Marks and Spencer Group plc

Welcome to the Marks and Spencer 2023 half-year results. I'm Archie Norman and I'm going to give a short introduction and then Stuart is going to take over and talk about the reshaping of M&S and Jeremy will talk you through the financial detail and we'll take it from there. This is another strong set of results driven by improvement in product and in value, driving market share growth in both our main businesses. It follows a sequence of roughly five improving sets of results. And of course, the question is, when does a sequence become a pattern or a sustainable trend? Well, not yet is my answer to that. Why? Because firstly, this set of results was a consequence of a lot of heavy lifting right across the leadership team reshaping the business. And secondly, In bad times retailers always have excuses and there are such things as excuses in good times too. So we've had some following winds. In clothing some of our competitors have dropped out of the market. In food there's been relatively less investment in growth apart from by the major discounters. There's been a reversion to stores which on balance still favours our business although our omnichannel business is growing. And actually, the customer, our customer, has been more robust than the market commentary. And we think that is probably going to continue. And finally, dare I mention it, the weather has been relatively kind to us, perhaps until this autumn. Having said all that, this is a changing business and I measure our progress as much by the pace of change as the short-term profit. Stuart and the whole executive team have put in a superb effort. Richard Price has brought the mojo back to our clothing business. Alex Freidman has led a consistently market-leading performance in food. But Stuart's watchword is positively dissatisfied, and I strongly endorse that. We've done okay, but the good news

