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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Marks & Spencer Group plc    MKS   GB0031274896


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11/05/2020 | 09:14am EST



Robust performance in the face of Covid

Food adjusted operating profit up 19% as the Group mitigated hospitality/franchise closures: Total LFL up 2.7%, ex. hospitality up 6.6%

Ocado Retail revenue up 47.9% and growth in profitability. M&S H1 share of net profit GBP38.8m

Improving C&H performance post spring lockdown: Revenue decline of 61.5% Q1; 21.3% Q2

C&H online sales up 34.3% and market share grown, now #2 in the market

Strong sell through of surplus stock. GBP8m raised for NHS Charities through 'Rainbow Sale'

Adjusted operating profit of GBP61.8m and free cashflow of GBP77.6m

Net debt reduced, substantial liquidity with GBP1.4bn of cash and available facilities

Group revenue down 15.8%, adjusted loss before tax of GBP17.4m and statutory loss before tax of GBP87.6m

Never the Same Again actions to accelerate transformation

Central leadership streamlined and strengthened; support centre costs reduced

M&S on Ocado delivered: Overwhelmingly favourable customer response and synergies on track

Store estate for the future: Streamlining of store costs and improved productivity, supported by market leading technology

Sparks loyalty programme relaunched and grown to over 8m members, with over 1.5m app downloads

Building on investment in data and digital with launch of a new division 'MS2' within C&H to step change online growth

See full results at: https://corporate.marksandspencer.com/media/press-releases/5e0f046f7880b21924350282/half-year-results-for-26-weeks-ended-26-september-2020-robust-performance-in-unprecedented-times-as-transformation-accelerates-

Steve Rowe CEO: 'In a year when it has become impossible to forecast with any degree of accuracy, our performance has been much more robust than at first seemed possible. This reflects the resilience of our business and the incredible efforts of my M&S colleagues who have been quite simply outstanding. But out of adversity comes opportunity and, through our Never the Same Again programme, we have brought forward three years change in one to become a leaner, faster and more digital business. From launching M&S Food online with Ocado to establishing an integrated online business division 'MS2' to step-change growth, we are taking the right actions to come through the crisis stronger and set up to win in the new world.'

1Free cash flow is cash generated from operating activities less capital expenditure, cash lease payments and interest paid

2The comparative figures for the half year ended 28 September 2019 have been restated to reflect the correction of an error that resulted from the transition to IFRS 16 Leases, resulting in an increase in profit for the period of GBP5.3m

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


In May we outlined our intention to bring forward elements of the transformation as a result of the crisis to accelerate change under the Never the Same Again ('NTSA') programme. NTSA has impacted the shape and ways of working across the whole family of businesses with a focus on delivering a faster more streamlined digital multichannel business now. Highlights in the period include:

A strengthened central leadership team with the arrival of Eoin Tonge, CFO, Richard Price MD Clothing & Home and Katie Bickerstaffe, Chief Transformation and Strategy Director and multiple further appointments in each of the businesses

The successful switchover to supply of M&S products to Ocado Retail from 1 September and the strong performance of M&S products on the platform since launch

Substantial restructuring and store cost reduction introducing new more flexible working and shifting focus and time to front of house service, enabled by the roll-out of market leading store technology

Sparks loyalty programme relaunched and grown to over 8 million members as a digital first loyalty scheme through the M&S App, building on recent investment in data science capabilities to drive greater loyalty and engagement

A substantial acceleration in the reshaping of Clothing & Home reflecting both lower demand but also the need to move to more popular faster moving mainstream product

The launch of 'MS2' our new integrated global digital, data and online business division to enable Clothing & Home to compete like a pure play and maximise the significant online opportunity

These changes, combined with the continued transformation of the underlying businesses leave M&S well positioned to exit from the crisis in a stronger, leaner and more focused position.


The business has performed better than expected during the first half with revenue down 15.8%, outperforming the Covid-19 planning scenario by 22.8%. As a result, the Group exited the period with reduced stock levels year on year and generated free cashflow. Group net debt reduced GBP118.5m and at the end of the period we had GBP1.4bn of cash and available facilities including the GBP1.1bn undrawn revolving credit facility.

