7th Nov 2006 07:02
Marks & Spencer Group PLC07 November 2006 Issued: Tuesday 7 November 2006 Marks and Spencer Group plc Interim Results 2006/07 26 weeks ended 30 September 2006 Highlights: Financial: • Sales up 11.0% at £3,929.4m: UK up 10.5% at £3,647.9m; International up 17.7% at £281.5m;• Adjusted profit before tax up 32.2% at £405.1m; unadjusted profit before tax £406.5m• Adjusted earnings per share up 30.7% at 16.6p; unadjusted earnings per share 16.7p• Interim dividend 6.3p, up 31.3%• Net debt £1,745.6m (1 April 2006: £1,729.3m) Trading: • Q2 UK sales +10.5%: General Merchandise +10.0%; Food +10.9%;• Q2 UK like for like sales up 6.4%: General Merchandise +7.9%; Food +4.7%;• Market share growth in all product categories (total clothing market share up 90 basis points to 10.1%*)• Food market share up 20 basis points to 4.0%**• UK gross margin up 100 basis points to 43.6%• Modernised stores delivering strong returns• Agreement reached with BP to roll out Simply Food• Acquisition of 12 stores to add to Simply Food portfolio Lord Burns, Chairman, commented: "The Group continues to make good progress and is stepping up its investmentprogramme to secure future growth. In line with our new policy, the Board isproposing an interim dividend increase of 31.3% to 6.3p per share." * Clothing market share: TNS Worldpanel Fashion: 24 weeks ending 17 Sept 2006** Food market share: Superpanel, Food & drink: 24 weeks ending 8 Oct 2006 Stuart Rose, Chief Executive, said: "We had a good first half. We have delivered better product, better service andbetter store environment. We have gained market share in all areas in which wetrade. We continue to invest in our stores to provide for future growth. Our propertyreview has identified opportunities in existing and new markets. Modernisedstores are generating strong returns. We are increasing investment in some areas such as specialist staff which webelieve will directly benefit our customers and top line growth. Although wecontinue to see costs rising ahead of inflation in many areas, we arecontrolling non customer facing costs well. Our plan remains the same. While competition remains intense, we are focusing ondriving profitable revenues and market share. We continue to improve and developour customer offer in core areas through better product while also drivingservice levels and improving store environment. Opportunities to stretch ourbrand into new products and services and to broaden the business across newchannels and overseas are now being pursued. Trading for the first five weeks of the third quarter is in line with the firsthalf run rate, despite tougher comparatives. We believe we are well positionedfor the all important Christmas period." Driving the business - Product, Service, Environment Footfall increased significantly with 19 million more visits over the half,driven by better values, with style and innovation. Market share in clothing increased by 90 basis points to 10.1%, reinforcing ourposition as the largest clothing retailer in the UK by both value and volume.Market share improved in all product areas. Foods also increased market share. Buying efficiencies and increased volume delivered a gross margin increase of100 basis points. We continue to listen to our customers and brand momentum continues to improve,supported by strong advertising. The effectiveness of the 'Your M&S' campaignwas acknowledged when it won the Grand Prix at the recent 2006 IPA EffectivenessAwards. Product General Merchandise Quality and value remain our key drivers. Opening price points now representaround a third of our sales. Price deflation for the half was 5%, slowing in thesecond quarter as we came up against price reductions made last year. Volumeswere up 17% over the same period. Gross margins increased by 170 basis points, driven by better sourcing. Weopened our office in Shanghai to add to our offices in Bangalore, Colombo,Dhaka, Hong Kong, and Istanbul. We now employ some 200 people overseas. Delhiwill open in the second half. Stock control and speed to market continues to bea prime focus. Womenswear made excellent progress with market share up from 9.4% to 10.5%. Coreproduct performed well and our fast fashion ranges give us more fashionauthority. Colour palettes have been strong and on target. We continue to refineour branding and segmentation to ensure we offer clear and focussed ranges. Peruna continues to make strong progress. We now have a complementary offer ofwomenswear, enabling us to target the widest range of customers of any generalmerchandise retailer. Lingerie performed well with market share up from 24.1% to 25.6%. We are thedestination shop for lingerie in the UK. Our aspirational Autograph brand hasnow been extended into lingerie. Menswear had an excellent