Marks & Spencer Grp MKS Half Yearly Report

  Marks & Spencer Grp (MKS) - Half Yearly Report

RNS Number : 3860Q
Marks & Spencer Group PLC
06 November 2012




                                      

                         marks and spencer group pLC

                          half year results 2012/13

                       26 WEEKS ENDED 29 September 2012



                  'Stronger Q2 for M&S across the business'

                                      

Total revenue %        Q1    Q2    H1
General Merchandise  -5.1  +0.1 - 2.5
Like-for-like       -6.8  -1.8  -4.3
Food                 +2.9  +3.9  +3.4
Like-for-like        +0.6  +1.6  +1.1
UK total             -0.9  +2.1  +0.6
UK like-for-like     -2.8   0.0  -1.4
International^1      +0.9  +6.1  +3.6
Total Group^1        -0.7  +2.5  +0.9
Multi-channel^2     +14.9 +21.6 +17.8



Half-year results:

• Group sales^1 up 0.9% at £4.7bn

• Underlying profit before tax^3 £297m (last year pro-forma^4 £307m;
reported £315m)

• Underlying basic earnings per share^3 14.6p (last year 15.6p)

• Interim dividend 6.2p per share (last year 6.2p)

• Net debt £2.6bn (last year pro-forma^4 £2.6bn; reported £2.0bn)

Statutory results:

• Profit before tax £290m (last year £321m)

• Basic earnings per share 14.2p (last year 16.0p)

Notes:

^1 On constant currency basis

^2 Memo only - multi-channel sales are reported as part of General Merchandise
and Food sales

^3 Underlying  results  are  consistent  with how  the  business  is  measured 
internally. Adjustments to derive underlying profit include one-off impairment
charges,  fair  value   movements  on  financial   instruments  and   embedded 
derivatives, and one off strategic programme costs.

^4 The pro forma adjustment  to net debt in the  prior half year reflects  the 
calculated fair value of the property partnership liability using a consistent
interest rate in the discounted  cash flow model with that  as at 21 May  2012 
when the  terms  of  the  property partnership  were  changed.  Similarly,  an 
adjustment to underlying profit before tax of £8.3m relating to the  unwinding 
of the discount on this liability has been made.



Marc Bolland, Chief Executive, said:

"We are pleased  to report  a better performance  across the  business in  the 
second quarter. We took steps to  address the short term merchandising  issues 
in General Merchandise and as a result, we delivered an improved  performance. 
Food outperformed the market on a like-for-like basis.

"Eighteen months in, we are making strong progress with our plan to  transform 
M&S into an International Multi-channel retailer. Our new International stores
are performing  well,  and our  Multi-channel  business is  delivering  strong 
growth.

"As we approach the all important Christmas period, we have better than  ever 
Christmas products, to help our customers enjoy a special Christmas at home."



Current trading and outlook

Recent trading has been  volatile. This, coupled  with continuing pressure  on 
consumers' disposable incomes,  makes us  cautious about the  outlook for  the 
rest of this  year. However,  we are  well set  up for  the Christmas  trading 
period.

We will update on our third quarter sales on 10 January 2013.



New management team

In July we announced changes to our senior management team, combining the best
of our  in-house  experience  with  best-in-class  external  talent.  The  new 
strengthened team is now  in place and focused  on delivering improvements  in 
both product and our  operational execution. Our customers  will start to  see 
the benefits in the new collections launching from next summer.



Business highlights:

• Food outperforming the market on a like-for-like basis

• Improving performance in General Merchandise

• UK gross margin +30bps due to tight control of markdown and waste

• Managed our cost base tightly with cost growth of 2.9%, at the lower end
of guidance

• Step up in Multi-channel sales growth, up 22% in Q2, outperforming the
market by 8%pts

• International sales accelerate in Q2 to +6.1%^1 with strong LFL growth
in key markets



Progress against the three year plan:

• Concept stores performing 2.6% ahead of the rest of the store estate;
delivering 13% IRR

• Successful launch of new concept store at Cheshire Oaks, performance 30%
ahead of plan

• New Beauty shop in 28 stores, delivering strong double digit sales
uplifts

• New Home concept launched; sales performance encouraging

• Outlet online and new shopping app launched

• 19 new international stores opened; over 30 to follow in the second half

• Four local websites launching in Europe this month

• Good progress with supply chain and IT - Food availability up 1%

Guidance

Guidance for financial year 2012/13:

• Gross margin is expected to be towards the top end of the 0 to +25bps
guidance range.

• Operating costs are expected to be at the lower end of the +3 to +5%
guidance range.

• The planned opening of new space will add c. 3% to UK and c. 20% to
International space.

• Group capital expenditure is expected to be c. £825m this year and c.
£850m in 2013/14. We then expect capex to fall to c. £600m in 2014/15.

• Effective tax rate is expected to be 24%.

• Pension finance income (non-cash) is expected to be c. £10m lower than
last year.





2012/13 half year operating review:



The market continued to be challenging through the first half of the financial
year, with consumer confidence impacted by a weak macro-economic situation and
continued pressure on  disposable incomes. Trading  was volatile, affected  by 
unseasonable weather conditions over the summer months, including three of the
wettest months on record in  April, June and July.  While the Jubilee and  the 
Olympics improved the nation's mood, they did not translate into higher sales.



Against this backdrop we focused on  tight management of margin and costs.  We 
took action to address  the short term issues  in General Merchandise and  are 
pleased that we have seen  an improvement in the  second quarter. At the  same 
time we continued to invest  for the long term, in  line with our strategy  to 
transform the business into an International, Multi-channel retailer.



Sales

Group sales were up 0.9% on a constant currency basis (+0.4% actual  currency) 
in the first half  driven by good performance  in our Food, International  and 
Multi-channel businesses.



