Final Results
Marks & Spencer Group PLC
24 May 2005
Issued: Tuesday 24 May 2005
Marks and Spencer Group plc
Preliminary Results 2004/05
52 weeks ended 2 April 2005
Progress/Highlights 2004/05:
* Focused the business through substantial structural and operational change
* New management structure
* Tightened cash and cost management
* Reduced stocks and commitment by £1.3bn
* Head office removal of 650+ roles
* per una acquired for £125.9m
* Financial Services business sold for £769m
* £2.3bn returned to shareholders
Key Financials*:
•UK Retail sales ex VAT £7,034.7m, down 1.7% (last year £7,159.8m);
International Retail sales £675.6m, up 1.6% (last year £665.0m)
•Group profit before tax and exceptional items £618.5m, down 19.0% (last
year £763.2m)
•UK Retail operating costs before exceptional items reduced by 0.1%.
•Adjusted earnings per share 21.9p, down 6.4% (last year 23.4p); Basic
earnings per share 29.1p, up 27.1% (last year 22.9p)
•Final dividend of 7.5p per share, up 5.6% (last year 7.1p)
•Later today in a separate press release, Marks & Spencer will provide
restated financial information for 2004/05 under International Financial
Reporting Standards (IFRS)
*Note: All comparisons are based on a 52 week period for 2003/04
Outlook
When we updated the market in April we commented on the difficult trading
environment. The outlook remains challenging, with tough economic and
competitive conditions expected to continue. We are focused on delivering better
quality, value and styling across all our product ranges, as well as improving
service levels and store environment. We have made good progress, however, there
remains much to do.
Chairman's Statement:
This has been a year of great change. In May, we appointed a new executive team
who were immediately involved in leading the response to a possible bid for the
company - originating a strategy to deliver the value of Marks & Spencer to its
shareholders. Since then the team has been implementing a comprehensive
programme of change. We are making good progress on laying the foundations for
our recovery. I am confident that the benefits of this will become increasingly
apparent. The Board is proposing a final dividend of 7.5p, representing a 5.6%
increase on last year.
Chief Executive's Statement:
The Group's financial performance for the year was disappointing. Retail sales
were down 1.5% on the year and Group operating profit was down 13.8%. When I
joined in May 2004, action was taken, where possible, to reduce the unacceptably
high levels of commitment in the business. Despite reducing stocks and
commitment by some £1.3bn over the year, we had to take a high level of
markdowns which severely impacted our operating profit. A new buying process and
stock controls should enable us to deliver reduced markdowns in the coming year.
Our focus now is on profitable full price sales.
At the Operational Review on 12 July 2004, we announced a programme of change to
return the business to growth and to its core values. We did so with a clear
understanding that, while we needed to move fast, we also needed to do the right
things for the medium to long term and that there were no quick fixes. We stated
that we would focus the business in 2004/05, drive it in 2005/06 and, beyond
that, broaden its horizons.
We have focused the business as promised, making structural changes to the Group
and driving through initiatives to improve our operating efficiency.
•New management structure - streamlined Executive Board, key management
appointed
•Focus on core values - quality, value, service, innovation and trust -
Your M&S
•per una acquired for £125.9m
•Cut 31 initiatives to 10
•Head office removal of 650+ roles
•New supplier terms introduced - 1st phase September 2004, 2nd phase April
2005
•Tightened cash and cost management
•£2.3bn returned to shareholders
•Financial Services business sold for £769m net of costs (including a
pre-sale dividend of £235m)
•'Lifestore' exited
•Reduced stocks and commitment by £1.3bn
Operationally, action has been taken on product, pricing, inventory levels and
availability. We reviewed all expenditure, both capital and revenue, to optimise
financial returns and put tight spending controls in place. We are on course to
deliver cost and margin savings of over £250m by the end of 2005/06 and £320m by
the end of 2006/07.
We have focused on improving our values with sharper opening prices and clearer
pricing architecture across all ranges, as well as increased levels of new and
innovative product. Prices are constantly monitored to maintain competitiveness.
We have reduced the total number of products by around 17% while creating more
real choice and increased levels of new product in store.
