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“STRONG PERFORMANCE DELIVERED BY A MORE RESILIENT M&S”

The impact of Covid in 2020/21 renders comparisons to the prior year less meaningful. To aid understanding, throughout this document we are showing the 52 weeks to 28 March 2020 as the comparative period, unless stated otherwise.

Strong all-round performance

  • Profit before tax and adjusting items of £522.9m (2019/20 £403.1m).
  • Statutory profit after tax of £309.0m (2019/20 £27.4m).
  • Food growth of 10.1%, ex hospitality and franchise sales1 up 14.7%.
  • M&S share of Ocado Retail net profit £13.9m including £7.2m net exceptional costs.
  • C&H sales up 3.8%. Online growth of 55.6%, stores down 11.2%.
  • Strong cash flow, reducing net debt excluding lease liabilities by £1.0bn to £420m.

Business well positioned for inflationary headwinds and the next phase of transformation

  • M&S Food outperformance supported by record quality and improved value perception.
  • Ocado Retail basket size normalised as anticipated, transitioning to rapid capacity growth.
  • Reshaped C&H range and value commitment delivering full-price sales growth of 28.5%.
  • Online C&H sales now 34% of UK C&H sales and nascent brands platform established.
  • Sparks has grown to 15m members, fuelling data and personalisation drive.
  • International online retail sales over £250m vs £100m in 2019/20.
  • Increased store rotation pipeline in both Food and C&H; new format stores performing well.

Steve Rowe, CEO: "When I took over the reins at M&S six years ago, I committed to tackling the underlying issues that had eroded the strength of the business and building the foundations for future growth. For me, what is important about these results is not just the restoration of profit and strong cash flow; it is that they demonstrate that M&S has fundamentally changed. While there is much more to do, the business has moved beyond proving its relevance and has the opportunity for substantial future growth. It has been my privilege to be the steward and shopkeeper of this fantastic business and extraordinary brand at such an important stage in its history.  The changes we have delivered are down to the commitment and hard work of colleagues across the business, and I am delighted to hand the baton on to Stuart, Katie and Eoin to lead the next phase.”


Group Results

52 weeks ended

2 April 22

53 weeks ended 

3 April 21

52 weeks ended

28 March 20

Change vs 2019/20 (%)

Statutory revenue

£10,885.1m

£9,166.9m

£10,181.9m 

6.9

Sales before adjusting items2

 £10,909.0m

£9,166.9m

£10,181.9m 

7.1

Operating profit before adjusting items

£709.0m

£222.2m

£590.7m 

20.0

Profit before tax & adjusting items

£522.9m

£50.3m

£403.1m 

29.7

Adjusting items

 £(131.2)m

 £(259.7)m

 £(335.9)m

-60.9

Profit/(loss) before tax

£391.7m

 £(209.4)m

£67.2m 

482.9

Profit/(loss) after tax

£309.0m 

 £(201.2)m

£27.4m 

1,027.7

Basic earnings/(loss) per share

15.7p

(10.1)p

1.3p

1,107.7

Adjusted basic earnings/(loss) per share

21.7p

1.4p

16.7p

29.9

Free cash flow

£699.2m

£296.4m 

£205.7m 

239.9

Net debt

£2.7bn

£3.52bn

£3.95bn

-31.7

Net debt excluding lease liabilities

£0.4bn

£1.11bn

£1.39bn

-71.2

Dividend per share

-

-

3.9p

n/a

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

1 The Food ex hospitality and franchise sales APM is based on total revenue rather than like-for-like revenue, as was presented at the 20/21 year-end results, and 21/22 half-year results.

2All references to sales, a new APM, throughout this document are statutory revenue plus the gross value of consignment sales excluding VAT.

COMPLETION OF THE FIRST PHASE OF TRANSFORMATION – FIXING THE BASICS.

Four years ago, we set out in a presentation entitled ‘Facing the Facts’ the unvarnished truths about the state of M&S and the reasons why far-reaching change was needed to arrest decline. Now on the eve of a long-planned leadership succession, our results demonstrate the extent of change delivered and the areas where there is more to do:

  • The Food business has gone from amongst the lowest performing UK food businesses on LFL sales to the top performing over 12 months.
  • Our brand perception was weakening and too many customers thought M&S was no longer relevant. Now on almost all customer metrics we see renewed interest and approval.
  • The option count in Clothing & Home had proliferated leading to low rate of sale but has now been reduced by c.20% since 2018/19, with popular lines bought in greater depth.
  • We had high levels of discounting at c.30% of Food and c.35% of Clothing & Home sales, eroding customer trust. Now this has halved to less than 15% and c.18% respectively.
  • Clothing & Home online capability was behind competitors and at only c.18% of sales. It is now market competitive and penetration has almost doubled to 34%.
  • The Sparks ‘point-based’ system had lost credibility but has now been relaunched and we have 15m members and over 4m app users.
  • The online fulfilment centre at Castle Donington struggled to cope with demand and fulfilment speeds were uncompetitive but now output has doubled, and speeds are at market levels.
  • The Food business had no online grocery capability but now the Ocado joint venture investment is established and growing capacity.
  • The legacy store base was ageing with no track record of closures or adaptation to modern shopping patterns. We have now closed 68 full-line stores, opening or relocating 13.
  • Store formats were dull, complex to shop, and dated. We now have a strong performing new format in both main businesses.
  • The balance sheet was stretched with £1.8bn net debt (excluding lease liabilities) but is now much more resilient with just £420m. 
  • The business was slowed down by heavyweight corporate functions and hierarchy whereas it is now restructured into a family of faster moving accountable businesses.

Nonetheless there remains much to do as we embark on our new ‘shaping the future’ stage and reposition M&S as a growth business focused on rewarding shareholders with a combination of sustainable returns and profit growth through a balance of investment and cash generation. There are many areas where the business has improved but three important infrastructure challenges remain which can still impact the pace of change and recovery;

  • Although we have materially changed our digital footprint, some of our core technology systems need investment, most notably in Clothing & Home where planning and supply chain systems can be significantly improved to drive more efficient trading.
  • The Clothing & Home and Food supply chains both require further investment. In Clothing & Home we have a lot of opportunity to reduce single picking, improve capacity, reduce costs and improve store operations as a result. In Food we need to further improve operations with Gist and invest in and reshape the network.
  • Some of the full-line estate remains out of date and poorly located compared to the competition and although we have made progress, there is much still to do to convert stores to a new more efficient shoppable format and make them suitable for an omni-channel era. Although Clothing & Home store sales are running more than 25% below four years ago we have delivered less than a 10% reduction in space since then, so the imperative both to reduce space and to rotate to newer, better stores remains. 

The substantial progress we have made in ‘fixing the basics’ demonstrates the potential beyond the current profit recovery and now provides a much stronger platform for the new leadership to take forward. Their objective is to increase the pace of change and to reposition the business for growth in the UK and globally. Stuart Machin, Katie Bickerstaffe and Eoin Tonge will set out their plans for the future later in the year.

STRONG PERFORMANCE DELIVERED BY A MORE RESILIENT M&S

A strong all-round performance combined with the benefits of the transformation delivered an encouraging performance across M&S. Profit before tax and adjusting items for the period was £522.9m (2019/20: £403.1m). Statutory profit before tax was £391.7m (2019/20: £67.2m). The recovery of profit combined with a focus on working capital and tightly controlled capital expenditure generated substantial free cash flow and a sharp reduction in net debt. Results included £59.8m of UK business rates relief and a net rates charge of £139.7m in the period.

M&S Food now a high-performing business with market share growth

M&S Food delivered sales growth of 10.1%. Combined with an improving margin mix in H2 and the benefits of the “lowering cost” programme, this supported a strong increase in operating profit before adjusting items. We were encouraged by the core sales performance and the resilience of larger basket sizes, even as we saw a gradual recovery in the franchise travel and hospitality businesses in H2. Value and quality perception indicators are robust. The strength of performance in new channels (Ocado and Costa Coffee) reinforces our belief in the long-term potential to grow the business.

Ocado Retail transitioning to strong capacity growth post pandemic reversion

As expected, Ocado Retail saw a normalisation of basket sizes and the shape of trade, resulting in a 4% decline in revenue and a reduced contribution to Group results after exceptional costs including the Erith fire. At the same time, we are investing in new capacity despite the backdrop of well-understood industry cost pressures, demonstrating our confidence in Ocado Retail.  This has the potential to grow the business by over 50% when fully ramped up. With the M&S brand consistently over 25% of the average Ocado basket, we believe there is substantial further synergy potential for the two businesses to exploit.

Clothing & Home on track for a more profitable model capable of growth

Clothing & Home delivered 3.8% sales growth, driven by online sales. We shifted to trusted value, reducing option count by c.20% over three years, which resulted in good growth in core categories and a reduction of stock into sale.  Operating profit before adjusting items grew strongly, reflecting the improved full-price mix. MS2 made multiple improvements to the online offer and service, with around 11% of orders fulfilled from store. We have successfully grown the Sparks programme to 15m members and app users to over 4m, and have begun to personalise customer experience.  The nascent brands platform now has around 40 clothing brand partnerships, own or invested brands.

Building store rotation pipeline driving exit from legacy stores

We are now developing a growing pipeline of store relocations, moving to modern well-located sites, in the renewal format with omni-channel capability. We aim to fund the exit costs of the legacy estate through an increasingly active asset management and disposal programme. We have a pipeline of c.15 new full-line stores over the next three years and c.40 new Food stores, many in the larger renewal format with click-and-collect services for Clothing & Home.  The 10 new stores opened last year traded 11% ahead of sales plan and are on track to generate a payback of the net capital invested in just 1.5 years.   New store performance gives us encouragement wherever possible to accelerate rotation.

International absorbing Brexit-related costs, but emerging global strategy encouraging

The International business, together with our partners, generated 4% retail sales growth. This included a solid performance in the Middle East and online retail sales more than doubling to over £250m through growth in markets with a store presence and global platforms.   Operating profit before adjusting items reflected the combined effects of EU border costs and tariffs of £29.6m and an estimated trading impact in the region of £15m. While we have provided for the £31m cost of fully exiting Russia and business disruption in Ukraine, and will incur a loss of contribution, we are also exploring multiple opportunities for further growth, including through the Reliance joint venture in India.

