Marks and Spencer 2005 Annual Report Download - page 4

2MARKS AND SPENCER GROUP PLC
Last year, within a tough marketplace, we embarked on a
programme of change to return the business to growth and
to its traditional values, Quality, Value, Service, Innovation
and Trust. We did so with a clear understanding that, while
we needed to move fast, we also needed to do the right
things for the medium to long term and that there were no
quick fixes.
At the Operational Review on 12 July 2004, we stated
that we would refocus the business in 2004/05, drive it in
2005/06 and, beyond that, broaden its horizons. We also
highlighted the actions that needed to be taken to refocus
and these have now been achieved.
In 2004/05, we reviewed all expenditure and put tight
controls in place. Unacceptably high stock commitments
were reduced by over 35% on the year. We are on course
to deliver cost and margin savings and have a lower
customer-focused capital spend. We simplified processes to
make us more product and service driven, and removed over
650 roles from head office. We also focused on 10 strategic
projects that will add most value.
We renegotiated supplier terms to reduce the cost of
goods by £140m by the end of 2006/07, compared to
2003/04. Overall, we are on course to achieve cost and
margin savings of £320m by the end of 2006/07.
Additionally, we closed Lifestore, acquired per una,
returned £2.3bn to shareholders and sold M&S Money, our
Financial Services business, to HSBC.
We reduced the Executive Board to a team of three.
The business unit directors all now report directly to the
Chief Executive and we have set up a stock planning function.
These actions have laid the foundations necessary to
drive the business in 2005/06. We are focusing on product,
service and store environment.
Group profit before tax and exceptional items, although
supported by strong cost control, ended the year 19% lower
at £618.5m on a 52 week basis. UK retail sales at £7.8bn
(inc VAT) were 1.9% lower than last year.
Clothing sales fell 3.1% to £3.8bn, led by continued
weakness in Womenswear, although per una performed
strongly. All other product groups suffered. Food sales were
£3.5bn, 2.4% higher in total and market share was broadly
maintained across the year, although sales dipped by 2.6%
in like-for-like terms. Home had a year of transition as we
closed Lifestore and refocused on value and our traditional
areas of bedroom, bathroom, kitchen and dining. Sales were
21.4% lower at £0.4bn.
Our international operations performed strongly with
operating profits up 47.1% at £65m (up 51.2% at constant
exchange rates).
We have clear objectives: better product and real choice
in easy-to-shop ranges; sharper opening prices and real
value across all ranges; and increased levels of new and
innovative product.
In Clothing, we have strengthened buying teams,
reduced stock commitments and developed consistent
working practices. We are establishing regional offices
to better manage the supply chain. Prices are constantly
monitored. We have reduced the total number of products
by around 17% to create more real choice and increased
the level of new product in store.
In Food, we have also focused on innovation, removed
slow lines, simplified ranges, continued to open more Simply
Food stores and begun to emphasise the quality and
uniqueness of our food.
We have put our most experienced people in charge of
improving standards and service in stores, and are putting
more customer assistants on the sales floor. In addition, we
simplified our return and refund policy, which remains the
most generous on the High Street.
Last year, we de-cluttered stores and improved signage.
We also reinforced the Marks & Spencer brand with the
launch of the Your M&S campaign, reduced the number of
sub-brands and tested a new store concept.
This has been a year of great change at Marks & Spencer,
but it has also been a year of action and progress, thanks to the
hard work and loyalty both of our staff and our suppliers. I would
like to thank everyone for their support through a difficult year.
Stuart Rose, Chief Executive
Chief Executive’s review
STUART ROSE
MARKS & SPENCER IS A FINE BUSINESS WITH SIGNIFICANT STRENGTHS. BUT IT
NEEDS RADICAL CHANGE TO BECOME GREAT AGAIN.