is that there's so much more to do we've got momentum and we are in the foothills of what we can achieve Stuart over to you thank you Archie well good morning everyone from Victoria Cardinal Place this store is one of our 92 bigger better fresher renewal stores If you are watching on the 8th of November, there is a conference call today at 9.30 for analysts and investors, and we will be happy to take your questions. This afternoon, we will also be hosting a Capital Markets Day at our Waterside Store Support Centre, giving you a deeper dive into our vision, our purpose, and our strategy to reshape M&S for growth. There are two main parts to today's presentation. First, I will update you on our half-year results and our nine strategic priorities. where we've made progress, but where there are also opportunities for growth and where we have to step up. Jeremy will walk you through the group financials and I will close with the outlook. It's been a good first half to this year. Executing our strategy to reshape M&S for growth has allowed us to capitalize on resilient market conditions and deliver profitable sales growth and improved margins. Profit before tax and adjusting items was just over 360 million compared to 205 million last year. In food, adjusted operating profit margin recovered to 4.3% from 2.2% last year, driven by robust volume growth, the structural cost reduction program and benefits from the GIST acquisition. In clothing and home, adjusted operating margin increased to 12.1% from 9.8% last year, supported by an increase in full price-sales mix to 82%. but also structural cost reduction across the logistics network and better than expected currency and freight rates. Free cash flow improved year on year, net debt has reduced and we are restoring an interim dividend of one pence per share for the first time in four years. Our vision for M&S is to be the UK's most trusted retailer, doing the right thing for our customers, where M&S product is at the very heart of everything we do. To deliver our plan, last year we set out nine strategic priorities for reshaping M&S for growth. Three of those priorities focus on delivering profitable sales growth, aiming for market share growth of 1% by FY28 in both our food and our clothing and home businesses. Through delivering exceptional product and being the UK's most trusted retailer. Through customer-centric businesses focused on omnichannel growth. and also expanding global reach through capital light international partnerships. Two of our priorities underpin improving operating margins with a medium term objective of over 4% in food and over 10% in clothing and home. These are structurally reducing costs by 400 million by FY28 and creating a high performance culture across the whole of M&S. And to deliver this, we're making disciplined investment choices in three key areas. Firstly, accelerating store rotation and store renewal, modernising our supply chains and investing in data, digital and technology. Finally, we aim to drive shareholder returns through a disciplined approach to capital allocation to generate free cash flow from operations. Food sales grew 14.7%, with like-for-like sales up 11.7%, outperforming all mainline grocers and leading the total market on volume. Market share also increased 10 basis points to 3.4%. Growth was underpinned by our relentless focus on trusted value, where we lowered the price of over 200 lines and locked prices on over 150 customer favourites until calendar year 2024. But we also delivered over 500 quality upgrades in products across key customer missions, for example, sandwiches or fresh steak. giving customers exceptional quality products at a great price that taste great and have the highest welfare standards in the market. That's what sets M&S apart and that is what truly is trusted value. As a result of all of this, our lead on quality perception has widened even further and value perception in food continues to improve. Clothing and home sales grew 5.7%, with like-for-like sales up 5.5%. Increased confidence meant we backed lines with authority across the core, but also on seasonal product. Customer numbers increased and sales grew across both channels, with stores outperforming online. Our lead in value perception was retained and style perception rose further. Women's Wear achieved a number one market share position over the summer for the first time in four years. Well done, Maddy and the Women's Wear team. Overall clothing market share was 9.5%. Kidswear grew over 5%, driven by improved ranges and a clear trusted value position, especially on schoolwear, where we froze prices again for the third consecutive year. So we're pleased with the progress across women's wear, men's wear and kids wear and overall the improvement in our product across all of clothing and home. But we know there are more opportunities to drive growth in other categories. Categories like lingerie or improving the profitability across our home business. Clothing and home online sales grew 4.6% supported by strong growth in women's wear and third-party brands. New partners including Adidas, Sweaty Betty and Estee Lauder helped towards this performance. However, there are so much more opportunity to go after as participation of online was slightly down on last year. We've made progress in the half with our omnichannel offer. Active app and Sparx users have increased. Over 40% of clothing and home online sales are now bought through the M&S app. But we do remain some way off from our target of app users that we set out at the Capital Markets Day last year. We know we have more opportunity to improve the M&S app shopping experience, improve our Sparks program and deliver a more personalized shopping experience overall. Nevertheless, with robust full price sales growth and an increasing number of orders dispatched through click and collect, online adjusted operating margin improved from 6.9% to 9%. While the reset of Ocado Retail remains at its very early stages, Ocado Retail sales increased just under 7%. Active customers increased supported by the big price drop campaign and an expansion of the M&S range on Ocado.com. There is also a renewed focus on customer service. On-time and in-fall orders increased and customer retention has improved since January. During the period, a new robotics CFC opened in Luton with operations at Hatfield closing. The new Luton CFC has the potential to double the productivity of the previous site. There is definitely more opportunity to drive top line sales growth and leverage fixed costs, including closer collaboration between M&S and Ocado Retail. Of course, we're not happy that the M&S share of Ocado Retail net loss has increased to 23.5 million from 0.7 million last year. But we remain confident and positive that Ocado Retail is a further growth opportunity for M&S Food. Finally, international sales increased 3.9% at constant currency, with more modest partner demand following post-pandemic restocking last year. We opened nine new stores, net in the period. Adjusted operating profit increased 11% to 43 million, supported by structural cost reduction savings in the supply chain. The international business has so many opportunities to drive growth and is trialling new ways of working with franchise partners. For example, encouraging our partners to buy more confidently into seasonal lines and develop their omnichannel proposition whilst also working to reduce overall levels of stock holding. I'm very much looking forward to one of my international trips next week, meeting our franchise partners to discuss future growth opportunities. The purpose of the cost reduction program is to sustain operating margins over 4% in food and 10% in clothing and home through structurally reducing costs by more than 400 million by FY2028. This program is on track with over 100 million of savings delivered in the first half. This includes 30 million of retail savings, 30 million of logistics savings, 15 million from organisational simplification across digital and technology, but also central teams in our store support centre. We are on track for over 150 million of savings in the current year, as we committed to last year. During the first half of the year, the leadership team and I refreshed M&S's vision, purpose and behaviours. Our aim is a simpler, faster, technically enabled organisation. an M&S which is closer to customers and closer to colleagues, and is supported by a core set of expectations of how the business operates day to day. We've had 10,000 ideas already from our colleagues through the Straight to Stuart Suggestion Scheme, where anyone and everyone in the business can share their ideas on how to improve M&S. We've had some fantastic suggestions from across the whole of the business. But Straight to Stuart isn't just about ideas or issues straight to me. It's about a cultural change of openness across the whole organisation where everybody is accountable for improving M&S and there's an open link to all leadership. Also, everybody in the store support centre has to spend at least seven days a year in stores and come back with ideas for improving the business. Support centre colleagues have spent over 28,000 hours already working in stores, bringing them closer to our customer and colleagues. One great output of our Closer to Customer days has been the introduction of paid leave for colleagues whose baby requires neonatal care. 3,000 managers also have now taken part in our development programmes where we're raising the bar and the importance of internal talent. More than 230 colleagues have already participated in our fast track learning and future leaders programme. Our aim is to ensure we retain, develop and promote more of our internal talent. The objective of the store rotation program is to shift to a brand enhancing, productive store estate made up of around 180 four-line stores and around 400 M&S food stores in, of course, growth locations. We want every store to be a store we are proud of. Our aim is to deliver the five-year rotation program in three and actions are already underway to build our store pipeline. By the way, we're already one year in, so there's only two more years left. During the first half, store rotation included flagship relocations of full-line stores in Leeds White Rose and Liverpool, as well as the opening of a new, smaller full-line format store in Purley Way. These stores are attracting new customers and all stores are trading well ahead of our expectations. Yesterday we opened our relocated store, Birmingham Ball Ring, and I'm very much looking forward to Thurrock and Manchester Trafford Centre opening before Christmas. November is our busiest period of store openings ever in the history of M&S. Alongside this, six stores were also renewed in the half year period. A good recent example is the store in Victoria Cardinal Place, this store I'm in today, which is performing 30% above our planned sales. By the end of this financial year, over 100 stores will be in this new store format. And thank you to all of you who are locals who I know shop at Cardinal Place. In food and clothing and home, M&S has suffered historically from high cost and under-invested supply chains. In both cases, there are substantial opportunities for improvement to drive more timely flow of stock and reduce the cost of stockholding. Food made further progress on the integration of GIST as part of its multi-year program to fix the backbone. The contribution from GIST is now running at £60 million a year, made up from the elimination of the management fee, operational savings and improved productivity and service. Alex and the team are now working to define long-term network requirements to deliver the next phase of improvements. As I said in May, Richard and the team in clothing and home are starting a program of change in the end-to-end supply chain. This is focused on fewer, more strategic suppliers, better systems to increase visibility and connectivity, and the creation of an omni-channel logistics network. Initial improvements in the period include investment in online order fulfillment capability at the Stoke and Ollerton warehouses, which will reduce the cost of shipping single item orders. Data, digital and technology investment is a key enabler for our Reshape program, driving growth through creating an engaging customer experience, efficient operations and effective business infrastructure. We are currently evaluating our overall data and digital and IT spend. We want to make sure that the sequencing of the modernisation of our legacy systems generates the most effective returns for the food and the clothing and home business. Some progress has been made in the first half. In food, for example, we've launched our new forecast ordering and stock allocation system, which has been implemented now across nearly 60% of the food categories. In clothing and home, a partner for the new planning system was selected with the design stage being scoped out at present. Across the whole of M&S, we've already commenced the program to upgrade our SAP system. Our ability to invest in the reshaping program is underpinned by a disciplined capital allocation framework, which is focused on the generation of free cash flow from operations. We now have a focused capital envelope for investment, which is supported by clear hurdle rates, which Jeremy will expand on later at the Capital Markets Day. As a result of cash generation in the period, net debt reduced further. With further improvements to the balance sheet, ratios of debt to EBITDA and cash flow to net debt are expected to be sustained at levels consistent with an investment grade credit rating. And now with an improved sustainable balance sheet, we are restoring a modest dividend to our shareholders. Now I will hand over to Jeremy to walk you through the detail of the financial results.