We have strengthened buying teams with a number of key appointments at buying,
design and merchandiser level. The recently established retail training academy,
or 'Buying Academy', has established a clearer buying process and structure for
the teams, providing greater clarity and accountability. A number of new
processes have been introduced including quarterly buying, rolling open to buy,
open-cost modelling and standard product specifications. These disciplines
should enable us to improve our speed to market, cost-effectiveness, product hit
rate and supplier relationships.
We have also set up a stock planning function to co-ordinate budgets, buying and
phasing, reducing the risk of overbuying and increasing flexibility to buy into
fast lines and new trends. Stock and commitments have been reduced by over 35%.
Availability is up across the business with particular attention being paid to
the top 150 product lines in General Merchandise and the top 300 lines in Food,
although there is still further progress to be made.
We have recruited regional sourcing directors to act as a support to our UK
buying teams. They will focus on creating a single approach to direct buying
across the business, providing knowledge on sourcing opportunities, cost
benchmarking, direct factories and quality audits. We have established regional
offices to support our supply chain in Turkey and India. A China office will be
opening in Hong Kong in July.
We reorganised our retail management team in November, putting our most
experienced people in charge of improving standards and service. This included
creating two 'flagship' divisions, focusing on the Group's 34 largest stores,
representing a third of Group sales. Our staff scheduling programme completed in
November has enabled us to change shifts to increase store staff numbers at peak
times. We are making progress on improving store standards with training
programmes on tilling and service. We are de-cluttering our stores and improving
signage.
In November 2004, we launched trials of a new store design in Basingstoke,
Shoreham, Sutton Coldfield and Edgware Road and in our new stores in Omagh,
Blanchardstown, Dundrum and Talbot Green. We now plan to extend this trial to 21
further stores, totalling 1m sq ft during 2005/06. We will continue to open new
stores, increasing our space in General Merchandise by 1.2%, primarily driven by
new stores in c.10 Retail Parks, and by 3.3% in Food driven by our continued
development of our Simply Food format.
Additionally, we are today announcing an agreement with BP to open 8 pilot
Simply Food concepts on their BP Connect forecourt sites, with the first store
due to open in Autumn 2005.
Marketing has concentrated on delivering a consistent handwriting for the brand
across the business with clear messages on value for Clothing and quality for
Food. Our recent TV advertising campaign on Food has been well received.
This has been a year of great change at Marks & Spencer, but it has also been a
year of action and progress.
UK Retail
UK Retail sales ex VAT for the 52 weeks ended 2 April 2005, were £7,034.7m, down
1.7% (down 1.9% including VAT). However, on a like-for-like basis sales were
down 5.1%.
The performance of Clothing for the year was disappointing, with total Clothing
sales down 3.1% on last year. Footfall and clothing volumes were up on the year
although our Clothing market share declined a further 0.5 percentage points to
10.5%.
Our Clothing performance was driven by continuing weakness in Womenswear,
although per una performed strongly. Lingerie suffered from having an over
complex range. Menswear held up well, while Childrenswear market share
stabilised for the first time in three years in the last quarter of the year.
All product groups suffered from inconsistent price architecture. Opening price
points are now benchmarked against key competitors and appropriate good, better
and best pricing is being introduced across all ranges, giving more real choice
for all our customers.
Home had a year of transition, as we closed 'Lifestore' and refocused on the
traditional areas of bedroom, bathroom, kitchen and dining. Sales were 21.4%
lower at £407.6m.
Food sales were up 2.4% on last year, down 2.6% on a like-for-like basis. Market
share was broadly maintained across the year. In Food, we have focused on
innovation and newness, simplifying ranges, and emphasising the quality and
uniqueness of our food. We continue to benefit from additional footage as we
extend our Food offer through the Simply Food format. During the year we opened
31 Simply Food stores of which 13 stores were in partnership with Compass. A
further 20 Simply Food stores are planned to open in 2005/06.
During the year, we renegotiated terms with suppliers with the aim of reducing
the cost of goods sold by £140m by 2006/07 when compared to 2003/04. Higher
markdowns due to overbuying resulted in a 1.5 percentage points decline in the
General Merchandise gross margin. Better buying and stock control is expected to
enable us to recover these lost markdowns and also to achieve the £40m target
outlined in July 2004. The Food gross margin was maintained.
