with online operating margin impacted more by the growth of third-party brands and our growth investment decisions. And finally, to international. In clothing at home, a strong performance was driven by post-COVID recovery in India and Ireland, as well as shipments to our Middle East franchise business, offset by the decline from our Russian exit. Food sales declined due to the exits of part of our French franchise business and the chilled business in the Czech Republic, and the continuing challenge of EU border-related issues on the Republic of Ireland. Excluding France, however, food sales were level on the year. Overall, operating profit was up. Gross profit increased. The recovery in clothing and home store sales in India and Ireland post-COVID has driven an improved margin mix. Store staffing improved as a percent to sales, driven by greater fixed cost leverage due to the sales recovery. For similar reasons to the UK, other store costs have increased. Last year, we received COVID-related government relief in the owned markets and rent concessions in India, which did not repeat this year. And we have also seen the headwinds from increasing energy costs. Distribution costs increased due to inflation, as well as higher operational and administrative costs. And in central costs, whilst these increased, the growth was in line with sales. So, bringing that all together for the group, excluding the impact of UK business rates relief and the change in Ocado profit, the core M&S business generated a modest improvement in profit. As discussed, A reduction in profit on food was partly offset by the improved profit delivery from our clothing and home and international businesses. M&S Bank contribution was broadly flat, as an increase in the bad debt provision due to economic conditions was mostly offset by the increase in demand for travel money and increased credit card sales. Net finance costs were down for two main reasons. Firstly, due to a higher pension credit, reflecting the higher pension surplus at the start of the year. and secondly as a result of the partial buyback of our 2023 and 2025 bond maturities in May. Overall, the Group delivered a £205.5 million adjusted profit before tax. I will cover off adjusting item charges in the period next. After accounting for these, we get to our statutory profit before tax. Within adjusting items, the store estate charges reflect the latest view of the store rotation programme timings, exit routes and assumptions. Within our organisational change, a non-cash charge has been recognised for updated assumptions relating to the sublet of previously closed offices. We've recognised the credit within adjusting items, reflecting the latest fair value assessment of the contingent consideration remaining for Ocado Retail. And as a result of the economic environment, like many of our peers, we have recognised additional store impairments due to a change in discount rates. The acquisition of GIST has resulted in an adjusting items charge, around 6 million of this relating to transaction costs. And details on the rest of our adjusting items can be found within our press release. As we turn to look at cash flow, let's take a moment first on CapEx. CapEx levels stepped up as we increased our investment to drive business performance. you can see that property made up over half the spend. Essential maintenance and asset replacement spend continued, as did our investment in new store formats or renewals and the store rotation programme. Supply chain investment in the period includes investments in our food and clothing home infrastructure, including vehicle upgrades. IT and M&S.com spend includes costs relating to technology replacement and upgrades in stores, website development and technology solutions for our supply chain infrastructure, as well as investments in digital capabilities across the group. Looking at the full cash flow now, overall we had a cash outflow in the half, driving an increase in net debt compared to year end. This was of course driven by our acquisition of GIST, and an expected working capital outflow. But I will step you through the detail now. Firstly, EBITDA was down, which I have already discussed. As I flagged in May, we saw a partial unwind of the working capital benefits we have seen over the past two years. This was a little higher at the half due to phasing. A detailed breakdown of the levers is given in the financial review. CapEx I've already spoken through. As expected, cash tax stepped up as we restarted corporation tax payments after utilising brought forwards losses last year. Investments and acquisitions largely relates to the acquisition of GIST, offset by the cash acquired upon purchase. The Adjusting Items cash outflows include costs relating to the exit of our Russian franchise business, the UK Store Estate Programme, GIST acquisition transaction fees and M&S Bank Insurance mis-selling provisions. There are of course other ups and downs, but despite the cash outflow, we maintain a strong cash position. Which leads me on to the balance sheet. In the year, as part of our focus on liability management, we bought back £150 million of bonds due for maturity in 2023 and 2025, reducing our near-term liquidity draws. We finished this period with £2.9 billion of net debt, with around £600 million of financial debt within that. We have £770 million of cash on our balance sheet and an £850 million revolving credit facility. This, along with some uncommitted facilities, gives us access to over £1.6 billion of liquidity. The future is of course uncertain, so we thankfully enter it with a robust balance sheet and a more disciplined approach to capital allocation.

