REG - Marks and Spencer Gp - Final Results
25/05/2022 08:31
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220525:nRSY6883Ma&default-theme=true
RNS Number : 6883M Marks and Spencer Group PLC 25 May 2022
Marks and Spencer Group Plc
Full Year Results for 52 Weeks Ended 2 April 2022
"STRONG PERFORMANCE DELIVERED BY A MORE RESILIENT M&S"
The impact of Covid in 2020/21 renders comparisons to the prior year less
meaningful. To aid understanding, throughout this document we are showing the
52 weeks to 28 March 2020 as the comparative period, unless stated otherwise.
Strong all-round performance
· Profit before tax and adjusting items of £522.9m (2019/20
£403.1m).
· Statutory profit after tax of £309.0m (2019/20 £27.4m).
· Food growth of 10.1%, ex hospitality and franchise sales(1) up
14.7%.
· M&S share of Ocado Retail net profit £13.9m including £7.2m
net exceptional costs.
· C&H sales up 3.8%. Online growth of 55.6%, stores down 11.2%.
· Strong cash flow, reducing net debt excluding lease liabilities
by £1.0bn to £420m.
Business well positioned for inflationary headwinds and the next phase of
transformation
· M&S Food outperformance supported by record quality and
improved value perception.
· Ocado Retail basket size normalised as anticipated, transitioning
to rapid capacity growth.
· Reshaped C&H range and value commitment delivering full-price
sales growth of 28.5%.
· Online C&H sales now 34% of UK C&H sales and nascent
brands platform established.
· Sparks has grown to 15m members, fuelling data and
personalisation drive.
· International online retail sales over £250m vs £100m in
2019/20.
· Increased store rotation pipeline in both Food and C&H; new
format stores performing well.
Steve Rowe, CEO: "When I took over the reins at M&S six years ago, I
committed to tackling the underlying issues that had eroded the strength of
the business and building the foundations for future growth. For me, what is
important about these results is not just the restoration of profit and strong
cash flow; it is that they demonstrate that M&S has fundamentally changed.
While there is much more to do, the business has moved beyond proving its
relevance and has the opportunity for substantial future growth. It has been
my privilege to be the steward and shopkeeper of this fantastic business and
extraordinary brand at such an important stage in its history. The changes
we have delivered are down to the commitment and hard work of colleagues
across the business, and I am delighted to hand the baton on to Stuart, Katie
and Eoin to lead the next phase."
52 weeks ended 53 weeks ended 52 weeks ended Change vs 2019/20 (%)
Group Results 2 April 22 3 April 21 28 March 20
Statutory revenue £10,885.1m £9,166.9m £10,181.9m 6.9
Sales before adjusting items(2) £10,909.0m £9,166.9m £10,181.9m 7.1
Operating profit before adjusting items £709.0m £222.2m £590.7m 20.0
Profit before tax & adjusting items £522.9m £50.3m £403.1m 29.7
Adjusting items £(131.2)m £(259.7)m £(335.9)m -60.9
Profit/(loss) before tax £391.7m £(209.4)m £67.2m 482.9
Profit/(loss) after tax £309.0m £(201.2)m £27.4m 1,027.7
Basic earnings/(loss) per share 15.7p (10.1)p 1.3p 1,107.7
Adjusted basic earnings/(loss) per share 21.7p 1.4p 16.7p 29.9
Free cash flow £699.2m £296.4m £205.7m 239.9
Net debt £2.7bn £3.52bn £3.95bn -31.7
Net debt excluding lease liabilities £0.4bn £1.11bn £1.39bn -71.2
Dividend per share - - 3.9p n/a
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. Refer to adjusting items table below for
further details.
(1) The Food ex hospitality and franchise sales APM is based on total revenue
rather than like-for-like revenue, as was presented at the 20/21 year-end
results, and 21/22 half-year results.
(2)All references to sales, a new APM, throughout this document are statutory
revenue plus the gross value of consignment sales excluding VAT.
COMPLETION OF THE FIRST PHASE OF TRANSFORMATION - FIXING THE BASICS.
Four years ago, we set out in a presentation entitled 'Facing the Facts' the
unvarnished truths about the state of M&S and the reasons why far-reaching
change was needed to arrest decline. Now on the eve of a long-planned
leadership succession, our results demonstrate the extent of change delivered
and the areas where there is more to do:
· The Food business has gone from amongst the lowest performing UK
food businesses on LFL sales to the top performing over 12 months.
· Our brand perception was weakening and too many customers thought
M&S was no longer relevant. Now on almost all customer metrics we see
renewed interest and approval.
· The option count in Clothing & Home had proliferated leading
to low rate of sale but has now been reduced by c.20% since 2018/19, with
popular lines bought in greater depth.
· We had high levels of discounting at c.30% of Food and c.35% of
Clothing & Home sales, eroding customer trust. Now this has halved to less
than 15% and c.18% respectively.
· Clothing & Home online capability was behind competitors and
at only c.18% of sales. It is now market competitive and penetration has
almost doubled to 34%.
· The Sparks 'point-based' system had lost credibility but has now
been relaunched and we have 15m members and over 4m app users.
· The online fulfilment centre at Castle Donington struggled to
cope with demand and fulfilment speeds were uncompetitive but now output has
doubled, and speeds are at market levels.
· The Food business had no online grocery capability but now the
Ocado joint venture investment is established and growing capacity.
· The legacy store base was ageing with no track record of closures
or adaptation to modern shopping patterns. We have now closed 68 full-line
stores, opening or relocating 13.
· Store formats were dull, complex to shop, and dated. We now have
a strong performing new format in both main businesses.
· The balance sheet was stretched with £1.8bn net debt (excluding
lease liabilities) but is now much more resilient with just £420m.
· The business was slowed down by heavyweight corporate functions
and hierarchy whereas it is now restructured into a family of faster moving
accountable businesses.
Nonetheless there remains much to do as we embark on our new 'shaping the
future' stage and reposition M&S as a growth business focused on rewarding
shareholders with a combination of sustainable returns and profit growth
through a balance of investment and cash generation. There are many areas
where the business has improved but three important infrastructure challenges
remain which can still impact the pace of change and recovery;
· Although we have materially changed our digital footprint, some
of our core technology systems need investment, most notably in Clothing &
Home where planning and supply chain systems can be significantly improved to
drive more efficient trading.
· The Clothing & Home and Food supply chains both require
further investment. In Clothing & Home we have a lot of opportunity to
reduce single picking, improve capacity, reduce costs and improve store
operations as a result. In Food we need to further improve operations with
Gist and invest in and reshape the network.
· Some of the full-line estate remains out of date and poorly
located compared to the competition and although we have made progress, there
is much still to do to convert stores to a new more efficient shoppable format
and make them suitable for an omni-channel era. Although Clothing & Home
store sales are running more than 25% below four years ago we have delivered
less than a 10% reduction in space since then, so the imperative both to
reduce space and to rotate to newer, better stores remains.
The substantial progress we have made in 'fixing the basics' demonstrates the
potential beyond the current profit recovery and now provides a much stronger
platform for the new leadership to take forward. Their objective is to
increase the pace of change and to reposition the business for growth in the
UK and globally. Stuart Machin, Katie Bickerstaffe and Eoin Tonge will set out
their plans for the future later in the year.
STRONG PERFORMANCE DELIVERED BY A MORE RESILIENT M&S
A strong all-round performance combined with the benefits of the
transformation delivered an encouraging performance across M&S. Profit
before tax and adjusting items for the period was £522.9m (2019/20:
£403.1m). Statutory profit before tax was £391.7m (2019/20: £67.2m). The
recovery of profit combined with a focus on working capital and tightly
controlled capital expenditure generated substantial free cash flow and a
sharp reduction in net debt. Results included £59.8m of UK business rates
relief and a net rates charge of £139.7m in the period.
M&S Food now a high-performing business with market share growth
M&S Food delivered sales growth of 10.1%. Combined with an improving
margin mix in H2 and the benefits of the "lowering cost" programme, this
supported a strong increase in operating profit before adjusting items. We
were encouraged by the core sales performance and the resilience of larger
basket sizes, even as we saw a gradual recovery in the franchise travel and
hospitality businesses in H2. Value and quality perception indicators are
robust. The strength of performance in new channels (Ocado and Costa Coffee)
reinforces our belief in the long-term potential to grow the business.
Ocado Retail transitioning to strong capacity growth post pandemic reversion
As expected, Ocado Retail saw a normalisation of basket sizes and the shape of
trade, resulting in a 4% decline in revenue and a reduced contribution to
Group results after exceptional costs including the Erith fire. At the same
time, we are investing in new capacity despite the backdrop of well-understood
industry cost pressures, demonstrating our confidence in Ocado Retail. This
has the potential to grow the business by over 50% when fully ramped up. With
the M&S brand consistently over 25% of the average Ocado basket, we
believe there is substantial further synergy potential for the two businesses
to exploit.
Clothing & Home on track for a more profitable model capable of growth
Clothing & Home delivered 3.8% sales growth, driven by online sales. We
shifted to trusted value, reducing option count by c.20% over three years,
which resulted in good growth in core categories and a reduction of stock into
sale. Operating profit before adjusting items grew strongly, reflecting the
improved full-price mix. MS2 made multiple improvements to the online offer
and service, with around 11% of orders fulfilled from store. We have
successfully grown the Sparks programme to 15m members and app users to over
4m, and have begun to personalise customer experience. The nascent brands
platform now has around 40 clothing brand partnerships, own or invested
brands.
Building store rotation pipeline driving exit from legacy stores
We are now developing a growing pipeline of store relocations, moving to
modern well-located sites, in the renewal format with omni-channel capability.
We aim to fund the exit costs of the legacy estate through an increasingly
active asset management and disposal programme. We have a pipeline of c.15 new
full-line stores over the next three years and c.40 new Food stores, many in
the larger renewal format with click-and-collect services for Clothing &
Home. The 10 new stores opened last year traded 11% ahead of sales plan and
are on track to generate a payback of the net capital invested in just 1.5
years. New store performance gives us encouragement wherever possible to
accelerate rotation.
International absorbing Brexit-related costs, but emerging global strategy
encouraging
The International business, together with our partners, generated 4% retail
sales growth. This included a solid performance in the Middle East and online
retail sales more than doubling to over £250m through growth in markets with
a store presence and global platforms. Operating profit before adjusting
items reflected the combined effects of EU border costs and tariffs of £29.6m
and an estimated trading impact in the region of £15m. While we have provided
for the £31m cost of fully exiting Russia and business disruption in Ukraine,
and will incur a loss of contribution, we are also exploring multiple
opportunities for further growth, including through the Reliance joint venture
in India.
Extending and expressing our sustainability lead
During the year we reset Plan A with a singular focus on cutting our carbon
footprint by one third by 2025 and becoming a fully net zero business by
2040. As an own-brand retailer, M&S is very well positioned to work with
its supplier partners to find better ways of doing things. We developed a
multi-stakeholder plan spanning customers, colleagues and suppliers to deliver
on this target. We also agreed a new £850m revolving credit facility linked
to the delivery of the net zero roadmap.
Business well positioned for next phase of transformation and inflationary
headwinds
As we enter the next phase of the transformation, we maintain our ambition to
create a business capable of sustainable growth in sales, market share and
profit. With improved profitability and cash conversion, and financial net
debt under a third of 2019/20 levels, the business is resilient to the
macroeconomic headwinds while having flexibility to invest in our
transformation priorities.
Overall trading in the first six weeks of the financial year has been ahead of
the comparable periods in 2021/22, including the period from 12 April 2021
when non-essential retail reopened, with a particularly strong performance in
Clothing & Home and growth in the total Food business continuing to
outperform the overall market.
This year the business will not receive business rates relief and
International will not have the profit contribution from Russia. As we invest
in capacity growth at Ocado Retail, we anticipate a minimal contribution of
share of net income to group results. Consequently, we start 2022/23 from a
lower adjusted profit base. The business is now much better positioned and
has had an encouraging start to the year. However, given the increasing cost
pressures and consumer uncertainty we do not currently expect to progress from
this lower profit base in 2022/23.
M&S FOOD: HIGH-PERFORMING BUSINESS AND MARKET SHARE GROWTH
The objective for M&S Food is to "protect the magic" by investing in our
unique focus on own-brand innovation and fresh, easy-to-cook food, while
"modernising the rest" of the infrastructure supporting it. By extending reach
of the brand into bigger, new-format stores and growing new channels (Ocado
Retail, Costa Coffee), we see the potential for substantial growth.
M&S Food delivered sales growth of 10.1% vs 2019/20 and in H2 continued to
be the best-performing UK grocery chain (Source: Kantar 12 weeks ended 20
March 2022). This was despite continuing adverse Covid-related headwinds and
the absence of online grocery sales, which are reported separately through
Ocado Retail.
Sales grew 14.7% after adjusting for the Covid-related impact on the
hospitality and franchise businesses. H2 saw a gradual recovery of stores in
city centres and the franchise travel business compared to H1.
Sales vs 2019/20 (%) H1 H2 FY Sales vs 2019/20 (%) H1 H2 FY
Simply Food 27 18 23 High street -10 -6 -8
Retail parks 23 20 22 City centre -18 -10 -14
Franchise fuel 13 8 11 Franchise travel (rail/air/roadside) -49 -29 -39
Total 25 18 21 Total -18 -10 -14
Operating profit before adjusting items of £277.8m, as compared to £236.7m
in 2019/20, reflected sales growth and the lowering cost programme, partly
offset by increasing supply chain cost pressures in H2 and Brexit-related
costs in Northern Ireland.
Performance underpinned by improvement in quality and value
The outperformance of the M&S Food range over the past four years has
delivered improved customer perceptions for both value and quality, and good
core sales growth. Market share has grown from 3.4% to 3.6% over three years.
The consistently strong core sales performance throughout 2021/22, supported
by good market conditions, is evident in the category sales mix, with growth
in core areas such as produce, meat and grocery. This was driven by larger
basket sizes, which began to normalise through the year as the effects of
Covid reduced.
Sales vs 2019/20 (%) H1 H2 FY Sales vs 2019/20 (%) H1 H2 FY
Frozen 40 18 27 Food-on-the-move -18 -4 -11
Beers, wines & spirits 30 17 23 Hospitality -53 -27 -40
Grocery & household 33 9 20
Meat, fish, poultry, deli, dairy 20 14 17
Bakery 13 18 15
Produce & flowers 14 12 13
Total 20 14 17 Total -30 -12 -21
Growth was supported by a substantial programme of product innovation, with
over 1,350 new lines over the past year, including summer barbecue ranges,
extensions to our market-leading Plant Kitchen offer, and an expanded "Dine
In" programme.
In a climate of increasing price awareness, "Remarksable Value" and "Fresh
Market Specials" ranges have been relaunched, offering products with an
M&S quality differential at everyday low prices. Around one in four
M&S baskets now include one of these lines. Overall, value perception has
improved by five points since March 2019, ahead of the market, and quality
perception is at the highest level in over five years.
The Food renewal format creates larger stores with the efficiency of a
supermarket and the 'soul' of a fresh food market. This has now been
implemented in 40 stores, enabling customers to access more of the M&S
range. Annualised sales in Food stores which have been fully renewed have been
strong, on average up over 10% vs control stores.
In the second half, we launched a ground-breaking partnership with Costa
Coffee, making available around 30 M&S food-on-the-move products in
c.2,500 coffee shops. These include new lunch options, hot meal boxes and
children's food. Early sales are in line with our expectations.
More to do on supply chain, waste and availability
The M&S Food supply chain remains less efficient and, we believe, higher
cost to serve than our competitors. This is a result of a complex store and
logistics network, a high level of chilled product mix and a costly supply
chain contract with our partners, Gist. Alongside this, our forecasting,
ordering and stock allocation systems are dated and are in the process of
being upgraded.
Over the past two years, we have implemented the "Vangarde" trading model
across the full Food estate, creating more efficient processes for stock
management and replenishment of stores, which has helped to sustain
availability through the supply chain disruption of last year. However, waste
and stock loss remain above target levels. In the next stage we will roll out
new forecasting, ordering, and space, range and display systems to better
match catalogue and product display to customer demand, with the objective of
realising a substantial reduction in food waste. The increasing store
rationalisation programme is also helping to create a network of conforming
stores which are lower cost to serve.
OCADO TRANSITIONING TO STRONG CAPACITY GROWTH POST PANDEMIC REVERSION
Our ambition is to grow Ocado Retail over the next five years to achieve a
market-leading national position in online food retailing and a brilliant
showcase for the M&S brand and range. Doing so means building on the
competitive advantages in quality, value and service that the Ocado platform
combined with M&S Food can achieve. We will deliver growth through rapid
expansion of customer fulfilment centres ("CFCs") alongside our immediacy
proposition, Zoom.
Following a successful switchover to M&S supply, Ocado Retail delivered an
exceptional performance during the lockdown periods in 2020/21. As expected,
2021/22 saw a reduction in average basket size to c.£123 in Q4 (2020/21:
c.£145) and increasingly normalised demand across the week. At the same time,
with a substantially larger industry growth opportunity than we envisaged when
we acquired 50% of Ocado Retail, we are investing in an ambitious capacity
roll-out plan, with new CFCs coming on stream against a backdrop of
well-understood industry-wide cost pressures.
Ocado Retail delivered revenue of £2,248.8m, down 4.4% compared to 2020/21,
and EBITDA before exceptional items of £104.8m as compared to £189.9m in
2020/21. We recorded a Group share of net income of £13.9m, after a
£7.2m share of net exceptional costs.
M&S financial quarter
2021/22 Q1 Q2 Q3 Q4
Average orders per week (k) 383 338 375 367
Retail revenue (£m ex VAT) 618.4 517.5 547.8 564.7
Notes: Retail revenue comprises revenues from Ocado.com and Ocado Zoom and
excludes revenues from Fetch in current and prior periods. Average orders per
week refers to results of Ocado.com
Targeting growth in active customers as pandemic conditions normalise
Ocado Retail delivered good growth in active customers through the year, with
an acceleration in the final quarter compared with the prior year, as new CFCs
came on stream. Order growth and average basket size reflected the return
of customer behaviours towards pre-Covid levels as restrictions reduced and
there was a return to more in-office working. As a result, revenue declined,
but substantially outperformed the online grocery market (Source: Kantar 12
weeks ended 20 March 2022).
Near-term margins reflecting a higher percentage of immature capacity
Near-term margins reflect the higher percentage of immature capacity as well
as the peaks and troughs associated with normalised trading. Following a
period of more limited capacity owing to a fire, Erith CFC was fully reopened
in December 2021. During 2021 we also opened two new CFCs in Purfleet and
Andover, which were operating at around half of their end-game capacities by
Q4. Some one-off costs, associated with the fire at the Erith distribution
centre and technology platform transition, have impacted the M&S share of
profit.
Alongside the opening of Bicester in 2022 and Luton in 2023, we have plans to
reach capacity for over 700,000 orders per week based on pre-Covid basket
sizes, representing growth of over 50% when fully ramped.
