REG - Marks & Spencer Grp - Half-year Report <Origin Href="QuoteRef">MKS.L</Origin> - Part 3
08/11/2017 07:16
- Part 3: For the preceding part double click ID:nRSH8575Vb
As at As at As at
30 Sept 2017 1 Oct 2016 1 April 2017
£m £m £m
UK assets1 7,548.7 7,856.0 7,917.3
International assets 364.4 398.0 375.2
Total assets 7,913.1 8,254.0 8,292.5
1UK assets include centrally held assets largely relating to IT systems that support the International business of £28.7m (last half year; £39.1m, last full year; £34.0m)
Other information
As at As at As at
30 Sept 2017 1 Oct 2016 1 April 2017
£m £m £m
Write-down of inventories to net realisable value 112.0 114.2 234.9
3 Adjusted items
The total adjusted items reported for the 26-week period ended 30 September 2017 is a net charge of £100.8m. The
adjustments made to reported profit before tax to arrive at adjusted profit are:
26 weeks ended 52 weeks ended
30 Sept 2017 1 Oct 2016 1 April 2017
£m £m £m
Strategic programmes:
- changes to pay and pensions (6.7) (154.2) (156.0)
- UK organisation (26.5) (17.6) (24.0)
- UK store estate (6.1) (10.6) (51.6)
- International store closures and impairments 2.2 (3.3) (132.5)
UK store impairments, asset write-offs and onerous lease charges (45.8) - (48.8)
M&S Bank charges incurred in relation to the insurance mis-selling provision (17.9) (22.7) (44.1)
UK logistics - 2.2 9.8
Legal Settlements - - 9.8
Adjustment to profit before tax (100.8) (206.2) (437.4)
Strategic programmes - Changes to pay and pensions
On 25 May 2016, the Group announced proposals for a fairer, simpler and more consistent approach to pay and premia as well
as proposals to close the UK defined benefit (DB) pension scheme to future accrual effective from 1 April 2017.
The Group has committed to making transition payments to impacted employees in relation to the closure of the UK DB scheme,
expected to be c. £25m in total over the next three years (including FY17/18). The charge in the period in relation to
these transitional payments to employees is £6.7m.
As previously disclosed, the Group considers the costs directly associated with the closure of the UK DB scheme to be an
adjusted item on the basis that they relate to a significant cost, impacting the Group results. Treatment of the transition
payments made in the period within adjusted items is consistent with the disclosure of the UK DB scheme closure costs in
FY16/17.
Strategic programmes - UK organisation
During FY16/17 the Group announced a wide-ranging strategic review across a number of areas of the business including
customer, brand, UK organisation, UK store estate and International.
The Group has recognised a charge of £24.9m in relation to the programme to centralise our London Head Office functions
into one building. The remaining £1.6m charge in the period represents redundancy costs associated with the UK
organisation strategy.
These costs are considered to be an adjusted item as the total programme cost is significant in value and relate to a
strategic initiative. Treatment of the redundancy costs in the period within adjusted items is consistent with the
disclosure of the original UK organisation charges in FY16/17.
Strategic programmes - UK store estate
As part of the Group's previously announced UK store estate programme, a charge of £7.1m has been recognised for
accelerated depreciation on assets associated with stores approved for closure. These charges were partially offset by
income of £1.0m associated with a lease surrender for a vacant property.
Whilst costs associated with the closure and re-configuration of the UK store estate recur across financial years, the
Group considers that they should be treated as an adjusted item given they are part of a strategic programme which is in
total significant in both value and nature to the results of the Group. Recognition of the charges in the period as an
adjusted item is consistent with the treatment in previous periods when the original charges were recognised as adjusted
items.
Strategic programmes - International store closures and impairments
In FY16/17 the Group announced its intention to close its owned stores in ten international markets, resulting in the
recognition of £132.5m of expected closure costs primarily relating to redundancy, lease exit and property dilapidations.
As at 30 September 2017, the Group had closed all except three of the 53 stores planned for closure, with the remaining
stores closed by the end of October. A net credit of £2.2m has been recognised in the period primarily as a result of
actual lease exit costs being lower than initially estimated. The net credit is considered to be an adjusted item as it
relates to a strategic programme which is in total significant in both value and nature to the results of the Group.
