REG - Marks and Spencer Gp - Final Results
24/05/2023 07:00
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RNS Number : 4358A Marks and Spencer Group PLC 24 May 2023
Issued: 24 May 2023
Marks and Spencer Group Plc
Full Year Results for 52 Weeks Ended 1 April 2023
"M&S DELIVERS STRONG RESULTS AS IT RESHAPES FOR GROWTH"
Strong trading results
· Profit before tax & adjusting items of £482.0m (2021/22:
£522.9m, including £59.8m UK business rates relief)
· Statutory profit before tax of £475.7m (2021/22: £391.7m)
· Clothing & Home sales(1) up 11.5% to £3.72bn; Store sales up
14.9%, online up 4.8%; Strong growth in Click & Collect
· Clothing & Home adjusted operating profit £323.8m (2021/22:
£330.7m, including £35.2m rates relief)
· Food sales up 8.7% to £7.22bn. Strong growth across core
categories, hospitality and franchise
· Food adjusted operating profit £248.0m (2021/22: £277.8m,
including £24.6m rates relief)
· Ocado Retail share of loss £29.5m (2021/22: share of profit
£13.9m); capacity for future growth
· International constant currency sales up 11.2%; adjusted
operating profit £84.8m (2021/22: £73.6m)
Reshaping M&S to deliver long term growth
· Clothing & Home delivering improved style perceptions and a
sustained leading value position
· Food volume outperforms market; reflecting product innovation and
value investment
· Ocado Retail reset underway; restoring leading service
credentials and deeper collaboration with M&S
· Structural cost reduction programme delivering; over £150m of
savings planned for FY24
· Accelerating store rotation; 8 full-line and 10 Food stores
opening in FY24
· Progress on supply chain modernisation; Gist acquisition
completed, integration on track
· Robust balance sheet and cashflow; maintained investment grade
metrics; further bond repurchase announced
· Plan to restore dividend in FY24
Stuart Machin, Chief Executive said:
"One year in, our strategy to reshape M&S for growth has driven sustained
trading momentum, with both businesses continuing to grow sales and market
share. Our Food and Clothing & Home businesses invested in value to
protect customers from the full force of inflation which, whilst impacting
margin, was the right thing to do, as serving our customers well is the only
route to delivering for our shareholders.
Food outperformed the market, with customer perception for quality and value
the highest in six years. The benefits of the Gist acquisition and operational
efficiencies also supported an improved performance in the second half.
Clothing & Home retained market-leading value perception, and its style
credentials continue to improve. Sales were up in store and online, supported
by growth in Click and Collect sales, active App users and Sparks loyalty
membership; demonstrating the emerging power of our omni-channel model. The
store rotation and renewal programme delivered strong sales uplifts and will
accelerate this year, including the opening of five brand defining full-line
stores in major cities. Our disciplined approach to capital allocation means
we can invest for growth, while further reducing net debt and maintaining
investment grade credit metrics, and we plan to resume dividend payments at
our interim results.
M&S is such a special business with so much potential, and I want to thank
all of my colleagues for their contribution to these results. Delivering
performance and driving change is everyone's responsibility at M&S, and
they have done a remarkable job. Despite facing significant headwinds, I am
encouraged by the strong foundations established last year and excited about
what we can achieve in the year ahead."
Group Results (52 weeks ended) 1 April 23 2 April 22 Change (%)
Statutory revenue £11,931.3m £10,885.1m 9.6
Sales(1) £11,988.0m £10,909.0m 9.9
Operating profit before adjusting items £626.6m £709.0m -11.6
Profit before tax and adjusting items £482.0m £522.9m -7.8
Adjusting items £(6.3)m £(131.2)m -95.2
Profit before tax £475.7m £391.7m 21.4
Profit after tax £364.5m £309.0m 18.0
Basic earnings per share 18.5p 15.7p 17.8
Adjusted basic earnings per share 18.1p 21.7p -16.6
Free cash flow from operations £170.4m £739.6m
Net debt £2.64bn £2.70bn
Net debt excluding lease liabilities £355.6m £420.1m
Non-GAAP measures and alternative profit measures (APMs) are discussed within
this release. A glossary and reconciliation to statutory measures is provided
at the end. Adjusted results are consistent with how business performance is
measured internally and presented to aid comparability. Refer to adjusting
items table below for further details. (1) References to 'sales' throughout
this announcement are statutory revenue plus the gross value of consignment
sales ex. VAT.
STRONG TRADING RESULTS
M&S delivered strong results in 2022/23 despite significant inflationary
cost headwinds impacting margins, reflecting the benefits of its programme to
reshape for growth. Profit before tax and adjusting items for the period was
£482.0m (2021/22: £522.9m). Statutory profit before tax was £475.7m
(2021/22 £391.7m). Prior year results included £59.8m of UK business rates
relief and a net rates charge of £139.7m compared with a net rates charge of
£186.6m in 2022/23.
· Clothing & Home grew sales 11.5% with LFL sales up 11.2%
driven by a more confident approach to buying and a focus on the modern
mainstream customer, which is starting to drive better style perceptions.
While store sales outperformed, online sales were also up, with growth in
Click and Collect sales, active App users and Sparks loyalty membership.
Volume and value market shares increased.
· Food grew sales 8.7% with LFL sales up 5.4%, outperforming the
market in volume and value terms with broadened appeal, through focused
product development and investment in trusted value. While investment in value
reduced margin, the positive customer response supported the delivery of
improved trading performance in the second half. Margin in the second half
also benefitted from the acquisition of Gist.
· International sales were up 11.2% at constant currency, driven by
demand for clothing from global partners. As a result, profits recovered
despite the combined impacts of the exit from Russia and on-going EU border
related costs.
· Ocado Retail sales were down 1.2%. While active customers grew,
revenues reflected reduced volumes as a result of lower shopping frequency
post-pandemic. Profitability was impacted by the effects of higher fixed
costs from under-utilised capacity, the impact of which we are working
together to reduce, as we build customer numbers over time.
RESHAPING M&S TO DELIVER LONG TERM GROWTH
M&S has a heritage of quality, style, innovation and value for money,
recently resulting in it being voted the UK's most trusted brand (source:
YouGov). After a number of years of substantial change and investment, a
strengthening omni-channel position in Clothing & Home and the broader
reach of Food including through the Ocado Retail joint venture, provide
opportunities for profitable growth.
During the year, the new leadership team, Stuart Machin, CEO, supported by
Katie Bickerstaffe as his Co-CEO, set out their priorities to deliver
sustainable growth. To support implementation of the plan, Stuart appointed
Jeremy Townsend to the team as CFO in January 2023, and he will remain with
the business until May 2025.
This statement reports delivery against this plan, setting out how these
priorities will deliver profitable sales growth, improve operating margins,
provide investment choices and drive shareholder returns. The nine priorities
are set out in more detail below.
1. Developing exceptional product worthy of a trusted brand, through
investment in great tasting, value for money, quality Food, and developing
stylish, great value, quality Clothing and Home ranges.
2. Driving omni-channel growth. Increasing the participation of
Clothing & Home online sales, through leveraging the national store and
distribution network, to offer a convenient and consistent service however and
wherever customers choose to shop. And growing utilisation of Ocado Retail's
capacity, by providing superior service, market-leading choice and M&S
products.
3. Capitalising on the strength of the M&S brand to grow global
sales through capital light partnerships and the development of a
multi-platform online business.
4. Making £400m of structural cost savings over five years, reducing
cost to serve, and growing our margins through technology improvements to
increase retail and supply chain efficiency and simplified and streamlined
digital, technology and support centre functions.
5. Creating a high-performance culture. A simpler, faster, delivery
focused business which is passionate about M&S products, puts the customer
first and has the digital skill set to make fast, informed decisions.
6. Accelerating store rotation and renewal to create a more productive
estate of c.180 full-line stores and opening more than 100 new Food stores
positioned in growth locations, which support omni-channel retailing.
7. Modernising the supply chain to improve availability and customer
service, while reducing costs and working capital.
8. Creating a more engaging and connected customer experience to drive
omni-channel growth. This brings together the Sparks loyalty programme and
payment options, supported by an effective and more efficient technology
infrastructure.
9. Disciplined capital allocation, to strengthen the balance sheet,
reinstate an investment grade rating for our debt and restore dividends.
Robust liquidity and balance sheet metrics allow for a further bond repurchase
exercise of c.£225m in respect of our medium-term maturities, also announced
today.
OUTLOOK AND GUIDANCE
M&S has had a good start to the new financial year, with both Food and
Clothing & Home growing sales. While the economic outlook for consumer
spending is uncertain, cost inflation remains high, and market conditions are
expected to become more challenging, the strategy is beginning to deliver
improved performance and there remains much within the Group's control.
In FY24, modest growth is expected in revenues, driven by omni-channel as well
as from the benefits of the accelerating store rotation plan. Further
investment in quality and trusted value will be partly offset by actions to
mitigate sourcing cost pressures and to reduce waste and stock loss.
Cost inflation includes over £50m of energy costs as well as colleague pay
increases of more than £100m, which are expected to be offset by the delivery
of over £150m of in-year savings from the structural cost reduction
programme. This gives scope to invest in customer service and digital
development, while controlling costs.
Despite facing significant headwinds, we are encouraged by the strong
foundations established last year.
DIVIDEND
The Group suspended dividend payments at the start of the pandemic to protect
the balance sheet. This enabled it to invest in its transformation priorities
and trusted value. With the business generating an improved operating
performance and having a strengthened balance sheet with credit metrics
consistent with investment grade, the Board plans to restore a modest annual
dividend to shareholders, starting with an interim dividend at the results in
November.
DELIVERING PROFITABLE SALES GROWTH
M&S' goal is to deliver profitable long-term sales growth through
developing exceptional product and a trusted brand, offering a leading
omni-channel retail experience including through Ocado Retail and expanding
the global reach of the business.
FOOD OUTPERFORMS DUE TO INVESTMENT IN INNOVATION AND TRUSTED VALUE
The objective for Food is to achieve 1% growth in market share and an adjusted
operating margin of c.4% over the next five years. This will be delivered
through 'protecting the M&S magic' of trusted value and innovation in
fresh, easy-to-cook food, while fixing the backbone processes of the supply
chain and driving growth in the store estate.
Food grew sales 8.7% to £7.22bn with LFL sales up 5.4%, with particularly
good growth in hospitality and franchise. Sales in core categories were up
c.5.0% and well ahead of pre-Covid levels, reflecting the strategy to broaden
appeal. Grocery market share increased 20bps to 3.6%, with M&S
outperforming all major full-line supermarkets. (source: Kantar 52 w/e 19
March 2023).
Operating profit before adjusting items of £248.0m compared with £277.8m in
the prior year (which included £24.6m of business rates relief), resulting in
a net adjusted operating margin of 3.4%.
While investment in value reduced margin in the first half, as we did not pass
through the full impact of cost inflation to customers, the resulting positive
effect on customer volumes drove sales. Combined with an in-year contribution
to operating profit from the Gist acquisition of £27m, this enabled an
increase in second half adjusted operating margin to 4.5%, compared with 3.8%
last year.
Growth underpinned by investment in trusted value: In recent years, Food has
shifted to trusted value to broaden appeal, reducing the volume of promotions
and become competitive at opening price points. At a time when customers'
focus is on the cost of living, further investment was made early in the year,
which meant that the business did not pass through the full impact of cost
inflation on its margins. This included:
· Sharpening the prices of over 100 'Remarksable value' lines which
offer M&S quality at everyday prices, implementing 'locked prices' across
a range of c.150 everyday family favourites and moving the iconic 'Dine-In'
offer to 'Always On' - offering an affordable, restaurant-quality alternative
to eating out; and
· As a result, the mix of value lines increased. For instance,
Remarksable sales were up 40%, and featured in over c.20% of customer
baskets. Dine-In launches such as 'steak and chips' also drove substantial
sales growth in the offer.
Performance fuelled by innovation and investment in basket building
categories: The innovation pipeline helped to increase sales of fresh
categories across the year and ambient products over Christmas, Valentine's
and Mother's Day when event sales grew by an estimated 20%. Product launches
included:
· A programme of quality upgrades with M&S winning c.200 'tried
and tested' awards from titles such as Good Housekeeping. For instance, the
introduction of Oakham™ Gold chicken means that all the fresh chicken sold
is now slower-reared, British and RSPCA Assured;
· Strong seasonal launches such as the 'master grill' range for
summer barbeques and Limited Editions for key events; and
· Reset and relaunched ranges aimed at driving market share in
larger baskets including soft drinks, household cleaning, frozen desserts, and
cereals.
Quality and value perceptions highest in six years: M&S continues to
generate market-leading quality and sustainability perceptions in Food, while
the continued strategy of investment in trusted value has driven improved
perceptions of value.
CLOTHING & HOME DELIVERING IMPROVED STYLE PERCEPTIONS AND SUSTAINING
LEADING VALUE POSITION
The objective for Clothing & Home is to deliver a 1% increase in market
share and an adjusted operating margin of c.10% over the next five years, by
driving omni-channel growth of a stylish, quality, value for money M&S
range, alongside a family of partner brands.
Clothing & Home grew sales 11.5% to £3.72bn with LFL sales up 11.2%. Full
price sell-through at 88% was level with last year and well above historical
levels. Clothing & Footwear market share increased 30bps to 9.3%. (source:
Kantar 52 w/e 2 April 2023)
Store sales increased 14.9% to £2.5bn with strength in city centre and
shopping centre locations. Online grew 4.8% to £1.2bn, with strong growth in
Click and Collect sales, which were up c.20%, with more than one third of
orders now generated through the M&S App.
Operating profit before adjusting items of £323.8m compared with £330.7m in
the prior year (which included £35.2m of business rates relief), an increase
of 9.6% excluding the impact of business rates. Adjusted operating margin of
8.7% is now c.170bps above 2019/20. Overall results reflected the leverage
from sales growth offsetting cost pressures, particularly from sourcing and
currency as we did not pass through the full impact of cost inflation to
customers and from planned digital investments.
Style credentials improving with more confident buying: A more confident
approach to buying, and focus on the modern mainstream customer, is starting
to deliver increased value for money and style perceptions.
· Clothing & Home has focused on buying more deeply into core
lines, and offering clearer price points and better availability. For
instance, women's denim sales have grown over several years, cementing
M&S' leading market share in the category, which has increased to 13% from
less than 10% two years ago.
· Greater investment has been made into categories which drive
style perception. For example, casual dress sales grew 40% in 2022/23. As the
strength of demand became apparent, increased purchases of popular lines were
made using short lead-time supply routes, meeting demand while managing
markdown risk.
· The improved range is supported by digital analytics to assess
profitability per option more accurately. In addition, availability is being
measured and stock is being allocated on a demand weighted basis.
Strong performance of event related categories: In a year when customers were
making the most of the return of events, weddings and holidays, growth was
generated in top end 'Autograph' sales while making further progress in casual
wear.
· Men's 'Autograph' sales increased c.60% while chino sales
increased c.25%, reflecting the strategy to build a "smart separates" business
for workwear. A focus in the current year is on the introduction of more
regular newness.
· Kidswear and Home offer important potential for improvement in
market share. However, growth in the year was modest, in a more difficult
market, against pandemic related comparatives. Having established a stronger
value position, the aim is to build increased awareness and appeal of the
range. For instance, partnerships such as Fired Earth are being expanded
across more categories.
Sustained, market leading value perception: As a result of improvements to the
range, and investment in trusted value, we have held leading value perception
ratings in recent years, alongside Clothing & Home's lead for quality and
sustainability. Encouragingly, style perception is also now improving.
LEVERAGING OUR OMNI-CHANNEL ADVANTAGE
Omni-channel development, supporting growth in Clothing & Home online
Clothing & Home's objective is to increase online sales participation and
achieve a better margin for online sales. We aim to drive online growth
through increased frequency and spend and using the national store and
distribution network to offer a convenient and consistent service.
Online sales grew 4.8%, driven by an improved omni-channel proposition, with
strong growth in Click and Collect sales which were up 20%. Customer orders
grew 12.6%, despite the effects of courier capacity constraints over peak
trading. This was partly offset by the normalisation of returns rates
post-pandemic. As expected, online adjusted operating profit margin reduced to
5.0% from 9.1%, this was due to sourcing cost pressures which reduced gross
margin and planned investments in digital and omni-channel improvements to
drive future growth.
Acquiring, converting, and retaining customers: Customers who move from
shopping in one channel to multiple channels and products typically spend
more. An effective and profitable way to serve these omni-channel customers is
through the M&S App.
· Use of the M&S App and associated Sparks memberships
continued to grow with average active App users increasing by c.40% to 4.3m
supported by sign up campaigns such as the '12 days of Sparks' in December
when users could gain access to exclusive offers and rewards.
