Hi everybody and welcome to the M and S Annual Results for 2021. Before I come on to 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. They were 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. And honestly, it's just been a humbling experience to be part of.
So I just want to say a massive thank you to all of the people who worked so hard to get M and S to the place it is now. With that, running through the seam of the presentation that you're going to see today is our never the same again strategy. So 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. So the time has come when if the decisions we We're hovering over or thinking about or nettles that need to be grasped that have got put off or something we are thinking of doing in 2 years' time.
We just said now is the time, now is the moment, and we have to move faster and make it happen. So MS2, the management rationalization, the brand 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 reshape business from the pandemic. You know somewhere in the media somebody said I think in a slightly cynical way that Marks and Spencer is sort of never ending transformation. And I think if that's true businesses today constantly have to go through a process of self It doesn't end and at M and S that's even more so.
And yes, we did need to change and yes, it has been said before. But the acid test is it really happening this time and 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 ReShape business. And I think for the first Time for 3.5 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 and S is on the verge of becoming a growing business again. Now Steve is going to introduce the presentation, Owen is 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 is going to talk about the future and the strategy.
Thank you. Good morning, and welcome to the M and S full year results presentation. Firstly, I hope you and your families are well. If you're watching the presentation on Wednesday, 26 May, 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 2 parts. First, Owen Tonjes, 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 and 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 of over £40,000,000 In addition, 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 and Home and International were impacted by store closures, The collapsing 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 we're already facing into. And as a result, we went faster and further in our transformation through the Never the Same Again program to forge a reshaped M and S.
Our Food business is strong. It's positioned to deliver underlying growth and progressively recover in hospitality and convenience. In Clothing and Home, a reshaped product engine and improved online capability is gaining traction with customers. And 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 2 years ago. 3 years ago, I spoke to you about where the business was.
I was clear that M and 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 and home, underperforming in food with a high cost to serve and a store estate not fit for the future. I set out a 3 phase strategy that began with fixing the basics. And 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 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 Fuhule has been renewed, showcasing more of our range in an inspiring way. Our new clothing and home ranges are looking more contemporary and stylish With a much stronger value message and 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 Owen talks about last year's results, this short clip highlights some of the ways we fundamentally changed the business over the past 3 years.
We're moving to our next phase of our transformation and now is the right time to get us set up for the future growth and reinvest in the brand. So I'm pleased today to be joined by Eoin, He's taken on strategy and transformation planning as part of his remit as Chief Financial Officer. Also joining are Katie Bickerstaff Stuart Machen, our new Joint Chief Operating Officers, and with their support, are we better able to concentrate on building the M and S of the future and our path to growth? In addition, Mel Smith, who is the CEO of Ocado Retail and former Strategy Director of M and 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 1st national lockdown in the UK Through towards the end of the 3rd national lockdown and 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 CHF41.6 million and 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.
And 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 CHF 306,000,000 The performance on cash was good and critically we reduced debt over the period. And 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 in 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 rates relief. In costs, we had the benefit of more efficient staffing and furlough support, although this was less than the related wages of furloughed colleagues. We did also see increased COVID costs such as door hosts and social distancing measures in our supply chain.
And finally, we absorbed a number of Brexit headwinds in the Q4. 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 and 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 CHF 129,000,000 At a 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 furlough 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 and 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 4. 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 at home and international businesses were only partially offset by the strong contribution from Mercado Retail. M and 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. And overall, the group delivered a CHF41,600,000 adjusted profit before tax. Adjusting item charges in the period were CHF 243,000,000 which I will cover next. And that left a total loss before tax of €201,200,000 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 and 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 of around €300,000,000 to €350,000,000 by the end of the year. But 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 have 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 at 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 €300,000,000 in the period is robust in the context of 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 CHF 1,500,000,000 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 5 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 a 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, UK costs normalized to levels broadly consistent with 20 nineteentwenty twenty 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 20 nineteentwenty twenty 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 €300,000,000 to €350,000,000 And 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.
Although 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. And 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, Owen. Now 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 and 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 and S products on Ocado Retail And growing capacity, an omni channel clothing and home business powered by strengthened and reshaped product engine is beginning to emerge And grasping the opportunities ceded 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 and S Food.
Now the objective for food is to protect the magic of the M and 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 and 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 and 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. And we do this at consistent, trusted, great everyday prices that represent exceptional value. Over the past year, we've developed more than 1900 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 4. At the same time, we have invested strongly in value with the launch of our remarkable program, A range of store covered staples at everyday low prices that M and S great quality at trusted everyday value. They have helped us drive our value perception to its highest level in almost 3 years and now represent around 10% Of our total sales volume, whilst we protect the magic of our unique products, we need to modernize how we bring them to customers. We do this through mands.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.
