Skip Links

Performance overview

by Ian Dyson

PLAN A: UK ECO FACTORY

Since its opening in 2008, our furniture supplier’s first UK eco factory – the 150,000 sq ft Westbridge Furniture factory in Holywell, Wales – has reduced its CO2 emissions by 48%, energy use by 56% and water consumption by 30%. The factory is also on target to send no waste to landfill by 2012. At the same time it produces some of the most stylish pieces in the M&S range.

For more information about Plan A see here or visit plana.marksandspencer.com

Last year we took decisive action to give us the strength and flexibility we needed to navigate the recession. As a result we have emerged in a stronger position and delivered an improved performance, with an adjusted 52 week profit before tax of £632.5m up 4.6% from £604.4m in 2008/09.

Whilst we have tackled the short-term issues caused by the downturn we have remained focused on our long-term strategy. Over the last 12 months, we have continued to invest in M&S, building a platform for future growth through Project 2020.

Underlying cost savings
£145m
Group capital expenditure
£389m
Net debt
£2.1bn

Our performance *

This year our Group sales were up 3.2% to £9.3bn. A combination of improving market conditions and our own efforts helped us achieve an increase in UK sales of 2.9%, with a strong performance in all areas of our business. Despite tough trading conditions, particularly in Republic of Ireland and Greece, our International business delivered a strong performance, with sales up 5.7%.

GM has seen market share growth in both value and volume, with sales up 4.0%. Continued investment in our margins has helped Food return to positive like-for-like sales of +0.3%.

M&S Direct has delivered another good performance, with sales increasing to £413m and remains on track to deliver £500m by 2010/11.

Margins*

Our UK gross margin was 41.2%, down 5 bps. This reflects our continued investment in Food margins to provide our customers with the value they want, without compromising quality. Food gross margin was down 95 bps at 30.6%, with investment in prices and promotions partly offset by better buying and a reduction in food waste. GM margin was up 70 bps at 52.5%, despite the weak sterling performance this year. Over the last 12 months we have worked with our suppliers to manage currency pressures in our supply chain and delivered tighter stock control and management of markdowns.

Cost management*

Total UK operating costs, excluding bonuses, were £2,769m, an increase of 1.0%. Despite the pressure of increased volumes, depreciation and inflation on our cost base, through prudent cost management we delivered savings of 5.3% representing an underlying saving of £145m.

In addition, due to our significant outperformance against our plan we have paid a bonus of £81m to be shared by employees across M&S.

Balance sheet management

Throughout 2009/10 we have remained focused on improving our cash flows. We reduced capital expenditure to £389m, down from £652m in 2008/09 and have a working capital inflow of £78m.

As a result we have generated a net cash inflow of £412m after tax and dividend. Focus on cash flow management has enabled us to further reduce our net debt to £2.1bn, from £2.5bn in 2008/09.

Re-financing

We completed a buy-back of £200m worth of bonds, enabling us to issue a new longer term bond, taking advantage of the favourable conditions in the debt capital market. This has allowed us to strengthen our long-term position by extending the average maturity life of our debt capital.

Defined Benefit Pension Scheme

In May 2010 we and the Trustees of our UK Defined Benefit Pension Scheme agreed a funding plan with a present value of £800m, following the outcome of the Scheme’s triennial actuarial valuation which showed a deficit of £1.3bn at 31 March 2009.

The funding plan includes the following contributions from M&S:

  • cash contributions of £35m per annum for the first three years of the funding plan increasing to £60m per annum until 2018. This has a present day cash value of £376m;
  • £300m of value through the granting of a further interest in the property-backed partnership established between M&S and the Pension Scheme in 2007. This new interest entitles the Pension Scheme to a fixed annual distribution of c. £36m for 15 years commencing in 2017 and a capital sum in 2031 equal to the lower of £350m or any funding deficit in the Pension Scheme at that point in time; and
  • £124m of value through the transfer of assets from existing US$ debt hedge contracts held by M&S.

Dividend

In May 2009 the Board made the difficult decision to rebase the Group’s dividend payment for 2009/10 to 15.0p per share to provide us with greater flexibility during the downturn. This decision resulted in a final dividend of 9.5p per share (last year 9.5p). Having rebuilt cover to two times, our policy is to grow dividends in line with adjusted earnings per share.

Investing for the future

In the midst of a recession, when it was easy to focus only on the short term, we decided to re-examine our long-term strategy and gave it a renewed sense of purpose, resulting in the creation of Project 2020, which has the following aims:

  • increase the pace of change and operational execution
  • accelerate towards becoming a multi-channel retailer
  • drive our International business

The overall objective of the programme is to create long-term sustainable growth in shareholder value. This year we have focused on three priorities - restructuring our supply chain, implementing new IT systems and driving operational execution. There is more detail about our progress in these specific areas in Plan A. These changes will deliver long-term benefits including:

Improving our cost efficiency The implementation of changes in our supply chain and systems requires a capital investment of £1bn by 2015/16. We expect this to deliver cost efficiencies of around £175m per year by 2012/13, rising to £250m per year by 2015/16, made up of £150m savings from our supply chain and £100m from systems. We are on track and this year we have achieved cost savings of £35m.

Driving sales growth Through better cataloguing and product control we will be able to deliver improvements in on-shelf availability. Customers have also started to see tangible benefits, such as better fulfilment in our online ordering.

Provide a platform for future profitable growth Our current systems are outdated and we need a better support infrastructure so that we can grow profitably in both Multi-channel and International. This year we have made substantial progress, including signing the lease on our new dedicated e-commerce warehouse due to open in 2012.

Looking ahead

Though market conditions have improved, we remain cautious about the year ahead. We are confident that the actions we have taken have put the business in good financial shape to weather uncertainty and emerge strongly as the economy improves.

Throughout 2010/11 we will continue our delivery of Project 2020, focused on our goal of creating long-term sustainable growth.

Ian Dyson signature Ian Dyson, Finance & Operations Director

* 52 weeks.