Recognition of the net credit in the period as an adjusted item is consistent with the treatment in previous periods when
the original charges were recognised as adjusted items.
UK store impairments, asset write-offs and onerous lease
Since the announcement of the new UK store estate strategy, the Group has conducted a review of the £4.7bn net book value
of the property, plant and equipment on its balance sheet. This has identified an historical under-depreciation of
leasehold buildings assets, resulting in a £45.8m one-off non-cash depreciation charge, relating almost entirely to assets
capitalised prior to 2012/13. Of the £45.8m, £43.2m relates to assets in the UK and £2.6m relates to assets in Ireland. The
Group has concluded that this adjustment is not material to any of the Group's previously issued financial statements.
The Group considers this cost to be an adjusted item as the one-off charge is significant in nature and value to the
results of the Group for the current period.
3 Adjusted items (continued)
M&S Bank charges incurred in relation to the insurance mis-selling provision
The Group has an economic interest in M&S Bank, a wholly owned subsidiary of HSBC, 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 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 income from M&S Bank has
been reduced by the deduction of our share of the estimated liability in both the current and prior years. The deduction in
the period is £17.9m.
The Group considers this cost to be an adjusted item, despite its recurring nature, as the charges are significant in
nature and value in each period to the results of the Group.
4 Finance income/(costs)
26 weeks ended 52 weeks ended
30 Sept 2017 1 Oct 2016 1 April 2017
£m £m £m
Bank and other interest receivable 3.1 4.0 6.6
Pension net finance income 8.9 14.7 29.3
Unwind of discounts on financial instruments 0.1 - 0.3
Finance income 12.1 18.7 36.2
Interest on bank borrowings (1.0) (1.3) (2.8)
Interest payable on syndicated bank facility (1.2) (3.0) (4.3)
Interest payable on medium-term notes (48.3) (44.2) (91.2)
Interest payable on finance leases (0.9) (0.9) (1.9)
Unwind of discount on partnership liability to the Marks and Spencer UK Pension Scheme (note 9) (5.4) (6.2) (12.6)
Unwind of discount on provisions (2.3) (0.3) (0.2)
Unwind of discount on financial instruments - (0.2) -
Finance costs (59.1) (56.1) (113.0)
Net finance costs (47.0) (37.4) (76.8)
5 Taxation
The taxation charge in the income statement for the half year is based on a forecast full year adjusted tax rate of 21.0%
(last half year 20.0% and last full year 19.9%) which is then adjusted for tax on adjusting items arising in the period to
30 September 2017 to give an effective tax rate on profit before taxation of 28.5% (last half year 36.7% and last full year
34.4%).
The effective tax rate on profit before taxation is higher than the statutory UK tax rate of 19% primarily due to the
disproportionate impact of disallowable adjusted costs.
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 period.
The adjusted earnings per share figures have also been calculated based on earnings before adjusted items that are
significant in nature and/or value (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 period; 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:
26 weeks ended 52 weeks ended
30 Sept 2017 1 Oct 2016 1 April 2017
£m £m £m
Profit attributable to equity shareholders of the Company 84.7 16.9 117.1
Add/(less) (net of tax):
M&S Bank charges incurred in relation to the insurance mis-selling provision 14.5 18.1 35.3
Strategic programmes:
- Changes to pay and pensions 5.4 127.3 128.6
- UK organisation 22.1 12.3 20.3
- UK store estate 5.5 8.7 46.5
- International store closures and impairments (4.0) 2.8 120.8
UK store impairments, asset write-offs and onerous lease charges 45.0 - 41.3
UK logistics - - (9.2)
Legal settlements - - (7.9)
Profit before adjusted items attributable to equity shareholders of the Company 173.2 186.1 492.8
Million Million Million
Weighted average number of ordinary shares in issue 1,624.3 1,622.4 1,623.1
Potentially dilutive share options under Group's share option schemes 6.2 1.7 8.0
Weighted average number of diluted ordinary shares 1,630.5 1,624.1 1,631.1
Pence Pence Pence
Basic earnings per share 5.2 1.0 7.2
Diluted earnings per share 5.2 1.0 7.2
Adjusted basic earnings per share 10.7 11.5 30.4
Adjusted diluted earnings per share 10.6 11.5 30.2
7 Dividends
26 weeks ended 52 weeks ended
30 Sept 2017 1 Oct 2016 1 April 2017
£m £m £m
Paid final dividend of 11.9p per share (last year 11.9p per share) 193.1 192.7 192.7
Paid special dividend of 4.6p per share - 74.5 74.5
Prior period interim dividend of 6.8p per share - - 110.3
193.1 267.2 377.5
The directors have approved an interim dividend of 6.8p per share (last half year 6.8p per share) which, in line with the
requirements of IAS 10 'Events after the Reporting Period', has not been recognised within these results. This interim
dividend of c.£110m (last half year £110.3m) will be paid on 12 January 2018 to shareholders whose names are on the
Register of Members at the close of business on 17 November 2017. The ordinary shares will be quoted ex dividend on 16
November 2017.
