Marks and Spencer Group plc

Hello everybody, it's Archie Norman here and I wanted to welcome you to the 2024 Marks and Spencer interim results. In a moment, Stuart is going to give you the strategic overview of the last six months. Jeremy Townsend, our finance director, is then going to talk through the detail of the financial performance and Stuart will come back and take you through the commercial performance of each businesses and say a few words about outlook. But for me, the most important thing about this period has not been the financial performance, which has been robust. If it hadn't been robust, you'd probably hear a bit more from me. But it's been the pick up in pace in terms of people, organization and culture, which means that we have a now much more capable organization and means that we can move ahead to tackle the deep-lying problems around store rotation, technology and supply chain. And that means, too, that we can pick up the pace of investment which is required to create the high-performing growth business that we know M&S can become.

Thank you, Archie. Well, good morning, everyone, and welcome to our half-year results presentation. If you're watching this on Wednesday, the 6th of November, there will be a conference call for analysts and investors at 9.30am. Jeremy and I will be available then to answer your questions. So it's been a good first half and we are making progress as we consistently execute our strategy to reshape M&S for growth. We've delivered growth in sales value and volume plus market share, while improving profitability, return on capital, and we've continued to reduce our net debt. At M&S, we have a very clear vision to be the most trusted retailer with quality products at the very heart of everything we do. And this half we've served more customers as we become more relevant to more people more of the time. As we've continued to invest in quality and value in our food business and quality, value and style across our clothing business. Profit before tax and adjusting items was $407.8 million, an increase of 17%. In food, volume growth outperformed the market and operating margin improved to 5.1% from 4.1%, as sales grew faster than costs, driving strong operating leverage. In clothing and home, over 80% of our sales were full price in a highly promotional market. Operating margin reduced 40 basis points to 12% as we invested in digital and technology, particularly online. Both our businesses are now consistently delivering growth and we've got good momentum as we step into Christmas. We're generating strong paybacks on store rotation well ahead of our hurdle rates, and we continue to make progress in our plans to reduce structural costs by 500 million by FY28. Our disciplined approach to capital allocation and focus on returns has increased our return on capital employed to 15%, demonstrating our ability to deliver value for shareholders. The easy thing for me to say is that these are good results. But in the spirit of being positively dissatisfied, we still have so much opportunity ahead of us that provides future growth. And that is what should excite us. We need to accelerate the pace of change, face into the thorny issues and seize the opportunities. Online continues to grow, but we need to reimagine our website and app experience. We need to improve availability and fulfillment across clothing, home and beauty, and bring the magic of M&S to customers whenever, wherever and however they want to shop with us. Over time, these improvements will drive growth towards our ambition of being 50% online. Along with that, we've also got an opportunity to rethink loyalty and drive even more personalization. Another opportunity is the modernization of our supply chain across both of our businesses to enable growth, create a faster and lower cost operation. The reset of our international business is underway as we look to bring the best of M&S to a global customer base. We remain confident international is a growth opportunity in the medium term. And in digital and technology, under new leadership, we've now got a grip and we have a clear plan over the next three years. Although store rotation hasn't been as fast as we would like, we now have fresh momentum with the acquisition of 10 major sites, giving us future stores in high quality, high growth locations. So as ever, we've achieved a lot, but there is so much more to do over the 12 months and beyond, and that provides lots of opportunity for future growth. I'll now hand you to Jeremy to walk you through the financials.

