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Annual report and financial statements 2012
Highlights of the year
Index
A
PAGe
F
PAGe
N
FINANCIAL HIGHLIGHTS
Group revenue
£9.9bn
2.0%
Group profit
before tax
Underlying Group
operating profit
£810.0m
1.8%
Underlying
earnings per share
£658.0m
15.7%
34.9p
0.3%
Underlying Group
profit before tax
£705.9m
1.2%
Interim + final dividend
6.2p+10.8p
=17.0p
level
UK
Our UK turnover has a
broadly even split
between Food and
General Merchandise
(Clothing and Home).
With 731 UK stores, we
sell high-quality, great
value food and are the
UK market leaders in
womenswear, lingerie
and menswear.
MULTI-CHANNeL
However they shop
with us – in stores,
online or by phone
– we aim to provide
the best and most
convenient shopping
experience for our
customers, from
purchase through
to delivery.
INTeRNATIONAL
With 387 stores in
43 territories across
Europe, the Middle
East and Asia,
we are growing
our international
presence to make
the M&S brand
more accessible to
customers around
the world.
Clothing & Home
revenue
£4.2bn
0.9%
Multi-channel*
revenue
£559m
18%
Food revenue
Weekly site visits
International
revenue
£1.1bn
5.8%
International
stores
387
26
£4.7bn
3.9%
Number of
UK stores
731
28 stores
3.4m
11.2%
Shop Your Way
Territories
455
11 stores
43
1 new territory
See page 15
See page 26
See page 28
PLAN A
We aim to become the world’s most sustainable retailer and our eco and
ethical programme is at the heart of how we do business.
Total Plan A
commitments
180
See page 30
Commitments
achieved
Commitments
on target
138
43
30
* Excluding VAT and is generated across the UK and International business. Last year published including VAT.
Accountability
Accounting policies
Audit Committee
Auditors’ remuneration
Auditors’ report
B
Board
Borrowing facilities
Brand
C
Capital commitments
Capital expenditure
Cash flow statement
Corporate governance
Cost of sales
Critical accounting estimates
and judgements
D
Deferred tax
Depreciation
Derivatives
Diluted earnings per share
Directors’ emoluments
Directors’ interests
Directors’ report index
Directors’ responsibilities
Dividend cover
Dividend per share
e
45
78
52
108
73
40
97
16
Finance costs/income
Finance leases
Financial assets
Financial instruments
Financial liabilities
Financial review
Fixed charge cover
Food
Footfall
G
104
Going concern
36
77
38
83
81
Goodwill
H
Hedging reserve
Home
I
103
79, 83, 95
80
74
65
63
72
72
110
108
Income statement
Intangible assets
Interests in voting rights
International Financial Reporting
Standards
International
Inventories
Investment property
K
Key Performance Measures
Kidswear
L
Lingerie
Earnings per share
86
M
Employees
Environment
32, 70, 87
Management Committee
30
Margin (gross)
Marketplace
Market value of properties
Menswear
Multi-channel
84
79
96
97
97
34
110
21
12
72
78
76
20
74
94
68
78
28
79
96
12
20
18
14
35
4
71
20
26
Nomination Committee
Non-GAAP performance
measures
P
Plan A
Principal risks and uncertainties
R
Remuneration Committee
Remuneration report
S
Segmental information
Shareholder information
Share capital
Share schemes
PAGe
51
84
30
45
54
54
82
111
68, 103
91
Statement of comprehensive income 74
Statement of financial position
Stores
Subsidiary undertakings
75
24
78
T
Taxation
TSR
Trade and other payables
Trade and other receivables
W
Womenswear
36, 79, 85
64
96
96
18
This report is printed on Revive Pure uncoated,
a 100% recycled paper made from post-consumer
collected waste. Revive Pure uncoated is
manufactured to the certified environmental
management system ISO 14001.
Designed and produced by Salterbaxter
Printed by Royle Print
“ In a challenging
marketplace M&S
has performed well,
as we continue to
make progress
against our plans.”
Marc Bolland
Chief Executive Officer
See page 08 for the Chief Executive’s overview
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How We Do Business Report
Read more about our progress
this year in our How We Do
Business Report 2012 at
marksandspencer.com/
hwdbreport2012
Plan A
For highlights of our performance
against Plan A go to page 30
of this report. For more detailed
information about Plan A go to
marksandspencer.com/plana
Discover more – go online
Wherever you see the ‘discover
more’ logo in this report it’s an
indication that we have video
content about the relevant
project in our online version
of the annual report
marksandspencer.com/
annualreport2012
discover
more
Overview
02
Chairman’s statement
Marketplace
04
How M&S creates value for its shareholders 07
D
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Strategic review
Chief Executive’s overview
– Our plan in action
– Performance against our plan
– People behind the plan
Our plan in action
Focus on the UK
– Our brand
– Clothing and Home
– Food
– UK stores
Multi-channel
International
Plan A
Our people
Financial review
Financial review
Governance
Chairman’s overview
Board of directors
Leadership
Effectiveness
Accountability
Engagement
Pensions governance
Nomination Committee
Audit Committee
Remuneration report
Other disclosures
Independent auditors’ report
08
10
12
14
15
16
18
21
24
26
28
30
32
34
38
40
42
44
45
49
50
51
52
54
68
73
Financial statements and other information
74
Consolidated income statement
Consolidated statement of
74
comprehensive income
Consolidated statement of financial position 75
Consolidated statement of changes in equity 76
77
Consolidated cash flow information
78
Notes to the financial statements
107
Company statement of financial position
Company statement of changes in
107
shareholders’ equity
Company statement of cash flows
107
Company notes to the financial statements 108
110
Group financial record
111
Shareholder information
IBC
Index
Chairman’s statement
Annual report and financial statements 2012
02
“Our plan has
stood the test
of continued
evaluation and
debate.”
Robert Swannell
Chairman
DIVIDEND
Interim dividend paid on
13 January 2012
6.2p per share
Final dividend to be paid
on 13 July 2012
10.8p per share
Total dividend for
2011/12
17.0p per share
My first full year as Chairman has been one of continued progress for M&S.
Our executive team has driven forward our business plans with consistency
and pace. The strategy, set out by Marc Bolland in November 2010, withstood
the test of continued evaluation by the Board. Despite challenging market
conditions that have put ongoing pressure on our customers’ budgets, we are
all agreed on our course. The key now is execution of our strategy to become
an international, multi-channel retailer.
As a Board, we have undertaken an
ordered transition towards our now
established governance structure.
We have in place a talented group of
individuals with a rich mix of experience.
We are unified by a shared ambition to
guide M&S to the very best future;
delivering sustainable growth as an
international, multi-channel retailer.
Performance and dividend
In a tough market, M&S has made
progress on a number of fronts, with
sales up 2%. Our results demonstrate
a good performance against our
strategic goals. We made important
improvements in our UK business –
enhancing our stores and products
and strengthening our brand.
Our Multi-channel business grew
ahead of the market and we saw
double digit growth in our priority
international markets.
We are committed to delivering
consistent returns to our shareholders.
We intend to pay a final dividend of
10.8p; in line with the dividend policy
set out last year.
Governance and the Board
Last year, I set three clear priorities for
the Board:
– First, to debate and agree the best
strategy for the Company and hold
the executive team accountable for
its execution;
– Second, to ensure we have the most
talented team to execute this strategy
and plan effectively for their succession;
– And finally, to set the tone of ‘doing
the right thing’, supported by the right
governance structures and their
effective implementation.
Over the last 12 months we maintained
our focus on these key aspects and will
continue to do so in the year ahead.
With implementation of our strategy
underway, the Board provided ongoing
enquiry and support to our executive
directors; ensuring they deliver the
business plan effectively and efficiently
in a difficult trading environment.
We looked carefully at our Board
composition, considering the skills
required to better inform our debate. We
recognised the need to strengthen our
consumer and international experience
and were therefore delighted to welcome
our two new non-executive directors;
Vindi Banga and Miranda Curtis, both of
whom have abundant expertise in these
fields. We will continue to ensure that we
have the right balance of skills as we
move forward.
Louise Patten and Sir David Michels
retired this year. I would like to thank
them both for their considerable
contributions to the Board and I must
pay particular tribute to David in his
roles as Deputy Chairman and Senior
Independent Director. I am delighted
that Jan du Plessis agreed to succeed
David as Senior Independent Director.
Having the right people in this business
is critical to our success. Over the last
12 months the Board has devoted more
time to ensuring we have the best team
to deliver the best results, not just today
but over the longer term.
As set out by Marc Bolland on page 14,
our executive directors are part of a
strong Management Committee, which
was further strengthened this year by the
arrival of Laura Wade-Gery as Executive
OverviewMarks and Spencer Group plc Annual report and financial statements 2012
03
Our governance principles
Leadership
Strategy, performance, responsibility
and accountability are at the heart
of your Board’s discussions. We
interrogate each area to ensure
high-quality decision-making, that in
turn drives a culture of continuous
improvement across the business.
See page 42 for Leadership
Effectiveness
Our performance is independently
reviewed on a regular basis to
ensure that the Board remains
focused, is provided with actions
for improvement and meets targets
for future improvement.
See page 44 for Effectiveness
Accountability
Strategic decision-making is
discussed within the context of risk,
ensuring that we understand and,
where possible, mitigate those risks
to which M&S is exposed.
See page 45 for Accountability
Engagement
Building relationships with private
and institutional investors is
fundamental to achieving our goals.
We do so through face-to-face
meetings and a range of
communications channels.
See page 49 for Shareholder Engagement
Director, Multi-channel E-commerce.
We continued to look ahead; focusing
on developing leadership and future
talent across the business to secure
robust succession plans.
None of this will inhibit your ability
to come to our AGM and hold us
accountable. That is your right
and, as ever, we encourage all our
shareholders, large or small, to attend.
As part of our ongoing efforts to engage
more closely with our shareholders, we
considerably improved the quality and
quantity of information available online.
I encourage you to explore and make
use of these enhanced resources at
marksandspencer.com/thecompany.
Looking ahead
We have a clear plan for the business
and we are committed to its execution.
We remain convinced that it is the
right course.
The retail environment remains
challenging in the UK, and in some of
our international territories. This only
serves to illustrate how vital it is that we
are listening to our customers, staying
true to our values and relentlessly
and consistently executing our strategy.
In doing so we will strengthen our
business and our relationships with
all our stakeholders in the future.
I never fail to be impressed by the
dedication and pride in their work
shown by our employees at all levels.
I would like to thank them for all they
do to make this business special.
Robert Swannell
Chairman
How we do business
I believe that openness and
transparency lie at the heart of good
business practice. This applies as much
to our readiness to embrace the rapid
change in a digital world, as it does to
our willingness to be accountable for
how we do business or learn when we
make mistakes.
Nowhere is this ethos more evident
than in Plan A. Five years since launch,
our environmental and ethical
programme continues to be at the heart
of how we do business. We have made
M&S a more efficient and more
innovative business; setting ourselves
ambitious targets and holding our
progress up for continual scrutiny, as
we further encourage our customers
and suppliers to get involved in Plan A.
We think it is right to continue to set
ourselves a high bar in this area. Our
customers, our shareholders and our
employees expect this of us and it
makes good business sense.
As a Board, we listened to the objective
feedback we received from last year’s
independent Board evaluation and
conducted a further external review of
our effectiveness this year. Details of
how we have implemented actions as a
result of these findings are outlined on
page 44 of the Governance section.
Shareholder engagement
The Notice of Meeting that accompanies
this report highlights some changes that
will be included in our AGM. Future
meetings will adopt a more businesslike
approach, with an earlier start time and
discussion focused on the performance
of the Company.
VIEW this annual report online
http://annualreport.marksandspencer.com
OverviewMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Marketplace
Annual report and financial statements 2012
04
Understanding the way our customers think and the factors that influence
their shopping behaviour is key to our success. Our Customer Insight Unit
(CIU) uses a combination of customer analytics and research to build an
accurate picture of the trends and issues that affect the decisions our
customers make.
What is happening in the
marketplace?
2011/12 was a year of continued
economic turbulence. UK Gross
Domestic Product (GDP) was revised
down during the year, as the
Government faced the difficult
challenge of tackling the deficit, whilst
stimulating economic growth. However,
consumers now have a greater
understanding of how to manage their
households through difficult times –
enabling them to better plan ahead.
Despite this clarity, confidence
remained fairly low as consumers felt
the impact of inflation on their shopping,
compounded by rising fuel prices.
Though inflation eased in early 2012
consumers have not felt the full benefit,
as incomes were hit by pay freezes,
reduced hours and cancelled overtime.
These factors contributed to a
decrease in market footfall of 1.6%, as
consumers had to make tough choices.
In this challenging environment, some
well-known retailers were faced with
administration and store closures.
Others responded with heavy
promotions – as retailers competed
fiercely for consumers’ limited
disposable income.
There were moments of light relief
during the year. The Royal Wedding
in April 2011 and Christmas provided
reasons to celebrate. However, these
events were also characterised by
heavy promotional activity and
measured spending from consumers.
How does this affect our customers?
Since the downturn of 2008,
consumers have been on a journey
of acceptance and, for many, 2011/12
was the year they took charge of their
budgets. Consumers acknowledged
that some rising costs, such as petrol,
were unavoidable, and instead focused
on spend that they were able to
manage. This positive action helped
customers regain a sense of control,
and optimism increased in the latter
part of the year.
However, finances remained tight, with
little flexibility in monthly spend. This
pressure, coupled with a greater focus
on housekeeping, meant consumers
increasingly shopped to a planned list.
They were not easily distracted by
promotions, using them as a shopping
strategy and actively seeking out value
in the form of clear, straightforward
deals on their planned purchases.
Priorities remained close to home,
with a renewed emphasis placed on
the value of family time, health and
wellbeing. Careful planning helped
consumers protect the things that
mattered to them most, such as
spending on their children. Special
occasions such as Christmas and
Mother’s Day were also ring fenced,
with an increased focus on more
traditional celebrations at home.
Consumer Barometer
We launched our Consumer
Barometer in June 2010. This ongoing
listening exercise enables us to track
trends and plan ahead based on
consumer sentiment and behaviour.
The Consumer Barometer comprises
a monthly online survey of a changing
sample of 4,000 people and covers
a range of topics from spending
patterns to future plans. We
undertake additional in-depth
research with a smaller sample,
which provides us with more detailed
insight into how consumers are
thinking and what influences their
decisions. We process the monthly
results within one week, to give the
business an instantaneous view of
customer needs. This up-to-date
insight allows us
to be agile in
our responses
– from timely
promotions to
great product
choice.
CuStOmEr INSIGht
“I still want quality
clothing that will last
but I’m prepared
to wait for a deal
before I buy.”
Our Gift to You Christmas promotion
Our high impact ‘25% off’ focused deals over
Christmas provided clear, stand-out value on the
items our customers wanted most.
OverviewMarks and Spencer Group plc Annual report and financial statements 2012
05
GFK CONSumEr CONFIDENCE INDEx
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1
Food has been at the heart of
customers’ celebrations at home.
Consumers looking to treat themselves
needed reassurance they were getting
something truly special and turned to
trusted retailers, especially for important
occasions. Our promotions catered
for this determination to enjoy time
with the family, as set out on page 16.
Consumers’ willingness to spend on
products that matter also played to our
strengths, as we continued to innovate
and expand our healthy eating ranges.
Macro-economic factors have made
everyday value a growing priority for
consumers. The launch of our new
Simply M&S range showcases the
fantastic value available on over 500 of
our customers favourite food products.
Product focus
Clothing: The overall market remained
static, with little movement in either
volume or value. Consumers continued
to invest in staple items, looking for
increased longevity and versatility.
‘Wearability’ was a priority as they
sought stylish pieces that would last
beyond the season, complementing
and updating their existing wardrobe.
Limited budgets also meant consumers
looked to retailers for clear fashion
direction; wanting the confidence that
they were buying the ‘right’ item to
refresh their look in line with each
season’s trends.
Quality remained important and
customers recognised the merits of
buying into higher price tiers, using
promotions as a way to make these
more affordable. Value was front of
mind and we took steps to address
this with our ‘Outstanding Value’
campaign explained on page 18.
However, spending on children’s
clothing was ring fenced as female
consumers in particular put family
priorities before themselves.
Through clearer differentiation of our
sub-brands – supported by dedicated
advertising – we made it easier for
customers to find the right items for
them to refresh their look. Improved
visual merchandising also helped us
show customers how to wear the
latest trends.
Home: The housing market continued
to be sluggish and sales of furniture
and other big ticket items remained
slow. Consumers found it difficult to
justify purchasing until replacements
could not be postponed any longer.
A sentiment of ‘making do’ prevailed,
but with socialising at home taking
the place of going out, consumers
refreshed and updated their homes
with smaller accessories.
Segmenting our Home offer under
more distinctive lifestyle categories has
helped provide customers with more
inspiration for easy room updates.
Food: Growth in the food market
this year came largely from price
inflation. Intense competition between
supermarkets resulted in a constant
stream of promotions, many of which
left consumers feeling confused.
Consumers used promotions as
a strategy to reduce weekly spend
and wanted genuine value from
uncomplicated deals on the items
on their shopping list.
OverviewMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Marketplace continued
multI-ChaNNEl SalES
m
£
e
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v
e
R
600
500
400
300
200
100
08/09
09/10
10/11
11/12
How are our customers shopping?
This year, customers told us that
shopping was not just about spending
their limited budget wisely. They wanted
to enjoy their experience and feel
inspired, engaged and valued by
retailers. As a result, service was seen as
a key differentiator and, in a confusing
promotional landscape, customers really
valued the assistance of helpful and
knowledgeable employees.
More consumers chose to shop across
a combination of shopping channels.
This trend was supported by the
dramatic growth of smartphone and
tablet ownership in the UK. Online and
mobile channels provided consumers
with a more convenient way to research
and buy, and many saw it as a ‘safer’
way to shop – reducing the temptation of
store browsing.
Our customers are increasingly active
online and women aged 45 to 55 spend
more time online than any other age
group. As a result, we’ve provided more
engaging content to help inform their
online research and provide
reassurance that they are making
sound purchases. We’ve also integrated
digital innovation, such as our new Style
Online offer explained on page 27, into
our stores, to add value to customers’
shopping experience.
International
Ongoing pressures in the Eurozone
resulted in challenging trading conditions
in markets such as Greece, the Czech
Republic and the Republic of Ireland.
However, there was strong GDP growth
in some markets including Russia, the
Middle East, China and India.
Our strategy is aligned with these growth
opportunities and we are focusing our
expansion on existing markets such as
India, the Middle East and the Shanghai
region of China. In doing so, we are
reducing our dependency on the UK
economic cycle and maximising the
efficiency of our existing global supply
chain and infrastructure.
Across our international customer base,
there was a consistent demand for
quality. Our British heritage, coupled with
our brand values, supported this position
– particularly on Food, with traditional
products such as tea and biscuits
performing well. In Clothing, we know
customers recognise M&S quality, but
want more clarity around our fashion
offer. Launched in autumn 2011, our
Autograph campaign (page 17) has
helped better showcase our style
credentials. The international roll-out of
our new store format will make it easier
for customers to identify the signature
style of each of our clothing sub-brands.
How does Plan A help us respond to
market pressures?
Plan A, our 180-point eco and ethical
plan, helps us tackle the sustainability
issues that face all major retailers. With
key raw materials under pressure, Plan A
helps us develop a more sustainable
supply chain – focusing on areas such as
cotton and sustainable fishing.
In a challenging economic environment,
Plan A enables us to run a more
efficient business too – reducing waste
and energy use. In turn, we are sharing
our learning with our 2,000 suppliers
worldwide – enabling them to reduce
their own manufacturing costs and
create a more sustainable future.
In a competitive marketplace, Plan A
provides a point of difference. M&S is
well known for its sustainability
credentials and is seen as a leader by
important stakeholders in the sector. In
addition, this year we worked hard to
engage customers in new and exciting
initiatives such as our Beach Clean
project, explained on page 30.
Annual report and financial statements 2012
06
CuStOmEr INSIGht
“I’m planning to
enjoy this summer
with a traditional
celebration with my
family and friends.”
Mobile sales
Purchasing from
mobile phones
increased by
over 200% in the
last 12 months.
Looking ahead
Consumers are ready for another
challenging year – feeling more
prepared and in control. With a
tight rein on their budgets, value
will be more important than ever
– especially on everyday items.
They are protecting their spend for
the key events of 2012 such as the
Jubilee and Olympics and are
making plans for truly special
celebrations at home.
OverviewMarks and Spencer Group plc
Annual report and financial statements 2012
07
How M&S creates value
for its shareholders
Over the last 128 years M&S has grown from a market stall to a multi-channel
retailer with over 1,100 stores worldwide, employing more than 81,000 people.
We remain true to our founding values of Quality, Value, Service, Innovation and
Trust – ensuring our offer continues to be relevant to our customers. Our own
brand model sets us apart from the competition – delivering ‘Only at Your M&S’
food, fashion and homeware to our customers.
How we create value for our shareholders
Customer
Delighting customers
with innovative,
‘Only at Your M&S’
products, supported by
an easy and enjoyable
shopping experience
across all our channels.
Ways of working
Delivering continuous
improvement across
all operations –
underpinned by our
Plan A commitment to
drive sustainability.
r
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Investing in our people
We continually engage and involve our
people in our plans to ensure they fully
understand the vital role they each play.
We communicate with our employees
across a range of channels and
measure engagement annually. From
the Board down, we are focused on
developing leadership and future talent
to secure strong succession and deliver
our growth ambitions.
Financial
Driving profitable
growth through
increased sales and
effective cost and
margin management.
People
Engaging employees
in our plans and
ensuring we have the
right people to deliver
our growth ambitions.
Fin
a
n
c
i
a
l
e ople
P
Innovative ways of working
Across the business we promote a
culture of continuous improvement –
encouraging employees and our
suppliers to find new, more efficient ways
of doing things. We have an ongoing
programme to restructure our supply
chain – implementing new systems and
improving our operational execution.
Underpinning this is our commitment to
Plan A – creating a sustainable business
model for the long term.
Protecting Your M&S
Protecting the business from both
operational and reputational risk is an
essential part of our Board’s role. We
take a holistic view of the risks facing
M&S – both now and in the future – by
considering external competitor and
economic factors, our core operations,
key business change activity, as well as
emerging future risks. Action plans to
address these risks are in place across
the business to help ensure our
long-term sustainable growth. Details of
our risk management and mitigation
plans are outlined on page 46 of our
Accountability section.
Your M&S
Customers are at the heart of our
business and through our Customer
Insight Unit, we ensure their needs are
recognised in all our business
decisions. Through a combination of
focus groups and consumer research
we are in touch with over 17,000
customers every month, helping us
anticipate their needs.
What we offer
Our longstanding history of innovation
helps us lead the way with first-to-
market products across food, fashion
and homeware. We are the UK’s leading
clothing retailer and offer high-quality
food, with a focus on freshness,
convenience and speciality. As an
own-brand retailer our products are
unique and we further differentiate our
offer through exclusive collaborations
and a careful selection of the very best
international food brands.
Reaching our customers
Our products are sold through 731 UK
stores and 387 internationally. Over
93% of the UK population is within in a
30-minute drive of a full line M&S store
and our franchise partnerships ensure
our Simply Food offer is available in the
most convenient locations – from
railway stations to motorway services.
Our fully mobile-enabled website makes
M&S accessible 24/7 and we’re
combining the best of web and store
service, as well as offering new
channels, to make it even easier to
shop with M&S.
OverviewMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Annual report and financial statements 2012
08
“ Our plan for
M&S is on track
and customers
are seeing the
improvements.”
Marc Bolland
Chief Executive Officer
rEVENuE
Clothing & Home (GM)
£4.2bn
0.9%
Food
£4.7bn
3.9%
Multi-channel
£559m
18%
International
£1.1bn
5.8%
Chief Executive’s
overview
In 2011/12 M&S has performed well, with sales increasing by 2%.
In a challenging environment, we held market share, as our customers
continued to recognise our exceptional value and unrivalled quality.
As we navigate the business through
the short term, we remain focused on
our longer-term ambitions. Our plan for
M&S – which I set out last year – is
being delivered at pace. We have made
significant progress; encouraging our
customers to reappraise M&S and take
a closer look at what we offer.
The first part of our plan focuses on our
UK business and this year we gathered
real momentum; enhancing our brand,
developing our Clothing, Home and
Food offer and making our stores
easier to shop.
Brand
Our brand position ‘Only at Your M&S’
continued to underpin all our campaigns,
reminding customers of the unique
products that make M&S truly special.
Putting the spotlight on these exclusive
innovations increased sales. This year
we also launched our first ever sub-
brand advertising to support the
transformation of the likes of Autograph
and Limited Collection from ‘labels’
into distinctive, standalone brands.
Steve Sharp provides more information
on page 16.
Healthy food
Our Simply Fuller Longer
and count on us™ brands are
now the number one and
two UK healthy eating brands
on a 12 month basis.
Clothing and Home
In Clothing and Home we saw a mixed
performance with sales down 0.9%.
Lingerie, Menswear and Kidswear all
performed strongly and our core Home
departments of bedding and bath,
kitchen and dining also delivered good
growth. However, we experienced more
challenging conditions in Womenswear
and in big ticket furniture. In Home, our
performance was impacted by our
withdrawal from technology.
We worked hard to ensure that our
pricing structure and promotions were
right for our customers. This meant
balancing demand for great value
‘good’ items, with opportunities to
invest in our ‘better’ and ‘best’ ranges.
We highlighted the style credentials
of our core offering through the creation
of our M&S Woman and M&S Man
ranges and had a positive response
to our interpretations of key trends.
Our ‘Only at Your M&S’ proposition was
enhanced by three exclusive
partnerships this year. In menswear we
introduced the ‘Savile Row Inspired’
collection from acclaimed British tailor
Richard James. We also launched
unique design collaborations with Sir
Terence Conran and Marcel Wanders.
Kate Bostock explains more about our
Clothing and Home performance on
page 18.
Food
Our Food business delivered a good
performance. Sales increased by 3.9%,
despite continuing inflation pressures
and modest space growth.
M&S Food is built on a strong heritage
of innovation and quality, with a focus
on freshness and convenience.
Strategic reviewMarks and Spencer Group plc Annual report and financial statements 2012
09
Our plaN
Drive UK
like-for-like
growth
UK space and
like-for-like
growth
5
1
0
2
y
B
3
1
0
2
–
2
1
0
2
International
multi-channel retailer
Drive
international
presence
A leading UK
multi-channel retailer
International
company
Focus on UK
Brand, Clothing, Home, Food, Stores
Our continued emphasis on innovation
gave customers even greater choice,
with around 1,900 new lines launched
this year. We also showcased our great
value and unrivalled quality through
bigger, higher-impact promotions.
Customers trusted M&S quality and
turned to us for the most important
occasions, helping us deliver a strong
Christmas in Food. As set out by John
Dixon on page 21, we continued to
differentiate M&S as a specialist food
retailer, introducing authentic deli and
bakery counters and launching 100
‘unique to M&S’ international brands.
Stores
Following a successful pilot, the roll-out
of our new store format is now
underway at a rate of one store a day,
with completion expected in mid 2013.
The new look stores include clearly
defined areas for each sub-brand as well
as elements of theatre in the Food Halls.
Customers have told us that these
improvements have made our stores
more inspiring and easier to shop.
Our new segmentation approach means
that stores of equal size no longer carry
an identical mix of product. Stock is now
appropriately tailored to local
demographics, which will help attract
new customers and broaden our appeal
to those who already shop with us.
Space
We continued to develop our UK store
portfolio, through new stores,
developments and extensions. This
helped us deliver an improved Shop
Your Way service for customers.
Multi-channel
We performed strongly across the
internet and mobile channels, with
Multi-channel sales up 18%. This year
we introduced several new initiatives
aimed at improving the customer
experience. We extended the next-day
delivery deadlines for online ordering
and improved the functionality of our
website. We also created brand new
ways to shop with us, including the new
M&S Outlet website and Style Online.
As set out by Laura Wade-Gery on
page 26, we launched our first
international websites in France and
the Republic of Ireland.
International
Our International business delivered a
good performance this year. We
experienced double digit growth in our
priority markets of India, China and the
Middle East. We also paid particular
attention to managing our operations in
more challenging trading environments
– including Greece, the Republic of
Ireland and the Czech Republic.
We made good progress towards our
goal of making M&S a more
internationally focused business.
Development of our key markets
continued apace and we put our ‘bricks
and clicks’ strategy into practice with a
return to France.
Plan A
Plan A remains integral to the way we
do business. Our environmental and
ethical plan not only makes us a more
efficient business, it contributed a net
benefit of £105m this year too.
In-store
environments
Improved in-store
environment in 66
stores by 2011/12
year end.
66stores
Our customers look to us to do the right
thing – and that includes making it
easier for them to live sustainable lives.
We are encouraging them to become
more involved in Plan A through
inclusive initiatives such as our new
‘shwopping’ campaign.
Looking ahead
Though the economic outlook remains
challenging, we are committed to the
delivery of our plan to become a
multi-channel, international retailer.
We will continue to manage the
challenges of the short term – improving
our existing business through a
combination of innovation, an agile
response to trends and a strong
promotional agenda.
In the year ahead, we will be more in
touch with our customers; the more we
listen the better we will anticipate their
needs and exceed their expectations.
We will continue to invest for the future;
encouraging customers – wherever we
trade – to take a fresh look at M&S.
Marc Bolland
Chief Executive Officer
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Annual report and financial statements 2012
10
Our plan in action
Our aim is to make M&S a truly international, multi-channel retailer – accessible to
even more customers around the world. We have created considerable momentum
through a wide range of activities and are making good progress.
launched Conran
collaboration
A contemporary
collection of over 300
products from this
iconic designer is
available online and in
over 41 stores.
Style Online trial in three stores
This award winning initiative extends
the reach of our clothing sub-brands
into smaller stores.
Focus on the UK
Christmas Food
to Order online
Sales increased
by over 20%,
as we made this
service available
online for the
first time.
pilot stores
Following our
successful 15
store trial, we
had rolled out a
fresh new look
to 66 stores
by the year
end and will
complete by
mid 2013.
International
Multi-channel
15
300
320%
100
0
387 stores
43 territories
Plan A products
31% of M&S products
now have a Plan A
quality, such as
Fairtrade, animal
welfare recognition
or healthy eating –
making it easier
for our customers
to make
sustainable
choices.
Carbon neutral
operations
In January we became
carbon neutral across
all stores, offices,
warehouses and
delivery fleets operated
by M&S in the UK and
Republic of Ireland –
the first major retailer in
the world to do so.
100 Champs Élysées
We returned to France with a brand new store in the
heart of Paris, supported by an e-commerce offer.
Plan A
31%
Marks and Spencer Group plc Strategic review
Chief Executive’s overview
Marks and Spencer Group plc
Annual report and financial statements 2012
11
relaunch
of clothing
sub-brands
We relaunched
our sub-brands,
giving each a
more distinctive
identity.
M&S Outlet online
In February 2012 we launched a
brand new way to shop with M&S,
offering up to 40% off clothing prices.
35%
1,900 new food lines
We launched 1,900
innovative new
products, including 100
international brands
exclusive to M&S.
Shop Your Way
Our flexible shopping service is
now available in 455 stores.
1900
455
First International website
Our first local language, local
currency website outside the UK
launched in October 2011.
i
S
t
r
a
t
e
g
c
r
e
v
e
w
i
Focus on the UK
This year we
enhanced the
strength of our
brand, improved
our core offer of
Clothing, Home
and Food and
made our stores
easier to shop.