half, building on its already strong base. Marketshare is up from 8.3% to 9.0%. Our branding is clear - Autograph, Blue Harbourand Collezione are understood by their target customers. Childrenswear made its first market share improvement for six years, up from4.0% to 4.4%. Both Boyswear and Girlswear are improving rapidly. Fast fashion isbeing used to deliver newness and excitement. Our Back to School campaign wasparticularly strong. Home continues to grow. Having improved values across the ranges last year, theintroduction of premium product such as the newly launched Autograph bedroom andbathroom ranges is enabling us to further stretch our price architecture whileoffering our customers greater choice. Furniture has performed well. We now havemore authority across our core Home offer and are confident of further growth. Food Food had another successful half with total sales growing at twice the rate ofthe market. We continue to increase market share, up from 3.8% to 4.0%.Performance was driven by a relentless focus on quality, value and innovation,supported by powerful advertising. Our responsible approach to productdevelopment is being recognised by both our customers and campaigning and healthgroups. We have a leading market position through the innovative development of first tomarket ranges. We are able to respond to key customer trends for healthiereating and 30% of our catalogue is now marketed under the Eat Well logo. Weextended our Eat Well range by introducing new Nutritionally Balanced readymeals which, like the rest of our Eat Well range, are free of additives andpreservatives. We have completed the removal of trans fats from all our foodsand are the first UK retailer to have achieved this. There is increasing demandfor responsibly sourced, healthy food; our additive-free 'Cook!' and Specialityranges are well positioned to address this demand. Our value added organic foodrange was highlighted in our recent advertising campaign. During the half we also launched new products where socially responsible andethical considerations have helped to drive innovation. These included widerranges of Fairtrade and Organic products as well as Omega-3 enriched LochmuirSalmon which is bred to improved standards of animal welfare. Service There has been significant investment in staff training and career paths.Additionally we have increased pay rates to ensure competitiveness. We believethese investments will pay dividends through better service levels in ourbusiness. Mystery shopping scores continue to improve. This is more marked inour modernised stores. These improvements in service enabled us to cope with a17% increase in General Merchandise volumes and significantly higher footfall. Service initiatives in key areas such as Lingerie, Food and Menswear willcontinue to be rolled out. A serviced men's footwear concept in 16 stores givingbetter choice and service has been successful. Environment Property We have undertaken a complete review of our property portfolio. The keyobjective is to ensure that we are in the right place with the right spacemeeting the needs of tomorrow's customers. We have one of the strongest and mostrecognised brands in the UK which needs a powerful showcase. We have identified the following opportunities and over the next five yearswill: • enhance our presence in major city centres through extensions, redevelopments and relocations;• develop major out of town stores by extending existing space and seeking opportunities for new space;• grow our presence in retail parks;• develop our high street presence, expanding, relocating, consolidating or closing stores where appropriate;• continue to develop our Simply Food business opening more owned and franchised stores During this period, we expect to increase total owned space by 15-20% from 13.3million square feet at the half year end. Overall, while we expect to have morestores, the emphasis is on quality of space. Store Modernisations Our store modernisation programme remains a priority. The four trial storesopened in 2004/05 continue to materially outperform. The 17 stores opened in2005/06 have gained further momentum in the first half. Returns continue to bestrong. We have opened a further 45 stores since the year end which aredelivering strong incremental sales. We will have modernised 35% of our space byChristmas. We plan to have some 70% of our space modernised by Christmas 2007. In order toopen these stores well ahead of the peak third quarter, we will start some ofthese store modernisations in January this financial year. In addition, andfollowing on from our property review, we will begin a number of significantdevelopments in some of our key city centre and out of town stores. New Space During the half we opened stores in two retail parks