Marks and Spencer Group plc

Good day and welcome to the Marks and Spencer analyst call. This meeting is being recorded. At this time, I would like to hand the call over to Archie Norman. Please go ahead, sir.

Morning, everybody, and welcome to our results session. It's a very good day today because we've got a decent set of results and excellent weather coming for the bank holiday weekend. And so we got here in this room, obviously, Stuart, Alison is here, Fraser, and a whole lot of other people who don't get to say anything. But we're going to start off with Stuart's usual opening.

Thank you, Archie. Well, good morning, everyone. Thank you for joining us today. When we held this call a year ago, it was under a very different set of circumstances, and I'm pleased to say we're in a far better place today, and as a team, very much looking forward. Let me give you a take on last year. This was a year of two halves. The first half, as you know, was dominated by operational disruption. As always, our focus during that time was our customers. We found new ways to keep serving them, and we were transparent with our communications throughout. We're grateful that they rewarded us with their trust, and M&S remains the most UK's trusted brand, according to YouGov. We served 34 million customers last year, our highest number ever. And we never take trust for granted. And I want to thank every single customer who shopped with us last year. And as I always say, if you haven't shopped with us, then please do. Our colleagues worked incredibly hard to recover our business. And in the second half of the year, we returned to sales and profit growth. The work done in recent years to strengthen cash generation and improve resilience meant that we were able to respond and recover without compromising our financial health, and we ended the year with a strong net funds position. This strong financial footing meant we could accelerate our transformation despite the disruption, and we continued to invest with discipline where it mattered most, our stores, our supply chains, our digital and technology, and of course value. I once said that this was a lost year. But on reflection, it wasn't. It was a year of learning and everyone coming together as one team, serving our customers and continuing our transformation. And I think we came out stronger. Let me touch on the financial headlines, total group sales, were $17.4 billion, up 20% on last year as a result of the consolidation of Ocado Retail. Excluding Ocado Retail, sales were $14.2 billion, 1.9% ahead of last year. M&S Group adjusted profit before tax was $671.4 million, which includes the receipt of $100 million of lost profit cyber insurance proceeds which were claimed and received during the half. And free cash flow from operations for the period was an inflow of $131.3 million. Despite a challenging year with reduced profit and cash generation, we maintained the net fund's position, excluding lease liabilities, reflecting strong profit conversion and disciplined debt management. Food was a standout performer in the year, growing 7% in sales and 3.5% in volume. We constantly outperformed the market, and by the end of the year we had grown our market share to the highest point of 4.1%. This puts us firmly on track to achieve our ambition in doubling the size of our food business. If you include M&S sales on Ocado, our market share was 4.6%. We served 800,000 more customers in the year in our food business, the biggest gain of any supermarket. And we did that by doubling down on what we do best, quality, innovation, and value. As the team in food always say, if in doubt, add quality in. And it's one of the things that sets us apart from the rest. This year, we upgraded more than 1,000 products, including entire categories such as Italian meals, deli and dairy. Now our quality perception scores are the highest they've been and the gap between M&S and the rest of the market continues to widen. We launch new products almost every week in our food stores, totaling 1,500. This included our only X ingredients range made with minimal ingredients, which was an instant hit with customers. A genius idea from our food development team getting us ahead of customer demand for clean eating and minimal ingredients. Looking forward, value is more important to our customers than ever before, and we've made significant investments, including areas like protein and fresh produce. And we're constantly investing in price, and our price index to the main supermarkets is the best and lowest it's ever been. In fashion, home and beauty, Sales were more challenged, down 7.7%, store sales down 2.3%, and online sales down 18.4%. But both stores and online were in growth during the fourth quarter with improved availability. It's time for customers to enjoy the summer range, which has now resonated. We've been making good progress on our product appeal overall. Our formula in fashion is simple, deliver the best quality and style at the best price. As one fashion editor recently put it, M&S has finally dumped the front. And as a result, we're now attracting customers across a wider age range. And both in women's wear and men's wear, our customers are getting slightly younger, with a 16% increase in customers under the age of 13. We're doubling down on value. More than half of our spring-summer fashion is £30 or under. And in lingerie, the team did a great job on our £10 bra. Last year in just two colours, this year seven. And we sold 1.8 million £10 bras in the