A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares
of the Company. For those shareholders electing to receive the DRIP, the last date for receipt of a new election is 19
December 2017.
8 Retirement benefits
26 weeks ended 52 weeks ended
30 Sept 2017 1 Oct 2016 1 Apr 2017
£m £m £m
Opening net retirement benefit surplus 692.8 824.1 824.1
Current service cost (0.1) (24.1) (47.2)
Administration costs (1.6) (1.6) (3.2)
Curtailment charge1 - (128.0) (128.0)
Net interest income 8.9 14.7 29.3
Employer contributions 38.1 29.1 87.7
Remeasurements (99.3) (141.4) (68.9)
Exchange movement (0.4) (1.6) (1.0)
Closing net retirement benefit surplus 638.4 571.2 692.8
Total market value of assets 9,801.3 10,317.9 10,135.1
Present value of scheme liabilities (9,154.0) (9,737.3) (9,433.3)
Net funded pension plan asset 647.3 580.6 701.8
Unfunded retirement benefits (1.1) (1.0) (1.0)
Post-retirement healthcare (7.8) (8.4) (8.0)
Net retirement benefit asset 638.4 571.2 692.8
Analysed in the Statement of Financial Position as:
Retirement benefit asset 653.0 614.2 706.0
Retirement benefit deficit (14.6) (43.0) (13.2)
Net retirement benefit surplus 638.4 571.2 692.8
1 The curtailment charge of £128.0m in the prior year included a one-off charge of £127.0m due to all current active
members transferring to a deferred status.
In addition to the amounts disclosed above the Group made payments of £36.1m (last half year £24.3m) relating to the Your
M&S Pension Saving Plan (a defined contribution arrangement).
Financial assumptions.
The main financial assumptions for the UK scheme and the most recent actuarial valuations of the other post-retirement
schemes have been updated by independent qualified actuaries to take account of the requirements of 'IAS 19 - Employee
Benefits' in order to assess the liabilities of the schemes.
The most significant of these are the discount rate and the inflation rate which are 2.70% (last full year 2.55%) and 3.25%
(last full year 3.20%) respectively. The inflation rate of 3.25% reflects the Retail Price Index (RPI) rate. Certain
benefits have been calculated with reference to the Consumer Price Index (CPI) as the inflationary measure and in these
instances a rate of 2.25% (last full year 2.20%) has been used.
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.£65m (last full year decrease by c.£70m). If the inflation rate
decreased by 0.25%, the surplus would decrease by c.£15m (last full year decrease of c.£20m). A one year decrease in life
expectancy would increase the scheme surplus by c.£360m (last full year increase of c.£370m).
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 £1.5bn (last full year £1.6bn) of properties 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 and Spencer UK Pension Scheme), entitles the Pension
Scheme to receive an annual distribution of £71.9m until 2022 from the Partnership. The second limited partnership interest
(also held by the Marks and Spencer UK Pension Scheme) entitles the Pension Scheme to receive a further annual distribution
of £36.4m from 2017 until 2031. All profits generated by the Partnership in excess of these amounts are distributable to
Marks and Spencer plc.
