Marks and Spencer Group plc

Hello everybody, it's Archie Norman here and welcome to the M&S 2024 results. You know, one of the things I've found over the years is that for some reason, whatever results we produce at M&S, people find them surprising. recent years surprising in a good way at least i would like to think so and our ambition is not to be boring i don't think we'll ever quite achieve that but it is to produce consistent growth in sales in market share in profit and shareholder returns and what you see in this set of results under a very strong leadership team is a good performance, which is the outcome of the management team doing what they said they would do in reshaping M&S. So I'm not going to say any more. I'm going to hand you over to Stuart, who's going to talk about the performance from a shop somewhere, as you would expect. And then Jeremy will go through the financial results, probably not from a shop. Stuart will sum up. And then there'll be lots of time for questions and discussion. Thank you.

Thank you, Archie. Well, good morning everyone from our store in Lakeside, Thurrock, one of our 104 bigger, better, fresher renewal stores. If you're watching on the 22nd of May, there is a conference call for analysts and investors at 9.30am when we will be available to answer your questions. There are three parts to today's presentation. First, an update from me on this year's performance highlights. Jeremy will then walk you through the financials in detail. And finally, I will share where we've made progress and where the opportunities remain in the year ahead and beyond. Then I will close with our outlook for the year. So it's been a good year of progress. Progress against our strategic priorities which we set out at our Capital Markets Day. Our strategy to reshape M&S has delivered growth in sales, market share, margins, return on capital and free cash flow. Profit before tax and adjusting items was $716.4 million, an increase of 58%. In food, sales increased 13%. This was driven by volume growth, which outperformed all of our grocery peers, attracting a record number of customers, including more family shoppers. Operating margin improved to 4.8% from 3.4%, supported by structural cost reduction in stores and benefits from the GIST acquisition completed last year. In clothing and home, sales increased 5.3% with full price market share up 80 basis points, driven by women's wear. Clothing and home is also attracting new customers, particularly online, which outperformed the market and grew faster than stores in the second half. Operating margin increased to 10.3% from 8.7%, supported by structural cost reduction in the logistics network and increased full price sales. Both businesses have now delivered 12 consecutive quarters of sales growth and this trading momentum gives us the confidence that the plan is working. Higher profits and disciplined investment choices are translating into increased return on capital employed. We've generated strong paybacks on store rotation, on store renewal and on the gist acquisition, all well ahead of our hurdle rates. As a result, we've increased free cash flow and strengthened the balance sheet. And we are in a positive net funds position. the financial health of M&S is the best it's been in decades. And this will enable us to step up investment this financial year whilst restoring a total dividend of three pence per share. So lots done, but we remain positively dissatisfied as there is so much more to do and so much opportunity ahead of us. And I will talk about this later in the presentation. I will now hand over to Jeremy to talk you through the financial detail.