General Merchandise  sales  were  down  2.5%  with  like-for-like  sales  down 
4.3%.At the start of the financial year we identified merchandising issues in
our Spring/Summer  clothing collections,  which  impacted performance  in  the 
first quarter. We took decisive action, bringing our stock levels back in line
for the Autumn/Winter season, improving our merchandising processes and better
aligning our buying and external marketing. As a result, we have delivered  an 
improved performance in General Merchandise in the second quarter.





In July  we announced  changes  to the  General Merchandise  management  team. 
Following the departure of Kate Bostock, John Dixon was appointed as Executive
Director  for  General  Merchandise  from   1  October  2012.  We  have   also 
strengthened the team  with a  number of key  appointments, including  Belinda 
Earl, who has joined as Style Director. Yesterday we announced further changes
to our General Merchandise Management Team. Francis Russell has been appointed
Trading Director  in Womenswear,  following a  successful tenure  running  our 
Lingerie and  Beauty  business. Janie  Schaffer  is joining  the  business  as 
Trading Director of Lingerie and Beauty and  will start her new role in  early 
2013.



The new team is now in place,  and focused on delivering improvements for  our 
customers in both product, and operational execution. These improvements  will 
take time to  come through, but  our customers  will see the  benefits of  the 
changes from next summer.



Food sales were up 3.4%, with  like-for-like sales up 1.1%, consolidating  our 
position as the UK's leading high quality food retailer. Our strategy to focus
on our heritage of quality and innovation is continuing to deliver results and
set us  apart from  the  competition.We gave  customers more  choice  through 
constant innovation, launching  1,000 new lines,  in line with  our target  to 
refresh 25% of our  range each year.  We also highlighted  the great value  we 
offer on everyday items with the launch of our Simply M&S range.



International sales were up  3.6% on a constant  currency basis (-1.4%  actual 
currency).  Our  priority  markets  in  India  and  China  delivered  a   good 
performance with  strong like-for-like  growth.  Our Franchise  business  also 
continued to perform well, with good performance in key territories  including 
Turkey, Russia and  the Middle East.  Trading in our  European businesses  was 
once again impacted by macroeconomic  pressures, particularly in the  Republic 
of Ireland and Greece, as well as currency translation.



UK gross margin

General Merchandise  gross margin  was up  95  basis points,  as a  result  of 
favourable currency  movements  and tight  management  of markdown  more  than 
offsetting input  price  pressure  and higher  promotional  activity.  We  are 
encouraged by this result, but expect the second half to be more difficult due
to a higher level of promotional activity in the market.



Food gross margin increased by 35 basis points with improved buying and better
management of waste helping  to offset the commodity  price increases, and  we 
expect this to continue in the second half.



Total UK gross margin was up 30 basis points at 41.7%, as a result of the  mix 
change due to a difference in the rate of sales growth in General  Merchandise 
and Food.



UK operating costs

UK operating costs were  up 2.9% on  last year. We  continued to manage  costs 
tightly despite upward pressures from  new space, inflation and investment  in 
business initiatives  such  as  improved customer  service  in  stores.  These 
pressures were mitigated by efficiencies generated through the supply chain  & 
IT  programme,   energy  efficiency   projects  and   success  with   contract 
negotiations.



Underlying operating profit

Underlying group operating profit was £354.9m (last half year £369.3m). Within
this,  UK  operating  profit  was   £300.5m  (last  half  year  £310.6m)   and 
International operating profit was £54.4m (last half year £58.7m). 



Net debt and cash flow

Net debt at  the half  year was  £2.63bn (last  half year  £1.97bn, pro  forma 
£2.64bn adjusting for the change in terms of the property partnership with the
pension fund). Our working capital was  well managed with a £78.4m outflow  in 
the half driven by  increased inventory levels as  we return to target  levels 
and build stock in the run-up to  Christmas. Our ongoing investment in our  UK 
and International stores, the new  multi-channel platform and new systems  and 
supply chain  resulted  in capital  expenditure  of £389.6m  (last  half  year 
£310.4m). Overall, there  was a net  cash outflow of  £164.6m (last half  year 
£67.7m outflow).



2012/13 half year business review:

We are mid-way  through our  three year  plan to  transform M&S  into a  truly 
international, multi-channel retailer.  We have made  strong progress  against 
our medium and long term objectives in the first six months of this year.



1) Focus on the UK



Stores

During the first half we launched the  second phase of our new store  concept. 
This includes new Home and Beauty departments, as well as improvements to  M&S 
Woman and per  una. In August  we opened a  new store at  Cheshire Oaks  which 
showcased the  complete new  look for  the  first time,  and uses  the  latest 
technology, such as Browse and Order  points, to create a more  inspirational, 
interactive shopping  experience. The  store received  very positive  feedback 
from our customers which is reflected  in its sales performance to date  which 
is more than 30% ahead of plan.



Phase 1 of the new format is now being rolled out across our UK stores and  to 
a selection of our International stores, on budget and on track for the target
completion date of mid 2013. Phase 2 will be rolled out by the end of 2013.



At the end of the first half we completed work on 192 stores, 96 of which were
Simply Food, representing over 30% of  our space. By Christmas this will  rise 
to 278 stores, or over 50% of our total selling space.



The sales performance in  the new concept  stores has been  2.6% ahead of  the 
rest of the business. The reported uplift is measured based on the performance
of all  the new  concept  stores that  have traded  for  more than  12  weeks, 
compared to  stores not  yet touched.  The sales  uplift is  delivering a  13% 
internal rate of return, ahead of our hurdle rate of 12%.



We are also  encouraged that  we have continued  to record  strong uplifts  in 
brand momentum  across the  new concept  stores. Despite  the high  number  of 
stores in the new concept, the brand  momentum in these stores is 7% ahead  of 
the rest of the store estate.



Clothing

In a competitive market, with high  levels of promotional activity we  focused 
on offering our customers great value  and quality. We increased our offer  in 
'Good' price points, and  ran selective promotions  which gave customers  even 
better value on selected seasonal products.



