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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Marks And Spencer Group Plc | LSE:MKS | London | Ordinary Share | GB0031274896 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.80 | 0.31% | 261.50 | 261.60 | 261.80 | 262.80 | 259.10 | 262.20 | 10,873,335 | 16:35:10 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Misc General Mdse Stores | 11.93B | 363.4M | 0.1842 | 14.21 | 5.16B |
From Apr 2019 to Apr 2024
TIDMMKS
RNS Number : 0390G
Marks & Spencer Group PLC
24 May 2017
Issued: 24 May 2017
Marks and Spencer Group Plc
Full Year Results For 52 Weeks Ended 1 April 2017
Click here for a PDF version of this statement
http://www.rns-pdf.londonstockexchange.com/rns/0390G_-2017-5-23.pdf
Hot Features
Premium
52 weeks ended 53 weeks ended Change on 53 weeks LY % Change on 52 weeks LY %
1 Apr 17 2 Apr 16
-------------------------------- --------------- --------------- ------------------------ ------------------------
Group revenue GBP10,622.0m GBP10,555.4m 0.6 2.2
Profit before tax & adjusted
items(1) GBP613.8m GBP689.6m -11.0 -10.3
Adjusted items(1,2) GBP(437.4)m GBP(200.8)m n/a n/a
Profit before tax GBP176.4m GBP488.8m -63.9 -63.5
Profit after tax GBP115.7m GBP404.4m -71.4 -71.1
Adjusted basic earnings per
share(1) 30.4p 35.0p -13.1 -12.6
Basic earnings per share 7.2p 24.9p -71.1 -70.7
Free cashflow pre shareholder
returns GBP585.4m GBP539.3m 8.5
Net debt GBP1.93bn GBP2.14bn -9.5
Ordinary dividend per share 18.7p 18.7p Level
-------------------------------- --------------- --------------- ------------------------ ------------------------
(1) Adjusted results are consistent with how business performance is measured internally. (2) Refer to adjusted items table below for further details. See glossary for definitions
The financial year 2016/17 was a 52 week year whereas 2015/16 was a 53 week year. Unless otherwise stated, in order to provide a year on year comparison, variances relating to revenue, profit and earnings per share are on a 52 week comparative to 26 March 2016.
-- Adjusted profit before tax down 10.3% due to the expected decrease in Clothing & Home sales and increased costs of new space.
-- Significant adjusted items of GBP437.4m resulted in profit before tax down 63.5% as we establish a base from which to grow.
-- Clothing & Home gross margin up 105 basis points with full price sales growth of 2.7%. As expected, revenue down 2.8% due to planned reduction in promotions and clearance sales.
-- Food revenue growth of 4.2% driven by new stores. Gross margin down 25bps due to input cost inflation and higher than anticipated waste.
-- UK costs up 3.8% due to costs of new space, IT investment and inflation, offset by efficiencies.
-- International profit before adjusted items up 15.4% to GBP64.4m, as a result of the decision to exit owned stores in 10 loss-making markets.
-- Strong cash generation reduced net debt by GBP204m. Full year dividend unchanged at 18.7p.
Steve Rowe, Marks & Spencer CEO said:
"Last year we outlined a comprehensive plan to build strong foundations for the future. We said we would recover and grow clothing and home, continue with our plans for Food growth, remove costs and simplify the business. We achieved a huge amount in the year and whilst there is still much to do, I am pleased with our progress and we remain on track.
"As we have made improvements to our Clothing & Home product and proposition, our customers have noticed; we are starting to stabilise market share and importantly have seen full price market share growth, as we removed excessive discounting. In addition, our new Food stores continue to exceed our expectations.
"As we anticipated, the planned restructuring of M&S has come with a cost and has impacted profits, but the business is still strongly cash generative and we reduced our net debt.
"Looking ahead, we will continue our programme of self-help in a tough trading environment. We remain committed to delivering for our customers and shareholders as we build sustainable foundations for the future."
Robert Swannell, Marks & Spencer Chairman said:
"This has been a year of accelerated change at M&S, as Steve set out his plan for a simpler business, focused on customers. We believe these actions will make M&S a stronger, sustainable business. We are maintaining a total dividend per share at 18.7p, the same level as last year, taking into account the strong cash generation of the business."
Progress against our strategic priorities
A year ago, we announced the results of the strategic review that will form the platform from which we will recover and then grow the business. Since then we have delivered:
-- A clear view of what our customers expect from M&S and what we stand for, supported by our unified brand message, 'Spend It Well'.
-- A reshaped Clothing & Home proposition. This includes a more consistent colour palette, improved fit, 18% price reductions on a number of like-for-like lines, reduced promotional activity and 10% fewer lines.
-- Continued growth in our Food business with 68 new stores and 1,600 new innovative lines, c.25% of our offer.
-- Improvements to customer service in existing stores, where we have invested in over 3,000 new store colleagues, paid for through business efficiencies.
-- Plans to reshape and improve our UK store estate for a multi-channel world. This will result in a refresh of c.25% of our Clothing & Home space over the next five years and further growth of Simply Food with c.250 new stores by the end of 2019/20.
-- Completed consultation on store closures in 10 loss-making international markets. Renewed focus on growth with our franchise and joint venture partners.
-- A fairer approach to pay and pensions which has resulted in a significant increase to our qualified UK customer service assistants' hourly base rate to GBP8.50 (outside London) and the closure of our defined benefit pension scheme to future accrual.
-- A simpler, more effective leadership structure and operating model at our Head Office, with a reduction of c.590 roles.
We believe that our plan and the actions we are taking are the right ones to build a more sustainable, profitable M&S for our employees, customers, communities and our shareholders.
Full year guidance 2017/18;
-- In Clothing & Home we expect a space decline of 1-2%, weighted towards the end of the year. We anticipate gross margin to be +25 to -25 basis points as we seek to mitigate currency headwinds with better buying and a further reduction in discounting.
-- In Food, we expect space growth of c.7%, weighted towards the end of the year as we open c.90 new Simply Food stores. We anticipate input cost inflation will slightly outweigh operational efficiencies with a resulting decrease in gross margin of between 0 and -50 basis points largely weighted towards the first half.
-- We expect UK cost growth of c.2.5 to 3.5% as a result of new space, cost inflation and the annualisation of investment in customer service, partly offset by Head Office restructuring efficiencies. Cost growth will be weighted towards the first half of the year.
-- The 2017/18 effective tax rate on adjusted profit before tax is expected to be around 21% as a result of the Scottish Limited Partnership structure.
-- Capital expenditure is expected to be c.GBP400m as we increase the rate of Simply Food store openings.
Group revenue: constant currency
Q4 group revenue declined by 0.6% at constant currency. Revenues were adversely impacted by the timing of the December sale, which was included in Q3, and Easter which fell outside the quarter. We estimate these factors had a combined effect of c.-3.8% on Clothing & Home revenues and c.-1.9% on Food revenues in Q4.
% change on Q3 Q4
LY FY* Q1 Q2
--------------------------- ----- ----- ----- ---- -----
Food 4.2 4.0 4.1 5.6 2.9
* Like-for-like -0.8 -0.9 -0.9 0.6 -2.1
Clothing &
Home -2.8 -8.3 -2.4 3.1 -5.5
* Like-for-like -3.4 -8.9 -2.9 2.3 -5.9
Total UK sales 1.3 -1.1 1.3 4.5 -0.4
* Like-for-like -1.9 -4.3 -1.7 1.3 -3.6
International -0.1 0.7 -2.5 2.9 -1.8
Total Group 1.1 -0.9 0.9 4.3 -0.6
M&S.com(1) 4.9 0.2 0.4 9.4 7.6
--------------------------- ----- ----- ----- ---- -----
*Full year sales are for 52 weeks to 1 April 2017 compared with 52 weeks to 26 March 2016. There was no Easter in the 2016/17 financial year. We estimate this had a negative effect of c.0.3% on Clothing & Home sales and c.0.5% on Food sales.
(1) Memo only. See glossary for definitions.
We will report our first quarter trading update on 11 July 2017.
For further information, please contact:
Investor Relations:
Fraser Ramzan: +44 (0)20 8718 4625 Helen Cox: +44 (0)20 8718 8491
Media enquiries:
Corporate Press Office: +44 (0)20 8718 1919
Investor & Analyst webcast:
Investor and analyst presentation will be held at 09.30 on 24 May 2017. This presentation can be viewed live on the Marks and Spencer Group plc website.
Fixed Income Investor Conference Call:
This will be hosted by Helen Weir, Chief Finance Officer at 14:00 on 24 May 2017:
Dial in number: +44 (0)330 336 9411 Access code: 5091683
A recording of this call will be available until 3 June 2017:
Dial in number: +44 (0)20 7984 7568 Access code: 5091683
FULL YEAR REVIEW
The financial year 2016/17 was a 52 week year whereas 2015/16 was a 53 week year. Unless otherwise stated, in order to provide a year on year comparison, variances relating to revenue, profit and earnings per share are on a 52 week comparative.
52 weeks ended
1 Apr 17 26 Mar 16 Change on LY %
GBPm GBPm
------------------------------------ --------- ---------- ---------------
Group revenue 10,622.0 10,391.0 2.2
UK revenue 9,441.7 9,324.8 1.3
International revenue 1,180.3 1,066.2 10.7
Group adjusted operating profit 690.6 777.6 -11.2
UK adjusted operating profit 626.2 721.8 -13.2
International operating profit 64.4 55.8 15.4
Net finance costs (76.8) (93.5) 17.9
Profit before tax & adjusted items 613.8 684.1 -10.3
Adjusted items (437.4) (200.8) n/a
Profit before tax 176.4 483.3 -63.5
------------------------------------ --------- ---------- ---------------
Consumer & Retail environment
In 2016/17, consumer confidence remained broadly stable notwithstanding a dip in the lead up to the Brexit vote. However, there was a divergence between consumers' views on their personal financial situation which remained strong and their views on the economy as a whole, which was more fragile. Against this backdrop the clothing market declined by 1.8% (Kantar Worldpanel, 52 w/e 9 April 2017), with competition for consumer spending from other discretionary products and services such as leisure and entertainment. The food market returned to modest growth of 0.6% (Kantar Worldpanel, 52 w/e 26 March 2017), with signs of inflation coming through in the final quarter.
Recover and grow Clothing & Home
As expected Clothing & Home revenues declined, with total revenues down 2.8% and like-for-like revenues down 3.4% as a result of our strategy to reduce promotions and markdown activity. However, we are encouraged by early evidence that our strategy is working. Full price sales were up 2.7% with strong growth in the second half, and total market share stabilising in quarter four.
