REG - Marks & Spencer Grp - Half-year Report <Origin Href="QuoteRef">MKS.L</Origin> - Part 2
08/11/2017 07:06
- Part 2: For the preceding part double click ID:nRSH8575Va
406.2
Share premium account 416.4 416.3 416.4
Capital redemption reserve 2,210.5 2,210.5 2,210.5
Hedging reserve (51.4) 56.7 17.3
Other reserve (6,542.2) (6,542.2) (6,542.2)
Foreign exchange reserve 11.2 19.2 30.5
Retained earnings 6,438.2 6,557.6 6,617.6
Total shareholders' equity 2,888.9 3,124.3 3,156.3
Non-controlling interests in equity (6.0) (2.8) (5.9)
Total equity 2,882.9 3,121.5 3,150.4
The notes on pages 19 to 31 form an integral part of the condensed consolidated interim financial information.
Condensed consolidated statement of changes in equity
26 weeks ended 30 September 2017 (Unaudited) Ordinary share capital Share premium account Capital redemption reserve Hedging reserve Other reserve1 Foreign exchange reserve2 Retained earnings Total Non-controlling interest Total equity
£m £m £m £m £m £m £m £m £m £m
As at 2 April 2017 406.2 416.4 2,210.5 17.3 (6,542.2) 30.5 6,617.6 3,156.3 (5.9) 3,150.4
Profit/(loss) for the period - - - - - - 84.7 84.7 (0.1) 84.6
Other comprehensive income/(expense):
Foreign currency translation - - - (0.7) - (19.3) - (20.0) - (20.0)
Remeasurements of retirement benefit schemes - - - - - - (99.3) (99.3) - (99.3)
Tax credit on retirement benefit schemes - - - - - - 17.2 17.2 - 17.2
Cash flow and net investment hedges
- fair value movements in other comprehensive income - - - (157.2) - - 2.0 (155.2) - (155.2)
- reclassified and reported in net profit - - - 41.1 - - - 41.1 - 41.1
- amount recognised in inventories - - - 31.8 - - - 31.8 - 31.8
Deferred tax on cash flow hedges and net investment hedges - - - 16.3 - - - 16.3 - 16.3
Other comprehensive (expense)/income - - - (68.7) - (19.3) (80.1) (168.1) - (168.1)
Total comprehensive (expense)/income - - - (68.7) - (19.3) 4.6 (83.4) (0.1) (83.5)
Transactions with owners:
Dividends - - - - - - (193.1) (193.1) - (193.1)
Shares issued on exercise of employee share options - - - - - - - - - -
Purchase of own shares held by employee trusts - - - - - - (3.2) (3.2) - (3.2)
Credit for share-based payments - - - - - - 12.6 12.6 - 12.6
Deferred tax on share schemes - - - - - - (0.3) (0.3) - (0.3)
As at 30 September 2017 406.2 416.4 2,210.5 (51.4) (6,542.2) 11.2 6,438.2 2,888.9 (6.0) 2,882.9
26 weeks ended 1 October 2016 (Unaudited) Ordinary share capital Share premium account Capital redemption reserve Hedging reserve Other reserve1 Foreign exchange reserve2 Retained earnings Total Non-controlling interest Total equity
£m £m £m £m £m £m £m £m £m £m
As at 3 April 2016 405.8 411.3 2,210.5 32.3 (6,542.2) (4.8) 6,932.3 3,445.2 (1.8) 3,443.4
Profit/(loss) for the period - - - - - - 16.9 16.9 (1.0) 15.9
Other comprehensive income/(expense):
Foreign currency translation - - - (2.2) - 24.0 - 21.8 - 21.8
Remeasurements of retirement benefit schemes - - - - - - (141.4) (141.4) - (141.4)
Tax credit on retirement benefit schemes - - - - - - 31.5 31.5 - 31.5
Cash flow and net investment hedges
- fair value movements in other comprehensive income - - - 104.6 - - (13.4) 91.2 - 91.2
- reclassified and reported in net profit - - - (56.0) - - - (56.0) - (56.0)
- amount recognised in inventories - - - (26.1) - - - (26.1) - (26.1)
Deferred tax on cash flow hedges and net investment hedges - - - 4.1 - - - 4.1 - 4.1
Other comprehensive income/(expense) - - - 24.4 - 24.0 (123.3) (74.9) - (74.9)
Total comprehensive income/(expense) - - - 24.4 - 24.0 (106.4) (58.0) (1.0) (59.0)
Transactions with owners:
Dividends - - - - - - (267.2) (267.2) - (267.2)
Shares issued on exercise of employee share options 0.4 5.0 - - - - - 5.4 - 5.4
Credit for share-based payments - - - - - - 4.4 4.4 - 4.4
