TIDMMKS
RNS Number : 8064Z
Marks & Spencer Group PLC
26 May 2021
Issued: 26 May 2021
Marks and Spencer Group Plc
Full Year Results for 53 Weeks Ended 3 April 2021
"NEVER THE SAME AGAIN - FORGING A RESHAPED M&S"
2020/21 is a 53-week year. The comparative period is 52 weeks to
28 March 2020. To aid understanding, we are showing the unaudited
52 weeks to 27 March 2021 with commentary and percentage changes on
a 52-week basis unless otherwise stated.
Resilient nancial performance in a year of disruption
-- Pro t before tax & adjusting items of GBP41.6m (53 weeks GBP50.3m)
-- Statutory loss of GBP201.2m (53 weeks GBP209.4m)
-- Food LFL revenue up 1.3%, underlying LFL ex-hospitality and franchise up 6.9%
-- C&H revenue down 31.5%. Online growth of 53.9% partly offsetting stores down 56.2%
-- Group online revenue ex-Ocado now GBP1.5bn
-- Ocado Retail share of net pro t GBP78.4m
-- Net debt excluding lease liabilities reduced GBP278.6m to GBP1.11bn and strong liquidity
Forging a reshaped M&S through the Never the Same Again programme
-- M&S Food growth supported by improved value perception and over 1,900 new lines
-- M&S products now over 25% of Ocado average basket and c.50% capacity growth planned
-- Clothing & Home business reshaped with shift to active and casual and more focused ranges
-- MS2 created to accelerate the shift to omni-channel with an online first approach
-- Sparks relaunch hits 10m members with substantially improved data capabilities
-- Accelerated opportunity to rotate the store estate into higher quality space
Steve Rowe, CEO: "In a year like no other we have delivered a
resilient trading performance, thanks in no small part to the
extraordinary efforts of our colleagues. In addition, by going
further and faster in our transformation through the Never the Same
Again programme, we moved beyond fixing the basics to forge a
reshaped M&S. With the right team in place to accelerate change
in the trading businesses and build a trajectory for future growth,
we now have a clear line of sight on the path to make M&S
special again. The transformation has moved to the next phase."
53 weeks ended 52 weeks ended 52 weeks ended
3 April 21 27 March 21 28 March 20
Group revenue before adjusting GBP9,166.9m GBP8,972.7m GBP10,181.9m
items
Group operating pro t before GBP222.2m GBP209.7m GBP590.7m
adjusting items
Pro t before tax & adjusting GBP50.3m GBP41.6m GBP403.1m
items
Adjusting items GBP(259.7)m GBP(242.8)m GBP(335.9)m
(Loss)/pro t before tax GBP(209.4)m GBP(201.2)m GBP67.2m
(Loss)/pro t after tax GBP(201.2)m GBP(194.4m) GBP27.4m
Basic (loss)/earnings per share (10.1)p (9.8)p 1.3p
Adjusted basic earnings per
share 1.4p 1.1p 16.7p
Free cash ow(1) GBP296.4m n/a GBP205.7m
Net debt(1) GBP3.52bn n/a GBP3.95bn
Net debt excluding lease liabilities(1) GBP1.11bn n/a GBP1.39bn
Dividend per share - - 3.9p
-------------- -------------- --------------
(1) Due to a change in the Group's accounting policy to
recognise BACS payments at the settlement date, rather than when
they are initiated, the comparative amounts for net debt and free
cashflow have been restated.
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 of performance. Refer to adjusting items table below
for further details.
FORGING A RESHAPED M&S
Our results for the year bear the impact of the pandemic
spanning the beginning of the rst national lockdown through to near
to the end of the third lockdown in the UK. However, they also
reflect an acceleration of the transformation which enabled the
business to deliver a resilient performance.
In the rst section of this statement, we explain how this
performance was delivered. We then outline how we have used this
period to accelerate transformation under the Never the Same Again
programme to ensure a reshaped business emerges from the crisis.
Finally, we lay out our medium-term ambition for the Group's
businesses and expectations for the year ahead.
A resilient nancial performance in a year of disruption
-- The Group delivered pro t before tax and adjusting items of
GBP41.6m and a statutory loss before tax of GBP201.2m in a year
characterised by unprecedented lockdowns, resilient performance and
disciplined management of costs.
-- We are grateful for total government support of GBP306.1m
which has partly offset the effect of lost trade and enabled us to
maintain employment.
-- Food delivered strong underlying LFL growth of 6.9% after
adjusting for the closure of hospitality and the adverse impact on
franchise sales. Operating pro t before adjusting items of
GBP213.6m was a creditable achievement given the related effects on
product mix.
-- Ocado Retail contributed a share of net income of GBP78.4m in
an exceptional period for the business and following the successful
switchover to M&S supply.
-- Clothing & Home results re ect the heavy impact of
lockdowns on stores, a substantial change in product mix and the
challenges of clearing stock, partially offset by very strong
growth online of 53.9%. As a result, net revenue declined 31.5% and
there was an operating loss before adjusting items of GBP129.4m.
Performance improved in the second half as online growth made
greater inroads into the store sales decline. Clothing & Home
online generated an operating profit margin of c.14%.
-- International operating pro t before adjusting items of
GBP45.1m was resilient due to online growth which helped to
mitigate the pandemic impacts on store sales in different
regions.
-- The balance sheet has emerged stronger than expected. Lower
discretionary costs and capex, managed stock ow and a focus on
working capital resulted in net debt excluding lease liabilities
down GBP278.6m to GBP1.11bn and a strong liquidity position.
This resilient performance is due to the extraordinary efforts
of colleagues across the business, playing their part to feed the
nation, increase our capacity for home delivery and work with our
trusted suppliers to adapt to rapidly changing restrictions across
the year .
A reshaped M&S emerging from the pandemic period
Over the past three years the objective of the transformation
has been to restore M&S to sustainable growth through 'facing
into the facts' the business had failed to address. The
transformation has included shifting to trusted value and
broadening the appeal of our ranges in Clothing & Home and
Food, investing in online and digital capability including
establishing the investment in Ocado Retail and tackling both the
high cost and outdated supply chains and the legacy store
estate.
From the start of the pandemic we recognised that it would
accelerate market trends providing an opportunity to bring forward
transformation to emerge as a reshaped business.
-- Broadening M&S Food appeal : The Food business is
broadening its appeal through more relevant family focused
innovation and improved value perception led by over 340
'Remarksable value' lines which now represent c.10% of volumes.
Growth is supported by a significant cost reduction programme
including synergies from growth on Ocado, systems upgrades to
reduce waste and the Vangarde supply chain programme which is
delivering better availability.
-- Transition to M&S product on Ocado Retail completed
successfully : Penetration of M&S lines on Ocado is
consistently over 25% of the Ocado basket , outperforming Waitrose.
The next stage is to grow capacity by c.50% in the next 18 months
and to realise further potential from the joint venture with our
partners Ocado Group.
-- Omni-channel Clothing & Home business emerging :
Substantial reshaping has created a 'product engine' providing a
contemporary, focused M&S range. In addition, complementary
external brands have been successfully launched. The creation of
MS2 has brought together the data and online teams to prioritise
online trading and growth while leveraging the advantages of our
store estate more effectively. MS2 draws on the data engine and the
relaunched Sparks loyalty scheme which has grown to over 10m
members, enabling a more personalised relationship with
customers.
-- Accelerated rotation of the full line store estate : The drag
on performance of the legacy estate has been exacerbated by Covid
bringing forward the decline of some locations but also creating
opportunities for rotation. We are increasing the speed of change
to create a group of well-invested full-line stores in c.180 prime
and core markets. The costs of the rotation programme will be
largely funded by the release of cash from the development of
freehold and long leasehold sites.
-- An International business focused on major partnerships and
online : Online sales doubled in 2020/21 and we are now investing
in increasingly localised fulfilment, expanding our presence on
marketplaces such as Zalando and the launch of additional websites
such as the 46 markets announced in March. Digital trading
improvements, partner store modernisation and supply chain
development are positioning the business for rapid recovery as
lockdowns end. Following Brexit, the business is reconfiguring
trading with its EU businesses to reflect the challenges of
exporting to the EU.
Business positioned well for the medium-term despite near-term
headwinds
Overall trading for the first six weeks of the financial year
and since reopening has been ahead of the comparable period two
years ago in 2019/20 and our central case. Core Food is in strong
growth although hospitality and franchise remain adversely
affected, with Clothing & Home sales growing since reopening
and online remaining robust. International sales continue to be
impacted by on-going restrictions, particularly in India.
While encouraging, it is unclear how the recovery will develop
and if consumer activity will sustain. International markets
continue to face headwinds with ongoing disruption and the material
costs of Brexit which we are working to mitigate. At this early
stage our central case is that we will generate profit before tax
and adjusting items between GBP300-350m and as capital expenditure
recovers towards pre-pandemic levels, our ambition is for a further
reduction in net debt.
We have a clear path to a transformed business in the medium
term. The priority is to fund investment in building omni-channel
capability, including investment in the supply chain, store
rotation and maintenance of our changing estate. As we recover
balance sheet metrics consistent with investment grade, we will
assess the reintroduction of dividend payments, although as we
focus on restoring profitability this is unlikely in the current
year.
1. A RESILIENT FINANCIAL PERFORMANCE IN A YEAR OF DISRUPTION
The reporting period spans the year from the beginning of the
rst UK-wide national lockdown in March 2020 to the end of the third
lockdown in April 2021. In most of this time our operations have
been severely constrained by the change in day-to-day living, the
effects of social distancing and partial or full closure of large
parts of our store estate. This has resulted in substantial changes
to the mix of products customers have bought and a wide divergence
of store formats and channels.
The group has delivered a pro t before tax and adjusting items
this year of GBP41.6m, compared with GBP403.1m last year. Statutory
loss before tax was GBP(201.2)m respectively on a 52 week basis
(GBP(209.4)m on a 53 week basis), compared to a statutory profit
before tax in 2019/20 of GBP67.2m. Strong free cash ow has driven a
healthy reduction in net debt . The substantial effects of reduced
sales and directly attributable covid related costs of GBP269.6m as
a result of the pandemic were only partly offset by government
support of GBP306.1m.
Group results before 2020/21 2019/20 %
adjusting items (GBPm)(1)
----------------------------- ---------- ---------- --------
C&H operating (loss)/profit (129.4) 223.9 -157.8
Food operating profit 213.6 236.7 -9.8
International operating
profit 45.1 110.7 -59.3
Share of Ocado Retail
net income 78.4 2.6 2,915.4
Profit before tax &
adjusting items 41.6 403.1 -89.7
Adjusting items (242.8) (335.9) 27.7
Free cashflow(2) 296.4 205.7 44.1
Net debt excluding
lease liabilities(2) GBP1.11bn GBP1.39bn -20.1
Net debt(2) GBP3.52bn GBP3.95bn -10.9
----------------------------- ---------- ---------- --------
(1) On an unaudited 52 week basis to 27 March 2021 except where
stated
(2) Items shown on a 53-week basis. Due to a change in the
Group's accounting policy to recognise BACS payments at the
settlement date, rather than when they are initiated, the
comparative amounts for net debt and free cashflow have been
restated
Strong underlying Food performance - LFL ex hospitality and
franchise up 6.9%
M&S Food delivered strong underlying LFL growth of 6.9%
after adjusting for the closure of hospitality and the adverse
impact on the franchise business. Total sales were down (0.6)% and
operating pro t before adjusting items of GBP213.6m re ected the
negative effects of product mix. The trading impact on the
convenience and hospitality businesses together with the effect of
Covid related costs was only partially offset by government support
and cost saving programmes.
The strong underlying LFL growth was delivered in the face of
further additional headwinds, including the exposure to of ce and
shopping centre locations as illustrated below. Unlike some
competitors M&S Food sales as reported do not bene t from a
direct online grocery presence, with these sales reported through
Ocado Retail instead. The change in shape of trade is illustrated
in the table below with the adversely affected areas collectively
accounting for c.37% of prior year sales.
% change to 19/20 % change to 19/20
--------------------------------------- ---- ------------------------------------- ----
Simply Food 18 High Street -18
Retail Parks 7 Shopping centre -19
Franchise fuel 5 City centre -33
M&S.com (online flowers/hampers/wine) 184 Franchise travel (rail/air/roadside) -82
--------------------------------------- ---- ------------------------------------- ----
Total 17 Total -29
--------------------------------------- ---- ------------------------------------- ----
Lockdown also resulted in steep declines in convenience
categories such as food-on-the-move and initially in prepared meals
given reduced footfall as customers switched to home cooking.
However, the repurposing of space towards core categories such as
grocery, household, and meat, sh and poultry, together with the
continued transformation of our ranges and value position helped to
offset the loss of convenience trade. The adversely impacted
categories together accounted for around a third of prior year
sales .
% change to 19/20 % change to 19/20
----------------------- --- ------------------ ----
Meat, fish, poultry,
deli 13 Hospitality -81
Produce & flowers 8 Food-on-the-move -47
Beers, wines, spirits 25 Bakery -7
Grocery & household 27 Prepared meals -5
Frozen 36 Confectionery -4
----------------------- --- ------------------ ----
Total 15 Total -26
----------------------- --- ------------------ ----
The Group had a good Christmas and a very strong Easter in 2021,
which fell into week 53 of the nancial year.
The Food business incurred extra costs to support customer and
colleague safety of GBP49.4m and incentives for non-furloughed
colleagues working through the pandemic of GBP22.0m. In addition,
GBP9.9m of costs were incurred as a result of Brexit, which are set
out in further detail below.
Exceptional Ocado Retail contribution to results
Ocado Retail delivered 43.7% revenue growth over the 52 weeks
ended 28 February 2021 and contributed a share of net income of
GBP78.4m.
This has been an exceptional period for grocery online and Ocado
Retail performed strongly. Higher than normal basket size and a
smoothed trading pro le across the week together with reduced
marketing costs delivered a strong improvement in profitability.
The overall result included the Group's share of insurance receipts
related to business interruption at the Andover customer ful lment
centre (CFC).
The well-planned switchover to M&S supply from Waitrose in
September 2020 went smoothly with a positive customer response and
the M&S share of basket has exceeded the Waitrose level prior
to switchover.
Accelerating online sales growth of 53.9% partially offsetting
store decline of 56.2% in Clothing & Home
The overall Clothing & Home result for the year was heavily
impacted by lockdowns, on-going social distancing, steep decline in
formal and occasionwear, the location of many of our stores in town
and shopping centres and the priority to clear stock. As a result,
total revenue declined 31.5%.
As we implemented MS2 and took multiple steps to improve online
operating performance we were able to capitalise on the change in
customer shopping patterns and saw a progressive increase in online
sales and market share growth through the year. This was a result
of strong traf c, active customer growth, improving frequency and
lower returns. The business had a good service and fulfilment
performance supported by previous investment in the Castle
Donington distribution centre and substantial expansion of
fulfilment from store capability.
As reported for Food, stores in high streets, shopping centres
and city centres created an extra drag on sales performance, with
these channels representing c.70% of prior year store sales.
% change to 19/20 % change to 19/20
-------------------- ---- ------------------ ----
Retail Parks -44 High street -56
C&H in Food stores -44 Shopping centre -63
City centre -67
Outlets -60
-------------------- ---- ------------------ ----
Total -44 Total -61
Within categories, casual clothing, kids and home outperformed
but not suf ciently to offset the adverse sales mix in areas such
as formal clothing and holiday, with the categories in the
right-hand table below accounting for c.18% of prior year
sales.
% change to 19/20 Online Stores % change to 19/20 Online Stores
----------------------- ------- ------- -------------------- ------- -------
Lingerie & essentials 121 -54 Formal -15 -72
Kids 78 -43 Holiday -31 -72
Casual 61 -56 Shoes & accessories 3 -68
Home & beauty 30 -47 Outerwear 15 -52
----------------------- ------- ------- -------------------- ------- -------
Total 66 -51 Total -7 -69
Clothing & Home recorded an operating loss before adjusting
items of GBP129.4m as lower sales were only partly offset by
reduced operating costs. Losses substantially reduced in the second
half as the actions we took to accelerate online growth partly
compensated for losses in store. Overall, Clothing & Home
online generated strong profitability, with an operating margin of
c.14%, for the year. Conversely, the operating loss in stores
represented a margin on sales of c.(26)%. Stringent action to
reduce or postpone orders from suppliers together with measures to
hibernate a small amount of stock resulted in a relatively clean
stock position by the end of the year.
Resilient International pro t as a result of franchise
partnerships and strong online growth
International sales re ected the pandemic impact and lockdowns
across markets partly offset by the strong shift to online sales.
Clothing & Home sales declined 21.6% at constant currency,
largely driven by lower store sales in the Republic of Ireland and
India and working with franchise partners to manage the effects of
the pandemic. This was partly offset by online sales which more
than doubled. Food sales, down 9.4% were more resilient
particularly in the Middle East and Asia as Covid refocused
customer demand to favour eating in. This helped to offset a weaker
performance in travel franchise sales in Europe and disruption from
Brexit in quarter four.
O perating pro t before adjusting items of GBP45.1m re ects in
large part the lower Clothing & Home sales. The International
business also incurred Brexit related costs of GBP6.2m in the
year.
Relaunched Sparks loyalty scheme and M&S Bank customer
offer
We relaunched the Sparks loyalty scheme in July shifting from a
points-based plan which was delivered through a physical card, to a
more customer friendly digital experience. Since relaunch total
membership has grown to over 10m customers. The new Sparks operates
on the M&S app and enables M&S to create a more
personalised relationship with members as opposed to the
traditional model of targeted promotions. Alongside Sparks we are
repositioning the M&S Bank, closing down the branches and
moving away from traditional banking accounts, focusing instead on
credit, currency services and payments.
Balance sheet strengthened
At year end, the Group's net debt excluding lease liabilities
declined by GBP278.6m and total net debt was down GBP434.7m.
Although profitability was significantly reduced by the impacts of
the pandemic, cashflow was preserved through a combination of
actions to improve working capital including new terms with
suppliers, adjustment to arrangements with landlords, reduced
discretionary costs, careful management of capital expenditure and
government support. During the period, the business strengthened
its overall liquidity position by reducing net debt, refinancing
its 2021/22 debt maturities and managing its standby liquidity
facility with its banks.
Adjusting items re ect cost restructuring and the accelerated
store rotation programme
We have reported adjusting items of GBP259.7m for the 53-week
period (52 weeks: GBP242.8m). Significant charges of GBP133.7m
relate to the costs of organisational change including the
restructuring of operations announced in the summer of 2020 and in
the Republic of Ireland. We expect the restructuring of operations
to generate annualised cost savings of at least GBP115m. We have
also provided GBP95.3m for accelerated depreciation and impairment
as we increase rotation of the estate to address the drag of legacy
stores unsuitable for modern trading or in declining locations. A
charge of GBP79.9m has been recognised for intangible asset
impairments, offset by a GBP90.8m gain largely relating to the
release of a portion of the Covid inventory provision made in the
prior year.
2. A RESHAPED M&S EMERGING FROM THE PANDEMIC PERIOD
Over the past three years the objective of the transformation
has been to restore the business to sustainable growth. We have
substantially reduced promotions and shifted to trusted value to
broaden the appeal of our ranges, invested in online, data and
digital capability, established the Ocado Retail joint venture and
also tackled the legacy store estate and created more efficient
operations. However, from the outset of the pandemic we recognised
it would accelerate market trends providing an opportunity to bring
forward transformation through the 'Never the Same Again' programme
to emerge as a reshaped business.
M&S Food positioned for growth
The objective for Food is to 'protect the magic' by investing in
our unique focus on own brand innovation and fresh, easy to cook
food and growing through larger more inspirational stores, while
modernising the cost base and supply chain. With strong customer
perceptions on quality and a reputation for innovation and trust,
yet a small market share, the business has a substantial growth
opportunity.
Protecting the magic : The M&S Food range is built from deep
supplier relationships and strong product knowledge to drive a high
level of innovation. Over the past year we created over 1,900 new
lines broadening appeal in healthy and family product. This
included expanding Dine-In to feed a family of four and building on
our strengths over key events. To help create next generation ideas
a "Food Innovation Hub" has been established bringing together
packaging, product innovation and nutrition in areas such as
plant-based protein and sustainable packaging.
