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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKCBBNBKBOPD
(END) Dow Jones Newswires
May 20, 2020 02:00 ET (06:00 GMT)
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