Marks and Spencer Group plc (MKS) Earnings Call Transcript & Summary

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 Archie Norman. Please go ahead, sir.

Well, good morning, everybody, and welcome to our M&S 2025 results call. Stuart is going to lead this session, and he's got a few words to say by way of introduction. But this is a particularly important occasion because, of course, it's Jeremy Townsend's last results call with us. And Jeremy has been brilliant over the years in answering all your questions very lucidly and obfuscating where necessary. So Stuart will want to give him a chance. Alison is also here, poised to take over. And look, just a quick thing on when we get to the questions. It's not that we are bored by cyber, of course, we're not. But the value of the company is not in cyber. It's in the future performance. And last year's results are the best guide, we believe, to the future. So let's focus on that. If you want to ask a cyber question, fine, but one is enough. Now I'm hoping we'll make this call about 40 minutes long. There's a bit of flexibility. So we may not get through everybody, we will come back to you if we don't. Stuart?

Thank you, Archie. Well, good morning, everyone. And if I could just pass my thanks on before I start to Jeremy for his brilliant support over the last 2 years because it is his last week with M&S. And as Archie said, we welcome Alison, who's been with us now a couple of months, fully inducted and getting to grips with the business. So thank you for joining us. I know some of you were on the media call earlier, but I do want to start by giving you my perspective on last year's performance. And of course, at the end, I'll touch on the cyber incident that happened at the start of this new financial year, and I will touch on our outlook. But let me just remind you of the key financial numbers. Last year, we delivered a strong performance. Sales of GBP 13.9 billion, growth of 6.1%. Profit before tax and adjusting items was GBP 875.5 million, an increase of 22%. And we grew free cash flow from operations in the year to GBP 443 million. And we closed the year with net funds, excluding lease liabilities of over GBP 400 million, further strengthening the balance sheet. So we are in good financial health and the best financial health we've been for nearly 30 years. Just touching on the businesses. Firstly, in Food, sales were up 8.7% with like-for-like growth of 8.6%. Volume growth has now outperformed the market for over 3 years. Our continued investment in quality and innovation is paying off, which in turn is driving volumes and this virtuous circle that allows us to continue to invest in quality and value for our customers. Our focus is now transforming our end-to-end food supply chain, which is critical for our future growth plans. In summary, our food business is well on track. Alex and the food team are making really good progress, and we've got a lot of headroom to grow, and I believe we're well on the way to doubling the size of our Food business. Now turning to Fashion, Home & Beauty. Sales grew 3.5% like-for-like sales up 4.4%. We've outperformed the market now for 3 years. We continue to lead the market on value and quality, and our journey on pushing star credentials improved further, driven in particular by womenswear and menswear. We've made good progress on product in the last few years, but our thoughts now turn to addressing the backbone of the business. As you know, we've recently appointed John Lyttle into the role of Managing Director, and he will really help us face into the big transformation areas, supply chain, merchandise planning, ranging and accelerated online growth. So in summary, we're on track, but we know there is lots of opportunity ahead of us, so we need to knuckle down to deliver future growth. On international, it was a reset year as we planned it to be. Sales were down 8.5%, driven by tough performance in India and a softer fashion order book in franchise markets. Under Mark's leadership, the process of reset is now underway, and we are investing in trusted value across our markets. International growth continues to be an opportunity for us in the medium term. Our strategy isn't changing. It's capital light, and we aim to be a global omnichannel business that brings the best of M&S to the world. Turning to Ocado. Of course, Ocado Retail results are reported by Ocado Group. But just a brief update. Sales were strong, growth of 15%, driven by M&S ranges, which grew faster at 20%. Sales growth has been encouraging, but as we know, there's lots to do to improve profitability. As a reminder, from this financial year, we are consolidating Ocado's retail results into our results as part of the terms of the original joint venture agreement. This is an accounting change only. It has no impact on our share of the business. Turning to capital investment. The progress we've made in strengthening the balance sheet now gives us the capacity to invest further in our transformation. Last year, we continued to invest in our 3 strategic areas: store rotation, supply chain and technology. Good progress was made, in particular, store rotation where the returns are ahead of our hurdle rates. This year, we'll invest in CapEx net of disposals of