TIDMMKS
RNS Number : 7731Z
Marks & Spencer Group PLC
22 May 2019
Issued: 22 May 2019
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.
Marks and Spencer Group Plc
Full Year Results For 52 Weeks Ended 30 March 2019
"Good progress in restoring the basics"
52 weeks ended 30 Mar 19 31 Mar 18 Change %
-------------- -------------
Group revenue GBP10,377.3m GBP10,698.2m -3.0
Profit before tax & adjusting items(1) GBP523.2m GBP580.9m -9.9
Free cash flow before adjusting items(2) GBP729.4m GBP582.4m 25.2
Adjusting items(1,2) GBP(438.6)m GBP(514.1)m 14.7
Profit before tax GBP84.6m GBP66.8m 26.6
Profit after tax GBP37.3m GBP29.1m 28.2
Basic earnings per share before adjusting items(1) 25.4p 27.8p -8.6
Basic earnings per share 2.1p 1.6p 31.3
Net debt GBP1.55bn GBP1.83bn -15.3
Ordinary dividend per share 13.9p 18.7p -25.7
----------------------------------------------------- ------------- -------------
(1) Adjusted results are consistent with how business
performance is measured internally. (2) Refer to adjusting items
table below for further details. See glossary for definitions and
reconciliations to statutory measures.
Steve Rowe, Marks & Spencer CEO said:
"We are deep into the first phase of our transformation
programme and continue to make good progress restoring the basics
and fixing many of the legacy issues we face. As I have said, at
this stage we are judging ourselves as much by the pace of change
as by the trading outcomes and change will accelerate in the year
ahead.
"Whilst there are green shoots, we have not been consistent in
our delivery in a number of areas of the business. M&S is
changing faster than at any time in my career - substantial changes
across the business to our processes, ranges and operations and
this has constrained this year's performance, particularly in
Clothing & Home. However, we remain on track with our
transformation and are now well on the road to making M&S
special again."
Transformation - good progress
-- Accountable businesses established with substantial changes in leadership
-- Food business on track with Q4 like-for-like revenue of 0.4%
and volume growth of c.1.8% adjusted for Easter timing. Transition
to trusted value and wider appeal underway
-- Underlying progress in Clothing in changing 'shape of buy',
sizing, customer focus and style plus 14% reduction in stock into
sale
-- Improving the basics of dotcom, download speeds, fulfilment;
22% of UK Clothing & Home revenue now online compared with 19%
last year
-- UK store portfolio reshaping progressing with 26 full-line
stores closed and 48 new store openings in the year. Programme
expanded and larger store redevelopment planning initiated
-- Good progress on cost savings delivering c.GBP100m, in
addition to the operating costs of stores which have closed
-- Transformational Joint Venture ("JV") with Ocado announced; a
strategically compelling route to unlock profitable growth for
M&S Food
-- Proactive steps taken to strengthen and secure the balance
sheet for future growth; final dividend for 2018/19 of 7.1
pence
-- Announced terms of a 1 for 5 Rights Issue at 185 pence per
New Ordinary Share to raise gross proceeds of approximately
GBP601.3m
Financial performance held back by operating challenges
-- Profit before tax & adjusting items down 9.9% driven by
headwinds on sales, partly offset by the operating costs
transformation programme
-- Adjusting items of GBP438.6m, including GBP222.1m reflecting
the costs of acceleration and extension of our UK store closure
programme
-- UK Food revenue down 0.6%, with like-for-like revenue down
2.3% (1.5% adjusted for Easter) with improving underlying trend in
Q4. Gross margin down 15bps as investment in trusted value was
largely offset by reduced promotional spend
-- UK Clothing & Home revenue down 3.6%, impacted by store
closures, with like-for-like revenue down 1.6%. Gross margin up
20bps driven by 14% lower stock into sale. Encouraging signs of
progress in Q3, particularly online, constrained by weak
availability in Q4 as we sold out of a number of fast selling
lines
-- Net debt reduced to GBP1.5bn, as a result of working capital
inflow and tight capital expenditure
Restoring the Basics
The objective of our transformation programme is to create a
profitable, growing family of businesses under the M&S brand
within three to five years, bound together not only by a common
consumer brand but also by shared sites, employment values,
technology and customer data. The first phase of the transformation
programme is about restoring the basics; getting the organisation
and infrastructure of the business fit for the future.
Protecting the magic and modernising the rest in Food
The Food business is showing good signs of progress in arresting
the decline in like-for-like revenue. UK Food revenue declined
0.6%, with like-for-like revenue down 2.3% reflecting the adverse
impact of Easter timing in both Q1 and Q4. Adjusted for Easter
timing, FY 18/19 like-for-like revenue declined 1.5% with an
improving trend in the second half of the year, and like-for-like
revenue and volume growth in Q4.
Our Food brand remains very strong and our strategy is to
protect the magic which is based on our unique quality, freshness,
and innovation credentials whilst reshaping our store estate,
infrastructure, operating systems, cost management and supply
relationships. The Ocado JV is a natural partner for the brand and
combined with our Food transformation plan, opens up the
possibility of substantially increasing our grocery market share in
the medium term.
Phase 1 fixing the basics of this plan is about addressing the
basic operating weaknesses in the business and broadening our
appeal to attract a wider range of customers and be relevant to
more shopping occasions.
Good progress has been made in restoring trust in our value at
relatively little cost to margin. We have nearly halved our
dependence on the short-term promotions and complex multi-buy
offers, reducing promotional participation by over 10 percentage
points as a percentage of sales by the year end, without
significant loss of customers. This enabled us to invest in
everyday prices including reductions in over 400 lines, narrowing
our price differential to the lowest it has been for some
years.
We have strengthened the communication of value in stores and we
began to see encouraging transaction and volume trends in Q4. In
the current year a series of workstreams designed to simplify
supply relationships, reduce costs and increase the pace of
innovation will support our work to build trusted value.
Our food waste levels remain amongst the highest in the industry
and availability has not significantly improved. However, process
changes in trial stores known as Project Fuse are illustrating the
very significant financial opportunity in these areas.
Similarly, an improved working relationship with GIST, our
logistics partner, has demonstrated the substantial opportunity in
modernising and better integrating the supply chain.
Reshaping the ranges and customer profile in Clothing &
Home
UK Clothing & Home revenue declined 3.6%, partly due to our
store closure programme, with like-for-like revenue down 1.6%. UK
Clothing & Home online revenue grew 9.8%, with clothing growth
ahead of the online market. Encouraging progress in Q3 was
constrained by weak availability in Q4 as we sold out of fast
selling lines and experienced supply issues.
Our range remained too wide in FY 18/19 with the volume of
options in our range splintering our buying scale and making our
shops challenging to navigate. Our size ratios have been
historically misaligned with the profile of the contemporary family
age customer we aim to appeal to. However, where we have made
progress in pruning options and introducing slimmer fits and more
mid sizes, the customer response has been very strong. For
instance, our new denim launch produced an initial 20% sales uplift
and our sales of GBP15 women's jeggings were up 30% over the
campaign period.
Creating a new range architecture in a business with weak
processes, a slow supply chain and where buyers are building their
confidence has proven challenging, and our sales both in store and
online have been frustrated by poor availability in Q4. Although we
made good progress reducing overall stock levels, with stock cover
down almost three weeks and stock into sale down 14% across the
year, many popular lines have sold out prematurely because of the
failure to increase the depth of buy and the slowness of the stock
flow.
Despite these teething problems the customer response to the
initial changes has been very encouraging. In the year ahead, we
expect to deliver a more marked reduction in options and range
duplication, with a substantial increase in the number of 'GBP1m+'
lines for Autumn, a significant improvement in size ratios, further
focus on style and fashion and additional investment in value. This
will be reinforced by the update of the sub brand strategy,
including the re-launch of the Per Una range where the initial
customer reaction to early changes we have made has been
positive.
With the new range architecture, we will aim to shift to a
'first price, right price' trading philosophy, and further reduce
the percentage of Clothing & Home sold at discount which
remains too high.
Our new range architecture and presentation will be combined
with a rationalised, more contemporary in store environment. Around
one third of our full-line stores were opened before WWII and three
quarters are older than 25 years. Progress on renewing the stores
has been limited to date although we have moved a lot of internal
walls and sight barriers. A renewal brand format and a
modernisation will be piloted in the year ahead.
We have reduced the complexity of our logistics network, closing
four distribution centres and warehouses and opening a national
distribution centre in Welham Green, which is now ramping up its
boxed storage capacity. Along with foods we are rolling out the
first phase of our Fuse programme, deploying new tools which will
help us remove excess stock trapped in stores where it does not
sell, and holding it centrally, improving availability and making
our stores easier to shop. We are still at the early stages of
modernising our supply chain network, technology and process and
this remains a priority.
Transforming our leadership and accountability
Over the past two years we have built a substantially new
leadership team, bringing fresh perspective, energy and challenge
to a business held back by deeply entrenched cultural norms. Our
ambition is to intensify cultural and behavioural change throughout
M&S, driving the business to act 'bigger, bolder, faster'. We
are creating clear and accountable businesses supported by common
values, shared infrastructure and customer data and have continued
the streamlining of corporate functions. The Clothing & Home
and Food businesses now have end-to-end functional accountability,
enabling more efficient and effective decision making.
Critically we are taking steps to bring back the voice of the
stores. Over the years a business that was famously product and
store led has developed a 'Head Office knows best' mentality,
remote from the customer. In our new organisation we are ensuring
that the role of the store is central to all our activity, whether
that be active engagement in range decisions for the first time or
store managers leading the trading feedback calls which are
attended by all commercial executives. Store managers will now have
visibility of their own P&Ls, and Food managers are given the
granular information to act on their own waste. M&S has an
extraordinary workforce of loyal colleagues and our aim is to be
the most involving workplace in large scale UK retail.
Becoming a digital first retailer across M&S
In our digital operations, we began to address the basics of our
website which has helped to deliver UK Clothing & Home online
growth of 9.8% in FY 18/19, improving our online clothing market
share by 0.3 percentage points. During Q3, when we had strong
seasonal demand, growth was well into double digits.
Improvements in site speed, a redesigned homepage, enhanced
product imagery, a simpler check-out and an improved delivery
proposition have collectively contributed to over nine percent
improvement in the conversion of website traffic to customer
purchases. We are top quartile amongst our peers on page loadspeed.
Navigation and personalisation on-site, as well as product
marketing remain a significant opportunity.
Castle Donington had its best peak performance since it opened
with significant improvements in most key metrics including a later
delivery cut off, following targeted investment to remedy problems
with its reliability, efficiency and capacity. We are investing
c.GBP9m in further process improvements to meet our growth plans
for this year. However, we expect that the need for an additional
fulfilment centre has been successfully deferred for another two to
three years.
M&S in store technology and systems have been historically
underinvested and require improvement. Already we have started to
address this problem, giving all store managers tablet computers to
release office bound time for the shop floor. The successful
Honeywell hand held terminal programme has been extended. In the
year ahead, we will roll out new applications and accelerate our
self-checkout programme to reduce constant queuing issues. Our in
store WiFi will be upgraded with the objective of delivering a
universal 'high speed anywhere' capability for our customers and
store colleagues.
M&S has the potential to have one of the strongest and most
valuable customer data 'lakes' in the UK with the combination of
Sparks, Online, the M&S credit card and Ocado. However, our
customer data bases are currently disconnected and ineffective. Our
Sparks loyalty programme needs substantial improvement and in the
next year it will be repositioned, revamped and relaunched.
We have made good progress restoring the basics of our
technology organisation, transitioning to a partnership with TCS,
migrating our online platform to the cloud and rolling out new
warehouse management software to enable the decommissioning of
obsolete systems and the old mainframe base, which will deliver
annualised savings of over GBP30m.
Our long-term partnerships with Microsoft, Decoded, Founders
Factory and True Capital will also help give M&S the
opportunity to access the best of digital innovation and
entrepreneurial ideas and to become a data-driven and digitally
enabled workforce.
Creating a high-quality store portfolio fit for the future
Our store estate is older than that of our competitors with a
number of legacy issues. We are making good progress and have
closed 35 full-line stores as part of our programme as at 30 March
2019, with sales transfer rates to nearby stores remaining above
20%. We have updated our plan for the future shape of our total
store estate. Reshaping the store portfolio means tackling the
legacy issues, but also opening new full-line stores as well as
Food stores where we can exploit current weak retail demand to
secure excellent sites for relocations. As part of our Food
strategy we are concentrating on higher volume stores with good
access and car parking to enable our customers to shop more of our
range. Therefore, some of the low volume, higher cost Simply Food
stores, mostly on short-leases will also be progressively relocated
or rationalised.
Although we anticipate further net reductions in overall retail
space, and we currently expect to close a further c.85 full-line
stores and c.25 Simply Food stores in addition to the 35 full-line
stores closed at FY18/19, our strategy is as much about right
sizing, relocating and new openings as it is about closures. As
such we anticipate our owned store base is likely to remain broadly
level.
As indicated at the half year we believe there is significant
opportunity for rental cost reductions as we are reviewing our
existing leaseholds.
We have also begun a programme of development feasibility to
unlock value from the large old town centre stores with surplus
space. We have appointed a new Property Development Director and
expect to initiate a number of redevelopments in the year
ahead.
Cost savings of at least GBP350m by 2020/21
Last year we set out firm targets for cost savings as part of
the first phase of transformation. We have made good progress in
the year, delivering savings of c.GBP100m, in addition to the
operating costs of stores which have closed and are on the way to
creating a leaner, more efficient cost base for the business.
Savings in 2018/19 derived from areas including the retail
management restructure, the IT transformation plan, property costs,
depreciation and central costs which enabled the business to offset
inflation, new space and channel shift with the result that FY UK
operating costs declined by 1.2%.
As we change the culture of the business we are clear that
challenging costs will become a core part of our philosophy. In
2019/20 we anticipate ongoing savings from the annualisation of
current year initiatives and additional benefits in areas including
a new contract for store maintenance and in central costs, which
should result in a further decline in total UK operating costs.