See page 15
Multi-channel
We increased
Multi-channel
sales by 18% this
year as we gave
our customers
greater access to
our products and
offered an
improved shopping
experience.
See page 26
International
Our organisational
structure now has
a global outlook
and a team with
the capabilities to
deliver growth in
our priority
markets.
See page 28
31%
35% of International stock shipped
direct to destination
Fully integrated supply chain operations
have led to improved efficiency.
Forever Fish
We launched a major new campaign
to help customers learn about fish
and protect our beaches. Funded by
profits from our 5p food carrier bag
charge, the project supports the
Marine Conservation Society.
5p
Shwopping
Our new sustainable
fashion initiative is
designed to change
the way we shop for
clothes and prevent
one billion unwanted
clothes from going to
landfill every year.
1bn
Plan A
With 180
commitments
across seven
pillars – Plan A
helps us reduce
our environmental
impact, develop
new products and
improve our local
communities.
See page 30
OverviewFinancial reviewGovernanceFinancial statements and other information
Strategic review
Chief Executive’s overview
Performance
against our plan
Key Performance Indicators
Financial performance
GROUP REVENUE
£9.9bn 2.0%
Annual report and financial statements 2012
12
UNDERLYING GROUP OPERATING PROFIT
£810.0m 1.8%
£m
UK
International
Total
08/09
8,164.3
897.8
9,062.1
09/10
8,567.9
968.7
9,536.6
10/11
8,733.0
1,007.3
9,740.3
11/12
8,868.2
1,066.1
9,934.3
£m
UK
International
Total
08/09
652.8
116.1
768.9
09/10
701.2
142.7
843.9
10/11
677.9
147.0
824.9
11/12
676.6
133.4
810.0
In November 2010 we set out a target to grow our revenues by £1.5bn
to £2.5bn over the next three years. As a result of the deterioration in
the economic environment since we set out our plan, we now expect
to achieve a £1.1bn to £1.7bn increase in revenues.
Focus on the UK
UK MARKET SHARE
clothing and footwear
Value
11.7%
level
Volume
12.4%
level
analysis In a challenging
environment we maintained market
share, as we offered customers
greater choice at the same unrivalled
quality and value. More information
on our Clothing performance is set
out on page 18.
Kantar Worldpanel Clothing and Footwear
share 52 w/e 15 April 2012.
UK MARKET SHARE
food
AVERAGE WEEKLY FOOTFALL
3.8%
level
20.3m
1.7%
analysis In a competitive market,
our food market share remained
level, as customers continued to
turn to M&S for great value and
quality. Our performance in Food
is detailed on page 21.
Kantar Worldpanel Food and Drink 52 w/e
15 April 2012.
11/12
10/11
09/10
08/09
20.3m
20.7m
21.0m
21.6m
analysis Visits to our stores were down slightly in 2011/12. However, this was
in line with the wider market, as customer concerns about rising petrol prices
impacted footfall to stores.
Become a leading multi-channel retailer
MULTI-CHANNEL SALES
PERCENTAGE OF POPULATION WITHIN A 30-MINUTE DRIVE
OF A FULL LINE STORE
£559m*
18%
10/11 (£473.6m)
09/10 (£366.1m)
08/09 (£290.1m)
93%
analysis As we continue to strengthen our multi-channel capabilities, we are
on track against our target to increase sales by £300m to £500m by 2013/14.
* Excluding VAT. Last year published including VAT.
analysis Our aim is for 95% of the population to be within a 30 minute drive
of a full line store by 2015. This is helping us to deliver a leading multi-channel
shopping experience.
Making Plan A how we do business
NET CARBON EFFICIENCY
(IN TONNES CO2e PER 1,000 SQ FT OF SALESFLOOR)
IMPROVE STORE ENERGY EFFICIENCY
IN KWH PER SQ FT OF SALESFLOOR
2006/07
53
2011/12
27
Improvement
49%
2012 target
0
2006/07
2011/12
Improvement
67.9 49.1 28%
2012 target
51.0
M&S UK and Republic of Ireland operated stores, offices, warehouses and
delivery fleet carbon emissions after deduction of carbon offsets effective
from 1 Jan 2012. Target of zero net emissions per 1,000 sq ft achieved from
1 Jan 2012.
Why carbon efficiency? Improving carbon efficiency reduces greenhouse
gas emissions and costs.
M&S UK and Republic of Ireland operated stores.
Why energy efficiency? Improving energy efficiency reduces greenhouse
gas emissions and costs and helps to comply with new legislation introduced
in 2011.
Marks and Spencer Group plc
Key Performance Indicators
Financial performance
Strategic review
Chief Executive’s overview
Annual report and financial statements 2012
13
UNDERLYING GROUP PROFIT BEFORE TAX
RETURN ON CAPITAL EMPLOYED
£705.9m 1.2%
10/11 (£714.3m)
09/10 (£694.6m)
08/09 (£604.4m)
16.4%
0.3% pts
GROUP PROFIT BEFORE TAX
UNDERLYING EARNINGS PER SHARE
£658.0m 15.7%
10/11 (£780.6m)
09/10 (£702.7m)
08/09 (£706.2m)
34.9p
0.3%
10/11 (16.7%)
09/10 (17.5%)
08/09 (16.8%)
10/11 (34.8p)
09/10 (33.0p)
08/09 (28.0p)
2009/10 is stated on a 53 week basis
Focus on the UK
UK MYSTERY SHOPPING PROGRAMME
ANNUAL SPACE GROWTH
Mystery shop monthly scores
10/11
11/12
85
80
80
80
80
81
76
76
74
75
70
72
82
79
82
78
83
77
83
79
81
79
83
81
84
82
84
83
Apr May Jun
Jul
Aug Sep Oct Nov Dec
Jan
Feb Mar
Average score
82%
analysis Last year we rebased our mystery shopping
scores to help us target even higher standards of customer
service. We have seen ongoing improvement and achieved
an average score of 82%, compared to 78% last year.
2.7%
analysis In light of increased growth in Multi-channel, we have reviewed our
space requirements for the future. We will continue to develop our space
selectively, but expect to invest £200m less in our UK retail estate over the
remaining two years of the plan. In the current year we expect space growth of
c.3%, reducing to c.2.5% in the following year, with further reduction thereafter.
Become an international company
M&S INTERNATIONAL SALES
£1.1bn
5.8%
10/11 (£1,007.3m)
09/10 (£968.7m)
08/09 (£897.8m)
analysis We are continuing to build M&S into a more internationally focused
business and are on track against our target of increasing international sales
82
by £300m to £500m by 2013/14.
83
82
83
81
81
11/12
10/11
09/10
08/09
84
84
83
83
84
84
£1,066.1m
£1,007.3m
£968.7m
£897.8m
Making Plan A how we do business
80
80
80
82
82
83
81
83
80
81
SEND NO OPERATIONAL WASTE TO LANDFILL
(IN TONNES)
80
80
2008/09
2011/12
Improvement
2012 target
69,000 1,000 99% 0
May
Aug
Nov
Sep
Jun
Oct
Jul
Apr
Dec
Jan
Feb
Waste sent to landfill from M&S UK and Republic of Ireland operated stores,
offices and warehouses. Target of zero operational waste to landfill achieved
from February 2012.
Why no waste to landfill? Sending no waste to landfill makes more efficient
use of resources, helps to reduce greenhouse gas emissions and in the longer
term also reduces costs.
Read more about our progress this year in our
How we do Business Report 2012 at
marksandspencer.com/hwdbreport2012
Mar
Marks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Strategic review
Chief Executive’s overview
Annual report and financial statements 2012
14
People behind the plan
Management committee
“ We’re making it
easier for customers
to see the great
quality, value and
style we offer.”
Kate Bostock
Executive Director,
General
Merchandise
“Our heritage of quality
and innovation are
enhancing our
position as a specialist
food retailer.”
John Dixon
Executive Director,
Food
“ The M&S brand is
one of our strongest
assets; our campaigns
continue to inspire
customers to shop
with us.”
Steven Sharp
Executive Director,
Marketing
“ Our ongoing
investment in the
business will help us
deliver our plan and
support our growth
ambitions.”
Alan Stewart
Chief Finance
Officer
“ The customer is at
the heart of our plans
as we develop new
and exciting ways to
help them shop.”
Laura Wade-Gery
Executive Director,
Multi-channel
E-commerce
“ We’re growing our UK
presence, ensuring our
stores are in the most
convenient locations
for our customers.”
Clem Constantine
Director of Property
“ We’re giving
employees the skills
they need to keep
M&S special for our
customers.”
Tanith Dodge
Director of Human
Resources
“ We’re committed
to communicating
our plan and its
progress to all of our
stakeholders.”
Dominic Fry
Director of
Communications
and Investor
Relations
“ There’s real
momentum in our
International business
as our plans become
reality.”
Jan Heere
Director of
International
“It’s not just
the products
that make
M&S special,
it’s the people.
I’m proud of
the team that
is driving
M&S forward.”
This year, the energy and
enthusiasm of our people
turned our plans into action
and our customers are
already noticing
improvements. My sincere
thanks go to all our
employees across the
business for their continued
hard work in what has been
a challenging year.
Marc Bolland
Chief Executive Officer
“ We’ve taken a fresh
look at everything and
given our stores an
exciting new lease
of life.”
Nayna McIntosh
Director of
Store Marketing
and Design
“ Good governance
extends beyond the
boardroom, supporting
M&S in the UK and
internationally.”
Amanda Mellor
Group Secretary
and Head of
Corporate
Governance
“ We’re passionate
about great in-store
service: like everything
we do, it’s the small
things that make a
big difference.”
Steve Rowe
Director of
Retail
“ Faster, on time
deliveries, improved
availability, shorter
queues: these are
the things that make
life better for our
customers.”
Darrell Stein
Director of IT
and Logistics
Marks and Spencer Group plc i
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t
r
a
t
e
g
c
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v
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Strategic review
Annual report and financial statements 2012
15
n
o
i
t
c
a
n
i
n
a
p
r
u
O
l
Focus on the UK
Last year we set out plans to invest in our UK business and enhance our
already strong position in our home market. This programme is now well
underway and over the last 12 months customers have started to notice the
improvements we have made.
Food
Our new look Food Halls are helping
to enhance our position as a high
quality specialist food retailer. We’ve
introduced new fresh deli counters
and added more authentic style
bakeries. Customers are enjoying the
new rustic, artisan feel
of the bakeries and sales are up 25%.
You can read more about our
performance in Food on page 21.
Clothing
With the launch of M&S Woman and
M&S Man we put the spotlight back
onto the iconic, wardrobe staples that
M&S does best. We also had our
biggest ever year in Kidswear, with
customers turning to M&S for great
quality kids’ clothing. Read more
about the work we have done across
Womenswear, Lingerie, Menswear
and Kidswear on page 18.
Stores
We are now rolling out
our new store format at
the rate of one a day until
mid 2013. The new look
and feel is helping
customers take a fresh
look at what we have to
offer and customer
recommendations at
completed stores are
around 10% higher than
the rest of the portfolio.
Find out more about the
work we’ve done to
improve our stores on
page 24.
Brand
Discover how our
‘Only at Your M&S’
positioning has helped
increase sales of our
exclusive, innovative
products on page 16.
Home
Find out on page 20
how our exclusive
partnerships with iconic
designer Terence Conran
and European designer
Marcel Wanders are
encouraging customers
to reappraise M&S
Home.
Marks and Spencer Group plcOverviewFinancial reviewGovernanceFinancial statements and other information
Our brand
Annual report and financial statements 2012
16
In such a competitive marketplace, it’s been more important than ever to
highlight the great value and quality we offer across M&S. This year, our
campaigns served a dual purpose; reassuring our most loyal customers that
we are meeting their needs and encouraging potential new shoppers to take
a fresh look at M&S. Throughout the year we have showcased the very best
‘Only at Your M&S’ innovations; providing compelling reasons to shop with us.
Listening to our customers
The clear message from customers is
that they are budgeting carefully; ring
fencing the things that matter to them
most, such as special occasions and
spending on children. We responded
with promotions that addressed these
priorities, such as our upbeat Kidswear
‘Happy Half Term’ offer and ‘Our Gift to
You’ 25%-off deals in December, which
delivered a record week for Menswear.
Launched in 2008, our iconic Dine In
offer remains as relevant today as it
was then. Coupled with our Christmas
partnership with ITV’s The X Factor
(opposite), Dine In helped make M&S
an essential part of Saturday nights at
home; providing restaurant-quality food
at an affordable price.
Showcasing our products
Our ‘Only at Your M&S’ positioning is
a firm fixture in all campaigns; from
unique innovations to the latest trends,
it highlights what is new and different
at M&S. This year we continued our
successful innovation-led ads,
showcasing products such as our
unique Tummy Tuck swimwear, sales
of which increased by 450%.
In Food our product was the star of
the show, demonstrating the lengths
we go to in order to make our offer truly
special. Our advertising around key
dates such as Easter and Mother’s Day
confirmed why customers can trust
M&S food for the most important
occasions. We highlighted the
provenance and quality of ingredients
that set us apart from the competition
and featured lines, such as our new
Golden Hot Cross Buns, proved
extremely popular, selling over 580,000.
Throughout the year, our Clothing
campaigns featured wearable
interpretations of the latest fashion
trends, demonstrating how these styles
work for all shapes and tastes. In the
autumn, we ran two complementary TV
ads, which brought together a collection
of stunning womenswear looks to
highlight the brand’s total appeal.
In September 2011 we launched our
first dedicated sub-brand advertising
to highlight the distinctive brand
personalities and help customers more
easily pinpoint the range that suits their
style. Renowned model David Gandy
brought his relaxed, continental style
to our Italian-influenced Collezione
menswear and we introduced top model
Rosie Huntington-Whiteley and
Hollywood actor Ryan Reynolds as the
faces of Autograph (opposite). Shot by
iconic fashion photographer Rankin,
a dynamic black and white campaign
encapsulated the energy and ethos of
Limited Collection. We also reinvigorated
our core M&S fashion, with the launch
of the M&S Woman and M&S Man.
2012 celebrations
2012 is a unique year for Britain – and
we wanted to do something extra
special to mark the occasion. With
friends and family at the centre of
celebrations, we launched our nostalgic
2012 spring TV campaign, featuring
much loved M&S faces – including
Twiggy and Gary Barlow. It harks back
to an era of simple pleasures, showing
how M&S can deliver all the ingredients
to make a British summer truly great.
Featured lines were well received and
since airing we sold over 3,700 of the
per una dress worn by Myleene Klass.
“Our campaigns
reassure
customers that
we are in touch
with their needs.”
Steven Sharp
Executive Director,
Marketing
Looking ahead
We want to show that we
are more in touch with
our customers than ever
before; anticipating their
needs and in tune with
the things that matter
most to them. In the year
ahead, we will continue
to develop our sub-brand
identities, inspire our
customers and give them
new reasons to shop
with M&S.
discover
more
Plan A Shwopping
In April we introduced
‘shwopping’ – fronted by
Joanna Lumley. It’s a
sustainable fashion initiative to
transform the way we shop.
We’re asking customers to
exchange, or ‘shwop’, old or
unwanted clothing – of any
brand – when they buy a new
garment in M&S stores.
Clothes are then reused,
recycled or resold by our
partner Oxfam – giving
millions of garments a life
beyond landfill.
Strategic reviewFocus on the UKMarks and Spencer Group plc Annual report and financial statements 2012
17
CuStOmEr INSIGht
“ The Autograph campaign
feels stylish, contemporary
and chic.”
Autograph
Our new faces perfectly
encapsulate the
elegance, sophistication
and contemporary feel
of Autograph; their
worldwide appeal is a
great fit for our most
international brand.
Autograph led the
marketing campaign
for our recent return to
France and sales of the
range at our flagship
Champs Élysées store
are among the highest
across our entire
portfolio.
Unique
M&S Money
In a highly competitive
market, M&S Money
continued to be a
name to trust; with
over three million credit
card customers.
We have exciting plans
for M&S Money in the
year ahead, as we
continue to develop
our product offer.
The X Factor
Watched by over
13 million people,
our partnership with
The X Factor put M&S
at the heart of the
weekend. This year’s
finalists appeared in our
festive ad, singing an
exclusive version of
‘When You Wish Upon
a Star’. Refreshed on a
weekly basis in line with
the show, customers
told us it gave a more
modern edge to our
much anticipated
Christmas ad.
Stories behind
the campaign
Social media channels
such as Facebook,
Twitter and Pinterest –
as well as our own M&S
TV channel – allow us to
better tell the stories
behind our campaigns.
We now have the most
engaged Facebook
fanbase of any top 20
retailer, with over
625,000 fans and more
than 75,000 Twitter
followers. This year we
launched M&S Stories, a
new online community
space that provides
the latest news and
expert insights.
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Clothing and Home
Annual report and financial statements 2012
18
In a highly competitive market, M&S remains the UK’s first choice for clothing.
Customers appreciated our interpretations of seasonal trends, underpinned
by our continued focus on great value and quality. We delivered strong
performances across Lingerie, Menswear and Kidswear but saw a more mixed
performance in both Womenswear and Home. Overall Clothing and Home (GM)
sales were down 0.9%, with Home impacted by our exit from Technology.
Actions against our plan
Introduced M&S Woman and M&S Man
as our core clothing ranges
Relaunched all of our sub-brands
Segmented Home into lifestyle categories
– Classic, Contemporary and Design
Womenswear
At M&S we cater for all women,
whatever their style or budget. We have
consistently offered quality clothing at
great prices, and through the year we
worked hard to provide the right pricing
mix; meeting customers’ demand for
value but providing the opportunity to
trade up into our ‘better’ and ‘best’
ranges. In the summer, we ran an
Outstanding Value campaign, which
saw us reduce prices on opening price
lines to remind customers of the
excellent value we offer in our ‘good’
ranges. We sold over 70,000 coloured
chinos at £19.50 each, appealing to
customers’ wallets as well as their
sense of style.
We made the seasons’ key looks work
for the M&S customer and launched a
regularly refreshed core fast fashion range
(opposite). Customers loved the
contemporary twist we put on some of
their favourite pieces such as court
shoes, sales of which were up 77% on
the year. We also added more dress
options and responded to core
customer feedback with an increase in
longer length flattering sleeve choices.
Last year we promised to make the M&S
clothing brand a destination in its own
right. This core range represents around
half of our offer and this year we took
steps to revitalise the collection with the
launch of M&S Woman (opposite).
We also relaunched our sub-brands, to
give them more distinctive identities. Our
per una brand is over ten years old and
we have listened carefully to our
customers to ensure the brand has
evolved with them – reflecting the vibrant
colours and feminine style they love. Our
Limited Collection offers fashion forward
style for a broad age range and helped
attract younger shoppers, whilst the
understated elegance of our Classics
range continued to appeal to the more
traditional customer. Our confident and
sophisticated Autograph range and our
Indigo Collection casualwear performed
well, with sales up 9% and 16%
respectively.
Lingerie and Beauty
We strengthened our position as the
UK market leader in lingerie, as
customers turned to us for the widest
choice – from everyday cotton
essentials to vintage-inspired glamour.
During the year we refined our everyday
t-shirt bra range to make it easier to
shop and increased choice in footfall-
driving lines such as hosiery, boosting
sales by 7%. We offered stand-out
value with high-impact promotions such
as the ‘3 for £10’ knicker offer, driving
record performances on featured
ranges such as our favoured Brazilian
knickers, sales of which rose 49%.
Our success in lingerie was driven by
stylish ‘Only at Your M&S’ innovation such
as our Flatter MeTM range. Increased
colour options and soft fabrics ensured
our HeatgenTM warmwear was both
pretty and practical; helping us grow
further in the over 55 market. Our new
WaistsculptTM lingerie tapped into the
popular ‘Mad Men’ trend for an hourglass
silhouette and we sold over 74,000 items.
“This year we
put the spotlight
back on the
iconic style and
quality of M&S
clothing.”
Kate Bostock
Executive Director,
General Merchandise
ClOthING hIGhlIGhtS
Womenswear market share
10.4%
0.5% pts
Menswear market share
12.1%
0.6% pts
Kidswear market share
6.8%
0.2% pts
Lingerie market share
27.4%
0.2% pts
Kantar Worldpanel Clothing and Footwear
– value market share 52 w/e 15 April 2012
plan a: British made hosiery
West Mill factory in
Derbyshire became the first
UK clothing factory to gain
M&S eco-factory status.
Employing environmentally
friendly processes has
helped the factory build a
more sustainable future by
creating a more efficient
business. The site produces
a third of all M&S hosiery and
its UK location helps us
quickly turn around fashion
forward ranges, such as the
featured Limited Collection.
Strategic reviewFocus on the UKMarks and Spencer Group plc Annual report and financial statements 2012
19
CuStOmEr INSIGht
“ M&S Woman
is what I want
from M&S;
stylish clothes
with a purpose.”
First choice for
schoolwear
We continued to innovate
across our schoolwear
this year, introducing
Expandicuff on shirts –
eliminating the need to
undo buttons – and
temperature-regulating
Body Sensor tights.
We also extended our
sizing options, adding
plus and slim fit options
to both boys’ and girls’
school ranges.
Savile row Inspired
In March we launched an
exclusive collaboration
with award-winning tailor
Richard James. Taking
inspiration from the best
of British tailoring, Savile
Row Inspired offers
classically styled, hand
finished tailoring in
UK-made fabrics to our
global customer.
6 weeks
Fast fashion
We introduced a regularly
refreshed core fast fashion
collection in M&S Woman,
delivering the seasons’
key looks in just six
weeks. Customers
loved our great value
interpretations of trends
such as colour blocking.
All items were priced
under £35 and we sold
around 4,000 of the
featured multi-striped top. Style
£6
m&S Beauty
Beauty continued to grow by focusing on great
value skin, bath and body ranges, as well as
signature fragrances. We extended and upgraded
existing ranges and teamed up with Ragdale Hall
to create a new luxury Spa collection, with prices
starting from just £6.
m&S Woman
The ad campaign featuring Twiggy
and Lisa Snowdon placed our
stylish wardrobe ‘must haves’ firmly
in the spotlight.
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Clothing and Home continued
Annual report and financial statements 2012
20
Menswear
Menswear delivered another good year,
growing market share and improving its
style credentials. The newly defined
sub-brands helped reduce duplication
across our ranges and enabled
customers to more easily locate the
right style for them.
This year we broadened our customer
profile in Menswear, attracting a
younger shopper whilst continuing to
meet the needs of our core customer.
Our casual North Coast collection
helped us broaden appeal and
delivered sales up 12%.
The launch of M&S Man boosted the
profile of the affordable, iconic items in
our core range, such as classic black
chinos. Our reputation for unbeatable
quality helped drive sales growth in
heartland areas such as everyday
essentials, up 11%.
Our Blue Harbour brand delivered
modern updates on heritage-style
knitwear and traditional tweeds, with
sales up 183% and 81% respectively.
Customers also responded well to the
coordinated, continental style of
Collezione, with our Linen Miracle™
Collaboration
This year we launched our Conran Exclusive Design
collection – comprising 314 lines across furniture,
bedding, lighting – it forms the basis of our
Contemporary offer. Our Christmas gift shop
featured a new range of homeware products
and accessories from leading European
designer Marcel Wanders.
formal jacket amongst the best sellers.
Footwear and accessories performed
particularly strongly under our
sophisticated Autograph brand, as male
shoppers became more confident in
putting together a styled look.
Kidswear
With budgets stretched, parents trust
M&S quality and value. We delivered
our biggest ever year for Kidswear, with
particularly strong performances in our
baby and toddler and schoolwear
ranges.
We continued to introduce new
customers to the brand through our baby
and newborn ranges, offering great
innovations in supersoft yet hardwearing
fabrics and affordable gifting options.
Having worked hard to develop our baby
offer over the last two years, these
customers remained loyal and helped
deliver good growth as they transitioned
to our toddler ranges, sales of which were
up 10%.
Our increasingly strong position in
footfall-driving staples, such as
sleepwear and essentials, provided a
great opportunity for us to grow kids’
fashion too. As parents shop for these
CuStOmEr INSIGht
“It’s not what you’d
expect from M&S.
Conran definitely
makes Home feel
more modern.”
Contemporary
everyday items, we have worked hard
to attract them to more fashion-led
pieces, with sales of our girls’
Autograph range growing 14%.
Home
In a difficult market customers remained
cautious about spending on big ticket
furniture items, opting to update rooms
with elements from our core ranges and
smaller accessories. This environment,
coupled with our exit from technology
meant sales were down 10%.
We made good progress against
our plan to segment Home into
distinct lifestyle options – Classic,
Contemporary and Design (below).
The Classic range, designed in house,
continued to represent the best of
M&S Home and our hero departments
of kitchen and dining, bedding and bath
all delivered good growth. We catered
for customers looking for affordable
items to update their home by delivering
great value, more choice and stronger
fashion influences. We also worked
hard to improve availability on these
favourite lines.
Looking ahead
With value remaining front of mind for
customers, we will stay focused on
providing the great quality products
that they trust us to do well. We will
provide customers with compelling
reasons to buy, through appropriate
interpretations of trends and regularly
updated ranges. The roll-out of our
new store format will strengthen the
in-store presentation of our clothing
brands, helping customers better
identify the styles for them.
Strategic reviewFocus on the UKMarks and Spencer Group plc Food
Annual report and financial statements 2012
21
Our Food business performed strongly in a tough market with total sales up
3.9% to £4.7bn and like-for-like sales up 2.1%. We maintained our focus on
freshness, speciality and convenience and continued to lead the way with high
quality, first-to-market products. Our customers benefited from greater choice
across all our ranges – and our heritage of innovation kept them coming back
to find something new and exciting in our Food Halls.
Actions against our plan
Reinforced our position as a specialist
food retailer
Increased the number of product lines
improving the usual appeal of our food
offer. The new Food Halls deliver an
exciting visual experience for customers
that showcases the outstanding quality
and freshness of our products.
Improved in-store availability
Introduced 100 new international
brands, available only at M&S
Overview
Household budgets were under
increasing pressure this year. However,
customers remained loyal to M&S,
trusting us to deliver great quality and
exceptional value – especially at the
most important times of the year. They
also ensured that special occasions
were ring fenced and were determined
to enjoy important occasions such as
Christmas and New Year.
Deals were important to customers
looking to control their spending,
without compromising on quality. We
responded with high-impact, simple
deals such as our 3 for £10 offer on
meat and fish and the much loved
Dine In, providing stand-out value in a
heavily promotional marketplace. We
also made efforts to protect customers
from much of the inflation in commodity
prices through better buying, more
efficient stock management and
improved operations.
During the year we also embarked on
an exciting programme of changes to
our Food Halls, reinforcing our status as
a specialist food retailer and clearly
differentiating our already strong
proposition. We relaunched our in-store
bakeries and introduced new deli
counters to some of our stores,
Quality and value
Customers tell us that the quality of
our food sets us apart from our
competitors. During the year we
improved the quality of many of our
existing products, without increasing
prices. For example, we made one of
our all time lunch favourites even better
value, adding 40% more prawns to our
Prawn Mayonnaise sandwich. This
increased sales by 21%. We also
launched improved versions of our
great value top-selling products, such
as our Quiche Lorraine with 40% more
cheese and 20% more bacon.
Customers noticed this upgrade and
independent quality scores increased
as a result.
From our commitment to sustainable
fishing to our Fairtrade partnerships, our
close working relationships with
suppliers help us deliver food that is
ethically sourced and of the highest
quality. Our high standards of animal
welfare were recognised this year, with
a Sustained Excellence award in the
RSPCA Good Business Awards 2011.
As part of Plan A, we also source as
much food as possible from the UK and
the Republic of Ireland. This year, we
delivered record sales of English-
sourced fruit, including the first ever
English grown Rainier cherries; a much
sweeter variety, which has previously
only been available from US growers.
“ Our new Food
Halls showcase
the quality and
innovation that
make M&S food
truly special.”
John Dixon
Executive Director, Food
FOOD hIGhlIGhtS
Revenue
£4.7bn
3.9%
Market share
3.8%
level
promotions
The gourmet Dine In for £20
promotion for Valentine’s
Day – featuring a premium menu and
an extra course – delivered a record
performance, with almost 700,000
couples enjoying a romantic meal
at home.
Plan A: Healthier milk
Working with our dairy
farmers we developed Better
For You milk, containing 6%
less saturated fat than
standard milk. Altering the
cow’s diet using only
wholesome ingredients
– such as grass, maize and
rapeseed – helped improve
herd health and fertility. Just
one year will help remove 84
tonnes of saturated fat from
our customers’ diets.
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Annual report and financial statements 2012
22
Deli and bakeries
With a focus on
speciality breads, our
new bakeries have a
rustic, authentic feel.
They provide freshly
baked goods
throughout the day and
sales are up 25% since
launch. Our new deli
counters serve the very
best fresh products
including delicious
plats du jour such as
the Six Layer Lasagne
and our Salmon Tian
Appetiser.
Quality
perfect plants, less waste
M&S is the first retailer in the world to use
revolutionary technology to keep plants
in top condition during transit, thereby
reducing waste. M&S suppliers developed
a compostable wood fibre pad that easily
absorbs and releases water. Holding around
15 times its weight in water, the pad is
packed under gift-bagged or potted plants,
releasing water as the compost dries.
0
0
1
Flavours of the World
Our new Flavours of the World
range showcases 100 of the
very best speciality products
from around the globe. The
collection comprises authentic
products including olive oils and
chocolates. Many are sourced
from small suppliers with limited
or season-specific availability;
and not found anywhere else on
the UK high street.
What m&S does best
Customers turn to us at the most important times
of the year, trusting us to deliver outstanding quality
– and something different. In 2011, we delivered
another great Christmas, introducing 600 seasonal
lines and achieving over 20% increase on
Christmas Food to Order sales.
600
Strategic reviewFocus on the UKMarks and Spencer Group plc Annual report and financial statements 2012
23
Though budgets were stretched,
customers didn’t want to cut back on
quality. This year we highlighted our
great value through bigger, higher
impact promotions. Now in its fourth
year, our iconic Dine In promotion
continued to increase in popularity, up
10% on last year. In February, we
adapted the popular format with a
traditional meal deal – offering a hearty
main course such as Salmon en Croute,
a potato side and a prepared vegetable
dish all for £5. Customers responded
well to the genuine value of the offer
and we sold over 940,000 meals.
In addition to our promotional activity,
we run weekly price checks against the
competition to ensure our everyday
products remain competitive. With value
front of mind for our customers, we
introduced Simply M&S, a range of over
500 products that highlights M&S
quality at great everyday prices.
Available in store since May 2012, we
plan to extend the range further in the
year ahead.
Innovation and choice
Customers come to M&S because they
know they’ll find something different
each time they shop with us. We
continued to lead the market with
innovative new products and this year
we introduced some 1,900 new lines.
Our food innovation provided
convenient solutions to help time-
pressed customers entertain and
impress. In the autumn we launched the
Dessert Menu range including show-
stopper creations such as the Tarte aux
Abricots and traditional favourites like
the Profiterole Stack. Since launch it
has become the number one chilled
dessert brand in the UK. For the festive
season, we made it easier for
customers to entertain at home, with a
new quick-cook turkey and a record 59
party food options. In the run-up to
Christmas, we had our best ever week
for party food, selling 2.3 million packs.
