Interim Results&Board Changes
Marks & Spencer Group PLC
09 November 2004
Issued: Tuesday 9 November 2004
Marks and Spencer Group plc
Interim Results 2004/05
26 weeks ended 2 October 2004
•On track with focusing the business
•Announcement of board and senior management changes
•Group sales up 0.9%
•UK Retail sales down 0.4% to £3.3bn; International Retail sales up 1.4%
•Group profit before tax and exceptional items £292.7m (after exceptional
items £211.7m)
•UK Retail operating costs reduced by 0.9%
•£2.3 billion now returned to shareholders
•per una acquired
•Sale of M&S Money nearing completion
Current Trading and Outlook
Trading has become more difficult since we last updated on current trading on 12
October. However, we do not believe this trend to be entirely Marks & Spencer
specific. With Christmas, we still have our two key profit driving months ahead.
It is therefore too early for us to predict the outcome for the second half at
this stage.
Chairman's Statement:
This has been a period of great change for the company. In May, Stuart Rose,
Charles Wilson and Steven Sharp joined Marks & Spencer and were immediately
involved in leading the response to a possible bid for the company, and
preparing a strategy to deliver the true value of Marks & Spencer to its
shareholders. Over the past four months, the team has been deeply involved in
implementing a comprehensive programme of change within the business and we are
updating shareholders on this today. We have also delivered substantial
structural change including returning £2.3bn to shareholders and agreeing the
sale of M&S Money.
There can be little doubt as to the scale of the challenge which Stuart and his
colleagues have inherited. However, we have made good progress on laying the
foundations for our recovery. The management changes announced today are
evidence of our determination to accelerate the pace of change within the
business. I am confident that the benefits of all the work that is being done
will become increasingly apparent through the course of next year.
Chief Executive's Statement:
Marks & Spencer is a business which requires radical change in the way that it
operates. It needs to completely re-focus on the customer. It needs to move more
swiftly and with greater confidence. It needs to rebuild its pride in its
service and standards. Since becoming Chief Executive I have spent most of my
time re-acquainting myself with all areas of the business, talking to our staff,
customers and suppliers and visiting our stores. We face some serious issues but
having spent time in the business I am in no doubt that we have the capability
to address and overcome them.
Where there are challenges I can see opportunity. The solutions lie in strong
retailing disciplines and a complete focus on delivering to the customer style,
quality, value and innovation. We can buy better, market better, present our
stores better and improve the speed and efficiency of our supply chain. We also
have other strengths on which to build. The Brand is strong and relevant. We
have a loyal customer base which wants us to get it right. We have excellent
suppliers with whom we are working closely and when we produce the right
product, at the right value, it sells in huge volumes. We have talented people
throughout the business and I am in no doubt that when they are focused on the
tasks in hand the pace and effectiveness of the business will improve
substantially.
I have today announced substantial changes to the senior management team and on
how we will operate the business in the future. These departures are not a
reflection of the talents or qualities of the people involved. They have served
the company well and I would like to thank them all for the substantial
contributions they have made. However, if we are to succeed we need to change
how M&S is led and how it operates. I will take direct responsibility for
retailing, merchandising and buying. Charles Wilson will be responsible for our
systems, logistics and property. We will be seeking a new Finance Director to
take responsibility for all financial matters and our international business. We
have a strong operational team running our trading divisions and we will be
looking to strengthen it further.
On July 12, I outlined our plans to improve the performance of M&S, by focusing
the business in 04/05, driving it in 05/06 and broadening in 06/07. This
programme of action is designed to deliver substantial value for shareholders.
We have made good progress.
We have completed much of the structural change to the Group. We have:
•acquired per una
•returned £2.3bn to shareholders through the Tender Offer
•taken steps to close the 'Lifestore' programme in January 2005
•stopped 21 of the 31 strategic initiatives in order to focus on our core
business
•completed negotiations with suppliers to improve terms
•agreed the sale of M&S Money to HSBC
We have also started to implement a wide range of initiatives designed to
improve the operating efficiency of the business. We will see the benefits of
these changes through next year:
- making changes to the senior management team
- on track to achieve the £320m of cost and margin improvements in 2006/7
outlined on 12 July.
