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Financial review*

Summary of results2009/10
(53 wks)
(52 wks)
(52 wks)
(52 wks)
Group revenue9,536.69,347.69,062.1+3.2
Operating profit before property disposals843.9779.3768.9+1.4
Profit before tax and property disposals694.6632.5604.4+4.6
Proft before tax702.7640.6706.2–9.3
Adjusted EPS33.0p30.0p28.0p+7.1
Dividend per share (declared)15.0p15.0p17.8p–15.7

2009/10 was a 53 week reporting period. In order to make a comparison to last year, all reported income statement numbers in the Financial Review are stated on a 52 week basis unless specified otherwise. The 52 week results exclude UK revenue of £169.7m (£76.6m General Merchandise and £93.1m Food) and UK variable operating costs of £13.4m, that relate only to the 53rd week, as well as International operating profits of £7.4m and a net interest charge of £2.5m. The 52 week UK operating costs stated include annual costs on the same basis as reported in any 52 week reporting period.


Total revenues were up 3.2% driven by an improvement in like-for-like sales as well as the addition of new space in the UK and a strong performance in our International business.

UK revenues were up 2.9% in total with a like-for-like increase of 0.9%, reflecting both the actions we have taken over the last year to manage the business through the downturn and an improvement in market conditions and consumer spending. During the year, we added c. 3.2% of space, representing 1.9% in Food and 3.9% in General Merchandise.

International revenues were up 5.7%, with a 2.7% positive impact from the movement in the exchange rates. Whilst some of our overseas businesses were impacted by the continued global economic downturn, particularly in the Republic of Ireland and Greece, many delivered good growth in the year, with areas such as India, Hong Kong and the Czech Republic particularly strong. Our franchise business also continued to perform well despite the slowdown in the Middle East, with countries including Turkey and Russia growing strongly.

Operating profit

Operating profit before property disposals and exceptional items was £779.3m, up 1.4%.

In the UK, operating profit before property disposals was down 1.3% at £644.0m. Gross margin was down 5 basis points at 41.2%. General Merchandise gross margin was up 70 basis points at 52.5%, with better sourcing and tight control over stock and markdowns, mitigating the adverse currency pressures. Food gross margin was down 95 basis points at 30.6% reflecting further investment in price and increased promotional activity, offset by better buying and a reduction in food waste.

UK operating costs before bonus were up 1.0% to £2,769.3m. A breakdown of UK operating costs is shown below:

 52 weeks ended 
 27 March
28 March
% increase/
Retail staffing858.4863.3–0.6
Retail occupancy972.7948.0+2.6
Marketing and related122.9127.4–3.5
Total before bonus2,769.32,470.6+1.0
Total including bonus2,850.22,743.4+3.9

Retail staffing costs were tightly managed, with improved productivity offsetting the impact of space growth and the annual pay review. The increase in occupancy costs reflects an increase in both the depreciation charge and space growth. Despite the increase in volumes and space, and strong growth in Direct, distribution costs were down 3.9% as a result of ongoing initiatives under Project 2020 to make our warehousing and distribution network more cost efficient. We generated underlying savings of £35m in this area in 2009/10. Marketing spend was down due to a reduced number of external marketing campaigns. Support costs, which include non-store related overheads, increased due to depreciation related to the ongoing overhaul of our IT systems.

The bonus payment of £80.9m (last year £2.8m) reflects the outperformance of the business against our operating plan.

The UK operating profit includes a contribution of £30.4m (last year £24.8m) from the Group’s continuing economic interest in M&S Money.

International operating profit before property disposals was up 16.5% at £135.3m (last year £116.1m). Owned store operating profits were £57.7m, up 26.0%, reflecting profits in Ireland and Hong Kong, offset by small losses in China, India and Greece. Franchise operating profits were up 10.4% to £77.6m due to continuing strong sales performance.

Profit on property disposals

Profit on property disposals was £8.1m (last year £6.4m). This mainly relates to the sale of retail space adjacent to our store in Grafton Street, Dublin.

Net finance costs

 52 weeks ended
 27 March
28 March
Interest payable(133.7)(166.0)
Interest income2.114.6
Net interest payable(131.6)(151.4)
Unwinding of discount on partnership liability
to the Marks & Spencer UK Pension Scheme
One-off premium on repurchase of debt(13.5)
Pension finance income (net)10.835.4
Fair value movement on financial instruments(8.5)(10.5)
Net finance costs(146.8)(164.5)

Net interest payable was down 13.1% at £131.6m reflecting a decrease in the average net debt over the year, offset by a £13.5m one-off premium on repurchase of debt. net finance costs were down £17.7m after pension finance income of £10.8m (last year £35.4m), and the unwinding of the discount on the partnership liability to the pension scheme. The Group’s average cost of funding was down to 5.9% (last year 6.5%).


The taxation charge is based on a full year pre-exceptional effective tax rate of 25.6% (last year 27.0%).

Earnings per share

Adjusted earnings per share from continuing operations, which excludes the effect of property disposals, increased by 17.9% to 33.0p per share. The weighted average number of shares in issue during the period was 1,572.2m (last year 1,573.2m).


In May 2009 the Board took the decision to rebase the Group’s dividend payment for 2009/10 to 15p per share. In line with this decision a final dividend of 9.5p per share (last year 9.5p) has been approved. Having rebuilt cover to two times, the Board’s policy is to grow dividends in line with adjusted earnings per share.

Capital expenditure

 Year ended
 3 April
28 March
Store modernisation programme75216
New stores50150
Supply chain and technology194188
Total capital expenditure389652

Group capital expenditure for the year was £389m. 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.

We added 3.2% of trading space in the UK, trading from 15.4m sq ft at the end of March 2010. We opened 24 stores during the year, including 16 Simply Foods, mainly franchises.

Cash flow and net debt

 Year ended
 3 April
28 March
Cash flow from operations1,349.71,371.9
Capex and disposals(408.6)(604.1)
Interest and taxation(281.7)(265.7)
Dividends and share issues(223.6)(349.3)
Share buyback(40.9)
Other movements(24.4)(4.4)
Net cash flow411.7107.5
Opening net debt(2,490.8)(3,077.7)
Partnership liability to the UK Pension Scheme539.6
Exchange and other non-cash movements10.7(60.2)
Closing net debt(2,068.4)(2,490.8)

The Group reported a net cash inflow of £411.7m (last year – inflow £107.5m). Cash inflow from operations decreased by £22.2m, reflecting growth in profits offset by a working capital inflow of £77.9m compared with a £194.0m inflow last year. Inventory levels were higher due to a further increase in direct buying, as well as an improved sales performance. Capital expenditure, net of disposals, was £408.6m (last year – £604.1m) reflecting further investment in our supply chain and IT as well as new space growth. Net debt was £2,068.4m, down £422.4m on last year.


At 3 April 2010 the IAS 19 net retirement benefit deficit was £366.5m (28 March 2009 £152.2m). The increase is due to a decrease in the discount rate from 6.75% to 5.5%, as well as the increase in the inflation rate from 2.9% to 3.6%, which have increased the pension liability by c. £1.2bn. This increase has been offset in part by a c. £1.0bn increase in the market value of the UK scheme’s assets.

On 12 May 2010 the Group announced the outcome of its triennial actuarial valuation which showed a deficit of £1.3bn at 31 March 2009. The details of the funding plan are explained in the Performance Overview.