Financial review

In a challenging trading environment, we delivered sales of £10bn this year, up 1.3%. We managed the business prudently and our underlying profit was £665m, with underlying earnings per share at 32.7p.

Whilst the execution of our business plans continued to move with pace, we navigated the short term market challenges through strong financial management. In a highly promotional marketplace, we protected our margins through tight control of mark down and well targeted promotional activity. Improved buying and food waste management helped us mitigate commodity price increases and further protect profitability.

This approach was supported by tight cost management across the business, with UK operating costs up 1.8%. I have always been clear that running an efficient business is not simply about cost cutting; it's about having the right procedures and processes in place.

Our commitment to Plan A encourages us to find new and better ways of doing things to address the eco and ethical challenges we all face. In doing so we have delivered a net benefit of £135m available to be reinvested back into M&S. As members of the International Integrated Reporting Council pilot, we are committed to reporting the long term value created by sustainable business practice.

Investing in our future

Our investment is strengthening our UK business through the roll-out of our new store format – encouraging customers to reappraise M&S. Multi-channel sales accelerated to £651.8m and International sales reached £1.1bn.

We added 2.8% new selling space in the UK; including nine new wholly owned sites for our popular Simply Food format.

As with our operating costs, we applied a disciplined approach to our expenditure. In the second year of our plan, activity has peaked with capital expenditure at £821m. Through prudent management we expect capex to be £775m in 2013/14, a reduction on the previous guidance of £850m. From 2014/15 we expect it to fall to c.£550m per annum, a £50m reduction on our earlier guidance.

A better business infrastructure

Our investment is helping us deliver transformational change to our business infrastructure – ensuring it is fit to support our strategic ambitions and allows us to meet and exceed our customers' growing expectations.

To achieve these aims we need to simplify our IT and management systems and create a supply chain that is agile, fast and flexible from end to end. We are already making improvements; changing the way we allocate stock to store and sourcing more from our direct suppliers to make the most of our scale.

In May 2013 our major new distribution centre at Castle Donington became operational, which will help us deliver a step change in the way we serve M& customers. The fully automated site ensures we have all e-commerce stock in one central location, at the heart of the UK road and rail network. Better visibility of our stock will drive improved availability, faster delivery times and reduced distribution costs.

We are further strengthening our multi-channel capabilities through the in-house development of our new website platform. Due to launch in Spring 2014, the new platform will be better integrated with our in-store and service systems – providing us with the flexibility required to deliver a best-in-class customer experience.

Strengthening our financial position

Our investment in future growth is funded through our existing cash flows – supporting our commitment to maintaining an investment grade credit rating and a progressive dividend policy.

We have maintained a strong balance sheet, with net debt at £2.6 billion, including £606m of property partnership liabilities associated with the pension fund.

In November we announced the outcome of the triennial actuarial valuation of our Defined Benefit Pension Scheme as at 31 March 2012. This resulted in a funding deficit of £290m, a substantial reduction from £1.3bn as at 31 March 2009. As a result, we agreed a reduction in the annual cash contributions as part of the ten year funding plan, saving £245m of which £153m will fall in the next four years.

We have made good progress with our funding activity this year. In December, we issued £400m of 12.5 year bonds at a rate of 4.75%. The bonds were significantly oversubscribed and priced below the Group's average cost of debt of c.6%, providing sufficient liquidity to manage upcoming debt maturities.

In light of long-term interest rates and the sucessful bond issuance, we decided to buy back and cancel £250m of puttable callable bonds issued in 2007. This incurred a one-off non-underlying cost of £75m. This activity supports our funding strategy, ensuring we have the right mix of funding sources that provide the cost effectiveness and flexibility to match our business requirements.

Summary of results

  52 weeks ended  
  30 March 2013 £m 31 March 2012 £m % variance
Group revenue 10,026.8 9,934.3 +0.9
UK 8,951.4 8,868.2 +0.9
International 1,075.4 1,066.1 +0.9
Underlying operating profit 781.6 810.0 -3.5
UK 661.4 676.6 -2.2
International 120.2 133.4 -9.9
Underlying profit before tax 665.2 705.9 -5.8
Non-underlying items (100.9) (47.9)  
Profit before tax 564.3 658.0 -14.2
Underlying earnings per share 32.7p 34.9p -6.3
Basic earnings per share 29.2p 32.5p -10.2
Dividend per share (declared) 17.0p 17.0p level


Group revenues were up 0.9% (+1.3% on a constant currency basis), driven by sales growth in both International and the UK, with particularly strong growth in Food.

