Marks and Spencer Group plc

Hello everyone and welcome to the Marks and Spencer 2025 annual results. So, we ended last year in fine fettle and I felt after years of incredibly hard work, the business was starting to show its true potential. But in business life, just as you think you're onto a good streak, events have a way of putting you on your backside. And I'm sure that a lot of people today just want to talk about the cyber incident which happened after the year end. And of course that's understandable because it is interesting, important and different. After all, it's not every day you get a bunch of criminals, probably the other side of the world, trying to bring down one of Britain's most popular companies. As a result, last year's results seem like ancient history. But we should talk about them. because they demonstrate what a reshaped M&S can achieve. Exceptional performance in sales, market share, profits and cash flow. And we're only halfway through our programme of reshaping the business, so there's so much more to come. So yes, the cyber attack has given us pause for thought and yes, we will need to bring forward some of our technology programmes to make sure the business is very resilient in the future. But I'm very confident that in the great sweep of time, this will prove to have been a bump in the road. A painful bump, maybe, but a bump in the road. And I can tell you that everyone at M&S is just longing to get back to trading the business again. And we will come back. And we are coming back now, stronger and more resilient. Lastly, I don't want this moment to pass without saying just a huge thank you from me and from the whole board to all the colleagues in the stores that have been trading the business throughout, despite the normal system support, to the colleagues in the DCs who kept working throughout, and of course to our technology colleagues who've done a magnificent job for us. So that's it from me. Stuart is now going to take you through the results. Jeremy will go through the financial detail and Stuart will sum up. Thank you.

Well thank you Archie and good morning everyone. Welcome to our fall year results. The presentation I'm doing today is here in Oxford Street, our Marble Arch store. Let me tell you why I've chosen Marble Arch. Well this store has been here for nearly 100 years. and this time next year we will be redeveloping this store into a flagship store that will last for a further 100 years. So I'm looking forward to coming back in a few years time and presenting results in what will be one of London's biggest and best food and fashion stores. But now let's crack on with last year's results. If you're watching on Wednesday, the 21st of May, there will be a conference call for analysts and investors at 9.45am, where Jeremy and I will be available to answer your questions. There are four parts to today's presentation. First, I will start by updating you on our headline performance over the last year, as it's really important we don't lose sight of what a strong year we had. I will give you some perspective on our progress on how we're reshaping M&S for growth across the business and, of course, over the last three years. Jeremy, our CFO, will then walk you through the financials from last year in some detail. Before I close, I will of course update you on the recent cyber incident and give you a view of the outlook for this financial year. Last year, we delivered a strong performance with profit before tax and adjusting items of £875.5 million, which was an increase of 22%. We grew free cash flow from operations to $443 million and closed the year with net funds of over $400 million, while continuing to grow returns to shareholders through an increased dividend. We are now in the best financial health we've been for nearly 30 years. We continue to make progress in our quality and value credentials in food and in fashion, home and beauty. We've made good progress in improving style perceptions and broadening our appeal. Last year, I said we were at the beginnings of a new M&S. I said this deliberately because while we continue to make progress in transforming M&S, we still have so much to do and there are so many opportunities ahead of us in future years to drive growth. But let me now turn to the businesses. In food, sales increased by 8.7%, with like-for-like growth of 8.6%, driven by volume growth, which has outperformed the market now for over three years. During the year, we upgraded the quality of more than 1,000 products and launched over 1,400 new lines. This consistent drumbeat of innovation has driven increased customer interest and frequency. Our continued investment in quality and innovation is paying off through sales value and volume growth. And it's this virtuous cycle that enables us to continue investing in price and quality for our customers. These actions have enhanced customer perception of M&S value, which has reached a 10-year high. Our mission is to become a shopping list retailer, and we're seeing more customers choose us more often for their everyday shopping. Our focus is to continue on fixing the backbone of M&S food, as this is going to be critical to our future growth. This means making sure we have the right long term agreements with our supplier partners, the right systems and the right capacity in our network to get ahead of the growth curve. And the team are making good progress on this. We continue to sign long-term supplier agreements, which allow partners to invest and grow capacity. At the year end, we completed the rollout of our forecast ordering and allocation system, which helps us get the right stock to the right stores at the right time. And we've taken the first step in modernising our logistics network with plans to open a new modern distribution centre in Bristol next year. In summary, we're on track. Alex and the food team are making really good progress, but we have a lot more headroom to grow. And I believe we're well on our way to doubling the size of our food business. Turning now to fashion, home and beauty. Sales increased 3.5% with like-for-like growth of 4.4%. We've now outperformed the market for over three years. Our commitment to offering customers first price, right price as part of our trusted value strategy meant full price sales mix was broadly level on last year. An example of this is kidswear. where we've removed our promotions but invested in lower prices on everyday essential items. And we have continued to improve our style credentials further, particularly in womenswear and menswear, which has been reinforced with strong seasonal campaigns and some brilliant collaborations. Today, we are broadening customer appeal and attracting new customers across our fashion, home and beauty business. We've made good progress over the past few years, but now our focus turns to addressing the backbone of our fashion, home and beauty business. Recently, we appointed John Little into the role of Managing Director. And John will help us face into those big things in transforming our supply chain, merchandising, planning and ranging, and also accelerating our online growth. Since John's arrival, he spent his first month working in our stores and across our distribution centres to get a feel for the M&S business and the opportunities ahead. In summary, we're on track, but we need to knuckle down and execute this next phase to deliver further growth and profitability. Moving now to international, we had a pretty challenging year. Our sales were down 8.5% owing to the performance in India and a softer fashion, home and beauty order book in our franchise markets. It did get better in the second half of the year. Over this next year, we are resetting our joint venture in India under new leadership. We will also be implementing new operating principles and updating all of our commercial terms with our franchise partners. This will enable us to move to a more trusted value position because we're going to invest not only in style, but also in value across our international markets. In summary, international continues to be a growth opportunity in the medium term. Our strategy remains the same, to build a capital-light global omnichannel business that brings the best of M&S to the world. Turning to Ocado, just to remind you, last year's results for Ocado Retail are reported separately by Ocado Group. But I wanted just to give you a very quick update. Sales were strong in the year, with growth of over 15%, driven by sales of M&S products, which grew over 20%. Today, M&S volumes represent over 30% of Ocado retail volume. While the top line is an improved position, profitability remains limited by high service delivery costs and continuing high fees for the old Hatfield site. In the year ahead, there will be an increased focus to improve delivery efficiency and to maximise capacity from the existing network. It's critical we improve the productivity and the profitability of Ocado Retail before investing in new capacity. Finally, from this financial year, we will be consolidating Ocado Retail's financials into M&S as part of the terms of the original joint venture agreement. This has no impact on our share of the business. I will now share with you some thoughts on where we are with our overall transformation. In October 22, we set out a plan for reshaping M&S for growth. Our objective was to protect the magic of M&S and modernise the rest of the business. What this means is making sure we protect all of those great things in our heritage, like quality, value, service, innovation and trust, while modernising the areas that are holding us back from growth, like our legacy store estate, our end-to-end supply chain and our aged technology. Nearly three years on, we've now delivered three years of growth in sales value and volume, growth in market share, growth in profits and improved return on capital. But to make sure we sustain this growth, one of our key priorities was to strengthen the balance sheet. Over these three years, our free cash flow from operations has increased from 182 million to 443 million. And our net debt, including our lease liabilities, has reduced from 2.6 billion to 1.8 billion. Given the progress we've made in strengthening our financial position, both S&P and Moody's upgraded us to investment grade status. This gives us the capacity to further invest in M&S. This year, we will invest CapEx net of disposals of between 600 and 650 million. 400 to 450 million will be invested in our three strategic areas for growth which i've mentioned previously store estate end-to-end supply chain and our technology foundations in store rotation we're stepping up the pace we're stepping up the openings we have plans to open two four-line stores and at least nine food stores and two extensions In our supply chain, we have our first new distribution centre in Bristol, with plans to modernise the network in the coming years, creating capacity for future growth. In technology, as we said at last year's Capital Markets Day, we need to upgrade our legacy technology infrastructure, our networks, our store technology and our supply chain systems. We are making use of the recent disruption to bring forward that investment and deliver the two year plan of changing technology in just six months. The remaining 200 million to 250 million will be invested in essential maintenance, looking after the upkeep of our store estate, upgrading our logistics fleet and replacing outdated assets. We will continue to invest in a very disciplined way to make sure we achieve our hurdle rates. With a strong balanced sheet, we can invest with confidence but also manage any short-term setbacks. So, in summary, last year was another strong year of performance across M&S. We've now delivered three years of growth in sales value and volume, growth in market share, growth in profits and improved return on capital. While we've made progress across so many of our priorities, we are clear there remains so much more to do. We look at this as a positive. These future opportunities provide future growth and that is what energises us. Our consistent performance demonstrates our momentum and I'm confident that with continued focus on our plan and the execution of our plan, we will deliver future growth.

