TIDMMKS
RNS Number : 8752R
Marks & Spencer Group PLC
10 November 2021
Marks and Spencer Group Plc
Half Year Results for 26 Weeks Ended 2 October 2021
"Transformation and Covid Bounce Back Drives Strong
Performance"
The impact of Covid in 2020/21 renders comparisons to the prior
year less meaningful. To aid understanding, throughout this
document we are showing the 26 weeks to 28 September 2019 as the
comparative period for commentary and percentage changes.
Strong financial results
-- Pro t before tax & adjusting items of GBP269.4m (2019/20, GBP176.3m)
-- Profit before tax of GBP187.3m (2019/20, GBP158.8m; 2020/21, loss of GBP87.6m)
-- Food sales (1) up 10.4%, sales ex hospitality and franchise(2) up 16.9%
-- Food operating profit before adjusting items of GBP143.7m (2019/20, GBP92.2m)
-- C&H sales (1) down 1%, full price sales (1) up 17.3%
-- C&H online sales (1) growth of 60.8%, now 34.4% of total C&H sales. Store sales down 17.6%
-- C&H operating profit before adjusting items of GBP156.2m (2019/20, GBP109.6m)
-- Net debt reduced to GBP3.15bn down 22.6% on 2019/20.
Underlying improvements in all main businesses
-- M&S Food growing market share with consistent strong quality and improved value perceptions
-- Ocado Retail opens 3 new CFCs. Planned capacity growth over 50% since M&S investment
-- C&H increased value and style perception. Market share
growth across key categories and channels
-- MS2 driving strong online growth, record active customers and increased retention
-- UK pipeline includes 20 full line stores, enabling 3 full line closures in H1
-- International rebounding despite lockdowns, trading restrictions and EU border costs
Steve Rowe, Chief Executive commented:
"Given the history of M&S we've been clear that we won't
overclaim our progress. Unpacking the numbers isn't a linear
exercise and we've called out the Covid bounce back tailwinds, as
well as the headwinds from the pandemic, supply chain and Brexit,
some of which will continue into next year. But, thanks to the hard
work of our colleagues, it is clear that underlying performance is
improving, with our main businesses making important gains in
market share and customer perception. The hard yards of driving
long term change are beginning to be borne out in our
performance."
Change
Group Results (26 weeks 2 Oct 21 26 Sep 20 28 Sep 19 vs 2019/20
ended) (%)
Statutory revenue GBP5,105.3m GBP4,090.9m GBP4,860.9m 5.0
Sales before adjusting items GBP5,112.9m GBP4,102.1m GBP4,860.9m 5.2
Operating pro t before adjusting
items GBP363.2m GBP61.8m GBP269.9m 34.6
Pro t/(loss) before tax
& adjusting items GBP269.4m GBP(17.4)m GBP176.3m 52.8
Adjusting items GBP(82.1)m GBP(70.2)m GBP(17.5)m n/a
Profit/(loss) before tax GBP187.3m GBP(87.6)m GBP158.8m 17.9
Profit/(loss) after tax GBP159.9m GBP(71.6)m GBP122.4m 30.6
Basic earnings/(loss) per
share 8.2p (3.5)p 6.4p 28.1
Adjusted basic earnings/(loss)
per share 12.1p (0.4)p 7.1p 70.4
Free cash ow(3) GBP287.6m GBP88.1m GBP(4.7)m n/a
Net debt(3) GBP3.15bn GBP3.82bn GBP4.07bn -22.6
Net debt excluding lease
liabilities(3) GBP0.82bn GBP1.31bn GBP1.54bn -46.8
Dividend per share - - 3.9p n/a
----------- ----------- ----------- -----------
There are a number of non-GAAP measures and alternative pro t
measures "APMs", discussed within this announcement and a glossary
and reconciliation to statutory measures is provided at the end of
this report. Adjusted results are consistent with how business
performance is measured internally and presented to aid
comparability of performance. Refer to adjusting items table below for further details.
(1) All references to sales, a new APM, throughout this document
are statutory revenue plus the gross value of consignment sales
excluding VAT.
(2) The Food ex hospitality and franchise APM is based on total
revenue rather than like-for-like revenue, as was presented at the
20/21 year-end results.
(3) 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.
TRANSFORMATION DRIVING STRONG PERFORMANCE ACROSS M&S
The combined effects of reshaping the business and the bounce
back from the pandemic have driven an encouraging performance
across M&S. Profit before tax and adjusting items for the
period was GBP269.4m. Better financial results and a strong focus
on working capital management generated free cashflow and a further
reduction in net debt. Results include GBP47.5m of UK business
rates relief, and a net rates charge of GBP50.3m in the period.
A repositioned Food business delivering growth
Consistently strong growth in Food sales of 10.4% and an
improving margin mix has helped to deliver a strong increase in
operating profit before adjusting items compared to 2019/20. Whilst
it is hard to unravel the residual effects of the pandemic, and the
bounce back in spending, from the benefits of the reshaping of
M&S Food, we are encouraged by the market share gains
increasingly being generated in the core categories at the centre
of our strategy. Alongside this, Ocado Retail benefited from a step
change in the online grocery market and, following the opening of 3
CFCs (Customer Fulfilment Centres) and further planned capacity,
will be well positioned to drive customer growth in the coming
year.
Better product and omni-channel strategy deliver sharp uplift
online in Clothing & Home
The Clothing & Home business delivered 17.3% growth in full
price sales helping to drive a healthy improvement in operating
profit before adjusting items. There are early indicators of
renewed competitiveness in most categories, with increased market
share overall and in both the online and store channels and
improving style and value perception. The number of online
customers continued to grow, and we have seen stronger retention
levels of newer shoppers supported by the Sparks data and
personalisation programme. In October, we relaunched the acquired
Jaeger business as a digital-first brand, with an encouraging early
customer response.
Good progress on rotation of the store estate
We are making good progress on the store rotation programme we
set out in May. Initial results from new full line store openings
have been encouraging. The pipeline of new full line stores has
grown to 20 and now includes six former Debenhams sites, in
addition to Leamington Spa which opened in the period. In all of
these stores we expect to deliver high volume, enabling
consolidation of nearby stores. Wherever possible we will
accelerate this programme.
International focused on strong trading partnerships and global
online
The International business has also grown online sales, both in
markets with M&S stores and on marketplaces. In addition, we
have seen a solid recovery in Clothing & Home sales while
managing the headwinds of lockdown and restrictions in India plus
the impact of EU border costs, primarily affecting Food. Despite
these headwinds, International made a solid contribution to group
results.
Outlook and path to growth
As we move from the 'fixing the basics' phase of the
transformation, we are confident of our ability to drive
shareholder value in the next phase. Trading for the first four
weeks of H2 has been consistent with growth rates reported in Q2
and ahead of plan and we expect the strong demand relating both to
the bounce back and improved customer perception to be sustained in
the near term. However, well publicised cost pressures will become
progressively steeper increasing the importance of our productivity
plans, store rotation and technology investment in the coming year.
Taking these factors into account and assuming there is no further
acute pandemic related disruption, our central case is for profit
before tax and adjusting items for the year to be ahead of
expectations and in the region of GBP500m.
A REPOSITIONED FOOD BUSINESS DELIVERING GROWTH
M&S Food delivered strong sales growth of 10.4% on 2019/20
and exited the period as the best performing UK grocery chain
(Source: Kantar 12 weeks to 3 October 2021). Sales grew 16.9% after
adjusting for the adverse impact on the hospitality and franchise
travel businesses which are still progressively recovering from the
impacts of Covid consumer behaviour. This imbalance was also
reflected in the geographical pattern of recovery: compared with 2
years ago M&S Food sales on retail parks were up 23.3%, while
Food sales in city centre stores were down 18.4%.
% change to 19/20 % change to 19/20
-------------------------------- ---- ------------------------------------- ----
M&S.com (flowers/hampers/wine) 137 Shopping centre -
Simply Food 27 High street -10
Retail parks 23 City centre -18
Franchise fuel 13 Franchise travel (rail/air/roadside) -49
Total 26 Total -16
Operating profit before adjusting items of GBP143.7m, as
compared to GBP92.2m in 2019/20, reflected strong sales growth and
steady gross margin offset by modest cost growth.
Broadened appeal of the M&S Food range
The transformation of the M&S Food range over the last few
years, previously obscured by pandemic distortions, has delivered
an improvement in customer perception, strong core sales growth and
market share gains.
-- Product development has been refocussed on the mainstream,
improving choice in core product categories such as pasta, ready
meals, bakery and wine, as well as seasonal family products and
frozen ranges. Perception for quality and in critical areas such as
farm standards is now market leading.
-- As part of the shift to trusted value, promotions have been
substantially reduced and entry price points have been sharpened
with the introduction of the 'Remarksable' range and 'Fresh Market
Specials'. The iconic 'Dine In' programme has been relaunched and
expanded to create more compelling offers for dinner for two, for
families and for key events.
-- With that, there has been a sharp improvement in customer
value perception and recent market share increased 20bps on 2019/20
with strong growth in the categories that are important to family
shoppers such as produce, meat and grocery. Average basket size on
everyday shopping trips remains c.30% higher than pre-pandemic
levels, even as the frequency of trips is recovering.
Our food-on-the-move and hospitality businesses continued to be
impacted in the period. However, since schools and some offices
returned to more normal working patterns, sales in city centre,
high street and franchise - air and some rail locations - have also
improved. Compared to 2019/20 levels, food-on-the-move sales were
down 11.4% in September and higher margin hospitality sales were
down 34.9%, improving on first half performance which is shown
below.
% change to 19/20 % change to 19/20
---------------------------- --- ------------------ ----
Frozen 40 Hospitality -53
Grocery & household 33 Food-on-the-move -18
Beers, wines, spirits 30
Meat, fish, poultry, deli,
dairy 20
Produce & flowers 14
Total 20 Total -30
Our Food strategy is to shift to larger stores in the evolving
'renewal' innovation format which offer greater choice in core
categories in a more operationally efficient way. The format has
now been implemented in 29 new and renewed stores including 14
since our full year results. Sales in renewal stores opened in the
current year have increased 15.7% in the period and 19.0% in
September, compared to 2019/20.
Multi-year supply chain efficiency programme underway
The Food business has a multi-year programme to improve
efficiency and availability and reduce waste. The Vangarde store
process improvements have now been implemented across 75% of the
estate. Comprehensive new forecasting, ordering, allocation and
space planning systems are under development and commence roll out
towards year-end. With our distribution partners, we are also
working on plans to create a streamlined, modern, automated
network.
As widely reported, there are growing issues of driver,
warehouse and supplier labour shortages creating additional
pressures for all retailers, including M&S. We have a number of
recruitment initiatives which include targeted incentives for
drivers. We are also increasing truck, cage and tray-fill, and
resetting delivery schedules and depot picking processes to help
manage the pressures. We are planning for significant supply chain
cost increases in the second half of the year with further on-costs
next financial year. However, because of our concentrated supplier
base and much improved working relationship with our logistics
partner Gist, the Food business is comparatively well placed for
these challenges.
Ocado Retail set for rapid capacity growth
Compared to 2020/21, Ocado.com customer orders grew by c.19% and
revenue declined 2.7% over the 26 weeks ended 29 August 2021,
contributing a share of net income of GBP28.1m. M&S product
sales on Ocado Retail were c.GBP309m, 27% of total sales.
As expected, revenue was lower compared to 2020/21 as trade
annualised against strong performance during the first national
lockdown and towards the end of the period was impacted by the fire
at the Erith CFC. Average basket size was GBP124 compared with
GBP151 last year as it returned to pre-Covid levels. The fire at
Erith CFC on 16 July and the additional safety measures put in
place impacted revenue, which declined 19% in the final 7 weeks of
the period.
The pandemic has driven a substantial step up in the penetration
of online grocery sales from c.7% of market demand pre-Covid to
over 12% today. In the medium term this will create significant
growth opportunities for Ocado Retail as it is able to use the
superior service and range driven by the CFC model to attract
customers newly familiar with online ordering.
Our objective for Ocado Retail is to drive long term growth and
loyalty through better service, quality and more extensive range,
underpinned by the M&S brand.
-- Ocado Retail has plans to reach capacity of c.700,000 orders
per week based on pre-Covid basket sizes and will have invested in
growing capacity when fully ramped by over 50% since the M&S
investment.
-- The Erith site has reopened and is expected to return to
pre-fire capacity by the end of November on release of temporary
additional safety measures put in place at the site. New CFC
capacity at Purfleet (85k OPW 'Orders Per Week') and Andover (60k
OPW) is ramping up rapidly and ahead of plan, to be followed by the
opening of Bicester (30k OPW) next summer and Luton (65k OPW) in
2023.
-- The Zoom rapid delivery service format will be expanded to a
further 3 sites in Ocado Retail's FY 2021/22.
We continue to have a strong programme of capacity growth in
Ocado Retail and we expect to deliver strong revenue growth in FY
2021/22 . In the near term, margins will reflect the higher
percentage of immature capacity as well as the resumption of normal
peaks and troughs associated with trading pre-lockdown. In
addition, Ocado Retail has been impacted by the industry wide
labour market and logistics issues requiring investment in
colleague development, retention and reward which will put pressure
on costs in the remainder of our financial year.
BETTER PRODUCT AND OMNI-CHANNEL STRATEGY DELIVER SHARP UPLIFT
ONLINE IN CLOTHING & HOME
Clothing & Home delivered a substantial improvement in
profitability with sales down just 1.0% compared with 2019/20
despite lockdown extending into week one of the period. Sales grew
in Q2 and overall full price sales were up 17.3% for the period.
Operating profit before adjusting items was GBP156.2m as compared
to GBP109.6m in 2019/20.
MS2 delivered strong online growth, with sales up 60.8% vs
2019/20 and 19.7% compared with last year. Online market share
increased 1.1 percentage points compared to 2019/20 in the 12 weeks
to 19 September. Online sales represented 34% of Clothing &
Home sales in the period, well on the way to our target of over
40%. Online active customers have increased by 60.0% over two years
to 9.6m and retention rates are higher than before the pandemic,
creating an expanded opportunity for growth.
Store sales declined 17.6% compared with 2019/20. The 'legacy'
store base meant that the business remained impacted by the
enduring weakness of city centre and high street trade. Stores on
retail parks were level on 2019/20, while our stores in city
centres declined by 32.1%. Nevertheless, store market share was up
0.8 percentage points in the 12 weeks to 19 September.
% change to 19/20
------------------- ----
Retail parks -
Outlets -5
Shopping centres -21
High Street -23
City centre -32
------------------- ----
Total C&H stores -18
Re-engineering of the Clothing & Home product engine
The re-engineering of the Clothing & Home operating model is
now demonstrating its potential to reverse years of decline in the
business.
-- More focused category management has enabled total option
count to be reduced by around one quarter compared with three years
ago, resulting in substantially improved line-item rate of sale.
For instance, in our 'hero' category of women's denim, sales per
option are up 56% on 2019/20 from 29% fewer options.
-- Over 1,300 colleagues have been trained in efficient buying
and merchandising in the 'Never the Same Again academy'. Combined
with a test and repeat programme and new tools to accurately rank
and plan product, this is having a positive impact on product
appeal and finish.
-- Alongside the reduction in duplication and creation of a more
focused core range, we have broadened choice in growth areas such
as activewear, kids' daywear and home. For instance, the Goodmove
activewear brand has seen very rapid growth since its launch prior
to the pandemic and our girls' daywear market share has grown by
160bps.
-- Nine weeks have been taken out of the womenswear 'critical
path' resulting in orders being placed closer to the date of sale,
speeding up the supply chain. This has helped support the business
which has traded with three weeks less stock compared with
2019/20.
-- The combination of these changes has also enabled a
significant shift towards 'every day low prices'. The intensive
promotions of the past including the quarterly 'friends and family'
discount events have been removed and only partially replaced by
personalised discounts through Sparks. Overall, the volume of stock
into the clearance sale has reduced by over 50%.
-- Product display has also been updated both in store and
online with initiatives such as 'The Edit' in womenswear which
seeks to create a more inspiring store environment backed by volume
stock commitment in popular lines.
-- These changes have driven an improvement in customer
perceptions of value for money with M&S Clothing now holding a
leading position, alongside our continued lead on quality.
As illustrated in the tables below, overall performance in the
first half remained skewed towards more casual categories. However,
since the return to offices in September, performance in formal
categories has improved with suits up 3% on 2019/20 and trousers up
8.7% in the month.
% change to 19/20 Online Stores % change to 19/20 Online Stores
----------------------- ------- -------------------- -------
Lingerie & essentials 97 -16 Holiday -27 -38
Casual 68 -7 Formal -3 -42
Kids 70 -13 Shoes & accessories -2 -41
Women's outerwear 60 8
Home & Beauty 52 -13
----------------------- ------- -------------------- -------
Total 69 -11 Total -6 -41
MS2 beginning to prove the power of the omni-channel
strategy
MS2 continues to progress and drive strong results for the
online business. We have one of the largest active online customer
bases in the UK and an opportunity to drive sales through increased
frequency, recency and spend. We aim to achieve well over 40% of
Clothing & Home sales through online in three years compared
with 34% in H1.
