Marks and Spencer 2007 Annual Report Download - page 32

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30 MARKS AND SPENCER GROUP PLC www.marksandspencer.com/annualreport2007
Financial review continued
Capital expenditure
Investing in the business is a key part of our strategy. Capital
expenditure for the year was £792.4m compared with £337.7m
last year.
The increase in spend on the modernisation programme reflects
the investment in our 2006 programme, with some 40% of our
space now under new format, as well as an earlier start to the
2007 programme in order to complete the work by our peak
Christmas trading period. In addition, we commenced
development work on major city centre stores such as London
Pantheon, Edinburgh and Belfast, as well as extensions to some
of our major out of town stores such as London Colney,
Braehead and Cheshunt. Capital expenditure on new stores
was up £71m, reflecting the Simply Food opening programme
and three new retail parks.
Supply chain capital expenditure reflects investment made in
new distribution centres in food and general merchandise.
Technology capital expenditure reflects investment in information
technology with the implementation of new financial systems as
well as a major project to start replacing our tills and point of
sale system.
Cash flow and net debt
The Group generated a net cash inflow of £231.1m (last year
£550.5m), reflecting the strong cash generation of the business.
Cash inflow from continuing operating activities increased by
£259.0m. Working capital increased to £114.1m reflecting the
additional bonus provision and a reduction in cash outflow on
leasehold prepayments. Cash outflow on capital expenditure,
net of disposals, was £710.5m (last year £264.3m) reflecting a
step up in the modernisation programme and major store
developments in several of our major city centre stores.
The Group made a one-off, property-backed contribution of
£500.1m to secure the future of the Group’s defined benefit
pension scheme. This is accrued for as a liability of £496.9m at
year end. As a result, net debt at the end of the year increased
to £1,949.5m, compared with £1,729.3m last year.
Pensions
A triennial valuation of the UK defined benefit scheme was
carried out as at 31 March 2006 resulting in an actuarial deficit
of £704m.
The Group has agreed a plan with the Pension Scheme Trustee
to address the deficit by transferring properties with a current
market value of £1.1bn into a partnership established by the
Group. A limited interest in this partnership was contributed to
the Pension Scheme on 13 March 2007. The Group retains
control over these properties, including the flexibility to substitute
alternative properties. The properties held in the partnership
have been leased back to Marks and Spencer plc. The Pension
Scheme is entitled to a distribution from the profits of the
partnership of £50m per annum for 15 years. The value of this
partnership interest on the date of contribution was £500m and
this is recognised as an asset by the Pension Scheme.
The impact of this transaction on the Group’s balance sheet is
a reduction in the pension deficit of £500m and the recognition
of an amortising liability in respect of the obligations of the
partnership to the Pension Scheme. At 31 March 2007 the
IAS 19 retirement benefit deficit was £283m (last year £795m)
and the amortising liability had a value of £497m (last year £nil).
500
400
300
200
100
0
Modernisation
programme
Actual
2005/06 Actual
2006/07
New stores
International
Supply chain
and technology
Maintenance
Modernisation
programme
New stores
International
Supply chain
and technology
Maintenance
Group capital expenditure
£m
175
49 19 3956 52
114
27
120
479
1,500
1,200
900
600
300
0
EBITDA
Working capital and
other similar movements
Net capital expenditure
Interest and taxation
Dividends and
share issues
Net cash generated
Other cash flow
movements
Net cash generated
£m
1,329.2
+114.1 (710.5)
(282.6)
(215.7)
(3.4) 231.1