But 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 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 £180,000,000 from the cost of goods over the past 2 years, which we've reinvested in value or offset against inflation. We've also delivered more than £20,000,000 Avocado Synergies. Having restructured our store operations last year, we are now focused on driving further efficiency. Through Project Vanguard, 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 Vanguard 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 2.5 years, but 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 and S Food, The acquisition of 50% of Ocado Retail was a transformational step. And through successfully executing the switchover from Waitrose in September of last year, We bought M and S food online for the first time. Ocado Retail opens up huge new opportunities for M and 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 and S regularly represents about half of all fresh sales on Ocado, reflecting the popularity of M and 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 and 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 competitors. And we have the freshest food with the shortest chain from our suppliers to our customers. Our partnership with M and 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 percent to a market share of 1.7% in the past year It's absolutely proof that our partnership was the right decision. Switching to M and S was an incredible undertaking, especially in the midst of a global pandemic.
But the switchover was a huge success. M and S sales penetration is over 25%, significantly above pre switchover levels. The traditional M and 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.
Many CFCs bring the efficiency benefits of our automated fulfillment model to areas of lower population density. Our sites at Andover and Perth Fleet will open later this year and next year we will open our 7th CFC at Vista. 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 UK 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 for further collaboration Across new product development, data and joint sorting. And we will continue to work closely together to deliver growth for both M and 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 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 and home market. However, we've ended the year 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 and Home product engine has been reshaped around new trading And by autumn, we expect option count to be down by at around 25% on 3 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 20,000,000 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 and S.
Having a product engine is, of course, only one part of the story. As you've 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 Spark as a fully digital proposition through the M and 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 and Spencer. Over the past year, mands.com delivered 53 revenue growth in UK Clothing and Home and had over 9,000,000 active customers at year end, a bigger active customer base In the UK Clothing and Home business than any other omnichannel retailer. Despite large customer numbers, we're not yet number 1 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 and home business over the next 3 years.
Our plan for this is made up of 3 parts: 1st and foremost, delivering the best online offer and supporting this With brilliant digital selling and maximizing our omnichannel 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 and 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 and Spencer app are at the heart of 1st class digital selling. We have relaunched Spark, which is free to join as a digital membership scheme. It now has over 10,000,000 members And has helped us to drive 3,500,000 app downloads, putting the Marks and Spencer's 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, Spark's enables us to personalize the whole Marks And Spencer's 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 an illustration, 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. So what about service? The last year has taught us that we can do so much 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 4 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 effects 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 Debenham sites over the next 2 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 2 stores in North and Kettering into a modern spacious store with parking at Rushton 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 1 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 2nd year of like for like growth before COVID. As many of you know, our lease structures have historically made us less 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 This gives us confidence of a strong path to funding the costs rotation of the estate.
And overall, we expect to release at least €200,000,000 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 and Brexit has added cost and complexity to our EU operations, which we're working hard to mitigate.
However, as in the UK, the crisis has in many ways accelerated changes we're 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 to 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 and 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 innovation similar to the UK, and we're increasing flexibility, Efficiency and speed to market through an export hub at Hemmel Hempstead Warehouse. This has been a year like no other for M and 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 the year where our transformation accelerated through the Never the Same Again program has moved into the next phase from fixing the basics So 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 recovering hospitality and convenience. Customers are responding well to M and S Food Online Ocado Retail has exciting growth plans, which will benefit the whole group. The ReShape clothing and home products engine is gaining traction with customers. Through MS2, our online capability is growing in the U. K.
And in our international markets, so we can begin to see an omnichannel clothing and home business emerging. Our Spark's 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, but the trading in the 1st 6 weeks of the financial year has been encouraging and ahead of our central case.
I'm optimistic from 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, Owen Tom, our Finance Director, Fraser and the rest of the team. And just to say, we'll take a number of questions now. We're available through the day to cover other questions.
Obviously, the team has got a lot to crack on. I want to just say at the beginning that this is quite an important announcement for us. Obviously, you'll see within it We've attempted to cover in some depth the impact of the pandemic, but more importantly to talk about to give you some idea of the reshaped M and S As it is, Majd. 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 a lot of work still to but we are through fixing the basics. And You've seen in our recent announcements, we're now moving on to I think a more aggressive period of change with M and S and growth. With that, we've produced quite a fulsome statement, perhaps not quite as encyclopedic as Simon Wilson, but we're at the races. And I hope you've been able to get through it, but there's quite a lot of material. So we're very happy to elaborate on that.
