Annual General Meeting 2005
Annual General Meeting 2005 Paul Myners - Chairman
Annual General Meeting 2005 WELCOME
Agenda � Introduction � Operational Review � Q&A � Resolutions
Your Board Paul Myners Lord Burns Stuart Rose Charles Wilson Ian Dyson Chairman Deputy Chairman Chief Executive Executive Director, IT, Group Finance Director (from October) Logistics and Property Kevin Lomax Anthony Habgood Steven Holliday Jack Keenan Graham Oakley Senior Independent Non-executive Director Non-executive Director Non-executive Director Group Secretary and Director Head of Corporate Governance
The year in review � Rejected ‘virtual’ offer � Bought per una and sold Financial Services � Returned £2.3bn to shareholders � Contributed to pension fund � Focused on our core values
The year in review � Sales £7.03bn (down 1.7%) � Profits £618.5m (down 19.0%) � Full year dividend 12.1p per share (up 5.2%)
Your views count � Shareholder voucher scheme � Customer assistants at the Annual General Meeting � Store environment � New return & refund policy
We are listening � chairman@marks-and-spencer.com � Marks and Spencer Group plc Waterside House 35 North Wharf Road London W2 1NW � Customer services: 0845 302 1234
Annual General Meeting 2005 Stuart Rose – Chief Executive
� Focus - 2004/05 � Drive - 2005/06 � Broaden - 2006/07
Actions completed � � New management structure Jul - Nov 04 � � Focus on core values – Your M&S Jul 04 � � per una acquired Jul 04 � � Cut 21 initiatives Jul 04 � � Head office restructure Sept 04 � � New supplier terms introduced Sept 04 � � £2.3bn returned to shareholders Oct 04 � � Financial Services sold Nov 04 � � Lifestore exited Jan 05 � � Tightened cash and costs July - March 05 � � Stock & commitments down £1.3bn July - March 05
Group financial summary 2004/05 � Retail sales £7.7bn, -1.5% � Profit before tax (pre-exceptionals) £618.5m (LY £763.2m), -19.0% � Operating profit (pre-exceptionals) £709.4m, -13.8% � Adjusted earnings per share 21.9p (LY 23.4p), -6.4% � ROI (pre-exceptionals) increased to 31.1% � Operating cashflow from continuing activities £857.5m (LY £602.3m) � Final dividend of 7.5p per share (LY 7.1p), up 5.6%
Divisional performance 2004/05 TY LY* £m £m % Turnover UK Retail 7,034.7 7,159.8 (1.7) International Retail 675.6 665.0 1.6 Financial Services 232.0 330.0 (29.7) Operating profit** UK Retail 612.1 722.1 (15.2) International Retail 65.0 44.2 47.1 Financial Services 32.3 56.6 (42.9) * 52 weeks ** Before exceptional items
UK Retail performance � Gross margin down 1% � Operating costs down 0.1%
UK Retail – margins and costs Achievements vs July 2004 presentation (£m) 05/6 Delivered To To be vs in come delivered 03/4 04/5 05/06 by 05/06 Supplier terms, phase 1 complete 120 40 80 120 Downstream supply chain & systems 15 20 10 30 Head Office restructure 35 10 25 35 Non-merchandise 30 20 10 30 Hard Savings 200 90 125 215 Further margin improvements Clothing markdown 40 (60) 100 40 Lower food waste 10 - 5 5 TOTAL 250 30 230 260
Quarter 1 trading to 9 July 2005 � UK Retail Sales down 3.1% – Food up 5.0% – General merchandise down 10.3% � Full price sales of General Merchandise down 2.4% � Summer sale to start 18 days later, with 40% less stock
Focus on the customer � Better product � Better service � Better environment
Product � Better choice � Better buying � Better value
Product � Better choice – listening to our customers – brand rationalisation – range construction
Product � Better buying – people – process – targets/controls – supply chain
Product � Better value – OPP/Good, Better & Best – giving customers a treat
Choice: listening to our customers � 20,000 interviews/surveys per annum � Customer panels – 360 customers surveyed on two subjects every month � Focus groups and accompanied shops
listening to our customers May 05 +12% High-leg knicker sales Choice: Autumn 04 -29%
Focus on customer Classic Collection � Better fabric and styling � Increasing share of over 55 market
Focus on customer Petite � £4bn market � 33 stores now � 80 stores by autumn
Choice: brand rationalisation MENSWEAR NOVEMBER 2004 MENSWEAR MAY 2005 3 8 Brand clarity adding to sales