Last May we outlined our priorities for Clothing & Home: to improve product through better quality, style and authority, and drive execution. This included increased focus on areas such as wardrobe essentials as well as improved prices and availability.
During the year, we removed a number of sub brands, eliminating duplication across our ranges. We reduced the number of lines in Clothing & Home by c.10%, bringing greater authority to our product offer and bought wardrobe staples in greater depth. Tighter operational execution drove strong increases in launch availability with Autumn availability up 8% and Spring up 4%. Our actions helped to deliver strong performance in the top 100 lines which were up 7% on the year while sales in areas of focus, such as kids footwear were up 10% and our bra market share grew again to 34.9%. (Kantar Worldpanel 52 w/e 9 April 2017)
To deliver improved value for customers, we have reduced the price of c.2,400 lines since January 2016. This has been achieved through a combination of like-for-like price reductions of c.18% and the introduction of new lines at lower prices. As a result, the proportion of 'good' or entry price point sales have increased by 3% with the proportion in womenswear almost doubling to 15%. We held three fewer clearance sales and removed unproductive promotions such as Black Friday category deals. Our Sparks programme now has 5.6m members and we are seeing increased frequency of purchase amongst members.
M&S.com revenues increased by 4.9%, with online sales penetration increasing to 17%. Performance was impacted by the removal of eight cyber events compared with the prior year and sales growth improved in the second half. We delivered better customer service through a focus on operational processes at our Castle Donington warehouse.
We have invested in service in the areas our customers most appreciate such as fitting rooms, men's tailoring and till points. Customer satisfaction scores improved by 5% points compared with last year. Although while the overall Net Promoter Score (NPS) for Clothing & Home was broadly level, we are encouraged by a significant improvement in the rating from our most frequent customers and those in our larger stores, suggesting customers are noticing and liking the changes we have made.
Gross margin
Clothing & Home gross margin was ahead of expectations, up c.105bps year-on-year. Buying margin increased by 100bps despite currency headwinds as we continued to deliver benefits from leveraging our direct sourcing capabilities through retendering orders, and by moving business to lower duty locations. Reduced discounting benefited margin by c.5bps on the year with an 110bps improvement in the second half, as a result of lower stock into sale and better sell through rates.
Looking ahead
We believe the changes we have made are particularly relevant in the context of a clothing market which declined in 2016/17, and where the outlook remains uncertain.
Further improvements to style and fit will remain core to our strategy. In addition, having made a significant investment in price, we will ensure our prices remain competitive while continuing to reduce the number of promotions and clearance sales.
We are focused on improving customer experience across our channels. In our smaller stores, in direct response to customer feedback, we are introducing a greater level of product choice. We are beginning to rebalance our space towards potential areas of future growth such as Kidswear and Home having completed successful trials. We continue to invest to make our online customer journey faster with a particular focus on mobile. We will build on the success of our Sparks programme, with greater levels of personalisation in our offer in the year ahead.
We will continue to mitigate currency headwinds through better buying and a further reduction in discounting, while maintaining competitive pricing and anticipate the movement in gross margin in the year ahead to be between +25 to -25 basis points.
We have made a good start on our five-year plan to reshape and improve the quality of our Clothing & Home space. During 2016/17 we opened three new full-line stores, relocated two stores and closed one. Looking ahead we expect our Clothing & Home selling space to reduce by 1 to 2% in 2017/18, weighted towards the end of the year.
Continue to grow Food
Total Food revenues for the full year increased by 4.2% as we opened 68 new Simply Food stores, including one relocation. Like-for-like revenues were down 0.8% with the lack of Easter accounting for c.0.5% of the decline. Total market share increased by 20 bps to 4.5% according to data from Kantar Worldpanel (52 w/e 26 March 2017).
Our strategic objectives in Food remain consistent. Superior quality, leading innovation and offering convenient fresh food in convenient locations.
In 2016/17 we introduced around 1,600 new or improved lines. We built on our reputation for health and wellness by expanding our 'Made Without' range, launched a new sushi collection and increased the proportion of 'Eat Well' products. Recognising our broad customer appeal for seasonal and special events, we also expanded our upper tier 'Collection' offer. We continue to ensure our products are of superior quality through independent taste testing.
We were encouraged by the customer response as indicated by our Net Promoter Score which increased by 4 points compared with last year.
We further increased the reach and convenience of our offer through our new stores. Performance of new owned Simply Food stores was ahead of expectations, exceeding sales forecasts by 17% overall. We delivered a strong performance in our entertaining and gifting food online, with sales up 9% in part due to our 'Food-to-Order' business which was helped by the investment in our Christmas ordering website.
Gross margin
Food gross margin declined by 25bps year-on-year, which was more than expected. We generated gains from our on-going value optimisation programme of 70bps. However, these were more than offset by an increase in input costs of 80bps, following the depreciation of sterling, and higher than expected waste.
Looking ahead
While the grocery market returned to modest growth in the year driven by price inflation in the final quarter, it remains highly competitive. We will continue to work with our suppliers, leveraging our volume growth to mitigate cost inflation and ensure our prices remain competitive. Our strategic focus is on quality, innovation and convenience.
In the year ahead, as a result of continued input cost pressure, we expect a decrease in gross margin of 0 to 50 basis points, largely weighted towards the first half of the year.
We continue to extend our reach and convenience and plan to open a further c.250 Simply Food stores by the end of 2019/20 with c.90-100 in each of the next two years. These will be assessed against our financial return framework which focuses on cash payback and shorter lease lengths. Of these, around one third will be with our franchise partners. We continue to analyse the online food market with a view to undertaking a potential soft trial in the Autumn.
UK Operating costs
52 weeks ended
1 Apr 17 26 Mar 16 Change on LY %
GBPm GBPm(1)
------------------------------------------------------ ------------------ ------------------- ---------------
Store staffing 1,010.3 974.4 3.7
Other store costs 1,000.7 974.4 2.7
Distribution & warehousing 519.6 475.4 9.3
Marketing 162.7 186.1 -12.6
Central costs 697.1 655.8 6.3
UK Operating Costs 3,390.4 3,266.1 3.8
------------------------------------------------------ ------------------ ------------------- ---------------
(1) Certain prior year costs have been reclassified to reflect changes in UK organisation
structure
UK operating costs were up by GBP124m, 3.8%, with higher depreciation accounting for GBP26m.
Store staff costs increased by GBP36m primarily driven by new space with the cost of the annual pay review and investments in improved store service largely offset by business efficiencies.
Within other store costs, new space drove the increase, with occupancy cost inflation largely offset by efficiencies and lower depreciation.
Distribution and warehousing costs increased by GBP44m. A significant proportion of this increase was driven by increased capacity to support growth in our business, with a new Food depot in Enfield and Clothing & Home warehouse in Bradford. The balance was largely attributable to increased food volumes and inflation.
Marketing costs declined by GBP23m. This was mostly a result of a reduction in activity and the more effective use of our marketing budget, such as our Christmas campaign where we increased customer views while reducing costs, as well as the annualisation of the launch of Sparks last year.
Central costs increased by GBP41m. This was largely driven by an increase in IT related operating costs including higher depreciation from new merchandising systems. A greater proportion of costs are now being expensed as we transition to increased use of cloud based software services. As expected, around half of the anticipated c.GBP30m cost savings from our Head Office restructuring were delivered during the year.
Building a sustainable, profitable International business
Our strategy is to grow our International business through a partnership model. As a result, in November we announced we are exiting owned stores in 10 loss-making markets, in addition to the previously announced closures in the Balkans. These markets generated total losses of GBP34.7m on sales of GBP179.4m in 2016/17. Our proposals are on track, with all our stores in China closed by the end of the 2016/17 financial year and consultation on store closures complete in all markets.
52 weeks ended
1 Apr 17 26 Mar 16 Change on LY %
GBPm GBPm
---------------------------------------- --------- ---------- ---------------
Franchise 314.0 324.4 -3.2
Owned: 866.3 741.8 16.8
Retained 686.9 580.9 18.2
Exit 179.4 160.9 11.5
Revenue 1,180.3 1,066.2 10.7
Franchise 81.9 87.3 -6.2
Owned: (17.5) (31.5) 44.4
Retained 17.2 15.3 12.4
Exit (34.7) (46.8) 25.9
Operating profit before adjusted items 64.4 55.8 15.4
---------------------------------------- --------- ---------- ---------------
During the year, International revenues rose by 10.7% driven by currency translation, with constant currency sales down 0.1%. Profit before adjusted items increased by 15.4% to GBP64.4m.
In our franchise business, shipments to Asia benefitted from new store openings and expansion of our Food business. We saw a good performance from Europe, where shipments increased, driven by new Food store openings in France. Revenues from the Middle East were affected by de-stocking and weak retail markets, although the trend improved in the second half of the year, with a similar trend in profits.
In our retained owned business, constant currency revenues increased by 2%. Our joint venture business in India performed well, with seven new store openings during the year. Sales in the Republic of Ireland and in Hong Kong were affected by our strategy to reduce discounting. Profit in retained owned markets improved. Lower operating profits in Hong Kong was offset by an improved performance in the Czech Republic and India.
International restructuring costs include GBP7m of lease costs relating to stores either closed, or in the process of closing. This contributed to the reduction of losses in exit markets. The remaining store closures will be largely complete by the end of the first half and we now expect to reduce the losses in exit markets by between GBP20 and GBP25m in the current year. Total closure costs related to the International strategy are expected to be at the lower end of the previously indicated range at c.GBP150m. The cash costs associated are expected to be c.GBP135m, with the vast majority incurred in 2017/18.
Net finance cost
52 weeks ended
1 Apr 17 26 Mar 16 Change on LY GBPm
GBPm GBPm
------------------------------------------------------------- --------- ---------- ------------------
Interest payable (100.2) (99.1) (1.1)
Interest income 6.6 5.8 0.8
Net interest payable (93.6) (93.3) (0.3)
Pension net finance income 29.3 15.3 14.0
Unwind of discount on partnership liability (12.6) (14.7) 2.1
Unwind of discounts on financial instruments and provisions 0.1 (0.8) 0.9
Net finance cost (76.8) (93.5) 16.7
------------------------------------------------------------- --------- ---------- ------------------
Net finance cost reduced by GBP16.7m largely due to increased pension net finance income as a result of a higher UK defined benefit scheme surplus at the start of the year. Net interest payable increased marginally to GBP93.6m. The interest payable on the new GBP300m bond issued in December as we pre-financed an existing bond expiring in December 2017 was almost fully offset by the reduction in interest rates year on year.