Extending and expressing our sustainability lead

During the year we reset Plan A with a singular focus on cutting our carbon footprint by one third by 2025 and becoming a fully net zero business by 2040.  As an own-brand retailer, M&S is very well positioned to work with its supplier partners to find better ways of doing things. We developed a multi-stakeholder plan spanning customers, colleagues and suppliers to deliver on this target.  We also agreed a new £850m revolving credit facility linked to the delivery of the net zero roadmap.

Business well positioned for next phase of transformation and inflationary headwinds

As we enter the next phase of the transformation, we maintain our ambition to create a business capable of sustainable growth in sales, market share and profit.  With improved profitability and cash conversion, and financial net debt under a third of 2019/20 levels, the business is resilient to the macroeconomic headwinds while having flexibility to invest in our transformation priorities.

Overall trading in the first six weeks of the financial year has been ahead of the comparable periods in 2021/22, including the period from 12 April 2021 when non-essential retail reopened, with a particularly strong performance in Clothing & Home and growth in the total Food business continuing to outperform the overall market.  

This year the business will not receive business rates relief and International will not have the profit contribution from Russia. As we invest in capacity growth at Ocado Retail, we anticipate a minimal contribution of share of net income to group results. Consequently, we start 2022/23 from a lower adjusted profit base.  The business is now much better positioned and has had an encouraging start to the year. However, given the increasing cost pressures and consumer uncertainty we do not currently expect to progress from this lower profit base in 2022/23.

M&S FOOD: HIGH-PERFORMING BUSINESS AND MARKET SHARE GROWTH

The objective for M&S Food is to “protect the magic” by investing in our unique focus on own-brand innovation and fresh, easy-to-cook food, while “modernising the rest” of the infrastructure supporting it. By extending reach of the brand into bigger, new-format stores and growing new channels (Ocado Retail, Costa Coffee), we see the potential for substantial growth.

M&S Food delivered sales growth of 10.1% vs 2019/20 and in H2 continued to be the best-performing UK grocery chain (Source:  Kantar 12 weeks ended 20 March 2022).  This was despite continuing adverse Covid-related headwinds and the absence of online grocery sales, which are reported separately through Ocado Retail.

Sales grew 14.7% after adjusting for the Covid-related impact on the hospitality and franchise businesses. H2 saw a gradual recovery of stores in city centres and the franchise travel business compared to H1.

Sales vs 2019/20 (%)

H1

H2

FY


Sales vs 2019/20 (%)

H1

H2

FY

Simply Food

27

18

23


High street

-10

-6

-8

Retail parks

23

20

22


City centre

-18

-10

-14

Franchise fuel

13

8

11


Franchise travel (rail/air/roadside)

-49

-29

-39

Total

25

18

21


Total

-18

-10

-14

Operating profit before adjusting items of £277.8m, as compared to £236.7m in 2019/20, reflected sales growth and the lowering cost programme, partly offset by increasing supply chain cost pressures in H2 and Brexit-related costs in Northern Ireland.

Performance underpinned by improvement in quality and value

The outperformance of the M&S Food range over the past four years has delivered improved customer perceptions for both value and quality, and good core sales growth. Market share has grown from 3.4% to 3.6% over three years.

The consistently strong core sales performance throughout 2021/22, supported by good market conditions, is evident in the category sales mix, with growth in core areas such as produce, meat and grocery. This was driven by larger basket sizes, which began to normalise through the year as the effects of Covid reduced.

Sales vs 2019/20 (%)

H1

H2

FY


Sales vs 2019/20 (%)

H1

H2

FY

Frozen

40

18

27


Food-on-the-move

-18

-4

-11

Beers, wines & spirits

30

17

23


Hospitality

-53

-27

-40

Grocery & household

33

9

20






Meat, fish, poultry, deli, dairy

20

14

17






Bakery

13

18

15






Produce & flowers

14

12

13






Total

20

14

17


Total

-30

-12

-21

Growth was supported by a substantial programme of product innovation, with over 1,350 new lines over the past year, including summer barbecue ranges, extensions to our market-leading Plant Kitchen offer, and an expanded “Dine In” programme.  

In a climate of increasing price awareness, “Remarksable Value” and “Fresh Market Specials” ranges have been relaunched, offering products with an M&S quality differential at everyday low prices.  Around one in four M&S baskets now include one of these lines. Overall, value perception has improved by five points since March 2019, ahead of the market, and quality perception is at the highest level in over five years.

The Food renewal format creates larger stores with the efficiency of a supermarket and the ‘soul’ of a fresh food market.  This has now been implemented in 40 stores, enabling customers to access more of the M&S range. Annualised sales in Food stores which have been fully renewed have been strong, on average up over 10% vs control stores.   

In the second half, we launched a ground-breaking partnership with Costa Coffee, making available around 30 M&S food-on-the-move products in c.2,500 coffee shops.  These include new lunch options, hot meal boxes and children’s food.   Early sales are in line with our expectations.

More to do on supply chain, waste and availability

The M&S Food supply chain remains less efficient and, we believe, higher cost to serve than our competitors.   This is a result of a complex store and logistics network, a high level of chilled product mix and a costly supply chain contract with our partners, Gist.  Alongside this, our forecasting, ordering and stock allocation systems are dated and are in the process of being upgraded. 

Over the past two years, we have implemented the “Vangarde” trading model across the full Food estate, creating more efficient processes for stock management and replenishment of stores, which has helped to sustain availability through the supply chain disruption of last year. However, waste and stock loss remain above target levels. In the next stage we will roll out new forecasting, ordering, and space, range and display systems to better match catalogue and product display to customer demand, with the objective of realising a substantial reduction in food waste. The increasing store rationalisation programme is also helping to create a network of conforming stores which are lower cost to serve. 

OCADO TRANSITIONING TO STRONG CAPACITY GROWTH POST PANDEMIC REVERSION

Our ambition is to grow Ocado Retail over the next five years to achieve a market-leading national position in online food retailing and a brilliant showcase for the M&S brand and range.   Doing so means building on the competitive advantages in quality, value and service that the Ocado platform combined with M&S Food can achieve. We will deliver growth through rapid expansion of customer fulfilment centres (“CFCs”) alongside our immediacy proposition, Zoom.

Following a successful switchover to M&S supply, Ocado Retail delivered an exceptional performance during the lockdown periods in 2020/21. As expected, 2021/22 saw a reduction in average basket size to c.£123 in Q4 (2020/21: c.£145) and increasingly normalised demand across the week. At the same time, with a substantially larger industry growth opportunity than we envisaged when we acquired 50% of Ocado Retail, we are investing in an ambitious capacity roll-out plan, with new CFCs coming on stream against a backdrop of well-understood industry-wide cost pressures. 

Ocado Retail delivered revenue of £2,248.8m, down 4.4% compared to 2020/21, and EBITDA before exceptional items of £104.8m as compared to £189.9m in 2020/21.   We recorded a Group share of net income of £13.9m, after a £7.2m share of net exceptional costs.


M&S financial quarter

2021/22

Q1

Q2

Q3

Q4

Average orders per week (k)

383

338

375

367

Retail revenue (£m ex VAT)

618.4

517.5

547.8

564.7

Notes: Retail revenue comprises revenues from Ocado.com and Ocado Zoom and excludes revenues from Fetch in current and prior periods. Average orders per week refers to results of Ocado.com

Targeting growth in active customers as pandemic conditions normalise

Ocado Retail delivered good growth in active customers through the year, with an acceleration in the final quarter compared with the prior year, as new CFCs came on stream.   Order growth and average basket size reflected the return of customer behaviours towards pre-Covid levels as restrictions reduced and there was a return to more in-office working.  As a result, revenue declined, but substantially outperformed the online grocery market (Source: Kantar 12 weeks ended 20 March 2022). 

Near-term margins reflecting a higher percentage of immature capacity

Near-term margins reflect the higher percentage of immature capacity as well as the peaks and troughs associated with normalised trading. Following a period of more limited capacity owing to a fire, Erith CFC was fully reopened in December 2021. During 2021 we also opened two new CFCs in Purfleet and Andover, which were operating at around half of their end-game capacities by Q4. Some one-off costs, associated with the fire at the Erith distribution centre and technology platform transition, have impacted the M&S share of profit. 

Alongside the opening of Bicester in 2022 and Luton in 2023, we have plans to reach capacity for over 700,000 orders per week based on pre-Covid basket sizes, representing growth of over 50% when fully ramped.  

Substantial further potential for the joint venture

The M&S brand is consistently over 25% of Ocado Retail’s sales, and this has generated substantial buying gains for both M&S Food and Ocado Retail.  We believe there is additional unexploited potential to make better use of the M&S brand, data capabilities, and cross-marketing as the businesses work even more closely together. Towards the end of our coming financial year, we are also planning to re-platform from the legacy operating system to the “Ocado Smart Platform”. This represents a major technology switchover and will provide Ocado Retail with a website and ordering capability that when fully developed we believe will be market-leading. 

CLOTHING & HOME ON TRACK FOR A MORE PROFITABLE MODEL CAPABLE OF GROWTH

The objective of Clothing & Home is to create a contemporary M&S range bought in greater depth, alongside a family of internal and external partner brands providing broader choices to our customers.  We are at the very early stages of transitioning to an omni-channel business backed by exceptional data and highly personalised customer relationships, and a more sustainable, profitable model is starting to emerge.

Clothing & Home delivered sales growth of 3.8% vs 2019/20, with three consecutive quarters of underlying growth. Online sales were up 55.6%, with strong growth throughout the year outperforming pure-play peers and gaining 60bps of market share (Source: Kantar 52 weeks to 3 April 2022). Store sales declined 11.2%, with performance continuing to be impacted by legacy high street and city centre stores, although there was some improvement in H2.

Sales vs 2019/20 (%)

Q1

Q2

Q3

Q4

FY

Retail park

-2

3

3

24

5

Outlet

-10

1

3

26

3

Shopping centre

-26

-16

-12

15

-12

High street

-24

-22

-20

-5

-19

City centre

-37

-28

-19

3

-22

Total C&H stores

-21.2

-14.3

-10.9

5.6

-11.2

Operating profit before adjusting items of £330.7m, as compared to £223.9m in 2019/20, reflected the benefits of sales growth combined with an increased full-price sales mix. 