Deferred tax on share schemes - - - - - - (5.5) (5.5) - (5.5)
As at 1 October 2016 406.2 416.3 2,210.5 56.7 (6,542.2) 19.2 6,557.6 3,124.3 (2.8) 3,121.5
Condensed consolidated statement of changes in equity (continued)
52 weeks ended 1 April 2017 (Audited) Ordinary share capital Share premium account Capital redemption reserve Hedging reserve Other reserve1 Foreign exchange reserve2 Retained earnings Total Non-controlling interest Total equity
£m £m £m £m £m £m £m £m £m £m
As at 3 April 2016 405.8 411.3 2,210.5 32.3 (6,542.2) (4.8) 6,932.3 3,445.2 (1.8) 3,443.4
Profit/(loss) for the year - - - - - - 117.1 117.1 (1.4) 115.7
Other comprehensive (expense)/income:
Foreign currency translation - - - (4.3) - 35.3 - 31.0 - 31.0
Remeasurements of retirement benefit schemes - - - - - - (68.9) (68.9) - (68.9)
Tax charge on items that will not be reclassified - - - - - - 25.3 25.3 - 25.3
Cash flow and net investment hedges
- fair value movements in other comprehensive income - - - 77.7 - - (21.6) 56.1 - 56.1
- reclassified and reported in net profit3 - - - (72.4) - - - (72.4) - (72.4)
- amount recognised in inventories - - - (20.1) - - - (20.1) - (20.1)
Tax on cash flow hedges and net investment hedges - - - 4.1 - - - 4.1 - 4.1
Other comprehensive (expense)/income - - - (15.0) - 35.3 (65.2) (44.9) - (44.9)
Total comprehensive (expense)/income - - - (15.0) - 35.3 51.9 72.2 (1.4) 70.8
Transactions with owners:
Dividends - - - - - - (377.5) (377.5) - (377.5)
Transactions with non-controlling shareholders - - - - - - - - (2.7) (2.7)
Shares issued on exercise of employee share options 0.4 5.1 - - - - - 5.5 - 5.5
Debit for share-based payments - - - - - - 13.5 13.5 - 13.5
Deferred tax on share schemes - - - - - - (2.6) (2.6) - (2.6)
As at 1 April 2017 406.2 416.4 2,210.5 17.3 (6,542.2) 30.5 6,617.6 3,156.3 (5.9) 3,150.4
1The '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.
2In the prior year interim financial statements, the foreign exchange reserve was presented within Retained earnings.
3 Amounts 'reclassified and reported in profit or loss' includes the revaluation of the cross currency swaps, offsetting
the revaluation of the US dollar hedged bonds with finance costs.
Condensed consolidated statement of cash flows
26 weeks ended 52 weeks ended
30 Sept 2017 1 Oct 2016 1 April 2017
(Unaudited) (Unaudited) (Audited)
Notes £m £m £m
Cash flows from operating activities
Cash generated from operations 12 364.7 455.6 1,165.7
Income tax paid (31.8) (43.0) (98.0)
Net cash inflow from operating activities 332.9 412.6 1,067.7
Cash flows from investing activities
Proceeds on property disposals 1.2 26.0 27.0
Purchase of property, plant and equipment (150.2) (180.3) (309.1)
Purchase of intangible assets (32.1) (42.8) (101.1)
(Purchase)/reduction of current financial assets (3.3) - 4.6
Interest received 3.8 3.8 6.6
Net cash used in investing activities (180.6) (193.3) (372.0)
Cash flows from financing activities
Interest paid¹ (47.9) (50.8) (111.2)
Cash inflow from borrowings (1.6) 64.9 (32.7)
Drawdown/(repayment) of syndicated loan notes - 7.9 (215.3)
Issuance of medium-term notes - - 300.0
Decrease in obligations under finance leases (1.1) (1.1) (2.0)
Payment of liability to the Marks & Spencer UK Pension Scheme (59.7) (57.9) (57.9)
Equity dividends paid (193.1) (267.2) (377.5)
Shares issued on exercise of employee share options - 5.4 5.5
Purchase of own shares by employee trust (3.2) - -
Net cash used in financing activities (306.6) (298.8) (491.1)
Net cash (outflow)/inflow from activities (154.3) (79.5) 204.6
Effects of exchange rate changes (0.9) 4.7 5.6
Opening net cash 406.2 196.0 196.0
Closing net cash 251.0 121.2 406.2
¹ Includes interest on the partnership liability to the Marks and Spencer UK Pension Scheme.
