Final Results
Marks & Spencer Group PLC
21 May 2002
Marks and Spencer Group p.l.c.
Preliminary Results Announcement
Year ended 30 March 2002
HIGHLIGHTS
• Group turnover from continuing operations up 3.8% to £7,619.4m, with a
second half increase of 6.9%
• Group operating profit from continuing operations before exceptional
charges up 30.8% to £629.1m
• Group profit before tax and exceptional items from continuing operations
up 30.7% to £646.7m
• Adjusted earnings per share up 45.5% to 16.3 pence per share
• Final dividend per share of 5.8 pence, up 9.4%, giving a full year
dividend of 9.5 pence per share (+ 5.6%)
• Delivery of the restructuring programme, allowing £2bn to be returned to
shareholders
The restructuring strategy and recovery plan announced at the end of March last
year has been substantially completed. Having exited loss making and non-core
activities, the Group is now focused on its core businesses - UK Retail and
Financial Services - with a capital structure in place to generate greater
earnings per share growth for shareholders.
In UK Retail, customer confidence in Clothing has been restored through improved
product appeal and segmentation. The 'Perfect' campaign, with its focus on
classically stylish merchandise for core customers continues to be successful.
In Womenswear, younger customers have been attracted to the stores through the
addition of the per una ranges, whilst the more traditional customers have
responded to the Classic Shops. In Menswear, the initial response to the Blue
Harbour ranges has been encouraging. The availability, quality and fit of
merchandise have improved and with the launch of the spring ranges, market share
has increased across adult clothing.
The business continues to benefit from changes in the way it sources merchandise
and the planned improvement in the Clothing buying margin of 3 percentage points
has been achieved over the last 12 months.
In Home, 27 concept shops have been created within larger stores and progress to
date has been encouraging.
The Food business has performed well and market share has been maintained in a
competitive trading environment. Customers continue to appreciate the enticing
food offer and high quality. Five Simply Food stores, small convenient food only
stores, have been opened as part of a plan to make the food offer easily
available to more customers.
Two-thirds of UK Retail selling space has now been modernised, creating a
brighter and more modern environment for customers. A further 100 stores will be
renewed in the coming year.
In Financial Services, profits were down on last year. Income from the
Chargecard held up well, but personal loan advances have fallen in a very
price-competitive environment. In addition, overall profits have been affected
by an increase in bad debt charges as the approach to providing for bad debts
was revised.
Commenting on the results, Luc Vandevelde, Chairman and Chief Executive said:
'We have made good progress and believe that we have turned the corner. However
I recognise our performance was helped by the buoyant High Street trading
conditions and now our task is to secure the recovery and to build for our
future. There is much to do and we are not complacent. Phase one may be
complete, but the plan moves on as we set about growing the business and
regaining our pre-eminent position in the UK market.
In phase two our strategy will deliver the following:
• A more efficient supply chain which will use scale advantage to deliver
further improvements in quality, appeal and value;
• Small food stores (20 this year) which will make our food offer more
accessible to more people more often;
• A wider offer for our customers in Home this autumn and a trial of two
large stand-alone 'Home Stores' in 2003/04; and
• A pilot of a combined credit and loyalty card to reinvigorate our
Financial Services business.
In view of the progress we have made to date, I am pleased to propose a final
dividend per share of 5.8 pence, up 9.4%, giving a full year dividend of 9.5
pence per share.'
OPERATING REVIEW
Group Summary
2002 2001 % inc.
Results from continuing operations £m £m
Turnover
- retained businesses 7,290.7 7,029.5 3.7%
- Kings Super Markets 328.7 313.1 5.0%
7,619.4 7,342.6 3.8%
Operating profit before exceptional charges
- retained businesses 616.5 469.0 31.4%
- Kings Super Markets 12.6 11.9 5.9%
629.1 480.9 30.8%
Profit before tax and exceptional items 646.7 494.8 30.7%
Earnings per share* 5.4p (0.2)p
Adjusted earnings per share* 16.3p 11.2p
* Based on total earnings attributable to shareholders
The year under review has seen a major change in the performance and focus of
the Group: there has been a significant turnaround in the performance of UK
Retail; loss making operations in Continental Europe have been closed; and
non-core businesses in North America have been sold or negotiations are ongoing
for their disposal.
The results from continuing operations include sales and operating profits from
Kings Super Markets as the intended disposal has not yet been completed. During
the year, Kings Super Markets contributed £328.7m to turnover (last year
£313.1m) and £12.6m to operating profits (last year £11.9m). The results from
Continental Europe (which were provided for last year) and Brooks Brothers have
been grouped together and separately disclosed under discontinued operations.
Turnover from continuing operations for retained businesses increased by 3.7% to
£7,290.7m. Within this, UK Retail turnover grew by 4.5% but was marginally
offset by decreases in turnover for Financial Services and International Retail.
