Capital expenditure

Gross capital expenditure increased by 21% in the year to £310 million. Of this, £116 million was spent on property (2009/10: £102 million). In the year £194 million was spent on fixtures, fittings and intangibles (2009/10: £154 million). A total of £87 million of proceeds from disposals were received during the year (2009/10: £59 million).

As detailed last year the Group has a rigorous approach to capital allocation and authorisation. The process includes:

• An annual strategic planning process based on detailed plans for all businesses for the next three years. This process drives the key strategic capital allocation decisions and the output is reviewed by the Board, twice a year.
• A capital approval process through a capital expenditure committee, attended by the Group Chief Executive, Group Finance Director, Group Property Director and the three regional CEOs as required. The committee is delegated to review all projects between £0.75 million and £15.0 million (including the capitalised value of lease commitments).
• Projects above this level are approved by the Board although all projects above £0.75 million are also notified to the Board.
• Clear investment criteria with challenging hurdle rates for IRR (Internal Rate of Return) and discounted payback.
• An annual post-investment review process to undertake a full review of all projects above £0.75 million which were completed in the last four years, together with a review of recent performance on all other existing stores. The findings of this exercise are considered by both the Retail Board and the Board and directly influence the Regional and Group Development Strategy and the assumptions for similar project proposals going forward.
• An annual review of return on capital by store is performed which drives plans to improve the returns of weaker stores.