around GBP 600 million to GBP 650 million. GBP 200 million to GBP 250 million will be invested in maintenance, GBP 400 million to GBP 450 million will be invested in growth and cost-out initiatives with continued focus on our 3 strategic priority areas, store rotation, stepping up the pace, 2 new full-line stores, at least 9 food stores and 2 extensions, and there will be more new news to come on store rotation in the coming weeks. Our second, modernizing our supply chain, investing in capacity and efficiency across both our networks, and of course, technology, and we're going to use the recent disruption to leapfrog accelerate the 2-year tech plan into 6 months. Before I talk about the outlook for the coming year, let me just touch on the cyber event. We are now in recovery and getting back to business. As you know, we've been working with cyber experts and official authorities, and we've been advised on what details we can and can't give. But so many chief executives have called me over the last few weeks who have all been through similar events, albeit not as public. They told me, firstly, this will be one of the most challenging situations you face as a CEO. Secondly, they told me we need to watch out for burnout, whether it's myself or my team in the first few weeks. And thirdly, they've said to me, it will take longer than you would like and you would hope for, and it could be a distraction in the short term. To be honest, it has been the most challenging situation we've encountered, but we are on the road to recovery. It has come at a time when the business has been performing well. We are in a strong financial position, and that's helped us respond and it will help us recover quickly. Just on a few facts. April started strong, continuing the momentum from last year. Of course, over the Easter bank holiday, I got a call from one of the team to say they spotted some suspicious activity. Over the last 2 years, we've invested in new systems and tooling, and that has been our in-house -- on our in-house cybersecurity team, and that has helped us spot this type of activity. That evening, we called in several cyber experts and assembled the best team to support us, including tech partners. And of course, we notified the relevant authorities immediately. But we were able to respond quickly and take the right actions immediately to keep us secure, protect our business, our systems, our customers and our suppliers and to keep our shops open, serving customers. And this did mean proactively taking our systems offline, which did result in disruption in the short term. So now we're only 4.5 weeks into this incident. Sometimes it feels like 4.5 months, if I'm honest. But in this multiyear journey of our transformation, it's actually a short period of time. And as I said, we're now getting back to business. Customers can shop in our stores as normal. All our stores are open as they have been throughout. Our food business is delivering stock as normal and customers should find everything they want. In Fashion, Home & Beauty stores are receiving product deliveries and stock is flowing well. But as you know, we've closed our online business. Turning these back on is quite complex, but we're making good progress with our plan, and we will start turning online orders back on within a matter of weeks. We will draw a line under this and move on to business as usual, remaining focused on our long-term strategy and transformation. But before I touch on outlook, I wanted to take the opportunity to thank all of our customers for their unwavering support, our colleagues and our supplier partners. Turning to outlook. As I previously said, M&S entered the new financial year with strong momentum with food, Fashion, Home & Beauty ahead of budget. Since the incident, food sales have been impacted by reduced availability, although this has already improved. In our Food business, we did incur additional waste and high logistics costs due to need to operate more manual processes, and that means profit has been impacted in just the first quarter. In our fashion business, sales and online trading profit has been impacted by our decision to close our online shopping. However, stores have remained resilient. We expect online disruption to continue throughout June, but only into the start of July as we then ramp up our online operations. Therefore, our current estimate before mitigation is an impact on group operating profit of around GBP 300 million for this financial year. But of course, this will be reduced by management of costs, other trading actions and insurance recovery. We're confident we will enter the second half with a strong customer proposition, returning to the performance we were delivering prior to the incident and the momentum we got last financial year. Having spoken to our store managers, all our colleagues across our business, there is an incredible fighting spirit and a deep sense of responsibility. All of us want to get our business back on track in our stores and online and to serve our customers even better and to the best of our ability. And that's what we intend to do. I'll hand over back to Archie.

Brilliant. Well, thank you, Stuart.

Let's go straight to questions then. So we have James Anstead from Barclays.