We worked closely with our suppliers
during the year to deliver more
innovation in quality produce. We
launched the UK’s first ever ‘reverse
season’ British-grown asparagus,
developed with grower John Chinn in
the Wye Valley, which was available
exclusively in M&S between September
and November. We responded to the
latest culinary trends, such as specialist
poultry, and were the first high street
retailer to provide free-range guinea
fowl, as well as British-bred poussin.
This year we also offered more choice,
with the aim of encouraging our regular
customers to do more of their weekly
shop with us. We conducted extensive
research during the year – both online
and in stores – to understand exactly
what our customers wanted. As a
result, we increased our core product
catalogue by 1,000 lines. Among these
were larger value packs for family
shoppers, such as double concentrate
fruit squash and 1kg bags of pasta, as
well as a greater selection of scratch
cooking ingredients.
Operations
We introduced our ‘Customer Ready
Food’ initiative in all our stores during the
summer. Our Food Halls now include
zoned areas, which are ‘owned’ by
employees on the shop floor. Employees
are responsible for ensuring their section
remains visually appealing and well
stocked and their improved product
knowledge allows them to offer more
help to customers. Along with other
measures, the initiative has contributed
to a reduction in net waste of 10%.
Our ongoing investment in new IT
systems continued to improve on-shelf
availability. We also made better use of
available space to improve choice and
redesigned our packaging, making it
easier for customers to identify and
select from the appropriate range.
Health
healthy eating ranges
We promoted healthy
eating through count on
us™ and Simply Fuller
Longer: now the top two
health brands in the UK
market. We listened to our
customers and introduced
new additions to both these
ranges during the year,
keeping the menus fresh
and appealing.
discover
more
award winning quality
The exceptional quality
of our food was
acknowledged by
numerous awards this
year. This includes the
best non-vintage
Champagne for M&S
Herbert Beaufort Brut at
both the Decanter World
Wine Awards 2011 and
the International Wine
Challenge 2011.
looking ahead
2012/13 shows every sign of
being another challenging year
for food retailers. Customer
spending will remain cautious
and carefully planned. We will
continue to build on our existing
strengths and deliver more of
what our customers expect from
us: the highest quality food, an
inspiring shopping experience,
great product innovation and
clear, stand-out value.
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Annual report and financial statements 2012
24
This year we began work on delivering a more inspiring shopping experience to
the 20 million customers that visit our stores every week. As we rolled out our
new store format, we provided even higher standards of customer service, set
against more challenging targets. At the same time, we continued to extend our
UK store portfolio to ensure we had stores in the most convenient locations for
all our customers.
Actions against our plan
Grew our UK store presence, including
our Simply Food business
Began the roll-out of our new store format
Delivered a more localised product range
for our customers
We continued to expand our UK store
portfolio, adding over 400,000 sq ft of
space this year through new stores,
developments and extensions. We grew
our presence in key developments and
retail park sites and remained active in
town centres, maintaining investment in
our high street stores.
We have a pipeline of new stores and
are committed to enhancing our
position in major cities. This year’s
highlight was the opening of our
136,000 sq ft sustainable learning store
at Westfield Stratford City, adjacent to
the London Olympic Park. New store
developments at Gloucester, Sheffield
Crystal Peaks and Peterborough are
underway and we are in the process of
delivering four new stores in retail parks.
Now in its tenth year, our convenient
Simply Food offer continued to flourish
and we opened 25 stores this year.
New look stores
Following a successful pilot scheme,
our new store format (opposite) was
rolled out to 66 stores by the year end.
This is continuing at the rate of roughly
a store a day, including stores in our
ongoing modernisation programme.
As promised, the format delivers a more
inspiring experience, with clearer brand
differentiation and improved navigation.
This includes defined brand areas that
reflect the unique handwriting of each
clothing sub-brand, so customers can
quickly identify which best suits their
style. The refreshed Food Halls support
our position as a speciality food retailer
– with revamped artisan bakeries and
fresh deli counters. Fresh produce is
now displayed in authentic wooden
crates and flowers are presented in
traditional floristry buckets.
We also completed our work to better
segment our stores according to local
demographics. This has ensured that
we have the right product mix in place
and allocate the correct amount of
space in store to individual ranges.
Service in store
In a challenging trading environment,
great service is more important than
ever. Our stores met tougher service
measures and achieved higher mystery
shopping scores: 82% compared to
78% last year.
Our ‘Customer Ready Food’ initiative
outlined on page 23 helped improve
performance and in February 2012 we
were ranked the UK’s number one food
retailer by the Institute of Customer
Service.
To deliver the best possible customer
experience it’s essential that we run an
efficient business. This year we worked
to reduce queue times, through
increased use of self check-out tills,
better tagging systems and improved
scanning procedures at the till point.
We continued to work closely with
product teams on space, range and
display planning and our new stock
management systems improved
on-shelf availability.
Our StOrES
Total UK portfolio
731
Premier
11
Major
42
High street
243
Outlet
47
Simply Food (owned)
168
Simply Food (franchised)
220
Looking ahead
In the year ahead we will
continue the roll-out of
our new store format. We
will also launch our
‘Customer Ready’
initiative into Clothing and
Home to help deliver an
improved experience
across entire store
portfolio. As explained on
page 26, we will continue
to work closely with our
e-commerce team to
integrate our shopping
channels to provide a
great experience for our
customers however they
choose to shop.
Plan A: Sustainable stores
Opening in August, our
Cheshire Oaks store will
feature the latest sustainable
building technologies –
including retail firsts such as
the use of Hempclad panels
in the external walls and
100% FSC glulam timber in
the roof. Rainwater harvesting
will offset a significant
proportion of the store’s
mains water requirement and
70% of the store’s heat will
come from heat reclaim and
a biomass boiler.
Strategic reviewFocus on the UKMarks and Spencer Group plc Annual report and financial statements 2012
25
CuStOmEr INSIGht
“ I love hearing about all the new
things in store – the employees
are really knowledgeable about
the products.”
Westfield
Stratford City
Arranged over four
floors, our new
Westfield Stratford City
store has created over
550 new jobs. It is
home to a 26ft deli bar
and all the inspirational
features of the new
store format. The
store’s unique location
provides an opportunity
to showcase the very
best of M&S to an
international audience.
Service
10%
New look stores
The new format is
already inspiring
shoppers to take a
fresh look at M&S.
Customer
recommendations
at the updated stores
are around 10%
higher than the rest
of the business.
Knowledge to share
As part of our ‘Customer
Ready’ service initiative,
short videos from M&S
experts – such as our
fish buyer and our
Master of Wine – are
now uploaded twice a
week to an online portal
to help store colleagues
share their passion for
our products with
customers.
Great service
This year we launched
a new customer service
training initiative
– ‘Small things, big
impact’. The concept
underpinned all our
in-store activity and
showed employees
how even minor
changes in behaviour
and attitude can make
a big difference to
customers – and deliver
better sales too.
Mystery shopper
score:
82%
Strategic reviewFocus on the UKMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Strategic review
Annual report and financial statements 2012
26
Multi-channel
This year we grew ahead of the market, with sales increasing 18%, as
customers found it easier to shop with us in the way that suits them best.
New innovations helped us better integrate our different shopping channels,
allowing customers to shop online, via mobile or through in-store ordering
and receive their goods directly or collect in store. We laid the foundations
for future multi-channel growth, with a skilled team in place and our new
platform build underway.
Actions against our plan
Increased multi-channel sales
Developing a leading multi-channel
shopping experience
Building a platform for future
international, multi-channel growth
More customers are now shopping
with M&S online; we’ve grown our share
of online traffic and have over 3.4m
weekly visits, up 11%. This growth was
supported by the increased use of
smartphones and tablets, with sales from
our mobile-enabled site up over 200%.
Customers increasingly rely on the
convenience of online, with 26% of
schoolwear and over a third of dresses
bought this way. We made it even
more convenient this year, extending
next day delivery options and adding
improved search functions. We also
gave customers more choice, adding
more online-exclusive products,
boosting sales by 80%. We introduced
product personalisation on essentials
such as chinos and black dresses and
gave customers a new opportunity to
shop with us, launching M&S Outlet
online (opposite).
Online is not only a place for customers to
buy, it’s where many come to browse and
research too. M&S TV showcases our
latest trends and innovations. This year it
was viewed over 1.7 million times and
encouraged customers to spend longer
online. Product reviews were up 500%
and are an increasingly popular way for
customers to interact with M&S. Objective
feedback makes other shoppers more
likely to buy and provides invaluable
insights that help us to improve products.
Developing a leading multi-channel
shopping experience
With a flexible range of order and
delivery options, Shop your Way
continued to grow in popularity. The
service encourages customers to shop
across different channels, providing
choices that fit with their busy lifestyles.
For the first time, we made sale
products available for in-store collection
and 40% of Clothing and Home orders
are now collected in store.
As our customers’ shopping habits
change it’s essential that we change
with them. As part of this, we delivered
more choice and inspiration into our
stores, with Style Online (opposite).
New browse and order points were
also added to enable customers to
shop more of our product catalogue.
We equipped advisors with iPads to
offer more personal assistance to
customers and add value to their
in-store experience.
Over the year we launched a series
of initiatives and trials to help us better
understand how our customers interact
with the latest technologies across
both our retail and marketing channels
(see opposite).
This year we made progress against
our plans to become an international,
multi-channel retailer, with the launch
of our first international websites for the
French (opposite) and Irish markets.
We also appointed developers for our
new site build, which will provide us
with a robust platform to grow our
multi-channel ambitions.
“ Being truly
multi-channel
means making
it possible for
customers to
shop ‘Your M&S’
in their way.”
Laura Wade-Gery
Executive Director,
Multi-channel E-commerce
multI-ChaNNEl hIGhlIGhtS
Revenue
£559m
18%
Site traffic
3.4m per week
11%
Looking ahead
Put simply, we want more
of our customers to shop
with us across more of
our channels. To achieve
this we will create new,
inspirational opportunities
to engage with M&S and
deliver an even better
customer experience. We
will continue to provide
more customers around
the world with access to
M&S products, as we
grow our international
e-commerce offer.
Plan A: Closed loop
cashmere
We created an online
infographic to tell the story
behind our innovative
recycled cashmere coat.
The graphic explained how
returned garments are
collected, broken down
and transformed into
stylish Autograph coats. The
infographic format made it
easy to share across social
networks and was one of the
most read features on our
M&S Stories site.
Marks and Spencer Group plc Strategic review
Annual report and financial statements 2012
27
M&S Outlet online
Our successful M&S Outlet format
was launched online, offering even
more customers access to fantastic
discounts on our clothing ranges. The
site received over 1.1 million visitors in
its first six weeks and the buzz around
the launch helped boost sales at our
existing 47 M&S Outlet stores.
CONSumEr INSIGht
“ I love being able to view
the full range online
and then pick it up at my
smaller local store.”
Trialling new technology
This year we installed Wi-Fi in ten
stores so customers could more
easily access product information via
QR codes on store décor. In February,
the new Aurasma augmented reality
app helped us bring the model on our
Valentine’s Day billboard at Waterloo
Station to life. We also became the
first UK retailer to create an app for
Samsung’s internet-connected TV.
To view the interactive ad
(you need an open internet connection)
1. Download and instal the ‘Aurasma
Life’ app to your smartphone.
2. Open the Aurasma Life app and
point the camera at the ad.
Innovation
French website
In October we launched
our first international
website, serving
customers across
France. Priced in euros
and with local delivery
prices, over 10,000
products from our
Clothing and Home
ranges are available on
the French language
website.
Christmas Food
to Order
For the first time, our
Christmas food was
available to order online
for collection in store.
40% of customers took
advantage of the new
service and total sales
were up over 20% as
a result.
Style Online
Style Online uses
multimedia technology to
extend the reach of our
clothing sub-brands into
smaller stores. Catwalk
videos and our
interactive outfit builder
tool complement product
samples in a boutique
style environment.
Customers can purchase
products from order
points or through a
dedicated advisor.
Those with a QR
reader can use the link
below to view the
Style Online video
Marks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Strategic review
Annual report and financial statements 2012
28
International
Our International business continued to grow, with sales up 5.8% to £1.1bn.
This year we added 26 stores to our portfolio and entered new markets, giving
us a total of 387 stores across 43 territories. We also established a new
organisational structure to help us deliver our growth plans. Led by skilled
international retailers, the team now combines M&S experience and fresh
talent to spread new ideas and best practice across the business.
Actions against our plan
Growing International sales
Building a more international company
Growing in our priority markets and
entering new markets with a ‘bricks and
clicks’ approach
Building a more international
company
This year we put in place a new
structure – dividing the business into
three regions; Europe, Asia and the
Middle East. We appointed a director to
lead each region, supported by a head
of business development to drive new
market growth. We also created an
international visual merchandising team
(opposite) to ensure M&S customers
have a more consistent brand
experience wherever they are.
We are operating as a more
international business, having integrated
international marketing and buying into
the core teams. By using in-country
knowledge and expertise, alongside
local sourcing, we are delivering a more
appropriate offer for each local market.
Priority markets
We are focused on the clear growth
opportunities in our existing territories:
China, India, Russia and the Middle
East. Concentrated in the Shanghai
region, our Chinese stores continued
to perform strongly and we now have
seven stores, having opened three this
year. Working with our partner Reliance
Retail, we accelerated growth in India
to give us 25 stores in total. We added
six new stores, including our first high
street stores at Connaught Place and
South Extension in Delhi. These flagship
locations help build awareness of the
M&S brand, complementing our existing
mall offer.
Our franchise operations are central to
our international plans (see opposite),
and this year we opened 24 new stores
with our 18 global franchise partners.
With our partner Fiba, we’ve opened
eight new Russian stores; expanding
in key locations such as Moscow and
new cities including Kazan. Working
alongside Al-Futtaim, we grew our
Middle East presence – opening five
stores including a second store in Cairo,
Egypt and three in the UAE.
In difficult trading environments we
managed our costs tightly and took the
difficult decision to close four stores
across Greece and Eastern Europe.
After identifying operational issues in our
Czech business, we responded quickly
taking full management control of the
business (opposite).
In November we returned to the French
market, with a clear ‘bricks and clicks’
strategy (opposite). This approach is
central to our international expansion,
both in existing and new markets;
enabling us to combine stores, the web
and digital technologies to tailor our
channels for the way customers shop
and quickly extend the reach of our
brand. For example, we increased the
product offer of our 1,400 sq m Paris
store by adding touch screen browse
and order points.
INtErNatIONal hIGhlIGhtS
International revenue
£1.1bn
Stores
387
Territories
43
Looking ahead
With a new structure
embedded, our priority is
to grow our International
business. We will
continue to expand our
presence in priority
markets and work with
existing partners to enter
new markets with a
clearly defined business
plan. We will build
awareness of the M&S
brand with tailored
marketing campaigns and
will roll out our new store
format across our
international portfolio.
Plan A: UNICEF hanger
recycling
We added a new angle to our
hanger recycling by donating
57p for each box of hangers
we recycle to UNICEF, the
world’s leading children’s
charity. This funds a
three-year programme
designed to reach the
poorest communities in
Mymensingh and Dhaka,
Bangladesh, improving
children’s lives by providing
health care, access to clean
water and an education.
Marks and Spencer Group plc Strategic review
Annual report and financial statements 2012
29
Addressing key
issues
We placed an
experienced M&S retail
team in our Czech
operations to help
refocus the business.
We realigned pricing
and introduced a new
look format to our
Prague store. These
measures improved
performance in this
important region and
we are now rolling this
out across 48 stores
in the Czech Republic,
Poland, Slovakia,
Lithuania, Latvia
and Estonia.
Return to France
Trading over three
floors, our new Paris
store occupies a
flagship location on the
iconic Champs Élysées
The store attracted over
2,600 customers on its
opening day and we’re
now growing our
presence in Paris, with
plans announced for
four further stores.
Across France
customers can also
access M&S through
our first international
website.
total Europe:
157 stores
four new stores opened (-1 net)
total middle East and North africa:
122 stores
20 new stores opened (+16 net)
total asia:
108 stores
13 new stores opened (+11 net)
Growth
Strengthening franchise
partnerships
We want customers
wherever we trade to
experience the same
M&S, regardless of the
business model behind it.
We aligned ourselves
more closely with our
franchise partners to
provide more trading
support in areas such as
cataloguing and engaged
them in the M&S brand
at events such as our
Partner Conferences.
International shipping
We’ve reduced the
proportion of
international goods
shipped via the UK by
13% which improves
efficiency, reduces
costs and gets
products to countries
quicker. Over 35% of
stock now moves direct
to destination via our
four regional hubs in Sri
Lanka, China, Istanbul
and Singapore.
35%
Looking good
With our new visual merchandising
team we are establishing an
international centre of excellence
for product handling. Thanks to
new guidelines, each clothing
sub-brand is now displayed to its
fullest potential in store – helping
customers identify which fashion
brand best meets their own style.
Marks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Plan A
Annual report and financial statements 2012
30
Plan A is about doing the right thing – and encouraging our employees and
customers to join us. In 2011/12, Plan A continued to make us more efficient;
contributing £105m net benefit back into the business. Our fifth anniversary
represents a significant milestone on the Plan A journey and since launch we
have continued to raise the bar. We now have 180 commitments under seven
pillars, which are driving our ambition to become the world’s most sustainable
major retailer. This year we achieved a further 43 commitments taking our total
achieved to 138.
Involving our customers
In June 2011 we launched Forever Fish
– a major new campaign to help
customers learn about fish and protect
our beaches and marine life. We have
also invited our customers and our
employees to participate in around 120
beach cleans across the UK and Ireland.
Through the year, customers
enthusiastically supported Plan A
events including our ‘One Day
Wardrobe Clearout’ for Oxfam and the
World’s Biggest Coffee Morning for
Macmillan Cancer Support. As set out
on page 16, we’ve taken our Oxfam
partnership even further with the launch
of our ‘shwopping’ initiative.
How we do business
We continued to work closely with our
farmers, growers and other suppliers to
develop and implement sustainability
standards. All employees who have
direct contact with suppliers completed
responsible buying training this year.
As detailed on page 24, we opened
our new Sustainable Learning Store
at Westfield Stratford City adjacent to
the Olympic Park. We’ve also
conducted trials on alternative fuels,
including a small fleet of dual-fuel diesel
and compressed natural gas vehicles,
as well as the first hydrogen fuel cell
powered fork lift trucks in the UK.
Climate change
In January 2012, we became carbon
neutral across all stores, offices,
warehouses and delivery fleets
operated by M&S in the UK and
Republic of Ireland – the first major
retailer in the world to do so. Since
2006/07, we have improved the fuel
efficiency of our Food and General
Merchandise delivery fleets by 28%
and 30% respectively and have reduced
carbon dioxide emissions generated
by refrigeration and air conditioning
leakage by 54% per sq ft.
Waste
In February 2012 we achieved our
commitment to send no waste to landfill
from our stores, offices, warehouses
and construction activities. Against a
2006/07 base we reduced food waste
by 40%, with none sent to landfill and
89% processed to generate energy
using anaerobic digestion.
We re-used or recycled 147 million
clothes hangers, with the savings used
to fund UNICEF activities to alleviate
poverty for children and their families
in Bangladesh (page 28). Launched
in July 2011, this scheme will see M&S
donate at least £650,000 a year to
UNICEF over three years.
Natural resources
This year we achieved our commitment
to sustainably source 100% of our wild
fish. We now have 257 M&S food
products made using sustainable palm
oil with GreenPalm oil and GreenPalm
Kernel Oil certificates purchased for all
other productions that contain palm oil.
We completed three major water
stewardship projects with suppliers. Our
M&S Model Forest programme – which
goes beyond FSC certification to
include best practice in manufacture
and transport – was extended to supply
our cardboard food packaging.
Fair partner
We extended our ethical assessments
to cover our top ten property suppliers,
as well as our carrier bag, uniform and
mannequin suppliers. Working with the
international Global Social Compliance
Programme, we reduced the
administrative burden on our suppliers,
by identifying credible codes and
monitoring schemes they can apply to
their businesses.
plaN a hIGhlIGhtS
Total commitments
180
Commitments achieved
138
discover
more
how we do Business report
For more detailed information
about our progress please
visit marksandspencer.com/
hwdbreport2012 to download a
copy of our How we do Business
Report 2012.
Looking ahead
Plan A is integral to our
future plans; engaging our
customers, making us a
more efficient business
and forcing us to innovate.
As we continue to grow
from a predominantly
UK focused business
to a multi-channel,
international retailer we
will need a more seamless
approach to sustainability.
We are pleased with our
progress to date but we
know we still have a
long way to go on our
journey to become the
world’s most sustainable
major retailer.
Strategic reviewMarks and Spencer Group plc Annual report and financial statements 2012
31
Supplier training
We’ve worked with Oxfam and
Business in the Community to develop
ways of measuring community health
and prosperity in our supply chains.
Since 2010, we have trained more than
121,000 people – mainly in our General
Merchandise supply chains – on
employee rights and responsibilities,
health care, numeracy and literacy.
121,000
Customer
Carrier bag charging
Profits from our 5p Food carrier bag
charge raised £1.4m for charities, of
which £400,000 went to Groundwork
to support funding for gardens, parks
and play areas. The other £1m
supported our new Forever Fish
campaign, which is helping fund
beach clean activity.
£1.4m
Fairtrade tea
Our latest range
of Fairtrade tea is
packed at source
by smallholders
in Kenya, allowing
them to earn a larger
share of the profits.
Jointly funded by the
UK’s Department
for International
Development (DFID),
this project is the first of
its kind in the world.
renewable energy
We have now moved
to renewable energy
contracts for all
electricity purchased
directly. These include
an increased amount
of electricity from
small-scale generators,
including a new
Archimedes screw
water wheel installed
on the Thames at the
Mapledurham Estate.
plan a products
We’re making good
progress towards
our goal of giving
all M&S products
a Plan A quality.
Currently, 31% of
M&S Food and General
Merchandise products
have a Plan A quality,
such as Fairtrade,
animal welfare or
healthier food – making
it easier for our
customers to make
sustainable choices.
31%
Strategic reviewMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Our people
Annual report and financial statements 2012
32
Our people are at the very heart of our business; responsible for delivering our
business plans and making M&S special for our customers. We employ over
81,000 people around the world and throughout the year we worked hard to
equip them with the skills to drive our business forward. New initiatives have
boosted engagement and helped employees better understand the crucial role
they play in delivering our great products and service.
Actions against our plan
Embedded a new structure to support
our growth ambitions
Developed an international HR tool kit
Tailored our training programmes to
reflect business plans
Over the last 12 months we embedded a
new organisational structure to support
our business strategy. This included the
integration of the International buying and
marketing teams into our core business,
as well as establishing a new regional
structure for International. We began work
to provide more consistent HR support to
our 6,450 international employees;
translating our HR tool kit into 18
languages and reviewing our international
benefits to align with our UK offer.
This year, we made key senior
management appointments to support
our international and multi-channel
ambitions. We continued to build a
pipeline of future talent; recruiting over
180 graduates, including our first
International graduate intake (opposite).
For the first time we also offered five
specialist E-commerce roles, to
strengthen our Multi-channel team.
With a high volume of applications for
both graduate and store positions, we
manage the initial stages of recruitment
online. This year we made the process
more efficient, adding a new interactive
questionnaire designed to better
evaluate a candidate’s attitude to
customer service and improve the
quality of stage two applicants.
Learning and development
In line with our business strategy, we
broadened the content of our flagship
training programme, Lead to Succeed,
to include new International and
Multi-channel modules. We also better
aligned management programmes to
ensure future leaders develop the right
skills to support our growth plans.
The success of our new store format is
dependent on our employees bringing it
to life for customers. With this in mind,
we rolled out a comprehensive training
package – completing almost 90,000
hours of store training. Initially in our
Food Halls, the training focused on
enhancing product knowledge, as well
as the specialist skills required for new
departments such as delis.
Employee engagement
Despite a challenging trading
environment, our annual ‘Your Say’
employee survey showed improving
engagement scores, with positivity
remaining broadly level at 75%. The
results showed a strong correlation
between high engagement and
performance; with stores in the top
quartile of engagement achieving 8%
higher mystery shop scores than those
in the bottom quartile.
We continued to drive engagement
through our communications channels
to ensure employees understand our
business plans and the part they play.
2011/12 was the first full year of ‘The
BIG Idea’, in which a director challenges
employees to come up with improved
ways of working, such as ‘How can we
help more customers shop both online
and in store?’ More than 2,000
responses were received for each
quarterly question.
Our pEOplE hIGhlIGhtS
Total employees
81,000
Employees with over five
years’ service
50%
Employees with over ten
years’ service
28%
Looking ahead
With the Government’s
pension auto-enrolment
changes effective from
October 2012 our new
pension plan will be in
place from summer 2012.
This will ensure we can
meet the legislative
requirements efficiently
whilst retaining a market-
leading scheme. In
tandem, we will continue
to develop our HR function
to support the future plans
of the business.
Plan A: 5,000th
Marks & Start placement
Launched in 2004, our Marks
& Start work experience
programme has helped over
5,000 people into the
workplace. Working with four
charity partners, we support
the homeless, disabled,
lone parents and young
unemployed by providing
work experience. Over 40%
of participants go on to full
time employment and we
plan to increase placements
offered in 2012/13.
Strategic reviewMarks and Spencer Group plc Annual report and financial statements 2012
33
m&S people
System
Our new online system
has introduced more
efficient processes to
our stores and offices.
Employees can now
remotely book time off
and around 90% have
opted to receive online
payslips. Featuring
a salary exchange
scheme, it allows
employees to exchange
their gross salary for
benefits of the same
value such as childcare
vouchers and a cycle to
work offer.
Engage
Worldwide talent
In 2011 we launched an international graduate
programme, recruiting eight graduates from
India, China, Hong Kong, Greece and Poland.
In addition to their local region, each graduate
spent a month in the UK working in our
stores and offices.
Five peaks
Challenge
In June, 33 climbers
from our Retail team
scaled the five tallest
peaks in the British
Isles in 48 hours.
They raised more than
£1m for Breakthrough
Breast Cancer,
the Marie Keating
Foundation and Action
Cancer. Their efforts
were supported by a full
weekend of activities in
M&S stores and offices
across the UK.
Business
Involvement
Groups
Our Business
Involvement Groups
represent all our
employees and
comprise 3,600 elected
representatives from
across M&S. This year
they consulted on key
projects including the
roll out of our store
programme. 3,600
Sharesave
October 2011 marked
the 30th anniversary
of our award winning
Sharesave scheme.
Participation increased
for the second year
running, up 33% since
2009. In January the
11,000 participants
of Sharesave 2008
shared gains of over
£65 million.
£65m
Strategic reviewMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Financial review
Annual report and financial statements 2012
34
Financial review
Despite a challenging trading environment, M&S has performed well in
2011/12. Sales were 2.0% ahead of last year and underlying profit before
tax was £705.9m (last year £714.3m). Underlying earnings per share were
up to 34.9p.
Whilst we continued to drive the delivery
of our long term plans, we took decisive
action to manage the business through
the short term. We have been
responsive to the increasingly
promotional marketplace and invested
in giving our customers even better
value. Alongside this, we focused on
managing our costs tightly to mitigate
the impact on our profitability. This
prudent cost management supports
our investment in our future plans –
helping us build a stronger platform
from which to grow.
In November 2010 we shared our
plans to become an international,
multi-channel retailer and set out a
target to grow our revenues by £1.5bn
to £2.5bn over the next three years.
As a result of the deterioration in the
economic environment since we set out
our plan, we now expect to achieve a
£1.1bn to £1.7bn increase in revenues.
The execution of our plan moved apace
this year and we are making good
progress; enhancing our UK position
and strengthening our international and
multi-channel capabilities. We are
managing the roll-out of our new store
format appropriately and are pleased to
have identified £100m of savings,
reducing the total cost from £600m to
£500m over the three years of the plan.
This will be delivered with no reduction
to the scope and we remain on target to
complete the activity by mid 2013.
As with operating costs, we manage all
our expenditure carefully, ensuring we
are being as efficient as possible and
spending every penny wisely. In light of
increased growth in e-commerce we
have reviewed our space requirements
and have taken the decision to reduce
our capital investments in UK space by
£200m. We will continue to develop our
space especially through our successful
Simply Food format.
This time last year, I was clear that
running an efficient business is not
simply about cost cutting; it’s about
continual improvement, encouraging
the business to find new and better
ways of working. This approach is
supported by our ongoing programme
to restructure our supply chain,
implement new information systems
and improve our operational execution.
As we accelerate this activity we
continue to see bigger and better
benefits.
Funding
We advised last year that the additional
investment required for the execution of
our plans would be funded by our
existing cash flows, supporting our
commitment to maintaining an
investment grade credit rating and a
progressive dividend policy.
Our position is underpinned by a strong
balance sheet and net debt decreased
this year to £1.86bn. Our working
capital was well managed with a
£161.9m inflow.
During the year we renewed our
revolving credit facility, which was due
to expire in March 2013, at a £1.3bn
level, on a new five-year term with an
option to extend for a further two years.
We also took advantage of market
conditions to issue a new £300m bond
in December, having repaid another that
was due for maturity.
Plan A: Innovation Fund
This fund provides additional
support to innovate
sustainability projects that
help improve how we do
business. This year, the fund
provided £9m to support
large-scale projects and a
“ We will manage
our business
prudently;
navigating the
short-term
challenges to
ensure long
term sustainable
growth.”
Alan Stewart
Chief Finance Officer
Looking ahead
We remain cautious
about the outlook and
believe there is another
challenging year ahead.
Against this backdrop, we
will continue to operate
an efficient business;
managing our costs
tightly and building a
platform for long-term
sustainable growth.
further £1m for smaller
initiatives such as low carbon
food products and hydrogen
fuel cell powered fork lift
truck trials.
Marks and Spencer Group plc Financial review
Annual report and financial statements 2012
35
Summary of results
Group revenue
UK
International
Underlying operating profit
UK
International
Underlying profit before tax
Non-underlying items
Profit before tax
Underlying earnings per share
Basic earnings per share
Dividend per share (declared)
revenues
Group revenues were up 2.0% driven by strong performances
in our Food and International businesses. Revenue growth by
area, as reported by period was:
Total revenue %
UK
Clothing
Home
General Merchandise
Food
Total UK
International
Total Group
Like-for-like revenue %
UK
General Merchandise
Food
Total UK
Q1
Q2
Q3
Q4
FY
0.9
-5.4
0.3
5.0
2.7
7.8
3.2
-1.1
-9.2
-1.9
2.8
0.5
10.1
1.5
1.1
-13.3
-0.8
4.5
1.8
8.1
2.4
-0.3
-7.5
-1.2
3.1
1.2
-2.0
0.8
0.2
-10.0
-0.9
3.9
1.5
5.8
2.0
Q1
Q2
Q3
Q4
FY
0.0
3.3
1.7
-2.5
1.0
-0.7
-1.8
3.0
0.5
-2.8
1.0
-0.7
-1.8
2.1
0.3
UK revenues were up 1.5% in total with a like-for-like increase
of 0.3%. We added 2.1% of space, 1.8% in General
Merchandise and 2.6% in Food, on a weighted average basis.
International revenues were up 5.8%. Our owned businesses in
India and China saw strong growth, driven by good like-for-like
growth and the opening of new space. Trading conditions
continue to be difficult in Greece and the Republic of Ireland.
Our franchise business continued to perform well, with the Far
East and Middle East regions growing strongly. We returned to
France in November, opening our first store in Paris at 100
Avenue des Champs Élysées, with more stores planned.
