Interim Results
Marks & Spencer Group PLC
04 November 2003
Issued: Tuesday 4 November 2003
Marks and Spencer Group p.l.c.
Interim Results Announcement
26 weeks ended 27 September 2003
FINANCIAL HIGHLIGHTS
BEFORE EXCEPTIONAL ITEMS
•UK Retail sales up 4.3% to £3.3bn
•Group operating profit up 8.6% to £335.4m
•Group profit before tax up 7.4% to £311.5m
•Earnings per share up 7.0% to 9.2 pence per share
•Interim dividend of 4.4 pence per share, up 10%
•Group operating cash flow of £509.4m
2003 2002 % inc/
£m £m (dec)
--------------------------------------------------------------------------------
Turnover 3,804.2 3,691.9 3.0
--------------------------------------------------------------------------------
Pre-exceptional results
Operating profit 335.4 308.9 8.6
Profit before tax 311.5 290.1 7.4
Earnings per share 9.2p 8.6p 7.0
--------------------------------------------------------------------------------
Post-exceptional results
Operating profit 331.7 305.8 8.5
Profit before tax 326.0 285.3 14.3
Earnings per share 9.8p 8.4p 16.7
--------------------------------------------------------------------------------
Chairman, Luc Vandevelde commented:
'We have delivered earnings growth of 7.0% in the first half, in what has been a
challenging trading environment. We have held market share in Clothing, grown
market share in Food, and achieved buying efficiency gains. We have also managed
the business tightly, controlling underlying costs to support our investment in
new initiatives.
In light of this, I am pleased to declare an interim dividend of 4.4 pence per
share, an increase of 10% on last year.
Progress has been made with our new initiatives in Food, Money and Home,
establishing paths to future growth. We see these as opportunities to meet the
needs of our existing customers in new ways and also to attract new customers.
Over this half year, we have continued the roll-out of the Simply Food stores
and have launched the '&more' loyalty and credit card, which is being well
received by our customers. We are also on plan to open our first Marks & Spencer
Lifestore next Spring.
As we go into this important trading period, we remain focused on delighting our
customers with great products at great value, giving them reasons to keep coming
to us and buying more.'
Roger Holmes, Chief Executive said:
'For this half year we achieved a Group operating profit before exceptional
items of £335.4m, up 8.6%, and Group profit before tax and exceptional items of
£311.5m, up 7.4%. The Group operating cash flow is £509.4m.
We have grown UK Retail operating profits by 20%, enabling us to invest in the
growth strategies for our business and, specifically, in the national launch of
our new '&more' credit and loyalty card.
In Clothing we delivered modest overall sales growth of 2.5% in a period of
limited space expansion, holding market share. We performed well in casualwear,
both in women's and men's wear, notably in 'per una', which delivered strong
like-for-like sales in its second year. However, knitwear was affected by the
hot weather and we have more work to do in women's tailoring. In Lingerie, we
achieved a 0.7% gain in market share. We have seen early signs of stabilisation
within our Childrenswear business, supported by a pleasing performance in
schoolwear.
In Food, overall sales growth was ahead of the market but performance was less
strong in the second quarter when we had lower levels of promotional activity
than last year, with sales also affected by the hot weather. For the Autumn
season, we have increased promotional activity back to normal levels. We
continue to make progress on our target of adding 500,000 square feet of new
food space, some 150 stores, by March 2006. By the end of September, we had
opened 37 Simply Food stores, of which we opened 19 in this half year, and had
29 Food stores, of which we opened one during the same period.
We continue to improve efficiency in the Clothing supply chain and the
improvement in the Clothing bought-in margin was ahead of plan. We are also
managing our stock better and put 10% less stock into our Summer sale. In Food,
we are looking to re-invest the sourcing gains we have made to date.
We remain on track to meet our target of holding underlying operating costs
level for the full year, as we continue to drive efficiencies throughout the
business. In the second half we will see the cost benefits from increased scale
and efficiency as a result of decreasing the number of warehouse operators. We
also see an opportunity to advance our supply chain through the use of Radio
Frequency Identification technology, which we are currently trialling.
In Money, our retail financial services business, we launched the new '&more'
credit and loyalty card in October, following a successful pilot in South Wales.
We are only four weeks into the launch and our customers have been pleased with
the offer, demonstrating the strength of the relationship that we have with
them. Two million customers have already received their cards and the opt-out
rate to date is 3%, roughly half the level experienced during the pilot at a
similar stage. We are also activating 60,000 cards a day and the penetration of
retail sales has reached 18.4% which compares with an average for September of
14.8%.
We continue to make progress on the launch of the new stand alone Home concept
store Marks & Spencer Lifestore, opening at the end of February 2004. We also
announced during this period that we would be trialling the format in our
existing Kingston satellite store in Summer 2004 and opening a new store at
Thurrock in 2005.
