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Marks & Spencer sees profits before tax decline 5.4 percent for FY18

London - Marks and Spencer Group Plc saw its profit before tax and adjusting items fall 5.4 percent to 580.9 million pounds for the 52 weeks to March 31, 2018 down from 613.8 million pounds in 2017 as its transformation plan is well underway.

The department store group attributed this decline to the decrease in Food gross margin as it announced its full-year results for the 52 weeks on Wednesday morning. Group revenue grew 0.7 percent for the year to 10,698.2 million pounds as M&S reported significant adjusting items of 514.1 million pounds for 52 weeks to March 31, 2018.

Marks & Spencer Group revenue up 0.7 percent for the 52 weeks to March 31, 2018

These adjusted results are said to be consistent with how M&S’s business performance is measured internally as it undergoes its transformation plan and results for FY18 include 321.1 million pounds stemming from its UK store estate closure programme. In addition, M&S reported strong cash generation, even after restructuring costs reduced net debt by 107.2 million pounds, enabling the group to maintain a full year dividend of 18.7p.

“At our half-year results in November I outlined the need for accelerated change at M&S. The first phase of our transformation plan, restoring the basics, is now well under way and the actions taken have increased the velocity of change running through our business. These changes come with short term costs which are reflected in today’s results,” said Steve Rowe, Marks & Spencer CEO in a statement.

Total UK sales grew 1.8 percent to 9,611.0 million pounds as UK costs were up 1.8 percent during the year due to costs of new space, inflation and channel shift offset by efficiencies and lower incentive costs. International sales fell 7.9 percent to 1,087.2 million pounds during the year while International profit before adjusting items more than doubled to 135.2 million pounds. This is said to be a result of M&S's successful exit of loss-making owned markets and favourable currency effects.

Clothing & Home revenue fell 1.4 percent to 3,741.1 million pounds for the 52 weeks to March 31, 2018, with like-for-like revenue down 1.9 percent. M&S attributed this decline to the planned removal of two clearance sales and unseasonal trading conditions during the second half of the year. M&S highlighted the continued migration of shopping for clothing and home online, together with the development of global competition and discounters as threats to its business and market position, which led to the decision to accelerate its transformation plan to modernise its business.

“Developments in the retail industry since then have reinforced our conviction about the need for the transformation of M&S,” said the group in a statement. “Changes in the high street and migration online mean that we have to be decisive with our store estate, renewing and closing stores more quickly. Our supply chains in both Clothing & Home and in Food require significant upgrades, so that we can be faster to market, reduce high stock levels in Clothing, and improve availability and waste in Food.”

Marks & Spencer revealed that the first phase of its transformation plan is focused on restoring the basics and getting its infrastructure fit for the future, a programme that is now underway. M&S has managed to reduce costs by at least 350 million pounds and created a platform for growth. In addition, the group is set to close 25 percent of its Clothing & Home space to as sales shift online and investing to increase and improve its commerce capacity to support its aim to double its online sales to more than 33 percent.

“There are a number of structural issues to address and we are taking steps towards fixing these,” added Rowe. “The new organisation will largely be in place by July and the team is now tackling transforming our culture to make M&S a faster, lower cost, more commercial, more digital business. This is vital as we start to leverage the strength of the M&S brand and values across a family of businesses to deliver sustainable, profitable growth in three to five years.”

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