Earnings Release • Jun 5, 2014
Earnings Release
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This booklet provides an overview of the business. It is not intended to be a summary of the Annual Report and financial statements 2014 and should not be regarded as a substitute Annual Report. For a copy of the full Annual Report go to marksandspencer.com/
annualreport2014 Those with a QR Reader app can use this link.
This year's AGM will be held at Wembley Stadium, Wembley, London, HA9 0WS on Tuesday 8 July 2014. The meeting will start at 11am and registration will be available from 9.30am.
Marks and Spencer Group plc Waterside House, 35 North Wharf Road, London W2 1NW Telephone +44 (0)20 7935 4422 Registered in England and Wales (no. 4256886)
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Group Secretary and Head of Corporate Governance Amanda Mellor
For both the Annual Report or the Strategic Report go to marksandspencer.com/
annualreport2014
Alternatively, call 0800 591 697
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email us at [email protected] Customer queries: 0845 302 1234 Shareholder queries: 0845 609 0810
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To find out more about what the Board and its committees have done this year, visit marksandspencer.com/ annualreport2014
Plan A and the projects marksandspencer.com/ plana2014
Robert Swannell Chairman
£10.3bn 2.7%*
£622.9m 3.9%
6.1%
Group earnings per share
32.5p 14.8%
32.2p 0.9%
6.2p + 10.8p =17.0ptotal dividend
level
Final dividend to be paid on 11 July 2014
*Constant currency basis
Group Revenue £10.3bn
2.7% Definition: Total Group sales including retail sales for owned business and wholesale sales to franchise partners.
This year Group revenues were driven by good performance across our Food, M&S.com and International businesses.
ROCE 14.8% LY 15.8%
10/11 11/12 12/13 16.7%2 16.4%2 15.8%1 Definition: Return on capital employed is a relative profit measurement that demonstrates the return the business is generating from its net operating assets. The reduction in ROCE from last year reflects a reduction in underlying earnings and an increase in average net operating assets. Dividend per share 17.0p Level
10/11 11/12 12/13 17.0 17.0 17.0 Definition: Dividend per share declared in respect of the year. The Board is recommending a final dividend of 10.8p per share, resulting in a total dividend of 17.0p, in line with last year. The Board remains committed to a progressive policy with dividends broadly twice covered by earnings.
50.7% 110 bps
at 50.7% as a result of increased markdown and promotional cost.
Definition: Gross margin reflects the percentage of sales revenue retained after incurring the direct costs associated with producing and transporting goods to a saleable location. GM gross margin was down 110bps Definition: Global retail sales to the customer from both owned and franchise businesses. Whilst our General Merchandise (GM) performance is not yet satisfactory, our clothing business is beginning to show clear signs of improvement,
Looking ahead We will continue to improve our GM business with a focus on style and quality. As a result of operational improvements, we expect to improve our GM gross margin in FY2014/15 by c.100bps through a combination of tactical changes, new systems and a new approach to sourcing, as well as early benefits from structural improvements.
Global retail sales £6.1bn 1.7%
with new ranges consistently well received by customers.
Underlying Group profit
before tax
£622.9m
3.9%
Due to the highly competitive market, Definition: Sales growth from those stores which have been open for 12 months. We faced difficult trading conditions, with a highly promotional clothing market and unseasonal weather. However, improvements were demonstrated by positive sales growth in our clothing division
10/11 11/12 12/13 £714.3m2 £705.9m2 £648.1m1 Definition: Underlying profit provides additional useful information on the underlying performance of the business adjusting for either income or charges which are both one-off and significant. As we responded to a highly promotional marketplace, UK gross margin was down 20bps. Whilst we worked hard to mitigate impact on profitability, this factor, coupled with a 3.5% increase in UK operating costs, impacted
in the last quarter.
Underlying earnings per share 32.2p 0.9%
10/11 11/12 12/13 34.8p2 34.9p2 31.9p1 Definition: Earnings per share (EPS) is the underlying profit divided by the average number of ordinary shares
in issue.
