TIDMMKS

RNS Number : 4152N

Marks & Spencer Group PLC

20 May 2020

Marks and Spencer Group Plc

Full Year Results For 52 Weeks Ended 28 March 2020

"Securing the future... accelerating change"

 
 52 weeks ended                              28 Mar 20         30 Mar   Change 
                                                                   19        % 
                                                          Restated(1) 
                                        --------------  ------------- 
 Group revenue                            GBP10,181.9m   GBP10,377.3m     -1.9 
 Profit before tax & adjusting items         GBP403.1m      GBP511.7m    -21.2 
 Adjusting items                           GBP(335.9)m    GBP(427.5)m     21.4 
 Profit before tax                            GBP67.2m       GBP84.2m    -20.2 
 Profit after tax                             GBP27.4m       GBP45.3m    -39.5 
 Adjusted basic earnings per share               16.7p          23.7p    -29.5 
 Basic earnings per share                         1.3p           2.5p    -48.0 
 Free cash flow(2)                           GBP225.0m      GBP580.8m    -61.3 
 Net debt                                    GBP4.03bn      GBP4.08bn     -1.2 
 Net debt excluding lease liabilities        GBP1.46bn      GBP1.50bn     -2.6 
 Dividend per share                               3.9p          13.3p    -70.7 
---------------------------------------  -------------  ------------- 
 
 

(1) Prior year comparatives restated for the adoption of IFRS 16 'Leases' and for the effects of the rights issue completed in June.

(2) Free cash flow is cash generated from operating activities less capital expenditure, cash lease payments and interest paid.

There are a number of non-GAAP measures and alternative profit measures "APM", discussed with this announcement and a glossary and reconciliation to statutory measures is provided at the end of this report. Adjusted results are consistent with how business performance is measured internally and presented to aid comparability of performance. Refer to adjusting items table below for further details.

Steve Rowe, Marks & Spencer CEO said: "Last year's results reflect a year of substantial progress and change including the transformative investment in Ocado Retail, outperformance in Food and some green shoots in Clothing in the second half. However, they now seem like ancient history as the trauma of the Covid crisis has galvanised our colleagues to secure the future of the business. The way our people have rallied to support our customers and communities has been awe-inspiring. From the outset we recognised that we were facing a crisis whose effects and aftershocks will endure for the coming year and beyond: Whilst some customer habits will return to normal others have changed forever, the trend towards digital has been accelerated, and changes to the shape of the high street brought forward. Most importantly working habits have been transformed and we have discovered we can work in a faster, leaner, more effective way. I am determined to act now to capture this and deliver a renewed, more agile business in a world that will never be the same again."

-- Profit before tax & adjusting items GBP403.1m, including an adverse profit impact of c.GBP52m in March which we largely attribute to Covid-19

-- Profit before tax of GBP67.2m including a djusting items of GBP335.9m, with GBP212.8m for costs and stock write downs for Covid-19

-- Strong Food LFL revenue of 1.9% and operating profit up 11.2%. Volume outperforming the market

-- Clothing LFL revenue decline of 6.2% and operating profit down 37.0%, adversely impacted by availability in H1. Reengineering of ranges accelerating during the year

-- Acquired 50% of Ocado Retail, a valuable investment in online grocery which transforms the growth potential of M&S Food. Ocado Retail delivered 40.4% revenue growth for the 9 weeks to 3 May. Switchover and synergy plans on track

   --     Progress against transformation priorities, helping the business to withstand the crisis 

-- Over GBP1bn of actions, including c.GBP500m of planned cost reductions and further actions to manage cash under scenario planning for Covid-19

-- Liquidity secured including removal or substantial relaxation of covenants on the GBP1.1bn revolving credit facility (RCF). Eligibility to the UK Government's Covid Corporate Financing Facility (CCFF) confirmed and GBP300m allocated

-- Outperformance against Covid-19 scenario, with cashflow over GBP150m better than scenario after six weeks, largely driven by trading

-- Launched the Never the Same Again programme to draw on learnings from the crisis and capitalise on the opportunities to drive the transformation plan in a changed consumer environment.

Good progress on transformation in 2019/20

Prior to the Covid-19 impact, both major businesses were making good progress in implementing the transformation programme with Food outperforming the market and despite teething issues in changes to men's clothing ranges, kids, womens, and lingerie starting to show sustained, improved performance.

In recent years we have made a number of structural changes to the basic infrastructure of the business including closing 54 of our legacy shared stores, migrating off mainframe infrastructure to cloud based systems and implementing new warehouse management systems. These changes have been instrumental in helping the business to react effectively in the early weeks of the crisis.

To illustrate more clearly our new more decentralised model, we are for the first-time introducing segmental profit reporting in our family of businesses: UK Food, UK Clothing & Home and International. This demonstrates the strength and balance of the combined businesses, which has been a major source of resilience in the crisis.

Outperformance in Food

The UK Food business outperformed the market and saw strengthening sales performance as changes to range, value, and customer communication took effect: revenue increased 2.1%, with LFL sales up 1.9%, strengthening throughout the year, including an estimated 0.3% benefit from the effects of Covid-19 in March. Operating profit before adjusting items increased 11.2%. Value perception has improved resulting in growth in volume ahead of value at 3.3%.

We set out the strategy for Food 18 months ago, rebuilt the leadership team and started the repositioning of the business to broaden its appeal and move to 'trusted value'. The programme was picking up momentum prior to the crisis:

-- Price investment was further strengthened through the launch of 'Remarksable' value and 'Fresh Market Special' lines, many at 65 pence. The level of promotions also continued to reduce. As a result, the price index of comparable product baskets has improved compared with key competitors, resulting in better price perceptions

-- A new programme of range innovation was brought forward including significant launches in healthy, Plant Kitchen, made without, and family product to broaden appeal. This was combined with innovative new marketing including Little Shop and Britain's Got Talent sponsorship

-- 5 'test and learn' renewal Food stores were opened showcasing more of the full M&S range in a modern engaging environment and testing new product innovations with encouraging results. We expect to move towards extension of these formats in the coming year

-- Through Project Vangarde, which has now been rolled out to 90 stores, the leadership team has demonstrated scope for reducing waste, improving availability and running stores more efficiently.

Ocado Retail positioned strongly for growth

During the year we completed the purchase of 50% of Ocado Retail providing M&S with a profitable, scalable presence in online grocery, the UK's fastest growing channel. We reported a first time net income contribution for Ocado Retail to group profit of GBP2.6m for the 7 months to 1 March 2020, with the early contribution reflecting the limited period since completion. This is the contribution to group results prior to switchover to M&S supply on 1 September, which we expect to drive volume growth for M&S Food.

We have been working closely with Ocado Retail to create a 'one business' mentality which includes common operating procedures, business plan, and shared talent. Switchover and synergy plans are on track. The value of the investment we have made has been further reinforced by the strong growth reported by Ocado Retail since lockdown, with growth for the most recent 9 week period of 40.4% reported at its AGM on 6 May.

Reengineering Clothing & Home

The UK Clothing & Home business experienced a year of substantial reshaping under new leadership, resulting in some encouraging performance indicators in the second half. However, revenue declined 8.3% overall, with LFL revenue down 6.2%, including an estimated 2.2% adverse impact from Covid-19 in March. Online revenue was level. Operating profit before adjusting items declined 37.0%, largely driven by lower sales, gross margin headwinds related to sourcing and promotional mix and the impact of the crisis.

Trading in the first half was affected by availability issues in Womenswear and in the second half by teething issues with the move of Menswear towards a more contemporary style and fit. However, towards the end of the year, prior to the effects of Covid-19, performance in Womenswear and Kids was encouraging, Menswear saw improving sales trends and Lingerie held its market leading share.

-- In Womenswear, reshaping the buy and more contemporary style resulted in improving performance up until the onset of the crisis. Recent range proliferation has been reversed by 11% in Autumn/Winter and the focus on core strengths and hero categories resulted in some strong uplifts. In denim the market leading position was extended with a sales uplift of over 10% over two years

-- The successful launch of Goodmove resulted in increases in share of activewear and growth in sales in this category of 16% in the three months post launch

-- Kidswear under a new leadership team started to reduce the breadth of range and focused on stronger casual basics at better value resulting in LFL sales growth in the second half

-- Menswear experienced initial problems with size and fit as the range migrated towards a more contemporary style and look, in order to address issues in the shape of buy. However, these issues should be non-recurring and we saw encouraging uplifts for instance in knitwear, the standout category, with LFL sales growth of 5.6%

-- Lingerie market share held at 27%, and strong performances from 'Collection' as option count was marginally reduced

-- Online performance improved prior to the adverse impact of Covid-19 on trading in March, but not as fast as expected and is being reorganised under new leadership as part of the post Covid-19 programme.

Changing the model in International

The first phase of transforming the International business has been the move away from direct ownership to a franchise and joint venture model, working with strong partners in high potential territories. The focus now is on localising ranges, reducing prices and will be increasingly on developing sales online globally.

International revenue at constant currency decreased 2.5%. Operating profit before adjusting items declined 15.2% to GBP110.7m, largely as a result of trading conditions in March.

The International online operation brings together operations in 44 markets including direct shipments from the UK, sales on third party marketplaces and sales fulfilled by franchise partners on their own websites. Online retail sales increased 26% to GBP103m, supported by the launch of 5 new transactional websites and an expansion of ranges on marketplaces.

Over GBP1bn of actions to reduce costs and manage cash under scenario planning for Covid-19

The Covid-19 crisis started to have an impact on the business in the first week of March with reductions in UK Clothing & Home sales which declined by 6.2% and 26.9% the week after. With the onset of lockdown, the effect on sales, colleagues and customers in both businesses has been dramatic. Clothing sales at the low point dropped to 16% of their level a year ago. Without the resilience of the combined Food and Clothing business model and extraordinary loyalty of colleagues the impact on the business would have been even more profound.

Covid-19 scenario

Our belief has been from the outset that the direct impact of the crisis on sales and stock flow will last through the year and that subsequent demand may be depressed. In a challenging environment to forecast accurately the business is being managed against a 'Covid-19 scenario' created in the early weeks of lockdown, which reflects a very substantial reduction in sales, particularly in Clothing & Home and volatile Food trading in the early months of the crisis. This scenario has been stress tested and even in the event of a longer and deeper impact on trading, the group maintains sufficient liquidity. Although we will be drawing on our available credit facilities in the coming year, under the scenario the business will have significant liquidity headroom throughout the next 18 months. We are pleased to note that in the first 6 weeks of the new year, sales and cash have substantially outperformed the scenario.

The scenario has the following core assumptions relative to our original FY 2020/21 budget:

-- UK Clothing & Home, 70% decline in revenue for the four months to July and only a gradual return to original budgeted levels by February 2021 impacting annual revenue by c.GBP1.5bn

-- UK Food, 20% decline in revenue for the four months to July, with revenue level thereafter, impacting annual revenue by c.GBP0.4bn

-- International - Clothing & Home revenue to follow a similar pattern to UK Clothing & Home with a significant decline in April due to closures, impacting annual revenue by c.GBP0.2bn.

The table below sets out the revenue assumptions in the scenario by quarter showing variance to original budget.

 
 
    % change to budget        Q1    Q2     Q3     Q4             FY 
--------------------------  ----  ----  -----  -----  --------------- 
        UK Clothing & Home   -74   -61    -40     -6             -46 
                      Food   -20    -6      -      -               -6 
             International   -51   -20     -9     -9              -22 
 

In the light of the prolonged partial or total lockdown envisaged in our Covid-19 scenario, we have taken actions totalling c.GBP1bn relative to original budget to reduce costs and manage cash, while protecting our transformation plans and trading potential.

Substantial cost reduction of c.GBP500m in FY 2020/21

-- Non-essential spending has been reduced at all levels. For instance, we expect Clothing & Home marketing to be down c.GBP50m for the year, pay levels and recruitment have been frozen saving c.GBP40m and technology costs will be down c.GBP40m

-- Costs which are largely related to sales volume are being managed down, for instance Clothing & Home logistics down c.GBP60m, colleague costs post lockdown saving c.GBP40m and International costs saving c.GBP30m

-- Fixed property related charges are expected to decline with service charge reductions, rent costs and other occupancy cost savings down by c.GBP20m before any more far reaching changes to the store portfolio

-- Government support measures including business rates relief of c.GBP172m and the job retention scheme of c.GBP50m will further support this year's outcome.

In addition to these savings we are exploring the potential for other changes, including a more streamlined support centre, changes to leadership structure and negotiations with landlords on commercial terms on lease contracts.

Actions to stabilise cashflow exceeding GBP500m

In view of the steep increase in working capital resulting from unsold stocks we are experiencing a cash outflow during the lockdown period and expect to draw on our credit facilities in the months ahead. Under the Covid-19 scenario, drawings are estimated to peak in early Autumn at c.GBP600m, although our current performance would suggest a lower figure. To reduce risk, maximise liquidity, and enable a return to growth in the future steps have been taken to underpin cash flow and reduce working capital.

-- Capital expenditure for the year has at this stage been reduced to c.GBP140m, saving c.GBP195m in cash outflow in the current year against budget. Only essential and short payback investment focused on growth has been retained such as the new ambient food depot, investment in online fulfilment and site development and the digital & data programme

-- Cash management initiatives including in-year deferral of corporation tax, VAT and duty payments and likely savings from lower corporation tax paid for 2020/21

-- As previously reported, there will be no final dividend for 2019/20 and the board does not expect to pay a dividend for the current financial year, using the funds instead for balance sheet support in the region of GBP340m.

Liquidity and additional headroom secured for 2020 and 2021

It was an immediate priority for the company to secure its debt facilities to provide for the cash requirements modelled under the Covid-19 scenario described above and given the risk in an uncertain market to ensure there is downside protection under even more adverse sensitivities. Therefore:

-- Formal agreement has been reached with the syndicate of banks providing the GBP1.1bn revolving facility to remove or substantially relax covenant conditions for the tests arising in September 2020, March 2021, and September 2021

-- We have confirmed that we are eligible to access funding under the Government's Covid Corporate Financing Facility and been allocated an issuer limit of GBP300m

-- As a result of these actions we expect to have considerable headroom under our available facilities in FY20/21. While we will experience a cash outflow in the first half of the year as sales reduce and we pay for our previous stock commitments, we would expect this to partly reverse in the second half of the year

-- Under the Covid-19 scenario, drawings against our available facilities would be in the range of GBP300m-GBP350m by the end of 2020/21

-- The cancellation of the final dividend of c.GBP130m will generate further cash savings after year end.

Experience to date has been ahead of the Covid-19 scenario against which we set strong cost and cash management plans and has outperformed the scenario by over GBP150m year to date, with actions planned to further improve our cash flow. If sustained, under the Covid-19 scenario we consider the Group well positioned to exit the crisis with limited drawdown against its facilities in 2020/21, with a further saving of the final dividend in the early months of next year. We intend to adopt a dynamic approach to investment using sustained cashflow outperformance to capitalise on strong investment opportunities under our 'never the same again' agenda.

Management of excess Clothing & Home stock

Like all fashion businesses one of the biggest challenges arising from the crisis is the mounting backlog of unsold stock for Spring/Summer 2020 and the forward pipeline of stock already ordered for Autumn/Winter. We closed 2019/20 with Clothing & Home stock of c.GBP500m and at that time had committed forward orders of GBP560m scheduled to arrive in the following six months. As the lockdown eases a large proportion of current season stock will remain unsold and demand for many categories is likely to be weak. We have acted quickly to improve this position.

-- We have cancelled late summer stock which will no longer be required reducing forward commitment at cost by GBP100m

-- Of the balance of stock and forward orders c.GBP400m is year-round basic product where M&S trades strongly and which will be carried forward at low risk, albeit creating a short-term increase in stock carrying levels

-- Of the unsold seasonal stock, we have made arrangements to hibernate around GBP200m until Spring 2021, secured storage facilities and planned for the cost of these actions

-- We have therefore taken a charge of GBP145.3m in adjusting items to reflect the cumulative impact of the combined handling, clearance, hibernation and write-off of the stock bulge described above.

The combined impact of lockdown, social distancing and depressed demand is therefore likely to continue through the year.

Never the Same Again

During the crisis we have all had to work differently and customers have rapidly changed habits and may never shop the same way again. We intend to use the learning from the crisis and have drawn up our 'never the same again' agenda to accelerate transformation.

What we are learning in the crisis

The crisis illustrated how differently we can use technology, run stores, and make decisions fast. In a business with a history of slow cultural change we intend to use these lessons, to ensure that as lockdown eases, we are never the same again in culture, organisation and work habits. For instance:

-- A smaller top team has made decisions faster and more efficiently delegating trading and operating management to business unit heads. Numerous working groups, committees and elaborate management processes have been disbanded

-- Support colleagues have learnt to improvise their routines at lower cost with no detriment to trading standards

   --     Our strategic relationship with Microsoft has been highly effective, supported by Teams 

-- In stores given the need to furlough and redeploy colleagues, valuable lessons have been learnt about our ability to multi-task and increase the pace of work with no adverse impact on service

-- Online has for a period been our only significant Clothing business and has illustrated the need to be leaner and more integrated to compete with online pure plays

-- The reduction in forward order volumes in Clothing has forced the need to change ranges to buy more of less from fewer core suppliers.

What will never be the same again

Steps have already been taken to ensure that the change of gear of the last few weeks endures, including the following:

-- Steve Rowe has already announced changes to the business leadership structure with the formation of a small executive board consisting of the operating MDs together with Katie Bickerstaffe who has now started as Chief Strategy & Transformation Officer, and Eoin Tonge Chief Finance Officer who is arriving in early June

-- Central support costs and headcount will be examined at all levels, delegating decisions to business unit and category heads

-- In stores, multi-tasking and more flexible management structures will be integrated into the way the business works and manages

-- Digital is being consolidated under a single transformation team bringing together data, online development and technology

-- The direct to the front-line tech enabled communication combined with increased flexibility in working patterns will become permanent.

Accelerating the transformation programme

-- The move to 'trusted value' in Clothing & Home will be accelerated and option count reduction and supplier concentration brought forward

-- The reduction in range and shift towards fast moving product at great value necessitated by the crisis will result in a permanent reduction of 20% in Autumn/Winter store option count

-- The role of the sourcing offices will be increased so that sampling, ordering and quality issues are dealt with offshore

-- A faster, 'near-sourcing' supply chain will be developed, to enable the test and re-order of seasonal fashion lines particularly for the online business

-- The replacement of ageing stores already underway and shift in relationships with property providers will accelerate

-- The longstanding issues with availability and waste in the Food supply chain will be tackled with the roll out of the Vangarde programme and addressing the contract and relationship with Gist.

Becoming an Online winner in C&H and Food

Customers may never shop the same way again. The sharp growth of online grocery during the crisis is evidence of this as is the strengthening performance of our online Clothing & Home.

The Ocado joint venture relationship is an integral part of our strategy to bring M&S Food into the online and home delivery market which we expect to be even more vibrant as a result of the crisis. Since the formation of the joint venture Ocado Retail has performed strongly and following lockdown, revenue in its most recently reported 9 weeks to 3 May was up 40.4%.

The Food business is now working closely with Ocado Retail to ensure that it has a compelling offer at the switchover from the Waitrose supply contract on September 1st.

-- Adding over 6,000 M&S lines to Ocado from September compared with just c.4,000 Waitrose lines which will be removed from the site. We believe M&S has substitutes at the same price or lower, and of the same quality or better, for the majority of the current offer

-- Finalising product data sets for online trading, supply chain processes for direct to Customer Fulfilment Centre deliveries and switchover procedures for September

-- Negotiating supplier terms and other working arrangements to deliver synergies for M&S starting this year and building to not less than GBP70m in 36 months from inception of supply

-- Agreeing through Ocado new supply agreements with major branded suppliers to improve M&S competitiveness in branded sourcing

-- Bringing onto the Ocado Retail platform around 1,600 core Clothing & Home lines per year to be available on the site, providing a further route to market and a customer acquisition channel. The Autumn range will be launched in September with c.850 lines made available.

In addition, in Clothing & Home, the M&S.com and large stores platforms will be opened to complementary guest brands to broaden appeal and increase online growth.

Further strengthening the management team

We have created a significantly renewed management team, to implement the "never the same again" agenda. In the coming weeks the new team will finally take shape with a number of important new arrivals:

   --     Katie Bickerstaffe has joined as Chief Strategy and Transformation officer 
   --     Eoin Tonge joins as CFO in June 
   --     Richard Price joins as Managing Director, Clothing & Home in July 
   --     Will Smith joins as Property Director in May 
   --     Stephen Langford joins as Head of Clothing & Home online in May 
   --     Helen Milford joins as Store Operations Director in June 
   --     Paul Babbs joins as Head of Clothing & Home supply chain in May 
   --     Craig Lovelace joins as Finance Director of Food in June 

Recent trading performance

The first six weeks trading has been ahead of the Covid-19 scenario particularly in Food and online.

-- Store sales in UK Clothing & Home were reduced to a trickle due to the closure of space running down (98.8%) year on year at the low point. In store sales of essentials increased from GBP252k per week in the first week of lockdown to GBP1.4m per week by week six

-- Although online Clothing & Home has traded throughout, demand in the initial weeks for clothing was very low with a gradual uplift since. In the last 3 weeks online sales have been running c.20% up year on year

-- Standalone Simply Food stores have traded strongly, up 17% with a positive trend in many Retail park stores which typically have direct access from car parks. In the earliest weeks of lockdown this was offset by lower sales in travel franchise units (c.5% of revenue) and the closure of in-store hospitality and cafes (c.4% of revenue). In the last three weeks overall Food sales have on average been level.

-- We also experienced an initial adverse margin mix as demand shifted towards ambient grocery sales, although this is now diminishing.

 
                                                   6 weeks to 9 May 
                                 % change to LY*              20(1) 
------------------------------------------------  ----------------- 
                                 Clothing & Home              -75.0 
                                            Food               -8.8 
                                   International              -51.3 
                                           Group              -32.7 
                             Clothing & Home.com                6.4 
                                         M&S.com               19.9 
                             Food ex hospitality               -4.6 
 

1. unaudited revenue for the 6 week period from 29 March 2020 to 9 May 2020

*At constant currency

- -

For further information, please contact:

Investor Relations:

   Fraser Ramzan:                  +44 (0)20 3884 7080 
   Hannah Chambers:           +44 (0)20 3882 4714 

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 8.30am on 20 May 2020.

Steve Rowe and David Surdeau will host a Q&A session at 9.30am on 20 May 2020:

Dial in number: +44 (0)20 8089 4223 Room Number: 264382 Pin: 6028

Fixed Income Investor Conference Call:

This will be hosted by David Surdeau, Interim Chief Finance Officer, at 2pm on 20 May 2020:

Dial in number: +44 (0)20 8089 4223 Access code: 748331

A recording of this call will be available until pm on 5pm on 30th May 2020:

Dial in number: +44 (0)20 7660 0134 Access code: 3811201

FINANCIAL REVIEW

Group revenue in growth in Q4, prior to Covid-19 effect in March

Q4 group revenue declined 2.6% at constant currency largely reflecting the increasingly adverse impact of Covid-19 on revenue in March relative to forecast. For the 8 weeks ended 22 February group revenue increased 2.8% with UK Food LFL revenue up 3.7% with strengthening volume growth and UK C&H LFL revenue up 0.3%, driven by stronger trends at M&S.com. International growth in the 8-week period largely reflected the timing of shipments as franchise partners called summer product earlier than last year.