· The aim is that the App should provide a personalised 'shop
front' to the M&S brand and Sparks loyalty membership and connect the
store and online worlds through services such as easy collection & returns
and 'scan and shop'.
· Upgrades to the online experience have included, 'one click'
checkout with digital receipts, and improved functionality in the App. At the
same time, development of automation has driven further growth in the volume
of personalised interactions.
Creating a convenient and consistent service across channels: The national
store and distribution network provides an important customer service
advantage with over 60% of orders collected at store and more than three
quarters of online returns processed through the store network.
· Digital Click and Collect is being rolled out to the estate
enabling rapid collection and we have implemented self-service returns,
reducing the cost of processing and turnaround time for resale.
· Using in-store fulfillment to expand capacity allowed 9% of items
ordered online to be filled from store stock. We are also trialling the resale
of Clothing & Home returns made to Simply Food stores through local hubs.
· A key goal over the next three years is to leverage the
omni-channel store and warehouse network, further reducing costs and creating
additional capacity.
Early stage growth of third-party brands: M&S now trades with over 140
partners, strengthening the customer offer where brands are important such as
dresses, sports, home and beauty. Third party brands help attract new
shoppers, who also buy M&S products.
Total sales of Clothing, Beauty and Home brands increased 67% to £158m.
Online brands sales now represent c.8% of total online sales
· Launches during the year included Clinique and Benefit in beauty
and an extended sports offer through The Sports Edit at M&S.com.
· Having grown rapidly from a standing start, investment is being
made to simplify on-boarding for partners, to introduce 'drop ship' capability
to enable fulfilment from partner stock and to reduce the volume of split
shipments, thereby lowering costs.
Ocado Retail Reset Underway
The Ocado Retail joint venture combines the strength of M&S' brand, food
quality and innovation with unique and proprietary technology to create a
compelling offer. It has already generated significant volume growth and
buying benefits for M&S Food with over £600m of M&S product sales
through Ocado.com last year. During the year, new leadership was appointed,
with Hannah Gibson taking the role of CEO.
Ocado Retail generated total revenue of £2.22bn, down 1.2%. While active
customers grew, revenues reflected reduced volumes due to lower shopping
frequency as a result of pandemic reversion and the impact of cost inflation
on customers. The M&S share of Ocado Retail net loss was £29.5m compared
with a net profit of £13.9m in 2021/22. The reduction was driven by the
effects of higher fixed costs from new and underutilised capacity, increased
marketing to drive new customer growth and energy related cost pressures.
Resetting the customer proposition: The team's focus is on improving customer
experience including re-engaging lapsed and occasional customers with improved
service including 'kitchen table' deliveries and investing in value to broaden
appeal, through the Ocado Price Promise.
Improving operating costs: Alongside this, steps to reduce costs are underway.
These include network optimisation, with the proposal to cease operations at
the Hatfield site, shifting volume to more efficient CFCs including Luton; the
first site with on-grid robotic pick, as well as marketing efficiencies and
overhead reductions.
Deepening collaboration between Ocado Retail and M&S: The M&S core
range available on Ocado.com has been increased by more than 300 lines to
c.5,700, and we are starting to leverage the potential of the M&S customer
base more broadly. Efficiencies are also being scoped from joint sourcing and
logistics.
Substantial growth and profit potential: Ocado Retail has grown revenue by 40%
since 2019 and has a large, addressable market and substantial invested
capacity to grow sales and to recover profitability in the medium term.
EXPANDING GLOBAL REACH THROUGH STRONG PARTNERSHIPS
M&S' objective is to grow International retail sales through leveraging
its brand through capital light partnerships and a multi-platform online
business with global reach.
International sales increased 11.2% at constant currency to £1.06bn, with
partner retail sales growth of 8% driven by Clothing & Home. Sales were
adversely impacted by c.5% by the exit from markets including Russia during
the year.
Online sales were up 5% and are more than double pre-Covid levels now
accounting for 22% of International Clothing & Home sales. Operating
profit before adjusting items of £84.8m compared with £73.6m in 2021/22,
which included a contribution in the prior year of £5.5m from Russia.
Excluding the Republic of Ireland, operating profit was £67.9m compared with
£58.2m in the prior year.
Demand recovery across partner markets: In franchise and partner markets,
demand was robust as partners re-stocked as footfall increased following
emergence from Covid, with particular strength in India and the Middle East.
Investing in European operations: European online sales have grown rapidly
in the past three years, and investment is being made to improve customer
service and reduce cost to serve, including opening a new logistics hub in
Croatia enabling the direct import of stock destined for EU markets.
Working to improve Food profitability in the Republic of Ireland: In the
Republic of Ireland, while performance in Clothing & Home was robust, the
Food business continues to be impacted by Brexit related costs. Steps include
cost restructuring, increasing the proportion of locally sourced supply and
assessing new routes to market, with a franchise store trial underway with
roadside retailer Applegreen.
IMPROVING OPERATING MARGINS
IMPLEMENTING A PROGRAMME TO STRUCTURALLY REDUCE COSTS
In 2022/23, adjusted operating margins were 8.7% in Clothing & Home and
3.4% in Food, against a medium-term objective of improving these to c.10% and
c.4% respectively. The purpose of the cost reduction programme is structurally
to reduce costs by more than £400m over the next five years. Accelerated
store rotation and driving profitable online growth will be an important
driver to improving margins. At the same time, we aim to offset annual
inflation with productivity improvements.
To deliver this, investment is being made in technology to increase retail
efficiency and reduce energy costs, embarking on a multi-year programme in the
supply chain and simplifying and streamlining digital, technology and support
centre functions. Examples of programmes include:
· The roll out of a further c.800 self-checkout tills (including
within Clothing & Home) and further developments to scan and pay. As a
result, in these stores over 70% of Food transactions are now self-serve.
Alongside the effects of sales leverage, this has enabled the business to
reach its target of 10% retail staff costs as a percentage of sales, ahead of
plan;
· Warehouse rationalisation and investment in automation at the
Bradford warehouse in Clothing & Home, alongside changes to returns
processing; and
· Simplified structures within the support centre, which in 2022/23
included bringing together the digital and technology teams in data science,
digital product development and enterprise systems.
In the year ahead, inflation from colleague pay of more than £100m and
c.£50m in additional energy costs are expected. Investments are planned in
store service, accelerating store rotation and new technology such as the
Clothing & Home order planning system and the roll out of a new Food
forecasting and ordering system. These headwinds will be partly offset by cost
savings of over £150m, resulting overall in a slight increase in costs.
CREATING A CULTURE OF DELIVERY
A key element of the plan to reshape M&S is the creation of a
high-performance culture. The aim is to raise the 'bench strength' of M&S
talent and create a simpler, faster, digitally enabled organisation. This
requires a culture that is closer to colleagues, closer to customers, and a
place where everyone can be themselves and be their best. Key elements of
the programme include:
· Building a simpler, faster, digitally enabled organisation; For
instance, digital leadership has been reset, including the introduction of a
new online and omni-channel director role. The technology, digital product and
data teams have been brought together as one function and M&S Connect
created, putting M&S Bank & Services and Sparks under one leadership;
· Creating a culture that is closer to colleagues and closer to
customers; During the year this included a substantial investment in colleague
pay and reward and the requirement for support centre colleagues to spend
seven days per year working in store, bringing them close to the front-line;
· Raising the bar on talent; with fast-track learning and future
leaders' programmes introduced developing skills sets at all levels. At the
same time, robust goals linked to delivery of the nine priorities have been
implemented; and
· Building the skills for tomorrow; The data science and AI
apprenticeship group has expanded to over 200 colleagues and the M&S BEAM
Academy, which develops technical skills sets, continues to grow. Alongside
this the Product Academy has equipped over 25,000 colleagues with selling and
service skills for modern omni-channel retailing.
This is supported by a set of core expectations and behaviours of how the
business operates from day to day.
MAKING DISCIPLINED INVESTMENT CHOICES
M&S' capital investment programme is focused on increasing volume in
growth channels and on structural reductions of the cost base. Appraisal of
investments applies hurdle rates commensurate with risk, with a primary focus
on cash payback on store investments.
Total investment during the year was over £500m, up from £300m in 2021/22.
This included the £103m net initial payment for the acquisition of Gist and
just over £400m of capital expenditure. The increase in capex largely related
to store renewals, the resumption of property asset replacement following the
pandemic and improvements to the technology infrastructure. In the coming
year, we expect to maintain a similar level of capital expenditure.
Capital expenditure is focused on three programmes.
1. Accelerating store rotation and renewal to create a high
productivity brand defining estate of c.180 full-line and c.400 Food stores
positioned in growth locations. Over five years this is expected to reduce
Clothing & Home selling space by c.20% and increase Food space by
c.10-15%.
· In 2022/23, the full-line estate reduced by three stores, while
the owned Simply Food estate increased by five. In some cases, we are on
track to double sales and pay back the capital invested in c.3-4 years,
including closure costs for relocations. A good example of this is the
Chesterfield High Street store, which was closed and the business relocated to
the nearby retail park.
· This year the plan is to open 8 full-line and 10 Food stores
while closing c.20, of which 10 will be closed for relocation. The relocations
include opening five new 'flagship' properties in Liverpool, Leeds,
Manchester, Birmingham and Thurrock.
· Over 80 stores are now in a renewal format including a new
full-line store at Stevenage. In full Food renewals these add capacity in
areas catering to the larger family shop. Paybacks currently average c. four
years and in the next phase the plan is to refine space allocation, range and
service to further increase returns.
2. Modernising the Clothing & Home and Food supply chains to
create a lower cost network which prioritises the timely flow of products over
storage and stock holding.
Clothing & Home is planning a five-year programme of investment which
includes:
· Consolidation, to focus on fewer, more strategic clothing and
fabric suppliers;
· Systems upgrades to create greater visibility, improve
replenishment and reduce excess stock commitment and storage; and
· Creating a logistics network to support the omni-channel
offering, largely using existing assets, and investing in automation and new
capacity to improve availability and speed up delivery and returns.
In Food last year the acquisition of Gist was completed, taking control of the
logistics network:
· The H2 contribution from the acquisition was c.£27m, from the
elimination of management fees, operational savings and improved service over
peak;
· There is the potential to drive productivity improvements from
shared transport across Clothing & Home and Food and a plan for network
modernisation is being developed; and
· A new forecasting, ordering and allocation system is being
implemented, with the planned benefit of helping to reduce waste.
3. Creating a more engaging digital customer experience which brings
together loyalty and payment, supported by an effective technology
infrastructure.
In 2022/23, the teams working on omni-channel & Sparks were combined with
those responsible for commercial and enterprise planning systems to optimise
use of technology resources across the Group.
· Investment in year included technology improvements in stores and
the initial implementation of the food forecasting and ordering system,
personalisation developments and the trial of Sparks Pay;
· Steps are being taken to upgrade core systems, including
enterprise resource and new payroll applications and the supply chain
improvements outlined above; and
· The opportunity to create a more effective payment and loyalty
proposition through a unified single sign on across all M&S products is
also being evaluated.
The Group's ability to invest is driven by its capital allocation framework,
which focuses on the generation of free cashflow from operations. In 2022/23,
this was £170m and after the initial consideration for the acquisition of
Gist, net debt excluding lease liabilities reduced by a further c.£64m to
£356m, with the group continuing to have substantial cash balances of
£1,068m. After recent improvements to the balance sheet, ratios of debt to
EBITDA and cashflow to net debt are now at levels consistent with an
investment grade credit rating which balances the needs of shareholders and
creditors while providing a robust 'sponsor covenant' to pension trustees. In
2023/24, we will continue to focus on free cashflow, prioritised investment
and look to achieve an investment grade credit rating during the year.
DRIVING SHAREHOLDER RETURNS, RESTORING THE DIVIDEND
With the business generating an improved operating performance and having a
strengthened balance sheet with credit metrics consistent with investment
grade, the Board plans to restore a modest annual dividend to shareholders
starting with an interim dividend with the results in November.
For further information, please contact:
Investor
Relations:
Fraser Ramzan: +44 7554 227758
Sandeep Dasgupta +44 7868 735 381
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 here
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Important Notice:
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the UK version of the Market
Abuse Regulation (EU) No. 596/2014 as it forms part of UK law by virtue of the
European Union (Withdrawal) Act 2018. Upon the publication of this
announcement, this inside information is now considered to be in the public
domain.
Statements made in this announcement that look forward in time or that express
management's beliefs, expectations or estimates regarding future occurrences
and prospects are "forward-looking statements" within the meaning of the
United States federal securities laws. These forward-looking statements
reflect Marks & Spencer's current expectations concerning future events
and actual results may differ materially from current expectations or
historical results. Any forward-looking statements are subject to various
risks and uncertainties, including, but not limited to, failure by Marks &
Spencer to predict accurately customer preferences; decline in the demand for
products offered by Marks & Spencer; competitive influences; changes in
levels of store traffic or consumer spending habits; effectiveness of Marks
& Spencer's brand awareness and marketing programmes; general economic
conditions including, but not limited to, 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 2023 Annual Report (pages 56-65).
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.
FULL YEAR FINANCIAL REVIEW
Financial Summary
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22 %
£m £m
Group statutory revenue 11,931.3 10,885.1 9.6
Group sales 11,988.0 10,909.0 9.9
UK Food 7,218.0 6,639.6 8.7
UK Clothing & Home 3,715.0 3,332.2 11.5
International 1,055.0 937.2 12.6
Group operating profit before adjusting items 626.6 709.0 -11.6
UK Food 248.0 277.8 -10.7
UK Clothing & Home 323.8 330.7 -2.1
International 84.8 73.6 15.2
M&S Bank and Services (0.5) 13.0 -103.8
Share of result in associates and joint ventures (29.5) 13.9 -312.2
Interest payable on lease liabilities (111.1) (115.6) -3.9
Net financial interest (33.5) (70.5) -52.5
Profit before tax & adjusting items 482.0 522.9 -7.8
Adjusting items (6.3) (131.2) -95.2
Profit before tax 475.7 391.7 21.4
Profit after tax 364.5 309.0 18.0
Basic earnings per share 18.5p 15.7p 17.8
Adjusted basic earnings per share 18.1p 21.7p -16.6
Net debt 2.64bn 2.70bn -2.2
Group capex and disposals 409.2 213.5 91.7
Free cash flow from operations 170.4 739.6 -77.0
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.
Group results
Group sales were £11,988.0m. This was an increase of 9.9% versus 2021/22,
driven by Clothing & Home sales up 11.5%, Food sales up 8.7% and
International sales up 12.6%. UK Food sales growth also reflects the impact of
third party sales by Gist Limited of £84.2m following its acquisition, which
had a positive effect of c.1.3% in the year. Like for like sales were
unaffected by the acquisition of Gist.
Statutory revenue in the period was £11,931.3m, an increase of 9.6% versus
2021/22.
The Group generated profit before tax and adjusting items of £482.0m,
compared with £522.9m in the prior year.
The Group benefited from Covid-related UK business rates relief of £59.8m in
2021/22, which was not repeated in 2022/23.
Adjusting items were a net charge of £6.3m, compared with a charge of
£131.2m in the prior year. The reduction was largely a result of a credit of
£108.0m representing the revaluation of the contingent consideration payable
for the investment in Ocado Retail Limited.
As a result the Group generated a statutory profit before tax of £475.7m,
compared with £391.7m in the prior year.
Adjusted basic EPS was 18.1 pence, down 16.6% on 2021/22 reflecting business
rates relief in the prior year. Basic EPS was 18.5 pence, up 17.8% on 2021/22,
reflecting the reduced net charge for adjusting items.
For full details on adjusting items and the Group's related policy, read more
on notes 1 and 3 to the financial information.
UK: Food
UK Food sales increased 8.7%, with like-for-like sales up 5.4%, underpinned by
strong performance of hospitality and franchise sales, following Covid
restrictions in the prior year.
Change vs 21/22 % Q1 Q2 Q3 Q4 FY
Food(1) 6.6 4.5 10.2 13.2 8.7
Food like-for-like sales 3.4 2.5 6.3 9.2 5.4
( )
(1) UK Food sales growth in Q3 and Q4 reflect the impact of third party sales
by Gist Limited, which had a positive effect in the FY of c.1.3%. UK Food
sales are equal to statutory revenue.
M&S Food has an online grocery presence with Ocado Retail and these sales
are reported through Ocado Retail and are not contained within these numbers.
