Annual General Meeting 2006
Annual General Meeting 2006 Paul Myners - Chairman
Annual General Meeting 2006 WELCOME
Agenda � Introduction � Operational Review � Q&A � Resolutions
Your Board David Michels Kevin Lomax Stuart Rose Graham Oakley Jack Keenan Steven Holliday Non-Executive Senior Independent Chief Executive Group Secretary and Non-Executive Non-Executive Director Director Head of Corporate Director Director Governance Jeremy Darroch Ian Dyson Paul Myners Lord Burns Steven Sharp Louise Patten Non-Executive Group Finance Chairman Deputy Executive Director Non-Executive Director Director Chairman Marketing, Director E-Commerce, Store Design and Development
The year in review � Significant progress made – much more to do � Increase in share price � Positive sales momentum � Talented management
� Restored competitiveness in Clothing and Home � Improved styling and more newness � Better store environment and new stores � Improved our service levels � Overhauled pay rates and career paths � Sold Kings in the US � B share buyback
The year in review � Sales £7.8bn (up 4.1%) � Profit before tax £751.4m (up 35.1%) � Adjusted EPS 31.4p (up 63.5%) � Full year dividend 14.0p per share (up 15.7%) � Net cash flow £550.5m
Dividend � Final dividend: 9.2p � Total dividend: 14p 22.7% 15.7%
Responsible retailing Fairtrade Cotton Tsunami Relief
Annual General Meeting 2006 Stuart Rose – Chief Executive
UK sales trends 15 10 5 % growth GM LFL 0 Food LFL -5 -10 -15 Q3 Q4 Q1 Q2 Q3 Q4 Q1 04/05 04/05 05/06 05/06 05/06 05/06 06/07
Group financial highlights � Sales* £7.8bn, +4.1% � Operating profit* £855.8m, +31.8% � Profit before tax* £751.4m, +35.1% � Adjusted earnings per share* 31.4p, +63.5% � Final dividend of 9.2p per share, up 22.7%; total dividend 14.0p, up 15.7% � Net cash flow £550.5m * From continuing operations, before exceptional items and asset disposals
UK highlights � Operating profit up 34% to £790m � Growing sales momentum � Margin, markdowns and commitment � Better application of operating costs � Store modernisation programme
International highlights � Turnover up 15% to £523m � Operating profit up 8% to £66m � 217 stores in 31 territories � 25-30 further stores opening in 06/07 � Kings sale completed April 2006
Group Capital Structure � Current position 2005/06 2004/05 � Net debt £1,729m £2,277m � Fixed charge cover 4.6x 4.2x � Net debt*/EBITDA 2.2x 3.1x � Pension deficit of £795m (under IAS 19) � Property portfolio * Pension adjusted
Summary � Improving sales trend � Margin and cost savings delivered � Strong profit performance � Strong cash flow � Strong returns on capital investment � Solid foundations to move forward
Plan July 04 05/06 06/07 07/08 and beyond Focus Drive Broaden
Drive 05/06 - progress to date Product Service Environment Customer research Management New store format Price architecture Availability Simply Food New buying Service levels Space optimisation Stock management Multi-channel retailing Marketing Markdowns Brand rationalisation Product innovation Filling range gaps
How are we doing? Q1 Q2 � Footfall � Conversion � Transactions � Basket Value SOURCE: Footfall, Internal sales
What are the drivers? � Better product – Pricing, values – Buying – Styling, newness � Better environment � Better service
Price architecture 23% 23% 20% 17% 54% 65% 63% 52% 31% 23% 17% 12% 1998 03/04 04/05 now Good Better Best GM margin up 650 basis points
11.6 1.8 2.9 3.0 3.3 5.7 8.1 %£ 04 Apr 2004 Value Share - Clothing M&S 02 May 2004 30 May 2004 27 Jun 2004 Arc.Grp inc. Bhs 25 Jul 2004 22 Aug 2004 19 Sep 2004 17 Oct 2004 14 Nov 2004 12 Dec 2004 09 Jan 2005 Next/Dir 06 Feb 2005 24 Week Ending 06 Mar 2005 11.1 1.9 2.8 3.1 3.6 6.0 7.7 03 Apr 2005 01 May 2005 Debs 29 May 2005 26 Jun 2005 24 Jul 2005 21 Aug 2005 Asda 18 Sep 2005 16 Oct 2005 13 Nov 2005 Matalan 11 Dec 2005 08 Jan 2006 05 Feb 2006 05 Mar 2006 Tesco 02 Apr 2006 2.6 3.0 3.1 4.0 6.3 7.4 11.3