Reshaping the “product engine” to drive shape of buy and reduce clearance

The Clothing & Home offer has been reshaped over the past three years around trading principles focused on contemporary style, simple accessible product, and greater depth of buy. Overall option count has reduced by c.20% on 2018/19. Alongside the product change, there has been a successful shift to trusted value and everyday low price. As a result of these actions, discounted sales have reduced and stock into the clearance sale was down 34% on two years ago, enabling a simpler, more profitable operation.  These changes are beginning to be reflected in improved customer style perceptions and are generating increased confidence in the new approach within the core product teams.

Blanket promotions, which often obscured inconsistent pricing and reduced trust, have largely been removed. The pricing architecture is clearer, offering value on entry price points in products such as women’s jeggings, men’s denim and the recently introduced “Remarksable Value” label in our Home ranges. As we have shifted to a trusted value approach, we have seen an improvement in value perception, which is now market-leading.

Strong performance in core categories and improving style perception

As expected, category performance over the two pandemic years has been greatest in core casual categories, sleepwear and soft furnishings. Following the reopening of the economy in July 2021, the slow return to offices, combined with greater mobility, has led to a gradual improvement in formal ranges, elements of footwear and holiday.

Sales vs 2019/20 (%)

H1

H2

FY


Sales vs 2019/20 (%)

H1

H2

FY

Women’s denim

8

27

17


Women’s formal

-33

-20

-26

Women’s casual tops

10

30

17


Women’s holiday

-35

26

-24

Women’s knitwear

15

7

9


Men’s formal

-35

-20

-28

Men’s casual

1

13

7


Men’s footwear

-9

6

-1

Kids’ daywear

21

27

24






Lingerie

0

9

5






Soft furnishings

23

12

16






  • Womenswear has driven good growth in the “big three” departments of denim, knitwear and casual tops. A focus on simple, repeatable styles in dresses, supported by popular collaborations with brands such as Ghost, has resulted in a very strong performance. The Goodmove activewear brand has grown to over £65m in two years. 
  • Lingerie has seen a recovery over the past year in core areas such as sleep, underwear and bras.  A focus on sharper value through multi-packs at opening price points has combined with new stretch offers such as “Boutique” and the launch of the “Neutrals” range. 
  • Menswear was impacted in the pandemic by its high formal and office-wear shares. We saw good growth in jersey, knitwear and underwear, although following reopening availability in formal categories was below target.  
  • Kidswear’s increased focus on daywear has combined with growth in schoolwear to deliver double-digit sales growth. The growth of M&S Kids provides an important entry point to the brand for family-age customers.
  • Home ranges have been reshaped, with pricing realigned to the market in areas such as bed linen, lighting and curtains.   Furniture ranges are being upgraded and losses have reduced.

MS2 driving omni-channel growth 

MS2 had a successful year, with strong online sales growth at an adjusted operating profit margin competitive with store sales. The MS2 organisation brings together the data, digital and online teams across M&S. Its aim is to prioritise the best online offer, acting with the speed of a pure-play while leveraging the store estate to drive advantages in reach and fulfilment to deliver better customer service.

  • A programme of front-end digital development to inspire customers has included upgraded imagery, increased user-generated content, “shop the look” features and “hotspotting” of product benefits.
  • We have introduced over 60 digital hubs in stores, enabling rapid click-and-collect and rolled out paper-free returns.
  • Online availability through omni-channel fulfilment now exceeds store availability, with an increasing number of “online-only” products and use of the channel to trial “test and repeat” ranges. The online commercial teams are fully involved in category planning.
  • During the year, c.11% of online orders were satisfied through in-store fulfilment.  The ability to sell through stock in the store network has increased customer convenience, improved stock turn and helped drive customer availability to c.90%, compared with c.75% through the online distribution centre alone.
  • The cut-off for next-day delivery remains below our target level but is now market-competitive.

Over the past three years we have built the foundations of a more personalised, customer-focused digital offer. We have created a single customer data platform alongside our enterprise data platform, “BEAM”, which continues to consolidate our data in one place.

The relaunched Sparks programme has grown to over 15m members, of which close to 9m are active, and we are working on the next generation of improvements to the offer. We have grown app users to over 4m and expect to launch Sparks Pay, offering customers an integrated payment and credit proposition including loyalty rewards through Sparks and the M&S app.  

Over the past year we began to personalise the customer experience through our website, app and customer relationship management programme, and around 8% of M&S.com sales are now being driven by personalisation. Although still at an early stage, we have developed a bespoke in-house solution to deepen relationships with customers and drive future growth. The goal is to build personalisation at scale to move from a targeted promotions model to one where the range, interactions and product presentation are relevant to the individual customer, making M&S a more engaging and easier place to shop. 

Sparks and data provide the gateway to delivery of further services, notably the shift to a digital proposition for M&S Bank customers including credit, loyalty rewards and payment.

Nascent platform of brands established

M&S has a strong and trusted brand which attracts customers to our platforms as the second largest UK online clothing retailer (Source: Kantar 52 weeks ending 3 April) with the largest omni-channel footprint. This, combined with our 15m Sparks card holders, credit card and customer data engine, creates the scope to bring other brands onto our platform, providing broader choice and personalisation for the M&S customer and substantial new revenue streams.

  • In the last year we have established a series of pilots with a combination of around 40 clothing brand partnerships, own or invested brands.  This has included the purchase and relaunch of Jaeger, as a contemporary British brand, a 27% shareholding in Nobody’s Child and the majority acquisition of activewear brand curator, The Sports Edit, which brings new capabilities, customers and brands to the Group.
  • These brand partnerships bring broader choice, premium price points and additional expertise to M&S. In total, third-party brands across Clothing, Home and Beauty, including Jaeger, generated c.£100m of orders in 2021/22. 
  • In establishing the operation, we have made early investment in the initial capacity required for ordering and business development. At this stage, the business trades through a wholesale or commission model, with product flowing through the M&S distribution network. We expect to evolve the model to add dropship capability, enabling the sale and fulfilment of orders from partner stock.

Improving performance through addressing legacy issues

Despite the far-reaching developments and progress in the product engine, the Clothing & Home business requires further development in legacy systems, supply chain and stores to enable a more responsive business with faster speed to market, an improved returns process, lower stock levels and a lower cost to operate. 

In the current system, less effective systems configuration and interface makes planning and tracking slow and labour intensive. Teams have limited visibility to create accurate channel plans, and stock journeys from port to customer via multiple stock holding and consolidation points are lengthy and can be hard to track. The reconfiguration of systems is likely to take a number of years to implement.

The supply chain picking model can be slow and high cost to operate, resulting in a risk of trapped stock. The opportunity is to reconfigure the network to support our omni-channel needs better. In addition, the returns channel remains slow, creating excess handling cost and margin loss.  We have already identified multiple ways of reducing this; for instance preparing returns for resale in the store of return or nearby stores to enable further improvements in omni-channel availability.

So, the pattern and rhythm of product flow will be further reshaped over the next few years. This reshaping will be underpinned by a commitment to fewer, deeper strategic supplier relationships to support a faster, more flexible sourcing model which has already proved comparatively resilient during the pandemic. 

BUILDING STORE ROTATION PIPELINE DRIVING EXIT FROM LEGACY STORES

The step change in online participation and further shift of trade away from high street and city centre stores during the pandemic has increased the imperative to reduce Clothing & Home trading space. Last year we set out the objective of the M&S store rotation programme to create a modernised estate of c.180 full-line stores and a growing programme of larger, more inspirational Food stores.  We aim to fund the exit costs of the legacy estate through an increasingly active asset management and freehold disposal programme, which we expect to release at least £200m of cash proceeds.

Developing profitable rotation pipeline for full-line and food stores 

So far in the transformation, we have made significant progress in closing 68 legacy full-line stores and 19 smaller Food stores. We have also created a bigger Food store format which can serve more of the family shop and offer click-and-collect services for Clothing & Home, and opened 13 new, more efficient full-line stores.

We are now developing a growing pipeline of store relocations, moving from old multi-floor buildings, often with challenged fabric and poor access and car parking, to modern, well-located sites wherever possible in the renewal format with omni-channel capability. Moving away from town centres is not our only focus, but we recognise that in an omni-channel world, ease of shopping and fast access is critical to competitiveness, and in many cases we believe the town centre locations have lost impetus as a result of failed local authority or government policy. As a result, a high proportion, but not all, of our relocations are to the edge of town. 

Combined with the relocation programme, we are targeting an overall reduction in Clothing & Home space reflecting the rapid growth of online and our exit from the long tail of low sales density stores that deliver a small proportion of total profit. 

The full-line store pipeline already has around 15 new stores planned over the next three years, including seven former Debenhams sites, and we expect this to build further. This will help enable a further 32 store closures. Examples include:   

  • In Leamington Spa, the recent closure of related town centre stores and relocation to a full-line edge-of-town former Debenhams to create a full-line proposition is expected to pay back the net capital of £7.0m invested in the new site in 3.5 years.   
  • The relocation of Thurrock from the back of an underperforming centre with no accessible parking to the former Debenhams site by the bus station with extensive parking is expected to cost a net £8.4m and to pay back in 2.0 years.
  • The announced closure of the legacy four-floor town centre store at Colchester and opening of a new modern store in the retail park on the edge of town will cost a net £7.3m, resulting in an estimated payback of 3.2 years.

To accelerate the estate’s rotation, we are focused on driving the recapture of Clothing & Home sales from existing legacy sites either to new stores, to alternative stores or online and are trialling a number of new initiatives to increase this.

To also help enable the full-line store rotation, and to drive access to new areas of growth, we currently anticipate opening c.40 new Food stores in the next three years, largely in the 12,000-15,000 sq ft renewal format. These stores generate higher productivity and good cash paybacks.

Encouraging results from recent openings

Of the 10 M&S stores opened in 2020/21*, sales are averaging c.11% above plan, with paybacks of around 1.5 years.


10 stores opened in 2020/21


Foodhall

Full-line


Performance

vs original plan


Performance

Performance

Average annual sales (£m)

14.3

11%


12.3

18.8

Average capex (£m)

3.7

-2%


2.2

7.3

Average payback (years)

1.5

-44%


1.5

1.5

*2020/21 store openings are shown above rather than 2021/22, as these have 12 months of sales data to allow a full financial review.

INTERNATIONAL ABSORBING BREXIT RELATED COSTS BUT EMERGING GLOBAL STRATEGY ENCOURAGING

Our objective is to create a growing International business through strong partnerships and a multi-platform online business with global reach.