UK Retail operating costs of £1,843.1m, excluding exceptional charges, were held
at last year's level:
• employee costs increased by 1.1% to £922.4m as a result of new stores and the
annual salary review, offset by a reduction in headcount;
• property, repair and renewal costs of £350.4m increased by 8.3% due to the
occupancy costs associated with new footage and the move to a new head office;
• depreciation and amortisation was £242.9m, an increase of 6.9%, due to the
effect on the charge of prior year additions, store modernisations and closures
and the amortisation of the goodwill arising on the per una acquisition;
• other operating costs of £327.4m decreased by 13.2% as a result of actions
taken during the year to reduce the cost of non-merchandise procurement together
with savings in IT.
Including logistics costs, operating expenses have decreased by 0.1% on last
year.
UK Retail operating profit was £612.1m down 15.2% (last year £722.1m).
International
Marks & Spencer has performed well internationally where our brand continues to
grow its appeal. Sales in the Marks & Spencer branded businesses (Republic of
Ireland, franchises and Hong Kong) for the 52 weeks to 2 April 2005 increased by
6.9% (+9.1% at constant exchange rates). Operating profit increased by 45.2% to
£60.7m (last year £41.8m).
In the Republic of Ireland, sales were ahead of last year and the performance of
the new stores in Blanchardstown and Dundrum has been encouraging.
We continue to add new franchisees and our existing franchisees in 30
territories are continuing to invest in new footage.
Hong Kong had a strong year, however, in 2005/06 some of our leases will be
surrendered to the landlord for development.
Sales at Kings Super Markets were broadly level over the year at constant
exchange rates, compared with last year. Operating profit for the 52 weeks to 2
April 2005 was £4.3m, up 79.2% (last year £2.4m) as a result of actions taken
last year to improve financial performance.
Financial Services
The Financial Services business was sold to HSBC on 9 November 2004 for £769m
(including a pre-sale dividend of £235m) and the results of the business up to
the date of disposal have been included under the heading of discontinued
operations.
The Group has also entered into an agreement with HSBC, whereby the Group will
continue to share in the success of the Financial Services business. Under this
agreement, the Group will receive income in the form of fees representing an
amount equivalent to costs incurred, 50% of the profits of M&S Money (after a
notional tax charge and after deducting agreed operating and capital costs) plus
an amount relating to the growth in sales of financial services products. Fees
received under this agreement since the date of disposal are now included within
other operating income in UK Retail.
Net interest expense
Net interest expense was £102.3m compared to £44.5m (52 week basis) for last
year. The average rate of interest on borrowings during the period was 5.7%
(last year 5.3%).
Taxation
The tax charge reflects an effective tax rate for the full year of 28.5% before
exceptional income, compared to 30.1% last year. The rate is lower than the
standard UK tax rate of 30% due to the impact of prior year credits and relief
in respect of the exercise of employee share options and the relative increase
in profits from lower tax jurisdictions from our International operation. The
European Court of Justice heard the Group's relief claim on 1 February 2005 and
their judgement is expected later this year. No asset has been recognised in
respect of this claim.
Shareholder returns and dividends
Adjusted earnings per share, which excludes the effect of exceptional items, has
decreased by 11.3% to 21.9p per share (on a 52 week basis, a decrease of 6.4%).
Return on equity, after exceptional items, was 41.4% compared to 25.2% last
year.
A final dividend of 7.5p per share (last year 7.1p per share) is proposed,
making the total dividend for the year 12.1p per share (last year 11.5p per
share), an increase of 5.2%.
Capital expenditure
Group capital additions for the year were £220m compared to £434m last year. The
decrease in capital expenditure in part reflects the one-off costs last year
relating to the acquisition of warehouses, as part of the restructuring of the
general merchandise logistics operation, and the relocation of the head office.
It also reflects a reduction in capital expenditure on new and existing footage
as we reviewed the performance of new formats to determine how to revitalise the
portfolio in a cost effective way. Group capital expenditure for 2005/06 is
expected to be £350m.
Balance sheet and cash flow
The Group balance sheet has changed significantly since last year end following
the disposal of the Financial Services business during the year.
Shareholders funds amounted to £521.4m, equivalent to 31.4p per share (last year
108.3p per share). The decrease of £1,932.6m in the year reflected primarily the
sale of Financial Services and the £2.3bn Tender Offer.
The Group generated an operating cash inflow for the year of £1,575.4m (last
year cash inflow £666.5m). Within this, the cash inflow from continuing
operations was £857.5m (last year £602.3m). A major factor in the increase in
operating cash flow was the year-on-year net decrease in contributions paid to
the UK defined benefit pension scheme, following the one-off injection of £400m
in March 2004.