Operating profit
Underlying operating profit was £810.0m, down 1.8%.
In the UK, underlying operating profit was down 0.2% at
£676.6m. Gross margin was down 30 basis points at 40.8%.
General Merchandise gross margin was down 80 basis
points at 51.4% as a result of raw material and wage inflation,
adverse currency pressure and the increase in promotional
activity. Food gross margin was up 50 basis points at 31.4%
52 weeks ended
31 March
2012
£m
9,934.3
8,868.2
1,066.1
810.0
676.6
133.4
705.9
(47.9)
658.0
34.9p
32.5p
17.0p
2 April
2011
£m
9,740.3
8,733.0
1,007.3
824.9
677.9
147.0
714.3
66.3
780.6
34.8p
38.8p
17.0p
%
variance
+2.0
+1.5
+5.8
-1.8
-0.2
-9.3
-1.2
-
-15.7
+0.3
-16.2
level
with better management of promotions and waste, as well as
early benefits from new systems implementation, helping to
offset the commodity price increases.
Underlying UK operating costs were up 1.5% to £2,995.0m.
A breakdown of the costs is shown below:
Retail staffing
Retail occupancy
Distribution
Marketing and related
Support
Total
52 weeks ended
31 March
2012
£m
889.2
2 April
2011
£m
877.6
1,030.9
1,011.8
398.1
161.8
515.0
393.5
142.9
525.5
2,995.0
2,951.3
%
variance
+1.3
+1.9
+1.2
+13.2
-2.0
+1.5
Retail staffing costs were well managed despite increases in
selling space and the annual pay review.
Increased occupancy costs reflect growth in selling space
and the impact of rent and rates reviews, offset by service
charge negotiations and reduced energy consumption.
Distribution costs continue to be very well managed despite
inflationary pressure and volume increases in Food and
Multi-channel, as we continued to see the benefits of
initiatives to improve supply chain efficiency.
The growth in marketing costs was weighted towards the first
half of the year as we increased the number of advertising
campaigns to support the launch of the ‘Only at Your M&S’
branding as well as the relaunch of our clothing sub-brands.
The reduction in support costs reflects a higher depreciation
charge associated with our IT investment, more than offset by
efficiency savings and improved procurement.
The underlying UK operating profit includes a contribution from
the Group’s continuing economic interest in M&S Money of
£50.7m. This contribution is up 44% (last year £35.2m), due to
a significant reduction in delinquency rates within M&S Money
as customers have been paying down outstanding balances.
Marks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Financial review
Annual report and financial statements 2012
36
Financial review continued
Underlying international operating profit was down 9.3% at
£133.4m (last year £147.0m). Franchise operating profits were
up 19.9% to £110.7m due to continuing strong sales
performance. Owned store operating profits were £22.7m,
down 58.5%, with trading in our European businesses
impacted by macro-economic pressures.
Non-underlying profit items
52 weeks ended
31 March
2012
£m
Profit on property disposals
One-off pension credit
Impairment of assets
Fair value movement on financial instrument
Fair value movement of embedded
derivative
Strategic programme costs
Total non-underlying profit items
–
–
(44.9)
15.6
(0.2)
(18.4)
(47.9)
2 April
2011
£m
2.9
10.7
(6.3)
54.3
20.3
(15.6)
66.3
average cost of funding was 6.5% (last year 6.4%). Underlying
net finance costs were down £6.5m to £104.1m reflecting the
lower interest payable and fees paid in the prior year, partially
offset by a lower pension finance income of £25.6m (last year
£37.6m). The non-cash fair value gain on financial instruments
of £15.6m represents a change in the valuation of the put
option over the non-controlling interest in our Czech
business.
taxation
The full year effective tax rate on underlying profit before tax
was 24.5% (last year 25.1%), reflecting the benefit of
announced changes to the corporation tax rate. Full year
effective tax rate was 25.6% (last year 23.3%).
underlying earnings per share
Underlying earnings per share increased by 0.3% to 34.9p
per share. The weighted average number of shares in issue
during the period was 1,579.3m (last year 1,577.1m).
Dividend
The impairment of assets includes the full write-off of the
Greece Group goodwill (£34.4m), and the impairment of some
store assets in the Greece Group (£10.5m). Last year the
amount represented the impairment of an investment property.
The Board is recommending a final dividend of 10.8p per
share. This will result in a total dividend of 17.0p, in line with
last year. This reflects the Board’s commitment to a progressive
dividend policy broadly twice covered by earnings.
The liability for the put option over the non-controlling interest
in the Czech Group is carried at fair value and has been
revalued in line with the latest business plan. The resulting
non-cash credit of £15.6m has been recognised within
finance costs.
The fair value movement on the embedded derivative is
driven by a reduction in the expected RPI rate.
As a result of the strategic programmes we incurred £18.4m
of costs in the year which are not part of the normal operating
costs of the business. These include non-cash costs of
accelerated depreciation and equipment write-offs as well as
costs associated with the relocation of the per una business
to London. The cumulative strategic programme costs
incurred since the strategy was announced are now £34m.
Net finance costs
Capital expenditure
Focus on the UK
Multi-channel
New stores
Store modernisation programme
International
Supply chain and technology
Maintenance
Total capital expenditure
Interest payable
Interest income
Net interest payable
Pension finance income (net)
Fees payable
Unwinding of discounts on financial
instruments
Underlying net finance costs
Fair value movement on financial
instruments
Net finance costs
52 weeks ended
31 March
2012
£m
2 April
2011
£m
(135.6)
(140.6)
7.1
4.7
(128.5)
(135.9)
25.6
–
37.6
(8.5)
(1.2)
(3.8)
(104.1)
(110.6)
15.6
(88.5)
54.3
(56.3)
Net interest payable was down 5.4% at £128.5m reflecting a
reduction in average net debt over the year. The Group’s
Store modernisation programme
New stores
International
Supply chain and technology
Maintenance
Run capital
Strategic capital
Total capital expenditure
52 weeks ended
31 March
2012
£m
71.6
42.8
170.4
73.6
61.9
212.7
104.5
737.5
Year ended
31 March
2012
£m
73.6
170.4
5.2
212.7
104.5
566.4
171.1
737.5
2 April
2011
£m
–
–
151.2
38.1
29.6
191.4
81.2
491.5
2 April
2011
£m
38.1
151.2
29.6
191.4
81.2
491.5
0.0
491.5
As previously announced we commenced our investment in
UK stores in order to create a more inspiring environment and
trial a new approach to segmentation and in-store navigation.
We have also commenced our investment in improved multi-
channel capabilities with the launch of our French website in
October 2011 and Irish site in April 2012 and continue progress
on the plan to build our own multi-channel platform.
Marks and Spencer Group plc Financial review
Annual report and financial statements 2012
37
International
Multi-channel
Focus on UK
Run Rate
RUN RATE
800
600
£m
400
200
2011/12
2010/11
We added 2.1% of selling space in the UK (on a weighted
average basis), trading from 16.0m sq ft at the end of March
2012. We opened 28 new stores during the year, including a
136,000 sq ft flagship in the new Westfield shopping centre in
Stratford, as well as 25 Simply Food stores.
In our International business, space increased by c.12%,
predominantly in our key strategic territories of India, China
and the Middle East as well as Russia.
We continued to invest in our supply chain and technology in
line with our strategy to build an infrastructure fit to support
the future growth of the business.
Cash flow and net debt
Underlying EBITDA
Working capital
Pension funding
Capex and disposals
Interest and taxation
Dividends and share issues/purchases
Net cash inflow
Opening net debt
52 weeks ended
31 March
2012
£m
2 April
2011
£m
1,280.1
1,292.4
161.9
(89.9)
(720.7)
(277.3)
(236.7)
117.4
184.0
(91.2)
(450.3)
(327.6)
(251.1)
356.2
(1,900.9)
(2,068.4)
Exchange and other non-cash movements
(73.6)
(188.7)
Closing net debt
(1,857.1)
(1,900.9)
The Group reported a net cash inflow of £117.4m (last year
£356.2m). This inflow reflects a decline in underlying EBITDA
and increased capital expenditure, more than offset by strong
working capital management and lower interest and taxation.
Capital expenditure, net of disposals, was £720.7m (last year
£450.3m) reflecting further investment in our supply chain and
IT, new space growth and the implementation of the strategy.
Net debt was £1,857.1m, a £43.8m reduction on last year.
pensions
At 31 March 2012 the IAS 19 net retirement benefit surplus
was £78.0m (last year £168.5m). The market value of scheme
assets increased by £788.3m, due to improved asset
performance and company contributions. The present value
of the scheme liabilities has increased due to a reduction in
the discount rate, offset by a reduction in the rate of inflation.
On 21 May 2012 the Group changed the terms of the Scottish
Limited Partnership (the Partnership) to waive the Group’s
limited discretionary right over the annual distributions from
the Partnership to the Pension Trustee. These discretionary
rights were agreed with our Trustee in 2009, the time of the
last triennial valuation.
This change will not have any impact on the cash flows of the
Group, but will, prospectively from 21 May 2012, result in a
change in the accounting treatment. The change will reflect
(i) the recognition of a financial liability, representing the present
value of the remaining ten years of distributions of £71.9m per
annum, and (ii) an increase in the Group’s annual interest
charge of c.£17m to reflect the unwinding of the discount on
the liability. In financial year 2012/13 the change will result in an
increase in the Group’s reported net debt of £537m and a
decrease in total net assets of £551m. The Group’s obligations
to the Pension Trustee remain unchanged and this will not have
any material impact on the Group’s credit rating.
In March 2009, conscious of the Group’s obligations to the
Pension Trustee and the Partnership (which is a partnership
between the Group and the Pension Trustee which holds a
number of properties from which the Group trades and on
which the Group pays rent to the Partnership), we amended
the terms of the Partnership to reflect a discretionary right
agreed between the Group and the Trustee. This right is such
that in the circumstances when no ordinary dividend or other
distribution is made to ordinary shareholders, the annual
distribution of £71.9m from the Partnership to the Pension
Trustee would not be obliged to be made. The impact of this
change was to reclassify £572m from debt to equity in March
2009, and to reduce the Group’s interest charge by £33m in
the financial year 2009/10. The Audit Committee and the Board
have consistently received accounting and legal advice
supporting this accounting treatment. There was no impact on
the Group’s ultimate obligation to the Pension Trustee and no
impact on cash flows.
Following the publication of the 2009 Annual Report and
Accounts, in February 2010 the Financial Reporting Review
Panel (FRRP) wrote to the Company in relation to the change
in accounting treatment of the obligation to the Pension
Trustee. In the dialogue that followed, and has continued until
the present time, the FRRP expressed a concern that in the
circumstances of the Group’s pension arrangement this
discretion was not sufficient to support classification of the
Partnership interest as a component of equity.
In the interest of bringing discussions with the FRRP to a
close and given that the Group has a stated dividend policy
and the Board continues to expect that future dividend
payments and resulting Partnership distributions will be
made, the Group has decided that it will reflect the obligation
as a liability, and in order to achieve this will indefinitely waive
its discretionary right. As before, there is no change in the
Group’s ultimate obligation to the Pension Trustee. The FRRP
has confirmed that this change, with the consequent
accounting treatment, effective from 21 May 2012, will bring
its discussions with the Group to a close.
Marks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
38
Governance
Chairman’s overview
Robert Swannell
“ The Board is the guardian of
the M&S brand, its reputation
and stakeholder relationships.
If we continue to do the right
thing, the right way, with
integrity and with the right
checks and balances, these
will be protected for the future.”
Last year was the start of a new chapter in the development
of the Board and our governance. We have made progress
against the plan we set ourselves, driving leadership,
collaboration and a culture of continuous improvement in
standards and performance across the business.
We have made a number of changes to the Board and its
Committees during the year, welcoming three new members
to the team.
I believe that we have a truly engaged and committed
Board. I am pleased with the robust and challenging debate
held across a wide range of issues and the support shown
to the Executive team as it drives our strategy to become an
international multi-channel retailer.
It is important that we continue to drive our effectiveness
as a team and ensure we are consistent in our commercial
decisions and in our values and principles. Integrity in our
decision-making is key to maintaining the trust of our
stakeholders.
What we do today, the level of debate and behaviour we
exhibit as a Board is critical to our success. We recognise
that we may not always get things right; where that is the
case we will learn from our mistakes. We should be as
open as we can be to new ways of doing things better
as well as drawing from our past decisions, experiences,
standards and processes and use them to inform and
support our future.
As an extraordinary testament to our rich history and
experience, we recently moved the M&S Company Archive
to a purpose built new home in the heart of the University
of Leeds. This allows us to make our extensive collection,
gathered over 128 years, accessible for the first time to a
much wider community. To find out more visit
marksintime.marksandspencer.com
The Board has taken an active interest in the Archive’s
development, recognising that our history and decisions
have guided behaviours, contributed to the M&S culture
and enabled the development of the M&S brand.
We, as a Board, are the current guardians of this iconic
and valuable brand, its reputation and stakeholder
relationships.
If we continue to do the right thing, the right way, with integrity
and with the right checks and balances, these will be
protected for the future.
Our governance is focused not only on the boardroom
but also right across the business. We believe that good
governance ultimately produces a better business and
supports long-term performance. It is not just what we do,
but how we do it.
As a Board we regularly discuss and review:
– our strategy, brand and reputation and how we
can best achieve our goal to become an international
multi-channel retailer;
– our Code of Ethics and Behaviours; our guide to our
values, behaviours and ways of working;
– our colleagues, ensuring they feel valued, motivated
and rewarded and how we can ensure their future
development and succession;
– our customers, suppliers and local communities,
ensuring we treat them fairly and with respect;
– our shareholders, how we can communicate openly and
be transparent with them in the way we manage the
business; and
– Plan A, our ambitious plan to become the world’s
most sustainable retailer.
UK Corporate Governance Code
The 2010 UK Corporate Governance Code is the standard
against which we were required to measure ourselves in
2011/12. We are pleased to confirm that we complied with
the UK Corporate Governance Code 2010 for the period
under review with the exception that, for a short period of six
weeks, the number of independent non-executive directors
on the Board, excluding the Chairman, dropped below half
as required by the Code. This was due to a timing difference
between the retirement of Louise Patten in July and Vindi
Banga joining the Board in September. Given that the Board
was not scheduled to – and did not – meet during this short
period, we feel our governance was not impacted.
The required regulatory and governance assurances are
provided throughout this report. However, again we have
sought to avoid a box-ticking approach. Using the key themes
of the Code, we focus on how governance supports and
protects the M&S business in a practical way. You will find our
approach to Leadership on pages 42 and 43, Effectiveness on
44, Accountability on 45 to 48, Engagement and Relations with
Shareholders on 49 and 50, the Governance of our Pension
Scheme on page 50 and Remuneration on pages 54 to 67.
Our Governance Framework is constantly reviewed and sets
out the roles, accountabilities and expectations for our
directors and our structures. It also details a schedule of
matters reserved for the Board’s decision, detailing key
aspects of the Company’s affairs that the Board does not
delegate (including, amongst other things, approval of
acquisitions and disposals, business plans and material
expenditure). The framework can be viewed, along with the full
account of how we have complied with the UK Corporate
Governance Code at marksandspencer.com/thecompany.
GovernanceMarks and Spencer Group plc
Annual report and financial statements 2012
39
business and technology. Laura, Vindi and Miranda each had
extensive induction programmes on joining the Board. Vindi
and Miranda are also now both members of the Nomination
and Remuneration Committees.
In February 2012, our Deputy Chairman and Senior
Independent Director, Sir David Michels stepped down from
the Board following the end of his second three-year term.
The Board appointed Jan du Plessis as Senior Independent
Director on 1 March 2012 to succeed David. Jan has served
on the Board since November 2008.
In addition to ensuring appropriate succession of our non-
executive directors, the Nomination Committee has remained
focused on the succession and development of the Executive
team, as well as ensuring it has greater insight into our future
talent pool. The Committee’s activities are outlined on page 51.
Supporting this development of our leadership within the
business, the Remuneration Committee has overseen the
implementation of the new senior executive framework and
ensured robust and fair debate around the setting and
disclosure of objectives and targets. These are highlighted
in greater detail on page 57. The Committee has also
participated in the wider UK remuneration debate, taking an
active role in a number of formal consultations and engaging
with major shareholders and investor representative bodies.
Monitoring risk
Monitoring the level of risk, and ensuring appropriate
governance to support this remains a key objective, involving
the support of the Audit Committee. We have an ambitious
strategy and it is important that the scope of the audit plan
captures the full range of our business initiatives, whilst ensuring
assurance on core practices and activities. The outputs of the
Committee are described in greater detail on page 52.
Our Audit Committee has helped support the Board’s activities.
It is important that we continue to drive the level of challenge and
debate around risk as well as improve our understanding
of risk appetite and tolerance as our business evolves.
Overall, I am pleased with the progress we have made this year
across the governance agenda, some of which is highlighted
on the following pages. However, we will continue to be open
in any way we can to improve our governance and board
performance. Where things go wrong we will say so and learn.
Robert Swannell
Chairman
To see our full governance
framework go to
marksandspencer.com/
thecompany and follow the link.
Those with a QR Reader app
can use the link to the right.
Our Committees and Committee chairmen
u it y
Business C o ntin
m itte e
Steve R o w
Co m
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E x e cutive Board
M a rc Bolland
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How We D o
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Marc Bolla n d
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Diversity
This year diversity has been a key theme for governance
generally. We made further progress in shaping our Board for
the future, ensuring that diversity, in its broadest definition, is
at its heart. We discussed diversity and what this means for
our business, our customers and stakeholders. Our policy on
page 51 summarises our views and sets out our ambitions.
From a practical perspective, our focus on diversity
meant we looked hard at our mix of skills and experience.
Our new appointments have sought to complement these
as well as ensuring a better balance of gender and
international background as we become a truly international
multi-channel retailer.
Much focus of the diversity debate has concentrated on
female director appointments. Our female directors today
represent around 30% of the Board. Below Board level,
women account for 35% of senior management. A number
of appointments across the broader senior management team
have also enabled us to benefit from greater international
experience, which is important as we grow our international
presence. Our Board diversity mix is shown overleaf along with
more detailed biographies and a snapshot of the
Board’s experience.
Appointments and succession
In July 2011, we announced the appointment of Vindi Banga
as a non-executive director. Vindi joined the Board in
September and brings a wealth of global business experience
along with extensive consumer and brand knowledge. In July,
Laura Wade-Gery joined the Board as Executive Director
Multi-channel E-commerce, following the announcement
of her appointment in February 2011. In October 2011, we
announced the appointment of Miranda Curtis as a non-
executive director. Miranda joined the Board in February 2012
and brings a valuable perspective of international consumer
OverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other informationGovernanceMarks and Spencer Group plc
Board of directors
John Dixon
Executive Director,
Food
Steven Sharp
Executive Director,
Marketing
Laura Wade-Gery
Executive Director,
Multi-channel
E-commerce
Appointed Chairman in January 2011. Robert
joined Marks & Spencer as a non-executive
director in October 2010. He brings a wealth
of knowledge of the City, acquired over 33 years
in investment banking at Schroders and Citigroup,
and extensive government and regulatory
experience from previous roles with BIS and the
FSA. Robert has significant board-level experience
in the retail, private equity and real estate
industries. His leadership in the area of
governance has enhanced board debate
and helped drive a culture of openness and
development. Robert stepped down from the
Board of HMV Group plc on 23 June 2011,
recognising the increased commitment of this role.
He was previously Senior Independent Director of
The British Land Company plc and 3i Group plc.
Chairman of the Nomination Committee
Independent
Appointed in May 2010. Marc joined Marks &
Spencer from Wm Morrison Supermarkets plc
where, as Chief Executive, he led the successful
development and implementation of its long-term
strategy. Prior to this, Marc was Chief Operating
Officer at Heineken NV, where he was globally
responsible for the Heineken business. Since
joining M&S, Marc has worked with the Board in
developing our strategy to become an international
multi-channel retailer. Marc is a non-executive
director of Manpower Inc.
Member of the Nomination Committee
Appointed in October 2010. Alan has extensive
financial experience in industries as varied as retail,
travel and banking. He joined Marks & Spencer
from aircraft leasing company AWAS, where he
was Chief Financial Officer. Alan worked for HSBC
Investment Bank before joining Thomas Cook in
1996, where he held a number of roles including
Chief Executive of Thomas Cook UK. He became
Group Finance Director of WH Smith plc in 2005,
playing a central role in the improvement of the
Group’s financial performance. Alan was
previously a non-executive director of Games
Workshop Group plc.
Joined Marks & Spencer in October 2004 and was
appointed to the Board in March 2008. Kate has a
wealth of brand and retail experience after holding
numerous senior positions across all areas of
clothing and footwear during her career. Kate
joined M&S from Asda where, as Product Director
of the George brand, she was responsible for the
launch of the standalone George concept and
brand globally. Prior to Asda, Kate was Product
Director for Childrenswear at Next. She is an
honorary Doctor of Arts at de Montfort University
and Business Administration at Manchester
Metropolitan University. Kate has played a major
role in our renewed brand focus and store
improvement programme.
Robert Swannell
Chairman
Marc Bolland
Chief Executive
Alan Stewart
Chief Finance Officer
Kate Bostock
Executive Director,
General Merchandise
Annual report and financial statements 2012
40
Joined Marks & Spencer in 1986 and was
appointed to the Board in September 2009. John
brings a unique experience of M&S to the Board
as a result of his long history with the Company.
He joined as a store management trainee and
has worked in a variety of senior roles across the
business, including internationally-based retail
roles, Executive Assistant to the Chief Executive
and Director of Multi-channel E-commerce and
Home. John was appointed Director of Food in
July 2008 and has been instrumental in driving
and improving the Food business.
Joined Marks & Spencer in May 2004 and was
appointed to the Board in November 2005. Steven
brings extensive retail marketing experience and
is the architect of our marketing strategy. He
started his career as a Marketing Manager with
Bejam in 1978, progressing to the Argyll Group
and becoming Marketing Director of Asda in 1987.
He has also been Marketing Director of the Burton
Group, Booker plc and Arcadia Group plc. He is a
non-executive director of Adnams plc, a Fellow of
the Chartered Institute of Marketing, The Marketing
Society, The Royal Society of Arts and a visiting
professor of Glasgow Caledonian University.
Appointed on 4 July 2011. Laura brings
considerable retail and consumer experience to
the Marks & Spencer Board, including significant
e-commerce knowledge from her previous role as
Chief Executive Officer of Tesco.com and Tesco
Direct. Laura is leading significant change to our
e-commerce capabilities. She was appointed a
director of Royal Opera House Covent Garden
Limited on 2 March 2012 and stepped down as
a non-executive director of Trinity Mirror plc on 10
May 2012. Prior to joining Tesco, Laura held various
roles at Gemini Consulting and Kleinwort Benson.
Appointed in February 2006. Jeremy provides
considerable insight into the consumer retail
environment acquired through a successful
career at some of the UK’s most high profile
organisations. He has been Chief Executive of
British Sky Broadcasting Group plc since 2007,
having previously been the Chief Financial Officer
from 2004. Prior to that Jeremy was Group
Finance Director and Retail Finance Director
at Dixons Retail plc, formerly Dixons Group plc.
Jeremy Darroch
Non-executive
director
Chairman of the Audit Committee
Member of the Nomination Committee
Independent
Appointed in July 2004. Steve has a wealth of
experience on the Board of Marks & Spencer,
bringing extensive knowledge of corporate
business. He has also held senior executive and
boardroom level roles within the challenging utility
and oil and gas industries. Steve is Group Chief
Executive Officer of National Grid plc, having
previously been Group Director, UK and Europe
and responsible for the UK Electricity and Gas
businesses. Prior to joining National Grid, Steve was
an Executive Director of British Borneo Oil and Gas.
He has also held numerous senior positions with
the Exxon Group. Steve is Chairman of Crisis.
Chairman of the Remuneration Committee
Member of the Audit and Nomination Committees
Independent
Steven Holliday
Non-executive
director
GovernanceMarks and Spencer Group plc
Annual report and financial statements 2012
41
Martha Lane Fox
Non-executive
director
Jan du Plessis
Senior Independent
Director
Miranda Curtis
Non-executive
director
Vindi Banga
Non-executive
director
Appointed in June 2007. Martha’s considerable
expertise in e-commerce and experience in the
successful operation of online and consumer-facing
businesses is helping to develop and challenge
our multi-channel strategy. Martha is the UK’s
Digital Champion and Chair of Go ON UK. She
chairs the Government’s Digital Advisory Board
and is a non-executive director of MyDeco.com.
She was a non-executive director of Channel 4
Television until January 2012. Martha is well-known
as one of the co-founders of lastminute.com, which
she took public in 2000. She is the founder and
Chair of LuckyVoice.com and of her own
grant-giving foundation, Antigone.org.
Member of the Audit and Nomination Committees
Independent
Appointed as a non-executive director in
November 2008 and Senior Independent Director
on 1 March 2012. Jan has considerable business
and brand experience, having sat on the boards
of a number of leading companies across a variety
of industries. Jan is Chairman of Rio Tinto plc.
He was formerly Chairman of British American
Tobacco plc and RHM plc and a non-executive
director of Lloyds Banking Group. He was also
Group Finance Director of the Swiss luxury goods
group Richemont until 2004.
Member of the Audit, Nomination and
Remuneration Committees
Independent
Appointed on 1 February 2012. Miranda has
considerable experience within the international
consumer and technology sectors and extensive
experience of the global broadband cable industry.
In her 20-year career with Liberty, Miranda led the
company’s investments in digital distribution and
content operations across Continental Europe
and Asia-Pacific, most notably in Japan. Miranda
is Chairman of Waterstones, a non-executive
director of Liberty Global Inc and was a non-
executive director of National Express Group plc
until 11 May 2012.
Member of the Nomination and
Remuneration Committees
Independent
Appointed on 1 September 2011. Vindi has
extensive consumer brand knowledge and global
business experience, acquired over 30 years in
a number of senior roles within the consumer
goods industry at Unilever plc, including President
of the Global Foods, Home and Personal Care
businesses, and as a member of the Unilever
Executive Board. Vindi is a partner at private
equity investment firm Clayton Dubilier & Rice
and a non-executive director of Thomson Reuters
and Maruti Suzuki India Ltd.
Member of the Nomination and Remuneration
Committees
Independent
Amanda Mellor
Group Secretary and Head of Corporate
Governance
Appointed in July 2009. Amanda was appointed
a non-executive director of Kier Group on
1 December 2011.
Board diversity
Board experience
Retail
92%
Consumer
100%
Finance
31%
E-commerce
23%
International
Board composition
Executive
46%
Non-executive
54%
Male
69%
Female
31%
Board tenure
0-1 years
23%
2-3 years
31%
4-5 years
23%
6-10 years
23%
OverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other informationGovernanceMarks and Spencer Group plc Leadership
Annual report and financial statements 2012
42
Our Board
Name of Director
Chairman
Robert Swannell
Deputy Chairman
Sir David Michels1 (retired 29 February 2012)
Chief Executive
Marc Bolland
Executive directors
Kate Bostock
John Dixon
Steven Sharp2
Alan Stewart
Laura Wade-Gery (appointed 4 July 2011)
Non-executive directors
Vindi Banga (appointed 1 September 2011)
Miranda Curtis (appointed 1 February 2012)
Jeremy Darroch
Martha Lane Fox
Steven Holliday
Louise Patten (retired 13 July 2011)
Jan du Plessis3
Board Meetings
A
B
10
10
9
8
10
10
10
10
10
10
7
7
2
10
10
10
3
10
10
10
9
10
7
7
2
10
10
10
3
9
A = Maximum number of meetings the director could have attended
B = Number of meetings the director actually attended
1) Sir David Michels was unable to attend the Board meeting on 7 December 2011
due to overseas business commitments.
2) Steven Sharp was unable to attend the Board meeting on 6 January 2012
due to personal commitments.
3) Jan du Plessis was unable to attend the Board meeting on 4 May 2011
due to overseas business commitments with Rio Tinto.
The Board agenda focuses on our themes of driving our
strategy, developing strong leadership and succession,
monitoring execution, protecting our trusted brand and
our strong relationships with customers, employees and
other stakeholders.
While we recognise the importance of compliance, we
try to avoid spending time on box-ticking and gold-plating
legislation, choosing instead to focus on the long-term
plans for our business and its execution.
Following our external Board evaluation last year, we further
reviewed all information sent to Board members. We also
moved to electronic distribution of our Board papers by
iPad – a contribution, albeit small, towards supporting our
Plan A objective to reduce the use of printed paper across
our business, but one which clearly demonstrates the
Board’s willingness to embrace new technology and more
efficient methods of communication.
Our Board agendas today allow more time for debate and
long-term strategic discussion, with two Board away-days
held during the year. Our forward planner gives Board
members visibility of what is on future agendas for their
consideration. We also schedule time during every meeting
for ad hoc feedback as well as giving the non-executive
directors an opportunity for private discussion.
Following last year’s action plan we have sought to ensure
that we reflect on decisions taken by the Board and learn
from those decisions or situations where things go wrong.
A good example of this was a discussion held in December
2011, following a substantial fine from the Health and Safety
Executive after we were found to have breached the Health
and Safety at Work etc Act. The Board received a detailed
presentation from our health and safety, property and legal
teams, and discussed the lessons learnt from this case and
the actions put in place by the business to avoid such
incidents in future.
Driving strategy
The Board approved a number of significant strategic
developments and investments during the year. These included
the new platform for our online business, European websites in
France and Ireland, a number of new stores, investment and
review of our new store format programme as well as reviewing
the progress of associated customer-facing initiatives.
We have found that early stage engagement on strategic
initiatives is essential to ensuring robust debate. Given our
ambition to grow our business and become an international
multi-channel retailer by 2015 we have continued to hold two
strategy-focused meetings in the year. Our October meeting
was held in our newly opened store in Stratford, East London,
giving the Board the opportunity to walk the store and be in
touch with the latest customer and store developments prior
to the roll-out across the estate (discussed earlier in this
report). In February 2012, the Board came together again to
review the three-year plan and progress with the strategic
initiatives, particularly around the development of our
multi-channel and international businesses.
Monitoring risk
A greater level of strategic discussion has also enabled
the Board to develop its debate on risk, risk appetite
and tolerance, testing how best we can maximise the
opportunities for us to grow the business.
Protecting the business from operational or reputational
damage is an essential part of the Board’s role. In line with our
action plan, and supported by the Audit Committee, we have
assessed the effectiveness of our reporting controls and
ensured our Group Risk Profile reflects the business’s strategic
objectives. We have carried out a full review of internal controls,
updated our Code of Ethics and Behaviours, introduced an
Anti-Bribery Policy and supported this with a communications
and training programme to ensure awareness.
We have also reviewed previously approved investment
decisions, reviewed the progress of the Plan A External
Advisory Board and reviewed our health and safety and
business continuity planning.
Nurturing talent
Developing leadership, future talent and securing succession
plans for the business have continued to be key themes for
the Board, building on discussion from the previous year. As
we did last year, we also spent time on the induction of three
new Board members and the programmes designed were all
thoroughly comprehensive (an overview of these inductions
can be found in the Corporate Governance section of our
Corporate website marksandspencer.com/thecompany.
GovernanceMarks and Spencer Group plc Annual report and financial statements 2012
43
Building on the development of our leadership, this year
our non-executive directors held a number of small informal
lunch meetings with senior managers. These meetings have
been well received, giving our non-executive directors the
opportunity get to know our top talent and give our managers
a forum for free-flowing informal debate with Board members.