Thank you, Owen. Well, Katie and I have been out in stores so we can walk you through the commercial and strategic highlights in the period. Starting first with clothing and home, we had a standout half year with sales up 14%. Style perception continues to improve and we lead the market on value perception. This reflects the changes we have made to our product, our improved shape of buy, buying fewer options in greater depth and investing behind growth categories such as kids wear and our third party brands. Alongside this, we generated growth of over 50% in sales of dresses and men's formal wear, reflecting improved availability and improved product offer and focusing on key events. This has not been at the expense of casual wear, where we are strong and we've continued to grow our sales. As we move into autumn, growth is now shifting to thermal, to knitwear and nightwear, where we have big category positions. With improved results, we are well positioned to invest in the customer experience and opened our first full line renewal store here at Stevenage. This store totally reimagines the clothing and home experience across the store, including new fitting rooms, lighting, navigation, and a more flexible approach to how we display our merchandise. But it's not just about the look of the store. The store is built in a more efficient way with improved technology throughout. from comprehensive use of RFID to self-service checkouts in clothing. Not only has the store here in Stevenage performed really well, but it's attracting a younger and very different shopper base. We over index here on children's wear and kids wear. We over index on home and beauty as customers are inspired to shop across the whole store. Alongside this, we're also starting to unlock the substantial opportunity for improved efficiency across the clothing and home supply chain. This will be achieved through optimising the flow of stock from source to shelf and back through our returns process. Moving on to food. In food, it was a very good half regarding our sales performance. We delivered a strong trading performance with volumes ahead of the market with like for likes up 3%. Particularly strong growth in our heartlands of food on the move and hospitality. Importantly, our focus on building a bigger, better, fresher food business is paying off, as categories critical to driving the larger basket remain substantially larger than pre-COVID levels. More of our customers are buying a wider range than ever before. However, as you've already heard from Owen, margin was down, as has been the case across the food market. This reflected our decision to hold our price position and protect customers by not passing on the full effect of the inflation in cost of goods. As previously highlighted, we also incurred increased costs. However, as you know, with the acquisition of GIST now completed, one of the first decisions I made as Chief Executive, we're now acting with pace to reduce this cost pressure. Overall, in the first half, cost annualization and investment were significant pressures on cost growth. And we don't expect these to reoccur to the same extent in the second half. The strategy for M&S Food has always been to provide great quality food at great prices every day. We started the year by refocusing and investing in remarkable value, every day lines at M&S quality but with prices competitive with mainstream supermarkets. and this month we have price locked 100 family favorites until 2023 and have 40 extra lines offering bigger packs better value our iconic dining program has also been relaunched this offers great quality great value and is a fantastic alternative for families to eating out But our focus on trusted value is not at the expense of quality or innovation, where we continue to lead the market using our good, better and best category tiering. Over 900 new lines in this half year have been introduced. We have also continued to drive our food renewal programme. Seven more stores landed in this half, including five in a lower-cost, capital-efficient format. These renewal stores that opened last year are performing really well, with sales on average up 18%. Most importantly, we completed the acquisition of GIST, our food logistics provider, which gives us control of the end-to-end food supply chain for the first time, immediately removing around 25 million of management fees, but also enabling us to drive productivity improvements. and to invest in a fit for purpose supply chain network to support the future growth of our food business. Just to remind you, taking all of this together with the actions to reduce waste and stock loss and mitigate cost inflation, we expect a much improved margin trend in the second half. Let's talk about Ocado retail. As Owen has outlined, Ocado retail revenue and contribution was down in the period. While we generated strong growth in active customers and orders, basket size reduced. The combination of increased fixed costs due to additional CFC capacity and higher short term fulfilment costs, the drivers of which are market wide, as well as marketing costs are impacting short term margins. As you know, during the pandemic, trading conditions translated into a very strong profit performance. In this period, Ocado Retail's proposition of market-leading quality, service and choice underpinned by M&S Food became diluted. Under a new leadership team led by Hannah Gibson, we're focused on restoring the core proposition. That starts with a new front-end website later this year and an improved collaboration with M&S Food for a much improved combined offer for our customers. you When we announced the joint venture, we said we were bringing the best together and we're going to do just that. We see substantial growth and scope for the medium to longer term as we reset the customer proposition for Ocado Retail. Moving next to our store rotation program. Our objective is to create a more focused group of high productivity, full line stores. fit for the omnichannel retail future, like the store, Stevenage, which I'm in today. But also growing a pipeline of bigger, better, fresher food stores with high quality click and collect services, particularly for clothing and home. As I outlined at the investor day, store rotation improves productivity as it reduces the tail of stores with low contribution margins and allows us to recapture sales online. We're making good progress towards our targets and opened two four-line stores in the first half and opened three new food stores. What's great about this programme is we're able to make the most of today's market conditions, securing great space on strong terms with shorter leases. We're generating higher sales in these new stores using technology to lower the cost of operations and quick paybacks on the capital we invest. For example, the two stores we opened last year in the half at Paisley and Sears Solihull will pay back the capital invested in just over two years. As you know, I set out an ambition at the Investor Day to accelerate our five-year programme into three. Our aim is to reduce the number of four-line stores to 180 and open 100 new, bigger, better, fresher food stores. There are three main levers to accelerate this plan. Firstly, the pipeline of new stores. We're making good progress on this with 10 new four-line stores and 27 new food stores. Secondly, we've begun a program of driving increased recapture through the use of customer data and targeted marketing. And finally, the development team is working to reduce exit costs from our legacy sites. So good progress, but an ambition to go further and, of course, faster.

