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Marks & Spencer announced a revitalised UK Retail strategy on 29 March 2001, along with the intention to restructure the Group. More information about the planned restructure follows in this section. But first, here is an overview of the Group’s financial results for the year ended 31 March 2001.
Total Group sales were £8.1 billion from £8.2 billion last year; profit before tax and exceptional items was £480.9 million compared to a 52-week equivalent profit last year of an estimated £517.2 million*.
Exceptional charges of £335.4 million have been made, predominantly to provide for the costs of corporate restructuring, announced on 29 March this year. A final dividend of 5.3p (last year 5.3p) is proposed, making the total dividend for the year 9.0p (last year 9.0p).
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Turnover and operating profit, before exceptional items, were £6,293.0 million and £334.8 million respectively, compared to last year’s estimated levels (comparable 52 weeks) of £6,351.1 million and £386.8 million.
Here is a full-year sales analysis compared to a 52-week trading period last year. We calculate like-for-like sales by comparing total sales, with new and developed stores excluded.
|
Actual
sales % on
52 weeks
LY |
Like-for-like
sales % on
52 weeks
LY |
|
| Clothing, footwear & gifts |
–5.5 |
n/a |
| Home |
+11.5 |
n/a |
|
| –4.2 |
–6.3 |
| +3.7 |
+2.6 |
|
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The company's total UK selling space at the year end was 12.4 million sq ft, compared to an opening footage of 12.3 million sq ft.
The company reduced the average selling price of general merchandise by approximately 2.5% which, coupled with a decline of some 1.5% in the number of units sold, contributed to the overall fall in general sales. Within clothing, better buying practices resulted in a substantially improved primary margin. The net achieved margin percentage improved over last year’s level, despite a significant increase in the cost of markdowns. Overall food inflation was in the region of 1%.
UK Retail operating costs increased by 3.2% (on a 52-week comparative basis). The most significant increases were:
- higher property-related costs from developing the new look concept stores (£13.0 million);
- merchant service fees payable on third-party credit card transactions (£9.0 million) and inter-company fees payable to the Financial Services Division for the acceptance of the Marks & Spencer Chargecard (£16.2 million), this latter charge being treated as income in the results of the Financial Services Division.
The International Retail business consists of three broad geographic areas: Europe (including the Republic of Ireland but excluding the UK), North America and the Far East.
The International Retail results include those of our franchise businesses, which, at 31 March 2001, operated 125 franchise stores in 26 countries.
In Continental Europe, our turnover was £285.0 million compared to £278.6 million* last year. The operating loss was £34.0 million (last year £26.0 million)*. In the Republic of Ireland and European franchise businesses, our turnover was £263.3 million compared to £251.3 million* last year. Operating profit was £22.6 million. Last year it was £17.2 million*. All these figures are calculated using constant exchange rates. At year end we traded in 45 stores excluding franchises (last year 40 stores), covering 1,563,000 sq ft (last year 1,517,000 sq ft).
The Group operates two businesses in North America. Brooks Brothers’ turnover was £448.1 million compared to £427.3 million* last year. Operating profit was £20.2 million. Last year it was £6.4 million*. At Kings Super Markets, turnover was £313.1 million compared to £294.6 million* last year. Operating profit was £11.9 million. Last year it was £11.8 million*. All information has been calculated using constant exchange rates.
At 31 March 2001, Brooks Brothers traded in 221 stores (last year 222 stores) on 1,011,000 sq ft (last year 991,000 sq ft); Kings Super Markets had 27 stores (last year 25 stores) and 453,000 sq ft (last year 430,000 sq ft).
Sales increased by approximately 4% to £110.1 million from last year’s figure of £105.9 million*, and operating profit to £7.4 million. Last year showed a loss of £4.8 million*. All information has been calculated using constant exchange rates. At 31 March 2001, we operated 10 stores in Hong Kong with aggregate footage of 202,000 sq ft (last year 223,000 sq ft).
Pre-tax profits were £96.3 million compared to last year’s £115.9 million*. Within our Financial Services retailing activities, (excluding the captive insurance company), pre-tax profits were £81.5 million compared to last year’s £106.6 million*.
We started accepting credit cards in our stores last year, and sales transactions on the Marks & Spencer Chargecard fell from 26% of total sales to 22%. We reduced the interest rate on the Marks & Spencer Chargecard to a level comparable with third-party credit cards. Although this led to a substantial reduction in income, outstanding balances at the year-end were only slightly down from last year at £634 million (last year £646 million). The overall impact on Chargecard profitability was reduced by the inter-company receipt from UK Retail of £16.2 million and a reduction in operating expenses.
Profits from loan products fell as lower margin new business replaced higher margin loans taken out in previous years. New advances increased by 5% to £949 million, despite increasing competition. Start-up losses were incurred for Personal Lines insurance and Mortgage Protection Policies, both launched during the year.
Total exceptional charges of £335.4 million have been provided for. These comprise:
Continental Europe The Group has announced its intention to close loss-making businesses in Continental Europe, subject to the full consultation which the Board recognised would need to take place. The decision to carry out any such plan would only be taken after this consultation has been completed with the competent employee representative bodies and if no other solution has been found during the consultation. Net closure costs of £224.0 million have been provided for, covering future trading losses, losses on disposal of assets and redundancy costs.
Direct A provision of £35.5 million has been made, consisting of £16.5 million closure costs charged against operating profit and a £19.0 million loss on asset disposals.
Properties Closure of six satellite stores and the footage reduction in a further two stores (totalling 170,000 sq ft), announced in November, and taking place predominantly in the financial year 2001/2002, gave rise to a charge of £40.2 million. In addition, further charges have been made to provide for the development and disposal of approximately half of the Manchester store and the closure of stores in Salford, West Ealing and Torquay. The total provision for UK store closures and footage reductions, including the satellite closures, has therefore increased to £64.2 million.
Other A provision of £10.0 million has been made against operating profit for Head Office restructuring costs.
Group capital expenditure (gross) was £255.7 million in the year just ended, compared to last year’s £450.6 million.
We received shareholder approval at the July 2000 AGM to buy back up to 10% of issued shares. During the financial year, 10,619,272 shares were bought back in the market for a total consideration of £20.3 million, at an average price of 190.8p.
On 29 March 2001, the Group announced a revitalised strategy for UK Retail, together with the:
- intention to close the Continental European subsidiaries
- intention to close the Direct catalogue business in the UK
- sale of Brooks Brothers and Kings Super Markets in the US
- franchising of our subsidiary in Hong Kong
- release of value from almost half the property portfolio.
The Group will return £2 billion to shareholders by March 2002.
The progress on these announcements is as follows. Following our proposal to cease trading in our Continental European stores by the end of 2001, a period of consultation is underway in all affected countries. The timetable will reflect both the social legislation in each country and the interests of our people. We are committed to keeping our own staff and all relevant external audiences informed of progress.
We have exchanged contracts for the transition of our Warrington-based Direct call centre to Vertex, a subsidiary of United Utilities, and discussions continue regarding the future of the fulfilment centre. Morgan Stanley has been appointed to manage the sale of Brooks Brothers and Kings Super Markets. We have a team working, with advice from HSBC, to manage the transition of our Hong Kong business to a franchise operation. Regarding property, we are considering a series of measures from outright sale, to sale and leaseback, securitisation and secured debt, to allow us to release value from UK operational and non-operational properties.
* This year's financial reporting period covers 52 weeks, compared to a 53-week period last year. Comparisons with last year are with a figure adjusted to show a 52-week equivalent.
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