REG - Marks and Spencer Gp - Final Results
22/05/2024 07:00
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RNS Number : 3917P Marks and Spencer Group PLC 22 May 2024
Marks and Spencer Group Plc
Full Year Results for 52 Weeks Ended 30 March 2024
"THE BEGINNINGS OF A NEW M&S"
Another year of strong financial performance
· Profit before tax and adjusting items of £716.4m (2022/23:
£453.3m(1)).
· Statutory profit before tax of £672.5m (2022/23: £475.7m).
· Food sales up 13.0%; adjusted operating profit £395.3m (2022/23:
£248.0m) and margin of 4.8%.
· Clothing & Home sales up 5.3%; adjusted operating profit £402.8m
(2022/23: £323.8m) and margin of 10.3%.
· Ocado Retail JV; share of adjusted loss £37.3m (2022/23: £29.5m).
· International (exc. ROI) constant currency sales down 1%, adjusted
operating profit £47.7m (2022/23: £67.9m).
· Adjusted return on capital employed 14.1% (2022/23: 10.6%).
The Beginnings of a New M&S
· Food delivers market-leading volume growth and strong innovation
whilst broadening customer appeal.
· C&H delivers market-leading share growth. Trading model
delivering style, value, quality, and lower markdown.
· Strong returns from store rotation and renewal. Increased renewal
this year and pipeline of new stores developing.
· M&S.com accelerating growth, attracting new customers, and
increasing profitability.
· Gist acquisition generating quick pay back, creating foundations for
Food distribution network development.
· Structural cost savings of £180m in 2023/24, with 5-year objective
increasing to £500m from £400m.
· Increased free cash flow of £414m driving further balance sheet
improvement and net funds position at year end.
· Capacity to accelerate high returning investment and to restore a
full year dividend of 3 pence per share.
Group Results (52 weeks ended) 30 March 24 1 April 23 Change (%)
Statutory revenue £13,040.1m £11,931.3m 9.3
Sales(2) £13,109.3m £11,988.0m 9.4
Operating profit before adjusting items £838.6m £626.6m 33.8
Profit before tax and adjusting items(1) £716.4m £453.3m 58.0
Adjusting items(1) (£43.9m) £22.4m n/a
Profit before tax £672.5m £475.7m 41.4
Profit after tax £425.2m £364.5m 16.7
Basic earnings per share 21.9p 18.5p 18.4
Adjusted basic earnings per share(1) 24.6p 16.9p 45.6
Adjusted return on capital employed(1) 14.1% 10.6% 33.0
Free cash flow from operations £413.7m £170.4m n/a
Net (debt) (£2.17bn) (£2.64bn) n/a
Net funds/(debt) excl. lease liabilities £45.7m (£355.6m) n/a
1. Adjusted measures for 1 April 2023 have been restated as a result of net
pension finance income being reclassified as an adjusting item (2023/24
£24.0m, 2022/23 £28.7m).
2. References to 'sales' throughout this announcement are statutory revenue
plus the gross value of consignment sales ex. VAT.
Non-GAAP measures and alternative profit measures (APMs) are discussed within
this release. A glossary and reconciliation to statutory measures is provided
at the end. Adjusted results are consistent with how business performance is
measured internally and presented to aid comparability. Refer to Notes 1 and 3
of the financial information for further details.
Stuart Machin, Chief Executive said:
"Two years into our plan to Reshape for Growth we can see the beginnings of a
new M&S. Food and Clothing & Home grew volume and value share ahead of
the market and sales increased across stores and online. Both businesses have
now delivered 12 consecutive quarters of sales growth and this trading
momentum gives us wind in our sails, and confidence that our plan is working.
We are becoming more relevant, to more people, more of the time.
We remained unswerving in our commitment to trusted value, offering customers
exceptional quality at the very best price. Food's leading quality perception
increased even further with over 1,000 products upgraded and 1,300 new lines
launched. Continued progress was made on value perception with £60m invested
in price. In Clothing & Home, style perception continued to improve and
our decisive lead on quality and value perception was extended. Our commitment
to 'First Price Right Price' supported full price sell through ahead of last
year.
Investment in store rotation and the end-to-end supply chain is beginning to
pay off. New stores and renewals are performing ahead of forecast and
attracting new customers. Supply chain modernisation supported margin growth
across both businesses. In Clothing & Home, stock flow improved enabling
historically low levels of stock cover, and in Food, Gist is delivering
payback ahead of expectations.
Disciplined capital allocation underpins our plan, and the financial health of
the business is as strong as it's been in decades. Free cash flow has
increased, financial net debt has been eliminated, and returns on investment
have improved. The strength of the balance sheet, coupled with the sustained
improvement in performance, means we have the headroom and confidence to
invest for future growth as well as introduce a 3p dividend.
It has been a good year, and I would like to thank all of our colleagues for
their hard work and commitment. However, there remains much work to do and
that's a good thing as every challenge is an opportunity for growth. The soft
wiring of the organisation - who we are and how we show up - is changing and
we are building a culture where everyone is sleeves rolled up, M&S first,
closer to customers and closer to colleagues. But culture change is a job that
is never 'done' and it is critically important to reshaping M&S.
We have made progress on 'hardwiring' sustainable change - how and when we
execute our strategic priorities - with progress in store rotation and supply
chain. However, we need to move faster and be ruthlessly challenging on the
areas where progress has been slower, building a more effective digital and
technology infrastructure, accelerating the move to a truly personalised
customer experience, and resetting priorities in International.
We have a clear plan, a clear vision for the future, and there is so much
opportunity ahead of us. We are at the beginnings of a new M&S."
________
RESHAPING FOR GROWTH
Over the past two years, the strategy of reshaping M&S has delivered
growth in sales, market share, margins, return on capital and free cash flow.
The programme is in its early stages with substantial scope for further
operational efficiency and sustainable growth and we are laser-focused on the
continued execution of the plan which we set out at the Capital Markets Day in
2022.
Creating exceptional products
Our vision is to be the UK's most trusted retailer, with exceptional quality
products at the heart of everything we do. The M&S Food model is focused
on a tightly edited range and concentrated supply base, consistently
innovating and improving products, whilst investing in trusted value. As we
evolve the range and open larger renewal format stores, customer appeal is
broadening to family shoppers. Clothing & Home's transition to a new
trading model includes buying more deeply into core lines, translating fashion
trends into greater newness and concentrating supply with strategic partners
and a faster supply chain. This is resulting in improved perceptions in style,
quality and value, and reduced promotion and markdown. Market share increased
to 10.0% (from 9.6%) in Clothing and 3.7% (from 3.55%) in Food in the 52 weeks
ending March 2024. There are substantial opportunities for growth to achieve
our ambition of a 1% market share increase in both businesses between FY23 and
FY28.
Reshaping the channels of growth
A more productive store estate is critical to long term growth as performance
is constrained by legacy stores that are more expensive to operate and do not
demonstrate the M&S brand of today. Rotation towards a target estate of
180 full line and 420 Food stores provides significant opportunity to invest
and grow in the years ahead. New and renewed stores are attracting new
customers and returns on investment have been strong. Investment is planned to
increase as attractive new sites are secured, and as renewal performance
continues to be robust.
Our long-term objective for M&S.com's share of Clothing & Home sales
is to grow towards 50%, having increased from 22% five years ago. Online
growth has increased, supported by better product and more effective
marketing. Despite this, profitability is not yet market leading despite our
scale advantage. There is much more to do to develop the online and M&S
App experience and customer engagement, whilst growing partner brands. All of
this will help retain customers within our M&S eco-system.
As a reminder, results for Ocado Retail are reported by Ocado Group, and are
not consolidated in this release. We believe the Ocado Retail model of
automated fulfilment powered by Ocado technology, and M&S product, could
be the most competitive model for online grocery sales in the UK. M&S Food
has worked closely with Ocado Retail to reset the business and we are now
seeing encouraging active customer and sales growth, although profitability is
well below the original business plan and expectations. There is enormous
opportunity to improve trust in value, website experience, logistics, and
supply chain, which will be the focus for the next two to three years.
The transformation in our International business has not made as much progress
as our UK businesses, so it is now undergoing a reset. Over time, we plan to
leverage our UK business and trusted brand to increase global reach through
capital light partnerships and a multi-platform online business.
Increasing efficiency of operations
In Food, the integration of the Gist acquisition has generated strong returns
and provides the foundation for a ten-year programme to invest in, and
modernise, the supply chain.
The Clothing & Home supply chain is now more focused with fewer, more
strategic suppliers having also rationalised the number of distribution
centres in the UK. There is lots to do to reduce costs, improve stock flow and
drive availability with plans underway to modernise our merchandise and range
management technology.
With the evolution towards an omni-channel and personalised customer
experience, a more effective digital and technology infrastructure is a
critical enabling step and progress to date has been slower than planned. With
new leadership soon to be in place, we expect to accelerate change and
increase investment in core technology infrastructure, including an upgrade in
SAP starting this year.
Overall, these operational improvements mean there is substantial further
scope for structural cost reduction. With continuing cost headwinds, notably
from investment in colleague pay, the structural cost programme is critical to
our profit progression. The £180m delivered to date has supported a 0.8% pt.
reduction in UK operating costs as a percent of sales. We are increasing the
objective for cost reduction from £400m to £500m, to be delivered by
2027/28. This will support continued delivery of our target operating margins
of over 4% in Food and over 10% in Clothing & Home, as well as further
investment in quality and value.
Generating cash for investment and shareholder returns
Our financial goals prioritise operating cash flow generation and a strong
balance sheet to provide the capacity for investment in growth and structural
cost reduction. Free cash flow has increased and we have net funds excluding
lease liabilities at the year end. The returns we are delivering on recent
investments have been in excess of our cost of capital and the minimum hurdle
rates set out at the last Capital Markets Day. The business now has the
capacity to increase capital allocated to the rotation and renewal of stores,
to invest in the Food and Clothing & Home supply chains and in improved
digital and online capability.
The stronger financial position and performance also provides the opportunity
to restore dividend payments at a sustainable level, with a proposed final
dividend of 2p, resulting in a full year dividend of 3p for 2023/24.
________
OUTLOOK
Through the Reshaping M&S strategy, our focus continues to be on driving
volume growth in Food and Clothing & Home to deliver the market share and
margin objectives we set out at the Capital Markets Day.
This year we have made a further significant investment in colleague pay. This
will be funded by structural cost reductions and other efficiencies. Other
cost inflation will largely be offset by reduced energy costs.
Given our track record of delivering volume growth, market share and free cash
flow we are confident that we will make further progress in 2024/25 and
beyond.
________
FOOD INVESTING IN INNOVATION AND VALUE, ATTRACTING FAMILY SHOPPERS
M&S Food is gaining new customers and broadening its appeal. Our objective
is to grow volume and market share by investing in value, quality, and
innovation, growing through new space, store rotation and renewal, and
investing in the supply chain to improve availability and efficiency.
Long term changes, improving the growth potential of Food include:
· Investing in trusted value, with promotions reducing to 12% sales
versus 26% in 2017/18.
· Upgrading and innovating one third of the range each year,
driving volume lines and development in health.
· Developing bigger, 'fresh market' style stores in the renewal
format, offering a broader range and improved customer experience,
increasingly catering to family shoppers.
· Increasing the share of larger baskets by a quarter since
2019/20.
Market leading volume growth in 2023/24
In 2023/24, Food sales grew 13.0% with LFL sales up 11.3%. As a result of
sales and volume growth, the benefits of sourcing and structural cost
reduction and the acquisition of Gist, adjusted operating profit increased to
£395.3m (4.8% margin) from £248.0m (3.4% margin) last year.
· Prices were lowered on more of our 'Remarksable Value' products,
with over half of the range in M&S's healthier 'eat well range'.
Remarksable sales grew 34%. We also 'Dropped and Locked' prices on a further
90 lines, building customer trust in M&S value for money in an
increasingly promotional market.
· 1,300 new lines were launched, including category resets in
basket building products such as biscuits and hot beverages, and product
development in high protein and gut health. We also upgraded the quality of
more than 1,000 customer favourites.
· With the price of eating out increasing, the 'Dine-In' offer,
which provides an 'always on' restaurant quality alternative, saw sales growth
of over 40%.
· Market share of M&S sales in stores increased to 3.7% (from
3.6% in 2022/23) driven by growth in volume, larger baskets and across all
demographics. Once M&S on Ocado is included, market share increases to
4.2% (from 4.0% in 2022/23).
· Customer perceptions of value, quality and sustainability all
improved.
In 2024/25, further value investment is planned, with a focus on driving
volume growth further, together with renewing and developing key product
ranges such as the recent 'Cook' menu, 'Dine-In' launch and further investment
in quality.
Store renewal and expansion continues to plan
Six new Foodhalls were opened as part of full line store rotations, and we
opened eight standalone Food stores. New Simply Food stores averaged c.13,000
sq. ft. compared with a current average of c.8,000 sq. ft., enabling the
ranging of a fuller catalogue and illustrating the growth opportunity for the
business.
· 8 Food stores were also renewed, bringing the total to 104, with
renewal store sales performing ahead of plan.
· Renewals that opened in 2022/23 saw sales increase by a further
14% in 2023/24, with healthy customer metrics for frequency and basket size.
· The ten 'full' Food renewals opened since 2019 with annualised
trading are expected to pay back the capital invested in four years.
· This year, we expect to open 9 new Food locations and to
accelerate investment in renewal, completing around 25 schemes, strengthening
the pipeline of openings.
Good progress on the Food 'backbone' programme
The Food supply chain programme is driving a series of changes to create a
more modern cost competitive flow of product from field or factory through to
checkout. This will drive availability and reduce waste and costs to
distribute whilst creating a more sustainable operation.
· Long term supplier commitments and joint efficiency plans
delivered cost of goods savings enabling investment in value and quality, with
further progress planned this year.
· The Gist acquisition has delivered logistics savings which were
greater than expected and a rapid pay back on invested capital, largely
through integrated management. Despite this, the network is old and a high
cost to serve. This year will see the first steps in new capacity investment
as we develop the longer term network plan.
· The roll out of a new forecasting and ordering system reached
c.50% of lines with availability increasing without increasing waste, although
there is substantial scope for improvement. In 2024/25 we expect to complete
roll out to all categories. Alongside this, we are working on a more
consistent approach to space and range changes.
· A new retail operations programme 'One Best Way' was trialled in
the year, succeeding the former 'Operation Vangarde', and started to deliver
further availability and productivity benefits.
· Over 100m pieces of plastic packaging have been removed including
through the introduction of first-to-market fully recyclable takeaway cups.
£1m is being invested to reduce carbon emissions in the creation of our RSPCA
assured milk.
M&S Food is a unique model driven by its focussed own label range,
integrated relationships with core suppliers, continuous focus on quality and
innovation and its commitment to provide better quality and sustainability at
great value for money. Our confidence in growth is underpinned by the fact
that market share is substantially higher than average in some parts of the
UK, showing the potential.
CLOTHING & HOME GROWTH REFLECTING THE TRANSITION TO A NEW TRADING MODEL
The improved performance of Clothing & Home is driven by better product,
style and quality at everyday great value. This is appealing to a broader
customer base, showing the growth potential from improving the product and
online shopping experience, and the store environment through renewal.
Long term changes, improving the growth potential of Clothing & Home
include:
· Reducing the long tail of option count, with double digit
percentage reduction in womenswear since 2019/20.
· Buying bolder and deeper, growing lines with over £1m of sales
by c.50% over the last two years.
· A shift to everyday trusted value, with full price sales mix
increasing from 63% to 81% since 2019/20.
· Improving stock flow with stock cover now less than 12 weeks,
compared with 18 weeks in 2018/19.
· Increased focus on availability, with more controls on stock flow
into the UK and on to stores based on demand.
Delivering sales and market share growth across categories
In 2023/24, overall Clothing & Home sales grew 5.3% with LFL sales up
5.2%. As a result of improved gross margin supported by full price sales
growth and the benefits of the structural cost reduction programme, adjusted
operating profit increased to £402.8m (10.3% margin) from £323.8m (8.7%
margin) last year. Sales in heartland categories of women's and menswear
outperformed, due to improved product style, quality, and value. Particular
highlights were:
· Robust performance in core product in categories such as
denim/casual bottoms, knitwear, and bras.
· Quality improvement translating into top tier sales growth with
men's Autograph sales up over 50%.
· Growth in holiday sales of c15%, reflecting a return to travel
and events.
· Clothing market share increased to 10.0% (from 9.6%), and full
price share increased to 12.4% (from 11.6%).
· Customer perceptions of style, quality and value all improved
further year on year.
We remain laser-focused on the growth opportunities across women's, men's,
kids, and core Home. As part of this, we are simplifying the bulky
'two-person' delivered furniture operation. This will impact annual online
sales by c.£80m but will release space and resources to expand the growing
core Home business.
Store rotation generating strong returns
Store sales increased 4.1%, with a good performance in shopping centre and
retail park stores. We opened six full line stores, which sell both Clothing
& Home and Food and closed twelve, of which five were relocations. All
replacement stores substantially outperformed the closed stores and exceeded
forecast returns:
· Full line openings included the relocation to five former
Debenhams stores in Leeds, Manchester, Liverpool, Birmingham and Thurrock and
a new store in Purley Way.
· Performance of the relocations to date has been very strong, with
the stores attracting new customers and delivering sales growth of c.50% from
similar space, as we move to the renewal format in better locations.
· New stores typically require substantially less energy to operate
relative to sales and generate a lower carbon footprint, supporting reduction
in Scope 1 and 2 emissions.
· Since 2019, £100m of capital has been invested to open twelve
full line stores, with expected pay back of c.2 years.
· In 2024/25 we anticipate opening up to four new full line stores
and are implementing a refreshed renewal format, while progressing asset
disposals.
· We continue to seek new sites, to enable us to accelerate store
closures and create an estate we are proud of by 2027/28.
Online growth accelerating
Online sales increased 7.8%. Growth accelerated in the second half, as the
effectiveness of online marketing started to improve, particularly in
womenswear.
· Overall participation in C&H sales increased to 32%.
· The M&S App continued to grow, accounting for 44% of online
orders (2022/23: 37%).
· Partner brand sales grew 33%, with new partners added including
Adidas, Puma, and Sweaty Betty, supporting the growth of average basket value.
· The removal of unprofitable lines, logistics efficiencies and
reduced failed deliveries enabled sales growth to convert to an increased
online operating margin of 8.2% (2022/23: 5.0%).
There is substantial opportunity to improve the online and M&S App
experience, make further improvements to fulfilment, and invest in systems
changes to support delivery of the brands strategy.
Progress on phase one of the supply chain 'end to end' programme.
Our ambition is to move from a slow-moving operation with a broad supply base
and DCs which store stock, to a group of strategic suppliers with a
rationalised network of automated DCs, where full visibility enables us to
flow stock more directly to the customer.
· We have begun to consolidate knitwear, denim, and lingerie across
fewer suppliers. The number of fabric mills has also reduced as volumes are
combined.
· In UK logistics, volumes were consolidated into nine core sites.
Investment in omni-channel capability and the increased use of hub stores for
returns consolidation delivered cost savings. This year, further investment
will be made in boxed storage and hanging goods automation, creating capacity
for growth.
· Investment into a new planning, merchandising and range
management platform starts this year, to deliver efficiencies in the planning
process, in sourcing, and in stock flow.
· Progress on Plan A was made with the use of recycled polyester
increasing to c70%, and 100% of cotton is now responsibly sourced in clothing.
We are at the beginnings of a new Clothing, Home and Beauty business, with a
better product and trading model and an improving customer proposition, which
is resonating with a broader customer base. There is substantial opportunity
and restructuring plans are underway across the product offer, store estate,
online experience, and supply chain which offer the potential for sustained
growth.
INTERNATIONAL RESET TO ADDRESS SLOW GROWTH
The International business' objective is to drive growth by leveraging the UK
business and M&S brand through capital light franchise partnerships and a
multi-platform online business with global reach. In more recent years, the
business has not delivered consistent growth. This year, priorities for
International have been reset under new leadership to provide stronger
foundations for long term growth. We remain committed to the opportunity to
expand global reach as outlined at the Capital Markets Day in 2022.