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22 %
Footfall, m (average/week) 10.5 10.2 2.9
Transactions, m (average/week) 9.0 8.0 12.5
Basket value inc VAT (£) 15.2 15.9 -4.4
Total sales ex VAT £m(1) 7,218.0 6,639.6 8.7
(1) Includes M&S.com
Transactions increased, driven by the growth in hospitality and franchise
sales which are typically smaller value and which were reflected in a
reduction in overall basket value. However, larger basket transactions
continued to grow.
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22 %
£m £m
Sales 7,218.0 6,639.6 8.7
Operating profit before adjusting items 248.0 277.8 -10.7
Adjusted operating margin 3.4% 4.2% -80bps
Operating profit before adjusting items was £248.0m compared with £277.8m in
2021/22, with last year's result benefiting from £24.6m of UK business rates
relief.
The overall Food adjusted operating margin decreased by 80bps (40bps excluding
rates relief). Within this, gross margin declined 110bps, largely as a result
of investment in trusted value, while operating costs improved 70bps as sales
grew faster than costs.
Total adjusted operating costs grew c.7%, with growth of c.4% excluding
business rates relief and the acquisition of the Gist third-party business.
This included pay and inflation related cost increases such as energy of c.7%,
new space and volume of c.1.5%, and investments such as in-store technology
improvements. However, this was partly offset by efficiencies of c.6%,
predominantly in store staffing and benefits from the Gist management fee
saving, following acquisition.
The table below sets out the resulting movement in Food adjusted operating
margin by key cost driver:
· Store staffing costs decreased 50bps. Colleague pay increases
were largely offset by retail efficiencies and sales growth.
· Other store costs increased 10bps, with a 40bps adverse impact
from the receipt of business rates relief in the prior year, and additional
energy cost headwinds.
· Distribution and warehousing costs increased 10 bps. The increase
largely reflects pay and inflation increasing faster than sales, although
these were partly offset by Gist management fee savings in H2.
· Central costs decreased 10bps due to sales leverage, despite
additional technology investments in store and trials of the new forecasting,
ordering and allocation system.
Operating profit margin before adjusting items %
2021/22 4.2
Gross margin (1.1)
Store staffing 0.5
Other store costs (0.1)
Distribution and warehousing (0.1)
Central Food costs 0.1
2022/23 3.4
UK: Clothing & Home
Clothing & Home sales increased 11.5% with continued recovery of store
sales, which are now above pre-Covid levels, and a robust performance by the
online business.
Change vs 21/22 % Q1 Q2 Q3 Q4 FY
Clothing & Home sales 18.2 10.3 8.8 10.2 11.5
Clothing & Home like-for-like sales 17.6 10.2 8.6 9.6 11.2
Clothing & Home stores sales 24.3 14.0 12.8 9.8 14.9
Clothing & Home online sales 7.0 2.9 0.7 11.1 4.8
Clothing & Home statutory revenue 16.7 9.6 7.1 10.8 10.6
To enable greater insight into these movements, further detail is provided on
the performance of each channel.
Online
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22
%
Traffic (m)(1) 446.5 405.7 10.1
Conversion (%)(2) 6.7 7.0 -30bps
Average order value incl. VAT pre returns (£) 58.6 55.4 5.8
Returns rate (%)(3) 29.5 25.6 390bps
Sales ex VAT £m 1,176.4 1,122.7 4.8
(1) Traffic: the number of site visits to M&S.com and the app.
(2) Conversion: the number of orders as a % of the number of site visits.
(3)Prior year number restated due to basis of calculation. Returns rate
represents returns on despatch sales.
Following strong performance last year, online sales remained solid with
growth throughout the year despite a tough market backdrop. Average order
value grew almost 6% reflecting higher average selling prices, partly driven
by mix.
The online returns rate increased year-on-year due to the growth of
third-party brands which have a higher returns rate and a reversion in product
mix and customer behaviour. Store returns rates reduced, with fitting rooms
now reopened post pandemic.
Stores
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22 %
Footfall, m (average/week) 4.5 4.0 12.5
Transactions, m (average/week) 1.8 1.7 5.9
Average basket value inc VAT pre returns (£) 37.4 34.9 7.2
Sales ex VAT £m 2,538.6 2,209.5 14.9
UK Clothing & Home store sales increased 14.9%, with all clothing store
formats seeing an improvement in sales year-on-year, also supported by higher
average selling prices and mix. Average weekly footfall was up 12.5% following
Covid restrictions lifting during Q1 last year, contributing to an increase in
transactions.
Total Clothing & Home
Operating profit before adjusting items was £323.8m compared with £330.7m in
2021/22, with last year's result benefitting from £35.2m of UK business rates
relief.
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22 %
£m £m
Statutory revenue 3,658.3 3,308.3 10.6
Sales 3,715.0 3,332.2 11.5
Operating profit before adjusting items 323.8 330.7 -2.1
Adjusted operating margin 8.7% 9.9% -120bps
The overall Clothing & Home adjusted operating margin decreased by
c.120bps (20bps excluding rates relief). Within this, gross margin decreased
290bps, although this was partly offset by lower operating costs as a percent
of sales, as sales grew faster than costs.
Within gross margin, bought-in margin declined c.200bps. Sourcing, freight and
in-year currency related cost pressures, particularly in H2, were not fully
offset by pricing activity. In addition, as expected, promotional mix
normalised and, third-party brands grew, diluting margin by c.30bps.
Total adjusted operating costs increased 7.6%, with growth of 5.2% adjusted
for business rates relief. Pay and inflation related costs such as energy
contributed 4% to cost growth, while space, volume and channel mix contributed
3% and investments were made in digital development, the growth of third-party
brands and marketing. These were partly offset by efficiencies of c.3%,
including store staffing.
The table below sets out the drivers of the movement in Clothing & Home
operating profit before adjusting items for the total segment and by
channel.
· Store staffing costs decreased 60bps. Colleague pay increases
were more than offset by retail efficiencies and sales growth.
· Other store costs were level. There was a 100bps adverse impact
from the receipt of business rates relief in the prior year, which was offset
by the effects of sales growth.
· Distribution and warehousing costs improved 110bps due to sales
growth and channel mix, which more than offset pay inflation.
· Central costs were level as a percentage of sales despite
significant additional digital investments including website front end
development and increased personalisation.
Operating profit margin before adjusting items Total Stores Online
% % %
2021/22 9.9 10.3 9.1
Gross margin (2.9) (2.1) (4.5)
Store staffing 0.6 0.9 0.4
Other store costs 0.0 0.4 0.1
Distribution and warehousing 1.1 0.8 0.9
Central Clothing & Home costs 0.0 0.1 (0.9)
2022/23 8.7 10.4 5.0
As outlined above, store margin increased, largely due to strong sales growth.
Online margin was adversely impacted due to slower sales growth, product mix
and digital investments.
International
Total International sales increased 11.2% at constant currency. Store sales
grew 14% as the business recovered from lockdown in several markets in Q1 of
the prior year. Online sales were up 5% led by India and growth through
European marketplaces in H2.
Sales excluding the Republic of Ireland were up 15.1% at constant currency,
driven by Clothing & Home sales in India and continued robust demand from
partners in the Middle East. Trading in Europe was adversely impacted by the
closure of operations in Russia and France. Sales growth in the Republic of
Ireland was robust despite continuing EU border related headwinds in Food.
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22 % Change vs
£m £m 21/22 CC %
Total sales 1,055.0 937.2 12.6 11.2
Memo: Sales excl. Republic of Ireland 741.0 637.8 16.2 15.1
Operating profit before adjusting items 84.8 73.6 15.2 16.2
Adjusted operating margin 8.0% 7.9% 10bps 30bps
Memo: Operating profit before adjusting items excl. Republic of Ireland 67.9 58.2 16.7 18.6
Total International operating profit before adjusting items was up 15.2% to
£84.8m, with adjusted operating margin up 10bps to 8.0%. This was largely
driven by growth in markets excluding the Republic of Ireland.
Gross margin decreased by 20bps, driven by a reduced Clothing & Home gross
margin in the Republic of Ireland. Operating costs increased 11.6% but reduced
as a percent of sales. The increase in operating costs was largely driven by
the business returning to a fully operational state following Covid related
lockdowns in Q1 last year. In addition, pay and energy related cost inflation
was absorbed in owned markets.
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 29 May 2022, 28 August
2022, 27 November 2022 and 26 February 2023.
Q1 Q2 Q3 Q4 FY
Revenue growth (%) -9.8 2.6 0.3 3.4 -1.2
Active customers (k) 867 947 942 957 957
Average orders per week (k) 385 374 382 381 380
Notes: Retail revenue comprises revenues from Ocado.com and Ocado Zoom.
Average orders per week refers to results of Ocado.com
Revenue declined 1.2% over the 52 weeks to 26 February 2023. While active
customers grew 14.6% and order numbers increased 3.9%, basket sizes have
continued to decline due to the near-term pressures of the pandemic unwind and
cost-of-living crisis. Revenue performance in the last three quarters was
ahead of last year.
52 weeks ended 26 Feb 23 27 Feb 22 Change
£m £m %
Revenue 2,222.0 2,248.8 -1.2
EBITDA before exceptional items (15.1) 104.8 -114.4
Exceptional items(1) 21.2 (14.4) 247.2
Depreciation and amortisation (69.4) (41.3) 68.0
Operating (loss)/profit (63.3) 49.1 -228.9
Net interest charge (14.3) (16.4) -12.8
Taxation 18.6 (4.9) 479.6
(Loss)/profit after tax (59.0) 27.8 -312.2
M&S 50% share of (loss)/profit after tax (29.5) 13.9 -312.2
(1)Exceptional items are defined within the Ocado Group plc Annual Report and
Accounts 2022.
Ocado Retail EBITDA before exceptional items was down, reflecting smaller
baskets, lower gross margins, under-utilised CFC capacity and higher
fulfilment and delivery costs.
Ocado Retail recognised £21.2m of exceptional income before tax,
predominantly relating to the insurance income for Andover and Erith CFCs,
offset by costs relating to the development and introduction of new IT systems
as Ocado Retail transition away from Ocado Group IT services, tools and
support.
As a result of lower EBITDA, partly offset by exceptional profits, M&S
Group share of Ocado Retail loss after tax was £29.5m.
M&S Bank and Services
M&S Bank and Services generated a loss before adjusting items of £0.5m,
as compared with profit of £13.0m in 2021/22. Deterioration of the forward
macro-economic environment guidance drove the need for higher bad debt
provision resulting in insufficient profits to generate a profit share
payment.
Net finance cost
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22 £m
£m £m
Interest payable (76.3) (85.1) 8.8
Interest income 23.8 9.6 14.2
Net interest payable (52.5) (75.5) 23.0
Pension net finance income 28.7 13.2 15.5
Unwind of discount on Scottish Limited Partnership liability (4.3) (4.4) 0.1
Unwind of discount on provisions (5.4) (3.8) (1.6)
Net financial interest (33.5) (70.5) 37.0
Net interest payable on lease liabilities (111.1) (115.6) 4.5
Net finance costs before adjusting items (144.6) (186.1) 41.5
Adjusting items included in net finance costs 105.2 5.6 99.6
Net finance costs (39.4) (180.5) 141.1
Net finance costs before adjusting items decreased £41.5m to £144.6m. This
was driven by higher average interest rates on cash balances and higher
pension finance income from a larger opening pension surplus balance. In
addition, interest expense reduced as a result of the partial buy-back of 2023
and 2025 bonds.
Adjusting items within net finance costs reflect a credit relating to the
remeasurement of Ocado Retail contingent consideration of £108m and a charge
of £2.8m reflecting the discount unwind on deferred consideration and
revaluation of contingent consideration on the acquisition of Gist Limited.
Group profit before tax and adjusting items
Group profit before tax and adjusting items was £482.0m, down 7.8% on
2021/22. The profit decrease was largely due to declines in Food, Clothing and
Home and Ocado Retail, offset by an increase in International operating profit
and reduced interest. UK profits in the prior year benefitted from £59.8m
business rates relief.
Group profit before tax
Group profit before tax was £475.7m, up 21.4% on 2021/22.
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. These (charges)/gains are reported as adjusting items on the
basis that they are significant in quantum in current or future years and to
aid comparability from one period to the next.
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22
£m £m £m
Strategic programmes - UK store estate (51.3) (161.4) 110.1
Strategic programmes - Structural simplification (16.4) - (16.4)
Strategic programmes - Organisation (10.7) 14.3 (25.0)
Strategic programmes - UK logistics (10.5) 21.9 (32.4)
Strategic programmes - International store closures and impairments - 0.4 (0.4)
Store impairments, reversals and other property charges 15.1 60.0 (44.9)
Acquisition of Gist Limited (22.1) - (22.1)
Amortisation and fair value adjustments arising as part of the investment in (14.0) (32.5) 18.5
Ocado Retail Limited
M&S Bank charges incurred in relation to the insurance mis-selling (2.0) (16.0) 14.0
provisions
Franchise restructure 0.4 (41.3) 41.7
Directly attributable gains resulting from the Covid-19 pandemic - 17.8 (17.8)
(111.5) (136.8) 25.3
Included in net finance income/(costs)
Remeasurement of Ocado Retail Limited contingent consideration 108.0 5.6 102.4
Net finance costs incurred in relation to Gist Limited deferred and contingent (2.8) - (2.8)
consideration
105.2 5.6 99.6
Adjustments to profit before tax (6.3) (131.2) 124.9
Adjusting items recognised were a net charge of £6.3m. These include:
A charge of £51.3m in relation to UK store estate rotation plans. This
reflects a revised view of latest store exit routes, assumptions, estimated
closure costs, charges relating to the impairment of buildings, fixtures and
fittings, and accelerated depreciation.
A non-cash charge of £10.7m within organisation relating to updated
assumptions regarding the sub-let of previously closed Merchant Square
offices.
A charge of £16.4m for structural simplification of the organisation, which
has resulted in a reduction of c.700 roles across support centres, management
and stores, with the charge reflecting the associated redundancy and exit
costs.
A net charge of £10.5m for UK logistics, reflecting estimated costs of
closure relating to the announced closure of a further distribution centre in
2023/24, as part of the previously announced programme to transition to a
single-tier UK distribution network.
A non-cash net credit of £15.1m in relation to UK and International store
impairments, driven by revised future cash flow projections in relation to the
carrying value of stores.
A charge of £22.1m relating to the acquisition of Gist to transform the
supply chain. Within this, £18.2m of charges relate to the settlement of our
pre-existing relationship with Gist Limited.
A non-cash charge of £14.0m with respect to the amortisation of intangible
assets acquired on the purchase of our share in Ocado Retail partly offset by
the related deferred tax credit.
Charges of £2.0m have been incurred relating to M&S Bank, primarily due
to the insurance mis-selling provision.
In 2021/22, the Group announced the restructure of its franchise operations in
France. Following finalisation of costs, £0.4m of the provision has been
released, with no future costs currently expected.
A credit of £108m representing the revaluation of the contingent
consideration payable for the investment in Ocado Retail Limited to £64.7m.
Taxation
The effective tax rate on profit before tax and adjusting items was 25.9%
(2021/22: 18.2%). This was higher than the UK statutory tax rate primarily
due to the impact of the recapture of tax relief on distributions to the
Scottish Limited Partnership (SLP), which have resumed in the year, and
non-taxable Ocado Retail losses.
The effective tax rate on statutory profit before tax was 23.4% (2021/22:
21.1%). This is lower than the effective tax rate on profit before adjusting
items due to the impact of non-taxable adjusting items.
In 2023/24 we expect the effective tax rate on profit before tax and adjusting
items to increase to c.31-32%, largely as a result of the increase in the UK
corporation tax rate.
Earnings per share
Basic earnings per share was 18.5p (2021/22: 15.7p), due to the increase in
profit year-on-year. The weighted average number of shares in issue during the
period was 1,963.5m (2021/22: 1,958.1m).
Adjusted basic earnings per share was 18.1p (2021/22: 21.7p) due to lower
adjusted profit year-on-year.