Thanks, Stuart. Before I take you through the full year financial performance, I wanted to confirm that recent events relating to the cyber incident took place after the financial year end. And therefore, the following results relate to business as usual trading to the end of March 2025. This overview will not touch on the financial impact of recent events, and Stuart will provide an update on this year's financial outlook. So let me start with the group headlines, which highlight another strong performance during the financial year as we continue to reshape M&S for growth. Group sales were £13.9 billion, up 6.1% on last year, with profit before tax and adjusting items of £875.5 million, up 22.2% on last year. We continued to focus on strengthening the balance sheet and as a result delivered £443 million of free cash flow from operations, improving our net funds excluding the lease position to £438 million. Our improved financial position means we now have an investment grade credit rating from both our rating agencies. I'll now take you through the results in more detail by business area. The food business grew sales by 8.7% with performance in Q4 growing 10% despite no Easter in the reporting year. Life-like sales were slightly lower at 8.6% growth as the impact of full line closures in the year took effect. UK food volumes grew by 6.7%, supported by growth in larger basket shopping missions as we progress towards becoming a shopping list retailer. Food adjusted operating margin improved by 0.7 percentage points. Gross margin decreased by 0.1 percentage points, as investment in value and quality was largely offset by cost reductions from sourcing programmes. Operating costs increased 5.4%, which was lower than sales growth of 8.7%, resulting in operational cost leverage of 0.8 percentage points. Operating cost increases in the year related to retail investment in colleague pay and in-store services partly offset by structural cost savings. Supply chain investment in colleague pay and costs associated with additional volumes offset by structural cost savings and efficiencies. increased investment in digital and technology core infrastructure, with central costs being broadly level on the year. In fashion, home, and beauty, sales grew 3.5% as quality, value, and style perceptions grew year on year. Full price mix remained broadly level in a more promotional market. Sales were driven by online as we started to invest in the digital experience for customers, performing particularly well with new season campaigns and collaborations. Fashion, home and beauty adjusted operating margin improved by 0.5 percentage points. Gross margin increased 1.2 percentage points, driven by better buying and currency-related gains, which more than offset supplier labour cost headwinds. Operating costs increased 5.1%, which was higher than sales growth of 3.5%, resulting in operational cost deleverage of 0.7 percentage points. Operating cost increases in the year related to logistics costs associated with growth in online orders, investment in core infrastructure in digital and technology, increased central costs associated with marketing, website improvements and transformation. And conversely, retail costs decreased in the year as investment in colleague pay was offset by cost savings. Moving now to international, which this year has been resetting and refocusing for growth. Sales in the year were down 8.5% with lower fashion, home and beauty shipments following actions taken to reduce stock levels by franchise partners and ongoing challenging trading conditions in owned stores in India. Adjusted operating profit declined in the year due to the reduction in sales, partially offset by improved cost control in owned markets. Looking ahead, we remain confident in our plans for international to become a growth opportunity in the medium term. As set out in our Capital Markets Day in October 2022, one of our objectives is to permanently remove costs from the business. Two years into the programme and £300 million of savings have been achieved, with approximately £120 million saved in the last 12 months, predominantly in retail and supply chain. And we remain confident of delivering savings of over £500 million by 2028. The overall group performance shows a movement in year-on-year profit before tax, driven by food and fashion, home and beauty, partly offset by decline in international. Sales grew in Ocado Retail with M&S products driving strong growth, although there remained some way to go to get back to a profit contribution. I note for the reporting period 24-25, Ocado Retail was accounted for as an associate interest, as we have previously reported. From financial year 25-26, Ocado Retail will be consolidated in the results of M&S in accordance with the Joint Venture Agreement. Details relating to this will be shared over the summer. Financial services and other reflects the updated arrangement between M&S and HSBC UK. Adjusting items in the year include a fair value re-measurement of the carrying amount of the group's interest in Ocado retail prior to the consolidation. Other adjusting items include the UK store rotation plans and the M&S financial services transformation. Overall, the group generated £443 million of free cash flow from operations, slightly ahead of last year. Growth in operating profit before adjusting items was partly offset by a planned working capital outflow and increased capex net of disposals. The working capital outflow was driven by a change of payment terms in fashion, home and beauty from 90 days to 75 days at the end of the prior year. Increased food inventory was offset by growth in payables, partly due to Easter timing. Net capital expenditure increased with the focus on investment in the group's key strategic areas of store rotation, supply chain and digital and technology. For the forthcoming year, we expect to spend £600 to £650 million net of disposals across our key areas of investment, with £400 to £450 million spent in growth and cost-out areas and £200 to £250 million in maintenance. Tax increased due to higher profit before adjusting items in the year. And the reduction in financial interest paid was driven by the repurchase of medium term notes. And so to summarise the last 12 months, another strong year with sustained trading momentum driven by positive top line and bottom line performance across food and fashion, home and beauty. The structural cost programme remains on track and we remain confident to deliver savings of over £500 million by 2028. We remain committed in our focus on delivering sustainable and consistent free cash flow and balance sheet capacity. Over the last three years, our debt position has improved by £900 million to a net funds position of over £400 million today. Our return on capital employed continues to improve and stands at 16.4% for the year. This gives us confidence to continue investing in our transformation across our key strategic areas, store rotation, supply chain and digital technology. And we expect to spend capex of £600 to £650 million net of disposals in the year ahead. all while paying an increased dividend to our shareholders. I'll now hand you back to Stuart.

