Marks & Spencer Aktie

Good day, and welcome to the Max & Spencer Analyst Call. This meeting is being recorded. At this time, I would like to hand the call over to Archie Norman. Please go ahead, sir.

Good morning, everybody, and welcome to our results session. It's a very good day today because we've got a decent set of results and excellent weather coming for the bank holiday weekend.

And so we got here in this room, obviously, Stuart, Alison is here, Fraser and a whole lot of other people who don't get to say anything. But we're going to start off with Stuart's usual opening.

Thank you, Archie. Well, good morning, everyone. Thank you for joining us today. When we held this call a year ago, it was under very different set of circumstances, and I'm pleased to say we are in a far better place today and as a team, very much looking forward. Let me give you a take on last year. This was a year of 2 halves. The first half, as you know, was dominated by operational disruption. As always, our focus during that time was our customers. We found new ways to keep serving them, and we were transparent with our communications throughout.

We're grateful that they rewarded us with their trust and M&S remains the most U.K.'s trusted brand according to YouGov. We served 34 million customers last year, our highest number ever. And we never take trust for granted, and I want to thank every single customer who shopped with us last year. And as I always say, if you haven't shopped with us, then please do. Our colleagues worked incredibly hard to recover our business. And in the second half of the year, we returned to sales and profit growth. The work done in recent years to strengthen cash generation and improve resilience meant that we were able to respond and recover without compromising our financial health, and we ended the year with a strong net funds position.

This strong financial footing meant we could accelerate our transformation despite the disruption, and we continued to invest with discipline where it mattered most, our stores, our supply chain, our digital and technology and, of course, value. I once said that this was a lost year. But on reflection, it wasn't. It was a year of learning and everyone coming together as one team, serving our customers and continuing our transformation. And I think we came out stronger.

Let me touch on the financial headlines. Total group sales were GBP 17.4 billion, up 20% on last year as a result of the consolidation of Ocado Retail. Excluding Ocado Retail, sales of GBP 14.2 billion, 1.9% ahead of last year. M&S Group adjusted profit before tax was GBP 671.4 million, which includes the receipt of GBP 100 million of lost profit cyber insurance proceeds, which were claimed and received during the half. And free cash flow from operations for the period was an inflow of GBP 131.3 million.

Despite a challenging year with reduced profit and cash generation, we maintained the net funds position, excluding lease liabilities, reflecting strong profit conversion and disciplined debt management. Food was a standout performer in the year, growing 7% in sales and 3.5% in volume. We constantly outperformed the market. And by the end of the year, we have grown our market share to the highest point of 4.1%. This puts us firmly on track to achieve our ambition in doubling the size of our food business. If you include M&S sales on Ocado, our market share was 4.6% -- we served 800,000 more customers in the year in our food business, the biggest gain of any supermarket, and we did that by doubling down on what we do best, quality, innovation and value.

As the team in food always say, if in doubt, add quality in, and it's one of the things that sets us apart from the rest. This year, we upgraded more than 1,000 products, including entire categories such as Italian meals, deli and dairy. Now our quality perception scores are the highest they've been and the gap between M&S and the rest of the market continues to widen. We launched new products almost every week in our food stores, totaling 1,500. This included our only ingredients range made with minimal ingredients, which was an instant hit with customers, a genius idea from our food development team, getting us ahead of customer demand for clean eating and minimal ingredients.

Looking forward, value is more important to our customers than ever before, and we made significant investments, including areas like protein and fresh produce. And we're constantly investing in price and our price index to the main supermarkets is the best and lowest it's ever been. In Fashion, Home and Beauty, sales were more challenged, down 7.7%. -- store sales down 2.3% and online sales down 18.4%. But both stores and online were in growth during the fourth quarter with improved availability in time for customers to enjoy the summer range, which is now resonating. We've been making good progress on our product appeal overall.

Our formula in fashion is simple, deliver the best quality and style at the best price. As one fashion editor recently put it, M&S has finally dumped the front. And as a result, we're now attracting customers across a wider age range. And both in womenswear and menswear, our customers are getting slightly younger with a 16% increase in customers under the age of 30. We're doubling down on value. More than half of our spring/summer fashion is GBP 30 or under. And in lingerie, the team did a great job on our GP 10p bra last year in just 2 colors, this year, 7, and we sold 1.8 million 10p bras in the year. In fact, our market share lead in lingerie is so strong that over half the women in the U.K. wear a bras from M&S. But with all that said, across our fashion business, although we're starting to attract a younger customer, we will always remain a broad church. We want to extend our customer base, not replace our core customer.

In our international business, sales were down 7.2% with an improvement in the second half as new business in wholesale and online marketplaces partly offset the declines in owned and franchised. During the year, we made real progress with partners who share our ambition to build a global brand. We've seen an encouraging early response to our investment in trusted value, and we've continued to accelerate our new growth channel, securing targeted wholesale partnerships with Coles in Australia for food and Nordstrom in the U.S. for fashion. This is alongside driving online growth by launching marketplaces like Zalando and Amazon. Our partnership with Zalando has driven a 200% growth in new customers to M&S in Europe.

Touching on Ocado, the team continued to make solid progress delivering a small profit for the year. Sales of M&S on Ocado were up 17%. And M&S sales on Ocado reached GBP 1 billion for the first time with more potential for growth ahead.

Talking about our transformation. As you know, we've been reshaping M&S for growth, and we're moving to the phase that we now call reinvesting for growth. This year, we plan to invest between GBP 650 million and GBP 750 million of capital net of disposals.

The next 3 years are critically important. We have a clear plan centered around 3 key areas of disciplined investments. First, our stores and online where our customers experience M&S. Last year, despite the disruption, was our most ambitious share for store renewals in a decade. We picked up the pace with new store openings averaging a payback of less than 5 years. In Food, we opened 12 new and 18 renewed food stores, including Hatfield and attracting more families as we work to become a shopping list retailer and doubling the size of the food business. This year, we plan to open 18 more bigger, fresher food stores as we accelerate the pace of openings.

In Fashion, Home & Beauty, we opened 3 full-line stores last year, and we're working on our new modern store blueprint, easy to shop, fully omnichannel, showcasing the best of M&S with 2 full-line stores opening this year. And we'll open our new R&D format store in Pantheon in Octo Street later in July.

On supply chain, we've signed off and agreed 2 new food distribution centers in Avonmouth and Daventry. Together, these new facilities will add 1.7 million square foot of additional capacity getting ahead of our growth and supporting our plans to double the size of our food business. Daventry is our largest ever investment in our food supply chain, and we will modernize our network with the latest automation technology. Avonmouth in Bristol will support the modernization of our supply chain and increased network capacity in the Southwest.

And in our fashion business, we took a big step forward acquiring a 437,000 square foot modern fully automated fashion distribution center in Lichfield. The new site will add capacity, increase efficiency, reduce costs and improve margins. For customers, it means better availability and range, faster delivery, later cutoff times for next-day delivery and fewer split parcels, but there is so much more to do in our fashion business.

In data, digital and technology, we're playing catch up, but the good news is we have a clear plan, and we're making progress. Each of our managing directors has that plan embedded into their businesses working hand-in-hand with our D&T team, so each business owns their technology transformation. This also means hardwiring AI across the whole business and invested significantly in our data capability. Data is the foundation of our business and it's critical we invest here.

And that leads me on to Sparks, because Sparks has been on the pad on the to-do list for 10 years or more. And it is in our top 3 of customer complaints over recent years, and now we're improving it. The team has done a great job ofwatching the new sparse program, but this is just phase 1 with more to come. So across these capital investment priorities of stores, supply chain and D&T, we're moving forward with pace reinvesting for growth.

Now finishing on outlook. Retailers have been hit with a triple of headwinds. Higher tax including national insurance and new packaging taxes, more regulations such as employment Right Acts and the new HFSS rules and cost pressures from the ongoing conflict in the Middle East. And, of course, for our customers, a lot of uncertainty, especially closer to home. But in M&S, we have a clear plan. We're in good financial health, unshaken by recent events of last year, and we're very much focused on what's in our control.

Getting back to our strategy, our job is to protect the magic and modernize the rest. And we have a big modernization program, and we're only just a few years in. It's going to be a big year ahead. We have momentum, and we're going to continue with the transformation plans we have in place. We have a strong culture, a hard-working focused team, and we have a growth business. We expect to keep making progress with profits growing again compared to 2 years ago. And as I've always said, there's an extraordinary opportunity ahead of us, and we are on it.

Thank you. I'll hand back to Archie.

Thank you, Stuart. Okay. Well, we've got about 35 minutes for questions. And so we'll try and get through them as fast as we can. [Operator Instructions] I think we should start with Izabel Dobreva from Morgan Stanley because Izabel, I understand that this is our first week back from leave and that we should be congratulating you on the birth of your son Matteo. So many congratulations. And please ask the first question.

Thank you very much for the warm welcome back. It's great to be back and looking at Marks & Spencer. And so my first question is around Fashion, Home & Beauty. I was hoping if you could give us some comments around availability and newness and how those performed over the fourth quarter and then into the first quarter. I think in the CMD, you outlined clouds to increase newness by about 30% and increase the mix of 20. So if you could give us some color on how that has developed over the past couple of months and how you expect to develop over the rest of the year, that would be helpful.

Let me kick off with that, Izabel, thank you for the question. Look, I think the first thing is, as we exited the year, some of that growth, of course, was driven by promotion and clearance. And the good news about that in Q4, our performance was plus 4%, but that meant we enter quarter 1 in a relatively good position when it comes to stock. Now stock is 2 weeks higher than it was this time last year. But the mix of stock is what we call good stock, good condition. It's either core or newness for summer. So I think we're in a pretty good place with stock cover of around 15 weeks.

Just on your point on availability, I'm pleased to report some slightly better news of only 2 weeks ago because availability has been top of mind. It's been pretty good online, but as in our stores, our stores have dragged up until 2 weeks ago. Now our availability is running in the high 80s. And when we compare that on last year now, it's better. That doesn't mean we've got everything right. What we have learned again for the third year in a row is our smaller sizes are way out selling any of our expectations, and customers on the call will notice that when you're shopping online or in our stores. So we do have a slight availability problem still on size 6,8, 10 in some areas of womenswear and in some parts of menswear, small sizing in shorts and T ships. But that's because we're also outsetting those areas.

I think the last point for me is I think we're in a pretty good place. Now I said to the team 2 weeks ago, we had the hot weather of 2 weeks ago. We beat our budget pretty significantly. And I said to the team, keep the faith. You've got extremely good product. I think it's the best range reviews I've ever done. We're on trend. Our volume value is good. And don't forget, one of the facts I gave the media call earlier is 50% of our newness in womenswear is under GBP 30. So I think we're in a very good place. I expect us to make progress in Q1 and Q2 versus 2 years ago as well. We just need a bit of hot weather, which we're going to get in the next 7 days and a little bit of luck.

Thank you, Izabel. Now I think demonstrating even more favorite we should go to our famous alumni Richard Trainer from Bernstein.

Can you hear me?

Yes, we can, Richard.

Fantastic. Sorry about that. And Richard from Bernstein. It's good to be here. Firstly, on Fashion, Home & Beauty, when do you expect to see the investments in supply chain transformation and the tech platform start to translate into margin improvements.

Richard, good question. Look, of course, when it comes to the investment, the first investment is Lichfield. Now the good news about Lichfield, as I said in my introduction, is that really that's accelerated our supply chain capability for online. Now that will open in around a year from now. I'd like it a bit before 12 months, but let's see. But what's happened with that GBP 67 million of investment, it will give us more stockholding points online, about 20% more, 80% more picking capacity and like I said, a much better customer experience.

Anyone that shops our online knows, we have to go to multiple points. Parcels are normally split. We can't quite keep up with the main competitor on service delivery times. So all of this will help all of those customer metrics and we expect to see benefits of that from FY '28. Benefit availability and service, and therefore, sales but also benefits and cost savings from FY '28 as well, really driven -- sorry, driving an improvement in online margin because, as you know, that's our biggest gap and biggest opportunity. So it will be a few years. But what I would say is this has probably accelerated our online, double in our online business strategy by 3 years.

Fantastic. That's very clear. And if I could just ask one more. How are you currently thinking about inflation trajectory in the U.K.? And if it comes, how do you expect the responses of customers to differ between food and clothing?

Yes. Well, look, a quick comment on inflation. Obviously, the numbers came out this morning, Richard, and food inflation came out at 3%, a bit lower than I thought it would, but really in line with where we are.

Food inflation -- I'm sorry, closing inflation moved up slightly month-on-month, but there's a couple of things on inflation. The first is what's happening externally. So we know inflation is really being driven not so much by the Middle East yet, it's being driven by all of the cost increases passed from our suppliers to us. And in my quote today, I called it the triple whammy headwinds. Now the majority of that is what's already known.

The first being the increase in taxes. I won't go through them all because it's well documented, but this extra GBP 150 million for us as a business is a significant headwind. On top of that, you've also got some other headwinds around some regulatory burdens coming our way, whether it's profile modeled or mandatory reporting or the deposit return scheme. And don't forget, just in 1 month, we had to pay a packaging tax, a new tax of GBP 40 million. So the reason I say that is I have been very clear that the government does have choices. If they really want to help retailers and food retailers, particularly in a very competitive market, the fact that our margins are single digit, 4% or 5%, the fact that the majority of our food everyday essentials are negative margin or just about breakeven demonstrates that this is a very competitive market.

And in fact, the U.K. does have the lowest prices, some of the lowest prices in Europe on those everyday essentials. So my ask I've said to the government is you do have some choices. How will this play out? Richard, it's hard to tell because we are trying to mitigate the majority of these headwinds. We have a cost-out program, as you know, of GBP 120 million. we're aiming to pass this little through as possible because we want to reinvest in price to regrow volumes, and that's the same in food and fashion and grow cash sales and margin. So I haven't got a crystal ball, but we're trying to do the right thing and still be competitive in the market.

So shall we go on to Frederick Wild from Jefferies.

It's Frederick Wild at Jefferies. So I think the first question is on everyone's favorite topic of political rumors, you can comment on whether you've heard anything had any discussions with the government on the rumors of price caps of the impact of those. And just more broadly, thank you for your comments on the inflation outlook. Could I refocus on consumer expectations into this year, especially as consumers start to see more budget pressures coming in half 2, whether your guidance whether your internal budgets assume any weakening of consumer behavior either in food or clothing home FHB labor later this year.

I don't think -- thank you, Frederick. I don't think in -- probably in this meeting, we should dwell on the surprise cap idea. I mean, I think it's one of those flaky ideas that's had a political life of about 30 minutes. But Stuart, you want to...

I won't go as much as I did on the media call, but I do call it quite preposterous. And I said I don't think the government should be trying to run businesses, they should try and run the country and work with business for a growth plan and really work on a plan to help work in people. So there's a couple of things. Look, I don't know where this price cap we haven't been told about it. I first read it in the Financial Times yesterday and in the media today. We haven't had any direct communication on it. It of course, started with the S&P in Scotland. By the way, some of the business rates in Scotland are higher there than anywhere else in the country. So look, I -- what I'm hoping for is someone that sees common sense on that.

The second point on inflation. I've raised on the previous call. On the customer point, we research our customers frequently. And we asked 2,000 people, 2,000 customers just on Monday. The biggest thing on their mind. Now money and cost of living does come up. It comes up with also the low confidence in the country's direction and the political uncertainty and volatility. So all of that put into one means. Our value perception across retail has taken a slight dip. That's despite the fact that inflation is only running at 3%. And in fact, on the everyday items people buy most, if we just call out some of ours, top it might, like the price of a pilot milk 85p, I mean that's a negative margin. And that's with us also giving our farmers a fair price. That price we've held for a couple of years, the prices of a low for bread, I think, is 75p. That's been the price for the last 3 years, and we lose margin on that price.

Now other everyday items like eggs or sugar or flower is single-digit margins. And I think what people do forget government included, is that food is a competitive market. We have some of the lowest prices in Europe. And on everyday essentials, they're pretty margin diluted. So customers are worried about value. They're helping retailers still provide better value, but there are also -- customers are savvy. They know we've been impacted by a lot of cost headwinds, and they're just slightly anxious.

Going back to M&S, my summary for us is we've always democratized quality. We've always, in the last few years in our transformation plan with our launch of Remarksable now 6 years ago, put value at the very heart of our product strategy, and we will continue on that. Our plan is never about the percent, it's about the cash. We want to be a volume growth business. And like I said, in fashion, we're very focused on the fact that half of our summer is GBP 30 and under half of our summer range.

Thank you, Stuart. Okay. Shall we move on to Georgina Johanan, JPMorgan. Georgina?

I've got 2, please. I'll ask them one at a time perhaps. The first one was just going back to the new Lichfield warehouse. I was wondering if you could just clarify in terms of CapEx spending. I think that several hundred million that actually being set aside for that site. And it looks like that's now going to come in a lot lower. So if you could just clarify that, please, that would be helpful.

And also around cost because I think you gave some details about Castle Donington been around 130 for a pit cost. Just if there's anything you can share in terms of your early expectations of how much better that might be at Litchfield is either in absolute or percentage terms? That would be really helpful. That's my first one, please.

I'll hand over to Alison for some of this and give myself too many break.

Georgina, thanks. So the headline purchase price that you have seen for Lichfield was GBP 67.5 million. Now the automation in that site needs to be commissioned, and that will be about another GBP 20-or-so million. So we've set it out in the RNS that you have seen the GBP 70 million in the Lichfield investment line, and then there is about GBP 20 million more in the DMT line. There'll be a small amount of OpEx as well, but that's relatively minimal.

And then on pick cost, look, we're still working through what the efficiencies are that will be delivered from this side. I think that the one thing I would say is that this -- Stuart has already said that this was a pull-forward purchase. We had earmarked next year, actually probably for a greenfield site, which would have cost a lot more and taken a lot longer to bring online. So the fact that we were able to acquire it this year and at a significantly lower headline price really is the day one benefit.

We're hoping for a lower peak cost and, we'll look forward to giving an update at the Capital Markets Day.

Great...

Go on.

Sorry, just a super quick one, please. Just to clarify, when you're talking about profit growth resuming versus fiscal '25 in this current year. Should we take that to mean a sort of mid-single-digit level mid-single digit plus? Or is that the wrong inception, please?

Well, it's probably the right interpretation. I mean there's so much uncertainty and unknowns, but we're feeling confident we can show progress on 2 years ago.

Thank you. Shall we go to Yashraj Rajani at UBS.

Yashraj Rajani from UBS. And firstly, congratulations on finishing the year on the front foot. Appreciate it's not being the easiest one. My question revolves around Fashion, Home & Beauty. Can you shed some light on what's your level of confidence in getting back to pre-incident levels of 11% margin. Can you please lay out the puts and takes on external factors, investment drag and also if there's any mix effect from online and offline there?

Yash, just quickly for me on this. I mean, Look, I'm reasonably confident. And the reason I'm confident in getting back to those margin levels, we've always guided a 10% or greater than 10% the team under John's leadership. He's very focused on both online and stores. We've got some upside coming our way on sourcing. Supply chain, as I said, will be later in a couple of years, but that Lichfield point we've made is a good opportunity for FY '28 and beyond.

And if I look at our product mix, we're doing less promotions. Now we do need the good weather, but we're back now at the 80% mark on full price. Now we will have a sale. If I look at May and July, those numbers are looking pretty in line with the sale number of 2 years ago. The stock health, as I call it, is pretty good, but there is a lot of uncertainty.

If I look at the market, the market is quite subdued. You've only got to look at the last Kantar results to see that. But I think we're as best placed as we've ever been with good products, great style, good value, and we've got some good controls now back in place. And if I look at full price sales, again, our intention is back to the 80% level.

Thank you. Now I think we should go to Clive Black. Clive, you'll be pleased to hear that Stuart has been quoting your note on food policy to the world's media earlier today.

It was a very good out. That's a bit worrying, but well done on navigating the past year. I'll just ask the one. In terms of your food businesses, growth strategy, maybe you could give us an indication of your expectations for 2027 in terms of site procurement, how easy are you finding it to secure food sites because that was a little bit of frustration in times gone by. And maybe just set against that, how have recent store openings perform to the point you are more or less excited about what new stores could do for you.

Thanks, Clive. Well, look, we're confident in our food business. As we say, it's very predictable. We're on our journey to doubling the size of that business. And our new and renewal stores have played a big part of that. I mean, I've not worked in the food business where paybacks have been as strong as the paybacks we're getting. Now if you look at the sites I remember when I became Chief Executive, resetted the targets of the 5-year plan into 3 and the year later saying, "Oh, we got that wrong, we can't do it." But we have been given a few gifts. Now that doesn't mean the property team have worked hard because, as you know, when we converted the Debenhams sites, what we learned from those acquisitions is actually some of those stores for our growth plans, we're now outperforming them, and we would have actually made them bigger.

The second gift we got was the home base. Now we still have to work hard to do the right deals around those home bases, taking the very long lease or the head lease, but as we've opened these stores, they have proved very successful. I was in Kanik recently which has -- I mean, we've been performing 20% above our expectations in that store. Putney was an old store we closed. We reopened. That still has performed double digit above our expectations. Luton as well has performed way above double digit above our expectations. And even in our 4 line stores like Bart and Bristol, I mean, Bart has been performing about 5% above our business case and Bristol about double digit, 10% to 12% above our business case.

We're finding the sites better because of those home-based Debenhams stores. So that's one of the things. One thing I would say, that we're learning in order to get the full range in for customers to do a full shop with the kids and the family and a trolley that blueprint that Alex and the team have dusted down is now moving to a 20,000 square foot blueprint. Now it's never going to be a 35,000, 40,000 or 50,000 blueprint. We want good returns per square foot, but we are learning that some of those stores like Fadem, 20 is about right. So I think we're in a much better place. Don't forget, even at the end of this year, only 35% of our stores will be new or renewed. We're playing 25 years of catch-up.

So we got Richard Chamberlain from RBC. Richard?

Yes. So just I guess a couple of follow-ups, if that's all right, what sort of space contribution to sales then should we expect for the food business in the coming year? And how do you see that sort of bearing between the first and the second half? That's my first one.

Alison?

Richard, reasonably consistent throughout the year. We're expecting 2 to 3 percentage points of growth from non-like-for-like space, Richard, and then incremental volume growth obviously across like-for-likes.

Excellent. Okay. And the second one is on the clothing I guess, online business and expectations around sort of penetration. I just wondered with the addition of the new Lichfield DC, do you expect online penetration actually to rise above 50% long term? And do you think you can hold the store sales stable in that scenario?

Well, we're not going to change the 50% because I still think that's realistic. What Lichfield does is help us get to that 50% a bit quicker that we had planned. And by their say, I'm hoping slightly cheaper because spend in 67 on Lichfield is spending a couple of hundred million doing it ourselves. I mean, pre-incident, our online participation was 34%. We think we'll get to above that. So we're on the journey above that. And I think 50% is realistic. And we're hoping that our stores, don't forget, we'll have less stores. But overall, that will be the other 50% of the business, but they will be better for live, more modern stores.

We are behind on that. We've only just started our what we call renewal program on Fashion, Home & Beauty. In Food, we've been on this now for 6 years. In FHB we've been on it for 12 months.

Richard, I think the important thing with Lichfield and with some of the automation that we are making into Castle Donington is margin improvement rather than necessarily the mix of online and store sales. And Lichfield, because it's earlier, because it's cheaper, will help us to start to get that online margin up and the improvements in Donington will help to increase some of the store margins as well.

Thank you, Richard. So should we go Monique Pollard from Citi Bank. Monique?

The first question I have was just on the food gross margins. Just in the context of the inflation you're seeing, but obviously, also that focus that you have, Stuart, you've been talking about since the Capital Markets Day value and value perception. Should we think about the food gross margins being pretty stable this year? Or should we expect some level of price reinvestment, either via the kind of value ranges or via loyalty?

Yes, Monique, thank you because it's a good question. Look, I think we can expect the food margins still to be how we outlined at the Capital Markets Day last year and the year before, a net gross -- a net margin of above 4%. And the reason we hold the 4% is actually that's not our priority because we expect cash growth in the margin through volume. When we look at our cost-out program, there's a couple of things we're doing that Alex and the team are on to help mitigate some of this inflation. The first is we have a cost-out program, as you know, of GBP 120 million. and there's quite a lot of that in our food business.

The second, the team are doing a really good job with our Fortress Factory, our key suppliers we've been invested in those suppliers to get more operational improvements and more efficiency. And I think that, therefore, protects us to some extent around some of these inflationary headwinds. What I do always say to the team is we always invest in value. Last year, the team invested about 50 basis points in value. And that's why always focused on the cash. But we think the 4% there or thereabouts or greater will be still the right number.

Great. And just one follow-up on the dividend. Just trying to understand, obviously, you've done a small increase in the payout ratio this year despite the incident just given the progress you saw in the second half. So if you can achieve the guidance you've sort of soft outlined for this year, could we see a potential return to the pre-COVID levels of payout ratios?

Alison, I'll let you.

Really, Monique, what we're focused on, firstly, is cash generation within the business and then investing into the significant growth opportunities that we have which we have also set out. So very clear about our priorities for the use of cash, which is investing behind growing the business and building a more efficient business. And for now, for this year, next year, we will aim to grow the dividend over time. We will aim to fund through cash both our continued investments and an increase in the dividend, but the focus for now is on investing into those growth opportunities.

Thank you, Monique. Now we're running down the clock a bit. But let's go to Adam Cochrane and then we'll go to Anne Critchlow at Berenberg. Adam?

A question for me on investment and returns. So with the title reinvesting for growth, would you be able to -- there's lots of numbers on payback and cash contribution in the statement. But what -- in terms of your non-maintenance CapEx, so GBP 500 million last year, GBP 700 million in the year ahead, what profit number can we expect was achieved from that that CapEx investment both last year and expected for the year ahead, please?

Well, I may, Alison, do some detail. But I mean, top line, the reason we call it reinvested in growth is because at the very heart of our strategy. is we know with the cash we're generating, we need to get this business on track for the medium to longer term. And when we look at those 3 areas that we've outlined now for multiple years, its stores modernize our store estate. That is very proven. And the good thing about our store modernization program is our paybacks are very strong.

The second is supply chain. Now that is a longer payback. But if we compare that to a store rotation program, we're aiming for way below the 5-year payback. With our supply chain program, typically, that's a slightly longer payback, but we still think that will be pretty strong, especially like with our Lichfield acquisition. And don't forget the the distribution like Daventry, that investment that we're open in FY '29 actually helps us deliver that double-sized food business and will provide a much better, more efficient supply chain in food.

And of course, the third is D&T. Now when you look at our total maintenance and total CapEx, as we said, around GBP 700 million. If you look to split that, our maintenance is about GBP 150 million. We call it, keep the lights on. Our property is averaging around 200, supply chain around 200, D&T around 140. But we do have very strict hurdle rates in place. And that's why there is one other we call reinvest because we know we need to reinvest in value as well. And it's a cultural thing in the business but with discipline, Alison.