Strong Food performance mitigating hospitality and franchise closures: LFL ex hospitality up 6.6%

The Food business has performed strongly despite substantial Covid headwinds during the six-month period achieving 2.7% LFL growth or 6.6% when excluding hospitality, which was largely closed during lockdown. It adapted rapidly to the change in shape of demand to deliver improving LFL growth across the period. This was despite headwinds which included the exposure to travel and office locations, high dependence on food-to-go and a presence in full line stores in impacted shopping centre locations.

The change in shape of trade is illustrated in the table below with the adversely affected areas collectively accounting for c.40% of prior year sales.

We expect some of the changes in mix to continue into the future as working life and the use of offices changes but post Covid, there will also be a recovery in demand for occasion and formalwear as events return.

C&H recorded an operating loss before adjusting items of GBP107.5m reflecting the lower sales and the successful clearance of surplus seasonal ranges, partly offset by a reduction in operating costs.

Transformation priorities

Central to the transformation programme is a far-reaching re-engineering of the Clothing & Home range and these changes have been accelerated and made even more urgent as a result of Covid. With the arrival of Richard Price as MD of Clothing & Home we are bringing forward implementation of the strategy:

Turbo-charging online growth through the launch of 'MS2', creating an integrated global digital, data and online business division within Clothing & Home with operating flexibility to compete with pure play competition and develop our growing portfolio of guest brands

Further reducing option count and the long tail of slow-moving SKUs to reshape the range to volume buys of faster moving lines and concentrating supply into fewer, high quality suppliers delivering better quality and cost price. For Autumn Winter, option count has been reduced by a further 20% resulting in an estimated 30% reduction versus 2018

Moving to 'trusted value' and maintaining quality while reducing the proportion of sales sold at discount including store wide blanket sale events and materially reducing the quantum of product ending up in clearance. Already 'Friends & Family' promotions have been removed.

Reducing costs and improving stock flow by re-engineering the end to end supply chain under an integrated supply and sourcing team led by Paul Babbs our new Supply Chain director. Already we are planning a substantial shift away from the highly labour-intensive singles picking network which was designed to manage the old, wide, slow-moving range under the previous 'single tier' project

Using the new instore technology base, more concentrated ranges and supply chain improvements to restructure store operating costs whilst moving resource from administration and stock shifting to front of house service.

Launching a fully integrated online, digital and data division 'MS2' to maximise the online opportunity

Over the past three years the group has made significant investment in its online capabilities including transitioning its web platform to the cloud, building a comprehensive customer data engine for over 20m customers, and improving and relaunching the Sparks loyalty programme. This has been supported by expansion of capacity and improvements to operations at the Castle Donington distribution centre, which has enabled a c.50% increase in singles despatch in the first half of the year and recent growth in market share such that it is now the second largest Clothing online business in the UK.

However, to date M&S.com has been structured as the online channel of a stores retail business moving in lockstep with the rhythm of physical store-based trading rather than competing head to head with pure play competitors. Building on the investments we have made in recent years and embedding the pure play mentality and ways of working we began to adopt during lockdown, we are launching a new division within the Clothing & Home business MS2 to maximise online growth. MS2 inverts the model to create a single integrated online, digital and data team within Clothing & Home supported by our stores and a refocused product supply engine.

MS2 will bring together online, data and digital trading capabilities under a single team trading at a faster pace with range and availability adapted to the online model. The group will be led jointly by Richard Price and Katie Bickerstaffe with a mandate to compete as a 'pure play'. It will include:

A step change in online product, presentation, pricing and social marketing including recognition that the online business will need a focused range

A mandate to ensure we move towards more rapid fulfilment, investing in and expanding Castle Donington capacity

Maximum usage of one of the best customer databases in the UK to drive digital customer engagement and build loyalty following the Sparks relaunch which has built to over 8m members

A reinvented M&S App at the centre of online growth initiatives, building on the 1.5m downloads since the relaunch of Sparks and completely repositioning M&S financial and other services

Creating a seamless 'order online-order in store' approach by bringing a new click and collect and digital sales experience into five test and learn stores

A commitment to drive growth in our International business through online propositions more aggressively at pace. Our International eCommerce operations will be brought into MS2 so they are managed alongside the UK business instead of being operated as separate channels

Growing a curated portfolio of brand partnerships following the launch of Nobody's Child.

