INTERIM RESULTS AND STRATEGY UPDATE
8 November 2016
AGENDA
Financial results: H1 2016/17
Operational update
Further strategic initiatives
Financial implications and guidance
BUILDING A PROFITABLE, SUSTAINABLE M&S
REVIEW OF H1 2016/17
Helen Weir
Chief Finance Officer
OVERVIEW
Group sales
£5.0bn
+0.9%
£231.3m
-18.6%
£25.1m
-88.4%
11.5p
-18.4%
£174m
£83m
Dividend
6.8p
-
Net debt
£2.2bn
£43m
Underlying profit before tax¹
Profit before tax
Underlying EPS¹
Free cash flow pre shareholder returns
Underlying results are consistent w ith how business performance is measured internally
FOOD SALES
Q2
H1
Total
+4.1%
+4.0%
LFL
-0.9%
-0.9%
Continued good performance
Increased market share
New stores performing well
FOOD GROSS MARGIN
2015/16
32.5%
Buying margin
-10bps
Operational efficiencies
+20bps
Waste
2016/17
0bps
32.6%
CLOTHING & HOME SALES
Q2
H1
Total
-2.4%
-5.3%
LFL
-2.9%
-5.9%
Improving trend
Stabilised full price sales
Lower promotional participation
CLOTHING & HOME GROSS MARGIN
2015/16
56.6%
Buying margin
+90bps
Discounting
-80bps
2016/17
56.7%
UK OPERATING COSTS
£m
1,651
1,622
14
3
(9)
11
10
+1.8%
2015/16
Store staffing
Other store costs
Distribution
Marketing
Central costs
+0.6%
+2.3%
+6.0%
-9.7%
+3.1%
2016/17
Prior year numbers have been reclassified to reflect changes in UK organisation structure
INTERNATIONAL
Sales (cc)
Sales (reported)
Q2
H1
-2.5%
-1.0%
8.9%
Operating Profit
£25m
£18m
7.6%
46
Franchise
39
(21)
Owned
(21)
Challenging macro-economic
environment
Continued under-performance of
owned business
H1 2015/16
H1 2016/17
UNDERLYING PROFIT BEFORE TAX
£m
284
36
(55)
(29)
(8)
231
(7)
10
International
Interest
UK (18.3%)
(18.6%)
2015/16
Food gross
profit
Clothing &
Home gross
profit
UK operating
costs
M&S Bank
2016/17
NON-UNDERLYING COSTS
Pension and pay
£(154)m
M&S Bank PPI
£(23)m
Organisation
£(16)m
UK store estate
£(11)m
International & other
Total
£(2)m
£(206)m
CAPITAL EXPENDITURE
£m
Supply Chain & IT
47%
171
New UK
stores
26%
133
H1
2016/17
Maintenance
16%
UK Store
Environment
6%
H1 2015/16
H1 2016/17
International
5%
CASHFLOW
£m
556
53
(38)
(63)
(52)
(197)
(90)
174
5
(193)
(74)
(93)
Underlying
EBITDA
Non cash
pension &
share
charges
Non
underlying
items
Working
capital
Pension
funding^
Capex net of
disposals*
Interest &
taxation
Share
Free
transactions cashflow pre
shareholder
returns
Dividends
Special
dividend
Net cash
outflow
^Total pension payments during the year amounted to £124.1m
*Includes cash payments in relation to prior year capital accruals
SUMMARY
Continued outperformance in Food
Progress implementing Clothing & Home strategy
Costs and capex tightly controlled
Strong cash generation
OPERATIONAL & STRATEGIC UPDATE
Steve Rowe
Chief Executive Officer
PRIORITIES TO ADDRESS
Customer and Brand
Recover and grow
Clothing & Home
International
Continue to grow Food
UK Store Estate
Organisation
Financial plan
Cost review
PRIORITIES TO ADDRESS
Customer and Brand
Recover and grow
Clothing & Home
International
Continue to grow Food
UK Store Estate
Organisation
Financial plan
Cost review
FOCUS ON PRODUCT
Contemporary, wearable
style
Eliminated duplication, reduced options
10% and bought in depth
Wardrobe essentials
Focus on areas of core authority; strong
growth and market share increase in bras
Famous for fit
Reviewed blocks; in-store events
DRIVE EXECUTION
Availability
Autumn season launch +8% points
Price and promotion
1700 lines reduced with fewer promotions
Customer experience
Training for all colleagues, improved online
and store experience
DELIVER IMPROVED PERFORMANCE
Full price market share
10.7%
Sep ‘15
Customer satisfaction
11.1%
Sep ‘16
57%
70%
Apr ‘13
Oct ‘16
Kantar Worldpanel Fashion data, 12 w/e 25 Sep ‘16, data rounded
Increasing full price market share
Customer satisfaction scores up
MOVING FORWARD
Focus on M&S core offer & store
layouts
Reduce promotions &
clearance sales; 4 per year
Balanced approach to currency
PRIORITIES TO ADDRESS
Customer and Brand
Recover and grow
Clothing & Home
International
Continue to grow Food
UK Store Estate
Organisation
Financial plan
Cost review
FOCUS ON QUALITY & INNOVATION
Continuous innovation
c.25% catalogue churned
Focus on health
Convenience & specialist products
Investing in capability
Supplier collaboration
DRIVE EXECUTION
Competitive prices
Volume and value optimisation