Training and development of our senior managers has
continued to be a key focus and the majority of them have
now been through our Lead to Succeed programme. This
year the Board supported the introduction of two additional
modules to this initiative to challenge our managers as to how
they might lead an international, multi-cultural, multi-channel
business. We believe that these initiatives position us well to
develop a source of talented leaders for the future and
feedback has been extremely positive.
We have also ensured our reward framework is fit for
purpose, reflecting our resolve to recognise the skills and
talents represented across our teams as well as setting
stretching goals and objectives that feed into our wider
ambitions for the business. Our Remuneration Committee
continues to lead and ensure they challenge on this important
piece of work; for more details see page 57.
Feedback is encouraged both within the boardroom and
across our business. All employees have a chance to share
their views and insights via a host of engagement initiatives
including our annual ‘Your Say’ survey, Business Involvement
Groups, director presentations, the Annual Business
Conference for store and senior management and informal
director roundtable discussions. Employee feedback from
such events is discussed by the Board giving useful insight
into employee morale and their reactions.
Board discussion – Driving continuous improvement in 2011/12
Leadership and employees
– Focused on succession within the business,
reviewing and identifying the top talent,
developing a pipeline of high-quality individuals
for future succession.
– Developed our Board Diversity policy.
– Continued to focus on the composition,
balance and effectiveness of the Board.
The appointment of two new non-executive
directors and a new Senior Independent
Director brings new perspectives, experience
and skills to the table, further strengthening the
Board debate.
– Reviewed the key operational hires and
identified gaps in experience needed to deliver
the strategy.
– Continued to enhance employee engagement
through, the annual ‘Your Say’ survey, our
Business Involvement Groups, the BIG Idea,
director presentations, the Annual Business
Conference and informal director roundtable
discussions.
Relations with shareholders
– Annual independent investor audit undertaken
by Makinson Cowell.
– Held our first governance event in June 2011,
providing an opportunity for the Board and
our top 20 investors and investor bodies to
engage face-to-face on key areas of concern.
– Engaged with our retail shareholders at
the AGM.
– Reached out to our ‘lost’ shareholders
by engaging a full lost shareholder search
programme, now embedded into the
annual calendar.
– Actively engaged with institutional
shareholders, investor and regulatory
bodies throughout the year.
Customers
– Received regular presentations from the M&S
Customer Insight Unit, to better understand
the key customer concerns, market and
consumer trends and sentiment in the current
tough economic environment.
– Approved the launch of the new store format
and reviewed the progress of the customer
facing initiatives. These newly refreshed store
environments now showcase the distinct
clothing brands and the newness and
innovation of the food offering.
– Received customer feedback in store and at
the AGM.
s
& Spen
c
e
r
M ar k
Doing
the right thing
the right way
G
overn a n
c e
Trusted brand
– Launched the M&S Company Archive to
the public. Ensuring our rich history and
heritage is preserved and accessible by
the Company, the academic community
and the wider public.
– Established the Plan A External Advisory
Board, to provide independent advice and
guidance to shape our ambition of becoming
the world’s most sustainable retailer.
– Supported the strengthening of
governance structures throughout our
international operations to better protect
our brand, following issues highlighted
by our internal processes.
Strategy
– Approved the decision to build a new
multi-channel platform to support our
multi-channel ambitions, including agreeing
the key suppliers for the project.
– Held two Board away-days to support and
challenge all areas of the Group strategy and
the three-year plan.
– Regularly reviewed the supply chain
modernisation project and challenged the
distribution model to ensure value and efficiency.
– Debated the new International strategy
and reviewed the case for restructuring the
Greek operation.
– Debated and approved the Group’s
dividend policy.
– Reviewed the Group’s capital structure
and funding requirements.
– Agreed the launch of the French and Irish
websites, to support our international ambitions.
Checks and balances
– Assessed the effectiveness of the Group Risk
Profile by identifying where the business’s key
risks lie, aligning them with the business’s risk
appetite and highlighting how to effectively
target those risks.
– Undertook a ‘Year 2 Booster’ approach
to the 2012 evaluation of the Board and
its committees to continue our focus of
becoming the best Board we can be.
– Reviewed the health and safety lessons
learned, ensuring the safety of our
employees and customers is protected.
– Scrutinised and debated key investment
proposals: re-evaluated two significant
property and logistics investment decisions
to ensure best value for the business.
– Reviewed the Governance Framework and
launched a comprehensive anti-bribery,
training and awareness campaign.
OverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other informationGovernanceMarks and Spencer Group plc
Effectiveness
Annual report and financial statements 2012
44
How do we make sure our Board is effective?
In 2010/11 we commissioned our first ever independently-
facilitated Board review, conducted by Ffion Hague of
Independent Board Evaluation. Our aim was to capture open
and constructive feedback from Board members that would:
– provide insight into our effectiveness;
– point to actions for improving our performance; and
– establish a benchmark for measuring future progress.
While it is considered best practice for boards to conduct
an external review every three years, based on the positive
feedback from the Board and the fact that we had a number
of new joiners during the year, we decided to adopt a ‘Year 2
Booster’ approach for our 2012 review.
The aim of this approach was to:
– check progress against the issues identified in last
year’s report;
– check feedback from new members of the Board and bring
them up to speed with the process the Board has undergone;
– identify any new issues that have arisen during the past year.
Once again, and in order to ensure consistency, Ffion Hague
assisted with this review. The review was conducted according
to the guidance in the UK Corporate Governance Code 2010.
What was the focus of the Board review?
Our approach involved a Board observation; one-to-one
interviews with the Chairman and new joiners and structured
telephone interviews with those directors who participated in
last year’s evaluation. Each participant was asked to evaluate
the Board, its Committees, the Chairman and individual
Board members. The process took place between January
and March 2012.
Subjects covered included a general overview as to the
‘state’ of the Board, its operation and how this had changed
over the year. Directors were asked for their views on our
shareholder engagement and relationships and how these
relationships might be improved.
Views were sought on the Board’s input into strategy
discussions, governance and compliance, risk management
and succession planning.
Views were also sought on the Board culture and the
relationships with senior management as well as how new
members are selected and inducted.
What did we learn?
From the review, and subjects covered, it is clear that the
Board has made progress on most of the points on last year’s
action plan, as evidenced by:
– the dedicated session on succession and talent and the
introduction of non-executive lunches to improve
engagement with senior management;
– the appointment of Vindi Banga and Miranda Curtis
following the retirement of Sir David Michels and Louise
Patten; the subsequent appointment of Jan du Plessis as
Senior Independent Director; the review and changes to the
Remuneration and Audit Committees;
– the opportunity for a more focused review of strategy with two
meetings specifically dedicated to this, one in the Stratford
store in October and the other more recently in February 2012;
– further progress on developing the Group Risk Profile and
aligning the risks and actions to the strategy outlined in
November, which was a key focus for the Audit Committee.
However, there is opportunity for us to broaden the debate
and explore our understanding of risk, tolerance and
appetite in 2012/13; and
– we held our first governance event in June 2011 which was
well attended by major shareholders and representative bodies.
They clearly welcomed the opportunity to discuss succession
and the Board, remuneration and Plan A. We agreed to make
this an annual event and the next one is scheduled for June
2012. We have also been actively engaged in the debate on
diversity, remuneration and integrated reporting.
When we look at the more detailed table of responsibilities by
area, which we put together last year, along with the
feedback from the 2011/12 Board assessment, it is clear that
there are opportunities for us to:
– improve papers and presentations, including context,
content and timeliness;
– create a better framework to facilitate constructive debate,
especially in relation to strategy;
– ensure a more strategic review of the forward agenda;
– continue our engagement with senior management below
Board level; and
– following intensive induction on joining, review ongoing
knowledge and training for all directors.
Action Plan 2012/13
The insights gathered from the Board review has resulted in
a clear action plan for the year ahead. The actions address
the key areas of succession, development and people,
nature and scope of the Board debate, risk management,
and shareholder engagement.
During the year, the Board plans to:
– continue to drive the agenda on succession planning
and development of key managers;
– continue to improve engagement with shareholders and
representative bodies, and transparency and disclosure;
– continue to review ongoing knowledge and training for
all directors;
– continue to drive better understanding of risk,
risk tolerance and appetite; and
– continue to review long-term forward agenda and papers
and framework for Board discussion.
Director induction
On joining, M&S directors receive a comprehensive, formal
and tailored induction programme. This includes time with the
Group Secretary, each of the executive directors, members of
the Management Committee and a wide range of senior
management from across the business.
During the year we supported induction programmes
for Laura Wade-Gery, Executive Director Multi-channel
E-commerce and Vindi Banga and Miranda Curtis: our two
new non-executive directors.
GovernanceMarks and Spencer Group plc Accountability
We believe that effective risk management is critical
to the achievement of our strategic objectives and
the long-term sustainable growth of our business.
What is our approach to risk management?
The Board has overall accountability for ensuring that risk is
effectively managed across the Group and, on behalf of the
Board, the Audit Committee reviews the effectiveness of the
Group Risk Process.
Risks are reviewed by all business areas on a half-yearly
basis and measured against a defined set of likelihood and
impact criteria. This is captured in consistent reporting
formats, enabling Internal Audit & Risk to consolidate the risk
information and summarise the key risks in the form of the
Group Risk Profile. Our Executive Board discusses the Group
Risk Profile ahead of it being submitted to Group Board for
final approval.
To ensure our risk process drives improvement across the
business, the Executive Board monitors ongoing status and
progress of key action plans against each risk on a quarterly
basis. Whilst we continue to broaden the debate around
tolerance and appetite, risk is now a key consideration in
all strategic decision-making at a Board level.
Key areas of focus
We continue to drive improvements to our risk
management process and the quality of risk
information generated, while at the same time
maintaining a simple and practical approach.
Our process continues to be focused on the following
key principles:
1. Alignment with the Group plan
Each business area has clear objectives aligned to the plan.
Risk champions have refreshed their business area risk
registers against the context of these objectives, ensuring
that the risks upon which we are focusing are of strategic
importance to the Group and that key risks to delivery are
highlighted. As a result, we have added two new risks this
year: Distribution centre restructure and Business
continuity.
2. Focused risk descriptions
As our understanding of the Group’s risks develops, we
are refining how these are defined. For example, we have
widened last year’s Economic outlook risk to encompass
achievement of the Group plan rather than focusing on our
sales forecast.
3. Action plans for key risks
We have also improved our distinction between ‘business
as usual’ mitigating controls (incorporated in our net risk
scoring), and additional mitigating actions taken to further
reduce net risk over time.
Annual report and financial statements 2012
45
1 Risk identification
Risks highlighted
and documented in
a centrally managed
Risk Register
2 Risk assessment
Risks assessed in
terms of likelihood
of occurrence and
potential impact on
the Group
3 Risk mitigation
Required actions are
agreed and assigned,
with target deadlines
and quarterly status
updates
D
O
O
H
L
E
K
L
I
I
i
n
a
t
r
e
c
t
s
o
m
A
l
l
y
e
k
L
i
i
l
e
b
s
s
o
P
l
y
e
k
i
l
n
U
G
Gross risk assessed
before mitigation
N
Net risk assessed
after mitigation
G
G
G
N
G
G
N
N
N
N
Minor
Moderate
Major
Critical
IMPACT
Our principal risks and uncertainties
As with any business, we face risk and uncertainties on
a daily basis. It is the effective management of these that
places us in a better position to be able to achieve our strategic
objectives and to embrace opportunities as they arise.
To achieve a holistic view of the risks facing our business,
both now and in the future, we consider those that are:
– external to our business;
– core to our day-to-day operation;
– related to business change activity; and
– those that could emerge in the future.
The ‘risk radar’ below maps our principal risks against these
categories. This tool is also used to facilitate wider Executive
and Board-level discussions on risk.
EXTERNAL
Economic
outlook
Financial
position
Business
continuity
Key supplier
failure
N
W
O
N
K
/
E
L
B
A
T
S
I
C
H
A
N
G
N
G
/
N
E
W
Corporate
reputation
IT security
GM stock
management
Food safety
Our people
Our
customers
International
Distribution centre
restructure
Multi-channel
Programme and
workstream management
New
store format
IT change
INTERNAL
Overleaf are details of our principal risks, the mitigating
activities in place to address them and additional actions
implemented to further reduce net risk to the Group. It is
recognised that the Group is exposed to a number of risks,
wider than those listed. However, a conscious effort has been
made to disclose those of most concern to the business at
this moment in time and those that have been the subject of
debate at recent Board or Audit Committee meetings.
OverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other informationGovernanceMarks and Spencer Group plc
Accountability continued
Annual report and financial statements 2012
46
Description
Mitigating activities
Finance We continue to focus on maintaining a strong financial position that supports improvements to our business.
Economic outlook
Worsening economic conditions impact consumer
confidence and our ability to achieve the plan
As consumers’ disposable incomes come under pressure
from price inflation and government austerity measures, trading
conditions continue to remain a challenge for our business.
Financial position
Deterioration in our financial position limits our
flexibility and ability to fund and grow the business
In the event that the Group’s financial performance does not
meet market expectations, our ability to borrow from lenders on
our existing terms may be impacted, resulting in increases to the
cost of borrowing and insufficient funding to meet our capital
requirements and growth plans.
– We regularly review and monitor the effectiveness of our pricing and promotional
strategies across our General Merchandise (GM) and Food businesses, tailoring
our consumer offering where appropriate.
– The business continues to actively manage and minimise costs where appropriate
and regularly reviews customer feedback and our positioning in the market place
to ensure we meet customer expectations.
– Group Treasury regularly carries out forecasting of our debt capacity,
financial covenants and other rating metrics within current rating bands.
– The funding level of our pension scheme is monitored in collaboration with
the Trustees on a regular basis, with clear parameters in place that would trigger
an intra-valuation debate between the Trustees and the Company.
– We have regular communication with rating agencies and brokers.
– Group Treasury proactively monitor the potential for a Eurozone break up and where
possible assess the impact this could have on the Group’s financing and derivatives.
Brand and reputation Our founding principles of Quality, Value, Service, Innovation and Trust continue to influence ‘how we do business’ and our
reputation for being one of the UK’s most trusted brands.
Corporate reputation
External expectations relating to our financial performance,
Plan A commitments or corporate governance are not
adequately managed
Our brand continues to be trusted in the marketplace, with Plan A
and robust governance being integral components. A strong
brand brings high expectations and the need to consistently
deliver quality, value and trust to our wide stakeholder base. The
business must also manage significant external expectation
regarding our plan.
Our customers
Loss of engagement with our core 55+ customer
As we seek to enhance the M&S brand and make our sub brands
more distinctive, it is important that we continue to address our
core customers’ specific needs in an increasingly competitive and
economically uncertain market.
Food safety
A food safety incident occurs or is not effectively managed
As a leading retailer of fine quality fresh food in the UK, it is
paramount that the food products we sell to our customers are
safe, especially as we introduce more operational complexity
such as delis and bakeries as part of our new store format.
– The business follows a clear plan to effectively communicate key information
to internal and external stakeholders (and other external parties).
– Group KPIs and benefits tracking for all strategic initiatives enable regular
monitoring of business and key programme performance.
– Our commitment to Plan A and becoming the world’s most sustainable retailer
by 2015 remains a priority for the Group with one of our key objectives being for
all M&S products to have at least one Plan A quality by 2020.
– Policies and procedures are in place to meet the requirements of the Bribery Act,
supported by a training programme.
– GM and Marketing have prioritised focus on our core customer and will continue
to respond to sales and customer reaction to product/in-store experience through
focus groups, online reviews and our in-house Customer Insight Unit.
– We are in the process of delivering improvements to our stores to strengthen and
clarify our brand in response to customer research.
– We have a dedicated team in place to ensure that all M&S food products are safe
for consumption through rigorous controls and processes, with a continuous focus
on quality. We apply this approach to all new initiatives and locations.
– We maintain robust governance of the supply base through our supplier audit
programme and reporting process. Depot auditing is now also well established.
People and change Our people are fundamental to the long-term success and growth of this business.
Our people
Reduced engagement and retention of key employees impacts
our ability to deliver business plans
As we go through a period of economic uncertainty as well as a
number of internal change initiatives, it is ever more important to
ensure that M&S remains a great place to work.
Programme and workstream management
Benefits from our major business programmes
and workstreams are not realised
We continue to undertake a number of major strategic
programmes to underpin the achievement of our plan; the delivery
of forecasted benefits is critical to this.
Distribution centre restructure NEW
We fail to effectively deliver our new national e-commerce
distribution centre
We are opening a new national distribution centre which will also
service all customer orders placed through Shop Your Way. The
implementation of this distribution centre relies on a number of
new facilities, business processes and systems.
– A monthly briefing is cascaded to our top managers, a quarterly results broadcast is
held for all employees and Directors regularly hold employee engagement sessions
to communicate the growth ambitions and underlying plans for the business.
– Development of future talent remains a key priority. Managers attend our ‘Lead to
Succeed’ programme, helping them to realise their full potential, whilst succession
planning is a key area of focus for the Board.
– We plan to roll out an improved performance and talent management process to
ensure robust career development discussions take place across the business.
– Our Strategic Programme Office centrally governs the strategic initiatives across
the Group, performs regular reviews and updates the Executive Board on their
status, tracking of costs and realisation of benefits.
– All major programmes possess their own governance structures, supported by
robust project management discipline.
– We are taking a phased approach to implementation for our new distribution centre,
and robust governance structures exist to engage all areas of the business.
– Simulation models are being used to test the robustness of the facility in different
scenarios and a programme is in place to ensure open dialogue with key partners.
– We will continue to implement measures to test and manage facility performance.
GovernanceMarks and Spencer Group plc Annual report and financial statements 2012
47
Description
Mitigating activities
Selling channels We have ambitious plans for our UK, International and Multi-channel businesses as part of our commitment to becoming a leading
international multi-channel retailer by 2015.
New store format
Failure to deliver improvements across our store estate
to time, to budget or to the desired quality
We are delivering improvements to our stores to strengthen and
clarify our brand in response to customer research. As we move
into the second phase of the roll-out, adherence to programme
schedules, budget and quality standards will be key to
successful delivery.
Multi-channel
A new online platform with flexibility to support future growth
is not delivered by the time our contract with Amazon expires
To achieve our target to become a leading multi-channel retailer
and to make our brand more accessible, we are investing in a new
online platform that will provide both an enhanced shopping
experience and help to accelerate our growth.
International
Failure to leverage our systems, processes and controls
limits growth of our International business
To increase our international presence and build a leadership
position in priority markets, we must adopt an organisation
structure that is supported by robust systems and supply
chain capability.
– Our new store format initiative, designed to improve the customer shopping
experience and our brand positioning, is well underway and we continue to
implement a phased roll out across our store estate.
– Close monitoring of costs and of progress against plan is in place, with direct
reporting lines into the Executive Board. This will continue as we move into the
second phase of roll-out.
– We are closely managing the impact on our stores and have developed innovative
training programmes to minimise time off the shop floor.
– Our multi-channel growth strategy is underpinned by a clear plan for
implementation of the new platform both in the UK and overseas.
– We are working closely with our partner Amazon to ensure the quality of our
existing online offering is not compromised whilst we build the new platform.
– A phased approach for implementation of the new platform is planned.
– The appointment of Heads of Region for Europe, Middle East and Asia
will facilitate the implementation of our international growth plans.
– The focus on enhancing international systems and processes has continued
throughout the year in alignment with the development of our international
strategy and will remain a priority for the year ahead.
Day-to-day operation We are a customer-centric business and strive to deliver an efficient and effective operation.
GM stock management
Ineffective stock management control impacts either
gross margin delivery or product availability
Effective stock management is integral to ensuring that we
provide good availability to our customers, whilst minimising
markdowns which can impact profitability.
Key supplier failure
Failure of a key supplier or third party provider
Economic or geo-political conditions, or changes to the way
we source our goods and services, cause a key supplier to fail,
or disrupt the supply of key product lines or services.
IT security
We experience a major breach in IT security
The business is subject to external threats from hackers or
viruses, or sensitive data is accessed without authorisation.
IT change
Unforeseen impact of IT changes to new and existing
systems disrupts business operations
As we undertake a number of significant change programmes,
the rate and scale of IT change is increasing, with potential to
significantly impact our complex and interdependent systems.
Business continuity NEW
We fail to adequately manage or respond to a Group-wide
disaster
The business faces a heightened level of risk as a result of the
Summer 2012 events taking place in the UK.
– General Merchandise (GM) continue to closely monitor stock levels, targeting areas
with more or less than required. Promotions are tightly controlled, and we are focusing
on our ability to respond in-season to current trends and sales performance.
– A Stock, Sales & Intake tool is now being used across GM and we have implemented
a new stock ledger in parallel run with legacy systems, prior to full business adoption.
– We have strengthened our monitoring of top suppliers, with a quarterly risk
assessment process in place for key merchandise and non-merchandise suppliers.
– Alternative supply routes are continually monitored and, where appropriate, the
supply base has been consolidated.
– We continue to offer payment terms that are sufficiently flexible to assist suppliers
as required.
– Extensive security controls are in place in accordance with International Standards,
along with a number of policies and technologies designed to enhance security.
– Sensitive data is tightly controlled through limited and monitored access, and the
roll-out of systems incorporating enhanced security.
– We continue to proactively manage cross programme dependencies and have
introduced ‘release management’ to group system changes together.
– We have a clear decision-making process for system changes, including the
adoption of change freezes during critical trading periods.
– Disaster Recovery plans for critical business applications have been tested.
– Group continuity plans, incident reporting and management procedures are well
established. We monitor these through an annual crisis management exercise and
quarterly committee meetings.
– We have a number of policies and procedures in place to manage the safety of our
employees when abroad, and have links with the Home Office and government
agencies to receive information on known threats.
We have removed a number of risks from our Group Risk Profile since the prior year, including Food competition, Product costs and
Supply chain management. The Group has undertaken significant mitigating activity in response to these risks and as such their
inclusion in the Group Risk Profile is not deemed necessary at this moment in time.
The risks listed do not comprise all those associated with Marks & Spencer and are not set out in any order of priority. Additional risks and
uncertainties not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business.
Further information on the financial risks we face and how they are managed is provided on pages 97 to 102.
OverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other informationGovernanceMarks and Spencer Group plc Annual report and financial statements 2012
48
Corporate reputation
International
IT
security
Key:
Top risk
Downgraded risk
Highlighted risk
Financial
position
Business
continuity
4
Product
costs
Multi-
channel
IT
change
Our
people
Programme/
workstream
management
1
Economic
outlook
New store
format
Distribution
centre
restructure
Our
customers
Supply chain
management
2
GM stock
management
3
Key supplier
failure
Food
safety
Food
competition
Accountability continued
Risk interconnectivity
Over time, globalisation, changing business models
and technological advances have resulted in a
business environment increasingly interconnected
through systems and processes. Whilst this can
be beneficial, it also increases the interdependency
of risk. As a Group, we recognise this and
continually strive to refine our risk management
processes in response.
The diagram depicts our current Group Risk
Profile, plus three risks removed since last year. It is
designed to highlight how changes to one risk could
impact on those connected to it, and on the profile
as a whole.
1 Deterioration in the Economic outlook
could impact our sales performance.
2 This requires greater control over General
Merchandise (GM) stock management.
3 Reduced order volumes could increase the
risk of Key supplier failure if they experience
pressure from other economic factors.
4 Competition over retail selling prices may require
us to reduce Product costs, increasing pressure
on suppliers.
Following significant mitigating activity, Product
costs is not considered a top risk to the Group at
this time. It still features in our detailed risk registers
and by understanding risk interconnectivity, we can
monitor factors such as the economy to ensure we
can appropriately manage any likely impact on our
supply base.
Risk and the role of Internal Audit
Internal Audit & Risk comprises both the Group Risk function and Internal Audit. Whilst Group Risk facilitates and manages
the risk process that is ultimately owned by the Group Board, Internal Audit is accountable to the Audit Committee. Audit
projects are often closely aligned to the Group Risk Profile (GRP) due to the risk-based approach used to prioritise audit work.
The following examples illustrate how Internal Audit work supports Group Risk whilst driving improvements to our control
environment and adding value in core business areas.
Risk: International
Risk: New store format
Risk: IT security
Risk: Food safety
M&S Czech Republic operates
48 stores across six countries
selling primarily General
Merchandise (GM) goods. The
audit assessed the adequacy
and effectiveness of internal
controls over core operations,
including stores and support
functions. The report highlighted
areas for control improvement
in strategic decision-making at
a local level, GM stock
management and retail
operations. A pilot of a centrally
managed stock allocation and
range planning system has been
implemented.
Internal Audit scheduled a
review of our new store format
initiative due to the pace of
delivery and level of investment
in the programme. The scope
focused specifically on Property
and included processes relating
to project planning, cost control,
supplier selection and fire,
health & safety. The audit report
provided assurance to
management and the Audit
Committee that there were
robust programme management
controls in place and, although
some minor areas for
improvement were identified,
the overall control environment
was strong.
We engage a number of third-
party service providers who
host or process sensitive or
confidential data on our behalf.
Internal Audit reviewed the
processes and controls in place
to mitigate the risk of
unauthorised release or
exposure of such data. The
report confirmed that the
security assessment
methodology is robust, and that
significant external data hosting
or processing activities adhere
without exception, enforced by
our IT Change process.
Opportunities existed to improve
process compliance and
business area awareness for
smaller initiatives.
Food innovation and quality help
to differentiate M&S and we are
committed to ongoing new
product development (NPD),
whilst maintaining food safety
standards. Internal Audit
conducted an audit review to
assess the adequacy and
effectiveness of internal controls
over NPD. The audit report
provided assurance that
effective controls exist over this
core process and also identified
opportunities to enhance
monitoring of product
development costs and the use
of success criteria.
Management actions from all of our audits are tracked to completion and the status of these actions is reported to the Audit
Committee to ensure that the risks identified are appropriately addressed. This will, in turn, further mitigate the risks included
in our Group Risk Profile.
GovernanceMarks and Spencer Group plc Engagement
Annual report and financial statements 2012
49
Robert Swannell, Chairman
Understanding differing opinions is a key part of driving our
business forward. We are very interested in understanding
the views of our investors, and continue to engage with many
of them. Marc Bolland, Alan Stewart and our Investor
Relations team met with representatives from over 300
investment institutions during the year to answer their
questions and keep them updated on our performance and
plans. These ranged from one-on-one meetings to group
presentations and investor conference calls following our
results announcements. Any presentations provided in these
meetings are uploaded to our website and comments are fed
back to the Board and its Committees.
During the year I also met with a number of investors and
industry representatives to answer their questions and better
understand their policies on governance and voting. I also look
to stakeholder websites for information on their voting and
positions on stewardship at AGMs. We welcome further
engagement from institutions as they make progress in
adopting the Financial Reporting Council’s Stewardship Code.
In June 2011 we held our first governance event. Our largest
investors, industry governance specialists and voting advisory
companies were invited to our office to meet me, the Deputy
Chairman, Sir David Michels, the Chairman of our
Remuneration Committee, Steven Holliday and our Director of
Plan A to discuss key governance matters. The meeting was
well attended, received positive feedback and will be
repeated again in 2012.
For an independent view, Makinson Cowell, the capital
markets advisory firm, continues to provide the Board with an
annual presentation of major investors’ views on Company
management and performance. This is based on the results
of extensive surveys and interviews. This report is presented
each year ahead of the AGM.
Amanda Mellor, Group Secretary
During the year we continued our active engagement with
investors, representative bodies and governance
organisations. In addition to the investor meetings and
discussions on governance related matters I also gave a
number of presentations and lectures on the way M&S
approaches governance and stewardship to industry
contacts and other company secretariat teams.
Several government and regulatory consultation documents
were released during 2011/12. The Company has responded
to a number of these, keen to ensure that we help shape
good regulation and legislation.
Private shareholders continue to represent 95% of the
shareholders on our share register and we value their opinions
and continue to actively engage with them throughout the year.
We circulate shareholder topics cards with our Notice of
Meeting to ensure that the views of those shareholders
unable to attend our AGM are heard. Those returned are
summarised, presented to the Board and senior
management, the Chairman address the top three topics
at the meeting. Many are responded to directly. Shareholders
can also email the Chairman with their comments, write to us
or telephone our helpline.
We continue to encourage shareholders to become more
informed investors. A wealth of information is available on our
website throughout the year and our trading statements and
financial results are emailed to those shareholders that have
provided us with email addresses and requested to receive
electronic communication. This year we have added quick
response (QR) code links in some areas of this report, in the
Notice of Meeting and on our voting forms. These allow fast
access, via a smartphone, to information which the reader
may find useful. Also released during the year is our investor
relations app for the iPad, more information on this is provided
on the next page. We recognise that not all of our shareholders
are online or have these devices, so we suggest they receive
our smaller M&S ‘At-a-Glance’ booklet, published with the
private investor in mind, rather than the full report or review.
We remain committed to our lost shareholder programme and
our search agent, ProSearch, continues to seek out those that
have failed to keep their details up to date. Despite all our
efforts there are some instances where we are unable to find
the shareholder. For this reason we introduced our share
forfeiture programme; an industry first established to utilise
funds from these dormant accounts. The first funds were
forfeited in April 2011 and have supported the M&S Company
Archive. The relocation of the Archive this year to M&S’s
birthplace in Leeds has provided a unique opportunity to
celebrate both the rich history of Marks & Spencer and the
enormous benefits achieved by opening up the collection for
the Company, academics and the wider community. Further
funds were forfeited in April 2012, which will also be used for
good causes.
What happens at our AGM?
The Notice of Meeting sets out the resolutions being
proposed at the Annual General Meeting (10 July 2012 at
11am). Last year all resolutions were passed with votes
ranging from 84.8% to 99.9%.
In 2011 our AGM attracted close to 2,000 people with more
joining via our live webcast. This year our Notice of Meeting
advises some changes we are making to the format of the
meeting. We have moved the meeting by one day to avoid
a clash with two other high profile companies with large
private shareholder bases. The meeting has also been
moved from 2pm to 11am. Once again, the meeting will
be webcast live and a recording of the meeting added to
our website for later viewing.
Shareholders unable to attend are encouraged to vote in
advance of the meeting, online at sharevote.co.uk or by
using the proxy card which we mail to them. Last year, like
other FTSE 100 companies, we were disappointed to see
a marked reduction in voting from private shareholders.
Although the documents were already considered easy to
complete, we have redesigned our voting stationery to try
to make them clearer. Over 95% of our shareholders are
private investors, we value their opinions and would like
to see more voting cards returned from them.
OverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other informationGovernanceMarks and Spencer Group plc Engagement continued
Annual report and financial statements 2012
50
Experience online
Whether it’s through marksandspencer.com/thecompany
or our Investor Relations app for the iPad, (available free of
charge), online shareholders can be much more informed
throughout the year.
Website
The M&S website contains a wealth of information, such as:
– Latest M&S news, Stock Exchange announcements and
press release alerts;
– Annual Report and Investor presentations;
– Detailed account of how we have complied with the UK
Corporate Governance Code 2010;
– Our full Governance Framework, including Committee Terms
of Reference and director accountabilities;
– Our Code of Ethics and Behaviours;
– Our Auditor Engagement Policy for our external auditors;
and
– Our Articles of Association.
Free Investor Relations app for the iPad
As new media evolves we try to tailor our communication
platforms accordingly. With our new Investor Relations app
you can view our results and trading statements, regulated
News announcements, interviews with directors, share price
information and our TV marketing campaigns all in one place.
