Preliminary Results. Luc Vandevelde. 25 May Chairman

Transcription

1 Preliminary Results 25 May 2004 Luc Vandevelde Chairman 1

2 Agenda Introduction Financial Review Operating Review Luc Vandevelde Alison Reed Roger Holmes Foundations laid to build next stage of business transformation New management team Fundamental shift to overseas sourcing Exited loss-making operations in Europe Balance Sheet more efficient aligned with 2 billion return of capital; 400 million injection into UK pension scheme Renewed all of our stores Instigated successful Simply Food roll-out Successful new clothing range launches eg Blue Harbour, per una Delivered &more card and first Marks & Spencer Lifestore 2

3 Strong recovery in UK Retail sales* 7.5 bn *03 and 04 re-stated for FRS 5 Application Note G Recovery in UK Retail operating profit m

4 Recovery in EPS* pence * EPS pre-exceptional Return on Equity* higher than % *ROE pre-exceptional and excluding FRS 17 Balance Sheet impact 4

5 Foundations laid on which to build next stage of business transformation New management team Fundamental shift to overseas sourcing Exited loss making operations in Europe Balance Sheet more efficient aligned with 2 billion return of capital; 400 million injection into UK pension scheme Renewed all of our stores Instigated successful Simply Food roll-out Successful new clothing range launches eg Blue Harbour, per una Delivered &more card and first Marks & Spencer Lifestore Alison Reed Chief Financial Officer 5

6 Financial summary 2003/04 53week basis Group profit before tax of 805m up 6% 52week basis Turnover up 1.7% Operating profit up 6.5% Group profit before tax of 763m up 0.5% Adjusted EPS up 0.4% Strong Balance Sheet Retail gearing 44.7% and fixed charge cover 7.3 times Operating cash flow 1066m before 400m contribution into pension scheme P&L impact of accounting changes on 2003 comparatives Sales m Last year as reported 8, Profit before tax & exceptionals m Adoption of FRS Operating profit 14.6m Interest 27.0m Adoption of FRS5 application note G (58.1) (3.4) Last year as restated 8,

7 Profit and loss account 2004 ( m) 2003* ( m) % inc/(dec) Turnover 8, , Operating profit Interest (44.5) (40.5) Finance charges (15.2) 27.0 Sub total (59.7) (13.5) Profit before tax and exceptional items * restated Profit and loss account 2004 ( m) 2003* ( m) % inc/(dec) Turnover 8, , Operating profit Interest/Finance charges (59.7) (13.5) Profit before tax and exceptional items Exceptional items HO relocation (19.6) (7.6) HO restructure (22.5) - Profit on sale of properties GM Logistic restructure - (36.3) Loss on sale of operations - (1.5) (23.4) (43.8) * restated 7

8 Profit and loss account 2004 ( m) 2003* ( m) % inc/(dec) Turnover 8, , Operating profit Interest/finance charges (59.7) (13.5) Profit before tax and exceptional items Exceptional items (23.4) (43.8) Profit: 53rd week Taxation (229.3) (208.8) Profit after tax EPS: adjusted Dividend per share 11.5p 10.5p * restated Turnover and operating profit by division sales ( m) * operating profit ( m) % inc (dec) * % inc (dec) UK Retail 7, , International Retail Financial Services (41.4) 8, , * restated 8

9 UK Retail Sales ex VAT ( m) % inc Clothing 3, ,422.1 (0.6) Home (4.5) Food 3, , , , Operating profit Total UK Retail % to sales UK Retail performance on year Sales Gross Margin Operating Profit Womens Mens Lingerie Childrens Total Clothing Home Food UK Retail 9

10 UK Retail sales inc VAT % on year 10 % inc/dec Q1 Q2 Q3 Q4 Food UK Retail Clothing Home Sales density GM 430: Food 930 (sales ex vat) Market share 52 weeks to 4 April 2004 M&S % share M&S share % point change Market % movement Total Clothing 11.0 (0.2) 1.8 Womenswear 11.0 (0.4) 2.2 Menswear Lingerie Childrenswear 4.8 (0.7) 1.0 M&S 12 week trend to 4th April Source: Fashiontrak 10