Group profit before tax & adjusted items
Group profit before tax and adjusted items was GBP613.8m, down 10.3% on last year (down 11.0% on a 53 weeks basis). The decrease was primarily due to the reduction in Clothing & Home gross profit and the increase in operating costs in the year.
M&S Bank profits were down GBP9.7m as a result of the reduction in interchange fees, and lower interest bearing balances.
Adjustments to profit before tax
The Group makes certain adjustments to statutory profit measures in order to derive alternative performance measures that provide stakeholders with additional helpful information on the performance of the business.
52 weeks ended
Adjusted items 1 Apr 17 26 Mar 16
GBPm GBPm
------------------------------------------------------------------------------ ------------ ----------
Strategic programmes
- Changes to pay and pensions (156.0) -
- UK organisation (24.0) -
- UK store estate (51.6) (37.0)
- International store closures and impairments (132.5) (31.6)
UK store impairments and onerous lease charges (48.8) -
M&S Bank charges incurred in relation to the insurance mis-selling provision (44.1) (50.3)
UK logistics 9.8 9.2
Legal settlements 9.8 -
Other impairments - (94.5)
IAS 39 fair value movement of embedded derivative - (2.0)
Net gain on acquisition of joint venture holding Bradford warehouse - 5.4 Adjustments to operating profit and profit before tax (437.4) (200.8) ------------------------------------------------------------------------------ ------------ ----------
During the period, the Group announced changes to our pay and pensions arrangements within the UK business. We closed our UK defined benefit (DB) pension scheme to future accrual effective from April 2017 resulting in a curtailment charge of GBP127.0m. In respect of pay, we announced an increase in our base level of pay to GBP8.50 per hour as well as the removal of a number of premium payments. The Group has recognised a charge of GBP23.6m in the year in relation to this. The Group anticipates making transition payments to employees in relation to the closure of the DB scheme, of c.GBP25m (in aggregate) over the next three years. These amounts will be recognised within adjusted items as they are incurred.
During the period, following completion of a detailed review of the UK organisation, the Group announced proposed changes to its UK Head Office structure. The changes have resulted in a net reduction of c.590 Head Office roles, with restructuring costs in the year of GBP15.4m inclusive of fees. The Group also announced an 18 month programme to centralise its London Head Office functions into one building. The Group has recognised a net charge of GBP8.6m associated with this rationalisation.
In November the Group announced a strategic programme in relation to the UK store estate. As part of this programme, during the year ten UK stores were approved for closure resulting in closure costs of GBP47.3m relating to dilapidations, sublet shortfalls, accelerated depreciation of fixtures and fittings and impairment of assets. The balance of the charges of GBP4.3m in the period related to the ongoing review of assumptions associated with previously closed stores. We continue to expect total adjusted items related to this programme of c.GBP350m.
The Group has announced its intention to close its owned stores in in ten international markets resulting in the recognition of a cost of GBP130.5m in the period. The expected closure costs primarily relate to redundancy, lease exit and property dilapidations. The closure programmes are ongoing in all markets, with the exception of China where the final store was closed on 1 April 2017. International store impairment testing during the year identified a number of stores where current and anticipated future performance does not support the carrying value of the stores with a resulting impairment charge of GBP9.0m being incurred. Offsetting these store impairments are credits of GBP7.0m relating to the reversal of historic impairments against five stores in Ireland and the release of unutilised provisions on completion of the exit from the Balkans.
UK store impairment testing during the year has identified a number of stores where the current and anticipated future performance does not support the carrying value of the stores. As a result, a charge of GBP39.4m has been incurred in respect of the impairment of assets associated with these stores. A further charge of GBP9.4m has been incurred in respect of onerous lease provisions associated with some of these stores.
The Group continues to incur charges in relation to M&S Bank insurance mis-selling provision. The Group's income from M&S Bank has been reduced as a result of a further GBP44.1m of charges in the year.
A net credit of GBP9.8m has been recognised in the year in relation to an updated view of the estimated closure costs of legacy logistics sites associated with the strategic transition to a single tier distribution network.
The cash flow impact of adjusted items was GBP80.9m in the year.
Group profit before tax
Group profit before tax was GBP176.4m, down from GBP483.3m last year (GBP488.8m on a 53 week basis). The decrease was largely due to the impact of the strategic programmes in the year including the curtailment costs associated with the closure to future accrual of the UK Defined Benefit pension scheme, costs associated with the closure of our owned businesses in ten International markets and the UK store estate.
Taxation
The effective tax rate on profit before tax and adjusted items was 19.9% (last year 17.2%). The effective tax rate was 34.4% (last year 17.3%) due to the impact of disallowable adjusted items.
Earnings per share
Basic earnings per share decreased by 70.7% to 7.2p (decreased by 71.1% on a 53 weeks basis) largely as a result of the impact of the adjusted items in the current year. The weighted average number of shares in issue during the period was 1,623.1m (last year 1,635.9m).
Basic earnings per share before adjusted items decreased by 12.6% to 30.4p (decreased by 13.1% on a 53 weeks basis) due to the lower adjusted profit generated in the year.
Capital expenditure
52 weeks ended 53 weeks
ended
1 Apr 17 2 Apr 16 Change on LY GBPm
GBPm GBPm
------------------------------------------------- --------------- --------- ------------------
UK store environment 22.6 36.9 (14.3)
New UK stores 75.0 106.4 (31.4)
International 13.4 26.4 (13.0)
Supply chain and M&S.com 46.1 89.1 (43.0)
IT 110.8 161.1 (50.3)
Property maintenance 90.3 79.6 10.7
Proceeds from property disposals (27.0) (30.6) 3.6
Total capital expenditure excluding acquisition 331.2 468.9 (137.7)
Joint venture owning Bradford warehouse - 56.2 (56.2)
Total capital expenditure 331.2 525.1 (193.9)
------------------------------------------------- --------------- --------- ------------------
UK store environment spend included investment in increasing the flexibility of our in-store layout in Womenswear, new store fascias and rebranding our Foodhalls. Spend was down year on year due to completion of a number of in-store schemes last year, primarily in Lingerie and Kidswear.
New UK store spend was down as a result of fewer new full-line stores opening. During the year, we opened 30 owned Simply Food, three full-line stores and two relocations compared to 25 owned Simply Food, five full-line stores and two relocations in the previous year. Clothing & Home space increased by 0.9%.
International spend was significantly lower as a result of the decision to exit stores in 10 markets. Spend in the year was largely focused on new stores in India and refurbishment projects in Hong Kong.
We continue to invest in improving our supply chain and IT infrastructure although the total spend has reduced as we have completed some of our larger infrastructure projects. During the year, we opened a new Food depot in Enfield as well as investing in our warehouse in Bradford. Within M&S.com the reduction in capital expenditure reflects the move towards customer focused enhancements which are expensed and away from larger infrastructure projects.
Investment in IT comprised of upgrading our in-store wifi networks and investing in additional handheld devices which improve efficiency and customer service in-store. In addition, as we move towards more cloud based software solutions, a larger proportion of costs are now being expensed.
Maintenance spend has increased primarily due to investment in more energy efficient in-store equipment such as lighting.
The proceeds from property disposals mainly relate to the final instalment of deferred consideration from the sale of White City warehouse.
Cashflow & net debt
52 weeks ended 53 weeks
ended
1 Apr 17 2 Apr 16 Change on LY GBPm
GBPm GBPm
----------------------------------------------------- --------------- ---------- ------------------
Adjusted operating profit 690.6 784.9 (94.3)
Depreciation and amortisation before adjusted items 589.5 576.8 12.7
Non-cash pension and share charges 110.9 118.0 (7.1)
Adjusted items cash outflow (80.9) (63.2) (17.7)
Working capital (9.1) 13.2 (22.3)
Pension funding (135.3) (118.4) (16.9)
Capex and disposals (383.2) (519.5) 136.3
Acquisition of joint venture - (56.2) 56.2
Interest and taxation (202.6) (206.0) 3.4
Share transactions 5.5 9.7 (4.2)
Free cash flow pre shareholder returns 585.4 539.3 46.1
Dividends paid (377.5) (301.7) (75.8)
Share buy back - (150.7) 150.7 Free cash flow 207.9 86.9 121.0 Opening net debt (2,138.3) (2,223.2) 84.9 Exchange and other non-cash movements (4.3) (2.0) (2.3) Closing net debt (1,934.7) (2,138.3) 203.6 ----------------------------------------------------- --------------- ---------- ------------------
The reduction in capital and acquisition expenditure was partially offset by weaker business performance, with adjusted operating profit down GBP94.3m. Working capital was broadly flat on the year with a reduction in Clothing & Home inventory offset by a reduction in creditors. Pension funding was up GBP16.9m due to an increase to the UK defined benefit contributions rate following the 2015 triennial valuation. Additionally, cash payments associated with adjusted items were GBP17.7m higher in the year driven by the International strategy.
The business delivered free cash flow pre shareholder returns of GBP585.4m, an increase of GBP46.1m on the prior year.
We have continued to improve our investment disciplines and remain committed to a strong balance sheet and maintaining an investment grade credit rating.
We returned GBP377.5m to shareholders in the year, which included GBP74.5m in the form of a special dividend. We have announced a final dividend of 11.9p (full year dividend 18.7p, level year-on-year). This will be paid on 14 July 2017 to shareholders on the register of members as at close of business on 2 June 2017, subject to approval of shareholders at the Annual General Meeting, to be held on 11 July 2017. Given the future cash costs associated with our strategic changes, we believe it is prudent not to make additional returns of cash to shareholders under our enhanced shareholder returns programme at this time.
Pension
At 1 April 2017, the IAS 19 net retirement benefit surplus was GBP692.8m (last full year GBP824.1m). The decrease in the net surplus is largely due to the closure of the UK Defined Benefit scheme to future accrual which triggered a one-off curtailment charge in the period of GBP127.0m.
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 such forward-looking statements are subject to various risks and uncertainties, including failure by Marks & Spencer to predict accurately customer preferences; decline in the demand for products offered by Marks & Spencer; competitive influences; changes in levels of store traffic or consumer spending habits; effectiveness of Marks & Spencer's brand awareness and marketing programmes; general economic conditions or a downturn in the retail or financial services industries; acts of war or terrorism worldwide; work stoppages, slowdowns or strikes; and changes in financial and equity markets.