Slow growth in partnership markets
International (excluding Republic of Ireland) sales declined 1.0% at constant
currency to £719.1m. As a result of weaker sales growth in the second half
and action to reduce stock levels, adjusted operating profit declined to
£47.7m (6.6% margin) from £67.9m (9.1% margin) last year.
· Retail sales growth was weaker in the second half, declining 3.6%
in constant currency against tough comparatives and a softer market backdrop.
Action was taken in India to clear overstocks and reduce inventory holdings.
· Online sales were £118.6m in 2023/24, down 10.2% as promotional
activity was reduced and changes were made to the delivery proposition to
improve profitability.
· Operational investments are focused on reducing delivery times
and cost to serve, for instance through a new e-commerce distribution centre
in Poland for direct shipment of online orders to the EU from Q4 2024/25.
The business has strong franchise and JV partnerships in high growth markets.
The longer term opportunity is to work with partners to deliver the best of
M&S on a global scale, with more choice and more timely flow of new
products.
Improved profitability in the Republic of Ireland
Sales in the Republic of Ireland were encouraging, growing by 2.4% at constant
currency to £320.7m.
· Operating profit before adjusting items improved to £27.9m from
£16.9m last year.
· Lower supply chain costs in the Food business drove much of the
improvement.
· Food has made progress on local sourcing and has successfully
expanded its presence through franchising with Applegreen, which now operates
10 stores.
From the 2024/25 financial year, the results of the Republic of Ireland will
be reported as part of a new UK and Republic of Ireland segment within both
Food and Clothing & Home.
OCADO RETAIL STARTING TO DELIVER IMPROVED REVENUE GROWTH
Results for Ocado Retail are reported by Ocado Group and are not consolidated
in this release. M&S accounts for the joint venture as an associate
interest.
Our vision for Ocado Retail remains to combine the magic of M&S Food with
Ocado's unique and proprietary technology to offer unbeatable choice,
compelling service, and reassuringly good value, underpinned by efficient and
effective operations.
Ocado Retail is in the early stages of driving growth
Revenue increased 11.2% to £2.47bn and adjusted EBITDA was £26.8m (2022/23:
loss £15.1m). While adjusted EBITDA improved, M&S group's share of
adjusted loss increased to £37.3m (2022/23: £29.5m) due to higher interest
costs on shareholder loan funding and a write off of a deferred tax asset in
the current year.
The rate of revenue growth accelerated during the year, driven by increased
choice of M&S products, and improved value for money and service as part
of the Ocado Retail 'Perfect Execution' programme. This has been reflected in
a sharp improvement in net promoter scores. Despite this, profitability is
well below original expectations and there is considerable scope to leverage
our combined capabilities in sourcing and marketing, and to develop Ocado's
delivery service and online experience.
Increased choice, availability, and value
· 4,800 M&S Food products were available on Ocado.com by year
end, a 20% increase on last year. Availability has improved considerably,
although there is further opportunity on the most important lines and at key
event periods.
· Ocado's price inflation was less than the market, driven by
improved value for money on M&S products as well as reductions under the
Big Price Drop campaign. As a result of greater choice and improved value,
sales of M&S products grew 15% in Q4 and represented 30% of basket items.
Developing more effective and efficient operations
· The new Luton CFC opened in September 2023 and delivered a rapid
ramp up in operations as business transferred from less productive capacity at
Hatfield, with the new site also providing a test bed for on-grid robotic
picking. With capacity fees for Hatfield continuing to be charged by Ocado
Group, we do not currently expect Ocado Retail to reap the full financial
benefit of transferring to the new site.
· Ocado Retail still operates on legacy technology for its website,
last mile delivery and supply chain systems. It will be migrating to Ocado
Technology's much delayed 'OSP' solution over the course of the next 18
months, which is anticipated to offer customers increased convenience and
greater personalisation, as well as long term operational efficiencies for the
business.
Although the financial performance of Ocado Retail remains disappointing, the
revenue improvement this year under the new management team has been marked.
And in a world where several operators have exited the online food delivery
market, the potential competitive advantages of the M&S / Ocado
combination are increasingly evident.
STRONG BALANCE SHEET AND RETURN ON CAPITAL IMPROVEMENT, GIVING SCOPE FOR
INCREASED INVESTMENT
M&S ended the year in the strongest financial health since 1997, with net
funds of £45.7m excluding lease liabilities (2022/23: net debt £355.6m). A
focus on operational cash flow generation combined with a disciplined approach
to capital allocation has driven improved return on capital employed and
substantial deleveraging. We therefore have the scope to increase investment,
while restoring dividends to shareholders.
· In 2023/24 M&S generated free cash flow of £413.7m, compared
with £170.4m last year, as a result of increased profits and supported by
working capital inflows due to the timing of payments over year-end, including
the effects of Easter.
· As a result of a stronger balance sheet, and the repayment of
£405m of medium-term bonds, our credit metrics strengthened further, with
S&P Global Ratings upgrading M&S to 'Investment Grade' in November
2023.
· Store rotation and renewal plus the acquisition of Gist generated
pay back ahead of expectations, our cost of capital, and the minimum hurdle
rates set out at the last Capital Markets Day. This provides the foundations
to increase investment in 2024/25 when we plan for capital expenditure net of
disposals to increase to c.£500m.
· Given the improved cash generation and balance sheet and allowing
for the considerable opportunities to invest in the reshaping of M&S for
growth, we are proposing a total dividend for the full year of 3 pence per
share.
CREATING A HIGH-PERFORMANCE CULTURE
Creating a high-performance culture is critical to reshaping M&S for
growth. Much progress has been made, with lots of opportunity ahead of us:
· In 2023/24 a clear vision, purpose and a set of behaviours that
are valued at M&S were established. At the heart of this is a culture of
'always aiming higher' and one where we are closer to customers and closer to
colleagues.
· The biggest ever investment in front line colleague pay of £89m
was made this year. From 1 April 2024, the rate of pay for c.40,000 UK
Customer Assistants increased from £10.90 to £12.00 per hour, a 26% increase
since March 2022, alongside the introduction of additional benefits.
· New monthly pulse surveys have been launched for colleagues to
feedback on the part they play in delivering change.
· Every support centre colleague is now required to spend seven
days each year working in store as part of their performance objectives.
Delivering change requires challenge, learning and creativity and we firmly
believe that this happens best when colleagues are together. Most colleagues
therefore work in the support centre at least three days a week, with one day
in stores or with suppliers.
· Leadership is expected to be sleeves rolled up and, in the
detail, and we have continued to attract and promote talent. Some examples of
this include Rachel Higham who joins soon as Chief Digital & Technology
Officer in June, and Mark Lemming who has recently been promoted from running
the Clothing & Home supply chain to International Managing Director.
For further information, please contact:
Investor Relations
Fraser Ramzan: +44 (0) 7554 227 758
Helen Lee: +44 (0) 7880 294 990
Media Enquiries:
Corporate Press Office: +44 (0) 20 8718 1919
Investor & Analyst presentation and Q&A:
A pre-recorded investor and analyst presentation will be available on the
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Important Notice: The information contained within this announcement is deemed
by the Company to constitute inside information as stipulated under the UK
version of the Market Abuse Regulation (EU) No. 596/2014 as it forms part of
UK law by virtue of the European Union (Withdrawal) Act 2018. Upon the
publication of this announcement, this inside information is now considered to
be in the public domain.
Statements made in this announcement that look forward in time or that express
management's beliefs, expectations or estimates regarding future occurrences
and prospects are "forward-looking statements" within the meaning of the
United States federal securities laws. These forward-looking statements
reflect Marks & Spencer's current expectations concerning future events
and actual results may differ materially from current expectations or
historical results. Any forward-looking statements are subject to various
risks and uncertainties, including, but not limited to, failure by Marks &
Spencer to predict accurately customer preferences; decline in the demand for
products offered by Marks & Spencer; competitive influences; changes in
levels of store traffic or consumer spending habits; effectiveness of Marks
& Spencer's brand awareness and marketing programmes; general economic
conditions including, but not limited to, a downturn in the retail or
financial services industries; acts of war or terrorism worldwide; work
stoppages, slowdowns or strikes; and changes in financial and equity markets.
For further information regarding risks to Marks & Spencer's business,
please consult the risk management section of the 2024 Annual Report (pages
62-70).
The forward-looking statements contained in this document speak only as of the
date of this announcement, and Marks & Spencer does not undertake to
update any forward-looking statement to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
2023/24 FULL YEAR FINANCIAL REVIEW
Financial Summary
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23 %
£m Restated £m(1)
Group statutory revenue 13,040.1 11,931.3 9.3
Group sales 13,109.3 11,988.0 9.4
UK Food 8,158.8 7,218.0 13.0
UK Clothing & Home 3,910.7 3,715.0 5.3
International 1,039.8 1,055.0 (1.4)
Group operating profit before adjusting items 838.6 626.6 33.8
UK Food 395.3 248.0 59.4
UK Clothing & Home 402.8 323.8 24.4
International 75.6 84.8 (10.8)
Share of result in Ocado Retail Limited (37.3) (29.5) (26.4)
M&S Bank and other segments 2.2 (0.5) n/a
Net interest payable on lease liabilities (110.5) (111.1) 0.5
Net financial interest (11.7) (62.2) 81.2
Profit before tax and adjusting items 716.4 453.3 58.0
Adjusting items (43.9) 22.4 (296.0)
Profit before tax 672.5 475.7 41.4
Profit after tax 425.2 364.5 16.7
Basic earnings per share 21.9p 18.5p 18.4
Adjusted basic earnings per share 24.6p 16.9p 45.6
Dividend per share 3.0p - n/a
Net debt (2.17bn) (2.64bn) (17.8)
Net funds/(debt) excluding lease liabilities 45.7 (355.6) 112.9
Group capex and disposals (423.2) (409.2) (3.4)
Free cash flow from operations 413.7 170.4
Adjusted return on capital employed 14.1% 10.6% 33.0
Notes:
(1)Due to a change in the Group's classification of pension net finance income
as an adjusting item (see note 3 to the financial information), the
comparative amounts have been restated. The impact on the 52 weeks ended 1
April 2023 income statement is a decrease to the adjusting items charge of
£28.7m (resulting in a net adjusting items credit), a decrease to profit
before tax & adjusting items of £28.7m, a decrease to adjusted earnings
per share of 1.2p. There is no impact on profit before tax, earnings per share
or net assets.
There are a number of non-GAAP measures and alternative profit measures
("APMs") discussed within this announcement, and a glossary and reconciliation
to statutory measures is provided at the end of this report. Adjusted results
are consistent with how business performance is measured internally and
presented to aid comparability of performance. Refer to the adjusting items
table below for further details.
Group results
Group sales were £13,109.3m. This was an increase of 9.4% versus 2022/23,
driven by Food sales up 13.0% and Clothing & Home sales up 5.3%. Statutory
revenue in the period was £13,040.1m, an increase of 9.3% versus 2022/23.
The Group generated profit before tax and adjusting items of £716.4m compared
with £453.3m in the prior year. Prior year results have been restated to
reflect net finance income on the IAS19 pension surplus which has been
reclassified as an adjusting item.
Adjusting items were a net charge of £43.9m, compared with a credit of
£22.4m in the prior year. The net charge in the period primarily consists of
costs relating to the UK store rotation plans and the ceasing of operations at
Ocado Retail's Hatfield CFC, partially offset by a credit relating to the
remeasurement of Ocado Retail contingent consideration to nil.
As a result, the Group generated a statutory profit before tax of £672.5m,
compared with £475.7m in the prior year.
Adjusted basic EPS was 24.6p, up 45.6% on 2022/23 reflecting higher adjusted
profit in the period. Basic EPS was 21.9p, up 18.4% on 2022/23, reflecting the
increased profit in the period.
A final dividend of 2p per share has been declared, payable on 5 July 2024,
resulting in a full year dividend of 3p.
For full details the Group's related policy and adjusting items, read more in
notes 1 and 3 to the financial information.UK: Food
UK Food sales increased 13.0%, with like-for-like sales up 11.3%, underpinned
by strong innovation and broadening customer appeal.
Change vs 22/23 % Q1 Q2 Q3 Q4 FY
Food 15.1 14.2 10.5 13.0 13.0
Food like-for-like sales 12.5 11.0 9.9 11.9 11.3
M&S Food has an online grocery presence with Ocado Retail and these sales
are reported through Ocado Retail and are not included within these numbers.
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23 %
Transactions, m (average/week) 9.7 9.0 7.8
Basket value inc VAT (£) 16.0 15.2 5.3
Total sales ex VAT £m(1) 8,158.8 7,218.0 13.0
(1) Includes M&S.com and third-party sales by Gist Limited.
Like-for-like sales growth of 11.3% was driven by volume growth of 5.2% as
customer numbers, particularly those completing larger shops, increased.
Basket value was up 5.3% and larger basket transactions continued to grow with
the value of baskets over £30 up 15.0%.
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23 %
£m £m
Sales 8,158.8 7,218.0 13.0
Operating profit before adjusting items 395.3 248.0 59.4
Adjusted operating margin 4.8% 3.4% 1.4% pts
Operating profit before adjusting items was £395.3m compared with £248.0m in
2022/23, with an adjusted operating margin of 4.8%.
Food adjusted operating margin increased by 1.4% pts. Gross margin improved
0.7% pts whilst continued investment in trusted value was funded by the
lowering cost programme.
Operating costs as a percent to sales reduced 0.7% pts as sales growth of
13.0% exceeded cost growth of 9.9%. The impact of investment in colleague pay
and energy headwinds was largely offset by structural cost savings and other
efficiencies, part of which came from the acquisition of Gist. Cost growth was
therefore largely driven by volume and investments in colleagues and
technology.
The 0.7% pt reduction breaks down as follows:
· Store staffing was down 0.3% pts, with colleague pay investment
partly offset by structural cost savings.
· Other store costs were level, as sales leverage was offset by
energy inflation headwinds.
· Distribution and warehousing costs were down 0.2% pts, with the
effects of inflation and volume growth offset by benefits from the acquisition
of Gist.
· Central costs decreased 0.2% pts as sales leverage was partly
offset by technology investments and colleagues.
Operating profit margin before adjusting items %
2022/23 3.4
Gross margin 0.7
Store staffing 0.3
Other store costs 0.0
Distribution and warehousing 0.2
Central costs 0.2
2023/24 4.8
UK: Clothing & Home
Clothing & Home sales increased 5.3% driven by strong full price sales
growth, with promotions and markdown reducing. Sales mix by channel evolved
during the year with stronger online growth in the second half.
Change vs 22/23 % Q1 Q2 Q3 Q4 FY
Clothing & Home sales(1) 7.4 4.1 4.8 5.0 5.3
Clothing & Home like-for-like sales 7.2 3.8 4.8 5.1 5.2
Clothing & Home online sales 3.1 6.0 10.9 10.3 7.8
Clothing & Home store sales 9.4 3.2 2.0 2.4 4.1
Clothing & Home statutory revenue 7.1 4.1 4.5 4.7 5.0
(1) 'Sales' are statutory revenue plus the gross value of consignment sales
ex. VAT
To enable greater insight into these movements, further detail is provided on
the performance of each channel.
Online
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23 %
Active customers (m)(1) 9.4 9.2 2.2
Frequency(2) 3.5 3.4 2.9
Transactions (m) 33.2 31.1 6.8
Average Basket value £(3) 63.7 61.7 3.2
Returns rate (%)(4) 31.3 29.5 1.8% pts
Sales ex VAT £m 1,268.4 1,176.4 7.8
(1) Active customers is the count of unique customers who transacted online in
the last 52 weeks.
(2) Frequency is the count of purchasing transactions divided by customers.
(3) Prior year average basket value has been restated to reflect alternative
source data as a result of cookie compliance tracking
(4) Returns rate represents returns on dispatch sales.
Online sales increased by 7.8%. Active customers increased by 2.2% as ranges
have begun to appeal to more customers. Average basket value grew 3.2%
reflecting higher average selling price, including a higher mix of brand
partner sales, and reduced promotions.
The online returns rate increased year on year as expected, driven by a higher
sales mix of partner brands and growth in more trend-led product.
Stores
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23 %
Transactions, m (average/week) 1.8 1.8 -
Average basket value inc VAT pre returns (£) 39.2 37.4 4.8
Sales ex VAT £m 2,642.3 2,538.6 4.1
UK Clothing & Home store sales increased 4.1%, with strong growth in
shopping centres and retail parks, supported by the opening of six new stores
in the renewal format.
Total Clothing & Home
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23 %
£m £m
Statutory revenue 3,841.5 3,658.3 5.0
Sales 3,910.7 3,715.0 5.3
Operating profit before adjusting items 402.8 323.8 24.4
Adjusted operating margin 10.3% 8.7% 1.6% pts
Operating profit before adjusting items was £402.8m compared with £323.8m in
2022/23, with an adjusted operating margin of 10.3%.
Clothing & Home adjusted operating margin increased by 1.6% pts. Gross
margin increased 1.5% pts, as buying headwinds including currency, were more
than offset by the annualisation of pricing action and increased full price
sales.
Operating costs as a percent of sales were 0.1% pts lower than last year, as
cost growth of 5.1% was marginally lower than sales growth. Cost inflation was
largely offset by structural cost reduction. Further cost increases, largely
in the second half, were driven by an increase in investments in technology,
in store service and colleagues.
The 0.1% pt reduction breaks down as follows:
· Store staffing increased 0.3% pts, driven by investment in
service and colleague pay, partly offset by structural cost savings.
· Other store costs decreased 0.7%, structural cost reduction and
one-off savings more than offset inflationary headwinds.
· Distribution and warehousing costs were down 0.5% pts, with the
effects of inflation and volume growth offset by structural cost savings and
efficiencies.
· Central costs increased 0.8% pts, driven by investment in
colleagues and an increase in technology spend, including a new planning
platform and system changes to support the growth in partner brands.
Operating profit margin before adjusting items %
2022/23 8.7
Gross margin 1.5
Store staffing (0.3)
Other store costs 0.7
Distribution and warehousing 0.5
Central costs (0.8)
2023/24 10.3
As outlined above, the overall Clothing & Home adjusted operating margin
increased by 1.6% pts. Store margin increased 0.8% pts to 11.3% and online
margin increased 3.25% pts to 8.2%.
International
International sales excluding Republic of Ireland, decreased by 3.0% (1.0% at
constant currency) to £719.1m. This was predominantly due to lower shipments
to partners as a result of weaker sales in the second half. Adjusted operating
margin declined 2.6% pts due to lower sales, and action taken to reduce stock
levels in India.
Sales in Republic of Ireland grew 2.2% (2.4% at constant currency), driven by
Food performance. Adjusted operating margin increased by 3.3% pts, largely
driven by lower supply chain costs in Food.
From 2024/25 financial year the results of the Republic of Ireland will be
reported as part of a new UK and Republic of Ireland segment within both Food
and Clothing & Home.
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23 % Change vs
£m £m 2022/23 CC %
International excl. Republic of Ireland:
Sales 719.1 741.0 (3.0) (1.0)
Operating profit before adjusting items 47.7 67.9 (29.7) (26.9)
Adjusted operating margin 6.6% 9.2% (2.6% pts) (2.4% pts)
Republic of Ireland:
Sales 320.7 313.9 2.2 2.4
Operating profit before adjusting items 27.9 16.9 65.1 66.7
Adjusted operating margin 8.7% 5.4% 3.3% pts 3.4% pts
Ocado Retail Limited
The Group holds a 50% interest in Ocado Retail Limited ("Ocado Retail"). The
remaining 50% interest is held by Ocado Group Plc ("Ocado Group"). Full Year
Results are consistent with the quarterly results reported by Ocado Group on
behalf of Ocado Retail for the quarterly periods ended 28 May 2023, 27 August
2023, 3 December 2023 and 3 March 2024.
Revenue increased by £248.3m in the 53 weeks to 3 March 2024. This was driven
by active customer growth and higher average selling prices, whilst items per
basket declined.
M&S penetration of basket increased by 0.2% pts versus the prior year,
with growth increasing to 1.3% pts in the final quarter reflecting an
increased number of M&S products on the Ocado website and improved
availability.
