REG - Marks & Spencer Grp - Half Yearly Report <Origin Href="QuoteRef">MKS.L</Origin> - Part 2
05/11/2014 08:21
- Part 2: For the preceding part double click ID:nRSE1614Wa
- - - (51.0) - (67.4) (118.4) - (118.4)
Total comprehensive (expense)/income - - - (51.0) - 457.4 406.4 (18.8) 387.6
Transactions with owners:
Dividends - - - - - (273.6) (273.6) - (273.6)
Transactions with non-controlling shareholders - - - - - (39.3) (39.3) 37.2 (2.1)
Shares issued on exercise of employee share options 4.6 40.4 - - - - 45.0 - 45.0
Credit for share-based payments - - - - - 21.3 21.3 - 21.3
Deferred tax on share schemes - - - - - 9.0 9.0 - 9.0
As at 29 March 2014 408.1 355.5 2,202.6 (41.8) (6,542.2) 6,325.1 2,707.3 (0.6) 2,706.7
¹The 'Other reserve' was originally created as part of the capital
restructuring that took place in 2002. It represents the difference between
the nominal value of the shares issued prior to the capital reduction by the
Company (being the carrying value of the investment in Marks and Spencer plc)
and the share capital, share premium and capital redemption reserve of Marks
and Spencer plc at the date of the transaction.
Consolidated statement of cash flows
26 weeks ended 52 weeks ended
27 Sept 2014 28 Sept 2013 29 March 2014
Notes £m £m £m
Cash flows from operating activities
Cash generated from operations 12 475.5 349.9 1,175.5
Income tax paid (21.1) (35.7) (45.9)
Net cash inflow from operating activities 454.4 314.2 1,129.6
Cash flows from investing activities
Proceeds on property disposals 25.0 25.0 25.0
Purchase of property, plant and equipment (290.0) (210.6) (440.1)
Purchase of intangible assets (71.3) (88.8) (201.5)
Sale/(purchase) of current financial assets 3.2 3.8 (1.7)
Interest received 7.8 5.3 3.4
Net cash used in investing activities (325.3) (265.3) (614.9)
Cash flows from financing activities
Interest paid¹ (55.2) (47.2) (132.7)
Cash inflow from borrowings 9.4 181.6 167.5
Drawdown of syndicated loan notes 87.0 35.8 154.1
Redemption of medium-term notes - - (400.0)
Decrease in obligations under finance leases (2.0) (2.8) (7.3)
Payment of liability to the Marks & Spencer UK Pension Scheme (54.4) (52.8) (50.3)
Equity dividends paid (176.2) (173.6) (273.6)
Shares issued on exercise of employee share options 7.9 6.6 44.2
Purchase of own shares held in employee trusts (11.2) - -
Net cash used in financing activities (194.7) (52.4) (498.1)
Net cash (outflow)/inflow from activities (65.6) (3.5) 16.6
Effects of exchange rate changes (0.9) (0.9) (1.6)
Opening net cash 175.7 160.7 160.7
Closing net cash 109.2 156.3 175.7
¹ Includes interest on the partnership liability to the Marks and Spencer UK Pension Scheme. Prior half year has been re-presented to include £19.1m interest on the partnership liability to the Marks and Spencer UK pension scheme, reclassified from payment of liability to the Marks and Spencer UK pension scheme.
Reconciliation of net cash flow to movement in net debt
26 weeks ended 52 weeks ended
27 Sept 2014 28 Sept 2013 29 March 2014
Notes £m £m £m
Opening net debt (2,463.6) (2,614.3) (2,614.3)
Net cash (outflow)/inflow from activities (65.6) (3.5) 16.6
(Decrease)/increase in current financial assets (3.2) (3.8) 1.7
(Increase)/decrease in debt financing (40.0) (161.8) 136.0
Exchange and other non cash movements (1.0) (3.8) (3.6)
Movement in net debt (109.8) (172.9) 150.7
Closing net debt 13 (2,573.4) (2,787.2) (2,463.6)
Notes to the financial statements
1 General information and basis of preparation
General information
This condensed consolidated interim information for the period does not
constitute statutory financial statements within the meaning of s434 of the
Companies Act 2006.
