Marks and Spencer 2013 Annual Report Download - page 38

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Financial review Marks and Spencer Group plc Annual report and financial statements 2013 36
International underlying operating profit was down 9.9% (down
10.9% on a constant currency basis). Franchise operating
profits were down 3.9% to £106.3m, with our European
franchise partners’ trading environments impacting on their
business. Owned store operating profits were down 39.0% to
£13.9m, due to continued macroeconomic pressures in Europe
combined with initial start-up costs in priority markets.
Non-underlying profit items
52 weeks ended
30 March
2013
£m
31 March
2012
£m
Strategic programme costs (6.6) (18.4)
Restructuring costs (9.3) –
Impairment of assets –(44.9)
Fair value movement of put option over
non-controlling interest in Czech business –15.6
Fair value movement of embedded
derivative 5.8 (0.2)
Fair value movement on buy back of the
Puttable Callable Reset medium-term notes (75.3) –
Reduction in M&S Bank income (15.5) –
Total non-underlying profit items (100.9) (47.9)
Strategic programmes incurred £6.6m of costs in the year which
are not part of the normal operating costs of the business. These
include brand segmentation and business integration costs,
asset write-offs and accelerated depreciation. The cumulative
strategic programme costs incurred since the strategy was
announced is now £41m, of the c. £50m we announced in 2010.
Restructuring costs relate to the Group strategy to transition to
a one tier distribution network and the associated closure costs
of legacy logistics sites.
The fair value movement on the embedded derivative is driven
by an increase in the expected RPI rate.
The fair value movement on the buy back of Puttable Callable
Reset medium-term notes relates to a one-off finance charge
resulting from the cancellation of bonds issued in 2007. These
bonds included a coupon rate reset after five years based on a
fixed underlying 25 year interest rate. In light of continued low
long-term market interest rates and the successful £400m
bond issuance in December 2012, the Group decided to buy
back and cancel these bonds.
The reduction in the fee income received from M&S Bank is
due to M&S Bank’s potential redress to customers in respect of
possible mis-selling of financial products. This reduction in fee
income is expected to continue in the current year and amount
to a further c.£45m. We are discussing with HSBC whether
these charges are properly for our account under the terms of
our agreement.
Net finance costs
52 weeks ended
30 March
2013
£m
31 March
2012
£m
Interest payable (125.3) (135.6)
Interest income 5.3 7.1
Net interest payable (120.0) (128.5)
Pension finance income (net) 21.2 25.6
Unwinding of discount on partnership liability (16.6) –
Unwinding of discounts on financial
instruments (1.0) (1.2)
Underlying net finance costs (116.4) (104.1)
Fair value movement of put option over
non-controlling interest in Czech business –15.6
Fair value movement on buy back of the
Puttable Callable Reset medium term notes (75.3) –
Net finance costs (191.7) (88.5)
The net interest payable was down 6.6% at £120.0m as a result
of the lower cost of funding of 5.9% (last year 6.5%). Underlying
net finance costs were up £12.3m to £116.4m due to the
unwinding of discount on the Partnership liability and a
reduction in pension income.
Taxation
The full year effective tax rate on underlying profit before tax
was 22.7% (last year 24.5%).
Underlying earnings per share
Underlying earnings per share decreased by 6.3% to 32.7p per
share. The weighted average number of shares in issue during
the period was 1,599.7m (last year 1,579.3m).
Dividend
The Board is recommending a final dividend of 10.8p per share.
This will result in a total dividend of 17.0p, in line with last year.
The Board’s dividend policy remains unchanged; a progressive
policy with dividends broadly twice covered by earnings.
Capital expenditure
52 weeks ended
30 March
2013
£m
31 March
2012
£m
Focus on the UK 197.4 71.6
Multi-channel 75.3 42.8
New stores 94.1 170.4
Store modernisation programme 85.7 73.6
International 53.7 61.9
Supply chain and technology 247.2 212.7
Maintenance 67.9 104.5
Total capital expenditure 821.3 737.5