I'm here at our White City store to talk to you about the progress we've made in omnichannel development and our strategy to leverage data better to connect customers to M&S. Over the past three years, we've made substantial investments in developing our ability to interact seamlessly with customers online and in-store and enabling them to shop with us and have products delivered or returned when and where they like. We've created a single view of the customer through our customer data engine, containing a substantial volume of data and attributes relating to our customer base. We've quadrupled the number of active app users to over 4 million. We've relaunched and grown our Sparks loyalty program to 16 million members and invested in creating world-class data science capabilities across Marks & Spencer's. This has required substantial foundational investment of more than £200 million, which has largely been expensed through RP&L. But it's starting to deliver sales traction through increased personalisation and a better online and in-store experience, and has helped Drive.com to over 30% of clothing and home sales. The objective of our digital development is to encourage customers to use more of our sales channels and services as customers with multiple digital relationships spend substantially more. Our ongoing development programme in omnichannel retailing includes scaling the use of the M&S app, investing in an improved click and collect and returns experience, and increasing access to relevant third-party brands. So, starting with the app. The app already enables friction-free shopping on M&S.com, allows customers to spend and load their Sparks offers, provides scan and shop in M&S food stores, and gives customers up-to-date recipe tips. Our objective is to double M&S app usage with a long-term goal of 10 million users. As a result of our growth, the app now accounts for around a third of our clothing and home online sales. And while still small, Scan and Shop enables its use in store and food. To drive further growth, we're working towards launching a single digital identity across all Marks and Spencer's related touchpoints, from MMS.com to Sparks to the bank, and eventually to include Ocado Retail. The goal is to make the M&S app a super app that is indispensable to customers whether they are shopping, browsing, buying and accessing our services, which means we can communicate personally to all our customers on a regular basis. The app also helps us to deliver digital click and collect experiences, which means customers can now collect from store in less than one minute. And by leveraging the store estate, we've tested same day click and collect within the hour. This capability provides additional capacity at peak times and will ease pressure on our future distribution requirements. During the half, we also rolled out keep, move and return processes to all stores, enabling the movement of stock between stores rather than lengthy and costly returns processes. While the M&S owned label will always be our number one priority, the combination of 30 million Marks & Spencer's customers, market leading customer data and engagement alongside omnichannel purchase and returns is making us increasingly attractive to third party brands. We have over 50 partners from Sea Salt to Nobody's Child to Clinique and Dune. Last month, we talked about our ambition to build a £400 million business and sales of the first half have more than doubled to £71 million. Our approach is based on thoughtful curation rather than a wide range duplication, which makes us much easier to shop. It's driving new customers frequency and spend whilst ensuring that almost all orders also contain a Marks and Spencer's product. We're building on the substantial growth we've seen with the launch of broader sports clothing and footwear offers in half two. And we will also introduce dropship capability, enabling us to remove the costly manual processing of brands through the Marks & Spencers network, driving faster growth and improving customer service. While our customer data platform enables us to leverage data to create an omnichannel experience, it's also critical to personalising our marketing to deliver increased frequency and spend. This will help us bridge the gap in our profitability to our key competitors. We're starting to generate substantial value from the customer data engine through personalising offers and product recommendations, repeat purchase recommendations and using personalised language. For example, frequently bought together recommendations which say products most typically bought alongside the product you've just added have been worth an incremental £20 million of revenue to date. It's anticipated 20 to 25% of all of our digital interactions will be personalised this year, and personalisation will generate more than £100 million of incremental revenue for our business. Sparks, our digital loyalty program, is an increasingly important part of this. It is the vehicle for delivering the very best of M&S to our customers, whether that's personalized promotions and offers, family days out, or access to delivery, including through our recently launched Sparks Pass. During the first half, we launched Sparks Pay within the M&S app, creating a digital credit account for our Sparks members, giving them more ways to pay and even more reasons to keep returning to Marks & Spencers. As you can see, our investments in omnichannel, digital development and personalization are starting to drive substantial revenue growth. And this is evident in all of the results we have reported today. Last month, I spoke about our ambition to grow global partnership sales by 500 million in the medium term. Like in the UK, customers are responding to better product with strong demand for clothing and home from our key franchise partners and a doubling of sales in India as it recovered from last year's COVID lockdown. In October, we launched Sparks globally in 26 markets and already we've grown this to 3.9 million members. Order books remain robust as we've invested in trusted value. Alongside partner demand, we're putting in place the foundations for profitable trading with European platforms, commencing consignment trading and developing plans for EU fulfilment from our new logistics centre in Croatia, which will increase speed to market and reduce costs. Our business in the Republic of Ireland has continued to generate a strong sales performance in clothing and home, but food remains disruptive with costly EU border processes. We've begun the process of investing to mitigate some of these costs with automation and substitution with local product. We also signed an agreement for a five store trial with the roadside retailer Apple Green, reflecting our continued commitment to the Irish market and a belief that in time we have an opportunity for substantial growth there. I hope this gives you a flavour of the actions underway to drive growth through a better connected omnichannel experience in our stores. leveraging customer data to personalise and deliver improved frequency, spend and margins, and the growth we're delivering from capital-like partnerships as we reshape M&S. I'm now going to hand you back to Stuart, who'll talk about the outlook for the remainder of this year.

So as you will have read this morning, we have entered our peak quarter with the business continuing to trade well with sales growth in line with our forecast. We are well set up for Christmas with improved ranges, a fantastic pipeline of new product and strong value across both of our businesses. We expect quarter three to provide a lot of opportunity with added benefit of the unusually timed World Cup. Costs will continue to rise, although we expect some to annualise. All material operating costs increases for the remainder of the year are largely known. Overall, we now expect to deliver an adjusted profit before tax in line with the expectations set out at our fall year results. As you will remember from this, we excluded business rates relief and the exit from Russia, as well as Ocado retail. As we look forward to FY24, we expect market conditions to become more challenging, putting pressure on margins in the sector, but also creating more opportunities for M&S. We believe our position in the market and accelerated change underway provide greater resilience. We're also confident the business will emerge with a strengthened market position and prospects for growth. Our clothing and home and food product offer has much improved. Clothing has market share positions of over 15% in many of its categories, which are less acutely exposed to discretionary spend. M&S Food has a differentiated position in the market with strength in convenience and dining at home. And we are price competitive on the back of our investment in trusted value. Our entry price remarkable range was lower priced than many of the supermarkets last month. In clothing and home, we lead the market on value perception. Our customer base affords us many opportunities for growth with slightly higher incomes and age demographics and some savings cushion. We head into tougher times with a stronger customer proposition and we're acting now to face into the headwinds, accelerating removal of unproductive costs. Already, at least 150 million of cost savings have been identified and targeted in FY24 from efficiency of the supply chain, retail operations, optimisation of technology and digital spend, and simplification of the whole organisation. And of course, the group's balance sheet enters this period of uncertainty in an improved position after several years of reducing debt. We have strong cash and access to liquidity and limited unsecured refinancing required in the coming years. So to close, overall, it's been a good first half. We are well set up for what we think is going to be a strong trading performance over Christmas. And we're now turning our minds to setting M&S up for success in more challenging times ahead. Looking beyond the current stormy weather, much is in our control and our mandate is clear. To step up the pace, accelerate change and invest in growth opportunities to build a reshaped M&S.

