TIDMMKS
RNS Number : 6883M
Marks and Spencer Group PLC
25 May 2022
Marks and Spencer Group Plc
Full Year Results for 52 Weeks Ended 2 April 2022
"STRONG PERFORMANCE DELIVERED BY A MORE RESILIENT M&S"
The impact of Covid in 2020/21 renders comparisons to the prior
year less meaningful. To aid understanding, throughout this
document we are showing the 52 weeks to 28 March 2020 as the
comparative period, unless stated otherwise.
Strong all-round performance
-- Profit before tax and adjusting items of GBP522.9m (2019/20 GBP403.1m).
-- Statutory profit after tax of GBP309.0m (2019/20 GBP27.4m).
-- Food growth of 10.1%, ex hospitality and franchise sales(1) up 14.7%.
-- M&S share of Ocado Retail net profit GBP13.9m including GBP7.2m net exceptional costs.
-- C&H sales up 3.8%. Online growth of 55.6%, stores down 11.2%.
-- Strong cash flow, reducing net debt excluding lease liabilities by GBP1.0bn to GBP420m.
Business well positioned for inflationary headwinds and the next
phase of transformation
-- M&S Food outperformance supported by record quality and improved value perception.
-- Ocado Retail basket size normalised as anticipated, transitioning to rapid capacity growth.
-- Reshaped C&H range and value commitment delivering full-price sales growth of 28.5%.
-- Online C&H sales now 34% of UK C&H sales and nascent brands platform established.
-- Sparks has grown to 15m members, fuelling data and personalisation drive.
-- International online retail sales over GBP250m vs GBP100m in 2019/20.
-- Increased store rotation pipeline in both Food and C&H; new format stores performing well.
Steve Rowe, CEO : "When I took over the reins at M&S six
years ago, I committed to tackling the underlying issues that had
eroded the strength of the business and building the foundations
for future growth. For me, what is important about these results is
not just the restoration of profit and strong cash flow; it is that
they demonstrate that M&S has fundamentally changed. While
there is much more to do, the business has moved beyond proving its
relevance and has the opportunity for substantial future growth. It
has been my privilege to be the steward and shopkeeper of this
fantastic business and extraordinary brand at such an important
stage in its history. The changes we have delivered are down to the
commitment and hard work of colleagues across the business, and I
am delighted to hand the baton on to Stuart, Katie and Eoin to lead
the next phase."
52 weeks 53 weeks 52 weeks Change
Group Results ended ended ended vs 2019/20
2 April 22 3 April 21 28 March (%)
20
Statutory revenue GBP10,885.1m GBP9,166.9m GBP10,181.9m 6.9
Sales before adjusting
items(2) GBP10,909.0m GBP9,166.9m GBP10,181.9m 7.1
Operating pro t before
adjusting items GBP709.0m GBP222.2m GBP590.7m 20.0
Pro t before tax & adjusting
items GBP522.9m GBP50.3m GBP403.1m 29.7
Adjusting items GBP(131.2)m GBP(259.7)m GBP(335.9)m -60.9
Profit/(loss) before tax GBP391.7m GBP(209.4)m GBP67.2m 482.9
Profit/(loss) after tax GBP309.0m GBP(201.2)m GBP27.4m 1,027.7
Basic earnings/(loss)
per share 15.7p (10.1)p 1.3p 1,107.7
Adjusted basic earnings/(loss)
per share 21.7p 1.4p 16.7p 29.9
Free cash ow GBP699.2m GBP296.4m GBP205.7m 239.9
Net debt GBP2.7bn GBP3.52bn GBP3.95bn -31.7
Net debt excluding lease
liabilities GBP0.4bn GBP1.11bn GBP1.39bn -71.2
Dividend per share - - 3.9p n/a
There are a number of non-GAAP measures and alternative pro t
measures (APMs), discussed within this announcement and a glossary
and reconciliation to statutory measures is provided at the end of
this report. Adjusted results are consistent with how business
performance is measured internally and presented to aid
comparability. Refer to adjusting items table below for further
details.
(1) The Food ex hospitality and franchise sales APM is based on
total revenue rather than like-for-like revenue, as was presented
at the 20/21 year-end results, and 21/22 half-year results.
(2) All references to sales, a new APM, throughout this document
are statutory revenue plus the gross value of consignment sales
excluding VAT.
COMPLETION OF THE FIRST PHASE OF TRANSFORMATION - FIXING THE
BASICS.
Four years ago, we set out in a presentation entitled 'Facing
the Facts' the unvarnished truths about the state of M&S and
the reasons why far-reaching change was needed to arrest decline.
Now on the eve of a long-planned leadership succession, our results
demonstrate the extent of change delivered and the areas where
there is more to do:
-- The Food business has gone from amongst the lowest performing
UK food businesses on LFL sales to the top performing over 12
months.
-- Our brand perception was weakening and too many customers
thought M&S was no longer relevant. Now on almost all customer
metrics we see renewed interest and approval.
-- The option count in Clothing & Home had proliferated
leading to low rate of sale but has now been reduced by c.20% since
2018/19, with popular lines bought in greater depth.
-- We had high levels of discounting at c.30% of Food and c.35%
of Clothing & Home sales, eroding customer trust. Now this has
halved to less than 15% and c.18% respectively.
-- Clothing & Home online capability was behind competitors
and at only c.18% of sales. It is now market competitive and
penetration has almost doubled to 34%.
-- The Sparks 'point-based' system had lost credibility but has
now been relaunched and we have 15m members and over 4m app
users.
-- The online fulfilment centre at Castle Donington struggled to
cope with demand and fulfilment speeds were uncompetitive but now
output has doubled, and speeds are at market levels.
-- The Food business had no online grocery capability but now
the Ocado joint venture investment is established and growing
capacity.
-- The legacy store base was ageing with no track record of
closures or adaptation to modern shopping patterns. We have now
closed 68 full-line stores, opening or relocating 13.
-- Store formats were dull, complex to shop, and dated. We now
have a strong performing new format in both main businesses.
-- The balance sheet was stretched with GBP1.8bn net debt
(excluding lease liabilities) but is now much more resilient with
just GBP420m.
-- The business was slowed down by heavyweight corporate
functions and hierarchy whereas it is now restructured into a
family of faster moving accountable businesses.
Nonetheless there remains much to do as we embark on our new
'shaping the future' stage and reposition M&S as a growth
business focused on rewarding shareholders with a combination of
sustainable returns and profit growth through a balance of
investment and cash generation. There are many areas where the
business has improved but three important infrastructure challenges
remain which can still impact the pace of change and recovery;
-- Although we have materially changed our digital footprint,
some of our core technology systems need investment, most notably
in Clothing & Home where planning and supply chain systems can
be significantly improved to drive more efficient trading.
-- The Clothing & Home and Food supply chains both require
further investment. In Clothing & Home we have a lot of
opportunity to reduce single picking, improve capacity, reduce
costs and improve store operations as a result. In Food we need to
further improve operations with Gist and invest in and reshape the
network.
-- Some of the full-line estate remains out of date and poorly
located compared to the competition and although we have made
progress, there is much still to do to convert stores to a new more
efficient shoppable format and make them suitable for an
omni-channel era. Although Clothing & Home store sales are
running more than 25% below four years ago we have delivered less
than a 10% reduction in space since then, so the imperative both to
reduce space and to rotate to newer, better stores remains.
The substantial progress we have made in 'fixing the basics'
demonstrates the potential beyond the current profit recovery and
now provides a much stronger platform for the new leadership to
take forward. Their objective is to increase the pace of change and
to reposition the business for growth in the UK and globally.
Stuart Machin, Katie Bickerstaffe and Eoin Tonge will set out their
plans for the future later in the year.
STRONG PERFORMANCE DELIVERED BY A MORE RESILIENT M&S
A strong all-round performance combined with the benefits of the
transformation delivered an encouraging performance across M&S.
Profit before tax and adjusting items for the period was GBP522.9m
(2019/20: GBP403.1m). Statutory profit before tax was GBP391.7m
(2019/20: GBP67.2m). The recovery of profit combined with a focus
on working capital and tightly controlled capital expenditure
generated substantial free cash flow and a sharp reduction in net
debt. Results included GBP59.8m of UK business rates relief and a
net rates charge of GBP139.7m in the period.
M&S Food now a high-performing business with market share
growth
M&S Food delivered sales growth of 10.1%. Combined with an
improving margin mix in H2 and the benefits of the "lowering cost"
programme, this supported a strong increase in operating profit
before adjusting items. We were encouraged by the core sales
performance and the resilience of larger basket sizes, even as we
saw a gradual recovery in the franchise travel and hospitality
businesses in H2. Value and quality perception indicators are
robust. The strength of performance in new channels (Ocado and
Costa Coffee) reinforces our belief in the long-term potential to
grow the business.
Ocado Retail transitioning to strong capacity growth post
pandemic reversion
As expected, Ocado Retail saw a normalisation of basket sizes
and the shape of trade, resulting in a 4% decline in revenue and a
reduced contribution to Group results after exceptional costs
including the Erith fire. At the same time, we are investing in new
capacity despite the backdrop of well-understood industry cost
pressures, demonstrating our confidence in Ocado Retail. This has
the potential to grow the business by over 50% when fully ramped
up. With the M&S brand consistently over 25% of the average
Ocado basket, we believe there is substantial further synergy
potential for the two businesses to exploit.
Clothing & Home on track for a more profitable model capable
of growth
Clothing & Home delivered 3.8% sales growth, driven by
online sales. We shifted to trusted value, reducing option count by
c.20% over three years, which resulted in good growth in core
categories and a reduction of stock into sale. Operating profit
before adjusting items grew strongly, reflecting the improved
full-price mix. MS2 made multiple improvements to the online offer
and service, with around 11% of orders fulfilled from store. We
have successfully grown the Sparks programme to 15m members and app
users to over 4m, and have begun to personalise customer
experience. The nascent brands platform now has around 40 clothing
brand partnerships, own or invested brands.
Building store rotation pipeline driving exit from legacy
stores
We are now developing a growing pipeline of store relocations,
moving to modern well-located sites, in the renewal format with
omni-channel capability. We aim to fund the exit costs of the
legacy estate through an increasingly active asset management and
disposal programme. We have a pipeline of c.15 new full-line stores
over the next three years and c.40 new Food stores, many in the
larger renewal format with click-and-collect services for Clothing
& Home. The 10 new stores opened last year traded 11% ahead of
sales plan and are on track to generate a payback of the net
capital invested in just 1.5 years. New store performance gives us
encouragement wherever possible to accelerate rotation.
International absorbing Brexit-related costs, but emerging
global strategy encouraging
The International business, together with our partners,
generated 4% retail sales growth. This included a solid performance
in the Middle East and online retail sales more than doubling to
over GBP250m through growth in markets with a store presence and
global platforms. Operating profit before adjusting items reflected
the combined effects of EU border costs and tariffs of GBP29.6m and
an estimated trading impact in the region of GBP15m. While we have
provided for the GBP31m cost of fully exiting Russia and business
disruption in Ukraine, and will incur a loss of contribution, we
are also exploring multiple opportunities for further growth,
including through the Reliance joint venture in India.
Extending and expressing our sustainability lead
During the year we reset Plan A with a singular focus on cutting
our carbon footprint by one third by 2025 and becoming a fully net
zero business by 2040. As an own-brand retailer, M&S is very
well positioned to work with its supplier partners to find better
ways of doing things. We developed a multi-stakeholder plan
spanning customers, colleagues and suppliers to deliver on this
target. We also agreed a new GBP850m revolving credit facility
linked to the delivery of the net zero roadmap.
Business well positioned for next phase of transformation and
inflationary headwinds
As we enter the next phase of the transformation, we maintain
our ambition to create a business capable of sustainable growth in
sales, market share and profit. With improved profitability and
cash conversion, and financial net debt under a third of 2019/20
levels, the business is resilient to the macroeconomic headwinds
while having flexibility to invest in our transformation
priorities.
Overall trading in the first six weeks of the financial year has
been ahead of the comparable periods in 2021/22, including the
period from 12 April 2021 when non-essential retail reopened, with
a particularly strong performance in Clothing & Home and growth
in the total Food business continuing to outperform the overall
market.
This year the business will not receive business rates relief
and International will not have the profit contribution from
Russia. As we invest in capacity growth at Ocado Retail, we
anticipate a minimal contribution of share of net income to group
results. Consequently, we start 2022/23 from a lower adjusted
profit base. The business is now much better positioned and has had
an encouraging start to the year. However, given the increasing
cost pressures and consumer uncertainty we do not currently expect
to progress from this lower profit base in 2022/23.
M&S FOOD: HIGH-PERFORMING BUSINESS AND MARKET SHARE
GROWTH
The objective for M&S Food is to "protect the magic" by
investing in our unique focus on own-brand innovation and fresh,
easy-to-cook food, while "modernising the rest" of the
infrastructure supporting it. By extending reach of the brand into
bigger, new-format stores and growing new channels (Ocado Retail,
Costa Coffee), we see the potential for substantial growth.
M&S Food delivered sales growth of 10.1% vs 2019/20 and in
H2 continued to be the best-performing UK grocery chain (Source:
Kantar 12 weeks ended 20 March 2022). This was despite continuing
adverse Covid-related headwinds and the absence of online grocery
sales, which are reported separately through Ocado Retail.
Sales grew 14.7% after adjusting for the Covid-related impact on
the hospitality and franchise businesses. H2 saw a gradual recovery
of stores in city centres and the franchise travel business
compared to H1.
Sales vs 2019/20 H1 H2 FY Sales vs 2019/20 (%) H1 H2 FY
(%)
Simply Food 27 18 23 High street -10 -6 -8
Retail parks 23 20 22 City centre -18 -10 -14
Franchise fuel 13 8 11 Franchise travel (rail/air/roadside) -49 -29 -39
Total 25 18 21 Total -18 -10 -14
Operating profit before adjusting items of GBP277.8m, as
compared to GBP236.7m in 2019/20, reflected sales growth and the
lowering cost programme, partly offset by increasing supply chain
cost pressures in H2 and Brexit-related costs in Northern
Ireland.
Performance underpinned by improvement in quality and value
The outperformance of the M&S Food range over the past four
years has delivered improved customer perceptions for both value
and quality, and good core sales growth. Market share has grown
from 3.4% to 3.6% over three years.
The consistently strong core sales performance throughout
2021/22, supported by good market conditions, is evident in the
category sales mix, with growth in core areas such as produce, meat
and grocery. This was driven by larger basket sizes, which began to
normalise through the year as the effects of Covid reduced.
Sales vs 2019/20 H1 H2 FY Sales vs 2019/20 H1 H2 FY
(%) (%)
Frozen 40 18 27 Food-on-the-move -18 -4 -11
Beers, wines & spirits 30 17 23 Hospitality -53 -27 -40
Grocery & household 33 9 20
Meat, fish, poultry,
deli, dairy 20 14 17
Bakery 13 18 15
Produce & flowers 14 12 13
Total 20 14 17 Total -30 -12 -21
Growth was supported by a substantial programme of product
innovation, with over 1,350 new lines over the past year, including
summer barbecue ranges, extensions to our market-leading Plant
Kitchen offer, and an expanded "Dine In" programme.
In a climate of increasing price awareness, "Remarksable Value"
and "Fresh Market Specials" ranges have been relaunched, offering
products with an M&S quality differential at everyday low
prices. Around one in four M&S baskets now include one of these
lines. Overall, value perception has improved by five points since
March 2019, ahead of the market, and quality perception is at the
highest level in over five years.
The Food renewal format creates larger stores with the
efficiency of a supermarket and the 'soul' of a fresh food market.
This has now been implemented in 40 stores, enabling customers to
access more of the M&S range. Annualised sales in Food stores
which have been fully renewed have been strong, on average up over
10% vs control stores.
In the second half, we launched a ground-breaking partnership
with Costa Coffee, making available around 30 M&S
food-on-the-move products in c.2,500 coffee shops. These include
new lunch options, hot meal boxes and children's food. Early sales
are in line with our expectations.
More to do on supply chain, waste and availability
The M&S Food supply chain remains less efficient and, we
believe, higher cost to serve than our competitors. This is a
result of a complex store and logistics network, a high level of
chilled product mix and a costly supply chain contract with our
partners, Gist. Alongside this, our forecasting, ordering and stock
allocation systems are dated and are in the process of being
upgraded.
Over the past two years, we have implemented the "Vangarde"
trading model across the full Food estate, creating more efficient
processes for stock management and replenishment of stores, which
has helped to sustain availability through the supply chain
disruption of last year. However, waste and stock loss remain above
target levels. In the next stage we will roll out new forecasting,
ordering, and space, range and display systems to better match
catalogue and product display to customer demand, with the
objective of realising a substantial reduction in food waste. The
increasing store rationalisation programme is also helping to
create a network of conforming stores which are lower cost to
serve.
OCADO TRANSITIONING TO STRONG CAPACITY GROWTH POST PANDEMIC
REVERSION
Our ambition is to grow Ocado Retail over the next five years to
achieve a market-leading national position in online food retailing
and a brilliant showcase for the M&S brand and range. Doing so
means building on the competitive advantages in quality, value and
service that the Ocado platform combined with M&S Food can
achieve. We will deliver growth through rapid expansion of customer
fulfilment centres ("CFCs") alongside our immediacy proposition,
Zoom.
Following a successful switchover to M&S supply, Ocado
Retail delivered an exceptional performance during the lockdown
periods in 2020/21. As expected, 2021/22 saw a reduction in average
basket size to c.GBP123 in Q4 (2020/21: c.GBP145) and increasingly
normalised demand across the week. At the same time, with a
substantially larger industry growth opportunity than we envisaged
when we acquired 50% of Ocado Retail, we are investing in an
ambitious capacity roll-out plan, with new CFCs coming on stream
against a backdrop of well-understood industry-wide cost
pressures.
Ocado Retail delivered revenue of GBP2,248.8m, down 4.4%
compared to 2020/21, and EBITDA before exceptional items of
GBP104.8m as compared to GBP189.9m in 2020/21. We recorded a Group
share of net income of GBP13.9m, after a GBP7.2m share of net
exceptional costs.
M&S financial quarter
2021/22 Q1 Q2 Q3 Q4
Average orders per
week (k) 383 338 375 367
Retail revenue (GBPm
ex VAT) 618.4 517.5 547.8 564.7
Notes: Retail revenue comprises revenues from Ocado.com and
Ocado Zoom and excludes revenues from Fetch in current and prior
periods. Average orders per week refers to results of Ocado.com
Targeting growth in active customers as pandemic conditions
normalise
Ocado Retail delivered good growth in active customers through
the year, with an acceleration in the final quarter compared with
the prior year, as new CFCs came on stream. Order growth and
average basket size reflected the return of customer behaviours
towards pre-Covid levels as restrictions reduced and there was a
return to more in-office working. As a result, revenue declined,
but substantially outperformed the online grocery market (Source:
Kantar 12 weeks ended 20 March 2022).
Near-term margins reflecting a higher percentage of immature
capacity
Near-term margins reflect the higher percentage of immature
capacity as well as the peaks and troughs associated with
normalised trading. Following a period of more limited capacity
owing to a fire, Erith CFC was fully reopened in December 2021.
During 2021 we also opened two new CFCs in Purfleet and Andover,
which were operating at around half of their end-game capacities by
Q4. Some one-off costs, associated with the fire at the Erith
distribution centre and technology platform transition, have
impacted the M&S share of profit.
Alongside the opening of Bicester in 2022 and Luton in 2023, we
have plans to reach capacity for over 700,000 orders per week based
on pre-Covid basket sizes, representing growth of over 50% when
fully ramped.
Substantial further potential for the joint venture
The M&S brand is consistently over 25% of Ocado Retail's
sales, and this has generated substantial buying gains for both
M&S Food and Ocado Retail. We believe there is additional
unexploited potential to make better use of the M&S brand, data
capabilities, and cross-marketing as the businesses work even more
closely together. Towards the end of our coming financial year, we
are also planning to re-platform from the legacy operating system
to the "Ocado Smart Platform". This represents a major technology
switchover and will provide Ocado Retail with a website and
ordering capability that when fully developed we believe will be
market-leading.
CLOTHING & HOME ON TRACK FOR A MORE PROFITABLE MODEL CAPABLE
OF GROWTH
The objective of Clothing & Home is to create a contemporary
M&S range bought in greater depth, alongside a family of
internal and external partner brands providing broader choices to
our customers. We are at the very early stages of transitioning to
an omni-channel business backed by exceptional data and highly
personalised customer relationships, and a more sustainable,
profitable model is starting to emerge.
Clothing & Home delivered sales growth of 3.8% vs 2019/20,
with three consecutive quarters of underlying growth. Online sales
were up 55.6%, with strong growth throughout the year outperforming
pure-play peers and gaining 60bps of market share (Source: Kantar
52 weeks to 3 April 2022). Store sales declined 11.2%, with
performance continuing to be impacted by legacy high street and
city centre stores, although there was some improvement in H2.
Sales vs 2019/20 Q1 Q2 Q3 Q4 FY
(%)
Retail park -2 3 3 24 5
Outlet -10 1 3 26 3
Shopping centre -26 -16 -12 15 -12
High street -24 -22 -20 -5 -19
City centre -37 -28 -19 3 -22
Total C&H stores -21.2 -14.3 -10.9 5.6 -11.2
Operating profit before adjusting items of GBP330.7m, as
compared to GBP223.9m in 2019/20, reflected the benefits of sales
growth combined with an increased full-price sales mix.
Reshaping the "product engine" to drive shape of buy and reduce
clearance
The Clothing & Home offer has been reshaped over the past
three years around trading principles focused on contemporary
style, simple accessible product, and greater depth of buy. Overall
option count has reduced by c.20% on 2018/19. Alongside the product
change, there has been a successful shift to trusted value and
everyday low price. As a result of these actions, discounted sales
have reduced and stock into the clearance sale was down 34% on two
years ago, enabling a simpler, more profitable operation. These
changes are beginning to be reflected in improved customer style
perceptions and are generating increased confidence in the new
approach within the core product teams.
Blanket promotions, which often obscured inconsistent pricing
and reduced trust, have largely been removed. The pricing
architecture is clearer, offering value on entry price points in
products such as women's jeggings, men's denim and the recently
introduced "Remarksable Value" label in our Home ranges. As we have
shifted to a trusted value approach, we have seen an improvement in
value perception, which is now market-leading.