MS2 was created to bring the online, digital and data teams
together to improve the online offer and draw on the group's
customer data and the relaunched Sparks loyalty programme to
personalise selling. Our objective is to match the speed and
flexibility of pure play competitors with the advantages of an
omni-channel fulfilment strategy using the store base for click and
collect, returns, and rapid fulfilment.
Sparks and the M&S App creating competitive advantage
-- We have seen continued improvement in website performance and
useability with mobile now accounting for c.50% of orders, of which
almost half are generated through the M&S App.
-- The relaunched Sparks loyalty and personalisation programme
now has over 13m members, and the M&S App user base has grown
to over 3m. The combination of Sparks and the App user base creates
powerful advantages in online marketing as well as better service
for customers.
-- The App also gives access to digital services such as bra fit
appointments, 'scan and shop' in Food and easy online collection
and returns.
Investment in fulfilment providing resilience
-- Capacity and productivity at our Castle Donington fulfilment
centre has proved resilient and we expect to extend output to
handle continued growth alongside an investment in online
fulfilment capacity at Bradford.
-- To develop our omni-channel approach, systems changes have
enabled rapid growth of low-cost store-based online fulfilment.
This enables stock to be picked in a customer's preferred store of
collection and paves the way to a rapid same day fulfilment service
as well as reducing 'trapped stock' in stores.
-- In the first half, store-based fulfilment was 57% up on
2019/20 and accounted for 9% of click and collect sales.
M&S brand platform extending customer reach
-- In October we relaunched the acquired Jaeger business and
have generated an encouraging customer response. Jaeger stands for
effortless elegance, styled in an inclusive, modern, British way.
The brand is built as digital first but ultimately with an
omni-channel vision and is able to capitalise on the advantages
that the M&S infrastructure and platform can bring.
-- The emerging platform strategy has produced encouraging
results with strong initial sales from our newly launched brands.
M&S now trades with over 30 partners from Sloggi lingerie to
Ghost dresses to Clarks school shoes. The majority of the brands
will be online-only but we plan a limited presence of leading
brands such as Jaeger and Clarks in our largest high-footfall shops
during H2.
-- The average online basket size for brands is more than twice
the average for M&S.com with brands contributing c.3.5% of
total online sales in H1.
GOOD PROGRESS ON ROTATION OF THE STORE ESTATE
At the year-end we set out our goal of achieving a modernised
full line estate of c.180 stores through store rotation, reflecting
the accelerated channel shift post pandemic. Rotation means closing
at least 110 locations and relocating to either a new full line or
food-only store and in many cases consolidating multiple stores
into one.
The pandemic has further polarised store performance with very
significant decline in sales in some locations and improved
performance in others. At the same time, some of the older M&S
stores are high cost to operate with multi-floor facilities and
stock rooms which are too expensive to modernise.
Promising early results from rotation
-- Store rotation allows us to break the paradox of short-term
profit considerations and lease exit costs which have previously
inhibited the pace of change.
-- As a result of accelerated channel shift, we have been able
to generate over 30% Clothing & Home sales recapture in nearby
stores or online from many store closures to date, offsetting much
of the contribution lost from closure.
-- We have also generated encouraging initial results from new
full line store openings such as Nottingham Giltbrook, Sears
Solihull, and Maidstone Eclipse with a very good customer reaction
and paybacks in line with plan.
Good progress on renewing the full line estate
-- The pipeline of new full line stores is showing encouraging
growth with 20 already identified over the next three financial
years. These include six former Debenhams sites, in addition to
Leamington Spa which opened during the period, all of which we
expect to deliver high volume allowing consolidation of nearby
stores.
-- All new stores are opened with our renewal format in Food and
emerging new approach to Clothing & Home layout, décor and
display. We intend to incorporate our 'digital store' initiatives
providing for rapid fulfilment and returns.
-- We now have around 20 asset management projects under
consideration for feasibility which will free up cash to help
finance the store rotation. We are engaged in constructive
discussions with multiple landlords about initiatives such as
repurposing buildings and joint development programmes helping to
release 'hidden value' in the M&S estate.
In addition, in stores which are well located but have surplus
Clothing & Home space, we have a programme to fallow,
reallocate to Food or repurpose space for in-store fulfilment.
Good examples of store rotation and consolidation acted upon in
the period
Paisley
During the first half we relocated the aged Paisley town centre
Clothing & Home outlet and Food store, which had sharply
declining sales, to a modern Foodhall on the adjacent retail park
with good access and parking. The cash closure costs of the legacy
site have been partially funded with a freehold disposal, and the
new site is trading ahead of plan.
Paisley Paisley
Outlet Retail Park
Actuals Business
Case
Sales ex VAT (GBPm) 9.9 10.5
LFL (%) -5.7 n/a
Cash profit (GBPm) 0.6 1.4
Net cash relocation
costs (GBPm) - -2.4
Leamington Spa
In Leamington Spa we have recently consolidated two units into
one, by closing a clothing site in the Royal Priors shopping centre
and the Warwick Simply Food and extending a new Food site at
Leamington Shopping Park into the former Debenhams next door to
create a new prime full line store. The incremental cash
contribution net of closure costs is expected to generate payback
on the net capital invested in under four years.
Leamington Warwick Leamington
Town Centre Simply Shopping
Food Park
Actuals Actuals Business
Case
Sales ex VAT (GBPm) 5.5 4.0 21.7
LFL (%) -6.1 -2.1 n/a
Cash profit (GBPm) 1.3 0.3 4.0
Net cash relocation
costs (GBPm) -7.9
INTERNATIONAL FOCUSED ON STRONG TRADING PARTNERSHIPS AND GLOBAL
ONLINE
Our objective is to create a growing International business
through strong partnerships and a multi-platform online business
with global reach. International sales in H1 reflected the strong
rebound of activity in the Republic of Ireland upon reopening and
in India in Q2 following lockdown. International online sales grew
strongly, both in markets with an M&S store presence and
through marketplace growth led by Zalando.
Operating profit before adjusting items of GBP35.9m included
operating costs of c.GBP13m due to ongoing EU border issues,
largely relating to our Republic of Ireland business following
Brexit.
-- We have an ambition to double the International online
business over the next three years. In the first half, sales
increased 142% on 2019/20 and grew 29% against the prior year.
Growth has been driven by the Republic of Ireland and India,
broadening the number of markets with an online presence and rapid
scaling of our wholesale relationship with Zalando marketplace.
-- The Clothing & Home store business in the Republic of
Ireland has seen rapid recovery following reopening. However, we
are working to mitigate the very substantial headwinds relating to
the impact of EU border issues on the Irish Food business,
including restructuring the cost base and a planned step up in
local sourcing. During the first half we also announced a
restructuring of our Food operations in continental Europe, as a
result of EU border costs.
-- The joint venture in India is now well embarked on an
omni-channel strategy and will launch an M&S App later this
year which will enable us to create a single view of the customer
and drive an experience similar to the UK. With our joint venture
partner, Reliance Retail, we now operate 93 stores in India.
-- We continued the renewal of the International store estate
despite lockdowns and restricted trading conditions. For instance,
during H1 we modernised stores in Singapore with the expansion of
Wheelock Place and Vivo City and opened digital stores at Yas Mall
in Abu Dhabi and Phoenix High Street in India.
-- To reduce lead times, improve stock presentation and order
visibility for International partners we opened a new UK hub which
enables deliveries to bypass the UK network. To address EU border
issues and improve speed to market, we also plan to open an EU hub
in Croatia in 2022.
OUTLOOK AND PATH TO GROWTH
As we move from the 'fixing the basics' phase of the
transformation, we are confident of our ability to drive
shareholder value in the next phase. In the main businesses there
is demonstrable scope for further improvement and the customer
response to the transformation has been encouraging.
Trading for the first four weeks of the second half has remained
consistent with growth rates reported in Q2 and ahead of plan. In
the near term we expect the strong demand relating both to the
bounce back and improved customer perception to be sustained in the
second half.
However, well publicised supply chain pressure, combined with
pandemic supply interruptions, rising labour costs, EU border
challenges and tax increases means the cost incline becomes steeper
in the second half and steeper again in the 2022/23 year. That will
increase the importance of our productivity plans, store rotation
and technology investment.
Taking these factors into account and assuming there is no
further acute pandemic related disruption, our central case is for
profit before tax and adjusting items for the year to be ahead of
expectations and in the region of GBP500m.
Capital expenditure, partly as a result of supply chain delays
is running behind plan at around GBP250m. As a result, net debt is
likely to reduce more than previously anticipated, and we are
strengthening the balance sheet in anticipation of the growth
opportunities ahead.
As we enter the new phase, we expect to bring forward our plans
for continued far-reaching changes in the shape of the business.
Financially, our objectives over the next three years remain;
progressive growth in sales, market share and profit in Food,
Clothing & Home online sales to exceed 40% of total sales, and
delivering an overall Clothing & Home profit margin in excess
of 2019/20 levels.
Our capital allocation priorities also remain unchanged.
Firstly, we will invest in the transformation of the business to
return to sustainable profit growth. Alongside this, we will
prioritise the recovery of balance sheet metrics consistent with an
investment grade rating. We will assess the reintroduction of
dividend payments in this context although this remains unlikely in
the current year.
We will report trading for the third quarter on 13 January
2022.
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
10 November 2021.
Steve Rowe and Eoin Tonge will host a Q&A session at 9.30am
on 10 November 2021:
Dial in number: +44 (0)800 279 7204/+44 (0)330 336 9424
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Fixed Income Investor Conference Call:
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FULL YEAR FINANCIAL REVIEW
Financial Summary
26 weeks ended 52 weeks
ended(1)
-------------------------------- ------------------------------------- ---------- ---------- ----------
2 Oct 26 Sep 28 Sep Change Change 27 Mar
21 20 19 vs 20/21 vs 19/20 21
GBPm GBPm GBPm % % GBPm
-------------------------------- ---------- ------------- ---------- ---------- ---------- ----------
Group statutory revenue 5,105.3 4,090.9 4,860.9 24.8 5.0 8,961.5
Group sales before adjusting
items 5,112.9 4,102.1 4,860.9 24.6 5.2 8,972.7
UK Food 3,143.0 2,838.6 2,845.8 10.7 10.4 5,994.8
UK Clothing & Home 1,534.6 917.2 1,550.4 67.3 -1.0 2,198.6
International 435.3 346.3 464.7 25.7 -6.3 779.3
Group operating profit/(loss)
before adjusting items 363.2 61.8 269.9 487.7 34.6 209.7
UK Food 143.7 109.7 92.2 31.0 55.9 213.6
UK Clothing & Home 156.2 (107.5) 109.6 n/a 42.5 (129.4)
International 35.9 19.7 55.8 82.2 -35.7 45.1
M&S Bank and Services (0.7) 1.1 12.9 n/a n/a 2.0
Share of result in associates
and joint ventures 28.1 38.8 (0.6) -27.6 n/a 78.4
Interest payable on
lease liabilities (58.9) (62.2) (68.3) -5.3 -13.8 (122.5)
Net financial interest (34.9) (17.0) (25.3) 105.3 37.9 (45.6)
Profit/(loss) before
tax & adjusting items 269.4 (17.4) 176.3 n/a 52.8 41.6
Adjusting items (82.1) (70.2) (17.5) -17.0 369.1 (242.8)
Profit/(loss) before
tax 187.3 (87.6) 158.8 n/a 17.9 (201.2)
Profit/(loss) after
tax 159.9 (71.6) 122.4 n/a 30.6 (194.4)
Basic earnings/(loss)
per share 8.2p (3.5)p 6.4p n/a 28.1 (9.8p)
Adjusted basic earnings/(loss)
per share 12.1p (0.4)p 7.1p n/a 70.4 1.1p
Dividend per share - - 3.9p n/a n/a -
Net debt GBP3.15bn GBP3.82bn GBP4.07bn -17.5 -22.6 GBP3.52bn
-------------------------------- ---------- ------------- ---------- ---------- ---------- ----------
Notes:
There are a number of non-GAAP measures and alternative profit
measures ("APMs") discussed within this announcement and a glossary
and reconciliation to statutory measures is provided at the end of
this report. Adjusted results are consistent with how business
performance is measured internally and presented to aid
comparability of performance. Refer to the adjusting items table
below for further details.
Given the exceptional nature of financial results last year due
to the impact of Covid, all comparatives within this financial
review are given against 2019/20 unless otherwise stated.
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.
In the current period, we have introduced a new APM: 'sales'.
All references to sales throughout this document are statutory
revenue plus the gross value of consignment sales excluding VAT.
Where third-party branded goods are sold on a consignment basis,
only the commission receivable is included in statutory revenue.
This new measure has been introduced given the Group's focus on
launching and growing third-party brands and is consistent with how
the business performance is reported and assessed by the Board and
the Executive Committee.
(1) 2020/21 was a 53 week year and comparative periods are on a
52 week basis. To aid understanding, we have presented the
unaudited 52 weeks to 27 March 2021, however net debt is given on a
53 week basis.
Group results
Group sales before adjusting items were GBP5,112.9m. Sales
increased 5.2% versus 2019/20, driven by Food sales up 10.4%, with
Clothing & Home sales down 1.0% and International sales down
6.3%. Statutory revenue in the period was GBP5,105.3m, an increase
of 5.0% versus 19/20. The Group generated an adjusted profit before
tax of GBP269.4m and a statutory profit before tax of
GBP187.3m.
Within Group profit, we incurred a number of direct Covid costs
such as door hosts, hygiene and increased absence from the pandemic
totalling GBP12.1m (2020/21: GBP41.4m; 2019/20: nil).
In addition, UK business rates relief of GBP47.5m helped to
compensate for the continuing loss of trade from lower footfall to
Clothing & Home stores in the UK, as well as the Food
hospitality business which was closed until mid-May. A net rates
charge of GBP50.3m for UK business rates was recognised in the
period.
Statutory profit before tax includes total charges for adjusting
items of GBP82.1m.
For full details on adjusting items and the Group's related
policy see notes 1 and 3 to the financial information.
UK: Food
UK Food sales increased 10.4% driven by the strong performance
of core categories, partly offset by reduced sales from the
franchise and hospitality businesses which are still recovering
from the pandemic. Excluding franchise and hospitality, sales grew
16.9%.
Change vs 19/20 % Q1 Q2 H1
----------------------------------- ----- ----- -----
Food 9.4 11.5 10.4
Food ex franchise and hospitality 17.0 16.8 16.9
M&S Food reported sales do not benefit from a direct online
grocery presence, with these sales instead reported through Ocado
Retail .
26 Sep 20 28 Sep 19 Change vs
26 weeks ended 2 Oct 21 19/20 %
------------------------- ------------------ ---------- ---------- ----------
Footfall, m (average/week) 9.5 7.4 11.6 -18.1
Transactions, m (average/week) 7.4 5.1 9.3 -20.4
Basket value inc VAT (GBP) 15.9 20.6 11.7 35.9
----------------------------------- -------- ---------- ---------- ----------
Total sales ex VAT GBPm
(inc. M&S.com) 3,143.0 2,838.6 2,845.8 10.4
Whilst footfall is recovering, on average it has remained 18.1%
below pre-pandemic levels, with a similar trend echoed in the
average number of transactions, down 20.4%. Basket value remains
35.9% above pre-pandemic levels at an average of GBP15.90 over the
period and has declined compared to 2020/21 driven by the gradual
recovery of our hospitality and food-on-the-move businesses which
typically have smaller baskets.
2 Oct 21 26 Sep 28 Sep 19 Change vs
GBPm 20 GBPm 19/20 %
26 weeks ended GBPm
------------------- --------- ------- ---------- ----------
Sales 3,143.0 2,838.6 2,845.8 10.4
Operating profit
before adjusting
items 143.7 109.7 92.2 55.9
Operating margin 4.6% 3.9% 3.2% c.+140bps
The Food business in total generated operating profit before
adjusting items of GBP143.7m compared with GBP92.2m in 2019/20.
The table below sets out the drivers of the movement in
operating profit margin before adjusting items over two years.
Operating profit margin %
before adjusting items
------------------------------ ------
2019/20 3.2
Gross margin (0.4)
Store staffing 1.5
Other store costs 1.0
Distribution and warehousing (0.8)
Central costs 0.1
------------------------------ ------
2021/22 4.6
------------------------------ ------
-- Gross margin decreased c.40bps. The decrease in margin rate
was primarily as a result of lower sales from the higher margin
hospitality business and additional warehousing and freight
charges, partly offset by strong growth in core categories and cost
saving programmes including Ocado synergies. Food waste and stock
loss were broadly level.
-- Store staffing costs improved c.150bps, primarily driven by
retail restructuring efficiencies enabled by technology
improvements in store and ongoing efficiency programmes, partly
offset by pay inflation and ongoing Covid related costs.
-- The c.100bps improvement in other store costs relates to
government business rates relief of GBP19.7m and lower depreciation
charges as legacy store modernisations come to the end of their
useful economic lives, partly offset by increased maintenance
costs.
-- Distribution and warehousing costs increased c.80 bps
reflecting investment in our Milton Keynes ambient depot to support
volume growth, increased pay and incentives related to warehouses
and haulage, the higher cost to serve of online orders, and
inefficiencies from EU border-related processes for serving
Northern Ireland.
-- Central costs improved c.10bps, with a reduction in
depreciation of technology assets as they reach the end of their
useful lives offset by increased technology operating expenditure,
including in forecasting, ordering and allocation systems and
projects to enable retail restructuring efficiencies.