Thank you. Well, good morning, everybody.

It's Archie here. I'm here with Stuart, Katie and Owen, all on standby to answer your questions. We're in our nice cold building in Waterside in Paddington. Look, you've all seen the film and the statement and so on, so I'm not going to repeat any of that. We're going to take 45 minutes for questions, probably. If I can ask you, please, to... I know you've got lots of questions to ask, but we could do two questions each. You know, you can always come back if you want later on. Please introduce yourself because we know who you are, but not everybody does. And so I thought we'll just track straight on. Now, shall we start with Charlie Muir-Sands from BNP Paribas. Charlie?

Thank you, Ian, and everyone for taking my questions.

I guess you've introduced me already. I'll take two questions as you've requested. The first one is on the coding side of the business. Obviously, there's a lot of moving parts in the supply chain outlook. The dollar's clearly going to build against you with respect to being headwind as your hedges move forward. But I just wondered about everything else, what you're seeing with respect to factory prices, freight rates and so forth, and therefore what you think is likely to be the outcome for next year. And then also, secondly, a broader question on next year. You've clearly flagged that you think that the market environment is going to be more challenging, but you've identified a very large number of cost savings issues. I just wondered how you conceptually think about the trade-off between your market position, price competitiveness, and profitability in the year ahead. Thank you.

Yeah, well, let's take both those. Katie, you might want to. I mean, look, on sourcing and sourcing costs and supply chain, obviously, it's something that everybody's watching very closely. It's extremely difficult. I mean, the dollar, the price, Sterling's devaluation against the dollar has changed the game a bit for us. But, Katie, do you want to ramble on?

Yeah. Morning, Charlie. Thank you for the question. I'll try and not ramble on, Archie. I'll do my very best not to. You asked a question on freight rates, and actually we've seen freight rates starting to drop. Obviously, there was an all-time high during the pandemic when you couldn't get containers out of ports. Boats were sort of turning around depending on what people were paying. So we've really seen that reduce substantially, and we'll renegotiate those again further to pass those savings on and through to customers. In terms of headwinds, we've still got a little bit of inflation in raw materials. There is a headwind on FX, as you know, and as you rightly called out. Yeah. But we are very keen to work in partnership with our suppliers. I do think there's opportunity for us in clothing and home to work more strategically with our supplier partners to run more efficient manufacturing and flow the product more effectively. And I think that will help us in terms of cost price. And very importantly, making sure that we retain our position as number one in terms of value for money for customers. That's very important to us. And we did mention in the cost savings that we will work very hard to ensure we deliver some cost efficiency to our supply chain, where, again, I think there's quite a lot of opportunity. Thanks, Charlie.

Owen, did you want to comment on the... No, I think that's all right, Nick.

Shall I just chip in on the year? I mean, good morning, everyone. It's Stuart here, and thank you, Charlie, for that. I mean, just to build on that, as we think about the next 12 months, of course, we're quite clear-eyed, but there's a couple of things... We are taking action on one, Katie talked about the cost and on the investor day, we talked about our 400 million target over these next few years. We've got line of sight next year to 150 million. That does cover a number of areas from retail operations, supply chain, for both clothing, home and food, simplifying the operations in the store support centre and some of the other areas like technology, property, energy and marketing. We're quite focused on taking action around costs, but I think what is important is we do want to retain our number one value, protection on clothing, and we do want to retain the progress we're making on value in food as well. So we're going to support value in both our businesses, but we've got quite a few levers in order to protect the P&L.

Great, thank you very much.

Thanks, Charlie. Anne Critchlow.

Two questions, please, from me. Firstly, on the transfer of sales from closed stores, what percentage goes to nearby stores and what percentage goes online, please?

And then secondly, on the... Let's answer that and then we'll come to the next question.

Stuart, Katie? I mean, actually, maybe I'll help on that question because it's a very hard question to give a sort of very specific answer because it depends, obviously, on the closure location.

I mean, typically, about a third.

Yes, typically, we aim for about a third, and it really depends a little bit on, as I say, the location. But increasingly, we're obviously getting more capture in online, and maybe, actually, Katie can talk about things we've been trying to do to improve that.

Yeah, Anne, it's a great question. And one of the things that we've been doing, you know, if you go back two or three years, we didn't do very much to recapture. We sort of stuck a poster in a store window and said we've now moved and left the customer to work out where to go, candidly. And we now have a very strong communications package that we deliver, but it's actually underpinned by the amount of data that we have because of the number of Sparks customers we have. We know who those people are. We know where they shop and we've got very high commission levels. We can drive behavior across the two categories through delivering offers to enhance customers to go and visit the other stores.

Great. Thank you. And then secondly, you talked in the presentation about introducing consignment dropship sales to the third-party brands. I'm just wondering if you're aiming to get to basically 100% dropship eventually. and a bit more colour around how you're doing that. Thank you.

Yes, of course. So, listen, this is a labour of love for me. We started our third-party brands business last year. It's a bit Heath Robinson, the way that we do it. We are very, very excited to be getting Dropship rolling out, which we hope to do at the start of next year. And I would eventually imagine that we would end up with nearly all of those third-party brands on dropship. It protects the stock position. It allows you to move the products around. It facilitates a quicker returns process. So that's sort of where directionally we're heading. And we'll obviously start by trialing it with two or three of the brands first of all, and then build up from there. Thanks for the question. Thank you.