53 weeks ended 3 Mar 24 26 Feb 23 Change
£m £m £m
Revenue 2,470.3 2,222.0 248.3
Adjusted EBITDA 26.8 (15.1) 41.9
Adjusting items(1) (61.1) 21.2 (82.3)
Depreciation and amortisation (61.2) (69.4) 8.2
Operating loss (95.5) (63.3) (32.2)
Net interest charge (30.3) (14.3) (16.0)
Taxation (7.9) 18.6 (26.5)
Loss after tax (133.7) (59.0) (74.7)
M&S 50% share of loss after tax (67.0) (29.5) (37.5)
Reported in M&S Group adjusted profit before tax (37.3) (29.5) (7.8)
Reported in M&S Group adjusting items (29.7) - (29.7)
( )
(1)Adjusting items are defined within the Ocado Group Plc Annual Report and
Accounts 2023. Adjusting items relating to UK network capacity review, which
is new in the year, have been reported in M&S Group adjusting items. All
other adjusting items have been reported in M&S Group underlying results.
EBITDA before adjusting items improved versus last year driven by revenue
growth and leverage over fixed costs.
Adjusting items within the Ocado Retail results primarily relate to the
ceasing of operations at the Hatfield site. These are reported within
adjusting items in M&S Group share of Ocado Retail results.
Net interest charge increased, driven by higher interest expense on loans from
shareholders, of which the M&S share is reported in the Group's finance
income (£6.0m in 2023/24, £0.9m in 2022/23).
Tax was a charge of £7.9m compared with a credit of £18.6m last year, driven
by the write-off of a deferred tax asset in the current year.
Overall Ocado Retail reported a loss after tax of £133.7m. M&S group
share was £67.0m, of which £37.3m is reported in M&S Group adjusted
profit before tax and £29.7m primarily related to the ceasing of operations
at Hatfield, is reported within M&S Group adjusting items.
M&S Bank and Services
M&S Bank and Services generated a profit before adjusting items of £2.2m,
compared with a loss of £0.5m in 2022/23, largely driven by a provision
release following the exit of M&S Energy.
On 9 April 2024, the Group and HSBC UK agreed a new seven-year deal focused on
enhancing M&S' credit offering and payment solutions through M&S Bank
and bringing together digital payments and loyalty for M&S customers.
Net finance cost
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23 £m
£m £m
Interest payable (53.3) (76.3) 23.0
Interest income 52.3 23.8 28.5
Net interest payable (1.0) (52.5) 51.5
Unwind of discount on Scottish Limited Partnership liability (4.1) (4.3) 0.2
Unwind of discount on provisions (6.6) (5.4) (1.2)
Net financial interest (11.7) (62.2) 50.5
Net interest payable on lease liabilities (110.5) (111.1) 0.6
Net finance cost before adjusting items (122.2) (173.3) 51.1
Adjusting items included in net finance cost 80.5 133.9 (53.4)
Net finance cost (41.7) (39.4) (2.3)
Net finance cost before adjusting items decreased £51.1m to £122.2m. This
was driven by higher average interest rates on cash balances, an increase in
interest receivable on shareholder loans to Ocado Retail, and reduced interest
expense with 2023 maturing bonds being fully repaid in the period, and part of
2025 and 2026 bonds repurchased.
Adjusting items within net finance costs reflects a credit of £80.5m, £64.7m
relates to the remeasurement of Ocado Retail contingent consideration to nil;
£24.0m net finance income relating to the IAS19 pension surplus, which was
reclassified as an adjusting item in the period and the comparative restated;
and a charge of £8.2m reflecting the discount unwind on deferred and
contingent consideration on the acquisition of Gist Limited.
Group profit before tax and adjusting items
Group profit before tax and adjusting items was £716.4m, up 58.0% on 2022/23.
The profit increase was primarily due to strong growth in Food and Clothing
& Home and reduced interest expense, partly offset by an increased share
of net loss of the Ocado Retail investment.
Group profit before tax
Group profit before tax was £672.5m, up 41.4% on 2022/23. This includes a net
charge for adjusting items of £43.9m (2022/23: credit of £22.4m).
Adjusting items
The Group makes certain adjustments to statutory profit measures in order to
derive alternative performance measures (APMs) that provide stakeholders with
additional helpful information and aid comparability of the performance of the
business. For further detail on these (charges)/gains and the Group's policy
for adjusting items, please see notes 1 and 3 to the financial information.
These (charges)/gains are reported as adjusting items on the basis that they
are significant in quantum in current or future years and aid comparability
from one period to the next.
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23 £m
£m Restated £m
Included in share of result of associate - Ocado Retail Limited (42.6) (14.0) (28.6)
Ocado Retail Limited - UK network capacity review (29.7) - (29.7)
Amortisation and fair value adjustments arising as part of the investment in (12.9) (14.0) 1.1
Ocado Retail Limited
Included in operating profit (81.8) (97.5) 15.7
Strategic programmes - Store estate (93.0) (51.3) (41.7)
Strategic programmes - Furniture simplification (18.3) - (18.3)
Strategic programmes - Organisation (3.5) (10.7) 7.2
Strategic programmes - Structural simplification - (16.4) 16.4
Strategic programmes - UK logistics 5.3 (10.5) 15.8
Store impairments, impairment reversals and other property charges 35.1 15.1 20.0
M&S Bank transformation and insurance mis-selling provisions (7.0) (2.0) (5.0)
Acquisition of Gist Limited (0.4) (22.1) 21.7
Franchise restructure - 0.4 (0.4)
Included in net finance income/(costs) 80.5 133.9 (53.4)
Remeasurement of Ocado Retail Limited contingent consideration 64.7 108.0 (43.3)
Pension net finance income 24.0 28.7 (4.7)
Net finance costs incurred in relation to Gist Limited deferred and contingent (8.2) (2.8) (5.4)
consideration
Adjustments to profit before tax (43.9) 22.4 (66.3)
Adjusting items recognised were a net charge of £43.9m. These include:
A charge of £29.7m included within the share of result in associate. This
reflects the group share of costs relating to the ceasing of operations at
Ocado Retail's Hatfield CFC and wider network review. A non-cash charge of
£12.9m with respect to the amortisation of intangible assets acquired on the
purchase of our share in Ocado Retail is included in the Group results.
A charge of £93.0m in relation to store estate rotation plans. This reflects
the revised view of store exit routes, assumptions, estimated closure costs,
charges relating to the impairment of buildings, fixtures and fittings, and
accelerated depreciation.
A charge of £18.3m in relation to furniture simplification, this reflects
one-off costs relating to the exit of the two-person furniture delivery
operation. The charge primarily relates to contractual obligations with
suppliers and redundancy costs.
A non-cash charge of £3.5m within organisation relating to an increase in the
IFRS 9 impairment held in relation to the finance lease receivable for the
sublet of previously closed Merchant Square offices.
A credit of £5.3m within logistics. This reflects the latest view of
estimated closure costs of a further distribution centre, announced in January
2023, part of the long-term strategic programme to transition to a single-tier
UK distribution network.
A non-cash net credit of £35.1m in relation to store impairment reversals,
driven by revised future cash flow projections in relation to the carrying
value of stores.
A charge of £7.0m in relation to M&S Bank transformation and insurance
mis-selling provisions. £2.0m of which has been incurred in relation to
M&S Bank insurance mis-selling provisions. The remaining £5.0m relates
to legal and consultancy costs recognised in the period in connection to the
new seven-year deal with HSBC. Under the terms of the new agreement,
material charges are expected over the next seven years. For further details
see note 3 to the financial information.
Taxation
The effective tax rate on profit before tax and adjusting items was 33.2%
(2022/23 restated for pension income: 26.4%). This was higher than the UK
statutory tax rate primarily due to the impact of the recapture of tax relief
on distributions to the Scottish Limited Partnership (SLP), non-deductible
Ocado JV Losses, and due to a deferred tax charge arising from the reduction
of buildings residual value to nil.
Without the impact of the above deferred tax item, the effective tax rate on
adjusted profit before tax and adjusting items was 30.2%. In 2024/25 we
expect the effective tax rate on profit before tax and adjusting items to be
at a similar rate of c30%.
The effective tax rate on statutory profit before tax was 36.8% (2022/23:
23.4%). This is higher than the effective tax rate on profit before adjusting
items due to the impact of non-taxable adjusting items.
Prior year deferred tax liabilities have been restated as an error was
identified within the Group's deferred tax calculations which was triggered by
a series of historic changes in the residual value applied to Buildings
impacting the portion of the asset to be recovered through use and the portion
through sale. In line with IAS 8, the Group has restated balances as at 1
April 2023 and 2 April 2022.
The impact on the financial results as at 1 April 2023 was a £134.1m increase
in deferred tax liabilities recognised in relation to Buildings following
management's downwards revision of its estimate of the residual value of
Buildings. There is no impact on cash flow statement in any years. See note
1 to the financial information for more detail.
Earnings per share
Basic earnings per share was 21.9p (2022/23: 18.5p). Adjusted basic earnings
per share was 24.6p (2022/23 restated for pension income: 16.9p) due to higher
adjusted profit year on year.
The weighted average number of ordinary shares in issue during the period was
1,973.2m (2022/23: 1,963.5m), with the weighted average number of diluted
ordinary shares 2,075.9m (2022/23: 2,033.9m).
Cash flow
30 Mar 24 1 Apr 23 Change vs 2022/23
£m £m £m
Operating profit 714.2 515.1 199.1
Adjusting items within operating profit 124.4 111.5 12.9
Operating profit before adjusting items 838.6 626.6 212.0
Depreciation and amortisation before adjusting items 526.3 523.2 3.1
Cash lease and surrender payments (345.5) (353.8) 8.3
Working capital 77.2 (14.7) 91.9
Non-cash pension expense 5.3 4.6 0.7
Defined benefit scheme pension funding (0.4) (36.8) 36.4
Capex and disposals (423.2) (409.2) (14.0)
Financial interest (31.2) (66.5) 35.3
Taxation (191.2) (70.6) (120.6)
Employee-related share transactions 22.2 37.9 (15.7)
Share of result from Associate 37.3 29.5 7.8
Loans to Associates (62.0) (30.0) (32.0)
Share of results in other joint ventures 0.3 - 0.3
Adjusting items in cash flow (40.0) (69.9) 29.9
Free cash flow from operations 413.7 170.4 243.3
Acquisitions, investments, and divestments (2.6) (106.8) 104.2
Free cash flow 411.1 63.6 347.5
Dividends paid (19.6) - (19.6)
Free cash flow after shareholder returns 391.5 63.6 327.9
Opening net debt excluding lease liabilities (355.6) (420.1) 64.5
Free cash flow after shareholder returns 391.5 63.6 327.9
Exchange and other non-cash movements excluding leases 9.8 0.9 8.9
Closing net funds/ (debt) excluding lease liabilities 45.7 (355.6) 401.3
Opening net debt (2,637.2) (2,698.8) 61.6
Free cash flow after shareholder returns 391.5 63.6 327.9
Decrease in lease obligations 243.5 231.8 11.7
New lease commitments and remeasurements (176.0) (249.4) 73.4
New leases from acquisitions - (21.3) 21.3
Exchange and other non-cash movements 12.4 36.9 (24.5)
Closing net debt (2,165.8) (2,637.2) 471.4
The business generated free cash flow from operations of £413.7m, a year on
year improvement of £243.3m. This was driven by higher operating profit as a
result of strong performance across Food and Clothing & Home, working
capital inflow and reduced interest expense.
Cash inflow from working capital was £77.2m, an improvement of £91.9m versus
the prior year, which was driven by a higher year-end payables balance partly
due to the timing of Easter.
Decreased defined benefit scheme pension funding reflects a deferral of the
SLP payment into the pension scheme.
Increased taxation was principally due to the increased profit in the year.
Cash outflow from adjusting items was £40.0m. This included £24.5m relating
to the store estate strategy, £5.9m relating to structural simplification,
£2.6m relating to the logistics strategy, £2.6m in relation to M&S
financial services transformation, £2.0m relating to the M&S Bank
insurance mis-selling provisions, and £1.4m payment to Gist.
Loans to Associates principally reflects a £60.0m drawdown of the shareholder
loan facility by Ocado Retail.
After dividend payments of £19.6m, reflecting payment of an interim dividend
in January, the business generated free cash flow after shareholder returns of
£391.5m, resulting in a further reduction of net debt.
Capital expenditure
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23
£m £m £m
UK store remodelling 51.5 70.5 (19.0)
New UK stores 77.4 55.0 22.4
International 18.0 28.9 (10.9)
Supply chain 69.3 36.8 32.5
IT and M&S.com 80.8 109.5 (28.7)
Property asset replacement 99.1 102.1 (3.0)
Capital expenditure before property acquisitions and disposals 396.1 402.8 (6.7)
Property acquisitions and disposals (6.1) (1.1) (5.0)
Capital expenditure 390.0 401.7 (11.7)
Movement in capital accruals and other items 33.2 7.5 25.7
Capex and disposals as per cash flow 423.2 409.2 14.0
Group capital expenditure before property acquisitions and disposals decreased
£6.7m to £396.1m due to increased investment in new UK stores and supply
chain, partially offset by reduced spend UK store remodelling, technology and
International.
UK store remodelling costs were primarily driven by 8 store renewals in the
period, 4 of which were full line renewals, and one extension.
Spend on new UK stores primarily related to the opening of 6 full line and 8
Food stores in the period.
Supply chain expenditure reflects investment in expanding C&H fulfilment
capabilities, as well as replacement of vehicles and handling equipment.
IT and M&S.com spend includes technology replacement, network upgrades,
and continued investment in website and app development. The reduction
versus prior year was largely due to completion of retail initiatives.
Property asset replacement largely relates to reinvestment in and replacement
of core assets across the store estate, including building repairs,
self-service tills and click-and-collect facilities, as well as spend on
energy efficiency initiatives and maintenance.
The movement in capital accruals was largely driven by the timing of payments
relating to new stores and remodelling and property maintenance.
Net debt
Group net debt decreased £471.4m since the start of the year driven by free
cash flow after shareholder returns of £391.5m and a net decrease in lease
liabilities of £70.1m.
The composition of Group net debt is as follows:
52 weeks ended 30 Mar 24 1 Apr 23 Change vs 2022/23
£m £m £m
Cash and cash equivalents 1,022.4 1,067.9 (45.5)
Medium Term Notes (921.7) (1,346.4) 424.7
Current financial assets and other 26.9 44.8 (17.9)
Partnership liability (81.9) (121.9) 40.0
Net funds / (debt) excluding lease liabilities 45.7 (355.6) 401.3
Lease liabilities (2,211.5) (2,281.6) 70.1
Group net debt (2,165.8) (2,637.2) 471.4
The Medium Term Notes include four bonds, with maturities out to 2037, and the
associated accrued interest. During the period the maturing 2023 bond was
fully repaid, and part of 2025 and 2026 bonds were repurchased. The USD 300m
2037 bond is valued by reference to the embedded exchange rate in the
associated cross currency swaps. The full breakdown of maturities is as
follows:
Bond and maturity date Value (£m)
Jun 2025, GBP 205.6
May 2026, GBP 200.8
Jul 2027, GBP 248.9
Dec 2037, USD 251.8
Total principal value 907.1
Interest and FX revaluation 14.6
Total carrying value 921.7
Lease Liabilities 30 Mar 24 1 Apr 23 Change vs Average lease length to break(1)
£m £m 2022/23 £m
Full line stores(2) (860.1) (882.2) 22.1 c.19yrs
Simply Food stores(2) (682.2) (689.9) 7.7 c.9yrs
Offices, warehouses and other(2) (459.7) (504.8) 45.1 c.15yrs
International (209.5) (204.7) (4.8)
Total lease liability (2,211.5) (2,281.6) 70.1
(1) Liability-weighted average lease length to break.
(2 )Last year comparative categories have been restated.
New lease commitments and remeasurements in the period were £176.0m, largely
relating to 16 UK lease additions, lease additions in India, and UK property
liability remeasurements. This was offset by £243.5m of capital lease
repayments.
Full-line store lease liabilities include £126.5m relating to stores
identified as part of the Store estate strategic programme. The average lease
lengths on these stores are skewed by five particularly long leases which are
trading well in locations the business wishes to remain in. Excluding these
five leases, the average term to break of leases outside the programme is c.15
years.
Simply Food store lease liabilities include £28.3m relating to stores
identified as part of the Store estate strategic programme.
Within offices, warehouses and other lease liabilities, £139.9m relates to
the sublet lease on our Merchant Square offices.
International leases relate primarily to India (c.£117m) and Ireland
(c.£55m).
Pension
At 30 March 2024, the IAS 19 net retirement benefit surplus was £77.2m
(2022/23: £477.4m). There has been a decrease of £400.2m since the start of
the year largely driven by a narrowing in the credit spreads of corporate
bonds relative to government bonds. Nevertheless, there has been no material
worsening of the scheme's overall funding position and the scheme remains
fully funded on a technical provisions basis.
The most recent actuarial valuation of the Marks & Spencer UK Pension
Scheme was carried out as at 31 March 2021 and showed a funding surplus of
£687m. This is an improvement on the previous position at 31 March 2018
(statutory surplus of £652m), primarily due to lower assumed life expectancy.
The Company and Trustees have confirmed, in line with the current funding
arrangement, that no further contributions will be required to fund past
service as a result of this valuation other than those already contractually
committed under the existing Marks and Spencer Scottish Limited Partnership
arrangements.
Marks and Spencer Scottish Limited Partnership
Marks and Spencer Plc is a general partner of the Marks and Spencer Scottish
Limited Partnership, with the UK defined benefit pension scheme, which is a
limited partner.
The Partnership holds £1.3bn (2022/23: £1.3bn) of properties at book value
which have been leased back to Marks and Spencer Plc. The first limited
Partnership interest held by the scheme entitled it to receive £73.0m in 2023
and £54.4m in 2024 and is included as a financial liability in the financial
statements as it is a transferable financial instrument. The second
Partnership interest held by the scheme entitles it to receive a further
£36.4m annually from June 2017 until June 2031. As it is not a transferable
financial instrument, the associated liability is not included on the Group's
statement of financial position, rather the annual distribution is recognised
as a contribution to the scheme each year.
The Group and the Pension scheme are in ongoing discussions to ensure that the
distributions to the scheme are appropriate. During the period, the Group and
the Pension Scheme Trustees agreed to amend the distribution dates in relation
to the first limited partnership interest so that the Pension Scheme received
£40.0m in October 2023 and is scheduled to receive £89.7m in June 2024.
Additionally, the Group and the Pension Scheme Trustees agreed to amend the
distribution dates in respect of the second interest so that the Pension
Scheme is entitled to £38.3m in June 2024 and is scheduled an annual
distribution of £36.4m from June 2024 to June 2031. If the ongoing
discussions are successfully concluded, the profile of contributions to the
scheme would be revised so that distributions in the year would substantially
reduce and the Group would commit to extending the distribution profile, if
required, to ensure that the scheme was fully funded.
Liquidity
At 30 March 2024, the Group held cash and cash equivalents of £1,022.4m
(2022/23: £1,067.9m). In the period, the Group bought back £276.8m of
medium-term maturities and subsequently fully repaid £128.1m for the 2023
maturing bond.
The Group currently has an unused £850m revolving credit facility, the expiry
of which has been extended to June 2027, on terms linked to delivery of its
net zero roadmap. With the facility undrawn, the Group had total liquidity
headroom of £1.9bn at 30 March 2024.
Dividend
With the Group generating a further improvement in operating performance,
balance sheet and credit metrics, a final dividend of 2p has been declared,
resulting in a full year dividend of 3p in 2023/24. The final dividend is due
to be paid on 5 July 2024 to shareholders on the register of members as at
close of business on 31 May 2024.
Statement of financial position
Net assets were £2,830.1m at the period end. The profit made in the period
and the reduction in borrowings was largely offset by a decrease in the net
retirement benefit surplus, resulting in an overall increase in net assets of
5.6% since the start of the year.
