Marks & Spencer Regulatory News (MKS)

24 May 2005 07:03

Marks & Spencer Group PLC24 May 2005 Issued: Tuesday 24 May 2005 Marks and Spencer Group plc Preliminary Results 2004/05 52 weeks ended 2 April 2005 Progress/Highlights 2004/05: * Focused the business through substantial structural and operational change * New management structure * Tightened cash and cost management * Reduced stocks and commitment by £1.3bn * Head office removal of 650+ roles * per una acquired for £125.9m * Financial Services business sold for £769m * £2.3bn returned to shareholders Key Financials*: •UK Retail sales ex VAT £7,034.7m, down 1.7% (last year £7,159.8m); International Retail sales £675.6m, up 1.6% (last year £665.0m) •Group profit before tax and exceptional items £618.5m, down 19.0% (last year £763.2m) •UK Retail operating costs before exceptional items reduced by 0.1%. •Adjusted earnings per share 21.9p, down 6.4% (last year 23.4p); Basic earnings per share 29.1p, up 27.1% (last year 22.9p) •Final dividend of 7.5p per share, up 5.6% (last year 7.1p) •Later today in a separate press release, Marks & Spencer will provide restated financial information for 2004/05 under International Financial Reporting Standards (IFRS) *Note: All comparisons are based on a 52 week period for 2003/04 OutlookWhen we updated the market in April we commented on the difficult tradingenvironment. The outlook remains challenging, with tough economic andcompetitive conditions expected to continue. We are focused on delivering betterquality, value and styling across all our product ranges, as well as improvingservice levels and store environment. We have made good progress, however, thereremains much to do. Chairman's Statement:This has been a year of great change. In May, we appointed a new executive teamwho were immediately involved in leading the response to a possible bid for thecompany - originating a strategy to deliver the value of Marks & Spencer to itsshareholders. Since then the team has been implementing a comprehensiveprogramme of change. We are making good progress on laying the foundations forour recovery. I am confident that the benefits of this will become increasinglyapparent. The Board is proposing a final dividend of 7.5p, representing a 5.6%increase on last year. Chief Executive's Statement:The Group's financial performance for the year was disappointing. Retail saleswere down 1.5% on the year and Group operating profit was down 13.8%. When Ijoined in May 2004, action was taken, where possible, to reduce the unacceptablyhigh levels of commitment in the business. Despite reducing stocks andcommitment by some £1.3bn over the year, we had to take a high level ofmarkdowns which severely impacted our operating profit. A new buying process andstock controls should enable us to deliver reduced markdowns in the coming year.Our focus now is on profitable full price sales. At the Operational Review on 12 July 2004, we announced a programme of change toreturn the business to growth and to its core values. We did so with a clearunderstanding that, while we needed to move fast, we also needed to do the rightthings for the medium to long term and that there were no quick fixes. We statedthat we would focus the business in 2004/05, drive it in 2005/06 and, beyondthat, broaden its horizons. We have focused the business as promised, making structural changes to the Groupand driving through initiatives to improve our operating efficiency. •New management structure - streamlined Executive Board, key management appointed •Focus on core values - quality, value, service, innovation and trust - Your M&S •per una acquired for £125.9m •Cut 31 initiatives to 10 •Head office removal of 650+ roles •New supplier terms introduced - 1st phase September 2004, 2nd phase April 2005 •Tightened cash and cost management £€2.3bn returned to shareholders •Financial Services business sold for £769m net of costs (including a pre-sale dividend of £235m) •'Lifestore' exited •Reduced stocks and commitment by £1.3bn Operationally, action has been taken on product, pricing, inventory levels andavailability. We reviewed all expenditure, both capital and revenue, to optimisefinancial returns and put tight spending controls in place. We are on course todeliver cost and margin savings of over £250m by the end of 2005/06 and £320m bythe end of 2006/07. We have focused on improving our values with sharper opening prices and clearerpricing architecture across all ranges, as well as increased levels of new andinnovative product. Prices are constantly monitored to maintain competitiveness.We have reduced the total number of products by around 17% while