 
 % change at constant 
  currency                         FY      Q1      Q2     Q3      Q4  Jan/Feb 
                                       ------                         ------- 
 Food                             2.1     0.8     1.5    1.5     4.8      4.1 
 Like-for-like                    1.9     0.4     1.4    1.4     4.6      3.7 
 
        *    Clothing & Home     -8.3    -7.8    -8.2   -3.8   -15.7     -1.7 
 Like-for-like                   -6.2    -5.5    -5.9   -1.8   -13.8      0.3 
 
        *    Total UK sales      -1.8    -2.3    -2.2   -0.6    -2.2      2.2 
 Like-for-like                   -1.1    -1.8    -1.4    0.1    -1.6      2.6 
 
        *    International       -2.5     2.8    -4.4   -1.8    -6.4      8.9 
 Total Group                     -1.8    -1.9    -2.5   -0.7    -2.6      2.8 
 Total M&S.com (Memo 
  only)                           1.2     0.8    -0.4    2.5     1.3     11.1 
 UK Clothing & Home 
  online (Memo only)            (0.2)   (0.5)   (0.6)    1.1   (1.3)     12.1 
-----------------------------  ------  ------  ------  -----  ------  ------- 
 

See glossary for definitions. Prior year revenue has been restated for the reclassification of localised websites from Clothing & Home to International.

Full Year Financial Summary

 
                                   28 March       30 March         Change 
   52 weeks ended                        20             19 
                                               Restated(1)              % 
                                       GBPm           GBPm 
-------------------------------  ----------  -------------  ------------- 
 Group revenue                     10,181.9       10,377.3           -1.9 
 UK Food                            6,028.2        5,903.4            2.1 
 UK Clothing and Home               3,209.1        3,499.8           -8.3 
 International                        944.6          974.1           -3.0 
 
 Group operating profit before 
  adjusting items(2)                  590.7          725.6          -18.6 
 UK Food                              236.7          212.9           11.2 
 UK Clothing and Home                 223.9          355.2          -37.0 
 International                        110.7          130.5          -15.2 
 Other                                 19.4           27.0          -28.1 
 
 Interest on leases                 (133.4)        (147.2)            9.4 
 Net financial Interest              (54.2)         (66.7)           18.7 
 Profit before tax & adjusting 
  items                               403.1          511.7          -21.2 
 Adjusting items                    (335.9)        (427.5)           21.4 
 Profit before tax                     67.2           84.2          -20.2 
 Profit after tax                      27.4           45.3          -39.5 
 Adjusted basic earnings per 
  share(2)                            16.7p          23.7p          -29.5 
 Basic earnings per share(2)           1.3p           2.5p          -48.0 
 Dividend per share(2)                 3.9p          13.3p          -70.7 
 Net debt                         GBP4.03bn      GBP4.08bn           -1.2 
-------------------------------  ----------  -------------  ------------- 
 

Notes

1. Prior year comparatives have been restated for the adoption of IFRS 16 'Leases'. Refer to note 17 of the financial statements for detailed restatement tables and associated commentary.

2. Earnings per share and Dividend per share have been restated to reflect the bonus factor adjustment resulting from the rights issue (refer to notes 1 and 6 of the financial statements for further information).

There are a number of non-GAAP measures and alternative profit measures "APM", discussed with this announcement and a glossary and reconciliation to statutory measures is provided at the end of this report. Adjusted results are consistent with how business performance is measured internally and presented to aid comparability of performance. Refer to adjusting items table below for further details.

Covid-19 Impact

Group revenue decreased 1.9%, largely as a result of lower UK Clothing & Home sales, including an adverse revenue impact of c.GBP83.5m in March which we largely attribute to Covid-19 . Group statutory profit before tax declined 20.2% to GBP67.2m. This was largely driven by a decline in Clothing & Home operating profit as a result of lower sales. Statutory profit before tax includes an estimated total impact of GBP264.7m for Covid-19. This comprises a trading impact of GBP51.9m in March which we largely attribute to the pandemic, in addition to GBP212.8m of charges in adjusting items which includes the recognition of additional inventory provisions of GBP157.0m and the impairment of stores and goodwill of GBP49.2m.

As part of its scenario planning to mitigate the effects of Covid-19 the Group is planning a significant reduction in costs and a number of cash management initiatives, which are detailed in the Covid-19 Scenario section of this report.

Reporting of accountable businesses

During the year, the Group completed a comprehensive review of the way operating costs are allocated, allowing management to review the operating profit of each business. As a result, the Group now recognises three operating segments, being UK Clothing & Home, UK Food and International (previously UK and International). This allows the financial information to align to the way the business is managed and holds leadership appropriately to account. The review has resulted in a reallocation of GBP13.3m of central costs from the previous UK segment to International (GBP12.6m) and M&S Bank (GBP0.7m). In addition, certain M&S.com flagship websites, which last year generated GBP37.5m of revenue and GBP2.9m of operating profit before adjusting items have been reclassified from UK Clothing & Home to International.

UK: Food

 
 
 52 weeks ended                         28 March    30 March   Change 
                                              20          19 
                                                    Restated        % 
                                            GBPm        GBPm 
-------------------------------------  ---------  ----------  ------- 
 Revenue                                 6,028.2     5,903.4      2.1 
 Operating profit before adjusting 
 items                                     236.7       212.9     11.2 
 Operating profit margin                    3.9%        3.6% 
-------------------------------------  ---------  ----------  ------- 
 
 

UK Food revenue increased 2.1% and operating profit before adjusting items increased 11.2%, due to lower costs. We estimate a positive effect on March revenue of GBP17.7m and operating profit of GBP3.7m, largely related to Covid-19.

Like-for-like revenue was up 1.9%. Performance was particularly strong in quarter four with growth of 3.7% in the two months to February before increased demand related to Covid-19 in March. As we executed our strategy to broaden appeal and make M&S more accessible to more customers by removing promotions and lowering prices, total full year volumes were up 3.3%. As expected, the contribution from new space was largely offset by full line store closures.

The table below sets out the drivers of the movement in operating profit margin before adjusting items, which increased 0.3%:

 
                                    % 
------------------------------  ----- 
 1819 operating profit margin     3.6 
 Gross margin                    -0.5 
 Store staffing                   0.3 
 Other store costs                0.3 
 Distribution and warehousing    -0.2 
 Central costs                    0.4 
------------------------------  ----- 
 1920 operating profit margin     3.9 
------------------------------  ----- 
 

Gross margin decreased 50bps which was more than expected, as continued investment in price and inflationary headwinds were not fully offset by reduced promotions and the programme to lower costs.

The reduction in gross margin was more than offset by operating costs, which reduced overall and as a percent of sales. Store staffing and other store costs were slightly down as efficiencies more than offset the pay review and cost inflation. Distribution costs increased largely due to cost inflation, impacting margin. The reduction in central costs was largely driven by lower depreciation, partly due to a system write off in the prior year.

UK: Clothing & Home

 
 
 52 weeks ended                        28 March    30 March   Change 
                                             20          19 
                                                   Restated        % 
                                           GBPm        GBPm 
------------------------------------  ---------  ----------  ------- 
 Revenue                                3,209.1     3,499.8     -8.3 
 Operating profit before adjusting 
 items                                    223.9       355.2    -37.0 
 Operating profit margin                   7.0%       10.1% 
------------------------------------  ---------  ----------  ------- 
 
 

UK Clothing & Home revenue declined 8.3% and operating profit before adjusting items was down 37.0%. We estimate an adverse effect on March revenue of GBP78.1m and operating profit of GBP43.8m, largely related to Covid-19.

Like for like revenue declined 6.2%, of which an estimated 2.2% related to the adverse movement in March, largely due to Covid-19. After a disappointing first half, revenue performance both in store and online began to improve in the second half, supported by better availability and growth in key categories in Womenswear and Kidswear. Menswear experienced some initial problems as the range moved towards a more contemporary style and fit.

The table below sets out the drivers of the movement in Clothing & Home operating profit margin before adjusting items which was down 3.1%:

 
                                    % 
------------------------------  ----- 
 1819 operating profit margin    10.1 
 Gross margin                    -1.2 
 Store staffing                  -0.5 
 Other store costs               -0.6 
 Distribution and warehousing    -0.3 
 Central costs                   -0.5 
------------------------------  ----- 
 1920 operating profit margin     7.0 
------------------------------  ----- 
 

Gross margin decreased 120bps which was more than planned, as a result of sourcing headwinds including raw materials and labour and the adverse impact of higher than expected promotional sales and shorter clearance periods.

Operating costs were down in all areas, although increased as a percent of sales. The decline in store staffing costs was largely driven by efficiency programmes, which more than offset the pay review. Other store costs were driven by lower depreciation and cost savings such as the move to a single maintenance vendor. In distribution, reduced costs from the move to a single tier network and in our online operations more than offset inflation and channel shift. Central cost declines were largely driven by lower depreciation with efficiencies reinvested in increased marketing and the build out of digital operations.

M&S Bank and services

M&S Bank and services income before adjusting items was down GBP10.2m to GBP16.8m. This was predominantly the result of an increase in bad debt provisioning due to a higher risk of customer default. M&S Bank income after adjusting items decreased GBP1.9m to GBP4.2m.

Ocado Retail

On 5 August 2019, the acquisition of 50% of Ocado Retail was completed. Ocado Retail Limited is an associate of M&S as certain rights are conferred on Ocado Group plc for an initial period of at least five years from acquisition.

The investment in associate is recognised at a cost of GBP769.0m. This incorporates initial consideration of GBP560.9m paid in cash on acquisition, contingent consideration of GBP202.4m and transaction costs of GBP5.7m. The contingent consideration is conditional on reaching agreed earnings and capacity targets.

The M&S share of Ocado Retail Limited profit for the period from acquisition to 1 March 2020 is GBP2.6m. Summarised financial information in respect of Ocado Retail Limited is below:

 
                                    7 months to 
                                     1 March 20 
                                           GBPm 
---------------------------------  ------------ 
 Revenue                                  979.7 
 EBITDA before exceptional items           25.7 
 Operating profit                          10.9 
 Profit after tax                           5.1 
---------------------------------  ------------ 
 M&S 50% share of profit                    2.6 
---------------------------------  ------------ 
 

On 6 May 2020, Ocado Retail Limited reported 40.4% revenue growth for the 9 weeks to 3 May 2020. For further detail on Ocado Retail Limited please see note 18 to the financial information.

International

 
 52 weeks ended     28 March 20   30 March 19   Change   Change 
                                     Restated 
  Revenue                  GBPm          GBPm        %     CC % 
-----------------  ------------  ------------  -------  ------- 
 Franchise                392.6         409.2     -4.1     -3.8 
 Owned                    552.0         564.9     -2.3     -1.6 
 Total                    944.6         974.1     -3.0     -2.5 
-----------------  ------------  ------------  -------  ------- 
 Operating profit before adjusting items 
---------------------------------------------  ------- 
 Franchise                 64.9          72.3    -10.2 
 Owned                     56.7          70.8    -19.9 
 Corporate costs         (10.9)        (12.6)     13.5 
 Total                    110.7         130.5    -15.2 
-----------------  ------------  ------------  ------- 
 

International revenue decreased 2.5% at constant currency with operating profit before adjusting items down 15.2%. We estimate an adverse effect on March revenue of GBP23.1m and operating profit of GBP11.8m, largely related to Covid-19.

In owned markets, a weak trading performance in the Republic of Ireland was partly offset by continued growth in India driven by 17 new store openings, although opening costs impacted profit. Franchise shipments declined as a result of investment in lower prices, partner driven stock efficiencies and political unrest in Hong Kong, although trends improved in the second half.

Net finance cost

 
 52 weeks ended                      28 Mar 20   30 Mar 19   Change 
                                                  Restated 
                                          GBPm        GBPm     GBPm 
----------------------------------  ----------  ----------  ------- 
 Interest payable                       (80.5)      (80.3)    (0.2) 
 Interest income                           8.6         8.0      0.6 
 Net interest payable                   (71.9)      (72.3)      0.4 
 Pension net finance income               23.6        25.8    (2.2) 
 Unwind of discount on Scottish 
  Limited Partnership liability          (6.9)       (8.8)      1.9 
 Unwind of discount on provisions        (4.9)       (7.9)      3.0 
 Ineffectiveness on financial 
  instruments                              5.9       (3.5)      9.4 
 Net financial interest                 (54.2)      (66.7)     12.5 
 Net interest payable on 
  lease liabilities                    (133.4)     (147.2)     13.8 
 Net finance costs                     (187.6)     (213.9)     26.3 
----------------------------------  ----------  ----------  ------- 
 

Net finance costs decreased GBP26.3m to GBP187.6m. This was primarily due a reduction in net lease financing costs and the reversal of ineffectiveness on a currency swap. In July we issued a GBP250m bond partially refinancing a GBP400m redemption in December. In March 2020, in response to Covid-19 the group's long-term credit rating was lowered by Moody's and Standard & Poor's to Ba1/BB+ respectively. This should result in an additional c.GBP15m of annual interest costs, payable following the next coupon payment, on bonds issued under the Group's EMTN programme.

Group profit before tax

Group profit before tax declined 20.2% to GBP67.2m. This includes a djusting items of GBP335.9m.

Group profit before tax & adjusting items

Group profit before tax and adjusting items was GBP403.1m, down 21.2% on last year. The decline includes an estimated impact from Covid-19 of GBP51.9m in March. The profit decrease was largely due to the decline in Clothing & Home operating profit.

Adjustments to profit before tax

Consistent with previous years, the Group makes certain adjustments to statutory profit measures, in order to derive alternative performance measures that provide stakeholders with additional helpful information and to aid comparability of the performance of the business. For further detail on these charges and the Group's policy for adjusting items please see Notes 1 and 3 to the financial information.

 
 52 weeks ended                                                   Covid -19 related*   28 Mar 20   30 Mar 19    Change 
                                                                                                    Restated 
                                                                                            GBPm        GBPm      GBPm 
---------------------------------------------------------------  -------------------  ----------  ----------  -------- 
 Strategic programmes 
 - UK store estate                                                            (11.6)      (29.3)     (216.5)     187.2 
 - Organisation                                                                    -      (13.8)       (4.9)     (8.9) 
 - Operational transformation                                                      -      (11.6)      (16.4)       4.8 
 - UK logistics                                                                    -      (10.2)      (14.3)       4.1 
 - Changes to pay and pensions                                                     -       (2.9)       (6.2)       3.3 
 - International store closures and impairments                                    -       (2.2)       (5.3)       3.1 
 - IT restructure                                                                  -       (0.4)      (15.6)      15.2 
 Directly attributable to Covid-19                                           (163.6)     (163.6)           -   (163.6) 
 Store impairments and other property charges                                 (24.2)      (78.5)     (103.5)      25.0 
 Goodwill impairment - per una                                                (13.4)      (13.4)           -    (13.4) 
 M&S Bank charges incurred in relation to insurance mis-selling 
  and Covid-19 forward economic 
  guidance provision                                                               -      (12.6)      (20.9)       8.3 
 Amortisation and fair value arising from the investment in 
  Ocado Retail                                                                     -      (16.8)           -    (16.8) 
 Establishing the Ocado JV                                                         -       (1.2)       (3.4)       2.2 
 Remeasurement of contingent consideration including discount 
  unwind                                                                           -       (2.9)           -     (2.9) 
 Other                                                                             -        23.5           -      23.5 
 GMP and other pension equalisation                                                -           -      (20.5)      20.5 
 Adjusting items                                                             (212.8)     (335.9)     (427.5)      91.6 
---------------------------------------------------------------  -------------------  ----------              -------- 
 

*Included within the total

A number of charges have been recognised in the period relating to the implementation of previously announced strategic programmes including:

-- A charge of GBP29.3m (of which GBP11.6m represents the directly attributable incremental impairment due to Covid-19) in relation to store closures identified as part of transformation plans reflecting an updated view of latest store closure costs. Further material charges relating to the closure and re-configuration of the UK store estate are anticipated as the programme progresses. Following restatement for IFRS 16 and the updated view of store closure costs, future charges of up to c.GBP110m are estimated within the next two financial years

-- A charge of GBP13.8m in relation to the redundancy costs associated with the review of the support centre organisational structure and an updated view of ongoing costs associated with centralising the Group's London support centres

-- A charge of GBP11.6m in relation to the transformation and simplification of supply chain and operations across Clothing & Home and Food

-- A net charge of GBP10.2m as we continue to transition to a single tier Clothing & Home UK distribution network, including the cost of closure of two distribution centres. In February 2020 next steps were announced with a further two sites expected to close in the next two years, resulting in an expected additional charge of c.GBP13m.

Store impairment and other property charges of GBP78.5m (including GBP24.2m representing the directly attributable incremental impairment due to Covid-19) were recognised. In response to the ongoing pressures impacting the retail industry, as well as reflecting the Group's strategic focus towards growing online market share, the Group has revised future projections for UK stores (excluding those stores which have been captured as part of the UK store estate programme).

Charges of GBP12.6m have been incurred relating to M&S Bank, primarily relating to the insurance mis-selling provision , as well as further charges recognised in relation to forward economic guidance provisions recognised as a result of Covid-19. The Group's share of the total insurance mis-selling provisions of GBP327.6m exceeds the total offset against profit share of GBP242.7m to date. Further costs of c.GBP100m, predominantly relating to the estimated mis-selling liability are expected and will be deducted from the Group's future profit share from M&S Bank.

A charge of GBP16.8m has been recognised predominantly related to the amortisation of intangible assets acquired on the purchase of our share in Ocado Retail.

A credit of GBP23.5m has been recognised in the period relating to the release of a provision for employee related matters recognised in FY 17/18 following settlement in the period for GBP0.6m.

Covid-19 adjusting items

Following the declaration by the World Health Organisation of the Covid-19 global pandemic and the subsequent UK and International government restrictions, Clothing and Home has been unable to trade from full line stores, M&S outlet stores and a number of Food franchises have temporarily closed and trade in Food has had to continue with social distancing measures in place. As a result, charges of GBP212.8m have been recognised relating to the Covid-19 pandemic. The charges relate to stock provisioning, impairments of intangible assets, property, plant and equipment and onerous contract provisions, cancellation charges and one-off costs. Should the estimated charges prove to be in excess of the amounts required, the release of any amounts previously provided would be treated as adjusting items.

The impact that Covid-19 has had on underlying trading is not recognised within adjusting items.

The charges relate to:

 
                                                              GBP157.0m 
   *    Stock provisioning 
                                                              GBP49.2m 
   *    Incremental impairments of intangibles and PP&E 
                                                              GBP6.6m 
   *    Onerous contract provisions, cancellations, one-off 
        costs 
 

Following a detailed assessment of all retail inventory, a charge of GBP157.0m has been recognised (C&H: GBP145.3m; Food: GBP6.0m and International: GBP5.7m). The provision relates to items from previous seasons which are unlikely to be saleable when stores reopen; items in the summer sale that are likely to be cleared below cost and the cost associated with hibernating stock to Spring/Summer 2021. The provision in Food includes charges related to unsaleable seasonal goods as a result of the lockdown of activity in late March.

As a direct result of the Covid-19 pandemic, following a reperformance of all impairment assessments using the cash flows in the Covid-19 scenario, incremental impairment charges have been recognised of GBP49.2m (Store impairments: GBP24.2m, per una: GBP13.4m and UK store estate programme: GBP11.6m).

GBP6.6m of charges have been recognised relating to onerous contracts and other provisions, cancellation charges and impairment and write-off of intangible assets in the course of construction following project cancellations.

Taxation

The effective tax rate on profit before tax and adjusting items was 20.7% (last year 20.7%). This was lower than the expected effective tax rate due to an increase in the estimated deferred tax assets of the Group which resulted from a change to the previously enacted UK corporate tax rate of 17% back to 19%. The effect of this increase is not expected to impact future years. The effective tax rate is higher than the UK statutory rate due to the recapture of previous tax relief under the Marks and Spencer Scottish Limited Partnership ("SLP") structure. The effective tax rate on statutory profit before tax was 59.3% (last year 46.2%) due to the impact of disallowable adjusting items.

Earnings per share

Basic earnings per share were 1.3p (last year 2.5p), due to the decrease in profit year-on-year and the increase in weighted average shares outstanding. The weighted average number of shares in issue during the period was 1,894.9m (last year restated for the bonus factor related to the rights issue (1,698.1m), reflecting the issuance of 325m shares following the completion of the rights issue.

Adjusted basic earnings per share decreased 29.5% to 16.7p largely due to lower adjusted profit year-on-year and the increase in weighted average shares outstanding.

Capital expenditure

 
 52 weeks ended                      28 Mar 20   30 Mar 19   Change 
                                          GBPm        GBPm     GBPm 
----------------------------------  ----------  ----------  ------- 
 UK store remodelling                     60.3        26.0     34.3 
 New UK stores                            33.3        40.1    (6.8) 
 International                            12.3        11.0      1.3 
 Supply chain                             39.2        48.7    (9.5) 
 IT & M&S.com                             84.5        88.2    (3.7) 
 Property asset replacement              102.4        69.0     33.4 
 Capital expenditure before 
  disposals                              332.0       283.0     49.0 
 Proceeds from property disposals        (2.7)      (48.1)     45.4 
 Capital expenditure                     329.3       234.9     94.4 
----------------------------------  ----------  ----------  ------- 
 

Group capital expenditure before disposals increased GBP49.0m to GBP332.0m.

UK store remodelling spend increased GBP34.3m largely reflecting the investment in five 'test and learn' trial stores. Spend on UK store space was down as 13 fewer owned Food stores opened compared with the prior year.

Supply chain expenditure reflects investment in the expansion of the Bradford distribution centre. Spend has reduced due to the significant prior year investment in the Welham Green national distribution centre.

IT and M&S.com spend decreased largely due to the completion of the technology transformation programme. Property asset replacement increased GBP33.4m due to the initiation of an asset replacement programme in stores.

Statement of financial position

Net assets were GBP3,708.5m at the year end, an increase of 50.2% on last year largely due to the investment in Ocado and the increase in the net retirement benefit surplus.

Cash flow & net debt

 
 52 weeks ended                                          28 Mar 20    30 Mar 19    Change 
                                                                       Restated 
                                                              GBPm         GBPm      GBPm 
------------------------------------------------------  ----------  -----------  -------- 
 Adjusted operating profit                                   590.7        725.6   (134.9) 
 Depreciation and amortisation before adjusting items        632.5        702.6    (70.1) 
 Cash lease payments                                       (335.7)      (312.7)    (23.0) 
 Working capital                                            (48.5)         61.1   (109.6) 
 Defined benefit scheme pension funding                     (37.9)       (37.9)         - 
 Capex and disposals                                       (325.9)      (264.8)    (61.1) 
 Financial interest and taxation                           (171.1)      (184.7)      13.6 
 Investment in associate Ocado                             (577.8)            -   (577.8) 
 Investment in Joint Venture                                 (2.5)        (2.5)         - 
 Employee related share transactions                           9.7         14.3     (4.6) 
 Proceeds from rights issue net of costs                     574.4            -     574.4 
 Share of profit from associate                              (2.6)            -     (2.6) 
 Cash received on refinancing of derivatives                   7.7            -       7.7 
 Adjusting items outflow                                    (88.0)      (120.2)      32.2 
 Free cash flow                                              225.0        580.8   (355.8) 
 Dividends paid                                            (191.1)      (303.5)     112.4 
 Free cash flow after shareholder returns                     33.9        277.3   (243.4) 
 Decrease in lease obligations                               201.4        170.1      31.3 
 New lease commitments                                     (204.1)      (150.4)    (53.7) 
 Opening net debt                                        (4,075.4)    (4,369.4)     294.0 
 Exchange and other non-cash movements                        19.0        (3.0)      22.0 
 Closing net debt                                        (4,025.2)    (4,075.4)      50.2 
------------------------------------------------------  ----------  -----------  -------- 
 

The business generated free cash flow before shareholder returns of GBP225.0m, down on last year, driven by lower adjusted operating profit, lower depreciation, working capital increase and higher capital expenditure. The working capital outflow relative to last year was largely a result of the timing of payments and increased inventory. This follows a planned reduction in inventories in the prior year, and higher than normal year-end inventory levels as a result of additional Food to meet stockpiling demand and lower than expected Clothing & Home sales in March.

Higher capital expenditure reflects the spend on 'test and learn' stores and the asset replacement programme in stores.

Defined benefit scheme pension funding of GBP37.9m largely reflects the second limited partnership interest distribution to the pension scheme.