All of this will be supported by the work being done on our end-to-end supply chain so that we're set up to deliver as a true omnichannel business.

Over three years our ambition is to achieve an online sales mix of at least 40%.

International Franchise and online contribution offset Covid pressures

Total International revenue declined 25.5% in the period reflecting the impact of lockdowns in multiple geographies in quarter one, peaking with the closure of 84% of all international stores and progressive reopening in quarter two. These impacts were partly offset by an International online sales increase of 75.4%.

Operating profit before adjusting items of GBP19.7m reflected the impact of lockdown in key owned markets such as India, where the closures were prolonged, and in Ireland. This was offset by resilient profit from franchise operations and a rapidly growing income stream online.

Transformation priorities

Through the crisis the capital light franchise and partner driven International model continues to work well. Our priority is to focus on developing online and partner sales globally. In the period, this included the launch of 6 dedicated flagship websites and the launch of M&S product on third party sites such as Zalando. In addition we are supporting partner growth with an increasingly localised proposition and fulfilment.

Shifting gears on store estate for the future

During the crisis, the business has demonstrated that it can use technology to communicate effectively and work more flexibly and productively. This has enabled colleagues multi-tasking and transitioning between Food and Clothing & Home and focusing on front line customer service. In August, the group announced a programme to streamline its store operations, regional management structures and support centres, which is now complete generating annualised cost savings of at least GBP115m helping us emerge from the crisis with a more productive business.

Covid has also underlined the imperative to continue to drive the modernisation of the store estate as many of the modern retail park stores with good parking outperformed but the business has been held back by the legacy estate: We now have a long term programme to catch up on the task of rotating the estate and releasing cash from the group's freehold and leasehold asset base to manage liability and reduce cost. During the period (three) new full line stores were successfully launched, five Simply Food stores were opened and 10 stores were closed. (11) leases were re-geared with an average (34%) rent reduction.

Plan A

As the world emerges from the crisis, we believe customers will look to brands they can trust and have confidence in to offer quality and value through trading ethically. During the first half of the year, our Plan A programme focused on managing the impact of Covid on the most vulnerable and healthcare workers. Highlights of the programme in the period included:

Raising over GBP8m for NHS staff, volunteers and patients through the Rainbow sale in Clothing & Home, which helped trade through the surplus seasonal stock

Redesigning packaging to remove unnecessary plastic such as carton lids, light weighting to use less plastic and making packaging easier to recycle with new bakery bags and sandwich packs that are recyclable

Enhancing our climate change commitments from carbon neutral operations today to net zero emissions by 2035

Replacing soya feed in M&S RSPCA Assured milk avoiding 4,000 tonnes being used each year. We also highlighted the sustainability credentials of over 4,000 products on M&S.com

Working with our longstanding partner, Neighbourly, we have helped to put more than 6 million meals on the table for those who need it most by working with 1,500 local community groups

Net debt reduced with substantial available liquidity of GBP1.4bn, providing resistance against further disruption

At the start of the year the group outlined a Covid-19 scenario for liquidity planning purposes which anticipated peak drawings on its credit facilities in excess of GBP650m at half year reducing to GBP300-350m at year end. A combination of stronger trading than the scenario, concerted action on cash management and reduced costs has resulted in substantial outperformance of the liquidity scenario with cash generation and a reduction in debt at the half. The group has substantial liquidity comprising GBP286m of cash at the half year and GBP1.1bn of committed facilities which are undrawn, positioning it well for the remainder of the year and for the medium term.

Preparedness for Brexit

Our plans for the transition period ending 31 December 2020 are well advanced. Preparations have covered both the changes required for the transition, and further activity and mitigation in the event no Free Trade Agreement deal is signed with the EU.

