interim results and strategy update · interim results and strategy update 8november 2016. agenda...
TRANSCRIPT
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INTERIM RESULTS AND STRATEGY UPDATE8 November 2016
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AGENDA
Financial results: H1 2016/17
Operational update
Further strategic initiatives
Financial implications and guidance
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BUILDING A PROFITABLE, SUSTAINABLE M&S
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REVIEW OF H1 2016/17Helen Weir
Chief Finance Officer
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OVERVIEW
Group sales £5.0bn +0.9%
Underlying profit before tax¹ £231.3m -18.6%
Profit before tax £25.1m -88.4%
Underlying EPS¹ 11.5p -18.4%
Free cash flow pre shareholder returns £174m £83m
Dividend 6.8p -
Net debt £2.2bn £43m
Underlying results are consistent w ith how business performance is measured internally
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FOOD SALES
Continued good performance
Increased market share
New stores performing well
Q2 H1
Total +4.1% +4.0%
LFL -0.9% -0.9%
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FOOD GROSS MARGIN
2015/16 32.5%
Buying margin -10bps
Operational efficiencies +20bps
Waste 0bps
2016/17 32.6%
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CLOTHING & HOME SALES
Improving trend
Stabilised full price sales
Lower promotional participation
Q2 H1
Total -2.4% -5.3%
LFL -2.9% -5.9%
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CLOTHING & HOME GROSS MARGIN
2015/16 56.6%
Buying margin +90bps
Discounting -80bps
2016/17 56.7%
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1,622
1,651
310
14 (9) 11
2015/16 Store staffing Other store costs Distribution Marketing Central costs 2016/17
UK OPERATING COSTS
+1.8%
+0.6% +2.3% +6.0% -9.7% +3.1%
£m
Prior year numbers have been reclassif ied to reflect changes in UK organisation structure
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Challenging macro-economic
environment
Continued under-performance of
owned business
Operating Profit
INTERNATIONAL
Q2 H1
Sales (cc) -2.5% -1.0%
Sales (reported) 8.9% 7.6%
H1 2015/16 H1 2016/17
(21)
46
(21)
39
£25m£18m
Owned
Franchise
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284
231
36(55)
(29)
(8)(7) 10
2015/16 Food grossprofit
Clothing &Home gross
profit
UK operatingcosts
M&S Bank International Interest 2016/17
UK (18.3%)
UNDERLYING PROFIT BEFORE TAX
(18.6%)
£m
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Organisation £(16)m
UK store estate £(11)m
M&S Bank PPI £(23)m
Pension and pay £(154)m
Total £(206)m
NON-UNDERLYING COSTS
International & other £(2)m
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CAPITAL EXPENDITURE
171
133
H1 2015/16 H1 2016/17
New UK
stores
26%
Maintenance
16%
International
5%
£m
H1
2016/17
UK Store
Environment
6%
Supply Chain & IT
47%
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556
174
(93)
53 (38)(63)
(52)
(197)
(90)5
(193)
(74)
UnderlyingEBITDA
Non cashpension &
sharecharges
Nonunderlying
items
Workingcapital
Pensionfunding^
Capex net ofdisposals*
Interest &taxation
Sharetransactions
Freecashflow preshareholder
returns
Dividends Specialdividend
Net cashoutflow
CASHFLOW
^Total pension payments during the year amounted to £124.1m
*Includes cash payments in relation to prior year capital accruals
£m
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SUMMARY
Continued outperformance in Food
Progress implementing Clothing & Home strategy
Costs and capex tightly controlled
Strong cash generation
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OPERATIONAL & STRATEGIC UPDATESteve Rowe
Chief Executive Officer
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PRIORITIES TO ADDRESS
Financial plan
Customer and Brand
Recover and grow
Clothing & HomeContinue to grow Food
International Organisation Cost reviewUK Store Estate
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PRIORITIES TO ADDRESS
Financial plan
Customer and Brand
Recover and grow
Clothing & HomeContinue to grow Food
International Organisation Cost reviewUK Store Estate
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FOCUS ON PRODUCT
Eliminated duplication, reduced options
10% and bought in depth
Contemporary, wearable
style
Focus on areas of core authority; strong
growth and market share increase in brasWardrobe essentials
Reviewed blocks; in-store eventsFamous for fit
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Autumn season launch +8% pointsAvailability
1700 lines reduced with fewer promotionsPrice and promotion
Training for all colleagues, improved online
and store experienceCustomer experience
DRIVE EXECUTION
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Customer satisfaction scores upIncreasing full price market share
DELIVER IMPROVED PERFORMANCE
Sep ‘15 Sep ‘16
10.7%11.1%
Apr ‘13 Oct ‘16
57% 70%
Kantar Worldpanel Fashion data, 12 w/e 25 Sep ‘16, data rounded
Full price market share Customer satisfaction
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Focus on M&S core offer & store
layouts
Reduce promotions &
clearance sales; 4 per year
Balanced approach to currency
MOVING FORWARD
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PRIORITIES TO ADDRESS
Financial plan
Customer and Brand
Recover and grow
Clothing & HomeContinue to grow Food
International Organisation Cost reviewUK Store Estate
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FOCUS ON QUALITY & INNOVATION
c.25% catalogue churned Continuous innovation
Convenience & specialist productsFocus on health
Supplier collaborationInvesting in capability
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DRIVE EXECUTION
Volume and value optimisationCompetitive prices
Continued improvement and tailored
ranges Better availability & choice
New stores ahead of plan and growth in