Thanks, Anne. Now, not least because as any person I can see on the screen it's been around nearly as long as me. We need to go to Tony Charette.

Thank you, Archie, for those few kind words. Yeah, just a couple of things. I wondered, in terms of the closing of Home Online, you've made some comments about the operating margin relative to the overall clothing business in the past and last seen, I think it was in line with the overall margin. I take it with the increase in sort of lower margin third party brands. It's now below that. Is that fair to say? I just wonder where you think the online operating margin in clothing and home is going to settle relative to the clothing and home total margin. And I'll give you another question in a sec after you've answered that one.

Thanks, Tony.

Tony, I'll have a go, and then no doubt Owen will have a go as a follow-up. There's a couple of things that are impacting online at the moment. The first is that we over-index on third-party brands online quite substantially. The majority of our third-party brands come through the digital business, and the margin is dilutive of third-party brands, but we think the customer is incremental to M&S, and we know the customer is incremental. Those third-party brands have a slightly higher return rate than Marks & Spencer's products, because customers know Marks & Spencer's sizing. The brands have various different sizes and cutting blocks, and so there's a variety in terms of that. The third area is that we've put substantial investment into digital, and obviously a lot of that goes into .com and .com experiences, whether it's the question we were asked earlier on about investing in Dropship, whether it's investing in the app. A lot of those costs are borne by the online P&L in the business And finally, and we mentioned this earlier on, we're looking at supply chain savings. There's substantial savings that we need to deliver through supply chain. And clearly that will also impact the online overall performance. Do you want to comment?

No, I think that's perfect. I don't think we give a specific kind of guidance in terms of what we think the relative performance would be. But I don't think the gap should be as kind of wide as it would have been in the first half, but reflecting the areas that Katie's just said.

So the gap is sort of four or five percentage points. Is that sort of roughly the order?

Yeah, that's exactly what it was in the first half.

Okay, lovely. So my second question is also about online, but food online. Ocado, same sort of question really. I mean, just wondering about marketing within Ocado retail and what sort of level of marketing spend there is relative to sales and As time goes by, I presume you haven't really had to market very much historically. Where do you think that your marketing is actually going to become a more meaningful sort of factor and more meaningful percentage of sales at Ocado Retail? That's the question.

It's a very good question, Tony, and it's something actually, funnily enough, we were talking about yesterday because clearly a year ago, as you say, marketing wasn't the issue. is how you allocate slots because, in effect, you were rationing. This year has been totally different and it is already. Stuart, do you want to?

Yes, thank you, Tony. I mean, I'll start with saying we're actually confident in the medium to long term of a TARDO. We think it's, as I said at the investor day, I don't think we've scratched the surface yet and Hannah's got her work cut out, no doubt, but we're very keen to see a reset. But to your question on marketing, I mean, it is a bit higher than we actually would want. It's a bit too high. So it's been running about 3% of sales, and that has been 150 basis points higher than last year. So as part of the review and reset, Hannah is looking to try better ways of customer engagement. Plus, I think there's work. you know, more opportunities for us to work closer together with M&S to unlock the M&S customer base as well and not just rely on just TV advertising. So it's definitely part of the reset agenda, Tony.

Tony, to add to that, we think, as Stuart said, that there is a lot we can do with the combined M&S and Ocado resource to help with the marketing process Funnily enough, Katie and I were just looking at search terms on mns.com and one of the quite frequent sales search terms you get on mns.com is Ocado. Ocado, yeah. It tells you straight away, you know, because we haven't, you know, hardwired those two together. So Ocado marketing needs to be data-driven and that means that probably there's a bit less TV advertising, as George has said, and a bit more forensic data-driven because we're not looking for general customers. We're looking for very specific customers for Ricardo.

But do you think, therefore, that marketing costs longer term will come down or go up as a percentage of sales?

I think they will come down, Tony, basically probably around 2% of sales by understanding some of Hannah's strategy at the moment.

Thanks. Anyone you want to add? Okay, thanks, Tony. Now, while we're on the veteran theme, we better go to the great Clive Black.

Feeling very spring kiddish-like after hearing Tony Archie. Thank you very much. I'll just ask one question. The food margin was perhaps a little bit lighter than we anticipated in H1. Maybe could you give us some color of where you see H2 going, if you can? And equally, the clothing and home margin was actually very robust in H1. I just wonder if that is where you see the run rate, because you talked about an aspiration at the Capital Markets Day for a 10% margin. That would be most helpful. Thank you.

Well, I'll kick off. Clive and Katie can chip in as well. So just dealing with food, I mean, we took action in the first quarter and we made the decision to invest in value and not pass through. the whole rate of inflation and we did that in order to keep our shape in the market. So we felt that was critically important. The other thing to note is from Q1 to Q2 there was a 40 basis points improvement as we started to pass through inflation as well. So we're pretty confident that the second half will deliver sales in line with our expectations but also an improved margin into the second half as well. I think there's another couple of things just to call out on food. So obviously we invested in price for customers. We kept our value shape. We think that's the right thing to do for all stakeholders. We did have a small amount of waste and stock loss higher than we anticipated. So we were slightly disappointed in that first quarter one performance. And we also had logistics annualization costs over 1% overall cost growth in the half. And therefore, I think acquiring GIST was also quite a big thing for us because we wanted to get control of one of the biggest cost levers in the food business. I think that sets us up better, not only in H2, but also further out as well. I'll let Katie comment on the clothing margin.

Yeah, thanks, guys. I mean, my... My medium-term aspiration is always to target the margin of double digits, as you know, absolutely determined to get there. I think there are a few headwinds we have to face into over the short term anyway. Dollar exchange rate, we talked about that earlier on, making sure that we manage our cost base effectively as we go into the second half and beyond. I think there are a few choppy waters ahead for the next period of time as we expect some of those costs from our suppliers to be passed on to But over the medium term, absolutely aiming for double digit, 10%, definitely.