As we move into one of our most exciting shopping periods, we are well set up to
offer our customers a great range of new products for Christmas. Our Christmas
gift catalogue includes 50 per cent more products than last year. We have
extended our food ordering service, as well as launching a new, all year round
party ordering service 'Leave it to us', that includes 235 new products. We will
also be introducing our largest range to date of party clothing.'
OPERATING REVIEW
Group Summary
2003 2002 % inc/
Turnover (excl. VAT and sales taxes) £m £m (dec)
--------------------------------------------------------------------------------
Retailing
UK Retail 3,330.4 3,193.7 4.3
International Retail 326.3 331.6 (1.6)
---------------------------------------
3,656.7 3,525.3 3.7
Financial Services 147.5 166.6 (11.5)
--------------------------------------------------------------------------------
3,804.2 3,691.9 3.0
--------------------------------------------------------------------------------
2003 2002 % inc/
Operating profit before exceptional items £m £m (dec)
--------------------------------------------------------------------------------
Retailing
UK Retail 286.9 239.1 20.0
International Retail 18.0 19.3 (6.7)
---------------------------------------
304.9 258.4 18.0
Financial Services 30.5 50.5 (39.6)
--------------------------------------------------------------------------------
335.4 308.9 8.6
--------------------------------------------------------------------------------
Profit before tax and exceptional items 311.5 290.1 7.4
--------------------------------------------------------------------------------
Earnings per share 9.8p 8.4p 16.7
Adjusted earnings per share 9.2p 8.6p 7.0
--------------------------------------------------------------------------------
Retailing
UK Retail
Turnover, including VAT, was up 4.2% on last year, 2.4% on a like-for-like
basis. The quarterly sales performance for the period is set out below:
Actual increase / (decrease) on last year Q1 Q2 TOTAL
% % %
--------------------------------------------------------------------------------
Clothing and footwear 3.7 0.9 2.5
Home (inc. Gifts) 1.4 (1.7) 0.1
Food 8.1 5.4 6.9
--------------------------------------------------------------------------------
Total 5.4 2.6 4.2
--------------------------------------------------------------------------------
Q1 Q2 TOTAL
Like-for-like increase on last year % % %
--------------------------------------------------------------------------------
General Merchandise 2.8 Level 1.7
Food 5.1 1.6 3.4
--------------------------------------------------------------------------------
Total 3.8 0.6 2.4
--------------------------------------------------------------------------------
Food inflation during the period was 1.5%.
Total selling space increased by 0.2m sq ft to 12.5m sq ft (General Merchandise
8.9m sq ft and Food 3.6m sq ft). The weighted average footage for the period
rose by 1.1%.
Total Clothing sales for the period were up 2.5% on last year. The continuation
of the hot summer weather into September adversely affected Clothing sales
during that month, but overall market share was held for the half year.
Home sales in the first half were impacted by lower sales of furniture which
suffered in a weaker market from strong competition, driven increasingly by
promotional activity. The remaining areas of Home have increased sales in the
period.
In Food, we out-performed the market in the first half of the year, but our
performance was not as strong in the second quarter when we had less promotional
activity. Like-for-like comparisons also suffered from an exceptionally hot
summer and strong comparatives from the second quarter of last year. The focus
on extending the reach of our Food offer has continued during the first half of
this year. We have opened a total of 20 Food stores during the first half, of
which 19 are Simply Food stores, four in partnership with Compass. We plan to
open a further 35 Food stores by the end of the year. We remain on plan to open
500,000 square feet of new food space, some 150 stores, by March 2006.
We are continuing to realise gains in our Clothing bought-in margin as a result
of work on our supply chain and actions taken in previous years to increase
overseas production and consolidate our supply base. For the first half of this
year this delivered an improvement in the bought-in margin which was ahead of
plan. As a result of better stock management, approximately 10% less stock went
into the Summer sale. Consequently, total markdowns for the period were
marginally below the same period last year. Overall, the Clothing gross margin
was approximately 1.6 percentage points ahead of the same period last year. We
expect the bought-in margin in the second half to be 1 percentage point ahead of
the comparative period last year, and remain on track to deliver a 3 percentage
point improvement to the Clothing bought-in margin by 2005/06.
Improvements have been made in the level of food waste, both in absolute terms
and as a per cent to sales, against a period of relatively high waste last year.
Combined with lower costs of promotional activity and a reduction in bought-in
costs driven by volume growth, this has resulted in a 0.9 percentage point
improvement in the Food gross margin. In the second half of the year, we plan to
re-invest the bought-in margin gains back into product quality and prices and
expect the gross margin in the second half to be in line with last year.