Rebuilding profitable growth in International
International revenue decreased by 13.4% at constant currency
driven by the closure of stores in loss making exit markets, and
the sale of our business in Hong Kong to a franchise partner in
December 2017. Excluding Hong Kong and exit markets, revenue grew
by 1.1%.
The International business was already fully embarked on
rationalisation and repositioning prior to the transformation
programme and further good progress has been made. Our objective is
to create a much more competitive localised incarnation of M&S
in those selected markets where we can attain a sustainable market
share. During the year, we have implemented the 'market right
pricing' programme across markets in Clothing & Home. The
programme's cumulative performance since implementation has been
encouraging with sales up 8% and volumes up 20%, following a net
10% reduction in selling prices. This performance is helping to
build confidence with our partners to reinvest into the business.
In the year we opened 37 stores and modernised a further 56.
As we aim to build a scalable business internationally, we
continue to localise our ranges for the market. This included a
substantial increase to around 15% of locally designed clothing
ranges, including an increase in our growing Indian joint venture
which now has 77 stores. In addition, we launched our first ever
Halal meat range in the UAE and also launched six country specific
websites. We also re-platformed the website for our business in the
Republic of Ireland.
Joint Venture with Ocado
In February 2019, we announced the creation of a new 50/50 JV
with Ocado Group Plc ("Ocado"), the UK's leading pure play digital
grocer, that will transform online grocery shopping for UK
consumers. Under the JV, M&S is acquiring a 50% share of
Ocado's UK retail business, which will be supported by Ocado Smart
Platform technology, for an initial consideration of GBP562.5m and
deferred consideration of up to GBP187.5m, plus interest. The Ocado
JV is expected to be recognised by M&S as an associate applying
the equity method of accounting, reflecting the significant
influence that M&S will have over the entity.
The JV combines the strength of M&S's brand and its leading
food quality and innovation with Ocado's unique and proprietary
technology to create an unrivalled online offer for customers. In
bringing the best together, the JV will benefit existing and new
customers, colleagues and suppliers.
The JV will trade as Ocado.com but benefit from access to
M&S's brand, products and customer database from September 2020
at the latest, following the termination of the current Waitrose
sourcing agreement and migration of JV sourcing to M&S.
We anticipate synergies for M&S of at least GBP70m by the
third full financial year following completion through increased
buying scale, harmonised buying terms on branded products and
improved efficiencies on new product development. We expect some
churn in customers as the JV transitions from the previous sourcing
arrangements, however following the 'frictional' transition we plan
to accelerate growth in the JV. There is a significant opportunity
to reduce customer acquisition costs in the JV by marketing
directly to our customer data base and the c.12 million M&S
food customers who account already for around one third of online
grocery spend, albeit mostly with our competitors.
Balance sheet and transaction financing
The Board believes that, given the high operating risk the
business faces, it is important to maintain a strong balance sheet
and cashflow, to provide security and underpin the changes we need
to make. In the next four years, in addition to the investment in
our proposed JV, we have substantial debt repayments due on our
bond financing and a significant pension obligation to fund.
Further, in uncertain times our strong preference is to limit
dependence on bank debt financing.
Therefore, having considered carefully other options, we believe
it is appropriate to finance the JV by means of a Rights Issue and
to reduce the Group's annual dividend payment to a sustainable
level, which we aim to grow in line with earnings over time.
Details of the Rights Issue
On 27 February 2019 we announced the creation of a new 50/50 JV
with Ocado. It was announced that the transaction would be
primarily equity financed by a rights issue.
Today we announce the terms of the fully underwritten rights
issue which is intended to raise gross proceeds of approximately
GBP601.3 million.
The Rights Issue will result in the issue of 325.0 million new
ordinary shares representing approximately 20.0% of the existing
issued share capital of the Company and 16.7% of the enlarged
issued share capital following completion of the Rights Issue. The
Rights Issue will be on the following basis:
1 for 5 Rights Issue at 185 pence per New Ordinary Share
The rights issue price of 185 pence per New Ordinary Share
represents a discount of approximately 31.8 per cent. to the
closing middle-market price of 271.2 pence per existing ordinary
share, or a discount of approximately 30.0 per cent. to the closing
middle-market price of 264.1 pence per existing ordinary share when
adjusted to reflect the ordinary shares becoming ex-dividend during
the Rights Issue offer period, in each case on 21 May 2019 (being
the latest business day before the announcement of the terms of the
Rights Issue). Additionally, it represents a discount of
approximately 28.0 per cent. to the theoretical ex-rights price of
256.8 pence per New Ordinary Share, or a discount of approximately
26.3 per cent. to the theoretical ex-rights price of 250.9 pence
per existing ordinary share when adjusted to reflect the ordinary
shares becoming ex-dividend during the Rights Issue offer period,
both on 21 May 2019 (being the latest business day before the
announcement of the terms of the Rights Issue).
It is anticipated that the Rights Issue will formally launch on
or around 24 May 2019, subject to and following the approval of the
Prospectus by the FCA. At this time further details of the Rights
Issue will be provided to shareholders.
Full year guidance 2019/20
We remain in the difficult early stages of our transformation
programme and while we expect some improvement in trading in each
of our major businesses in the year ahead, progress is likely to be
second half weighted. Trading in the first seven weeks of the
financial year is in line with Board expectations, although the
pattern of trade remains volatile in the context of weather and
events. All guidance is shown before the effects of IFRS 16. For
further detail on IFRS 16 please see Note 1 to the financial
statements.
-- In Food, we expect net store closures to reduce sales by c.1%
as the accelerated store closure programme is not fully offset by
new Simply Food and full-line stores. We anticipate gross margin to
be -25bps to +25bps, as we balance further investment in trusted
value with our cost reduction programme
-- In Clothing & Home, we expect net store closures to
reduce sales by c.3%. We anticipate gross margin to be -25bps to
+25bps, with further investment in trusted value
-- We expect UK operating costs to decrease by up to 1%, largely
as a result of continued cost efficiencies, store closures and
lower depreciation
-- Capital expenditure is expected to increase to between
GBP350m and GBP400m, largely as a result of an increase in
investment in store environment, new store trials and C&H
logistics capacity
-- We expect an adjusted effective tax rate of c.23%
Full year guidance
--------------------------------------- -------------------
UK Food
c.-1
* Space contribution (%)
-25bps to +25bps
* Gross margin change (bps)
Clothing & Home
c.-3
* Space contribution (%)
-25bps to +25bps
* Gross margin change (bps)
UK operating costs (%) c.0 to -1
Adjusted effective tax rate c.23
(%)
Capital expenditure (GBPm) 350 to 400
--------------------------------------- -------------------
Group revenue: constant currency
Q4 group revenue declined by 1.6% at constant currency
reflecting the increasing pace of closures in our UK store estate
and the adverse impact of Easter timing on like-for-like revenue of
an estimated c.1.9% in Food and c.0.4% in Clothing & Home.
International revenue grew 1.8% with exit market store closures and
the sale of our retail operations in Hong Kong now largely
annualised. Revenue at M&S.com reflects the planned reduction
in promotional activity in our Food business, with solid underlying
growth in clothing orders.
% change FY Q1 Q2 Q3 Q4
--------------------------- ------ ------ ------ ------ -----
Food -0.6 -0.1 -0.2 -1.2 -0.8
* Like-for-like -2.3 -3.1 -2.7 -2.1 -1.5
Clothing & Home -3.6 -1.6 -3.7 -4.8 -3.9
* Like-for-like -1.6 -0.6 -1.6 -2.4 -1.3
Total UK sales -1.8 -0.7 -1.6 -2.7 -1.9
* Like-for-like -2.0 -2.2 -2.3 -2.2 -1.4
International -13.4 -21.1 -15.8 -15.1 1.8
Total Group -2.9 -2.9 -3.1 -3.9 -1.6
Total M&S.com (Memo
only) 5.0 6.3 5.0 7.2 0.2
UK Clothing & Home
online (Memo only) 9.8 9.9 8.5 14.1 4.9
--------------------------- ------ ------ ------ ------ -----
See glossary for definitions. Prior year revenue has been
restated for the reclassification of cards & gift wrap from
Clothing & Home to Food.
We will report our first half results on 6 November 2019.
For further information, please contact:
Investor Relations:
Fraser Ramzan: +44 (0)20 3884 7080
Rebecca Edelman: +44 (0)20 3884 6029
Media enquiries:
Corporate Press Office: +44 (0)20 8718 1919
Investor & Analyst webcast:
Investor and analyst presentation will be held at 9am on 22 May
2019. This presentation can be viewed live on the Marks and Spencer
Group plc website.
Fixed Income Investor Conference Call:
This will be hosted by Humphrey Singer, Chief Finance Officer,
at 2pm on 22 May 2019:
Dial in number: +44 (0)330 336 9126 Access code: 4941368
A recording of this call will be available until 5pm on 29 May
2019:
Dial in number: +44 (0) 207 660 0134 Access code: 4941368
FULL YEAR REVIEW
52 weeks ended
30 Mar 19 31 Mar 18 Change
GBPm GBPm %
------------------------------------------------ ----------------------------------------- ---------- --------
Group revenue 10,377.3 10,698.2 -3.0
Food(1) 5,903.4 5,940.0 -0.6
Clothing & Home(1) 3,537.3 3,671.0 -3.6
UK 9,440.7 9,611.0 -1.8
International 936.6 1,087.2 -13.9
Group operating profit before adjusting items 601.0 670.6 -10.4
UK 474.0 535.4 -11.5
International 127.0 135.2 -6.1
Net finance costs (77.8) (89.7) 13.3
Profit before tax & adjusting items 523.2 580.9 -9.9
Adjusting items (438.6) (514.1) 14.7
Profit before tax 84.6 66.8 26.6
------------------------------------------------ ----------------------------------------- ---------- --------
1. Prior year revenue has been restated for the reclassification of cards & gift wrap from
Clothing & Home to Food. For further detail please see Note 2 to the financial statements
UK: Food
Food revenue decreased 0.6%, with like-for-like revenue down
2.3%, or 1.5% when adjusted for the timing of Easter. Revenue
reflected the effects of price investment and a change in product
mix as we reduced promotions. However, during the second half, we
saw an improving trend with volumes up 1.8% in the fourth quarter,
adjusted for Easter. We opened 48 new stores during the year in
line with our plan to focus new store expansion on only the highest
returning locations, although the contribution from space
diminished through the year as our full-line closure programme
progressed.
Gross margin was down 15bps year-on-year at 31.1%. The benefit
of promotional savings and our cost reduction programmes largely
offset the effects of cost inflation and price investment.
UK: Clothing & Home
UK Clothing & Home revenue declined 3.6%, partly driven by
our store closure programme, with LFL sales down 1.6%. Discounted
sales decreased, as a result of the planned reduction in
stock-into-sale. UK Clothing & Home online revenue grew 9.8%,
which was ahead of the clothing market, with strong growth in
womenswear, as we made improvements to our website and delivery
proposition and focused on key categories such as dresses in our
'Must Haves' campaign.
Gross margin increased 20bps to 57.1%. Buying margin was down
20bps as adverse currency headwinds more than offset sourcing gains
across the year. Discounting reduced by 40bps, largely as a result
of the 14% reduction in stock into sale.
UK operating costs
52 weeks ended 30 Mar 19 31 Mar 18 Change
GBPm GBPm %
---------------------------- ---------- ---------- -------
Store staffing 1,044.7 1,070.6 (2.4)
Other store costs 950.4 992.1 (4.2)
Distribution & warehousing 564.6 538.0 4.9
Marketing 155.1 151.6 2.3
Central costs 694.8 698.0 (0.5)
Total 3,409.6 3,450.3 (1.2)
---------------------------- ---------- ---------- -------
UK operating costs decreased 1.2%. Store closures more than
offset the cost of new space and channel shift. Cost savings across
the business outweighed inflation related increases.
Store staffing costs reduced, as savings from store management
restructuring, closures and other efficiencies more than offset pay
inflation. Other store costs reduced driven by lower depreciation,
due to our closure programme and as a number of assets have reached
the end of their useful life, which more than offset rent and rates
inflation in the year.
The growth in distribution and warehousing costs was largely
driven by inflation and the costs of channel shift, as well as
costs associated with the closure of an equipment warehouse, with
some offset achieved from improved efficiencies at Castle
Donington.
The increase in marketing costs reflected investments in our
Food brand and the planned increase in costs in the second half of
the year due to the timing of campaigns.
Central costs reduced as lower incentive costs year-on-year, the
benefits of technology transformation programmes and other cost
efficiencies more than offset system investment write offs and
expenditure on the Fuse programme.
M&S Bank
M&S Bank income before adjusting items was down GBP12.7m to
GBP27.6m. This was predominantly the result of an increase in bad
debt provisioning due to the impact of revised forward estimates of
economic indicators, including the impact of Brexit, and a modest
increase in underlying bad debt due to the risk of customer
default. Underlying credit income was slightly up, as a result of
more competitive pricing. M&S Bank income after adjusting items
increased GBP1.1m to GBP6.7m.
International
52 weeks ended 30 Mar 19 31 Mar 18 Change Change Change
GBPm GBPm % CC % CC % excl. Hong Kong
Revenue
--------------------------------------- ------------ ------------ --------- -----------------------
Franchise 409.1 360.6 13.4% 13.3% 2.2%
Owned Retained(1) 527.5 660.2 -20.1% -19.3% 0.3%
--------------------------------------- ------------ ------------ --------- -----------------------
Total Retained 936.6 1,020.8 -8.2% -7.7% 1.1%
Owned Exit - 66.4 - - -
Total 936.6 1,087.2 -13.9% -13.4% -6.1%
--------------------------------------- ------------ ------------ --------- -----------------------
Operating profit before adjusting
items
--------------------------------------- ------------ ------------ ---------
Franchise 72.2 86.1 -16.1%
Owned Retained(1) 52.7 53.1 -0.8%
--------------------------------------- ------------ ------------ ---------
Total Retained 124.9 139.2 -10.3%
Owned Exit 2.1 (4.0) 152.5%
Total 127.0 135.2 -6.1%
--------------------------------------- ------------ ------------ ---------
(1) Hong Kong results reported in owned retained until the
business was sold to our franchise partner in December 2017.