International sales grew 1.7% at constant currency, reflecting the continuing rebound in activity through the year and sustained growth in online sales both in markets with a store presence and through global marketplaces. Operating profit before adjusting items of £73.6m (2019/20: £110.7m) included costs and tariffs of £29.6m and an estimated trading impact in the region of £15m due to ongoing EU border issues, largely related to the Republic of Ireland following Brexit. 

Solid growth in the Middle East, India and Global Online

Together with our partners, we generated 4% growth in retail sales in 2021/22. This included a particularly good performance in the Middle East region, with growth in domestic demand.  In Asia, we saw a substantial bounce back in India following lockdown in Q1, which was partly offset by continuing restrictions in some markets. Sales in Europe reflected strength in Clothing & Home sales in the Republic of Ireland, partly offset by the impact of EU-related border issues on the Food business.   Over the past two years, online retail sales of M&S and our partners have grown by 152% and now total £251m. Following the expansion into an additional 46 territories in March 2021, we now trade in 105 markets.

Performance vs 2019/20 (%)

H1

H2

FY


Performance vs 2019/20 (%)

H1

H2

FY

Europe

4.2

7.4

5.8


Stores

-13.1

1.5

-5.7

Middle East

9.5

28.0

18.6


Online

165.7

141.1

152.2

Asia

-23.6

9.9

-6.6


Total retail sales

-2.7

11.2

4.3

Total retail sales

-2.7

11.2

4.3






Adapting to geo-political shocks: Brexit & Russia/Ukraine

During the year, the business faced the dual headwinds of the impact of EU border issues and the ending of shipments to our franchise partner in Russia as a result of the war in Ukraine. 

To mitigate EU border costs, we exited the high street franchise Food operation in France and ceased exporting chilled food to the Czech business. We continue to absorb material administration-related cost headwinds on Food exports to Ireland, because of certification, declarations and the complexity of segregation in warehouses, none of which benefit customers. We expect to be able to mitigate these costs further through increased local sourcing and by automating processes. In our Clothing & Home operation, we are planning to open a new “EU hub” in Croatia, enabling the direct flow of stock into market to fulfil orders for our partners, including marketplaces.

The M&S businesses in Russia and Ukraine have been operated by a licence holder and franchise partner and in 2021/22 generated retail sales of £102.5m and a contribution to profit before adjusting items of £5.2m.  M&S is a values-led business; therefore, as a result of the invasion of Ukraine, we ceased shipments to Russia on 3 March 2022. Subsequently, we have made the decision to fully exit our Russian franchise and we have recognised a charge of £31m in adjusting items, representing our full exit costs from Russia and business disruption in Ukraine. Unfortunately, our Ukrainian business has also been partially closed as a result of war impacts, and we are working with our partner to reopen as and when possible. 

Exploiting global growth opportunities in India, The Republic of Ireland and online

Our joint venture partnership with Reliance Retail in India opened six new stores, closed nine mostly smaller-format stores and refurbished or expanded a further six. The business is exploring multiple options for future growth, including ambitious plans to grow space, with around 10 new store openings per year and expansions in key existing locations, as well as leveraging the dedicated Indian website and pursuing growth through third-party marketplaces.

During the year we also developed and grew in-store fulfilment of Clothing & Home online orders in key markets such as the Republic of Ireland.  In addition, the partnership with Zalando has delivered substantial growth over the past year, and we expect to broaden the range available as we develop additional capabilities. 

EXTENDING AND EXPRESSING OUR SUSTAINABILITY LEAD 

M&S was a pioneer in creating an industry-leading, fully integrated sustainability plan under the “Plan A” banner, launched in 2007, which reflected values that have been core to M&S's culture since its inception.  During the year we reset Plan A with a singular focus on cutting our carbon footprint by one third by 2025 and becoming a net zero business across Scope 1, 2 and 3 by 2040.  As an own-brand retailer, M&S is very well positioned to work with its supplier partners to find better ways of doing things. We have developed a multi-stakeholder plan spanning customers, colleagues and suppliers to deliver on this target.  

This reset includes the return of the Group’s iconic “Look behind the Label” campaign, focusing customers on the stories behind five everyday products, from coffee to cotton, which are responsibly sourced.  We also identified 100 colleagues as “Carbon Champions” in leadership positions in key roles in buying, sourcing and operations and identified key targets for 2025.

Following the reset of Plan A, we agreed to link our new £850m revolving credit facility to the delivery of our net zero targets. These targets span activity on our net zero roadmap across the value chain, including commitments to zero deforestation in soy sourcing, sourcing more sustainable fibres, reducing emissions in our property estate and eliminating millions of units of single-use plastic packaging.  

During the year we launched new initiatives to help customers lead lower-carbon lives, including:

  • Removing 75 million items of plastic packaging from our food products and installing plastic take-back bins in over 500 of our stores to make it easier for customers to recycle soft plastic.
  • A new incentive programme to reward Sparks customers when they donate pre-loved clothes to our “Shwopping” partnership with Oxfam.
  • A “test and learn” trial in an important growth market, clothing rental, with a Founders Factory joint venture investment in the Zoa Group, the operator of leading clothing rental website, Hirestreet.
  • In January, a Sparking Change National Challenge, inviting 14 million Sparks customers to try a lower-carbon diet, to feel healthier and potentially save money.

While we have leading positions in customer perception, there is much more to do in Plan A to communicate our practices. In the year ahead we expect to accelerate our programmes and bring them through much more strongly to the shelf edge both within the store environment and during the online shopping experience. We believe that wider sustainability concerns are here to stay, resulting in opportunities for our brand to enter new markets. Through our deep relationships with customers through Sparks, our longstanding trusted supplier partners and our portfolio of innovation partners, we are well placed to develop customer propositions in areas such as circular fashion and low-impact farming.

BUSINESS WELL SET UP FOR THE NEXT PHASE OF TRANSFORMATION AND INFLATIONARY HEADWINDS

As we enter the next phase of the transformation, we maintain our ambition to create a business capable of sustainable growth in sales, market share and profit.  With improved profitability and cash conversion, and financial net debt under a third of 2019/20 levels, the business is resilient to the macroeconomic headwinds while having flexibility to invest in our transformation priorities.

Macroeconomic headwinds impact on performance and expectations

There is substantial inflation in both cost of goods sold and operating costs including fuel, power, building materials and maintenance. Food cost inflation is being driven not just by global supply issues but also labour shortages, border- and customs-related costs, and in some cases reduction in UK capacity by growers and producers. In Clothing & Home, factory cost prices, transport and freight costs, combined with continued supply issues in China, are driving similar pressures. 

Consequently, customers’ spending capacity is under pressure. We expect these pressures to increase as the year progresses. We are therefore planning for an adverse impact on volumes due to price inflation, slowing the rate of sales growth. 

Latest update and guidance for 2022/23

Overall trading in the first six weeks of the financial year has been ahead of the comparable periods in 2021/22, including the period from April 12, 2021 when non-essential retail reopened, with a particularly strong performance in Clothing & Home and growth in the total Food business continuing to outperform the overall market.  

While encouraging, we expect the impact of declining real incomes to sharpen in the second half and endure for at least the remainder of the financial year. There is no current sign of inflation abating, although we believe the rate of cost growth will subside by the third quarter.

However, we believe that our market positioning and business strategy will help us mitigate the effects as:

  • Our stronger value perception in both businesses will provide protection from customer downtrading;
  • Our large share in ‘for tonight’ shopping in Food, provides resilience compared with the core grocery market;
  • Travel, leisure events and weddings return, we expect to see a revival of the demand that receded in the past couple of years;
  • Some of our customers, while not immune to the pressure, have a degree of cushion from the higher savings ratio recorded during the pandemic; and
  • The experience of the past two years has illustrated the earnings balance provided by both Food and Clothing & Home and trading through stores, online and international channels.

In addition, we are taking specific steps to support performance in this environment and offset inflation.  In Clothing & Home we are taking a more flexible approach to trading and currently retain a substantial proportion of open to buy for H2. We are also starting to develop the strategic supplier programme.  We expect further benefits from the ‘lowering cost’ programme in Food and are continuing to drive digital-led efficiencies in stores and simplify ways of working in support centres.  

This year the business will not receive business rates relief and International will not have the profit contribution from Russia. As we invest in capacity growth at Ocado Retail, we anticipate a minimal contribution of share of net income to group results. Consequently, we start 2022/23 from a lower adjusted profit base. The business is now much better positioned and had an encouraging start to the year. However, given the increasing cost pressures and consumer uncertainty, we do not currently expect to progress from this lower profit base in 2022/23.

Increasing the pace of change and investing in growth

Despite the near-term challenges, the business is better set up both financially and operationally for the medium-term. The combined opportunities to both improve the infrastructure and invest in growth mean that we expect to continue to increase our investment rate, albeit subject to careful assessment and even stricter financial discipline given heightened uncertainty. As a result, and taking into account inflationary pressures, we anticipate capital expenditure will increase to around £400m in the coming year (2021/22 £300.2m excluding property acquisitions and disposals). The areas of focus and opportunity are as follows:

  • Technology investment to drive the digital transformation of M&S and systems improvement to support more responsive trading.
  • Supply chain investment to create a quicker, more efficient operation and pave the way to a modern, automated network.
  • Multiple opportunities for growth in the store estate, including investment in renewal, larger-format Food stores, rotation to modern, accessible full-line stores, and growth through franchise partnerships.

Our capital allocation decisions will continue to be guided by our ambition to grow the business while sustaining balance sheet metrics consistent with investment grade. The Board will consider the scale and timing of a resumption of dividend payments at the year end.

For further information, please contact: 

Investor Relations:                                                              

Fraser Ramzan:                     +44 (0)20 3884 7080

Jack Cook:                             +44 (0)20 3882 5535

Media enquiries:

Corporate Press Office:      +44 (0)20 8718 1919

Investor & Analyst presentation and Q&A: 

A pre-recorded investor and analyst presentation will be available on the Marks and Spencer Group plc website from 7:30am on 25 May 2022. 