Operating profit from continuing operations (but before exceptional charges)
increased by 30.8% to £629.1m. This was driven by the improvement in performance
of UK Retail, where operating profits before exceptional items increased by
50.9% to £505.2m, offset by decreases in operating profits from Financial
Services and International Retail.
Two transactions during the year gave rise to significant non-operating
exceptional items. Firstly, the sale and leaseback of 78 smaller stores
delivered a profit of £50.0m which is included in the overall profit on disposal
of fixed assets of £41.2m. Secondly, the disposal of Brooks Brothers for £157.1m
gave rise to a substantial accounting loss of some £376.7m. This loss reflects a
charge of £368.2m for goodwill which was written off to reserves when Brooks
Brothers was acquired and which we are now required to charge through the profit
and loss account. Excluding goodwill, the loss on disposal was £8.5m subject to
finalisation of the sale process.
Net interest income increased by £3.7m despite lower average interest rates, as
a result of higher average cash balances, which benefited from the proceeds of
disposal of businesses and properties.
Profit before tax was £335.9m compared to £145.5m last year. Excluding the
results from discontinued operations, and exceptional items, profit before tax
was £646.7m compared to £494.8m in the previous year, an increase of 30.7%. The
tax charge reflects an effective tax rate of 29.6% (excluding the effect of
exceptional items) compared to 32.9% last year. These rates reflect the adoption
of a new accounting standard on deferred tax which has increased the effective
rate of tax by 0.5 percentage points (last year 1.4 percentage points).
Basic earnings per share were 5.4p; eliminating the effect of exceptional items,
the adjusted earnings per share were 16.3p, an increase of 45.5% on last year. A
final dividend of 5.8p per share has been recommended by the Board, giving a
total of 9.5p for the year (last year 9.0p). Excluding the effect of exceptional
items, the dividend is covered 1.95 times.
The Group generated an operating cash flow for the year of £1,093.7m,
significantly up on the £676.4m achieved last year. Cash inflow before funding
of £1,132.0m includes the proceeds from the sale and leaseback of properties,
the sale of Brooks Brothers and the closure of Europe. Together with new debt in
the form of public bonds and securitisation of the property portfolio, this has
been used to fund the redemption of B shares. Overall net debt has increased to
£1,907.0m (last year £1,277.8m), after returning £1.7bn to date out of the £2bn
to be returned to shareholders.
UK Retail
2002 2001 % inc
£m £m
Turnover (excluding VAT) 6,575.2 6,293.0 4.5%
Operating profit before exceptional charges 505.2 334.8 50.9%
Turnover (excluding VAT) was up 4.5% on last year at £6,575.2m. Including VAT,
turnover was up 4.5% on last year, 4.0% on a like-for-like basis. Within this,
the average selling price for general merchandise decreased by approximately 2%,
but was more than offset by increases in volumes.
The quarterly sales performance is set out below, and clearly shows the
improvement in performance following the launch of the autumn ranges in early
September.
Q1 Q2 H1 Q3 Q4 H2 TOTAL
Increase/(decrease) on last year % % % % % % %
Clothing, footwear and gifts (9.1) 0.8 (4.8) 8.0 16.5 10.6 3.4
Home (1.5) 6.6 2.0 9.9 6.2 7.3 4.9
Food 5.9 4.9 5.4 6.0 6.0 6.0 5.7
Total (2.6) 2.8 (0.2) 7.3 10.9 8.4 4.5
The second half Clothing performance was significantly better than the first, as
customers reacted positively to the improvements in product appeal, quality and
fit. In Womenswear, this was helped by changes made to product segmentation
ranging from the per una collection, targeting younger customers, through the '
Perfect' ranges, to the Classic shops for the more traditional customer. The
momentum was maintained with the 'Magic & Sparkle' Christmas campaign and the
launch of the spring ranges in January, together with the Blue Harbour branding
of the casual Menswear ranges. Customer response to the spring ranges in
Womenswear and Menswear has been encouraging.
Lingerie experienced supply chain and availability issues in the first half,
which have now been resolved, and made steady progress against last year in the
second half, gaining market share.
The Childrenswear market remains competitive and action was taken early in the
year to realign prices. Subsequent sales volumes were however insufficient to
offset the reductions in selling prices. In August, we formed the Zip Project
with Desmond & Sons. This venture was established to increase the speed,
efficiency and cost effectiveness of the Childrenswear supply chain, enabling
customers to benefit from better prices and faster access to more fashionable
clothing. To date, we have invested £6.3m of revenue costs in this venture and
the first products will start to come into stores from July 2002.
The actions taken to consolidate the supply base and produce more merchandise
overseas continue to deliver benefits in the Clothing buying margin, which is 3
percentage points higher than last year. Together with improvements in appeal,
quality and fit, which resulted in a decrease in the proportion of merchandise
sold at reduced prices, this has delivered a significant improvement in the
Clothing gross profit. Going forward, we aim to exploit the opportunities that
exist to improve the speed and flexibility of the supply chain.