Total International revenue decreased 13.4% at constant
currency. Excluding the impact from exit markets and Hong Kong,
revenue at constant currency increased 1.1%. This was driven by our
franchise operations where Food revenue increased by 8%, with
notable growth in France, the Middle East and Singapore. In
Clothing & Home we implemented market right pricing across most
markets and saw an improving trend in retail sales in Q4. Owned
retained revenue reflects solid growth in India and Greece, which
largely offsets ongoing difficult trading conditions in the
Republic of Ireland.
International operating profit before adjusting items decreased
6.1% with total retained operating profit down 10.3%. This was
largely driven by the sale of our business in Hong Kong and the
implementation of market right pricing. The decline in franchise
operating profit reflects the allocation of GBP8m of costs from
owned to franchise following the closure of owned markets and the
sale of our business in Hong Kong, in addition to the
implementation of market right pricing. Owned retained profit
increased, excluding the effects of the disposal of Hong Kong. The
GBP2.1m profit in owned exit markets largely reflects the recovery
of an historical VAT receivable.
Net finance cost
52 weeks ended 30 Mar 19 31 Mar 18 Change
GBPm GBPm GBPm
-------------------------------------------------------------- ---------- ---------- -------
Interest payable (82.0) (95.4) 13.4
Interest income 7.6 6.0 1.6
Net interest payable (74.4) (89.4) 15.0
Pension net finance income 25.8 17.7 8.1
Unwind of discount on Scottish Limited Partnership liability (8.8) (10.9) 2.1
Unwind of discount on provisions (17.3) (5.2) (12.1)
Ineffectiveness on financial instruments (3.1) (1.9) (1.2)
-------------------------------------------------------------- ---------- ---------- -------
Net finance cost (77.8) (89.7) 11.9
-------------------------------------------------------------- ---------- ---------- -------
Net finance cost decreased by GBP11.9m to GBP77.8m, primarily
due to a decrease in interest payable as a result of the repayment
of the US$500m bond which matured in December 2017. Pension net
finance income increased by GBP8.1m driven by a higher UK defined
benefit pension scheme surplus at the start of the year compared to
the start of the prior year. The unwind of discount on provisions
reflects our UK store estate programme and our central London
office reorganisation.
Profit before tax & adjusting items
Profit before tax and adjusting items was GBP523.2m, down 9.9%
on last year. The decrease was principally due to a 2.3% reduction
in UK gross profit, partially offset by the decrease in operating
costs in the year.
Adjustments to profit before tax
The Group makes certain adjustments to statutory profit
measures, in order to derive alternative performance measures that
provide stakeholders with additional helpful information on the
performance of the business. Further material charges relating to
our strategic programmes are anticipated as programmes progress.
For further detail on these charges and the Group's policy for
adjusting items please see Notes 1 and 3 to the financial
statements.
52 weeks ended 30 Mar 19 31 Mar 18 Change
GBPm GBPm GBPm
------------------------------------------------------------------------------ -------------- ---------- ------
Strategic programmes
- UK store estate (222.1) (321.1) 99.0
- Organisation (51.8) (30.7) (21.1)
- Operational transformation (16.4) - (16.4)
- IT restructure (15.6) (15.5) (0.1)
- UK logistics (14.3) (13.1) (1.2)
- Changes to pay and pensions (6.2) (12.9) 6.7
- International store closures and impairments (5.3) (5.0) (0.3)
UK store impairments, asset write-offs and onerous lease charges (62.1) (63.4) 1.3
M&S Bank charges incurred in relation to the insurance mis-selling provision (20.9) (34.7) 13.8
GMP and other pension equalization (20.5) - (20.5)
Establishing the Ocado JV (3.4) - (3.4)
Other - (17.7) 17.7
------------------------------------------------------------------------------ -------------- ---------- ------
Adjusting items (438.6) (514.1) 75.5
------------------------------------------------------------------------------ -------------- ---------- ------
We have recognised a number of charges in the period relating to
the implementation of our strategic programmes including:
-- A charge of GBP222.1m in relation to our accelerated and
expanded store closure programme, which has been expanded to
include a number of Food stores. This charge includes accelerated
depreciation, impairment of assets, estimated onerous leases and
other closure costs. 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 through-out the programme period as decisions are taken in
relation to the size of the store estate and the specific stores
affected. Based on current plans, further charges before the
adoption of IFRS 16 are expected to be incurred predominantly in
the next two years and are anticipated to be c.GBP100m, bringing
total programme costs to c.GBP680m;
-- A charge of GBP51.8m largely in relation to costs associated
with centralising and rationalising our London office functions as
well as redundancy costs related to the review of the retail
organisational structure;
-- A charge of GBP16.4m in relation to the transformation and
simplification of our supply chain and operations across Clothing
& Home and Food. This includes initiatives to reengineer the
end to end supply chain, remove costs and complexity and working
capital;
-- A charge of GBP15.6m in relation to our technology
transformation programme which we began in the prior year; and
-- A net charge of GBP14.3m as we continue to transition to a
single tier Clothing & Home UK distribution network, including
the closure of two of our distribution centres.
In FY 16/17 we announced our intention to close owned stores in
ten international markets. A net charge of GBP5.3m has been
recognised in the period reflecting the actualisation of previously
estimated closure costs.
In response to the ongoing pressures impacting the retail
industry, as well as reflecting our strategic focus towards growing
online market share, we have revised future projections for certain
UK stores. As a result, UK 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 GBP52.8m
has been incurred primarily in respect of the impairment of assets
associated with these stores. The charge has been classified as an
adjusting item on the basis of the significant value of the charge
in the year to the results of the Group. Additional detail is in
Note 10 to the financial statements.
We continue to incur charges in relation to M&S Bank
insurance mis-selling provision resulting in a charge of GBP20.9m
during the year. The deadline for any claims to be brought by
customers expires on 29 August 2019. The estimated liability
continues to be reviewed in FY 19/20 to ensure it reflects the best
estimate of likely settlement, which could lead to further charges
or releases.
We have recognised a non-cash charge of GBP20.5m in respect of
the Group's defined benefit pension liability arising from
equalisation of guaranteed minimum pensions ("GMP") and other
pension equalisation costs following a High Court ruling in October
2018. Additional detail on the Group's GMP assessment is detailed
in Note 8 to the financial statements.
In February 2019 we announced the creation of a new 50/50 Joint
Venture with Ocado, the UK's leading pure play digital grocer.
Transaction costs of GBP3.4m were incurred in the year.
Taxation
The effective tax rate on profit before tax and adjusting items
was 20.3% (last year 21.6%). This is higher than the UK statutory
rate predominantly due to the recapture of previous tax relief
under the Marks and Spencer Scottish Limited Partnership ("SLP")
structure, partially offset by the recognition of deferred tax
assets in our Indian entity, following its return to profitability.
The effective tax rate on statutory profit before tax was 55.9%
(last year 56.4%) due to the impact of disallowable adjusting
items.
Earnings per share
Basic earnings per share increased 31.3% to 2.1p, primarily due
to the impact from lower adjusting items year-on-year. The weighted
average number of shares in issue during the period was 1,624.1m
(last year 1,624.0m).
Adjusted basic earnings per share decreased by 8.6% to 25.4p due
to lower adjusted profit year-on-year.
Capital expenditure
52 weeks ended 30 Mar 19 31 Mar 18 Change
GBPm GBPm GBPm
-------------------------------------- ---------- ---------- -------
UK store environment 26.0 26.6 (0.6)
New UK stores 40.1 72.1 (32.0)
International 11.0 11.6 (0.6)
Supply chain 48.7 23.8 24.9
IT & M&S.com 88.2 91.9 (3.7)
Property maintenance 69.0 72.9 (3.9)
Capital expenditure before disposals 283.0 298.9 (15.9)
Proceeds from property disposals (48.1) (3.2) (44.9)
Capital expenditure 234.9 295.7 (60.8)
-------------------------------------- ---------- ---------- -------
Group capital expenditure remains tightly controlled resulting
in a 5.3% reduction year-on-year, before disposal proceeds.
UK store environment spend was slightly down reflecting
investment in store layout in the prior year, partially offset by
investment in improved visual merchandising and click and collect
facilities in a number of stores. Spend on UK store space was lower
as we opened 15 fewer owned Food and full-line stores than the
prior year. International expenditure remains focused on the store
opening and modernisation programme.
Supply chain expenditure increased due to our investment in the
Welham Green distribution centre as we move towards a single tier
network for Clothing & Home, and in improvements to our
capabilities at Castle Donington. Spend in IT and M&S.com was
driven by the migration from our mainframe system, investment in
the Welham Green distribution centre and website enhancements to
optimise user experience. Spend was slightly lower than last year
due to the on-going move towards more cloud-based solutions and
following the technology transformation programme. Property
maintenance spend largely relates to investment in our stores as
well as investment in energy efficiency projects and reconfiguring
our central London office building to rationalise the use of office
space.
Proceeds from property disposals relate to the sale of six
closed stores and the sale and leaseback of eight Food stores.
Statement of financial position
Net assets were GBP2,680.9m at the year end, a decrease of 9.3%
on last year.
Cash flow & net debt
52 weeks ended 30 Mar 19 31 Mar 18 Change
GBPm GBPm GBPm
------------------------------------------------------ ---------- ---------- -------
Adjusted operating profit 601.0 670.6 (69.6)
Depreciation and amortisation before adjusting items 544.9 580.6 (35.7)
Working capital 59.1 (96.8) 155.9
Defined benefit scheme pension funding (37.9) (41.4) 3.5
Capex and disposals (264.8) (346.0) 81.2
Interest and taxation (184.7) (200.5) 15.8
Investment in Joint Venture (2.5) - (2.5)
Non-cash share based payment charges 19.2 18.9 0.3
Share transactions (4.9) (3.0) (1.9)
Free cash flow before adjusting items 729.4 582.4 147.0
Adjusting items cash outflow (145.3) (164.9) 19.6
Free cash flow 584.1 417.5 166.6
Ordinary dividends paid (303.5) (303.4) (0.1)
Free cash flow after shareholder returns 280.6 114.1 166.5
Opening net debt (1,827.5) (1,934.7) 107.2
Exchange and other non-cash movements 1.8 (6.9) 8.7
Closing net debt (1,545.1) (1,827.5) 282.4
------------------------------------------------------ ---------- ---------- -------
The business generated free cash flow before adjusting items of
GBP729.4m, up GBP147.0m on last year primarily as a result of
working capital inflow, lower capital expenditure and lower
interest and taxation payments. The working capital inflow was
driven by the planned reductions in Clothing & Home inventory
levels and the timing of creditors at year end. Lower interest and
taxation payments reflect both the repayment of a bond in December
2017 and lower taxable profit in the prior year.
Defined benefit scheme pension funding in the year of GBP37.9m
largely reflects the second limited partnership interest
distribution to the pension scheme in the year.
Adjusting items in cash flow during the year were GBP145.3m.
These included GBP27.3m in relation to our store closure programme,
GBP24.9m in relation to organisational change, GBP20.9m for M&S
Bank, GBP12.7m relating to the closure of stores in International
markets and GBP11.1m in relation to our technology transformation
programme. Total adjusting items in cash flow are anticipated to be
a similar amount in 2019/20, prior to the implementation of IFRS
16.
After the payment of our final dividend from FY 17/18 and
interim dividend from H1 18/19, net debt was down GBP282.4m on last
year.
Dividend
On February 27 we announced the Board's decision to reduce our
dividend per share by 40% to a sustainable level, which we aim to
grow in line with earnings over time. We are declaring a final
dividend of 7.1p (full year dividend 13.9p). This will be paid on
12 July 2019 to shareholders on the register of members as at close
of business on 31 May 2019, subject to approval of shareholders at
the Annual General Meeting, to be held on 9 July 2019. The 2018/19
final dividend per share and prior dividends per share will be
restated in future accounts to reflect the bonus factor adjustment
resulting from the rights issue in due course. The bonus factor
adjustment arises due to the Rights Issue involving an element of
bonus shares because the rights issue price is below the Closing
Price of 271.2 pence per share.
Pension
As indicated at our Interim Results, M&S plc (the Company)
reached an agreement with the Trustee of its UK Defined Benefit
Pension Scheme with regards to the triennial actuarial valuation as
at 31 March 2018. This resulted in a statutory surplus of GBP652m
and is an improvement on the previous position at 31 March 2015
(statutory surplus of GBP204m), primarily due to lower assumed life
expectancy. The Company and Trustee have confirmed, in line with
the current funding arrangement, that no further contributions will
be required to fund past service as a result of this valuation
(other than those already contractually committed under the
existing Marks and Spencer Scottish Limited Partnership
arrangements and which are included in the calculation of the
statutory surplus- see Note 9)
At 30 March 2019, the IAS 19 net retirement benefit surplus was
GBP914.3m (last full year GBP948.2m). The IAS 19 surplus includes
the first partnership interest in the scheme assets, valued at
GBP278.5m (Note 9). The decrease in the surplus is largely due to a
decrease in the discount rate partially offset by a change in
mortality assumptions and by the return on scheme assets.
In April 2019, following the year-end, the UK Defined Benefit
pension scheme purchased additional pensioner buy-in policies with
two insurers for approximately GBP1.4bn. Together with the two
policies purchased in March 2018, the Defined Benefit pension
scheme has now, in total, hedged its longevity exposure for around
two thirds of the pensioner cash flow liabilities for pensions in
payment. The buy-in policies cover specific pensioner liabilities
and pass all risks to an insurer in exchange for a fixed premium
payment, thus reducing the Company's exposure to changes in
longevity, interest rates, inflation and other factors.