Cash flow
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22
£m £m £m
Operating profit 515.1 572.2 (57.1)
Adjusting items within operating profit 111.5 136.8 (25.3)
Operating profit before adjusting items 626.6 709.0 (82.4)
Depreciation and amortisation before adjusting items 523.2 510.7 12.5
Cash lease payments (353.8) (344.3) (9.5)
Working capital (10.1) 239.7 (249.8)
Defined benefit scheme pension funding (36.8) (36.8) -
Capex and disposals (409.2) (213.5) (195.7)
Financial interest (66.5) (79.9) 13.4
Taxation (70.6) (7.7) (62.9)
Employee-related share transactions 37.9 39.1 (1.2)
Share of loss/(profit) from associate 29.5 (13.9) 43.4
Adjusting items in cashflow (69.9) (61.8) (8.1)
Loans to associates (30.0) (1.0) (29.0)
Free cash flow from operations 170.4 739.6 (569.2)
Acquisitions, investments, and divestments (106.8) (40.4) (66.4)
Free cash flow 63.6 699.2 (635.6)
Dividends paid - - -
Free cash flow after shareholder returns 63.6 699.2 (635.6)
Opening net debt excluding lease liabilities (420.1) (1,110.0) 689.9
Free cash flow after shareholder returns 63.6 699.2 (635.6)
Exchange and other non-cash movements excluding leases 0.9 (9.3) 10.2
Closing net debt excluding lease liabilities (355.6) (420.1) 64.5
Opening net debt (2,698.8) (3,515.9) 817.1
Free cash flow after shareholder returns 63.6 699.2 (635.6)
Decrease in lease obligations 231.8 216.0 15.8
New lease commitments and remeasurements (249.4) (100.6) (148.8)
New leases from acquisitions (21.3) - (21.3)
Exchange and other non-cash movements 36.9 2.5 34.4
Closing net debt (2,637.2) (2,698.8) 61.6
The business generated free cashflow from operations of £170.4m, reducing
year on year. This was driven by lower operating profit as a result of
business rates relief in 2021/22, prior year working capital inflows,
increased capital expenditure (detailed below), and tax payments.
Prior year working capital inflows were partly a result of changes to payment
terms for Clothing & Home suppliers during the pandemic, which are
partially reversing as Clothing & Home shifts back towards pre-Covid
terms. The outflow was lower than anticipated due to the phasing of payables
over year end.
Defined benefit scheme pension funding of £36.8m reflects the agreed SLP
interest distribution to the pension scheme.
Increased taxation was principally due to the resumption of UK corporation tax
payments in the period.
Adjusting items in cashflow includes £26.4m relating to the exit of the
Russian franchise business, £22.8m relating to the UK store estate strategy,
£8.9m related to structural simplification, £6.7m for costs related to the
Gist acquisition and £2.0m relating to the M&S Bank insurance mis-selling
provisions.
Loans to associates reflects drawdown of the shareholder loan facility by
Ocado Retail, with an outflow of up to £70m anticipated in 2023/24.
Acquisitions, investments and divestments were driven principally by the
payment of £102.8m relating to the acquisition of Gist, net of cash received.
The business generated free cashflow of £63.6m, resulting in a further
reduction of net debt.
Capital expenditure
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22
£m £m £m
UK store remodelling 70.5 50.1 20.4
New UK stores 55.0 49.9 5.1
International 28.9 18.2 10.7
Supply chain 36.8 28.6 8.2
IT and M&S.com 109.5 68.2 41.3
Property asset replacement 102.1 85.2 16.9
Capital expenditure before property acquisitions and disposals 402.8 300.2 102.6
Property acquisitions and disposals (1.1) (43.9) 42.8
Capital expenditure 401.7 256.3 145.4
Movement in capital accruals and other items 7.5 (42.8) 50.3
Capex and disposals as per cash flow 409.2 213.5 195.7
Group capital expenditure before property acquisitions and disposals increased
£102.6m to £402.8m due to increased investment in technology, store
remodelling and property asset replacement.
UK store remodelling costs reflects 31 Food renewals and upgrades to Clothing
& Home space in several full line stores.
Spend on new UK stores primarily related to the opening of 3 full line and 6
Food stores and one Food extension.
Supply chain expenditure reflects investment in the underlying base food
infrastructure together with spend on upgrading vehicles.
IT and M&S.com spend includes technology replacement and upgrades in
stores, continued investment in website development and investment in food
planning systems.
Property asset replacement has increased in the current year, primarily driven
by the resumption of investment following the pandemic. This includes roof
works and replacement of fridges, freezers, boilers, lifts and escalators.
Prior year disposals include receipts from the sale of two warehouses.
The movement in capital accruals and other items is driven by landlord
contributions partially offset by an increase in capital accruals as capex
spend normalises post pandemic.
Net debt
Group net debt decreased £61.6m driven by free cashflow from operations of
£170.4m, and a net cash outflow of £102.8m relating to the acquisition of
Gist.
New lease commitments, remeasurements (including from acquisitions) in the
period were £270.7m, largely relating to 14 new UK leases, the consolidation
of Gist Limited lease liabilities, lease additions in India, and UK property
and logistics liability remeasurements. This was largely offset by £231.8m of
capital lease repayments.
The composition of Group net debt is as follows:
52 weeks ended 1 Apr 23 2 Apr 22 Change vs 21/22
£m £m £m
Cash and cash equivalents 1,067.9 1,197.9 (130.0)
Medium Term Notes (1,346.4) (1,529.5) 183.1
Current financial assets and other 44.8 99.4 (54.6)
Partnership liability (121.9) (187.9) 66.0
Net debt excluding lease liabilities (355.6) (420.1) 64.5
Lease liabilities (2,281.6) (2,278.7) (2.9)
- Full-line stores (909.2) (919.5) 10.3
- Simply Food stores (673.1) (712.8) 39.7
- Offices, warehouses and other (494.6) (449.5) (45.1)
- International (204.7) (196.9) (7.8)
Group net debt (2,637.2) (2,698.8) 61.6
The Medium Term Notes include five bonds, with maturities out to 2037, and the
associated accrued interest. During the period part of the 2023 and 2025 bonds
were repurchased, reducing near-term liquidity draws. The USD 300m 2037 bond
is valued by reference to the embedded exchange rate in the associated cross
currency swaps. During the year these swaps were reset and the embedded mark
to market value realised resulting in an increased value of the debt. The full
breakdown of maturities is as follows
Bond and maturity date Value (£m)
Dec 2023, GBP 185.3
Jun 2025, GBP 330.0
May 2026, GBP 298.9
Jul 2027, GBP 248.6
Dec 2037, USD 251.8
Total principal value 1,314.6
Other 31.8
Total carrying value 1,346.4
Full-line store lease liabilities include £192.2m relating to stores
identified as part of the UK store estate strategic programme. Of the
remaining full-line stores lease liability, the liability-weighted average
lease length to break is c.21 years. However, these average lease lengths are
skewed by five particularly long leases on stores which are trading well in
locations where the Group intends to remain. Excluding these five leases, the
average term to break of leases outside the programme is c.16 years.
Simply Food store lease liabilities include £26.3m 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 lease liabilities, £143.0m relates to
the sublet lease on the Merchant Square offices in central London, which is
part of the strategic programme, organisation. Average lease length of all
other offices and warehouses to break is c.8 years.
International leases relate primarily to India (c.£99m) and Ireland
(c.£62m). Average lease length to break in India is close to nil, as the
majority 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
length to lease break or expiry in Ireland is c.8 years.
Pension
At 1 April 2023, the IAS 19 net retirement benefit surplus was £477.4m
(2021/22: £1,038.2m). There has been a decrease of £560.8m from the start of
the year largely driven by an increase in gilt yields.
The pension scheme is fully hedged for movements in gilt yields. However, on
an IAS 19 basis there is an inherent basis risk to the scheme valuation, with
the pension assets moving with underlying movements in rates and scheme
liabilities exposed to the movement in corporate bonds yields. In a normal
period, this always results in some dislocation between movements in the
scheme assets and liabilities. However, the increase in gilt yields in the
year led to a larger dislocation. Nevertheless, there has been no material
worsening of the scheme's overall funding position and the scheme remains
fully funded on a technical provisions basis.
The most recent actuarial valuation of the Marks & Spencer UK Pension
Scheme was carried out as at 31 March 2021 and showed a funding surplus of
£687m. This is an improvement on the previous position at 31 March 2018
(funding surplus of £652m), primarily due to lower assumed life expectancy.
Marks and Spencer Scottish Limited Partnership
Marks and Spencer plc is a general partner of the Marks and Spencer Scottish
Limited Partnership, with the UK defined benefit pension scheme, which is a
limited partner. The Partnership holds £1.3bn (last year: £1.3bn) of
properties at book value which have been leased back to Marks and Spencer plc.
The first limited Partnership interest held by the scheme entitles it to
receive £73.0m in 2023 and £54.4m in 2024 and is included as a financial
liability in the financial statements as it is a transferable financial
instrument. The second Partnership interest held by the scheme, entitles it
to receive a further £36.4m annually from June 2017 until June 2031. It is
not a transferable financial instrument, so 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.
Liquidity
At 1 April 2023, the Group held cash and cash equivalents of £1,067.9m
(2021/22: £1,197.9m). In the period, as part of its approach to liability
management, the Group bought back c.£190m of bonds due for maturity in 2023
and 2025.
The Group currently has an unused £850m revolving credit facility which is
due to expire in June 2026 on terms linked to delivery of its net zero
roadmap. With the facility undrawn, the Group has liquidity headroom of
£1.9bn.
Dividend
With the business generating an improved operating performance and having a
strengthened balance sheet with credit metrics consistent with investment
grade, the Board plans to restore a modest annual dividend to shareholders
starting with an interim dividend with the results in November.
Statement of financial position
Net assets were £2,814.9m at the period end, a decrease of 3.5% since the
start of the year, largely due to the decrease in the IAS 19 pension surplus,
partially offset by profits.
Consolidated income statement
52 weeks ended 1 April 2023 52 weeks ended 2 April 2022
Total Total
Notes £m £m
Revenue 2 11,931.3 10,885.1
Share of result in associate - Ocado Retail Limited 2, 3, 17 (43.5) (18.6)
Operating profit 2, 3 515.1 572.2
Finance income 3, 4 166.1 33.9
Finance costs 3, 4 (205.5) (214.4)
Profit before tax 3 475.7 391.7
Income tax expense 5 (111.2) (82.7)
Profit for the year 364.5 309.0
Attributable to:
Owners of the parent 363.4 306.6
Non-controlling interests 1.1 2.4
364.5 309.0
Earnings per share
Basic earnings per share 6 18.5p 15.7p
Diluted earnings per share 6 17.9p 15.1p
Reconciliation of profit before tax & adjusting items:
Profit before tax 475.7 391.7
Adjusting items 3 6.3 131.2
Profit before tax & adjusting items - non-GAAP measure 482.0 522.9
Adjusted earnings per share - non-GAAP measure
Adjusted basic earnings per share 6 18.1p 21.7p
Adjusted diluted earnings per share 6 17.5p 20.9p
Consolidated statement of comprehensive income
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
Notes £m £m
Profit for the year 364.5 309.0
Other comprehensive (expense)/income:
Items that will not be reclassified subsequently to profit or loss
Remeasurements of retirement benefit schemes 8 (622.8) 357.0
Tax credit/(charge) on retirement benefit schemes 158.0 (127.6)
Loss on disposal of investment held at fair value through other comprehensive - (3.7)
income ("FVOCI")
(464.8) 225.7
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences
- movements recognised in other comprehensive income 4.3 (13.5)
- reclassified and reported in profit or loss - (0.5)
Cash flow hedges
- fair value movements recognised in other comprehensive income 77.0 91.3
- reclassified and reported in profit or loss (14.4) (10.5)
Tax charge on cash flow hedges (18.6) (14.7)
48.3 52.1
Other comprehensive (expense)/income for the year, net of tax (416.5) 277.8
Total comprehensive (expense)/income for the year (52.0) 586.8
Attributable to:
Owners of the parent (53.1) 584.4
Non-controlling interests 1.1 2.4
(52.0) 586.8
Consolidated statement of financial position
As at As at
1 April 2023 2 April 2022
Notes £m £m
Assets
Non-current assets
Intangible assets 10 163.1 192.5
Property, plant and equipment 11 5,203.7 4,902.3
Investment property 11.8 15.0
Investments in joint ventures and associates 17 767.9 810.9
Other financial assets 7.9 4.5
Retirement benefit assets 8 482.0 1,043.9
Trade and other receivables 298.7 270.6
Derivative financial instruments 0.1 21.4
Deferred tax assets 7.6 -
6,942.8 7,261.1
Current assets
Inventories 764.4 706.1
Other financial assets 13.0 17.6
Trade and other receivables 280.6 217.1
Derivative financial instruments 22.6 43.6
Current tax assets 6.5 -
Cash and cash equivalents 1,067.9 1,197.9
2,155.0 2,182.3
Total assets 9,097.8 9,443.4
Liabilities
Current liabilities
Trade and other payables 2,048.8 1,960.9
Partnership liability to the Marks & Spencer UK Pension Scheme 9 73.0 71.9
Borrowings and other financial liabilities 444.0 247.2
Derivative financial instruments 58.1 3.2
Provisions 44.0 53.6
Current tax liabilities 38.5 34.0
2,706.4 2,370.8
Non-current liabilities
Retirement benefit deficit 8 4.6 5.7
Trade and other payables 181.3 188.2
Partnership liability to the Marks & Spencer UK Pension Scheme 9 51.8 120.4
Borrowings and other financial liabilities 3,184.0 3,561.0
Derivative financial instruments 7.1 0.4
Provisions 75.4 91.8
Deferred tax liabilities 72.3 187.2
3,576.5 4,154.7
Total liabilities 6,282.9 6,525.5
Net assets 2,814.9 2,917.9
Equity
Issued share capital 19.8 19.7
Share premium account 910.7 910.6
Capital redemption reserve 2,680.4 2,680.4
Hedging reserve (31.9) 17.6
Cost of hedging reserve 4.2 3.6
Other reserve (6,542.2) (6,542.2)
Foreign exchange reserve (69.6) (73.9)
Retained earnings 5,839.1 5,897.9
Equity attributable to owners of the parent 2,810.5 2,913.7
Non-controlling interests 4.4 4.2
Total equity 2,814.9 2,917.9
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 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 (expense)/income:
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)
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
As at 3 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
Profit for the year - - - - - - - 363.4 363.4 1.1 364.5
Other comprehensive income/(expense):
Foreign currency translation
- movements recognised in other comprehensive income - - - - - - 4.3 - 4.3 - 4.3
Remeasurements of retirement benefit schemes - - - - - - - (622.8) (622.8) - (622.8)
Tax charge on retirement benefit schemes - - - - - - - 158.0 158.0 - 158.0
Cash flow hedges
- fair value movement in other comprehensive income - - - 76.2 0.8 - - - 77.0 - 77.0
- reclassified and reported in profit or loss - - - (14.4) - - - - (14.4) - (14.4)
Tax on cash flow hedges - - - (18.4) (0.2) - - - (18.6) - (18.6)
Other comprehensive income/(expense) - - - 43.4 0.6 - 4.3 (464.8) (416.5) - (416.5)
Total comprehensive income/(expense) - - - 43.4 0.6 - 4.3 (101.4) (53.1) 1.1 (52.0)
Cash flow hedges recognised in inventories - - - (123.9) - - - - (123.9) - (123.9)
Tax on cash flow hedges recognised in inventories - - - 31.0 - - - - 31.0 - 31.0
Transactions with owners:
Transactions with non-controlling shareholders - - - - - - - - - (0.9) (0.9)
Shares issued in respect of employee share options 0.1 0.1 - - - - - (0.1) 0.1 - 0.1
Purchase of shares held by employee trusts - - - - - - - (0.1) (0.1) - (0.1)
Credit for share-based payments - - - - - - - 38.0 38.0 - 38.0
Deferred tax on share schemes - - - - - - - 4.8 4.8 - 4.8
As at 1 April 2023 19.8 910.7 2,680.4 (31.9) 4.2 (6,542.2) (69.6) 5,839.1 2,810.5 4.4 2,814.9
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 1 ordinary
share of £0.01 and 1 deferred share of £0.24. All deferred shares were then
bought back for a 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 52 weeks ended
1 April 2023 2 April 2022
Notes £m £m
Cash flows from operating activities
Cash generated from operations 14 1,100.5 1,385.7
Income tax paid (70.6) (7.7)
Net cash inflow from operating activities 1,029.9 1,378.0
Cash flows from investing activities
Proceeds on property disposals 1.1 43.9
Purchase of property, plant and equipment (325.8) (192.8)
Purchase of intangible assets (84.5) (64.6)
Sale of current financial assets 5.3 0.8
Purchase of non-current financial assets (4.2) (3.3)
Proceeds on disposal of non-current financial assets 0.2 5.2
Purchase of investments in associates and joint ventures(1) - (37.8)
Acquisition of subsidiary, net of cash acquired(2) 18 (102.8) (4.5)
Loans to related parties 16 (30.0) (1.0)
Interest received 24.1 8.4
Net cash used in investing activities (516.6) (245.7)
Cash flows from financing activities
Interest paid(3) (212.5) (216.6)
Redemption of Medium Term Notes (189.9) (163.6)
Repayment of lease liabilities (231.8) (216.0)
Payment of liability to the Marks & Spencer UK Pension Scheme (66.0) -
Shares issued on exercise of employee share options - 0.3
Purchase of own shares by employee trust (0.1) -
Cash received from settlement of derivatives 56.5 -
Net cash used in financing activities (643.8) (595.9)
Net cash (outflow)/inflow from activities (130.5) 536.4
Effects of exchange rate changes 0.5 (8.2)
Opening net cash 1,197.9 669.7
Closing net cash 15 1,067.9 1,197.9
(1)Last 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.