Thanks. Can I just ask supplementary to that, Archie, to the extent that are you harvesting the GIST benefits now? And what's the timeframe for sort of full reaping of that reward?

Thanks, Clive. Well, Stuart will respond to that. I mean, it's very early days. We only actually technically completed the I think about three to four weeks ago. Yeah, a month ago.

Yeah. I mean, just to build on that, Clive, thank you for that. So the first thing is the management fee was removed from completion. So that management fee is 25 million per annum. So that obviously stopped. In addition to that, we get a small amount of primary income. And we do think there are some synergies between over the medium term. I think what's really good is the management team continues to stay in place and there's a very good way of working. I'm quite enthusiastic about how this could really accelerate the food transformation So it's a cost thing, but also a supply chain availability and all the other associated costs with it. So I'm quite excited about things we can do. As we said in the investor day, it's a 50 million medium term target in cost savings. So 50 million annualized benefit in about year four or five.

Thank you very much, Stuart. That's great. Appreciate that.

Thanks, Clive. Now we'll go to Richard Chamberlain and then Simon Bowler. Richard.

Yeah, thanks, Archie. Morning, everyone. A couple from me, please. First of all, I wonder what your internal surveys are telling you at the moment about consumer appetite for Christmas and peak trading. You know, anything in terms of sort of trading down potential or people alternatively sort of treating themselves over the period. That's the first one.

Richard, let's take your first one while poor Amnesia sets in. It's a great question. We've got lots of stuff on anecdotal stuff and survey stuff on Christmas. Stuart, do you want to go first?

Thank you, Richard. I mean, we're quite encouraged. It might change as we go into the new calendar year, but all of our customer insights and data and listening groups, are really saying our customers are looking forward to a good Christmas. In fact, it's more positive than it was than last year. And over two thirds of families that we survey, you know, 67% of our family survey says they want to protect Christmas celebrations and be with their family and make the best of it. I think there's some also good stats coming out that over half of our customers are saying they're going to reduce spend on eating out. But they are looking for value. And I think that's where we are set up very strongly. I mean, even in our food and our gifting, we've done so much work on quality, but also value. I think we're well set up on Christmas food to order in our food business. That has already got off to a pretty good start. I mean, significantly up. on pre-pandemic levels. So that's good. We've invested in value for key Christmas lines as well. That's in addition to the Remarkable Value campaign in our food business and the Lot Price campaign in our food business as well. And in broader terms, in gifting, we now have 30% of our overall gifting under £10 and 70% of our gift shop across stores and online at 20 pounds or less. And we can be quite confident that those sales are going well. So we think we're well set up. Our customer feedback is saying they want to celebrate over Christmas and we're doing everything we can to win in the market.

Okay, thank you. That's very helpful, Carla. My second one is, I wonder what your sort of planning assumption is for staff cost? inflation for next year? Or I guess another way, will we have to sort of wait to see how the minimum wage shapes out and then expect, you know, M&S's staff costs to go up in line with that?

Yeah, Richard, obviously it's a very big question. I'll let Stuart respond directly, but... We can't know that fully until we get into March, April next year. I think the minimum wage issue is a big issue for government now. I mean, now the government's taken unto itself the decision about the minimum wage. It used to be left to the Low Pay Commission, and there's a time when on the one hand you want to give people the lower end of the income bracket, an uplifting income. There's a lot of political pressure around it, so it'll be interesting to see. This year we've

Still, we're at 7.5%. Yeah, there's a 7% uplift. I mean, just to build on Archie's point, Richard, we invested 15 million to support our colleagues in this cost of living crisis, as you probably know. I mean, 40,000 of our colleagues had an hourly pay rise that took them to £10.20, and that's a 7.4% uplift over the year. In addition, I mean, we didn't necessarily plan for that before, but we are planning now. for what that might look like next year in terms of inflation. And I think that's why we're also taking action on our cost out plans in advance. So we're almost ready for that. But we do think we're pretty competitive on the £10.20. And we also have supplemented, we know we have the good discount for our colleagues at 20%. And we have some other benefits as well, helping our colleagues in our stores in particular and our distribution centres. So we are planning now, hence our cost-out programme to get ready.

It's hard to see wage inflation at that end of the market running below 5% for next year. I'm not making a forecast, but I think we can all see the same thing.

Okay. Thank you.

Okay. Thanks very much, Richard. Simon.

Gordon Newmouth. I'll go for a couple one at a time. The first one's a super quick one, hopefully. Just when that $150 million cost-saving bridge, does that include the GIST management fee and how many other parts of that bridge may be directly associated to the work you're doing around GIST?

Yeah, good question.

It's a good question. Why don't I give that a go? It doesn't know. I mean, it's really cost-sufficiency initiatives, right? So, I mean... the loss of management fee wouldn't be in that kind of space. But there are areas in the 150 that are kind of related to how we can kind of, you know, things that Stuart's already spoken about, how we can leverage the GIST ownership and how we can kind of drive more efficiencies, particularly in the network. So, yeah, it's partly in there, but not the management fee. Correct.

Just a word on GIST's context that Stuart has said is out there. It On the one hand, there's some immediate benefits for management fee, et cetera, and there's some good work going on on integration and some issues, things we can do on transport probably, et cetera. But we should see just as a long-term program. The reason why we're taking control of it is to enable us to rebuild the network over time. It has to be the right thing to do, but it does mean there's going to be some expenditure as well associated with that. Sorry, Simon, you've got another question.

