TIDMMKS
RNS Number : 7607F
Marks and Spencer Group PLC
09 November 2022
Marks and Spencer Group Plc
Half Year Results for 26 Weeks Ended 1 October 2022
"STRONG TRADING PERFORMANCE AS M&S RESHAPES FOR GROWTH"
Strong trading performance
-- Pro t before tax & adjusting items GBP205.5m (2021/22: GBP269.4m)
-- Food sales up 5.6%; strong growth in franchise &
hospitality, with other categories well ahead of 19/20
-- Food adjusted operating profit GBP71.8m reflecting value investment and cost pressures
-- Clothing & Home sales(1) up 14.0% with store sales up
18.8%, online up 4.9% against strong comparatives
-- Clothing & Home adjusted operating profit GBP171.4m;
reflecting strong sales growth and full price mix
-- Ocado Retail loss of GBP0.7m (2021/22: profit GBP28.1m) as
demand reverts and capacity grows
-- International constant currency sales up 13.7%; operating profit before adj. items GBP39.0m
-- Statutory profit before tax of GBP208.5m (2021/22: GBP187.3m)
Reshaping for growth and increasing resilience to outperform in
the downturn
-- Food volume outperforms market; Gist acquisition completed
-- Clothing & Home rebuilding style and value, with growth in market share and profitability
-- Ocado Retail driving customer growth; re-energising proposition under new leadership
-- International building an increasingly global business through strong partnerships
-- Accelerating store rotation; strong pipeline to FY25 of 10
new full line and 27 new food stores
-- Digital and online investment driving growth; sales of third-party brands more than double
-- Cost reduction and efficiency programme building for FY24
-- Robust balance sheet and access to substantial liquidity
Stuart Machin, Chief Executive said:
"Trading in the first half has been robust with both businesses
growing ahead of the market, reflecting the beginnings of a
reshaped M&S. In Food, investment in trusted value has driven
top-line growth but short-term profit has been reduced, although
the acquisition of Gist gives us control of one of our biggest cost
and efficiency levers. Clothing has delivered a stand-out
performance from a market leading position in value with improving
style credentials. The programme to renew and rotate our store
estate is driving sales and quick paybacks, while the M&S App
now accounts for over a third of online Clothing & Home sales.
At Ocado Retail, the customer proposition is being re-energised
under new leadership. Underpinning our business is an improved
balance sheet with reduced debt and a strong cash position.
This progress means we face into the current market headwinds
with an increased resilience and level of confidence. Looking
beyond the current stormy weather, much is in our control and our
mandate is clear - to step up the pace, accelerate change, drive a
simpler, leaner business and invest in growth opportunities to
build a reshaped M&S."
Change
Group Results (26 weeks 1 October 2 October 21 vs 2021/22
ended) 22 (%)
Statutory revenue GBP5,538.2m GBP5,105.3m 8.5
Sales(1) GBP5,563.6m GBP5,112.9m 8.8
Operating pro t before
adjusting items GBP280.7m GBP363.2m (22.7)
Pro t before tax & adjusting
items GBP205.5m GBP269.4m (23.7)
Adjusting items GBP3.0m GBP(82.1)m (103.7)
Profit before tax GBP208.5m GBP187.3m 11.3
Profit after tax GBP166.7m GBP159.9m 4.3
Basic earnings per share 8.5p 8.2p 3.7
Adjusted basic earnings
per share 7.8p 12.1p (35.5)
Free cash ow GBP(215.5)m GBP287.6m n/a
Net debt GBP2.93bn GBP3.15bn (7.0)
Net debt excluding lease
liabilities GBP0.63bn GBP0.82bn (23.2)
----------- -------------- -----------
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.
Adjusted results are consistent with how business performance is
measured internally and presented to aid comparability. Refer to
adjusting items table below for further details.
(1) All references to 'sales' throughout this announcement are
statutory revenue plus the gross value of consignment sales
excluding VAT.
OUTLOOK
As we enter what is traditionally our strongest quarter the
business continues to trade well. Trading in the first four weeks
of the second half is in line with forecasts, with Clothing &
Home sales up 4.2%, Food sales up 3.0% and International up
4.1%.
Overall, we expect to deliver an adjusted profit before tax in
FY23 for our main businesses, including Gist, similar to the
expectations set out at our FY22 results. This excludes business
rates relief and the prior year contribution of Russia from the
base as well as Ocado Retail, which is now expected to record a
loss.
Across all M&S markets it is highly likely that conditions
will become more challenging in FY24. However, the far-reaching
changes made over the past few years, together with a reinvigorated
product offer and strong value for money credentials provide some
insulation from the gathering storm. In addition, the M&S
customer base has slightly advantaged demographics.
Under new leadership, steps are now being taken to accelerate
migration into growth channels - online and high performing modern
stores - whilst at the same time bringing forward plans to
streamline the business and reduce costs. The combination of
technology-driven efficiency gains, structural cost reduction,
supply chain efficiency and simplification is targeted to deliver
over c.GBP150m of cost savings in 2023/24.
The Group enters this period of uncertainty with a significantly
improved balance sheet position, with very low refinancing
requirements following several years of debt reduction. However,
given the macro outlook the board will defer consideration of
capital allocation policy and options for reinstating capital
returns to shareholders until nearer the year end.
M&S FOOD SALES OUTPERFORMANCE OFFSET BY VALUE INVESTMENT AND
COST PRESSURES
M&S Food outperformed the market on both value and volume,
but operating profit declined. We delivered resilient sales growth
of 5.6%, with LFL sales growth of 3.0%, in a period of market-wide
cost and price pressure. The business generated particularly strong
growth in hospitality and franchise sales compared with last year.
Sales excluding these areas grew 1.9% but remain substantially
ahead of pre-Covid levels in line with our strategy to broaden the
reach of the business.
Operating profit before adjusting items was GBP71.8m as compared
to GBP124.0m in 2021/22 excluding GBP19.7m of business rates relief
received in the prior period. The combination of investment in
value and a first half weighted increase in operating costs led to
the reduction in margin to 2.2%, although this improved through the
period (Q1 2.0%, Q2 2.4%).
A reduction in gross margin of 110bps reflected continued
investment in quality and price.
-- M&S Food did not pass through the full effect of
inflation in its cost of goods. This ran at 11% in the period,
which - net of cost reduction and product mix - impacted the
overall gross margin by c.70bps.
-- As demand patterns changed, waste and stock loss also
increased at the start of the period although these have now
normalised.
In addition, the business experienced significant cost growth,
with overall costs up 8.4% on last year (ex-rates relief),
resulting in a c.70bps reduction in margin.
-- This was partly driven by the annualisation of logistics
costs increases for fuel and transport in H2 last year, which
impacted cost growth by c.1.0%
-- In addition, the timing of investment in areas such as
technology, data and digital was first half weighted adding 3.4% to
cost growth
The acquisition of Gist Limited, which completed at the end of
the period, should also help alleviate these cost pressures as we
proceed with its integration into M&S.
Investing in trusted value: The strategy for M&S Food is
always to provide higher quality, sustainably-sourced food at
outstanding prices. At a time when family budgets are under stress
it is a priority for us to sustain 'trusted value' and provide
assurance for our customers.
-- At the start of the year, 'Remarksable' value was relaunched
focusing investment on everyday lines offering M&S quality at
outstanding prices and the resulting demand has been very
strong.
-- The range also includes 'bigger packs, better value' on c.40
lines offering c.5% savings per unit volume and this month we
'locked' the prices of 100 family favourites through to 2023.
-- The Dine-In programme has been expanded to include the Gastro
range in an 'always on' family meal deal for four. At GBP12 this
offers a high-quality, great-value alternative to eating out.
Accelerating the pace of innovation : During the period c.900
new products were introduced, up 4% on last year.
-- Making M&S Collection the UK's leading premium tier for
taste in categories such as soup and a first-to-market introduction
of artisan sourdough in the in-store bakery. Overall bakery sales
have grown by 26% since 2019.
-- Resetting the soft drinks category over a hot summer, driving double digit growth.
-- Introducing top performing new 'food on the move' products
including 'falafel mezze' and 'bang bang' chicken salads.
Renewal roll-out performing well: The M&S Food strategy is
to shift to larger stores in the renewal format which offers
greater choice in core categories, appealing to a broader range of
customers.
-- New stores in the renewal format achieve higher sales density
and are more operationally efficient.
-- During the period 7 stores were converted to the new renewal
format. Food sales in the larger, full renewal format stores opened
in 2021 increased 17.8% in the period.
Taking control of the M&S Food supply chain : The
acquisition of Gist Limited was completed, enabling M&S to
address the significant headwind of supply chain costs.
-- The acquisition eliminates an onerous cost-plus management
contract and gives M&S control of its Food supply chain network
for the first time.
-- This creates immediate benefits, removing annual management
fees running at c.GBP25m and enables near-term productivity
improvements as costs are addressed. A programme of network
investment will be developed to create a modern, fit for purpose
operation reflecting the unique needs of the M&S Food supply
chain.
CLOTHING & HOME REBUILDING STYLE, VALUE AND
PROFITABILITY
M&S Clothing & Home delivered strong growth with total
sales up 14.0% and LFL sales up 13.7%. Full price sales
participation was broadly level on last year and well above the
historic average. Market share increased 50bps to 9.1% (source
Kantar 24 weeks ended 22nd September), and we generated growth
across categories and channels.
Store sales were up 18.8%. Growth was driven by stores in city
centres and shopping centres reflecting the return to more normal
trading patterns, although high streets continued to lag. Online
sales increased 4.9% and were 32% of total Clothing & Home
sales, with continued strong growth in traffic and increased
average order values, partly offset by higher returns rates.
Operating profit before adjusting items was GBP171.4m as
compared to GBP128.4m in 2021/22 excluding business rates relief of
GBP27.8m received in the prior period, an increase of 33%. Strong
first half net margins of 9.8% reflect the rebound in store sales,
a steady full price mix and operating leverage due to sales
growth.
Value for money and style improving with shape of buy: M&S
Clothing & Home continues to perform well on indicators of
improved value for money and style, with value perception leading
the market, and style perception steadily increasing.
-- The shape of buy has been improved, by removing duplication
and deepening core product programmes while also investing in
emerging growth categories such as Kidswear and brands.
-- Womenswear grew sales 15% in the period despite 5% fewer
options and the overall business had 276 lines achieving sales over
GBP1m in the first half. Sales in these lines are up 25% on
2021/22.
Strong growth in formal and event driven categories:
-- Womenswear generated particularly strong growth in dresses,
which were up by more than 50% and the 'holiday shop' also grew
strongly.
-- Men's formal shirts and smart wear were also up by more than
half, reflecting improved availability and customers' focus on key
occasions such as weddings, while casual sales also grew.
Clothing & Home renewal format encouraging: During the
period a full line renewal store was opened in Stevenage, with the
nearby legacy store in Welwyn Garden City closing.
-- The store features a more intuitive layout with all key
departments visible from the entrance and a redesign including
fitting rooms, lighting, navigation and flexible feature
displays.
-- Technology runs throughout the store, including self-service
checkouts in Clothing & Home, digital click and collect,
digital ordering in the café, and increased use of RFID to reduce
loss, improve stock accuracy and efficiency.
-- The store outperformed its business case in its first three
months of operation. It is attracting a younger shopper profile,
over indexing on kidswear, home and beauty and has high levels of
cross shopping.
Initial steps to unlock supply chain cost opportunity: Today,
the Clothing & Home supply chain has an end-to-end cost to
serve of c.15% which affords a substantial opportunity for
efficiency by transforming stock flow from source to shelf and
rapid replenishment back to shelf for returns. This includes:
-- Changing from a near 100% singles picking and singles
delivery process to one where a high proportion of product is
delivered in full launch and ratio packs whilst continuing to
reduce the proportion of hanging products towards carton fill.
-- Holding more stock upstream and at source and reducing
multiple handling of stock which adds labour cost, traps stock and
drives markdown.
-- Maximising the use of omni-channel capacity and capability to
fulfil online orders. A same-day click and collect pilot was
recently launched in 15 stores.
-- Improving returns processes to ensure returned stock is back
on sale at pace, increasing revenue recovery and availability.
Already this process has reduced from an average of 20 days to less
than 10.
OCADO RETAIL RE-ENERGISING UNDER NEW LEADERSHIP
Ocado Retail revenue declined 4.2% and the contribution to group
share of net loss was negligible at GBP(0.7)m.
Re-energising the customer proposition under new leadership:
During the pandemic, Ocado Retail experienced very strong trading
conditions, which translated into a strong profit performance.
-- Following this period of demand distortion, a renewed
attention is now required to reinforce Ocado Retail's unrivalled
proposition of market leading quality, service and choice
underpinned by M&S Food.
-- The business is now operating under a new leadership team
focused on restoring the core of the customer proposition. Initial
steps include the relaunch of the group's platform and front-end
website later this year and improved collaboration with M&S
Food to make more of the combined offer.
M&S financial period
2022/23 Q1 Q2 H1
---------------------- ------- ------ --------
Average orders per
week (k) 385 374 380
Retail revenue (GBPm
ex VAT) 557.5 531.5 1,089.0
Notes: Retail revenue comprises revenues from Ocado.com and
Ocado Zoom
Strong growth in new customers: Market conditions for all online
food companies are still normalising after the pandemic and as a
result basket sizes have reduced with the customer order pattern
having shifted back towards the end of the week.
-- Despite the decline in revenue, customer growth was strong at
17% as was growth in average orders per week at 5% as customers
reverted to smaller baskets and sought greater value in response to
inflationary pressures.
-- M&S's share of Ocado baskets performed well, increasing
their participation in sales, reflecting the value of M&S
product in difficult times.
Increased fixed costs and short-term headwinds : As previously
reported, increased fixed costs because of CFC capacity expansion
combined with higher fulfilment and delivery costs, including sharp
increases in the cost of utilities and dry ice weighed on
margin.
-- The impact of increased fixed costs will diminish as the CFCs ramp-up;
-- As online demand receded so competition for customer
acquisition intensified leading to unusually high marketing costs,
although these should be mitigated over time.
Capacity for substantial growth: The overall result in the near
term reflects a combination of post pandemic reversion, increased
capacity and cost inflation, the majority of which is expected to
be temporary.
-- These pressures are impacting on all online food businesses
but the strong continuing customer growth at Ocado Retail together
with the unexploited potential in the extended range and M&S
offer illustrate the future potential.
-- There is substantial scope for medium-term growth as the
customer proposition is reset and as a result of the more efficient
CFC pick operation.
DRIVING IMPROVED PRODUCTIVITY THROUGH STORE ROTATION
The objective for the M&S store estate is to create a more
focused group of high productivity full line stores, fit for
omni-channel retailing and a growing pipeline of bigger, fresher,
Food locations with high quality click and collect services. New
stores generate higher sales productivity and profitability and are
lower cost to operate.
Rotation improves the quality of earnings : As with most
retailers M&S has few stores which make a cash loss on a rent
adjusted basis. However, we continue to have a tail of low
productivity stores, with contribution margins in Clothing &
Home well below the estimated average of c. 22% and well below
estimated incremental online margins at c. 26%. As a result,
rotation out of the tail can improve profitability in the medium
term due to the increased contribution of new stores and the
recapture of sales online at a higher margin. To achieve our stated
profit and growth objectives, rotating into fewer high productivity
modern omni channel stores is critical and we aim to accelerate
this programme.
Grasping nettles to accelerate change: In the full line estate,
the aim is to accelerate a five-year plan to reduce the net store
base which currently totals 248 stores down to c.180 through
closures and relocations. During the first half 2 new full line
stores opened at Colchester and Stevenage and 3 were closed.
In the M&S Food estate, the ambition is to open up to c.100
new Food stores in new locations over the next five years in the
bigger, fresher Food format of 12-15,000 square feet with good
access and parking. During the first half 3 of these new Simply
Food stores opened at Banbridge, New Milton and Wyvern Derby.
The current pipeline of new openings over the period to FY25
includes 10 full line stores and 27 Food stores and the business
continues to actively market for new opportunities. New stores are
being secured on strong terms, with short leases and they are
generating substantially improved sales productivity compared with
legacy locations and quick paybacks on the net capital invested.