Reconciliation of net cash flow to movement in net debt
26 weeks ended 52 weeks ended
30 Sept 2017 1 Oct 2016 1 April 2017
(Unaudited) (Unaudited) (Audited)
Notes £m £m £m
Opening net debt (1,934.7) (2,138.3) (2,138.3)
Net cash (outflow)/inflow from activities (154.3) (79.5) 204.6
Decrease/(Increase) in current financial assets 3.3 - (4.6)
Decrease/(Increase) in debt financing 62.4 (13.8) 7.9
Exchange and other non cash movements (2.7) (11.6) (4.3)
Movement in net debt (91.3) (104.9) 203.6
Closing net debt 13 (2,026.0) (2,243.2) (1,934.7)
Notes to the financial statements (unaudited)
1 General information and basis of preparation
General information
This condensed consolidated interim information for the period does not constitute statutory financial statements within
the meaning of s434 of the Companies Act 2006.
The summary of results for the year ended 1 April 2017 is an extract from the published Annual Report and Financial
Statements which were approved by the board of Directors on 23 May 2017, have been reported on by the Group's auditors and
delivered to the Registrar of Companies. The audit report on the Annual Report and Financial Statements was unqualified,
did not contain an emphasis of matter paragraph and did not contain any statement under s498 (2) or (3) of the Companies
Act 2006.
Basis of preparation
The financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS
Interpretations Committee (IFRS IC) interpretations, as adopted by the European Union and with those parts of the Companies
Act 2006 applicable to companies reporting under IFRS. The condensed consolidated financial statements for the 26 weeks
ended 30 September 2017 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial
Conduct Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union.
The comparative figures for the financial year ended 1 April 2017 and the half year ended 1 October 2016 are consistent
with the Group's annual financial statements and half year financial statements respectively.
Going concern basis
Based on the Group's cash flow forecasts and projections, the Board is satisfied that the Group will be able to operate
within the level of its bank facilities for the foreseeable future. For this reason the Group continues to adopt the going
concern basis in preparing its financial statements.
Accounting policies
The results for the first half of the financial year have been reviewed, not audited, and are prepared on the basis of the
accounting policies set out in the Group's 2017 Annual Report and Financial Statements, except as described below.
There have been no significant changes to accounting under IFRS which have affected the Group's results. The IFRS IC has
issued the annual improvements to IFRS: 2014-2016 cycle. The majority of amendments in this cycle are effective for annual
periods on or after 1 January 2018 with the exception of the changes to IFRS 12 which have already been implemented and
have not had a material impact on the group.
The following IFRS have been issued but are not yet effective:
IFRS 9 'Financial Instruments' replaces all phases of the financial instruments project and IAS 39 'Financial Instruments:
Recognition and Measurement'. The standard is effective from 1 January 2018 and introduces:
- new requirements for the classification and measurement of financial assets and financial liabilities;
- a new model based on expected credit losses for recognising provisions; and
- simplified hedge accounting by aligning hedge accounting more closely with an entities risk management methodology.
The Group has assessed the necessary changes to existing IT systems that will be required to aid the Group's implementation
of the standard and these will be implemented prior to the end of the financial year. The adoption of IFRS 9 is not
expected to have a material impact on the consolidated results of the Group but will require additional disclosures
relating to hedge accounting, credit risk management and impairment of financial assets.