Thanks, Stuart. I'll start with the group headlines, which highlight a strong performance in the first half as we continue to reshape M&S for growth. Group sales were £6.5 billion, up 5.8% on last year, with profit before tax and adjusting items of £407.8 million, up 17.2% on last year. Free cash flow from operations was £16.3 million for the period, which was a small reduction on last year's first half. Net debt has continued to decrease and we remain in net funds, excluding the lease position. I'll now take you through the results in more detail by business area. The food business grew sales by 8.1% in H1, with Q1 growth being impacted by there being no Easter this financial year, and with Q2 growing by double digits. UK food volumes grew by 6.5%, supported by growth in larger baskets. Food adjusted operating margin improved by one percentage point. Gross margin was broadly level on the year as buying program benefits were invested into quality and trusted value. Operating costs as a percentage of sales decreased across all cost areas as sales growth exceeded cost growth. Analyzing the change in operating costs in the period, growth in store staffing costs and volume-related headwinds were partly offset by cost savings. Other store costs in the period were primarily driven by store openings. Distribution and warehousing volume and inflation-related headwinds were partly offset by cost savings, and central costs include investment in digital and technology initiatives. In clothing and home, sales grew by 4.7% as we focused on full-price sales, bought deeper into key lines, and improved customer appeal. Sales were driven by online, which were particularly strong in Q2, as we invested in tech infrastructure, digital and online, to improve customer experience. Clothing and home adjusted operating margin declined by 0.4 percentage points. Stores margin increased, but this was more than offset by lower online margin in the period. Gross margin increased by 0.4 percentage points, driven by better buying, offsetting currency and labour cost headwinds. Operating costs as a percentage of sales increased as sales growth was less than cost growth. Analysing the change in operating costs in the period, growth in store staffing pay and volume costs were partly offset by cost savings. Other store costs were broadly level due to energy and property efficiencies. Distribution and warehousing volume, inflation and channel mix costs were only partly offset by cost savings. And central cost growth related to increased investment in tech infrastructure and digital improvements, planning platform and increased digital marketing costs. Moving now to international, results in the period were disappointing as sales were down 10.3%, continuing the trend from H2 last year, driven by India and the softer franchise partner order book. Operating profit margin reduced to 4.7% due to lower sales and full price mix, which was partly offset by a reduction in costs. With reset actions underway, we are confident that our international business remains a growth opportunity in the medium term. One of our objectives is to permanently remove £500 million of costs by FY28. During the first half, we saved around £60 million, predominantly in retail and logistics. 18 months into the programme, £240 million of costs have been removed, and we remain confident of achieving our target. This rolls up to the overall group performance, which shows a movement in year-on-year profit before tax, driven by food, but partly offset by international. Sales accelerated in Ocado, with M&S products driving strong growth and improved profitability, although there remains some way to go to get back to a profit contribution. Financial services and other reflects the updated arrangement between M&S and HSBC UK. The decrease in net debt that I mentioned earlier helped deliver a reduction in interest costs in the half. Adjusting items in the period included the store estate programme and the financial services transformation, partly offset by a one-off legal settlement in the period. Overall, the group generated £16.3 million of free cash flow from operations in the period. Growth in operating profit before adjusting items was offset by an increase in working capital. The working capital outflow in H1 has been higher than last year, the main driver being the reduction in payables terms in clothing and home from 90 days to 75 days. We expect the working capital outflow to largely reverse in H2 and expect an overall £50 million working capital outflow by the end of the year. There were no loans to associates in the period, although we expect around £20 million for the year, and financial interest and tax has reduced. Net capital expenditure increased, with the focus on investment in the Group's key strategic areas of store rotation, supply chain and data, digital and technology, which are generating strong returns. For the full year, we expect net £500 million spend across our key areas of investment. Return on capital employed was 15% in H1 compared to 13.2% in H1 last year. And so to summarise, during the first half, there has been sustained trading momentum driven by strong sales performance across food and clothing and home. The structural cost programme remains on track and has delivered around 50% of our £500 million target in 18 months. We remain committed to our focus on 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. And taking all of this into account, we expect to make further progress in the second half, which Stuart will talk about later in more detail. I'll now hand you back to Stuart.