For instance, 2 stores were opened in H1 2021/22 at Paisley and
Sears Solihull. Following 12 months of trading, both are
outperforming their business cases and paying back the net capital
invested in just over 2 years.
Our recent experience confirms that the programme can be
accelerated by growing the pipeline of replacement stores, and
recapturing sales online and in existing nearby stores, whilst also
managing the cost-effective exit from legacy locations and leases.
During the period, we started a programme to increase recapture of
sales from closure stores to nearby stores and online by increasing
customer data capture and targeted marketing. In some cases, once
we have exited a legacy store, it is possible to sell the freehold
or long leasehold, while in others a residual liability remains to
the end of the lease term. However, we believe there are early
signs our property development team can reduce exit costs for these
sites.
Using technology to lower cost to serve: New stores offer a
better shopping environment with omni-channel services including
improved click and collect and returns and better use of RFID to
manage stock. At the same time our new full-line stores that opened
in 2019/20 and 2020/21 have a 130bps lower cost to serve than the
average full-line store due, amongst other things, to the reduced
need for costly singles replenishment given the increased rate of
sale and increased rates of self-checkout and contactless
returns.
Progress in asset management: Our property asset development
programme should generate capital to support our balance sheet from
redeveloping or co-developing high value sites such as Marble Arch,
Sauchiehall Street Glasgow, and Hammersmith.
The Planning Inquiry into the Marble Arch redevelopment is
progressing, and the business is very confident that the proposed
solution will produce an outstanding environmental and aesthetic
outcome that will be critical to the restoration of the western
precinct of Oxford Street which is in decline.
INVESTING IN DATA, DIGITAL AND OMNI-CHANNEL SERVICE
During the last three years M&S has invested substantially
in developing its ability to interact with customers seamlessly
online and in store and whilst enabling them to have product
delivered or returned through multiple different channels. We have
created a customer data engine containing a significant volume of
data and attributes relating to our customer base, quadrupled the
number of active app users to c.4m, relaunched and grown the Sparks
loyalty programme to c.16m members and invested in developing data
science capabilities across M&S.
These improvements have required substantial foundational
investment of more than GBP200m, largely expensed through the
P&L. However, this has supported the substantial growth of
online sales and is now starting to deliver sales traction through
increased personalisation and a better online and in store
experience.
Investment has been made in day-to-day activities such as
running the website, payment processing, Sparks giveaways and
staffing, and research into personalisation. This accounts for
c.40-50% of current year spend. In addition, growth investment is
focused on:
-- Digital product development in the current year including
scaling use of the M&S App, new drop ship capability, enhanced
stock visibility and the enhancement of the click and collect and
returns experience.
-- Sparks and personalisation developments including the new
delivery pass and Sparks Plus membership and a new decisioning and
recommendation platform.
-- Data and data science development including the migration to
our new enterprise data platform and training.
Moving to an omni-channel shopping experience: The objective of
the digital investment is to enable personalised customer
interaction to encourage customers to use all our sales channels
and services. Known customers who shop with M&S through both
the online and store channels spend significantly more than single
channel customers, while those with four digital relationships
through Sparks, M&S Bank, M&S.com and the App spend even
more.
Digital relationships Annual customer Retention Rate
spend (GBP)
----------------------- ---------------- ---------------
Unknown 82 41%
One 200 68%
Two 427 80%
Three 813 96%
Four 1431 99%
Driving growth through the App : Customers using the M&S App
account for almost a third of spend and we are able to sustain a
more timely and relevant dialogue with App users across all our
products and services.
-- Our objective is to double M&S App usage with a long-term
target of 10m users. Over the first half year active App users grew
to c.4m at period end vs c.3m last year, with the App now
accounting for over 32% of Clothing & Home online sales.
-- To drive further growth the business is working towards
launching a single digital identity across all M&S related
touch points from M&S.com to Sparks, to M&S Bank and
eventually including Ocado Retail. The goal is to make the M&S
App indispensable to customers and to improve marketing efficiency
across the business.
Becoming an attractive partner for brands: The combination of
over 30m M&S customers, substantial customer data and
engagement alongside omni channel purchase and return opportunities
provide a highly attractive potential platform for third party
brand partners.
-- From minimal activity three years ago Clothing, Home &
Beauty brands sales more than doubled to over GBP70m in the period
and important new partners such as Clinique and Dune were added. In
the new year, a broader sports offer will be launched.
-- A curated approach is driving new customers, frequency and
increased spend, while ensuring that majority of orders also
contain an M&S product.
-- To accelerate growth, drop-ship capability is being
introduced, which will remove the costly manual processing of
brands through the M&S network and improve customer
service.
Increasing personalisation : The business is starting to
generate substantial value from the customer data platform by
personalising offers and product recommendations, making repeat
purchase recommendations and using personalised language.
-- For instance, 'frequently bought together' recommendations
which show products most typically bought alongside the product
just added to basket, are estimated to be worth an incremental
GBP20m of revenue in the programme to date.
-- In Food we have demonstrated the ability to drive an
incremental GBP6m of revenue including from 'why not try' offers in
recent testing.
-- It is anticipated 20-25% of all digital interactions will be
personalised this year and we estimate that personalisation will
generate more than GBP100m of annualised incremental revenue for
the business. Returns are validated through controls such as 'a/b
testing' or creating 'hold-out/control groups' of similar customers
to measure performance/returns.
Making it easier to pay and spend at M&S : Our objective is
to provide customers with multiple options to pay at M&S and
access to appropriate credit opportunities. Sparks Pay was recently
launched, creating a digital credit account for Sparks members in a
simple one-click payment journey.
BUILDING GLOBAL M&S THROUGH STRONG PARTNERSHIPS
International revenue increased 13.7% at constant currency and
the business generated an operating profit before adjusting items
of GBP39.0m as compared with GBP35.9m in 2021/22, which included a
contribution of GBP2.0m from Russia, which we have now exited.
Strong rebound in Clothing & Home : Growth was driven by
Clothing & Home sales in key markets including India, where
revenue doubled following the effects of Covid lockdowns on the
business last year. Food sales were adversely impacted by the exits
from the majority of our operations in France and our chilled
offering in the Czech Republic as well as on-going Brexit-related
disruption in the Republic of Ireland. On a constant currency
basis, overall store sales were up 19%, while online sales declined
9%, but were still up c.150% on pre-Covid levels.
Driving growth with key partners : We have an ambitious
programme of expansion with Reliance Retail through our India joint
venture. This includes increasing the product offer in growth
categories such as Kidswear, the global roll-out of Sparks, and
continuing to seek opportunities for new space with 3 new store
openings in the period. Partner demand in the Middle East and Asia
was also robust with orders recovering from the impact of Covid
lockdowns last year, and as the business invested in trusted
value.
Improving operations in Europe : European online sales declined
reflecting subdued demand, although stores performance was robust.
Consignment trading with partners has now commenced and plans are
well advanced for EU-based fulfilment from a new logistics centre
in Croatia, increasing speed to market and reducing cost.
Recovering profitability in the Republic of Ireland : The
business in the Republic of Ireland generated a strong sales
performance in Clothing & Home, but the Food business continued
to be impacted by substantial costs and disruption related to EU
border processes. In time, the continued investment in automation
and substitution with Irish-sourced product will mitigate some of
these costs. To support the growth of the core business an
agreement has been signed for a five-store shop-in-shop trial with
roadside retailer Applegreen.
OUTLOOK
FY23
As we enter our traditionally strongest quarter, the business
continues to trade well. Trading in the first four weeks of the
second half is in line with forecasts, with Clothing & Home
sales up 4.2%, Food sales up 3.0% and International up 4.1%.
We are set up well for the peak trading period with improved
ranges, a strong pipeline of new product and improved value
positioning in both businesses. Although there are continued
expected pressures on spend and unseasonably warm weather is
delaying the change to autumn/winter buying, we think the peak
period will present a lot of opportunity for the business with the
added benefit of the unusually timed Football World Cup.
Costs will continue to be elevated although we will annualise
some cost increases seen in last year's Q3. We have good visibility
of all material cost increases for the balance of the year.
Overall, we expect to deliver an adjusted profit before tax in
FY23 for our main businesses, including Gist, similar to the
expectations set out at our FY22 results. This excludes business
rates relief and the prior year contribution of Russia from the
base as well as Ocado Retail, which is now expected to record a
loss.
Our expectations for capital expenditure for the year remain
unchanged. We anticipate around GBP400m of spend across the three
primary investment areas of technology, supply chain and the store
estate.
Setting up for FY24
We expect market conditions to become more challenging in FY24.
The combined impacts of the cost-of-living squeeze and the most
marked rise in the cost of doing business for many years are
creating pressure on margins industry-wide.
All parts of the retail sector will be affected, and this will
result in unviable capacity leaving the industry, creating
opportunities for the leaner players who remain. We believe that
the M&S positioning and the accelerated change underway, give
scope for greater resilience and we are very confident the business
will emerge with a strengthened market position and prospects for
growth.
Relative position of M&S customer and proposition
In highly uncertain market conditions, there is a large
variation in plausible forecasts for customer demand. Whilst we are
therefore planning on a material contraction in market demand the
M&S customer may prove more resilient than some market
commentators assume. Overall M&S has a broad base of over 30m
customers with on average, slightly higher incomes and age
demographics in both Clothing & Home and Food. A high
proportion of these are in above average paid jobs or retired.
Despite the recovery in demand since the pandemic and return to
travel these age groups shielded more and many retain a savings
cushion affording some resilience to the headwinds.
Clothing & Home has market share positions of more than 15%
in categories which are less acutely exposed to discretionary
spend, such as leggings, underwear, sleepwear and school uniforms.
Collectively these accounted for over 60% of Clothing & Home
sales in the past year more than twice their overall position in
the clothing market. The M&S Food business has higher market
shares in convenience shopping missions, which means its customer
proposition offers additional value beyond the weekly grocery
shop.
M&S Market
Categories Share(1)
----------------------------- -----------
Bras 35.6%
Other underwear (Women's) 35.4%
Knickers 29.8%
Women's Nightdresses/shirts 21.8%
Men's nightwear 21.4%
Men's underwear 21.3%
Men's casual trousers 20.7%
Men's separates 20.0%
Tights 20.0%
Women's formal trousers 18.9%
(1) Kantar 52 week rolling data to 22 September 2022
A strengthened value position in both businesses
M&S Food offers great value alternatives for customers
seeking to save money by reducing eating out. For those scratch
cooking, the relaunched Remarksable value range offers everyday
lines with M&S quality at competitive prices compared with
mainstream supermarkets. While the 'always on' Dine-In offers
restaurant quality prepared food for a family of four for just
GBP12.
Alongside this, Clothing & Home has made great strides on
value for money since 2018 and now leads the market according to
external benchmarks of customer perception, with a substantially
larger proportion of the clothing range below GBP30 than is the
case for key peers.
Substantial scope for cost savings
The M&S business is undoubtedly heading into tougher times.
But the pace of change has never been greater. Already, more than
c.GBP150m of cost savings have been identified and targeted in FY24
from areas including efficiency of retail operations and the supply
chain, optimisation of technology and digital spend and
simplification of the organisation. This will be supplemented
longer-term by shifting volume into growth channels and rotating
the store portfolio.
As outlined, in the Clothing & Home supply chain costs are
higher than some industry benchmarks, with potential for
optimisation across multiple areas including the returns cycle,
store replenishment processes and reconfiguring packaging to reduce
handling and shipping costs.
Food supply chain secondary logistics costs have risen by c. 60%
over the past four years from 3.7% to 4.9% of sales. In September,
the acquisition of Gist Limited was completed enabling M&S Food
to take control of its logistics network for the first time,
eliminating management fees and enabling the removal of duplicated
overheads and other productivity initiatives.
We are also assessing the potential benefits of shared transport
fleets across Clothing & Home and Food, to move to more
efficient refrigeration and accelerate the in-store LED lighting
programme.
Stronger balance sheet with substantial access to liquidity and
limited refinancing requirement
The Group enters this period of uncertainty with an improved
balance sheet position after several years of reducing debt. As at
the end of the half year, the business had cash of c.GBP770m and
committed facilities of GBP850m. There is limited unsecured
refinancing required in the next few years with GBP199m bonds
outstanding to be repaid in December 2023 and GBP350m in June 2025.
The lease liability has also reduced, with visibility for potential
further improvements.
For further information, please contact:
Investor Relations:
Fraser Ramzan: +44 (0)20 3884 7080
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
9 November 2022.
Stuart Machin, Katie Bickerstaffe and Eoin Tonge will host a
Q&A session at 9.45am on 9 November 2022:
Attendees must register in advance of the call. Registration
link here
A recording will be available for 48 hours after the call using
the following details:
UK Freefone: 0800 032 9687
UK Direct: 0207 136 9233
Replay Global Access link here .
Passcode: 54226499
Fixed Income Investor Conference Call:
This will be hosted by Eoin Tonge, Chief Finance Officer, at 2pm
on 9 November 2022:
Attendees must register in advance of the call. Registration
link here
A recording will be available for 48 hours after the call using
the following details:
UK Freefone: 0800 032 9687
UK Direct: 0207 136 9233
Replay Global Access link here .
Passcode: 74011905.
HALF YEAR FINANCIAL REVIEW
Financial Summary
26 weeks ended 52 weeks
ended
------------------------------------------------------------------- ----------
1 Oct 22 2 Oct 21 Change 2 Apr 22
vs 21/22
GBPm GBPm % GBPm
------------------------------- ---------- ---------- ---------- ----------
Group statutory revenue 5,538.2 5,105.3 8.5 10,885.1
Group sales 5,563.6 5,112.9 8.8 10,909.0
UK Food 3,317.5 3,143.0 5.6 6,639.6
UK Clothing & Home 1,749.7 1,534.6 14.0 3,332.2
International 496.4 435.3 14.0 937.2
Group operating profit
before adjusting items 280.7 363.2 (22.7) 709.0
UK Food 71.8 143.7 (50.0) 277.8
UK Clothing & Home 171.4 156.2 9.7 330.7
International 39.0 35.9 8.6 73.6
M&S Bank and Services (0.8) (0.7) 14.3 13.0
Share of result in associates
and joint ventures (0.7) 28.1 (102.5) 13.9
Interest payable on
lease liabilities (55.7) (58.9) (5.4) (115.6)
Net financial interest (19.5) (34.9) (44.1) (70.5)
Profit before tax &
adjusting items 205.5 269.4 (23.7) 522.9
Adjusting items 3.0 (82.1) (103.7) (131.2)
Profit before tax 208.5 187.3 11.3 391.7
Profit after tax 166.7 159.9 4.3 309.0
Basic earnings per share 8.5p 8.2p 3.7 15.7p
Adjusted basic earnings
per share 7.8p 12.1p (35.5) 21.7p
Dividend per share - - -
Net debt GBP2.93bn GBP3.15bn (7.0) GBP2.70bn
------------------------------- ---------- ---------- ----------
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.
Group results
Group sales were GBP5,563.6m. This was an increase of 8.8%
versus 2021/22, driven by Food sales up 5.6%, Clothing & Home
sales up 14.0% and International sales up 14.0%. Statutory revenue
in the period was GBP5,538.2m, an increase of 8.5% versus 2021/22.
The Group generated an adjusted profit before tax of GBP205.5m and
a statutory profit before tax of GBP208.5m.
The Group benefited from Covid-related UK business rates relief
of GBP47.5m in 2021/22, which was not repeated this year.
Statutory profit before tax includes total net credit for
adjusting items of GBP3.0m.
For full details on adjusting items and the Group's related
policy, see notes 1 and 3 to the financial information.
UK: Food
UK Food sales increased by 5.6%, driven by recovery of our
franchise and hospitality businesses following the disruption of
the pandemic, as well as higher average selling prices. Excluding
franchise and hospitality, sales grew 1.9%.
Change vs 21/22 % Q1 Q2 H1
----------------------------------- ---- ---- ----
Food 6.6 4.5 5.6
Food like-for-like sales 3.4 2.5 3.0
Food ex franchise and hospitality 1.9 1.9 1.9
M&S Food reported sales do not benefit from a direct online
grocery presence, with these sales instead reported through Ocado
Retail .