in Teeside and AbbeyCentre, Belfast. Bolton Middlebrook opened in October. In the half year we added2% to our total footage on a weighted average basis, representing an increase of1.4% in General Merchandise and 3.4% in Foods. Our full year space guidanceremains unchanged. We continue to open more space in Foods. During the half we opened 29 new SimplyFood stores, 28 of which were acquired from Iceland last year. We are pleasedwith the performance of these stores. We expect to open around 20 stores in thesecond half, four of which have already opened. We have acquired 12 stores fromSomerfield, eight of which will open this financial year. The trial of a Simply Food offer in BP forecourt locations has been successfuland we have now agreed with BP to roll this concept out to more forecourtsstarting next year. We believe there is an opportunity in some 200 locationsgoing forward. Stretching the brand With the growing strength of the brand, we believe there are many opportunitiesfor us to stretch our brand into new product areas. In Foods, new initiatives, such as Hot Food to Go, Eat Over Delis and morerecently a restaurant in Newcastle have been welcomed by customers. Our trial of electrical products last year has now been extended in 13 storeswith a wider offer including LCD TVs, DVDs, hi-fi, and laptops linked with anumber of guest brands. While it is early days we are pleased with customerreaction. E-commerce Our on-line business continues to grow strongly from a relatively small base. Werecognise the significant opportunity to develop this channel and together withAmazon have been working to redevelop our website to improve functionality andcustomer experience. We have restructured e-commerce which has now become abusiness unit in its own right. We will re-launch our web-site in Spring 2007. International International made good progress over the half. Our owned stores in the Republicof Ireland and Hong Kong performed well. The Republic of Ireland deliveredstrong sales growth, reflecting good underlying like for like performance, theopening of new stores in Drogheda and Newbridge, and the full year benefit ofstores opened the previous year. During the half we modernised a third of ourexisting space. Hong Kong performance was also robust, despite the closure ofone store and relocation of two stores in the second half of last year. Our franchise operations also delivered a strong performance. During the halfour franchisees opened a net of seven stores, including our first stores inGeneva, Riga, and Sofia, as well as adding to stores to our existing franchisesin Greece, Hungary, India, Indonesia, Philippines, Romania, Singapore andTurkey. We expect to open around 15 stores in the second half, including newstores in Russia, India and a 52,000 square foot store in Festival City, Dubai. Corporate Social Responsibility Social responsibility and ethical trading is deeply rooted in our business. Wecontinue to develop our 'Look behind the label' campaign to tell our customersabout the effort that goes into ensuring that Marks & Spencer products areproduced in a safe and ethical way. We receive wide recognition for our progressin this area. • In July, M&S won Business in the Community's Company of the Year Award for the second time - the only company to do so.• We received awards for our Breakthrough Breast Cancer cause-related marketing campaign and Marks & Start employability programme. We are now in our sixth year of supporting the Breakthrough Breast Cancer campaign and in October's Breast Cancer Awareness Month our customers helped us to raise £600,000.• In the recent 2006 RSPCA Good Business Awards we won the Fashion and Food categories and came runners-up in cosmetics based on our animal welfare standards.• We have been working closely with the Fairtrade Foundation on our range of Fairtrade food, clothing and home products which will be extended in the Spring.• For the second year running, Greenpeace rated Marks & Spencer as the best food retailer for sourcing fish from well managed sources. We recognise that there is much to do and are currently reviewing our total CSRpolicy to ensure that it meets the demands of customers today. Summary In summary the business is in good shape. Our investment in our core business ispaying off. These results show that a combination of great value stylishproduct, exciting stores and good service are what customers want. We are nowlooking ahead for opportunities to drive the business and to broaden thebusiness to new channels and overseas. Financial Review: Summary of Results: unaudited* 26 weeks ended 30 Sept 2006 1 Oct 2005** % inc £m £m Total revenue 3,929.4 3,541.5 +11.0UK 3,647.9 3,302.3 +10.5International 281.5 239.2 +17.7 Operating profit before asset disposals 447.4 366.1 +22.2UK 