IFRS 16
IFRS 16 'Leases' is effective for periods beginning on or after
1 January 2019. The Group will adopt the new financial reporting
standard from 31 March 2019. The financial statements for the 52
weeks ending 28 March 2020 will be the first prepared under IFRS
16. The Group has decided to adopt using the fully retrospective
transition approach meaning the comparative period will also be
restated at this time.
There will be a significant impact on the balance sheet as at 31
March 2019. It is expected on a pre-tax basis that a right of use
asset of approximately GBP1.7bn and lease liability of
approximately GBP2.6bn will be recognised, along with the
derecognition of onerous lease provisions of approximately GBP0.2bn
and other working capital balances (including lease incentives) of
approximately GBP0.4bn, which results in an overall adjustment to
retained earnings of approximately GBP0.3bn.
Operating profit and EBIT before adjusting items increase due to
the depreciation expense being lower than the lease expense it
replaces. The overall impact on profit before tax and adjusting
items depends on the relative maturity of the lease portfolio.
Rounded to the nearest GBP10m, it is estimated that for the 52
weeks ended 30 March 2019:
-- Profit before tax when applying IFRS 16 is cGBP10m higher
than that reported in these financial statements under current
accounting standards, including IAS 17 Leases;
-- Profit before tax excluding adjusting items is cGBP10m lower; and
-- Operating profit before tax and adjusting items is cGBP130m higher.
The application of IFRS 16 requires a reclassification of cash
flow from operations to net cash used in financing activities,
however, the impact to the Group is cash flow neutral.
For further detail on IFRS 16 please see Note 1 to the financial
statements.
Brexit
The continued delay in agreeing the nature and timing of the
UK's exit from the European Union creates uncertainty that could
impact the performance of our business. Whilst an orderly exit
would allow business planning to more effectively address the
consequences of change against a defined timeframe, a no deal
outcome would have a more immediate and negative impact. Either
outcome is expected to place increased pressure on how our business
performs.
The potential impacts include:
-- A continued deterioration in customer sentiment
-- Operational complexity and costs due to restrictions on the
movement of goods and stricter border controls
-- Costs passed through from our suppliers
-- Continuity of supply and supplier viability
-- The impact of import and export duties
-- Volatility in currency and corporate bond rates
-- Tightening of the labour market
-- Additional regulatory responsibilities and costs
-- Increased complexity and cost in our international
operations, including our franchise partners.
The Board continues to monitor the ongoing negotiations between
the UK and the EU to assess the potential impact and any
transitional arrangements that may be agreed.
Important Notice:
The contents of this announcement have been prepared by and are
the sole responsibility of Marks and Spencer Group plc ("Marks
& Spencer"). The information contained in this announcement
does not purport to be full or complete. No reliance may be placed
by any person for any purpose on the information contained in this
announcement.
This announcement is an advertisement for information purposes
only and does not constitute a prospectus or prospectus equivalent
document. Nothing in this announcement shall constitute an
invitation or offer to sell or exchange, or the solicitation of an
invitation or offer to buy or exchange, any security or to
participate in the Rights Issue. Any decision to participate in the
Rights Issue, purchase, subscribe for, otherwise acquire, sell or
otherwise dispose of any security must be made only on the basis of
the information contained in and incorporated by reference into the
prospectus to be published by Marks & Spencer in relation to
the Rights Issue. This announcement does not contain a
recommendation concerning any investment option with respect to the
Rights Issue.
This announcement is not and does not contain an offer of
securities for sale or a solicitation of an offer to purchase or
subscribe for securities in in any jurisdiction, including the
United States, the Abu Dhabi Global Market, the Dubai International
Financial Centre, Israel, Hong Kong, Japan, the People's Republic
of China, New Zealand, Singapore, South Africa, Switzerland or the
United Arab Emirates, or any other state or jurisdiction in which
such release, publication or distribution would be unlawful. The
securities mentioned in this announcement (the "Securities") have
not been, and will not be, registered under the U.S. Securities Act
of 1933, as amended (the "Securities Act"), and may not be offered,
sold, taken up, renounced or delivered, directly or indirectly,
into or within the United States, except pursuant to an exemption
from, or a transaction not subject to, registration under the
Securities Act and in compliance with any applicable securities
laws of any state or other jurisdiction of the United States. There
will be no public offer of the Securities in the United States.
Subject to certain exceptions, the Securities may not be offered or
sold in the Abu Dhabi Global Market, the Dubai International
Financial Centre, Israel, Hong Kong, Japan, the People's Republic
of China, New Zealand, Singapore, South Africa, Switzerland or the
United Arab Emirates or to, of for the account or benefit of any
national, resident or citizen of such countries.
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 2018 Annual Report (pages 22-24).
In addition to the Principal Risks & Uncertainties disclosed
in the 2017/18 Annual Report and Accounts, the forthcoming
disclosure in the 2018/19 report will highlight additional risks in
relation to Brexit, the proposed joint venture with Ocado plc, the
potential impact of failure or resilience issues at critical
business locations and the ongoing management of short and
long-term funding to meet business needs.
Directors Responsibility Report
The responsibility statement below has been prepared in
connection with the company's full annual report for the year
ending 30 March 2019. Certain parts thereof are not included within
this announcement.
The directors confirm to the best of their knowledge:
-- The Group financial statements, prepared in accordance with
the applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole.
-- The Management Report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
-- The Annual Report, taken as a whole, is fair, balanced and
understandable, and provides the necessary information for
shareholders to assess the Group's position, performance, business
model and strategy.
The Directors' Report was approved by a duly authorised
committee of the Board of Directors on 21 May 2019 and signed on
its behalf by Nick Folland, Group General Counsel & Company
Secretary.
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. A copy of this announcement
will be made available at https://corporate.marksandspencer.com/.
The information contained within this announcement is inside
information as stipulated under the Market Abuse Regulations (EU)
No. 596/2014. The person responsible for this announcement on
behalf of M&S is Nick Folland, Group General Counsel and
Company Secretary.
The information in this announcement may not be forwarded or
distributed to any other person and may not be reproduced in any
manner whatsoever. Any forwarding, distribution, reproduction or
disclosure of this information in whole or in part is unauthorised.
Failure to comply with any such restriction may constitute a
violation of the securities laws of any such jurisdiction.
- Ends -
Consolidated income statement
52 weeks ended 30 52 weeks ended 31
March 2019 March 2018
Profit Adjusting Total Profit Adjusting Total
before items before items
adjusting adjusting
items items
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----- ---------- --------- -------- ---------- --------- --------
Revenue 2 10,377.3 - 10,377.3 10,698.2 - 10,698.2
-------------------- ----- ---------- --------- -------- ---------- --------- --------
2,
Operating profit 3 601.0 (438.6) 162.4 670.6 (514.1) 156.5
-------------------- ----- ---------- --------- -------- ---------- --------- --------
Finance income 4 33.8 - 33.8 24.1 - 24.1
-------------------- ----- ---------- --------- -------- ---------- --------- --------
Finance costs 4 (111.6) - (111.6) (113.8) - (113.8)
-------------------- ----- ---------- --------- -------- ---------- --------- --------
Profit before
tax 523.2 (438.6) 84.6 580.9 (514.1) 66.8
-------------------- ----- ---------- --------- -------- ---------- --------- --------
Income tax expense 5 (106.0) 58.7 (47.3) (125.4) 87.7 (37.7)
-------------------- ----- ---------- --------- -------- ---------- --------- --------
Profit for the
year 417.2 (379.9) 37.3 455.5 (426.4) 29.1
-------------------- ----- ---------- --------- -------- ---------- --------- --------
Attributable to:
------------------- ----- ---------- --------- -------- ---------- --------- --------
Owners of the
parent 413.4 (379.9) 33.5 452.1 (426.4) 25.7
-------------------- ----- ---------- --------- -------- ---------- --------- --------
Non-controlling
interests 3.8 - 3.8 3.4 - 3.4
-------------------- ----- ---------- --------- -------- ---------- --------- --------
417.2 (379.9) 37.3 455.5 (426.4) 29.1
------------------- ----- ---------- --------- -------- ---------- --------- --------
Basic earnings
per share 6 25.4p 2.1p 27.8p 1.6p
-------------------- ----- ---------- --------- -------- ---------- --------- --------
Diluted earnings
per share 6 25.4p 2.1p 27.8p 1.6p
-------------------- ----- ---------- --------- -------- ========== ========= --------
Consolidated statement of comprehensive income
52 52
weeks weeks
ended ended
30 31
March March
2019 2018
Notes GBPm GBPm
------------------------------------- ------------------------------------------- -------- ----------- ---------
Profit for the year 37.3 29.1
------------------------------------- ------------------------------------------- -------- ----------- ---------
Other comprehensive income:
------------------------------------- ------------------------------------------- -------- ----------- ---------
Items that will not be reclassified
to profit or loss
------------------------------------- ------------------------------------------- -------- ----------- ---------
Remeasurements of retirement benefit
schemes 8 (79.9) 200.9
------------------------------------- ------------------------------------------- -------- ----------- ---------
Tax credit/(charge) on items that
will not be reclassified 14.0 (39.0)
------------------------------------- ------------------------------------------- -------- =========== =========
(65.9) 161.9
------------------------------------- ------------------------------------------- -------- ----------- ---------
Items that will be reclassified
subsequently to profit or loss
------------------------------------- ------------------------------------------- -------- ----------- ---------
Foreign currency translation
differences
------------------------------------- ------------------------------------------- -------- ----------- ---------
- movements recognised in other
comprehensive income (15.4) (23.4)
------------------------------------- ------------------------------------------- -------- ----------- ---------
- reclassified and reported in
profit and loss - (36.2)
------------------------------------- ------------------------------------------- -------- ----------- ---------
Revaluation of available for sale
asset - 6.9
------------------------------------- ------------------------------------------- -------- ----------- ---------
Cash flow hedges and net investment
hedges
------------------------------------- ------------------------------------------- -------- ----------- ---------
- fair value movements in other
comprehensive income 132.0 (208.7)
------------------------------------- ------------------------------------------- -------- ----------- ---------
- reclassified and reported in
profit or loss (16.0) 85.0
------------------------------------- ------------------------------------------- -------- ----------- ---------
- amount recognised in inventories - 57.5
------------------------------------- ------------------------------------------- -------- ----------- ---------
Tax (charge)/credit on cash flow
hedges and net investment hedges (19.0) 19.7
------------------------------------- ------------------------------------------- -------- =========== =========
81.6 (99.2)
------------------------------------- ------------------------------------------- -------- ----------- ---------
Other comprehensive income for
the year, net of tax 15.7 62.7
------------------------------------- ------------------------------------------- -------- ----------- ---------
Total comprehensive income for
the year 53.0 91.8
------------------------------------- ------------------------------------------- -------- ----------- ---------
Attributable to:
------------------------------------- ------------------------------------------- -------- ----------- ---------
Owners of the parent 49.2 88.4
------------------------------------- ------------------------------------------- -------- ----------- ---------
Non-controlling interests 3.8 3.4
------------------------------------- ------------------------------------------- -------- ----------- ---------
53.0 91.8
------------------------------------- ------------------------------------------- -------- ----------- ---------
Consolidated statement of financial position
As As
at at
30 31
March March
2019 2018
Notes GBPm GBPm
------------------------------------- ------------------------------- ---------- --------------------- ---------
Assets
------------------------------------- ------------------------------- ---------- --------------------- ---------
Non-current assets
------------------------------------- ------------------------------- ---------- --------------------- ---------
Intangible assets 499.9 599.2
------------------------------------- ------------------------------- ---------- --------------------- ---------
Property, plant and equipment 10 4,028.5 4,393.9
------------------------------------- ------------------------------- ---------- --------------------- ---------
Investment property 15.5 15.5
------------------------------------- ------------------------------- ---------- --------------------- ---------
Investment in joint ventures 4.0 7.0
------------------------------------- ------------------------------- ---------- --------------------- ---------
Other financial assets 9.9 9.9
------------------------------------- ------------------------------- ---------- --------------------- ---------
Retirement benefit asset 8 931.5 970.7
------------------------------------- ------------------------------- ---------- --------------------- ---------
Trade and other receivables 200.7 209.0
------------------------------------- ------------------------------- ---------- --------------------- ---------
Derivative financial instruments 19.8 27.1
------------------------------------- ------------------------------- ---------- --------------------- ---------
5,709.8 6,232.3
------------------------------------- ------------------------------- ---------- --------------------- ---------
Current assets
------------------------------------- ------------------------------- ---------- --------------------- ---------
Inventories 700.4 781.0
------------------------------------- ------------------------------- ---------- --------------------- ---------
Other financial assets 141.8 13.7
------------------------------------- ------------------------------- ---------- --------------------- ---------
Trade and other receivables 322.5 308.4
------------------------------------- ------------------------------- ---------- --------------------- ---------
Derivative financial instruments 40.3 7.1
------------------------------------- ------------------------------- ---------- --------------------- ---------
Cash and cash equivalents 285.4 207.7
------------------------------------- ------------------------------- ---------- --------------------- ---------
1,490.4 1,317.9
------------------------------------- ------------------------------- ---------- --------------------- ---------
Total assets 7,200.2 7,550.2
------------------------------------- ------------------------------- ---------- --------------------- ---------
Liabilities
------------------------------------- ------------------------------- ---------- --------------------- ---------
Current liabilities
------------------------------------- ------------------------------- ---------- --------------------- ---------
Trade and other payables 1,461.3 1,405.9
------------------------------------- ------------------------------- ---------- --------------------- ---------
Partnership liability to the Marks
& Spencer UK Pension Scheme 9 71.9 71.9
------------------------------------- ------------------------------- ---------- --------------------- ---------
Borrowings and other financial
liabilities 513.1 125.6
------------------------------------- ------------------------------- ---------- --------------------- ---------
Derivative financial instruments 7.3 73.8
------------------------------------- ------------------------------- ---------- --------------------- ---------