- continuing to reduce stock commitments.
- launched the 'Your M&S' brand campaign signifying the start of an overall
marketing and in-store programme to reconnect the Group with its core customer.
- taken steps to reduce product proliferation, while improving real choice
- completed the brand review
- improved buying capabilities with more discipline and shorter reporting lines
- made improvements to the supply chain
- adopted a consistent pricing policy on opening price points
- introduced a programme to improve availability for our top 150 sellers
- completed the first phase of our Retail Change Programme to enable better
staffing at peak times
Board and senior management changes
Marks & Spencer is today announcing a number of changes to its management team
and board structure. As a result, the company is to streamline its board,
reducing the number of Executive Directors from six to three.
A number of senior executives will be leaving the company. Alison Reed, Finance
Director, is to step down by mutual agreement and a search for a new Finance
Director is now underway. After 20 successful years with Marks & Spencer,
including over three years as Finance Director, Alison wishes to move on to the
next stage in her career. However, she has agreed to stay on as Finance Director
until February 2005 to ensure a smooth handover.
Maurice Helfgott, Executive Director Menswear, Childrenswear & Home, has made a
significant contribution over 16 years. Having eliminated the role between the
Chief Executive and the business unit directors, Maurice is stepping down from
the board with immediate effect and leaving the company by mutual agreement.
Mark McKeon, Executive Director Retail, International & Franchises, will
similarly be leaving the board with immediate effect: neither board position
will be replaced. Laurel Powers-Freeling, Chief Executive of M&S Money, is
stepping down from the board with immediate effect as a result of the sale of
the business to HSBC. She will continue to oversee the transition and will leave
the company before the end of the financial year.
Jean Tomlin, Human Resources Director, and Jack Paterson, Business Unit Director
Home, are also leaving the company.
Stuart Rose, Charles Wilson and the Finance Director will be the three Executive
Directors to sit on the Marks & Spencer board. All buying and merchandising
directors will now report directly to Stuart Rose, with IT, logistics and
property reporting to Charles Wilson and finance, international and M&S Money
reporting to the Finance Director. Marketing will continue to report to Steven
Sharp.
As part of this management review, Stuart Rose has also made the following
appointments. Anthony Thompson is to become Director of Retail. Fiona Holmes,
currently Executive Assistant to the Chief Executive and former head of Men's
Formalwear, is to become Childrenswear Director. Keith Cameron is to join as
Human Resources Director. A new Director of Home will be appointed in due
course. In the meantime, Steve Rowe will act as interim director of Home. A
search is underway for an external candidate to become Director of Food.
The trading team will now comprise:
Kate Bostock - Director of Womenswear
Matt Hudson - Director of Lingerie & Beauty
Andrew Skinner - Director of Menswear
Fiona Holmes - Director of Childrenswear
Steve Rowe - Interim Director of Home
Guy Farrant - Food Trading Director & Interim Director of Food
Andrew Moore - Director of General Merchandise Planning
Anthony Thompson - Director of Retail
UK Retail
In the six months to 2 October 2004, UK Retail sales were down 0.4% at £3,307.6m
(down 0.5% at £3,643.7m including VAT). However, on a like-for-like basis sales
were down 4.0%. Footfall remained broadly level on the year.
In Clothing, Womenswear generally had a disappointing half with a poor Summer
season and despite an initial encouraging start to Autumn in knitwear and
formalwear, we failed to sustain momentum to the end of the half. However, per
una maintained its strong double digit growth. Childrenswear also had a
difficult summer but schoolwear performed well. We continue to work on improving
opening price points and ranging, especially in newborn and boys. Lingerie has
improved performance throughout Autumn driven by improvements in availability,
fit and ranging. Menswear performed relatively well throughout the half with
good sales in casualwear and a strong suit and formalwear offer.
Home sales were particularly weak with the product being out of line with
customer needs. We have now focused on rebuilding the core categories of bath,
bed, kitchen and home accessories.