Thanks, Stuart, and good morning. I'll start with the group headlines, which highlight another year of strong performance as we reshape M&S for growth. Group sales were £13.1 billion, up 9% on last year, with profit before tax and adjusting items of £716.4 million. I note that during the year, we chose to recognise £24 million of pension income in adjusting items, which had previously been reported within profit before tax. Prior year figures have been restated to reflect this change. Continued focus on strengthening the balance sheet delivered over £400 million of free cash flow from operations during the year, which has, in turn, reduced net debt. At the end of the year, we were debt free, excluding lease liabilities. I'll now take you through the results in more detail by business area. The food business generated double digit sales growth underpinned by strong innovation and broadening customer appeal. Volumes grew by 5% on the year as customer numbers, particularly those completing larger shops, increased. Food adjusted operating margin improved 1.4 percentage points, driven by an improvement in gross profit and operating cost efficiencies. Gross margin increased 0.7 percentage points as we continued investment in trusted value, funded by the Lowering Cost Programme. During the year, we benchmarked and re-tendered contracts and reduced promotional participation. Operating costs as a percentage of sales decreased 0.7 percentage points as sales growth of 13% exceeded cost growth of 9.9%. Store staffing costs decreased 0.3 percentage points with colleague pay increases partly offset by structural cost savings. Other store costs were level as sales leverage was offset by energy inflation headwinds. Distribution and warehousing costs decreased 0.2 percentage points with the effects of inflation and volume growth offset by benefits from the acquisition of GIST. Central costs decreased 0.2 percentage points as sales leverage was partly offset by technology investments and colleague costs. In clothing and home, sales grew by over 5% as we bought deeper into key lines, reduced promotions and improved stock flow whilst improving product design and customer appeal. Sales mixed by channel moved in the year with stronger online growth in the second half and with active customers, frequency, number of transactions and average basket value all growing year on year. Clothing and home adjusted operating margin improved by 1.6 percentage points with gross margin up 1.5 percentage points as buying headwinds, including currency, were more than offset by the annualization of pricing action and increased full price sales. Operating costs as a percentage of sales decreased 0.1 percentage points as cost growth of 5.1% was marginally lower than the 5.3% growth in sales. Store staffing costs increased 0.3 percentage points driven by investment in service and colleague pay increases, partly offset by structural cost savings. Other store costs decreased 0.7 percentage points with structural cost reductions and one-off savings more than offsetting inflationary headwinds. Distribution and warehousing costs decreased 0.5 percentage points as the effects of inflation were offset by structural cost savings and deficiencies. And central costs increased 0.8 percentage points, driven by an increase in technology investment and higher colleague costs. Moving now to international. International sales, excluding Republic of Ireland, declined by 1%. As a result of the weaker sales and action taken to reduce stock levels in India, operating profits declined to £47.7 million, down 30% versus last year. Republic of Ireland performance improved in the year, with sales growing 2%. Supply chain efficiencies helped drive an improved operating profit performance to £27.9 million, up 65% versus last year. I note that from 2024-25, the results of the Republic of Ireland will be reported as part of a new UK and ROI segment within both food and clothing and home. As set out at the Capital Markets Day in October 2022, our objective was to permanently remove £400 million of costs by 2027-28. One year into the programme, £180 million of costs have been removed, predominantly in retail and logistics. Given this momentum and continued inflationary cost pressures, we have increased our savings objective from £400 million to £500 million by 2027-28. The group profit bridge shows the year-on-year profit before tax movement, driven by food and clothing and home, partly offset by international. While sales growth accelerated in Ocado, driven by increased choice of M&S products, profitability remains well below our original expectations. Our loss in the year was £67 million, of which £37.2 million was taken in adjusted profit before tax and the balance in adjusting items. The contribution from M&S Bank was largely driven by a provision release following the exit of M&S Energy in 2023. A decrease in net debt reduced interest costs in the year. And adjusting items include the Store Estate Programme, M&S's share of costs relating to the ceasing of operations at Ocado Retail's Hatfield CFC, and the release of the Ocado Contingent Consideration, as announced at the half year. Overall, the group generated £414 million of free cash flow from operations in the year, a year-on-year improvement of £243 million. This was driven by higher operating profit across food and clothing and home, working capital inflows and reduced interest expense. Cash inflow from working capital was driven by a higher year-end payables balance, mainly due to the timing of Easter. Net capital expenditure increased with the focus on investment in the Group's strategic areas of store rotation, supply chain and data, digital and technology, which I'll talk about further in a moment. Ocado Retail drew down an additional £30 million on its shareholder loan facility in the year, and increased taxation was principally due to the increased profit in the year. The change in net debt was predominantly driven by free cash flow from operations and a decrease in lease debt. As I mentioned in my introduction, at the year end, we were debt-free excluding lease liabilities, a reduction of over £1.4 billion over the last four years. At the Capital Markets Day in November 2023, we set out our minimum hurdle rates on capital investments. To date, all areas of investment across new stores, store renewals and M&A are performing ahead of expectations. And as a result of profit growth and return on our investments, Rokey has improved to over 14%. As a result, we are increasing our capital envelope to £500 million net of disposals, with approximately £300 million ring-fenced for store investment. And so to summarise, during the year there has been sustained trading momentum driven through growth of new customers, strong like-for-like sales and store rotation returns. The structural cost programme exceeded its objective of £150 million savings in year one and therefore we have chosen to increase the overall programme objective from £400 million to £500 million by 2027-2028 to further fund value and quality improvements and offset cost inflation. We remain committed to our focus in delivering sustainable and consistent free cash flow to deliver balance sheet capacity, fund investment in the reshaping M&S strategy, as well as to pay a nominal dividend. Taking all of this into account, we expect to make further progress this financial year, which Stuart will talk about later in more detail. I'll now hand you back over to Stuart.