Marks and Spencer 2005 Annual Report Download - page 8

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6MARKS AND SPENCER GROUP PLC
Financial review continued
We have also incurred a further £6.3m of costs in the year in connection with the implementation of the head office restructuring
programme which was announced at the end of last year.
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 of £38.6m represent the costs incurred, primarily for professional advice, in developing and implementing the new business
strategy as a consequence of the possible offer from Revival Acquisitions Limited. Costs of £8.4m have also been incurred in making the
necessary changes to the Board.
The Group successfully completed the sale of the Financial Services business to HSBC on 9 November 2004. This resulted in a profit
on disposal, after costs, of £208.9m.
Following the disposal of two properties in Germany during the year, we have completed the majority of the actions required to close our
European operations and we have released, unutilised, £9.7m of the closure provision which we now anticipate is no longer required.
Interest
Net interest expense was £102.3m compared to £44.5m (52 week basis) for last year. The average rate of interest on borrowings during
the period was 5.7% (last year 5.3%).
Taxation
The tax charge reflects an effective tax rate for the full year of 28.5% before exceptional income, compared to 30.1% last year. The rate is
lower than the standard UK tax rate of 30% due to the impact of prior year credits and relief in respect of the exercise of employee share
options. The European Court of Justice heard the Group’s group relief claim on 1 February 2005 and their judgement is expected later this
year. No asset has been recognised in respect of this claim.
Shareholder returns and dividends
Adjusted earnings per share, which excludes the effect of exceptional items, has decreased by 11.3% to 21.9p per share (on a 52 week
basis, a decrease of 6.4%). Return on equity was 41.4% compared to 25.2% last year.
A final dividend of 7.5p per share (last year 7.1p per share) is proposed, making the total dividend for the year 12.1p per share (last year
11.5p per share), an increase of 5.2%.
Capital expenditure
Group capital additions for the year were £220m compared to £434m last year. The major components of the additions are analysed
below:
2005 2004
Capital expenditure £m £m
New stores and extensions 88 118
Head office relocation –40
Store renewal, refurbishment and new selling initiatives 25 44
Refrigeration equipment 10 39
IT equipment 18 40
Logistics 16 95
Other 29 32
UK Retail capital expenditure 186 408
International Retail 33 20
M&S Money 16
Total Group capital expenditure 220 434
The decrease in capital expenditure in part reflects the one-off costs last year relating to the acquisition of warehouses, as part of the
restructuring of the general merchandise logistics operation, and the relocation of the head office. It also reflects a reduction in capital
expenditure on new and existing footage as we reviewed the performance of new formats to determine how to revitalise the portfolio in
a cost effective way. Group capital expenditure for 2005/06 is expected to be £350m.