Strong performance in core categories and improving style
perception
As expected, category performance over the two pandemic years
has been greatest in core casual categories, sleepwear and soft
furnishings. Following the reopening of the economy in July 2021,
the slow return to offices, combined with greater mobility, has led
to a gradual improvement in formal ranges, elements of footwear and
holiday.
Sales vs 2019/20 H1 H2 FY Sales vs 2019/20 H1 H2 FY
(%) (%)
Women's denim 8 27 17 Women's formal -33 -20 -26
Women's casual
tops 10 30 17 Women's holiday -35 26 -24
Women's knitwear 15 7 9 Men's formal -35 -20 -28
Men's casual 1 13 7 Men's footwear -9 6 -1
Kids' daywear 21 27 24
Lingerie 0 9 5
Soft furnishings 23 12 16
-- Womenswear has driven good growth in the "big three"
departments of denim, knitwear and casual tops. A focus on simple,
repeatable styles in dresses, supported by popular collaborations
with brands such as Ghost, has resulted in a very strong
performance. The Goodmove activewear brand has grown to over GBP65m
in two years.
-- Lingerie has seen a recovery over the past year in core areas
such as sleep, underwear and bras. A focus on sharper value through
multi-packs at opening price points has combined with new stretch
offers such as "Boutique" and the launch of the "Neutrals"
range.
-- Menswear was impacted in the pandemic by its high formal and
office-wear shares. We saw good growth in jersey, knitwear and
underwear, although following reopening availability in formal
categories was below target.
-- Kidswear's increased focus on daywear has combined with
growth in schoolwear to deliver double-digit sales growth. The
growth of M&S Kids provides an important entry point to the
brand for family-age customers.
-- Home ranges have been reshaped, with pricing realigned to the
market in areas such as bed linen, lighting and curtains. Furniture
ranges are being upgraded and losses have reduced.
MS2 driving omni-channel growth
MS2 had a successful year, with strong online sales growth at an
adjusted operating profit margin competitive with store sales. The
MS2 organisation brings together the data, digital and online teams
across M&S. Its aim is to prioritise the best online offer,
acting with the speed of a pure-play while leveraging the store
estate to drive advantages in reach and fulfilment to deliver
better customer service.
-- A programme of front-end digital development to inspire
customers has included upgraded imagery, increased user-generated
content, "shop the look" features and "hotspotting" of product
benefits.
-- We have introduced over 60 digital hubs in stores, enabling
rapid click-and-collect and rolled out paper-free returns.
-- Online availability through omni-channel fulfilment now
exceeds store availability, with an increasing number of
"online-only" products and use of the channel to trial "test and
repeat" ranges. The online commercial teams are fully involved in
category planning.
-- During the year, c.11% of online orders were satisfied
through in-store fulfilment. The ability to sell through stock in
the store network has increased customer convenience, improved
stock turn and helped drive customer availability to c.90%,
compared with c.75% through the online distribution centre
alone.
-- The cut-off for next-day delivery remains below our target
level but is now market-competitive.
Over the past three years we have built the foundations of a
more personalised, customer-focused digital offer. We have created
a single customer data platform alongside our enterprise data
platform, "BEAM", which continues to consolidate our data in one
place.
The relaunched Sparks programme has grown to over 15m members,
of which close to 9m are active, and we are working on the next
generation of improvements to the offer. We have grown app users to
over 4m and expect to launch Sparks Pay, offering customers an
integrated payment and credit proposition including loyalty rewards
through Sparks and the M&S app.
Over the past year we began to personalise the customer
experience through our website, app and customer relationship
management programme, and around 8% of M&S.com sales are now
being driven by personalisation. Although still at an early stage,
we have developed a bespoke in-house solution to deepen
relationships with customers and drive future growth. The goal is
to build personalisation at scale to move from a targeted
promotions model to one where the range, interactions and product
presentation are relevant to the individual customer, making
M&S a more engaging and easier place to shop.
Sparks and data provide the gateway to delivery of further
services, notably the shift to a digital proposition for M&S
Bank customers including credit, loyalty rewards and payment.
Nascent platform of brands established
M&S has a strong and trusted brand which attracts customers
to our platforms as the second largest UK online clothing retailer
(Source: Kantar 52 weeks ending 3 April) with the largest
omni-channel footprint. This, combined with our 15m Sparks card
holders, credit card and customer data engine, creates the scope to
bring other brands onto our platform, providing broader choice and
personalisation for the M&S customer and substantial new
revenue streams.
-- In the last year we have established a series of pilots with
a combination of around 40 clothing brand partnerships, own or
invested brands. This has included the purchase and relaunch of
Jaeger, as a contemporary British brand, a 27% shareholding in
Nobody's Child and the majority acquisition of activewear brand
curator, The Sports Edit, which brings new capabilities, customers
and brands to the Group.
-- These brand partnerships bring broader choice, premium price
points and additional expertise to M&S. In total, third-party
brands across Clothing, Home and Beauty, including Jaeger,
generated c.GBP100m of orders in 2021/22.
-- In establishing the operation, we have made early investment
in the initial capacity required for ordering and business
development. At this stage, the business trades through a wholesale
or commission model, with product flowing through the M&S
distribution network. We expect to evolve the model to add dropship
capability, enabling the sale and fulfilment of orders from partner
stock.
Improving performance through addressing legacy issues
Despite the far-reaching developments and progress in the
product engine, the Clothing & Home business requires further
development in legacy systems, supply chain and stores to enable a
more responsive business with faster speed to market, an improved
returns process, lower stock levels and a lower cost to
operate.
In the current system, less effective systems configuration and
interface makes planning and tracking slow and labour intensive.
Teams have limited visibility to create accurate channel plans, and
stock journeys from port to customer via multiple stock holding and
consolidation points are lengthy and can be hard to track. The
reconfiguration of systems is likely to take a number of years to
implement.
The supply chain picking model can be slow and high cost to
operate, resulting in a risk of trapped stock. The opportunity is
to reconfigure the network to support our omni-channel needs
better. In addition, the returns channel remains slow, creating
excess handling cost and margin loss. We have already identified
multiple ways of reducing this; for instance preparing returns for
resale in the store of return or nearby stores to enable further
improvements in omni-channel availability.
So, the pattern and rhythm of product flow will be further
reshaped over the next few years. This reshaping will be
underpinned by a commitment to fewer, deeper strategic supplier
relationships to support a faster, more flexible sourcing model
which has already proved comparatively resilient during the
pandemic.
BUILDING STORE ROTATION PIPELINE DRIVING EXIT FROM LEGACY
STORES
The step change in online participation and further shift of
trade away from high street and city centre stores during the
pandemic has increased the imperative to reduce Clothing & Home
trading space. Last year we set out the objective of the M&S
store rotation programme to create a modernised estate of c.180
full-line stores and a growing programme of larger, more
inspirational Food stores. We aim to fund the exit costs of the
legacy estate through an increasingly active asset management and
freehold disposal programme, which we expect to release at least
GBP200m of cash proceeds.
Developing profitable rotation pipeline for full-line and food
stores
So far in the transformation, we have made significant progress
in closing 68 legacy full-line stores and 19 smaller Food stores.
We have also created a bigger Food store format which can serve
more of the family shop and offer click-and-collect services for
Clothing & Home, and opened 13 new, more efficient full-line
stores.
We are now developing a growing pipeline of store relocations,
moving from old multi-floor buildings, often with challenged fabric
and poor access and car parking, to modern, well-located sites
wherever possible in the renewal format with omni-channel
capability. Moving away from town centres is not our only focus,
but we recognise that in an omni-channel world, ease of shopping
and fast access is critical to competitiveness, and in many cases
we believe the town centre locations have lost impetus as a result
of failed local authority or government policy. As a result, a high
proportion, but not all, of our relocations are to the edge of
town.
Combined with the relocation programme, we are targeting an
overall reduction in Clothing & Home space reflecting the rapid
growth of online and our exit from the long tail of low sales
density stores that deliver a small proportion of total profit.
The full-line store pipeline already has around 15 new stores
planned over the next three years, including seven former Debenhams
sites, and we expect this to build further. This will help enable a
further 32 store closures. Examples include:
-- In Leamington Spa, the recent closure of related town centre
stores and relocation to a full-line edge-of-town former Debenhams
to create a full-line proposition is expected to pay back the net
capital of GBP7.0m invested in the new site in 3.5 years.
-- The relocation of Thurrock from the back of an
underperforming centre with no accessible parking to the former
Debenhams site by the bus station with extensive parking is
expected to cost a net GBP8.4m and to pay back in 2.0 years.
-- The announced closure of the legacy four-floor town centre
store at Colchester and opening of a new modern store in the retail
park on the edge of town will cost a net GBP7.3m, resulting in an
estimated payback of 3.2 years.
To accelerate the estate's rotation, we are focused on driving
the recapture of Clothing & Home sales from existing legacy
sites either to new stores, to alternative stores or online and are
trialling a number of new initiatives to increase this.
To also help enable the full-line store rotation, and to drive
access to new areas of growth, we currently anticipate opening c.40
new Food stores in the next three years, largely in the
12,000-15,000 sq ft renewal format. These stores generate higher
productivity and good cash paybacks.
Encouraging results from recent openings
Of the 10 M&S stores opened in 2020/21*, sales are averaging
c.11% above plan, with paybacks of around 1.5 years.
10 stores opened Foodhall Full-line
in 2020/21
Performance vs original Performance Performance
plan
Average annual
sales (GBPm) 14.3 11% 12.3 18.8
Average capex (GBPm) 3.7 -2% 2.2 7.3
Average payback
(years) 1.5 -44% 1.5 1.5
*2020/21 store openings are shown above rather than 2021/22, as
these have 12 months of sales data to allow a full financial
review.
INTERNATIONAL ABSORBING BREXIT RELATED COSTS BUT EMERGING GLOBAL
STRATEGY ENCOURAGING
Our objective is to create a growing International business
through strong partnerships and a multi-platform online business
with global reach.
International sales grew 1.7% at constant currency, reflecting
the continuing rebound in activity through the year and sustained
growth in online sales both in markets with a store presence and
through global marketplaces. Operating profit before adjusting
items of GBP73.6m (2019/20: GBP110.7m) included costs and tariffs
of GBP29.6m and an estimated trading impact in the region of GBP15m
due to ongoing EU border issues, largely related to the Republic of
Ireland following Brexit.
Solid growth in the Middle East, India and Global Online
Together with our partners, we generated 4% growth in retail
sales in 2021/22. This included a particularly good performance in
the Middle East region, with growth in domestic demand. In Asia, we
saw a substantial bounce back in India following lockdown in Q1,
which was partly offset by continuing restrictions in some markets.
Sales in Europe reflected strength in Clothing & Home sales in
the Republic of Ireland, partly offset by the impact of EU-related
border issues on the Food business. Over the past two years, online
retail sales of M&S and our partners have grown by 152% and now
total GBP251m. Following the expansion into an additional 46
territories in March 2021, we now trade in 105 markets.
Performance H1 H2 FY Performance vs H1 H2 FY
vs 2019/20 (%) 2019/20 (%)
Europe 4.2 7.4 5.8 Stores -13.1 1.5 -5.7
Middle East 9.5 28.0 18.6 Online 165.7 141.1 152.2
Total retail
Asia -23.6 9.9 -6.6 sales -2.7 11.2 4.3
Total retail
sales -2.7 11.2 4.3
Adapting to geo-political shocks: Brexit &
Russia/Ukraine
During the year, the business faced the dual headwinds of the
impact of EU border issues and the ending of shipments to our
franchise partner in Russia as a result of the war in Ukraine.
To mitigate EU border costs, we exited the high street franchise
Food operation in France and ceased exporting chilled food to the
Czech business. We continue to absorb material
administration-related cost headwinds on Food exports to Ireland,
because of certification, declarations and the complexity of
segregation in warehouses, none of which benefit customers. We
expect to be able to mitigate these costs further through increased
local sourcing and by automating processes. In our Clothing &
Home operation, we are planning to open a new "EU hub" in Croatia,
enabling the direct flow of stock into market to fulfil orders for
our partners, including marketplaces.
The M&S businesses in Russia and Ukraine have been operated
by a licence holder and franchise partner and in 2021/22 generated
retail sales of GBP102.5m and a contribution to profit before
adjusting items of GBP5.2m. M&S is a values-led business;
therefore, as a result of the invasion of Ukraine, we ceased
shipments to Russia on 3 March 2022. Subsequently, we have made the
decision to fully exit our Russian franchise and we have recognised
a charge of GBP31m in adjusting items, representing our full exit
costs from Russia and business disruption in Ukraine.
Unfortunately, our Ukrainian business has also been partially
closed as a result of war impacts, and we are working with our
partner to reopen as and when possible.
Exploiting global growth opportunities in India, The Republic of
Ireland and online
Our joint venture partnership with Reliance Retail in India
opened six new stores, closed nine mostly smaller-format stores and
refurbished or expanded a further six. The business is exploring
multiple options for future growth, including ambitious plans to
grow space, with around 10 new store openings per year and
expansions in key existing locations, as well as leveraging the
dedicated Indian website and pursuing growth through third-party
marketplaces.
During the year we also developed and grew in-store fulfilment
of Clothing & Home online orders in key markets such as the
Republic of Ireland. In addition, the partnership with Zalando has
delivered substantial growth over the past year, and we expect to
broaden the range available as we develop additional
capabilities.
EXTING AND EXPRESSING OUR SUSTAINABILITY LEAD
M&S was a pioneer in creating an industry-leading, fully
integrated sustainability plan under the "Plan A" banner, launched
in 2007, which reflected values that have been core to M&S's
culture since its inception. During the year we reset Plan A with a
singular focus on cutting our carbon footprint by one third by 2025
and becoming a net zero business across Scope 1, 2 and 3 by 2040.
As an own-brand retailer, M&S is very well positioned to work
with its supplier partners to find better ways of doing things. We
have developed a multi-stakeholder plan spanning customers,
colleagues and suppliers to deliver on this target.
This reset includes the return of the Group's iconic "Look
behind the Label" campaign, focusing customers on the stories
behind five everyday products, from coffee to cotton, which are
responsibly sourced. We also identified 100 colleagues as "Carbon
Champions" in leadership positions in key roles in buying, sourcing
and operations and identified key targets for 2025.
Following the reset of Plan A, we agreed to link our new GBP850m
revolving credit facility to the delivery of our net zero targets.
These targets span activity on our net zero roadmap across the
value chain, including commitments to zero deforestation in soy
sourcing, sourcing more sustainable fibres, reducing emissions in
our property estate and eliminating millions of units of single-use
plastic packaging.
During the year we launched new initiatives to help customers
lead lower-carbon lives, including:
-- Removing 75 million items of plastic packaging from our food
products and installing plastic take-back bins in over 500 of our
stores to make it easier for customers to recycle soft plastic.
-- A new incentive programme to reward Sparks customers when
they donate pre-loved clothes to our "Shwopping" partnership with
Oxfam.
-- A "test and learn" trial in an important growth market,
clothing rental, with a Founders Factory joint venture investment
in the Zoa Group, the operator of leading clothing rental website,
Hirestreet.
-- In January, a Sparking Change National Challenge, inviting 14
million Sparks customers to try a lower-carbon diet, to feel
healthier and potentially save money.
While we have leading positions in customer perception, there is
much more to do in Plan A to communicate our practices. In the year
ahead we expect to accelerate our programmes and bring them through
much more strongly to the shelf edge both within the store
environment and during the online shopping experience. We believe
that wider sustainability concerns are here to stay, resulting in
opportunities for our brand to enter new markets. Through our deep
relationships with customers through Sparks, our longstanding
trusted supplier partners and our portfolio of innovation partners,
we are well placed to develop customer propositions in areas such
as circular fashion and low-impact farming.
BUSINESS WELL SET UP FOR THE NEXT PHASE OF TRANSFORMATION AND
INFLATIONARY HEADWINDS
As we enter the next phase of the transformation, we maintain
our ambition to create a business capable of sustainable growth in
sales, market share and profit. With improved profitability and
cash conversion, and financial net debt under a third of 2019/20
levels, the business is resilient to the macroeconomic headwinds
while having flexibility to invest in our transformation
priorities.
Macroeconomic headwinds impact on performance and
expectations
There is substantial inflation in both cost of goods sold and
operating costs including fuel, power, building materials and
maintenance. Food cost inflation is being driven not just by global
supply issues but also labour shortages, border- and
customs-related costs, and in some cases reduction in UK capacity
by growers and producers. In Clothing & Home, factory cost
prices, transport and freight costs, combined with continued supply
issues in China, are driving similar pressures.
Consequently, customers' spending capacity is under pressure. We
expect these pressures to increase as the year progresses. We are
therefore planning for an adverse impact on volumes due to price
inflation, slowing the rate of sales growth.
Latest update and guidance for 2022/23
Overall trading in the first six weeks of the financial year has
been ahead of the comparable periods in 2021/22, including the
period from April 12, 2021 when non-essential retail reopened, with
a particularly strong performance in Clothing & Home and growth
in the total Food business continuing to outperform the overall
market.
While encouraging, we expect the impact of declining real
incomes to sharpen in the second half and endure for at least the
remainder of the financial year. There is no current sign of
inflation abating, although we believe the rate of cost growth will
subside by the third quarter.
However, we believe that our market positioning and business
strategy will help us mitigate the effects as:
-- Our stronger value perception in both businesses will provide
protection from customer downtrading;
-- Our large share in 'for tonight' shopping in Food, provides
resilience compared with the core grocery market;
-- Travel, leisure events and weddings return, we expect to see
a revival of the demand that receded in the past couple of
years;
-- Some of our customers, while not immune to the pressure, have
a degree of cushion from the higher savings ratio recorded during
the pandemic; and
-- The experience of the past two years has illustrated the
earnings balance provided by both Food and Clothing & Home and
trading through stores, online and international channels.
In addition, we are taking specific steps to support performance
in this environment and offset inflation. In Clothing & Home we
are taking a more flexible approach to trading and currently retain
a substantial proportion of open to buy for H2. We are also
starting to develop the strategic supplier programme. We expect
further benefits from the 'lowering cost' programme in Food and are
continuing to drive digital-led efficiencies in stores and simplify
ways of working in support centres.
This year the business will not receive business rates relief
and International will not have the profit contribution from
Russia. As we invest in capacity growth at Ocado Retail, we
anticipate a minimal contribution of share of net income to group
results. Consequently, we start 2022/23 from a lower adjusted
profit base. The business is now much better positioned and had an
encouraging start to the year. However, given the increasing cost
pressures and consumer uncertainty, we do not currently expect to
progress from this lower profit base in 2022/23.
Increasing the pace of change and investing in growth
Despite the near-term challenges, the business is better set up
both financially and operationally for the medium-term. The
combined opportunities to both improve the infrastructure and
invest in growth mean that we expect to continue to increase our
investment rate, albeit subject to careful assessment and even
stricter financial discipline given heightened uncertainty. As a
result, and taking into account inflationary pressures, we
anticipate capital expenditure will increase to around GBP400m in
the coming year (2021/22 GBP300.2m excluding property acquisitions
and disposals). The areas of focus and opportunity are as
follows:
-- Technology investment to drive the digital transformation of
M&S and systems improvement to support more responsive
trading.
-- Supply chain investment to create a quicker, more efficient
operation and pave the way to a modern, automated network.
-- Multiple opportunities for growth in the store estate,
including investment in renewal, larger-format Food stores,
rotation to modern, accessible full-line stores, and growth through
franchise partnerships.
Our capital allocation decisions will continue to be guided by
our ambition to grow the business while sustaining balance sheet
metrics consistent with investment grade. The Board will consider
the scale and timing of a resumption of dividend payments at the
year end.
For further information, please contact:
Investor Relations:
Fraser Ramzan: +44 (0)20 3884 7080
Jack Cook: +44 (0)20 3882 5535
Media enquiries:
Corporate Press Office: +44 (0)20 8718 1919
Investor & Analyst presentation and Q&A:
A pre-recorded investor and analyst presentation will be
available on the Marks and Spencer Group plc website from 7:30am on
25 May 2022.
Steve Rowe and Eoin Tonge will host a Q&A session at 9.30am
on 25 May 2022:
Registration link here
Dial in number: 020 3936 2999 Access Code: 559374
A recording will be available until Wednesday 01 June 2022 using
the following details:
UK: 020 3936 3001
USA: 1 845 709 8569
All other locations: +44 20 3936 3001
Access Code: 045457
Fixed Income Investor Conference Call:
This will be hosted by Eoin Tonge, Chief Finance Officer, at 2pm
on 25 May 2022:
Registration link here
Dial in number: 020 3936 2999 Access Code: 532207
A recording will be available until Wednesday 01 June 2022 using
the following details:
UK: 020 3936 3001
USA: 1 845 709 8569
All other locations: +44 20 3936 3001
Access Code: 593163
FULL YEAR FINANCIAL REVIEW
Financial Summary
52 weeks ended 2 Apr 27 Mar 28 Mar Change Change
22 21 (1) 20 vs 20/21 vs 19/20
% %
Group statutory revenue 10,885.1 8,961.5 10,181.9 21.5 6.9
Group sales before
adjusting items 10,909.0 8,972.7 10,181.9 21.6 7.1
UK Food 6,639.6 5,994.8 6,028.2 10.8 10.1
UK Clothing & Home 3,332.2 2,198.6 3,209.1 51.6 3.8
International 937.2 779.3 944.6 20.3 -0.8
Group operating profit/(loss)
before adjusting items 709.0 209.7 590.7 238.1 20.0
UK Food 277.8 213.6 236.7 30.1 17.4
UK Clothing & Home 330.7 (129.4) 223.9 n/a 47.7
International 73.6 45.1 110.7 63.2 -33.5
M&S Bank and Services 13.0 2.0 16.8 550.0 -22.6
Share of result in
associates and joint
ventures 13.9 78.4 2.6 -82.3 434.6
Interest payable on
lease liabilities (115.6) (122.5) (133.4) -5.6 -13.3
Net financial interest (70.5) (45.6) (54.2) 54.6 30.1
Profit before tax
& adjusting items 522.9 41.6 403.1 1,157.0 29.7
Adjusting items (131.2) (242.8) (335.9) -46.0 -60.9
Profit/(loss) before
tax 391.7 (201.2) 67.2 n/a 482.9
Profit/(loss) after
tax 309.0 (194.4) 27.4 n/a 1,027.7
Basic earnings/(loss)
per share 15.7p (9.8)p 1.3p n/a 1,107.7
Adjusted basic earnings/(loss)
per share 21.7p 1.1p 16.7p 1,872.7 29.9
Dividend per share - - 3.9p n/a n/a
Net debt GBP2.70bn GBP3.52bn GBP3.95bn -23.3 -31.6
Notes:
There are a number of non-GAAP measures and alternative profit
measures ("APMs") discussed within this announcement, and a
glossary and reconciliation to statutory measures is provided at
the end of this report. Adjusted results are consistent with how
business performance is measured internally and presented to aid
comparability of performance. Refer to the adjusting items table
below for further details.