Unseasonal weather conditions over the  summer months impacted demand for  our 
key summer departments including Linen and Casual Tops. As a result, the  more 
traditional autumnal ranges such as Coats,  Jackets and Hosiery were the  best 
performing categories.



In September we launched  a new Clothing TV  advertising campaign featuring  a 
selection of models representing a range of ages and sizes, which mirror  M&S' 
broad customer base,  firmly making  the clothes the  hero of  the piece,  and 
backing the season's  key trends  including military and  geometric, with  the 
military coats selling 44,000 pieces.



Home

In August we revealed our new Home in-store concept for the first time at  our 
newly opened  Cheshire Oaks  store.  It transforms  the  way we  showcase  our 
product, and makes use of technology to improve the range and ease of shopping
for our customers. The new format is now in 11 stores, and the average  number 
of customers shopping in the home department has doubled in these stores. This
is now being  rolled out  and over  50% of our  Home space  will be  converted 
before Christmas.



Food

Customers once again placed their  trust in us at  special times of the  year, 
and this summer provided several opportunities to celebrate. We launched  over 
200 British inspired lines, including our highly sought after Jubilee  biscuit 
tin, which sold 4.1  million tins to customers  around the world. We  launched 
1,000 new  lines, taking  inspiration  from around  the world,  including  our 
'Modern Asian' range, our take on the continent's vibrant cuisines, which  has 
proved immediately popular with shoppers.



In a very price  competitive market, we  launched Simply M&S,  a range of  700 
products that highlights the great value  we offer on everyday items,  without 
compromising on M&S quality. We extended our popular 'Dine In' promotion  into 
a new 'Weekends In', to give customers a treat for weekends at home as well as
special occasion dining.



Specialness and  service have  remained  a key  priority  as we  continued  to 
improve our Food Hall experience for  customers. Over 190 Food Halls have  now 
been updated,  with  the  introduction  of  delis,  pasta  bars  and  in-store 
bakeries. These stores continue to outperform  the rest of the chain in  terms 
of sales, with the in-store bakery being the best performing department during
the first half.



We have also improved  on-shelf availability by a  further 1%, in addition  to 
the 2% delivered in the last full year, through the implementation of our  new 
space, range and display  system and invested in  employee zoning in the  Food 
Halls to improve the service standards for our customers.



2) Multi-channel

Multi-channel sales were up 17.8%  outperforming the market by 8ppts  (Source: 
BRC). Traffic to the site continued to grow to an average of over 3.4  million 
weekly visitors and  we continued to  see very good  rates of conversion.  Our 
customers continue to enjoy  the convenience of shopping  online, with over  a 
third of dresses and one in five suits now purchased online.



Our Shop Your  Way service continues  to grow  in popularity and  over 43%  of 
multi-channel orders are now collected in  store or ordered in store for  home 
delivery, up 23%. Ahead of the peak Christmas season, we have further improved
this service with the launch of free next day delivery to stores.



In the  first half  of the  year,  sales from  new channels  increased  almost 
threefold, as we launched  brand new ways  to shop with  M&S and extended  our 
in-store multi-channel innovations. We added  112 new Browse and Order  points 
across 40 stores, allowing customers to shop more of the product catalogue and
have invested in  over 1,500 iPads  for our customer  assistants, in order  to 
offer a more personalised service in store. We have also extended the trial of
our e-boutique concept, Style Online, to 12 of our smaller format stores.



In May, we re-launched our  mobile-optimised site, with improved browsing  and 
search functionality. Sales  from the mobile  site increased by  77% over  the 
first half. Our first  transactional iPhone app went  live in July with  over 
340,000 downloads to reach the top position in iTunes Free UK Lifestyle Apps.



We continued  to grow  our French  e-commerce business  and over  2.5  million 
customers visited the site during the half. In April we launched a  dedicated 
Irish website and have announced plans to launch transactional websites across
an additional four European markets later this month.



3) International

Sales in our International business were up 3.6% on a constant currency  basis 
(-1.4% actual currency),  to £0.5bn. International  operating profit was  down 
7.3% at £54.4m due  to adverse impact  of currency translation,  macroeconomic 
pressures in the Republic of Ireland and Greece, as well as start up costs  in 
some of our key markets.



We have  made good  progress in  the first  half, opening  a total  of 19  new 
stores, and we now trade from  396 stores in 44 territories. Having  developed 
our organisational capability over the last year  we will be in a position  to 
accelerate growth by the end of this year



In Asia, sales were up  13.3% at a constant exchange  rate and we opened  nine 
new stores, focusing  on driving  growth in  our key  priority territories  of 
India and China. Our Shanghai stores continued to perform strongly and we  now 
have ten stores, having opened three  this year, including a new 4,500  square 
metre flagship  store at  Golden Bell  Plaza on  Huaihai Road.  Our Hong  Kong 
stores also delivered a  good performance and we  opened one new store  there. 
Working with our  partner Reliance  Retail, we have  opened one  new store  in 
Bangalore, taking the total to 24 stores in India. 



Our franchise operations are central to our international plans. Our  priority 
market, the Middle  East, saw sales  increase by 9.2%  at a constant  exchange 
rate during the  first half. We  opened nine new  stores across five  markets, 
including two new stores in Turkey and two in Saudi Arabia.



Sales in  Europe were  down 1.5%  at  a constant  exchange rate,  impacted  by 
on-going macro-economic weakness in the Republic of Ireland and Greece. In the
Czech Republic, our experienced  retail team are working  hard to improve  the 
business performance.



Our first Paris store,  at 100 Champs Elysées,  continues to perform ahead  of 
our expectations. In October, we opened our first full-line store in Paris  at 
So Ouest in Levallois-Perret and we  are very pleased with the early  results. 
We have signed leases to open a further three full line stores in Paris, which
are due to open by autumn 2013.



Supply Chain and IT

We are making good progress against our plan to restructure our supply  chain, 
implement new information systems and improve operational execution.



