It's Archie here. I'm in the room with Eoin Tonge and Steve Rowe, of about whom I'll say a few words in a moment. Stuart and Katie are on the line, but they're not going to be actively participating today. They'll get their shout later. Just a couple of words. You've seen the film. Look, I think this is a strong set of results. But for me, the question is always how fast we're changing and how well prepared are we to face into the windstorms that are coming. I think you can see in these, if you look over Steve's tenure, the sheer extent of change in the move to omni-channel and online, in the store format, the store location, in frankly, the product, and the product is what really matters.
In the management team, the far-reaching changes in structure and management people. Last but not least, the balance sheet. I mean, it would have been hard to have imagined two years ago that we'd have gone from quite a wobbly state on the balance sheet. I hope, Eoin, you don't mind my saying that. To one where we have a relatively low level of net debt and strong outlook for cash flow and investment. So it is a good moment, Steve, to reflect on what has been achieved. I want to again, just use this moment to thank you for the dedication that you've shown, the fearless approach to tackling the issues with grasping the nettles. I think everybody knows that, you know, Steve's a straight shooter, and I'm sure you'll hear that from him again today.
We're not overstating what's been achieved, but we should be proud of what has been achieved. It won't be the last chance, I'm sure, to hear from Steve, but it is the last chance to hear from him as Chief Executive of Marks & Spencer. He's going to have the lion's share of the questions, together with Eoin. Stuart and Katie, as I said, are dialing in. They are going to, they're not allowed to steal Steve's thunder, because this is his moment. They will get their shout on another day, and I know that you'll all have plenty of time to talk to them about their plans for the future in the weeks to come. Okay. Shall we take the first question?
I think, well, no M&S results session will be complete without the great Clive Black. Clive, please open the batting.
Well, good morning, Archie. Thank you very much for that introduction. I can only echo probably as the oldest analyst in the market by far your kind words about Steve, and we certainly wish him all the best congratulating on his achievements, and actually wish Stuart, Katie, and Owen all the best too. In terms of a couple of questions, one about the future, actually, Archie. In the statement, the business talks about areas where future investment will be needed around infrastructure. I know you plan to come back to this in future, but I just wondered today, given it's in the results update, whether you could give some color about the scope and scale of that ongoing investment.
Secondly, just in terms of the uncertain times we live in, it would be very helpful to get your thoughts around what M&S sees the business facing into for its clothing and food operations, noting that we've had a separate update today from Ocado, which talks to weaker expected food demands. Comments from that would be much appreciated. Thank you.
Okay. On investment, I'll ask Owen to respond specifically. Okay. I think people have difficulty getting their heads around this, but our objective is to build a growth company. You know, we want to create long-term sustainable growth and profits for M&S and for our shareholders and for our colleagues in the business. You know, anybody thinks that our business is managing slow decline and generating cash and dividends, so that's. We're not on that page. Obviously, we do want ultimately to be paying dividends too. We are looking at some investment opportunities now. We're in a position to do that.
Some of it, you say infrastructure, that sounds pretty boring, and some of these, probably to most people, it's likely boring, but it's actually a very profitable investment. The opportunity to reform the Clothing & Home supply chain will be key to releasing productivity growth in Clothing & Home, which is going to be very important in the years ahead. The swivel from stores-based sales to omni-channel and to online is actually a very profitable investment because our online channel is as profitable as stores, and probably some would say higher quality earnings. The investment in data and technology is quite exciting. The investment we're making in the store estate, which is quite substantial now with a very good pipeline of openings and rationalizations, is going to be a very high returning investment for the long term.
Yes, the investment rate is now. We're now in a position to pick up on investment rates. Strategically that's what the next phase is about, and it's not overdramatic, but Owen can
Qualifying on my remarks.
Well, no, I mean, you've stolen a lot of the thunder in terms of what I would have said as well, which is that we are investing in the areas that we believe we can get true returns on. In technology, it's on the back of continued investment in digital, in M&S.com. There is also some infrastructure investment, depending on what you call infrastructure, which is around modernizing some of our core systems in Clothing & Home, for example. In supply chain, we've been talking for a number of years about modernizing and bringing our supply chains up to you know, world-class standards in both Food and Clothing & Home. They are multi-year projects, in truth. Again, it should unlock some quite significant efficiencies, as Archie has said.
Property and the store estate is all about investing into higher quality earnings, as Archie has said. In terms of quantum, I mean, obviously, we've talked about stepping up to GBP 400 million of capital investment this year. That's the type of level I think we're going to be moving into in a kind of a multi-year level, again, backing our growth agenda. That's the way to think about it. Obviously, we'll be bringing everyone on the journey on those multi-year supply chain investments over the next few years.