Given the exceptional nature of financial results last year due
to the impact of Covid, all comparatives within this Financial
Review are given against 2019/20 unless otherwise stated.
In the current period, we have introduced a new APM: 'sales'.
All references to sales throughout this document are statutory
revenue plus the gross value of consignment sales excluding VAT.
Where third-party branded goods are sold on a consignment basis,
only the commission receivable is included in statutory revenue.
This new measure has been introduced given the Group's focus on
launching and growing third-party brands and is consistent with how
the business performance is reported and assessed by the Board and
the Executive Committee.
(1) 2020/21 was a 53-week year and comparative periods are on a
52-week basis. To aid understanding, we have presented the
unaudited 52 weeks to 27 March 2021; however, net debt is given on
a 53-week basis.
Group results
Group sales before adjusting items was GBP10,909.0m. Sales
increased 7.1% versus 2019/20, driven by Food sales up 10.1%,
Clothing & Home sales up 3.8% and International sales down
0.8%. Statutory revenue in the period was GBP10,885.1m, an increase
of 6.9% versus 2019/20. The Group generated an adjusted profit
before tax of GBP522.9m and a statutory profit before tax of
GBP391.7m.
UK business rates relief of GBP59.8m (2020/21: GBP172.2m) helped
to compensate for the continuing loss of trade from lower footfall
to Clothing & Home stores in the UK, and in the Food
hospitality business which was closed until mid-May 2021 and
continues to trade well below 2019/20 levels.
Statutory profit before tax includes total charges for adjusting
items of GBP131.2m.
For full details on adjusting items and the Group's related
policy, see notes 1 and 3 to the financial information.
UK: Food
UK Food sales increased by 10.1%, driven by the performance of
core categories, partly offset by reduced sales from the recovering
franchise and hospitality businesses. Excluding franchise and
hospitality, sales grew 14.7%.
Change vs 19/20 % Q1 Q2 Q3 Q4 FY
Food 9.4 11.5 12.4 7.0 10.1
Food ex franchise and hospitality 17.0 16.8 16.4 8.6 14.7
M&S Food reported sales do not benefit from a direct online
grocery presence, with these sales instead reported through Ocado
Retail .
27 Mar 28 Mar Change
2 Apr 21 20 vs 19/20
52 weeks ended 22 %
Footfall, m (average/week) 10.1 8.0 11.8 -14.4
Transactions, m (average/week) 8.0 5.6 9.3 -14.0
Basket value inc VAT
(GBP) 15.9 20.6 12.6 26.2
Total sales ex VAT
GBPm(1) 6,639.6 5,994.8 6,028.2 10.1
(1) Includes M&S.com
Footfall in the period, while recovering, remained below
2019/20, with a similar trend for the number of transactions.
Revenue was driven by increased basket value as customers used
M&S for more of their everyday shop. However, basket size has
declined compared to 2020/21 driven by the gradual recovery of our
hospitality and food-on-the-move businesses, which typically have
smaller baskets, as well as a reduction in "core" basket size
through the year as Covid tailwinds reduced. Although customer
behaviour started to normalise in Q4, metrics remained ahead of
2019/20 levels.
2 Apr 27 Mar 28 Mar Change
22 21 20 vs 19/20
52 weeks ended GBPm GBPm GBPm %
Sales(1) 6,639.6 5,994.8 6,028.2 10.1
Operating profit
before adjusting
items 277.8 213.6 236.7 17.4
Operating margin 4.2% 3.6% 3.9% 30 bps
(1) 'Sales' is equal to revenue within the Food business.
The Food business in total generated operating profit before
adjusting items of GBP277.8m compared with GBP236.7m in
2019/20.
The table below sets out the drivers of the movement in Food
operating profit margin before adjusting items over two years.
Operating profit margin %
before adjusting items
2019/20 3.9
Gross margin 0.2
Store staffing 1.4
Other store costs 0.4
Distribution and warehousing (1.1)
Central costs (0.6)
2021/22 4.2
-- Gross margin increased c.20bps. The improvement in margin
rate was a result of cost-saving programmes, including Ocado
synergies, as well as lower net waste and reduced sales in our
lower gross margin Franchise business. This was partly offset by
investment in price, reduced sales from our higher-margin
Hospitality offering, and additional warehousing and freight
charges within margin.
-- Store staffing costs decreased c.140bps, primarily driven by
retail restructuring efficiencies enabled by technology
improvements in store and ongoing initiatives, partly offset by
investment in colleague pay rates and Covid-related costs such as
door hosts.
-- The c.40bps decrease in other store costs relates to
government business rates relief of GBP24.6m and lower depreciation
charges as legacy store modernisations come to the end of their
useful economic lives, partly offset by an increase in maintenance
and store standards spend.
-- Distribution and warehousing costs increased c.110 bps,
reflecting investment in the Milton Keynes ambient depot to support
volume growth, higher pay, incentives and sub-contracting related
to warehouses and haulage, the cost to serve of online orders, and
inefficiencies from EU border-related processes for serving
Northern Ireland.
-- Central costs increased c.60bps, driven by investments in
technology, data and digital initiatives, including in forecasting,
ordering and allocation systems, as well as colleague incentives.
This was partly offset by technology savings from optimising the
cost base and a reduction in the depreciation of technology assets
as they reach the end of their useful lives.
Ocado Retail Ltd
The Group holds a 50% interest in Ocado Retail Ltd ("Ocado
Retail"). The remaining 50% interest is held by Ocado Group plc
("Ocado Group"). Full Year Results are consistent with the
quarterly results reported by Ocado Group on behalf of Ocado Retail
for the quarterly periods ended 30 May 2021, 29 August 2021, 28
November 2021 and 27 February 2022.
All commentary in this section is against 2020/21 comparatives,
as the acquisition of the investment in Ocado Retail Ltd by M&S
was made part-way through 2019/20.
Q1 Q2 Q3 Q4
Revenue growth vs 2020/21
(%) 8.4 -10.6 -3.9 -5.7
Active customers (k) 777 769 832 835
Average orders per week
(k) 3 83 338 375 367
Notes: Retail revenue comprises revenues from Ocado.com and
Ocado Zoom and excludes revenues from Fetch in current and prior
periods. Average orders per week refers to results of Ocado.com
Revenue declined 4.4% compared to 2020/21 (-3.0% excluding
Fetch) as trade annualised against sales growth during three
national lockdowns in 2020 and towards the end of H1 was impacted
by the fire at the Erith CFC on 16 July. These impacts were partly
offset by the ongoing capacity roll-out in the period. M &S
products continue to account for over 25% of the average Ocado
basket.
GBPm 52 weeks 52 weeks Change
ended 27 ended 28 %
February February
2022 2021
Revenue 2,248.8 2,353.2 -4.4
EBITDA before exceptional
items 104.8 189.9 -44.8
Exceptional items (14.4) 50.5 -128.5
Depreciation and amortisation (41.3) (36.2) -14.1
Operating profit 49.1 204.2 -76.0
Profit after tax 27.8 156.8 -82.3
M&S 50% share of profit
after tax 13.9 78.4 -82.3
Ocado Retail Ltd is reported as an associate of M&S as
certain rights are conferred on Ocado Group plc for an initial
period of at least five years from acquisition. It is expected that
full consolidation of Ocado Retail Ltd by Ocado Group plc will
continue for at least five years from the formation of the joint
venture, after which it is anticipated that control of the joint
venture will pass to M&S following which it will consolidate
the joint venture. Exceptional items are defined within the Ocado
Group plc Annual Report and Accounts 2021.
Ocado Retail EBITDA before exceptional items was down 44.8%,
reflecting the normalisation of basket size and shape of week as
well as an increasing higher percentage of immature capacity as we
open new CFCs.
In addition, Ocado Retail has recognised GBP14.4m of net
exceptional costs before tax, including GBP6.8m exceptional costs
relating to the fire at Erith CFC and GBP6.2m relating to the
development and introduction of IT systems as we transition away
from Ocado Group IT services, tools and support. Exceptional items
in the prior period relate primarily to the Andover fire insurance
receipts.
As a result of lower EBITDA and net exceptional costs, Group
share of Ocado Retail profit after tax was GBP13.9m.
UK: Clothing & Home
Clothing & Home sales increased 3.8% as the continued growth
of the online business offset the decline in store sales due to
lower footfall. The online business remained robust throughout the
period.
Change vs 19/20 % Q1 Q2 Q3 Q4 FY
Clothing & Home sales -4.2 2.0 3.2 17.3 3.8
Clothing & Home stores
sales -21.2 -14.3 -10.9 5.6 -11.2
Clothing & Home online
sales 59.2 62.3 50.8 52.1 55.6
Clothing & Home statutory
revenue -4.6 1.4 2.4 16.0 3.1
Comparative figures in Q4 are impacted by the first Covid
national lockdown, which we estimated had a GBP78m adverse impact
on sales at the time, predominantly in stores. Adjusting for this,
Clothing & Home sales increased c.3.9% in Q4 and c.1.4% for the
full year.
Online
27 Mar 28 Mar Change vs
52 weeks ended 2 Apr 22 21 20 19/20 %
Traffic (m)(1) 405.7 417.5 308.8 31.4
Active customers (m)(2) 9.0 9.0 5.9 52.5
Conversion (%)(3) 7.0 7.2 6.3 +70 bps
Average order value inc VAT
pre returns (GBP) 55.4 49.7 51.5 7.6
Returns rate (%) 25.8 18.6 28.0 - 220 bps
Sales ex VAT GBPm 1,122.7 1,109.7 721.3 55.6
(1) Traffic: the number of site visits to M&S.com and the
app.
(2) Active customers: the number of unique customers who have
made a purchase in the prior 52 weeks.
(3) Conversion: the number of orders as a % of the number of
site visits.
Following growth in 2020/21, online sales remained robust, with
growth on both a one- and two-year basis for the full year, despite
elevated comparatives in Q4 2020/21 from the third national
lockdown. Online traffic through the app was up over 200% on
2019/20 following the relaunch of Sparks in July 2020, which has
helped to drive the increase in active customers. Increased app
usage has driven better conversion and, encouragingly, app
conversion for the full year remains consistent with H1 at over
9%.
As anticipated, as customer habits reverted to pre-pandemic
trends, returns rates have normalised towards 2019/20 levels
through the year. Average order value ("AOV") was ahead of 2019/20
levels driven by a full-price trading stance which increased
average selling price ("ASP"), along with the benefit of
third-party brands.
Stores
27 Mar 28 Mar Change vs
52 weeks ended 2 Apr 22 21 20 19/20 %
Footfall, m (average/week) 4.0 1.9 5.9 -32.2
Transactions, m (average/week) 1.7 1.0 2.1 -19.0
Average basket value inc VAT
pre returns (GBP) 34.9 30.6 32.3 8.0
Sales ex VAT GBPm 2,209.5 1,088.9 2,487.8 -11.2
UK Clothing & Home store sales decreased 11.2%: Average
weekly footfall was below 2019/20 levels in the period, with the
business continuing to be adversely impacted by the shape of the
store estate. Excluding March, sales in high streets and city
centres were down 22% and 26% respectively, while sales in retail
parks were up c.1% on 2019/20 levels.
Total Clothing & Home
The Clothing & Home business in total generated an operating
profit before adjusting items of GBP330.7m compared with GBP223.9m
in 2019/20.
2 Apr 22 27 Mar 28 Mar Change
GBPm 21 20 vs 19/20
52 weeks ended GBPm GBPm %
Revenue before adjusting
items 3,308.3 2,198.6 3,209.1 3.1
Sales 3,332.2 2,198.6 3,209.1 3.8
Operating profit/(loss) before
adjusting items 330.7 (129.4) 223.9 47.7
Operating margin 9.9% -5.9% 7.0% 290 bps
The table below sets out the drivers of the movement in Clothing
& Home operating profit before adjusting items over two
years.
Operating profit margin %
before adjusting items
2019/20 7.0
Gross margin 1.5
Store staffing 2.6
Other store costs 1.5
Distribution and warehousing (1.7)
Central costs (1.0)
2021/22 9.9
-- Gross margin increased c.150bps. The continuing benefit of
increased full-price trading and lower stock into sale more than
offset cost headwinds of adverse currency movements and additional
freight and warehousing costs.
-- Store staffing costs decreased c.260bps, primarily driven by
retail restructuring efficiencies enabled by technology
improvements in store and ongoing initiatives as well as lower
variable staffing costs from reduced volumes. These impacts more
than offset investment in colleague pay rates.
-- The decrease in other store costs of c.150bps largely relates
to government business rates relief of GBP35.2m, with lower
depreciation charges relating to legacy store modernisations offset
by increased maintenance costs in the store estate and reduced
rates rebates.
-- Distribution and warehousing increased c.170bps, largely
relating to the higher costs to serve online demand, including an
increased proportion of home deliveries, as well as increased pay
rates, haulage incentives and fuel inflation. Note the higher
courier costs of home deliveries were offset by delivery income,
which is reported within sales. These overall higher costs were
partly offset by savings from lower volumes and cost-reduction
programmes.
-- The increase in central costs of c.100bps was driven by
investments in technology, data and digital initiatives, colleague
incentives, additional costs to support brands, and higher
pay-per-click marketing activity to drive online growth. This was
partly offset by a reduction in the depreciation of technology
assets as they reach the end of their useful lives.
Clothing & Home online generated an adjusted operating
profit margin of c.9%, with the reversion towards 2019/20 returns
rates reducing margin year-on-year as anticipated, as well as
investments in data and digital initiatives to drive future growth.
The adjusted operating profit in stores represented a margin on
sales of c.10%, or approximately 9% after excluding the benefit of
rates relief.
International
International sales increased 1.7% at constant currency ("CC")
despite the continued impact of Covid on Asian markets, in
particular in India during Q1, and the disruption and complexity
arising from new EU border processes in Food supply chains,
predominantly in France and the Republic of Ireland. There was
solid growth in the Middle East and online sales continued to grow
on both a one- and two-year constant currency basis, with both our
own websites and marketplaces driving growth of 125.5% as we
retained customers acquired during the lockdowns in 2020/21.
Change vs 19/20 % Q1 Q2 Q3 Q4 FY FY
CC CC CC CC CC Reported
Total sales -6.1 -0.3 5.1 7.9 1.7 -0.8
2 Apr 27 Mar 28 Mar
52 weeks ended 22 21 20 Change Change
GBPm GBPm GBPm vs 19/20 vs 19/20
Sales(1) % CC %
Clothing & Home 654.2 483.2 620.7 5.4 9.1
Food 283.0 296.1 323.9 -12.6 -12.1
Total 937.2 779.3 944.6 -0.8 1.7
Memo: Online
sales 172.5 165.7 77.2 123.4 125.5
(1) 'Sales' is equal to revenue within the International
business.
Clothing & Home sales recovered to above 2019/20 levels,
driven by robust growth in online sales and exceptionally strong
shipments to the Middle East. India was heavily impacted in Q1 by
Covid (c.-61% vs 2019/20) and again in Q4 (c.-3% excluding March vs
2019/20), but overall retail sales in the market grew 6%. Trading
in the rest of Asia remained challenging. We saw a similar shape of
trade in European owned markets, with Clothing & Home in the
Republic of Ireland performing robustly.
Food sales declined due to disruption caused by EU
border-related processes in European markets. This has resulted in
significant cost and complexity in servicing the Republic of
Ireland and a restructuring of our Food operations in continental
Europe. Excluding France, Food sales were level with 2019/20.
Operating profit before adjusting items was down 33.5%, driven
principally by the additional costs of new EU border processes and
tariffs of GBP29.6m, and associated trade impacts such as lower
availability and higher waste, which we estimate reduced gross
profit by a further c.GBP15m.
The table below sets out the drivers of the movement in
International operating profit margin before adjusting items over
two years.
Operating profit margin %
before adjusting items
2019/20 11.7
Gross margin (0.1)
Store staffing 1.0
Other store costs 1.0
Distribution and warehousing (3.0)
Central costs (2.7)
2021/22 7.9
-- Gross margin declined c.10bps primarily as a result of additional tariffs and waste due to inefficiencies from EU border-related processes for serving the Republic of Ireland. This was partly offset by growth of the online business.
-- Store staffing costs decreased c.100bps primarily as a result
of efficiency savings from retail restructuring in the Republic of
Ireland.
-- The c.100bps movement in other store costs largely relates to
government relie f in owned markets and rent concessions in India,
which resulted in one-off savings in the period.
-- Distribution and warehousing increased c.300bps, reflecting
higher operational and administrative costs associated with EU
border-related processes, as well as higher costs to serve online
demand.
-- Central costs increased c.270bps, driven by higher marketing
spend associated with the growth of the online channel and
colleague incentives.
M&S Bank and Services
M&S Bank and Services profit before adjusting items was down
GBP3.8m to GBP13.0m . Adjusting items charges of GBP16.0m have been
incurred relating primarily to the insurance mis-selling provision,
resulting in a statutory loss of GBP(3.0)m.
Lower demand for unsecured credit and travel money is the
primary driver for the lower profits. This was largely offset by
the release of bad debt provisions, as economic conditions proved
more favourable than anticipated.
Net finance cost
52 weeks ended 2 Apr 27 Mar 28 Mar Change
22 21 20 vs 19/20
GBPm GBPm GBPm GBPm
Interest payable (85.1) (89.9) (80.5) (4.6)
Interest income 9.6 4.7 14.5 (4.9)
Net interest payable (75.5) (85.2) (66.0) (9.5)
Pension net finance income 13.2 47.2 23.6 (10.4)
Unwind of discount on Scottish
Limited Partnership liability (4.4) (4.9) (6.9) 2.5
Unwind of discount on provisions (3.8) (2.7) (4.9) 1.1
Net financial interest (70.5) (45.6) (54.2) (16.3)
Net interest payable on lease
liabilities (115.6) (122.5) (133.4) 17.8
Net finance costs before
adjusting items (186.1) (168.1) (187.6) 1.5
Adjusting items included in
net finance costs 5.6 (6.8) - 5.6
Net finance costs (180.5) (174.9) (187.6) 7.1
Net finance costs before adjusting items decreased GBP1.5m to
GBP186.1m. Lower pension income due to the reduced IAS 19 pension
surplus compared with 2019/20 and the reversal of ineffectiveness
on a currency swap within interest income in 2019/20 offset a
reduction in the net interest payable on lease liabilities.
Group profit before tax and adjusting items
Group profit before tax and adjusting items was GBP522.9m, up
29.7% on 2019/20. The profit increase was driven by adjusted
operating profit growth in Clothing & Home and Food and the
additional profit from the Ocado joint venture, offset by a
reduction in International and M&S Bank operating profits.
Group profit before tax
Group profit before tax was GBP391.7m, up GBP324.5m on 2019/20.
This includes net charges for adjusting items of GBP131.2m
(2019/20: GBP335.9m).
Adjusting items
The Group makes certain adjustments to statutory profit measures
in order to derive alternative performance measures (APMs) that
provide stakeholders with additional helpful information and to aid
comparability of the performance of the business. For further
detail on these charges/gains and the Group's policy for adjusting
items, please see notes 1 and 3 to the financial information.
52 weeks ended 53 weeks ended 52 weeks ended Change vs 19/20
2 Apr 22 3 Apr 21 28 Mar 20
GBPm GBPm GBPm GBPm
Strategic programmes - UK store estate (161.4) (95.3) (29.3) (132.1)
Strategic programmes - UK logistics 21.9 (2.2) (10.2) 32.1
Strategic programmes - Organisation 14.3 (133.7) (13.8) 28.1
Strategic programmes - International store closures
and impairments 0.4 (3.6) (17.1) 17.5
Store impairments, impairment reversals and other
property charges 60.0 6.9 (78.5) 138.5
Amortisation and fair value adjustments arising from
the investment in Ocado Retail Limited (32.5) (14.2) (16.8) (15.7)
Directly attributable to Covid 17.8 90.8 (163.6) 181.4
M&S Bank charges incurred in relation to insurance
mis-selling provisions (16.0) (2.4) (12.6) (3.4)
Franchise restructure (41.3) - - (41.3)
Intangible asset impairments - (79.9) (13.4) 13.4
Sparks loyalty programme transition - (16.6) - -
Establishing the investment in Ocado Retail Limited - (1.7) (1.2) 1.2
Remeasurement of contingent consideration including
discount unwind 5.6 (6.8) (2.9) 8.5
Other - (1.0) 23.5 (23.5)
Adjusting items (131.2) (259.7) (335.9) 204.7
Adjusting items net charges incurred in the period were
GBP131.2m.
UK store estate
A charge of GBP161.4m has been recognised in relation to store
closures identified as part of UK store estate rotation plans. The
charge reflects a revised view of latest store exits and underlying
assumptions around estimated store closure costs, as well as
charges relating to the impairment of buildings and fixtures and
fittings, and depreciation as a result of shortening the useful
economic life of stores. Further charges relating to the closure
and rotation of the UK store estate are anticipated as the
programme progresses, with total future charges of up to c.GBP200m
over the next nine financial years, bringing the anticipated total
programme costs since 2016 to c.GBP1bn. The anticipated total
programme costs do not include any costs that may arise in relation
to a further c.30 stores currently under consideration for closure
within the next nine years. At this stage these c.30 stores remain
commercially supportable and in the event of a decision to close
the store the exit routes are not yet certain.