2 Oct Change
1 Oct 21 vs 21/22
26 weeks ended 22 %
------------------------------ ------------- -------- ----------
Footfall, m (average/week) 10.2 9.5 7.4
Transactions, m (average/week) 8.8 7.4 18.9
Basket value inc VAT
(GBP) 14.5 15.9 -8.8
----------------------------------- -------- -------- ----------
Total sales ex VAT
GBPm(1) 3,317.5 3,143.0 5.6
(1) Includes M&S.com
Transactions increased year-on-year, driven by the recovery of
our hospitality and franchise businesses. However, given the
typically smaller basket size of transactions in these parts of our
business, this has led to a reduction in overall basket value.
Sales vs 2021/22 Q1 Q2 H1 Sales vs 2021/22 (%) Q1 Q2 H1
(%)
------------------ --- --- --- ------------------------------------ ---
Retail parks 7 3 5 Franchise travel (rail/air/roadside) 114 47 72
Simply Food 2 3 2 City centre 20 14 17
------------------------------------ ---
High street 3 1 2 Total 45 26 35
Franchise fuel - 4 2
------------------ --- --- ---
Total 3 2 3
1 Oct 2 Oct 21 Change
22 GBPm vs 21/22
26 weeks ended GBPm %
------------------- -------- --------- ----------
Sales(1) 3,317.5 3,143.0 5.6
Operating profit
before adjusting
items 71.8 143.7 -50.0
Operating margin 2.2% 4.6% -240bps
(1) 'Sales' is equal to revenue within the Food business.
The Food business in total generated operating profit before
adjusting items of GBP71.8m compared with GBP143.7m in 2021/22,
with last year's result benefitting from GBP19.7m of UK business
rates relief.
The table below sets out the drivers of the movement in Food
operating profit margin before adjusting items.
Operating profit margin %
before adjusting items
----------------------------- ------
2021/22 4.6
Gross margin (1.1)
Store staffing 0.2
Other store costs (0.7)
Distribution and warehousing (0.5)
Central Food costs (0.3)
----------------------------- ------
2022/23 2.2
----------------------------- ------
-- Gross margin decreased c.110bps primarily driven by cost
inflation and investment in price. Higher stock loss added to
margin pressures, although this improved over the period. These
impacts were partly offset by an improved margin mix from our
recovering hospitality business.
-- Store staffing costs decreased c.20bps, primarily driven by
retail restructuring efficiencies enabled by technology
improvements in store, partly offset by investment in colleague pay
rates.
-- Last year, the Food business received c.GBP19.7m business
rates relief from the UK government which was not repeated this
year. This, along with inflation in electricity, gas and other
store running costs, drove a c.70bps increase in other store costs
(c.60bps relating to rates relief).
-- Distribution and warehousing costs increased c.50 bps as a
result of investment in colleague pay rates and higher fuel, partly
offset by productivity efficiencies and lower utilisation of agency
workers.
-- Central Food costs increased c.30bps, driven by investments
in technology, data and digital initiatives, including cloud and
other supporting infrastructure, as well as marketing spend.
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 29 May 2022 and 28 August 2022.
Q1 Q2 H1
--------------------------- ----- ---- -----
Revenue growth vs 2021/22
(%) -9.8 2.7 -4.2
Active customers (k) 867 946 907
Average orders per week
(k) 385 374 380
Notes: Retail revenue comprises revenues from Ocado.com and
Ocado Zoom. Average orders per week refers to results of
Ocado.com
Revenue declined -4.2% over the 26 weeks to 28 August 2022.
While active customer and order numbers have grown, basket sizes
have continued to decline to pre-pandemic levels and as consumers
seek value-for-money items in the inflationary environment. Revenue
performance in the second quarter improved as we annualised the
closure of our Erith CFC (customer fulfilment centre) after the
fire in July 2021.
GBPm 26 weeks 26 weeks Change
ended 28 ended 29 %
Aug 22 Aug 21
-------------------------------- ---------- ---------- -------
Revenue 1,089.0 1,136.3 -4.2
EBITDA before exceptional
items 9.8 80.7 -87.9
Exceptional items 31.2 3.4 817.6
Depreciation and amortisation (28.5) (19.3) 47.7
-------------------------------- ---------- ---------- -------
Operating profit 12.5 64.8 -80.7
(Loss)/profit after
tax (1.3) 56.3 -102.3
-------------------------------- ---------- ---------- -------
M&S 50% share of (loss)/profit
after tax (0.7) 28.1 -102.5
Exceptional items are defined within the Ocado Group plc Annual
Report and Accounts 2021.
Ocado Retail EBITDA before exceptional items was down,
reflecting the smaller baskets, under-utilised CFC capacity and
higher fulfilment and delivery costs. These offset a reduction in
administration costs reflecting the release of management long-term
incentive provisions given current trading.
Ocado Retail recognised GBP31.2m of net exceptional items before
tax, predominantly relating to the insurance income for Andover and
Erith CFCs (GBP26.4m) and amounts relating to a change in
accounting treatment for one of our CFCs (GBP6.8m) offset by costs
relating to the development and introduction of IT systems as we
transition away from Ocado Group IT services, tools and support
(GBP1.9m).
As a result of lower EBITDA and net exceptional costs, M&S
Group share of Ocado Retail loss after tax was GBP(0.7)m.
UK: Clothing & Home
Clothing & Home sales increased 14.0% with continued
recovery of store sales back towards pre-Covid levels, and a robust
performance by the online business.
Change vs 21/22 % Q1 Q2 H1
------------------------------- ----- ----- -----
Clothing & Home sales 18.2 10.3 14.0
Clothing & Home like-for-like
sales 17.6 10.2 13.7
Clothing & Home stores
sales 24.3 14.0 18.8
Clothing & Home online
sales 7.0 2.9 4.9
------------------------------- ----- ----- -----
Clothing & Home statutory
revenue 17.1 9.2 12.9
To enable greater insight into these movements, we are providing
further detail on the performance of each channel.
Online
2 Oct Change vs
26 weeks ended 1 Oct 22 21 21/22 %
-------------------- ------------------- -------------- ----------
Traffic (m)(1) 204.0 182.9 11.5
Conversion (%)(2) 7.0 7.3 (30) bps
Average order value inc VAT
pre returns (GBP) 59.4 55.6 6. 8
Returns rate (%) 30.3 25.6 (470) bps
--------------------------------- ------ -------------- ----------
Sales ex VAT GBPm 554.1 528.4 4.9
(1) Traffic: the number of site visits to M&S.com and the
app.
(2) Conversion: the number of orders as a % of the number of
site visits.
Following strong performance last year, online sales remained
solid with growth throughout the period despite a tough market
backdrop. Average order value grew almost 7% reflecting higher
average selling prices, largely driven by mix.
The online returns rate increased year-on-year due to the
introduction of third-party brands which have a higher returns rate
and changes in product mix and customer behaviour. However,
compared to a pre-covid returns rate of 28.8%, the increase is
driven predominantly by the increase in third-party brand
sales.
Stores
2 Oct Change vs
26 weeks ended 1 Oct 22 21 21/22 %
---------------------- --------------------- -------- ----------
Footfall, m (average/week) 4.4 3.7 18.9
Transactions, m (average/week) 1.7 1.6 6.3
Average basket value inc VAT
pre returns (GBP) 37.7 35.0 7.7
----------------------------------- -------- -------- ----------
Sales ex VAT GBPm 1,195.6 1,006.2 18.8
UK Clothing & Home store sales increased 18.8%, with all
store formats seeing an improvement in sales year-on-year, also
supported by higher average selling prices and mix. Average weekly
footfall was up 18.9% following Covid restrictions lifting during
Q1 last year, contributing to an increase in transactions.
Sales vs 2021/22 Q1 Q2 H1
%
------------------ ----- ----- -----
City Centre 49 31 39
Shopping centre 42 22 31
Retail Park 19 13 16
Outlet 20 9 14
High Street 8 7 7
------------------ ----- ----- -----
Total Clothing &
Home stores 24.3 14.0 18.8
Total Clothing & Home
The Clothing & Home business in total generated an operating
profit before adjusting items of GBP171.4m compared with GBP156.2m
in 2021/22, with last year's result benefitting from GBP27.8m of UK
business rates relief.
1 Oct 22 2 Oct Change
GBPm 21 vs 21/22
26 weeks ended GBPm %
------------------------------- ------------ -------- ----------
Statutory revenue before
adjusting items 1,724.3 1,527.0 12.9
Sales 1,749.7 1,534.6 14.0
Operating profit before adjusting
items 171.4 156.2 9.7
Operating margin 9.8% 10.2% -40bps
The table below sets out the drivers of the movement in Clothing
& Home operating profit before adjusting items for the total
segment and by channel.
Operating profit margin Total Online Stores
before adjusting items % % %
----------------------------- ------ ------- -------
2021/22 10.2 10.2 10.1
Gross margin (1.5) (2.9) (0.9)
Store staffing 0.4 0.4 0.8
Other store costs (0.5) 0.3 (0.4)
Distribution and warehousing 0.9 0.4 0.7
Central Clothing &
Home costs 0.3 (1.5) 0.8
----------------------------- ------ ------- -------
2022/23 9.8 6.9 11.1
----------------------------- ------ ------- -------
Overall across the Clothing & Home cost base, the impact of
inflation and investments has been offset by increased leverage
from the sales increase year-on-year, leading to favourable
movements in costs as a percent to sales.
-- Gross margin decreased c.150bps partly driven by headwinds in
raw materials, the unhedged portion of currency purchases and
freight. The growth in our third-party brands business, which is
predominantly online, also has an additional dilutive impact on
gross margin.
-- Store staffing decreased c.40bps primarily driven by retail
restructuring efficiencies enabled by technology improvements in
store, partly offset by the investment in colleague pay rates.
-- Last year, the Clothing & Home business received c.GBP28m
business rates relief from the UK government which was not repeated
this year. This, along with inflation in electricity, gas and other
store running costs, partially offset by better cost leverage from
higher sales drove a c.50bps increase in other store costs
(c.160bps relating to rates relief). Both these cost pressures more
heavily impact our stores business.
-- Distribution and warehousing decreased c.90bps, as better
cost leverage from higher sales, along with a favourable delivery
mix offset cost inflation and increased expenditure to service
third party brands.
-- Centr al Clothing & Home costs decreased c.30bps driven
by better cost leverage from higher sales. This offset increased
investment in technology, data and digital initiatives and
additional costs to support brands. These investments are all
heavily weighted to our online business when allocated by
channel.
International
International sales increased 13.7% at constant currency ("CC"),
driven by a strong recovery in India after the easing of Covid
trading restrictions and solid growth in the Middle East. Our
European business was impacted by challenging economic trading
conditions, with the rationalisation of markets across France and
Russia and a highly promotional online market, partly offset by
strong store performance in Ireland.
Store sales increased 19% as we annualise on FY22 Q1 lockdowns
across India and Ireland and
customers return to pre Covid buying habits. Online sales
decreased 8.6% but remain in substantial growth on 19/20.
Change vs 21/22 % Q1 Q2 H1 H1
CC CC CC Reported
------------------- ----- ----- ----- ----------
Total sales 16.9 10.9 13.7 14.0
26 weeks ended 1 Oct 2 Oct Change Change
22 21 vs 21/22 vs 21/22
Sales(1) GBPm GBPm % CC %
----------------- ------- ------ ---------- ----------
Clothing & Home 365.7 296.9 23.2 22.3
Food 130.7 138.4 (5.6) (5.0)
Total 496.4 435.3 14.0 13.7
----------------- ------- ------ ---------- ----------
Memo: Online
sales 78.4 85.3 (8.1) (8.6)
(1) 'Sales' is equal to revenue within the International
business.
The strong Clothing & Home sales performance was driven by
post-Covid recovery in India and Ireland, which was heavily
impacted by lockdowns last year, and strong shipments to the Middle
East, despite the exit from Russia.
Food sales declined due to the exits of the majority of our
French franchise business and the chilled business in the Czech
Republic, and the continuing impact of EU-related border issues on
the island of Ireland. Excluding France, sales were level with
2021/22.
Operating profit before adjusting items was up 8.6% to GBP39.0m,
showing strong recovery and resilience despite market exits and
continued EU-border related headwinds.
The table below sets out the drivers of the movement in
International operating profit margin before adjusting items.
Operating profit margin %
before adjusting items
------------------------------- --------
2021/22 8.2
Gross margin 0.9
Store staffing 0.5
Other store costs (1.5)
Distribution and warehousing (0.2)
Central International -
costs
2022/23 7.9
------------------------------- --------
-- Gross margin increased c.90bps largely driven by recovery of
Clothing & Home store sales post-covid in India and Ireland,
improving margin mix.
-- Store staffing decreased c.50bps due to better fixed cost leverage from higher sales.
-- Last year, the International business received government
relie f in owned markets and rent concessions in India which were
not repeated this year (c.GBP6.5m). This, along with rising energy
prices, resulted in a 150bps increase in other store costs.
-- Distribution and warehousing increased c.20bps primarily
driven by cost inflation and higher operational and administrative
cost s.
-- Central International costs increased in line with sales as
stores returned to a fully operational state post lockdowns.
M&S Bank and Services
M&S Bank and Services loss before adjusting items was up
GBP0.1m to GBP(0.8)m . An increase in the bad debt provision due to
the deterioration of the macro-economic environment was only partly
offset by an increase in the demand for travel money and an
increase in credit card sales.
Net finance cost
52 weeks
26 weeks ended ended
1 Oct 2 Oct Change 2 Apr
22 21 vs 21/22 22
GBPm GBPm GBPm GBPm
------------------------------- ------- ------- ---------- ---------
Interest payable (37.9) (44.7) 6.8 (85.1)
Interest income 8.5 6.9 1.6 9.6
Net interest payable (29.4) (37.8) 8.4 (75.5)
Pension net finance income 14.2 6.4 7.8 13.2
Unwind of discount on
Scottish Limited Partnership
liability (2.4) (1.7) (0.7) (4.4)
Unwind of discount on
provisions (1.9) (1.8) (0.1) (3.8)
Net financial interest (19.5) (34.9) 15.4 (70.5)
Net interest payable
on lease liabilities (55.7) (58.9) 3.2 (115.6)
Net finance costs before
adjusting items (75.2) (93.8) 18.6 (186.1)
Adjusting items included
in net finance costs 112.2 (0.9) 113.1 5.6
Net finance costs 37.0 (94.7) 131.7 (180.5)
------------------------------- ------- ------- ---------- ---------
Net finance costs before adjusting items decreased GBP18.6m to
GBP75.2m. This was driven by higher pension finance income due to
the higher IAS 19 pension surplus in March 2022 compared with March
2021, as well as lower interest on our outstanding bonds as a
result of the partial buyback of our 2023 and 2025 maturities in
May 2022.
Group profit before tax and adjusting items
Group profit before tax and adjusting items was GBP205.5m, down
23.7% on 2021/22. The profit decrease was largely due to a decline
in Food and Ocado Retail, offset by an increase in Clothing &
Home and International operating profits.
As a reminder, Group profits in H1 2021/22 benefitted from
GBP47.5m UK business rates relief.
Group profit before tax
Group profit before tax was GBP208.5m, up GBP21.2m on 2021/22.
This includes a net credit for adjusting items of GBP3.0m (2021/22:
charge of GBP82.1m).
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 52 weeks
ended
------------------------------------------------------------------------- ---------
1 Oct 2 Oct Change 2 Apr
22 21 vs 21/22 22
GBPm
GBPm GBPm GBPm
------------------------------------------- ------- ------- ---------- ---------
Strategic programmes - UK store
estate (26.3) (58.1) 31.8 (161.4)
Strategic programmes - Organisation (14.6) 1.9 ( 16.5) 14.3
Strategic programmes - UK logistics - (1.7) 1.7 21.9
Strategic programmes - International
store closures and impairments - - - 0.4
Store impairments and other property
charges (36.3) - (36.3) 60.0
Acquisition of Gist Limited (24.4) - (24.4) -
Remeasurement of contingent consideration
including discount unwind 112.2 (0.9) 113.1 5.6
Amortisation and fair value adjustments
arising as part of the investment
in Ocado Retail Limited (7.0) (25.4) 18.4 (32.5)
M&S Bank charges (1.0) (1.0) - (16.0)
Franchise restructure 0.4 (11.9) 12.3 (41.3)
Directly attributable (gains)/expenses
resulting from the Covid-19 pandemic - 15.0 (15.0) 17.8
Adjustments to profit before
tax 3.0 (82.1) 85.1 ( 131.2)
Adjusting items were a net credit in the period of GBP3.0m.