(2)Current year includes £102.8m on the acquisition of Gist Limited, being
consideration of £170.6m net of cash acquired of £67.8m. Last year includes
£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 £5.9m (last year: £nil), interest paid on lease
liabilities of £121.9m (last year: £128.3m), and interest paid of £2.2m
(last year: £nil) in relation to deferred consideration for the acquisition
of Gist Limited.
( )
( )
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 1 April 2023 or 2 April 2022.
The financial information for the year ended 2 April 2022 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 1 April 2023 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 2 April 2022, with the exception of the change in accounting
policy and new accounting standards adopted in the year set out below. The
Company's full financial statements will be prepared in compliance with
UK-adopted International Accounting Standards.
Going concern basis
The financial statements have been prepared on a going concern basis. In
adopting the going concern basis, the Board has considered the business
activities, the financial position of the Group, its cash flows, liquidity
position and borrowing facilities, the Group's financial risk management
objectives and exposures to liquidity and other financial risks as set out in
note 12 and the principal risks and uncertainties.
The Group continues to maintain a robust financial position providing it with
sufficient access to liquidity, through a combination of cash and committed
facilities, to meet its needs in the short and medium term. At 1 April 2023,
the Group had available liquidity of £1,942.9m (last year: £2,072.9m),
comprising cash and cash equivalents of £1,067.9m, an undrawn committed
syndicated bank revolving credit facility ("RCF") of £850.0m (set to mature
in June 2026), and undrawn uncommitted facilities amounting to £25.0m.
In December 2022, the Group successfully extended its RCF, which now expires
in June 2026. The facility contains a financial covenant, being the ratio of
earnings before interest, tax, depreciation and amortisation; to net interest
and depreciation on right-of-use assets under IFRS 16. The covenant is
measured biannually.
In adopting the going concern basis of preparation, the Board has assessed the
Group's cash flow forecasts which incorporate a latest estimate of the ongoing
impact of current market conditions on the Group and include a number of
assumptions, including sales growth and customer behaviour. While trading
continues to be strong, in forming its outlook on the future financial
performance, the Board considered a variety of downsides that the Group might
experience, such as a sustained economic recession and an inability for the
Group to execute the transformation plan.
Under these latest forecasts, the Group is able to operate without the need to
draw on its available facilities and without taking any supplementary
mitigating actions, such as reducing capital expenditure and other
discretionary spend. The forecast cash flows also indicate that the Group will
comply with all relevant banking covenants during the forecast period, being
at least 12 months from the approval of the financial statements.
The Board has modelled a severe, but plausible, downside scenario. This
downside scenario assumes that:
· There will be a period of economic recession in the UK in
2023/24, resulting in a decline in sales of 2.0 - 2.5% and a decline in gross
profit margin of 0.5 - 1.0% across both Food and Clothing & Home business
units.
· A delay in transformation benefits results in incremental sales
expected from the transformation declining by 7.5%, 15% and 30% respectively
across the three-year period across all three business units.
· In addition, Ocado Retail Limited experiences limited customer
demand, with no volume growth in 2023/24 and volumes remaining subdued in
2024/25 and 2025/26.
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 is a range of mitigating actions that
could be taken to reduce the impact. Given current trading and expectations
for the business, the Board considers that this downside scenario reflects a
plausible, but remote, outcome for the Group.
In addition, reverse stress testing has been applied to the model to determine
the decline in sales that the Group could absorb before exhausting the Group's
total liquidity. Such a scenario, and the sequence of events which could lead
to it, are considered to be extremely remote.
As a result, the Board expects the Group to have adequate resources to
continue in operation, meet its liabilities as they fall due, retain
sufficient available cash and not breach the covenant under the revolving
credit facility for the foreseeable future, being a period of at least 12
months from the approval of the financial statements. The Board therefore
considers it appropriate for the Group to adopt the going concern basis in
preparing its financial statements.
New accounting standards adopted by the Group
The Group has applied the following new standards and interpretations for the
first time for the annual reporting period commencing 3 April 2022:
· Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a
Contract.
· Amendments to IFRS 3: Reference to the Conceptual Framework.
· Amendments to IAS 16: Property, Plant and Equipment - Proceeds
before Intended Use.
· 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.
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:
· 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 nor 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 sales growth;
adjusted operating profit; adjusted operating margin; profit before tax and
adjusting items; adjusted basic earnings per share; net debt; net debt
excluding lease liabilities; free cash flow; free cash flow from operations;
capital expenditure; and return on capital employed. Each of these APMs, and
others used by the Group, is set out in the Glossary, including explanations
of how they are calculated and how they can be reconciled to a statutory
measure where relevant.
The Group reports some financial measures, primarily International sales, on
both a reported and constant currency basis. The constant currency basis,
which is an APM, retranslates the previous year revenues at the average actual
periodic exchange rates used in the current financial year. This measure is
presented as a means of eliminating the effects of exchange rate fluctuations
on the year-on-year reported results.
The Group makes certain adjustments to the statutory profit measures in order
to derive many of these APMs. The Group's policy is to exclude items that are
considered significant in nature and/or quantum over the total expected life
of the programme or are consistent with items that were treated as adjusting
in prior periods. The Group's definition of adjusting items is consistent with
prior periods. Adjusted results are consistent with how business performance
is measured internally and presented to aid comparability of performance. On
this basis, the following items were included within adjusting items for the
52-week period ended 1 April 2023:
· 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 adjusted operating profit
where they relate to stores not previously impaired or do not otherwise meet
the Group's adjusting items policy.
· Adjustments to income from M&S Bank due to a provision
recognised by M&S Bank for the cost of providing redress to customers in
respect of possible mis-selling of M&S Bank financial products.
· Amortisation of the identified intangible assets arising as part
of the investment in Ocado Retail Limited.
· Remeasurement of Ocado Retail Limited contingent consideration.
· Directly attributable gains and expenses resulting from the
Covid-19 pandemic.
· Significant costs relating to the acquisition of Gist Limited.(1)
· Net finance costs incurred in relation to Gist Limited deferred
and contingent consideration.(1)
( )
(1) As a result of the acquisition of Gist Limited during the year, these
items have been included within adjusting items for the first time.
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, UK Food
franchise operations and UK supply chain services, with the following five
main categories: protein deli and dairy; produce; ambient and in-store bakery;
meals, dessert and frozen; 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 adjusted operating profit. This measurement basis
excludes the effects of adjusting items from the operating segments.
The following is an analysis of the Group's revenue and results by reportable
segment:
52 weeks ended 1 April 2023 52 weeks ended 2 April 2022
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(1) 3,715.0 7,218.0 1,055.0 - - 11,988.0 3,332.2 6,639.6 937.2 - - 10,909.0
Revenue 3,658.3 7,218.0 1,055.0 - - 11,931.3 3,308.3 6,639.6 937.2 - - 10,885.1
Adjusted operating profit/(loss)(2) 323.8 248.0 84.8 (29.5) (0.5) 626.6 330.7 277.8 73.6 13.9 13.0 709.0
Finance income before adjusting items 58.1 28.3
Finance costs before adjusting items (202.7) (214.4)
Profit/(loss) before tax and adjusting items 323.8 248.0 84.8 (29.5) (0.5) 482.0 330.7 277.8 73.6 13.9 13.0 522.9
Adjusting items (6.3) (131.2)
Profit/(loss) before tax 323.8 248.0 84.8 (29.5) (0.5) 475.7 330.7 277.8 73.6 13.9 13.0 391.7
(1) Sales is revenue stated prior to adjustments for UK Clothing & Home
brand consignment sales of £56.7m (last year: £23.9m).
(2) Adjusted operating profit/(loss) is stated as gross profit less operating
costs prior to adjusting items. At reportable segment level costs are
allocated where directly attributable or based on an appropriate cost driver
for the cost.
Other segmental information
52 weeks ended 1 April 2023 52 weeks ended 2 April 2022
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 170.4 221.1 29.9 - - 421.4 139.2 163.7 18.5 - - 321.4
goodwill and right-of-use assets)
Depreciation and amortisation(1,2) (267.9) (274.8) (35.7) - - (578.4) (268.1) (248.8) (35.0) - - (551.9)
Impairment charges, impairment reversals and asset write-offs(1) 10.2 6.1 (1.9) - - 14.4 (37.2) 10.7 (8.0) - - (34.5)
(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 £3.1m (last year: £0.2m) depreciation and impairments on
Investment property.
Segment assets and liabilities, including investments in associates and joint
ventures, are not disclosed because they are not reported to, or reviewed by,
the Executive Committee.
3 Adjusting items
The total adjusting items reported for the 52-week period ended 1 April 2023
is a net charge of £6.3m (last year: £131.2m). The adjustments made to
reported profit before tax to arrive at adjusted profit are:
2023 2022
Notes £m £m
Included in operating profit
Strategic programmes - UK store estate 11 (51.3) (161.4)
Strategic programmes - Structural simplification (16.4) -
Strategic programmes - Organisation (10.7) 14.3
Strategic programmes - UK logistics (10.5) 21.9
Strategic programmes - International store closures and impairments - 0.4
Store impairments, impairment reversals and other property charges 11 15.1 60.0
Acquisition of Gist Limited (22.1) -
Amortisation and fair value adjustments arising as part of the investment in 17 (14.0) (32.5)
Ocado Retail Limited
M&S Bank charges incurred in relation to the insurance mis-selling (2.0) (16.0)
provisions
Franchise restructure 0.4 (41.3)
Directly attributable gains resulting from the Covid-19 pandemic - 17.8
(111.5) (136.8)
Included in net finance income/(costs)
Remeasurement of Ocado Retail Limited contingent consideration 108.0 5.6
Net finance costs incurred in relation to Gist Limited deferred and contingent (2.8) -
consideration
105.2 5.6
Adjustments to profit before tax (6.3) (131.2)
Strategic programmes - UK store estate (£51.3m)
In November 2016, the Group announced a strategic programme to transform and
rotate the UK store estate with the overall objective to improve our store
estate to better meet our customers' needs. The Group incurred charges of
£870m up to April 2023 under this programme primarily relating to closure
costs associated with stores identified as part of the strategic
transformation plans.
The Group has recognised a charge of £51.3m in the period in relation to
those stores identified as part of the rotation plans. The charge primarily
reflects the latest view of store closure plans and latest assumptions for
estimated store closure costs, as well as charges relating to the impairment
of buildings and fixtures and fittings, and depreciation as a result of
shortening the useful economic life of stores based on the most recent
approved exit routes.
Further charges relating to the closure and rotation of the UK store estate
are anticipated over the next eight years as the programme progresses, the
quantum of which is subject to change throughout the programme period as the
Group gets greater certainty of circumstances that need to be in place to make
closure financially viable. Future charges will not include Foodhall closures
at a lease event where there is opportunity for a better location, as this is
not in the scope of the programme.
As at 1 April 2023, the total closure programme now consists of 206 stores,
108 of which have already closed. Further charges of c.£165m are estimated
within the next eight financial years, bringing anticipated total programme
costs since 2016 to c.£1bn. In addition, where store exit routes in the next
eight years lead to the recognition of gains on exit, particularly those
relating to asset management, these credits will also be recognised within
adjusting items as part of the programme. The anticipated total programme
costs to date do not include any costs that may arise in relation to a further
c.30 stores currently under consideration for closure within the next eight
years. At this stage these c.30 stores remain commercially supportable and in
the event of a decision to close the store, the exit routes are not yet
certain.
These costs are reported as adjusting items on the basis that they are
significant in quantum, relate to a strategic initiative focused on reviewing
our store estate and to aid comparability from one period to the next. The
programme includes all stores within the programme to be closed by FY30/31,
but charges in the year, and future charges, did not include Foodhall closures
at a lease event where there is opportunity to secure a better location.
Strategic programmes - Structural simplification (£16.4m)
During 2022/23, the Group committed to a structural reduction of its operating
costs and a desire to simplify the organisation and prioritise to mitigate
cost increases faced by the business. As part of this objective, a thorough
review has been performed to restructure and right size the organisation with
an in-year focus on the support functions. As part of the programme, the Group
has incurred £1.3m of consultancy costs. The review of structures has
resulted in a reduction of c.700 roles versus plan across central support
centres, management and stores, with a charge of £16.4m recognised in the
period primarily for redundancy and exit costs associated with these changes.
The provision is expected to be fully utilised during 2023/24. Further charges
of c.£17m are expected in 2023/24 bringing the total programme cost to
c.£33.4m.
These costs are considered to be adjusting items as the costs are part of the
strategic programme, significant in value and would distort the year-on-year
profitability of the business.
Strategic programmes - Organisation (£10.7m)
During 2016/17, the Group announced a wide-ranging strategic review across a
number of areas of the business which included UK organisation and the
programme to centralise our London Head Office functions into one building. In
the period, an impairment charge of £10.7m has been recognised (last year:
£14.3m impairment reversal). 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.£97m. Any future charges/reversals will relate to the
updating of assumptions and market fluctuations over the life of the sub-let
lease to September 2040.
These charges are reported as adjusting items as they are significant in
value, relate to a strategic initiative, are not considered to be normal
operating costs of the business and are consistent with the disclosure of
costs previously recognised.
Strategic programmes - UK logistics (£10.5m)
In 2017/18, as part of the previously announced long-term strategic programme
to transition to a single-tier UK distribution network, the Group announced
the opening of a new Clothing & Home distribution centre in Welham Green,
Hertfordshire. As a direct result, the Group announced the closure of two
existing distribution centres. In February 2020, the next phase of the
single-tier programme was announced with the closure of two further
distribution centres across 2020/21 and 2021/22.
In January 2023, the closure of a further distribution centre was announced
for 2023/24. A net charge of £10.5m has been recognised in the period,
reflecting the view of estimated closure costs. Total programme costs to date
are £28.4m with further net charges of £30.2m expected over the next two
financial years.
These charges are reported as adjusting items on the basis that they are
significant in quantum, relate to a strategic initiative focused on reviewing
our UK logistics network and to aid comparability from one period to the next.
Store impairments, impairment reversals and property charges (£15.1m credit)
The Group has recognised a number of charges and credits in the period
associated with the carrying value of items of property, plant and equipment.
The Group has performed impairment testing based on the latest Board approved
budget and three year plan future cash flow projections for UK and
International stores (excluding those stores that have been captured as part
of the 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 £18.0m (last year:
£2.9m) has been incurred primarily in respect of the impairment of assets
associated with these stores. In addition, a credit of £33.1m (last year:
£63.4m) has been recognised for the reversal of store impairments incurred in
previous periods, where revised future cash flow projections more than support
the carrying value of the stores, reflecting improved trading expectations
compared to those assumed at the prior year end. Refer to note 11 for further
details on the impairments.
The charges/credits have been classified as an adjusting item on the basis of
the significant quantum of the charge/credit in the period to the results of
the Group. Any future charges or reversals relating to stores previously
impaired within adjusting items will continue to be recognised within
adjusting items in line with the original charge. Any future charges or
reversals relating to stores not previously impaired within adjusting items or
otherwise meeting the Group's adjusting items policy will be recognised in the
underlying results.
Acquisition of Gist Limited (£22.1m)
On 30 September 2022 the Group completed the acquisition of Gist Limited from
Storeshield Limited, a subsidiary of The BOC Group Limited, as part of
M&S' multi-year programme to modernise its Food supply chain network to
support growth. As part of the transaction the Group has incurred £28.3m of
one-off charges that are not considered to be day-to-day operational costs of
the business. Transaction costs of £6.8m have been incurred and £3.3m of
other costs, mainly retention bonuses, along with £18.2m of charges relating
to the settlement of our pre-existing relationship with Gist Limited. This was
offset by a £6.2m gain on bargain purchase. See note 18 for further details.
These costs are adjusting items as they relate to a major transaction and, but
for the transaction, the business would not have incurred these costs and as a
result are not considered to be normal operating costs of the business.
Further costs are expected in 2023/24 in relation to the acquisition, such as
retention bonuses.
Amortisation and fair value adjustments arising as part of the investment in
Ocado Retail Limited (£14.0m)
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 £17.1m
recognised in the period and a related deferred tax credit of £3.1m.