Yes. I mean, Adam, the most obvious return is the non-like-for-like top line growth in food that we specifically call out and that I've just put a number on for the coming year. Really with the others, with D&T and with the supply chain. The D&T investments are only really starting now, and those growth investments will have the return hurdles that we have set out for you, which is a 20% IRR and about a 4-year payback and then the supply chain investments, which is slightly longer payback. So over the next few years, you will start to see that mix coming through the P&L, and we will be clear about where that is coming from.

Lichfield, obviously, will help to drive the online margins. So you will see it there. Investment in online with the customer experience, for example, so some of the D&T investment into online, our commerce platform into improving the look and feel on the website. Those investments are very quick to pay back and will pay back in the year.

I understand where -- because sorry, just overall comment, I understand where you're coming from with this. You want to take a capital expenditure figure and extrapolate it into profit outlook, understandable. But it's a mixed picture. I mean we do have investments like SAP upgrade and replacement, which is very hard to attach a return to, as you said, there's maintenance CapEx. Overall, we look at everything on a waste average cost of capital, depending on the type of investment, roughly 14%. And over time, the -- we're now at the stage of making strategic investments, which will create a much more valuable business for many years to come, and that's the way we look at it. Sorry, I want to come back on that?

Yes. I just want to make sure that we can measure externally how this increase in CapEx is coming through. Obviously, it's a decent increase and hopefully, it generates those returns. I just want to make sure that we can measure it effectively from the outside.

Yes. I don't think it is easy to measure from the outside. But when we come to the Capital Markets Day, we're [indiscernible]. It's also as I'll get Fraser to pick up with you to have a conversation and go through the process with you.

Adam. okay, we'll take just a couple more and then we need to close. So shall we go to Anne Critchlow at Berenberg?

I've got 2 questions, please. So the first one is on systems. Just wondering when you expect to have the systems in place to interpret customer data. And do you intend to use that to sort of feed back into product development and buying decisions? Or is it really just more about personalization at the individual customer level?

And then the second question is on fashion input costs. So just interested to hear what you're seeing in terms of any pressures from higher polyester costs. And when it might filter through to you as well, I know there's quite a time lag and I guess you've got an offset from a historic weaker dollar or 2, but any comments there useful.

I'll let Alison do costs. I'll touch on systems. Look, I think what's very important for us is building our data. We know that can be used for multiple and you've really said it, Anne. The first is to drive personalization online, being our priority and Sparks be it another priority. And building that data up hopefully, would differentiate us. So that's critically important.

In terms of product development, we do use our customer data, but more often than not, we do different research with customers on product development. In fashion, it's very easy to work out future trends. That's done separately. In food, we research with customers, what's on their mind, what -- how are the lifestyle and the things they're looking for. That's why the team came up with only X ingredients. As of the list of things on people's mind what's still health and how to make it more accessible. And that's why the only X ingredient range has been really resonating. And I think the team has done a great job on that. I'll let Alison answer the cost question.

Yes. On costs, Anne, thank you. There's nothing in right now. we're in discussions with our suppliers in the Middle East, obviously, to track, where any increased sourcing cost pressures may come from. Separately to that, though, we have a sourcing transformation program, which John has been on for the last 6 months or so now, which involves moving more towards the sort of fortress supplier program for fashion that we have been running in foods for a while and which will bring sourcing benefits from longer-term contracts with our suppliers in the Far East. So that should go to offset any significant cost pressures coming through as a result of what's happening in the Middle East. So there's nothing in at the moment.

Okay. Thank you. Now look, we are over time. So I'm just going to take one more and really apologies for those who didn't get in but we'll pick up through the day very -- I'm sure as Stuart knows and happy to talk to people if they didn't get in. So shall we go to Warwick Okines of BNP.

Just one for me. I suppose I was just hoping you could step back and talk about how different your capabilities digitally are today compared with pre-incident of how much do you think you've moved forward over the last year?

Well, it's a good question, Warwick. I think, look, last year, we were literally as you understand, just recovering in the business. And I still think it was quite remarkable, which is why a few months ago, I said it was a lost year. And then I changed my mind completely. It's quite remarkable. The advances we made in store rotation, in supply chain. And actually, as we recovered our D&T, some of the plans we started to resurrect from our earlier transformation program recovery now beam, relaunching Sparks which was quite a considerable effort and of course, at the same time, mapping out the transformation program we laid out.

We have our safe and secure program, which is on track. We have a huge program with SAP that Alison is leading. That is a multiyear, very complex program on technology. But I think we're in a good place because in each part of the business, each MD owns their technology transformation. As you can expect, in fashion, it's really geared towards online customer experience and processes around sourcing and critical path. And John, with the D&T team, have made good progress on that. In food, it's very much around forecasted allocation, pricing and also supply chain and Alex and the team have made good progress. So I think we've recovered well and we'll explain more at the Capital Markets Day because it will really be a Capital Markets Day for FH&B and D&T.

Okay. Thank you, Warwick. Thank you, everybody. Just Stuart last comments from you?

No. We're available all day. Fraser and Heather and myself, Alison to pick up any questions. We thank you for your support and thank you for your questions today.

Okay. Thank you, everybody. Have a great day.

Hello, and welcome to the Marks & Spencer 2026 Annual Results. Stuart Machin, our Chief Executive, is going to introduce the results. Alison Dolan, our Finance Director, will take you through the financial detail, and Stuart will then talk about the future. Obviously, last year's figures were heavily colored by the incident that occurred in the early part of the year. And although it actually happened in April, the impact on our trading performance rolled on through much of the year, tapering towards the end and particularly affected Fashion, Home and Beauty.

So there's a limit to what you can read into the figures. The results are what they are. But adversity can make you stronger. And I feel that we came together through the year with common purpose that actually we continued the reshaping of the business, the investment, particularly in new stores and renewal stores. And we ended the year with a very strong balance sheet. Our conviction is this business has not really delivered its potential for decades. So we're not really here to massage the status quo or worry about one year at a time.

We're here to build a growth business for decades to come. And therefore, we're very happy to be moving now into a stage where we can accelerate the pace of investment. It's a new phase for M&S, and we already have some very exciting commitments to automation of the supply chain, to technology, some of it fashionably AI and also to a very solid pipeline of new stores and renewal stores where we're investing increasingly in larger, high-intensity, high sales per foot stores with our new formats. All of that delivered by our power management team. So we're confident that the results will be a very high return on investment. Sometimes I think M&S has a surfeit of historians, people who want to tell you what went wrong 15 years ago or 10 years ago.

This is a very, very different situation with a very different management team. And that's why we're looking forward to the future. We're going to shake the dust off our heels from last year and look forward to the year ahead with more confidence than ever. And with that, I'll hand over to Stuart.

Thank you, Archie. Well, good morning, everyone, and welcome to our full year results presentation. If you're watching on Wednesday, the 20th of May, there will be a conference call for analysts and investors at 9:30 a.m. when Alison and I will be available to take your questions. There are four parts to today's presentation. Firstly, I would like to start by updating you on our headline performance.

Alison, our CFO, will walk you through the financials in detail. I will then provide an update on our strategic plans for the next 12 months before closing with a view of the outlook for this financial year. Last year was an extraordinary period in M&S' 142-year history, a year that tested us but also a year that showed what our business is capable of. We worked incredibly hard to recover after the cyber incident last year. And as always, our focus was on our customers throughout.

So let me start by thanking everyone who shops with us, whether you shop in-store or online, we're hugely grateful for the trust and loyalty that you've given us, our customers, which we never take for granted. And once again, M&S remains the U.K.'s most trusted brand according to YouGov. I also would like to thank our supply partners for their commitment and their support. And finally, I want to thank all of our colleagues across the whole of M&S. We faced into this challenge together as one team, sleeves rolled up, helping us forge the culture we need to transform. There's now a real sense of determination in the business today, still positively dissatisfied, and we are very ambitious for the future.

This is one of the most important years in our history, and the next three years are critical for M&S as we invest for growth. We have a clear plan, and there is so much opportunity ahead of us, and that's why it's incredibly exciting. Today, we're announcing M&S group adjusted profit before tax of GBP 671.4 million. This is a decline year-on-year, but profits grew in the second half. Despite a fall in profitability, our free cash flow from operations was GBP 131 million, and we closed the period in a net funds position.

Our strong balance sheet has allowed us to keep moving forward, never pausing our transformation, but accelerating it. In fact, I'm speaking to you now from our Pantheon store in Oxford Street. This is what we call an R&D store, where we've been developing our new blueprint for Fashion, Home & Beauty. We've been testing and refining our new food format since I joined M&S in 2018. But in Fashion, Home & Beauty, we've not updated our new store formats and how it's going to look in the future in new stores. So we've been working here at Pantheon for the last few months, and we will fully open this store in July.

We will take all the learnings as we think about the future of our Fashion, Home & Beauty stores. It's just one example of how we're making good progress. We're now looking forward to the next phase of our transformation, a phase we now call reinvesting for growth, which I'll come back to later. First, let me talk you through our performance in the year. Food was our standout performer this year with sales growing 7% on the year in value and 3.3% in volume. Food operating margin was 4.6%, down from 5.4% last year.

The dip in profit reflects higher markdown and waste in the first half as we manually pushed stock to stores following the cyber incident. That impact was contained to the first half and profit in Food grew by GBP 80 million in the second half. At M&S, we are a product business. Our product is at the heart of everything we do, and we're obsessed with it. Our performance in food was underpinned by a consistent program of new and upgraded product launches, investment in value and a continued focus on protecting availability for customers. We upgraded over 1,000 products and launched over 1,400 new products, including our nutrient dense range, which offers healthier choices without compromising on taste or quality.

Our relentless focus on quality means perception is now at its highest level in over five years, extending our lead over the market. And our investment in trusted value has driven sales growth across our Remarksable Value dropped and locked and our bigger pack better value ranges, particularly in core categories such as protein and produce. This has led to strong volume growth. Our ambition is to become a true shopping list retailer. This is reflected in our market share gains, which is now at our highest level at 4.1% share or 4.6% if you include M&S on Ocado.

More customers are choosing to fill their baskets at M&S more often and across all demographics and all age groups in the U.K. In summary, our food business is on track, and we see significant long-term opportunities ahead of us, including the potential to double sales over time. Our focus now is reinvesting for the future, growing our store pipeline and building a modern, resilient supply chain, and we're making good progress. In Fashion, Home & Beauty, sales were more challenged, down 7.7%. This was largely driven by the impacts of the incident in the first half when we had to pause online orders, followed by a gradual recovery.

Sales across both channels during the year were affected by stock flow challenges and reduced availability. Fashion, Home & Beauty operating margin was 5.5% of sales, down from 11.3% last year. And this decline reflects lower sales, higher stock management and markdown costs. But both stores and online were in growth during the fourth quarter with improved availability in time for our customers to enjoy our new spring/summer ranges, which are now resonating strongly. We've been making good progress on our product appeal overall as one fashion editor recently put it, M&S has finally dumped the frump.

I really value the time that I spend with our buying teams reviewing all of our ranges, making sure we have the best style, the best quality and the best value for all of our customers. In fact, we remain #1 for quality and value perception, and we became #1 for style perception for the first time, up from #5 in 2021. As a result, we are now attracting customers from a wider age range. We're also committed to offering customers first price, right price as part of our trusted value strategy with more than half of our spring/summer fashion ranges being GBP 30 or under.

And we sold over 1.8 million of our GBP 10 Bras as we invest further in quality and value across Lingerie. And now with a three-pair GBP 10 Nicker pack to match. By the way, now over half the women in the U.K. are wearing an M&S bra. So in summary, it's been a challenging year for Fashion, Home & Beauty, but we are back on track and confident in the long-term opportunity to double sales online by modernizing how we buy, plan and flow stock while increasing operational efficiency to improve profitability. Our focus now is reinvesting for the future, strengthening our supply chain to improve productivity and efficiency and to reduce the cost to serve as we begin the next phase of our transformation.

Let's move to International. Sales were down 7.2% with an improvement in the second half as new business in wholesale and online marketplaces partly offset the declines in owned and franchise stores. This included shipment delays to the Middle East in the final month of the year. During the year, we made progress resetting partnership terms and grew through marketplaces with expanded ranges on Zalando in Europe. We also launched new wholesale partnerships in Australia and America. These initial improvements give us confidence in our long-term ambition to build a global omnichannel brand with a focused capital-light model. Finally, on to Ocado Retail, which has reported a small operating profit in the year.

Ocado Retail sales were up 15%, driven by growth in active customers and increased frequency. This was supported by a 17% uplift in M&S product sales, which have now surpassed GBP 1 billion in turnover for the very first time. Productivity in customer fulfillment centers also improved in the year, contributing to the boost in profitability. In summary, we're now beginning to see efficiency and productivity in the Ocado Retail Joint Venture, but there is much more to do before we commit to future growth investment.

I'll now hand over to Alison, who will walk you through the financials in more detail.

Thank you, Stuart. Good morning, everyone. I'll start by taking you through the group financial headlines. Total group sales were GBP 17.4 billion, up over 20% on last year as a result of the consolidation of Ocado Retail. Excluding Ocado Retail, sales were GBP 14.2 billion, 1.9% ahead of last year. M&S Group adjusted profit before tax was GBP 671.4 million, which includes the receipt of GBP 100 million of lost profit cyber insurance proceeds, which were claimed and received during the first half. Adjusting items during the year totaled GBP 292 million, of which GBP 131 million was incurred through the cyber attack.

Free cash flow from operations for the period was an inflow of GBP 131.3 million, and I'll provide further detail on this later in the presentation. Despite a challenging year with reduced profit and cash generation, we maintained a net funds position, excluding lease liabilities, reflecting strong profit conversion and disciplined debt management, including the repayment of medium-term notes and the issuance of a new 2032 bond. Return on capital employed decreased, reflecting lower adjusted operating profit and the consolidation of Ocado Retail's leases. The overall group performance shows a movement in year-on-year profit before tax, driven by the impact of the cyber attack.

The adjusted PBT decline we reported in the first half was partly offset by growth in the second. Turning to the second half. In Food, the need for manual store replenishment alongside higher waste and markdown had largely concluded. A strong Christmas profit performance reflected tighter buying, improved operational execution and higher sell-through and resulted in healthy profit growth in the second half. In Fashion, Home & Beauty, the website was offline for approximately six weeks in the first half, followed by a phased return over the summer. As we came back online, stock flows were materially disrupted, putting pressure on the supply chain.

This then constrained availability and led to excess stock holding, resulting in higher markdown than planned during the second half. Outside of the Food and Fashion, Home & Beauty business units, the International business delivered a small full year profit increase driven by reduced variable costs in owned markets and Financial Services had a relatively small profit impact due to disruption to the Travel Money business throughout the incident. As reported at the half year, our financials now consolidate Ocado Retail. For the 51 weeks to the end of March, Ocado Retail made an operating profit of GBP 15.2 million as fulfillment center efficiency improved somewhat.

The presentation of the consolidation also removes last year's share of associate loss, but increases net finance costs due to the consolidation of its leases. And then we report noncontrolling interest above the adjusted profit before tax line, maintaining the disclosure of adjusted profit in line with prior years to reflect the fact that our economic interest in Ocado Retail remains unchanged at 50%. Adjusting items during the year totaled GBP 292 million. The cyberattack drove GBP 131 million of those costs, approximately GBP 100 million in the first half and GBP 30 million in the second half.

They relate to resource augmentation to replace remote outsourced technology teams and corporate advisory costs, and they remain in line with the guidance we gave at the half year results. The remaining adjusting items in the period relate primarily to our strategic programs, including store rotation, the M&S bank transformation and the amortization of Ocado Retail. So looking at the results in more detail. The Food business grew sales by 7%, driven by increased shopper numbers and supported by investment in value, continued quality upgrades, innovation and new store openings.

The cyber attack had a significant impact on food gross margin from manual store replenishment, driving higher markdown, higher waste and stock loss. Operating costs increased by 4.9% in the period, significantly lower than sales growth, driving operational cost leverage. Operating costs in the period were driven by retail and logistics costs from increased colleague pay, national insurance contributions, volume growth and new store openings, partly offset by cost savings as well as lower central costs, reflecting reduced incentive accruals and lower marketing spend. As a result, food operating margin fell to 4.6%, down 80 basis points from last year's 5.4%.

In Fashion, Home & Beauty, sales fell by 7.7%. Store sales were down 2.3% and online sales down 18.4% in the year. In the fourth quarter, however, sales in both channels were in growth as availability began to improve. Gross margin fell by 2.7 percentage points, driven by increased stock management and markdown-related costs, which were weighted towards the second half. There was significant cost deleverage across retail, logistics and D&T as the drop in sales exceeded cost reduction. Logistics costs were lower year-on-year, driven by reduced volumes, the exit of bulky furniture and efficiencies, which more than offset incident-related warehouse costs.

Digital and technology costs increased due to systems development, including the planning platform and the relaunch of Sparks, while central costs reduced overall, reflecting lower incentive accruals, partly offset by higher performance marketing spend. Cost increases in retail reflected colleague pay, national insurance contributions and in-store maintenance, partly offset by cost savings.

As a result, Fashion, Home & Beauty operating margin declined to 5.5% from 11.3% in the prior year.

Our structural cost-out program is a key part of our ambition to achieve operating margins of over 10% in Fashion, Home & Beauty and over 4% in Food. Three years into the program and approximately GBP 390 million of savings has been achieved with GBP 89 million delivered in the year across key areas such as retail, supply chain and digital and technology. We plan to deliver increased savings in the year ahead of over GBP 120 million with a target of achieving GBP 600 million cost savings by FY '28. Savings are focused on improved retail operations, new warehouse capacity and technology transformation and will help to offset frontline colleague pay inflation, increased packaging taxes and other government tax levies.

Free cash flow from operations was an inflow of GBP 131 million, which was GBP 312 million adverse to last year. The primary driver of the cash movement was the impact of the cyber attack, which resulted in a decline in operating profit, increased working capital and adjusting items in cash flow, all partially offset by reduced taxation on the back of lower profits. The working capital outflow reflected higher receivables from growth in food sales, money tied up in stock, new wholesale partnerships in international, which increased receivables and incentive accruals in the prior year.

Fashion, Home & Beauty stockholding was higher year-on-year, driven by higher core and seasonal stock, which we expect to sell through in the first half of this year. Terminal stock is provided for. The consolidation of Ocado Retail resulted in a small operating profit, increased depreciation, offset by increased cash lease payments and the elimination of last year's share of associate loss. And finally, cash contributions to the DB pension fund in free cash flow recommenced in the year, and net CapEx reflects increased investment in our growth and cost-out opportunities, primarily in property and the supply chain.

As a result, the group had closing net funds of GBP 338 million, excluding lease liabilities. Including Ocado retail leases and other liabilities, overall group net debt increased to GBP 2.4 billion from GBP 1.8 billion the prior year. The majority of the increase is the Ocado leases. We retain significant liquidity and headroom to our investment-grade credit rating metrics. So to summarize, the trading performance of the last financial year reflects the one-off impact of the cyber attack. The impact of higher food markdown and waste was contained to the first half.

The impact on Fashion, Home & Beauty, which disrupted stock flows, created additional markdown and challenged availability did last longer, but is now tapering. During the year, we reduced structural costs by GBP 89 million and are on track to deliver GBP 600 million of cost savings between FY '23 and FY '28 with a further GBP 120 million or more in the coming year. Free cash flow reflects the profit impact and increased capital expenditure from our investment in growth and cost out in the period.

Overall, we maintain a strong investment-grade balance sheet. We retain a net funds position pre-leases, and we will be paying an increased dividend, all reflecting our strong and growing cash generation.

I'll now hand you back to Stuart. Thank you.

Despite the disruption during the last year, we've remained laser-focused on delivering our strategy. In the year ahead, we're moving from reshaping for growth to reinvesting for growth as we step up reinvestment in our products and in our transformation program. This year, we plan to invest between GBP 650 million to GBP 750 million of capital, net of disposals. Around GBP 150 million is being spent on maintenance CapEx. The balance is going to growth and cost-out projects across our three strategic priorities: store rotation, supply chain and digital and technology.

As a reminder, all of our growth and cost-out projects are assessed and approved to meet strict investment hurdle rates. In property, our goal is to grow food to more than 420 stores over time while creating a more productive and focused full-line store estate of around 180 to 200 stores as we build our online sales participation in Fashion, Home & Beauty. Over the last year, we opened 12 new food stores, including two conversions of former Hmebased sites. In full line, our new and relocated flagship stores in [ Bath ] and Bristol Cabot Circus have traded ahead of our expectations showing how strong our offer is when we get the right-sized store in the right location. We've also invested in existing stores through our renewal program with over 35% of the store estate now in renewal format, our biggest program in a decade.

In the year ahead, we plan to spend around GBP 200 million investing in stores, most of this in food with 18 new food stores, including Abingdon, which trades 18,000 square feet and will offer the full Marks & Spencer food range. When it comes to our supply chain, we're investing to build a faster, leaner and more efficient network to support growth while structurally lowering our cost to serve. In the year ahead, we plan to spend around GBP 270 million, which includes the GBP 70 million investment in a new fully automated distribution center, which we announced last week.

In food, volume growth over recent years has reduced spare capacity, requiring temporary solutions and higher costs. We're now investing to unlock future supply chain capacity. The Avonmouth regional distribution center will come online this financial year, and we'll begin installing automation kit at the future Daventry National Distribution Center ahead of its opening in 2029. In Fashion, Home & Beauty, we're reshaping the supply chain end-to-end to improve efficiency as the business becomes increasingly online led.

The new 437,000 square foot Lichfield site will accelerate online capacity, reduce split shipments, lower our costs and improve our customer service. And automation at Castle Donington and Bradford will come online this year to support the faster flow of stock and improve availability for our customers. Finally, in digital and technology, our priority over the last 12 months has, of course, been recovery, and that was the right thing to do. But now our focus is on accelerating the D&T transformation. Each of our managing directors has a D&T plan embedded into their business, so every business owns their technology transformation. This means hardwiring AI across the whole business and investing significantly in our data capability.

Data is the foundation of our business, and it's critical we invest here, which brings me to Sparks. Most recently, we relaunched our Sparks loyalty program with a digital wallet and real money rewards, laying the foundations for greater personalization and engagement. In the year ahead, we plan to spend around GBP 140 million across digital and technology, mostly in Fashion, Home & Beauty, including the rollout of our planning platform and investing in our online capabilities.

On the website and app, our near-term priorities are improving the customer experience. Through search, imagery and checkout and payment. From a stronger commercial position and with a healthy balance sheet, we are well placed to deliver sustained growth in earnings and free cash flow over time. And our approach to capital allocation and disciplined investment reflects this. Therefore, as we reinvest for growth, our dividend remains measured and conservative at this time. To finish, I'll give you the outlook. Retailers have been hit with a triple whammy of headwinds, much higher taxes including national insurance and packaging taxes. more regulation such as the Employment Rights Act and higher cost pressures from the ongoing conflict in the Middle East. And of course, closer to home, lots of uncertainty.

We will aim to mitigate these as much as we can through improved buying, reinvesting in value to drive volume and savings from our program to reduce structural costs. At M&S, we have entered this financial year with a clear plan and a strong balance sheet and laser-focused on what's in our control. Food continues to drive volume through reinvestment in quality, value and across our new store openings. And we have a regular drumbeat of new innovative products landing throughout the year.

The priority in Fashion, Home & Beauty is delivering growth on the back of stronger style credentials and new supply chain capabilities. This is the year we begin to reset the backbone of our Fashion, Home & Beauty business. We expect profit growth to resume versus financial year '24/'25, and we anticipate further progress on the transformation in the year ahead as we continue to reinvest for growth. Despite a challenging year last year, our strategy and our ambition remains unchanged. We don't underestimate the scale of change ahead. Our job, though, is to protect the magic of M&S while modernizing the rest.

We've got the momentum to do that at pace. We have a strong culture, a hard-working focused team and a growth business. There's an extraordinary opportunity ahead of us, and we're on it. Thank you.

Right. Good afternoon, everyone. Welcome to our Capital Markets Day. And as you know, the Capital Markets Day is always looking forward. So it's about our strategy. We discussed the half year results and the last 6 months last week. So today is all about looking forward.

And also just following on from that video, I think when we think about our strategy, we always think about our customers because actually, we serve 32 million customers a year. So over half of the population shop at M&S. And I think it's really important we constantly think about being closer to our customers, closer to our colleagues because that's one of our key behaviors.

Following on from that video and some of that feedback, we are really fortunate because we are inundated with customer feedback. It doesn't matter is an e-mail or a few hundred e-mails to me every week or it's through our contact center or it's through our stores and our store management team.

And we also have other ways of reaching out to customers. We have something we launched last year called our Customer Collective. And our Customer Collective is a group of people that we just wrote to and said, would you sign up? So when we ask you questions, you can give us immediate feedback.

And when we wrote this out within a couple of days, we had 42,000 customers that volunteered to be part of our Collective. So on Friday, I wrote to a few of those customers and just said, could you give us some feedback on what we're doing well, what are the big opportunities and also the biggest things on your mind.

And the great thing about M&S is our customers are just as ambitious as we are, if not more so, and they're very demanding, which is brilliant because they're very passionate about M&S. And when we get the feedback, I wrote a few positives, a few opportunities and then the biggest thing they're telling us that they're concerned about. The positives, they want bigger stores.

They very much talk about their area, their catchment. They want the store renewed if it hasn't been renewed. The second thing that comes out is they want more range, especially in food or if we've opened a food store, they're asking when is the next biggest store that also does fashion in particular, followed by home and beauty.

The other thing they raise, even in new stores, they raise parking, and they say we need more parking. And then when we talk about opportunities, the biggest things that come out, no surprise to us. The social media really cuts through, but you run out of all the fashion items, especially small sizes. Then they tell us, we want better offers or if not offers, please keep focused on value.

And then they ask us to improve our loyalty program, Sparks. No surprise to anyone in the room, but loyalty is a big thing, and they want more personalization. And they want to feel that we know you. We understand you not just as a group of customers, but individually.

And when I ask "What's top of mind? What are you most worried about?" It's actually quite interesting this year because never have I heard so much about government or budgets or value as we are hearing today. Because at the moment, majority of our customers are waiting for the 26th of November. They're waiting for whatever the big reveal is.

And when you ask the biggest thing on their mind, they talk about prices and value. And I think that's really important when it comes to our plans for the future. The work we've done on quality, product and value, but the work we're also continuing to do over the years ahead. And I'll touch more on that shortly as will the team.

We also asked for key words, "What are the words you think about with M&S?" And the word trust comes out. And it comes out in various ways because what customers tell us is we expect you to do the right thing. The lengths we go to in our stores, on product or service, it's just an expectation because you're M&S and trust features heavily in our strategy, features in our vision when we spoke about this just 3 years ago.

Because we talk about wanting to be the most trusted retailer put in product at the very heart of everything we do. Because what's different in M&S compared to other retailers, we as a team have worked for is we're a product company. We own the product. It's overwhelmingly own label. We're not just selling lots of brands, we own the products we sell, and it gives us full control of everything we sell.

So trust is important and as under trust, customers want consistency. They want to know every day, we're trying to do the right thing day in and day out. So that features very heavily in our strategy. When we think about trust, there are different measures, different reports, different surveys.