Steve Rowe and Eoin Tonge will host a Q&A session at 9.30am on 25 May 2022:

Registration link here 

Dial in number: 020 3936 2999        Access Code: 559374

A recording will be available until Wednesday 01 June 2022 using the following details:

UK: 020 3936 3001

USA: 1 845 709 8569

All other locations: +44 20 3936 3001

Access Code: 045457 

Fixed Income Investor Conference Call:

This will be hosted by Eoin Tonge, Chief Finance Officer, at 2pm on 25 May 2022:

Registration link here 

Dial in number: 020 3936 2999        Access Code: 532207

A recording will be available until Wednesday 01 June 2022 using the following details:

UK: 020 3936 3001

USA: 1 845 709 8569

All other locations: +44 20 3936 3001

Access Code: 593163

FULL YEAR FINANCIAL REVIEW

Financial Summary

52 weeks ended

2 Apr 22

27 Mar 211

28 Mar 20

Change vs 20/21 % 

Change vs 19/20 %

Group statutory revenue 

10,885.1

8,961.5

10,181.9

21.5

6.9

Group sales before adjusting items

10,909.0

8,972.7

10,181.9

21.6

7.1

UK Food

6,639.6

5,994.8

6,028.2

10.8

10.1

UK Clothing & Home

3,332.2

2,198.6

3,209.1

51.6

3.8

International 

937.2

779.3

944.6

20.3

-0.8







Group operating profit/(loss) before adjusting items

709.0

209.7

590.7

238.1

20.0

UK Food

277.8

213.6

236.7

30.1

17.4

UK Clothing & Home

330.7

(129.4)

223.9

n/a

47.7

International

73.6

45.1

110.7

63.2

-33.5

M&S Bank and Services

13.0

2.0

16.8

550.0

-22.6

Share of result in associates and joint ventures

13.9

78.4

2.6

-82.3

434.6







Interest payable on lease liabilities

(115.6)

(122.5)

(133.4)

-5.6

-13.3

Net financial interest

(70.5)

(45.6)

(54.2)

54.6

30.1

Profit before tax & adjusting items

522.9

41.6

403.1

1,157.0

29.7

Adjusting items

(131.2)

(242.8)

(335.9)

-46.0

-60.9

Profit/(loss) before tax

391.7

(201.2)

67.2

n/a

482.9

Profit/(loss) after tax

309.0

(194.4)

27.4

n/a

1,027.7







Basic earnings/(loss) per share

15.7p

(9.8)p

1.3p

n/a

1,107.7

Adjusted basic earnings/(loss) per share

21.7p

1.1p

16.7p

1,872.7

29.9

Dividend per share

-

-

3.9p

n/a

n/a

Net debt

£2.70bn

£3.52bn

£3.95bn

-23.3

-31.6

Notes: 

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

Given the exceptional nature of financial results last year due to the impact of Covid, all comparatives within this Financial Review are given against 2019/20 unless otherwise stated.

In the current period, we have introduced a new APM: ‘sales’. All references to sales throughout this document are statutory revenue plus the gross value of consignment sales excluding VAT. Where third-party branded goods are sold on a consignment basis, only the commission receivable is included in statutory revenue. This new measure has been introduced given the Group’s focus on launching and growing third-party brands and is consistent with how the business performance is reported and assessed by the Board and the Executive Committee.

1 2020/21 was a 53-week year and comparative periods are on a 52-week basis. To aid understanding, we have presented the unaudited 52 weeks to 27 March 2021; however, net debt is given on a 53-week basis.

Group results

Group sales before adjusting items was £10,909.0m. Sales increased 7.1% versus 2019/20, driven by Food sales up 10.1%, Clothing & Home sales up 3.8% and International sales down 0.8%. Statutory revenue in the period was £10,885.1m, an increase of 6.9% versus 2019/20. The Group generated an adjusted profit before tax of £522.9m and a statutory profit before tax of £391.7m.

UK business rates relief of £59.8m (2020/21: £172.2m) helped to compensate for the continuing loss of trade from lower footfall to Clothing & Home stores in the UK, and in the Food hospitality business which was closed until mid-May 2021 and continues to trade well below 2019/20 levels.

Statutory profit before tax includes total charges for adjusting items of £131.2m. 

For full details on adjusting items and the Group’s related policy, see notes 1 and 3 to the financial information.

UK: Food 

UK Food sales increased by 10.1%, driven by the performance of core categories, partly offset by reduced sales from the recovering franchise and hospitality businesses. Excluding franchise and hospitality, sales grew 14.7%.

Change vs 19/20 %


Q1

Q2

Q3

Q4

FY

Food


9.4

11.5

12.4

7.0

10.1

Food ex franchise and hospitality


17.0

16.8

16.4

8.6

14.7

M&S Food reported sales do not benefit from a direct online grocery presence, with these sales instead reported through Ocado Retail.

52 weeks ended


2 Apr 22


27 Mar 21

28 Mar 20

Change vs 19/20 %

Footfall, m (average/week)

10.1

8.0

11.8

-14.4

Transactions, m (average/week)

8.0

5.6

9.3

-14.0

Basket value inc VAT (£) 

15.9

20.6

12.6

26.2

Total sales ex VAT £m1

6,639.6

5,994.8

6,028.2

10.1

1 Includes M&S.com

Footfall in the period, while recovering, remained below 2019/20, with a similar trend for the number of transactions. Revenue was driven by increased basket value as customers used M&S for more of their everyday shop. However, basket size has declined compared to 2020/21 driven by the gradual recovery of our hospitality and food-on-the-move businesses, which typically have smaller baskets, as well as a reduction in “core” basket size through the year as Covid tailwinds reduced. Although customer behaviour started to normalise in Q4, metrics remained ahead of 2019/20 levels.

52 weeks ended 

2 Apr 22

£m

27 Mar 21

£m

28 Mar 20

£m

Change vs 19/20 %

Sales1

6,639.6

5,994.8

6,028.2

10.1

Operating profit before adjusting items

277.8

213.6

236.7

17.4

Operating margin

4.2%

3.6%

3.9%

30 bps

1 ‘Sales’ is equal to revenue within the Food business.

The Food business in total generated operating profit before adjusting items of £277.8m compared with £236.7m in 2019/20. 

The table below sets out the drivers of the movement in Food operating profit margin before adjusting items over two years.

Operating profit margin before adjusting items

%

2019/20 

3.9

Gross margin

0.2

Store staffing

1.4

Other store costs

0.4

Distribution and warehousing

(1.1)

Central costs

(0.6)

2021/22     

4.2

  • Gross margin increased c.20bps. The improvement in margin rate was a result of cost-saving programmes, including Ocado synergies, as well as lower net waste and reduced sales in our lower gross margin Franchise business. This was partly offset by investment in price, reduced sales from our higher-margin Hospitality offering, and additional warehousing and freight charges within margin. 
  • Store staffing costs decreased c.140bps, primarily driven by retail restructuring efficiencies enabled by technology improvements in store and ongoing initiatives, partly offset by investment in colleague pay rates and Covid-related costs such as door hosts.
  • The c.40bps decrease in other store costs relates to government business rates relief of £24.6m and lower depreciation charges as legacy store modernisations come to the end of their useful economic lives, partly offset by an increase in maintenance and store standards spend.
  • Distribution and warehousing costs increased c.110 bps, reflecting investment in the Milton Keynes ambient depot to support volume growth, higher pay, incentives and sub-contracting related to warehouses and haulage, the cost to serve of online orders, and inefficiencies from EU border-related processes for serving Northern Ireland.
  • Central costs increased c.60bps, driven by investments in technology, data and digital initiatives, including in forecasting, ordering and allocation systems, as well as colleague incentives. This was partly offset by technology savings from optimising the cost base and a reduction in the depreciation of technology assets as they reach the end of their useful lives.

Ocado Retail Ltd

The Group holds a 50% interest in Ocado Retail Ltd ("Ocado Retail"). The remaining 50% interest is held by Ocado Group plc ("Ocado Group"). Full Year Results are consistent with the quarterly results reported by Ocado Group on behalf of Ocado Retail for the quarterly periods ended 30 May 2021, 29 August 2021, 28 November 2021 and 27 February 2022.

All commentary in this section is against 2020/21 comparatives, as the acquisition of the investment in Ocado Retail Ltd by M&S was made part-way through 2019/20.



Q1

Q2

Q3

Q4

Revenue growth vs 2020/21 (%)


8.4

-10.6

-3.9

-5.7

Active customers (k)


777

769

832

835

Average orders per week (k)


383

338

375

367

Notes: Retail revenue comprises revenues from Ocado.com and Ocado Zoom and excludes revenues from Fetch in current and prior periods. Average orders per week refers to results of Ocado.com

Revenue declined 4.4% compared to 2020/21 (-3.0% excluding Fetch) as trade annualised against sales growth during three national lockdowns in 2020 and towards the end of H1 was impacted by the fire at the Erith CFC on 16 July. These impacts were partly offset by the ongoing capacity roll-out in the period. M&S products continue to account for over 25% of the average Ocado basket. 

£m

52 weeks ended 27 February 2022

52 weeks ended 28 February 2021

Change

%

Revenue

2,248.8

2,353.2

-4.4





EBITDA before exceptional items

104.8

189.9

-44.8

Exceptional items

(14.4)

50.5

-128.5

Depreciation and amortisation

(41.3)

(36.2)

-14.1

Operating profit

49.1

204.2

-76.0





Profit after tax

27.8

156.8

-82.3

M&S 50% share of profit after tax

13.9

78.4

-82.3









Ocado Retail Ltd is reported as an associate of M&S as certain rights are conferred on Ocado Group plc for an initial period of at least five years from acquisition. It is expected that full consolidation of Ocado Retail Ltd by Ocado Group plc will continue for at least five years from the formation of the joint venture, after which it is anticipated that control of the joint venture will pass to M&S following which it will consolidate the joint venture. Exceptional items are defined within the Ocado Group plc Annual Report and Accounts 2021. 

Ocado Retail EBITDA before exceptional items was down 44.8%, reflecting the normalisation of basket size and shape of week as well as an increasing higher percentage of immature capacity as we open new CFCs.

In addition, Ocado Retail has recognised £14.4m of net exceptional costs before tax, including £6.8m exceptional costs relating to the fire at Erith CFC and £6.2m relating to the development and introduction of IT systems as we transition away from Ocado Group IT services, tools and support. Exceptional items in the prior period relate primarily to the Andover fire insurance receipts.