The performance of the Home business was adversely affected at the start of the
year by the announcement to close the 'Direct' clothing catalogue business. This
impact was short-lived and sales subsequently improved, further helped by two
Chargecard events in October and February. During the year, we have created 27
Home concept stores within our larger stores.
The performance of the Food business was relatively constant throughout the
year, even against challenging comparatives for the second half of last year.
Overall, we maintained our market share in a competitive environment. We have
extended the reach of our offer, having opened two stand-alone 10,000 sq. ft.
food stores and two 3,000 sq. ft. Simply Food outlets. In addition, three
outlets have been opened at railway stations in partnership with Compass Group.
In the coming year, we plan to open 20 Simply Food stores with a further 30 to
follow.
Operating costs increased by 3.6% for the full year. Full year operating costs
include:
• £26.0m of additional pension costs following an actuarial valuation of the
pension scheme;
• an additional £52.8m in respect of performance bonuses for management and
store staff which was shared across 56,000 employees; and
• £17.8m on store modernisation.
These have been partially offset by savings in consultancy fees, marketing and
IT costs and cost savings arising out of the closure of the 'Direct' clothing
catalogue operation. In the second half, there was an additional £9.8m of rental
expense following the sale and leaseback transaction.
Excluding performance bonuses, UK Retail operating costs increased by 0.5%.
We modernised 100 stores during the year, including the addition of 50 new
Beauty shops and a further 30 Coffee shops, at a total cost of approximately
£140m. This includes £17.8m of revenue costs referred to above. We have plans to
modernise a further 100 stores in the coming year at a cost of approximately
£60m (including business unit schemes) representing approximately 20% of UK
Retail selling space.
We have also introduced new programmes into stores to help drive improved
performance. The Foundations for Success programme established new ways of
working, higher targets for customer service and a focus on in-store standards.
These have encouraged greater ownership of individual store performance and, as
a result, employees have been rewarded accordingly.
UK capital expenditure for the year was approximately £265m, including
expenditure on new and extended stores (£62m) and modernisation (£122m). Total
selling space declined from 12.4m sq. ft. to 12.2m sq. ft. Capital expenditure
is expected to be broadly level in the coming year.
Financial Services
Operating profit from Financial Services decreased by £12.1m to £84.2m. Within
this, the operating profit from Financial Services retailing activities was
£73.2m (last year £81.5m). The balance of the operating profit is attributable
to the captive insurance company which was affected by negative investment
returns for the year as a whole due to falls in the underlying markets.
The proportion of retail sales made on the Chargecard has stabilised at
approximately 20%. The number of active Chargecard accounts decreased during the
year, but with the average outstanding balance per customer increasing by 7%,
average customer borrowings have been broadly level year on year. Together with
an improved net interest margin, this has led to an overall increase in net
income.
In a very competitive environment personal loan advances have fallen. During the
year, we reviewed the bad debt policy and amended our approach to providing for
bad debts. This resulted in a revised write off policy which, together with an
increase in the proportion of balances in arrears and a strengthening of
provisions in line with other providers, has led to an increase in bad debt
charges of £11.9m (across all credit products) compared to last year. This is a
one-off adjustment to reflect our experience on the historic book.
In other areas, the number of new life and pension policies has fallen
year-on-year in a competitive market and personal lines insurance and mortgage
protection products have not grown to sufficient scale.
During the period, we have looked at ways of more effectively leveraging the
synergies between our retail and financial services businesses. We have held two
discount days in stores for our Chargecard customers which were well received.
Later this year we intend to pilot a combined credit and loyalty card in two
regions of the UK, as part of a plan to strengthen and extend the relationship
with our customers. It is expected that the impact of the pilot will add
approximately £35m to Financial Services operating costs in the coming year.
This includes the cost of the pilot together with necessary infrastructure
costs. However, we expect to reduce our on-going operating costs by some £10m.
International Retail
Turnover for the year in the overseas businesses (Republic of Ireland,
franchises, Hong Kong and Kings Super Markets) increased by 1.0%. Turnover for
the retained overseas businesses (excluding Kings Super Markets) decreased by
2.3% to £364.7m (a 3.0% decrease at constant exchange rates), resulting from
weaker performances in certain key franchises and Hong Kong, although franchise
sales improved in the final quarter.
Operating profit for International Retail was down 20.5% at £33.3m with
operating profits for retained overseas businesses down 31.0% at £20.7m. Within
this, our business in the Republic of Ireland performed ahead of last year, but
some of our franchise partners experienced difficult trading conditions. Our
business in Hong Kong, which we have decided to retain and run as if it were a
franchise, also traded below last year's level in a weak economy. It also
incurred approximately £5m in restructuring and abortive sale costs which have
been charged in arriving at the operating profit of £20.7m referred to above.