But when we look at the YouGov survey, YouGov asks "What are the top British brands?" and if you go back to 2020, we featured in the top five of the top British brands. If you go to 2021, we featured third in the top British brands. If you go to the last 2.5 years, we've been voted #1, the top U.K. or British brand. But that's a big responsibility because when you commit to being the most trusted retailer, you set the bar very high.

And when you do reach that #1 spot of being the most trusted brand, you might drop off 1 or 2 points every now and again, but you want to be that most trusted brand day in and day out. So for us, that gives us that positive pressure to constantly improve and reshape the organization.

As I said, when we think about who we want to be, the most trusted brand with own label M&S at the very heart because we're overwhelmingly own label. As part of that trust, it's working with our brilliant supplier partners being very much integrated into the organization. So it shouldn't be an arm's length relationship.

It should be a close relationship, how we work with our farmers, or our international suppliers in fashion of whom we've had relationships for many, many years and how we nurture those relationships when times get difficult, just as important, if not more so now than they ever were. And protecting our IP, of our product is becoming increasingly important.

When we think about our purpose and why we exist, we spoke a lot in our previous Capital Markets Days about the M&S magic, bringing the magic of M&S through exceptional quality, value, service and innovation. And that's really important because customers expect us to lead on outstanding own-label quality.

They expect to pay a little bit more for outstanding quality but not a lot more. They also expect much better service in M&S than other retailers. So expectations are high, and we have got to do a better job through our people and serving through better technology and experience.

They expect us to lead in innovation because in 1947, we were the first retailer to sell nylon stockings. And in 1960, we were the first retailer to sell the fresh-packed whole chicken. And in 1980, we were the first retailer to sell prepacked sandwiches. So innovation is always part of the M&S magic and it doesn't matter how many times we land a new line and our competitors run into stores and the store managers will e-mail us and say, so and so has just been in and stripped the shelves of new lines to take it back to their office.

We say the same thing. That's okay, providing we're leading on innovation, and we're not copying. So always be the leaders. So whether it was the nylon stockings or whether it's the strawberry sando that sold millions, I think it was GBP 4 million within a matter of weeks. This innovation is incredibly important.

The other big thing in our purpose is about this online and multichannel and omnichannel because we are very aware we have a stores business, an online business and a cargo business, a floral business, an international business, but really, we need to move towards one view of the customer. And we need this omnichannel seamless experience. And hopefully, all of you are shopping with us.

So you know full well whether it's you or your family or friends that we've got quite a lot to do to join up this experience. Our strategy has always been in the last 3 years, therefore, to protect the magic of M&S but modernize the rest. And our strategy hasn't changed. And we're not really announcing anything new today, but we're announcing a continuation and in many ways, an acceleration of the strategy we laid out in my few months in as CEO in October 22 because protecting the magic means embracing, harnessing, protecting all of the themes that made M&S what it is today, but at the same time, we've got a huge modernization program.

A huge program to transform change M&S for the future and to enable future growth. And when we do an internal communication event, like last week after our half year results, colleagues would normally say to me or the leadership team, have we now transformed? Have we finished the transformation? And of course, we say no.

And I'm normally guilty of saying we've only just begun as the song goes because when you look at the opportunity ahead of us and when you go through the journey with us today, you'll realize, yes, lots has been done, but there's so much more to do and there's so much opportunity ahead for us in future years.

And we now have this saying that change is constant. Change is not a one-off event. We are constantly going to change the organization. And if you're a person that loves fast pace, if you're a person that really wants to make a difference, if you're someone who loves to change and constantly improve, then you're going to enjoy working at M&S.

So in 2022, we laid out our plan of reshaping M&S for growth. And more recently, in the last few months, we've now called this plan reshaping M&S for continued growth. So in the spirit of we said, we've done when we look at what we laid out in October '22, for that 5-year plan, we said, in food, we will grow market share by 1%. We said in Fashion, Home and Beauty, we will grow market share by 1%. So in Food, that would take us to approximately GBP 10.5 billion, in Fashion to around GBP 4.3 billion.

We also said we'd have operating margins in Food of around 4%, a question that many of you ask every time we catch up and talk. And we talked about in Fashion, Home and Beauty a margin of 10%. We laid out a plan of restructuring our cost base we laid the plan out to say to remove GBP 400 million of cost out. We've raised that recently to GBP 600 million, especially when we had the added surprise of even more cost headwinds coming our way.

Increased National Insurance, another GBP 55 million a year for us, increasing living wage, which, by the way, we would have done anyway, we class that a good cost. So that was already in our plans. The other things like the new taxes on packaging, which is an extra GBP 30 million or deposit return scheme, an extra GBP 30 million to implement another GBP 10 million cost every year to run.

So there's a lot coming our way. I think the good news for us is we also know there's so much to go for, hence why we've increased our cost plans and I will touch on this later, but it's very important we think about restructuring the cost base, not just taking cost out.

But we also talked about having disciplined capital allocation, very clear hurdle rates. And we laid out our capital envelope of around GBP 650 million to GBP 750 million. And when we think about progress to date, 3 years into that plan, in Food, as you can see, we've grown from 3.5% to 3.9%. In fact, today, you would have noticed Kantar's results. The market was flat on volume.

We have grown in the last 4 weeks and 12 weeks on volume and we've come out Ocado #1, M&S #2. And in fact, our market share as of today is at 4.1%. In Fashion, we've already grown our market share from 9.4% as you can see to 10.5%. And in margins, I expect lots of questions on margins, but hopefully, we'll answer those through today's session.

On margins, you would say like we would say, well, you set out your target, but you've delivered those already before the 5 years. On return on capital employed, we had a much improved result of 16.4%. Obviously, we expect a slight drop-off on that this year, but a strong recovery. And our balance sheet is in good shape, and we've been net funds for 18 months. So if you summarize all of that, we're heading in the right direction.

But we talk about positively dissatisfied as this culture. And I think -- and we think as a leadership team actually being positively dissatisfied should give us energy. It should always be cheering on the progress, acknowledging the green shoots, but actually never quite happy because one of our behaviors is always aiming higher because when you look at the opportunity ahead of us, we find that incredibly exciting.

On the we've said we've done, we've got our key pillars in our strategy around product, profitable sales growth, operating margin performance and building the M&S we need to be, building M&S for the future. And when we have a quick scores on the doors, we don't do amber, we've had to try and find a few greens and acknowledge the few reds. But when you look through that, you can see where we've made some progress, but really the reds call out where we're just very positively dissatisfied because there's so much to do in the years ahead.

And looking at that in more detail, if we start with exceptional product because as we talk about, product is at the very heart of everything we do and the P&L is in every product we sell. We talk a lot about quality in fashion, we talk a lot about style. And actually, for the first time in Fashion, Home and Beauty just last week, we were #1 for style, which for us was a huge motivator.

And for the team who have been putting so much effort into improving our quality and style, but still maintaining trusted value, it was a big cheer on. Now whether we remain #1 or 2, it doesn't really matter, but we're well on the way to improving our style credentials.

And in food, you can see our quality perception continues to improve from a pretty high level at the very start, but there are some watchouts on how that's dropping off, and I'll touch on that on value as well. You'll hear later from the team, quality, your eat products like you had your lunch on arriving.

And Kathryn is going to join Alex on stage later to talk about quality in food. But I'll just pause a moment and let Kathryn talk to you about one specific example for this Christmas when we think about delivering quality for our customers this year.

[Presentation]

I laughed because I was a bit worried about showing the 65 number, but Kathryn can explain that, she has a very good answer for everything we do on quality. But just as quality is important, I mentioned value at the very start because our customers talk a lot about value. And as you know, I talk a lot about trusted value everyday pricing, first price, right price.

And in the past, we talked about trusted value driving our volume. We've invested over GBP 165 million in the past few years in food on value. And it's a challenge for the Food team because with all of those headwinds coming our way, our suppliers are facing all of those headwinds themselves, every extra tax they get, how that part is through to us.

That's why the work Alex and the team are doing, like John and the team in Fashion, Home and Beauty, working with partners to mitigate those extra costs to make sure we can be as best as we can on value for customers becoming more important today than ever before.

But actually, we did the baseline from December '23, but I remember joining running the food business in late 2018, and that number was way down here on value. So you can see the improvement in our value perception scores a slight drop off here that Alex and I completely paranoid about. And likewise, in Fashion, Home and Beauty as customers' expectations on value are getting even higher, you can see that slight drop off because customers are worried about prices, and we have to be paranoid about value.

Two weeks ago, I presented in Northern Ireland at the National Food & Drinks Association. And they asked, well, they've been asking every year, but I did agree to do it this year, a keynote speech. And of course, I went and talked about M&S, I even took the Christmas catalog, gave it out to everybody. But the video I showed was our first store opening in Belfast in 1967.

And this video was just tremendous well before many of us in the room were born. And in this video, it talked about the store opening, 230,000 people turned up for the opening, and they did a marketing video. And the video was pretty tremendous because it showed you the store and the video gave you goosebumps.

You saw all of these dresses piled up with a big, clear price point, you saw chinos and men's trousers piled up on tables with a very clear price point, ditto in food. And the advert talked about come to M&S Belfast. High-quality provisions and you don't pay any more. And the minute I watched that video, we had a leadership meeting with our top 100 leaders that day, and the opening of that meeting was to play the video. Just to remind us that actually in M&S, protecting the magic and modernizing the rest is all about quality at the right price.

We've never been a premium retailer. We've always aimed to have better quality for the right price. And we've been investing in value and our performance in our value categories has actually been very strong, but there's so much more to go for because in food, whether it's bigger packs and better value, or the Remarksable range that the team worked so hard on the top 200 items that our customers buy most at the same price as a big retail competitor, milk at 85p, for example, those sales, as you can see, are growing every year and becoming a large proportion of the basket, and Alex will talk more about that.

But in fashion as well, we need to be really conscious of price. When Charlotte joined us running lingerie, we were walking a store together and we talked about the GBP 10 bra, there was no signage, you had to look, move the ticket and go, oh, GBP 10, feels a good price. And actually, for the quality and the price, you would say it's the best value bra in the market. We had one color, white. Charlotte has introduced six colors of the GBP 10 bra, and this year, we're going to sell 2 million of the GBP 10 bra. So value has to run throughout every product, every category and everything we do.

Our second pillar is driving profitable sales, and that's all about growth. And you would say we're on track. We've grown our customers when you think about our customer base, which is our first part of this plan because as I said at the start, we serve 32 million customers a year. But actually, we haven't really cracked this yet. Because in food, our customers have grown over 9% in the last couple of years and frequency is up double digits, probably 11% or something.

I think it's up on the slide. In Fashion, Home and Beauty, the customer numbers are pretty flat. Frequency has gone up by about 5%. But when you really get into that customer base, only 40% of our customers cross shop across the businesses. And actually, that's really in our full-line stores where there's food and fashion. But we haven't really got customers shopping across categories. And in fashion, in John's business, half our customers only shop one category.

So there's a massive opportunity and go back to my opening when I say to customers, what do you really want us to fix? And one of the top 3, I should say really one of the top 3 is toilets, by the way, but I didn't really want to bring that up at the start of the presentation. But one of the top 3 is Sparks.

So if you think about Sparks, 24 million people on our Sparks program, we have to crack this where we engage more customers to cross-shop more categories. And we will be relaunching our Sparks program. It won't be one big bang. We wanted to do it a few months ago. We had a bit of disruption, so things have slowed down. We will relaunch it at the start of next financial year, but it will continue to evolve over the months and years ahead as well.

The second key part of this pillar is online and omnichannel and really using that competitive advantage of having stores and online because we've marked this red by the plan we laid out a couple of years ago. But we know this is a big opportunity. In John's business, we've got 10 million customers shopping online, 5.5 million of those on the app. But actually, we've got to improve that experience.

Now we had a plan to do a lot of that experience over the last few months. We'll get back on track. And actually, over the next 12 months is a big priority for us because we know we're a bit behind where everyone else is on experience.

But when you think about that opportunity, as you can see from the slides, in Fashion, Home and Beauty, we laid out a participation target of 50% of our business to be online. And we're more convinced and John is convinced since he arrived in the business that this is a really realistic target and important for the years ahead. So we need to focus our resources on delivering online. But we dropped off slightly from 33% post-COVID, but our participation is at 32%, but the market is significantly higher.

I think it's 46%, you told me, John. 42%. The market is running at 42%, so actually, we see this as a big opportunity. So thinking about omnichannel, thinking about the margin performance, by the way, here at 7.5%, all of you will be telling John and I, well, everyone else is 10 percentage points better than that, what are you going to do about your margin? John can answer that in his session. But that is a big opportunity for us and how we become a more profitable online retailer.

And we talked about Ocado and Hannah's in the room with Matt, the Finance Director for Ocado because Ocado had a strong performance in the half of 15% up. A strong M&S performance on Ocado as well, around 20% up. And actually, the question you gave me two years ago in this room was Stuart, do you really think this year, Ocado will make profit? And I answered no. But I think it could break even within three years. And I think we'd say we're on track, Hannah, with that.

So the next part of this program on delivering profitable sales growth is also a really important program in store rotation and store renewal because I admitted this last year. I wanted to accelerate this program. I came up and said the 5-year plan. We're doing it in 3. In fact, some of you said to me is that wise. But the truth is we just couldn't do it anyway.

So we're really back to that plan that was a 5-year plan that's really turning into a 6-year plan. But let me just talk you through and remind you what we said. We said we had worked out by looking at our network and mapping out the country that we wanted about 180 full-line stores by FY '28 and probably about 420 food halls because we know where every store is, of course, but we also know the markets we want to be in. That's looking like 200 full-line stores and around 380. So Alex is about 40 short for FY '28.

Now we're playing catch-up, and it is important to remember that whether it's our property committee and then we take that to the Board, it's important to remember that we debate these stores at length. We're also making sure we're investing in the right stores for the future. We're not really thinking about the next 1 year, 2 years, 3.

We're making decisions for 5 years, 10 years, 15 and beyond. So we say no more to saying yes. But actually, when you look at our catch-up plan, we've got quite a few stores in the pipeline. And we know in our food stores, in particular, this is working.

We've got a proven model. I'll pick one store, which is Dundee because in this store, we opened this store in July 2024. Some of you may know it. We had a high street old legacy store that was collapsing, on a downward spiral, not a lot we could do. Even if we invested, we didn't think it would deliver the right returns in the medium to longer term.

We had a full-line store in Dundee on a retail park, but we wasn't happy with the location. So we spent quite a lot of time renegotiating and we ended up moving that store to a better part of the retail park and closing the High Street Food store. So Dundee is now a full-line store. In fact, food space in totality reduced, if you think about both stores by 36%.

Sales per square foot went up 80% and sales went from GBP 22 million to GBP 26 million in Dundee. In Fashion, Home and Beauty, we grew the space 10%. Sales went from GBP 9 million to GBP 4 million. Sales per square foot went up 45%. So overall, that decision enabled us to grow our sales from GBP 31 million to GBP 40 million and actually be much -- a bigger, more profitable, more productive store for the future with a payback of this store is just under 2 years.

And in our pipeline, we have 67 stores already approved that will open in the next three years. In fact, this year and next year in Sacha can talk about this and Will is in the room in the breakout sessions. This is actually the most amount of store rotation or renewals or new stores we have ever done in the history of M&S.

So there's been a lot of activity in the last few months and into the next 12 months. So 67 already approved for the next 3 years. In fact, if you just go beyond a year. There's actually 94 stores already approved, signed off, and we're very clear. But in FY '28, we will still, even all -- after all of this hard work, only have 53% of our stores, either new or renewed.

Don't forget, we did the home base program, 12 homebase stores. All of those will be open, I think, by '26, Sacha?

It's 7. Then you have got a long lease deferred.

Okay. So 7 stores out of the 12 by July, the rest by FY '30, where we've taken the overriding lease, but these are going to be terrific food stores, high-trading stores, average size 18,000 square feet. So don't forget, we don't have the 35,000 or 50,000 format like a big supermarket but this will be a very high trading store, all of these homebase stores.

In Fashion, Home and Beauty, we just need a bit more time. We're going to reopen Pantheon in May next year, but Pantheon store at the bottom of Oxford Street is really our first real goal of what we think the future format Fashion, Home and Beauty should be. And to be honest, you can't blame John, if it goes wrong, you blame me.

What John and I are going to do when we open Pantheon is walk the store with the team, talk to customers, look at all of the numbers and then decide and we shouldn't rush this. what's working, what isn't, what's scalable. But our plan is to have a new blueprint for Fashion, Home and Beauty by towards the half of next financial year. And then we can start discussing and agreeing rollout for that format.

I know many of you are interested in international and our global growth plan because you've asked me and Mark in our leadership team is going to do a session on this with Victoria later in the breakout sessions. We've marked this red mainly because we've been doing a lot of work in the background to reset our global plan. And actually, I would say there's a lot done, but now it's about execution, and we've got to really crack on now with executing this plan and delivering growth. And we're very clear on that.

The old contracts in international were really not win-win contracts. The contracts were very much us making a certain margin and then leaving it to the franchise partner to decide what to range, how to run the business, and it was a very safe way of working. We weren't really growing. If you look at 10 years, and you strip out the noise like Republic of Ireland, our international business hasn't really grown. So we've talked to all of our partners.

I did this in my first few months when they wrote to me and we've met all of our partners. And what Mark has done with his team has reset 3 of those big 5 contracts already. So it's a share of risk and reward, but really it's focused on growth. It's capital light, our partners put the capital in. They know the markets, we don't but it also encourages them to be braver to go for volume, to go for growth, to sell the full range of fashion for example.

And there's other things Mark and the team have done. We've now partnered with Zalando and Amazon and ABOUT YOU. The range is still quite small compared to the competition, but that's a growth opportunity. And something that I think is a good idea, but this wholesale partnership, I'm quite keen on because there are many brands who have knocked on our door to say, we would like to partner and sell M&S, many brands in the U.S.

Now at the moment, it's just Percy Pigs in Target. But by the way, they sell out, they can't keep up. So we need to supply them more. But actually, this week, in Coles, Australia there's quite a credible M&S range in food being displayed in a few hundred Coles stores. In David Jones, Australia again, we partnered with them, they wanted to sell M&S lingerie. In fact, it is way beyond our expectations, so we can't quite keep up. And now they've asked for womenswear and menswear, and so the list goes on.

The other thing is we know, as you can see from the stats here, maybe it's on the next slide, that our value perception in these markets is not very good because our partners have just added on prices to protect profit and margin. And we have just reduced thousands of prices in the Middle East on food, and the volume has gone up about 30%, Mark, or nearly 40%. But actually, we never hardly sold anything. So it's 40% of very small numbers. So there's a lot to go for, but it will be medium to longer term, and Mark can explain that with the team this afternoon.

Our third pillar is operating margins, and we've talked about structurally lower costs. We explained that we said by FY '28, GBP 500 million. We've now increased that to GBP 600 million. But when you think about all of the work we have to do, when you listen to Alex and John today, just think about supply chain, I mean when I became CEO, acquiring Gist was probably the best acquisition we've ever done or ever likely to do.

But we just needed to acquire the business to own it and decide our future, but the hard work then started because now we've got to build a supply chain to really enable significant or big future growth in years to come. In fact, when John started and did his month in stores, after his month, we caught up and he said, "I cannot believe how hard it is to work deliveries in our stores".

If I was in another retailer, you would reject the delivery and just refuse to do it because half of our hours and Thinus is living this pain as our new Retail Director, Half of the hours in Fashion, Home and Beauty are behind the store sales floor, sorting out deliveries and unpacking and repacking. So there's so much to go for in Fashion, Home and Beauty on store-friendly deliveries and better supply chain, saving food.

And in retail, Thinus has already in a few months, landed a program called the M&S Way, standardizing all of the rhythms and routines in every store, analyzing where every hour. Now we've done a lot of this background work previously but now we're really getting into the detail of making sure the plans enable a restructured lower-cost M&S.

It wouldn't be fair to really go into the detail of our D&T plans on a cost-out perspective today, Sacha is here doing a brilliant job stabilizing the team really thinking about Christmas and resilience, and we are going to relaunch our evolution plan on D&T at the start of the new financial year, and Sacha can discuss that in the breakout.

But also under this program, I mentioned supply chain because Alex got a big gift for this Christmas because we approved a GBP 380 million gift so Alex can double the size of his food business. But actually, when you go through our program, there is so much to get after. We've got a new, more modern DC in Avonmouth in Bristol opening next year, a cost of GBP 40 million, but that will give us more chilled capacity to make sure we can deliver the chill plan in the years ahead.

We've got a new automated DC in Daventry that we've already announced, a 1.3 million square feet -- foot DC. With proven technology, so this is old technology, it is not new. It's already proven, other retailers have used it so we've kept it simple. It's a GBP 340 million investment over, I think it's 6 years, 6 or -- thanks, Alison, 6 years.

But also, it gives us a big opportunity because what that site in Daventry gives our food business is an increased capacity in chilled by 12% and an increase in ambient. And we need that because we have ambitious plans in our food business. And in Fashion, Home and Beauty, John will present some of this later, but we are going to invest, especially when it comes to Castle Donington for online click and collect.

But wrapping all of that up, we also spoke in 2022 and last year about building the M&S for the future, the M&S that we want to be. And at the very heart of that is our high-performance culture. We would put this red because actually, it feels very different in M&S and when people joined -- join, Hayley as our Chief People Officer, who is week 5, she's done her month in stores, now just kicked off in the last few days.

Actually, many people who joined say, it's not a tall hierarchical compared to what I thought it could be or would be. It's a very open culture. We talk about the unvarnished truth. It's all news, there's no such thing as bad and good, it's just news. Get everything on the table. But actually, we think we've got so much to do still.

So yes, our leaders do a month in stores and everyone in the store support center does their 7 days a year in stores, listening to customers, coming back to the store support center to drive improvements. But we haven't really embedded this restructured cost base this more efficient way of working.

And when we think about our behaviors, yes, we talk about positively dissatisfied and aiming higher and it does feel very different a few years on, but we know throughout the organization, we have to deliver that. And being closer to customers being obsessed with our customer feedback, taking it all as just news and opportunities to improve or when we think about our new behaviors that we outlined like aiming higher or we say it, we do it, being quicker on execution.

So that's really why we would say there's much more to go for when it comes to really changing our culture and making it even faster, empowering our people. But remembering, it's like when my team joined M&S, I say you're accountable and you have accountability, we don't have a whole autonomy because that's where we come together to agree the big decisions, but you're very accountable, and we want everyone in M&S to feel accountable.

Mary on the checkout, serving her customers, the store manager, or our Retail Director. So we've got quite a bit to do, and Hayley is going to help us, as all of us as people leaders rethink this cultural change program.

And the second program we spoke about under building the M&S of the future is, of course, technology because we know we need to make better decisions through technology. And yes, we've been disrupted in the last few months, but we're getting back on track. And we have quite a big plan for the next few years.

And it's interesting how things are starting to change because just in this presentation, when we were going through slides the other day, I was penning out my slides. I'm sure the team did the same. And I said, "Well, let's play a video". And somebody said, "What do you want?" I said, "I'd love our Christmas candle." which is going to be the Christmas Joy candle and it's going to be the best selling Christmas candle of the season, so please buy one and don't miss out.

I said "It'd be great for the Christmas tree, the Christmas candle lift the spirits of the Capital Markets Day." And within 5 minutes, someone put a video together, which is the video on my left just through AI, by taking our properties, no agencies, no setting up a room, no put our Christmas tree up and then putting lights on it. and then lighting the candle and trying to get a videographer getting it right for the presentation, 10 minutes, I've got a video playing on my slides.

And in fact, at the half year results last week. Normally, after that day in the evening, the team will give me a very comprehensive summary of everything that's been said. And then the following day, we have a full roundup of the headlines, the sentiment. But actually, this year was very different because I got home that evening, went on to Copilot, went on to, Researcher and said, "Please give me everything that's been written about the half year results at M&S in the last 12 hours."

And then I say, "Give me the overall sentiment." And the following day, I type in "Give me a 2-page summary of everything I need to know." So everything is becoming much, much quicker, as you know, and we're starting to work very differently.

The third or fourth part of this program is, of course, disciplined capital allocation because building the M&S we want to be means we want to invest in growth. We've got so much opportunity, but we want to make sure we do that with a clear strategy and within capital envelope. And I remember it's just been a few months in as CEO and a shareholder asked to come and see me.

And I remember this as clear as day because the person walked into my room and threw a book on the desk called The Outsiders and said, you need to learn about that because the history of M&S is no one knows how to have to manage capital and returns. And I said feedback's a gift. Thank you. And I read the book.

Now the shareholder did ask me to write a report, which I didn't do, but I said at the Capital Markets Day, we'll talk about it. But actually, we have improved our return on capital employed. It is something we're conscious of and it's something Alison will talk about. But we have this philosophy is, of course, we want to invest in growth. And as we earn more and generate more profit, then of course, our shareholders should benefit, but we must invest in our future strategies for growth.

And I've mentioned returns. Alison will talk about CapEx and cash flow, and it is important that we just note that we've been net funds for 18 months. We have a big focus on cash. Just like in our businesses, we have a big focus on volume cash sales and cash margin, not just percentages and rates as well. And we've got a strong balance sheet. So we're on track, but lots to do.

So when you think about the long-term opportunity for M&S, we've got some consistency in our delivery operationally and financially. We have a clear plan. Our strategy, we always dust it down and review it constantly, but we've had a clear plan, and we've got a clear plan for the future. We want to double our food business, we aim to double our Fashion, Home and Beauty online business, and we want to build a global M&S through disciplined investment and excellent execution.

And if you just cast your mind back to Food when we laid out this plan, sales of GBP 6.8 billion and now growth of over 30% with sales at GBP 9.1 billion but still a big opportunity because when you look at the spread of stores and market share throughout the U.K., a high of 5.6% in Scotland, but actually, we need more profitable sites in affluent areas in the South, and that's what we're working on.

And Food serves 23 million customers every year but we think there's an even bigger opportunity to get those Fashion customers cross shopping, especially in full-line stores. And if you think about our store estate, Alex and the team have more than 1.1 million extra square footage by FY '28, well on the track to enable doubling the size of that business.

When you think about our Fashion, Home and Beauty business, as I said, and we've said before online, is a really important part of that growth strategy because we want to double that business. If you think about when we laid out this plan at GBP 1.1 billion, we've made progress, a 27% increase at GBP 1.4 billion.

But as John will tell you, when you look at our market share, if you think about overall market share at 10% and the #1 fashion retailer in market share terms is still only 10%. If you think about our online market share, it's only 8%, and our store market share at 12.5%, there's a big opportunity to drive online. We have 10 million active customers.

We actually only have 32% participation. And as John helped me out earlier, the markets are 42%. And our operating margin is 7.5%, gives us good opportunity for growth and John can explain how we're going to get there. And another reason to be confident about future growth is the plan I've highlighted on international.

