Marks & Spencer:

The Marks and Spencer Group plc (commonly abbreviated as M&S) is a major British
multi-company headquartered in London, England, that distributes clothing, home
products, and food products, primarily under their own brand. It is traded on the London
Stock Exchange and has been a component of the FTSE 250 index since its inception
in 1999. In 1884, Michael Marks and Thomas Spencer established Marks & Spencer in
Leeds, England. M&S currently operates 959 stores in the United Kingdom, including
615 that sell only food. The company's television advertisements reaffirm the exclusive
nature and luxury of their food and drink. It also offers an online food delivery service
through a partnership with Ocado. Despite the fact that it collapsed unexpectedly,
catching both the company and its stakeholders off guard, the company achieved its
first pre-tax profit of more than £1 billion in 1998. Marc Bolland, a former member of the
Morrisons board of directors, was replaced at the start of 2010 by Robert Swannell, who
had been appointed Executive Chairman Sir Stuart Rose in November 2009. Rose
served as Executive Chairman from July 2010 to January 2011, prior to becoming
President in January 2011. Clothing sales have fallen in recent years, while food sales
have risen as a result of the removal of the St. Michael moniker from its own brand. In
November 2008, the company began selling previously unavailable branded products
such as Kellogg's Corn Flakes. [ CITATION mar20 \l 1033 ]

Non-Current Assets:

To look into details of change in non current assets during the year we first need to look
at the details of fixed assets register. Below is the fixed assets register.
During the year Major change was in Work-in-progress, as assets constructed during
the year were of 244.9 millions which contribute to more than 96% of total change in
non-current assets during the year. Except for outlets that are considered a CGU, the
Group determined that each store is a separate CGU for the testing of impairments.
Click & Collect sales are included in the relevant CGU cash flows.If any impairment
indicators are discovered, each CGU will be tested for impairment on the balance sheet
date. [ CITATION mar201 \l 1033 ] Stores in the Group's UK store estate programme are
tested for impairment automatically. Because the UK Government's trade restrictions on
March 23, 2020, due to the Covid-19 pandemic, were deemed an impairment trigger, all
shops were tested for impairment. Each CGU's value should be based on the Group's
most recent budget and projected cash flows over a three-year period, as well as the
Group's views on future achievable growth and its impact on historical performance and
current market knowledge of committed initiatives. Cash flows include permanent
capital expenditures to maintain the store network but do not include uncommitted
investment initiatives. Cash flows are extrapolated to a long-term growth rate based on
future management expectations for GDP growth over the next three years. These rates
of growth in the respective territories do not outpace the Group's long-term growth rate.
If CGU refers to a store that the company has identified as part of the UK store estate
programme, and the calculated value in use has been modified by calculating future
cash flow in the event that trade should cease, then the time frame and cost estimates
associated with the closure are fully described in note 5. Forecasts for usage value
calculation have been updated to reflect the Board-approved Covid-19 scenario. This
will have a significant impact on revenues and profits in 2020/21. [ CITATION WSJ21 \l 1033 ]

Growing sales and gross profit margins, operating cost base shifts, long-term growth
rates, and a risk-adjusted pre-tax discount rate are the main assumptions of usage
value. The pre-tax discount rates are derived from the Group's weighted average capital
cost, which is calculated using the asset pricing model and includes the country's risk-
free rate, capital risk premium, group premium, and risk adjustment (beta). Prior to
taxes, the discount rates range from 12% to 17%. (last year: 9 percent to 21 percent ). If
the CGU is concerned with a store identified by the Group as part of the UK store estate
programme, closure costs, store release income, and store release timing are all key
assumptions of the value used in use calculations.