A charge of GBP26.3m has been recognised in relation to store
closures identified as part of UK Store Estate rotation plans. The
charge reflects a revised view of latest store exit routes,
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.
A non-cash charge of GBP14.6m has been recognised within the
organisational change strategic programme relating to the updating
of assumptions regarding the sub-let of previously closed Merchant
Square offices.
A non-cash charge of GBP36.3m has been recognised in relation to
store impairments, driven by an increase in discount rate as a
result of changes in the macro-economic environment.
A charge of GBP24.4m has been recognised relating to the
acquisition of Gist to transform our supply chain; GBP18.2m of
charges relate to the settlement of our pre-existing relationship
with Gist Limited and there were GBP6.2m of other costs,
predominantly GBP5.7m of transaction costs incurred.
A credit of GBP112.2m has been recognised in the period,
representing the revaluation of the contingent consideration
payable of GBP190.7m (GBP156.3m plus interest) for the investment
in Ocado Retail Limited. Whilst we have reflected a change in the
fair value of the final contingent consideration liability, we are
discussing the matter with Ocado Group plc and a range of outcomes
is possible.
A non-cash charge of GBP7.0m has been recognised with respect to
the amortisation of intangible assets acquired on the purchase of
our share in Ocado Retail partly offset by the related deferred tax
credit.
Charges of GBP1.0m have been incurred relating to M&S Bank,
primarily due to the insurance mis-selling provision.
In 2021/22, the Group announced the restructure of our franchise
operations in France in response to increased EU border costs and
recognised a charge for GBP10.3m of closure costs. Following
finalisation of costs, GBP0.4m of the provision has been released,
with no future costs currently expected.
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 24.8% (last half year 12.4%; last full year 18.2%). This
is higher than the UK statutory rate primarily due to the impact of
the recapture of tax relief on SLP distributions, which have
resumed in the year, and non-taxable Ocado losses.
The effective tax rate on adjusting items is 303.3% (last half
year 7.2%; last full year 9.6%). This has been distorted by the
GBP(112.2)m credit relating to the remeasurement of the Ocado
contingent consideration. Excluding the Ocado contingent
consideration remeasurement would reduce the ETR on adjusting items
to 9.0%.
Overall, the effective tax rate on (loss)/profit before taxation
was 20.0% (last half year 14.6%; last full year 21.1%).
Earnings per share
Basic earnings per share was 8.5p (2021/22: 8.2p), due to the
increase in profit year-on-year. The weighted average number of
shares in issue during the period was 1,962.4m (2021/22:
1,957.6m).
Adjusted basic earnings per share was 7.8p (2021/22: 12.1p) due
to lower adjusted profit year-on-year.
Cash flow
26 weeks ended 52 weeks
ended
------------------------------------------------------------------------- ----------
1 Oct 2 Oct Change 2 Apr 22
22 21 vs 21/22
GBPm GBPm GBPm
------------------------------------- ---------- ---------- ---------- ----------
Adjusted operating profit 280.7 363.2 (82.5) 709.0
Depreciation and amortisation
before adjusting items 250.6 253.9 (3.3) 510.7
Cash lease payments (174.0) (173.1) (0.9) (344.3)
Working capital (148.8) 111.5 (260.3) 239.7
Defined benefit scheme pension
funding (36.9) (36.3) (0.6) (36.8)
Capex and disposals (183.6) (125.5) (58.1) (213.5)
Financial interest and taxation (85.4) (52.6) (32.8) (87.6)
Acquisitions, investments,
and divestments (98.7) (17.8) (80.9) (41.4)
Employee-related share transactions 15.0 18.7 (3.7) 39.1
Share of (profit)/loss from
associate 0.7 (28.1) 28.8 (13.9)
Adjusting items outflow (35.1) (26.3) (8.8) (61.8)
Free cash flow (215.5) 287.6 (503.1) 699.2
Dividends paid - - -
Free cash flow after shareholder
returns (215.5) 287.6 (503.1) 699.2
Opening net debt excluding
lease liabilities (420.1) (1,110.0) 689.9 (1,110.0)
Free cash flow after shareholder
returns (215.5) 287.6 (503.1) 699.2
Exchange and other non-cash
movements excluding leases 7.2 (1.6) 8.8 (9.3)
Closing net debt excluding
lease liabilities (628.4) (824.0) 195.6 (420.1)
Opening net debt (2,698.8) (3,515.9) 817.1 (3,515.9)
Free cash flow after shareholder
returns (215.5) 287.6 (503.1) 699.2
Decrease in lease obligations 109.9 107.9 2.0 216.0
New lease commitments and
remeasurements (141.6) (38.2) (103.4) (100.6)
Exchange and other non-cash
movements 17.3 4.4 12.9 2.5
Closing net debt (2,928.7) (3,154.2) 225.5 (2,698.8)
The business had a free cash outflow of GBP(215.5)m, largely
driven by lower EBITDA generation, a working capital outflow,
increased capital expenditure and the acquisition of Gist. For
further detail on working capital movements and capex and disposals
refer to the sections below.
Defined benefit scheme pension funding of GBP36.9m reflects the
agreed SLP interest distribution to the pension scheme.
Increased financial interest and tax payments of GBP32.8m were
principally due to the resumption of UK corporation tax payments in
the period. No UK corporation tax was paid in the comparative
period due to utilisation of FY21 tax losses.
Acquisitions, investments and divestments were driven
principally by the payment of GBP95.4m relating the acquisition of
Gist, net of cash received.
Employee-related share transactions decreased due to a reduction
in anticipated colleague incentive scheme charges.
Adjusting items cash outflow was GBP35.1m. This included
GBP20.0m relating to the exit of the Russian franchise business,
GBP11.9m relating to the UK store estate strategy, GBP1.8m for the
Gist acquisition transaction fees and GBP1.0m relating to the
M&S Bank insurance mis-selling provisions.
Working capital
The business had a cash outflow from working capital of
GBP148.8m which was higher than anticipated due to phasing. This
partly related to a decrease in payment terms for our Clothing
& Home suppliers as anticipated. In addition, stock increased
over the period in our Clothing & Home, Food and International
businesses driven by both cost price inflation and increased units
as we build our holding in advance of the peak trading period
across all our main businesses.
Alongside this, quicker supply chain lead times than last year
in Clothing & Home resulted in early arrival of stock. However,
overall in Clothing & Home, despite the higher stock value at
cost, units are lower than pre-covid levels.
Capital expenditure
26 weeks 26 weeks Change
ended ended vs 21/22
1 Oct 2 Oct GBPm
22 21
GBPm GBPm
---- -------------------------- ------------ --------- ----------
UK store remodelling 26.0 27.5 (1.5)
New UK stores 20.8 19.3 1.5
International 5.5 5.0 0.5
Supply chain 16.0 14.9 1.1
IT and M&S.com 40.1 23.0 17.1
Property asset replacement 42.3 20.8 21.5
Capital expenditure before
property acquisitions and
disposals 150.7 110.5 40.2
Property acquisitions and
disposals - (2.2) 2.2
Capital expenditure 150.7 108.3 42.4
Movement in capital accruals 32.9 17.2 15.7
Capex and disposals as per
cash flow 183.6 125.5 58.1
------------------------------------- ------- --------- ----------
Group capital expenditure before disposals increased GBP40.2m to
GBP150.7m compared to 2021/22 due to increased investment in
property asset replacement and technology.
UK store remodelling costs related principally to 7 Renewals
during the half as well as upgrades to Clothing & Home
space.
Spend on new UK stores primarily related to opening of 2 new
Full Line stores (Stevenage and Colchester) together with 3 new
Simply Food stores.
Supply chain expenditure reflects continued investment in our
underlying base food infrastructure together with spend on
upgrading vehicles and other technology.
IT and M&S.com spend includes costs related to technology
replacement and upgrades in stores, continued investment in website
development and digital capabilities and further spend on upgrading
supply chain infrastructure.
Property asset replacement has increased in the current year
versus 2021/22, primarily driven the timing of spend last year,
which was weighted towards the second half the of the year due to
an in-depth review of the estate being carried out in H1 post the
pandemic. This includes roof works and replacement of fridges,
freezers, boilers, lifts and escalators.
Capital accruals were higher at the end of 2021/22 compared to
2020/21, as capital expenditure normalised towards pre-pandemic
levels after a year in which we had constrained spend for cash
conservation measures. This has resulted in a higher cash outflow
for capital expenditure in the period.
Net debt
Group net debt increased by GBP229.9m since the start of the
year driven by the free cash outflow and a net increase in lease
liabilities.
New lease commitments and remeasurements in the period were
GBP141.6m, largely relating to 5 new UK leases, the consolidation
of Gist Limited lease liabilities, lease additions in India, and UK
property and logistics liability remeasurements. This was offset by
GBP109.9m of capital lease repayments.
The composition of Group net debt is as follows:
26 weeks ended 52 weeks ended
------------------------------------------------------------------------- ---------------
1 Oct 22 2 Oct 21 vs 21/22 2 Apr 22
GBPm GBPm GBPm GBPm
-------------------------------------- ---------- ---------- --------- ---------------
Cash and cash equivalents 772.7 951.9 (179.2) 1,197.9
Medium Term Notes (1,396.0) (1,680.6) 284.6 (1,529.5)
Current financial assets and other 110.9 92.6 18.3 99.4
Partnership liability (116.0) (187.9) 71.9 (187.9)
Net debt excluding lease liabilities (628.4) (824.0) 195.6 (420.1)
Lease liabilities (2,300.3) (2,330.2) 29.9 (2,278.7)
- Full-line stores (902.1) (944.8) 42.7 (919.5)
- Simply Food stores (699.8) (719.4) 19.6 (712.8)
- Offices, warehouses and other (484.5) (466.9) (18.0) (449.5)
- International (213.9) (199.1) (14.4) (196.9)
-------------------------------------- ---------- ---------- --------- ---------------
Group net debt (2,928.7) (3,154.2) 225.5 (2,698.8)
Our medium term notes include five bonds, with maturities out to
2037, and the associated accrued interest. During the period we
bought back part of the 2023 and 2025 bonds, reducing our near-term
liquidity draws. The full breakdown of our maturities is as
follows:
Bond and maturity Value (GBPm)
date
------------------- -------------
Dec 2023, GBP 199
Jun 2025, GBP 350
May 2026, GBP 300
Jul 2027, GBP 250
Dec 2037, USD 194
------------------- -------------
Total principal
value 1,293
Other (1) 103
Total carrying
value 1,396
------------------- -------------
(1) Includes accrued interest and foreign exchange
revaluation
Full-line store lease liabilities include GBP209.7m relating to
stores identified as part of the UK store estate strategic
programme. Of the remaining full-line stores lease liability, the
liability-weighted average lease length is c.26 years, although the
average lease term to break is shorter at c.20 years. However,
these average lease lengths are skewed by five particularly long
leases we hold, with the longest of these having 134 years
remaining. These five leases, with a combined lease liability of
c.GBP108m, are not deemed probable for closure in our UK store
estate programme as they are currently trading well in locations we
wish to remain in. Excluding these five leases, the average term to
break of leases outside the programme is c.16 years.
Simply Food store lease liabilities include GBP24.9m relating to
stores identified as part of the UK store estate strategic
programme. Of the remaining lease liability, the average lease
length to break is c.10 years.
Within offices, warehouses and other lease liabilities,
GBP144.0m relates to the sublet lease on our Merchant Square
offices. Average lease length of all other offices and warehouses
to break is c.8 years.
International leases relate primarily to India (c.GBP105m) and
Ireland (c.GBP65m). Average lease length to break in India is close
to nil, as the majority of these leases are past the break point,
and so we have the flexibility to exit these at any time on several
months' notice. Average length to lease break or expiry in Ireland
is c.8 years.
Pension
At 1 October 2022, the IAS 19 net retirement benefit surplus was
GBP840.0m (2021/22: GBP734.2m). There has been a decrease of
GBP198.2m from the start of the year largely driven by revisions of
discount and inflation rates since the start of the period.
The most recent actuarial valuation of the Marks & Spencer
UK Pension Scheme was carried out as at 31 March 2021 and showed a
funding surplus of GBP687m. This is an improvement on the previous
position at 31 March 2018 (statutory surplus of GBP652m), 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).
The pension scheme is fully hedged for movements in gilt yields.
However, on an IAS 19 basis there is an inherent basis risk to the
scheme valuation, with the pension assets moving with underlying
movements in rates and scheme liabilities exposed to movements in
corporate bonds. In a normal period, this always results in some
dislocation between movements in the scheme assets and liabilities.
However, the recent economic volatility, particularly in bond
markets, led to a larger dislocation. Nevertheless, there has been
no material worsening of the scheme's overall funding position.
Subsequent to the end of the period, the Company agreed to
provide the scheme with a GBP250m short term liquidity facility to
meet excess collateral calls, as a result of the market volatility.
The facility has not been used and remains undrawn and expires on
19 January 2023.
Liquidity
At 1 October 2022, the Group held cash balances of GBP772.7m
(Full year 2021/22: GBP1,197.9m). In the period, as part of our
approach to liability management, the Group bought back c.GBP150m
of bonds due for maturity in 2023 and 2025.
The Group currently has an unused GBP850m revolving credit
facility which is due to expire in June 2025. With the facility
undrawn, the Group now has liquidity headroom of GBP1.6bn.
Dividend
At the full-year results in May 2022, we stated that the board
would consider the scale and timing of a resumption of dividend
payments closer to the year end. Consistent with that announcement,
we have not declared a dividend at these results.
Statement of financial position
Net assets were GBP3,013.3m at the period end, an increase of
3.3% since the start of the year largely due to free cash
generation.
Important Notice:
Statements made in this announcement that look forward in time
or that express management's beliefs, expectations or estimates
regarding future occurrences and prospects are "forward-looking
statements" within the meaning of the United States federal
securities laws. These forward-looking statements reflect Marks
& Spencer's current expectations concerning future events and
actual results may differ materially from current expectations or
historical results. Any forward-looking statements are subject to
various risks and uncertainties, including, but not limited to,
failure by Marks & Spencer to predict accurately customer
preferences; decline in the demand for products offered by Marks
& Spencer; competitive influences; changes in levels of store
traffic or consumer spending habits; effectiveness of Marks &
Spencer's brand awareness and marketing programmes; general
economic conditions including, but not limited to, those related to
the Covid-19 pandemic or a downturn in the retail or financial
services industries; acts of war or terrorism worldwide; work
stoppages, slowdowns or strikes; and changes in financial and
equity markets. For further information regarding risks to Marks
& Spencer's business, please consult the risk management
section of the 2022 Annual Report (pages 45-54).
The forward-looking statements contained in this document speak
only as of the date of this announcement, and Marks & Spencer
does not undertake to update any forward-looking statement to
reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
- Ends -
Principal risks and uncertainties
The principal risks and uncertainties (PRUs) which could impact
the Group's long-term performance were set out on pages 49-54 of
the Group's 2022 Annual Report and Financial Statements, a copy of
which can be found on the Group's website www.marksandspencer.com.
This disclosure also incorporated details of mitigating activities
relevant to each risk. Information on financial risk management was
also included on pages 165-175. An update on the PRUs is set out
below.
Business environment
The disclosure in the Annual Report and Financial Statements set
out the impact of three overarching events that have a pervasive
impact on the principal risks and uncertainties of the business -
the aftermath of the COVID 19 pandemic, the Russian invasion of
Ukraine and the increasingly acute cost of living crisis. The
consequences of these events, the majority of which have
deteriorated significantly since the year-end, include:
-- energy price increases;
-- cost of goods inflation (including the impact of sterling
depreciating against the US dollar);
-- increasing interest rates;
-- a decline in consumer spending;
-- supplier resilience and viability;
-- global supply chain pressures and disruption to the supply of
natural, refined and manufactured materials and products;
-- the knock-on impact of industrial action in other sectors;
-- labour constraints;
-- ongoing global socio-political tensions and fragility;
-- the risk of a prolonged recession; and
-- changes in government policy.