To download the app, go
to the Investor section of
marksandspencer.com/
thecompany and follow the link.
Those with a QR reader app can
use the link below.
Pensions governance
The Group operates a pension scheme (the ‘Scheme’)
which has a defined benefit (‘DB’) section for employees
with an appointment date prior to 1 April 2002 and a defined
contribution (‘DC’) section open to those joining the Company
on or after 1 April 2002 and before 1 November 2012 when
a new Master Trust arrangement will be introduced.
Each Trustee Board Director has an individual training
plan, which is based on the Pension Regulator’s Trustee
Knowledge and Understanding requirements and tailored
to address any skill gaps and specific committee roles. The
majority of the Trustee Board members hold the Pensions
Management Institute Award in Trusteeship.
The Board of the Pension Trust (‘Trustee Board’) manages the
DB and DC assets of the pension scheme, which are held under
trust separately from those of the Group. The Board has four
main committees: DB, DC, Investment and Actuarial Valuation.
The 31 March 2012 Actuarial Valuation will benefit from the
enhanced monitoring of key metrics which has been established
in conjunction with the Group since the 2009 valuation.
All advisers, investment managers and suppliers are
appointed through a rigorous tender process. They are
monitored via quarterly reports and periodic meetings and
there is also a rolling programme of both informal and formal
adviser reviews. During 2011/12 the appointment of the
covenant monitoring service was reviewed and Ernst & Young
LLP were retained.
The Trustee Board of 12 members is chaired by
Graham Oakley, who commenced a five-year term in April
2011, having been a member of the Board since 2000. The
Trustee Board includes two independent directors plus five
member representatives who are appointed through a
selection process which embeds efficient succession rotation
planning. During the year the Board has been recognised
through external awards for its excellence in governance,
training and investment risk reduction strategies. The DC
section is a holder of the National Association of Pensions
Funds Pensions Quality Mark Plus.
The Trustee Board has a business plan against which
progress is measured on an ongoing basis in a similar
approach to the Group Board. The Trustee Board also
maintains a risk register and an associated action plan,
a conflicts of interest policy, plus a register and a code
of ethics, all of which are reviewed at least annually.
The Scheme is a signatory to the UN Principles for
Responsible Investment and the Trustee has partnered with
a specialist engagement service, Hermes Equity Ownership
Services (EOS), to exercise its global equity voting rights in
accordance with a detailed Trustee policy, which addresses
a range of governance, social and environmental issues. EOS
has also enhanced the Trustee’s stewardship and governance
oversight of investee companies by engaging with
companies, on a global basis, where management is
considered not to be acting in the best long-term interests
of investors. The results of these voting and engagement
activities are published quarterly on the M&S website. During
the year the Scheme also became a signatory to the UK
Stewardship Code which was published by the Financial
Reporting Council in July 2010.
GovernanceMarks and Spencer Group plc Annual report and financial statements 2012
51
Nomination Committee
Chairman’s overview
Robert Swannell
We have had another active year, making very good progress
against all the actions in our 2011/12 action plan.
First, we secured the appointment of two new non-executive
directors, Vindi Banga and Miranda Curtis, to succeed Louise
Patten and Deputy Chairman Sir David Michels on their
retirement from the Board.
For each position we spent time reviewing the existing skill-set
on the Board, discussing our diversity in line with our new
policy (details of our Board diversity policy objectives can
be found below), specifically in terms of background and
experiences, nationality and gender, and balancing this against
what the business will need to become an international
multi-channel retailer. We spent considerable time with our
external consultants managing a formal, thorough and orderly
search, reviewing all those potential candidates that might fit
our criteria. We interviewed rigorously and have secured what
we believe to be two excellent appointments to the Board.
Both directors have undertaken extensive induction
programmes to ensure a rounded understanding of the
business and its ambitions. Further information on these
induction programmes can found at marksandspencer.com/
thecompany.
In conjunction with these appointments, we reviewed our
Committee composition and made a number of changes.
We also recommended the appointment of Jan du Plessis
as Senior Independent Director.
Again, in line with our action plan from last year, we have
focused on ensuring that succession is a key agenda item.
We have spent time looking at succession planning for the
Executive Director team as well the Board over the medium
to long term. We have also discussed talent and succession
for the top managers in the business.
Effectiveness of the Nomination Committee
Who is on our Committee?
Name of Director
Robert Swannell
(Committee Chairman)
Marc Bolland
Sir David Michels
Vindi Banga1
Miranda Curtis
Jeremy Darroch
Martha Lane Fox
Steven Holliday
Louise Patten
Jan du Plessis
From
Nomination
Committee
4 Oct 2010
1 May 2010
(Retired 29 Feb 2012)
3 Sept 2011
3 Feb 2012
1 Feb 2006
1 June 2007
15 July 2004
(Retired 13 July 2011)
1 Nov 2008
A
5
5
4
3
1
5
5
5
2
5
B
5
5
4
2
1
5
5
5
2
5
A = Maximum number of meetings the director could have attended
B = Number of meetings the director actually attended
1) Vindi Banga was unable to attend the Committee meeting on 18 January 2012
due to business commitments in the US.
What has the Committee done during the year?
– Conducted a thorough and transparent appointment
process for the recommendation of two new non-executive
directors to ensure the Board is appropriately supported
and strengthened for the future;
Board Diversity Policy
Our Board diversity policy introduced this year seeks to
ensure that diversity in its broadest sense continues to remain
a significant feature of the M&S Board. We will report against
the objectives below in 2012/13:
– maintain a level of at least 30% female directors on the
Board over the short to medium term;
– assist the development of a pipeline of high-calibre
candidates by encouraging a broad range of senior
individuals within the business to take on additional roles to
gain valuable board experience;
– consider candidates for appointment as non-executive
– Conducted a thorough review and debated Board skills
and diversity to ensure the Board has the right balance
of skills and experience to support the future development
of the business;
– Reviewed the Board and Committee composition following
the new non-executive director appointments and
retirement of existing directors;
– Recommended the appointment of Jan du Plessis as
Senior Independent Director to replace Sir David Michels
on his retirement from the Board;
– Created a clear framework to review succession planning
and development for the executive director team and the
Board for the medium term; and
– Supported greater engagement with key managers with
non-executive director-only meetings.
What is the action plan for 2012/13?
– Continue to support succession plans and development
of the executive director team;
– Continue to drive the understanding of talent across the
organisation and support our development programme
for key managers;
– Continue to review ongoing knowledge and training for
all directors; and
– Continue to ensure that we plan for the evolution of
non-executive directors over the medium term to maintain
the appropriate mix of skills.
directors from a wider pool including those with little or no
listed company board experience;
– ensure non-executive directors ‘long lists’ include 50%
women candidates;
– only engage executive search firms who have signed up
to the voluntary Code of Conduct on gender diversity and
best practice;
– report annually against these objectives and other initiatives
taking place within the Company which promote gender
and other forms of diversity; and
– report annually on the outcome of the Board evaluation,
the composition and structure of the Board as well as any
issues and challenges the Board is facing when considering
the diverse make up of the Company.
OverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other informationGovernanceMarks and Spencer Group plc Annual report and financial statements 2012
52
Audit Committee
Chairman’s overview
Jeremy Darroch
Last year I advised that we would work with the Board to
review any changes to the risk profile and support the Board
debate on risk tolerance and appetite. The Committee
remains satisfied that the Board maintains sound risk
management and internal controls.
As a committee we are also keen to ensure key
representatives of the business have fully considered the risks
their business areas face, that these risks are being managed
and do not exceed the Board’s appetite or tolerance levels.
We focus on the risk profiles for each business unit and
review what actions they are taking or processes they have in
place to manage or mitigate their risk. Assurance is provided
through executive update presentations at each Audit
Committee meeting. During 2011/12 the Committee received
presentations from the directors of Business Continuity,
Plan A, General Merchandise Ethical Sourcing, International
Business Development and Data Security. Further information
on the presentations is provided on the next page.
The presentations facilitate real engagement between
Committee members and the business unit directors.
Feedback from the business continues to be positive with
recognition of the value this channel provides and the
experience the Committee shares.
External auditor
Key to giving us confidence in the Group’s approach to
controls and risk is the effectiveness of our external auditors,
PricewaterhouseCoopers LLP. Their effectiveness enables
us to recommend their reappointment for 2012/13. We judge
them on the quality of their audit findings, management’s
response and stakeholder feedback. Their independence
is displayed through their challenge to management. Their
audit and non-audit fees are set and reviewed each year
Effectiveness of the Audit Committee
The Board is satisfied that Jeremy Darroch and Jan du Plessis
have recent and relevant financial experience.
Who is on our Committee?
Name of Director
Jeremy Darroch
(Committee Chairman)
Sir David Michels1
Martha Lane Fox
Steven Holliday
Louise Patten2
Jan du Plessis3
From
Audit
Committee
1 Sept 2006
(retired 29 Feb 2012)
1 June 2007
15 July 2004
(retired 13 July 2011)
1 Nov 2008
A
6
4
6
6
1
6
B
6
3
6
6
0
5
A = Maximum number of meetings the director could have attended
B = Number of meetings the director actually attended
1) Sir David Michels was unable to attend the Committee meeting on 7 September
2011 due to personal commitments.
2) Louise Patten was unable to attend the Committee meeting on 16 May 2011
due to personal commitments.
3) Jan du Plessis was unable to attend the Committee meeting on 2 November 2011
due to overseas business commitments with Rio Tinto.
What has the Committee done during the year?
The Committee made progress on their action points during
the 2011/12 financial year, with the exception of a review of
internal audit effectiveness, which was impacted by several
changes within the internal audit team:
– The Committee composition was reviewed along with
Board and other Committee composition. Following the
retirement of Sir David Michels, the Committee comprises
four members. The Audit Committee is fully independent
and contains what we believe to be the right balance of
knowledge, skill and experience to support the business in
achieving its plan;
– The Company has made good progress on risk during the
year, resulting in better process, understanding and
awareness combined with a greater engagement right
across the business. The debate on risk, risk tolerance and
risk appetite will continue to be a focus for the Board and
for the Committee during the next year;
– An anti-bribery policy has been developed and
implemented following the Bribery Act coming into force.
Its introduction was supported by a training programme
containing a short video and online training module. Gift
registers have been introduced to ensure transparency.
These will be managed by each department and reviewed
annually by Internal Audit, with any notable items
highlighted to the Committee;
– The Committee reviewed Data Security and Data
Management. The Code of Ethics is being updated to
reflect any changes to the policy or law, including the
Bribery Act;
– The Committee reviewed the Company’s ongoing
discussions with the FRPP.
– Personnel changes within the Audit team has led to the
deferral of our review of Internal Audit effectiveness in line
with the Chartered Institute of Internal Audit requirements.
However, we intend to complete this during 2012/13.
– As a Committee we have continued to enhance our
understanding of key business areas receiving
presentations on key risks from a broad spectrum of the
business activities; and
– The Committees were independently reviewed by Ffion
Hague of Independent Board Evaluation.
What is the action plan for 2012/13?
Looking ahead the Committee believes it is important to
remain focused on the audit, assurance and risk process
within the business. The actions for 2012/13 are:
– strategic review of our internal audit and assurance plan to
ensure alignment and support of the Company’s plan;
– review internal audit effectiveness in line with the Chartered
Institute of Internal Audit requirements;
– continue to improve understanding of key business areas;
– continue to broaden the debate around risk tolerance and
appetite; and
– review ongoing learning requirements and potential
up-skilling.
GovernanceMarks and Spencer Group plc Annual report and financial statements 2012
53
(see note 4). We ensure that our auditor engagement policy,
which is reviewed annually and disclosed on our website
marksandspencer.com/thecompany, is adhered to when
non-audit work is commissioned. Audit partner rotation is
also important to retain the objectivity of the process –
Stuart Watson was appointed lead audit engagement
partner in 2008/09.
Committee updates
In addition to the regular renew of audit compliance and
process controls, the Committee received a number of detailed
reviews from a number of business areas. Updates received by
the Committee provided detail on the progress made over the
year and the ongoing objectives. A brief overview of the detail
covered in these updates is provided below.
Business Continuity
– Reviewed the tools and processes established to ensure
we have the capability to protect our people, the brand,
property and profit at all times;
– Received plans for all locations both nationally and
internationally;
– Discussed plans for the Olympics and the Queen’s
Diamond Jubilee;
– Full medical and security package introduced for all
business travellers;
– Travel tracker system introduced both nationally and
internationally;
– Group training awareness programme launched; and
– Evacuation pack and welfare response.
Plan A
– External International Advisory Board established,
comprising academics and advisors, extending our reach to
reflect the countries we operate in and source from;
– Discussed progress in reducing carbon emissions,
improvements in fuel and energy efficiency, reduction in
waste and packaging, improvements in recycling and the
M&S/Oxfam clothes exchange;
– Update on work with suppliers to set up 12 Ethical Model
factories in Bangladesh and three in India;
– Review of commitments against plan;
– Overview of discussions with UNICEF outside the UK on
social development programmes linked to the garment
industry; and
– Overview of what we believe will be benchmarked as
industry leading positions across a number of key areas.
General Merchandise ethical sourcing
– Reviewed how we manage the ethical risks across our
supply chain outlining our ethical trading approach across
1.7 million workers, spread over 1,448 sites in over 77
countries with 55 different languages;
– Considered the key ethical issues including: excessive
working hours, poor health and safety, terms and conditions
of employment, migrant labour, and low wages;
– Discussed the team and the independent ethical trading
division based in our regional offices in China, India,
Vietnam, Sri Lanka, Bangladesh, Turkey and the UK.
M&S was the first UK retailer to establish a clear set of labour
standards in 1998 known as our Global Sourcing Principles.
Each supplier must agree to and sign our terms and
conditions, which include these Principles. M&S has been a
founding member of the Ethical Trading Initiative since 1998
and we have established ethical policies on key issues. We
have a clear factory approval process which is independent
from our buying departments.
International business development
– Focused on the risks to our international growth – each risk
was highlighted and discussed, alongside the relevant
mitigating action which was either recently taken or in
progress;
– Discussed the team and its integration – the presentation also
covered the performance of our partly-owned businesses,
franchise operations, ethical reputation and the importance
of having an aligned approach across the business.
Data security
Updates relating to our investment in IT security, building of
the new retail website platform and the move from the current
platform supported by Amazon. International activities, user
access and the controls around the protection of personal
data. Policies were reviewed as was the recruitment of
resource and the skill sets these individuals bring to M&S.
Assurance
On behalf of the Board, the Audit Committee examines the
effectiveness of the Group’s:
– systems of internal control, covering all material controls,
including financial, operational and compliance controls
and risk management systems, primarily through approving
the internal audit plan and reviewing its findings, reviews
of the annual and half year financial statements and a
review of the nature, scope and reports of external audit;
– management of risk by reviewing evidence of risk assessment
activity and an internal audit report on the process; and
– action taken or to be taken to manage critical risks or
to remedy any control failings or weaknesses identified.
The Audit Committee has completed its review of the
effectiveness of the Group’s systems of internal control
during the year and up to the date of this Annual Report,
in accordance with the requirements of the revised Turnbull
Guidance on Internal Control, published by the FRC. It
confirms that no significant failings or weaknesses were
identified in the review for 2011/12. Where areas for
improvement were identified, processes are in place to
ensure that the necessary action is taken and that progress
is monitored.
The key features of the Group’s internal control and risk
management systems that ensure the accuracy and
reliability of financial reporting include: clearly defined lines
of accountability and delegation of authority, policies and
procedures that cover financial planning and reporting,
preparing consolidated accounts, capital expenditure,
project governance and information security, and the
Company’s Code of Ethics and Behaviours.
OverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other informationGovernanceMarks and Spencer Group plc Annual report and financial statements 2012
54
Remuneration report
Remuneration committee
Steven Holliday
As Chairman of the Remuneration Committee, I am acutely
aware of the increased focus on executive pay over the past
12 months. This year we have once again focused on being
transparent, providing clear reporting on past pay and future
policy and potentials.
The Government announced proposals to improve the
transparency of reporting in this area and to give greater
shareholder power over future pay policy. We believe that
linking pay to company performance and the associated
dialogue with shareholders is fundamental to the remit of
any Remuneration Committee. The Committee therefore
carefully considered the proposals and responded to the
consultation paper from the Department for Business,
Innovation & Skills on Executive Remuneration and for that
on Narrative Reporting. We have also met with investors,
representative bodies, government and governance
organisations to discuss wider remuneration issues.
Whilst the final regulations have yet to be determined, we
believe that the Company already addresses many of the
proposals. Last year’s Remuneration report was highly
commended by PwC under the ‘Building Public Trust Awards
for FTSE Executive Remuneration Reporting’.
We believe that the Remuneration Committee provides a
strong and independent challenge on remuneration. At M&S
this was particularly demonstrated with the design of the
revised remuneration framework set out in last year’s report,
which clearly links reward to Company strategy. Our long-
term philosophy for remuneration remains to attract and
retain leaders who are focused and encouraged to deliver
business priorities within a framework that is aligned with
the interests of the Company’s shareholders. Our practice
therefore is to ensure our remuneration provides the
appropriate incentives to reward performance that protects
the long-term interests of our stakeholders, and which will
enable us to develop an internationally competitive business,
led by top class professionals.
When reviewing the appropriateness of the remuneration
framework this year, the Committee considered the incentive
arrangements introduced in 2011 not only in the context of
the business strategy but also against current external
guidelines for executive remuneration. As a result of this
review, the Committee agreed that the current framework
remained appropriate and did not require any changes.
Despite difficult trading in a year of global economic
turbulence, the Committee was satisfied that significant
progress was made towards delivery of the key
strategic priorities.
Steven Holliday
Chairman of the Remuneration Committee
Remuneration Committee
What is the remit of the Remuneration Committee?
The role of the Committee is to recommend to the Board
the senior remuneration strategy and framework, giving due
regard to the financial and commercial health of the Company
and to ensure the directors and senior management are fairly
rewarded for their individual contribution to the Company’s
overall performance.
The full terms of reference for the Committee can be found
on the Company’s website at marksandspencer.com/
thecompany, with the key responsibilities summarised
as follows:
– setting a senior remuneration strategy that ensures the
most talented leaders are recruited, retained and motivated
to deliver results;
– reviewing the effectiveness of the senior remuneration
policy with regard to its impact and compatibility with
the policy and arrangements throughout the rest of
the organisation;
– determining the terms of employment and remuneration
for executive directors and senior managers, including
recruitment and termination terms;
– approving the design, targets and payments made for any
annual incentive schemes that include executive directors
and senior managers;
– agreeing the design, targets and annual awards made for
all share incentive plans requiring shareholder approval; and
– assessing the appropriateness and subsequent
achievement of the performance targets relating to any
share incentive plan.
In undertaking these responsibilities, the Committee seeks
independent external advice as necessary. To this end the
Committee continued to retain the services of Deloitte LLP.
The Committee also seeks internal support from the Chairman,
Group Secretary, Director of Human Resources and Head of
Employee Relations and Reward, all of whom may attend the
Committee meetings by invitation, but are not present for any
discussions that relate directly to their own remuneration.
The Committee also regularly reviews external data produced
through several surveys and bespoke benchmarking data,
including those published by Aon Hewitt (acting through the
brand of New Bridge Street), KPMG, Monks PwC and
Towers Watson.
This Remuneration Report has been prepared on behalf of the Board by the
Remuneration Committee. The Committee adopts the principles of good
governance as set out in the UK Corporate Governance Code and complies
with the Listing Rules of the Financial Services Authority and the relevant
schedules of the Companies Act 2006 and the Directors’ Remuneration
Report Regulations in Schedule 8 to The Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations 2008. These regulations
require the Company’s auditors to report on the ‘Audited Information’ in the
report and to state that this section has been properly prepared in accordance
with these regulations. For this reason, the report is divided into audited and
unaudited information, and is subject to shareholder approval at the Annual
General Meeting (AGM) on 10 July 2012.
GovernanceMarks and Spencer Group plc
Part 1: unaudited information
Annual report and financial statements 2012
55
Effectiveness of the Remuneration Committee
Who’s on our Committee?
The following independent non-executive directors were
members of the Committee during 2011/12:
Member
Steven Holliday
(Chairman since
8 Sept 2009)
Vindi Banga
Miranda Curtis
Martha Lane Fox
Sir David Michels1
Louise Patten2
Jan du Plessis
Remuneration
Committee
From
A
15 July 2004
1 Sept 2011
1 Feb 2012
(stepped down
7 Sept 2011)
(retired 29 Feb 2012)
(retired 13 July 2011)
8 Sept 2009
6
3
2
3
5
2
6
B
6
3
2
3
3
1
6
A = Maximum number of meetings the director could have attended.
B = Number of meetings the director actually attended.
1) Sir David Michels was unable to attend the Committee meeting on 7 December 2011
due to overseas business commitments and the Committee meeting on
20 February 2012 due to personal reasons.
2) Louise Patten was unable to attend the Committee meeting on 16 May 2011 due to
personal reasons.
What has the Committee done during the year?
In line with its remit, the following key matters were
considered by the Committee during the year:
Regular items:
– approval of the 2011 Directors’ Remuneration report
and review of the outcome of AGM voting for the report;
– review of all share plan performance measures against
2011/12 half year and year end targets, including
ratification of vesting levels for any ‘good leavers’ from
the Company;
– agreement to and finalisation of the vesting level for
the 2009 Performance Share Plan awards;
– review achievement of Annual Bonus Scheme profit
against target and executive directors’ individual
objectives for 2011/12;
– review and approval of all awards made under the
Performance Share Plan, taking into account the
total value of all awards made under this plan;
– review of director shareholding guidelines and
achievement of these for each executive director;
– extensive consideration of advisory bodies’ and
institutional investors’ current guidelines on
executive compensation;
– annual review of all executive directors’ and senior
managers’ base salaries and benefits in line with
Company principles and ratification of salary increases;
– assessment of the risk environment surrounding the
Company’s current remuneration arrangements;
– design and targets for the 2012/13 Annual Bonus
Scheme, including sign off of individual objectives for
executive directors;
– consideration of the performance measures and
targets to be applied to the 2012 Performance Share
Plan awards;
– Committee’s reasoning and consideration for vesting and
payment levels clearly articulated to executive directors;
– review of Committee performance in 2011/12; and
– review of Committee terms of reference.
Other items:
– consideration of external market developments in
remuneration, including the Department of Business,
Innovation & Skills (BIS) consultation on executive
remuneration and participation in the meeting between
44 FTSE 100 companies and 44 pension schemes
attended by Vince Cable, the NAPF and Hermes EOS;
– assessment of Disguised Remuneration legislation
and the impact on the operation of the Company’s
share plans;
– review of the impact of pension auto-enrolment on the
current pension arrangements for executive directors;
– agreement to propose the renewal of the Share Incentive
Plan at the 2012 AGM; and
– review of and agreement to amendments to share plan
rules to support the Company’s international strategy.
What is the action plan for 2012/13?
As a result of the review of the Committee’s performance
and effectiveness, the following actions have been agreed
for 2012/13:
– ongoing remuneration training of the Committee;
– continue focus on shareholder engagement regarding
the remuneration debate;
– improve transparency and quality of remuneration
disclosure;
– ensure both long-term and short-term incentives remain
appropriate when reviewed against internal strategy
and other market schemes; and
– improve systematic monitoring of outcomes of
past decisions.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Remuneration report continued
Annual report and financial statements 2012
56
What are the key elements of remuneration for executive directors?
The Committee considers the key elements in total to ensure there is the right balance between reward for short-term success
and long-term growth. For executive directors, this can be summarised as follows:
Fixed remuneration
Policy for 2012/13
Delivery in 2012/13
Base Pay
Reviewed against:
– salary levels in comparably sized companies
and major retailers e.g. FTSE 25-75;
– economic climate, market conditions and
Company performance;
– the level of pay awards in the rest of the
business; and
– the role and responsibility of the
individual director.
– provided on a market-competitive basis
– aligned to total reward structure for
all employees
Benefits
– monthly in cash
– reviewed annually with any increases normally
awarded from 1 January
– salary supplement in lieu of membership
of the Group Pension Scheme
– life assurance cover
– car or car cash allowance plus driver
– all-employee share schemes (Save As
You Earn)
– employee product discount
Variable remuneration
Policy for 2012/13
Delivery in 2012/13
Annual Bonus Scheme:
with compulsory deferral
into shares
Performance
Share Plan
– drive profitability and strategic change
– bonus potential of up to 200% of salary
across the whole organisation
– stretching targets required to achieve
maximum payment
– Group PBT with an individual
performance element linked to delivery
of key strategic objectives.
– aligned to shareholder interests through
annual financial performance as well as
delivery of the overall business strategy
for ‘maximum’ performance
– 60% of bonus based on Group PBT targets
– 40% of bonus based on individual objectives
– compulsory deferral of 50% of bonus earned
into shares
– deferred shares vest after three years, subject
to continued employment
– primary long-term incentive
– link individual reward with long-term
performance of the Company
– aligned to shareholder interests and specifically
with the Company’s stated strategic objectives.
– annual awards
– plan provides for an individual awards of
up to 300% of salary, although the Committee’s
intention is that awards will conventionally be
referenced to 250% of salary.
– targets based on cumulative EPS (Earnings
– awards may vest after three years subject to
Per Share), ROCE (Return on Capital
Employed), and Revenue growth across
UK, International and Multi-channel
business segments
achievement of performance targets
– each element of performance will be assessed
independently
GovernanceMarks and Spencer Group plc Annual report and financial statements 2012
57
Senior remuneration framework
How is the senior remuneration framework aligned
to Company strategy?
The Committee carried out a full and comprehensive review
of the senior remuneration framework in 2010/11 to ensure
that it was aligned to the Company strategy. The Company
must continue to be able to attract and retain leaders who
are focused and encouraged to deliver the business priorities
within a framework that continues to be aligned with the
interests of the Company’s shareholders, for example through
bonus deferral and shareholding requirements. In addition,
the Committee ensures that incentive plans are effective in
not only delivering the required financial results, but:
– are fully aligned to the business strategy;
– drive behaviours that uphold the Company’s high ethical
standards; and
– adequately take account of risk.
In 2010/11, we actively engaged with shareholders as part
of the consultation and continue to have dialogue with them
on this and the broader remuneration debate.
When reviewing this framework in 2012, the Committee
considered the incentive arrangements introduced in 2011
not only in the context of the business strategy but
also against current external guidelines for executive
remuneration. As a result of this review, the Committee
agreed that the current framework was appropriate and
did not require any changes.
In setting the remuneration for directors, the Committee
has the discretion to take into account performance on
environmental, social and governance matters. Having
reviewed the performance targets for 2012/13, the Committee
has decided that these should continue to be an integral part
of individual objectives. All executive directors and senior
managers have individual objectives aligned not only to the
business strategy and operating plan but also to Plan A, the
Company’s environmental and ethical plan.
When reviewing executive directors’ remuneration, the
Committee considers a range of factors, including the
remuneration policy and arrangements throughout the
rest of the organisation. The remuneration framework for
directors below Board level is fully aligned to that of executive
directors, with the same long-term and short-term incentive
arrangements (including performance measures), other than
the size of awards and maximum potentials.
What is the expected value of proposed annual remuneration package for executive directors?
The following charts show the total remuneration package split between pay at risk and fixed pay for ‘on-target’
and ‘maximum’ performance:
Marc Bolland
‘On target’ performance
Other executive directors
‘On target’ performance
Pay at risk
40% Long-term incentive
17% Annual cash bonus
Fixed pay
33% Salary
10% Pension provision
‘Maximum’ performance
‘Maximum’ performance
Pay at risk
70% Long-term incentive
13% Annual cash bonus
Fixed pay
13% Salary
4% Pension provision
Pay at risk
41% Long-term incentive
17% Annual cash bonus
Fixed pay
34% Salary
8% Pension provision
Pay at risk
69% Long-term incentive
14% Annual cash bonus
Fixed pay
14% Salary
3% Pension provision
The value attributed to long-term incentives in the above charts represents the expected net present value of bonus that
is compulsorily deferred into shares and awards made under the Performance Share Plan.
The charts exclude specific awards made in the context of recruitment that do not form part of the normal annual package.
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58
What are the details of fixed remuneration?
Executive directors
Salary
In reviewing executive director salary levels for 2012, the
Committee considered current market conditions, the
Company’s performance in 2011/12 and the principles
applying to decisions on general salary increases across the
rest of the organisation (to ensure that the approach taken in
determining any increase was consistent with the principles
applied below the Board). Again, as per last year, Marc
Bolland proposed not to receive any salary increase, which
the Committee agreed. For other executive directors, the
Committee agreed specific individual increases in the range
of c.3% – 4%, based on a number of factors including
individual performance and external market data for the role.
This approach is totally in line with the wider Company policy
where individuals who achieved higher personal performance
ratings were eligible to receive increases of 3% – 4%. Current
annual salaries for 2012 for executive directors are shown in
the Contract terms table on page 62.
Benefits
Where applicable, executive directors (other than the CEO)
receive a 25% salary supplement in lieu of membership of
the Group Pension Scheme (the CEO receives a salary
supplement of 30%), with life assurance provided through a
separate policy. Each executive director also receives a car
or car cash allowance and is offered the benefit of a driver.
The value of the benefits and allowances for each director is
shown within the Directors’ emoluments table on page 65.
Employee product discount is also received but no specific
value is placed on this all-employee benefit.
John Dixon was the only executive director who was a
member of the Company’s Defined Benefit Pension Scheme
during the year, but chose to opt out of the scheme in
February 2012. Until this date, he also received a 25% salary
supplement on his non-pensionable salary. Full details of his
pension benefits earned under the scheme for the year can
be found on page 67.
Chairman
The fee for the Chairman reflects the level of commitment
and responsibility of the role and is determined by the
Remuneration Committee and other members of the Board.
The fee is paid monthly in cash, inclusive of all committee
roles and is not performance related nor pensionable.
A review of existing fees in January 2012 concluded that
£450,000 remained appropriate for the role and so no
increase was awarded during the year. The Chairman
is entitled to the use of a car and driver, provided by the
Company. He may benefit from employee product discount
on the same terms as other employees.
Non-executive directors
The fees for non-executive directors are determined by the
Chairman and executive directors. Fees are set at a level that
ensures the Company can attract and retain individuals with
the required skills, experience and knowledge so that the
Board is able to effectively carry out its duties.
The fees recognise the responsibility of the role, the time
commitments required and are not performance related nor
pensionable. They are paid monthly in cash and there are no
other benefits other than employee product discount on the
same terms as other employees.
A full review of non-executive director fees was carried
out in 2010 which resulted in a revision to the fee structure.
This structure was again reviewed in January 2012 with the
conclusion that the fees remained appropriate for the role.
No changes were therefore made in 2011/12 to either the
basic annual fee or that for the role of committee chairman
or Senior Independent Director.
The current fee structure is as follows:
Basic annual fee
Committee Chairman
Senior Independent Director
£70,0001
£15,0002
£100,0001
Inclusive of all committee memberships.
1)
2) Audit and Remuneration Committee only and in addition to the basic annual fee.
The annual fees for non-executive directors are shown in
the Contract terms table on page 62 and the Directors’
emoluments table on page 65 shows the fees paid during
the year to each non-executive director.
What are the details of the short-term and long-term
incentive schemes (variable remuneration)?