After taking into account the timing of payments, the cash outflow for capital
expenditure was £232.2m (last year £428.8m). During the year, the Group received
£117.8m (last year £126.2m) from the sale of properties, including £115m from
the sale of Michael House.
Acquisitions and disposals generated a net inflow of £363.8m, being net proceeds
from the sale of Financial Services and properties in Europe, offset by the
acquisition of per una. After taking into account the debt that was disposed of
along with the Financial Services business, the net cash inflow from
acquisitions and disposals was £1,203.5m.
Transactions with shareholders (dividends paid, Tender Offer, redemption of B
shares and the issue of new shares under employee share schemes) resulted in a
net cash outflow of £2,502.6m.
At the end of the period, net debt was £2,099.0m, an increase of £104.3m, giving
rise to retail gearing of 84.5% (last year 44.7%) including the net
post-retirement liability and reflecting the impact of the Tender Offer.
Exceptional Items
The Group has recorded exceptional income of £126.8m in the year, as follows:
2004/05 2003/04
Exceptional items £m £m
-------------------------------- --------- ---------
Operating exceptional items:
Head office relocation 8.8 19.6
Head office restructuring programme 6.3 22.5
Board restructure 8.4 -
Closure of 'Lifestore' 29.3 -
Defence costs 38.6 -
-------------------------------- --------- ---------
91.4 42.1
Non-operating exceptional items:
Loss/(profit) on sale of property and other fixed assets 0.4 (18.7)
Profit on disposal of Financial Services (208.9) -
Release of European closure provision (9.7) -
-------------------------------- --------- ---------
(218.2) (18.7)
-------------------------------- --------- ---------
Total exceptional (income) / charges (126.8) 23.4
-------------------------------- --------- ---------
Pensions
The Group paid £115m of additional contributions into the UK defined benefit
pension scheme during March and April 2005, of which £64m had been paid in
before the year end and is reflected in the net post-retirement liability of
£474m at 2 April 2005.
International Financial Reporting Standards
For the next financial year, the Group will be required to adopt International
Financial Reporting Standards (IFRS).
We have identified that the greatest impact on the Group arises from changes in
the accounting treatment for property, share-based payments, financial
instruments and software.
For the year ended 2 April 2005, the impact on profits from the adoption of IFRS
would be to reduce operating profit before exceptionals by 2.8% and adjusted
earnings per share by 4.1%. Net assets would be increased by c.£417m (an
increase of c.80%), reflecting the net impact of incorporating a revaluation of
freehold land and buildings only, as IFRS does not permit the revaluation of
leasehold land.
A separate announcement detailing the impacts of IFRS and providing unaudited
restated financial information for 2004/05 will be made later today.
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.
For further information, please contact:
Media enquiries:
Corporate Press Office: +44 (0)20 8718 1919
Investor Relations:
Amanda Mellor +44 (0)20 8718 3604
Sarah McGlyne +44 (0)20 8718 1563
Consolidated profit and loss account
52 weeks ended 2 April 2005 53 weeks ended 3 April 2004
------------------ -------------------
Before Exceptional After Before Exceptional After
exceptional items exceptional exceptional items exceptional
items (note 5) items items (note 5) items
Notes £m £m £m £m £m £m
Turnover
Continuing
operations 7,710.3 - 7,710.3 7,971.5 - 7,971.5
Discontinued
operations 232.0 - 232.0 330.0 - 330.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Total turnover 2 7,942.3 - 7,942.3 8,301.5 - 8,301.5
Operating profit
Continuing
operations 667.6 (91.4) 576.2 809.4 (42.1) 767.3
Acquired
operations 9.5 - 9.5 - - -
--------- --------- --------- --------- --------- ---------
677.1 (91.4) 585.7 809.4 (42.1) 767.3
Discontinued
operations 32.3 - 32.3 56.6 - 56.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Total
operating
profit 3 709.4 (91.4) 618.0 866.0 (42.1) 823.9
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
(Loss) /
profit on sale
of property
and other
fixed assets 5B - (0.4) (0.4) - 18.7 18.7
Profit on sale / closure of 5C
operations:
Profit /
(loss) arising
on sale /
closure - 208.9 208.9 - (26.8) (26.8)
Release /
utilisation of
prior year
provision - 9.7 9.7 - 26.8 26.8
--------- --------- --------- --------- --------- ---------
Net profit on
sale / closure
of operations - 218.6 218.6 - - -
Net interest
expense 4 (102.3) - (102.3) (45.8) - (45.8)
Other finance
income /
(charges) 11.4 - 11.4 (15.2) - (15.2)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Profit /