Ocado Retail Ltd
The Group holds a 50% interest in Ocado Retail Ltd ("Ocado
Retail"). The remaining 50% interest is held by Ocado Group plc
("Ocado Group"). Half year results are consistent with the
quarterly results reported by Ocado Group on behalf of Ocado Retail
for the quarterly periods ended 30 May 2021 and 29 August 2021.
All commentary in this section is against 2020/21 comparatives
as the acquisition of the investment in Ocado Retail Ltd by M&S
was made part-way through 2019/20.
Group share of consolidated results of Ocado Retail Ltd
GBPm 26 weeks 26 weeks Change
ended 29 ended 30 %
Aug 21 Aug 20
--------------------------- ---------- ---------- -------
Revenue 1,136.3 1,167.7 -2.7
EBITDA before exceptional
items 80.7 89.1 -9.4
Exceptional items 3.4 28.5 -88.1
Operating profit 64.8 100.5 -35.5
Profit after tax 56.3 77.6 -27.4
--------------------------- ---------- ---------- -------
M&S 50% share of profit
after tax 28.1 38.8 -27.6
--------------------------- ---------- ---------- -------
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
2021. A 2019/20 comparative is not provided here as the investment
in Ocado Retail Ltd was made part-way through 2019/20.
Revenue declined 2.7% compared to 2020/21 as trade annualised
against strong performance during the first national lockdown in
2020 and towards the end of the period was impacted by the fire at
the Erith CFC on 16 July. These impacts were partly offset by an
increase in capacity to just over 600k orders per week in the
period. M &S products continue to account for over 25% of the
average Ocado basket.
Ocado Retail EBITDA before exceptional items was down 9.4%
reflecting the revenue and cost impacts of the Erith CFC fire, and
the normalisation of basket size and shape of week.
In addition, Ocado Retail has recognised GBP3.4m of exceptional
income before tax, largely related to insurance receipts for
business interruption received in the period up to 29 August 2021
arising from the Andover fire in 2019 offset by GBP5.1m exceptional
costs relating to the fire at Erith CFC. Exceptional items in the
prior period also relate to the Andover fire insurance receipts.
Further insurance receipts are anticipated in the second half.
As a result of reduced EBITDA and insurance receipts, Group
share of Ocado Retail profit after tax was GBP28.1m.
UK: Clothing & Home
Clothing & Home sales decreased 1.0% as a result of the
impact on store sales of lower footfall, offset by continued strong
performance of the online business. Performance in Q1 was partly
impacted by store closures during the third national lockdown,
which were in place until 12 April, with Q2 performance improving
as footfall increased. The online business remained robust
throughout the period.
Change vs 19/20 % Q1 Q2 H1
--------------------------- ------ ------ ------
Clothing & Home sales -4.2 2.0 -1.0
Clothing & Home stores
sales -21.2 -14.3 -17.6
Clothing & Home online
sales 59.2 62.3 60.8
--------------------------- ------ ------ ------
Clothing & Home statutory
revenue -4.6 1.4 -1.5
To enable greater insight into these movements, we are providing
further detail on the performance of each channel.
Online
26 Sep 20 28 Sep 19 Change vs
26 weeks ended 2 Oct 21 19/20 %
-------------------- --------------- ---------- ---------- -----------
Traffic (m) 182.9 173.7 142.4 28.4
Active customers (m) 9.6 6.9 6.0 60.0
Conversion (%) 7.3 7.0 6.3 1.0 pts
Average order value inc
VAT pre returns (GBP) 55.6 49.3 51.3 8.4
Returns rate (%) 25.6 18.6 28.7 -3.1 pts
----------------------------- ------ ---------- ---------- -----------
Sales ex VAT GBPm 528.4 441.4 328.6 60.8
UK Clothing & Home online sales increased 60.8%. Following
strong performance in 2020/21, online sales remained robust, with
consistent growth throughout the period. Online customer traffic
increased 28.4%, with traffic through the app up over 200% on
2019/20 following the relaunch of Sparks in July 2020, which has
helped to drive 60.0% growth in active customers to 9.6m. Increased
app usage has driven better conversion and encouragingly app
conversion itself has improved to over 9%.
As anticipated, returns rates have started to normalise towards
pre-pandemic levels, but remain 3.1 percentage points lower than
2019/20 due to continuing trends in customer behaviour and product
mix. Average order value (AOV) was ahead of 2019/20 levels.
Stores
26 Sep 20 28 Sep Change vs 19/20
26 weeks ended 2 Oct 21 19 %
----------------------- -------------------- --------- -------- ----------------
Footfall, m (average/week) 3.7 1.6 5.8 -36.2
Transactions, m (average/week) 1.6 0.7 2.1 -23.8
Average basket value inc
VAT pre returns (GBP) 35.0 29.9 32.4 8.0
----------------------------------- -------- --------- -------- ----------------
Sales ex VAT GBPm 1,006.2 475.8 1,221.8 -17.6
UK Clothing & Home store sales decreased 17.6%: Average
weekly footfall was 36.2% below pre-pandemic levels in the period,
with the business adversely impacted by the shape of the store
estate: Whilst sales in high streets and city centres were down
c.27%, sales in retail parks were level on 2019/20 levels. Overall,
store transactions were down 23.8%, with basket value up 8.0%.
Total Clothing & Home
The Clothing & Home business in total generated an operating
profit before adjusting items for the six months of GBP156.2m
compared with GBP109.6m in 2019/20.
26 weeks ended 2 Oct 21 26 Sep 28 Sep 19 Change
GBPm 20 GBPm vs 19/20
GBPm %
---------------------------- ------------ -------- --------- ----------
Statutory revenue before
adjusting items 1,527.0 917.2 1,550.4 -1.5
Sales 1,534.6 917.2 1,550.4 -1.0
Operating profit/(loss) before
adjusting items 156.2 (107.5) 109.6 42.5
Operating margin 10.2% -11.7% 7.1% +310bps
The table below sets out the drivers of the movement in Clothing
& Home operating profit before adjusting items over two
years.
Operating profit margin %
before adjusting items
------------------------------- --------
2019/20 7.1
Gross margin 0.9
Store staffing 2.7
Other store costs 2.2
Distribution and warehousing (2.4)
Central costs (0.3)
2021/22 10.2
------------------------------- --------
-- Gross margin improved c.90bps. The benefit of strong full
price trading and lower stock into sale more than offset cost
headwinds of adverse currency movements and additional freight
costs.
-- Store staffing costs decreased c.270bps, primarily driven by
retail restructuring efficiencies enabled by technology
improvements in store and ongoing efficiency programmes. Pay
inflation largely offset the benefit of lower variable staffing
costs.
-- The movement in other store costs of c.220bps largely relates
to government business rates relief of GBP27m and lower
depreciation charges relating to legacy store modernisations.
-- Distribution and warehousing increased c.240bps reflecting
the higher costs to serve online demand and increased pay and
incentives related to haulage.
-- The increase in central costs of c.30bps was largely driven
by investments in technology, data and digital initiatives and
higher pay-per-click marketing activity to drive online growth,
offset by a reduction in depreciation of technology assets as they
reach the end of their useful lives.
Clothing & Home online generated an operating profit margin
of c.10%, with the reversion towards pre-Covid returns rates
reducing margin year-on-year as anticipated. The operating profit
in stores also represented a margin on sales of c.10%.
International
International sales decreased 3.2% at constant currency ("CC")
due to the continued impact of Covid on Asian markets, in
particular in India during Q1, and the disruption and complexity
arising from new EU border processes in Food supply chains,
predominantly in France and the Republic of Ireland. Online sales
continued to grow on both a one- and two-year basis, with both our
own websites and marketplaces driving growth of 142.2%.
Change vs 19/20 % Q1 Q2 H1 H1
CC CC CC Reported
------------------- ----- ----- ----- ----------
Total sales -6.1 -0.3 -3.2 -6.3
26 weeks ended
2 Oct 21 26 Sep 28 Sep Change Change
Sales GBPm 20 19 vs 19/20 vs 19/20
GBPm GBPm % CC %
-------------------- ----------- --------- --------- ----------- -----------
Clothing & Home 296.9 202.1 308.0 -3.6 0.8
Food 138.4 144.2 156.7 -11.7 -10.7
Total 435.3 346.3 464.7 -6.3 -3.2
-------------------- ----------- --------- --------- ----------- -----------
Memo: Online sales 84.6 66.7 35.8 136.3 142.2
Clothing & Home sales recovered to pre-Covid levels driven
by the strong growth in online sales. Performance in India was
heavily impacted in Q1 by Covid (c.-61% vs 2019/20) but recovery
has been stronger than anticipated in Q2 (c.+17% vs 2019/20). Covid
trading restrictions remained in place at the start of Q1 in many
of our European owned markets, with sales performance upon
reopening recovering strongly as customers returned to stores.
Food sales declined due to disruption caused by EU
border-related processes in European markets. Supply chain
complexities have heavily restricted our ability to provide a
chilled catalogue in Europe. This has resulted in significant cost
and complexity in servicing the Republic of Ireland and a
restructuring of our Food operations in continental Europe.
Operating profit before adjusting items was down 35.7% driven
principally by the additional operating costs of new EU border
processes and tariffs of GBP13.0m, and associated trade impacts
such as higher waste.
The table below sets out the drivers of the movement in
International operating profit before adjusting items over two
years.
Operating profit margin %
before adjusting items
------------------------------- --------
2019/20 12.0
Gross margin (0.8)
Store staffing (0.3)
Other store costs 1.3
Distribution and warehousing (2.2)
Central costs (1.8)
2021/22 8.2
------------------------------- --------
-- Gross margin declined c.80bps primarily as a result of additional tariffs and waste due to inefficiencies from EU border-related processes for serving the Republic of Ireland. This was partly offset by growth of the online business.
-- Store staffing as a percentage of sales increased c.30bps
primarily as a result of reduced store sales, offset by efficiency
savings from retail restructuring in the Republic of Ireland.
-- The movement in other store costs largely relates to
government relie f in owned markets and rent concessions in India
which resulted in one-off savings in the period.
-- Distribution and warehousing reflects higher costs to serve
online demand, and EU border-related processes.
-- Central costs includes higher marketing spend associated with
the growth of the online channel.
M&S Bank and Services
M&S Bank & Services profit before adjusting items was
down GBP13.6m to a loss of GBP(0.7)m. M&S Bank & Services
profit after adjusting items relating to PPI decreased GBP3.9m to a
loss of GBP(1.7)m. The lower profit reflects reduced demand for
credit during the pandemic impacting the profitability of the bank
lending portfolio.
Net finance cost
26 weeks ended 53 weeks
ended
---------------------------------- ------------------------------------- ---------
2 Oct 26 Sep 28 Sep Change 3 Apr
21 20 19 vs 19/20 21
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- ------- ------- ---------- ---------
Interest payable (44.7) (38.0) (42.6) (2.1) (91.3)
Interest income 6.9 1.9 11.9 (5.0) 4.7
Net interest payable (37.8) (36.1) (30.7) (7.1) (86.6)
Pension net finance income 6.4 22.8 11.3 (4.9) 47.2
Unwind of discount on Scottish
Limited Partnership liability (1.7) (2.4) (3.4) 1.7 (4.9)
Unwind of discount on provisions (1.8) (1.3) (2.5) 0.7 (2.7)
Net financial interest (34.9) (17.0) (25.3) (9.6) (47.0)
Net interest payable on lease
liabilities (58.9) (62.2) (68.3) 9.4 (124.9)
Net finance costs before
adjusting items (93.8) (79.2) (93.6) (0.2) (171.9)
---------------------------------- ------- ------- ------- ---------- ---------
Net finance costs increased GBP0.2m to GBP93.8m. This was driven
by lower pension income due to the reduced IAS19 pension surplus
compared with 2019/20 and the reversal of ineffectiveness on a
currency swap in 2019/20, offset by a reduction in the net interest
payable on lease liabilities.
Group profit before tax and adjusting items
Group profit before tax and adjusting items was GBP269.4m, up
GBP93.1m on 2019/20. The profit increase was driven by strong
full-price performance in Clothing & Home, robust sales growth
in Food and the additional profit from the Ocado joint venture,
offset by a reduction in International and M&S Bank operating
profits.
Group profit before tax
Group profit before tax was GBP187.3m, up GBP28.5m on 2019/20.
This includes adjusting items of GBP82.1m (2019/20: GBP17.5m).
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.
26 weeks ended 53 weeks ended
-------------------------------------------------- --------------------- --------- ---------------- --------------
2 Oct 21 26 Sep 20 28 Sep 19 Change vs 19/20 3 Apr 21
GBPm
GBPm GBPm GBPm GBPm
-------------------------------------------------- --------- ---------- --------- ---------------- --------------
Strategic programmes - UK store estate (58.1) (2.9) (9.9) (48.2) (95.3)
Strategic programmes - Organisation 1.9 (92.1) (11.3) 13.2 (133.7)
Amortisation and fair value adjustments arising
as part of the investment in Ocado Retail
Ltd (25.4) (7.1) - (25.4) (14.2)
Directly attributable gains resulting from the
Covid-19 pandemic 15.0 49.4 - 15.0 90.8
European restructure (11.9) - - (11.9) -
M&S Bank charges (1.0) (1.4) (10.7) 9.7 (2.4)
Sparks loyalty programme transition - (15.3) - - (16.6)
Other (2.6) (0.8) 14.4 (17.0) (88.3)
Adjusting items (82.1) (70.2) (17.5) (64.6) (259.7)
-------------------------------------------------- --------- ----------------
Adjusting items charges incurred in the period were
GBP82.1m.
A charge of GBP58.1m has been recognised in relation to store
closures identified as part of UK Store Estate rotation plans. The
charge reflets a revised view of latest store exit routes and
assumptions underlying estimated store closure costs, as well as
charges relating to the impairment of buildings and fixtures and
fittings, and depreciation as a result of shortening the useful
economic life of stores. Further material charges relating to the
closure and rotation of the UK store estate are anticipated as the
programme progresses, with total future charges of up to c.GBP227m,
bringing anticipated total programme costs since 2016 to
c.GBP943m.
A credit of GBP1.9m has been recognised in relation to
organisational change. This credit is based on the latest estimate
of redundancy costs associated with this programme.
A charge of GBP25.4m has been recognised with respect to the
amortisation of intangible assets acquired on the purchase of our
share in Ocado Retail and related deferred tax charges of GBP16.6m
predominantly relating to the substantive enactment of the Finance
Act 2021 during the period increasing the UK's main corporation tax
rate from 19% to 25% from 1 April 2023.
A gain of GBP15.0m has been recognised as being directly
attributable to the Covid pandemic relating mostly to the release
of a portion of the inventory provision made in 2019/20 compared to
initial estimates. The sell-through of Clothing & Home stock
has been stronger than anticipated.
A charge of GBP11.9m has been recognised in relation to the
restructure of our European operations.
Charges of GBP1.0m have been incurred relating to M&S Bank,
primarily due to the insurance mis-selling provision. The total
charges recognised in adjusting items since September 2012 for PPI
is GBP320.2m which exceeds the total offset against profit share of
GBP238.5m 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
12.4% (2019/20: 23.1%; 2020/21: 27.0%). In the 6 months to 2
October 2021, as part of cash optimisation measures, no payments
were made to the Marks and Spencer Scottish Limited Partnership
("SLP"). As such, there has been no recapture of previous tax
relief, resulting in a lower effective tax rate than prior
years.
As well as there being no recapture of previous tax relief under
the SLP structure in the period, future changes to the UK statutory
corporation tax rate result in deferred tax assets being recognised
at the higher substantively enacted rate of 25%. Restating these
deferred tax assets from a rate of 19% to 25% results in a tax
credit in the period, reducing the effective tax rate.
Subject to no significant other changes, w e anticipate the full
year effective tax rate on profit before adjusting items to be
slightly higher than the H1 effective tax rate given the less
pronounced impact of the change in rate against the expected full
year profits.
The effective tax rate on statutory profit before tax was 14.6%
(2019/20: 22.9%; 2020/21: 18.3%), which was higher than the
effective tax rate on profit before adjusting items due to the
impact of disallowable adjusting items.
Next year, we anticipate an effective tax rate on profit before
adjusting items higher than the UK corporation tax rate of 19%,
principally due to the recapture of previous tax relief as payments
to the SLP resume.
Earnings/loss per share
Basic earnings per share was 8.2p (2019/20: 6.4p; 2020/21: loss
of 3.5p), due to the increase in profit year on year. The weighted
average number of shares in issue during the period was 1,957.6m
(2019/20: 1,840.2m; 2020/21: 1,951.7m).
Adjusted basic earnings per share was 12.1p (2019/20: 7.1p;
2020/21: loss of 0.4p) due to higher adjusted profit year on
year.
