Annual General Meeting 2006 Annual General Meeting 2006 Paul Myners - - PDF document

Annual General Meeting 2006

Annual General Meeting 2006

Paul Myners - Chairman

Annual General Meeting 2006

WELCOME

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, Store Design 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 2006

Stuart Rose – Chief Executive

UK sales trends

% growth

Q3 04/05 Q4 04/05 Q1 05/06 Q2 05/06 Q3 05/06 Q4 05/06 Q1 06/07

• 15
• 10
• 5

5 10 15 GM LFL Food 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 2004/05 Net debt £1,729m £2,277m Fixed charge cover 4.6x 4.2x Net 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 date

Product 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 now Good Better Best

Value Share - Clothing

11.3 4.0 6.3 7.4 3.1 3.0 2.6 11.6 3.3 5.7 8.1 3.0 2.9 1.8

%£

04 Apr 2004 02 May 2004 30 May 2004 27 Jun 2004 25 Jul 2004 22 Aug 2004 19 Sep 2004 17 Oct 2004 14 Nov 2004 12 Dec 2004 09 Jan 2005 06 Feb 2005 06 Mar 2005 03 Apr 2005 01 May 2005 29 May 2005 26 Jun 2005 24 Jul 2005 21 Aug 2005 18 Sep 2005 16 Oct 2005 13 Nov 2005 11 Dec 2005 08 Jan 2006 05 Feb 2006 05 Mar 2006 02 Apr 2006

24 Week Ending M&S Arc.Grp inc. Bhs Next/Dir Debs Asda Matalan Tesco 11.1 3.6 6.0 7.7 3.1 2.8 1.9

Volume Share – Clothing

11.0 5.9 8.1 8.2 5.6 4.5 2.2 11.1 6.3 7.0 7.4 6.0 3.9 2.1

%Vol

04 Apr 2004 02 May 2004 30 May 2004 27 Jun 2004 25 Jul 2004 22 Aug 2004 19 Sep 2004 17 Oct 2004 14 Nov 2004 12 Dec 2004 09 Jan 2005 06 Feb 2005 06 Mar 2005 03 Apr 2005 01 May 2005 29 May 2005 26 Jun 2005 24 Jul 2005 21 Aug 2005 18 Sep 2005 16 Oct 2005 13 Nov 2005 11 Dec 2005 08 Jan 2006 05 Feb 2006 05 Mar 2006 02 Apr 2006

M&S Asda Tesco Arc.Grp inc. Bhs Matalan Next/Dir Debs 24 Week Ending 10.6 6.4 6.6 8.0 5.9 4.6 2.0

Apr 2003 Nov 2003 Oct 2004 Apr 2005 Nov 2005 Mar 2006 Mar 2004

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

0.8 0.4 0.3

• 0.3 -0.2
• 0.5

0.1 0.4 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

0.1 0.6

• 0.1

1.3 1.7 2.5 2 1.6

• 4
• 3
• 2
• 1

1 2 3 4 %pt Change

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 Value Perceptions

Refocused ranges 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

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…

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 core womenswear

Driving better brand perceptions

Consideration

Apr 06 Apr 05 Aug 05

SOURCE: Footfall, Internal sales

Quality Style Innovation Value Love to Wear Service

Womenswear 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

Q3 Q1 Q2

SOURCE: Footfall, Internal sales

Basket value Basket size

Q4

Food

How has this been delivered…

SOURCE: Internal Analysis, 2004-2006

• 2

2 6 10 14 % on Yr % 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 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 Delivering greater convenience to

• ur customers

Attracting new customers Densities and returns Store openings continue BP trial going well

16-34 35-44 45-54 55-64

65+

16-34 35-44 45-54 55-64 65+ Simply Food M&S Food

Service

Staffing levels Management Career & pay Service training Availability

Focus on conversion as footfall & volumes increase

50 60 70 80 90

J a n u a r y F e b r u a r y M a r c h A p r i l M a y J u n e J u l y A u g u s t S e p t e m b e r O c t

• b

e r N

• v

e m b e r D e c e m b e r

Agree Strongly

The Staff Were Efficient & Knew What They Were Doing

Environment

Encouraging 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-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06

Regular communication maintains improvements in 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 House 35 North Wharf Road London W2 1NW Customer services: 0845 302 1234

Annual General Meeting 2006