Adjusting items in cash flow during the year were GBP88.0m. These included GBP22.7m in relation to the store closure programme, GBP20.9m for organisational change, GBP15.4m for operational transformation, GBP12.6m for M&S Bank, GBP4.3m for the technology transformation programme and GBP3.7m relating to distribution and warehousing.

During the year, a Rights Issue was completed, raising proceeds net of costs of GBP574.4m, for the purpose of funding the acquisition of 50% of Ocado Retail which completed on 5 August 2019. The cash paid for the investment in Ocado Retail and associated transaction costs of GBP577.8m does not include the adjustment to the consideration on the finalisation of the completion statement currently held as a receivable of GBP11.5m.

After the payment of the final dividend from 2018/19, the interim dividend for 2019/20 and the reduction in outstanding discounted lease commitments due to capital repayments, net debt was down GBP50.2m from the start of the financial year.

Dividend

We paid an interim dividend 3.9p on 10 January 2020. The board has announced the decision not to pay a final dividend for 2019/20 and that it does not anticipate paying a dividend for the 2020/21 financial year.

Pension

At 28 March 2020, the IAS 19 net retirement benefit surplus was GBP1,902.6m (GBP914.3m at 30 March 2019). The increase in the surplus is mainly due to a significant increase in longer dated credit spreads driven by market changes linked to Covid-19 resulting in a reduction in scheme liabilities. Additionally, the return on scheme assets increased due to a fall in gilt yields. It is currently anticipated that the increase in surplus will give rise to an increased pension credit next year.

In April 2019, the Scheme purchased additional pensioner buy-in policies with two insurers for approximately GBP1.4bn. Together with the two policies purchased in March 2018, the Scheme has now, in total, hedged its longevity exposure for around two thirds of the 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 Company's exposure to changes in longevity, interest rates, inflation and other factors.

COVID-19 Response

The Covid-19 crisis started to impact the business in the first week of March with reductions in Clothing & Home sales across all our markets. While Food sales were resilient, we did not experience the stockpiling performance of the supermarkets. With the onset of lockdown, the effect on sales, costs, colleagues and customers in both businesses has been dramatic. Clothing sales at the low point dropped to 16% of their level a year ago.

Without the resilience of the combined food and clothing business model and extraordinary loyalty of colleagues for which we are grateful, the impact on the business could have threatened its existence.

Supporting colleagues

M&S has a longstanding deeply embedded colleague culture and loyal workforce and we have been deeply grateful to our hard-working colleagues who have supported the business throughout. Meanwhile we have taken measures to ensure safe working and support vulnerable colleagues some of which has resulted in higher operating costs:

-- Colleagues needing to self-isolate, including c.3,000 required to shield themselves for 12 weeks, have been able to do so on full pay. Prior to the furlough scheme absenteeism increased to nearly 20% as schools closed and colleagues opted to stay home mostly to look after family members

-- Circa 27,000 colleagues have been furloughed with pay topped up by the company through a largely voluntary approach to enable colleagues with caring commitments to step away from the business. This includes c.1,000 support centre colleagues who have been furloughed

-- Store colleagues remaining at work supporting the business have been rewarded with 15% bonus pay for the duration of the lockdown period

-- Colleague safety has been enhanced with time allocated in shifts for handwashing, sneeze guards installed at all tills, hand sanitiser in colleague areas, social distancing measures introduced at all sites and voluntary provision of visors, although take up on these has been low

-- Based on anecdotal evidence we do not believe there has been a higher incidence of infection amongst our colleagues than the national average. However over twenty colleagues have been hospitalised and at least two have died from Covid-19 related disease.

Supporting customers

From the onset of lockdown our Clothing areas in stores have been closed although we have been able to sell a trickle of clothing essentials as part of the Food store trading. We have been able to maintain online trading throughout and kept the vast majority of our food halls open to support families and maintain trade.

-- 560 out of 566 of our food halls have remained open throughout the lockdown period with the closed stores being office work locations. In addition, many transport franchise stores have been closed and office work locations together with a few shopping centre stores have been closed because of minimal customer flow

-- Online Clothing & Home has traded throughout, following implementation of extra safe working procedures at our automated fulfilment facility at Castle Donington supplying families at home with essential clothing, bed linen and household equipment

-- Social distancing in stores has been successfully implemented, supported through extra signage and queue greeters, and in the main customer compliance has been excellent. Extra safety precautions include additional deep cleaning of stores, regular cleaning of baskets and trolleys, expansion of Mobile Pay Go and encouragement to pay via contactless

-- M&S was one of the first retailers to launch special shopping hours for health and social care workers plus separate shopping hours for elderly and vulnerable customers and first to market with an e-card to allow volunteers to shop for people required to shield at home

-- The temporary "food boxes" have been launched online, prioritised for elderly and emergency care customers with rapid customer take up. In addition, we launched dedicated access to M&S Banking lines for time pressed NHS workers.

Supporting communities

Along with other national retailers M&S launched a wide-ranging suite of donations and services to the community focused on emergency workers and the most vulnerable. These included myriad local initiatives supporting hospitals and customers who could not access food together with national programmes including:

-- The M&S Neighbourly Covid-19 Community fund with grants given to over 500 charities and community groups across the UK

-- Support ing the National Emergencies Trust & NHS Charities with corporate and local donations

-- Over a million meals donated through our Neighbourly food redistribution app in the first month of lockdown

-- Patient packs delivered to NHS hospitals in cities across the UK and specific support packs for numerous hospitals such as scrubs to NHS Derbyshire, with thousands of partnerships between stores and their communities and NHS trusts

-- Twice-weekly free food delivery service for the NHS workers at M&S's longstanding hospital partners at St Mary's and Great Ormond Street Hospital

-- Over 65,000 t-shirts and over 400,000 bags for life sold in support of NHS Charities supported with online marketing and social media

-- Numerous acts of personal kindness by store colleagues to help vulnerable customers unable to visit our stores.

Supporting suppliers

The M&S business model depends on very close and longstanding relationships with suppliers who in return support our quality requirements and fuel product development and innovation. It has therefore been important to invest where possible to ensure continuity of the critical supply base in some cases at the cost of working capital. We have therefore agreed to honour all outstanding commitments to product that has been manufactured or part manufactured and committed to pay for fabric commitments even though some will not be immediately required. In food we have moved to immediate payment to very small suppliers where needed and launched a campaign to back British farm suppliers.

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 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 2020 Annual Report .

The forward-looking statements contained in this document speak only as of the date of this announcement, and Marks & Spencer does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 
Consolidated income statement 
 
                                  52 weeks ended 28 March 2020            52 weeks ended 30 March 2019 (Restated) 
 
                             Results before  Adjusting items     Total     Results before  Adjusting items     Total 
                            adjusting items                               adjusting items 
                    Notes              GBPm             GBPm      GBPm               GBPm             GBPm      GBPm 
-----------------   -----  ----------------  ---------------  --------  -----------------  ---------------  -------- 
Revenue               2            10,181.9                -  10,181.9           10,377.3                -  10,377.3 
------------------  -----  ----------------  ---------------  --------  -----------------  ---------------  -------- 
 
Share of result in 
 associate - Ocado 
 Retail Limited       3                 2.6           (16.8)    (14.2)                  -                -         - 
==================  =====  ================  ===============  ========  =================  ===============  ======== 
 
Operating profit    2, 3              590.7          (335.9)     254.8              725.6          (427.5)     298.1 
==================  =====  ================  ===============  ========  =================  ===============  ======== 
 
Finance income      3, 4               44.0              2.9      46.9               34.8                -      34.8 
==================  =====  ================  ===============  ========  =================  ===============  ======== 
Finance costs       3, 4            (231.6)            (2.9)   (234.5)            (248.7)                -   (248.7) 
==================  =====  ================  ===============  ========  =================  ===============  ======== 
 
Profit before tax     3               403.1          (335.9)      67.2              511.7          (427.5)      84.2 
==================  =====  ================  ===============  ========  =================  ===============  ======== 
Income tax expense    5              (83.4)             43.6    (39.8)            (106.0)             67.1    (38.9) 
------------------  -----  ----------------  ---------------  --------  -----------------  ---------------  -------- 
Profit for the 
 year                                 319.7          (292.3)      27.4              405.7          (360.4)      45.3 
------------------  -----  ----------------  ---------------  --------  -----------------  ---------------  -------- 
 
Attributable to: 
=================   =====  ================  ===============  ========  =================  ===============  ======== 
Owners of the 
 parent                               316.0          (292.3)      23.7              402.1          (360.4)      41.7 
==================  =====  ================  ===============  ========  =================  ===============  ======== 
Non-controlling 
 interests                              3.7                -       3.7                3.6                -       3.6 
------------------  -----  ----------------  ---------------  --------  -----------------  ---------------  -------- 
                                      319.7          (292.3)      27.4              405.7          (360.4)      45.3 
 -----------------  -----  ----------------  ---------------  --------  -----------------  ---------------  -------- 
 
Basic earnings per 
 share                6               16.7p                       1.3p              23.7p                       2.5p 
==================  =====  ================  ===============  ========  =================  ===============  ======== 
Diluted earnings 
 per share            6               16.6p                       1.2p              23.6p                       2.4p 
------------------  -----  ----------------  ---------------  --------  =================  ===============  -------- 
 
Comparative information has been restated for the impact of IFRS 16 (see note 17). 
 
 
 
Consolidated statement of comprehensive income 
 
                                                                                                       52 weeks         52 weeks 
                                                                                                          ended            ended 
                                                                                                       28 March         30 March 
                                                                                                           2020             2019 
                                                                                                                      (Restated) 
                                                                                    Notes                  GBPm             GBPm 
-------------------------------------------------  ----------------------------  --------  --------------------  --------------- 
Profit for the year                                                                                        27.4             45.3 
-------------------------------------------------  ----------------------------  --------  --------------------  --------------- 
Other comprehensive income: 
=================================================  ============================  ========  ====================  =============== 
Items that will not be reclassified 
 subsequently to profit or loss 
=================================================  ============================  ========  ====================  =============== 
Remeasurements of retirement benefit 
 schemes                                                                                8                 927.9           (79.9) 
=================================================  ============================  ========  ====================  =============== 
Tax (charge)/credit on retirement 
 benefit schemes                                                                                        (196.7)             14.0 
-------------------------------------------------  ----------------------------  --------  ====================  =============== 
                                                                                                          731.2           (65.9) 
=================================================  ============================  ========  ====================  =============== 
Items that may be reclassified subsequently 
 to profit or loss 
=================================================  ============================  ========  ====================  =============== 
Foreign currency translation differences 
=================================================  ============================  ========  ====================  =============== 
- movements recognised in other 
 comprehensive income                                                                                       5.1           (14.6) 
=================================================  ============================  ========  ====================  =============== 
- reclassified and reported in profit 
 and loss                                                                                                   2.9                - 
=================================================  ============================  ========  ====================  =============== 
Cash flow hedges 
=================================================  ============================  ========  ====================  =============== 
- fair value movements recognised 
 in other comprehensive income                                                                            140.3            132.0 
=================================================  ============================  ========  ====================  =============== 
- reclassified and reported in profit 
 or loss                                                                                                 (18.4)           (16.0) 
=================================================  ============================  ========  ====================  =============== 
Tax charge on cash flow hedges                                                                           (27.0)           (19.0) 
-------------------------------------------------  ----------------------------  --------  ====================  =============== 
                                                                                                          102.9             82.4 
-------------------------------------------------  ----------------------------  --------  --------------------  --------------- 
Other comprehensive income for the 
 year, net of tax                                                                                         834.1             16.5 
-------------------------------------------------  ----------------------------  --------  --------------------  --------------- 
Total comprehensive income for the 
 year                                                                                                     861.5             61.8 
-------------------------------------------------  ----------------------------  --------  --------------------  --------------- 
 
Attributable to: 
=================================================  ============================  ========  ====================  =============== 
Owners of the parent                                                                                      857.8             58.2 
=================================================  ============================  ========  ====================  =============== 
Non-controlling interests                                                                                   3.7              3.6 
-------------------------------------------------  ----------------------------  --------  ====================  =============== 
                                                                                                          861.5             61.8 
-------------------------------------------------  ----------------------------  --------  --------------------  --------------- 
 
Comparative information has been restated for the impact 
 of IFRS 16 (see note 17). 
 
 
Consolidated statement of financial position 
 
                                                                                    As at                 As at                     As at 
                                                                            28 March 2020         30 March 2019              1 April 2018 
                                                                                                     (Restated)                (Restated) 
                                                              Notes                  GBPm                  GBPm                      GBPm 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Assets 
=====================================  ===================  =======  ====================  ====================  ======================== 
Non-current assets 
=====================================  ===================  =======  ====================  ====================  ======================== 
Intangible assets                                                10                 399.1                 499.9                     599.2 
=====================================  ===================  =======  ====================  ====================  ======================== 
Property, plant and equipment                                    11               5,494.2               5,662.3                   6,189.6 
=====================================  ===================  =======  ====================  ====================  ======================== 
Investment property                                                                  15.5                  15.5                      15.5 
=====================================  ===================  =======  ====================  ====================  ======================== 
Investments in joint ventures and 
 associates                                                      18                 760.4                   4.0                       7.0 
=====================================  ===================  =======  ====================  ====================  ======================== 
Other financial assets                                                                9.7                   9.9                       9.9 
=====================================  ===================  =======  ====================  ====================  ======================== 
Retirement benefit asset                                          8               1,915.0                 931.5                     970.7 
=====================================  ===================  =======  ====================  ====================  ======================== 
Trade and other receivables                                                         262.6                 273.0                     209.5 
=====================================  ===================  =======  ====================  ====================  ======================== 
Derivative financial instruments                                                    112.4                  19.8                      27.1 
=====================================  ===================  =======  ====================  ====================  ======================== 
                                                                                  8,968.9               7,415.9                   8,028.5 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Current assets 
=====================================  ===================  =======  ====================  ====================  ======================== 
Inventories                                                                         564.1                 700.4                     781.0 
=====================================  ===================  =======  ====================  ====================  ======================== 
Other financial assets                                                               11.7                 141.8                      13.7 
=====================================  ===================  =======  ====================  ====================  ======================== 
Trade and other receivables                                                         298.0                 267.2                     252.4 
=====================================  ===================  =======  ====================  ====================  ======================== 
Derivative financial instruments                                                     73.5                  40.3                       7.1 
=====================================  ===================  =======  ====================  ====================  ======================== 
Current tax assets                                                                   19.3                     -                         - 
=====================================  ===================  =======  ====================  ====================  ======================== 
Cash and cash equivalents                                                           248.4                 285.4                     207.7 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
                                                                                  1,215.0               1,435.1                   1,261.9 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Total assets                                                                     10,183.9               8,851.0                   9,290.4 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Liabilities 
=====================================  ===================  =======  ====================  ====================  ======================== 
Current liabilities 
=====================================  ===================  =======  ====================  ====================  ======================== 
Trade and other payables                                                          1,426.4               1,424.4                   1,377.1 
=====================================  ===================  =======  ====================  ====================  ======================== 
Partnership liability to the Marks & 
 Spencer UK Pension Scheme                                        9                  71.9                  71.9                      71.9 
=====================================  ===================  =======  ====================  ====================  ======================== 
Borrowings and other financial 
 liabilities                                                                        316.6                 694.4                     283.7 
=====================================  ===================  =======  ====================  ====================  ======================== 
Derivative financial instruments                                                     13.0                   7.3                      73.8 
=====================================  ===================  =======  ====================  ====================  ======================== 
Provisions                                                                           21.5                 100.7                      56.2 
=====================================  ===================  =======  ====================  ====================  ======================== 
Current tax liabilities                                                                 -                  26.2                      50.0 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
                                                                                  1,849.4               2,324.9                   1,912.7 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Non-current liabilities 
=====================================  ===================  =======  ====================  ====================  ======================== 
Retirement benefit deficit                                        8                  12.4                  17.2                      22.5 
=====================================  ===================  =======  ====================  ====================  ======================== 
Trade and other payables                                                            222.6                  15.6                      16.3 
=====================================  ===================  =======  ====================  ====================  ======================== 
Partnership liability to the Marks & 
 Spencer UK Pension Scheme                                        9                 135.5                 200.5                     263.6 
=====================================  ===================  =======  ====================  ====================  ======================== 
Borrowings and other financial 
 liabilities                                                                      3,865.9               3,628.5                   4,054.5 
=====================================  ===================  =======  ====================  ====================  ======================== 
Derivative financial instruments                                                      0.7                   2.8                      30.7 
=====================================  ===================  =======  ====================  ====================  ======================== 
Provisions                                                                           56.5                  72.7                      91.8 
=====================================  ===================  =======  ====================  ====================  ======================== 
Deferred tax liabilities                                                            332.4                 119.6                     165.1 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
                                                                                  4,626.0               4,056.9                   4,644.5 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Total liabilities                                                                 6,475.4               6,381.8                   6,557.2 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Net assets                                                                        3,708.5               2,469.2                   2,733.2 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Equity 
=====================================  ===================  =======  ====================  ====================  ======================== 
Issued share capital                                                                487.6                 406.3                     406.2 
=====================================  ===================  =======  ====================  ====================  ======================== 
Share premium account                                                               910.4                 416.9                     416.4 
=====================================  ===================  =======  ====================  ====================  ======================== 
Capital redemption reserve                                                        2,210.5               2,210.5                   2,210.5 
=====================================  ===================  =======  ====================  ====================  ======================== 
Hedging reserve                                                                      68.6                (14.6)                    (76.0) 
=====================================  ===================  =======  ====================  ====================  ======================== 
Cost of hedging reserve                                                               5.7                  11.7                      10.7 
=====================================  ===================  =======  ====================  ====================  ======================== 
Other reserve                                                                   (6,542.2)             (6,542.2)                 (6,542.2) 
=====================================  ===================  =======  ====================  ====================  ======================== 
Foreign exchange reserve                                                           (35.9)                (43.9)                    (29.3) 
=====================================  ===================  =======  ====================  ====================  ======================== 
Retained earnings                                                                 6,597.8               6,024.8                   6,339.4 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Equity attributable to owners of the 
 parent                                                                           3,702.5               2,469.5                   2,735.7 
=====================================  ===================  =======  ====================  ====================  ======================== 
Non-controlling interests                                                             6.0                 (0.3)                     (2.5) 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
Total equity                                                                      3,708.5               2,469.2                   2,733.2 
-------------------------------------  -------------------  -------  --------------------  --------------------  ------------------------ 
 
Comparative information has been restated for the impact of IFRS 16 (see note 17). 
 
Consolidated statement of changes in equity 
 
                    Ordinary    Share     Capital                                 Foreign 
                       share  premium  redemption  Hedging  Cost of       Other  exchange     Retained           Non-controlling 
                     capital  account     reserve  reserve  hedging  reserve(1)   reserve  earnings(2)    Total         interest    Total 
                        GBPm     GBPm        GBPm     GBPm     GBPm        GBPm      GBPm         GBPm     GBPm             GBPm     GBPm 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
As at 1 April 2018     406.2    416.4     2,210.5   (76.0)     10.7   (6,542.2)    (29.3)      6,559.9  2,956.2            (2.5)  2,953.7 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Adjustment on 
 initial 
 application of 
 IFRS 16                   -        -           -        -        -           -         -      (220.5)  (220.5)                -  (220.5) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Adjusted opening 
 shareholders' 
 equity                406.2    416.4     2,210.5   (76.0)     10.7   (6,542.2)    (29.3)      6,339.4  2,735.7            (2.5)  2,733.2 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Profit for the 
 year                      -        -           -        -        -           -         -         41.7     41.7              3.6     45.3 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Other 
comprehensive 
income/(expense): 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Foreign currency 
translation 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
- movement 
 recognised in 
 other 
 comprehensive 
 income                    -        -           -        -        -           -    (14.6)            -   (14.6)                -   (14.6) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Remeasurements of 
 retirement 
 benefit schemes           -        -           -        -        -           -         -       (79.9)   (79.9)                -   (79.9) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Tax credit on 
 items that will 
 not be 
 reclassified              -        -           -        -        -           -         -         14.0     14.0                -     14.0 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Cash flow hedges 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
- fair value 
 movements in 
 other 
 comprehensive 
 income                    -        -           -    130.5      1.5           -         -            -    132.0                -    132.0 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
- reclassified and 
 reported in 
 profit or loss            -        -           -   (16.0)        -           -         -            -   (16.0)                -   (16.0) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Tax on cash flow 
 hedges                    -        -           -   (18.5)    (0.5)           -         -            -   (19.0)                -   (19.0) 
------------------  ========  =======  ==========  -------  =======  ==========  ========  -----------  =======  ===============  ======= 
Other 
 comprehensive 
 income/(expense)          -        -           -     96.0      1.0           -    (14.6)       (65.9)     16.5                -     16.5 
------------------  --------  -------  ----------  -------  -------  ----------  --------  -----------  -------  ---------------  ------- 
Total 
 comprehensive 
 income/(expense)          -        -           -     96.0      1.0           -    (14.6)       (24.2)     58.2              3.6     61.8 
------------------  --------  -------  ----------  -------  -------  ----------  --------  -----------  -------  ---------------  ------- 
Cash flow hedges 
 recognised in 
 inventories               -        -           -   (42.7)        -           -         -            -   (42.7)                -   (42.7) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Tax on cash flow 
 hedges recognised 
 in inventories            -        -           -      8.1        -           -         -            -      8.1                -      8.1 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Transactions with 
owners: 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Dividends                  -        -           -        -        -           -         -      (303.5)  (303.5)                -  (303.5) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Transactions with 
 non-controlling 
 shareholders              -        -           -        -        -           -         -            -        -            (1.4)    (1.4) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Shares issued on 
 exercise of 
 employee share 
 options                 0.1      0.5           -        -        -           -         -            -      0.6                -      0.6 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Purchase of own 
 shares held by 
 employee trusts           -        -           -        -        -           -         -        (5.5)    (5.5)                -    (5.5) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Credit for 
 share-based 
 payments                  -        -           -        -        -           -         -         19.2     19.2                -     19.2 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Deferred tax on 
 share schemes             -        -           -        -        -           -         -        (0.6)    (0.6)                -    (0.6) 
------------------  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
As at 30 March 
 2019 (Restated)       406.3    416.9     2,210.5   (14.6)     11.7   (6,542.2)    (43.9)      6,024.8  2,469.5            (0.3)  2,469.2 
------------------  --------  -------  ----------  -------  -------  ----------  --------  -----------  -------  ---------------  ------- 
 
As at 31 March 
 2019 (Restated)       406.3    416.9     2,210.5   (14.6)     11.7   (6,542.2)    (43.9)      6,024.8  2,469.5            (0.3)  2,469.2 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Profit for the 
 year                      -        -           -        -        -           -         -         23.7     23.7              3.7     27.4 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Other 
comprehensive 
income/(expense): 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Foreign currency 
translation 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
- movements 
 recognised in 
 other 
 comprehensive 
 income                    -        -           -        -        -           -       5.1            -      5.1                -      5.1 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
- reclassified and 
 reported in 
 profit and loss           -        -           -        -        -           -       2.9            -      2.9                -      2.9 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Remeasurements of 
 retirement 
 benefit schemes           -        -           -        -        -           -         -        927.9    927.9                -    927.9 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Tax charge on 
 items that will 
 not be 
 reclassified              -        -           -        -        -           -         -      (196.7)  (196.7)                -  (196.7) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Cash flow hedges 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
- fair value 
 movement in other 
 comprehensive 
 income                    -        -           -    147.8    (7.5)           -         -            -    140.3                -    140.3 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
- reclassified and 
 reported in 
 profit or loss            -        -           -   (18.4)        -           -         -            -   (18.4)                -   (18.4) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Tax on cash flow 
 hedges                    -        -           -   (28.5)      1.5           -         -            -   (27.0)                -   (27.0) 
------------------  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Other 
 comprehensive 
 income/(expense)          -        -           -    100.9    (6.0)           -       8.0        731.2    834.1                -    834.1 
------------------  --------  -------  ----------  -------  -------  ----------  --------  -----------  -------  ---------------  ------- 
Total 
 comprehensive 
 income/(expense)          -        -           -    100.9    (6.0)           -       8.0        754.9    857.8              3.7    861.5 
------------------  --------  -------  ----------  -------  -------  ----------  --------  -----------  -------  ---------------  ------- 
Cash flow hedges 
 recognised in 
 inventories               -        -           -   (21.8)        -           -         -            -   (21.8)                -   (21.8) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Tax on cash flow 
 hedges recognised 
 in inventories            -        -           -      4.1        -           -         -            -      4.1                -      4.1 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Transactions with 
owners: 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Dividends                  -        -           -        -        -           -         -      (191.1)  (191.1)                -  (191.1) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Transactions with 
 non-controlling 
 shareholders              -        -           -        -        -           -         -            -        -              2.6      2.6 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Shares issued on 
 exercise of 
 employee share 
 options                   -      0.1           -        -        -           -         -            -      0.1                -      0.1 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Shares issued on 
 rights issue(3)        81.3    493.4           -        -        -           -         -            -    574.7                -    574.7 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Purchase of own 
 shares held by 
 employee trusts           -        -           -        -        -           -         -        (8.9)    (8.9)                -    (8.9) 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Credit for 
 share-based 
 payments                  -        -           -        -        -           -         -         18.5     18.5                -     18.5 
==================  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
Deferred tax on 
 share schemes             -        -           -        -        -           -         -        (0.4)    (0.4)                -    (0.4) 
------------------  ========  =======  ==========  =======  =======  ==========  ========  ===========  =======  ===============  ======= 
As at 28 March 
 2020                  487.6    910.4     2,210.5     68.6      5.7   (6,542.2)    (35.9)      6,597.8  3,702.5              6.0  3,708.5 
------------------  --------  -------  ----------  -------  -------  ----------  --------  -----------  -------  ---------------  ------- 
 
 
 

1. The "Other reserve" was originally created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of Marks and Spencer plc at the date of the transaction.