407.4 335.9 +21.3International 40.0 30.2 +32.5 Profit before tax and asset disposals 405.1 306.5 +32.2Profit/(loss) on property disposals 1.4 (0.8)Profit before tax 406.5 305.7 +33.0 Adjusted earnings per share 16.6p 12.7p +30.7Dividend per share (declared) 6.3p 4.8p +31.3 * From continuing operations **2005/06 comparatives have been restated to exclude the results of Kings SuperMarkets which was disposed of in April 2006. Revenues Total revenues were up 11% with strong performances in both UK andInternational. Revenue growth by area, by quarter in the UK was: Q1% Q2% H1% RevenueClothing +10.7 +9.3 +10.0Home +23.3 +17.7 +20.3General Merchandise +11.7 +10.0 +10.9Food +9.2 +10.9 +10.1Total +10.4 +10.5 +10.5 Like-for-Like Q1% Q2% H1%General Merchandise +10.5 +7.9 +9.2Food +5.8 +4.7 +5.3Total +8.2 +6.4 +7.3 International revenues were up 17.7% with strong performances in both owned andfranchised stores, up 14.7% and 22.5% respectively. Operating profit Operating profit was £448.8m, up 22.9%. Operating profit before asset disposalswas £447.4m, up 22.2%. In the UK, operating profit before asset disposals was up 21.3% at £407.4m.This reflects strong revenue growth and a further increase in the gross marginby 100 basis points to 43.6%, representing 170 basis points in the GeneralMerchandise gross margin to 53.2%, and 30 basis points in the Food gross marginto 34.3%. Full year gross margin is expected to be broadly in line with the 100basis point improvement in the first half. UK operating costs, before bonus accrual, were up 11.3% to £1,161.3m (£1,043.7mlast half year). This increase reflects the previously highlighted costpressures being faced by the business in areas such as energy, fuel, rent andrates, plus the growth in the business which has encouraged us to make furtherinvestment in our staff, stores and in marketing. A breakdown of UK operatingcosts for the half is shown below: 26 weeks ended 30 Sept 2006 1 Oct 2005 Var % £m £m Retail staffing costs 389.6 327.7 +18.9Retail occupancy costs 350.7 321.7 +9.0Distribution costs 150.7 140.0 +7.6Marketing & related costs 59.6 47.6 +25.2Support costs 210.7 206.7 +1.9Total before bonus 1,161.3 1,043.7 +11.3Bonus 33.1 29.7 +11.4Total 1,194.4 1,073.4 +11.3 The increase in retail staffing costs reflects the impact of space growth,additional staffing in our stores to manage growth in the business and toenhance service to our customers, and the one-off impact of the changes we madeto pay structures in October last year. The increase in retail occupancy costsreflects space growth, accelerated depreciation on the store modernisationprogramme, and higher energy costs. Distribution costs increased, but below thelevel of sales growth for the half and well below volume growth. We investedfurther in marketing, including advertising and promotion, and this hassupported our top line sales growth. Support costs, which include other nonstore related overheads, were broadly level on the year. We have made aprovision for bonus of £33.1m (last half year £29.7m). Bonus payment for 2006/07will depend on the full year financial performance of the Group. In the second half, we expect the rate of cost growth to be slower than in thefirst. Our revised full year guidance for cost growth is now around 9%. The UK operating profit includes a contribution of £11.4m (last half year £2.4m)from the Group's continuing economic interest in M&S Money. International operating profit increased by 32.5% to £40.0m due to strong salesperformance in both owned and franchised stores. Interest Net interest expense was £42.3m compared to £59.6m last half year. This largelyreflects the reduction in average net debt which was £1.7bn (£2.1bn last halfyear). The average rate of interest on borrowings for the year was 5.9% (lasthalf year 5.8%). 26 weeks ended 30 Sept 2006 1 Oct 2005 £m £m Interest payable (59.3) (71.8)Interest receivable 7.0 4.0Net interest payable (52.3) (67.8)Pension finance income 10.0 8.2Total (42.3) (59.6) Taxation The tax charge reflects an estimated effective tax rate for the full year of31.0%, compared to 30.2% last full year. Shareholder returns and dividends Adjusted earnings per share from continuing operations, which excludes theeffect of asset disposals, increased by 30.7% to 16.6p per share. The averagenumber of shares in issue during the period was 1,684.2m (last half year1,660.5m). The Board is proposing an interim dividend of 6.3p per share (last half year4.8p per share), an increase of 31.3%. This is in line with the dividend policyannounced in May, to grow the half year dividend in line with adjusted EPSgrowth. Capital expenditure Capital expenditure for the half totalled £390.7m compared with £174.8m lasthalf year, reflecting the roll-out of the store modernisation programme and