Incurred up to Incurred in 52 weeks ended
3 Apr 21 GBPm 2 Apr 22 GBPm
P&L Cash P&L Cash
PPE and ROU asset impairments (452.2) n/a (81.0) n/a
Accelerated depreciation (175.3) n/a (50.7) n/a
Closed store rent, rates and onerous leases net of sublet income (23.1) (26.1) (16.4) (10.9)
Redundancy (9.9) (7.0) (2.4) (0.7)
Profit/(loss) or cash proceeds/(outflows) on disposal/surrender (3.8) 11.4 (3.7) (3.2)
Closure costs, strips, dilapidations 10.3 (39.7) (4.0) (11.0)
Other (3.6) (9.0) (3.2) (4.4)
Total (657.6) (70.4) (161.4) (30.2)(1)
(1) Cash outflows include rent, reported within cash lease
payments in the cash flow, and proceeds on disposal/surrender,
which is net off against capex in the cash flow. Therefore, these
cash outflows do not tie to UK store estate cash adjusting
items
Other adjusting items
A net credit of GBP21.9m has been recognised in the period
relating to UK logistics, reflecting in large part a gain on the
disposal of distribution centres.
A credit of GBP14.3m has been recognised in relation to
organisational change. This credit largely relates to an GBP11.9m
reversal of an impairment associated with the centralising of the
Group's London support office functions, with the remainder
reflecting the finalisation of previous redundancy costs associated
with this programme. No provision remains at the year end and there
are no further charges anticipated.
In response to the strong Group performance and lifting of
government restrictions, a credit of GBP63.4m has been incurred for
the reversal of store impairments recognised in adjusting items in
previous periods, partly offset by a GBP3.4m charge primarily
relating to the impairment of assets in certain stores.
A charge of GBP41.3m has been recognised relating to the
restructuring of certain International franchise operations. In
September 2021, the Group restructured our French operations after
an assessment of the profitability of the business under increased
EU border costs and tariffs, at a cost of GBP10.3m. In March 2022,
the Group made the decision to fully exit its Russian franchise. As
a result, the Group has recognised a charge of GBP31.0m
representing the Group's full exit costs from Russia and business
disruption in Ukraine.
A charge of GBP32.5m has been recognised with respect to the
amortisation of intangible assets acquired on the purchase of our
share in Ocado Retail and related deferred tax charges of GBP14.9m
predominantly relating to the substantive enactment of the Finance
Act 2021 during the period, which will increase the UK's main
corporation tax rate from 19% to 25% from 1 April 2023.
A gain of GBP17.8m has been recognised as being directly
attributable to the Covid pandemic. This relates mostly to the
release of the remaining inventory provision made in adjusting
items in 2019/20, driven by the sell-through of Clothing & Home
stock being greater than anticipated.
Charges of GBP16.0m have been incurred relating to M&S Bank,
primarily due to the insurance mis-selling provision. The total
charges recognised in adjusting items since September 2012 for PPI
is GBP326.3m, which exceeds the total offset against profit share
of GBP259.0m to date; this deficit will be deducted from the
Group's share of future profits from M&S Bank.
Taxation
The effective tax rate on profit before adjusting items was
18.2% (2019/20: 20.7%; 2020/21: 50.3% on a 53-week basis). As part
of cash-optimisation measures, no payments were made to the Marks
and Spencer Scottish Limited Partnership ("SLP") during the year.
As such, there has been no recapture of previous tax relief,
resulting in a lower effective tax rate than prior years.
As well as there being no recapture of previous tax relief under
the SLP structure in the period, future changes to the UK statutory
corporation tax rate result in deferred tax assets being recognised
at the higher substantively enacted rate of 25%. Restating these
deferred tax assets from a rate of 19% to 25% results in a tax
credit in the period, reducing the effective tax rate.
The effective tax rate on statutory profit before tax was 21.1%
(2019/20: 59.3%; 2020/21: 3.9% credit on a statutory loss on a
53-week basis), which was higher than the effective tax rate on
profit before adjusting items due to the impact of disallowable
adjusting items.
Next year, we anticipate an effective tax rate on profit before
adjusting items higher than the UK corporation tax rate of 19%,
principally due to the recapture of previous tax relief as payments
to the SLP resume.
Earnings/loss per share
Basic earnings per share was 15.7p (2019/20: 1.3p; 2020/21: loss
of 10.1p on a 53-week basis), due to the increase in profit
year-on-year. The weighted average number of shares in issue during
the period was 1,958.1m (2019/20: 1,894.9m ; 2020/21:
1,953.5m).
Adjusted basic earnings per share was 21.7p (2019/20: 16.7p;
2020/21:1.4p on a 53-week basis) due to higher adjusted profit
year-on-year.
Cash flow
52 weeks ended 53 weeks ended 52 weeks ended Change
2 Apr 22 3 Apr 21 28 Mar 20 vs 19/20
GBPm GBPm GBPm GBPm
Adjusted operating profit 709.0 222.2 590.7 118.3
Depreciation and amortisation before adjusting items 510.7 603.1 632.5 (121.8)
Cash lease payments (344.3) (316.6) (335.7) (8.6)
Working capital 239.7 268.1 (67.8) 307.5
Defined benefit scheme pension funding (36.8) (37.1) (37.9) 1.1
Capex and disposals (213.5) (203.8) (325.9) 112.4
Financial interest (79.9) (76.0) (79.5) (0.4)
Taxation (7.7) (5.8) (91.6) 83.9
Acquisitions, investments and divestments (41.4) 8.7 (580.3) 538.9
Employee-related share transactions 39.1 18.5 9.7 29.4
Proceeds from rights issue net of costs - - 574.4 (574.4)
Share of (profit)/loss from associate (13.9) (78.4) (2.6) (11.3)
Cash received from settlement of derivatives - 14.0 7.7 (7.7)
Adjusting items outflow (61.8) (120.5) (88.0) 26.2
Free cash flow 699.2 296.4 205.7 493.5
Dividends paid - - (191.1) 191.1
Free cash flow after shareholder returns 699.2 296.4 14.6 684.6
Opening net debt excluding lease liabilities (1,110.0) (1,388.6) (1,404.7) 294.7
Free cash flow after shareholder returns 699.2 296.4 14.6 684.6
Exchange and other non-cash movements excluding leases (9.3) (17.8) 1.5 (10.8)
Closing net debt excluding lease liabilities (420.1) (1,110.0) (1,388.6) 968.5
Opening net debt (3,515.9) (3,950.6) (3,981.5) 465.6
Free cash flow after shareholder returns 699.2 296.4 14.6 684.6
Decrease in lease obligations 216.0 184.3 201.4 14.6
New lease commitments and remeasurements (100.6) (48.3) (204.1) 103.5
Exchange and other non-cash movements 2.5 2.3 19.0 (16.5)
Closing net debt (2,698.8) (3,515.9) (3,950.6) 1,251.8
The business generated free cash flow of GBP699.2m, largely
driven by the recovery in EBITDA, working capital inflow and
reduced cash tax and capital expenditure.
Cash lease payments increased GBP8.6m partly as a result of
rental payments which were deferred from last year into this year
as part of cash conservation measures enacted at the start of the
pandemic. Cash lease payments relating to stores identified as part
of the UK store estate strategic programme which are probable for
closure totalled GBP54.8m.
For further detail on working capital movements, refer to the
section below.
Defined benefit scheme pension funding of GBP36.8m reflects the
SLP interest distribution to the pension scheme.
For capex and disposals, refer to the section below.
The reduction in tax payments of GBP83.9m is due to no UK
corporation tax being paid in the period. This is driven by the
utilisation of carried-forward tax losses from 2020/21.
Acquisitions, investments and divestments were driven
principally by the payment of GBP33.8m of contingent consideration
relating to the investment in Ocado Retail Ltd in the period. The
final contingent payment for Ocado Retail Ltd of c.GBP156m plus
interest will be paid in financial year 2024/25 if a specified
target level of earnings in the financial year ending November 2023
is achieved. Based on the latest five-year plan of Ocado Retail
Ltd, the performance target is expected to be met.
Other acquisitions and investments in the period include the
strategic investment in the fast-growing brand platform "The Sports
Edit", a minority stake and funding for "Nobody's Child" and a
cornerstone investment in True Capital Limited's seed-stage fund.
These investments were offset by income from the disposal of a
property investment company.
Employee-related share transactions cash inflows increased due
to a change in policy to no longer purchase shares for issue in
colleague incentive schemes, increased deferred colleague incentive
share scheme payments, and increased uptake of employee share
schemes during the pandemic.
Adjusting items cash outflow was GBP61.8m. This included
GBP16.5m relating to the UK store estate strategy, GBP16.0m
relating to the M&S Bank insurance mis-selling provisions,
GBP15.9m of organisational restructuring costs largely relating to
the Republic of Ireland, GBP9.4m largely relating to the
restructuring of our French operations, and GBP3.7m for the
restructuring of the UK Clothing & Home logistics network.
Working capital
The business generated GBP508m cash inflow from working capital
over the past two years.
Most of this was driven by payables, partly as a result of
changes to payment terms for Clothing & Home suppliers, in
addition to higher outstanding payments over year end as a result
of business growth.
As previously reported, receivables remain at a lower level than
pre-Covid, partly due to the adverse impact of the pandemic on our
Food franchise business.
Stock increased slightly over the period, driven primarily by
inventory build in the Food business as we approached the end of
March, as well as the timing of Clothing & Home intake over
year-end.
As part of our focus on deeper, strategic supplier
relationships, we are improving supplier payment terms in both
Clothing & Home and Food. In Clothing & Home, we anticipate
the benefits of longer supplier terms within these results to
partially reverse in the coming year.
Capital expenditure
52 weeks 53 weeks 52 weeks Change
ended ended ended vs 19/20
2 Apr 3 Apr 28 Mar GBPm
22 21 20
GBPm GBPm GBPm
UK store remodelling 50.1 27.0 60.3 (10.2)
New UK stores 49.9 14.9 33.3 16.6
International 18.2 6.7 15.7 2.5
Supply chain 28.6 25.2 39.2 (10.6)
IT and M&S.com 68.2 47.6 81.1 (12.9)
Property asset replacement 85.2 19.2 102.4 (17.2)
Acquisition of Jaeger brand - 6.3 - -
Capital expenditure before
property acquisitions and
disposals 300.2 146.9 332.0 (31.8)
Property acquisitions and
disposals (43.9) (0.3) (2.7) (41.2)
Capital expenditure 256.3 146.6 329.3 (73.0)
Movement in capital accruals (42.8) 57.2 (3.4) (39.4)
Capex and disposals as per
cash flow 213.5 203.8 325.9 (112.4)
Group capital expenditure before disposals decreased GBP31.8m to
GBP300.2m compared to 2019/20; however, it was up on 2020/21 as we
increased investment in the transformation.
UK store remodelling costs related principally to 22 full line
and food renewal stores, some of which have not yet opened, as well
as upgrades to Clothing & Home space.
Spend on new UK stores primarily related to eight new or
extended Simply Foods and seven new or extended full-line stores in
the current year, some of which have not yet opened.
Supply chain expenditure reflects the expansion of our Bradford
warehouse to support online growth in Clothing & Home, Food
equipment purchases, and investment in our Milton Keynes Food depot
to support capacity increases.
IT and M&S.com spend includes costs related to technology
replacement and upgrades in stores, the development of the Food
ordering and allocation system and buying portals, website
development and ongoing investment in digital capability in the
support centre and stores.
Property asset replacement normalised towards 2019/20 levels as
replacement of core assets across the estate, which had been
de-prioritised during 2020/21 due to cash conservation measures,
was re-prioritised. This includes roof works and replacement of
fridges, freezers, boilers, lifts and escalators.
Property acquisitions and disposals primarily relates to cash
inflows from the disposal of two warehouses in the third
quarter.
Capital accruals were higher at year-end compared to 2020/21 as
transformation spend increased in the second half. It should be
noted that 2020/21 capital expenditure cash flow included some
accrued spend relating to 2019/20.
Net debt
Group net debt decreased by GBP1.25bn compared to 2019/20,
driven by free cash flow generation, and by GBP0.8bn since the
start of the year.
There was a further reduction in the value of discounted lease
obligations outstanding since the start of the year. New lease
commitments and remeasurements in the period were GBP100.6m,
largely relating to 20 new UK leases, lease additions in India and
UK property and logistics liability remeasurements. This was more
than offset by GBP216.0m of capital lease repayments.
The composition of Group net debt is as follows:
52 weeks ended 53 weeks ended 52 weeks ended vs 19/20
2 Apr 22 3 Apr 21 28 Mar 20
GBPm GBPm GBPm GBPm
Cash and cash equivalents 1,197.9 674.4 254.2 943.7
Medium Term Notes (1,529.5) (1,682.1) (1,536.2) 6.7
Current financial assets and other 99.4 83.2 96.1 3.3
Partnership liability to the UK DB pension fund (187.9) (185.5) (202.7) 14.8
Net debt excluding lease liabilities (420.1) (1,110.0) (1,388.6) 968.5
Lease liabilities (2,278.7) (2,405.9) (2,562.0) 283.3
- Full-line stores (919.5) (982.6) (1,054.8) 135.3
- Simply Food stores (712.8) (727.0) (747.7) 34.9
- Offices, warehouses and other (449.5) (494.5) (523.7) 74.2
- International (196.9) (201.8) (235.8) 38.9
Group net debt (2,698.8) (3,515.9) (3,950.6) 1,251.8
Full-line store liabilities include GBP225.3m relating to stores
identified as part of the UK store estate strategic programme. We
are seeking to fund the closure costs of rotation of the store
estate with the realisation of funds from our asset management
programme.
Of the remaining full-line stores lease liability, the average
liability-weighted lease length is c.25 years, although the average
lease term to break is shorter at c.19 years. However, these
average lease lengths are skewed by five particularly long leases
we hold, with the longest of these having 135 years remaining .
These five leases, with a combined lease liability of c.GBP100m,
are not deemed probable for closure in our UK store estate
programme as they are currently trading well in locations we wish
to remain in. Excluding these five leases, the average lease term
to break is c.14 years.
Simply Food store liabilities include GBP30.9m relating to
stores identified as part of the UK store estate strategic
programme. Of the remaining lease liability, the average lease
length to break is c.10 years.
Within offices, warehouses and other, GBP144.9m relates to the
sublet lease on our Merchant Square offices. Average lease length
of all other offices and warehouses to break is c.7 years.
International leases relate primarily to India (c.GBP85m) and
Ireland (c.GBP66m). Average lease length to break in India is close
to nil, as most of these leases are past the break point, and so we
have the flexibility to exit these at any time on several months'
notice. Average lease length to break in Ireland is c.10 years.
Liquidity
At 2 April 2022, the Group held cash balances of GBP1,197.9m
(2019/20: GBP254.2m). In addition, during the year the Group agreed
a new GBP850m revolving credit facility expiring in June 2025 on
terms linked to delivery of its net zero roadmap. With the facility
undrawn, the Group now has liquidity headroom of GBP2.1bn. This
liquidity position is as a result of free cash flow
performance.
As part of our approach to liability management we have
announced a tender offer for c.GBP150m of our near-term debt
maturities.
Dividend
We did not pay a dividend for 2020/21, and the Board has decided
not to pay a dividend this year.
This is consistent with the announcement at the half-year
results that payment of a dividend this financial year would be
unlikely as we focus on restoring sustainable profitability and
recovering balance sheet metrics consistent with investment
grade.
Pension
At 2 April 2022, the IAS 19 net retirement benefit surplus was
GBP1,038.2m (2020/21: GBP631.4m). The increase was largely driven
by an increase in discount rates towards the end of the period.
The most recent actuarial valuation of the UK DB Pension Scheme
was carried out as at 31 March 2018 and showed a funding surplus of
GBP652m. This is an improvement on the previous position at 31
March 2015 (statutory surplus of GBP204m), primarily due to lower
assumed life expectancy. We continue to work constructively with
the Trustees of the UK DB Pension Scheme with regard to agreeing
the triennial actuarial valuation of the scheme as at 31 March
2021. Consequently, the results of the valuation are not yet
finalised, although it is likely that there will continue to be a
surplus.
With the pensioner buy-in policies purchased in September 2020,
April 2019 and March 2018, the scheme has now, in total, insured
around 80% of the pensioner cash flow liabilities for pensions in
payment. The buy-in policies cover specific pensioner liabilities
and pass all risks to an insurer in exchange for a fixed premium
payment, thus reducing the Group's exposure to changes in
longevity, interest rates, inflation and other factors.
Statement of financial position
Net assets were GBP2,917.9m at the period end, an increase of
27.7% since the start of the year largely due to free cash
generation.
Important Notice:
Statements made in this announcement that look forward in time
or that express management's beliefs, expectations or estimates
regarding future occurrences and prospects are "forward-looking
statements" within the meaning of the United States federal
securities laws. These forward-looking statements reflect Marks
& Spencer's current expectations concerning future events and
actual results may differ materially from current expectations or
historical results. Any forward-looking statements are subject to
various risks and uncertainties, including, but not limited to,
failure by Marks & Spencer to predict accurately customer
preferences; decline in the demand for products offered by Marks
& Spencer; competitive influences; changes in levels of store
traffic or consumer spending habits; effectiveness of Marks &
Spencer's brand awareness and marketing programmes; general
economic conditions including, but not limited to, those related to
the Covid-19 pandemic or a downturn in the retail or financial
services industries; acts of war or terrorism worldwide; work
stoppages, slowdowns or strikes; and changes in financial and
equity markets. For further information regarding risks to Marks
& Spencer's business, please consult the risk management
section of the 2022 Annual Report (pages 45-54).
The forward-looking statements contained in this document speak
only as of the date of this announcement, and Marks & Spencer
does not undertake to update any forward-looking statement to
reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
- Ends -
Consolidated income statement
52 weeks 53 weeks
ended ended
2 April 3 April
2022 2021
Total Total
Notes GBPm GBPm
2,
Revenue 3 10,885.1 9,155.7
2,
Share of result in associate - Ocado 3,
Retail Limited 17 (18.6) 64.2
2,
Operating profit/(loss) 3 572.2 (30.7)
3,
Finance income 4 33.9 57.4
3,
Finance costs 4 (214.4) (236.1)
Profit/(loss) before
tax 3 391.7 (209.4)
Income tax (expense)/credit 5 (82.7) 8.2
Profit/(loss) for the
year 309.0 (201.2)
Attributable to:
Owners of the parent 306.6 (198.0)
Non-controlling interests 2.4 (3.2)
309.0 (201.2)
Earnings/(loss) per
share
Basic earnings/(loss) 15.7
per share 6 p (10.1p)
Diluted earnings/(loss)
per share 6 15.1p (10.1p)
Reconciliation of profit before tax
and adjusting items:
Profit/(loss) before
tax 391.7 (209.4)
Adjusting items 3 131.2 259.7
Profit before tax and adjusting items
- non-GAAP measure 522.9 50.3
Adjusted earnings per share - non-GAAP
measure
Adjusted basic earnings
per share 6 21.7p 1.4p
Adjusted diluted earnings
per share 6 20.9p 1.4p
Consolidated statement of comprehensive income
52 weeks ended 53 weeks ended
2 April 2022 3 April 2021
Notes GBPm GBPm
Profit/(loss) for the year 309.0 (201.2)
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss
Remeasurements of retirement benefit schemes 8 357.0 (1,352.0)
Tax (charge)/credit on retirement benefit schemes (127.6) 256.5
Loss on disposal of investment held at fair value through other comprehensive income ("FVOCI") (3.7) -
225.7 (1,095.5)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences
- movements recognised in other comprehensive income (13.5) (27.7)
- reclassified and reported in profit or loss (0.5) 3.7
Cash flow hedges
- fair value movements recognised in other comprehensive income 91.3 (215.5)
- reclassified and reported in profit or loss (10.5) 26.5
Tax (charge)/credit on cash flow hedges (14.7) 37.0
52.1 (176.0)
Other comprehensive income/(expense) for the year, net of tax 277.8 (1,271.5)
Total comprehensive income/(expense) for the year 586.8 (1,472.7)
Attributable to:
Owners of the parent 584.4 (1,469.5)
Non-controlling interests 2.4 (3.2)
586.8 (1,472.7)
Consolidated statement of financial position
As at As at
2 April 2022 3 April 2021
Notes GBPm GBPm
Assets
Non-current assets
Intangible assets 10 192.5 232.0
Property, plant and equipment 11 4,902.3 5,058.6
Investment property 15.0 15.2
Investments in joint ventures and associates 17 810.9 825.8
Other financial assets 4.5 9.7
Retirement benefit asset 8 1,043.9 639.2
Trade and other receivables 270.6 261.4
Derivative financial instruments 21.4 0.3
7,261.1 7,042.2
Current assets
Inventories 3 706.1 624.6
Other financial assets 17.6 18.4
Trade and other receivables 217.1 209.6
Derivative financial instruments 43.6 32.8
Current tax assets - 35.4
Cash and cash equivalents 1,197.9 674.4
2,182.3 1,595.2
Total assets 9,443.4 8,637.4
Liabilities
Current liabilities
Trade and other payables 1,960.9 1,599.0
Partnership liability to the Marks & Spencer UK Pension Scheme 9 71.9 124.9
Borrowings and other financial liabilities 247.2 432.8
Derivative financial instruments 3.2 96.0
Provisions 53.6 43.1
Current tax liabilities 34.0 -
2,370.8 2,295.8
Non-current liabilities
Retirement benefit deficit 8 5.7 7.8
Trade and other payables 188.2 192.3
Partnership liability to the Marks & Spencer UK Pension Scheme 9 120.4 68.6
Borrowings and other financial liabilities 3,561.0 3,659.9
Derivative financial instruments 0.4 10.7
Provisions 91.8 74.2
Deferred tax liabilities 187.2 42.3
4,154.7 4,055.8
Total liabilities 6,525.5 6,351.6
Net assets 2,917.9 2,285.8
Equity
Issued share capital 19.7 489.2
Share premium account 910.6 910.4
Capital redemption reserve 2,680.4 2,210.5
Hedging reserve 17.6 (54.8)
Cost of hedging reserve 3.6 4.6
Other reserve (6,542.2) (6,542.2)
Foreign exchange reserve (73.9) (59.9)
Retained earnings 5,897.9 5,325.2
Equity attributable to owners of the parent 2,913.7 2,283.0
Non-controlling interests 4.2 2.8
Total equity 2,917.9 2,285.8
Consolidated statement of changes in equity
Ordinary Share Capital Cost Foreign
share premium redemption Hedging of Other exchange Retained Non-controlling
capital account reserve reserve hedging reserve(1) reserve earnings(2) Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 29 March
2020 487.6 910.4 2,210.5 68.6 5.7 (6,542.2) (35.9) 6,597.8 3,702.5 6.0 3,708.5
Loss for the
year - - - - - - - (198.0) (198.0) (3.2) (201.2)
Other comprehensive (expense)/income:
Foreign currency
translation
- movements
recognised in
other
comprehensive
income - - - - - - (27.7) - (27.7) - (27.7)
- reclassified
and reported
in profit or
loss - - - - - - 3.7 - 3.7 - 3.7
Remeasurements
of retirement
benefit schemes - - - - - - - (1,352.0) (1,352.0) - (1,352.0)
Tax credit on
retirement
benefit
schemes - - - - - - - 256.5 256.5 - 256.5
Cash flow hedges
- fair value
movement in
other
comprehensive
income - - - (214.2) (1.3) - - - (215.5) - (215.5)
- reclassified
and reported
in profit or
loss - - - 26.5 - - - - 26.5 - 26.5
Tax on cash
flow hedges - - - 36.8 0.2 - - - 37.0 - 37.0
Other
comprehensive
(expense)/income - - - (150.9) (1.1) - (24.0) (1,095.5) (1,271.5) - (1,271.5)
Total
comprehensive
(expense)/income - - - (150.9) (1.1) - (24.0) (1,293.5) (1,469.5) (3.2) (1,472.7)
Cash flow hedges
recognised in
inventories - - - 33.9 - - - - 33.9 - 33.9
Tax on cash
flow hedges
recognised in
inventories - - - (6.4) - - - - (6.4) - (6.4)
Transactions
with owners:
Shares issued
in respect of
employee share
options 1.6 - - - - - - (1.6) - - -
Purchase of
own shares held
by employee
trusts - - - - - - - (0.8) (0.8) - (0.8)
Credit for
share-based
payments - - - - - - - 19.3 19.3 - 19.3
Deferred tax
on share schemes - - - - - - - 4.0 4.0 - 4.0
As at 3 April
2021 489.2 910.4 2,210.5 (54.8) 4.6 (6,542.2) (59.9) 5,325.2 2,283.0 2.8 2,285.8
As at 4 April
2021 489.2 910.4 2,210.5 (54.8) 4.6 (6,542.2) (59.9) 5,325.2 2,283.0 2.8 2,285.8
Profit for the
year - - - - - - - 306.6 306.6 2.4 309.0
Other comprehensive income/(expense):
Foreign currency
translation
- movements
recognised in
other
comprehensive
income - - - - - - (13.5) - (13.5) - (13.5)
- reclassified
and reported
in profit or
loss - - - - - - (0.5) - (0.5) - (0.5)
Remeasurements
of retirement
benefit schemes - - - - - - - 357.0 357.0 - 357.0
Tax charge on
retirement
benefit
schemes - - - - - - - (127.6) (127.6) - (127.6)
Loss on disposal
of investments
held at FVOCI - - - - - - - (3.7) (3.7) - (3.7)
Cash flow hedges
- fair value
movement in
other
comprehensive
income - - - 92.1 (0.8) - - - 91.3 - 91.3
- reclassified
and reported
in profit or
loss - - - (10.5) - - - - (10.5) - (10.5)
Tax on cash
flow hedges - - - (14.5) (0.2) - - - (14.7) - (14.7)
Other
comprehensive
income/(expense) - - - 67.1 (1.0) - (14.0) 225.7 277.8 - 277.8
Total
comprehensive
income/(expense) - - - 67.1 (1.0) - (14.0) 532.3 584.4 2.4 586.8
Cash flow hedges
recognised in
inventories - - - 6.5 - - - - 6.5 - 6.5
Tax on cash
flow hedges
recognised in
inventories - - - (1.2) - - - - (1.2) - (1.2)
Transactions
with owners:
Transactions
with
non-controlling
shareholders - - - - - - - (1.7) (1.7) (1.0) (2.7)
Shares issued
in respect of
employee share
options 0.4 0.2 - - - - - (0.3) 0.3 - 0.3
Buy back and
cancellation
of own shares(3) (469.9) - 469.9 - - - - - - - -
Credit for
share-based
payments - - - - - - - 38.8 38.8 - 38.8
Deferred tax
on share schemes - - - - - - - 3.6 3.6 - 3.6
As at 2 April
2022 19.7 910.6 2,680.4 17.6 3.6 (6,542.2) (73.9) 5,897.9 2,913.7 4.2 2,917.9
(1) The "other reserve" was originally created as part of the
capital restructuring that took place in 2002. It represents the
difference between the nominal value of the shares issued prior to
the capital reduction by the Company (being the carrying value of
the investment in Marks and Spencer plc) and the share capital,
share premium and capital redemption reserve of Marks and Spencer
plc at the date of the transaction.