Thanks, Stuart, and good morning. I'll start with the group headlines, which demonstrate a strong performance for the first half. Group sales were £6.2 billion, up almost 11% on last year, with profit before tax and adjusting items of £360 million, with margin improvement in both businesses. Profit before tax and adjusting items grew 75%. Our focus on strengthening the balance sheet has delivered positive free cash flow from operations, which has reduced net debt further, with credit metrics held at investment grade levels. I'll now take you through the results in a bit more detail. Starting first with a profit bridge. The group generated an increase in underlying profit with growth in food, clothing and home and international. Detailed bridges of the drivers of operating margin can be found in the results R&S. In food, further investment in trusted value, quality upgrades and innovation led to an increase in volumes and market share. food adjusted operating profit margin increased from 2.2% to 4.3%. This was driven by the lowering cost programme within cost of goods sold, the benefits of the GIST acquisition last year of over £30 million and leverage from sales growth. In clothing and home, sales grew quicker in stores than online and style and value credentials continued to improve. Clothing and home adjusted operating profit margin increased from 9.8% to 12.1%. Sourcing and currency pressures were offset by higher average selling prices, lower freight rates and tight cost control, resulting in strong sales leverage across the business. Ocado Retail had a challenging half and recorded a loss, despite an increase in revenue of 6.9%. The increased loss was driven by the continued effects of new and underutilised capacity and a one-off accrual release in the prior year. The decrease in net finance costs was driven by higher average interest rates on cash balances and reduced interest expense as a result of the buyback of medium-term bonds. Adjusting items include our store estate programme costs and costs relating to the Ocado network capacity review, offset by the release of the Ocado contingent consideration. Now, turning to cash flow. The business generated free cash flow from operations of £28 million, a substantial improvement on the prior year outflow. Working capital was lower than expected, driven by lower stock levels in clothing and home, partially offset by increased stock and payables in food as they prioritise availability. The outflow relating to interest and tax was largely related to increased tax payments, adjusting items in cash flow relate primarily to the UK store estate strategy and structural simplification. As I mentioned at the year end, we had anticipated Ocado Retail to draw down £70 million of our shareholder loan. And in the period, this was £45 million. Looking now at capital investment in more detail. Our CapEx programme is focused on our three strategic transformation areas. Store rotation, supply chain and data and digital and technology. On stores, around £70 million was spent on opening three full line stores, two simply food stores and six renewals. In the supply chain, £24 million was spent on upgrades to our vehicle fleet as well as replacement of logistics equipment. Investment in data, digital and technology included the continued rollout of the new food forecasting, ordering and stock allocation system and the early stages of investment in the new clothing and home planning system. We have also commenced the programme to upgrade our SAP enterprise resource planning system. Finally, I will update you on our capital allocation plans. As I stated at the year end, to fund the Group's strategic transformation programmes, the primary focus of our approach to capital allocation is on generating cash flow to fund investment. Capital expenditure is prioritised with hurdle rates applied to store investments, supply chain and digital investments based on their expected impact on sales or cost reduction. The focus on cash flow, investment returns from capital expenditure and an investment grade credit rating creates a virtuous cycle which is expected to deliver an improvement in free cash flow from operations and a stronger underlying balance sheet. This in turn has enabled the group to resume dividend payments as planned, starting with an interim dividend of one pence per share. Thank you. I'll now hand back over to Stuart.

Thank you, Jeremy. Well, looking ahead, we're planning for a good Christmas. In fact, I asked the cameraman to position us right here so you can see the fantastic women's party wear right behind me for this Christmas. But we're in good shape and as I said, we think Christmas will be strong. But as we go into 2024, we are not relying on the same recent favourable market conditions continuing. The outlook remains uncertain with the likely impact on consumers of high interest rates, deflation and geopolitical events. Against more challenging comparatives, we expect profit before tax and adjusting items to be weighted towards the first half. Taking a step back, there will be undoubtedly challenges and headwinds in this year ahead of us. Progress will not be linear, but we are laser focused on execution of our strategy to reshape M&S for growth. As you have heard today, we remain positively dissatisfied. We've made progress, yes, but there is still so much opportunity to go after. We are ambitious for the future growth and we're restless, always aiming higher. Everyone at M&S makes change happen and I want to thank all of my colleagues for their contribution to these half-year results. But I also want to thank them in advance for what we are about to deliver and what we call the golden quarter, Christmas. Everyone at M&S will be sleeves rolled up out in our stores, out in our distribution centres, getting closer to our colleagues and closer to our customers. Our focus is unswerving and simple. giving exceptional quality, value, service and innovation to every customer whenever, wherever and however they want to shop with us. That is what makes us the most trusted retailer and that is bringing the magic of M&S alive. So, that's it from me for the moment. My summary, lots done, lots to do, and lots to gain. Thank you for your time.

Hi, good morning, everybody, and welcome to the call. It's Archie here. I'm here with Stuart, Jeremy, Alex Freidman, the whole team in the room. Look, you know, it's a good set of results, and I would say to Stuart, when you've got strong results, say less. But no, it's not going to stop him.

He wants to introduce the meeting and do a few words today, and then we'll take some questions. Good morning, everyone. As ever, thank you, Archie. Look, before we go to questions, I just wanted to lay out a few things about how I see the results, where I think we are as an organisation, and importantly, as we look ahead to the future. As you've seen this morning, our profits are a little better than we expected. Resilient customer demand has provided a favorable backdrop. But also, our strategy has also enabled us to deliver growth, importantly, volume growth. We've sold more product and served more customers across food and clothing homes, and both businesses are now outperforming the market. To touch on food, we outperformed all supermarkets. And you will have seen, yet again, yesterday's market share data, which showed us outperforming the market again on volume and value quite significantly. So I think the work that Alex and the team are doing on quality and on value is really paying off. You should also be reminded, of course, that within the half year, we did have a benefit from the GIST contribution of nearly 33 million. That means our overall food margin, therefore, was around 4.3%. In closing at home, I think Richard and the team are really getting into their rhythm. I've spent quite a bit of time looking at ranges and going through supply chain value. And Richard, Maddy, Mitch, and the rest of the team are really starting to push our style credentials with increased confidence. but also remaining laser focus on how we're restructuring the clothing business, and that laser focus on the key areas of quality and value. And as a result, in clothing and home, our perception metrics have improved. There's also good work in the clothing and home supply chain. In fact, we had a benefit through efficiencies of supply chain of 30 million in clothing and home, which means our first year margin is 12.1%. And then just on cash, Jeremy and I are very focused on the three financial statements. We talk a lot, the P&L, the balance sheet and the cash flow. And I have to say, I've learned a lot in my first 16 plus months as CEO with Jeremy's support. We've implemented very clear hurdle rates, targeting strong paybacks on the big strategic programs that we need to invest in. And those programs I set out a year ago haven't changed. Store rotation, supply chain in both businesses. And we're pretty focused on data, digital and IT, but we know we've got quite a lot of work to do in that area. As I said in May, we're on a journey. We have a clear plan. But it's not just what we say. We are very focused on what we say and what we're doing. And this afternoon's Capital Markets Day is very focused on, we said this a year ago, this is what we've done. And as you know, the Capital Markets Day is this afternoon at Waterside House. So I think in summary, we remain positively dissatisfied. Again, one of my colleagues said, you're not going to use those two words again. And I said, yes, because actually being positively dissatisfied is a positive. It means we're positive about the progress and the work we are doing to drive a reshaped M&S. But we have to be dissatisfied because there is so much opportunity and not everything goes right every day, of course. So we're focused on always aiming higher, and that's one of our new behaviours in our business. So we're pleased with progress, but I do just want to say, in many ways, in my mind, this is just the beginning. You've seen from our outlook that we have trading momentum through October, and customers are responding well, especially on our Christmas ranges already, whether that's food or clothing. But we don't want to over-promise in the next six months, something I'm very wary of. I don't want to over-promise and under-deliver. We know there's so much in our control, but we also know there's quite a bit of uncertainty as we think about the second half. So my summary is we're on track. Lots has been achieved. There's lots still to do, but there's lots of opportunity ahead of us. So I will hand over for questions.