Substantial further potential for the joint venture
The M&S brand is consistently over 25% of Ocado Retail's sales, and this
has generated substantial buying gains for both M&S Food and Ocado
Retail. We believe there is additional unexploited potential to make better
use of the M&S brand, data capabilities, and cross-marketing as the
businesses work even more closely together. Towards the end of our coming
financial year, we are also planning to re-platform from the legacy operating
system to the "Ocado Smart Platform". This represents a major technology
switchover and will provide Ocado Retail with a website and ordering
capability that when fully developed we believe will be market-leading.
CLOTHING & HOME ON TRACK FOR A MORE PROFITABLE MODEL CAPABLE OF GROWTH
The objective of Clothing & Home is to create a contemporary M&S range
bought in greater depth, alongside a family of internal and external partner
brands providing broader choices to our customers. We are at the very early
stages of transitioning to an omni-channel business backed by exceptional data
and highly personalised customer relationships, and a more sustainable,
profitable model is starting to emerge.
Clothing & Home delivered sales growth of 3.8% vs 2019/20, with three
consecutive quarters of underlying growth. Online sales were up 55.6%, with
strong growth throughout the year outperforming pure-play peers and gaining
60bps of market share (Source: Kantar 52 weeks to 3 April 2022). Store sales
declined 11.2%, with performance continuing to be impacted by legacy high
street and city centre stores, although there was some improvement in H2.
Sales vs 2019/20 (%) Q1 Q2 Q3 Q4 FY
Retail park -2 3 3 24 5
Outlet -10 1 3 26 3
Shopping centre -26 -16 -12 15 -12
High street -24 -22 -20 -5 -19
City centre -37 -28 -19 3 -22
Total C&H stores -21.2 -14.3 -10.9 5.6 -11.2
Operating profit before adjusting items of £330.7m, as compared to £223.9m
in 2019/20, reflected the benefits of sales growth combined with an increased
full-price sales mix.
Reshaping the "product engine" to drive shape of buy and reduce clearance
The Clothing & Home offer has been reshaped over the past three years
around trading principles focused on contemporary style, simple accessible
product, and greater depth of buy. Overall option count has reduced by c.20%
on 2018/19. Alongside the product change, there has been a successful shift to
trusted value and everyday low price. As a result of these actions, discounted
sales have reduced and stock into the clearance sale was down 34% on two years
ago, enabling a simpler, more profitable operation. These changes are
beginning to be reflected in improved customer style perceptions and are
generating increased confidence in the new approach within the core product
teams.
Blanket promotions, which often obscured inconsistent pricing and reduced
trust, have largely been removed. The pricing architecture is clearer,
offering value on entry price points in products such as women's jeggings,
men's denim and the recently introduced "Remarksable Value" label in our Home
ranges. As we have shifted to a trusted value approach, we have seen an
improvement in value perception, which is now market-leading.
Strong performance in core categories and improving style perception
As expected, category performance over the two pandemic years has been
greatest in core casual categories, sleepwear and soft furnishings. Following
the reopening of the economy in July 2021, the slow return to offices,
combined with greater mobility, has led to a gradual improvement in formal
ranges, elements of footwear and holiday.
Sales vs 2019/20 (%) H1 H2 FY Sales vs 2019/20 (%) H1 H2 FY
Women's denim 8 27 17 Women's formal -33 -20 -26
Women's casual tops 10 30 17 Women's holiday -35 26 -24
Women's knitwear 15 7 9 Men's formal -35 -20 -28
Men's casual 1 13 7 Men's footwear -9 6 -1
Kids' daywear 21 27 24
Lingerie 0 9 5
Soft furnishings 23 12 16
· Womenswear has driven good growth in the "big three" departments
of denim, knitwear and casual tops. A focus on simple, repeatable styles in
dresses, supported by popular collaborations with brands such as Ghost, has
resulted in a very strong performance. The Goodmove activewear brand has
grown to over £65m in two years.
· Lingerie has seen a recovery over the past year in core areas
such as sleep, underwear and bras. A focus on sharper value through
multi-packs at opening price points has combined with new stretch offers such
as "Boutique" and the launch of the "Neutrals" range.
· Menswear was impacted in the pandemic by its high formal and
office-wear shares. We saw good growth in jersey, knitwear and underwear,
although following reopening availability in formal categories was below
target.
· Kidswear's increased focus on daywear has combined with growth in
schoolwear to deliver double-digit sales growth. The growth of M&S Kids
provides an important entry point to the brand for family-age customers.
· Home ranges have been reshaped, with pricing realigned to the
market in areas such as bed linen, lighting and curtains. Furniture ranges
are being upgraded and losses have reduced.
MS2 driving omni-channel growth
MS2 had a successful year, with strong online sales growth at an adjusted
operating profit margin competitive with store sales. The MS2 organisation
brings together the data, digital and online teams across M&S. Its aim is
to prioritise the best online offer, acting with the speed of a pure-play
while leveraging the store estate to drive advantages in reach and fulfilment
to deliver better customer service.
· A programme of front-end digital development to inspire customers
has included upgraded imagery, increased user-generated content, "shop the
look" features and "hotspotting" of product benefits.
· We have introduced over 60 digital hubs in stores, enabling rapid
click-and-collect and rolled out paper-free returns.
· Online availability through omni-channel fulfilment now exceeds
store availability, with an increasing number of "online-only" products and
use of the channel to trial "test and repeat" ranges. The online commercial
teams are fully involved in category planning.
· During the year, c.11% of online orders were satisfied through
in-store fulfilment. The ability to sell through stock in the store network
has increased customer convenience, improved stock turn and helped drive
customer availability to c.90%, compared with c.75% through the online
distribution centre alone.
· The cut-off for next-day delivery remains below our target level
but is now market-competitive.
Over the past three years we have built the foundations of a more
personalised, customer-focused digital offer. We have created a single
customer data platform alongside our enterprise data platform, "BEAM", which
continues to consolidate our data in one place.
The relaunched Sparks programme has grown to over 15m members, of which close
to 9m are active, and we are working on the next generation of improvements to
the offer. We have grown app users to over 4m and expect to launch Sparks Pay,
offering customers an integrated payment and credit proposition including
loyalty rewards through Sparks and the M&S app.
Over the past year we began to personalise the customer experience through our
website, app and customer relationship management programme, and around 8% of
M&S.com sales are now being driven by personalisation. Although still at
an early stage, we have developed a bespoke in-house solution to deepen
relationships with customers and drive future growth. The goal is to build
personalisation at scale to move from a targeted promotions model to one where
the range, interactions and product presentation are relevant to the
individual customer, making M&S a more engaging and easier place to shop.
Sparks and data provide the gateway to delivery of further services, notably
the shift to a digital proposition for M&S Bank customers including
credit, loyalty rewards and payment.
Nascent platform of brands established
M&S has a strong and trusted brand which attracts customers to our
platforms as the second largest UK online clothing retailer (Source: Kantar 52
weeks ending 3 April) with the largest omni-channel footprint. This, combined
with our 15m Sparks card holders, credit card and customer data engine,
creates the scope to bring other brands onto our platform, providing broader
choice and personalisation for the M&S customer and substantial new
revenue streams.
· In the last year we have established a series of pilots with a
combination of around 40 clothing brand partnerships, own or invested
brands. This has included the purchase and relaunch of Jaeger, as a
contemporary British brand, a 27% shareholding in Nobody's Child and the
majority acquisition of activewear brand curator, The Sports Edit, which
brings new capabilities, customers and brands to the Group.
· These brand partnerships bring broader choice, premium price
points and additional expertise to M&S. In total, third-party brands
across Clothing, Home and Beauty, including Jaeger, generated c.£100m of
orders in 2021/22.
· In establishing the operation, we have made early investment in
the initial capacity required for ordering and business development. At this
stage, the business trades through a wholesale or commission model, with
product flowing through the M&S distribution network. We expect to evolve
the model to add dropship capability, enabling the sale and fulfilment of
orders from partner stock.
Improving performance through addressing legacy issues
Despite the far-reaching developments and progress in the product engine, the
Clothing & Home business requires further development in legacy systems,
supply chain and stores to enable a more responsive business with faster speed
to market, an improved returns process, lower stock levels and a lower cost to
operate.
In the current system, less effective systems configuration and interface
makes planning and tracking slow and labour intensive. Teams have limited
visibility to create accurate channel plans, and stock journeys from port to
customer via multiple stock holding and consolidation points are lengthy and
can be hard to track. The reconfiguration of systems is likely to take a
number of years to implement.
The supply chain picking model can be slow and high cost to operate, resulting
in a risk of trapped stock. The opportunity is to reconfigure the network to
support our omni-channel needs better. In addition, the returns channel
remains slow, creating excess handling cost and margin loss. We have already
identified multiple ways of reducing this; for instance preparing returns for
resale in the store of return or nearby stores to enable further improvements
in omni-channel availability.
So, the pattern and rhythm of product flow will be further reshaped over the
next few years. This reshaping will be underpinned by a commitment to fewer,
deeper strategic supplier relationships to support a faster, more flexible
sourcing model which has already proved comparatively resilient during the
pandemic.
BUILDING STORE ROTATION PIPELINE DRIVING EXIT FROM LEGACY STORES
The step change in online participation and further shift of trade away from
high street and city centre stores during the pandemic has increased the
imperative to reduce Clothing & Home trading space. Last year we set out
the objective of the M&S store rotation programme to create a modernised
estate of c.180 full-line stores and a growing programme of larger, more
inspirational Food stores. We aim to fund the exit costs of the legacy
estate through an increasingly active asset management and freehold disposal
programme, which we expect to release at least £200m of cash proceeds.
Developing profitable rotation pipeline for full-line and food stores
So far in the transformation, we have made significant progress in closing 68
legacy full-line stores and 19 smaller Food stores. We have also created a
bigger Food store format which can serve more of the family shop and offer
click-and-collect services for Clothing & Home, and opened 13 new, more
efficient full-line stores.
We are now developing a growing pipeline of store relocations, moving from old
multi-floor buildings, often with challenged fabric and poor access and car
parking, to modern, well-located sites wherever possible in the renewal format
with omni-channel capability. Moving away from town centres is not our only
focus, but we recognise that in an omni-channel world, ease of shopping and
fast access is critical to competitiveness, and in many cases we believe the
town centre locations have lost impetus as a result of failed local authority
or government policy. As a result, a high proportion, but not all, of our
relocations are to the edge of town.
Combined with the relocation programme, we are targeting an overall reduction
in Clothing & Home space reflecting the rapid growth of online and our
exit from the long tail of low sales density stores that deliver a small
proportion of total profit.
The full-line store pipeline already has around 15 new stores planned over the
next three years, including seven former Debenhams sites, and we expect this
to build further. This will help enable a further 32 store closures. Examples
include:
· In Leamington Spa, the recent closure of related town centre
stores and relocation to a full-line edge-of-town former Debenhams to create a
full-line proposition is expected to pay back the net capital of £7.0m
invested in the new site in 3.5 years.
· The relocation of Thurrock from the back of an underperforming
centre with no accessible parking to the former Debenhams site by the bus
station with extensive parking is expected to cost a net £8.4m and to pay
back in 2.0 years.
· The announced closure of the legacy four-floor town centre store
at Colchester and opening of a new modern store in the retail park on the edge
of town will cost a net £7.3m, resulting in an estimated payback of 3.2
years.
To accelerate the estate's rotation, we are focused on driving the recapture
of Clothing & Home sales from existing legacy sites either to new stores,
to alternative stores or online and are trialling a number of new initiatives
to increase this.
To also help enable the full-line store rotation, and to drive access to new
areas of growth, we currently anticipate opening c.40 new Food stores in the
next three years, largely in the 12,000-15,000 sq ft renewal format. These
stores generate higher productivity and good cash paybacks.
Encouraging results from recent openings
Of the 10 M&S stores opened in 2020/21*, sales are averaging c.11% above
plan, with paybacks of around 1.5 years.
10 stores opened in 2020/21 Foodhall Full-line
Performance vs original plan Performance Performance
Average annual sales (£m) 14.3 11% 12.3 18.8
Average capex (£m) 3.7 -2% 2.2 7.3
Average payback (years) 1.5 -44% 1.5 1.5
*2020/21 store openings are shown above rather than 2021/22, as these have 12
months of sales data to allow a full financial review.
INTERNATIONAL ABSORBING BREXIT RELATED COSTS BUT EMERGING GLOBAL STRATEGY
ENCOURAGING
Our objective is to create a growing International business through strong
partnerships and a multi-platform online business with global reach.
International sales grew 1.7% at constant currency, reflecting the continuing
rebound in activity through the year and sustained growth in online sales both
in markets with a store presence and through global marketplaces. Operating
profit before adjusting items of £73.6m (2019/20: £110.7m) included costs
and tariffs of £29.6m and an estimated trading impact in the region of £15m
due to ongoing EU border issues, largely related to the Republic of Ireland
following Brexit.
Solid growth in the Middle East, India and Global Online
Together with our partners, we generated 4% growth in retail sales in
2021/22. This included a particularly good performance in the Middle East
region, with growth in domestic demand. In Asia, we saw a substantial bounce
back in India following lockdown in Q1, which was partly offset by continuing
restrictions in some markets. Sales in Europe reflected strength in Clothing
& Home sales in the Republic of Ireland, partly offset by the impact of
EU-related border issues on the Food business. Over the past two years,
online retail sales of M&S and our partners have grown by 152% and now
total £251m. Following the expansion into an additional 46 territories in
March 2021, we now trade in 105 markets.
Performance vs 2019/20 (%) H1 H2 FY Performance vs 2019/20 (%) H1 H2 FY
Europe 4.2 7.4 5.8 Stores -13.1 1.5 -5.7
Middle East 9.5 28.0 18.6 Online 165.7 141.1 152.2
Asia -23.6 9.9 -6.6 Total retail sales -2.7 11.2 4.3
Total retail sales -2.7 11.2 4.3
Adapting to geo-political shocks: Brexit & Russia/Ukraine
During the year, the business faced the dual headwinds of the impact of EU
border issues and the ending of shipments to our franchise partner in Russia
as a result of the war in Ukraine.
To mitigate EU border costs, we exited the high street franchise Food
operation in France and ceased exporting chilled food to the Czech business.
We continue to absorb material administration-related cost headwinds on Food
exports to Ireland, because of certification, declarations and the complexity
of segregation in warehouses, none of which benefit customers. We expect to be
able to mitigate these costs further through increased local sourcing and by
automating processes. In our Clothing & Home operation, we are planning to
open a new "EU hub" in Croatia, enabling the direct flow of stock into market
to fulfil orders for our partners, including marketplaces.
The M&S businesses in Russia and Ukraine have been operated by a licence
holder and franchise partner and in 2021/22 generated retail sales of £102.5m
and a contribution to profit before adjusting items of £5.2m. M&S is a
values-led business; therefore, as a result of the invasion of Ukraine, we
ceased shipments to Russia on 3 March 2022. Subsequently, we have made the
decision to fully exit our Russian franchise and we have recognised a charge
of £31m in adjusting items, representing our full exit costs from Russia and
business disruption in Ukraine. Unfortunately, our Ukrainian business has also
been partially closed as a result of war impacts, and we are working with our
partner to reopen as and when possible.
Exploiting global growth opportunities in India, The Republic of Ireland and
online
Our joint venture partnership with Reliance Retail in India opened six new
stores, closed nine mostly smaller-format stores and refurbished or expanded a
further six. The business is exploring multiple options for future growth,
including ambitious plans to grow space, with around 10 new store openings per
year and expansions in key existing locations, as well as leveraging the
dedicated Indian website and pursuing growth through third-party marketplaces.
During the year we also developed and grew in-store fulfilment of Clothing
& Home online orders in key markets such as the Republic of Ireland. In
addition, the partnership with Zalando has delivered substantial growth over
the past year, and we expect to broaden the range available as we develop
additional capabilities.
EXTENDING AND EXPRESSING OUR SUSTAINABILITY LEAD
M&S was a pioneer in creating an industry-leading, fully integrated
sustainability plan under the "Plan A" banner, launched in 2007, which
reflected values that have been core to M&S's culture since its
inception. During the year we reset Plan A with a singular focus on cutting
our carbon footprint by one third by 2025 and becoming a net zero business
across Scope 1, 2 and 3 by 2040. As an own-brand retailer, M&S is very
well positioned to work with its supplier partners to find better ways of
doing things. We have developed a multi-stakeholder plan spanning customers,
colleagues and suppliers to deliver on this target.
This reset includes the return of the Group's iconic "Look behind the Label"
campaign, focusing customers on the stories behind five everyday products,
from coffee to cotton, which are responsibly sourced. We also identified 100
colleagues as "Carbon Champions" in leadership positions in key roles in
buying, sourcing and operations and identified key targets for 2025.
Following the reset of Plan A, we agreed to link our new £850m revolving
credit facility to the delivery of our net zero targets. These targets span
activity on our net zero roadmap across the value chain, including commitments
to zero deforestation in soy sourcing, sourcing more sustainable fibres,
reducing emissions in our property estate and eliminating millions of units of
single-use plastic packaging.
During the year we launched new initiatives to help customers lead
lower-carbon lives, including:
· Removing 75 million items of plastic packaging from our food
products and installing plastic take-back bins in over 500 of our stores to
make it easier for customers to recycle soft plastic.
· A new incentive programme to reward Sparks customers when they
donate pre-loved clothes to our "Shwopping" partnership with Oxfam.
· A "test and learn" trial in an important growth market, clothing
rental, with a Founders Factory joint venture investment in the Zoa Group, the
operator of leading clothing rental website, Hirestreet.
· In January, a Sparking Change National Challenge, inviting 14
million Sparks customers to try a lower-carbon diet, to feel healthier and
potentially save money.
While we have leading positions in customer perception, there is much more to
do in Plan A to communicate our practices. In the year ahead we expect to
accelerate our programmes and bring them through much more strongly to the
shelf edge both within the store environment and during the online shopping
experience. We believe that wider sustainability concerns are here to stay,
resulting in opportunities for our brand to enter new markets. Through our
deep relationships with customers through Sparks, our longstanding trusted
supplier partners and our portfolio of innovation partners, we are well placed
to develop customer propositions in areas such as circular fashion and
low-impact farming.
BUSINESS WELL SET UP FOR THE NEXT PHASE OF TRANSFORMATION AND INFLATIONARY
HEADWINDS
As we enter the next phase of the transformation, we maintain our ambition to
create a business capable of sustainable growth in sales, market share and
profit. With improved profitability and cash conversion, and financial net
debt under a third of 2019/20 levels, the business is resilient to the
macroeconomic headwinds while having flexibility to invest in our
transformation priorities.
Macroeconomic headwinds impact on performance and expectations
There is substantial inflation in both cost of goods sold and operating costs
including fuel, power, building materials and maintenance. Food cost inflation
is being driven not just by global supply issues but also labour shortages,
border- and customs-related costs, and in some cases reduction in UK capacity
by growers and producers. In Clothing & Home, factory cost prices,
transport and freight costs, combined with continued supply issues in China,
are driving similar pressures.