In Food, sales excluding VAT were up 3.2% (including VAT +3.4%), although
like-for-like sales were down 2.1%. We have a clear lead on quality but
competition is intense. Our offer is too complicated with too many sub brands
and too much product proliferation. Our performance varies significantly between
our stores. We are addressing issues of ranging, availability, waste, markdowns,
promotions, and pricing. We are also focusing on the environment of our food
offer: Simply Food is being simplified from five different formats to two.
Action on operating costs has enabled us to reduce costs, including logistics
costs, over the half by 0.9%. In the second half, we will continue to focus on
reducing our operating costs and we are maintaining our previously published
guidance of a 1% increase for the full year.
International
M&S has performed well internationally. Sales in the Marks & Spencer branded
businesses (Republic of Ireland, Hong Kong and franchises) increased by 9.3%
over the half (+13.3% at constant exchange rates). Operating profit increased by
58.6% to £27.6m.
Our franchisees have seen good like-for-like sales increases and are investing
in new footage. The stores in the Republic of Ireland have traded well over the
half. On 4th November 2004, 25 years on from our first store opening in the
Republic of Ireland, we opened one of our new look M&S stores in Blanchardstown.
We will be opening a new 90,000 square foot store in Dundrum in March 2005.
Sales at Kings Super Markets were broadly level over the period at constant
exchange rates, compared with the same period last year. Operating profit at
Kings over the period was £1.2m as a result of actions taken last year to
improve financial performance.
Financial Services
The first half presented several challenges for the Money business, with 3 base
rate rises and the sale of the business to HSBC. Despite this, key targets were
achieved and operating profit at £24.5m was in line with our plans.
New credit card recruitment has been successful, with 314,000 accounts recruited
in the first half against a target of 263,000. At the half year we had 2.4m
credit card accounts and 2.9m cards in issue. Since the launch of the '&more'
card and loyalty scheme, we have issued £42.5m in '&more' loyalty vouchers to
our card customers. Total lending to customers was £2.5bn, with the growth in
card balances to £1.3bn offset by a fall in personal lending balances to £1.2bn.
Bad debt performance continues to be substantially better than industry
averages, with the bad debt charge for the period running at 1.9% of balances
(annualised).
Our motor insurance product was rolled out during the period, and the
outsourcing of our home and contents insurance business to Norwich Union in
Perth has been completed. Overall insurance policy sales are 66% up on the same
period last year.
Net interest expense
Net interest expense was £36.2m compared to £23.9m for the same period last year
with the increase largely attributable to the interest on the £400 million
Public Bond issued to fund the contribution to the UK pension scheme. The
average rate of interest on borrowings during the period was 5.5% and interest
cover was 6.7 times.
Taxation
The tax charge reflects an estimated effective tax rate for the full year of
30.2% before exceptional charges, compared to 30.1% for the last full year.
Dividend
The Board has declared an interim dividend of 4.6 pence per share. This will be
paid on 14 January 2005 to shareholders on the register at close of business on
19 November 2004. The shares will trade ex-dividend from 17 November 2004.
Earnings per share
Adjusted earnings per share, which excludes the effect of exceptional items, has
decreased by 7.3% to 8.9 pence per share.
Balance sheet and cash flow
The Group generated a net cash inflow for the period of £534.0m compared with
£41.9m last year. The movement compared with last year reflects the launch by M&
S Money of the mini cash ISA in March 2004. At the end of the period, net debt
was £1,351m, a decrease of £644m from the year end, giving rise to retail
gearing of 51.5%, with total gearing at 55.8%.
UK Retail capital expenditure for the period was £109.4m. UK Retail capital
expenditure for the full year is now expected to be in the region of £240m
(£290m for the Group as a whole).
In August, we signed two new banking facilities totalling £2bn. These
facilities, together with existing resources, were used to fund the return of
£2.3bn to shareholders.
On 28 October, we repurchased 635,359,116 ordinary shares, representing 27.9% of
the issued share capital, for cancellation at a price of 362 pence per share and
a total cost of £2.3bn. Following completion of the Tender Offer and the
cancellation of those shares which have been repurchased, the number of ordinary
shares in issue was 1,645m.