Right. I'm going to take some questions. Yes. Of course, we're all meeting this afternoon, so we can cover everything again then. But who wants to ask? Clive. Let's have Clive Black. Clive, I can't see you on the list, but I'm sure you've got a question. You had a great headline this morning.

Can you hear me, Archie? We can hear you loud and clear. Good stuff. Well, obviously, well done to you all. Stuart, you said there that... just the beginning. And in the analyst video this morning, Archie talks about being in the foothills of what the business can achieve. I just wonder if you both can characterize just some meaning to that, frankly, given where the company's come from in the last six or seven years. And then just a second one, if I may, building on your wish not to over promise, Stuart. Last year, You talked about an aspiration for 10% plus clothing margins, I think 4% food. I mean, you have smashed that in the first half. Maybe just tell us why something closer to 10% should be considered more normal, given what you've just achieved. Thank you.

Bye, thank you. I'll start, Jeremy, and Chip in as well. But very good question. I think just on first, when I say just the beginning, I won't go through all of our programs, but we've discussed those at the session this afternoon. But when you look at those programs and you're working through the actions every day, you actually look at the progress, but you're very more focused on what left to do. So whether that's product, whether that's property, store rotation, I mean, it dawned on me, looking at the store rotation numbers in our last property committee, that we've only actually got 92 renewal stores. All of those are performing way ahead of our expectations. We've just opened yesterday Bullring, Birmingham, third less space, 30% more sales. Liverpool, from the old store to the new store, 30% less space, 30-plus percent more sales across both Clover's Home and Food. And you've only got to then think, well, imagine if we had 180 new format stores or include the 400 food stores. What an opportunity. You have to look at our supply chain. We've only just acquired JIT a year ago. And the good news is we've delivered 60 million of benefits in that 12 months. And all credit to Alex and the focus and the team. But the hard work now begins. We have to redo our whole network, automation, new sites, less sites, et cetera, and ambient shield capacity. The work and the growth opportunity in Ocado, that hasn't even started yet. I'm excited really on Ocado, but not really next year. I'm probably thinking Ocado is a three plus year, maybe five year significant opportunity. And they're just a few things that I'll ask. My last example is data digital technology. We know we've done some good work. We're trying to think about online clothing at home. The app, how to make it more personalized, sparked to the loyalty program or an MNS club or whatever you want to call it. And actually, we haven't made as much progress in the last 12 months in that area than we would have liked. So my summary of just the beginning is we're on track and we're very laser focused on what we said what's in our plan and how we executed it but you've only got to work through the detail and realize the opportunity ahead of us and that's what actually is exciting on your second point about margin quite rightly and i'm not changing this afternoon those targets you'll notice i put a greater than in front of it but actually we think The economics stack up very well if we really focus on driving sales volume across both our businesses, clothing, home, beauty, and food. And we want to build volume retailer. And therefore, we think a healthy operating margin is around slightly higher than 10% for clothing, home, and the same for food. I think that gives us room for investment. And where our performance has paid off is where we've invested in quality and we've invested in value. And it's also important to note in the first half, there has been some one-offs. So, for example, the GIST 30 million in H1, or more heavily weighted, should I say, for the first half, and the 30 million supply chain costs in clothing homes. our overall cost reduction program, the $150 million for the year, 100 of that was in H1. And of course, we had $25 million of benefit in interest charges based on our bond buyback. So there's also some reasons why H1 was slightly better for that.

Jeremy? Yeah, Clive, just... picking up on some of those points that Stuart's made. First of all, the 10% is a full year margin, and the margin in Cloding and Hope does tend to be higher in the first half than the second half. We do tend to have more markdown, particularly when we get into Q4, so there's a seasonal aspect to it. Just building on some of the things Stuart said as well, in the second half, we've had some tailwinds from FX in the first half. FX actually moved against us in the second half, an implied dollar rate of 130 last year versus 118 this year. So that's going to move against us. And then Just one of the things we've flagged half on half, but it will affect both clothing and home and food margins. We are looking to, given the strong force of the first half, we are looking to accelerate some of the investments in the business that we probably had planned for next year around maintaining the stores and getting ahead of the game on some of our IT infrastructure. And that will suppress margins in both businesses in the second half as well. So that 12% we're very pleased with it, but second half, that should come down a bit.

okay thanks guys um uh let's move on we've got a few questions uh pending um johnson britchard from bill hunt uh morning all and and well done uh just on value perception you mentioned it in passing in the in the presentation has the pace of improvement of value perception uh accelerated you're investing a lot i think 500 products have been improved that suggests that actually the um the sort of quality versus price interplay is getting better in customers eyes at a rapid rate um secondly a quick one um on part let's just take that take that let's take that question because we okay and when it will forget the second one we'll come back to it yeah and i think jonathan hi stuart look it's a good question and a good point and

Actually, our value perception in clothing has always been strong. We've always been the number one on value perception. But what's quite surprising, but we're pleased about, is customers have really noticed the improvement in style. We've always been one for quality and value in clothing at home, but style has gone up considerably in women's wear. our style perception has gone up 5% just in 18 months. And by the way, I think well deserved by Maddy and the team. And menswear, I'm not surprised. It's been checked and verified that I am the number one menswear shopper in M&S. But menswear style perception has gone up 7% in the last 18 months. So the reason I start with that is value is always strong in clothing and that's been actually growing year on year, but we've also improved style. In food, it's very similar. I think the work the team has done, obviously we really started out investment and price program nearly four years ago now, but Alex has been very focused on the Remarkable program, quality M&S product at a supermarket equivalent price. And actually that program, 200 lions have increased nearly 50% year on year and price lots of 150 lions has actually gone up 40% year on year. And therefore, no surprise, the value perception in food is stronger now than it has ever been. So yes, Everything on perception is going in the right direction. And I think it is because it isn't just about price. It's the price you pay for the quality. And although I'm very challenging constantly on our quality, whether it's clothing, home or food, and I'm constantly challenging our value position, our customers have definitely noticed and it's resonating. Jonathan, next question.