Delivering better value : The aim for M&S Food is to always
be great value, with better quality and ingredient content more
than compensating for any difference in price. We have extended our
position on trusted value by expanding the range of 'Remarksable
Value' staple lines at an everyday low price to over 340 products,
which now account for c.10% of volumes. This has supported a
further improvement in value perception which is now at its
strongest level in almost three years.
Larger and more inspirational stores: Food renewal aims to
create larger stores with the efficiency of a supermarket and the
'soul' of a fresh food market and has this now been implemented in
15 stores with current year openings and renewals raising the total
to around 40. These stores offer increased produce, bakery, ambient
grocery and frozen ranges in an inspiring environment. The initial
trial stores outside Covid affected city centres grew sales 15%
last year.
Moving to digital marketing and sales : Food marketing has
shifted focus away from conventional activity towards high impact
brand building and increased social media engagement, which helps
create a new shop window to the brand and reach new audiences. As a
result, while we have reduced marketing spend and promotional
activity is down substantially, the spend on social media and
digital marketing has increased by c.35% on the prior year.
Food-on-the-move and hospitality : Despite the impact in office
locations during Covid, we expect our sales in food-on-the-move to
recover over time with further opportunities for growth through new
channels to market. In addition, the M&S café offer has now
been refreshed and simplified and this year will implement modern
quick to serve menus, which are lower touch to prepare.
Upgraded systems : High waste and low availability in some
instances reflects a cumbersome and under-invested supply chain and
high touch forecasting and range management systems. We are now
commencing a programme to upgrade core systems to reduce manual
intervention and improve accuracy and ef ciency. This includes
updating forecasting and ordering technology with an objective of
reducing waste by more than 10% and we are replacing the space,
range and display system, improving the tailoring of ranges to
store.
Rolling out supply chain improvements : The Vangarde programme
is now operating in c.350 stores served by five depots with sales
uplifts from the rst depot at over 3% compared with control stores,
partly as a result of improved availability. We will be rolling
this out to the full estate over the rest of this year. To grow
ambient ranges and larger baskets we have opened a new depot in
Milton Keynes enabling growth of 13% over Q3, with the next phase
of capacity planned for 2021/22.
Lower cost to operate : We have now delivered over GBP180m of
cost of goods savings over the past two years to help mitigate in
ation and enable the investment in trusted value. This includes
optimising volume with strategic suppliers, reducing packaging
costs and respecifying ingredients. Increased volumes as a result
of the Ocado switchover generated over GBP20m of synergies which
was more than planned. In addition, current year operating costs
will also benefit from the savings from restructuring retail
operations announced last year.
Ocado Retail bringing multi-channel to M&S Food
The investment in 50% of Ocado Retail combined with the
switchover to M&S own brand positions the business for a
multi-channel offer working closely with our Ocado Group partners.
The transition from Waitrose to M&S product has gone well with
M&S consistently over 25% of the Ocado basket and around half
of Ocado fresh category sales. The next stage is to aggressively
grow capacity and to create further opportunities for both joint
venture partners.
Ocado Retail is investing in c.50% increase in peak day capacity
over 18 months which will help meet unful lled demand.
-- A new ful lment centre (CFC) was opened in Bristol in March
and additional CFCs in Pur eet and Andover will open later this
year. These CFCs alone will provide an eventual 40% increase in
sales capacity at full utilisation.
-- Further investments to increase the reach of the business
into parts of the UK that Ocado Retail does not currently serve
fully are likely in the months ahead. In addition, it plans to open
more than 12 Zoom sites expanding its immediacy proposition across
London and major UK cities.
Over the past year Ocado Retail has bene ted from the powerful
combination of strong demand as a result of Covid which enabled it
to operate at maximum capacity with a smoothed shape of week,
generating a very strong pro t contribution. In the current year we
expect some reversion of demand patterns and a reduction in average
order value leading to a more normalised set of economics.
A reshaped omni-channel Clothing & Home business
Our objective is to deliver an omni-channel Clothing & Home
business in the UK, backed by exceptional data and highly
personalised customer relationships. All channels will be driven by
a 'product engine' providing a more contemporary focused M&S
range bought in greater depth alongside a family of internal and
external partner brands with distinctive appeal to our
customers.
A strengthened Clothing & Home 'product engine' :
Over the last three years huge strides have been made in
reshaping ranges around new trading principles, most notably to buy
fewer lines in greater depth from fewer strategic suppliers. The
extent of the shift has been obscured by Covid and the related
trading turmoil, but we believe there is a marked improvement in
style, shape of buy and value. For instance, by Autumn 2021 total
option count is expected to be around a quarter lower than 2018
with the team implementing new range management tools to maximise
rate of sale of each option, and we are planning further option
count reductions in several areas.
Clothing & Home option count(1)
-----------------------------------
Autumn 18 17,900
Autumn 19 15,300
Autumn 20 13,100
1. Excludes furniture.
Following an initial phase when customers replenish their
wardrobes, we expect a permanent shift in demand to include a
reduction in formalwear and tailoring. With that we have shifted
focus to growth areas such as the new of ce smart wear, kids casual
ranges and the Goodmove athleisure range. Goodmove delivered an
exceptional performance over the past year recently achieving a
number one retailer market share in full price sales in the
category and has now been expanded from women's into men's and
kids.
The emergence of platforms and the increasing cost of online
customer acquisition for smaller retailers creates an opportunity
for M&S to leverage its customer base, infrastructure and
Sparks to partner with guest brands on the M&S platform. We can
offer time pressured customers a curated group of value for money,
contemporary, stylish brands with sustainability credentials.
During the year we introduced guest brands for the first time and
now distribute for an initial group of 21 partners. Results have
been very encouraging with further substantial growth planned. In
January we also acquired the Jaeger brand for GBP6m. Its historical
reputation for innovation in natural bres, British sourcing and
distinctive style provides a complementary addition to the M&S
range.
MS2 as the integrated online and data business driving
omni-channel growth :
Growth in the past year means Clothing & Home now has a base
of over 9.0m active online customers making it one of the largest
platforms in the UK. With that we have an objective to achieve in
excess of 40% of Clothing & Home revenue through online in
three years' time.
To take full advantage of this opportunity MS2 was created to
prioritise online and leverage the store estate in a more effective
way. The MS2 plan is able to draw on the Group's customer data
engine and relaunched and enlarged Sparks loyalty programme to
create a powerful insight tool and more personalised relationships
with customers.
The MS2 plan focuses on three core objectives:
Improving the online offer : Our priority is to increase
availability in the online channel from historic levels of c.80% in
recent years. In addition, we will be introducing online only
ranges, recognising the different rate of sale across channels
including trialling 'test and repeat' products. Given that around
one third of the M&S range is year-round product, we will also
expand best seller and 'never out of stock' initiatives. Combined
with a curated range of third-party brands we expect a substantial
improvement in the online offer in the coming year.
Creating a digital-led customer experience : Recognising that a
mobile-led customer experience is central to online success we are
increasing investment in optimising M&S.com for mobile and
growing the M&S app, which generated over 3.5m downloads last
year as we relaunched Sparks. In addition, within the app we have
built digital services such as scan and shop, to pay in store by
phone and video powered retail services such as bra fit, beauty and
furniture sales. In the summer M&S Bank also plans to launch a
digital credit option.
Maximising M&S's omni-channel advantage: Unlike pure play
retailers, M&S has an advantage in its store network which
provides an opportunity for rapid collection and returns and drives
incremental in-store sales. Investment in Castle Donington,
expansion of our site at Bradford and the repurposing of the
Thorncliffe warehouse means that M&S has sufficient capacity
for online deliveries for the next 2-3 years. Following the
restructuring to reduce store costs last year and the success of
buy online ship from store, we are investing in technology
improvements to enable a low-cost rapid click and collect offer
from store stock. In addition, as part of the omni-channel strategy
we have launched ve '10x' stores. In these stores we are targeting
a substantial increase in the use of digital services such as
contactless click and collect and returns and digital payment, as
well as specific benefits for Sparks members.
Accelerating rotation of the store estate
A continued headwind to M&S brand perception and performance
is the legacy estate of full line stores (selling both Clothing
& Home and Food) often in declining locations or centres, with
inefficient space which is difficult to shop and costly to
replenish. We have already closed or relocated 59 full line stores,
16 food stores and 8 outlets, but the effect of the pandemic means
we can move faster. There has rarely been a better time to acquire
new replacement stores on good terms and we are planning 17 new or
expanded full line stores over the next two years, including a
number of former Debenhams sites, with the pipeline continuing to
grow. While long leases have historically constrained our ability
to rotate, we plan to largely fund future closure costs through the
disposal for redevelopment of freehold and long leasehold
properties.
Framework for rotation : M&S had 254 full line stores at
year end. While practically all Clothing & Home departments in
these stores contribute positive cash, a number are in long term
decline, struggle to cover their allocated central costs as a
percentage of sales and cannot justify future investment.
Our objective for the full line estate is to achieve a fully
modernised core of c.180 stores. Our current best view of the
future estate based on stress tests, regional modelling and current
retail and efficiency requirements is as follows.
-- Around 100 stores in prime retail markets growing from the
current base of c.80. In these markets we will invest in renewal,
redevelopment, or replacement of existing stores.
-- Around 80 stores in core markets, growing from the current
base of c.65 stores through investments such as the relocation of
high street units to retail parks.
-- In c.110 remaining locations we will rotate the estate. This
will mean either relocating to a Food only store or another full
line store as above or consolidating multiple stores into one. In
around 30 locations which can no longer support a store we will
close, recapturing trade in nearby stores or online.
The overall benefit of well-located space is illustrated by the
profitability metrics of each group shown below. The average
Clothing & Home cash contribution margin in 2019/20 of prime
leasehold stores was 25% of sales or GBP3.0m per store. This is a
higher margin and more than 3x the cash contribution per store of
those out of which we plan to rotate.
Store grouping C&H cash Average cash
contribution contribution
margin(1) GBPm(1)
----------------- -------------- --------------
Prime stores 25.4% 3.0
Core stores 23.4% 1.3
Rotation stores 18.5% 0.9
----------------- -------------- --------------
Total 22.5% 1.4
----------------- -------------- --------------
1. Metrics for 2019/20 adjusted for covid impacts in March 2020.
Leasehold stores exclude long leaseholds.
The financial benefits of rotation are compelling, for instance
the table below illustrates the returns from consolidating
Northampton and Kettering stores into one at Rushden Lakes Retail
Park prior to the pandemic. The previous stores were ageing, with
sales in decline and no investment case to bring them up to
standard. The new retail park, built between the two towns
incorporates shopping, dining and leisure facilities on a site with
good access and car parking. The disposal of the freehold of one
store helped to fund the closure and the lease costs of the
remaining term of the other. The new store has generated a
substantial cash profit and LFL sales were in growth pre-Covid. The
net investment cost of the new store was GBP2.1m resulting in a
strong payback on the net capital invested.
Kettering GBPm Northampton GBPm Rushden Lakes GBPm
closure closure opening
------------------- ------ ------------------ ----- ------------------ -----
Sales 14.3 Sales 24.2 Sales 39.0
Cash contribution 1.1 Cash contribution 2.5 Cash contribution 4.8
LFL 17/18 LFL 17/18 LFL 19/20
% -12.3 % -7.0 % +6.5
The pace of rotation : To reduce investment risk and maximise
returns to shareholders we have set a target payback for
relocations including recapture of less than 4 years, with standard
lease terms of 10 years. Returns outside of these parameters are
considered where they enable an exit of long-term liability or in
exceptional locations.
We will work with landlords to negotiate appropriate terms at
exit and repurpose or develop space. However, in some cases it will
be more economic and brand enhancing to have a vacant store than
lose the opportunity to move to a better location. Reflecting this
at year end further charges of c.GBP268m are estimated over the
life of the programme including for accelerated depreciation and
impairment. When combined with the operational costs of closure we
currently expect to incur total cash costs of c.GBP260m over the
remaining period.
Funding the rotation : We have a number of freehold and long
leasehold properties, which offer an opportunity to fund rotation
through the release of cash from development. This includes the
Marble Arch proposal and additional stores including a number for
residential development. These properties tend to be in locations
where land values for alternative use are higher than for existing
use. We have an objective to release at least GBP200m from these
projects.
International business focused on major partnerships and
online
The International business has an objective of delivering market
relevant product, great digital service for partners and driving
growth online through MS2. Based on strong performance last year we
have an ambition to more than double international online retail
sales. This will be delivered by investing in digital marketing,
expanding categories further with major marketplaces and entering
into new markets such as the 46 countries announced in March. As
the business scales we expect to build fulfilment capacity to drive
more rapid customer service and lower costs.
We are also modernising operations and digitising our trading
interface for partners. This includes:
-- Launching a fully digital showroom . This transforms
partners' ability to create curated ranges relevant to their
markets and plan oors, windows and campaign without the cumbersome
and costly buying fairs previously held.
-- Driving faster rotation of the store estate with new
digitally enabled stores . This includes a rst '10x' trial,
offering partners omni-channel innovations such as digital tting
room assistance and self-checkout.
-- Creating a UK hub for export at Hemel Hempstead . This avoids
the need for International stock to enter the UK network where it
is broken down for storage and keeps product consolidated for
onward shipment. In addition, partners will have the facility to
collect stock regularly rather than receiving infrequent
shipments.
EU markets post Brexit
The most challenging effect of the Brexit deal is to make the
supply of fresh and chilled product, especially prepared food, into
the EU very lengthy and bureaucratic creating an enduring impact on
availability and trading costs. This situation is unlikely to
improve in the near term and we therefore need to reconfigure
trading with our EU businesses. The most significant impact is on
our Food operations in the island of Ireland and we are
implementing multiple medium-term solutions to stabilise the
business in both the North and the Republic. We have already
modified food export into the Czech Republic and are working with
our partners in France to review the model. While these operations
are relatively small in the context of the Group, changes to our EU
businesses as a result of Brexit related costs may result in future
restructuring charges.
See table in the following section for details of current
expectations of cost impacts in 2021/22.
3. BUSINESS POSITIONED WELL FOR THE MEDIUM-TERM DESPITE NEAR-TERM UNCERTAINTY
2021/22 a year of recovery
Overall trading for the first six weeks of the financial year
and since reopening has been ahead of the comparable period two
years ago in 2019/20 and our central case. Core Food is in strong
growth although hospitality and franchise remain adversely
affected, with Clothing & Home sales growing since reopening
and online remaining robust. International sales continue to be
impacted by on-going restrictions, particularly in India.
While encouraging, it is unclear how the recovery will develop
and if consumer activity will sustain in Clothing & Home as
well as what the eventual pace and shape of recovery in hospitality
and convenience in Food will be. We have a strong programme of
capacity growth at Ocado Retail although we expect some
normalisation of shape of week with respect to its economics. The
business also continues to face headwinds with ongoing disruption
in various International markets, both the Clothing & Home and
Food supply chains and the costs of Brexit.
Our central case for the current year therefore assumes a
gradual return towards more normal customer behaviour in stores in
Clothing & Home and hospitality and franchise in Food. With
that, we are assuming the receipt of business rates relief in line
with government guidance. Our scenario does not assume further
lockdowns.
In this central case UK costs normalise to levels broadly
consistent with 2019/20 underpinned by the benefit of the
restructuring announced last year, which will largely offset an
increase in base pay rates, costs related to transformation and
higher variable costs such as online fulfilment.
The business is now exposed to additional costs following
Brexit, largely due to the administrative burden on exports of
food, particularly to the island of Ireland. This includes
additional supply chain costs at Motherwell and Faversham depots,
as well as costs of a digital track and trace platform, additional
variable cost per tray, veterinary certification, and costs of
change. Potential tariffs relate to duty on exports of Clothing
& Home and elements of the Food catalogue into the EU.
The total estimated cost impacts for the business are shown
below, c.GBP27-33m of which relate to operations on the island of
Ireland. We have provided a range of potential tariffs depending on
the solutions implemented. We are also working on longer term
initiatives including a review of European business models, local
sourcing and re-routing product through European hubs.
Costs 2021/22 UK Food International Total
---------------- -------- -------------- --------
Administrative
costs (12) (17) (29)
Tariffs - (13-18) (13-18)
---------------- -------- -------------- --------
Net Costs (12) (30-35) (42-47)
---------------- -------- -------------- --------
Capital investment for the Group will increase to similar levels
to 2019/20 as we invest in the transformation, restart a programme
of store maintenance and accelerate rotation.
Our central case is therefore that we will generate profit
before tax and adjusting items between GBP300-350m and our ambition
is for a further reduction in net debt.
A path to a transformed business in the medium term
As the business emerges from Covid, we have an ambitious plan
for future growth with a clear path to a transformed business.
Food is delivering growth in core categories with larger baskets
and is now positioned to expand further in convenience, build sales
through larger renewed stores and progressively improve
profitability. In addition, Ocado Retail has already announced
plans which will increase peak day capacity by c.50% and has a
structurally profitable long-term model for growth.
In Clothing & Home the new buying approach and expanded
online capability is gaining traction with customers. We have more
active online customers and stores are positioned for recovery. We
are targeting in excess of 40% of Clothing & Home revenue
online in three years, with an overall operating margin ahead of
2019/20 levels. International has ambitious plans to grow online
sales, working with partners in key markets and in time to offset
the costs of Brexit.
Capital Allocation to prioritise the transformation
The priority is to fund investment in the transformation and to
rebuild balance sheet metrics towards levels consistent with
investment grade. Our approach will prioritise building
omni-channel capability, including investment in the supply chain
and maintenance of the changing estate, with an expectation of
capital investment recovering to pre-Covid levels. As above we are
seeking to fund the costs of rotation of the store estate with the
realisation of funds from our asset management programme.
As we recover balance sheet metrics consistent with investment
grade, we will assess the reintroduction of dividend payments,
although as we focus on restoring profitability this is unlikely in
the current year.
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
26 May 2021.
Steve Rowe and Eoin Tonge will host a Q&A session at 9.30am
on 26 May 2021:
Registration link here
Dial in number: +44 33 0606 1118 Room Number: 095533 Pin:
2990
Fixed Income Investor Conference Call:
This will be hosted by Eoin Tonge, Chief Finance Officer, at 2pm
on 26 May 2021:
Registration link here
Dial in number: +44 33 0606 1118 Room Number: 753824 Pin:
7026
International Access Numbers
US: +1 646 813 7960
ITFS: International Access Numbers
A recording of this call will be available until 5pm on 2nd June
2021:
Dial in number: +44 33 0606 1118 Access code: 905044
FULL YEAR FINANCIAL REVIEW
Financial Summary
53 weeks ending 52 weeks ending
---------------------------------------------------- --------------------------------
3 April 27 March 28 March Change
21 21 20 % (52
GBPm GBPm GBPm week)
-------------------------------- ------------------ --------- ---------- ------------
Group revenue before adjusting
items 9,166.9 8,972.7 10,181.9 -11.9
UK Food 6,138.5 5,994.8 6,028.2 -0.6
UK Clothing & Home 2,239.0 2,198.6 3,209.1 -31.5
International 789.4 779.3 944.6 -17.5
Group operating profit before
adjusting items 222.2 209.7 590.7 -64.5
UK Food 228.6 213.6 236.7 -9.8
UK Clothing & Home (130.8) (129.4) 223.9 -157.8
International 44.1 45.1 110.7 -59.3
M&S Bank and Services 1.9 2.0 16.8 -88.1
Share of result in associates
and joint ventures 78.4 78.4 2.6 2,915.4
Interest payable on lease
liabilities (124.9) (122.5) (133.4) 8.2
Net financial interest (47.0) (45.6) (54.2) 15.9
Profit before tax & adjusting
items 50.3 41.6 403.1 -89.7
Adjusting items (259.7) (242.8) (335.9) 27.7
(Loss)/profit before tax (209.4) (201.2) 67.2 -399.4
(Loss)/profit after tax (201.2) (194.4) 27.4 -
Basic (loss)/earnings per
share (10.1)p (9.8p) 1.3p -
Adjusted basic earnings per
share 1.4p 1.1p 16.7p -
Dividend per share - - 3.9p -100
Net debt GBP3.52bn n/a GBP3.95bn -10.9
-------------------------------- ------------------ --------- ---------- ------------
Notes:
2020/21 is a 53-week year. The comparative period is 52 weeks to
28 March 2020. To aid understanding, we are showing the unaudited
52 weeks to 27 March 2021 with commentary and percentage changes on
a 52-week basis unless otherwise stated.
