Marks and Spencer 2016 Annual Report Download - page 99

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ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
OUR BUSINESSOUR PERFORMANCEGOVERNANCEFINANCIAL STATEMENTS
5 NON UNDERLYING ITEMS
In order to provide shareholders with a measure of the true underlying performance of the business and to allow a more understandable
assessment of its position, the Group makes certain adjustments to the reported profi t before tax. These adjustments for non-underlying
items are made in accordance with the Group’s accounting policy and are one-o in nature, material by size and are considered to be
distortive of the true underlying performance of the business.
The total non-underlying items reported for the 53 week period ended 2 April 2016 is a net charge of £200.8m. The adjustments made to
reported profi t before tax to arrive at underlying profi t are:
Notes 2016 £m
2015
£m
Net M&S Bank charges incurred in relation to the insurance mis-selling provision (50.3) (13.8)
Restructuring credits/(costs) 15,22 9.2 (4.6)
UK store review 15,22 (26.7) –
UK one-o impairment costs (23.7) –
International – store closure costs and impairments 15,22 (31.6) (37.2)
International – impairment of goodwill 14 (19.1) –
International – other impairments 14,15 (51.7) –
Profi t/(loss) on property disposal and impairment following a commitment being made to
close stores 15,22 (10.3) (6.9)
IAS 39 Fair value movement of embedded derivative 21 (2.0) 1.3
Net gain on acquisition of joint venture holding Bradford warehouse 25 5.4 –
Adjustment to profi t before tax (200.8) (61.2)
Net M&S Bank charges incurred in relation to the insurance mis-selling provision
The Group has an economic interest in M&S Bank, a wholly owned subsidiary of HSBC, by way of a Relationship Agreement that entitles the
Group to a 50% share of the profi ts of M&S Bank after appropriate deductions. The Group does not share in any losses of M&S Bank and is
not obliged to refund any fees received from HSBC although future income may be impacted by signifi cant one-o deductions.
Since the year ended 31 December 2012, M&S Bank has recognised, in its audited fi nancial statements, an estimated liability for redress
to customers in respect of possible mis-selling of fi nancial products. The Group’s fee income from M&S Bank has been reduced by the
deduction of this estimated liability in both the current and prior years. The total charge to date for the deduction in the Group’s fee income
is £189.4m. The deduction in the period is £50.3m.
On 26 September 2014, the Group reached agreement with M&S Bank and HSBC over a number of issues in connection with the Relationship
Agreement (including the extent of historical mis-selling charges). This resulted in an ex gratia payment to the Group of £40.0m by HSBC
which was recognised as a non-underlying credit in the prior period (net of £0.1m legal fees).
Restructuring credits/(costs)
The £9.2m restructuring credit in the year relates primarily to the Group’s ongoing strategy to transition to a single tier distribution network
and the closure costs of the legacy logistics sites. The net credit in the year arises due to an updated view of the site closure proposals
(which has resulted in the retention of some sites initially announced for closure), an updated view of the estimated costs associated with
closure and the successful assignment of a lease that had initially been provided for as onerous.
UK store review
The UK store review relates to a strategic multi-year programme which was announced during the year. As part of this programme,
nine UK stores have been closed in the period resulting in charges of £26.7m being incurred. These charges relate to dilapidations
and sublet shortfalls, accelerated depreciation of fi xtures and fi ttings, impairments of land and buildings and redundancy costs.
UK one-o impairment costs
As part of the ongoing review of the Clothing & Home business, signifi cant changes in both the trading strategy and the store ranging
strategy were made. As a result of these changes, elements of the new buying and merchandising systems will no longer be used and
as a result investment in these elements of the system have been written o , resulting in a one-o charge of £23.7m.
International – store closure costs and impairments
The international store impairment tests during the year have identifi ed a number of stores across the portfolio where current and
anticipated future performance will not support the carrying value of the stores. As a result, one-o impairment charges of £21.9m
have been incurred, primarily in Western Europe and Asia.
Closure costs of £6.5m were incurred on the exit of stores, primarily in the Balkans region. In addition, separately capitalised sta ng costs
of £3.2m relating to property and store design projects for closed/impaired international stores have been written o during the year.