Discontinued operations
During the year, we closed the Continental European operation and sold Brooks
Brothers. The results of these businesses up until the dates of closure or
disposal are reported under discontinued operations.
The cost of exiting the European operation, including ongoing trading losses,
was provided for last year. To date we have incurred closure costs of £136.8m,
including £42.5m of trading losses. The provision we set up at 31 March 2001 has
been utilised against these costs and we have released £10.0m as we now expect
the total cost of closure to be less than originally anticipated.
Brooks Brothers was sold at a loss of £376.7m, after taking into account
goodwill previously written off to reserves.
Cash flow
Cash inflow from operating activities has increased by £417.3m to £1,093.7m.
Within this, the cash inflow from retailing activities was £853.5m (last year
£654.2m) and the cash inflow from financial services activities was £240.2m
(last year £22.2m), as a result of the year-on-year decrease in customer
advances.
During the year, the Group acquired tangible fixed assets totalling £290.5m
(last year £255.7m). After taking into account the timing of payments the cash
outflow for capital expenditure was £285.7m (last year £269.8m).
Sale of tangible fixed assets through the sale and leaseback of property and the
disposal of other assets generated cash of £455.6m.
The sale of Brooks Brothers and the closure of Continental Europe realised
£261.6m for the Group, net of costs and cash included in net assets sold.
Balance sheet restructuring
The restructuring plans announced at the end of last year have been
substantially completed. We have:
• closed loss making operations in Continental Europe and the 'Direct'
clothing catalogue operation;
• sold Brooks Brothers for $225m (£157.1m); and
• raised £777.4m (net of costs) from the property portfolio through sale and
leaseback (£344.1m), securitisation (£321.5m) and the disposal of other
properties (£111.8m), but we have retained ownership of prime retail assets
in key locations with a net book value of over £2bn.
In addition, we raised £712.2m (net of costs) from the issue of two public bonds
and a further £265.3m (net) under the Medium Term Note programme, introducing a
level of gearing into the retail balance sheet.
At the end of the period, the weighted average interest rate on group borrowings
was 5.8%.
These actions allowed us to propose a return of £2bn to shareholders by way of a
Court approved Scheme of Arrangement. In March, we returned approximately £1.7bn
to those shareholders who had elected to redeem the B shares issued as part of
the Scheme of Arrangement. Approximately 394 million B shares with an aggregate
nominal value of £276m remain in issue and shareholders will have the
opportunity to redeem these in September and at six monthly intervals
thereafter.
Following the return of capital, total gearing is 46.9%, with retail gearing at
27.0%.
Pro-forma earnings
The sale and leaseback transaction and return of capital to shareholders will
have a significant effect on earnings in the coming year. If these transactions
had occurred at the beginning of the year, then we estimate that our earnings
from continuing operations (excluding Kings Super Markets) and before
exceptional items, would have been as follows:
2002
Pro-forma
£m
Turnover 7,291
Operating Profit 602
Interest expense (49)
Profit before tax 553
Earnings per share 16.7p
Retail fixed charge cover 6.0x
Accounting for pensions
Financial Reporting Standard 17 (FRS17) 'Retirement Benefits' was issued in
November 2000 to replace SSAP24 'Accounting for Pension Costs' and is fully
effective for the accounting periods ending on or after 22 June 2003. This year
the Group has continued to account for pension costs under SSAP24 although in
accordance with the FRS17 transitional arrangements, certain additional
disclosures will be included in the notes to the financial statements.
The actuary of the Group's UK defined benefit pension scheme carried out a
formal valuation of the scheme as at 31 March 2001. This valuation revealed a
shortfall of £134m (£94m after deferred tax) in the market value of the assets
of £3,102m compared to the actuarial liability for pension benefits (a funding
level of 96%).
In accordance with FRS17, the actuary has updated that valuation of the UK
scheme to 30 March 2002. The results of this update show that the deficit has
increased to £400m (£280m after deferred tax).
The increase in the deficit over the year is attributable to the actuarial loss
that would have been recognised through the Statement of Recognised Gains and
Losses if FRS17 had been fully implemented. Approximately £60m of the increase
in the deficit over the year results from a reduction in the corporate bond rate
(used to discount the liabilities) from 6.0% to 5.9% with the balance due
largely to a lower than expected value of the assets in the fund.
The FRS17 net pension liability has no impact on pension funding and as a
consequence has no impact on the Group's current or future cash flow or reported
earnings. Had the Group charged pension costs to the profit and loss account
under FRS17, the charge would have been in the region of £100m compared to the
current charge of £148m under SSAP24.
Outlook for 2002/03
The UK clothing market remains strong, however it is unlikely that current
consumer spending levels will be maintained.
Food sales will be adversely affected by no Easter trading periods in 2002/03
compared to two in 2001/02. This will impact sales by approximately 0.7% for the
full year.