Exceptional items
The Group has recorded exceptional charges of £81.0m in the first half of this
year, as follows:
2004 2003
Exceptional items £m £m
-------------------------------- --------- ---------
Closure of 'Lifestore' 29.3 -
Head Office relocation 8.3 3.7
Defence costs 39.6 -
Head office restructuring programme 3.8 -
Profit on sale of property and other fixed assets - (18.2)
-------------------------------- --------- ---------
Total exceptional charges / (income) 81.0 (14.5)
-------------------------------- --------- ---------
'Lifestore' closure costs represent the anticipated cost of closing the
'Lifestore' programme. These costs include stock provisions, asset write-offs
and other property related costs.
Defence costs represent the cost incurred, primarily for professional advice, in
defending the possible offer from Revival Acquisitions Limited. Included in
these costs is £4.6m which has been incurred in making the necessary changes to
the Board.
During the first half of this year, £8.3m of revenue costs were incurred in
connection with the relocation of the Head Office and have been charged as
exceptional operating costs. This relocation was completed at the end of
October.
We have also incurred £3.8m of costs in the first half of the year in connection
with the implementation of the Head Office restructuring programme which was
announced prior to the year end.
Pensions
Under FRS 17 - 'Retirement Benefits' - there is only a requirement to perform a
full valuation at the end of each financial year. The last formal valuation of
the Group's post-retirement schemes was carried out as at 3 April 2004. However,
at the half year, we have updated this FRS17 valuation for market related
movements, being the market value of scheme assets and the discount rate used
for liabilities. This update has resulted in an increase in the deficit to
£772.8m (£565.2m after deferred tax).
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: 020 8718 1919
Investor Relations:
Amanda Mellor +44 (0)20 8718 3604
Damian Evans +44 (0)20 8718 1563
Consolidated profit and loss account
26 weeks ended Year ended
2 Oct 27 Sept 3 April
2004 2003 2004
As restated
Notes £m £m £m
------------------------- ------- --------- ---------- --------
Turnover
Retained businesses 3,628.6 3,638.0 7,971.5
Operations to be
discontinued 191.1 147.5 330.0
------------------------- ------- --------- ---------- --------
Total turnover 2 3,819.7 3,785.5 8,301.5
------------------------- ------- --------- ---------- --------
Operating profit
Retained businesses
before exceptional
charges 298.7 323.0 809.4
Exceptional
operating charges 5 (81.0) (3.7) (42.1)
--------- ---------- --------
217.7 319.3 767.3
Operations to be
discontinued 24.5 33.8 56.6
------------------------- ------- --------- ---------- --------
Total operating
profit 3 242.2 353.1 823.9
------------------------- ------- --------- ---------- --------
Profit on sale of
property and other
fixed assets 5 - 18.2 18.7
Loss on sale /
termination of
operations: 5
Loss arising on sale
/ termination - (1.6) (26.8)
Less amounts
previously provided - 1.6 26.8
--------- ---------- --------
- - -
Net interest expense 4 (36.2) (23.9) (45.8)
Other finance income
/ (charges) 5.7 (7.8) (15.2)
------------------------- ------- --------- ---------- --------
Profit on ordinary
activities before
taxation 211.7 339.6 781.6
------------------------- ------- --------- ---------- --------
Analysed between:
Retained businesses 268.2 291.3 748.4
Operations to be
discontinued 24.5 33.8 56.6
--------- ---------- --------
Group profit before
tax and exceptional
items 292.7 325.1 805.0