- Ends -
Consolidated income statement
52 weeks ended 53 weeks ended
1 April 2017 2 April 2016
Profit Adjusted Total Profit Total
before items before
adjusted adjusted Adjusted
items items items
Notes GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----- -------------------------------- -------- ------------------- -------- -------- --------
Revenue 2 10,622.0 - 10,622.0 10,555.4 - 10,555.4
----------------- ----- -------------------------------- -------- ------------------- -------- -------- --------
Operating
profit 2,3 690.6 (437.4) 253.2 784.9 (200.8) 584.1
Finance
income 4 36.2 - 36.2 21.1 - 21.1
Finance
costs 4 (113.0) - (113.0) (116.4) - (116.4)
Profit before
tax 613.8 (437.4) 176.4 689.6 (200.8) 488.8
----------------- ----- -------------------------------- -------- ------------------- -------- -------- --------
Income tax
expense 5 (122.4) 61.7 (60.7) (118.8) 34.4 (84.4)
----------------- ----- -------------------------------- -------- ------------------- -------- -------- --------
Profit for
the year 491.4 (375.7) 115.7 570.8 (166.4) 404.4
----------------- ----- -------------------------------- -------- ------------------- -------- -------- --------
Attributable
to:
Owners of
the parent 492.8 (375.7) 117.1 573.3 (166.4) 406.9
Non-controlling
interests (1.4) - (1.4) (2.5) - (2.5)
----------------- ----- -------------------------------- -------- ------------------- -------- -------- --------
491.4 (375.7) 115.7 570.8 (166.4) 404.4
---------------- ----- -------------------------------- -------- ------------------- -------- -------- --------
Basic earnings
per share 6 30.4p 7.2p 35.0p 24.9p
Diluted
earnings
per share 6 30.2p 7.2p 34.9p 24.8p
----------------- ----- -------------------------------- -------- ------------------- -------- -------- --------
Consolidated statement of comprehensive income
52 weeks 53 weeks
ended ended
1 April 2 April
2017 2016
Notes GBPm GBPm
------------------------------------- ----- -------- --------
Profit for the year 115.7 404.4
-------------------------------------- ----- -------- --------
Other comprehensive income:
Items that will not be reclassified
to profit or loss
Remeasurements of retirement
benefit schemes 8 (68.9) 346.2
Tax charge/(credit) on items
that will not be reclassified 25.3 (45.6)
-------------------------------------- ----- -------- --------
(43.6) 300.6
------------------------------------- ----- -------- --------
Items that will be reclassified
subsequently to profit or
loss
Foreign currency translation
differences 31.0 7.3
Cash flow hedges and net
investment hedges
- fair value movements recognised
in other comprehensive income 56.1 (30.1)
- reclassified and reported
in profit or loss (72.4) (22.1)
- amount recognised in inventories (20.1) 5.9
Tax credit on cash flow hedges
and net investment hedges 4.1 6.5
-------------------------------------- ----- -------- --------
(1.3) (32.5)
------------------------------------- ----- -------- --------
Other comprehensive (expense)/income
for the year, net of tax (44.9) 268.1
-------------------------------------- ----- -------- --------
Total comprehensive income
for the year 70.8 672.5
-------------------------------------- ----- -------- --------
Attributable to:
Owners of the parent 72.2 675.0
Non-controlling interests (1.4) (2.5)
-------------------------------------- ----- -------- --------
70.8 672.5
------------------------------------- ----- -------- --------
Consolidated statement of financial position
As at As at
1 April 2 April
2017 2016
Notes GBPm GBPm
--------------------------------- ----- --------------------- ---------
Assets
Non-current assets
Intangible assets 709.0 802.8
Property, plant and equipment 4,837.8 5,027.1
Investment property 15.5 15.5
Investment in joint ventures 7.0 6.9
Other financial assets 3.0 3.0
Retirement benefit asset 8 706.0 851.0
Trade and other receivables 234.1 234.7
Derivative financial instruments 56.8 74.0
Deferred tax assets - -
--------------------------------- ----- --------------------- ---------
6,569.2 7,015.0
--------------------------------- ----- --------------------- ---------
Current assets
Inventories 758.5 799.9
Other financial assets 14.5 19.1
Trade and other receivables 318.6 321.1
Derivative financial instruments 163.1 72.1
Current tax assets - 1.6
Cash and cash equivalents 468.6 247.6
---------------------------------- ----- --------------------- ---------
1,723.3 1,461.4
--------------------------------- ----- --------------------- ---------
Total assets 8,292.5 8,476.4
---------------------------------- ----- --------------------- ---------
Liabilities
Current liabilities
Trade and other payables 1,553.8 1,617.7
Partnership liability to
the Marks & Spencer UK Pension
Scheme 9 71.9 71.9
Borrowings and other financial
liabilities 518.0 297.5
Derivative financial instruments 10.5 28.5
Provisions 147.2 14.0
Current tax liabilities 66.6 75.2
---------------------------------- ----- --------------------- ---------
2,368.0 2,104.8
--------------------------------- ----- --------------------- ---------
Non-current liabilities
Retirement benefit deficit 8 13.2 26.9
Trade and other payables 328.5 353.0
Partnership liability to
the Marks & Spencer UK Pension
Scheme 9 324.6 383.8
Borrowings and other financial
liabilities 1,711.7 1,774.7
Derivative financial instruments 0.8 0.2
Provisions 113.5 52.0
Deferred tax liabilities 281.8 337.6
---------------------------------- ----- --------------------- ---------
2,774.1 2,928.2
--------------------------------- ----- --------------------- ---------
Total liabilities 5,142.1 5,033.0
---------------------------------- ----- --------------------- ---------
Net assets 3,150.4 3,443.4
---------------------------------- ----- --------------------- ---------
Equity
Issued share capital 406.2 405.8
Share premium account 416.4 411.3
Capital redemption reserve 2,210.5 2,210.5
Hedging reserve 17.3 32.3
Other reserve (6,542.2) (6,542.2)
Retained earnings 6,648.1 6,927.5
---------------------------------- ----- --------------------- ---------
Total shareholders' equity 3,156.3 3,445.2
---------------------------------- ----- --------------------- ---------
Non-controlling interests
in equity (5.9) (1.8)
---------------------------------- ----- --------------------- ---------
Total equity 3,150.4 3,443.4
---------------------------------- ----- --------------------- ---------
Consolidated statement of changes in equity
Ordinary Share Capital Hedging Other FX Retained Total Non-controlling Total
share premium redemption reserve Reserve(1) reserve earnings interest
capital account reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- -------
As at 29 March
2015 412.0 392.4 2,202.6 64.3 (6,542.2) (12.6) 6,683.1 3,199.6 (0.8) 3,198.8
Profit/(loss)
for the year - - - - - - 406.9 406.9 (2.5) 404.4
Other comprehensive
(expense)/income:
Foreign currency
translation - - - (0.5) - 7.8 - 7.3 - 7.3
Remeasurements
of retirement
benefit schemes - - - - - - 346.2 346.2 - 346.2
Tax charge
on items that
will not be
reclassified - - - - - - (45.6) (45.6) - (45.6)
Cash flow hedges
and net investment
hedges
* fair value movement recognised in other comprehensive
income - - - (21.8) - - (8.3) (30.1) - (30.1)
* reclassified and reported in profit or loss(2) - - - (22.1) - - - (22.1) - (22.1)
- amount recognised
in inventories - - - 5.9 - - - 5.9 - 5.9
Tax on cash
flow hedges
and net investment
hedges - - - 6.5 - - - 6.5 - 6.5
------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- -------
Other comprehensive
income/(expense) - - - (32.0) - 7.8 292.3 268.1 - 268.1
------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- -------
Total comprehensive
income/(expense) - - - (32.0) - 7.8 699.2 675.0 (2.5) 672.5
------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- -------
Transactions
with owners:
Dividends - - - - - - (301.7) (301.7) - (301.7)
Transactions
with non-controlling
shareholders - - - - - - - - 1.5 1.5
Shares issued
on exercise
of employee
share options 1.7 18.9 - - - - - 20.6 - 20.6
Purchase of
own shares
held by employee
trusts - - - - - - (10.9) (10.9) - (10.9)
Shares purchased
in buy back (7.9) - 7.9 - - - (150.7) (150.7) - (150.7)
Credit for
share-based
payments - - - - - - 17.2 17.2 - 17.2
Deferred tax
on share schemes - - - - - - (3.9) (3.9) - (3.9)
------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- -------
As at 2 April
2016 405.8 411.3 2,210.5 32.3 (6,542.2) (4.8) 6,932.3 3,445.2 (1.8) 3,443.4
------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- -------
As at 3 April
2016 405.8 411.3 2,210.5 32.3 (6,542.2) (4.8) 6,932.3 3,445.2 (1.8) 3,443.4 Profit/(loss) for the year - - - - - - 117.1 117.1 (1.4) 115.7 Other comprehensive (expense)/income: Foreign currency translation - - - (4.3) - 35.3 - 31.0 - 31.0 Remeasurements of retirement benefit schemes - - - - - - (68.9) (68.9) - (68.9) Tax credit on items that will not be reclassified - - - - - - 25.3 25.3 - 25.3 Cash flow hedges and net investment hedges - fair value movement recognised in other comprehensive income - - - 77.7 - - (21.6) 56.1 - 56.1 - reclassified and reported in profit or loss(2) - - - (72.4) - - - (72.4) - (72.4) - amount recognised in inventories - - - (20.1) - - - (20.1) - (20.1) Tax on cash flow hedges and net investment hedges - - - 4.1 - - - 4.1 - 4.1 ------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- ------- Other comprehensive income/(expense) - - - (15.0) - 35.3 (65.2) (44.9) - (44.9) ------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- ------- Total comprehensive income/(expense) - - - (15.0) - 35.3 51.9 72.2 (1.4) 70.8 ------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- ------- Transactions with owners: Dividends - - - - - - (377.5) (377.5) - (377.5) Transactions with non-controlling shareholders - - - - - - - - (2.7) (2.7) Shares issued on exercise of employee share options 0.4 5.1 - - - - - 5.5 - 5.5 Purchase of - - - - - - - - - - own shares held by employee trusts Credit for share-based payments - - - - - - 13.5 13.5 - 13.5 Deferred tax on share schemes - - - - - - (2.6) (2.6) - (2.6) ------------------------------------------------------------- -------- ------- ---------- ------- ---------- -------- -------- ------- --------------- ------- As at 1 April 2017 406.2 416.4 2,210.5 17.3 (6,542.2) 30.5 6,617.6 3,156.3 (5.9) 3,150.4
(1) The 'Other reserve' was originally created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of Marks and Spencer plc at the date of the transaction.