Our second  major Distribution  Centre and  dedicated e-commerce  facility  in 
Castle Donington is now  complete. We are  currently undergoing testing,  with 
the full launch due in spring 2013.  It will deliver a step change in  service 
to our  multi-channel  customers  including improved  availability  and  later 
delivery cut-off times as well as improved efficiency within our operations.



In IT we are  making good progress  with the upgrade of  our systems. We  have 
completed the final phase of the  SAP roll-out, our new core business  system, 
which went live  in April 2012.  This includes a  new stock ledger,  providing 
improved management  information including  product level  profitability.  The 
roll out  of the  new space  planning and  ranging system  in Food  is due  to 
complete this autumn. It  will help us deliver  further improvements in  space 
utilisation and availability  for our customers.  The roll out  of our new  HR 
system continues and is now live in more than 100 stores and will help improve
efficiency within our operations.



Plan A

We continued to make good progress against our 180 commitment eco and  ethical 
programme Plan A. With 94 of the original 100 commitments achieved,  including 
our operations becoming  carbon neutral  and sending zero  waste to  landfill, 
efforts are now focussed on longer term commitments and engaging customers  in 
more sustainable living.



Customers continue  to  respond  well  to  our  clothes  recycling  initiative 
Shwopping. 2.2  million  used  and  unwanted  pieces  of  clothing  have  been 
'shwopped' in M&S and Oxfam stores since launch in April, and c. 4million  are 
on course to be 'shwopped' by the end of the year. Every single item has  been 
donated to Oxfam  to re-sell, re-use  or recycle. Last  month we launched  our 
first product made entirely out  of recycled material created from  'shwopped' 
garments. The 'Shwop Coat'  is not only better  value for the environment  but 
also for customers - at just £89 it is half the cost it would be if made  from 
virgin wool.



In September our new distribution centre in Castle Donington launched a scheme
called Marks & Start Logistics - a new employability programme for people with
disabilities and health conditions. Marks & Start Logistics will help recruit,
train and employ  people with disabilities  and health conditions  to work  at 
Castle Donington.  It  will be  run  in partnership  with  Remploy  Employment 
Service, which specialises in giving disabled people the support they need  to 
overcome barriers to work.



Plan  A  continues  to  be  recognised  externally  for  its  best  in   class 
sustainability and corporate responsibility achievements. Marks & Spencer  was 
named Responsible Retailer of the Year at the World Retail Awards in September
and in  June  Marks &  Spencer  was named  Business  in the  Community  (BITC) 
Responsible Business of the Year at BITC's annual Awards for Excellence.

Financial Review

               26 weeks ended

Summary of Results
                                      29 Sept 12 1 Oct 11  % var

                                      £m         £m
Group revenue                         4,697.2    4,677.5    +0.4
 UK                              4,200.4    4,173.9    +0.6
 International                   496.8      503.6      -1.4
Underlying operating profit           354.9      369.3      -3.9
 UK                              300.5      310.6      -3.3
 International                   54.4       58.7       -7.3
Underlying profit before tax          296.8      315.2      -5.8
Non-underlying items                  (7.3)      5.3           -
Profit before tax                     289.5      320.5      -9.7
Underlying earnings per share         14.6p      15.6p     - 6.4
Earnings per share                    14.2p      16.0p    - 11.3
Interim dividend per share (declared) 6.2p       6.2p      level



Revenues

Group revenues were up 0.4% (+0.9% on a constant currency basis) in the  first 
half driven by a good performance in Food and multi-channel.



UK revenues  were up  0.6% in  total with  a like-for-like  decrease of  1.4%, 
reflecting a  challenging trading  environment  and short  term  merchandising 
issues in  General  Merchandise. We  added  2.7%  of space,  2.6%  in  General 
Merchandise and 3.0% in Food, on a weighted average basis.



International revenues were down 1.4%, or +3.6% on a constant currency  basis. 
We saw good growth  in our priority  markets of India and  China and with  our 
franchise partners  in the  Middle East.  Trading in  our European  businesses 
continues to  be  impacted by  macroeconomic  pressures, particularly  in  the 
Republic of Ireland and Greece, both of which experienced significant declines
in the period.



Operating profit

Underlying operating profit was £354.9m, down 3.9%.



In the UK,  underlying operating  profit was down  3.3% at  £300.5m. UK  gross 
margin was up 30 basis points  at 41.7%. General merchandise gross margin  was 
up 95 basis points at 53.2%, as a result of favourable currency movements  and 
tight management of markdown. This more than offset the input price  pressure, 
particularly wages and raw materials. Food gross margin was up 35 basis points
at 32.0% as a  result of improved  buying and management  of waste helping  to 
mitigate commodity price increases.



UK operating costs  were up 2.9%  to £1,483.4m.  A breakdown of  the costs  is 
shown below:



                      26 weeks ended
                      29 Sept 12 1 Oct 11 

                      £m         £m       % inc
Retail staffing       444.2      424.7    4.6%
Retail occupancy      498.7      487.5    2.3%
Distribution          189.1      190.0    -0.5%
Marketing and related 79.4       77.2     2.8%
Support               272.0      262.7    3.5%
Total                 1,483.4    1,442.1  2.9%



Retail staffing costs were well controlled despite growth in selling space and
the annual pay review. The growth  represents an investment in store  staffing 
to enhance the customer service in stores.



The increase in occupancy costs reflects additional new space, rent and  rates 
inflation. We continue to control the  growth of these costs through rent  and 
service charge reviews, as well as energy efficiency projects.



Distribution costs  were well  managed despite  volume increases  in Food  and 
multi-channel as well  as inflationary pressure,  as we continued  to see  the 
benefits of initiatives to improve supply chain efficiency.



The underlying UK  operating profit  includes a contribution  of £33.2m  (last 
year £25.9m) from the Group's continuing economic interest in M&S Bank.