So firstly, congratulations on the year that's just finished. Hopefully, the underlying strength of the business makes it a little bit less painful to deal with the current situation. But I've got one business and one cyber question, if that's okay. So firstly, the CapEx guidance increase you're talking towards today seems quite striking given the CMD was only about 6 months ago. So can you talk about why that number has moved up relatively quickly? And on the cyber...

I take that, James. We'll come back to cyber.

I'll touch on that first. James, just on CapEx, yes, we are planning that has been more recent in our 3-year plan. If I just break it down, of course, store rotation, we're getting some good momentum in store rotation. So there is an increase in store rotation spend, whether that's renewal, new stores, in particular, and there will be some new news in the coming weeks on stores and also a bit more around maintenance. So that's one bucket. The second is supply chain. We are upweighting the investment because we want to get ahead of the growth, particularly in food. So Alex and the team have got some strong network plans. So we have increased our spend on that. And it was always our intention to increase spend on D&T. If you look at the D&T spend over recent years, if you just go back 5 years, already last year, we've doubled that investment on OpEx and CapEx actually, and it was always our plan this year to accelerate the spend and relook at our tech debt and our simplification around our tech structure. So that's the 3 buckets, all with very strict hurdle rate guidelines, which you'd expect. So that means that gross CapEx is higher and then the net CapEx after disposals, as we said, around GBP 650 million, but we're quite confident on the returns on that investment. Jeremy, anything?

Yes. And the thing I'd point to, James, is the returns we've been getting on the growth CapEx has been really exceptional. And the ROCE at 16.4%, considerably higher than it was 3 years ago at 10%. So we're confident on the returns. We're confident on the balance sheet, we are growing dividend as well. So in terms of capital allocation, it totally fits with what we said at the CMD, I think.

Okay. That's very helpful. On the cyber one quickly, I think you might not want to be able to quantify the insurance offset at this early stage. But there's been a lot of press suggestion that your coverage is for up to GBP 100 million. Is that a number -- I'm not asking for the actual ultimate claim, but is that right that you have insurance up to GBP 100 million?

I wouldn't want to comment, James, insurance, if you've ever tried to claim on insurance, it can take a bit of time. So I don't want to comment on that. What -- the thing to say with the company the size of M&S this is a P of one. What we're focused on, as Stuart said, is the recovery of the business. The way of valuing M&S is how well we recover, where we are at the half year, how we trade in the second half and how we trade into '26 and '27. So as far as we're concerned, focusing on how -- whether we claim on the insurance and when that comes in really isn't the biggest issue. So we'll get back to you on that and how we're doing it, but it really isn't the biggest thing and not really something to focus on, I don't think.

Thank you, James. Okay. Should we go to Warwick Okines at BNP, and then we go to Clive.

So firstly, on the sort of cyber front and following on actually from Jeremy's answer to the last question. What are your customers saying to you about the cyber incident? What's the reaction been? Would you generalize? And I suppose it would be brilliant to get some sort of sense of how your food sales have rebounded now that you're saying the inventory flow is sort of normalizing. That's the first question.

Thank you for that. Well, I have to say our customers have just been unwavering in their support, and we greatly appreciate it. We look at our customer feedback every day. And to be frank, the #1 thing our customers are asking for is when they can shop online. And the second thing they ask for is range in their local store. And they're the top two questions we get in all of our contact centers. So the support has been really fantastic. And of course, what we are looking to do. I think at the very early days, it was very important that we kept our customers up to date, and we really try to do our best to do that in the very early stages and all the way through the journey. And we will continue to do that, and we're looking forward to telling customers when online reopens as well. To your second point on food, I think Alex and the food team have been absolutely terrific. In those early days, the way they came up with innovative ways because we had shut down our systems to get stock into stores, working with brilliant supplier partners. And now as we turn on all of our systems piece by piece and that stock flow is getting a lot better. Actually, the sales have held up pretty well, not quite as in line with where we budgeted, but not far off. And I'm very positive that Alex and the food team are going to be very ambitious on how we come out of this and also entering the second quarter.