(2) Amounts 'reclassified and reported in profit or loss' includes the revaluation of the cross currency swaps, offsetting the revaluation of the USD hedged bonds within finance costs.
Consolidated statement of cash flows
52 weeks 53 weeks
ended ended
1 April 2 April
2017 2016
Notes GBPm GBPm
-------------------------------- ----- -------- --------
Cash flows from operating
activities
Cash generated from operations 12 1,165.7 1,311.3
Income tax paid (98.0) (99.3)
--------------------------------- ----- -------- --------
Net cash inflow from operating
activities 1,067.7 1,212.0
--------------------------------- ----- -------- --------
Cash flows from investing
activities
Proceeds on property disposals 27.0 30.6
Purchase of property, plant
and equipment (309.1) (363.3)
Purchase of intangible assets (101.1) (186.8)
Reduction/(purchase) of current
financial assets 4.6 (7.2)
Interest received 6.6 6.8
Acquisition of subsidiary - (56.2)
--------------------------------- ----- -------- --------
Net cash used in investing
activities (372.0) (576.1)
--------------------------------- ----- -------- --------
Cash flows from financing
activities
Interest paid(1) (111.2) (113.5)
Cash (outflow)/inflow from
borrowings (32.7) 3.1
Repayment of syndicated loan
notes (215.3) (19.9)
Issuance of medium-term notes 300.0 -
Decrease in obligations under
finance leases (2.0) (2.4)
Payment of liability to the
Marks & Spencer UK Pension
Scheme (57.9) (56.0)
Equity dividends paid (377.5) (301.7)
Shares issued on exercise
of employee share options 5.5 20.6
Purchase of own shares by
employee trust - (10.9)
Share buy back - (150.7)
--------------------------------- ----- -------- --------
Net cash used in financing
activities (491.1) (631.4)
--------------------------------- ----- -------- --------
Net cash inflow from activities 204.6 4.5
Effects of exchange rate
changes 5.6 3.7
Opening net cash 196.0 187.8
--------------------------------- ----- -------- --------
Closing net cash 406.2 196.0
--------------------------------- ----- -------- --------
(1)Includes interest on the partnership liability
to the Marks & Spencer UK DB Pension Scheme.
Reconciliation of net cash flow to movement in net debt
52 weeks 53 weeks
ended ended
1 April 2 April
2017 2016
Notes GBPm GBPm
-------------------------------- ----- --------- ---------
Opening net debt (2,138.3) (2,223.2)
--------------------------------- ----- --------- ---------
Net cash inflow from activities 204.6 4.5
(Decrease)/increase in current
financial assets (4.6) 7.2
Decrease in debt financing 7.9 75.2
Exchange and other non-cash
movements (4.3) (2.0)
--------------------------------- ----- --------- ---------
Movement in net debt 203.6 84.9
--------------------------------- ----- --------- ---------
Closing net debt 13 (1,934.7) (2,138.3)
--------------------------------- ----- --------- ---------
1 General information and basis of preparation
General Information
The financial information, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and related notes, does not constitute full accounts within the meaning of s435 (1) and (2) of the Companies Act 2006. The auditor has reported on the Group's statutory accounts for each of the years 2016/17 and 2015/16, which do not contain any statement under s498 of the Companies Act 2006 and are unqualified. The statutory accounts for 2015/16 have been delivered to the Registrar of Companies and the statutory accounts for 2016/17 will be filed with the Registrar in due course.
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements are drawn up on the historical cost basis of accounting, as modified by financial assets and liabilities (including derivative instruments) at fair value through profit and loss.
Going concern basis
Based on the Group's cash flow forecasts and projections, the Board is satisfied that the Group will be able to operate within the level of its bank facilities for the foreseeable future. For this reason the Group continues to adopt the going concern basis in preparing its financial statements.
Accounting Policies
There have been no significant changes to accounting under IFRS which have affected the Group's results for the current financial year. The only changes to the IFRS, IFRS IC interpretations and amendments that are effective for the first time in this financial year and applicable for the Group are the Annual Improvements to IFRSs: 2012-2014 cycle. These have not had a material impact on the Group.
The following IFRS have been issued but are not yet effective:
- IFRS 9 'Financial Instruments' replaces all phases of the financial instruments project and IAS 39 'Financial Instruments: Recognition and Measurement'. The standard is effective from periods beginning on or after 1 January 2018 and introduces:
- new requirements for the classification and measurement of financial assets and financial liabilities;
- a new model based on expected credit losses for recognising provisions; and
- simplified hedge accounting by aligning hedge accounting more closely with an entities risk management methodology.
Work is underway to assess the necessary changes to existing IT systems that will be required to aid the Group's implementation of the standard. The adoption of IFRS 9 is unlikely to have a material impact on the consolidated results of the Group. Any potential impact of IFRS 9 will be quantified in the Annual Report and Financial Statements for the year ended 31 March 2018;
- IFRS 15 'Revenue from Contracts with Customers' is effective for periods beginning on or after 1 January 2018. The standard establishes a principles based approach for revenue recognition and is based on the concept of recognising revenue for obligations only when they are satisfied and the control of goods or services is transferred. It applies to all contracts with customers, except those in the scope of other standards. It replaces the separate models for goods, services and construction contracts under the current accounting standards. The Group has completed an assessment on the impact of IFRS 15 and it is expected adoption will not have a material impact on any of the Group's revenue streams.
- IFRS 16 'Leases' was issued on 13 January 2016 and is effective for periods beginning on or after 1 January 2019. Early adoption is permitted if IFRS 15 'Revenue from Contracts with Customers' has also been applied. IFRS 16 is not yet endorsed by the EU. The standard represents a significant change in the accounting and reporting of leases for lessees as it provides a single lessee accounting model, and as such, requires lessees to recognise assets and liabilities for all leases unless the underlying asset has a low value or the lease term is 12 months or less. The standard may also require the capitalisation of a lease element of contracts held by the Group which under the existing accounting standard would not be considered a lease. Accounting requirements for lessors are substantially unchanged from IAS 17.
The Group has established a working group to assess the impact of the new standard. Work performed includes assessing the accounting impacts of the change, the process of collecting the required data from across the business and the necessary changes to systems and processes. From work performed to date it is expected implementation of the new standard will have a significant impact on the consolidated results of the Group. On adoption, lease agreements will give rise to both a right of use asset and a lease liability for future lease payables. Depreciation of the right of use asset will be recognised in the income statement on a straight line basis, with interest recognised on the lease liability which will result in a change to the profile of the net charge taken to the income statement over the life of the lease. These charges will replace the lease costs currently charged to the income statement.
The Group continues to assess the full impact of IFRS 16, however the impact will greatly depend on the facts and circumstances at the time of adoption and upon transition choices adopted. It is therefore not yet practicable to provide a reliable estimate of the financial impact on the Group's consolidated results.
Alternative Performance Measures
In reporting financial information, the Group presents alternative performance measures, "APMs", which are not defined or specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the business and are consistent with how the business performance is planned and reported within the internal management reporting to the Board and Operating Committee. Some of these measures are also used for the purpose of setting remuneration targets.
The key APMs that the Group uses include: like-for-like sales; management gross margin; adjusted profit before tax; adjusted earnings per share; net debt, free cash flow and return on capital employed. Each of these APMs, and others used by the Group, are set out within the Glossary including explanation of how they are calculated, and how they can be reconciled to a statutory measure where relevant.
The Group reports some financial measures, primarily International sales, on both a reported and constant currency basis. The constant currency basis, which is an APM, retranslates the previous year sales translated at the average actual periodic exchange rates used in the current financial year. This measure is presented as a means of eliminating the transitional effects of exchange rates fluctuations on the year-on-year reported results.
The Group makes certain adjustments to the statutory profit measures in order to derive many of these APMs. The Group's policy is to exclude items that are considered to be significant in both nature and/or quantum and where treatment as an adjusted item provides stakeholders with additional useful information to assess the year-on-year trading performance of the Group. On this basis, the following items were included within adjusted items for the 52 week period ended 1 April 2017:
- Significant pension charges arising as a result of changes to the defined benefit schemes' rules and practices;
- Significant restructuring costs and other associated costs arising from significant strategy changes that are not considered by the Group to be part of the normal operating costs of the business;
- Net profits and losses on the disposal of properties or impairments of properties where a commitment to close has been demonstrated;
- Significant impairment charges and provisions that, are considered to be significant in nature and/ or value to the trading performance of the business;
- Adjustments to income from M&S Bank due to a provision recognised by M&S Bank for the cost of providing redress to customers in respect of possible mis-selling of M&S Bank financial products; and
- Various significant legal settlements that are significant in value to the results of the Group or to a segment.
Refer to note 3 for a summary of the adjusted items.
2 Segmental Information
IFRS 8 requires operating segments to be identified on the basis of internal reporting on components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.
The chief operating decision maker has been identified as the Operating Committee. The Operating Committee reviews the Group's internal reporting in order to assess performance and allocate resources across each operating segment. The operating segments are UK and International which are reported in a manner consistent with the internal reporting to the Operating Committee.
The UK segment consists of the UK retail business and UK franchise operations. The International segment consists of Marks & Spencer owned businesses in Europe and Asia, together with international franchise operations.
The Operating Committee assesses the performance of the operating segments based on a measure of operating profit. This measurement basis excludes the effects of adjusted items from the operating segments. The Operating Committee also monitors revenue within the segments and gross profit within the UK segment. To increase transparency, the Group has decided to include an additional voluntary disclosure analysing revenue within the reportable segments and gross profit within the UK segment by subcategory.