This year, the group admitted that the UK store impairment testing was unrelated to the
UK store property programme, which impaired £69.3 million (last year: £103.0 million
(restated)). These stores were impacted by their recoverable value in use of £105.5m,
which was their value at the end of the year. These flaws have been acknowledged in
the modifications. The Group's current outlook on achievable long-term growth of 2%
extrapolates cash flows for British stores beyond the three-year period, which is
reduced to 0% if management believes the Group's current business performance and
future expectations will not support a 2% growth rate. The rate used to discount the
cash flow forecast for UK stores is 8.6 percent (last year: 9.1 percent ). The cash flow of
the impairment pattern, as described in accounting policies (note 1), could result in
additional impairment based on assumptions that are sources of estimated uncertainty.
CEO examined the sensitivity of key assumptions in the deteriorating model using
reasonably possible changes to these key assumptions across the UK portfolio. A 5%
decrease in sales in Years 2 and 3 of the three-year plan would result in an increase in
impairment charges of £72.7 million, a reduction in Gross Profit Margin of EUR 2.5
million over the entire plan period, and a possible recession. The impairment charge will
rise by £7.1 million as a result of a 1% increase in sales and a 10-point decrease in
gross profit margins. Changes to the other major assumptions, such as raising the
discount rate by 50 basis points or lowering the long-term growth rate to 0% in all firms,
will not result in a significant increase in the impairment charge, either individually or in
combination. During the year, the group recorded an impairment charge of £75.2 million
and an impairment over the current UK store estate programme of £51.0 million (last
year: £83.4 million (restated)). They were impacted by their recoverable value of £289.0
million by the end of the year. The charge is related to the shop closure programme,
and the item adjustment has been recognised . When a shop's scheduled closing date
falls outside of the 3-year plan period, there is no growth rate. The rate of cash flow
reduction for UK retailers is 8.6 percent (last year: 9.1 percent ). The cash flow used in
UK store estate model impairment schemes is based on hypotheses disclosed in
accounting policies (Footnote 1), which are sources of estimated uncertainty. The
impairment model's core assumptions were sensitively examined by management, with
reasonable changes to those main assumptions possible throughout the UK estate
programme.

A 12-month delay in the likely exit date would result in a £36.8 million reduction in the
impairment charge. A 5% decrease in scheduled sales in years 2 and 3 (if applicable)
will result in an increase in impairment charges of £22.9 million. No 50 basis point
increase in the discounted rate, no 20 basis point reduction in administration gross
margin over the trading period, and no 2% increase in shop exit costs would result in a
significant increase in the cost of impairment, either individually or when other
reasonably possible scenarios were considered. Due to insurance tests in the store, the
Group recognised an insurance charge of £9.0 million in Ireland and £0.2 million in the
Czech Republic over the course of the year (last year, £nil). Cash flows in Irish and
Czech stores are extrapolated with a long-term growth rate of 0% beyond the three-year
period. The rate used to discount the cash flow forecasts of Irish stores was 14.1
percent (10.4 percent last year) and 12.4 percent in the Czech Republic. (10.7 percent
in the previous year). Further impairments could result from the cash flow of the
deficiencies model outlined in accounting agreements (note 1), which is based on
assumptions that cause estimated uncertainty. The sensitivity analysis was carried out
using changes in the key assumptions on the key assumptions in the impairment model
that were reasonably possible. [ CITATION MS20 \l 1033 ]

In Irish stores, a 5% drop in sales in years 2 and 3 compared to the 3-year plan would
result in a £6.5 million increase in impairments. Other key assumptions, such as a 20-
basis-point decrease in gross profit margin over the plan period, a 50-basis-point
increase in the discount rate, or a 1% decrease in sales combined with a 10-basis-point
decrease in gross profit margin, should be avoided if possible. The deprivation charge
has not increased significantly. Companies in the Czech Republic do not face significant
increases in impairment charges as a result of potential changes in key assumptions.

References
M& S. (2020). Annual report 2020.

marksandspencer. (2020). Retrieved from https://www.marksandspencer.com/

marksandspencer. (2020). Retrieved from https://corporate.marksandspencer.com/investors/reports-

WSJ. (2021). Retrieved from https://www.wsj.com/market-