IFRS 15 'Revenue from Contracts with Customers' is effective for periods beginning on or after 1 January 2018. The standard
establishes a principles based approach for revenue recognition and is based on the concept of recognising revenue for
obligations only when they are satisfied and the control of goods or services is transferred. It applies to all contracts
with customers, except those in the scope of other standards. It replaces the separate models for goods, services and
construction contracts under the current accounting standards. The Group has completed an assessment on the impact of IFRS
15 and it is expected adoption will not have a material impact on any of the Group's revenue streams;
IFRS 16 'Leases' is effective for periods beginning on or after 1 January 2019. IFRS 16 is not yet endorsed by the EU. The
standard represents a significant change in the accounting and reporting of leases for lessees as it provides a single
lessee accounting model, and as such, requires lessees to recognise assets and liabilities for all leases unless the
underlying asset has a low value or the lease term is 12 months or less. The standard may also require the capitalisation
of a lease element of contracts held by the Group which under the existing accounting standard would not be considered a
lease. Accounting requirements for lessors are substantially unchanged from IAS 17.
The Group has established a working group to assess the impact of the new standard. Work performed includes assessing the
accounting impacts of the change, the process of collecting the required data from across the business and the necessary
changes to systems and processes. Implementation of the new standard will have a significant impact on both the
consolidated results of the Group and the statement of financial position. On adoption, lease agreements will give rise to
both a right of use asset and a lease liability for future lease payables. Depreciation of the right of use asset will be
recognised in the income statement on a straight line basis, with interest recognised on the lease liability resulting in a
front loading of total charge in the income statement.
The Group continues to assess the full impact of IFRS 16, however the impact assessment is not yet developed to a stage
where it is practicable to provide a reliable estimate of the financial impact on the Group's consolidated results due to
the number, complexity and length of the Group's leases. Further update will be provided in the Annual Report and the
financial statements for the year ending 31 March 2018.
Alternative performance measures
In reporting financial information, the Group presents alternative measures of performance, '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. The APMs are consistent with how the
business performance is planned and reported within the internal management reporting to the Board and Operating Committee.
Some of these measures are also used for the purpose of setting remuneration targets.
The key APMs that the Group uses include: like-for-like sales; gross margin; profit before tax and adjusted items; adjusted
earnings per share; net debt and free cash flow. Each of these APMs, and others used by the Group are set out in the
glossary on page(s) 32 to 33, including explanation of how they are calculated, why they are used 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 sales and operating profit 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 rates 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 always exclude items that are considered to be significant in both nature and/or quantum and where treatment
as an adjusted item provides stakeholders with additional useful information to assess the year-on-year or period-on-period
trading performance of the group. On this basis, the following items were included within adjusted items for the 26 week
period ended 30 September 2017:
- 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;
- Net gains and losses on the disposal of properties or impairments of properties where a commitment to close has been
demonstrated;
- Significant restructuring costs and other associated costs arising from significant strategy changes that are not
considered by the Group to be part of the normal operating costs of the business; and
- Charges arising in respect of historical under-depreciation of leasehold assets that are considered to be significant in
nature and/or value.
Refer to note 3 for a summary of the adjusted items.
Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual
earnings, adjusted for actual tax on adjusted items.
2 Segmental Information
IFRS 8 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 Operating Committee. The Operating Committee reviews the
Group's internal reporting in order to assess performance and allocate resources across each operating segment. The
operating segments are UK and International which are reported in a manner consistent with the internal reporting to the
Operating Committee.
The UK segment consists of the UK retail business and UK franchise operations. The International segment consists of the
Marks & Spencer owned businesses in Europe and Asia, together with international franchise operations and the businesses in
Europe and Asia.
The Operating Committee assesses the performance of the operating segments based on a measure of operating profit. This
measurement basis excludes the effects of adjusted items from the operating segments. Central costs are all classified as
UK costs and presented within UK operating profit. The Operating Committee also monitors revenue within the segments and
gross profit within the UK segment. To increase transparency, the Group has decided to include an additional voluntary
disclosure analysing revenue within the reportable segments by sub-category and gross profit within the UK segment by
sub-category.