In fact, if you look at the markets we already operate in, in our international business, there's a market size opportunity of GBP 600 billion. If you look at the value perception in those markets, it's pretty woeful. We want to invest in value with our partners, drive growth. As I said, we've got new partnerships with Zalando and Amazon and we've got new wholesale arrangements, David Jones in Australia.

And we've got a very strong leadership team and I'm very grateful to my team because we are all in it together. Everybody in M&S is pretty detailed we're all sleeves rolled up. Alison, joined us 10 months ago, month in stores, a bit of disruption in the last few months, but really finding her feet as our CFO and pushing us hard to think about capital returns, store rotation, how we accelerate the pace of change.

Alex, now 3 years in, and he's had some big Christmas presence of investment to double the size of our food business in the most profitable way, but doing a fantastic job the team are obsessed every day with the detail.

John, 8 months in, baptism of fire, thrown in at the deep end, month in stores. But actually, John understands all the big rocks that we need to turn over and solve mainly sourcing, supply chain, merchandise planning, ranging and online, and we'll talk about that in his update today.

Mark, 18 months in running international, has reset the business. Now we're going to execute and get growth.

Thinus, who's only 5 months in as our Retail Director, has already landed with a thunder clap, looking at standardizing all our ways of working, rethinking colleagues, rethinking store manager engagement and empowerment, One Way of working and definitely representing stores centrally to make sure store support center delivers for stores so they can deliver for customers.

Sacha, who not only runs property, and let me tell you, there's a lot of things across the company, has been our Chief Recovery Officer, runs now D&T as well and has really got the team together and has built in the short-term plan around Christmas for resilience but also making sure we accelerate our property plans with Will and looking at our evolution plan for next year for D&T.

Hayley just joined us, it wouldn't be fair for me to put Hayley on the spot now. but just joined as our Chief People Officer because we think that cultural high performance plan is at the very heart of our transformation.

Nick, who isn't just our legal counsel, but is our wise counsel, who quite frankly, I would have been lost without Nick in the last 6 months because he understands the business and is so critical to us as a leadership team around ExCo.

And I would like to embarrass Victoria because Victoria has been with us 7 years, and Victoria comes to my desk frequently in the day, giving me her views and opinions. She's instinctive, she's intuitive, she's a joy to work with. She's off to new pastures in a different part of the world, and she leaves as a long-term, lifelong friend of M&S. So we wish her well, but she wanted to stay for Capital Markets Day.

So a strong team deeply rooted in retail and transformation. So what is the scope for growth? Well, we believe that M&S is in a unique position. Long-term opportunity for growth, there's so much to go after, the U.K.'s most trusted brand. A distinct competitive advantage, stores, online, Fashion, Home, Beauty, Ocado. A strong team, experienced and very determined when it comes to this transformation and growth potential, consistent delivery over the last few years, operationally and financially and disciplined when it comes to capital allocation and managing our balance sheet.

So running through today's agenda. I will hand over to Alex to give you a deeper dive into food. John, will give you his view of the fashion, home and beauty business and the key things he's going to do to double that online business in the most profitable way possible, disciplined capital allocation with Alison and that picture that was taken way before the incident a few months ago. Q&A with me and the leadership team to close the day.

I'll hand over to Alex.

Good afternoon, everyone. I'm Alex the MD of Food here at M&S. And I've just discovered the prior owner of GBP 340 million of shareholder money as a Christmas President for a new DC. Thanks, Stuart.

So the reason that's important though to open with is that new DC is part of what we call modernizing the rest. And even I've been here for 3 years, the strategy is unchanged. It is about protecting the magic and modernizing the rest and our aim to grow market share by 1% and deliver operating margins in excess of 4%.

And as Stuart said, perhaps even more importantly, what drives us every day is this ambition to double the size of the food business. The vision, and I introduced this last year on this stage is to be what we call a shopping list retailer focused on families and also with the sole of a market.

Being a shopping list retailer, what does that mean in practice? So it means to be the kind of retailer you come shopping with a shopping list. So you trust us to have what you want in the store you shop in on the shelf, the right size, the right packaging, the right quality and the right price and available when you come shopping. And all of those things are quite different to the old M&S, which was much more of a, I wonder what M&S has got today kind of retailer. So shopping list retailer means to be really trusted, not just for all those things, but above all, trusted for quality, of course, and trusted for value and a fair price.

And because we've been focused on that, we do have momentum. So here's the chart that shows our value and volume share, the green being value and the gold being volume. So up to 4%, just over that, as Stuart said this morning based on the Kantar data. So we have got momentum, and we're on track to achieve that 1% market share growth ambition.

And we've also been well ahead of the market. So we started the calendar year, as you can see on value growth and volume growth at about 8% on volume. And even despite the disruption we had over the summer, we've maintained that gap to the market. And as you can see, as we've come out of that disruption, the gap is widening again.

The market is challenging, though. So I should really point out, if you look at this volume number here in the market, the U.K. volume number is basically flat. It's slightly better than flat. So consumption is not growing. So it's a challenging market. And if you look at the gap we had between the market and us last year, the last financial year this is, we sold 197 million more packs of products than we did the year before. So that's important not just because it's a big number, but also that means we're more relevant to more customers more often and getting into more shopping occasions.

But we still have the opportunity to go much bigger. As Stuart showed, this is our growth thermometer. So where are we started at the GBP 6.8 billion. We're at GBP 9.1 billion as of the end of the last financial year. We'll soon be at GBP 10 billion, and we'll be at GBP 14 billion. We'll have doubled the business within our growth planning horizons.

And where is that opportunity? Where does it lie? So it really lies in a number of ways, and it gives us both belief and evidence if you look at the market share. So Stuart describes our market share to me as piddly and it is. It's only 4%. We're pretty tiny compared to the competitors. There's lots of headroom to grow, and this is the Kantar market share of our competitors here.

But what gives us confidence and evidence is we are already much bigger than 4% in many respects. So we know we can get there. So if you look at the way Kantar cuts the market by mission type, main shop, pop-up shop, dinner for tonight and on the go or food on the move, as we call it, we're already much bigger than our market share of 4% if you look at those shopping missions. So we know we've got evidence that we can do it.

And it's the same at category level. So you're looking at our category market shares, coated chicken is a really important category for families. This is breaded crumb chicken, big category in the U.K. Our share is more than 20% in coated chicken. Soft fruit, which is the category that contains strawberries, blueberries, really important family staples, we're at 8% share.

But look how much opportunity we have in groceries, beers, wines and spirits, frozen and household and pet where we're tiny. There's so much headroom to grow still. And those are important because they're also part of that shopping list basket I described. So lots of headroom.

I'll come to stores later, but I wanted to point it out here that one of the reasons that we're not yet realizing that potential is because the number of shops customers can find the full range in is actually quite limited. This excludes the full-line stores. This is just the food-only stores. The number of stores in the country where you can get the full range is only 50. We've made progress because that was 1, 5 years ago, but it's 50 today. So I'll come on to this later, but there's so much more opportunity when we get more of that range to more customers.

From a market perspective, what the customer is telling us, what do they want from us and what does that mean about growth? So being close to customers is absolutely the heart of the business, as you heard from Stuart. Customers are looking for trust in value and in quality. That's an absolute given every day. But on top of that, there are 3 macro trends that they're telling us about, and I'll just let you read those behind me.

Here are the 3. So the first one is more socializing at home. It's expensive to go out. There's lots of inflation. Customers are looking for premium, high-quality food to replace that out-of-home experience.

Secondly, health and clean eating. Clean eating is very important here. I'll come on to that. This is growing in importance. This is about feeling good now today and also preventing future illness. The customers are more conscious than ever before about what is going into their food. They're studying the back of packs closely with much greater consideration than ever before. They really, really care about ingredients and processing and what is in their food.

And the third thing is even though times are tough, they're still focused on everyday treats and affordable luxuries. They want something that makes them feel good without breaking the bank, but it has to be clean, has to be made properly and be clean eating and the best possible quality it can be.

So those are the 3 big trends. How do we feel we're positioned versus these today? So this is YouGov NPS scores. And as Stuart talked about quality perception, we've got a big gap to the market. So customers really trust us for quality. Now we're not satisfied with this because it's not growing, and we need to get it growing again. So we're focused on investing in quality to make that happen, but the gap is material.

On innovation, customers see us as the most innovative retailer in the market, 26% NPS and the gap is growing versus the market. Same in freshness. Freshness is also an indicator of quality, but it really means categories like fresh produce, 33% versus a market that's flat at 13%.

And then health, they see us as the health leader in the market, and the gap is growing, and health perception of other retailers is declining. So we feel well positioned from what customers are telling us is important to them and how they see us.

So back to this protect the magic, modernize the rest. We talked about the modernizing the rest a little bit in terms of the DC. I'll come back to that. But the magic is really about product. So what do we mean about protecting the magic. How does that show up in our business and on shelf?

So last year, I talked about creating a consistent drumbeat of innovation in quality -- sorry, drumbeat of investment in quality and innovation. Now in 2024, this was how our innovation was landing in our stores across the country by week. So let me explain this. Each one of these numbers here, so where it says one, that doesn't mean one product. That means one category transformation or one piece of innovation. That might be 20 or 30 products being touched. So a big piece of change.

So the way we were landing innovation was very much by the season. So spring and autumn, as you can see, the big spikes. What we found was that was becoming harder and harder to manage. It was putting a lot of pressure on suppliers, our store colleagues. It was becoming actually a bit overwhelming for customers because we were moving the stores around so much. And practically, it was hard for us to market them to tell customers what was new in their stores because so much was new.

So what we did last year was we introduced what we call winning choices, which is much more regular drops of newness through the year. And this is what the '26 plan looks like. This is the newness that's launching across the next calendar year.

And we think about this operating model Winning Choices as being at the heart of us being much more like an FMCG player than a pure retailer because we create all of our own products. Winning Choices is a 48-week program. So every one of these that lands in the store, every single one began 48 weeks before that date, you can see. It starts with a tightly defined detailed problem statement from listing to customers. It goes through a tightly controlled gate process, includes packaging design, supplier award, awarding business, marketing plan, packaging design, quality specs, numerous tastings including between Stuart and myself, we taste everything. And at the end of that pops out a product on the shelf.

Now I could go into a lot of detail about this, but I thought much more powerful to have our Product Development Director, Kathryn join us on stage to take us through probably the best example of the year, which was our Strawberry Sando Sandwich Stuart referenced earlier. And before Kathryn comes on stage, in case you missed the Strawberry Sando somehow, let's just play a video to remind you how it went.

[Presentation]

Well, I never thought I'd get the word slay into a presentation today. But hello, I'm Kathryn, and thank you for having me today. So how did the Strawberry Sando go from nothing to our #1 sandwich. Well, what makes us unique is our team of product developments. Their role is the custodians of quality, both improving our current products, but also bringing new products to market to ensure we remain ahead.

This is our point of difference, and it enables us to bring over 1,400 new products and 1,000 new improved recipes to market and to our customers every single year. The process we follow, as Alex said, to launch all our new products is called Winning Choices. It's a 48-week program that is truly cross-functional. And it begins with trend identification. I have a dedicated trend team tracking, monitoring and interpreting food and lifestyle trends into commercial opportunities. We track trends in many ways through AI, social media and traditional trend houses.

But unique to us is our global network of food is -- sorry, stood in front of the image doesn't help, made up of chef's food writers and health experts, and they are all over the world. And we call them our Future Navigators, and they're reporting to us every quarter on their country's food scene.

Thanks to our Japanese contact, we had already responded to the Japanese sandwich trend in '24 with our first-to-market Katsu Sando and our Japanese milk bonds in bakery using the tangzhong method. The same Japanese contact reported on the growth of fruit sando's, becoming a real destination for foreign tourists and seeing a boom on social media.

But was the U.K. now ready for a fruit sandwich? Well, we thought so, not only to capitalize on Strawberry Fortnite, which is Wimbledon, but also an ideal opportunity for us to celebrate the peak of our strawberry season and the best of the U.K. crop, our incredible red diamond strawberries.

Once we identify a product, we develop a benchmark recipe right here in Waterside with our house chef team, which means we control the ingredients, recipe and formulation to ensure the quality and the flavor is to the M&S standard, with every ingredient and source of that ingredient scrutinized.

And we have a team of 74 product developers and chefs working on over 4,000 products at any one time. And we spent months working on the Strawberry Sunday to achieve the right balance. A soft like Shokupan-star bread filled with billows of lightly whipped mascarpone cream. But paired with the start of the show are carefully cut and placed fragrance and perfectly right sweet diamond red -- sweet red diamond strawberries.

We then scale this up, our benchmark recipe up to our supplier partners and our fortress factories, and they play a really important role, enabling production at scale. And the Sunday was made for one of our fortress factories. Producing solely for us, so all our IP is protected. And we also have a team of over 140 M&S technologists who work alongside our product developers and our supplier partners to protect our quality and safety standards at every single production.

The Sunday was actually only produced for 6 weeks. And the reason for that was the red diamond strawberries were at their absolute peak perfection. We use 2 strawberry suppliers to support the production, a process time precisely to protect strawberry quality, ensuring they arrived at the production unit time at line just in time. It was imperative the cut phase, as you can see, and the visual and perfection of flavor delivered in every sandwich.

So the 48 Winning Choice process enables us to line up both products and value, packaging design, store execution and marketing. And we call these our 5 vectors of success. Under each product launch, we measure ourselves to be superior versus the market against each of these vectors. At all stages of this program, the customer is at the heart of all our thinking and decision-making and how they discover and engage with the product is absolutely crucial.

So the outcome, the Sando was a truly viral product, and it was an instant hit with huge demand. Our most like post ever on social media, our #1 sandwich and our #3 product in the food hall. And it's not just about the Sando. We launched our product like this for 41 weeks of the year all have exactly the same level of attention.

Last week, we relaunched our in-store bakery croissant and pains au chocolat, hopefully, the best in the U.K., we think so, 2 years in development, a new supplier and a factory investment. The week before we transformed our yogurt category, which is absolutely key for our family mission, and we've got lots more to come.

I'll hand you back to Alex. Thank you.

Thanks, Kathryn, and Kathryn and the team do a phenomenal job. And the work on the categories because it's well beyond the Sandos, as Kathryn described, is really obvious when you look at the numbers. So just picking a few of the recent transformations. Each of these is one of those little blocks on the bar chart. So Italian ready meals, where we're a market leader. Very big category for us. It was growing at 1% before Kathryn and the team redesigned and we launched it now at 31.

Dried fruit and nut in our produce departments. Hopefully, you've seen this the clear pots, huge upgrade, 13%, now 28% growth. Deli picky bits as we call them, we're the home of picky bits in the U.K. These are the tubs of, look how deli deliciousness you get during the summer, especially, 14%, now 19%. And probably the biggest success of all cookies, really big family category in the in-store bakery, 19% growth, now 131% growth and we've become a market leader on the back of that Winning Choices program.

And when we look at what this is doing to our share in these all-important family categories, you can also see what's happening here as well. So we talked about the spine of the basket a year ago. The spine of the basket of the categories like meat, poultry, fish, fresh produce, bakery that really show how we're building those bigger baskets.

So in fresh produce, our share has grown by nearly 50 basis points; in fresh poultry, 57; and in bakery by 61%. And in the family basket, tiny, piddly, as Stuart will tell me, we've grown a little bit in grocery. We've grown a tiny bit in pet, and we haven't grown at all in frozen. So no surprise, those are all on the hit list for us for the next year or 2 in terms of getting great products and more growth.

And we continue to innovate in the heartland, as we call them, because just because we're growing these new categories for us, we can't neglect where we had traditional strength. So we're also continuing to upgrade and invest in food on the move, which is the top one, desserts and meals, which were already big categories for us, and we've also grown share in those ones at the same time because we can't neglect one at the expense of the other.

So there's a huge amount to do still because many categories we still need to grow. But there's also an enormous amount to do in value perception. Now as Stuart said, we have gone from negative NPS to positive, but that's still very low. So 6 NPS is still low on value share. And we're not happy at the moment that it's not getting better. So we've got work to do. We're very focused on that. Items per basket, what an opportunity. This is Kantar data again. So 5.5 items per basket in M&S on average versus double digit for the competitors.

And let me go back to the store numbers because I brought this up already, but the number of stores, food stores in the U.K., you can buy the full range is only 50. There are full-line stores as well, which carry the full range, but food-only stores, 50, 278 stores that hold a partial range.

So I'll come on to stores now along with international and online. So stores, this is how we look at the U.K. We call it shopper towns. So we break the U.K. into what we call 585 shopper towns. These are urban areas that might sometimes contain more than one village or more than one town, but that's how we think about it. Our market share, if it's green is higher, if it's pink, it's lower.

And I also remind people, I expect in the room here, we've got quite strong Southeast bias because most of us tend to live and work around London that M&S is a northern brand. It did start in Leeds in 1884. And to me, it's no accident that our strongest market shares in food are in Scotland, the Northeast of England and Yorkshire, which looks like we've undersized on that circle, that's Yorkshire.

And London, we do have decent share in London, but there's a lot more still to go for, but huge parts of the country where our share is low. And if you look at the Pareto curve here, it really, really goes -- it goes from 11.6% at one end to 0.5% at the other. And why is it higher at this end? So the shopper town that's up at this end here is Harrogate in Yorkshire. I mentioned that Yorkshire is the home of M&S. So Harrogate is our top market share at 11.6%. And Shetland and [indiscernible], which will be difficult to serve admittedly, is at the other end.

So the top 25, let's bring these up, our top 25 towns of market share because I think this will surprise a lot of you. There are names in here, I don't think you'd be that surprised about. So home county towns like Amersham, for example, St Albans just outside London. But there are other towns which are not obvious M&S heartland areas, Llandudno in North Wales, Sterling in Scotland, ANIC.

So why is it that we've got share in these towns? The real reason is it comes down to how good is the M&S store, how good is the M&S store asset in these towns. The reason Harrogate is here at #1 is, yes, there are lots of shoppers who are good targets for us, but it's really because it has a good full-line town center store. It has a very good out-of-town food-only store at 15,000 square foot. And it has a pretty good 8,000 square foot food hall in Knaresborough, which is a small town just outside Harrogate in that shopper area. So it's a bit of luck, a bit of accident of history. We've got 3 good assets in that location, and that's why we have good share.

Looking at this long, long tail here. This is where the opportunity is. Now it isn't in [ Auckny ]. We're not going to open, I don't think, in those locations, Sasha. However, if you look at the openings that are coming up, I'll call them out on this list. So we're opening a store in Luton soon. Luton is #549 on this list. Cannock, which is one of our first home-based conversions, actually our first one, number 464 Hull, 455, Abingdon, 427, Hatfield, 387. So it's really the availability of good store assets is what's going to give us the growth in all of these -- most of these shopper towns.

Now we're a bit frustrated because we'd like to be getting a lot faster than we are, as Stuart talked about, we're a little bit behind, but there's lots of headroom. Now in our defense, I would say the renewal journey for M&S is actually only 5 years old. So this store format that actually Stuart invented in Clapham is just about -- just over 5 years old. And it really changed the ambition of the business. To that point, the business was opening stores at 6,000, 7,000 square foot and it was Clapham and stores like Hempstead Valley that gave the business the belief and it showed customers that we could trade at 15,000 square foot and above, and we could deliver bigger basket shops. So it's worked and the blueprint has evolved to something we're confident in.

So the next 3 years, the pipeline looks like this. So 328. We've got 52 stores approved and that takes us to 380 stores. We've got line of sight to the next 40 that takes us to 420. But the question we often get asked is, okay, well, that's the 420, which we'll get to. But really, what is the potential given all those shopper towns and where could the business get to? And the answer is our ambition is it's 600 and actually probably more, but it's 600 locations where you could see based on the experience of our store blueprint, we could have an M&S Food store.

And why are we confident in the returns? It's because we've now gone through enough years to see what the returns look like in these stores. So these stores I highlight here just because these are the ones that have gone through their 12-month PIR. Now we don't always get it right. And in Clacton and Stockport, they weren't quite right. So we had to revisit those stores and change a few things. And those stores, I'm now confident given their current run rate, will hit their 5-year hurdle rate given what they're doing in years 2 and 3. But if you look at the others here, we're well beneath our 5-year target in terms of payback.

And we're always evolving as well. So we're about -- we always say we're about 80% done and 80% right in our blueprint at any one time, and we're always trying to evolve the last 20% to get it better and better and better.

So H2 is a very, very busy opening period for us. So these are the new food halls we're opening. I won't list them all out here. You can read them. Just a couple I will call out. So Cannock, that's our first home-based conversion, and Abingdon is our second home-based conversion.

Phases of renewals. I was in Merry Hill a couple of weeks ago. It looks fantastic. It's gone from being an asset we weren't happy with to being one we can now be really proud of, and that will be performing very well.

And then 2 new full-line stores, which, of course, for John as well. So Bristol Cabot Circus opens this week. So we're all very, very excited about that, the return to Bristol City Center and Bath opens after Christmas.

So on to -- that's the store bit. On to the online bit. So -- and Hannah is here in the room with us. Hannah is just here. So she'll be obviously available for questions during the break.

So Ocado, we just celebrated our 5 years of the joint venture with Ocado. And as you saw from the market share data today, consistent M&S physical stores have been the #2 growing retailer and Ocado has been the #1. And if you look at Ocado's perform in H1, 14.9%, but makes really happy, even more happy is that M&S on Ocado is growing at 19.6%. So not only is M&S product driving M&S stores the #2 in the market, it's helping propel Ocado to be #1 and #1 in online.

Now M&S actually in category level, we represent 30% juts over actually of the volume sold on Ocado. But in those all-important family categories, it's significant higher. So 56% of the fresh chicken sold on Ocado is M&S branded, 53% nearly on fish, 52% on fruit and 51% on salads.

So when -- we can see that M&S performance really well in those family baskets on Ocado. And what we also know is because we monitor is closely, the volume we get through Ocado is more or less all incremental for the M&S business, which given our software to the integration model with our fortress factories really helps.

And on to International. Again, Mark is here, where is Mark last here in the break. And since Mark has been running international here and I've been working really, really closely on how we can scale food internationally, but in a very capital-light way. Why do I have pictures and videos of Olivia Rodrigo, Kim Kardashian, David Beckham, Katy Perry on.

Well, the reason is, is just to illustrate the brand potential because this is all social media that had nothing to do with us. This is also to me that's been posted by these celebrities themselves about M&S product, Percy Pig, Colin Caterpillar, Colin Caterpillar and Percy Pig at the end.

Now we've got the wholesale business, very small in target, but already, we're selling more Percy Pigs in Target in the U.S. than we do in the U.K., which is a pretty amazing stat. So that shows you the potential if we can be targeted and disciplined in how we do this.

In terms of retailing ourselves, we already have some quite high-density stores in Hong Kong and also, we've reset recently our value offer in the UAE. So we're looking at capital light approach to how we can retail of the M&S brand in these markets, and we're also looking at the numerous approaches we're getting from overseas retailers about how we wholesale as well, working closely together.

Now on to supply chain and how we're going to get all this volume through the network and through our factories. This is where my Christmas present comes in Stuart, doesn't it -- the DC. So firstly, before I get to the DC on long-term investments, we talked last year about fortress factory agreements. This is where we -- with our suppliers, for them, create the environment for them to invest. We give them certainty and we lock in that capability and exclusivity for Marks & Spencer.

So last year, we had 7 fortress contracts signed. We promised this year, we'd get up to 13, which we will be, we will do, and that's 27% of our cost of goods. And we see we can get to about 21% seems to be appropriate. And it really is creating that environment for investment. So here's a real example. This is Park cakes, our factory that makes the famous Colin Caterpillar cake. The U.K.'s #1 cake.

This is how Colin's face, if you've ever eaten a Colin Caterpillar face, the delicious white face that my kids fight over. This is how Colin's face was made previously. It's a hand piped because they're so beautiful. They're so intricate hand pipes. And what the investment they've been able to do has allowed on the back of the fortress factory is, this is now how Colin's face is made. This is a bespoke piece of kit to make Colin's face, and you can judge the efficiency by just looking at the pictures.

On to the supply chain. So we acquired Gist in 2022 for GBP 145 million. We've delivered GBP 77 million of recurring annualized cost out. So we're ahead of the business case. So Phase 1 has been successful. Last year, I talked about beginning the next phase, which is investing for the future. And we've announced a couple of things. So there's yellow dots where we've already announced investments in new facilities.

And this is a quick video of what we're building in Daventry. This is the NDC. So 1.3 million square foot. And it's fully automated inside, and it covers both ambient and chilled. So this is the ambient side. This is a 30-meter-high bay, which stores palletized stock. So pallets -- full pallets going on one end and get put away by the robots where they're -- until they're needed. They then called off by the computer and automated robots bring those cases down, and then they store them into cages ready for store. So the stores get the cages [indiscernible] as they need them. And on chilled, it's just the same at the other end of the factory -- the factory of the distribution center.

So here's the cages being built. So the cages get built by the computer, but like Tetris. So minimizing air gaps and shipping air around the country. And then when they arrive, they're completely efficient for the stores.

In chilled, there's no storage because the chilled gets picked every day to zero. But again, it will come into a store, I already -- to be picked. So it looks -- I mean, it's very impressive, but it's not bleeding edge at all. It's leading in the U.K., but many other retailers have taken this path in other markets. So 2029 is when that comes on stream.

So what's just happened then to our case -- cost per case as we look at it through the network. So at constant currency, this is what's happened to the cost per case to move a case of stock through the M&S network since the Gist acquisition. So it's come down. This is the sort of 100 index here and it's dropped.

Now just to illustrate to you what a huge impact inflation is having on our cost base. If you add inflation in, this is what the actuals have been. So we've been fighting very, very hard to mitigate the inflation, but not -- couldn't mitigate all of it. But thankfully, we've been able to reduce a lot of the cost.

What's going to happen in the next couple of years as we build that new DC is this. So it's a little bit of a hockey stick. The reason is twofold. One is we're growing faster than we expected. So we actually have to put a bit more manual picking in, in the next 2 years. And also, we're starting to pay for the new distribution center, the automation. And then when that comes on stream, the cost per case starts to fall again back below where we started. So that's the shape. But if you look at the shape of the inflation, you can see why automation is going to be so important for our cost base going forward.

And it's not just about moving the stock. It's also about how you forecast the stock. So our big investment in a modern data science-based machine learning-based forecasting engine is now complete. So this is how we built that up. So we're now at 100% of our products in the food hall and also the cafes as well.

And with Thinus on board, we've been able to really, really focus on the retail end of this, which is -- the forecasting engine really needs quality data in. So you really need really high-quality processes in the stores around stock management and stock file accuracy. I talked about this last year. And then last year, we had put 1/3 of the country on what we call the M&S way. We've used to call it one best way now in our M&S way.

And as we were a few weeks ago, we now have the whole country on the M&S way. So the whole country in every food store operating the same way. And we have a measure of our process health in those stores. And you can see as of right now, the spread, we have some stores of 100%. We have the bottom stores at 83% and the average about in the middle, about 90%, but a huge progression in only a few weeks. And that's really important because that's what enables the software to work to its optimum. And Thinus is here, of course, in the breakout to talk more about that.