Capital expenditure
26 weeks 26 weeks 26 weeks
ended ended ended Change
2 Oct 26 Sep 28 Sep vs 19/20
21 20 19 GBPm
GBPm GBPm GBPm
--- --------------------------- ------------ --------- --------- -----------
UK store remodelling 27.5 3.6 22.8 4.7
New UK stores 19.3 9.0 15.6 3.7
International 5.0 2.3 4.2 0.8
Supply chain 14.9 10.4 18.6 (3.7)
IT & M&S.com 23.0 23.9 32.3 (9.3)
Property asset replacement 20.8 5.1 28.2 (7.4)
Capital expenditure before
property acquisitions and
disposals 110.5 54.3 121.7 (11.2)
Property acquisitions and
disposals (2.2) 1.1 (1.5) (0.7)
Capital expenditure 108.3 55.4 120.2 (11.9)
------------------------------------- ------- --------- --------- -----------
Group capital expenditure before disposals decreased GBP11.9m to
GBP108.3m compared to 2019/20, however was up on 2020/21 as we
increased investment in the transformation.
UK store remodelling costs related principally to 7 Food renewal
stores as well as upgrades to Clothing & Home space.
Spend on New UK stores primarily related to 3 new or extended
Simply Foods and 6 new or extended full line stores in the current
year, some of which have not opened yet.
Supply chain expenditure reflects investment in food equipment
and the expansion of our Bradford warehouse to support online
growth in Clothing & Home.
IT & M&S.com spend includes costs related to the
development of the Food ordering and allocation system and buying
portals, development of our 'BEAM' platform, website development
and ongoing investment in digital capability and technology in
stores.
Property asset replacement normalised towards pre-pandemic
levels.
Cash flow
26 weeks ended 53 weeks ended
----------------------------------------------------- ---------------------------------- ---------- ---------------
2 Oct 21 26 Sep 20 28 Sep 19 Change 3 Apr 21
restated restated vs 19/20
GBPm
GBPm GBPm GBPm GBPm
----------------------------------------------------- ---------- ---------- ---------- ---------- ---------------
Adjusted operating profit 363.2 61.8 269.9 93.3 222.2
Depreciation and amortisation before adjusting items 253.9 306.1 315.9 (62.0) 603.1
Cash lease payments (173.1) (129.1) (159.2) (13.9) (316.6)
Working capital 111.5 85.5 (95.7) 207.2 268.1
Defined benefit scheme pension funding (36.3) (36.2) (36.5) 0.2 (37.1)
Capex and disposals (125.5) (132.6) (149.1) 23.6 (203.8)
Financial interest and taxation (52.6) (38.4) (86.4) 33.8 (81.8)
Investment in associate Ocado Retail Ltd (16.8) 11.5 (577.6) 560.8 11.2
Investment in joint venture - (2.5) (2.9) 2.9 (2.5)
Investment in other non-current financial assets (1.0) - - (1.0) -
Employee-related share transactions 18.7 6.9 1.8 16.9 18.5
Proceeds from rights issue net of costs - - 583.2 (583.2) -
Share of (profit)/loss from associate (28.1) (38.8) 0.5 (28.6) (78.4)
Cash received from settlement of derivatives - 12.7 - - 14.0
Adjusting items outflow (26.3) (18.8) (68.6) 42.3 (120.5)
Free cash flow 287.6 88.1 (4.7) 292.3 296.4
Dividends paid - - (115.1) 115.1 -
Free cash flow after shareholder returns 287.6 88.1 (119.8) 407.4 296.4
Opening net debt excluding lease liabilities (1,110.0) (1,388.6) (1,404.9) 294.9 (1,388.6)
Free cash flow after shareholder returns 287.6 88.1 (119.8) 407.4 296.4
Exchange and other non-cash movements excluding
leases (1.6) (13.2) (18.5) 16.9 (17.8)
Closing net debt excluding lease liabilities (824.0) (1,313.7) (1,543.2) 719.2 (1,110.0)
Opening net debt (3,515.9) (3,950.6) (3,981.5) 465.6 (3,950.6)
Free cash flow after shareholder returns 287.6 88.1 (119.8) 407.4 296.4
Decrease in lease obligations 107.9 77.5 90.2 17.7 184.3
New lease commitments and remeasurements (38.2) (11.5) (55.8) 17.6 (48.3)
Exchange and other non-cash movements 4.4 (25.1) (5.6) 10.0 2.3
Closing net debt (3,154.2) (3,821.6) (4,072.5) 918.3 (3,515.9)
----------------------------------------------------- ---------- ---------- ---------- ---------- ---------------
2019/20 and 2020/21 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 GBP287.6m, largely
driven by EBITDA growth, working capital inflow and reduced cash
tax and capital expenditure.
Cash lease payments increased GBP13.9m partly as a result of
rental payments which were deferred from last year into this year
as part of our Covid cash conservation measures enacted at the
start of the pandemic. Prior half year cash lease payments were
lower reflecting the timing of lease payments over half year
end.
Strong trading and the timing of stock intake in advance of the
peak Christmas period has resulted in trade payables increasing
ahead of stock, leading to a working capital benefit in the
period.
Lower capital expenditure compared to 2019/20 reflects a
disciplined approach to investment and returns whilst investing in
the transformation. It should be noted that 2020/21 H1 capital
expenditure cashflow included c.GBP77m of accrued spend relating to
2019/20.
Reduced financial interest and tax payments of GBP52.6m are due
to no UK corporation tax being paid in the period. This is driven
by the utilisation of carried forward tax losses from 2020/21.
The investment in Ocado Retail Ltd in the period relates to
payment of contingent consideration. As part of the investment in
Ocado Retail Ltd, a contingent consideration arrangement was
agreed. The arrangement comprises three separate elements which
only become payable on the achievement of three separate financial
and operational performance targets. In the period to 2 October
2021, GBP16.8m was settled, relating to the first of the three
targets. On 8 October 2021, subsequent to the reporting period,
GBP17.0m was settled, relating to the second target. The final
target relates to Ocado Retail Ltd achieving a specified target
level of earnings in the financial year ending November 2023. If
achieved, the final element of contingent consideration of
c.GBP156m plus interest would be paid in financial year
2024/25.
Defined benefit scheme pension funding of GBP36.3m reflects the
second limited partnership interest distribution to the pension
scheme.
Adjusting items cash outflow was GBP26.3m. This included GBP6.0m
relating to the UK store estate strategy, GBP15.5m of
organisational restructuring costs largely relating to the Republic
of Ireland, and GBP3.4m relating to restructuring the UK Clothing
& Home logistics network.
Net debt
Group net debt decreased GBP361.7m from the start of the year
driven by free cashflow generation.
There was also a further reduction in the value of discounted
lease obligations outstanding. New lease commitments and
remeasurements in the period were GBP38.2m largely relating to new
UK leases and UK liability remeasurements, which was more than
offset by GBP107.9m of capital lease repayments.
The composition of Group net debt is as follows:
26 weeks ended 53 weeks ended
-------------------------------------- ---------------------------------- --------- ---------------
2 Oct 21 26 Sep 20 28 Sep 19 vs 19/20 3 Apr 21
restated restated
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ---------- ---------- ---------- --------- ---------------
Cash and cash equivalents 951.9 308.8 378.2 573.7 674.4
Medium Term Notes (1,680.6) (1,531.1) (1,956.9) 276.3 (1,682.1)
Current financial assets and other 92.6 94.1 238.2 (145.6) 83.2
Partnership liability (187.9) (185.5) (202.7) 14.8 (185.5)
Net debt excluding lease liabilities (824.0) (1,313.7) (1,543.2) 719.2 (1,110.0)
Lease liabilities (2,330.2) (2,507.9) (2,529.3) 199.1 (2,405.9)
- Full line stores (944.8) (1,022.6) (1,029.8) 85.0 (982.6)
- Simply Food stores (719.4) (745.6) (757.7) 38.3 (727.0)
- Offices, warehouses and other (466.9) (518.1) ( 508.0 ) 41.1 (494.5)
- International (199.1) (221.6) ( 233.8 ) 34.7 (201.8)
-------------------------------------- ---------- ---------- ---------- --------- ---------------
Group net debt (3,154.2) (3,821.6) (4,072.5) 918.3 (3,515.9)
2019/20 and 2020/21 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 c.41% related to full line stores and c.31% to Simply
Food stores, with c.8.5% relating to International leases and the
balance largely relating to warehousing and offices.
Liquidity
At 2 October 2021, the Group held cash balances of GBP951.9m
(2019/20: GBP378.2m), 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 2020,
which was used to partly refinance the bond maturity due in
December 2021.
The refinancing of the Group's December 2021 bond 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 GBP2.1bn.
Dividend
At the full-year results in May, the Board announced that
payment of a dividend in the 2021/22 financial year would be
unlikely as we focus on restoring sustainable profitability and
recovering balance sheet metrics consistent with investment
grade.
Consistent with that announcement, the Board does not expect to
pay a dividend this financial year.
Pension
At 2 October 2021, the IAS 19 net retirement benefit surplus was
GBP734.2m (2019/20: GBP890.0m).
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.
With the pensioner buy-in policies purchased in September 2020,
April 2019 and March 2018, the Scheme has now, in total, insured
around 80% of the pensioner cash flow liabilities for pensions in
payment. The buy-in policies cover specific pensioner liabilities
and pass all risks to an insurer in exchange for a fixed premium
payment, thus reducing the Group's exposure to changes in
longevity, interest rates, inflation and other factors.
Statement of financial position
Net assets were GBP2,531.7m at the period end, an increase of
10.8% since the start of the year largely due to free cash
generation.
Important Notice:
Statements made in this announcement that look forward in time
or that express management's beliefs, expectations or estimates
regarding future occurrences and prospects are "forward-looking
statements" within the meaning of the United States federal
securities laws. These forward-looking statements reflect Marks
& Spencer's current expectations concerning future events and
actual results may differ materially from current expectations or
historical results. Any forward-looking statements are subject to
various risks and uncertainties, including, but not limited to,
failure by Marks & Spencer to predict accurately customer
preferences; decline in the demand for products offered by Marks
& Spencer; competitive influences; changes in levels of store
traffic or consumer spending habits; effectiveness of Marks &
Spencer's brand awareness and marketing programmes; general
economic conditions including, but not limited to, those related to
the Covid-19 pandemic or a downturn in the retail or financial
services industries; acts of war or terrorism worldwide; work
stoppages, slowdowns or strikes; and changes in financial and
equity markets. For further information regarding risks to Marks
& Spencer's business, please consult the risk management
section of the 2021 Annual Report (pages 47-57).
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 -
Principal risks and uncertainties
The principal risks and uncertainties which could impact the
Group's long-term performance, along with additional information on
the impact of Covid-19, were set out on pages 48-56 of the Group's
2021 Annual Report and Financial Statements. This disclosure also
incorporated details of mitigating activities relevant to each
risk. Information on financial risk management was also included on
pages 164-169. A copy of the 2021 Annual Report and Financial
Statements is available on the Group's website
www.marksandspencer.com. An update on this disclosure is set out
below.
The continued consequences of Covid-19 and related
uncertainty
The Annual Report outlined the business response to changes to
our risk profile linked to the Covid-19 pandemic. It also explained
how Covid-19 had a pervasive impact across the suite of principal
risks and uncertainties impacting the business and was not,
therefore, presented as a single principal risk.
In the period since publication of the Annual Report and
Financial Statements the consequences of Covid-19 have continued to
evolve and combined with other external macro factors (in
particular, the continued impact of Brexit) to contribute to
ongoing uncertainty in the environment in which we operate.
Continued lockdown measures in a number of countries; labour
shortages across transport, distribution, manufacturing and service
industries; threats to supplier resilience and viability; on-going
changes to customer behaviours; price inflation and the potential
for interest rate rises; socio-political tensions; and disruption
to the supply of natural, refined and manufactured resources have
combined to create a challenging environment for our, and all
businesses, to operate within.
These challenges are not specific to M&S but have amplified
many of the existing principal risks and uncertainties for our
business. The risks related to Trading Performance Recovery; Ocado
Retail; Talent, Culture & Capability; and Business Continuity
& Resilience have, in particular, been impacted by this mix of
global and national events.
Linked to the factors described above, our risk relating to the
consequences of the post-Brexit era also remains. While the
business has taken measures to mitigate some of its impact
(including the restructuring of our operations across the island of
Ireland, ending the relationship with one of our French franchise
partners and by adapting product ranges available in other European
locations), the unspecified extension to the Northern Ireland
easements and unstable regulatory environment continue to create
uncertainty.
Principal risks & uncertainties
The Board of Directors have considered the principal risks and
uncertainties disclosed in the Annual Report and Accounts for the
year ended 3 April 2021 and, while recognising the additional
impact of the factors discussed above, do not consider the
fundamental principal risks and uncertainties to have changed. The
order of the principal risks and uncertainties has, however, been
amended to reflect the Board's assessment of priority. Our summary
principal risk statements are set out below - the numbers in
brackets show the risk order included in the 2021 Annual Report and
Financial Statements.
1 (1) Trading performance recovery: A 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. As indicated
above, sustained disruption to our supply chain or logistics
networks, (caused by labour, raw material or product
shortages, supplier resilience, disruption to freight
or other external factors), price inflation, further
restrictions linked to the pandemic, Brexit requirements
or changes in customer confidence could impact this risk.
2 (2) Business transformation: A failure to execute our transformation
and cultural change initiatives with pace, consistency
and cross business buy-in would impede our ability to
improve operational efficiency, competitiveness, and
to restore the business to sustainable profitable growth.
------------------------------------------------------------------
3 (3) Brexit: A failure to mitigate the continuing costs and
friction arising from the complexities surrounding the
border and further developments in the Trade and Cooperation
Agreement may have a significant and long-term impact
on our trading performance.
------------------------------------------------------------------
4 (4) 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.
------------------------------------------------------------------
5 (5) Talent, culture and capability: An inability to evolve
the culture of our business as well as attract, 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.
------------------------------------------------------------------
6 (6) 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.
------------------------------------------------------------------
7 (10) Business continuity and 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 supply chain disruption,
would also significantly impact business performance.
------------------------------------------------------------------
8 (8) Social, ethical and environmental responsibility: An
inability to maintain adequate oversight of our commitments,
and respond to changes, in relation to ethical and environmental
responsibilities (including supply chains) may result
in a failure to meet the expectations of our customers,
colleagues, investors and other stakeholders.
------------------------------------------------------------------
9 (9) Technology and 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.
------------------------------------------------------------------
10 (11) 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.
------------------------------------------------------------------
11 (7) 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.
------------------------------------------------------------------
12 (12) Corporate compliance: Failure to deliver against our
legal and regulatory obligations, as well as related
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.
------------------------------------------------------------------
The business is also continuing to monitor the emerging risks
disclosed at the year-end, namely:
-- The impact of climate change on our business activities,
linked to the relaunch of Plan A in October 2021 and the
achievement of our committed targets in the coming years; and
-- The implications of changes to UK corporate governance
responsibilities in the UK.
Statement of directors' responsibilities
The directors confirm that, to the best of their knowledge, this
condensed consolidated interim financial information has been
prepared in accordance with IAS 34 as adopted by the European Union
and that the interim management report includes a fair review of
the information required by DTR 4.2.4R, DTR 4.2.7R and DTR 4.2.8R,
namely:
- the condensed set of financial statements gives a true and
fair view of the assets, liabilities, financial position, cash
flows and profit or loss of the issuer, or undertakings included in
the consolidation;
- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
- material related party transactions in the first six months
and any material changes in the related party transactions
described in the last annual report.
There have been no changes to the directors of Marks and Spencer
Group plc to those listed in the Group's 2021 Annual Report and
Financial Statements. A list of current directors is maintained on
the Group's website: www.marksandspencer.com.