year. In fact, our market share lead in lingerie is so strong that over half the women in the UK wear a bra from M&S. But with all that said, across our fashion business, although we're starting to attract a younger customer, we will always remain a broad church. We want to extend our customer base, not replace our core customer. In our international business, sales were down 7.2%, with an improvement in the second half, as new business in wholesale and online marketplaces partly offset the declines in owned and franchised. During the year, we made real progress with partners who share our ambition to build a global brand. We've seen an encouraging early response to our investment in trusted value, and we've continued to accelerate our new growth channel, securing targeted wholesale partnerships with Coles in Australia for food and Nordstrom in the US for fashion. This is alongside driving online growth by launching marketplaces like Zalando and Amazon, Our partnership with Zalando has driven a 200% growth in new customers to M&S in Europe. Touching on Ocado, the team continued to make solid progress, delivering a small profit for the year. Sales at M&S on Ocado were up 17%, and M&S sales on Ocado reached $1 billion for the first time, with more potential for growth ahead. Talking about our transformation, as you know, we've been reshaping M&S for growth, and we're moving to the phase that we now call reinvesting for growth. This year, we plan to invest between $650 and $750 million of capital net of disposals. The next three years are critically important. We have a clear plan centered around three key areas of disciplined investments. First, our stores and online, where our customers experience M&S. Last year, despite the disruption, was our most ambitious year for store renewals in a decade. We picked up the pace with new store openings averaging a payback of less than five years. In food, we opened 12 new and 18 renewed food stores, including Canuck, Hatfields and Farnham. attracting more families as we work to become a shopping list retailer and doubling the size of the food business. This year, we plan to open 18 more bigger, fresher food stores as we accelerate the pace of openings. In fashion, home and beauty, we opened three full-line stores last year and we're working on our new modern store blueprint, easy to shop, fully omnichannel, showcasing the best of M&S with two full-line stores opening this year. And we'll open our new R&D format store in Pantheon in Oxford Street later in July. On supply chain, we've signed off and agreed two new food distribution centres in Avonmouth and Daventry. Together, these new facilities will add 1.7 million square foot of additional capacity, getting ahead of our growth supporting our plans to double the size of our food business. Daventry is our largest ever investment in our food supply chain and we will modernize our network with the latest automation technology. Avonmouth in Bristol will support the modernization of our supply chain and increase network capacity in the southwest. And in our fashion business we took a big step forward acquiring a 437,000 square foot modern fully automated fashion distribution centre in Litchfield. The new site will add capacity, increase efficiency, reduce cost and improve margins. For customers, it means better availability and range, faster delivery, later cut-off times for next-day delivery and fewer split parcels. But there is so much more to do in our fashion business. In data, digital, and technology, we're playing catch-up, but the good news is we have a clear plan and we're making progress. Each of our managing directors has that plan embedded into their businesses, working hand-in-hand with our D&T team, so each business owns their technology transformation. This also means hardwiring AI across the whole business and investing significantly in our data capability. Data is the foundation of our business, and it's critical we invest here. And that leads me on to Sparks, because Sparks has been on the pad, on the to-do list for 10 years or more. And it was in our top three of customer complaints over recent years, and now we're improving it. The team has done a great job launching the new Sparks program, but this is just phase one with more to come. So across these capital investment priorities of stores, supply chain, and D&T, we're moving forward with pace, reinvesting for growth. Now finishing on Outlook. Retailers have been hit with a triple whammy of headwinds. Higher tax included national insurance and new packaging taxes, more regulations such as Employment Rights Act and the new HMSS rules, and cost pressures from the ongoing conflict in the Middle East. And of course, for our customers, a lot of uncertainty, especially closer to home. But in M&S, we have a clear plan. We're in good financial health, unshaken by recent events of last year, and we're very much focused on what's in our control. Getting back to our strategy, our job is to protect the magic and modernise the rest. And we have a big modernisation programme, and we're only just a few years in. It's going to be a big year ahead. We have momentum. We're going to continue with the transformation plans we have in place. We have a strong culture, a hardworking, focused team, and we have a growth business. We expect to keep making progress with profits growing again compared to two years ago. And as I've always said, there's an extraordinary opportunity ahead of us, and we are on it. Thank you. I'll hand back to Archie.