Choice: range construction � Number of ways reduced across all areas � Over 1,500 less lines % reduction in number of ways Home (ex Womens Mens Lingerie Childrens Lifestore) Total level -14.0% -16.0% -17.0% -18.8% -20.0%
Buying better � People � Process � Targets/controls – stocks & commitments – open to buy – availability � Sourcing – sourcing & regional offices – ways of buying
Buying: stocks & commitment � Stocks & commitment down £1.3bn, over 35% � Faster decision-making � Shorter lead times – greater flexibility � Improved product hit rate � More full price sales � Lower markdowns � Improved cost effectiveness Improving margins – lowering markdowns
Buying: open to buy � Improving flexibility � Chasing fast sellers and new trends � Introducing newness � Improving transition between seasons � Reducing markdowns
Buying: sourcing � Sourcing directors recruited to: – act as a support to our UK buying teams – provide one approach to buying direct – act as eyes and ears on the ground – manage the process, from approving new factories and fabrics to managing the movement of goods � Regional offices – Turkey, India and Hong Kong
Values: clear message on value � Focus on value – particular focus on OPP/Good, Better & Best – benchmarked to competition – using variable margin to deliver on value � Clear price architecture � Giving customers a treat � Overall better value and maintained quality Re-establishing our value credentials
20% 23% 23% Value: OPP/Good, Better, Best 54% 63% 65% 23% 17% 12% This year Last year 1998
£6 Margin +50% Value: £6 T-shirt Volume +150% £8 +63% Sales £9 Price -33%
Value: giving customers a treat Men’s essentials: � Socks £10 £7: £1 a pair � Sales uplift >55% � Volumes up >120%
Value: giving customers a treat Men’s cashmere £99 2002 � 100% machine washable � 8 week lead time � Flexibility on colour £69 2004
Service: management � Team now restructured � Two ‘flagship’ divisions – focus on largest 34 stores � Key senior managers appointment to flagships � Streamlined entire management structure and reporting process
Service: our people � Customer Assistants’ career path � Clear and competitive pay structures � Training and development
Service: in store � Better staff scheduling � Simplified communications � Extended opening hours � Better Saturday tilling � Driving availability � New refund policy � Mystery shopping
Environment � Trial store programme � Retail parks / out of town � New openings
Environment: trial stores 2004/05 � Store remodelled trial in four new store and four existing stores � Modern and contemporary environment, easy to navigate, greater product segmentation � Footage rebalances: increasing general merchandise footage, allowing increased cataloguing � Introduced new product lines – per una, Limited Collection � New look for Food and Café Revive
Environment: trial stores 2005/06 � 21 stores opening September 2005 – February 2006 � Three major stores including Bromley � 15 high streets, e.g. Mansfield, Haywards Heath and Stafford � Reduced cost per square foot � New options, e.g. hot Food To Go Refurbishing c.1 million square feet
Environment: Birmingham store � More choice across our offer � New store frontage � Free-flow walkways � Contemporary fitting room � New Café Revive � Hot Food To Go � Due to re-launch this autumn
Environment: retail parks � Three opened in 2004/05 � c.10 openings this year: – Westwood Cross June – Monks Cross June – Coventry Arena August – Birmingham Fort September – Valley Retail Park, Croydon September
Environment: new stores � Over 40 openings this year including: – 10 retail parks – 30 Simply Foods � London Victoria – Cardinal Place opens October 2005 � Increasing total space by – 1.2% General Merchandise – 3.3% Food
Food � Product – clearer offer – product innovation – first to market – building authority in key trends – strengthening position on quality � Service – improving availability, tilling, queuing � Environment – store design and in-store ambiance � Developing new opportunities
Making core Food offer better - technology New product development Product ranges Omega 3 Milk Muir Den pigs Innovation Customer convenience
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