Can I just add a build, Stuart. So Warwick, just building on what Stuart said, our #1 focus has been on the customer just because where the systems were, what was very hard was to see where the product was in the chain. So the #1 focus on availability does mean we've had a bit of waste. So where the impact is in the GBP 300 million has been on gross margin and waste. So you're going to see the impact much more on waste than on sales, and that's where we're going to have an impact in the first half, just to be absolutely clear on this.

I was amused by the -- we ran an opinion poll about 2 weeks ago, on how customers felt about cyber that roughly speaking, came up with the conclusion that 52% of customers have never heard of cyber. So we live in this world, but out there, it's -- people are getting on with their daily lives. Okay. Thanks, Warwick. Should we go to Clive Black from Shore Capital.

Congratulations, Jeremy, on your career to date. I hope Leeds United don't make your retirement miserable.

Thank you.

And congratulations to the team actually on the results, echoing James Anstead comments. Just two questions. First of all, I think for me, one of the most telling figures in the statement was the rise in return on capital. And I just wonder, a, what you thought the big -- do you understand the drivers of that? And in terms of your elevated CapEx, does it shape where you're going to allocate your money? And should we expect return on capital to rise further, therefore, which becomes a bit virtuous? And then I won't ask about the cyber incident, but once you're through all this, should shoppers notice much of an evolution in your fashion -- forgot the acronym, FHB. Should they notice a difference online when you come back on stream? Is there a progression that you're able to engineer?

Well, Clive, I'll hand over to Jeremy on some of the figures. But on high level, obviously, the return on capital, in particularly in some of our plans around store rotation are very strong. And that just gives us more confidence. We're very strict on signing off store investment. It's a really robust process, but we will be investing more in store rotation. The paybacks are very strong. The new formats resonate with customers. And don't forget, as I always say, we're playing 25 years catch-up in investing in our legacy store estate. So that's one point. On the general point, we've called it Fashion, Home & Beauty. It was something probably about 6 weeks ago when I had the team together and said we're going to rename clothing fashion. And that really came from being in a store where customers were saying to me, why do you call it denim? And why don't you just say jeans? And why is it called clothing? So we're leading this -- it's a small piece of work, i.e. talking customers' language. I think to your question, I think the work Maddy, Mitch and the team are doing on style, quality, but value, all 3 are just important will resonate. It's a bit of a shame the last few weeks, the new launch products online would have been outstanding, but we will catch up and the team are very, very focused on bringing customers the best range as quick as possible. Jeremy, a bit more on CapEx.

Yes. So Clive, the easy answer to ROCE is the profits have increased from GBP 453 million in '22, '23 to GBP 875 million, so we've just been driving the asset base much harder. On top of that, we've been delivering really strong returns. So you know Liverpool One very well. We've reduced the space in Church Road store by 40%, and we've increased the sales by 40%. So it's that combination of fantastic returns on those new full-line stores, fantastic returns on those Simply Food stores and really good returns on the renewals as well as that level of improved profitability. So the challenge and the trick is going to be continuing to deliver returns on that growth CapEx and maintaining the estate. So with the GBP 600 million to GBP 650 million, we're keeping the maintenance where we said. So we've got to maintain the business, but delivering returns and really delivering disciplined returns on that investment. And as Stuart said, we've got some quite exciting pipeline coming through, which we'll talk about in the following weeks, and the expectation would be, we can drive that ROCE further by driving further profitability plus increased returns on that growth CapEx.

Thanks. Shall we go to Georgina Johanan at JPMorgan, and then we'll go to Kate Calvert.

Two, please. The first one, I appreciate the situation with sort of tariffs and whatnot is very fluid. But if you could share anything that you're hearing from your suppliers at the moment, please, in terms of perhaps better negotiations and prices in China, but also maybe more importantly, for you in terms of whether prices are sort of going up exponentially in Bangladesh? Any color on that would be helpful. And then my second question, please correct me if I'm wrong, but I understand from the materials that you're not planning sort of incremental investment in cybersecurity over and above what you were previously planning for. Perhaps you could just clarify that and also help us understand how much of a step up you were planning for already, please?