11.1 2.1 3.9 6.0 6.3 7.0 7.4 %Vol Volume Share – Clothing 04 Apr 2004 M&S 02 May 2004 30 May 2004 27 Jun 2004 25 Jul 2004 Asda 22 Aug 2004 19 Sep 2004 17 Oct 2004 Tesco 14 Nov 2004 12 Dec 2004 09 Jan 2005 Arc.Grp inc. Bhs 06 Feb 2005 24 Week Ending 06 Mar 2005 10.6 2.0 4.6 5.9 6.4 6.6 8.0 03 Apr 2005 01 May 2005 29 May 2005 26 Jun 2005 24 Jul 2005 Matalan 21 Aug 2005 18 Sep 2005 16 Oct 2005 13 Nov 2005 Next/Dir 11 Dec 2005 08 Jan 2006 05 Feb 2006 05 Mar 2006 Debs 02 Apr 2006 11.0 2.2 4.5 5.6 5.9 8.1 8.2
Market share at Full Price… 4 Full Price market share Aug 03 - Oct 05 3 2.5 2 2 1.7 1.6 1.3 %pt Change 0.8 1 0.6 0.4 0.3 0.1 0.4 0.2 0.1 0 0 0 -0.1 -0.1 -0.2 -0.3 -0.2 -0.6 -0.5-0.4-0.6 -0.5 -0.5 -0.8 -0.7-0.8 -0.9-0.7 -0.7 -0.9-0.7 -1 -1.2 -1.4 -1.4 -1.2 -1.3 -1.7 -1.7 -1.8 -2 -3 Apr Nov Mar Oct Apr Nov Mar Mar -4 2003 2003 2004 2004 2005 2005 2006 Full Price M&S Value Share Year on Year Change – Total Clothing & Footwear – Full Price Rolling 12 w/e Data to 02 April 2006
...extending gains to better and best Total Clothing & Footwear Full Price Market Share Best Better OPP/Good Jan Mar June Sept Dec Mar 2005 2006
Home � Refocused ranges Value Perceptions Value Perceptions � Realigned prices � Offering better value � Introduced new products � Furniture strong Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 SOURCE: Retailmap, Mar 06 – Original price, TNS omnibus
Better buying � International sourcing � Buying Academy � Flexibility � Open To Buy � Newness � Catalogue management � Stocks & commitment
International sourcing � Five established overseas offices � New offices opening 06/07: Delhi, Shanghai � Platform for driving direct sourcing across the business � Improving competitiveness of existing supply base � Improving delivery of fast fashion � Adding flexibility � Create cost visibility � Assure social compliance
Extending open to buy
Catalogue & stock management � Increasing sales � Lowering markdown risk � Improving availability � Increasing margin � Minimising way proliferation � Driving more newness � Maximising outfit statements
Better styling/quality/choice � Listening to our customers � Driving innovation � Brand changes completed � Focus now on: –Styling –Quality –Overall value
Innovation � Real Cool Cotton � Machine washable silk � “Magicwear” � Seam free underwear � Weatherproof rattan � Fairtrade cotton � Fairtrade organic cotton � Machine washable suit
Brands – progress to date… Working well – On track In progress � per una � Autograph – women � Blue Harbour � Limited Collection � Autograph – men � Blue Harbour Vintage � Collezione � Girls Boutique � Classics � Ceriso � Truly You � Adored � Body
per una � Now in 218 stores � c.500,000 sq ft; +17% LY � Strong sales growth � Working well with big potential � Needs to be planned with core womenswear
Driving better brand perceptions Womenswear Womenswear Apr 05 Aug 05 Apr 06 Change on year +13% Consideration +22% Style +6% Quality +31% Value +80% Innovation +14% Love to Wear +2% Service SOURCE: Footfall, Internal sales
Food – a good year 6.0% 5.6% 5.1% 5.0% 4.0% % 2.7% 3.0% 2.0% 0.7% 1.0% 0.0% Q1 Q2 Q3 Q4 05/06 05/06 05/06 05/06 LFL sales performance 05/06
How has this been delivered… Food Q1 Q2 Q3 Q4 � Transactions � Basket size � Basket value SOURCE: Footfall, Internal sales
Performance relative to market % on Yr % on Yr 14 Food Performance vs IGD 10 6 2 -2 IGD excluding M&S M&S Opportunity to grow share – better product, new space SOURCE: Internal Analysis, 2004-2006
Better product � Driving innovation � Responding to new trends � Healthy eating – Eat Well – Super foods � Fairtrade � Speciality
Better product
Better product
Better product
Simply Food � Extending brand reach 65+ 55-64 65+ � Delivering greater convenience to 45-54 55-64 our customers 35-44 � Attracting new customers 45-54 � Densities and returns 35-44 16-34 � Store openings continue 16-34 � BP trial going well M&S Food Simply Food
Service The Staff Were Efficient & Knew What They Were Doing � Staffing levels 90 � Management 80 70 � Career & pay 60 � Service training 50 y y h l y e y t r r r r i s e e e e r r c r a n l u a p u b b b a b M � Availability r u J u u A g m o m a m J n r M u t e e e b c a A t O v c e J p o e F e N D S Agree Strongly Focus on conversion as footfall & volumes increase
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