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98
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
5 NON UNDERLYING ITEMS CONTINUED
International – impairment of goodwill
Goodwill arising on business combinations is not amor tised but is reviewed for impairment annually, or more frequently if indicators
of impairment are identifi ed. The goodwill impairment test involves an assessment of the carrying value relative to the value in use of
the CGU (calculated using the three year plans reviewed by the Board). Where the carrying value exceeds the value in use an impairment
charge is recognised. During the year indicators of impairment have been identifi ed in respect of both the Czech Group and the
Hungarian businesses.
The performance of the Czech Group during the year has been heavily impacted by challenging trading conditions and weakening
currencies. These have had a detrimental impact on the business’ ability to improve profi tability year-on-year. As a result, the future cash
fl ows of the business no longer support the carrying value of the goodwill resulting in a full impairment of the goodwill balance of £15.8m.
The Hungarian retail market has been impacted by challenging trading conditions resulting in a decrease in gross profi t and reduced
expectations of future growth. As a result, the future cash fl ows of the business no longer support the carrying value of the goodwill
resulting in a full impairment of the goodwill balance of £3.3m.
International – other impairments
The M&S Mode brand was acquired in 2011 giving the Group the right to use the M&S brand in certain European markets. The valuation of this
asset is supported by the cash fl ows of both owned and franchised European businesses. The deterioration in the current year trading
performance across several of these markets (most notably Greece, France, the Czech Group and Hungary) and the consequential impact
on expected future year cash fl ows have resulted in the carrying value of the brand no longer being supportable. As a result a full
impairment of £32.4m has been recognised in the year.
E-SAP is an enterprise management system used solely by owned businesses in Greece, the Czech Group and Hungar y. As highlighted
above, the expected future cash fl ows of these countries have been impacted by challenging trading conditions and weakening currencies.
There are no plans to implement E-SAP across other international territories. As a result, the cash fl ows can no longer support the carrying
value of the E-SAP system and an impairment charge of the full £19.3m has been recognised in the year.
Profi t/(loss) on property disposal and impairment following a commitment being made to close stores
During the year the Group recognised a net profi t of £0.6m on the disposal of stores in Hartlepool, Harlow and Gloucester.
As a result of historic store closures, the Group has a small non-operating portfolio of properties. The strategy is to market the properties for
sale (or lease assignment) or to explore sub-let opportunities where a sale or assignment is not achievable. A detailed review of the realisable
value of these assets has been performed during the year which has identifi ed a one-o charge of £10.9m.
IAS 39 Fair value movement of embedded derivative
The embedded derivative arose in respect of a lease contract for the Bradford distribution warehouse held within the Lima (Bradford) S.à r.l.
joint venture. The lease contained both a rental increase cap and fl oor resulting in an embedded derivative being recognised in the
Statement of FInancial Position and fair valued each reporting period. The fair value movement in the derivative during the period until
acquisition was £2.0m.
Net gain on acquisition of joint venture holding Bradford warehouse
On 29 February 2016, the Group purchased the remaining 50% of the Lima (Bradford) S.à r.l. joint venture for cash consideration of £56.2m.
In accordance with IFRS 3 ‘Business Combinations’ this acquisition was treated as a stepped acquisition resulting in a one-o fair value gain
of £27.1m.
Following the Group's acquisition, the embedded derivative in respect of the lease contract for the warehouse (see note above 'IAS 39
Fair value movement of embedded derivative ) has been derecognised from the Statement of Financial Position, resulting in a one-o cost
of £21.7m.
Refer to note 25 for more detail on this business combination.
6 FINANCE INCOME/COSTS
2016
£m
2015
£m
Bank and other interest receivable 5.8 5.0
Pension net fi nance income (see note 11) 15.3 10.5
Finance income 21.1 15.5
Interest on bank borrowings (3.6) (3.3)
Interest payable on syndicated bank facility (5.5) (6.4)
Interest payable on medium-term notes (89.9) (88.1)
Interest payable on fi nance leases (1.9) (2.0)
Unwind of discount on fi nancial instruments (0.4) (0.6)
Unwind of discount on provisions (see note 22) (0.4) (0.3)
Unwind of discount on partnership liability to the Marks & Spencer UK Pension Scheme (see note 12) (14.7) (16.1)
Finance costs (116.4) (116.8)
Net fi nance costs (95.3) (101.3)