Distribution costs, which are included in cost of sales, increased by 4.6%
during the first half of the year. The changes to the general merchandise
logistics operation which were announced at the end of last year were completed
during August. Ten distribution centres are now operated by two contractors,
Exel and Christian Salvesen. These new arrangements will generate ongoing annual
savings of approximately £20m, of which £11m are expected to be realised in the
second half of this year. Alongside the change of contractors, progress has been
made in acquiring the assets used in the distribution network. To date we have
purchased six warehouses, in addition to one we already owned, and agreed leases
on two more, incurring capital expenditure of approximately £76.5m, of which
£67.7m arose in the first half. Negotiations on the remaining warehouse are
expected to be completed in the second half of the year.
We have now modernised 268 stores, representing approximately 94% of UK Retail
selling space. A further nine stores will be trading in the new format prior to
Christmas.
UK Retail operating costs of £909m, excluding exceptional charges, increased by
3.7% over the same period last year:
• employee costs increased by 3.2% to £461m;
• property, repair and renewal costs of £170m decreased by 1.7%;
• depreciation was £113m, an increase of 3.3%; and
• other operating costs of £166m increased by 12.2%. This increase was
largely due to IT and marketing costs associated with growth initiatives
such as the loyalty element of the '&more' card, Home and Food, together
with costs incurred to support efficiency initiatives including a review of
the global supply chain.
Including distribution costs, operating expenses have increased by 3.9% on the
same period last year.
During the period, £3.7m of revenue costs were incurred in connection with the
relocation of the corporate head office and have been charged as exceptional
operating costs.
UK Retail capital expenditure for the period was £249.5m.
2003 2002
Capital expenditure £m £m
--------------------------------------------------------------------------------
New stores and extensions 67.1 25.4
Head office relocation 14.1 -
Store renewal, refurbishment and new selling 46.8 81.0
initiatives
Refrigeration equipment 29.4 39.4
IT equipment 11.3 10.5
Logistics warehouses 67.7 -
Other 13.1 8.4
--------------------------------------------------------------------------------
249.5 164.7
--------------------------------------------------------------------------------
UK Retail capital expenditure for the full year is now expected to be in the
region of £520m (£540m for the Group as a whole). The increase on last year is
attributable to the investment in the Simply Food roll-out and the Home
business, together with the acquisition of the UK general merchandise warehouses
owned by contractors and the head office move to Paddington Basin.
International Retail
At actual At constant
exchange rates exchange rates
--------------------------------------------------------------
2003 2002 % inc/ 2003 2002 % inc/
£m £m (dec) £m £m (dec)
--------------------------------------------------------------------------------
Turnover
Marks & Spencer 194.3 182.4 6.5 187.0 182.4 2.5
branded businesses
Kings Super 132.0 149.2 (11.5) 141.8 149.2 (5.0)
Markets
--------------------------------------------------------------------------------
326.3 331.6 (1.6) 328.8 331.6 (0.8)
--------------------------------------------------------------------------------
Operating
profit
Marks & Spencer 18.0 14.7 22.4 16.8 14.7 14.3
branded businesses
Kings Super - 4.6 - - 4.6 -
Markets
--------------------------------------------------------------------------------
18.0 19.3 (6.7) 16.8 19.3 (13.0)
--------------------------------------------------------------------------------
Turnover for the period in the Marks & Spencer branded businesses (Republic of
Ireland, franchises and Hong Kong) increased by 6.5% (2.5% at constant exchange
rates).
Operating profit for the Marks & Spencer branded businesses increased by 22.4%
to £18.0m. The stores in the Republic of Ireland have performed ahead of last
year and the performance of the first Simply Food store in Ireland has been
encouraging. The franchise business and our stores in Hong Kong suffered in the
first quarter from the effects of SARS and the war in Iraq. However, since the
end of the war and the removal of Hong Kong from the World Health Organisation's
list of affected areas, trading conditions have improved. For the first half of
the year overall, profits from the franchise business were marginally ahead of
last year, whereas profits from Hong Kong were below last year's level.
The performance of Kings Super Markets in the first half of this year has been
affected by local competition and uncertainty surrounding the sale, negotiations
for which were terminated in August. Since then we have been working with local
management to develop the business and drive financial performance, and we have
seen some improvement in performance. In addition, operating profits for the
first half have been adversely impacted by a further charge of £1.5m in
connection with two stores closed at the beginning of this financial year.
Financial Services
The focus in the first half of this year has been on the launch of a combined
credit and loyalty card and the re-branding of the retail financial services
business as Marks & Spencer Money.
In September we mailed selected Chargecard customers with details of our new '&
more' credit card and we will have completed this process by mid November. Early
indications are that our new proposition has been well received. Of the 2.6
million customers mailed, to date only 3% have opted out of the '&more' card and
retained their Chargecard. This is roughly half the level experienced at a
similar stage during the South Wales pilot.