But the reason for doing that is because we feel 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 We've outlined trends. It's quite hard inside the business, less than outside. But we do feel where is an inflection point where you just have to say, there's So a lot of excitement in the business about the prospects for the year. And although we produced some indication as to what we During the course of the year, we had to recognize that none of us really know, not just for the pandemic, because a lot of what we've done in the last 3 years is sort of untested and unbroken and we hope we're going to be pleasantly surprised, but we'll see how it goes.
So Steve, anything else you want to add before we start? No, I think the only other thing I'll just use is to point out that since we've reopened, We are pleased with our trading performance. The reshaping work that Stuart has done in food is paying dividends with customers reacting to The more relevant and family oriented ranges more than 2,000 lines launched, best value credentials we've ever had. And in closing, despite the fact that the business well, customers weren't totally reshaped from last year, we're seeing strong sales in our core as lingerie, kidswear And indeed our casual areas where we've got good shape, Dan, and everything like that. And we are pleased with how the stores have reopened.
Yes.
It's very hard to read again because the vastness is sorted in both businesses. Steve has still gone back to work. But we've No, just a very few weeks, we've seen some encouraging performance. Okay, let's take the Take a question from somebody. Charlie from Exane.
Well, it'd be helpful. Can you introduce yourself so everybody else knows who you are? And then
Yeah. Good morning, guys. It's Charlie Muir Sands from Exane BNP Paribas. Thank you very much for taking my questions. I've got loads, but I will, of course, Keep it a limited number given somebody else wants to ask 2.
The first question relates to that very helpful guidance with respect To the budget of €300,000,000 to €350,000,000 of adjusted pretax profit, Can you just you've obviously given a color around the sort of environments you'd anticipate being able to deliver that in, but can you just Sketch out a sort of a top line scenario that would allow you to reach that. And you talk about some normalization of CapEx So you need to help a bit more detail there and at GBP 325,000,000 approximately how much do you think you would reduce your net debt by? Thank
you. Very good question, Charlie. Definitely one star in, I think.
I'll give that a go. I think actually the key word actually for this year is as I'll call normalization. So The trend of the 350 assumes a gradual recovery of activity in both our food our Chelsea and Home business. So in food, we're assuming a kind of a gradual recovery of our
hospitality business since we
reopened last week and also Slow coming back of our convenience business. And in Clothing and Home, we all have to we're not 100% sure exactly how activity is going to Recover through the year, but our the 300 to 350 assumption assume model assumes a kind of gradual We are, as Steve said, a little bit ahead of that. But I think we're also just conscious that the 1st few weeks of this financial year are really Unusual. I mean reopening after a lockdown and all the pent up demand is not a data point I want to kind of direct people 2. It also the 300,000,000 to 350,000,000 also assumes a normalization of our cost base to levels Somewhat similar to 2019 2020.
And it does assume the business rates will be at a lot lower level In the financial year, the last financial year. So I think that they are the kind of Primary building blocks. It's helpful to be ahead. On a cash side of things, the Two big components I'll say I'll talk to you about is again, I'll use the word normalization of CapEx back to 2019 2020 pre pandemic levels. 2019-twenty 20 just to give you a number of €329,000,000 So that's kind of the in and around the ballpark we're looking at.
We're expecting a sort of flattish working capital position. And if you put all that together, that's really targeting a modest Reduction in net debt, but still a modest still a reduction.
Okay. Great. Thank you. Yes. Thanks, John.
Can I ask one
more? Yes, of course.
This is a much shorter question.
As you flagged in the
results, you've got 9,000,000 online customers, which is more than any of your multi channel peers or rivals. You don't have the biggest revenue base in the UK online. What are the key levers you think you can pull to monetize that better, to sell more to those 9,000,000 customers?
So I'll turn it to us. The first thing is setting up MS2 last year was really the culmination of a A huge amount of work has been going on, whether it be the data ranging, the transformation of Spark's, there are substantial improvements in Donington, which means we can Really become a multichannel omnichannel business, you're right, with digital first. And we see that over a period of time 40% probably 50% ultimately of the business in the UK will move online and we are well positioned to take that. What leaders will be present? First of all, there is a share of volume with customers our customer base continues to grow.
Secondly, the data engine at Spark's, we have more than 20,000,000 customers on that data It's one of the largest customer databases in the UK. And within that, we've got real detail with 10,500,000 customers now on stock, Step change in the year by Katie and the team. We've got 2,500,000 app users now live and running again, step change this year. And that personalized detail is really important. Alongside that, the work that we've been doing with Richard, the product team is chief, Absolutely making sure the right product in terms of style value is fundamental.