All of these factors continue to influence the suite of
principal risks due to the inherent uncertainty of how long the
issues will continue and the severity of their impact. The specific
principal risks and uncertainties most impacted are The Uncertain
Trading Environment; Business Transformation; Business Continuity
& Resilience; Information Security; Corporate Compliance &
Responsibility; and Liquidity & Funding.
Change to our risk profile: Gist
In addition to the factors above, the key change in the business
risk profile since the year end is the acquisition of Gist. While
this gives greater control of our food logistics operations, it
will add an additional layer to a number of our existing principal
risks. This includes integrating, embedding and operating the
processes of a logistics business under M&S ownership,
achieving the anticipated synergies, the legal and regulatory
obligations of managing a logistics network, environmental
management of the estate and fleet, additional cyber security risk
from the introduction of new systems into the M&S environment,
successful onboarding of new colleagues, and the management of the
inherited service to other retailers. The specific principal risks
and uncertainties most impacted by the acquisition are Business
Transformation; Business Continuity & Resilience; Talent,
Culture & Capability; Information Security; Corporate
Compliance & Responsibility; and Climate Change &
Environmental Responsibility.
Following completion of the transaction on 30(th) September, a
full assessment of the mitigating activities to manage these risks
has commenced as part of the overall business integration
activities.
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 2 April 2022 and, while the broad risk categories
disclosed remain consistent, underlying elements of some have
changed as a consequence of the external issues described above and
the acquisition of Gist. The order of the principal risks and
uncertainties has also been amended to reflect the Board's current
assessment of priority.
Our summary principal risk statements are set out below - the
numbers in brackets show the risk order included in the 2022 Annual
Report and Financial Statements:
1 (1) An uncertain trading environment: Our ability to deliver improvements
in trading performance and invest in value could be significantly
affected by the individual or aggregate impact of an increasingly
complex set of external factors. The worsening cost of living
crisis, the invasion in Ukraine and aftermath of the pandemic
(as set out above), alongside the potential for further geo-political
and economic uncertainties (including interest rate and foreign
exchange movements) have combined to generate a difficult and
unpredictable trading environment. In this environment, an inability
to effectively manage the cost base of the business would also
impact future performance.
2 (2) Business transformation: A failure to prioritise, accelerate
and successfully implement the suite of critical transformation
projects could impact medium- and longer-term growth ambitions.
These include modernising our supply chain and logistics operations
(including the successful integration of the Gist acquisition),
improving the IT infrastructure and underlying systems, and reshaping
and modernising our UK store estate. While each initiative is
individually significant and has its own inherent risks, the
aggregate impact of simultaneously delivering these challenging
projects could also create further risks to successful implementation.
----------------------------------------------------------------------------
3 (3) Ocado Retai l: A failure to effectively manage the strategic
and operational relationship with Ocado Retail and/or Ocado Group
could significantly impact the value of our investment, the achievement
of our multi-channel food strategy, our brand, trading performance
and our ability to deliver shareholder value.
----------------------------------------------------------------------------
4 (6) Business continuity and resilience : Significant operational
failures or resilience issues at key business locations, such
as Castle Donington (our primary online Clothing & Home distribution
centre), at any of our key international sourcing locations or
in the recently acquired food logistics network, could result
in significant business interruption. More broadly, an inability
to effectively respond to global events, such as the invasion
of Ukraine, a shortage of raw materials or other products used
in our business, or significant supply chain disruption and/or
a resurgence of the pandemic could also impact business performance.
----------------------------------------------------------------------------
5 (4) Talent, culture and capability: An inability, individually or
collectively, to:
* attract, retain and develop the right talent, skills
and capabilities, particularly for key/specialist
roles;
* successfully respond to labour cost pressures;
* meet the expectations of the post-pandemic labour
market; or
* achieve cultural change to respond to the challenges
being faced
could impact the delivery of core operational activities and
longer-term strategic objectives, including aspects of our transformation
programme.
----------------------------------------------------------------------------
6 (7) Product safety and integrity: Failure to prevent and/or effectively
respond to a food or product safety incident, or to maintain
their integrity, could impact customer confidence in our brand
and business performance.
----------------------------------------------------------------------------
7 (8) Information security: Failure to adequately prevent or respond
to a data breach or cyber-attack could adversely impact our reputation,
result in significant fines, business disruption, loss of information
for our customers, employees or business and/or loss of stakeholder
and customer confidence.
----------------------------------------------------------------------------
8 (11) Liquidity and funding: An inability to maintain affordable short-
and long-term funding to meet business needs or to effectively
manage associated risks (such as hedging activities) could impact
our ability to transform at pace, as well as have an adverse
impact on business performance or viability.
----------------------------------------------------------------------------
9 (9) Corporate compliance and responsibility: A failure to deliver
against our legal and regulatory obligations or broader corporate
responsibility commitments would undermine our reputation as
a responsible retailer, may result in legal exposure or regulatory
sanctions, and could negatively impact our ability to operate
and/or remain relevant and trusted by our customers and other
stakeholders.
----------------------------------------------------------------------------
10 Climate change and environmental responsibility : An inability
(10) to reduce the environmental impact of our business and progress
towards our net zero targets (including those linked to our recent
acquisition and supply chains) as well as managing the consequences
of climate change on our business, including the increased frequency
of extreme weather events, would fail to meet the expectations
of our customers, colleagues, investors and other stakeholders,
impacting our brand, future trading performance and other business
costs, including financing.
----------------------------------------------------------------------------
11 EU border challenges: A failure to continue managing the cost
(5) consequences and operational friction from the complexity of
border arrangements between the UK and the European Union (EU)
or further developments in the Trade and Cooperation Agreement
("TCA"), including the Northern Ireland Protocol, could have
a significant and long-term impact on our Irish business and
overall trading performance.
----------------------------------------------------------------------------
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 UK-adopted IAS 34 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 2022 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
Stuart Machin
Chief Executive
Condensed consolidated income statement
26 weeks ended 52 weeks
ended
--------------------------------------------
1 Oct 2022 2 Oct 2021 2 April
2022
(Unaudited) (Unaudited) (Audited)
Total Total Total
Notes GBPm GBPm GBPm
------------------------------------ ------- --------------------- --------------------- ----------------------
Revenue 2 5,538.2 5,105.3 10,885.1
2,
Share of result in associate 3,
- Ocado Retail Limited 8 (7.7) 2.7 (18.6)
------------------------------------ ------- --------------------- --------------------- ----------------------
2,
Operating profit 3 171.5 282.0 572.2
Finance income 4 137.7 16.0 33.9
Finance costs 4 (100.7) (110.7) (214.4)
2,
Profit before tax 3 208.5 187.3 391.7
------------------------------------ ------- --------------------- --------------------- ----------------------
Income tax expense 5 (41.8) (27.4) (82.7)
Profit for the period 166.7 159.9 309.0
------------------------------------ ------- --------------------- --------------------- ----------------------
Attributable to:
Owners of the parent 166.1 160.3 306.6
Non-controlling interests 0.6 (0.4) 2.4
------------------------------------ ------- --------------------- --------------------- ----------------------
166.7 159.9 309.0
------------------------------------ ------- --------------------- --------------------- ----------------------
Earnings per share
Basic 6 8.5p 8.2p 15.7p
Diluted 6 8.3p 7.9p 15.1p
------------------------------------ ------- --------------------- --------------------- ----------------------
Reconciliation of adjusted profit before tax:
Profit before tax 208.5 187.3 391.7
Adjusting items 3 (3.0) 82.1 131.2
------------------------------------ ------- --------------------- --------------------- ----------------------
Profit before tax & adjusting
items - non-GAAP measure 205.5 269.4 522.9
--------------------------------------------- --------------------- --------------------- ----------------------
Adjusted earnings per share - non-GAAP
measure
Basic 6 7.8p 12.1p 21.7p
Diluted 6 7.7p 11.7p 20.9p
------------------------------------ ------- --------------------- --------------------- ----------------------
Condensed consolidated statement of comprehensive
income
26 weeks ended 52 weeks
ended
--------------------------------------------
1 Oct 2022 2 Oct 2021 2 April
2022
(Unaudited) (Unaudited) (Audited)
Notes GBPm GBPm GBPm
------------------------------------ ------- --------------------- --------------------- ----------------------
Profit for the period 166.7 159.9 309.0
------------------------------------ ------- --------------------- --------------------- ----------------------
Other comprehensive
income/(expense):
Items that will not be
reclassified subsequently
to profit or loss
Remeasurements of retirement
benefit schemes 9 (247.7) 59.8 357.0
Tax credit/(charge) on retirement
benefit schemes 62.0 (58.5) (127.6)
Loss on disposal of investment
held at fair value through
other comprehensive income
("FVOCI") - - (3.7)
------------------------------------ ------- --------------------- --------------------- ----------------------
(185.7) 1.3 225.7
------------------------------------ ------- --------------------- --------------------- ----------------------
Items that may be reclassified
subsequently to profit or
loss
Foreign currency translation
differences
- movement recognised in
other comprehensive income 22.2 (0.6) (13.5)
- reclassified and reported
in profit or loss - - (0.5)
Cash flow hedges
- fair value movements in
other comprehensive income 271.4 61.3 91.3
- reclassified and reported
in profit or loss (42.9) (4.2) (10.5)
Tax charge on cash flow
hedges (51.0) (11.0) (14.7)
------------------------------------ ------- --------------------- --------------------- ----------------------
199.7 45.5 52.1
------------------------------------ ------- --------------------- --------------------- ----------------------
Other comprehensive income
for the period, net of tax 14.0 46.8 277.8
------------------------------------ ------- --------------------- --------------------- ----------------------
Total comprehensive income
for the period 180.7 206.7 586.8
------------------------------------ ------- --------------------- --------------------- ----------------------
Attributable to:
Owners of the parent 180.1 207.1 584.4
Non-controlling interests 0.6 (0.4) 2.4
------------------------------------ ------- --------------------- --------------------- ----------------------
180.7 206.7 586.8
------------------------------------ ------- --------------------- --------------------- ----------------------
Condensed consolidated statement
of financial position
As at As at As at
1 Oct 2 Oct 2 April
2022 2021 2022
(Unaudited) (Unaudited) (Audited)
Notes GBPm GBPm GBPm
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Assets
Non-current assets
Intangible assets 201.4 204.5 192.5
Property, plant and equipment 5,056.5 4,918.1 4,902.3
Investment property 14.9 15.1 15.0
Investment in joint ventures
and associates 8 804.0 827.9 810.9
Other financial assets 11 7.0 10.7 4.5
Retirement benefit asset 9 845.0 742.2 1,043.9
Trade and other receivables 255.2 257.5 270.6
Derivative financial instruments 11 112.6 21.3 21.4
Deferred tax assets 9.9 - -
--------------------------------------------- ------ ----------------- ----------------- ----------------------
7,306.5 6,997.3 7,261.1
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Current assets
Inventories 3 1,017.6 778.0 706.1
Other financial assets 11 10.5 24.0 17.6
Trade and other receivables 295.5 256.5 217.1
Derivative financial instruments 11 199.8 22.6 43.6
Current tax assets 0.8 21.6 -
Cash and cash equivalents 772.7 951.9 1,197.9
--------------------------------------------- ------ ----------------- ----------------- ----------------------
2,296.9 2,054.6 2,182.3
Assets held for sale(1) - 20.5 -
--------------------------------------------- ------ ----------------- ----------------- ----------------------
2,296.9 2,075.1 2,182.3
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Total assets 9,603.4 9,072.4 9,443.4
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Liabilities
Current liabilities
Trade and other payables 2,230.9 1,872.4 1,960.9
Partnership liability to
the Marks & Spencer UK Pension
Scheme 10 73.0 71.9 71.9
Borrowings and other financial
liabilities 197.2 407.8 247.2
Derivative financial instruments 11 20.3 21.0 3.2
Provisions 37.1 35.6 53.6
Current tax liabilities 38.5 - 34.0
--------------------------------------------- ------ ----------------- ----------------- ----------------------
2,597.0 2,408.7 2,370.8
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Non-current liabilities
Retirement benefit deficit 9 5.0 8.0 5.7
Trade and other payables 175.3 192.9 188.2
Partnership liability to
the Marks & Spencer UK Pension
Scheme 10 49.9 117.7 120.4
Borrowings and other financial
liabilities 3,499.1 3,603.0 3,561.0
Derivative financial instruments 11 0.7 - 0.4
Provisions 77.8 86.7 91.8
Deferred tax liabilities 185.3 123.7 187.2
--------------------------------------------- ------ ----------------- ----------------- ----------------------
3,993.1 4,132.0 4,154.7
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Total liabilities 6,590.1 6,540.7 6,525.5
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Net assets 3,013.3 2,531.7 2,917.9
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Equity
Issued share capital 19.8 19.6 19.7
Share premium account 910.7 910.4 910.6
Capital redemption reserve 2,680.4 2,680.4 2,680.4
Hedging reserve 92.7 11.2 17.6
Cost of hedging reserve 5.5 4.0 3.6
Other reserve (6,542.2) (6,542.2) (6,542.2)
Foreign exchange reserve (51.7) (60.5) (73.9)
Retained earnings 5,893.3 5,506.4 5,897.9
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Equity attributable to owners
of the parent 3,008.5 2,529.3 2,913.7
Non-controlling interests 4.8 2.4 4.2
--------------------------------------------- ------ ----------------- ----------------- ----------------------
Total equity 3,013.3 2,531.7 2,917.9
--------------------------------------------- ------ ----------------- ----------------- ----------------------
(1) Last half year, the assets held for sale of GBP20.5
million were properties in the United Kingdom, previously
used in the Group's distribution network, which the
Group sold in the second half of 2021/22.
The notes on pages 36 to 57 form an integral part
of the condensed consolidated interim financial information.