Provisions 148.6 98.8
------------------------------------- ------------------------------- ---------- --------------------- ---------
Current tax liabilities 26.2 50.0
------------------------------------- ------------------------------- ---------- --------------------- ---------
2,228.4 1,826.0
------------------------------------- ------------------------------- ---------- --------------------- ---------
Non-current liabilities
------------------------------------- ------------------------------- ---------- --------------------- ---------
Retirement benefit deficit 8 17.2 22.5
------------------------------------- ------------------------------- ---------- --------------------- ---------
Trade and other payables 322.4 333.8
------------------------------------- ------------------------------- ---------- --------------------- ---------
Partnership liability to the Marks
& Spencer UK Pension Scheme 9 200.5 263.6
------------------------------------- ------------------------------- ---------- --------------------- ---------
Borrowings and other financial
liabilities 1,279.5 1,670.6
------------------------------------- ------------------------------- ---------- --------------------- ---------
Derivative financial instruments 2.8 30.7
------------------------------------- ------------------------------- ---------- --------------------- ---------
Provisions 250.1 193.1
------------------------------------- ------------------------------- ---------- --------------------- ---------
Deferred tax liabilities 218.4 255.7
------------------------------------- ------------------------------- ---------- --------------------- ---------
2,290.9 2,770.0
------------------------------------- ------------------------------- ---------- --------------------- ---------
Total liabilities 4,519.3 4,596.0
------------------------------------- ------------------------------- ---------- --------------------- ---------
Net assets 2,680.9 2,954.2
------------------------------------- ------------------------------- ---------- --------------------- ---------
Equity
------------------------------------- ------------------------------- ---------- --------------------- ---------
Issued share capital 406.3 406.2
------------------------------------- ------------------------------- ---------- --------------------- ---------
Share premium account 416.9 416.4
------------------------------------- ------------------------------- ---------- --------------------- ---------
Capital redemption reserve 2,210.5 2,210.5
------------------------------------- ------------------------------- ---------- --------------------- ---------
Hedging reserves (2.9) (65.3)
------------------------------------- ------------------------------- ---------- --------------------- ---------
Other reserve (6,542.2) (6,542.2)
------------------------------------- ------------------------------- ---------- --------------------- ---------
Foreign exchange reserve (44.7) (29.3)
------------------------------------- ------------------------------- ---------- --------------------- ---------
Retained earnings 6,237.1 6,560.4
------------------------------------- ------------------------------- ---------- --------------------- ---------
Total shareholders' equity 2,681.0 2,956.7
------------------------------------- ------------------------------- ---------- --------------------- ---------
Non-controlling interests in equity (0.1) (2.5)
------------------------------------- ------------------------------- ---------- --------------------- ---------
Total equity 2,680.9 2,954.2
------------------------------------- ------------------------------- ---------- --------------------- ---------
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(2) hedging reserve(1) reserve earnings(3) Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
As at 2 April 2017 406.2 416.4 2,210.5 17.3 - (6,542.2) 30.5 6,617.6 3,156.3 (5.9) 3,150.4
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Profit for the
year - - - - - - - 25.7 25.7 3.4 29.1
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Other
comprehensive
(expense)/income:
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Foreign currency
translation
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
- movements
recognised in
other
comprehensive
income - - - 0.2 - - (23.6) - (23.4) - (23.4)
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
- reclassified and
reported in
profit and loss - - - - - - (36.2) - (36.2) - (36.2)
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Revaluation of
available for
sale asset - - - - - - - 6.9 6.9 - 6.9
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Remeasurements of
retirement
benefit schemes - - - - - - - 200.9 200.9 - 200.9
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Tax charge on
items that will
not be
reclassified - - - - - - - (39.0) (39.0) - (39.0)
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Cash flow hedges
and net investment
hedges
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
- fair value
movements in
other
comprehensive
income - - - (211.0) - - - 2.3 (208.7) - (208.7)
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
- reclassified and
reported in
profit or loss - - - 51.0 - - - 34.0 85.0 - 85.0
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
- amount
recognised in
inventories - - - 57.5 - - - - 57.5 - 57.5
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Tax on cash flow
hedges and net
investment hedges - - - 19.7 - - - - 19.7 - 19.7
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Other
comprehensive
income/(expense) - - - (82.6) - - (59.8) 205.1 62.7 - 62.7
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Total
comprehensive
income/(expense) - - - (82.6) - - (59.8) 230.8 88.4 3.4 91.8
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Transactions with
owners:
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Dividends - - - - - - - (303.4) (303.4) - (303.4)
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Transactions with - - - - - - - - - - -
non-controlling
shareholders
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Shares issued on - - - - - - - - - - -
exercise of
employee share
options
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Purchase of own
shares held by
employee trusts - - - - - - - (3.1) (3.1) - (3.1)
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Credit for
share-based
payments - - - - - - - 18.5 18.5 - 18.5
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Deferred tax on - - - - - - - - - - -
share schemes
------------------ ======== ======= ========== ========== ======= ========== ======== =========== ========= =============== =======
As at 31 March
2018 406.2 416.4 2,210.5 (65.3) - (6,542.2) (29.3) 6,560.4 2,956.7 (2.5) 2,954.2
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
As at 1 April 2018 406.2 416.4 2,210.5 (65.3) - (6,542.2) (29.3) 6,560.4 2,956.7 (2.5) 2,954.2
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Adjustment on
initial
application of
IFRS 9 - - - (10.7) 10.7 - - (0.5) (0.5) - (0.5)
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Adjusted opening
shareholders
equity 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
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Profit for the
year - - - - - - - 33.5 33.5 3.8 37.3
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Other
comprehensive
(expense)/income:
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Foreign currency
translation
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
- movements
recognised in
other
comprehensive
income - - - - - - (15.4) - (15.4) - (15.4)
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
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
and net investment
hedges
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
- fair value
movement 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 and net
investment hedges - - - (18.5) (0.5) - - - (19.0) - (19.0)
------------------ ======== ======= ========== ========== ======= ========== ======== =========== ========= =============== =======
Other
comprehensive
income/(expense) - - - 96.0 1.0 - (15.4) (65.9) 15.7 - 15.7
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
Total
comprehensive
income/(expense) - - - 96.0 1.0 - (15.4) (32.4) 49.2 3.8 53.0
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
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 406.3 416.9 2,210.5 (14.6) 11.7 (6,542.2) (44.7) 6,237.1 2,681.0 (0.1) 2,680.9
------------------ -------- ------- ---------- ---------- ------- ---------- -------- ----------- --------- --------------- -------
1. The "Other reserve" was originally created as part of the
capital restructuring that took place in 2002. It represents the
difference between the nominal value of the shares issued prior to
the capital reduction by the Company (being the carrying value of
the investment in Marks and Spencer plc) and the share capital,
share premium and capital redemption reserve of Marks and Spencer
plc at the date of the transaction.
2. Amounts "reclassified and reported in profit or loss" in
2017/18 includes the revaluation of the cross currency swaps,
offsetting the revaluation of the USD hedged bonds within finance
costs.
3. Included within Retained Earnings is the fair value through
other comprehensive income reserve.
Consolidated statement of cash flows
52 weeks 52 weeks
ended ended
30 March 31 March
2019 2018
Notes GBPm GBPm
------------------------------------------- ----- -------- --------
Cash flows from operating activities
------------------------------------------- ----- -------- --------
Cash generated from operations 13 1,041.0 944.1
-------------------------------------------- ----- -------- --------
Income tax paid (105.7) (94.3)
-------------------------------------------- ----- -------- --------
Net cash inflow from operating activities 935.3 849.8
-------------------------------------------- ----- -------- --------
Cash flows from investing activities
------------------------------------------- ----- -------- --------
Proceeds on property disposals 48.1 3.2
-------------------------------------------- ----- -------- --------
Purchase of property, plant and equipment (217.8) (274.9)
-------------------------------------------- ----- -------- --------
Proceeds on disposal of Hong Kong business - 22.9
-------------------------------------------- ----- -------- --------
Purchase of intangible assets (95.1) (74.3)
-------------------------------------------- ----- -------- --------
(Purchase)/sale of current financial
assets (128.1) 0.8
-------------------------------------------- ----- -------- --------
Interest received 7.4 6.0
-------------------------------------------- ----- -------- --------
Purchase of investment in joint venture (2.5) -
-------------------------------------------- ----- -------- --------
Net cash used in investing activities (388.0) (316.3)
-------------------------------------------- ----- -------- --------
Cash flows from financing activities
------------------------------------------- ----- -------- --------
Interest paid(1) (86.4) (112.2)
-------------------------------------------- ----- -------- --------
Cash outflow from borrowings (46.7) -
-------------------------------------------- ----- -------- --------
Cash inflow from borrowings - 43.8
-------------------------------------------- ----- -------- --------
Payment of obligations under finance
leases (3.3) (2.6)
-------------------------------------------- ----- -------- --------
Payment of liability to the Marks &
Spencer UK Pension Scheme (61.6) (59.6)
-------------------------------------------- ----- -------- --------
Equity dividends paid (303.5) (303.4)
-------------------------------------------- ----- -------- --------
Shares issued on exercise of employee
share options 0.6 0.1
-------------------------------------------- ----- -------- --------
Purchase of own shares by employee
trust (5.5) (3.1)
-------------------------------------------- ----- -------- --------
Issuance/(redemption) of Medium Term
Notes 1.4 (328.2)
-------------------------------------------- ----- -------- --------
Net cash used in financing activities (505.0) (765.2)
-------------------------------------------- ----- -------- --------
Net cash inflow/(outflow) from activities 42.3 (231.7)
-------------------------------------------- ----- -------- --------
Effects of exchange rate changes (0.2) (3.5)
-------------------------------------------- ----- -------- --------
Opening net cash 171.0 406.2
-------------------------------------------- ----- -------- --------
Closing net cash 213.1 171.0
-------------------------------------------- ----- -------- --------
(1) Includes interest on the partnership liability to the Marks
& Spencer UK Pension Scheme.
52 weeks 52 weeks
ended ended
30 March 31 March
2019 2018
Notes GBPm GBPm
------------------------------------------ ----- --------- ---------
Reconciliation of net cash flow to
movement in net debt
Opening net debt (1,827.5) (1,934.7)
------------------------------------------- ----- --------- ---------
Net cash inflow/(outflow) from activities 42.3 (231.7)
------------------------------------------- ----- --------- ---------
Increase/(decrease) in current financial
assets 128.1 (0.8)
------------------------------------------- ----- --------- ---------
Decrease in debt financing 110.2 346.6
------------------------------------------- ----- --------- ---------
Exchange and other non-cash movements 1.8 (6.9)
------------------------------------------- ----- --------- ---------
Movement in net debt 282.4 107.2
------------------------------------------- ----- --------- ---------
Closing net debt 14 (1,545.1) (1,827.5)
------------------------------------------- ----- --------- ---------
1 General information and basis of preparation
General information
The financial information, which comprises the consolidated
income statement, consolidated statement of comprehensive income,
consolidated statement of financial position, consolidated
statement of changes in equity, consolidated statement of cash
flows and related notes, does not constitute full accounts within
the meaning of s435 (1) and (2) of the Companies Act 2006. The
auditor has reported on the Group's statutory accounts for each of
the years 2018/19 and 2017/18, which do not contain any statement
under s498 (2) or (3) of the Companies Act 2006 and were
unqualified. The statutory accounts for 2017/18 have been delivered
to the Registrar of Companies and the statutory accounts for
2018/19 will be filed with the Registrar in due course.
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. The Company
expects to publish full financial statements that comply with IFRS
Standards on 23 May 2019.
Going concern basis
Based on the Group's cash flow forecasts and projections, 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.
Accounting Policies
New accounting standards adopted by the Group
There have been significant changes to accounting under IFRS
which have affected the Group's financial statements. New standards
and interpretations effective as of 1 January 2018 and therefore
applicable to the Group's financial statements for the 52 weeks
ended 30 March 2019 are listed below:
-- IFRS 9 Financial Instruments.
-- IFRS 15 Revenue from Contracts with Customers.
-- Amendments to IFRS 4 Insurance contracts regarding the
implementation of IFRS 9 Financial instruments.
-- Interpretation IFRIC 22 Foreign Currency Transactions and Advance Consideration.
-- Amendments to IAS 40 Transfer of Investment Property.
-- Amendments to IFRS 2 Share-based Payments, on clarifying how
to account for certain types of share-based payment
transactions.
-- Annual improvements to IFRS Standards 2014-2016 Cycle
(certain items effective from 1 January 2017).
With the exception of the adoption of IFRS 9 and IFRS 15, the
adoption of the above standards and interpretations 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.
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement. The standard is effective
for periods beginning on or after 1 January 2018 and therefore has
been implemented with effect from 1 April 2018. The standard
introduces changes to three key areas:
-- New requirements for the classification and measurement of financial instruments.
-- A new impairment model based on expected credit losses for recognising provisions.
-- Simplified hedge accounting through closer alignment with an
entity's risk management methodology.
The adoption of IFRS 9 has not had a material impact on either
the Consolidated Income Statement or the Consolidated Statement of
Financial Position. The Group has adopted IFRS 9 using the modified
transition approach and has therefore adjusted opening retained
earnings for the impact of IFRS 9 on the opening bad debt provision
and has not restated the prior period comparatives. The impact of
the adoption of the new standard is shown in note 29 which includes
additional disclosures relating to hedge accounting (including a
new cost of hedging reserve), credit risk management and impairment
of financial assets.
The Group has an economic interest in M&S Bank which
entitles the Group to a 50% share of the profits of M&S Bank
after appropriate deductions. M&S Bank adopted IFRS 9 with
effect from 1 January 2018. The Group's share of profits for the
prior period includes the post-implementation impact of adopting
the expected credit loss model for provisioning in accordance with
the requirements of IFRS 9 which had an immaterial impact in the
prior period.