Thanks, Jeremy. During the first half, food sales increased 8.1%, like-for-like growth of 7.5%, and volume growth of 6.5%. M&S food volume growth has now outperformed the market for four consecutive years. Growth in the period was driven by category transformation in confectionery, gastropub and Indian, as well as quality upgrades in areas like pizza, fresh sandwiches and desserts. trusted value investment on key shopping list essentials through our dropped and locked pricing, and of course, the relaunch of fresh market specials drove sales in core lines. This helped improve customer value perception to its strongest in over 10 years. and a focus on availability drove a 1% improvement in the period. Although there is so much more to do to make sure we're giving customers the best availability and therefore the best choice consistently throughout the day. we're focused on making sure key shopping list items are never out of stock. Fixing the backbone of food continues to play a critical part of delivering our growth plans with more to do. from long-term agreements with strategic partners who are investing in factory capacity to completing our food forecaster and ordering system, which is now live in over 90% of the range, and this will help us manage fluctuations in customer demand. and creating additional capacity in our supply chain network, getting the right product to the right stores at the right time for our customers. Five new stores and four new renewal stores were opened in the half, with larger store formats enabling customers to shop the full M&S range. And stores that opened last financial year are on track to deliver the returns above our hurdle rates, with an anticipated payback of 3.4 years. In summary, our food business is on track. We've made good progress. But we are only as good as our customers tell us we are today. And therefore, we're always aiming higher. and now we're gearing ourselves up for hopefully a very busy Christmas quarter. Clothing, home and beauty sales increased 4.7% with like-for-like sales up 5.3% with clothing now outperforming the market for four years. In clothing, our focus on quality, value and style is beginning to pay off. Growth in the half was driven by a strong performance in core categories such as women's knitwear and casual tops and men's autograph. Deeper buys on new seasonal product and successful collaborations such as Sienna Miller supported a further improvement in style credentials. We continue to invest in value, including holding our prices level in school wear for four years. We also launched The Parenthood, a baby club offering savings to new parents as we look to attract more family shoppers to M&S. In the period, we opened two new full-line stores in Dundee and Washington Galleries, and both are trading ahead of expectations. Our Battersea clothing concept store, the first of its kind for M&S, will open before Christmas, as will our full new renewal stores in Bristol, Cripps Causeway and Foss Park. The four-line stores that opened last financial year are on track to deliver returns above our hurdle rates with an anticipated payback of 2.1 years. Despite all of the good progress in clothing, we still have much more to do. In home and beauty, I see a bigger opportunity over the medium term with a stronger product range and a better online proposition. Despite online growing by 11.3%, we have only just started to upgrade the digital customer experience. We have a lot of work ahead of us to improve our proposition, availability and fulfilment. In the supply chain, we're establishing strategic supplier partnerships across all categories to reduce the cost of goods. We are also upgrading our planning systems to drive better availability and increasing our smaller sizes, especially across our key campaign lines. And we are investing in the network to support growth in online as well as our stores. So in summary, there's been much progress in clothing, but there's so much more opportunity ahead of us. We are well set up for winter with our most stylish seasonal clothing offer yet. Turning now to international, the recent improvement in performance in the UK business and the strength of the M&S brand provides a significant opportunity for global growth, although the results in the period were disappointing. Sales in international were down 10% with the decline really driven by India and a softer partner order book in the franchise businesses. Operating profit margin reduced to 4.7% from 8.9%, which was due to lower sales and a lower fall price mix. Actions are being taken to reduce stock levels in India. We're strengthening the leadership team across international and we expect the business to stabilise next year. With reset actions underway, we're confident that the international business remains a growth opportunity for the medium term. Results in Ocado Retail are reported by Ocado Group, but I wanted to take the opportunity to give you a brief update. Ocado retail improved in the period, driven by sales of M&S products. And breaking news, as of this week we now have 5,000 products listed on Ocado. But there is more to do to increase and improve our profitability. Revenue increased 13.8% and M&S's share of loss reduced to 16 million from 23.4 million. M&S volumes on Ocado increased 19% in the period and represented 30% of the basket. This increases to nearly 50% in fresh categories, reflecting our growing strength in the spine of the basket. While sales growth is encouraging, costs of service, delivery and customer fulfillment continue to constrain profitability. Therefore, there is more to do before investing in additional capacity for growth. I'm speaking to you now from our Store Support Centre where I wanted to share my final thoughts on the outlook as I close. Last week's budget's long-term impact on M&S, our suppliers and our customers is for now uncertain. But for us at M&S, we have a clear plan and we are focused on what's in our control. We're committed to offering customers exceptional product at everyday trusted value. Trading in the first five weeks of this second half continues to show momentum in our food business and in clothing and home, we've seen some softer performance as a result of warmer weather, but performance overall remains on track. Therefore, we are confident of making progress in the second half. We are all set for our Christmas peak trading period. We have the best Christmas food range I've seen in my time at M&S and our most stylish seasonal clothing offer yet. We know customers are looking forward to celebrating Christmas with M&S. I'd like to thank all of our colleagues for everything they've done and everything they are about to do in delivering the best Christmas ever. And of course, to all of you and all of our customers for shopping with us, thank you. We've made progress, but as always, there is lots to do. We have so much opportunity ahead of us, and that's what energises us.