So that's it for food. So back to what I said at the start, the strategy is exactly the same. So to build a remarkable true business by protecting the magic and modernizing the rest, and we are going to double the business. We've got good momentum, but there's an awful lot to do. And we've got a long list of jobs ahead of us.

[Presentation]

Good afternoon, everybody. I'm John Lyttle in case you haven't guess by now. I'm delighted to be here today, and it's been a privilege to have joined Marks & Spencer 8 months ago to lead fashion, home and beauty.

We've had good progress over the last 5 years. Stuart already mentioned, we're #1 for fashion in the U.K. market. We're #1 for womenswear and we're #1 for lingerie. We're also #1 for style, quality and value and purchase consideration in the U.K. That's a huge achievement in the last 5 years.

Today, I'd like to give you my observations in the business over the last 8 months. And what's really impressed me about the culture of M&S is the unvarnished truth and the openness in terms of, if we don't know a problem, then how can we fix it, but getting everything out on the table.

And for me, the market has changed in the last 5 years. Lots of things have happened. We've had COVID, as we all know. Clothing market has been a little bit more difficult than the previous 5 years. Since 2019, 500 million less units have been sold in fashion in the U.K. market. GBP 4.5 billion of retail sales in stores have been lost. So it's a very different place to what it was 5 years ago.

Customers have changed. Their priorities are changing. They're poor on time. They need ease and convenience. Finances are stretched. So we need great value and great quality at a great price more than ever. We've already achieved the 1% market share gain, but we feel very, very confident that we can grow on that again. And I'm very confident in terms of our operating margin remaining above 10%.

But how do we keep going after the last 5 years? A big opportunity we have is to double our online business. That's really where the growth is going to come from. We're still going to grow in stores, but the major growth is going to come through online. We've had a 27% growth since financial year '22. But I see a significant opportunity, as I say, to double that business. But we're going to need to change in how we operate today.

Our fulfillment proposition lags the competition. Today, to get a next-day delivery to your home or a click and collect in one of our stores, you've really got to order by 7:00 p.m. in the evening. And that's just not good enough in the competition that we face today. We need to be offering 11:00 p.m. or midnight in order to really succeed in this space.

Our shopping experience on our website, it's not great if we're all honest, anybody who shops it. It's difficult to navigate. It's difficult to get to your basket. It's difficult to check out. We don't have all of the payment methods that our competitors have. So we've got to change that as well in what we're doing.

We've got to think differently in marketing. So it's not just about stores now. We've got to think more about digital. Our customers are on their phones. How do we communicate with our customers on their phones? How do we get more of our customers on to our app. That's free advertising, that's free marketing in terms of how we get through to them.

And we lack speed, automation and personalization on our app. So when you go to our app, we should be much more directive in terms of how we direct you towards the product categories that we know you shop and we know that you will like. So lots to change in this space. So actually, quite exciting in terms of the opportunity that we have ahead.

So how are we going to do this? Well, we need to lead on product. So Maddy is going to get up shortly. She's going to talk about product and do a deeper dive in here. So we've done fantastic on product over the last 5 years. So that needs to remain in terms of part and parcel of just what we do every day. We obsess about product. All of us obsess about product in the business. But we need our availability in a better place in-store and online. We need more newness, and we need to look more carefully at our range architecture.

We need better value. We need better price points, particularly in those opening price points on those core volume items. We know customers are stretched financially today. We need to really start growing our online business also from a profit point of view, and that's really going to come through our volume leverage as we go forward.

We need to become and start thinking like an omnichannel retailer. We really need to transform our assortment in terms of what's available to buy online versus what's available to buy in-store. We need to think more about our cross-channel sales, and Stuart mentioned that earlier today. We've got stores, we've got online. But also, we've got a lot of only food stores. Our Simply Food stores are a great asset for our fashion business in terms of locations around the country.

We need to get our proposition, as I say, in terms of delivery. Our competitors, you don't need to think about it. When you order and if you order for next day, it's just a given that it happens next day. And actually, that's not always the case, as we know, in our proposition. We need to get better at returns. We need to get slicker at returns, and we need to get money back to our customers quicker than what we're currently doing.

Stuart talked about relaunching our loyalty scheme next year at Sparks. That is definitely something that we need to do. And we need to expand, and we need to invest in our network. We need more capacity, but we need a much more efficient and faster network.

To do all of this, we're going to have to win on profit. That is absolutely fundamental to what we're doing. And we've got lots of areas in our business that today could be better. Supply chain is one of those, for example. Our sourcing is another. Our tech is another. Our retail operations is another. So we've got lots to go after in this space. We have to drive those efficiency gains.

We've got to build talent for this future world. It's different from the world that we're coming from today. We've got to have a high-performance culture, and we've got to have a very digital savvy colleagues in our business who are able to operate in this space. And we're going to start by digging into how we're going to lead in product and who better to do that than Maddy, our Womenswear Director, who will go through this next piece.

[Presentation]

Thank you, John, and hello, everybody. So as you can see, we have delivered some sensational product this season already this autumn, and we're really, really proud of the progress we've made. But we still know there's massive opportunity for growth in this business across our categories with our customers and certainly in our channels. And John is going to focus on talking you through channels shortly, and I'm going to talk to customers and categories, and just how we're going to get after them.

So from a customer perspective, last year, we got really clear on our customer target segment. We're very, very strong with the over 55, but we're underrepresented with a more style-conscious younger demographic, the 35- to 54-year-old. We're 4 points behind the market leader. And to give you an idea of the scale of that opportunity, it's worth GBP 500 million.

This customer still perceives us as old-fashioned, good for basics, and we are just not on their radar for either style or for value. But with an absolute laser focus on product from us and the teams, we have really started to make change there and driving a lot more relevancy. And as a result of that, we've improved with those customers our style perceptions by 8 points, our value perceptions by 5 points and our sales have grown by over 12%. And we're really only just getting started here.

From a category perspective, we're focused on 2 key areas of opportunity. The first one where we under-index in the market, we've got clear headroom for growth and the second one, really building on those famous 4 categories at M&S. In womenswear, it's about footwear, it's about bags and it's about accessories. And those areas, quite frankly, we just haven't done a good enough job with the product yet.

And then dresses is incredibly important for women's as well. We know if we win in dresses, we will win in all other categories because the customer will trust us for us.

In lingerie, we lead in bras, but we're #2 in sleepwear. It's a huge market. It's a growing market, so certainly another opportunity we can get after.

In menswear, we want to be the destination for suits and for tailoring and continue to build on that incredible momentum we've had in the casual categories.

In kidswear, we sit at #4 in the market overall. We'll continue that focus on baby where we've seen great growth and some really good progress. But our aim is to be #1 for back-to-school, not just during that traditional peak period, but all year round.

Brands, home and beauty, huge market, we have tiny share, another sizable opportunity.

So what's the plan? How are we going to get after this? It's really about continuing to focus on improving that style, quality, value and volume. In style, we'll be driving more newness. And in womenswear and lingerie specifically, we'll be increasing our newness options by 30% when we get to spring next year.

Our teams are absolutely obsessed by product, as John has just mentioned, and we'll be pushing even more fashion across all of our clothing areas. We'll continue to exit those legacy lines, those pollutants in our business, and we will do that on an ongoing and rolling basis. And we're going to be even bolder and more stylish with our marketing and our social activity to really support that.

In quality, we lead in quality across all of our age demographics and across all of our fashion businesses. So it's absolutely critical. We continue to invest in that innovation and refine our products even further in order to maintain this position.

In value, we've heard about it already, we're focusing on sharpening our opening price points, but also investing in disruptive pricing, particularly in kidswear where we know the market is in decline. in kidswear, we've actually already reduced over 40% of our price points in the last 18 months.

In lingerie, you've heard about it before, we've introduced our new GBP 10. It really does showcase that amazing value we've got at M&S, and it's been incredibly successful. And we'll continue running new value campaigns through the course of the whole of next year across all of the business units.

Our value gains have been really strong, but there's much more opportunity to drive growth in our volume. We're buying a lot bolder to improve our availability. And just to give you one example of that, our womenswear September campaign this year, we invested 30% more. That was a total of 250,000 units.

And I can really bring this strategy and this approach to life where we've applied this approach to womenswear denim as a category, a fast-growing, younger skewing online heavy category. We were 4 points behind the market leader in that younger demographic, the 35- to 54-year-old. So we got much closer to trends. We sharpened our value, and we invested heavily in those fast-moving lines to really drive that volume growth.

In style, we reduced our legacy lines by 40% this year, and that increases to 60% next year, and we've increased our mix of trend-led stars as well.

In value, we've introduced new fashion fits at GBP 30 and 40% of our range by spring next year will be GBP 30 and under, rising to 60% by the time you hit autumn next year. With a big focus on profitability, we've taken several more of our core lines and moved them to Bangladesh. And what that has allowed us to do is upgrade the product, invest in the lower selling price and increase our intake margin. So a lot more opportunity there.

In volume in denim, we doubled our launch quantities to really maximize that demand at the front end. And we shifted our investment into smaller sizes with 65% of our buy now in those 6 to 12 to meet that new customer demand.

And as a result of all of those changes that we've played through and applied in the denim category, our overall denim share has grown 4% and our sales have grown 37%. And in that younger demographic, the 35- to 54-year-old, we've grown our market share by 2% and our sales are up 22%. And the really important thing here is we're outgrowing the market in really tough trading conditions as well.

And this really is the playbook that we're going to apply across all categories in Fashion, Home and Beauty, identifying being very clear about those opportunities for growth in those categories, knowing the customer that we're targeting and winning in style, quality, value and volume.

And I'll pass you back to John now, who's going to tell you about how we're going to leverage all of that incredible product to accelerate omni growth and drive profitability.

Thanks, Maddy. What makes me so exciting about that last piece that Maddy has just presented is that after all the great work and all the great growth over the last 5 years, we still have so much to go after. So product continues to be our #1 focus, but we need to do more than that to really grow and keep our #1 place in the U.K. market.

So how are we going to accelerate omni. So today, we hold 12.4% market share our stores in the U.K. market, but we only own 8%. So clearly, we have a lot more to do in the online space. Our sales participation, as Stuart mentioned, is 32%. But actually, the industry average in the U.K. is 42%. So again, we've done well, but we're behind the curve in terms of where the market is and what we need to do. And actually, some of our key competitors are 50% to 60% participation in this area. So a lot to do and a lot to get after. And again, in that kind of key age group of 35 to 54s, we only have 5.9% market share there. So if you think of all of these stats, we have a lot to run after, and we've got a lot to do for our customers.

When we look at our customer KPIs against a market leader, we look at our customer numbers. Actually, it's pretty similar in terms of where numbers we have, 9.8 million versus 9.6 million. But when we look at our frequency per annum, actually, this is where we lag behind in terms of the competition. And then if we look at the average annual customer spend, again, GBP 124 versus GBP 213. Now these are really good opportunities in terms of what we need to go after.

But to go after that, we're going to need to make some changes. So we talked already about loyalty as an example. So the relaunch of Sparks next year and the continuation of that evolution is going to be really, really important to our omnichannel targets. Maybe we need to introduce a credit option, again, very important in terms of online. But key is going to be really around that delivery and returns proposition. So lots to do in terms of our online customer KPIs here.

Equally, we've got to attract and retain our customers. So we need customers coming to the website. And then once they come, we need to retain them. We've got to give them the relevant assortment that they expect when they're shopping online. And it's got to be easy and it's got to be convenient in terms of using our website, using our app and finding what you want. And it's got to be just a given in terms of the delivery proposition that you expect when you're shopping with the U.K.'s #1 fashion retailer.

And if we look here in terms of, again, some of our KPIs. So if you look in terms of retaining customers, we have a 38% lapse rate. That is too high. So we do a lot of work to get our customers into our site. We get a lot of them to buy, but actually in terms of maintaining and keeping them. I think a lot of this is just around their expectation when shopping online versus what we offer.

If we look at our brands business, for example, adidas footwear options, we carry 42 options today. And I can't tell you also, we don't carry the 2 best sellers that are in the market. But actually, our closest competitor carries 1,300 options today in adidas footwear.

If I look at our M&S own label options in dresses. We carry 220 options online today. A pure-play player in the U.K. market today carries 6,500. Now before Archie jumps up, we're not going to 6,500 option in owned by dresses. But the point being, actually shopping online, the expectation is more options in terms of what you're looking for.

Again, in terms of creating an easy and inspiring experience, we've got a 39% bounce rate. That effectively means somebody either comes on to a product or comes on to a page and leaves immediately, doesn't do anything. Again, that's way too high.

And again, I spoke earlier about the 7:00 p.m. cutoff in the evening in terms of next-day delivery. That is just not the expectation of online shoppers today in the U.K. marketplace. People want that convenience. You've just come home from work; you've just put the kids to bed. You're sitting down maybe to watch a bit of TV; you've got your phone out. Your expectation is, look, you're going -- and it's going 24/7. So while you're still up and while you're ordering, we're taking those orders for next-day delivery as well. So lots to do again in this space.

And stores play a really, really important part in our omnichannel journey. So we've, first of all, got to have the right stores. And again, we talked earlier about 226 stores currently and our target being 180. So we need the 180 right stores in our estate. We need the right colleagues. We need colleagues front of house engaging with customers as they're coming in.

2/3 of our online purchasers actually click and collect in store. 82% of our returns come back in store. Do we maximize those journeys today with the right people? No, we don't. Huge opportunity in terms of as we go forward. Do our store colleagues have the right tools in order to engage with customers coming into the shop? Can I get you another size? Can I show you something different? Click and collect this and you can get it tomorrow, come back in on your way home from school tomorrow. We need to make it much, much easier to shop in our stores today than what it is currently.

Further on our stores, we need to look at our tail. In our bottom 50 stores, we generate 5% of our profit contribution. And in our top 50 stores, we generate 50%. Now we've clearly got a job to do to get the right store network as we go forward.

And we've got a plan. So in terms of the 50 stores, we've got an approved closure of rotations already in the pipeline. So how are we going to get to that 180 stores. We've got a clear plan over the next number of years to get to where we need to get to. And a great example, I think, in terms of where we've done that rotation is Chesterfield. So Chesterfield pre-rotation was #186 in the chain. Post it's now in the top 100 at #94. So super in terms of performance after the rotation. And obviously, a much better look and feel store, easier store to get to in terms of parking.

But the really exciting piece of news here in terms of sales and upside is actually versus the control group, this store performed 18% better in terms of from an omnichannel shopping. So that's basically click and collect or order directly to home. So the importance of that store is a marketing tool in the area is really, really important for us going forward.

We've got to start winning on profit. So overall, our margin is 11.2%. Our online is 7.5%, and our stores is 13.1%. Now it's not going to be good news for any of us if we double our online sales and that profit margin stays at 7.5%. So we've got to get that up above 10%, in terms of where we are. We also know the competition are all operating in the top teens in terms of where we are. So this has got to improve. It's got to change from where it is today.

I thought I'd show you our online P&L. Just so you have some idea in terms of where our cost and our cost structure is built today. So obviously, in terms of our cost of goods sold, our operating costs, and then this gets us to our operating profit at the end of 7.5%. So clearly, work to do in here in terms of how we're going to get that 7.5% higher than where it is today. We need to be more efficient. We need the tools to be more efficient in terms of operating our business. We're going to look at a few of these parts in terms of what can we do better than where we are today.

From a product point of view, we've done some amazing work in the last 3 years on our sourcing. So we've generated GBP 80 million by consolidating our Tier 1 and Tier 2 supply base. But we need to shorten our critical path. It's too long at the moment. Fashion is changing too fast, and we need to be selling more full-priced product and more fashion product. Maddy talked about the amount of newness coming in. So customers want that new fashion all the time. So we need to really shorten this critical path. And that takes risk out of the buy as well in terms of profitability.

We need to cut the tail of our slow-moving lines with too much of our business is slow moving, sitting in the stores, not generating cash and a profit. And we need to integrate, and we need to start talking about volume and value, again, we do not talk enough about volume and value in our business. So we really need to grow in this area as well.

On our supply chain, I'm going to describe this as it's a spaghetti junction of supply chain. And only -- what I'm saying on that is we've done a lot of work over the last few years, but it's time to evolve again is what I'm saying. So we've got our parent DCs where we have our different categories spread across the country.

If it's going to a store, it's got to -- well, you can kind of follow the pattern, I hope, but it's got to get to one of these DCs over here, which is in the locality to deliver to this group of stores. So basically, we're touching product too many times, which costs money, but also is not efficient from a time point of view in getting those goods to the stores, protecting our availability in stores. So we've got to make this more efficient. It's too complex and it's too costly today.

Equally, when we look at online, some of our stats online, 22% of our products that are sold online come in a multiparcel. And what I mean by that is you order 4 items, 1 comes in on pack and 3 items come in another pack. Now again, that's not great from a customer proposition because it tends to delay, you're getting the products. But equally, from a cost point of view, again, that's 2 products. If you think of it, you're on free delivery, we've now given you 2 free deliveries on that order.

If we look at click and collect. click and collect in the warehouse in Donington, for example, caused GBP 1.33 per unit. But actually, if we're click and collect in a store and sending to another store for a collection, that's GBP 4.95 end-to-end. We do too much of our volume. We should only be clicking and collecting in a store for pickup in a store. But again, we're going to need to invest in our DCs in order to have that capability going forward.

We've already started the investment here in supply chain and Stuart talked about that. There's a GBP 120 million investment ongoing at the moment in Castle Donington, in Bradford and in Swindon.

It's going to increase our capacity. It's going to improve our throughput, and it's going to be better from a customer proposition. It'll stretch it a little bit beyond 7:00 p.m., but it's not really going to answer the problem that we need to answer. So we've got to evolve again. It's time, but we really want to be serious in the online market. We've really got to evolve this proposition once more.

Stores. Now I can't say I stand up here have been proud when I look at these 2 photographs in terms of -- first of all, this is how our retail colleagues receive their products at the back door. That doesn't look efficient to anybody. I don't think you need to be a logistician to say that doesn't look great and that doesn't look efficient as we are today.

Also, the amount of pre-retailing that our colleagues do before the products get on to the store is just way too high. We spend 40% of our colleague labor budget on pre-retail before it even gets out to the floor. Now in today's world, that doesn't make sense to anybody. We've got to look at our factory to floor, and we've got to really look at our supply chain end-to-end. And actually, we can get this work done at source. Much better value than spending GBP 13 an hour in the U.K.

So again, we're going to look at our whole supply chain end-to-end, so we can really begin to drive value and get better operational skills in the store. And on tech, we spent GBP 380 million a year in Fashion, Home & Beauty. But actually, 60% of that spend goes on just keeping the lights on. So in terms of keeping up with innovation and what's happening in the market, first of all, that's way above our closest competitor. So we've got to get that down. We're all tech leaders in our business today, by the way. So I'm going to work with Sacha. I'm going to really work in terms of how do we get that down, how do we get it more efficient, but how do we invest in terms of what the future is, and it's going to build our business better, but it's going to maintain our #1 market share position.

Planning platform is a great example. A lot of you will have heard about this before. We started the journey on planning platform in 2021. When I come into the big business at the beginning of this year, we still had 3 years to run. Now that is ridiculous in terms of what time that it's taking to implement it. We're now going to run at this in a much different way. We're still going to implement it as we planned previously, but we're going to do it in 12 months. We've already delivered one module merch financial planning. And in the first quarter of next calendar year, we'll deliver assortment planning. Again, a huge part of what we're doing there.

So we've got to become quicker. We've got to make decisions quicker in our business. We've got to get after things quicker. And we've got to be more ambitious in terms of what we want out of our business. And we've got this one. I feel really confident we can grow on top of that again with everything hopefully you've seen today. I'm really confident in terms of keeping our margin above 10%, even with online increasing. When you look at all the opportunities that we have to go after, and I'm very confident that we can double our online business in the years ahead. So I'm confident the teams are confident. Hopefully, you're confident.

We're around at the end of today, if you need to get us to answer any further questions. I'll now hand you over to Alison.

Finance doesn't get a video. Well, good afternoon, everybody. You've heard a lot today about the opportunities for us to continue to invest in the business, and I'm going to talk to you now about how we're going to fund those opportunities and the returns that we expect them to generate for us. But before we get into the detail, I wanted to remind you of our capital allocation model and how we use it to create value for shareholders. It's a framework that we set out actually in 2023 and this remains valid today.

So starting with a focus on cash generation, then investing for growth and cost out, the returns from which then power top line growth and enable balance sheet enhancement and returns to shareholders. We've been doing this for a few years now. There are still significant returns to be delivered. And the cash generation and increased balance sheet enhancements that we're already seeing will mean that over the coming years, our cash position will enable increased shareholder returns alongside organic investment.

So I do want to focus on the future today, but it is worth just looking back briefly at the very strong progress we've made across these 4 key metrics. So free cash flow from operations, i.e., after capital investment has exceeded GBP 400 million for the last 2 financial years. Our structural cost reduction program has delivered repeatable savings of over GBP 330 million in just 2 years. We've delivered year-on-year improvements to return on capital employed, which has improved by 580 basis points since 2023 and prior to the first half of this year, it stood at 16.4%, up from just 10% into the -- 2 years prior.

And as a result, net debt has fallen by GBP 800 million over 2 years, resulting in a ratings upgrade, a stronger balance sheet which then, of course, creates a virtuous circle of improved access to liquidity and a greater ability to invest in the growth of the business. So the result of all of this is that we're in robust financial help.

Now I've put some of our rating metrics up here because despite the first half bump in the road this year, we remain solidly investment grade with good headroom to our current rating. And I should say that protecting our investment-grade rating is fundamental to our capital allocation approach. Net debt to EBITDA is about 2.5x over the last 12 months well within our rating parameters. FFO to net debt is at 30% despite the one-off impact to profit of the incident. And free cash flow from operations post dividends is over GBP 150 million over the past 12 months. In fact, our net funds position at the first half of this year is 3x better than it was this time a year ago.

I'd like to be clear about the importance of cash generation for the business because our entire capital allocation model starts with a focus on cash flow generation, maximizing the conversion of profit to cash. So on the expectation of GBP 1 billion or more of cash generation pre-CapEx this year and going forward, I set out here about -- I set out here how we are thinking about our capital investments envelope. We reduced maintenance CapEx by about GBP 50 million as we refresh our estate and renew our technology. And our aim going forward is to keep this amount as low as possible while ensuring we adequately maintain our stores and our technology estate.

So this then leaves an envelope of GBP 800 million to GBP 850 million of cash to invest into the programs that will drive growth and over time, to increase our shareholder returns. So we plan to allocate up to GBP 550 million annually to growth and cost-out investments. These investments will be subject to our rigorous returns assessment using the hurdles that we have set out previously and which remain unchanged, all of which leaves a healthy and growing buffer of free cash. So I thought it was worth reiterating our minimum hurdle rates.

The combination of IRR and payback is designed to manage overall investment risk, ensuring that cash flows are not too far into the future. As a reminder, these rates are 15% for store rotation and cost-out investments where we have high visibility of returns and costs and, therefore, lower relative risk. For growth investments, however, we are looking for higher returns of over 20%. The significant supply chain investments, for example, are expected to deliver these returns.

As I set out the detail over the following slides behind the growth investments, there are a couple of things that I would like you to bear in mind. The first and the most important is the discipline we bring to applying our returns criteria to the evaluation of new opportunities and to our PIRs. All of the investments that you will hear about have either been through this process or will be through the process as plans are firmed up and business cases are pulled together. And then secondly, there are a number of estimates in these numbers where business cases are under development, particularly as John starts to build his plans for his supply chain and his distribution network.

Focusing then on the GBP 550 million. We plan to allocate it as you see here. Property and supply chain are the two most significant areas and you've heard a lot from Alex and John today on the contribution that both will make to their businesses. Our store rotation program has continued uninterrupted over the first half this year. Over the next 3 years, the majority of this will be applied to growing our food store pipeline.

Investment in the supply chain will also increase over the next 3 years broadly -- evenly split between food, where Daventry will take the most significant part of the spend. And FH&B, where John outlined the issues we need to address as we plan to double online. He will develop plans over the next 6 to 12 months for that, which will take costs out of delivery and returns and most importantly, to significantly move on our online proposition. And then this is all supported by DMT investment to improve the online user experience and to modernize our tech foundations.

I'd like to focus on capital returns now for few minutes. We are different to many retailers in the extent of organic opportunities open to us. But we also obviously need to ensure that the business benefits do materialize. Store investments to date have been highly, highly returns generative. Starting with store rotation, which includes the cost of closures for relocations, not just the economics of the new store, the slide here shows the payback that we have seen on just under GBP 250 million of property CapEx over the last 3 years. New food stores have paid back in line with our target returns and have generated an estimated return on investment of about 70%.

Similarly, in Fashion, Home & Beauty, new stores, mostly rotations are also very, very strongly returning. As you can see, the payback period here has been less than 3 years. This is partly as a result of the former Debenhams stores that we were able to secure and the estimated return on investment here is over 80%. As I said, these numbers include the planned closure program for some of our older full-line stores. And these straight closures as well as rotating out of the old stores benefit the business on a number of fronts. They are brand-enhancing, they're less consuming of maintenance and colleague hours, but because we have no unprofitable stores really, they do add to the cost of rotating into a new store. And you've heard from John already that plans are in place to address the 50 least performing stores.

Now turning to the future. Over the next 3 years, we expect space to contribute up to 50% of foods growth as we plan to open more than 50 stores. This equates to about GBP 1 billion of incremental food sales over that time frame. The table also reflects store rotation in full-line stores. Over the next 2 years, we will open or extend 10 new full-line stores. As you can see, aggregate payback across both is expected to be in line with our hurdle rates. The full line payback period, as you can see, is longer than it was on the previous slide, and this is because we are closing a number of -- a higher number of full-line stores in the period to come than in the period prior. But nonetheless, the returns are still well in line with our returns target of 5 years or less.

The blended return on investment across both is about 40%. About 40% of our growth CapEx is planned to be invested in our supply chains. Across both businesses, as you've heard already, there is significant volume growth in our plan, and therefore, there's a greater need for capacity and for more efficient capacity. Alex talked about this already in the food business, and how the investment will, over time, reduce cost to serve.

We're showing here what Daventry will facilitate when it's built adding significant capacity to the categories which are crucial to our growth as a shopping list retailer. These investments are a mixture of growth and cost out CapEx, hence the blended IRR that you see here in the case of Daventry. And it is fair to say that our plans are further along in Food than they are in Fashion, Home & Beauty. But as I said earlier, the investment envelope allows for Fashion, Home & Beauty supply chain transformation across the period.

So turning to our online and digital investments. I'm setting out the capital allocation here. But of course, anything digital will also involve run costs and licensing fees, which go through OpEx. So we plan to spend about GBP 140 million investing in online capabilities and platforms, critical to delivering our plan to grow online to 50% of Fashion, Home & Beauty. This will work hand-in-hand with logistics, but the investments in this case here covers the improvements needed to the online user experience that John spoke about earlier, where our biggest challenges are the low frequency of visits, the high customer lapse and bounce rates and the high levels of exit at checkout.