And then enhancing that Really driving the platform that we've got, the marketplace platform capabilities we've got, we're now 20 brands and growing. It is really step changing. Our customers think about our online proposition.
Okay. Thanks, Charlie. We're going to come to Simon Polo. But before we do so, I've got technical announcement. It says here that
If you want to ask
a question, please press star 2. I'm not quite sure I know what that means. Anyway, anybody wants one question, press Star 2. We'll move to Simon Boga from Numis.
Yes. Hi, all thanks. Simon, it's a guest for Star 2, As I think Charlie did as well. A couple of questions on the store side, if that's okay. Firstly, on the food stores, you've kind of spoken that they're wanting 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 time frame? Secondly, if I've understood correct, sounds like 45 of your full line stores are going to convert into food only. Is that correct? And I guess why do you think about the opportunity now because previously parking in the type of space have been spoken about reasons to not go down that route? And then finally, over what time frame are
you expecting to reduce your
full line store rates to the 180 that you're now targeting? Okay. Do
you want to come back? Yes. I mean, why don't
I take the last part of this last part of those questions just to make sure the numbers are kind of clear. The so you're right in saying that we will be converting to 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 at 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 we will be able to move faster, but Our modeling has been done over 10 years. And that's given us an answer as to what we think we need for clothing and home space, right?
So in some of those locations, It means that we don't need a clothing at home full line store. But the food offering is very, very strong. So that's why we would actually relocate just to a food only store. So that's the explanation. And to answer your question is, we've said over 10 years, the modeling has 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 2 years. So we are going to be taking we're going to be making it 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. But the If we see good opportunity to relocate, we will take them.
I think your first question was on renewals. So I mean the $40,000,000 there is taking into kind of the combination of stores we have renewed, We will renew and also new food stores, which we've used in the renewal format. So I mean, we now have a much better data set For us to actually really run against. And 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.
So the renewal format is what we put into new. So we're opening today. Yes. I don't know this because Stuart Mason sent me
a video.
Our new store in Payser covered in Santelane Scottish flag. So which is in the renewal format. But yes, on the estate, as I said, I think the headline is We've published a model, which obviously is a function of opportunity. So at the moment, we're seeing good opportunities and probably moving ahead of The model might otherwise say, if it becomes tougher then yes, to see that makes it harder to move forward. But Well, there are good opportunities to relocate, which because the state of the real estate market at the moment that we are and we have a different position with landlords.
Yes, we may be able to move faster in some cases. Okay, thanks Simon. Clive, the great Clive Black.
That's a very great Archie Norman.
This is going well. Yeah. Can you hear me?
Yes. I'm here, Doctor. Black.
Good morning. Thanks for taking the question. I'll be original and just ask one question. In terms of clothing and home, you've given indications the reduction in the range over the last few years. And this has been representative of real cultural problems in M and S and 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 don't speak themselves. We have over a period of time now cut the range back substantially. And even since 2018, the number of lines in Moody's Way has gone down by another 25%. As you walk to our stores now, you can physically see it. We are cleaner, 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 omnichannel business I talked about earlier. But we can see real strides. And again, look, that helps.
The way that this affects the business is not only in availability and revenue and clarity of the customer, but of course, it reduced. And the level of terminal stock in this business have come down substantially over the last year. And again, despite the impact of COVID, We are very clear, and this is helpful having a few excuse. Of course, retailers look at the sales as much as anything else. And so you haven't had a long period of time.
Progressively positive sales, we saw that start to change before the outbreak of the pandemic. Maybe we talked about really being first or second quarter women's wear growth, lingerie record market share, growth in kids wear. Last year is a bit of a loss here on that. But the work the teams have done over the period gives me confidence that we have reshaped the range, improved the style credentials, Lower prices where it matters and works on those deep buys. And the increases In the buys of our top lines is substantive.
Is that finished? No, but every day the team becomes more confident in what it's doing. And you can feel it. It's tangible in specifically.
Can you give some color, Steve, on the debt On the examples of the increase in debt, I guess the range rationalization, but the commitment to debt.
Yes. We'll get the exact number, but the concentration is being on the top 100 lines in each area, And the buyers there are more than 30% up. I mean, I've walked those with the women to our team, look at the autumn ranges last week, and they're phenomenal. And again, you can feel the confidence. We still are open to buy because we've got more flexibility into the ranges.
As we walk into the autumn season, the work we did on the Management and the way that we are thinking about buying across the group, we've put an academy into clothing, which has got 11 modules, 1400 we'll be through those already. Again, it starts to stand out the way we operate. I think the question is this has been historically a recurring question, you may not answer, Spencer. I think the way we think about the work we are starting to embed this in
the future. I think because Clive has to do with the, to some extent, cultural competence. It does tend to be a multiyear journey. So but one of the healthy things out of the pandemic is because obviously we're faced with a very different demand pattern. It made reducing the option counts of inherited.