newspace. Capital expenditure for the full year is expected to be £750m to £800m, which ishigher than indicated in May. This reflects the planned earlier start to the2007 modernisation programme in January, which means that £120m of capital spendis being brought forward from 2007/08. Modernisation costs remain £80 to £90 persquare foot. In addition, we will be starting the development of a small numberof our key city centre and out of town stores following the property review.This will add a further £50m to capital spend. Finally, this guidance includescapital expenditure of £60m relating to the acquisition and conversion of the 12stores acquired for Simply Food from Somerfield. Capital expenditure for 2007/08 is expected to be at least at the same level as2006/07. Cash flow and net debt The Group reported a net cash outflow of £33.5m in the first half (last halfyear inflow £246.3m). Increased investment into stock, in line with the growthin revenues, and payment of the year-end bonus resulted in a net outflow of£94.4m on working capital. Net capital expenditure was up at £301.3m, primarilyreflecting the store modernisation programme. We paid out £99.1m in interest andtax and £142.1m in dividends and share issues. As a result, net debt at the endof the half year was £1,745.6m (last half year £2,025.5m). Pensions The Group IAS 19 deficit at the half year was £1,051.4m (£794.9m at 1 April2006). The IAS 19 liability at 30 September 2006 for the UK defined benefitscheme has been estimated using the revised demographic and actuarialassumptions contained in the preliminary actuarial valuation. The £256.5mincrease in the Group's net post-retirement liability is driven largely by theapplication of these updated assumptions. However, this is an accountingvaluation and subject to high volatility. Statements made in this announcement that look forward in time or that expressmanagement's beliefs, expectations or estimates regarding future occurrences andprospects are "forward-looking statements" within the meaning of the UnitedStates federal securities laws. These forward-looking statements reflect Marks &Spencer's current expectations concerning future events and actual results maydiffer materially from current expectations or historical results. Any suchforward-looking statements are subject to various risks and uncertainties,including failure by Marks & Spencer to predict accurately customer preferences;decline in the demand for products offered by Marks & Spencer; competitiveinfluences; changes in levels of store traffic or consumer spending habits;effectiveness of Marks & Spencer's brand awareness and marketing programmes;general economic conditions or a downturn in the retail or financial servicesindustries; acts of war or terrorism worldwide; work stoppages, slowdowns orstrikes; and changes in financial and equity markets. For further information, please contact: Investor Relations: Media enquiries:Amanda Mellor +44 (0)20 8718 3604 Corporate Press Office: +44 (0)20 8718 1919Majda Rainer +44 (0)20 8718 1563 Investor & Analyst webcast: There will be an investor and analyst presentation at 09.30 (BST) on Tuesday 7November 2006: This presentation can be viewed live on the Marks and SpencerGroup plc website on www.marksandspencer.com/thecompany Video interviews with Stuart Rose, Chief Executive and Ian Dyson, Group FinanceDirector are be available on http://w3.cantos.com/06/marksandspencer/thecompanyand on http://www.cantos.com. The interviews are also available in audio andtranscript. Consolidated income statement 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 Notes £m £m £m Revenue - continuing operations 2 3,929.4 3,541.5 7,797.7 Operating profit - continuing operations 3 448.8 365.3 850.1 Interest payable and similar charges (59.3) (71.8) (134.9)Interest receivable 17.0 12.2 30.5 Profit on ordinary activities before taxation - continuing operations 406.5 305.7 745.7 Analysed between:Before property disposals 405.1 306.5 751.4Profit/(loss) on property disposals 1.4 (0.8) (5.7) Income tax expense 4 (126.0) (95.3) (225.1) Profit on ordinary activities after taxation - continuing operations 280.5 210.4 520.6 Profit from discontinued operations 5 0.8 2.2 2.5 Profit for the period attributable to shareholders 281.3 212.6 523.1 Earnings per share 6A 16.7p 12.8p 31.4pDiluted earnings per share 6B 16.5p 12.7p 31.1pEarnings per share from continuing operations 6A 16.7p 12.7p 31.3pDiluted earnings per share from continuing 6B 16.5p 12.6p 31.0poperations Non-GAAP measure:Adjusted profit before tax (£m) 1 405.1 306.5 751.4 Adjusted earnings per share from continuing 6A 16.6p 12.7p 31.4poperationsAdjusted diluted earnings per share from continuing operations 6B 16.4p 12.6p 31.1p Consolidated statement of recognised income and