Exceptional items -
retained businesses 5 (81.0) 14.5 (23.4)
------------------------- ------- --------- ---------- --------
Taxation on ordinary
activities 6 (71.6) (105.2) (229.3)
------------------------- ------- --------- ---------- --------
Profit attributable
to shareholders 140.1 234.4 552.3
Dividends (including
dividends in respect
of non-equity
shares) 8 (77.7) (101.5) (263.2)
------------------------- ------- --------- ---------- --------
Retained profit for
the period 62.4 132.9 289.1
------------------------- ------- --------- ---------- --------
Earnings per share 7 6.1p 10.2p 24.2p
Diluted earnings per
share 7 6.0p 10.1p 24.1p
Adjusted earnings
per share 7 8.9p 9.6p 24.7p
Diluted adjusted
earnings per share 7 8.8p 9.5p 24.6p
Dividend per share 8 4.6p 4.4p 11.5p
------------------------- ------- --------- ---------- --------
Consolidated statement of total recognised gains and losses
26 weeks ended Year ended
2 Oct 27 Sept 3 April
2004 2003 2004
As restated
£m £m £m
------------------------- --------- ---------- --------
Profit attributable
to shareholders 140.1 234.4 552.3
Exchange differences
on foreign currency
translation 3.8 (4.0) (15.9)
Unrealised surplus
on revaluation of
investment
properties* - - 7.3
Impairment of
previously revalued
properties - - (20.0)
Actuarial (losses) /
gains relating to
the period (80.1) 111.9 150.4
------------------------- --------- ---------- --------
Total recognised
gains and losses
relating to the
period 63.8 342.3 674.1
------------------------- --------- ---------- --------
* revalued annually in
March
Consolidated balance sheet
As at As at As at
2 Oct 27 Sept 3 April
2004 2003 2004
As restated
£m £m £m
------------------------- --------- ---------- --------
Fixed assets
Tangible assets 3,481.1 3,473.7 3,497.6
Investments 9.1 27.2 10.0
------------------------- --------- ---------- --------
3,490.2 3,500.9 3,507.6
------------------------- --------- ---------- --------
Current assets
Stock 458.5 390.6 398.0
Debtors 2,746.3 2,279.8 2,750.9
Cash and investments 1,197.3 822.3 720.6
--------- ---------- --------
4,402.1 3,492.7 3,869.5
Current liabilities
Creditors : amounts
falling due within
one year (2,489.7) (1,730.8) (1,884.7)
------------------------- --------- ---------- --------
Net current assets 1,912.4 1,761.9 1,984.8
------------------------- --------- ---------- --------
Total assets less
current liabilities 5,402.6 5,262.8 5,492.4
Creditors : amounts
falling due after
more than one year (2,311.0) (1,988.0) (2,519.6)
Provisions for
liabilities and
charges (60.3) (158.5) (49.3)
------------------------- --------- ---------- --------
Net assets before
post-retirement
liability 3,031.3 3,116.3 2,923.5
------------------------- --------- ---------- --------
Net post-retirement
liability (565.2) (798.1) (469.5)
------------------------- --------- ---------- --------
Net assets 2,466.1 2,318.2 2,454.0
------------------------- --------- ---------- --------
Capital and reserves
Called up share
capital 643.4 665.2 651.2
Share premium
account 78.3 29.6 45.2
Revaluation reserve 356.4 370.6 356.4
Capital redemption
reserve 1,936.3 1,908.1 1,924.8
Other reserve (6,542.2) (6,542.2) (6,542.2)
Profit and loss
account 5,993.9 5,886.9 6,018.6
------------------------- --------- ---------- --------
Shareholders' funds
(including
non-equity
interests) 2,466.1 2,318.2 2,454.0
------------------------- --------- ---------- --------
Reconciliation of movement in shareholders' funds
As at As at As at
2 Oct 27 Sept 3 April
2004 2003 2004
As restated
£m £m £m
------------------------------- -------- --------- --------
Profit attributable