As a result of lower EBITDA and net exceptional costs, Group share of Ocado Retail profit after tax was £13.9m. 

UK: Clothing & Home

Clothing & Home sales increased 3.8% as the continued growth of the online business offset the decline in store sales due to lower footfall. The online business remained robust throughout the period.  

Change vs 19/20 %

Q1

Q2

Q3

Q4

FY

Clothing & Home sales

-4.2

2.0

3.2

17.3

3.8

Clothing & Home stores sales

-21.2

-14.3

-10.9

5.6

-11.2

Clothing & Home online sales

59.2

62.3

50.8

52.1

55.6

Clothing & Home statutory revenue

-4.6

1.4

2.4

16.0

3.1

Comparative figures in Q4 are impacted by the first Covid national lockdown, which we estimated had a £78m adverse impact on sales at the time, predominantly in stores. Adjusting for this, Clothing & Home sales increased c.3.9% in Q4 and c.1.4% for the full year. 

Online

52 weeks ended


2 Apr 22


27 Mar 21

28 Mar 20

Change vs 19/20 %

Traffic (m)1

405.7

417.5

308.8

31.4

Active customers (m)2

9.0

9.0

5.9

52.5

Conversion (%)3

7.0

7.2

6.3

+70 bps

Average order value inc VAT pre returns (£)

55.4

49.7

51.5

7.6

Returns rate (%)

25.8

18.6

28.0

- 220 bps

Sales ex VAT £m 

1,122.7

1,109.7

721.3

55.6

1 Traffic: the number of site visits to M&S.com and the app.

2 Active customers: the number of unique customers who have made a purchase in the prior 52 weeks.

3 Conversion: the number of orders as a % of the number of site visits.

Following growth in 2020/21, online sales remained robust, with growth on both a one- and two-year basis for the full year, despite elevated comparatives in Q4 2020/21 from the third national lockdown. Online traffic through the app was up over 200% on 2019/20 following the relaunch of Sparks in July 2020, which has helped to drive the increase in active customers. Increased app usage has driven better conversion and, encouragingly, app conversion for the full year remains consistent with H1 at over 9%.

As anticipated, as customer habits reverted to pre-pandemic trends, returns rates have normalised towards 2019/20 levels through the year. Average order value (“AOV”) was ahead of 2019/20 levels driven by a full-price trading stance which increased average selling price (“ASP”), along with the benefit of third-party brands.

Stores

52 weeks ended


2 Apr 22


27 Mar 21

28 Mar 20

Change vs 19/20 %

Footfall, m (average/week)

4.0

1.9

5.9

-32.2

Transactions, m (average/week)

1.7

1.0

2.1

-19.0

Average basket value inc VAT pre returns (£)

34.9

30.6

32.3

8.0

Sales ex VAT £m 

2,209.5

1,088.9

2,487.8

-11.2

UK Clothing & Home store sales decreased 11.2%: Average weekly footfall was below 2019/20 levels in the period, with the business continuing to be adversely impacted by the shape of the store estate. Excluding March, sales in high streets and city centres were down 22% and 26% respectively, while sales in retail parks were up c.1% on 2019/20 levels.   

Total Clothing & Home

The Clothing & Home business in total generated an operating profit before adjusting items of £330.7m compared with £223.9m in 2019/20. 

52 weeks ended 

2 Apr 22

£m

27 Mar 21

£m

28 Mar 20

£m

Change vs 19/20 %

Revenue before adjusting items

3,308.3

2,198.6

3,209.1

3.1






Sales

3,332.2

2,198.6

3,209.1

3.8

Operating profit/(loss) before adjusting items

330.7

(129.4)

223.9

47.7

Operating margin

9.9%

-5.9%

7.0%

290 bps

The table below sets out the drivers of the movement in Clothing & Home operating profit before adjusting items over two years.

Operating profit margin before adjusting items

%

2019/20

7.0

Gross margin

1.5

Store staffing

2.6

Other store costs

1.5

Distribution and warehousing

(1.7)

Central costs

(1.0)

2021/22

9.9

  • Gross margin increased c.150bps. The continuing benefit of increased full-price trading and lower stock into sale more than offset cost headwinds of adverse currency movements and additional freight and warehousing costs.
  • Store staffing costs decreased c.260bps, primarily driven by retail restructuring efficiencies enabled by technology improvements in store and ongoing initiatives as well as lower variable staffing costs from reduced volumes. These impacts more than offset investment in colleague pay rates. 
  • The decrease in other store costs of c.150bps largely relates to government business rates relief of £35.2m, with lower depreciation charges relating to legacy store modernisations offset by increased maintenance costs in the store estate and reduced rates rebates.
  • Distribution and warehousing increased c.170bps, largely relating to the higher costs to serve online demand, including an increased proportion of home deliveries, as well as increased pay rates, haulage incentives and fuel inflation. Note the higher courier costs of home deliveries were offset by delivery income, which is reported within sales. These overall higher costs were partly offset by savings from lower volumes and cost-reduction programmes. 
  • The increase in central costs of c.100bps was driven by investments in technology, data and digital initiatives, colleague incentives, additional costs to support brands, and higher pay-per-click marketing activity to drive online growth. This was partly offset by a reduction in the depreciation of technology assets as they reach the end of their useful lives.

Clothing & Home online generated an adjusted operating profit margin of c.9%, with the reversion towards 2019/20 returns rates reducing margin year-on-year as anticipated, as well as investments in data and digital initiatives to drive future growth. The adjusted operating profit in stores represented a margin on sales of c.10%, or approximately 9% after excluding the benefit of rates relief.

International

International sales increased 1.7% at constant currency (“CC”) despite the continued impact of Covid on Asian markets, in particular in India during Q1, and the disruption and complexity arising from new EU border processes in Food supply chains, predominantly in France and the Republic of Ireland. There was solid growth in the Middle East and online sales continued to grow on both a one- and two-year constant currency basis, with both our own websites and marketplaces driving growth of 125.5% as we retained customers acquired during the lockdowns in 2020/21.

Change vs 19/20 %

Q1

CC

Q2

CC

Q3

CC

Q4

CC

FY

CC

FY

Reported

Total sales

-6.1

-0.3

5.1

7.9

1.7

-0.8

52 weeks ended


Sales1

2 Apr 22

£m

27 Mar 21

£m

28 Mar 20

£m


Change vs 19/20 %


Change vs 19/20 CC %

Clothing & Home 

654.2

 483.2

 620.7

5.4

9.1

Food

283.0

 296.1 

 323.9 

-12.6

-12.1

Total

937.2

779.3

944.6

-0.8

1.7

Memo: Online sales

172.5

 165.7 

77.2 

123.4

125.5

1 ‘Sales’ is equal to revenue within the International business.

Clothing & Home sales recovered to above 2019/20 levels, driven by robust growth in online sales and exceptionally strong shipments to the Middle East. India was heavily impacted in Q1 by Covid (c.-61% vs 2019/20) and again in Q4 (c.-3% excluding March vs 2019/20), but overall retail sales in the market grew 6%. Trading in the rest of Asia remained challenging. We saw a similar shape of trade in European owned markets, with Clothing & Home in the Republic of Ireland performing robustly.

Food sales declined due to disruption caused by EU border-related processes in European markets. This has resulted in significant cost and complexity in servicing the Republic of Ireland and a restructuring of our Food operations in continental Europe. Excluding France, Food sales were level with 2019/20.

Operating profit before adjusting items was down 33.5%, driven principally by the additional costs of new EU border processes and tariffs of £29.6m, and associated trade impacts such as lower availability and higher waste, which we estimate reduced gross profit by a further c.£15m.

The table below sets out the drivers of the movement in International operating profit margin before adjusting items over two years.

Operating profit margin before adjusting items

%

2019/20

11.7

Gross margin

(0.1)

Store staffing

1.0

Other store costs

1.0

Distribution and warehousing

(3.0)

Central costs

(2.7)

2021/22

7.9

  • Gross margin declined c.10bps primarily as a result of additional tariffs and waste due to inefficiencies from EU border-related processes for serving the Republic of Ireland. This was partly offset by growth of the online business.
  • Store staffing costs decreased c.100bps primarily as a result of efficiency savings from retail restructuring in the Republic of Ireland. 
  • The c.100bps movement in other store costs largely relates to government relief in owned markets and rent concessions in India, which resulted in one-off savings in the period. 
  • Distribution and warehousing increased c.300bps, reflecting higher operational and administrative costs associated with EU border-related processes, as well as higher costs to serve online demand.
  • Central costs increased c.270bps, driven by higher marketing spend associated with the growth of the online channel and colleague incentives.

M&S Bank and Services

M&S Bank and Services profit before adjusting items was down £3.8m to £13.0m. Adjusting items charges of £16.0m have been incurred relating primarily to the insurance mis-selling provision, resulting in a statutory loss of £(3.0)m. 

Lower demand for unsecured credit and travel money is the primary driver for the lower profits.  This was largely offset by the release of bad debt provisions, as economic conditions proved more favourable than anticipated.

Net finance cost


52 weeks ended

2 Apr 22

£m

27 Mar 21

£m

28 Mar 20

£m

Change vs 19/20 £m

Interest payable

(85.1)

(89.9)

(80.5)

(4.6)

Interest income

9.6

4.7

14.5

(4.9)

Net interest payable

(75.5)

(85.2)

(66.0)

(9.5)

Pension net finance income

13.2

47.2

23.6

(10.4)

Unwind of discount on Scottish Limited Partnership liability

(4.4)

(4.9)

(6.9)

2.5

Unwind of discount on provisions

(3.8)

(2.7)

(4.9)

1.1

Net financial interest

(70.5)

(45.6)

(54.2)

(16.3)






Net interest payable on lease liabilities

(115.6)

(122.5)

(133.4)

17.8






Net finance costs before adjusting items

(186.1)

(168.1)

(187.6)

1.5

Adjusting items included in net finance costs

5.6

(6.8)

-

5.6

Net finance costs

(180.5)

(174.9)

(187.6)

7.1

Net finance costs before adjusting items decreased £1.5m to £186.1m. Lower pension income due to the reduced IAS 19 pension surplus compared with 2019/20 and the reversal of ineffectiveness on a currency swap within interest income in 2019/20 offset a reduction in the net interest payable on lease liabilities.