(loss) on
ordinary
activities
before
taxation 618.5 126.8 745.3 805.0 (23.4) 781.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Analysed between:
Continuing
operations
(including
acquired
operations) 586.2 (91.8) 494.4 748.4 (23.4) 725.0
Discontinued
operations 32.3 218.6 250.9 56.6 - 56.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Taxation on
ordinary
activities 6 (176.5) 18.2 (158.3) (242.0) 12.7 (229.3)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Profit /
(loss)
attributable
to
shareholders 442.0 145.0 587.0 563.0 (10.7) 552.3
Dividends
(including
dividends in
respect of
non-equity
shares) 8 (203.3) - (203.3) (263.2) - (263.2)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Retained
profit /
(loss) 238.7 145.0 383.7 299.8 (10.7) 289.1
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Earnings per
share 7 29.1p 24.2p
Diluted
earnings per
share 7 28.9p 24.1p
Adjusted
earnings per
share 7 21.9p 24.7p
Diluted
adjusted
earnings per
share 7 21.7p 24.6p
Dividend per
share 8 12.1p 11.5p
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Consolidated statement of total
recognised gains and losses
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Profit
attributable
to
shareholders 587.0 552.3
Exchange
differences on
foreign
currency
translation 0.2 (15.9)
Unrealised
surplus on
revaluation of
investment
properties 4.0 7.3
Impairment of
previously
revalued
properties - (20.0)
Actuarial
(losses) /
gains net of
tax (55.1) 150.4
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Total
recognised
gains and
losses
relating to
the period 536.1 674.1
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Consolidated balance sheet
As at As at
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Fixed assets
Intangible
assets 122.4 -
Tangible
assets 3,316.1 3,497.6
Investments 9.0 10.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
3,447.5 3,507.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Current assets
Stocks 339.7 398.0
Customer
advances - 2,452.4
Other debtors 218.2 298.5
Cash and
investments 279.6 720.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
837.5 3,869.5
Current liabilities
Creditors :
amounts
falling due
within one
year (1,289.3) (1,884.7)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net current
(liabilities)
/ assets (451.8) 1,984.8
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Total assets
less current
liabilities 2,995.7 5,492.4
Creditors :
amounts
falling due
after more
than one year (1,919.7) (2,519.6)
Provisions for
liabilities
and charges (80.4) (49.3)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net assets
before net
post-retirement
liability 995.6 2,923.5
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net
post-retirement
liability (474.2) (469.5)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net assets 521.4 2,454.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Capital and reserves
Called up
share capital 480.2 651.2
Share premium
account 106.6 45.2
Capital
redemption
reserve 2,102.8 1,924.8
Revaluation
reserve 330.8 356.4
Other reserve (6,542.2) (6,542.2)
Profit and
loss account 4,043.2 6,018.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Shareholders'
funds
(including
non-equity
interests) 521.4 2,454.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Equity
shareholders'
funds 455.7 2,369.1
Non-equity
shareholders'
funds 65.7 84.9
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Total
shareholders'
funds 521.4 2,454.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Reconciliation of movement in Group
shareholders' funds
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Profit
attributable
to
shareholders 587.0 552.3
Dividends (203.3) (263.2)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
383.7 289.1
Other
recognised
gains /
(losses)
relating to
the year 4.2 (28.6)
Actuarial
(losses) /
gains net of
tax (55.1) 150.4
Sale /
(purchase) of
shares held by
employee
trusts 0.3 (2.2)
New share
capital
subscribed 68.4 24.8
Redemption of
B shares (19.2) (33.4)
Purchase of
own shares (2,300.0) (54.4)
Tender Offer
expenses (14.9) -
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net (decrease)
/ increase in
shareholders'
funds (1,932.6) 345.7
Opening
shareholders'
funds 2,454.0 2,108.3
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Closing
shareholders'
funds 521.4 2,454.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Consolidated cash flow statement
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Cash inflow
from
continuing
operating
activities
before
contribution
to the pension
fund 857.5 1,002.3
Contribution
to the pension
fund following
2003 actuarial
valuation - (400.0)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Cash inflow
from continued
operating
