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Annual General Meeting 2006
Annual General Meeting 2006Paul Myners - Chairman
Annual General Meeting 2006WELCOME
Introduction
Operational Review
Q&A
Resolutions
Agenda
Your Board
Jeremy Darroch
Non-Executive Director
David Michels
Non-Executive Director
Ian Dyson
Group Finance Director
Paul Myners
Chairman
Lord Burns
Deputy Chairman
Steven Sharp
Executive Director Marketing, E-Commerce, StoreDesign and Development
Louise Patten
Non-Executive Director
Kevin Lomax
Senior Independent Director
Stuart Rose
Chief Executive
Graham Oakley
Group Secretary and Head of Corporate Governance
Jack Keenan
Non-Executive Director
Steven Holliday
Non-Executive Director
The year in review
Significant progress made– much more to do
Increase in share price
Positive sales momentum
Talented management
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
Restored competitiveness in Clothing and Home
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
22.7%
Total dividend: 14p
15.7%
Responsible retailing
Tsunami Relief
Fairtrade Cotton
Annual General Meeting 2006Stuart Rose – Chief Executive
UK sales trends
% g
row
th
Q304/05
Q404/05
Q105/06
Q205/06
Q305/06
Q405/06
Q106/07
-15
-10
-5
0
5
10
15
GM LFLFood LFL
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
Pension deficit of £795m (under IAS 19)
Property portfolio
* Pension adjusted
2005/06 2004/05Net debt £1,729m £2,277mFixed charge cover 4.6x 4.2xNet debt*/EBITDA 2.2x 3.1x
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
Drive
Broaden
July 04 05/06 06/07 07/08 and beyond
Focus
Drive 05/06 - progress to dateProduct
Customer research
Price architecture
New buying
Stock management
Markdowns
Brand rationalisation
Product innovation
Filling range gaps
Service
Management
Availability
Service levels
Multi-channel retailing
Environment
New store format
Simply Food
Space optimisation
Marketing
How are we doing?
Footfall
Conversion
Transactions
Basket Value
Q1 Q2
SOURCE: Footfall, Internal sales
What are the drivers?
Better product– Pricing, values
– Buying
– Styling, newness
Better environment
Better service
Price architecture
GM margin up 650 basis points
23%12% 17%
31%
54% 65% 63% 52%
23% 23% 20% 17%
1998 03/04 04/05 nowGood Better Best
Value Share - Clothing11.3
4.0
6.37.4
3.13.02.6
11.6
3.3
5.7
8.1
3.02.91.8
%£
04 A
pr 2
004
02 M
ay 2
004
30 M
ay 2
004
27 J
un 2
004
25 J
ul 2
004
22 A
ug 2
004
19 S
ep 2
004
17 O
ct 2
004
14 N
ov 2
004
12 D
ec 2
004
09 J
an 2
005
06 F
eb 2
005
06 M
ar 2
005
03 A
pr 2
005
01 M
ay 2
005
29 M
ay 2
005
26 J
un 2
005
24 J
ul 2
005
21 A
ug 2
005
18 S
ep 2
005
16 O
ct 2
005
13 N
ov 2
005
11 D
ec 2
005
08 J
an 2
006
05 F
eb 2
006
05 M
ar 2
006
02 A
pr 2
006
24 Week EndingM&S Arc.Grp inc. Bhs Next/Dir Debs Asda Matalan Tesco
11.1
3.6
6.0
7.7
3.12.81.9
Volume Share – Clothing 11.0
5.9
8.18.2
5.64.5
2.2
11.1
6.37.07.4
6.0
3.9
2.1
%Vol
04 A
pr 2
004
02 M
ay 2
004
30 M
ay 2
004
27 J
un 2
004
25 J
ul 2
004
22 A
ug 2
004
19 S
ep 2
004
17 O
ct 2
004
14 N
ov 2
004
12 D
ec 2
004
09 J
an 2
005
06 F
eb 2
005
06 M
ar 2
005
03 A
pr 2
005
01 M
ay 2
005
29 M
ay 2
005
26 J
un 2
005
24 J
ul 2
005
21 A
ug 2
005
18 S
ep 2
005
16 O
ct 2
005
13 N
ov 2
005
11 D
ec 2
005
08 J
an 2
006
05 F
eb 2
006
05 M
ar 2
006
02 A
pr 2
006
M&S Asda Tesco Arc.Grp inc. Bhs Matalan Next/Dir Debs24 Week Ending
10.6
6.46.68.0
5.94.6
2.0
Apr2003
Nov2003
Oct2004
Apr2005
Nov2005
Mar2006
Mar2004
Market share at Full Price…
M&S Value Share Year on Year Change – Total Clothing & Footwear – Full Price Rolling 12 w/e Data to 02 April 2006
Full Price market share Aug 03 - Oct 05
0.80.4 0.3
-0.3 -0.2-0.5
0.10.4 0.2
-0.2-0.6 -0.5-0.4-0.6 -0.5
-0.8 -0.7-0.8-1.2 -1.4 -1.4
-0.9-0.7 -0.7
-1.7 -1.7-1.8
-1.2 -1.3-0.9 -0.7
-0.1
0.10.6
0 0
-0.1
1.31.7
2.52
1.6
-4
-3
-2
-1
0
1
2
3
4
%pt