(2) Included within retained earnings is the fair value through
other comprehensive income reserve.
(3) On 8 July 2021, the Company reduced the nominal value of its
1,957,779,626 ordinary shares in issue at that date from GBP0.25 to
GBP0.01. The reduction was completed by subdividing each GBP0.25
ordinary share in issue into one ordinary share of GBP0.01 and one
deferred share of GBP0.24. All deferred shares were then bought
back for total aggregate consideration of GBP0.01 and cancelled.
The Company's issued share capital remains unchanged and each
shareholder's proportionate interest in the share capital of the
Company remains unchanged. Aside from the change in nominal value,
the rights attaching to the ordinary shares (including voting and
dividend rights and rights on a return of capital) remain
unchanged.
Consolidated statement of cash flows
52 weeks ended 53 weeks ended
2 April 2022 3 April 2021
Notes GBPm GBPm
Cash flows from operating activities
Cash generated from operations 14 1,385.7 876.7
Income tax paid (7.7) (5.8)
Net cash inflow from operating activities 1,378.0 870.9
Cash flows from investing activities
Proceeds on property disposals 43.9 2.9
Purchase of property, plant and equipment (192.8) (158.9)
Purchase of intangible assets (64.6) (47.8)
Sale/(purchase) of current financial assets 0.8 (6.7)
Purchase of non-current financial assets (3.3) -
Proceeds on disposal of non-current financial assets 5.2 -
Purchase of investments in associates and joint ventures(1) 17 (37.8) 8.7
Acquisition of subsidiary, net of cash acquired(2) (4.5) -
Loans to related parties (1.0) -
Interest received 8.4 9.2
Net cash used in investing activities (245.7) (192.6)
Cash flows from financing activities
Interest paid(3) (216.6) (219.3)
Issuance of Medium Term Notes - 300.0
Redemption of Medium Term Notes (163.6) (136.4)
Repayment of lease liabilities (216.0) (184.3)
Payment of liability to the Marks & Spencer UK Pension Scheme - (17.2)
Shares issued on exercise of employee share options 0.3 -
Purchase of own shares by employee trust - (0.8)
Cash received from settlement of derivatives - 14.0
Net cash used in financing activities (595.9) (244.0)
Net cash inflow from activities 536.4 434.3
Effects of exchange rate changes (8.2) (3.3)
Opening net cash 669.7 238.7
Closing net cash 15 1,197.9 669.7
(1) Current year includes GBP33.8m outflow in relation to contingent consideration settled
with Ocado Retail Limited and GBP4.0m outflow on the acquisition of 27% of the issued share
capital of Nobody's Child Limited. Last year includes inflow of GBP11.2m upon finalisation
of the completion statement in relation to the investment in Ocado Retail Limited and outflow
of GBP2.5m in relation to Founders Factory Retail Limited.
(2) GBP4.5m 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 GBPnil (last year: GBP6.4m) and interest paid on lease liabilities of GBP128.3m
(last year: GBP132.3m).
1 Accounting Policies
General information
The financial information set out in the announcement does not
constitute the company's statutory accounts for the years ended 2
April 2022 or 3 April 2021. The financial information for the year
ended 3 April 2021 is derived from the statutory accounts for that
year which have been delivered to the Registrar of Companies. The
auditors reported on those accounts: their report was unqualified,
did not draw attention to any matters by way of emphasis and did
not contain a statement under s498(2) or (3) of the Companies Act
2006. The statutory accounts for the year ended 2 April 2022 will
be delivered to the Registrar of Companies following the company's
annual general meeting.
Basis of preparation
Whilst the financial information included in this press release
has been prepared in accordance with the recognition and
measurement criteria of UK-adopted International Accounting
Standards, this announcement does not itself contain sufficient
information to comply with these standards. The financial
information has been prepared using accounting policies and methods
of computation consistent with those applied in the financial
statements for the year ended 3 April 2021, with the exception of
the change in accounting policy and new accounting standards
adopted in the year set out below. The Company's full financial
statements will be prepared in compliance with UK-adopted
International Accounting Standards.
Going concern basis
The financial statements have been prepared on a going concern
basis. In adopting the going concern basis, the directors have
considered the business activities, the financial position of the
Group, its cash flows, liquidity position and borrowing facilities,
the Group's financial risk management objectives and exposures to
liquidity and other financial risks as set out in note 12 and the
principal risks and uncertainties.
The Group continues to maintain a robust financial position
providing it with sufficient access to liquidity, through a
combination of cash and committed facilities, to meet its needs in
the short and medium term. At 2 April 2022, the Group had further
strengthened its available liquidity over the year to GBP2,072.9m
(last year: GBP1,799.4m), comprising cash and cash equivalents of
GBP1,197.9m, an undrawn committed syndicated bank revolving credit
facility ("RCF") of GBP850.0m (set to mature in June 2025), and
undrawn uncommitted facilities amounting to GBP25.0m. The Group's
net debt at 2 April 2022 was GBP2,698.8m, a reduction of GBP817.1m
since 3 April 2021, primarily driven by strong free cash flow
generation.
The Group successfully renegotiated its RCF in December 2021,
which is set to run until June 2025, and replaces the facility
which was due to mature in April 2023. The new facility contains a
financial covenant, being the ratio of earnings before interest,
tax, depreciation and amortisation; to net interest and
depreciation on right-of-use assets under IFRS 16. The covenant is
measured semi-annually.
In adopting the going concern basis of preparation, the Board
has assessed the Group's cash flow forecasts which incorporate a
latest estimate of the ongoing impact of current market conditions
on the Group and include a number of assumptions including sales
growth and customer behaviour. While trading continues to be
strong, in forming their outlook on the future financial
performance, the Board considered a variety of downsides that the
Group might experience, such as a sustained economic recession,
increased costs and an inability for the Group to execute the
transformation plan.
Under these latest forecasts, the Group is able to operate
without the need to draw on its available facilities and without
taking any supplementary mitigating actions, such as reducing
capital expenditure and other discretionary spend. The forecast
cash flows also indicate that the Group will comply with all
relevant banking covenants during the forecast period, being at
least 12 months from the approval of the financial statements.
The Board has also modelled a more severe, but plausible,
downside scenario. This downside scenario assumes that:
-- There will be a period of economic recession in the UK in
2022/23 and 2023/24 (following the impacts of the Covid-19
pandemic, the unfolding humanitarian crisis following the invasion
of Ukraine and the subsequent sharp increases in the cost of
living), resulting in a decline in sales of 4.0% per annum, across
all three business units.
-- Utilities, fuel and other costs increasing by over GBP50m across 2022/23 and 2023/24.
-- A delay on transformation benefits results in incremental
sales expected from the transformation declining by 10%, 20% and
40% respectively across the three-year period across both Food and
Clothing & Home business units.
Even under this severe but plausible downside scenario, the
Group would continue to have sufficient liquidity and headroom on
its existing facilities and against the RCF financial covenant for
the forecast period. Although, should such a scenario arise, there
are a range of mitigating actions that could be taken to reduce the
impact. Given current trading and expectations for the business,
the Board considers that this downside scenario reflects a
plausible, but remote, outcome for the Group.
In addition, reverse stress testing has been applied to the
model, which represents a significant decline in sales compared to
the downside scenario. Such a scenario, and the sequence of events
which could lead to it, is considered to be remote.
As a result, the Board expects the Group to have adequate
resources to continue in operation, meet its liabilities as they
fall due, retain sufficient available cash and not breach the
covenant under the revolving credit facility for the foreseeable
future, being a period of at least 12 months from the approval of
the financial statements. The Board therefore considers it
appropriate for the Group to adopt the going concern basis in
preparing its financial statements.
New accounting standards adopted by the Group
The Group has applied the following new standards and
interpretations for the first time for the annual reporting period
commencing 4 April 2021:
-- Amendments to IFRS 16: Covid-19-Related Rent Concessions beyond 30 June 2021.
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform Phase 2.
The adoption of the standards and interpretations listed above
has not led to any changes to the Group's accounting policies or
had any other material impact on the financial position or
performance of the Group.
New accounting standards in issue but not yet effective
New standards and interpretations that are in issue but not yet
effective are listed below:
-- Amendments to IAS 16: Property, Plant and Equipment - Proceeds before Intended Use
-- Amendments to IFRS 3: Reference to the Conceptual Framework
-- Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a Contract
-- Annual Improvements to IFRS Standards 2018-2020 Cycle:
Amendments to IFRS 1 First-time Adoption of International Financial
Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases
and IAS 41 Agriculture
-- IFRS 17 Insurance Contracts
-- Amendments to IAS 1: Classification of Liabilities as Current or Non-Current
-- Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies
-- Amendments to IAS 8: Definition of Accounting Estimates
-- Amendments to IAS 12: Deferred Tax Related to Assets and
Liabilities arising from a Single Transaction
-- Amendments to IFRS 10 and IAS 28: Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture
The adoption of the above standards and interpretations is not
expected to lead to any changes to the Group's accounting policies
or have any other material impact on the financial position or
performance of the Group.
Alternative performance measures
In reporting financial information, the Group presents
alternative performance measures ("APMs"), which are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for, or superior to, IFRS measures, provide
stakeholders with additional helpful information on the performance
of the business. These APMs are consistent with how the business
performance is planned and reported within the internal management
reporting to the Board and Executive Committee. Some of these
measures are also used for the purpose of setting remuneration
targets.
The key APMs that the Group uses include: sales; like-for-like
revenue growth; operating profit before adjusting items; profit
before tax and adjusting items; adjusted basic earnings per share;
net debt; net debt excluding lease liabilities; free cash flow; and
return on capital employed. Each of these APMs, and others used by
the Group, are set out in the Glossary including explanations of
how they are calculated and how they can be reconciled to a
statutory measure where relevant.
The Group reports some financial measures, primarily
International sales, on both a reported and constant currency
basis. The constant currency basis, which is an APM, retranslates
the previous year revenues at the average actual periodic exchange
rates used in the current financial year. This measure is presented
as a means of eliminating the effects of exchange rate fluctuations
on the year-on-year reported results.
The Group makes certain adjustments to the statutory profit
measures in order to derive many of these APMs. The Group's policy
is to exclude items that are considered significant in nature
and/or quantum to the financial statement line item or applicable
disclosure note or are consistent with items that were treated as
adjusting in prior periods. The Group's definition of adjusting
items is consistent with prior periods. Adjusted results are
consistent with how business performance is measured internally and
presented to aid comparability of performance. On this basis, the
following items were included within adjusting items for the
52-week period ended 2 April 2022:
-- Net charges associated with the strategic programme in
relation to the review of the UK store estate.
-- Significant restructuring costs and other associated costs
arising from strategy or operational changes that are not
considered by the Group to be part of the normal operating costs of
the business.
-- Impairment charges and provisions that are considered to be
significant in nature and/or value to the trading performance of
the business.
-- Charges and reversals of previous impairments arising from
the write-off of assets and other property charges that are
significant in nature and/or value. Impairment charges are
recognised in operating profit before adjusting items where they
relate to stores not previously impaired .
-- Adjustments to income from M&S Bank due to a provision
recognised by M&S Bank for the cost of providing redress to
customers in respect of possible mis-selling of M&S Bank
financial products.
-- Amortisation of the identified intangible assets arising as
part of the investment in Ocado Retail Limited.
-- Remeasurement of contingent consideration including discount unwind.
-- Directly attributable gains and expenses resulting from the Covid-19 pandemic.
Refer to note 3 for a summary of the adjusting items.
2 Segmental Information
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal reporting on components of the
Group that are regularly reviewed by the chief operating
decision-maker to allocate resources to the segments and to assess
their performance.
The chief operating decision-maker has been identified as the
Executive Committee. The Executive Committee reviews the Group's
internal reporting in order to assess performance and allocate
resources across each operating segment.
The Group's reportable operating segments have therefore been
identified as follows:
-- UK Clothing & Home - comprises the retailing of
womenswear, menswear, lingerie, kidswear and home products through
UK retail stores and online.
-- UK Food - includes the results of the UK retail food business
and UK Food franchise operations, with the following five main
categories: protein deli and dairy; produce; ambient and in-store
bakery; meals, dessert and frozen; and hospitality and 'Food on the
Move'; and direct sales to Ocado Retail Limited.
-- International - consists of Marks and Spencer owned
businesses in Europe and Asia and the international franchise
operations.
-- Ocado - includes the Group's share of profits or losses from
the investment in Ocado Retail Limited.
Other business activities and operating segments, including
M&S Bank and M&S Energy, are combined and presented in "all
other segments". Finance income and costs are not allocated to
segments as each is managed on a centralised basis.
The Executive Committee assesses the performance of the
operating segments based on a measure of operating profit before
adjusting items. This measurement basis excludes the effects of
adjusting items from the operating segments.
The following is an analysis of the Group's revenue and results
by reportable segment:
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
UK UK Food International Ocado All Group UK UK Food International Ocado All Group
Clothing other Clothing other
& Home segments & Home segments
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Sales before
adjusting items(1) 3,332.2 6,639.6 937.2 - - 10,909.0 2,239.0 6,138.5 789.4 - - 9,166.9
Revenue before
adjusting items(2) 3,308.3 6,639.6 937.2 - - 10,885.1 2,239.0 6,138.5 789.4 - - 9,166.9
Operating
profit/(loss)
before adjusting
items(3) 330.7 277.8 73.6 13.9 13.0 709.0 (130.8) 228.6 44.1 78.4 1.9 222.2
Finance income
before adjusting
items 28.3 57.4
Finance costs before
adjusting items (214.4) (229.3)
Profit/(loss) before
tax and adjusting
items 330.7 277.8 73.6 13.9 13.0 522.9 (130.8) 228.6 44.1 78.4 1.9 50.3
Adjusting items (131.2) (259.7)
Profit/(loss) before
tax 330.7 277.8 73.6 13.9 13.0 391.7 (130.8) 228.6 44.1 78.4 1.9 (209.4)
(1) Sales before adjusting items is revenue before adjusting items stated prior to adjustments
for UK Clothing & Home brand consignment sales of GBP23.9m.
(2) Revenue is stated prior to adjusting items of GBPnil (last full year: GBP11.2m) (see
note 3).
(3) Operating profit/(loss) before adjusting items is stated as gross profit less operating
costs prior to adjusting items. Reportable segment level costs are allocated where directly
attributable or based on an appropriate cost driver for the cost.
Other segmental information
52 weeks ended 2 April 2022 53 weeks ended 3 April 2021
UK UK Food International Ocado All Group UK UK Food International Ocado All Group
Clothing other Clothing other
& Home segments & Home segments
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Additions to
property, plant and
equipment, and
intangible assets
(excluding goodwill
and
right-of-use
assets) 139.2 163.7 18.5 - - 321.4 50.5 105.0 6.8 - - 162.3
Depreciation and
amortisation(1,2) (268.1) (248.8) (35.0) - - (551.9) (312.3) (259.4) (25.1) - - (596.8)
Impairment charges,
impairment
reversals and asset
write-offs(1) (37.2) 10.7 (8.0) - - (34.5) (155.1) (34.9) (4.7) - - (194.7)
(1) These costs are allocated to a reportable segment where they are directly attributable.
Where costs are not directly attributable, a proportional allocation is made to each segment
based on an appropriate cost driver.
(2) Includes GBP0.2m (last year: GBP0.3m) depreciation charged on investment property.
Segment assets and liabilities, including investments in associates and joint ventures, are
not disclosed because they are not reported to or reviewed by the Executive Committee.
3 Adjusting items
The total adjusting items reported for the 52-week period ended
2 April 2022 is a net charge of GBP131.2m (last year: GBP259.7m).
The adjustments made to reported profit before tax to arrive at
adjusted profit are:
2022 2021
Notes GBPm GBPm
Included in revenue
Sparks loyalty programme transition - (11.2)
- (11.2)
Included in operating profit
Strategic programmes - UK store estate 11 (161.4) (95.3)
Strategic programmes - UK logistics 11 21.9 (2.2)
Strategic programmes - Organisation 11 14.3 (133.7)
Strategic programmes - International store
closures and impairments 0.4 (3.6)
Store impairments, impairment reversals and
other property charges 11 60.0 6.9
Amortisation and fair value adjustments arising
as part of the investment in Ocado Retail
Limited 17 (32.5) (14.2)
Directly attributable gains resulting from
the Covid-19 pandemic 17.8 90.8
M&S Bank charges incurred in relation to
insurance mis-selling provisions (16.0) (2.4)
Franchise restructure (41.3) -
Intangible asset impairments 10 - (79.9)
Sparks loyalty programme transition - (5.4)
Establishing the investment in Ocado Retail
Limited - (1.7)
GMP and other pension equalisation 8 - (1.0)
(136.8) (241.7)
Included in net finance costs
Remeasurement of contingent consideration
including discount unwind 5.6 (6.8)
5.6 (6.8)
Adjustments to profit before tax (131.2) (259.7)
Strategic programmes - UK store estate ( GBP161.4m )
In November 2016, the Group announced a strategic programme to
transform the UK store estate with the overall objective to improve
our store estate to better meet our customers' needs. The Group
incurred charges of GBP657.6m up to April 2021 under this programme
primarily relating to closure costs associated with stores
identified as part of the strategic transformation plans.
During 2020/21, the Group experienced a significant channel
shift from stores to online due to the pandemic, accelerating the
Group's ambition to achieve a Clothing & Home online sales mix
of at least 40% over the next three years. This acceleration in
channel shift required the Group to revise the UK store estate
strategic programme to ensure the estate continued to meet
customers' needs.
The Group has recognised a charge of GBP161.4m in the period in
relation to those stores identified as part of the rotation plans.
The charge primarily reflects a revised view of latest store
closure plans and assumptions for estimated store closure costs, as
well as charges relating to the impairment of buildings and
fixtures and fittings, and depreciation as a result of shortening
the useful economic life of stores based on the latest approved
exit routes.