The amortisation charge and changes in the related deferred tax liability are
included within the Group's share of the profit or loss of the associate and
are considered to be adjusting items as they are based on judgments about
their value and economic life and are not related to the Group's underlying
trading performance. These charges are reported as adjusting items on the
basis that they are significant in quantum and to aid comparability from one
period to the next.
M&S Bank charges incurred in relation to insurance mis-selling provisions
(£2.0m)
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 £2.0m
(last year: £16.0m).
The treatment of this in adjusting items is in line with previous charges in
relation to settlement of PPI claims and although it is recurring, it is
significant in quantum in the context of the total charges recognised for PPI
mis-selling to date and is not considered representative of the normal
operating performance of the Group. As previously noted, while the August 2019
deadline to raise potential mis-selling claims has now passed, costs relating
to the estimated liability for redress are expected to continue. The total
charges recognised in adjusting items since September 2012 for PPI is £324.7m
which exceeds the total offset against profit share of £255.8m to date and
this deficit will be deducted from the Group's share of future profits from
M&S Bank.
Franchise restructuring (£0.4m credit)
In September 2021 the Group announced the closure of 11 franchise stores in
France in response to increased EU border costs. Consequently, the Group
recognised a charge of £10.3m for closure costs in 2021/22. A provision
release of £0.4m has been recognised during the period in relation to the
stores in France. No future costs are expected.
The costs/credits are considered to be adjusting items as they are one-off in
nature and significant in value in total to the results of the Group and to
the International segment.
Remeasurement of contingent consideration including discount unwind (£108.0m
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 2021/22, £33.8m of
contingent consideration was settled, following the achievement of the first
and second performance targets. A credit of £108.0m has been recognised in
the period, representing the revaluation of the contingent consideration
payable to £64.7m (£57.8m plus interest). See note 12 for further details.
The change in fair value is considered to be an adjusting item as it relates
to a major transaction and consequently is not considered representative of
the normal operating performance of the Group. The remeasurement will be
recognised in adjusting items until the final contingent consideration payment
is determined in 2024/25.
Net finance costs incurred in relation to Gist Limited deferred and contingent
consideration (£2.8m)
Deferred consideration, resulting from the acquisition of Gist Limited, is
held at amortised cost, whilst the contingent consideration is remeasured at
fair value at each reporting date with the changes in fair value recognised in
profit or loss. A charge of £2.8m has been recognised in the period,
representing the discount unwind of the deferred consideration and revaluation
of the contingent consideration payable. See note 12 for further details. The
discount unwind and change in fair value is considered to be an adjusting item
as it relates to a major transaction and consequently is not considered
representative of the normal operating performance of the Group. The discount
unwind and remeasurement will be recognised in adjusting items until the final
payments are made in 2025/26.
4 Finance income/(costs)
2023 2022
£m £m
Bank and other interest receivable 22.9 3.7
Other finance income 0.9 5.9
Pension net finance income 28.7 13.2
Interest income of subleases 5.6 5.5
Finance income before adjusting items 58.1 28.3
Finance income in adjusting items 108.0 5.6
Finance income 166.1 33.9
Other finance costs (6.4) (0.8)
Interest payable on syndicated bank facility (4.5) (4.7)
Interest payable on Medium Term Notes (65.4) (79.6)
Interest payable on lease liabilities (116.7) (121.1)
Unwind of discount on provisions (5.4) (3.8)
Unwind of discount on Partnership liability to the Marks & Spencer UK (4.3) (4.4)
Pension Scheme (see note 9)
Finance costs before adjusting items (202.7) (214.4)
Finance costs in adjusting items (2.8) -
Finance costs (205.5) (214.4)
Net finance costs (39.4) (180.5)
5 Income tax expense
The effective tax rate was 23.4% (last year: 21.1%) and the effective tax rate
of profit excluding adjusting items was 25.9% (last year: 18.2%)
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:
2023 2022
£m £m
Profit attributable to equity shareholders of the Company 363.4 306.6
Add/(less):
Adjusting items (see note 3) 6.3 131.2
Tax on adjusting items (13.7) (12.6)
Profit before adjusting items attributable to equity shareholders of the 356.0 425.2
Company
Million Million
Weighted average number of ordinary shares in issue 1,963.5 1,958.1
Potentially dilutive share options under Group's share option schemes 70.4 73.0
Weighted average number of diluted ordinary shares 2,033.9 2,031.1
Pence Pence
Basic earnings per share 18.5 15.7
Diluted earning per share 17.9 15.1
Adjusted basic earnings per share 18.1 21.7
Adjusted diluted earnings per share 17.5 20.9
7 Dividends
The Group suspended dividend payments at the start of the pandemic to protect
the balance sheet. This enabled it to invest in its transformation priorities
and trusted value. Consistent with that announcement, the Board does not
expect to pay a dividend in 2022/23.
However, with the business generating an improved operating performance and
having a strengthened balance sheet with credit metrics consistent with
investment grade, the Board plans to restore a modest annual dividend to
shareholders starting with an interim dividend with the results in November.
8 Retirement benefits
2023 2022
£m £m
Opening net retirement benefit surplus 1,038.2 631.4
Current service cost (0.1) (0.2)
Administration cost (4.8) (4.8)
Net interest income 28.7 13.2
Employer contributions 38.1 41.8
Remeasurements (622.8) 357.0
Exchange movement 0.1 (0.2)
Closing net retirement benefit surplus 477.4 1,038.2
2023 2022
£m £m
Total market value of assets 6,781.9 10,090.7
Present value of scheme liabilities (6,299.9) (9,046.8)
Net funded pension plan asset 482.0 1,043.9
Unfunded retirement benefits (2.2) (2.6)
Post-retirement healthcare (2.4) (3.1)
Net retirement benefit surplus 477.4 1,038.2
Analysed in the statement of financial position as:
Retirement benefit asset 482.0 1,043.9
Retirement benefit deficit (4.6) (5.7)
Net retirement benefit surplus 477.4 1,038.2
Financial assumptions
The financial assumptions for the UK DB pension scheme and the most recent
actuarial valuations of the other post-retirement schemes have been updated by
independent qualified actuaries to take account of the requirements of IAS 19
"Employee Benefits" in order to assess the liabilities of the schemes. The
most significant of these are the discount rate and the inflation rate which
are 4.75% (last year: 2.70%) and 3.25% (last year: 3.70%). The inflation rate
of 3.25% (last year: 3.70%) 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.£25m. If the inflation rate decreased by 0.25%,
the surplus would decrease by c.£30m.
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: £1.3bn) of properties at book value
which have been leased back to Marks and Spencer plc. The Group retains
control over these properties, including the flexibility to substitute
alternative properties into the Partnership. The first limited Partnership
interest (held by the Marks & Spencer UK Pension Scheme) entitles the
Pension Scheme to receive £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 £124.8m (last
year: £192.3m) 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 1 April 2023, an
interest charge of £4.3m (last year: £4.4m) 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 £122.8m (last
year: £193.5m).
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
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
Year ended 1 April 2023
Opening net book value 28.6 5.6 114.3 44.0 192.5
Additions - - 5.3 79.1 84.4
Acquired through business combinations - - 1.5 1.2 2.7
Transfers and reclassifications - - 35.6 (64.2) (28.6)
Asset write-offs - - (0.7) - (0.7)
Amortisation charge - (0.6) (86.4) - (87.0)
Exchange difference (0.2) - - - (0.2)
Closing net book value 28.4 5.0 69.6 60.1 163.1
At 1 April 2023
Cost 140.6 118.7 1,612.5 92.2 1,964.0
Accumulated amortisation, impairments and write-offs (112.2) (113.7) (1,542.9) (32.1) (1,800.9)
Net book value 28.4 5.0 69.6 60.1 163.1
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 2 April 2022 16.5 6.6 4.8 0.7 28.6
Exchange difference - (0.2) - - (0.2)
Net book value at 1 April 2023 16.5 6.4 4.8 0.7 28.4
Goodwill impairment testing
Goodwill is not amortised but is tested annually for impairment with the
recoverable amount being determined from value-in-use calculations.
The goodwill balance relates to the goodwill recognised on the acquisition of
per una £16.5m (last year: £16.5m), India £6.4m (last year: £6.6m), Sports
Edit £4.8m (last year: £4.8m) and other £0.7m (last year: £0.7m).
Goodwill for India is monitored by management at a country level, including
the combined retail and wholesale businesses, and has been tested for
impairment on that basis.
The per una brand is a definite life intangible asset amortised on a
straight-line basis over a period of 15 years. The brand intangible was
acquired for a cost of £80.0m and has been fully amortised. It is held at a
net book value of £nil (last year: £nil). The per una goodwill of £16.5m is
tested for annually for impairment.
The cash flows used for impairment testing are based on the Group's latest
budget and forecast cash flows, covering a three-year period, which have
regard to historical performance and knowledge of the current market, together
with the Group's views on the future achievable growth and the impact of
committed cash flows. The cash flows include ongoing capital expenditure
required to maintain the store network, but exclude any growth capital
initiatives not committed.
Cash flows beyond this three-year period are extrapolated using a long-term
growth rate based on the Group's current view of achievable long-term growth.
The Group's current view of achievable long-term growth for per una is 1.6%
(last year: 1.6%), which is a reduction from the overall Group long-term
growth rate of 2.0% (last year: 2.0%). The Group's current view of achievable
long-term growth for India is 5.5% (last year: 5.5%).
Management estimates discount rates that reflect the current market assessment
of the time value of money and the risks specific to each asset or CGU. The
pre-tax discount rates are derived from the Group's post-tax weighted average
cost of capital ("WACC") which has been calculated using the capital asset
pricing model, the inputs of which include a country risk-free rate, equity
risk premium, Group size premium and a risk adjustment (beta). The post-tax
WACC is subsequently grossed up to a pre-tax rate and was 13.4% for per una
(last year: 10.8%) and 15.4% for India (last year: 11.3%).
The immediately quantifiable impacts of climate change and costs expected to
be incurred in connection with our net zero commitments, are included within
the Group's budget and three-year plan which have been used to support the
impairment reviews, with no material impact on cash flows.
Management has performed sensitivity analysis on the key assumptions in the
impairment model using reasonably possible changes in these key assumptions,
both individually and in combination. Management has considered reasonably
possible changes in key assumptions that would cause the carrying amounts of
goodwill or brands to exceed the value in use for each asset.
For both per una and India respectively, there are no reasonably possible
changes in key assumptions that would lead to an impairment and the
assumptions do not give rise to a key source of estimation uncertainty.
11 Property, plant and equipment
The Group's property, plant and equipment of £5,203.7m (last year:
£4,902.3m) consists of owned assets of £3,747.7m (last year: £3,486.5m) and
right-of-use assets of £1,456.0m (last year: £1,415.8m).
Property, plant and equipment - owned
Land and buildings Fixtures, fittings and equipment Assets in the course of construction Total
£m £m £m £m
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
Year ended 1 April 2023
Opening net book value 1,952.3 1,411.2 123.0 3,486.5
Additions 0.8 40.0 296.2 337.0
Acquired through business combinations 150.5 38.7 3.8 193.0
Transfers and reclassifications 15.0 292.3 (280.7) 26.6
Disposals (2.2) (2.2) - (4.4)
Impairment reversals 25.8 14.4 - 40.2
Impairment charge (22.5) (9.3) - (31.8)
Asset write-offs 2.2 1.5 - 3.7
Depreciation charge (59.9) (250.4) - (310.3)
Exchange difference 5.5 1.6 0.1 7.2
Closing net book value 2,067.5 1,537.8 142.4 3,747.7
At 1 April 2023
Cost 2,911.4 5,532.3 160.6 8,604.3
Accumulated depreciation, impairments and write-offs (843.8) (3,994.6) (18.2) (4,856.6)
Net book value 2,067.6 1,537.7 142.4 3,747.7
Asset write-offs in the year include assets with gross book value of £240.9m
(last year: £383.3m) 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
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
At 2 April 2022 1,368.4 47.4 1,415.8
Additions 198.0 37.3 235.3
Acquired through business combinations 6.7 14.1 20.8
Transfers and reclassifications 2.1 (0.1) 2.0
Disposals (27.8) (10.7) (38.5)
Impairment reversals 14.9 - 14.9
Impairment charge (14.8) - (14.8)
Depreciation charge (159.0) (21.9) (180.9)
Exchange difference 1.3 0.1 1.4
At 1 April 2023 1,389.8 66.2 1,456.0
Impairment of property, plant and equipment and right-of-use assets
For impairment testing purposes, the Group has determined that each store is a
separate CGU, with the exception of Outlets stores, which are considered
together as one CGU. Click & Collect sales are included in the cash flows
of the relevant CGU.
Each CGU is tested for impairment at the balance sheet date if any indicators
of impairment and impairment reversal have been identified. Stores identified
within the Group's 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 detailed fully in note 3. The immediately
quantifiable impacts of climate change and costs expected to be incurred in
connection with our net zero commitments, are included within the Group's
budget and three-year plan which have been used to support the impairment
reviews, with no material impact on cash flows. We also expect any potential
store refurbishments to be phased over multiple years and therefore any
changes required due to climate change would not have a material impact in any
given year and the warehouse and support centres are located in areas which we
would not expect to be physically impacted by climate change. As a consequence
there has been no material impact in the forecast cash flows used for
impairment testing.
The key assumptions in the value-in-use calculations are the growth rates of
sales and gross profit margins, changes in the operating cost base, long-term
growth rates and the risk-adjusted pre-tax discount rate. The pre-tax discount
rates are derived from the Group's weighted average cost of capital, which has
been calculated using the capital asset pricing model, the inputs of which
include a country risk-free rate, equity risk premium, Group size premium and
a risk adjustment (beta). The pre-tax discount rates range from 12.5% to 18.1%
(last year: 9.8% to 15.8%). 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 £17.3m and
impairment reversals of £33.1m as a result of UK store impairment testing
unrelated to the UK store estate programme (last year: impairment charge of
£6.9m and impairment reversals of £63.4m). Impairment charges of £17.3m and
impairment reversals of £33.1m have been recognised within adjusting items
(see note 3). The impaired stores were impaired to their value in use
recoverable amount of £109.8m, which is their carrying value at year end. The
stores with impairment reversals were written back to the lower of their value
in use recoverable amount, and the carrying value if the impairment had not
occurred, of £159.7m.
For UK stores, when considering both impairment charges and reversals, cash
flows beyond the three-year period are extrapolated using the Group's current
view of achievable long-term growth of 2.0%, adjusted to 0% where management
believes the current trading performance and future expectations of the store
do not support the growth rate of 2.0%. The rate used to discount the forecast
cash flows for UK stores is 12.5% (last year: 9.8%).
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 increase
the impairment charge by £24.2m and a 25 basis points reduction in the gross
profit margin from year 3 onwards would increase the impairment charge by
£1.8m. In combination a 5% reduction in sales and a 25 basis point reduction
in gross profit margin would increase the impairment charge by £30.3m. A 250
basis points increase in the discount rate would increase the impairment
charge by £28.8m.
A reduction in sales of 5% from the three-year plan in year 3 would reduce the
reversal by £7.0m and a 25 basis points reduction in the gross profit margin
from year 3 would reduce the reversal by £1.1m. In combination a 5% reduction
in sales and a 25 basis point reduction in gross profit margin would reduce
the reversal by £8.0m. A 250 basis points increase in the discount rate would
reduce the reversal by £7.6m.
Impairments - UK store estate programme
During the year, the Group has recognised an impairment charge of £28.6m and
impairment reversals of £22.0m relating to the ongoing UK store estate
programme. These stores were impaired to their value in use recoverable amount
of £307.2m, which is their carrying value at year end. The impairment charge
relates to the store closure programme and has been recognised within
adjusting items (see note 3). Impairment reversals predominantly reflect
changes to expected store closure dates and improved trading expectations
compared to those assumed at the end of the prior year end.
Where the planned closure date for a store is outside the three-year plan
period, no growth rate is applied. The rate used to discount the forecast cash
flows for UK stores is 12.5% (last year: 9.8%).
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 date of each store exit would result in a decrease
in the impairment charge of £70.9m. A 5% reduction in planned sales in years
2 and 3 (where relevant) would result in an increase in the impairment charge
of £12.2m.
Neither a 250 basis point increase in the discount rate, a 25 basis point
reduction in gross profit margin during the period of trading, nor a 2%
increase in the costs associated with exiting a store, would result in a
significant increase to the impairment charge, individually or in combination
with the other reasonably possible scenarios considered.
