Interim Results
Marks & Spencer Group PLC
07 November 2006
Issued: Tuesday 7 November 2006
Marks and Spencer Group plc
Interim Results 2006/07
26 weeks ended 30 September 2006
Highlights:
Financial:
• Sales up 11.0% at £3,929.4m: UK up 10.5% at £3,647.9m; International up
17.7% at £281.5m;
• Adjusted profit before tax up 32.2% at £405.1m; unadjusted profit
before tax £406.5m
• Adjusted earnings per share up 30.7% at 16.6p; unadjusted earnings per
share 16.7p
• Interim dividend 6.3p, up 31.3%
• Net debt £1,745.6m (1 April 2006: £1,729.3m)
Trading:
• Q2 UK sales +10.5%: General Merchandise +10.0%; Food +10.9%;
• Q2 UK like for like sales up 6.4%: General Merchandise +7.9%; Food
+4.7%;
• Market share growth in all product categories (total clothing market
share up 90 basis points to 10.1%*)
• Food market share up 20 basis points to 4.0%**
• UK gross margin up 100 basis points to 43.6%
• Modernised stores delivering strong returns
• Agreement reached with BP to roll out Simply Food
• Acquisition of 12 stores to add to Simply Food portfolio
Lord Burns, Chairman, commented:
'The Group continues to make good progress and is stepping up its investment
programme to secure future growth. In line with our new policy, the Board is
proposing an interim dividend increase of 31.3% to 6.3p per share.'
* Clothing market share: TNS Worldpanel Fashion: 24 weeks ending 17 Sept 2006
** Food market share: Superpanel, Food & drink: 24 weeks ending 8 Oct 2006
Stuart Rose, Chief Executive, said:
'We had a good first half. We have delivered better product, better service and
better store environment. We have gained market share in all areas in which we
trade.
We continue to invest in our stores to provide for future growth. Our property
review has identified opportunities in existing and new markets. Modernised
stores are generating strong returns.
We are increasing investment in some areas such as specialist staff which we
believe will directly benefit our customers and top line growth. Although we
continue to see costs rising ahead of inflation in many areas, we are
controlling non customer facing costs well.
Our plan remains the same. While competition remains intense, we are focusing on
driving profitable revenues and market share. We continue to improve and develop
our customer offer in core areas through better product while also driving
service levels and improving store environment. Opportunities to stretch our
brand into new products and services and to broaden the business across new
channels and overseas are now being pursued.
Trading for the first five weeks of the third quarter is in line with the first
half run rate, despite tougher comparatives. We believe we are well positioned
for the all important Christmas period.'
Driving the business - Product, Service, Environment
Footfall increased significantly with 19 million more visits over the half,
driven by better values, with style and innovation.
Market share in clothing increased by 90 basis points to 10.1%, reinforcing our
position as the largest clothing retailer in the UK by both value and volume.
Market share improved in all product areas. Foods also increased market share.
Buying efficiencies and increased volume delivered a gross margin increase of
100 basis points.
We continue to listen to our customers and brand momentum continues to improve,
supported by strong advertising. The effectiveness of the 'Your M&S' campaign
was acknowledged when it won the Grand Prix at the recent 2006 IPA Effectiveness
Awards.
Product
General Merchandise
Quality and value remain our key drivers. Opening price points now represent
around a third of our sales. Price deflation for the half was 5%, slowing in the
second quarter as we came up against price reductions made last year. Volumes
were up 17% over the same period.
Gross margins increased by 170 basis points, driven by better sourcing. We
opened our office in Shanghai to add to our offices in Bangalore, Colombo,
Dhaka, Hong Kong, and Istanbul. We now employ some 200 people overseas. Delhi
will open in the second half. Stock control and speed to market continues to be
a prime focus.
Womenswear made excellent progress with market share up from 9.4% to 10.5%. Core
product performed well and our fast fashion ranges give us more fashion
authority. Colour palettes have been strong and on target. We continue to refine
our branding and segmentation to ensure we offer clear and focussed ranges. Per
una continues to make strong progress. We now have a complementary offer of
womenswear, enabling us to target the widest range of customers of any general
merchandise retailer.
Lingerie performed well with market share up from 24.1% to 25.6%. We are the
destination shop for lingerie in the UK. Our aspirational Autograph brand has
now been extended into lingerie.
Menswear had an excellent half, building on its already strong base. Market
share is up from 8.3% to 9.0%. Our branding is clear - Autograph, Blue Harbour
and Collezione are understood by their target customers.