Consolidated income statement
52 weeks ended 52 weeks ended
30 March 2024 1 April 2023
Total Total
Notes £m £m
Revenue 2 13,040.1 11,931.3
Share of result in associate - Ocado Retail Limited 17 (79.9) (43.5)
Operating profit 3 714.2 515.1
Finance income 3, 4 146.7 166.1
Finance costs 3, 4 (188.4) (205.5)
Profit before tax 3 672.5 475.7
Income tax expense 5 (247.3) (111.2)
Profit for the year 425.2 364.5
Attributable to:
Owners of the parent 431.2 363.4
Non-controlling interests (6.0) 1.1
425.2 364.5
Earnings per share
Basic earnings per share 6 21.9p 18.5p
Diluted earnings per share 6 20.8p 17.9p
Reconciliation of profit before tax & adjusting items:
Profit before tax 672.5 475.7
Adjusting items(1) 3 43.9 (22.4)
Profit before tax & adjusting items¹ - non-GAAP measure 716.4 453.3
Adjusted earnings per share - non-GAAP measure
Adjusted basic earnings per share(1) 6 24.6p 16.9p
Adjusted diluted earnings per share(1) 6 23.3p 16.4p
(1) Comparative information has been restated due to a change in adjusting
items classification. See note 1 for details.
Consolidated statement of comprehensive income
52 weeks ended 52 weeks ended
30 March 2024 1 April
2023
Notes £m £m
Profit for the year 425.2 364.5
Other comprehensive income/ (expense):
Items that will not be reclassified subsequently to profit or loss
Remeasurements of retirement benefit schemes 8 (419.2) (622.8)
Tax on retirement benefit schemes 104.8 158.0
(314.4) (464.8)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences
- movements recognised in other comprehensive income (11.5) 4.3
Cash flow hedges
- fair value movements recognised in other comprehensive income (27.5) 77.0
- reclassified and reported in profit or loss 5.3 (14.4)
Tax credit/(charge) on cash flow hedges 6.1 (18.6)
(27.6) 48.3
Other comprehensive (expense) for the year, net of tax (342.0) (416.5)
Total comprehensive income/(expense) for the year 83.2 (52.0)
Attributable to:
Owners of the parent 89.2 (53.1)
Non-controlling interests (6.0) 1.1
83.2 (52.0)
Consolidated statement of financial position
As at As at As at
30 March 2024 1 April 2023 3 April 2022
(restated) (restated)
Notes £m £m £m
Assets
Non-current assets
Intangible assets 10 179.5 163.1 192.5
Property, plant and equipment 11 5,190.1 5,203.7 4,902.3
Investment property 11.6 11.8 15.0
Investments in joint ventures and associates 17 684.2 767.9 810.9
Other financial assets 12.6 7.9 4.5
Retirement benefit assets 8 81.8 482.0 1,043.9
Trade and other receivables 356.7 298.7 270.6
Derivative financial instruments 0.7 0.1 21.4
Deferred tax assets 11.7 7.6 -
6,528.9 6,942.8 7,261.1
Current assets
Inventories 776.9 764.4 706.1
Other financial assets 12.3 13.0 17.6
Trade and other receivables 302.0 280.6 217.1
Derivative financial instruments 6.8 22.6 43.6
Current tax assets 32.9 6.5 -
Cash and cash equivalents 1,022.4 1,067.9 1,197.9
2,153.3 2,155.0 2,182.3
Total assets 8,682.2 9,097.8 9,443.4
Liabilities
Current liabilities
Trade and other payables 2,107.9 2,048.8 1,960.9
Partnership liability to the Marks & Spencer UK Pension Scheme 9 88.8 73.0 71.9
Borrowings and other financial liabilities 250.4 444.0 247.2
Derivative financial instruments 20.0 58.1 3.2
Provisions 47.6 44.0 53.6
Current tax liabilities 1.5 38.5 34.0
2,516.2 2,706.4 2,370.8
Non-current liabilities
Retirement benefit deficit 8 4.6 4.6 5.7
Trade and other payables 116.7 181.3 188.2
Partnership liability to the Marks & Spencer UK Pension Scheme 9 - 51.8 120.4
Borrowings and other financial liabilities 2,882.8 3,184.0 3,561.0
Derivative financial instruments 21.9 7.1 0.4
Provisions 104.1 75.4 91.8
Deferred tax liabilities 205.8 206.4 321.3
3,335.9 3,710.6 4,288.8
Total liabilities 5,852.1 6,417.0 6,659.6
Net assets 2,830.1 2,680.8 2,783.8
Equity
Issued share capital 20.5 19.8 19.7
Share premium account 967.0 910.7 910.6
Capital redemption reserve 2,680.4 2,680.4 2,680.4
Hedging reserve (8.4) (31.9) 17.6
Cost of hedging reserve 5.4 4.2 3.6
Other reserve (6,542.2) (6,542.2) (6,542.2)
Foreign exchange reserve (81.1) (69.6) (73.9)
Retained earnings 5,789.6 5,705.0 5,763.8
Equity attributable to owners of the parent 2,831.2 2.676.4 2,779.6
Non-controlling interests (1.1) 4.4 4.2
Total equity 2,830.1 2,680.8 2,783.8
Deferred tax and retained earnings have been restated in the comparative
information. See note 1 for further details.
Consolidated statement of changes in equity
Ordinary share capital Share premium account Capital redemption reserve Hedging reserve Cost of hedging Other reserve¹ Foreign exchange reserve Retained earnings Total Non-controlling Total
interest
£m £m £m £m £m £m £m £m £m £m £m
As at 3 April 2022 19.7 910.6 2680.4 17.6 3.6 (6,542.2) (73.9) 5,897.9 2,913.7 4.2 2,917.9
Prior year restatement - - - - - - - (134.1) (134.1) - (134.1)
As at 3 April 2022 (restated) 19.7 910.6 2,680.4 17.6 3.6 (6,542.2) (73.9) 5,763.8 2,779.6 4.2 2,783.8
Profit for the year - - - - - - - 363.4 363.4 1.1 364.5
Other comprehensive (expense)/income:
Foreign currency translation
- movements recognised in other comprehensive income - - - - - - 4.3 - 4.3 - 4.3
Remeasurements of retirement benefit schemes - - - - - - - (622.8) (622.8) - (622.8)
Tax on retirement benefit schemes - - - - - - - 158.0 158.0 - 158.0
Cash flow hedges
- fair value movement in other comprehensive income - - - 76.2 0.8 - - - 77.0 - 77.0
- reclassified and reported in profit or loss - - - (14.4) - - - - (14.4) - (14.4)
Tax on cash flow hedges - - - (18.4) (0.2) - - - (18.6) - (18.6)
Other comprehensive (expense)/income: - - - 43.4 0.6 - 4.3 (464.8) (416.5) - (416.5)
Total comprehensive (expense)/income - - - 43.4 0.6 - 4.3 (101.4) (53.1) 1.1 (52.0)
Cash flow hedges recognised in inventories - - - (123.9) - - - - (123.9) - (123.9)
Tax on cash flow hedges recognised in inventories - - - 31.0 - - - - 31.0 - 31.0
Transactions with owners:
Transactions with non-controlling shareholders - - - - - - - - - (0.9) (0.9)
Shares issued in respect of employee share options 0.1 0.1 - - - - - (0.1) 0.1 - 0.1
Purchase of shares held by employee trusts - - - - - - - (0.1) (0.1) - (0.1)
Credit for share-based payments - - - - - - - 38.0 38.0 - 38.0
Deferred tax on share schemes - - - - - - - 4.8 4.8 - 4.8
As at 1 April 2023 19.8 910.7 2,680.4 (31.9) 4.2 (6,542.2) (69.6) 5,705.0 2,676.4 4.4 2,680.8
As at 2 April 2023 19.8 910.7 2,680.4 (31.9) 4.2 (6,542.2) (69.6) 5,705.0 2,676.4 4.4 2,680.8
Profit for the year - - - - - - - 431.2 431.2 (6.0) 425.2
Other comprehensive income/(expense):
Foreign currency translation
- movements recognised in other comprehensive income - - - - - - (11.5) - (11.5) - (11.5)
Remeasurements of retirement benefit schemes - - - - - - - (419.2) (419.2) - (419.2)
Tax on retirement benefit schemes - - - - - - - 104.8 104.8 - 104.8
Cash flow hedges
- fair value movement in other comprehensive income - - - (29.1) 1.6 - - - (27.5) - (27.5)
- reclassified and reported in profit or loss - - - 5.3 - - - - 5.3 - 5.3
Tax on cash flow hedges - - - 6.5 (0.4) - - - 6.1 - 6.1
Other comprehensive (expense)/income - - - (17.3) 1.2 - (11.5) (314.4) (342.0) - (342.0)
Total comprehensive (expense)/income - - - (17.3) 1.2 - (11.5) 116.8 89.2 (6.0) 83.2
Cash flow hedges recognised in inventories - - - 54.4 - - - - 54.4 - 54.43
Tax on cash flow hedges recognised in inventories - - - (13.6) - - - - (13.6) - (13.6)
Transactions with owners:
Dividends - - - - - - - (19.6) (19.6) - (19.6)
Transactions with non-controlling shareholders - - - - - - - - - 0.5 0.5
Shares issued in respect of employee share options 0.7 56.3 - - - - - - 57.0 - 57.0
Purchase of shares held by employee trusts - - - - - - - (83.1) (83.1) - (83.1)
Credit for share-based payments - - - - - - - 48.3 48.3 - 48.3
Tax on share schemes - - - - - - - 22.2 22.2 - 22.2
As at 30 March 2024 20.5 967.0 2,680.4 (8.4) 5.4 (6,542.2) (81.1) 5789.6 2,831.2 (1.1) 2,830.1
(1) The "Other reserve" was originally created as part of the capital
restructuring that took place in 2002. It represents the difference between
the nominal value of the shares issued prior to the capital reduction by the
Company (being the carrying value of the investment in Marks and Spencer plc)
and the share capital, share premium and capital redemption reserve of Marks
and Spencer plc at the date of the transaction.
Consolidated statement of cash flows
52 weeks ended 52 weeks ended
30 March 2024 1 April 2023
Notes £m £m
Cash flows from operating activities
Cash generated from operations 14 1,492.9 1,100.5
Income tax paid (191.2) (70.6)
Net cash inflow from operating activities 1,301.7 1,029.9
Cash flows from investing activities
Proceeds on property disposals 6.1 1.1
Purchase of property, plant and equipment (359.5) (325.8)
Purchase of intangible assets (69.8) (84.5)
Proceeds on disposal of current financial assets 0.7 5.3
Purchase of non-current financial assets (2.6) (4.2)
Proceeds on disposal of non-current financial assets - 0.2
Acquisition of subsidiary, net of cash acquired(1) - (102.8)
Loans to related parties 16 (62.0) (30.0)
Interest received 51.8 24.1
Net cash used in investing activities (435.3) (516.6)
Cash flows from financing activities
Interest paid(2) (185.0) (212.5)
Redemption of Medium Term Notes(3) (395.6) (189.9)
Repayment of lease liabilities (243.5) (231.8)
Payment of partnership liability to the Marks & Spencer UK Pension Scheme (40.0) (66.0)
Equity dividends paid (19.6) -
Shares issued on exercise of employee share options 57.0 -
Purchase of own shares by employee trust (83.1) (0.1)
Cash received from settlement of derivatives - 56.5
Net cash used in financing activities (909.8) (643.8)
Net cash outflow from activities (43.4) (130.5)
Effects of exchange rate changes (2.1) 0.5
Opening net cash 1,067.9 1,197.9
Closing net cash 15 1,022.4 1,067.9
(1) Last year includes £102.8m relating to the purchase of Gist Limited,
being consideration of £170.6m net of cash acquired of £67.8m.
(2 )Includes interest paid on the partnership liability to the Marks &
Spencer UK Pension Scheme of £nil (last year: £5.9m) and interest paid on
lease liabilities of £102.0m (last year: £121.9m).
(3) Includes £267.5m of outstanding 2023, 2025 and 2026 notes repurchased in
June 2023, resulting in a gain of £10.3m recognised within 'interest payable
on Medium Term Notes' in net finance costs.
1 Accounting policies
General information
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 30 March 2024 or 1 April
2023. The financial information for the year ended 1 April 2023 is derived
from the statutory accounts for that year which have been delivered to the
Registrar of Companies. The auditors reported on those accounts: their report
was unqualified, did not draw attention to any matters by way of emphasis and
did not contain a statement under s498(2) or (3) of the Companies Act 2006.
The statutory accounts for the year ended 30 March 2024 will be delivered to
the Registrar of Companies following the Company's annual general meeting.
Basis of preparation
While the financial information included in this press release has been
prepared in accordance with the recognition and measurement criteria of
UK-adopted International Accounting Standards, this announcement does not
itself contain sufficient information to comply with these standards. The
financial information has been prepared using accounting policies and methods
of computation consistent with those applied in the financial statements for
the year ended 1 April 2023, with the exception of the change in accounting
policy and new accounting standards adopted in the year set out below. The
Company's full financial statements will be prepared in compliance with
UK-adopted International Accounting Standards.
Going concern basis
The financial statements have been prepared on a going concern basis. In
adopting the going concern basis, the Board has considered the business
activities, the financial position of the Group, its cash flows, liquidity
position and borrowing facilities, the Group's financial risk management
objectives and exposures to liquidity and other financial risks as set out in
note 12 and the principal risks and uncertainties.
The Group continues to maintain a robust financial position providing it with
sufficient access to liquidity, through a combination of cash and committed
facilities, to meet its needs in the short and medium term. At 30 March 2024,
the Group had liquidity of £1,897.4m (last year: £1,942.9m), comprising cash
and cash equivalents of £1,022.4m, an undrawn committed syndicated bank
revolving credit facility ("RCF") of £850.0m, and undrawn uncommitted
facilities amounting to £25.0m.
In December 2023, the Group successfully extended its RCF, which now expires
in June 2027. The facility contains a financial covenant, being the ratio of
earnings before interest, tax, depreciation and amortisation; to net interest
and depreciation on right-of-use assets under IFRS 16. The covenant is
measured biannually.
In adopting the going concern basis of preparation, the Board has assessed the
Group's cash flow forecasts which incorporate a latest estimate of the ongoing
impact of current market conditions on the Group and include a number of
assumptions including sales growth and customer behaviour. While trading
continues to be strong, in forming their outlook on the future financial
performance, the Board considered a variety of downsides that the Group might
experience, such as a sustained economic recession and an inability for the
Group to execute the transformation plan.
Under these latest forecasts, the Group is able to operate without the need to
draw on its available facilities and without taking any supplementary
mitigating actions, such as reducing capital expenditure and other
discretionary spend. The forecast cash flows also indicate that the Group will
comply with all relevant banking covenants during the forecast period, being
at least 12 months from the approval of the financial statements.
The Board has modelled a severe, but plausible, downside scenario. This
downside scenario assumes that:
· There will be a period of economic recession in 2024/25,
resulting in a decline in sales of 2.0 - 5.0% across all three business units
compared to the Budget and Three-Year Plan.
· A delay on transformation benefits results in incremental sales
expected from the transformation declining by 7.5%, 15% and 30% respectively
across the three-year period across all three business units.
· Ocado Retail Limited experiences limited customer demand, with a
5.0% decline in volumes each year across the three-year period compared to the
Budget and Three-Year Plan.
Even under this severe but plausible downside scenario, the Group would
continue to have sufficient liquidity and headroom on its existing facilities
and against the RCF financial covenant for the forecast period. In addition,
should such a scenario arise, there are a range of mitigating actions that
could be taken to reduce the impact. Given current trading and expectations
for the business, the Board considers that this downside scenario reflects a
plausible, but remote, outcome for the Group.
In addition, reverse stress testing has been applied to the model to determine
the decline in sales that the Group could absorb before exhausting the Group's
total liquidity. Such a scenario, and the sequence of events which could lead
to it, is considered to be extremely remote.
As a result, the Board expects the Group to have adequate resources to
continue in operation, meet its liabilities as they fall due, retain
sufficient available cash and not breach the covenant under the revolving
credit facility for the foreseeable future, being a period of at least 12
months from the approval of the financial statements. The Board therefore
considers it appropriate for the Group to adopt the going concern basis in
preparing its financial statements.
New accounting standards adopted by the Group
The Group has applied the following new standards and interpretations for the
first time for the annual reporting period commencing 2 April 2023:
· IFRS 17 Insurance Contracts.
· Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of
Accounting Policies.
· Amendments to IAS 8: Definition of Accounting Estimates.
· Amendments to IAS 12: Deferred Tax Related to Assets and
Liabilities arising from a Single Transaction.
· Amendments to IAS 12: International Tax reform - Pillar Two Model
rules.
The adoption of the standards and interpretations listed above has not led to
any changes to the Group's accounting policies or had any other material
impact on the financial position or performance of the Group.
New accounting standards in issue but not yet effective
New standards and interpretations that are in issue but not yet effective are
listed below:
· Amendment to IFRS 16: Lease Liability in a Sale and Leaseback.
· Amendments to IAS 1: Classification of Liabilities as Current or
Non-Current.
· Amendments to IAS 1: Non-current Liabilities with Covenants.
· Amendments to IAS 7 and IFRS7: Supplier Finance Arrangements.
· Amendments to IAS 21: Lack of Exchangeability.
· Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture.
· IFRS 18: Presentation and Disclosure in Financial Statements.
With the exception of the adoption of IFRS 18, the adoption of the above
standards and interpretations is not expected to lead to any changes to the
Group's accounting policies nor have any other material impact on the
financial position or performance of the Group.
IFRS 18 was issued in April 2024 and is effective for periods beginning on or
after 1 January 2027. Early application is permitted and comparatives will
require restatement. The standard will replace IAS 1 'Presentation of
financial statements' and although it will not change how items are recognised
or measured, the standard brings a focus on the income statement and reporting
of financial performance. Specifically classifying income and expenses into
three new defined categories - "operating", "investing" and "financing" and
two new subtotals "operating profit or loss" and "profit or loss before
financing and income tax", introducing disclosures of management defined
performance measures (MPMs) and enhancing general requirements on aggregation
and disaggregation. The impact of the standard on the Group is currently being
assessed and it is not yet practicable to quantify the effect of IFRS 18 on
these consolidated financial statements, however there is no impact on
presentation for the Group in the current year given the effective date - this
will be applicable for the Group's 2027/28 Annual Report.
Prior year restatement
An error has been identified within the Group's deferred tax calculations
which was triggered by a series of historic changes in the residual value
applied to Buildings impacting the portion of the asset to be recovered
through use and the portion through sale. In line with IAS 8, the Group has
restated balances as at 1 April 2023 and 2 April 2022.
Specifically the impact on the financial results as at 1 April 2023 was a
£134.1m increase in deferred tax liabilities recognised in relation to
Buildings following management's downwards revision of its estimate of the
residual value of Buildings. There is no impact on cash flow statement in any
years.
The financial impact of the errors identified are as follows:
As at 1 April 2023 As at 2 April 2022
Reported Adjustment Restated Reported Adjustment Restated
£m £m £m £m £m £m
Deferred tax liability 72.3 134.1 206.4 187.2 134.1 321.3
Retained earnings 5,839.1 (134.1) 5,705.0 5,897.9 (134.1) 5,763.8
Alternative performance measures
In reporting financial information, the Group presents alternative performance
measures ("APMs"), which are not defined or specified under the requirements
of IFRS.
The Group believes that these APMs, which are not considered to be a
substitute for, or superior to, IFRS measures, provide stakeholders with
additional helpful information on the performance of the business. These APMs
are consistent with how the business performance is planned and reported
within the internal management reporting to the Board and Executive Committee.
Some of these measures are also used for the purpose of setting remuneration
targets.
The key APMs that the Group uses include: sales; like-for-like sales growth;
adjusted operating profit; adjusted operating margin; profit before tax and
adjusting items; adjusted basic earnings per share; net debt; net debt
excluding lease liabilities; free cash flow; free cash flow from operations;
capital expenditure; and return on capital employed. Each of these APMs, and
others used by the Group, is set out in the Glossary, including explanations
of how they are calculated and how they can be reconciled to a statutory
measure where relevant.
The Group reports some financial measures, primarily International sales, on
both a reported and constant currency basis. The constant currency basis,
which is an APM, retranslates the previous year revenues at the average actual
periodic exchange rates used in the current financial year. This measure is
presented as a means of eliminating the effects of exchange rate fluctuations
on the year-on-year reported results.
The Group makes certain adjustments to the statutory profit measures in order
to derive many of these APMs. The Group's policy is to exclude items that are
considered significant in nature and/or quantum over the total expected life
of the programme or are consistent with items that were treated as adjusting
in prior periods. The Group's definition of adjusting items is consistent with
prior periods. Adjusted results are consistent with how business performance
is measured internally and presented to aid comparability of performance. On
this basis, the following items were included within adjusting items for the
52-week period ended 30 March 2024:
· Net charges associated with the strategic programme in relation
to the review of the store estate.