And Clive, I think, as I recall, you were asking a question about Ocado as well. Do you want just to line up for it?
Well, actually, Archie, it was also just about your thoughts on the next year or so for the U.K. economy and how it works into your Clothing & Food expectations. Just noting the Ocado update today.
Well, this is the M&S results presentation, Clive. It's probably not the time for me to prognosticate on the U.K. economy. you know, I'll save that for Today programme. Steve, do you want to tell us, like, give us your thoughts on Ocado and the U.K. economy?
Taking your comment earlier on, Steve, because I want to say something else. Like, this is a team effort. What we've achieved over the last few years to deliver a set of strong results is a team effort. The ExCo, backed up by a very strong board, has been able to transform and look under every single stone in this business, provide a foundation for growth. Now, the reason that's relevant is that, you know, it's a great team that I'm handing on to in Stuart, Owen, and Katie. We are fully invested in making sure that we continue to modernize the business and deliver, as Archie said, those sustainable profits. If you go back to when I started, we didn't have an online food presence at all.
We know that GBP 3.6 billion worth of food sales online come from our customer base, of which only about GBP 600 million come from Ocado. Therefore, as the market has changed and online shopping in food is about 12% of total now, we see that this is still a long-term opportunity for Marks & Spencer to continue to build its food credentials and build food business. You know, there have been some short-term bumps in the road, but we have invested in capability and in capacity, and that shows that our intent is to build a strong omni-channel business both in Clothing & Home and Food. We continue to look forward to a strong future in that part of the business.
In terms of the global economy, obviously, if the answer's not here, well, I'm definitely not.
Well, look, I mean, look, why don't I have a little go at that?
No, go ahead.
Look, I mean, we definitely expect that the market conditions are going to get more challenging in the second half of this year, right? Look, you don't need me to tell about the fact that the world is gonna be challenging with inflation and the cost of living crisis. How we think that will manifest itself in our businesses is that, you know, from Q3, I mean, we think the summer's probably gonna be okay. It feels like there's a bit of decent exuberance around the market at the moment, and people are looking to kind of enjoy a summer that they haven't really had for a couple of years.
I think post-summer, I think, the inflation will bite, and we should be planning on that basis. I think it will put some pressure on our core. There's no two ways about it. It will put pressure on our core. On the flip side, we've got the benefit of our value perception in both sets of our business. We've also got the benefit of recovering categories, whether it be food on the move or hospitality in food or whether it be holiday and occasion wear in Clothing & Home. And so, we think we're as well positioned as we can be for what is likely to be a challenging consumer environment in the second half of the year.
Okay. Thanks, Clive.
Great to be talking. Thank you.
Thanks. Okay, let's go on to Charlie Muir-Sands from BNP. Morning, Charlie.
Morning, Charlie.
Good morning. Just a brief echo without sounding too sycophantic, congratulations, Steve, and best wishes for the future. I just wanted to ask a couple of questions, please. Firstly, on Clothing, secondly on the store estate, and thirdly, very briefly on Ocado. On the Clothing side, you talk about maintaining higher open to buy into the autumn, given uncertainties. With supply chains, which typically run a bit slower at the moment, how are you gonna actually achieve that agility? Secondly, on the store estate, obviously you've released some restructuring provisions. I just want to understand, is that because you're actually finding it cheaper to reshape the store estate than you had expected, or it's taking longer?
How should we think about, you know, the market environment there and the cost and ability to continue that program? Then finally, just on Ocado, I think there's a reference to replatforming the business and reference to the kind of Smart Platform coming through. Can you just clarify what the cost and the risks around that and what was the timing? Thank you.
Okay. I think we had three questions there, so, well done on getting them all in. We'll probably just go from the first one, but then we could get there. Let's start on agility on supply chain. Steve, should I cover that? Yeah, I know, but yeah.
Sure.
To date, Owen. Yeah, as you pick up. Yeah.
Look, the first thing is that, again, as part of the transformation program, we've worked very hard to continue to develop our supply base, building on the strong partnerships with both in Clothing & Home and Food we've had for a long time. You used a very good phrase, which is protect the magic and modernize the rest, and that work has been ongoing and continues to be ongoing in both divisions. We have, I believe, some of the finest sourcing offices in Clothing & Home and Food in the world, and they have gone from strength to strength over the last six years. They develop those relationships, those supply chains, for us.
We are agile in the fact that we now have substantially less stock in the business than we used to, which contributes to that cash flow and working capital figures. We have pulled away from, of course, that heavy discounting, more than 30% sold online and GBP 1.4 billion in reductions that we used to have, to make sure that we are actually in a position where we still have. This is all Q3, open to buy and line of sight of about 20% of our autumn sales. Much more agility in the Clothing & Home supply chain. The Food supply chain, of course, has always been dominated by a U.K. supply base, with more than 75% coming from U.K. ingredients and manufacturers.