Total revenue % Q1 Q2 Q3 Q4 FY
Clothing -5.0 0.2 -2.1 -2.6 -2.4
Home -6.1 -1.4 -2.5 1.4 -2.2
General Merchandise -5.1 0.1 -2.2 -2.2 -2.4
Food 2.9 3.9 2.7 6.3 3.9
Total UK -0.9 2.1 0.3 2.6 0.9
International* 0.9 6.1 4.1 7.0 4.5
Total Group* -0.7 2.5 0.6 3.1 1.3
Like-for-like revenue % Q1 Q2 Q3 Q4 FY
General Merchandise -6.8 -1.8 -3.8 -3.8 -4.1
Food 0.6 1.6 0.3 4.0 1.7
Total UK -2.8 0.0 -1.8 0.6 -1.0
  • * At constant currency

UK revenues were up 0.9% in total with a like-for-like decrease of 1.0%. We added 2.8% of space, 2.6% in General Merchandise and 3.1% in Food, on a weighted average basis.

International revenues were up 0.9%, (4.5% on a constant currency basis). Our owned businesses in India and China delivered a strong performance, driven by good like-for-like growth and the opening of new space. Similarly, our franchise business continued to perform well, especially the Middle East region which delivered strong growth. Despite continuing tough trading conditions impacting the full year performance in the Czech Republic and the Republic of Ireland, there was an improvement in trend in the second half of the year.

Operating profit

Underlying operating profit was £781.6m, down 3.5%.

In the UK, underlying operating profit was down 2.2% at £661.4m. Gross margin was up 10bps at 40.9%. General Merchandise gross margin was up 45bps at 51.8% as a result of improved markdown management and ongoing sourcing initiatives, which more than offset input cost pressures from areas such as wages. Food gross margin was up 35bps at 31.7% due to improved buying, combined with better management of promotional spend offsetting commodity price inflation.

Underlying UK operating costs were up 1.8% to £3,049.8m. A breakdown of the costs is shown below:

  52 weeks ended  
  30 March 2013 £m 31 March 2012 £m % variance
Retail staffing 928.9 889.2 +4.5
Retail occupancy 1,030.7 1,030.9 -
Distribution 405.1 398.1 +1.8
Marketing and related 155.3 161.8 -4.0
Support 529.8 515.0 +2.9
Total 3,049.8 2,995.0 +1.8

Retail staffing costs increased due to investment made in delivering customer service and increased space together with the impact of the annual pay review.

Occupancy costs were level on the year with increases from rent, rates and utilities offset by a decrease in depreciation.

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

The reduction in Marketing and related costs reflects more effective use of marketing spend within both Foods and GM.

Increase in support costs reflect the impact of annual pay increases and higher pension costs associated with autoenrolment, which will continue into the coming year.

The underlying UK operating profit includes a contribution from the Group's continuing economic interest in M&S Bank of £51.1m, last year £50.7m.

International underlying operating profit was down 9.9% (down 10.9% on a constant currency basis). Franchise operating profits were down 3.9% to £106.3m, with our European franchise partners' trading environments impacting on their business. Owned store operating profits were down 39.0% to £13.9m, due to continued macroeconomic pressures in Europe combined with initial start-up costs in priority markets.

Non-underlying profit items

  52 weeks ended
  30 March 2013 £m 31 March 2012 £m
Strategic programme costs (6.6) (18.4)
Restructuring costs (9.3) -
Impairment of assets - (44.9)
Fair value movement of put option over
non-controlling interest in Czech business
- 15.6
Fair value movement of embedded
5.8 (0.2)
Fair value movement on buy back of the
Puttable Callable Reset medium-term notes
(75.3) -
Reduction in M&S Bank income (15.5) -
Total non-underlying profit items (100.9) (47.9)

Strategic programmes incurred £6.6m of costs in the year which are not part of the normal operating costs of the business. These include brand segmentation and business integration costs, asset write-offs and accelerated depreciation. The cumulative strategic programme costs incurred since the strategy was announced is now £41m, of the c. £50m we announced in 2010.

Restructuring costs relate to the Group strategy to transition to a one tier distribution network and the associated closure costs of legacy logistics sites.

The fair value movement on the embedded derivative is driven by an increase in the expected RPI rate.

The fair value movement on the buy back of Puttable Callable Reset medium-term notes relates to a one-off finance charge resulting from the cancellation of bonds issued in 2007. These bonds included a coupon rate reset after five years based on a fixed underlying 25 year interest rate. In light of continued low long-term market interest rates and the successful £400m bond issuance in December 2012, the Group decided to buy back and cancel these bonds.