So we were able to make decisions that we had in April. And what emerged from that was very encouraging for people. So you'll see an improvement now. There's further improvement in the autumn and that's not the end of I think Richard Price would say quite a lot further to go. But it is now for the not the first time, but It is now a street of confidence going through the buying teams.
Very good. Okay. Thank you, Jack. Should we go to Xavier and then Richard Chambien?
Yes, good morning. It's Ulrich. Thank you for taking the question. 2 if I may. You talked about the costs, the one off cost you had to change the organization and that's part
of the strategy program. So Can we get
a sense of the cost savings you're expecting midterms and how it's helping 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 Newcastle? And what kind of impact could potentially expect to see a new store From the new on Alex Perjian?
Well, why don't I take the question on costs and maybe Steve, you want to take the learnings from Ocala on this. So first of all, I'll start off with the restructuring that we announced. So the big part of the restructuring was what we announced in our U. K. Business in August last year.
That drives about £115,000,000 of benefit that we will get the full year effect of in this financial year. So 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 and home. And I think you'll start to see more of that Through this year and into next year also. And as we continue to rotate the store estate, we hope you will start to improve start to See benefits in our property costs as well.
So I think the we said we were going to come back to a similar cost base In this year as of 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 £950,000,000 and other inflation. And also we are continuing to invest in the transformation. So I think our cost base isn't quite right this financial year because On the top line, we're still seeing recovery. So we're normalizing back to 2019 2020 levels. But I'd like to see and I expect to see that leverage more in the medium term.
So in terms of Riccardo, the thing we've got to recognize is the transition that the team made in September was first asked. This was probably one of the most complex transitions you've seen for a long time in the retail arena. And our food team, Les Bonsai, did a phenomenal job with the Clarity. And the movement was Sweet. 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 and S products. And what we have delivered is the full range of M and S online for the first time. It should be also recognized that, of course, the sales of Ocado I'm not showing within our revenue. Our brand penetration is moving on quite steadily. Of course, COVID did restrict the number of new customers we could put on there.
So we see limited migration from our customers at the moment. The capacity was full. But 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 Proteller. What we learned, well, 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 Carlo, we read and use and we're pretty glad we do. And of course, we start to continue to gather a more joined up leader customer. Our customer was spending €3,000,000,000 online with other people. Only €450,000,000 of that was in Ghana. And this is a tremendous opportunity as we open up the offer across the states, again, to develop an omnichannel business.
So there's much to do.
So it's actually left on perspective here. As Steve said, the transition to take over the Waitrose supply was a massive piece of work. So I would say we're at a very early stage in learning what we can make out of the joint venture. And 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 and S and powered by the M and S brand.
And the way we trade in shops is slightly different. That's, of course, a different model from what Tesco or Saint Chris or others have because in a sense Their online representation is in a sense a representation of what they have in the large stores. But I think we've got lots and lots to do and lots Running and stuff to iron out still, so it's very early days. Okay, let's take Richard Thanks, Lynn. And then I'd like to come to Jeff Ruddle.
Richard?
Thank you. Good morning, Chas. A couple for me then please. Can I ask one on international online sales? How important in percentage terms are those now and how do you see the outlook for international online?
The second one is on UK clothing and home online. I see that the average order value fell a little bit last year. Have you started to see In recent weeks of average order value moving up again as people are starting to buy into the higher priced items?
Thanks a lot. So the average order value
is actually a category mix conversation more than 80, Richard. Of course, what
we see is less than
a total tailoring And therefore, that means price of guidance has come down. We're actually selling more individual singles in each order we previously were. And look, the customer is changing, right? I mean, we don't quite know where tailoring is going to go. It's a long term trajectory It declines to be accelerated.
This time 2 years ago Archie would have been suited and booted next to me. He's looking quite casual for that. To really push on with our cash flow range, we continue to reshape the work that Chile and Wes will be driving. And we are market leading things like Chino's and Smart Separate. So Yes, lots of opportunities still.
And we won't get too hard when we're soon to end up. We will see that when we get people back to work in September. Well, look, would you want
me to take the international online? Just give you the numbers, maybe you can talk about the actual in terms of numbers, it accounted for about 21 reported sales in international. So it was €165,000,000 It's obviously growing quite strongly. Ireland is doing very well. India actually fully is starting to do well.
And we've rolled out in marketplaces Well, and also expanded into 46 new countries. So we've a lot of hope there. I mean, I think it's going to It takes a little 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.
