X Marks the spot

What are the key points in this set of results in your view?

I think there are three things that I would draw attention to. Firstly, we’ve
seen growing sales momentum as we’ve gone through the year. So, while the first
half was quite tough, we saw sales growth of 6.6% in the second half. That’s
4.5% like-for-like. Secondly, in terms of profitability, profit before tax was
up 35%. The earnings per share was up 64%. So, a very good performance from a
profit perspective. And the third thing, and very importantly, is we generated a
lot of cash. So we generated £500m of net cashflow in the year.

Gross margin improvements are going to be harder to deliver aren’t
they? So what are going to be the key levers here?

I think what we’re seeing in gross margin is that we’ve made a step change
over the last two years but there is still more to go for. And we have said, as
far as 2006/07 is concerned, that we do expect an increase of between 50 and 100
basis points. And really on general merchandise it’s more of the same. It’s
about managing stock, managing commitment and managing markdown. And we see that
we will have improvement in margin as we go forward but it won’t be of the scale
of change that we’ve seen previously.

What are you going to do to mitigate against the level of rising
costs that you have to incur?

Well there are significant cost pressures in the business which have been
widely talked about ­ fuel, energy, rent and rates, minimum wage. And we have
given guidance for 2006/07. What we’ve said is that costs in total, and that
includes the effect of new space, will go up between 6% and 7%. In terms of what
we do in the business, we just have to keep working in the way that we have done
previously. We have to be very, very stringent in the way that we manage our

And on property, that’s a topical issue. Do you have any plans to
release value from your property portfolio?

Property is a strategic asset for the business and we have predominantly a
freehold mix and we are very happy to have that and we think it’s important that
we have the control on flexibility that freehold ownership brings. So we have no
current plans, if you like, to realise significant amounts of value from the
property portfolio.

You’re announcing a pension deficit of nearly £800m. Where does that
leave you?

The pension deficit that we will announce, which is the accounting valuation
done under the international accounting standards, is about £800m. That measure
is very volatile and it obviously depends upon bond rates.
It depends upon returns in terms of the stock market. The key valuation measure
for us is the actuarial valuation. That is currently underway. We expect to get
the results of that towards the end of this calendar year. I think when we have
that we will then be able to take a judgment on how we move forward with the
pension deficit.

You mentioned the store re-modernisation plans. Where are you on

Currently we have just over 20 stores that have been modernised. They’re in
operation and they were throughout the fourth quarter of 2005/06. We’re
currently looking at the next tranche of stores ­ which is 60 to 70 ­ which will
open during the course of this calendar year. So, by the end of the 2006
calendar, we will have about 35% of our portfolio in the new format.

And you’re announcing today a new dividend policy?

Yes. I think the first thing I should say is that the final dividend that we
announced today is up almost 23%. That gives a full-year dividend up about 15.5%
which we are very pleased about. On dividend policy, what we’ve said is that
having rebuilt cover to over two times, then we expect that dividends per share
will grow in line with adjusted earnings per share going forward.

Related reading