1 Accounting Policies continued
IFRS 15 Revenue from Contracts with Customers is effective for
periods beginning on or after 1 January 2018 and therefore has been
implemented with effect from 1 April 2018. The standard establishes
a principles-based approach for revenue recognition and is based on
the concept of recognising revenue for performance obligations only
when they are satisfied and the control of goods or services is
transferred. In doing so, the standard applies a five-step approach
to the timing of revenue recognition and applies to all contracts
with customers, except those in the scope of other standards. It
replaces the separate models for goods, services and construction
contracts under the previous accounting standard. Due to the
straightforward nature of the Group's revenue streams with the
recognition of revenue at the point of sale and the absence of
significant judgement required in determining the timing of
transfer of control, the adoption of IFRS 15 has not had a material
impact on the timing or nature of the Group's revenue
recognition.
Under IFRS 15 a right of return is not a separate performance
obligation and the Group is required to recognise revenue net of
estimated returns. A refund liability and a corresponding asset
representing the right to recover products from the customer is
also recognised. There is no change to the Group's revenue
recognition under IFRS 15. However, the refund provision was
previously recorded on a net basis within Current Liabilities and
therefore on adoption of IFRS 15 the Group was required to adjust
inventories and the refund provision to a gross basis.
The Group has adopted IFRS 15 using the modified transition
approach and has therefore not restated the prior period
comparatives for the separate recognition of the refund asset and
the increase in the refund provision.
In addition to the changes to the accounting policies, the Group
is required to disclose how the adoption of the new accounting
standard has affected the financial statements. There is no impact
on the Consolidated Income Statement, however the impact on the
Consolidated Statement of Financial Position for the change in
accounting for the refund provision is as follows:
At 30 March 2019, the refund provision on the balance sheet was
accounted for on the gross basis under IFRS 15. There is a
liability of GBP22.2m and a related refund asset of GBP8.9m. If
accounted for on a net basis, the refund provision on the balance
sheet would be GBP13.3m.
New accounting standards in issue but not yet effective
New standards and interpretations effective as of 1 January 2019
and therefore applicable to the Group for the 52 weeks ending 28
March 2020 are listed below:
-- Annual improvements to IFRS Standards 2015-2017 Cycle.
-- Amendments to IFRS 9 Financial instruments, on prepayment
features with negative compensation.
-- Amendments to IAS 28 Investments in associates, on long term
interests in associates and joint ventures.
-- Amendments to IAS 19 Employee benefits on plan amendment, curtailment or settlement.
-- IFRIC 23 Uncertainty over Income Tax Treatments.
-- IFRS 16 Leases.
With the exception of the adoption of IFRS 16, the adoption of
the above standards and interpretations will not 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.
IFRS 16 Leases is effective for periods beginning on or after 1
January 2019. The Group will adopt the new financial reporting
standard from 31 March 2019. The financial statements for the 52
weeks ending 28 March 2020 will be the first prepared under IFRS
16. The Group has decided to adopt using the fully retrospective
transition approach meaning the comparative period will also be
restated at this time.
Impact of application of IFRS 16 'Leases'
As a lessee, IFRS 16 removes distinctions between operating and
finance leases and requires the recognition of a right of use asset
and corresponding liability for future lease payables. The right of
use asset will be subsequently depreciated on a straight-line basis
over the life of the lease. Interest will be recognised on the
lease liability. This will result in earlier recognition of expense
for leases currently classified as operating leases, although over
the life of a lease the total expense recognised will not
change.
Right of use assets recognised by the Group comprise of
property, motor vehicles and equipment, including those in scope
under certain logistics contracts. The Group has elected not to
recognise right of use assets and lease liabilities for leases of
low-value assets, and lease payments associated with those assets,
will be recognised as an expense on a straight-line basis. In
addition, amounts for leases with variable consideration, such as
turnover leases, will continue to be recognised on a straight-line
basis.
As a lessor, subleases previously classified as operating must
be reassessed in consideration of the remaining contractual term
and conditions with reference to the right of use asset arising
from the head lease. The Group will reclassify certain sublease
agreements as finance leases and recognise a net investment in
lease, resulting in a change in timing of recognition of sublease
income.
1 Accounting Policies continued
There will be a significant impact on the balance sheet as at 31
March 2019. It is expected on a pre-tax basis that a right of use
asset of approximately GBP1.7bn and lease liability of
approximately GBP2.6bn will be recognised, along with the
derecognition of onerous lease provisions of approximately GBP0.2bn
and other working capital balances (including lease incentives),
which results in an overall adjustment to retained earnings of
approximately GBP0.3bn.
Operating profit and EBIT before adjusting items increase due to
the depreciation expense being lower than the lease expense it
replaces. The overall impact on profit before tax and adjusting
items depends on the relative maturity of the lease portfolio.
Rounded to the nearest GBP10m, it is estimated that for the 52
weeks ended 30 March 2019:
-- Profit before tax when applying IFRS 16 is cGBP10m higher
than that reported in these financial statements under current
accounting standards, including IAS 17 Leases.
-- Profit before tax excluding adjusting items is cGBP10m lower.
-- Operating profit before tax and adjusting items is cGBP130m higher.
The application of IFRS 16 requires a reclassification of cash
flow from operations to net cash used in financing activities,
however, the impact to the Group is cash flow neutral.
The Group has had in place a working group and steering
committee to assess the impact and oversee the implementation of
the new standard. The adoption of the new standard is nearing
completion, including the implementation of appropriate internal
controls and a governance framework to ensure the requirements of
the new standard continue to be met including an assessment of new
contracts requiring judgement as to whether they are in scope of
the standard.
Alternative Performance Measures
In reporting financial information, the Group presents
alternative performance measures (APMs), which are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance
of the business. These APMs are consistent with how the business
performance is planned and reported within the internal management
reporting to the Board and 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; like-for-like revenue growth adjusted for Easter; gross
margin; 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 to be significant in both
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 30 March 2019:
-- 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
previous year's 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.
-- Significant non-cash charges relating to the Group's defined
benefit scheme arising from equalisation of guaranteed minimum
pensions (GMP) and other pension equalisation.
-- Significant costs arising from establishing the new joint venture with Ocado.
-- 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.
-- Other adjusting items, in the prior year, including profit on
sale of Hong Kong and charges for potential liabilities for
employee related matters.
Refer to note 3 for a summary of the adjusting items.
2 Segmental Information
IFRS 8 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. The operating segments are
UK and International which are reported in a manner consistent with
the internal reporting to the Operating Committee.
The UK segment consists of the UK retail business, UK franchise
operations, M&S Bank and M&S Energy. The International
segment consists of Marks & Spencer owned businesses in Europe
and Asia and the international franchise operations.
The Operating Committee assesses the performance of the
operating segments based on a measure of operating profit referred
to as management group operating profit. This measurement basis
excludes the effects of adjusting items from the operating
segments. The Operating Committee also monitors revenue within the
segments and gross profit within the UK segment. To increase
transparency, the Group has decided to include an additional
voluntary disclosure analysing revenue within the reportable
segments by sub-category and gross profit within the UK segment by
sub-category. The following is an analysis of the Group's revenue
and results by reportable segment:
52 weeks ended 30 March 2019 52 weeks ended 31 March
2018 (restated(3) )
-------------------------------------------------- --------------------------------------- ---------
Management(1) Logistics Adjusting Statutory Management(1) Logistics Adjusting Statutory
Adjustment(2) items Adjustment(2) items
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Food revenue 5,903.4 - - 5,903.4 5,940.0 - - 5,940.0
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Clothing &
Home revenue 3,537.3 - - 3,537.3 3,671.0 - - 3,671.0
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
UK revenue 9,440.7 - - 9,440.7 9,611.0 - - 9,611.0
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Franchised 409.1 - - 409.1 360.6 - - 360.6
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Owned 527.5 - - 527.5 726.6 - - 726.6
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
International
revenue 936.6 - - 936.6 1,087.2 - - 1,087.2
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Group revenue 10,377.3 - - 10,377.3 10,698.2 - - 10,698.2
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Food gross
profit(3) 1,834.7 1,854.8
-------------- ------------- -------------
Clothing &
Home gross
profit(3) 2,021.2 2,090.6
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
UK gross
profit(3) 3,855.9 (384.9) - 3,471.0 3,945.4 (370.0) - 3,575.4
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
UK operating
costs (3,409.6) 384.9 (400.3) (3,425.0) (3,450.3) 370.0 (477.5) (3,557.8)
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
M&S Bank 27.6 - (20.9) 6.7 40.3 - (34.7) 5.6
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
M&S Energy 0.1 - - 0.1 - - - -
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
UK operating
profit 474.0 - (421.2) 52.8 535.4 - (512.2) 23.2
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
International
operating
profit 127.0 - (17.4) 109.6 135.2 - (1.9) 133.3
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Group
operating
profit 601.0 - (438.6) 162.4 670.6 - (514.1) 156.5
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Finance income 33.8 - - 33.8 24.1 - - 24.1
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Finance costs (111.6) - - (111.6) (113.8) - - (113.8)
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
Profit before
tax 523.2 - (438.6) 84.6 580.9 - (514.1) 66.8
-------------- ------------- ------------- --------- --------- ------------- ------------- --------- ---------
(1) Management profit excludes the adjustments (income and
charges) made to reported profit before tax that are significant in
value and/or nature (see note 3). Please refer to the accounting
policy in note 1 and the glossary for more details on these
adjustments.
(2) Management gross profit for the UK segment excludes certain
expenses resulting in an adjustment between cost of sales and
selling and administrative expenses of GBP384.9m (last year:
GBP370.0m).
(3) During the year, as a result of a change to internal
management reporting, the reporting of cards and gift-wrap has been
transferred from Clothing & Home to Food for both revenue and
gross profit. The prior period comparatives have been restated to
reflect this, GBP70.1m of revenue has been transferred from
Clothing & Home to Food with a corresponding transfer of gross
profit of GBP26.1m.
Other segmental information
UK(1) International Total UK(1) International Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- ------------- ------- ------- ------------- -------
Additions to property, plant and
equipment and intangible assets
(excluding goodwill) 283.1 13.9 297.0 322.4 13.2 335.6
---------------------------------- -------- ------------- ------- ------- ------------- -------
Depreciation and amortisation 613.0 13.1 626.1 615.7 24.6 640.3
---------------------------------- -------- ------------- ------- ------- ------------- -------
Impairment and asset write-offs 126.3 1.6 127.9 228.3 5.3 233.6
---------------------------------- -------- ------------- ------- ------- ------------- -------
Total assets 6,900.1 300.1 7,200.2 7,242.4 307.8 7,550.2
---------------------------------- -------- ------------- ------- ------- ------------- -------
Non-current assets 4,558.9 199.7 4,758.6 5,024.5 210.0 5,234.5
---------------------------------- -------- ------------- ------- ------- ------------- -------
(1) UK assets include centrally held assets largely relating to IT systems that support
the
International business of GBP20.9m (last year: GBP24.9m).
3 Adjusting items
The total adjusting items reported for the 52 week period ended
30 March 2019 is a net charge of GBP438.6m (last year: GBP514.1m).
The adjustments made to reported profit before tax to arrive at
adjusted profit are:
2019 2018
Notes GBPm GBPm
----------------------------------------------------------------------------- ----- ----- -----
Strategic programmes - UK store estate 10 222.1 321.1
----------------------------------------------------------------------------- ----- ----- -----
Strategic programmes - Organisation 10 51.8 30.7
----------------------------------------------------------------------------- ----- ----- -----
Strategic programmes - Operational transformation 16.4 -
----------------------------------------------------------------------------- ----- ----- -----
Strategic programmes - IT restructure 15.6 15.5
----------------------------------------------------------------------------- ----- ----- -----
Strategic programmes - UK logistics 10 14.3 13.1
----------------------------------------------------------------------------- ----- ----- -----
Strategic programmes - Changes to pay and pensions 6.2 12.9
----------------------------------------------------------------------------- ----- ----- -----
Strategic programmes - International store closures and impairments 5.3 5.0
----------------------------------------------------------------------------- ----- ----- -----
UK store impairments and other property charges 10 62.1 63.4
----------------------------------------------------------------------------- ----- ----- -----
M&S Bank charges incurred in relation to the insurance mis-selling provision 20.9 34.7
----------------------------------------------------------------------------- ----- ----- -----
GMP and other pension equalisation 20.5 -
----------------------------------------------------------------------------- ----- ----- -----
Establishing the Ocado joint venture 3.4 -
----------------------------------------------------------------------------- ----- ----- -----
Other - 17.7
----------------------------------------------------------------------------- ----- ----- -----
Adjustments to profit before tax 438.6 514.1
----------------------------------------------------------------------------- ----- ----- -----
Strategic programmes - UK store estate (GBP222.1m)
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 GBP222.1m in the year which
relates in part to the accelerated and expanded store closure
programme which now includes a number of Simply Foods stores. The
charge primarily relates to accelerated depreciation (due to
shortening the useful economic life) and impairment of buildings
and fixtures and fittings. Refer to note 10 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
through out the programme period as decisions are taken in relation
to the size of the store estate and the specific stores affected.
Based on current plans, further charges (before restatement to
reflect the impact of the adoption of IFRS 16) are expected to be
incurred predominantly in the next two years and are anticipated to
be c.GBP100m, bringing total programme costs to c.GBP680m.
Strategic programmes - Organisation (GBP51.8m)
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.
The Group has now conducted a review of the retail field and
management team organisational structure. The proposals will result
in a net reduction of c.700 retail roles achieved through a
combination of natural attrition and redundancies. A charge of
GBP18.6m has been recognised in the period for redundancy costs
associated with these changes.
In addition, a further GBP33.2m of costs have been recognised in
the period associated with centralising the Group's London Head
Office functions and rationalisation of Head Office functions.
As the Group executes the three phases of the transformation
strategy further material organisational cost 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 value, and are consistent with
the disclosure of other similar charges in prior years.