We haven't got the same level of dependence on global groceries, et cetera. The work Stuart and the team have done there has meant that we are, I think, well placed in the medium term for whatever comes in supply chain. Now, look, there are lots of bumps in the road. We see that all the time. We've got issues again with things like in Shanghai, with lockdowns in China, affecting things like packaging and some of the raw materials. What we do have is the ability to move stuff around the world, and we are doing that. We are moving contracts from China to Bangladesh, et cetera. Again, we might have some delivery. These have not contributed to excessive stocks, or lost opportunity.
I think moving on to your second few questions, Charlie, I mean, on the store estate, look, I think most of the reasons why we've moved our even assumptions on the property store estate rotation is more driven by us really than it is by the marketplace, I would say. Our kind of more ambition to really move faster and more aggressively in relation to the store estate rotation. But just to your point around the marketplace, I mean, the things we're focusing on is new store acquisition to enable rotation. I definitely think one of the things we are finding is that we are an attractive tenant for store locations.
Both our food halls and our full line stores. Actually I'd argue, you know, the Debenhams conversion is a good representation of that, where we are just attractive anchor tenant. So that gives us, you know, good opportunities to find new stores to move into, which then will enable stores to close. So that I would say is probably the main dynamic that's happening in the marketplace. Everything else is really us driving it hard, focusing on omnichannel. Because a lot of what we're trying to do is to move our Clothing and Home business in particular to a more omnichannel operation by reducing store space. So that's what we're focused on. I think that's the best way to answer that question.
In terms of Ocado, yeah, we will cut over to the Ocado Smart Platform next year. This is a piece of work that's been worked on for a couple of years. It's a complicated piece of work. The Ocado Group have been highly focused on that and be highly motivated to come off the legacy platform and move on to Ocado Smart Platform. The costs I wouldn't say are gonna be overly significant because in some ways, the Ocado Group are bearing a lot of the costs because they already run the Ocado Smart Platform. They're not absolutely really significant for Ocado Retail. I mean, there will be some, but they're not absolutely significant.
That is a big milestone for our operation, Ocado Retail, next year.
Thank you very much.
Okay, thanks. Thanks, Charlie. Okay, Adam Cochrane from Deutsche Bank. Morning, Adam.
Hi. Good morning, guys. Just like to say congrats to Steve as well, and maybe it's a sign of the inflationary times that your job's morphed into two jobs, which is certainly impressive. On the inflation point, can you tell us what cost inflation is included within your guidance and some of the offsetting factors that you've got for this, maybe both in terms of raw materials and operating costs? Then the second question, in terms of the food particularly, can you just give us some flavor for how your price perception in food has improved and whether you're seeing any customer reaction to whether it's prices that you've reduced or anything else? Thanks.
Okay. Shall I take the prices one and you'll come back with-
Yeah.
the second one?
Yeah. You wanna do direct price one, but the price perception one.
Absolutely.
I'll do the inflation. Yeah.
I mean, one of the things that we've done here over the number of years Stuart has led this in Food has been to transform our position in the marketplace in terms of pricing. If you look at the YouGov surveys that we've had out, our perception of pricing has transformed.
The introduction of Remarksable and Fresh Market Specials, a more clear pricing structure, getting rid of all the bits of promotion that we've had in Food and moving to the trusted value position has meant that customers really are seeing a change in their pricing position. Now, look, clearly we are at the upper end of the market, but that's appropriate because it offers a great quality, great value food, and we continue to innovate in that area. We have got inflation going through as everybody else, but we are working with a group of supplier partners, and the word partner is really important, to make sure that we get as many economies out of the supply chain as we can, and efficiencies, and we will make sure that we, you know, we maintain that value position.
Yeah, so, and in our guidance, I mean, we're expecting mid- to high-single-digit inflation on cost of goods in both our businesses, both Food and Clothing & Home across the year. I mean, it varies by categories, but that's kind of where we'd see the sort of average coming out on. In terms of our assumptions around gross margin, I mean, our assumption is that we're gonna look to try and protect gross margins as much as we possibly can. The place of caution, I would say, which we have each factored into our guidance would be, you know, we will continue to invest in price and food because we think that's going to be important.