Childrenswear made its first market share improvement for six years, up from
4.0% to 4.4%. Both Boyswear and Girlswear are improving rapidly. Fast fashion is
being used to deliver newness and excitement. Our Back to School campaign was
particularly strong.
Home continues to grow. Having improved values across the ranges last year, the
introduction of premium product such as the newly launched Autograph bedroom and
bathroom ranges is enabling us to further stretch our price architecture while
offering our customers greater choice. Furniture has performed well. We now have
more authority across our core Home offer and are confident of further growth.
Food
Food had another successful half with total sales growing at twice the rate of
the market. We continue to increase market share, up from 3.8% to 4.0%.
Performance was driven by a relentless focus on quality, value and innovation,
supported by powerful advertising. Our responsible approach to product
development is being recognised by both our customers and campaigning and health
groups.
We have a leading market position through the innovative development of first to
market ranges. We are able to respond to key customer trends for healthier
eating and 30% of our catalogue is now marketed under the Eat Well logo. We
extended our Eat Well range by introducing new Nutritionally Balanced ready
meals which, like the rest of our Eat Well range, are free of additives and
preservatives. We have completed the removal of trans fats from all our foods
and are the first UK retailer to have achieved this. There is increasing demand
for responsibly sourced, healthy food; our additive-free 'Cook!' and Speciality
ranges are well positioned to address this demand. Our value added organic food
range was highlighted in our recent advertising campaign.
During the half we also launched new products where socially responsible and
ethical considerations have helped to drive innovation. These included wider
ranges of Fairtrade and Organic products as well as Omega-3 enriched Lochmuir
Salmon which is bred to improved standards of animal welfare.
Service
There has been significant investment in staff training and career paths.
Additionally we have increased pay rates to ensure competitiveness. We believe
these investments will pay dividends through better service levels in our
business. Mystery shopping scores continue to improve. This is more marked in
our modernised stores. These improvements in service enabled us to cope with a
17% increase in General Merchandise volumes and significantly higher footfall.
Service initiatives in key areas such as Lingerie, Food and Menswear will
continue to be rolled out. A serviced men's footwear concept in 16 stores giving
better choice and service has been successful.
Environment
Property
We have undertaken a complete review of our property portfolio. The key
objective is to ensure that we are in the right place with the right space
meeting the needs of tomorrow's customers. We have one of the strongest and most
recognised brands in the UK which needs a powerful showcase.
We have identified the following opportunities and over the next five years
will:
• enhance our presence in major city centres through extensions,
redevelopments and relocations;
• develop major out of town stores by extending existing space and
seeking opportunities for new space;
• grow our presence in retail parks;
• develop our high street presence, expanding, relocating, consolidating
or closing stores where appropriate;
• continue to develop our Simply Food business opening more owned and
franchised stores
During this period, we expect to increase total owned space by 15-20% from 13.3
million square feet at the half year end. Overall, while we expect to have more
stores, the emphasis is on quality of space.
Store Modernisations
Our store modernisation programme remains a priority. The four trial stores
opened in 2004/05 continue to materially outperform. The 17 stores opened in
2005/06 have gained further momentum in the first half. Returns continue to be
strong. We have opened a further 45 stores since the year end which are
delivering strong incremental sales. We will have modernised 35% of our space by
Christmas.
We plan to have some 70% of our space modernised by Christmas 2007. In order to
open these stores well ahead of the peak third quarter, we will start some of
these store modernisations in January this financial year. In addition, and
following on from our property review, we will begin a number of significant
developments in some of our key city centre and out of town stores.
New Space
During the half we opened stores in two retail parks in Teeside and Abbey
Centre, Belfast. Bolton Middlebrook opened in October. In the half year we added
2% to our total footage on a weighted average basis, representing an increase of
1.4% in General Merchandise and 3.4% in Foods. Our full year space guidance
remains unchanged.
We continue to open more space in Foods. During the half we opened 29 new Simply
Food stores, 28 of which were acquired from Iceland last year. We are pleased
with the performance of these stores. We expect to open around 20 stores in the
second half, four of which have already opened. We have acquired 12 stores from
Somerfield, eight of which will open this financial year.
The trial of a Simply Food offer in BP forecourt locations has been successful
and we have now agreed with BP to roll this concept out to more forecourts
starting next year. We believe there is an opportunity in some 200 locations
going forward.
