Marks and Spencer 2016 Annual Report Download - page 26

24
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
OUR PERFORMANCE
FINANCIAL REVIEW CONTINUED
UK operating costs were up £58.7m (1.8%), with higher depreciation
contributing £32.4m. Retail sta ng costs were up due to growth in
selling space and the annual pay review, partly o set by e ciencies
from improved resource allocation. The decrease in other retail
costs refl ects savings from lower interchange fees and the
renegotiation of key utilities and facilities contracts which more
than o set higher costs from new space and depreciation.
Distribution costs were up due to higher volumes in Food and M&S.
com, which were greater than the savings from lower retail volumes
in Clothing & Home. Marketing costs increased slightly due to
additional investment in digital marketing including the launch of
Sparks. Central costs were up largely due to higher IT depreciation
and additional sta incentive costs, partially as a result of the
release of employee benefi t provisions last year.
INTERNATIONAL PERFORMANCE
2015/16 2014/15 Var % Var % (cc)2
Sales 1,066.2 1,088.3 -2.0 1.3
Owned 741.8 747.0 - 0.7 4.0
Franchise 324.4 341.3 -4.9 -4.2
Operating Profi t55.892.3 -39.6 -40.0
Owned1(31.5) 0.0 n/a n/a
Franchise187.3 92.3 -5.3 -3.3
1. Prior year numbers have been restated for a revised allocation of overheads to more
accurately refl ect business drivers.
2. Constant currency.
International profi t fell by 39.6% to £55.8m primarily due to the
weaker Euro which meant that the cost of goods in our owned
European businesses increased. Competition in these markets
meant that we were not able to pass on these higher costs
in the form of price increases. The macro-economic pressures in
a number of our franchise markets, most notably Turkey, Russia
and the Middle East, have continued, resulting in lower franchise
sales and margins.
UNDERLYING OPERATING PROFIT
Underlying group operating profi t was £777.6m (last year £762.5m).
UK operating profi t was £721.8m, up 7.7%, driven by an
improvement in both Clothing & Home and Food profi tability.
NET FINANCE COSTS
52 weeks ended
26 Mar 16
£m
28 Mar 15
£m
Interest payable (99.5) (99.8)
Interest income 5.8 5.0
Net interest payable (93.7) (94.8)
Pension net fi nance income 15.3 10.5
Unwinding of discount on
partnership liability (14.7) (16.1)
Unwinding of discounts on fi nancial
instruments and provisions (0.8) (0.9)
Net fi nance cost (93.5) (101.3)
Net fi nance costs were down 7.7% due to increased pension
net fi nance income as result of the net retirement benefi t
asset increase.
NON-UNDERLYING PROFIT ITEMS
52 weeks ended
26 Mar 16
£m
28 Mar 15
£m
Net M&S Bank charges incurred in relation
to the insurance mis-selling provision (50.3) (13.8)
Restructuring credits/(costs) 9.2 (4.6)
UK store review (26.7) –
UK one-o impairment costs (23.7) –
International – store closure costs and
impairments (31.6) (37.2)
International – impairment of goodwill (19.1) –
International – other impairments (51.7) –
IAS 39 fair value movement of
embedded derivative (2.0) 1.3
Net gain on acquisition of joint venture
holding Bradford warehouse 5.4 –
Profi t/(loss) on disposal and impairment
once commitment to closure (10.3) (6.9)
Adjustment to operating profi t and
profi t before tax (200.8) (61.2)
Non-underlying adjustments to profi t were a net charge £200.8m
(last year £61.2m). The Group continues to incur charges in relation
to M&S Bank insurance mis-selling provision (£50.3m).
Following the announcement of a c.£90m multi-year programme
to improve the quality of the UK store estate, a £26.7m charge has
been recognised in relation to UK store closures. A further £23.7m
of asset impairments were incurred as a result of the review of our
Clothing & Home strategy which meant that certain buying and
merchandising systems were no longer required.
In the current year, £102.4m of charges have been recognised in
the International business for store closure costs and impairments
of goodwill and other assets due to underperformance and an
uncertain outlook in a number of markets including Western
Europe and Asia.
A net gain of £5.4m was recognised following the acquisition of
the remaining 50% share of the joint venture holding the Bradford
warehouse, representing a fair value gain of £27.1m on the
revaluation of the existing investment partially o set by a loss of
£21.7m on derecognition of the associated embedded derivative.
Full details are disclosed in note 5 on p97-98.
TAXATION
The full year underlying e ective tax rate was 17.2% (last year 18.9%).
Statutory e ective tax rate was 17.3% (last year 19.7%). It was lower
in part owing to a one-o credit due to the restatement of our
deferred tax liability to refl ect a lower future UK Corporation
Tax rate.
TOTAL TAX CONTRIBUTION
£857m
Corporation tax 11%
Customs duties 7%
Employer’s NI 8%
Employees’ NI 6%
Other taxes 1%
Business rates 22%
Excise duties 14%
VAT 17%
PAYE 14%