Well, feel free to kick these into the afternoon grass if you want to. But will we see more small sort of partner implants into stores like Yegu at Colney, for example? Will we see a bit more of that? And then lastly, just on Sparks, you have touched on it. What can we expect from that in the next 12 months?

Very good questions, Jonathan. Look, I can't really comment on the brands in stores. They will be probably more rolled out as our brand. So whether it's the autographed Jaeger, we're very encouraged by the work actually the team are doing on Jaeger. It's under MABI as ringers wear and I think We're narrowing the range, but absolutely going back to the core heritage of Jaeger. And I dare say, maybe we'll have strong plans for that. Autographs, since the software relaunch, autograph sales are already up double digit as well in the last few months. Peruna as well, up 20% on the year. So I think there's an opportunity to not just look at those brands, but ranging, and ranging is top of mind for Richard. On Spar, Reason this is a good question is, I mean, it's quite remarkable. We've got nearly 18 million customers on Sparks. Our opportunity is we only have 5 million active Sparks members, i.e. that use their card once or twice a month. The other thing is we have some trials on Sparks where we have 20% of our customers having a more personalized Sparks experience. Now, I'm slightly dubious because I've been asking to be part of this program and I'm not yet. So I really want to know what this is. I've seen it, but we know as a team we've got work to do. But why we're quite excited is if you can imagine 18 million people, if we can start really getting our data in shape, really drive a more personal experience, And I will touch on this this afternoon, by the way. Jane, this is such a big opportunity. There is another small thing that's on my mind on Sparks. We talk about the average customer, whether it's demographics, age, etc. But actually, when I'm walking our stores, especially in 50 centres, and I'm looking at the customers on women's wear or men's wear, we are attracting a younger customer. Now, they're not going to sign up for a SPARKS program or a SPARKS card unless it's really relevant to them. So we've got lots of work to do on this, but it could be a big unlock-up in the future.

Okay. Thanks, Jonathan. Thank you. We're going to cover a lot of this this afternoon, so probably best we can try and focus on results this session. Otherwise, we'll steal Stuart's thunder. for later on. Anyway, so we have David Roo from Bank of America, and then we go to Richard Chambers.

Yeah, morning, gents. Thanks for taking the questions and well done on the results. Just on the gross margin, there's a lot of kind of moving parts to it. But as you look into FY25, I mean, should we expect a tailwind from freight and FX? And I've got two more questions. I don't know if you want to go ahead with that first.

Well, let me touch on that, David, and Jeremy as well, talk about effects, et cetera. I mean, on margin, if I think about food, first of all, I mean, our gross margin was up slightly, but actually we got benefits from logistics of about 0.3%, retail costs, other property costs, and saving in central costs. And that's all part of our cost restructuring program. So that really, if you add all that up, that's why the food operating margin went from 2.2 to 4.3. I think the most important thing for the food business is maintaining the volume of sales growth. And that's why, you know, Christmas, we're pretty confident the early signs of Christmas are strong. And I do hope every single one of you on the call are shopping with us this Christmas for food and for clothing at home. But we're slightly worried about what January will look like, because although customers are planning for a good Christmas January, there's a few question marks about some of the challenges they're facing. And although our customers are more cushioned than other retailers, we're just mindful. So what's key for Alex and his team is really continuation on the strategy of volume and that will do through quality and value. We still think it will also, the logistics savings will continue to flow in the second half. When we think about clothing, I mean, clothing on their operating margin obviously went from 6.9 last year to 9%, sorry, 12% this year. Now stores, were a big improvement. Stores went from 11 to 13 and a half. Online, we normally get a higher margin in H1 than we do in H2. Now, that is what I think the challenge is, because our online margin in the first half was 7%. Sorry, last year was 7%, this year 9%. And normally, in the second half, history tells us that margin is diluted, mainly because of sale, etc., But that is where I think our opportunity is for future years.

Yeah, thanks, Joe. Just focusing on the dynamic on growth margin and clothing at home a bit, David, there are lots of moving parts. Some of the benefits in the first half this year is price increases that went through first half last year. We actually haven't taken any price increases since then. So as that flows its way through, we're not planning to take price increases up either in H2. There will be some reduction in gross margin as some inflation flows through. Freight is a tailwind. FX, as I've just said to Clive, becomes a headwind in the second half. Actually, as you flow into 25, FX should work in our benefit, but obviously FX moves around a bit. But at the moment, based on current FX rates, we would get the benefit from that. And obviously, then we'd have to start pricing accordingly as we're heading to 25. So lots of moving parts, quite hard to call, and quite a mixture of headwinds and tailwinds and all that.

Great. That's very clear. And then my last two questions are just bundled together. They're quite straightforward. How should we think about the dividend payout ratio looking forward? And then the second one is... just on the Ocado Retail JV, I see there are some levers to adjust the performance targets under certain circumstances, and I'm just wondering if there's any chance of that happening.

Jeremy. Yeah. Okay.

Yeah, Jeremy, bring it up. Yeah, so on the dividend, we've announced a nominal dividend. Our priority is on investing in the business, and we'll talk about that this afternoon. We're looking to get an investment-grade credit rating. We need to think about our pension scheme. But dividends are important. They're a tangible definition, a realisation of shareholder returns. So it's a nominal dividend, a penny at the interim, and on a one-third, two-thirds basis, it'll be roughly 3p for the year. So that's the approach to the dividend. On the CARDO, you'll see in the accounts that our position is it would appear that the ICADA retailer, if it isn't going to hit the number it needs to do to achieve the contingent consideration, and on the back of that, it's been written down to zero, there is the provision in the contract for adjustments to be made, and ICADA may argue in due course that the numbers should be adjusted, which could mean that the target is hit. But for the moment, we're not aware of any such adjustments, and we've written this balance down to zero. Thanks very much.