Thank you, Richard. Okay. Now, Geoff, We entitled our presentation Never the Same Again, but our analysts talks are never going
to be the same again. So
There's a risk that this is your last hurrah.
This is. Good morning.
This is just good morning.
I feel there's no more Way to finish a career as a sell side analyst covering the retail sector than Marks and Spencer's prelims. So I have timed it round now.
So you're entitled to a free hit.
Okay. So 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. And 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? And then 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 color.
I mean, the modeling we assumed, we assumed that we go to fifty-fifty in terms of store sales and online. That's the kind of underpinned assumption. Obviously, that's above and beyond what our Requirements will be sorry, what our target is for M and S too, but it's got a prudent 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 to say it another way, we expect to have About £260,000,000 of cash costs from the store rotation that we talked about of the £110,000,000 And From that we expect to generate nearly that amount or largely that amount Through the disposal of freeholds, Marvell Arch being obviously the big more notable one that announced, but we're working on a number of other ones. And so I don't want to kind of just caveat it like that in terms of actually cash flow, because I don't think It's not really there's only a smallish handful of those 110 that we're going to actually generate significant cash From in terms of freehold realization.
And then in terms of the SLP, I think it's look, 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. So it's very well funded. It has a path to buyout.
It's relatively well de risked both in terms of Capital market risk is also actually longevity risk. We actually did a number of buy ins actually in the financial year just gone. So really what we're working with the pension The solvency cover. And so the SLP is in place for and primary in place for that purpose. So it's a balancing act between Substituting assets out to generate cash to fund the rotation and having sufficient in there to maintain solvency.
And at the current property levels, I feel I can do that. And so now if property levels go up, that gives me a bit more Get more room to maneuver, but at the current property levels, I feel I can maintain that balance
That's great. Thank you very much.
Okay. Well, look, thank you, Jeff. And can I just say that you've been an Incredibly well respected commentator and analysts in the marketplace for many years? And you haven't always been entirely complimentary about M and S, that was probably with very good reason. So 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.
Okay. Thanks, Geoff. Shall we Come on to Georgina Johan Hernan from JPMorgan.
Hi, good morning. Two 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, I mean should we take something from that that you're expecting a return to normal of food to go? And how should we be thinking about that longer Herm is there 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 can you hold with that please? My second question is around the brand that you're bringing into the Clothing and Home offer. And 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 market Base basis and 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 about what we say about normalized behavior. Where are we in the I think we're mid pandemic. We're not at the end of this. We still See changes in behavior all the time. We had the reopening, which has gone well for us.
We've got another moment coming in Freedom Day, whatever you recall it, on the 21st June. We're not expecting material changes then, frankly, because we're walking the summer. And then, of course, we've got a September moment when people are largely going back to work, back to school. And we still don't know what's going to happen with any of these lockdowns, etcetera. So how long, I don't know.
There are moments coming. We have seen some changes in behavior that we think are permanent. There is no longer term decline in formal wear, but that's been going on. It's been accelerated. But of course, there are still lots of special occasions which people want to dress up for.
So It will move and change in terms of guidance. In food, I think we've repositioned the business strongly Take advantage of that. So we have a very good question in Food on the Move and on ready meals. We're still strong in those areas. But what we've seen is a movement to more of the core shop, more scratch cooking items, more grocery, more frozen.
And since we've reopened, we've not seen supergiant or any substantial Guys, I'm sure there's speaker in the background. If you're not speaking, you can turn the 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 how work happens and how that changes.
But we've got I will turn this from Vistency, and we'll see over periods on how that moves. 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 all brands. And the first reason was Nobi's Child, which was a sustainable fashion brand.
We sold out. We then added collaborations with Ghost and Demaris, and they've gone really strongly. And we've added now about 20 brands, which We think are additive to us, and we've seen new customers because of them. And at the moment, I think it's too early
to call which ones are
the strongest, We are pleased with the performance. It should also be done. We bought Jaeger, which we think is a very strong brand, Perhaps the legacy more recently. And it's a very good adjacent business for us, strong British retailing Manufacturing credentials, strong tailoring credentials, learner heritage. And whilst the range you've looked online It's not a full readout 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 New Zealand.
Yes. And 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 Effective, I think we're working on in terms of elements of changing to our tech to deal with things like drop ship etcetera 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, but that's part of our plan.
Thanks for the color. Just to follow-up then, if I'm clear. At the moment then, you're buying these products on a wholesale basis? Yes.
Yes, we are.
Yes. Georgina, we've got our house brands. So you've got Paruna, you should forget about those, they're really very important to us, autograph, etcetera, Blue Harbour.