To date, approximately 2 million customers have received their new cards and the
volume of activation calls is increasing each day, having recently exceeded
60,000 per day. This is on target with our original expectations and has not
been impacted by the recent minor change in our launch strategy, agreed with the
OFT.
Three weeks into the migration process the penetration of retail sales on a
Marks & Spencer card had reached 18.4% compared to an average of 14.8% in
September.
Daily transaction volumes are also increasing dramatically and have already
reached more than twice the level they stood at before the migration started.
Operational systems, which were totally redesigned for the new business model,
have performed well with no significant customer service issues experienced to
date.
2003 2002 % inc/
Operating Profit £m £m (dec)
--------------------------------------------------------------------------------
Underlying operating profit 53.9 57.1 (5.6)
Credit card revenue costs (33.3) (9.0) 270.0
--------------------------------------------------------------------------------
Marks & Spencer Money 20.6 48.1 (57.2)
Marks & Spencer Insurance 9.9 2.4 312.5
--------------------------------------------------------------------------------
Total Financial Services 30.5 50.5 (39.6)
--------------------------------------------------------------------------------
The activities undertaken to support the '&more' card and loyalty programme have
had an impact on the operating profit for Financial Services which has decreased
by £20.0m to £30.5m. Within this, underlying operating profits (excluding the
profit impact associated with the launch of the '&more' card) for Marks &
Spencer Money decreased by 5.6% to £53.9m. This reduction reflects performance
on our Credit products in line with last year but a reduction in operating
income achieved from our Savings & Protection products. In contrast to the
investment performance in the same period last year, the results of the captive
insurance company benefited from favourable investment returns due to increases
in the underlying markets.
The proportion of retail sales made using the Chargecard reduced during the
period to September with a consequential effect on balances. However an increase
in the proportion of balances bearing interest together with an improvement in
margin resulted in a 5.1% increase in operating income.
In personal lending (incorporating our Personal Loans and Personal Reserve
products) competitive forces remain strong and outstanding balances are down
8.2% year-on-year. However, incremental interest bearing personal loan advances
for the first six months are 3.1% ahead of last year. The increase in sales has
been particularly strong from our internet distribution channel.
Total bad debt charges for all credit products for the first six months are
£5.9m lower than last year on a like-for-like basis.
In other areas, the amount of new retail unit trust investment has increased by
18.8% with particularly strong performance from our High Income Fund which has
remained a top-ranking fund in its sector over the period. Business volumes
within our Life & Pensions business remained fairly stable however profit was
impacted by capital losses on rising bond yields. The number of new general
insurance policies sold increased significantly compared to last year following
the launch of four new products. Travel insurance in particular has exceeded
expectations and we sold 50,000 policies in the first half of the year.
Capital structure
In order to support the growth of Marks & Spencer Money, additional funding
arrangements have been put in place. During August, a three year Syndicated Loan
Facility was signed which will be used to provide surety and flexibility of
funding and provide further back-up for the Commercial Paper programme in the
second half of the year.
During the period, 5,100,000 ordinary shares (representing 0.2% of the issued
share capital) were purchased in the market at a total cost of £15.5m and a
weighted average price of 305p.
On 25 September 2003, 28,398,331 B shares were redeemed at par at a total cost
of £19.9m. Following this redemption, 140,421,470 B shares remain in issue. The
next opportunity for redemption will be in March 2004.
Net interest expense
Net interest expense was £23.9m compared to £18.8m for the same period last
year. The average rate of interest on borrowings during the period was 5.2% and
interest cover was 14.6.
Taxation
The tax charge reflects an estimated effective tax rate for the full year of
32.8% before exceptional charges, compared to 28.6% for the last full year. Last
year's charge benefited from prior year contributions to European subsidiary
closure costs being accepted as tax deductible in the UK.
Earnings per share
Adjusted earnings per share, which excludes the effect of exceptional items, has
increased by 7.0% to 9.2 pence per share.
Cash flow
The Group generated an operating cash inflow for the period of £509.4m (last
half year £422.5m). Within this, the cash inflow from retailing activities was
£417.9m (last half year £283.9m) benefitting from an improvement in working
capital this year compared to the same period last year. The cash inflow from
financial services activities was £91.5m (last half year £138.6m). A smaller
decrease this year in customer balances of £13.3m, (last half year a decrease of
£57.3m), is primarily responsible for the reduction in cash inflow from
financial services activities.
During the period, the Group acquired tangible fixed assets totalling £257.5m
(last half year £165.6m). After taking into account the timing of payments, the
cash outflow for capital expenditure was £198.8m (last year £129.9m). During the
period, the Group received £116.1m from the sale of the Fenchurch Street
property. Acquisitions and disposals includes an inflow of £78.0m, being
deferred proceeds following the sale of stores in France to Galeries Lafayette.