Due to a change in the Group's accounting policy to recognise
BACS payments at the settlement date, rather than when they are
initiated, the comparative amounts for net debt and free cashflow
have been restated.
There are a number of non-GAAP measures and alternative profit
measures ("APMs"), discussed within this announcement and a
glossary and reconciliation to statutory measures is provided at
the end of this report. Adjusted results are consistent with how
business performance is measured internally and presented to aid
comparability of performance. Refer to the adjusting items table
below for further details.
Group results
Group revenue before adjusting items was GBP9,166.9m on a
53-week basis. On a 52-week basis, it decreased 11.9%, with UK
revenue down 11.3% driven by Clothing & Home revenue declining
31.5%, and International revenue down 17.5%. The Group generated an
adjusted profit before tax of GBP50.3m and a statutory loss before
tax of GBP(209.4)m on a 53-week basis (or GBP41.6m and GBP(201.2)m
respectively on a 52-week basis).
Statutory loss before tax includes total charges for adjusting
items of GBP259.7m on a 53-week basis, including charges of
GBP133.7m related to organisational change, GBP95.3m in relation to
store closures identified as part of transformation plans, GBP79.9m
for intangible asset impairments, offset by a GBP90.8m gain largely
relating to the release of a portion of the Covid inventory
provision made in the prior year.
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 revenue decreased 0.6%. Like for like (LFL) revenue grew
in the first three quarters but declined in the fourth quarter as
the UK-wide lockdown forced the hospitality business and parts of
our franchise business to close again. M&S Food reported sales
do not benefit from a direct online grocery presence, with these
sales instead reported through Ocado Retail .
Excluding franchise and hospitality, core M&S Food
categories performed strongly, particularly over key events, with
LFL revenue growth of 6.9% for the year.
% change to 2019/20 Q1 Q2 Q3 Q4 FY
--------------------------- ----- ----- ----- ----- -----
Food -2.1 1.6 2.2 -4.4 -0.6
Food LFL 2.0 3.4 2.6 -2.7 1.3
Food LFL ex franchise and
hospitality 7.7 8.6 8.4 2.8 6.9
Operating profit before adjusting items decreased 9.8%, largely
due to an adverse mix impact on gross margin, which was only
partially offset by reduced costs which benefitted from government
support.
27 Mar 21 28 Mar 20
52 weeks ended GBPm GBPm Change %
------------------------- ---------- ---------- -----------
Revenue 5,994.8 6,028.2 -0.6
Operating profit before
adjusting items 213.6 236.7 -9.8
Operating margin 3.6% 3.9% -35bps
The table below sets out the drivers of the movement in
operating profit before adjusting items. To improve understanding
we provide additional information on Covid-related impacts with
adjusted profit. Some direct Covid costs and government support are
visible within the right-hand table as they were incremental to
2019/20, whereas other costs, for example the ongoing costs of
furloughed colleagues (GBP41.9m), were also costs in 2019/20 and so
are not visible. The full costs and government support for furlough
income and business rates are detailed in a separate section.
Operating profit before GBPm Operating profit before GBPm
adjusting items adjusting items
------------------------------ ------- ------------------------ --------
2019/20 236.7 2019/20 236.7
Hospitality/franchise
Gross profit (60.7) gross profit (154.0)
Core categories gross
Store staffing 30.8 profit 93.3
Other store costs 56.3 Direct Covid costs (69.0)
Distribution and warehousing (46.8) Government support 101.0
Central costs (2.7) Other cost savings 5.6
------------------------------ ------- ------------------------ --------
2020/21 213.6 2020/21 213.6
------------------------------ ------- ------------------------ --------
-- Gross profit decreased GBP60.7m or c.84bps primarily as a
result of hospitality closures and lower convenience sales, partly
offset by strong growth in core categories and cost saving
programmes, including initial synergies of GBP21.4m from Ocado
supply.
-- Store staffing costs declined GBP30.8m, primarily driven by
GBP45.5m of efficiencies enabled by technology improvements in
store. We incurred Direct Covid costs within store staffing
relating to incentives for retail colleagues of GBP20.8m and door
host costs of GBP33.7m. Store staffing costs include government
furlough support of GBP28.8m.
-- The movement in other store costs largely relates to
government business rates relief of GBP70.8m, partly offset by
additional Covid-related cleaning and hygiene costs.
-- Distribution and warehousing reflects the increased costs as
a result of online orders, as well as Brexit-related costs of
GBP9.0m and Covid-related hygiene and social distancing measures.
The Food business incurred total costs relating to Brexit of
GBP9.9m in the year; a detailed breakdown is given in the Brexit
section below.
Ocado Retail Limited
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 31 May 2020, 30 August 2020, 29
November 2020 and 28 February 2021.
Group share of consolidated results of Ocado Retail Ltd
GBPm 52 weeks ended
28 Feb 21
--------------------------- ---------------
Revenue 2,353.2
EBITDA before exceptional
items 189.9
Exceptional items 50.5
Operating profit 204.2
Profit after tax 156.8
--------------------------- ---------------
M&S 50% share of profit
after tax 78.4
--------------------------- ---------------
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. Exceptional items
are defined within the Ocado Group plc Annual Report and Accounts
2020. A prior year comparative is not provided here as the
investment in Ocado Retail Ltd was made part-way through
2019/20.
Revenue grew 43.7% on an annual basis due to strong demand for
online grocery, higher than normal basket size and a smoothed
trading profile across the week. Following switchover on 1
September, M&S products have accounted for over 25% of the
average Ocado basket.
Ocado Retail EBITDA before exceptional items was GBP189.9m,
driven by the strong revenue growth and cost performance reflecting
a period of sustained high demand. Units per hour throughput
increased in customer fulfilment centres, with operational
improvements across the network. Trunking and delivery costs
reduced as a percentage of sales due to fewer deliveries per van,
as a result of a higher number of items per basket.
In addition, Ocado Retail has recognised GBP50.5m of exceptional
income before tax, largely related to insurance receipts for
business interruption for the period up to 28 February 2021 arising
from the Andover fire in 2019.
As a result of strong EBITDA growth and insurance receipts,
Group share of Ocado Retail profit after tax was GBP78.4m. After a
charge of GBP14.2m in adjusting items relating to the amortisation
of the intangible asset created by the investment, Ocado Retail
contributed GBP64.2m to Group profit after tax.
UK: Clothing & Home
Clothing & Home revenue decreased 31.5% as a result of the
impact on store sales of lockdowns and restrictions throughout the
year. Performance improved following store reopening in quarter two
and either side of the national lockdown in quarter three, and the
online business built momentum through the year.
% change to 2019/20 Q1 Q2 Q3 Q4 FY
------------------------ ------ ------ ------ ------ ------
Clothing & Home -61.5 -21.3 -25.1 -18.7 -31.5
Clothing & Home stores -83.8 -39.5 -46.5 -60.6 -56.2
Clothing & Home online 21.5 46.4 47.5 105.8 53.9
Clothing & Home LFL -59.3 -21.2 -24.1 -15.5 -29.8
To enable greater insight into these movements, we are providing
further detail on the performance of each channel.
Online
52 weeks ended 27 Mar 21 28 Mar 20 % change
--------------------- -------------------- ----------- -----------
Traffic (m) 417.5 308.8 35.2
Active customers (m) 9.0 5.9 52.5
Conversion (%) 7.2 6.3 0.9 pts
Average order value (GBP) 49.7 51.5 -3.5
Returns rate (%) 18.8 28.0 -9.2 pts
Revenue GBPm 1,109.7 721.3 53.9
UK Clothing & Home online revenue increased 53.9%. Following
initial disruption in April, online sales remained strong and built
momentum, with quarter four revenue up 105.8%. Online customer
traffic increased 35.2% driven by both direct and paid search
helping to drive 52.5% growth in active customers to 9.0m. Growth
was led by mobile, with over 3.5m downloads of the M&S app
driven by the relaunch of Sparks. This led to increased app usage,
with 2.3m monthly active users (2019/20: 1.2m), which also helped
to drive better conversion. In addition, there was a benefit from a
c.9 percentage point reduction in returns rates compared with last
year due to changes in customer behaviour and product mix during
lockdown. This offset headwinds from lower in-store orders, which
are attributed to the online channel, as well as a small decline in
average order value as customers' purchases focused on core
product.
Stores
52 weeks ended 27 Mar 21 28 Mar 20 % change
------------------------- --------------------- ----------- -----------
Footfall, m (average/week) 1.9 5.9 -67.8
Transactions, m (average/week) 1.0 2.1 -52.4
Basket value (GBP) 30.6 32.3 -5.3
Revenue GBPm 1,088.9 2,487.8 -56.2
UK Clothing & Home store revenue decreased 56.2%: the impact
of national lockdowns, local restrictions and the shape of the
store estate adversely impacted the business with footfall down
67.8% and overall transactions down 52.4%. Basket value fell 5.3%
in stores in line with online as customers' purchases focused on
core product.
Total Clothing & Home
The Clothing & Home business in total generated an
underlying operating loss before adjusting items for the year of
GBP129.4m compared with a profit of GBP223.9m in the prior year.
While online growth resulted in a substantial improvement in online
operating profit, this was more than offset by the decline in
stores , with lower costs insufficient to offset reduced overall
sales.
52 weeks ended 27 Mar 21 28 Mar 20
GBPm GBPm Change %
---------------------------- -------------- ----------- -----------
Revenue 2,198.6 3,209.1 -31.5
Operating (loss)/profit before
adjusting items (129.4) 223.9 -157.8
Operating margin -5.9% 7.0% -12.9pts
The table below sets out the drivers of the movement in Clothing
& Home operating (loss)/profit before adjusting items. To
improve understanding, we provide additional information on
Covid-related impacts within adjusted profit. Some direct Covid
costs and government support are visible within the right-hand
table as they were incremental to 2019/20, whereas other costs, for
example the ongoing costs of furloughed colleagues (GBP129.1m),
were also costs in 2019/20 and so are not visible. The full costs
and details of government support for furlough income and business
rates are detailed in a separate section.
Operating profit/(loss) Total Operating profit/(loss) Total
before adjusting items C&H GBPm before adjusting items C&H GBPm
------------------------------- ---------- ------------------------ ------------
2019/20 223.9 2019/20 223.9
Gross profit (611.7) Stores gross profit (841.2)
Store staffing 147.6 Online gross profit 229.5
Other store costs 109.3 Direct Covid costs (18.7)
Distribution and warehousing (43.2) Government support 196.4
Central costs 44.7 Other cost savings 80.7
2020/21 (129.4) 2020/21 (129.4)
------------------------------- ---------- ------------------------ ------------
-- Gross profit decreased GBP611.7m or (218)bps. Adverse
currency movements and under-recovery of fixed logistics costs
within margin impacted by (78)bps. Discounting increased (140)bps
driven by an increased mix of clearance sales made at a higher
depth of cut than last year.
-- Store staffing costs declined GBP147.6m, partly driven by
GBP42.6m of efficiencies enabled by technology improvements in
store. Store staffing costs include government furlough support of
GBP88.6m.
-- The movement in other store costs largely relates to business rates relief of GBP101.4m.
-- Distribution and warehousing reflects the higher costs to
serve online demand, both from the Castle Donington warehouse and
shipments from store partially offset by volume savings from
reduced deliveries to store. The overall increase in distribution
and warehousing costs was offset by delivery income within
revenue.
-- The decline in central costs was largely driven by lower
marketing activity, lower headcount and a reduction in depreciation
of technology assets as we move to cloud-based solutions and assets
reach the end of their useful lives.
Clothing & Home online generated an operating profit margin
of c.14%, with higher volumes leading to increased leverage of the
online fixed cost base. Profitability also benefited from a reduced
returns rate, although this was partially offset by the adverse
impact of lower in-store orders. Conversely, the operating loss in
stores represented a margin on sales of c.(26)%.
International
International revenue decreased 17.3% at constant currency
("CC") as stores were adversely impacted by rolling Covid lockdowns
and restrictions. Online sales remained strong throughout,
particularly in markets in which the Group has a store presence and
through partner websites, with sales growth of 114.3% to
GBP165.7m.
% change to 2019/20 Q1 Q2 Q3 Q4 FY FY
CC CC CC CC CC Reported
--------------------- ------ ----- ------ ------ ------ ----------
Total revenue -40.7 -9.2 -10.4 -10.2 -17.3 -17.5
--------------------- ------ ----- ------ ------ ------ ----------
52 weeks ended
27 Mar 28 Mar Change Change
Revenue 21 20 % CC %
GBPm GBPm
---------------------- --------- --------- --------- ---------
Clothing & Home 483.2 620.7 -22.1 -21.6
Food 296.1 323.9 -8.6 -9.4
Total 779.3 944.6 -17.5 -17.3
---------------------- --------- --------- --------- ---------
Memo: Online revenue 165.7 77.2 114.6 114.3
The decline in Clothing & Home sales was driven by lower
store sales in the Republic of Ireland and India, and lower
franchise shipments particularly to Asia, partly offset by online
growth. Food sales were more resilient particularly in the Middle
East and Asia, as Covid disruption shifted habits to favour eating
in. This helped offset the steep decline in travel franchise sales
in Europe and Brexit related disruption in quarter four.
Operating profit before adjusting items was down 59.3% driven by
the lower Clothing & Home sales and incremental costs relating
to Brexit. A detailed breakdown of this is given in the Brexit
section later in this report.
Operating profit before GBPm Operating profit before GBPm
adjusting items adjusting items
------------------------------- ------- ------------------------ ----------
2019/20 110.7 2019/20 110.7
Gross Profit (87.9) Stores gross profit (131.3)
Store staffing 14.0 Online gross profit 43.4
Other store costs 16.4 Online growth costs (23.6)
Distribution and warehousing (11.7) Government support 13.1
Central costs 3.6 Other cost savings 32.8
------------------------ ----------
2020/21 45.1 2020/21 45.1
------------------------------- ------- ------------------------ ----------
Gross profit decreased GBP87.9m as lower store sales were only
partially mitigated by strong online growth. Store staffing and
other store costs declined. The costs of GBP10.8m relating to
salary costs of colleagues on furlough were partially offset by
government furlough support of GBP6.3m and reduced overtime hours,
while the Group benefited from a further GBP6.8m of government
support for rent and rates across owned markets, and GBP7.1m of
rent relief. The increase in distribution costs largely relates to
the growth of online sales and costs incurred as a result of Brexit
of GBP6.2m which was only partly offset by lower distribution costs
on shipments to stores. Central cost reductions were enabled by the
shift to digital events from buying fairs and reduced travel.
M&S Bank & Services
M&S Bank & Services income before adjusting items was
down GBP14.8m to GBP2.0m. This was the result of a significant
decrease in income from credit card and travel money sales. M&S
Bank and services income after adjusting items relating to PPI
decreased GBP4.6m to GBP(0.4)m.
Covid costs
In the following table we set out identifiable costs within
adjusted profit related to Covid. We incurred a number of Direct
Covid costs such as door hosts and hygiene of GBP63.2m, incentives
for working through the pandemic for non-furloughed colleagues of
GBP28.5m and there was a slight reduction in colleague holiday
hours of GBP3.9m.
In addition, business rates relief of GBP174.6m partly
compensated for the substantial loss of trade from closed space in
Clothing & Home and hospitality areas and franchise stores in
Food.
Finally, identifiable costs include government grants for
furlough income of GBP131.5m, which were more than offset by the
salary costs incurred for furloughed colleagues of GBP181.8m.
Costs relating to Covid within adjusted Group C&H Food Inter'l
profit before tax in 2020/21 GBPm GBPm GBPm GBPm
--------------------------------------------- -------- -------- ------- --------
Operational costs related to Covid (63.2) (13.8) (49.4) -
Incentive for non-furloughed colleagues (28.5) (6.4) (22.0) (0.1)
Estimated lower colleague holiday hours 3.9 1.5 2.4 -
Direct Covid costs (87.8) (18.7) (69.0) (0.1)
Government business rates relief for
lost trade 174.6 101.4 70.8 2.4
Government grants - furlough income 131.5 95.0 30.2 6.3
Government support 306.1 196.4 101.0 8.7
Year-on-year Covid impacts within segmental
profit bridges 218.3 177.7 32.0 8.6
Salary costs for furloughed colleagues (181.8) (129.1) (41.9) (10.8)
Total cost impact in adjusted profit 36.5 48.6 (9.9) (2.2)
--------------------------------------------- -------- -------- ------- --------
Brexit
The following estimated cost impacts were incurred by the Group
in 2020/21 as a result of Brexit.
2020/21 UK Food International Total
---------------- -------- -------------- -------
Administrative
costs (9.9) (4.1) (14.0)
Tariffs - (2.1) (2.1)
---------------- -------- -------------- -------
Net costs (9.9) (6.2) (16.1)
---------------- -------- -------------- -------
Administrative costs include additional supply chain costs at
the Motherwell and Faversham depots as well as costs of a digital
track and trace platform, additional variable cost per tray,
veterinary certification costs and the one-off costs of change.
Tariffs relate to duty on exports of Clothing & Home and
elements of the Food catalogue into the EU.
In addition, the Group saw adverse trade impacts including the
restriction of trade on certain products, port delays and increased
operational complexity reducing availability.
Net finance cost
52 weeks ended
---------------------------------- ----------------- -------
27 Mar 28 Mar Change
21 20 GBPm
GBPm GBPm
---------------------------------- -------- ------- -------
Interest payable (89.9) (80.5) (9.4)
Interest income 4.7 14.5 (9.8)
(66.0 (19.2
Net interest payable (85.2) ) )
Pension net finance income 47.2 23.6 23.6
Unwind of discount on Scottish
Limited Partnership liability (4.9) (6.9) 2.0
Unwind of discount on provisions (2.7) (4.9) 2.2
(54.2
Net financial interest (45.6) ) 8.6
Net interest payable on (133.4
lease liabilities (122.5) ) 10.9
(187.6
Net finance costs (168.1) ) 19.5
---------------------------------- -------- ------- -------
Net finance costs decreased GBP19.5m to GBP168.1m. This was
primarily due to higher pension income due to the increased IAS19
pension surplus at last year end. In addition, there was a decrease
in the interest payable on lease liabilities offset by lower
interest received on deposits and higher interest payable on debt
due to a credit rating downgrade and the premium paid as part of
the buyback of bonds.
Group profit before tax & adjusting items
Group profit before tax and adjusting items was GBP50.3m on a
53-week basis, down GBP352.8m on last year. The profit decrease was
driven by the decline in Clothing & Home and International
operating profits.
Group loss before tax
Group loss before tax was GBP209.4m on a 53-week basis, down
GBP276.6m on last year. This includes adjusting items of GBP259.7m
on a 53 week basis (last year 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.
53 weeks ended 52 weeks ended
3 Apr 21 28 Mar 20
Change
GBPm GBPm
GBPm
------------------------------------------------------------------------- --------------- --------------- ---------
Strategic programmes - Organisation (133.7) (13.8) (119.9)
Strategic programmes - UK store estate (95.3) (29.3) (66.0)
Strategic programmes - Other (5.8) (27.3) 21.5
Directly attributable to Covid 90.8 (163.6) 254.4
Intangible asset impairments (79.9) (13.4) (66.5)
Sparks loyalty programme transition (16.6) - (16.6)
Amortisation and fair value adjustments arising from the investment in
Ocado Retail Limited (14.2) (16.8) 2.6
Remeasurement of contingent consideration including discount unwind on
Ocado Retail investment (6.8) (2.9) (3.9)
Establishing the investment in Ocado Retail Limited (1.7) (1.2) (0.5)
Store impairments and other property charges 6.9 (78.5) 85.4
M&S Bank charges incurred in relation to insurance mis-selling and Covid
forward economic
guidance provision (2.4) (12.6) 10.2
Other (1.0) 23.5 (24.5)
Adjusting items (259.7) (335.9) 76.2
------------------------------------------------------------------------- --------------- ---------
On a 53-week basis, adjusting items charges were GBP259.7m, with
GBP16.9m incurred in week 53, largely related to restructuring
costs.