The second one I would say is the continuation of the full price performance that we had in Clothing & Home. You know, I think that's going to be a challenge to continue to maintain that in the second half of the year, but that's certainly what we're gonna be trying to seek to do. That's the places where I see the impact. Below the line, I would say, you know, we're also seeing in mid- to high-single-digit inflation across various different areas, whether it be labor, freight, energy, et cetera. Actually, energy is hard enough. We are working to offset inflation through various different cost positions for the initiatives that we already have ongoing, which we detailed a little bit in the statement today.
And so, roughly to kind of look to manage that inflation. We do have investments in our costs below the line as well as we continue to invest in new stores and in our digital footprint. Some of those are discretionary, so we can manage as we go through the year. That's how I would think about it all in terms of overall construct in the guidance I gave you today.
Yeah. If I can just comment on this, as an industry, you know, having been around a long time, I can tell you that cost of goods sold will get passed through on pricing. You'll hear lots of waffle from different people and forensic analysis as who's passing on prices not, but the gross margin across the industry doesn't flicker, and it can't afford to. Now it doesn't mean there won't be changes in mix. There will be mix effects, and we are planning on those because we're not just sitting waiting for the windstorm. We're ahead of it, and you've already seen some of that. It will be important to make sure that we're providing good value options for customers. The issue for the industry is the cost of doing business is going up.
Cost of doing business is going up, taxes are going up, regulatory pressures are going up, and all retailers are going to be affected by that. You can't pass on the cost of fuel or refrigerant to customers. That doesn't work. The industry as a whole will be moving to a lower platform, and the winners and losers will be to do with those who are resilient, to those who can trade well in the downturn, and those who've got efficiency opportunities. You know, it's not an advantage to have a business which is not completely a well-oiled engine. In a sense, we do have the opportunity that's driven by all the productivity changes that we've got in hand anyway. That's why we're probably more confident than some about the year ahead.
Okay.
Thank you.
Sure. Thank you. Richard Chamberlain from RBC. Welcome, Richard.
Yeah. Thanks, Archie. Morning, team. Once again, all the best for the future, Steve.
Thank you.
A couple from me on the... Yeah, thanks. A couple from me on the costs and, well actually CapEx and working capital. Can you or maybe you can give a split of where you expect the GBP 400 million CapEx to be spent, particularly how much is gonna go onto store estate, you know, store expansion, et cetera, for the store side. The working capital saw a nice inflow last year, but what do you expect for the coming year, you know, particularly I guess in terms of payables and so on. Just a bit more color on the CapEx and working capital, if that's okay.
Yeah, sure. No problem. I as an easy answer on the CapEx split, which I'll direct you to a slide on the website, actually it's slide 26, which actually gives you a nice bonus split out of roughly how we see the split of the GBP 400 million across property, digital, technology and supply chain. If you have a look at it in there, I think that's probably the. I won't be able to say it better than what the actual picture says. Then in terms of working capital, look, I mean, working capital has been a really strong performance over two years.
Obviously I think it's outperformed people's expectations in the year just gone of GBP 240 million of an inflow.
Yeah.
Some of that's temporal. So I'm gonna be very explicit here. I expect about GBP 100 million of that to unwind this year, as we've normalized some of our payment terms with particularly our Clothing & Home suppliers. But there's still a high degree of focus on that whole area in terms of stock management and payables. You should expect to see some reversion of that.
Okay. That's helpful. Thank you.
Thanks, Richard. Anne Critchlow from Société Générale. Anne.
Good morning, thanks. Three questions from me please. First of all, in Food, where is the basket size now, relative to pre-pandemic, and where do you see that settling? Second question on the third-party brands in Clothing & Home, just to give us an idea now of the split between wholesale and consignment and where that's headed. Finally, just a clarification question really, because in the statement it says you had GBP 100 million of orders for the third-party brands in the year. Is that figure gross, pre-returns, or is it net of returns? Thank you.
Okay. Do you wanna just clarify that point on third party brands? In this case, it's number pre-returned. It's a gross number pre-returned.
Yeah.
Okay. Yeah.
Thanks.
Basket size. The basket size was up 10%. The basket size on Food. It's a good question. It's, I mean, I'm speaking to Eoin and Clive why I think should be answered, but it's actually quite complicated because the basket size has evolved a lot going into the pandemic and through the pandemic. At the moment we're seeing obviously a lot of people coming back into offices, they're buying their lunch again there, they're buying their sandwiches, and that has an effect, a downward pressure on the average basket. Doesn't mean we're losing large shoppers, it means we're gaining small shoppers.
There's another thing going on which is very gradual, which is as we extend the range, and particularly the range that's available to people through the larger stores, so our opening program on food is generally speaking larger stores, large being up to 15-20,000 sq ft. Again, we're seeing larger baskets coming through that source, although that doesn't have a very material impact on the figures that you've seen. Eoin , do we know compared to 2019/2020 where would we be?