Before I talk about the outlook for the coming year, let me talk about the cyber event. We are now in recovery and getting back to business. We've been working with cyber experts and officials, and of course we've been advised on what we can share, but here is a quick summary. April started strong, continuing the momentum from last year. Then over the Easter bank holiday, it became clear that we were facing a highly sophisticated and targeted attack. We called in several cyber experts and assembled the best support team, including technology partners, and notified the authorities immediately. As a result, we were able to take control of the situation very quickly and take the right actions to protect the business, our customers, our suppliers and keep our shops open and trading. This meant proactively taking down some of our systems, which resulted in short-term disruption, but we think that was the right thing to do. So where are we today? We're now focused on recovery and customers should be able to shop in our stores as normal. Our food business is delivering stock to stores in the normal way and all customers should find much better availability and should find what they need. In our fashion, home and beauty business, our stores are receiving product deliveries, so stock is flowing well. But of course, in fashion, home and beauty, online orders are still paused, but our plan is to reopen online in the coming weeks. It is a complex operation, so it's going to take some time for us to bring up our online systems. Looking ahead, we will use this window of disruption to accelerate our technology transformation plans, the plans we laid out a year ago. In fact, we will condense the two-year plan into just six months. So in summary, this has been a challenging time, but like I say to all colleagues in our business, it's just a moment in time. As you've heard today, our business is in good shape with strong performance, strong foundations and a solid financial footing. This has bolstered our resilience, meaning we can recover at pace and regain momentum. We will now draw a line under this and move on to business as usual, remaining focused on our long-term strategy and transformation plans. Before I touch on Outlook, I wanted to take this opportunity to say thank you again to our colleagues and our supplier partners for their huge work and support. And of course, a very special thank you to all of our customers who have given us so much help and support and encouragement and who have shopped with us. It's greatly appreciated. Turning now to Outlook. As I previously said, M&S entered the new financial year with strong momentum, with both food and fashion, home and beauty trading ahead of budget. Since the incident, food sales have been impacted by reduced availability, although, as I stated earlier, this has improved. Also in our food business, we have incurred additional waste and logistics costs due to the need to operate manual processes which will impact profit in the first quarter. In fashion, home and beauty, online sales and trading profit have been heavily impacted by our decision to pause online shopping. However, stores have remained resilient. We expect online disruption to continue throughout June and into July as we then restart and ramp up online operations. This does mean we will have increased stock management costs in the second quarter. Therefore, our current estimate is an impact on group operating profit of around 300 million for this financial year. and that will be reduced through the management of costs, insurance and other trading actions. We're confident that we will enter the second half of this year with a strong customer proposition, returning to the performance that we were delivering immediately prior to the incident and continue the momentum of the last financial year. Having personally spoken to all of our colleagues across the business, there is an incredible fighting spirit within our teams. We want to get back on track and serve our customers to the best of our ability. And that's what we intend to do.

Good morning, everybody, and welcome to our M&S 2025 results call. Stuart is going to lead this session, and he's got a few words to say by way of introduction. But this is a particularly important occasion because, of course, it's Jeremy Townend's last results call. with us. And Jeremy's been brilliant over the years in answering all your questions very lucidly and obfuscating where necessary. So Stuart, we want to give him a chance. Alison's also here, poised to take over. And look, just a quick thing on when we get to the questions. It's not that we're bored by cyber. Of course, we're not. But the value of the company is not in cyber. It's in the future performance. And last year's results are the best guide, we believe, to the future. So let's focus on that. If you want to ask a cyber question, fine. But one is enough. Now, I'm hoping we'll make this call about 40 minutes long. There's a bit of flexibility. So we may not get through everybody. We will come back to you if we don't.

