Marks and Spencer 2009 Annual Report Download - page 18

14 Marks and Spencer Group plc Annual report and financial statements 2009 Directors’ report
Managing through the recession
by Ian Dyson, Group Finance
and Operations Director
During 2008/09 we took decisive actions to manage the
business through the recession. We invested in price to support
our customers, reduced our costs and managed our cash flow
and balance sheet tightly. These actions have enabled us to
deliver adjusted profits of £604.4m in 2008/09 and to reduce
our net debt to £2.5bn. More importantly they have positioned
us to move the business forward in 2009/10 and beyond.
Results
Group revenue was up 0.4% to just over £9bn. UK sales were down 1.7%
and were clearly impacted by the difficult market conditions. International
sales were up 25.9% reflecting the integration of our acquisitions in Greece
and the Czech Republic, and space growth.
Adjusted operating profit was down 29.4% to £768.9m, reflecting a
reduction in UK gross margin of 1.7 percentage points as we invested in
price for the benefit of our customers, and cost growth of 4.3%. Profit
before tax was £604.4m, down 40.0% and adjusted earnings per share
was 28.0p, down 35.8%.
Investment in margin
We responded to the economic downturn and the effect that this was
having on our customers by making significant investments in pricing and
promotions. While this has resulted in even better value for our customers
and has been a major factor in retaining their loyalty to our brand, it has
adversely impacted our UK gross margin, which was 170 bps lower than
last year at 41.3%.
Food gross margin was down 235 bps at 31.5%. This reflects significant
investment in prices across our range, but with particular emphasis on
staple goods, and a higher level of promotions. GM gross margin was
down 70 bps with further gains in buying margin being more that offset
by higher levels of price promotion and markdowns.
Cost management
As the economy worsened and our sales performance deteriorated, we
took a series of actions to reduce our costs in 2008/09 and to help support
profitability going forward. Total UK operating costs were £2,740.6m which
was up 4.9% (excluding bonus). If we take out the impact of new space
opened during the year, cost inflation and increased depreciation costs
arising out of the capital expenditure programme of the last few years,
underlying costs were down 5.7% – representing an underlying saving
of some £148m.
Staff costs Retail staff costs were £863.3m which was up only 1.9%
reflecting substantial improvements in productivity and staff scheduling,
without affecting service levels. This can be seen in our monthly customer
service tests – our mystery shopping programme. Our staff consistently
scored highly, achieving an average of 84% in 2008/09. Our compliance
audit scores, that measure our legal and safety performance, improved
from 80 to 92%.
Distribution We made significant changes to our logistics operations
during the year as part of a long-term programme to radically improve the
operating efficiency of our supply chain. These changes benefited costs
this year, but will have a more significant impact in 2009/10 and beyond.
Ian Dyson Group Finance and Operations Director
125 YEARS OF INNOVATION
Above: New & Improved We opened 75 stores
and modernised a further 24 in 2008/09.
Underlying cost savings
£148m
5.7%