· Significant restructuring costs and other associated costs
arising from strategy or operational changes that are not considered by the
Group to be part of the normal operating costs of the business.
· Impairment charges and provisions that are considered to be
significant in nature and/or value to the trading performance of the business.
· Charges and reversals of previous impairments arising from the
write-off of assets and other property charges that are significant in nature
and/or value. Impairment charges are recognised in adjusted operating profit
where they relate to stores not previously impaired or do not otherwise meet
the Group's adjusting items policy.
· Adjustments to income from M&S Bank due to a provision
recognised by M&S Bank for the cost of providing redress to customers in
respect of possible mis-selling of M&S Bank financial products.
· Amortisation of the identified intangible assets arising as part
of the investment in Ocado Retail Limited.
· Remeasurement of Ocado Retail Limited contingent consideration.
· Significant costs relating to the acquisition of Gist Limited.
· Net finance costs incurred in relation to Gist Limited deferred
and contingent consideration.
· (New) Share of net charges associated with Ocado Retail Limited's
UK network capacity review.
· (New) Net pension finance income in relation to closed scheme not
considered part of ongoing operating activities of the Group.
· (New) Significant charges relating to the renegotiation of the
Group's Relationship Agreement with M&S Bank.
· (New) Significant charges in relation to the furniture
simplification programme that are not considered to be day-to-day operational
costs of the business, mainly relating to contractual obligations with
suppliers.
Refer to note 3 for a summary of the adjusting items.
Due to a change in the Group's classification of pension net finance income as
an adjusting item (see note 3), the comparative amounts have been restated.
The impact on the 52 weeks ended 1 April 2023 income statement is a decrease
to the adjusting items charge of £28.7m (resulting in a net adjusting items
credit), a decrease to profit before tax & adjusting items of £28.7m, a
decrease to adjusted basic earnings per share of 1.2p and a decrease to
adjusted diluted earnings per share of 1.1p. There is no impact on profit
before tax, earnings per share or net assets.
2 Segmental Information
IFRS 8 Operating Segments requires operating segments to be identified on the
basis of internal reporting on components of the Group that are regularly
reviewed by the chief operating decision-maker to allocate resources to the
segments and to assess their performance.
The chief operating decision-maker has been identified as the Executive
Committee. The Executive Committee reviews the Group's internal reporting in
order to assess performance and allocate resources across each operating
segment.
The Group's reportable operating segments have therefore been identified as
follows:
• UK Clothing & Home - comprises the retailing of womenswear,
menswear, lingerie, kidswear and home products through UK retail stores and
online.
• UK Food - includes the results of the UK retail food business,
UK Food franchise operations and UK supply chain services, with the following
five main categories: protein deli and dairy; produce; ambient and in-store
bakery; meals, dessert and frozen; hospitality and "Food on the Move"; and
direct sales to Ocado Retail Limited.
• International - consists of Marks and Spencer owned businesses
in Europe and Asia and the international franchise operations.
• Ocado - includes the Group's share of profits or losses from the
investment in Ocado Retail Limited.
Other business activities and operating segments, including M&S Bank and
M&S Energy, are combined and presented in "All other segments". Finance
income and costs are not allocated to segments as each is managed on a
centralised basis.
The Executive Committee assesses the performance of the operating segments
based on a measure of adjusted operating profit. This measurement basis
excludes the effects of adjusting items from the operating segments.
The following is an analysis of the Group's revenue and results by reportable
segment:
52 weeks ended 30 March 2024 52 weeks ended 1 April 2023
UK Clothing & Home UK International Ocado All other segments Group UK Clothing & Home UK Food International Ocado All other segments Group
Food
£m £m £m £m £m £m £m £m £m £m £m £m
Sales (1) 3,910.7 8,158.8 1,039.8 - - 13,109.3 3,715.0 7,218.0 1,055.0 - - 11,988.0
Revenue 3,841.5 8,158.8 1,039.8 - - 13,040.1 3,658.3 7,218.0 1,055.0 - - 11,931.3
Adjusted operating profit/(loss) (2) 402.8 395.3 75.6 (37.3) 2.2 838.6 323.8 248.0 84.8 (29.5) (0.5) 626.6
Finance income before adjusting items (3) 58.0 29.4
Finance costs before adjusting items (3) (180.2) (202.7)
Profit/(loss) before tax and adjusting items (3) 402.8 395.3 75.6 (37.3) 2.2 716.4 323.8 248.0 84.8 (29.5) (0.5) 453.3
Adjusting items (3) (43.9) 22.4
Profit/(loss) before tax 402.8 395.3 75.6 (37.3) 2.2 672.5 323.8 248.0 84.8 (29.5) (0.5) 475.7
(1) Sales is revenue stated prior to adjustments for UK Clothing & Home
brand consignment sales of £69.2m (last year: £56.7m).
(2) Adjusted operating profit/(loss) is stated as gross profit less operating
costs prior to adjusting items. At reportable segment level costs are
allocated where directly attributable or based on an appropriate cost driver
for the cost.
(3) See note 1 for details on a change in adjusting items and the resulting
restatement.
Other segmental information
52 weeks ended 30 March 2024 52 weeks ended 1 April 2023
UK Clothing & Home UK Food International Ocado All other segments Group UK Clothing & Home UK Food International Ocado All other segments Group
£m £m £m £m £m £m £m £m £m £m £m £m
Additions to property, plant and equipment, and intangible assets (excluding 193.5 201.0 18.9 - - 413.4 170.4 221.1 29.9 - - 421.4
goodwill and right-of-use assets)
Depreciation and amortisation (1,2) (219.6) (236.6) (45.4) - - (501.6) (267.9) (274.8) (35.7) - - (578.4)
Impairment charges, impairment reversals and asset disposals (1) (43.4) (29.0) - - - (72.4) 10.2 6.1 (1.9) - - 14.4
(1) These costs are allocated to a reportable segment where they are directly
attributable. Where costs are not directly attributable, a proportional
allocation is made to each segment based on an appropriate cost driver.
(2) Includes £0.2m (last year: £0.2m) depreciation and impairments on
investment property.
Segment assets and liabilities, including investments in associates and joint
ventures, are not disclosed because they are not reported to or reviewed by
the Executive Committee.
3 Adjusting items
The total adjusting items reported for the 52-week period ended 30 March 2024
is a net charge of £43.9m (last year: restated net credit of £22.4m). Refer
to note 1 for further details on the restatement. The adjustments made to
reported profit before tax to arrive at adjusted profit are:
2024 2023
Notes £m £m
Included in share of result of associate - Ocado Retail Limited
Ocado Retail Limited - UK network capacity review 17 (29.7) -
Amortisation and fair value adjustments arising as part of the investment in 17 (12.9) (14.0)
Ocado Retail Limited
(42.6) (14.0)
Included in operating profit
Strategic programmes - Store estate 11 (93.0) (51.3)
Strategic programmes - Furniture simplification (18.3) -
Strategic programmes - Organisation (3.5) (10.7)
Strategic programmes - Structural simplification - (16.4)
Strategic programmes - UK logistics 11 5.3 (10.5)
Store impairments, impairment reversals and other property charges 11 35.1 15.1
M&S Bank transformation and insurance mis-sellling provisions (7.0) (2.0)
Acquisition of Gist Limited (0.4) (22.1)
Franchise restructure - 0.4
(81.8) (97.5)
Included in net finance income/(costs)
Remeasurement of Ocado Retail Limited contingent consideration 64.7 108.0
Pension net finance income(1) 8 24.0 28.7
Net finance costs incurred in relation to Gist Limited deferred and contingent (8.2) (2.8)
consideration
80.5 133.9
Adjustments to profit before tax(1) (43.9) 22.4
(1)See note 1 for details on restatement
Ocado Retail Limited - UK network capacity review (£29.7m)
On 25 April 2023, Ocado Retail Limited announced the plan to cease operation
at its Customer Fulfilment Centre ("CFC") in Hatfield as part of the wider
review of UK network capacity. During H2 2023/24, Ocado Retail Limited also
undertook a strategy and capacity review for the Zoom network.
As a result, Ocado Retail Limited has recorded impairment charges,
restructuring costs and other related costs of closure.
The Group's share of these costs, reported within the Group's "share of result
of associate - Ocado Retail Limited", are considered to be adjusting items as
they are one-off in nature and significant in value to the results of the
Group and to the Ocado segment. No further charges are expected in this
programme.
Amortisation and fair value adjustments arising as part of the investment in
Ocado Retail Limited (£12.9m)
Intangible assets of £366.0m were acquired as part of the investment in Ocado
Retail Limited in 2019/20 relating to the Ocado brand and acquired customer
relationships. These intangibles are being amortised over their useful
economic lives of 10 - 40 years with an amortisation charge of £17.2m (last
year: £17.1m) recognised in the period and a related deferred tax credit of
£4.3m (last year: £3.1m).
The amortisation charge and changes in the related deferred tax liability are
included within the Group's share of the profit or loss of the associate and
are considered to be adjusting items as they are based on judgments about
their value and economic life and are not related to the Group's underlying
trading performance. These charges are reported as adjusting items on the
basis that they are significant in quantum and to aid comparability from one
period to the next.
Strategic programmes - Store estate (£93.0m)
In November 2016, the Group announced a strategic programme to transform and
rotate the store estate with the overall objective to improve our store estate
to better meet our customers' needs. The Group has incurred charges of £963m
in the eight years up to March 2024 under this programme primarily relating to
closure costs associated with stores identified as part of the strategic
transformation plans.
The Group has recognised a charge of £93.0m in the period in relation to
those stores identified as part of the rotation plans. The charge primarily
reflects the latest view of store closure plans and latest assumptions for
estimated store closure costs, as well as charges relating to the impairment
of buildings and fixtures and fittings, and depreciation as a result of
shortening the useful economic life of stores based on the most recent
approved exit routes.
Further charges relating to the closure and rotation of the store estate are
anticipated over the next seven years as the programme progresses, the quantum
of which is subject to change throughout the programme period as the Group
gets greater certainty of circumstances that need to be in place to make
closure financially viable. Future charges will not include Foodhall closures
at a lease event where there is opportunity for a better location, as this is
not in the scope of the programme.
As at 30 March 2024, the total closure programme now consists of 211 stores,
122 of which have already closed. Further charges of c.£209m are estimated
within the next seven financial years, bringing anticipated total programme
costs since 2016 to c.£1.2bn. In addition, where store exit routes in the
next seven years lead to the recognition of gains on exit, particularly those
relating to asset management, these credits will also be recognised within
adjusting items as part of the programme. The anticipated total programme
costs to date do not include any costs that may arise in relation to a further
c.30 stores currently under consideration for closure within the next seven
years. At this stage these c.30 stores remain commercially supportable and in
the event of a decision to close the store, the exit routes are not yet
certain.
These costs are reported as adjusting items on the basis that they are
significant in quantum, relate to a strategic initiative focused on reviewing
our store estate and to aid comparability from one period to the next. The
programme includes all stores within the programme to be closed by 2030/31,
but charges in the year, and future charges, did not include Foodhall closures
at a lease event where there is opportunity to secure a better location.
Strategic programmes - Furniture simplification (£18.3m)
In March 2024 the Group withdrew from its two-person furniture delivery
operation. Following this the Group will no longer sell bulky products through
its existing '2-person delivery network'.
As part of this closure the Group has incurred £18.3m of one-off charges that
are not considered to be day-to-day operational costs of the business. This
mainly relates to contractual obligations with suppliers.
These costs are adjusting items as they relate to a significant withdrawal of
an operation within the UK Clothing & Home segment and the business would
not have incurred these costs but for the closure. Further costs of £7.2m are
expected in 2024/25 in relation to the operation closure, expected to be
offset by profit on disposal of a distribution centre in the range of £5.0m
to £15.0m.
Strategic programmes - Organisation (£3.5m)
During 2016/17, the Group announced a wide-ranging strategic review across a
number of areas of the business which included UK organisation and the
programme to centralise our London Head Office functions into one building. In
the period, an impairment charge of £3.5m has been recognised (last year:
£10.7m impairment). This relates to the updating of assumptions and market
fluctuations over the life of the sub-let of previously closed offices. Total
costs of centralising our London Head Office functions into one building
incurred to date are c.£101m. Any future charges/reversals will relate to the
updating of assumptions and market fluctuations over the life of the sub-let
lease to September 2040.
These charges are reported as adjusting items as they are significant in value
in total, relate to a strategic initiative, are not considered to be normal
operating costs of the business and are consistent with the disclosure of
costs previously recognised.
Strategic programmes - UK logistics (£5.3m credit)
In 2017/18, as part of the previously announced long-term strategic programme
to transition to a single-tier UK distribution network, the Group announced
the opening of a new Clothing & Home distribution centre in Welham Green,
Hertfordshire. As a direct result, the Group announced the closure of two
existing distribution centres. In February 2020, the next phase of the single
tier programme was announced with the closure of three further distribution
centres across 2020/21, 2021/22 and 2022/23.
A net credit of £5.3m has been recognised in the period, reflecting a revised
view of estimated closure costs. Total programme costs to date are £23.1m
with further net charges of £14.7m expected over the next four financial
years.
These charges are reported as adjusting items on the basis that they are
significant in quantum, relate to a strategic initiative focused on reviewing
our UK logistics network and to aid comparability from one period to the next.
Store impairments, impairment reversals and property charges (£35.1m credit)
The Group has recognised a number of charges and credits in the period
associated with the carrying value of items of property, plant and equipment.
The Group has performed impairment testing based on the latest Board approved
budget and three year plan future cash flow projections for UK and
International stores (excluding those stores that have been captured as part
of the store estate programme). As a result, store impairment testing has
identified stores where the current and anticipated future performance does
not support the carrying value of the stores. A charge of £0.5m (last year:
£18.0m) has been incurred primarily in respect of the impairment of assets
associated with these stores. In addition, a credit of £35.6m (last year:
£33.1m) has been recognised for the reversal of store impairments incurred in
previous periods, where revised future cash flow projections more than support
the carrying value of the stores, reflecting improved trading expectations
compared to those assumed at the prior year end. Refer to note 11 for further
details on the impairments.
The charges/credits have been classified as an adjusting item on the basis of
the significant quantum of the charge/credit in the period to the results of
the Group. Any future charges or reversals relating to stores previously
impaired within adjusting items will continue to be recognised within
adjusting items in line with the original charge. Any future charges or
reversals relating to stores not previously impaired within adjusting items or
not otherwise meeting the Group's adjusting items policy will be recognised in
the underlying results.
M&S Bank transformation and insurance mis-selling provisions (£7.0m)
Up until April 2024, the Group had an economic interest in Marks and Spencer
Financial Services plc (trading as M&S Bank), a wholly owned subsidiary of
HSBC UK Bank plc ("HSBC UK"), by way of a Relationship Agreement that entitles
the Group to a 50% share of the profits of M&S Bank after appropriate
deductions. The Group did not share in any losses of M&S Bank and is not
obliged to refund any profit share received from HSBC, although future income
may have been impacted by significant one-off deductions.
Since the year ended 31 December 2010, M&S Bank has recognised in its
audited financial statements an estimated liability for redress to customers
in respect of possible mis-selling of financial products. The Group's profit
share and fee income from M&S Bank has been reduced by the deduction of
the estimated liability in both the current and prior years. In line with the
accounting treatment that was in the Relationship Agreement, there was a cap
on the amount of charges that could be offset against the profit share in any
one year, whereby excess liabilities carried forward would be deducted from
the Group's future profit share from M&S Bank. The deduction in the period
is £2.0m (last year: £2.0m).
The treatment of this in adjusting items is in line with previous charges in
relation to settlement of PPI claims and although it is recurring, it is
significant in quantum in the context of the total charges recognised for PPI
mis-selling to-date and is not considered representative of the normal
operating performance of the Group. As previously noted, while the August 2019
deadline to raise potential mis-selling claims has now passed, costs relating
to the estimated liability for redress are expected to continue. The total
charges recognised in adjusting items since September 2012 for PPI is £321.9m
which exceeds the total offset against profit share of £248.7m to date
resulting in a deficit of £73.2m as at 30 March 2024.
On 9 April 2024, the Group and HSBC UK agreed a new seven-year deal focused on
enhancing M&S' credit offering and payment solutions through M&S Bank
and bringing together digital payments and loyalty for M&S customers.
£5.0m of legal and consultancy costs have been recognised during the period
in connection with the new agreement. Under the terms of the new agreement,
material charges are expected over the next seven years, predominantly related
to the settlement of the existing deficit of £73.2m.
All of these costs are considered to be adjusting items as they are
significant in quantum and have crystalised as a result of major business
change linked to M&S Bank. Recognition of these costs within adjusting
items is consistent with the disclosure of costs relating to the deficit
previously recognised within adjusting items. Furthermore these costs are
significant in value to the results of both the Group and to the 'all other
segments' segment.
Acquisition of Gist Limited (£0.4m)
On 30 September 2022 the Group completed the acquisition of Gist Limited from
Storeshield Limited, a subsidiary of The BOC Group Limited, as part of
M&S' multi-year programme to modernise its Food supply chain network to
support growth. As part of the transaction the Group has incurred charges of
£0.4m in the period relating to retention bonuses and had in the previous
year incurred £28.3m of one-off charges to date that are not considered to be
day-to-day operational costs of the business. Transaction costs of £6.8m were
incurred and £3.3m of other costs, mainly retention bonuses, along with
£18.2m of charges relating to the settlement of our pre-existing relationship
with Gist Limited. This was offset by a £6.2m gain on bargain purchase.
These costs are adjusting items as they relate to a major transaction and, but
for the transaction, the business would not have incurred these costs and as a
result are not considered to be normal operating costs of the business. No
future charges are expected in this programme.
Remeasurement of contingent consideration including discount unwind (£64.7m
credit)
Contingent consideration, resulting from the investment in Ocado Retail
Limited, is remeasured at fair value at each reporting date with the changes
in fair value recognised in profit or loss. A credit of £64.7m has been
recognised in the period, representing the revaluation of the contingent
consideration payable. See note 12 for further details. The change in fair
value is considered to be an adjusting item as it relates to a major
transaction and consequently is not considered representative of the normal
operating performance of the Group.
Net pension finance income (£24.0m credit)
During the year, the Group has reviewed the classification of net pension
finance income or costs and concluded these should be treated as adjusting
items, in line with the Group's adjusting items policy.
The net pension finance income or expense can fluctuate significantly each
year due to changes in external market factors that are outside management's
control. Furthermore, as the scheme is now closed, it is not considered to be
part of the ongoing operating activities of the Group.
Therefore, consistent with how management assess the performance of the
business, the net pension finance income is considered to be an adjusting
item. To aid comparability, the comparative amount of £28.7m has been
restated.
Net finance costs incurred in relation to Gist Limited deferred and contingent
consideration (£8.2m)
Deferred consideration, resulting from the acquisition of Gist Limited, is
held at amortised cost, whilst the contingent consideration is remeasured at
fair value at each reporting date with the changes in fair value recognised in
profit or loss. A charge of £8.2m (last year: £2.8m) has been recognised in
the period, representing the discount unwind of the deferred consideration and
revaluation of the contingent consideration payable. See note 12 for further
details. The discount unwind and change in fair value is considered to be an
adjusting item as it relates to a major transaction and consequently is not
considered representative of the normal operating performance of the Group.
The discount unwind and remeasurement will be recognised in adjusting items
until the final payments are made.
4 Finance income/(costs)
2024 2023
£m £m
Bank and other interest receivable 52.3 22.9
Other finance income - 0.9
Interest income of subleases 5.7 5.6
Finance income before adjusting items¹ 58.0 29.4
Finance income in adjusting items¹ 88.7 136.7
Finance income 146.7 166.1
Other finance costs (6.3) (6.4)
Interest payable on syndicated bank facility (4.8) (4.5)
Interest payable on Medium Term Notes (42.2) (65.4)
Interest payable on lease liabilities (116.2) (116.7)
Unwind of discount on provisions (6.6) (5.4)
Unwind of discount on Partnership liability to the Marks & Spencer UK (4.1) (4.3)
Pension Scheme (see note 9)
Finance costs before adjusting items (180.2) (202.7)
Finance costs in adjusting items (8.2) (2.8)
Finance costs (188.4) (205.5)
Net finance costs (41.7) (39.4)
1. Due to a change in classification of pension net finance income as an
adjusting item, the comparative amounts have been restated. See notes 1 and 3
for details.