The partnership liability in relation to the first interest of £330.0m (last full year £396.5m) is valued at the net
present value of the future expected distributions from the Partnership and is included as a liability on the Group's
statement of financial position as it is a transferable financial instrument. During the period to 30 September 2017 an
interest charge of £5.4m (last half year £6.2m and last full year £12.6m) 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 £344.1m (last full year £412.1m).
The second partnership interest is not a transferable financial instrument and therefore is 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.
10 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 has 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 which use inputs which have a significant effect on the recorded fair value that are not based
on observable market data. The group had no level 3 investments or financial instruments.
At the end of the reporting period, the Group held the following financial instruments at fair value:
As at As at
30 September 2017 1 April 2017
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
- trading derivatives - 3.8 - 3.8 - 0.7 - 0.7
Derivatives used for hedging - 101.0 - 101.0 - 219.2 - 219.2
Short-term investments - 17.8 - 17.8 - 14.5 - 14.5
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
- trading derivatives - (2.7) - (2.7) - (1.5) - (1.5)
Derivatives used for hedging - (61.0) - (61.0) - (9.8) - (9.8)
There were no transfers between the levels of the fair value hierarchy during the period. In addition to the above, the
Group has £3.0m (last year £3.0m) in unlisted equity securities measured at cost.
10 Financial Instruments (continued)
Fair value of financial assets and liabilities
With the exception of the Group's fixed rate bond debt and the Partnership liability to the Marks & Spencer UK Pension
Scheme, 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 £2,075.5m (last half year £1,810.0m and
last full year £2,110.7m); the fair value of this debt was £2,175.1m (last half year £1,969.8m and last full year
£2,236.7m) which has been calculated using quoted market prices. The carrying value of the Partnership liability to the
Marks and Spencer UK Pension scheme is £330.0m (last half year £390.0m and last full year £396.5m) and the fair value of
this liability, which represents only the principal value excluding accrued interest is £327.8m (last half year £387.4m and
last full year £387.4m).
11 Capital expenditure and contingencies
A Capital expenditure
Additions to the cost of property, plant and equipment, investment property and intangible assets are £132.4m (last half
year £171.3m) and for the year ended 1 April 2017 were £386.3m. Disposals in net book value of property, plant and
equipment, investment property and intangible assets are £3.0m (last half year £1.0m) and for the year ended 1 April 2017
were £1.6m.
B Capital commitments
As at As at As at
30 Sept 2017 1 Oct 2016 1 Apr 2017
£m £m £m
Commitments in respect of properties in the course of construction 150.2 174.8 156.4
Software capital commitments 7.2 14.6 11.0
157.4 189.4 167.4
C 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.
See note 9 for details on the partnership arrangement with the Marks and Spencer UK Pension Scheme.
12 Analysis of cash flows given in the statement of cash flows
26 weeks ended 52 weeks ended
30 Sept 2017 1 Oct 2016 1 April 2017
£m £m £m
Profit on ordinary activities after taxation 84.6 15.9 115.7
Income tax expense 33.7 9.2 60.7
Finance costs 59.1 56.1 113.0
Finance income (12.1) (18.7) (36.2)
Operating profit 165.3 62.5 253.2
(Increase)/decrease in inventories (169.0) (100.3) 53.9
Decrease/ (increase) in receivables 3.3 4.1 (9.9)
Increase/(decrease) in payables 121.7 33.0 (53.1)
Adjusted items net cash outflows (96.0) (15.1) (36.8)
Depreciation, amortisation and write-offs before adjusted items 286.4 287.1 589.5
Non-cash share-based payment and pension charges 12.3 28.7 58.4
Defined benefit pension funding (42.2) (27.9) (82.8)
Adjusted items non-cash (17.9) (22.7) (44.1)
Adjusted profit items 100.8 206.2 437.4
Cash generated from operations 364.7 455.6 1,165.7
Adjusted items net cash outflows relate to the utilisation of the provisions for international store closures, strategic
programme costs associated with the UK store estate, UK organisation and UK logistics and legal settlements. Adjusted items
non-cash relate to the reduction in M&S Bank income for the impact of the financial product mis-selling provision.
