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]
Marks & Spencer Grp MKS Half Yearly Report
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