Group profit before tax and adjusting items

Group profit before tax and adjusting items was £522.9m, up 29.7% on 2019/20. The profit increase was driven by adjusted operating profit growth in Clothing & Home and Food and the additional profit from the Ocado joint venture, offset by a reduction in International and M&S Bank operating profits. 

Group profit before tax

Group profit before tax was £391.7m, up £324.5m on 2019/20. This includes net charges for adjusting items of £131.2m (2019/20: £335.9m). 

Adjusting items

The Group makes certain adjustments to statutory profit measures in order to derive alternative performance measures (APMs) that provide stakeholders with additional helpful information and to aid comparability of the performance of the business. For further detail on these charges/gains and the Group’s policy for adjusting items, please see notes 1 and 3 to the financial information. 


52 weeks ended

2 Apr 22

£m

53 weeks ended

3 Apr 21

£m

52 weeks ended

28 Mar 20

£m

Change vs 19/20


£m

Strategic programmes – UK store estate

(161.4)

(95.3)

(29.3)

(132.1)

Strategic programmes – UK logistics

21.9

(2.2)

(10.2)

32.1

Strategic  programmes – Organisation

14.3

(133.7)

(13.8)

28.1

Strategic programmes – International store closures and impairments

0.4

(3.6)

(17.1)

17.5

Store impairments, impairment reversals and other property charges 

60.0

6.9

(78.5)

138.5

Amortisation and fair value adjustments arising from the investment in Ocado Retail Limited

(32.5)

(14.2)

(16.8)

(15.7)

Directly attributable to Covid

17.8

90.8

(163.6)

181.4

M&S Bank charges incurred in relation to insurance mis-selling provisions

(16.0)

(2.4)

(12.6)

(3.4)

Franchise restructure

(41.3)

-

-

(41.3)

Intangible asset impairments

-

(79.9)

(13.4)

13.4

Sparks loyalty programme transition

-

(16.6)

-

-

Establishing the investment in Ocado Retail Limited

-

(1.7)

(1.2)

1.2

Remeasurement of contingent consideration including discount unwind 

5.6

(6.8)

(2.9)

8.5

Other

-

(1.0)

23.5

(23.5)

Adjusting items

(131.2)

(259.7)

(335.9)

204.7

Adjusting items net charges incurred in the period were £131.2m.

UK store estate

A charge of £161.4m has been recognised in relation to store closures identified as part of UK store estate rotation plans. The charge reflects a revised view of latest store exits and underlying assumptions around estimated store closure costs, as well as charges relating to the impairment of buildings and fixtures and fittings, and depreciation as a result of shortening the useful economic life of stores. Further charges relating to the closure and rotation of the UK store estate are anticipated as the programme progresses, with total future charges of up to c.£200m over the next nine financial years, bringing the anticipated total programme costs since 2016 to c.£1bn. The anticipated total programme costs do not include any costs that may arise in relation to a further c.30 stores currently under consideration for closure within the next nine years. At this stage these c.30 stores remain commercially supportable and in the event of a decision to close the store the exit routes are not yet certain.


Incurred up to 

3 Apr 21 £m


Incurred in 52 weeks ended 

2 Apr 22 £m


P&L

Cash


P&L

Cash

PPE and ROU asset impairments

 (452.2)

 n/a 


 (81.0)

 n/a 

Accelerated depreciation

 (175.3)

 n/a 


 (50.7)

 n/a 

Closed store rent, rates and onerous leases net of sublet income

 (23.1)

 (26.1)


 (16.4)

 (10.9)

Redundancy

 (9.9)

 (7.0)


 (2.4)

 (0.7)

Profit/(loss) or cash proceeds/(outflows) on disposal/surrender

 (3.8)

 11.4 


 (3.7)

 (3.2)

Closure costs, strips, dilapidations

 10.3 

 (39.7)


 (4.0)

 (11.0)

Other

 (3.6)

 (9.0)


 (3.2)

 (4.4)

Total

 (657.6)

 (70.4)


 (161.4)

 (30.2)1

1Cash outflows include rent, reported within cash lease payments in the cash flow, and proceeds on disposal/surrender, which is net off against capex in the cash flow. Therefore, these cash outflows do not tie to UK store estate cash adjusting items

Other adjusting items

A net credit of £21.9m has been recognised in the period relating to UK logistics, reflecting in large part a gain on the disposal of distribution centres. 

A credit of £14.3m has been recognised in relation to organisational change. This credit largely relates to an £11.9m reversal of an impairment associated with the centralising of the Group’s London support office functions, with the remainder reflecting the finalisation of previous redundancy costs associated with this programme. No provision remains at the year end and there are no further charges anticipated.

In response to the strong Group performance and lifting of government restrictions, a credit of £63.4m has been incurred for the reversal of store impairments recognised in adjusting items in previous periods, partly offset by a £3.4m charge primarily relating to the impairment of assets in certain stores.

A charge of £41.3m has been recognised relating to the restructuring of certain International franchise operations. In September 2021, the Group restructured our French operations after an assessment of the profitability of the business under increased EU border costs and tariffs, at a cost of £10.3m. In March 2022, the Group made the decision to fully exit its Russian franchise. As a result, the Group has recognised a charge of £31.0m representing the Group’s full exit costs from Russia and business disruption in Ukraine.

A charge of £32.5m has been recognised with respect to the amortisation of intangible assets acquired on the purchase of our share in Ocado Retail and related deferred tax charges of £14.9m predominantly relating to the substantive enactment of the Finance Act 2021 during the period, which will increase the UK’s main corporation tax rate from 19% to 25% from 1 April 2023.

A gain of £17.8m has been recognised as being directly attributable to the Covid pandemic. This relates mostly to the release of the remaining inventory provision made in adjusting items in 2019/20, driven by the sell-through of Clothing & Home stock being greater than anticipated.

Charges of £16.0m have been incurred relating to M&S Bank, primarily due to the insurance mis-selling provision. The total charges recognised in adjusting items since September 2012 for PPI is £326.3m, which exceeds the total offset against profit share of £259.0m to date; this deficit will be deducted from the Group’s share of future profits from M&S Bank.

Taxation

The effective tax rate on profit before adjusting items was 18.2% (2019/20: 20.7%; 2020/21: 50.3% on a 53-week basis). As part of cash-optimisation measures, no payments were made to the Marks and Spencer Scottish Limited Partnership (“SLP”) during the year. As such, there has been no recapture of previous tax relief, resulting in a lower effective tax rate than prior years. 

As well as there being no recapture of previous tax relief under the SLP structure in the period, future changes to the UK statutory corporation tax rate result in deferred tax assets being recognised at the higher substantively enacted rate of 25%. Restating these deferred tax assets from a rate of 19% to 25% results in a tax credit in the period, reducing the effective tax rate. 

The effective tax rate on statutory profit before tax was 21.1% (2019/20: 59.3%; 2020/21: 3.9% credit on a statutory loss on a 53-week basis), which was higher than the effective tax rate on profit before adjusting items due to the impact of disallowable adjusting items.

Next year, we anticipate an effective tax rate on profit before adjusting items higher than the UK corporation tax rate of 19%, principally due to the recapture of previous tax relief as payments to the SLP resume.

Earnings/loss per share

Basic earnings per share was 15.7p (2019/20: 1.3p; 2020/21: loss of 10.1p on a 53-week basis), due to the increase in profit year-on-year. The weighted average number of shares in issue during the period was 1,958.1m (2019/20: 1,894.9m ; 2020/21: 1,953.5m). 

Adjusted basic earnings per share was 21.7p (2019/20: 16.7p; 2020/21:1.4p on a 53-week basis) due to higher adjusted profit year-on-year.  

Cash flow


52 weeks ended 

2 Apr 22

£m

53 weeks ended 

3 Apr 21

£m

52 weeks ended

28 Mar 20

£m

Change 

vs 19/20

£m

Adjusted operating profit

709.0 

222.2 

590.7 

118.3 

Depreciation and amortisation before adjusting items

510.7 

603.1 

632.5 

(121.8)

Cash lease payments

(344.3)

(316.6)

(335.7)

(8.6)

Working capital

239.7 

268.1 

(67.8)

307.5 

Defined benefit scheme pension funding

(36.8)

(37.1)

(37.9)

1.1 

Capex and disposals

(213.5)

(203.8)

(325.9)

112.4 

Financial interest 

(79.9)

(76.0)

(79.5)

(0.4) 

Taxation

(7.7)

(5.8)

(91.6)

83.9

Acquisitions, investments and divestments

(41.4)

8.7

(580.3)

538.9

Employee-related share transactions

39.1 

18.5 

9.7 

29.4 

Proceeds from rights issue net of costs

-

574.4 

(574.4)

Share of (profit)/loss from associate

(13.9)

(78.4)

(2.6)

(11.3)

Cash received from settlement of derivatives

14.0 

7.7 

(7.7)

Adjusting items outflow

(61.8)

(120.5)

(88.0)

26.2 

Free cash flow 

699.2 

296.4 

205.7 

493.5 

Dividends paid

-

(191.1)

191.1 

Free cash flow after shareholder returns

699.2 

296.4 

14.6 

684.6 






Opening net debt excluding lease liabilities

(1,110.0)

(1,388.6)

(1,404.7)

294.7 

Free cash flow after shareholder returns

699.2 

296.4 

14.6 

684.6 

Exchange and other non-cash movements excluding leases

(9.3)

(17.8)

1.5 

(10.8)

Closing net debt excluding lease liabilities

(420.1)

(1,110.0)

(1,388.6)

968.5 






Opening net debt

(3,515.9)

(3,950.6)

(3,981.5)

465.6 

Free cash flow after shareholder returns

699.2 

296.4 

14.6 

684.6 

Decrease in lease obligations

216.0 

184.3 

201.4 

14.6 

New lease commitments and remeasurements

(100.6)

(48.3)

(204.1)

103.5 

Exchange and other non-cash movements

2.5 

2.3 

19.0 

(16.5)

Closing net debt

(2,698.8)

(3,515.9)

(3,950.6)

1,251.8 

The business generated free cash flow of £699.2m, largely driven by the recovery in EBITDA, working capital inflow and reduced cash tax and capital expenditure.

Cash lease payments increased £8.6m partly as a result of rental payments which were deferred from last year into this year as part of cash conservation measures enacted at the start of the pandemic. Cash lease payments relating to stores identified as part of the UK store estate strategic programme which are probable for closure totalled £54.8m.

