Hi, everybody, welcome to the M&S Annual Results for 2021. Before I come onto the presentation, I just wanted to say a massive thank you to all our colleagues who worked so incredibly hard in a very, very challenging year. Getting up every single morning to commute to work, to keep the business going, and with that, dealing with, we should remember, store closures, space closures, redundancies, dealing with a bow wave of surplus stock. Honestly, it's just been a humbling experience to be part of. I just want to say a massive thank you to all of the people who worked so hard to get M&S to the place it is now. With that, running through the theme of the presentation that you're going to see today is our Never the Same Again strategy. What do we mean by that?
Look, it boils down to the fact that we decided at the outset of the pandemic that the risk of change was far less than the risk of no change. The time has come when decisions we were hovering over or thinking about, or nettles that need to be grasped that had got put off, or something we were thinking of doing in two years time, we just said, "Now is the time. Now is the moment, and we have to move faster and make it happen." MS2, the management rationalization, the brands project launch, the Ocado switchover, the Sparks project, and relaunching Sparks and making it the amazing outcome it is today. That all adds up to the fact that we are emerging as a reshaped business from the pandemic.
Somewhere in the media, somebody said, I think in a slightly cynical way, that Marks & Spencer is a never-ending transformation. I think a bit of that's true. Businesses today constantly have to go through a process of self-disruption. It doesn't end. At M&S, that's even more so. Yes, we did need to change, and yes, it has been said before, but the acid test, is it really happening this time? I think that you will see from this presentation that we are now in a new phase, that the business is emerging from the chrysalis of COVID as a reshaped business.
I think for the first time for three and a half years, we can say there is a lot to feel confident about, and there's enough green shoots and points of light in this presentation to believe that M&S is on the verge of becoming a growing business again. Steve's going to introduce the presentation, Eoin Tonge's going to go through the gory financial detail, and some of it is quite gory, but we're coming out in a good place, and then Steve's going to talk about the future and the strategy. Thank you.
Good morning, and welcome to the M&S full year results presentation. I hope you and your families are well. If you're watching the presentation on Wednesday the May 26th, there'll be a conference call for analysts and investors at 9:30 A.M., and details of this are on the results release. This presentation is split into two parts. Eoin Tonge, our CFO, will take you through the results for the year. I will then talk about how we've used this period of disruption as a catalyst to accelerate the transformation to ensure a reshaped M&S emerges from the crisis. In a year of disruption, our performance was resilient. Despite the heavy impact from COVID restrictions, we delivered an adjusted profit before tax at over GBP 40 million. A strong focus on cash preservation resulted in a healthy reduction in net debt.
Underlying growth in food was strong, and Ocado Retail made a substantial contribution. Clothing & Home and International were impacted by store closures, the collapse in footfall, and shifts in product mix. However, we managed stock effectively, and online growth of over 50% resulted in strong profitability in that channel. Importantly, from the outset of the crisis, we recognized the pandemic would increase the market trends that we were already facing into. As a result, we went faster and further in our transformation through the Never the Same Again program to forge a reshaped M&S. Our food business is strong. It's positioned to deliver underlying growth and progressively recover in hospitality and convenience. In Clothing & Home, a reshaped product engine and improved online capability is gaining traction with customers.
As we will have seen in our results this morning, there are some encouraging early signs with group sales in growth compared to the same period two years ago. Three years ago, I spoke to you about where the business was. I was clear that M&S needed to face facts about the deep-seated issues it failed to address over many years. A complex corporate culture and structure, behind the curve in digital, lacking style and value in Clothing & Home, underperforming in food with a high cost to serve, and a store estate not fit for the future. I set out a three-phase strategy that began with fixing the basics. While there'll always be a list of things to sort out in any trading business, through our Never the Same Again program, we've gone further and faster in our transformation.
You can see this where I am today at our London Stratford store. I spoke to shareholders from here last year at the AGM, and since then it's changed significantly. It's buzzing again with more shoppers, of course. Our food hall has been renewed, showcasing more of our range in an inspiring way. Our new Clothing & Home ranges are looking more contemporary and stylish with a much stronger value message. While our focus on complementary brands is definitely online first, we're trialing some of them here, and as you can see, they look great.
Before Eoin talks about last year's result, this short clip highlights some of the ways we fundamentally changed the business over the past three years.
[Break]
We're moving to our next phase of our transformation. Now is the right time to get us set up for the future growth and reinvest in the brand. I'm pleased today to be joined by Eoin, who's taken on strategy and transformation planning as part of his remit as Chief Financial Officer. Also joining are Katie Bickerstaffe and Stuart Machin, our new Joint Chief Operating Officers. With their support, I'll be better able to concentrate on building the M&S of the future and our path to growth. In addition, Melanie Smith, who is the CEO of Ocado Retail and former Strategy Director at M&S, will be joining us.
Thanks, Steve, and good morning to everyone.
It goes without saying that this has been an unprecedented year. With these results spanning the beginning of the first national lockdown in the U.K. through towards the end of the third national lockdown, the associated impacts are evident in our results. Group sales were down nearly 12%, yet in the face of material headwinds, the group delivered an adjusted profit before tax of GBP 41.6 million. This is compared to the loss we predicted when we set out our original scenario a year ago. There is a lot to unpick in the performance. As you will see in the results release, there were a number of significant movements relating to COVID within the adjusted results, including government support of GBP 306 million. The performance of cash was good, and critically, we reduced debt over the period.
Of course, if we remember, we had once stated worried debt might materially increase. I will now take you through the results in a little more detail. Starting with food. Like-for-like sales were slightly up on the year, but the underlying performance was strong. Our hospitality business was closed for a large part of the year, and our food business is also exposed to travel and office locations with a high dependence on convenience and food on the move, and these were, of course, impacted significantly. Therefore, excluding hospitality and franchise, you'll see we delivered strong underlying growth. In summary, the repurposing of space towards core categories, together with the ongoing transformation of our ranges, helped to offset the loss of convenience trade. It's worth noting that these sales do not benefit from a direct online grocery presence, which for us are reported through Ocado Retail.
You can see that performance excluding hospitality and franchise was largely consistent across the year, including through the lockdowns at over 5% ahead of total like-for-like performance. Operating profit decreased 10% and margin was therefore down on the year. There's a lot to unpick here. Firstly, we saw an adverse gross margin mix impact driven by the lower hospitality and convenience sales. This was partially offset by the benefit of business rate relief. In costs, we had the benefit of more efficient staffing and furlough support, although this was less than the related wages of furlough colleagues. We did also see increased COVID costs such as door hosts and social distancing measures in our supply chain. Finally, we absorbed a number of Brexit headwinds in the fourth quarter. Turning now to the contribution from Ocado Retail.
This has been an exceptional period for grocery online, and Ocado Retail performed strongly. As already reported by Ocado Group, the business benefited from higher than normal basket size and a consistent trading profile across the week. The exceptional item relates to business interruption insurance receipts due to the Andover fire. Overall, Ocado Retail generated a substantial contribution to group results, driven by this top-line growth, as well as excellent CFC and delivery efficiencies and reduced marketing costs. Moving on to Clothing & Home. The overall result for the year was heavily impacted by lockdown and restrictions as you can see from the numbers in the graphic opposite. The business also saw a steep decline in formal and occasion wear, which is partly offset by outperformance in casual clothing, kids, and home.