We anticipate further improvement in the Clothing buying margin of approximately
1 percentage point, reflecting the remaining benefits of the action to
consolidate and relocate our manufacturing base first announced in 1999. This
includes the gross margin improvement in Zip.
We expect to deliver lower clothing markdowns in the first half of 2002/03,
following the improved performance in the second half of 2001/02, and are
targeting a full year reduction in markdown costs of 10%.
Underlying UK Retail operating costs including logistics for 2002/03 are
budgeted to increase marginally ahead of inflation. In addition, there will be:
• the full year impact, approximately £25m, of the sale and leaseback
transaction;
• one-off costs of approximately £10m, which will be incurred principally
for IT and infrastructure in preparation for the relocation of the Corporate
Head Office; and
• additional costs of approximately £15m relating to the Zip Project offset
by a corresponding benefit in the Childrenswear gross margin.
Taking these into account, UK Retail operating costs will increase by
approximately 5%.
In addition, the pilot of a combined credit and loyalty card will add
approximately £35m to Financial Services operating costs in the coming year.
This includes both the cost of the pilot together with necessary infrastructure
costs. However, we expect our on-going operating costs to decrease by some £10m
and bad debts to return to the level experienced in the previous year.
The effective tax rate is expected to be 30%.
Group capital expenditure is expected to be in the region of £300m.
Consolidated profit and loss account
52 weeks ended 31 March 2001
52 weeks ended 30 March 2002
Notes Continuing Discontinued Total
Continuing Discontinued Operations Operations Restated
Operations Operations Total Restated Restated (*)
£m £m £m £m £m £m
Turnover 2 7,619.4 516.0 8,135.4 7,342.6 733.1 8,075.7
Operating profit:
Continuing operations:
Before exceptional charges 629.1 - 629.1 480.9 - 480.9
Exceptional operating charges 5 - - - (26.5) - (26.5)
Continental European operations - (42.5) (42.5) - (34.0) (34.0)
Less provision made last year - 42.5 42.5 - - -
Other discontinued operations - 14.7 14.7 - 20.1 20.1
Total operating profit 3 629.1 14.7 643.8 454.4 (13.9) 440.5
Profit / (loss) on sale of property 6A 41.2 - 41.2 (83.0) (0.2) (83.2)
and other fixed assets
Provision for loss on operations 6B - - - - (224.0) (224.0)
to be discontinued
Loss on sale / termination of 6C
operations:
Loss arising on sale / closure - (102.8) (102.8) (1.7) - (1.7)
Less provision made last year - 104.3 104.3 - - -
- 1.5 1.5 (1.7) - (1.7)
Goodwill previously written off - (368.2) (368.2) - - -
Net loss on sale / termination - (366.7) (366.7) (1.7) - (1.7)
of operations
Net interest income 4 17.6 - 17.6 13.9 - 13.9
Profit on ordinary activities 687.9 (352.0) 335.9 383.6 (238.1) 145.5
before taxation
Taxation on ordinary activities 7 (195.1) 12.6 (182.5) (146.3) (3.2) (149.5)
Profit on ordinary activities 492.8 (339.4) 153.4 237.3 (241.3) (4.0)
after taxation
Minority interests (all equity) 1.1 (1.5) (0.4) 0.5 (2.0) (1.5)
Profit attributable to 493.9 (340.9) 153.0 237.8 (243.3) (5.5)
shareholders
Dividends 9 (238.9) - (238.9) (258.3) - (258.3)
Retained profit/(loss) for the 255.0 (340.9) (85.9) (20.5) (243.3) (263.8)
period
Earnings per share 8 5.4p (0.2)p
Diluted earnings per share 8 5.4p (0.2)p
Adjusted earnings per share 8 16.3p 11.2p
Diluted adjusted earnings per 8 16.2p 11.2p
share
Dividend per share 9 9.5p 9.0p
Consolidated statement of total recognised gains and losses
52 weeks
52 weeks ended
ended 31 March
30 March 2001
2002 Restated
£m £m
Profit/(loss) attributable to 153.0 (5.5)
shareholders
Exchange differences on foreign 0.1 13.3
currency translation
Unrealised surplus / (deficit) on revaluation of 0.5 (1.7)
investment properties
Total recognised gains and losses relating 153.6 6.1
to the period
Prior year adjustment (see note 7) (79.6)
Total recognised gains and losses since 74.0
last annual report
(*) Prior comparatives have been restated due to the adoption of Financial
Reporting Standard (FRS) 19 'Deferred tax' - see note 7
Consolidated balance sheet
As at
As at 31 March
30 March 2001
2002 Restated
£m £m
Fixed assets
Tangible assets 3,381.2 4,118.9
Investments 50.3 58.3
3,431.5 4,177.2
Current assets
Stocks 325.3 472.5
Debtors 2,619.3 2,629.3
Cash and investments 816.1 414.4
3,760.7 3,516.2
Current liabilities
Creditors: amounts falling due (1,750.8) (1,981.6)
within one year
Net current assets 2,009.9 1,534.6
Total assets less current 5,441.4 5,711.8
liabilities
Creditors: amounts falling due after more (2,156.3) (735.1)