Morning everybody and welcome.

I know some of you have probably been up all night and Stuart is very disappointed to be knocked off the front page this morning. But we do have a good set of results today. Stuart is going to contextualize that and explain how much further we have to go. So before we come on to the Q&A, Stuart, you're going to give us a short introduction? A short, long introduction, Chairman.

Well, good morning, everyone. And I should say a special good morning to some of our competitors, including Tesco on the call. So welcome. In the room, I've got Jeremy, our CFO, because we've just done the media call and I've answered nearly all the questions. Jeremy's going to take a lead on this call. He's still got two calls left. in him as our CFO, but joking aside, we have got Fraser and Helen here who are on hand afterwards, of course, to take any other detailed questions. I just want to take a few moments on where we are as a business, the progress we've made, and of course, as Archie has just alluded to, what's left to do, because there's a lot over the coming years. The good news is that our continued investment in quality, value and innovation in our food business and quality value and style investment in our clothing business is paying off. Profit before tax and adjusting items was up 17% at 407.8 million. This halved, we've served more customers than ever before as we've become more relevant to more people more of the time. Our role in 12 month customer numbers is now 32 and a half million. We've delivered growth in sales, both volume and value, plus market share growth. And we've obviously improved our profitability, our return on capital, whilst reducing our net debt. Our structural cost reduction program's on track. We've delivered 60 million of savings in this half, and we've mitigated the effects so far on cost inflation. So I think the easy thing for me to say is that these are good results. But in the spirit of being positively dissatisfied, there is, of course, so much more to do. And that is what energizes us because there's opportunity. All these opportunities equals future growth. Let me touch on food quickly. Our food sales were up 8%, like for like up 7.5%. Food has now outperformed the market for four consecutive years. Our operating margins, was up 100 basis points at 5.1%, benefiting from that volume growth. We are seeing the beginnings of a virtuous circle. Our investment in quality is driving sales, in turn driving volume, and that helps us to consistently and continuously invest in value. Our lead on quality has again extended. Our value perception is the strongest it's been in over a decade. And whilst availability has improved over 95%, we know there is much more to do, especially to get ahead of our volume growth, because we want to give our customers the best availability, the best choice and reduce the out of stocks. Fixing the backbone of food plays a critical part in delivering our growth plans. And of course, we're making good progress with much more to do. Our food ordering, our forecast ordering system is now live in 90% of the range, and that will be completed by March. Alex and the team are building long-term agreements with strategic partners who are supporting our category transformations. We're investing in capacity, as I say, to get ahead of this volume growth and to continue the momentum. With GIST, we can now build on the benefits of the integration and now start to upgrade and expand our network capacity. So my summary for food, good progress, we're on track, always aiming higher, and gearing up for a very busy Christmas. In clothing and home, the overall categories of sales have increased by 4.7%, like for like up 5.3%, delivered a margin of 12%, that was down 40 basis points on last year, really reflecting on investment in digital and online. Clothing has also outperformed the market now for the past few years. We've taken big strides forward in terms of style, helped by deeper buying on seasonal products and also successful collaborations like Sienna Miller. And our lead on quality and value has been supported by strong full price sales in a very promotional market. So good progress, but we know we have so much more ahead of us. Firstly, online grew 11% in this half, supported by the digital customer experience investment, but we really want to step on when it comes to proposition, availability, improved ranges, and fulfillment. We also want to reimagine our website and app experience and not just incrementally improve it. So with online, we need to really accelerate the pace of change because we're still keeping to our target of 50% of our clothing and home business will be online. The second thing I'd call out is I think there's still a big opportunity across beauty and home. We of course have exited furniture, but we need to take bigger steps forward and there's a bigger opportunity over the medium term with better stylish products, but also more volume of value. and a better online proposition when it comes to home and beauty. And also in the supply chain, we're beginning to embed some changes, but we are just at the very start when it comes to our new planning platform, and that's a few years of work ahead of us. So good progress in clothing, lots of opportunity ahead. On international, obviously the results are disappointing, For us, more or less expected, but sales are down 10%, really driven by India and a softer clothing and home order book. As a result, the operating profit margin in international was 4.7%. I still think there are reasons to be confident for the future. We've got to reset our strategic partnerships with our franchise partners and face into the challenges actually in India. But we've got good control of stock now. And I think this provides future growth in the medium to longer term. When it comes to store rotation, just to touch on this along with our other strategic programs, we haven't quite delivered our five in three plan and we're not really on track to deliver it. So therefore not been as fast as I would have liked. But recently we have got some momentum. We've got a pipeline of 70 stores and actually just recently, an acquisition of 10 major sites, giving us future stores in high-quality, high-growth locations, which will open in the years ahead. We opened five new food halls and four renewals in this half. Our food renewals are, of course, the larger formats, enabling our customers to do a full M&S shop. We opened two new four-line stores in Dundee and Washington Galleries. Both are trading way ahead of our expectations. The small store in Battersea I don't want to get too distracted by. It's the first of its kind. We'll open it before Christmas. It's an 8,000 square foot clothing store, and we're already doing well in our food store in Battersea. And we do have two new four-line renewal stores, Bristol Cribs Causeway and Leicester Floss Park. When we think about building the M&S we need to be, There are a few key things to call out. The first is digital technology. Under new leadership, we've now got a very clear plan, a grip on our D&T infrastructure. We know that progress over the past few years has been slow and we want to accelerate the pace of change. Rachel's landed incredibly well and we're very confident in our three-year plan on D&T. We also talk a lot about high-performance culture, but we think it's critical to this phase of the transformation. We're very focused on simplifying our operations, getting even closer to customers and colleagues than ever before. We have a lot of good programs and routines and rituals on how we're embedding a new, faster culture in M&S. And of course, the foundation of the transformation is a disciplined approach to capital allocation and investment. We're making good progress delivering payback ahead of our hurdle rates. We've increased our return on capital employed to 15% and we've maintained a strong balance sheet. We're declaring an interim dividend of one pence, which is a third of last year's final dividend. As I've just finally finished and close with outlook, last week's budget long-term impact on M&S, our suppliers and customers is a bit uncertain. But for us, I don't want to get too distracted by it. We've got a clear plan and we've got to focus on what's in our control. We're very committed to quality, but just as committed to providing excellent, trusted, everyday value. Trading in the first five weeks of this second half continues to show momentum in food. In clothing, it's been a bit softer as a result of warmer weather at the moment for this autumn-winter, but we still remain on track. And I'm very confident we'll make progress in this second half. We're very well set up for Christmas. I think we've got the best Christmas food range I've seen in my six and a half years at M&S and definitely a more stylish seasonal clothing offer. We know customers are looking forward to celebrating Christmas with M&S this year. So of course, I'd like to thank colleagues for everything they've done and everything we're about to deliver. but really thanking our customers, including all of you on the call, because I hope you are all shopping with us. And if you're not, I really would ask you to shop with us over this Christmas, including those of you from Tesco on the call. So my summary, progress made, still lots to do, but lots of opportunity ahead for future growth. I'll hand back to Archie for questions.

Thank you, Stuart. That's great. And so I think the essential message is shouldn't be getting carried away. There's a lot more to do. Now, let's take some questions. If I may ask you, let's take one question at a time, because otherwise we'll forget what you asked. And of course, you'll come back for a follow-up. If I don't introduce you, please introduce yourself and tell us everything you think we should know. Let's start with Isabel de Brava from Morgan Stanley. Isabel.

Hello, good morning. My first question is on the supply chain improvements that you outlined, so the new forecasting system in food and the planning platform in CNH. Could you give us a sense of how much volume you're putting through these new systems as of the first half so that we can understand how much further upside and opportunity remains and also whether you have any early observations on improvements in availability and shrink as a result.

Isabel, thank you. I'll take that. It's quite a brief answer, to be honest. In food, the FO&A, Forecast Origin Allocation System, is now 90% of the range. It will be 100% of the range by the time we get to the end of this financial year. Actually, availability on that 90% of the range has improved by 1%. Waste is a bit higher. It is not material. It's slight. And stock loss is slightly less overall than last year. I think the work Alex and the team have done has been brilliant when it comes to this program. And it's a system we've been working at, as you know now, for over four years. So there's good news, some good learnings, and we're on track. Nothing much else to report on food. In clothing, we're at the very early stages. So the first module is going to be implemented in the second half of this year. It will be on a few products. This is a multi-year, i.e. three-year program. So there isn't really much to report, but I would say when we have the capital markets event, Richard will talk about the plan for this second half and how we're going to roll this out category by category. Thank you.