5 Income tax expense
The effective tax rate was 36.8% (last year: 23.4%) and the effective tax rate
of profit excluding adjusting items was 33.2% (last year: 26.4% restated).
6 Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax
and the weighted average number of ordinary shares in issue during the year.
The adjusted earnings per share figures have also been calculated based on
earnings before adjusting items that are significant in nature and/or quantum
and are considered distortive to underlying results (see note 3). These have
been presented to provide shareholders with an additional measure of the
Group's year-on-year performance.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. The Group has four types of dilutive potential ordinary shares,
being: those share options granted to employees where the exercise price is
less than the average market price of the Company's ordinary shares during the
year; unvested shares granted under the Deferred Share Bonus Plan; unvested
shares granted under the Restricted Share Plan; and unvested shares within the
Performance Share Plan that have met the relevant performance conditions at
the end of the reporting period.
Details of the adjusted earnings per share are set out below:
2024 2023
£m £m
Profit attributable to equity shareholders of the Company 431.2 363.4
Add/(less):
Adjusting items (see note 3)(1) 43.9 (22.4)
Tax on adjusting items(1) 9.5 (8.2)
Profit before adjusting items attributable to equity shareholders of the 484.6 332.8
Company
Million Million
Weighted average number of ordinary shares in issue 1,973.2 1,963.5
Potentially dilutive share options under Group's share option schemes 102.7 70.4
Weighted average number of diluted ordinary shares 2,075.9 2,033.9
Pence Pence
Basic earnings per share 21.9 18.5
Diluted earnings per share 20.8 17.9
Adjusted basic earnings per share(1) 24.6 16.9
Adjusted diluted earnings per share(1) 23.3 16.4
(1) See note 1 for details on a change in adjusting items and the resulting
restatement.
7 Dividends
2024 2023 2024 2023
per share per share £m £m
Dividends on equity ordinary shares
Paid interim dividend 1.0p - 19.6 -
1.0p - 19.6 -
With the Group generating a further improvement in operating performance,
balance sheet and credit metrics, the Board restored a dividend to
shareholders in the year, starting with an interim dividend of 1.0p per share
(last year: 0.0p per share), paid on 12 January 2024.
The directors have approved a final dividend of 2.0p per share (last year:
0.0p per share), which, in line with the requirements of IAS 10 Events after
the Reporting Period, has not been recognised within these results. This final
dividend of c.£40.8m (last year: £nil) will be paid on 5 July 2024 to
shareholders whose names are on the Register of Members at the close of
business on 31 May 2024. The ordinary shares will be quoted ex dividend on 30
May 2024.
A dividend reinvestment plan (DRIP) is available to shareholders who would
prefer to invest their dividends in the shares of the Company. For those
shareholders electing to receive the DRIP, the last date for receipt of a new
election is 14 June 2024
8 Retirement benefits
2024 2023
£m £m
Opening net retirement benefit surplus 477.4 1,038.2
Current service cost (0.1) (0.1)
Administration cost (5.2) (4.8)
Net interest income 24.0 28.7
Employer contributions 0.5 38.1
Remeasurements (419.2) (622.8)
Exchange movement (0.2) 0.1
Closing net retirement benefit surplus 77.2 477.4
2024 2023
£m £m
Total market value of assets 6,108.9 6,781.9
Present value of scheme liabilities (6,027.1) (6,299.9)
Net funded pension plan asset 81.8 482.0
Unfunded retirement benefits (2.2) (2.2)
Post-retirement healthcare (2.4) (2.4)
Net retirement benefit surplus 77.2 477.4
Analysed in the statement of financial position as:
Retirement benefit asset 81.8 482.0
Retirement benefit deficit (4.6) (4.6)
Net retirement benefit surplus 77.2 477.4
Financial assumptions
The financial assumptions for the UK DB pension scheme and the most recent
actuarial valuations of the other post-retirement schemes have been updated by
independent qualified actuaries to take account of the requirements of IAS 19
"Employee Benefits" in order to assess the liabilities of the schemes. The
most significant of these are the discount rate and the inflation rate which
are 4.80% (last year: 4.75%) and 3.20% (last year: 3.25%). The inflation rate
of 3.20% (last year: 3.25%) reflects the Retail Price Index (RPI) rate.
The amount of the surplus varies if the main financial assumptions change,
particularly the discount rate. If the discount rate decreased by 0.25% the
surplus would decrease by c.£30m. If the inflation rate decreased by 0.25%,
the surplus would decrease by c.£20m.
With the pensioner buy-in policies purchased in September 2020, April 2019 and
March 2018, the Scheme has now, in total, insured around 73% of the pensioner
cash flow liabilities for pensions in payment. The buy-in policies cover
specific pensioner liabilities and pass all risks to an insurer in exchange
for a fixed premium payment, thus reducing the Group's exposure to changes in
longevity, interest rates, inflation and other factors.
9 Marks and Spencer Scottish Limited Partnership
Marks and Spencer plc is a general partner and the Marks & Spencer UK
Pension Scheme is a limited partner of the Marks and Spencer Scottish Limited
Partnership (the "Partnership"). Under the Partnership agreement, the limited
partners have no involvement in the management of the business and shall not
take any part in the control of the Partnership. The general partner is
responsible for the management and control of the Partnership and as such, the
Partnership is consolidated into the results of the Group.
The Partnership holds £1.3bn (last year: £1.3bn) of properties at book value
which have been leased back to Marks and Spencer plc. The Group retains
control over these properties, including the flexibility to substitute
alternative properties into the Partnership. The first limited Partnership
interest (held by the Marks & Spencer UK Pension Scheme), previously
entitled the Pension Scheme to receive £73.0m in 2023 and £54.4m in 2024.
During the period, the Group and the Pension Scheme Trustees agreed to amend
the distribution dates so that the Pension Scheme received £40.0m in October
2023 and will receive £89.7m in June 2024.
The second Partnership interest (also held by the Marks & Spencer UK
Pension Scheme), previously entitled the Pension Scheme to receive a further
annual distribution of £36.4m from June 2017 until June 2031. During the
period, the Group and the Pension Scheme Trustees agreed to amend the
distribution dates so that the Pension Scheme is entitled to £38.3m in June
2024 and then an annual distribution of £36.4m from June 2024 to June 2031.
All profits generated by the Partnership in excess of these amounts are
distributable to Marks and Spencer plc.
The Partnership liability in relation to the first interest of £88.8m (last
year: £124.8m) is included as a financial liability in the Group's financial
statements as it is a transferable financial instrument and measured at
amortised cost, being the net present value of the future expected
distributions from the Partnership. During the year to 30 March 2024 an
interest charge of £4.1m (last year: £4.3m) was recognised in the income
statement representing the unwinding of the discount included in this
obligation. The first limited Partnership interest of the Pension Scheme is
included within the UK DB Pension Scheme assets, valued at £88.5m (last year:
£122.8m).
The second Partnership interest is not a transferable financial instrument as
the Scheme Trustee does not have the right to transfer it to any party other
than a successor Trustee. It is therefore not included as a plan asset within
the UK DB pension scheme surplus reported in accordance with IAS 19.
Similarly, the associated liability is not included on the Group's statement
of financial position, rather the annual distribution is recognised as a
contribution to the scheme each year.
The Group and Pension scheme are in ongoing discussions to ensure that the
distributions to the scheme are appropriate. If the ongoing discussions are
successfully concluded, the profile of contributions to the scheme would be
revised so that distributions in the year would substantially reduce and the
Group would commit to extending the distribution profile, if required, to
ensure that the scheme was fully funded.
10 Intangible assets
Goodwill Brands Computer software Computer software under development Total
£m £m £m £m £m
At 2 April 2022
Cost 140.6 118.7 1,570.1 76.1 1,905.5
Accumulated amortisation, impairments and disposals (112.0) (113.1) (1,455.8) (32.1) (1,713.0)
Net book value 28.6 5.6 114.3 44.0 192.5
Year ended 1 April 2023
Opening net book value 28.6 5.6 114.3 44.0 192.5
Additions - - 5.3 79.1 84.4
Acquired through business combinations - - 1.5 1.2 2.7
Transfers and reclassifications - - 35.6 (64.2) (28.6)
Disposals - - (0.7) - (0.7)
Amortisation charge - (0.6) (86.4) - (87.0)
Exchange difference (0.2) - - - (0.2)
Closing net book value 28.4 5.0 69.6 60.1 163.1
At 1 April 2023
Cost 140.6 118.7 1,612.5 92.2 1,964.0
Accumulated amortisation, impairments and disposals (112.2) (113.7) (1,542.9) (32.1) (1,800.9)
Net book value 28.4 5.0 69.6 60.1 163.1
Year ended 30 March 2024
Opening net book value 28.4 5.0 69.6 60.1 163.1
Additions - - 1.0 68.8 69.8
Transfers and reclassifications - - 89.3 (82.2) 7.1
Disposals - - (5.6) - (5.6)
Amortisation charge - (0.7) (54.0) - (54.7)
Exchange difference - - (0.2) - (0.2)
Closing net book value 28.4 4.3 100.1 46.7 179.5
At 30 March 2024
Cost 140.6 118.7 1,702.5 78.8 2,040.6
Accumulated amortisation, impairments and disposals (112.2) (114.4) (1,602.4) (32.1) (1,861.1)
Net book value 28.4 4.3 100.1 46.7 179.5
Goodwill related to the following assets and groups of cash generating units
(CGUs):
per una India Sports Edit Other Total Goodwill
£m £m £m £m £m
Net book value at 1 April 2023 and 30 March 2024 16.5 6.4 4.8 0.7 28.4
Goodwill impairment testing
Goodwill is not amortised but is tested annually for impairment with the
recoverable amount being determined from value in use calculations.
The goodwill balance relates to the goodwill recognised on the acquisition of
per una £16.5m (last year: £16.5m), India £6.4m (last year: £6.4m), Sports
Edit £4.8m (last year: £4.8m) and other £0.7m (last year: £0.7m).
Goodwill for India is monitored by management at a country level, including
the combined retail and wholesale businesses, and has been tested for
impairment on that basis.
The per una brand is a definite life intangible asset amortised on a
straight-line basis over a period of 15 years. The brand intangible was
acquired for a cost of £80.0m and has been fully amortised. It is held at a
net book value of £nil (last year: £nil). The per una goodwill of £16.5m is
tested for annually for impairment.
The cash flows used for impairment testing are based on the Group's latest
budget and forecast cash flows, covering a three-year period, which have
regard to historical performance and knowledge of the current market, together
with the Group's views on the future achievable growth and the impact of
committed cash flows. The cash flows include ongoing capital expenditure
required to maintain the store network, but exclude any growth capital
initiatives not committed.
Cash flows beyond this three-year period are extrapolated using a long-term
growth rate based on the Group's current view of achievable long-term growth.
The Group's current view of achievable long-term growth for per una is 2.0%
(last year: 1.6%), which is the same as the overall Group long-term growth
rate of 2.0% (last year: 2.0%). The Group's current view of achievable
long-term growth for India is 5.5% (last year: 5.5%).
Management estimates discount rates that reflect the current market assessment
of the time value of money and the risks specific to each asset or CGU. The
pre-tax discount rates are derived from the Group's post-tax weighted average
cost of capital ("WACC") which has been calculated using the capital asset
pricing model, the inputs of which include a country risk-free rate, equity
risk premium, Group size premium and a risk adjustment (beta). The post-tax
WACC is subsequently grossed up to a pre-tax rate and was 13.5% for per una
(last year: 13.4%) and 16.1% for India (last year: 15.4%).
The immediately quantifiable impacts of climate change and costs expected to
be incurred in connection with our net zero commitments, are included within
the Group's budget and three-year plan which have been used to support the
impairment reviews, with no material impact on cash flows.
Management has performed sensitivity analysis on the key assumptions in the
impairment model using reasonably possible changes in these key assumptions,
both individually and in combination. Management has considered reasonably
possible changes in key assumptions that would cause the carrying amounts of
goodwill or brands to exceed the value in use for each asset.
For both per una and India respectively, there are no reasonably possible
changes in key assumptions that would lead to an impairment and the
assumptions do not give rise to a key source of estimation uncertainty.
11 Property, plant and equipment
The Group's property, plant and equipment of £5,190.1m (last year:
£5,203.7m) consists of owned assets of £3,760.8m (last year: £3,747.7m) and
right-of-use assets of £1,429.3m (last year: £1,456.0m).
Property, plant and equipment - owned
Land and buildings Fixtures, fittings and equipment Assets in the course of construction Total
£m £m £m £m
At 2 April 2022
Cost 2,764.8 5,275.7 141.2 8,181.7
Accumulated depreciation, impairments and disposals (812.5) (3,864.5) (18.2) (4,695.2)
Net book value 1,952.3 1,411.2 123.0 3,486.5
Year ended 1 April 2023
Opening net book value 1,952.3 1,411.2 123.0 3,486.5
Additions 0.8 40.0 296.2 337.0
Acquired through business combinations 150.5 38.7 3.8 193.0
Transfers and reclassifications 15.0 292.3 (280.7) 26.6
Disposals - (0.7) - (0.7)
Impairment reversals 25.8 14.4 - 40.2
Impairment charge (22.5) (9.3) - (31.8)
Depreciation charge (59.9) (250.4) - (310.3)
Exchange difference 5.5 1.6 0.1 7.2
Closing net book value 2,067.6 1,537.7 142.4 3,747.7
At 1 April 2023
Cost 2,911.4 5,532.3 160.6 8,604.3
Accumulated depreciation, impairments and disposals (843.8) (3,994.6) (18.2) (4,856.6)
Net book value 2,067.6 1,537.7 142.4 3,747.7
Year ended 30 March 2024
Opening net book value 2,067.6 1,537.7 142.4 3,747.7
Additions 3.4 26.9 313.3 343.6
Transfers and reclassifications 10.3 304.9 (324.0) (8.8)
Disposals (46.5) (1.6) (1.1) (49.2)
Impairment reversals 19.2 12.8 - 32.0
Impairment charge (9.1) (14.9) - (24.0)
Depreciation charge (32.5) (242.3) - (274.8)
Exchange difference (3.5) (2.1) (0.1) (5.7)
Closing net book value 2,008.9 1,621.4 130.5 3,760.8
At 30 March 2024
Cost 2,852.7 5,709.5 148.8 8,711.0
Accumulated depreciation, impairments and disposals (843.8) (4,088.1) (18.3) (4,950.2)
Net book value 2,008.9 1,621.4 130.5 3,760.8
Disposals in the year include assets with gross book value of £216.1m (last
year: £240.9m).
Right-of-use assets
Set out below are the carrying amounts of right-of-use assets recognised and
the movements during the period:
Right-of-use assets
Land and buildings Fixtures, fittings and equipment Total
£m £m £m
At 2 April 2022 1,368.4 47.4 1,415.8
Additions 198.0 37.3 235.3
Acquired through business combinations 6.7 14.1 20.8
Transfers and reclassifications 2.1 (0.1) 2.0
Disposals (27.8) (10.7) (38.5)
Impairment reversals 14.9 - 14.9
Impairment charge (14.8) - (14.8)
Depreciation charge (159.0) (21.9) (180.9)
Exchange difference 1.3 0.1 1.4
At 1 April 2023 1,389.8 66.2 1,456.0
Additions 161.1 15.0 176.1
Transfers and reclassifications 1.7 - 1.7
Disposals (17.6) - (17.6)
Impairment reversals 13.6 - 13.6
Impairment charge (21.7) - (21.7)
Depreciation charge (148.8) (23.3) (172.1)
Exchange difference (6.6) (0.1) (6.7)
As at 30 March 2024 1,371.5 57.8 1,429.3
Impairment of property, plant and equipment and right-of-use assets
For impairment testing purposes, the Group has determined that each store is a
separate CGU, with the exception of Outlets stores, which are considered
together as one CGU. Click & Collect sales are included in the cash flows
of the relevant CGU.
Each CGU is tested for impairment at the balance sheet date if any indicators
of impairment and impairment reversal have been identified. Stores identified
within the Group's store estate programme are automatically tested for
impairment (see note 3).
The value in use of each CGU is calculated based on the Group's latest budget
and forecast cash flows, covering a three-year period, which have regard to
historic performance and knowledge of the current market, together with the
Group's views on the future achievable growth and the impact of committed
initiatives. The cash flows include ongoing capital expenditure required to
maintain the store network, but exclude any growth capital initiatives not
committed. Cash flows beyond this three-year period are extrapolated using a
long-term growth rate based on management's future expectations, with
reference to forecast GDP growth. These growth rates do not exceed the
long-term growth rate for the Group's retail businesses in the relevant
territory. If the CGU relates to a store which the Group has identified as
part of the store estate programme, the value in use calculated has been
modified by estimation of the future cash flows up to the point where it is
estimated that trade will cease and then estimation of the timing and amount
of costs associated with closure detailed fully in note 3. The immediately
quantifiable impacts of climate change and costs expected to be incurred in
connection with our net zero commitments, are included within the Group's
budget and three year plan which have been used to support the impairment
reviews, with no material impact on cash flows. We also expect any potential
store refurbishments to be phased over multiple years and therefore any
changes required due to climate change would not have a material impact in any
given year and the warehouse and support centres are located in areas which we
would not expect to be physically impacted by climate change. As a consequence
there has been no material impact in the forecast cash flows used for
impairment testing.
The key assumptions in the value in use calculations are the growth rates of
sales and gross profit margins, changes in the operating cost base, long-term
growth rates and the risk-adjusted pre-tax discount rate. The pre-tax discount
rates are derived from the Group's weighted average cost of capital, which has
been calculated using the capital asset pricing model, the inputs of which
include a country risk-free rate, equity risk premium, Group size premium and
a risk adjustment (beta). The pre-tax discount rates range from 12.5% to 17.6%
(last year: 12.5% to 18.1%). If the CGU relates to a store which the Group has
identified as part of the UK store estate programme, the additional key
assumptions in the value-in-use calculations are costs associated with
closure, the disposal proceeds from store exits and the timing of the store
exits.
Impairments - UK stores excluding the store estate programme
During the year, the Group has recognised an impairment charge of £0.5m and
impairment reversals of £31.5m in property, plant and equipment as a result
of UK store impairment testing unrelated to the store estate programme (last
year: impairment charge of £17.3m and impairment reversals of £33.1m). These
have been recognised within adjusting items (see note 3). The impaired stores
were impaired to their value-in-use recoverable amount of £37.4m, which is
their carrying value at year end. The stores with impairment reversals were
written back to the lower of their value-in-use recoverable amount, and the
carrying value if the impairment had not occurred, of £171.7m.
For UK stores, when considering both impairment charges and reversals, cash
flows beyond the three-year period are extrapolated using the Group's current
view of achievable long-term growth of 2.0%, adjusted to 0% where management
believes the current trading performance and future expectations of the store
do not support the growth rate of 2.0%. The rate used to discount the forecast
cash flows for UK stores is 12.5% (last year: 12.5%).
As disclosed in the accounting policies (note 1), the cash flows used within
the impairment model are based on assumptions which are sources of estimation
uncertainty and small movements in these assumptions could lead to further
impairments. Management has performed sensitivity analysis on the key
assumptions in the impairment model using reasonably possible changes in these
key assumptions across the UK store portfolio.
Neither an increase or reduction in sales of 5% from the three-year plan in
year 3, a 25 basis point increase in the discount rate, a 25 basis point
increase or reduction in gross profit margin from year 3 onwards, result in a
significant change to the impairment charge or impairment reversal,
individually or in combination with the other reasonably possible scenarios
considered.
Impairments -store estate programme
During the year, the Group has recognised an impairment charge of £37.0m and
impairment reversals of £14.1m relating to the ongoing store estate programme
(last year: impairment charge of £28.6m and impairment reversals of £22.0m).
These stores were impaired to their value-in-use recoverable amount of
£120.2m, which is their carrying value at year end. The impairment charge
relates to the store closure programme and has been recognised within
adjusting items (see note 3). Impairment reversals predominantly reflect
changes to expected store closure dates and improved trading expectations
compared to those assumed at the end of the prior year end.