Condensed consolidated statement of changes in equity
26 weeks ended 1 October Ordinary Share Capital Hedging Cost Other Foreign Retained Total Non-controlling Total
2022 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 3 April 2022 19.7 910.6 2,680.4 17.6 3.6 (6,542.2) (73.9) 5,897.9 2,913.7 4.2 2,917.9
Profit for the period - - - - - - - 166.1 166.1 0.6 166.7
Other comprehensive
income/(expense):
Foreign currency
translation
- movement recognised
in other comprehensive
income - - - - - - 22.2 - 22.2 - 22.2
Remeasurements of
retirement
benefit schemes - - - - - - - (247.7) (247.7) - (247.7)
Tax charge on retirement
benefit schemes - - - - - - - 62.0 62.0 - 62.0
Cash flow hedges
- fair value movements
in other comprehensive
income - - - 268.8 2.6 - - - 271.4 - 271.4
- reclassified and
reported
in profit or loss - - - (42.9) - - - - (42.9) - (42.9)
Tax on cash flow hedges - - - (50.3) (0.7) - - - (51.0) - (51.0)
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
Other comprehensive
income/(expense) - - - 175.6 1.9 - 22.2 (185.7) 14.0 - 14.0
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
Total comprehensive
income/(expense) - - - 175.6 1.9 - 22.2 (19.6) 180.1 0.6 180.7
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
Cash flow hedges
recognised
in inventories - - - (124.1) - - - - (124.1) - (124.1)
Tax on cash flow hedges
recognised in inventories - - - 23.6 - - - - 23.6 - 23.6
Transactions with owners:
Shares issued in respect
of employee share options 0.1 0.1 - - - - - - 0.2 - 0.2
Credit for share-based
payments - - - - - - - 15.0 15.0 - 15.0
As at 1 October 2022 19.8 910.7 2,680.4 92.7 5.5 (6,542.2) (51.7) 5,893.3 3,008.5 4.8 3,013.3
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
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
(expense)/income:
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 on exercise
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
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
52 weeks ended 2 April Ordinary Share Capital Hedging Cost Other Foreign Retained Total Non-controlling Total
2022 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 4 April 2021 489.2 910.4 2,210.5 (54.8) 4.6 (6,542.2) (59.9) 5,325.2 2,283.0 2.8 2,285.8
Profit for the year - - - - - - - 306.6 306.6 2.4 309.0
Other comprehensive
income/(expense):
Foreign currency
translation
- movement recognised
in other comprehensive
income - - - - - - (13.5) - (13.5) - (13.5)
- reclassified and
reported
in profit or loss - - - - - - (0.5) - (0.5) - (0.5)
Remeasurements of
retirement
benefit schemes - - - - - - - 357.0 357.0 - 357.0
Tax charge on retirement
benefit schemes - - - - - - - (127.6) (127.6) - (127.6)
Loss on disposal of
investments held at
FVOCI - - - - - - - (3.7) (3.7) - (3.7)
Cash flow hedges
- fair value movements
in other comprehensive
income - - - 92.1 (0.8) - - - 91.3 - 91.3
- reclassified and
reported
in profit or loss - - - (10.5) - - - - (10.5) - (10.5)
Tax on cash flow hedges - - - (14.5) (0.2) - - - (14.7) - (14.7)
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
Other comprehensive
income/(expense) - - - 67.1 (1.0) - (14.0) 225.7 277.8 - 277.8
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
Total comprehensive
income/(expense) - - - 67.1 (1.0) - (14.0) 532.3 584.4 2.4 586.8
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
Cash flow hedges
recognised
in inventories - - - 6.5 - - - - 6.5 - 6.5
Tax on cash flow hedges
recognised in inventories - - - (1.2) - - - - (1.2) - (1.2)
Transactions with owners:
Transactions with
non-controlling
shareholders - - - - - - - (1.7) (1.7) (1.0) (2.7)
Shares issued in respect
of employee share options 0.4 0.2 - - - - - (0.3) 0.3 - 0.3
Buy back and cancellation
of own shares(3) (469.9) - 469.9 - - - - - - - -
Credit for share-based
payments - - - - - - - 38.8 38.8 - 38.8
Deferred tax on share
schemes - - - - - - - 3.6 3.6 - 3.6
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
As at 2 April 2022 19.7 910.6 2,680.4 17.6 3.6 (6,542.2) (73.9) 5,897.9 2,913.7 4.2 2,917.9
-------------------------- -------- ------- ------------ ------- --------- ---------- -------- ------------ ------- --------------- -------
(1) The 'Other reserve' was originally created as part of the
capital restructuring that took place in 2002. It represents the
difference between the nominal value of the shares issued prior to
the capital reduction by the Company (being the carrying value of
the investment in Marks and Spencer plc) and the share capital,
share premium and capital redemption reserve of Marks and Spencer
plc at the date of the transaction.
(2) Included within "Retained earnings" is the fair value
through other comprehensive income reserve.
(3) On 8 July 2021, the Company reduced the nominal value of its
1,957,779,626 ordinary shares in issue at that date from GBP0.25 to
GBP0.01. The reduction was completed by subdividing each GBP0.25
ordinary share in issue into 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 52 weeks
ended
------------------------
1 Oct 2022 2 Oct 2021 2 April
2022
(Unaudited) (Unaudited) (Audited)
Notes GBPm GBPm GBPm
-------------------------------------- ----- ----------- ----------- ---------
Cash flows from operating activities
Cash generated from operations 13 326.2 656.6 1,385.7
Income tax paid (26.2) (5.0) (7.7)
-------------------------------------- ----- ----------- ----------- ---------
Net cash inflow from operating
activities 300.0 651.6 1,378.0
-------------------------------------- ----- ----------- ----------- ---------
Cash flows from investing activities
Proceeds on property disposals - 2.2 43.9
Purchase of property, plant and
equipment (143.6) (102.8) (192.8)
Purchase of intangible assets (40.0) (24.9) (64.6)
Sale/(purchase) of current financial
assets 7.8 (5.6) 0.8
Purchase of non-current financial
assets (3.5) (1.0) (3.3)
Proceeds on disposal of non-current
financial assets 0.2 - 5.2
Purchase of investment in joint
venture and associates(1) - (16.8) (37.8)
Acquisition of subsidiary, net
of cash acquired(2) (95.4) - (4.5)
Loans to related parties - - (1.0)
Interest received 6.8 2.9 8.4
-------------------------------------- ----- ----------- ----------- ---------
Net cash used in investing activities (267.7) (146.0) (245.7)
-------------------------------------- ----- ----------- ----------- ---------
Cash flows from financing activities
Interest paid(3) (130.1) (115.7) (216.6)
Redemption of Medium Term Notes (150.6) - (163.6)
Repayment of lease liabilities (109.9) (107.9) (216.0)
Payment of liability to the Marks
& Spencer UK Pension Scheme (71.9) - -
Shares issued on exercise of
employee share options - - 0.3
Net cash used in financing activities (462.5) (223.6) (595.9)
-------------------------------------- ----- ----------- ----------- ---------
Net cash (outflow)/inflow from
activities (430.2) 282.0 536.4
Effects of exchange rate changes 5.0 0.2 (8.2)
Opening net cash 1,197.9 669.7 669.7
-------------------------------------- ----- ----------- ----------- ---------
Closing net cash 772.7 951.9 1,197.9
-------------------------------------- ----- ----------- ----------- ---------
(1) Last full year includes GBP33.8m outflow in relation to
contingent consideration settled with Ocado Retail Limited
and GBP4.0m outflow on the acquisition of 27% of the issued
share capital of Nobody's Child Limited.
(2) GBP95.4m on purchase of Gist Limited. Consideration of
GBP163.2m net of cash acquired GBP67.8m. Last full year relates
to GBP4.5m outflow on the acquisition of 77.7% of the issued
share capital of The Sports Edit Limited.
(3) Includes interest paid on the partnership liability to
the Marks & Spencer UK Pension Scheme of GBP5.9m (last half
year: GBPnil; last full year: GBPnil) and interest paid on
lease liabilities of GBP64.1m (last half year: GBP65.2m; last
full year: GBP128.3m).
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 2 April 2022 is an
extract from the published Annual Report and Financial Statements
which were approved by the Board of Directors on 24 May 2022, 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 11 and
the principal risks and uncertainties as set out on pages 28 to
29.
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 1 October 2022, the Group had
available liquidity of GBP1,647.7, comprising cash and cash
equivalents of GBP772.7m, an undrawn committed syndicated bank
revolving credit facility ("RCF") of GBP850.0m (set to mature in
June 2025), and undrawn uncommitted facilities amounting to
GBP25.0m. The Group's net debt at 1 October 2022 was GBP2,928.7m,
an increase of GBP229.9m since 2 April 2022, primarily driven by a
free cash flow outflow due to the working capital movement in the
period.
The forecast cashflows for the next 12-month period to November
2023 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. In forming their outlook on the
future financial performance, the directors considered a variety of
downsides that the Group might experience, such as increasing
energy costs, inflation rate increases, pressures on costs and
margin, and the potential negative impact of shifts in customer
behaviour. The downside scenario also assumed that a delay on
transformation benefits resulted in a decline in the incremental
sales expected from the transformation.
Based on the forecast cashflows, throughout the next 12-month
period to November 2023, the Group does not anticipate needing to
draw on its available facilities and has adequate headroom to meet
the covenant requirements.
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 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 2022 Annual Report and
Financial Statements.
Several amendments apply for the first time during the period
but have 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 before adjusting items; profit
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 Group reports some financial measures, primarily
International sales, on both a reported and constant currency
basis. The constant currency basis, which is an APM, retranslates
the previous year revenues at the average actual periodic exchange
rates used in the current financial year. This measure is presented
as a means of eliminating the effects of exchange rate fluctuations
on the year-on-year reported results.
The Group makes certain adjustments to the statutory profit
measures in order to derive many of these APMs. The Group's policy
is to exclude items that are considered significant in nature
and/or quantum to the financial statement line item or applicable
disclosure note or are consistent with items that were treated as
adjusting in prior periods. The Group's definition of adjusting
items is consistent with prior periods. 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 1 October 2022:
- Net charges associated with the strategic programme in
relation to the review of the UK store estate.
- Significant restructuring costs and other associated costs
arising from strategic 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.
- (New) Significant costs relating to the acquisition of Gist Limited.
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
2022 Annual Report and Financial Statements.
In recognition of the ongoing impact of market conditions in the
period, the Group provides 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
2022 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 2 April 2022 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. The pre-tax
discount rate was adjusted to use the rate at 1 October 2022.
Similarly, other assumptions have remained consistent with those
used at 2 April 2022, with only small adjustments made to reflect
any known changes to closure date. 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 is an indicator of impairment during the
period. As a result, a detailed impairment test has been performed.
See note 3 for further details.
Inventory provisioning
The Group assesses the recoverability of inventories by applying
assumptions around the future saleability and estimated selling
prices of items.
At 2 April 2022, the Group had recognised a total UK Clothing
& Home inventory provision of GBP48.3m, which did not include a
provision in relation to Covid-19. 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. In the first half of
2021/22 the Group utilised GBP10.2m of these provisions and then
released the remaining GBP14.0m in the second half of 2021/22.
During the period, UK Clothing & Home performance has been
strong and the Group has updated its assumptions regarding future
trading performance.
Each c.10% increase in the volume of UK Clothing & Home
inventory going into sale/clearance would reduce the net realisable
value of inventory by c.GBP2m.
Remeasurement of contingent consideration
Contingent consideration, resulting from the investment in Ocado
Retail Limited, is remeasured at fair value at each reporting
date.
The fair value of the contingent consideration has been
estimated using the expected present value technique and is based
on probability-weighting possible scenarios and applying an
appropriate discount rate to reflect the timing of the possible
payment. We have considered a range of scenarios reflecting current
market uncertainty, taking into account Ocado Retail's most recent
trading update in September 2022. We have determined a fair value
of GBP60.5m (last full year GBP172.6m). A discount rate of 9.0% was
used. See note 11 for full 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.
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.
Following completion of the acquisition of Gist Limited on 30
September 2022, the results of Gist Limited are included within the
UK Food operating segment (see note 15).
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 1 October 2022
(Unaudited)
--------------------------------------------------------------
Note UK Clothing UK Food International Ocado All Group
& Home other
segments
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Sales(1) 1,749.7 3,317.5 496.4 - - 5,563.6
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Revenue 1,724.3 3,317.5 496.4 - - 5,538.2
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Operating profit/(loss)
before adjusting items(2) 3 171.4 71.8 39.0 (0.7) (0.8) 280.7
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Finance income before adjusting
items 3 25.5
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Finance costs before adjusting
items 3 (100.7)
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Profit/(loss) before tax
and adjusting items 3 171.4 71.8 39.0 (0.7) (0.8) 205.5
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Adjusting items 3 3.0
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Profit/(loss) before tax 171.4 71.8 39.0 (0.7) (0.8) 208.5
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
26 weeks ended 2 October 2021
(Unaudited)
--------------------------------------------------------------
UK Clothing UK Food International Ocado All Group
& Home other
segments
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Sales(1) 1,534.6 3,143.0 435.3 - - 5,112.9
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Revenue 1,527.0 3,143.0 435.3 - - 5,105.3
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
Operating profit/(loss)
before adjusting items(2) 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
-------------------------------- ---- ----------- ------- ------------- ----- --------- -------
52 weeks ended 2 April 2022 (Audited)
---------------------------------------------------------------
UK Clothing UK Food International Ocado All Group
& Home other
segments
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----------- ------- ------------- ----- --------- --------
Sales(1) 3,332.2 6,639.6 937.2 - - 10,909.0
-------------------------------- ----------- ------- ------------- ----- --------- --------
Revenue 3,308.3 6,639.6 937.2 - - 10,885.1
-------------------------------- ----------- ------- ------------- ----- --------- --------
Operating profit before
adjusting items(2) 3 330.7 277.8 73.6 13.9 13.0 709.0
-------------------------------- ----------- ------- ------------- ----- --------- --------
Finance income before adjusting
items 3 28.3
-------------------------------- ----------- ------- ------------- ----- --------- --------
Finance costs before adjusting
items 3 (214.4)
-------------------------------- ----------- ------- ------------- ----- --------- --------
Profit before tax and adjusting
items 3 330.7 277.8 73.6 13.9 13.0 522.9
-------------------------------- ----------- ------- ------------- ----- --------- --------
Adjusting items 3 (131.2)
-------------------------------- ----------- ------- ------------- ----- --------- --------
Profit before tax 330.7 277.8 73.6 13.9 13.0 391.7
-------------------------------- ----------- ------- ------------- ----- --------- --------
(1) Sales is revenue stated prior to adjustments for UK Clothing
& Home brand consignment sales of GBP25.4m (last half year:
GBP7.6m; last full year GBP23.9m).
(2) 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
26 weeks 26 weeks 52 weeks
ended ended ended
1 October 2 October 2 April
2022 2021 2022
(Unaudited) (Unaudited)(1) (Audited)(1)
GBPm GBPm GBPm
--------------------------------- ------------ --------------- -------------
Write-down of inventories to net
realisable value 117.6 85.8 197.6
--------------------------------- ------------ --------------- -------------
(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
1 October 2022 a net gain of GBP3.0m. The adjustments made to
reported profit before tax to arrive at adjusted profit are:
26 weeks ended 52 weeks
ended
------------------------
1 Oct 2022 2 Oct 2021 2 Apr 2022
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------ ----------- ----------- ----------
Included in operating profit
Strategic programmes - UK store estate (26.3) (58.1) (161.4)
Strategic programmes - Organisation (14.6) 1.9 14.3
Strategic programmes - UK logistics - (1.7) 21.9
Strategic programmes - International
store closures and impairments - - 0.4
Store impairments, impairment reversals
and other property charges (36.3) - 60.0
Acquisition of Gist Limited (24.4) - -
Amortisation and fair value adjustments
arising as part of the investment
in Ocado Retail Limited (7.0) (25.4) (32.5)
M&S Bank charges incurred in relation
to the insurance mis-selling provisions (1.0) (1.0) (16.0)
Franchise restructure 0.4 (11.9) (41.3)
Directly attributable gains resulting
from the Covid-19 pandemic - 15.0 17.8
(109.2) (81.2) (136.8)
------------------------------------------ ----------- ----------- ----------
Included in net finance income/(costs)
Remeasurement of contingent consideration
including discount unwind 112.2 (0.9) 5.6
------------------------------------------ ----------- ----------- ----------
112.2 (0.9) 5.6
------------------------------------------ ----------- ----------- ----------
Adjustment to profit before tax 3.0 (82.1) (131.2)
------------------------------------------ ----------- ----------- ----------
Strategic programmes - UK store estate ( GBP26.3m )
In November 2016, the Group announced a strategic programme to
transform and rotate the UK store estate with the overall objective
to improve our store estate to better meet our customers' needs.
The Group incurred charges of GBP819m up to April 2022 under this
programme primarily relating to closure costs associated with
stores identified as part of the strategic transformation
plans.
The Group has recognised a charge of GBP26.3m in the period in
relation to those stores identified as part of the rotation plans.
The charge primarily reflects the latest view of store closure
plans as disclosed in the 2021/22 financial statements and latest
assumptions for estimated store closure costs, as well as charges
relating to the impairment of buildings and fixtures and fittings,
and depreciation as a result of shortening the useful economic life
of stores based on the most recent approved exit routes.
As disclosed in the accounting policies (note 1), the cash flows
used within the impairment models for the UK store estate programme
are based on assumptions which are sources of estimation
uncertainty, and small movements in these assumptions could lead to
further impairments. Management has performed sensitivity analysis
on the key assumptions across the UK store estate programme.
A delay of 12 months in the probable date of each store exit
would result in a decrease in the impairment charge of GBP35.1m. A
5% reduction in planned sales in years 2 and 3 (where relevant)
would result in an increase in the impairment charge of GBP13.7m.
Neither a 50 basis point increase in the discount rate, a 25 basis
point reduction in management gross margin during the period of
trading, nor a 2% increase in the costs associated with exiting a
store would result in a significant increase to the impairment
charge, individually or in combination with the other reasonably
possible scenarios considered.
Further charges relating to the closure and rotation of the UK
store estate are anticipated over the next eight and a half years
as the programme progresses, the quantum of which is subject to
change throughout the programme period as we get greater certainty
of circumstances that need to be in place to make closure
financially viable. Future charges will not include Foodhall
closures at lease event where there is opportunity for a better
location, as this is not in the scope of the programme.