13 Reconciliation of net debt to statement of financial position
As at As at As at
30 Sept 2017 1 Oct 2016 1 April 2017
£m £m £m
Statement of financial position and related notes
Cash and cash equivalents 313.8 157.1 468.6
Current financial assets 17.8 19.1 14.5
Bank loans, overdrafts and syndicated bank facility (68.9) (368.3) (70.3)
Medium term notes - net of hedging derivatives (1,973.9) (1,670.0) (1,957.8)
Finance lease liabilities (48.8) (49.0) (48.7)
Partnership liability to the Marks & Spencer UK Pension Scheme (note 9) (330.0) (390.0) (396.5)
(2,090.0) (2,301.1) (1,990.2)
Interest payable included within related borrowing and the partnership liability to the Marks and Spencer UK pension scheme 64.0 57.9 55.5
Total net debt (2,026.0) (2,243.2) (1,934.7)
14 Related party transactions
The Group's significant related parties are as disclosed in the Group's 2017 Annual Report.
Key management compensation
Transactions between the Group and key management personnel in the period relate only to remuneration consistent with the
policy set out in the Directors' Remuneration Report within the Group's 2017 Annual Report.
There have been no other material changes to the arrangements between the Group and key management personnel in the
period.
Glossary
Income Statement Measures
Like-for-like revenue growth Movement in revenue per the Income Statement Sales from non like-for-like stores The period on period change in revenue (excluding VAT) from stores which have been trading and where there has been no
significant change 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.
HY 17/18£m HY 16/17£m % UK Revenue Like-for-like 4,402.5 4,415.7 (0.3) Net space change 165.4 32.9 Total 4,567.9 4,448.6 2.7
M&S.com revenue / Online revenue None Not applicable Total revenue through the Group's online platforms. These revenues are reported within the relevant UK and International segment
results. The growth in revenues on a year-on-year basis is a good indicator of the performance of the online channel and is a
measure used within the Group's incentive plans. Refer to the Remuneration Report in the FY16/17 annual report for explanation
of why this measure is used within incentive plans.
Revenue growth at constant currency None Not applicable The period on period change in revenue retranslating the previous year revenue at the average actual periodic exchange rates
used in the current financial year. This measure is presented as a means of eliminating the effects of exchange rate
fluctuations on the period-on-period reported results. HY 17/18£m HY 16/17£m % International Revenue At reported currency 557.7
544.9 2.3 Impact of FX translation - 30.6 At constant currency 557.7 575.5 (3.1)
Gross margin Gross profit margin1 Certain downstream logistics costs(See Note 2) Gross margin is calculated as gross profit before adjusted items on a management basis divided by revenue. The gross profit used
in this calculation is based on an internal measure of margin rather than the statutory margin, which excludes certain
downstream logistics costs. This is a key internal management metric for assessing business unit performance.
Adjusted 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. Excluding these
items from profit metrics provides readers with helpful additional information on the performance of the business across
periods. It is consistent with how the business performance is reported to the Board and the Operating Committee.
Profit before tax and adjusted items Profit before tax Adjusted items(See Note 3) Profit before the impact of adjusted 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 to and assessed by the Board and the Operating Committee. This is a
measure used within the Group's incentive plans. Refer to the Remuneration Report in the FY16/17 annual report for explanation
of why this measure is used within incentive plans.
Adjusted earnings per share Earnings per share Adjusted items(See Note 3) Profit after tax attributable to owners of the parent and before the impact of adjusted items, divided by the weighted average
number of ordinary shares in issue during the financial period. This is a measure used within the Group's incentive plans. Refer
to the Remuneration Report in the FY16/17 annual report for explanation of why this measure is used within incentive plans.
Adjusted diluted earnings per share Diluted earnings per share Adjusted items(See Note 3) Profit after tax attributable to owners of the parent and before the impact of adjusted items, divided by the weighted average
number of ordinary shares in issue during the financial period adjusted for the effects of potentially dilutive options.