creating morereal choice and increased levels of new product in store. We have strengthened buying teams with a number of key appointments at buying,design and merchandiser level. The recently established retail training academy,or 'Buying Academy', has established a clearer buying process and structure forthe teams, providing greater clarity and accountability. A number of newprocesses have been introduced including quarterly buying, rolling open to buy,open-cost modelling and standard product specifications. These disciplinesshould enable us to improve our speed to market, cost-effectiveness, product hitrate and supplier relationships. We have also set up a stock planning function to co-ordinate budgets, buying andphasing, reducing the risk of overbuying and increasing flexibility to buy intofast lines and new trends. Stock and commitments have been reduced by over 35%.Availability is up across the business with particular attention being paid tothe top 150 product lines in General Merchandise and the top 300 lines in Food,although there is still further progress to be made. We have recruited regional sourcing directors to act as a support to our UKbuying teams. They will focus on creating a single approach to direct buyingacross the business, providing knowledge on sourcing opportunities, costbenchmarking, direct factories and quality audits. We have established regionaloffices to support our supply chain in Turkey and India. A China office will beopening in Hong Kong in July. We reorganised our retail management team in November, putting our mostexperienced people in charge of improving standards and service. This includedcreating two "flagship" divisions, focusing on the Group's 34 largest stores,representing a third of Group sales. Our staff scheduling programme completed inNovember has enabled us to change shifts to increase store staff numbers at peaktimes. We are making progress on improving store standards with trainingprogrammes on tilling and service. We are de-cluttering our stores and improvingsignage. In November 2004, we launched trials of a new store design in Basingstoke,Shoreham, Sutton Coldfield and Edgware Road and in our new stores in Omagh,Blanchardstown, Dundrum and Talbot Green. We now plan to extend this trial to 21further stores, totalling 1m sq ft during 2005/06. We will continue to open newstores, increasing our space in General Merchandise by 1.2%, primarily driven bynew stores in c.10 Retail Parks, and by 3.3% in Food driven by our continueddevelopment of our Simply Food format. Additionally, we are today announcing an agreement with BP to open 8 pilotSimply Food concepts on their BP Connect forecourt sites, with the first storedue to open in Autumn 2005. Marketing has concentrated on delivering a consistent handwriting for the brandacross the business with clear messages on value for Clothing and quality forFood. Our recent TV advertising campaign on Food has been well received. This has been a year of great change at Marks & Spencer, but it has also been ayear of action and progress. UK RetailUK Retail sales ex VAT for the 52 weeks ended 2 April 2005, were £7,034.7m, down1.7% (down 1.9% including VAT). However, on a like-for-like basis sales weredown 5.1%. The performance of Clothing for the year was disappointing, with total Clothingsales down 3.1% on last year. Footfall and clothing volumes were up on the yearalthough our Clothing market share declined a further 0.5 percentage points to10.5%. Our Clothing performance was driven by continuing weakness in Womenswear,although per una performed strongly. Lingerie suffered from having an overcomplex range. Menswear held up well, while Childrenswear market sharestabilised for the first time in three years in the last quarter of the year.All product groups suffered from inconsistent price architecture. Opening pricepoints are now benchmarked against key competitors and appropriate good, betterand best pricing is being introduced across all ranges, giving more real choicefor all our customers. Home had a year of transition, as we closed 'Lifestore' and refocused on thetraditional areas of bedroom, bathroom, kitchen and dining. Sales were 21.4%lower at £407.6m. Food sales were up 2.4% on last year, down 2.6% on a like-for-like basis. Marketshare was broadly maintained across the year. In Food, we have focused oninnovation and newness, simplifying ranges, and emphasising the quality anduniqueness of our food. We continue to benefit from additional footage as weextend our Food offer through the Simply Food format. During the year we opened31 Simply Food stores of which 13 stores were in partnership with