As at 1 October 2022, the total closure programme now consists
of 204 stores, 103 of which have already closed. Further charges of
c.GBP170m are estimated within the next eight and a half financial
years, bringing anticipated total programme costs since 2016 to
c.GBP1bn. In addition, where store exit routes in the next eight
and a half 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.
The anticipated total programme costs to date does not include any
costs that may arise in relation to a further c.30 stores currently
under consideration for closure within the next eight and a half
years. At this stage these c.30 stores remain commercially
supportable and in the event of a decision to close the store the
exit routes are not yet certain.
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 (GBP14.6m)
During 2016/17, the Group announced a wide-ranging strategic
review across a number of areas of the business which included UK
organisation and the programme to centralise our London Head Office
functions into one building. In the period, an impairment charge of
GBP14.6m has been recognised (2021/22 GBP11.9m impairment
reversal). This relates to the updating of assumptions and market
fluctuations over the life of the sub-let of previously closed
offices, notably Merchant Square. Total costs of centralising our
London Head Office functions into one building incurred to date are
c.GBP101m. Any future charges/reversals will relate to the updating
of assumptions and market fluctuations over the life of the sub-let
lease to September 2040.
These charges are reported as adjusting items on the basis that
they are consistent with the disclosure of costs previously
recognised.
Store impairments, impairment reversals and property charges (
GBP36.3m )
The Group has recognised charges in the period associated with
the carrying value of items of property, plant and equipment.
The Group considered whether the large degree of uncertainty in
the wider macroeconomic environment represented a significant
impairment indicator at 1 October 2022. Management concluded that
the increase in discount rates in particular was a significant
impairment indicator and therefore a full impairment test was
undertaken.
A pre-tax discount rate of 12.7% (2021/22 9.8%) used in the
calculation of cash flows is derived from the M&S Weighted
Average Cost of Capital (WACC). This has increased since last year
end, reflecting higher market inflation expectations and increased
perceived risk in the bond market.
Other key inputs, including the latest Board-approved annual
long -term plan and related cashflow forecasts, have been assessed
and remain unchanged since the previous year end.
As a result, store impairment testing has identified stores
where the current and anticipated future performance does not
support the carrying value of the stores. A charge of GBP36.3m has
been incurred in respect of the impairment of assets associated
with these stores.
As disclosed in the accounting policies (note 1), the cash flows
used within the impairment model are based on assumptions which are
sources of estimation uncertainty and small movements in these
assumptions could lead to further impairments. Management has
performed sensitivity analysis on key assumptions in the impairment
model using reasonably possible changes in these key assumptions
across the UK store portfolio.
A reduction in sales of 5% from the three-year plan in year 3
could result in an increase in the impairment charge of up to
c.GBP95m and a 25 basis point reduction in gross profit margin from
year 3 onwards could increase the impairment charge by up to
c.GBP47m. In combination, a 1% fall in sales and a 10 basis point
fall in gross profit margin could increase the impairment charge by
up to c.GBP52m. A 50 basis point increase in the discount rate
could increase the impairment charge c.GBP53m. Reducing the
long-term growth rate to 0% across all stores, would not result in
a significant increase to the impairment charge, either
individually or in combination.
The charges have been classified as an adjusting item on the
basis of the significant quantum of the charge in the period to the
results of the Group. Any future charges or reversals relating to
stores previously impaired within adjusting items will continue to
be recognised within adjusting items in line with the original
charge. Any future charges or reversals relating to stores not
previously impaired within adjusting items will be recognised in
the underlying results.
Acquisition of Gist Limited ( GBP24.4m)
On 30 September 2022 the Group completed the acquisition of Gist
Limited from Storeshield Limited, a subsidiary of The BOC Group
Limited, as part of M&S's multi-year programme to modernise its
Food supply chain network to support growth. As part of the
transaction the Group has incurred GBP24.4m of one-off charges that
are not considered to be day-to-day operational costs of our
business. GBP18.2m of charges relate to the settlement of our
pre-existing relationship with Gist Limited and there were GBP6.2m
of other costs, predominantly GBP5.7m of transaction costs
incurred. See note 15 for further details.
These costs are adjusting items as they relate to a major
transaction and, but for the transaction, the business would not
have incurred these costs and as a result are not considered to be
normal operating costs of the business. Further costs are expected
in 2022/23 and 2023/24 in relation to the acquisition, such as
retention bonuses and integration costs.
Amortisation and fair value adjustments arising as part of the
investment in Ocado Retail Limited (GBP7.0m)
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 GBP8.6m recognised in the period. In
addition, a further deferred tax credit of GBP1.6m has been
recognised.
The amortisation charge and changes in the related deferred tax
liability are included within the Group's share result in associate
and are considered to be adjusting items as they are based on
judgements about their value and economic life and are not related
to the Group's underlying trading performance. These charges are
reported as adjusting items on the basis that they are significant
in quantum and to aid comparability from one period to the
next.
M&S Bank charges incurred in relation to insurance
mis-selling provisions ( 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 Payment Protection
Insurance (PPI) claims and although it is recurring, it is
significant in quantum in the context of the total charges
recognised for PPI mis-selling to-date and is not considered
representative of the normal operating performance of the Group. As
previously noted, while the August 2019 deadline to raise potential
mis-selling claims has now passed, costs relating to the estimated
liability for redress are expected to continue. The total charges
recognised in adjusting items since September 2012 for PPI is
GBP325.5m which exceeds the total offset against profit share of
GBP258.4m to date and this deficit will be deducted from the
Group's share of future profits from M&S Bank.
Franchise restructuring (GBP0.4m credit)
In September 2021 the Group announced the closure of 11
franchise stores in France in response to increased EU border
costs. Consequently, the Group recognised a charge of GBP10.3m for
closure costs in 2021/22. A provision release of GBP0.4m has been
recognised during the period in relation to the stores in France.
No future costs are currently expected.
The costs/credits are considered to be adjusting items as they
are one-off in nature and significant in value in total to the
results of the Group and to the International segment.
Remeasurement of contingent consideration including discount
unwind ( GBP112.2m credit)
Contingent consideration, resulting from the investment in Ocado
Retail Limited, is remeasured at fair value at each reporting date
with the changes in fair value recognised in profit or loss. During
2021/22, GBP33.8m of contingent consideration was settled,
following the achievement of the first and second performance
targets. A credit of GBP112.2m has been recognised in the period,
representing the revaluation of the contingent consideration
payable of GBP190.7m (GBP156.3m plus interest). See note 11 for
further details. 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 52 weeks
ended
------------------------
1 Oct 2022 2 Oct 2021 2 April
2022
(Unaudited) (Unaudited) (Audited)
Notes GBPm GBPm GBPm
-------------------------------------- ----- ----------- ----------- ---------
Bank and other interest receivable 6.5 1.3 3.7
Pension net finance income 9 14.2 6.4 13.2
Other finance income 2.0 5.6 5.9
Interest income on subleases 2.8 2.7 5.5
-------------------------------------- ----- ----------- ----------- ---------
Finance income before adjusting
items 25.5 16.0 28.3
-------------------------------------- ----- ----------- ----------- ---------
Finance income in adjusting items 3 112.2 - 5.6
-------------------------------------- ----- ----------- ----------- ---------
Finance income 137.7 16.0 33.9
-------------------------------------- ----- ----------- ----------- ---------
Other finance costs (2.3) (0.7) (0.8)
Interest payable on syndicated
bank facility (2.2) (2.2) (4.7)
Interest payable on Medium Term
Notes (33.4) (41.8) (79.6)
Interest payable on lease liabilities (58.5) (61.6) (121.1)
Unwinding of discount on partnership
liability to the Marks and Spencer
UK Pension Scheme 10 (2.4) (1.7) (4.4)
Unwind of discount on provisions (1.9) (1.8) (3.8)
-------------------------------------- ----- ----------- ----------- ---------
Finance costs before adjusting
items (100.7) (109.8) (214.4)
-------------------------------------- ----- ----------- ----------- ---------
Finance costs in adjusting items 3 - (0.9) -
-------------------------------------- ----- ----------- ----------- ---------
Finance costs (100.7) (110.7) (214.4)
-------------------------------------- ----- ----------- ----------- ---------
Net finance costs 37.0 (94.7) (180.5)
-------------------------------------- ----- ----------- ----------- ---------
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 24.8% (last half year 12.4%; last full year 18.2%). This
is higher than the UK statutory rate primarily due to the impact of
the recapture of tax relief on SLP distributions, which have
resumed in the year, and non-taxable Ocado losses.
The effective tax rate on adjusting items is 303.3% arising in
the period to 1 October 2022 (last half year 7.2%; last full year
9.6%) to give an effective tax rate on profit before taxation of
20.0% (last half year 14.6%; last full year 21.1%). The effective
tax rate on adjusting items has been distorted by the GBP112.2m
credit relating to the remeasurement of the Ocado contingent
consideration. Excluding the Ocado contingent consideration
remeasurement would reduce the ETR on adjusting items to 9.0%.
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 52 weeks
ended
------------------------
1 Oct 2022 2 Oct 2021 2 April
2022
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------- ----------- ----------- ---------
Profit attributable to equity shareholders
of the Company 166.1 160.3 306.6
------------------------------------------- ----------- ----------- ---------
Add/(less):
Adjusting items (see note 3) (3.0) 82.1 131.2
Tax on adjusting items (9.1) (5.9) (12.6)
------------------------------------------- ----------- ----------- ---------
Profit before adjusting items attributable
to equity shareholders of the Company 154.0 236.5 425.2
------------------------------------------- ----------- ----------- ---------
Million Million Million
------------------------------------------- ----------- ----------- ---------
Weighted average number of ordinary
shares in issue(1) 1,962.4 1,957.6 1,958.1
Potentially dilutive share options under
the Group's share option schemes 44.2 59.9 73.0
------------------------------------------- ----------- ----------- ---------
Weighted average number of diluted
ordinary shares 2,006.6 2,017.5 2,031.1
------------------------------------------- ----------- ----------- ---------
Pence Pence Pence
------------------------------------------- ----------- ----------- ---------
Basic earnings per share 8.5 8.2 15.7
Diluted earnings per share 8.3 7.9 15.1
Adjusted basic earnings per share 7.8 12.1 21.7
Adjusted diluted earnings per share 7.7 11.7 20.9
------------------------------------------- ----------- ----------- ---------
(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.
7 Dividends
At the full-year results in May 2022, the Board stated that it
would consider the scale and timing of a resumption of dividend
payments at the year end.
Consistent with that announcement, a dividend has not been
declared at these results.
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 financial year end date of 27 November
2022, aligning with its parent company, Ocado Group Plc. For
the Group's purpose of applying the equity method of accounting,
Ocado Retail Limited has prepared financial information to the
nearest quarter-end date of its financial year end, as to do
otherwise would be impracticable. The results of Ocado Retail
Limited are incorporated in these financial statements from
28 February 2022 to 28 August 2022. There were no significant
events or transactions in the period from 29 August 2022 to
1 October 2022.
The carrying amount of the Group's interest in Ocado Retail
Limited is GBP792.7m (last half year: GBP821.7m; last full year:
GBP800.4m). The Group's share of Ocado Retail Limited losses
of GBP7.7m (last half year: profit of GBP2.7m; last full year:
loss of GBP18.6m) includes the Group's share of underlying losses
of GBP0.7m, which includes GBP15.6m of exceptional income before
tax related to insurance receipts (last half year: GBP1.7m;
last full year: GBP1.3m) and adjusting item charges of GBP7.0m
(last half year: GBP25.4m; last full year: GBP32.5m) (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 28 As at 27
August 2022 February
2022
(Unaudited) (Audited)
GBPm GBPm
--------------------------------------- ----------- -------------- --------------- ------------
Ocado Retail Limited
Current assets 213.4 291.2
Non-current assets 582.5 590.1
Current liabilities (227.7) (223.3)
Non-current liabilities (361.1) (449.8)
Net assets 207.1 208.2
28 Feb 2022 1 Mar 2021 29 Feb 2021
to to to
28 Aug 2022 29 Aug 2021 27 Feb 2022
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Revenue 1,089.0 1,136.3 2,248.8
(Loss) / profit for the period (1.3) 56.3 27.8
Other comprehensive income - - -
Total comprehensive income (1.3) 56.3 27.8
In addition, the Group holds investments in joint ventures totalling
GBP11.3m (last half year: GBP6.2m; last full year: GBP10.5m).
The Group's share of profits totalled GBP0.8m (last half year:
GBP0.6m loss; last full year: GBP0.7m loss).
9 Retirement benefits
26 weeks ended 52 weeks
ended
1 Oct 2022 2 Oct 2021 2 April 2022
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Opening net retirement benefit
surplus 1,038.2 631.4 631.4
Current service cost (0.1) (0.1) (0.2)
Administration cost (2.4) (2.2) (4.8)
Net interest income 14.2 6.4 13.2
Employer contributions 38.2 38.7 41.8
Remeasurements (247.7) 59.8 357.0
Exchange movement (0.4) 0.2 (0.2)
Closing net retirement benefit
surplus 840.0 734.2 1,038.2
Total market value of assets 7,137.1 10,619.6 10,090.7
Present value of scheme liabilities (6,292.1) (9,877.4) (9,046.8)
Net funded pension plan asset 845.0 742.2 1,043.9
Unfunded retirement benefits (2.7) (3.8) (2.6)
Post-retirement healthcare (2.3) (4.2) (3.1)
Net retirement benefit surplus 840.0 734.2 1,038.2
Analysed in the Statement of
Financial Position as:
Retirement benefit asset 845.0 742.2 1,043.9
Retirement benefit deficit (5.0) (8.0) (5.7)
Net retirement benefit surplus 840.0 734.2 1,038.2
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 5.15% (last half year: 2.05%; last
full year: 2.70%) and 3.60% (last half year: 3.45%; last full
year: 3.70%) respectively. The inflation rate of 3.60% 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
2.95% (last half year: 2.75%; last full year: 3.00%) has been
used.
The amount of the surplus varies if the main financial assumptions
change. If the discount rate decreased by 0.50%, the surplus
would increase by GBP10m (last half year: decrease by GBP30m;
last full year: decrease by GBP30m). If the discount rate increased
by 0.50%, the surplus would decrease by GBP10m. If the discount
rate decreased by 2.50%, the surplus would increase by GBP30m.
If the discount rate increased by 2.50%, the surplus would decrease
by GBP40m. The pension scheme is hedged against movements in
gilt yields.
If the inflation rate decreased by 0.25%, the surplus would
decrease by GBP50m (last half year: decrease by GBP30m; last
full year: decrease by GBP70m). If the inflation rate decreased
by 0.50%, the surplus would decrease by GBP90m (last half year:
decrease by GBP60m; last full year: decrease by GBP130m). A
one year decrease in life expectancy would increase the scheme's
surplus by GBP120m (last half year: increase by GBP300m; last
full year: increase by GBP270m).
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 2021 and showed
a funding surplus of GBP687m. This is an improvement on the
previous position at 31 March 2018 (funding surplus of GBP652m),
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).
With the pensioner buy-in policies purchased in September 2020,
April 2019 and March 2018, the Scheme has now, in total, insured
around 75% 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.
Recent increases in long-term interest rates, market inflation
assumptions and the discount rate have resulted in a significant
reduction in the value of both the UK Defined Benefit pension
scheme's assets and liabilities. However, there has been no
material worsening of the scheme's overall funding position.
The scheme has maintained its longstanding policy of substantially
hedging its exposure to inflation and interest rate movements
including through the use of derivatives. This is colloquially
known as an LDI strategy. The scheme continues to manage its
liquidity and collateral to meet its obligations as they fall
due and was able to meet all its cash needs from its own resources.
Subsequent to the end of the period, the Company agreed to provide
the scheme with a GBP250m short term liquidity facility to meet
excess collateral calls. The facility has not been and remains
undrawn and expires on 19 January 2023.