Similar to food, stores in high streets, shopping centers, and city centers created an extra drag on the sales performance. As you can see, the online business built momentum through the year as we implemented MS2 and were able to capitalize on the change in customer shopping patterns. This was a result of strong traffic, active customer growth, improving frequency, and lower returns, as well as a good service and fulfillment performance. Overall, Clothing & Home had an operating loss of GBP 129 million. At headline view, while online profitability increased to 14%, this was insufficient to offset the decline in store sales. Going into more detail, you will of course see that gross profit was down significantly as a result of the reduced store sales, with the margin rate reflecting an increased mix of clearance sales as we manage stock flow.
As I will outline later, better than expected sell-through of seasonal stock has resulted in a reduced COVID inventory provision at year-end. Operating costs reduced overall, with effective management of staff costs supported by the furlough scheme, which partly covered the cost of furloughed colleagues, good cost control elsewhere, and indeed, the benefits of business rates relief. Higher fulfillment costs online to service growth were partly offset by lower distribution costs to store. Some of these additional costs were also recovered in higher delivery income reported in revenue. Moving on to international. Performance reflected the pandemic impact and lockdowns across markets, partly offset by a strong shift to online sales.
Clothing & Home reflected lower store sales in the Republic of Ireland and a robust performance with partners to manage the effects of the pandemic, partly offset by online sales, which more than doubled, as you'll see in the graphic here. Food sales were more resilient, particularly in the Middle East and Asia, as COVID refocused customer demand to favor eating in. This helped to offset a weaker performance in travel franchise sales in Europe and disruption from Brexit in quarter four. Overall, operating profit was sharply down. Gross profit declined due to lower store sales, only partially mitigated by online growth. Store staffing and other store costs declined as we benefited from government support and rent relief. Distribution costs increased as a result of the growth of online sales and costs incurred as a result of Brexit, offset by lower distribution costs to stores.
Turning to the group profit outturn. As discussed, headwinds in the food business and the decline in the Clothing & Home and international businesses were only partially offset by the strong contribution from Ocado Retail. M&S Bank contribution declined due to a significant decrease in income from credit card and travel money sales as a result of the pandemic. Lower net interest was driven by an increased pension credit. Overall, the group delivered a GBP 41.6 million adjusted profit before tax. Adjusting item charges in the period were GBP 243 million, which I will cover next, and that left a total loss before tax of GBP 201.2 million. Within adjusting items, we have booked a charge for the organizational restructuring announced in August as part of the agenda to reduce costs and change our ways of working.
Store estate charges reflect the accelerated rotation program with a new self-funding principle, which Steve will talk more about. Adjusting items also include the release of the COVID stock provision following better than anticipated sell-through of Clothing & Home stock, as mentioned earlier. Turning to cash flow. You may recall at the start of the year, we had anticipated drawings against our credit facilities of around GBP 300 million-GBP 350 million by the end of the year. In fact, we generated cash in the period and net debt fell. This firstly was a result of better than expected EBITDA, the drivers of which I've already discussed. There are a number of other important points to note. Firstly, we had a strong working capital performance in the period due to an extension in supplier terms in Clothing & Home, strong Easter trading, a reduction in food franchise receivables, and other initiatives.
CapEx levels were much lower in the year as a result of careful management of discretionary spending due to the pandemic. It is worth noting that the cash flow contains both CapEx booked in the year and prior year accruals. Adjusting items largely relate to the organizational restructuring. There are, of course, other ups and downs, but overall, a financial net debt reduction of around GBP 300 million in the period is robust in the context of the trading backdrop. It is worth noting that our lease obligations also reduced. We continue to do a lot of work on our leases, and further color is included as an appendix slide in the pack. As a result of cash generation and preservation, we have more than GBP 1.5 billion of headroom against our facilities at year-end, which puts us in a robust position for the coming year.
Our balance of maturities on our debt is also well spread, and we have already refinanced our December 2021 maturity during the year. Now, turning to the outlook. Since year-end, overall trading has been ahead of the comparable period in 2019/2020 and our central case for the year ahead, with even stronger results in the five weeks since most of our U.K. stores reopened. Whilst we are encouraged by this performance, it is unclear how the recovery will develop, whether consumer activity will sustain in Clothing & Home, and what the eventual pace and shape of recovery in hospitality and convenience in food will be. Therefore, our central case for the current year assumes a gradual return to more normal customer behavior. In this central case, U.K. costs normalize to levels broadly consistent with 2019/2020, underpinned by the benefit of the restructuring.
This will largely offset an increase in base pay rates, costs related to transformation, and higher variable costs such as online fulfillment. We have a strong program of capacity growth at Ocado Retail but expect some normalization with respect to its economics. International continues to face headwinds with ongoing disruption in various markets. The business is also exposed to additional costs following Brexit, largely due to the administrative burden on exports of food, particularly to the island of Ireland. Capital investment for the group will increase to similar levels to 2019/2020 as we invest in the transformation, we start a program of store maintenance and accelerate rotation. Our central case is therefore that we will generate adjusted profit before tax of between GBP 300 million-GBP 350 million. Our ambition is to further reduce debt. As I touched on before, our capital allocation model remains unchanged.
The priority is to invest in the transformation. As we recover balance sheet metrics consistent with investment grade, we will of course assess the reintroduction of dividends. As we focus on restoring profitability, this is unlikely in the current year. Overall, we believe the business is set up well for the medium term. With that, I will now hand you back to Steve, who's going to talk more about the progress on the transformation and our plans looking ahead.
Thank you, Eoin. In this section, I'll be joined by Stuart, Katie, and Mel, who will give you more detail on how we forged the reshaped M&S through our Never the Same Again program. A strong Food business positioned for growth with broader appeal and greater reach. A successful transition to M&S products on Ocado Retail and growing capacity. An omni-channel Clothing & Home business powered by strengthened and reshaped product engine is beginning to emerge and grasping the opportunities seized by the pandemic to accelerate the rotation of the store estate. There are ambitious plans for our international business focused on partnerships and online growth. Firstly, M&S Food. The objective for Food is to protect the magic of the M&S brand by investing in our unique focus on own brand innovation, modernizing the end-to-end supply chain and cost base, and growing through larger, more relevant stores.
Stuart is now going to talk about how M&S Food has been reshaped, and he's over at our Clapham store today, one of the first renewal stores from 2019, which has delivered positive sales growth since then.
Thanks, Steve, and hello everyone. As you know, the M&S Food strategy is about protecting the magic and modernizing the rest. Protecting the magic means developing innovative products of outstanding quality, offering customers something truly unique. We do this at consistent, trusted, great everyday prices that represent exceptional value. Over the past year, we've developed more than 1,900 new lines, of which over 700 were for the launch of our partnership with Ocado. We're broadening our appeal with families by developing areas such as organic and core grocery products, as well as repurposing our popular programs such as Dine In for a family of four. At the same time, we have invested strongly in value with the launch of our Remarksable program, a range of store cupboard staples at everyday low prices. That's M&S great quality at trusted everyday value.
They've helped us drive our value perception to its highest level in almost three years, and now represent around 10% of our total sales volume. We protect the magic of our unique products, we need to modernize how we bring them to customers. We do this through m&s.com, through Ocado, and of course, through our wonderful stores. At the heart of our store strategy is our store renewal program like this store in Clapham. Renewal is not just about store design. Customers love these new formatted stores because they carry a fuller range, more innovative concepts, and a real focus around produce, bakery, and core grocery. By the end of June, we aim to have 23 stores in this new renewal format, but also 40 by the end of the financial year.