activities 857.5 602.3
Cash inflow
from
discontinued
operating
activities 717.9 64.2
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Cash inflow
from operating
activities
(see note 9) 1,575.4 666.5
Returns on investments and servicing
of finance
Interest
received 15.4 14.4
Interest paid (114.2) (61.2)
Non-equity
dividends paid (2.8) (3.0)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net cash
outflow from
returns on
investments
and servicing
of finance (101.6) (49.8)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Taxation
UK corporation
tax paid (161.3) (216.3)
Overseas tax
paid (5.4) (4.1)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Cash outflow
for taxation (166.7) (220.4)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Capital expenditure and financial
investment
Purchase of
tangible fixed
assets (232.2) (428.8)
Sale of
tangible fixed
assets 117.8 126.2
Purchase of
fixed asset
investments - (0.6)
Sale of fixed
asset
investments 0.8 9.3
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net cash
outflow for
capital
expenditure
and financial
investment (113.6) (293.9)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Acquisitions and disposals
Closure of
operations 12.7 51.3
Sale of
subsidiaries
(see note 10) 477.0 -
Purchase of
subsidiaries (125.9) -
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net cash
inflow from
acquisitions
and disposals 363.8 51.3
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Equity
dividends paid (236.9) (247.1)
----------------------------------------- --------- --------- --------- --------- --------- ---------
Cash inflow /
(outflow)
before
management of
liquid
resources and
financing 1,320.4 (93.4)
----------------------------------------- --------- --------- --------- --------- --------- ---------
Management of liquid resources and
financing
Management of
liquid
resources (see
note 9ii) 66.7 (89.0)
Financing (see
note 9iii) (1,507.5) 347.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
(1,440.8) 258.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
(Decrease) /
increase in
cash (120.4) 164.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Reconciliation of net cash flow to
movement in net debt
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
(Decrease) /
increase in
cash (120.4) 164.6
Cash (inflow)
/ outflow from
(decrease) /
increase in
liquid
resources (see
note 9ii) (66.7) 89.0
Cash inflow
from increase
in debt
financing (see
note 9iii) (757.6) (413.6)
Debt financing
net of liquid
resources
disposed with
subsidiary
(see note 10) 839.7 -
Exchange and
other
movements 0.7 (3.3)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Movement in
net debt (104.3) (163.3)
Opening net
debt (1,994.7) (1,831.4)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Closing net
debt (2,099.0) (1,994.7)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Notes
1 Basis of preparation
The results comprise those of Marks and Spencer Group plc and its subsidiaries for the 52 week period ended 2 April
2005 and have been prepared using accounting polices consistent with those adopted last year. This summary of results
does not constitute the full Financial Statements within the meaning of s240 of the Companies Act 1985. The full
Financial Statements have been reported on by the Group's auditors, but have not been delivered to the Registrar of
Companies. The audit report was unqualified and did not contain a Statement under s237(2) or s237(3) of the Companies
Act 1985.
2 Turnover
Turnover (excluding sales taxes for international
operations) is analysed as follows:
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
UK Retail (incl. VAT)
Clothing 3,837.3 4,032.6
Home 407.6 526.6
Foods 3,509.7 3,490.2
--------- --------- ---------
7,754.6 8,049.4
Less :
United Kingdom VAT (719.9) (755.7)
--------- --------- ---------
7,034.7 7,293.7
International Retail
Marks &
Spencer
branded
businesses (note 1) 455.8 434.4
Kings Super
Markets 219.8 243.4
--------- --------- ---------
675.6 677.8
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Total
Retailing 7,710.3 7,971.5
Discontinued
operations 232.0 330.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Total turnover 7,942.3 8,301.5
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Geographical analysis of turnover
from continuing operations:
United Kingdom 7,034.7 7,293.7
International 675.6 677.8
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
7,710.3 7,971.5
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Note 1 Marks & Spencer branded businesses within International Retail
consists of Republic of Ireland, Hong Kong and sales to franchise
operations.
The value of goods exported from the UK, including shipments to overseas
subsidiaries, amounted to £319.9m (last year £293.0m).