At the end of the period, net debt was £1.6bn, a decrease of £213m, giving rise
to retail gearing of 28.2%, with total gearing at 43.8%.
Pensions
At the end of last year, we reported that the FRS 17 valuation of the Group's UK
defined benefit pension scheme showed a deficit of £1.2bn (£0.9bn after deferred
tax). The actuary has updated this FRS 17 valuation of the scheme as at
27 September 2003. The results of this update show that the deficit has
decreased to £1.1bn (£0.8bn after deferred tax).
We announced in May that we would bring forward the next formal actuarial
valuation of the defined benefit pension scheme, which was planned for March
2004, to allow us to make an earlier informed decision as to the contribution
level and asset mix going forward. This also recognised the importance of
pension provision to our employees and the need to continue to review the
long-term funding strategy for the scheme. This review is underway and we expect
to reach a conclusion on the contribution level and asset mix during the second
half of the year. At this stage, we recognise that this is likely to result in
an increased level of funding but are not yet in a position to quantify this.
Updated guidance
• We are targeting a 1 percentage point improvement in the Clothing
bought-in margin for the second half*, but our guidance of 3 percentage
points over three years is unchanged.
• In the second half of the year, the Food gross margin will be broadly
level with the same period last year. *
• UK operating costs, including distribution, are expected to increase by
around 3% for the full year, due to the investment in growth initiatives,
with underlying costs held broadly level. This is before taking account of
the likely impact that the actuarial review of the Group's UK defined
benefit pension will have on the amount charged for pensions.
• The Head Office move to Paddington Basin will incur some £25m to £30m of
revenue costs which will be treated as an exceptional charge, of which
approximately £20m will be incurred this year. *
• In Money, the profit impact of the national roll-out remains
approximately £60m, a net increase of £35m on the year.
• This financial year incorporates a 53rd week, which is expected to add
between £30m and £40m to full-year profit before tax.
• Group capital expenditure will be in the region of £540m. *
• The current estimate of the pre-exceptional effective tax rate is 32.8%.*
* New or updated guidance.
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.
Consolidated profit and
loss account 26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
Notes £m £m £m
--------------------------------------------------------------------------------
Turnover 2 3,804.2 3,691.9 8,077.2
--------------------------------------------------------------------------------
Operating profit
Before exceptional 335.4 308.9 761.8
operating charges
Exceptional operating 5 (3.7) (3.1) (43.9)
charges
--------------------------------------------------------------------------------
Total operating 3 331.7 305.8 717.9
profit
--------------------------------------------------------------------------------
Profit / (loss) on sale 5 18.2 (0.2) 1.6
of property and other
fixed assets
Loss on sale / 5
termination of
operations:
Loss arising on sale / (1.6) (2.9) (12.3)
termination
Less provision made in 2001 1.6 1.4 10.8
--------------------------------------
- (1.5) (1.5)
Net interest expense 4 (23.9) (18.8) (40.5)
--------------------------------------------------------------------------------
Profit on ordinary 326.0 285.3 677.5
activities before
taxation
--------------------------------------------------------------------------------
Analysed between:
Profit on ordinary 311.5 290.1 721.3
activities before
taxation and
exceptional items
Exceptional items 5 14.5 (4.8) (43.8)
--------------------------------------------------------------------------------
Taxation on ordinary 6 (101.0) (86.1) (197.4)
activities
--------------------------------------------------------------------------------
Profit on ordinary 225.0 199.2 480.1
activities after
taxation
Minority interests (all - (0.2) 0.4
equity)
--------------------------------------------------------------------------------
Profit attributable to 225.0 199.0 480.5
shareholders
Dividends (including 8 (101.5) (96.4) (246.0)
dividends in respect of
non-equity shares)
--------------------------------------------------------------------------------
Retained profit for the 123.5 102.6 234.5
period
--------------------------------------------------------------------------------
Earnings per share 7 9.8p 8.4p 20.7p
Diluted earnings per 7 9.7p 8.3p 20.4p
share
Adjusted earnings per 7 9.2p 8.6p 22.2p
share
Diluted adjusted 7 9.1p 8.5p 21.9p
earnings per share
Dividend per share 8 4.4p 4.0p 10.5p
--------------------------------------------------------------------------------
Consolidated statement
of total recognised
gains and losses
26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Profit attributable to 225.0 199.0 480.5
shareholders
Exchange differences on (4.0) 8.7 3.4
foreign currency
translation
Unrealised deficit on - - (0.8)
revaluation of
investment properties*
--------------------------------------------------------------------------------
Total recognised gains 221.0 207.7 483.1
and losses relating to
the period
--------------------------------------------------------------------------------
* revalued annually in March