Georgina, I'll start. I haven't got much news on tariffs. There isn't much flowing through from our supplier partners, to be honest with you. Obviously, we expected a small benefit with the India tariff impact, but it's not significant. It's small. I think the only other thing that isn't related to tariffs that is a positive for us, not this year, but will be next year is the new SPS agreement because this has been incredibly hard work and bureaucratic and cumbersome. So removing all the certification and checks and the barriers between GB and NI and Republic of Ireland will be a benefit. So I know it's not tariff related, but that is going to be a benefit for us. On your cyber and tech question, let me just give some context. We recruited a new Head of Cyber actually just over a year ago. And we looked at this as every company does. And actually, we've invested significantly, firstly, in in-sourcing the skill base. And that headcount has gone up quite considerably actually in the last 3 years. So we've been strengthening the cyber team. And when I explain that, what I really mean is more than triple the resource in 3 years. So we've been doing that. The other thing we've been doing in the last 12 months is investing in new tooling and we started to do that a year ago when we did some simulation testing. And actually, that is why we were managing to detect this over that Easter weekend. And that's good news because actually on time scales, some companies can take 6 days. Other CEOs who have spoken to me, actually some of this has been in their system for months without detection. So for us, it was pretty quick. So we have been investing in headcount. On cyber spend, we've actually tripled the spend in the last 4 years. So we have been investing. Now what I would say, of course, the first thing on my mind, in fact, I was reading an e-mail just to bring this to life, it was a year ago yesterday when I wrote to our new Head of Cyber and said, following this update, let's be very clear. It's a priority and whatever resources and spend you need, it will be agreed. So do not hold back. And that was literally a year ago yesterday. So of course, we are going to be very sensitive to this. I do want to make sure everything we're doing is the right thing. We have never held back money for technology. We were very clear even before my leadership as CEO that we had legacy store estate and legacy tech systems. So we have been investing heavily over many years, and we will continue to do that in this capital to allocation work.

Sorry, may I just ask a quick clarification because perhaps I misunderstood something. There's been a number of stories in the press suggesting that these gangs or whatever the appropriate term is, were actually in your system since February. So are you saying that is categorically not the case and they were only in the system in late April?

Georgina, those stories are not correct to our knowledge. So you'll hear lots about cyber. A number of self-appointed experts jumping up in the media. We hear all of this, but some of it you can take with a pinch of salt.

We've had to independently check, don't forget.

Yes. So by the way, look, Stuart's point is that the best defense is to modernize your systems. It's the complexity in the legacy estate that gives you more difficulty in responding, so we've been planning to accelerate that program anyway, as Stuart has said, and we said at CMD, and we'll bring some of that forward even more rapidly now. So -- you can never be impermeable, but hopefully, we'll be more resilient going forward.

But it's been double checked, triple checked by external parties, and it was in the dates we said in April in this new financial year, and we did detect it pretty quick.

Let's go on. Kate Calvert from Investec.

Three questions, if I can. The first question, just coming back to James' CapEx question. The increase to GBP 600 million to GBP 650 million of CapEx in the current year. Should that be something we should assume continues for the next couple of years? The second question is just on the Clothing & Home gross margin and the improvement you saw was very good in the last year. Is that something you think is sustainable and could be moved on a touch further in...

Let's take those two. Jeremy, on CapEx?

Yes. Kate, I would assume that is a run rate given that we are going to be investing in food capacity, and we are looking to invest in the stores. And in Clothing & Home, that was largely driven by FX. So it slightly depends on online and store mix. But if FX rates stay where they are, I would say that it's a sustainable level. It depends on where FX goes.

Well, I think that's a very good answer. I don't like to get too consumed by gross margin, though, because we are going to invest -- continue our investment in value, but we're in good shape.

Yes, my final question is just a bit of a cheeky personal one on cyber. Am I going to be able to buy my sun school uniform online in July as usual?

Yes. If not, I'll deliver it to you.

That's the service I expect.

