Marks and Spencer 2015 Annual Report Download - page 102

100
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
5 NON-UNDERLYING ITEMS
The adjustments made to reported profi t before tax are income and charges that are one-o in nature, signifi cant and distort the Group’s
underlying performance. These adjustments include:
> 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 profi ts of M&S Bank after appropriate deductions. The Group does not share in any losses of M&S Bank and
is not obliged to refund any fees received from M&S Bank although future income may be impacted by signifi cant one-o deductions.
Since the year ended 31 December 2012 M&S Bank has recognised an estimated liability for redress to customers in respect of possible
mis-selling of fi nancial products in its audited fi nancial statements. The Group’s fee income from M&S Bank has been reduced by the
deduction of this estimated liability (under the Relationship Agreement) in both the current and prior years. The total charge to date for
the deduction in the Group’s fee income is £139.2m. The deduction in the period is £53.7m. This has been treated as a non-underlying
adjustment to repor ted profi t before tax, in l ine with previous periods.
On 26 September 2014 the Group reached agreement with M&S Bank and HSBC over a number of issues in connection with the
Relationship Agreement (including the extent of historical mis-selling charges). This resulted in an ex-gratia payment of £40.0m by HSBC
which was recognised as a non-underlying credit in the period (net of £0.1m legal fees), consistent with the deduction to the Group’s fee
income. On the same basis as previous periods, any future increase in the liability recognised by M&S Bank will result in a further reduction
in the Group’s fee income.
> Restructuring costs relating to the Group’s strategy to transition to a one tier distribution network and the closure costs of the legacy
logistics sites (current period cost of £10.2m). To date, £72.7m has been expensed in relation to this programme. Restructuring costs
have been incurred in Ireland in previous periods following a thorough commercial review of the Ireland business. In the current period,
resolution has been reached on a number of employee matters in Ireland resulting in the recognition of a net credit of £5.6m.
> 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 fl oor of 1.5%.
> A small number of stores have been closed or are committed to close at year end resulting in a charge of £6.9m in the year from loss on
disposals (£2.3m) and asset impairments (£4.6m). The profi t on property disposal in the prior year relates to the sale of a warehouse site
and mock shop in White City on 26 July 2013 to St James Group Ltd for a total consideration of £100m, £25m received on completion and
the remaining consideration to be deferred over three years.
> International store review in the current year relates to the impairment of assets (£34.9m) and onerous lease provisions (£2.3m) in
underperforming stores in Western Europe, Ireland and China. The prior year charge relates to the impairment of assets (£13.6m) and
onerous lease provisions (£8.3m) in underperforming International stores in non-strategic locations in China and the Czech Group.
> Pension credit recognised in the prior year as a result of changes to the Marks and Spencer Ireland defi ned benefi t scheme rules (£17.5m)
whereby the discretions for post-retirement pension increases were removed and prior year pension credit arising from the cessation of
the practice of granting pension increases to transferred-in pensions for all members in the UK defi ned benefi t scheme (£10.0m).
> Strategic programme costs relating to the strategy announcements made in November 2010, including the costs associated with
the initial Focus on the UK plans. These included asset write-o s and accelerated depreciation. These costs were not considered normal
operating costs of the business. We do not anticipate incurring any further cost in relation to this programme.
> Interest income (and related fees incurred) in the prior year on tax repayment relating to the successful outcome of litigation in relation
to the Group’s claim for UK tax relief of losses of its former European subsidiaries.
The adjustments made to reported profi t before tax to arrive at underlying profi t are:
Notes
2015
£m
2014
£m
Net M&S Bank charges incurred in relation to the insurance mis-selling provision 2(13.8) (50.8)
Restructuring costs 15, 22 (4.6) (77.3)
IAS 39 fair value movement of embedded derivative 21 1.3 (3.5)
(Loss)/profi t on disposal and impairment once commitment to closure 4(6.9) 82.2
International store review 15, 22 (37.2) (21.9)
UK and Ireland one-o pension credits 11 – 27.5
Strategic programme costs – (2.0)
Fees incurred on tax repayment – (1.6)
Adjustment to operating profi t (61.2) (47.4)
Interest income on tax repayment 6– 4.9
Adjustment to profi t before tax (61.2) (42.5)