Okay. Thank you very much.

Thanks, Isabel. Okay. The one or two relevant newcomers to our show, unlike me, of course, So I thought we should move to Monique Pollard. Monique, good morning.

Good morning. Monique from Citi here. Right, I'll stick to the brief with one question. Given the likely US election results, I was just keen to understand the FX impact of dollar strength. So when I try and calculate it, I think that about 1% US dollar strength maybe hits the clothing and home gross margin about 40 basis points. And just wanted to understand if that is roughly right. And then if you could give us some indication of how much you are hedged and bought in clothing and home for the second half of this year and into next year, please.

Got it, Monique. Very good question. And luckily, Jeremy is here.

Thank you, Monique. So we buy around about 1.5 billion dollars of um closing or 1.5 billion of dollars in dollars exciting dollars so one percent movement during the mass is 15 million dollars we are fully hedged effectively for the current year at an average of 1.25 um slightly better rate in the second half at 1.26 versus 1.24 and h1 and we are over two-thirds so we're 68 hedged for next year at $1.28. So we've seen today a strengthening in the dollar to the extent of about a cent. We'll obviously keep a very close eye on it. It can move all over the place in terms of interest rates and relative interest rates in the UK. So I think it's early to call how the Trump vote will work its way through on both sides of the Atlantic, but obviously we're keeping a close eye on it. But we're pretty well hedged

for um well we're very well hedged for this year we're pretty well hedged for the year ahead very helpful thank you thank you monique okay uh jonathan jonathan pritchard from peel hut morning um you talk about your style credentials having improved with the customer can i just check that that's across all age groups across all uh demographics and across genders i suppose but is it across the board that that style credential getting better

Yes, Jonathan, sorry.

It's a very good question because, yes, in clothing, we've definitely attracted in some of our recent campaigns a slightly younger customer, especially as our style perception improves. So we've seen growth in all customer demographics. In food, we've also seen the same. we've had growth in all demographics, including our core customers and different age ranges and customer segments. The most encouraging one in food is to call out young families. We've seen an increase in our market share in young families of about 21%. In actual terms of market share, it's still small, but it's pretty good. So pre-families are up, young families are up. Middle families, older families, and older dependents is how we classify it. So yes, just on clothing, I can't remember the number, but there is about a one percentage point change in under 35s shopping in M&S in this half as well. So growth across the range.

Very interesting. Thank you very much.

Thank you, Jonathan.

Richard? Richard Chamberlain from RBC. Richard.

Yeah, morning, Archie. Morning, guys. Well done on the strong numbers. I just had a question on clothing online, please. I had quite a big step up in Q2. What do you think drove that pickup? And then I guess linked to that, what was the impact on the financials and the clothing and home margin from the furniture exit in the period, please? Thanks.

I'll let Jeremy chip in as well on furniture, et cetera. I think there's a couple of things online. As you say, we saw a step up in Q2. Some of that was weather driven as well. And that happened in our core clothing stores and online. There's a couple of things to call out when it's in terms of online mix. Our profitability as in gross margin was really because we invested in digital products. and data investment. Some of that investment in app experience, web experience, we paused last year and we then put that investment into this half as well. So online margin you would have seen is down by about 220 basis points despite a strong sales growth. Furniture, there was an impact of about 45 million of sales in furniture, which was about 10 million lower than the previous year.

So there's a headwind there for all furniture around about 10 million. So we sold 45 million at lower margin. We're now out of bulky two-man furniture.

I think the key thing, Richard, for us online, there is some good news because we have seen new customers engage with us online. We've increased the amount of brands as well as online. We've seen a big increase in click and collect as well. So there is some good news. We've upgraded the imagery, the page speed, the functionality like Ag2Bag. I think my summary is though, we see a much bigger opportunity when we really improve our proposition and availability. They're the two big things that we're very focused on this half, but also ongoing.

I think when you have a strong performance, it comes through all the channels, and that's what's happened. What Stuart's saying is we've got a long way to go online, a long way. Okay. Thank you, Richard. Should we go to Warwick O'Kine at BNP? You there, Warwick?

Thanks Archie. Yeah, good morning everyone. So you talked about increasing your customer base to 32 and a half million on a 12 month rolling basis. So just wondering that sort of within that, have you seen an increase in the number of customers cross-shopping both food and CNH? Has that number increased or are you still seeing two quite separate shopping missions?

Not really.

I mean, it's a good question because we have about 11 million of those customers shopping in food. We haven't seen a big difference in the two. But let me take that away because if we look at food, we know our numbers. The cross-shopping number, I can't remember. So can I come back to you on that?

I think this is, we just have to remember the geometry of our business. the majority of the stores are food-only stores where there isn't any clothing, so there isn't the opportunity to cross-shop. The cross-shopping question, which I think I can answer, is in stores that are full-line stores, how many people shop for food and the clothing?

It's normally 40% of that number, and I don't think it's changed. I just want to be about that.

But it's in those minority stores, so it's... you know, cross-shopping is nice to have, but it's not central to the strategy.

Warwick, if I come back, I think it's still about 40, but we'll just see if it's changed. It's a good question.

Okay. Thanks, Chris.

Thanks, Warwick. Shall we go to Kate Culbert at Investec?