Consequently, customers' spending capacity is under pressure. We expect these
pressures to increase as the year progresses. We are therefore planning for an
adverse impact on volumes due to price inflation, slowing the rate of sales
growth.
Latest update and guidance for 2022/23
Overall trading in the first six weeks of the financial year has been ahead of
the comparable periods in 2021/22, including the period from April 12, 2021
when non-essential retail reopened, with a particularly strong performance in
Clothing & Home and growth in the total Food business continuing to
outperform the overall market.
While encouraging, we expect the impact of declining real incomes to sharpen
in the second half and endure for at least the remainder of the financial
year. There is no current sign of inflation abating, although we believe the
rate of cost growth will subside by the third quarter.
However, we believe that our market positioning and business strategy will
help us mitigate the effects as:
· Our stronger value perception in both businesses will provide
protection from customer downtrading;
· Our large share in 'for tonight' shopping in Food, provides
resilience compared with the core grocery market;
· Travel, leisure events and weddings return, we expect to see a
revival of the demand that receded in the past couple of years;
· Some of our customers, while not immune to the pressure, have a
degree of cushion from the higher savings ratio recorded during the pandemic;
and
· The experience of the past two years has illustrated the earnings
balance provided by both Food and Clothing & Home and trading through
stores, online and international channels.
In addition, we are taking specific steps to support performance in this
environment and offset inflation. In Clothing & Home we are taking a
more flexible approach to trading and currently retain a substantial
proportion of open to buy for H2. We are also starting to develop the
strategic supplier programme. We expect further benefits from the 'lowering
cost' programme in Food and are continuing to drive digital-led efficiencies
in stores and simplify ways of working in support centres.
This year the business will not receive business rates relief and
International will not have the profit contribution from Russia. As we invest
in capacity growth at Ocado Retail, we anticipate a minimal contribution of
share of net income to group results. Consequently, we start 2022/23 from a
lower adjusted profit base. The business is now much better positioned and had
an encouraging start to the year. However, given the increasing cost pressures
and consumer uncertainty, we do not currently expect to progress from this
lower profit base in 2022/23.
Increasing the pace of change and investing in growth
Despite the near-term challenges, the business is better set up both
financially and operationally for the medium-term. The combined opportunities
to both improve the infrastructure and invest in growth mean that we expect to
continue to increase our investment rate, albeit subject to careful assessment
and even stricter financial discipline given heightened uncertainty. As a
result, and taking into account inflationary pressures, we anticipate capital
expenditure will increase to around £400m in the coming year (2021/22
£300.2m excluding property acquisitions and disposals). The areas of focus
and opportunity are as follows:
· Technology investment to drive the digital transformation of
M&S and systems improvement to support more responsive trading.
· Supply chain investment to create a quicker, more efficient
operation and pave the way to a modern, automated network.
· Multiple opportunities for growth in the store estate, including
investment in renewal, larger-format Food stores, rotation to modern,
accessible full-line stores, and growth through franchise partnerships.
Our capital allocation decisions will continue to be guided by our ambition to
grow the business while sustaining balance sheet metrics consistent with
investment grade. The Board will consider the scale and timing of a resumption
of dividend payments at the year end.
For further information, please contact:
Investor
Relations:
Fraser Ramzan: +44 (0)20 3884 7080
Jack Cook: +44 (0)20
3882 5535
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
Marks and Spencer Group plc website from 7:30am on 25 May 2022.
Steve Rowe and Eoin Tonge will host a Q&A session at 9.30am on 25 May
2022:
Registration link here
(https://ige.netroadshow.com/registration/client/11018/marks-spencer-full-year-results-investor-and-analyst-qa/)
Dial in number: 020 3936 2999 Access Code: 559374
A recording will be available until Wednesday 01 June 2022 using the following
details:
UK: 020 3936 3001
USA: 1 845 709 8569
All other locations: +44 20 3936 3001
Access Code: 045457
Fixed Income Investor Conference Call:
This will be hosted by Eoin Tonge, Chief Finance Officer, at 2pm on 25 May
2022:
Registration link here
(https://ige.netroadshow.com/registration/client/11017/marks-spencer-full-year-results-%E2%80%93-fixed-income-investor-qa/)
Dial in number: 020 3936 2999 Access Code: 532207
A recording will be available until Wednesday 01 June 2022 using the following
details:
UK: 020 3936 3001
USA: 1 845 709 8569
All other locations: +44 20 3936 3001
Access Code: 593163
FULL YEAR FINANCIAL REVIEW
Financial Summary
52 weeks ended 2 Apr 22 27 Mar 21(1) 28 Mar 20 Change vs 20/21 % Change vs 19/20 %
Group statutory revenue 10,885.1 8,961.5 10,181.9 21.5 6.9
Group sales before adjusting items 10,909.0 8,972.7 10,181.9 21.6 7.1
UK Food 6,639.6 5,994.8 6,028.2 10.8 10.1
UK Clothing & Home 3,332.2 2,198.6 3,209.1 51.6 3.8
International 937.2 779.3 944.6 20.3 -0.8
Group operating profit/(loss) before adjusting items 709.0 209.7 590.7 238.1 20.0
UK Food 277.8 213.6 236.7 30.1 17.4
UK Clothing & Home 330.7 (129.4) 223.9 n/a 47.7
International 73.6 45.1 110.7 63.2 -33.5
M&S Bank and Services 13.0 2.0 16.8 550.0 -22.6
Share of result in associates and joint ventures 13.9 78.4 2.6 -82.3 434.6
Interest payable on lease liabilities (115.6) (122.5) (133.4) -5.6 -13.3
Net financial interest (70.5) (45.6) (54.2) 54.6 30.1
Profit before tax & adjusting items 522.9 41.6 403.1 1,157.0 29.7
Adjusting items (131.2) (242.8) (335.9) -46.0 -60.9
Profit/(loss) before tax 391.7 (201.2) 67.2 n/a 482.9
Profit/(loss) after tax 309.0 (194.4) 27.4 n/a 1,027.7
Basic earnings/(loss) per share 15.7p (9.8)p 1.3p n/a 1,107.7
Adjusted basic earnings/(loss) per share 21.7p 1.1p 16.7p 1,872.7 29.9
Dividend per share - - 3.9p n/a n/a
Net debt £2.70bn £3.52bn £3.95bn -23.3 -31.6
Notes:
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.
Given the exceptional nature of financial results last year due to the impact
of Covid, all comparatives within this Financial Review are given against
2019/20 unless otherwise stated.
In the current period, we have introduced a new APM: 'sales'. All references
to sales throughout this document are statutory revenue plus 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 new 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.
(1) 2020/21 was a 53-week year and comparative periods are on a 52-week basis.
To aid understanding, we have presented the unaudited 52 weeks to 27 March
2021; however, net debt is given on a 53-week basis.
Group results
Group sales before adjusting items was £10,909.0m. Sales increased 7.1%
versus 2019/20, driven by Food sales up 10.1%, Clothing & Home sales up
3.8% and International sales down 0.8%. Statutory revenue in the period was
£10,885.1m, an increase of 6.9% versus 2019/20. The Group generated an
adjusted profit before tax of £522.9m and a statutory profit before tax of
£391.7m.
UK business rates relief of £59.8m (2020/21: £172.2m) helped to compensate
for the continuing loss of trade from lower footfall to Clothing & Home
stores in the UK, and in the Food hospitality business which was closed until
mid-May 2021 and continues to trade well below 2019/20 levels.
Statutory profit before tax includes total charges for adjusting items of
£131.2m.
For full details on adjusting items and the Group's related policy, see notes
1 and 3 to the financial information.
UK: Food
UK Food sales increased by 10.1%, driven by the performance of core
categories, partly offset by reduced sales from the recovering franchise and
hospitality businesses. Excluding franchise and hospitality, sales grew 14.7%.
Change vs 19/20 % Q1 Q2 Q3 Q4 FY
Food 9.4 11.5 12.4 7.0 10.1
Food ex franchise and hospitality 17.0 16.8 16.4 8.6 14.7
M&S Food reported sales do not benefit from a direct online grocery
presence, with these sales instead reported through Ocado Retail.
52 weeks ended 2 Apr 22 27 Mar 21 28 Mar 20 Change vs 19/20 %
Footfall, m (average/week) 10.1 8.0 11.8 -14.4
Transactions, m (average/week) 8.0 5.6 9.3 -14.0
Basket value inc VAT (£) 15.9 20.6 12.6 26.2
Total sales ex VAT £m(1) 6,639.6 5,994.8 6,028.2 10.1
(1) Includes M&S.com
Footfall in the period, while recovering, remained below 2019/20, with a
similar trend for the number of transactions. Revenue was driven by increased
basket value as customers used M&S for more of their everyday shop.
However, basket size has declined compared to 2020/21 driven by the gradual
recovery of our hospitality and food-on-the-move businesses, which typically
have smaller baskets, as well as a reduction in "core" basket size through the
year as Covid tailwinds reduced. Although customer behaviour started to
normalise in Q4, metrics remained ahead of 2019/20 levels.
52 weeks ended 2 Apr 22 27 Mar 21 28 Mar 20 Change vs 19/20 %
£m £m £m
Sales(1) 6,639.6 5,994.8 6,028.2 10.1
Operating profit before adjusting items 277.8 213.6 236.7 17.4
Operating margin 4.2% 3.6% 3.9% 30 bps
(1) 'Sales' is equal to revenue within the Food business.
The Food business in total generated operating profit before adjusting items
of £277.8m compared with £236.7m in 2019/20.
The table below sets out the drivers of the movement in Food operating profit
margin before adjusting items over two years.
Operating profit margin before adjusting items %
2019/20 3.9
Gross margin 0.2
Store staffing 1.4
Other store costs 0.4
Distribution and warehousing (1.1)
Central costs (0.6)
2021/22 4.2
· Gross margin increased c.20bps. The improvement in margin rate
was a result of cost-saving programmes, including Ocado synergies, as well as
lower net waste and reduced sales in our lower gross margin Franchise
business. This was partly offset by investment in price, reduced sales from
our higher-margin Hospitality offering, and additional warehousing and freight
charges within margin.
· Store staffing costs decreased c.140bps, primarily driven by
retail restructuring efficiencies enabled by technology improvements in store
and ongoing initiatives, partly offset by investment in colleague pay rates
and Covid-related costs such as door hosts.
· The c.40bps decrease in other store costs relates to government
business rates relief of £24.6m and lower depreciation charges as legacy
store modernisations come to the end of their useful economic lives, partly
offset by an increase in maintenance and store standards spend.
· Distribution and warehousing costs increased c.110 bps,
reflecting investment in the Milton Keynes ambient depot to support volume
growth, higher pay, incentives and sub-contracting related to warehouses and
haulage, the cost to serve of online orders, and inefficiencies from EU
border-related processes for serving Northern Ireland.
· Central costs increased c.60bps, driven by investments in
technology, data and digital initiatives, including in forecasting, ordering
and allocation systems, as well as colleague incentives. This was partly
offset by technology savings from optimising the cost base and a reduction in
the depreciation of technology assets as they reach the end of their useful
lives.
Ocado Retail Ltd
The Group holds a 50% interest in Ocado Retail Ltd ("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 30 May 2021, 29 August
2021, 28 November 2021 and 27 February 2022.
All commentary in this section is against 2020/21 comparatives, as the
acquisition of the investment in Ocado Retail Ltd by M&S was made part-way
through 2019/20.
Q1 Q2 Q3 Q4
Revenue growth vs 2020/21 (%) 8.4 -10.6 -3.9 -5.7
Active customers (k) 777 769 832 835
Average orders per week (k) 383 338 375 367
Notes: Retail revenue comprises revenues from Ocado.com and Ocado Zoom and
excludes revenues from Fetch in current and prior periods. Average orders per
week refers to results of Ocado.com
Revenue declined 4.4% compared to 2020/21 (-3.0% excluding Fetch) as trade
annualised against sales growth during three national lockdowns in 2020 and
towards the end of H1 was impacted by the fire at the Erith CFC on 16 July.
These impacts were partly offset by the ongoing capacity roll-out in the
period. M&S products continue to account for over 25% of the average Ocado
basket.
£m 52 weeks ended 27 February 2022 52 weeks ended 28 February 2021 Change
%
Revenue 2,248.8 2,353.2 -4.4
EBITDA before exceptional items 104.8 189.9 -44.8
Exceptional items (14.4) 50.5 -128.5
Depreciation and amortisation (41.3) (36.2) -14.1
Operating profit 49.1 204.2 -76.0
Profit after tax 27.8 156.8 -82.3
M&S 50% share of profit after tax 13.9 78.4 -82.3
Ocado Retail Ltd is reported as an associate of M&S as certain rights are
conferred on Ocado Group plc for an initial period of at least five years from
acquisition. It is expected that full consolidation of Ocado Retail Ltd by
Ocado Group plc will continue for at least five years from the formation of
the joint venture, after which it is anticipated that control of the joint
venture will pass to M&S following which it will consolidate the joint
venture. Exceptional items are defined within the Ocado Group plc Annual
Report and Accounts 2021.
Ocado Retail EBITDA before exceptional items was down 44.8%, reflecting the
normalisation of basket size and shape of week as well as an increasing higher
percentage of immature capacity as we open new CFCs.
In addition, Ocado Retail has recognised £14.4m of net exceptional costs
before tax, including £6.8m exceptional costs relating to the fire at Erith
CFC and £6.2m relating to the development and introduction of IT systems as
we transition away from Ocado Group IT services, tools and
support. Exceptional items in the prior period relate primarily to the
Andover fire insurance receipts.
As a result of lower EBITDA and net exceptional costs, Group share of Ocado
Retail profit after tax was £13.9m.
UK: Clothing & Home
Clothing & Home sales increased 3.8% as the continued growth of the online
business offset the decline in store sales due to lower footfall. The online
business remained robust throughout the period.
Change vs 19/20 % Q1 Q2 Q3 Q4 FY
Clothing & Home sales -4.2 2.0 3.2 17.3 3.8
Clothing & Home stores sales -21.2 -14.3 -10.9 5.6 -11.2
Clothing & Home online sales 59.2 62.3 50.8 52.1 55.6
Clothing & Home statutory revenue -4.6 1.4 2.4 16.0 3.1
Comparative figures in Q4 are impacted by the first Covid national lockdown,
which we estimated had a £78m adverse impact on sales at the time,
predominantly in stores. Adjusting for this, Clothing & Home sales
increased c.3.9% in Q4 and c.1.4% for the full year.
Online
52 weeks ended 2 Apr 22 27 Mar 21 28 Mar 20 Change vs 19/20 %
Traffic (m)(1) 405.7 417.5 308.8 31.4
Active customers (m)(2) 9.0 9.0 5.9 52.5
Conversion (%)(3) 7.0 7.2 6.3 +70 bps
Average order value inc VAT pre returns (£) 55.4 49.7 51.5 7.6
Returns rate (%) 25.8 18.6 28.0 - 220 bps
Sales ex VAT £m 1,122.7 1,109.7 721.3 55.6
(1) Traffic: the number of site visits to M&S.com and the app.
(2) Active customers: the number of unique customers who have made a purchase
in the prior 52 weeks.
(3) Conversion: the number of orders as a % of the number of site visits.
Following growth in 2020/21, online sales remained robust, with growth on both
a one- and two-year basis for the full year, despite elevated comparatives in
Q4 2020/21 from the third national lockdown. Online traffic through the app
was up over 200% on 2019/20 following the relaunch of Sparks in July 2020,
which has helped to drive the increase in active customers. Increased app
usage has driven better conversion and, encouragingly, app conversion for the
full year remains consistent with H1 at over 9%.
As anticipated, as customer habits reverted to pre-pandemic trends, returns
rates have normalised towards 2019/20 levels through the year. Average order
value ("AOV") was ahead of 2019/20 levels driven by a full-price trading
stance which increased average selling price ("ASP"), along with the benefit
of third-party brands.
Stores
52 weeks ended 2 Apr 22 27 Mar 21 28 Mar 20 Change vs 19/20 %
Footfall, m (average/week) 4.0 1.9 5.9 -32.2
Transactions, m (average/week) 1.7 1.0 2.1 -19.0
Average basket value inc VAT pre returns (£) 34.9 30.6 32.3 8.0
Sales ex VAT £m 2,209.5 1,088.9 2,487.8 -11.2
UK Clothing & Home store sales decreased 11.2%: Average weekly footfall
was below 2019/20 levels in the period, with the business continuing to be
adversely impacted by the shape of the store estate. Excluding March, sales in
high streets and city centres were down 22% and 26% respectively, while sales
in retail parks were up c.1% on 2019/20 levels.
Total Clothing & Home
The Clothing & Home business in total generated an operating profit before
adjusting items of £330.7m compared with £223.9m in 2019/20.
52 weeks ended 2 Apr 22 27 Mar 21 28 Mar 20 Change vs 19/20 %
£m £m £m
Revenue before adjusting items 3,308.3 2,198.6 3,209.1 3.1
Sales 3,332.2 2,198.6 3,209.1 3.8
Operating profit/(loss) before adjusting items 330.7 (129.4) 223.9 47.7
Operating margin 9.9% -5.9% 7.0% 290 bps
The table below sets out the drivers of the movement in Clothing & Home
operating profit before adjusting items over two years.
Operating profit margin before adjusting items %
2019/20 7.0
Gross margin 1.5
Store staffing 2.6
Other store costs 1.5
Distribution and warehousing (1.7)
Central costs (1.0)
2021/22 9.9
· Gross margin increased c.150bps. The continuing benefit of
increased full-price trading and lower stock into sale more than offset cost
headwinds of adverse currency movements and additional freight and warehousing
costs.
· Store staffing costs decreased c.260bps, primarily driven by
retail restructuring efficiencies enabled by technology improvements in store
and ongoing initiatives as well as lower variable staffing costs from reduced
volumes. These impacts more than offset investment in colleague pay rates.
· The decrease in other store costs of c.150bps largely relates to
government business rates relief of £35.2m, with lower depreciation charges
relating to legacy store modernisations offset by increased maintenance costs
in the store estate and reduced rates rebates.
· Distribution and warehousing increased c.170bps, largely relating
to the higher costs to serve online demand, including an increased proportion
of home deliveries, as well as increased pay rates, haulage incentives and
fuel inflation. Note the higher courier costs of home deliveries were offset
by delivery income, which is reported within sales. These overall higher costs
were partly offset by savings from lower volumes and cost-reduction
programmes.
· The increase in central costs of c.100bps was driven by
investments in technology, data and digital initiatives, colleague incentives,
additional costs to support brands, and higher pay-per-click marketing
activity to drive online growth. This was partly offset by a reduction in the
depreciation of technology assets as they reach the end of their useful lives.
Clothing & Home online generated an adjusted operating profit margin of
c.9%, with the reversion towards 2019/20 returns rates reducing margin
year-on-year as anticipated, as well as investments in data and digital
initiatives to drive future growth. The adjusted operating profit in stores
represented a margin on sales of c.10%, or approximately 9% after excluding
the benefit of rates relief.