to shareholders 140.1 234.4 552.3
Dividends (77.7) (101.5) (263.2)
-------- --------- --------
62.4 132.9 289.1
Other recognised
gains / (losses)
relating to the
period 3.8 (4.0) (28.6)
Actuarial (losses) /
gains net of
taxation (80.1) 111.9 150.4
Sale / (purchase) of
shares held by
employee trusts 0.6 (1.9) (2.2)
New share capital
subscribed 36.9 6.4 24.8
Redemption of B
shares (11.5) (19.9) (33.4)
Purchase of own
shares - (15.5) (54.4)
-------- --------- --------
Net increase in
shareholders' funds 12.1 209.9 345.7
Opening
shareholders' funds
as previously stated 2,454.0 3,038.4 3,038.4
Prior year
adjustment - (930.1) (930.1)
------------------------------- -------- --------- --------
Opening
shareholders' funds
as restated 2,454.0 2,108.3 2,108.3
------------------------------- -------- --------- --------
Closing
shareholders' funds 2,466.1 2,318.2 2,454.0
------------------------------- -------- --------- --------
Consolidated cash flow statement
26 weeks ended Year ended
2 Oct 27 Sept 3 April
2004 2003 2004
As restated
Notes £m £m £m
------------------------------- -------- -------- --------- --------
Operating activities
Operating profit 242.2 353.1 823.9
Exceptional
operating charges 81.0 3.7 42.1
-------- --------- --------
Operating profit
before exceptional
charges 323.2 356.8 866.0
Depreciation 116.6 120.6 241.9
Decrease in working
capital 9A 610.4 59.1 6.8
-------- --------- --------
Net cash inflow
before exceptional
items 1,050.2 536.5 1,114.7
Exceptional
operating cash
outflow (59.5) (27.1) (48.2)
------------------------------- -------- -------- --------- --------
Cash inflow from
operating activities
before contribution
to the pension fund 990.7 509.4 1,066.5
Contribution to the
pension fund - - (400.0)
------------------------------- -------- -------- --------- --------
Cash inflow from
operating activities 990.7 509.4 666.5
Returns on
investments and
servicing of finance (14.7) (15.9) (49.8)
Taxation (91.3) (103.0) (220.4)
Capital expenditure
and financial
investment 9B (118.6) (73.8) (293.9)
Acquisitions and
disposals 9C 12.2 76.4 51.3
Equity dividends
paid (161.3) (147.6) (247.1)
------------------------------- -------- -------- --------- --------
Cash inflow before
management of liquid
resources 617.0 245.5 (93.4)
Management of liquid
resources 63.9 (310.8) (89.0)
Financing 9D (146.9) 107.2 347.0
------------------------------- -------- -------- --------- --------
Increase in cash 534.0 41.9 164.6
------------------------------- -------- -------- --------- --------
Reconciliation of net cash flow to movement in net debt
26 weeks ended Year ended
2 Oct 27 Sept 3 April
2004 2003 2004
As
restated
£m £m £m
------------------------------- -------- --------- --------
Increase in cash 534.0 41.9 164.6
Cash (inflow) /
outflow from
(decrease) /
increase in liquid
resources (63.9) 310.8 89.0
Cash outflow /
(inflow) from
decrease /
(increase) in debt
financing 172.5 (139.6) (413.6)
Exchange and other
movements 1.3 (0.1) (3.3)
------------------------------- -------- --------- --------
Movement in net debt 643.9 213.0 (163.3)
Opening net debt (1,994.7) (1,831.4) (1,831.4)
------------------------------- -------- --------- --------
Closing net debt (1,350.8) (1,618.4) (1,994.7)
------------------------------- -------- --------- --------
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 2004
Annual Report and Financial Statements.
As a result, the comparatives for the period ending 27 September 2003 have been
restated following the adoption last year of Application Note G of FRS 5 -
'Revenue Recognition', FRS 17 - 'Retirement Benefits' and UITF 38 - 'Accounting
for ESOP Trusts'.