Yes, please. The second one was just it sounds like with respect to that 150 you've been doing a decent amount of work on kind of P&L opportunities going into fiscal 24. Is there anything from a cash flow perspective in terms of areas for kind of savings on CapEx or working capital that we should be mindful of both across the second half of this year but also as we look into fiscal 24?

Actually, Willem, why don't I have a go at that? I think from a CapEx perspective, I don't think there's anything outside of the envelope that we have been guiding to. I think a large amount of what we've been spending on has been actually focused on driving efficiency, for example, in our supply chains, and that includes technology spend in areas like forecasting, et cetera, and so on. I don't think there's going to be much outside of the capital envelope that we've been guiding to. There might be some one-off costs in the range of sort of 20 or so million type of thing to help support the cost efficiency initiative, as you'd expect there will be. But the payback on those would be obviously very, very strong.

And then can you give any sense, kind of a decent working capital outflow in the first half, for reasons we understand, but where you're headed with regards to kind of full year of that regard, or is it a point-in-time metric, so not the easiest?

Yes, always hard to do that. I mean, we did expect that there would be a working capital outflow this year, largely because of the contraction in payment terms for our clothing home suppliers. In the half year, we did have a higher level of stock than we would have hoped to have had, certainly at the statement date. Some of that is phasing. Some of it's actually inflation that impacts both food and clothing at home. But in general, stock flow has just been actually a lot better in clothing at home, which has meant that we've actually received stock earlier than we had originally planned for.

Okay, great. Thank you.

Thanks, Simon. Let's go to Jamie Fletcher, and then we'll go to, after that, Jeff Lowry. Jamie.

Hi. Morning, everyone. This is Jamie Fletcher from The Analyst. Just one question from me. With the recent falls in equity markets, a lot of your peers have launched share buybacks, and I guess those management teams seem to think that valuations are compelling at these levels. Given the balance sheet is in the best shape in years, why haven't you launched a buyback?

Yeah, Jamie, it's a good question. We said in a statement that the board is looking at all the capital allocation issues. And given the amount of uncertainty in the environment, you'll understand that we've taken a view that we're not going to take a view just yet. We will have more to say that by the year end. I think chairman ruminating on the share price is not very interesting to anybody. I mean, we think we're very undervalued as a business, and we trade on an astonishing low multiple of EBITDA, but there's no point in us banging on about that. Markets are where they are, and weirdo sort of metaphor in the markets for UK consumer retail. And that's not the most fashionable place to be. But Stuart, can you say anything more elucidating on it?

Not really. But I mean, look, Jamie, we're always thinking about capital returns. And the priority for us at the moment is business improvement, growth. And we know we have plenty of opportunities. And we all know that. I think the balance sheet, you know, it's in good shape. but we're mindful, as Archie said, of the uncertainty, but we recognize at some point we need to start capital returns.

Okay. Anything else, Jamie?

No, that's great. Thanks very much.

Thanks. Appreciate it. Jeff? Yeah, morning. Just one question, please. Do you need to own the entirety of Ocado for it to fulfill its potential? And when are the decision moments for you around that? Thank you.

Well, Jeff, you know, straight for the jugular as usual. We honestly don't, you know, well, I anyway, my attitude is I don't think we should be worrying about that right now. And as a board, you know, it's a question that comes up, but I don't encourage people to fret over it. We're really pleased to be in the joint venture. If you go back four years, we never thought it would be possible. The moon's aligned and able us to do the deal. We're very excited about the future. It's been a bit of a bumpy ride today both ways. Ocado are very committed to it. Tim Stein is very committed to it. We're very committed to it. It is what it is. As Stuart said, we we have only just begun to scratch the surface.

No, I think that's right, Archie. I mean, Jeff, I don't think we have to own all of it. I think it's how we take advantage of both strengths, the M&S brand and the Ocado Group technology. And as Archie said, and I've said many times, we've only just scratched the surface. I don't think we have to own it all to realise all of the opportunities and the benefits. And, you know, the short term in the next 12 months, might be a bit tricky for Hannah and the team, but we're very confident in the medium to long term of the JV.

In theory, Geoff, there's nothing that we can't do through the joint venture that we would be able to do under different circumstances. So, joint ventures are sometimes hard work. I mean, we know that it's a bit more complicated, but having the absolutely wholehearted commitment of Picardo Group and since China, you know, it is their showcase. Actually, there are advantages in that too.

Okay. And I mean, the bottom line is, are you really comfortable half the incremental value you bring to it leaking away?

I think we think that incremental value comes both ways. Actually, you know, it's not just a one-way street. And as we said, we do get value, although we're Our whole alignment when we did the deal originally, the whole view was it would be a fully aligned joint venture, both sides 50-50, sharing the stewardship, sharing the benefits. They consolidate what we learned in the initial period. We do get other benefits from it, and a lot of those are still to come, particularly to do it around the buying. Buying, joint sourcing, using customer data.

You know, as I said, I think there's so many things that as part of Hannah's reset, there's some good opportunities for both brands.

Great. Thanks very much, Tim.

Thanks, Jeff. Now, let's go to James Gwisnick and then Adam Cochrane. James.

Thank you, Archie. Morning, everybody. Just a couple of quick ones. Firstly, I guess. Can you update us on where the food business, where price perception is there from consumers? If you could perhaps give us a little bit of a summary of the journey of recent years and if anything has changed in recent months.

And secondly, I just wanted to check whether... James, Stuart's limbering up to answer that question. So let me take that because we've spent a lot of time. Isn't it? not just looking at price but also value perception because obviously those two are not quite the same Stuart.