Compass. Afurther 20 Simply Food stores are planned to open in 2005/06. During the year, we renegotiated terms with suppliers with the aim of reducingthe cost of goods sold by £140m by 2006/07 when compared to 2003/04. Highermarkdowns due to overbuying resulted in a 1.5 percentage points decline in theGeneral Merchandise gross margin. Better buying and stock control is expected toenable us to recover these lost markdowns and also to achieve the £40m targetoutlined in July 2004. The Food gross margin was maintained. UK Retail operating costs of £1,843.1m, excluding exceptional charges, were heldat last year's level: • employee costs increased by 1.1% to £922.4m as a result of new stores and theannual salary review, offset by a reduction in headcount; • property, repair and renewal costs of £350.4m increased by 8.3% due to theoccupancy costs associated with new footage and the move to a new head office; • depreciation and amortisation was £242.9m, an increase of 6.9%, due to theeffect on the charge of prior year additions, store modernisations and closuresand the amortisation of the goodwill arising on the per una acquisition; • other operating costs of £327.4m decreased by 13.2% as a result of actionstaken during the year to reduce the cost of non-merchandise procurement togetherwith savings in IT. Including logistics costs, operating expenses have decreased by 0.1% on lastyear. UK Retail operating profit was £612.1m down 15.2% (last year £722.1m). InternationalMarks & Spencer has performed well internationally where our brand continues togrow its appeal. Sales in the Marks & Spencer branded businesses (Republic ofIreland, franchises and Hong Kong) for the 52 weeks to 2 April 2005 increased by6.9% (+9.1% at constant exchange rates). Operating profit increased by 45.2% to£60.7m (last year £41.8m). In the Republic of Ireland, sales were ahead of last year and the performance ofthe new stores in Blanchardstown and Dundrum has been encouraging. We continue to add new franchisees and our existing franchisees in 30territories are continuing to invest in new footage. Hong Kong had a strong year, however, in 2005/06 some of our leases will besurrendered to the landlord for development. Sales at Kings Super Markets were broadly level over the year at constantexchange rates, compared with last year. Operating profit for the 52 weeks to 2April 2005 was £4.3m, up 79.2% (last year £2.4m) as a result of actions takenlast year to improve financial performance. Financial ServicesThe Financial Services business was sold to HSBC on 9 November 2004 for £769m(including a pre-sale dividend of £235m) and the results of the business up tothe date of disposal have been included under the heading of discontinuedoperations. The Group has also entered into an agreement with HSBC, whereby the Group willcontinue to share in the success of the Financial Services business. Under thisagreement, the Group will receive income in the form of fees representing anamount equivalent to costs incurred, 50% of the profits of M&S Money (after anotional tax charge and after deducting agreed operating and capital costs) plusan amount relating to the growth in sales of financial services products. Feesreceived under this agreement since the date of disposal are now included withinother operating income in UK Retail. Net interest expenseNet interest expense was £102.3m compared to £44.5m (52 week basis) for lastyear. The average rate of interest on borrowings during the period was 5.7%(last year 5.3%). TaxationThe tax charge reflects an effective tax rate for the full year of 28.5% beforeexceptional income, compared to 30.1% last year. The rate is lower than thestandard UK tax rate of 30% due to the impact of prior year credits and reliefin respect of the exercise of employee share options and the relative increasein profits from lower tax jurisdictions from our International operation. TheEuropean Court of Justice heard the Group's relief claim on 1 February 2005 andtheir judgement is expected later this year. No asset has been recognised inrespect of this claim. Shareholder returns and dividendsAdjusted earnings per share, which excludes the effect of exceptional items, hasdecreased by 11.3% to 21.9p per share (on a 52 week basis, a decrease of 6.4%).Return on equity, after exceptional items, was 41.4% compared to 25.2% lastyear. A final dividend of 7.5p per share (last year 7.1p per share) is proposed,making the total dividend for the year 12.1p per share (last year 11.5p pershare), an increase of 5.2%. Capital expenditureGroup capital additions for the year were £220m compared to £434m last year. Thedecrease in capital expenditure in