expense 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £mProfit for the period attributable to shareholders 281.3 212.6 523.1 Foreign currency translation differences (13.0) 4.9 11.1Actuarial losses on retirement benefit obligations (244.4) (142.0) (169.3)Tax on items taken directly to equity 86.9 49.2 80.7Hedging reserve- fair value movement 7.6 (8.4) (3.1)- recycled and reported in net profit - 0.6 (1.4)- amount recognised in inventories (4.8) 1.7 (3.8)Net losses not recognised in the income statement (167.7) (94.0) (85.8) Total recognised income and expense for the period 113.6 118.6 437.3Effect of changes in accounting policy:First time adoption of IAS 39 (net of tax) (1.9) (1.9) Consolidated balance sheet As at As at As at 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £mASSETSNon-current assetsIntangible assets 172.8 162.4 163.5Property, plant and equipment 3,823.0 3,600.2 3,575.8Investment property 38.4 38.5 38.5Investments in joint venture 9.2 8.6 9.0Other financial assets 3.0 3.4 3.3Trade and other receivables 236.5 209.3 242.8Derivative financial instruments - 75.9 -Deferred income tax assets 102.5 50.2 35.5 4,385.4 4,148.5 4,068.4 Current assetsInventories 466.2 405.5 374.3Other financial assets 48.3 51.2 48.8Trade and other receivables 225.3 197.6 210.5Derivative financial instruments 66.7 8.1 76.4Cash and cash equivalents 218.9 321.1 362.6Assets of discontinued operation - - 69.5 1,025.4 983.5 1,142.1 Total assets 5,410.8 5,132.0 5,210.5 LIABILITIESCurrent liabilitiesTrade and other payables 953.3 837.8 867.8Derivative financial instruments 6.3 7.3 8.0Borrowings 915.1 504.4 1,052.8Current tax liabilities 89.9 62.9 58.7Provisions 7.0 14.5 9.2Liabilities of discontinued operation - - 20.5 1,971.6 1,426.9 2,017.0 Non-current liabilitiesBorrowings 1,159.5 1,954.8 1,133.8Retirement benefit obligations 1,051.4 778.4 794.9Other non-current liabilities 76.7 74.5 74.8Derivative financial instruments 6.6 12.7 9.5Provisions 17.7 20.1 19.1Deferred income tax liabilities 6.1 4.7 6.1 2,318.0 2,845.2 2,038.2 Total liabilities 4,289.6 4,272.1 4,055.2 Net assets 1,121.2 859.9 1,155.3 EQUITYCalled up share capital - equity 421.7 415.7 420.6Share premium account 173.7 117.9 162.3Capital redemption reserve 2,168.5 2,108.1 2,113.8Hedging reserve (5.0) (6.0) (8.0)Other reserves (6,542.2) (6,542.2) (6,542.2)Retained earnings 4,904.5 4,766.4 5,008.8Total equity 1,121.2 859.9 1,155.3 Consolidated cash flow information CASH FLOW STATEMENT 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 Notes £m £m £mCash flows from operating activitiesCash generated from operations - continuing 9A 494.7 498.8 1,183.6Cash generated from operations - discontinued 9B 0.7 7.5 13.9Tax paid (74.7) (23.6) (101.5)Net cash inflow from operating activities 420.7 482.7 1,096.0 Cash flows from investing activitiesDisposal of subsidiary, net of cash disposed 48.5 - -Capital expenditure and financial investment 9C (300.6) (63.7) (266.3)Interest received 7.2 3.5 12.9Net cash outflow from investing activities (244.9) (60.2) (253.4) Cash flows from financing activitiesInterest paid (31.6) (47.2) (142.8)Debt financing 9D (145.5) (152.5) (420.0)Equity dividends paid (154.6) (124.3) (204.1)Other equity financing 9E (5.9) 12.5 55.8Net cash outflow from financing activities (337.6) (311.5) (711.1) Net cash (outflow)/inflow from activities (161.8) 111.0 131.5Effects of exchange rate changes (1.4) 1.2 1.6Opening net cash 282.4 149.3 149.3Closing net cash 119.2 261.5 282.4 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £mOpening net debt (1,729.3) (2,277.2) (2,277.2) Net cash (outflow)/inflow from activities (161.8) 111.0 131.5Cash inflow from decrease in current financial (0.4) (17.2) (1.0)assetsCash outflow from decrease in debt financing 145.5 152.5 420.0Debt financing net of liquid resources disposed with (16.8) - -subsidiaryFair value movement on derivatives 19.4 3.9 (3.7)Exchange and other movements (2.2) 1.5 1.1Movement in net debt (16.3) 251.7 547.9 Closing net debt (1,745.6) (2,025.5) (1,729.3) 1 General information and basis of preparation The results for the first half of the financial year have not been audited and are prepared on the basis of theaccounting policies set out in the Group's 2006 Annual Report and Financial Statements. The financialinformation has been prepared in accordance with the Listing Rules of the Financial Services Authority. The summary of results for the year ended 1 April 2006 does not constitute the full financial statements withinthe meaning of s240 of the Companies Act 1985. The full financial statements for that year have been reportedon by the Group's auditors and delivered to the Registrar of Companies. The audit report was unqualified anddid not contain a statement under s237(2) or s237(3) of the Companies Act 1985. The Directors believe that the 'adjusted' profit and earnings per share measures provide additional usefulinformation for shareholders on underlying performance of the business, and are consistent with how businessperformance is measured internally. It is not a recognised profit measure under IFRS and may not be directlycomparable with 'adjusted' profit measures used by other companies. 