Further charges relating to the closure and rotation of the UK
store estate are anticipated over the next nine years as the
programme progresses, the quantum of which is subject to change
throughout the programme period as we get greater certainty of
circumstances that need to be in place to make closure financially
viable. Future charges will not include Foodhall closures at lease
event where there is opportunity for a better location , as this is
not in the scope of the programme .
Following the latest review at 2 April 2022, the total closure
programme now consists of 204 stores, 100 of which have already
closed. Further charges of c.GBP200m are estimated within the next
nine financial years, bringing anticipated total programme costs
since 2016 to c.GBP1bn, vs c.GBP926m last year. In addition, where
store exit routes in the next nine years lead to the recognition of
gains on exit, particularly those relating to asset management,
these credits will also be recognised within adjusting items as
part of the programme.
These costs are reported as adjusting items on the basis that
they are significant in quantum, relate to a strategic initiative
focused on reviewing our store estate and to aid comparability from
one period to the next.
The anticipated total programme costs do not include any costs
that may arise in relation to a further c.30 stores currently under
consideration for closure within the next nine years. At this stage
these c.30 stores remain commercially supportable and in the event
of a decision to close the store the exit routes are not yet
certain.
Strategic programmes - UK logistics (GBP21.9m credit)
In 2017/18, as part of the previously announced long-term
strategic programme to transition to a single-tier UK distribution
network, the Group announced the opening of a new Clothing &
Home distribution centre in Welham Green. As a direct result, the
Group announced the closure of two existing distribution
centres.
In February 2020, the next phase of the single-tier programme
was announced with the closure of two further distribution centres
across 2020/21 and 2021/22. A net credit of GBP21.9m has been
recognised in the period, reflecting the gain on disposal of
distributions centres and an updated view of estimated closure
costs. Total programme costs to date are GBP17.9m with further net
charges of GBP43.3m expected over the next three financial
years.
These net credits are reported as adjusting items on the basis
that they are significant in quantum, relate to a strategic
initiative focused on reviewing our UK logistics network and to aid
comparability from one period to the next.
Strategic programmes - Organisation (GBP14.3m credit)
During 2020/21, the Group announced a commitment to integrate
more flexible management structures into store operations as well
as streamline the business at store and management level in the UK
and Republic of Ireland as part of the 'Never the Same Again'
transformation. The changes resulted in a reduction of c.8,200
roles across central support centres, regional management and
stores. A credit of GBP2.4m has been recognised in the period based
on the finalisation of redundancy costs associated with these
changes. No provision remains at the year end and there are no
further charges anticipated.
During 2016/17, the Group announced a wide-ranging strategic
review across a number of areas of the business which included UK
organisation and the programme to centralise our London Head Office
functions into one building. In previous years, an impairment
charge of GBP11.9m was recognised in relation to the sublet of
previously closed offices. In the period, this impairment charge
has been fully reversed with a credit of GBP11.9m recognised. This
relates to the updating of assumptions and market fluctuations over
the life of the sub-let of previously closed offices. Total costs
of centralising our London Head Office functions into one building
incurred to date are c.GBP86m. Any future charges will relate to
the updating of assumptions and market fluctuations over the life
of the sublet lease.
These credits are reported as adjusting items on the basis that
they are consistent with the disclosure of costs previously
recognised.
Strategic programmes - International store closures and
impairments (GBP0.4m credit)
In 2016/17, the Group announced its intention to close owned
stores in 10 international markets. A credit of GBP0.4m (last year:
charge of GBP3.6m) has been recognised in the year, reflecting an
updated view of the estimated final closure costs for certain
markets and those costs which can only be recognised as incurred,
taking the programme net cost to date to GBP148.2m.
The net credit is considered to be an adjusting item as it is
part of a strategic programme which, over the six years of net
charges, has been significant in both quantum and nature to the
results of the Group. No further significant charges are
expected.
Directly attributable gains resulting from the Covid-19 pandemic
(GBP17.8m credit)
In March 2020, following the onset of the Covid-19 global
pandemic and subsequent UK government restrictions, the Group
sustained significant disruption to its operations. In response to
the uncertainty resulting from the pandemic, coupled with the
fast-paced changes taking place across the retail sector, the Board
approved a Covid-19 scenario to reflect management's best estimate
of the significant volatility and business disruption expected as a
result of the ongoing pandemic.
The pandemic continued to impact the Group throughout 2020/21
and it became increasingly more difficult to differentiate Covid-19
items from costs that supported the underlying performance of the
business. In addition, the estimated timeframe over which these
effects may have impacted the business increased. As a result, the
Group took the decision in the interim 2020/21 results to only
include changes in estimates to items that were included in
adjusting items in 2019/20, in this case relating to the inventory
provision and bad debt provision.
Included within directly attributable expenses resulting from
the Covid-19 pandemic of GBP163.6m at 2019/20, was an incremental
write-down of inventory to net realisable value of GBP157.0m (UK
Clothing & Home: GBP145.3m; UK Food: GBP6.0m; and
International: GBP5.7m), reflecting management's best estimate of
the impact on the Group of the Covid-19 pandemic. Accordingly, of
the total GBP204.8m inventory provision, GBP157.0m was recognised
in adjusting items and GBP47.8m in the underlying results. The
total remaining provision held as at 3 April 2021 was GBP36.7m.
Included within the UK Clothing & Home provision last year
was an incremental write-down of inventory to net realisable value
of GBP18.6m reflecting management's best estimate of the impact of
the Covid-19 pandemic on UK Clothing & Home inventory as at 3
April 2021. During 2021/22, UK Clothing & Home performance has
been strong, with better-than-expected sell-through of stock
originally provided for. During the year, GBP10.2m of the Covid-19
provision has been utilised, and there has been a release of
GBP14.0m recognised in adjusting items. No UK Clothing & Home
inventory provisions in relation to Covid-19 remain on the balance
sheet at 2021/22. Similarly, following better-than-expected
sell-through of inventory previously provided for in the
International markets, there has been a release of GBP0.8m of the
Covid-19 inventory provisions during 2021/22. No International
Covid-19 stock provisions remain on the balance sheet at 2021/22.
During the year, of the UK Food provision against excess
slow-moving personal protective equipment, committed to during the
peak of the first Covid-19 lockdown and incurred directly in
response to the Covid-19 pandemic, GBP3.0m has been utilised and
GBP2.2m released. A provision of GBP5.6m remains on the balance
sheet at 2021/22.
The carrying value of the Group's inventories at 2 April 2022 is
GBP706.1m, split across the UK Clothing & Home, UK Food and
International businesses representing gross inventories of
GBP506.9m, GBP200.4m and GBP70.8m respectively, against which a
provision of GBP48.3m, GBP17.8m and GBP5.9m has been recognised.
The total UK Clothing & Home inventory provisions represent
9.5% (last year: 15.4%) of UK Clothing & Home inventory. The UK
Clothing & Home inventory provision is based on future trading
assumptions in line with the Group's 2022/23 Budget. However,
trading could be higher or lower than expected and a 5% increase in
the UK Clothing & Home inventory provision (from 9.5% to 14.5%)
would result in a reduction in the valuation of inventory held on
the balance sheet of GBP25.2m and would result in a corresponding
decrease to recognised profit before tax in the period.
In addition, a release of GBP0.8m has been recognised within
adjusting items in relation to the Covid-19 bad debt provision
recognised against international franchise partners. At 2021/22 no
Covid-19 bad debt provision remains.
The GBP17.8m directly attributable net gains from the Covid-19
pandemic are considered to be adjusting items as they meet the
Group's established definition, being both significant in nature
and value to the results of the Group in the current period, and
treatment as adjusting items is consistent with the treatment of
charges of a consistent nature recognised in 2019/20. No future
charges are expected. Any future credits relating to these items
will continue to also be classified as adjusting.
Store impairments, impairment reversals and property charges (
GBP60.0m credit )
The Group has recognised a number of charges and credits in the
period associated with the carrying value of items of property,
plant and equipment.
In response to the strong Group performance and lifting of
government restrictions, the Group has revised future cash flow
projections for UK and International stores (excluding those stores
that have been captured as part of the UK store estate programme).
As a result, store impairment testing has identified stores where
the current and anticipated future performance does not support the
carrying value of the stores. A charge of GBP2.9m (last year:
GBP66.4m) has been incurred primarily in respect of the impairment
of assets associated with these stores. In addition, a credit of
GBP63.4m (last year: GBP73.3m) has been incurred for the reversal
of store impairments recognised in previous periods, where revised
future cash flow projections more than support the carrying value
of the stores, reflecting improved trading expectations compared to
those assumed at the prior year end. Refer to note 11 for further
details on the impairments.
A further charge of GBP0.5m has been recognised in relation to
the settlement of provisions for property charges. This treatment
is consistent with the original provision charges, which were
recognised within adjusting items.
The charges/credits have been classified as an adjusting item on
the basis of the significant quantum of the charge/credit in the
period to the results of the Group. Any future charges or reversals
relating to stores previously impaired within adjusting items will
continue to be recognised within adjusting items in line with the
original charge.
Amortisation and fair value adjustments arising as part of the
investment in Ocado Retail Limited (GBP32.5m)
Intangible assets of GBP366.0m 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 GBP17.6m recognised in the period.
In addition, a further deferred tax charge of GBP14.9m has been
recognised predominantly relating to the substantial enactment of
the Finance Act 2021 during the period increasing the UK's main
corporation tax rate from 19% to 25% from 1 April 2023.
The amortisation charge and changes in the related deferred tax
liability are included within the Group's share of the profit or
loss of the associate and are considered to be adjusting items as
they are based on judgements about their value and economic life
and are not related to the Group's underlying trading performance.
These charges are reported as adjusting items on the basis that
they are significant in quantum and to aid comparability from one
period to the next.
M&S Bank charges incurred in relation to insurance
mis-selling provisions (GBP16.0m)
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 GBP16.0m (last
year: GBP2.4m).
The treatment of this in adjusting items is in line with
previous charges in relation to settlement of Payment Protection
Insurance (PPI) claims and, although it is recurring, it is
significant in quantum in the context of the total charges
recognised for PPI mis-selling to-date and is not considered
representative of the normal operating performance of the Group. As
previously noted, while the August 2019 deadline to raise potential
mis-selling claims has now passed, costs relating to the estimated
liability for redress are expected to continue. The total charges
recognised in adjusting items since September 2012 for PPI is
GBP326.3m which exceeds the total offset against profit share of
GBP259.0m to date, and this deficit will be deducted from the
Group's share of future profits from M&S Bank.
Franchise restructuring (GBP41.3m)
During the year, the Group recognised a charge of GBP41.3m as a
result of the restructure of certain International franchise
operations.
In September 2021 the Group announced the closure of 11
franchise stores in France in response to increased EU border
costs. Consequently, the Group has recognised a charge of GBP10.3m
for closure costs. No future costs are currently expected.
In March 2022, in response to the unfolding humanitarian crisis
following the invasion of Ukraine, the Group announced it had
suspended shipments to its Turkish franchisee's Russian business.
The Group has subsequently made the decision to fully exit its
Russian franchise. As a result, the Group has recognised a charge
of GBP31.0m representing the Group's full exit costs from Russia
and business disruptions in Ukraine.
The costs are considered to be adjusting items as they are
one-off in nature and significant in value to the results of the
Group and to the International segment.
Remeasurement of contingent consideration including discount
unwind ( GBP5.6m credit)
Contingent consideration, resulting from the investment in Ocado
Retail Limited, is remeasured at fair value at each reporting date
with the changes in fair value recognised in profit or loss. During
the period, GBP33.8m of contingent consideration was settled,
following the achievement of the first and second performance
targets. A credit of GBP5.6m has been recognised in the period,
representing the revaluation of the contingent consideration
payable. The change in fair value is considered to be an adjusting
item as it relates to a major transaction and consequently is not
considered representative of the normal operating performance of
the Group. The remeasurement will be recognised in adjusting items
until the final contingent consideration payment is made in
2024/25.
4 Finance income/(costs)
2022 2021
GBPm GBPm
Bank and other interest receivable 3.7 2.9
Other finance income 5.9 1.8
Pension net finance income 13.2 47.2
Interest income of subleases 5.5 5.5
Finance income before adjusting items 28.3 57.4
Finance income in adjusting items 5.6 -
Finance income 33.9 57.4
Other finance costs (0.8) (0.6)
Interest payable on syndicated bank facility (4.7) (3.9)
Interest payable on Medium Term Notes (79.6) (86.4)
Interest payable on commercial paper facility - (0.4)
Interest payable on lease liabilities (121.1) (130.4)
Unwind of discount on provisions (3.8) (2.7)
Unwind of discount on Partnership liability to the Marks & Spencer UK Pension Scheme (see
note 9) (4.4) (4.9)
Finance costs before adjusting items (214.4) (229.3)
Finance costs in adjusting items - (6.8)
Finance costs (214.4) (236.1)
Net finance costs (180.5) (178.7)
5 Income tax (credit)/expense
The effective tax rate was 21.1% (last year: 3.9%) and the
effective tax rate of profit excluding adjusting items was 18.2%
(last year: 50.3%).
6 Earnings per share
The calculation of earnings per ordinary share is based on
earnings after tax and the weighted average number of ordinary
shares in issue during the year.
The adjusted earnings per share figures have also been
calculated based on earnings before adjusting items that are
significant in nature and/or quantum and are considered distortive
to underlying results (see note 3). These have been presented to
provide shareholders with an additional measure of the Group's
year-on-year performance.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. The Group has four types of
dilutive potential ordinary shares, being: those share options
granted to employees where the exercise price is less than the
average market price of the Company's ordinary shares during the
year; unvested shares granted under the Deferred Share Bonus Plan;
unvested shares granted under the Restricted Share Plan; and
unvested shares within the Performance Share Plan that have met the
relevant performance conditions at the end of the reporting
period.
Details of the adjusted earnings per share are set out
below:
2022 2021
GBPm GBPm
Profit/(loss) attributable to equity shareholders of the Company 306.6 (198.0)
Add/(less):
Adjusting items (see note 3) 131.2 259.7
Tax on adjusting items (12.6) (33.5)
Profit before adjusting items attributable to equity shareholders of the Company 425.2 28.2
Million Million
Weighted average number of ordinary shares in issue 1,958.1 1,953.5
Potentially dilutive share options under Group's share option schemes(1) 73.0 15.0
Weighted average number of diluted ordinary shares 2,031.1 1,968.5
(1) In the prior year, the potentially dilutive share options are only considered in relation
to adjusted diluted earnings per share as the Group made a basic loss per share.
Pence Pence
Basic earnings/(loss) per share 15.7 (10.1)
Diluted earnings/(loss) per share 15.1 (10.1)
Adjusted basic earnings per share 21.7 1.4
Adjusted diluted earnings per share 20.9 1.4
7 Dividends
At the full-year results in May 2021, the Board announced that
payment of a dividend in the 2021/22 financial year would be
unlikely as we focus on restoring sustainable profitability and
recovering the balance sheet towards metrics consistent with
investment grade.
Consistent with that announcement, the Board does not expect to
pay a dividend this financial year.
8 Retirement benefits
2022 2021
GBPm GBPm
Opening net retirement benefit surplus 631.4 1,902.6
Current service cost (0.2) (0.2)
Administration cost (4.8) (4.5)
Net interest income 13.2 47.2
Employer contributions 41.8 41.5
Past service cost - (1.0)
Remeasurements (1) 357.0 (1,354.5)
Exchange movement (0.2) 0.3
Closing net retirement benefit surplus 1,038.2 631.4
2022 2021
GBPm GBPm
Total market value of assets 10,090.7 10,442.9
Present value of scheme liabilities (9,046.8) (9,803.7)
Net funded pension plan asset 1,043.9 639.2
Unfunded retirement benefits (2.6) (3.8)
Post-retirement healthcare (3.1) (4.0)
Net retirement benefit surplus 1,038.2 631.4
Analysed in the statement of financial position as:
Retirement benefit asset 1,043.9 639.2
Retirement benefit deficit (5.7) (7.8)
Net retirement benefit surplus 1,038.2 631.4
(1) Includes GBPnil (last year: GBP2.5m loss) relating to an equalisation charge recognised
in 2018/19 that was reclassified from provisions.
Financial assumptions
The financial assumptions for the UK DB pension scheme and the
most recent actuarial valuations of the other post-retirement
schemes have been updated by independent qualified actuaries to
take account of the requirements of IAS 19 "Employee Benefits" in
order to assess the liabilities of the schemes. The most
significant of these are the discount rate and the inflation rate
which are 2.70% (last year: 2.00%) and 3.70% (last year: 3.30%).
The inflation rate of 3.70% (last year: 3.30%) reflects the Retail
Price Index (RPI) rate.
The amount of the surplus varies if the main financial
assumptions change, particularly the discount rate. If the discount
rate decreased by 0.25% the surplus would decrease by c.GBP20m. If
the inflation rate decreased by 0.25%, the surplus would decrease
by c.GBP70m.
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 GBP1.3bn (last year: GBP1.4bn) of
properties at book value which have been leased back to Marks and
Spencer plc. The Group retains control over these properties,
including the flexibility to substitute alternative properties into
the Partnership. The first limited Partnership interest (held by
the Marks & Spencer UK Pension Scheme) previously entitled the
Pension Scheme to receive an annual distribution of GBP71.9m until
June 2022 from the Partnership. As a result of the Covid-19
pandemic and the need to preserve cash, in agreement with the
Trustees, only GBP18.9m of the June 2020 payment was made, with the
remaining GBP53.0m being deferred.
During the period, the Group and the Pension Scheme Trustees
agreed to amend the distribution dates so that, rather than making
the planned payment of GBP71.9m in June 2021 along with the
deferred GBP53.0m, the Pension Scheme is now entitled to receive
GBP71.9m in 2022, GBP73.0m in 2023 and GBP54.4m in 2024. The second
Partnership interest (also held by the Marks & Spencer UK
Pension Scheme) entitles the Pension Scheme to receive a further
GBP36.4m 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
GBP192.3m (last year: GBP193.5m) is included as a financial
liability in the Group's financial statements as it is a
transferable financial instrument and measured at amortised cost,
being the net present value of the future expected distributions
from the Partnership. During the year to 2 April 2022, an interest
charge of GBP4.4m (last year: GBP4.9m) was recognised in the income
statement, representing the unwinding of the discount included in
this obligation. The first limited Partnership interest of the
Pension Scheme is included within the UK DB Pension Scheme assets,
valued at GBP193.5m (last year: GBP142.5m).
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
Computer software under
Goodwill Brands Computer software development Total
GBPm GBPm GBPm GBPm GBPm
As at 28 March 2020
Cost 136.4 112.3 1,495.1 59.7 1,803.5
Accumulated amortisation and
impairments (72.4) (112.3) (1,187.6) (32.1) (1,404.4)
Net book value 64.0 - 307.5 27.6 399.1
Year ended 3 April 2021
Opening net book value 64.0 - 307.5 27.6 399.1
Additions - 6.3 0.1 41.4 47.8
Transfers and reclassifications - - 44.7 (44.2) 0.5
Asset Impairments(1) (39.6) - (40.0) - (79.6)
Asset write-offs - - (3.2) - (3.2)
Amortisation charge - (0.2) (131.4) - (131.6)
Exchange difference (0.7) - (0.3) - (1.0)
Closing net book value 23.7 6.1 177.4 24.8 232.0
At 3 April 2021
Cost 135.7 118.6 1,539.6 56.9 1,850.8
Accumulated amortisation,
impairments and write-offs (112.0) (112.5) (1,362.2) (32.1) (1,618.8)
Net book value 23.7 6.1 177.4 24.8 232.0
Year ended 2 April 2022
Opening net book value 23.7 6.1 177.4 24.8 232.0
Additions 4.8 0.1 0.9 63.8 69.6
Transfers and reclassifications - - 29.6 (44.6) (15.0)
Asset write-offs - - (0.6) - (0.6)
Amortisation charge - (0.6) (93.0) - (93.6)
Exchange difference 0.1 - - - 0.1
Closing net book value 28.6 5.6 114.3 44.0 192.5
At 2 April 2022
Cost 140.6 118.7 1,570.1 76.1 1,905.5
Accumulated amortisation,
impairments and write-offs (112.0) (113.1) (1,455.8) (32.1) (1,713.0)
Net book value 28.6 5.6 114.3 44.0 192.5
Goodwill related to the following assets and groups of cash generating units (CGUs):
per una India Sports Edit Other Total goodwill
GBPm GBPm GBPm GBPm GBPm
Net book value at 3 April 2021 16.5 6.5 - 0.7 23.7
Additions(2) - - 4.8 - 4.8
Exchange difference - 0.1 - - 0.1
Net book value at 2 April 2022 16.5 6.6 4.8 0.7 28.6
(1) Last year asset impairments of GBP79.6m made up of: GBP39.6m
charge recorded against per una goodwill, GBP40.0m in relation to
replaced, retired or decommissioned as part of MS2.
(2) In February 2022, the Group acquired 77.7% of the issued
share capital of The Sports Edit Limited, a non-listed company
based in England and Wales. The Sports Edit Limited is a brand
platform specialising in activewear and was acquired for an initial
purchase price of GBP4.5m. Goodwill of GBP4.8m was recognised on
acquisition of the business, with the acquisition representing a
strategic investment opportunity.
Goodwill impairment testing
Goodwill is not amortised but is tested annually for impairment
with the recoverable amount being determined from value in use
calculations.
The goodwill balance relates to the goodwill recognised on the
acquisition of per una GBP16.5m (last year: GBP16.5m), India
GBP6.6m (last year: GBP6.5m), Sports Edit GBP4.8m (last year:
GBPnil) and other GBP0.7m (last year: GBP0.7m).
Goodwill for India is monitored by management at a country
level, including the combined retail and wholesale businesses, and
has been tested for impairment on that basis.
The per una brand was a definite life intangible asset amortised
on a straight-line basis over a period of 15 years. The brand
intangible was acquired for a cost of GBP80.0m and has been fully
amortised. It is held at a net book value of GBPnil (last year:
GBPnil). The per una goodwill of GBP16.5m is tested for annually
for impairment.
The cash flows used for impairment testing are based on the
Group's latest budget and forecast cash flows, covering a
three-year period, which have regard to historical performance and
knowledge of the current market, together with the Group's views on
the future achievable growth and the impact of committed cash
flows. The cash flows include ongoing capital expenditure required
to maintain the store network, but exclude any growth capital
initiatives not committed.