Consolidated balance
sheet As at As at As at
27 Sept 28 Sept 29 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Fixed assets
Tangible assets 3,473.7 3,383.9 3,435.1
Investments 30.9 37.5 31.5
--------------------------------------------------------------------------------
3,504.6 3,421.4 3,466.6
--------------------------------------------------------------------------------
Current assets
Stock 390.6 411.0 361.8
Debtors 2,319.3 2,581.3 2,455.4
Cash and investments 822.3 399.5 471.9
--------------------------------------
3,532.2 3,391.8 3,289.1
Current liabilities
Creditors : amounts (1,716.6) (1,484.1) (1,678.9)
falling due within one
year
--------------------------------------------------------------------------------
Net current assets 1,815.6 1,907.7 1,610.2
--------------------------------------------------------------------------------
Total assets less 5,320.2 5,329.1 5,076.8
current liabilities
Creditors : amounts (1,988.0) (2,112.5) (1,810.0)
falling due after more
than one year
Provisions for (203.3) (197.7) (228.4)
liabilities and
charges
--------------------------------------------------------------------------------
Net assets 3,128.9 3,018.9 3,038.4
--------------------------------------------------------------------------------
Capital and reserves
Called up share 665.2 722.2 685.7
capital
Share premium account 29.6 8.7 23.8
Revaluation reserve 370.6 383.2 370.6
Capital redemption 1,908.1 1,849.0 1,886.9
reserve
Other reserve (6,542.2) (6,542.2) (6,542.2)
Profit and loss 6,697.6 6,597.4 6,613.6
account
--------------------------------------------------------------------------------
Shareholders' funds 3,128.9 3,018.3 3,038.4
(including non-equity
interests)
Minority interests (all - 0.6 -
equity)
--------------------------------------------------------------------------------
Total capital 3,128.9 3,018.9 3,038.4
employed
--------------------------------------------------------------------------------
Reconciliation of
movement in
shareholders' funds
As at As at As at
27 Sept 28 Sept 29 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Profit attributable to 225.0 199.0 480.5
shareholders
Dividends (101.5) (96.4) (246.0)
--------------------------------------
123.5 102.6 234.5
Other recognised gains (4.0) 8.7 2.6
and losses relating to
the period
New share capital 6.4 6.5 23.0
subscribed
Amounts deducted from
profit and loss reserve
in respect
of shares issued to the - - (2.9)
QUEST
Redemption of B (19.9) (127.0) (158.0)
shares
Purchase of own (15.5) (53.4) (141.7)
shares
-------------------------------------
Net movement in 90.5 (62.6) (42.5)
shareholders' funds
Shareholders' funds at 3,038.4 3,080.9 3,080.9
beginning of the period
--------------------------------------------------------------------------------
Shareholders' funds at 3,128.9 3,018.3 3,038.4
end of the period
--------------------------------------------------------------------------------
Consolidated cash flow
statement
26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
Notes £m £m £m
--------------------------------------------------------------------------------
Operating activities
Operating profit 331.7 305.8 717.9
Exceptional operating 3.7 3.1 43.9
charges -------------------------------------
Operating profit before 335.4 308.9 761.8
exceptional charges
Depreciation 120.6 117.9 234.9
Decrease in working 9A 80.5 7.8 191.3
capital
-------------------------------------
Net cash inflow before 536.5 434.6 1,188.0
exceptional items
Exceptional operating (27.1) (12.1) (19.3)
cash outflow
--------------------------------------------------------------------------------
Cash inflow from 509.4 422.5 1,168.7
operating activities
Dividend received from - 8.0 8.0
joint venture
Returns on investments (15.9) (20.9) (46.2)
and servicing of
finance
Taxation (103.0) (99.7) (216.9)
Capital expenditure and 9B (77.2) (107.8) (295.2)
financial investment
Acquisitions and 9C 76.4 (29.4) (38.8)
disposals
Equity dividends paid (147.6) (133.8) (225.4)
--------------------------------------------------------------------------------
Cash inflow before 242.1 38.9 354.2
management of liquid
resources
Management of liquid (310.8) (28.9) (46.9)
resources
Financing 9D 110.6 (597.7) (711.5)
--------------------------------------------------------------------------------
Increase / (decrease) 41.9 (587.7) (404.2)
in cash
--------------------------------------------------------------------------------
Reconciliation of net
cash flow to movement
in net debt 26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Increase / (decrease) 41.9 (587.7) (404.2)
in cash
Cash outflow from 310.8 28.9 46.9
increase in liquid
resources
Cash (inflow) / outflow from (139.6) 423.8 431.4
(increase) / decrease
in debt financing
Exchange movements (0.1) (1.6) 1.5
--------------------------------------------------------------------------------
Movement in net debt 213.0 (136.6) 75.6
Net debt at beginning (1,831.4) (1,907.0) (1,907.0)
of the period
--------------------------------------------------------------------------------
Net debt at end of the (1,618.4) (2,043.6) (1,831.4)
period
--------------------------------------------------------------------------------
Notes to the interim
statement
1. Basis of
preparation
The results for the first half of the financial year have not been audited
and are prepared on the basis of the accounting policies set out in the Group's
2003 Annual Report and Financial
Statements.
