Marks and Spencer 2013 Annual Report Download - page 90

Financial statements Marks and Spencer Group plc Annual report and financial statements 2013 88
Notes to the financial statements continued
5 Non-GAAP performance measures
The adjustments made to reported profit before tax are income and charges that are one-off in nature, significant and distort the
Group’s underlying performance. These adjustments include:
–Strategic programme costs relating to the strategy announcements made in November 2010 and include the costs associated
with the Focus on the UK plans. This includes brand segmentation and business integration costs, asset write-offs and
accelerated depreciation. These costs are not considered normal operating costs of the business;
–Restructuring costs relating to the commencement of the Group’s strategy to transition to a one tier distribution network and
the closure costs of legacy logistics sites;
–IAS 36 Impairment of assets – last year, the carrying value of the Marks and Spencer Marinopolous B.V. goodwill was fully
impaired to reflect its recoverable value and the net book value of property, plant and equipment in loss making stores in the
Greece group was impaired due to the continuing decline of the Greek economy;
–IAS 39 Fair value movement on put option over non-controlling interest in Czech business – the put option value has been
revised to zero to reflect the latest three year business plan;
–IAS 39 Fair value movement of the embedded derivative in a lease contract based upon the expected future RPI versus the
lease contract in which rent increases are capped at 2.5%, with a floor of 1.5%;
–Fair value movement of the Puttable Callable Reset medium-term notes (PCR notes) realised on the repurchase of debt – in
December 2007 the Group issued £250m of 30 year puttable callable bonds which included a coupon rate reset after five
years based on a fixed underlying 25 year interest rate. On this basis the rate was reset at 9%. In light of continued low
long-term market interest rates and the successful bond issuance in December 2012, the Group bought back and cancelled
these bonds in January 2013, resulting in a one-off fair value loss. This charge is the fair value movement of the bond net of
any immaterial associated unamortised bond costs and fees. It is not considered a normal finance cost of the business; and
–The Group has an economic interest in M&S Bank, a wholly-owned subsidiary of HSBC, by way of a Relationship Agreement
that entitles the Group to a 50% share of the profits of M&S Bank after appropriate deductions. The Group does not share in
any losses of M&S Bank and is not obligated to refund any fees received from HSBC although future income may be impacted
by significant one-off deductions. In the current year, the fee income has been impacted by the deduction of the estimated
liability for providing redress to customers in respect of possible mis-selling of financial products. This estimated liability has
been recognised by M&S Bank in its audited financial statements for the year ended 31 December 2012, the Group’s share of
which reduces the overall income due to it (under the Relationship Agreement) and has been treated as an adjustment to
reported profit before tax on the basis that the directors believe that the impact of the provision recognised by M&S Bank
materially distorts the Group’s underlying performance. The Group expects there to be a further reduction in fee income of
c.£45m in the year to 29 March 2014. The effect of the significant, one-off adjustments to the Group’s income received from
HSBC in the prior year was not material. We are discussing with M&S Bank whether these charges are properly for our
account under the terms of our agreement with HSBC.
The adjustments made to reported profit before tax to arrive at underlying profit before tax are:
Note
2013
£m
2012
£m
Strategic programme costs (6.6) (18.4)
Restructuring costs (9.3) –
IAS 36 Impairment of assets 14, 15 –(44.9)
IAS 39 Fair value movement of put option over non-controlling interest in Czech business 6, 21 –15.6
IAS 39 Fair value movement of embedded derivative 21 5.8 (0.2)
Fair value movement on buy back of the Puttable Callable Reset medium-term notes 6, 20 (75.3) –
Reduction in M&S Bank income for the impact of the financial product mis-selling provision 2(15.5) –
Total adjustments (100.9) (47.9)