International operating profit  was down  7.3% at £54.4m  (last year  £58.7m). 
Owned store operating profits were £4.7m, down 39.0%, reflecting macroeconomic
pressures in the Republic of Ireland and Greece, as well as start up costs  in 
France, India and China. Franchise operating profits were down 2.5% to  £49.7m 
due to investments to support growth with our franchise partners.



Non-underlying profit items

The adjustments made  to reported profit  before tax to  arrive at  underlying 
profit are:



                                           26 weeks ended
                                           29 Sept 12 1 Oct 11

                                           £m         £m
Fair value gain on financial instrument    -          9.1
Fair value movement on embedded derivative (5.2)      (1.4)
Strategic programme costs                  (2.1)      (2.4)
Total non-underlying profit items          (7.3)      5.3



The fair value movement on embedded derivative is driven by a reduction in the
expectation of RPI.



The strategic programme costs of £2.1m are related to the cost of implementing
the Focus on the UK element of the strategy announced in November 2010.



Net finance costs

                                                26 weeks ended
                                                29 Sept 12 1 Oct 11

                                                £m         £m
Interest payable                                (63.6)     (70.0)
Interest income                                 3.3        3.8
Net interest payable                            (60.3)     (66.2)
Pension finance income (net)                    10.2       12.4
Unwinding of discount on partnership liability  (6.9)      -
Unwinding of discounts on financial instruments (1.1)      (0.3)
Underlying net finance costs                    (58.1)     (54.1)
Fair value movement on financial instruments    -          9.1
Net finance costs                               (58.1)     (45.0)



Net interest payable was down 8.9% at £60.3m. This reflects the Group's  lower 
average cost of debt funding at 6.1% (last year 6.5%). Underlying net  finance 
costs were  up  £4.0m,  driven  by  the  unwinding  of  the  discount  on  the 
partnership liability to the Marks & Spencer UK Pension scheme, offsetting the
lower net  interest payable.  Pension  finance income  was £10.2m  (last  year 
£12.4m).





Taxation

The taxation charge is based on an  estimated full year effective tax rate  on 
underlying profits of 24.0% (last full year 24.5%).



Underlying earnings per share

Underlying earnings  per share  decreased  by 6.4%  to  14.6p per  share.  The 
weighted average number  of shares  in issue  during the  period was  1,596.3m 
(last year 1,575.6m).



Dividend

The Board is recommending an interim dividend of 6.2p (last year 6.2p).



Capital expenditure

                              26 weeks ended
                              29 Sept 12 1 Oct 11

                              £m         £m
Focus on the UK               65.4       12.8
Multi-channel                 33.0       0.6
New stores                    43.4       80.7
Store modernisation programme 51.9       22.9
International                 20.5       43.5
Supply chain and technology   86.1       68.4
Maintenance                   15.9       25.6
Total capital expenditure     316.2      254.5



Group capital expenditure  for the  half year  was £316.2m.  We continued  our 
investment in UK stores  in order to create  a more inspiring environment  and 
trial a new approach to segmentation and in-store navigation.



We also continued our investment  in improved multi-channel capabilities  with 
the build of our new platform.



We added  2.7% of  selling space  in the  UK (on  a weighted  average  basis), 
trading from 16.2m square feet at the  end of September 2012. We opened a  net 
15 new stores in the  period including a flagship  at Cheshire Oaks. This  new 
concept store showcases the complete new look for the first time, and uses the
latest  technology  to  create  a  more  inspirational,  interactive  shopping 
experience



We invested in our supply  chain and technology in  line with our strategy  to 
build an infrastructure fit to support the future growth of the business.



Cash flow and net debt

                                                    26 weeks ended
                                                    29 Sept 12   1 Oct 11
                                                                            
                                                    £m           £m
Underlying EBITDA                                   578.7        597.9      
Working capital                                     (78.4)       (24.5)     
Pension funding                                     (30.6)       (46.8)     
Capex and disposals                                 (389.6)      (310.4)    
Interest and taxation                               (77.8)       (102.0)    
Dividends and share issues / purchases              (166.9)      (181.9)    
Net cash outflow                                    (164.6)      (67.7)     
Opening net debt                                    (1,857.1)    (1,900.9)  
Exchange and other non-cash movements               (2.0)        (2.7)      
Property partnership liability                      (606.0)      -          
Closing net debt                                    (2,629.7)    (1,971.3)  
Property partnership liability pro-forma adjustment -            (664.6)    
Closing adjusted net debt**                         (2,629.7)    (2,635.9)  



**The property partnership liability pro-forma  adjustment to net debt in  the 
prior half year reflects the calculated fair value of the property partnership
liability using a consistent interest rate  in the discounted cash flow  model 
with that as at 21  May 2012 when the terms  of the property partnership  were 
changed.



The Group reported a net cash  outflow of £164.6m (£67.7m outflow last  year). 
This reflects higher level of capital  expenditure and an increase in  working 
capital, as we  build our  inventories in advance  of Christmas,  and get  the 
stock  cover  back   on  track  following   the  shortages  in   Spring/Summer 
collections.



Net debt was £2,629.7m, an increase of £658.4m on last year as a result of the
change in terms of the property  partnership with the pension fund.  Adjusting 
for this, net debt was £6.2m lower than last year.



The May 2012  bond matured  in the period,  and was  refinanced from  existing 
facilities and operating cash. Our funding strategy continues to ensure a  mix 
of funding sources  and tenor of  maturity to provide  cost effectiveness  and 
flexibility to match the requirements of the business.



Pensions

At the 29 September 2012 the IAS 19 scheme net retirement benefit surplus  was 
£139.0m (31 March 2012 £78.0m) The market value of scheme assets increased  by 
£137.7m, due to improved asset performance. This has been offset by the £76.2m
increase in the present value of the  scheme liabilities due to a decrease  in 
the discount rate from 4.6% to 4.3% and a reduction in the inflation rate from
3.1% to 2.6%.