Strategic programmes - Operational transformation (GBP16.4m)
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
Clothing & Home and Food end-to-end processes. A charge of
GBP16.4m has been recognised primarily for consultancy costs for
the transformation and simplification of our supply chain and
operations across Clothing & Home and Food.
These costs are considered to be adjusting items as they relate
to a strategic programme and the total costs are significant in
quantum and as a result not considered to be normal operating costs
of the business. Further operational transformation initiatives are
planned for 2019/20 which will result in additional related charges
within adjusting items.
3 Adjusting items continued
Strategic programmes - IT restructure (GBP15.6m)
In 2017/18 as part of the five-year transformation strategy, the
Group announced a technology transformation programme to create a
faster, more agile and more commercial technology function. A
charge of GBP15.6m has been recognised in the year relating
primarily to transition costs associated with the implementation of
a new technology operating model and accelerated depreciation of IT
assets which the Group is retiring early as a result of the
transformation strategy. Further charges of c.GBP2m are expected in
2019/20 and 2019/20 is expected to be 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 and are
significant in value, both in the year and in total for the
programme.
Strategic programmes - UK logistics (GBP14.3m)
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 GBP14.3m has been recognised
in the year for redundancy, accelerated depreciation and project
costs.
The Group considers these costs to be adjusting items as they
are significant in value 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. Further charges are expected in 2019/20 of c.GBP12m.
Strategic programmes - Changes to pay and pensions (GBP6.2m)
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 defined benefit (DB) pension scheme to future
accrual effective from 1 April 2017. As part of these proposals the
Group committed to making transition payments to affected employees
in relation to the closure of the UK DB scheme, expected to be
c.GBP25m in total over the three years commencing 2017/18. The
charge in the year in relation to these transition payments to
employees is GBP6.2m.
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
year within adjusting items is consistent with disclosure of the
same costs in 2017/18 and the original disclosure of the UK DB
scheme closure costs in 2016/17.
Strategic programmes - International store closures and
impairments (GBP5.3m)
In 2016/17 the Group announced its intention to close its owned
stores in 10 international markets. A net charge of GBP5.3m 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.
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 value and nature to the results of the
Group. No further significant charges are expected.
UK store impairments and property charges (GBP62.1m)
The Group has recognised a number of charges in the year
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, the Group has revised future
projections for UK stores (excluding those stores which have been
captured as part of the UK store estate programme). As a result, UK
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 GBP52.8m has been incurred
primarily in respect of the impairment of assets associated with
these stores. Refer to note 10 for further details on the
impairments.
In addition, the Group has entered in to property arrangements
impacting 10 stores. The Group has recognised a net charge of
GBP9.3m associated with the sale and leaseback or lease surrender
costs for these stores.
The charges have been classified as an adjusting item on the
basis of the significant value of the charge in the year to the
results of the Group.
M&S Bank charges incurred in relation to the insurance
mis-selling provision (GBP20.9m)
The Group has an economic interest in M&S Bank, a wholly
owned subsidiary of HSBC, 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 fee income from
M&S Bank has been reduced by the deduction of the estimated
liability in both the current and prior years. The deduction in the
year is GBP20.9m. 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 year to the results of
3 Adjusting items continued
the Group. The estimated liability for redress will continue to
be reviewed in 2019/20 to ensure it reflects the best estimate of
likely settlement, which could lead to further charges or
releases.
GMP and other pension equalisation (GBP20.5m)
The Group has recognised a non-cash charge of GBP20.5m in
respect of the Group's defined benefit pension liability arising
from equalisation of GMP following a high court ruling in October
2018 and other pension equalisation charges. Additional detail on
the Group's GMP assessment is detailed in note 8.
The amounts recognised in relation to GMP and other pension
equalisation charges are considered to be adjusting items as they
are significant in nature and value to the results of the Group in
the current period.
Establishing the Ocado joint venture (GBP3.4m)
In February 2019 the Group announced the creation of a new 50/50
joint venture (JV) with Ocado Group Plc (Ocado), the UK's leading
pure play digital grocer, that will transform online grocery
shopping for UK consumers. Transaction costs of GBP3.4m were
incurred during the period.
The Group considers the costs directly associated with the Ocado
transaction to be an adjusting item on the basis that they relate
to a major transaction and as a result are not considered to be
normal operating costs of the Group. Further costs of cGBP30.0m
will be incurred in 2019/20, the majority of which will be
capitalised within the cost of investment upon completion or
included within the cost of equity as part of the rights-issue.
Other (GBPnil)
Other in the prior year included the profit on the disposal of
our retail business in Hong Kong and charges for potential
liabilities for certain employee related matters in the prior
period. These amounts were considered to be adjusting items as they
were significant in nature and value to the results of the Group in
the prior period.
The prior year profit on disposal is analysed as follows:
2019 2018
GBPm GBPm
------------------------------------------- ---- ------
Proceeds - 33.9
-------------------------------------------- ---- ------
Disposal costs - (0.9)
-------------------------------------------- ---- ------
Net disposal proceeds - 33.0
-------------------------------------------- ---- ------
Fair value of net assets disposed - (28.6)
-------------------------------------------- ---- ------
Provision for IT transition services - (0.8)
-------------------------------------------- ---- ------
Net foreign exchange amounts recycled from
reserves - 2.2
============================================ ==== ======
Profit on disposal - 5.8
-------------------------------------------- ---- ------
4 Finance income/costs
2019 2018
GBPm GBPm
--------------------------------------------------- ------- -------
Bank and other interest receivable 7.6 6.0
--------------------------------------------------- ------- -------
Other finance income 0.4 0.4
--------------------------------------------------- ------- -------
Pension net finance income 25.8 17.7
--------------------------------------------------- ------- -------
Finance income 33.8 24.1
--------------------------------------------------- ------- -------
Interest on bank borrowings (0.6) (1.2)
--------------------------------------------------- ------- -------
Interest payable on syndicated bank facility (2.3) (2.3)
--------------------------------------------------- ------- -------
Interest payable on Medium Term Notes (77.4) (90.0)
--------------------------------------------------- ------- -------
Interest payable on finance leases (1.7) (1.9)
--------------------------------------------------- ------- -------
Ineffectiveness on financial instruments (3.5) (2.3)
--------------------------------------------------- ------- -------
Unwind of discount on provisions (17.3) (5.2)
--------------------------------------------------- ------- -------
Unwind of discount on partnership liability to the
Marks & Spencer UK Pension Scheme (see note 9) (8.8) (10.9)
--------------------------------------------------- ======= =======
Finance costs (111.6) (113.8)
--------------------------------------------------- ------- -------
Net finance costs (77.8) (89.7)
=================================================== ======= =======
5 Income tax expense
The effective tax rate was 55.9% (last year: 56.4%) and after excluding
adjusting items the effective tax rate was 20.3% (last year: 21.6%).
6 Earnings per share
The calculation of earnings per ordinary share is based on
earnings after tax and the weighted average number of ordinary
shares in issue during the year.
The adjusted earnings per share figures have also been
calculated based on earnings before adjusting items that are
significant in nature and/or quantum and are considered to be
distortive (see note 3). These have been presented to provide
shareholders with an additional measure of the Group's year-on-year
performance.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. The Group has four types of
dilutive potential ordinary shares being: those share options
granted to employees where the exercise price is less than the
average market price of the Company's ordinary shares during the
year; unvested shares granted under the Deferred Share Bonus Plan;
unvested shares granted under the Restricted Share Plan; and
unvested shares within the Performance Share Plan that have met the
relevant performance conditions at the end of the reporting
period.
Details of the adjusted earnings per share are set out
below:
2019 2018
GBPm GBPm
---------------------------------------------------------- ------- -------
Profit attributable to equity shareholders of the Company 33.5 25.7
---------------------------------------------------------- ------- -------
Add/(less) (net of tax):
---------------------------------------------------------- ------- -------
Strategic programmes - UK store estate 194.6 264.7
---------------------------------------------------------- ------- -------
Strategic programmes - Organisation 46.3 28.0
---------------------------------------------------------- ------- -------
Strategic programmes - Operational transformation 13.2 -
---------------------------------------------------------- ------- -------
Strategic programmes - IT restructure 12.7 12.5
---------------------------------------------------------- ------- -------
Strategic programmes - UK logistics 11.8 10.7
---------------------------------------------------------- ------- -------
Strategic programmes - Changes to pay and pensions 5.1 10.4
---------------------------------------------------------- ------- -------
Strategic programmes - International store closures
and impairments 5.1 (4.1)
---------------------------------------------------------- ------- -------
UK store impairments and property charges 54.2 61.6
---------------------------------------------------------- ------- -------
M&S Bank charges incurred in relation to the insurance
mis-selling provision 16.9 28.1
---------------------------------------------------------- ------- -------
GMP and other equalisation 16.6 -
---------------------------------------------------------- ------- -------
Establishing the Ocado JV 3.4 -
---------------------------------------------------------- ------- -------
Other - 14.5
========================================================== ======= =======
Profit before adjusting items attributable to equity
shareholders of the Company 413.4 452.1
========================================================== ------- -------
Million Million
---------------------------------------------------------- ------- -------
Weighted average number of ordinary shares in issue 1,624.1 1,624.0
---------------------------------------------------------- ------- -------
Potentially dilutive share options under Groups share
option schemes 3.8 5.4
---------------------------------------------------------- ------- -------
Weighted average number of diluted ordinary shares 1,627.9 1,629.4
---------------------------------------------------------- ------- -------
Pence Pence
---------------------------------------------------------- ------- -------
Basic earnings per share 2.1 1.6
---------------------------------------------------------- ------- -------
Diluted earnings per share 2.1 1.6
---------------------------------------------------------- ------- -------
Adjusted basic earnings per share 25.4 27.8
---------------------------------------------------------- ------- -------
Adjusted diluted earnings per share 25.4 27.8
---------------------------------------------------------- ------- -------
7 Dividends
2019 2018 2019 2018
per share per share GBPm GBPm
------------------------------------ --------- --------- ----- -----
Dividends on equity ordinary shares
------------------------------------ --------- --------- ----- -----
Paid final dividend 11.9p 11.9p 193.1 193.1
------------------------------------ --------- --------- ----- -----
Paid interim dividend 6.8p 6.8p 110.4 110.3
------------------------------------ ========= ========= ----- -----
18.7p 18.7p 303.5 303.4
------------------------------------ --------- --------- ----- -----
The directors have approved a final dividend of 7.1p per share
(last year: 11.9p per share), which, in line with the requirements
of IAS 10 "Events after the Reporting Period", has not been
recognised within these results. This final dividend of c.GBP115.4m
(last year: GBP193.1m) will be paid on 12 July 2019 to shareholders
whose names are on the Register of Members at the close of business
on 31 May 2019. The ordinary shares will be quoted ex dividend on
30 May 2019.
A dividend reinvestment plan (DRIP) is available to shareholders
who would prefer to invest their dividends in the shares of the
Company. For those shareholders electing to receive the DRIP, the
last date for receipt of a new election is 21 June 2019.
8 Retirement benefits
2019 2018
GBPm GBPm
---------------------------------------------------- --------- ---------
Opening net retirement benefit surplus 948.2 692.8
---------------------------------------------------- --------- ---------
Current service cost (0.2) (0.3)
---------------------------------------------------- --------- ---------
Administration cost (3.9) (3.5)
---------------------------------------------------- --------- ---------
Curtailment charge - -
---------------------------------------------------- --------- ---------
Net interest income 25.8 17.7
---------------------------------------------------- --------- ---------
Employer contributions 42.0 40.7
---------------------------------------------------- --------- ---------
Past service cost 18.0 -
---------------------------------------------------- --------- ---------
Remeasurements (79.9) 200.9
---------------------------------------------------- --------- ---------
Exchange movement 0.3 (0.1)
---------------------------------------------------- --------- ---------
Closing net retirement benefit surplus 914.3 948.2
---------------------------------------------------- --------- ---------
2019 2018
GBPm GBPm
---------------------------------------------------- --------- ---------
Total market value of assets 10,224.7 9,989.3
---------------------------------------------------- --------- ---------
Present value of scheme liabilities (9,301.3) (9,029.6)
---------------------------------------------------- --------- ---------
Net funded pension plan asset 923.4 959.7
---------------------------------------------------- --------- ---------
Unfunded retirement benefits (3.5) (3.6)
---------------------------------------------------- --------- ---------
Post-retirement healthcare (5.6) (7.9)
---------------------------------------------------- --------- ---------
Net retirement benefit surplus 914.3 948.2
---------------------------------------------------- --------- ---------
Analysed in the statement of financial position as:
---------------------------------------------------- --------- ---------
Retirement benefit asset 931.5 970.7
---------------------------------------------------- --------- ---------
Retirement benefit deficit (17.2) (22.5)
---------------------------------------------------- --------- ---------
Net retirement benefit surplus 914.3 948.2
---------------------------------------------------- --------- ---------
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 2.45% (last year: 2.65%) and 3.25% (last year: 3.15%).
The inflation rate of 3.25% (last year: 3.15%) reflects the Retail
Price Index (RPI) rate.
The amount of the surplus varies if the main financial
assumptions change, particularly the discount rate. If the discount
rate decreased by 0.25% the surplus would decrease by c.GBP70m. If
the inflation rate decreased by 0.25%, the surplus would decrease
by c.GBP25m.
On 26 October 2018, the High Court issued a judgement in a claim
involving Lloyds Banking Group's DB pension schemes. This judgement
concluded 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
have resulted in an increase in the liabilities of the Marks &
Spencer UK DB Pension Scheme of GBP18.0m. This increase has been
reflected in the results as a past service cost.
9 Marks and Spencer Scottish Limited Partnership
Marks and Spencer plc is a general partner and the Marks &
Spencer UK Pension Scheme is a limited partner of the Marks and
Spencer Scottish Limited Partnership (the "Partnership"). Under the
partnership agreement, the limited partners have no involvement in
the management of the business and shall not take any part in the
control of the partnership. The general partner is responsible for
the management and control of the partnership and as such, the
Partnership is consolidated into the results of the Group.