2. Included within Retained earnings is the fair value through other comprehensive income reserve.

3. The share premium amount of GBP493.4m is net of GBP26.6m in relation to transaction costs associated with the rights issue.

Comparative information has been restated for the impact of IFRS 16 (see note 17).

 
Consolidated statement of cash flows 
 
                                                         52 weeks    52 weeks 
                                                            ended       ended 
                                                         28 March    30 March 
                                                             2020        2019 
                                                                   (Restated) 
                                                 Notes       GBPm        GBPm 
----------------------------------------------   ------  --------  ---------- 
Cash flows from operating activities 
==============================================   ======  ========  ========== 
Cash generated from operations                     14     1,064.7     1,350.4 
===============================================  ======  ========  ========== 
Income tax paid                                            (91.6)     (105.7) 
-----------------------------------------------  ------  ========  ========== 
Net cash inflow from operating activities                   973.1     1,244.7 
-----------------------------------------------  ------  --------  ---------- 
 
Cash flows from investing activities 
==============================================   ======  ========  ========== 
Proceeds on property disposals                                2.7        48.1 
===============================================  ======  ========  ========== 
Purchase of property, plant and equipment                 (251.0)     (217.8) 
===============================================  ======  ========  ========== 
Purchase of intangible assets                              (77.6)      (95.1) 
===============================================  ======  ========  ========== 
Sale/(purchase) of current financial 
 assets                                                     130.1     (128.1) 
===============================================  ======  ========  ========== 
Purchase of investments in associates 
 and joint ventures(1)                             18     (580.3)       (2.5) 
===============================================  ======  ========  ========== 
Interest received                                            10.4         7.4 
===============================================  ======  ========  ========== 
Net cash used in investing activities                     (765.7)     (388.0) 
-----------------------------------------------  ------  --------  ---------- 
 
Cash flows from financing activities 
==============================================   ======  ========  ========== 
Interest paid(2)                                          (224.2)     (229.0) 
===============================================  ======  ========  ========== 
Repayment of borrowings                                         -      (46.7) 
===============================================  ======  ========  ========== 
Issuance of Medium Term Notes                               250.0         1.4 
===============================================  ======  ========  ========== 
Redemption of Medium Term Notes                           (400.0)           - 
===============================================  ======  ========  ========== 
Repayment of lease liabilities                            (201.4)     (170.1) 
===============================================  ======  ========  ========== 
Payment of liability to the Marks 
 & Spencer UK Pension Scheme                               (63.5)      (61.6) 
===============================================  ======  ========  ========== 
Equity dividends paid                              7      (191.1)     (303.5) 
===============================================  ======  ========  ========== 
Shares issued on exercise of employee 
 share options                                                0.1         0.6 
===============================================  ======  ========  ========== 
Proceeds from rights issue net of 
 costs                                                      574.4           - 
===============================================  ======  ========  ========== 
Purchase of own shares by employee 
 trust                                                      (8.9)       (5.5) 
===============================================  ======  ========  ========== 
Cash received from settlement of 
 derivatives                                                  7.7           - 
===============================================  ------  ========  ========== 
Net cash used in financing activities                     (256.9)     (814.4) 
-----------------------------------------------  ------  --------  ---------- 
 
Net cash (outflow)/inflow from activities                  (49.5)        42.3 
-----------------------------------------------  ------  --------  ---------- 
Effects of exchange rate changes                              0.5       (0.2) 
===============================================  ======  ========  ========== 
Opening net cash                                            213.1       171.0 
-----------------------------------------------  ------  ========  ========== 
Closing net cash                                   15       164.1       213.1 
-----------------------------------------------  ------  --------  ---------- 
 
(1)Includes investment in Ocado of GBP577.8m (last year: GBPnil) 
 and Founders Factory GBP2.5m (last year: GBP2.5m). In addition 
 to the GBP560.9m cash paid to Ocado per note 18, GBP11.5m is 
 included within trade and other receivables as at 28 March 2020 
 following finalisation of the transaction. In addition, there 
 are GBP5.4m transaction costs paid during the year. 
 
 (2) Includes interest paid on the partnership liability to the 
 Marks and Spencer UK Pension Scheme of GBP8.4m (last year: GBP10.3m) 
 and interest paid on lease liabilities of GBP134.3m (last year: 
 GBP142.6m (restated)). 
 
Comparative information has been restated for the impact of IFRS 
 16 (see note 17). 
 

1 Accounting Policies

General information

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 28 March 2020 or 30 March 2019. The financial information for the year ended 30 March 2019 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under s498(2) or (3) of the Companies Act 2006. The audit of the statutory accounts for the year ended 28 March 2020 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.

Basis of preparation

Whilst the financial information included in this press release has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The financial information has been prepared using accounting policies and methods of computation consistent with those applied in the financial statements for the year ended 30 March 2019. With the exception of the implementation of IFRS 16 Leases as explained below and in note 17, no changes have been made to the Group's accounting policies in the year ended 28 March 2020. The Company's full financial statements will be prepared in compliance with IFRS Standards.

Going concern basis

Based on the Group's cash flow forecasts and projections, including modelling a Covid-19 scenario, the Board is satisfied that the Group will be able to operate within the level of its bank facilities for the foreseeable future. For this reason, the Group continues to adopt the going concern basis in preparing its financial statements.

Given the global political and economic uncertainty resulting from the Covid-19 pandemic, coupled with the already fast paced changes taking place across the retail sector, we expect to see significant volatility and business disruption reducing our expected performance in 2020/21. We have already felt the impact of the government's guidelines on lockdown, with our Food stores open and trading (albeit with social-distancing rules in place), but with Clothing & Home unable to trade from stores, and all sales therefore predominantly coming from online sales and Click & Collect in stores.

The Covid-19 scenario assumes that the current government guidelines continue for a period of at least four months, resulting in a significant decline in sales for the remainder of 2020/21 as follows:

-- On average, a 70% decline in Clothing & Home sales vs budget for the four months to July 2020, followed by a slow recovery back to budget by February 2021, reducing expected revenue by GBP1.5bn for the financial year;

-- A 20% decline in Food sales vs budget for the four months to July, impacting annual revenue by GBP384m;

-- International sales following a similar profile to Clothing & Home, with a significant decline in April due to closures, and a recovery back to budget extended to March 2021, impacting annual revenue by GBP214m.

Further downside sensitivities which extend the length of the social-distancing measures or increase the depth of the impact on sales and margin were also considered. In addition, reverse stress testing has also been applied to the model, which represents a significant decline in sales compared to the Covid-19 scenario. Such a scenario, and the sequence of events which could lead to it, is considered to be remote.

The Covid-19 scenario reflects the actions already taken by management, including;

-- Cost saving initiatives, such as reducing marketing spend, freezing pay and recruitment, and technology and operating expenditure cuts;

   --      Reducing the capital expenditure budget to c.GBP140m; 

-- Reduced the supply pipeline of Clothing & Home stock by c.GBP560m, and lengthening payment terms; and

-- Ceasing to pay the final dividend payment for 2019/20 and for 2020/21, resulting in a total anticipated cash saving of c.GBP340m.

The Group will also benefit from c.GBP172m of business rates relief in 2020/21 and the government's job retention scheme to help meet the cost of furloughed roles in stores, distribution and support centres, which should generate cash savings of c.GBP50m up to 30 June 2020.

In addition, the following further steps have also been taken:

-- Formal agreement has been reached with the lending syndicate of banks providing the GBP1.1bn revolving credit facility to remove or substantially relax the covenant conditions for the tests arising in September 2020, March 2021, and September 2021; and

-- The Group confirmed on 23 April 2020 its eligibility under the UK Government's Covid Corporate Financing Facility (CCFF) and allocated an issuer limit of GBP300m, providing significant further liquidity headroom.

The agreement with the banks combined with the other measures taken means that, even under the Covid-19 scenario, the business would continue to have significant liquidity headroom on its existing facilities and against the revolving credit facility financial covenant. As at 28 March 2020 the financial covenant was met.

As a result, the Board believes that the Group is well placed to manage its financing and other significant risks satisfactorily and that the Group will be able to operate within the level of its facilities for the foreseeable future. For this reason, the Board considers it appropriate for the Group to adopt the going concern basis in preparing its financial statements.

New accounting standards adopted by the Group

The Group has applied the following new standards and interpretations for the first time for the annual reporting period commencing 31 March 2019:

   --      IFRS 16 Leases 
   --      IFRIC 23 Uncertainty over Income Tax Treatments 
   --      Amendments to IFRS 9: Prepayment Features with Negative Compensation 
   --      Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures 
   --      Amendments to IAS 19: Plan Amendment, Curtailment or Settlement 

-- Annual Improvements to IFRS Standards 2015-2017 Cycle (Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23)

The Group also elected to adopt the following amendments early:

   --      Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform 

The nature and effect of the changes to the Group's accounting policies as a result of the adoption of IFRS 16 is described in note 17. The impact of early adopting the amendments to IFRS 9 as a result of interest rate benchmark reform is described in note 12. The adoption of the other standards and interpretations listed above has not led to any changes to the Group's accounting policies or had any other material impact on the financial position or performance of the Group.

New accounting standards in issue but not yet effective

New standards and interpretations that are in issue but not yet effective are listed below:

   --      Amendments to IAS 1 and IAS 8: Definition of Material 
   --      Amendments to IFRS 3: Definition of a Business 
   --      Amendments to References to the Conceptual Framework in IFRS Standards 
   --      IFRS 17 Insurance Contracts 

-- Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The adoption of the above standards and interpretations is not expected to lead to any changes to the Group's accounting policies or have any other material impact on the financial position or performance of the Group.

Alternative Performance M easures

In reporting financial information, the Group presents alternative performance measures (APMs), which are not defined or specified under the requirements of IFRS.

The Group believes that these APMs, which are not considered to be a substitute for, or superior to, IFRS measures, provide stakeholders with additional helpful information on the performance of the business. These APMs are consistent with how the business performance is planned and reported within the internal management reporting to the Board and Operating Committee. Some of these measures are also used for the purpose of setting remuneration targets.

The key APMs that the Group uses include: like-for-like revenue growth; operating profit before adjusting items; profit before tax and adjusting items; adjusted earnings per share; net debt; free cash flow; and return on capital employed. Each of these APMs, and others used by the Group, are set out in the Glossary including explanations of how they are calculated and how they can be reconciled to a statutory measure where relevant.

The Group reports some financial measures, primarily International sales, on both a reported and constant currency basis. The constant currency basis, which is an APM, retranslates the previous year revenues at the average actual periodic exchange rates used in the current financial year. This measure is presented as a means of eliminating the effects of exchange rate fluctuations on the year-on-year reported results.

The Group makes certain adjustments to the statutory profit measures in order to derive many of these APMs. The Group's policy is to exclude items that are considered significant in nature and/or quantum to the financial statement line item or applicable disclosure note or are consistent with items that were treated as adjusting in prior periods. Treatment as an adjusting item provides stakeholders with additional useful information to assess the year-on-year trading performance of the Group. On this basis, the following items were included within adjusting items for the 52-week period ended 28 March 2020:

- Net charges associated with the strategic programme in relation to the review of the UK store estate.

- Significant restructuring costs and other associated costs arising from strategy changes that are not considered by the Group to be part of the normal operating costs of the business.

- Significant pension charges arising as a result of the historical changes to the UK defined benefit scheme practices.

- Impairment charges and provisions that are considered to be significant in nature and/or value to the trading performance of the business.

- Charges 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 as well as forward economic guidance provisions recognised by M&S Bank as a result of Covid-19.

   -       Significant costs arising from establishing the investment in Ocado Retail Limited. 

- Amortisation of the identified intangible assets arising as part of the investment in Ocado Retail Limited.(1)

   -       Remeasurement of contingent consideration including discount unwind.(1) 
   -       Directly attributable gains and expenses resulting from the Covid-19 pandemic. (2) 
   -       Other adjusting items include credits recognised in relation to potential liabilities for employee-related matters previously recognised within adjusting items. 

(1) As a result of the investment in Ocado Retail Limited during the year these items have been included within adjusting items for the first time.

(2) As a result of the Covid-19 pandemic and subsequent UK government restrictions introduced on 23 March 2020 that has resulted in significant and unprecedented market and business disruption, the Group has classified gains and expenses incurred as a direct result of Covid-19 as adjusting items for the first time. The impact of the Covid-19 pandemic on the Group's operations is discussed within the principal risks and uncertainties section as well as set out within the basis of preparation above which summarises the Covid-19 scenario modelled by the Group and within the subsequent events note.

Refer to note 3 for a summary of the adjusting items.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of consolidated financial statements requires the Group to make estimates and judgements that affect the application of policies and reported amounts.

Critical judgements represent key decisions made by management in the application of the Group accounting policies. Where a significant risk of materially different outcomes exists due to management assumptions or sources of estimation uncertainty, this will represent a key source of estimation uncertainty. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next 12 months are discussed below.

Critical accounting judgements

Adjusting items

The directors believe that the adjusted profit and earnings per share measures provide additional useful information to shareholders on the performance of the business. These measures are consistent with how business performance is measured internally by the Board and Operating Committee. The profit before tax and adjusting items measure is not a recognised profit measure under IFRS and may not be directly comparable with adjusted profit measures used by other companies. The classification of adjusting items requires significant management judgement after considering the nature and intentions of a transaction. The Group's definitions of adjusting items are outlined within both the Group accounting policies and the Glossary. These definitions have been applied consistently year on year, with additional items due to the investment in Ocado Retail Limited and certain directly attributable gains and expenses resulting from the Covid-19 pandemic.

Note 3 provides further details on current year adjusting items and their adherence to Group policy.

UK defined benefit pension surplus

Where a surplus on a defined benefit scheme arises, the rights of the Trustees to prevent the Group obtaining a refund of that surplus in the future are considered in determining whether it is necessary to restrict the amount of the surplus that is recognised. The UK defined benefit scheme is in surplus at 28 March 2020. The directors have made the judgement that these amounts meet the requirements of recoverability on the basis that paragraph 11(b) of IFRIC 14 applies, enabling a refund of surplus assuming the gradual settlement of the scheme liabilities over time until all members have left the scheme, and a surplus of GBP1,915.0m has been recognised.

Assessment of control

The directors have assessed that the Group has significant influence over Ocado Retail Limited and has therefore accounted for the investment as an associate (see note 18). This assessment is based on the current rights held by the respective shareholders and requires judgement in assessing these rights. These rights include determinative rights currently held by Ocado Group Plc, after agreed dispute-resolution procedures, in relation to the approval of the Ocado Retail Limited business plan and budget and the appointment and removal of Ocado Retail Limited's Chief Executive Officer. Any future change to these rights requires a reassessment of control and could result in a change in the status of the investment from associate to joint venture, subsidiary or investment.

Determining the lease term

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has several lease contracts for land and buildings that include extension and termination options. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination, including: whether there are significant penalties to terminate (or not extend); whether any leasehold improvements are expected to have a significant remaining value; historical lease durations; the importance of the underlying asset to the Group's operations; and the costs and business disruption required to replace the leased asset.

Most renewal periods and periods covered by termination options are included as part of the lease term for leases of land and buildings. The Group typically exercises its option to renew (or does not exercise its option to terminate) for these leases because there will be a significant negative effect on trading if a replacement property is not readily available.

The lease term is reassessed if a significant event or a significant change in circumstances occurs which affects the assessment of reasonable certainty, for example if a store is identified to be closed as part of the UK store estate strategic programme.

Determining the incremental borrowing rate used to measure lease liabilities

The Group is required to determine its incremental borrowing rate ("IBR") to measure lease liabilities. Judgement is applied in determining the components of the IBR used for each lease including risk-free rates, the Group's credit risk and any lease specific adjustments.

IBRs are determined bi-annually and depend on the term, country and start date of the lease. The IBR is determined based on a series of inputs including: the risk-free rate based on government bond rates; a country-specific risk adjustment; and a credit risk adjustment based on the average credit spread of entities with similar ratings to the Group.

Determining whether forecast purchases are highly probable

The Group is exposed to foreign currency risk, most significantly to the US dollar as a result of sourcing Clothing & Home products from Asia which are paid predominantly in US dollars. The Group hedges these exposures using forward foreign exchange contracts and hedge accounting is applied when the requirements of IFRS 9 are met, which include that a forecast transaction must be "highly probable".

The Group has applied judgement in assessing whether the forecast purchases remain "highly probable", particularly in light of the decline in expected sales resulting from the Covid-19 pandemic and the related store closures.

At the reporting date, a GBP2.9m gain has been recognised in the income statement as a result of US$76.6m notional forecast purchases no longer expected to occur in relation to the Clothing & Home Autumn and Winter season requirement. In making this assessment, the Group has considered the most recent budgets and plans, including the Covid-19 scenario. The Group's policy is a "layered" hedging strategy where only a small fraction of the forecast purchase requirements are initially hedged, approximately 15 months prior to a season, with incremental hedges layered on over time as the buying period for that season approaches and therefore as certainty increases over the forecast purchases. As a result of this progressive strategy, reducing the supply pipeline of Clothing & Home inventory, as described in the basis of preparation, does not immediately lead to over-hedging and the disqualification of "highly probable". If the forecast transactions were no longer expected to occur, any accumulated gain or loss on the hedging instruments would be immediately reclassified to profit or loss.

Key sources of estimation uncertainty

UK store estate programme

The Group is undertaking a significant strategic programme to review its UK store estate resulting in a net charge of GBP29.3m (last year: GBP216.5m (restated)) in the year. A significant level of estimation has been used to determine the charges to be recognised in the year. The most significant judgement that impacts the charge is that the stores identified as part of the programme are more likely than not to close. Further significant closure costs and impairment charges may be recorded in future years depending on decisions made about further store closures and the successful delivery of the transformation programme.

Where a store closure has been announced there is a reduced level of estimation uncertainty as the programme actions are to be taken over a shorter and more immediate timeframe. Further significant estimation uncertainty arises in respect of determining the recoverable amount of assets and the costs to be incurred as part of the programme. Significant assumptions have been made including:

   --      Reassessment of the useful lives of store fixed assets and closure dates. 

-- Estimation in respect of the expected shorter-term trading value in use, including assumptions with regard to the period of trading as well as changes to future sales, gross margin and operating costs. In light of the ongoing Covid-19 pandemic, the Group's cash flow projections over the three-year strategic plan period have been revised and include a Covid-19 overlay in year 1 (see the basis of preparation section and the glossary for details on this Covid-19 scenario).

-- Estimation of the sale proceeds for freehold stores which is dependent upon location-specific factors, timing of likely exit and future changes to the UK retail property market valuations.

-- Estimation of the value of dilapidation payments required for leasehold store exits, which is dependent on a number of factors including the extent of modifications of the store, the terms of the lease agreement, and the condition of the property.

The assumptions most likely to have a material impact are closure dates and changes to future sales. See notes 3 and 11 for further detail.

Useful lives and residual values of property, plant and equipment and intangibles

Depreciation and amortisation are provided to write down the cost of property, plant and equipment and certain intangibles to their estimated residual values over their estimated useful lives, as set out above. The selection of the residual values and useful lives gives rise to estimation uncertainty, especially in the context of changing economic and market factors, the channel shift from stores to online, increasing technological advancement and the Group's ongoing strategic transformation programmes. The useful lives of property, plant and equipment and intangibles are reviewed by management annually. See notes 10 and 11 for further details. Refer to the UK store estate programme section above for specific sources of estimation uncertainty in relation to the useful lives of property, plant and equipment for stores identified as part of the UK store estate programme. Due to the nature of the Group's property, plant and equipment, it is not practicable to provide a meaningful sensitivity analysis.

Impairment of property, plant and equipment and intangibles

Property, plant and equipment and computer software intangibles are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill and indefinite life brands are reviewed for impairment on an annual basis. When a review for impairment is conducted, the recoverable amount is determined based on the higher of value in use and fair value less costs to sell. The value in use method requires the Group to determine appropriate assumptions (which are sources of estimation uncertainty) in relation to the cash flow projections over the three-year strategic plan period, the long-term growth rate to be applied beyond this three-year period and the risk-adjusted pre-tax discount rate used to discount the assumed cash flows to present value. In light of the ongoing Covid-19 pandemic, the Group's cash flow projections over the three-year strategic plan period have been revised and include a Covid-19 overlay in year 1 (the Covid-19 scenario), focusing on the external impact of social-distancing measures, and the internally controllable mitigating actions the Group is taking to protect the business.

The assumption that cash flows continue into perpetuity (with the exception of stores identified as part of the UK store estate programme) is a source of significant estimation certainty. A future change to the assumption of trading into perpetuity for any Cash-Generating Unit (CGU) would result in a reassessment of useful economic lives and residual value and could give rise to a significant impairment of property, plant and equipment and intangibles particularly where the store carrying value exceeds fair value less cost to sell. See notes 10 and 11 for further details on the Group's assumptions and associated sensitivities.

Inventory provisioning

The Group sells Clothing & Home merchandise that are subject to changing consumer demands and seasonal trends. As a direct result of the restrictions on "non-essential" trade imposed in response to the Covid-19 pandemic, our ability to sell through existing Clothing & Home stock has been significantly impacted. Accordingly, the Group has had to review its inventory levels in light of future expectations of sell-through, impacting the recoverability of the cost of inventories and the level of provisioning required. When calculating inventory provisions, management has considered the nature and condition of inventory, as well as applying assumptions around when trade restrictions might be eased leading to resumption of sales. See note 3 for further details on the assumptions and associated sensitivities.

Post-retirement benefits

The determination of pension net interest income and the defined benefit obligation of the Group's defined benefit pension schemes depends on the selection of certain assumptions which include the discount rate, inflation rate and mortality rates. Differences arising from actual experiences or future changes in assumptions will be reflected in subsequent periods. A minority of the assets of the scheme are relatively illiquid and in the past historical pricing has been used to value these asset classes at year-end (typically pricing from the most recent 31 December). Covid-19 has led to significant market falls for some asset classes. Asset values have been reduced using movements in a market index for listed private equity as a proxy for actual performance of private equity assets and information from managers for adjustments to secure income assets. Management has considered reasonably possible changes in these key sources of estimation uncertainty. A further change of 10% in private equity values would change asset values by GBP14.0m and a 0.5% change in secure income assets would change asset values by GBP3.0m. See note 8 for further details on the impact of changes in the key assumptions and estimates.