Well look James I think the first thing to say is all of us are very focused on value for the customer and I say this internally all the time which is you know value is in the DNA of M&S. M&S was never a premium brand it was always a brand on great stylish clothing great quality in clothing and great quality in food a leader of innovation but at the best possible price we could give our customers. And that's what we've been focused on for the last few years. And the good news, as you know, on clothing is when we're leading as number one on value perception, that helps the overall M&S brand as well. And on food, it's now not a detractor anymore. And that is testament to the work we've done on remarkable pricing. And I think That's been a really strong program. Customers, you've probably seen all of the social media just this week, by the way, and all the local press where customers are absolutely recognizing the value. Our Remarkable program is 140 lines priced in line with the main supermarkets. We have a fresh market special program. We've just launched 100 favorite items locked in price. until January 23 and interestingly we launched a bigger pack better value program just on 40 products and it's quite amazing the best selling one of those was the 1.5 kilogram beef lasagna which sold just in the first week half a million items mainly now bigger stores by the way but as we go to bigger family shops and bigger stores I think that gives much opportunity so it's not a detractor I think What we still have to focus on though, especially when consumers are looking at the whole food market and all they hear about is price and cost of living crisis, of course everyone will suffer when it comes to value perception. One other small point, I think in our most leading categories like convenience, where we are best in market, the customers are slightly less price conscious and less price sensitive.

So just to follow on from that, I presume your view would be that your rates of reinvestment in gross margins wouldn't necessarily have to be of the sort of magnitude that we've seen in half one, because quite clearly, if I look at your mainland grocery peers, gross margins there were flat at worst.

Yeah, I mean, I think, I mean, quarter one was quite transitional. I mean, one thing we didn't have in quarter one that other people did have is the benefit of petrol margin. And that's why we decided to invest in value in Q1, especially when the price was really on top of people's mind. And again, as we entered quarter two, although we were slightly behind the market on pass-through, we did increase our margin by 40 basis points. So I think that's going to balance out better, especially in the second half as well.

Understood. And yeah, point well made on fuel margins. I guess my second one was around energy costs. I think at the recent CMV, you talked about about 100 million incremental energy costs next year. Is that still the view as you start thinking about the moving parts for next year?

Well, yeah, why don't I have a little go at that? I mean, obviously, at the investor day, things have improved since then. I mean, clearly, energy markets still are quite volatile into next year. There's a lot of risk premium in the forward prices, particularly into winter of next year. So it's very hard to kind of call exactly how it's going to outturn. But we are planning for that order of type of headwind for next year. And so part of the energy, part of the cost savings is also focused on energy consumption as well, energy consumption reduction.

I think, James, we're slightly paranoid on purpose on this because we're sort of predicting the worst and hoping for the best. I drove past a store the other night and in one store all the lights were half off and I rang up immediately, jumped into the store thinking we were trying to save energy by turning the lights off. Good to know we weren't. But the reason I say that is 80% of our energy is in our store estate. And refrigeration is a big one. Lighting is a big one. And we don't want to do the wrong thing. We don't want dark shops with refrigeration on. But we have got a program which we're slightly paranoid about, i.e. we're onto it every day, which is the consumption and what we can do to be more energy efficient. So it's top of our minds. And as I say, through our cost program, we're sort of anticipating the worst, so we're very focused on it. Okay.

Thanks, James. Appreciate it. Now we're tracking towards our 45, but we've got three questions left, so we'll try and give good time to them all. Adam Cochrane, shall we come to you and then Georgina Johannanen?

Hi, good morning. Thanks for taking the questions. The first question is on volumes. As you look forward, we probably expect some volume decreases next year. Would any volume-related cost savings be in addition to the $150 million that you've already outlined, please?

That's a good question, Adam. I mean, obviously, at the moment, right across the food market, if you really look at it, everybody's seeing volume declines right now. And even though our life-to-life and our trading has been quite good in value terms, if you want to be analytical, we're shifting fewer boxes. So there should be some savings in that.

There will be, but the 150 is not a volume reduction. It's true cost reduction.

But in addition, Adam, to your point, especially when it comes to colleague resourcing in stores, it's volume-adjusted.

Great. And the second question is slightly tougher. I've had lots of discussions about what your actual guidance is for 2023. I know you've reiterated it's the same as it was at the full year result, but would you just be able to put some numbers to those, the adjustments that you're making? And then the second part of that is, Are you incrementally more cautious on FY24 than you were before? And is that the indication of the discussions that we're having here that consensus is probably a bit too ambitious as we look at next year?

Thanks. I'll let Owen respond to that if he wants to. Are we incrementally more cautious? I think there's That cuts both ways. I mean, like most people in the market, we probably feel that trading so far has not, well, it's not met our worst fears, put it that way. We haven't seen, particularly in clothing and home, we haven't seen the drop-off in demand that some people would have expected. Now, some of that's market share, so it's not the market as a whole. We think that our sort of customer in clothing and home they've probably got a little bit more resilience. We said that in our presentation. And not to say they're not going to be impacted. But at the same time, like everybody, the volume of noise around what's happening next year with the macro factors and so on has not reduced. So we're cautious, put it that way. Confidently cautious. I don't know. Owen?

Yeah, well, I think, you know, just to remind what we said in May, we talked about just adjusting the base of the business by about 80 million pounds, which is relating to business rates, the position on Ocado at the time and the exit from Russia. Obviously, Ocado has deteriorated since then, per the guidance that Ocado Group gave the market in September. So I think you have to reflect that into the guidance. But apart from that, we're actually saying we're pretty much there, thereabouts. From what we said in May, the mix has changed a little bit, but we're there, thereabouts. Actually, can I just also just maybe touch on the – I think we've been cautious about the potential downturn for six to nine months.