And then on top of that,
we've got Diego, which is early stages that we're quite excited about. Then we've got collaborations And third party brands. And it's going to be a hybrid structure. Yes. And we've gone from 0 A year ago to quite an exciting position today.
So 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.
Yes.
Okay. Shall we take thank you, Georgina. Shall we take Anne Critchlow from Societe Generale.
Okay. Thanks very much. I've got 2 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 brand Also adding in market sensitive products into their basket just to get an idea of whether you're going to get new incremental business at your own labels.
And also just to confirm that the stock risk sits with you in this wholesale model, so you can't return products back to the brand, for example. And then my second question is on Ocado. I think we had 70,000,000 synergies penciled into the medium term. Do you think you can now surpass that? Because I think you're actually a bit ahead of the curve, aren't you, with €24,000,000 this year?
Thank you.
Yes.
The synergies, I mean, we're on track. Mean it starts to eventually blend into our overall cost saving initiatives in food. But In terms of the numbers that we would have been targeting, we're still on track for this. We obviously delivered that financial year just gone CHF 21,400,000 And we're looking for another step up into this financial year. So I'd go as far as I say, yes, we're still on track on the aspects As we originally planned for them.
Do you want to talk? Yes. So in terms of the current model, where we are doing wholesale, yes, There is agreement about the internal stocks that we last spoke. But we're
doing both. We are doing other products.
And as we progress this, we'll have to achieve different models with different partners Depending on which
you're trying to reconcile. So some of those we do
and some of those we don't. In terms of
Does it bring in
So basically we see a number of customers that have Shocked Marks and Spencer, but not Shocked Women's Wear moving to particularly sort of dress range and the casual wear. And so That's a additive basket to M and S. And that was about 12% of the first ranges. We'll continue to assess that. About 3% of the customers are totally branded.
That's quite rare for us. You have to remember that we've got there's not 30,000,000 adults shopping this every year. There aren't many more than there was out there. And that is interesting because they're shopping not just the brands, but they have also shopped across other areas. Now It's very early.
But what we are delighted with is, first of all, the pickup rate secondly, the hard basket size we get in And thirdly, no rejection of that plus M and S.
Great. Thank you.
Okay. Thank you, Kate. Now, the time is marching on. We've got about another 5 minutes or so, but I want to get in a couple more. So and we'll come back to people later on, obviously, very happy to do that.
So shall we add on Paul Crane from Deutsche Bank and love to hear from you.
Good morning. Thanks. So a question on online. In terms of the online fulfillment, How are you thinking about fulfilling from, if this is clothing at home, but from stores in the future, how does that fit into your Overall strategy. And then secondly, do you think that the higher volumes that you've seen online has delivered A step change, a sustainable step change in profitability for the online business?
Thanks, David. Do you want to talk about the photos on this?
To properly say, I mean, obviously, everything's been in pretty strong, much in our favor in terms of the online profitability In the financial year just gone, so you've seen that we've closed a number of 14% on an operating profit Margin, which is obviously very, very strong. Now I just have to kind of caveat a little bit here is that that assumes a certain level of allocation of costs from the overall clothing and home business. It's very hard to do a like for like in terms of a, so let's say, pure play operating profit number. But 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. But I should also flag that that also had A very favorable returns, low returns rate. So 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 digit operating profit margin, Which is obviously very, very healthy and very, very strong, which we're happy about. But in terms of stores and fulfillment?
Yes. So let's see if
we just go back to Our online capability and Donnie's, it's not very long ago where that facility couldn't do more than 200,000 singles a day without falling over. We've just gone through a year where we're running about 400,000 singles a day. And frankly, they're taking it in their stride. I mean, the entire occasion, but we fixed this. Is it how we wanted to operate?
No. Is there more to do in terms of speeding up and giving customers even faster service? Yes, there is. Now we've been supplementing Donington with an in store pick, which we call BOSS, bought online, shipped from store. And frankly, that wasn't optimized In the
early part of the year, we've been doing an awful lot of work on this.
And what we now see clearly is a way to ship more from store At much lower cost and a much faster service. Now we will start to work on how we blend that with the facility of Donington to increase capacity, but Increased capacity in a cost effective way. And this is the work that Katie and the team at MS2 are really driving on there. How we actually maximize, optimize In fact, M and S is a truly omnichannel visit. And it's an advantage that we have over many field plays.
And we've got to take that Really, it's not to use it as a real advantage in terms of customer proposition.