Fair value of consideration and contingent consideration

As part of the investment in Ocado Retail Limited (see note 18), contingent consideration with an estimated fair value of GBP202.4m has been recognised in the period. The maximum potential undiscounted amount of all future payments that the Group could be required to make under the contingent consideration arrangement is GBP187.5m plus interest of 4%.

The arrangement has a number of elements which only become payable on the achievement of specific performance targets. The most significant of these is Ocado Retail Limited achieving a specified target level of earnings in the financial year ending November 2023. If targets are not achieved, no contingent consideration will be payable.

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 Operating Committee. The Operating Committee reviews the Group's internal reporting in order to assess performance and allocate resources across each operating segment.

During the year, the Group has completed a comprehensive review of the way in which costs are allocated between our businesses. As a result, a detailed and more accurate cost allocation methodology now exists which allows the Operating Committee to review performance by business down to Operating profit, with financial and management information presented in the way that best: reflects how we manage the business; allows management to take fully informed decisions; and therefore holds management appropriately to account. As a result, during 2019/20, the composition of the Group's operating segments has changed. The Group now recognises three operating segments, being UK Clothing & Home, UK Food and International (previously UK and International), with reporting on all three segments down to Operating profit before adjusting items. These new reportable segments reflect key pillars of our transformation programme and the enhanced focus on managing each of the three core business areas.

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'.

-- International - consists of Marks and Spencer owned businesses in Europe and Asia and the international franchise operations.

Other business activities and operating segments, including M&S Bank, M&S Energy and the Group's share of profits or losses from the investment in Ocado Retail Limited, are combined and presented in "All other segments". M&S Bank and M&S Energy were previously reported within the old UK segment but are now presented within "All other segments" as the business activities are fundamentally different to the three core reportable segments. Finance income and costs are not allocated to segments as each is managed on a centralised basis.

As the Group's reportable segments have been changed, the comparative information for 2019 has been restated.

The Operating Committee assesses the performance of the operating segments based on a measure of operating profit before adjusting items. This measurement basis excludes the effects of adjusting items from the operating segments.

The following is an analysis of the Group's revenue and results by reportable segment:

 
                                  52 weeks ended 28 March 2020                     52 weeks ended 30 March 2019 (Restated(1) ) 
                      ----------------------------------------------------  --------------------------------------------------------- 
                            UK  UK Food  International       All     Group        UK  UK Food  International(2,3)       All     Group 
                      Clothing                             other            Clothing                                  other 
                        & Home                          segments              & Home                               segments 
                          GBPm     GBPm           GBPm      GBPm      GBPm      GBPm     GBPm                GBPm      GBPm      GBPm 
--------------------  --------  -------  -------------  --------  --------  --------  -------  ------------------  --------  -------- 
Revenue                3,209.1  6,028.2          944.6         -  10,181.9   3,499.8  5,903.4               974.1         -  10,377.3 
--------------------  --------  -------  -------------  --------  --------  --------  -------  ------------------  --------  -------- 
 
Operating profit 
 before adjusting 
 items(4)                223.9    236.7          110.7      19.4     590.7     355.2    212.9               130.5      27.0     725.6 
--------------------  --------  -------  -------------  --------  --------  --------  -------  ------------------  --------  -------- 
 
Finance income                                                        44.0                                                       34.8 
====================  ========  =======  =============  ========  ========  ========  =======  ==================  ========  ======== 
Finance costs                                                      (231.6)                                                    (248.7) 
====================  ========  =======  =============  ========  ========  ========  =======  ==================  ========  ======== 
 
Profit before tax 
 and adjusting items     223.9    236.7          110.7      19.4     403.1     355.2    212.9               130.5      27.0     511.7 
--------------------  --------  -------  -------------  --------  --------  --------  -------  ------------------  --------  -------- 
 
Adjusting items                                                    (335.9)                                                    (427.5) 
====================  ========  =======  =============  ========  ========  ========  =======  ==================  ========  ======== 
 
Profit before tax        223.9    236.7          110.7      19.4      67.2     355.2    212.9               130.5      27.0      84.2 
--------------------  --------  -------  -------------  --------  --------  --------  -------  ------------------  --------  -------- 
 
(1) Prior year comparatives have also been restated for the adoption of IFRS 16 Leases (see 
 note 17). 
(2) The reporting of results from certain international M&S.com websites has been transferred 
 from UK Clothing & Home (previously UK) to International to align reporting with the day-to-day 
 management of these operations, resulting in revenue of GBP37.5m and operating profit of GBP2.9m 
 being transferred. 
(3) International operating profit was previously reported as GBP127.0m and has been restated 
 to GBP130.5m due to the adoption of IFRS 16 (increased by GBP13.2m), a reallocation of central 
 costs between the Group's reportable segments (decreased by GBP12.6m) and the impact of footnote 
 2 (increased by GBP2.9m). 
(4) Operating profit before adjusting items is stated as gross profit less operating costs 
 prior to adjusting items. At reportable segment level costs are allocated where directly attributable 
 or based on an appropriate cost driver for the cost. 
 
 Other segmental 
 information 
                      --------  -------  -------------  --------  --------  --------  -------  ------------------  --------  -------- 
                                  52 weeks ended 28 March 2020                     52 weeks ended 30 March 2019 (Restated(1) ) 
                      ----------------------------------------------------  --------------------------------------------------------- 
                            UK  UK Food  International       All     Group        UK  UK Food       International       All     Group 
                      Clothing                             other            Clothing                                  other 
                        & Home                          segments              & Home                               segments 
                          GBPm     GBPm           GBPm      GBPm      GBPm      GBPm     GBPm                GBPm      GBPm      GBPm 
--------------------  --------  -------  -------------  --------  --------  --------  -------  ------------------  --------  -------- 
Additions to 
 property, plant & 
 equipment and 
 intangible assets 
 (excluding goodwill 
 and right-of-use 
 assets)                 166.5    170.1           15.7         -     352.3     140.6    142.5                13.9         -     297.0 
====================  ========  =======  =============  ========  ========  ========  =======  ==================  ========  ======== 
Depreciation and 
 amortisation(2)       (350.6)  (283.4)         (34.6)         -   (668.6)   (430.4)  (323.8)              (35.5)         -   (789.7) 
====================  ========  =======  =============  ========  ========  ========  =======  ==================  ========  ======== 
Impairment and asset 
 write-offs(2)          (69.9)   (45.3)         (10.3)         -   (125.5)   (104.3)  (139.8)               (0.5)         -   (244.6) 
--------------------  --------  -------  -------------  --------  --------  --------  -------  ------------------  --------  -------- 
(1) Prior year comparatives have also been restated for the adoption of IFRS 16 Leases (see 
 note 17). 
(2) These 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 Operating Committee. 
 

3 Adjusting items

The total adjusting items reported for the 52-week period ended 28 March 2020 is a net charge of GBP335.9m (last year: GBP427.5m (restated)). The adjustments made to reported profit before tax to arrive at adjusted profit are:

 
                                                                                                     2020         2019 
                                                                                                            (Restated) 
                                                                                            Notes    GBPm         GBPm 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Strategic programmes - UK store estate(1)                                                    11      29.3        216.5 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Strategic programmes - Organisation                                                          11      13.8          4.9 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Strategic programmes - Operational transformation                                                    11.6         16.4 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Strategic programmes - UK logistics                                                          11      10.2         14.3 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Strategic programmes - Changes to pay and pensions                                                    2.9          6.2 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Strategic programmes - International store closures and impairments                                   2.2          5.3 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Strategic programmes - IT restructure                                                                 0.4         15.6 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Directly attributable (gains)/expenses resulting from the Covid-19 pandemic(1)                      163.6            - 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Store impairments and other property charges(1)                                              11      78.5        103.5 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Goodwill impairment - per una(1)                                                             10      13.4            - 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
M&S Bank charges incurred in relation to insurance mis-selling and Covid-19 forward 
 economic 
 guidance provision                                                                                  12.6         20.9 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Amortisation and fair value adjustments arising as part of the investment in Ocado Retail 
 Limited                                                                                             16.8            - 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Establishing the investment in Ocado Retail Limited                                                   1.2          3.4 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Remeasurement of contingent consideration including discount unwind                                   2.9            - 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Other                                                                                              (23.5)            - 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
GMP and other pension equalisation                                                            8         -         20.5 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
Adjustments to profit before tax(2)                                                                 335.9        427.5 
------------------------------------------------------------------------------------------  -----  ------  ----------- 
 
 

(1) Gains/expenses directly attributable to the Covid-19 pandemic in the current year are presented below; this includes the resulting incremental impairment charge disclosed within the strategic programmes above related to the UK store estate, UK store impairments, International store impairments and the impairment of per una goodwill.

 
  UK store estate impairments                11.6 
  Store impairments                          24.2 
  Goodwill impairment - per u na             13.4 
  Directly attributable (gains)/expenses 
   resulting from the Covid-19 pandemic     163.6 
 ----------------------------------------  ------ 
  Total Covid-19 charges                    212.8 
 ----------------------------------------  ------ 
 

(2) All adjusting items are included within operating profit with the exception of GBP2.9m (last year: GBPnil) relating to the remeasurement of contingent consideration including discount unwind which is included within finance costs and a gain of GBP2.9m (last year: GBPnil) relating to forecast purchases no longer expected to occur, within directly attributable (gains)/expenses resulting from the Covid-19 pandemic, which is included within finance income.

Strategic programmes - UK store estate ( GBP29.3m )

In November 2016, the Group announced a strategic programme to transform the UK store estate. During 2017/18 the Group announced its intention to accelerate this programme in line with the strategic aim of significantly growing the online share of sales, as well as better than expected levels of sales transfer achieved from recent store closures. This acceleration of the UK store estate programme resulted in an acceleration of the timing of recognition of the associated costs, primarily driven by a shortening of the useful economic life, for impairment testing purposes, of those stores identified as part of the transformation plans.

The Group has recognised a charge of GBP29.3m (of which, GBP11.6m represents the directly attributable incremental impairment due to Covid-19 (see below for further details)) in the period in relation to those stores identified as part of its transformation plans to make the store estate fit for the future. The charge primarily reflects an updated view of latest store exit routes and assumptions underlying estimated store closure costs, as well as revised cash flows to reflect the impact of Covid-19. The charge primarily relates to impairment of buildings and fixtures and fittings and depreciation as a result of shortening the useful economic life of stores based on the latest approved exit routes. Refer to note 11 for further detail on these charges.

Further material charges relating to the closure and re-configuration of the UK store estate are anticipated as the programme progresses, the quantum of which is subject to change throughout the programme period as decisions are taken in relation to the size of the store estate and the specific stores affected. Following restatement for IFRS 16 and the updated view of store closure costs, future charges of up to c.GBP110m are estimated within the next two financial years, giving post IFRS 16 total programme charges of up to GBP680m in line with previous disclosures.

Strategic programmes - Organisation (GBP13.8m)

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. As part of the wide-ranging strategic review, a further announcement was made in 2017/18 to reduce Group operating costs by GBP350m by the end of 2021. Prior to the onset of the Covid-19 pandemic, the Group had been on track to deliver the operating cost savings.

As part of our commitment to the transformation strategy and delivering the cost reduction programme, further reviews of our organisational structure have been performed in order to streamline structures and improve operational efficiency. This has resulted in a reduction of roles and a charge of GBP10.8m recognised in the period for redundancy costs associated with these changes.

In addition, a further GBP3.0m of costs have been recognised in the period reflecting an updated view of costs associated with centralising the Group's London Head Office functions.

As the Group executes the three phases of the transformation strategy further material organisation costs are likely to occur in order to meet the transformation objective. These costs are considered to be adjusting items as the costs are part of the strategic programme, significant in quantum with GBP73.4m of costs (after restatement for IFRS 16) incurred to date, and are consistent with the disclosure of other similar charges in prior years.

Strategic programmes - Operational transformation (GBP11.6m)

The Group is undertaking a number of key transformation initiatives with the aim of re-engineering end-to-end supply chain, removing costs, complexity and working capital. Part of this transformation has included a fundamental review of the Group's UK Clothing & Home and UK Food end-to-end processes. A charge of GBP11.6m has been recognised primarily for consultancy costs for the transformation and simplification of our supply chain and operations across UK Clothing & Home and UK Food.

These costs are considered to be adjusting items as they relate to a strategic programme and the total costs are significant in quantum (GBP28.0m to date), and as a result not considered to be normal operating costs of the business. Further operational transformation initiatives are planned for 2020/21 which will result in additional related charges within adjusting items.

Strategic programmes - IT restructure (GBP0.4m)

In 2017/18, as part of the five-year transformation strategy, the Group announced a technology transformation programme to create a more agile, faster and commercial technology function. A charge of GBP0.4m has been recognised in the period relating primarily to transition costs associated with the implementation of a new technology operating model. 2019/20 is the final year of the IT restructure programme.

These costs are considered to be an adjusting item as they relate to a significant strategic initiative of the Group which over the prior two years has been significant in value and nature to the results of the Group (2018/19: GBP15.6m and 2017/18: GBP15.5m).

Strategic programmes - UK logistics (GBP10.2m)

In 2017/18, as part of the previously announced long-term strategic programme to transition to a single-tier UK distribution network, the Group announced the opening of a new Clothing & Home distribution centre in Welham Green in 2019. As a direct result, the Group announced the closure of two existing distribution centres. A net charge of GBP10.2m has been recognised in the period for redundancy, accelerated depreciation and project costs.

In February 2020, the Group announced the next phase of the single tier programme with the closure of two further sites expected across 2020/21 and 2021/22. Further charges are expected in 2020/21 of c.GBP13m resulting in a total programme cost of c.GBP52m.

The Group considers these costs to be adjusting items as they are significant in quantum and relate to a significant strategic initiative of the Group. Treatment of the costs as being adjusting items is consistent with the treatment of charges in previous periods in relation to the creation of a single-tier logistics network.

Strategic programmes - Changes to pay and pensions ( GBP2.9m )

In May 2016, the Group announced proposals for a fairer, simpler and more consistent approach to pay and premia as well as proposals to close the UK DB pension scheme to future accrual, effective from 1 April 2017. As part of these proposals, the Group committed to making transition payments to impacted employees in relation to the closure of the UK DB scheme, c.GBP25m in total over the three years commencing 2017/18. 2019/20 represents the final year of these payments, with a charge in the period in relation to these transition payments to employees of GBP2.9m, taking the total programme cost to GBP178m.

As previously disclosed, the Group considers the costs directly associated with the closure of the UK DB scheme to be an adjusting item on the basis that they relate to a significant cost, impacting the Group results. Treatment of the transition payments made in the period within adjusting items is consistent with disclosure of the same costs in 2018/19, 2017/18 and the original disclosure of the UK DB scheme closure costs in 2016/17.

Strategic programmes - International store closures and impairments (GBP2.2m)

In 2016/17, the Group announced its intention to close its owned stores in 10 international markets. A net charge of GBP2.2m has been recognised in the year, reflecting an updated view of the estimated final closure costs for certain markets and those costs which can only be recognised as incurred, taking the programme cost to date to GBP145m.

The net charge is considered to be an adjusting item as it is part of a strategic programme which over the three years of charges has been significant in both quantum and nature to the results of the Group. No further significant charges are expected.

Store impairments and other property charges ( GBP78.5m )

The Group has recognised a number of charges in the period associated with reductions to the carrying value of items of property, plant and equipment.

In response to the ongoing pressures impacting the retail industry, as well as reflecting the Group's strategic focus towards growing online market share, and in light of the ongoing Covid-19 pandemic, the Group has revised future cash flow projections for UK and international stores (excluding those stores which have been captured as part of the UK store estate programme). As a result, store impairment testing has identified stores where the current and anticipated future performance does not support the carrying value of the stores. A charge of GBP78.5m (of which, GBP24.2m represents the directly attributable incremental impairment due to Covid-19 (see below for further details)) has been incurred primarily in respect of the impairment of assets associated with these stores. Refer to note 11 for further details on the impairments.

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.

M&S Bank charges incurred in relation to insurance mis-selling and Covid-19 forward economic guidance provision ( GBP12.6m )

The Group has an economic interest in Marks and Spencer Financial Services plc, a wholly owned subsidiary of HSBC UK Bank plc, trading as M&S Bank, 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 income from M&S Bank has been reduced by the deduction of the estimated liability in both the current and prior years. In addition, further charges have been recognised by M&S Bank in relation to forward economic guidance provisions recognised as a result of Covid-19. 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 GBP12.6m.

The Group considers this cost to be an adjusting item, despite its recurring nature, as the charges are significant in nature and value in each period to the results of the Group. 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 into 2020/21 and beyond as the Group's share of the total charge since September 2013 of GBP327.6m exceeds the total offset against profit share of GBP242.7m to date. The Group therefore expects future adjusting items charges of c.GBP100m - predominantly related to PPI mis-selling claim liabilities - which will be offset against the share of M&S Bank profits in future years.

Establishing the investment in Ocado Retail Limited ( GBP1.2m )

In the prior year, the Group recognised a charge of GBP3.4 m in adjusting items relating to due diligence for the Ocado Retail transaction. As part of the preparation for the launch in September 2020, the Group has incurred GBP1.2m of one-off charges that will not be part of the day-to-day operational costs of our business with Ocado Retail.

An estimated further GBP1m-2m of "getting ready" costs are expected in H1 2020/21 prior to launch in September 2020. These "getting ready" costs, combine with the costs recognised in 2018/19 relating to setting up the investment in Ocado Retail, to bring the total expected one-off charges relating to Ocado Retail up to in the range of GBP6m-7m.

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 prior to the Ocado "go-live" in September 2020 are not considered to be normal operating costs of the business.

Amortisation of intangible assets and fair value adjustments on property, plant and equipment arising as part of the investment in Ocado Retail Limited ( GBP11.7m) and related deferred tax adjustments (GBP5.1m)

The identifiable net assets of Ocado Retail Limited that were acquired included intangible assets (a brand and customer relationships) with a fair value of GBP366.0m, which is recognised as part of the cost of the investment in associate. In addition, fair value adjustments of GBP2.3m were made to property, plant and equipment on acquisition. A related deferred tax liability of GBP63.3m has also been recognised on acquisition as part of the cost of the investment in associate. The amortisation of these intangible assets and fair value adjustments and changes in the related deferred tax liability are included within the Group's share of the profit or loss of the associate and are considered to be adjusting items as they are based on judgements about their value and economic life and are not related to the Group's underlying trading performance. Identifying these items as adjusting allows greater comparability of underlying performance. These adjusting items will be recognised over their useful economic lives of 10-40 years.

Remeasurement of contingent consideration including discount unwind ( GBP2.9m)

Contingent consideration, resulting from the investment in Ocado Retail Limited, is remeasured at fair value at each reporting date with the changes in fair value recognised in profit or loss. The change in fair value and the related unwind of discounting 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 charge for 2019/20 of GBP2.9m represents the unwind of discounting from acquisition to the year end. Discount unwind will be charged to adjusting items until the final contingent consideration payment is made in 2023/24.

Directly attributable gains/(expenses) resulting from the Covid-19 pandemic

In March 2020, following the declaration by the World Health Organisation of the Covid-19 global pandemic and subsequent UK government restrictions, while the Group has been able to continue to trade its Food business (albeit with social-distancing rules in place), Clothing & Home has been unable to trade from full-line stores, with any sales therefore predominantly coming from online sales and Click & Collect in stores. All M&S Outlet stores and a number of Food franchise stores have also closed. Given the global political and economic uncertainty resulting from the Covid-19 pandemic, coupled with the already fast paced changes taking place across the retail sector, the Group expects to see significant volatility and business disruption, reducing the expected performance in 2020/21. As set out in the basis of preparation in note 1, the Board has approved a Covid-19 scenario budget and three-year plan, which assumes that the current government guidelines continue in place for a period of at least four months, and results in a significant decline in sales for the remainder of 2020/21.

As a result, in order to improve the transparency and usefulness of the financial information presented and improve year-on-year comparability, the Group has identified charges of GBP212.8m relating to directly attributable gains and expenses resulting from the Covid-19 pandemic. The charges relate to three separately identifiable areas of accounting judgement and estimates: the write-down of inventories to net realisable value; impairments of intangible assets and property, plant and equipment; and onerous contract provisions, cancellation charges and one-off costs. Should the estimated charges prove to be in excess of the amounts required, the release of any amounts previously provided would be treated as adjusting items.

The impact that Covid-19 has had on underlying trading is not recognised within adjusting items.

Write-down of inventories to net realisable value (GBP157.0m)

The Group has performed a detailed assessment of all retail inventory, including all items in our stores, warehouses and outlets, taking into consideration the period of trading disruption, current sales and sell through plans and considered the impact on the stock holding at year end. The review concluded that there was a need to provide for items from previous seasons which are unlikely to be saleable when stores reopen; that items in the summer sale are likely to be cleared below cost and the need to provide for hibernated stock (stock that will be stored within our warehouses) at reduced prices when we look to sell it in Spring/Summer 2021.

The Group has recognised an incremental write-down of inventory to net realisable value of GBP157.0m (UK Clothing & Home: GBP145.3m; UK Food: GBP6.0m and International: GBP5.7m), reflecting management's best estimate of the impact on the Group of the Covid-19 pandemic. The total UK Clothing & Home inventory provisions represent 33% of UK Clothing & Home inventory. A 5% increase in the UK Clothing & Home inventory provision would result in a reduction in inventory held on the balance sheet of GBP26.0m and would result in a corresponding reduction to recognised profit before tax in 2019/20.

Impairments of intangible assets and property, plant and equipment (GBP49.2m)

As a direct result of the Covid-19 pandemic, all impairment assessments were reperformed using the cash flows resulting from the Board-approved Covid-19 scenario detailed above. Incremental impairment charges as a direct result of Covid-19 have been recognised for the following assets: Goodwill - per una (GBP13.4m); Strategic programme - UK store estate (GBP11.6m); and Store impairments (GBP24.2m).

Refer to notes 10 and 11 for further details on the impairment charges relating to per una goodwill and stores.

Onerous contract provisions, cancellation charges and one-off gains/costs (GBP6.6m)

The Group has incurred a total of GBP6.6m of one-off charges relating to onerous contract and other provisions, and cancellation charges incurred pre-year end as a result of the disruption caused by Covid-19 to normal operating activities. In addition, a number of projects have been cancelled, leading to the impairment and write-off of intangible assets in the course of construction recognised up to 28 March 2020.

The GBP212.8m directly attributable net charges from the Covid-19 pandemic are considered to be adjusting items as they meet the Group's established definition, being both significant in nature and value to the results of the Group in the current period. Further charges are anticipated during 2020/21 to reflect actions that will be taken as a direct result of the length of time that the government restrictions are in place, and trade and consumer behaviour is impacted. Any future credits relating to these items will also be classified as adjusting.

Other (GBP23.5m credit)

In 2017/18, a provision was recorded to cover the potential costs of probable liabilities for certain employee-related matters. During the period, the Group paid GBP0.6m in settlement of the liability for these employee-related matters, resulting in a GBP23.5m release of the provision.