Stuart? Thank you, Archie. Well, good morning, everyone. And if I could just pass my thanks on before I start to Jeremy for his brilliant support over the last two years, because it is his last week with M&S. And as Archie said, we welcome Alison, who's been with us now a couple of months, fully inducted and gets into grips with the business. So thank you for joining us. I know some of you were on the media call earlier, but I do want to start by giving you my perspective on last year's performance. And of course, at the end, I'll touch on the cyber incident that happened at the start of this new financial year, and I will touch on our outlook. But let me just remind you of the key financial numbers. Last year, we delivered a strong performance. Sales of 13.9 billion, growth of 6.1%. Profit before tax and adjusting items was 875.5 million, an increase of 22%. And we grew free cash flow from operations in the year to 443 million. And we closed the year with net funds excluding these liabilities of over 400 million, further strengthening the balance sheet. So we are in good financial health and the best financial health we've been for nearly 30 years. Just touching on the businesses, personally in food, sales are up 8.7%. We'd like for light growth at 8.6%. Volume growth has now outperformed the market for over three years. Our continued investment in quality and innovation is paying off, which in turn is driving volumes and this virtuous circle that allows us to continue to invest in quality and value for our customers. Our focus is now transforming our end-to-end food supply chain, which is critical for our future growth plans. In summary, our food business is well on track. Alex and the food team are making really good progress and we've got a lot of headroom to grow. And I believe we're well on the way to doubling the size of our food business. Now turning to fashion, home and beauty, sales grew 3.5%, like for like sales up 4.4%. We've outperformed the market now for three years. We continue to lead the market on value and quality and our journey on pushing style credentials improved further, driven in particular by women's wear and men's wear. We've made good progress on product in the last few years, but our thoughts now turn to addressing the backbone of the business. As you know, we've recently appointed John Little into the role of managing director, and he will really help us face into the big transformation areas, supply chain, merchandise planning, ranging and accelerating online growth. So in summary, we're on track, but we know there is lots of opportunity ahead of us. So we need to knuckle down to deliver future growth. On international, it was a reset year as we planned it to be. Sales were down eight and a half percent, driven by tough performance in India and a softer fashion order book in franchise markets. Under Mark's leadership, the process of reset is now underway and we are investing in trusted value across our markets. International growth continues to be an opportunity for us in the medium term. Our strategy isn't changing. It's capital light and we aim to be a global omnichannel business that brings the best of M&S to the world. Turning to Ocado, of course, Ocado retail results are reported by Ocado Group. But just a brief update, sales were strong, growth of 15% driven by M&S ranges, which grew faster at 20%. Sales growth has been encouraging, but as we know, there's lots to do to improve profitability. As a reminder from this financial year, we are consolidating Ocado's retail results into our results as part of the terms of the original joint venture agreement. This is an accounting change only. It has no impact on our share of the business. Turning to capital investment, the progress we've made in strengthening the balance sheet now gives us the capacity to invest further in our transformation. Last year, we continued to invest in our three strategic areas, store rotation, supply chain and technology. Good progress was made, in particular store rotation, where the returns are ahead of our hurdle rates. This year, we'll invest in CapEx net of disposals of around $6 to $650 million. $200 to $250 million will be invested in maintenance. $400 to $450 million will be invested in growth and cost-out initiatives with continued focus on our three strategic priority areas. Store rotation, stepping up the pace, two new four-line stores, at least nine food stores and two extensions, and there will be more new news to come on store rotation in the coming weeks. Our second, modernising our supply chain, investing in capacity and efficiency across both our networks. and of course technology, and we're going to use the recent disruption to leapfrog accelerate the two-year tech plan into six months. Before I talk about the outlook for the coming year, let me just touch on the cyber event. We are now in recovery and getting back to business. As you know, we've been working with cyber experts and official authorities, and we've been advised on what details we can and can't give. But so many chief executives have called me over the last few weeks who have all been through similar events, albeit not as public. They told me, firstly, this will be one of the most challenging situations you face as a CEO. Secondly, they told me we need to watch out for burnout, whether it's myself or my team in the first few weeks. And thirdly, they said to me, it will take longer than you would like and you would hope for. And it could be a distraction in the short term. To be honest, it has been the most challenging situation we've encountered, but we are on the road to recovery. It has come at a time when the business has been performing well. We are in a strong financial position and that's helped us respond and it will help us recover quickly. Just on a few facts, April started strong, continuing the momentum from last year. Of course, over the Easter bank holiday, I got a call from one of the team to say they spotted some suspicious activity. Over the last two years, we've invested in new systems and tooling, and that has been on our in-house cybersecurity team, and that has helped to spot this type of activity. That evening, we called in several cyber experts and assembled the best team to support us, including tech partners. And of course, we notified the relevant authorities immediately. But we were able to respond quickly and take the right actions immediately to keep us secure, protect our business, our systems, our customers and our suppliers, and to keep our shops open, serving customers. And this did mean proactively taking our systems offline, which did result in disruption in the short term. So now we're only four and a half weeks in to this incident. Sometimes it feels like four and a half months, if I'm honest. But in this multi-year journey of our transformation, it's actually a short period of time. And as I said, we're now getting back to business. Customers can shop in our stores as normal. All our stores are open as they have been throughout. Our food business is delivering stock as normal and customers should find everything they want. In fashion, home and beauty stores are receiving product deliveries and stock is flowing well. But as you know, we closed our online business. Turning these back on is quite complex, but we're making good progress with our plan and we will start turning online orders back on within a matter of weeks. We will draw a line under this and move on to business as usual, remaining focused on our long-term strategy and transformation. But before I touch on Outlook, I wanted to take the opportunity to thank all of our customers for their unwavering support, our colleagues and our supplier partners. Turning to Outlook, as I previously said, M&S entered the new financial year with strong momentum, with food, fashion, home and beauty ahead of budget. Since the incident, food sales have been impacted by reduced availability, although this has already improved. In our food business, we did incur additional waste and high logistics costs due to the need to operate more manual processes, and that means profit has been impacted in just the first quarter. In our fashion business, sales and online trading profit has been impacted by our decision to close our online shopping. However, stores have remained resilient. We expect online disruption to continue throughout June, but only into the start of July as we then ramp up our online operations. Therefore, our current estimate before mitigation is an impact on group operating profit of around 300 million for this financial year. But of course, this will be reduced by management of costs, other trading actions and insurance recovery. We're confident we will enter the second half with a strong customer proposition, returning to the performance we were delivering prior to the incident and the momentum we got last financial year. Having spoken to our store managers, all our colleagues across our business, there is an incredible fighting spirit and a deep sense of responsibility. All of us want to get our business back on track in our stores and online and to serve our customers even better and to the best of our ability. And that's what we intend to do. I'll hand over back to Archie.