Better availability & choice
Continued improvement and tailored
ranges
Convenience
New stores ahead of plan and growth in
food to order
DELIVERING CONTINUED STRONG GROWTH
Strong growth in key categories
Further market share gains +20bps*
Sales in new stores 17% ahead of plan
* Kantar Worldpanel data, 12 w/e 9 October ’16
MOVING FORWARD
Health and Lifestyle
Choice & range
Convenience
PRIORITIES TO ADDRESS
Customer and Brand
Recover and grow
Clothing & Home
International
Continue to grow Food
UK Store Estate
Organisation
Financial plan
Cost review
FULLY COMMITTED TO AN INTERNATIONAL BUSINESS
International profit 2015/16 £m
87
(31)
Franchise
Owned
Owned business 2015/16 £m
(45)
Proposed to exit
14
Retained markets
REVIEW OF OUR OWNED BUSINESS
France (7)
China (10)
Belgium (1)
Netherlands (2)
Estonia (2)
Poland (11)
Hungary (6)
Romania (6)
Lithuania (1)
Slovakia (7)
Customer & Brand
Profitability and cost
structure
Market opportunity and
growth prospects
Proposed
exit of
loss
making
stores
MOVING FORWARD
Retain profitable owned business
Develop with established partners
Focus on operational execution
PRIORITIES TO ADDRESS
Customer and Brand
Recover and grow
Clothing & Home
International
Continue to grow Food
UK Store Estate
Organisation
Financial plan
Cost review
EVOLVING STORES WITH CUSTOMER NEEDS
Changing customer behaviour
Fewer, more inspirational Clothing &
Home stores
Simply Food adding c.200 stores
by 2018/19
MORE STORES, IMPROVED CLOTHING & HOME SPACE
Food
Clothing & Home
over five years
Close & Reduce
200 new
stores by
18/19
Relocate & Open
Net 60 fewer stores: 25% churn, 10% less space
Changes in over 100 locations
PRIORITIES TO ADDRESS
Customer and Brand
Recover and grow
Clothing & Home
International
Continue to grow Food
UK Store Estate
Organisation
Financial plan
Cost review
COST REVIEW
Creating a lean,
effective Head Office
Pension & pay
Consultation complete
Consultation complete
Structure aligned to strategic priorities
Majority of employees better off
Continue to develop cost culture
PRIORITIES TO ADDRESS
Customer and Brand
Recover and grow
Clothing & Home
International
Continue to grow Food
UK Store Estate
Organisation
Financial plan
Cost review
MITIGATING CURRENCY
Currency rates: as at Nov 2016
MITIGATING ACTIONS
-7%
Better buying
-11%(e)
Optimising volumes
Reduced markdown
2015/16
2016/17
2017/18
Competitive prices
FY 2016/17 GUIDANCE
Clothing & Home:
Sales
Gross margin
Similar trend to 2015/16
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%
FINANCIAL IMPLICATIONS OF PROPOSED STRATEGIC ACTIONS
Timeline
Non underlying
cost
Of which cash:
Capital investment
International
Over 12 months
c.£150-200m
Mostly cash
-
UK full line
store estate
Over 5 years
c.£50-100m p.a.
Up to 50%
£50m p.a.
FOCUSING ON RETURN ON CAPITAL
CAPEX £m
Significant infrastructure spend
821
2012/13
710
2013/14
527
469
2014/15
2015/16^
Capex levels reduced
ROCE
15.8%
Reviewed approach to capital
investment
2012/13
14.8%
14.7%
2013/14
2014/15
15.0%
2015/16
^Excludes acquisition of Bradford
IMPROVING RETURNS ON INVESTMENT
Market undergoing
significant structural change
Volatile and uncertain
outlook
Underperformance of
projects
Reviewed approach to Capital investment
Assessed measures for
project appraisal
Targeting shorter lease
lengths
Improve Returns on Capital
Balance of projects:
growth vs. maintenance
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
APPENDICES
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
25
18
-25.5
-10.4
(21)
(21)
-3.8
-17.5
46
39
-15.4
-14.3
Operating Profit
Owned
Franchise
Prior year numbers have been restated for a revised allocation of overheads to more accurately reflect business drivers
INTERNATIONAL
H1 2015/16
H1 2016/17
Var %
Var % (cc)
Sales
507
545
+7.6
-1.0
Europe
283
313
+10.8
-0.5
83
65
-21.2
-21.4
141
167
+18.0
+9.1
25
18
-25.4
-10.4%
(11)
(9)
18.5
41.2
28
20
-26.9
-27.0
8
7
-11.1
-13.3
Middle East
Asia
Operating Profit
Europe
Middle East
Asia
Prior year numbers have been restated for a revised allocation of overheads to more accurately reflect business drivers
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
Simply Food franchise
356
349
11
-4
7
40
41
1
-2
-1
UK Stores
936
914
29
-7
22
Selling space (m sq ft)
17.2
17.0
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
Outlet
14
International
-0.2