                                   - Ends -



For further information, please contact:



Investor Relations:

Majda Rainer: +44 (0)20 8718 1563

Richard Harris:  +44 (0)20 8718 9688



Media enquiries:

Corporate Press Office: +44 (0)20 8718 1919



Investor & Analyst webcast:

Investor and analyst presentation will be held at 9am on 6 November 2012. This
presentation can be viewed live on the Marks and Spencer Group plc website on:

www.marksandspencer.com/thecompany.



Video interviews with Marc  Bolland, Chief Executive  and Alan Stewart,  Chief 
Finance Officerwillbe  availableon the  above website.  The interviews  are 
also available in audio and transcript.



Fixed Income Investor Conference Call:

This will  be hosted  by Alan  Stewart, Chief  Finance Officer  at 2  pm on  6 
November 2012:



Dial in number: +44 (0)208 515 2319



A recording of this call will be available until 16 November 2012

Dial in  number:  +44  (0)207 959  6720  Access  code: 
4573890#



Statements made in this announcement that look forward in time or that express
management's beliefs, expectations or  estimates regarding future  occurrences 
and prospects  are  "forward-looking statements"  within  the meaning  of  the 
United  States  federal  securities  laws.  These  forward-looking  statements 
reflect Marks &  Spencer's current expectations  concerning future events  and 
actual results may differ materially  from current expectations or  historical 
results. Any such forward-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; competitive  influences;  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 services industries;  acts of war or terrorism  worldwide; 
work stoppages,  slowdowns or  strikes; and  changes in  financial and  equity 
markets.