International
International sales increased 1.7% at constant currency ("CC") despite the
continued impact of Covid on Asian markets, in particular in India during Q1,
and the disruption and complexity arising from new EU border processes in Food
supply chains, predominantly in France and the Republic of Ireland. There was
solid growth in the Middle East and online sales continued to grow on both a
one- and two-year constant currency basis, with both our own websites and
marketplaces driving growth of 125.5% as we retained customers acquired during
the lockdowns in 2020/21.
Change vs 19/20 % Q1 Q2 Q3 Q4 FY FY
CC CC CC CC CC Reported
Total sales -6.1 -0.3 5.1 7.9 1.7 -0.8
52 weeks ended 2 Apr 22 27 Mar 21 28 Mar 20
£m £m £m Change vs 19/20 % Change vs 19/20 CC %
Sales(1)
Clothing & Home 654.2 483.2 620.7 5.4 9.1
Food 283.0 296.1 323.9 -12.6 -12.1
Total 937.2 779.3 944.6 -0.8 1.7
Memo: Online sales 172.5 165.7 77.2 123.4 125.5
(1) 'Sales' is equal to revenue within the International business.
Clothing & Home sales recovered to above 2019/20 levels, driven by robust
growth in online sales and exceptionally strong shipments to the Middle East.
India was heavily impacted in Q1 by Covid (c.-61% vs 2019/20) and again in Q4
(c.-3% excluding March vs 2019/20), but overall retail sales in the market
grew 6%. Trading in the rest of Asia remained challenging. We saw a similar
shape of trade in European owned markets, with Clothing & Home in the
Republic of Ireland performing robustly.
Food sales declined due to disruption caused by EU border-related processes in
European markets. This has resulted in significant cost and complexity in
servicing the Republic of Ireland and a restructuring of our Food operations
in continental Europe. Excluding France, Food sales were level with 2019/20.
Operating profit before adjusting items was down 33.5%, driven principally by
the additional costs of new EU border processes and tariffs of £29.6m, and
associated trade impacts such as lower availability and higher waste, which we
estimate reduced gross profit by a further c.£15m.
The table below sets out the drivers of the movement in International
operating profit margin before adjusting items over two years.
Operating profit margin before adjusting items %
2019/20 11.7
Gross margin (0.1)
Store staffing 1.0
Other store costs 1.0
Distribution and warehousing (3.0)
Central costs (2.7)
2021/22 7.9
· Gross margin declined c.10bps primarily as a result of additional
tariffs and waste due to inefficiencies from EU border-related processes for
serving the Republic of Ireland. This was partly offset by growth of the
online business.
· Store staffing costs decreased c.100bps primarily as a result of
efficiency savings from retail restructuring in the Republic of Ireland.
· The c.100bps movement in other store costs largely relates to
government relief in owned markets and rent concessions in India, which
resulted in one-off savings in the period.
· Distribution and warehousing increased c.300bps, reflecting
higher operational and administrative costs associated with EU border-related
processes, as well as higher costs to serve online demand.
· Central costs increased c.270bps, driven by higher marketing
spend associated with the growth of the online channel and colleague
incentives.
M&S Bank and Services
M&S Bank and Services profit before adjusting items was down £3.8m to
£13.0m. Adjusting items charges of £16.0m have been incurred relating
primarily to the insurance mis-selling provision, resulting in a statutory
loss of £(3.0)m.
Lower demand for unsecured credit and travel money is the primary driver for
the lower profits. This was largely offset by the release of bad debt
provisions, as economic conditions proved more favourable than anticipated.
Net finance cost
52 weeks ended 2 Apr 22 27 Mar 21 28 Mar 20 Change vs 19/20 £m
£m £m £m
Interest payable (85.1) (89.9) (80.5) (4.6)
Interest income 9.6 4.7 14.5 (4.9)
Net interest payable (75.5) (85.2) (66.0) (9.5)
Pension net finance income 13.2 47.2 23.6 (10.4)
Unwind of discount on Scottish Limited Partnership liability (4.4) (4.9) (6.9) 2.5
Unwind of discount on provisions (3.8) (2.7) (4.9) 1.1
Net financial interest (70.5) (45.6) (54.2) (16.3)
Net interest payable on lease liabilities (115.6) (122.5) (133.4) 17.8
Net finance costs before adjusting items (186.1) (168.1) (187.6) 1.5
Adjusting items included in net finance costs 5.6 (6.8) - 5.6
Net finance costs (180.5) (174.9) (187.6) 7.1
Net finance costs before adjusting items decreased £1.5m to £186.1m. Lower
pension income due to the reduced IAS 19 pension surplus compared with 2019/20
and the reversal of ineffectiveness on a currency swap within interest income
in 2019/20 offset a reduction in the net interest payable on lease
liabilities.
Group profit before tax and adjusting items
Group profit before tax and adjusting items was £522.9m, up 29.7% on 2019/20.
The profit increase was driven by adjusted operating profit growth in Clothing
& Home and Food and the additional profit from the Ocado joint venture,
offset by a reduction in International and M&S Bank operating profits.
Group profit before tax
Group profit before tax was £391.7m, up £324.5m on 2019/20. This includes
net charges for adjusting items of £131.2m (2019/20: £335.9m).
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 to 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.
52 weeks ended 53 weeks ended 52 weeks ended Change vs 19/20
2 Apr 22 3 Apr 21 28 Mar 20
£m £m £m £m
Strategic programmes - UK store estate (161.4) (95.3) (29.3) (132.1)
Strategic programmes - UK logistics 21.9 (2.2) (10.2) 32.1
Strategic programmes - Organisation 14.3 (133.7) (13.8) 28.1
Strategic programmes - International store closures and impairments 0.4 (3.6) (17.1) 17.5
Store impairments, impairment reversals and other property charges 60.0 6.9 (78.5) 138.5
Amortisation and fair value adjustments arising from the investment in Ocado (32.5) (14.2) (16.8) (15.7)
Retail Limited
Directly attributable to Covid 17.8 90.8 (163.6) 181.4
M&S Bank charges incurred in relation to insurance mis-selling provisions (16.0) (2.4) (12.6) (3.4)
Franchise restructure (41.3) - - (41.3)
Intangible asset impairments - (79.9) (13.4) 13.4
Sparks loyalty programme transition - (16.6) - -
Establishing the investment in Ocado Retail Limited - (1.7) (1.2) 1.2
Remeasurement of contingent consideration including discount unwind 5.6 (6.8) (2.9) 8.5
Other - (1.0) 23.5 (23.5)
Adjusting items (131.2) (259.7) (335.9) 204.7
Adjusting items net charges incurred in the period were £131.2m.
UK store estate
A charge of £161.4m has been recognised in relation to store closures
identified as part of UK store estate rotation plans. The charge reflects a
revised view of latest store exits and underlying assumptions around 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. Further charges relating to the
closure and rotation of the UK store estate are anticipated as the programme
progresses, with total future charges of up to c.£200m over the next nine
financial years, bringing the anticipated total programme costs since 2016 to
c.£1bn. The anticipated total programme costs do not include any costs that
may arise in relation to a further c.30 stores currently under consideration
for closure within the next nine 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.
Incurred up to Incurred in 52 weeks ended
3 Apr 21 £m 2 Apr 22 £m
P&L Cash P&L Cash
PPE and ROU asset impairments (452.2) n/a (81.0) n/a
Accelerated depreciation (175.3) n/a (50.7) n/a
Closed store rent, rates and onerous leases net of sublet income (23.1) (26.1) (16.4) (10.9)
Redundancy (9.9) (7.0) (2.4) (0.7)
Profit/(loss) or cash proceeds/(outflows) on disposal/surrender (3.8) 11.4 (3.7) (3.2)
Closure costs, strips, dilapidations 10.3 (39.7) (4.0) (11.0)
Other (3.6) (9.0) (3.2) (4.4)
Total (657.6) (70.4) (161.4) (30.2)(1)
(1)Cash outflows include rent, reported within cash lease payments in the cash
flow, and proceeds on disposal/surrender, which is net off against capex in
the cash flow. Therefore, these cash outflows do not tie to UK store estate
cash adjusting items
Other adjusting items
A net credit of £21.9m has been recognised in the period relating to UK
logistics, reflecting in large part a gain on the disposal of distribution
centres.
A credit of £14.3m has been recognised in relation to organisational change.
This credit largely relates to an £11.9m reversal of an impairment associated
with the centralising of the Group's London support office functions, with the
remainder reflecting the finalisation of previous redundancy costs associated
with this programme. No provision remains at the year end and there are no
further charges anticipated.
In response to the strong Group performance and lifting of government
restrictions, a credit of £63.4m has been incurred for the reversal of store
impairments recognised in adjusting items in previous periods, partly offset
by a £3.4m charge primarily relating to the impairment of assets in certain
stores.
A charge of £41.3m has been recognised relating to the restructuring of
certain International franchise operations. In September 2021, the Group
restructured our French operations after an assessment of the profitability of
the business under increased EU border costs and tariffs, at a cost of
£10.3m. In March 2022, the Group made the decision to fully exit its Russian
franchise. As a result, the Group has recognised a charge of £31.0m
representing the Group's full exit costs from Russia and business disruption
in Ukraine.
A charge of £32.5m has been recognised with respect to the amortisation of
intangible assets acquired on the purchase of our share in Ocado Retail and
related deferred tax charges of £14.9m predominantly relating to the
substantive enactment of the Finance Act 2021 during the period, which will
increase the UK's main corporation tax rate from 19% to 25% from 1 April 2023.
A gain of £17.8m has been recognised as being directly attributable to the
Covid pandemic. This relates mostly to the release of the remaining inventory
provision made in adjusting items in 2019/20, driven by the sell-through of
Clothing & Home stock being greater than anticipated.
Charges of £16.0m have been incurred relating to M&S Bank, primarily due
to the insurance mis-selling provision. The total charges recognised in
adjusting items since September 2012 for PPI is £326.3m, which exceeds the
total offset against profit share of £259.0m to date; this deficit will be
deducted from the Group's share of future profits from M&S Bank.
Taxation
The effective tax rate on profit before adjusting items was 18.2% (2019/20:
20.7%; 2020/21: 50.3% on a 53-week basis). As part of cash-optimisation
measures, no payments were made to the Marks and Spencer Scottish Limited
Partnership ("SLP") during the year. As such, there has been no recapture of
previous tax relief, resulting in a lower effective tax rate than prior years.
As well as there being no recapture of previous tax relief under the SLP
structure in the period, future changes to the UK statutory corporation tax
rate result in deferred tax assets being recognised at the higher
substantively enacted rate of 25%. Restating these deferred tax assets from a
rate of 19% to 25% results in a tax credit in the period, reducing the
effective tax rate.
The effective tax rate on statutory profit before tax was 21.1% (2019/20:
59.3%; 2020/21: 3.9% credit on a statutory loss on a 53-week basis), which was
higher than the effective tax rate on profit before adjusting items due to the
impact of disallowable adjusting items.
Next year, we anticipate an effective tax rate on profit before adjusting
items higher than the UK corporation tax rate of 19%, principally due to the
recapture of previous tax relief as payments to the SLP resume.
Earnings/loss per share
Basic earnings per share was 15.7p (2019/20: 1.3p; 2020/21: loss of 10.1p on a
53-week basis), due to the increase in profit year-on-year. The weighted
average number of shares in issue during the period was 1,958.1m (2019/20:
1,894.9m ; 2020/21: 1,953.5m).
Adjusted basic earnings per share was 21.7p (2019/20: 16.7p; 2020/21:1.4p on a
53-week basis) due to higher adjusted profit year-on-year.
Cash flow
52 weeks ended 53 weeks ended 52 weeks ended Change
2 Apr 22 3 Apr 21 28 Mar 20 vs 19/20
£m £m £m £m
Adjusted operating profit 709.0 222.2 590.7 118.3
Depreciation and amortisation before adjusting items 510.7 603.1 632.5 (121.8)
Cash lease payments (344.3) (316.6) (335.7) (8.6)
Working capital 239.7 268.1 (67.8) 307.5
Defined benefit scheme pension funding (36.8) (37.1) (37.9) 1.1
Capex and disposals (213.5) (203.8) (325.9) 112.4
Financial interest (79.9) (76.0) (79.5) (0.4)
Taxation (7.7) (5.8) (91.6) 83.9
Acquisitions, investments and divestments (41.4) 8.7 (580.3) 538.9
Employee-related share transactions 39.1 18.5 9.7 29.4
Proceeds from rights issue net of costs - - 574.4 (574.4)
Share of (profit)/loss from associate (13.9) (78.4) (2.6) (11.3)
Cash received from settlement of derivatives - 14.0 7.7 (7.7)
Adjusting items outflow (61.8) (120.5) (88.0) 26.2
Free cash flow 699.2 296.4 205.7 493.5
Dividends paid - - (191.1) 191.1
Free cash flow after shareholder returns 699.2 296.4 14.6 684.6
Opening net debt excluding lease liabilities (1,110.0) (1,388.6) (1,404.7) 294.7
Free cash flow after shareholder returns 699.2 296.4 14.6 684.6
Exchange and other non-cash movements excluding leases (9.3) (17.8) 1.5 (10.8)
Closing net debt excluding lease liabilities (420.1) (1,110.0) (1,388.6) 968.5
Opening net debt (3,515.9) (3,950.6) (3,981.5) 465.6
Free cash flow after shareholder returns 699.2 296.4 14.6 684.6
Decrease in lease obligations 216.0 184.3 201.4 14.6
New lease commitments and remeasurements (100.6) (48.3) (204.1) 103.5
Exchange and other non-cash movements 2.5 2.3 19.0 (16.5)
Closing net debt (2,698.8) (3,515.9) (3,950.6) 1,251.8
The business generated free cash flow of £699.2m, largely driven by the
recovery in EBITDA, working capital inflow and reduced cash tax and capital
expenditure.
Cash lease payments increased £8.6m partly as a result of rental payments
which were deferred from last year into this year as part of cash conservation
measures enacted at the start of the pandemic. Cash lease payments relating to
stores identified as part of the UK store estate strategic programme which are
probable for closure totalled £54.8m.
For further detail on working capital movements, refer to the section below.
Defined benefit scheme pension funding of £36.8m reflects the SLP interest
distribution to the pension scheme.
For capex and disposals, refer to the section below.
The reduction in tax payments of £83.9m is due to no UK corporation tax being
paid in the period. This is driven by the utilisation of carried-forward tax
losses from 2020/21.
Acquisitions, investments and divestments were driven principally by the
payment of £33.8m of contingent consideration relating to the investment in
Ocado Retail Ltd in the period. The final contingent payment for Ocado Retail
Ltd of c.£156m plus interest will be paid in financial year 2024/25 if a
specified target level of earnings in the financial year ending November 2023
is achieved. Based on the latest five-year plan of Ocado Retail Ltd, the
performance target is expected to be met.
Other acquisitions and investments in the period include the strategic
investment in the fast-growing brand platform "The Sports Edit", a minority
stake and funding for "Nobody's Child" and a cornerstone investment in True
Capital Limited's seed-stage fund. These investments were offset by income
from the disposal of a property investment company.
Employee-related share transactions cash inflows increased due to a change in
policy to no longer purchase shares for issue in colleague incentive schemes,
increased deferred colleague incentive share scheme payments, and increased
uptake of employee share schemes during the pandemic.
Adjusting items cash outflow was £61.8m. This included £16.5m relating to
the UK store estate strategy, £16.0m relating to the M&S Bank insurance
mis-selling provisions, £15.9m of organisational restructuring costs largely
relating to the Republic of Ireland, £9.4m largely relating to the
restructuring of our French operations, and £3.7m for the restructuring of
the UK Clothing & Home logistics network.
Working capital
The business generated £508m cash inflow from working capital over the past
two years.
Most of this was driven by payables, partly as a result of changes to payment
terms for Clothing & Home suppliers, in addition to higher outstanding
payments over year end as a result of business growth.
As previously reported, receivables remain at a lower level than pre-Covid,
partly due to the adverse impact of the pandemic on our Food franchise
business.
Stock increased slightly over the period, driven primarily by inventory build
in the Food business as we approached the end of March, as well as the timing
of Clothing & Home intake over year-end.
As part of our focus on deeper, strategic supplier relationships, we are
improving supplier payment terms in both Clothing & Home and Food. In
Clothing & Home, we anticipate the benefits of longer supplier terms
within these results to partially reverse in the coming year.
Capital expenditure
52 weeks ended 53 weeks ended 52 weeks ended Change vs 19/20
2 Apr 22 3 Apr 21 28 Mar 20 £m
£m £m £m
UK store remodelling 50.1 27.0 60.3 (10.2)
New UK stores 49.9 14.9 33.3 16.6
International 18.2 6.7 15.7 2.5
Supply chain 28.6 25.2 39.2 (10.6)
IT and M&S.com 68.2 47.6 81.1 (12.9)
Property asset replacement 85.2 19.2 102.4 (17.2)
Acquisition of Jaeger brand - 6.3 - -
Capital expenditure before property acquisitions and disposals 300.2 146.9 332.0 (31.8)
Property acquisitions and disposals (43.9) (0.3) (2.7) (41.2)
Capital expenditure 256.3 146.6 329.3 (73.0)
Movement in capital accruals (42.8) 57.2 (3.4) (39.4)
Capex and disposals as per cash flow 213.5 203.8 325.9 (112.4)
Group capital expenditure before disposals decreased £31.8m to £300.2m
compared to 2019/20; however, it was up on 2020/21 as we increased investment
in the transformation.
UK store remodelling costs related principally to 22 full line and food
renewal stores, some of which have not yet opened, as well as upgrades to
Clothing & Home space.
Spend on new UK stores primarily related to eight new or extended Simply Foods
and seven new or extended full-line stores in the current year, some of which
have not yet opened.
Supply chain expenditure reflects the expansion of our Bradford warehouse to
support online growth in Clothing & Home, Food equipment purchases, and
investment in our Milton Keynes Food depot to support capacity increases.
IT and M&S.com spend includes costs related to technology replacement and
upgrades in stores, the development of the Food ordering and allocation system
and buying portals, website development and ongoing investment in digital
capability in the support centre and stores.
Property asset replacement normalised towards 2019/20 levels as replacement of
core assets across the estate, which had been de-prioritised during 2020/21
due to cash conservation measures, was re-prioritised. This includes roof
works and replacement of fridges, freezers, boilers, lifts and escalators.
Property acquisitions and disposals primarily relates to cash inflows from the
disposal of two warehouses in the third quarter.
Capital accruals were higher at year-end compared to 2020/21 as transformation
spend increased in the second half. It should be noted that 2020/21 capital
expenditure cash flow included some accrued spend relating to 2019/20.
Net debt
Group net debt decreased by £1.25bn compared to 2019/20, driven by free cash
flow generation, and by £0.8bn since the start of the year.
There was a further reduction in the value of discounted lease obligations
outstanding since the start of the year. New lease commitments and
remeasurements in the period were £100.6m, largely relating to 20 new UK
leases, lease additions in India and UK property and logistics liability
remeasurements. This was more than offset by £216.0m of capital lease
repayments.