Impairments - International stores
During the year the Group recognised an impairment charge of £0.7m (last
year: £nil) 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:
2023 2022
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
- other investments(1) - 12.3 8.6 20.9 - 17.6 4.5 22.1
Derivatives used for hedging - 22.7 - 22.7 - 64.4 - 64.4
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
- derivatives held at FVTPL - (2.1) - (2.1) - (0.9) - (0.9)
- Ocado contingent consideration(2) - - (64.7) (64.7) - - (172.6) (172.6)
- Gist contingent consideration(3) - - (25.0) (25.0) - - - -
Derivatives used for hedging - (63.1) - (63.1) - (2.7) - (2.7)
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 £7.3m of venture
capital investments, managed by True Capital Limited, measured at FVTPL (last
year: £3.1m) which are Level 3 instruments. The fair value of these
investments has been determined in accordance with the International Private
Equity and Venture Capital ("IPEV") Valuation Guidelines. Where investments
are either recently acquired or there have been recent funding rounds with
third parties, the primary input when determining the valuation is the latest
transaction price.
2. As part of the investment in Ocado Retail Limited, a contingent
consideration arrangement was agreed. The arrangement comprises three separate
elements which only become payable on the achievement of three separate
financial and operational performance targets. Last year, £33.8m was settled,
relating to the first two targets. The final target relates to Ocado Retail
Limited achieving a specified target level of earnings in the financial year
ending November 2023, with any resulting payment due in 2024 following
completion of the Ocado Retail Limited audited FY23 statutory accounts. The
performance target is binary, meaning that a payment of £156.3m plus interest
will be made if the performance target is met. Should the target not be met,
no consideration would be payable. The fair value of the contingent
consideration was estimated using an expected present value technique and was
based on probability-weighting possible scenarios and applying an appropriate
discount rate to reflect the timing of the possible payment. The Group has
considered a range of scenarios reflecting current market uncertainty, taking
into account Ocado Retail Limited's most recent trading update in March 2023,
and determined a fair value of £64.7m (last year: £172.6m). If the level of
earnings assumed in the probability-weighted scenarios was 10% higher or
lower, the fair value of liability would increase or decrease by £17.5m
respectively. A discount rate of 6.4% (last year: 4.2%) was used. During the
period, a gain of £108.0m was recognised in profit or loss in relation to the
remeasurement (see note 3).
3. As part of the investment in Gist Limited, the Group has agreed to pay the
former owners of Gist Limited additional consideration of up to £25.0m plus
interest when freehold properties are disposed of under certain conditions.
There is no minimum amount payable. The Group has the ability to retain the
properties should it wish to do so, in which case the full amount of £25.0m
plus interest will be payable on the third anniversary of completion.
The fair value of the contingent consideration arrangement of £25.0m was
estimated by calculating the present value of the future expected cashflows.
The estimates are based on a discount rate of 6.1%. A 2.5% change in the
discount rate would result in a change in fair value of £1.4m.
The Marks & Spencer UK Pension Scheme holds a number of financial
instruments which make up the pension asset of £6,781.9m (last year:
£10,090.7m). Level 1 and Level 2 financial assets measured at fair value
through other comprehensive income amounted to £2,754.7m (last year:
£4,945.8m(1)). Additionally, the scheme assets include £4,027.2m (last year:
£5,144.9m1) 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:
2023 2022
£m £m
Opening balance 5,144.9 4,996.9
Fair value (loss)/gain recognised in other comprehensive income(1) (401.8) 191.6
Cash withdrawals (715.9) (43.6)
Closing balance 4,027.2 5,144.9
(1) Last year restated to reflect the deferred payment due from the Marks and
Spencer Scottish Limited Partnership (see note 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 £1,346.4m (last year: £1,529.5m); the fair value of this debt was
£1,264.3m (last year: £1,549.6m) 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 £124.8m (last year: £192.3m) and the fair value of this
liability is £121.9m (last year: £187.9m).
13 Contingencies and commitments
A. Capital commitments
2023 2022
£m £m
Commitments in respect of properties in the course of construction 100.8 59.8
Software capital commitments 6.1 6.1
106.9 65.9
Last year, the Group committed to invest up to £25.0m, over a three-year
period to 2024/25, in an innovation and consumer growth fund managed by True
Capital Limited. The fund can drawdown amounts at any time over the three-year
period to make specific investments. At 1 April 2023, the Group had invested
£7.5m (last year: £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 no
material 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
2023 2022
£m £m
Profit on ordinary activities after taxation 364.5 309.0
Income tax expense 111.2 82.7
Finance costs 205.5 214.4
Finance income (166.1) (33.9)
Operating profit 515.1 572.2
Share of results of Ocado Retail Limited 29.5 (13.9)
Increase in inventories (58.5) (46.5)
Increase in receivables (33.7) (2.9)
Increase in payables 82.1 289.1
Depreciation, amortisation and write-offs 523.2 510.7
Non-cash share based payment expense 38.0 38.8
Defined benefit pension funding (36.8) (36.8)
Adjusting items net cash outflows(1,2) (67.9) (45.8)
Adjusting items M&S Bank(3) (2.0) (16.0)
Adjusting operating profit items 111.5 136.8
Cash generated from operations 1,100.5 1,385.7
(1) Excludes £11.5m (last year: £5.6m) 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, UK structural
simplification programme, the utilisation of the provisions for International
store closures and impairments, and legal costs related to the acquisition of
Gist Limited.
(3) Adjusting items M&S Bank relates to M&S Bank income recognised in
operating profit offset by charges incurred in relation to the insurance
mis-selling provision, which is a non-cash item.
15 Analysis of net debt
A. Reconciliation of movement in net debt
At Changes in fair values Lease additions and remeasurements Exchange and other At
4 April non-cash 2 April
2021 Cash flow movements(1) 2022
£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: Cashflows 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)
At Changes in fair values Lease additions and remeasurements Exchange and other At
3 April non-cash 1 April
2022 Cash flow movements(1) 2023
£m £m £m £m £m £m
Net debt
Cash and cash equivalents 1,197.9 (130.5) - - 0.5 1,067.9
Net cash per statement of cash flows 1,197.9 (130.5) - - 0.5 1,067.9
Current other financial assets 17.6 (5.3) - - 0.7 13.0
Liabilities from financing activities
Medium Term Notes (1,529.5) 262.3 - - (79.2) (1,346.4)
Lease liabilities (2,278.7) 353.8 - (270.7) (86.0) (2,281.6)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note (187.9) 66.0 - - - (121.9)
9)
Derivatives held to hedge Medium Term Notes 18.5 (57.4) 33.7 - - (5.2)
Liabilities from financing activities (3,977.6) 624.7 33.7 (270.7) (165.2) (3,755.1)
Less: Cashflows related to interest and derivative instruments 63.3 (171.7) (33.7) - 179.1 37.0
Net debt (2,698.8) 317.2 - (270.7) 15.1 (2,637.2)
(1)Exchange and other non-cash movements includes interest paid on Medium Term
Notes of £65.4m (last year: £79.6m), interest paid on lease liabilities of
£116.7m (last year: £121.1m) and interest paid on the Partnership liability
to the Marks & Spencer UK Pension Scheme of £4.3m (last year: £4.4m).
B. Reconciliation of net debt to statement of financial position
2023 2022
£m £m
Statement of financial position and related notes
Cash and cash equivalents 1,067.9 1,197.9
Current other financial assets 13.0 17.6
Medium Term Notes - net of foreign exchange revaluation (1,356.6) (1,494.7)
Lease liabilities (2,281.6) (2,278.7)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note (124.8) (192.3)
9)
(2,682.1) (2,750.2)
Interest payable included within related borrowing and the partnership 44.9 51.4
liability to the Marks & Spencer UK Pension Scheme
Net debt (2,637.2) (2,698.8)
16 Related party transactions
A. Joint ventures and associates
Ocado Retail Limited
The following transactions were carried out with Ocado Retail Limited, an
associate of the Group.
Loan to Ocado Retail Limited
2023 2022
£m £m
Opening balance - -
Loans advanced 30.0 -
Interest charged 0.9 -
Closing balance 30.9 -
The loan matures during 2039/40 and accrues interest at Sterling Overnight
Index Average ("SONIA") plus an applicable margin.
Parent guarantee
Ocado Retail Limited has entered into a £30.0m revolving credit facility
provided by BNPP, of which £25.0m was drawn at 1 April 2023 (last year:
undrawn). The Group, along with Ocado Group plc, jointly guarantee the
facility.
Sales and purchases of goods and services
2023 2022
£m £m
Sales of goods and services 35.7 36.1
Purchases of goods and services 0.1 0.2
Included within trade and other receivables is a balance of £2.9m (last year:
£1.9m) owed by Ocado Retail Limited.
Nobody's Child Limited
Nobody's Child Limited became an associate of the Group in November 2021.
During the year, the Group made purchases of goods amounting to £6.3m (last
year: £1.2m)
At 1 April 2023, there was no balance included within trade and other payables
(last year: £0.2m) owed to Nobody's Child Limited, and a £0.7m balance
included within other financial assets (last year: £0.7m) owed from Nobody's
Child Limited.
B. Other related party transactions
The Group acquired 77.7% of the issued share capital of The Sports Edit
Limited ("TSE") in February 2022. A further 4.8% of TSE's issued share capital
was owned by Mr. Justin King, a Non-Executive Director of the Group (the "JK
TSE Shares"). Following shareholder approval, the Group acquired the JK TSE
Shares from Mr. Justin King at a total purchase price of £0.3m in July 2022.
17 Investments in joint ventures and associates
The Group holds a 50% interest in Ocado Retail Limited, a company incorporated
in the UK. The remaining 50% interest is held by Ocado Group Plc. Ocado Retail
Limited is an online grocery retailer, operating through the ocado.com and
ocadozoom.com websites.
Ocado Retail Limited is considered an associate of the Group as certain rights
are conferred on Ocado Group plc for an initial period of at least five years
from acquisition in August 2019, giving Ocado Group plc control of the
company. Following this initial period, a reassessment of control will be
required as the Group will have an option to obtain more control 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 had a financial year end date of 27 November 2022,
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 28 February 2022
to 26 February 2023. There were no significant events or transactions in the
period from 27 February 2023 to 1 April 2023.
The carrying amount of the Group's interest in Ocado Retail Limited is
£756.9m (last year: £800.4m). The Group's share of Ocado Retail Limited
losses of £43.5m (last year: loss of £18.6m) includes the Group's share of
underlying losses of £29.5m, which includes £13.2m of exceptional income
before tax related to insurance receipts (last year: share of underlying
profit: £13.9m) and adjusting item charges of £14.0m (last year: £32.5m)
(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 26 Feb 2023 As at 27 Feb 2022
£m £m
Ocado Retail Limited
Current assets 220.0 291.2
Non-current assets 618.7 590.1
Current liabilities (267.7) (223.3)
Non-current liabilities (421.7) (449.8)
Net assets 149.3 208.2
28 Feb 2022 to 26 Feb 2023 29 Feb 2021
to 27 Feb 2022
£m £m
Revenue 2,222.0 2,248.8
(Loss)/profit for the period (59.0) 27.8
Other comprehensive income - -
Total comprehensive (loss)/income (59.0) 27.8
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 1 Apr 2023 As at 2 Apr 2022
£m £m
Ocado Retail Limited
Net assets 149.3 208.2
Proportion of the Group's ownership interest 74.6 104.1
Goodwill 449.1 449.1
Brand 236.2 242.7
Customer relationships 67.1 77.7
Other adjustments to align accounting policies (75.8) (78.9)
Acquisition costs 5.7 5.7
Carrying amount of the Group's interest in Ocado Retail Limited 756.9 800.4
In addition, the Group holds immaterial investments in joint ventures and
associates totalling £11.0m (last year: £10.5m). The Group's share of
profits totalled £0.5m (last year: £0.7m loss).
18 Business combination
On 30 September 2022, the Group completed the acquisition of 100% of the
issued share capital and voting rights of Gist Limited ("Gist"), a non-listed
logistics and supply chain business based in the UK, thereby obtaining
control. Gist provides the majority of M&S Food logistics services via a
network of primary and secondary distribution centres located across the UK
and the Republic of Ireland, including a number of freehold warehouses. The
acquisition is expected to accelerate the Group's multi-year plan to modernise
its Food supply chain network to support growth.
The acquisition has been accounted for as a business combination using the
acquisition method of accounting in accordance with IFRS 3 Business
Combinations and consequently the Gist assets acquired, and liabilities
assumed, have been recorded by the Group at fair value.
As at
30 Sep 2022
£m
Fair value of consideration transferred
Cash 170.6
Deferred consideration 83.5
Contingent consideration 23.7
Settlement of pre-existing relationship (18.2)
Total consideration transferred 259.6
Fair value of identifiable net assets
Intangible assets 2.7
Property, plant and equipment(1) 213.8
Inventories 3.3
Trade and other receivables(2) 88.0
Cash and cash equivalents 67.8
Trade and other payables (74.1)
Borrowings and other financial liabilities (21.3)
Provisions (2.9)
Deferred tax liabilities (11.5)
Total identifiable net assets acquired 265.8
Gain on bargain purchase (6.2)
Net cash outflow arising on acquisition
Cash consideration 170.6
Less: cash and cash equivalents acquired (67.8)
102.8
(1) Property, plant and equipment principally comprises the distribution
warehouses which were fair valued following a review undertaken by RICS
registered valuers.
(2) The fair value of trade and other receivables is considered equivalent to
the gross contractual amount and the Group expects to collect substantially
all of these.
The acquisition resulted in a gain on bargain purchase due to the estimated
fair value of the identifiable net assets acquired exceeding the element of
the purchase price treated as consideration. The gain has been recognised
within adjusting items (see note 3).
A bargain purchase has arisen as a result of a combination of factors
including the previous owner's decision to sell Gist and the element of the
acquisition price relating to settling the pre-existing relationship, as
opposed to forming part of the purchase consideration.
The Group incurred acquisition-related costs of £6.8m, predominantly
transaction costs, which have been recognised within adjusting items (see note
3).
Since the acquisition date, Gist, as a standalone entity, contributed £84.2m
of revenue and £0.1m of loss before tax to the Group's results. If the
acquisition had occurred on 3 April 2022, the Group estimates that
consolidated pro-forma revenue would have been c.£100m higher and profit
before tax would have been c.£1m higher. In determining these amounts, the
Group has assumed that the fair value adjustments that arose on the date of
acquisition would have been the same if the acquisition had occurred on 3
April 2022.
Settlement of pre-existing relationship
The Group and Gist were parties to a long-term supply contract under which
Gist supplied the Group with logistics services at agreed contract rates. This
pre-existing relationship was effectively terminated at the acquisition date.
The Group has attributed £18.2m of the consideration transferred to the
settlement of the pre-existing relationship. The fair value of the settlement
has been determined based on an assessment of the difference between current
market rates and the rates previously agreed in the higher cost legacy supply
contract. This amount has been recognised within adjusting items (see note 3).
19 Contingent assets
The Group is currently seeking damages from an independent third party
following its involvement in anti-competitive behaviour that adversely
impacted the Group. The Group expects to receive an amount from the claim
(either in settlement or from the legal proceedings), a position reinforced by
recent court judgments in similar claims. The value of the claim is
confidential and is therefore not disclosed.
20 Subsequent events
The Board has approved a tender offer to repurchase c.£225m of the Group's
Medium Term Notes which will be announced on 24 May 2023.
Principal risks & uncertainties
The Board reviews and monitors the principal risks and uncertainties which
could have a material effect on the Group's results. The updated principal
risks and uncertainties for 2022/23 are listed below. A fuller disclosure of
the risks, including the associated mitigating activities will be set out in
the Strategic Report of the 2022/23 Annual Report and Accounts.
An uncertain trading environment The business continues to operate in an environment impacted by an
increasingly complex set of external factors. The ongoing cost of living
crisis, the invasion in Ukraine and continued consequences of the pandemic,
along with the potential for further geopolitical and economic uncertainties
have combined to create a difficult and unpredictable trading environment
which could negatively impact future performance.
Business transformation Ongoing business transformation is dependent on our ability to prioritise
capital spend and resources to accelerate and successfully implement the suite
of critical strategic projects to deliver our medium- and longer-term growth
ambitions.
Joint venture investments Successful achievement of any joint venture's long- term performance is
inherently complex due to the ownership structure and the need to align
different shareholder perspectives. The value of our investment in Ocado
Retail Limited, achievement of our multi-channel food strategy, protection of
our brand and delivery of anticipated trading performance is dependent on
maintaining effective strategic and operational relationships with both Ocado
Retail and Ocado Group. Similarly, linked to the planned growth of global
sales, business performance in India will be shaped by the ability to maintain
strategic alignment and harmonised ways of working with Reliance Industries.
Business continuity and resilience A major operational or resilience failure at a key business location,
including any of our key global sourcing or supply locations (such as
Bangladesh and China), at Castle Donington (our primary online Clothing &
Home distribution centre), in our food supply chain or logistics operations,
or at a critical third party outsourced provider could result in business
interruption.