2 Revenue The Group's primary reporting segments are geographic, with the Group operating in two geographic areas beingthe UK and International. The geographic segments disclose revenue and operating profit by destination andreflect management responsibility. Within each geographic segment the Group sells both Food and GeneralMerchandise and secondary segment disclosure is given for revenue. 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £m UK Retail 3,647.9 3,302.3 7,275.0 International RetailOwned stores(1) 169.8 148.0 324.2Franchised stores 111.7 91.2 198.5 281.5 239.2 522.7 Total revenue 3,929.4 3,541.5 7,797.7 (1) Owned stores consists of the Marks & Spencer owned businesses in the Republic of Ireland and Hong Kong. 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £m UK RetailGeneral Merchandise 1,800.0 1,623.3 3,644.4Food 1,847.9 1,679.0 3,630.6 3,647.9 3,302.3 7,275.0International RetailGeneral Merchandise 196.2 169.3 366.0Food 85.3 69.9 156.7 281.5 239.2 522.7 Total revenue 3,929.4 3,541.5 7,797.7 3 Operating profit 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £m UK Retail(1)Before property disposals 407.4 335.9 790.1Property disposals 1.4 (0.7) (5.6) 408.8 335.2 784.5International RetailOwned stores 20.9 15.2 35.8Franchised stores 19.1 15.0 29.9Before property disposals 40.0 30.2 65.7Property disposals - (0.1) (0.1) 40.0 30.1 65.6 Total operating profit 448.8 365.3 850.1 (1) UK Retail operating profit includes a contribution of £11.4m (last half year £2.4m) from M&S Money under theterms of our arrangement with HSBC. 4 Taxation The taxation charge for the 26 weeks ended 30 September 2006 is based on an estimated effective tax rate of31.0% (last full year 30.2%). 5 Discontinued operations 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £m Revenue 13.0 109.3 228.2Cost of sales (8.2) (69.0) (144.7)Gross profit 4.8 40.3 83.5Net operating expenses (4.5) (37.9) (80.5)Net interest receivable - 0.1 0.2Profit before tax 0.3 2.5 3.2Taxation on results - (0.3) (0.7)Profit after tax 0.3 2.2 2.5 Gain on disposal of subsidiary net assets 0.5 - -Taxation - - -Net gain on disposal 0.5 - - Profit from discontinued operations 0.8 2.2 2.5 On 31 March 2006, the Group announced the sale of Kings Super Markets Inc to a US investor group for $61.5mexcluding cash in the business at the date of disposal. The disposal of the business was completed on 28 April2006. 6 Earnings per share The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number ofordinary shares in issue during the period. The adjusted earnings per share figures have been calculated in addition to the earnings per share required byIAS 33 - 'Earnings per Share' and are based on earnings excluding the effect of property disposals. These havebeen calculated to allow the shareholders to gain an understanding of the underlying trading performance of theGroup. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assumeconversion of all dilutive potential ordinary shares. The Group has only one class of dilutive potentialordinary shares being those share options granted to employees where the exercise price is less than the averagemarket price of the Company's ordinary shares during the period. Details of the adjusted earnings per share are set outbelow: 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £m Earnings after tax and non-equity dividends 281.3 212.6 523.1Profit from discontinued operations (0.8) (2.2) (2.5)Earnings after tax and non-equity dividends - continuing 280.5 210.4 520.6Property disposals (net of taxation) (1.4) 0.8 2.0Adjusted earnings after tax and non-equity dividends - continuing 279.1 211.2 522.6 Weighted average number of ordinary shares in issue (millions) 1,684.2 1,660.5 1,667.0Potentially dilutive share options under Group's shareoption schemes (millions) 22.6 11.6 14.5 1,706.8 1,672.1 1,681.5 A Basic earnings per shareWeighted average number of ordinary shares in issue (millions) 1,684.2 1,660.5 1,667.0 Basic earnings per share (pence) 16.7 12.8 31.4Profit from discontinued operations per share (pence) - (0.1) (0.1) Basic earnings per share - continuing (pence) 16.7 12.7 31.3Property disposals per share (pence) (0.1) - 0.1Adjusted basic earnings per share - continuing (pence) 16.6 12.7 31.4 B Diluted earnings per shareWeighted average number of ordinary shares in issue (millions) 1,706.8 1,672.1 1,681.5 Diluted