Stretching the brand
With the growing strength of the brand, we believe there are many opportunities
for us to stretch our brand into new product areas.
In Foods, new initiatives, such as Hot Food to Go, Eat Over Delis and more
recently a restaurant in Newcastle have been welcomed by customers.
Our trial of electrical products last year has now been extended in 13 stores
with a wider offer including LCD TVs, DVDs, hi-fi, and laptops linked with a
number of guest brands. While it is early days we are pleased with customer
reaction.
E-commerce
Our on-line business continues to grow strongly from a relatively small base. We
recognise the significant opportunity to develop this channel and together with
Amazon have been working to redevelop our website to improve functionality and
customer experience. We have restructured e-commerce which has now become a
business unit in its own right. We will re-launch our web-site in Spring 2007.
International
International made good progress over the half. Our owned stores in the Republic
of Ireland and Hong Kong performed well. The Republic of Ireland delivered
strong sales growth, reflecting good underlying like for like performance, the
opening of new stores in Drogheda and Newbridge, and the full year benefit of
stores opened the previous year. During the half we modernised a third of our
existing space. Hong Kong performance was also robust, despite the closure of
one store and relocation of two stores in the second half of last year.
Our franchise operations also delivered a strong performance. During the half
our franchisees opened a net of seven stores, including our first stores in
Geneva, Riga, and Sofia, as well as adding to stores to our existing franchises
in Greece, Hungary, India, Indonesia, Philippines, Romania, Singapore and
Turkey. We expect to open around 15 stores in the second half, including new
stores in Russia, India and a 52,000 square foot store in Festival City, Dubai.
Corporate Social Responsibility
Social responsibility and ethical trading is deeply rooted in our business. We
continue to develop our 'Look behind the label' campaign to tell our customers
about the effort that goes into ensuring that Marks & Spencer products are
produced in a safe and ethical way. We receive wide recognition for our progress
in this area.
• In July, M&S won Business in the Community's Company of the Year Award
for the second time - the only company to do so.
• We received awards for our Breakthrough Breast Cancer cause-related
marketing campaign and Marks & Start employability programme. We are
now in our sixth year of supporting the Breakthrough Breast Cancer
campaign and in October's Breast Cancer Awareness Month our customers
helped us to raise £600,000.
• In the recent 2006 RSPCA Good Business Awards we won the Fashion and
Food categories and came runners-up in cosmetics based on our animal
welfare standards.
• We have been working closely with the Fairtrade Foundation on our range
of Fairtrade food, clothing and home products which will be extended in
the Spring.
• For the second year running, Greenpeace rated Marks & Spencer as the
best food retailer for sourcing fish from well managed sources.
We recognise that there is much to do and are currently reviewing our total CSR
policy to ensure that it meets the demands of customers today.
Summary
In summary the business is in good shape. Our investment in our core business is
paying off. These results show that a combination of great value stylish
product, exciting stores and good service are what customers want. We are now
looking ahead for opportunities to drive the business and to broaden the
business to new channels and overseas.
Financial Review:
Summary of Results: unaudited* 26 weeks ended
30 Sept 2006 1 Oct 2005** % inc
£m £m
Total revenue 3,929.4 3,541.5 +11.0
UK 3,647.9 3,302.3 +10.5
International 281.5 239.2 +17.7
Operating profit before asset disposals 447.4 366.1 +22.2
UK 407.4 335.9 +21.3
International 40.0 30.2 +32.5
Profit before tax and asset disposals 405.1 306.5 +32.2
Profit/(loss) on property disposals 1.4 (0.8)
Profit before tax 406.5 305.7 +33.0
Adjusted earnings per share 16.6p 12.7p +30.7
Dividend per share (declared) 6.3p 4.8p +31.3
* From continuing operations
**2005/06 comparatives have been restated to exclude the results of Kings Super
Markets which was disposed of in April 2006.
Revenues
Total revenues were up 11% with strong performances in both UK and
International. Revenue growth by area, by quarter in the UK was:
Q1% Q2% H1%
Revenue
Clothing +10.7 +9.3 +10.0
Home +23.3 +17.7 +20.3
General Merchandise +11.7 +10.0 +10.9
Food +9.2 +10.9 +10.1
Total +10.4 +10.5 +10.5
Like-for-Like Q1% Q2% H1%
General Merchandise +10.5 +7.9 +9.2
Food +5.8 +4.7 +5.3
Total +8.2 +6.4 +7.3
International revenues were up 17.7% with strong performances in both owned and
franchised stores, up 14.7% and 22.5% respectively.