Annual Bonus Scheme: short-term incentive
Deferred Share Bonus Plan: long-term incentive
Annual Bonus Scheme structure for 2012/13
The Annual Bonus Scheme is reviewed each year and is
structured to drive individual performance and profitability
across the whole organisation. The bonus potential for
executive directors is up to 200% of salary for ‘maximum’
performance. For all senior managers there is a compulsory
deferral into shares which vest after three years, subject to
continued employment. For executive directors, this deferral
into Company shares equates to 50% of their bonus. Further
details of the Deferred Share Bonus Plan can be found in note
13 to the financial statements on page 92 of this Annual Report.
For 2012/13 the mix of performance measures remains
unchanged. Underlying Group profit before tax (Group PBT)
remains the primary performance measure, with 60% of the
annual bonus being determined by performance against
demanding profit targets set by the Committee at the start
of the year. The balance of 40% will relate to performance
against individual objectives independent of Group PBT.
The Committee believes that this approach provides an
appropriate focus on annual profitability objectives while
ensuring that directors continue to be focused on driving
the changes in the business which underpin the Company’s
medium-term strategy.
Group PBT targets
As in previous years, the Group PBT targets have again
been set taking into consideration the Company’s own
internal operating plan, external forecasts for the retail sector
and analysts’ profit forecasts. For the highest payment levels
under this measure there will need to be very significant
outperformance of the operating plan.
GovernanceMarks and Spencer Group plcRemuneration report continued Annual report and financial statements 2012
59
Individual objectives
The setting of quantifiable and challenging individual
objectives and the associated performance targets are
subject to rigorous annual review by the Committee at the
time they are set for the year ahead, and at the end of the
year when assessments of performance are undertaken.
The 2012/13 individual objectives will continue to be aligned
to the Company’s strategic plan and the specific workstreams
that underpin it.
Each executive director will be assessed on the basis of
targets set in relation to four clearly defined business
objectives. Two of these will be ‘collective’, so that all
directors are focused on these common goals, encouraging
collaboration across the senior management group. Within
these, each director will have specific actions/targets. Due to
their importance, these two ‘collective’ objectives will remain
as per last year, namely:
– delivery against UK operating plan cost targets; and
– progression against Plan A goals.
The remaining two individual objectives for 2012/13 will relate
to specific workstreams relevant to each executive director’s
business area, or to key operating challenges. By way of
illustration, these may include objectives that are focused on
innovation and value, logistics and supply chain and brand
recognition, in addition to those objectives that are aligned to
building our multi-channel capabilities and becoming an
international retailer.
Quantifiable performance metrics have been established
for each objective and the Committee has agreed both
‘threshold’ and ‘stretch’ targets that must be achieved to
demonstrate value-added performance.
In keeping with the principle that has applied for a number of
years, no individual objective component of the bonus may
be earned unless a ‘threshold’ level of Group PBT has been
achieved, subject to the Committee’s overall assessment
of the performance of the business during the period. Given
the importance of the individual objectives to the long-term
success of the business, the Group PBT ‘threshold’ for this
purpose is set below the entry point for the Group PBT
performance target range. This is in line with the bonus policy
for the rest of the organisation which maintains the important
principle that below a defined level of performance, no bonus
will be earned.
Performance Share Plan (PSP) structure for 2012/13
The Performance Share Plan will continue to be the primary
long-term incentive for executive directors and senior
managers in the Company. The maximum individual award
opportunity is 300% of salary, although the Committee’s
intention continues to be that awards will be conventionally
referenced to 250% of salary.
The Committee has again reviewed the performance
measures for this plan and their alignment to the business
strategy. The Committee concluded that the balanced score
card of measures, including the weighting established last
year, continue to be appropriate as set out in the table below.
For awards to be made in 2012/13, the Committee recalibrated
the target ranges for ROCE and Revenue. For ROCE, the
Committee reduced the bottom end of the target range to
15.0% (in line with the reduction in the Company’s cost of
capital since the 2011/12 awards were made) whilst maintaining
the upper end of the target range at 18.0%, which represents a
significant level of stretch. For Revenue, in line with the
announced reallocation of capital expenditure and an ambition
to drive faster International and Multi-channel growth, while
continuing to protect the core UK market, the Committee
increased the International and Multi-channel target ranges,
with the overall Revenue target remaining unchanged.
Performance Share Plan Awards 2012/13
For awards made in 2012/13, the performance metrics and targets are as follows:
Performance metric
Commercial rationale
Basis of measurement
EPS
ROCE
Revenue
Ensure focus on bottom-line performance
Rewards efficient use of capital
Encourage top-line growth in line with
business strategy
Based on cumulative underlying basic EPS
over the three-year performance period.
Vesting based on average ROCE (%) over the
three-year performance period against
pre-determined targets.
Based on strategic growth targets:
– 10% on UK
– 10% on Multi-channel; and
– 10% on International
Weighting (% of total award)
‘Threshold’ performance
‘Maximum’ performance
% Vesting1
20%
100%
Cumulative EPS (p)
50%
110p
130p
ROCE
(%)
20%
15.0%
18.5%
Revenue (FY15 – £m)
UK2
10%
£8,900m
£9,600m
Multi-channel3
10%
£800m
£1,000m
International4
10%
£1,300m
£1,700m
1) % Vesting is a straight line between ‘threshold’ and ‘maximum’ performance.
2) Excluding Multi-channel.
3) Net of VAT/gross of returns.
4) Excluding Multi-channel/including Republic of Ireland.
The above targets do not take into consideration the change in the Group’s accounting treatment referred to in note 29 to the financial statements on page 106
as this event occurred after the reporting period.
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60
Executive Share Option Scheme: long-term incentive
The scheme was adopted at the 2005 AGM, but there is
currently no intention to use the scheme on a regular basis.
No grants have been awarded under the Executive Share
Option Scheme for 2011/12. The Committee will continue to
review the use of the scheme and retains the flexibility to
grant awards under the scheme if appropriate.
All outstanding awards met their performance targets in
previous years and are exercisable by participants. Individual
executive directors have options granted in 2004 under the
2003 scheme as shown in the table on page 66.
All-Employee Share Schemes: long-term incentive
Executive directors can participate in Sharesave, the
Company’s Save As You Earn (SAYE) scheme which is
open to all employees. The current scheme was approved
by shareholders for a ten year period at the 2007 AGM.
The scheme is subject to HMRC rules which limit the
maximum monthly savings to £250. When the savings
contract is started, options are granted to acquire the number
of shares that the total savings will buy when the contract
matures, at a discounted price set at the start of the scheme.
Options cannot normally be exercised until a minimum of
three years have elapsed.
The details of the options granted to executive directors are
shown in the table on page 66.
What were the outcomes in 2011/12 for the short-term and long-term incentive schemes?
Annual Bonus Scheme outcome for 2011/12
In 2011/12, 60% of the executive directors’ bonus was based on Group PBT performance with the remaining 40% based on the
achievement of individual objectives, independent of Group PBT (and subject to achieving the ‘threshold’ Group PBT target).
Summary of Objectives (total)
2011/12
Marc Bolland
Kate Bostock
John Dixon
Steven Sharp
Alan Stewart
Laura Wade-Gery
Financial
Measure
Group PBT
Group PBT
Group PBT
Group PBT
Group PBT
Group PBT
Collective
Objectives
Total UK
operating costs
Total UK
operating costs
Total UK
operating costs
Total UK
operating costs
Total UK
operating costs
Total UK
operating costs
GM
operating costs
Food
operating costs
New store
environment
project costs
Finance, IT &
Logistics
operating costs
E-Commerce
operating costs
Individual Plan A
objectives
Individual Plan A
objectives
Individual Plan A
objectives
Individual Plan A
objectives
Individual Plan A
objectives
Individual Plan A
objectives
Examples
of
achievement
against
business
area targets
– Developed
– Relaunched
GM sub-brands
and drove GM
market share
multi-channel
capability
(organisation,
new platform
and international
websites)
– Improved
in-store
availability and
drove innovation
across new and
existing ranges
– Developed
sub-brand
identities and
delivered
communication
plans
– Lead strategic
review of GM
logistics and
merchandise
planning systems
– Delivered key
milestones towards
our new
multi-channel
platform
– Developed an
international
organisation
(people, process
structure)
– Segmented
Home into
lifestyle
categories
– Provided greater
customer choice
– Delivered a
– Improved
– Through innovation,
more inspiring
shopping
environment
and customer
experience
organisational
alignment and
accountability
with new
management
reporting system
provided our
customers with
greater access to
our products
GovernanceMarks and Spencer Group plcRemuneration report continued Annual report and financial statements 2012
61
Business area individual objectives (20% of total)
The remaining two objectives related to specific workstreams
relevant to the director’s business area for which they have
primary responsibility. Performance against these objectives
was reviewed by the Committee against quantifiable
individual performance metrics that were established for each
director at the start of the year. Based on the performance
against these targets, the Committee determined payouts
to directors in the range 7.5% – 16.5% of maximum bonus
opportunity, equating to 15% – 33% of salary. The Committee
believes that this level of payout suitably reflects the
significant achievement during the year towards the execution
of the Company’s key strategic long-term goals.
Summary of bonus earned for 2011/12
As outlined in last year’s report, and in keeping with the
principle that has applied for a number of years, no individual
objective component of the bonus would have been payable
unless a ‘threshold’ level of Group PBT was achieved. Given
the importance of the individual objectives to the success of
the business, the Group PBT ‘threshold’ for this purpose
was set below the entry point for the Group PBT performance
target range and was achieved. In addition, the Committee
also considered the overall performance of the business
during the year across a series of measures and believes that
the bonus payments made for the achievement of objectives
are appropriate in light of this performance in the context of a
challenging year for our business and the wider retail sector.
This approach was applied to the rest of the organisation,
allowing for all eligible employees to receive a bonus.
The table below summarises the bonus payments for each
director for 2011/12:
Group PBT objective (60% of total)
As in previous years, Group PBT targets were set by the
Committee at the start of the year by reference to the
Company’s own internal operating plan, external forecasts
for the retail sector and analysts’ profit forecasts. For there
to be any payment under the Group PBT measure in 2011/12,
there was a requirement not only for year-on-year Group PBT
growth but also outperformance of the operating plan. The
underlying Group PBT performance of £705.9m did not meet
the ‘minimum’ target, resulting in no bonus payment under
the Group PBT element.
Individual objectives (40% of total)
Each executive director had four individual objectives for
2011/12 which directly referenced the long-term strategy
of the business, each accounting for 10% of the total bonus.
‘Collective’ individual objectives (20% of total)
Of the individual objectives, two were ‘collective’ i.e. individual
targets for each director under shared objectives, so that all
directors focused on common goals, encouraging
collaboration across the senior management team.
The performance of each of the directors has been
reviewed by the Committee against the quantifiable individual
performance targets which were established and agreed at
the start of the year.
– Delivery against UK operating plan cost targets:
As set out on page 35, overall performance in this area
was strong, with operating plan cost increases within the
range of internal projections. Based on the Committee’s
assessment of performance against the individual targets
under this objective, payouts to directors were in the range
8% – 10% of maximum bonus opportunity, equating to
16% – 20% of salary.
– Progression in implementing Plan A commitments:
As discussed on page 30, the Company has continued to
make good progress against our Plan A goal of becoming
the world’s most sustainable major retailer. Based on the
Committee’s assessment of performance against the
individual targets under this objective, payouts to directors
were in the range 5% – 10% of maximum bonus
opportunity, equating to 10% – 20% of salary.
Summary of bonus earned for 2011/12
Maximum bonus potential
Actual bonus earned
Marc Bolland
Kate Bostock
John Dixon
Steven Sharp
Alan Stewart
Laura Wade-Gery1
1) Total bonus earned based on nine months worked in 2011/12.
Group PBT target
120%
0%
0%
0%
0%
0%
0%
‘Collective’
objectives
% of salary
40%
35%
39%
40%
36%
36%
30%
Business area
objectives
Total bonus earned
40%
33%
15%
32%
24%
25%
30%
% of salary
200%
68%
54%
72%
60%
61%
60%
£000
–
663
328
405
405
346
243
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
62
Performance Share Plan outcome for 2011/12
2009 Award Final Measurement
The underlying basic EPS figure for 2011/12 was 34.9p which was above the ‘threshold’ target of RPI+3% but below
‘maximum’ performance, resulting in 34.95% vesting for awards up to 200% of salary and 28.97% vesting for awards between
200% and 400% of salary.
The targets for all outstanding awards are shown in the tables below:
2009 and 2010 Awards
Award
2009
2010
(awards up to 200% of salary)
(awards between 200% and 400% of salary)
(awards up to 200% of salary)
(awards between 200% and 400% of salary)
Average annual EPS growth in excess of inflation (RPI)
20% vesting1
3%
3%
3%
4%
100% vesting1
6%
8%
9%
12%
EPS for start of scheme
28.0p
28.0p
30.0p1
30.0p1
1) The EPS for the start of the 2010 scheme is based on the 52 week result, ensuring a like-for-like measure.
2011 Award
Weighting (% of total award)
‘Threshold’ performance
‘Maximum’ performance
% vesting1
20%
100%
Cumulative EPS (p)
50%
110p
130p
ROCE
(%)
20%
17.0%
18.5%
Revenue (FY14 – £m)
UK2
10%
£9,200m
£9,900m
Multi-channel3
10%
£700m
£1,000m
International4
10%
£1,100m
£1,400m
1) % Vesting is a straight line between ‘threshold’ and ‘maximum’ performance.
2) Excluding Multi-channel.
3) Net of VAT/gross of returns.
4) Excluding Multi-channel/including Republic of Ireland.
Board appointments and contracts
Contract terms and current annual salaries/fees for all current members of the Board
Chairman
Robert Swannell
Chief Executive Officer
Marc Bolland
Executive directors
Kate Bostock
John Dixon
Steven Sharp
Alan Stewart
Laura Wade-Gery
Non-executive directors
Vindi Banga
Miranda Curtis
Jeremy Darroch
Martha Lane Fox
Steven Holliday
Jan du Plessis
Date of
appointment
Notice period/
unexpired term
23/08/2010
6 mths / 6 mths
01/05/2010 12 mths / 6 mths
10/03/2008 12 mths / 6 mths
09/09/2009 12 mths / 6 mths
08/11/2005 12 mths / 6 mths
28/10/2010 12 mths / 6 mths
04/07/2011 12 mths / 6 mths
01/09/2011
01/02/2012
01/02/2006
01/06/2007
15/07/2004
01/11/2008
3 mths / 3 mths
3 mths / 3 mths
3 mths / 3 mths
3 mths / 3 mths
3 mths / 3 mths
3 mths / 3 mths
Basic
salary/fee
£000
Committee
chair fee
£000
Current
annual
salary/fee
£000
Annual
salary/fee
2011
£000
Change1
£000
450
975
608
562
675
567
541
70
70
70
70
70
100
–
–
–
–
–
–
–
–
–
15
–
15
–
450
975
608
562
675
567
541
70
70
85
70
85
100
450
975
590
540
655
550
–
–
–
85
70
85
70
–
–
18
22
20
17
–
–
–
–
–
–
30
1) All changes to salaries and fees were effective 1 January 2012 except that for Jan du Plessis, which was effective from 1 March 2012 when he became Senior Independent Director.
Laura Wade-Gery was appointed on a salary of £525,000 and received an increase of £16,000 on 1 January 2012.
GovernanceMarks and Spencer Group plcRemuneration report continued
Annual report and financial statements 2012
63
What are the current service contracts and terms
of employment for directors?
What are the executive directors’ external
board appointments?
Executive directors
All executive directors and senior managers have service
contracts that can be terminated by the Company giving 12
months’ notice and by the employee giving six months’ notice.
The Company retains the right to terminate the contract of
any executive director summarily, in accordance with the
terms of their service agreement, on payment of a sum equal
to the contractual notice entitlement of 12 months’ salary and
specified benefits. In line with best practice, for all current
executive directors the Company reserves the right on
termination to make phased payments which are paid in
monthly instalments and subject to mitigation. Entitlement to
participate in share schemes ceases on termination.
Chairman
Robert Swannell has an agreement for service which requires
six months’ notice by either party.
Non-executive directors
Non-executive directors have an agreement for service with
the Company for an initial three-year term, which can be
terminated on three months’ notice by either party.
What were the changes to the Board during the year?
Directors appointed to the Board
Laura Wade-Gery
Laura Wade-Gery was appointed Director, Multi-channel
E-commerce on 4 July 2011. Her remuneration package is
consistent with the structure for executive directors outlined
in this report, and the full terms of her package, including
awards made to facilitate her appointment were disclosed in
last year’s report.
Vindi Banga and Miranda Curtis
Vindi Banga and Miranda Curtis joined the Board of
Marks and Spencer Group plc as non-executive directors on
1 September 2011 and 1 February 2012 respectively. They
both receive a basic annual fee of £70,000 in line with the
structure set out on page 58.
Jan du Plessis
Following Sir David Michels retirement from the Board,
Jan du Plessis was appointed Senior Independent Director
on 1 March 2012. As a result of this appointment his annual
fee increased from £70,000 to £100,000 in line with the
structure set out on page 58.
Directors retiring from the Board
Sir David Michels and Louise Patten
Sir David Michels, Deputy Chairman and Senior Independent
Director, retired from the Board on 29 February 2012
following his second three-year term.
Louise Patten served as a non-executive director from 2006
until 13 July 2011, when she retired from the Board.
The Company recognises that executive directors may be
invited to become non-executive directors of other
companies and that these appointments can broaden their
knowledge and experience to the benefit of M&S. The
individual director retains the fee, the details of which are
shown below for this financial year:
Marc Bolland1
Steven Sharp
Laura Wade-Gery2
Company
Manpower inc
Adnams plc
Trinity Mirror plc
Fee
£000
117
28
30
1) Marc Bolland’s fee is paid in cash and stock units and in US dollars. For purposes
of this table the values were converted to Sterling using the £:$ spot rate as at
30 March 2012 for stock units and the average rolling £:$ rate during the year for
cash payments.
2) Laura Wade-Gery stepped down from the Board of Trinity Mirror plc on 10 May 2012.
Directors’ interests
What are the directors’ interests in the Company?
The beneficial interests of the directors and connected
persons in the shares of the Company are shown below.
Options granted under the Company share schemes are
shown in Part 2 of this report. Further information regarding
employee share option schemes is given in note 13 to the
financial statements on page 92 of the Annual Report.
There have been no changes in the directors’ interests in
shares or options granted by the Company and its
subsidiaries between the end of the financial year and
23 May 2012. No director had an interest in any of the
Company’s subsidiaries at the beginning or end of the year.
Robert Swannell
Marc Bolland
Kate Bostock
John Dixon
Steven Sharp
Alan Stewart
Laura Wade-Gery
Miranda Curtis
Vindi Banga
Jeremy Darroch
Martha Lane Fox
Steven Holliday
Jan du Plessis
Ordinary shares as
at 3 April 2011
(or at date of
appointment)
70,000
147,430
182,514
102,529
387,808
10,000
–
–
–
2,000
20,100
2,500
20,000
Ordinary
shares as at
31 March 2012
100,000
147,430
187,243
156,295
397,044
10,000
55,055
5,500
2,000
2,000
20,100
2,500
20,000
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
64
What is the shareholding policy for executive
directors?
Dilution limits
All executive directors are required to hold shares equivalent
in value to a minimum percentage of their salary (200% for
the CEO and 100% for all other executive directors) within a
five-year period from the date of their appointment. The
relevant salary is at date of appointment and the share market
value is measured at the current date. Shares included in this
measure are the directors’ interest in the Company plus the
net value of any unexercised awards under the Deferred
Share Bonus Plan and Restricted Share Plan.
As at 31 March 2012, the measurement for each director was
as follows:
Marc Bolland
Kate Bostock
John Dixon
Steven Sharp
Alan Stewart
Laura Wade-Gery
Time from
date of appointment
1 year / 11 months
4 years / 1 month
2 years / 7 months
6 years / 5 months
1 year / 5 months
– / 9 months
% of salary
Target
200%
100%
100%
100%
100%
100%
Actual
142%
267%
235%
523%
46%
152%
What is the current dilution of share capital by
employee share plans?
Awards granted under the Company’s Save As You Earn
scheme and the Executive Share Option scheme are met by
the issue of new shares when the options are exercised. All
other share plans are met by market purchase. The Company
monitors the number of shares issued under these schemes
and their impact on dilution limits. The Company’s usage of
shares compared to the relevant dilution limits set by the
Association of British Insurers (ABI) in respect of all share
plans (10% in any rolling ten year period) and executive share
plans (5% in any rolling ten year period) as at 31 March 2012
was as follows:
All share plans
Actual
Limit
Executive share plans
Actual
0.98%
Limit
5%
6.31%
10%
Total shareholder return
Performance graph
The graph illustrates the performance of the Company against the FTSE 100 over the past five years. The FTSE 100 has been
chosen as it is a recognised broad equity market index of which the Company has been a member throughout the period.
Marks & Spencer Group plc
FTSE 100 Index
Source: Thomson Reuters
140
120
100
80
60
40
20
0
31 March
2007
29 March
2008
28 March
2009
3 April
2010
29 March
2011
2 April
2012
GovernanceMarks and Spencer Group plcRemuneration report continued Part 2: audited information
Annual report and financial statements 2012
65
Directors’ emoluments
Chairman
Robert Swannell
Chief Executive Officer
Marc Bolland
Executive directors
Kate Bostock
John Dixon
Steven Sharp
Alan Stewart
Laura Wade-Gery
Non-executive directors
Vindi Banga
Miranda Curtis
Jeremy Darroch
Martha Lane Fox
Steven Holliday
Jan du Plessis
Directors retiring from the board
during the year
Sir David Michels
Louise Patten
Total
Salary/fee1
£000
Cash
allowance2
£000
Compensatory
awards3
£000
Benefits4
£000
Dividend
equivalents
£000
Bonus5
£000
Total
2012
£000
Total
2011
£000
450
975
595
546
660
554
396
41
12
85
70
85
73
92
23
–
297
166
82
166
139
111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
741
–
–
–
–
–
–
–
–
1
40
19
7
36
32
7
–
–
–
–
–
–
–
–
–
38
–
54
–
7
–
–
–
–
–
–
–
–
–
–
451
128
332
1,682
4,382
164
202
203
173
122
944
891
1,065
905
1,377
–
–
–
–
–
–
–
–
41
12
85
70
85
73
92
23
1,017
833
1,138
412
–
–
–
76
68
81
68
209
68
4,657
961
741
142
99
1,196
7,796
8,480
1) Executive director salary increases, where applicable, were effective from 1 January 2012 as set out on page 58 and in the Contracts table on page 62.
2) The elements shown in the Cash allowance column of the table include pension supplement and car allowance, as applicable to each director and are described on page 58.
3) The Compensatory awards for Laura Wade-Gery include £335,000 in cash and £406,000 in shares for bonus and share awards that would have vested in 2011 had she remained
with her previous employer (as detailed in last year’s report).
4) The elements shown in the Benefits column of the table include car, life assurance and driver, as applicable to each director and are described on page 58.
5) For executive directors, 50% of the total bonus earned (shown on page 62) is paid in cash as shown in the table above. The remaining 50% is deferred into shares which will be
granted in June 2012. Laura Wade-Gery’s bonus is based on nine months worked in 2011/12.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Annual report and financial statements 2012
66
Directors’ interests in long-term incentive schemes
Maximum
options
receivable at
3 April 2011
or date of
appointment
Date of
grant
Options
granted
during
the year
Options
exercised
during
the year
Options
lapsed
during
the year
Maximum
options
receivable at
31 March 2012
Option
price
(p)
Share
price
on date
of award
(p)
Share
price on
date of
exercise
(p)
Option period
Chief Executive Officer
Marc Bolland
Performance Share Plan1
09/06/10 1,143,024
09/06/10 1,143,024
25/07/11
Deferred Share Bonus Plan 09/06/11
Restricted Share Plan2
09/06/10
09/06/10
25/11/10
–
–
– 687,200
– 162,263
–
–
–
2,581,952 849,463
146,541
146,542
2,821
SAYE
Total
Executive directors
Kate Bostock
Performance Share Plan1
09/06/08
09/06/09
09/06/10
25/07/11
Deferred Share Bonus Plan 09/06/10
09/06/11
262,054
349,528
337,045
242,672
–
–
–
– 415,844
–
– 102,439
–
–
–
–
–
–
–
–
– 1,143,024
– 1,143,024
–
687,200
–
162,263
–
146,541
–
146,542
–
2,821
– 3,431,415
0.0
0.0
0.0
0.0
0.0
0.0
319.0
341.2
341.2
354.7
378.4
341.2
341.2
397.6
– 09/06/12 – 08/06/20
– 09/06/13 – 08/06/20
– 25/07/14 – 24/07/21
– 09/06/14 – 08/06/21
– 05/12/11 – 08/06/20
– 08/06/12 – 08/06/20
– 01/01/14 – 30/06/14
– 262,054
–
–
–
–
–
–
–
–
–
–
–
349,528
337,045
415,844
242,672
102,439
0.0
0.0
0.0
0.0
0.0
0.0
381.6
286.1
341.2
354.7
341.2
378.4
– 09/06/12 – 08/06/19
– 09/06/13 – 08/06/20
– 25/07/14 – 24/07/21
– 09/06/13 – 08/06/20
– 09/06/14 – 08/06/21
24/11/04
21/11/08
249,627
4,729
–
–
1,445,655 518,283
–
249,627
4,729
–
4,729 262,054 1,697,155
–
–
336.5
203.0
336.5
252.6 333.6
– 24/11/07 – 23/11/14
Executive Share
Option Scheme
SAYE
Total
John Dixon
Performance Share Plan1
Restricted Share Plan3
Executive Share
Option Scheme
SAYE
Total
Steven Sharp
Performance Share Plan1
09/06/08
09/06/09
24/11/09
09/06/10
25/07/11
Deferred Share Bonus Plan 09/06/08
09/06/10
09/06/11
09/06/08
144,129
314,575
26,178
300,410
10,809
223,054
–
86,477
–
–
–
–
– 380,603
– 144,129
–
–
–
–
–
–
–
–
–
– 10,809
–
–
–
–
–
98,039
–
– 86,477
–
314,575
26,178
300,410
380,603
–
223,054
98,039
–
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
381.6
286.1
382.0
341.2
354.7
381.6 315.0
341.2
378.4
381.6 315.0
– 09/06/12 – 08/06/19
– 24/11/12 – 23/11/19
– 09/06/13 – 08/06/20
– 25/07/14 – 24/07/21
– 09/06/13 – 08/06/20
– 09/06/14 – 08/06/21
20/07/04
21/11/08
25,935
8,251
25,935
8,251
1,139,818 478,642 97,286 144,129 1,377,405
–
–
–
–
–
–
347.0
203.0
347.0
252.6
– 20/07/07 – 19/07/14
– 01/01/14 – 30/06/14
09/06/08
09/06/09
09/06/10
25/07/11
Deferred Share Bonus Plan 09/06/10
09/06/11
592,243
394,966
375,146
267,291
–
–
–
– 461,657
–
– 113,724
– 592,243
–
–
–
–
–
–
–
–
–
–
–
394,966
375,146
461,657
267,291
113,724
0.0
0.0
0.0
0.0
0.0
0.0
381.6
286.1
341.2
354.7
341.2
378.4
– 09/06/12 – 08/06/19
– 09/06/13 – 08/06/20
– 25/07/14 – 24/07/21
– 09/06/13 – 08/06/20
– 09/06/14 – 08/06/21
Executive Share
Option Scheme
SAYE
Total
20/07/04
24/11/04
21/11/08
24/11/11
–
302,593
–
104,010
–
4,729
3,488
–
2,040,978 578,869
–
–
4,729
–
302,593
104,010
–
3,488
4,729 592,243 2,022,875
–
–
–
–
347.0
336.5
203.0
258.0
347.0
336.5
252.6 350.4
322.4
– 20/07/07 – 19/07/14
– 24/11/07 – 23/11/14
– 01/01/15 – 30/06/15
GovernanceMarks and Spencer Group plcRemuneration report continued Annual report and financial statements 2012
67
Directors’ interests in long-term incentive schemes (continued)
Maximum
options
receivable at
3 April 2011
or date of
appointment
Date of
grant
Options
granted
during
the year
Options
exercised
during
the year
Options
lapsed
during
the year3
Maximum
options
receivable at
31 March 2012
Option
price
(p)
Share
price
on date
of award
(p)
Share
price on
date of
exercise
(p)
Option period
Alan Stewart
Performance Share Plan
24/11/10
25/07/11
Deferred Share Bonus Plan 09/06/11
Restricted Share Plan2
24/11/10
24/11/10
24/11/11
SAYE
Total
Laura Wade-Gery
Performance Share Plan
Restricted Share Plan2
25/07/11
25/07/11
25/07/11
25/07/11
Total
144,432
–
– 387,651
39,789
–
–
39,390
–
39,391
3,488
–
223,213 430,928
– 444,037
– 119,751
– 126,225
–
77,677
– 767,690
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
144,432
387,651
39,789
39,390
39,391
3,488
654,141
444,037
119,751
126,225
77,677
767,690
0.0
0.0
0.0
0.0
0.0
258.0
380.8
354.7
378.4
380.8
380.8
322.4
– 24/11/13 – 23/11/20
– 25/07/14 – 24/07/21
– 09/06/14 – 08/06/21
– 24/11/11 – 23/11/20
– 23/11/12 – 23/11/20
– 01/01/15 – 30/06/15
0.0
0.0
0.0
0.0
354.7
354.7
354.7
354.7
– 25/07/14 – 24/07/21
– 25/07/12 – 24/07/21
– 25/07/13 – 24/07/21
– 25/07/14 – 24/07/21
1) The 2008 Performance Share Plan Award did not meet the minimum EPS target of RPI +3% and so all awards lapsed on 9 June 2011. For awards due to vest on 9 June 2012,
vesting will be as follows: awards up to 200% of salary, vesting will be 34.95%; awards between 200% and 400% of salary, vesting will be 28.97%. The explanation of the
performance criteria attached to the Performance Share Plan is set out on page 62 and has been audited.
2) These awards were made in connection with the directors’ appointment to compensate them for incentive awards that were forfeited on cessation from their previous employer.
3) John Dixon was awarded these Restricted Share Plan options before he was appointed executive director.
The market price of the shares at the end of the financial year was 379.0p; the highest and lowest share price during the financial year were 402.2p and 301.8p respectively.
Directors’ pension information
a) Pension benefits
John Dixon is the only executive director who was a member of the Company’s Defined Benefit Pension Scheme during
2011/12. He opted out of the scheme on 1 February 2012. Details of the pension earned by him during the year ending
31 March 2012 are shown below:
Name
John Dixon
Age as at
31 March 2012
44
Accrued
pension
entitlement at
2 April 2011
£000
126
Accrued
pension
entitlement at
31 March 2012
£000
130
Additional
pension
earned during
the period
£000
4
Additional
pension earned
during the
period above
inflation
£000
2
Transfer
value of
accrued
pension at
2 April 2011
£000
1,417
Transfer
value of
accrued
pension at
31 March 2012
£000
1,830
Increase in
transfer value
during the
period
£000
413
Increase in
transfer value
during the
period above
inflation
£000
23
The accrued pension entitlement is the deferred pension amount that the director would receive at age 60 if he left the
Company on 31 March 2012. The Listing Rules require this to be disclosed excluding inflation.