The reduction in the fee income received from M&S Bank is due to M&S Bank's potential redress to customers in respect of possible mis-selling of financial products. This reduction in fee income is expected to continue in the current year and amount to a further c.£45m. We are discussing with HSBC whether these charges are properly for our account under the terms of our agreement.

Net finance costs

  52 weeks ended
  30 March 2013 £m 31 March 2012 £m
Interest payable (125.3) (135.6)
Interest income 5.3 7.1
Net interest payable (120.0) (128.5)
Pension finance income (net) 21.2 25.6
Unwinding of discount on partnership liability (16.6) -
Unwinding of discounts on financial
(1.0) (1.2)
Underlying net finance costs (116.4) (104.1)
Fair value movement of put option over
non-controlling interest in Czech business
- 15.6
Fair value movement on buy back of the
Puttable Callable Reset medium term notes
(75.3) -
Net finance costs (191.7) (88.5)

The net interest payable was down 6.6% at £120.0m as a result of the lower cost of funding of 5.9% (last year 6.5%). Underlying net finance costs were up £12.3m to £116.4m due to the unwinding of discount on the Partnership liability and a reduction in pension income.


The full year effective tax rate on underlying profit before tax was 22.7% (last year 24.5%).

Underlying earnings per share

Underlying earnings per share decreased by 6.3% to 32.7p per share. The weighted average number of shares in issue during the period was 1,599.7m (last year 1,579.3m).


The Board is recommending a final dividend of 10.8p per share. This will result in a total dividend of 17.0p, in line with last year. The Board's dividend policy remains unchanged; a progressive policy with dividends broadly twice covered by earnings.

Capital expenditure

  52 weeks ended
  30 March 2013 £m 31 March 2012 £m
Focus on the UK 197.4 71.6
Multi-channel 75.3 42.8
New stores 94.1 170.4
Store modernisation programme 85.7 73.6
International 53.7 61.9
Supply chain and technology 247.2 212.7
Maintenance 67.9 104.5
Total capital expenditure 821.3 737.5

We continued to invest in our UK stores in order to create a more inspiring environment. The new concept had been rolled out to 337 stores at the year end. Our programme set out in November 2010 will complete during the current financial year.

Our commitment to improving multi-channel capabilities remains a priority with the development of our new multi-channel platform and the launch of five new in-country websites, and a dotcom presence in China. We now trade online locally in 10 countries.

We added 2.8% of selling space in the UK (on a weighted average basis), trading from 16.4m square feet at the end of March 2013. We opened a net 35 new stores during the year, including our flagship store in Cheshire Oaks. In our International business, space increased by c.16%, predominantly in our key strategic territories of India, China, the Middle East and Russia.

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

Cash flow and net debt

  52 weeks ended
  30 March 2013 £m 31 March 2012 £m
Underlying EBITDA 1,244.8 1,280.1
Working capital 72.3 161.9
Pension funding (70.9) (89.9)
Capex net of disposals (829.7) (720.7)
Interest and taxation (235.3) (277.3)
Dividends and share issues/purchases (248.4) (236.7)
Net cash (outflow)/inflow (67.2) 117.4
Opening net debt (1,857.1) (1,900.9)
Exchange and other movements (84.0) (1.7)
Property partnership liability (606.0) (71.9)
Closing net debt (2,614.3) (1,857.1)
Property partnership liability pro-forma
- (603.1)
Closing adjusted net debt1 (2,614.3) (2,460.2)
  1. The property partnership liability pro-forma adjustment to net debt in the prior 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 £67.2m (last year inflow £117.4m). This outflow reflects a 3% decline in underlying EBITDA, a lower working capital inflow and higher capital expenditure.

Net debt was £2,614.3m, an increase of £757.2m 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 £154.1m higher 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.


At 30 March 2013 the IAS 19 net retirement benefit surplus was £193.0m (last year £78.0m). The market value of scheme assets increased by £743.6m, due to improved asset performance and company contributions. The present value of the scheme liabilities has increased by £628.8m due to a reduction in the discount rate. Our hedging strategy adopted since 2010 continued to reduce significant fluctuations between scheme liabilities and assets.

A full actuarial valuation of the UK Defined Benefit Pension Scheme was carried out at 31 March 2012 and showed a deficit of £290m. A funding plan of £112m was agreed with the Trustees. The difference between the valuation and the funding plan is expected to be met by investment returns on the existing assets of the pension scheme.

Looking ahead

The transformation of our infrastructure will deliver tangible benefits for both our business and our customers; creating a strong and efficient platform from which to deliver sustainable long-term growth.