earnings per share (pence) 16.5 12.7 31.1Profit from discontinued operations per share (pence) - (0.1) (0.1) Diluted earnings per share - continuing (pence) 16.5 12.6 31.0Property disposals per share (pence) (0.1) - 0.1Diluted adjusted basic earnings per share - continuing (pence) 16.4 12.6 31.1 7 Dividends 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £m Final dividend of 9.2p per share (last year 7.5p per share) 154.6 124.3 124.3Interim dividend of 4.8p per share - - 79.8 154.6 124.3 204.1 The Directors have approved an interim dividend of 6.3p per share (last half year 4.8p per share) which, in linewith the requirements of IAS 10 - 'Events after the Balance Sheet Date', has not been recognised within theseresults. This results in an interim dividend of £106.3m (last half year £79.8m) which will be paid on 12 January2007 to shareholders whose names are on the Register of Members at the close of business on 17 November 2006.The ordinary shares will be quoted ex dividend on 15 November 2006. Shareholders may choose to take thisdividend in shares or in cash. 8 Statement of changes in shareholders' equity 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £m Opening shareholders' equity 1,155.3 841.6 841.6Profit for the period attributable to shareholders 281.3 212.6 523.1Dividends (154.6) (124.3) (204.1)Purchase of shares held by employee trusts (18.4) - (6.0)Shares issued on exercise of share options 12.5 12.5 61.8Actuarial losses on retirement benefit obligations (244.4) (142.0) (169.3)Foreign currency translation differences (13.0) 4.9 11.1Charge for share-based payments 12.8 11.5 24.7Tax on items taken directly to equity 86.9 49.2 80.7Profit/(loss) on cash flow hedges deferred in equity 2.8 (6.1) (8.3)Closing shareholders' equity 1,121.2 859.9 1,155.3 9 Cash flow analysis 26 weeks ended Year ended 30 Sept 2006 1 Oct 2005 1 Apr 2006 £m £m £mA Cash flows from operating activities - continuingProfit on ordinary activities after taxation 280.5 210.4 520.6Income tax expense 126.0 95.3 225.1Interest payable and similar charges 59.3 71.8 134.9Interest receivable (17.0) (12.2) (30.5)Operating profit 448.8 365.3 850.1Increase in inventories (92.4) (65.3) (42.2)Decrease/(increase) in receivables 3.4 15.2 (4.1)Payments to acquire leasehold properties - - (38.0)(Decrease)/increase in payables (5.0) 58.1 128.0Exceptional operating cash outflow (0.5) (11.5) (14.6)Depreciation and amortisation 129.0 124.7 274.0Share-based payments 12.8 11.5 24.7(Profit)/loss on property disposals (1.4) 0.8 5.7 494.7 498.8 1,183.6 B Cash flows from operating activities - discontinuedProfit on ordinary activities after taxation 0.8 2.2 2.5Profit on sale of business (0.5) - -Income tax expense - 0.3 0.7Net interest receivable - (0.1) (0.2)Operating profit 0.3 2.4 3.0Decrease in working capital 0.1 1.6 3.5Depreciation and amortisation 0.3 3.5 6.3Loss on property disposals - - 1.1 0.7 7.5 13.9 C Capital expenditure and financial investmentPurchase of property, plant and equipment (286.6) (111.8) (298.5)Proceeds from sale of property, plant and equipment 1.5 37.5 45.1Purchase of intangible fixed assets (16.2) (3.6) (10.9)Sale/(purchase) of non-current financial assets 0.3 (3.0) (3.0)Sale of current available for sale investments 0.4 17.2 1.0 (300.6) (63.7) (266.3) D Debt financingCash outflow from borrowings - (144.6) (144.6)Repayment of syndicated bank facility - - (200.0)Redemption of securitised loan notes (1.4) (1.6) (3.1)Redemption of medium term notes (92.2) - (58.3)Increase/(decrease) in obligations under finance 2.8 (1.0) (3.0)leasesRedemption of B shares (54.7) (5.3) (11.0) (145.5) (152.5) (420.0) E Other equity financingShares issued under employee share schemes 12.5 12.5 61.8Net purchase of own shares held in employee trusts (18.4) - (6.0) (5.9) 12.5 55.8 Independent review report to Marks and Spencer Group plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2006 which comprises the consolidated interimbalance sheet as at 30 September 2006 and the related consolidated interimstatements of income, cash flows and consolidated statement of recognised incomeand expense for the six months then ended and related notes. We have read theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis ofpreparation set out in note 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the Listing Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent inwriting. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon6 November 2006 Notes: (a) The maintenance and integrity of the Marks and Spencer Group plc website isthe responsibility of the directors; the work carried out by the auditors doesnot involve consideration of these matters and, accordingly, the auditors acceptno responsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Marks & Spencer