The following is an analysis of the Group's revenue and results by reportable segment:
52 weeks ended 1 53 weeks ended 2 April
April 2017 2016
------------------------------------- --------- ------------------------------------------------
Management Logistics Adjusted Statutory Management Logistics Adjusted Statutory
Adjustment(1) items(2) Adjustment(1) items(2)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
Clothing
& Home revenue 3,792.7 - - 3,792.7 3,961.3 - - 3,961.3
Food revenue 5,649.0 - - 5,649.0 5,509.5 - - 5,509.5
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
UK revenue 9,441.7 - - 9,441.7 9,470.8 - - 9,470.8
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
Franchised 314.0 - - 314.0 329.7 - - 329.7
Owned 866.3 - - 866.3 754.9 - - 754.9
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
International
revenue 1,180.3 - - 1,180.3 1,084.6 - - 1,084.6
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
Group revenue 10,622.0 - - 10,622.0 10,555.4 - - 10,555.4
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
Clothing
& Home gross
profit 2,128.7 2,180.7
Food gross
profit 1,837.7 1,806.2
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
UK gross
profit 3,966.4 (360.5) - 3,605.9 3,986.9 (300.9) - 3,686.0
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
UK operating
costs (3,390.4) 360.5 (254.5) (3,284.4) (3,320.1) 300.9 (49.1) (3,068.3)
M&S Bank 50.2 - (44.1) 6.1 59.9 - (50.3) 9.6
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
UK operating
profit 626.2 - (298.6) 327.6 726.7 - (99.4) 627.3
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
International
operating
profit 64.4 - (138.8) (74.4) 58.2 - (101.4) (43.2)
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
Group operating
profit 690.6 - (437.4) 253.2 784.9 - (200.8) 584.1
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
Finance
income 36.2 - - 36.2 21.1 - - 21.1
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
Finance
costs (113.0) - - (113.0) (116.4) - - (116.4)
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
Profit before
tax 613.8 - (437.4) 176.4 689.6 - (200.8) 488.8
---------------- ---------- -------------- --------- --------- ---------- -------------- --------- ---------
(1) Management gross profit for the UK segment excludes certain expenses resulting in an adjustment between cost of sales and selling and administrative expenses of GBP360.5m (last year GBP300.9m). Updates to the methodology have been made in the current year to include depreciation of the relevant Distribution Centres within gross margin. This is to ensure consistent treatment with the underlying warehousing costs. The prior year comparatives have not been restated.
(2) Management profit excludes the adjusted items (income or charges) made to reported profit before tax that are significant in value and/or nature (see note 3). Please refer to the Glossary for more detail on these items.
Other segmental information
------------------------------------------------------------------------------------------------
2017 2016
------- ------------- ------- ------- ------------- -------
UK International Total UK International Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ------------- ------- ------- ------------- -------
Additions to property,
plant and equipment and
intangible assets (excluding
goodwill) 374.1 12.2 386.3 624.9 20.0 644.9
Depreciation and amortisation 549.1 29.1 578.2 531.9 30.9 562.8
Impairment and asset
write-offs 72.7 31.2 103.9 60.8 98.8 159.6
Total assets 7,917.3 375.2 8,292.5 8,062.3 414.1 8,476.4
Non-current assets 6,324.4 244.8 6,569.2 6,751.9 263.1 7,015.0
------------------------------ ------- ------------- ------- ------- ------------- -------
3 Adjusted items
The total adjusted items reported for the 52 week period ended 1 April 2017 is a net charge of GBP437.4m. The adjustments made to reported profit before tax to arrive at adjusted profit are:
2017 2016
GBPm GBPm
---------------------------------------------------- ------- -------
Strategic programmes
* Changes to pay and pensions (156.0) -
* UK organisation (24.0) -
* UK store estate (51.6) (37.0)
* International store closures and impairments (132.5) (31.6)
UK store impairments and onerous
lease charges (48.8) -
M&S Bank charges incurred in relation
to the insurance mis-selling provision (44.1) (50.3)
UK logistics 9.8 9.2
Legal settlements 9.8 -
Other impairments(1) - (94.5)
IAS 39 fair value movement of embedded
derivative - (2.0)
Net gain on acquisition of joint
venture holding Bradford warehouse - 5.4
---------------------------------------------------- ------- -------
Adjustments to profit before tax (437.4) (200.8)
---------------------------------------------------- ------- -------
(1) Other impairments in the prior year included the impairment of Czech and Hungary goodwill (GBP19.1m), the M&S Mode brand (GBP32.4m), an enterprise management system used by the International business (GBP19.3m) and impairment costs of GBP23.7m related to the Clothing & Home buying and merchandising systems.
Changes to pay and pensions (GBP156.0m)
On 25 May 2016, the Group announced proposals for a fairer, simpler and more consistent approach to pay and premia as well as proposals to close the UK defined benefit (DB) pension scheme to future accrual effective from 1 April 2017. The consultation with employees on these changes completed on 2 September 2016.
The closure of the UK DB pension scheme to future accrual has resulted in a curtailment charge of GBP127.0m. As all remaining active members of the scheme transition to deferred status, all future pensionable increases will be in line with inflation (CPI) as opposed to the lower 1% salary cap applied to the active members. Other costs of GBP5.4m directly associated with the closure, primarily in relation to third party advisory costs, have also been incurred.
The Group considers the curtailment cost and directly associated costs to be an adjusted item on the basis that they relate to a significant cost affecting the Group results.
Following the completion of the consultation in respect of pay and premia, the Group has committed to transition payments of GBP23.6m in respect of removal of premia. The full amount of GBP23.6m has been recognised as a liability at 1 April 2017 as the criteria for recognition under IAS 37 have been met at this date.
The Group anticipates making further transition payments to impacted employees in relation to the closure of the DB scheme, expected to be c. GBP25m in total over the next three years. These amounts will be recognised within adjusted items in future years as incurred.
The premia buyout costs are considered to be an adjusted item as they represent costs that are significant in value to the results of the Group.
Strategic programmes - UK organisation (GBP24.0m)
During the year, the Group announced the results of a wide-ranging strategic review across a number of areas of the business including customer, brand, UK organisation, UK store estate and International. The completion of this review has resulted in the Group incurring a number of significant charges.
On 5 September 2016, following completion of a detailed review of the UK organisation, the Group announced changes to the UK Head Office structure. The changes have resulted in a net reduction of c.590 Head Office roles achieved through a combination of fewer contractors, natural attrition and redundancies and resulting in costs of GBP15.4m inclusive of fees.
On 2 March 2017, as part of the ongoing strategic programme, the Group announced an 18 month programme to centralise its London Head Office functions into one building. The Group has recognised a net charge of GBP8.6m associated with this rationalisation inclusive of the impairment and write off of assets upon exit of vacated buildings, an expected net sublet shortfall and the costs of relocation.
The costs are considered to be adjusted items as they are significant in value and relate to a strategic initiative. As a result they are not considered to be normal operating costs of the business.
Strategic programmes - UK store estate (GBP51.6m)
The Group has revised its previously announced strategic programme in relation to the UK store estate. As part of this programme, ten UK stores were approved for closure in the period, resulting in closure costs of GBP47.3m relating to dilapidations, sublet shortfalls, accelerated depreciation of fixtures and fittings and impairment of assets. The balance of the charges of GBP4.3m in the period relate to the ongoing review of assumptions associated with previously closed stores.
Whilst costs associated with the closure and re-configuration of the UK store estate will recur across financial years, the Group considers that they should be treated as adjusted items given they are part of a significant strategic programme and are significant in value to the results of the Group.
International store closures and impairments (GBP132.5m)
The Group has announced its intention to close its owned stores in ten international markets, resulting in the recognition of a cost of GBP130.5m in the year. The expected closure costs primarily relate to redundancy, lease exit and property dilapidations. The closure programmes are ongoing in all markets, with the exception of China where the final store was closed on 1 April 2017. The costs are considered to be an adjusted item as they are significant in both value and nature to the results of the Group.
In addition the International store impairment testing during the year identified a number of stores where current and anticipated future performance does not support the carrying value of the stores. As a result, an impairment charge of GBP9.0m has been incurred which is considered significant in value to the results of the International segment.
Offsetting these store impairments are credits of GBP7.0m relating to the reversal of historic impairments against five stores in Ireland and the release of unutilised provisions on completion of the exit from and liquidation of companies in the Balkans. These releases are considered to be an adjusted item, consistent with treatment in previous periods when the original charges were recognised as adjusted items.
UK store impairments and onerous lease contracts (GBP48.8m)
The UK store impairment testing during the year has identified a number of stores where the current and anticipated future performance does not support the carrying value of the stores. As a result, a charge of GBP39.4m has been incurred in respect of the impairment of assets associated with these stores. A further charge of GBP9.4m has been incurred in respect of onerous lease provisions associated with some of these stores.
The charges associated with the impairment of stores and associated onerous leases have been classified as an adjusted item on the basis of the significant value of the charge in the year to the results of the Group.
M&S Bank charges incurred in relation to the insurance mis-selling provision (GBP44.1m)
The Group has an economic interest in M&S Bank, a wholly owned subsidiary of HSBC, by way of a Relationship Agreement that entitles the Group to a 50% share of the profits of M&S Bank after appropriate deductions. The Group does not share in any losses of M&S Bank and is not obliged to refund any profit share received from HSBC although future income may be impacted by significant deductions.
Since the year ended 31 December 2010, M&S Bank has recognised in its audited financial statements an estimated liability for redress to customers in respect of possible mis-selling of financial products. The Group's income from M&S Bank has been reduced by the deduction of our share of the estimated liability in both the current and prior years. The deduction in the period is GBP44.1m.
The Group considers this cost to be an adjusted item, despite its recurring nature, as the charges are significant in nature and value in each period to the results of the Group.
UK logistics (GBP9.8m credit)
A net credit of GBP9.8m has been recognised in the year relating to an updated view of the estimated closure costs of legacy logistics sites associated with the transition to a single tier distribution network. This credit largely arises following a decision to retain two logistics warehouses within the network which had previously been identified for closure. This net release is considered to be an adjusted item, consistent with treatment in previous periods when the original charges were recognised as adjusted items.
Legal settlements (GBP9.8m credit)
During the year the Group has reached various legal settlements resulting in a net credit to the Income Statement of GBP9.8m. No further detail is provided in respect of these legal settlements due to the requirement to comply with confidentiality clauses within the agreements.
The settlements are considered to be adjusted items as they are significant in value to the results of the Group or to the segment.