11 Impact of key Womenswear areas on Clothing performance First half Clothing +2.5% Formal Formal Knit Footwear Second half Clothing -3.0% Casual per una footfall +1.1% Rest of Clothing +2.5% 0% 0% Knit Footwear Casual per una Rest of Clothing -3.0% footfall -2.3% Analysis of volume and value of Clothing sales Okay Good Better Best Market Size bn 5bn 4.8bn 6.9bn 4.7bn 8bn Market Share % 17% 16% 24% 16% 27% Price segments (PTAG) 4 0 Mkt Size 2004 Mkt Share 2000 Mkt Share 2003 Mkt Share 2004 % of total clothing market Total Market Size 29.5bn Source: Fashiontrak 11

12 Home Sales declined by 4.6% with final quarter -13.7% Strong progress in stationery. All other areas down on last year Marks & Spencer Lifestore launch Feb 2004 Early valuable lessons learnt environment, product, price Positive NPV at current sales levels Food total and LFL performance % Q1 Q2 Q3 Q4 Total LFL 12

13 Analysis of Food sales % inc/dec Total transaction growth 2 0 LFL basket size -2-4 LFL transaction growth -6 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Simply Food Overall sales and profit targets achieved in Simply Food and larger Food stores Locational/operational lessons learned Sales deflection c.10% Stronger return on investment in larger stores (>5,000sq ft) Overall profitability at maturity in line with core business Strong year 2/3 sales growth 13

14 UK Retail m Sales ex VAT ( m) Operating profit % to sales Margin movement as a result of: improvements in gross margin 0.8% reduced staffing costs 0.4% reduced occupancy costs 0.3% increased other costs (0.5)% 1.0% UK Retail gross profit improvement Clothing +1.5% Food +0.5% Home (0.2%) Total UK Retail +0.8% 14

15 Clothing bought-in margin 150 bp improvement in Clothing bought-in margin Impact Dollar Euro On track for 300 bp increase from 03/04 to 05/06 Clothing cost of markdowns as a % to sales C % to sales W W C Total Clothing markdowns C Childrenswear markdowns W Womenswear markdowns 15

16 UK Retail operating costs for 03/04 held to +1.2% m Logistics % inc/(dec) level m Other operating costs m Depreciation 4.4 m m Occupancy, repairs and renewals (3.4) m Staff costs (1.3) Profit from International businesses up 3.3% (at actual exchange rates) 2004 ( m) 2003 ( m) % inc /(dec) Turnover: M&S branded businesses Kings Super Markets (12.1) Operating profit: M&S branded businesses Kings Super Markets (69.6)

17 Financial Services profits were impacted by the launch of the &more card 2004 ( m) 2003 ( m) % inc/(dec) on year Underlying operating profit (8.2) Credit card launch impact (58.6) (25.0) M&S Money (57.4) M&S Insurance Total Financial Services (41.4) M&S Money &more key measures How are we performing? March 2004 Sept 2003 Guidance Total accounts (m) Average outstanding balances ( ) 448 > 374 Interest bearing balances (%) 77 >70 Average spend (x average balance) 3x c.2.5-3x Bad debt charge 2.4% c.3.5% * * * Target before agreement with OFT re non-activated cards 17

18 Capital expenditure 2004 ( m) 2003 ( m) New stores and extensions Head Office relocation 40 - Renewal/refurbishment Refrigeration equipment IT equipment Logistics Other Total UK Retail International/Financial Services 26 8 Total New stores and extensions +0.8% GM weighted increase (200k sq ft ) +4.2% Food weighted increase (230k sq ft) Representing k sq ft Castlepoint 91 Marks & Spencer Lifestore Simply Food* Food stores 85 Speke 15 Outlet stores 19 Store extensions/relocations 73 Footage downsize/closures (47) * excludes 10 Compass stores 18