Cash flows beyond this three-year period are extrapolated using
a long-term growth rate based on the Group's current view of
achievable long-term growth. The Group's current view of achievable
long-term growth for per una is 1.6% (last year: 0.5%), which is a
reduction from the overall Group long-term growth rate of 2.0%
(last year: 1.75%). The Group's current view of achievable
long-term growth for India is 5.5% (last year: 5.9%).
Management estimates discount rates that reflect the current
market assessment of the time value of money and the risks specific
to each asset or CGU. The pre-tax discount rates are derived from
the Group's post-tax weighted average cost of capital ("WACC")
which has been calculated using the capital asset pricing model,
the inputs of which include a country risk-free rate, equity risk
premium, Group size premium and a risk adjustment (beta). The
post-tax WACC is subsequently grossed up to a pre-tax rate and was
10.8% for per una (last year: 11.0%) and 11.3% for India (last
year: 12.9%).
Management has performed sensitivity analysis on the key
assumptions in the impairment model using reasonably possible
changes in these key assumptions, both individually and in
combination. Management has considered reasonably possible changes
in key assumptions that would cause the carrying amounts of
goodwill or brands to exceed the value in use for each asset.
For both per una and India respectively, there are no reasonably
possible changes in key assumptions that would lead to an
impairment and the assumptions do not give rise to a key source of
estimation uncertainty.
11 Property, plant and equipment
The Group's property, plant and equipment of GBP4,902.3m (last
year: GBP5,058.6m) consists of owned assets of GBP3,486.5m (last
year: GBP3,562.6m) and right-of-use assets of GBP1,415.8m (last
year: GBP1,496.0m).
Property, plant and
equipment - owned
Fixtures, fittings and Assets in the course of
Land and buildings equipment construction Total
GBPm GBPm GBPm GBPm
At 28 March 2020
Cost 2,887.5 5,457.1 138.0 8,482.6
Accumulated depreciation,
impairments and write-offs (720.1) (3,880.6) (18.0) (4,618.7)
Net book value 2,167.4 1,576.5 120.0 3,863.9
Year ended 3 April 2021
Opening net book value 2,167.4 1,576.5 120.0 3,863.9
Additions 3.8 18.6 92.1 114.5
Transfers and
reclassifications 7.2 157.0 (162.6) 1.6
Impairment reversals 36.9 36.2 - 73.1
Impairment charge (73.2) (48.7) - (121.9)
Asset write-offs (29.8) (17.4) (0.1) (47.3)
Depreciation charge (83.3) (228.5) - (311.8)
Exchange difference (6.6) (2.8) (0.1) (9.5)
Closing net book value 2,022.4 1,490.9 49.3 3,562.6
At 3 April 2021
Cost 2,809.9 5,450.2 67.5 8,327.6
Accumulated depreciation,
impairments and write-offs (787.5) (3,959.3) (18.2) (4,765.0)
Net book value 2,022.4 1,490.9 49.3 3,562.6
Year ended 2 April 2022
Opening net book value 2,022.4 1,490.9 49.3 3,562.6
Additions 0.9 17.7 238.0 256.6
Transfers and
reclassifications 3.0 175.8 (164.3) 14.5
Disposals (15.9) (1.9) - (17.8)
Impairment reversals 34.5 27.6 - 62.1
Impairment charge (57.6) (31.4) - (89.0)
Asset write-offs 0.9 (11.4) - (10.5)
Depreciation charge (34.2) (256.1) - (290.3)
Exchange difference (1.7) - (1.7)
Closing net book value 1,952.3 1,411.2 123.0 3,486.5
At 2 April 2022
Cost 2,764.8 5,275.7 141.2 8,181.7
Accumulated depreciation,
impairments and write-offs (812.5) (3,864.5) (18.2) (4,695.2)
Net book value 1,952.3 1,411.2 123.0 3,486.5
Asset write-offs in the year include assets with gross book
value of GBP383.3m (last year: GBP67.4m) and GBPnil (last year:
GBPnil) 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
GBPm GBPm GBPm
As at 28 March 2020 1,571.1 59.2 1,630.3
Additions 37.2 13.1 50.3
Transfers and reclassifications 0.3 - 0.3
Disposals (5.5) 0.2 (5.3)
Impairment reversals 36.9 - 36.9
Impairment charge (52.7) - (52.7)
Depreciation charge (132.0) (21.1) (153.1)
Exchange difference (10.6) (0.1) (10.7)
As at 3 April 2021 1,444.7 51.3 1,496.0
Additions 72.7 17.9 90.6
Transfers and reclassifications 0.5 - 0.5
Disposals (7.7) (0.2) (7.9)
Impairment reversals 28.9 - 28.9
Impairment charge (25.4) - (25.4)
Depreciation charge (146.2) (21.6) (167.8)
Exchange difference 0.9 - 0.9
As at 2 April 2022 1,368.4 47.4 1,415.8
Impairment of property, plant and equipment and right-of-use
assets
For impairment testing purposes, the Group has determined that
each store is a separate CGU, with the exception of Outlets stores,
which are considered together as one CGU. Click & collect sales
are included in the cash flows of the relevant CGU.
Each CGU is tested for impairment at the balance sheet date if
any indicators of impairment and impairment reversals have been
identified. Stores identified within the Group's UK store estate
programme are automatically tested for impairment (see note 3).
The value in use of each CGU is calculated based on the Group's
latest budget and forecast cash flows, covering a three-year
period, which have regard to historic performance and knowledge of
the current market, together with the Group's views on the future
achievable growth and the impact of committed initiatives. The cash
flows include ongoing capital expenditure required to maintain the
store network, but exclude any growth capital initiatives not
committed. Cash flows beyond this three-year period are
extrapolated using a long-term growth rate based on management's
future expectations, with reference to forecast GDP growth. These
growth rates do not exceed the long-term growth rate for the
Group's retail businesses in the relevant territory. If the CGU
relates to a store which the Group has identified as part of the UK
store estate programme, the value in use calculated has been
modified by estimation of the future cash flows up to the point
where it is estimated that trade will cease and then estimation of
the timing and amount of costs associated with closure as detailed
fully in note 3.
The key assumptions in the value in use calculations are the
growth rates of sales and gross profit margins, changes in the
operating cost base, long-term growth rates and the risk-adjusted
pre-tax discount rate. The pre-tax discount rates are derived from
the Group's weighted average cost of capital, which has been
calculated using the capital asset pricing model, the inputs of
which include a country risk-free rate, equity risk premium, Group
size premium and a risk adjustment (beta). The pre-tax discount
rates range from 9.8% to 15.8% (last year: 8.9% to 14.0%). If the
CGU relates to a store which the Group has identified as part of
the UK store estate programme, the additional key assumptions in
the value in use calculations are costs associated with closure,
the disposal proceeds from store exits and the timing of the store
exits.
Impairments - UK stores excluding the UK store estate
programme
During the year, the Group has recognised an impairment charge
of GBP6.9m and impairment reversals of GBP63.4m as a result of UK
store impairment testing unrelated to the UK store estate programme
(last year: impairment charge of GBP66.4m and impairment reversals
of GBP64.5m). Impairment charges of GBP2.9m and impairment
reversals of GBP63.4m have been recognised within adjusting items
(see note 3). The remaining GBP4.0m impairment charge has been
recognised in operating profit before adjusting items as it relates
to stores not previously impaired. The impaired stores were
impaired to their value in use recoverable amount of GBP37.1m,
which is their carrying value at year end. The stores with
impairment reversals were written back to their value in use
recoverable amount of GBP302.3m.
For UK stores, when considering both impairment charges and
reversals, cash flows beyond the three-year period are extrapolated
using the Group's current view of achievable long-term growth of
2.0%, adjusted to 0% where management believes the current trading
performance and future expectations of the store do not support the
growth rate of 2.0%. The rate used to discount the forecast cash
flows for UK stores is 9.8% (last year: 8.9%).
As disclosed in the accounting policies (note 1), the cash flows
used within the impairment model are based on assumptions which are
sources of estimation uncertainty and small movements in these
assumptions could lead to further impairments. Management has
performed sensitivity analysis on the key assumptions in the
impairment model using reasonably possible changes in these key
assumptions across the UK store portfolio.
A reduction in sales of 5% from the three-year plan in year 3
would result in an increase in the impairment charge of GBP22.8m
and a 25 basis point reduction in gross profit margin from year 3
onwards would increase the impairment charge by GBP2.5m. In
combination, a 1% fall in sales and a 10 basis point fall in gross
profit margin would increase the impairment charge by GBP4.7m. A 50
basis point increase in the discount rate would increase the
impairment charge by GBP6.0m. Reducing the long-term growth rate to
0% across all stores, would not result in a significant increase to
the impairment charge, either individually or in combination.
A reduction in sales of 5% from the three-year plan in year 3
would result in a reduction in the reversal of GBP17.2m and a 25
basis point reduction in gross profit margin from year 3 onwards
would result in a reduction in the reversal of GBP1.1m. In
combination, a 5% fall in sales and a 25 basis point fall in gross
profit margin would reduce the reversal by GBP19.0m. A 50 basis
point increase in the discount rate would reduce the reversal by
GBP3.3m. Reducing the long-term growth rate to 0% across all
stores, would not result in a significant decrease to the reversal,
either individually or in combination.
Impairments - UK store estate programme
During the year, the Group has recognised an impairment charge
of GBP107.5m and impairment reversals of GBP27.6m relating to the
ongoing UK store estate programme (last year: impairment charge of
GBP107.9m and impairment reversals of GBP36.7m). These stores were
impaired to their value in use recoverable amount of GBP376.7m,
which is their carrying value at year end. The impairment charge
relates to the store closure programme and has been recognised
within adjusting items (see note 3). Impairment reversals
predominantly reflect improved trading expectations compared to
those assumed at the end of the prior year.
Where the planned closure date for a store is outside the
three-year plan period, no growth rate is applied. The rate used to
discount the forecast cash flows for UK stores is 9.8% (last year:
8.9%).
As disclosed in the accounting policies (note 1), the cash flows
used within the impairment models for the UK store estate programme
are based on assumptions which are sources of estimation
uncertainty, and small movements in these assumptions could lead to
further impairments. Management has performed sensitivity analysis
on the key assumptions in the impairment model using reasonably
possible changes in these key assumptions across the UK store
estate programme.
A delay of 12 months in the probable date of each store exit
would result in a decrease in the impairment charge by GBP37.8m. A
5% reduction in planned sales in years 2 and 3 (where relevant)
would result in an increase in the impairment charge by GBP14.2m.
Neither a 50 basis point increase in the discount rate, a 25 basis
point reduction in management gross margin during the period of
trading, nor a 2% increase in the costs associated with exiting a
store would result in a significant increase to the impairment
charge, individually or in combination with the other reasonably
possible scenarios considered.
Impairments - International stores
During the prior year, the Group recognised an impairment
reversal of GBP8.8m in Ireland as a result of store impairment
testing.
12 Financial instruments
Fair value hierarchy
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities.
The Group had no Level 1 investments or financial
instruments.
-- Level 2: not traded in an active market but the fair values
are based on quoted market prices or alternative pricing sources
with reasonable levels of price transparency. The Group's Level 2
financial instruments include interest rate and foreign exchange
derivatives. Fair value is calculated using discounted cash flow
methodology, future cash flows are estimated based on forward
exchange rates and interest rates (from observable market curves)
and contract rates, discounted at a rate that reflects the credit
risk of the various counterparties for those with a long
maturity.
-- Level 3: techniques that use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
At the end of the reporting period, the Group held the following
financial instruments at fair value:
2022 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets measured at fair value
Financial assets at fair value through profit
or loss (FVTPL)
- derivatives held at FVTPL - 0.6 - 0.6 - 0.7 - 0.7
- other investments(1) - 17.6 4.5 22.1 - 18.4 - 18.4
Derivatives used for hedging - 64.4 - 64.4 - 32.4 - 32.4
Unlisted equity investments(2) - - - - - - 9.7 9.7
Liabilities measured at fair value
Financial liabilities at fair value through
profit or loss
- derivatives held at FVTPL - (0.9) - (0.9) - (12.1) - (12.1)
- contingent consideration(3) - - (172.6) (172.6) - - (212.0) (212.0)
Derivatives used for hedging - (2.7) - (2.7) - (94.6) - (94.6)
There were no transfers between the levels of the fair value
hierarchy during the period. There were also no changes made to any
of the valuation techniques during the period.
(1) Within Level 3 other investments, the Group holds GBP3.1m of
venture capital investments, managed by True Capital Limited,
measured at FVTPL (last year: GBPnil) which are Level 3
instruments. The fair value of these investments has been
determined in accordance with the International Private Equity and
Venture Capital ("IPEV") Valuation Guidelines. Where investments
are either recently acquired or there have been recent funding
rounds with third parties, the primary input when determining the
valuation is the latest transaction price.
(2) The Group holds GBPnil in unlisted equity securities
measured at fair value through other comprehensive income (last
year: GBP9.7m) which is a Level 3 instrument. The fair value of
this investment was determined with reference to the net asset
value of the entity in which the investment was held, which in turn
derived the majority of its net asset value through a third-party
property valuation.
(3) As part of the investment in Ocado Retail Limited, a
contingent consideration arrangement was agreed. The arrangement
comprises three separate elements which only become payable on the
achievement of three separate financial and operational performance
targets. In June 2021, GBP16.8m was settled, relating to the first
of the three targets. In October 2021, GBP17.0m was settled,
relating to the second target. The final target related to Ocado
Retail Limited achieving a specified target level of earnings in
the financial year ending November 2023. The maximum potential
undiscounted amount of all future payments that the Group could be
required to make under the arrangement is GBP156.3m plus interest
of 4%.
The fair value of the contingent consideration was estimated by
applying an appropriate discount rate to the expected future
payments. The key assumptions take into consideration the
probability of meeting each performance target and the discount
factor. The performance target is binary and, based on the latest
five-year plan of Ocado Retail Limited, is expected to be met and
therefore the fair value reflects the full, discounted GBP156.3m
plus interest, and it is therefore expected that GBP190.8m will
become payable in 2024/25. Should the target not be met, no
consideration would be payable. Should the discount rate applied be
changed, the fair value of the contingent consideration would
change, but the amount of consideration that would ultimately be
paid would not necessarily change. A discount rate of 4.2% was used
and a 2.0% change in the discount rate would result in a change in
fair value of GBP8.0m. A 5% change in the forecast level of
earnings used to assess the performance target would not result in
a significant change in fair value of the contingent consideration.
During the period, GBP33.8m of contingent consideration was settled
and a gain of GBP5.6m recognised in profit or loss in relation to
the remeasurement (see note 3).
The Marks & Spencer UK Pension Scheme holds a number of
financial instruments which make up the pension asset of
GBP10,090.7m (last year: GBP10,442.9m). Level 1 and Level 2
financial assets measured at fair value through other comprehensive
income amounted to GBP4,998.8m (last year: GBP5,446.0m).
Additionally, the scheme assets include GBP5,091.9m (last year:
GBP4,996.9m) of Level 3 financial assets. See note 8 for
information on the Group's retirement benefits.
The following table represents the changes in Level 3
instruments held by the Pension Schemes:
2022 2021
GBPm GBPm
Opening balance 4,996.9 4,325.1
Fair value gain recognised in other comprehensive income 138.6 68.3
(Withdrawal)/additional investment (43.6) 603.5
Closing balance 5,091.9 4,996.9
Fair value of financial instruments
With the exception of the Group's fixed rate bond debt and the
Partnership liability to the Marks & Spencer UK Pension Scheme
(note 9), there were no material differences between the carrying
value of non-derivative financial assets and financial liabilities
and their fair values as at the balance sheet date.
The carrying value of the Group's fixed rate bond debt (Level 1
equivalent) was GBP1,482.5m (last year: GBP1,682.1m); the fair
value of this debt was GBP1,549.6m (last year: GBP1,807.6m) which
has been calculated using quoted market prices and includes accrued
interest. The carrying value of the Partnership liability to the
Marks & Spencer UK Pension Scheme (Level 2 equivalent) is
GBP192.3m (last year: GBP193.5m) and the fair value of this
liability is GBP187.9m (last year: GBP185.5m).
13 Contingencies and commitments
A. Capital commitments
2022 2021
GBPm GBPm
Commitments in respect of properties in the course of construction 59.8 88.3
Software capital commitments 6.1 10.6
65.9 98.9
In addition to the above, the Group has committed to invest up
to GBP25.0m, over a three-year period to 2024/25, in an innovation
and consumer growth fund managed by True Capital Limited. The fund
can draw down amounts at any time over the three-year period to
make specific investments. During the period, the Group invested
GBP3.3m of this commitment, which is held as a non-current other
investment and measured at fair value through profit or loss.
B. Other material contracts
In the event of termination of our trading arrangements with
certain warehouse operators, the Group has a number of options and
commitments to purchase some property, plant and equipment, at
values ranging from historical net book value to market value,
which are currently owned and operated by the warehouse operators
on the Group's behalf. These options and commitments would have an
immaterial impact on the Group's statement of financial
position.
See note 9 for details on the Partnership arrangement with the
Marks & Spencer UK Pension Scheme.
14 Analysis of cash flows given in the statement of cash flows
Cash flows from operating activities
2022 2021
GBPm GBPm
Profit/(loss) on ordinary activities after taxation 309.0 (201.2)
Income tax expense/(credit) 82.7 (8.2)
Finance costs 214.4 236.1
Finance income (33.9) (57.4)
Operating profit/(loss) 572.2 (30.7)
Share of results of Ocado Retail Limited (13.9) (78.4)
(Increase)/decrease in inventories (46.5) 41.2
(Increase)/decrease in receivables (2.9) 67.4
Increase in payables 289.1 159.5
Depreciation, amortisation and write-offs 510.7 603.1
Non-cash share-based payment expense 38.8 19.3
Defined benefit pension funding (36.8) (37.1)
Adjusting items net cash outflows(1,2) (45.8) (118.1)
Adjusting items M&S Bank(3) (16.0) (2.4)
Adjusting operating profit items 136.8 252.9
Cash generated from operations 1,385.7 876.7
(1) Excludes GBP5.6m (last year: GBP12.4m) of surrender payments
included within repayment of lease liabilities in the consolidated
statement of cash flows relating to leases within the UK store
estate programme.
(2) Adjusting items net cash outflows relate to strategic
programme costs associated with the UK store estate, UK logistics
and the utilisation of the provisions for International store
closures and impairments.
(3) Adjusting items M&S Bank relates to M&S Bank income
recognised in operating profit offset by charges incurred in
relation to the insurance mis-selling provision, which is a
non-cash item.
15 Analysis of net debt
A. Reconciliation of movement in net debt
At Changes At
29 March Cash in fair Lease additions 3 April
2020 flow values and remeasurements 2021
GBPm GBPm GBPm GBPm Exchange GBPm
and other
non-cash
movements(1)
GBPm
Net debt
Bank loans and overdrafts (15.5) 10.8 - - - (4.7)
Cash and cash equivalents 254.2 423.5 - - (3.3) 674.4
Net cash per statement
of cash flows 238.7 434.3 - - (3.3) 669.7
Current other financial
assets 11.7 6.7 - - - 18.4
Liabilities from financing
activities
Medium Term Notes (1,536.2) (87.9) - - (58.0) (1,682.1)
Lease liabilities (2,562.0) 316.7 - (48.3) (112.3) (2,405.9)
Partnership liability to
the Marks & Spencer UK
Pension Scheme (see note
9) (202.7) 23.6 - - (6.4) (185.5)
Derivatives held to hedge
Medium Term Notes 102.2 (14.0) (96.3) - - (8.1)
Liabilities from financing
activities (4,198.7) 238.4 (96.3) (48.3) (176.7) (4,281.6)
Less: Cash flows related
to interest and derivative
instruments (2.3) (212.6) 96.3 - 196.2 77.6
Net debt (3,950.6) 466.8 - (48.3) 16.2 (3,515.9)
Exchange At
At Changes and other 2
4 April Cash in fair Lease additions non-cash April
2021 flow values and remeasurements movements(1) 2022
GBPm GBPm GBPm GBPm GBPm GBPm
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
9) (185.5) - - - (2.4) (187.9)
Derivatives held to hedge
Medium Term Notes (8.1) - 26.6 - - 18.5
Liabilities from financing
activities (4,281.6) 588.3 26.6 (100.6) (210.3) (3,977.6)
Less: Cash flows related
to interest and derivative
instruments 77.6 (208.7) (26.6) - 221.0 63.3
Net debt (3,515.9) 915.2 - (100.6) 2.5 (2,698.8)
B. Reconciliation of net debt to statement of financial position
2022 2021
GBPm GBPm
Statement of financial
position and related notes
Cash and cash equivalents 1,197.9 674.4
Current other financial
assets 17.6 18.4
Bank loans and overdraft - (4.7)
Medium Term Notes - net
of foreign exchange revaluation (1,494.7) (1,657.9)
Lease liabilities (2,278.7) (2,405.9)
Partnership liability to the Marks & Spencer UK
Pension Scheme (see note 9) (192.3) (193.5)
(2,750.2) (3,569.2)
Interest payable included within related borrowing
and the Partnership liability to the Marks & Spencer
UK Pension Scheme 51.4 53.3
Net debt (2,698.8) (3,515.9)
(1) Exchange and other non-cash movements includes interest paid
on Medium Term Notes of GBP79.6m (last year: GBP86.4m), interest
paid on lease liabilities of GBP121.1m (last year: GBP130.4m) and
interest paid on the Partnership liability to the Marks &
Spencer UK Pension Scheme of GBP4.4m (last year: GBP4.9m).
16 Related party transactions
A. Joint ventures and associate
Ocado Retail Limited
A shareholder loan facility with Ocado Retail Limited was
established in 2019/20, with Ocado Retail Limited having the
ability to draw down up to GBP30m from each shareholder. The
facility was not utilised by Ocado Retail Limited during the year
ended 2 April 2022 (last year: not utilised).
As part of the Ocado Retail Limited investment, Ocado Retail
Limited entered into a GBP30m, three-year revolving credit
facility. Along with Ocado Group Plc, the Group has provided a
parent guarantee to cover 50% of the GBP30m revolving credit
facility provided by BNPP to Ocado Retail Limited. The revolving
credit facility was undrawn at 2 April 2022 (last year:
undrawn).