Cha
nge
Full Price
Mar
...extending gains to better and best
Total Clothing & Footwear Full Price Market Share
OPP/Good
Best
Better
Jan Mar June Sept
2005
Dec Mar
2006
Home
SOURCE: Retailmap, Mar 06 – Original price, TNS omnibus
Value Perceptions Refocused ranges
Realigned prices
Offering better value
Introduced new products
Furniture strong
Apr
-05
May
-05
Jun-
05
Jul-0
5
Aug
-05
Sep-
05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb-
06
Mar
-06
Apr
-06
Better buyingInternational sourcing
Buying Academy
Flexibility
Open To Buy
Newness
Catalogue management
Stocks & commitment
International sourcingFive 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 managementIncreasing 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
InnovationReal Cool Cotton
Machine washable silk
“Magicwear”
Seam free underwear
Weatherproof rattan
Fairtrade cotton
Fairtrade organic cotton
Machine washable suit
Brands – progress to date…In progress
Autograph – women
Limited Collection
Blue Harbour Vintage
Girls Boutique
Ceriso
Adored
Working well – On track
per una
Blue Harbour
Autograph – men
Collezione
Classics
Truly You
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 corewomenswear
Driving better brand perceptions
Consideration
Apr 06Apr 05 Aug 05
SOURCE: Footfall, Internal sales
Quality
Style
Innovation
Value
Love to Wear
Service
Womenswear Change on year
+13%
+6%
+22%
+31%
+80%
+14%
+2%
Food – a good year
LFL sales performance 05/06
Q1 05/06
Q3 05/06
%
Q2 05/06
Q4 05/06
0.7%
2.7%
5.1%5.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Transactions
Q3Q1 Q2
SOURCE: Footfall, Internal sales
Basket value
Basket size
Q4Food
How has this been delivered…
SOURCE: Internal Analysis, 2004-2006
-2
2
6
10
14% on Yr
IGD excluding M&S M&S
Food Performance vs IGD
Performance relative to market
Opportunity to grow share – better product, new space
Better productDriving innovation
Responding to new trends
Healthy eating– Eat Well
– Super foods
Fairtrade
Speciality
Better product
Better product
Better product
Simply FoodExtending brand reach
Delivering greater convenience to our customers
Attracting new customers
Densities and returns
Store openings continue
BP trial going well
16-34
35-44
45-5455-64
65+
16-34
35-44
45-54
55-64
65+
Simply FoodM&S Food
Service
Staffing levels
Management
Career & pay
Service training
Availability
Focus on conversion as footfall & volumes increase
50
60
70
80
90
January
Febru
aryMarc
hAprilMayJu
neJu
lyAugust
Septem
berOcto
berNove
mberDec
ember
Agree Strongly
The Staff Were Efficient & Knew What They Were Doing
EnvironmentEncouraging performance to date
Lessons learnt and reflected in 06/07 plan
60-70 additional stores to open by end of 06/07
Strong returns being generated
Annual General Meeting 2006
Marketing
Marketing
Food
Look behind the label
Additional pages will follow on the weekend in The Times and The Mail
strengthening brand appeal, bolstering awareness of ‘responsible’ messages
-6%
-3%
0%
3%
6%
9%
12%
Mar
-05
Apr
-05
May
-05
Jun-
05
Jul-0
5
Aug
-05
Sep-
05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb-
06
Mar
-06
Regular communication maintains improvementsin footfall ahead of the market in autumn
SOURCE: Footfall, FashionTrak, Superpanel
% Point Difference M&S and Market on Year
What next?UK - more of the same:
– Drive top line, market share, densities, margins– Drive better product– Refurbish store portfolio– Space optimisation– Drive better service & availability
Stretching the brand:– New product types– Extend reach of Simply Food– BP
Multi-channel: Amazon
Overseas
We are listening
chairman@marks-and-spencer.com
Marks and Spencer Group plc Waterside House35 North Wharf RoadLondonW2 1NW
Customer services: 0845 302 1234
Annual General Meeting 2006
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