Very good. Thank you, Kate. Shall we go to Izabel Dobreva at Morgan Stanley.

Congratulations on your results and in particular, the balance sheet health, which gives you a lot of options in managing the impacts now. I had two questions. So my first one is just on the pace of transformation. Given that IT spend and infrastructure is understandably moving up the priority list, how should we think about the pace of transformation on the other strategic initiatives? So the supply chain, the Fortress program, the store renewals, could you give us a little bit of a comment there in terms of the pace of transformation for this year?

I think if I just kick off, actually, it hasn't really changed a lot. If you go back to the capital allocation of this year, the split between stores, D&T and supply chain, the only thing we're upweighting, which we already had in our plan is really D&T. That was already in our plan. We outlined that at the Capital Markets Day last year. We didn't give a figure on it, but we did emphasize it's going to be a big year of change. We're bringing forward some of that change whilst we're disrupted. There will be some new news in the coming weeks on store rotation. It's good news. And therefore, you'll see why there will be an increase in capital on that. And supply chain, we'd already laid out, particularly Alex's plan in food. So really, it's business as usual. But as we're in such good shape around the balance sheet, it was always our plan to get that timed 1 year, 2 years, 3 years and then accelerate spend, particularly after we had proven case studies around achieving a good return on capital and hurdle rates. Anything, Jeremy?

I think there's a slight reprioritization of the IT just in the immediate future, understandably. Otherwise, it's all systems go, and we're going to come out this year stronger than ever.

Okay. So it's full steam ahead. And once you reopen, you can take advantage of that. And then I had a second question just on the point around the customers requesting more range in the local stores. Could you comment how the stores in clothing are trading? And are you having any stock flow issues or any issues about rerouting the right range and sizes into the stores, return processing? Could you comment on that?

Well, to be honest with you, we've always had an opportunity, I would say, on that. And I know it's something top of John's mind. In the recruitment of John, John has to really start to focus around our supply chain, our merchandise planning and our online business. And I know he's already getting his head around it. In the short term in this disruption, our smallest range stores have not been the best. Let's just be really frank about it. We did our stock flow, but it really hit our largest stores. And therefore, in our medium, we call it Grade 3, but never mind, we have performed under our expectation over the last few weeks. But we'll get back on track. I think ranging will be something John will talk about at the Capital Markets Day because it goes back to that backbone of our Fashion Home & Beauty business.

Okay. Thank you. Now look, I think we should -- we're cracking on. So let's go to Adam Cochrane at Deutsche, and then we'll come to Geoff Lowery at Redburn. Adam?

Just two quick questions. In terms of harking back to the last financial year, can you -- it might be in the results, but I may have missed it. How did online and store profitability develop within Clothing & Home over the year? I know that there's opportunity for you to increase online margin. I'm assuming right now, talk about -- is that something -- how did the 2 evolve last year? And then secondly, on international, I think it might be one where we're still waiting for more information. But is there opportunity to take the better quality and priced M&S product that's selling so well and just put it through online aggregators across Europe as we've seen some others do?

We'll come back to that second question, online margin.

Adam, thank you. I mean the first thing I would say is the split between store sales, if you look at the total of 4.7% for the year, store sales were 1%, online sales were 13%. So that's the first thing. The online margin was a bit softer than we were expecting, but that's because of our investment mainly in digital and technology. Now that will continue in the next 12 months, but I know it's firmly on John's mind on how we're going to get a much improved online margin, I would say, in years 2 and 3 from now. So that would be the top line response. There is some other softening in the online margin, mainly because our brands, actually 43 brands grew very well, 32% up on the previous year, and that just softened the margin rate slightly. But I think we're going to be in good shape in the long term online. And this opportunity of disruption has also helped us to focus on range profitability costs. We'll accelerate a bit of that cost in this first half, and then we'll be back on track.

What's the second question?

Lost trade.

It was international and opportunities with trade.