More broadly, an inability to effectively respond to large, disruptive global
events (such as the pandemic, geo-political tensions, trade sanctions or
natural disasters) or national issues (such as industrial action) could also
impact trading performance.
Product safety and integrity A failure to prevent and/or effectively respond to a major food or product
safety incident, or to maintain product integrity, could impact customer
confidence in our brand and business performance.
Talent, capability and culture The ongoing success of the business is dependent upon an ability to: attract,
retain and develop the right talent, skills and capabilities; achieve cultural
change to support efficient and effective working; meet the financial and
wellbeing expectations of our colleagues; respond to labour cost pressures;
and work collaboratively with our Business Involvement Group and unions.
Any shortfall in executing against these objectives could impact the delivery
of core operational activities and longer-term strategy, including aspects of
our transformation programme.
Information security A significant or wide-reaching data breach or cyber-attack, directly or at a
related third party, could adversely impact our reputation, result in legal
exposure including 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 consistently 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 and trusted by our customers and other stakeholders.
Climate change and environmental responsibility Our customers, colleagues, investors and other stakeholders have expectations
for the business to operate in an environmentally conscious manner. This
includes reducing the environmental impact of our business over time,
progressing towards our net zero targets (including those linked to Gist and
elsewhere within our supply chain) and effectively managing the consequences
of climate related risks (such as extreme weather events). Failure to achieve
this could impact our brand, future trading performance and other business
costs, including financing.
Liquidity and funding Barriers to maintaining affordable short- and long-term funding to meet
business needs or an inability to effectively manage associated risks (such as
foreign exchange and/or interest rate changes) could impact our ability to
transform at pace, as well as have an adverse impact on business performance
or viability.
Future fragility in the financial markets could also impact the Business
directly (such as heightening counterparty risk or restricting access to
capital), or indirectly (such as triggering liquidity or funding support for
the M&S Pension Scheme).
EU border challenges The cost consequences and operational friction from the complexity of border
arrangements between the UK and the European Union (EU) could impact trading
performance generally and our Irish business specifically.
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.
Alternative performance measure ("APM") Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose
Income Statement Measures
Sales Revenue Consignment sales Sales includes the gross value of consignment sales (excluding VAT). Where
third-party branded goods are sold on a consignment basis, only the commission
receivable is included in statutory revenue. This measure has been introduced
given the Group's focus on launching and growing third-party brands and is
consistent with how the business performance is reported and assessed by the
Board and the Executive Committee.
Clothing & Home store / Clothing & Home online sales None Not applicable The growth in sales on a year-on-year basis is a good indicator of the
performance of the stores and online channels.
2022/23 2021/22 %
£m
£m
UK Clothing & Home
Store sales(1) 2,538.6 2,209.5 14.9
Consignment sales (21.4) (8.6)
Store revenue 2,517.2 2,200.9 14.4
Online sales(1) 1,176.4 1,122.7 4.8
Consignment sales (35.3) (15.3)
Online revenue 1,141.1 1,107.4 3.0
UK Clothing & Home sales 3,715.0 3,332.2 11.5
Consignment sales (56.7) (23.9)
Total UK Clothing & Home revenue 3,658.3 3,308.3 10.6
(1) UK Clothing & Home store sales excludes revenue from "shop your way"
and Click & Collect, which are included in UK Clothing & Home online
sales.
( )
There is no material difference between sales and revenue for UK Food and
International.
Like-for-like sales growth Movement in revenue per the income statement Revenue from non like-for-like stores The period-on-period change in sales (excluding VAT) from stores which have
been trading and where there has been no significant change (greater than 10%)
Consignment sales in footage for at least 52 weeks and online sales. The measure is used widely
in the retail industry as an indicator of sales performance. It excludes the
impact of new stores, closed stores or stores with significant footage change.
2022/23 2021/22 %
£m
£m
UK Food
Like-for-like 6,872.2 6,519.2 5.4
Net new space(1) 345.8 120.4
Total UK Food sales 7,218.0 6,639.6 8.7
UK Clothing & Home
Like-for-like 3,647.0 3,280.4 11.2
Net new space 68.0 51.8
Total UK Clothing & Home sales 3,715.0 3,332.2 11.5
(1) UK Food net new space includes Gist third-party revenue. ( )
M&S.com sales / Online sales None Not applicable Total sales through the Group's online platforms. These sales are reported
within the relevant UK Clothing & Home, UK Food and International segment
results. The growth in sales on a year-on-year basis is a good indicator of
the performance of the online channel and is a measure used within the Group's
incentive plans. Refer to the Remuneration Report for an explanation of why
this measure is used within incentive plans.
International online None Not applicable International sales through International online platforms. These sales are
reported within the International segment results. The growth in sales on a
year-on-year basis is a good indicator of the performance of the online
channel. This measure has been introduced given the Group's focus on online
sales.
2022/23 2021/22 %
£m £m
International sales
Stores 874.5 764.7 14.4
Online 180.5 172.5 4.6
At reported currency 1,055.0 937.2 12.6
Sales growth at constant currency None Not applicable The period-on-period change in sales retranslating the previous year sales at
the average actual periodic exchange rates used in the current financial year.
This measure is presented as a means of eliminating the effects of exchange
rate fluctuations on the period-on-period reported results.
2022/23 2021/22 %
£m £m
International sales
At constant currency 1,055.0 948.3 11.2
Impact of FX retranslation - (11.1)
At reported currency 1,055.0 937.2 12.6
Adjusting items None Not applicable Those items which the Group excludes from its adjusted profit metrics in order
to present a further measure of the Group's performance. Each of these items,
costs or incomes, is considered to be significant in nature and/or quantum or
are consistent with items treated as adjusting in prior periods. Excluding
these items from profit metrics provides readers with helpful additional
information on the performance of the business across periods because it is
consistent with how the business performance is planned by, and reported to,
the Board and the Executive Committee.
Adjusted operating profit Operating profit Adjusting items Operating profit before the impact of adjusting items. The Group considers
this to be an important measure of Group performance and is consistent with
Operating profit before adjusting items (See note 3) how the business performance is reported and assessed by the Board and the
Executive Committee.
Adjusted operating margin None Not applicable Adjusted operating profit as a percentage of sales.
Operating margin before adjusting items
Finance income before adjusting items Finance income Adjusting items Finance income before the impact of adjusting items. The Group considers this
to be an important measure of Group performance and is consistent with how the
(See note 3) business performance is reported and assessed by the Board and the Executive
Committee.
Finance costs before adjusting items Finance costs Adjusting items Finance costs before the impact of adjusting items. The Group considers this
to be an important measure of Group performance and is consistent with how the
(See note 3) business performance is reported and assessed by the Board and the Executive
Committee.
Net interest payable on leases Finance income/costs Finance income/costs The net of interest income on subleases and interest payable on lease
liabilities. This measure has been introduced as it allows the Board and
(See note 4) Executive Committee to assess the impact of IFRS 16 Leases.
Net financial interest Finance income/costs Finance income/costs Calculated as net finance costs, excluding interest on leases and adjusting
items. The Group considers this to be an important measure of Group
(See note 4) performance and is consistent with how the business performance is reported
and assessed by the Board and the Executive Committee.
EBIT before adjusting items EBIT(1) Adjusting items Calculated as profit before the impact of adjusting items, net finance costs
and tax as disclosed on the face of the consolidated income statement. This
(See note 3) measure is used in calculating the return on capital employed for the Group.
Ocado Retail Limited 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.
Bought-in margin None Not applicable Difference between landed cost of stock and selling value, expressed as a
percentage of total exc VAT sales.
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 from operations Operating profit See Financial Review Calculated as operating profit less adjusting items within operating profit,
depreciation and amortisation before adjusting items, cash lease payments,
working capital, defined benefit scheme pension funding, capex and disposals,
financial interest, taxation, employee-related share transactions, share of
(profit)/loss from associate, adjusting items in cashflow and loans to
associates.
Free cash flow Operating profit See Financial Review Calculated as free cash flow from operations less acquisitions, investments
and divestments. This measure shows the cash generated by the Group during the
year that is available for returning to shareholders and is used within the
Group's incentive plans.
Free cash flow after shareholder returns Operating profit See Financial Review Calculated as free cash flow less dividends paid.
This measure shows the cash retained by the Group in the year.
Other Measures
Capital expenditure None Not applicable Calculated as the purchase of property, plant and equipment, investment
property and intangible assets during the year, less proceeds from asset
disposals excluding any assets acquired or disposed of as part of a business
combination or through an investment in an associate.
Return on capital employed ("ROCE") None Not applicable Calculated as being adjusted operating profit divided by the average of
opening and closing capital employed. The measures used in this calculation
are set out below:
2022/23 2021/22
£m £m
Operating profit 515.1 572.2
Adjusting items included in operating profit (see note 3) 111.5 136.8
Adjusted operating profit 626.6 709.0
Net assets 2,814.9 2,917.9
Add back:
Partnership liability to the Marks & Spencer UK Pension Scheme 124.8 192.3
Deferred tax liabilities 72.3 187.2
Non-current borrowings and other financial liabilities 3,184.0 3,561.0
Retirement benefit deficit 4.6 5.7
Derivative financial instruments 42.5 -
Current tax liabilities 38.5 34.0
Less:
Investment property (11.8) (15.0)
Derivative financial instruments - (61.4)
Retirement benefit assets (482.0) (1,043.9)
Current tax assets (6.5) -
Deferred tax assets (7.6) -
Net operating assets 5,773.7 5,777.8
Add back: Provisions related to adjusting items 100.3 124.9
Capital employed 5,874.0 5,902.7
Average capital employed 5,888.4 5,788.3
ROCE % 10.6% 12.2%
This measure is used within the Group's incentive plans. Refer to the
Remuneration Report for an explanation of why this measure is used within
incentive plans.
(1) UK Clothing & Home store sales excludes revenue from "shop your way"
and Click & Collect, which are included in UK Clothing & Home online
sales.
( )
There is no material difference between sales and revenue for UK Food and
International.
Like-for-like sales growth
Movement in revenue per the income statement
Revenue from non like-for-like stores
Consignment sales
The period-on-period change in sales (excluding VAT) from stores which have
been trading and where there has been no significant change (greater than 10%)
in footage for at least 52 weeks and online sales. The measure is used widely
in the retail industry as an indicator of sales performance. It excludes the
impact of new stores, closed stores or stores with significant footage change.
2022/23 2021/22 %
£m
£m
UK Food
Like-for-like 6,872.2 6,519.2 5.4
Net new space(1) 345.8 120.4
Total UK Food sales 7,218.0 6,639.6 8.7
UK Clothing & Home
Like-for-like 3,647.0 3,280.4 11.2
Net new space 68.0 51.8
Total UK Clothing & Home sales 3,715.0 3,332.2 11.5
(1) UK Food net new space includes Gist third-party revenue. ( )
M&S.com sales / Online sales
None
Not applicable
Total sales through the Group's online platforms. These sales are reported
within the relevant UK Clothing & Home, UK Food and International segment
results. The growth in sales on a year-on-year basis is a good indicator of
the performance of the online channel and is a measure used within the Group's
incentive plans. Refer to the Remuneration Report for an explanation of why
this measure is used within incentive plans.
International online
None
Not applicable
International sales through International online platforms. These sales are
reported within the International segment results. The growth in sales on a
year-on-year basis is a good indicator of the performance of the online
channel. This measure has been introduced given the Group's focus on online
sales.
2022/23 2021/22 %
£m £m
International sales
Stores 874.5 764.7 14.4
Online 180.5 172.5 4.6
At reported currency 1,055.0 937.2 12.6
Sales growth at constant currency
None
Not applicable
The period-on-period change in sales retranslating the previous year sales at
the average actual periodic exchange rates used in the current financial year.
This measure is presented as a means of eliminating the effects of exchange
rate fluctuations on the period-on-period reported results.
2022/23 2021/22 %
£m £m
International sales
At constant currency 1,055.0 948.3 11.2
Impact of FX retranslation - (11.1)
At reported currency 1,055.0 937.2 12.6
Adjusting items
None
Not applicable
Those items which the Group excludes from its adjusted profit metrics in order
to present a further measure of the Group's performance. Each of these items,
costs or incomes, is considered to be significant in nature and/or quantum or
are consistent with items treated as adjusting in prior periods. Excluding
these items from profit metrics provides readers with helpful additional
information on the performance of the business across periods because it is
consistent with how the business performance is planned by, and reported to,
the Board and the Executive Committee.
Adjusted operating profit
Operating profit before adjusting items
Operating profit
Adjusting items
(See note 3)
Operating profit before the impact of adjusting items. The Group considers
this to be an important measure of Group performance and is consistent with
how the business performance is reported and assessed by the Board and the
Executive Committee.
Adjusted operating margin
Operating margin before adjusting items
None
Not applicable
Adjusted operating profit as a percentage of sales.
Finance income before adjusting items
Finance income
Adjusting items
(See note 3)
Finance income before the impact of adjusting items. The Group considers this
to be an important measure of Group performance and is consistent with how the
business performance is reported and assessed by the Board and the Executive
Committee.
Finance costs before adjusting items
Finance costs
Adjusting items
(See note 3)
Finance costs before the impact of adjusting items. The Group considers this
to be an important measure of Group performance and is consistent with how the
business performance is reported and assessed by the Board and the Executive
Committee.
Net interest payable on leases
Finance income/costs
Finance income/costs
(See note 4)
The net of interest income on subleases and interest payable on lease
liabilities. This measure has been introduced as it allows the Board and
Executive Committee to assess the impact of IFRS 16 Leases.
Net financial interest
Finance income/costs
Finance income/costs
(See note 4)
Calculated as net finance costs, excluding interest on leases and adjusting
items. The Group considers this to be an important measure of Group
performance and is consistent with how the business performance is reported
and assessed by the Board and the Executive Committee.
EBIT before adjusting items
EBIT(1)
Adjusting items
(See note 3)
Calculated as profit before the impact of adjusting items, net finance costs
and tax as disclosed on the face of the consolidated income statement. This
measure is used in calculating the return on capital employed for the Group.
Ocado Retail Limited 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.
Bought-in margin
None
Not applicable
Difference between landed cost of stock and selling value, expressed as a
percentage of total exc VAT sales.
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 from operations
Operating profit
See Financial Review
Calculated as operating profit less adjusting items within operating profit,
depreciation and amortisation before adjusting items, cash lease payments,
working capital, defined benefit scheme pension funding, capex and disposals,
financial interest, taxation, employee-related share transactions, share of
(profit)/loss from associate, adjusting items in cashflow and loans to
associates.
Free cash flow
Operating profit
See Financial Review
Calculated as free cash flow from operations less acquisitions, investments
and divestments. This measure shows the cash generated by the Group during the
year that is available for returning to shareholders and is used within the
Group's incentive plans.
Free cash flow after shareholder returns
Operating profit
See Financial Review
Calculated as free cash flow less dividends paid.
This measure shows the cash retained by the Group in the year.
Other Measures
Capital expenditure
None
Not applicable
Calculated as the purchase of property, plant and equipment, investment
property and intangible assets during the year, less proceeds from asset
disposals excluding any assets acquired or disposed of as part of a business
combination or through an investment in an associate.
Return on capital employed ("ROCE")
None
Not applicable
Calculated as being adjusted operating profit divided by the average of
opening and closing capital employed. The measures used in this calculation
are set out below:
2022/23 2021/22
£m £m
Operating profit 515.1 572.2
Adjusting items included in operating profit (see note 3) 111.5 136.8
Adjusted operating profit 626.6 709.0
Net assets 2,814.9 2,917.9
Add back:
Partnership liability to the Marks & Spencer UK Pension Scheme 124.8 192.3
Deferred tax liabilities 72.3 187.2
Non-current borrowings and other financial liabilities 3,184.0 3,561.0
Retirement benefit deficit 4.6 5.7
Derivative financial instruments 42.5 -
Current tax liabilities 38.5 34.0
Less:
Investment property (11.8) (15.0)
Derivative financial instruments - (61.4)
Retirement benefit assets (482.0) (1,043.9)
Current tax assets (6.5) -
Deferred tax assets (7.6) -
Net operating assets 5,773.7 5,777.8
Add back: Provisions related to adjusting items 100.3 124.9
Capital employed 5,874.0 5,902.7
Average capital employed 5,888.4 5,788.3
ROCE % 10.6% 12.2%
This measure is used within the Group's incentive plans. Refer to the
Remuneration Report for an explanation of why this measure is used within
incentive plans.
(1) EBIT is not defined within IFRS but is a widely accepted profit measure
being earnings before interest and tax.
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