Okay.

Richard Chamberlain, and then we'll go to Warwick.

Yeah, thanks, guys. Morning, everyone, and well done again on the strong first half results. Just a couple from me, please. How should we think about, on the food side, how should we think about the food space contribution for this half in view of the recent sort of ramp up of of four openings. That's the first one.

And then the second one... I mean, look, in H2, we've got 10 new openings. It's not a significant change of space. I mean, it will be small in the grand scheme of things. There's two new openings, nine store closures, David Sloan- Six reviews to all of those of course food and by the end of h2 will have 108 new format stores, I mean what I would say. David Sloan- On some of the big stores like by the traffic Center pretty big stores and food performance will be very strong there, if I think about. The stores we've just opened bordering yesterday, as I said, a third less space overall with 30% more sales, same as Liverpool won, by the way. So, I mean, it won't make a significant material change to the numbers, but over time, it will. It will be a key growth factor for good business.

Got it. Thank you. And my other one was on the working capital outlook for the second. I wondered if Jeremy or some of you through the drivers there, I guess the clothing payables. Yeah.

Richard, we're still targeting a 50 million outflow for the year. If you remember, we had a a pretty strong inflow at the year-end, last year-end, and I talked to some of that being phasing. Some of the variables in there, we've got too much stock in India and looking to get that down, which should help. We do have Easter in food coming at the year-end, and that creates actually a working capital drain just in terms of the build-up rate, so that should be a facing issue, obviously. And you're right, on closing the home suppliers, payment days moved up during COVID, and we are looking to bring that down to 75 from 90 over time. So that is part of the reason for that outflow in the year. Very helpful. Thank you.

Okay. Thanks, Richard. We'll go to Warwick O'Keefe and then take Albert from Westgate. Warwick.

Thanks, Archie. Morning, everyone. Yeah, just back on the store renewals, you've talked about some of those renewals and the sales uplifts. And I think on the video, you said Victoria Cardinal Place was quite a long way ahead of your plan, as well as obviously higher than before. Could you talk about some of the dynamics that drive those uplifts, you know, customer traffic baskets, and perhaps also whether you're experiencing any unplanned cannibalization in adjacent stores?

Yeah, I'll keep it high level, Warwick. We can cover a bit more detail if I get a few numbers later for you. But I mean, funnily enough, I've just had a message from the team at Cardinal Play saying, we love the video. Thank you for calling our store out. And they've just sent me a video for themselves this morning. But the reason I mentioned that just in Cardinal Play, but also our other stores, if we think about food, first of all, I mean, it's quite amazing. If I go back now nearly five years, Our first renewal store at Clapham is actually backseat, but St. John's Road in SW11. That store was 100 years old, an old tied store with clothing and food, food at the back, clothing at the front. And that store was doing around 200,000 a week. And we were going to close it. In fact, I still remember the day where we were sort of arguing about opening or closing or keeping it. And I was determined it was going to be a food store. In fact, Archie got me the number of the landlord and it was Will from Dunelm and I met him. And within the space of two weeks, we agreed to keep the store. I got a bit of paper out and scrolled on a piece of paper what I thought the store should look like. And two months later, Sasha and I are knocking down the store, building a new food store. I mean, that food store every year has been in double digit growth. Year one, 25%, year two, 20-something percent, year three, 18%, etc. And five years on, continues to perform. And there are a few things. The first is the shopping experience in those renewal stores, as you know, is quite different. The first is we focus on what Alex calls the spine of the basket. So produce features more heavily and does fresh meat and poultry. And that is helping drive a slightly bigger basket. And it's also helping our customers do a full shop with us in those stores. But that leads to more range because more range is helping drive those baskets. Our basket in renewal stores over 30 pound baskets are actually up always around 20%. And range is really important. And I think what does remain core to the food strategy is we are still going to focus overwhelmingly on M&S. We've got some gaps in the range. Alex has identified a couple of thousand SKUs that he wants to introduce over time. But we can't see these stores being as big as supermarkets. We want to be very tight on space, return on space. And therefore, those largest stores will be about 20 to 25 and on average 15,000 square foot. So the summary range is really driving a big difference. If we think about some of the renewal stores where we just added that range and made the store a better environment, whether it's Cardinal Place, which has performed extremely well, a few of our shareholders and investors and analysts shop there and thank you for that but also other stores like york and center store trading 20 up when we renewed that as well so all renewals are in line with their business case all actually exceeding there isn't one that isn't exceeding the uplifts we expect um and i should just mention on clothing and home although it's a food question When we write sized clothing and we get a better layout and a better edited range, like in Cardinal Place, clothing sales not only go up but have a halo effect from food. So in Cardinal Place, although we reduced clothing by around 6,000, 7,000 square foot, sales went up 30%. So there's a lot of good metrics going in the right direction when it comes to store renewal and paybacks of goods.

Thank you for that. And if I may, a second question is, I think you also said that you expect to see, just thinking about clothing and home online, I think you said you expect to see a stronger online growth performance over the next 12 months. Any particular reasons for that? I mean, I imagine you see some of the last six months as a sort of normalization of traffic to store, but any particular reason why you think online will reaccelerate?

Well, I think this is more based on, I don't really think six months, but I do think over 12 and beyond. I don't think we should change our strategy. Our target was always right-sized clothing, reduce our clothing footprint, target 180 flagship stores, full line where clothing homes feature, and right-sized space of around 60,000 square feet as a maximum. And when it comes to online, where we see the opportunity is, one, we underperform in real key categories. So we have high share in women's wear, but actually we see some of those categories underperforming online at the moment. Menswear, when we think about menswear, we have a big opportunity. We have 9.2% of the menswear market. Online, we're 4.9%. If we think about lingerie, we have nearly 30% market share. Online, we're only 20. And so the story goes on. Women's wear, 9.5% market share in stores. But actually online, it's 4.5%. So why I'm very focused on this online bit, and as is Richard, is I keep identifying the opportunities in categories that absolutely gives you opportunities to drive online growth in the future. And the last point online is, We need to do a much better job when it comes to the app experience and personalization. And we talked about it for a few years, and we really got to get some momentum behind that program. And that will deliver medium-term, I think, growth online. I think people underestimate in the last year, we've seen a continued resurgence of return to stores. And this is obviously being beneficial for us because we're still waiting to compare some of the competition The result is online has been subdued, and people talk about it a lot less. We don't think that's a long-term trend. We think that's an interruption to a trend. So we do expect online, market-wide, and our own business to revert to stronger growth. Whether it's the next six months or the next 12 months, it's going to resume to trend.