A charge of GBP133.7m has been incurred in relation to
organisational change. This includes the integration of more
flexible management structures into store operations, as well as
the streamlining of store and management levels as part of the
Never the Same Again programme. This has resulted in a reduction of
c.8,200 roles across support centres, regional management, and UK
stores, with associated redundancy costs of GBP99.7m. We expect
this restructuring to generate annualised cost savings of at least
GBP115m.
A charge of GBP95.3m has been recognised in relation to store
closures identified as part of transformation plans reflecting an
updated view of latest closure costs as a result of an increase in
the number of stores in the programme. Further material charges
relating to the closure and reconfiguration of the UK store estate
are anticipated as the programme progresses with total future
charges of up to c.GBP268m estimated over the next 10 years,
bringing anticipated total programme costs since 2016 to be up to
c.GBP926m.
A gain of GBP90.8m has been recognised as being directly
attributable to the Covid pandemic relating to the release of a
portion of the inventory provision made in the prior year compared
to initial estimates offset by further costs relating to
cancellations and storage. The sell-through of Clothing & Home
stock has been much stronger than anticipated.
A charge of GBP79.9m has been recognised in relation to
impairment of intangible assets, comprising GBP39.6m for the
impairment of Per Una goodwill, and the balance for replaced,
retired or decommissioned computer software assets.
Charges of GBP16.6m have been incurred in relation to the
one-off transition costs associated with the closure of the old
Sparks loyalty scheme following the launch of the new programme in
July 2020.
A charge of GBP14.2m has been recognised relating to the
amortisation of intangible assets acquired on the purchase of our
share in Ocado Retail.
A gain of GBP6.9m was recognised relating to the reversal of
previously recognised store impairments offset by newly impaired
stores. The Group has revised future projections for UK stores
(excluding those stores which have been captured as part of the UK
store estate programme) for the current view of pressures impacting
the retail industry, which is less negative overall than previously
projected.
Charges of GBP2.4m have been incurred relating to M&S Bank,
primarily due to the insurance mis-selling provision. The Group's
share of the total insurance mis-selling and forward economic
guidance (FEG) provisions of GBP338.3m exceeds the total offset
against profit share of GBP225.1m to date and 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
56.5% (50.3% on a 53-week basis; 2019/20: 20.7%). The effective tax
rate on statutory loss before tax was a credit of 3.4% (credit of
3.9% on a 53-week basis; 2019/20: charge of 59.3%) due to the Group
statutory loss offset by the impact of disallowable adjusting
items. Given the lower level of profits, the effect of the
recapture of previous tax relief under the Marks and Spencer
Scottish Limited Partnership ("SLP") structure has increased
compared with previous years. Next year, we anticipate an effective
tax rate on profit before adjusting items of c.26% partly due to
the continuation of the recapture of previous tax relief.
Loss/Earnings per share
Basic loss per share was 9.8p (last year earnings of 1.3p), due
to the decrease in profit year on year and the increase in weighted
average shares outstanding. The weighted average number of shares
in issue during the period was 1,953.5m (2019/20: 1,894.9m). Basic
loss per share on a 53-week basis was 10.1p.
Adjusted basic earnings per share was 1.1p (last year earnings
of 16.7p) due to lower adjusted profit year on year. Adjusted basic
earnings per share on a 53-week basis was 1.4p.
Capital expenditure
53 weeks 52 weeks
ended ended Change
3 Apr 21 28 Mar 20 GBPm
GBPm GBPm
------------------------------------- ------------- ----------- ---------
UK store remodelling 27.0 60.3 (33.3)
New UK stores 14.9 33.3 (18.4)
International 6.7 15.7 (9.0)
Supply chain 25.2 39.2 (14.0)
IT & M&S.com 47.6 81.1 (33.5)
Property asset replacement 19.2 102.4 (83.2)
Acquisition of Jaeger brand 6.3 - 6.3
Capital expenditure before property
acquisitions and disposals 146.9 332.0 (185.1)
Property acquisitions and disposals (0.3) (2.7) 2.4
Capital expenditure 146.6 329.3 (182.7)
------------------------------------------ --------- ----------- ---------
Group capital expenditure before disposals decreased GBP182.7m
to GBP146.6m as a result of careful management of discretionary
spending as a result of the pandemic.
UK store remodelling costs related to Food renewal stores and
the repurposing of space from Clothing & Home and cafes to
Food. Spend on New UK stores related to seven Simply Foods and
three full-line store openings in the year.
Supply chain expenditure reflects investment in food equipment
and fleet to support anticipated volume growth, investment in a
second ambient food national distribution centre in Milton Keynes
and spend on improvements to Castle Donington capabilities and our
Bradford warehouse to support online expansion.
IT & M&S.com spend includes costs related to the licence
for the Food ordering and allocation system and investment in
digital capability for example, to support integration of more
flexible management structures into store operations .
Property asset replacement decreased GBP83.2m due to the prior
year asset replacement programme in stores, although this will
normalise towards pre-pandemic levels going forwards.
Cash flow
53 weeks ended 3 Apr 21 52 weeks ended 28 Mar 20 Change
restated
GBPm GBPm
GBPm
------------------------------------------------------- ------------------------ ------------------------- --------
Adjusted operating profit 222.2 590.7 (368.5)
Depreciation and amortisation before adjusting items 603.1 632.5 (29.4)
Cash lease payments (316.6) (335.7) 19.1
Working capital 268.1 (67.8) 335.9
Defined benefit scheme pension funding (37.1) (37.9) 0.8
Capex and disposals (203.8) (325.9) 122.1
Financial interest and taxation (81.8) (171.1) 89.3
Investment in associate Ocado Retail Limited 11.2 (577.8) 589.0
Investment in joint venture (2.5) (2.5) -
Employee-related share transactions 18.5 9.7 8.8
Proceeds from rights issue net of costs - 574.4 (574.4)
Share of profit from associate (78.4) (2.6) (75.8)
Cash received from settlement of derivatives 14.0 7.7 6.3
Adjusting items outflow (120.5) (88.0) (32.5)
Free cash flow 296.4 205.7 90.7
Dividends paid - (191.1) 191.1
Free cash flow after shareholder returns 296.4 14.6 281.8
Opening net debt excluding lease liabilities (1,388.6) (1,404.7) 16.1
Free cash flow after shareholder returns 296.4 14.6 281.8
Exchange and other non-cash movements excluding leases (17.8) 1.5 (19.3)
Closing net debt excluding lease liabilities (1,110.0) (1,388.6) 278.6
Opening net debt (3,950.6) (3,981.5) 30.9
Free cash flow after shareholder returns 296.4 14.6 281.8
Decrease in lease obligations 184.3 201.4 (17.1)
New lease commitments and remeasurements (48.3) (204.1) 155.8
Exchange and other non-cash movements 2.3 19.0 (16.7)
Closing net debt (3,515.9) (3,950.6) 434.7
------------------------------------------------------- ------------------------ ------------------------- --------
2019/20 net debt and free cash flow figures have been restated.
Due to a change in the Group's accounting policy to recognise BACS
payments at the settlement date, rather than when they are
initiated, to more appropriately reflect the nature of these
transactions, the comparative amounts have been restated.
The business generated free cash flow of GBP296.4m, largely
driven by working capital inflow, reduced capital expenditure and
lower tax payments, which more than offset the lower adjusted
operating profit.
The working capital inflow since year end 2019/20 was driven by
higher payables in Clothing & Home and Food (c.GBP125m) largely
due to the extension of payment terms for C&H suppliers and the
timing of payments including to landlords. Lower stock was a result
of strong Easter trading and the higher stock at prior year end
resulting from lockdown. Franchise receivables reduced due to
travel store closures.
Lower capital expenditure largely reflects the reduction of
discretionary spending as a result of the pandemic. Cash capital
expenditure includes GBP77.2m relating to prior year capital
accruals.
The decrease in financial interest and tax payments to GBP81.8m
is due to the reduction in UK corporation tax paid reflecting the
full year taxable loss position.
Defined benefit scheme pension funding of GBP37.1m reflects the
second limited partnership interest distribution to the pension
scheme.
Adjusting items cash outflow was GBP120.5m. This included
GBP92.1m relating to the costs of organisational change , GBP10.9m
in relation to the store rotation programme, GBP6.2m paid for deep
storage and fabric during the Covid pandemic, GBP5.6m in relation
to the transition to the new Sparks loyalty programme, GBP2.4m for
M&S Bank, and GBP1.7m relating to costs associated with the
launch of M&S product on the Ocado Retail platform.
Net debt
Net debt excluding lease liabilities decreased GBP278.6m from
the start of the year.
There was a further reduction in the value of discounted lease
obligations outstanding. New lease commitments and remeasurements
in the period largely relating to 11 properties were GBP48.3m of
which 10 opened in the year. This was more than offset by GBP184.3m
of lease repayments.
The composition of Group net debt is as follows:
53 weeks ended 52 weeks ended
3 Apr 21 28 Mar 20 vs
restated
GBPm GBPm GBPm
-------------------------------------- --------------- --------------- --------
Cash and cash equivalents 674.4 254.2 420.2
Medium Term Notes (1,682.1) (1,536.2) (145.9)
Current financial assets and other 83.2 96.1 (12.9)
Partnership liability (185.5) (202.7) 17.2
Net debt excluding lease liabilities (1,110.0) (1,388.6) 278.6
Lease liabilities (2,405.9) (2,562.0) 156.1
- Full-line stores (982.6) (1,054.8) 72.2
- Simply Food stores (727.0) (747.7) 20.7
- Offices, warehouses and other (494.5) (523.7) 29.2
- International (201.8) (235.8) 34.0
-------------------------------------- --------------- --------------- --------
Group net debt (3,515.9) (3,950.6) 434.7
2019/20 net debt and free cash flow figures have been restated.
Due to a change in the Group's accounting policy to recognise BACS
payments at the settlement date, rather than when they are
initiated, to more appropriately reflect the nature of these
transactions, the comparative amounts have been restated.
Of the outstanding discounted lease commitment at period end,
approximately 40% related to full-line stores and 30% to Simply
Food stores, with 8% relating to International leases and the
balance largely relating to warehousing and offices.
Liquidity
At year end, the Group held cash balances of GBP674.4m (2019/20:
GBP254.2m), with undrawn facilities of GBP1.1bn expiring April
2023. This strong liquidity position is as a result of free
cashflow performance and a GBP300m bond issuance in November, which
was used to refinance the bond maturity due in December 2021.
The refinancing of the Group's December 2021 maturity, along
with the successful negotiations in March 2021 to extend the
relaxation of covenant measures on the revolving credit facility up
to and including March 2022, mean that the Group has liquidity
headroom of over GBP1.5bn.
Dividend
We did not pay a final dividend for 2019/20 and the Board has
previously announced the decision not to pay a dividend for the
2020/21 financial year.
Pension
At 3 April 2021, the IAS 19 net retirement benefit surplus was
GBP631.4m (2019/20: GBP1,902.6m). The surplus at last year end had
increased significantly due to unusually high credit spreads as a
result of Covid. During the year, credit spreads have reverted to
more normalised levels giving rise to the decrease in the
surplus.
The Trustee of the UK Defined Benefit Scheme has commenced a
triennial actuarial valuation of the Scheme at 31 March 2021 as
required by statute. The assumptions used are to be agreed between
the Trustee and the Company. The Scheme surplus on a statutory
basis was GBP652m at the last actuarial valuation in 2018.
In September 2020, the Scheme purchased additional pensioner
buy-in policies with insurers for approximately GBP750m. Together
with the policies purchased in 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 GBP2,285.8m at the year end, a decrease of 38%
since the start of the year largely due to the decrease in the net
retirement benefit surplus and the Group loss for the year.
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 reg arding risks to Marks
& Spencer's business, please consult the risk management
section of the 2021 Annual Report.
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
53 weeks 52 weeks
ended ended
3 April 28 March
2021 2020
Total Total
Notes GBPm GBPm
--------------------------------------- ----- -------- ---------
Revenue 2 9,155.7 10,181.9
---------------------------------------- ----- -------- ---------
Share of result in associate - Ocado 3,
Retail Limited 17 64.2 (14.2)
---------------------------------------- ----- -------- =========
2,
Operating (loss)/profit 3 (30.7) 254.8
---------------------------------------- ----- -------- ---------
3,
Finance income 4 57.4 46.9
---------------------------------------- ----- -------- ---------
3,
Finance costs 4 (236.1) (234.5)
---------------------------------------- ----- -------- ---------
(Loss)/profit before
tax 3 (209.4) 67.2
---------------------------------------- ----- -------- ---------
Income tax credit/(expense) 5 8.2 (39.8)
======================================== ===== ======== ---------
(Loss)/profit for the
year (201.2) 27.4
---------------------------------------- ----- -------- ---------
Attributable to:
--------------------------------------- ----- -------- ---------
Owners of the parent (198.0) 23.7
---------------------------------------- ----- -------- ---------
Non-controlling interests (3.2) 3.7
---------------------------------------- ----- -------- ---------
(201.2) 27.4
--------------------------------------- ----- -------- ---------
(Loss)/earnings per
share
--------------------------------------- ----- -------- ---------
Basic (loss)/earnings
per share 6 (10.1p) 1.3p
---------------------------------------- ----- -------- ---------
Diluted (loss)/earnings
per share 6 (10.1p) 1.2p
---------------------------------------- ----- -------- ---------
Reconciliation of profit before tax
& adjusting items:
---------------------------------------- ----- -------- =========
(Loss)/profit before
tax (209.4) 67.2
---------------------------------------- ----- -------- ---------
Adjusting items 3 259.7 335.9
---------------------------------------- ----- -------- ---------
Profit before tax & adjusting items
- non-GAAP measure 50.3 403.1
---------------------------------------- ----- -------- ---------
Adjusted earnings per share - non-GAAP
measure
---------------------------------------- ----- -------- =========
Adjusted basic earnings
per share 6 1.4p 16.7p
---------------------------------------- ----- -------- ---------
Adjusted diluted earnings
per share 6 1.4p 16.6p
---------------------------------------- ----- -------- ---------
Consolidated statement of comprehensive income
53 weeks 52 weeks
ended ended
3 April 28 March
2021 2020
Notes GBPm GBPm
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
(Loss)/profit for the year (201.2) 27.4
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Other comprehensive (expense)/income:
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Items that will not be reclassified
subsequently to profit or loss
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Remeasurements of retirement
benefit schemes 8 (1,352.0) 927.9
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Tax credit/(charge) on retirement
benefit schemes 256.5 (196.7)
---------------------------------------------------- ----------------------- -------- ===================== =======================
(1,095.5) 731.2
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Items that may be reclassified
subsequently to profit or loss
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Foreign currency translation
differences
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
- movements recognised in other
comprehensive income (27.7) 5.1
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
- reclassified and reported in
profit or loss 3.7 2.9
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Cash flow hedges
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
- fair value movements recognised
in other comprehensive income (215.5) 140.3
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
- reclassified and reported in
profit or loss 26.5 (18.4)
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Tax credit/(charge) on cash flow
hedges 37.0 (27.0)
---------------------------------------------------- ----------------------- -------- ===================== =======================
(176.0) 102.9
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Other comprehensive (expense)/income
for the year, net of tax (1,271.5) 834.1
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Total comprehensive (expense)/income
for the year (1,472.7) 861.5
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Attributable to:
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Owners of the parent (1,469.5) 857.8
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Non-controlling interests (3.2) 3.7
---------------------------------------------------- ----------------------- -------- ===================== =======================
(1,472.7) 861.5
---------------------------------------------------- ----------------------- -------- --------------------- -----------------------
Consolidated statement of financial position
As at As at As at
3 April 28 March 30 March
2021 2020 2019
(Restated)(1) (Restated)(1)
Notes GBPm GBPm GBPm
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Assets
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Non-current assets
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Intangible assets 10 232.0 399.1 499.9
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Property, plant and equipment 11 5,058.6 5,494.2 5,662.3
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Investment property 15.2 15.5 15.5
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Investments in joint
ventures and associates 17 825.8 760.4 4.0
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Other financial assets 9.7 9.7 9.9
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Retirement benefit asset 8 639.2 1,915.0 931.5
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Trade and other receivables 261.4 262.6 273.0
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Derivative financial
instruments 0.3 112.4 19.8
================================= ================= ============ =================== ===================== ============================
7,042.2 8,968.9 7,415.9
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Current assets
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Inventories 3 624.6 564.1 700.4
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Other financial assets 18.4 11.7 141.8
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Trade and other receivables 209.6 298.0 267.2
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Derivative financial
instruments 32.8 73.5 40.3
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Current tax assets 35.4 19.3 -
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Cash and cash equivalents 674.4 254.2 310.4
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
1,595.2 1,220.8 1,460.1
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Total assets 8,637.4 10,189.7 8,876.0
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Liabilities
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Current liabilities
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Trade and other payables 1,599.0 1,501.0 1,518.2
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Partnership liability
to the Marks & Spencer
UK Pension Scheme 9 124.9 71.9 71.9
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Borrowings and other
financial liabilities 432.8 247.8 625.6
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Derivative financial
instruments 96.0 13.0 7.3
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Provisions 43.1 21.5 100.7
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Current tax liabilities - - 26.2
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
2,295.8 1,855.2 2,349.9
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Non-current liabilities
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Retirement benefit deficit 8 7.8 12.4 17.2
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Trade and other payables 192.3 222.6 15.6
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Partnership liability
to the Marks & Spencer
UK Pension Scheme 9 68.6 135.5 200.5
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Borrowings and other
financial liabilities 3,659.9 3,865.9 3,628.5
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Derivative financial
instruments 10.7 0.7 2.8
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Provisions 74.2 56.5 72.7
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Deferred tax liabilities 42.3 332.4 119.6
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
4,055.8 4,626.0 4,056.9
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Total liabilities 6,351.6 6,481.2 6,406.8
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Net assets 2,285.8 3,708.5 2,469.2
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Equity
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Issued share capital 489.2 487.6 406.3
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Share premium account 910.4 910.4 416.9
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Capital redemption reserve 2,210.5 2,210.5 2,210.5
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Hedging reserve (54.8) 68.6 (14.6)
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Cost of hedging reserve 4.6 5.7 11.7
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Other reserve (6,542.2) (6,542.2) (6,542.2)
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Foreign exchange reserve (59.9) (35.9) (43.9)
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Retained earnings 5,325.2 6,597.8 6,024.8
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Equity attributable to
owners of the parent 2,283.0 3,702.5 2,469.5
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Non-controlling interests 2.8 6.0 (0.3)
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
Total equity 2,285.8 3,708.5 2,469.2
--------------------------------- ----------------- ------------ ------------------- --------------------- ----------------------------
(1) See note 1 for details of a change in accounting
policy and the resulting restatement of prior years.