2019/2020 we were up 10%, we exited 10% on 2019/2020.
It was in basket size.
Yeah. That's and that's reflecting a lot of what you said, where we've had the benefit of an increase in the core categories, et cetera, and so on.
We're seeing a little bit of a reversion in that, but the underlying trend is that our basket size will be bigger because of the bigger range and the bigger footprint.
Part of Stuart's whole approach to this is to make the bigger range available to more customers. We haven't actually increased the SKU count.
Yes.
But the SKU count is available through more customers. With that, we want to extend our reach from where it was, which was predominantly food for now, food for tonight, into food for the weekend, more appeal to families, not just to singles. You can see that in the range development, this sort of coming through in the figures.
The second question, it's split about 60% wholesale and 40% consignment.
The third-party brands project is, just so you know, keep you in context, it's in its infancy at the moment. Remember that, you know, Steve can comment on this, that prior to 18 months ago we didn't do any. It's a bit of a crossing the Rubicon for M&S, and it reflects the fact that the world is moving to integrated platforms, and we want to be part of that. Who knows what this business could become, but it's going to be very substantially larger than it is today.
I'll say this. The truth is that we traditionally have been an own brand business. We see that, you know, at the moment we continue to think the business will be predominantly own brand. That gives us protection of our style credentials and value. However, we've seen the opportunity through testing of adjacent brands, either adjacent through style or customer or technology, but with the same fit to Marks & Spencer. We moved across where we bought Jaeger, and we bought into a space for Nobody's Child and more recently The Sports Edit in generally in areas where we're not strong. This is something that I know is on Katie's mind, but we couldn't do this earlier because the platform that we had six years ago was not robust enough.
The work that Katie and the team have done to build our online capability from less than 18% of total sales in clothing to now 40% sales in clothing online, and to make sure that we can perform through Joiners have enabled this. As we continue to progress with the U.K. sub store supply chain and fulfillment for e-commerce plans, but this is strategic growth, but this is something for the new team to talk about in due time.
Yeah. Exactly. Yeah. We'll be coming back to this, I'm sure. Geoff Lowery from Redburn. Welcome, Geoff. Geoff, you're muted. Okay. We've lost Geoff Lowery for the moment I think. Geoff, are you there? Okay. Let's go. We'll come back to Geoff, assuming he reappears. Tony Shiret. Tony, how are you? Welcome. You've been around nearly as long as I have, so looking forward to hearing what you have to say.
Longer than Clive, just to correct his error.
Tony, you're the father of
Don't say it. Okay. Two questions, please. Sorry, going back to Richard's question on working capital. I just wondered if you could clarify. I was expecting your working capital to come back this year, because your trade payables days, although we haven't got the trade payables themselves, it looks like they've probably gone out to about, I don't know, 80-odd days versus more recent history of 50-odd days for trade payables. The GBP 100 million that Owen's talking about coming back this year is only about five days, so you're still gonna be at very elevated levels versus recent history. I just wondered if you could comment on that and whether you think that's fair on your suppliers.
The second question is about the investment program, because you're now planning to spend more than you've spent since about 2017 in a year. Over the last six years, you've spent about GBP 1.7 billion on CapEx, and the profits have gone from GBP 700 million-GBP 500 million in broad terms. I wonder if Eoin could talk to us about hurdle rates of return on this new investment, and also if he's sort of looked back over the mistakes that have clearly been made in terms of capital appraisal over the last six years and why we should expect it to be different now. Those are the two questions.
I guess, well, why don't I answer that and rebalance the information here. Actually, since we embarked on the transformation program under Steve, we've been quite parsimonious on capital spend. If you go through the spend in 2018, 2019, 2020, 2021, actually during the pandemic, we cut back on capital. If anything, in some areas, we've probably under-maintained the business. There's been an element of that. Certainly, there has historically sort of been some of that we've had to start catching up on. I would say for a business of this scale, our capital spend has been very carefully controlled for the last four years.
What happened prior to that, you know, under different teams, you know, it's a long history, and you're probably a better student of that than I am, and we're not going to comment on that today.
Yeah.
Owen.
Yeah, I'll just reinforce that point here as well as like I can. We can only kind of manage what we can control, and there is an awful lot of discipline that goes through our capital appraisal process. We seek to target three-year paybacks on all growth investments. There are some exceptions where we have to take some longer strategic decisions, but they're all very well controlled. I'm pretty comfortable that we've got a good governance around our capital process. Likewise, I can't speak so much to the past. On working capital, I just have to bring you back on the journey on that.