Principal risks
and uncertainties
The principal risks and  uncertainties which could  impact the Group's  long-term performance remain  those 
detailed on pages 45 - 47 of the Group's 2012 Annual
Report and Financial Statements. Information on  financial risk management is also  set out on pages 97  - 
100 of the Annual Report, a copy of which is available on the Group's website
www.marksandspencer.com. The key risks and mitigating activities have not changed from these:
- Financial risk, including the UK and global economic outlook and financial position;
- People development, programme and workstream management and distribution centre restructure;
- Brand and reputational risk relating to our corporate reputation, our customers and food safety;
- Selling channels such as
multichannel, International and new
store format; and
- Operational threats, including GM stock management, key supplier failure, IT security and business
continuity.
Statement of
directors'
responsibilities
The directors' confirm that, to the best of their knowledge, this condensed consolidated interim  financial 
information has been prepared in accordance with IAS
34 as adopted by the European  Union and that the interim management  report includes a fair review of  the 
information required by DTR 4.2.7R and DTR 4.2.8R,
namely:
- an indication of important events that have occurred during the first six months and their impact on  the 
condensed set of financial statements, and a description  of the principal risks and uncertainties for  the 
remaining six months of the financial year; and
- material related party transactions in the first six months and any material changes in the related-party
transactions described in the last annual report.
The directors of Marks and  Spencer Group plc are  listed in the Group's  2012 Annual Report and  financial 
statements with the exception of the appointment of
Steve Rowe on 1  October 2012 and  the resignation of  Kate Bostock on  1 October 2012.  A list of  current 
Directors is maintained on the Group's website:
www.marksandspencer.com.
By order of the
Board
Marc Bolland
Chief Executive
Alan Stewart
Chief Finance
Officer
Consolidated
income statement
                                                           26 weeks ended                    52 weeks ended
                                                      29 Sept 2012       1 Oct 2011           31 March 2012
                                        Notes                   £m               £m                      £m
Revenue                                   3                4,697.2          4,677.5                 9,934.3
Operating profit                          3                  347.6            365.5                   746.5
Finance income                            5                   13.5             25.3                    48.3
Finance costs                             5                 (71.6)           (70.3)                 (136.8)
Profit before tax                                            289.5            320.5                   658.0
Income tax
expense                                   6                 (69.5)           (77.7)                 (168.4)
Profit for the
period                                                       220.0            242.8                   489.6
Attributable to:
Equity
shareholders of
the Company                                                  227.2            252.4                   513.1
Non-controlling
interests                                                    (7.2)            (9.6)                  (23.5)
                                                             220.0            242.8                   489.6
Basic earnings
per share                                 7                  14.2p            16.0p                   32.5p
Diluted earnings
per share                                 7                  14.1p            15.9p                   32.2p
Non-GAAP
measures:
Underlying profit
before tax
Profit before tax                                            289.5            320.5                   658.0
Adjusted for:
IAS 39 Fair value
movement of
embedded
derivative                                4                    5.2              1.4                     0.2
Strategic
programme costs                           4                    2.1              2.4                    18.4
IAS 36 Impairment
of assets                                 4                      -                -                    44.9
IAS 39 Fair value
movement of
financial
instrument                                4                      -            (9.1)                  (15.6)
Underlying profit
before tax                                2                  296.8            315.2                   705.9
Underlying basic
earnings per
share                                     7                  14.6p            15.6p                   34.9p
Underlying
diluted earnings
per share                                 7                  14.5p            15.5p                   34.6p
Consolidated
statement of
comprehensive
income
                                                           26 weeks ended                    52 weeks ended
                                                      29 Sept 2012       1 Oct 2011           31 March 2012
                                                                £m               £m                      £m
Profit for the
period                                                       220.0            242.8                   489.6
Other
comprehensive
income:
Foreign currency
translation
differences                                                 (12.5)            (5.3)                  (15.1)
Actuarial
gains/(losses) on
retirement
benefit schemes                           9                   52.9              5.4                 (189.9)
Tax on retirement
benefit scheme                                              (10.3)            (1.4)                    50.4
Cash flow and net
investment hedges
- fair value
movements                                                   (23.7)             97.0                    53.0
- reclassified
and reported in
net profit                                                    14.8           (36.1)                  (23.0)
- amount
recognised in
inventories                                                  (9.2)             16.4                    13.7
Tax on cash flow
hedges and net
investment hedges                                              6.2           (16.5)                   (7.3)
Other comprehensive
income/(loss) for the
period, net of tax                                            18.2             59.5                 (118.2)
Total
comprehensive
income for the
period                                                       238.2            302.3                   371.4
Attributable to:
Equity
shareholders of
the Company                                                  245.4            311.9                   394.9
Non-controlling
interests                                                    (7.2)            (9.6)                  (23.5)
                                                             238.2            302.3                   371.4
The notes on pages 23 to 28 form an integral part of
this condensed consolidated interim financial
information.
Consolidated
statement of
financial
position
                                                             As at            As at                   As at
                                                      29 Sept 2012       1 Oct 2011           31 March 2012
                                        Notes                   £m               £m                      £m
ASSETS
Non-current
assets
Intangible assets                                            614.6            563.3                   584.3
Property, plant
and equipment                                              4,839.0          4,645.8                 4,789.9
Investment
property                                                      15.9             16.0                    15.9
Investment in
joint ventures                                                15.2             13.7                    14.4
Other financial
assets                                                         3.0              3.0                     3.0
Retirement
benefit asset                             9                  152.8            235.0                    91.3
Trade and other
receivables                                                  266.5            273.8                   270.2
Derivative
financial
instruments                                                   53.9             70.4                    44.2
                                                           5,960.9          5,821.0                 5,813.2
Current assets
Inventories                                                  849.4            834.4                   681.9
Other financial
assets                                                       130.7            150.0                   260.5
Trade and other
receivables                                                  281.3            253.3                   253.0
Derivative
financial
instruments                                                   86.4             68.1                    67.0
Current tax
receivable                                                     1.6              1.6                     1.6
Cash and cash
equivalents                                                  144.5            389.7                   196.1
                                                           1,493.9          1,697.1                 1,460.1
Total assets                                               7,454.8          7,518.1                 7,273.3
LIABILITIES
Current
liabilities
Trade and other
payables                                                   1,422.7          1,373.8                 1,449.1
Borrowings and
other financial
liabilities                                                  372.6            610.3                   327.7
Partnership liability to
the Marks & Spencer UK
Pension Scheme                            10                  71.9                -                    71.9
Derivative
financial
instruments                                                   91.6             52.4                    60.5
Provisions                                                    13.9             21.0                     8.4
Current tax
liabilities                                                  105.3            107.5                    87.8
                                                           2,078.0          2,165.0                 2,005.4
Non-current
liabilities
Retirement
benefit deficit                           9                   13.8             13.8                    13.3
Trade and other
payables                                                     294.9            278.6                   280.8
Borrowings and
other financial
liabilities                                                1,991.4          1,981.7                 1,948.1
Partnership liability to
the Marks & Spencer UK
Pension Scheme                            10                 541.0                -                       -
Derivative
financial
instruments                                                   47.8              7.8                    27.2
Provisions                                                    16.4             18.9                    24.0