Consolidated statement of changes in equity
Ordinary Share Capital Hedging Cost Other Foreign Retained Total Non-controlling Total
share premium redemption reserve of reserve(1) exchange earnings(2) interest
capital account reserve hedging reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
As at 31 March
2019 406.3 416.9 2,210.5 (14.6) 11.7 (6,542.2) (43.9) 6,024.8 2,469.5 (0.3) 2,469.2
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Profit for the
year - - - - - - - 23.7 23.7 3.7 27.4
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Other
comprehensive
income/(expense):
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Foreign currency
translation
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
- movements
recognised
in other
comprehensive
income - - - - - - 5.1 - 5.1 - 5.1
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
- reclassified
and reported in
profit or loss - - - - - - 2.9 - 2.9 - 2.9
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Remeasurements
of retirement
benefit
schemes - - - - - - - 927.9 927.9 - 927.9
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Tax charge on
retirement
benefit schemes - - - - - - - (196.7) (196.7) - (196.7)
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Cash flow hedges
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
- fair value
movement
in other
comprehensive
income - - - 147.8 (7.5) - - - 140.3 - 140.3
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
- reclassified
and reported in
profit or loss - - - (18.4) - - - - (18.4) - (18.4)
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Tax on cash flow
hedges - - - (28.5) 1.5 - - - (27.0) - (27.0)
------------------ ======== ========== ========== ------- ========== ============ ======== ----------- ========= ================= ===========
Other
comprehensive
income/(expense) - - - 100.9 (6.0) - 8.0 731.2 834.1 - 834.1
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Total
comprehensive
income/(expense) - - - 100.9 (6.0) - 8.0 754.9 857.8 3.7 861.5
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Cash flow hedges
recognised in
inventories - - - (21.8) - - - - (21.8) - (21.8)
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Tax on cash flow
hedges recognised
in inventories - - - 4.1 - - - - 4.1 - 4.1
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Transactions with
owners:
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Dividends - - - - - - - (191.1) (191.1) - (191.1)
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Transactions with
non-controlling
shareholders - - - - - - - - - 2.6 2.6
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Shares issued on
exercise of
employee
share options - 0.1 - - - - - - 0.1 - 0.1
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Shares issued on
rights issue(3) 81.3 493.4 - - - - - - 574.7 - 574.7
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Purchase of own
shares held by
employee trusts - - - - - - - (8.9) (8.9) - (8.9)
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Credit for
share-based
payments - - - - - - - 18.5 18.5 - 18.5
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
Deferred tax on
share schemes - - - - - - - (0.4) (0.4) - (0.4)
------------------ ======== ========== ========== ======= ========== ============ ======== =========== ========= ================= ===========
As at 28 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
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
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
------------------ -------- ---------- ---------- ------- ---------- ------------ -------- ----------- --------- ----------------- -----------
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. The share premium amount of GBP493.4m is net of GBP26.6m in
relation to transaction costs associated with the rights issue.
Consolidated statement of cash flows
53 weeks 52 weeks
ended ended
3 April 28 March
2021 2020
(Restated)(1)
Notes GBPm GBPm
------------------------------------------ ----- -------- -------------
Cash flows from operating activities
------------------------------------------ ----- -------- -------------
Cash generated from operations 14 876.7 1,045.4
------------------------------------------- ----- -------- -------------
Income tax paid (5.8) (91.6)
------------------------------------------- ----- ======== =============
Net cash inflow from operating activities 870.9 953.8
------------------------------------------- ----- -------- -------------
Cash flows from investing activities
------------------------------------------ ----- -------- -------------
Proceeds on property disposals 2.9 2.7
------------------------------------------- ----- -------- -------------
Purchase of property, plant and equipment (158.9) (251.0)
------------------------------------------- ----- -------- -------------
Purchase of intangible assets (47.8) (77.6)
------------------------------------------- ----- -------- -------------
(Purchase)/sale of current financial
assets (6.7) 130.1
------------------------------------------- ----- -------- -------------
Purchase of investments in associates
and joint ventures(2) 8.7 (580.3)
------------------------------------------- ----- -------- -------------
Interest received 9.2 10.4
=========================================== ===== ======== =============
Net cash used in investing activities (192.6) (765.7)
------------------------------------------- ----- -------- -------------
Cash flows from financing activities
------------------------------------------ ----- -------- -------------
Interest paid(3) (219.3) (224.2)
------------------------------------------- ----- -------- -------------
Issuance of Medium Term Notes 300.0 250.0
------------------------------------------- ----- -------- -------------
Redemption of Medium Term Notes (136.4) (400.0)
------------------------------------------- ----- -------- -------------
Repayment of lease liabilities (184.3) (201.4)
------------------------------------------- ----- -------- -------------
Payment of liability to the Marks
& Spencer UK Pension Scheme (17.2) (63.5)
------------------------------------------- ----- -------- -------------
Equity dividends paid 7 - (191.1)
------------------------------------------- ----- -------- -------------
Shares issued on exercise of employee
share options - 0.1
------------------------------------------- ----- -------- -------------
Proceeds from rights issue net of
issue costs - 574.4
------------------------------------------- ----- -------- -------------
Purchase of own shares by employee
trust (0.8) (8.9)
------------------------------------------- ----- -------- -------------
Cash received from settlement of
derivatives 14.0 7.7
=========================================== ----- ======== =============
Net cash used in financing activities (244.0) (256.9)
------------------------------------------- ----- -------- -------------
Net cash inflow/(outflow) from activities 434.3 (68.8)
------------------------------------------- ----- -------- -------------
Effects of exchange rate changes (3.3) 0.5
------------------------------------------- ----- -------- -------------
Opening net cash 238.7 307.0
------------------------------------------- ----- ======== =============
Closing net cash 15 669.7 238.7
------------------------------------------- ----- -------- -------------
(1) See note 1 for details on a change in accounting policy
and the resulting restatement.
(2) Includes inflow of GBP11.2m upon finalisation of the completion
statement in relation to the investment in Ocado Retail Limited
(last year: outflow of GBP577.8m) and outflow of GBP2.5m (last
year: GBP2.5m) in relation to Founders Factory Retail Limited.
(3) Includes interest paid on the partnership liability to
the Marks & Spencer UK Pension Scheme of GBP6.4m (last year:
GBP8.4m) and interest paid on lease liabilities of GBP132.3m
(last year: GBP134.3m).
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 3
April 2021 or 28 March 2020. The financial information for the year
ended 28 March 2020 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 3 April 2021 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 International Financial Reporting Standards
(IFRS) as adopted by the European Union, this announcement does not
itself contain sufficient information to comply with IFRS. 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 28 March 2020, 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 IFRS
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.
At 3 April 2021, the Group had available liquidity of
GBP1,799.4m, comprising cash and cash equivalents of GBP674.4m, an
undrawn committed syndicated bank revolving credit facility ("RCF")
of GBP1.1bn (set to mature in April 2023), and undrawn uncommitted
facilities amounting to GBP25.0m. This is an increase of GBP395.2m
compared to the GBP1,404.2m liquidity position as at 28 March 2020
and has been achieved through the active measures taken by the
Group to strengthen liquidity in response to the risks posed by the
Covid-19 pandemic. In addition to operational cash preservation
actions, the following measures have also been undertaken:
-- Refinancing the upcoming December 2021 bond maturity with a GBP300m 2026 bond issuance.
-- Extending the relaxation of covenant tests with the lending
syndicate of banks providing the GBP1.1bn revolving credit
facility, up to and including the period to March 2022.
In adopting the going concern basis of preparation, the
directors have assessed the Group's cash flow forecasts which
incorporate a latest estimate of the ongoing impact of Covid-19 on
the Group. The forecast assumes that the UK government's four-step
roadmap out of lockdown continues as planned, but that a full
lifting of restrictions does not occur until Q3 2021/22.
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 directors have reviewed the evolution of Covid-19 and the
impact on the business and considered the potential longer-term
impacts of the pandemic by modelling a more severe, but plausible,
downside scenario. This downside scenario assumes that:
-- A four-month lockdown between December 2021 and March 2022
will be mandated by the government, resulting in store closures and
a 3% decline in Food sales. Between this period, a range of 10% -
20% decline in Clothing & Home sales has been modelled, as well
as a 10% decline in International sales. These declines have been
set with reference to the 2020/21 results; and,
-- An economic recession in the UK from October 2021, following
the cessation of the Coronavirus Job Retention Scheme in the UK,
that continues into 2022/23 and 2023/24, resulting in a decline in
sales of between 1% - 5% per annum, continuing for three years,
across both sides of the business.
Even under this severe but plausible downside scenario, the
Group would continue to have sufficient liquidity headroom on its
existing facilities and against the revolving credit facility
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 directors consider 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 directors believe that the Group is well placed
to manage its financing and other significant risks satisfactorily
and that the Group will be able to operate within the level of its
facilities for the foreseeable future, being a period of at least
12 months from the approval of the financial statements. For this
reason, the directors consider it appropriate for the Group to
adopt the going concern basis in preparing its financial
statements.
Change in accounting policy
Due to a change in the Group's accounting policy to recognise
BACS payments at the settlement date, rather than when they are
initiated, to more appropriately reflect the nature of these
transactions, the comparative amounts have been restated.
The impact on the 28 March 2020 balance sheet is an increase to
current trade and other payables of GBP74.6m (2019: GBP93.8m), a
decrease to bank loans and overdrafts, within current liabilities,
of GBP68.8m (2019: GBP68.8m) and an increase to cash and cash
equivalents of GBP5.8m (2019: GBP25.0m). Net cash outflow from
activities in 2019/20 has increased by GBP19.3m while net debt as
at 28 March 2020 has decreased by GBP74.6m (2019: GBP93.9m). There
is no impact on the income statement, earnings per share or net
assets.
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 29 March 2020:
-- Amendments to IAS 1 and IAS 8: Definition of Material
-- Amendments to IFRS 3: Definition of a Business
-- Amendments to References to the Conceptual Framework in IFRS Standards
The Group also elected to adopt the following amendment
early:
-- Amendment to IFRS 16: Covid-19-Related Rent Concessions
The impact of early adopting the amendment to IFRS 16 is
described below.
The adoption of the other 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.
Amendment to IFRS 16: Covid-19-Related Rent Concessions
The Group has applied the amendment to IFRS 16 in advance of its
effective date and, as a result, has treated rent concessions
occurring as a direct consequence of Covid-19 as variable lease
payments rather than as lease modifications.
The amount recognised in profit or loss in the period to reflect
changes in lease payments arising from Covid-19-related rent
concessions was a gain of GBP10.9m.
Government grants
The Group has received government assistance income in the
period as a result of the Covid-19 pandemic. Government grants are
recognised where there is reasonable assurance that the grant will
be received and that the Group will comply with the conditions
attached to them.
Government grants that compensate the Group for expenses
incurred are recognised in profit or loss, as a deduction against
the related expense, over the periods necessary to match them with
the related costs.
New accounting standards in issue but not yet effective
New standards and interpretations that are in issue but not yet
effective are listed below:
-- IFRS 17 Insurance Contracts
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform Phase 2
-- Amendments to IFRS 10 and IAS 28: Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture
-- Amendments to IAS 1: Classification of Liabilities as Current or Non-Current
-- Amendments to IFRS 3: Reference to the Conceptual Framework
-- Amendments to IAS 16: Property, Plant and Equipment - Proceeds before Intended Use
-- 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
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: 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. Previously these were
presented in the consolidated income statement in a columnar
format; the Group now presents a reconciliation of profit before
tax and adjusting items to profit before tax on the face of the
consolidated income statement. 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 53-week period
ended 3 April 2021:
-- 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 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
considered to be significant in nature and/or value.
-- 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.
-- Significant non-cash charges relating to the Group's defined
benefit scheme arising from equalisation of guaranteed minimum
pensions (GMP) and other pension equalisation.
-- Significant costs arising from establishing the investment in Ocado Retail Limited.
-- 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.
-- Transition costs associated with the Sparks loyalty programme(1) .
(1) Adjusting items in the current year include the charges
associated with the transition of the Sparks loyalty programme.
While the Group provides vouchers to customers as part of its
ongoing operations, vouchers of this nature and quantum have never
been provided before in relation to a one-off event (refer to note
3 for further details). The Group has reviewed how it applies its
policy and has concluded to include these charges in adjusting
items.
Refer to note 3 for a summary of the adjusting items.
Critical accounting judgements
Adjusting items
The directors believe that the adjusted profit and earnings per
share measures provide additional useful information to
shareholders on the performance of the business. These measures are
consistent with how business performance is measured internally by
the Board and Executive Committee. The profit before tax and
adjusting items measure is not a recognised profit measure under
IFRS and may not be directly comparable with adjusted profit
measures used by other companies. The classification of adjusting
items requires significant management judgement after considering
the nature and intentions of a transaction. The Group's definitions
of adjusting items are outlined within both the Group accounting
policies and the Glossary. These definitions have been applied
consistently year on year, with additional items due to the
transition of the Sparks loyalty programme.
Note 3 provides further details on current year adjusting items
and their adherence to Group policy.
UK defined benefit pension surplus
Where a surplus on a defined benefit scheme arises, the rights
of the Trustees to prevent the Group obtaining a refund of that
surplus in the future are considered in determining whether it is
necessary to restrict the amount of the surplus that is recognised.
The UK defined benefit scheme is in surplus at 3 April 2021. The
directors have made the judgement that these amounts meet the
requirements of recoverability on the basis that paragraph 11(b) of
IFRIC 14 applies, enabling a refund of surplus assuming the gradual
settlement of the scheme liabilities over time until all members
have left the scheme, and a surplus of GBP639.2m has been
recognised.
Assessment of control
The directors have assessed that the Group has significant
influence over Ocado Retail Limited and has therefore accounted for
the investment as an associate (see note 17). This assessment is
based on the current rights held by the respective shareholders and
requires judgement in assessing these rights. These rights include
determinative rights currently held by Ocado Group Plc, after
agreed dispute-resolution procedures, in relation to the approval
of the Ocado Retail Limited business plan and budget and the
appointment and removal of Ocado Retail Limited's Chief Executive
Officer. Any future change to these rights requires a reassessment
of control and could result in a change in the status of the
investment from associate to joint venture, subsidiary or
investment.
Determining the lease term
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease if it is
reasonably certain not to be exercised.
The Group has several lease contracts for land and buildings
that include extension and termination options. The Group applies
judgement in evaluating whether it is reasonably certain whether or
not to exercise the option to renew or terminate the lease. That
is, it considers all relevant factors that create an economic
incentive for it to exercise either the renewal or termination,
including: whether there are significant penalties to terminate (or
not extend); whether any leasehold improvements are expected to
have a significant remaining value; historical lease durations; the
importance of the underlying asset to the Group's operations; and
the costs and business disruption required to replace the leased
asset.
Most renewal periods and periods covered by termination options
are included as part of the lease term for leases of land and
buildings. The Group typically exercises its option to renew (or
does not exercise its option to terminate) for these leases because
there will be a significant negative effect on trading if a
replacement property is not readily available.
The lease term is reassessed if a significant event or a
significant change in circumstances occurs which affects the
assessment of reasonable certainty, for example if a store is
identified to be closed as part of the UK store estate strategic
programme.
Determining whether forecast purchases are highly probable
The Group is exposed to foreign currency risk, most
significantly to the US dollar as a result of sourcing Clothing
& Home products from Asia which are paid for predominantly in
US dollars. The Group hedges these exposures using forward foreign
exchange contracts and hedge accounting is applied when the
requirements of IFRS 9 are met, which include that a forecast
transaction must be "highly probable".
The Group has applied judgement in assessing whether forecast
purchases are "highly probable". In making this assessment, the
Group has considered the most recent budgets and plans. The Group's
policy is a "layered" hedging strategy where only a small fraction
of the forecast purchase requirements are initially hedged,
approximately 15 months prior to a season, with incremental hedges
layered on over time as the buying period for that season
approaches and therefore as certainty increases over the forecast
purchases. As a result of this progressive strategy, a reduction in
the supply pipeline of inventory does not immediately lead to
over-hedging and the disqualification of "highly probable". If the
forecast transactions were no longer expected to occur, any
accumulated gain or loss on the hedging instruments would be
immediately reclassified to profit or loss.
Last year, a GBP2.9m gain was recognised in the income statement
as a result of US$76.6m notional forecast purchases no longer being
expected to occur. There was no such occurrence in the current
year.
During the year, the settlement of certain forecast purchases
were delayed as a result of the Covid-19 pandemic and, as a result,
the deferred fair value of the applicable forward foreign exchange
contracts has been retained in reserves to be recycled in line with
the delayed forecast purchases. As discussed above, due to our
progressive hedging strategy, this delay does not affect the
qualification of "highly probable". At 3 April 2021, the Group had
GBP4.0m of deferred fair value retained in the cash flow hedge
reserve which will be released over the first half of 2021/22.
Key sources of estimation uncertainty
UK store estate programme
The Group is undertaking a significant strategic programme to
review its UK store estate resulting in a net charge of GBP95.3m
(last year: GBP29.3m) in the year. A significant level of
estimation has been used to determine the charges to be recognised
in the year. The most significant judgement that impacts the charge
is that the stores identified as part of the programme are more
likely than not to close. Further significant closure costs and
impairment charges may be recorded in future years depending on
decisions made about further store closures and the successful
delivery of the transformation programme.
Where a store closure has been announced there is a reduced
level of estimation uncertainty as the programme actions are to be
taken over a shorter and more immediate timeframe. Further
significant estimation uncertainty arises in respect of determining
the recoverable amount of assets and the costs to be incurred as
part of the programme. Significant assumptions have been made
including:
-- Reassessment of the useful lives of store fixed assets and closure dates.
-- Estimation in respect of the expected shorter-term trading
value in use, including assumptions with regard to the period of
trading as well as changes to future sales, gross margin and
operating costs.
-- Estimation of the sale proceeds for freehold stores which is
dependent upon location-specific factors, timing of likely exit and
future changes to the UK retail property market valuations.
-- Estimation of the value of dilapidation payments required for
leasehold store exits, which is dependent on a number of factors
including the extent of modifications of the store, the terms of
the lease agreement, and the condition of the property.
The assumptions most likely to have a material impact are
closure dates and changes to future sales. See notes 3 and 11 for
further detail.
Useful lives and residual values of property, plant and
equipment and intangibles
Depreciation and amortisation are provided to write down the
cost of property, plant and equipment and certain intangibles to
their estimated residual values over their estimated useful lives,
as set out above. The selection of the residual values and useful
lives gives rise to estimation uncertainty, especially in the
context of changing economic and market factors, the channel shift
from stores to online, increasing technological advancement and the
Group's ongoing strategic transformation programmes. The useful
lives of property, plant and equipment and intangibles are reviewed
by management annually. See notes 10 and 11 for further details.
Refer to the UK store estate programme section above for specific
sources of estimation uncertainty in relation to the useful lives
of property, plant and equipment for stores identified as part of
the UK store estate programme. Due to the nature of the Group's
property, plant and equipment, it is not practicable to provide a
meaningful sensitivity analysis.
Impairment of property, plant and equipment and intangibles
Property, plant and equipment and computer software intangibles
are reviewed for impairment if events or changes in circumstances
indicate that the carrying amount may not be recoverable. Goodwill
and indefinite life brands are reviewed for impairment on an annual
basis. When a review for impairment is conducted, the recoverable
amount is determined based on the higher of value in use and fair
value less costs to sell. The value in use method requires the
Group to determine appropriate assumptions in relation to the cash
flow projections over the three-year strategic plan period (which
is a key source of estimation uncertainty), the long-term growth
rate to be applied beyond this three-year period and the
risk-adjusted pre-tax discount rate used to discount the assumed
cash flows to present value. See notes 10 and 11 for further
details on the Group's assumptions and associated
sensitivities.
The assumption that cash flows continue into perpetuity (with
the exception of stores identified as part of the UK store estate
programme) is a source of significant estimation uncertainty. A
future change to the assumption of trading into perpetuity for any
Cash-Generating Unit (CGU) would result in a reassessment of useful
economic lives and residual value and could give rise to a
significant impairment of property, plant and equipment and
intangibles, particularly where the store carrying value exceeds
fair value less cost to sell. Due to the nature of the Group's
property, plant and equipment, it is not practicable to provide a
meaningful sensitivity analysis for this source of estimation
uncertainty.
Inventory provisioning
The Group assesses the recoverability of inventories by applying
assumptions around the future saleability and estimated selling
prices of items. At 28 March 2020, the Group recorded a write-down
of GBP157.0m, based on the estimated impact of trade restrictions
introduced in response to the Covid-19 pandemic. Performance during
2020/21 has exceeded the estimates made at last year end and the
Group has updated the assumptions regarding future performance. As
a result, and supported by the certainty provided by vaccines and a
clear government Covid-19 re-emergence strategy, a net release of
GBP101.6m of this provision has been recognised in the period. See
note 3 for further details on the assumptions and associated
sensitivities.