A large amount of our working capital came from the extension of our payment terms during the COVID times. A lot of it comes from more effective stock management, and some of it comes from just general payable management across the whole group. What we're gonna see in terms of a reversion is bringing our Clothing & Home core Clothing & Home suppliers back to 90-day payment terms. That's what that reversion will be. We have a very important two ways of managing our suppliers in terms of that. One is, we pay all small suppliers in much shorter terms. That's really important.
Where required, we offer a supply chain financing facility to our suppliers. I'm not particularly. I mean, I think we do what is right and what we think is the right thing to do for our suppliers. That's the full journey, Tony, in terms of the flow of our working capital.
90 days is a much longer time than historically at Marks & Spencer's. I don't mean ancient history. I mean, relatively recent history.
Okay. Yeah.
Yeah. That's an interesting point. I think that Tony is correct if you go back over time. Remember, the supply base has changed enormously, too. There's a little bit of a structural shift there from dealing through what were called full-service vendors who got paid relatively early because they were in turn sourcing from other people. Now we're sourcing almost entirely directly. We have, under Owen's leadership, tightened up on the cash flow management.
Yeah.
That is true. We're also concentrating the supply base into fewer big strategic suppliers who work with very closely. Probably they're stronger companies, but we're very, very careful to make sure that small suppliers get paid early and have the option of getting paid early. Some of our smaller suppliers get paid within 10, 20 days. I mean, that's the way we work. There's also a point here, which is one of the things we inherited was a sort of tangled web of supplier issues, disputes and invoices, and that's what drives people mad when they're trying to supply a company. That's been largely cleared up now. I think we're in reasonable shape here, but it's correct that probably the-
Yeah. I think we've got back to a place which is sustainable, Tony.
Yeah.
Okay, thanks.
Okay. Thank you, Tony. We're making good progress. I think we can probably get through three more if we go at it at a gallop. Simon Irwin from Credit Suisse.
Morning, everyone. Again, congratulations, Steve. A couple of quick ones.
Thank you.
Can you just talk a bit about Clothing & Home pricing? You know, given your hedging position, you're in quite an advantageous position for the current financial year, and a lot of your peers are gonna be taking pricing up quite materially. Are you gonna be following them up, or do you think you've got an opportunity to stretch out your pricing versus peers for the current year? The second one, at the risk of sending Archie off on his long run on Brexit, can you just talk a little bit about Ireland and the supply chain?
Yeah. Okay. Thank you, Simon. Ireland, I'm not going to comment. On the pricing side of it, look, and only Archie with me, I think you talk about Ireland. I figure I will leave that to both of them. In terms of pricing, look, there's a couple of things here. First of all, the teams have spent a lot of time, both in Clothing & Home and Food, working on our value positions, and that's not something we're going to give up easily. We are in a good position with strong partnerships, strong sourcing mixes, and a view of still some level of self-help within our supply base.
There are different issues in Clothing & Home, ranging from prices of raw materials to packaging, and they're varying a little bit by a few things like the events in Sri Lanka and China. The principle here is, as Archie said, inflation will naturally eventually go through to the customer. We are very, very thoughtful about where that goes through and making sure we maintain our positions on key items such as leggings and jeggings, and have a truly competitive position, bake it ahead of market, where we've got big market shares. Leveraging our scale is quite important here. The same is true in Food. We're making sure that things like, Remarksable and Fresh Market Specials, you know, really do lead the way with value.
The right term is a little bit of a stretch in that, to make sure that we're in the right shape competitively.
Just, I mean, we probably do have a benefit versus the marketplace and because of our hedging in FX, right? Like, we will have probably an all-in FX rate of about GDP 1.35 versus GDP 1.30 last year. The marketplace is likely to be not to be as strong as that given where sterling has gone. I don't think. I mean, it's nice to know that. I don't think we're factoring in aggressively. We're kind of focusing on what we can control and how we manage our own inflation and then getting the price points right. It's probably fair to say it's a helpful enough thing to have in the marketplace right now, a little bit more competitive advantage in prices.
Right.
We've got something particular to things like our relationship with people like Maersk and the containers. We've
Yeah.
Not been subject to the high spot rates that others have had to do, which means we can be much more thoughtful about our long-term pricing rather than reactive to short-term cost increases.
I was just trying to remember what the second question is now I got to breakfast. I mean, if we, you know, not much has really changed in the sense that, like, we're still finding it quite challenging to get products across the water from Britain into the island of Ireland. That, you know, is a fact, a feature of what's taking place post-Brexit. We just think there's a lot of unnecessary administration involved, and we're fighting hard with the government to try and get them to talk to each other to work on just pure administration stuff. Forget about the politics, just pure administration stuff.