part reflects the one-off costs last yearrelating to the acquisition of warehouses, as part of the restructuring of thegeneral merchandise logistics operation, and the relocation of the head office.It also reflects a reduction in capital expenditure on new and existing footageas we reviewed the performance of new formats to determine how to revitalise theportfolio in a cost effective way. Group capital expenditure for 2005/06 isexpected to be £350m. Balance sheet and cash flowThe Group balance sheet has changed significantly since last year end followingthe disposal of the Financial Services business during the year. Shareholders funds amounted to £521.4m, equivalent to 31.4p per share (last year108.3p per share). The decrease of £1,932.6m in the year reflected primarily thesale of Financial Services and the £2.3bn Tender Offer. The Group generated an operating cash inflow for the year of £1,575.4m (lastyear cash inflow £666.5m). Within this, the cash inflow from continuingoperations was £857.5m (last year £602.3m). A major factor in the increase inoperating cash flow was the year-on-year net decrease in contributions paid tothe UK defined benefit pension scheme, following the one-off injection of £400min March 2004. After taking into account the timing of payments, the cash outflow for capitalexpenditure was £232.2m (last year £428.8m). During the year, the Group received£117.8m (last year £126.2m) from the sale of properties, including £115m fromthe sale of Michael House. Acquisitions and disposals generated a net inflow of £363.8m, being net proceedsfrom the sale of Financial Services and properties in Europe, offset by theacquisition of per una. After taking into account the debt that was disposed ofalong with the Financial Services business, the net cash inflow fromacquisitions and disposals was £1,203.5m. Transactions with shareholders (dividends paid, Tender Offer, redemption of Bshares and the issue of new shares under employee share schemes) resulted in anet cash outflow of £2,502.6m. At the end of the period, net debt was £2,099.0m, an increase of £104.3m, givingrise to retail gearing of 84.5% (last year 44.7%) including the netpost-retirement liability and reflecting the impact of the Tender Offer. Exceptional ItemsThe Group has recorded exceptional income of £126.8m in the year, as follows: 2004/05 2003/04Exceptional items £m £m-------------------------------- --------- ---------Operating exceptional items:Head office relocation 8.8 19.6Head office restructuring programme 6.3 22.5Board restructure 8.4 -Closure of 'Lifestore' 29.3 -Defence costs 38.6 --------------------------------- --------- --------- 91.4 42.1 Non-operating exceptional items:Loss/(profit) on sale of property and other fixed assets 0.4 (18.7)Profit on disposal of Financial Services (208.9) -Release of European closure provision (9.7) --------------------------------- --------- --------- (218.2) (18.7)-------------------------------- --------- ---------Total exceptional (income) / charges (126.8) 23.4-------------------------------- --------- --------- PensionsThe Group paid £115m of additional contributions into the UK defined benefitpension scheme during March and April 2005, of which £64m had been paid inbefore the year end and is reflected in the net post-retirement liability of£474m at 2 April 2005. International Financial Reporting StandardsFor the next financial year, the Group will be required to adopt InternationalFinancial Reporting Standards (IFRS). We have identified that the greatest impact on the Group arises from changes inthe accounting treatment for property, share-based payments, financialinstruments and software. For the year ended 2 April 2005, the impact on profits from the adoption of IFRSwould be to reduce operating profit before exceptionals by 2.8% and adjustedearnings per share by 4.1%. Net assets would be increased by c.£417m (anincrease of c.80%), reflecting the net impact of incorporating a revaluation offreehold land and buildings only, as IFRS does not permit the revaluation ofleasehold land. A separate announcement detailing the impacts of IFRS and providing unaudited restated financial information for 2004/05 will be made later today. Statements made in this announcement that look forward in time or that expressmanagement's beliefs, expectations or estimates regarding future occurrences andprospects are "forward-looking statements" within the meaning of the UnitedStates federal securities laws. These forward-looking statements reflect Marks &Spencer's current expectations concerning future events and actual results maydiffer materially from current expectations or historical