Shares in the Marks & Spencer rose 20p sterling to 399p on relief at the absence of a dividend cut, despite a major collapse in 1998-99 "core" profitability and limited prospects for recovery in the current year.

Pre-tax profit, before exceptional items and changes in accounting treatments, crashed £500 million (€759 million) to £656 million on sales unchanged at £8.2 billion sterling.

While the profit out-turn is slightly better than feared, the board sought to reassure the share market by lifting dividend payments - but only increasing the final by a paltry 0.1p to 14.3p.

However, with net borrowings up £860 million at £1.18 billion and share analysts expecting only modest profit recovery this year, question marks are bound to remain over future dividend payments.

The collapse in "core" profitability was foreshadowed in the group's interim figures six months ago. A subsequent boardroom power battle led to the appointment of Mr Peter Salsbury as chief executive in place of Sir Richard Greenbury, who stayed on as chairman.

Mr Salsbury placed the blame for the £500 million profit fall on lower-than-expected sales leading to subsequent mark-downs to shift unsold stock, deterioration in overseas results and the cost of integrating the acquired Littlewoods stores business.

A statement from the company's Irish subsidiary said it continued to make strong progress. "It was a year of unparalleled growth for our Irish operation with retail space growing by over 60 per cent due to the addition of the Liffey Valley store and the completion of a major re-development programme," it said. It added that during the year under review, employment had increased by 30 per cent to 1,500.

However, the parent company said that overall overseas businesses, including the Republic, collapsed from 1997-98 operating profits before exceptional items of £67 million sterling to losses of £14.6 million. Like-for-like sales in local currencies fell 3.1 per cent.

Continuing strength of sterling against European currencies and the need to maintain good value in competitive markets had "a significant impact on margins" amounting to around £32 million. Although trading in Europe was below expectations, particularly in France, Germany and Spain, M & S directors went out of their way to emphasise that "the Republic of Ireland remains a strong part of our European operation".