The composition of Group net debt is as follows:
52 weeks ended 53 weeks ended 52 weeks ended vs 19/20
2 Apr 22 3 Apr 21 28 Mar 20
£m £m £m £m
Cash and cash equivalents 1,197.9 674.4 254.2 943.7
Medium Term Notes (1,529.5) (1,682.1) (1,536.2) 6.7
Current financial assets and other 99.4 83.2 96.1 3.3
Partnership liability to the UK DB pension fund (187.9) (185.5) (202.7) 14.8
Net debt excluding lease liabilities (420.1) (1,110.0) (1,388.6) 968.5
Lease liabilities (2,278.7) (2,405.9) (2,562.0) 283.3
- Full-line stores (919.5) (982.6) (1,054.8) 135.3
- Simply Food stores (712.8) (727.0) (747.7) 34.9
- Offices, warehouses and other (449.5) (494.5) (523.7) 74.2
- International (196.9) (201.8) (235.8) 38.9
Group net debt (2,698.8) (3,515.9) (3,950.6) 1,251.8
Full-line store liabilities include £225.3m relating to stores identified as
part of the UK store estate strategic programme. We are seeking to fund the
closure costs of rotation of the store estate with the realisation of funds
from our asset management programme.
Of the remaining full-line stores lease liability, the average
liability-weighted lease length is c.25 years, although the average lease term
to break is shorter at c.19 years. However, these average lease lengths are
skewed by five particularly long leases we hold, with the longest of these
having 135 years remaining. These five leases, with a combined lease liability
of c.£100m, are not deemed probable for closure in our UK store estate
programme as they are currently trading well in locations we wish to remain
in. Excluding these five leases, the average lease term to break is c.14
years.
Simply Food store liabilities include £30.9m relating to stores identified as
part of the UK store estate strategic programme. Of the remaining lease
liability, the average lease length to break is c.10 years.
Within offices, warehouses and other, £144.9m relates to the sublet lease on
our Merchant Square offices. Average lease length of all other offices and
warehouses to break is c.7 years.
International leases relate primarily to India (c.£85m) and Ireland
(c.£66m). Average lease length to break in India is close to nil, as most of
these leases are past the break point, and so we have the flexibility to exit
these at any time on several months' notice. Average lease length to break in
Ireland is c.10 years.
Liquidity
At 2 April 2022, the Group held cash balances of £1,197.9m (2019/20:
£254.2m). In addition, during the year the Group agreed a new £850m
revolving credit facility expiring in June 2025 on terms linked to delivery of
its net zero roadmap. With the facility undrawn, the Group now has liquidity
headroom of £2.1bn. This liquidity position is as a result of free cash flow
performance.
As part of our approach to liability management we have announced a tender
offer for c.£150m of our near-term debt maturities.
Dividend
We did not pay a dividend for 2020/21, and the Board has decided not to pay a
dividend this year.
This is consistent with the announcement at the half-year results that payment
of a dividend this financial year would be unlikely as we focus on restoring
sustainable profitability and recovering balance sheet metrics consistent with
investment grade.
Pension
At 2 April 2022, the IAS 19 net retirement benefit surplus was £1,038.2m
(2020/21: £631.4m). The increase was largely driven by an increase in
discount rates towards the end of the period.
The most recent actuarial valuation of the UK DB Pension Scheme was carried
out as at 31 March 2018 and showed a funding surplus of £652m. This is an
improvement on the previous position at 31 March 2015 (statutory surplus of
£204m), primarily due to lower assumed life expectancy. We continue to work
constructively with the Trustees of the UK DB Pension Scheme with regard to
agreeing the triennial actuarial valuation of the scheme as at 31 March 2021.
Consequently, the results of the valuation are not yet finalised, although it
is likely that there will continue to be a surplus.
With the pensioner buy-in policies purchased in September 2020, April 2019 and
March 2018, the scheme has now, in total, insured around 80% 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.
Statement of financial position
Net assets were £2,917.9m at the period end, an increase of 27.7% since the
start of the year largely due to free cash generation.
Important Notice:
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, those related to the Covid-19
pandemic or 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 2022 Annual Report (pages 45-54).
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.
- Ends -
Consolidated income statement
52 weeks ended 53 weeks ended
2 April 2022 3 April 2021
Total Total
Notes £m £m
Revenue 2, 3 10,885.1 9,155.7
Share of result in associate - Ocado Retail Limited 2, 3, 17 (18.6) 64.2
Operating profit/(loss) 2, 3 572.2 (30.7)
Finance income 3, 4 33.9 57.4
Finance costs 3, 4 (214.4) (236.1)
Profit/(loss) before tax 3 391.7 (209.4)
Income tax (expense)/credit 5 (82.7) 8.2
Profit/(loss) for the year 309.0 (201.2)
Attributable to:
Owners of the parent 306.6 (198.0)
Non-controlling interests 2.4 (3.2)
309.0 (201.2)
Earnings/(loss) per share
Basic earnings/(loss) per share 6 15.7 p (10.1p)
Diluted earnings/(loss) per share 6 15.1p (10.1p)
Reconciliation of profit before tax and adjusting items:
Profit/(loss) before tax 391.7 (209.4)
Adjusting items 3 131.2 259.7
Profit before tax and adjusting items - non-GAAP measure 522.9 50.3
Adjusted earnings per share - non-GAAP measure
Adjusted basic earnings per share 6 21.7p 1.4p
Adjusted diluted earnings per share 6 20.9p 1.4p
Consolidated statement of comprehensive income
52 weeks ended 53 weeks ended
2 April 2022 3 April 2021
Notes £m £m
Profit/(loss) for the year 309.0 (201.2)
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss
Remeasurements of retirement benefit schemes 8 357.0 (1,352.0)
Tax (charge)/credit on retirement benefit schemes (127.6) 256.5
Loss on disposal of investment held at fair value through other comprehensive (3.7) -
income ("FVOCI")
225.7 (1,095.5)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences
- movements recognised in other comprehensive income (13.5) (27.7)
- reclassified and reported in profit or loss (0.5) 3.7
Cash flow hedges
- fair value movements recognised in other comprehensive income 91.3 (215.5)
- reclassified and reported in profit or loss (10.5) 26.5
Tax (charge)/credit on cash flow hedges (14.7) 37.0
52.1 (176.0)
Other comprehensive income/(expense) for the year, net of tax 277.8 (1,271.5)
Total comprehensive income/(expense) for the year 586.8 (1,472.7)
Attributable to:
Owners of the parent 584.4 (1,469.5)
Non-controlling interests 2.4 (3.2)
586.8 (1,472.7)
Consolidated statement of financial position
As at As at
2 April 2022 3 April 2021
Notes £m £m
Assets
Non-current assets
Intangible assets 10 192.5 232.0
Property, plant and equipment 11 4,902.3 5,058.6
Investment property 15.0 15.2
Investments in joint ventures and associates 17 810.9 825.8
Other financial assets 4.5 9.7
Retirement benefit asset 8 1,043.9 639.2
Trade and other receivables 270.6 261.4
Derivative financial instruments 21.4 0.3
7,261.1 7,042.2
Current assets
Inventories 3 706.1 624.6
Other financial assets 17.6 18.4
Trade and other receivables 217.1 209.6
Derivative financial instruments 43.6 32.8
Current tax assets - 35.4
Cash and cash equivalents 1,197.9 674.4
2,182.3 1,595.2
Total assets 9,443.4 8,637.4
Liabilities
Current liabilities
Trade and other payables 1,960.9 1,599.0
Partnership liability to the Marks & Spencer UK Pension Scheme 9 71.9 124.9
Borrowings and other financial liabilities 247.2 432.8
Derivative financial instruments 3.2 96.0
Provisions 53.6 43.1
Current tax liabilities 34.0 -
2,370.8 2,295.8
Non-current liabilities
Retirement benefit deficit 8 5.7 7.8
Trade and other payables 188.2 192.3
Partnership liability to the Marks & Spencer UK Pension Scheme 9 120.4 68.6
Borrowings and other financial liabilities 3,561.0 3,659.9
Derivative financial instruments 0.4 10.7
Provisions 91.8 74.2
Deferred tax liabilities 187.2 42.3
4,154.7 4,055.8
Total liabilities 6,525.5 6,351.6
Net assets 2,917.9 2,285.8
Equity
Issued share capital 19.7 489.2
Share premium account 910.6 910.4
Capital redemption reserve 2,680.4 2,210.5
Hedging reserve 17.6 (54.8)
Cost of hedging reserve 3.6 4.6
Other reserve (6,542.2) (6,542.2)
Foreign exchange reserve (73.9) (59.9)
Retained earnings 5,897.9 5,325.2
Equity attributable to owners of the parent 2,913.7 2,283.0
Non-controlling interests 4.2 2.8
Total equity 2,917.9 2,285.8
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(2) Total Non-controlling Total
interest
£m £m £m £m £m £m £m £m £m £m £m
As at 29 March 2020 487.6 910.4 2,210.5 68.6 5.7 (6,542.2) (35.9) 6,597.8 3,702.5 6.0 3,708.5
Loss for the year - - - - - - - (198.0) (198.0) (3.2) (201.2)
Other comprehensive (expense)/income:
Foreign currency translation
- movements recognised in other comprehensive income - - - - - - (27.7) - (27.7) - (27.7)
- reclassified and reported in profit or loss - - - - - - 3.7 - 3.7 - 3.7
Remeasurements of retirement benefit schemes - - - - - - - (1,352.0) (1,352.0) - (1,352.0)
Tax credit on retirement benefit schemes - - - - - - - 256.5 256.5 - 256.5
Cash flow hedges
- fair value movement in other comprehensive income - - - (214.2) (1.3) - - - (215.5) - (215.5)
- reclassified and reported in profit or loss - - - 26.5 - - - - 26.5 - 26.5
Tax on cash flow hedges - - - 36.8 0.2 - - - 37.0 - 37.0
Other comprehensive (expense)/income - - - (150.9) (1.1) - (24.0) (1,095.5) (1,271.5) - (1,271.5)
Total comprehensive (expense)/income - - - (150.9) (1.1) - (24.0) (1,293.5) (1,469.5) (3.2) (1,472.7)
Cash flow hedges recognised in inventories - - - 33.9 - - - - 33.9 - 33.9
Tax on cash flow hedges recognised in inventories - - - (6.4) - - - - (6.4) - (6.4)
Transactions with owners:
Shares issued in respect of employee share options 1.6 - - - - - - (1.6) - - -
Purchase of own shares held by employee trusts - - - - - - - (0.8) (0.8) - (0.8)
Credit for share-based payments - - - - - - - 19.3 19.3 - 19.3
Deferred tax on share schemes - - - - - - - 4.0 4.0 - 4.0
As at 3 April 2021 489.2 910.4 2,210.5 (54.8) 4.6 (6,542.2) (59.9) 5,325.2 2,283.0 2.8 2,285.8
As at 4 April 2021 489.2 910.4 2,210.5 (54.8) 4.6 (6,542.2) (59.9) 5,325.2 2,283.0 2.8 2,285.8
Profit for the year - - - - - - - 306.6 306.6 2.4 309.0
Other comprehensive income/(expense):
Foreign currency translation
- movements recognised in other comprehensive income - - - - - - (13.5) - (13.5) - (13.5)
- reclassified and reported in profit or loss - - - - - - (0.5) - (0.5) - (0.5)
Remeasurements of retirement benefit schemes - - - - - - - 357.0 357.0 - 357.0
Tax charge on retirement benefit schemes - - - - - - - (127.6) (127.6) - (127.6)
Loss on disposal of investments held at FVOCI - - - - - - - (3.7) (3.7) - (3.7)
Cash flow hedges
- fair value movement in other comprehensive income - - - 92.1 (0.8) - - - 91.3 - 91.3
- reclassified and reported in profit or loss - - - (10.5) - - - - (10.5) - (10.5)
Tax on cash flow hedges - - - (14.5) (0.2) - - - (14.7) - (14.7)
Other comprehensive income/(expense) - - - 67.1 (1.0) - (14.0) 225.7 277.8 - 277.8
Total comprehensive income/(expense) - - - 67.1 (1.0) - (14.0) 532.3 584.4 2.4 586.8
Cash flow hedges recognised in inventories - - - 6.5 - - - - 6.5 - 6.5
Tax on cash flow hedges recognised in inventories - - - (1.2) - - - - (1.2) - (1.2)
Transactions with owners:
Transactions with non-controlling shareholders - - - - - - - (1.7) (1.7) (1.0) (2.7)
Shares issued in respect of employee share options 0.4 0.2 - - - - - (0.3) 0.3 - 0.3
Buy back and cancellation of own shares(3) (469.9) - 469.9 - - - - - - - -
Credit for share-based payments - - - - - - - 38.8 38.8 - 38.8
Deferred tax on share schemes - - - - - - - 3.6 3.6 - 3.6
As at 2 April 2022 19.7 910.6 2,680.4 17.6 3.6 (6,542.2) (73.9) 5,897.9 2,913.7 4.2 2,917.9
(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.
(2)Included within retained earnings is the fair value through other
comprehensive income reserve.
(3)On 8 July 2021, the Company reduced the nominal value of its 1,957,779,626
ordinary shares in issue at that date from £0.25 to £0.01. The reduction was
completed by subdividing each £0.25 ordinary share in issue into one ordinary
share of £0.01 and one deferred share of £0.24. All deferred shares were
then bought back for total aggregate consideration of £0.01 and cancelled.
The Company's issued share capital remains unchanged and each shareholder's
proportionate interest in the share capital of the Company remains unchanged.
Aside from the change in nominal value, the rights attaching to the ordinary
shares (including voting and dividend rights and rights on a return of
capital) remain unchanged.
Consolidated statement of cash flows
52 weeks ended 53 weeks ended
2 April 2022 3 April 2021
Notes £m £m
Cash flows from operating activities
Cash generated from operations 14 1,385.7 876.7
Income tax paid (7.7) (5.8)
Net cash inflow from operating activities 1,378.0 870.9
Cash flows from investing activities
Proceeds on property disposals 43.9 2.9
Purchase of property, plant and equipment (192.8) (158.9)
Purchase of intangible assets (64.6) (47.8)
Sale/(purchase) of current financial assets 0.8 (6.7)
Purchase of non-current financial assets (3.3) -
Proceeds on disposal of non-current financial assets 5.2 -
Purchase of investments in associates and joint ventures(1) 17 (37.8) 8.7
Acquisition of subsidiary, net of cash acquired(2) (4.5) -
Loans to related parties (1.0) -
Interest received 8.4 9.2
Net cash used in investing activities (245.7) (192.6)
Cash flows from financing activities
Interest paid(3) (216.6) (219.3)
Issuance of Medium Term Notes - 300.0
Redemption of Medium Term Notes (163.6) (136.4)
Repayment of lease liabilities (216.0) (184.3)
Payment of liability to the Marks & Spencer UK Pension Scheme - (17.2)
Shares issued on exercise of employee share options 0.3 -
Purchase of own shares by employee trust - (0.8)
Cash received from settlement of derivatives - 14.0
Net cash used in financing activities (595.9) (244.0)
Net cash inflow from activities 536.4 434.3
Effects of exchange rate changes (8.2) (3.3)
Opening net cash 669.7 238.7
Closing net cash 15 1,197.9 669.7
(1)Current year includes £33.8m outflow in relation to contingent
consideration settled with Ocado Retail Limited and £4.0m outflow on the
acquisition of 27% of the issued share capital of Nobody's Child Limited. Last
year includes inflow of £11.2m upon finalisation of the completion statement
in relation to the investment in Ocado Retail Limited and outflow of £2.5m in
relation to Founders Factory Retail Limited.
(2)£4.5m outflow on the acquisition of 77.7% of the issued share capital of
The Sports Edit Limited.
(3)Includes interest paid on the Partnership liability to the Marks &
Spencer UK Pension Scheme of £nil (last year: £6.4m) and interest paid on
lease liabilities of £128.3m (last year: £132.3m).
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 2 April 2022 or 3 April 2021.
The financial information for the year ended 3 April 2021 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 2 April 2022 will be delivered to the
Registrar of Companies following the company's annual general meeting.
Basis of preparation
Whilst 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 3 April 2021, 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 directors have 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 2 April 2022,
the Group had further strengthened its available liquidity over the year to
£2,072.9m (last year: £1,799.4m), comprising cash and cash equivalents of
£1,197.9m, an undrawn committed syndicated bank revolving credit facility
("RCF") of £850.0m (set to mature in June 2025), and undrawn uncommitted
facilities amounting to £25.0m. The Group's net debt at 2 April 2022 was
£2,698.8m, a reduction of £817.1m since 3 April 2021, primarily driven by
strong free cash flow generation.
The Group successfully renegotiated its RCF in December 2021, which is set to
run until June 2025, and replaces the facility which was due to mature in
April 2023. The new 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 semi-annually.
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, increased costs 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 also modelled a more severe, but plausible, downside scenario.
This downside scenario assumes that:
· There will be a period of economic recession in the UK in 2022/23
and 2023/24 (following the impacts of the Covid-19 pandemic, the unfolding
humanitarian crisis following the invasion of Ukraine and the subsequent sharp
increases in the cost of living), resulting in a decline in sales of 4.0% per
annum, across all three business units.
· Utilities, fuel and other costs increasing by over £50m across
2022/23 and 2023/24.
· A delay on transformation benefits results in incremental sales
expected from the transformation declining by 10%, 20% and 40% respectively
across the three-year period across both Food and Clothing & Home business
units.
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. Although,
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, which
represents a significant decline in sales compared to the downside scenario.
Such a scenario, and the sequence of events which could lead to it, is
considered to be 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 4 April 2021:
· Amendments to IFRS 16: Covid-19-Related Rent Concessions beyond
30 June 2021.
· Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform Phase 2.
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:
· Amendments to IAS 16: Property, Plant and Equipment - Proceeds
before Intended Use
· Amendments to IFRS 3: Reference to the Conceptual Framework
· Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a
Contract
· Annual Improvements to IFRS Standards 2018-2020 Cycle: Amendments
to IFRS 1 First-time Adoption of International Financial Reporting Standards,
IFRS 9 Financial Instruments, IFRS 16 Leases and IAS 41 Agriculture
· IFRS 17 Insurance Contracts
· Amendments to IAS 1: Classification of Liabilities as Current or
Non-Current
· 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 IFRS 10 and IAS 28: Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
The adoption of the above standards and interpretations is not expected to
lead to any changes to the Group's accounting policies or have any other
material impact on the financial position or performance of the Group.
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 revenue growth;
operating profit before adjusting items; profit before tax and adjusting
items; adjusted basic earnings per share; net debt; net debt excluding lease
liabilities; free cash flow; and return on capital employed. Each of these
APMs, and others used by the Group, are 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 to the financial statement
line item or applicable disclosure note 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 2 April 2022:
· Net charges associated with the strategic programme in relation
to the review of the UK 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 operating profit before
adjusting items where they relate to stores not previously impaired.
· 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 contingent consideration including discount
unwind.
· Directly attributable gains and expenses resulting from the
Covid-19 pandemic.
Refer to note 3 for a summary of the adjusting items.