Operating profit
Operating profit was £448.8m, up 22.9%. Operating profit before asset disposals
was £447.4m, up 22.2%.
In the UK, operating profit before asset disposals was up 21.3% at £407.4m.
This reflects strong revenue growth and a further increase in the gross margin
by 100 basis points to 43.6%, representing 170 basis points in the General
Merchandise gross margin to 53.2%, and 30 basis points in the Food gross margin
to 34.3%. Full year gross margin is expected to be broadly in line with the 100
basis point improvement in the first half.
UK operating costs, before bonus accrual, were up 11.3% to £1,161.3m (£1,043.7m
last half year). This increase reflects the previously highlighted cost
pressures being faced by the business in areas such as energy, fuel, rent and
rates, plus the growth in the business which has encouraged us to make further
investment in our staff, stores and in marketing. A breakdown of UK operating
costs for the half is shown below:
26 weeks ended
30 Sept 2006 1 Oct 2005 Var %
£m £m
Retail staffing costs 389.6 327.7 +18.9
Retail occupancy costs 350.7 321.7 +9.0
Distribution costs 150.7 140.0 +7.6
Marketing & related costs 59.6 47.6 +25.2
Support costs 210.7 206.7 +1.9
Total before bonus 1,161.3 1,043.7 +11.3
Bonus 33.1 29.7 +11.4
Total 1,194.4 1,073.4 +11.3
The increase in retail staffing costs reflects the impact of space growth,
additional staffing in our stores to manage growth in the business and to
enhance service to our customers, and the one-off impact of the changes we made
to pay structures in October last year. The increase in retail occupancy costs
reflects space growth, accelerated depreciation on the store modernisation
programme, and higher energy costs. Distribution costs increased, but below the
level of sales growth for the half and well below volume growth. We invested
further in marketing, including advertising and promotion, and this has
supported our top line sales growth. Support costs, which include other non
store related overheads, were broadly level on the year. We have made a
provision for bonus of £33.1m (last half year £29.7m). Bonus payment for 2006/07
will depend on the full year financial performance of the Group.
In the second half, we expect the rate of cost growth to be slower than in the
first. Our revised full year guidance for cost growth is now around 9%.
The UK operating profit includes a contribution of £11.4m (last half year £2.4m)
from the Group's continuing economic interest in M&S Money.
International operating profit increased by 32.5% to £40.0m due to strong sales
performance in both owned and franchised stores.
Interest
Net interest expense was £42.3m compared to £59.6m last half year. This largely
reflects the reduction in average net debt which was £1.7bn (£2.1bn last half
year). The average rate of interest on borrowings for the year was 5.9% (last
half year 5.8%).
26 weeks ended
30 Sept 2006 1 Oct 2005
£m £m
Interest payable (59.3) (71.8)
Interest receivable 7.0 4.0
Net interest payable (52.3) (67.8)
Pension finance income 10.0 8.2
Total (42.3) (59.6)
Taxation
The tax charge reflects an estimated effective tax rate for the full year of
31.0%, compared to 30.2% last full year.
Shareholder returns and dividends
Adjusted earnings per share from continuing operations, which excludes the
effect of asset disposals, increased by 30.7% to 16.6p per share. The average
number of shares in issue during the period was 1,684.2m (last half year
1,660.5m).
The Board is proposing an interim dividend of 6.3p per share (last half year
4.8p per share), an increase of 31.3%. This is in line with the dividend policy
announced in May, to grow the half year dividend in line with adjusted EPS
growth.
Capital expenditure
Capital expenditure for the half totalled £390.7m compared with £174.8m last
half year, reflecting the roll-out of the store modernisation programme and new
space.
Capital expenditure for the full year is expected to be £750m to £800m, which is
higher than indicated in May. This reflects the planned earlier start to the
2007 modernisation programme in January, which means that £120m of capital spend
is being brought forward from 2007/08. Modernisation costs remain £80 to £90 per
square foot. In addition, we will be starting the development of a small number
of our key city centre and out of town stores following the property review.
This will add a further £50m to capital spend. Finally, this guidance includes
capital expenditure of £60m relating to the acquisition and conversion of the 12
stores acquired for Simply Food from Somerfield.
Capital expenditure for 2007/08 is expected to be at least at the same level as
2006/07.