Now, look, we're not getting through that many questions, quite a few people waiting, so let's try and keep it split. Should we go to Kate Culbert and then Anne Critchlow? Kate?

Morning, everyone. And just to say I love the Clapham Food Store. So two questions for me. First, in clothing and home, your full price mix was up to 82%. Given your sort of positive feedback dissatisfaction. I mean, what is the ideal level of full price sales and how much further can you push it? And in terms of my second question, could you just talk about the level of disruption costs, pre-opening costs year on year from the store relocation strategy? Was it sort of higher or lower? And should we be looking for this to increase over the next two years if you're going to contract the program? Thank you.

Gosh, Craig, that second question was a big one. I'm looking at Jeremy. I'm looking round. Let's give firstly thank you to Shop Connect Clapham. I hope you're doing Christmas shop. And please email me any feedback. On your full price point, our full price mix was 82%. I mean, last year actually was quite high at 81%. And pre-COVID, of course, it was in the 60s. So the team has done a good job three years in a row over 80% full price. It's hard to put a number on it, but I tell you the few things that are on our mind for myself, but also for Richard mainly. The first is I do like the clarity of first price, right price. You know, we want to be the most trusted retailer. And that means, you know, promotions don't really feature the best product for the best price. And the other key thing that Richard is really focused on with his team is maximizing of markdown going into sale. Now, there are a few contentious issues. I would like us to get out of sale in half the time. So instead of all of January, which I think would just be awful to see a whole month of sale, I would love a two-week sale. And I know Richard is listening in to this call and I know he's very focused on how we're going to reduce the amount of sales, maybe get out of it quicker. So I think mid 80s and to high 80s will be a good long term number. And there's just a few things still of trusted value and sale that we want to work through.

I can tell you categorically, Kate, that I don't have an answer for your second question. I can say that in some of our renewals, we look to keep the store open. So I know in Victoria Place, in Cardle Place, we have looked to work with the store and manage the renewal while we kept the store open. On the relocations, and we were up in Liverpool earlier in the year and Birmingham opened this week, we'll tend to keep the old store open right until the last minute and then reopen. So I don't think the cost of pre-empting costs, certainly in terms of closure costs, will be significant, but we'll come back to you in terms of impact. We'll do a bit of analysis on that and get back to you. Great, thanks very much.

Okay, anything more from you, Kate?

That's it, thank you very much.

Thank you. Okay, we'll go to Grinchlow then, and then I'm going to get James down to this.

Thank you, morning all. I've got two questions, please. The first one, has there been any increase in shrinkage in either business? And then the second one on the experience of markdown rates in the third-party brands where you sell on a wholesale basis. Thanks a lot.

Thank you, Anne. I mean, firstly on shrinkage, I mean, actually, Boone was slightly favourable and we've done a lot of work on shrink. So there's no real standout concerns. The first is that Alex has done a lot of good work. Stakes was a classic example. What we know is a target category. And on stakes, we repositioned the offer, standardized the sizes. In fact, one of Alex's first ideas was fixed pricing. on stakes, and that has worked very well for customers, very well for sales, and has reduced the loss. We've also re-looked at how we lay out our stores. It's a real small detail, but having stake at the end of the aisle opposite a checkout helps a lot, rather than in the aisle or hidden. And we've done a lot of work on process, stock accuracy, and what that means is we can target any areas where we have missing stock. I should also say the acquisition of GIF has helped us because we've been able to be clearer on our end-to-end stock flow and stock holding, and that helps with accuracy. So really, no big standouts for us when it comes to shrink. Your second question, I sort of forgot already what was it third party brands or something i forgot yeah i mean you've talked about the full price percentage across um clothing and home just wondered what it was for the third party brand specifically on the wholesale basis i actually haven't got that on me um and apologies um i think we'll come back to you i i can't really remember but um we will come back

Thank you. I don't think it's an issue on third party brands. The only thing you find that's slightly more complicated than third party brands is the returns rate. Yeah. Because there's a lot of trade into areas where you can potentially get higher returns.

I'm worried about it. I just don't know the specific number on it. We'll come back to you on it.

We'll come back to you. Okay, let's have James and Susan, and then we'll get a couple more, and then we've got loads of time this afternoon to record all the photographs down. Hi, James. James.

morning two questions please so firstly um if i interpreted your comments earlier rightly it sounds as if progress in home is lagging the improvement you made in clothing i wonder if you can talk a little bit about besides the opportunity and what's the major things you need to do to execute on that and then perhaps one for jeremy i don't know if you can narrow down at all your comments on ppt guidance the year ahead um i mean one way of looking at it would be given some of the greater headwinds in the second half Do you think it's realistic to get PBT growth 2H on 2H?

James, thank you. I mean, it's right for you to pick up home. It's funny because as I reflect, it's not like you actually rehearse what you're going to say, but naturally home rolls off the tongue because I do think this is an opportunity for us. I know Richard agrees. There's a couple of things. We've had some strong performance in home, by the way. You know, bedding was up 10%, for example. And I do think if we really focused on the key hero categories that we're famous for, like bedding and bath, for example, maybe kitchen to some extent, if we really focus our attention on that and build on the good work the team has done around style and quality and value, I think our opportunity, Rich and I agree on this, is driving more volume. I mean, don't forget our home market share has gone up, but only 0.3% point. So our home market share is 5.2%. And therefore, that's why I talk about home. I also, by the way, think home is an opportunity online, more than just stores. And I think we've got a particular challenge on furniture. And I should call that out because we're just reviewing that business at the moment. So at home, it's a mixed result. There's some underperforming categories and I think there's a big opportunity to drive more volume value in the future.