By order of the Board
Steve Rowe
Chief Executive
Condensed consolidated income statement
26 weeks ended 53 weeks
ended
------------------------------------------------
2 Oct 2021 26 Sep 3 April
2020 2021
(Unaudited) (Unaudited) (Audited)
Total Total Total
Notes GBPm GBPm GBPm
----------------------------------------------- ------- ------------------- --------------------------- ----------------------
2,
Revenue 3 5,105.3 4,090.9 9,155.7
2,
Share of result in associate 3,
- Ocado Retail Limited 8 2.7 31.7 64.2
----------------------------------------------- ------- ------------------- --------------------------- ----------------------
2,
Operating profit/(loss) 3 282.0 (9.4) (30.7)
Finance income 4 16.0 28.3 57.4
Finance costs 4 (110.7) (106.5) (236.1)
2,
Profit/(loss) before tax 3 187.3 (87.6) (209.4)
----------------------------------------------- ------- ------------------- --------------------------- ----------------------
Income tax (expense)/credit 5 (27.4) 16.0 8.2
Profit/(loss) for the period 159.9 (71.6) (201.2)
----------------------------------------------- ------- ------------------- --------------------------- ----------------------
Attributable to:
Owners of the parent 160.3 (67.4) (198.0)
Non-controlling interests (0.4) (4.2) (3.2)
----------------------------------------------- ------- ------------------- --------------------------- ----------------------
159.9 (71.6) (201.2)
----------------------------------------------- ------- ------------------- --------------------------- ----------------------
Earnings per share
Basic 6 8.2p (3.5p) (10.1p)
Diluted 6 7.9p (3.5p) (10.1p)
----------------------------------------------- ------- ------------------- --------------------------- ----------------------
Reconciliation of adjusted profit/(loss) before tax:
Profit/(loss) before tax 187.3 (87.6) (209.4)
Adjusting items 3 82.1 70.2 259.7
----------------------------------------------- ------- ------------------- --------------------------- ----------------------
Profit/(loss) before tax & adjusting
items - non-GAAP measure 269.4 (17.4) 50.3
-------------------------------------------------------- ------------------- --------------------------- ----------------------
Adjusted earnings per share - non-GAAP
measure
Basic 6 12.1p (0.4p) 1.4p
Diluted 6 11.7p (0.4p) 1.4p
----------------------------------------------- ------- ------------------- --------------------------- ----------------------
Condensed consolidated statement of comprehensive income
26 weeks ended 53 weeks
ended
------------------------------------------
2 Oct 2021 26 Sep 3 April
2020 2021
(Unaudited) (Unaudited) (Audited)
Notes GBPm GBPm GBPm
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
Profit/(loss) for the period 159.9 (71.6) (201.2)
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
Other comprehensive income/(expense):
Items that will not be reclassified
subsequently to profit or
loss
Remeasurements of retirement
benefit schemes 9 59.8 (1,069.3) (1,352.0)
Tax (charge)/credit on retirement
benefit schemes (58.5) 203.7 256.5
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
1.3 (865.6) (1,095.5)
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
Items that may be reclassified
subsequently to profit or
loss
Foreign currency translation
differences
- movement recognised in
other comprehensive income (0.6) (4.2) (27.7)
- reclassified and reported
in profit or loss - - 3.7
Cash flow hedges
- fair value movements in
other comprehensive income 61.3 (80.3) (215.5)
- reclassified and reported
in profit or loss (4.2) 8.8 26.5
Tax (charge)/credit on cash
flow hedges (11.0) 13.6 37.0
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
45.5 (62.1) (176.0)
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
Other comprehensive income/(expense)
for the period, net of tax 46.8 (927.7) (1,271.5)
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
Total comprehensive income/(expense)
for the period 206.7 (999.3) (1,472.7)
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
Attributable to:
Owners of the parent 207.1 (995.1) (1,469.5)
Non-controlling interests (0.4) (4.2) (3.2)
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
206.7 (999.3) (1,472.7)
----------------------------------------------- ------- ------------------- --------------------- ----------------------------
Condensed consolidated statement
of financial position
As at As at As at
2 Oct 2021 26 Sep 3 April
2020 2021
(Unaudited) (Unaudited) (Audited)
(Restated)(1)
Notes GBPm GBPm GBPm
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Assets
Non-current assets
Intangible assets 204.5 351.6 232.0
Property, plant and equipment 4,918.1 5,293.5 5,058.6
Investment property 15.1 15.5 15.2
Investment in joint ventures
and associates 8 827.9 793.9 825.8
Other financial assets 11 10.7 9.7 9.7
Retirement benefit asset 9 742.2 902.3 639.2
Trade and other receivables 257.5 262.6 261.4
Derivative financial instruments 11 21.3 51.7 0.3
6,997.3 7,680.8 7,042.2
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Current assets
Inventories 3 778.0 663.4 624.6
Other financial assets 11 24.0 13.2 18.4
Trade and other receivables 256.5 255.4 209.6
Derivative financial instruments 11 22.6 34.5 32.8
Current tax assets 21.6 25.2 35.4
Cash and cash equivalents 951.9 308.8 674.4
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
2,054.6 1,300.5 1,595.2
Assets held for sale(2) 20.5 - -
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
2,075.1 1,300.5 1,595.2
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Total assets 9,072.4 8,981.3 8,637.4
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Liabilities
Current liabilities
Trade and other payables 1,872.4 1,516.4 1,599.0
Partnership liability to
the Marks & Spencer UK Pension
Scheme 10 71.9 124.9 124.9
Borrowings and other financial
liabilities 407.8 288.0 432.8
Derivative financial instruments 11 21.0 31.0 96.0
Provisions 35.6 122.8 43.1
2,408.7 2,083.1 2,295.8
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Non-current liabilities
Retirement benefit deficit 9 8.0 12.3 7.8
Trade and other payables 192.9 218.1 192.3
Partnership liability to
the Marks & Spencer UK Pension
Scheme 10 117.7 66.0 68.6
Borrowings and other financial
liabilities 3,603.0 3,752.3 3,659.9
Derivative financial instruments 11 - 1.7 10.7
Provisions 86.7 37.2 74.2
Deferred tax liabilities 123.7 98.1 42.3
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
4,132.0 4,185.7 4,055.8
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Total liabilities 6,540.7 6,268.8 6,351.6
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Net assets 2,531.7 2,712.5 2,285.8
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Equity
Issued share capital 19.6 488.4 489.2
Share premium account 910.4 910.4 910.4
Capital redemption reserve 2,680.4 2,210.5 2,210.5
Hedging reserve 11.2 8.5 (54.8)
Cost of hedging reserve 4.0 3.5 4.6
Other reserve (6,542.2) (6,542.2) (6,542.2)
Foreign exchange reserve (60.5) (40.1) (59.9)
Retained earnings 5,506.4 5,671.7 5,325.2
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Equity attributable to owners
of the parent 2,529.3 2,710.7 2,283.0
Non-controlling interests 2.4 1.8 2.8
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
Total equity 2,531.7 2,712.5 2,285.8
----------------------------------------------- ------------ ------------------ ----------------------- ----------------------
(1) See note 1 for details of a change in accounting
policy and the resulting restatement.
(2) The assets held for sale of GBP20.5 million are
properties in the United Kingdom, previously used in
the Group's distribution network, which the Group is
in the process of selling. The proceeds of the disposal
are expected to exceed the carrying amount and, accordingly,
no gain or loss was recognised on the classification
of the property as held for sale.
The notes on pages 35 to 55 form an integral part of
the condensed consolidated interim financial information.
Condensed consolidated statement of changes in equity
26 weeks ended 2 October Ordinary Share Capital Hedging Cost Other Foreign Retained Total Non-controlling Total
2021 share premium redemption reserve of reserve(1) exchange earnings(2) interest equity
capital account reserve hedging reserve
reserve
(Unaudited)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
As at 4 April 2021 489.2 910.4 2,210.5 (54.8) 4.6 (6,542.2) (59.9) 5,325.2 2,283.0 2.8 2,285.8
Profit for the period - - - - - - - 160.3 160.3 (0.4) 159.9
Other comprehensive
income/(expense):
Foreign currency translation
- movement recognised
in other comprehensive
income - - - - - - (0.6) - (0.6) - (0.6)
Remeasurements of retirement
benefit schemes - - - - - - - 59.8 59.8 - 59.8
Tax charge on retirement
benefit schemes - - - - - - - (58.5) (58.5) - (58.5)
Cash flow hedges
- fair value movements
in other comprehensive
income - - - 62.1 (0.8) - - - 61.3 - 61.3
- reclassified and
reported in profit
or loss - - - (4.2) - - - - (4.2) - (4.2)
Tax on cash flow hedges - - - (11.2) 0.2 - - - (11.0) - (11.0)
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
Other comprehensive
income/(expense) - - - 46.7 (0.6) - (0.6) 1.3 46.8 - 46.8
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
Total comprehensive
income/(expense) - - - 46.7 (0.6) - (0.6) 161.6 207.1 (0.4) 206.7
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
Cash flow hedges recognised
in inventories - - - 23.8 - - - - 23.8 - 23.8
Tax on cash flow hedges
recognised in inventories - - - (4.5) - - - - (4.5) - (4.5)
Transactions with owners:
Buy back and cancellation
of own shares(3) (469.9) - 469.9 - - - - - - - -
Shares issued in respect
of employee share options 0.3 - - - - - - (0.3) - - -
Credit for share-based
payments - - - - - - - 18.7 18.7 - 18.7
Deferred tax on share
schemes - - - - - - - 1.2 1.2 - 1.2
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
As at 2 October 2021 19.6 910.4 2,680.4 11.2 4.0 (6,542.2) (60.5) 5,506.4 2,529.3 2.4 2,531.7
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
26 weeks ended 26 September Ordinary Share Capital Hedging Cost Other Foreign Retained Total Non-controlling Total
2020 share premium redemption reserve of reserve(1) exchange earnings(2) interest equity
capital account reserve hedging reserve
reserve
(Unaudited)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
As at 29 March 2020 487.6 910.4 2,210.5 68.6 5.7 (6,542.2) (35.9) 6,597.8 3,702.5 6.0 3,708.5
Loss for the period - - - - - - - (67.4) (67.4) (4.2) (71.6)
Other comprehensive
(expense)/income:
Foreign currency translation
- movement recognised
in other comprehensive
income - - - - - - (4.2) - (4.2) - (4.2)
Remeasurements of retirement
benefit schemes - - - - - - - (1,069.3) (1,069.3) - (1,069.3)
Tax credit on retirement
benefit schemes - - - - - - - 203.7 203.7 - 203.7
Cash flow hedges
- fair value movements
in other comprehensive
income - - - (77.6) (2.7) - - - (80.3) - (80.3)
- reclassified and
reported in profit
or loss - - - 8.8 - - - - 8.8 - 8.8
Tax on cash flow hedges - - - 13.1 0.5 - - - 13.6 - 13.6
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
Other comprehensive
(expense)/income - - - (55.7) (2.2) - (4.2) (865.6) (927.7) - (927.7)
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
Total comprehensive
(expense)/income - - - (55.7) (2.2) - (4.2) (933.0) (995.1) (4.2) (999.3)
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
Cash flow hedges recognised
in inventories - - - (5.4) - - - - (5.4) - (5.4)
Tax on cash flow hedges
recognised in inventories - - - 1.0 - - - - 1.0 - 1.0
Transactions with owners:
Shares issued on exercise
of employee share options 0.8 - - - - - - - 0.8 - 0.8
Purchase of own shares
held by employee trusts - - - - - - - (0.8) (0.8) - (0.8)
Credit for share-based
payments - - - - - - - 7.7 7.7 - 7.7
As at 26 September
2020 488.4 910.4 2,210.5 8.5 3.5 (6,542.2) (40.1) 5,671.7 2,710.7 1.8 2,712.5
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
Condensed consolidated statement of changes in equity (continued)
53 weeks ended 3 April Ordinary Share Capital Hedging Cost Other Foreign Retained Total Non-controlling Total
2021 share premium redemption reserve of reserve(1) exchange earnings(2) interest equity
capital account reserve hedging reserve
reserve
(Audited)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ------- ------------ ------- --------- ---------- ----------- ----------- --------- --------------- ---------
As at 29 March 2020 487.6 910.4 2,210.5 68.6 5.7 (6,542.2) (35.9) 6,597.8 3,702.5 6.0 3,708.5
Loss for the year - - - - - - - (198.0) (198.0) (3.2) (201.2)
Other comprehensive
(expense)/income:
Foreign currency translation
- movement recognised
in other comprehensive
income - - - - - - (27.7) - (27.7) - (27.7)
- reclassified and
reported in profit
and loss - - - - - - 3.7 - 3.7 - 3.7
Remeasurements of retirement
benefit schemes - - - - - - - (1,352.0) (1,352.0) - (1,352.0)
Tax credit on items
that will not be
reclassified - - - - - - - 256.5 256.5 - 256.5
Cash flow hedges
- fair value movements
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) On 8 July 2021, the Company reduced the nominal value of its
1,957,779,626 ordinary shares in issue at that date from GBP0.25 to
GBP0.01. The reduction was completed by subdividing each GBP0.25
ordinary share in issue into 1 ordinary share of GBP0.01 and 1
deferred share of GBP0.24. All deferred shares were then bought
back for total aggregate consideration of GBP0.01 and cancelled.
The Company's issued share capital remains unchanged and each
shareholder's proportionate interest in the share capital of the
Company remains unchanged. Aside from the change in nominal value,
the rights attaching to the ordinary shares (including voting and
dividend rights and rights on a return of capital) remain
unchanged.
Condensed consolidated statement
of cash flows
26 weeks ended 53 weeks
ended
--------------------------
2 Oct 2021 26 Sep 2020 3 April
2021
(Unaudited) (Unaudited) (Audited)
(Restated)(1)
Notes GBPm GBPm GBPm
-------------------------------------- ----- ----------- ------------- ---------
Cash flows from operating activities
Cash generated from operations 13 656.6 367.3 876.7
Income tax paid (5.0) (6.0) (5.8)
-------------------------------------- ----- ----------- ------------- ---------
Net cash inflow from operating
activities 651.6 361.3 870.9
-------------------------------------- ----- ----------- ------------- ---------
Cash flows from investing activities
Proceeds on property disposals 2.2 2.1 2.9
Purchase of property, plant and
equipment (102.8) (110.6) (158.9)
Purchase of intangible assets (24.9) (24.1) (47.8)
Purchase of current financial
assets (5.6) (1.7) (6.7)
Purchase of non-current financial
assets (1.0) - -
Purchase of investments in associates
and joint ventures(2) (16.8) 9.0 8.7
Interest received 2.9 5.0 9.2
-------------------------------------- ----- ----------- ------------- ---------
Net cash used in investing activities (146.0) (120.3) (192.6)
-------------------------------------- ----- ----------- ------------- ---------
Cash flows from financing activities
Interest paid(3) (115.7) (89.0) (219.3)
Issuance of medium term notes - - 300.0
Redemption of medium term notes - - (136.4)
Repayment of lease liabilities (107.9) (77.5) (184.3)
Payment of liability to the Marks
& Spencer UK Pension Scheme - (17.2) (17.2)
Purchase of own shares by employee
trust - (0.8) (0.8)
Cash received from settlement
of derivatives - 12.7 14.0
-------------------------------------- ----- ----------- ------------- ---------
Net cash used in financing activities (223.6) (171.8) (244.0)
-------------------------------------- ----- ----------- ------------- ---------
Net cash inflow from activities 282.0 69.2 434.3
Effects of exchange rate changes 0.2 (0.3) (3.3)
Opening net cash 669.7 238.7 238.7
-------------------------------------- ----- ----------- ------------- ---------
Closing net cash 951.9 307.6 669.7
-------------------------------------- ----- ----------- ------------- ---------
(1) See note 1 for details on a change in accounting policy
and the resulting restatement.
(2) Current year includes GBP16.8m outflow in relation to
contingent consideration settled with Ocado Retail Limited.
Last year includes inflow upon finalisation of the completion
statement in relation to the investment in Ocado Retail Limited
(last half year: GBP11.5m; last full year: GBP11.2m) and investment
in Founders Factory Retail Limited (last half year: GBP2.5m;
last full year: GBP2.5m).
(3) Includes interest paid on the partnership liability to
the Marks & Spencer UK Pension Scheme of GBPnil (last half
year: GBP6.3m; last full year: GBP6.4m) and interest paid on
lease liabilities of GBP65.2m (last half year: GBP51.6m; last
full year: GBP132.3m).
Notes to the financial statements (Unaudited)
1 General information and basis of preparation
General information
This condensed consolidated interim information for the period
does not constitute statutory financial statements within the
meaning of s434 of the Companies Act 2006.
The summary of results for the year ended 3 April 2021 is an
extract from the published Annual Report and Financial Statements
which were approved by the Board of Directors on 25 May 2021, have
been reported on by the Group's auditors and delivered to the
Registrar of Companies. The audit report on the Annual Report and
Financial Statements was unqualified, did not contain an emphasis
of matter paragraph and did not contain any statement under s498
(2) or (3) of the Companies Act 2006.
Basis of preparation
The financial information has been prepared in accordance with
the UK-adopted International Accounting Standard 34 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
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 as set out on pages 1 to 10 and
the principal risks and uncertainties as set out on pages 27 to
28.
The Group continues to maintain a robust financial position
providing it with sufficient access to liquidity, through a
combination of cash and committed facilities, to meet its needs in
the short and medium term. At 2 October 2021, the Group had
available liquidity of GBP2,076.9m, comprising cash and cash
equivalents of GBP951.9m, 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. The Group's net debt at 2 October 2021 was GBP3,154.2m, a
decrease of GBP361.7m since 3 April 2021, primarily driven by
strong free cash flow generation.
The forecast cashflows for the next 12-month period to November
2022 used to support the assessment of going concern incorporate a
latest estimate of the ongoing impact of current market conditions
on the Group and include a number of assumptions including sales
growth and customer behaviour. While trading continues to be
strong, in line with the announcement in August 2021, in forming
their outlook on the future financial performance, the directors
considered a variety of downsides that the Group might experience,
such as disruption caused by driver shortages and supply chain
constraints, pressures on costs and margin, and the potential
negative impact of shifts in customer behaviour.
Based on the forecast cashflows, throughout the next 12-month
period to November 2022, the Group does not anticipate needing to
draw on its available facilities and has adequate headroom at the
point at which the covenant is reinstated in September 2022.
As a result, the directors believe that the Group is well placed
to manage its financing and other principal 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 interim financial
statements.
Accounting policies
The comparative figures for the financial year ended 3 April
2021 are consistent with the Group's annual financial statements.
The comparative figures for the half year ended 26 September 2020
have been restated to reflect the change in accounting policy to
recognise BACS payments at the settlement date, rather than when
they are initiated, which had been adopted in the 2021 Annual
Report and Financial Statements. The impact on the 26 September
2020 balance sheet is an increase to current trade and other
payables of GBP85.1m, a decrease to bank loans and overdrafts,
within current liabilities, of GBP62.2m and an increase to cash and
cash equivalents of GBP22.9m. Net cash inflow from activities, as
presented in the consolidated statement of cash flows, in the 26
weeks ended 26 September 2020 has increased by GBP10.5m while net
debt as at 26 September 2020 has decreased by GBP85.1m. There is no
impact on the income statement, earnings per share or net
assets.