Cash flow and net debt
The Group reported a net cash outflow of £33.5m in the first half (last half
year inflow £246.3m). Increased investment into stock, in line with the growth
in revenues, and payment of the year-end bonus resulted in a net outflow of
£94.4m on working capital. Net capital expenditure was up at £301.3m, primarily
reflecting the store modernisation programme. We paid out £99.1m in interest and
tax and £142.1m in dividends and share issues. As a result, net debt at the end
of the half year was £1,745.6m (last half year £2,025.5m).
Pensions
The Group IAS 19 deficit at the half year was £1,051.4m (£794.9m at 1 April
2006). The IAS 19 liability at 30 September 2006 for the UK defined benefit
scheme has been estimated using the revised demographic and actuarial
assumptions contained in the preliminary actuarial valuation. The £256.5m
increase in the Group's net post-retirement liability is driven largely by the
application of these updated assumptions. However, this is an accounting
valuation and subject to high volatility.
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:
Investor Relations: Media enquiries:
Amanda Mellor +44 (0)20 8718 3604 Corporate Press Office: +44 (0)20 8718 1919
Majda Rainer +44 (0)20 8718 1563
Investor & Analyst webcast:
There will be an investor and analyst presentation at 09.30 (BST) on Tuesday 7
November 2006: This presentation can be viewed live on the Marks and Spencer
Group plc website on www.marksandspencer.com/thecompany
Video interviews with Stuart Rose, Chief Executive and Ian Dyson, Group Finance
Director are be available on http://w3.cantos.com/06/marksandspencer/thecompany
and on http://www.cantos.com. The interviews are also available in audio and
transcript.
Consolidated income statement
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
Notes £m £m £m
Revenue - continuing operations 2 3,929.4 3,541.5 7,797.7
Operating profit - continuing operations 3 448.8 365.3 850.1
Interest payable and similar charges (59.3) (71.8) (134.9)
Interest receivable 17.0 12.2 30.5
Profit on ordinary activities before taxation - continuing operations 406.5 305.7 745.7
Analysed between:
Before property disposals 405.1 306.5 751.4
Profit/(loss) on property disposals 1.4 (0.8) (5.7)
Income tax expense 4 (126.0) (95.3) (225.1)
Profit on ordinary activities after taxation - continuing operations 280.5 210.4 520.6
Profit from discontinued operations 5 0.8 2.2 2.5
Profit for the period attributable to shareholders 281.3 212.6 523.1
Earnings per share 6A 16.7p 12.8p 31.4p
Diluted earnings per share 6B 16.5p 12.7p 31.1p
Earnings per share from continuing operations 6A 16.7p 12.7p 31.3p
Diluted earnings per share from continuing 6B 16.5p 12.6p 31.0p
operations
Non-GAAP measure:
Adjusted profit before tax (£m) 1 405.1 306.5 751.4
Adjusted earnings per share from continuing 6A 16.6p 12.7p 31.4p
operations
Adjusted diluted earnings per share from continuing operations 6B 16.4p 12.6p 31.1p
Consolidated statement of recognised income and expense
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
Profit for the period attributable to shareholders 281.3 212.6 523.1
Foreign currency translation differences (13.0) 4.9 11.1
Actuarial losses on retirement benefit obligations (244.4) (142.0) (169.3)
Tax on items taken directly to equity 86.9 49.2 80.7
Hedging reserve
- fair value movement 7.6 (8.4) (3.1)
- recycled and reported in net profit - 0.6 (1.4)
- amount recognised in inventories (4.8) 1.7 (3.8)
Net losses not recognised in the income statement (167.7) (94.0) (85.8)
Total recognised income and expense for the period 113.6 118.6 437.3
Effect of changes in accounting policy:
First time adoption of IAS 39 (net of tax) (1.9) (1.9)
Consolidated balance sheet
As at As at As at
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
ASSETS
Non-current assets
Intangible assets 172.8 162.4 163.5
Property, plant and equipment 3,823.0 3,600.2 3,575.8
Investment property 38.4 38.5 38.5
Investments in joint venture 9.2 8.6 9.0
Other financial assets 3.0 3.4 3.3
Trade and other receivables 236.5 209.3 242.8
Derivative financial instruments - 75.9 -
Deferred income tax assets 102.5 50.2 35.5
4,385.4 4,148.5 4,068.4
Current assets
Inventories 466.2 405.5 374.3
Other financial assets 48.3 51.2 48.8