International. I think, Adam, on international, I mean, the plan has really played out how we predicted. India is something we need to look at in more detail. You may recall that I paused all investment in India, and we slowed down. And that was following my trip where actually I thought we were just opening too many stores, and we needed a bit more rigor in the store program. Mark has absolutely arrested that decline in India, but we are going to do a bit of a review on what India means. So that's point one. That's where the majority of softening was. Point two on international, we had all of our partners together in Dubai actually, and I attended with some of the leadership team. And the passion from our partners was terrific. What Mark has done is consolidated some of our franchise partners. We've looked at new territories, so new markets to enter. We're not rushing. But as you know, it's our franchise partners that put their capital in place, not our capital. And we did look at our own markets. We only own Greece and Czech, we did actually purchase the whole of Greece. It was for a small number only because that enables us to have a strategic review of what we want to do with that country. And the other thing that I think is exciting more for the medium term is some of the wholesale agreements that we've got across different markets like the U.S. But it's not the big thing for short term, but there is some exciting work in development in the medium term.

Yes. We've actually got a review of this at the Board Strategy Day. So there'll be more news to come, I'm sure. Thank you. Should we go to Geoff Lowery, and then we'll go to Monique Pollard at Citibank. So Geoff from Redburn.

Just one question. You've obviously written down the value of your Ocado stake despite the very strong sales growth. What's changed in your thinking about the profitability profile there? And what's the path and time scale towards breakeven from your perspective?

Geoff, it's Jeremy. This is a pretty technical accounting adjustment. So I wouldn't overly read into it. It still values the business at a pretty substantial number. When the accounts come out, you'll see it gives an enterprise value of about GBP 1.3 billion. So it's a pretty substantial number and in line with actually quite a lot of analysts football field evaluations. So the path to profitability isn't that far away from where we were previously. I think the drop-through from the current sales number has been a little bit disappointing compared to what we'd expected. We're still not getting the logistics working the way we'd have liked. There's more to work with ORL and Ocado in terms of getting those efficiencies, but we are getting some traction on that. So I still think we're probably 18 months away. But I think in the 5-year cash flows, it's probably not next year, but the year after, we're looking towards profitability. And the cash generation, the FD and ORL is very good on cash. We haven't seen significant cash outflows in the year. There may be a bit of cash outflow next year, but nothing substantial. It's very good on CapEx. So I think we're making good progress. And I'd like to think if it's not next year, the year after next, we should be moving into profit.

Okay. Thank you, Geoff. Now we're running down the clock a bit. So we'll go to Monique Pollard at Citibank and then Anne Critchlow and then just see what we've got in terms of time there. So yes, Monique.

I've just got two. The first one was just one on pricing. I guess if I think about the cost savings that you're expecting over the next 3 years, the GBP 200 million, so let's say, it's about GBP 70 million a year. This year, you've obviously got the extra GBP 120 million in wages in National Insurance, another GBP 20 million in packaging levies from the second half. And also conscious you've already sort of exceeded -- surpassed your targets, your margin target. So should I think about the idea being ex anything to do with cyber underlying margins could take a bit of a step back this year unless there's some pricing going through? Or do you think there's just more operating leverage that's going to come in and offset some of those costs?

Good question.

No, it's a very good question. I mean just to start that, I would be more focused on the cash and the reason I say that is, as a team, we talk about the cash sales and the cash margin as well, much rather than the rate. And the reason I don't really change the guidance we set out at the Capital Markets Day, which was 10% for Fashion, Home & Beauty and 4%, although I did say above 4% and above 10% is ought to give us the opportunity to drive volume. So I think in summary, the rates may change as we invest in quality and invest in price, but the cash should always go up, and that's really our strategy, and that's what has been -- that's really what's been on our mind in the next phase of the plan.

Yes. So I'll build on what Stuart just said. So I think the food team have done a fantastic job there, in driving both cost savings in gross margins to try and manage waste and they'll continue to try and do that. So you're not trying to manage the margin through pricing, taking prices down, so providing value to customers to drive volumes up and getting leverage through that. So all of that margin increase has been through volume leverage, and that gives you the opportunity to take prices down further. But then as a business, our focus is on taking costs out in operating costs, and that's where -- and I'm sure Alison is going to be focusing on taking structural costs out below gross margin. So that gives us opportunity to do even more on prices. So that's where we're going to be. And to offset the impact of the cyber issue, we're definitely not going to be down to do it through price increases. It's going to be through taking further structural cost increases and that's where the focus of the business is going to be in the following years.