A key focus in Food has been managing the administrative changes to import from the EU and moving goods from Great Britain to Northern Ireland and our European markets. We have invested in technology that will support us in tracking goods and providing the information required for the new customs and certification requirements. For goods inbound to the UK from the EU we are working with suppliers on import compliance to ensure continuity of supply. We have also created a single export centre in Motherwell to manage goods movements from Great Britain to the island of Ireland.

The increased administration will result in additional costs for both our Food and International businesses. If no Free Trade Agreement is signed with the EU there will be further costs for all food retailers in the UK which will likely affect retail pricing. There would also be a potential further reduction in the profitability of our International businesses. In particular this could have a material impact on our businesses in the Republic of Ireland and the Czech Republic and on our franchise food stores business in France.

The impact on the Clothing & Home business is much less than on Food. We have taken steps to mitigate any tariffs on inbound supply by establishing a customs warehouse and on ensuring business continuity in Northern Ireland and the Republic of Ireland by ensuring product labelling meets UK and EU requirements.


There remains significant uncertainty regarding the near-term outlook in relation to both Covid and Brexit. Trading in the first four weeks of the second half has continued at similar rates to the end of Q2, with Food revenue up 3.0%, C&H revenue down 21.5% and International revenue up 7.4% due to the timing of shipments.

Although trading strongly, the business is entering a period of new Covid-related restrictions including the proposed circuit breaker lockdown. This will impact C&H profit as store sales are significantly reduced, albeit offset by increased online sales and reduced costs supported by furlough income. Prior to this impact our planning assumption for the balance of H2 in Clothing & Home was for similar sales trends to the first few weeks of H2. We enter this period with C&H stock levels down by more than GBP100m on last year and with less stock hibernated to next Spring than previously envisaged.

The group has made substantial plans to ensure customers can shop with confidence this Christmas, including the expansion of the teams to serve online orders by 30% in Castle Donington and an increase in-store picking capacity and the introduction of the book and shop app to help eliminate the requirement to queue over peak. We have also invested behind product lines which will provide flexible options for smaller gatherings.

Throughout this uncertain period and as we start to emerge from the crisis, our financial priority is to fund the transformation while focusing on generating cash and strengthening the balance sheet. Our objective is to ensure the business emerges from these uncertainties in a stronger, leaner and more focused position and with balance sheet metrics consistent with investment grade in the medium term.

We expect to report a third quarter trading update on 8 January 2021.

For further information, please contact:

Investor Relations:

Fraser Ramzan:+44 (0)20 3884 7080

Hannah Chambers: +44 (0)20 3882 4714

Media enquiries:

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

Investor & Analyst presentation and Q&A:

A pre-recorded investor and analyst presentation will be available on the Marks and Spencer Group plc website from 8.00am on 4 November 2020.

Steve Rowe and Eoin Tonge will host a Q&A session at 9.30am on 4 November 2020:

Dial in number: +44 33 0606 1122 Room Number: 016384 Pin: 7140

Fixed Income Investor Conference Call:

This will be hosted by Eoin Tonge, Chief Finance Officer, at 2pm on 4 November 2020:

Dial in number: +44 33 0606 1122 Room Number: 753824 Pin: 7026

International Access Numbers

US: +1 646 813 7960

ITFS: International Access Numbers

A recording of this call will be available until 5pm on 11th November 2020:

Dial in number: +44 33 0606 1122 Access code: 186855

(C) 2020 Electronic News Publishing, source ENP Newswire

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EV / Sales 2021 0,75x
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Free-Float 99,5%
Duration : Period :
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Technical analysis trends MARKS & SPENCER GROUP PLC
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Mean consensus OUTPERFORM
Number of Analysts 23
Average target price 144,35 GBX
Last Close Price 139,60 GBX
Spread / Highest target 28,9%
Spread / Average Target 3,40%
Spread / Lowest Target -14,0%
EPS Revisions
Managers and Directors
Steve Rowe Chief Executive Officer & Executive Director
Archie J. Norman Chairman
Eoin Philip Tonge Chief Financial Officer & Director
Carl Dawson Director-Information Technology
Andrew Nigel Halford Senior Independent Non-Executive Director
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