To reach new customers, we've also shifted our marketing spend towards more brand building and towards social and social media. In fact, we've increased our social media spend by over 35% in the past 12 months. As we begin to come out of this pandemic, we're also building on our traditional strengths in food on the move, hospitality, and convenience, but we recognize we can only do this if we modernize the rest. Modernize our systems, our processes, and our operations to give us the flexibility and efficiency that we need. That's why we've removed over GBP 180 million from the cost of goods over the past two years, which we've reinvested in value or offset against inflation. We've also delivered more than GBP 20 million of Ocado synergies. Having restructured our store operations last year, we are now focused on driving further efficiency.
Through Project Vangarde, we have modernized our replenishment processes in store and added 3% to sales against our control stores in just the first phase of this rollout. This rollout of Vangarde will be completed by this year. The next stage of efficiencies will be supported by upgrading our systems to drive down waste through much improved forecasting and ordering technology. We've made some great progress in our Food business over the past two and a half years. There is so much more opportunity. We are determined to accelerate our transformation at pace and deliver a bigger, better, and fresher Food business. Steve, back to you.
Thanks, Stuart. Now while an expanded opportunity through our store channel is a core part of the growth story for M&S Food, the acquisition of 50% of Ocado Retail was a transformational step. Through successfully executing the switchover from Waitrose in September of last year, we bought M&S Food online for the first time. Ocado Retail opens up huge new opportunities for M&S by giving us access to the fastest-growing channel of the market, which I believe will see a permanent increase in share of the market as a result of the pandemic. Importantly, this is through a sustainably profitable model supported by the best technology and online distribution. This is evidenced by the resilient operational performance and profitability delivered by the Ocado Retail team over the past year.
M&S regularly represents about half of all fresh sales on Ocado, reflecting the popularity of M&S products and the work led by Stuart and the food team on innovation and development of core categories. Mel Smith is up at Ocado Retail in Hatfield, and she's going to talk about our future plans for growth.
In my previous role as strategy director at M&S, I led the creation of the Ocado Retail joint venture. I absolutely knew that bringing together M&S's incredible food together with Ocado's innovative technology would deliver an unbeatable customer proposition. Ocado Retail has the widest range in the market at almost 40,000 products, double our nearest competitor's, and we have the freshest food with the shortest chain from our suppliers to our customers. Our partnership with M&S and our relationships with unique small suppliers and all the brands our customers love means we have the most differentiated range in the market. Our service is unrivaled. We have a track record of 95% of orders delivered on time, come rain or shine, and 99% of items delivered exactly as ordered pre-pandemic. That's why our customers love us, and we have the best net promoter score in the market.
Our revenue growth of 44% to a market share of 1.7% in the past year is absolutely proof that our partnership was the right decision. Switching to M&S was an incredible undertaking, especially in the midst of a global pandemic, but the switchover was a huge success. M&S sales penetration is over 25%, significantly above pre-switchover levels. The traditional M&S heartland products like ready meals and desserts, as well as outstanding fresh produce, meat, and poultry, have become an absolute mainstay in our customers' baskets. We are rapidly expanding our capacity to reach more customers than ever before. In February, we opened a new automated mini customer fulfillment center at Bristol, the first to go live since our formation. Mini CFCs bring the efficiency benefits of our automated fulfillment model to areas of lower population density.
Our sites at Andover and Purfleet will open later this year, and next year we will open our seven CFC at Bicester. This means we'll be able to serve many more customers. At peak capacity, these four sites will collectively add over 200,000 orders per week, increasing our capacity by around 50%. We also plan to rapidly expand our Zoom immediacy proposition with a minimum of 12 new sites being sought across London and major U.K. cities. These will fulfill more missions and give customers new ways to shop with us. This is just the start of what our incredible partnership will deliver for both our customers and shareholders. We have begun to explore opportunities to further collaboration across new product development, data, and joint sourcing, and we will continue to work closely together to deliver growth for both M&S and Ocado.
Our partnership has brought together the best of food and technology, and I'm looking forward to continuing on our journey to serve more customers and create even more value for our shareholders. I'd like to finish by saying an enormous thank you to all of our colleagues for their dedication and support over the last year feeding the nation. We could not have done it without you. Thank you.
Thanks, Mel. It's been a year of huge upheaval in the Clothing & Home market. However, we've ended the year with a much stronger team led by Richard Price and a reshaped product engine powering an improved online trading platform. We've learned the lessons from operating as a pure play and an omnichannel business is starting to emerge. The Clothing & Home product engine has been reshaped around new trading principles, and by autumn we expect option count to be downward around 25% on three years ago. The ranges are more contemporary, and we believe there's been a marked improvement in style and value perception. In addition, we're beginning to partner with a curated range of guest brands. This helps us build strength in hero categories and relevance where we're weaker.
For the brands, we offer an effective and efficient route to over 20 million customers, and we're already trading with over 20 partners and the customer response has been positive. In addition, we acquired the Jaeger brand in January. Its British heritage and reputation for tailoring and style makes it a good fit for M&S. Having a product engine is, of course, only one part of the story. As you have seen, one of my priorities as part of fixing the basics has been investing in our data and digital capability. We've built out a comprehensive customer data engine, transitioned our web platform to the cloud, and relaunched Sparks as a fully digital proposition through the M&S app. To capitalize on this, at the half year we created MS2, bringing together our online, digital, and data teams to prioritize online growth and capitalize on our omnichannel advantage.
Katie is down in our Cribbs Causeway store to explain our plan for MS2.
Thank you, Steve. I'm here today in my local store to talk to you about how we're going to use our omnichannel advantage to transform and grow online at Marks & Spencer. Over the past year, m&s.com delivered 53% revenue growth in U.K. Clothing & Home. Had over nine million active customers at year-end, a bigger active customer base in the U.K. Clothing & Home business than any other omnichannel retailer. Despite large customer numbers, we're not yet number one in the market, giving us a huge opportunity for growth. Through MS2, we now have the ambition and real opportunity to push our online sales participation to well over 40% of the total Clothing & Home business over the next three years. Our plan for this is made up of three parts.
First and foremost, delivering the best online offer and supporting this with brilliant digital selling and maximizing our omni-channel advantage through our great service. Having the best online offer is all about sourcing the best own label products and complementary brands, which offer brilliant value for money and have strong sustainability credentials, and thinking online first rather than aligning with the way the stores have historically traded. This means more focused ranges in our stores with online options and sizes in some categories. Working with the right third-party brands, creating a halo effect, getting the sourcing model right in scale categories Marks & Spencer is famous for, such as knitwear and lingerie, with test and repeat for seasonal fashion. The relaunch of the Sparks loyalty program and the Marks & Spencer app are at the heart of first-class digital selling.
We have relaunched Sparks, which is free to join, as a digital membership scheme. It now has over 10 million members and has helped us to drive 3.5 million app downloads, putting the Marks & Spencer ecosystem onto your phone. For marksandspencer.com, this creates better traffic efficiency. We know that our app customers are the lowest cost to acquire and have higher annual spend than any other. For our customers, Sparks enables us to personalize the whole Marks & Spencer offer when browsing online or in-store based on our knowledge of their shopping habits over time. We have built new services into the app, such as book and shop in food, allowing customers to skip potential queues during the pandemic, and scan and shop, enabling quick and easy contactless checkout. In-store services such as video-powered retailing allows customers directly to contact colleagues in-store, creating a contactless but full-service customer journey.