3 Operating profit
Operating profit arises as follows:
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
UK Retail
Before
exceptional
operating
charges (note 1) 612.1 762.0
Exceptional
operating
charges (91.4) (42.1)
--------- --------- ---------
520.7 719.9
International Retail
Marks & Spencer
branded
businesses 60.7 44.2
Kings Super
Markets 4.3 3.2
--------- --------- ---------
65.0 47.4
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Total
Retailing 585.7 767.3
Discontinued
operations 32.3 56.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Total
operating
profit 618.0 823.9
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Geographical analysis of operating
profit from continuing operations:
United Kingdom 520.7 719.9
International 65.0 47.4
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
585.7 767.3
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Note 1 Includes an operating profit of
£9.5m (last year £nil) attributable
to acquired operations.
4 Interest charged to cost of sales
Financial Services operating profit is stated after charging £64.6m (last year £77.0m) of interest to cost of sales.
This interest represents the cost of funding the Financial Services business as a separate segment, including both
intra group interest and third party funding. The amount of third party interest payable by the Group amounted to
£183.6m (last year £136.1m).
5 Exceptional items
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
A Exceptional operating charges £m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Head office
relocation 8.8 19.6
Head office
restructuring
programme 6.3 22.5
Board
restructure 8.4 -
Closure of
'Lifestore' 29.3 -
Defence costs 38.6 -
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
91.4 42.1
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
52 weeks 53 weeks
ended ended
2 April 3 April
B (Loss) / profit on sale of property 2005 2004
and other fixed assets £m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
(Loss) /
profit on sale
of property
and other
fixed assets (0.4) 18.7
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
52 weeks 53 weeks
ended ended
2 April 3 April
C Profit on sale / closure of 2005 2004
operations £m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Profit /
(loss) on sale
/ closure 208.9 (26.8)
Release /
utilisation of
prior year
provision 9.7 26.8
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
218.6 -
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
M&S Continental Total
Money Europe
£m £m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net sale
proceeds less
net assets 208.9 - 208.9
Release of
prior year
provision - 9.7 9.7
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net profit on
sale / closure
of operations 208.9 9.7 218.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
The loss on sale / closure of operations in the prior year relates to the closure
of the Continental European operations.
On 9 November 2004, the Group completed the sale of Marks and Spencer Retail Financial Services Holdings Limited to
HSBC Holdings plc. The net sale proceeds were £533.6m after accounting for a pre-sale dividend of £235.0m together
with associated disposal costs (see note 10).
6 Taxation
The pre-exceptional tax charge for the year was £176.5m (last year £242.0), giving an effective tax rate of 28.5%
(last year 30.1%). The tax effect of exceptional items is to reduce this charge by £18.2m (last year £12.7m) to
£158.3m (last year £229.3m).
7 Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax and non-equity dividends of £584.2m
(last year £549.3m), and on 2,006,210,850 ordinary shares (last year 2,266,684,389), being the weighted average
number of ordinary shares in issue during the year ended 2 April 2005. The weighted average number of ordinary shares
used in the calculation of diluted earnings per ordinary share is 2,023,460,949 ordinary shares (last year
2,282,138,258).
An adjusted earnings per share figure has been calculated in addition to the earnings per share required by FRS 14
and is based on earnings excluding the effect of the exceptional items on an after tax basis. It has been calculated
to allow the shareholders to gain a clearer understanding of the trading performance of the Group. Details of the
adjusted earnings per share are set out below:
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Earnings per
share 29.1p 24.2p
Exceptional
operating
charges 3.6p 1.3p
Profit on sale
of property
and other
fixed assets - (0.8)p
Profit on sale
/ closure of
operations (10.8)p -
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Adjusted
earnings per
share 21.9p 24.7p
Discontinued
operations (1.5)p (2.3)p
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Adjusted
earnings per
share -
continuing
operations 20.4p 22.4p
53rd week - (1.3)p
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Adjusted
earnings per
share -
continuing
operations (52
week basis) 20.4p 21.1p
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
8 Dividends
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Dividends on equity shares
Ordinary -
interim
dividend of
4.6p per share
(last year
4.4p per
share) 76.3 99.5
Ordinary -
final dividend
of 7.5p per
share (last
year 7.1p per
share) 124.2 160.7
--------- --------- ---------
200.5 260.2
Dividends on non-equity shares
B share -
interim
dividend at
3.36% (last
year 2.73%) 1.4 1.6
B share -
final dividend
at 3.78% (last
year 2.86%) 1.4 1.4
--------- --------- ---------
2.8 3.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
203.3 263.2
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
The Directors have proposed a final dividend of 7.5p per share (last year 7.1p per share). This makes a total
ordinary dividend of 12.1p per share (last year 11.5p per share). The total cost of dividends on ordinary shares is
£200.5m (last year £260.2m). The ordinary shares will be quoted ex dividend on 1 June 2005. The final dividend will