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 and
UK Food franchise operations, with the following five main categories: protein
deli and dairy; produce; ambient and in-store bakery; meals, dessert and
frozen; and 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 operating profit before adjusting items. 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 2 April 2022 53 weeks ended 3 April 2021
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
Sales before adjusting items(1) 3,332.2 6,639.6 937.2 - - 10,909.0 2,239.0 6,138.5 789.4 - - 9,166.9
Revenue before adjusting items(2) 3,308.3 6,639.6 937.2 - - 10,885.1 2,239.0 6,138.5 789.4 - - 9,166.9
Operating profit/(loss) before adjusting items(3) 330.7 277.8 73.6 13.9 13.0 709.0 (130.8) 228.6 44.1 78.4 1.9 222.2
Finance income before adjusting items 28.3 57.4
Finance costs before adjusting items (214.4) (229.3)
Profit/(loss) before tax and adjusting items 330.7 277.8 73.6 13.9 13.0 522.9 (130.8) 228.6 44.1 78.4 1.9 50.3
Adjusting items (131.2) (259.7)
Profit/(loss) before tax 330.7 277.8 73.6 13.9 13.0 391.7 (130.8) 228.6 44.1 78.4 1.9 (209.4)
(1) Sales before adjusting items is revenue before adjusting items stated
prior to adjustments for UK Clothing & Home brand consignment sales of
£23.9m.
(2) Revenue is stated prior to adjusting items of £nil (last full year:
£11.2m) (see note 3).
(3) Operating profit/(loss) before adjusting items is stated as gross profit
less operating costs prior to adjusting items. Reportable segment level costs
are allocated where directly attributable or based on an appropriate cost
driver for the cost.
Other segmental information
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
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 139.2 163.7 18.5 - - 321.4 50.5 105.0 6.8 - - 162.3
goodwill and right-of-use assets)
Depreciation and amortisation(1,2) (268.1) (248.8) (35.0) - - (551.9) (312.3) (259.4) (25.1) - - (596.8)
Impairment charges, impairment reversals and asset write-offs(1) (37.2) 10.7 (8.0) - - (34.5) (155.1) (34.9) (4.7) - - (194.7)
(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: £0.3m) depreciation charged 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 2 April 2022
is a net charge of £131.2m (last year: £259.7m). The adjustments made to
reported profit before tax to arrive at adjusted profit are:
2022 2021
Notes £m £m
Included in revenue
Sparks loyalty programme transition - (11.2)
- (11.2)
Included in operating profit
Strategic programmes - UK store estate 11 (161.4) (95.3)
Strategic programmes - UK logistics 11 21.9 (2.2)
Strategic programmes - Organisation 11 14.3 (133.7)
Strategic programmes - International store closures and impairments 0.4 (3.6)
Store impairments, impairment reversals and other property charges 11 60.0 6.9
Amortisation and fair value adjustments arising as part of the investment in 17 (32.5) (14.2)
Ocado Retail Limited
Directly attributable gains resulting from the Covid-19 pandemic 17.8 90.8
M&S Bank charges incurred in relation to insurance mis-selling provisions (16.0) (2.4)
Franchise restructure (41.3) -
Intangible asset impairments 10 - (79.9)
Sparks loyalty programme transition - (5.4)
Establishing the investment in Ocado Retail Limited - (1.7)
GMP and other pension equalisation 8 - (1.0)
(136.8) (241.7)
Included in net finance costs
Remeasurement of contingent consideration including discount unwind 5.6 (6.8)
5.6 (6.8)
Adjustments to profit before tax (131.2) (259.7)
Strategic programmes - UK store estate (£161.4m)
In November 2016, the Group announced a strategic programme to transform the
UK store estate with the overall objective to improve our store estate to
better meet our customers' needs. The Group incurred charges of £657.6m up to
April 2021 under this programme primarily relating to closure costs associated
with stores identified as part of the strategic transformation plans.
During 2020/21, the Group experienced a significant channel shift from stores
to online due to the pandemic, accelerating the Group's ambition to achieve a
Clothing & Home online sales mix of at least 40% over the next three
years. This acceleration in channel shift required the Group to revise the UK
store estate strategic programme to ensure the estate continued to meet
customers' needs.
The Group has recognised a charge of £161.4m in the period in relation to
those stores identified as part of the rotation plans. The charge primarily
reflects a revised view of latest store closure plans and 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 latest approved
exit routes.
Further charges relating to the closure and rotation of the UK store estate
are anticipated over the next nine years as the programme progresses, the
quantum of which is subject to change throughout the programme period as we
get greater certainty of circumstances that need to be in place to make
closure financially viable. Future charges will not include Foodhall closures
at lease event where there is opportunity for a better location, as this is
not in the scope of the programme.
Following the latest review at 2 April 2022, the total closure programme now
consists of 204 stores, 100 of which have already closed. Further charges of
c.£200m are estimated within the next nine financial years, bringing
anticipated total programme costs since 2016 to c.£1bn, vs c.£926m last
year. In addition, where store exit routes in the next nine 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.
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 anticipated total programme costs do not include any costs that may arise
in relation to a further c.30 stores currently under consideration for closure
within the next nine 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.
Strategic programmes - UK logistics (£21.9m 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.
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 two further distribution centres across 2020/21 and
2021/22. A net credit of £21.9m has been recognised in the period, reflecting
the gain on disposal of distributions centres and an updated view of estimated
closure costs. Total programme costs to date are £17.9m with further net
charges of £43.3m expected over the next three financial years.
These net credits 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.
Strategic programmes - Organisation (£14.3m credit)
During 2020/21, the Group announced a commitment to integrate more flexible
management structures into store operations as well as streamline the business
at store and management level in the UK and Republic of Ireland as part of the
'Never the Same Again' transformation. The changes resulted in a reduction of
c.8,200 roles across central support centres, regional management and stores.
A credit of £2.4m has been recognised in the period based on the finalisation
of redundancy costs associated with these changes. No provision remains at the
year end and there are no further charges anticipated.
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
previous years, an impairment charge of £11.9m was recognised in relation to
the sublet of previously closed offices. In the period, this impairment charge
has been fully reversed with a credit of £11.9m recognised. 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.£86m. Any
future charges will relate to the updating of assumptions and market
fluctuations over the life of the sublet lease.
These credits are reported as adjusting items on the basis that they are
consistent with the disclosure of costs previously recognised.
Strategic programmes - International store closures and impairments (£0.4m
credit)
In 2016/17, the Group announced its intention to close owned stores in 10
international markets. A credit of £0.4m (last year: charge of £3.6m) has
been recognised in the year, reflecting an updated view of the estimated final
closure costs for certain markets and those costs which can only be recognised
as incurred, taking the programme net cost to date to £148.2m.
The net credit is considered to be an adjusting item as it is part of a
strategic programme which, over the six years of net charges, has been
significant in both quantum and nature to the results of the Group. No further
significant charges are expected.
Directly attributable gains resulting from the Covid-19 pandemic (£17.8m
credit)
In March 2020, following the onset of the Covid-19 global pandemic and
subsequent UK government restrictions, the Group sustained significant
disruption to its operations. In response to the uncertainty resulting from
the pandemic, coupled with the fast-paced changes taking place across the
retail sector, the Board approved a Covid-19 scenario to reflect management's
best estimate of the significant volatility and business disruption expected
as a result of the ongoing pandemic.
The pandemic continued to impact the Group throughout 2020/21 and it became
increasingly more difficult to differentiate Covid-19 items from costs that
supported the underlying performance of the business. In addition, the
estimated timeframe over which these effects may have impacted the business
increased. As a result, the Group took the decision in the interim 2020/21
results to only include changes in estimates to items that were included in
adjusting items in 2019/20, in this case relating to the inventory provision
and bad debt provision.
Included within directly attributable expenses resulting from the Covid-19
pandemic of £163.6m at 2019/20, was an incremental write-down of inventory to
net realisable value of £157.0m (UK Clothing & Home: £145.3m; UK Food:
£6.0m; and International: £5.7m), reflecting management's best estimate of
the impact on the Group of the Covid-19 pandemic. Accordingly, of the total
£204.8m inventory provision, £157.0m was recognised in adjusting items and
£47.8m in the underlying results. The total remaining provision held as at 3
April 2021 was £36.7m.
Included within the UK Clothing & Home provision last year was an
incremental write-down of inventory to net realisable value of £18.6m
reflecting management's best estimate of the impact of the Covid-19 pandemic
on UK Clothing & Home inventory as at 3 April 2021. During 2021/22, UK
Clothing & Home performance has been strong, with better-than-expected
sell-through of stock originally provided for. During the year, £10.2m of the
Covid-19 provision has been utilised, and there has been a release of £14.0m
recognised in adjusting items. No UK Clothing & Home inventory provisions
in relation to Covid-19 remain on the balance sheet at 2021/22. Similarly,
following better-than-expected sell-through of inventory previously provided
for in the International markets, there has been a release of £0.8m of the
Covid-19 inventory provisions during 2021/22. No International Covid-19 stock
provisions remain on the balance sheet at 2021/22. During the year, of the UK
Food provision against excess slow-moving personal protective equipment,
committed to during the peak of the first Covid-19 lockdown and incurred
directly in response to the Covid-19 pandemic, £3.0m has been utilised and
£2.2m released. A provision of £5.6m remains on the balance sheet at
2021/22.
The carrying value of the Group's inventories at 2 April 2022 is £706.1m,
split across the UK Clothing & Home, UK Food and International businesses
representing gross inventories of £506.9m, £200.4m and £70.8m respectively,
against which a provision of £48.3m, £17.8m and £5.9m has been recognised.
The total UK Clothing & Home inventory provisions represent 9.5% (last
year: 15.4%) of UK Clothing & Home inventory. The UK Clothing & Home
inventory provision is based on future trading assumptions in line with the
Group's 2022/23 Budget. However, trading could be higher or lower than
expected and a 5% increase in the UK Clothing & Home inventory provision
(from 9.5% to 14.5%) would result in a reduction in the valuation of inventory
held on the balance sheet of £25.2m and would result in a corresponding
decrease to recognised profit before tax in the period.
In addition, a release of £0.8m has been recognised within adjusting items in
relation to the Covid-19 bad debt provision recognised against international
franchise partners. At 2021/22 no Covid-19 bad debt provision remains.
The £17.8m directly attributable net gains from the Covid-19 pandemic are
considered to be adjusting items as they meet the Group's established
definition, being both significant in nature and value to the results of the
Group in the current period, and treatment as adjusting items is consistent
with the treatment of charges of a consistent nature recognised in 2019/20. No
future charges are expected. Any future credits relating to these items will
continue to also be classified as adjusting.
Store impairments, impairment reversals and property charges (£60.0m 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.
In response to the strong Group performance and lifting of government
restrictions, the Group has revised future cash flow projections for UK and
International stores (excluding those stores that have been captured as part
of the UK 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 £2.9m (last year:
£66.4m) has been incurred primarily in respect of the impairment of assets
associated with these stores. In addition, a credit of £63.4m (last year:
£73.3m) has been incurred for the reversal of store impairments recognised 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.
A further charge of £0.5m has been recognised in relation to the settlement
of provisions for property charges. This treatment is consistent with the
original provision charges, which were recognised within adjusting items.
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.
Amortisation and fair value adjustments arising as part of the investment in
Ocado Retail Limited (£32.5m)
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 £17.6m
recognised in the period. In addition, a further deferred tax charge of
£14.9m has been recognised predominantly relating to the substantial
enactment of the Finance Act 2021 during the period increasing the UK's main
corporation tax rate from 19% to 25% from 1 April 2023.
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 judgements 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.
M&S Bank charges incurred in relation to insurance mis-selling provisions
(£16.0m)
The Group has an economic interest in Marks and Spencer Financial Services plc
(trading as M&S Bank), a wholly owned subsidiary of HSBC UK Bank plc, 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 does 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 be 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 under the Relationship Agreement, there is a cap on the
amount of charges that can be offset against the profit share in any one year,
whereby excess liabilities carried forward are deducted from the Group's
future profit share from M&S Bank. The deduction in the period is £16.0m
(last year: £2.4m).
The treatment of this in adjusting items is in line with previous charges in
relation to settlement of Payment Protection Insurance (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 £326.3m which exceeds the total offset against
profit share of £259.0m to date, and this deficit will be deducted from the
Group's share of future profits from M&S Bank.
Franchise restructuring (£41.3m)
During the year, the Group recognised a charge of £41.3m as a result of the
restructure of certain International franchise operations.
In September 2021 the Group announced the closure of 11 franchise stores in
France in response to increased EU border costs. Consequently, the Group has
recognised a charge of £10.3m for closure costs. No future costs are
currently expected.
In March 2022, in response to the unfolding humanitarian crisis following the
invasion of Ukraine, the Group announced it had suspended shipments to its
Turkish franchisee's Russian business. The Group has subsequently made the
decision to fully exit its Russian franchise. As a result, the Group has
recognised a charge of £31.0m representing the Group's full exit costs from
Russia and business disruptions in Ukraine.
The costs 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 International
segment.
Remeasurement of contingent consideration including discount unwind (£5.6m
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. During the period, £33.8m of
contingent consideration was settled, following the achievement of the first
and second performance targets. A credit of £5.6m has been recognised in the
period, representing the revaluation of the contingent consideration payable.
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. The remeasurement will be
recognised in adjusting items until the final contingent consideration payment
is made in 2024/25.
4 Finance income/(costs)
2022 2021
£m £m
Bank and other interest receivable 3.7 2.9
Other finance income 5.9 1.8
Pension net finance income 13.2 47.2
Interest income of subleases 5.5 5.5
Finance income before adjusting items 28.3 57.4
Finance income in adjusting items 5.6 -
Finance income 33.9 57.4
Other finance costs (0.8) (0.6)
Interest payable on syndicated bank facility (4.7) (3.9)
Interest payable on Medium Term Notes (79.6) (86.4)
Interest payable on commercial paper facility - (0.4)
Interest payable on lease liabilities (121.1) (130.4)
Unwind of discount on provisions (3.8) (2.7)
Unwind of discount on Partnership liability to the Marks & Spencer UK (4.4) (4.9)
Pension Scheme (see note 9)
Finance costs before adjusting items (214.4) (229.3)
Finance costs in adjusting items - (6.8)
Finance costs (214.4) (236.1)
Net finance costs (180.5) (178.7)
5 Income tax (credit)/expense
The effective tax rate was 21.1% (last year: 3.9%) and the effective tax rate
of profit excluding adjusting items was 18.2% (last year: 50.3%).
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:
2022 2021
£m £m
Profit/(loss) attributable to equity shareholders of the Company 306.6 (198.0)
Add/(less):
Adjusting items (see note 3) 131.2 259.7
Tax on adjusting items (12.6) (33.5)
Profit before adjusting items attributable to equity shareholders of the 425.2 28.2
Company
Million Million
Weighted average number of ordinary shares in issue 1,958.1 1,953.5
Potentially dilutive share options under Group's share option schemes(1) 73.0 15.0
Weighted average number of diluted ordinary shares 2,031.1 1,968.5
(1) In the prior year, the potentially dilutive share options are only
considered in relation to adjusted diluted earnings per share as the Group
made a basic loss per share.
Pence Pence
Basic earnings/(loss) per share 15.7 (10.1)
Diluted earnings/(loss) per share 15.1 (10.1)
Adjusted basic earnings per share 21.7 1.4
Adjusted diluted earnings per share 20.9 1.4
7 Dividends
At the full-year results in May 2021, the Board announced that payment of a
dividend in the 2021/22 financial year would be unlikely as we focus on
restoring sustainable profitability and recovering the balance sheet towards
metrics consistent with investment grade.
Consistent with that announcement, the Board does not expect to pay a dividend
this financial year.
8 Retirement benefits
2022 2021
£m £m
Opening net retirement benefit surplus 631.4 1,902.6
Current service cost (0.2) (0.2)
Administration cost (4.8) (4.5)
Net interest income 13.2 47.2
Employer contributions 41.8 41.5
Past service cost - (1.0)
Remeasurements(1) 357.0 (1,354.5)
Exchange movement (0.2) 0.3
Closing net retirement benefit surplus 1,038.2 631.4
2022 2021
£m £m
Total market value of assets 10,090.7 10,442.9
Present value of scheme liabilities (9,046.8) (9,803.7)
Net funded pension plan asset 1,043.9 639.2
Unfunded retirement benefits (2.6) (3.8)
Post-retirement healthcare (3.1) (4.0)
Net retirement benefit surplus 1,038.2 631.4
Analysed in the statement of financial position as:
Retirement benefit asset 1,043.9 639.2
Retirement benefit deficit (5.7) (7.8)
Net retirement benefit surplus 1,038.2 631.4
(1) Includes £nil (last year: £2.5m loss) relating to an equalisation charge
recognised in 2018/19 that was reclassified from provisions.
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 2.70% (last year: 2.00%) and 3.70% (last year: 3.30%). The inflation rate
of 3.70% (last year: 3.30%) 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.£20m. If the inflation rate decreased by 0.25%,
the surplus would decrease by c.£70m.
With the pensioner buy-in policies purchased in September 2020, April 2019 and
March 2018, the Scheme has now, in total, insured around 80% 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: £1.4bn) 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 an annual distribution of £71.9m until
June 2022 from the Partnership. As a result of the Covid-19 pandemic and the
need to preserve cash, in agreement with the Trustees, only £18.9m of the
June 2020 payment was made, with the remaining £53.0m being deferred.
During the period, the Group and the Pension Scheme Trustees agreed to amend
the distribution dates so that, rather than making the planned payment of
£71.9m in June 2021 along with the deferred £53.0m, the Pension Scheme is
now entitled to receive £71.9m in 2022, £73.0m in 2023 and £54.4m in 2024.
The second Partnership interest (also held by the Marks & Spencer UK
Pension Scheme) entitles the Pension Scheme to receive a further £36.4m
annually from June 2017 until June 2031. All profits generated by the
Partnership in excess of this are distributable to Marks and Spencer plc.
The Partnership liability in relation to the first interest of £192.3m (last
year: £193.5m) 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 2 April 2022, an
interest charge of £4.4m (last year: £4.9m) 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 £193.5m (last
year: £142.5m).
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.