Brilliant. Well, thank you, Stuart. Let's go straight to questions then. Should we have James Anstead from Barclays?

Yes. Good morning. So firstly, congratulations on the year that's just finished. Hopefully the underlying strength of the business makes it a little bit less painful to deal with the current situation. I've got one business and one cyber question, if that's OK. So firstly, the CapEx guidance increase you're talking towards today, It seems quite striking given the CMD was only about six months ago. So can you talk about why that number's moved up relatively quickly? And on the cyber front... Take that, James.

We'll come back to cyber. Shall I touch on that first? James, just on CapEx, yes, we are planning. That has been more recent in our three-year plan. If I just break it down, of course, store rotation, we're getting some good momentum in store rotation. So there is an increase in store rotation spend, whether that's renewal, new stores in particular, and there will be some new news in the coming weeks on stores. And also a bit more around maintenance. So that's one bucket. The second is supply chain. We are up weighting the investment because we want to get ahead of the growth, particularly in food. So Alex and the team have got some strong network plans. So we have increased our spend on that. And it was always our intention to increase spend on D&T. If you look at the D&T spend over recent years, if you just go back five years, already last year, we've doubled that investment on OPEX and CAPEX, actually. And it was always our plan this year to accelerate the spend and re look at our tech debt and our simplification around our tech structure. So that's the three buckets, all with very strict hurdle rate guidelines, which you'd expect. So that means that gross capex is higher. And then the net capex after disposals, as we said, around 650. But we're quite confident on the returns on that investment. Jeremy, anything?

Yeah, the thing I point to, James, is the returns we've been getting on the growth capex has been really exceptional. And the row key at 16.4%, considerably higher than it was three years ago at 10%. So we're confident on returns. We're confident on the balance sheet. We are growing dividend as well. So in terms of capital allocation, it totally fits with what we said at the CMD, I think.

OK, that's very helpful. On the cyber one quickly, I think you might not want to be able to quantify the insurance offset at this early stage. But there's been a lot of press suggestion that your coverage is for up to 100 million. Is that a number? I'm not asking for the actual ultimate claim, but is that right that you have insurance up to 100 million pounds?

I wouldn't want to comment, James. Insurance, if you've ever tried to claim on insurance, you know, it can take a bit of time. So don't want to comment on that. The thing to say with a company the size of M&S, you know, this is a PE of one. What we're focused on, as Stuart said, is the recovery of the business. The way of valuing M&S. is how well we recover, where we are at the half year, how we trade in the second half and how we trade into 26 and 27. So as far as we're concerned, focusing on whether we claim on the insurance and when that comes in really isn't the biggest issue. So we'll get back to you on that and how we're doing on it. But it really isn't the biggest thing and not really something to focus on, I don't think.

OK, understood. That's really helpful. Thank you.

Thank you, James. Okay. Should we go to Warwick O'Kines at BNP? And then we go to Clyde.

Thanks, Archie. Morning. Yes. So firstly, on the sort of cyber front and following on actually from Jeremy's answer to that last question, what are your customers saying to you about the cyber incident, what's the reaction been? Would you generalize? And I suppose it'd be brilliant to get some sort of sense of how your food sales have rebounded now that you're saying the inventory flow is sort of normalizing. That's the first question.

Thank you for that. Well, I have to say our customers have just been unwavering in their support and we greatly appreciate it. We look at our customer feedback every day. And to be frank, the number one thing our customers are asking for is when they can shop online. And the second thing they ask for is range in their local store. And they're the top two questions we get in all of our contact centres. So the support has been really fantastic. And of course, what we are looking to do, I think. At the very early days, it was very important that we kept our customers up to date. And we really tried to do our best to do that in the very early stages and all the way through the journey. And we will continue to do that. And we're looking forward to telling customers when online reopens as well. So your second point on food, I think Alex and the food team have been absolutely terrific in those early days, the way they came up with innovative ways because we had shut down our systems to get stock into stores, working with brilliant supplier partners. And now as we turn on all of our systems piece by piece and that stock flow is getting a lot better. Actually, the sales have held up pretty well. Not quite as in line where we budgeted, but not far off. And I'm very positive that Alex and the food team are going to be very ambitious how we come out of this and also entering the second quarter.

And I just had to add a build, Stuart. So Warwick, just building on what Stuart said, our number one focus has been on the customer. Just because where the systems were, what was very hard was to see where the product was in the chain. So the number one focus on availability does mean we've had a bit of waste. So where the impact is in the 300 has been on gross margin and waste. So you're going to see the impact much more on waste than on sales. And that's where we're going to have an impact in the first half. Just to be absolutely clear on this.

I was amused by the we ran an opinion poll about two weeks ago. on how customers felt about cyber, that roughly speaking, came up with the conclusion that 52% of customers had never heard of cyber. So, you know, we live in this world, but out there, people are getting on with their daily lives. Okay, thanks, Warwick. Shall we go to Clive Black from Shaw Capital?

Good morning, Archie and team, and congratulations, Jeremy, on your career to date. I hope Leeds United don't make your retirement miserable. and congratulations to the team actually on the results echoing james and said comments just two questions um first of all i think for me one of the most um telling figures in the uh statement was the rise in return on capital and i just wonder a what you felt the big drug do you understand the drivers of that and in terms of your elevated capex does it shape um where you're going to allocate your money And should we expect return capital rise further, therefore, which becomes a bit virtuous? And then I won't ask about the cyber incident, but once you're through all this, should shoppers notice much of an evolution in your fashion? I forgot the acronym, FHP. Should they notice a difference online when you come back on stream? Is there a progression that you're able to engineer? Thank you.