The summary of results for the year ended 29 March 2014 is an extract from the
published Annual Report and Financial Statements which were approved by the
board of Directors on 19 May 2014, have been reported on by the Group's
previous auditors and delivered to the Registrar of Companies. The audit
report on the Annual Report and Financial Statements was unqualified, did not
contain an emphasis of matter paragraph and did not contain any statement
under s498 (2) or (3) of the Companies Act 2006.
Basis of preparation
The financial information has been prepared in accordance with International
Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS
IC) interpretations, as adopted by the European Union and with those parts of
the Companies Act 2006 applicable to companies reporting under IFRS. The
condensed financial statement for the 26 weeks ended 27 September 2014 have
been prepared in accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and with IAS34 Interim Financial Reporting as
adopted by the European Union.
The comparative figures for the financial year ended 29 March 2014 and the
half year ended 28 September 2013 are consistent with the Group's annual
financial statements and half year financial statements respectively.
Accounting policies
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
2014 Annual Report and Financial Statements, except as described below.
The following IFRS, IFRS IC interpretations and amendments are effective for
the first time in this financial year:
IFRS 10 'Consolidated Financial Statements', IFRS 11 'Joint Arrangements' and
IFRS 12 'Disclosure of Interests in Other Entities' and the amendments to IAS
27 (2011) 'Separate Financial Statements' and IAS 28 (2011) 'Investments in
Associations and Joint Ventures'. These have not had a material impact on the
Group.
There are no other new standards or amendments to standards which are
mandatory for the first time in this financial year that have had any material
impact on the Group.
There are no other IFRS, IFRS IC interpretations or amendments that have been
issued but are not yet effective that would be expected to have a material
impact on the Group.
Taxes on income in the interim period are accrued using the tax rate that
would be applicable to expected total annual earnings, adjusted for actual tax
on non-underlying items.
The directors believe that the underlying profit and earnings per share
measures provide additional useful information for shareholders on the
underlying performance of the business. These measures are consistent with how
underlying business performance is measured internally. The underlying profit
before tax measure is not a recognised profit measure under IFRS and may not
be directly comparable with underlying profit measures used by other
companies. The adjustments made to reported profit before tax are to exclude
the following:
• profits and losses on the disposal of properties;
• one-off pension credits arising on changes of the defined benefit pension
scheme rules;
• interest and fees relating to significant and one-off repayments from tax
litigation claims;
• restructuring costs;
• significant and one-off impairment charges that distort underlying trading;
• fair value movements in financial instruments;
• costs relating to strategy changes that are not considered normal operating
costs of the underlying business;
• adjustment in income received from HSBC in relation to M&S Bank due to a non
recurring provision recognised by M&S Bank for the cost of providing redress
to customers in respect of possible mis-selling of M&S Bank financial
products; and
• ex-gratia payment received from HSBC in relation to the insurance
mis-selling provision.
Going concern basis
Based on the Group's cash flow forecasts and projections, the Board is
satisfied that the Group will be able to operate within the level of its
facilities for the foreseeable future. For this reason the Group continues to
adopt the going concern basis in preparing its financial statements.
2 Segmental Information
IFRS 8 requires operating segments to be identified on the basis of internal
reporting on components of the Group that are regularly reviewed by the chief
operating decision maker to allocate resources to the segments and to assess
their performance.
The chief operating decision maker has been identified as the executive
directors. The executive directors review the Group's internal reporting in
order to assess performance and allocate resources across each operating
segment. The operating segments are UK and International which are reported in
a manner consistent with the internal reporting to the executive directors.
The UK segment consists of the UK retail business and UK franchise operations.
The International segment consists of Marks & Spencer owned businesses in the
Republic of Ireland, Europe and Asia, together with international franchise
operations.