Trade and other receivables 225.3 197.6 210.5
Derivative financial instruments 66.7 8.1 76.4
Cash and cash equivalents 218.9 321.1 362.6
Assets of discontinued operation - - 69.5
1,025.4 983.5 1,142.1
Total assets 5,410.8 5,132.0 5,210.5
LIABILITIES
Current liabilities
Trade and other payables 953.3 837.8 867.8
Derivative financial instruments 6.3 7.3 8.0
Borrowings 915.1 504.4 1,052.8
Current tax liabilities 89.9 62.9 58.7
Provisions 7.0 14.5 9.2
Liabilities of discontinued operation - - 20.5
1,971.6 1,426.9 2,017.0
Non-current liabilities
Borrowings 1,159.5 1,954.8 1,133.8
Retirement benefit obligations 1,051.4 778.4 794.9
Other non-current liabilities 76.7 74.5 74.8
Derivative financial instruments 6.6 12.7 9.5
Provisions 17.7 20.1 19.1
Deferred income tax liabilities 6.1 4.7 6.1
2,318.0 2,845.2 2,038.2
Total liabilities 4,289.6 4,272.1 4,055.2
Net assets 1,121.2 859.9 1,155.3
EQUITY
Called up share capital - equity 421.7 415.7 420.6
Share premium account 173.7 117.9 162.3
Capital redemption reserve 2,168.5 2,108.1 2,113.8
Hedging reserve (5.0) (6.0) (8.0)
Other reserves (6,542.2) (6,542.2) (6,542.2)
Retained earnings 4,904.5 4,766.4 5,008.8
Total equity 1,121.2 859.9 1,155.3
Consolidated cash flow information
CASH FLOW STATEMENT
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
Notes £m £m £m
Cash flows from operating activities
Cash generated from operations - continuing 9A 494.7 498.8 1,183.6
Cash generated from operations - discontinued 9B 0.7 7.5 13.9
Tax paid (74.7) (23.6) (101.5)
Net cash inflow from operating activities 420.7 482.7 1,096.0
Cash flows from investing activities
Disposal of subsidiary, net of cash disposed 48.5 - -
Capital expenditure and financial investment 9C (300.6) (63.7) (266.3)
Interest received 7.2 3.5 12.9
Net cash outflow from investing activities (244.9) (60.2) (253.4)
Cash flows from financing activities
Interest paid (31.6) (47.2) (142.8)
Debt financing 9D (145.5) (152.5) (420.0)
Equity dividends paid (154.6) (124.3) (204.1)
Other equity financing 9E (5.9) 12.5 55.8
Net cash outflow from financing activities (337.6) (311.5) (711.1)
Net cash (outflow)/inflow from activities (161.8) 111.0 131.5
Effects of exchange rate changes (1.4) 1.2 1.6
Opening net cash 282.4 149.3 149.3
Closing net cash 119.2 261.5 282.4
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
Opening net debt (1,729.3) (2,277.2) (2,277.2)
Net cash (outflow)/inflow from activities (161.8) 111.0 131.5
Cash inflow from decrease in current financial (0.4) (17.2) (1.0)
assets
Cash outflow from decrease in debt financing 145.5 152.5 420.0
Debt financing net of liquid resources disposed with (16.8) - -
subsidiary
Fair value movement on derivatives 19.4 3.9 (3.7)
Exchange and other movements (2.2) 1.5 1.1
Movement in net debt (16.3) 251.7 547.9
Closing net debt (1,745.6) (2,025.5) (1,729.3)
1 General information and 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 2006 Annual Report and Financial Statements. The financial
information has been prepared in accordance with the Listing Rules of the Financial Services Authority.
The summary of results for the year ended 1 April 2006 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.
The Directors believe that the 'adjusted' profit and earnings per share measures provide additional useful
information for shareholders on underlying performance of the business, and are consistent with how business
performance is measured internally. It is not a recognised profit measure under IFRS and may not be directly
comparable with 'adjusted' profit measures used by other companies.
2 Revenue
The Group's primary reporting segments are geographic, with the Group operating in two geographic areas being
the UK and International. The geographic segments disclose revenue and operating profit by destination and
reflect management responsibility. Within each geographic segment the Group sells both Food and General
Merchandise and secondary segment disclosure is given for revenue.
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
UK Retail 3,647.9 3,302.3 7,275.0
International Retail
Owned stores(1) 169.8 148.0 324.2
Franchised stores 111.7 91.2 198.5
281.5 239.2 522.7
Total revenue 3,929.4 3,541.5 7,797.7
(1) Owned stores consists of the Marks & Spencer owned businesses in the Republic of Ireland and Hong Kong.
