Marks and Spencer 2008 Annual Report Download - page 35

Revenues
Total revenues were up 5.1% driven by new space in the
UK and strong performance in our International business.
UK revenues were up 4.2% in total with like-for-like decline of
0.5%. The performance in the first half of the year was strong,
despite the unseasonable weather and significant disruption
from our modernisation programme. However, in the second
half of the year the deterioration in the economic environment and
consumer spending had an adverse impact on our performance.
During the year, we added 4.8% of space (on a weighted
average basis), 8.7% in food and 3.0% in general merchandise.
International revenues were up 16.8% with good performances
in both owned and franchised stores, up 15.5% and 18.7%
respectively. This was driven by both strong like-for-like
performance and 38 new store openings.
Operating profit
Operating profit before property disposals and exceptional
items was £1,089.3m, up 4.3%.
In the UK, operating profit before property disposals and
exceptional items was up 1.7% at £972.9m. The UK gross
margin was 0.4 percentage points down on the year at 43.0%,
mostly due to a greater proportion of food sales in the overall
mix. General merchandise gross margin was level on the year
at 52.6%, with further improvement in primary margin being
offset by higher markdowns. Food gross margin was 0.1
percentage point lower than last year at 33.9% due to higher
waste and the growth in franchised Simply Food stores which
generate a lower gross margin. The net operating margin for
franchised stores is above that achieved by owned Simply
Food stores.
UK operating costs were up 4.3% to £2,630.0m. A breakdown
of UK operating costs is shown below:
52 weeks ended
29 March 31 March
2008 2007 % increase/
£m £m (decrease)
Retail staffing 834.8 819.5 + 1.9
Retail occupancy 841.4 750.4 + 12.1
Distribution 383.8 329.7 +16.4
Marketing and related 144.6 137.5 + 5.2
Support 408.9 394.6 + 3.5
Total before bonus 2,613.2 2,431.7 + 7.5
Bonus 16.8 91.0 – 81.5
Total including bonus 2,630.0 2,522.7 + 4.3
Despite the step up in space growth, retail staffing costs
were well controlled, in response to the more difficult trading
environment experienced over the year. Our mystery shop
scores, which measure the quality of service in stores, continue
to be very strong. The increase in retail occupancy costs reflects
both space growth and the increased depreciation related to
the modernisation programme. Increase in distribution costs
reflects growth in both general merchandise and food volumes,
as well as furniture order deliveries. Growth in marketing
expenditure reflects higher in-store marketing costs due to
new store openings and modernisations. Support costs, which
include non-store related overheads, were well controlled.
We will be paying a bonus of £16.8m for 2007/08 (last year
£91.0m). The level of bonus payment reflects performance
against our original operating plan.
The UK operating profit includes a contribution of £28.3m
(last year £19.5m) from the Group’s continuing economic
interest in M&S Money.
International operating profit before property disposals was
£116.4m, up 33.0%, reflecting the strong sales performance
of the business. Owned store operating profits decreased
by 2.0% to £44.5m, largely due to the Republic of Ireland
where operating results were affected by new store opening
costs, and start up losses relating to Taiwan. Franchise
operating profits grew by 70.8% to £71.9m reflecting strong
sales and margin performance.
Profit on property disposals
Profit on property disposals was £27.0m (last year £1.9m).
This relates to proceeds from the sale of stores where we
have relocated, or plan to relocate at a later date.
Exceptional items
The exceptional pension credit of £95.0m (last year £nil) has
arisen due to the changes made in the terms of the UK defined
benefit plan relating to how members’ future benefits build up
from 1 October 2007. To the extent that members have chosen
the option to limit their future pensionable salary increases
in line with inflation, there is a past service credit to reflect the
impact of adjusting their projected final pensionable salaries.
Net finance costs
Net interest payable was up 15.8% at £113.8m (last year
£98.3m) reflecting an increase in the average net debt for
the year. Consequently, net finance costs before exceptional
items were up 4.3% after pension finance income of £58.9m
(last year £20.8m) and the unwinding of the discount on the
partnership liability to the pension scheme. Despite widening
credit spreads within the debt capital markets and rising
short-term LIBOR rates the Group’s average cost of funding
remained level on the year at 5.9%.
Financial review
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Revenue
UK Retail International Retail
2008 £8,309.1m £712.9m
2007 £7,977.5m £610.6m
Total +4.2% +16.8%
Like-for-like -0.5% +6.6%
Operating profit
UK Retail International Retail
2008 £972.9m £116.4m
2007 £956.5m £87.5m
Total +1.7% +33.0%