Underlying earnings per share increased by 0.9% to 32.2p per share. The weighted average number of shares in issue during the period was 1,615.0m (last year 1,599.7m). Looking ahead
We have previously announced our plan to improve free cash flow from 2014/15, as we continue to reduce capital expenditure, deliver a progressive improvement to gross margin and improve business performance. We have worked hard to prepare our business for the future. Now we are focused on delivering the results from this investment and driving returns for our shareholders.
underlying Group PBT. Free cash flow (pre dividend) £427.9m 9.1
109.7% Definition: Free cash flow is the net cash generated by the business in the period before dividend payment. Improvement in free cash flow was driven by a year-on-year reduction 10/11 11/12 12/13 13/14 1.2
22.8% M&S.com
8
2
8.7
Key dates
| 28 May 2014 | Ex-dividend date |
|---|---|
| 30 May 2014 | Record date |
| 8 July 2014* | Results – Quarter 1† |
| 8 July 2014 | Annual General Meeting |
| 11 July 2014 | Final dividend payment date |
| 5 November 2014* | Results – Half Year† |
| 13 November 2014* | Ex-dividend date |
| 14 November 2014* | Record date |
| January 2015* | Results – Quarter 3† |
| 9 January 2015* | Interim dividend payment date |
| * Provisional dates |
† Those registered for electronic communication or news alerts at marksandspencer.com/investors will receive notification by email when this is available.
UK gross margin
Food Global retail sales £5.8bn 4.5% Definition: Global retail sales to the customer from both owned and franchise businesses.
chain efficiencies and effective management of promotional activity – more than offsetting commodity
32.5% 80 bps Definition: Gross margin reflects the percentage of sales revenue retained after incurring the direct costs associated with producing and transporting goods to a saleable location. Food gross margin was up 80bps at 32.5%. This was driven by supply Our strategy is to be more specialist and focus on quality and innovation. Through improvements in availability and choice, we made M&S food more relevant to our customers,
price inflation.
more often.
UK LFL sales growth
1.7%
12 months.
growth and our customer satisfaction ratings are at an all-time high.
Definition: Sales growth from those stores which have been open for The Food division has seen 18 quarters of positive like-for-like sales Definition: Year-on-year increase in weighted average UK selling space. We continue to grow Food space, particularly our successful M&S Simply Food format.
2.3%
Underlying Definition: Sales from the International business including retail sales for owned business and wholesale sales to franchise partners. Our priority markets delivered a good performance with strong growth in India and our flagship stores in China,
driven by an increase in like-for-like sales and the opening of new space. While trading in the Republic of Ireland continued to be difficult, performance in our European business improved. Our franchise business across the Middle East and Asia continued to perform well. 160 120 Definition: Year-on-year increase in operating profit generated by the International business. We increased International operating profit by 2.1%, which also takes into account pre-opening costs from our owned stores.
13/14
0.6 10/11
12/13 11/12
80 40
10/11
11/12
12/13 13/14
International
opening new space, growing our food business and increasing our franchise operations. Over the next three years we will grow International revenues by 25% and grow International operating profit by 40%.
Definition: Plan A qualities are best practice environmental or social standards and are measured by the volumes of products sold worldwide. These include factory best practices and the use of sustainable raw materials such as sustainable wood,
fish and cotton, as well as Fairtrade and recycled materials. We have again extended the number of products featuring a Plan A quality – helping to make our products, suppliers and raw materials more efficient and resilient.
Gross greenhouse gas emissions
Percentage of M&S products with a Plan A quality Plan A
(No last year equivalent) Definition: Total gross CO2 e emissions resulting from M&S operated activities worldwide calculated in compliance with the WRI/ WBCSD GHG Protocol Corporate Accounting and Reporting Standard (Revised) using revised carbon conversion factors published by DECC/ DEFRA in June 2013. This is the equivalent of 30 tonnes per 1,000 sq ft of salesfloor. Our net
emissions are offset to zero.
Looking ahead Our aim is for all M&S products to have at least one Plan A quality
by 2020. We have targets to improve energy efficiency by 50% and reduce refrigeration gas emissions by 80% by 2020. We also plan to continue to offset our gross greenhouse gas emissions to zero (carbon neutral)
M&S products Plan A quality
2012/13 45% 2020 target 100%
57%
Our KPIs have been updated in line with our future plans for the business. This includes our growth ambitions in online and international, a greater focus on margin improvements and recognition of sales through our franchise partners reported as global retail sales.
In 2013/14 we delivered major infrastructure projects that put M&S in a stronger position to compete in a retail industry undergoing profound change. Our performance over the year was mixed, but with a clear and consistent strategy in place, we are working hard to prepare our business for the future as a well-equipped international, multi-channel retailer.