Well, Clive, I'll hand over to Jeremy on some of the figures. But on high level, obviously, the return on capital, in particular in some of our plans around store rotation, are very strong. And that just gives us more confidence. We're very strict on signing off store investment. It's a really robust process. But we will be investing more in store rotation. The paybacks are very strong. The new formats resonate with customers. And don't forget, as I always say, we're playing 25 years catch up in investing in our legacy store estate. So that's one point. On the general point, we've called it Fashion Home and Beauty. It was something... probably about six weeks ago when I had the team together and said, we're going to rename clothing fashion. And that really came from being in a store where customers were saying to me, why do you call it denim? And why don't you just say jeans? And why is it called clothing? So we're leading this. It's a small piece of work. Are you talking customers language? I think to your question, I think the work Maddy, Mitch and the team are doing on style, quality, but value, all three are just important, will resonate. It's a bit of a shame the last few weeks, the new launch products online would have been outstanding, but we will catch up and the team are very, very focused on bringing customers the best range as quick as possible. Jeremy, a bit more on CapEx?

So, Clive, the easy answer to the rookie is the profits have increased from £4.53 in 2022-23 to £8.75. So we've just been driving the asset base much harder. On top of that, we've been delivering really strong returns. So, you know, Liverpool won very well. We've reduced the space in Church Road store by 40 percent and we've increased the sales by 40 percent. So it's that combination of fantastic returns on those new full line stores, fantastic returns on those simply food stores and really good returns on the renewals, as well as that level of improved profitability. So the challenge and the trick is going to be continuing to deliver returns on that growth capex and maintaining the estate. So with the 600, 650, we're keeping the maintenance where we said. So we've got to maintain the business, but delivering returns and really delivering discipline returns on that investment. And as Stuart said, we've got some quite exciting pipeline coming through, which we'll talk about in the following weeks. And, you know, the expectation would be we can drive that roki further by driving further profitability, plus increased returns on that growth capex.

Okay, very good. Thank you. Thank you. Thanks, Clive. Shall we go to Georgina Johanna at JP Morgan, and then we'll go to Kate Calvert.

Hi, thank you. The first one, I appreciate the situation with tariffs and whatnot is very fluid. But if you could share anything that you're hearing from your suppliers at the moment, please, in terms of perhaps better negotiations and prices in China, but also maybe more importantly for you in terms of where the prices are going up exponentially in Bangladesh, any color on that would be helpful. And then my second question, please correct me if I'm wrong, but I understand from the materials that you're not planning sort of incremental investment in cybersecurity over and above what you were previously planning for. Perhaps you could just clarify that and also help us understand how much of a step up you were planning for already, please. Thank you.

Georgina, I haven't got much news on tariffs. There isn't much flowing through from our supplier partners, to be honest with you. Obviously, we expected a small benefit with the India tariff impact, but it's not significant. It's small. I think the only other thing that isn't related to tariffs that is a positive for us, not this year, but will be next year, is the new SPS agreement. because this has been incredibly hard work and bureaucratic and cumbersome. So removing all the certification and checks and the barriers between GB and NI and Republic of Ireland will be a benefit. So I know it's not tariff related, but that is going to be a benefit for us. On your cyber and tech question, let me just give some context. We recruited a new head of cyber actually just over a year ago. And we looked at this as every company does. And actually, we've invested significantly, firstly, in insourcing the skill base. And that headcount has gone up quite considerably actually in the last three years. So we've been strengthening the cyber team. And when I explain that, what I really mean is more than treble the resource in three years. So we've been doing that. The other thing we've been doing in the last 12 months is investing in new tooling. And we started to do that a year ago when we did some simulation testing. And actually that is why we were managing to detect this over that Easter weekend. And that's good news because actually on time scales, some companies can take six days Other CEOs who have spoken to me, actually some of this has been in their system for months without detection. So for us, it was pretty quick. So we have been investing in headcount. On cyber spend, we've actually trebled the spend in the last four years. So we have been investing. Now, what I would say, of course, the first thing on my mind, in fact, I was reading an email Just to bring this to life, it was a year ago yesterday when I wrote to our new head of cyber and said, following this update, let's be very clear, it's a priority and whatever resources and spend you need, it will be agreed. So do not hold back. And that was literally a year ago yesterday. So, of course, we are going to be very sensitive to this. I do want to make sure everything we're doing is the right thing. We have never held back money for technology. We were very clear even before my leadership as CEO that we had legacy store estate and legacy tech systems. So we have been investing heavily over many years and we will continue to do that in this capital allocation work.

Thank you very much.

Sorry.

Sorry. May I just ask a quick clarification, because perhaps I've misunderstood something. There's been a number of stories in the press suggesting that these gangs or whatever the appropriate term is, were actually in your system since February. So are you saying that is categorically not the case and they were only in the system in late April?

Georgina, those stories are not correct to our knowledge. So you'll hear lots about cyber. The number of self-appointed experts jumping up in the media We hear all of this, but some of it you should take with a pinch of salt. We've had it independently checked, don't forget. By the way, look, Stuart's point is that the best defence is to modernise your systems. It's the complexity and the legacy of state that gives you more difficulty in responding. So we've been planning to accelerate that programme anyway, as Stuart has said, and we said at CMD. And we'll bring some of that forward even more rapidly now. So you can never be impermeable, but hopefully we'll be more resilient going forward.

It's been double checked, triple checked by external parties. And it was in the dates we said in April in this new financial year. And we did detect it pretty quick.

Let's go on. Kate Culbert from Investec.

Thanks very much. Morning, everyone. Three questions, if I can. The first question, just coming back to James's capex question, the increase to 600 to 650 million of capex in the current year, should that be something we should assume continues for the next couple of years? The second question is just on the clothing and home gross margin. and the improvement you saw was very good in the last year. Is that something you think is sustainable and could be moved on a touch further?

Okay, let's take those two.

Let's take those two.

Jeremy on CapEx.

Yes, Kate, I would assume that is a run rate, given that we are going to be investing in food capacity and we are looking to invest in the stores. And clothing at home, that was largely driven by FX. So it slightly depends on online and store mix. But if FX rates stay where they are, I would say that it's a sustainable level. It depends on where FX goes. There we go.

Well, I think that's a very good answer. I don't like to get too consumed by gross margin, though, because we are going to invest continuing investment in value. But yeah, but we're in good shape. OK, perfect.