The summary of results for the year ended 3 April 2004 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
2 Oct 27 Sept 3 April
2004 2003 2004
As
restated
£m £m £m
------------------------------- -------- --------- --------
Retained businesses:
UK Retail (incl. VAT)
Clothing and
footwear 1,822.5 1,858.3 4,032.6
Home (incl. gifts) 180.0 216.2 526.6
Foods 1,641.2 1,587.1 3,490.2
-------- --------- --------
3,643.7 3,661.6 8,049.4
Less : United
Kingdom VAT (336.1) (340.1) (755.7)
-------- --------- --------
3,307.6 3,321.5 7,293.7
International Retail
Marks & Spencer
branded (1) 212.0 194.0 434.4
Kings Super Markets 109.0 122.5 243.4
-------- --------- --------
321.0 316.5 677.8
------------------------------- -------- --------- --------
Total Retailing 3,628.6 3,638.0 7,971.5
Operations to be discontinued:
Financial Services
(UK) 191.1 147.5 330.0
------------------------------- -------- --------- --------
Total turnover 3,819.7 3,785.5 8,301.5
------------------------------- -------- --------- --------
Geographical analysis of turnover
:-
United Kingdom 3,498.7 3,469.0 7,623.7
International 321.0 316.5 677.8
------------------------------- -------- --------- --------
Total turnover 3,819.7 3,785.5 8,301.5
------------------------------- -------- --------- --------
(1)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 £151.6m (last half year £132.3m).
3. Operating profit
Operating profit arises as
follows:-
26 weeks ended Year ended
2 Oct 27 Sept 3 April
2004 2003 2004
As
restated
£m £m £m
------------------------------- -------- --------- --------
Retained businesses:
UK Retail(1)
Before exceptional
operating charges 269.9 305.6 762.0
Exceptional
operating charges (81.0) (3.7) (42.1)
-------- --------- --------
188.9 301.9 719.9
International Retail
Marks & Spencer
branded 27.6 17.4 44.2
Kings Super Markets 1.2 - 3.2
-------- --------- --------
28.8 17.4 47.4
------------------------------- -------- --------- --------
Total Retailing 217.7 319.3 767.3
Operations to be discontinued:
Financial
Services(1) 24.5 33.8 56.6
------------------------------- -------- --------- --------
Total operating
profit 242.2 353.1 823.9
------------------------------- -------- --------- --------
Geographical analysis of operating
profit :-
United Kingdom 213.4 335.7 776.5
International 28.8 17.4 47.4
------------------------------- -------- --------- --------
242.2 353.1 823.9
------------------------------- -------- --------- --------
(1)Operating profit for comparative periods has been restated to reflect the
resultsof the Bureau de Change being reclassified from UK Retail to be included
within the Financial Services results for the year.
4. Interest charged to cost of sales
Financial Services operating profit is stated after charging £53.4m (last half
year £31.5m) 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 £99.4m (last half year £57.9m).
5. Exceptional items
26 weeks ended Year ended
2 Oct 27 Sept 3 April
2004 2003 2004
£m £m £m
------------------------------- -------- --------- --------
Exceptional operating charges
Head office
relocation (8.3) (3.7) (19.6)
Head office
restructuring
programme (3.8) - (22.5)
Board restructure (4.6) - -
Closure of
'Lifestore' (29.3) - -
Defence costs (35.0) - -
------------------------------- -------- --------- --------
Total exceptional
operating charges (81.0) (3.7) (42.1)
Non-operating exceptional items
Profit on sale of
property and other
fixed assets - 18.2 18.7
Loss on sale /
termination of
operations(1) - (1.6) (26.8)
Less amounts
previously provided - 1.6 26.8
-------- --------- --------
- - -
------------------------------- -------- --------- --------
Total non-operating
exceptional income - 18.2 18.7
------------------------------- -------- --------- --------
Total exceptional
(charges) / income (81.0) 14.5 (23.4)
------------------------------- -------- --------- --------
(1)The loss on sale / termination of operations in the prior year arises from
the closure of the Continental operations.
6. Taxation
The taxation charge for the 26 weeks ended 2 October 2004 is based on an
estimated effective tax rate before exceptional items of 30.2% for the full
year. Included in the tax charge for the period is a credit of £16.8m (last half
year £1.1m credit) which is attributable to exceptional charges.
7. Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax
and non-equity dividends of £138.7m (last half year £232.8m), and on
2,274,092,221 ordinary shares (last half year 2,270,023,880), being the weighted
average number of ordinary shares in issue during the period ended 2 October
2004. The weighted average number of shares used in the calculation of fully
diluted earnings per ordinary share is 2,294,586,222 (last half year
2,291,438,467).
