Marks and Spencer 2011 Annual Report Download - page 38

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Retail staffing costs were well managed despite increases in
selling space and volumes and the annual pay review. Increased
occupancy costs reflect growth in selling space as well as the
impact of rent reviews. Distribution costs were very well managed
despite volume increases and inflationary pressure, as we
continued to see the benefits of initiatives to improve supply chain
efficiency. The growth in marketing costs reflects the increase in
the number of advertising campaigns in both General
Merchandise and Food. The increase in support costs is largely
due to additional depreciation partly offset by a lower bonus
payment.
The underlying UK operating profit includes a contribution of
£35.2m (last year £30.4m) from the Group’s continuing economic
interest in M&S Money.
International underlying operating profit was up 8.6% at £147.0m
(last year £135.3m). Owned store operating profits were £54.7m,
down 7.4%, reflecting the economic pressures in Greece and the
Republic of Ireland as well as continued investment in stores in
India and China. Franchise operating profits were up 21.1% to
£92.3m due to continuing strong sales performance.
Non-underlying profit items
52 weeks ended
2 Apr 11
£m
27 Mar 10
£m
Profit on property disposals 2.9 8.1
One-off pension credit 10.7 –
Impairment of investment property (6.3) –
Fair value movement on financial
instrument 54.3 –
Recognition of embedded derivative 20.3 –
Strategic programme costs (15.6) –
66.3 8.1
Profit on property disposals was £2.9m (last year £8.1m). This
mainly relates to the sale of a freehold property in Luton.
The one-off pension credit of £10.7m is due to changes in the
Republic of Ireland pension scheme capping employees’ future
annual increases in pensionable pay to 4%.
The value of an investment property has been impaired by £6.3m
to reflect its recoverable value, in line with its current market value.
The liability for the put option over the non-controlling interest in
the Czech Group is carried at fair value and has been revalued in
line with the latest business plan. The resulting non-cash credit of
£54.3m has been recognised within finance costs.
An embedded derivative of £20.3m has been recognised that is
contained within a warehouse lease in which rent increases are
based on inflation, but within a fixed range. Under IAS 39, this
requires separate recognition.
As a result of the strategy announced in November, over the next
three years an estimated c.£50m of costs will be incurred which
are not part of the normal operating costs of the business. £15.6m
relating to the write-off of technology store fit-out and the cost of
implementing the strategy has been incurred in 2010/11, with the
remainder of the costs to come over the next two years.
Net finance costs
52 weeks ended
2 Apr 11
£m
27 Mar 10
£m
Interest payable (140.6) (133.7)
Interest income 4.7 2.1
Net interest payable (135.9) (131.6)
Fees payable (8.5) (13.5)
Pension finance income (net) 37.6 10.8
Unwinding of discounts on
financialinstruments (3.8) (12.5)
Underlying finance costs (110.6) (146.8)
Fair value gain on financial instrument 54.3 –
Net finance costs (56.3) (146.8)
Net interest payable was up 3.3% at £135.9m reflecting an
increase in the Group’s average cost of funding to 6.4% (last year
5.9%), offset by a reduction in average net debt over the year.
Underlying net finance costs were down £36.2m after an increase
in pension finance income to £37.6m (last year £10.8m). The
non-cash fair value gain on financial instruments of £54.3m
represents a change in the valuation of the put option over the
non-controlling interest in our Czech business.
Taxation
The full year effective tax rate on underlying profit before tax is
25.1% (last year 25.6%) reflecting the benefit of recently
announced changes to the corporation tax rate.
Underlying earnings per share
Underlying earnings per share increased by 16.0% to 34.8p per
share. The weighted average number of shares in issue during the
period was 1,577.1m (last year 1,572.2m).
Dividend
The Board is recommending a final dividend of 10.8p per share,
up 13.7% on last year’s final dividend. This will result in a total
dividend of 17.0p, an increase of 13.3%. This reflects the Board’s
commitment to a progressive dividend policy broadly twice
covered by earnings.
Marks and Spencer Group plc Annual report and financial statements 2011
36
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continued