 
4 Finance income/costs 
 
                                                                                               2020         2019 
                                                                                                      (Restated) 
                                                                                               GBPm         GBPm 
------------------------------------------------------------------------------------------  -------  ----------- 
Bank and other interest receivable                                                              8.6          7.6 
==========================================================================================  =======  =========== 
Other finance income                                                                            5.9          0.4 
==========================================================================================  =======  =========== 
Pension net finance income                                                                     23.6         25.8 
==========================================================================================  =======  =========== 
Interest income of subleases                                                                    5.9          1.0 
------------------------------------------------------------------------------------------  -------  ----------- 
Finance income before adjusting items                                                          44.0         34.8 
------------------------------------------------------------------------------------------  -------  ----------- 
 
Interest on bank borrowings                                                                       -        (0.6) 
==========================================================================================  =======  =========== 
Interest payable on syndicated bank facility                                                  (2.3)        (2.3) 
==========================================================================================  =======  =========== 
Interest payable on Medium Term Notes                                                        (78.2)       (77.4) 
==========================================================================================  =======  =========== 
Interest payable on lease liabilities                                                       (139.3)      (148.2) 
==========================================================================================  =======  =========== 
Ineffectiveness on hedge accounting                                                               -        (3.5) 
==========================================================================================  =======  =========== 
Unwind of discount on provisions                                                              (4.9)        (7.9) 
==========================================================================================  =======  =========== 
Unwind of discount on partnership liability to the Marks & Spencer UK Pension Scheme (see 
 note 9)                                                                                      (6.9)        (8.8) 
------------------------------------------------------------------------------------------  =======  =========== 
Finance costs before adjusting items                                                        (231.6)      (248.7) 
------------------------------------------------------------------------------------------  -------  ----------- 
Net finance costs before adjusting items                                                    (187.6)      (213.9) 
==========================================================================================  =======  =========== 
 
Additional finance costs of GBP2.9m (last year: GBPnil) relating to the remeasurement of contingent 
 consideration including discount unwind and additional finance income of GBP2.9m (last year: 
 GBPnil) relating to forecast purchases no longer expected to occur have been incurred and 
 included within adjusting items as detailed in note 3. 
 

5 Income tax expense

The effective tax rate was 59.3% (last year: 46.2%) and the effective tax rate on profit before tax and adjusting items was 20.7% (last year: 20.7%).

6 Earnings per share

The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in issue during the year.

The adjusted earnings per share figures have also been calculated based on earnings before adjusting items that are significant in nature and/or quantum and are considered to be distortive (see note 3). These have been presented to provide shareholders with an additional measure of the Group's year-on-year performance.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has four types of dilutive potential ordinary shares, being: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year; unvested shares granted under the Deferred Share Bonus Plan; unvested shares granted under the Restricted Share Plan; and unvested shares within the Performance Share Plan that have met the relevant performance conditions at the end of the reporting period.

Basic and diluted earnings per share figures for the comparative periods have been restated and adjusted for the bonus factor of 1.04 to reflect the bonus element of the June 2019 rights issue, in accordance with IAS 33 Earnings per Share. Amounts as originally stated at 30 March 2019 were 2.1p basic and diluted earnings per share and 25.4p basic and diluted underlying earnings per share.

Details of the adjusted earnings per share are set out below:

 
                                                                                                  2020        2019 
                                                                                                        (Restated) 
                                                                                                  GBPm        GBPm 
---------------------------------------------------------------------------------------------  -------  ---------- 
Profit attributable to equity shareholders of the Company                                         23.7        41.7 
=============================================================================================  =======  ========== 
Add/(less) (net of tax): 
=============================================================================================  =======  ========== 
Strategic programmes - UK store estate                                                            30.5       184.5 
=============================================================================================  =======  ========== 
Strategic programmes - Organisation                                                               12.3       (0.6) 
=============================================================================================  =======  ========== 
Strategic programmes - Operational transformation                                                  9.9        13.2 
=============================================================================================  =======  ========== 
Strategic programmes - UK logistics                                                                8.4        11.8 
=============================================================================================  =======  ========== 
Strategic programmes - Changes to pay and pensions                                                 2.3         5.1 
=============================================================================================  =======  ========== 
Strategic programmes - International store closures and impairments                                2.2         5.1 
=============================================================================================  =======  ========== 
Strategic programmes - IT restructure                                                              0.3        12.7 
=============================================================================================  =======  ========== 
Directly attributable (gains)/expenses resulting from the Covid-19 pandemic                      132.8           - 
=============================================================================================  =======  ========== 
Store impairments and property charges                                                            68.8        91.7 
=============================================================================================  =======  ========== 
Goodwill impairment - per una                                                                     13.4           - 
=============================================================================================  =======  ========== 
M&S Bank charges incurred in relation to insurance mis-selling and Covid-19 forward economic 
 guidance provision                                                                               10.2        16.9 
=============================================================================================  =======  ========== 
Amortisation and fair value adjustments arising as part of the investment in Ocado Retail 
 Limited                                                                                          16.8           - 
=============================================================================================  =======  ========== 
Establishing the investment in Ocado Retail Limited                                                0.5         3.4 
=============================================================================================  =======  ========== 
Remeasurement of contingent consideration including discount unwind                                2.9           - 
=============================================================================================  =======  ========== 
Other                                                                                           (19.0)           - 
=============================================================================================  =======  ========== 
GMP and other pension equalisation                                                                   -        16.6 
=============================================================================================  =======  ========== 
Profit before adjusting items attributable to equity shareholders of the Company                 316.0       402.1 
=============================================================================================  -------  ---------- 
 
                                                                                               Million     Million 
---------------------------------------------------------------------------------------------  -------  ---------- 
Weighted average number of ordinary shares in issue                                            1,894.9     1,698.1 
=============================================================================================  =======  ========== 
Potentially dilutive share options under Group's share option schemes                             10.7         3.8 
---------------------------------------------------------------------------------------------  -------  ---------- 
Weighted average number of diluted ordinary shares                                             1,905.6     1,701.9 
---------------------------------------------------------------------------------------------  -------  ---------- 
 
                                                                                                 Pence       Pence 
---------------------------------------------------------------------------------------------  -------  ---------- 
Basic earnings per share                                                                           1.3         2.5 
=============================================================================================  =======  ========== 
Diluted earnings per share                                                                         1.2         2.4 
=============================================================================================  =======  ========== 
Adjusted basic earnings per share                                                                 16.7        23.7 
=============================================================================================  =======  ========== 
Adjusted diluted earnings per share                                                               16.6        23.6 
---------------------------------------------------------------------------------------------  -------  ---------- 
 
 
7 Dividends 
 
                                           2020        2019   2020        2019 
                                                 (Restated)         (Restated) 
                                      per share   per share   GBPm        GBPm 
------------------------------------  ---------  ----------  -----  ---------- 
Dividends on equity ordinary shares 
====================================  =========  ==========  =====  ========== 
Paid final dividend                        6.8p       11.4p  115.1       193.1 
====================================  =========  ==========  =====  ========== 
Paid interim dividend                      3.9p        6.5p   76.0       110.4 
------------------------------------  =========  ==========  =====  ========== 
                                          10.7p       17.9p  191.1       303.5 
------------------------------------  ---------  ---------- 
 

Dividend per share figures above have been restated to reflect the bonus element of the June 2019 rights issue.

As announced by the Group on 20 March 2020, the Board of Directors have not proposed a final dividend for 2019/20. In order to provide for the uncertain outlook the Board of Directors do not, at this stage, anticipate paying a dividend for 2020/21.

8 Retirement benefits

 
 
                                                           2020       2019 
                                                           GBPm       GBPm 
Opening net retirement benefit surplus                    914.3      948.2 
Current service cost                                      (0.2)      (0.2) 
Administration cost                                       (4.5)      (3.9) 
Net interest income                                        23.6       25.8 
Employer contributions                                     41.8       42.0 
Past service cost                                             -       18.0 
Remeasurements                                            927.9     (79.9) 
Exchange movement                                         (0.3)        0.3 
Closing net retirement benefit surplus                  1,902.6      914.3 
 
 
                                                           2020       2019 
                                                           GBPm       GBPm 
Total market value of assets                           10,653.8   10,224.7 
Present value of scheme liabilities                   (8,743.3)  (9,301.3) 
Net funded pension plan asset                           1,910.5      923.4 
Unfunded retirement benefits                              (3.9)      (3.5) 
Post-retirement healthcare                                (4.0)      (5.6) 
Net retirement benefit surplus                          1,902.6      914.3 
 
Analysed in the statement of financial position as: 
Retirement benefit asset                                1,915.0      931.5 
Retirement benefit deficit                               (12.4)     (17.2) 
Net retirement benefit surplus                          1,902.6      914.3 
 
 

Financial assumptions

The financial assumptions for the UK DB pension scheme and the most recent actuarial valuations of the other post-retirement schemes have been updated by independent qualified actuaries to take account of the requirements of IAS 19 Employee Benefits in order to assess the liabilities of the schemes. The most significant of these are the discount rate and the inflation rate which are 2.40% (last year: 2.45%) and 2.70% (last year: 3.25%). The inflation rate of 2.70% (last year: 3.25%) reflects the Retail Price Index (RPI) rate.

The amount of the surplus varies if the main financial assumptions change, particularly the discount rate. If the discount rate decreased by 0.25% the surplus would increase by c.GBP50m. If the inflation rate decreased by 0.25%, the surplus would decrease by c.GBP50m.

On 26 October 2018, the High Court issued a judgement in a claim involving Lloyds Banking Group's DB pension schemes. This judgement concluded that the schemes should be amended in order to equalise pension benefits for men and women in relation to guaranteed minimum pension benefits. The issues determined by the judgement resulted in an increase in the liabilities of the Marks & Spencer UK DB Pension Scheme of GBP18.0m, which was recognised in the results as a past service cost in the prior year.

The Group is monitoring the impact of Covid-19 on the DB pension schemes. The DB pension schemes have not factored any impact of Covid-19 into the demographic assumptions. In the future, demographic assumptions may be updated for any material event (including, if relevant, Covid-19).

9 Marks and Spencer Scottish Limited Partnership

Marks and Spencer plc is a general partner and the Marks & Spencer UK Pension Scheme is a limited partner of the Marks and Spencer Scottish Limited Partnership (the "Partnership"). Under the partnership agreement, the limited partners have no involvement in the management of the business and shall not take any part in the control of the partnership. The general partner is responsible for the management and control of the partnership and, as such, the Partnership is consolidated into the results of the Group.

The Partnership holds GBP1.4bn (last year: GBP1.4bn) of properties which have been leased back to Marks and Spencer plc. The Group retains control over these properties, including the flexibility to substitute alternative properties into the Partnership. The first limited partnership interest (held by the Marks & Spencer UK Pension Scheme) entitles the Pension Scheme to receive an annual distribution of GBP71.9m until June 2022 from the Partnership. The second limited partnership interest (also held by the Marks & Spencer UK Pension Scheme), entitles the Pension Scheme to receive a further annual distribution of GBP36.4m from June 2017 until June 2031. All profits generated by the Partnership in excess of these amounts are distributable to Marks and Spencer plc.

The partnership liability in relation to the first interest of GBP207.4m (last year: GBP272.4m) is valued at the net present value of the future expected distributions from the Partnership and is included as a liability in the Group's financial statements as it is a transferable financial instrument. During the year to 28 March 2020, an interest charge of GBP6.9m (last year: GBP8.8m) 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 GBP211.2m (last year: GBP278.5m).

The second partnership interest is not a transferable financial instrument as the Scheme Trustee does not have the right to transfer it to any party other than a successor Trustee. It is therefore not included as a plan asset within the UK DB pension scheme surplus reported in accordance with IAS 19. Similarly, the associated liability is not included on the Group's statement of financial position, rather the annual distribution is recognised as a contribution to the scheme each year.

 
10 Intangible assets 
                                 Goodwill   Brands  Computer software          Computer software under           Total 
                                                                                           development 
                                     GBPm     GBPm               GBPm                             GBPm            GBPm 
At 31 March 2018 
Cost                                136.4    112.3            1,400.0                             65.6         1,714.3 
Accumulated amortisation and 
 impairments                       (59.0)  (104.2)            (928.1)                           (23.8)       (1,115.1) 
Net book value                       77.4      8.1              471.9                             41.8           599.2 
Year ended 30 March 2019 
Opening net book value               77.4      8.1              471.9                             41.8           599.2 
Additions                               -        -               10.3                             84.8            95.1 
Transfers and reclassifications         -        -               81.0                           (75.7)             5.3 
Asset write-offs                        -        -              (5.9)                            (8.4)          (14.3) 
Amortisation charge                     -    (5.3)            (179.1)                                -         (184.4) 
Exchange difference                   0.1        -              (1.1)                                -           (1.0) 
Closing net book value               77.5      2.8              377.1                             42.5           499.9 
At 30 March 2019 
Cost                                136.5    112.3            1,402.2                             74.6         1,725.6 
Accumulated amortisation, 
 impairments and write-offs        (59.0)  (109.5)          (1,025.1)                           (32.1)       (1,225.7) 
Net book value                       77.5      2.8              377.1                             42.5           499.9 
Year ended 28 March 2020 
Opening net book value               77.5      2.8              377.1                             42.5           499.9 
Additions                               -        -                1.1                             76.5            77.6 
Transfers and reclassifications         -        -               91.8                           (91.4)             0.4 
Asset impairments                  (13.4)        -                  -                                -          (13.4) 
Asset write-offs                        -        -              (0.5)                                -           (0.5) 
Amortisation charge                     -    (2.8)            (162.0)                                -         (164.8) 
Exchange difference                 (0.1)        -                  -                                -           (0.1) 
Closing net book value               64.0        -              307.5                             27.6           399.1 
At 28 March 2020 
Cost                                136.4    112.3            1,495.1                             59.7         1,803.5 
Accumulated amortisation and 
 impairments and write-offs        (72.4)  (112.3)          (1,187.6)                           (32.1)       (1,404.4) 
Net book value                       64.0        -              307.5                             27.6           399.1 
 
Goodwill related to the following assets and groups of Cash Generating Units (CGUs): 
                                           per una              India                            Other  Total goodwill 
                                              GBPm               GBPm                             GBPm            GBPm 
Net book value at 30 March 2019               69.5                7.3                              0.7            77.5 
Asset impairments                           (13.4)                  -                                -          (13.4) 
Exchange difference                              -              (0.1)                                -           (0.1) 
Net book value at 28 March 2020               56.1                7.2                              0.7            64.0 
 
 

Impairment testing

Goodwill is not amortised but is tested annually for impairment with the recoverable amount being determined from value in use calculations.

Goodwill for India is monitored by management at a country level, including the combined retail and wholesale businesses, and has been tested for impairment on that basis.

The per una brand is a definite life intangible asset amortised on a straight-line basis over a period of 15 years. The brand intangible was acquired for a cost of GBP80.0m, and is held at a net book value of GBPnil (last year: GBP2.8m). The per una goodwill and brand are considered together for impairment testing purposes and are therefore tested annually for impairment.

The cash flows used for impairment testing are based on the Group's latest budget and forecast cash flows, covering a three-year period, which have regard to historical performance and knowledge of the current market, together with the Group's views on the future achievable growth and the impact of committed cash flows. The cash flows include ongoing capital expenditure required to maintain the store network, but exclude any growth capital initiatives not committed. The Board-approved Budget and Three-Year Plan reflect a more conservative view of the short-term future performance of the per una assets and the Board-approved Covid-19 scenario further significantly reduces sales and profits in 2020/21. A proportion of UK Clothing & Home operating costs are allocated to per una based on the sales mix.

Cash flows beyond this three-year period are extrapolated using a long-term growth rate based on the Group's current view of achievable long-term growth. The Group's current view of achievable long-term growth for per una is 0.7%, which is a reduction from the overall Group long term growth rate of 2%, reflecting the risk associated with the early stage of the relaunch of the per una brand and the potential impact of the Covid-19 pandemic. This is lower than the long-term growth rate used in the prior year (2.3%). The Group's current view of achievable long-term growth for India is 5.9%.

Management estimates discount rates that reflect the current market assessment of the time value of money and the risks specific to each asset or CGU. The pre-tax discount rates are derived from the Group's post-tax weighted average cost of capital ("WACC") which has been calculated using the capital asset pricing model, the inputs of which include a country risk-free rate, equity risk premium, Group size premium and a risk adjustment (beta). The post-tax WACC is subsequently grossed up to a pre-tax rate and was 9.7% for per una (last year: 9.1%) which reflects the additional risk of Covid-19 as at 28 March 2020 and 14.3% for India (last year: 17.3%).

Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions, both individually and in combination. Management has considered reasonably possible changes in key assumptions that would cause the carrying amounts of goodwill or brands to exceed the value in use for each asset.

For India, there is no reasonably possible change in key assumptions that would lead to an impairment and the assumptions do not give rise to a key source of estimation uncertainty.

per una

The future cash flows applied in the per una calculation reflect the Group's plans to grow the per una brand over the next three years; however, adjustments have been made to reflect the impact of Covid-19 on the Clothing & Home business and the proximity of the brand relaunch to the disruption caused by Covid-19. The plan assumes a sales decrease of 46.4% in 2020/21 (reflecting the Covid-19 scenario of 70% decline in Clothing & Home sales compared with budget in the four months to July 2020, followed by a slow recovery back to budget by February 2021), followed by a significant increase in sales in 2021/22 of 82.6% (returning to the original levels planned for the year) and a 0.7% increase in 2022/23. The success of these plans will determine the strategic role of the brand within the Group.

The outcome of the value in use calculation is an impairment of GBP13.4m.

The cash flows used within the impairment model are based on assumptions which are sources of estimation uncertainty and small movements in these assumptions could lead to a further impairment. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions for the per una brand. Neither a 50 basis point increase in the WACC rate nor a reduction in the perpetuity growth rate to 0% would cause a significant increase in the impairment charge. A 20% reduction in operating profit over the whole three-year plan period would cause an GBP11.2m increase in impairment and in combination, these reasonably possible changes in the key assumptions would cause an increase of GBP17.0m in the impairment charge.

11 Property, plant and equipment

The Group's property, plant and equipment of GBP5,494.2m (last year: GBP5,662.3m) consists of owned assets of GBP3,863.9m (last year: GBP3,986.9m) and right-of-use assets of GBP1,630.3m (last year: GBP1,675.4m).

 
Property, plant and 
equipment - owned 
                              Land and buildings        Fixtures, fittings and      Assets in the course of      Total 
                                                                     equipment                 construction 
                                            GBPm                          GBPm                         GBPm       GBPm 
At 31 March 2018 
Cost                                     2,932.5                       7,003.4                         96.8   10,032.7 
Accumulated depreciation, 
 impairments and write-offs              (532.2)                     (5,102.2)                       (18.0)  (5,652.4) 
Net book value                           2,400.3                       1,901.2                         78.8    4,380.3 
Year ended 30 March 2019 
Opening net book value                   2,400.3                       1,901.2                         78.8    4,380.3 
Additions                                    0.9                          30.9                        170.1      201.9 
Transfers and 
 reclassifications                         (7.8)                         166.7                      (168.8)      (9.9) 
Disposals                                  (2.5)                         (0.4)                            -      (2.9) 
Asset impairments                         (18.6)                        (74.6)                            -     (93.2) 
Asset write-offs                          (35.3)                         (8.6)                            -     (43.9) 
Depreciation charge                       (85.5)                       (356.1)                            -    (441.6) 
Exchange difference                        (2.7)                         (1.1)                            -      (3.8) 
Closing net book value                   2,248.8                       1,658.0                         80.1    3,986.9 
At 30 March 2019 
Cost                                     2,885.9                       5,673.6                         98.1    8,657.6 
Accumulated depreciation, 
 impairments and write-offs              (637.1)                     (4,015.6)                       (18.0)  (4,670.7) 
Net book value                           2,248.8                       1,658.0                         80.1    3,986.9 
Year ended 28 March 2020 
Opening net book value                   2,248.8                       1,658.0                         80.1    3,986.9 
Additions                                    2.1                          27.7                        244.9      274.7 
Transfers and 
 reclassifications                          22.2                         183.6                      (205.0)        0.8 
Asset impairments                         (48.2)                        (20.3)                            -     (68.5) 
Asset write-offs                           (1.8)                         (7.1)                            -      (8.9) 
Depreciation charge                       (62.0)                       (267.2)                            -    (329.2) 
Exchange difference                          6.3                           1.8                            -        8.1 
Closing net book value                   2,167.4                       1,576.5                        120.0    3,863.9 
At 28 March 2020 
Cost                                     2,887.5                       5,457.1                        138.0    8,482.6 
Accumulated depreciation, 
 impairments and write-offs              (720.1)                     (3,880.6)                       (18.0)  (4,618.7) 
Net book value                           2,167.4                       1,576.5                        120.0    3,863.9 
 

Asset write-offs in the year include assets with gross book value of GBP680.5m (last year: GBP1,467.9m) and GBPnil (last year: GBPnil) net book value that are no longer in use and have therefore been retired.

Right-of-use assets

From 31 March 2019, the Group has adopted IFRS 16 Leases. Refer to notes 1 and 17 for the accounting policy and restatements respectively. The right-of-use assets recognised on adoption of the new leasing standard are reflected in the underlying asset classes of property, plant and equipment.

Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:

 
Right-of-use assets 
                                  Land and buildings  Fixtures, fittings and equipment    Total 
                                                GBPm                              GBPm     GBPm 
As at 31 March 2018                          1,762.5                              46.8  1,809.3 
Additions                                      187.1                               1.3    188.4 
Transfers and reclassifications                  4.6                                 -      4.6 
Disposals                                     (68.6)                                 -   (68.6) 
Right-of-use asset impairments                (93.2)                                 -   (93.2) 
Depreciation charge                          (153.2)                            (10.5)  (163.7) 
Exchange difference                            (1.4)                                 -    (1.4) 
As at 30 March 2019                          1,637.8                              37.6  1,675.4 
Additions                                      140.3                              40.4    180.7 
Transfers and reclassifications                  0.2                             (0.2)        - 
Disposals                                     (18.9)                                 -   (18.9) 
Right-of-use asset impairments                (34.2)                                 -   (34.2) 
Depreciation charge                          (155.9)                            (18.7)  (174.6) 
Exchange difference                              1.8                               0.1      1.9 
As at 28 March 2020                          1,571.1                              59.2  1,630.3 
 

Impairment of property, plant and equipment and right-of-use assets

For impairment testing purposes, the Group has determined that each store is a separate CGU, with the exception of Outlets stores, which are considered together as one CGU. Click & Collect sales are included in the cash flows of the relevant CGU.

Each CGU is tested for impairment at the balance sheet date if any indicators of impairment have been identified. Stores identified within the Group's UK store estate programme are automatically tested for impairment (see note 3). The UK government trade restrictions implemented on 23 March 2020 as a result of the Covid-19 pandemic are considered an impairment trigger and as a result all stores have been tested for impairment.

The value in use of each CGU is calculated based on the Group's latest budget and forecast cash flows, covering a three-year period, which have regard to historic performance and knowledge of the current market, together with the Group's views on the future achievable growth and the impact of committed initiatives. The cash flows include ongoing capital expenditure required to maintain the store network, but exclude any growth capital initiatives not committed. Cash flows beyond this three-year period are extrapolated using a long-term growth rate based on management's future expectations, with reference to forecast GDP growth. These growth rates do not exceed the long-term growth rate for the Group's retail businesses in the relevant territory. If the CGU relates to a store which the Group has identified as part of the UK store estate programme, the value in use calculated has been modified by estimation of the future cash flows up to the point where it is estimated that trade will cease and then estimation of the timing and amount of costs associated with closure detailed fully in note 3. The forecasts used to calculate the value in use have been updated to take into account the Board-approved Covid-19 scenario. This assumes a significant impact on 2020/21 revenues and profits.

The key assumptions in the value in use calculations are the growth rates of sales and gross profit margins, changes in the operating cost base, long-term growth rates and the risk-adjusted pre-tax discount rate. The pre-tax discount rates are derived from the Group's weighted average cost of capital, which has been calculated using the capital asset pricing model, the inputs of which include a country risk-free rate, equity risk premium, Group size premium and a risk adjustment (beta). The pre-tax discount rates range from 12% to 17% (last year: 9% to 21%). If the CGU relates to a store which the Group has identified as part of the UK store estate programme, the additional key assumptions in the value in use calculations are costs associated with closure, the disposal proceeds from store exits and the timing of the store exits.