So Adam, At high level, our concept here is, I mean, people say omnichannel because apparently that's a better idea than multichannel. But what we really mean It's customers should be able to come to us and shop whichever way to extend. So you can order and have it delivered to home tomorrow. You can order and have it delivered to 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 that we could see that. Maybe you could order this morning to have it delivered to your There are socks delivered this afternoon. Maybe you could order and go in, in half an hour and pick it up in the store. We don't know.
But Our concept is that you should be able to shop multiple different ways. Some customers who wants the closing home equivalent are Rapid, Somewhat specific time. And we can see as a result of the pandemic partly and the work we've done We're automating and increasing the efficiency of all these routes to fulfillment. And that's what should ultimately give us an advantage over In that sense, over a little bit of some of our competition, we don't have store presence. Okay.
Now we've got some NVIDIA's problems, still a number of Outstanding and we're running out of time. So I just wanted, Tony, for all time sake, no Session like us will be complete without Tony Charette. So Tony, far away.
Thank you, Archie. Just to let you know I'm not bottling out like Mr. Lugo. Keep going.
Assuming you'll get it going forever.
Well, we'll try and match each other, aren't you? But, yeah, two questions. First of all, Owen, 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. Because 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? And the last question is where do you see the marketing cost Ratio sort of settling in clothing and home as you move more to online. I note your comments about paid search and all that sort of stuff. That's it.
Good questions, mostly for Owen, I think. Yes. So I'll take the adjusting items. So I mean, 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 source sales as we kind of roll forward another year. So I'd expect that albeit at a much lower level.
And also there is a little bit of restructuring still to be done. We also did and then the other place It's clothing at home. Sorry, it's 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. We've got the restructuring in the Republic of Ireland, which we In the 53rd week in P and L in the financial year just gone, so that hits cash flow about £15,000,000 of that.
We've got about £30,000,000 of the store rotation, which hits that. And then we've got About £20,000,000 in supply chain. So that's kind of the way to think about it cash flow as you stand today. But I mean look we're
I would 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 kind of normalized basis on adjusting items, kind of reflecting change that a business that 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 businesses post Brexit, Particularly in the island of Ireland and France. And it's too early days to talk about kind of restructuring items coming out of that. But It's I do flag that some may come from that.
And second Question on what have we learned from Marble Arch. I mean, I think we've learned that assets in good high In prime locations, we've got good development value. And so I'm not sure we've learned much else other than that. It's still we're still quite excited about what we think we can generate in terms of cash from that. And We don't have a load of marble arches, so just to be clear, right?
But in certain other prime locations, I think there is some still decent value to generate in terms of development. And the third question? Marketing costs. I mean, I think what you're seeing in the trend of marketing costs actually is your move from traditional marketing costs to more PPC and Cost to more PPC and more digital driven marketing. So I 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. And that bore a great response towards the second half in the second half of last financial year. I mean, Our online business is up 106% in the Q4.
Now but it's just that's a combination of us really driving it quite hard And much more efficient marketing.
I mean, Tony, one of the things you haven't mentioned, we're actually working really well with Geely on how to optimize our online search. We take some of the shackle opportunities. This is you've got a budget behind this and want to spend it, they spend it. Online search, you can really set return on spend targets And allow them to play until they almost you get the edge 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 don't underestimate the power of this data engine. 20,000,000 customers. We now have details of 5 channels. We have detail of more than 1500 attributes. And this will start to change our relationship and make it a much more personal relationship In true sense of the word that we've ever had.
And if you think about this, when you compare to some other schemes, I mean, You really are talking about one of the biggest loyalty schemes down in the UK, but with more granular detail than I think many have Against all categories. So we will start to really deploy that again through MS2 to drive the business where we could do. But not just for us, but for the customer. And that's a really different idea.
Okay. Sorry, Johnny. Sorry, Archie. Could I just ask, is the marketing cost going to go up or down as a percentage of closing home sales?
I think that's well Marginally down.
Marginally down. Yeah, marginally down. Should we keep
the margin down, should we add efficiency? Shifting away, Tony, Partner line big ticket items to different shape. It's much more than being pushed into paid search, which again we can the only thing about 50% of your marketing money is good, but you just don't know which 50% is. The paid search is exactly what you get for return.
Some of this is evolving. We wouldn't want to be too definitive about that. Yes. So the same side. Yes.
Look, okay. Can I just thank you everybody? I'm going to call a hold there because Tim had to get on to another presentation in a moment. So we wouldn't like to go on For the rest of the day, but we simply can't. And so apologies, those we haven't got to.
Fraser is here. He's made a note of all your Well, not your questions, but your names and we'll make sure we get back to you during the day. So apologies if we didn't get around to everybody, but really appreciate your questions. And thank you for joining us today and look forward to talking to you all soon. Okay.
Thank you.
Thanks very much. Thank you.