The summary of results for the year ended 29 March 2003 does not constitute the
full financial statements within the meaning of s240 of the Companies Act 1985.
The full financial statements for that year have been reported on by the
Group's auditors and 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:-
26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
UK Retail (incl. VAT)
Clothing and footwear 1,859.1 1,813.6 4,003.3
(1)
Home (incl. gifts) (1) 216.9 216.7 545.7
Foods (1) 1,593.2 1,489.7 3,256.0
---------------------------------------
3,669.2 3,520.0 7,805.0
Less : United Kingdom (338.8) (326.3) (739.0)
VAT
---------------------------------------
3,330.4 3,193.7 7,066.0
International Retail
Marks & Spencer branded (2) 194.3 182.4 391.2
Kings Super Markets 132.0 149.2 290.1
---------------------------------------
326.3 331.6 681.3
--------------------------------------------------------------------------------
Total Retailing 3,656.7 3,525.3 7,747.3
Financial Services (UK) 147.5 166.6 329.9
--------------------------------------------------------------------------------
Total turnover 3,804.2 3,691.9 8,077.2
--------------------------------------------------------------------------------
Turnover from
continuing operations
is analysed as follows:-
United Kingdom 3,477.9 3,360.3 7,395.9
International 326.3 331.6 681.3
--------------------------------------------------------------------------------
Total turnover 3,804.2 3,691.9 8,077.2
--------------------------------------------------------------------------------
(1) Since the year-end, £40.4m of gifts have been reclassified to be included
with Home (last half year £35.0m; last full year £138.0m). Certain other
product lines have also been reclassified to reflect management responsibility.
As a result of this change, comparative figures have been restated.
(2) Marks & Spencer branded businesses within International Retail consists of
Republic of Ireland, Hong Kong and franchise operations.
The value of goods exported from the UK, including shipments to overseas
subsidiaries, amounted to £132.3m (last half year £132.3m).
3. Operating profit
Operating profit arises as follows:-
26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
UK Retail
Before exceptional 286.9 239.1 631.9
operating charges
Exceptional operating (3.7) (3.1) (43.9)
charges
---------------------------------------
283.2 236.0 588.0
International Retail
Marks & Spencer 18.0 14.7 35.6
branded
Kings Super Markets - 4.6 7.9
---------------------------------------
18.0 19.3 43.5
--------------------------------------------------------------------------------
Total Retailing 301.2 255.3 631.5
Financial Services 30.5 50.5 86.4
--------------------------------------------------------------------------------
Total operating 331.7 305.8 717.9
profit
--------------------------------------------------------------------------------
Geographical analysis of segmental operating profit from continuing
operations:-
United Kingdom 313.7 286.5 674.4
International 18.0 19.3 43.5
--------------------------------------------------------------------------------
331.7 305.8 717.9
--------------------------------------------------------------------------------
4. Interest charged to
cost of sales
Financial Services operating profit is stated after charging £31.5m (last half
year £44.8m) 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 during the half year was £57.9m (last half year £71.2m).
5. Exceptional items
26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Exceptional operating
charges
Head office relocation (3.7) (3.1) (7.6)
(1)
Restructuring of - - (36.3)
general merchandise
logistics operations
--------------------------------------------------------------------------------
Total exceptional (3.7) (3.1) (43.9)
operating charges
Non-operating
exceptional items
Profit / (loss) on sale 18.2 (0.2) 1.6
of property and other
fixed assets
Loss on sale / (1.6) (2.9) (12.3)
termination of
operations(2)
Less provision made in 1.6 1.4 10.8
2001 ------------------------------------
- (1.5) (1.5)
--------------------------------------------------------------------------------
Total non-operating 18.2 (1.7) 0.1
exceptional income /
(charges)
--------------------------------------------------------------------------------
Total exceptional 14.5 (4.8) (43.8)
income / (charges)
--------------------------------------------------------------------------------
(1) The comparative figure for last half-year has been restated to reflect the
fact that £3.1m of the £7.6m disclosed as an exceptional operating charge for
the full year had been incurred in the first half of last year.
(2) The loss on sale / termination of operations in the current year arises
from the closure of Continental European operations.
6. Taxation
The taxation charge for the 26 weeks ended 27 September 2003 is based on an
estimated effective tax rate before exceptional items of 32.8% for the full
year. Included in the tax charge for the year ended 29 March 2003 is a credit
of £9.1m which is attributable to exceptional charges.
7. Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax,
minority interest and non-equity dividends of £223.4m (last half year £194.4m),
and on 2,270,024,000 ordinary shares (last half year 2,302,949,000), being the
weighted average number of ordinary shares in issue during the period ended
27 September 2003. The weighted average number of shares used in the calculation
of fully diluted earnings per ordinary share is 2,291,438,000 (last half year
2,337,510,000).
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 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:-
26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
pence pence pence
--------------------------------------------------------------------------------
Earnings per share 9.8 8.4 20.7
Exceptional operating 0.2 0.1 1.5
charges
Profit on sale of (0.8) - (0.1)
property and other
fixed assets
Loss on sale / - 0.1 0.1
termination of
operations
--------------------------------------------------------------------------------
Adjusted earnings per 9.2 8.6 22.2
share
--------------------------------------------------------------------------------
8. Dividend
26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
Dividends on equity
shares:
Ordinary - Interim dividend 99.9 91.8 91.8
of 4.4p per share
(last half year 4.0p per share)
Ordinary - Final - - 147.4
dividend of 6.5p per
share last year
---------------------------------------
99.9 91.8 239.2
Dividends on non-equity
shares:
B Share - Interim 1.6 4.6 4.6
dividend at 2.73% (last
half year at 3.32%)
B Share - Final - - 2.2
dividend at 2.98% last
year
---------------------------------------
1.6 4.6 6.8
--------------------------------------------------------------------------------
101.5 96.4 246.0
--------------------------------------------------------------------------------
The Directors have approved an interim dividend of 4.4p per share (last half
year 4.0p per share). This results in an interim dividend of £99.9m
(last half year £91.8m) which will be paid on 9 January 2004 to shareholders
whose names are on the Register of Members at the close of business on 14
November 2003. The ordinary shares will be quoted ex dividend on 12 November
2003. Shareholders may choose to take this dividend in shares or in cash.
9. Analysis of cash
flow given in the cash
flow statement
26 weeks ended Year ended
27 Sept 28 Sept 29 March
2003 2002 2003
£m £m £m
--------------------------------------------------------------------------------
A. Decrease in working
capital
Increase in stocks (29.7) (87.0) (37.5)
Decrease in customer 13.3 57.3 167.1
advances
Increase in creditors 53.7 7.9 52.1
Decrease in debtors 43.2 29.6 9.6
--------------------------------------------------------------------------------
80.5 7.8 191.3
--------------------------------------------------------------------------------
B. Capital expenditure
and financial
investment
Purchase of tangible (198.8) (129.9) (324.5)
fixed assets
Sale of tangible fixed 123.1 20.5 25.0
assets
Net purchase of fixed (1.5) 1.6 4.3
asset investments
--------------------------------------------------------------------------------
(77.2) (107.8) (295.2)
--------------------------------------------------------------------------------
C. Acquisitions and
disposals
Closure of operations 76.4 (1.4) (10.8)
Sale of subsidiaries - (30.2) (30.2)
Repayment of loan by - 2.2 2.2
joint venture
--------------------------------------------------------------------------------
76.4 (29.4) (38.8)
--------------------------------------------------------------------------------
D. Financing
Debt financing as shown 139.6 (423.8) (431.4)
in movement of net
debt
Purchase of own (15.5) (53.4) (141.7)
shares
Redemption of B (19.9) (127.0) (158.0)
shares
Shares issued under 6.4 6.5 19.6
employees' share
schemes
--------------------------------------------------------------------------------
110.6 (597.7) (711.5)
--------------------------------------------------------------------------------
10. Date of approval
The interim financial statements for the 26 weeks to 27 September 2003 were
approved by the Board on 3 November 2003.
Independent review report to Marks and Spencer Group p.l.c.
Introduction
We have been instructed by the company to review the financial information which
comprises the consolidated profit and loss account, consolidated statement of
total gains and losses, consolidated balance sheet information, consolidated
cash flow statement and related notes. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the 26 weeks ended
27 September 2003.
PricewaterhouseCoopers LLP
Chartered Accountants
London
3 November 2003
For further information, please contact:
Media enquiries:
Marks & Spencer Corporate Press Office: 020 7268 1919
Photography:
Photography available from:
www.newscast.co.uk
or
www.marksandspencer.com/mediacentre
Analyst enquiries:
Tony Quinlan 020 7268 4195
Sarah McGlyne 020 7268 1563
Video Interviews
To see video interviews with Roger Holmes, Chief Executive, and Alison Reed,
Chief Financial Officer, please go to:
www.marksandspencer.com/thecompany
or
www.cantos.com
This information is provided by RNS
The company news service from the London Stock Exchange
Tuesday, 1st October 2024
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