Where the planned closure date for a store is outside the three-year plan
period, no growth rate is applied. The rate used to discount the forecast cash
flows for UK stores is 7.3% (last year: 8.5%).
As disclosed in the accounting policies (note 1), the cash flows used within
the impairment models for the store estate programme are based on assumptions
which are sources of estimation uncertainty and small movements in these
assumptions could lead to further impairments. Management has performed
sensitivity analysis on the key assumptions in the impairment model using
reasonably possible changes in these key assumptions across the store estate
programme.
A delay of 12 months in the date of each store exit would result in a decrease
in the impairment charge of £53.5m.
Neither an increase or decrease of 5% in planned sales from the three-year
plan in years 2 and 3 (where relevant), a 25 basis point increase in the
discount rate, a 25 basis point reduction in gross profit margin during the
period of trading nor a 2% increase in the costs associated with exiting a
store would result in a significant increase to the impairment charge,
individually or in combination with the other reasonably possible scenarios
considered.
Impairments - International stores
During the year the Group recognised an impairment charge of £0.7m (last
year: £0.7m) in International stores as a result of store impairment testing.
12 Financial instruments
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair
value of financial instruments by valuation technique:
· Level 1: quoted (unadjusted) prices in active markets for
identical assets and liabilities.
· Level 2: not traded in an active market but the fair values are
based on quoted market prices or alternative pricing sources with reasonable
levels of price transparency. The Group's level 2 financial instruments
include interest rate and foreign exchange derivatives. Fair value is
calculated using discounted cash flow methodology, future cash flows are
estimated based on forward exchange rates and interest rates (from observable
market curves) and contract rates, discounted at a rate that reflects the
credit risk of the various counterparties for those with a long maturity.
· Level 3: techniques that use inputs which have a significant
effect on the recorded fair value that are not based on observable market
data.
At the end of the reporting period, the Group held the following financial
instruments at fair value:
2024 2023
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Assets measured at fair value
Financial assets at fair value through profit or loss (FVTPL)
- derivatives held at FVTPL - 0.2 - 0.2 - - - -
- other investments(1) - 12.3 12.6 24.9 - 12.3 8.6 20.9
Derivatives used for hedging - 7.5 - 7.5 - 22.7 - 22.7
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
- derivatives held at FVTPL - (1.8) - (1.8) - (2.1) - (2.1)
- Ocado contingent consideration(2) - - - - - - (64.7) (64.7)
- Gist contingent consideration(3) - - (25.6) (25.6) - - (25.0) (25.0)
Derivatives used for hedging - (40.2) - (40.2) - (63.1) - (63.1)
There were no transfers between the levels of the fair value hierarchy during
the period. There were also no changes made to any of the valuation techniques
during the period.
(1) Within Level 3 other investments, the Group holds £9.4m of venture
capital investments, managed by True Capital Limited, measured at FVTPL (last
year: £7.3m) which are Level 3 instruments. The fair value of these
investments has been determined in accordance with the International Private
Equity and Venture Capital ("IPEV") Valuation Guidelines. Where investments
are either recently acquired or there have been recent funding rounds with
third parties, the primary input when determining the valuation is the latest
transaction price.
(2) As part of the investment in Ocado Retail Limited, a contingent
consideration arrangement was agreed. The arrangement comprises three separate
elements which only become payable on the achievement of three separate
financial and operational performance targets. In 2021/22, £33.8m was
settled, relating to the first two targets. The final target relates to Ocado
Retail Limited achieving a specified target level of earnings in the financial
year ending November 2023, with any resulting payment due in 2024 following
completion of the Ocado Retail Limited audited FY23 statutory accounts. The
performance target is binary, meaning that a payment of £156.3m plus interest
will be made if the performance target is met. Should the target not be met,
no consideration would be payable.
Previously, the fair value of the contingent consideration was estimated using
an expected present value technique and was based on probability-weighting
possible scenarios. With Ocado Retail Limited's FY23 year now closed, the end
of the measurement period for the target has been reached and the valuation of
the contingent consideration has been revisited.
The actual FY23 performance is below the target required for automatic payment
of the contingent consideration. However, there is a mechanism for reasonable
adjustments to be made to the performance target to reflect certain events, if
applicable. Both shareholders have proposed adjustments which are currently
being evaluated but we have not, to date, seen evidence we believe would
result in a payment being made.
In these circumstances, the fair value of the liability has been recorded as
£nil.
(3) As part of the investment in Gist Limited, the Group has agreed to pay
the former owners of Gist Limited additional consideration of up to £25.0m
plus interest when freehold properties are disposed of under certain
conditions. There is no minimum amount payable. The Group has the ability to
retain the properties should it wish to do so, in which case the full amount
of £25.0m plus interest will be payable on the third anniversary of
completion.
The fair value of the contingent consideration arrangement of £25.6m
was estimated by calculating the present value of the future expected
cashflows. The estimates are based on a discount rate of 5.1%. A 2.5% change
in the discount rate would result in a change in fair value of £0.9m.
The Marks & Spencer UK Pension Scheme holds a number of financial
instruments which make up the pension asset of £6,108.9m (last year:
£6,781.9m). Level 1 and Level 2 financial assets measured at fair value
through other comprehensive income amounted to £2,074.3m (last year:
£2,754.7m). Additionally, the scheme assets include £4,034.6m (last year:
£4,027.2m) of Level 3 financial assets. See note 8 for information on the
Group's retirement benefits.
The following table represents the changes in Level 3 instruments held by the
Pension Schemes:
2024 2023
£m £m
Opening balance 4,027.2 5,144.9
Fair value gain/(loss) recognised in other comprehensive income 362.5 (401.8)
Cash withdrawals (355.1) (715.9)
Closing balance 4,034.6 4,027.2
Fair value of financial instruments
With the exception of the Group's fixed rate bond debt and the Partnership
liability to the Marks & Spencer UK Pension Scheme (note 9), there were no
material differences between the carrying value of non-derivative financial
assets and financial liabilities and their fair values as at the balance sheet
date.
The carrying value of the Group's fixed rate bond debt (level 1 equivalent)
was £921.7m (last year: £1,346.4m); the fair value of this debt was £919.8m
(last year: £1,264.3m) which has been calculated using quoted market prices
and includes accrued interest. The carrying value of the Partnership liability
to the Marks & Spencer UK Pension Scheme (level 2 equivalent) is £88.8m
(last year: £124.8m) and the fair value of this liability is £81.9m (last
year:
£121.9m).
13 Contingencies and commitments
A. Capital commitments
2024 2023
£m £m
Commitments in respect of properties in the course of construction 175.2 100.8
Software capital commitments 6.5 6.1
181.7 106.9
During 2021/22, the Group committed to invest up to £25.0m, over a three-year
period to 2024/25, in an innovation and consumer growth fund managed by True
Capital Limited. This period was extended to 2026/27 during the year. The fund
can drawdown amounts at any time over the five-year period to make specific
investments. At 30 March 2024, the Group had invested £10.1m (last year:
£7.5m) of this commitment, which is held as a non-current other investment
and measured at fair value through profit or loss.
B. Other material contracts
See note 9 for details on the Partnership arrangement with the Marks &
Spencer UK Pension Scheme.
14 Analysis of cash flows given in the statement of cash flows
Cash flows from operating activities
2024 2023
£m £m
Profit on ordinary activities after taxation 425.2 364.5
Income tax expense 247.3 111.2
Finance costs 188.4 205.5
Finance income (146.7) (166.1)
Operating profit 714.2 515.1
Share of results of Ocado Retail Limited 37.3 29.5
Share of results in other joint ventures 0.3 -
Increase in inventories (31.3) (58.5)
Increase in receivables (17.5) (33.7)
Increase in payables 126.0 82.1
Depreciation, amortisation and disposals 526.3 523.2
Non-cash share based payment expense 48.3 38.0
Non-cash pension expense 5.3 -
Defined benefit pension funding (0.4) (36.8)
Adjusting items net cash outflows(1,2) (38.0) (67.9)
Adjusting items M&S Bank(3) (2.0) (2.0)
Adjusting operating profit items 124.4 111.5
Cash generated from operations 1,492.9 1,100.5
(1) Excludes £24.1m (last year: £11.5m) of surrender payments included
within repayment of lease liabilities in the consolidated statement of
cashflows relating to leases within the store estate programme.
(2) Adjusting items net cash outflows relate to strategic programme costs
associated with the Store estate, UK logistics, Structural simplification
programme, M&S financial services transformation and interest payments
relating to the deferred and contingent consideration for the acquisition of
Gist Limited.
(3) Adjusting items M&S Bank relates to M&S Bank income recognised in
operating profit offset by charges incurred in relation to the insurance
mis-selling provision, which is a non-cash item.
15 Analysis of net debt
A. Reconciliation of movement in net debt
At Changes in fair values Lease additions and remeasurements Exchange and other At
3 April non-cash 1 April
2022 Cash flow movements(1) 2023
£m £m £m £m £m £m
Net debt
Bank loans and overdrafts - - - - - -
Cash and cash equivalents 1,197.9 (130.5) - - 0.5 1,067.9
Net cash per statement of cash flows 1,197.9 (130.5) - - 0.5 1,067.9
Current other financial assets 17.6 (5.3) - - 0.7 13.0
Liabilities from financing activities
Medium Term Notes (1,529.5) 262.3 - - (79.2) (1,346.4)
Lease liabilities (2,278.7) 353.8 - (270.7) (86.0) (2,281.6)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note (187.9) 66.0 - - - (121.9)
9)
Derivatives held to hedge Medium Term Notes 18.5 (57.4) 33.7 - - (5.2)
Liabilities from financing activities (3,977.6) 624.7 33.7 (270.7) (165.2) (3,755.1)
Less: Cashflows related to interest and derivative instruments 63.3 (171.7) (33.7) - 179.1 37.0
Net debt (2,698.8) 317.2 - (270.7) 15.1 (2,637.2)
At Cash flow Changes in fair values Lease additions and remeasurments Exchange and other non-cash movements(1) At 30 March 2024
2 April
2023
£m £m £m £m £m £m
Net debt
Cash and cash equivalents 1,067.9 (43.4) - - (2.1) 1,022.4
Net cash per statement of cash flows 1,067.9 (43.4) - - (2.1) 1,022.4
Current other financial assets 13.0 (0.7) - - - 12.3
Liabilities from financing activities
Medium Term Notes (1,346.4) 461.3 - - (36.6) (921.7)
Lease liabilities (2,281.6) 345.5 - (176.0) (99.4) (2,211.5)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note (121.9) 40.0 - - - (81.9)
9)
Derivatives held to hedge Medium Term Notes (5.2) - (16.4) - - (21.6)
Liabilities from financing activities (3,755.1) 846.8 (16.4) (176.0) (136.0) (3,236.7)
Less: Cashflows related to interest and derivative instruments 37.0 (185.7) 16.4 - 168.5 36.2
Net debt (2,637.2) 617.0 - (176.0) 30.4 (2,165.8)
(1)Exchange and other non-cash movements includes interest charges on Medium
Term Notes of £42.2m (last year: £65.4m), interest charges on lease
liabilities of £116.2m (last year: £116.7m) and interest charges on the
Partnership liability to the Marks & Spencer UK Pension Scheme of £4.1m
(last year: £4.3m).
B. Reconciliation of net debt to statement of financial position
2024 2023
£m £m
Statement of financial position and related notes
Cash and cash equivalents 1,022.4 1,067.9
Current other financial assets 12.3 13.0
Medium Term Notes - net of foreign exchange revaluation (937.2) (1,356.6)
Lease liabilities (2,211.5) (2,281.6)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note (88.8) (124.8)
9)
(2,202.8) (2,682.1)
Interest payable included within related borrowing and the partnership 37.0 44.9
liability to the Marks & Spencer UK Pension Scheme
Net debt (2,165.8) (2,637.2)
16 Related party transactions
A. Joint ventures and associates
Ocado Retail Limited
The following transactions were carried out with Ocado Retail Limited, an
associate of the Group.
Loan to Ocado Retail Limited
2024 2023
£m £m
Opening balance 30.9 -
Loans advanced 60.0 30.0
Interest charged 6.0 0.9
Interest repaid (4.7) -
Closing balance 92.2 30.9
The loan matures during 2039/40 and accrues interest at Sterling Overnight
Index Average ("SONIA") plus an applicable margin.
Parent guarantee
Ocado Retail Limited, an associate of the Group, had entered into a £30m
revolving credit facility which expired on 19 December 2023 (last year:
£25.0m drawn) and subsequent to the year end, on 9 May 2024, was renewed. The
Group, along with Ocado Group plc, jointly guarantee the facility.
Sales and purchases of goods and services
2024 2023
£m £m
Sales of goods and services 44.9 35.7
Purchases of goods and services 0.1 0.1
Included within trade and other receivables is a balance of £4.1m (last year:
£2.9m) owed by Ocado Retail Limited.
Nobody's Child Limited
Nobody's Child Limited became an associate of the Group in November 2021.
During the year, the Group made purchases of goods amounting to £7.0m (last
year: £6.3m)
At 30 March 2024, there was a balance of £0.1m within trade and other
payables (last year: £nil) owed to Nobody's Child Limited, and £2.7m
included within other financial assets (last year: £0.7m) owed from Nobody's
Child Limited.
B. Other related party transactions
The Group acquired 77.7% of the issued share capital of The Sports Edit
Limited ("TSE") in February 2022. A further 4.8% of TSE's issued share capital
was owned by Mr. Justin King, a Non-Executive Director of the Group (the "JK
TSE Shares"). Following shareholder approval, the Group acquired the JK TSE
Shares from Mr. Justin King at a total purchase price of £0.3m in July 2022.
17 Investments in joint ventures and associates
The Group holds a 50% interest in Ocado Retail Limited, a company incorporated
in the UK. The remaining 50% interest is held by Ocado Group Plc. Ocado Retail
Limited is an online grocery retailer, operating through the ocado.com and
ocadozoom.com websites.
Ocado Retail Limited is considered an associate of the Group as certain rights
are conferred on Ocado Group plc for an initial period of at least five years
from acquisition in August 2019, giving Ocado Group plc control of the
company. Through Board representation and shareholder voting rights, the Group
is currently considered to have significant influence and therefore the
investment in Ocado Retail Limited is treated as an associate and the Group
applies the equity method of accounting. It is currently expected that Ocado
Group plc will give up those rights to the Group in early April 2025. There
will be no change in economic interest of both shareholders in Ocado Retail
Limited, or any consideration paid by the Group, as a result of this proposed
change. After Ocado Group plc give up the rights, it is expected that Ocado
Retail Limited will then be consolidated as a subsidiary of the Group.
Ocado Retail Limited had a financial year end date of 3 December 2023,
aligning with its parent company, Ocado Group plc. For the Group's purpose of
applying the equity method of accounting, Ocado Retail Limited has prepared
financial information to the nearest quarter-end date of its financial year
end, as to do otherwise would be impracticable. The results of Ocado Retail
Limited are incorporated in these financial statements from 27 February 2023
to 3 March 2024. There were no significant events or transactions in the
period from 3 March 2024 to 30 March 2024.
The carrying amount of the Group's interest in Ocado Retail Limited is
£677.1m (last year: £756.9m). The Group's share of Ocado Retail Limited
losses of £79.9m (last year: loss of £43.5m) includes the Group's share of
underlying losses of £37.3m (last year: share of underlying losses: £29.5m)
and the Group's share of adjusting items of £29.7m (last year: £nil) and
adjusting item charges of £12.9m (last year: £14.0m) (see note 3).
Summarised financial information in respect of Ocado Retail Limited (the
Group's only material associate) is set out below and represents amounts in
the Ocado Retail Limited financial statements prepared in accordance with
IFRS, adjusted by the Group for equity accounting purposes.
As at 3 March As at 26 February 2023
2024
£m £m
Ocado Retail Limited
Current assets 261.7 220.0
Non-current assets 517.4 618.7
Current liabilities (272.3) (267.7)
Non-current liabilities (491.2) (421.7)
Net assets 15.6 149.3
27 February 2023 to 3 March 2024 28 February 2022 to 26 February 2023
£m £m
Revenue 2,470.3 2,222.0
Loss for the period (133.7) (59.0)
Total comprehensive loss (133.7) (59.0)
Reconciliation of the above summarised financial information to the carrying
amount of the interest in Ocado Retail Limited recognised in the consolidated
financial statements:
As at 30 March 2024 As at 1 April 2023
£m £m
Ocado Retail Limited
Net assets 15.6 149.3
Proportion of the Group's ownership interest 7.8 74.6
Goodwill 449.1 449.1
Brand 229.7 236.2
Customer relationships 56.5 67.1
Other adjustments to align accounting policies (71.7) (75.8)
Acquisition costs 5.7 5.7
Carrying amount of the Group's interest in Ocado Retail Limited 677.1 756.9
In addition, the Group holds immaterial investments in joint ventures and
associates totaling £7.1m (last year: £11.0m). The Group's share of losses
totaled £0.5m (last year: £0.5m profit) and an impairment of £3.5m (last
year: £nil) was recognised.
18 Contingent assets
The Group is currently seeking damages from an independent third party
following their involvement in anti-competitive behaviour that adversely
impacted the Group. The Group expects to receive an amount from the claim
(either in settlement or from the legal proceedings), a position reinforced by
recent court judgments in similar claims. The value of the claim is
confidential and is therefore not disclosed.
19 Subsequent events
On 10 April 2024 M&S and HSBC UK announced a new seven-year deal focused
on enhancing M&S' credit and payments offering through M&S Bank. See
note 3 for further details.
The Board have approved a tender offer to repurchase the Group's 2025 and 2026
Medium Term Notes on an "any and all" basis, which will be announced on 22 May
2024.
Principal risks & uncertainties
The Board reviews and monitors the principal risks and uncertainties which
could have a material effect on the Group's results. The updated principal
risks and uncertainties for 2023/24 are listed below. A fuller disclosure of
the risks, including the associated mitigating activities will be set out in
the Strategic Report of the 2023/24 Annual Report and Accounts.
An uncertain environment The business continues to operate in an uncertain environment impacted by a
suite of challenging events which could individually, or in aggregate,
negatively impact our performance. Some of the factors we are currently
monitoring include: supply chain disruption; the political environment; cost
of goods sold; financial instability; and health & wellbeing.
Business transformation Ongoing business transformation is dependent on our ability to prioritise
capital spend and resources to accelerate and successfully implement the suite
of strategic projects. Delays or deferrals of transformation activity could
impact the delivery of our medium- and longer-term growth ambitions.
Joint ventures, including Ocado Retail, and franchise The successful long-term performance of any joint venture is inherently
complex due to a number of factors, including the ownership and/or operational
structure and the need to align different perspectives. Similarly, the success
of our franchise operations is dependent on our ability to work effectively
with both domestic and international partners.
Business continuity and resilience A major operational or resilience failure at a key business location, such as
one of our distribution centres, could result in business interruption. More
broadly, an inability to effectively respond to large, disruptive external
events like extreme weather or infrastructure failures could also impact our
performance.
Information security A significant or wide-reaching data breach or cyber-attack, directly or at a
connected third party, could result in loss of information for our customers,
colleagues and/or business and loss of confidence in M&S. This could
adversely impact our reputation, result in legal exposure including
significant fines, and potentially cause business disruption.
Culture, talent and capability The success of the business is dependent upon being an employer of choice -
attracting, retaining and developing the right talent, skills and capabilities
and having a clear focus on: driving a high-performance culture; meeting the
financial and wellbeing expectations of our colleagues; effectively managing
labour cost pressures; and working collaboratively with our Business
Involvement Group and unions. Any shortfall in executing against these
objectives could impact the delivery of core operational activities and
longer-term strategy, including aspects of our transformation programme.
Product safety and integrity A failure to prevent and/or effectively respond to a major food or product
safety incident, or to maintain product integrity, could impact customer
confidence in our brand and business performance.
Corporate compliance and responsibility A failure to consistently deliver against an increasingly demanding set of
legal and regulatory obligations or broader corporate responsibility
commitments would undermine our reputation as a responsible retailer. The
consequences include a loss of trust by customers, investors and other
stakeholders; and/or legal exposure or regulatory sanctions which could
negatively impact our ability to operate and/or cause financial losses and
harm.