That is definitely one activity that we're focusing on. I mean, the other activities we're focusing on for the island of Ireland is to focus a little more on local sourcing, to also continue to drive volume so that will help and enable the supply chain in Food as well as working to try and improve the overall supply chain. We're still pretty confident that we're going to continue to improve our food business, and our Clothing & Home business on the island of Ireland is very strong as well.
We're not all downbeat on our overall Ireland business, but we still need to get to see some improvements in the overall customs arrangements.
Very well said. Well, thank you. Okay, we're going to Georgina and then James, and then Steve is preparing his valedictory remarks. Georgina.
Hi, everyone. Thanks. It's Georgina from JP Morgan here. Two or three questions from me, please. First of all, I guess a clarification question. You've obviously talked about some of the pressures on the margin, which I think we're all well aware of and hopefully been able to offset those in many cases through efficiencies and so on. At the same time, you're saying that it would be difficult to make progress now on kind of that underlying PBT level. Given net-net, it feels like there could be some margin pressure at least in fiscal 2023. Should we therefore assume that at the moment you are actually planning for a little bit of top-line growth on a year-on-year basis? That was my first question, please.
My second one was just to sort of clarify, therefore, the base that we're looking at for fiscal 2022. I think you called out as GBP 440 million of PBT. Should we see that as a kind of a ceiling of your expectations for fiscal 2023? Then my final question was just on.
Okay. Hurry up.
On food pricing. You have commented that you would hope to still invest in food at the same time you've mentioned about passing on COGS inflation. Net-net, would you expect to see some inflation there or not, please?
Okay, thank you, Georgina. Owen, do you want to have a go at that?
Yeah. Well, I'll have a go at the first two questions. And just on inflation, just to make sure I get the question right, but I'll come back to that. On the first one, yeah, look, you're right in saying that would entail that our current planning assumption is to assume some very modest growth in both parts of our business. Where we kind of see that, so if we take food here, for example, you know, we do. I mean, a good planning assumption for us for now is to assume that we're gonna get volume growth driven by new space and also Costa, the new Costa arrangements. Would potentially like for like volume slightly down maybe flat.
Within that, there is some reversion in the core. Don't forget the core categories have had very strong performance. Now that is a little bit offset by hospitality and franchise recovery. That's kind of a good balance there. As I said before, our H2 core will be under pressure, but I think it's balanced by our predisposition to smaller shops, and indeed trading down from hospitality, and indeed events. Overall, net-net, that is planning for a modest top line growth. Then in Clothing & Home, it's a similar but different story, which is, you know, we we've got good momentum coming into this financial year.
We do expect a tougher H2 in the core, if you call it core, but offset by recovering categories, formal occasion wear, holiday, et cetera. That's our assumption. Within that though is assuming challenge at the core in both our businesses. You're right. That's how the balance would work, assuming that you're gonna have a little bit of impact on margin. On the second one, clarifying the base of GBP 440 million , yeah, I mean, look, the GBP 440 million is a good number to work out in terms of taking your adjustment for rates for Ocado and for Russia. I think, you know, as of today, yes, look, it feels like that's the ceiling.
You know, we're trading well at the moment. We'll just have to see how we trade through the environment. It is uncertain out there. I think it's fair to call that. I mean, I don't like calling ceilings or anything like that because you know, we've got a lot in our control and to go after. I think you know, the statement stands for itself. As of today, we feel it's unlikely to progress.
To be very clear, if it weren't for the coming windstorm.
Yeah.
Which we can all see, we wouldn't be talking about a ceiling at all.
No.
We don't want anybody to think we're capped out. It's important for any business like us to be clear-eyed. You know, I think we serve ourselves as well as possibly everybody across it by being very clear-eyed what's coming, which is a very sharp contraction in consumer disposable income. You can all figure that out. That is going to impact all our businesses. For us, because we're on this mission to create a five to 10-year future for the business, it's important to persist with the pace of change with all the programs we have. We mustn't be deflected from that. You know, realistically, in profit growth terms, this year is going to be somewhat on pause. We hope it's not, but it still feels like that at the moment.
As Owen has said, no , it's not actually that apparent in current trading. I think you'll hear that around the marketplace. We think that this is going to start impacting in the autumn and the crunch time, which could be quite sharp, will extend for four to six months. I'm not saying we'll be out of it in 12 months, but, you know, right now, you wouldn't know it was happening, actually.
On your final question, I mean, look, we will be passing on the inflation into price. I mean, we will also be supporting that with cost efficiency initiatives with our suppliers, trying to take cost out of the system where we can see it. We will be using some of that to invest in mix. When we talk about investing in price, it will be particularly in our entry items by our M&S range and our Fresh Market Specials. That will have to be a continued focus for us. And so, I think net, that's probably moderately impactful to margin.
