We are not immune to the short-term impact of the recession
and have had to take action to protect the strength of the
balance sheet. As a result we have cut the dividend by 20.9%.
While this was a difficult decision for the Board, we believe it is
the right thing to do for two main reasons: because economic
conditions remain uncertain, and because of the need for us
to retain financial strength and flexibility.
Throughout the year we have prudently managed costs
and continued our investment in our systems and supply
chain so we can improve efficiency across the business.
We also responded to the changing needs of our customers
by improving our values without compromising on quality;
something we view as short-term pain for long-term gain.
As well as helping us through these tough conditions,
these steps will enable us to take advantage of the opportunities
that lie ahead and maximise value for our shareholders.
With a strong brand, the right products and an experienced
management team, we are now:
In addition to leading M&S successfully through the recession,
another of my priorities is to ensure there is a strong
management team in place and an appropriate succession
plan for the business.
As we celebrate our 125th anniversary we do so with an
unrivalled reputation for Quality, Value, Service, Innovation
and Trust. These core values are as important today as they
ever have been. They are all about doing the right thing which
is, quite simply, how we do business.
During the year we acted decisively to meet the challenges of the global
economic downturn, taking steps to manage costs tightly and respond
quickly to the changing needs of our customers.
Our adjusted profits are down 40.0% on last year to £604.4m.
This is due in part to conditions on the High Street as well as our
conscious decision to improve our value, without compromising our
quality. We have built unrivalled trust in the M&S brand over the last
125 years, and will not sacrifice our core principles when times get tough.
Clothing is our customers’ biggest discretionary purchase and as the
UK’s leading clothing retailer, with the largest market share, it was
inevitable that demand would ease off as customers reined in their
spending. Although value market share is marginally down from 11.0 to
10.7%, we have held our volume market share at 11.2%. We believe this
is evidence that Kate Bostock and her team are in tune with our customer
base.
You will see from John Dixon’s review of our Food business that we are now back on track after a challenging period at the start
of the financial year. John became Director of Food in July 2008 and
immediately started to address our prices, innovation levels and
availability. With a clear mandate for growth, John and his team are
returning to our brand values of Quality, Value, Service, Innovation and
Trust. Early signs show that this is working, with the rate of decline in our
UK like-for-like sales improving quarter to quarter.
Our Home, International and M&S Direct businesses continue to
be growth areas in a challenging year, with International and M&S Direct
forming key platforms for our future growth plans. M&S Direct had a
good year, with sales up 19.0%, reflecting new initiatives including an
online wine club and international delivery. Our International business
reported growth of 25.9% following the ongoing integration of our
subsidiary partners.
It is five years since I returned to M&S as Chief Executive. At the time the
business was suffering from a lack of investment and offering poor value,
innovation and styling. The Board charged the management team and me
with reshaping the business and making it relevant for the 21st Century.
Specifically we were to:
- Defend the business from an unwelcome takeover advance;
- Make the business relevant for the 21st Century;
- Develop the management team;
- Articulate a strategy for the future;
- Initiate the strategy; and
- Effect a seamless transition to new leadership in an appropriate timescale.
Over the past five years we have invested heavily in the business and
re-established our value credentials. As a result we have grown market
share by both value and volume, and our brand is back in the hearts and
minds of our customers. In short, M&S is back on the map and well
positioned to emerge stronger from the downturn.
Although we have achieved much over the last few years, the process
we started in 2004 is not yet finished. The pace of change and growth
has been slowed by the recession, and it is still unclear how much longer
the recession has to run – but it will end. Our overriding priority now is to
lead the business through the recession, while continuing to invest for the
long term. In November 2008 we put in place six priorities (see above) to do this.
Ian covers our balance sheet in detail later, but I would l like to focus on
what we have done to retain our leading position in GM and improve our
Food business, by focusing on value, and on some of the difficult decisions
around costs. I would also like to cover the trust with which our customers
reward us for upholding high ethical standards in the way we do business.
Improving our value In 2008/09 we continued to focus on getting the
basics right in GM and Food, and also addressed customers’ financial
concerns. As the economy worsened, we made a deliberate decision to
invest in our prices, reviewing all of them to ensure we were delivering the
very best quality at unbeatable value. In GM we sharpened our opening
price points and introduced new promotions such as the ‘One Day
Christmas Spectaculars’ and ‘Dress for Less’; while in Food we introduced
a series of permanent good value options such as ‘Wise Buys’ and ‘Family
Favourites for £4’ as well as key promotions such as the popular ‘Dine in
for Two for £10’. The result is that we have given our customers better
value without sacrificing our quality or ethical credentials, a fact reflected
in a gradually improving business performance towards the end of the
financial year.
Managing costs We are continuing to invest despite the recession.
But we also recognise that we have to balance the long-term strategy
with the short-term need to manage the business through the downturn
by being prudent where necessary.
We worked closely with our employee representative groups to manage
the closure of 26 under-performing – mostly Simply Food – stores and to
reduce roles across Head Office at the start of 2009.
At the same time we looked carefully at our final salary pension scheme,
which is a substantial cost to the Company. It became clear that we needed
to reduce costs so that we could secure long-term sustainability for the
scheme’s 21,000 members. We therefore decided to cap the level of pay
increases which count towards pensions and change the formula for early
retirement reductions.
Our staff understood that this was the right thing to do in order to protect
the scheme, and were quick to adopt the changes. Ian will explain the
pension changes as well as other cost management measures more fully in the Group Finance and Operations Director's statement.
Trust Although the downturn has put household budgets under pressure,
we believe ourcustomers do not want low prices at the expense of quality
or ethics. Our research also shows that customers are no longer accepting
green marketing at face value. They are challenging companies to deliver
on their promises so that they can be sure that they have made the right
choices for their families.
We launched Plan A in January 2007 because we believed that all
businesses have to take action to reduce their environmental and social
impact. Plan A was not a new idea but a continuation of the culture that
has existed in our business for 125 years.
Our customers have always trusted us to make the right decisions on
product sourcing and manufacturing, and to treat our 78,000 staff and over
2,000 suppliers fairly. It gives us a true point of difference in a crowded marketplace, and now more than ever it is what our customers have come to expect.
We are not put off by the short-term impact of the recession. We set
ourselves 100 rigorous commitments as part of Plan A, and have achieved
39 with 24 of them now going even further. In addition to being the right
thing to do, these commitments are generating cost savings across the
business that we can invest back into our prices.
As I have already outlined, the recession has given us the opportunity to re-examine
our plan. We have therefore completed a review of where we are
and what we need to do to deliver a step-change in the way we service our
customers’ needs and in the way in which we operate our business. We are:
- Increasing the pace of change and operational execution in the business;
- Accelerating towards becoming a multi-channel retailer, focusing all
our actions on the customer, whichever channel they wish to use;
- Driving our International business, particularly China, India and Southern
and Eastern Europe, balancing investment and returns; and
- Reinvigorating our brand communication with our customers, highlighting
our ethical and sustainability objectives.
In order to drive this process, we have launched a change programme under
the banner ‘2020 – Doing the Right Thing’. Ian Dyson will be responsible for
the delivery of this programme across all areas of the business, supported
by Kate Bostock, John Dixon, Steve Rowe and Tanith Dodge.
We are bringing our GM businesses together, and as a result Home will
now report to Kate Bostock. M&S Direct will report to Steve Rowe, enabling
us to consolidate all customer channels under one person. The changes
mean we require someone to focus exclusively on growing our International
business moving forward. Regrettably Carl Leaver has decided he will
not continue in this role. We wish him the best in his future endeavours.