As a demonstration, in this store during lockdown, we were doing around 70 digital bra fits a week with a higher average order value than our in-store bra fit. We're already planning more innovation on the app. In the summer, we'll launch Sparks Pay, bringing the ability to pay directly at the checkout using a credit product developed with our partner HSBC. What about service? The last year has taught us that we can do so much more when we harness the power of our stores to drive online fulfillment. We shipped over 10% of orders from store, and this helped us to drive 100% growth in online sales in quarter four alone. We think there is a great opportunity to permanently increase the proportion of orders fulfilled from store stock. Many of our stores can act as micro-fulfillment centers, enabling rapid click and collect for our customers.
Back to you, Steve.
One of the biggest challenges we have had to face into is our legacy estate of full-line stores. While we've already closed or relocated around 60 of these in recent years, the effect of the pandemic means we now need to move faster. The good news is that there has rarely been a better time to acquire new space. We have 17 new or extended full-line stores in planning, including a number of former Debenhams sites over the next two years. Our strategy for rotating the estate has been developed on the basis of stress tests, regional modeling, and efficiency requirements. As a result, we plan to reduce our full-line store base from 255 to around 180 in a selection of prime and core markets. This will be achieved by relocating around 35 full-line stores to new premises and relocating 45 to a food store and closing in 30 markets.
The economic case for rotation is strong. As an illustration, we consolidated two stores in Northampton and Kettering into a modern, spacious store with parking at Rushden Lakes. These were aging stores with heavily declining like-for-like sales and no business case for investment. Not only did the disposal proceeds of one store largely fund the closure cost of the other, but the cash contribution of the new unit generates a very healthy payback on the net capital invested. Even more importantly, the new store was in its second year of like-for-like growth before COVID. As many of you know, our lease structures have historically made us less flexible than we would have ideally liked to be. We believe we can fund the future cash closure costs linked to the rotation program through the disposal of some of our freehold and long leasehold stores for redevelopment.
These opportunities arise where the development value of the land is higher than for its use for pure retail. This includes the Marble Arch proposal that we've already announced, and we are in active discussions on multiple store and retail warehouse opportunities. This gives us confidence of a strong path to funding the costs of rotation of the estate. Overall, we expect to release at least GBP 200 million of funds in this way. Turning now to international. The objective of the international business is to deliver market-relevant products to our partners, great digital service, and to drive online growth through MS2. It's been a challenging year in our international markets. India is still heavily impacted by the pandemic. Brexit has added cost and complexity to our E.U. operations, which we're working hard to mitigate.
As in the U.K., the crisis has in many ways accelerated changes we were already making. We have an ambition to more than double international online retail sales and build on the strong performance of last year. This will be delivered by up-weighting digital marketing, expanding categories further with major marketplaces, and entering new markets such as the 46 countries announced in March. As the business scales, we expect to build local warehouse and fulfillment capacity to drive more rapid customer service at lower costs. For our partners, we've implemented a fully digital showroom, transforming their ability to create curated ranges relevant to their markets. We've also begun to roll out digital stores with innovations similar to the U.K. We're increasing flexibility, efficiency, and speed to market through an export hub at Hemel Hempstead warehouse.
This has been a year like no other for M&S in our 137-year history. The fact we delivered a resilient trading performance is due in no small part to the extraordinary efforts of my colleagues. I want to thank all of them for the contribution they've made. It's also been a year where our transformation accelerated through the Never the Same Again program has moved into the next phase, from fixing the basics to forging a reshaped business. We have the right team in place, and I'm optimistic for the future. Food is strong and is well-positioned to deliver underlying growth and progressively recover in hospitality and convenience. Customers are responding well to M&S Food online and Ocado Retail has exciting growth plans which will benefit the whole group. The reshaped Clothing & Home Products engine is gaining traction with customers.
For MS2, our online capability is growing in the U.K. and in our international markets, we can begin to see an omni-channel Clothing & Home business emerging. Our Sparks loyalty program offers huge potential to develop our relationship with our customers and grow our data engine. We have a clear plan and real opportunity to accelerate the rotation of the store estate. The cost base has been reshaped with an even greater focus on cash, working capital, and returns. It's early days, the trading in the first six weeks of the financial year has been encouraging and ahead of our central case. I'm optimistic for the year ahead as we move on from fixing the basics, accelerate changing the trading businesses, and build a trajectory for future growth. Thank you.
Good morning, everybody. Thanks for joining us. Look, I'm here with Steve Rowe, Eoin Tonge, our Finance Director, Fraser, and the rest of the team. Just to say, we'll take a number of questions now, and we're available through the day to cover other questions. Obviously, the team have got a lot to crack on with. I want to just say at the beginning that this is quite an important announcement for us. Obviously, you'll see within it that we've attempted to cover in some depth the impact of the pandemic, more importantly, to talk about, to give you some idea of the reshaped M&S as it's emerged. We have said now we're moving on from the first phase of our transformation. It's only the first phase.
You might say it's never ending, but actually we think there's a lot of work still to do, but we are through fixing the basics. You've seen in our recent announcements, we're now moving on to, I think, a more aggressive period of change at M&S and growth. With that, we've produced quite a full statement. Pat's not quite as encyclopedic as Simon Wolfson , but we're at the races. I hope you've been able to get through it because there's quite a lot of material, so we're very happy to elaborate on that. The reason for doing that is because we feel that we're a bit of an inflection point, and it's impossible to see that in a sense because everything performance-wise is clouded by the pandemic, and it's very hard to pick out underlying trends. It's quite hard inside the business, let alone outside.
We do feel that we're at an inflection point. We're at a different stage. There's a lot of excitement in the business about the prospects for the year. Although we've produced some indication as to what we expect during the course of the year, we have to recognize that none of us really know, not just because of the pandemic, because a lot of what we've done in the last three years is untested and unproven, and we hope we're going to be pleasantly surprised, but we'll see how it goes. Steve, anything else you want to say before we start?
I think the only other thing I'll say is to point out that since we've reopened, we are pleased with our trading performance. The reshaping work that Stuart Machin had done in food is paying dividends with the customers reacting to the more relevant and family-oriented ranges, more than 2,009 launch, best value credentials we've ever had. In clothing, despite the fact that the business or customers want it totally reshaped from last year, we've seen strong sales in our core areas of lingerie, kids wear, and indeed our casual wear as well. We've got Goodmove, denim, and areas like that. We are pleased with how the stores have reopened.
Yeah. It's very hard to read a game because the business is assorted in both businesses as people are still going back to work. With just a very few weeks, we've seen some encouraging performance. Okay. Let's take a question from somebody. Charlie from Exane. It would be helpful; can you introduce yourself so everybody else knows who you are.
Yeah. Good morning, guys. Charlie Taking my questions. I've got loads. I will, of course, keep it to a limited number, given everybody else wants to ask too. The first question relates to that very helpful guidance with respect to the budget of GBP 300 million-GBP 350 million of adjusted pre-tax profit. You're obviously going to color around the sort of environments you'd anticipate being able to deliver that in. Can you just sketch out a sort of a top-line scenario that would allow you to reach that? Can you talk about some normalization of CapEx to help a bit more detail there? At GBP 325 million, approximately how much do you think you would reduce your net debt by? [inaudible]
They're very good questions, Charlie. Definitely ones to own, I think. I'll give that a go. I think actually the key word actually for this year is, as I'll call it, normalization. The 300-350 assumes a gradual recovery of activity in both our food and our Clothing & Home business. In food, we're assuming a kind of gradual recovery of our hospitality business since we reopened last week and also a slow coming back of our convenience business and including Home. We're not 100% sure exactly how activity is going to recover through the year, the 300-350 model assumes a kind of gradual recovery. We are, as Steve said, a little bit ahead of that, I think we're also just conscious that the first few weeks of this financial year are really unusual.