And our cost-out program is also there to mitigate the increase in national insurance and EPR or ERP, whichever way around it is. So we've already got that baked into our plans.

Understood. And the last question I had was just a quick one on whether you're seeing any positive benefit to your store sales for Fashion, Home & Beauty segment, given the lack of online and just given your commentary that the customers have been so supportive and the brand is so loved, whether there's been any benefit? I know you said the store sales have been resilient.

Well, I use that word because it is a very good question because in some stores, of course, they've started to outperform. But in truth, knowing that in our Fashion, Home & Beauty business, 36% of our sales or so is online. Obviously, we're not going to fully offset that. So overall, it's okay. It's resilient, but it hasn't been recapturing a lot of that online. But as I say, our online operations will be up in a matter of weeks, and we intend to accelerate once we reopen.

Okay. Thank you very much. Now we're nearly out of time. So with apologies to those people who haven't got in, we'll get back to you just taking the names off the screen in front of me. Let's go to Anne Critchlow from Berenberg and then we'll draw a line.

I've got two questions as well. So just following up on your point about the alignment of food standards between the EU and the U.K. Do you think this could bring back opportunities in food beyond the U.K.? Because I recall you had to pull out fresh food in France, for example.

Well, I'll answer that one first before your next question, Anne. I read an article the other day watching -- it was one Prime Minister Margaret Thatcher promoting Marks & Spencer many years ago, and it was Princess Diana in a store in Champs Elysées in France. And Archie said to me, have you got ambitions like every previous Chief Executive to be on the Champs Elysées? And he glared at me as he said it, and I said, under no circumstances, and he said, good, I walked away. So look, joking aside, the most important thing is, look, we have a Republic of Ireland business that's actually a very strong business, profit-wise in food, not as strong, very profitable in Fashion, Home & Beauty, and this will help us. And in Northern Ireland, we have very high market share in food. But of course, with Brexit and the huge bureaucracy around shipping products to our Northern Ireland business, we even started to pull back investment. And this is a business that has double the market share of our average food business. With this agreement, we are very supportive. I have to also say Alex has been quite instrumental in helping shape this as well. And we're pleased with it because it does mean in our Republic of Ireland and Northern Ireland business, we will flow product better. It will be better for customers on availability and we'll be back on track. It really is next year, by the way, not this year. And as for anything else, we're not going to get too excited on food internationally. Internationally, we do think food is an opportunity in wholesale, but really, it's our Fashion, Home & Beauty business.

Great. And then the second question was, could you remind us, please, what percentage of your clothing relates to basic items that could probably be sold through at full price? And then of the remainder, the more sort of seasonal fashionable product, do you think you would overwinter that? Or do you think you would market down this summer, anything unsold?

I have to be honest, Anne, we haven't done all the numbers yet because we have been operating on limited systems. But if you say half of our range is everyday items and therefore, it's pretty safe and we just carry it on, that's the most important point. The rest, of course, is more seasonal. But even that, I think how we bought this year is pretty safe. Our full price sales last year were about 80%. I don't really want to get into heavy discounting. John Lyttle, when he started, one of his first objectives was actually how do we move to no sale. I'm going to have to let him off that for his first year because we will have to think about sale. But everyone has a sale. We'd just like to eventually move away from that. But we have been flowing more stock international. That's something we're looking at. So we're going to do that. We are going to maximize our outlets, and we will have a sale more or less in line with last year, but we do have to rework the numbers over the coming weeks, to be honest with you.

Okay. Thanks very much. And look, thank you, everybody, for joining us and for lots of good questions. I'm going to call all there because we've got to crack on with the day. But apologies for those who didn't get in again, we'll talk in the day, hopefully, and catch up whenever you want. So really appreciate your time. Thank you.