Annual report and financial statements 2008

Group Finance and Operations Director’s statement

2007/08 was a year in which we made good progress in moving the business forward. Earnings per share were up 7.9%. At the same time as continuing to grow our earnings, we invested £1.1bn in our business to drive future growth, and also returned £914m to our shareholders via dividends and the share buy back.

Results

Sales were up 5.1% to over £9.0bn with a robust performance in the UK boosted by almost 5% of new space, and another strong year for International, where sales were up 16.8%. Gross margin in the UK was down slightly to 43%, but good control of our costs enabled us to deliver profit growth of 4.3% overall, to £1.0bn.

Our interest charge was up only 4.3%, despite a significant increase in net debt to £3.1bn, reflecting a much higher pension credit. With a low tax rate of 27% and a lower number of shares in issue, earnings per share were up 7.9% to 43.6p.

Investing in the business

Last year we invested £1,055m to support the future growth of the business. This investment was focused in three areas: UK property portfolio, International and supply chain and information technology (IT).

We modernised a further 35% of our store portfolio to take us to 70%. This included some major developments and extensions at stores such as Edinburgh, London Colney, Cheshunt, Lisburn and Braehead. We expect to modernise a further 10% of our estate in 2008/09. We also added space in line with our strategy to develop and expand the M&S footprint in the UK. In total we added 4.8% of new space, with 3% in general merchandise (GM) and 8.7% in food, reflecting the continued roll out of our successful Simply Food format. In 2008/09 we expect to add a further 5.5% of new space.

In International we continued to build our business in Ireland, and worked with our franchise partners to move the business forward. The biggest developments however, were the acquisition of controlling interests in our franchise businesses in Greece and the Balkans, and in the Czech Republic. We see substantial growth opportunities for these businesses over the coming year.

We have also moved on in establishing M&S in the exciting markets of China and India. We will open our first store in Shanghai in the autumn, and in India we have signed a deal with Reliance to develop M&S throughout this fast developing nation.

Underpinning our growth prospects is a plan to invest to upgrade our supply chain and our IT systems. This is a major programme that will enable us to grow our business effectively and efficiently. We will add logistics capacity in food and restructure our GM logistics, centred on the opening of fewer, larger distribution centres, beginning with Bradford in 2010/11. In IT we will implement new store systems, including POS, new trading systems and new support systems.

While we are sensitive to the economic environment, we are continuing to invest to move our business forward and intend to spend between £800m and £900m in capital expenditure in 2008/09.

A strong balance sheet

Our strong balance sheet underpins our future plans to invest in the business and gives us resilience against difficult market conditions. Our ratios remain strong and we retain ownership of 70% of our property portfolio.

The strength of our balance sheet enabled us to return more than £900m to our shareholders during 2007/08. Dividends increased by 23% and we bought back 7.4% of our share capital at a cost of £556m.

As Stuart has said, 2008/09 will be tough. We will manage our business accordingly but will also not lose sight of the longer term opportunity by continuing to invest in our business. This approach will, we believe, drive value for our shareholders over time.

 

Ian Dyson, Group Finance Director and Operations Director

Ian Dyson

Group Finance and Operations Director

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Ian Dyson, Group Finance and Operations Director

Ian Dyson

HIghlights

7.9%

Increase in earnings per share

£1.1bn

Capital expenditure

£914m

Returned to shareholders