For further detail on working capital movements, refer to the section below.

Defined benefit scheme pension funding of £36.8m reflects the SLP interest distribution to the pension scheme. 

For capex and disposals, refer to the section below. 

The reduction in tax payments of £83.9m is due to no UK corporation tax being paid in the period. This is driven by the utilisation of carried-forward tax losses from 2020/21.

Acquisitions, investments and divestments were driven principally by the payment of £33.8m of contingent consideration relating to the investment in Ocado Retail Ltd in the period. The final contingent payment for Ocado Retail Ltd of c.£156m plus interest will be paid in financial year 2024/25 if a specified target level of earnings in the financial year ending November 2023 is achieved. Based on the latest five-year plan of Ocado Retail Ltd, the performance target is expected to be met.

Other acquisitions and investments in the period include the strategic investment in the fast-growing brand platform “The Sports Edit”, a minority stake and funding for “Nobody’s Child” and a cornerstone investment in True Capital Limited’s seed-stage fund. These investments were offset by income from the disposal of a property investment company.

Employee-related share transactions cash inflows increased due to a change in policy to no longer purchase shares for issue in colleague incentive schemes, increased deferred colleague incentive share scheme payments, and increased uptake of employee share schemes during the pandemic.

Adjusting items cash outflow was £61.8m. This included £16.5m relating to the UK store estate strategy, £16.0m relating to the M&S Bank insurance mis-selling provisions, £15.9m of organisational restructuring costs largely relating to the Republic of Ireland, £9.4m largely relating to the restructuring of our French operations, and £3.7m for the restructuring of the UK Clothing & Home logistics network.

Working capital

The business generated £508m cash inflow from working capital over the past two years. 

Most of this was driven by payables, partly as a result of changes to payment terms for Clothing & Home suppliers, in addition to higher outstanding payments over year end as a result of business growth.

As previously reported, receivables remain at a lower level than pre-Covid, partly due to the adverse impact of the pandemic on our Food franchise business.

Stock increased slightly over the period, driven primarily by inventory build in the Food business as we approached the end of March, as well as the timing of Clothing & Home intake over year-end.

As part of our focus on deeper, strategic supplier relationships, we are improving supplier payment terms in both Clothing & Home and Food. In Clothing & Home, we anticipate the benefits of longer supplier terms within these results to partially reverse in the coming year.

Capital expenditure



52 weeks ended 

2 Apr 22

£m

53 weeks ended 

3 Apr 21

£m

52 weeks ended 

28 Mar 20

£m

Change vs 19/20

£m

UK store remodelling

50.1

27.0

60.3

(10.2)

New UK stores

49.9

14.9

33.3

16.6

International

18.2

6.7

15.7

2.5

Supply chain

28.6

25.2

39.2

(10.6)

IT and M&S.com

68.2

47.6

81.1

(12.9)

Property asset replacement 

85.2

19.2

102.4

(17.2)

Acquisition of Jaeger brand

-

6.3

-

-

Capital expenditure before property acquisitions and disposals

300.2

146.9

332.0

(31.8)

Property acquisitions and disposals

(43.9)

(0.3)

(2.7)

(41.2)

Capital expenditure

256.3

146.6

329.3

(73.0)

Movement in capital accruals

(42.8)

57.2

(3.4)

(39.4)

Capex and disposals as per cash flow

213.5

203.8

325.9

(112.4) 








Group capital expenditure before disposals decreased £31.8m to £300.2m compared to 2019/20; however, it was up on 2020/21 as we increased investment in the transformation.

UK store remodelling costs related principally to 22 full line and food renewal stores, some of which have not yet opened, as well as upgrades to Clothing & Home space.

Spend on new UK stores primarily related to eight new or extended Simply Foods and seven new or extended full-line stores in the current year, some of which have not yet opened.

Supply chain expenditure reflects the expansion of our Bradford warehouse to support online growth in Clothing & Home, Food equipment purchases, and investment in our Milton Keynes Food depot to support capacity increases. 

IT and M&S.com spend includes costs related to technology replacement and upgrades in stores, the development of the Food ordering and allocation system and buying portals, website development and ongoing investment in digital capability in the support centre and stores.

Property asset replacement normalised towards 2019/20 levels as replacement of core assets across the estate, which had been de-prioritised during 2020/21 due to cash conservation measures, was re-prioritised. This includes roof works and replacement of fridges, freezers, boilers, lifts and escalators.

Property acquisitions and disposals primarily relates to cash inflows from the disposal of two warehouses in the third quarter.

Capital accruals were higher at year-end compared to 2020/21 as transformation spend increased in the second half. It should be noted that 2020/21 capital expenditure cash flow included some accrued spend relating to 2019/20.

Net debt

Group net debt decreased by £1.25bn compared to 2019/20, driven by free cash flow generation, and by £0.8bn since the start of the year.

There was a further reduction in the value of discounted lease obligations outstanding since the start of the year. New lease commitments and remeasurements in the period were £100.6m, largely relating to 20 new UK leases, lease additions in India and UK property and logistics liability remeasurements. This was more than offset by £216.0m of capital lease repayments.

The composition of Group net debt is as follows:


52 weeks ended 

2 Apr 22

£m

53 weeks ended 

3 Apr 21

£m

52 weeks ended

28 Mar 20

£m

vs 19/20


£m

Cash and cash equivalents

 1,197.9 

 674.4 

 254.2 

943.7

Medium Term Notes

 (1,529.5)

 (1,682.1)

 (1,536.2)

6.7

Current financial assets and other

 99.4 

 83.2 

 96.1 

3.3

Partnership liability to the UK DB pension fund

 (187.9)

 (185.5)

 (202.7)

14.8

Net debt excluding lease liabilities

 (420.1)

 (1,110.0)

 (1,388.6)

968.5






Lease liabilities

 (2,278.7)

 (2,405.9)

 (2,562.0)

283.3

- Full-line stores

(919.5)

 (982.6)

 (1,054.8)

135.3

- Simply Food stores

(712.8)

 (727.0)

 (747.7)

34.9

- Offices, warehouses and other

 (449.5)

 (494.5)

 (523.7)

74.2

- International

 (196.9)

 (201.8)

 (235.8)

38.9

Group net debt

 (2,698.8)

 (3,515.9)

 (3,950.6)

1,251.8

Full-line store liabilities include £225.3m relating to stores identified as part of the UK store estate strategic programme. We are seeking to fund the closure costs of rotation of the store estate with the realisation of funds from our asset management programme. 

Of the remaining full-line stores lease liability, the average liability-weighted lease length is c.25 years, although the average lease term to break is shorter at c.19 years. However, these average lease lengths are skewed by five particularly long leases we hold, with the longest of these having 135 years remaining. These five leases, with a combined lease liability of c.£100m, are not deemed probable for closure in our UK store estate programme as they are currently trading well in locations we wish to remain in. Excluding these five leases, the average lease term to break is c.14 years.

Simply Food store liabilities include £30.9m relating to stores identified as part of the UK store estate strategic programme. Of the remaining lease liability, the average lease length to break is c.10 years.

Within offices, warehouses and other, £144.9m relates to the sublet lease on our Merchant Square offices. Average lease length of all other offices and warehouses to break is c.7 years.

International leases relate primarily to India (c.£85m) and Ireland (c.£66m). Average lease length to break in India is close to nil, as most of these leases are past the break point, and so we have the flexibility to exit these at any time on several months’ notice. Average lease length to break in Ireland is c.10 years.

Liquidity

At 2 April 2022, the Group held cash balances of £1,197.9m (2019/20: £254.2m). In addition, during the year the Group agreed a new £850m revolving credit facility expiring in June 2025 on terms linked to delivery of its net zero roadmap. With the facility undrawn, the Group now has liquidity headroom of £2.1bn. This liquidity position is as a result of free cash flow performance.

As part of our approach to liability management we have announced a tender offer for c.£150m of our near-term debt maturities.

Dividend

We did not pay a dividend for 2020/21, and the Board has decided not to pay a dividend this year.

This is consistent with the announcement at the half-year results that payment of a dividend this financial year would be unlikely as we focus on restoring sustainable profitability and recovering balance sheet metrics consistent with investment grade.

Pension

At 2 April 2022, the IAS 19 net retirement benefit surplus was £1,038.2m (2020/21: £631.4m).  The increase was largely driven by an increase in discount rates towards the end of the period.

The most recent actuarial valuation of the UK DB Pension Scheme was carried out as at 31 March 2018 and showed a funding surplus of £652m. This is an improvement on the previous position at 31 March 2015 (statutory surplus of £204m), primarily due to lower assumed life expectancy. We continue to work constructively with the Trustees of the UK DB Pension Scheme with regard to agreeing the triennial actuarial valuation of the scheme as at 31 March 2021. Consequently, the results of the valuation are not yet finalised, although it is likely that there will continue to be a surplus.

With the pensioner buy-in policies purchased in September 2020, April 2019 and March 2018, the scheme has now, in total, insured around 80% of the pensioner cash flow liabilities for pensions in payment. The buy-in policies cover specific pensioner liabilities and pass all risks to an insurer in exchange for a fixed premium payment, thus reducing the Group’s exposure to changes in longevity, interest rates, inflation and other factors.

Statement of financial position

Net assets were £2,917.9m at the period end, an increase of 27.7% since the start of the year largely due to free cash generation. 

Important Notice:

Statements made in this announcement that look forward in time or that express management's beliefs, expectations or estimates regarding future occurrences and prospects are "forward-looking statements" within the meaning of the United States federal securities laws. These forward-looking statements reflect Marks & Spencer's current expectations concerning future events and actual results may differ materially from current expectations or historical results. Any forward-looking statements are subject to various risks and uncertainties, including, but not limited to, failure by Marks & Spencer to predict accurately customer preferences; decline in the demand for products offered by Marks & Spencer; competitive influences; changes in levels of store traffic or consumer spending habits; effectiveness of Marks & Spencer's brand awareness and marketing programmes; general economic conditions including, but not limited to, those related to the Covid-19 pandemic or a downturn in the retail or financial services industries; acts of war or terrorism worldwide; work stoppages, slowdowns or strikes; and changes in financial and equity markets. For further information regarding risks to Marks & Spencer’s business, please consult the risk management section of the 2022 Annual Report (pages 45-54).

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

- Ends -

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