DELIVERED AT PACE Half Year Results 6 November 2019 M&S - PowerPoint PPT Presentation

FAR REACHING CHANGE AT M&S DELIVERED AT PACE Half Year Results 6 November 2019 M&S Clapham

FAR REACHING CHANGE AT M&S DELIVERED AT PACE ARCHIE NORMAN CHAIRMAN M&S Clapham

FAR REACHING CHANGE AT M&S DELIVERED AT PACE STEVE ROWE CHIEF EXECUTIVE

FAR REACHING CHANGE AT M&S FOOD AHEAD OF CLOTHING & HOME STEP THREE MAKING M&S SPECIAL STEP TWO SHAPING STEP ONE THE FUTURE RESTORING THE BASICS 2018 2019 2020 2021 2022

FAR REACHING CHANGE AT M&S TRANSFORMATION PRIORITIES - CLOTHING & HOME IS CRITICAL Restoring Style, Magic Again Fit and Value in Food in Clothing Digital First Rebuilding Profitable Growth Modernised Store Estate Fit in International Supply Chain for the Future Leadership Cost Savings of Accountable and Culture at Least £350m Businesses Transformation

FAR REACHING CHANGE AT M&S BEGINNING TO SEE POTENTIAL OF TRANSFORMATION ▪ Food now growing faster than the Big 5 VOLUME GROWING AHEAD OF RIVALS % growth, 12 weeks to 6 October 2019 ▪ Completed acquisition of 50% of Ocado Retail with plans for M&S supply M&S 4.8 progressing well Co-op 3.0 Total Market* 0.7 ▪ Making up for lost time in clothing after Sainsbury’s 0.2 difficult H1 Tesco -0.9 Asda -1.3 Waitrose -1.4 ▪ Decisive action since summer - A/W Morrisons -3.4 product launches landed well ▪ Cost savings of c.£75m in H1 mean we are now well over halfway to delivering target M&S Hempstead Valley

FAR REACHING CHANGE AT M&S DELIVERED AT PACE HUMPHREY SINGER CHIEF FINANCE OFFICER M&S Hempstead Valley

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS FINANCIALS AT A GLANCE Group revenue Profit before tax Free cash flow & adjusting items before adjusting items £4.9bn £176.5m £91.9m -2.1% -17.1 % -68.8 % Profit before tax Net debt Interim dividend £153.5m £4.13bn 3.9p 51.5% -3.7% -40.0% ROSIE FOR Net debt excluding lease AUTOGRAPH liabilities £1.59bn (-8.1%) Non-Wired Lounge Plunge Bra £22.50 Lounge High Leg Knickers £10

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS FOOD PERFORMANCE REVENUE GROSS MARGIN Q1 Q2 H1 H1 2018/19 31.2% Total 0.8% 1.5% 1.2% Buying margin -20bps LFL 0.4% 1.4% 0.9% Waste Level LFL -1.4% 1.4% 0.0% H1 2019/20 31.0% (excluding Easter)

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS CLOTHING & HOME PERFORMANCE REVENUE GROSS MARGIN 24inch Pre Lit Q1 Q2 H1 H1 2018/19 58.1% Golden Wreath) £28 Total -7.6% -8.0% -7.8% Buying margin -50bps LFL -5.2% -5.7% -5.5% Discounting -50bps UK C&H online 1 0.4% 0.1% 0.2% H1 2019/20 57.1% 1 M&S.com sales excluding Food, marketplaces and localised international websites Disney Frozen 2 Sisters Forever Cotton Pyjama Set (2-10 Years) £13 - £16

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS OPERATING COSTS COST DRIVERS COST BRIDGE H1 £ M -2.0% -6.2% -1.7% 26.8% -8.9% 1,633 Space, volume and -1.3% channel shift (11) 19 2.3% Inflation -4.6% Cost savings (27) (4) 1,579 (31) -2.0% Depreciation 2.2% Other H1 Store Other Distri- Marketing Central H1 staffing store bution & costs -3.3% 18/19 19/20 Year-on-year change costs warehousing New Mezzanine at Castle Donnington

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS INTERNATIONAL PERFORMANCE REVENUE 1 OPERATING PROFIT £ M Q1 Q2 H1 69.0 59.9 Total Owned 4.2% -1.0% 1.6% 39.4 Franchise -0.8% -9.5% -5.7% Franchise 32.3 Revenue 2.1% -5.1% -1.7% 1 Constant currency 29.6 27.6 Owned H1 18/19 H1 19/20

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS PROFIT BRIDGE £ M 4 213 54 13 177 (93) (5) (9) (1) 154 (23) Food Clothing & Home £10m £(77)m Sales £(6)m £(16)m Margin rate NEW Food gross C&H gross UK M&S Bank International Net finance Share of Adjusting Adjusted Adjusted Profit AUTOGRAPH PBT profit profit operating cost associate PBT items before tax H1 18/19 costs H1 19/20 H1 19/20 Wool with Cashmere Zip Through Hoodie £75

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS ADJUSTING ITEMS £m Strategic programmes UK store estate (15.4) Organisation (11.3) Operational transformation (6.5) IT restructure (0.7) UK logistics (0.5) Changes to pay and pensions (1.5) International closures 0.1 M&S Bank charges (10.7) Other 23.5 M&S COLLECTION Total adjusting items (23.0) Textured Coat £49.50