Good morning, everyone. On the video presentation, you mentioned you had to go harder at structural cost savings. What projects do you need to land to achieve your 500 million targets and perhaps have to be done before you unlock the next sort of level? Do you have to do the full installation of this forecasting and planning system in both businesses? And how much of the store rotation program do you think you need to do?

Let me do the cost on the stores. I was going to say actually on the previous answer, Kate, I actually think there's an opportunity as we land these systems to go harder again. And we're actually going to have a conversation that tomorrow is now that we've got Rachel on board and we're building the backbone of the IT. So we don't, some of the cost savings out the clothing home are assumed in the 500s. What we've got less of there is some of the end-to-end pieces into the stores, I think, which is an opportunity to go at. So there's further opportunities, I think, for productivity in stores. There's certainly opportunity in the supply chain. And one of the things we mentioned in the R&S is, and again, it'll be an area of focus for us over the next two, three years, is given where colleague wage inflation is going and the NIA increases that we've seen, looking for further capital investment, I think, to unlock productivity and, for example, automation in our our food and supply chain depots isn't an obvious area to go and look. So we're not reliant on the systems being executed totally for the savings, but I think there's further opportunity there when we've landed the system bed. That's probably three or four years out. But we're well on track with the 500. We've delivered 240. We'd like to push on and deliver more if we can.

I think it's in the nature of our business that the issues are the opportunity. As Stuart has said, our our supply chain particularly on both sides both businesses the supply chain is well it's pretty much as it would have been several years ago 20 years ago so there's a huge opportunity there nobody else delivers clothing and home into the stores in quite the way we do and that means there's a lot of store labor involved in processing product which worth noting we did increase our target last year from 400 to 500 yeah yeah so i think we're on track dmt is the big one big enabler getting rid of legacy systems as well i think all big retailers have this issue maybe we more than most but of legacy systems systems you thought were installed years ago and were fit for purpose and now turn out to be not right for the future so there's a you'll see a big investment in technology and all of that will come through hopefully in productivity and performance. There's more at the capital markets event next week. Exactly. And also on store rotation. Remember, store rotation is a big productivity program because you're closing old legacy stores and investing in stores that achieve a much higher rate of sales.

Okay. Do you want to come back on that at all?

So if I think I've understand correctly that you don't need the complete installation of the forecast and planning systems to get to the 500. Yeah, absolutely. OK, cool.

OK, thank you. Food one is largely complete anyway. So the food is 90% installed. We don't need the clothing at home to be fully installed until the 500. That's actually right.

Yeah, that's other stuff. Good.

Perfect. Thank you. OK. Thank you, Kate. We'll go to Adam Cochrane at Deutsche Bank and then the great Clive Black from Shaw Capital.

Good morning, thanks, guys. Not from Tesco, sadly, but just Deutsche Bank. In terms of the OPEX, would you be able to describe how the moving parts of OPEX evolved in the first half in terms of what was the underlying increase in OPEX costs? What was that offset by in terms of cost savings? And then how much did you reinvest in terms of other initiatives that you were adding onto the cost base? And then what does that look like in the sort of percentage increases as we look into the second half?

Thanks. Alan, that's a very complicated question. I can certainly answer parts of it. In terms of cost savings, we delivered 60 million of savings. You'll see from the bridges in the R&S, you can work out what the cost investments are in terms of operating costs within food and clothing at home. Our cost investments were slightly weighted to the first half relative to the second half. We expect further 60 million of cost savings in the second half. The point I'd make, though, in relation to costs is you'll see it in both the bridges for closing home and food, particularly food. The fantastic volume growth we got in food meant we got real leverage from that cost investment. So overall in food, we improved net operating margin by one percentage point, despite price increases as price inflation of around 1.2%. So the way we look at the model is The cost savings help mitigate the cost investment, but actually it's the volume leverage that's helping drive the profitability, particularly in food.

In terms of the underlying cost inflation, what would that number look like on your cost base?

So the underlying COLI cost, I think cost inflation is about £130 million for the year. So our cost savings are slightly below cost inflation. So it's about £130 million for the year, and that's mainly COLI costs in terms of the living wage increases. It's hard to stop setting it, but not quite, with the cost out.

When you talk about the remodeling stores, I've got the cost. Are the remodeled stores, both new stores and any refurbishments, are they delivering an ethereal, different operating cost structure, or is it more just the fact that you have higher sales densities in those stores, which makes them more efficient?

It's both, really. So if you're in Liverpool Church Street on Nine Stories, it's massively unproductive. You're having to walk 10 minutes to go to the loo. uh the loading the stores is very difficult only one of them lists were so you get real productivity from the efficiency of having a two-story floor a store with food mainly on one floor and cleaning family on the other but but clearly the sales densities help a lot and you look at the the devon stores we took last year we're looking at 30 or 40 percent less um space and significant increases in sales to square foot. So it is a bit of both. And as Archie said, the other piece is we are concentrating more of our sales into less stores. So you're also getting efficiencies from supply chain and the requirement to service the stores as well.

So there's all kinds of scale economies going on there. So it's a bit of both. The operating legacy stores is expensive in every respect. And it's not just the operating costs. It's also the brand. It's the maintenance.

The repairs. In every new or renewal store, we're seeing a much higher profit contribution versus the older store, of course. Higher sales densities plus better operating savings. So that's giving us a higher contribution per square foot. You're seeing the R&S, all the paybacks, the newer stores always give a slightly better payback than a full-line renewal, of course. That's more. And the only thing we're slightly guilty of, Clive, which we're working on, in those first couple of months of a new or renewal store, the costs tend to be a bit higher in waste, et cetera, but then they level out and we see improvements after a few months in.