4 Finance income/costs
2017 2016
GBPm GBPm
----------------------------------------------- ------- -------
Bank and other interest receivable 6.6 5.8
Unwind of discount on financial instruments 0.3 -
Pension net finance income (see note 8) 29.3 15.3
----------------------------------------------- ------- -------
Finance income 36.2 21.1
----------------------------------------------- ------- -------
Interest on bank borrowings (2.8) (3.6)
Interest payable on syndicated bank facility (4.3) (5.5)
Interest payable on medium-term notes (91.2) (89.9)
Interest payable on finance leases (1.9) (1.9)
Unwind of discount on financial instruments - (0.4)
Unwind of discount on provisions (0.2) (0.4)
Unwinding of discount on partnership liability
to the Marks and Spencer UK Pension Scheme
(see note 9) (12.6) (14.7)
----------------------------------------------- ------- -------
Finance costs (113.0) (116.4)
----------------------------------------------- ------- -------
Net finance costs (76.8) (95.3)
----------------------------------------------- ------- -------
5 Taxation
The effective tax rate was 34.4% (last year 17.3%) and after excluding adjusted items the effective tax rate was 19.9% (last year 17.2%).
6 Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in issue during the year.
The adjusted earnings per share figures have also been calculated based on earnings before adjusted items that are significant in nature and/or value (see note 3). These have been presented to provide shareholders with an additional measure of the Group's year on year performance.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has four types of dilutive potential ordinary shares being those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year, unvested shares granted under the Deferred Share Bonus Plan, unvested shares granted under the Restricted Share Plan and unvested shares within the Performance Share Plan that have met the relevant performance conditions at the end of the reporting period.
Details of the adjusted earnings per share are set out below:
2017 2016
GBPm GBPm
------------------------------------------------------ ------- -------
Profit attributable to equity shareholders
of the Company 117.1 406.9
Add/(less) (net of tax):
Strategic programmes
* Changes to pay and pensions 128.6 -
* UK organisation 20.3 -
* UK store estate 46.5 40.7
* International store closures and impairments 120.8 92.1
UK store impairments and onerous lease
charges 41.3 -
M&S Bank charges incurred in relation
to the insurance mis-selling provision 35.3 40.2
UK logistics (9.2) (7.3)
Legal settlements (7.9) -
Other Impairments - 8.8
IAS 39 Fair value movement of embedded
derivative - 1.6
Net gain on acquisition of joint venture
holding Bradford warehouse - (9.7)
------------------------------------------------------ ------- -------
Profit before adjusted items attributable
to equity shareholders of the Company 492.8 573.3
------------------------------------------------------ ------- -------
Million Million
------------------------------------------------------ ------- -------
Weighted average number of ordinary shares
in issue 1,623.1 1,635.9
Potentially dilutive share options under
Group's share option schemes 8.0 6.3
------------------------------------------------------ ------- -------
Weighted average number of diluted ordinary
shares 1,631.1 1,642.2
------------------------------------------------------ ------- -------
Pence Pence
------------------------------------------------------ ------- -------
Basic earnings per share 7.2 24.9
Diluted earnings per share 7.2 24.8
Adjusted basic earnings per share 30.4 35.0
Adjusted diluted earnings per share 30.2 34.9
------------------------------------------------------ ------- -------
7 Dividends
2017 2016 2017 2016
per per GBPm GBPm
share share
----------------------------- ------ ------ ----- -----
Dividends on equity ordinary
shares
Paid final dividend 11.9p 11.6p 192.7 190.8
Special dividend 4.6p - 74.5 -
Paid interim dividend 6.8p 6.8p 110.3 110.9
----------------------------- ------ ------ ----- -----
23.3p 18.4p 377.5 301.7
----------------------------- ------ ------ ----- -----
The directors have proposed a final dividend in respect of the year ended 1 April 2017 of 11.9p per share (last year 11.9p), amounting to a dividend of GBP193.3m (last year GBP192.7m). This payment is subject to approval of shareholders at the Annual General Meeting, to be held on 11 July 2017.
A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. The shares will go ex-dividend on 1 June 2017. For those shareholders electing to receive the DRIP the last date for receipt of a new election is 23 June 2017.
8 Retirement benefits
2017 2016
GBPm GBPm
--------------------------------------- --------- ---------
Opening net retirement benefit asset 824.1 449.0
Current service cost (96.5) (98.0)
Administration cost (3.2) (3.0)
Curtailment charge (128.0) (1.0)
Net interest income (see note 4) 29.3 15.3
Employer contributions 137.0 118.4
Remeasurements (68.9) 346.2
Exchange movement (1.0) (2.8)
--------------------------------------- --------- ---------
Closing net retirement benefit asset 692.8 824.1
--------------------------------------- --------- ---------
Total market value of assets 10,135.1 8,515.3
Present value of scheme liabilities (9,433.3) (7,682.3)
--------------------------------------- --------- ---------
Net funded pension plan asset 701.8 833.0
Unfunded retirement benefits (1.0) (0.9)
Post-retirement healthcare (8.0) (8.0)
--------------------------------------- --------- ---------
Net retirement benefit asset 692.8 824.1
--------------------------------------- --------- ---------
Analysed in the statement of financial
position as:
Retirement benefit asset 706.0 851.0
Retirement benefit deficit (13.2) (26.9)
--------------------------------------- --------- ---------
Net retirement benefit asset 692.8 824.1
--------------------------------------- --------- ---------
On closure of the UK DB scheme, all remaining active members moved to deferred status which resulted in a curtailment charge of GBP127.0m. There will be no future service charge relating to the scheme and no future monthly employer contributions for current service. During the year the Group paid the final contribution of GBP28m, as agreed at the 2012 actuarial valuation, in respect of benefits already accrued by members. In addition, the UK DB Scheme will continue to receive income from the Scottish Limited Partnership. Please refer to Note 9 for further details.
The main financial assumptions for the UK DB scheme and the most recent actuarial valuations of the other post-retirement schemes have been updated by independent qualified actuaries to take account to the requirements for IAS 19 - 'Employee Benefits' in order to assess the liabilities of the schemes. The most significant of these are the discount rate and inflation rate which are 2.55% (last year: 3.40%) and 3.20% (last year: 2.95%) respectively. The inflation rate of 3.20% (last year: 2.95%) reflects the Retail Price Index (RPI) rate. Certain benefits have been calculated with reference to the Consumer Price Index (CPI) as the inflationary measure and in these instances a rate of 2.20% (last year: 1.95%) has been used.
The amount of the surplus varies if the main financial assumptions change, particularly the discount rate. If the discount rate decreased by 0.25%, the surplus would decrease by c. GBP70m. If the inflation rate decreased by 0.25%, the surplus would decrease by c. GBP20m.
9 Marks and Spencer Scottish Limited Partnership
Marks and Spencer plc is a general partner and the Marks & Spencer UK Pension Scheme is a limited partner of the Marks and Spencer Scottish Limited Partnership (the Partnership). Under the partnership agreement, the limited partners have no involvement in the management of the business and shall not take any part in the control of the partnership. The general partner is responsible for the management and control of the partnership and as such, the Partnership is consolidated into the results of the Group.
The Partnership holds GBP1.6bn (last year GBP1.6bn) of properties which have been leased back to Marks and Spencer plc at market rates. The Group retains control over these properties, including the flexibility to substitute alternative properties into the Partnership. The first limited partnership interest (held by the Marks and Spencer UK Pension Scheme), entitles the Pension Scheme to receive an annual distribution of GBP71.9m until 2022 from the Partnership. The second partnership interest (also held by the Marks and Spencer UK Pension Scheme), entitles the Pension Scheme to receive a further GBP36.4m annually from 2017 until 2031.
The Partnership liability in relation to the first interest of GBP396.5m (last year GBP455.7m) is valued at the net present value of the future expected distributions from the Partnership. During the year to 1 April 2017 an interest charge of GBP12.6m (last year GBP14.7m) was recognised in the income statement representing the unwinding of the discount included in this obligation.
The first limited partnership interest of the Pension Scheme is included within the UK pension scheme assets, valued at GBP412.1m (last year GBP469.5m). It is also included as a liability on our Balance Sheet as it is a transferable financial instrument. The second partnership interest is not a transferable financial instrument and therefore is not included as a plan asset in accordance with IAS 19. The associated liability is eliminated on consolidation.
10 Financial instruments
Fair Value Hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;
-- Level 2: not traded in an active market but the fair values are based on quoted market prices or alternative pricing sources with reasonable levels of price transparency. The Group's level 2 financial instruments includes interest rate and foreign exchange derivatives. Fair value is calculated using discounted cash flow methodology, future cash flows are estimated based on forward exchange rates and interest rates (from observable market curves) and contract rates, discounted at a rate that reflects the credit risk of the various counterparties for those with a long maturity; and
-- Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
At the end of the reporting period, the Group held the following financial instruments at fair value:
2017 2016
----- ----- ----- ----- ----- ------ ----- ------
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ----- ----- ----- ----- ----- ------ ----- ------
Assets measured
at fair value
Financial assets
at fair value
through profit
or loss
- Trading derivatives - 0.7 - 0.7 - 1.4 - 1.4
Derivatives
used for hedging - 219.2 - 219.2 - 144.7 - 144.7
Short term
investments - 14.5 - 14.5 - 19.1 - 19.1
Liabilities
measured at
fair value
Financial liabilities
at fair value
through profit
or loss
- Trading derivatives - (1.5) - (1.5) - (1.8) - (1.8)
Derivatives
used for hedging - (9.8) - (9.8) - (26.9) - (26.9)
---------------------- ----- ----- ----- ----- ----- ------ ----- ------
There were no transfers between the levels of the fair value hierarchy. In addition to the above, the group has GBP3.0m (last year GBP3.0m) in unlisted equity securities measured at cost.
The following table represents the changes in Level 3 instruments held by the Pension Scheme:
2017 2016
GBPm GBPm
-------------------------------------------------- ------- -------
Opening balance 1,219.1 1,093.6
Fair value gain recognised in other comprehensive
income 100.6 70.3
Additional investment/derecognition 125.2 55.2
-------------------------------------------------- ------- -------
Closing balance 1,444.9 1,219.1
-------------------------------------------------- ------- -------
In the prior year the Group purchased Lima (Bradford) S.à r.l. This resulted in the derecognition of the embedded derivative as the lease contract was between subsidiaries of the Group. Gains recognised in the prior year income statement related to the valuation of the embedded derivative in the lease contract up until the acquisition date. The fair value movement of the embedded derivative of GBP2.0m loss and subsequent derecognition of the asset (GBP21.7m) was treated as an adjustment to reported profit in the prior year (see note 3).
Fair value of financial instruments
With the exception of the Group's fixed rate bond debt and the Partnership liability to the Marks & Spencer UK Pension Scheme, there were no material differences between the carrying value of non-derivative financial assets and financial liabilities and their fair values as at the balance sheet date.