I mean, reopening after a lockdown and all the pent-up demand, it's not a data point I want to kind of direct people to. The GBP 300-350 also assumes a normalization of our cost base to levels somewhat similar to 2019/2020, and it does assume the business rates relief will be at a lot lower level in this financial year than last financial year. I think they are the kind of primary building blocks. It's helpful to be ahead. On the cash side of things, the two big components I'll talk to you about, again, I'll use the word normalization of CapEx back to 2019/2020 pre-pandemic levels. 2019/2020, just to give you a number, was GBP 329 million. That's kind of the in and around the ballpark we're looking at. We're expecting a sort of flattish working capital position.
If you put all that together, that's really targeting a modest reduction in net debt, but still a reduction.
Great. Thank you.
Yeah. Thanks, Charlie.
Can I ask one more?
Yes, of course.
Just a much shorter question. As you flagged in the results, you've got nine million online customers, which is more than any of your multi-channel peers or rivals, but you don't have the biggest revenue base in the U.K. online. What machine levers do you think you can pull to monetize that better, to sell more to those nine million customers?
Setting up MS2 last year was really the culmination of a huge amount of work to be going on, whether it be the data engine, the transformation of Sparks, the substantial improvements in Donington, which means we can really become a multi-channel, omni-channel business with digital first. We see that over a period of time, 40%, probably 50% ultimately of the business in the U.K. will move online and we are well positioned to take that. What levers do we press? Well, first of all, there is the sheer volume of customers and our customer base continues to grow. Secondly, the data engine and Sparks, we've got more than 20 million customers on that data engine. It's one of the largest customer databases in the U.K.
Within that, we've got real detail with 10.5 million customers now on Sparks, step change in the year by taking the team. We've got 2.5 million app users now live and running, again, step change this year. That personalized detail is really important. Alongside that, the work that we've been doing with Richard and the product engine is key. Absolutely making sure the right products in terms of style, value is fundamental. Then enhancing that, really driving the platform that we've got, the marketplace platform capabilities we've got with now 20 brands and growing is really step-changing how customers think about our online proposition.
Okay. Thanks, Charlie. We're going to come to Simon Bowler, but before we do so, I've got a technical announcement. If you want to ask a question, please press star two. I'm not quite sure I know what that means. Anyway, anybody wants to ask a question, press star two. We'll move to Simon Bowler from Numis.
Yeah. Hi all, thanks. I managed to get to star two, as obviously Charlie did as well. A couple of questions on the store side, if that's okay. Firstly, on the food stores, you've spoken to the way you want to transform 40 of them by the end of the current fiscal year. How broad is that program ultimately going to look and over what sort of timeframe? Secondly, if I've understood correctly, it sounds like 45 of your full line stores are going to convert into food only. Is that correct? I guess why do you think that's an opportunity now because previously it's parking in the type of space we've been spoken about as reasons to not go down that route?
Finally, over what time frame are you expecting to reduce your full line stores down to the 180 that you're now targeting as part of the group fit?
Oh, you want some of these?
Yeah. I mean, why don't I take the last part of those questions just to make sure the numbers are clear. You're right in saying that we will be converting some of those full line stores to food only. If you just take a step back here for a second, what we've done here is a significant amount of modeling as to what we think we need from a Clothing & Home footprint over the next 10 years, actually, is what our modeling has been done over. That's not to say that we will be able to move faster, but our modeling's been done over 10 years, and that's given us an answer as to what we think we need for Clothing & Home space, right? In some of those locations, it means that we don't need a Clothing & Home full line store.
The food offering is very strong. That's why we would actually relocate just to a food only store. That's the explanation. To answer your question is, we've said over 10 years. The modeling's done over 10 years. We are moving quite aggressively. You'll see we're actually talking about opening up 17 new full line stores over the next two years. We're going quite fast to actually really push this relocation. There are restrictions on us because you've got leases, and you've got to make sure you manage it in a sensible financial way. If we see good opportunities to relocate, we will take them. I think your first question was on renewals, was it?
Yeah.
I mean, the 40 there is taking into account the combination of stores we have renewed, we will renew, and also new food stores, which we've used in the renewal format. I mean, we now have a much better data set for us to actually really run against. At the moment, it's very encouraging what we're getting out of the renewal stores, both in terms of sales uplift but also more efficient stores as well.
The renewal format is what we put into the new stores. We're opening today, I only know this because Stuart Machin sent me a video, a new store in Paisley, covered intensely in Scottish flags, which is in the renewal format. Just on the estate, as I said, I think the headline is we've published a model, but obviously it's a function of opportunity. At the moment, we're seeing good opportunities and probably moving ahead of where the model might otherwise say. If it becomes tougher, then obviously that makes it harder to move forward. Where there are good opportunities to relocate, which because the state of the real estate market at the moment is what they are, and we have a different position with landlords.
Yeah
We may be able to move faster in some cases.
Okay. Thanks, Simon. Clive, the great Clive Black.
The very great Archie Norman.
This is going well.
Yeah. Can you hear me?
Yeah, can hear you Clive Black.
Morning. Thanks for taking the question. I'll be original and just ask one question. In terms of Clothing & Home, you've given indications that the reduction in the range over the last few years, and this has been representative of real cultural problems in M&S in not having the courage to buy deep. I just wonder where you see yourself at the moment in terms of range assortment, and perhaps you could give us more color about whether you've become braver.
Look, I think the numbers start to speak themselves. We have over a period of time now cut the range back substantially, even since 2018, the number of lines in womenswear is down by another 25%. As you walk to our stores now, you can physically see it. We are clearer in our layouts and our range construction. Now, by the way, that doesn't mean it's finished. We've got more to do, we need to make sure the range is appropriate for that omni-channel business I talked about earlier. We can see real strides. Again, a look back helps. The way that this affects the business is not only availability and revenue and clarity to customers, of course, in reduce. The level of terminal stock in this business has come down substantially over the last year.
Again, despite the impact of COVID, we are very clear, and this is helped by having a few SKUs. Of course, retailers look at their sales as much as anything else, and the team hasn't had over a long period of time progressively positive sales. We saw that start to change before the outbreak of the pandemic. We talked about really being close to the second quarter womenswear growth, lingerie record market share, growth in kidswear. Last year was a bit of a lost year on that. The work the teams have done over the period gives me confidence that we have reshaped the range, improved the style credentials, lowered prices where it matters, and worked on those deep buys. The increases in the buys of our top lines is substantial. Is that finished?
No, every day the team becomes more confident in what it's doing, and you can feel it. It's tangible in stores at the moment.
Can you give some color, Steve, on examples of the increase in depth? I get the range rationalization, but the commitment to depth.
Yes. We'll get you the exact number. The concentration has been on the top 100 lines in each area, and the buys there are more than 30% higher. I think I walked those with the women's wear team looking at the autumn ranges last week, and they're phenomenal. Again, you can feel the confidence. We've still got open to buy because we've got more flexibility for the ranges as we walk into the autumn season, the work we did on the cash management and the way that we are thinking about buying across the group. We've got an academy into clothing, which has got 11 modules, 1,400 people have been through those already. Again, starts to stand out the way we operate. I think the question is, this has been historically a recurring question Marks & Spencer.
I think the way we think, the way we work, we are starting to embed this for the future.