10 Intangible assets
Goodwill Brands Computer software Computer software under development Total
£m £m £m £m £m
As at 28 March 2020
Cost 136.4 112.3 1,495.1 59.7 1,803.5
Accumulated amortisation and impairments (72.4) (112.3) (1,187.6) (32.1) (1,404.4)
Net book value 64.0 - 307.5 27.6 399.1
Year ended 3 April 2021
Opening net book value 64.0 - 307.5 27.6 399.1
Additions - 6.3 0.1 41.4 47.8
Transfers and reclassifications - - 44.7 (44.2) 0.5
Asset Impairments(1) (39.6) - (40.0) - (79.6)
Asset write-offs - - (3.2) - (3.2)
Amortisation charge - (0.2) (131.4) - (131.6)
Exchange difference (0.7) - (0.3) - (1.0)
Closing net book value 23.7 6.1 177.4 24.8 232.0
At 3 April 2021
Cost 135.7 118.6 1,539.6 56.9 1,850.8
Accumulated amortisation, impairments and write-offs (112.0) (112.5) (1,362.2) (32.1) (1,618.8)
Net book value 23.7 6.1 177.4 24.8 232.0
Year ended 2 April 2022
Opening net book value 23.7 6.1 177.4 24.8 232.0
Additions 4.8 0.1 0.9 63.8 69.6
Transfers and reclassifications - - 29.6 (44.6) (15.0)
Asset write-offs - - (0.6) - (0.6)
Amortisation charge - (0.6) (93.0) - (93.6)
Exchange difference 0.1 - - - 0.1
Closing net book value 28.6 5.6 114.3 44.0 192.5
At 2 April 2022
Cost 140.6 118.7 1,570.1 76.1 1,905.5
Accumulated amortisation, impairments and write-offs (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
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 3 April 2021 16.5 6.5 - 0.7 23.7
Additions(2) - - 4.8 - 4.8
Exchange difference - 0.1 - - 0.1
Net book value at 2 April 2022 16.5 6.6 4.8 0.7 28.6
(1)Last year asset impairments of £79.6m made up of: £39.6m charge recorded
against per una goodwill, £40.0m in relation to replaced, retired or
decommissioned as part of MS2.
(2)In February 2022, the Group acquired 77.7% of the issued share capital of
The Sports Edit Limited, a non-listed company based in England and Wales. The
Sports Edit Limited is a brand platform specialising in activewear and was
acquired for an initial purchase price of £4.5m. Goodwill of £4.8m was
recognised on acquisition of the business, with the acquisition representing a
strategic investment opportunity.
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 £6.6m (last year: £6.5m), Sports
Edit £4.8m (last year: £nil) 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 was 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 1.6%
(last year: 0.5%), which is a reduction from the overall Group long-term
growth rate of 2.0% (last year: 1.75%). The Group's current view of achievable
long-term growth for India is 5.5% (last year: 5.9%).
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 10.8% for per una
(last year: 11.0%) and 11.3% for India (last year: 12.9%).
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 £4,902.3m (last year:
£5,058.6m) consists of owned assets of £3,486.5m (last year: £3,562.6m) and
right-of-use assets of £1,415.8m (last year: £1,496.0m).
Property, plant and equipment - owned
Land and buildings Fixtures, fittings and equipment Assets in the course of construction Total
£m £m £m £m
At 28 March 2020
Cost 2,887.5 5,457.1 138.0 8,482.6
Accumulated depreciation, impairments and write-offs (720.1) (3,880.6) (18.0) (4,618.7)
Net book value 2,167.4 1,576.5 120.0 3,863.9
Year ended 3 April 2021
Opening net book value 2,167.4 1,576.5 120.0 3,863.9
Additions 3.8 18.6 92.1 114.5
Transfers and reclassifications 7.2 157.0 (162.6) 1.6
Impairment reversals 36.9 36.2 - 73.1
Impairment charge (73.2) (48.7) - (121.9)
Asset write-offs (29.8) (17.4) (0.1) (47.3)
Depreciation charge (83.3) (228.5) - (311.8)
Exchange difference (6.6) (2.8) (0.1) (9.5)
Closing net book value 2,022.4 1,490.9 49.3 3,562.6
At 3 April 2021
Cost 2,809.9 5,450.2 67.5 8,327.6
Accumulated depreciation, impairments and write-offs (787.5) (3,959.3) (18.2) (4,765.0)
Net book value 2,022.4 1,490.9 49.3 3,562.6
Year ended 2 April 2022
Opening net book value 2,022.4 1,490.9 49.3 3,562.6
Additions 0.9 17.7 238.0 256.6
Transfers and reclassifications 3.0 175.8 (164.3) 14.5
Disposals (15.9) (1.9) - (17.8)
Impairment reversals 34.5 27.6 - 62.1
Impairment charge (57.6) (31.4) - (89.0)
Asset write-offs 0.9 (11.4) - (10.5)
Depreciation charge (34.2) (256.1) - (290.3)
Exchange difference (1.7) - (1.7)
Closing net book value 1,952.3 1,411.2 123.0 3,486.5
At 2 April 2022
Cost 2,764.8 5,275.7 141.2 8,181.7
Accumulated depreciation, impairments and write-offs (812.5) (3,864.5) (18.2) (4,695.2)
Net book value 1,952.3 1,411.2 123.0 3,486.5
Asset write-offs in the year include assets with gross book value of £383.3m
(last year: £67.4m) and £nil (last year: £nil) net book value that are no
longer in use and have therefore been retired.
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
As at 28 March 2020 1,571.1 59.2 1,630.3
Additions 37.2 13.1 50.3
Transfers and reclassifications 0.3 - 0.3
Disposals (5.5) 0.2 (5.3)
Impairment reversals 36.9 - 36.9
Impairment charge (52.7) - (52.7)
Depreciation charge (132.0) (21.1) (153.1)
Exchange difference (10.6) (0.1) (10.7)
As at 3 April 2021 1,444.7 51.3 1,496.0
Additions 72.7 17.9 90.6
Transfers and reclassifications 0.5 - 0.5
Disposals (7.7) (0.2) (7.9)
Impairment reversals 28.9 - 28.9
Impairment charge (25.4) - (25.4)
Depreciation charge (146.2) (21.6) (167.8)
Exchange difference 0.9 - 0.9
As at 2 April 2022 1,368.4 47.4 1,415.8
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 reversals have been identified. Stores identified
within the Group's UK 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 UK 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 as detailed fully in note 3.
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 9.8% to 15.8%
(last year: 8.9% to 14.0%). 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 UK store estate programme
During the year, the Group has recognised an impairment charge of £6.9m and
impairment reversals of £63.4m as a result of UK store impairment testing
unrelated to the UK store estate programme (last year: impairment charge of
£66.4m and impairment reversals of £64.5m). Impairment charges of £2.9m and
impairment reversals of £63.4m have been recognised within adjusting items
(see note 3). The remaining £4.0m impairment charge has been recognised in
operating profit before adjusting items as it relates to stores not previously
impaired. The impaired stores were impaired to their value in use recoverable
amount of £37.1m, which is their carrying value at year end. The stores with
impairment reversals were written back to their value in use recoverable
amount of £302.3m.
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 9.8% (last year: 8.9%).
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.
A reduction in sales of 5% from the three-year plan in year 3 would result in
an increase in the impairment charge of £22.8m and a 25 basis point
reduction in gross profit margin from year 3 onwards would increase the
impairment charge by £2.5m. In combination, a 1% fall in sales and a 10
basis point fall in gross profit margin would increase the impairment charge
by £4.7m. A 50 basis point increase in the discount rate would increase the
impairment charge by £6.0m. Reducing the long-term growth rate to 0% across
all stores, would not result in a significant increase to the impairment
charge, either individually or in combination.
A reduction in sales of 5% from the three-year plan in year 3 would result in
a reduction in the reversal of £17.2m and a 25 basis point reduction in gross
profit margin from year 3 onwards would result in a reduction in the reversal
of £1.1m. In combination, a 5% fall in sales and a 25 basis point fall in
gross profit margin would reduce the reversal by £19.0m. A 50 basis point
increase in the discount rate would reduce the reversal by £3.3m. Reducing
the long-term growth rate to 0% across all stores, would not result in a
significant decrease to the reversal, either individually or in combination.
Impairments - UK store estate programme
During the year, the Group has recognised an impairment charge of £107.5m and
impairment reversals of £27.6m relating to the ongoing UK store estate
programme (last year: impairment charge of £107.9m and impairment reversals
of £36.7m). These stores were impaired to their value in use recoverable
amount of £376.7m, 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
improved trading expectations compared to those assumed at the end of the
prior year.
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 9.8% (last year: 8.9%).
As disclosed in the accounting policies (note 1), the cash flows used within
the impairment models for the UK 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 UK store
estate programme.
A delay of 12 months in the probable date of each store exit would result in a
decrease in the impairment charge by £37.8m. A 5% reduction in planned sales
in years 2 and 3 (where relevant) would result in an increase in the
impairment charge by £14.2m. Neither a 50 basis point increase in the
discount rate, a 25 basis point reduction in management gross 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 prior year, the Group recognised an impairment reversal of £8.8m
in Ireland 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. The Group had no
Level 1 investments or financial instruments.
· 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:
2022 2021
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 - 0.6 - 0.6 - 0.7 - 0.7
- other investments(1) - 17.6 4.5 22.1 - 18.4 - 18.4
Derivatives used for hedging - 64.4 - 64.4 - 32.4 - 32.4
Unlisted equity investments(2) - - - - - - 9.7 9.7
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
- derivatives held at FVTPL - (0.9) - (0.9) - (12.1) - (12.1)
- contingent consideration(3) - - (172.6) (172.6) - - (212.0) (212.0)
Derivatives used for hedging - (2.7) - (2.7) - (94.6) - (94.6)
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 £3.1m of venture capital
investments, managed by True Capital Limited, measured at FVTPL (last year:
£nil) 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)The Group holds £nil in unlisted equity securities measured at fair value
through other comprehensive income (last year: £9.7m) which is a Level 3
instrument. The fair value of this investment was determined with reference
to the net asset value of the entity in which the investment was held, which
in turn derived the majority of its net asset value through a third-party
property valuation.
(3)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 June 2021, £16.8m was
settled, relating to the first of the three targets. In October 2021, £17.0m
was settled, relating to the second target. The final target related to Ocado
Retail Limited achieving a specified target level of earnings in the financial
year ending November 2023. The maximum potential undiscounted amount of all
future payments that the Group could be required to make under the arrangement
is £156.3m plus interest of 4%.
The fair value of the contingent consideration was estimated by applying an
appropriate discount rate to the expected future payments. The key assumptions
take into consideration the probability of meeting each performance target and
the discount factor. The performance target is binary and, based on the latest
five-year plan of Ocado Retail Limited, is expected to be met and therefore
the fair value reflects the full, discounted £156.3m plus interest, and it is
therefore expected that £190.8m will become payable in 2024/25. Should the
target not be met, no consideration would be payable. Should the discount rate
applied be changed, the fair value of the contingent consideration would
change, but the amount of consideration that would ultimately be paid would
not necessarily change. A discount rate of 4.2% was used and a 2.0% change in
the discount rate would result in a change in fair value of £8.0m. A 5%
change in the forecast level of earnings used to assess the performance target
would not result in a significant change in fair value of the contingent
consideration. During the period, £33.8m of contingent consideration was
settled and a gain of £5.6m recognised in profit or loss in relation to the
remeasurement (see note 3).
The Marks & Spencer UK Pension Scheme holds a number of financial
instruments which make up the pension asset of £10,090.7m (last year:
£10,442.9m). Level 1 and Level 2 financial assets measured at fair value
through other comprehensive income amounted to £4,998.8m (last year:
£5,446.0m). Additionally, the scheme assets include £5,091.9m (last year:
£4,996.9m) 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:
2022 2021
£m £m
Opening balance 4,996.9 4,325.1
Fair value gain recognised in other comprehensive income 138.6 68.3
(Withdrawal)/additional investment (43.6) 603.5
Closing balance 5,091.9 4,996.9
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 £1,482.5m (last year: £1,682.1m); the fair value of this debt was
£1,549.6m (last year: £1,807.6m) 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 £192.3m (last year: £193.5m) and the fair value of this
liability is £187.9m (last year: £185.5m).
13 Contingencies and commitments
A. Capital commitments
2022 2021
£m £m
Commitments in respect of properties in the course of construction 59.8 88.3
Software capital commitments 6.1 10.6
65.9 98.9
In addition to the above, the Group has 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. The fund can draw down amounts at any time
over the three-year period to make specific investments. During the period,
the Group invested £3.3m 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
In the event of termination of our trading arrangements with certain warehouse
operators, the Group has a number of options and commitments to purchase some
property, plant and equipment, at values ranging from historical net book
value to market value, which are currently owned and operated by the warehouse
operators on the Group's behalf. These options and commitments would have an
immaterial impact on the Group's statement of financial position.
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
2022 2021
£m £m
Profit/(loss) on ordinary activities after taxation 309.0 (201.2)
Income tax expense/(credit) 82.7 (8.2)
Finance costs 214.4 236.1
Finance income (33.9) (57.4)
Operating profit/(loss) 572.2 (30.7)
Share of results of Ocado Retail Limited (13.9) (78.4)
(Increase)/decrease in inventories (46.5) 41.2
(Increase)/decrease in receivables (2.9) 67.4
Increase in payables 289.1 159.5
Depreciation, amortisation and write-offs 510.7 603.1
Non-cash share-based payment expense 38.8 19.3
Defined benefit pension funding (36.8) (37.1)
Adjusting items net cash outflows(1,2) (45.8) (118.1)
Adjusting items M&S Bank(3) (16.0) (2.4)
Adjusting operating profit items 136.8 252.9
Cash generated from operations 1,385.7 876.7
(1) Excludes £5.6m (last year: £12.4m) of surrender payments included within
repayment of lease liabilities in the consolidated statement of cash flows
relating to leases within the UK store estate programme.
(2) Adjusting items net cash outflows relate to strategic programme costs
associated with the UK store estate, UK logistics and the utilisation of the
provisions for International store closures and impairments.
(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
29 March non-cash 3 April
2020 movements(1) 2021
£m
Cash flow
£m £m £m £m £m
Net debt
Bank loans and overdrafts (15.5) 10.8 - - - (4.7)
Cash and cash equivalents 254.2 423.5 - - (3.3) 674.4
Net cash per statement of cash flows 238.7 434.3 - - (3.3) 669.7
Current other financial assets 11.7 6.7 - - - 18.4
Liabilities from financing activities
Medium Term Notes (1,536.2) (87.9) - - (58.0) (1,682.1)
Lease liabilities (2,562.0) 316.7 - (48.3) (112.3) (2,405.9)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note (202.7) 23.6 - - (6.4) (185.5)
9)
Derivatives held to hedge Medium Term Notes 102.2 (14.0) (96.3) - - (8.1)
Liabilities from financing activities (4,198.7) 238.4 (96.3) (48.3) (176.7) (4,281.6)
Less: Cash flows related to interest and derivative instruments (2.3) (212.6) 96.3 - 196.2 77.6
Net debt (3,950.6) 466.8 - (48.3) 16.2 (3,515.9)
At Changes in fair values Lease additions and remeasurements Exchange and other At
4 April non-cash 2 April
2021 movements(1) 2022
Cash flow
£m £m £m £m £m £m
Net debt
Bank loans and overdrafts (4.7) 4.7 - - - -
Cash and cash equivalents 674.4 531.7 - - (8.2) 1,197.9
Net cash per statement of cash flows 669.7 536.4 - - (8.2) 1,197.9
Current other financial assets 18.4 (0.8) - - - 17.6
Liabilities from financing activities - - - - - -
Medium Term Notes (1,682.1) 244.0 - - (91.4) (1,529.5)
Lease liabilities (2,405.9) 344.3 - (100.6) (116.5) (2,278.7)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note (185.5) - - - (2.4) (187.9)
9)
Derivatives held to hedge Medium Term Notes (8.1) - 26.6 - - 18.5
Liabilities from financing activities (4,281.6) 588.3 26.6 (100.6) (210.3) (3,977.6)
Less: Cash flows related to interest and derivative instruments 77.6 (208.7) (26.6) - 221.0 63.3
Net debt (3,515.9) 915.2 - (100.6) 2.5 (2,698.8)
B. Reconciliation of net debt to statement of financial position
2022 2021
£m £m
Statement of financial position and related notes
Cash and cash equivalents 1,197.9 674.4
Current other financial assets 17.6 18.4
Bank loans and overdraft - (4.7)
Medium Term Notes - net of foreign exchange revaluation (1,494.7) (1,657.9)
Lease liabilities (2,278.7) (2,405.9)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note (192.3) (193.5)
9)
(2,750.2) (3,569.2)
Interest payable included within related borrowing and the Partnership 51.4 53.3
liability to the Marks & Spencer UK Pension Scheme
Net debt (2,698.8) (3,515.9)
(1)Exchange and other non-cash movements includes interest paid on Medium Term
Notes of £79.6m (last year: £86.4m), interest paid on lease liabilities of
£121.1m (last year: £130.4m) and interest paid on the Partnership liability
to the Marks & Spencer UK Pension Scheme of £4.4m (last year: £4.9m).
16 Related party transactions
A. Joint ventures and associate
Ocado Retail Limited
A shareholder loan facility with Ocado Retail Limited was established in
2019/20, with Ocado Retail Limited having the ability to draw down up to £30m
from each shareholder. The facility was not utilised by Ocado Retail Limited
during the year ended 2 April 2022 (last year: not utilised).
As part of the Ocado Retail Limited investment, Ocado Retail Limited entered
into a £30m, three-year revolving credit facility. Along with Ocado Group
Plc, the Group has provided a parent guarantee to cover 50% of the £30m
revolving credit facility provided by BNPP to Ocado Retail Limited. The
revolving credit facility was undrawn at 2 April 2022 (last year: undrawn).
The following transactions were carried out with Ocado Retail Limited, an
associate of the Group.
Sales and purchases of goods and services:
2022 2021
£m £m
Sales of goods and services 36.1 28.5
Purchases of goods and services 0.2 -
Included within trade and other receivables is a balance of £1.9m (last year:
£2.3m) owed by Ocado Retail Limited.
Nobody's Child Limited
Nobody's Child Limited became an associate of the Group in November 2021 (see
note 17).
Since November 2021, the Group made purchases of goods amounting to £1.2m. At
2 April 2022, included within trade and other payables is a balance of £0.2m
owed to Nobody's Child Limited, and included within other financial assets is
a balance of £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
is currently owned by Mr. Justin King, a Non-Executive Director of the Group
(the "JK TSE Shares"). Subject to shareholder approval, the Group will acquire
the JK TSE Shares from Mr. Justin King at a total purchase price of £0.3m in
July 2022.
The only other related party transactions during the year related to key
management compensation.
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. Following this initial period, a reassessment of control will be
required as the Group will have an option to obtain more power over Ocado
Retail Limited if certain conditions are met. If the Group is deemed to have
obtained control, Ocado Retail Limited will then be consolidated as a
subsidiary of the Group. Through Board representation and shareholder voting
rights, the Group is currently considered to have significant influence,
therefore the investment in Ocado Retail Limited is treated as an associate
and applies the equity method of accounting.
Ocado Retail Limited has a financial year end date of 28 November 2021,
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 1 March 2021 to 27
February 2022. There were no significant events or transactions in the period
from 28 February 2022 to 2 April 2022.