food to orderConvenience
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Strong growth in key categories
Further market share gains +20bps*
Sales in new stores 17% ahead of plan
DELIVERING CONTINUED STRONG GROWTH
* Kantar Worldpanel data, 12 w/e 9 October ’16
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Health and Lifestyle
Choice & range
Convenience
MOVING FORWARD
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PRIORITIES TO ADDRESS
Financial plan
Customer and Brand
Recover and grow
Clothing & HomeContinue to grow Food
International Organisation Cost reviewUK Store Estate
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FULLY COMMITTED TO AN INTERNATIONAL BUSINESS
(45)14
Proposed to exit Retained markets
87
(31)
Franchise Owned
International profit 2015/16 £m
Owned business 2015/16 £m
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Proposed
exit of
loss
making
stores
REVIEW OF OUR OWNED BUSINESS
Customer & Brand
Profitability and cost
structure
Market opportunity and
growth prospects
Hungary (6)
Slovakia (7)
China (10)
Lithuania (1)
France (7)
Netherlands (2)Belgium (1)
Poland (11)Estonia (2)
Romania (6)
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MOVING FORWARD
Retain profitable owned business
Develop with established partners
Focus on operational execution
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PRIORITIES TO ADDRESS
Financial plan
Customer and Brand
Recover and grow
Clothing & HomeContinue to grow Food
International Organisation Cost reviewUK Store Estate
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Changing customer behaviour
Fewer, more inspirational Clothing &
Home stores
Simply Food adding c.200 stores
by 2018/19
EVOLVING STORES WITH CUSTOMER NEEDS
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MORE STORES, IMPROVED CLOTHING & HOME SPACE
Food
200 new
stores by
18/19
Clothing & Home
over five years
Changes in over 100 locations
Net 60 fewer stores: 25% churn, 10% less space
Close & Reduce
Relocate & Open
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PRIORITIES TO ADDRESS
Financial plan
Customer and Brand
Recover and grow
Clothing & HomeContinue to grow Food
International Organisation Cost reviewUK Store Estate
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COST REVIEW
Consultation complete
Pension & payCreating a lean,
effective Head Office
Consultation complete
Majority of employees better offStructure aligned to strategic priorities
Continue to develop cost culture
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PRIORITIES TO ADDRESS
Financial plan
Customer and Brand
Recover and grow
Clothing & HomeContinue to grow Food
International Organisation Cost reviewUK Store Estate
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Optimising volumes
Better buying
Reduced markdown
Competitive prices
MITIGATING ACTIONSCurrency rates: as at Nov 2016
MITIGATING CURRENCY
2015/16 2016/17 2017/18
-7%-11%(e)
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Clothing & Home:
Sales Similar trend to 2015/16
Gross margin c.0 to +50 bps
Food:
Sales Space c.+5%
Gross margin Level bps
Operating costs c.+3.5%
Capital Expenditure c.£400m
Underlying tax rate c.20%
FY 2016/17 GUIDANCE
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FINANCIAL IMPLICATIONS OF PROPOSED STRATEGIC ACTIONS
TimelineNon underlying
costOf which cash: Capital investment
International Over 12 months c.£150-200m Mostly cash -
UK full line
store estateOver 5 years c.£50-100m p.a. Up to 50% £50m p.a.
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Significant infrastructure spend
Capex levels reduced
Reviewed approach to capital
investment
FOCUSING ON RETURN ON CAPITAL
15.8%
14.8% 14.7%15.0%
2012/13 2013/14 2014/15 2015/16
821710
527 469
2012/13 2013/14 2014/15 2015/16^
CAPEX £m
ROCE
^Excludes acquisition of Bradford
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IMPROVING RETURNS ON INVESTMENT
Market undergoing
significant structural change
Reviewed approach to Capital investment
Volatile and uncertain
outlook
Balance of projects:
growth vs. maintenance
Assessed measures for
project appraisalTargeting shorter lease
lengths
Underperformance of
projects
Improve Returns on Capital
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IN SUMMARY
Customer at the heart: progress against key priorities
Building a sustainable and profitable international business
Creating a relevant and accessible store estate
A solid base to deliver sustainable returns for shareholders
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APPENDICES
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INTERNATIONAL
H1 2015/16 H1 2016/17 Var % Var % (cc)
Sales 507 545 +7.6 -1.0
Owned 343 393 +14.6 +1.6
Franchise 164 152 -7.3 -7.0
Operating Profit 25 18 -25.5 -10.4
Owned (21) (21) -3.8 -17.5
Franchise 46 39 -15.4 -14.3
Prior year numbers have been restated for a revised allocation of overheads to more accurately reflect business drivers
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INTERNATIONAL
H1 2015/16 H1 2016/17 Var % Var % (cc)
Sales 507 545 +7.6 -1.0
Europe 283 313 +10.8 -0.5
Middle East 83 65 -21.2 -21.4
Asia 141 167 +18.0 +9.1
Operating Profit 25 18 -25.4 -10.4%
Europe (11) (9) 18.5 41.2
Middle East 28 20 -26.9 -27.0
Asia 8 7 -11.1 -13.3
Prior year numbers have been restated for a revised allocation of overheads to more accurately reflect business drivers
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STORES AND SPACE
UK Sep 16 Mar 16 Openings Closures Change
Premier 12 12
Major 62 62
High Street 230 228 3 -1 2
Simply Food owned 236 222 14 14
Simply Food franchise 356 349 11 -4 7
Outlet 40 41 1 -2 -1
UK Stores 936 914 29 -7 22
Selling space (m sq ft) 17.2 17.0
International
Europe 149 150 3 -4 -1
Middle East 147 154 4 -11 -7
Asia 169 164 13 -8 5
International stores 465 468 20 -23 3
Selling space (m sq ft) 5.9 6.1 -0.2