The results for the first half of the financial year have been
reviewed, not audited and are prepared on the basis of the
accounting policies set out in the Group's 2021 Annual Report and
Financial Statements.
The Group has applied the following new standards and
interpretations for the first time for the reporting period
commencing 4 April 2021:
- Amendments to IFRS 16: Covid-19-Related Rent Concessions beyond 30 June 2021.
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform Phase 2.
The adoption of the standards and interpretations listed above
has not led to any changes to the Group's accounting policies or
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. The APMs are consistent with how the business
performance is planned and reported within the internal management
reporting to the Board and Executive Committee. Some of these
measures are also used for the purpose of setting remuneration
targets.
The key APMs that the Group uses include: sales; like-for-like
revenue growth; operating profit/(loss) before adjusting items;
profit/(loss) before tax and adjusting items; adjusted basic
earnings per share; net debt; net debt excluding lease liabilities;
and free cash flow. 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 sales APM has been introduced given the
Group's focus on launching and growing third-party brands and is
consistent with how the business performance is reported and
assessed by the Board and the Executive Committee.
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/(loss) 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. Treatment as an
adjusting item provides stakeholders with additional useful
information to assess the year-on-year or period-on-period trading
performance of the Group. On this basis, the following items were
included within adjusting items for the 26-week period ended 2
October 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 or operational changes that are not
considered by the Group to be part of the normal operating costs of
the business.
- Impairment charges and provisions that are considered to be
significant in nature and/or value to the trading performance of
the business.
- Charges and reversals of previous impairments arising from the
write-off of assets and other property charges that are 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.
- Amortisation of the identified intangible assets arising as
part of the investment in Ocado Retail Limited.
- Remeasurement of contingent consideration including discount unwind.
- Directly attributable gains and expenses resulting from the Covid-19 pandemic.
Refer to note 3 for a summary of the adjusting items.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the consolidated financial statements
requires the Group to make estimates and judgements that affect the
application of policies and reported amounts. The critical
accounting judgements and key sources of estimation uncertainty
remain consistent with those presented in note 1 of the Group's
2021 Annual Report and Financial Statements.
In recognition of the ongoing impact of current market
conditions in the period, the Group continues to provide additional
information on the following judgements and estimates.
UK store estate programme
The Group is undertaking a significant strategic programme to
review its UK store estate. 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. Significant estimation
uncertainty arises in respect of determining the recoverable amount
of assets and the costs to be incurred as part of the programme.
The significant assumptions adopted are detailed in the Group's
2021 Annual Report and Financial Statements, with those most likely
to have a material impact being closure dates and changes to future
sales.
The charge recognised at 3 April 2021 reflected cash flow
projections from the Group's latest budget and three-year plan. As
this continues to be the most recent Board-approved budget, and
trading performance in the period is ahead of those forecasts, no
changes have been made to the cash flow projections. Similarly,
most other assumptions have remained consistent with those used at
3 April 2021, with only small adjustments made to reflect any known
changes to closure dates. Given only minor updates have been made,
the sensitivities disclosed in note 15 to the Group's 2021 Annual
Report and Financial Statements remain relevant. See note 3 for
further details.
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.
The Group has considered whether there have been any indicators
of impairment or impairment reversal during the period which would
require a detailed impairment test to be performed. The Group has
considered a number of different factors and, based on this, has
concluded that there are no indicators of impairment or impairment
reversals during the period. As a result, a detailed impairment
test has not been performed. Consequently, the sensitivities
disclosed in note 15 to the Group's 2021 Annual Report and
Financial Statements remain relevant.
Inventory provisioning
The Group assesses the recoverability of inventories by applying
assumptions around the future saleability and estimated selling
prices of items.
At 3 April 2021, the Group had recognised a total UK Clothing
& Home inventory provision of GBP78.2m, which included GBP24.2m
relating specifically to the estimated impact of the Covid-19
pandemic. The Group has considered the period of trading recovery
since 3 April 2021 and has updated its assumptions regarding future
performance. After utilising GBP10.2m of these provisions in the
period, the Group has released the remaining GBP14.0m. See note 3
for further details.
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 was identified as reportable in the
53 weeks ended 3 April 2021 based on the quantitative thresholds in
IFRS 8. As the Group's reportable segments have changed, the
comparative information for the 26 weeks ended 26 September 2020
has been restated to present Ocado separately from 'All other
segments'.
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:
26 weeks ended 2 October 2021
(Unaudited)
---------------------------------------------------------------
Note UK Clothing UK Food International Ocado All Group
& Home other
segments
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Sales before adjusting items(1) 3 1,534.6 3,143.0 435.3 - - 5,112.9
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Revenue before adjusting
items(2) 3 1,527.0 3,143.0 435.3 - - 5,105.3
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Operating profit/(loss) before
adjusting items(3) 3 156.2 143.7 35.9 28.1 (0.7) 363.2
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Finance income before adjusting
items 3 16.0
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Finance costs before adjusting
items 3 (109.8)
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Profit/(loss) before tax
and adjusting items 3 156.2 143.7 35.9 28.1 (0.7) 269.4
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Adjusting items 3 (82.1)
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Profit/(loss) before tax 156.2 143.7 35.9 28.1 (0.7) 187.3
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
26 weeks ended 26 Sep 2020 (Unaudited)
---------------------------------------------------------------
UK Clothing UK Food International Ocado All Group
& Home other
segments
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Revenue before adjusting
items(2) 3 917.2 2,838.6 346.3 - - 4,102.1
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Operating (loss)/profit before
adjusting items(3) 3 (107.5) 109.7 19.7 38.8 1.1 61.8
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Finance income before adjusting
items 3 27.3
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Finance costs before adjusting
items 3 (106.5)
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
(Loss)/profit before tax
and adjusting items 3 (107.5) 109.7 19.7 38.8 1.1 (17.4)
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
Adjusting items 3 (70.2)
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
(Loss)/profit before tax (107.5) 109.7 19.7 38.8 1.1 (87.6)
------------------------------- ---- ------------ ------- ------------- ----- --------- -------
53 weeks ended 3 April 2021 (Audited)
-----------------------------------------------------------------
Note UK Clothing UK Food International Ocado All Group
& Home other
segments
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---- ------------ ------- ------------- ----- --------- ---------
Revenue before adjusting
items(2) 3 2,239.0 6,138.5 789.4 - - 9,166.9
------------------------------- ---- ------------ ------- ------------- ----- --------- ---------
Operating (loss)/profit before
adjusting items(3) 3 (130.8) 228.6 44.1 78.4 1.9 222.2
------------------------------- ---- ------------ ------- ------------- ----- --------- ---------
Finance income before adjusting
items 3 57.4
------------------------------- ---- ------------ ------- ------------- ----- --------- ---------
Finance costs before adjusting
items 3 (229.3)
------------------------------- ---- ------------ ------- ------------- ----- --------- ---------
(Loss)/profit before tax
and adjusting items 3 (130.8) 228.6 44.1 78.4 1.9 50.3
------------------------------- ---- ------------ ------- ------------- ----- --------- ---------
Adjusting items 3 (259.7)
------------------------------- ---- ------------ ------- ------------- ----- --------- ---------
(Loss)/profit before tax (130.8) 228.6 44.1 78.4 1.9 (209.4)
------------------------------- ---- ------------ ------- ------------- ----- --------- ---------
(1) Sales before adjusting items is revenue stated prior to
adjustments for UK Clothing & Home brand consignment sales
of GBP7.6m.
(2) Revenue is stated prior to adjusting items of GBPnil (last
half year: GBP11.2m; last full year: GBP11.2m) (see note 3).
(3) Operating profit/(loss) before adjusting items is stated
as gross profit less operating costs prior to adjusting items.
At reportable segment level costs are allocated where directly
attributable or based on an appropriate cost driver for the
cost.
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.
Other disclosures
As at As at As at
2 Oct 2021 26 Sep 2020 3 April
2021
(Unaudited)(1) (Unaudited)(1) (Audited)(1)
GBPm GBPm GBPm
--------------------------------- --------------- --------------- -------------
Write-down of inventories to net
realisable value 85.8 19.7 117.0
--------------------------------- --------------- --------------- -------------
(1) Includes write-back of inventories to net realisable value
in relation to Covid-19. See note 3 for further detail.
3 Adjusting items
The total adjusting items reported for the 26 week period ended
2 October 2021 is a net charge of GBP82.1m. The adjustments made to
reported profit before tax to arrive at adjusted profit are:
26 weeks ended 53 weeks
ended
------------------------
2 Oct 2021 26 Sep 2020 3 Apr 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------ ----------- ----------- ----------
Included in revenue
Sparks loyalty programme transition - (11.2) (11.2)
------------------------------------------ ----------- ----------- ----------
- (11.2) (11.2)
------------------------------------------ ----------- ----------- ----------
Included in operating profit
Strategic programmes - UK store estate (58.1) (2.9) (95.3)
Strategic programmes - Organisation 1.9 (92.1) (133.7)
Strategic programmes - UK logistics (1.7) (0.1) (2.2)
Strategic programmes - International
store closures and impairments - - (3.6)
Amortisation and fair value adjustments
arising as part of the investment
in Ocado Retail Limited (25.4) (7.1) (14.2)
Directly attributable gains resulting
from the Covid-19 pandemic 15.0 49.4 90.8
European restructure (11.9) - -
M&S Bank charges incurred in relation
to the insurance mis-selling provisions (1.0) (1.4) (2.4)
Sparks loyalty programme transition - (4.1) (5.4)
Establishing the investment in Ocado
Retail Limited - (1.7) (1.7)
Intangible asset impairments - - (79.9)
Store impairments, impairment reversals
and other property charges - - 6.9
GMP and other pension equalisation - - (1.0)
------------------------------------------ ----------- ----------- ----------
(81.2) (60.0) (241.7)
------------------------------------------ ----------- ----------- ----------
Included in net finance costs
Remeasurement of contingent consideration
including discount unwind (0.9) 1.0 (6.8)
------------------------------------------ ----------- ----------- ----------
(0.9) 1.0 (6.8)
------------------------------------------ ----------- ----------- ----------
Adjustment to profit before tax (82.1) (70.2) (259.7)
------------------------------------------ ----------- ----------- ----------
Strategic programmes - UK store estate ( GBP58.1m )
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 GBP657.6m up to April 2021 under this programme
primarily relating to closure costs associated with stores
identified as part of the strategic transformation plans.
During 2020/21, the Group experienced a significant channel
shift from stores to online due to the pandemic, accelerating the
Group's ambition to achieve a Clothing & Home online sales mix
of at least 40% over the next three years. This acceleration in
channel shift required the Group to revise the UK store estate
strategic programme to ensure the estate continued to meet
customers' needs.
The Group has recognised a charge of GBP58.1m in the period in
relation to those stores identified as part of the rotation plans.
The charge primarily reflects a revised view of latest store exit
routes and assumptions underlying estimated store closure costs, as
well as charges relating to the impairment of buildings and
fixtures and fittings, and depreciation as a result of shortening
the useful economic life of stores based on the latest approved
exit routes.
Further material charges relating to the closure and rotation of
the UK store estate are anticipated over the next nine years as the
programme progresses, the quantum of which is subject to change
throughout the programme period as 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 2 October
2021, further charges of c.GBP227m are estimated within the next
nine financial years, bringing anticipated total programme costs
since 2016 up to c.GBP943m. In addition, where store exit routes in
the next nine years lead to the recognition of gains on exit,
particularly those relating to asset management, these credits will
also be recognised within adjusting items as part of the
programme.
These costs are reported as adjusting items on the basis that
they are significant in quantum, relate to a strategic initiative
focused on reviewing our store estate and to aid comparability from
one period to the next.
Strategic programmes - Organisation (GBP1.9m credit)
During 2020/21, the Group announced a commitment to integrate
more flexible management structures into store operations as well
as streamline the business at store and management level in the UK
and Republic of Ireland as part of the 'Never the Same Again'
transformation. The changes resulted in a reduction of c.8,200
roles across central support centres, regional management and
stores. A credit of GBP1.9m has been recognised in the period based
on the latest estimate of redundancy costs associated with these
changes. The provision is expected to be fully utilised and
released during 2021/22, with no further significant charges
anticipated.
These credits are reported as adjusting items on the basis that
they are consistent with the disclosure of costs previously
recognised.
Strategic programmes - UK logistics (GBP1.7m)
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 GBP1.7m 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 GBP41.5m with further
net charges of GBP34.8m expected over the next 3 financial
years.
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.
Amortisation and fair value adjustments arising as part of the
investment in Ocado Retail Limited (GBP25.4m)
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 GBP8.8m recognised in the period. In
addition a further deferred tax charge of GBP16.6m has been
recognised predominantly relating to the substantial enactment of
the Finance Act 2021 during the period increasing the UK's main
corporation tax rate from 19% to 25% from 1 April 2023.
The amortisation charge and changes in the related deferred tax
liability are included within the Group's share of the profit or
loss of the associate and are considered to be adjusting items as
they are based on judgements about their value and economic life
and are not related to the Group's underlying trading performance.
Identifying these items as adjusting allows greater comparability
of underlying performance.
Directly attributable gains resulting from the Covid-19 pandemic
(GBP15.0m credit)
In March 2020, following the onset of the Covid-19 global
pandemic and subsequent UK government restrictions, the Group
sustained significant disruption to its operations. In response to
the uncertainty resulting from the pandemic, coupled with the
fast-paced changes taking place across the retail sector, the Board
approved a Covid-19 scenario to reflect management's best estimate
of the significant volatility and business disruption expected as a
result of the ongoing pandemic.
As a result in 2019/20, the Group identified total Covid-19
charges of GBP212.8m across four separate 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 and
bad debt provision.
Write-back of inventories to net realisable value (GBP14.5m
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.
During 2020/21 the Group experienced stronger trade,
particularly in online than expected under the Covid-19 scenario,
selling 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 was recorded in 2020/21,
representing a significant release to the inventory provisions
recorded in the 2019/20 financial statements to align to with the
latest estimates based on current sales performance, offset by
charges in the period relating to reassessment of storage and
fabric cancellation provisions. Incremental provisions remained in
place where risk remained and included 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 as at 3 April 2021 was GBP36.7m .
During H1 2021/22, UK Clothing & Home performance has been
strong, with better than expected sell through of stock originally
provided for. During this period, GBP10.2m of the Covid-19
provision has been utilised, and there has been a release of
GBP14.0m recognised in adjusting items. No UK Clothing & Home
inventory provisions in relation to Covid-19 remain on the balance
sheet at H1 2021/22. Similarly, following better than expected sell
through of inventory previously provided for in the International
markets, there has been a release of GBP0.5m of their Covid-19
inventory provisions during H1 2021/22. International Covid-19
stock provisions of GBP0.7m remain on the balance sheet at H1
2021/22. These provisions will be utilised during H2 2021/22. A
provision of GBP7.8m 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
remains.
The carrying value of the Group's inventories at 2 October 2021
is GBP778.0m, split across the UK Clothing & Home, UK Food and
International businesses represents gross inventories GBP599.9m,
GBP177.5m and GBP75.2m respectively, against which a provision of
GBP54.8m, GBP12.4m and GBP7.4m has been recognised. Included within
the UK Clothing & Home provision is an incremental write-down
of inventory to net realisable value of GBPnil (2020/21: GBP18.6m)
reflecting management's best estimate of the impact of the Covid-19
pandemic on UK Clothing & Home inventory as at 2 October 2021.
The total UK Clothing & Home inventory provisions represent
9.1% (last half year: 21%, last full year: 15.4%) of UK Clothing
& Home inventory. However, trading could be higher or lower
than expected and a 5% increase in the UK Clothing & Home
inventory provision (from 9% to 14%) would result in a reduction in
the valuation of inventory held on the balance sheet of GBP29.8m
and would result in a corresponding decrease to recognised profit
before tax in the period.
In addition, a release of GBP0.5m has been recognised within
adjusting items in relation to the Covid-19 bad debt provision
recognised against international franchise partners. At H1 2021/22
a bad debt provision of GBP0.3m remains. This will be utilised by
the end of H2 2021/22.
The GBP15.0m directly attributable net gains from the Covid-19
pandemic are considered to be adjusting items as they meet the
Group's established definition, being both significant in nature
and value to the results of the Group in the current period and
treatment as adjusting items is consistent with the treatment of
charges of a consistent nature recognised in 2019/20. No future
charges are expected. Any future credits relating to these items
will continue to also be classified as adjusting.
European restructuring (GBP11.9m)
During the period, the Group recognised a charge of GBP11.9m in
relation to the restructure of operations in continental Europe.
This charge includes closure costs related to our franchise and
logistics operations in continental Europe, resulting from
increased EU border costs. No future costs are currently expected.
The costs are considered to be adjusting items as they are one-off
in nature and significant in value to the results of the Group and
to the International segment.
M&S Bank charges incurred in relation to insurance
mis-selling provisions ( GBP1.0m )
The Group has an economic interest in Marks and Spencer
Financial Services plc (trading as M&S Bank), a wholly owned
subsidiary of HSBC UK Bank plc, by way of a Relationship Agreement
that entitles the Group to a 50% share of the profits of M&S
Bank after appropriate deductions. The Group does not share in any
losses of M&S Bank and is not obliged to refund any profit
share received from HSBC, although future income may be impacted by
significant one-off deductions.