19 Capital expenditure 2004 ( m) 2003 ( m) New stores and extensions Head Office relocation 40 - Renewal/refurbishment Refrigeration equipment IT equipment Logistics Other Total UK Retail International/Financial Services 26 8 Total Balance Sheet 2004 ( m) Financial Retail Services Retail 2003 ( m) Financial Services Fixed Assets 3, , Stock Loans & advances to customers - 2, ,015.9 Other debtors Creditors/Provisions (945.0) (793.3) (1055.3) (348.4) Net debt (823.7) (1,171.0) (701.5) (1,129.9) Net assets 2, , pre pension deficit 19

20 Group cash in-flow from operating activities 1066m before 400m contribution into pension scheme Operating cash flow 666 Retail cash flow 602 Financial Services cash flow 64 Tax, interest & dividends Closure of operations 51 Other inc. exchange 7 (517) (303) Net capital expenditure (67) Redemption of B shares and share buy-backs (163) Increase in net debt Retail gearing 44.7% Fixed charge cover 7.3 times Financial summary 2003/04 52week basis Group profit before tax of 763m up 0.5% Turnover up 1.7% Operating profit up 6.5% Adjusted EPS up 0.4% 20

21 Roger Holmes Chief Executive Where are we today? Recovery was secured but now need to move to next phase Last 3 years have seen a lot of change and restored both customer perception and financial performance Significant change is required to secure growth 21

22 75 Building on a different place to 3 years ago Quality Jun-01 Apr-02 Apr-03 M&S best competitor worst competitor Source: Millward Brown Building on a different place to 3 years ago 70 Service Jun-01 Apr-02 Apr-03 M&S best competitor worst competitor Source: Millward Brown 22

23 Critical steps to business transformation Supply Chain Key appointments in Clothing Vittorio Radice - Executive Director General Merchandise Clothing management team announced including Kate Bostock Director Womenswear Womenswear Previously 2 Heads of Merchandising and 3 Heads of Buying for all Womenswear Now dedicated Head of Buying and Head of Merchandising for each key area: Head of Buying Head of Merchandising formalwear external internal casualwear internal external knitwear internal internal footwear / accessories external internal 23

24 Action to drive sales growth in Clothing Back key trends with authority and confidence Provide real choice down the chain through narrow and deep buying Contest middle market price position Clearer layout of Clothing sales floor Backing key trends - eg Tweed Supply Chain Total buy is double the similar key trend last year - cord Corsage jacket & skirt 150 stores Tweed coat stores Tweed skirt stores 24

25 Increased choice down the chain Supply Chain Uplift in Banbury stores +10% Rollout to 90 stores, complete Autumn 04 35% more choice Same stock levels Target 10% sales uplift, c 60m annualised sales opportunity Pricing Supply Chain Strong entry price points - contest middle market jeans, LY formal trousers, LY 25 Lower prices on same product 75 from 99 Cashmere 25 from 28 Lambswool Clear Good, Better, Best pricing architecture Fewer price points Increased volumes at key price points For 2004/05 Clothing average selling price deflation c3% 25

26 Clearer layout Supply Chain Jean Shop Coats per una per una due Coordinated Casualwear T-shirt Shop Your Signature Shoes Coordinated Areas Entrance Formal Tops Suits led area Knitwear Limited Collection Collections Formal Trousers Classic Collection Shop fitted brand New approach to smartwear - Limited Collection Supply Chain September 04 launch 66 stores effortless style Regular newness 65% every 8 weeks Trend for less formal more versatile wardrobe Bespoke shop environment Target annual sales 100m+ 26

27 Womens knitwear Supply Chain New team Increased newness Back key trends Increased choice Strong pricing 75% range new Autumn 04 buy per way increased by 40% 75% more choice in small stores 6% deflation for Autumn 04 Significant move offshore achieved in last 5 years but with largely the same suppliers Overseas 20% Other 6% 15% Other Supply Chain UK UK 80% 80% 90% 94% Top 15 suppliers 94% 29% 56% 4 sub top 15 existing Suppliers 11of past top 15 suppliers 10% 1997/ / / /05 27