The Partnership holds GBP1.4bn (last year: GBP1.5bn) 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
GBP272.4m (last year: GBP335.5m) 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 30 March
2019 an interest charge of GBP8.8m (last year: GBP10.9m) was
recognised in the income statement representing the unwinding of
the discount included in this obligation. The first limited
partnership interest of the Pension Scheme is included within the
UK DB Pension Scheme assets, valued at GBP278.5m (last year:
GBP345.4m).
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 Property, plant and
equipment
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Land and buildings Fixtures, fittings and Assets in the course of Total
equipment construction
GBPm GBPm GBPm GBPm
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Year ended 30 March 2019
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Opening net book value 2,417.9 1,897.2 78.8 4,393.9
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Additions 0.9 30.9 170.1 201.9
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Transfers and
reclassifications (3.2) 166.7 (168.8) (5.3)
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Disposals (2.5) (0.4) - (2.9)
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Asset impairments (11.5) (58.2) - (69.7)
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Asset write-offs (35.3) (8.6) - (43.9)
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Depreciation charge (89.7) (352.0) - (441.7)
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Exchange difference (2.7) (1.1) - (3.8)
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Closing net book value 2,273.9 1,674.5 80.1 4,028.5
---------------------------- ------------------ ---------------------------- --------------------------- ---------
At 30 March 2019
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Cost 2,923.9 5,729.1 98.1 8,751.1
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Accumulated depreciation,
impairments and write-offs (650.0) (4,054.6) (18.0) (4,722.6)
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Net book value 2,273.9 1,674.5 80.1 4,028.5
---------------------------- ------------------ ---------------------------- --------------------------- ---------
Asset write-offs in the year include assets with gross book
value of GBP1,467.9m (last year: GBP784.9m) and GBPnil (last year:
GBPnil) net book value that are no longer in use and have therefore
been retired.
The net book value above includes land and buildings of GBP31.1m
(last year: GBP41.6m) and equipment of GBPnil (last year: GBPnil)
where the Group is a lessee under a finance lease.
Additions to property, plant and equipment during the year
amounting to GBPnil (last year: GBPnil) were financed by finance
leases.
Impairment of property, plant and equipment
For impairment testing purposes, the Group has determined that
each store is a separate CGU, with the exception of outlet stores,
which are considered together as one CGU. Shop Your Way (SYW) 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 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
future expectations, with reference to forecast GDP growth. These
growth rates do not exceed the long-term growth rate for the
Group's retail businesses in the relevant territory. If the CGU
relates to a store which the Group has identified as part of the UK
store estate programme, the value in use calculated has been
modified by estimation of the future cash flows up to the point
where it is estimated that trade will cease and then estimation of
the timing and amount of costs associated with closure detailed
fully in note 3.
The key assumptions in the value in use calculations are the
growth rates of sales and gross profit margins, changes in the
operating cost base, long-term growth rates and the risk-adjusted
pre-tax discount rate. The pre-tax discount rates are derived from
the Group's weighted average cost of capital, taking into account
the cost of capital and borrowings, to which specific
market-related premium adjustments are made for each territory. The
pre-tax discount rates range from 9% to 21% (last year: 8% to 15%).
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
GBP52.8m and no impairment reversals as a result of UK store
impairment testing unrelated to the UK store estate programme (last
year: GBP11.9m). 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 2.3%, adjusted to 0% where management believe the current
trading performance and future expectations of the store do not
support the growth rate of 2.3%. This rate combines the long-term
inflation rate of 1.8% with a 0.5% real uplift for growth. This is
higher than the rate used in the prior year, reflecting our
confidence in the ability of the strategic programme to transform
the business and achieve a higher terminal growth rate. The rate
used to discount the forecast cash flows for UK stores is 9.1%.
10 Property, plant and equipment continued
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 2% from the three-year plan would result
in an increase in the impairment charge of GBP7.1m and a 20 basis
point reduction in gross profit margin would increase the
impairment charge by GBP2.2m. In combination, a 1% fall in sales
and a 10 basis point fall in gross profit margin would increase the
impairment charge by GBP4.7m. Reasonably possible changes of the
other key assumptions, including reducing the long term growth rate
to 0% across all stores, would not result in an increase to the
impairment charge.
Impairments - UK store estate programme
During the year, the Group has recognised an impairment charge
of GBP16.9m relating to the on-going UK store estate programme
(last year: GBP196.2m). The impairment charge relates to the
accelerated and expanded 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 9.1%.
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 GBP31.4m. A
2% reduction in the year 1 sales growth would result in an increase
in the impairment charge of GBP4.9m. Neither a 25 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.
11 Financial instruments
Fair value hierarchy
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;
-- 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. No level 3 instruments were in place at the year
end.
At the end of the reporting period, the Group held the following
financial instruments at fair value:
2019 2018
----- ----- ----- ----- ----- ------- ----- -------
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
Assets measured
at fair value
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
Financial assets
at fair value through
profit or loss
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
- trading derivatives - 0.7 - 0.7 - 2.0 - 2.0
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
Derivatives used
for hedging - 59.4 - 59.4 - 32.2 - 32.2
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
Short-term investments - 141.8 - 141.8 - 13.7 - 13.7
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
Unlisted investments(1) - - 9.9 9.9 - - 9.9 9.9
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
Liabilities measured
at fair value
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
Financial liabilities
at fair value through
profit or loss
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
- trading derivatives - (0.4) - (0.4) - (0.2) - (0.2)
------------------------ ----- ----- ----- ----- ----- ------- ----- -------
Derivatives used
for hedging - (9.7) - (9.7) - (104.3) - (104.3)
------------------------ ----- ----- ------- -------
(1) There were no transfers between the levels of the fair value
hierarchy. The Group holds GBP9.9m in unlisted equity securities
measured at fair value through other comprehensive income (last
year GBP9.9m measured as available-for-sale) 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.
The Marks & Spencer UK DB Pension Schemes holds a number of
financial instruments which make up the pension asset of
GBP10,224.7m (last year: GBP9,989.3m). Level 1 and Level 2
financial assets measured at fair value through other comprehensive
income amounted to GBP7,008.6m (last year: GBP7,152.4m).
Additionally, the scheme assets include GBP3,216.1m (last year:
GBP2,836.9m) 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:
2019 2018
GBPm GBPm
Opening balance 2,836.9 1,444.9
Fair value gain/(loss) recognised in other comprehensive
income 136.3 (74.9)
Additional investment 242.9 1,466.9
Closing balance 3,216.1 2,836.9
Fair value of financial instruments
With the exception of the Group's fixed rate bond debt and the
Partnership liability to the Marks & Spencer UK Pension Scheme
(note 9), there were no material differences between the carrying
value of non-derivative financial assets and financial liabilities
and their fair values as at the balance sheet date.
The carrying value of the Group's fixed rate bond debt (level 1
equivalent) was GBP1,673.8m (last year GBP1,659.9m), the fair value
of this debt was GBP1,724.0m (last year GBP1,761.0m).
12 Contingencies and commitments
A. Capital commitments
2019 2018
GBPm GBPm
Commitments in respect of properties in the course
of construction 90.1 121.8
Software capital commitments 6.8 17.2
96.9 139.0
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.
13 Analysis of cash flows given in the statement of cash flows
Cash flows from operating activities
2019 2018
GBPm GBPm
------- -------
Profit on ordinary activities after taxation 37.3 29.1
Income tax expense 47.3 37.7
Finance costs 111.6 113.8
Finance income (33.8) (24.1)
------- -------
Operating profit 162.4 156.5
------- -------
Decrease/(increase) in inventories 73.8 (38.2)
(Increase)/decrease in receivables (1.0) 28.8
Decrease in payables (13.7) (87.4)
Adjusting items net cash outflows (124.4) (153.1)
Non-cash share-based payment charges 19.2 18.9
Depreciation, amortisation and write-offs 544.9 580.6
Defined benefit pension funding (37.9) (41.4)
Adjusting items M&S Bank (20.9) (34.7)
Adjusting operating profit items 438.6 514.1
------- -------
Cash generated from operations 1,041.0 944.1
------- -------
14 Reconciliation of net debt to statement of financial position
2019 2018
GBPm GBPm
Statement of financial position and related
notes
Cash and cash equivalents 285.4 207.7
Current financial assets 141.8 13.7
Bank loans and overdrafts (72.3) (88.4)
Medium Term Notes - net of hedging derivatives (1,624.3) (1,621.7)
Finance lease liabilities (46.5) (48.0)
Partnership liability to the Marks & Spencer UK Pension
Scheme (see note 9) (272.4) (335.5)
(1,588.3) (1,872.2)
Interest payable included within related
borrowing and the partnership liability
to the Marks & Spencer UK Pension Scheme 43.2 44.7
Total net debt (1,545.1) (1,827.5)
15 Related party transactions
There were no related party transactions other than key
management compensation during the year to 30 March 2019.
16 Subsequent events
Subsequent to the year end, the UK Defined Benefit pension
scheme purchased additional pensioner buy-in policies with two
insurers for approximately GBP1.4bn. Together with the two policies
purchased in March 2018, the Defined Benefit pension scheme has
now, in total, hedged its longevity exposure for approximately two
thirds of the pensioner cash flow liabilities for pensions in
payment. The buy-in policies cover specific pensioner liabilities
and pass all risks to an insurer in exchange for a fixed premium
payment, thus reducing the Company's exposure to changes in
longevity, interest rates, inflation and other factors.
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 to
similarly-titled measures reported by other companies due to
differences in the way they are calculated.
APM Closest Reconciling Definition and purpose
equivalent items to
statutory statutory
measure measure
Income Statement Measures
Like-for-like Movement in Sales from The period-on-period change
revenue revenue per non in revenue (excluding VAT) from
growth the Income like-for-like stores which have been trading
Statement stores and where there has been no
significant change (greater
than 10%) in footage for at
least 52 weeks and online sales.
The measure is used widely in
the retail industry as an indicator
of sales performance. It excludes
the impact of new stores, closed
stores or stores with significant
footage change. 52 weeks ending
30 March 31 March
2019 2018
GBPm GBPm
Food
Like-for-like 5,630.4 5,764.0
Net new space 273.0 176.0
Total Food revenue 5,903.4 5,940.0
Clothing and
Home
Like-for-like 3,479.3 3,534.2
Net new space 58.0 136.8
Total Clothing
& Home revenue 3,537.3 3,671.0
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 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 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. FY 18/19 FY 17/18 %
GBPm GBPm
International Revenue
At constant currency 936.6 1,081.3 (13.4)
Impact of FX retranslation - 5.9
At reported currency 936.6 1,087.2 (13.9)
UK Food Movement in Sales from The period-on-period change
like-for-like revenue per non in like-for-like Food revenue
revenue the Income like-for-like (excluding VAT) adjusted for
growth Statement stores & any differences in the timing
adjusted adjustments of Easter between comparative
for Easter for Easter periods. This adjusted revenue
dates measure is a good indicator
of the underlying performance
of the Food business, as it
eliminates the effect of Easter
trading on period-on period
reported results. FY 18/19 FY 17/18 %
GBPm GBPm
UK Food Revenue
Like-for-like 5,630.4 5,764.0 -2.3%
Impact of Easter - (50.1)
Easter adjusted LFL 5,630.4 5,713.8 -1.5%
Net new space 273.0 176.1
Statutory Total 5,903.4 5,940.0 -0.6%
International Movement in Sales from The period-on-period change
owned revenue per closure markets in revenue relating to those
retained the Income international markets in which
and franchise Statement the Group continues to trade
revenue subsequent to the completion
growth of the International exit strategy
at constant retranslating the previous year
currency revenue 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 the International exit programme
and exchange rate fluctuations
on the period-on-period reported
results. FY 18/19 FY 17/18 %
International Revenue GBPm GBPm
Reported currency 936.6 1,087.2 (13.9)
Owned exit - (66.4) 100
Owned retained and franchise 936.6 1,020.8 (8.2)
Impact of FX translation (6.1)
Owned retained and franchise at constant currency 936.6 1,014.7 (7.7)
Management Gross profit Certain Where referred to throughout
gross margin(1) downstream the Annual Report, management
margin logistics costs gross margin is calculated as
(See note 2) gross profit on a management
basis divided by revenue. The
gross profit used in this calculation
is based on an internal measure
of margin rather than the statutory
margin, which excludes certain
downstream logistics costs.
This is a key internal management
metric for assessing category
performance.
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(2) 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.
Profit Profit Adjusting items Profit before the impact of
before before (See note 3) adjusting items and tax. The
tax and tax 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 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 explanation of why this
measure is used.
Adjusted Diluted Adjusting items Profit after tax attributable
diluted earnings (See note 3) to owners of the parent and
earnings per share 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, bonds and finance lease
(see note 14) liabilities net of accrued interest),
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.
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 See Financial The cash generated from the
flow inflow Review Group's operating activities
from less capital expenditure and
operating interest paid.
activities This measure shows the cash
retained by the Group in the
year.
Free cash Net cash See Financial Calculated as the cash generated
flow pre inflow Review from the Group's operating activities
shareholder from less capital expenditure and
returns operating interest paid excluding returns
activities to shareholders (dividends and
share buyback).
This measure shows the cash
generated by the Group during
the year that is available for
returning to shareholders and
is used within the Group's incentive
plans.
Other Measures
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.
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: FY FY
18/19 17/18
GBPm GBPm
EBIT before adjusting
items 601.0 670.6
Average capital
employed 4,267.9 4,785.3
This measure is used within
the Group's incentive plans.
Refer to the Remuneration Report
for explanation of why this
measure is used within incentive
plans.
(1) Gross profit margin is not defined within IFRS but is a
widely accepted profit measure being derived from revenue less cost
of sales divided by revenue.
(2) 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 CKDDBBBKBCPB
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