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
UK Retail
General Merchandise 1,800.0 1,623.3 3,644.4
Food 1,847.9 1,679.0 3,630.6
3,647.9 3,302.3 7,275.0
International Retail
General Merchandise 196.2 169.3 366.0
Food 85.3 69.9 156.7
281.5 239.2 522.7
Total revenue 3,929.4 3,541.5 7,797.7
3 Operating profit
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
UK Retail(1)
Before property disposals 407.4 335.9 790.1
Property disposals 1.4 (0.7) (5.6)
408.8 335.2 784.5
International Retail
Owned stores 20.9 15.2 35.8
Franchised stores 19.1 15.0 29.9
Before property disposals 40.0 30.2 65.7
Property disposals - (0.1) (0.1)
40.0 30.1 65.6
Total operating profit 448.8 365.3 850.1
(1) UK Retail operating profit includes a contribution of £11.4m (last half year £2.4m) from M&S Money under the
terms of our arrangement with HSBC.
4 Taxation
The taxation charge for the 26 weeks ended 30 September 2006 is based on an estimated effective tax rate of
31.0% (last full year 30.2%).
5 Discontinued operations
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
Revenue 13.0 109.3 228.2
Cost of sales (8.2) (69.0) (144.7)
Gross profit 4.8 40.3 83.5
Net operating expenses (4.5) (37.9) (80.5)
Net interest receivable - 0.1 0.2
Profit before tax 0.3 2.5 3.2
Taxation on results - (0.3) (0.7)
Profit after tax 0.3 2.2 2.5
Gain on disposal of subsidiary net assets 0.5 - -
Taxation - - -
Net gain on disposal 0.5 - -
Profit from discontinued operations 0.8 2.2 2.5
On 31 March 2006, the Group announced the sale of Kings Super Markets Inc to a US investor group for $61.5m
excluding cash in the business at the date of disposal. The disposal of the business was completed on 28 April
2006.
6 Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of
ordinary shares in issue during the period.
The adjusted earnings per share figures have been calculated in addition to the earnings per share required by
IAS 33 - 'Earnings per Share' and are based on earnings excluding the effect of property disposals. These have
been calculated to allow the shareholders to gain an understanding of the underlying trading performance of the
Group.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume
conversion of all dilutive potential ordinary shares. The Group has only one class of dilutive potential
ordinary shares being those share options granted to employees where the exercise price is less than the average
market price of the Company's ordinary shares during the period.
Details of the adjusted earnings per share are set out
below:
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
Earnings after tax and non-equity dividends 281.3 212.6 523.1
Profit from discontinued operations (0.8) (2.2) (2.5)
Earnings after tax and non-equity dividends - continuing 280.5 210.4 520.6
Property disposals (net of taxation) (1.4) 0.8 2.0
Adjusted earnings after tax and non-equity dividends - continuing 279.1 211.2 522.6
Weighted average number of ordinary shares in issue (millions) 1,684.2 1,660.5 1,667.0
Potentially dilutive share options under Group's share
option schemes (millions) 22.6 11.6 14.5
1,706.8 1,672.1 1,681.5
A Basic earnings per share
Weighted average number of ordinary shares in issue (millions) 1,684.2 1,660.5 1,667.0
Basic earnings per share (pence) 16.7 12.8 31.4
Profit from discontinued operations per share (pence) - (0.1) (0.1)
Basic earnings per share - continuing (pence) 16.7 12.7 31.3
Property disposals per share (pence) (0.1) - 0.1
Adjusted basic earnings per share - continuing (pence) 16.6 12.7 31.4
B Diluted earnings per share
Weighted average number of ordinary shares in issue (millions) 1,706.8 1,672.1 1,681.5
Diluted earnings per share (pence) 16.5 12.7 31.1
Profit from discontinued operations per share (pence) - (0.1) (0.1)
Diluted earnings per share - continuing (pence) 16.5 12.6 31.0
Property disposals per share (pence) (0.1) - 0.1
Diluted adjusted basic earnings per share - continuing (pence) 16.4 12.6 31.1
7 Dividends
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
Final dividend of 9.2p per share (last year 7.5p per share) 154.6 124.3 124.3
Interim dividend of 4.8p per share - - 79.8
154.6 124.3 204.1
The Directors have approved an interim dividend of 6.3p per share (last half year 4.8p per share) which, in line
with the requirements of IAS 10 - 'Events after the Balance Sheet Date', has not been recognised within these
results. This results in an interim dividend of £106.3m (last half year £79.8m) which will be paid on 12 January
2007 to shareholders whose names are on the Register of Members at the close of business on 17 November 2006.