Post-retirement benefits
The determination of pension net interest income and the defined
benefit obligation of the Group's defined benefit pension schemes
depends on the selection of certain assumptions which include the
discount rate, inflation rate and mortality rates. Differences
arising from actual experiences or future changes in assumptions
will be reflected in subsequent periods. The fair value of unquoted
investments within total plan assets is estimated with
consideration of fair value estimates provided by the manager of
the investment or fund. See note 8 for further details on the
impact of changes in the key assumptions and estimates.
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.
The Ocado operating segment has been identified as reportable in
the current period based on the quantitative thresholds in IFRS 8.
As the Group's reportable segments have changed, the comparative
information has been restated.
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:
53 weeks ended 3 April 2021 52 weeks ended 28 March 2020
---------------------------------------------------------- -----------------------------------------------------------
UK UK International Ocado All Group UK UK Food International Ocado All Group
Clothing Food other Clothing other
& Home segments & Home segments
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
Revenue
before adjusting
items(1) 2,239.0 6,138.5 789.4 - - 9,166.9 3,209.1 6,028.2 944.6 - - 10,181.9
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
Operating
(loss)/profit
before adjusting
items(2) (130.8) 228.6 44.1 78.4 1.9 222.2 223.9 236.7 110.7 2.6 16.8 590.7
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
Finance
income before
adjusting
items 57.4 44.0
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
Finance
costs before
adjusting
items (229.3) (231.6)
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
(Loss)/profit
before tax
and adjusting
items (130.8) 228.6 44.1 78.4 1.9 50.3 223.9 236.7 110.7 2.6 16.8 403.1
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
Adjusting
items (259.7) (335.9)
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
(Loss)/profit
before tax (130.8) 228.6 44.1 78.4 1.9 (209.4) 223.9 236.7 110.7 2.6 16.8 67.2
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
(1) Revenue is stated prior to adjusting items of GBP11.2m (see
note 3).
(2) Operating (loss)/profit before adjusting items is stated as
gross profit less operating costs prior to adjusting items. At
reportable segment level costs are allocated where directly attributable
or based on an appropriate cost driver for the cost.
Other segmental information
53 weeks ended 3 April 2021 52 weeks ended 28 March 2020
---------------------------------------------------------- -----------------------------------------------------------
UK UK International Ocado All Group UK UK Food International Ocado All Group
Clothing Food 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) 50.5 105.0 6.8 - - 162.3 166.5 170.1 15.7 - - 352.3
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
Depreciation
and
amortisation(1,2) (312.3) (259.4) (25.1) - - (596.8) (350.6) (283.4) (34.6) - - (668.6)
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
Impairment
charges,
impairment
reversals
and asset
write-offs(1) (155.1) (34.9) (4.7) - - (194.7) (69.9) (45.3) (10.3) - - (125.5)
------------------ -------- ------- ------------- ----- -------- ------- -------- ------- ------------- ----- -------- --------
(1) These costs are allocated to a reportable segment where they
are directly attributable. Where costs are not directly attributable,
a proportional allocation is made to each segment based on an appropriate
cost driver.
(2) Includes GBP0.3m (last year: GBPnil) depreciation charged
on the 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 53-week period ended
3 April 2021 is a net charge of GBP259.7m (last year: GBP335.9m).
The adjustments made to reported profit before tax to arrive at
adjusted profit are:
2021 2020
Notes GBPm GBPm
-------------------------------------------------- ----- ------- -------
Included in revenue
-------------------------------------------------- ----- ------- -------
Sparks loyalty programme transition (11.2) -
-------------------------------------------------- ----- ------- -------
(11.2) -
-------------------------------------------------- ----- ------- -------
Included in operating profit
-------------------------------------------------- ----- ------- -------
Strategic programmes - Organisation 11 (133.7) (13.8)
-------------------------------------------------- ----- ------- -------
Strategic programmes - UK store estate(1) 11 (95.3) (29.3)
-------------------------------------------------- ----- ------- -------
Strategic programmes - International store
closures and impairments (3.6) (2.2)
-------------------------------------------------- ----- ------- -------
Strategic programmes - UK logistics 11 (2.2) (10.2)
-------------------------------------------------- ----- ------- -------
Strategic programmes - Operational transformation - (11.6)
-------------------------------------------------- ----- ------- -------
Strategic programmes - Changes to pay and
pensions - (2.9)
-------------------------------------------------- ----- ------- -------
Strategic programmes - IT restructure - (0.4)
-------------------------------------------------- ----- ------- -------
Directly attributable gains/(expenses) resulting
from the Covid-19 pandemic(1) 90.8 (166.5)
-------------------------------------------------- ----- ------- -------
Intangible asset impairments 10 (79.9) (13.4)
-------------------------------------------------- ----- ------- -------
Store impairments, impairment reversals and
other property charges(1) 11 6.9 (78.5)
-------------------------------------------------- ----- ------- -------
Amortisation and fair value adjustments arising
as part of the investment in Ocado Retail
Limited (14.2) (16.8)
-------------------------------------------------- ----- ------- -------
Sparks loyalty programme transition (5.4) -
-------------------------------------------------- ----- ------- -------
M&S Bank charges incurred in relation to
insurance mis-selling and Covid-19 forward
economic guidance provision (2.4) (12.6)
-------------------------------------------------- ----- ------- -------
Establishing the investment in Ocado Retail
Limited (1.7) (1.2)
-------------------------------------------------- ----- ------- -------
GMP and other pension equalisation 8 (1.0) -
-------------------------------------------------- ----- ------- -------
Other - 23.5
-------------------------------------------------- ----- ------- -------
(241.7) (335.9)
-------------------------------------------------- ----- ------- -------
Included in net finance costs
-------------------------------------------------- ----- ------- -------
Remeasurement of contingent consideration
including discount unwind (6.8) (2.9)
-------------------------------------------------- ----- ------- -------
Directly attributable gains/(expenses) resulting
from the Covid-19 pandemic(1, 2) - 2.9
-------------------------------------------------- ----- ------- -------
(6.8) -
-------------------------------------------------- ----- ------- -------
Adjustments to profit before tax (259.7) (335.9)
-------------------------------------------------- ----- ------- -------
(1) Gains/(expenses) directly attributable to the Covid-19
pandemic in the current and prior year are presented below; this
includes the resulting incremental impairment charge disclosed
within the strategic programmes above related to the UK store
estate, UK store impairments, International store impairments and
the impairment of per una goodwill.
2021 2020
GBPm GBPm
------------------------------------------------------ ---- -------
Directly attributable gains/(expenses) resulting
from the Covid-19 pandemic - included in operating
profit 90.8 (166.5)
------------------------------------------------------ ---- -------
Directly attributable gains/(expenses) resulting
from the Covid-19 pandemic - included in net finance
costs(2) - 2.9
------------------------------------------------------ ---- -------
UK store estate impairments - (11.6)
------------------------------------------------------ ---- -------
Store impairments - (24.2)
------------------------------------------------------ ---- -------
Goodwill impairment - per una - (13.4)
------------------------------------------------------ ---- -------
Total Covid-19 gains/(charges) 90.8 (212.8)
------------------------------------------------------ ---- -------
(2) The 2019/20 gain for Directly attributable gains/(expenses)
resulting from the Covid-19 pandemic within net finance costs is a
GBP2.9m gain relating to forecast purchases no longer expected to
occur.
Strategic programmes - Organisation (GBP133.7m)
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. As part of the transformation, the Group has
incurred GBP9.5m of consultancy costs. The changes have resulted in
a reduction of c.8,200 roles across central support centres,
regional management and stores, with a charge of GBP99.7m
recognised in the period primarily for redundancy costs associated
with these changes. The majority of the charges have been settled
during 2020/21, with a provision being held on the balance sheet
for the remaining charges. The provision is expected to be fully
utilised during 2021/22, with no further significant 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. A further GBP24.5m of costs have been
recognised in the period associated with centralising the Group's
London Head Office functions, with a GBP9.7m charge relating to the
sub-let of previously closed offices. GBP14.8m of these charges
relate to closure costs to further consolidate our London Head
Office functions as announced in February 2021. Total costs of
centralising our London Head Office functions into one building
incurred to date are c.GBP98m. Any future charges will relate to
the updating of assumptions and market fluctuations over the life
of the sub-let lease.
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 organisation structure and to aid
comparability from one period to the next. The treatment as
adjusting items is consistent with the disclosure of costs for
similar restructuring and centralisation programmes previously
undertaken.
Strategic programmes - UK store estate ( GBP95.3m )
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 has
incurred charges of GBP562.3m up to March 2020 under this programme
primarily relating to closure costs associated with stores
identified as part of the strategic transformation plans.
While Covid-19 has continued to impact the Group's day-to-day
operations, the Group has experienced a significant channel shift
from stores to online. The pandemic has driven a much faster and
more acute switch to online, accelerating the Group's ambition to
now achieve a Clothing & Home online sales mix of at least 40%
over the next three years. This acceleration in channel shift has
required the Group to revise the UK store estate strategic
programme in order to ensure the estate continues to meet our
customers' needs. As a result, the programme has been further
accelerated with additional stores identified as part of the
transformation, extending the length to 10 years. Coupled with
this, the Group is identifying opportunities to unlock value from
the estate through redevelopments and new site acquisitions, with
charges and gains associated with these activities now included
within the UK store estate programme.
The Group has recognised a charge of GBP95.3m in the year in
relation to those stores identified as part of the revised
transformation plans. The charge primarily reflects a revised view
of latest store exit routes and assumptions underlying estimated
store closure costs in response to the unanticipated acceleration
in channel shift experienced as a result of the pandemic. The
charge primarily relates to 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.
Refer to note 11 for further detail on these charges.
Further material charges relating to the closure and
reconfiguration of the UK store estate are anticipated over the
next 10 years as the programme progresses, the quantum of which is
subject to change throughout the programme period as decisions are
taken in relation to the size of the store estate and the specific
stores affected. Following the latest view of store closure costs,
at 3 April 2021, further charges of c.GBP268m are estimated within
the next 10 financial years, bringing anticipated total programme
costs since 2016 up to c.GBP926m.
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.
Strategic programmes - International store closures and
impairments (GBP3.6m)
In 2016/17, the Group announced its intention to close owned
stores in 10 international markets. A 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 cost to date
to GBP148.6m.
The net charge is considered to be an adjusting item as it is
part of a strategic programme which over the five years of charges
has been significant in both quantum and nature to the results of
the Group. No further significant charges are expected.
Strategic programmes - UK logistics (GBP2.2m)
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 charge of GBP2.2m has been
recognised in the period, reflecting an updated view of estimated
closure costs and transition project costs relating to these
closures. Total programme costs to date are GBP39.8m with further
charges next financial year.
The Group considers these costs to be adjusting items as they
have been significant in quantum and relate to a significant
strategic initiative of the Group. Treatment of the costs as being
adjusting items is consistent with the treatment of charges in
previous periods in relation to the creation of a single-tier
logistics network.
Directly attributable gains/(expenses) resulting from the
Covid-19 pandemic (GBP90.8m gain)
I n 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.
As a result in 2019/20, the Group identified total Covid-19
charges of GBP212.8m across four adjusting items programmes. The
charges related to three separately identifiable areas of
accounting judgement and estimates: the write-down of inventories
to net realisable value; impairments of intangible assets and
property, plant and equipment; and onerous contract provisions,
cancellation charges and one-off costs. The Group disclosed in
2019/20 that should the estimated charges prove to be in excess of
the amounts required, the release or reassessment of any amounts
previously provided would also be treated as adjusting items.
The pandemic continued to impact the Group throughout 2020/21
and it became increasingly more difficult to differentiate Covid-19
items from costs that support the underlying performance of the
business. In addition, the estimated timeframe over which these
effects may impact 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.
Impairment reversals in the period were not able to be reliably
differentiated from the underlying performance of the business and
therefore have not been recognised within this category.
Write-back of inventories to net realisable value (GBP90.8m
gain)
The carrying value of the Group's inventories at 28 March 2020
was GBP564.1m. The carrying value of this inventory split across
the UK Clothing & Home, UK Food and International businesses
included gross inventories of GBP539.7m, GBP162.9m and GBP66.3m
respectively, against which a provision of GBP184.3m, GBP8.3m and
GBP12.2m was recognised.
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 Group's half year results announced on 4 November 2020
included a partial release of the GBP157.0m incremental write-down
of inventory. At the time of our half year results announcement, a
second national lockdown had just been implemented with the return
of restrictions on non-essential retail and an expectation that at
the end of national lockdown the United Kingdom would remain under
regional tiered restrictions. However, stronger trading
particularly in online, has allowed the Group to continue to sell
much higher volumes of stock than assumed versus the Covid-19
scenario.
As a result, and supported by the certainty provided by vaccines
and a clear government Covid-19 re-emergence strategy, a net credit
of GBP90.8m has been recorded, representing a significant release
to the inventory provisions recorded in the 2019/20 financial
statements to align to our latest estimates based on current sales
performance, offset by charges in the period relating to
reassessment of storage and fabric cancellation provisions.
Incremental provisions remain in place where risk remains and
include a provision of GBP10.8m 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. The total remaining provision held is GBP35.0m.
The carrying value of the Group's inventories at 3 April 2021 is
GBP624.6m, split across the UK Clothing & Home, UK Food and
International businesses represents gross inventories of GBP508.8m,
GBP144.0m and GBP78.5m respectively, against which a provision of
GBP78.2m, GBP15.9m and GBP12.6m has been recognised. Included
within the UK Clothing & Home provision is 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.
The total UK Clothing & Home inventory provisions represent
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 2021/22 Budget. However, trading could be
higher or lower than expected and a 5% increase in the UK Clothing
& Home inventory provision (from 15% to 20%) would result in a
reduction in the valuation of inventory held on the balance sheet
of GBP25.4m and would result in a corresponding increase to
recognised loss before tax in the period.
The GBP90.8m 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. Further
charges may be incurred in 2021/22 should government lockdown
restrictions be reinstated and restrictions on trade and consumer
behaviour return. Any future credits relating to these items will
continue to also be classified as adjusting.
The impact that Covid-19 has had on underlying trading continues
not to be recognised within adjusting items. The Group has provided
additional disclosure of the significant impacts of Covid-19 on the
underlying results on page 22.
Within this, the Group has received support from the government
during the period in the form of Business Rates relief of GBP174.6m
and the Coronavirus Job Retention Scheme of GBP131.5m. Further
details of which are provided in note 18 - government support.
Intangible asset impairments (GBP79.9m)
The Group has recognised impairment charges in the period for
certain intangible assets.
A further impairment charge of GBP39.6m has been recorded
against per una goodwill. The charge primarily reflects an updated
view of assumptions and cash flows to reflect the impact of the new
broader Brands strategy and a longer Covid-19 recovery period.
Refer to note 10 for further details on the impairment charge
related to per una goodwill.
The per una goodwill impairment charge has been classified as an
adjusting item on the basis of the significant quantum of the
charge in the period to the results of the Group and for
consistency with prior periods.
In November 2020, the Group performed a critical review of the
UK Clothing & Home operations leading to the launch of the new
MS2 division within UK Clothing & Home to build on our
investment in data and digital and step change online growth.
The Group conducted a review of the intangible computer software
assets held on the balance sheet which were to be replaced, retired
or decommissioned as part of the MS2 programme. An impairment
charge of GBP40.3m has been recognised reflecting significant
changes to certain intangible assets used by UK Clothing &
Home.
These costs are considered to be adjusting items as they relate
to the transformation and the total costs are significant in
quantum and as a result not considered to be normal operating costs
of the business. No further significant charges are expected to be
recognised within adjusting items in relation to MS2.
Store impairments, impairment reversals and property charges (
GBP6.9m gain )
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 ongoing pressures impacting the retail
industry in light of the ongoing Covid-19 pandemic, as well as
reflecting the Group's strategic focus towards growing online
market share, 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 GBP66.4m has been
incurred primarily in respect of the impairment of assets
associated with these stores. In addition, a credit of 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.
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.
Amortisation and fair value adjustments arising as part of the
investment in Ocado Retail Limited (GBP14.2m)
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 GBP17.5m recognised in the period
and a related deferred tax credit of GBP3.3m.
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.
Identifying these items as adjusting allows greater comparability
of underlying performance.
Sparks loyalty programme transition (GBP16.6m)
In July 2020, the Group relaunched its Sparks loyalty programme
as a Digital First loyalty scheme. The new Sparks programme removed
certain elements of the old, such as points and sale access tiers,
and introduced new instant rewards to deliver immediate and clearer
value to customers for shopping with M&S. As part of the
transition to the new Sparks programme, customers who were members
of the old loyalty scheme were provided with 'thank you' gifts for
their loyalty, the value of which was determined in part with
reference to the number of Sparks pointed earned historically.
These 'thank you' gifts consisted of tote bags and vouchers for
money off future purchases. As a result, a charge of GBP16.6m has
been recognised in the period relating to one-off transition and
'thank-you' costs associated with the closure of the old Sparks
programme.
These costs are directly attributable to the closure of the old
Sparks programme and are considered to be adjusting as they are
significant in quantum, are one-off in nature and not considered to
be part of the normal operating costs of the business. No similar
charges of this type have been incurred by the Group in the past,
and no further charges are expected in future years.
M&S Bank charges incurred in relation to insurance
mis-selling and Covid-19 forward economic guidance provision (
GBP2.4m )
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 GBP2.4m.
The treatment of this in adjusting items is in line with
previous charges in relation to settlement of PPI claims and
although it is recurring, it is significant in quantum in the
context of the total charges recognised for PPI mis-selling to-date
and is not considered representative of the normal operating
performance of the Group. As previously noted, while the August
2019 deadline to raise potential mis-selling claims has now passed,
costs relating to the estimated liability for redress are expected
to continue. The total charges recognised in adjusting items since
September 2012 for both PPI and Covid-19 forward economic guidance
provision is GBP338.3m which exceeds the total offset against
profit share of GBP225.1m to date and this deficit will be deducted
from the Group's share of future profits from M&S Bank.
Establishing the investment in Ocado Retail Limited ( GBP1.7m
)
In 2018/19, the Group announced its 50/50 investment in Ocado
Retail Limited. GBP4.6m of charges were recognised across 2018/19
and 2019/20 primarily relating to due diligence for the Ocado
Retail transaction and one-off charges, that are not part of the
day-to-day operational costs of our business with Ocado Retail,
incurred in preparation for the launch in September 2020.
A further GBP1.7m of "getting ready" charges were incurred in
the period prior to launch on 1 September, bringing the total
one-off charges relating to Ocado Retail to GBP6.3m. No further
costs are expected.
These costs are adjusting items as they relate to a major
transaction and as a result are not considered to be normal
operating costs of the business.
GMP and other pension equalisation (GBP1.0m)
The Group has recognised a charge of GBP 1.0m in respect of the
Group's defined benefit pension liability arising from equalisation
of GMP for past transfers following a High Court ruling in November
2020. Additional detail on the Group's GMP assessment is provided
in note 8.
Treatment of the costs as being adjusting items is consistent
with the treatment of charges recognised in 2018/19 in relation to
the equalisation of GMP and other pension equalisation. Total GMP
and other pension equalisation costs are GBP21.5m.
Remeasurement of contingent consideration including discount
unwind ( GBP6.8m)
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. A
charge of GBP6.8m 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)
2021 2020
GBPm GBPm
------------------------------------------------- ------- -------
Bank and other interest receivable 2.9 8.6
------------------------------------------------- ------- -------
Other finance income 1.8 5.9
------------------------------------------------- ------- -------
Pension net finance income 47.2 23.6
------------------------------------------------- ------- -------
Interest income on subleases 5.5 5.9
------------------------------------------------- ------- -------
Finance income before adjusting items 57.4 44.0
------------------------------------------------- ------- -------
Finance income in adjusting items - 2.9
------------------------------------------------- ------- -------
Finance income 57.4 46.9
------------------------------------------------- ------- -------
Other finance costs (0.6) -
------------------------------------------------- ------- -------
Interest payable on syndicated bank facility (3.9) (2.3)
------------------------------------------------- ------- -------
Interest payable on Medium Term Notes (86.4) (78.2)
------------------------------------------------- ------- -------
Interest payable on commercial paper facility (0.4) -
------------------------------------------------- ------- -------
Interest payable on lease liabilities (130.4) (139.3)
------------------------------------------------- ------- -------
Unwind of discount on provisions (2.7) (4.9)
------------------------------------------------- ------- -------
Unwind of discount on partnership liability to
the Marks & Spencer UK Pension Scheme (see note
9) (4.9) (6.9)
------------------------------------------------- ======= =======
Finance costs before adjusting items (229.3) (231.6)
------------------------------------------------- ------- -------
Finance costs in adjusting items (6.8) (2.9)
------------------------------------------------- ------- -------
Finance costs (236.1) (234.5)
------------------------------------------------- ------- -------
Net finance costs (178.7) (187.6)
================================================= ======= =======
5 Income tax (credit)/expense
The effective tax rate was 3.9% (last year: 59.3%) and the
effective tax rate of profit before tax and adjusting items was
50.3% (last year: 20.7%).