The carrying amount of the Group's interest in Ocado Retail Limited is
£800.4m (last year: £819.0m). The Group's share of Ocado Retail Limited loss
of £18.6m (last year: profit of £64.2m) includes the Group's share of
underlying profits of £13.9m, which includes £1.3m of exceptional income
before tax related to insurance receipts (share of profit last year: £25.2m)
and adjusting item charges of £32.5m (last year: £14.2m) (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 27 Feb 2022 As at
28 Feb 2021
£m £m
Ocado Retail Limited
Current assets 291.2 353.9
Non-current assets 590.1 336.8
Current liabilities (223.3) (245.7)
Non-current liabilities (449.8) (264.6)
Net assets 208.2 180.4
29 Feb 2021 to 27 Feb 2022 2 Mar 2020 to 28 Feb 2021
£m £m
Revenue 2,248.8 2,353.2
Profit for the period 27.8 156.8
Other comprehensive income - -
Total comprehensive income 27.8 156.8
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 2 Apr 2022 As at 3 Apr 2021
£m £m
Ocado Retail Limited
Net assets 208.2 180.4
Proportion of the Group's ownership interest 104.1 90.2
Goodwill 449.1 449.1
Brand 242.7 249.2
Customer relationships 77.7 88.3
Other adjustments to align accounting policies (78.9) (63.5)
Acquisition costs 5.7 5.7
Carrying amount of the Group's interest in Ocado Retail Limited 800.4 819.0
In November 2021, the Group acquired 27% of the issued share capital of
Nobody's Child Limited, which is accounted for as an investment in associate.
Other than its investment in Ocado Retail Limited, the Group holds immaterial
investments in joint ventures and associates (including its investment in
Nobody's Child Limited) totalling £10.5m (last year: £6.8m). The Group's
share of losses totalled £0.7m (last year: £1.3m loss).
18 Government support
The Group has not benefitted from government grant income in the year. Last
year, the Group recognised £131.5m in relation to furlough programmes, such
as the Coronavirus Job Retention Scheme ("CJRS") in the UK, and its
equivalents in other countries. This income was recognised as a deduction
against the related expense.
The Group benefited from business rates relief of £62.2m in the year (last
year: £174.6m).
There are no unfulfilled conditions or contingencies attached to these grants.
19 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 judgements in similar claims. The value of the claim is
confidential and is therefore not disclosed.
20 Subsequent events
The Board have approved a tender offer to repurchase c.£150m of the Group's
Medium Term Notes which will be announced on 25 May 2022.
Principal risks & uncertainties
The Board continually 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 2021/22 are listed below. Full
disclosure of the risks including the factors which mitigate them will be set
out within the Strategic Report of the 2021/22 Annual Report and Accounts.
AN UNCERTAIN TRADING ENVIRONMENT Our ability to deliver continued improvements in trading performance could be
significantly affected by the individual or aggregate impact of an
increasingly complex set of external factors. The ongoing consequences of the
pandemic, geo-political and economic uncertainties (both national and
international) and the resultant cost of living crisis, are combining to
generate difficult and unpredictable headwinds.
BUSINESS TRANSFORMATION A failure to successfully implement the suite of critical transformation
projects could impact medium- and longer-term growth ambitions. While each
initiative is individually significant and has its own inherent risks, the
aggregate impact of simultaneously delivering these challenging projects could
also create further risks to successful implementation.
OCADO RETAIL A failure to effectively manage the strategic and operational relationship
with Ocado Retail could significantly impact the value of our investment, the
achievement of our multi-channel food strategy, our Brand and our ability to
deliver shareholder value.
TALENT AND CAPABILITY An inability to attract, retain and develop the right talent, skills and
capabilities or to successfully adapt to the expectations of a post-pandemic
labour market could impact the delivery of core operational activities and
longer-term strategic objectives, including aspects of our transformation
programme.
EU BORDER CHALLENGES A failure to manage the cost consequences and operational friction arising
from the complexity of border arrangements following the UK's exit from the
European Union (EU) or further developments in the Trade and Cooperation
Agreement ("TCA"), including the Northern Ireland Protocol, could have a
significant and long-term impact on our Irish business and overall trading
performance.
BUSINESS CONTINUITY AND RESILIENCE Significant operational failures or resilience issues at key business
locations, such as Castle Donington, our primary online Clothing & Home
distribution centre, or any of our key international sourcing locations, could
result in significant business interruption. More broadly, an inability to
effectively respond to global events, such as the pandemic or Russia's
invasion of Ukraine, a shortage of raw materials or other products used in our
business, or significant supply chain
disruption, could also impact business performance.
PRODUCT SAFETY AND INTEGRITY Failure to prevent and/or effectively respond to a food or product safety
incident, or to maintain their integrity, could impact customer confidence in
our brand and business performance.
INFORMATION SECURITY Failure to adequately prevent or respond to a data breach or cyber-attack
could adversely impact our reputation, result in significant fines, business
disruption, loss of information for our customers, employees or business
and/or loss of stakeholder and customer confidence.
CORPORATE COMPLIANCE AND RESPONSIBILITY A failure to deliver against our legal and regulatory obligations or broader
corporate responsibility commitments would undermine our reputation as a
responsible retailer, may result in legal exposure or regulatory sanctions,
and could negatively impact our ability to operate and/or remain relevant to
our customers and other stakeholders.
CLIMATE CHANGE AND ENVIRONMENTAL RESPONSIBILITY An inability to reduce the environmental impact of our business and progress
towards our net zero targets, including those linked to our supply chains, as
well as managing the consequences of climate change on our business, would
fail to meet the expectations of our customers, colleagues, investors and
other stakeholders, impacting our brand, future trading performance and other
business costs, including financing.
LIQUIDITY AND FUNDING An inability to maintain short- and long-term funding to meet business needs
or to effectively manage associated risks could impact our ability to
transform at pace, as well as have an adverse impact on business viability.
Glossary
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.
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) before the
impact of adjusting items.
Clothing & Home store / Clothing & Home online sales None Not applicable 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 revenue through stores and through the Clothing & Home
online platforms. These revenues are reported within the UK Clothing &
Home segment results. Store revenue excludes revenue from "shop your way" and
click & collect, which are included in online revenue. The growth in
revenues on a year-on-year basis is a good indicator of the performance of the
stores and online channels.
2021/22 2020/21 %
£m
£m
UK Clothing & Home
Store sales(1) 2,209.5 1,088.9 102.9
Consignment sales (8.6) -
Store revenue 2,200.9 1,088.9 102.1
Online sales(1) 1,122.7 1,109.7 1.2
Consignment sales (15.3) -
Online revenue 1,107.4 1,109.7 (0.2)
UK Clothing & Home sales(1) - 52-week basis 3,332.2 2,198.6 51.6
Consignment sales (23.9) -
UK Clothing & Home revenue - 52-week basis 3,308.3 2,198.6 50.5
Week 53 - 40.4
Total UK Clothing & Home revenue 3,308.3 2,239.0 47.8
(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 revenue growth Movement in revenue per the income statement Revenue from non like-for-like stores The period-on-period change in revenue (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 or stores with significant footage change.
2021/22 2020/21
£m
£m
UK Food
Like-for-like 6,414.1 5,831.1
Net new space(1) 225.5 163.7
Week 53 - 143.7
Total UK Food revenue 6,639.6 6,138.5
UK Clothing & Home
Like-for-like 3,218.3 2,164.5
Net new space 90.0 34.1
Week 53 - 40.4
Total UK Clothing & Home revenue 3,308.3 2,239.0
(1) UK Food net new space includes sales to Ocado Retail Limited.
Food ex hospitality and franchise Movement in revenue per the income statement Revenue from hospitality and franchise categories and sales to Ocado Retail The period-on-period change in Food revenue (before sales to Ocado Retail
Limited Limited) excluding the hospitality and franchise categories' revenue
(excluding VAT). The hospitality category includes cafes, counters and
marketplace. This measure is based on Food total revenue rather than
like-for-like revenue which was presented in the 2020/21 annual report. This
measure is used to provide consistency with other measures provided within
this report.
2021/22 2020/21
£m
£m
%
UK Food
Revenue 6,639.6 6,138.5 8.2
Sales to Ocado Retail (32.1) (24.2) 32.6
Hospitality (167.0) (54.0) 209.3
Franchise (586.6) (438.4) 33.8
Food ex hospitality and franchise 5,853.9 5,621.9 4.1
M&S.com revenue / Online revenue None Not applicable Total revenue through the Group's online platforms. These revenues are
reported within the relevant UK Clothing & Home, UK Food and International
segment results. The growth in revenues 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 revenue through International online platforms. These revenues
are reported within the International segment results. The growth in revenues
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.
2021/22 2020/21 %
£m £m
International revenue
Stores 764.7 613.6 24.6
Online 172.5 165.7 4.1
Week 53 - 10.1
At reported currency 937.2 789.4 18.7
Revenue growth at constant currency None Not applicable The period-on-period change in revenue retranslating the previous year revenue
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.
2021/22 2020/21 %
£m £m
International revenue
At constant currency 937.2 761.8 23.0
Impact of FX retranslation - 17.5
International revenue - 52-week basis 937.2 779.3 20.3
Week 53 - 10.1
At reported currency 937.2 789.4 18.7
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.
Revenue before adjusting items Revenue Adjusting items Revenue 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. This measure has been introduced as certain adjustments have been
made to revenue for the first time in accordance with the Group's policy for
adjusting items.
Operating profit before adjusting items 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
(See note 3) how the business performance is reported and assessed by the Board and the
Executive Committee.
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 EBITDA EBIT(1) Not applicable Calculated as Ocado Retail Limited earnings before interest, tax,
depreciation, amortisation, impairment and exceptional 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.
52-week basis for the 2020/21 financial year Corresponding equivalent statutory measure Last trading week of 2020/21 The Group's financial year ends on the nearest Saturday to 31 March. The
current financial year is for the 52 weeks ended 2 April 2022 with the
comparative financial year being for the 53 weeks ended 3 April 2021. In order
to provide comparability with the prior year results, adjustments have been
made to the 2020/21 53-week income statement to remove sales, operating costs
and other items relating to the last trading week of the 2020/21 financial
year. In determining the week 53 adjustment, revenue and cost of goods sold
represent the actual trading performance in that week, with overhead expenses
allocated proportionally to week 53.
2020/21 Exclude week 53 2020/21 52-week basis
£m £m
Revenue
UK Food 6,138.5 (143.7) 5,994.8
UK Clothing & Home 2,239.0 (40.4) 2,198.6
Total UK Retail 8,377.5 (184.1) 8,193.4
International 789.4 (10.1) 779.3
Total Group 9,166.9 (194.2) 8,972.7
Operating profit/(loss) before adjusting items
UK Food 228.6 (15.0) 213.6
UK Clothing & Home (130.8) 1.4 (129.4)
International 44.1 1.0 45.1
Adjusted profit before tax
Total Group 50.3 (8.7) 41.6
Loss before tax
Total Group (209.4) 8.2 (201.2)
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 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 after shareholder returns Net cash inflow from operating activities See Financial Review The cash generated from the Group's operating activities less capital
expenditure, cash lease payments and interest paid.
This measure shows the cash retained by the Group in the year.
Free cash flow Net cash inflow from operating activities See Financial Review Calculated as the cash generated from the Group's operating activities less
capital expenditure and interest paid, excluding returns to shareholders
(dividends and share buyback).
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.
Other measures
Covid-19 scenario None Not applicable As part of the Group's normal financial planning process, the Board approved
the 2020/21 budget and three-year plan.
As a result of the UK government restrictions on trade that were announced in
response to the Covid-19 pandemic, the Group revisited the 2020/21 budget and
three-year plan to determine a downside scenario.
The downside scenario assumed the government guidelines at the period end
continued for a period of at least four months, resulting in a significant
decline in sales for the remainder of 2020/21, as outlined in the basis of
preparation in the Group's 2020 Annual Report and Financial Statements.
This downside scenario was approved by the directors and is defined as the
Covid-19 scenario.
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.
Return on capital employed ("ROCE") None Not applicable Calculated as being EBIT(1) before adjusting items divided by the average of
opening and closing capital employed. The measures used in this calculation
are set out below:
2021/22 2020/21
£m £m
EBIT before adjusting items 709.0 222.2
Net assets 2,917.9 2,285.8
Add back:
Partnership liability to the Marks & Spencer UK Pension Scheme 192.3 193.5
Deferred tax liabilities 187.2 42.3
Non-current borrowings and other financial liabilities 3,561.0 3,659.9
Retirement benefit deficit 5.7 7.8
Derivative financial instruments - 73.6
Current tax liabilities 34.0 -
Less:
Investment property (15.0) (15.2)
Derivative financial instruments (61.4) -
Retirement benefit asset (1,043.9) (639.2)
Current tax assets - (35.4)
Net operating assets 5,777.8 5,573.1
Add back: Provisions related to adjusting items 124.9 100.8
Capital employed 5,902.7 5,673.9
Average capital employed 5,788.3 5,874.8
ROCE % 12.2% 3.8%
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 revenue growth
Movement in revenue per the income statement
Revenue from non like-for-like stores
The period-on-period change in revenue (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 or stores with significant footage change.
2021/22 2020/21
£m
£m
UK Food
Like-for-like 6,414.1 5,831.1
Net new space(1) 225.5 163.7
Week 53 - 143.7
Total UK Food revenue 6,639.6 6,138.5
UK Clothing & Home
Like-for-like 3,218.3 2,164.5
Net new space 90.0 34.1
Week 53 - 40.4
Total UK Clothing & Home revenue 3,308.3 2,239.0
(1) UK Food net new space includes sales to Ocado Retail Limited.
Food ex hospitality and franchise
Movement in revenue per the income statement
Revenue from hospitality and franchise categories and sales to Ocado Retail
Limited
The period-on-period change in Food revenue (before sales to Ocado Retail
Limited) excluding the hospitality and franchise categories' revenue
(excluding VAT). The hospitality category includes cafes, counters and
marketplace. This measure is based on Food total revenue rather than
like-for-like revenue which was presented in the 2020/21 annual report. This
measure is used to provide consistency with other measures provided within
this report.
2021/22 2020/21
£m
£m
%
UK Food
Revenue 6,639.6 6,138.5 8.2
Sales to Ocado Retail (32.1) (24.2) 32.6
Hospitality (167.0) (54.0) 209.3
Franchise (586.6) (438.4) 33.8
Food ex hospitality and franchise 5,853.9 5,621.9 4.1
M&S.com revenue / Online revenue
None
Not applicable
Total revenue through the Group's online platforms. These revenues are
reported within the relevant UK Clothing & Home, UK Food and International
segment results. The growth in revenues 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 revenue through International online platforms. These revenues
are reported within the International segment results. The growth in revenues
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.
2021/22 2020/21 %
£m £m
International revenue
Stores 764.7 613.6 24.6
Online 172.5 165.7 4.1
Week 53 - 10.1
At reported currency 937.2 789.4 18.7
Revenue growth at constant currency
None
Not applicable
The period-on-period change in revenue retranslating the previous year revenue
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.
2021/22 2020/21 %
£m £m
International revenue
At constant currency 937.2 761.8 23.0
Impact of FX retranslation - 17.5
International revenue - 52-week basis 937.2 779.3 20.3
Week 53 - 10.1
At reported currency 937.2 789.4 18.7
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.
Revenue before adjusting items
Revenue
Adjusting items
(See note 3)
Revenue 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. This measure has been introduced as certain adjustments have been
made to revenue for the first time in accordance with the Group's policy for
adjusting items.
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.
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 EBITDA
EBIT(1)
Not applicable
Calculated as Ocado Retail Limited earnings before interest, tax,
depreciation, amortisation, impairment and exceptional 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.
52-week basis for the 2020/21 financial year
Corresponding equivalent statutory measure
Last trading week of 2020/21
The Group's financial year ends on the nearest Saturday to 31 March. The
current financial year is for the 52 weeks ended 2 April 2022 with the
comparative financial year being for the 53 weeks ended 3 April 2021. In order
to provide comparability with the prior year results, adjustments have been
made to the 2020/21 53-week income statement to remove sales, operating costs
and other items relating to the last trading week of the 2020/21 financial
year. In determining the week 53 adjustment, revenue and cost of goods sold
represent the actual trading performance in that week, with overhead expenses
allocated proportionally to week 53.
2020/21 Exclude week 53 2020/21 52-week basis
£m £m
Revenue
UK Food 6,138.5 (143.7) 5,994.8
UK Clothing & Home 2,239.0 (40.4) 2,198.6
Total UK Retail 8,377.5 (184.1) 8,193.4
International 789.4 (10.1) 779.3
Total Group 9,166.9 (194.2) 8,972.7
Operating profit/(loss) before adjusting items
UK Food 228.6 (15.0) 213.6
UK Clothing & Home (130.8) 1.4 (129.4)
International 44.1 1.0 45.1
Adjusted profit before tax
Total Group 50.3 (8.7) 41.6
Loss before tax
Total Group (209.4) 8.2 (201.2)
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 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 after shareholder returns
Net cash inflow from operating activities
See Financial Review
The cash generated from the Group's operating activities less capital
expenditure, cash lease payments and interest paid.
This measure shows the cash retained by the Group in the year.
Free cash flow
Net cash inflow from operating activities
See Financial Review
Calculated as the cash generated from the Group's operating activities less
capital expenditure and interest paid, excluding returns to shareholders
(dividends and share buyback).
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.
Other measures
Covid-19 scenario
None
Not applicable
As part of the Group's normal financial planning process, the Board approved
the 2020/21 budget and three-year plan.
As a result of the UK government restrictions on trade that were announced in
response to the Covid-19 pandemic, the Group revisited the 2020/21 budget and
three-year plan to determine a downside scenario.
The downside scenario assumed the government guidelines at the period end
continued for a period of at least four months, resulting in a significant
decline in sales for the remainder of 2020/21, as outlined in the basis of
preparation in the Group's 2020 Annual Report and Financial Statements.
This downside scenario was approved by the directors and is defined as the
Covid-19 scenario.
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.
Return on capital employed ("ROCE")
None
Not applicable
Calculated as being EBIT(1) before adjusting items divided by the average of
opening and closing capital employed. The measures used in this calculation
are set out below:
2021/22 2020/21
£m £m
EBIT before adjusting items 709.0 222.2
Net assets 2,917.9 2,285.8
Add back:
Partnership liability to the Marks & Spencer UK Pension Scheme 192.3 193.5
Deferred tax liabilities 187.2 42.3
Non-current borrowings and other financial liabilities 3,561.0 3,659.9
Retirement benefit deficit 5.7 7.8
Derivative financial instruments - 73.6
Current tax liabilities 34.0 -
Less:
Investment property (15.0) (15.2)
Derivative financial instruments (61.4) -
Retirement benefit asset (1,043.9) (639.2)
Current tax assets - (35.4)
Net operating assets 5,777.8 5,573.1
Add back: Provisions related to adjusting items 124.9 100.8
Capital employed 5,902.7 5,673.9
Average capital employed 5,788.3 5,874.8
ROCE % 12.2% 3.8%
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR SEUEDLEESEFIRecent news on Marks and Spencer
See all newsREG - Marks and Spencer Gp - Issue of Shares and Total Voting Rights
AnnouncementREG - Marks and Spencer Gp - Director/PDMR Shareholding
AnnouncementREG - Marks and Spencer Gp - Director/PDMR Shareholding
AnnouncementRCS - Scotch Corner Dsgnr. - Intention to Float
AnnouncementREG - Marks and Spencer Gp - Director/PDMR Shareholding
Announcement