I think because, guys, this is to do with the common sense culture confidence, it does tend to be an multi-year journey. One of the helpful things about the pandemic is because obviously we're faced with a very different demand pattern. It made reducing option counts sort of imperative. We were to make decisions because we had to make them. What emerged from that was very encouraging for people. You'll see an improvement now. There's a further improvement in the autumn, and that's not the end of the story. I think Richard Price would say quite a lot further to go. It is now for the, not the first time, but it is now there's a streak of confidence going through the buying team.
Very good.
Okay. Thank you, Mike. Shall we go to Xavier and then Richard Chamberlain?
Yes, good morning, everybody.
Xavier.
Thank you for taking the question. Two, if I may. You talked about the costs, the one of costs you had to change the organization, and that's part of the strategy program. Can we get a sense of the cost saving you are expecting mid-term and out turning the overall profitability of the group going forward? The second question is about Ocado and your first experience actually of selling food online. What are you learning from Ocado and what kind of impact we could potentially expect this year in your store from your online experience?
Well, why don't I take the question on cost and maybe Steve you want to take the learnings from Ocado on the First of all, I'll start off with the restructuring that we announced. The big part of the restructuring was what we announced in our U.K. business in August last year. That drives about GBP 115 million of benefit that we will get the full year effect of in this financial year. That's obviously the big component from a people cost perspective. There's still plenty of costs to go after in our overall cost base, particularly in our supply chain in both food and in Clothing & Home. I think you'll start to see more of that through this year and into next year also.
As we continue to rotate the store estate, we hopefully will start to improve, start to see benefits in our property costs as well. I think we said we were going to come back to a similar cost base in this year as in 2019/2020. The moving parts there are the benefit from the restructuring, offset by the fact that we've announced a really quite a big pay increase for our frontline staff to GBP 9.50 and other inflation. Also we are continuing to invest in the transformation. I think our cost base isn't quite right this financial year because on the top line we're still seeing recovery, but we're normalizing back to 2019/2020 levels. I'd like to see and I expect to see that leverage more in the medium term.
In terms of Ocado, the first thing we've got to recognize is the transition that the team made in September was first class. This was probably one of the most complex transitions you've seen for a long time in the retail arena. Our food team did a phenomenal job with the client team, and the movement was swift. The dropout of customers last year was minimal, and I think that's really important because a number of our competitors' customers have picked up M&S products, and what we have delivered is the full range of M&S online for the first time. It should be also recognized that, of course, the sales from Ocado are not shown within our revenues because our brand penetration is moving on quite steadily. Of course, COVID did restrict the number of new customers we could put on there.
You see limited migration from our customers at the moment. The capacity was full. We've already seen us become more than 50% of the cold chain basket. We're ahead of Waitrose in terms of our total penetration for last year, and we see further opportunity with customer development. What we learn, well, look, we can see what's selling in a different way, a much faster way. We can also see customer feedback in a more open way. The ratings and commentary on Ocado, we read and use, and the feedback we do. Of course, we start to continue to gather a more joined up view of the customer. Our customer was spending GBP 3 billion online with other people and only GBP 450 million of that was in Ocado.
This is a tremendous opportunity as we open up the offer across the estate again to develop a omnichannel business. There's muscle in it.
Just on perspective here, as Steve said, the transition to take over the Waitrose supply was a massive piece of work. I would say we're at a very early stage in learning what we can make out of this joint venture.
One of the things that's really very apparent is that the way you trade on food online is different from the way you trade it in the store. That's one of the advantages of having a joint venture, is Ocado can trade in their way as an online pure play backed by M&S and powered by the M&S brand. The way we trade in shops is slightly different. That's, of course, a different model from what Tesco or Sainsbury's or others have, because in a sense, their online representation is in a sense a representation of what they have in the large stores. I think we've got lots and lots to do and lots of running and stuff to iron out still, so it's very early days. Okay, let's take Richard Chamberlain, and then I'd like to come to Geoff Ruddell. Richard.
Thank you. Yeah. Morning, [Kate].
Hello.
A couple from me then, please. Can I ask one on international online sales? How important in % terms are those now, and how do you see the outlook for international online? The second one's on U.K. Clothing & Home online. I see that the average order value fell a little bit last year. Have you started to see, in recent weeks, an average order value moving up again as people are starting to buy into the higher priced items? Thanks a lot.
The average order value is actually a category mix conversation more than anything, Richard. Of course, what we see is less people are tailoring, and therefore average price of garments have come down. We actually sell more individual singles in each order than we previously were. The customer's changing, right? We don't quite know where tailoring is going to go. It's a long-term trajectory into the client to accelerate tailoring. This time two years ago, Archie would have been suited and booted next to me. He's nothing like casual completely.
Sorry, I won't go there because I've got.
What it gives us opportunity is to really push on with our casualwear range as we continue to reshape the work that Jill and Wes have been driving. We are market leading in things like chinos and smart separates. Lots of opportunities still, and we won't get too hung up on where suits end up, but we'll see that when we get people back to work in September.
Well, look, do you want me to take international online? Just give you the numbers. Maybe you can talk about the actual In terms of numbers, it accounted for about 21% of reported sales in international. It was GBP 165 million. It's obviously growing quite strongly. Ireland is doing very well. India, actually, funnily enough, is starting to do well. We've rolled out in marketplaces as well and also expanded into 40, 50 new countries. We've got a hope there. I think it's going to take a good bit of time to drive real scale in online, but there's a lot of things to be very positive about in terms of the momentum there.
Okay. Thanks very much. Okay, now, Geoff, we entitled our presentation Never the Same Again, but our analysts' talks are never going to be the same again because there's a risk that this is your last hurrah. Is that right?
Good morning. I feel there's no more fitting way to finish a career as a sell-side analyst covering the retail sector than Marks & Spencer's freedom. I have timed it round that.
You're entitled to a free hit.
Okay. A couple of questions, please. The first one is, presumably, I would assume there's a lot of modeling behind the plan to move to 180 full line stores. The question on that is, what proportion of the clothing market are you assuming is going to be online long term, to drive that 180 number? The second question is about the 110 stores that are likely to be closed. How many of those are owned freehold, and what implications does that have with the relationship with the pension fund and the Scottish Limited Partnership?
Well, I'll try actually all of those questions. You might ink in a little bit of color. The modeling we assumed, we assumed that we go to 50/50 in terms of store sales and online. That's the kind of underpin assumption. Obviously, that's above and beyond what our requirements will be, sorry what our target is for M&S Food, but it's proven modeling in terms of requirements for your store space. In terms of your second question, I think the best way to think about the element of freehold in the 110 stores is that, or say it another way. We expect to have about GBP 250 million of cash costs from the store rotations that we talked about of the 110.
From that, we expect to generate nearly that amount or largely that amount through the disposal of freeholds, Marble Arch being obviously the big, more notable one that we've announced. We're working on a number of other ones. I'd almost just caveat it like that in terms of actually cash flow, because I don't think there's only a small handful of those 110 that we're going to actually generate significant cash from in terms of freehold realization. In terms of the SLP, I think it's a bit of a balancing act. I won't deny it's a bit of a balancing act. The pension scheme is in good nick. It's very well-funded . It has a path to buy out. It's relatively well de-
De-risk both in terms of capital market risk, but also actually longevity risk. We actually did a number of buy-ins actually in the financial year just gone. Really what we're working with the pension scheme is a solvency cover. The SLP is in place for, in primary, in place for that purpose. It's a balancing act between substituting assets out to generate cash to fund the rotation and having sufficient in there to maintain solvency. At the current property levels, I feel I can do that. Now if property levels go up, that gives me a bit more room to maneuver. At the current property levels, I feel I can maintain that balancing act.