28 Need to reconfigure & tackle legacy of long lead times & complexity Supply Chain Current no. weeks Target no. weeks c600 factories c90 supplier UK distribution centres 10 M&S distribution centres Unmade Contracted 12 1 In transit M&S clothing stores Total made up stock Total stock incl contracted unmade Re-assign 150m of production & confirm new models for full service and direct Re-assign 150m of production 100m direct, 50m to other FS suppliers Direct Strong handwriting, less complex product eg casualwear 2004/05 - confirm capabilities 2005/06-20% production Full service World class supply base providing design, sourcing, technology expertise Rationalisation of global logistics 2004/05 - pilot rationalisation of suppliers distribution centres Supply Chain 28

29 Clothing summary Strengthened team Back key trends with authority and confidence Provide real choice down the chain through narrow and deep buying Contest middle market price position Clearer layout of Clothing sales floor M&S - Food Love 100 Sell food which is a real treat 100 Offer better quality food than other retailers 80 M&S 80 M&S nearest competitor 40 nearest competitor Source: Millward Brown 29

30 M&S - Execution Queues are kept to a minimum 25 disagree / / /04 Source: Research craft Dynamics of food market Increasing spend per visit but frequency of visits declining Supermarkets introducing new and improved top end ranges Increased competition and standards in top-up shop market 30

31 Making our Food more convenient Supply Chain On target to extend our reach by 2005/ to 400+ outlets 500k square foot 55% of population within 10 minute drive of M&S Food offer Commitment to next phase of growth plans communicated 2004/05 Fantastic product. marketed with authority Gastronomic adventure Invented the ready meals market, heritage of innovation and quality Supply Chain Celebration Christmas, Easter, Mother s Day etc. destination offer for regular and occasional customer Fresh & healthy Market trend aligned to Marks & Spencer brand 31

32 Reposition Home offer and develop Marks & Spencer Lifestore Supply Chain 2004/ /06 Existing stores Build sales of new ranges at full price Rollout Kingston to existing stores Marks & Spencer Lifestore Open Kingston (35,000 sq ft) Open Thurrock (70,000 sq ft) Demonstrate case for rollout Securing our opportunity in Money Supply Chain 2004/ /06 Build balances on card Strong profit growth Develop loyalty Pilot new products and greater in-store presence Rollout new products Move into profit on card 32

33 Tackling unsustainable cost per employee Supply Chain Total costs per FTE ( k) Advisor costs per FTE index +38% M&S typical competitor 2003/ /7 Changing the way we work in stores Supply Chain 2004/ /06 Scheduling align working hours system dependent improvements Efficiencies establish practice for key processes Right people use concept stores to develop model for staffing rollout to all stores 33

34 Streamlining Head Office Supply Chain FTE Design, 900 buying & merchandising 2004/05 maintain numbers, drive best practice 2005/06 longer lead-time actions Other Money 2,600 1,500 streamline expect loss of 500 jobs expect loss of 500 jobs Total 5,000 Michael House ready for redevelopment We will develop four compelling store formats Heartland Flagship Supply Chain Simply Food Marks & Spencer Lifestore 34

35 Supply Chain Holistic approach eg Speke Fresh modern environment New equipment for improved display In-store eating & internet ordering Proactive friendly service Sense of fun New branding Key priorities better product sharper prices real choice Supply Chain shorten lead times eliminate complexity develop formats store staff - scheduling Head Office - streamlined 35

36 Growing with the aspirations of our customers Pleasure in Life Style Trust Inspire Preliminary Results 25 May

37 Clearer layout Supply Chain Jean Shop Coats per una per una due Coordinated Casualwear T-shirt Shop Your Signature Shoes Coordinated Areas Entrance Formal Tops Suits led area Knitwear Limited Collection Collections Formal Trousers Classic Collection Shop fitted brand Preliminary Results 25 May

38 Preliminary Results 25 May 2004 Preliminary Results 25 May