So these investments here include a redesign of the website and app, initiatives to optimize conversion through improvements to the core experience, reviews and wish lists, size and outfit recommendations, personalization of search results, offers and content as well as AI-powered search and new selling channels and, of course, leveraging the massive data bank from our 10 million active customers that we have not been brilliant at leveraging to date.

And the D&T investments called out here are picking up where our evolution program had to pause, investing in our network, data, security and platforms. The core purpose of modernizing our tech foundation is to rationalize down our complex setup of applications, increasing stability, scalability, security and productivity. We will reduce inappropriate customization and the layering of new technologies onto old infrastructure. We'll improve our store network and the applications used every day to trade the business, all improving our colleague and our customer tech experience.

Turning now to cost out. So to date, we have saved over GBP 330 million in repeatable structural cost reductions including GBP 34 million in the first half of this year. And these savings have primarily offset inflationary and cost headwinds that the business has faced in recent years. So far, cost-out delivery has largely come from individual teams with much of the savings being realized in stores and in logistics. Our increased target of GBP 600 million out by FY '28 will involve delivering initiatives which cut right across the business in cross-functional efficiencies with a particular focus on the support center and processes, which start here, but which frequently drive avoidable cost into our depots and into our stores. One example of ways in which we plan to do this is with RFID, which I know you've heard us speak about in the past, but which is in the plan to start this year.

And this is a great example of an initiative which drives both cost out and facilitate top line growth, where the benefits include more accurate stock files, fewer colleague hours spent stock counting or searching for product in the stores and benefits to margin through reduced markdown and stock loss. And of the 600 million today, we have line of sight to over 500 million of that cost out which brings me then to growing net funds and cash returns.

As you saw on the earlier slide, we're aiming for a generation of at least GBP 300 million of annual free cash flow even with CapEx towards the upper end of the capital envelope. With some of our larger investments, CapEx will be lumpy, but this is all accommodatable within the envelope that I've set out. And although our first priority is to invest to drive growth, surplus cash flow will build naturally as we grow.

So I hope you have clearly heard that our plan is to be a growth retailer. We're investing for growth through earnings and through cash while still generating further surplus cash. And as profits grow, the headroom between total cash generation and the CapEx envelope also grows, creating additional capacity to invest and to be able to accommodate both investment and dividend growth, all of which will build greater shareholder value. So that's it from me. Thank you very much. I will now hand you back to Stuart as we go to Q&A.

Right, just before -- we're running on time. But before I close, we'll open to Q&A. And the leadership team are on the front row. Last time, we all lined up in a line. But as we ask the questions and answer them, anyone can just pop up. So Alison and I will sort of host the session. We've got mobile mics. So unless we've answered all of your questions today over the corner. We'll kick off.

Geoff Lowery, Rothschild & Co Redburn. Is the implication of your top line ambitions and the value perception charts you showed and the fact that you've not raised your EBIT margin ambitions is the implication of all of that, that the gross margin in both divisions could fall because you need to reinvest more in value relative to history?

Only -- well, I'll go and then I'll ask Alex, Alison, John to chip in, but I'll kick off with this. I'm allergic to managing the business by percentages. And it's a bit of history here. I remember when I joined, we used to always announce just the food gross margin percent. And I said, I don't understand why we're doing this. We're running the company by percent, not running the company for volume growth, cash growth. So one of the rules we put in place a few years back was we set out those margin targets 4% Food, 10% Fashion, Home & Beauty. Now when we set those at the time we thought that's achievable. They're good guardrails. We will get there 3 to 5 years.

We always want to really sort of overdeliver and underpromise. Now of course, we hit those. There's a risk that if we just increase those, which will be quite high for food, if we put that to over 5%. I think it will be the wrong thing to do because it doesn't give an opportunity for Alex and the team to make the right decisions to drive cash. Same for John. So the first priority is cash.

Now the reason we say greater than because we know there's an opportunity to be greater than 4% or greater than 10%, but it will force us to do the right thing. But our real focus is growth. And if you look at those slides, it really does indicate a double food business growth story as it does an online story, a much better -- hopefully, a much better profit rate. But the reason we haven't changed that guidance, I just don't think it's the right thing to do.

Do you think you need to reinvest more in gross margin to deal with the value climate that you find around you?

I think we will have to. The thing that offsets that is our cost reduction program. I mean, the team actually in both businesses. I'll let Alex stand up and talk about food, but actually, they're managing it very tightly now. What's helping us is Alex can invest a bit in gross margin because the volume is coming, and that means the cash is coming. I don't see a big change in gross margin either businesses, but I don't want to be held to hostage on a percent. Now team, have I said anything you agreed, disagree, anything to add?

Is my...

No. I agree with it all. I would just add a couple of bits. One is, it all starts with volume. So volume is what gives us the cost leverage to reinvest. But it's not just our cost leverage, it's the cost leverage in our supply base as well. So it's the volume leverage we get from the Fortress factory program, for example, in food, that allows us to reinvest both in price and it's not just price, it's also quality. So we also budget to invest every year in those 1,000 quality upgrades, which also drives the volume. So it's that virtuous circle.

That's a very good point because it's same for John, because if you look at our COGS in Fashion, Home & Beauty, the more volume we get, the better COGS, which is your plan now.

I think you think that I've now -- we still have much more sourcing opportunities that we have to go after. We talked about generating GBP 80 million over the last couple of years. We have to go again in terms of what we can do there. So volume will be a big one there. But also, I think, looking at our range architecture in terms of good, better, best. So while we might invest in value, there may be some stretch also in the better, best side of our business.

And Hannah has grown food volume very well for M&S, a key part of the team. And the more volume we get at Ocado, the better cost of goods Alex is going to get in food as well. Next question.

Adam Cochrane, Deutsche [ and UBS ]. The question I got is, I try to avoid percentages. But in terms of the return on cash employed or IRR and the payback, can you just explain a little bit more why the future payback is longer than it was before? I think you said it's to do with the store closing? There's just some numbers around that just to reassure us that the new sites are as attractive as the previous ones.

If you focus on for line stores, for example, the economics of the new store are always incredibly strong. So payback generally less than 3 years. But because the majority of new full-line stores also involve rotating out of an old store, we have no nonperforming stores. So the numbers that you see there factor in the cost of closure of the existing store, and that then is what is driving the longer payback. Now the reality is that if you look at the 3 years to come, we are simply closing more stores than we have been in the 3 years gone by, and that's what's driving the longer payback. I think the important point is that it's still well within our returns hurdle.

There are some subtleties. So construction costs are going up. We did have some quick wins in prior years. So the Debenhams acquisition actually was very helpful, very strong paybacks. So there is a slightly higher payback because of some of those things in the future pipeline. And the other thing is we've got to face into some of these stores. So I mentioned Pantheon because we think that's a direction of where we're going to be, Fashion, Home & Beauty. It's up for John and I to look at that and analyze that in depth.

But some of these huge big stores, Kensington, Edinburgh, Princes Street, these are going to be long-term good growth stores but are going to need a lot of investment. And I don't want to say we've just done the easy stuff because actually, we haven't. We've made some big decisions. But if you look at the future, we think that payback might be slightly higher, whether it's the costs or facing into the big stores. But the other option is we just avoid them, and that's what's happened in the last 25 years. So we're facing into it.

So should we be thinking about that GBP 500 million to GBP 500 million of growth CapEx attaching a return on capital employed to it, and that should be your profit growth each year before any of the other good stuff that you're doing?

You're trying to get us to do your job.

Help me do my job.

Yes. I mean, look, clearly, across the life of the plan, all of the investments that we talked about will increase return on capital employed annually as we go through. We're just not it out specifically. But I mean, we've given some good guidance about what the food volume growth will do for Alex, in particular. New space is a big part of it, but it's not just new space. It's all the efficiencies that will accrue from the supply chain investments as well.

If you think about Daventry, I mean we'll open it in 2029. I mean, I think that's a really good investment. Obviously, we're going to pay that GBP 340 million of over 6 years. Is it 6, Alison...

6 years.

5 or 6 years, but this is about big investment now quite a bit of depreciation, but for the future. And that's very much the strategy. Next question.

François Digard from Kepler Cheuvreux. You insisted on surplus cash flow. I understand that you prioritize investment by -- but they are already quite significant enough to double food to double online sales. What level will be necessary of surplus cash flow to increase seriously your dividend? I don't know if I can have a second one right now or just to...

Well, let's answer that one first with Alison.

Well, I think we've always been clear that we want to increase the level of the dividend, and we will do so. But our priority is to invest in the growth of the business, which will deliver greater returns to shareholders. through the TSR than simply adding a couple of [ pence ] to the dividend. Ultimately, the aim is that we do both. And with the level of cash generation that I talked about, that GBP 1 billion, that will allow us within this capital envelope to start to increase returns to shareholders over the life of the plan. We're not focused on a particular number. Clearly, with GBP 300 million, there is room to increase the dividends from the levels that we're currently...

so we're growing the dividend in line with profit.

Yes. The ambition is to do both. I would hope that we have been clear about that, but priority #1 is making sure that these investments deliver and turn into the cash generation levels that we're expecting them to.

Alison, let's move and we come back if we've got time.

Anne Critchlow from Berenberg. I think you mentioned considering customer credit for online. So just wondering whether that would be on balance sheet or not.

No. Well, Alison say no.

So right now -- right now, the technology investments for our credit proposition will be funded through our partners through the third parties that we're working with to develop that product.

But if we offered credit like John's plan, does that answer the question?

Well, if you would use your balance sheet to give the money to the customer.

The credit facility. Yes. Yes. Well, I don't think we've really worked that through. It's an idea and we do what credit for online. But I mean we're in the early days of scoping that out.

It's not in these numbers, Anne to be clear.

But it's a good point to pick up.

It's Georgina Johanan from JPMorgan. Just two, please. The first one was just they were interesting steps about the cost for click and collect, whether you fulfilled it from store or from the warehouse. I was just wondering if you could share what proportion is actually of click and collect is actually fulfilled from a store at the moment?

Should we do that first with John because that was in John's update. John, click and collect percent of in-store [indiscernible].

So it's a very small percentage in terms of what's actually picked in store to be delivered in store. And actually, within that, again, in terms of what's collected in store, is about 1/3, about 2/3 then is sent to other stores in terms of what we do. So actually is quite small, but it's a big opportunity in terms of cash.

And then the second one, I know we're not sort of focusing on the digital side today for obvious reasons, but I just wanted to check if your targets have actually changed because I think if I'm remembering right, that you'd previously said about 2/3 of your kind of digital estate would be modernized by the time we get to, I think, either fiscal '28, fiscal '29. Do you still anticipate that you'll be able to achieve that? Or should we actually see that as being pushed back given everything that's happened, please?

I'm slightly unclear. What did we say -- the digital sort of state. Say that again?

I think if I remember right, but perhaps I'm wrong, you'd sort of phrased as in terms of like all of your systems and so on, around 2/3 would be sort of modernized over the 5 years to either fiscal '28 or '29. So I was just wondering if we should assume that maybe we can push back a little bit.

Right. I'm clear now. We're slightly behind. So we're really going to start that. Now some of that work has happened, but minimal in the last 6 months. So we're running about 6 to 8 months behind. Sacha's plan and the plan we're all working through all of us as a leadership team is try to catch a bit of that up, but we're going to be kicking that off new financial year.

So should we assume the target was 12 to 14 months...

Probably 12 months. Actually delayed a further 12 months. It doesn't stop some of the acceleration we're doing online, in particular. And actually, in John's business, there's quite a lot [indiscernible] decoupling. We're picking that up really straight after Christmas. So there's a few programs a bit behind. Other programs will be on track.

It's Monique Pollard from Citi. I've just got a couple. The first one was just about the flexibility that you have in your supply chain on the fashion side to respond to those viral moments. Obviously, you mentioned that you get these brilliant viral moments from social media, but then the feedback is [indiscernible] small sizes, et cetera. So I just wondered what flexibility you have, whether it's open to buy in reorders and whether actually you want those things to sell out ultimately. So you don't want to...

Not as quick as [indiscernible] do. No. But I'll let John just prepare some thoughts. But I mean there's a couple of things. There's definitely room for improvement. So whether it's open to buy or actually at the very start, I mean, actually, we have [indiscernible] I mean we have quite a good fun in our range of views. And normally, we know the hot items, but something surprise us. And we're just building our confidence.

I remember looking at the faux fur coat with Maddy in the womenswear review, and we all said that's going to fly. It's the hottest item there. We thought we were bold. In truth, it also caught us by surprise. So we need to build more flexibility. When John talks about that sourcing time to market, we're way too slow at the moment. And that means thinking about sourcing, geography open-to-buy, John?

Yes. So that was a piece really around critical path in terms of what we need to improve. So we've got open to buy today, but we need more open to buy, and we need it to be quicker. So on a recent trip to Istanbul, which is a close sourcing in terms of what we're doing, we have the supplier network to work with that and working with the global players who are looking for faster in terms of turnaround. But a great example in terms of how we work today. So we go to a quicker turnaround market, we make the goods quickly. We get them turned around quicker. What do we do? We put it on a boat for 3 weeks. So by road, it's 3 days. So there's things that back to the end-to-end in terms of how we relook at it.

And then I'm looking at [ Tamara ]. We were in Pakistan just a few weeks ago in terms of a major global denim supplier supplying all of the major global retailers. Just because it's in Pakistan, just doesn't mean it's long lead time. We were talking about a 30-day turnaround having fabric on the floor and able to react very quickly and also in terms of how we get it then from being made into our supply chain very quickly. But the key thing to remember about speed is that to make a T-shirt anywhere in the world takes the same amount of time. It's the decision to get it made and then when it's made to get it back into your supply chain. That's really where you really work quite fast on. So I'm quite happy as we go forward. We'll be building that in to be able to react into.

I think we're learning so much as well. I don't know if Maddy wants to add, but on some of these lines, we're becoming more confident the size -- in fact, we had a few hours on size in the other day, Maddy, myself and Helen, just go through our proportion of small sizes because that is catching us by surprise. There is an important thing that got raised with me at the break, which is, are you trying to be a fast fashion retailer like Zara? And the answer is no. Because a bulk of our sales or half of them are on the everyday essential items. And actually, we want to be more famous for the black trouser or the skirt and the blows, iconic lines every day and of course, then constantly improve the style and then the fashionability. So I think we're on track. We're just learning as we go, but we're catching up. Another question. Did you have another one question?

It was just a quick one on the point you made on the Adidas. And it being so much smaller than your nearest competitor. Just interested to understand is that a supply chain issue? Is that a brand partnership issue? Like what was that?

It's a bit of all of the above. So the first is when we set our brand strategies out, the team did a good job. They went to brand. Some brands came to us. But of course, what they're really saying is we need to work out how this works because adidas might be on different marketplaces. So it was test some items first, the top 50 lines or something. So there is a bit of that.

There is another piece. Our supply chain is slow. And there's a lot to do, as you heard from John. In fact, when you sit there in the audience, and we're all very ambitious and quite excited about the future growth. But you do have to remember, we've got a lot to do in the years ahead. And supply chain is one. And drop ship works well when it's the suppliers drop shipping, that's easy. When it's through our supply chain is complex. I don't want people to get too carried away there with the Adidas example, because John and I are very clear, our aim is a curated range. We will never have the full range of adidas. It will always be curated. Anything?

Yes, I would say the only thing to add to that is any brand is a journey. So you kind of get to level 1 when you start and then you move up to the levels in terms of range that you need. But I think curation is the key. We don't want everything. We want a curated range that works for us.

I think our overall aim on options, just so we're all clear in the room in Fashion, Home & Beauty is a reduction of about 20%, by the way. So the whole plan is focus on volume value, focus on the key style and fashion items. But overall, we want to reduce options overall. There will be more online than there are in stores, of course, brands included, yes.

It's Richard Chamberlain from RBC. A couple from me, please. Stuart, I think in your opening remarks, you put up a slide showing that the quality perception on both sides of the business has started to tail off a little bit or sort of flat line. And I just wondered why you think that is? Is that anything to do with the cyber incident or just that you've come a long way in a short space of time?

Yes. It's a good question, Richard. I mean, it was sort of flattening. It's the value where that was really flatting off. The quality is sort of leveling out. Funny enough, the last results have got a bit better. I think there's a few things. I mean when we do specific quality communication and upgrades and people engage like the work that Alex, Catherine have been doing on Italian meals, where actually the whole premise of that category upgrade was UPF moving towards more products and ingredients that are from your cupboard.

And actually, the team have kept that secret really because it's going on in the background, but we're not going out with big messages yet. The way customers engage with those products, they do come back and say, I can tell the difference, much better quality. And of course, we think -- I mean, we benchmark our entry tier to the premium tiers of other retailers that everybody is going out trying to quote quality messages.

But when our customers engage with it, the quality perception all increases. The value is the one we're more worried about. To be honest, quality and style, Fashion, Home & Beauty and Food, we're not overly worried about because we've got such clear plans to differentiate. And as Alex always says, if in doubt, add quality in, value is something because we really must continue that value investment goes back to the margin point. We've got to drive the volume. We've got to be first price, right price. That remarkable value range this Christmas is critically important to customers and our ambition to be a full shopping list retailer.

Okay. Great. And maybe just a question for John on the clothing side. As you think about the supply chain configuration, how do you expect the sourcing by geography to change? Will there be a big change there? I mean I think M&S is quite reliant on Bangladesh at the moment, my fourth question. Is that going to come down now? Or should we expect that still to be fairly stable?

Yes. It will change. John?

Yes, it will change. Bangladesh, we're probably a little higher than what we'd like to be. So we've got opportunities, and that's part of the trip to Pakistan, actually -- where actually we're low single digits in terms of mix coming out of there. So there's definitely more opportunity to have there. Equally, Egypt is developing quite well at the moment. Again, very close in terms of market coming in here.

So we'll see some change going on there in terms of what we will need in the future. I would say kind of Bangladesh down a little bit, Pakistan up a little bit. India, if some of the tariffs come down there next year, that could be -- make it quite interesting as well. And then Egypt is probably the other one. And then finally, I would add, in North Africa, you've got Morocco. So again, in that kind of kind of wovens kind of a little bit faster in terms of turnaround, quicker to react to market trends at the moment.

Thank you, Richard. Other questions. Over to the far left.

John Stevenson, of Peel Hunt. I was surprised in the comments around sort of pre-retailing, I sort of -- I feel like we sort of, as an industry, pushed a lot of that down the supply chain over the last decade or so. And the number of [ 40% ] of hour on delivery feels like very, very large. I mean how big is the opportunity and what's missing? What do you see as sort of best-in-class? And I guess, how long does it take to get there?

Well, a lot better than that. That's why we highlighted it because we're well aware, we're way behind. And again, I go back to John -- John can add, but I go back to the discussions John and I were having way before he joined when we were saying the big opportunities in Fashion, Home & Beauty is a reset of our foundations because we've done some good work. The product under Maddy's leadership and the team on products is night and day from where it was, whether it's quality or style and fashionability. And the work we've done on everyday essentials is a big step on and there's more to do on that and more to do on value.

But really, have we really faced into supply chain with close and redundant sites. We've got a bit better efficiency in Donington. We've done some things that have been incremental improvements. But we've never really resolved, as you saw, and that's why we wanted to be very transparent on the work ahead because this is a 5-year plan for John and the team because it's double what any other retailer would do.

And the beauty of John coming, I said to him, you're going to be quite shocked. I said you'll have a month in stores, and you'll be ringing me and say, my gosh, I said, but just remember how exciting when we've done it because these are legacy ways of running the Fashion, Home & Beauty business. And the reason he put the picture up is just to bring it to life. John said to me, shall I show the picture? I said, definitely, explain it because that means opportunity, it means growth.

But it's going to be a lease and Thinus who's at the front here on retail. He's working very closely with food as well. I mean, food have moved some way because we've got better shelf-ready packaging. We've got better systems coming in on how to split different products in trays. And as you saw from the work in the distribution plans, that will really enable much better and quicker food deliveries to store and shorter lead times. But the big job is in Fashion, Home & Beauty, and that's a 5-year plan. Anything?

Yes, I think you pretty much explained it all...

And just to add to -- I mean, John mentioned things like sort of delivery to click and collect to Simply Food and all rest of it. There's some big projects behind a lot of these initiatives. Is this -- is it going to be a couple of years till we start seeing some of them land? Or we start seeing things in the next 12 or 18 months?

I think it's difficult for me to say. I mean, we're going to see improvements constantly from now. But some of these projects, I mean, click and collect is a little bit easier, but we need to get the investment in Donington. So in around 12 months from now, we'll see some better investment in Donington quicker, click and collect coming from Donington rather than just the in-store fulfillment. I mean we've been heavily reliant on in-store fulfillment in the last few months. In the next 12 months, we'll see some improvements on that. But the real thing on John's plan, I mean this is a 5-year plan, and it's pretty significant.

I'm just going to add on that we already have click and collect and Simply Food stores, which is a great benefit. The thing we need to do is educate our customers about that, that they can actually do that today.

Charles Allen from Bloomberg Intelligence. Just a couple of questions on Ocado -- Ocado Retail. One, is there a time line for Ocado Retail getting access to the Sparks membership list and/or recruiting customers in M&S stores? And secondly, are there -- I mean, it seems that you chose not to do this a couple of months ago, but would there be any sense in consolidating your branded purchases for M&S and Ocado Retail?

I think, Charles, it's a 2 brilliant questions. And we haven't really touched much on Ocado. Hannah is here, as you know. I mean, I think the first thing is as we're leading a bit of a reset on Ocado. Now it's early days. We haven't quite kicked it off, but I think the plan that Hannah has got is a brilliant plan to reset the business. And we've spent time at the Ocado Retail Board going through there. And I'm actually very encouraged by that. As part of that plan, I think there's lots of upside for Ocado Retail as well as M&S. Sharing data is one. Now just to be clear, I've got feedback from my presentation that I gave the impression that those 24 million customers on Sparks were all active.

Well, they're not. But we do have 24 million customers in terms of database. In true, half of those, we can contact, we connect with, we can engage with. So we've got a big plan of -- and quite a lot to do on loyalty, personalization and how to use the data. We think there is some real benefit of sharing as Ocado and M&S Food customer data, customer insights and probably loyalty is something Hannah has got on her pad to consider loyalty.

In terms of branding, that's already starting. It's a small way at the moment. In our advertising, Alex has already been saying or available on Ocado. It's subtle, but we're starting and Hannah is actually rebranding some of her vans powered by M&S Food, which I know our shareholders raise with me constantly and keep asking why we can't get M&S advertised on vans. It's part of Hannah's reset.

So actually, I would say we're quite encouraged. I think under Hannah's leadership, there's been quite a lot of good progress in the last couple of years. The reset is not all finalized -- our side, and we're very supportive of it, Hannah, aren't we? So we think there's a lot of upside in the years to come on Ocado and sharing data is one.

Sorry, I mean on the branding. I meant purchasing branded groceries, which seem to be done in two separate ways at the moment. I mean Ocado retail purchases branded grocery.

Oh, we're doing this, Charles. Example, Alex...

I'm actually surprised, because I've been -- actually, we're doing a lot of this. The biggest thing for joint buying is actually in fresh food, which we're buying together anyway in M&S brand. If you think about it, when Ocado's volume goes through our factories, the same fixed cost leverage comes to both businesses. That's the biggest thing.

The next biggest thing is actually joined buying of fresh food, whether it's Ocado branded [indiscernible] and M&S branded one. So we're doing that work. All those opportunities is the smallest one is actually the branded one because we sell so few brands in M&S is such low volume. There are 1 or 2 exceptions like Coca-Cola, but it's fresh food with the big opportunity, which we're getting on with.

And there's just a few grocery brands like Coke, we're doing now.

Exactly.

Warwick Okines from BNP Paribas. Just another one on fashion. Will the value investment that you talked about in fashion lead to lower ASPs? And is there a risk that your value investment drives some cannibalization of your better and best rents?

Well, I'll let John answer, but there's a couple of key points. The first is actually, some of our price points are very strong. We're just not very good at communicating them. And that's the first part of the plan. We've been benchmarking our prices. It's harder to do in fashion than it is in food. But actually, if we look at this Christmas, we've got very strong prices on knitwear, for example. In kidswear, we've invested already quite a lot in kidswear, but we're just not really shouting about it or talking about it. So our in-store execution on value at best is 1 out of 10. And we're hoping for some big improvements in the next few months on in-store communication. And then the rest, John.

I think adding investment in entry price point, we'll look at that in a good, better, best to make sure that we're not impacting the rest of the range in terms of what we're doing. So I think we do that as part of our daily process anywhere. So I'm not worried about that in terms of where we go going forward. I think from my point of view, in terms of that investment, it's about where we need to in the market, if that's in menswear in a particular category or whether it's in womenswear, we don't have to do a widespread right across everything. It's just specific targets in different categories where we think we need to be sharper than we are today.

Freddies Wild from Jefferies.

First of all, can you help us understand with these Fashion, Home & Beauty sales doubling. What sort of incremental margin are you making from new orders coming through online in Clothing & Home? And second, you talked about the investment on -- from Warwick's question really. But on the food side, the gross margin investment in food, can we think of that as being similar to maybe what we've seen over the last year where you've been gently underinflating the market? Is that the right way to think about it?

Yes. Good two questions. I'll hand over to John and Alex. Just to start. I mean there's not a huge difference on newness coming in on margin, to be frank, it's not a big difference. What the team has done is as they're consolidating more fabrics and learning different ways of sourcing, we do see some margin benefits through that plan over the next 12 months and onwards. And I think there's some really good plans. Not only does the product next year, in Fashion, Home & Beauty look fantastic, some of the margin benefits are good. However, I go back to the first question, some of the decisions the team and I make is we might look at that margin and say there's some upside there, but where is the market on value, and that goes back to driving cash all of the time. So we need to be very careful with, it's always cash margin.

And I think that has put us in good stead in Fashion, Home & Beauty in some categories, more to do. And I think it has done on food. I mean when I look at our dine-in last week, the performance of our dine-in was way above our expectations. Now we could have bought a bit more perhaps. But the key thing we're learning is in all of our data, more customers are eating in. That plays to our advantage. So I think value plays to our advantage in so many ways, which is why pre-Christmas, but post-Christmas, we're going to go again as well. Alex, what have I missed?

I just think 2 ways we think about it in food is one is yes, inflating when there is inflation and there's at the moment, inflating behind the market, and that's leveraging our volume growth to allow us to do that. But the second piece is we've still got many lines we want to invest in pricing. If you think about the family staples around the food hall, remarksable is really successful for us. But there's lots of items in that basket where we would like to have a lower price than we do today. So there is also investment in the plan.

Now before I wrap up, John, if I missed anything for you.

No, I think you've got it most. I think the other thing I would say is obviously the consolidation with international as we go forward. So we haven't been great at that to date. So there's obviously a good margin opportunity there as we go forward as well.

The general view as well on how we want to manage value is, you're right, we've been inflated behind. And that's why, as Alison described the cost-out program and the opportunity for us to be structurally a lower cost business is so important because we have been inflating behind the market. And everyone outside, we watch our index to everybody. We're pretty paranoid about it. But value is at the core of the strategy. I'm going to wrap up. We are all around. So we won't leave until you leave. So as I close, we'll be here for other questions.