The following transactions were carried out with Ocado Retail
Limited, an associate of the Group.
Sales and purchases of goods and services:
2022 2021
GBPm GBPm
Sales of goods and services 36.1 28.5
Purchases of goods and services 0.2 -
Included within trade and other receivables is a balance of
GBP1.9m (last year: GBP2.3m) owed by Ocado Retail Limited.
Nobody's Child Limited
Nobody's Child Limited became an associate of the Group in
November 2021 (see note 17) .
Since November 2021, the Group made purchases of goods amounting
to GBP1.2m. At 2 April 2022, included within trade and other
payables is a balance of GBP0.2m owed to Nobody's Child Limited,
and included within other financial assets is a balance of GBP0.7m
owed from Nobody's Child Limited.
B. Other related party transactions
The Group acquired 77.7% of the issued share capital of The
Sports Edit Limited ("TSE") in February 2022. A further 4.8% of
TSE's issued share capital is currently owned by Mr. Justin King, a
Non-Executive Director of the Group (the "JK TSE Shares"). Subject
to shareholder approval, the Group will acquire the JK TSE Shares
from Mr. Justin King at a total purchase price of GBP0.3m in July
2022.
The only other related party transactions during the year
related to key management compensation.
17 Investments in joint ventures and associates
The Group holds a 50% interest in Ocado Retail Limited, a
company incorporated in the UK. The remaining 50% interest is held
by Ocado Group Plc. Ocado Retail Limited is an online grocery
retailer, operating through the ocado.com and ocadozoom.com
websites.
Ocado Retail Limited is considered an associate of the Group as
certain rights are conferred on Ocado Group Plc for an initial
period of at least five years from acquisition in August 2019,
giving Ocado Group Plc control of the company. Following this
initial period, a reassessment of control will be required as the
Group will have an option to obtain more power over Ocado Retail
Limited if certain conditions are met. If the Group is deemed to
have obtained control, Ocado Retail Limited will then be
consolidated as a subsidiary of the Group. Through Board
representation and shareholder voting rights, the Group is
currently considered to have significant influence, therefore the
investment in Ocado Retail Limited is treated as an associate and
applies the equity method of accounting.
Ocado Retail Limited has a financial year end date of 28
November 2021, aligning with its parent company, Ocado Group Plc.
For the Group's purpose of applying the equity method of
accounting, Ocado Retail Limited has prepared financial information
to the nearest quarter-end date of its financial year end, as to do
otherwise would be impracticable. The results of Ocado Retail
Limited are incorporated in these financial statements from 1 March
2021 to 27 February 2022. There were no significant events or
transactions in the period from 28 February 2022 to 2 April
2022.
The carrying amount of the Group's interest in Ocado Retail
Limited is GBP800.4m (last year: GBP819.0m). The Group's share of
Ocado Retail Limited loss of GBP18.6m (last year: profit of
GBP64.2m) includes the Group's share of underlying profits of
GBP13.9m, which includes GBP1.3m of exceptional income before tax
related to insurance receipts (share of profit last year: GBP25.2m)
and adjusting item charges of GBP32.5m (last year: GBP14.2m) (see
note 3).
Summarised financial information in respect of Ocado Retail
Limited (the Group's only material associate) is set out below and
represents amounts in the Ocado Retail Limited financial statements
prepared in accordance with IFRS, adjusted by the Group for equity
accounting purposes.
As at
As at 27 Feb 2022 28 Feb 2021
GBPm GBPm
Ocado Retail Limited
Current assets 291.2 353.9
Non-current assets 590.1 336.8
Current liabilities (223.3) (245.7)
Non-current liabilities (449.8) (264.6)
Net assets 208.2 180.4
29 Feb 2021 to 27 Feb 2022 2 Mar 2020 to 28 Feb 2021
GBPm GBPm
Revenue 2,248.8 2,353.2
Profit for the period 27.8 156.8
Other comprehensive income - -
Total comprehensive income 27.8 156.8
Reconciliation of the above summarised financial information to
the carrying amount of the interest in Ocado Retail Limited
recognised in the consolidated financial statements:
As at 2 Apr 2022 As at 3 Apr 2021
GBPm GBPm
Ocado Retail Limited
Net assets 208.2 180.4
Proportion of the Group's ownership interest 104.1 90.2
Goodwill 449.1 449.1
Brand 242.7 249.2
Customer relationships 77.7 88.3
Other adjustments to align accounting policies (78.9) (63.5)
Acquisition costs 5.7 5.7
Carrying amount of the Group's interest in Ocado Retail Limited 800.4 819.0
In November 2021, the Group acquired 27% of the issued share
capital of Nobody's Child Limited, which is accounted for as an
investment in associate.
Other than its investment in Ocado Retail Limited, the Group
holds immaterial investments in joint ventures and associates
(including its investment in Nobody's Child Limited) totalling
GBP10.5m (last year: GBP6.8m). The Group's share of losses totalled
GBP0.7m (last year: GBP1.3m loss).
18 Government support
The Group has not benefitted from government grant income in the
year. Last year, the Group recognised GBP131.5m in relation to
furlough programmes, such as the Coronavirus Job Retention Scheme
("CJRS") in the UK, and its equivalents in other countries. This
income was recognised as a deduction against the related
expense.
The Group benefited from business rates relief of GBP62.2m in
the year (last year: GBP174.6m).
There are no unfulfilled conditions or contingencies attached to
these grants.
19 Contingent assets
The Group is currently seeking damages from an independent third
party following their involvement in anti-competitive behaviour
that adversely impacted the Group. The Group expects to receive an
amount from the claim (either in settlement or from the legal
proceedings), a position reinforced by recent court judgements in
similar claims. The value of the claim is confidential and is
therefore not disclosed.
20 Subsequent events
The Board have approved a tender offer to repurchase c.GBP150m
of the Group's Medium Term Notes which will be announced on 25 May
2022.
Principal risks & uncertainties
The Board continually reviews and monitors the principal risks
and uncertainties which could have a material effect on the Group's
results. The updated principal risks and uncertainties for 2021/22
are listed below. Full disclosure of the risks including the
factors which mitigate them will be set out within the Strategic
Report of the 2021/22 Annual Report and Accounts.
AN UNCERTAIN TRADING ENVIRONMENT Our ability to deliver continued improvements in trading performance
could be significantly
affected by the individual or aggregate impact of an increasingly
complex set of external
factors. The ongoing consequences of the pandemic, geo-political and
economic uncertainties
(both national and international) and the resultant cost of living
crisis, are combining to
generate difficult and unpredictable headwinds.
BUSINESS TRANSFORMATION A failure to successfully implement the suite of critical
transformation projects could impact
medium- and longer-term growth ambitions. While each initiative is
individually significant
and has its own inherent risks, the aggregate impact of
simultaneously delivering these challenging
projects could also create further risks to successful
implementation.
OCADO RETAIL A failure to effectively manage the strategic and operational
relationship with Ocado Retail
could significantly impact the value of our investment, the
achievement of our multi-channel
food strategy, our Brand and our ability to deliver shareholder
value.
TALENT AND CAPABILITY An inability to attract, retain and develop the right talent, skills
and capabilities or to
successfully adapt to the expectations of a post-pandemic labour
market could impact the delivery
of core operational activities and longer-term strategic objectives,
including aspects of
our transformation programme.
EU BORDER CHALLENGES A failure to manage the cost consequences and operational friction
arising from the complexity
of border arrangements following the UK's exit from the European
Union (EU) or further developments
in the Trade and Cooperation Agreement ("TCA"), including the
Northern Ireland Protocol, could
have a significant and long-term impact on our Irish business and
overall trading performance.
BUSINESS CONTINUITY AND RESILIENCE Significant operational failures or resilience issues at key business
locations, such as Castle
Donington, our primary online Clothing & Home distribution centre, or
any of our key international
sourcing locations, could result in significant business
interruption. More broadly, an inability
to effectively respond to global events, such as the pandemic or
Russia's invasion of Ukraine,
a shortage of raw materials or other products used in our business,
or significant supply
chain
disruption, could also impact business performance.
PRODUCT SAFETY AND INTEGRITY Failure to prevent and/or effectively respond to a food or product
safety incident, or to
maintain their integrity, could impact customer confidence in our
brand and business performance.
INFORMATION SECURITY Failure to adequately prevent or respond to a data breach or
cyber-attack could adversely
impact our reputation, result in significant fines, business
disruption, loss of information
for our customers, employees or business and/or loss of stakeholder
and customer confidence.
CORPORATE COMPLIANCE AND RESPONSIBILITY A failure to deliver against our legal and regulatory obligations or
broader corporate responsibility
commitments would undermine our reputation as a responsible retailer,
may result in legal
exposure or regulatory sanctions, and could negatively impact our
ability to operate and/or
remain relevant to our customers and other stakeholders.
CLIMATE CHANGE AND ENVIRONMENTAL RESPONSIBILITY An inability to reduce the environmental impact of our business and
progress towards our net
zero targets, including those linked to our supply chains, as well as
managing the consequences
of climate change on our business, would fail to meet the
expectations of our customers, colleagues,
investors and other stakeholders, impacting our brand, future trading
performance and other
business costs, including financing.
LIQUIDITY AND FUNDING An inability to maintain short- and long-term funding to meet
business needs or to effectively
manage associated risks could impact our ability to transform at
pace, as well as have an
adverse impact on business viability.
Glossary
The Group tracks a number of alternative performance measures in
managing its business, which are not defined or specified under the
requirements of IFRS because they exclude amounts that are included
in, or include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with
IFRS, or are calculated using financial measures that are not
calculated in accordance with IFRS.
The Group believes that these alternative performance measures,
which are not considered to be a substitute for or superior to IFRS
measures, provide stakeholders with additional helpful information
on the performance of the business. These alternative performance
measures are consistent with how the business performance is
planned and reported within the internal management reporting to
the Board. Some of these alternative performance measures are also
used for the purpose of setting remuneration targets.
These alternative performance measures should be viewed as
supplemental to, but not as a substitute for, measures presented in
the consolidated financial information relating to the Group, which
are prepared in accordance with IFRS. The Group believes that these
alternative performance measures are useful indicators of its
performance. However, they may not be comparable with
similarly-titled measures reported by other companies due to
differences in the way they are calculated.
APM Closest Reconciling Definition and purpose
equivalent items to
statutory statutory
measure measure
Income statement measures
Sales Revenue Consignment Sales includes the gross value of consignment
sales sales (excluding VAT) before the impact
of adjusting items.
Clothing None Not applicable Where third-party branded goods are sold
& Home on a consignment basis, only the commission
store receivable is included in statutory revenue.
/ Clothing This measure has been introduced given
& Home the Group's focus on launching and growing
online third-party brands and is consistent with
sales how the business performance is reported
and assessed by the Board and the Executive
Committee.
Clothing & Home revenue through stores
and through the Clothing & Home online
platforms. These revenues are reported
within the UK Clothing & Home segment
results. Store revenue excludes revenue
from "shop your way" and click & collect,
which are included in online revenue.
The growth in revenues on a year-on-year
basis is a good indicator of the performance
of the stores and online channels.
2021/22 2020/21
GBPm GBPm %
UK Clothing & Home
Store sales(1) 2,209.5 1,088.9 102.9
Consignment sales (8.6) -
Store revenue 2,200.9 1,088.9 102.1
Online sales(1) 1,122.7 1,109.7 1.2
Consignment sales (15.3) -
Online revenue 1,107.4 1,109.7 (0.2)
UK Clothing & Home
sales(1) - 52-week
basis 3,332.2 2,198.6 51.6
Consignment sales (23.9) -
UK Clothing & Home
revenue - 52-week
basis 3,308.3 2,198.6 50.5
Week 53 - 40.4
Total UK Clothing
& Home revenue 3,308.3 2,239.0 47.8
(1) UK Clothing & Home store sales excludes
revenue from "shop your way" and click
& collect, which are included in UK Clothing
& Home online sales.
There is no material difference between
sales and revenue for UK Food and International.
Like-for-like Movement in Revenue The period-on-period change in
revenue growth revenue per the from non revenue (excluding VAT) from stores
income statement like-for-like which have been trading and where
stores there has been no significant change
(greater than 10%) in footage for
at least 52 weeks and online sales.
The measure is used widely in the
retail industry as an indicator
of sales performance. It excludes
the impact of new stores, closed
stores or stores with significant
footage change . 2021/22 2020/21
GBPm GBPm
UK Food
Like-for-like 6,414.1 5,831.1
Net new space(1) 225.5 163.7
Week 53 - 143.7
Total UK Food revenue 6,639.6 6,138.5
UK Clothing & Home
Like-for-like 3,218.3 2,164.5
Net new space 90.0 34.1
Week 53 - 40.4
Total UK Clothing & Home revenue 3,308.3 2,239.0
(1) UK Food net new space includes sales to Ocado Retail Limited.
Food ex Movement in Revenue The period-on-period change in
hospitality and revenue per the from Food revenue (before sales to Ocado
franchise income statement hospitality Retail Limited) excluding the hospitality
and franchise and franchise categories' revenue
categories (excluding VAT). The hospitality
and sales category includes cafes, counters
to Ocado and marketplace. This measure is
Retail based on Food total revenue rather
Limited than like-for-like revenue which
was presented in the 2020/21 annual
report. This measure is used to
provide consistency with other
measures provided within this report. 2021/22 2020/21
GBPm GBPm %
UK Food
Revenue 6,639.6 6,138.5 8.2
Sales to Ocado Retail (32.1) (24.2) 32.6
Hospitality (167.0) (54.0) 209.3
Franchise (586.6) (438.4) 33.8
Food ex hospitality and franchise 5,853.9 5,621.9 4.1
M&S.com revenue None Not applicable Total revenue through the Group's
/ Online online platforms. These revenues
revenue are reported within the relevant
UK Clothing & Home, UK Food and
International segment results.
The growth in revenues on a year-on-year
basis is a good indicator of the
performance of the online channel
and is a measure used within the
Group's incentive plans. Refer
to the Remuneration Report for
an explanation of why this measure
is used within incentive plans
.
International None Not applicable International revenue through International
online online platforms. These revenues
are reported within the International
segment results. The growth in
revenues on a year-on-year basis
is a good indicator of the performance
of the online channel. This measure
has been introduced given the Group's
focus on online sales. 2021/22 2020/21 %
GBPm GBPm
International revenue
Stores 764.7 613.6 24.6
Online 172.5 165.7 4.1
Week 53 - 10.1
At reported currency 937.2 789.4 18.7
Revenue growth None Not applicable The period-on-period change in
at constant revenue retranslating the previous
currency year revenue at the average actual
periodic exchange rates used in
the current financial year. This
measure is presented as a means
of eliminating the effects of exchange
rate fluctuations on the period-on-period
reported results . 2021/22 2020/21 %
GBPm GBPm
International revenue
At constant currency 937.2 761.8 23.0
Impact of FX retranslation - 17.5
International revenue - 52-week basis 937.2 779.3 20.3
Week 53 - 10.1
At reported currency 937.2 789.4 18.7
Adjusting items None Not applicable Those items which the Group excludes
from its adjusted profit metrics
in order to present a further measure
of the Group's performance. Each
of these items, costs or incomes,
is considered to be significant
in nature and/or quantum or are
consistent with items treated as
adjusting in prior periods. Excluding
these items from profit metrics
provides readers with helpful additional
information on the performance
of the business across periods
because it is consistent with how
the business performance is planned
by, and reported to, the Board
and the Executive Committee .
Revenue before Revenue Adjusting Revenue before the impact of adjusting
adjusting items items items. The Group considers this
(See note to be an important measure of Group
3) performance and is consistent with
how the business performance is
reported and assessed by the Board
and the Executive Committee. This
measure has been introduced as
certain adjustments have been made
to revenue for the first time in
accordance with the Group's policy
for adjusting items.
Operating Operating profit Adjusting Operating profit before the impact
profit before items of adjusting items. The Group considers
adjusting items (See note this to be an important measure
3) of Group performance and is consistent
with how the business performance
is reported and assessed by the
Board and the Executive Committee.
Finance income Finance income Adjusting Finance income before the impact
before items of adjusting items. The Group considers
adjusting items (See note this to be an important measure
3) of Group performance and is consistent
with how the business performance
is reported and assessed by the
Board and the Executive Committee.
Finance costs Finance costs Adjusting Finance costs before the impact
before items of adjusting items. The Group considers
adjusting items (See note this to be an important measure
3) of Group performance and is consistent
with how the business performance
is reported and assessed by the
Board and the Executive Committee.
Net interest Finance Finance The net of interest income on subleases
payable on income/costs income/costs and interest payable on lease liabilities.
leases (See note This measure has been introduced
4) as it allows the Board and Executive
Committee to assess the impact
of IFRS 16 Leases.
Net financial Finance Finance Calculated as net finance costs,
interest income/costs income/costs excluding interest on leases and
(See note adjusting items. The Group considers
4) 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 EBIT(1) Adjusting Calculated as profit before the
adjusting items items impact of adjusting items, net
(See note finance costs and tax as disclosed
3) on the face of the consolidated
income statement. This measure
is used in calculating the return
on capital employed for the Group
.
Ocado Retail EBIT(1) Not applicable Calculated as Ocado Retail Limited
Limited EBITDA earnings before interest, tax,
depreciation, amortisation, impairment
and exceptional items.
Profit before Profit before tax Adjusting Profit before the impact of adjusting
tax and items items and tax. The Group considers
adjusting items (See note this to be an important measure
3) 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 Adjusting Profit after tax attributable to
earnings per share items owners of the parent and before
share (See note the impact of adjusting items,
3) 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 Adjusting Profit after tax attributable to
diluted per share items owners of the parent and before
earnings per (See note the impact of adjusting items,
share 3) 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 Effective tax Adjusting Total income tax charge for the
rate before rate items and Group excluding the tax impact
adjusting items their tax of adjusting items divided by the
impact profit before tax and adjusting
(See note items. This measure is an indicator
3) of the ongoing tax rate for the
Group .
52-week basis Corresponding Last trading The Group's financial year ends
for the 2020/21 equivalent week of on the nearest Saturday to 31 March.
financial year statutory measure 2020/21 The current financial year is for
the 52 weeks ended 2 April 2022
with the comparative financial
year being for the 53 weeks ended
3 April 2021. In order to provide
comparability with the prior year
results, adjustments have been
made to the 2020/21 53-week income
statement to remove sales, operating
costs and other items relating
to the last trading week of the
2020/21 financial year. In determining
the week 53 adjustment, revenue
and cost of goods sold represent
the actual trading performance
in that week, with overhead expenses
allocated proportionally to week
53. 2020/21 Exclude week 53 2020/21 52-week basis
GBPm GBPm
Revenue
UK Food 6,138.5 (143.7) 5,994.8
UK Clothing & Home 2,239.0 (40.4) 2,198.6
Total UK Retail 8,377.5 (184.1) 8,193.4
International 789.4 (10.1) 779.3
Total Group 9,166.9 (194.2) 8,972.7
Operating profit/(loss) before
adjusting items
UK Food 228.6 (15.0) 213.6
UK Clothing & Home (130.8) 1.4 (129.4)
International 44.1 1.0 45.1
Adjusted profit before tax
Total Group 50.3 (8.7) 41.6
Loss before tax
Total Group (209.4) 8.2 (201.2)
Balance sheet measures
Net debt None Reconciliation Net debt comprises total borrowings
of net (bank and bonds net of accrued
debt (see interest and lease liabilities),
note 15) 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 None Reconciliation Calculated as net debt less lease
excluding lease of net liabilities. This measure is a
liabilities debt (see good indication of the strength
note 15) of the Group's balance sheet position
and is widely used by credit rating
agencies .
Cash flow measures
Free cash flow Net cash inflow See Financial The cash generated from the Group's
after from operating Review operating activities less capital
shareholder activities expenditure, cash lease payments
returns and interest paid.
This measure shows the cash retained
by the Group in the year .
Free cash flow Net cash inflow See Financial Calculated as the cash generated
from operating Review from the Group's operating activities
activities less capital expenditure and interest
paid, excluding returns to shareholders
(dividends and share buyback).
This measure shows the cash generated
by the Group during the year that
is available for returning to shareholders
and is used within the Group's
incentive plans.
Other measures
Covid-19 None Not applicable As part of the Group's normal financial
scenario planning process, the Board approved
the 2020/21 budget and three-year
plan.
As a result of the UK government
restrictions on trade that were
announced in response to the Covid-19
pandemic, the Group revisited the
2020/21 budget and three-year plan
to determine a downside scenario.
The downside scenario assumed the
government guidelines at the period
end continued for a period of at
least four months, resulting in
a significant decline in sales
for the remainder of 2020/21, as
outlined in the basis of preparation
in the Group's 2020 Annual Report
and Financial Statements.
This downside scenario was approved
by the directors and is defined
as the Covid-19 scenario .
Capital None Not applicable Calculated as the purchase of property,
expenditure 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 None Not applicable Calculated as being EBIT(1) before
capital adjusting items divided by the
employed average of opening and closing
("ROCE") capital employed. The measures
used in this calculation are set
out below: 2021/22 2020/21
GBPm GBPm
EBIT before adjusting
items 709.0 222.2
Net assets 2,917.9 2,285.8
Add back:
Partnership liability
to the Marks &
Spencer UK Pension
Scheme 192.3 193.5
Deferred tax liabilities 187.2 42.3
Non-current borrowings
and other financial
liabilities 3,561.0 3,659.9
Retirement benefit
deficit 5.7 7.8
Derivative financial
instruments - 73.6
Current tax liabilities 34.0 -
Less:
Investment property (15.0) (15.2)
Derivative financial
instruments (61.4) -
Retirement benefit
asset (1,043.9) (639.2)
Current tax assets - (35.4)
Net operating
assets 5,777.8 5,573.1
Add back: Provisions
related to adjusting
items 124.9 100.8
Capital employed 5,902.7 5,673.9
Average capital
employed 5,788.3 5,874.8
ROCE % 12.2% 3.8%
This measure is used within the
Group's incentive plans. Refer
to the Remuneration Report for
an explanation of why this measure
is used within incentive plans.
(1) EBIT is not defined within IFRS but is a widely accepted
profit measure being earnings before interest and tax.
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END
FR SEUEDLEESEFI
(END) Dow Jones Newswires
May 25, 2022 03:30 ET (07:30 GMT)
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