be paid on
15 July 2005 to shareholders whose names are on the Register of Members at the close of business on 3 June 2005.
Shareholders may choose to take this dividend in shares or in cash.
9 Analysis of cash flows given in the
cash flow statement
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Operating activities
Operating
profit 618.0 823.9
Exceptional
operating
charges (see
note 5A) 91.4 42.1
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Operating
profit before
exceptional
operating
charges 709.4 866.0
Depreciation 252.2 241.9
Amortisation
of goodwill 3.1 -
Decrease in
working
capital (see
note 9i) 698.0 6.8
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net cash
inflow before
exceptional
cash outflow 1,662.7 1,114.7
Exceptional
operating cash
outflow (87.3) (48.2)
----------------------------------------- --------- --------- --------- --------- --------- ---------
Cash inflow
from operating
activities
before
contribution
to the pension
fund 1,575.4 1,066.5
Contribution
to the pension
fund following
2003 actuarial
valuation - (400.0)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Cash inflow
from operating
activities 1,575.4 666.5
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
52 weeks 53 weeks
ended ended
2 April 3 April
2005 2004
£m £m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
(i) Decrease in working capital
Decrease /
(increase) in
stocks 55.7 (38.9)
Increase in
customer
advances (19.6) (436.5)
Increase in
customer
deposits 697.3 360.7
Decrease in
debtors 3.2 21.2
(Decrease) /
increase in
creditors (38.6) 100.3
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net cash
inflow from
decrease in
working
capital 698.0 6.8
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
(ii) Management of liquid resources
Decrease /
(increase) in
cash deposits
treated as
liquid
resources 55.7 (65.5)
Net sale of
government
securities 7.8 44.6
Net sale /
(purchase) of
listed
investments 3.3 (67.9)
Net purchase
of unlisted
investments (0.1) (0.2)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Cash inflow /
(outflow) from
decrease /
(increase) in
liquid
resources 66.7 (89.0)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
(iii) Financing
Increase /
(decrease) in
bank loans,
overdrafts and
commercial
paper treated
as financing 649.0 (22.3)
Drawdown of
syndicated
bank facility 200.0 -
(Redemption) /
issue of
medium term
notes (95.2) 441.7
Redemption of
securitised
loan notes (2.8) (2.5)
Increase /
(decrease) in
other
creditors
treated as
financing 6.6 (3.3)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Debt financing
as shown in
analysis of
net debt 757.6 413.6
Purchase of
own shares (2,300.0) (54.4)
Tender Offer
expenses (14.9) -
Net sale /
(purchase) of
own shares
held by
employee
trusts 0.6 (3.6)
Redemption of
B shares (19.2) (33.4)
Shares issued
under
employees'
share schemes 68.4 24.8
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net cash
(outflow) /
inflow from
(decrease) /
increase in
financing (1,507.5) 347.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
10 Cash flow on disposal of Marks and Spencer Retail
Financial Services Holdings Limited
As described in note 5C, on 9 November 2004 the Group disposed of its interest in Marks and Spencer Retail Financial
Services Holdings Limited to HSBC Holdings plc.
£m
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Agreed sale
proceeds (net
of costs) 768.6
Less: pre-sale
dividend (235.0)
Less: net cash
disposed with
business (56.6)
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net cash flow
from disposal 477.0
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Net debt
before
pre-sale
dividend 548.1
Add: pre-sale
dividend 235.0
Add: net cash
disposed with
business 56.6
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
Debt financing
net of liquid
resources
disposed with
subsidiary 839.7
------------------------------------- ------ --------- --------- --------- --------- --------- ---------
11 Date of approval
The financial statements for the year ended 2 April 2005 were approved by the
Directors on 23 May 2005.
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