results. Any suchforward-looking statements are subject to various risks and uncertainties,including failure by Marks & Spencer to predict accurately customer preferences;decline in the demand for products offered by Marks & Spencer; competitiveinfluences; changes in levels of store traffic or consumer spending habits;effectiveness of Marks & Spencer's brand awareness and marketing programmes;general economic conditions or a downturn in the retail or financial servicesindustries; acts of war or terrorism worldwide; work stoppages, slowdowns orstrikes; and changes in financial and equity markets. For further information, please contact: Media enquiries:Corporate Press Office: +44 (0)20 8718 1919 Investor Relations:Amanda Mellor +44 (0)20 8718 3604Sarah McGlyne +44 (0)20 8718 1563 Consolidated profit and loss account 52 weeks ended 2 April 2005 53 weeks ended 3 April 2004 ------------------ ------------------- Before Exceptional After Before Exceptional After exceptional items exceptional exceptional items exceptional items (note 5) items items (note 5) items Notes £m £m £m £m £m £mTurnoverContinuing operations 7,710.3 - 7,710.3 7,971.5 - 7,971.5 Discontinuedoperations 232.0 - 232.0 330.0 - 330.0 ------------------------------------- ------ --------- --------- --------- --------- --------- ---------Total turnover 2 7,942.3 - 7,942.3 8,301.5 - 8,301.5Operating profitContinuingoperations 667.6 (91.4) 576.2 809.4 (42.1) 767.3Acquiredoperations 9.5 - 9.5 - - - --------- --------- --------- --------- --------- --------- 677.1 (91.4) 585.7 809.4 (42.1) 767.3Discontinuedoperations 32.3 - 32.3 56.6 - 56.6------------------------------------- ------ --------- --------- --------- --------- --------- ---------Totaloperatingprofit 3 709.4 (91.4) 618.0 866.0 (42.1) 823.9------------------------------------- ------ --------- --------- --------- --------- --------- --------- (Loss) /profit on saleof propertyand otherfixed assets 5B - (0.4) (0.4) - 18.7 18.7Profit on sale / closure of 5Coperations:Profit /(loss) arisingon sale /closure - 208.9 208.9 - (26.8) (26.8)Release /utilisation ofprior yearprovision - 9.7 9.7 - 26.8 26.8 --------- --------- --------- --------- --------- ---------Net profit onsale / closureof operations - 218.6 218.6 - - -Net interestexpense 4 (102.3) - (102.3) (45.8) - (45.8)Other financeincome /(charges) 11.4 - 11.4 (15.2) - (15.2)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Profit /(loss) onordinaryactivitiesbeforetaxation 618.5 126.8 745.3 805.0 (23.4) 781.6------------------------------------- ------ --------- --------- --------- --------- --------- ---------Analysed between:Continuingoperations(includingacquiredoperations) 586.2 (91.8) 494.4 748.4 (23.4) 725.0Discontinuedoperations 32.3 218.6 250.9 56.6 - 56.6------------------------------------- ------ --------- --------- --------- --------- --------- --------- Taxation onordinaryactivities 6 (176.5) 18.2 (158.3) (242.0) 12.7 (229.3)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Profit /(loss)attributabletoshareholders 442.0 145.0 587.0 563.0 (10.7) 552.3Dividends(includingdividends inrespect ofnon-equityshares) 8 (203.3) - (203.3) (263.2) - (263.2)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Retainedprofit /(loss) 238.7 145.0 383.7 299.8 (10.7) 289.1------------------------------------- ------ --------- --------- --------- --------- --------- ---------Earnings pershare 7 29.1p 24.2pDilutedearnings pershare 7 28.9p 24.1pAdjustedearnings pershare 7 21.9p 24.7pDilutedadjustedearnings pershare 7 21.7p 24.6pDividend pershare 8 12.1p 11.5p------------------------------------- ------ --------- --------- --------- --------- --------- --------- Consolidated statement of totalrecognised gains and losses 52 weeks 53 weeks ended ended 2 April 3 April 2005 2004 £m £m------------------------------------- ------ --------- --------- --------- --------- --------- ---------Profitattributabletoshareholders 587.0 552.3Exchangedifferences onforeigncurrencytranslation 0.2 (15.9)Unrealisedsurplus onrevaluation ofinvestmentproperties 4.0 7.3Impairment ofpreviouslyrevaluedproperties - (20.0)Actuarial(losses) /gains net oftax (55.1) 150.4------------------------------------- ------ --------- --------- --------- --------- --------- ---------Totalrecognisedgains andlossesrelating tothe period 536.1 674.1------------------------------------- ------ --------- --------- --------- --------- --------- --------- Consolidated balance sheet As at As at 2 April 3 April 2005 2004 £m £m------------------------------------- ------ --------- --------- --------- --------- --------- ---------Fixed assetsIntangibleassets 122.4 -Tangibleassets 