Impairments - UK stores (excluding the UK store estate programme)

During the year, the Group has recognised an impairment charge of GBP69.3m as a result of UK store impairment testing unrelated to the UK store estate programme (last year: GBP103.0m (restated)). These stores were impaired to their 'value in use' recoverable amount of GBP105.5m, which is their carrying value at year end. These impairments have been recognised within adjusting items (see note 3).

For UK stores, cash flows beyond the three-year period are extrapolated using the Group's current view of achievable long-term growth of 2%, adjusted to 0% where management believes the current trading performance and future expectations of the store do not support the growth rate of 2%. The rate used to discount the forecast cash flows for UK stores is 8.6% (last year: 9.1%).

As disclosed in the accounting policies (note 1), the cash flows used within the impairment model are based on assumptions which are sources of estimation uncertainty and small movements in these assumptions could lead to further impairments. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions across the UK store portfolio.

A reduction in sales of 5% from the three-year plan in years 2 and 3 to reflect a potential recession would result in an increase in the impairment charge of GBP72.7m and a 20 basis point reduction in gross profit margin throughout the plan period would increase the impairment charge by GBP2.5m. In combination, a 1% fall in sales and a 10 basis point fall in gross profit margin would increase the impairment charge by GBP7.1m. Reasonably possible changes of the other key assumptions, including a 50 basis point increase in the discount rate or reducing the long term growth rate to 0% across all stores, would not result in a significant increase to the impairment charge, either individually or in combination.

Impairments - UK store estate programme

During the year, the Group has recognised an impairment charge of GBP75.2m and impairment reversals of GBP51.0m relating to the on-going UK store estate programme (last year: GBP83.4m (restated)). These stores were impaired to their 'value in use' recoverable amount of GBP289.0m, which is their carrying value at year end. The impairment charge relates to the store closure programme and has been recognised within adjusting items (see note 3).

Where the planned closure date for a store is outside the three-year plan period, no growth rate is applied. The rate used to discount the forecast cash flows for UK stores is 8.6% (last year: 9.1%).

As disclosed in the accounting policies (note 1), the cash flows used within the impairment models for the UK store estate programme are based on assumptions which are sources of estimation uncertainty and small movements in these assumptions could lead to further impairments. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions across the UK store estate programme.

A delay of 12 months in the probable date of each store exit would result in a decrease in the impairment charge of GBP36.8m. A 5% reduction in planned sales in years 2 and 3 (where relevant) would result in an increase in the impairment charge of GBP22.9m. Neither a 50 basis point increase in the discount rate, a 20 basis point reduction in management gross margin during the period of trading nor a 2% increase in the costs associated with exiting a store would result in a significant increase to the impairment charge, individually or in combination with the other reasonably possible scenarios considered.

Impairments - International stores

During the year, the Group has recognised an impairment charge of GBP9.0m in Ireland and GBP0.2m in the Czech Republic as a result of store impairment testing (last year: GBPnil).

For Irish and Czech Republic stores, cash flows beyond the three-year period are extrapolated using a long-term growth rate of 0%. The rate used to discount the forecast cash flows for Irish stores is 14.1% (last year: 10.4%) and for Czech Republic stores is 12.4% (last year: 10.7%).

As disclosed in the accounting policies (note 1), the cash flows used within the impairment model are based on assumptions which are sources of estimation uncertainty and small movements in these assumptions could lead to further impairments. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions.

For Irish stores, a reduction in sales of 5% from the three-year plan in years 2 and 3 to reflect a potential recession would result in an increase in the impairment charge of GBP6.5m. Reasonably possible changes in other key assumptions, including a 20 basis point reduction in gross profit margin throughout the plan period, a 50 basis point increase in the discount rate or a 1% fall in sales combined with a 10 basis point fall in gross profit margin would not result in a significant increase to the impairment charge. Reasonably possible changes in key assumptions for Czech Republic stores do not lead to a significant increase in the impairment charge.

12 Financial instruments

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

   --      Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities; 

-- 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 includes interest rate and foreign exchange derivatives. Fair value is calculated using discounted cash flow methodology, future cash flows are estimated based on forward exchange rates and interest rates (from observable market curves) and contract rates, discounted at a rate that reflects the credit risk of the various counterparties for those with a long maturity.

-- Level 3: techniques that use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

At the end of the reporting period, the Group held the following financial instruments at fair value:

 
                                                                                2020                              2019 
                                                  Level 1  Level 2  Level 3    Total  Level 1  Level 2  Level 3  Total 
                                                     GBPm     GBPm     GBPm     GBPm     GBPm     GBPm     GBPm   GBPm 
Assets measured at fair value 
Financial assets at fair value through profit or 
loss 
- trading derivatives                                   -      2.5        -      2.5        -      0.7        -    0.7 
Derivatives used for hedging                            -    183.4        -    183.4        -     59.5        -   59.5 
Short-term investments                                  -     11.7        -     11.7        -    141.8        -  141.8 
Unlisted investments(1)                                 -        -      9.7      9.7        -        -      9.9    9.9 
 
Liabilities measured at fair value 
Financial liabilities at fair value through 
profit or loss 
- trading derivatives                                   -    (2.8)        -    (2.8)        -    (0.4)        -  (0.4) 
- contingent consideration (see note 18)(2)             -        -  (202.4)  (202.4)        -        -        -      - 
Derivatives used for hedging                            -   (10.9)        -   (10.9)        -    (9.7)        -  (9.7) 
 

(1) There were no transfers between the levels of the fair value hierarchy. The Group holds GBP9.7m in unlisted equity securities measured at fair value through other comprehensive income (last year: GBP9.9m) which is a level 3 instrument. The fair value of this investment is determined with reference to the net asset value of the entity in which the investment is held, which in turn derives the majority of its net asset value through a third party property valuation.

(2) The determination of the fair value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount factor. The performance targets are binary and, based on the latest five-year plan of Ocado Retail Limited, are expected to be met and therefore the full (discounted) amount has been recognised. The discount rates used ranged from 1.7% to 2.2% and a 0.5% change in the discount rates would result in a change in fair value of GBP4.5m.

The Marks & Spencer UK Pension Scheme holds a number of financial instruments which make up the pension asset of GBP10,653.8m (last year: GBP10,224.7m). Level 1 and Level 2 financial assets measured at fair value through other comprehensive income amounted to GBP6,328.7m (last year: GBP7,008.6m). Additionally, the scheme assets include GBP4,325.1m (last year: GBP3,216.1m) of Level 3 financial assets. See note 8 for information on the Group's retirement benefits.

The following table represents the changes in Level 3 instruments held by the Pension Schemes:

 
                                                                     2020     2019 
                                                                     GBPm     GBPm 
Opening balance                                                   3,216.1  2,836.9 
Fair value (loss)/gain recognised in other comprehensive income   (130.1)    136.3 
Additional investment                                             1,239.1    242.9 
Closing balance                                                   4,325.1  3,216.1 
 

Fair value of financial instruments

With the exception of the Group's Medium Term Notes and the Partnership liability to the Marks & Spencer UK Pension Scheme (note 9), there were no material differences between the carrying value of non-derivative financial assets and financial liabilities and their fair values as at the balance sheet date.

The carrying value of the Group's Medium Term Notes (level 1 equivalent) was GBP1,579.4m (last year GBP1,673.8m), the fair value of this debt was GBP1,531.4m (last year GBP1,724.0m).

Hedging activities

In September 2019, the IASB issued Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39 and IFRS 7. These amendments modify specific hedge accounting requirements to allow hedge accounting to continue for affected hedges during the period of uncertainty before the hedged items or hedging instruments affected by the current interest rate benchmarks are amended as a result of the on-going interest rate benchmark reforms.

The application of the amendments impacts the Group's accounting in relation to a sterling denominated fixed rate debt which it fair value hedge accounts using sterling fixed to GBP LIBOR interest rate swaps. The amendments permit continuation of hedge accounting even if in the future the hedged benchmark interest rate, GBP LIBOR, may no longer be separately identifiable. However, this relief does not extend to the requirement that the designated interest rate risk component must continue to be reliably measurable. If the risk component is no longer reliably measurable, the hedging relationship is discontinued.

The Group has chosen to early apply the amendments to IFRS 9 for the reporting period ended 28 March 2020, which are mandatory for annual reporting periods beginning on or after 1 January 2020. Adopting these amendments allows the Group to continue hedge accounting during the period of uncertainty arising from interest rate benchmark reforms.

 
13 Contingencies and commitments 
 
A. Capital commitments 
                                                                     2020  2019 
                                                                     GBPm  GBPm 
Commitments in respect of properties in the course of construction   78.7  90.1 
Software capital commitments                                          8.6   6.8 
                                                                     87.3  96.9 
 

B. Other material contracts

In the event of termination of our trading arrangements with certain warehouse operators, the Group has a number of options and commitments to purchase some property, plant and equipment, at values ranging from historical net book value to market value, which are currently owned and operated by the warehouse operators on the Group's behalf. These options and commitments would have an immaterial impact on the Group's Statement of Financial Position.

See note 9 for details on the partnership arrangement with the Marks & Spencer UK Pension Scheme.

 
14 Analysis of cash flows given in the statement of cash flows 
 
Cash flows from operating activities 
                                                   2020  2019 (Restated) 
                                                   GBPm             GBPm 
Profit on ordinary activities after taxation       27.4             45.3 
                                                ======= 
Income tax expense                                 39.8             38.9 
                                                ======= 
Finance costs                                     234.5            248.7 
                                                ======= 
Finance income                                   (46.9)           (34.8) 
                                                ------- 
Operating profit                                  254.8            298.1 
                                                ======= 
Share of results of Ocado Retail Limited          (2.6)                - 
                                                ======= 
(Increase)/decrease in inventories               (29.3)             73.8 
                                                ======= 
Increase in receivables                           (9.2)           (81.7) 
                                                ======= 
(Decrease)/increase in payables                  (10.0)             69.0 
                                                ======= 
Adjusting items net cash outflows(1,2)           (75.4)           (99.3) 
                                                ======= 
Depreciation, amortisation and write-offs         632.5            702.6 
                                                ======= 
Non-cash share based payment expense               18.5             19.2 
                                                ======= 
Defined benefit pension funding                  (37.9)           (37.9) 
                                                ======= 
Adjusting items M&S Bank(3)                      (12.6)           (20.9) 
                                                ======= 
Adjusting operating profit items                  335.9            427.5 
Cash generated from operations                  1,064.7          1,350.4 
                                                ------- 
 
 

(1) Excludes GBP11.3m of surrender payments included within repayment of lease liabilities in the consolidated statement of cash flows relating to leases within the UK store estate programme.

(2) Adjusting items net cash outflows relate to the utilisation of the provisions for International store closures and impairments, strategic programme costs associated with the UK store estate, organisation, operational transformation, UK logistics, IT restructure, changes to pay and pensions, store impairments and property charges, GMP and other pension equalisation, and establishing the investment in Ocado Retail 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.

 
15 Analysis of net debt 
 
A. Reconciliation of movement in net debt 
                                              At                                  Exchange and other              At 
                                         1 April                                            non-cash        30 March 
                                            2018    Cash flow                              movements            2019 
                                      (Restated)   (Restated)                             (Restated)      (Restated) 
                                            GBPm         GBPm                                   GBPm            GBPm 
Net cash/(debt) 
Bank loans, overdrafts and 
 syndicated bank facility                 (88.4)         11.1                                    5.0          (72.3) 
Less: amounts treated as 
 financing (see below)                      51.7       (46.7)                                  (5.0)               - 
                                          (36.7)       (35.6)                                      -          (72.3) 
Cash and cash equivalents                  207.7         77.9                                  (0.2)           285.4 
Net cash per statement of cash 
 flows                                     171.0         42.3                                  (0.2)           213.1 
Current financial assets                    13.7        128.1                                      -           141.8 
Liabilities from financing 
activities 
Bank loans, and overdrafts 
 treated as financing (see 
 above)                                   (51.7)         46.7                                    5.0               - 
Medium Term Notes                      (1,622.9)        (1.4)                                 (12.5)       (1,636.8) 
Lease liabilities                      (2,589.9)        170.1                                (157.0)       (2,576.8) 
Partnership liability to the 
 Marks & Spencer UK Pension 
 Scheme (see note 9)                     (327.8)         61.6                                      -         (266.2) 
Derivatives held to hedge Medium 
 Term Notes                                    -            -                                   23.9            23.9 
Liabilities from financing 
 activities                            (4,592.3)        277.0                                (140.6)       (4,455.9) 
Less: Derivative instruments and 
 cash flows related to interest             38.2            -                                 (12.6)            25.6 
Net debt                               (4,369.4)        447.4                                (153.4)       (4,075.4) 
 
 
                                              At 
                                   31 March 2019                                                                  At 
                                      (Restated)    Cash flow  Exchange and other non-cash movements   28 March 2020 
                                            GBPm         GBPm                                   GBPm            GBPm 
Net cash 
Bank loans, overdrafts and 
 syndicated bank facility                 (72.3)       (12.0)                                      -          (84.3) 
                                          (72.3)       (12.0)                                      -          (84.3) 
Cash and cash equivalents                  285.4       (37.5)                                    0.5           248.4 
Net cash per statement of cash 
 flows                                     213.1       (49.5)                                    0.5           164.1 
Current financial assets                   141.8      (130.1)                                      -            11.7 
Liabilities from financing 
activities 
Medium Term Notes                      (1,636.8)        150.0                                 (14.3)       (1,501.1) 
Lease liabilities                      (2,576.8)        201.4                                (186.6)       (2,562.0) 
Partnership liability to the 
 Marks & Spencer UK Pension 
 Scheme (see note 9)                     (266.2)         63.5                                      -         (202.7) 
Derivatives held to hedge Medium 
 Term Notes                                 23.9        (7.7)                                   86.0           102.2 
Liabilities from financing 
 activities                            (4,455.9)        407.2                                (114.9)       (4,163.6) 
Less: Derivative instruments and 
 cash flows related to interest             25.6          7.7                                 (70.7)         (37.4 ) 
Net debt                               (4,075.4)        235.3                                (185.1)       (4,025.2) 
 
B. Reconciliation of net debt to statement of financial position 
                                                                                                                2019 
                                                                                                2020      (Restated) 
                                                                                                GBPm            GBPm 
Statement of financial position 
and related notes 
Cash and cash equivalents                                                                      248.4           285.4 
Current financial assets                                                                        11.7           141.8 
Bank loans and overdrafts                                                                     (84.3)          (72.3) 
Medium Term Notes - net of 
 hedging derivatives                                                                       (1,471.4)       (1,624.3) 
Lease liabilities                                                                          (2,562.0)       (2,576.8) 
Partnership liability to the Marks & Spencer UK Pension 
 Scheme (see note 9)                                                                         (207.4)         (272.4) 
                                                                                           (4,065.0)       (4,118.6) 
Interest payable included within 
 related borrowing and the 
 partnership liability to the 
 Marks 
 & Spencer UK Pension Scheme                                                                    39.8            43.2 
Total net debt                                                                             (4,025.2)       (4,075.4) 
 
 
 

16 Related party transactions

A shareholder loan facility with Ocado Retail Limited has been established in the year, with Ocado Retail Limited having the ability to draw down up to GBP30m from each shareholder. At year end Ocado Retail Limited has not utilised this facility.

As part of the Ocado Retail Limited investment, Ocado Retail Limited entered into a GBP30m, three-year revolving credit facility. Along with Ocado Group Plc, the Group has provided a parent guarantee to cover 50% of the GBP30m revolving credit facility provided by BNPP to Ocado Retail Limited. The revolving credit facility was undrawn at 28 March 2020.

The only other related party transactions during the year related to key management compensation.

17 Impact of new accounting standards adopted in the year

The Group applied IFRS 16 Leases for the first time. The Group applied the standard using the fully retrospective method, with the date of initial application of 31 March 2019, and has restated its results for comparative periods as if the Group had always applied the new standard.

The Group recognises a right-of-use asset and corresponding liability at the date at which a leased asset is made available for use by the Group, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets. Previously, rental costs under operating leases were charged to the consolidated income statement in equal annual amounts over the lease term.

The impact of adopting IFRS 16 on the Group's consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position and consolidated statement of cash flows is presented in the following tables.

 
Consolidated income statement 
 
                                              52 weeks ended 30 March 2019 (Restated) 
 
                   Profit before adjusting items                   Adjusting items                          Total 
                        As   Impact of                  As   Impact of                    As  Impact of 
                  reported     IFRS 16  Restated  reported     IFRS 16    Restated  reported    IFRS 16  Restated 
                      GBPm        GBPm      GBPm      GBPm        GBPm        GBPm      GBPm       GBPm      GBPm 
Revenue           10,377.3           -  10,377.3         -           -           -  10,377.3          -  10,377.3 
 
Operating profit     601.0       124.6     725.6   (438.6)        11.1     (427.5)     162.4      135.7     298.1 
 
Finance income        33.8         1.0      34.8         -           -           -      33.8        1.0      34.8 
Finance costs      (111.6)     (137.1)   (248.7)         -           -           -   (111.6)    (137.1)   (248.7) 
 
Profit before 
 tax                 523.2      (11.5)     511.7   (438.6)        11.1     (427.5)      84.6      (0.4)      84.2 
 
Income tax 
 expense           (106.0)           -   (106.0)      58.7         8.4        67.1    (47.3)        8.4    (38.9) 
 
Profit for the 
 year                417.2      (11.5)     405.7   (379.9)        19.5     (360.4)      37.3        8.0      45.3 
 
Attributable to: 
Owners of the 
 parent              413.4      (11.3)     402.1   (379.9)        19.5     (360.4)      33.5        8.2      41.7 
Non-controlling 
 interest              3.8       (0.2)       3.6         -           -           -       3.8      (0.2)       3.6 
                     417.2      (11.5)     405.7   (379.9)        19.5     (360.4)      37.3        8.0      45.3 
 
Basic earnings 
 per share           25.4p      (1.7p)     23.7p   (23.3p)        2.1p     (21.2p)      2.1p       0.4p      2.5p 
Diluted earnings 
 per share           25.4p      (1.8p)     23.6p   (23.3p)        2.1p     (21.2p)      2.1p       0.3p      2.4p 
 
 
  Consolidated statement of comprehensive income 
 
                                                                        52 weeks ended 30 March 2019 
                                                                                      Impact 
                                                                                          of 
                                                                       As reported   IFRS 16             Restated 
                                                                              GBPm      GBPm                 GBPm 
Profit for the year                                                           37.3       8.0                 45.3 
Other comprehensive income: 
Items that will not be reclassified to profit or loss 
Remeasurements of retirement benefit schemes                                (79.9)         -               (79.9) 
Tax credit on items that will not be reclassified                             14.0         -                 14.0 
                                                                            (65.9)         -               (65.9) 
Items that may be reclassified subsequently to profit or 
loss 
Foreign currency translation differences 
- movements recognised in other comprehensive income                        (15.4)       0.8               (14.6) 
Cash flow hedges 
- fair value movements in other comprehensive income                         132.0         -                132.0 
- reclassified and reported in profit or loss                               (16.0)         -               (16.0) 
Tax charge on cash flow hedges                                              (19.0)         -               (19.0) 
                                                                              81.6       0.8                 82.4 
Other comprehensive income for the year, net of tax                           15.7       0.8                 16.5 
Total comprehensive income for the year                                       53.0       8.8                 61.8 
 
Attributable to: 
Owners of the parent                                                          49.2       9.0                 58.2 
Non-controlling interests                                                      3.8     (0.2)                  3.6 
52 weeks ended 30 March 2019                                                  53.0       8.8                 61.8 
 
 
  Consolidated statement of financial position 
 
                                       As at 30 March 2019                    As at 1 April 2018 
                                    As                                          As    Impact 
                            previously           Impact of              previously   of IFRS 
                              reported             IFRS 16    Restated    reported        16   Restated 
                                  GBPm                GBPm        GBPm        GBPm      GBPm       GBPm 
Assets 
Non-current assets 
Property, plant and 
 equipment                     4,028.5             1,633.8     5,662.3     4,393.9   1,795.7    6,189.6 
Trade and other 
 receivables                     200.7                72.3       273.0       209.0       0.5      209.5 
Other non-current assets       1,480.6                   -     1,480.6     1,629.4         -    1,629.4 
                               5,709.8             1,706.1     7,415.9     6,232.3   1,796.2    8,028.5 
Current assets 
Trade and other 
 receivables                     322.5              (55.3)       267.2       308.4    (56.0)      252.4 
Other current assets           1,167.9                   -     1,167.9     1,009.5         -    1,009.5 
                               1,490.4              (55.3)     1,435.1     1,317.9    (56.0)    1,261.9 
Total assets                   7,200.2             1,650.8     8,851.0     7,550.2   1,740.2    9,290.4 
 
Liabilities 
Current liabilities 
Trade and other payables       1,461.3              (36.9)     1,424.4     1,405.9    (28.8)    1,377.1 
Borrowings and other 
 financial liabilities           513.1               181.3       694.4       125.6     158.1      283.7 
Provisions                       148.6              (47.9)       100.7        98.8    (42.6)       56.2 
Current tax liabilities           26.2                   -        26.2        50.0         -       50.0 
Other current liabilities         79.2                   -        79.2       145.7         -      145.7 
                               2,228.4                96.5     2,324.9     1,826.0      86.7    1,912.7 
Non-current liabilities 
Trade and other payables         322.4             (306.8)        15.6       333.8   (317.5)       16.3 
Borrowings and other 
 financial liabilities         1,279.5             2,349.0     3,628.5     1,670.6   2,383.9    4,054.5 
Provisions                       250.1             (177.4)        72.7       193.1   (101.3)       91.8 
Deferred tax liabilities         218.4              (98.8)       119.6       255.7    (90.6)      165.1 
Other non-current 
 liabilities                     220.5                   -       220.5       316.8         -      316.8 
                               2,290.9             1,766.0     4,056.9     2,770.0   1,874.5    4,644.5 
Total liabilities              4,519.3             1,862.5     6,381.8     4,596.0   1,961.2    6,557.2 
Net assets                     2,680.9             (211.7)     2,469.2     2,954.2   (221.0)    2,733.2 
 
Equity 
Issued share capital             406.3                   -       406.3       406.2         -      406.2 
Share premium account            416.9                   -       416.9       416.4         -      416.4 
Capital redemption reserve     2,210.5                   -     2,210.5     2,210.5         -    2,210.5 
Hedging reserve                 (14.6)                   -      (14.6)      (76.0)         -     (76.0) 
Cost of hedging reserve           11.7                   -        11.7        10.7         -       10.7 
Other reserve                (6,542.2)                   -   (6,542.2)   (6,542.2)         -  (6,542.2) 
Foreign exchange reserve        (44.7)                 0.8      (43.9)      (29.3)         -     (29.3) 
Retained earnings              6,237.1             (212.3)     6,024.8     6,560.4   (221.0)    6,339.4 
Total shareholders' 
 equity                        2,681.0             (211.5)     2,469.5     2,956.7   (221.0)    2,735.7 
Non-controlling interests 
 in equity                       (0.1)               (0.2)       (0.3)       (2.5)         -      (2.5) 
Total equity                   2,680.9             (211.7)     2,469.2     2,954.2   (221.0)    2,733.2 
 
 
  Consolidated statement of cash flows 
                                                                      52 weeks ended 30 March 
                                                                                2019 
                                                                    As                Impact 
                                                            previously               of IFRS 
                                                              reported                    16   Restated 
                                                                  GBPm                  GBPm       GBPm 
Cash flows from operating activities 
Cash generated from operations                                 1,041.0                 309.4    1,350.4 
Income tax paid                                                (105.7)                     -    (105.7) 
Net cash inflow from operating activities                        935.3                 309.4    1,244.7 
 
Net cash used in investing activities                          (388.0)                     -    (388.0) 
 
Cash flows from financing activities 
Interest paid                                                   (86.4)               (142.6)    (229.0) 
Decrease in obligations under leases                             (3.3)               (166.8)    (170.1) 
Other financing activities                                     (415.3)                     -    (415.3) 
Net cash used in financing activities                          (505.0)               (309.4)    (814.4) 
 
Net cash inflow from activities                                   42.3                     -       42.3 
Effects of exchange rate changes                                 (0.2)                     -      (0.2) 
Opening net cash                                                 171.0                     -      171.0 
Closing net cash                                                 213.1                     -      213.1 
 
 

(i) Income statement

Under the previous accounting standard for leases, IAS 17, lease costs were recognised on a straight-line basis over the term of the lease. The Group recognised these costs within operating costs. On adoption of IFRS 16 these costs have been removed and replaced with costs calculated on an IFRS 16 basis. Under IFRS 16 the right-of-use asset is depreciated over the lease term. The Group has recognised the depreciation costs on the right-of-use asset within operating costs.

