Marks and Spencer 1999 Annual Report Download - page 4

ANNUAL REPORT AND FIN ANCIAL STATEMENTS 1999
FIN AN CIAL REVIEW
(ii) Pension fund
This year’s triennial valuation of the UK pension fund has confirmed
that the annual pension cost has increased by approximately
£• m per annum, the amount estimated and provided for in the
1998/99 accounts (see note • on page • for further details).This
increase is mainly due to the abolition of recoverable ACT.
(iii) D epreciation
D epreciation charges have increased by • % to £• m
(last year £193m). Although this relates in part to the investment
programme, a significant proportion of the increase relates to
the following:
• As a result of the publication of FRS15,‘Tangible Fixed
Assets’, the Board has reviewed the Group’s accounting policy
in respect of properties and their cost of fit out and has
amended it as follows:
(a) Freehold and long-leasehold buildings are depreciated down
to their estimated residual value over their estimated remaining
economic lives (no depreciation was charged previously on
grounds of immateriality – see note • on page • ).
(b) Fit out, which was previously accounted for on a replacement
basis, has been identified separately from buildings and is
depreciated over periods ranging from 10-25 years depending
on its nature. In accordance with FRS15 this change has been
dealt with as a prior year adjustment.
The effect of the above changes is to increase the depreciation
charge for the year by £• m (last year £37.4m) and reduce the
charge for repairs and renewals by £• m (last year £18.3m).
The net effect on the UK is to decrease operating profits for
the years ended 31 March 2000 and March 1999 by £• m
and £• m respectively.
• As part of our strategy to develop and implement revised
store formats we have charged accelerated depreciation on
certain items of store equipment which are to be replaced next
year. This has resulted in an additional £• m depreciation charge.
– OVERSEAS RETAIL
A full analysis of sales and operating profits is given in the segmental
analysis on page • .The movements in exchange rates used for
translation, compared to the same period last year, have reduced
overseas sales by £• m and overseas operating profit by £• m.
Europe has made an operating loss of £• m before impairment
(see below) compared to a loss of £• m last year. This result includes
the additional cost of £• m (last year £2.0m) following the adoption of
FRS 15.The strength of sterling has led to an increase in the cost of
UK sourced M&S merchandise.This has reduced European margins by
approximately £• m.
O perating profit in the Americas is £• m below last year. W ithin this,
Brooks Brothers has been affected by the recession in Japan.
The operating loss in the Far East of £• m is £• m below last year’s
operating profit, reflecting the poor state of economies across the
region.
Closure of Canadian operations
As part of the Company’s ongoing strategic review, the Group
announced (in April 1999) the closure of its Canadian operations
which will cease trading during the financial year ending 31 March
2000.The total cost of closure, which will be included in the results
for next year, is estimated at £• m, excluding goodwill of £• m
previously written off to reserves.
– FINANCIAL SERVICES
This profit centre consists of five different business units:
Marks & Spencer Store Cards
Personal Lending
Unit Trusts
Life Assurance
MS Insurance in Guernsey
The overall results are given in the segmental analysis on page • .
The first four of the five businesses are based in Chester and
managed as a single business with four profit centres (the results for
the Life Assurance company being aggregated on an Embedded Value
basis).The Guernsey Captive insurance company derives the majority
of its underwriting business from the Chester-based activities.
The scale and value of current business levels is indicated below:
Account Personal Unit Life
Cards Lending Trusts Assurance
N umber of accounts/
policy holders
(000s) 1999
1998 5,166 548 171 30
Value of customer
outstandings/funds
under management
(£m) 1999
1998 652 1,283 1,101 n/a
The credit activities are carried out within Marks and Spencer Financial
Services Limited, a bank regulated by the FSA.The Unit Trust, Life
Assurance and Corporate PEP/ISA businesses are carried out by
companies regulated by IMRO, PIA and the FSA.
EX CEPTIONAL ITEMS
– Business restructuring
W e have charged £• m against the profits of the UK Retail profit
centre in respect of job losses at head office as a result of business
restructuring.This includes £• m in relation to the rationalisation
of senior management.The balance of £• m relates to head office
job losses at other levels.
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