3,316.1 3,497.6Investments 9.0 10.0------------------------------------- ------ --------- --------- --------- --------- --------- --------- 3,447.5 3,507.6------------------------------------- ------ --------- --------- --------- --------- --------- --------- Current assetsStocks 339.7 398.0Customeradvances - 2,452.4Other debtors 218.2 298.5Cash andinvestments 279.6 720.6------------------------------------- ------ --------- --------- --------- --------- --------- --------- 837.5 3,869.5 Current liabilitiesCreditors :amountsfalling duewithin oneyear (1,289.3) (1,884.7)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Net current(liabilities)/ assets (451.8) 1,984.8------------------------------------- ------ --------- --------- --------- --------- --------- --------- Total assetsless currentliabilities 2,995.7 5,492.4 Creditors :amountsfalling dueafter morethan one year (1,919.7) (2,519.6)Provisions forliabilitiesand charges (80.4) (49.3)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Net assetsbefore netpost-retirement liability 995.6 2,923.5------------------------------------- ------ --------- --------- --------- --------- --------- ---------Netpost-retirement liability (474.2) (469.5)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Net assets 521.4 2,454.0------------------------------------- ------ --------- --------- --------- --------- --------- --------- Capital and reservesCalled upshare capital 480.2 651.2Share premiumaccount 106.6 45.2Capitalredemptionreserve 2,102.8 1,924.8Revaluationreserve 330.8 356.4Other reserve (6,542.2) (6,542.2)Profit andloss account 4,043.2 6,018.6------------------------------------- ------ --------- --------- --------- --------- --------- ---------Shareholders'funds(includingnon-equityinterests) 521.4 2,454.0------------------------------------- ------ --------- --------- --------- --------- --------- --------- Equityshareholders'funds 455.7 2,369.1Non-equityshareholders'funds 65.7 84.9------------------------------------- ------ --------- --------- --------- --------- --------- ---------Totalshareholders'funds 521.4 2,454.0------------------------------------- ------ --------- --------- --------- --------- --------- --------- Reconciliation of movement in Groupshareholders' funds 52 weeks 53 weeks ended ended 2 April 3 April 2005 2004 £m £m------------------------------------- ------ --------- --------- --------- --------- --------- ---------Profitattributabletoshareholders 587.0 552.3Dividends (203.3) (263.2)------------------------------------- ------ --------- --------- --------- --------- --------- --------- 383.7 289.1Otherrecognisedgains /(losses)relating tothe year 4.2 (28.6)Actuarial(losses) /gains net oftax (55.1) 150.4Sale /(purchase) ofshares held byemployeetrusts 0.3 (2.2)New sharecapitalsubscribed 68.4 24.8Redemption ofB shares (19.2) (33.4)Purchase ofown shares (2,300.0) (54.4)Tender Offerexpenses (14.9) -------------------------------------- ------ --------- --------- --------- --------- --------- ---------Net (decrease)/ increase inshareholders'funds (1,932.6) 345.7Openingshareholders'funds 2,454.0 2,108.3------------------------------------- ------ --------- --------- --------- --------- --------- ---------Closingshareholders'funds 521.4 2,454.0------------------------------------- ------ --------- --------- --------- --------- --------- --------- Consolidated cash flow statement 52 weeks 53 weeks ended ended 2 April 3 April 2005 2004 £m £m------------------------------------- ------ --------- --------- --------- --------- --------- ---------Cash inflowfromcontinuingoperatingactivitiesbeforecontributionto the pensionfund 857.5 1,002.3Contributionto the pensionfund following2003 actuarialvaluation - (400.0)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Cash inflowfrom continuedoperatingactivities 857.5 602.3Cash inflowfromdiscontinuedoperatingactivities 717.9 64.2------------------------------------- ------ --------- --------- --------- --------- --------- ---------Cash inflowfrom operatingactivities(see note 9) 1,575.4 666.5 Returns on investments and servicingof financeInterestreceived 15.4 14.4Interest paid (114.2) (61.2)Non-equitydividends paid (2.8) (3.0)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Net cashoutflow fromreturns oninvestmentsand servicingof finance (101.6) (49.8)------------------------------------- ------ --------- --------- --------- --------- --------- --------- TaxationUK corporationtax paid (161.3) (216.3)Overseas taxpaid (5.4) (4.1)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Cash outflowfor taxation (166.7) (220.4)------------------------------------- ------ --------- --------- --------- --------- --------- --------- Capital expenditure and financialinvestmentPurchase oftangible fixedassets (232.2) (428.8)Sale oftangible fixedassets 117.8 126.2Purchase offixed assetinvestments - (0.6)Sale of fixedassetinvestments 0.8 9.3------------------------------------- ------ --------- --------- --------- --------- --------- ---------Net cashoutflow forcapitalexpenditureand financialinvestment (113.6) (293.9)------------------------------------- ------ --------- --------- --------- --------- --------- --------- Acquisitions and disposalsClosure ofoperations 12.7 51.3Sale ofsubsidiaries(see note 10) 477.0 -Purchase ofsubsidiaries (125.9) -------------------------------------- ------ --------- --------- --------- --------- --------- ---------Net cashinflow fromacquisitionsand disposals 363.8 51.3------------------------------------- ------ --------- --------- --------- --------- --------- --------- Equitydividends paid (236.9) (247.1)----------------------------------------- --------- --------- --------- --------- --------- ---------Cash inflow /(outflow)beforemanagement ofliquidresources andfinancing 1,320.4 (93.4)----------------------------------------- --------- --------- --------- --------- --------- --------- Management of liquid resources andfinancingManagement ofliquidresources (seenote 9ii) 66.7 (89.0)Financing (seenote 9iii) (1,507.5) 347.0------------------------------------- ------ --------- --------- --------- --------- --------- --------- (1,440.8) 258.0------------------------------------- ------ --------- --------- --------- --------- --------- ---------(Decrease) /increase incash (120.4) 164.6------------------------------------- ------ --------- --------- --------- --------- --------- --------- Reconciliation of net cash flow tomovement in net debt 52 weeks 53 weeks ended ended 2 April 3 April 2005 2004 £m £m------------------------------------- ------ --------- --------- --------- --------- --------- ---------(Decrease) /increase incash (120.4) 164.6Cash (inflow)/ outflow from(decrease) /increase inliquidresources (seenote 9ii) (66.7) 89.0Cash inflowfrom increasein debtfinancing (seenote 9iii) (757.6) (413.6)Debt financingnet of liquidresourcesdisposed withsubsidiary(see note 10) 839.7 -Exchange andothermovements 0.7 (3.3)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Movement innet debt (104.3) (163.3)Opening netdebt (1,994.7) (1,831.4)------------------------------------- ------ --------- --------- --------- --------- --------- ---------Closing netdebt (2,099.0) (1,994.7)------------------------------------- ------ --------- --------- --------- --------- --------- --------- Notes 1 Basis of preparationThe results comprise those of Marks and Spencer Group plc and its subsidiaries for the 52 week period ended 2 April2005 and have been prepared using accounting polices consistent with those adopted last year. This summary of resultsdoes not constitute the full Financial Statements within the meaning of s240 of the Companies Act 1985. The fullFinancial Statements have been reported on by the Group's auditors, but have not been delivered to the Registrar ofCompanies. The audit report was unqualified and did not contain a Statement under s237(2) or s237(3) of the CompaniesAct 1985. 2 TurnoverTurnover (excluding sales taxes for internationaloperations) is analysed as follows: 52 weeks 53 weeks ended ended 2 April 3 April 2005 2004 £m £m------------------------------------- ------ --------- --------- --------- --------- --------- --------- UK Retail (incl. VAT)Clothing 3,837.3 4,032.6Home 407.6 526.6Foods 3,509.7 3,490.2 --------- --------- --------- 7,754.6 8,049.4Less : United Kingdom VAT (719.9) (755.7) --------- --------- --------- 7,034.7 7,293.7 International RetailMarks &Spencerbrandedbusinesses (note 1) 455.8 434.4Kings SuperMarkets 219.8 243.4 --------- --------- --------- 675.6 677.8------------------------------------- ------ --------- --------- --------- --------- --------- ---------TotalRetailing 7,710.3 7,971.5 Discontinuedoperations 232.0 330.0------------------------------------- ------ --------- --------- --------- --------- --------- ---------Total turnover 7,942.3 8,301.5------------------------------------- ------ --------- --------- --------- --------- --------- --------- Geographical analysis of turnoverfrom continuing operations:United Kingdom 7,034.7 7,293.7International 675.6 677.8------------------------------------- ------ --------- --------- --------- --------- --------- --------- 7,710.3 7,971.5------------------------------------- ------ --------- --------- --------- --------- --------- --------- Note 1 Marks & Spencer branded businesses within International Retailconsists of Republic of Ireland, Hong Kong and sales to franchiseoperations.The value of goods exported from the UK, including shipments to overseas subsidiaries, amounted to £319.9m (last year £293.0m). 