We made progress in three areas this year: Food, M&S.com and International. Our food business is growing faster than the market as a result of our focus on innovation and quality; our online business also outperformed the market and our new website, which launched in February, was recognised as industry-leading; and we saw growth in our international business, with a strengthened presence in our priority markets such as India and the Middle East. Our General Merchandise performance, however, did not meet our own expectations. The new team is working hard on a comprehensive plan to address this, and our new ranges have been well received by our customers and the fashion press.
As well as our new website, we opened our new 900,000 sq ft automated e-commerce distribution centre at Castle Donington this year. Both key pieces of infrastructure are essential in our strategy to transform M&S from a traditional British retailer into an international, multi-channel retailer.
We intend to pay a final dividend of 10.8p this year, taking the total dividend to 17p, unchanged from last year.
The Board focuses its work on three main areas: strategy and execution, people and succession, and values.
This year there have been a number of changes to the Board.
In June 2013 Jeremy Darroch, a non-executive director and Chairman of the Audit Committee, stepped down from the Board after six years. Andy Halford, who joined us in January 2013, has taken over as Chairman of that committee, as planned.
Our longest-serving non-executive director, Steven Holliday, will leave the board after the AGM this July, after 10 years with us. I would like to thank Steve for his outstanding contribution, in particular for his role as Chairman of the Remuneration Committee for the last three years. Vindi Banga will replace Steve in that role.
Alison Brittain was appointed as a non-executive director in January. As Group Director of the Retail Division of Lloyds Banking Group, Alison brings strong commercial and consumer experience with her.
Within the executive team, Steve Sharp, our Executive Director of Marketing, was succeeded in the role by Patrick Bousquet-Chavanne. I would like to thank Steve for his significant role in shaping the M&S brand over the last decade.
Our success over the last 130 years stems in large part from our commitment to our core values, including quality and trust. Just as enduring values have defined our past, so they are crucial to our future. Nothing demonstrates our commitment to our values more than Plan A. We have just launched a new and revised set of Plan A commitments that represent another step on our journey to become the world's most sustainable major retailer.
Our capital expenditure will fall in the year ahead following the completion of our three-year transformation programme. Our priority now is to deliver on the investment we have made and to make M&S more profitable, as well as a stronger, well-equipped business.
Robert Swannell Chairman
Restatement relates to the adoption of the revised IAS 19 'Employee Benefits'.
For the years ended pre-2011-12, no restatement for the revised IAS 19 'Employee Benefits' have been made.
Robert Swannell Chairman
Marc Bolland Chief Executive Officer
Alan Stewart Chief Finance Officer
Patrick Bousquet-Chavanne Executive Director, Marketing and Business Development
John Dixon Executive Director, General Merchandise
This year we have made significant progress in transforming M&S from a traditional British retailer into an international, multi-channel retailer. The changes that we have made to our ranges, our stores and our website – as well as to our infrastructure behind the scenes – mean that we are well-placed for the future.
I am pleased to say that this year we have taken several significant steps forward. The last three years have been a period of unprecedented change within M&S, and as we come to the end of our transformation programme much of our investment is starting to bear fruit. We have built a business that is more relevant for the future retail marketplace.
Sales rose 2.7% over the year in an economic climate that remained challenging. Our Food business had another excellent year, and our General Merchandise division started to show clear signs of improvement. Our online sales rose 22.8% over the year.
Over the year we faced a difficult trading environment, with a highly promotional market and, at times, unseasonal conditions. Although our overall GM performance during the year was not satisfactory, the team we appointed last year to turn around our clothing divisions is making good progress. I am particularly pleased that our core Womenswear ranges have started to gain momentum. Customers tell us they like the improvements in the quality, newness and style of our ranges.
Our Food business continues its strong performance, and has now seen 18 consecutive quarters of like-for-like growth. Our performance this year was ahead of plan and ahead of the market, with sales rising by 4.2%. Our unique position as an own-brand, specialist food retailer with a sizeable high street presence means that we can reach millions of customers a week with a range of at least 5,000 products out of our range of 6,400. We continue to lead on speciality, quality and innovation.
We have become a more multi-channel and agile business. Our new M&S.com flagship opened in February after over two years of extensive customer research and testing. Where previously we operated on an Amazon platform, we now have a powerful and flexible platform of our own. The site is backed by our new 900,000 sq ft distribution centre in Castle Donington. Our online sales continued to grow as more customers shopped via their computer, tablet or mobile phone.