The ordinary shares will be quoted ex dividend on 15 November 2006. Shareholders may choose to take this
dividend in shares or in cash.
8 Statement of changes in shareholders' equity
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
Opening shareholders' equity 1,155.3 841.6 841.6
Profit for the period attributable to shareholders 281.3 212.6 523.1
Dividends (154.6) (124.3) (204.1)
Purchase of shares held by employee trusts (18.4) - (6.0)
Shares issued on exercise of share options 12.5 12.5 61.8
Actuarial losses on retirement benefit obligations (244.4) (142.0) (169.3)
Foreign currency translation differences (13.0) 4.9 11.1
Charge for share-based payments 12.8 11.5 24.7
Tax on items taken directly to equity 86.9 49.2 80.7
Profit/(loss) on cash flow hedges deferred in equity 2.8 (6.1) (8.3)
Closing shareholders' equity 1,121.2 859.9 1,155.3
9 Cash flow analysis
26 weeks ended Year ended
30 Sept 2006 1 Oct 2005 1 Apr 2006
£m £m £m
A Cash flows from operating activities - continuing
Profit on ordinary activities after taxation 280.5 210.4 520.6
Income tax expense 126.0 95.3 225.1
Interest payable and similar charges 59.3 71.8 134.9
Interest receivable (17.0) (12.2) (30.5)
Operating profit 448.8 365.3 850.1
Increase in inventories (92.4) (65.3) (42.2)
Decrease/(increase) in receivables 3.4 15.2 (4.1)
Payments to acquire leasehold properties - - (38.0)
(Decrease)/increase in payables (5.0) 58.1 128.0
Exceptional operating cash outflow (0.5) (11.5) (14.6)
Depreciation and amortisation 129.0 124.7 274.0
Share-based payments 12.8 11.5 24.7
(Profit)/loss on property disposals (1.4) 0.8 5.7
494.7 498.8 1,183.6
B Cash flows from operating activities - discontinued
Profit on ordinary activities after taxation 0.8 2.2 2.5
Profit on sale of business (0.5) - -
Income tax expense - 0.3 0.7
Net interest receivable - (0.1) (0.2)
Operating profit 0.3 2.4 3.0
Decrease in working capital 0.1 1.6 3.5
Depreciation and amortisation 0.3 3.5 6.3
Loss on property disposals - - 1.1
0.7 7.5 13.9
C Capital expenditure and financial investment
Purchase of property, plant and equipment (286.6) (111.8) (298.5)
Proceeds from sale of property, plant and equipment 1.5 37.5 45.1
Purchase of intangible fixed assets (16.2) (3.6) (10.9)
Sale/(purchase) of non-current financial assets 0.3 (3.0) (3.0)
Sale of current available for sale investments 0.4 17.2 1.0
(300.6) (63.7) (266.3)
D Debt financing
Cash outflow from borrowings - (144.6) (144.6)
Repayment of syndicated bank facility - - (200.0)
Redemption of securitised loan notes (1.4) (1.6) (3.1)
Redemption of medium term notes (92.2) - (58.3)
Increase/(decrease) in obligations under finance 2.8 (1.0) (3.0)
leases
Redemption of B shares (54.7) (5.3) (11.0)
(145.5) (152.5) (420.0)
E Other equity financing
Shares issued under employee share schemes 12.5 12.5 61.8
Net purchase of own shares held in employee trusts (18.4) - (6.0)
(5.9) 12.5 55.8
Independent review report to Marks and Spencer Group plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2006 which comprises the consolidated interim
balance sheet as at 30 September 2006 and the related consolidated interim
statements of income, cash flows and consolidated statement of recognised income
and expense for the six months then ended 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 Listing Rules
of the Financial Services Authority 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.
This interim report has been prepared in accordance with the basis of
preparation set out in note 1.
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 management and applying analytical
procedures to the financial information and underlying financial data and, based
thereon, assessing whether the disclosed accounting policies have been applied.
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 and therefore provides a lower level of assurance. 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 six months
ended 30 September 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
6 November 2006
Notes:
(a) The maintenance and integrity of the Marks and Spencer Group plc website is
the responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the interim report
since it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
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