That's great. Thank you very much.
Okay. Well, look, thank you, Geoff. Can I just say that you've been an incredibly well-respected commentator analyst in the marketplace for many years, and you haven't always been entirely complimentary about M&S, but that was probably with very good reason. I wanted to say, I hope you stay in touch and wish you well in whatever you plan to do next.
Thank you.
Thank you.
Thanks, [Jim].
Okay. Thanks, Geoff. Shall we come on to Georgina Johanan from JP Morgan?
Hi.
We'll go to Ian.
Hi, good morning. A few questions from me, please. The first was just around the sort of gradual trend to normalized behavior that you talked about in your central case. You referenced that in hospitality and franchising food. Should we take meaning from that you're expecting a return to normal of food to go and how should we be thinking about that longer term if there's obviously a sort of a longer-term structural shift to more working from home and so on? How would you expect that to play out, and how do you model that, please? My second question is around the brands that you're bringing into the Clothing & Home offer. If you could just explain and provide a little bit of detail so far, what sort of model is that on, please?
Is it mainly wholesale or is it more of a sort of a marketplace basis? Do you actually have the tech in place to offer that on a larger scale on sort of a risk-free basis from a stock perspective, please?
Just on where the, what we say about normalized behavior. Where are we in the pandemic? I think we're mid-pandemic. We're not at the end of this. We're still seeing changes in behavior all the time. We also have the reopening, which has gone well for us. We've got another moment coming, Freedom Day, whatever you want to call it, on June 21st. We're not expecting material changes then, frankly, because we walk through the summer. Then, of course, we've got a September moment when people are largely going back to work, back to school. We still don't know what's going to happen with any of these lockdowns, et cetera. So how long? I don't know. But there are moments coming. We have seen some changes in behavior that we think are permanent. There is a longer-term decline in formal wear, but that's been going on.
It's been accelerated. Of course, there are still lots of special occasions which people want to dress up for. It will move and change in terms of garments. In food, I think we've repositioned the business strongly to take advantage of that. We have a very good concentration in food on the move and on ready meals. We're still strong in those areas. What we're seeing is a movement to more of a core shop, more scratch cooking items, more grocery, more frozen. Since we've reopened, we've not seen slippage in that or any substantial slippage in that, which is good for the long term. Got a speaker in the background. Guys, somebody's got their speaker on in the background.
If you're not speaking, can you turn your mics off, please? Thank you. What we think will happen, is there will be some movement back into those categories over a period of time, probably hospitality first rather than food on the move. Food on the move is really going to be about home work patterns and how that changes. We've got other alternatives from businesses, and we'll see over a period of time how that moves.
The brands.
Brands wise, look, this is really important. We have started a program of adding brands to our platform. It is a platform that's capable of handling more brands. The first of it was Nobody's Child, which is a sustainable fashion brand. We sold out. We then added collaborations with Ghost and Damaris, and they've gone really strongly. We've added now about 20 brands which we think are additive to us, and we've seen new customers because of them. At the moment, I think it's too early to call which ones are the strongest, but we are pleased with the performance. It should also be noted we bought Jaeger, which we think is a very strong brand, perhaps neglected more recently, and is a very good adjacent business for us. Strong British retailing manufacturing credentials, strong tailoring credentials, a lot of heritage.
Whilst the range we've launched online is not a full revamp as it comes to the autumn, the sales have been very strong indeed, and we're looking forward to the team's work coming out in the autumn.
Yeah. Just in terms of structures, I think we're kind of looking at all structures in terms of how we're taking the brands, Georgina. From a tech side perspective, I think we're working on in terms of elements of changing our tech to deal with things like drop ship, et cetera, and so on. I don't think that's a big deal. I think the bigger challenge, which is going to be a big challenge for everyone, is how we manage our supply chain going forward and how we plan for fulfillment for brands as well as our own label business. That's part of our plan.
Thanks for the color. Just to follow up, so I'm clear. At the moment, you're buying these products on a wholesale basis?
Yes.
Yes.
It's important, Georgina, that we've got our house brands.
Yeah.
You've got Per Una. Shouldn't forget about those because they're really very important to us, Autograph, et cetera, Blue Harbour. On top of that, we've got Jaeger, which is early stages, but we're quite excited about. We've got collaborations, and third-party brands, and it's going to be a hybrid structure.
Yeah.
We've gone from zero a year ago to quite an exciting position today. If you like, it's gone from pilots to projects to strategy, and the way the strategy unfolds, to some extent, we're still developing.
Yeah.
Okay. Thank you, Georgina. Shall we take Anne Critchlow from Societe Generale?
Okay. Thanks very much. I've got two questions, please. The first is just a follow-up on Georgina's question. Are you finding that the new customers you're adding, the external brands, are also adding in Marks & Spencer products into their baskets? Just to give an idea of whether you're going to get new incremental business with your own labels. Also just to confirm that the stock risk sits with you in this wholesale model, so you can't return product back to brand, for example. My second question is on Ocado. I think we had GBP 70 million synergies penciled into the medium term. Do you think you can now surpass that? I think you're actually a bit ahead of the curve, aren't you, with GBP 24 million this year. Thank you.
Do you want to do synergies or do you-
Yeah, the synergies, I mean, we're on track. It starts to eventually blend into our overall cost saving initiatives in food. In terms of the numbers that we would have been targeting, we're still on track for this. We obviously delivered that financially just gone GBP 21.4 million. We're looking for another step up into this financial year. I'd go as far to say, yes, we're still on track on the aspects of synergies as we originally planned for them. Do you want to talk?
Yeah. In terms of the current model, where we are doing wholesale, yes, there is agreement about the internal stocks with us.
We do both.
We are doing other models.
Yeah.
As we progress this, we'll choose to go more with different partners, depending on the supply. Some areas we do and some areas we don't.
To bring in-
Sorry. New customers. Basically, we've seen a number of customers that have shopped Marks & Spencer, but not shopped Women's Wear move into, particularly some of our dress range and the casual wear. That's a added basket to M&S. That was about 12% on the first round. We will continue to assess that. About 3% of the customers were totally brand new. That's quite rare for us. You have to remember that we've got just about 30 million adults shopping with us every year. There can't be many more new ones out there. That is interesting because they're shopping not just the brands, but they have also shopped across other areas. It's very early. What we are delighted with is, first of all, the pickup rate, secondly, the hard basket size we're getting, and thirdly, no rejection of that plus M&S.
Great. Thank you.
Okay. Thank you, Katie. Now, time's marching on. We've got about another five minutes or so, but I want to get in a couple more. We'll come back to people later on, obviously, if I have to do that. Shall we, Adam Cochrane from Deutsche Bank, and love to hear from you.
Good morning. Thanks. Yeah, the question on online, in terms of the online fulfillment, how are you thinking about fulfilling from, sort of Clothing & Home, but from stores in the future? How does that fit into your overall strategy? Secondly, do you think that the higher volume that you're seeing online has delivered a step change, a sustainable step change in profitability for the online business? Thanks.
Do you want to go first on profitability? I mean, obviously, everything's been pretty strong, much in our favor in terms of the online profitability in the financial year just gone. You'll have seen that we've closed at a number of 14% on an operating profit margin, which is obviously very, very strong. I just have to caveat a little bit here is that assumes a certain level of allocation of costs from the overall Clothing & Home business. It's very hard to do a like-for-like in terms of a pure play operating profit number. It's still obviously quite strong, and I think we're pretty happy with that. We actually think there's still more to go after in the cost base. Like in that financial year, there were very inefficient ways of fulfilling online that we chose to use because of the pandemic.