Since the year ended 31 December 2010, M&S Bank has
recognised in its audited financial statements an estimated
liability for redress to customers in respect of possible
mis-selling of financial products. The Group's profit share and fee
income from M&S Bank has been reduced by the deduction of the
estimated liability in both the current and prior years. In line
with the accounting treatment under the Relationship Agreement,
there is a cap on the amount of charges that can be offset against
the profit share in any one year, whereby excess liabilities
carried forward are deducted from the Group's future profit share
from M&S Bank. The deduction in the period is GBP1.0m.
The treatment of this in adjusting items is in line with
previous charges in relation to settlement of PPI claims and
although it is recurring, it is significant in quantum in the
context of the total charges recognised for PPI mis-selling to-date
and is not considered representative of the normal operating
performance of the Group. As previously noted, while the August
2019 deadline to raise potential mis-selling claims has now passed,
costs relating to the estimated liability for redress are expected
to continue. The total charges recognised in adjusting items since
September 2012 for PPI is GBP320.2m which exceeds the total offset
against profit share of GBP238.5m to date and this deficit will be
deducted from the Group's share of future profits from M&S
Bank.
Remeasurement of contingent consideration including discount
unwind ( GBP0.9m)
Contingent consideration, resulting from the investment in Ocado
Retail Limited, is remeasured at fair value at each reporting date
with the changes in fair value recognised in profit or loss. During
the period, GBP16.8m of contingent consideration was settled,
following the achievement of the first performance target (see note
11). A charge of GBP0.9m 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)
26 weeks ended 53 weeks
ended
------------------------
2 Oct 2021 26 Sep 2020 3 April
2021
(Unaudited) (Unaudited) (Audited)
Notes GBPm GBPm GBPm
-------------------------------------- ----- ----------- ----------- ---------
Bank and other interest receivable 1.3 1.3 2.9
Pension net finance income 9 6.4 22.8 47.2
Other finance income 5.6 0.6 1.8
Interest income on subleases 2.7 2.6 5.5
-------------------------------------- ----- ----------- ----------- ---------
Finance income before adjusting
items 16.0 27.3 57.4
-------------------------------------- ----- ----------- ----------- ---------
Finance income in adjusting items 3 - 1.0 -
-------------------------------------- ----- ----------- ----------- ---------
Finance income 16.0 28.3 57.4
-------------------------------------- ----- ----------- ----------- ---------
Interest on bank borrowings (0.1) (0.2) -
Interest payable on syndicated
bank facility (2.2) (1.9) (3.9)
Interest payable on medium-term
notes (41.8) (35.6) (86.4)
Interest payable on commercial
paper facility - (0.3) (0.4)
Interest payable on lease liabilities (61.6) (64.8) (130.4)
Unwinding of discount on partnership
liability to the Marks and Spencer
UK Pension Scheme 10 (1.7) (2.4) (4.9)
Unwind of discount on provisions (1.8) (1.3) (2.7)
Other finance costs (0.6) - (0.6)
-------------------------------------- ----- ----------- ----------- ---------
Finance costs before adjusting
items (109.8) (106.5) (229.3)
-------------------------------------- -----
Finance costs in adjusting items 3 (0.9) - (6.8)
-------------------------------------- ----- ----------- ----------- ---------
Finance costs (110.7) (106.5) (236.1)
-------------------------------------- -----
Net finance costs (94.7) (78.2) (178.7)
-------------------------------------- -----
5 Taxation
Taxes on income in the interim period are accrued using the tax
rate that would be applicable to expected total annual earnings,
adjusted for actual tax on adjusting items.
The taxation charge in the income statement for the half year is
based on the forecast full year tax rate on profit before adjusting
items of 19.4% (last half year: 27.0%; last full year: 50.3%). When
the impact of the change in the tax rate is taken into account, the
effective tax rate on the profit before adjusting items falls by 7%
to 12.4%. This is the result of our deferred tax assets being
restated to the substantively enacted UK tax rate of 25%. The
effective tax rate on adjusting items is 7.2% arising in the period
to 2 October 2021 (last half year: 16.1%; last full year: 12.9%) to
give an effective tax rate on profit/(loss) before taxation of
14.6% (last half year: 18.3%; last full year: 3.9%).
The underlying ETR for half year 2021/22 is significantly lower
than full year 2021, primarily because of the lower level of
profits at the last full year (GBP50.3m), meaning the effect of
disallowable items such as the recapture of previous tax relief
under the Marks and Spencer Scottish Limited Partnership ("SLP")
structure was more pronounced in full year 2021. During the period,
no payments to the SLP were made as part of the Covid-19 related
cash optimisation measures, reducing the tax add-back and the ETR.
In addition, the impact of restating deferred tax assets from 19%
to 25% creates a further credit, contributing towards the lower
underlying ETR of 12.4% in the current period. Next year, we
anticipate the effective tax rate on profit before adjusting items
to be higher than the 19% UK statutory tax rate due to the
continuation of the recapture of previous SLP tax relief following
the resumption of the payments to the SLP and the Pension fund.
6 Earnings per share
The calculation of earnings per ordinary share is based on
earnings after tax and the weighted average number of ordinary
shares in issue during the period.
The adjusted earnings per share figures have also been
calculated based on earnings before 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
period; unvested shares granted under the Deferred Share Bonus
Plan; unvested shares granted under the Restricted Share Plan; and
unvested shares within the Performance Share Plan that have met the
relevant performance conditions at the end of the reporting
period.
Details of the adjusted earnings per share are set out
below:
26 weeks ended 53 weeks
ended
2 Oct 2021 26 Sep 3 April
2020 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Profit/(loss) attributable to equity
shareholders of the Company 160.3 (67.4) (198.0)
Add/(less):
Adjusting items (see note 3) 82.1 70.2 259.7
Tax on adjusting items (5.9) (11.3) (33.5)
Profit/(loss) before adjusting items
attributable to equity shareholders
of the Company 236.5 (8.5) 28.2
Million Million Million
Weighted average number of ordinary
shares in issue(1) 1,957.6 1,951.7 1,953.5
Potentially dilutive share options under
the Group's share option schemes(2,3) 59.9 17.4 15.0
Weighted average number of diluted ordinary
shares 2,017.5 1,969.1 1,968.5
Pence Pence Pence
Basic earnings/(loss) per share 8.2 (3.5) (10.1)
Diluted earnings/(loss) per share 7.9 (3.5) (10.1)
Adjusted basic earnings/(loss) per share 12.1 (0.4) 1.4
Adjusted diluted earnings/(loss) per
share 11.7 (0.4) 1.4
(1) The nominal value reduction of the Group's ordinary shares,
as announced on 7 July 2021, has had no impact on the number
of shares in issue.
(2) Potentially dilutive share options only considered in
relation to adjusted diluted earnings per share for the periods
ended 26 September 2020 and 3 April 2021 as the Group made
a basic loss per share in those periods.
(3) The current year potentially dilutive share options figure
includes all outstanding shares on the 2021 PSP scheme as the
performance conditions have not yet been set by the Remuneration
Committee due to the uncertainty created by the Covid-19 global
pandemic. These will be agreed by 31 December 2021.
7 Dividends
At the full-year results in May 2021, the Board announced that
payment of a dividend in the 2021/22 financial year would be
unlikely as we focus on restoring sustainable profitability and
recovering the balance sheet towards metrics consistent with
investment grade.
Consistent with that announcement, the Board does not expect to
pay a dividend this financial year.
8 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 year end date of 28 November 2021,
aligning with its parent company, Ocado Group Plc. For the Group's
purpose of applying the equity method of accounting, Ocado Retail
Limited has prepared financial information to the nearest
quarter-end date of its financial year end, as to do otherwise
would be impracticable. The results of Ocado Retail Limited are
incorporated in this interim financial statement from 1 March 2021
to 29 August 2021. There were no significant events or transactions
in the period from 30 August 2021 to 2 October 2021 that had a
material effect.
The carrying amount of the Group's interest in Ocado Retail
Limited is GBP821.7m (last half year: GBP786.5m; last full year:
GBP819.0m). The Group's share of Ocado Retail Limited profits of
GBP2.7m (last half year: GBP31.7m; last full year: GBP64.2m)
includes the Group's share of underlying profits of GBP28.1m, which
includes GBP1.7m of exceptional income before tax related to
insurance receipts (last half year: GBP38.8m; last full year:
GBP78.4m) and adjusting item charges of GBP25.4m (last half year:
GBP7.1m; last full year: GBP14.2m) (see note 3).
Summarised financial information in respect of Ocado Retail
Limited (the Group's only material associate) is set out below and
represents amounts in the Ocado Retail Limited financial statements
prepared in accordance with IFRS, adjusted by the Group for equity
accounting purposes.
As at 29 August 2021 As at 28 February 2021
(Unaudited) (Audited)
GBPm GBPm
Ocado Retail Limited
Current assets 363.7 353.9
Non-current assets 370.0 336.8
Current liabilities (231.8) (245.7)
Non-current liabilities (265.4) (264.6)
Net assets 236.5 180.4
1 Mar 2021 2 Mar 2020 2 Mar 2020
to to to
29 Aug 2021 30 Aug 2020 28 Feb 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Revenue 1,136.3 1,167.7 2,353.2
Profit for the period 56.3 77.6 156.8
Other comprehensive income - - -
Total comprehensive income 56.3 77.6 156.8
In addition, the Group holds immaterial investments in joint
ventures totalling GBP6.2m (last half year: GBP7.4m; last full
year: GBP6.8m). The Group's share of losses totalled GBP0.6m (last
half year: GBP0.7m loss; last full year: GBP1.3m loss).
9 Retirement benefits
26 weeks ended 53 weeks
ended
2 Oct 2021 26 Sep 2020 3 April 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Opening net retirement benefit
surplus 631.4 1,902.6 1,902.6
Current service cost (0.1) (0.1) (0.2)
Administration costs (2.2) (2.3) (4.5)
Past service cost - - (1.0)
Net interest income 6.4 22.8 47.2
Employer contributions 38.7 39.0 41.5
Remeasurements(1) 59.8 (1,071.8) (1,354.5)
Exchange movement 0.2 (0.2) 0.3
Closing net retirement benefit
surplus 734.2 890.0 631.4
Total market value of assets 10,619.6 11,349.0 10,442.9
Present value of scheme liabilities (9,877.4) (10,451.0) (9,803.7)
Net funded pension plan asset 742.2 898.0 639.2
Unfunded retirement benefits (3.8) (4.0) (3.8)
Post-retirement healthcare (4.2) (4.0) (4.0)
Net retirement benefit surplus 734.2 890.0 631.4
Analysed in the Statement of
Financial Position as:
Retirement benefit asset 742.2 902.3 639.2
Retirement benefit deficit (8.0) (12.3) (7.8)
Net retirement benefit surplus 734.2 890.0 631.4
(1) The 26 September 2020 and 3 April 2021 remeasurement loss
includes GBP2.5m relating to an equalisation charge recognised
in 2018/19 that was reclassified from provisions in the respective
periods.
In addition to the amounts disclosed above the Group made
payments of GBP30.4m (last half year: GBP33.1m; last full year:
GBP64.0m) relating to the Your M&S Pension Saving Plan (a
defined contribution arrangement).
Financial assumptions
The main financial assumptions for the UK scheme and the most
recent actuarial valuations of the other post-retirement schemes
have been updated by independent qualified actuaries to take
account of the requirements of IAS 19 Employee Benefits in order to
assess the liabilities of the schemes.
The most significant of these are the discount rate and the
inflation rate which are 2.05% (last half year: 1.55%; last full
year: 2.00%) and 3 .45 % (last half year: 2.90%; last full year:
3.30%) respectively. The inflation rate of 3 .45 % reflects the
Retail Price Index (RPI) rate. Certain benefits have been
calculated with reference to the Consumer Price Index (CPI) as the
inflationary measure and in these instances a rate of 2 .75 % (last
half year: 2.20%; last full year: 2.60%) has been used.
The amount of the surplus varies if the main financial
assumptions change. If the discount rate decreased by 0.25%, the
surplus would decrease by GBP20m (last half year: decrease by
GBP20m; last full year: decrease by GBP20m). If the discount rate
decreased by 0.50%, the surplus would decrease by GBP30m (last half
year: decrease by GBP50m; last full year: decrease by GBP30m). If
the inflation rate decreased by 0.25%, the surplus would decrease
by GBP30m (last half year: decrease by GBP10m; last full year:
decrease by GBP20m). If the inflation rate decreased by 0.50%, the
surplus would decrease by GBP60m (last half year: decrease by
GBP20m; last full year: decrease by GBP30m). A one year decrease in
life expectancy would increase the scheme's surplus by GBP300m
(last half year: increase by GBP280m; last full year: increase by
GBP300m).
The sensitivity analysis above is based on a change in one
assumption while holding all others constant. Therefore
interdependencies between the assumptions have not been taken into
account within the analysis.
The most recent actuarial valuation of the Marks & Spencer
UK Pension Scheme was carried out as at 31 March 2018 and showed a
funding surplus of GBP652m. This is an improvement on the previous
position at 31 March 2015 (statutory surplus of GBP204m), primarily
due to lower assumed life expectancy. The Company and Trustees have
confirmed, in line with the current funding arrangement, that no
further contributions will be required to fund past service as a
result of this valuation (other than those already contractually
committed under the existing Marks and Spencer Scottish Limited
Partnership arrangements - see note 10). We continue to work
constructively with the Trustees of the UK DB Pension Scheme with
regard to agreeing the triennial actuarial valuation of the scheme
as at 31 March 2021. Consequently, the results of the valuation are
not yet known, although it is likely that there will continue to be
a surplus.
With the pensioner buy-in policies purchased in September 2020,
April 2019 and March 2018, the Scheme has now, in total, insured
around 80% of the pensioner cash flow liabilities for pensions in
payment. The buy-in policies cover specific pensioner liabilities
and pass all risks to an insurer in exchange for a fixed premium
payment, thus reducing the Group's exposure to changes in
longevity, interest rates, inflation and other factors.
10 Marks and Spencer Scottish Limited Partnership
Marks and Spencer plc is a general partner and the Marks &
Spencer UK Pension Scheme is a limited partner of the Marks and
Spencer Scottish Limited Partnership (the "Partnership"). Under the
partnership agreement, the limited partners have no involvement in
the management of the business and shall not take any part in the
control of the partnership. The general partner is responsible for
the management and control of the partnership and as such, the
Partnership is consolidated into the results of the Group.
The Partnership holds GBP1.3bn (last half year: GBP1.4bn; last
full 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),
previously entitled the Pension Scheme to receive an annual
distribution of GBP71.9m until June 2022 from the Partnership. As a
result of the Covid-19 pandemic and the need to preserve cash, in
agreement with the Trustees, only GBP18.9m of the June 2020 payment
was made with the remaining GBP53.0m being deferred.
During the period, the Group and the Pension Scheme Trustees
agreed to amend the distribution dates so that rather than making
the planned payment of GBP71.9m in June 2021 along with the
deferred GBP53.0m, the Pension Scheme is now entitled to receive
GBP71.9m in 2022, GBP73.0m in 2023 and GBP54.4m in 2024. The second
partnership interest (also held by the Marks & Spencer UK
Pension Scheme) entitles the Pension Scheme to receive a further
GBP36.4m annually from June 2017 until June 2031. All profits
generated by the Partnership in excess of this are distributable to
Marks and Spencer plc.
The partnership liability in relation to the first interest of
GBP189.6m (last half year: GBP190.9m; last full year: GBP193.5m) is
included as a financial liability in the Group's financial
statements as it is a transferrable financial instrument and
measured at amortised cost, being the net present value of the
future expected distributions from the Partnership. During the
period to 2 October 2021 an interest charge of GBP1.7m (last half
year: GBP2.4m; last full year: GBP4.9m) was recognised in the
income statement representing the unwinding of the discount
included in this obligation. The first limited partnership interest
of the Pension Scheme is included within the UK DB pension scheme
assets valued at GBP194.2m (last half year: GBP141.5m; last full
year: GBP142.5m).
The second partnership interest is not a transferable financial
instrument as the Scheme Trustee does not have the right to
transfer it to any party other than a successor Trustee. It is
therefore not included as a plan asset within the UK DB pension
scheme surplus reported in accordance with IAS 19. Similarly, the
associated liability is not included on the Group's statement of
financial position, rather the annual distribution is recognised as
a contribution to the scheme each year.
11 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 which 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:
(Unaudited) (Audited)
As at As
at
2 Oct 2021 3 April 2021
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 ("FVTPL")
- derivatives held at
FVTPL - 0.6 - 0.6 - 0.7 - 0.7
Derivatives used for hedging - 43.3 - 43.3 - 32.4 - 32.4
Short term investments - 24.0 - 24.0 - 18.4 - 18.4
Unlisted investments(1) - - 10.7 10.7 - - 9.7 9.7
Liabilities measured at
fair value
Financial liabilities
at fair value through
profit and loss
- derivatives held at
FVTPL - (0.7) - (0.7) - (12.1) - (12.1)
- contingent consideration(2) - - (196.1) (196.1) - - (212.0) (212.0)
Derivatives used for hedging - (20.3) - (20.3) - (94.6) - (94.6)
There were no transfers between the levels of the fair value
hierarchy during the period. There were also no changes made
to any of the valuation techniques during the period.