Thanks, Alison. I'll just run through a quick summary from today. So you've heard quite a bit. Hopefully, it's been useful and hopefully, the breakouts were useful. But if I was just to summarize for takeouts, the scope for growth, a long-term opportunity, the U.K.'s most trusted brand, a distinct competitive advantage strong, experienced team ambitious for reshaping this business for future and continued growth, consistent operational delivery and financial delivery. And also, as Alison says, a strong discipline to capital allocation with a strong balance sheet. So we're in an okay place. We've made progress, but I just want to reemphasize there is so much to do in the years ahead. And that's what we find exciting.

The summary of our businesses in food, you've heard us put products at the very heart of everything and creating exceptional product, great quality, great value every day, underpins our food strategy. You've heard us talk about our store pipeline because stores will enable that growth in our food business. And Alex has brought to life the big investment on supply chain that enables very strong future growth in years ahead for our food business. So we are very clear we can double the size of that business.

In Fashion, Home & Beauty, doubling the online part of that business while holding our stores. Again, we talked about product Maddy brought to life the work we're doing still to improve style, quality, but also trusted value. So product still plays a critical part.

Delivering that omnichannel future that John brought to life another key opportunity in how we're going to double that business, but also that scope for margin improvement percentage points behind our competitor, We're at 7.5%, there's big opportunity where an 8% market share should be double. And doing that especially through a very clear supply chain strategy. Now that strategy is not being locked down yet. So we're giving John the chance for us to spend a bit more time over the coming months. scoping all of that out. But we've already committed to some and that was Donington as part of that immediate online opportunity.

Third, building a global brand. Mark in the breakout would have brought this to life as well as my introduction. Obviously, product is at the heart, that curated product. But the most important thing, the enabler for this is working with our franchise partners and making sure there's a win-win partnership as well as some exciting opportunities with the wholesale model.

And doing all of that, investing for growth, putting our money back into the business to make sure we're growing the business for the medium and longer term and focused also on structural cost reduction. And that leaves me and my team to say, thank you, one, for your support, your time today. And hopefully, all of you will shop with us at Christmas and spread the word to your family and friends. Thank you.

Good day, and welcome to the Marks and Spencer Analyst Call. This meeting is being recorded. At this time, I'd like to hand the call over to your host, Archie Norman. Please go ahead, sir.

Well, good morning, everybody. It's Archie here, and I'm joined by Stuart and Alison, obviously. Thank you for joining us today. I was going to say, great to see you,, but I can't see any of you. So look, I think this is a set of results where we slightly feel we've said all there is to say about it, but I'm sure you'll think of some interesting questions. So let's crack on. Stuart is going to make a brief introduction, and then we'll take whatever questions there are. Thank you, Stuart.

Well, good morning, everyone. Thank you for joining us. As Archie said, Alison joins me in the room today. We've also got Fraser and Helen, so they're on hand for any follow-up questions you may have throughout the day. I'm going to start with a look back at the half from April to September before moving on to give you some detail on where we are today. I will then look ahead to Christmas before finishing with the outlook for the rest of the year.

I want to cover 3 objectives that we set out a couple of months ago, which were, firstly, to regain momentum; secondly, get back on track with growth; and thirdly, accelerate the pace of our transformation.

So let's start with the last 6 months. The first half, as I've said, was an extraordinary moment in time for M&S. I'm not going to go over all the old ground today because I briefed everyone on the incident during our call in May. But everything regarding the incident has been well documented, and we are now getting back on track.

Our customers have been fantastic as always, and I want to thank them again for their continued support and loyalty during the period. I also want to thank our supply partners and of course, our colleagues across the whole of M&S, who showed real determination and grit. This support, together with the underlying strength of our business, our healthy balance sheet and robust financial foundations gave us the resilience to face into the incident and deal with it.

At the prelims in May, we anticipated the material impact of the incident on group operating profit to be around GBP 300 million this financial year, and we are broadly in line with that. I can confirm that this is mitigated by GBP 100 million of insurance that we claimed and received during the period. This is the first set of results where we have consolidated Ocado Retail into our numbers. This is just an accounting change as part of the original joint venture, and it has no impact on our share of the business.

Now let me just touch on the headline numbers because across M&S, group sales grew 22% versus last year, but that was driven mainly by the accounting inclusion of consolidating Ocado Retail. Excluding the consolidation of Ocado Retail, M&S sales were broadly flat with last year. Group profit before tax and adjusting items was GBP 184 million. And excluding lease liabilities, we are still in a net funds position.

Now we put customers first and prioritize availability, which did drive waste and therefore, increased costs in our food business. With our systems off, we didn't have a clear stock view. And of course, we were using manual processes, but we took the decision to allocate stock out, fill the shelves, and that was the right thing to do for our customers.

Despite the disruption in food, the business was resilient with robust sales growth of 7.8% in the half. Fashion, Home and Beauty sales in the half were down 16.4%. We had a particularly tough time here due to 3 key challenges. Firstly, we paused the online operations for just over 6 weeks and then brought them back gradually. Secondly, this impacted click and collect, which affected footfall into stores. And thirdly, supply chain disruption caused availability issues.

As I said, this incident was an extraordinary moment in time. But change, on the other hand, is not a moment. And in M&S, change is a constant. We have a clear plan to reshape M&S for continued growth, and we have never lost sight of this despite the disruption. That is why we accelerated our transformation during the half with investment in our 3 priority areas of store rotation and renewal, supply chain modernization and technology transformation.

On store rotation, we opened 15 new or renewed stores in the first half and we will open more than 20 in the second half. This includes opening 2 flagship full-line stores, Bristol Cabot Circus, which opens next week, and Bath open in February.

On supply chain, in August, we announced a new 1.3 million square foot automated food distribution center in Daventry, which opens in 2029 to boost capacity for future growth, lower our cost to serve and improve product availability. A new regional food depot also opened in Bristol in 2026, increasing the proportion of stores served from their nearest depot. These investments are helping us get ahead of the growth curve and build a bigger, better food business.

And on technology, we use the incident as an opportunity to strengthen our technology foundations and fast track some time lines, including the new Fashion, Home and Beauty planning platform. Our job is to ensure we continue to transform and grow M&S while maintaining a strong investment-grade balance sheet. That means being disciplined in our investments and their hurdle rates.

Let me add a little color to each of our businesses. In Food, sales and market share growth are back on track. With 3 years of consecutive monthly volume growth outperforming the market, more customers are filling up their basket to M&S more often. In fact, the latest Kantar figures show that M&S is the fastest-growing store-based retailer in volume over the last 4-week period.

In the last 12 weeks, we served 800,000 more customers year-on-year. In the half, customers made 14 million more shopping trips to M&S Food than the same period last year, demonstrating more people are shopping with M&S Food more often. You've heard me talk about our strategy, protecting the magic and modernizing the rest. In food, the magic means going to great lengths to ensure the absolute best quality, the leading on innovation and delivering trusted value.

Our obsession with delivering world-leading quality continues to drive sales. Take our upgraded Italian meals range with sales up 1/3, for example. And our focus on innovation brings new products and new customers to M&S. Our viral Strawberry Sandwich sold 1 million units in just 4 weeks. In fact, we launched 700 new more quality upgrade products in the first half of this year alone. At the same time, offering trusted value is at the very heart of what we do.

Sales of our value ranges are up 29%. Alex and the Food team have made good progress, but we have so much opportunity ahead of us as we work towards becoming a full shopping list retailer and doubling the size of this food business.

Now turning to Fashion, Home and Beauty, where the recovery curve in this part of the business has been slower than in Food, as I said, due to the pause in online sales and stock flow disruption. But now with online back up and systems running, we're making progress every day. And over the coming weeks, we expect stock flow to settle into a more normal rhythm.

Despite this, we used the period to make further progress in improving our product ranges because outstanding product sits at the very heart of our strategy for Fashion, Home and Beauty with the M&S magic being a combination of quality, value and style. We consistently lead the market in value and quality. And now I can say for the first time, based on YouGov report yesterday, we're #1 for style too. And the latest Kantar figures just out show M&S #1 in fashion market share in the last 12 weeks. This includes leading the market for womenswear and lingerie.

So look, we're making progress, and this is encouraging, but there is so much opportunity in this part of the business, and there's lots for us to go after. John, as the MD has been here now 6 months and has started to accelerate the strategy, being laser-focused on the big rocks that we haven't yet really tackled, mainly the foundations of the business from sourcing through supply chain, through merchandise planning and accelerating our online performance.

In international, sales were down 11.6% due to our international websites being offline and shipment disruption. However, during the second quarter, performance improved as we restored systems and websites. Mark and the team have now made encouraging progress resetting commercial terms with some of our franchise partners, which has helped enable investment in trusted value.

We expanded our partnerships with Zalando and Amazon and put in place new wholesale arrangements, for example, launching lingerie in David Jones, Australia, already performing ahead of plan. The summary for international is we continue to -- it continues to be a growth opportunity in the medium term, but performance over recent weeks has been encouraging.

Touching on Ocado Retail, sales were strong with growth of 14.9% over the half, driven by sales of M&S products, which grew faster at 20%. Sales growth has been encouraging, but we know there's lots to do to the path to profitability. Key opportunities include improving delivery efficiency with more same-day slots available, extending picking hours and rolling out further automation. These initiatives will boost capacity over the next few years and support the path to profit.

To finish, I will turn to the outlook. As we enter the second half, the consumer environment remains as uncertain as ever. As always, our priority is to offer the best product value, quality, innovation and of course, in fashion, style. We will continue to drive our transformation and to structurally reduce our costs to offset external headwinds.

For context, during the first half alone, the increase in national insurance contributions and packaging tax cost an extra GBP 50 million. But there is much in our control and the increase in our cost reduction ambition will help to address this. We're confident we will be recovered and fully back on track by the end of the financial year.

In the second half, we therefore anticipate profit at least in line with the prior year as residual effects of the incident continue to reduce in the coming months. Our plan to reshape M&S for sustainable long-term growth is unchanged. Our ambitions are undimmed and our determination to knuckle down and deliver is stronger than ever. To date, we have delivered meaningful progress, but that's what's exciting because there remains so much more to do. And for us, it's all to play for.

I'll hand back to Archie for questions.

Brilliant. Thank you, Stuart. Okay. We've got a few hands up for questions. So let's just crack on Frederick Wild from Jefferies. But by the way, could you be helpful if just one question at a time because our memory is not very good. And -- we take a couple each. All right, Frederick?

So first of all, I'm going to ask a terrifically boring question, I'm afraid. Could you give us a few more details on October trading in Fashion, Home and Beauty, what sort of the overall sales growth was have you seen versus the market?

Well, look, I mean, top line, as you can see, the market has been soft. You can look at the graphs in the RNS because we put those in to help people understand. And there's a couple of things. I do think people are holding back a bit because of the budget, but also the market is soft because the weather -- I'm looking here, I mean water side and it's bright sunshine. Autumn hasn't even hit yet, never mind winter. So the market is somewhat soft, and the market is very promotional.

I think the latest stats I saw was high promotional participation averaging 50% already. For us, look, it is behind the curve slightly. I think there's some good news because we're not quite where we want to be yet on Fashion, Home and Beauty, but every day is getting better. And I think by the time the cold snap arrives, we will have pretty good availability, especially around fashion. So I think it's working in our favor at the moment.

And then beyond that, with the -- at least in line guidance for half 2, can you help me understand the sort of moving parts within that, what could get you above be in line? And is it the consumer backdrop? Is it the speed of your availability? How should we measure that and think about that?

I'll give a high level and hand over to Alison for some detail on this. But Look, in half 2, if you just compare last year, I think in Food, we're on track. I mean it could be a bit better. We're planning for a good Christmas. But I never like to overpromise and underdeliver, but we're getting back to stronger growth in food, and it's all to play for, as I say in my opening.

In Fashion, Home and Beauty, we are concerned about the weather. It is something that I don't like to talk about internally, if I'm honest. I always say don't blame the weather. But on an analyst call, it is helpful just to bring it to life because if we do have a cold snap, I think we'll be pretty well set up. So my summary, Food could be a bit better and Fashion & Home could be a bit softer, but we're planning for a good Christmas, and we'll see.

I'll hand over to Alison for some detail.

Thanks, Stuart. So really, I would say it's all about the pace of recovery in both businesses. As Stuart has already said, we're gearing up for a strong Christmas in Food and then a good new range to launch in the fourth quarter. All of the systems that we need now to manage waste and stock loss are fully back and each week sees an opportunity -- season improvement, sorry, in waste, and we are getting to grips with it.

In Fashion, Home and Beauty, I think for the third quarter, as the systems come back online, they are now all back, but stock is not in the right place everywhere. If you think about all the moving parts in our distribution network, getting stock out of ports into the right DCs that allow us to fulfill online orders as well as dispatch stock into stores. That is still being worked through in the third quarter. We expect it will be fully done, certainly by the financial year-end, but operational in the fourth quarter as well.

And then Ocado, we expect to continue with their strong sales. International really to have a good strong year. And as far as cost is concerned, we continue to focus on cost elimination, as you've already heard. So really, that is all playing into an expectation that at least we will be flat in the second half to the comparable period last year, and then you'll have a judgment to make as to where to take us up from there.

I think Alison and [ Fredrik ] just quickly raises a good point on food waste. We're getting back now online. Clothing, we're just mindful we're holding a bit more stock for the second half. So we need to manage that. There is some good news on new stores in H2. We've got 10 new food halls, 4 food store extensions, 7 renewals and 2 new full-line stores. So there's some positives. I think my summary would be we're confident we're going to start FY '27 in a good place. Okay. Good questions. Thanks, Fred. James Anstead. James?

So you've had this cost of GBP 324 million in the first half of the year. I just wonder, you're clearly now getting very close to being back to normal, but how much more do you think that might tick up in the second half? And associated with that, and I do appreciate fully that you rarely give PBT guidance for the current year, let alone next year.

But if effectively, you're guiding for PBT of at least GBP 652 million this year and the cyber impact, which is probably going to tick up a bit from GBP 324 million. Is there anything wrong with starting my spreadsheet for next year with a PBT of about GBP 1 billion. I appreciate there's a consumer outlook that we have to take a view on, and there's hopefully some underlying growth in the core M&S business. But are there any technical bits, Alison, you would say that's far too naive a starting point?

Well, I'll start with the first question, James. So above the line in terms of any lingering impact on trading, you've already heard all the detail there. There's nothing beyond everything that we've set out, which is largely about the pace of recovery, particularly in FH&B and making sure that stock is in the right place. And that is in relation to the GBP 324 million impact.

Below the line in adjusting items, there will be about GBP 30 million of incremental cost in the second half as we finalize standing down all of the incremental resource that we've talked about earlier, largely replacing offshore E&P colleagues with onshore resource augmentation. That will carry through into the first couple of months just as we stand that resource down. But beyond that, there's nothing.

And then with respect to your second question, James, no, not really. The only thing in addition to, there's nothing technical from our side. As Stuart already said in relation to the last question, our expectation is that we are fully back to normal by the fourth quarter of this year, so that FY '27 is a clean, unimpacted year. And the forecast that you had previously in place are good for FY '27. There's nothing beyond that.

I think, James, just to build on that, only a couple of summary points, a bit cheeky question on the numbers. But there's no change to our view for next year. We're in line with sort of where the consensus is currently, free to take your own view on that. But I would say we've got quite a bit of recovery in the next 6 months in Fashion, Home, Beauty and the consumer outlook is still uncertain.

We're getting a lot of feedback about the sort of nothing presentation yesterday. Everyone's waiting for the 26th of November. And so the next 6 months is going to be a bit uncertain. We're hoping to start fresh, as I said, in FY '27 and be back by then. But I wouldn't overdo the ambition.

Okay. Thank you, James. And -- if you need help with your spreadsheet, Fraser can help -- you got a computer program. Let's go to Anne Critchlow and then we'll see Clive Black has joined us. So we'll go to Clive afterwards. Anne?

I just wanted to ask about the spring/summer fashion stock from this year. Is there any stock overhang as into the not marked down or sold through? Anything you're overwintering, anything that might need to be written off or down in the future, please?

Well, it's a good question, Anne. I mean we have provided for that in the numbers. If you look at our stock cover, I'm a few days out, but as of a few days ago, we had 13 weeks stock cover. So that was 2 weeks more than last year. So we have provided for some of that in H1 already and we are holding more stock as of the half year. So it's in the H1 gross margin, you can see where we provided for it.

And unfortunately, my whole strategy about not having a sale is not going to be achieved this year because when John joined us as the new MD, I said one of the key objectives is everyday pricing, let's get rid of sale and not do it. And then obviously, within 1 week of him joining the incident happened. So there's a lot to go after, though, and it is a bit uncertain, but we provided in H1. And now we'll see how winter trades, and we are going to make sure we sell our way through in H2. And that's a bit uncertain as we sit here today in the sun.

Okay. That's helpful. And could I ask -- could I ask a second question, please, on systems. So just wondering to what extent there's been a temporary fix that will perhaps need redoing. And to what extent the cyber incident might have accelerated? What you're going to do anyway and perhaps even made it simpler and better, and any examples you can give?

Well, I'll start and maybe Alison has some thoughts as well. Our biggest priority for technology is recovery. And as part of that, there are some things, by the way, that we didn't bring back up. I mean there's a system in food called RTA that was very old, very clunky. It used to basically give better split of products in our DCs in different price. But actually, we haven't brought that up because we're going to buy a more simpler modern system. But really, it's all been about recovery. And now if I'm honest, it's all about resilience for Christmas.

So there are some things like that food system. In John's business, he's taken a fresh look at the o9 planning platform and has actually sped that up. I mean it's going to take half the time of what it was going to take. And there are some other things we're doing like investing in loyalty, which really we're playing catch-up on. So my summary is, we haven't really accelerated a lot. We haven't really opened some systems that we didn't think -- either we thought we didn't need. But really, our transformation is going to get back on track by the end of the financial year. And we'll also talk about this at the Capital Markets Day.

Clive, we assume that you -- I didn't want to apply your late meeting, by the way, but we assume you're celebrating in Liverpool.

Indeed, Archie, I was actually on time, but your systems clearly haven't got up to speed yet. But -- and also, Archie, it's great to know that you're going to be hanging around Paddington for a little bit longer than they have been the case, which is good news for everybody in my book.

So first question, if I may. I'm going to try and stay away from everything from the spring. And I know you have a Capital Markets Day coming up. But Stuart, in your video this morning, you talked about M&S being a shopping list grocer. I just wondered what does the firm need to do to reach that aspiration? And what does it actually mean to M&S?

I mean, Clive, in simple terms, what we're realizing in our bigger food halls, where we've got more of a grocery range that includes frozen food, our customers are relying on us to do a fuller trolley shop. I see this in my local store in [indiscernible] where over half of the shopping trips are in big trolleys and the other half of baskets.

And if you look at all of our data, not just recent, but the trend in the recent years, more customers shopping more frequently and our spine of the basket, which we call center of plate, the key commodities customers buy and could buy elsewhere, that has actually grown in this half by 12%. So the key to this is the store rotation program. As you know, we're only 4% market share. I will say to Alex, it's still piddly, is the term I use, it's still small, which really just encourages us because we've got more than 50 food stores in the pipeline already approved. And that means that gives confidence.

Now one of the key investments that we made during the last 6 months was -- which I called out in my opening and it's in the RNS, which is our Daventry new distribution center. Now that's 2029. But the reason we needed to commit and invest in supply chain is so we get ahead of that growth and enable that growth. So I think we're well on track. The food business is in a strong position, whether it's building a better supply chain, the work Alex and the team are doing on what we call factory resets and fortress factories, the strategy about really close partnerships and the work we're doing on range, importantly, the work we're doing on value. And we're tracking all of those top 200 items every day.

Inflation is a challenge for us to manage with the extra costs headwinds that not just us, our suppliers have had, that all gets passed through to us and it becomes a challenge. But our value lines are up 30% in the year, and our value perception has the greatest increase of any other grocer in the last 3 years. So all of that added together should enable the food business to be more of a bigger shopping list retailer.

And of course, I think you also said you still plan to double your market share in your statement this morning. And then in a similar vein, if I may, you talked about also seeing the opportunity to double your online sales in Fashion, Beauty and Home. And I guess, again, what are the mechanics by that? And just as a sub-question, I presume you still have ambitions to build, to grow your in-store activities in this respect as well.

Well, I think the key thing, online sales, I mean, we said double the online sales, I think, from FY '22, which were GBP 1.1 billion. And our plan is to double that. At the moment, only 1/3 of our Fashion, Home and Beauty sales are online. And of course, that's been impacted in the last few months. But we have not lost sight of that long-term ambition. And that's very clear.

Don't forget in Home and Beauty, our participation is actually very small. It's not going to be the biggest part of our strategy, but there is opportunity to grow and improve our home offer, and we will be doing that over the coming years and resetting our beauty categories, which is under review now.

I think the biggest thing, just to go back on Food, just to clarify, we said double the food business. We really mean sales hopefully, that leads to a much bigger market share, of course. I think we're in a good place online. We serve over 21 million customers, but let's be really frank, we have got to do a better job online. We want to do much better on service, much better on availability, much better on personalization. There is no short of demand when it comes to our customers wanting more, whether it's in store or online. So we've got to be quite ambitious, but there's quite a lot to go for over the coming years.

Do you see a switch out of in store into online, sorry, Stuart, just to finish as part of that process?

Well, I'm hoping not, but I'm hoping we hold a lot of our stores flat at the same time. I mean online market share for us is 7% stores is higher at 12% and obviously, the focus is going to be online. If we could hold the stores, that would be good news.

Sorry to interrupt you, Archie.

No, no. Thank you, Clive. Good clarification. Just to be clear, the doubling of the online is from 2022. So that would take us to 50%, the objective to get to 50% of total sales. Thanks, Clive. That's great. Let's go to Georgina Johanan, and then we'll move on to Richard Chamberlain. Georgina?

I've got 3, please. I'll ask them one at a time. The first one was just in terms of the Fashion, Home and Beauty sales, obviously, I appreciate the consumer environment and so on, but it would be good to understand what you've got planned in terms of any activities to sort of reengage that consumer and also the time line on that because presumably, you don't want to be sort of overly reengaging at a time when availability is still a little bit below where you'd like it to be. That's my first one, please.

I mean, Georgina, in simple terms, I mean, where you're dead right is we could probably say we reengaged our customers too quickly before we were really ready with availability online. But we've got no issue with customers' engagement, but we have got to get the stock flowing better. And the only thing working in our favor, by the way, is that, as I said, it's very sunny here in Waterside. I don't know where you are, and we're hoping the cold snap will arrive just in time when our winter product arrives and we're ready to serve.

But we don't have an issue with demand, but we are a bit slower than we would like in getting the stock from supply through to our ports, through to supply chain, through to stores, through to online. And this is John's priority as we plan for Christmas.

And perhaps just a follow-up one there, Stuart. When you're saying you don't have an issue with demand, is there something that you can sort of point to for that? Like, for example, is web traffic a lot stronger than we can see in terms of the actual sales data and perhaps conversion is down? Is there anything sort of tangible that we can point to there?

Well, it's a good point. The reason I don't say there's a problem with demand is we're holding our own. In fact, our market share has improved in the last 4 weeks, if you look at Kantar. If you look at the YouGov results yesterday, it's encouraging. We're back to #1 on brand buzz. And as I said, for the first time ever in history, we're #1 on style. Now that doesn't mean we'll always be #1 on style, but it is the first.

And if you look at traffic, I haven't got the number. I can't remember it, and [ at the start, ] but we'll get someone to find the number, but traffic is actually sharply up on last year.

To your point, online sales are up over recent weeks. Transactions are up, but we have got to get a better availability. By the way, a session I had with Maddy and Helen just last week, you will probably notice this, but we do have a bigger demand for smaller sizes. And that's been a trend over the last 3 years. But actually, it's one of our biggest problems today online. I've just been given a scribbled note from Fraser that says September traffic was -- September traffic was up last week, 17% on last year. Traffic September up 21% in September, last week up 17%. Another one?

Yes. If that's right, please, it was just on CapEx. I guess just understanding if I was understanding right in the release that it's actually going to sort of GBP 650 million to GBP 750 million for this year, what we should be looking for in the outer years and why we're seeing that increase, please?

Okay. It's a good question. I'll hand to Alison.

Georgina, thanks. So you'll be aware that we have continued through the half with our strategic programs investments, so in supply chain, in stores and in D&T. Obviously mindful to protect our investment-grade rating, and that is a key priority. But as the cash generation comes through, our ability to maintain that investment, see the returns coming through, invest, as Stuart said, in the online experience, both on the website and on the app behind growing that traffic means that we can increase the envelope slightly.

Depending on a particular year, there will be some disposals that we can offset that with. But we are a growth business. We have opportunities to invest behind, and we'll talk a lot more about the details behind that at next week's CMD [indiscernible] just all while aiming to grow the dividend as you've seen today.

I think that's right. I mean, I would say strong discipline. We've got clear hurdle, right, Georgina. But as you know, some of the big bumps in that CapEx will be things like the NBC, which we've already announced as well. And the focus areas of stores, supply chain, D&T, and that includes online as well.

All right. Thank you, Georgina. We're eating up the time. So I just ask people to go at a bit of a cliff if we can. Richard Chamberlain from RBC, and then we'll go to Adam Cochrane and Deutsche. Richard?

I'll stick to 2. I know you've got your CMD next week. So both on the clothing side, please. What's the timetable now for upgrading Sparks next year, I think you're talking about and what needs still to happen for that to take place? That's my first one.

Thank you, Richard. Well, it's a short answer because in Sparks, we had a plan 6 months ago that we literally just paused and said we will come to it when we're through these last 6 months and the incident. And we've only just started to put resources from D&T back onto that program. What that will focus on is real personalization. It will focus on experience, but it won't be a big bang relaunch. There will be some good news, some good partnerships, but it will be a better way of engaging with customers and giving them a more personal service.

It won't be a rewards, i.e., a different price architecture for those customers. I've never been a fan of loyalty card pricing. We research this all the time. But for us, to stand out from the crowd and try and deliver better value and value every day is an important underpin to our strategy. But really, this is all a way of getting closer to customers. It's not going to be one big bang. It will be a relaunch in March or April. And then basically, every 6 months, we will continue to improve loyalty over the coming years.

Got it. Okay. And my other one is just on marketing spend. I'd just be interested in what's been happening on that and thoughts on whether you need to step that up now to continue sort of regaining the top line momentum in clothing. I think you rephased some marketing from sort of earlier in the summer to early autumn, if I'm not mistaken, I mean, for obvious reasons. But just wondered, yes, thoughts on sort of marketing, whether that needs to go up a bit now.

I mean my summary for this, it won't be more spend. I'm not giving our marketing team any license to spend more, but it is about relooking on how we spend it. I mean, for example, there is no big fashion Christmas advert this year. We have decided to do more product ads more through social. There's different ways, we want to use YouTube and social media. So I think it's about spending it differently. The thing we've been conscious of and we're watching is making sure we spend it in line as product availability improves constantly, and that's across Fashion, Home and Beauty mainly. In Food, we're on track, and we're spending in line with the budget we laid out.