The executive directors assess the performance of the operating segments based
on a measure of operating profit. This measurement basis excludes the effects
of non-underlying items from the operating segments. Central costs are all
classified as UK costs and presented within UK operating profit. The executive
directors also monitor revenue within the segments and gross profit within the
UK segment. To increase transparency, the Group has decided to include an
additional voluntary disclosure analysing revenue within the reportable
segments by subcategory and gross profit within the UK segment by
subcategory.
The following is an analysis of the Group's revenue and results by reportable
segment:
26 weeks ended 27 September 2014
Management Adjustment¹ Statutory
£m £m £m
General Merchandise 1,883.6 (2.8) 1,880.8
Food 2,489.6 - 2,489.6
UK Revenue 4,373.2 (2.8) 4,370.4
Franchised 180.4 - 180.4
Owned 353.3 - 353.3
International Revenue 533.7 - 533.7
Group Revenue² 4,906.9 (2.8) 4,904.1
General Merchandise 1,010.4
Food 814.5
UK gross profit 1,824.9 (152.6) 1,672.3
UK operating costs (1,587.6) 146.1 (1,441.5)
M&S Bank 30.0 12.7 42.7
UK operating profit 267.3 6.2 273.5
International operating profit 51.3 5.6 56.9
Group operating profit² 318.6 11.8 330.4
Finance income 7.7 - 7.7
Finance costs (58.7) - (58.7)
Profit before tax 267.6 11.8 279.4
¹Adjustments to revenue relate to an adjustment for refunds recognised in cost
of sales for management accounting purposes. Management profit excludes the
adjustments (income or charges) made to reported profit before tax that are
one-off in nature, significant and distort the Group's underlying performance
(see note 3). Management gross profit for the UK segment excludes certain
expenses resulting in an adjustment between cost of sales and selling and
administrative expenses of £152.6m (last half year £166.0m, last full year
£345.3m).
²In common with many retailers, revenue and underlying operating profit are
subject to seasonal fluctuations and are weighted towards the second half of
the year which includes the key Christmas period for the business.
26 weeks ended 28 September 2013
Management Adjustment¹ Statutory
£m £m £m
General Merchandise 1,930.1 (5.2) 1,924.9
Food 2,403.6 - 2,403.6
UK Revenue 4,333.7 (5.2) 4,328.5
Franchised 201.9 - 201.9
Owned 350.5 - 350.5
International Revenue 552.4 - 552.4
Group Revenue² 4,886.1 (5.2) 4,880.9
General Merchandise 1,005.2
Food 780.6
UK gross profit 1,785.8 (166.0) 1,619.8
UK operating costs (1,545.7) 217.1 (1,328.6)
M&S Bank 29.5 (25.0) 4.5
UK operating profit 269.6 26.1 295.7
International operating profit 51.1 (7.1) 44.0
Group operating profit² 320.7 19.0 339.7
Finance income 11.0 - 11.0
Finance costs (70.1) - (70.1)
Profit before tax 261.6 19.0 280.6
2 Segmental Information (continued)
52 weeks ended 29 March 2014
Management Adjustment¹ Statutory
£m £m £m
General Merchandise 4,094.5 (2.0) 4,092.5
Food 5,063.2 - 5,063.2
UK Revenue 9,157.7 (2.0) 9,155.7
Franchised 404.0 - 404.0
Owned 750.0 - 750.0
International Revenue 1,154.0 - 1,154.0
Group Revenue 10,311.7 (2.0) 10,309.7
General Merchandise 2,074.9 - -
Food 1,646.7 - -
UK gross profit 3,721.6 (345.3) 3,376.3
UK operating costs (3,159.6) 377.2 (2,782.4)
M&S Bank 57.2 (50.8) 6.4
UK operating profit 619.2 (18.9) 600.3
International operating profit 122.7 (28.5) 94.2
Group operating profit 741.9 (47.4) 694.5
Finance income 20.1 4.9 25.0
Finance costs (139.1) - (139.1)
Profit before tax 622.9 (42.5) 580.4
As at As at As at
27 Sept 2014 28 Sept 2013³ 29 March 2014
£m £m £m
UK assets 7,527.1 7,198.7 7,411.4
International assets 489.0 494.3 491.6
Total assets 8,016.1 7,693.0 7,903.0
³Re-presentation of the prior half year for an adjustment relating to an intercompany offset between UK and International segmental assets whilst not affecting total assets.