than one year
Provisions for liabilities and (203.8) (395.3)
charges
Net assets 3,081.3 4,581.4
Capital and reserves
Called up share capital 852.7 716.9
Share premium account 2.8 -
Capital redemption reserve 1,717.9 -
Revaluation reserve 387.3 455.6
Other reserve (6,542.2) 378.2
Profit and loss account 6,662.4 3,015.1
Shareholders' funds (including 3,080.9 4,565.8
non-equity interests)
Minority interests (all equity) 0.4 15.6
Total capital employed 3,081.3 4,581.4
Equity shareholders' funds 2,804.9 4,565.8
Non-equity shareholders' funds 276.0 -
Total shareholders' funds 3,080.9 4,565.8
Reconciliation of movements in shareholders' funds
As at
As at 31 March
30 March 2001
2002 Restated
£m £m
Profit/(loss) attributable to 153.0 (5.5)
shareholders
Dividends (238.9) (258.3)
(85.9) (263.8)
Other recognised gains and losses relating 0.6 11.6
to the period
New share capital subscribed 8.9 7.1
Issue/redemption expenses (9.3) -
Amounts added from profit and loss account reserve in respect of shares issued 2.5 -
to the QUEST
Redemption of B shares (1,717.9) -
Purchase of own shares (52.0) (20.3)
Goodwill transferred to profit and loss account on sale/closure of 368.2 (1.3)
businesses
Net reduction in shareholders' (1,484.9) (266.7)
funds
Opening shareholders' funds as 4,645.4 4,905.3
previously stated
Prior year adjustment (see note 7) (79.6) (72.8)
Opening shareholders' funds as 4,565.8 4,832.5
restated
Closing shareholders' funds 3,080.9 4,565.8
Consolidated cash flow statement
52 weeks 52 weeks
ended ended
30 March 31 March
2002 2001
£m £m
Cash inflow from operating 1,093.7 676.4
activities (see note 10)
Returns on investments and
servicing of finance
Interest received 38.8 13.1
Interest paid (2.0) -
Dividends paid to minorities - (0.5)
Net cash inflow from returns on investments and 36.8 12.6
servicing of finance
Taxation
UK corporation tax paid (172.0) (164.5)
Overseas tax paid (7.4) (0.1)
Cash outflow for taxation (179.4) (164.6)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (285.7) (269.8)
Sale of tangible fixed assets 455.6 18.9
Purchase of fixed asset (2.9) (18.0)
investments
Sale of fixed asset investments 9.0 10.7
Net cash inflow/(outflow) for capital expenditure and 176.0 (258.2)
financial investment
Acquisitions and disposals
Closure of operations 122.2 (0.9)
Sale of subsidiaries 139.4 (0.8)
Repayment of loan by joint venture - 7.6
Cash inflow from acquisitions and 261.6 5.9
disposals
Equity dividends paid (256.7) (258.6)
Cash inflow before management of liquid resources and 1,132.0 13.5
financing
Management of liquid resources and
financing
Management of liquid resources (29.1) 263.7
(see note 10 ii)
Financing (see note 10 iii) (730.2) (265.4)
Increase in cash 372.7 11.8
Reconciliation of net cash flow to movement in net debt
52 weeks 52 weeks
ended ended
30 March 31 March
2002 2001
£m £m
Increase in cash 372.7 11.8
Cash outflow / (inflow) from increase / (decrease) in 29.1 (263.7)
liquid resources
Cash (inflow) / outflow from (increase) / decrease in debt financing (1,031.7) 245.9
(see note 10 iii)
Exchange movements 0.7 (20.4)
Movement in net debt (629.2) (26.4)
Opening net debt (1,277.8) (1,251.4)
Closing net debt (1,907.0) (1,277.8)
Notes
1. Basis of preparation
The results comprise those of Marks and Spencer Group p.l.c. and its UK and
international subsidiaries for the 52 week period ended 30 March 2002 and have
been prepared using accounting policies consistent with those adopted last year
with the exception of the new accounting standard on deferred tax. The details
of this change in accounting policy are set out in note 7. 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 Company's auditors, but have not yet 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.
The results have been prepared using merger accounting principles following a
reconstruction of the group under a Court approved Scheme of Arrangement. In the
opinion of the Directors, the Scheme of Arrangement is a group reconstruction
rather than an acquisition, since the shareholders of Marks and Spencer Group
p.l.c. are the same as the former shareholders in Marks and Spencer p.l.c. and
the rights of each shareholder, relative to the others, are unchanged and no
minority interest in the net assets of the Group is altered. Therefore, the
Directors consider that to record the Scheme of Arrangement as an acquisition by
Marks and Spencer Group p.l.c., attributing fair values to the assets and
liabilities of the Group and reflecting only the post-Scheme of Arrangements
results within these accounts would fail to give a true and fair view of the
Group's results and financial position.