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: GBP1.3bn and
last full year: GBP1.3bn) of properties which have been leased
back to Marks and Spencer plc. The Group retains control over
these properties, including the flexibility to substitute alternative
properties into the Partnership. The first limited Partnership
interest (held by the Marks and Spencer UK Pension Scheme),
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 prior period, the Group and the Pension Scheme Trustees
agreed to amend the distribution dates so that the Pension
Scheme is entitled to receive GBP71.9m in 2022, GBP73.0m in
2023 and GBP54.4m in 2024. GBP71.9m was paid into the scheme
on 30 June 2022 as per the agreed distribution dates. The second
Partnership interest (also held by the Marks and Spencer UK
Pension Scheme), entitles the Pension Scheme to receive a further
annual distribution of GBP36.4m from June 2017 until June 2031.
All profits generated by the Partnership in excess of these
amounts are distributable to Marks and Spencer plc.
The Partnership liability in relation to the first interest
of GBP122.9m (last half year: GBP189.6m and last full year:
GBP192.3m) is included as a financial liability in the Group's
financial statements as it is a transferable financial instrument
and measured at amortised cost, being the net present value
of the future expected distributions from the Partnership.
During the period to 1 October 2022 an interest charge of GBP2.4m
(last half year: GBP1.7m and last full year: GBP4.4m) 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 GBP119.5m (last half year:
GBP194.2m and last full year: GBP193.5m).
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
1 Oct 2022 2 April 2022
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 - 4.1 - 4.1 - 0.6 - 0.6
- other investments(1) - 10.5 7.0 17.5 - 17.6 4.5 22.1
Derivatives used for
hedging - 308.3 - 308.3 - 64.4 - 64.4
Liabilities measured
at fair value
Financial liabilities
at fair value through
profit and loss ("FVTPL")
- derivatives held at
FVTPL - (1.9) - (1.9) - (0.9) - (0.9)
- Ocado contingent consideration(2) - - (60.5) (60.5) - - (172.6) (172.6)
- Gist contingent consideration(3) - - (23.7) (23.7) - - - -
Derivatives used for
hedging - (19.1) - (19.1) - (2.7) - (2.7)
There were no transfers between the levels of the fair value
hierarchy during the period. There were also no changes made
to any of the valuation techniques during the period.
(1) Within Level 3 other investments, the Group holds GBP6.5m
of venture capital investments, managed by True Capital Limited,
measured at FVTPL (last half year: GBPnil; last full year: GBP3.1m)
which are Level 3 instruments. The fair value of these investments
has been determined in accordance with the International Private
Equity and Venture Capital ("IPEV") Valuation Guidelines. Where
investments are either recently acquired or there have been
recent funding rounds with third parties, the primary input
when determining the valuation is the latest transaction price.
(2) 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.
During 2021/22, GBP33.8m was settled, relating to the first
two targets. The final target relates to Ocado Retail Limited
achieving a specified target level of earnings in the financial
year ending November 2023, with any resulting payment due in
2024 following completion of the Ocado Retail Limited audited
FY23 statutory accounts.
The contingent consideration is accounted for in accordance
with IFRS 9 and measured at fair value with changes in measurement
recognised in profit or loss. The outcome is binary, meaning
that a payment of GBP156.3m plus interest will be made if the
performance target is met, whereas should it not be met, no
consideration would be payable. In line with IFRS 13, fair value
of the contingent consideration has been estimated using the
expected present value technique and is based on probability-weighting
possible scenarios and applying an appropriate discount rate
to reflect the timing of the possible payment. We have considered
a range of scenarios reflecting current market uncertainty,
taking into account Ocado Retail's most recent trading update
in September 2022. We have determined a fair value of GBP60.5m
(last full year: GBP172.6m). A discount rate of 9.0% was used.
(3) As part of the investment in Gist Limited, the Group has
agreed to pay the former owners of Gist Limited additional consideration
of up to GBP25.0m plus interest when freehold properties are
disposed of under certain conditions (for other consideration
payable please see note 15). There is no minimum amount payable.
The Group has the ability to retain the properties should it
wish to do so, in which case the full amount of GBP25.0m plus
interest will be payable on the third anniversary of completion.
The fair value of the contingent consideration arrangement of
GBP23.7m was estimated calculating the present value of the
future expected cashflows. The estimates are based on a discount
rate of 8.0%. A 5.0% change in the discount rate would result
in a change in fair value of GBP0.2m.
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 GBP1,399.8m (last half year: GBP1,680.6m; last full
year: GBP1,482.5m); the fair value of this debt was GBP1,217.8m
(last half year: GBP1,820.0m; last full year: GBP1,549.6m) which
has been calculated using quoted market prices and includes accrued
interest.
The carrying value of the Partnership liability to the Marks
& Spencer UK Pension Scheme (Level 2 equivalent) is GBP122.9m
(last half year: GBP189.6m; last full year: GBP192.3m) and the fair
value of this liability is GBP120.5m (last half year: GBP187.9m;
last full year: GBP187.9m).
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 GBP2,300.3m of lease liabilities held on the balance
sheet.
Total undiscounted lease payments of GBP773.3m (last half year:
GBP723.7m; last year end: GBP766.2m) 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 1 October 2022, all forecast purchases
qualify for hedge accounting.
Trade receivables
Included within trade and other receivables is GBP3.5m (last
half year: GBP4.1m; last year end: GBP1.1m) 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 Contingencies and commitments
Capital expenditure
Additions to the cost of property, plant and equipment, investment
property and intangible assets, excluding right of use assets
are GBP155.5m (last half year: GBP120.4m) and for the year
ended 2 April 2022 were GBP326.2m. 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 2 April 2022
were GBP17.8m.
Capital commitments As at As at As at
1 Oct 2 Oct 2 Apr
2022 2021 2022
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Commitments in respect of properties
in the course of construction 86.5 113.5 59.8
IT capital commitments 14.4 18.3 6.1
100.9 131.8 65.9
During 2021/22, the Group 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. As at 1 October 2022,
the Group had invested GBP6.8m (last half year: GBP1.0m; last
full year: GBP3.3m) of this commitment, which is held as an
non-current other investment and measured at fair value through
profit or loss (see note 11).
13 Analysis of cash flows given
in the statement of cash flows
26 weeks ended 52 weeks
ended
1 Oct 2022 2 Oct 2021 2 April
2022
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Profit on ordinary activities after
taxation 166.7 159.9 309.0
Income tax expense 41.8 27.4 82.7
Finance costs 100.7 110.7 214.4
Finance income (137.7) (16.0) (33.9)
Operating profit 171.5 282.0 572.2
Share of results of Ocado Retail
Limited 0.7 (28.1) (13.9)
Increase in inventories (373.7) (94.8) (46.5)
Increase in receivables (36.3) (46.1) (2.9)
Increase in payables 261.2 252.4 289.1
Depreciation, amortisation and write-offs 250.6 253.9 510.7
Non-cash share-based payment expense 15.0 18.7 38.8
Defined benefit pension funding (36.9) (36.3) (36.8)
Adjusting items net cash outflows(1,2) (34.1) (25.3) (45.8)
Adjusting items M&S Bank(3) (1.0) (1.0) (16.0)
Adjusting operating profit items 109.2 81.2 136.8
Cash generated from operations 326.2 656.6 1,385.7
------------------------------------------
(1) Excludes GBPnil (last half year: GBP0.7m; last year end:
GBP5.6m) of surrender payments included within repayment of
lease liabilities in the consolidated statement of cashflows
relating to leases within the UK store estate programme.
(2) Adjusting items net cash outflows relate to strategic
programme costs associated with the UK store estate, utilisation
of provisions for the International franchise restructure,
and legal cost related to the acquisition of Gist Limited.
(3) Adjusting items M&S Bank relates to M&S Bank income recognised
in operating profit offset by charges incurred in relation
to the insurance mis-selling provision, which is a non-cash
item.
14 Analysis of net debt
Reconciliation of net cash flow to movement in net debt
26 weeks ended 52 weeks
ended
1 Oct 2022 2 Oct 2021 2 April
2022
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
----------- ----------- ---------
Opening net debt (2,698.8) (3,515.9) (3,515.9)
----------- ----------- ---------
Net cash (outflow)/inflow from activities (430.2) 282.0 536.4
(Decrease)/increase in current financial
assets (7.8) 5.6 (0.8)
Decrease in debt financing 332.4 107.9 379.6
New lease commitments (141.6) (38.2) (100.6)
Exchange and other non-cash movements 17.3 4.4 2.5
Movement in net debt (229.9) 361.7 817.1
-----------
Closing net debt (2,928.7) (3,154.2) (2,698.8)
----------- ----------- ---------
Reconciliation of net debt to statement
of financial position
As at As at As at
1 Oct 2022 2 Oct 2021 2 April
2022
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
----------- ----------- ---------
Statement of financial position
and related notes
Cash and cash equivalents 772.7 951.9 1,197.9
Current other financial assets 10.5 24.0 17.6
Medium Term Notes - net of foreign
exchange revaluation (1,318.4) (1,652.1) (1,494.7)
Lease liabilities (2,300.3) (2,330.2) (2,278.7)
Partnership liability to the Marks
& Spencer UK Pension Scheme (note
10) (122.9) (189.6) (192.3)
(2,958.4) (3,196.0) (2,750.2)
Interest payable included within
related borrowing and the partnership
liability to the Marks & Spencer
UK Pension Scheme 29.7 41.8 51.4
Total net debt (2,928.7) (3,154.2) (2,698.8)
----------- ----------- ---------
15 Business combination
On 30 September 2022 the Group obtained control of Gist Limited,
a logistics business, by acquiring 100% of its issued share
capital. The acquisition is expected to accelerate the Group's
multi-year plan to modernise its Food supply chain network to
support growth.
Recognised amounts of identifiable net assets (provisional)(1) GBPm
Intangible assets 2.7
Property, plant and equipment 197.9
Inventories 3.3
Trade and other receivables(2) 88.0
Cash and cash equivalents 67.8
Trade and other payables (78.0)
Borrowings and other financial liabilities (17.4)
Provisions (2.9)
Deferred tax liabilities (11.0)
Net identifiable assets acquired 250.4
Goodwill 9.8
Total consideration 260.2
Satisfied by:
Cash 163.2
Estimated working capital adjustment 8.0
Deferred consideration 83.5
Contingent consideration arrangement (note 11) 23.7
Settlement of pre-existing relationship (18.2)
Total consideration transferred 260.2
Net cash outflow arising on acquisition:
Cash consideration 163.2
Less: cash and cash equivalents acquired (67.8)
95.4
(1) The fair value of the net assets acquired are provisional
because the acquisition was completed late in the period. The fair
values will be finalised within 12 months of acquisition.
(2) The fair value of trade and other receivables is considered
equivalent to the gross contractual amount and the Group expects to
collect substantially all of these.
The goodwill is attributable to the synergies expected to arise
after the Group's acquisition of Gist Limited. It has been
allocated to the UK Food segment. None of the goodwill is expected
to be deductible for tax purposes.
The Group incurred acquisition-related costs of GBP6.2m,
predominantly transaction costs, which have been recognised within
adjusting items (see note 3).
The post-acquisition revenues and profit of Gist Limited were
not material to the Group. Presenting the Group revenue and profit
as if the acquisition had been completed on the first day of the
financial year is impracticable because the acquisition was
completed late in the period and the necessary adjustments have not
yet been reliably quantified.
Settlement of pre-existing relationship
The Group and Gist Limited were parties to a long-term supply
contract under which Gist Limited supplied the Group with logistics
services. This pre-existing relationship was effectively terminated
on 30 September 2022.
The Group has attributed GBP18.2m of the consideration
transferred to the extinguishment of the supply contract and has
recognised the amount within adjusting items (see note 3). This
pre-existing relationship tied the Group to a higher cost legacy
contract and this amount relates to the unfavourable aspect of the
contract relative to market prices.
16 Government support
The Group benefited from business rates relief of GBPnil in the
period (last half year: GBP49.9m; last full year: GBP62.2m).
There are no unfulfilled conditions or contingencies attached to
these grants.
17 Related party transactions
The Group's related party transactions are disclosed in the
Group's 2022 Annual Report. There have been no material changes in
the related party transactions described in the last annual
report.
Joint Ventures and Associates
Ocado Retail Limited
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 52 weeks ended
1 Oct 2022 2 Oct 2021 2 April 2022
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Sales of goods and services 17.0 16.7 36.1
Purchases of goods and services 0.1 0.2 0.2
Included within trade and other receivables is a balance of
GBP3.2m (last half year: GBP2.8m; last full year: GBP1.9m) owed by
Ocado Retail Limited.
Nobody's Child Limited
Nobody's Child Limited became an associate of the Group in
November 2021.
In the half year ended 1 October 2022, the Group made purchases
of goods amounting to GBP3.9m (last full year: GBP1.2m).
At 1 October 2022, included within trade and other payables is
an immaterial balance less than GBP0.1m owed to Nobody's Child
Limited (last full year: GBP0.2m) and included within other
financial assets is a balance of GBP0.7m owed from Nobody's Child
Limited (last full year: GBP0.7m).
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
2022 Annual Report.
There have been no other material changes to the arrangements
between the Group and key management personnel in the period.
Other related party transactions
The Group acquired 77.7% of the issued share capital of The
Sports Edit Limited ("TSE") in February 2022. A further 4.8% of
TSE's issued share capital was owned by Mr. Justin King, a
Non-Executive Director of the Group (the "JK TSE Shares").
Following shareholder approval, the Group acquired the JK TSE
Shares from Mr. Justin King at a total purchase price of GBP0.3m in
July 2022.
18 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.
19 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. Except as disclosed in note 9, there have been no material
non-adjusting events since 1 October 2022.
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 22/23 HY 21/22 %
GBPm GBPm
UK Clothing & Home
Store sales(1) 1,195.6 1,006.2 18.8
Consignment sales (9.7) (2.1)
Store revenue 1,185.9 1,004.1 18.1
Online sales(1) 554.1 528.4 4.9
Consignment sales (15.7) (5.5)
Online revenue 538.4 522.9 3.0
UK Clothing & Home sales(1) 1,749.7 1,534.6 14.0
Consignment sales (25.4) (7.6)
Total UK Clothing & Home revenue 1,724.3 1,527.0 12.9
(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 22/23 HY 21/22 %
GBPm GBPm
UK Food
Like-for-like 3,175.1 3,029.2 4.8
Net new space(1) 142.4 113.8
Total UK Food revenue 3,317.5 3,143.0 5.6
UK Clothing & Home
Like-for-like 1,715.8 1,488.2 15.3
Net new space 33.9 46.4
Total UK Clothing & Home sales 1,749.7 1,534.6 14.0
(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. HY 22/23 HY 21/22 %
GBPm GBPm
UK Food
Revenue 3,317.5 3,143.0 5.6
Sales to Ocado Retail (14.5) (14.4)
Hospitality (102.7) (67.0)
Franchise (374.6) (289.9)
Food ex hospitality and franchise 2,825.7 2,771.7 1.9
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 FY21/22 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 22/23 HY 21/22 %
GBPm GBPm
International Revenue
Stores 413.4 350.7 17.9
Online 83.0 84.6 (1.9)
At reported currency 496.4 435.3 14.0
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 22/23 HY 21/22 %
GBPm GBPm
International Revenue
At constant currency 496.4 436.5 13.7
Impact of FX retranslation - (1.2)
At reported currency 496.4 435.3 14.0
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.
Operating Operating Adjusting Operating profit before the
profit before profit items impact of adjusting items.
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.
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 before Profit/(loss) Adjusting Profit before the impact of
tax and before tax items adjusting items and tax. The
adjusting (See note Group considers this to be
items 3) 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 FY21/22 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 FY21/22 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 profit/(loss)
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
sheet position and is widely
used by credit rating agencies.
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.
(1) EBIT is not defined within IFRS but is a widely accepted
profit measure being earnings before interest and tax.
INDEPENT REVIEW REPORT TO MARKS AND SPENCER GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
26-week period ended 1 October 2022 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 19.
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-week period ended 1
October 2022 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.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 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 (ISRE (UK) 2410). 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.
As disclosed in note 1, the annual financial statements of the
group are 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".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of 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.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our Conclusion, including our Conclusion Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
ISRE (UK) 2410. 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
8 November 2022
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END
IR GGBDBXBGDGDC
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November 09, 2022 02:00 ET (07:00 GMT)
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