3 Non-underlying items
The adjustments made to reported profit before tax are income and charges that
are one-off in nature, significant and distort the Group's underlying
performance. These adjustments include:
- The Group has an economic interest in M&S Bank, a wholly owned subsidiary
of HSBC, by way of a Relationship Agreement that entitles the Group to a 50%
share of the profits of M&S Bank after appropriate deductions. The Group does
not share in any losses of M&S Bank and is not obliged to refund any fees
received from M&S Bank although future income may be impacted by significant
one-off deductions.
Since the year ended 31 December 2012 M&S Bank has recognised an estimated
liability for redress to customers in respect of possible mis-selling of
financial products in its audited financial statements. The Group's fee income
from M&S Bank has been reduced by the deduction of this estimated liability
(under the Relationship Agreement) in both the current and prior years. The
total charge to date for the deduction in the Group's fee income is £112.7m.
The deduction in the period is £27.2m, with a further £14.0m expected in the
second half of the year. This has been treated as a non underlying adjustment
to reported profit before tax, in line with previous periods.
On 26 September 2014 the Group reached agreement with M&S Bank and HSBC over a
number of issues in connection with the Relationship Agreement (including the
extent of historic mis-selling charges). This has resulted in an ex gratia
payment of £40.0m by HSBC which has been recognised as a non underlying credit
in the period (net of £0.1m legal fees), consistent with the deduction to the
Group's fee income. On the same basis as previous periods, any future increase
in the liability recognised by M&S Bank will result in a further reduction in
the Group's fee income;
- Restructuring costs relating to the Group's strategy to transition to a
one tier distribution network and the closure costs of the legacy logistics
sites (current period cost of £4.3m). Restructuring costs have been incurred
in Ireland in previous periods following a thorough commercial review of the
Ireland business. In the current period, resolution has been reached on a
number of employee matters resulting in recognition of a net credit of £5.6m;
- IAS 39 fair value movement of the embedded derivative in a lease contract
based upon the expected future RPI versus the lease contract in which rent
increases are capped at 2.5%, with a floor of 1.5%;
- The profit on property disposal in the prior year relates to the sale of a
warehouse site and mock shop in White City on 26 July 2013 to St James Group
Ltd for a total consideration of £100m, £25m received on completion and the
remaining consideration to be deferred over three years. The property has been
leased back to Marks and Spencer plc for a period of five years and has been
recognised as an operating lease;
- Pension credit recognised in the prior year as a result of changes to the
Marks and Spencer Ireland defined benefit scheme rules (£17.5m) whereby the
discretions for post retirement pension increases were removed and prior year
pension credit arising from the cessation of the practice of granting pension
increases to transferred-in pensions for all members in the UK defined benefit
scheme (£10.0m);
- International store review in the prior full year relates to the
impairment of assets (£13.6m) and onerous lease provisions (£8.3m) in poor
performing international stores in non-strategic locations in China and the
Czech Group;
- Strategic programme costs relating to the strategy announcements made in
November 2010 and included the costs associated with the initial Focus on the
UK plans. These included asset write-offs and accelerated depreciation. These
costs were not considered normal operating costs of the business. We do not
anticipate incurring any further cost in relation to this programme; and
- Interest income (and related fees incurred) in the prior year on tax
repayment relating to the successful outcome of litigation in relation to the
Group's claim for UK tax relief of losses of its former European
subsidiaries.
The adjustments made to reported profit before tax to arrive at underlying
profit are:
26 weeks ended 52 weeks ended
27 Sept 2014 28 Sept 2013 29 Mar 2014
£m £m £m
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