The following is an analysis of the Group's revenue and results by reportable segment:
26 weeks ended 30 September 2017
Management Logistics adjustment¹ Adjusted items2 Statutory
£m £m £m £m
Food revenue 2,794.3 - - 2,794.3
Clothing & Home revenue 1,773.6 - - 1,773.6
UK revenue 4,567.9 - - 4,567.9
Franchise 168.5 - - 168.5
Owned 389.2 - - 389.2
International revenue 557.7 - - 557.7
Group revenue3 5,125.6 - - 5,125.6
Food gross profit 875.6
Clothing & Home gross profit 1,029.8
UK gross profit 1,905.4 (178.9) - 1,726.5
UK operating costs (1,720.2) 178.9 (82.5) (1,623.8)
M&S Bank 20.6 - (17.9) 2.7
UK operating profit 205.8 - (100.4) 105.4
International operating profit 60.3 - (0.4) 59.9
Group operating profit3 266.1 - (100.8) 165.3
Finance income 12.1 - - 12.1
Finance costs (59.1) - - (59.1)
Profit before tax 219.1 - (100.8) 118.3
1Management gross profit for the UK segment excludes certain expenses resulting in an adjustment between cost of sales and
selling and administrative expenses of £178.9m (last half year £171.3m, last full year £360.5m). Updates to the
methodology were made in the previous year to include depreciation of the relevant Distribution Centres within gross margin
to ensure consistent treatment with the underlying warehousing costs. The prior period half-year comparatives have been
restated to reflect the revised methodology, with a change to the adjustment from £159.0m to £171.3m.
2Management profit excludes the adjusted items (income or charge) made to the reported profit before tax that are
significant in value and/or nature (see note 3). Please refer to the Glossary on pages 32 to 33 for the definition of these
items.
3In common with many retailers, revenue and adjusted operating profit are subject to seasonal fluctuations and are weighted
towards the second half of the year which includes the key Christmas period for the business.
2 Segmental Information (continued)
26 weeks ended 1 October 2016
Management Logistics adjustment1 Adjusted items2 Statutory
£m £m £m £m
Food revenue 2,675.7 - - 2,675.7
Clothing & Home revenue 1,772.9 - - 1,772.9
UK revenue 4,448.6 - - 4,448.6
Franchised 151.7 - - 151.7
Owned 393.2 - - 393.2
International revenue 544.9 - - 544.9
Group revenue3 4,993.5 - - 4,993.5
Food gross profit 871.4 - - -
Clothing & Home gross profit 1,004.4 - - -
UK gross profit 1,875.8 (171.3) - 1,704.5
UK operating costs (1,651.3) 171.3 (178.7) (1,658.7)
M&S Bank 25.8 - (22.7) 3.1
UK operating profit 250.3 - (201.4) 48.9
International operating profit 18.4 - (4.8) 13.6
Group operating profit3 268.7 - (206.2) 62.5
Finance income 18.7 - - 18.7
Finance costs (56.1) - - (56.1)
Profit before tax 231.3 - (206.2) 25.1
2 Segmental Information (continued)
52 weeks ended 1 April 2017
Management Logistics adjustment1 Adjusted items2 Statutory
£m £m £m £m
Food revenue 5,649.0 - - 5,649.0
Clothing & Home revenue 3,792.7 - - 3,792.7
UK revenue 9,441.7 - - 9,441.7
Franchised 314.0 - - 314.0
Owned 866.3 - - 866.3
International revenue 1,180.3 - - 1,180.3
Group revenue3 10,622.0 - - 10,622.0
Food gross profit 1,837.7
Clothing & Home gross profit 2,128.7
UK gross profit 3,966.4 (360.5) - 3,605.9
UK operating costs (3,390.4) 360.5 (254.5) (3,284.4)
M&S Bank 50.2 - (44.1) 6.1
UK operating profit 626.2 - (298.6) 327.6
International operating profit 64.4 - (138.8) (74.4)
Group operating profit3 690.6 - (437.4) 253.2
Finance income 36.2 - - 36.2
Finance costs (113.0) - - (113.0)
Profit before tax 613.8 - (437.4) 176.4
Other segmental information
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