The costs under IAS 17 were higher than the depreciation costs recognised under IFRS 16 which has resulted in a net credit under IFRS 16 to operating costs. The net impact of this adjustment in the income statement for the 52 weeks ended 30 March 2019 was GBP135.7m.

The impact on adjusting items as a result of IFRS 16 is due to additional accelerated depreciation and impairments following the recognition of the right-of-use assets and the removal of rental elements of onerous lease and onerous contract provisions. The net impact of this adjustment in the income statement for the 52 weeks ended 30 March 2019 was a reduction in the charge of GBP11.1m.

Under IFRS 16 finance costs are charged on the lease liability recognised. These costs are recognised within finance costs. The impact of this adjustment on the income statement for the 52 weeks ended 30 March 2019 was GBP137.1m.

Also, under IFRS 16, interest income is recognised on subleases reclassified as finance leases. This is recognised within finance income. The impact of this adjustment in the income statement for the 52 weeks ended 30 March 2019 was GBP1.0m.

The net impact of the above adjustments to profit after tax for the 52 weeks ended 30 March 2019 was an increase of GBP8.0m.

(ii) Right-of-use asset

IFRS 16 has resulted in the recognition of a right-of-use asset. This asset represents the Group's contractual right to access an identified asset under the terms of the lease contract.

(iii) Lease liability

IFRS 16 has resulted in the recognition of a lease liability. This liability represents the Group's contractual obligation to minimum lease payments during the lease term.

The element of the liability payable in next 12 months is recognised as a current liability with the balance recognised in non-current liabilities.

(iv) Working capital

Under IAS 17 certain lease incentives, rent prepayments, accruals and similar amounts were held on the statement of financial position as part of working capital. Such balances are no longer recognised as all payments, lease incentives and related costs are reflected in either the right-of-use asset or the lease liability.

(v) Taxation

A deferred tax asset has been recognised on the transition to IFRS 16 representing the temporary difference on the amounts taken to reserves.

(vi) Cash flow statement

Adopting IFRS 16 has resulted in reclassifying lease payments from operating activities to financing activities.

18 Investments in joint ventures and associates

On 5 August 2019, the Group acquired a 50% interest in Ocado Retail Limited, a company incorporated in the UK which is one of the world's largest dedicated online grocery retailers. The remaining 50% interest is held by Ocado Group Plc. Ocado Retail Limited operates Ocado.com, supported by the Ocado Smart Platform technology and will bring together the strength of M&S's brand and its leading food quality and product development, with Ocado's proprietary technology and award-winning service.

Ocado Retail Limited is considered an associate of the M&S Group as certain rights are conferred on Ocado Group Plc for an initial period of at least five years from acquisition, giving Ocado Group Plc control of the company. Following this initial period, a reassessment of control will be required as M&S Group will have an option to obtain more power over the company if certain conditions are met. If M&S is deemed to have obtained control, Ocado Retail Limited will then be consolidated as a subsidiary of the Group. Through Board representation and shareholder voting rights, the Group is currently considered to have significant influence, therefore the investment in Ocado Retail Limited is treated as an associate and applies the equity method of accounting.

Ocado Retail Limited has a year-end date of 1 December 2019, aligning with its parent company, Ocado Group Plc. Ocado Retail Limited has prepared financial information for M&S Group purposes to the nearest quarter-end date of Ocado Retail Limited's year end. The results of Ocado Retail Limited are incorporated in these financial statements from the date of acquisition to 1 March 2020. There were no significant events or transactions in the period from 2 March 2020 to 28 March 2020.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out below:

 
                                                          As at 
                                                  5 August 2019 
                                                           GBPm 
Ocado Retail Limited 
Current assets                                            161.2 
Non-current assets                                        934.1 
Current liabilities                                     (149.2) 
Non-current liabilities                                 (317.7) 
Total identifiable net assets                             628.4 
Group's share of total identifiable net assets            314.2 
Goodwill                                                  449.1 
Total consideration                                       763.3 
Satisfied by: 
Cash                                                      560.9 
Contingent consideration                                  202.4 
Total consideration                                       763.3 
 

The investment in associate is recognised at a cost of GBP769.0m. This incorporates initial consideration of GBP560.9m paid in cash on acquisition, contingent consideration of GBP202.4m and transaction costs of GBP5.7m.

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 
                                  1 March 2020 
                                          GBPm 
Ocado Retail Limited 
Current assets                           484.9 
Non-current assets                       206.6 
Current liabilities                    (489.7) 
Non-current liabilities                (178.2) 
Net assets                                23.6 
 
                                 5 August 2019 
                               to 1 March 2020 
                                          GBPm 
Revenue                                  979.7 
Profit for the period                      5.1 
Other comprehensive income                   - 
Total comprehensive income                 5.1 
 

Reconciliation of the above summarised financial information to the carrying amount of the interest in Ocado Retail Limited recognised in the consolidated financial statements:

 
                                                                           As at 
                                                                   28 March 2020 
                                                                            GBPm 
Ocado Retail Limited 
Net assets                                                                  23.6 
Proportion of the Group's ownership interest                                11.8 
Goodwill                                                                   449.1 
Brand                                                                      255.7 
Customer relationships                                                      98.9 
Other adjustments to align accounting policies                            (66.4) 
Acquisition costs                                                            5.7 
Carrying amount of the Group's interest in Ocado Retail Limited            754.8 
 

The contingent consideration arrangement requires Ocado Retail Limited to achieve a target level of earnings in the financial year ending in November 2023, for specified capacity levels to be achieved and utilised within a specific customer fulfilment centre (CFC) by November 2023 and to begin providing service to customers from a new CFC. The potential undiscounted amount of all future payments that the Group could be required to pay under the contingent consideration arrangement is up to GBP187.5m plus 4% interest. The fair value of the contingent consideration arrangement of GBP202.4m was estimated by applying an appropriate discount rate to the expected future payments which are based on the current five-year plan for Ocado Retail Limited.

In addition, the Group holds immaterial investments in joint ventures totalling GBP5.6m (last year: GBP4.0m). The Group's share of losses totalled GBP0.9m (last year: GBP0.5m loss).

19 Subsequent events

The impact of the Covid-19 pandemic on the Group's operations is discussed within the principal risks and uncertainties below as well as set out within note 1 and the basis of preparation which summarises the Covid-19 scenario modelled by the Group.

Subsequent to the balance sheet date, the Group has monitored trade performance, internal actions, as well as other relevant external factors (such as changes in any of the government restrictions). No adjustments to the key estimates and judgements that impact the balance sheet as at 28 March 2020 have been identified. Where any material changes in key estimates and judgements have been identified updates have been made to the financial statements as adjusting post balance sheet events.

The following non-adjusting events have occurred since 28 March 2020:

-- Use of the UK Government Coronavirus Job Retention Scheme to furlough c.27,000 colleagues across our Clothing & Home business and Support centres, which should generate cash savings of c.GBP50m up to 30 June 2020;

-- On 28 April, the Group announced that formal agreement had been reached with the lending syndicate of banks providing the GBP1.1bn revolving credit facility to remove or substantially relax the covenant conditions for the tests arising in September 2020, March 2021 and September 2021;

-- The Group received confirmation from the Bank of England that it was an eligible issuer under the UK Government's Covid Corporate Financing Facility (CCFF) and allocated an issuer limit of GBP300m ;

   --      In addition, the Group implemented extended payment terms for suppliers in Clothing & Home. 

Review of the key financial assumptions relating to the Group's defined benefit pension schemes subsequent to the balance sheet date indicate that fluctuations in obligations fall within the range of sensitivities described in note 8 of the financial statements. The fair value of plan assets is expected to be volatile in the short term due to uncertain market conditions.

Principal risks & uncertainties

The Board monitors the principal risks and uncertainties which could have a material effect on the Group's results. The impact of the Covid-19 pandemic on the UK has triggered the need to consider both the specific consequences of the virus and its impact on the underlying principal risks being managed by the business. The updated principal risks and uncertainties for 2019/20 are listed below (including assessment of the potential risk implications of the Covid-19 pandemic). Full disclosure of the risks including the factors which mitigate them will be set out within the Strategic Report of the 2019/20 Annual Report and Accounts.

 
TRADING PERFORMANCE RECOVERY           A failure of our Food and/or Clothing & Home business to effectively and 
                                       rapidly respond to 
                                       the pressures of an increasingly competitive and changing retail environment, 
                                       including the 
                                       impact of Covid-19, would adversely impact customer experience, operational 
                                       efficiency and 
                                       business performance. 
BUSINESS TRANSFORMATION                A failure to execute our business transformation and cultural change 
                                       initiatives with pace, 
                                       consistency and cross-business buy-in will impede our ability to improve 
                                       operational efficiency 
                                       and competitiveness. 
LIQUIDITY AND FUNDING                  Significantly reduced trading over an extended and currently undetermined 
                                       timeframe, combined 
                                       with an inability to effectively manage expenditure against revised targets, 
                                       could impact 
                                       the business's ability to operate within and secure additional committed credit 
                                       facilities. 
BREXIT                                 An inability to quickly identify and effectively respond to the challenges of a 
                                       post-Brexit 
                                       environment could have a significant impact on performance across our business. 
FOOD ONLINE                            A failure to effectively execute the launch of M&S products for Ocado Retail 
                                       would significantly 
                                       impact the achievement of our strategy to take our food online in a profitable, 
                                       scalable and 
                                       sustainable way. 
FOOD SAFETY & INTEGRITY                Failure to prevent or effectively respond to a food safety incident, or to 
                                       maintain the integrity 
                                       of our products, could impact business performance, customer confidence and our 
                                       brand. 
CORPORATE COMPLIANCE & RESPONSIBILITY  A failure to deliver against our legal, regulatory, social and environmental 
                                       commitments would 
                                       undermine our reputation as a responsible retailer, may result in legal 
                                       exposure or regulatory 
                                       sanctions, and could negatively impact our ability to operate and/or remain 
                                       relevant to our 
                                       customers. 
BUSINESS CONTINUITY & RESILIENCE       Failures or resilience issues at key business locations could result in major 
                                       business interruption. 
                                       In particular, a major incident at our Castle Donington e-commerce distribution 
                                       centre may 
                                       have a significant impact on our ability to fulfil online orders. More broadly, 
                                       an inability 
                                       to effectively respond to global events, such as pandemic or supply chain 
                                       disruption, would 
                                       significantly impact business performance. 
INFORMATION SECURITY                   Failure to adequately prevent or respond to a data breach or cyber-attack could 
                                       adversely 
                                       impact our reputation, result in significant fines, business disruption, loss 
                                       of stakeholder 
                                       confidence, and/or loss of information for our customers, employees or 
                                       business. 
TECHNOLOGY CAPABILITY                  A failure to improve our technology capabilities, reduce dependency on legacy 
                                       systems and 
                                       enhance digital capability could limit our ability to keep pace with customer 
                                       expectations 
                                       and competitors, enable business transformation and grow profitably. 
THIRD-PARTY MANAGEMENT                 An inability to successfully manage and leverage our strategic third-party 
                                       relationships, 
                                       or a critical failure of a key supplier or partner, could impact delivery of 
                                       our transformation 
                                       initiatives, our ability to operate effectively and efficiently or, in some 
                                       circumstances, 
                                       our brand and reputation. 
TALENT, CULTURE & CAPABILITY           An inability to maintain efficient processes and complete, accurate people 
                                       metrics will impact 
                                       our ability to effectively target our resources and people agenda to focus on 
                                       attracting, 
                                       engaging, developing and motivating colleagues and developing skills for the 
                                       future. This 
                                       will also impact the pace of operational and cultural transformation across the 
                                       business. 
BRAND, LOYALTY & CUSTOMER EXPERIENCE   An inability to evolve our brand appeal, customer experience and Sparks loyalty 
                                       programme 
                                       will impact our success in retaining and attracting customers and expanding the 
                                       business. 
 

Covid-19 : The table below summarises the key potential risk implications of the pandemic and how these link to the core principal risks above.

 
Risk category                         Risk description                           Relevant principal risk 
Protecting customers & colleagues     An inability to maintain, and where        Legal & regulatory compliance 
                                      needed adapt, operational protocols to 
                                      safeguard customers, 
                                      colleagues and other partners involved in 
                                      operating our business during extended 
                                      lockdown 
                                      or a period of transitional social 
                                      distancing would impact the continued 
                                      operation of stores 
                                      and breach our responsibilities to all 
                                      key stakeholders. 
Clothing & Home Inventory management  A failure to effectively manage the        Trading performance (Clothing & Home) 
                                      implications of the lockdown period on 
                                      all aspects of 
                                      the Clothing & Home supply chain and 
                                      inventory management would adversely 
                                      impact customer 
                                      experience, trading performance, 
                                      liquidity, operational efficiency and 
                                      third-party relationships 
                                      for an extended period. 
Liquidity                             Significantly reduced trading over an      Liquidity & funding 
                                      extended and currently undetermined 
                                      timeframe, combined 
                                      with an inability to effectively manage 
                                      expenditure against revised targets, 
                                      would impact 
                                      the business's ability to operate within 
                                      committed credit facilities. 
Store portfolio management            An inability to increase the scale and     Business transformation 
                                      pace of our plans to create a modern and 
                                      appropriately 
                                      shaped store estate during the retail 
                                      property market downturn would impede our 
                                      transformation 
                                      objectives. 
 
                                      An inability to secure favourable 
                                      agreements with landlords would impede 
                                      cost control initiatives. 
Post-crisis recovery                  An inability to successfully respond to    Multiple risk implications 
                                      the ending of lockdown (such as 
                                      management of colleagues returning from 
                                      furlough and re-establishing 'business as 
                                      usual' process 
                                      and control) would trigger operational 
                                      challenges and inefficiencies for the 
                                      business. 
 
                                      A failure to evaluate, fund and implement 
                                      initiatives to improve business 
                                      operations would 
                                      be a missed opportunity. 
Strategy realignment                  An inability to define and successfully    Multiple risk implications 
                                      implement a revised strategy to rapidly 
                                      respond to 
                                      a post Covid-19 world and the associated 
                                      changes in customer behaviours and 
                                      operational requirements 
                                      would significantly undermine the 
                                      transformational imperatives of the 
                                      business. This would 
                                      include, although not be limited to, the 
                                      operation of our online Clothing & Home 
                                      business, 
                                      International operations, management of 
                                      operating and capital expenditure and the 
                                      portfolio 
                                      of business transformation initiatives 
                                      under way. 
 

In addition to the Covid-19 related risks noted above, the pandemic has amplified many of the principal risks set out earlier - for example, our ability to effectively respond to Brexit, the transformational improvements needed to the supply chain, maintaining controls over food safety, the potential risk of disruption to critical third-party relationships or readiness to execute the launch of M&S products with Ocado Retail.

Glossary

The Group tracks a number of alternative performance measures in managing its business, which are not defined or specified under the requirements of IFRS because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS.

The Group believes that these alternative performance measures, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the business. These alternative performance measures are consistent with how the business performance is planned and reported within the internal management reporting to the Board. Some of these alternative performance measures are also used for the purpose of setting remuneration targets.

These alternative performance measures should be viewed as supplemental to, but not as a substitute for, measures presented in the consolidated financial information relating to the Group, which are prepared in accordance with IFRS. The Group believes that these alternative performance measures are useful indicators of its performance. However, they may not be comparable with similarly-titled measures reported by other companies due to differences in the way they are calculated.

 
APM              Closest            Reconciling        Definition and purpose 
                 equivalent         items to 
                 statutory          statutory 
                 measure            measure 
Income statement measures 
Like-for-like      Movement in        Sales from         The period-on-period change 
 revenue            revenue per       non like-for-like   in revenue (excluding VAT) from 
 growth             the income        stores              stores which have been trading 
                    statement                             and where there has been no 
                                                          significant change (greater 
                                                          than 10%) in footage for at 
                                                          least 52 weeks and online sales. 
                                                          The measure is used widely in 
                                                          the retail industry as an indicator 
                                                          of sales performance. It excludes 
                                                          the impact of new stores, closed 
                                                          stores or stores with significant 
                                                          footage change.                             52 weeks 
                                                                                        ending 
                                                                                  28 March  30 March 
                                                                                      2020      2019 
                                                                                      GBPm      GBPm 
                                                          UK Food 
                                                          Like-for-like            5,872.1   5,760.7 
                                                          Net new space              156.1     142.7 
                                                          Total UK Food revenue    6,028.2   5,903.4 
 
                                                          UK Clothing & Home 
                                                          Like-for-like            3,196.9   3,407.0 
                                                          Net new space               12.2      92.8 
                                                          Total UK Clothing 
                                                           & Home revenue          3,209.1   3,499.8 
M&S.com            None               Not applicable     Total revenue through the Group's 
 revenue                                                  online platforms. These revenues 
 / Online                                                 are reported within the relevant 
 revenue                                                  UK Clothing & Home, UK Food 
                                                          and International segment results. 
                                                          The growth in revenues on a 
                                                          year-on-year basis is a good 
                                                          indicator of the performance 
                                                          of the online channel and is 
                                                          a measure used within the Group's 
                                                          incentive plans. Refer to the 
                                                          Remuneration Report for an explanation 
                                                          of why this measure is used 
                                                          within incentive plans. 
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.                             2019/20  2018/19      % 
                                                                                          GBPm     GBPm 
                                                          International revenue 
                                                          At constant currency           944.6    969.1  (2.5) 
                                                          Impact of FX retranslation         -      5.0 
                                                          At reported currency           944.6    974.1  (3.0) 
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 
                                                          Operating Committee. 
EBIT before        EBIT(1)            Adjusting items    Calculated as profit before 
 adjusting                             (See note 3)       the impact of adjusting items, 
 items                                                    net finance costs and tax 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              EBIT               Not applicable     Calculated as Ocado Retail Limited 
 Retail                                                   earnings before interest, taxation, 
 Limited                                                  depreciation, amortisation, 
 EBITDA                                                   impairment and exceptional items. 
Operating          Profit before      Adjusting items    Operating profit before the 
 profit             tax                                   impact of adjusting items, financing 
 before                                (See note 3)       income/costs and tax. The Group 
 adjusting                                                considers this to be an important 
 items                                                    measure of Group performance 
                                                          and is consistent with how the 
                                                          business performance is reported 
                                                          and assessed by the Board and 
                                                          the Operating Committee. 
Profit             Profit before      Adjusting items    Profit before the impact of 
 before             tax                (See note 3)       adjusting items and tax. The 
 tax and                                                  Group considers this to be an 
 adjusting                                                important measure of Group performance 
 items                                                    and is consistent with how the 
                                                          business performance is reported 
                                                          and assessed by the Board and 
                                                          the Operating Committee. 
                                                          This is a measure used within 
                                                          the Group's incentive plans. 
                                                          Refer to the Remuneration Report 
                                                          for an explanation of why this 
                                                          measure is used within incentive 
                                                          plans. 
Adjusted           Earnings per       Adjusting items    Profit after tax attributable 
 earnings           share              (See note 3)       to owners of the parent and 
 per share                                                before the impact of adjusting 
                                                          items, divided by the weighted 
                                                          average number of ordinary shares 
                                                          in issue during the financial 
                                                          year. 
                                                          This is a measure used within 
                                                          the Group's incentive plans. 
                                                          Refer to the Remuneration Report 
                                                          for an explanation of why this 
                                                          measure is used. 
Adjusted           Diluted earnings   Adjusting items    Profit after tax attributable 
 diluted            per share          (See note 3)       to owners of the parent and 
 earnings                                                 before the impact of adjusting 
 per share                                                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 items    Total income tax charge for 
 tax rate           tax rate           and their tax      the Group excluding the tax 
 before                                impact             impact of adjusting items divided 
 adjusting                             (See note 3)       by the profit before tax and 
 items                                                    adjusting items. 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 15)      interest and lease liabilities), 
                                                          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. 
Capital            Net assets         Refer to           The net total of assets and 
 employed                             definition          liabilities as reported in the 
                                                          annual financial statement excluding 
                                                          assets and liabilities in relation 
                                                          to investment property, net 
                                                          retirement benefit position, 
                                                          derivatives, current and deferred 
                                                          tax liabilities, Scottish Limited 
                                                          Partnership liability, non-current 
                                                          borrowings and provisions in 
                                                          respect of adjusting items. 
                                                          This measure is used in the 
                                                          calculation of return on capital 
                                                          employed. 
Cash flow measures 
Free cash          Net cash inflow    See Financial      The cash generated from the 
 flow               from operating     Review             Group's operating activities 
                    activities                            less capital expenditure, cash 
                                                          lease payments and interest 
                                                          paid. 
                                                          This measure shows the cash 
                                                          retained by the Group in the 
                                                          year. 
Free cash          Net cash inflow    See Financial      Calculated as the cash generated 
flow                from operating     Review             from the Group's operating activities 
pre-shareholder     activities                            less capital expenditure and 
returns                                                   interest paid, excluding returns 
                                                          to shareholders (dividends and 
                                                          share buyback). 
                                                          This measure shows the cash 
                                                          generated by the Group during 
                                                          the year that is available for 
                                                          returning to shareholders and 
                                                          is used within the Group's incentive 
                                                          plans. 
Other Measures 
Covid-19           None               Not applicable     As part of the Group's normal 
 scenario                                                 financial planning process, 
                                                          the Board approved the 2020/21 
                                                          budget and three-year plan. 
                                                          As a result of the UK government 
                                                          restrictions on trade that were 
                                                          announced in response to the 
                                                          Covid-19 pandemic, the Group 
                                                          revisited the 2020/21 budget 
                                                          and three-year plan to determine 
                                                          a downside scenario. 
                                                          The downside scenario assumes 
                                                          the current government guidelines 
                                                          continue for a period of at 
                                                          least four months, resulting 
                                                          in a significant decline in 
                                                          sales for the remainder of 2020/21, 
                                                          as outlined in the basis of 
                                                          preparation. 
                                                          This downside scenario was approved 
                                                          by the Directors and is defined 
                                                          as the Covid-19 scenario. 
Capital            None               Not applicable     Calculated as the purchase of 
 expenditure                                              property, plant and equipment, 
                                                          investment property and intangible 
                                                          assets during the year, less 
                                                          proceeds from asset disposals 
                                                          excluding any assets acquired 
                                                          or disposed of as part of a 
                                                          business combination or through 
                                                          an investment in an associate. 
Return             None               Not applicable     Calculated as being EBIT before 
 on capital                                               adjusting items divided by the 
 employed                                                 average of opening and closing 
                                                          capital employed. The measures 
                                                          used in this calculation are 
                                                          set out below:                        2019/20  2018/19 
                                                                                     GBPm     GBPm 
                                                          EBIT before adjusting 
                                                           items                    590.7    725.6 
                                                          Average capital 
                                                           employed               5,887.5  6,140.2 
 
 
                                                          This measure is used within 
                                                          the Group's incentive plans. 
                                                          Refer to the Remuneration Report 
                                                          for an explanation of why this 
                                                          measure is used within incentive 
                                                          plans. 
 
 

(1) EBIT is not defined within IFRS but is a widely accepted profit measure being earnings before interest and tax.

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END

FR KKCBBNBKBOPD

(END) Dow Jones Newswires

May 20, 2020 02:00 ET (06:00 GMT)

Grafico Azioni Marks And Spencer (LSE:MKS)
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Da Gen 2020 a Gen 2021 Clicca qui per i Grafici di Marks And Spencer