Maybe when Steve talks a little bit about the future, he can pick up on that. I should also flag that that actually also had a very favorable low returns rate. What I guess my model at the moment on this same allocated basis is that if you get to a more normal returns rate, we're looking at a sort of early double digits operating profit margin, which is obviously very, very healthy and very, very strong, which we're happy about. In terms of storage and fulfillment.
Yeah. If you check out back to our online profitability and don't you see, it's not very long ago where that facility couldn't do more than 200,000 single day without falling over. We've just gone through a year where we made about 400,000 singles a day, and frankly, they take it in their stride. The entire occasion is, "We fixed this." Is it how we want it to operate? No. Is there more to do in terms of speeding it up and giving customers an even faster service? Yes, there is. We've been supplementing Donington with an in-store pick, which we call BOSS, Bought Online Ship from Store. Frankly, that wasn't optimized in the early part of the year.
We've been an awful lot of work on this. What we now see clearly is a way to ship more from store at a much lower cost and a much faster service. Now, we will start to work on how we bring that into Donington to increase capacity in a cost-effective way. This is the work that Katie and the team at MS2 are really driving on now. How we actually maximize, optimize the fact M&S is a truly omnichannel business. It's an advantage that we have over many pure plays, and we've got to take that, really, and start to use it as a real advantage in terms of customer proposition.
Adam, at a high level, our concept here is people say omnichannel because apparently that's a better idea than multichannel. What we really mean is that customers should be able to come to us and shop whichever way suits them. You can order and have it delivered to home tomorrow. You can order and have it delivered home at a specific time in a few days' time. You can order and have it delivered to a store near you to pick up. You can order from the store and have it delivered to home, potentially. We don't know, but we could see that. Maybe you could order this morning to have a pair of socks delivered this afternoon. Maybe you could order and go in in half an hour and pick it up from the store. We don't know.
Our concept is that you should be able to shop multiple different ways. Some customers will want the Clothing & Home equivalent of rapid. Some want a specific time. We can see as a result of the pandemic partly, and the work we've done, ways of automating and increasing the efficiency of all these routes to fulfillment. That's what should ultimately give us an advantage over, in that sense, over a pure play and some of our competition who don't have the store presence. Okay. Now, we've got slightly video problems. We still have a number of questions outstanding, and we're running out of time. I just wanted Tony, for old time's sake, no session like this would be complete without Tony Shiret. Tony-
Tony
Fire away.
Thank you, Archie. Just to let you know, I'm not bottling out like Mr. Ruddell. Keep going.
Assuming you'll get going forever.
Well, until.
Carry on.
Yeah, sure. Well, we'll try and match each other really, Archie. Yeah, two questions. First of all, Eoin, can you tell us what we should be forecasting for the adjusting items this year? Sorry, I know that's a bit of an old question, but let's have a new answer. In addition to the property stuff, you've talked about making some cost cuts, which presumably are going to have some upfront costs, and maybe there'll be some offsetting property profits. Leading on from that, the sale and leaseback negotiations re Marble Arch. What do they tell you about the carrying value of Marble Arch and maybe other properties within the portfolio? The last question is, where do you see the marketing cost ratio sort of settling in Clothing & Home as you move more to online?
I note your comments about paid search and all that sort of stuff. That's it.
Right. Good questions. Mostly for Eoin, I think.
Yeah. I'll take the adjusting items. I think obviously as it stands today, I think the places where I'd still expect some types of adjusting items would be a little bit in our store estate as we roll forward another year. I expect that, albeit at a much lower level. There is a little bit of restructuring still to be done. The other place is Clothing & Home. Sorry, is our supply chain, which we've got still some work we're doing on supply chain around moving to the single-tier network, which we're completing through this year. I think from a cash perspective, maybe it might be easier to look at it from that perspective. You've got the restructuring in the Republic of Ireland, which we announced in the 53rd week in P&L in the financial year just gone.
That hits the cash flow about GBP 15 million off. We've got about GBP 13 million of the store rotation, which hits that. We've got about GBP 20 million in supply chain. That's way to think about cash flow as you stand today. I'll always be careful a little bit about adjusting items because you don't know what you don't know in some cases, but I feel we're going to a more normalized basis on adjusting items, reflecting change that a normal business would have. I would flag one aspect, which we flagged in the statement, is that there's a lot of work going on in terms of our European business post-Brexit, particularly in the island of Ireland and France. It's too early days to talk about restructuring items coming out of that. I do flag that some may come from that.
Second question on was what have we learned from Marble Arch. I think we learned that assets in prime locations have got good development value. I'm not sure we've learned much else other than that. We're still quite excited about what we think we can generate in terms of cash from that. We don't have a load of Marble Arches, so just to be clear, right. In certain other prime locations, I think there is some still decent value to generate in terms of development. The third question?
Marketing costs.
Marketing costs. I think what you're seeing in the trend of marketing costs actually is a move from traditional marketing costs to more PPC and more digital-driven marketing. I think you're going to continue to see that trend through this financial year. We're actually quite happy with the effectiveness of our PPC. I think one of the things we haven't spoken about it very much is we really changed our approach, in terms of how we're targeting customers and targeting awareness. That bore a great response in the second half of last financial year. Our online business was up 160% in fourth quarter now. That's a combination of us really driving it quite hard and much more efficient marketing.
I'll tell you one of the things you haven't mentioned, we're actually working really well with Google, particularly on how to optimize our online search. We've taken some of the shackles off the team. Traditionally, you've got a budget behind this, and once you spend it, you spend it. Online search, you can really just set return on spend targets and allow them to play until they almost get the edges of those targets, and we've been a lot more free with that, and that's paid dividends in terms of how we think. I think the other thing to mention is that don't underestimate the power of this data engine. 20 million customers. We now have detail across five channels. We have detail on more than 1,500 attributes, and this will start to change our relationship.
It'll make a much more personal relationship in the true sense of the word than we've ever had. If you think about it, when you compare this to other schemes, you really are talking about one of the biggest loyalty schemes now in the U.K., but with more granular detail than I think many have against more categories. We will start to really deploy that again through MS2 to drive the business where we think it's good. Not just for us, but for the customer, and that's a really different way of doing it.
Okay. Thank you, Tony.
Sorry, Archie, could I just ask, is the marketing cost going to go up or down as a percentage of Clothing & Home sales?
I think I said-
Marginally down.
Marginally down. Marginally down through that efficiency.
Shifting away from above-the-line big-ticket items to a different shape.
Yeah.
Much more than maybe pushing a paid search, which again. The whole thing about 50% of marketing money is good, but you just don't know which 50% it is. With paid search, you know exactly what you get in return.
Some of this is evolving. We wouldn't want to be too definitive about it.
Yeah.
Do the same slide.
Yeah.
Okay. Thank you, everybody. I'm going to call a halt there because the team have to get on to another presentation in a moment. It's not that we wouldn't like to go on for the rest of the day, but we simply can't. Apologies to those we haven't got to. Fraser's here. He's made a note of all your names, and we'll make sure we get back to you during the day. Apologies we didn't get around to everybody but really appreciate your questions. Thank you for joining us today and look forward to talking to you all soon. Okay. Thank you.
Thanks very much.
Thank you.