Marks and Spencer 2006 Annual Report Download - page 27

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25Marks and Spencer Group plc
Tangible non-current assets decreased by £10.5m to
£3,614.3m. Included within this are properties owned by the
Group with a net book value of £2.3bn, of which £2.0bn was
unencumbered. Intangible assets of £163.5m principally relate
to the acquisition of ‘per una’.
Inventories at the end of the year were £374.3m, 10% up on
last year, largely as a result of an increase in direct sourcing for
general merchandise which results in the Group taking
ownership of the stock earlier in the supply chain.
Trade and other payables increased by £221.7m compared to
last year. This reflects an accrual of £73m in respect of bonuses
for all employees. In line with the increase in stock, there has
also been a corresponding increase in trade payables of £47.3m
driven by the direct business. Tax payable has also increased by
£43.2m, primarily as a result of the increase in taxable profits
compared to last year.
Provisions for liabilities and charges decreased by £16.6m as
a result of costs incurred principally relating to head office
restructuring and the closure of Lifestore, which were both
provided for last year. The net post retirement liability increased
by £118.9m primarily due to the decrease in the corporate bond
rate – the rate used to discount the liabilities.
Shareholders’ funds amounted to £1,155.3m, equivalent to
68.7p per share (last year 54.8p per share), an increase of
£246.1m in the year. Gearing was 69.7% (last year 75.8%)
and return on equity was 52.3% (last year 35.0%).
Financing and capital structure
In October 2005, the Group renewed the £3bn Euro Medium
Term Note (MTN) programme and as at 1 April 2006, £1.7bn
of MTNs were outstanding.
In March 2006, the £1.2bn five-year committed syndicated bank
facility was re-financed in the light of improved market
conditions. At 1 April 2006, this facility was undrawn. The
£1.5bn Commercial Paper programme continues to be available
to the Group. As at 1 April 2006, no paper had been issued or
was outstanding under this programme.
On 26 September 2005 and 27 March 2006, 7,406,349 and
8,232,253 B shares respectively were redeemed at par at a total
cost of £11.0m. Following this redemption, 78,184,314 B
shares remained in issue at 1 April 2006, all of which were
redeemed on 5 May 2006 at a cost of £54.7m.
Pensions
The Group provides a variety of post-employment benefit
arrangements covering both funded and unfunded defined
benefit schemes and funded defined contribution schemes.
The most significant scheme is the Marks & Spencer UK
Pension Scheme. This has a defined benefit section, which
was closed to new entrants with effect from 1 April 2002, and
a defined contribution section which has been open to new
members with effect from 1 April 2003.
The last actuarial valuation of the UK defined benefit section
was carried out as at 31 March 2003 and showed an actuarial
deficit of £585m. Since then, the Group has paid additional
contributions of £400m in March 2004 and a further £115m
in March and April 2005. These payments were in addition
to annual service contributions at a level of 15.8% of
pensionable salaries.
As at 1 April 2006, the IAS 19 deficit for the UK defined benefit
scheme was £775m. The amount of the deficit is sensitive to
changes in the main financial assumptions, particularly the rate
used to discount the liabilities (the discount rate). If the discount
rate increased/decreased by 0.1% the IAS 19 deficit would
decrease/increase by c.£100m.
A full actuarial valuation of the UK defined benefit section is
being carried out as at 31 March 2006, the results of which will
be available later this year.
Further details on pensions are provided in note 11 to the
financial statements.
International Financial Reporting Standards
This is the first year that the Group has adopted International
Financial Reporting Standards. The greatest impact on the
Group arises from changes in the accounting treatment for
property, share-based payments, financial instruments and
software. The Group has restated the results for the period
ended 2 April 2005 to reflect these changes, with the exception
of those changes relating to financial instruments which, in
accordance with the relevant standard, have only been
applicable to the current year. The restated results have been
used for the comparatives in the consolidated financial
statements. Details of the changes are set out in notes 33 and
34 to the financial statements.