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS CAPITAL EXPENDITURE BEFORE DISPOSALS £ M 122 3 109 19 4 International 15 Supply chain Other* 28 28% Property maintenance 29 42% £122m Growth 23 H1 19/20 UK store remodelling 7 New UK stores 20 16 30% Efficiency IT & M&S.com 35 33 *Investments in essential asset replacement and investments to comply with legal, regulatory or internal policies that are not expected to deliver additional returns. H1 18/19 H1 19/20 M&S Clapham

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS CHANGE IN NET DEBT SINCE START OF YEAR £ M 586 INCREASE RELATES TO: Timing of payables Timing of stock build INCREASE RELATES TO: Timing of statutory tax payments (159) (67) OCADO: (37) Investment in Ocado £(577.6)m Proceeds from rights issue £583.2m LEASE DEBT: (149) 92 Decrease in lease obligations £90m 4 New lease commitments £(56)m (86) (69) 34 (63) (115) (97) (5) Adjusted Cash lease Working DB pension Capex Financial Other Free Cash Adjusting Dividends Other Increase Decrease Increase in AUTOGRAPH EBITDA payment 1 capital funding 2 and Interest and Flow before items in net in lease total net Faux Fur disposals 3 taxation Adjusted financial debt debt items debt Boyfriend Teddy Coat 1 Cash lease payments includes £90m decrease in lease obligations and £69m interest £99 2 Total pension payments during the year amounted to £108.4m 3 Includes cash payments in relation to prior year capital accruals

FAR REACHING CHANGE AT M&S – HALF YEAR RESULTS GUIDANCE 2019/20 Previous Current Food LETTERBOX REINDEER TREE Space contribution (%) c. -1 Level Delivery from 15 Nov 2019 Gross margin change (bps) -25bps to +25bps -25bps to +25bps £27 Clothing & Home Space contribution (%) c.-3 c. -2 Gross margin change (bps) -25bps to +25bps -75bps to -25bps UK operating costs (%) c. 0 to -1 c. -1 to -2 Tax rate (%) c. 23 c. 23 Capital expenditure (£m) 350 to 400 300 to 350 NEW Premium White Flower Letterbox Gift £30

FAR REACHING CHANGE AT M&S DELIVERED AT PACE STEVE ROWE CHIEF EXECUTIVE Instagram ‘M&S Insider’ Charlotte, stylist/visual merchandiser, Biggleswade store, @marksandspencer_charlotte

FAR REACHING CHANGE AT M&S – FOOD FOOD BEGINNING TO SHOW WHAT M&S COULD ACHIEVE WHAT’S HAPPENED STRONG PERFORMANCE IN FRESH % growth 3 months to 28 September 2019 ▪ Strong performance on volume in Q2 – ahead of 0.5 Produce the Big 5 and Co-op 4.4 -0.1 Floral ▪ Grew ahead of the market on spend across 3.7 Food on virtually all of fresh in Q2 -1.0 the move 3.1 Meat, fish -1.4 ▪ Helped by price investment of c.£100m, and poultry 2.4 substantially offset by reducing promotions -0.3 Meals Market -1.9 M&S ▪ Focused on categories that resonate with Source: Kantar families e.g. bread, milk, produce FOOD GROSS PROFIT INCREASING DESPITE PRICE INVESTMENT ▪ Delivered higher gross profit and a higher £m bottom line 881 49 877 28 69 (42) (100) H1 2018 Total price Promo Volume Cost price Lower cost H1 2019 investment saving and mix inflation and waste M&S Mable Arch

FAR REACHING CHANGE AT M&S – FOOD MULTI-YEAR INVESTMENT TO SUSTAIN TRANSFORMATION WHAT’S HAPPENING A SYSTEMATIC APPROACH TO LOWERING COSTS Simplified range, ▪ Target of at least £200m out of COGS by 2023 without proliferation Reduced number Removed “hidden of new lines and costs” for suppliers to offset inflation range churn ▪ Improved partnership agreements with Centralised Increased packaging buying volume per line key suppliers LOWER Better factory fill COSTS ▪ Vangarde programme in all stores Optimised and improved carcass balance supplier efficiency ▪ Expand space for food, especially fresh Streamlined Consolidated raw product material buying specifications ▪ Maximise the benefits of 50% stake in Ocado Retail M&S’S NEW PRODUCT LAUNCHES ▪ Bring M&S's expertise in fresh innovation to ambient where share is only 1.7% Upgraded Christmas Offer Street Market ▪ Restore reputation for new product innovation Plant Kitchen 2500 ‘Our Best Ever’ Halal Offer relevant for the family, including “Plant Lasagne Number of lines launched 2000 Vegetarian Kitchen”, “Cook With” and “Our Best Ever” Friendly Percy Pig Love Sausage 1500 Our Best Ever Upgraded Steak Pie Halloween Offer 1000 Cook With M&S 500 0 Sep ‘18 Jan ‘19 May ‘19 Sep ‘19 Dec ‘19 M&S Clapham