Marks and Spencer 2002 Annual Report Download - page 33

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2. Accounting policies continued
Derivative financial instruments
The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign currency exchange
rates and interest rates. Derivative instruments utilised by the Group include interest rate and currency swaps,
and forward currency contracts. Amounts payable or receivable in respect of interest rate swaps are recognised
as adjustments to net interest income over the period of the contract. Forward currency contracts are accounted for
as hedges, with the instrument’s impact on profit deferred until the underlying transaction is recognised in the profit
and loss account.
Foreign currencies
The results of international subsidiaries are translated at the weighted average of monthly exchange rates for sales
and profits. The balance sheets of overseas subsidiaries are translated at year-end exchange rates. The resulting
exchange differences are dealt with through reserves and reported in the consolidated statement of total recognised
gains and losses.
Transactions denominated in foreign currencies are translated at the exchange rate at the date of the transaction.
Foreign currency assets and liabilities held at the year-end are translated at year-end exchange rates or the exchange
rate of a related forward exchange contract where appropriate. The resulting exchange gain or loss is dealt with in
the profit and loss account.
Goodwill
Prior to 31 March 1998, goodwill arising on consolidation was written off to reserves in the year of acquisition.
As permitted by FRS 10, this goodwill has not been reinstated in the balance sheet and remains written off to
reserves. Goodwill arising on subsequent acquisitions is capitalised and amortised over its useful economic life.
The profit or loss arising on the sale of a previously acquired business includes the attributable goodwill.
Pensions
Funded pension plans are in place for the Group’s UK employees and the majority of employees overseas. The assets
of these pension plans are managed by third party investment managers and are held separately in trust.
Regular valuations are prepared by independent professionally qualified actuaries. These determine the level of
contributions required to fund the benefits set out in the rules of the plans and allow for the periodic increase of
pensions in payment. The contributions and any variations from regular cost arising from the actuarial valuations are
charged or credited to profits on a systematic basis over the estimated remaining service lives of the employees.
Stocks
Stocks are valued at the lower of cost and net realisable value using the retail method. All stocks are finished goods.
3. Segmental information
A Classes of business
The Group has two classes of business: Retailing and Financial Services.
Turnover Operating profit Operating assets
2002 2001 2002 2001 2002 2001
£m £m £m £m £m £m
Continuing operations:
Retailing activities 7,268.6 6,979.5 538.5 350.2 3,565.0 3,862.4
Before exceptional operating charges 538.5 376.7
Exceptional operating charges –(26.5)
Financial Services1,2 350.8 363.1 84.2 96.3 576.7 518.0
Total continuing operations 7,619.4 7,342.6 622.7 446.5 4,141.7 4,380.4
Discontinued operations – retailing activities 516.0 733.1 14.7 (13.9) (60.4) 329.3
Total operating activities 8,135.4 8,075.7 637.4 432.6 4,081.3 4,709.7
Add: excess interest charged to cost of sales
of Financial Services26.4 7.9
Total operating profit 643.8 440.5 4,081.3 4,709.7
Profit/(loss) on sale of property and other fixed assets 41.2 (83.2)
Provision for loss on operations to be discontinued –(224.0)
Net loss on sale/termination of operations (366.7) (1.7)
Net interest income 17.6 13.9
Profit on ordinary activities before taxation 335.9 145.5 4,081.3 4,709.7
Unallocated net liabilities (1,000.0) (128.3)
Net assets 3,081.3 4,581.4