Accordingly, merger accounting principles have been adopted. The results are
presented as if the Scheme of Arrangement had been effective on 1 April 2001
except for the effect of the capital restructure and subsequent reduction of
capital which took place on 22 March 2002. The consolidated profit and loss
account combines the results of Marks and Spencer p.l.c. for the 52 week period
ended 30 March 2002 with those of the Marks and Spencer Group p.l.c. for the
period since its incorporation to 30 March 2002. The comparative figures relate
to Marks and Spencer p.l.c. as restated for the effect of the Scheme of
Arrangement.
2. Turnover
Turnover (excluding sales taxes for international operations) is analysed as follows:-
52 weeks 52 weeks
ended ended
30 March 31 March
2002 2001
£m £m
Continuing operations:
UK Retail (including VAT)
Clothing, footwear and gifts 3,773.4 3,649.5
Home 373.3 355.8
Foods 3,093.5 2,925.9
7,240.2 6,931.2
Less : United Kingdom VAT (665.0) (638.2)
6,575.2 6,293.0
International Retail (1) 693.4 686.5
Financial Services 350.8 363.1
Turnover from continuing operations 7,619.4 7,342.6
Discontinued operations:
Continental Europe 170.2 285.0
Brooks Brothers (including Japan) 345.8 448.1
Turnover from discontinued operations 516.0 733.1
Total turnover 8,135.4 8,075.7
(1) International consists of the Republic of Ireland, Franchises, Hong Kong and
Kings Super Markets.
The value of goods exported from the UK, including shipments to international
subsidiaries, amounted to £329.8m (last year £436.0m).
3. Operating profit
Operating profit arises as follows:-
52 weeks 52 weeks
ended ended
30 March 31 March
2002 2001
£m £m
Continuing operations:
UK Retail
Before exceptional operating charges 505.2 334.8
Less: exceptional operating charges (see note 5) - (26.5)
505.2 308.3
International Retail 33.3 41.9
Financial Services 84.2 96.3
Segmental operating profit from continuing operations 622.7 446.5
Add: excess interest charged to cost of sales of 6.4 7.9
Financial Services (see note 4)
Operating profit from continuing operations 629.1 454.4
Discontinued operations:
Continental Europe (42.5) (34.0)
Less: release of provision made last year 42.5 -
- (34.0)
The Americas
Brooks Brothers (including Japan) 14.9 20.2
Corporate expenses (0.2) (0.1)
14.7 20.1
Operating profit from discontinued operations 14.7 (13.9)
Total operating profit 643.8 440.5
4. Interest charged to cost of sales
Financial Services operating profit is stated after charging £103.7m (last year
£115.3m) 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 £116.9m (last year £107.4m). Intra group
interest of £6.4m (last year £7.9m), being the excess over third party interest
payable, has been added back in the segmental analysis to arrive at total
operating profit. The intra group interest added back this year arose in the
first half of the year when the interest charged to cost of sales of Financial
Services was greater than the interest payable for that period.
5. Exceptional operating charges
52 weeks 52 weeks
ended ended
30 March 31 March
2002 2001
£m £m
UK restructuring costs (1) - (26.5)
(1) The £26.5m last year was in respect of the closure of the 'Direct' catalogue
business (£16.5m) and the reduction of roles at the Group's head office
(£10.0m).
6. Non-operating exceptional charges
6A Profit/(loss) on sale of property and other fixed assets
52 weeks 52 weeks
ended ended
30 March 31 March
2002 2001
£m £m
Provision for loss on 'Direct' assets (1) - (19.0)
Other asset disposals (2) 41.2 (64.2)
Profit/(loss) on sale of property and other fixed assets 41.2 (83.2)
(1) Including the restructuring cost of £16.5m disclosed in note 5 above, this
gave rise to total closure costs for the 'Direct' catalogue business of £35.5m
last year.
(2) Other asset disposals mainly relates to the disposal of UK stores.
6B Provision for loss on operations to be discontinued
52 weeks 52 weeks
ended ended
30 March 31 March
2002 2001
£m £m
Net closure costs - (225.3)
Goodwill previously credited to reserves - 1.3
Provision for loss on operations to be discontinued - (224.0)
The provision for loss on operations to be discontinued represented the expected
cost of the closure of the Group's Continental European subsidiaries. Net
closure costs included provisions for future trading losses, losses on disposal
of fixed assets, property exit costs and redundancy costs.