Deferred tax
liabilities                                                  208.0            233.1                   195.7
                                                           3,113.3          2,533.9                 2,489.1
Total liabilities                                          5,191.3          4,698.9                 4,494.5
Net assets                                                 2,263.5          2,819.2                 2,778.8
EQUITY
Issued share
capital                                                      402.1            396.3                   401.4
Share premium
account                                                      299.0            256.6                   294.3
Capital
redemption
reserve                                                    2,202.6          2,202.6                 2,202.6
Hedging reserve                                              (7.6)             45.9                    14.8
Other reserve                                            (6,542.2)        (6,042.4)               (6,114.3)
Retained earnings                                          5,928.2          5,965.9                 5,991.4
Total
shareholders'
equity                                                     2,282.1          2,824.9                 2,790.2
Non-controlling
interests in
equity                                                      (18.6)            (5.7)                  (11.4)
Total equity                                               2,263.5          2,819.2                 2,778.8
The notes on pages 23 to 28 form an integral part of
this condensed consolidated interim financial
information.
Consolidated
statement of
changes in equity
                  Ordinary      Share    Capital
                     share    premium redemption Hedging     Other Retained         Non-controlling
                   capital    account    reserve reserve   reserve earnings   Total        interest   Total
                        £m         £m         £m      £m        £m       £m      £m              £m      £m
As at 1 April
2012                 401.4      294.3    2,202.6    14.8 (6,114.3)  5,991.4 2,790.2          (11.4) 2,778.8
Profit/(loss) for
the period               -          -          -       -         -    227.2   227.2           (7.2)   220.0
Other
comprehensive
income:
Foreign currency
translation              -          -          -   (0.5)         -   (12.0)  (12.5)               -  (12.5)
Actuarial gain on
retirement
benefit schemes          -          -          -       -         -     52.9    52.9               -    52.9
Tax on retirement
benefit schemes          -          -          -       -         -   (10.3)  (10.3)               -  (10.3)
Cash flow and net
investment hedges
- fair value
movements                -          -          -  (33.7)         -     10.0  (23.7)               -  (23.7)
- reclassified
and reported in
net profit               -          -          -    14.8         -        -    14.8               -    14.8
- amount
recognised in
inventories              -          -          -   (9.2)         -        -   (9.2)               -   (9.2)
Tax on cash flow
hedges and net
investment
hedges                   -          -          -     6.2         -        -     6.2               -     6.2
Other
comprehensive
income                   -          -          -  (22.4)         -     40.6    18.2               -    18.2
Total
comprehensive
income/(expenses)        -          -          -  (22.4)         -    267.8   245.4           (7.2)   238.2
Transactions with
owners:
Dividends                -          -          -       -         -  (172.3) (172.3)               - (172.3)
Recognition of
financial
liability                -          -          -       -   (427.9)  (178.1) (606.0)               - (606.0)
Shares issued on
exercise of
employee share
options                0.7        4.7          -       -         -        -     5.4               -     5.4
Charge for
share-based
payments                 -          -          -       -         -     20.3    20.3               -    20.3
Deferred tax on
share schemes            -          -          -       -         -    (0.9)   (0.9)               -   (0.9)
As at 29
September 2012       402.1      299.0    2,202.6   (7.6) (6,542.2)  5,928.2 2,282.1          (18.6) 2,263.5
                  Ordinary      Share    Capital
                     share    premium redemption Hedging     Other Retained         Non-controlling
                   capital    account    reserve reserve   reserve earnings   Total        interest   Total
                        £m         £m         £m      £m        £m       £m      £m              £m      £m
As at 3 April
2011                 396.2      255.2    2,202.6  (11.3) (6,042.4)  5,873.2 2,673.5             3.9 2,677.4
Profit/(loss) for
the period               -          -          -       -         -    252.4   252.4           (9.6)   242.8
Other
comprehensive
income:
Foreign currency
translation              -          -          -   (0.6)         -    (4.7)   (5.3)               -   (5.3)
Actuarial gain on
retirement
benefit schemes          -          -          -       -         -      5.4     5.4               -     5.4
Tax on retirement
benefit schemes          -          -          -       -         -    (1.4)   (1.4)               -   (1.4)
Cash flow and net
investment hedges
- fair value
movements                -          -          -    94.0         -      3.0    97.0               -    97.0
- reclassified
and reported in
net profit               -          -          -  (36.1)         -        -  (36.1)               -  (36.1)
- amount
recognised in
inventories              -          -          -    16.4         -        -    16.4               -    16.4
Tax on cash flow
hedges and net
investment
hedges                   -          -          -  (16.5)         -        -  (16.5)               -  (16.5)
Other
comprehensive
income                   -          -          -    57.2         -      2.3    59.5               -    59.5
Total
comprehensive
income/(expenses)        -          -          -    57.2         -    254.7   311.9           (9.6)   302.3
Transactions with
owners:
Dividends                -          -          -       -         -  (170.2) (170.2)               - (170.2)
Shares issued on
exercise of
employee share
options                0.1        1.4          -       -         -        -     1.5               -     1.5
Purchase of own
shares held by
employee trusts          -          -          -       -         -   (13.2)  (13.2)               -  (13.2)
Charge for
share-based
payments                 -          -          -       -         -     22.4    22.4               -    22.4
Deferred tax on
share schemes            -          -          -       -         -    (1.0)   (1.0)               -   (1.0)
As at 1 October
2011                 396.3      256.6    2,202.6    45.9 (6,042.4)  5,965.9 2,824.9           (5.7) 2,819.2
                  Ordinary      Share    Capital
                     share    premium redemption Hedging     Other Retained         Non-controlling
                   capital    account    reserve reserve   reserve earnings   Total        interest   Total
                        £m         £m         £m      £m        £m       £m      £m              £m      £m
As at 3 April
2011                 396.2      255.2    2,202.6  (11.3) (6,042.4)  5,873.2 2,673.5             3.9 2,677.4
Profit/(loss) for
the year                 -          -          -       -         -    513.1   513.1          (23.5)   489.6
Other
comprehensive
income:
Foreign currency
translation              -          -          -   (1.1)         -   (14.0)  (15.1)               -  (15.1)
Actuarial losses
on retirement
benefit schemes          -          -          -       -         -  (189.9) (189.9)               - (189.9)
Tax on retirement
benefit schemes          -          -          -       -         -     50.4    50.4               -    50.4
Cash flow and net
investment hedges
- fair value
movements                -          -          -    43.8         -      9.2    53.0               -    53.0
- reclassified
and reported in
net profit               -          -          -  (23.0)         -        -  (23.0)               -  (23.0)
- amount
recognised in
inventories              -          -          -    13.7         -        -    13.7               -    13.7
Tax on cash flow
hedges and net
investment
hedges                   -          -          -   (7.3)         -        -   (7.3)               -   (7.3)
Other
comprehensive
income                   -          -          -    26.1         -  (144.3) (118.2)               - (118.2)
Total
comprehensive
income/(expenses)        -          -          -    26.1         -    368.8   394.9          (23.5)   371.4
Transactions with
owners:
Dividends                -          -          -       -         -  (267.8) (267.8)               - (267.8)
Transactions with
non-controlling
shareholders                                                          (6.4)   (6.4)             8.2     1.8
Recognition of
financial
liability                -          -          -       -    (71.9)        -  (71.9)               -  (71.9)
Shares issued on
exercise of
employee share
options                5.2       39.1          -       -         -        -    44.3               -    44.3
Purchase of own
shares held by
employee trusts          -          -          -       -         -   (13.2)  (13.2)               -  (13.2)
Credit for
share-based
payments                 -          -          -       -         -     32.5    32.5               -    32.5
Deferred tax on
share schemes            -          -          -       -         -      4.3     4.3               -     4.3
As at 31 March
2012                 401.4      294.3    2,202.6    14.8 (6,114.3)  5,991.4 2,790.2          (11.4) 2,778.8
The notes on pages 23 to 28 form an integral part of
this condensed consolidated interim financial
information.
The 'Other reserve' was originally created as part  of the capital restructuring that took place in  2002. 
It represents the difference between the nominal value of
the shares issued prior to the capital reduction by the Company (being the carrying value of the investment
in Marks and Spencer plc) and the share capital,
share premium and capital redemption reserve of Marks and Spencer plc at the date of the transaction.  The 
reserve also included discretionary distributions  to the Marks & Spencer  UK Pension Scheme of £nil  (last 
half year £499.8m, last full year £427.9m) (see note 10).
CONSOLIDATED
STATEMENT OF CASH
FLOWS
                                                           26 weeks ended                    52 weeks ended
                                                      29 Sept 2012       1 Oct 2011           31 March 2012
                                        Notes                   £m               £m                      £m
Cash flows from
operating
activities
Cash generated
from operations                           12                 469.7            526.6                 1,352.1
Income tax paid                                             (44.8)           (65.8)                 (149.1)
                           The story
                           has been
                           truncated,
                          
[TRUNCATED]