The carrying value of the Group's fixed rate bond debt (level 1 equivalent) was GBP2,110.7m (last year GBP1,726.4m), the fair value of this debt was GBP2,236.7m (last year GBP1,868.3m).
11 Contingencies and commitments
A. Capital commitments
------------------------------------------------------
2017 2016
GBPm GBPm
---------------------------------------- ----- -----
Commitments in respect of properties in
the course of construction 156.4 129.2
Software capital commitments 11.0 17.1
---------------------------------------- ----- -----
167.4 146.3
---------------------------------------- ----- -----
B. Other material contracts
In the event of a material change in the trading arrangements with certain warehouse operators, the Group has a commitment to purchase property, plant and equipment, which are currently owned and operated by the warehouse operators on the Group's behalf (at values ranging from historical net book value to market value).
See note 9 for details on the partnership arrangement with the Marks & Spencer UK DB Pension Scheme.
12 Analysis of cash flows given in the statement
of cash flows
2017 2016
GBPm GBPm
---------------------------------------- ------- -------
Profit on ordinary activities after
taxation 115.7 404.4
Income tax expense 60.7 84.4
Finance costs 113.0 116.4
Finance income (36.2) (21.1)
----------------------------------------- ------- -------
Operating profit 253.2 584.1
Depreciation, amortisation and asset
impairments and write offs before
adjusted items 589.5 576.8
Share-based payments charge 10.6 16.0
Pension costs charged against operating
profit 100.3 102.0
Adjusted profit items 437.4 200.8
Decrease/(increase) in inventories 53.9 (22.5)
(Increase)/decrease in receivables (9.9) 3.3
(Decrease)/increase in payables (53.1) 32.4
Adjusted items cash outflows (36.8) (12.9)
Adjusted items non-cash (44.1) (50.3)
Cash contributions to pension schemes (135.3) (118.4)
Cash generated from operations 1,165.7 1,311.3
----------------------------------------- ------- -------
13 Reconciliation of net debt to statement of financial
position
2017 2016
GBPm GBPm
----------------------------------------------- --------- ---------
Statement of financial position and
related notes
Cash and cash equivalents 468.6 247.6
Current financial assets 14.5 19.1
Bank loans and overdrafts (70.3) (297.3)
Medium-term notes - net of hedging derivatives (1,957.8) (1,656.1)
Finance lease liabilities (48.7) (48.6)
Partnership liability to the Marks & Spencer
UK DB Pension Scheme (see note 9) (396.5) (455.7)
--------------------------------------------------- --------- ---------
(1,990.2) (2,191.0)
Interest payable included within related
borrowing and the partnership liability
to the Marks & Spencer UK DB Pension
Scheme 55.5 52.7
------------------------------------------------ --------- ---------
Total net debt (1,934.7) (2,138.3)
------------------------------------------------ --------- ---------
14 Related party transactions
There were no related party transactions during the year to 1 April 2017. Last year, supplier transactions occurred between the Group and a company controlled by Martha Lane Fox's partner. Martha was a non-executive director of the Group, retiring from the Board on 2 April 2016. These transactions amounted to GBP2.6m during the year with an outstanding trade payable of GBP0.2m at 2 April 2016.
Glossary
Alternative Closest Reconciling Definition and purpose
Performance equivalent items to
Metric statutory statutory
measure measure
-------------- ---------------- ---------------- ------------------------------------------------------------------
Income Statement Measures
----------------------------------------------------------------------------------------------------------------------
Like-for-like Movement Sales from The period on period
revenue in revenue non change in revenue (excluding
growth per the like-for-like VAT) from stores which
Income stores have been trading and
Statement where there has been
no significant change
in footage for at least
52 weeks and online
sales. The measure
is used widely in the
retail industry as
an indicator of sales
performance. It excludes
the impact of new stores,
closed stores or stores
with significant footage
change. FY FY %
16/17 15/16
GBPm GBPm
UK Revenue
Like-for-like 9,039.2 9,213.0 -1.9%
Net space
change 402.6 111.7
--------------- -------- -------- ------
Total 9,441.7 9,324.7 1.3%
Week
53 - 146.1
--------------- -------- -------- ------
Statutory 9,441.7 9,470.8 -0.3%
--------------- -------- -------- ------
-------------- ---------------- ---------------- ------------------------------------------------------------------
M&S.com None Not applicable Total revenue through
revenue the Group's online
/ Online platforms. These revenues
revenue are reported within
the relevant UK and
International segment
results. The growth
in revenues on a year-on-year
basis is a good indicator
of the performance
of the online channel
and is a measure used
within the Group's
incentive plans.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Revenue None Not applicable The period on period
growth change in revenue retranslating
at constant the previous year revenue
currency at the average actual
periodic exchange rates
used in the current
financial year. This
measure is presented
as a means of eliminating
the effects of exchange
rate fluctuations on
the period-on-period
reported results. FY FY %
16/17 15/16
GBPm GBPm
International
Revenue
At reported
currency 1,180.3 1,066.3 10.7%
Impact
of FX translation - 115.2
-------- -------- ------
At constant
currency 1,180.3 1,181.5 -0.1%
-------- -------- ------
Gross margin Gross profit Certain Where referred to throughout
margin(1) downstream the Press Release,
logistics gross margin is calculated
costs as gross profit before
(See Note adjusted items on a
2) management basis divided
by revenue. The gross
profit used in this
calculation is based
on an internal measure
of margin rather than
the statutory margin,
which excludes certain
downstream logistics
costs. This is a key
internal management
metric for assessing
category performance.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Adjusted None Not applicable Those items which the
items Group excludes from
its adjusted profit
metrics in order to
present a further measure
of the Group's performance.
Each of these items,
costs or incomes, is
considered to be significant
in nature and/or quantum.
Excluding these items
from profit metrics
provides readers with
helpful additional
information on the
performance of the
business across periods
because it is consistent
with how the business
performance is reported
to the Board and the
Operating Committee.
-------------- ---------------- ---------------- ------------------------------------------------------------------
EBIT before EBIT(2) Adjusted Calculated as profit
adjusted items before the impact of
items (See Note adjusted items, net
3) finance costs and tax.
This measure is used
in calculating the
Return on Capital Employed
for the Group.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Profit Profit Adjusted Profit before the impact
before before items of adjusted items and
tax and tax (See Note tax. The Group considers
adjusted 3) this to be an important
items measure of Group performance
and is consistent with
how the business performance
is reported to and
assessed by the Board
and the Operating Committee.
This is a measure used
within the Group's
incentive plans.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Adjusted Earnings Adjusted Profit after tax attributable
earnings per share items to owners of the parent
per share (See Note and before the impact
3) of adjusted items,
divided by the weighted
average number of ordinary
shares in issue during
the financial year.
This is a measure used
within the Group's
incentive plans.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Adjusted Diluted Adjusted Profit after tax attributable
diluted earnings items to owners of the parent
earnings per share (See Note and before the impact
per share 3) of adjusted items,
divided by the weighted
average number of ordinary
shares in issue during
the financial year
adjusted for the effects
of any potentially
dilutive options.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Effective Effective Adjusted Total income tax charge
tax rate tax rate items and for the Group excluding
before their tax the tax impact of adjusted
adjusted impact items divided by the
items (See Note profit before tax and
3) adjusted items.
This measure is an
indicator of the ongoing
tax rate for the Group.
-------------- ---------------- ---------------- ------------------------------------------------------------------
52 week 53 week Results Every 6 years an additional
period period for the week is included within
ended 26 ended 2 53(rd) the statutory period
March 2016 April 2016 week in to ensure that the
the statutory year end date stays
reporting in line with the end
period of March. The prior
ended 2 year statutory financial
April 2016 measures were based
on such a 53 week reporting
period.
In order to provide
a meaningful comparison
with this year's 52
week period, all financial
movements in commentary
relative to the prior
year are provided on
a 52 week basis and
exclude the 53rd week,
unless otherwise noted.
The Group considers
that presentation of
comparatives on this
basis enables stakeholders
to more appropriately
compare the performance
of the business year
on year.
The 52 week period
for the prior year
has been used for management
incentive purposes.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Balance Sheet Measures
----------------------------------------------------------------------------------------------------------------------
Net debt None Reconciliation Net debt comprises
of net total borrowings (bank,
debt (see bonds and finance lease
note 13) liabilities net of
accrued interest),
net derivative financial
instruments that hedge
the borrowings and
the Scottish Limited
Partnership liability
to the UK pension scheme
less cash, cash equivalents
and unlisted and short
term investments.
This measure is a good
indication of the strength
of the Group's balance
sheet position and
is widely used by credit
rating agencies.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Capital Net assets Refer to The net total of assets
employed definition and liabilities as
reported in the annual
financial statement
excluding assets and
liabilities in relation
to investment property,
net retirement benefit
position, derivatives,
current and deferred
tax liabilities, Scottish
Limited Partnership
liability, non-current
borrowings and provisions
in respect of adjusted
items.
This measure is used
in the calculation
of return on capital
employed.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Cash Flow Measures
----------------------------------------------------------------------------------------------------------------------
Free cash Net cash See Full The cash generated
flow inflow Year Review from the Group's operating
from operating activities less capital
activities expenditure and interest
paid.
This measure shows
the cash retained by
the Group in the year.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Free cash Net cash See Full Calculated as the cash
flow pre inflow Year Review generated from the
shareholder from operating Group's operating activities
returns activities less capital expenditure
and interest paid excluding
returns to shareholders
(dividends and share
buyback).
This measure shows
the cash generated
by the Group during
the year that is available
for returning to shareholders
and is used within
the Group's incentive
plans.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Other Measures
----------------------------------------------------------------------------------------------------------------------
Capital None Refer to Calculated as the purchase
expenditure definition of property, plant
and equipment, investment
property and intangible
assets during the year
less proceeds of asset
disposals excluding
any assets acquired
as part of a business
combination.
-------------- ---------------- ---------------- ------------------------------------------------------------------
Return None Not applicable Calculated as being
on capital EBIT before adjusted
employed items divided by the
average of opening
and closing capital
employed.
This measure is used
within the Group's
incentive plans.
-------------- ---------------- ---------------- ------------------------------------------------------------------
(1) Gross profit margin is not defined within IFRS but is a widely accepted profit measure being derived from revenue less cost of sales divided by revenue
(2) EBIT is not defined within IFRS but is a widely accepted profit measure being earnings before interest and tax
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKNDBBBKBKPB
(END) Dow Jones Newswires
May 24, 2017 02:01 ET (06:01 GMT)
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