Thank you, Richard. Okay. We'll go to Adam at Deutsche, and then I'll take a couple more. I think we're going to run out of time. So I know everybody has been waiting very patiently. But Adam, crack on.

Just the first one, you talked about the confidence of clothing being back on track. I know over the summer, you possibly lost some customers to other retailers. Is it apparent that you're already regaining those customers who have shopped to other retailers and are now coming back to M&S?

Thank you, Adam. Well, I'm saying getting back on track. So I haven't said we're back on track. We are planning that by the end of this financial year, our Fashion, our Home and Beauty business will be back on track. I mean, I think the biggest issue we had, obviously, through the incident was the lack of availability and the online business being paused. And therefore, that obviously did set us back. But as I said at the start, we're back to #1 market share in the last 4 weeks when you look at Kantar out this morning. So we're back to #1.

Our product is definitely resonating. Our value is resonating. And as I said, we're #1 for style on YouGov, which came out yesterday for the first time ever in our history. So you would have seen in Kantar the improvement every month. And I think we put some of that in the RNS. So the reason I don't want to get overpromising is there is a tendency for us to say, isn't this great? We're all back to normal. But actually, it takes a bit longer in Fashion for the stock to flow, for the systems to reconcile the stock, so we know exactly where it is.

And we are carrying a bit more stock than we would like. We've got to get through that. We've got to look at what's going to happen over autumn/winter. There's no autumn yet. It's not an autumn yet. Let's hope for a cold snap winter. And then we need a really clear plan as we get into the Q3, Q4. So I think it's all to play for. There's no short of demand, but stock flow has to catch up, and it's on John and his team's priority list. We go through it daily.

Okay. And on the international. And just very quickly, the expanded agreements with Amazon and Zalando, what proportion of the range are they able to access? How excited are you about increasing the growth internationally by the aggregators?

I think it's a very good question. What I would say is it's very, very small. It's really testing and learning. If you look on there, you'll see on Zalando and Amazon. It is encouraging because the brand resonates, so we know that, and it's slightly ahead of our plan, but it's very small in the grand scheme of things. But I think in a year from now, this will be a good opportunity for our international business as we get more of our range on both of those sites.

And I think more broadly, what Mark and the team are doing with our partners will set us up for future growth. The reset with our franchise partners in terms of how we do the agreement encourages our partners to invest. It encourages our partners to deliver better value. And in some markets, I mean, last week, I was looking at the UAE and Food is very small and the volumes are small. But just by right pricing, that business was already up 70%. Now I will say 70% up on things that never really sold much volume. I think resetting all of that is good news.

And the third, the wholesale partnership, it's not just about Percy Pig in Target, although the sales of Percy Pig in Target U.S. are way beyond what we expected. So we're now putting more runs of Percy Pig on. But the wholesale partnerships, I do think in the medium-term is a growth opportunity, whether it's David Jones Lingerie, we're going to launch womenswear as well soon, then menswear. So I think there's good opportunities in the medium- to long-term for us to be this global brand that we set out last year.

Okay. Thank you. Well, now look, we're over time, but I'm going to go to Monique Pollard because you've been waiting very patiently. And then Warwick Okines and then we [indiscernible]. Monique?

The first question I had was just on this availability issue. So what I understood that you were saying, Alison, is that the -- am I right to understand that the availability issue is more acute in online for Fashion, Home and Beauty than it is in store? If you could just give us some color on the sort of the differences in availability store versus online?

Not particularly, Monique. Availability was affected by the slower stock flow, and that applied to both businesses. In online, it's slightly compounded because we don't fulfill online orders from all of our DCs. So there was that additional complication, but really both businesses were impacted.

I think the summary, Monique, is we're about 5% off at the moment where we want to be. But every day is getting a bit better. Our online availability this morning, for example, was down 1% on last year. So every day is getting better, but it is split between stores and online. Your second question, Monique.

Yes. The second question, just a quick one. It's on the U.K. budget and the potential for business rate increases. So if we do see business rates increase for ratable values over GBP 500,000, what kind of impact does that have on your cost base on an annualized basis, please?

Well, that's a complicated one. I'll hand over to [ Alison Dolan. ] I think the -- a couple of things to just summarize, as you probably know, is this half year, with a GBP 50 million. And that's only on 2 things: one, the packaging tax; and two, the increased, what I call the double whammy on national insurance. So that was GBP 50 million for the half. When you add that to living wage, which for us, we already plan to increase wages for frontline colleagues. So we look at that as a good cost, but that is GBP 150 million for the year.

I think what really worries us is what's coming down the line. We have this deposit return scheme, which is a huge headwind, a challenge in stores operationally. The setup of that is nearly GBP 30 million. Running that is a GBP 7 million cost every year for these huge monstrosities of this unit in every store for customers to bring plastic back. And by the way, in the Republic of Ireland, they break down every 5 minutes. And on top of that, you've got other big impacts because it's not just about us. All of these impact our farmers, impact our suppliers and then all of those costs get transferred to us, and then we try and mitigate them in order to provide value.

So -- and I think it's not just that it's other regulatory stuff. So we've been working quite closely with people in government, talking to them about these challenges every day, hoping to influence in some way. I've met Rachel Reeves a few times now, but it is top of our mind, and we're hoping. Well, we're preparing for the worst on the 26th because everybody -- it's a bit of a nothing speech yesterday. We all sort of finished it saying, well, what did that really mean? But we're sort of planning for the worst and hoping for the best.

Alison, on our particular numbers.

Yes. So I would just say that at the moment, our business rate still is about GBP 180 million a year. So it's clearly material talking about that one specific item. And obviously, any increase also has the potential to be material. About 60% of our properties have a ratable value of over GBP 0.5 million. So the rumored break for larger stores would clearly be welcome for us. But that's about the scale of the bill right now. But I think...

About GBP 7 million benefit.

It's about GBP 7 million saving if we were to get that break, yes. But I think the bigger point really is in the aggregate of all of this new government-induced incremental charges. The EPR, for example, alone that Stuart talked about was a GBP 40 million charge for the year. The deposit retention scheme, big one-off upfront. NIC business rates, the apprenticeship levy, we can only use about 20% of it, and that cost us about GBP 7 million a year. So it's a combination really of all of these official regulatory costs.

I think the only good news, Monique, for us is there's a lot in our control. Our investment in things like supply chain automation will help give better productivity. So that's why we've increased our cost saving program -- so there's a lot for us to go after as well.

Okay. All very good points. Thank you, Monique. Right. Look, apologies for those who haven't got in. I appreciate people have been waiting, but we're running down the clock. And we will make sure we get back to you those of you've been waiting. So I appreciate that. Last one, last shout from Warwick Okines at BNP.

Just 2 quick ones to finish off, and I'll do them both at once and test your memory actually. These are quick ones. Firstly, on costs, you may have answered this already, Stuart, but you've raised the structural cost savings target to GBP 600 million. So is there anything particular to call out on where those savings have come from? And then secondly, could you give us a bit more detail about what your customer barometer is telling you?

Okay. I'll kick that off. On GBP 600 million, we set by FY '28, mainly through end-to-end supply chain. There's quite a lot in our plans for that and also some of our factory to floor programs and store productivity programs. By the way, we've never really got under store-friendly deliveries, which means our stores spend a lot of money unpacking things 3 or 4 times. And the good news is it's the first thing John Lyttle raised when he did his first month in stores. So whether it's supply chain or end-to-end through our stores.

Look, it's a challenge, but there's plenty of us to go after on the cost side. That's why we set the GBP 600 million to start to mitigate some of the extra headwinds coming our way. In terms of customers, I mean the good news is we talk to quite a few customers every month. We have a collective where we talk to about 40,000 customers, and we ask their view, and we have 1,000 customers in Fashion, Home and Beauty and we get their views.

There's never big changes, I have to say. The October survey really calls out customers talk more about rising costs. They talk a lot about the budget. There was a lot of questions, why does it take so long to set the budget. There's a lot of emotion in there about blaming the past all of the time that this is going to be a break in the manifesto and therefore, does it mean I'm paying more tax. Pension -- slightly older customers have pensions on their mind. and capital gains on their mind. So there's no doubt that takes the big part of the feedback we get.

But at the same time, it's not all doom and gloom because when you get those issues on the table, what actually comes out is, well, we're looking forward to a bigger, better Christmas. And actually, we measure what we call excitement and positivity about Christmas and how you plan to celebrate. And that for our customers, of which now there's a few thousand in that pot, as I said, that's been the highest it's been.

And if we just look at the early indicators, Christmas food to order is already up 7% on last year. We launched third-party food in stores. It's always an introduction, but that exceeded our expectations. And even if we look at some of the other things like Christmas decorations or the gift shop, I still think we need to relaunch this in a much better way in the years to come. But even that's trading 20% up. The softness is in fashion, but that's because of the weather and us catching up. But that's really the summary. I hope that helps.

Good. Well, look, thank you so much, everybody. All good questions, and there's a lot we could still talk about. But I think we should draw a line there. There's a lot of work to do, obviously. And just to remind you, those of you who are coming or able to watch, we have got a Capital Markets Day next week. By the way, we're not really expecting to mention the C word on that day at all. Stuart looking at me grinning. And there's going to be a forward-looking event and a chance to able to meet the management team. So I hope those of you who are coming will enjoy that. So we look forward to seeing you all there or thereabouts shortly.

I thank everyone for your support and questions, and please shop with us this Christmas. Thank you.

Thank you so much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. Have a good day, and goodbye.

Hello, everybody, and welcome to the '25-'26 Marks & Spencer Interim Results. Stuart is going to talk about the performance of the business. Alison will go through financial detail, then Stuart will come on to talk about the outlook.

I think it's unusually important this time that I just say a few words at the beginning to thank all our colleagues in the business for the incredible hard work over what's been a very stressful 6 months, especially colleagues on the front line, working without systems in the stores, dealing with customer queries, obviously, our store managers who have been magnificent, our leadership team who've worked flat out and also our technology team who worked so hard to bring back our systems. So it has been a frustrating period.

I want to thank to the shareholders who have actually been remarkably stoic throughout and perceptive. And of course, our customers never ask for sympathy from anybody, but it has been a period where people have been generous and kind to us and supported us through a pretty tough period. So thank you, everybody. In an instant media world, people think that you turn your systems off and then you turn them back on again.

So what's the issue about? But in reality, things just aren't quite like that. You have to rebuild your systems in a safe environment. And of course, people forget that we rely on data to power the business nowadays. The good news is that we are very confident that we'll be 100% back by the year-end.

And every week that passes, we're seeing some improvement. And through all of this, our commitment to and ambition for the shareholder value creation thesis that underpins our strategy, the reshaping for growth. That ambition is undimmed. We are more confident than ever. And if anything, we've been able to take some steps during the instance to move even faster and come back differently.

So we end the half with a bounce in our step. We're ambitious and optimistic for the future. When I come to talk to you at the year-end, I hope it will be a very different type of conversation. And meanwhile, we are looking forward to a wonderful Christmas, and I very much hope you are too. Thank you.

Thank you, Archie. Well, good morning, and welcome to our interim results presentation. If you're watching on Wednesday, the 5th of November, there will be a conference call for analysts and investors at 9:30 a.m. when Alison and I will be available to answer your questions. There are 4 parts to today's presentation.

First, I will start by updating you on our headline performance, what's happened in the half and where we are today. Alison, our CFO, will talk to you and walk you through the financials in detail. I will then give some perspective on our progress to reshape M&S across our whole business before closing with a view of the outlook for this financial year.

The first half of this year was an extraordinary moment in time for M&S, but I don't intend to go over old ground today. Everything regarding the incident has been well documented, and we are now getting back on track. However, I will say that our customers have been absolutely fantastic as always, and I want to thank them again for their continued support and loyalty during the period.

I would also like to thank our supply partners and of course, our colleagues across the whole of M&S who have showed real grit and determination to get us back on track. This support, together with the underlying strength of our business, our healthy balance sheet and robust financial foundations gave us the resilience to face into this incident and deal with it.

The financial impact of the event is broadly as we set out in May and is reflected in our performance for the half as expected. M&S Group adjusted profit before tax was GBP 184 million, a decline of GBP 229 million from last year. This includes GBP 100 million of insurance claimed and received in the period. Free cash flow from operations was an outflow of GBP 193 million, but despite this, we closed in the period in a net funds position.

I should also note that this is the first set of results where we have consolidated Ocado Retail into our numbers. This is just an accounting change as part of the original joint venture agreement, and it has no impact on our share of the business. Our strategy remains the same, and we continue to progress in our transformation, investing in future growth across store rotation, supply chain and digital and technology.

Today, our systems have been restored and both our website and our stores have improved availability and trading is recovering. Operational metrics are closer to normal in food and recovering across fashion, home and Beauty and progress is being made every day. Now let me turn to the businesses. In Food, sales have been robust throughout, growing 7.8% on the year in value and 2.8% in volume.

Food operating margin was 2% of sales, down from 5.1% last year. The decline in profit reflects an increase in waste as we manually pushed and allocated stock to our stores, resulting in a higher markdown, but this was the right thing to do in order to serve our customers. Systems in food have now been restored, waste metrics have reduced and gross margins are closer to normal.

Our top line performance reflects a consistent program of new product launches, investment in trusted value and a focus on protecting customer availability. We launched over 700 new products during the first 6 months, including our first-to-market strawberry Sando, and we upgraded the quality of our Italian prepared meals, which drove a 35% uplift in sales, and that was part of our 1,000 quality upgrade program.

Our investment in trusted value drove sales growth across remarkable value dropped and locked and bigger pack, better value ranges. Value perception has stepped up by 10 points over the last 2.5 years, and that's the biggest increase of any grocery retailer. Our mission is to become a shopping list retailer. We're seeing more customers choose us more often for their everyday shopping with large baskets growing over 10% in the last 12 weeks.

Our focus now is investing for the future, growing our store pipeline and building a modern supply chain, and we're making progress on this. In summary, across our food business, we are back on track. We believe there is so much potential to double the sales over the long term, which is why it's essential we get ahead of the curve and invest for the future.

In Fashion, Home and Beauty, sales were more challenged, down 16.4%. We had a particularly tough time where we had the dual challenge of no online sales for over 6 weeks, plus lower sales due to store availability issues. As a result, Fashion Home and Beauty operating margin was 2.7% of sales, down from 12% last year. This decline reflects lower sales and also higher stock management costs incurred in the period.

With warehouse and replenishment systems now restored, availability is starting to improve and operations are recovering. Despite the disruption in trade, we have further improved our style credentials and retained our lead on quality and value, which helped us to recover our #1 position in market value share.

Both womenswear and menswear have received a positive reaction to our autumn campaign, supported by strong marketing. We remain committed to offering customers first price, right price as part of our trusted value strategy, further investing in lingerie and kidswear in this period. And we've introduced new collaborations in home like the Kelly Hoppen collaboration and in beauty ranges like Estée Lauder.

Under the leadership of John Lyttle, Fashion, Home and Beauty is increasing its focus on transforming the supply chain, accelerating online growth and improving productivity, and we will bring this to life at our Capital Markets Day on the 11th of November. We believe there is a long-term opportunity to double sales online by modernizing how we buy, plan and flow stock while also increasing operational efficiency to improve profitability.

Turning to International. Reported sales declined 11.6% in the period, reflecting similar headwinds to the U.K. and disruption to franchise shipments. However, we saw an improvement in the second quarter. Importantly, we made progress resetting commercial terms with key franchise partners and expanded our marketplace presence with Amazon and Zalando across Europe.

We also launched new partnerships like our partnership in Australia with David Jones, and we've got more partnerships launching in the second half. Operating profit rose to GBP 13 million from GBP 11 million with cost efficiencies and new wholesale businesses more than offsetting the sales decline. These first half developments give us more confidence than ever in our long-term ambition to build a global omnichannel brand with a focused capital-light model.

For the first time, Ocado Retail is fully consolidated into our reporting. During the period, Ocado Retail reported a small loss of GBP 3 million. Sales for the 26 weeks to the end of September were strong, up 15% driven by growth in orders, increased frequency and supported by a 20% uplift in M&S products on Ocado.

Today, M&S accounts for over 30% of total Ocado sales and more than 50% participation in key fresh categories. CFC efficiency improved in the half. However, service delivery and fleet maintenance costs offset some of these gains, and that remains a focus. In summary, these are positive steps and with improved CFC throughput and efficiency, we remain confident Ocado is on the path to profitability.

Alison will now take you through the financials.

Thank you, Stuart. Good morning, everyone. Let me start by taking you through the group headlines. Total group sales were GBP 8 billion, up over 20% on last year as a result of the consolidation of Ocado Retail. Excluding Ocado Retail, sales were GBP 6.5 billion, broadly level with last year. It is worth highlighting that the sales performances across the business units of Food and Fashion, Home and Beauty are very different to each other for the period, and I'll provide further detail on this later in the presentation.

M&S Group adjusted profit before tax was GBP 184.1 million, which includes the receipt of GBP 100 million of lost profit cyber insurance proceeds, which were claimed and received in the half. Adjusting items during the first half totaled GBP 168 million, of which GBP 102 million was incurred as a result of the cyber attack. Again, I'll provide further detail on this later.

The resulting statutory profit before tax was GBP 3.4 million. Free cash flow from operations for the period was an outflow of GBP 193 million, again, largely driven by the circumstances of the incident. Nonetheless, at the end of the period, we remained in a net funds position, excluding lease liabilities, supported by the strength of our cash balance. Including lease liabilities, our net debt increased to GBP 2.5 billion as we incorporate Ocado Retail leases and other liabilities totaling GBP 518 million onto the balance sheet for the first time.

In May, we estimated that the cyber attack would have a trading impact on operating profit of around GBP 300 million. The group profit bridge details the extent to which each area of the business has been impacted, and the total was broadly in line with what we expected at GBP 324 million.

127 million of that impact has been in food, about GBP 30 million more than our original expectation, which resulted from us having to replenish store stock manually without the systems we would normally use to manage waste and stock loss, and it did take us longer than we had expected to bring those systems back online and functioning normally.

And about GBP 200 million of the impact has been in Fashion, Home and Beauty, which was about what we had expected. The underlying drivers here were the website being offline for approximately 6 weeks, followed by a phased return over the summer. We also incurred significant stock flow disruption and stock management costs in both the first and second quarters, which impacted availability both in stores and online.

Outside of the Food and Fashion Home and Beauty business units, there was limited profit impact in International as cost reduction and wholesale agreements offset the impact on franchise shipments and Financial Services saw some profit impact due to disruption to the Travel Money business. Collectively, the GBP 324 million reduction in trading profit has been partly offset by GBP 100 million of insurance proceeds, which have been recorded centrally and sit within underlying performance.

Separate to the cyber attack, these financials reflect the first-time consolidation of Ocado Retail. For the 25 weeks to the end of September, Ocado Retail made a small operating loss of GBP 3 million. Net finance costs increased, again, largely due to the consolidation of Ocado Retail and its incremental leases.

In our new presentation, noncontrolling interests are reported prior to M&S Group adjusted profit before tax, keeping the basis of disclosure of adjusted profit materially unchanged to reflect the fact that our economic interest of 50% of Ocado Retail remains unchanged. Adjusting items during the first half totaled GBP 168 million, a significant increase on the GBP 16 million reported last year. GBP 102 million was incurred as a result of the cyber attack.

GBP 83 million of these costs relate to resource augmentation to replace remote outsourced technology teams whose access was disabled by the incident. The remaining charges primarily relate to third-party advisory costs. We anticipate final charges of approximately GBP 30 million in the second half as these resources have now largely been stood down.

The remaining adjusting items in the period relate primarily to our strategic programs, including store rotation, the M&S Bank transformation and the accounting effects of the consolidation of Ocado Retail. The cash outflow relating to adjusting items in the period was GBP 39 million. We expect this to increase in the second half as the balance of cash costs is paid.

Let's look at the results in more detail, starting with Food, where sales grew by 7.8%. Sales growth in the first quarter benefited from Easter timing. And overall, top line food sales were largely unaffected by the cyber attack. U.K. volumes grew by 2.8%, supported by growth in larger basket shopping missions as we continue to progress towards becoming a shopping list retailer.

The table here highlights how the impact of the incident was almost entirely at the gross margin level, which fell by 3.5% from increased markdown and higher waste and stock loss. Operating costs increased by 6.4%, obviously less than sales growth of 7.8%, resulting in positive operating cost leverage.

Operating costs in the period were driven by increased retail costs, reflecting investment in colleague pay and increased national insurance and by volume growth, which drove increased logistics costs, partly offset by structural cost savings in the period and lower incentive accruals, all resulting in an operating margin of 2%, down from 5.1% in the prior year.

In Fashion Home and Beauty, sales fell by 16.4%. Store sales fell by 3% and online sales by 43%. The drop in online sales reflects the pause in online orders between April and early June and a gradual recovery over the summer. The decline in store sales was caused by reduced availability of stock throughout the period as we restored our stock flow management systems.

With these systems now restored, both our website and stores are improving availability week-on-week and trading is recovering. Looking at both businesses individually, stores made an operating profit for the period of GBP 142 million, which was offset by an operating loss of GBP 96 million in the online business. Fashion Home and Beauty gross margin decreased by 160 basis points, driven by increased stock management costs in the period.

And operating costs declined 2.3% versus the prior year compared with a sales decline of 16.4%, driving significant operating cost deleverage. This resulted in adjusted operating margin of 2.7%, down from 12% last year. Operating costs in the period were driven by retail cost growth, reflecting investment in colleague pay and increased cost of national insurance, partially offset by structural cost savings initiatives.

Logistics costs were lower than in the prior year, reflecting lower volumes and the exit of bulky furniture in the prior year, which more than offset the cost of a new temporary manual warehouse. Digital and technology costs were higher, which primarily reflects work on stock management systems. And as in the Food business, there was a partial offset from lower central costs due to lower incentive accruals.

Our structural cost program is a key part of our ambition to achieve operating margins of over 10% in Fashion, Home and Beauty and over 4% in Food. 2.5 years into the program, over GBP 330 million of savings has been achieved with GBP 34 million delivered in the first half across key areas such as retail, supply chain and digital and technology.

Today, we have announced a further increase to our target from over GBP 500 million to GBP 600 million by FY '28 with more of a focus on cross-functional efficiencies, which are more complex to deliver but where the value of individual initiatives is higher. Free cash flow from operations was an outflow of GBP 193 million in the half, which was GBP 214 million adverse to last year.

The primary driver of the cash outflow was the incident, which resulted in a decline in operating profit, increased working capital outflow and adjusting items in cash flow, partially offset by reduced taxation. The working capital outflow reflects a greater buildup of stock and slower stock flow due to more manual ordering and fulfillment alongside timing delays in both payables and receivables, which we expect to partially unwind in the second half.

The consolidation of Ocado Retail resulted in increased depreciation, offset by increased cash lease payments and working capital. Finally, contributions to the defined benefit pension fund recommenced in the period and the reduction in cash capital expenditure despite increased investment in the period reflects a higher capital accruals balance at the half year.

As a result, the group had closing net funds of GBP 176 million, excluding lease liabilities. Including Ocado Retail leases and other liabilities, overall group net debt increased to GBP 2.5 billion from GBP 2.2 billion last year. We retained significant leverage headroom to our investment-grade credit rating metrics.

So to summarize the first half, the trading performance reflects the one-off impact of the cyber incident, which was broadly in line with what we were expecting, partly offset by the insurance proceeds received. Despite the incident and increased cost headwinds, we have increased our structural cost reduction target to GBP 600 million from GBP 500 million by FY '28.

Our cash outflow in the period reflects the profit impact of the cyber incident, but we anticipate timing effects within working capital will reverse in the second half. We continued to invest in our strategic priorities throughout the half, in line with our stated capital allocation framework. We have a strong investment-grade balance sheet.

We retain a net funds position pre-leases, and we will be paying an increased interim dividend in line with policy, all reflecting the strength of underlying cash generation and our financial position.

I'll now hand you back to Stuart.

I'll now share some thoughts on where we are with our transformation, which despite the disruption, we remain laser-focused on delivering. We entered this financial year with strong trading momentum and a clear plan for disciplined investment. During the half, we've been investing in new stores, launching the long-term modernization of our food and fashion supply chains and beginning to improve our technology infrastructure.

In property, our goal is to grow to 420 food stores while creating a more focused, productive full-line store estate of around 180 stores as online grows towards 50% of Fashion Home and Beauty. In food, momentum is building. During the half, we invested in a package of former Homebase sites with an average selling area of over 18,000 square feet.

We anticipate 14 new food store openings this financial year and over 50 food stores are currently approved for opening in the future. For full-line stores, we have 2 new flagships that will open this financial year in Bristol and Bath, both prominent city center locations. A further 15 new full-line stores and 4 extensions are also approved to open in the medium term, while some legacy locations will close in the coming months.

In supply chain, we're building a faster, leaner, more efficient network, one that's fit for future growth and focused on reducing complexity, increasing capacity and structurally lowering our cost to serve. Next year, we'll open a new regional food distribution center in Bristol. This will allow more stores to be served by their nearest depot, cutting unnecessary costs and improving productivity.

Today, around 100 stores are still not served locally, which is something we're now fixing. Longer term, our investment in the Daventry Food national distribution center, bigger than the acquisition of Gist itself will unlock capacity to support our growth ambitions while driving further cost efficiencies. In Fashion, Home and Beauty, we're investing in automation at Castle Donington, enhancing box storage and hanging capacity to reduce split shipments, lower costs and improve the customer experience.

And finally, in digital and technology. Our priority has been recovery, getting back online, reinstating Click & Collect and flowing stock to stores in the normal way. This critical work led by Sacha Berendji is now in its advanced stages. While the recovery activity has delayed our plans to modernize and simplify technology, we're now increasing the pace of transformation in the coming year.

For the remainder of this year, our focus is on ensuring operational resilience, cost control and building new applications to support future growth. We're fast tracking the rollout of our new Fashion Home and Beauty planning platform, and we're investing in key capabilities like personalization and loyalty, which does include the relaunch of Sparks. We remain clear there is much more to do.

Change is a constant, and we remain resolute in our ambition to reshape M&S for continued growth as well, of course, delivering the best Christmas ever for our customers. As we enter the second half, the consumer environment remains as uncertain as ever. As always, our priority is to offer the best product value, the best quality and innovation and of course, in fashion, the best style.

We will continue to drive our transformation and to structurally reduce our costs to offset external headwinds. For context, during the first half alone, the increases to national insurance contributions and packaging tax cost us an extra GBP 50 million, but there is much within our control and the increase in our cost reduction ambition will help offset this.

We are confident that we will be fully recovered and back on track by the end of this financial year. In the second half, we, therefore, anticipate profit at least in line with the prior year as the residual effects of the incident continue to reduce in the coming months. Our plan to reshape M&S for sustainable long-term growth is unchanged. Our ambitions are undimmed and our determination to knuckle down and deliver is stronger than ever.

To date, we have delivered meaningful progress, but what's exciting is that there remains so much more to do, and it's all to play for.