Yeah, my final question is just a bit of a cheeky personal one on cyber. Am I going to be able to buy my son's school uniform online in July as usual?

Yes. If not, I'll deliver it to you.

Thank you. That's the sort of service I expect. Thank you.

And thank you. Very good. Thank you, Kate. Shall we go to Isabel de Brava at Morgan Stanley?

Hello. And congratulations on your results and in particular the balance sheet help, which gives you a lot of options in managing the impacts now. I had two questions. So my first one is just on the pace of transformation. Given that IT spend and infrastructure is understandably moving up the priority list, how should we think about the pace of transformation on the other strategic initiatives? So the supply chain, the fortress program, the store venues, could you give us a little bit of a comment there in terms of the pace of transformation for this year?

I think if I just kick off, actually it hasn't really changed a lot. If you go back to the capital allocation of this year, the split between stores, D&T and supply chain, the only thing we're up weighting, which we already had in our plan, is really D&T. That was already in our plan. We outlined that at the Capital Markets Day last year. We didn't give a figure on it, but we did emphasise it's going to be a big year of change. We're bringing forward some of that change whilst we're disrupted. There will be some new news in the coming weeks on store rotation. It's good news, and therefore you'll see why there will be an increase in capital on that. and supply chain we'd already laid out particularly alex's plan in food so really it's it's business as usual but as we're in such good shape around the balance sheet it was always our plan to get that timed one year two years three years and then accelerate spend particularly after we had proven case studies around achieving a good return on capital and hurdle rates Anything, Jeremy?

No, I think there's a slight re-prioritisation of the IT just in the immediate future, understandably. Otherwise, it's all systems go, and we're going to come out this year stronger than ever.

Okay, so it's basically full steam ahead, and once you reopen, you can take advantage of that. And then I had a second question, just on the point around the customers requesting more range in the local stores. Could you comment how the stores in closing are trading? And are you having any stock flow issues or any issues about rebooting the right range and sizes into the stores, return processing? Could you comment on that?

Well, to be honest with you, we've always had an opportunity, I would say, on that. And I know it's something top of John's mind. In the recruitment of John, John has to really start to focus around our supply chain, our merchandise planning and our online business. And I know he's already getting his head around it in the short term in this disruption period. Our smallest range stores have not been the best. Let's just be really frank about it. We did our stock flow, but it really hit our largest stores. And therefore, in our medium, we call it grade three. But never mind. We have performed under our expectation over the last few weeks, but we'll get back on track. I think ranging will be something John will talk about at the Capital Markets Day because it goes back to that backbone of our fashion, home and beauty business.

Okay, thank you, Isabel. Now, I think we're cracking on. So let's go to Adam Cochrane at Deutsche and then we'll come to Geoff Lowry at Redburn. Adam.

Morning, guys. Just two quick questions. In terms of harking back to the last financial year, It might be in the results, but I might have missed it. How did online and store profitability develop within clothing and home over the year? I know there's an opportunity for you to increase online margins. I'm assuming right now it's probably not a problem to talk about. How did the two evolve last year? And then secondly, on international, I think it might be one where we're still waiting for more information, but is there opportunity to take the better quality and price M&S product that's selling so well and just put it through online aggregators across Europe as we've seen some others do? Thanks.

We'll come back to that second question. Online margin.

Adam, thank you. I mean, the first thing I would say is the split between store sales. If you look at the total at 4.7 for the year, store sales were 1%, online sales were 13%. um so that's the first thing the online margin was a bit softer than we're expecting but that's because of our investment mainly in digital and technology now that will continue in the next 12 months but i know it's firmly on john's mind on how we're going to get a much improved online margin i would say in years two and three from now so that that would be the top line response There is some other softening in the online margin, mainly because our brands, actually 43 brands, grew very well, 32% up on the previous year. And that just softened the margin rate slightly. But I think we're going to be in good shape in the long term online. And this opportunity of disruption has also helped us to focus on range profitability costs. We'll accelerate a bit of that cost in this first half. And then we'll be back on track. Second question. Oh, I lost track. It was international and opportunities are great. International. I think Adam on international. I mean, the plan has really played out how we predicted. India is something we need to look at in more detail. And you may recall that I paused all investment in India and we slowed down. And that was following my trip where actually I thought we were just opening too many stores and we needed a bit more rigor in the store program. Mark. has absolutely arrested that decline in India, but we are going to do a bit of a review on what India means. So that's point one, that's where the majority of softening was. Point two on international, we had all of our partners together in Dubai actually, and I attended with some of the leadership teams. And the passion from our partners was terrific. What Mark has done is consolidated some of our franchise partners We've looked at new territories, so new markets to enter. We're not rushing. But as you know, it's our franchise partners that put their capital in place, not our capital. And we did look at our own markets. We only own Greece and Czech. We did actually purchase the whole of Greece. It was for a small number, only because that enables us to have a strategic review of what we want to do with that country. And the other thing that I think is exciting more for the medium term is some of the wholesale agreements that we've got across different markets like the US. But it's not the big thing for short term, but there is some exciting work in development in the medium term.

Yeah, but we've actually got a review of this at the board strategy day. So there'll be more news to come, I'm sure. Thank you. Shall we go to Geoff Lowry and then we'll go to Monique Pollard at Citibank. So Geoff from Redfarm.

Morning. Thank you. Just one question. You've obviously written down the value of your Ocado stake. despite the very strong sales growth. What's changed in your thinking about the profitability profile there? And what's the path and timescale towards breakeven from your perspective?

Thank you. Hi, Geoff. It's Jeremy. This is a pretty technical accounting adjustment, so I wouldn't overly read into it. It still values the business at a pretty... substantial number. When the accounts come out, you'll see it gives it an enterprise value of about 1.3 billion. So it's a pretty substantial number and in line with actually quite a lot of analysts' football field evaluations. So the path to profitability isn't that far away from where we were previously. I think the drop through from the current sales number has been a little bit disappointing compared to what we'd expected. We're still not getting the logistics working the way we'd have liked. There's more to work with ORL and Ocado in terms of getting those efficiencies, but we are getting some traction on that. So I still think we're probably 18 months away, but I think in the five-year cash flows, it's probably not next year, but the year after. We're looking towards profitability. And the cash generation, the FD and ORL is very good on cash. We haven't seen significant cash outflows in the year. There may be a bit of cash outflow next year, but nothing substantial. It's very good on CapEx. So I think we're making good progress. And I'd like to think if it's not next year, the year after next, we should be moving into profit.