Climate change and environmental responsibility There is increasing focus and pressure from carbon-conscious stakeholders for
the business to operate in a more environmentally sound and sustainable
manner. A failure to take appropriate actions to reduce the environmental
impact of our business over time and progress towards our net zero targets -
those linked to our directly controlled operations and externally within our
supply chain - as well as effectively manage the consequences of
climate-related risks (such as regulations or extreme weather events) could
impact our brand, future trading performance and other business costs,
including financing.
Liquidity and funding Barriers to maintaining affordable short- and long-term funding to meet
business needs or an inability to effectively manage associated market risks
could impact our ability to transform at pace, as well as have an adverse
impact on business performance and/or viability.
Fragility in the financial markets could also impact the business directly
(such as heightening counterparty risk or restricting access to capital), or
indirectly (such as triggering liquidity or funding support for the M&S
Pension Scheme).
Glossary and Alternative Performance Measures
The Group tracks a number of alternative performance measures in managing its
business, which are not defined or specified under the requirements of IFRS
because they exclude amounts that are included in, or include amounts that are
excluded from, the most directly comparable measure calculated and presented
in accordance with IFRS, or are calculated using financial measures that are
not calculated in accordance with IFRS.
The Group believes that these alternative performance measures, which are not
considered to be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance of the
business. These alternative performance measures are consistent with how the
business performance is planned and reported within the internal management
reporting to the Board. Some of these alternative performance measures are
also used for the purpose of setting remuneration targets.
These alternative performance measures should be viewed as supplemental to,
but not as a substitute for, measures presented in the consolidated financial
information relating to the Group, which are prepared in accordance with IFRS.
The Group believes that these alternative performance measures are useful
indicators of its performance. However, they may not be comparable with
similarly-titled measures reported by other companies due to differences in
the way they are calculated.
Alternative performance measure ("APM") Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose
Income Statement Measures
Sales Revenue Consignment sales Sales includes the gross value of consignment sales (excluding VAT). Where
third-party branded goods are sold on a consignment basis, only the commission
receivable is included in statutory revenue. This measure has been introduced
given the Group's focus on launching and growing third-party brands and is
consistent with how the business performance is reported and assessed by the
Board and the Executive Committee.
Clothing & Home store / Clothing & None Not applicable The growth in revenues on a year-on-year basis is a good indicator of the
Home online sales performance of the stores and online channels.
2023/24 2022/23 %
£m
£m
UK Clothing & Home
Store sales(1) 2,642.3 2,538.6 4.1
Consignment sales (18.6) (21.4)
Store revenue 2,623.7 2,517.2 4.2
Online sales(1) 1,268.4 1,176.4 7.8
Consignment sales (50.6) (35.3)
Online revenue 1,217.8 1,141.1 6.7
UK Clothing & Home sales 3,910.7 3,715.0 5.3
Consignment sales (69.2) (56.7)
Total UK Clothing & Home revenue 3,841.5 3,658.3 5.0
(1) UK Clothing & Home store sales excludes revenue from "shop your way"
and Click & Collect, which are included in UK Clothing & Home online
sales.
( )
There is no material difference between sales and revenue for UK Food and
International.
Like-for-like sales growth Movement in revenue per the income statement Revenue from non like-for-like stores The period-on-period change in sales (excluding VAT) from stores which have
been trading and where there has been no significant change (greater than 10%)
Revenue from non-retail businesses Consignment sales in footage for at least 52 weeks and online sales. The measure is used widely
in the retail industry as an indicator of sales performance. It excludes the
impact of new stores, closed stores, stores with significant footage change
and non-retail businesses such as supply chain services.
2023/24 2022/23 %
£m
£m
UK Food
Like-for-like 7,780.6 6,992.9 11.3
Net new space(1) 378.2 225.1
Total UK Food sales 8,158.8 7,218.0 13.0
UK Clothing & Home
Like-for-like 3,814.8 3,626.9 5.2
Net new space 95.9 88.1
Total UK Clothing & Home sales 3,910.7 3,715.0 5.3
(1) UK Food net new space includes Gist third party revenue.
M&S.com sales / Online sales None Not applicable Total sales through the Group's online platforms. These sales are reported
within the relevant UK Clothing & Home, UK Food and International segment
results. The growth in sales on a year-on-year basis is a good indicator of
the performance of the online channel and is a measure used within the Group's
incentive plans. Refer to the Remuneration Report for an explanation of why
this measure is used within incentive plans.
International online None Not applicable International sales through International online platforms. These sales are
reported within the International segment results. The growth in sales on a
year-on-year basis is a good indicator of the performance of the online
channel. This measure has been introduced given the Group's focus on online
sales.
2023/24 2022/23 %
£m £m
International sales
Stores 875.6 874.5 0.0
Online 164.2 180.5 (9.0)
At reported currency 1,039.8 1,055.0 (1.4)
Sales growth at constant currency None Not applicable The period-on-period change in sales retranslating the previous year sales at
the average actual periodic exchange rates used in the current financial year.
This measure is presented as a means of eliminating the effects of exchange
rate fluctuations on the period-on-period reported results.
2023/24 2022/23 %
£m £m
International sales
At constant currency 1,039.8 1,039.9 0.0
Impact of FX retranslation - 15.1
At reported currency 1,039.8 1,055.0 (1.4)
Adjusting items None Not applicable Those items which the Group excludes from its adjusted profit metrics in order
to present a further measure of the Group's performance. Each of these items,
costs or incomes, is considered to be significant in nature and/or quantum or
are consistent with items treated as adjusting in prior periods. Excluding
these items from profit metrics provides readers with helpful additional
information on the performance of the business across periods because it is
consistent with how the business performance is planned by, and reported to,
the Board and the Executive Committee.
Adjusted operating profit Operating profit Adjusting items Operating profit before the impact of adjusting items. The Group considers
this to be an important measure of Group performance and is consistent with
Operating profit before adjusting items (See note 3) how the business performance is reported and assessed by the Board and the
Executive Committee.
Adjusted operating margin None Not applicable Adjusted operating profit as a percentage of sales.
Operating margin before adjusting items
Finance income before adjusting items Finance income Adjusting items Finance income before the impact of adjusting items. The Group considers this
to be an important measure of Group performance and is consistent with how the
(See note 3) business performance is reported and assessed by the Board and the Executive
Committee.
Finance costs before adjusting items Finance costs Adjusting items Finance costs before the impact of adjusting items. The Group considers this
to be an important measure of Group performance and is consistent with how the
(See note 3) business performance is reported and assessed by the Board and the Executive
Committee.
Net interest payable on leases Finance income/costs Finance income/costs The net of interest income on subleases and interest payable on lease
liabilities. This measure has been introduced as it allows the Board and
(See note 4) Executive Committee to assess the impact of IFRS 16 Leases.
Net financial interest Finance income/costs Finance income/costs Calculated as net finance costs, excluding interest on leases and adjusting
items. The Group considers this to be an important measure of Group
(See note 4) performance and is consistent with how the business performance is reported
and assessed by the Board and the Executive Committee.
EBIT before adjusting items EBIT(1) Adjusting items Calculated as profit before the impact of adjusting items, net finance costs
and tax as disclosed on the face of the consolidated income statement. This
(See note 3) measure is used in calculating the return on capital employed for the Group.
Ocado Retail Limited Adjusted EBITDA EBIT(1) Not applicable Calculated as Ocado Retail Limited earnings before interest, taxation,
depreciation, amortisation, impairment and adjusting items.
Profit before tax and adjusting items Profit before tax Adjusting items Profit before the impact of adjusting items and tax. The Group considers this
to be an important measure of Group performance and is consistent with how the
(See note 3) business performance is reported and assessed by the Board and the Executive
Committee.
This is a measure used within the Group's incentive plans. Refer to the
Remuneration Report for an explanation of why this measure is used within
incentive plans.
Adjusted basic earnings per share Earnings per share Adjusting items Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares in
(See note 3) issue during the financial year.
This is a measure used within the Group's incentive plans. Refer to the
Remuneration Report for an explanation of why this measure is used.
Adjusted diluted earnings per share Diluted earnings per share Adjusting items Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares in
(See note 3) issue during the financial year adjusted for the effects of any potentially
dilutive options.
Effective tax rate before adjusting items Effective tax rate Adjusting items and their tax impact Total income tax charge for the Group excluding the tax impact of adjusting
items divided by the profit before tax and adjusting items. This measure is an
(See note 3) indicator of the ongoing tax rate for the Group.
Balance Sheet Measures
Net debt None Reconciliation of net debt (see note 15) Net debt comprises total borrowings (bank and bonds net of accrued interest
and lease liabilities), the spot foreign exchange component of net derivative
financial instruments that hedge the debt and the Scottish Limited Partnership
liability to the Marks and Spencer UK Pension Scheme less cash, cash
equivalents and unlisted and short-term investments. Net debt does not include
contingent consideration as it is conditional upon future events which are not
yet certain at the balance sheet date.
This measure is a good indication of the strength of the Group's balance sheet
position and is widely used by credit rating agencies.
Net funds/(debt) excluding lease liabilities None Reconciliation of net debt (see note 15) Calculated as net debt less lease liabilities. This measure is a good
indication of the strength of the Group's balance sheet position and is widely
used by credit rating agencies.
Cash Flow Measures
Free cash flow from operations Operating profit See Financial Review Calculated as operating profit less adjusting items within operating profit,
depreciation and amortisation before adjusting items, cash lease payments,
working capital, defined benefit scheme pension funding, capex and disposals,
financial interest, taxation, employee-related share transactions, share of
(profit)/loss from associate, adjusting items in cashflow and loans to
associates.
Free cash flow Operating profit See Financial Review Calculated as free cash flow from operations less acquisitions, investments
and divestments. This measure shows the cash generated by the Group during the
year that is available for returning to shareholders and is used within the
Group's incentive plans.
Free cash flow after shareholder returns Operating profit See Financial Review Calculated as free cash flow less dividends paid.
This measure shows the cash retained by the Group in the year.
Other Measures
Capital expenditure None Not applicable Calculated as the purchase of property, plant and equipment, investment
property and intangible assets during the year, less proceeds from asset
disposals excluding any assets acquired or disposed of as part of a business
combination or through an investment in an associate.
Adjusted return on capital employed ("ROCE") None Not applicable Calculated as being adjusted operating profit divided by the average of
opening and closing capital employed. The measures used in this calculation
are set out below:
2023/24 2022/23
£m £m
Operating profit 714.2 515.1
Adjusting items included in operating profit (see note 3)1 124.4 111.5
Adjusted operating profit 838.6 626.6
Net assets 2,830.1 2,680.8
Add back:
Partnership liability to the Marks & Spencer UK Pension Scheme 88.8 124.8
Deferred tax liabilities 205.8 206.4
Non-current borrowings and other financial liabilities 2,882.8 3,184.0
Retirement benefit deficit 4.6 4.6
Derivative financial instruments 34.4 42.5
Current tax liabilities 1.5 38.5
Less:
Investment property (11.6) (11.8)
Retirement benefit assets (81.8) (482.0)
Current tax assets (32.9) (6.5)
Deferred tax assets (11.7) (7.6)
Net operating assets 5,910.0 5,773.7
Add back: Provisions related to adjusting items 130.6 100.3
Capital employed 6,040.6 5,874.0
Average capital employed 5,957.3 5,888.4
ROCE % 14.1% 10.6%
(1) See note 1 for details on a change in adjusting items and the resulting
restatement.
This measure is used within the Group's incentive plans. Refer to the
Remuneration Report for an explanation of why this measure is used within
incentive plans.
(1) UK Clothing & Home store sales excludes revenue from "shop your way"
and Click & Collect, which are included in UK Clothing & Home online
sales.
( )
There is no material difference between sales and revenue for UK Food and
International.
Like-for-like sales growth
Movement in revenue per the income statement
Revenue from non-retail businesses
Revenue from non like-for-like stores
Consignment sales
The period-on-period change in sales (excluding VAT) from stores which have
been trading and where there has been no significant change (greater than 10%)
in footage for at least 52 weeks and online sales. The measure is used widely
in the retail industry as an indicator of sales performance. It excludes the
impact of new stores, closed stores, stores with significant footage change
and non-retail businesses such as supply chain services.
2023/24 2022/23 %
£m
£m
UK Food
Like-for-like 7,780.6 6,992.9 11.3
Net new space(1) 378.2 225.1
Total UK Food sales 8,158.8 7,218.0 13.0
UK Clothing & Home
Like-for-like 3,814.8 3,626.9 5.2
Net new space 95.9 88.1
Total UK Clothing & Home sales 3,910.7 3,715.0 5.3
(1) UK Food net new space includes Gist third party revenue.
M&S.com sales / Online sales
None
Not applicable
Total sales through the Group's online platforms. These sales are reported
within the relevant UK Clothing & Home, UK Food and International segment
results. The growth in sales on a year-on-year basis is a good indicator of
the performance of the online channel and is a measure used within the Group's
incentive plans. Refer to the Remuneration Report for an explanation of why
this measure is used within incentive plans.
International online
None
Not applicable
International sales through International online platforms. These sales are
reported within the International segment results. The growth in sales on a
year-on-year basis is a good indicator of the performance of the online
channel. This measure has been introduced given the Group's focus on online
sales.
2023/24 2022/23 %
£m £m
International sales
Stores 875.6 874.5 0.0
Online 164.2 180.5 (9.0)
At reported currency 1,039.8 1,055.0 (1.4)
Sales growth at constant currency
None
Not applicable
The period-on-period change in sales retranslating the previous year sales at
the average actual periodic exchange rates used in the current financial year.
This measure is presented as a means of eliminating the effects of exchange
rate fluctuations on the period-on-period reported results.
2023/24 2022/23 %
£m £m
International sales
At constant currency 1,039.8 1,039.9 0.0
Impact of FX retranslation - 15.1
At reported currency 1,039.8 1,055.0 (1.4)
Adjusting items
None
Not applicable
Those items which the Group excludes from its adjusted profit metrics in order
to present a further measure of the Group's performance. Each of these items,
costs or incomes, is considered to be significant in nature and/or quantum or
are consistent with items treated as adjusting in prior periods. Excluding
these items from profit metrics provides readers with helpful additional
information on the performance of the business across periods because it is
consistent with how the business performance is planned by, and reported to,
the Board and the Executive Committee.
Adjusted operating profit
Operating profit before adjusting items
Operating profit
Adjusting items
(See note 3)
Operating profit before the impact of adjusting items. The Group considers
this to be an important measure of Group performance and is consistent with
how the business performance is reported and assessed by the Board and the
Executive Committee.
Adjusted operating margin
Operating margin before adjusting items
None
Not applicable
Adjusted operating profit as a percentage of sales.
Finance income before adjusting items
Finance income
Adjusting items
(See note 3)
Finance income before the impact of adjusting items. The Group considers this
to be an important measure of Group performance and is consistent with how the
business performance is reported and assessed by the Board and the Executive
Committee.
Finance costs before adjusting items
Finance costs
Adjusting items
(See note 3)
Finance costs before the impact of adjusting items. The Group considers this
to be an important measure of Group performance and is consistent with how the
business performance is reported and assessed by the Board and the Executive
Committee.
Net interest payable on leases
Finance income/costs
Finance income/costs
(See note 4)
The net of interest income on subleases and interest payable on lease
liabilities. This measure has been introduced as it allows the Board and
Executive Committee to assess the impact of IFRS 16 Leases.
Net financial interest
Finance income/costs
Finance income/costs
(See note 4)
Calculated as net finance costs, excluding interest on leases and adjusting
items. The Group considers this to be an important measure of Group
performance and is consistent with how the business performance is reported
and assessed by the Board and the Executive Committee.
EBIT before adjusting items
EBIT(1)
Adjusting items
(See note 3)
Calculated as profit before the impact of adjusting items, net finance costs
and tax as disclosed on the face of the consolidated income statement. This
measure is used in calculating the return on capital employed for the Group.
Ocado Retail Limited Adjusted EBITDA
EBIT(1)
Not applicable
Calculated as Ocado Retail Limited earnings before interest, taxation,
depreciation, amortisation, impairment and adjusting items.
Profit before tax and adjusting items
Profit before tax
Adjusting items
(See note 3)
Profit before the impact of adjusting items and tax. The Group considers this
to be an important measure of Group performance and is consistent with how the
business performance is reported and assessed by the Board and the Executive
Committee.
This is a measure used within the Group's incentive plans. Refer to the
Remuneration Report for an explanation of why this measure is used within
incentive plans.
Adjusted basic earnings per share
Earnings per share
Adjusting items
(See note 3)
Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares in
issue during the financial year.
This is a measure used within the Group's incentive plans. Refer to the
Remuneration Report for an explanation of why this measure is used.
Adjusted diluted earnings per share
Diluted earnings per share
Adjusting items
(See note 3)
Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares in
issue during the financial year adjusted for the effects of any potentially
dilutive options.
Effective tax rate before adjusting items
Effective tax rate
Adjusting items and their tax impact
(See note 3)
Total income tax charge for the Group excluding the tax impact of adjusting
items divided by the profit before tax and adjusting items. This measure is an
indicator of the ongoing tax rate for the Group.
Balance Sheet Measures
Net debt
None
Reconciliation of net debt (see note 15)
Net debt comprises total borrowings (bank and bonds net of accrued interest
and lease liabilities), the spot foreign exchange component of net derivative
financial instruments that hedge the debt and the Scottish Limited Partnership
liability to the Marks and Spencer UK Pension Scheme less cash, cash
equivalents and unlisted and short-term investments. Net debt does not include
contingent consideration as it is conditional upon future events which are not
yet certain at the balance sheet date.
This measure is a good indication of the strength of the Group's balance sheet
position and is widely used by credit rating agencies.
Net funds/(debt) excluding lease liabilities
None
Reconciliation of net debt (see note 15)
Calculated as net debt less lease liabilities. This measure is a good
indication of the strength of the Group's balance sheet position and is widely
used by credit rating agencies.
Cash Flow Measures
Free cash flow from operations
Operating profit
See Financial Review
Calculated as operating profit less adjusting items within operating profit,
depreciation and amortisation before adjusting items, cash lease payments,
working capital, defined benefit scheme pension funding, capex and disposals,
financial interest, taxation, employee-related share transactions, share of
(profit)/loss from associate, adjusting items in cashflow and loans to
associates.
Free cash flow
Operating profit
See Financial Review
Calculated as free cash flow from operations less acquisitions, investments
and divestments. This measure shows the cash generated by the Group during the
year that is available for returning to shareholders and is used within the
Group's incentive plans.
Free cash flow after shareholder returns
Operating profit
See Financial Review
Calculated as free cash flow less dividends paid.
This measure shows the cash retained by the Group in the year.
Other Measures
Capital expenditure
None
Not applicable
Calculated as the purchase of property, plant and equipment, investment
property and intangible assets during the year, less proceeds from asset
disposals excluding any assets acquired or disposed of as part of a business
combination or through an investment in an associate.
Adjusted return on capital employed ("ROCE")
None
Not applicable
Calculated as being adjusted operating profit divided by the average of
opening and closing capital employed. The measures used in this calculation
are set out below:
2023/24 2022/23
£m £m
Operating profit 714.2 515.1
Adjusting items included in operating profit (see note 3)1 124.4 111.5
Adjusted operating profit 838.6 626.6
Net assets 2,830.1 2,680.8
Add back:
Partnership liability to the Marks & Spencer UK Pension Scheme 88.8 124.8
Deferred tax liabilities 205.8 206.4
Non-current borrowings and other financial liabilities 2,882.8 3,184.0
Retirement benefit deficit 4.6 4.6
Derivative financial instruments 34.4 42.5
Current tax liabilities 1.5 38.5
Less:
Investment property (11.6) (11.8)
Retirement benefit assets (81.8) (482.0)
Current tax assets (32.9) (6.5)
Deferred tax assets (11.7) (7.6)
Net operating assets 5,910.0 5,773.7
Add back: Provisions related to adjusting items 130.6 100.3
Capital employed 6,040.6 5,874.0
Average capital employed 5,957.3 5,888.4
ROCE % 14.1% 10.6%
(1) See note 1 for details on a change in adjusting items and the resulting
restatement.
This measure is used within the Group's incentive plans. Refer to the
Remuneration Report for an explanation of why this measure is used within
incentive plans.
(1) EBIT is not defined within IFRS but is a widely accepted profit measure
being earnings before interest and tax.
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