(1) The Group holds GBP10.7m in unlisted equity securities
measured at fair value through other comprehensive income (last
half year: GBP9.7m; last full year: GBP9.7m) which are level
3 instruments. The fair value of these investments is determined
with reference to the net asset value of the entity in which
the investment is held, which in turn derive the majority of
their net asset value through a third-party property valuation
or underlying investment valuation.
(2) As part of the investment in Ocado Retail Limited, a contingent
consideration arrangement was agreed. The arrangement comprises
three separate elements which only become payable on the achievement
of three separate financial and operational performance targets.
On 15 June 2021, GBP16.8m was settled, relating to the first
of the three targets. On 8 October 2021, subsequent to the
reporting period, GBP17.0m was settled, relating to the second
target. The final target relates to Ocado Retail Limited achieving
a specified target level of earnings in the financial year
ending November 2023.
The fair value of the contingent consideration was estimated
by applying an appropriate discount rate to the expected future
payments. The key assumptions take into consideration the probability
of meeting the performance target and the discount factor.
The performance target is binary and, based on the latest five-year
plan of Ocado Retail Limited, is expected to be met and therefore
the fair value reflects the full, discounted, amount. A discount
rate of 2.2% was used and a 1.0% change in the discount rate
would result in a change in fair value of GBP5.1m.
During the period, GBP16.8m of contingent consideration was
settled and a charge of GBP0.9m recognised in profit or loss
in relation to the remeasurement (see note 3).
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,
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 GBP1,680.6m (last half year: GBP1,531.1m; last full
year: GBP1,682.1m); the fair value of this debt was GBP1,820.0m
(last half year: GBP1,600.7m; last full year: GBP1,807.6m) which
has been calculated using quoted market prices and includes accrued
interest.
The carrying value of the Partnership liability to the Marks
& Spencer UK Pension scheme is GBP189.6m (last half year:
GBP190.9m; last full year: GBP193.5m) and the fair value of this
liability, which represents only the principal value excluding
accrued interest is GBP187.9m (last half year: GBP185.5m; last full
year: GBP185.5m).
Lease liabilities
Future cash outflows related to the post break clause period
included in the lease liability
The Group holds certain leases that contain break clause options
to provide operational flexibility. In accordance with IFRS 16, the
Group has calculated the full lease term, beyond break, to
represent the reasonably certain lease term (except for those
stores identified as part of the UK store estate programme) within
the total GBP2,330.2m of lease liabilities held on the balance
sheet.
Total undiscounted lease payments of GBP723.7m relating to the
period post break clause, and the earliest contractual lease exit
point, are included in lease liabilities. These undiscounted lease
payments should be excluded when determining the Group's
contractual indebtedness under these leases, where there is a
contractual right to break.
Cash flow hedge accounting
The Group hedges its exposure to foreign currency risk using
forward foreign exchange contracts and hedge accounting is applied
when the requirements of IFRS 9 are met, including that forecast
transactions are "highly probable". The Group has continued to
apply judgment in assessing whether forecast purchases remain
"highly probable". There have been no de-designated hedges or
realised ineffectiveness in the foreign exchange forward contracts
in the period and as at 2 October 2021, all forecast purchases
qualify for hedge accounting.
Trade receivables
Included within trade and other receivables is GBP4.1m which,
due to non-recourse factoring arrangements in place, are held
within a 'hold to collect and sell' business model and are measured
at fair value through other comprehensive income ("FVOCI").
12 Capital expenditure and commitments
Capital expenditure
Additions to the cost of property, plant and equipment,
investment property and intangible assets, excluding right of use
assets are GBP120.4m (last half year: GBP62.2m) and for the year
ended 3 April 2021 were GBP162.3m. Disposals in net book value of
property, plant and equipment, investment property and intangible
assets, excluding right of use assets are GBPnil (last half year:
GBPnil) and for the year ended 3 April 2021 were GBPnil.
Capital commitments
As at As at As at
2 Oct 2021 26 Sep 2020 3 Apr 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Commitments in respect of properties
in the course of construction 113.5 75.3 88.3
IT capital commitments 18.3 4.1 10.6
131.8 79.4 98.9
At 2 October 2021, the Group had committed to invest up to
GBP25.0m, over a three-year period to 2024/25, in an innovation
and consumer growth fund managed by True Capital Limited. The
fund can drawdown amounts at any time over the three-year period
to make specific investments. During the period, the Group
invested GBP1.0m of this commitment, which is held as an unlisted
investment and measured at fair value (see note 11).
13 Analysis of cash flows given
in the statement of cash flows
26 weeks ended 53 weeks
ended
2 Oct 2021 26 Sep 2020 3 April
2021
(Unaudited) (Unaudited) (Audited)
(Restated)(1)
GBPm GBPm GBPm
----------- ------------- ----------
Profit/(loss) on ordinary activities
after taxation 159.9 (71.6) (201.2)
Income tax expense/(credit) 27.4 (16.0) (8.2)
Finance costs 110.7 106.5 236.1
Finance income (16.0) (28.3) (57.4)
----------- ------------- ----------
Operating profit/(loss) 282.0 (9.4) (30.7)
Share of results of Ocado Retail
Limited (28.1) (38.8) (78.4)
(Increase)/decrease in inventories (94.8) 8.2 41.2
(Increase)/decrease in receivables (46.1) 28.1 67.4
Increase/(decrease) in payables 252.4 49.2 159.5
Depreciation, amortisation and write-offs 253.9 306.1 603.1
Non-cash share-based payment expense 18.7 7.7 19.3
Defined benefit pension funding (36.3) (36.2) (37.1)
Adjusting items net cash outflows(2,3) (25.3) (17.4) (118.1)
Adjusting items M&S Bank(4) (1.0) (1.4) (2.4)
Adjusting operating profit items 81.2 71.2 252.9
----------- ------------- ----------
Cash generated from operations 656.6 367.3 876.7
------------------------------------------ ----------- ------------- ----------
(1) See note 1 for details on a change in accounting policy
and the resulting restatement.
(2) Excludes GBP0.7m (last half year: GBP12.4m; last year
end: GBP12.4m) of surrender payments included within repayment
of lease liabilities in the consolidated statement of cashflows
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, utilisation of the provisions for International
store closures and impairments, and gains directly attributable
to the Covid-19 pandemic.
(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.
14 Analysis of net debt
Reconciliation of net cash flow to movement in net debt
26 weeks ended 53 weeks
ended
2 Oct 2021 26 Sep 2020 3 April
2021
(Unaudited) (Unaudited) (Audited)
(Restated)(1)
GBPm GBPm GBPm
----------- ------------- ---------
Opening net debt (3,515.9) (3,950.6) (3,950.6)
----------- ------------- ---------
Net cash inflow from activities 282.0 69.2 434.3
Increase in current financial assets 5.6 1.7 6.7
Decrease in debt financing 107.9 94.7 25.8
New lease commitments (38.2) (11.5) (48.3)
Exchange and other non-cash movements 4.4 (25.1) 16.2
-------------
Movement in net debt 361.7 129.0 434.7
Closing net debt (3,154.2) (3,821.6) (3,515.9)
----------- ------------- ---------
Reconciliation of net debt to statement
of financial position
As at As at As at
2 Oct 2021 26 Sep 2020 3 April
2021
(Unaudited) (Unaudited) (Audited)
(Restated)(1)
GBPm GBPm GBPm
----------- ------------- ---------
Statement of financial position
and related notes
Cash and cash equivalents 951.9 308.8 674.4
Current other financial assets 24.0 13.2 18.4
Bank loans and overdrafts - (1.2) (4.7)
Medium term notes - net of foreign
exchange revaluation (1,652.1) (1,486.1) (1,657.9)
Lease liabilities (2,330.2) (2,507.9) (2,405.9)
Partnership liability to the Marks
& Spencer UK Pension Scheme (note
10) (189.6) (190.9) (193.5)
(3,196.0) (3,864.1) (3,569.2)
Interest payable included within
related borrowing and the partnership
liability to the Marks & Spencer
UK Pension Scheme 41.8 42.5 53.3
Total net debt (3,154.2) (3,821.6) (3,515.9)
----------- ------------- ---------
(1) See note 1 for details on a change in accounting policy
and the resulting restatement.
15 Government support
The Group has not benefitted from government grant income in the
period. Last year, the Group recognised GBP97.6m at H1 2020/21 and
GBP131.5m at FY 2020/21 in relation to furlough programmes, such as
the Coronavirus Job Retention Scheme (CJRS) in the UK, and its
equivalents in other countries. This income was recognised as a
deduction against the related expense.
The Group benefited from business rates relief of GBP49.9m in
the period (last half year: GBP83.7m; last full year:
GBP174.6m).
There are no unfulfilled conditions or contingencies attached to
these grants.
16 Related party transactions
The Group's related party transactions are disclosed in the
Group's 2021 Annual Report. There have been no material changes in
the related party transactions described in the last annual
report.
Associate
The following transactions were carried out with Ocado Retail
Limited, an associate of the Group:
Sales and purchases of goods and services:
26 weeks ended 53 weeks ended
2 Oct 2021 26 Sep 2020 3 April 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Sales of goods and services 16.7 5.8 28.5
Purchases of goods and services 0.2 0.1 -
Included within trade and other receivables is a balance of
GBP2.8m (last half year: GBP3.3m; last full year: GBP2.3m) owed by
Ocado Retail Limited.
Key management compensation
Transactions between the Group and key management personnel in
the period relate only to remuneration consistent with the policy
set out in the Directors' Remuneration Report within the Group's
2021 Annual Report.
There have been no other material changes to the arrangements
between the Group and key management personnel in the period.
17 Contingent Assets
The Group is currently seeking damages from an independent third
party following their involvement in anti-competitive behaviour
that adversely impacted the Group. The Group expects to receive an
amount from the claim (either in settlement or from the legal
proceedings), a position reinforced by recent court judgments in
similar claims. The value of the claim is confidential and is
therefore not disclosed.
18 Subsequent events
Subsequent to the balance sheet date, the Group has monitored
trade performance, internal actions, as well as other relevant
external factors. 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 2
October 2021.
Glossary
Alternative Closest Reconciling Definition and purpose
performance equivalent items to
measure statutory statutory
measure measure
Income Statement Measures
Sales Revenue Consignment Sales includes the gross value
Clothing None sales of consignment sales (excluding
& Home store Not applicable VAT) before the impact of
/ Clothing adjusting items. Where third-party
& Home online branded goods are sold on
sales a consignment basis, only
the commission receivable
is included in statutory revenue.
This measure has been introduced
given the Group's focus on
launching and growing third-party
brands and is consistent with
how the business performance
is reported and assessed by
the Board and the Executive
Committee.
The growth in revenues on
a year-on-year basis is a
good indicator of the performance
of the stores and online channels. HY 21/22 HY 20/21 %
GBPm GBPm
UK Clothing & Home
Store sales(1) 1,006.2 475.8 111.5
Consignment sales (2.1) -
Store revenue 1,004.1 475.8 111.0
Online sales(1) 528.4 441.4 19.7
Consignment sales (5.5) -
Online revenue 522.9 441.4 18.5
UK Clothing & Home sales(1) 1,534.6 917.2 67.3
Consignment sales (7.6) -
Total UK Clothing & Home revenue 1,527.0 917.2 66.5
(1) UK Clothing & Home store sales excludes revenue from 'shop your way' and click &
collect,
which are included in UK Clothing & Home online sales.
There is no material difference between sales and revenue for UK Food and International.
Like-for-like Movement Sales from The period-on-period change
revenue in revenue non in revenue (excluding VAT)
growth per the like-for-like from stores which have been
income stores trading and where there has
statement 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. HY 21/22 HY 20/21 %
GBPm GBPm
UK Food
Like-for-like 3,029.2 2,795.2 8.4
Net new space(1) 113.8 43.4
Total UK Food revenue 3,143.0 2,838.6 10.7
UK Clothing & Home
Like-for-like 1,488.2 906.7 64.1
Net new space 46.4 10.5
Total UK Clothing & Home sales 1,534.6 917.2 67.3
(1) UK Food net new space includes sales to Ocado Retail Limited.
Food ex Movement Sales from The period-on-period change
hospitality in revenue hospitality in Food revenue (before sales
and franchise per the and franchise to Ocado Retail Limited) excluding
income categories the hospitality and franchise
statement and sales categories' revenue (excluding
to Ocado VAT). The hospitality category
Retail includes cafés, counters
Limited and marketplace. This measure
is based on Food total revenue
rather than like-for-like
revenue which was presented
in the FY20/21 annual report.
This measure is used to provide
consistency with other measures
provided within this report. HY 21/22 HY 20/21 %
GBPm GBPm
UK Food
Revenue 3,143.0 2,838.6 10.7
Sales to Ocado Retail (14.4) (4.9)
Hospitality (67.0) (26.0)
Franchise (289.9) (226.5)
Food ex hospitality and franchise 2,771.7 2,581.2 7.4
M&S.com None Not applicable Total revenue through the
revenue Group's online platforms.
/ Online These revenues are reported
revenue within the relevant UK Clothing
& Home, UK Food and International
segment results. The growth
in revenues on a year-on-year
basis is a good indicator
of the performance of the
online channel and is a measure
used within the Group's incentive
plans. Refer to the Remuneration
Report in the FY20/21 annual
report for 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. HY 21/22 HY 20/21 %
GBPm GBPm
International Revenue
Stores 350.7 283.6 23.7
Online 84.6 62.7 34.9
At reported currency 435.3 346.3 25.7
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. HY 21/22 HY 20/21 %
GBPm GBPm
International Revenue
At constant currency 435.3 339.0 28.4
Impact of FX retranslation - 7.3
At reported currency 435.3 346.3 25.7
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
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.
Operating Operating Adjusting Operating profit/(loss) before
profit/(loss) profit/(loss) items the impact of adjusting items.
before (See note The Group considers this to
adjusting 3) be an important measure of
items Group performance 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
income income items impact of adjusting items.
before (See note The Group considers this to
adjusting 3) be an important measure of
items Group performance and is consistent
with how the business performance
is reported and assessed by
the Board and the Executive
Committee.
Finance costs Finance costs Adjusting Finance costs before the impact
before items of adjusting items. The Group
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.
Net interest Finance Finance The net of interest income
payable on income/costs income/ on subleases and interest
lease costs payable on lease liabilities.
liabilities (See note The measure allows the Board
4) and Executive Committee to
assess the impact of IFRS
16 Leases.
Net financial Finance Finance Calculated as net finance
interest income/costs income/ costs, excluding interest
costs on leases and adjusting items.
(See note The Group considers this to
4) 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
3) as disclosed on the face of
the consolidated income statement.
This measure is used in calculating
the return on capital employed
for the Group.
Ocado Retail EBIT(1) Not applicable Calculated as Ocado Retail
Limited Limited earnings before interest,
EBITDA tax, depreciation, amortisation,
impairment and exceptional
items.
Profit/(loss) Profit/(loss) Adjusting Profit/(loss) before the impact
before tax before tax items of adjusting items and tax.
and adjusting (See note The Group considers this to
items 3) be an important measure of
Group performance and is consistent
with how the business performance
is reported and assessed by
the Board and the Executive
Committee.
This is a measure used within
the Group's incentive plans.
Refer to the Remuneration
Report in the FY20/21 annual
report for explanation of
why this measure is used within
incentive plans.
Adjusted Earnings Adjusting Profit/(loss) after tax attributable
basic per share items to owners of the parent and
earnings (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.
This is a measure used within
the Group's incentive plans.
Refer to the Remuneration
Report in the FY20/21 annual
report for explanation of
why this measure is used.
Adjusted Diluted Adjusting Profit/(loss) 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
adjusting impact divided by the (loss)/profit
items (See note before tax and adjusting items.
3) This measure is an indicator
of the ongoing tax rate for
the Group.
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),
14) 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 14) strength of the Group's balance
Lease sheet position and is widely
liabilities used by credit rating agencies.
(see note
14)
Cash Flow Measures
Free cash Net cash See Financial The cash generated from the
flow after inflow from Review Group's operating activities
shareholder operating less capital expenditure,
returns activities cash lease payments and interest
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 from Review from the Group's operating
operating activities less capital expenditure
activities and interest paid, excluding
returns to shareholders (dividends
and share buyback).
This measure shows the cash
generated by the Group during
the year that is available
for returning to shareholders
and is used within the Group's
incentive plans.
Other Measures
Capital None Not applicable Calculated as the purchase
expenditure of property, plant and equipment,
investment property and intangible
assets during the year less
proceeds of asset disposals
excluding any assets acquired
as part of a business combination
or through an investment in
an associate.
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.
(1) EBIT is not defined within IFRS but is a widely accepted
profit measure being earnings before interest and tax.
INDEPENDENT REVIEW REPORT TO MARKS AND SPENCER GROUP PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
26 weeks ended 2 October 2021 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
financial position, the condensed consolidated statement of changes
in equity, the condensed consolidated statement of cash flows and
related notes 1 to 18. We have read the other information contained
in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the 26 weeks ended 2
October 2021 is not prepared, in all material respects, in
accordance with United Kingdom adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
9 November 2021
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END
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