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 to be
distortive (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:
2021 2020
GBPm GBPm
----------------------------------------------------- ------- -------
(Loss)/profit attributable to equity shareholders
of the Company (198.0) 23.7
----------------------------------------------------- ------- -------
Add/(less):
----------------------------------------------------- ------- -------
Adjusting items (see note 3) 259.7 335.9
----------------------------------------------------- ------- -------
Tax on adjusting items (33.5) (43.6)
===================================================== ======= =======
Profit before adjusting items attributable to equity
shareholders of the Company 28.2 316.0
===================================================== ------- -------
Million Million
----------------------------------------------------- ------- -------
Weighted average number of ordinary shares in issue 1,953.5 1,894.9
----------------------------------------------------- ------- -------
Potentially dilutive share options under Group's
share option schemes(1) 15.0 10.7
----------------------------------------------------- ------- -------
Weighted average number of diluted ordinary shares 1,968.5 1,905.6
----------------------------------------------------- ------- -------
(1) Potentially dilutive share options only considered
in relation to adjusted diluted earnings per share as
the Group made as basic loss per share.
Pence Pence
----------------------------------------------------- ------- -------
Basic (loss)/earnings per share (10.1) 1.3
----------------------------------------------------- ------- -------
Diluted (loss)/earnings per share (10.1) 1.2
----------------------------------------------------- ------- -------
Adjusted basic earnings per share 1.4 16.7
----------------------------------------------------- ------- -------
Adjusted diluted earnings per share 1.4 16.6
----------------------------------------------------- ------- -------
7 Dividends
2021 2020 2021 2020
per share per share GBPm GBPm
------------------------------------ --------- --------- ----
Dividends on equity ordinary shares
Paid final dividend - 6.8p - 115.1
Paid interim dividend - 3.9p - 76.0
- 10.7p - 191.1
------------------------------------ ---------
The Board of Directors has not proposed a final dividend for
2020/21. The Board of Directors continues to defer consideration of
further dividends until visibility of the pace and scale of market
recovery has improved.
8 Retirement benefits
2021 2020
GBPm GBPm
Opening net retirement benefit surplus 1,902.6 914.3
Current service cost (0.2) (0.2)
Administration cost (4.5) (4.5)
Net interest income 47.2 23.6
Employer contributions 41.5 41.8
Past service cost (1.0) -
Remeasurements (1) (1,354.5) 927.9
Exchange movement 0.3 (0.3)
Closing net retirement benefit surplus 631.4 1,902.6
2021 2020
GBPm GBPm
Total market value of assets 10,442.9 10,653.8
Present value of scheme liabilities (9,803.7) (8,743.3)
Net funded pension plan asset 639.2 1,910.5
Unfunded retirement benefits (3.8) (3.9)
Post-retirement healthcare (4.0) (4.0)
Net retirement benefit surplus 631.4 1,902.6
Analysed in the statement of financial position as:
Retirement benefit asset 639.2 1,915.0
Retirement benefit deficit (7.8) (12.4)
Net retirement benefit surplus 631.4 1,902.6
(1) Includes a GBP2.5m loss (last year: GBPnil) relating to an equalisation charge recognised
in 2018/19 that was reclassified from provisions in the current period.
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 2.00% (last year: 2.40%) and 3.30% (last year: 2.70%).
The inflation rate of 3.30% (last year: 2.70%) reflects the Retail
Price Index (RPI) rate.
The amount of the surplus varies if the main financial
assumptions change, particularly the discount rate. If the discount
rate decreased by 0.25% the surplus would decrease by c.GBP20m. If
the inflation rate decreased by 0.25%, the surplus would decrease
by c.GBP20m.
In September 2020, the UK DB Pension Scheme purchased additional
pensioner buy-in policies with two insurers for approximately
GBP750m. Together with the policies purchased in 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.
In November 2020, there was a further High Court ruling in
relation to guaranteed minimum pension benefits. The latest ruling
states that trustees of defined benefit (DB) schemes that provided
guaranteed minimum payments should revisit, and where necessary,
top-up historic cash equivalent transfer values that were
calculated on an unequalised basis if an affected member makes a
successful claim. The impact of the ruling implies that pension
scheme trustees are responsible for equalising the guaranteed
minimum payments for members who transferred out of its DB pension
scheme. This has resulted in an increase in the liabilities of the
UK DB Pension Scheme of GBP1.0m, which was recognised in the
results as a past service cost.
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 GBP1.4bn (last year: GBP1.4bn) of
properties which have been leased back to Marks and Spencer plc.
The Group retains control over these properties, including the
flexibility to substitute alternative properties into the
Partnership. The first limited partnership interest (held by the
Marks & Spencer UK Pension Scheme) entitles the Pension Scheme
to receive an annual distribution of GBP71.9m until June 2022 from
the Partnership. The second limited partnership interest (also held
by the Marks & Spencer UK Pension Scheme), entitles the Pension
Scheme to receive a further annual distribution of GBP36.4m from
June 2017 until June 2031. All profits generated by the Partnership
in excess of these amounts are distributable to Marks and Spencer
plc.
The partnership liability in relation to the first interest of
GBP193.5m (last year: GBP207.4m) 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 3 April 2021, an interest
charge of GBP4.9m (last year: GBP6.9m) 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 GBP142.5m (last year: GBP211.2m).
The second partnership interest is not a transferable financial
instrument as the Scheme Trustee does not have the right to
transfer it to any party other than a successor Trustee. It is
therefore not included as a plan asset within the UK DB pension
scheme surplus reported in accordance with IAS 19. Similarly, the
associated liability is not included on the Group's statement of
financial position, rather the annual distribution is recognised as
a contribution to the scheme each year.
10 Intangible assets
Goodwill Brands Computer Computer Total
software software
under
development
GBPm GBPm GBPm GBPm GBPm
At 30 March 2019
Cost 136.5 112.3 1,402.2 74.6 1,725.6
Accumulated amortisation and
impairments (59.0) (109.5) (1,025.1) (32.1) (1,225.7)
Net book value 77.5 2.8 377.1 42.5 499.9
Year ended 28 March 2020
Opening net book value 77.5 2.8 377.1 42.5 499.9
Additions - - 1.1 76.5 77.6
Transfers and reclassifications - - 91.8 (91.4) 0.4
Asset impairments (13.4) - - - (13.4)
Asset write-offs - - (0.5) - (0.5)
Amortisation charge - (2.8) (162.0) - (164.8)
Exchange difference (0.1) - - - (0.1)
Closing net book value 64.0 - 307.5 27.6 399.1
At 28 March 2020
Cost 136.4 112.3 1,495.1 59.7 1,803.5
Accumulated amortisation,
impairments and write-offs (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
Goodwill related to the following assets and groups of cash
generating units (CGUs):
per una India Other Total
goodwill
GBPm GBPm GBPm GBPm
Net book value at 28 March
2020 56.1 7.2 0.7 64.0
Asset impairments (39.6) - - (39.6)
Exchange difference - (0.7) - (0.7)
Net book value at 3 April
2021 16.5 6.5 0.7 23.7
(1) 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 (see note
3).
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: GBP56.1m), India
GBP6.5m (last year: GBP7.2m) 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 is a definite life intangible asset amortised
on a straight-line basis over a period of 15 years. The brand
intangible was acquired for a cost of GBP80.0m and is held at a net
book value of GBPnil (last year: GBPnil). The per una goodwill and
brand are considered together for impairment testing purposes and
are therefore tested 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 0.5% (last year: 0.7%), which is a
reduction from the overall Group long-term growth rate of 1.75%
(last year: 2%). The Group's current view of achievable long-term
growth for India is 5.9% (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
11.0% for per una (last year: 9.7%) and 12.9% for India (last year:
14.3%).
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 India, there is no reasonably possible change in key
assumptions that would lead to an impairment and the assumptions do
not give rise to a key source of estimation uncertainty.
per una
The future cash flows applied in the per una calculation reflect
the Group's current plan for the per una brand over the next three
years. These plans reflect the updated trading position of the per
una brand post Covid-19 and rationalisation of the per una range
whereby certain product ranges have been removed from the
brand.
The trading assumptions applied in the prior year reflected the
expectation that the impact of Covid-19 would last 12 months, with
sales and customer trends returning to pre-pandemic levels in
2021/22. Therefore, the impact of Covid-19 was reflected within the
forecast per una sales for 2020/21 only, with return to pre
Covid-19 levels by February 2021. A year on, it has become apparent
that the recovery of per una sales will take longer and that there
is likely to be a permanent shift in customer behaviour and habits,
especially triggered by two additional lockdowns in the second half
for the financial year. As a result, the revised plan assumes a per
una sales decline of c. 40% in 2021/22 vs 2019/20, followed by
moderate increases in sales in years 2 and 3 of the plan. The
revised plan does not return to 2019/20 sales levels.
In the medium to long-term, the key assumption driving the value
in use is the ability to generate profitable growth in the context
of significant change in the UK retail market. The model assumes
0.5% (last year: 0.7%) growth into perpetuity, which is the per una
sales growth assumed in year 3 of the plan. If a shorter trading
period was assumed then this could result in a further
impairment.
The outcome of the value in use calculation is an impairment of
GBP39.6m (prior year impairment charge of GBP13.4m).
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 a further impairment. Management has
performed sensitivity analysis on the key assumptions in the
impairment model using reasonably possible changes in these key
assumptions for the per una brand. Individually a 50-basis point
increase in the WACC rate or a reduction in the perpetuity growth
rate to 0% would cause an increase in the impairment below GBP0.7m.
A 20% reduction in cash flows over the whole three-year plan period
would cause a GBP3.3m further impairment and in combination, these
reasonably possible changes in the key assumptions would cause a
further impairment of GBP3.9m.
Computer software impairment testing
Following the announcement of the new MS2 division, the Group
conducted a review of the intangible computer software assets held
on the balance sheet which were to be decommissioned, replaced or
retired as part of the MS2 programme. An impairment charge and
write off of GBP40.0m has been recognised reflecting significant
changes to certain intangible assets used by UK Clothing &
Home.
Jaeger
During the period, the Group recognised additions to brand
intangible assets of GBP6.3m, relating to the purchase of the
Intellectual Property of the Jaeger brand (including registered
trademarks, goodwill, logos, domain names and social media
accounts) as part of an asset acquisition.
11 Property, plant and equipment
The Group's property, plant and equipment of GBP5,058.6m (last
year: GBP5,494.2m) consists of owned assets of GBP3,562.6m (last
year: GBP3,863.9m) and right-of-use assets of GBP1,496.0m (last
year: GBP1,630.3m).
Property, plant and equipment -
owned
Land and Fixtures, Assets Total
buildings fittings in the
and equipment course
of construction
GBPm GBPm GBPm GBPm
At 30 March 2019
Cost 2,885.9 5,673.6 98.1 8,657.6
Accumulated depreciation, impairments
and write-offs (637.1) (4,015.6) (18.0) (4,670.7)
Net book value 2,248.8 1,658.0 80.1 3,986.9
Year ended 28 March 2020
Opening net book value 2,248.8 1,658.0 80.1 3,986.9
Additions 2.1 27.7 244.9 274.7
Transfers and reclassifications 22.2 183.6 (205.0) 0.8
Impairment reversals 25.7 32.4 - 58.1
Impairment charge (73.9) (52.7) - (126.6)
Asset write-offs (1.8) (7.1) - (8.9)
Depreciation charge (62.0) (267.2) - (329.2)
Exchange difference 6.3 1.8 - 8.1
Closing net book value 2,167.4 1,576.5 120.0 3,863.9
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(1) (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
(1) Asset impairments of GBP121.9m made up of: GBP48.2m charge
as a result of UK store impairment testing , GBP73.4m charge
relating to the ongoing UK store estate programme and GBP0.3m in
relation to assets replaced, retired or decommissioned as part of
the MS2 programme (see note 3).
Asset write-offs in the year include assets with gross book
value of GBP67.4m (last year: GBP680.5m) and GBPnil (last year:
GBPnil) net book value that are no longer in use and have therefore
been retired.
Right-of-use assets
The Group adopted IFRS 16 Leases from 31 March 2019. Refer to
note 1 for the accounting policy. The right-of-use assets
recognised on adoption of IFRS 16 are reflected in the underlying
asset classes of property, plant and equipment.
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 Fixtures, Total
buildings fittings
and equipment
GBPm GBPm GBPm
As at 30 March 2019 1,637.8 37.6 1,675.4
Additions 140.3 40.4 180.7
Transfers and reclassifications 0.2 (0.2) -
Disposals (18.9) - (18.9)
Impairment reversals 50.2 - 50.2
Impairment charge (84.4) - (84.4)
Depreciation charge (155.9) (18.7) (174.6)
Exchange difference 1.8 0.1 1.9
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
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 have been identified. Stores
identified within the Group's UK store estate programme are
automatically tested for impairment (see note 3). The ongoing
Covid-19 pandemic is considered an impairment trigger and as a
result all stores have been tested for impairment.
The value in use of each CGU is calculated based on the Group's
latest budget and forecast cash flows, covering a three-year
period, which have regard to historic performance and knowledge of
the current market, together with the Group's views on the future
achievable growth and the impact of committed initiatives. The cash
flows include ongoing capital expenditure required to maintain the
store network, but exclude any growth capital initiatives not
committed. Cash flows beyond this three-year period are
extrapolated using a long-term growth rate based on management's
future expectations, with reference to forecast GDP growth. These
growth rates do not exceed the long-term growth rate for the
Group's retail businesses in the relevant territory. If the CGU
relates to a store which the Group has identified as part of the UK
store estate programme, the value in use calculated has been
modified by estimation of the future cash flows up to the point
where it is estimated that trade will cease and then estimation of
the timing and amount of costs associated with closure detailed
fully in note 3.
The 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 8.9% to 14.0% (last year: 8.6% to 16.8%). If the
CGU relates to a store which the Group has identified as part of
the UK store estate programme, the additional key assumptions in
the value in use calculations are costs associated with closure,
the disposal proceeds from store exits and the timing of the store
exits.
Impairments - UK stores excluding the UK store estate
programme
During the year, the Group has recognised an impairment charge
of GBP66.4m and impairment reversals of GBP64.5m as a result of UK
store impairment testing unrelated to the UK store estate programme
(last year: impairment charge of GBP69.3m). The impaired stores
were impaired to their 'value in use' recoverable amount of
GBP98.5m, which is their carrying value at year end. The stores
with impairment reversals were written back to their 'value in use'
recoverable amount of GBP223.0m. These impairments and impairment
reversals have been recognised within adjusting items (see note
3).
For UK stores, cash flows beyond the three-year period are
extrapolated using the Group's current view of achievable long-term
growth of 1.75%, adjusted to 0% where management believes the
current trading performance and future expectations of the store do
not support the growth rate of 1.75%. The rate used to discount the
forecast cash flows for UK stores is 8.9% (last year: 8.6%).
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 GBP33m and
a 25 basis point reduction in gross profit margin from year 3
onwards would increase the impairment charge by GBP4.0m. In
combination, a 1% fall in sales and a 10 basis point fall in gross
profit margin would increase the impairment charge by GBP7.0m.
Reasonably possible changes of the other key assumptions, including
a 50 basis point increase in the discount rate or 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 GBP1.1m and a 25
basis point reduction in gross profit margin from year 3 onwards
would have no impact on the reversal. In combination, a 5% fall in
sales and a 25 basis point fall in gross profit margin would reduce
the reversal by GBP2.0m.
Impairments - UK store estate programme
During the year, the Group has recognised an impairment charge
of GBP107.9m and impairment reversals of GBP36.7m relating to the
on-going UK store estate programme (last year: impairment charge of
GBP132.0m and impairment reversals of GBP108.3m). These stores were
impaired to their 'value in use' recoverable amount of GBP109.6m,
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 8.9% (last year:
8.6%).
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 of GBP24.7m. A
5% reduction in planned sales in years 2 and 3 (where relevant)
would result in an increase in the impairment charge of GBP21.7m.
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 year, the Group has recognised an impairment reversal
of GBP8.8m in Ireland (last year: impairment charge of GBP9.0m) and
GBPnil in the Czech Republic (last year: GBP0.2m) as a result of
store impairment testing.
For Irish stores, cash flows beyond the three-year period are
extrapolated using a long-term growth rate of 0%. The rate used to
discount the forecast cash flows for Irish stores is 10.0% (last
year: 14.1%).
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.
For Irish stores, reasonably possible changes in other key
assumptions, including a reduction in sales of 5% from the
three-year plan in years 2 and 3 to reflect a potential recession,
a 25 basis point reduction in gross profit margin throughout the
plan period, a 50 basis point increase in the discount rate or a 1%
fall in sales combined with a 10 basis point fall in gross profit
margin would not result in a change in the impairment reversal.
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:
2021 2020
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets measured
at fair value
Financial assets
at fair value through
profit or loss
- derivatives held
at FVTPL - 0.7 - 0.7 - 2.5 - 2.5
Derivatives used
for hedging - 32.4 - 32.4 - 183.4 - 183.4
Short-term investments - 18.4 - 18.4 - 11.7 - 11.7
Unlisted investments(1) - - 9.7 9.7 - - 9.7 9.7
Liabilities measured
at fair value
Financial liabilities
at fair value through
profit or loss
- derivatives held
at FVTPL - (12.1) - (12.1) - (2.8) - (2.8)
- contingent consideration(2) - - (212.0) (212.0) - - (202.4) (202.4)
Derivatives used
for hedging - (94.6) - (94.6) - (10.9) - (10.9)
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) The Group holds GBP9.7m 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 is determined with reference to the net asset value
of the entity in which the investment is held, which in turn
derives the majority of its net asset value through a third-party
property valuation.
(2) As part of the investment in Ocado Retail Limited, a
contingent consideration arrangement was agreed. The fair value of
contingent consideration payable is estimated by calculating the
present value of the future expected cash flows. The contingent
consideration arrangement comprises three separate elements which
only become payable on the achievement of three separate financial
and operational performance targets, the most significant of which
is 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 GBP187.5m plus
interest of 4%.
The fair value 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 targets are binary and,
based on the latest five-year plan of Ocado Retail Limited, are
expected to be met and therefore the fair value reflects the full,
discounted GBP187.5m plus interest, and it is therefore expected
that GBP33.7m will become payable in 2021/22 and GBP190.8m will
become payable in 2024/25. Should some, or all, of these targets
not be met, less, or 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. The discount
rates used ranged from 0.8% to 2.0% (last year: 1.7% to 2.2%) and a
1.0% change in the discount rates would result in a change in fair
value of GBP6.0m (last year: GBP7.3m). A 5% change in the forecast
level of earnings used to assess the performance targets would not
result in a significant change in fair value of the contingent
consideration.
The Marks & Spencer UK Pension Scheme holds a number of
financial instruments which make up the pension asset of
GBP10,442.9m (last year: GBP10,653.8m). Level 1 and Level 2
financial assets measured at fair value through other comprehensive
income amounted to GBP5,446.0m (last year: GBP6,328.7m).
Additionally, the scheme assets include GBP4,996.9m (last year:
GBP4,325.1m) 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:
2021 2020
GBPm GBPm
Opening balance 4,325.1 3,216.1
Fair value gain/(loss) recognised in other comprehensive
income 68.3 (130.1)
Additional investment 603.5 1,239.1
Closing balance 4,996.9 4,325.1
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 GBP1,682.1m (last year: GBP1,536.2m); the fair
value of this debt was GBP1,807.6m (last year: GBP1,531.4m) 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
GBP193.5m (last year: GBP207.4m) and the fair value of this
liability is GBP185.5m (last year: GBP202.7m).