3 Operating profitOperating profit arises as follows: 52 weeks 53 weeks ended ended 2 April 3 April 2005 2004 £m £m------------------------------------- ------ --------- --------- --------- --------- --------- --------- UK RetailBeforeexceptionaloperatingcharges (note 1) 612.1 762.0Exceptionaloperatingcharges (91.4) (42.1) --------- --------- --------- 520.7 719.9 International RetailMarks & Spencerbrandedbusinesses 60.7 44.2Kings SuperMarkets 4.3 3.2 --------- --------- --------- 65.0 47.4------------------------------------- ------ --------- --------- --------- --------- --------- ---------TotalRetailing 585.7 767.3 Discontinuedoperations 32.3 56.6------------------------------------- ------ --------- --------- --------- --------- --------- ---------Totaloperatingprofit 618.0 823.9------------------------------------- ------ --------- --------- --------- --------- --------- --------- Geographical analysis of operatingprofit from continuing operations:United Kingdom 520.7 719.9International 65.0 47.4------------------------------------- ------ --------- --------- --------- --------- --------- --------- 585.7 767.3------------------------------------- ------ --------- --------- --------- --------- --------- ---------Note 1 Includes an operating profit of£9.5m (last year £nil) attributableto acquired operations. 4 Interest charged to cost of salesFinancial Services operating profit is stated after charging £64.6m (last year £77.0m) of interest to cost of sales.This interest represents the cost of funding the Financial Services business as a separate segment, including bothintra group interest and third party funding. The amount of third party interest payable by the Group amounted to£183.6m (last year £136.1m). 5 Exceptional items 52 weeks 53 weeks ended ended 2 April 3 April 2005 2004A Exceptional operating charges £m £m------------------------------------- ------ --------- --------- --------- --------- --------- ---------Head officerelocation 8.8 19.6Head officerestructuringprogramme 6.3 22.5Boardrestructure 8.4 -Closure of'Lifestore' 29.3 -Defence costs 38.6 -------------------------------------- ------ --------- --------- --------- --------- --------- --------- 91.4 42.1------------------------------------- ------ --------- --------- --------- --------- --------- --------- 52 weeks 53 weeks ended ended 2 April 3 AprilB (Loss) / profit on sale of property 2005 2004 and other fixed assets £m £m ------------------------------------- ------ --------- --------- --------- --------- --------- --------- (Loss) /profit on saleof propertyand otherfixed assets (0.4) 18.7------------------------------------- ------ --------- --------- --------- --------- --------- --------- 52 weeks 53 weeks ended ended 2 April 3 AprilC Profit on sale / closure of 2005 2004operations £m £m------------------------------------- ------ --------- --------- --------- --------- --------- --------- Profit /(loss) on sale/ closure 208.9 (26.8)Release /utilisation ofprior yearprovision 9.7 26.8------------------------------------- ------ --------- --------- --------- --------- --------- --------- 218.6 -------------------------------------- ------ --------- --------- --------- --------- --------- --------- M&S Continental Total Money Europe £m £m £m------------------------------------- ------ --------- --------- --------- --------- --------- ---------Net saleproceeds lessnet assets 208.9 - 208.9Release ofprior yearprovision - 9.7 9.7------------------------------------- ------ --------- --------- --------- --------- --------- ---------Net profit onsale / closureof operations 208.9 9.7 218.6------------------------------------- ------ --------- --------- --------- --------- --------- --------- The loss on sale / closure of operations in the prior year relates to the closureof the Continental European operations. On 9 November 2004, the Group completed the sale of Marks and Spencer Retail Financial Services Holdings Limited toHSBC Holdings plc. The net sale proceeds were £533.6m after accounting for a pre-sale dividend of £235.0m togetherwith associated disposal costs (see note 10). 6 TaxationThe pre-exceptional tax charge for the year was £176.5m (last year £242.0), giving an effective tax rate of 28.5%(last year 30.1%). The tax effect of exceptional items is to reduce this charge by £18.2m (last year £12.7m) to£158.3m (last year £229.3m). 7 Earnings per share