So, Andrew, you know... If you're saying the new store is a fundamentally different cost model, it's quite difficult to say that's the case. They just are an effective modern store that delivers higher per foot. So yeah, and a long way to go. I think we're out of time.

I'll let him have a go now. Okay, well, shall we go on to Clive? Clive, welcome.

Thank you, Archie. Have you been up all night watching this? No, I had a good night's sleep. At my age, you need it. Every little helps when you get to my age, as they say, for our friends in Wellington. So, conscious of the capital markets event, but on the investor video and on Stuart's opening remarks, You touched on the digital and technology appointment, and you've also talked about how important this is going forward around a number of answers to this morning's questions. I just wondered, to bring that together, what more effective digital and technology means for the firm over what timescale? Perhaps just to add something that hasn't been touched on today, what it may mean for personalisation and loyalty, which has been talked about an awful lot over the last four years, but maybe hasn't progressed either. Thank you.

Well, I'll touch on a few things, Clive. It's a good question. I don't know how much we've talked about loyalty, but just to nip that one in the bud first, I know I said when I took over as CEO that We need to rethink Sparks and we were too obsessed with getting more customers onto Sparks without really reviewing the program itself. And of course the competition made a lot of attention to loyalty pricing. And in our early work, it was very, very clear that our customers said we'd much rather have what they called honest pricing, everyday pricing. So we ruled out following anyone when it comes to different pricing models with loyalty. But we also knew though, was we weren't really capturing the data. And there's a careful balance when it comes to loyalty on the data you collect and how you use it, how personal it should be. But we knew that loyalty for us with having nearly 20 million customers on it was a big opportunity if we to get it right. We didn't want to rush it. And you can definitely say we haven't rushed it because we've only really started this program six months ago. And where we are now on Sparks, we've done small things like getting more integrity on the data. That's quite a lengthy process because you're asking customers on what they want to opt in or opt out on. We're starting to think how we use that online especially and how we tailor on the online personalization journey. We're also launching things. We did Baby Club. It was the first step. of how does this work? We had 100,000 customers sign up to Baby Club within two weeks. So a lot of our work at the moment is in the background on technology, on the data and the digital experience, and what we're thinking about. And I would say there'd be news in around six months, probably at the year end, in what we're really thinking about in terms of our loyalty program, but there's small things happening. When it comes to D&C, Obviously, our D&T spend is, you know, around 500 million when you look at the overall spend. And we know that's a big investment. We've got OPEX and CAPEX, of course. And we know we have a big opportunity. Our technology is outdated, very complex. The cost base is high, lacks agility. And what Rachel has done with all of us around Exco now is We have gone through the three-year transformation programs across all the different businesses. We've gone through all the enablers around tech investment, whether it's Stockley Park Exit, whether it's cyber and IT, all those different things. We've gone through all the systems, the new planning systems, for example, in clothing and home. And we mapped out now the next three years of how all of the D, the D and the T needs to underpin all the business transformation plans. So whether it's data or whether it's digital or whether it's IT, we now have a much clearer plan. And Rachel will be on stage to talk all of you through that at the Capital Markets event. So I think we're in a much better place. The Exco leadership and knowledge around this has also improved immensely since Rachel's joined. So I think we'll start to see some wins over the next 12 months.

And Archie, just by way of a quick follow-up, is your international business totally compatible with the core at the moment? And does it require additional work in terms of the D&T arena?

No, that's a good question. Look, there's the support D&T need to provide on international, but really the core of international is about reworking our partnership agreements. When you take a step back, Clive, international, if you exclude Republic of Ireland, hasn't really grown in 10 years. And what we've been unraveling with our franchise partners is how do we provide an environment for growth? We've looked at the arrangements with our franchise partners and we've looked at the performance in markets. We were doing this 12 months ago and we knew we need to re-contract with those franchise partners for more of a win-win. So we're both aligned to growth. So there's an unravelling of international. There's some challenging in some of the markets, India being the biggest one. And really our plan is to take the best of the UK, take it internationally. I don't want to rush this. Mark has got time. I've said to him, nevermind the short term for 12 months, let's restructure this for growth in the medium term. So it's a bit more really. D&T is a small element of it in some of the systems, but this is really about partnerships.

Okay. Excellent. Thank you. Thanks. And, um, Now, time's marching on. I want to get people in, so we'll try and move to the rapid-fire stage of the meeting. Anyway, Yash Raj Rajani, I wanted to welcome you to the M&S show and love to hear what you have to say.

Yes, thank you so much for the welcome and congratulations on this morning's results. Just a quick one from my end on online margins, please. So, you know, as you called out in your remarks earlier, there's been a decline given your investments in the first half. How should we think about this going in the second half? And more specifically, I mean, as you add more SKUs with the partner brand side of things, how accretive or dilutive will this be? Because as you clearly said, this is coming with more customers and more growth. Thank you.

Yeah, so some of that those investments for one off some of it was relating to promoting our furniture through some of it's an investment in the offer. So I would take half of that as being more structural and half it to come out.

Thank you. Thank you, Rasha. Yeah.

And Chris flow from Barenburg.