On the second half, James, and the numbers for the year. If we deliver exactly in line with last year's second half and add that to the first half delivery, that would land us at about 635. As we said, given our strong performance in the first half, we are looking to make 20 million or so of investments back into the business, accelerating investments that we would have made next year. um based on where people are coming out at the 640 level i think that that implies an underlying growth in the second half of round about 25 million so but there should be some growth but but but um it's in that order of magnitude based on the 640 uh outcome for the year okay look we'll take a couple more adam and cochrane do you want to chip in and then we'll go to um uh isabel de brazo oh

Yeah, I didn't have a question. I didn't have a question. You haven't got a question. That's unusual. No, thanks. Okay. Okay. Isabel.

Hello. Good morning. Yes, I had two questions. So the first one was around the run rate of your cost savings, which are annualizing at about 100 now out of the 150 target. So could you give us a sense of Is this EU outperforming relative to your initial budget expectations, or how much of it is a question of timing, given the various flow-throughs, and in general, what are the main areas of savings which remain over the next six months? And then I have another question after that.

I'll kick off, and then Jeremy can say if I've said anything wrong, or fill the gaps. But thank you, Isabelle. I mean, the first thing to call out is obviously we laid out a plan for 400 million of structural cost savings. And the reason that's important, it shouldn't just be about get costs out. It should be about restructuring M&S to be a lower cost business over time. And we will touch on that this afternoon at the Capital Markets Day. In the first half, as you know, we delivered 100 plus million of cost savings. Really because that came from logistics, 30 million in clothing and home and also the same in clothing and in food. We did have some savings in D&T as well. Some of that is because we paused some of our work. It was 20 million pounds where we paused some work until we were a bit clearer on the returns of those investment programs. We had 30 million in retail and 15 million in other simplification programs. So costs, of course, still grew. Good news, sales grew lower and sales grew faster than cost growth. And that's our overall plan. What I would say at the moment for us is our overall 400 million is still in place. Our 150 million for this year is still our target for this year. And that's where we're on track to deliver.

Yeah, the only thing I'd add is Isabel, and it's about a year since I started working with Stuart. I think the programme kicked off around this time last year as part of the Capital Market State, and inevitably, based on when the programme started and how that's flowed into the current year, we've had a stronger weighting in the first half. Stuart and I are absolutely keen to make sure we maintain the momentum. So we'll be working with the business to try and keep the activity going and the opportunities going as we head into the budget for next year. But part of the waiting actually is just about the timing of the programme and the successes we've made in the first half in delivering that. So we'll be looking for opportunities as we head into the next financial year to keep the momentum going.

Okay, thanks. Now, I'll just take Nick's talk and then I'm going to call a halt because we've got four more hours of this. And the team has a lot to do. So, Nick, do you want to chip in and then we'll call a halt.

Morning, thank you. So, two quick ones if I may then. Firstly, and I guess In truth, maybe a question for this afternoon. But on food, strategically, which shopping missions or baskets are you going after? Is it still a case of being part of the customer's basket but getting more? Or are you going after full basket shops in the larger stores? And then I guess, how does Ocado dovetail into that longer term, please? So I have a quick follow-up on Bangladesh as well, if I may. Thank you.

Well, I think the first thing on basket is, I mean, our overall basket value is over £15, £15.30 or something like that. And it is ahead of pre-COVID levels. Now, obviously, units per basket is now starting to grow as our volume is growing. I think what's more interesting is in our underlying co-op store estate, the top-up basket for tonight is still very important. That's because our stores are smaller and they're a bit more top-up driven stores. You know, they're smaller, smaller range. So dinner for tonight is still critically important. In our renewal stores, it's quite different though, because our basket grows where people are doing a bigger shop. is obviously paying off. Our basket in renewal stores is 10 plus percent higher than it is in our average store. So I think it's all about format. We have different formats. We have the very small 2,000 to 4,000 convenience store format. We have a 7,000 store format, which is top-up, what we call top-up and dinner for tonight. And then we have our bigger store format, where we want to give customers the opportunity to buy a forward shop, i.e. all of the needs space. And that seems to be working well. Just on Ocado, I think Ocado is just complementary. We haven't seen cannibalisation. We are seeing now with the work that Alex and Hannah are doing, and they're talking this afternoon, so they can touch on this this afternoon. But we're not seeing cannibalisation, and we are starting to see some growth now. The beauty for a car, though, I think, in the long term, at the moment we've got 4,000 lines ranged. That's 80% of the range from the food business. Sales are growing up. M&S sales on Ocado are up at the moment 7%. Average orders are up and active customers are up. So we might not be happy with the lost number, but I think it's going in the right direction. And I do think I'm not overly worried for the next 12 months or two years. But I think three plus years from now, Ocado should be a food growth story for M&S.

That's great. That's very helpful. And I'll say one maybe to discuss a bit later as well, where you see the opportunity for market share growth. Very quickly, if I may, on Bangladesh, do you have any initial thoughts on the wage settlement in Bangladesh and maybe how important that country is to you as a sourcing location, please?

Yeah, look, thank you. I mean, it is important. And obviously, sourcing responsibility and everything we want to do is very important to us. While we will not endorse a sort of figure, we do support the process of the minimum wage negotiations. Our global sourcing principles for us is pay a fair wage, pay workers good wages, meet their basic needs, And therefore, we're doing a lot of work when it comes to our sourcing arrangements with Bangladesh. And it is a very important country. In fact, I'm visiting them with our sourcing team next year and very much looking forward to it. I think you have to recognize Bangladesh has been very important to us historically and is today. And if you trade in Bangladesh, it is right that over time we should see wages improving in Bangladesh. We want to see that. I didn't mention it, but it's about 43% of our sourcing overall.

It's our most important company. Remember, what's happened in Bangladesh over the last 10 years is huge investments in much more modern, more sustainable, better managed factories where working conditions have vastly improved. It's not the Bangladesh of 20 years ago. With the way she

inflation, which is inevitable, which is right. We're also seeing very good capital investments and very, very modern plans there. So not a source of alarm for us.

Brilliant. Thank you so much.

Okay. Look, I'm apologizing for those who haven't got in, but honestly, there's going to be lots of time this afternoon. The format's going to be very open. I hope you're all coming.

There's plenty of time to talk to the team individually as well as the Q&A session collectively. and, of course, a lot of great, awesome presentations. So look forward to seeing you all then, and thanks for joining us now. Thanks. Thank you very much, everyone.