Marks and Spencer 2012 Annual Report Download - page 39

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200
2011/12 2010/11
400
£m
600
800 International
Multi-channel
Focus on UK
Run Rate
RUN RATE
Marks and Spencer Group plc Annual report and financial statements 2012 37
Overview Strategic review Financial review Governance Financial statements and other information
Financial review
We added 2.1% of selling space in the UK (on a weighted
average basis), trading from 16.0m sq ft at the end of March
2012. We opened 28 new stores during the year, including a
136,000 sq ft flagship in the new Westfield shopping centre in
Stratford, as well as 25 Simply Food stores.
In our International business, space increased by c.12%,
predominantly in our key strategic territories of India, China
and the Middle East as well as Russia.
We continued to invest in our supply chain and technology in
line with our strategy to build an infrastructure fit to support
the future growth of the business.
Cash flow and net debt
52 weeks ended
31 March
2012
£m
2 April
2011
£m
Underlying EBITDA 1,280.1 1,292.4
Working capital 161.9 184.0
Pension funding (89.9) (91.2)
Capex and disposals (720.7) (450.3)
Interest and taxation (277.3) (327.6)
Dividends and share issues/purchases (236.7) (251.1)
Net cash inflow 117.4 356.2
Opening net debt (1,900.9) (2,068.4)
Exchange and other non-cash movements (73.6) (188.7)
Closing net debt (1,857.1) (1,900.9)
The Group reported a net cash inflow of £117.4m (last year
£356.2m). This inflow reflects a decline in underlying EBITDA
and increased capital expenditure, more than offset by strong
working capital management and lower interest and taxation.
Capital expenditure, net of disposals, was £720.7m (last year
£450.3m) reflecting further investment in our supply chain and
IT, new space growth and the implementation of the strategy.
Net debt was £1,857.1m, a £43.8m reduction on last year.
Pensions
At 31 March 2012 the IAS 19 net retirement benefit surplus
was £78.0m (last year £168.5m). The market value of scheme
assets increased by £788.3m, due to improved asset
performance and company contributions. The present value
of the scheme liabilities has increased due to a reduction in
the discount rate, offset by a reduction in the rate of inflation.
On 21 May 2012 the Group changed the terms of the Scottish
Limited Partnership (the Partnership) to waive the Group’s
limited discretionary right over the annual distributions from
the Partnership to the Pension Trustee. These discretionary
rights were agreed with our Trustee in 2009, the time of the
last triennial valuation.
This change will not have any impact on the cash flows of the
Group, but will, prospectively from 21 May 2012, result in a
change in the accounting treatment. The change will reflect
(i) the recognition of a financial liability, representing the present
value of the remaining ten years of distributions of £71.9m per
annum, and (ii) an increase in the Group’s annual interest
charge of c.£17m to reflect the unwinding of the discount on
the liability. In financial year 2012/13 the change will result in an
increase in the Group’s reported net debt of £537m and a
decrease in total net assets of £551m. The Group’s obligations
to the Pension Trustee remain unchanged and this will not have
any material impact on the Group’s credit rating.
In March 2009, conscious of the Group’s obligations to the
Pension Trustee and the Partnership (which is a partnership
between the Group and the Pension Trustee which holds a
number of properties from which the Group trades and on
which the Group pays rent to the Partnership), we amended
the terms of the Partnership to reflect a discretionary right
agreed between the Group and the Trustee. This right is such
that in the circumstances when no ordinary dividend or other
distribution is made to ordinary shareholders, the annual
distribution of £71.9m from the Partnership to the Pension
Trustee would not be obliged to be made. The impact of this
change was to reclassify £572m from debt to equity in March
2009, and to reduce the Group’s interest charge by £33m in
the financial year 2009/10. The Audit Committee and the Board
have consistently received accounting and legal advice
supporting this accounting treatment. There was no impact on
the Group’s ultimate obligation to the Pension Trustee and no
impact on cash flows.
Following the publication of the 2009 Annual Report and
Accounts, in February 2010 the Financial Reporting Review
Panel (FRRP) wrote to the Company in relation to the change
in accounting treatment of the obligation to the Pension
Trustee. In the dialogue that followed, and has continued until
the present time, the FRRP expressed a concern that in the
circumstances of the Group’s pension arrangement this
discretion was not sufficient to support classification of the
Partnership interest as a component of equity.
In the interest of bringing discussions with the FRRP to a
close and given that the Group has a stated dividend policy
and the Board continues to expect that future dividend
payments and resulting Partnership distributions will be
made, the Group has decided that it will reflect the obligation
as a liability, and in order to achieve this will indefinitely waive
its discretionary right. As before, there is no change in the
Group’s ultimate obligation to the Pension Trustee. The FRRP
has confirmed that this change, with the consequent
accounting treatment, effective from 21 May 2012, will bring
its discussions with the Group to a close.