The roll out of our new store formats continued apace this year. Our top 70 stores have refreshed Womenswear departments, and we are introducing revamped Footwear, Menswear and Beauty departments.
Our international strategy continues to deliver strong results, with our priority markets delivering double-digit growth. We opened 55 new stores overseas this year, including flagship stores in India, the Middle East and the Netherlands. We also announced a partnership with Relay France to open franchised Food stores in Paris, a model that we will replicate in other markets.
Our marketing activity this year has re-established M&S's quality and heritage credentials. Our bold Leading Ladies campaigns showcased our Womenswear lines and featured a diverse cast of British women of achievement.
The principles of Plan A underpin everything that we do. Through initiatives such as Shwopping and the Big Beach Clean-up, customers and colleagues participated in a wide range of activities this year. We have worked hard to make Plan A an integral part of our business and our brand.
Marc Bolland Chief Executive
Marc Bolland Chief Executive
Revenue
4.2% M&S.com £800.1m
International £1.2bn 6.2% M&S.com
Style & Living is the independent editorial section of our new website, offering customers everything from Editor's Picks of all the latest trends to style
guides and in-depth articles.
We participated in London Fashion Week for the first time this year, with a preview of our 2014 Best of British Autumn/ Winter Womenswear collection. The 54-piece collection was well received by the fashion press.
largest international store in Kuwait, our first store in Lebanon and our biggest store in India.
Convenience and flexibility Online sales rose by 23% this year as customers increasingly chose the convenience and flexibility of shopping with us via their computer, tablet or mobile phone. Our multi-channel strategy allows customers to shop with us anytime, anyplace, anywhere.
A global Plan
Plan A is not just about the UK. We are now carbon neutral in all our operated and joint venture locations worldwide.
Vibrant stores We are currently rolling out phase two of our store refurbishment programme, giving customers clearer, better-merchandised and more exciting stores.
51,700 sq ft flagship in The Hague. The store, which sells extensive food and clothing ranges, forms part of our 'bricks and clicks' strategy in the Netherlands. It sits alongside our Dutch site, marksandspencer.nl, our Kalverstraat multi-channel store in Amsterdam and a series of food stores.
International Extending our reach This year we opened our 23%
Multi-channel Customers in 9 international territories can buy M&S products from in-language, local currency websites. It is part of our plan to roll-out our multi-channel strategy to more countries.
Fundraising Our employees and customers have raised £4.2m this year through various fundraising initiatives and charity events,
Customers are responding to the improved quality and style of our clothing ranges and we returned our Womenswear sales to growth for the first time in three years.
Our new flagship We call M&S.com our new flagship. Radically different and significantly better, it's the best representation of what M&S stands for today. The site contains a range of new Our plan for the future PICK
Over half of all the products we sell now have at least one Plan A attribute to them, either relating to the materials they are made of or to the processes by which they were manufactured.
We had a record Christmas in Food, with sales up 6.1%, including our biggest ever day at £63m. We sold 1.3 million Christmas puddings and one in four families enjoyed an M&S turkey on Christmas Day.
Having a sleek multichannel business is as much about what goes on behind the scenes as what happens on-screen. 0At the start of the year we opened one of the UK's largest fully mechanised distribution centres in Castle Donington.
Steve Rowe Executive Director, Food
Laura Wade-Gery Executive Director, Multi-channel E-commerce
Jan du Plessis Senior Independent Director
Vindi Banga Non-executive director
Alison Brittain
Non-executive director
Miranda Curtis Non-executive director
Andy Halford Non-executive director
Non-executive director
Steven Holliday Non-executive director Steve will leave the Board following the AGM in July.
Amanda Mellor Group Secretary and Head of Corporate Governance
We must now build on the foundations we have laid.
In clothing, we will continue to drive the improvements in our ranges, with a focus on quality and style, and increase levels of newness and availability. We believe we can improve margins in GM through better sourcing.
We will continue to grow our Food business with 150 new UK M&S Simply Food stores over the next three years.
In our new M&S.com flagship, we have a flexible and modern web infrastructure. We believe that the site will be at least as profitable as our store channel.
There remain significant expansion opportunities overseas, where we see the potential for 250 new stores in the next three years.
Now that our period of significant investment is over, our capex will fall over the coming years. We have exciting years ahead of us; we are fit for the future and focused on delivery. The full biographies of our directors are available to view in our online annual report marksandspencer.com/annualreport2014
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