Okay. Now, look, we're slightly on borrowed time, but I don't want to conclude without James Grzinic, who's been waiting very patiently, and I probably pronounced his name wrong as well. James, welcome.
Yeah. Morning, Archie. Morning, everybody.
Morning
Perfect pronunciation and best of luck to you for the future. I just have
Thank you.
Two clarification questions really. First one is, thoughts longer term in terms of shared ownership of Ocado Retail, when will you resolve that? How urgent is that in your thinking? Is the re-platforming a precondition to then move on to full ownership? Secondly, it would be really, really interesting to hear on your hedging on trades when you've covered and up until when you're covered. Thank you.
Did you say on freight, James?
Yeah. Yes, please.
Oh, yeah. For this financial year. Right.
Yeah, if I could clarify when, you know, when you bought forward and through to when, that'd be really helpful.
We bought forward the financial year in January, February time.
Very, very helpful. Thank you.
Sure. Ocado. Well, look, I mean, despite what we've heard today on the news on Ocado, like, we're actually quite happy with where we're going on Ocado, right, medium term. Like, we definitely think we've pitched ourselves to the right model. The Ocado brand resonates. It is now going into a growth phase at the same time of a version, so it's challenging. Also at the same time, there's a market, a tough market backdrop that will require a bit of a, you know, like all of us, a bit of a change to the trading plan, and making sure we can navigate through the tricky environment well.
If you look at medium term, we've got really strong plans for capacity expansion with the most efficient technology that's out there and which we think is gonna drive really good profitable grocery online sales. There's nothing we need to do with the JV at the moment. It's working in terms of we're both bringing both sides to it. We think we can do more, by the way, with the existing JV, just on the side. I think if you ask Ocado Group, they'd say the same thing. I think that's our focus for now.
No, the
Remember when Steve started out, we had no viable route to omni-channel on food at all. You know, the Ocado joint venture was a break for freedom in that respect. We're very pleased. Our base return or large part of our base return comes out of our supply arrangements and synergy that brings. We're in a good place with this. Our focus has never been on a short-term profit. We want to create a great online business for with a five-year future. Of course, at the moment there's some issues. Of course there are. You can all see that. That's management and you know, that's what management's for is to deal with those issues. The pandemic reversion is impacting all food online businesses quite substantially.
We're very confident about the future of this business, and we think it's the right model for us. Now, thank you, James. Well, that concludes our questions. I want to just give Steve a final free hit. Steve, we know your plans to reemerge in some form or another, but it won't be as chief executive of M&S. Leave us with your parting thoughts and advice for everybody about how they should think about M&S in the future.
First, thank you, Archie. First of all, it's been my tremendous privilege to lead this team, to work at a pivotal point in the history of M&S and be part of a change that I think will secure a sustainably profitable business for the future. I promised that we would lift up every stone, have a good look, and make sure that we fixed it, and you know, take out the skeletons that were in the closet and work with those, you know, open and straightforward way, and I think we've done that. We had, at the time, less than activity in terms of the debt. We had less than 18% online in Clothing & Home. I mean, bear in mind, John Lewis was falling apart, 200,000 singles a day.
We had not shut a store for more than 10 years in the U.K. We had an international business which was losing a substantial amount of money, GBP 40 million in Europe alone. We had no digital capability or customer insight. Our food business, which had been a star, was losing share in terms of its positioning. I think the team, it is a team effort, have done a first-class job of tackling all those issues, despite the headwinds that we've had, and I've talked about of Brexit, of COVID-19, et cetera. We haven't shied away from the task at all. In fact, we've accelerated that task. I think what we can say is the business is in a better shape. This has been a very strong year, we believe.
We have invested where we think it is right to fix the business and right for the future. Whilst there is still more to do, you know, I think we're probably about four or five out of 10 on the journey to transform M&S. We do have a foundation by which I think we can look forward to growing the business on a normalized basis, notwithstanding the point Archie made about this year's headwinds. The team, you know, this is the first truly straightforward successional moment in certainly the last 25 years of M&S.
I think that whilst the strategy will evolve and change, of course it will, we're not gonna see the flip-flop we've had perhaps, and that will also, I think be a strong point for the business going forward. I'd be delighted to hand over to Stuart and Katie. I've enjoyed working with them very much and the rest of ExCo. The board's been tremendous support. I'm very grateful to Archie for his support in the last five years, and to you. With that, he slams mic to the floor and leaves the building.
Well, thank you, Steve. Thank you everybody for listening. Steve, I'm sure I speak for everybody when I say bonne chance. Thank you.
Thank you, guys.
Okay, thanks.
Morning, everybody. It's Archie here. I'm in the