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
2 Oct 27 Sept 3 April
2004 2003 2004
As
restated
pence pence pence
------------------------------- -------- --------- --------
Earnings per share 6.1 10.2 24.2
Exceptional
operating charges 2.8 0.2 1.3
Profit on sale of
property and other
fixed assets - (0.8) (0.8)
------------------------------- -------- --------- --------
Adjusted earnings
per share 8.9 9.6 24.7
------------------------------- -------- --------- --------
8. Dividend
26 weeks ended Year ended
2 Oct 27 Sept 3 April
2004 2003 2004
£m £m £m
------------------------------- -------- --------- --------
Dividends on equity shares:
Ordinary - Interim
dividend of 4.6p per
share (last half
year 4.4p per share) 76.3 99.9 99.5
Ordinary - Final
dividend of 7.1p per
share last year - - 160.7
-------- --------- --------
76.3 99.9 260.2
Dividends on non-equity shares:
B Share - Interim
dividend at 3.36%
(last half year at
2.73%) 1.4 1.6 1.6
B Share - Final
dividend at 2.86%
last year - - 1.4
-------- --------- --------
1.4 1.6 3.0
------------------------------- -------- --------- --------
77.7 101.5 263.2
------------------------------- -------- --------- --------
The Directors have approved an interim dividend of 4.6p per share (last half
year 4.4p per share). This results in an interim dividend of £76.3m (last half
year £99.9m) which will be paid on 14 January 2005 to shareholders whose names
are on the Register of Members at the close of business on 19 November 2004. The
ordinary shares will be quoted ex dividend on 17 November 2004. 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
2 Oct 27 Sept 3 April
2004 2003 2004
As
restated
£m £m £m
------------------------------- --------- --------- --------
A. Decrease in working capital
Increase in stocks (63.8) (29.7) (38.9)
(Increase) /
decrease in customer
advances (37.1) 13.3 (436.5)
Increase in customer
deposits 679.2 10.9 360.7
(Decrease) /
increase in
creditors (4.3) 32.3 100.3
Decrease in debtors 36.4 32.3 21.2
------------------------------- --------- --------- --------
610.4 59.1 6.8
------------------------------- --------- --------- --------
B. Capital expenditure and
financial investment
Purchase of tangible
fixed assets (119.4) (198.8) (428.8)
Sale of tangible
fixed assets - 123.1 126.2
Net sale of fixed
asset investments 0.8 1.9 8.7
------------------------------- --------- --------- --------
(118.6) (73.8) (293.9)
------------------------------- --------- --------- --------
C. Acquisitions and disposals
Closure of
operations 12.2 76.4 51.3
------------------------------- --------- --------- --------
12.2 76.4 51.3
------------------------------- --------- --------- --------
D. Financing
Debt financing as
shown in movement of
net debt (172.5) 139.6 413.6
Purchase of own
shares - (15.5) (54.4)
Redemption of B
shares (11.5) (19.9) (33.4)
Net sale /
(purchase) of own
shares held by
employee trusts 0.2 (3.4) (3.6)
Shares issued under
employees' share
schemes 36.9 6.4 24.8
------------------------------- --------- --------- --------
(146.9) 107.2 347.0
------------------------------- --------- --------- --------
10. Post balance sheet events
On 4 October 2004 the Group acquired the per una business from George Davies for
a consideration of £125m plus up to £2m for the net assets acquired.
On 25 October 2004 the Group announced the results of the Tender Offer. This was
completed on 28 October 2004 when 635,359,116 ordinary shares, representing
approximately 27.9% of the issued share capital, were purchased for cancellation
at a price of 362 pence per share and at a total cost of £2.3bn.
11. Date of approval
The interim financial statements for the 26 weeks to 2 October 2004 were
approved by the Board on 8 November 2004.
Independent review report to Marks and Spencer Group plc
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 as at 2 October
2004, consolidated cash flow statement, comparative figures and associated
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
2 October 2004.
PricewaterhouseCoopers LLP
Chartered Accountants
London
8 November 2004
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