Thanks. Good morning. So we've heard a lot about growth potential and investment this morning. I'm just wondering if you see the sort of multi-year need for investment sort of changing the profile of M&S in terms of how investors see it. So M&S used to be a cash machine. Is it a completely different animal now or do you think we'll go back to that?

Well, I think we're a completely different business. But we're a business that's invested in the key growth strategies, but with real discipline. If you think about our strategies, supply chain, store rotation, D&T, there are some really big, chunky strategies here that we are facing into probably for the first time in 20 years. That is going to require investment. At the same time, disciplined investment. Last year, we paused. some of our spending D&T, because we wanted to be absolutely convinced every pound we put in, we was going to get a return on. So we're clearer, we're clear on our plan. And of course, at the heart of all this is growing volume and growing cash.

We will cover more of that on the capital market. But we're here for growth. And we're doing things that now probably are really for growth. paying off in five, 10 years time. That's the right thing to do.

Thank you.

Okay. Thanks, Anne. James Anstead from Barclays.

Yes. Just one then. So question on CapEx. There's kind of clear guidance for net CapEx of 500 million this year, but there's also a slightly, well, potentially ambiguous comment around scope for increase in FY25. How should we interpret that, and is that a pointer to CapEx continuing to move up a bit into next year? As an associated question, you've mentioned that it's going to be very difficult to do five years' worth of store transformations in three, but are you confident you're still on track to do five years in five?

I'll do the first bit, and I'll let Stuart take up the five years in five. So, James... We'll talk a lot more about this next week. But the key focus for the capital allocation is generate cash. And I think we're doing well on that. I think given how well the store investments are going, we would want to look at potentially increasing the envelope. We'll come to that in the FY26 guidance when we get to the prelims. we'll talk more about our medium-term view for what we're going to do with our cash what we need to invest in maintenance and maintain the business and what we'd like to do in terms of investment um it won't be radically different to where we're at but i think increasing the envelope to continue to invest in business is where we want to be james very good question jeremy's answered the capex one i mean on stores i think the quick answer is yes and

I started out with this ambition. Our plan is unchanged, 180 full-line stores. It might be 180 to 185, 420 food stores by FY28. I think we could just scrape there. The biggest challenge on this is finding the right sites. I have to be honest with you. We decline more stores than we accept because it's very easy just to get the number, but actually it's about the quality, not the quantity. So our property approval committees are very robust. And that means sometimes that might challenge the actual 420 number in food. But we've now got a good pipeline. I think I called out the 70 approved stores with rotation. I also have to be honest, at one point I was accelerating the closures But I realized that if I did that, that might also give property an easy way out. So the challenge is accelerate the closures, but find me the new store at the same time. So that means the five into three was compromised. But look, I think we're on track. We'll talk about it next week. Don't forget, if I think about future growth, even at the end of this financial year, only 25% of our estate will be new or renewed. and they're growing very well, double digit comp growth, more profitability, et cetera. If you imagine in the next few years, half of the estate, few years after that, 78, 75% of the estate, I think it's good growth opportunities for the next five years.

That's helpful.

Okay. Thanks James. Okay. We're coming to the end now and if any other hands shoot up, but, um, so, uh, Let's go to Georgina Johanaman from JP Morgan.

Hi, thank you for taking my question. Can you just update on your view on your strategy in clothing and home with regards to third-party brands, please? I think you seem to be talking about that a little bit less than historically, so just keen to hear your view there, please.

No problem. No, good question. I mean, we haven't really talked about it, but I mean, there is some good news. Our partner brand sales are up 40%. And in sales terms, that's about 120 million, roughly. I think what we're really focused on is quality brands. That means some brands are coming off, more brands are then being added and replaced. In the half, we added 17 more brands, including brands like Spanx and Under Armour. So we're very focused on what we call the tier one. Importantly, those brand sales are growing, but over half of those baskets with one of those partner brands do have an M&S product in. And that's really important. The other thing I would say is we have to invest in the onboarding and the systems around D&T in this space as well. So we've got 216 brands. Some are coming off.

17 added good sales performance half the baskets with ms products but it does require a bit more investment in technology thank you very much thanks georgina now we've got one last bid and so we'll take paul rossington from hsbc and then i'm going to draw a line uh paul uh good morning good morning um well done today just a quick question i'm sure you've run the numbers but

are you able to say what you expect the national insurance impact to be on your wage bill into next year? I know you'll speak to offset it, accelerated cost savings, et cetera, but have you actually got an idea of what the absolute incremental number is going to be? Thank you.

Thank you, Paul. Well, quickly, not so much on the wage bill because that's what we'll decide next year. If you just break it down, the national insurance contribution And whether it's the increase or the threshold change is 60 million of added cost. So that's a headwind. And when we think about the living wage stroke pay review, that's another 60 headwinds. So we'll work that through next year. But overall, it's about 120 with both those things added. Thank you very much. Sorry to end on a boring technical one.

Sorry.

No, it's well made and it's very topical. Thank you, Paul. Appreciate it. Okay, we're going to draw a line there. There is just obviously a lot more we could talk about. There is the investor day next week. So we're going to a lot more depth. And I think what you'll see is Stuart's entitled to strategy reshaping the future of M&S. And that is what it's about. And of course, there's some good performance. So there's an enormous amount of reshaping still to come. And that's what makes it exciting. So look forward to seeing you next week. Thank you, everybody.

Thank you, everyone. Please shop with us at Christmas.