Effective tax rate before adjusted items Effective tax rate Adjusted items and their tax impact(See Note 3) Total income tax charge for the Group excluding the tax impact of adjusted items divided by the profit before tax and adjusted
items. This measure is an indicator of the ongoing tax rate for the Group.
Balance Sheet Measures
Net debt None Reconciliation of net debt (see Note 13) Net debt comprises total borrowings (bank, bonds and finance lease liabilities net of accrued interest), net derivative
financial instruments that hedge the borrowings and the Scottish Limited Partnership liability to the UK pension scheme less
cash, cash equivalents and unlisted and short term investments.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 Net cash inflow from operating activities See Financial Review The cash generated from the Group's activities before any returns to shareholders.
Free cash flow before adjusted items Net cash inflow from operating activities See Financial Review The cash generated from the Group's activities excluding the cash impact of adjusted items.
Other Measures
Capital expenditure None Refer to definition Calculated as the purchase of property, plant and equipment, investment property and intangible assets during the period less
proceeds of asset disposals excluding any assets acquired as part of a business combination.
Gross profit margin1
Certain downstream logistics costs(See Note 2)
Gross margin is calculated as gross profit before adjusted items on a management basis divided by revenue. The gross profit
used in this calculation is based on an internal measure of margin rather than the statutory margin, which excludes certain
downstream logistics costs. This is a key internal management metric for assessing business unit performance.
Adjusted 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. Excluding
these items from profit metrics provides readers with helpful additional information on the performance of the business
across periods. It is consistent with how the business performance is reported to the Board and the Operating Committee.
Profit before tax and adjusted items
Profit before tax
Adjusted items(See Note 3)
Profit before the impact of adjusted 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 to and assessed by the Board and the Operating
Committee. This is a measure used within the Group's incentive plans. Refer to the Remuneration Report in the FY16/17
annual report for explanation of why this measure is used within incentive plans.
Adjusted earnings per share
Earnings per share
Adjusted items(See Note 3)
Profit after tax attributable to owners of the parent and before the impact of adjusted items, divided by the weighted
average number of ordinary shares in issue during the financial period. This is a measure used within the Group's incentive
plans. Refer to the Remuneration Report in the FY16/17 annual report for explanation of why this measure is used within
incentive plans.
Adjusted diluted earnings per share
Diluted earnings per share
Adjusted items(See Note 3)
Profit after tax attributable to owners of the parent and before the impact of adjusted items, divided by the weighted
average number of ordinary shares in issue during the financial period adjusted for the effects of potentially dilutive
options.
Effective tax rate before adjusted items
Effective tax rate
Adjusted items and their tax impact(See Note 3)
Total income tax charge for the Group excluding the tax impact of adjusted items divided by the profit before tax and
adjusted items. This measure is an indicator of the ongoing tax rate for the Group.
Balance Sheet Measures
Net debt
None
Reconciliation of net debt (see Note 13)
Net debt comprises total borrowings (bank, bonds and finance lease liabilities net of accrued interest), net derivative
financial instruments that hedge the borrowings and the Scottish Limited Partnership liability to the UK pension scheme
less cash, cash equivalents and unlisted and short term investments.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
Net cash inflow from operating activities
See Financial Review
The cash generated from the Group's activities before any returns to shareholders.
Free cash flow before adjusted items
Net cash inflow from operating activities
See Financial Review
The cash generated from the Group's activities excluding the cash impact of adjusted items.
Other Measures
Capital expenditure
None
Refer to definition
Calculated as the purchase of property, plant and equipment, investment property and intangible assets during the period
less proceeds of asset disposals excluding any assets acquired as part of a business combination.
1 Gross profit margin is not defined within IFRS but is a widely accepted profit measure being derived from revenue less
cost of sales divided by revenue
INDEPENDENT REVIEW REPORT TO MARKS AND SPENCER GROUP PLC
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report
for the six months ended 30 September 2017 which comprises the condensed consolidated income statement, condensed
consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed
consolidated statement of changes in equity, condensed consolidated statement of cash flows and related notes 1 to 14. We
have read the other information contained in the half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland)
2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state
to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed set of financial statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European
Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the
half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
7 November 2017
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