6C Loss on sale / termination of operations
The loss on sale / termination of operations in the current year is analysed as follows:
Continental Brooks
Europe Brothers Total
£m £m £m
Net closure costs (94.3) - (94.3)
Less provision made last year 104.3 - 104.3
Net sale proceeds less net assets - (8.5) (8.5)
Goodwill previously written off to reserves - (368.2) (368.2)
10.0 (376.7) (366.7)
The loss on disposal last year of £1.7m relates to the sale of the Group's
interest in Splendour.com and it stated after a charge of £1.0m for goodwill.
7. Taxation
The taxation charge for the period ended 30 March 2002 reflects an effective tax
rate of 29.6% excluding the effect of exceptional items (last year 32.9%).
Included in the charge for the year is a credit of £13.2m (last year £8.5m)
which is attributable to exceptional charges.
Financial Reporting Standard (FRS) 19 'Accounting for deferred tax' has been
adopted with effect from 1 April 2000. FRS19 requires, subject to certain
exemptions, deferred tax be recognised in respect of all timing differences that
have originated but not reversed by the balance sheet date. The Group's previous
accounting policy in respect of deferred tax was to recognise deferred tax to
the extent that a liability or asset was likely to be payable or recoverable.
The effect is to reduce profit after tax by £3.3m (last year £6.8m) from £156.7m
to £153.4m and to reduce opening net assets by £79.6m from £4,645.4m to
£4,565.8m. Earnings per share for the prior year have been restated from 0.0p to
a loss of 0.2p and adjusted earnings per share from 11.4p to 11.2p. Other prior
year comparatives have been restated accordingly.
8. Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax
and minority interests of £153.0m (last year a deficit of £5.5m), and on
2,841,723,149 ordinary shares (last year 2,872,370,247), being the weighted
average number of ordinary shares in issue during the year ended 30 March 2002.
The weighted average number of ordinary shares used in the calculation of
diluted earnings per ordinary share is 2,865,434,256 ordinary shares (last year
2,882,233,080).
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. 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
52 weeks ended
ended 31 March
30 March 2001
2002 Restated
Earnings per share 5.4p (0.2)p
Exceptional operating charges - 0.7p
(Profit) / loss on sale of property and other fixed (1.5)p 2.9p
assets
Loss on sale / termination of operations 12.4p 0.1p
Provision for loss on operations to be discontinued - 7.7p
Adjusted earnings per share 16.3p 11.2p
9. Dividend
The directors have proposed a final dividend of 5.8p per share (last year 5.3p).
This makes a total ordinary dividend for the year of 9.5p (last year 9.0p). The
total cost of dividends is £238.9m (last year £258.3m). The ordinary shares will
be quoted ex dividend on 29 May 2002. The final dividend will be paid on 19 July
2002 to shareholders whose names are on the Register of Members at the close of
business on 31 May 2002. Shareholders may choose to take this dividend in shares
or in cash.
10. Analysis of cash flows given in the cash flow statement
52 weeks 52 weeks
ended ended
30 March 31 March
2002 2001
£m £m
Operating activities
Operating profit 643.8 440.5
Exceptional operating items - 26.5
Operating profit before exceptional charges 643.8 467.0
Release of provision against European trading losses (42.5) -
Depreciation 249.6 275.9
Decrease / (increase) in working capital (see note (i)) 272.8 (36.2)
Net cash inflow before exceptional items 1,123.7 706.7
Exceptional operating cash outflow (30.0) (30.3)
Cash inflow from operating activities 1,093.7 676.4
52 weeks 52 weeks
ended ended
30 March 31 March
2002 2001
£m £m
(i) Increase in working capital
Decrease in stocks 66.2 14.7
Decrease / (increase) in customer advances 76.2 (117.8)
Increase in creditors 174.9 23.1
Other working capital movements (44.5) 43.8
272.8 (36.2)
(ii) Management of liquid resources
(Increase) / decrease in cash deposits treated as liquid (16.3) 135.5
resources
Net sale / (purchase) of government securities 19.6 (67.5)
Net purchase of listed investments (36.8) (0.3)
Net (purchase) / sale of unlisted investments (0.3) 2.0
Net sale of unlisted investments on sale of business 4.7 -
Net decrease in short-term deposits - 194.0
Cash (outflow) / inflow from (increase) / decrease in (29.1) 263.7
liquid resources
(iii) Financing
(Decrease) / increase in bank loans, overdrafts and (268.6) 76.0
commercial paper treated as financing
Issue / (redemption) of medium term notes 977.5 (310.8)
Issue of securitised loan notes 319.4 -
Increase / (decrease) in other creditors treated as 3.4 (11.1)
financing
Debt financing as shown in analysis of net debt 1,031.7 (245.9)
Purchase of own shares (52.0) (20.3)
Redemption of B shares (1,717.9) -
Issue/redemption expenses (9.3) -
Shares issued under employees' share schemes 17.3 0.8
Net cash outflow from decrease in financing (730.2) (265.4)
11. Date of approval
The financial statements for the period ended 30 March 2002 were approved by the
Directors on 20 May 2002.
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