13 Contingencies and commitments
A. Capital commitments
2021 2020
GBPm GBPm
Commitments in respect of properties in the course
of construction 88.3 78.7
---- ----
Software capital commitments 10.6 8.6
98.9 87.3
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
2021 2020
GBPm GBPm
(Loss)/profit on ordinary activities after
taxation (201.2) 27.4
--------
Income tax (credit)/expense (8.2) 39.8
--------
Finance costs 236.1 234.5
--------
Finance income (57.4) (46.9)
Operating profit (30.7) 254.8
--------
Share of results of Ocado Retail Limited (78.4) (2.6)
--------
Decrease/(increase) in inventories 41.2 (29.3)
--------
Decrease/(increase) in receivables 67.4 (9.2)
--------
Increase/(decrease) in payables(1) 159.5 (29.3)
--------
Depreciation, amortisation and write-offs 603.1 632.5
--------
Non-cash share based payment expense 19.3 18.5
--------
Defined benefit pension funding (37.1) (37.9)
--------
Adjusting items net cash outflows(2,3) (118.1) (75.4)
--------
Adjusting items M&S Bank(4) (2.4) (12.6)
--------
Adjusting operating profit items 252.9 335.9
Cash generated from operations 876.7 1,045.4
--------
(1) See note 1 for details on a change in accounting policy and
the resulting restatement.
(2) Excludes GBP12.4m (last year: GBP11.3m) 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.
(3) Adjusting items net cash outflows relate to strategic
programme costs associated with the UK store estate, organisation,
UK logistics, the utilisation of the provisions for International
store closures and impairments, expenses directly attributable to
the Covid-19 pandemic, cash outflows incurred as part of the Sparks
loyalty programme transition and establishing the investment in
Ocado Retail Limited.
(4) 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
Exchange
At and other At
31 March non-cash 28 March
2019 Cash Changes movements(2) 2020
flow in fair Lease additions
values and remeasurements
GBPm GBPm GBPm GBPm GBPm GBPm
Net debt
Bank loans, overdrafts
and syndicated bank facility(1) (3.5) (12.0) - - - (15.5)
(3.5) (12.0) - - - (15.5)
Cash and cash equivalents(1) 310.5 (56.8) - - 0.5 254.2
Net cash per statement
of cash flows 307.0 (68.8) - - 0.5 238.7
Current other financial
assets 141.8 (130.1) - - - 11.7
Medium Term Notes (1,673.8) 230.1 - - (92.5) (1,536.2)
Lease liabilities (2,576.8) 335.7 - (204.1) (116.8) (2,562.0)
Partnership liability to
the Marks & Spencer UK
Pension Scheme (see note
9) (266.2) 71.9 - - (8.4) (202.7)
Derivatives held to hedge
Medium Term Notes 23.9 (7.7) 86.0 - - 102.2
Liabilities from financing
activities (4,492.9) 630.0 86.0 (204.1) (217.7) (4,198.7)
Less: Cashflows related
to interest and derivative
instruments 62.6 (215.1) (86.0) - 236.2 (2.3)
Net debt (3,981.5) 216.0 - (204.1) 19.0 (3,950.6)
Exchange
At and other At
29 March non-cash 3 April
2020 Cash Changes movements(2) 2021
flow in fair Lease additions
values and remeasurements
GBPm GBPm GBPm GBPm GBPm GBPm
Net debt
Bank loans, overdrafts
and syndicated bank facility(1) (15.5) 10.8 - - - (4.7)
(15.5) 10.8 - - - (4.7)
Cash and cash equivalents(1) 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
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: Cashflows 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)
B. Reconciliation of net debt to statement of financial position
2021 2020
GBPm GBPm
Statement of financial
position and related notes
Cash and cash equivalents(1) 674.4 254.2
Current other financial
assets 18.4 11.7
Bank loans and overdrafts(1) (4.7) (15.5)
Medium Term Notes - net
of foreign exchange revaluation (1,657.9) (1,471.4)
Lease liabilities (2,405.9) (2,562.0)
Partnership liability to the Marks & Spencer UK
Pension Scheme (see note 9) (193.5) (207.4)
(3,569.2) (3,990.4)
Interest payable included within related borrowing
and the partnership liability to the Marks & Spencer
UK Pension Scheme 53.3 39.8
Total net debt (3,515.9) (3,950.6)
(1) See note 1 for details on a change in accounting policy
and the resulting restatement.
(2) Exchange and other non-cash movements includes interest
charge on Medium Term Notes of GBP86.4m (last year: GBP78.2),
interest charge on lease liabilities of GBP130.4m (last year:
GBP139.3) and interest charge relating to Partnership liability
to the Marks & Spencer UK Pension Scheme of GBP4.9m (last year:
GBP6.9m).
16 Related party transactions
A shareholder loan facility with Ocado Retail Limited was
established in the prior year, 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 3 April 2021 (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 3 April 2021 (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:
2021 2020
GBPm GBPm
Sales of goods and services 28.5 -
Purchases of goods and services - -
Included within trade and other receivables is a balance of
GBP2.3m (last year: GBPnil) owed by Ocado Retail Limited.
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 29
November 2020, 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 2 March
2020 to 28 February 2021. There were no significant events or
transactions in the period from 28 February 2021 to 3 April
2021.
The carrying amount of the Group's interest in Ocado Retail
Limited is GBP819.0m (last year: GBP754.8m). The Group's share of
Ocado Retail Limited profits of GBP64.2m (last year: GBP14.2m loss)
includes the Group's share of underlying profits of GBP78.4m, which
includes GBP25.2m of exceptional income before tax related to
insurance receipts (share of profit last year: GBP2.6m) and
adjusting item charges of GBP14.2m (last year: GBP16.8m) (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
28 Feb 1 Mar
2021 2020
GBPm GBPm
Ocado Retail Limited
Current assets 353.9 484.9
Non-current assets 336.8 206.6
Current liabilities (245.7) (489.7)
Non-current liabilities (264.6) (178.2)
Net assets 180.4 23.6
2 Mar 5 Aug
2020 to 2019 to
28 Feb 1 Mar
2021 2020
GBPm GBPm
Revenue 2,353.2 979.7
Profit for the period 156.8 5.1
Other comprehensive income - -
Total comprehensive income 156.8 5.1
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 As at
3 Apr 28 Mar
2021 2020
GBPm GBPm
Ocado Retail Limited
Net assets 180.4 23.6
Proportion of the Group's ownership interest 90.2 11.8
Goodwill 449.1 449.1
Brand 249.2 255.7
Customer relationships 88.3 98.9
Other adjustments to align accounting policies (63.5) (66.4)
Acquisition costs 5.7 5.7
Carrying amount of the Group's interest in Ocado
Retail Limited 819.0 754.8
In addition, the Group holds immaterial investments in joint
ventures totalling GBP6.8m (last year: GBP5.6m). The Group's share
of losses totalled GBP1.3m (last year: GBP0.9m loss).
18 Government support
During the year, the Group has received support from governments
in connection with its response to the Covid-19 pandemic. This
support included furlough and job retention scheme reliefs, tax
payment deferral schemes and business rates relief.
The Group has recognised government grant income of GBP131.5m in
relation to furlough programmes, such as the Coronavirus Job
Retention Scheme (CJRS) in the UK, and its equivalents in other
countries. The salary expense relating to those colleagues on
furlough during the period was GBP181.8m.
The Group also benefited from the business rates holiday for the
retail, hospitality and leisure sector of GBP174.6m.
There are no unfulfilled conditions or contingencies attached to
these grants.
19 Subsequent events
Subsequent to the balance sheet date, the Group has monitored
trade performance, internal actions, as well as other relevant
external factors (such as changes in any of the government
restrictions). No material changes in key estimates and judgements
have been identified as adjusting post balance sheet events. There
have been no material non-adjusting events since 3 April 2021.
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 2020/21
are listed below. Full disclosure of the risks including the
factors which mitigate them will be set out within the Strategic
Report of the 2020/21 Annual Report and Accounts.
TRADING PERFORMANCE RECOVERY Failure of our Food and/or Clothing & Home business to effectively and
rapidly respond to
the pressures of an increasingly competitive and changing retail
environment, including recovery
from the pandemic, would adversely impact customer experience,
operational efficiency and
business performance.
BUSINESS TRANSFORMATION A failure to execute our transformation and cultural change
initiatives with pace, consistency
and cross business buy-in will impede our ability to improve
operational efficiency, competitiveness,
and to restore the business to sustainable profitable growth.
BREXIT Failing to mitigate the continuing costs and friction arising from the
complexities surrounding
the border and further developments in the Trade and Cooperation
Agreement ("TCA") may have
a significant and long-term impact on our trading performance.
OCADO RETAIL A failure to effectively manage the strategic and operational
relationship with Ocado Retail
would
significantly impact the achievement of our multi-channel food
strategy and our ability to
deliver shareholder value.
TALENT, CULTURE & CAPABILITY Our inability to evolve the culture of our business as well as develop
and retain the right
talent and capabilities will influence our means to expand the
business with agility and appropriate
commercial acumen. This will also impede the execution of our
transformation programme and
impact our broader strategic objectives and performance.
FOOD SAFETY AND INTEGRITY Failure to prevent or effectively respond to a food safety incident,
or to maintain the integrity
of our products, could impact business performance, customer
confidence and our brand.
LIQUIDITY AND FUNDING An inability to maintain short- and long-term funding to meet business
needs or to effectively
manage associated risks may influence our ability to transform at
pace, as well as have an
adverse impact on business viability.
SOCIAL, ETHICAL & ENVIRONMENTAL RESPONSIBILITY Increasingly our customers, colleagues and investors demand
reassurance that we are managing
ethical and environmental issues across our business, including supply
chains. Our inability
to uphold adequate oversight of, and respond to, our responsibility
commitments may result
in failing to meet their expectations.
TECHNOLOGY & DIGITAL CAPABILITY A failure to simplify and improve our core technology, enhance our
digital capabilities and
reduce our dependency on legacy systems could limit our ability to
keep pace with market competition
and customer expectations, preventing successful transformation.
BUSINESS CONTINUITY & RESILIENCE Failures or resilience issues at key business locations, such as at
Castle Donington, our
primary online Clothing & Home distribution centre, could result in
significant business interruption.
More broadly, an inability to effectively respond to global events,
such as the pandemic or
a supply chain disruption, would also significantly impact business
performance.
INFORMATION SECURITY Failure to adequately prevent or respond to a data breach or
cyber-attack could adversely
impact our reputation, resulting in significant fines, business
disruption, loss of information
for our customers, employees or business and/or loss of stakeholder
and customer confidence.
CORPORATE COMPLIANCE & RESPONSIBILITY Failure to deliver against our legal and regulatory obligations, as
well as 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.
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
Like-for-like Movement in Sales from The period-on-period change
revenue revenue per non in revenue (excluding VAT) from
growth the income like-for-like stores which have been trading
statement stores and where there has been no
significant change (greater
than 10%) in footage for at
least 52 weeks and online sales.
The measure is used widely in
the retail industry as an indicator
of sales performance. It excludes
the impact of new stores, closed
stores or stores with significant
footage change. 2020/21 2019/20
GBPm GBPm
UK Food
Like-for-like 5,831.1 5,754.4
Net new space(1) 163.7 273.8
Week 53 143.7 -
Total UK Food revenue 6,138.5 6,028.2
UK Clothing & Home
Like-for-like 2,164.5 3,084.5
Net new space 34.1 124.6
Week 53 40.4 -
Total UK Clothing
& Home revenue 2,239.0 3,209.1
(1) UK Food net new space
includes sales to Ocado Retail
Limited.
Food LFL Movement in Sales from The period-on-period change
ex hospitality revenue per non in Food excluding the hospitality
and franchise the Income like-for-like and franchise categories' revenue
Statement stores and (excluding VAT) from stores
hospitality which have been trading and
and franchise where there has been no significant
categories change (greater than 10%) in
footage for least 52 weeks and
online sales. The LFL 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. The hospitality
category includes cafes, counters
and marketplace. This measure
has been introduced as both
hospitality and franchise were
closed for a majority of the
year. 2020/21 2019/20 %
GBPm GBPm
UK Food
Like-for-like 5,831.1 5,754.4 1.3
Hospitality (52.0) (249.4) (79.1)
Franchise (420.2) (491.0) (14.4)
Like-for-like ex hospitality and franchise 5,358.9 5,014.0 6.9
Clothing None Not applicable Clothing & Home revenue through
& Home stores and through the Clothing
stores/Clothing & Home online platforms. These
& Home revenues are reported within
online 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.
This measure has been introduced
given the Group's focus on online
sales. 2020/21 2019/20 %
GBPm GBPm
UK Clothing & Home
Stores 1,088.9 2,487.8 (56.2)
Online 1,109.7 721.3 53.9
Total UK Clothing & Home revenue - 52-week basis 2,198.6 3,209.1 (31.5)
Week 53 40.4 - -
Total UK Clothing & Home revenue 2,239.0 3,209.1 (30.2)
M&S.com None Not applicable Total revenue through the Group's
revenue online platforms. These revenues
/ Online are reported within the relevant
revenue 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
online International online platforms.
These revenues are reported
within the International segment
results. The growth in revenues
on a year-on-year basis is a
good indicator of the performance
of the online channel. This
measure has been introduced
given the Group's focus on online
sales. 2020/21 2019/20 %
GBPm GBPm
International revenue
Stores 613.6 867.4 (29.3)
Online 165.7 77.2 114.6
Week 53 10.1 - -
At reported currency 789.4 944.6 (16.4)
Revenue None Not applicable The period-on-period change
growth in revenue retranslating the
at constant previous year revenue at the
currency 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. 2020/21 2019/20 %
GBPm GBPm
International revenue
At constant currency 779.3 942.7 (17.3)
Impact of FX retranslation - 1.9 -
International revenue - 52-week basis 779.3 944.6 (17.5)
Week 53 10.1 - -
At reported currency 789.4 944.6 (16.4)
Adjusting None Not applicable Those items which the Group
items 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 Revenue Adjusting Revenue before the impact of
before items adjusting items. The Group considers
adjusting (See note this to be an important measure
items 3) of Group performance and is
consistent with how the business
performance is reported and
assessed by the Board and the
Executive Committee. This measure
has been introduced as certain
adjustments have been made to
revenue for the first time in
accordance with the Group's
policy for adjusting items.
Operating Operating Adjusting Operating profit before the
profit profit items impact of adjusting items. The
before (See note Group considers this to be an
adjusting 3) important measure of Group performance
items and is consistent with how the
business performance is reported
and assessed by the Board and
the Executive Committee.
Finance Finance Adjusting Finance income before the impact
income income items of adjusting items. The Group
before (See note considers this to be an important
adjusting 3) measure of Group performance
items and is consistent with how the
business performance is reported
and assessed by the Board and
the Executive Committee.
Finance Finance costs Adjusting Finance costs before the impact
costs before items of adjusting items. The Group
adjusting (See note considers this to be an important
items 3) measure of Group performance
and is consistent with how the
business performance is reported
and assessed by the Board and
the Executive Committee.
Interest Finance Finance The net of interest income on
on leases income/costs income/costs subleases and interest payable
(See note on lease liabilities. This measure
4) has been introduced 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
(See note and adjusting items. The Group
4) considers this to be an important
measure of Group performance
and is consistent with how the
business performance is reported
and assessed by the Board and
the Executive Committee.
EBIT before EBIT(1) Adjusting Calculated as profit before
adjusting items the impact of adjusting items,
items (See note net finance costs and tax as
3) disclosed on the face of the
consolidated income statement.
This measure is used in calculating
the return on capital employed
for the Group.
Ocado Retail EBIT Not applicable Calculated as Ocado Retail Limited
Limited earnings before interest, tax,
EBITDA depreciation, amortisation,
impairment and exceptional items.
Profit Profit before Adjusting Profit before the impact of
before tax items adjusting items and tax. The
tax and (See note Group considers this to be an
adjusting 3) important measure of Group performance
items 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 Earnings per Adjusting Profit after tax attributable
basic earnings share items to owners of the parent and
per share (See note before the impact of adjusting
3) items, divided by the weighted
average number of ordinary shares
in issue during the financial
year.
This is a measure used within
the Group's incentive plans.
Refer to the Remuneration Report
for an explanation of why this
measure is used.
Adjusted Diluted Adjusting Profit after tax attributable
diluted earnings items to owners of the parent and
earnings per share (See note before the impact of adjusting
per share 3) items, divided by the weighted
average number of ordinary shares
in issue during the financial
year adjusted for the effects
of any potentially dilutive
options.
Effective Effective Adjusting Total income tax charge for
tax rate tax rate items and the Group excluding the tax
before their tax impact of adjusting items divided
adjusting impact by the profit before tax and
items (See note adjusting items. This measure
3) is an indicator of the ongoing
tax rate for the Group.
52-week Corresponding Last trading The Group's financial year ends
basis for equivalent week of on the nearest Saturday to 31
the 2020/21 statutory 2020/21 March. The current financial
financial measure year is for the 53 weeks ended
year 3 April 2021 with the comparative
financial year being for the
52 weeks ended 28 March 2020.
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 debt (bank and bonds net of accrued
(see note interest and lease liabilities),
15) 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
excluding of net debt lease liabilities. This measure
lease (see note is a good indication of the
liabilities 15) strength of the Group's balance
Lease sheet position and is widely
liabilities used by credit rating agencies.
Cash Flow Measures
Free cash Net cash See Financial The cash generated from the
flow inflow Review Group's operating activities
from less capital expenditure, cash
operating lease payments and interest
activities paid.
This measure shows the cash
retained by the Group in the
year.
Free cash Net cash See Financial Calculated as the cash generated
flow inflow Review from the Group's operating activities
pre-shareholder from less capital expenditure and
returns operating interest paid, excluding returns
activities 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
scenario financial planning process,
the Board approved the 2020/21
budget and three-year plan.
As a result of the UK government
restrictions on trade that were
announced in response to the
Covid-19 pandemic, the Group
revisited the 2020/21 budget
and three-year plan to determine
a downside scenario.
The downside scenario assumed
the government guidelines at
the period end continued for
a period of at least four months,
resulting in a significant decline
in sales for the remainder of
2020/21, as outlined in the
basis of preparation in the
Group's 2020 Annual Report and
Financial Statements.
This downside scenario was approved
by the directors and is defined
as the Covid-19 scenario.
Capital None Not applicable Calculated as the purchase of
expenditure property, plant and equipment,
investment property and intangible
assets during the year, less
proceeds from asset disposals
excluding any assets acquired
or disposed of as part of a
business combination or through
an investment in an associate.
Ocado Retail None Not applicable References made to Ocado Retail
Limited Limited also include its two
subsidiaries, Speciality Stores
Limited (disposed on 31 January
2021) and Paws & Purrs Limited.
Return None Not applicable Calculated as being EBIT before
on capital adjusting items divided by the
employed average of opening and closing
capital employed. The measures
used in this calculation are
set out below: 2020/21 2019/20
GBPm GBPm
EBIT before adjusting
items 222.2 590.7
Net assets 2,285.8 3,708.5
Add back:
Partnership liability
to the Marks &
Spencer UK Pension
Scheme 193.5 207.4
Deferred tax liabilities 42.3 332.4
Non-current borrowings
and other financial
liabilities 3,659.9 3,865.9
Retirement benefit
deficit 7.8 12.4
Derivative financial
instruments 73.6 -
Current tax liabilities - -
Less:
Investment property (15.2) (15.5)
Derivative financial
instruments - (172.2)
Retirement benefit
asset (639.2) (1,915.0)
Current tax assets (35.4) (19.3)
Net operating assets 5,573.1 6,004.6
Add back: Provisions
related to adjusting
items 100.8 71.1
Capital employed 5,673.9 6,075.7
Average capital
employed 5,874.8 5,887.5
ROCE % 3.8% 10.0%
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 DKPBDNBKBNPB
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May 26, 2021 02:00 ET (06:00 GMT)
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