Marks and Spencer 2009 Annual Report Download - page 52

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48 Marks and Spencer Group plc Annual report and financial statements 2009 Directors’ report
Revenues
Total revenues were up 0.4% driven by new space in the UK and
a strong performance in our International business.
UK revenues were down 1.7% in total with a like-for-like decline
of 5.9%, reflecting the deterioration in market conditions and
consumer spending. During the year, we added 5.6% of space
(on a weighted average basis), representing 7.0% in Food
and 5.0% in General Merchandise.
International revenues were up 25.9%. This performance reflects
continued strong growth in our franchise business, in particular
in the Middle East, Russia and Turkey, and the impact of the
investments in Greece and the Czech Republic.
Operating profit
Operating profit before property disposals and exceptional items
was £768.9m, down 29.4%.
In the UK, operating profit before property disposals and
exceptional items was down 32.9% at £652.8m. Gross margin
was 1.7 percentage points down on the year at 41.3%. General
Merchandise gross margin was down 0.7 percentage points at
51.9%, reflecting further improvement in primary margin offset
by higher promotions and markdowns. Food gross margin was
2.35 percentage points lower than last year at 31.5% reflecting
investment in price realignment and increased promotional activity,
along with the planned growth in franchised Simply Food stores.
UK operating costs were up 4.3% to £2,743.4m. A breakdown
of UK operating costs is shown below:
52 weeks ended
28 March 29 March
2009 2008 % increase/
£m £m decrease
Retail staffing 863.3 847.5 +1.9
Retail occupancy 948.0 841.4 +12.7
Distribution 410.3 383.8 +6.9
Marketing and related 127.4 139.4 –8.6
Support 391.6 401.1 –2.4
Total before bonus 2,740.6 2,613.2 +4.9
Bonus 2.8 16.8 –83.3
Total including bonus 2,743.4 2,630.0 +4.3
Retail staffing costs remained tightly controlled despite growth in
space, reflecting improved productivity whilst at the same time
improving customer service levels. The increase in retail occupancy
costs reflects space growth and higher energy costs as well as the
increased depreciation related to the modernisation and space
expansion programmes. Distribution costs rose due to higher fuel
costs, as well as volume growth in M&S Direct and furniture
deliveries. Reduction in marketing expenditure reflects fewer
campaigns including reduced TV coverage. Support costs, which
include non-store related overheads, were down 2.4% due to
ongoing cost saving initiatives.
We will be paying a bonus of £2.8m for 2008/09 (last year £16.8m).
The level of bonus payment reflects performance against our original
operating plan.
The UK operating profit includes a contribution of £24.8m
(last year £28.3m) from the Group’s continuing economic interest
in M&S Money.
International operating profit before property disposals was
broadly level at £116.1m (last year £116.4m). Owned store operating
profits were £45.8m, up 2.9%, reflecting the acquisition of our
previously franchised businesses in Southern and Eastern Europe.
As a result of this change franchise operating profits were down
2.2% to £70.3m.
Profit on property disposals
Profit on property disposals was £6.4m (last year £27.0m).
This includes the proceeds from the sale of our old stores in
Edinburgh and Derby where we relocated to new premises.
Exceptional items
Exceptional charges of £135.9m (last year nil) relate to changes
announced in January 2009, including the head office restructuring
programme, closure of 26 non-strategic stores and the
rationalisation of the logistics network.
The exceptional pension credit of £231.3m (last year £95.0m)
has arisen due to the changes made in the terms of the UK defined
benefit plan relating to how members’ future benefits build up.
Employees’ annual increases in pensionable pay have been capped
to 1%, and early retirement benefits for members who joined the
scheme before 1996 amended. The credit reflects the impact of
adjusting the projected final pensionable salaries.
Net finance costs
52 weeks ended
28 March 29 March
2009 2008
£m £m
Interest payable (166.0) (119.3)
Interest income 14.6 5.5
Net interest payable (151.4) (113.8)
Unwinding of discount on partnership
liability to Marks and Spencer
UK Pension Scheme (38.0) (27.3)
Pension finance income (net) 35.4 58.9
Fair value movement on financial instruments (10.5) –
Net finance costs (164.5) (82.2)
Net interest payable was up 33.0% at £151.4m reflecting an
increase in the average net debt over the year. Net finance costs
were up £82.3m after pension finance income of £35.4m (last year
£58.9m), and the unwinding of the discount on the partnership
liability to the pension scheme. The Group’s average cost of funding
was up marginally to 6.1% (last year 5.9%).
Financial review