Okay. Thank you. Thank you, Jeff. Now, we're running down the clock a bit. So we'll go to Monique Bollard at Citibank and then Anne Critchlow and then just see what we've got in terms of time there. So, yeah, Monique.

Morning. Thank you for taking my questions. I've just got two. The first one was just one on pricing. I guess if I think about the cost savings that you're expecting over the next three years, the 200 million, so let's say it's about 70 million a year. This year, you've obviously got the extra 120 million in wages and national insurance, another 20 million in packaging levies from the second half. And also conscious you've already sort of exceeded, surpassed your target, your margin target. So should I think about The idea being X anything to do with cyber underlying underlying margins could take a bit of a step back this year, unless there's some pricing going through, or do you think there's just more operating leverage that's going to come in and offset some of those costs?

Good question. Yeah. No, it's a very good question. I mean, just to start that, I would be more focused on the cash. And the reason I say that is as a team, we talk about the cash sales and the cash margin as well, much rather than the rate. And the reason I don't really change the guidance we set out at the Capital Markets Day, which was 10% for fashion, home and beauty and four, although I did say above four and above 10%. It's all to give us the opportunity to drive volume. So I think in summary, the rates may change as we invest in quality and invest in price, but the cash should always go up. And that's really our strategy. And that's what's been that's really what's been on our mind in the next phase of the plan.

Yeah, so I'll build on what Stuart just said. So I think the food team have done a fantastic job there in driving both cost savings in gross margins to try and manage waste, and they'll continue to try and do that. So you're not trying to manage the margin through pricing. taking prices down, so providing value to customers to drive volumes up and getting leverage through that. So all of that margin increase has been through volume leverage and that gives you the opportunity to take prices down further. But then as a business, our focus is on taking costs out in operating costs. And that's where I'm sure Alison's going to be focusing on taking structural costs out below gross margin. So that gives us opportunity to do even more on prices. So that's where we're going to be. And to offset the impact of the cyber issue, we're definitely not going to be down to it through price increases. It's going to be through taking further structural costs out, increasing that's where the focus of business is going to be in the following years.

And that cost out programme is also there to mitigate the increase in national insurance and EPR or ERP, whichever way round it is. So we've already got that baked into our plans.

And the last question I had was just a quick one on whether you're seeing any positive benefit to your store sales for fashion, home and beauty segments. given the lack of online and just given your commentary that the customers have been so supportive and the brand is so loved, whether there's been any benefit. I know you said the store sales have been resilient.

Well, I use that word because it is a very good question, because in some stores, of course, they've started to outperform. But in truth, knowing that in our fashion and home beauty business, you know, 36% of our sales also is online. Obviously, we're not going to fully offset that. So overall, it's... It's OK, it's resilient, but it hasn't been recapturing a lot of that online. But as I say, our online operations will be up in a matter of weeks and we intend to accelerate once we reopen.

Thank you.

Okay, thank you. Thank you very much. Now, we're nearly out of time. So with apologies to those people who haven't got in, we'll get back to you. I'm just taking the names off the screen in front of me. Let's go to Anne Critchlow from Barenburg, and then we'll draw a line.

Good morning, thanks. I've got two questions as well. So just following up on your point about the alignment of food standards between the EU and the UK, do you think this could bring back opportunities in food beyond the UK? Because I recall you had to pull out of fresh food in France, for example.

Well, I'll answer that one first before your next question, Zan. I read an article the other day watching... It was one Prime Minister, Margaret Thatcher, promoting Marks and Spencers many years ago, and it was Princess Diana in a store in the Champs-Élysées in France. And Archie said to me, have you got ambitions like every previous chief executive to be on the Champs-Élysées? And he glared at me as he said it, and I said, under no circumstances. And he said, good, and walked away. So look, joking aside, the most important thing is, look, we have a Republic of Ireland business that's actually a very strong business. Profit-wise in food, not as strong. Very profitable in fashion, home and beauty. And this will help us. And in Northern Ireland, we have very high market share in food. But of course, with Brexit and the huge bureaucracy around shipping products to our Northern Ireland business, We even started to pull back investment. And this is a business that has double the market share of our average food business. With this agreement, we are very supportive. I have to also say Alex has been quite instrumental in helping shape this as well. And and we're pleased with it because it does mean in our Republic of Ireland and Northern Ireland business, we will flow product better. It will be better for customers on availability and we'll be back on track. It really is next year, by the way, not this year. And as for anything else, we're not going to get too excited on food internationally. Internationally, we do think food is an opportunity in wholesale, but really it's our fashion home and beauty business.

Great, thanks. And then the second question was, could you remind us, please, what percentage of your clothing relates to basic items that could probably be sold through at full price? And then of the remainder, the more for the seasonal fashionable product, do you think you would overwinter that or do you think you would market down this summer? Anything unsold?

I have to be honest, Dan, we haven't done all the numbers yet because we have been operating on limited systems. But if you say half of our range is everyday items and therefore is pretty safe and we just carry it on, that's the most important point. The rest, of course, is more seasonal. But even that, I think how we've bought this year is pretty safe. Our full price sales last year were about 80%. I don't really want to get into heavy discounting. John Little, when he started, one of his first objectives was actually how do we move to no sale? I'm going to have to let him off that for his first year because we will have to think about sale. But everyone has a sale. We'd just like to eventually move away from that. But we have been flowing more stock international. That's something we're looking at. So we're going to do that. We are going to maximise our outlets and we will have a sale more or less in line with last year. But we do have to rework the numbers over the coming weeks, to be honest with you.

OK, thank you. Thanks very much. And look, thank you, everybody, for joining us and for lots of good questions. I'm going to call a halt there because we've got to crack on with the day. But apologies to those who didn't get in again. We'll talk in the day, hopefully, and catch up whenever you want. So really appreciate your time. Thank you.