All transfer values have been calculated on the basis of actuarial advice in accordance with the current Transfer Value
Regulations. The transfer values of the accrued entitlement represent the value of the assets that the pension scheme would
transfer to another pension provider on transferring the scheme’s liability in respect of the director’s pension benefits. They do
not represent sums payable to the director and therefore cannot be added meaningfully to annual remuneration. The increase
in transfer value is the increase in the transfer value of the accrued benefits during the year.
b) Payments to former directors
Details of payments made to former directors during the year are:
Unfunded pensions
Clinton Silver
2012
£000
114
2011
£000
111
The pension entitlement for Clinton Silver is supplemented by an additional unfunded pension paid by the Company.
Approved by the Board
Steven Holliday, Chairman of the Remuneration Committee
London
21 May 2012
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Other disclosures
Principal activities and Business review
Marks and Spencer Group plc (the ‘Company’) is the holding
company of the Marks & Spencer Group of companies (the
‘Group’). Marks & Spencer is the UK’s largest clothing retailer
with 731 stores across the country. We sell high-quality, great
value food, homeware and clothing and are the UK market
leaders in womenswear, lingerie and menswear. However our
customers shop with us – in stores, online or by phone –
we aim to provide the best and most convenient shopping
experience from purchase through to delivery. With 387 stores
in 43 territories across Europe, the Middle East and Asia, we
are growing our international presence to make the M&S brand
more accessible to customers around the world.
The Companies Act 2006 requires the Company to set out in
this report a fair review of the business of the Group during the
financial year ended 31 March 2012 including an analysis of the
position of the Group at the end of the financial year, and a
description of the principal risks and uncertainties facing the
Group (known as a ‘Business review’).
The information that fulfils the Business review requirements
are incorporated by reference and can be found in the following
sections:
– Chairman’s statement on pages 2 and 3
– Overview on pages 2 to 7
– Strategic review on pages 8 to 33
– Principal risks and uncertainties on pages 45 to 47
– Financial risk management on pages 97 to 102
– Social, environmental and ethical matters on pages 30 to 31.
More information is given in the How We Do Business report
available on our website at marksandspencer.com/
hwdbreport2012
Pages 1 to 72 inclusive (together with the sections of the Annual
Report incorporated by reference) consist of a Directors’ report
that has been drawn up and presented in accordance with and in
reliance upon applicable English company law and the liabilities of
the directors in connection with that report shall be subject to the
limitations and restrictions provided by such law.
Other information to be disclosed in the Directors’ report is
given in this section and indexed on page 72.
Profit and dividends
The profit for the financial year, after taxation, amounts to
£513.1m (last year £612.0m). The directors have declared
dividends as follows:
£m
Ordinary shares
Paid interim dividend of 6.2p per share
(last year 6.2p per share)
Proposed final dividend of 10.8p per share
(last year 10.8p per share)
Total ordinary dividend of 17.0p per share
(last year 17.0p per share)
The final ordinary dividend will be paid on 13 July 2012 to
shareholders whose names are on the Register of Members at
the close of business on 1 June 2012.
172.3
269.9
97.6
Share capital
The Company’s issued ordinary share capital as at 31 March
2012 comprised a single class of ordinary share. Details of
movements in the issued share capital can be found in note 24
to the financial statements. Each share carries the right to one
vote at general meetings of the Company. During the period,
20,643,220 ordinary shares in the Company were issued as
follows:
Annual report and financial statements 2012
68
– 1,297,912 shares under the terms of the 2002 Executive
Share Option Scheme at prices between 256p and 352p.
– 19,345,308 shares under the terms of the United Kingdom
Employees’ Save As You Earn Share Option Scheme at
prices between 203p and 559p.
Restrictions on transfer of securities
There are no specific restrictions on the transfer of securities in
the Company, which is governed by the Articles and prevailing
legislation. Nor is the Company aware of any agreements
between holders of securities that may result in restrictions on
the transfer of securities or that may result in restrictions on
voting rights.
Variation of rights
Subject to applicable statutes, rights attached to any class
of share may be varied with the written consent of the holders
of at least three-quarters in nominal value of the issued shares
of that class, or by a special resolution passed at a separate
general meeting of the shareholders.
Rights and obligations attaching to shares
Subject to the provisions of the Companies Act 2006, any
resolution passed by the Company under the Companies Act
2006 and other shareholders’ rights, shares may be issued
with such rights and restrictions as the Company may by
ordinary resolution decide, or (if there is no such resolution or
so far as it does not make specific provision) as the Board (as
defined in the Articles) may decide. Subject to the Articles, the
Companies Act 2006 and other shareholders’ rights, unissued
shares are at the disposal of the Board.
Powers for the Company issuing or buying back its
own shares
The Company was authorised by shareholders, at the 2011
AGM, to purchase in the market up to 10% of the Company’s
issued share capital, as permitted under the Company’s
Articles. No shares have been bought back under this authority
during the year ended 31 March 2012. This standard authority
is renewable annually; the directors will seek to renew this
authority at the 2012 AGM. It is the Company’s present
intention to cancel any shares it buys back, rather than hold
them in treasury.
The directors were granted authority at the 2011 AGM to allot
relevant securities up to a nominal amount of £132,079,033.
That authority will apply until the conclusion of the 2012 AGM.
At this year’s AGM shareholders will be asked to grant an
authority to allot relevant securities (i) up to a nominal amount
of £133,890,820, and (ii) comprising equity securities up to a
nominal amount of £267,781,640 (after deducting from such
limit any relevant securities allotted under (i)), in connection
with an offer of a rights issue, (the Section 551 Amount), such
Section 551 amount to apply until the conclusion of the AGM
to be held in 2013 or, if earlier, on 30 September 2013.
A special resolution will also be proposed to renew the
directors’ powers to make non pre-emptive issues for cash in
connection with rights issues and otherwise up to a nominal
amount of £20,083,623. A special resolution will also be
proposed to renew the directors’ authority to repurchase the
Company’s ordinary shares in the market. The authority will be
limited to a maximum of 160m ordinary shares and sets the
minimum and maximum prices which will be paid.
Interests in voting rights
Information provided to the Company pursuant to the Financial
Services Authority’s (FSA) Disclosure and Transparency Rules
(DTRs) is published on a Regulatory Information Service and on
GovernanceMarks and Spencer Group plc Annual report and financial statements 2012
69
– the £1.325bn Credit Agreement dated 29 September 2011
between the Company and various banks contains a
provision such that, upon a change of control event, unless
new terms are agreed within 60 days, the facility under this
agreement will be cancelled with all outstanding amounts
becoming immediately payable with interest;
– the amended and restated Relationship Agreement dated
1 February 2012 (originally dated 9 November 2004 as
amended on 1 March 2005), between HSBC and the
Company and relating to M&S Money, contains certain
provisions which address a change of control of the Company.
Upon a change of control the existing rights and obligations of
the parties in respect of M&S Money continue and HSBC gains
certain limited additional rights in respect of existing customers
of the new controller of the Company. Where a third-party
arrangement is in place for the supply of financial services
products to existing customers of the new controller, the
Company is required to procure the termination of such
arrangement as soon as reasonably practicable (whilst not
being required to do anything that would breach any contract
in place in respect of such arrangement). Where a third-party
arrangement is so terminated, or does not exist, HSBC gains
certain exclusivity rights in respect of the sale of financial
services products to the existing customers of the new
controller. Where the Company undertakes a re-branding
exercise with the new controller following a change of control
(which includes using any M&S brand in respect of the new
controller’s business or vice versa), HSBC gains certain
termination rights (exercisable at its election) in respect of the
Relationship Agreement;
– the agreement between Marks and Spencer plc and
Marks and Spencer Pension Trust Limited (as trustee of
The Marks and Spencer Pension Scheme) (the ‘Pension
Fund’) dated 12 May 2010 relating to Marks and Spencer
Scottish Limited Partnership (the ‘Partnership’) contains a
clause such that, upon a change of control of the Company,
Marks and Spencer plc shall elect that the Partnership
either (i) surrenders its discretion over the payment of annual
distributions to the Pension Fund; or (ii) increases the rate
at which compensatory interest accrues on any annual
payments by the Partnership that Marks and Spencer plc
has elected (as general partner of the Partnership) to defer;
– the Company does not have agreements with any director
or employee that would provide compensation for loss of
office or employment resulting from a takeover except that
provisions of the Company’s share schemes and plans may
cause options and awards granted to employees under
such schemes and plans to vest on a takeover.
Board of directors
The membership of the Board and biographical details of the
directors are given on page 40 and 41 and are incorporated
into this report by reference. Details of directors’ beneficial
and non-beneficial interests in the shares of the Company are
shown on page 63. Options granted under the Save As You
Earn (SAYE) Share Option and Executive Share Option
Schemes are shown on pages 66 to 67. Further information
regarding employee share option schemes is given in note 13
to the financial statements.
Laura Wade-Gery joined the Board on 4 July 2011 as Executive
Director, Multi-channel E-commerce, Louise Patten did not
seek re-election at the 2011 AGM and stepped down from the
Board as a non-executive director on 13 July 2011, Vindi Banga
was appointed to the Board as a non-executive director on
1 September 2011. Miranda Curtis joined the Board as a
the Company’s website. As at 31 March 2012, the following
information has been received, in accordance with DTR5,
from holders of notifiable interests in the Company’s issued
share capital.
Ordinary shares % of capital
Nature of holding
Indirect (4.51%)
& CFD (0.52%)
5.03%
79,693,916
77,589,854
76,111,596
BlackRock
Capital Research &
Management
AXA S.A.
Brandes Investment
Partners, L.P.
74,959,501
4.73%
Indirect interest
Legal & General Group plc 63,188,326
3.99% Direct interest
The Wellcome Trust
47,464,282
3.01% Direct interest
No changes have been disclosed in accordance with DTR5 in
the period 31 March 2012 to 21 May 2012.
4.85%
Indirect interest
4.81% Direct & Indirect
Deadlines for exercising voting rights
Votes are exercisable at a general meeting of the Company
in respect of which the business being voted upon is being
heard. Votes may be exercised in person, by proxy, or in
relation to corporate members, by corporate representatives.
The Articles provide a deadline for submission of proxy forms
of not than less than 48 hours before the time appointed for the
holding of the meeting or adjourned meeting. However, when
calculating the 48-hour period, the directors can, and have,
decided not to take account of any part of a day that is not a
working day.
Significant agreements – change of control
There are a number of agreements to which the Company
is party that take effect, alter or terminate upon a change
of control of the Company following a takeover bid. Details
of the significant agreements of this kind are as follows:
– the £267m Medium Term Notes issued by the Company on
28 March 2007, £400m Medium Term Notes issued by the
Company on 30 November 2009 and the £300m Medium
Term Notes issued by the company on the 6 December
2011 to various institutions (‘MTN’) and under the Group’s
£3bn Euro Medium Term Note (EMTN) programme contain
an option such that, upon a change of control event,
combined with a credit ratings downgrade to below
sub-investment level, any holder of an MTN may require
the Company to prepay the principal amount of that MTN;
– the £250m puttable callable reset notes issued by the
Company to various institutions on 11 December 2007
under the Group’s £3bn EMTN programme contain an
option such that, upon a change of control event, combined
with a credit ratings downgrade to below sub-investment
level, any holder of an MTN may require the Company to
prepay the principal amount of that MTN;
– the $500m US Notes issued by the Company to various
institutions on 6 December 2007 under section 144a of
the US Securities Act contain an option such that, upon
a change of control event, combined with a credit ratings
downgrade to below sub-investment level, any holder of
such a US Note may require the Company to prepay the
principal amount of that US Note;
– the $300m US Notes issued by the Company to various
institutions on 6 December 2007 under section 144a of
the US Securities Act contain an option such that, upon
a change of control event, combined with a credit ratings
downgrade to below sub-investment level, any holder of
such a US Note may require the Company to prepay the
principal amount of that US Note;
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Other Disclosures continued
Annual report and financial statements 2012
70
non-executive director on 1 February 2012. Sir David Michels
stepped down from the Board as Deputy Chairman and Senior
Independent Director, following the end of his second three-year
term on 29 February 2012. Jan du Plessis was appointed Senior
Independent Director on 1 March 2012. In line with industry best
practice, all directors will stand for election at the 2012 AGM.
The appointment and replacement of directors is governed
by the Company’s Articles, the UK Corporate Governance
Code (the ‘Code’), the Companies Act 2006 and related
legislation. The Articles may be amended by a special
resolution of the shareholders. Subject to the Articles, the
Companies Act 2006 and any directions given by special
resolution, the business of the Company will be managed by
the Board who may exercise all the powers of the Company.
The Company may by ordinary resolution declare dividends not
exceeding the amount recommended by the Board. Subject to
the Companies Act 2006, the Board may pay interim dividends,
and also any fixed rate dividend, whenever the financial position
of the Company, in the opinion of the Board, justifies its payment.
Appointment and retirement of directors
The directors may from time to time appoint one or more
directors. The Board may appoint any person to be a director
(so long as the total number of directors does not exceed the
limit prescribed in the Articles). Under the Articles any such
director shall hold office only until the next AGM and shall then
be eligible for election. The Articles also require that at each
AGM at least one-third of the current directors must retire as
directors by rotation. All those directors who have been in office
at the time of the two previous AGMs and who did not retire at
either of them must retire as directors by rotation. In addition,
a director may at any AGM retire from office and stand for
re-election. However, in line with the UK Corporate Governance
Code 2010, all directors will stand for annual election at the
2012 AGM.
Directors’ conflicts of interest
The Company has procedures for managing conflicts of
interest in place. Should a director become aware that they,
or their connected parties, have an interest in an existing or
proposed transaction with Marks & Spencer, they should notify
the Board in writing or at the next Board meeting. Internal
controls are in place to ensure that any related party
transactions involving directors, or their connected parties,
are conducted on an arm’s length basis. Directors have a
continuing duty to update any changes to these conflicts.
Directors’ indemnities
The Company maintains directors’ and officers’ liability
insurance which gives appropriate cover for any legal action
brought against its directors. The Company has also granted
indemnities to each of its directors and the Group Secretary
to the extent permitted by law. Qualifying third party indemnity
provisions (as defined by section 234 of the Companies Act
2006) were in force during the year ended 31 March 2012 and
remain in force, in relation to certain losses and liabilities which
the directors (or Group Secretary) may incur to third parties in
the course of acting as directors or Group Secretary or
employees of the Company, or of any associated company.
Employee involvement
We remain committed to employee involvement throughout the
business. Employees are kept well informed of the performance
and strategy of the Group through personal briefings, regular
meetings, personal letters home, email and broadcasts by the
Chief Executive and members of the Board at key points in the
year to all head office employees and store management. In
addition many of our store colleagues can join the briefings by
telephone to hear directly from the business. These types of
communication are supplemented by our employee publications
including, ‘Your M&S’ magazine, Plan A updates and DVD
presentations. More than 3,500 employees elected onto Business
Involvement Groups (‘BIGs’) across every store and head office
location to represent their colleagues in two-way communication
and consultation with the Company. They have continued to play
a key role in a wide variety of business changes, in what has been
a very busy year.
The seventeenth meeting of the European Works Council
(‘EWC’) (established in 1995) will take place in July 2012. This
Council provides an additional forum for informing, consulting
and involving employee representatives from the countries in
the European Community. The EWC includes members from
our partly owned companies established in the Czech Republic
and Greece, as well as representatives from the Republic of
Ireland and the UK. The EWC will have the opportunity to be
addressed by the Chief Executive and other senior members of
the Company on issues that affect the European business. This
will include the directors of International and Multi-channel, and
the director of Plan A, which all have an impact across the
European Community.
Directors and senior management regularly attend the National
Business Involvement Group (BIG) meetings. They visit stores
and discuss with employees matters of current interest and
concern to both employees and the business through meetings
with local BIG representatives, specific listening groups and
informal discussion. The business has continued to engage
with employees and drive involvement through a scheme called
The BIG Idea. On a quarterly basis the business poses a
question to gather ideas and initiatives on a number of areas
including how we better serve our customers. Several
thousand ideas are put forward each time and the winning
employee receives an award and the chance to see how this is
implemented by the Company.
Share schemes are a long-established and successful part
of our total reward package, encouraging and supporting
employee share ownership. In particular, around 25,000
employees currently participate in Sharesave, the Company’s
all employee Save As you Earn Scheme. Full details of all
schemes are given on pages 59 to 60.
We have a well established interactive wellbeing website, called
planahealth.com, a completely bespoke website and service
designed exclusively for M&S employees. It gives any employee
the opportunity to access a wealth of information, help and
support. We cover all areas of wellbeing, from healthy eating
and exercise to help in overcoming issues such as stress,
financial challenges, achieving a positive work-life balance and
problems with sleeping.
The response since its launch in May 2010 has been excellent
with 11,500 employees making personal pledges to improve
a specific health or wellbeing issue. Employees are able to
interact with one another, post information about clubs and
groups in their area and can gain access to information about
corporate projects which link to their personal health pledges.
We have already received hundreds of testimonials from
employees telling us that they are enjoying the programme, feel
better as a result and enjoy its social/community-based style.
We maintain contact with retired staff through communications
from the Company and the Pension Trust. Member-nominated
trustees have been elected to the Pension Trust Board, including
employees and pensioners. We continue to produce a regular
Pensions Update newsletter for members of our final salary
pension scheme and the M&S Retirement Plan.
GovernanceMarks and Spencer Group plc Annual report and financial statements 2012
71
Equal opportunities
The Group is committed to an active equal opportunities policy
from recruitment and selection, through training and development,
performance reviews and promotion to retirement. It is our policy
to promote an environment free from discrimination, harassment
and victimisation, where everyone will receive equal treatment
regardless of gender, colour, ethnic or national origin, disability,
age, marital status, sexual orientation or religion. All decisions
relating to employment practices will be objective, free from bias
and based solely upon work criteria and individual merit. The
Company is responsive to the needs of its employees, customers
and the community at large. We are an organisation which uses
everyone’s talents and abilities and where diversity is valued. We
were one of the first major companies to remove the default
retirement age in 2001 and have continued to see an increase in
employees wanting to work past the state retirement age. Our
oldest employee is 85 years old and joined the business at age
80. The Company once again featured in The Times Top 50
places for Women to work in April 2012 and consider this
highlights how equal opportunities are available for all.
Employees with disabilities
It is our policy that people with disabilities should have full and fair
consideration for all vacancies. During the year, we continued to
demonstrate our commitment to interviewing those people with
disabilities who fulfil the minimum criteria, and endeavour to retain
employees in the workforce if they become disabled during
employment. We will actively retrain and adjust their environment
where possible to allow them to maximise their potential. We
continue to work with external organisations to provide workplace
opportunities through our innovative Marks & Start scheme and
by working closely with JobCentrePlus.
Essential contracts or arrangements
The Company is required to disclose any contractual or other
arrangements which it considers are essential to its business.
We have a wide range of suppliers for the production and
distribution of products to our customers. Whilst the loss of, or
disruption to, certain of these arrangements could temporarily
affect the operations of the Group, none are considered to be
essential, with the exception of certain warehouse operators
and the provider of the Company’s E-commerce platform.
Groceries Supply Code of Practice
The Groceries (Supply Chain Practices) Market Investigation
Order 2009 (“Order”) and The Groceries Supply Code of
Practice (“GSCOP”) has been in force since February 2010.
The Company operates a number of systems and controls
to ensure compliance with the Order and GSCOP including
the following:
– the terms and conditions which govern the trading
relationship between M&S and those of its suppliers that
supply groceries to M&S incorporate GSCOP;
– new suppliers are issued with information as required by
the Order;
– The Company has a Code Compliance Officer as required
under the Order, supported by our in-house legal
department; and
– employee training on GSCOP is provided, including annual
refresher programmes and new starter training.
Under the Order and GSCOP, The Company is required to
submit an annual report detailing its compliance with GSCOP
to the Audit Committee for approval and to the Office of Fair
Trading. The Company submitted its report to the Audit
Committee on 11 May 2012 covering the period from 1 April
2011 to 31 March 2012. There were no disputes relating to
GSCOP during the financial year ended 31 March 2012.
Creditor payment policy
For all trade creditors, it is the Group’s policy to:
– agree the terms of payment at the start of business with
that supplier;
– ensure that suppliers are aware of the terms of payment; and
– pay in accordance with its contractual and other legal
obligations.
The main trading company, Marks and Spencer plc, has a
policy concerning the payment of trade creditors as follows:
– general merchandise payments are received between 25
and 60 days after the stock was invoiced;
– food payments are received between 19 and 25 days after
the stock was invoiced; and
– distribution suppliers are paid monthly, for costs incurred in
that month, based on estimates, and payments are adjusted
quarterly to reflect any variations to estimate.
Trade creditor days for Marks and Spencer plc for the year
ended 31 March 2012 were 26 days, or 17 working days
(last year 26 days, or 17 working days), based on the ratio
of Company trade creditors at the end of the year to the
amounts invoiced during the year by trade creditors.
Market value of properties
The directors believe that the open market value of the
properties of the Group exceeds their net book value.
Charitable donations
During the year and in line with our Plan A commitments, the
Group made charitable donations to support the community
of £11.4m (last year £12.3m), excluding management costs and
memberships. These principally consisted of cash donations
of £6.9m (last year £6.9m) which included Breakthrough Breast
Cancer, Macmillan Cancer Support, Great Ormond Street
Hospital, UNICEF, Groundwork, WWF, MCS, our Marks & Start
programme and local community donations. We also donated
£1.3m (last year £1.3m) of employee time, principally on
fundraising and volunteering, Marks & Start and school work
experience programmes. As a business we have reduced our
waste in the last five years and now do not send anything to
landfill. This reduction in waste is reflected in our overall
reduction in waste stock donations to a variety of charities,
£3.2m (last year £4.1m) including Oxfam, The Newlife
Foundation and Shelter.
We also had another successful year supporting a number
of our charity partners in raising funds of £8.5m (last year
£10.9m). This principally consisted of funds raised from
customer clothing donations to Oxfam through The Clothing
Exchange, funds raised by Groundwork as a result of M&S
support and employee and customer donations.
Political donations
No political donations were made during the year ended
31 March 2012. Marks & Spencer has a policy of not making
donations to political organisations or independent election
candidates or incurring political expenditure anywhere in the
world as defined in the Political Parties, Elections and
Referendums Act 2000.
Events after the reporting period
The details and impacts of events after the reporting period
can be found in note 29 on page 106.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Other Disclosures continued
Annual report and financial statements 2012
72
Going concern
In adopting the going concern basis for preparing the financial
statements, the directors have considered the business
activities as set out on pages 1 to 37 as well as the Group’s
principal risks and uncertainties as set out on pages 45 to 47.
Based on the Group’s cash flow forecasts and projections, the
Board is satisfied that the Group will be able to operate within
the level of its facilities for the foreseeable future. For this
reason the Group continues to adopt the going concern basis
in preparing its financial statements.
Auditors
Resolutions to reappoint PricewaterhouseCoopers LLP
as auditors of the Company and to authorise the Audit
Committee to determine their remuneration will be proposed
at the 2012 AGM.
Annual General Meeting
The AGM of Marks and Spencer Group plc will be held
at the Royal Festival Hall, Southbank Centre, London on
10 July 2012 at 11am. The Notice of Meeting is given, together
with explanatory notes, in the booklet which accompanies
this report.
Directors’ responsibilities
The directors are responsible for preparing the Annual report,
the Remuneration report and the financial statements in
accordance with applicable law and regulations. Company law
requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the
Group and Company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the EU. Under company law the directors must not approve
the financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Company and Group
for that period. In preparing these financial statements, the
directors are required to:
– select suitable accounting policies and then apply them
consistently;
– make judgements and accounting estimates that are
reasonable and prudent;
– state whether applicable IFRSs as adopted by the EU have
been followed, subject to any material departures disclosed
and explained in the financial statements; and
– prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and to
enable them to ensure that the financial statements and the
Remuneration report comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of
the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and the Group and hence for
taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions. Each of the
directors, whose names and functions are listed on pages 40
and 41 of the Annual report, confirm that, to the best of their
knowledge:
– the Group financial statements, which have been prepared
in accordance with IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group; and
– the Business review contained in this report includes a fair
review of the development and performance of the business
and the position of the Group, together with a description of
the principal risks and uncertainties that it faces.
Disclosure of information to auditor
Each director confirms that, so far as he (she) is aware, there is
no relevant audit information of which the Company’s auditors
are unaware and that each director has taken all the steps that
he (she) ought to have taken as a director to make himself
(herself) aware of any relevant audit information and to establish
that the Company’s auditors are aware of that information.
Index to principal Directors’ report disclosures
Information required to be disclosed in the Directors’ report can
be found on the following pages:
Annual General Meeting
Appointment and retirement of directors
Auditors
Board of directors
Charitable donations
Creditor payment policy
Deadlines for exercising voting rights
Directors’ conflicts of interest
Directors’ indemnities
Directors’ responsibilities
Disclosure of information to auditor
Employee involvement
Employees with disabilities
Equal opportunities
Essential contracts or arrangements
Events after the reporting period
Going concern
Groceries Supply Code of Practice
Interests in voting rights
Market value of properties
Political donations
Powers for the Company issuing or buying
back its own shares
Principal activities and Business review
Profit and dividends
Restrictions on transfer of securities
Rights and obligations attaching to shares
Share capital
Significant agreements – change of control
Variation of rights
By order of the Board
Amanda Mellor, Group Secretary
London
21 May 2012
72
70
72
69
71
71
69
70
70
72
72
70
71
71
71
71
72
71
68
71
71
68
68
68
68
68
68
69
68
GovernanceMarks and Spencer Group plc Independent auditors’ report
to the members of Marks and Spencer Group plc
Annual report and financial statements 2012
73
– the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the
lAS Regulation.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
– the part of the Remuneration report to be audited has been
properly prepared in accordance with the Companies Act
2006; and
– the information given in the Directors’ report for the financial
year for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
– adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
– the parent company financial statements and the part of
the Remuneration report to be audited are not in agreement
with the accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law
are not made; or
– we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
– the directors’ statement, set out on page 72, in relation to
going concern;
– the parts of the Corporate Governance Statement relating
to the Company’s compliance with the nine provisions of the
UK Corporate Governance Code specified for our review; and
– certain elements of the report to shareholders by the Board
on directors’ remuneration.
Stuart Watson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
21 May 2012
We have audited the financial statements of Marks and
Spencer Group plc for the 52 weeks ended 31 March 2012
which comprise the Consolidated income statement, the
Consolidated statement of comprehensive income, the
Consolidated and Company statements of financial position,
the Consolidated statement of changes in equity and Company
statement of changes in shareholders’ equity, the Consolidated
cash flow information and Company statement of cash flows
and the related notes. The financial reporting framework that
has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted
by the European Union and, as regards the parent company
financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 72, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements
in accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no
other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent
in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the parent
company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read
all the financial and non-financial information in the Annual
report and financial statements 2012 to identify material
inconsistencies with the audited financial statements. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
– the financial statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs as
at 31 March 2012 and of the Group’s profit and Group’s and
parent company’s cash flows for the 52 weeks then ended;
– the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
– the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the
provisions of the Companies Act 2006; and
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Consolidated income statement
Revenue
Operating profit
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Equity shareholders of the Company
Non-controlling interests
Basic earnings per share
Diluted earnings per share
Non-GAAP measures: Underlying profit before tax
Profit before tax
Adjusted for:
Profit on property disposals
IAS 19 Ireland one-off pension credit
IAS 36 Impairment of assets
IAS 39 Fair value movement of financial instrument
IAS 39 Fair value movement of embedded derivative
Strategic programme costs
Underlying profit before tax
Underlying basic earnings per share
Underlying diluted earnings per share
Consolidated statement of comprehensive income
Profit for the year
Other comprehensive income:
Foreign currency translation differences
Actuarial (losses)/gains on retirement benefit schemes
Tax on retirement benefit schemes
Cash flow and net investment hedges
– fair value movements in equity
– reclassified and reported in net profit
– amount recognised in inventories
Tax on cash flow hedges and net investment hedges
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive income for the year
Attributable to:
Equity shareholders of the Company
Non-controlling interests
Annual report and financial statements 2012
74
52 weeks ended
31 March 2012
£m
9,934.3
52 weeks ended
2 April 2011
£m
9,740.3
746.5
836.9
Notes
2, 3
2, 3
6
6
4
7
8
8
5
5
5
5
5
5
1
8
8
48.3
(136.8)
658.0
(168.4)
489.6
513.1
(23.5)
489.6
32.5p
32.2p
96.6
(152.9)
780.6
(182.0)
598.6
612.0
(13.4)
598.6
38.8p
38.4p
658.0
780.6
–
–
44.9
(15.6)
0.2
18.4
705.9
34.9p
34.6p
(2.9)
(10.7)
6.3
(54.3)
(20.3)
15.6
714.3
34.8p
34.4p
Notes
52 weeks ended
31 March 2012
£m
489.6
52 weeks ended
2 April 2011
£m
598.6
11
(15.1)
(189.9)
50.4
53.0
(23.0)
13.7
(7.3)
(118.2)
371.4
394.9
(23.5)
371.4
(16.4)
286.0
(78.0)
(57.8)
42.1
(11.2)
19.4
184.1
782.7
796.1
(13.4)
782.7
Financial statementsMarks and Spencer Group plc Consolidated statement of financial position
Annual report and financial statements 2012
75
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Investment in joint ventures
Other financial assets
Retirement benefit asset
Trade and other receivables
Derivative financial instruments
Current assets
Inventories
Other financial assets
Trade and other receivables
Derivative financial instruments
Current tax receivable
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings and other financial liabilities
Partnership liability to the Marks & Spencer UK Pension Scheme
Derivative financial instruments
Provisions
Current tax liabilities
Non-current liabilities
Retirement benefit deficit
Trade and other payables
Borrowings and other financial liabilities
Derivative financial instruments
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium account
Capital redemption reserve
Hedging reserve
Other reserve
Retained earnings
Total shareholders’ equity
Non-controlling interests in equity
Total equity
As at
31 March 2012
£m
As at
2 April 2011
£m
Notes
14
15
16
11
17
21
16
17
21
18
19
20
12
21
22
11
19
20
21
22
23
24
584.3
4,789.9
15.9
14.4
3.0
91.3
270.2
44.2
5,813.2
681.9
260.5
253.0
67.0
1.6
196.1
1,460.1
7,273.3
1,449.1
327.7
71.9
60.5
8.4
87.8
2,005.4
13.3
280.8
1,948.1
27.2
24.0
195.7
2,489.1
4,494.5
2,778.8
401.4
294.3
2,202.6
14.8
(6,114.3)
5,991.4
2,790.2
(11.4)
2,778.8
527.7
4,662.2
16.0
13.0
3.0
182.6
276.1
21.8
5,702.4
685.3
215.9
250.3
18.4
1.6
470.2
1,641.7
7,344.1
1,347.6
602.3
71.9
50.7
22.7
115.0
2,210.2
14.1
262.3
1,924.1
37.5
22.0
196.5
2,456.5
4,666.7
2,677.4
396.2
255.2
2,202.6
(11.3)
(6,042.4)
5,873.2
2,673.5
3.9
2,677.4
The financial statements were approved by the Board and authorised for issue on 21 May 2012. The financial statements also
comprise the notes on pages 78 to 106.
Marc Bolland Chief Executive Officer
Alan Stewart Chief Finance Officer
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Consolidated statement of changes in equity
Annual report and financial statements 2012
76
At 4 April 2010
Profit/(loss) for the year
Other comprehensive income:
Foreign currency translation
Actuarial gains on retirement benefit schemes
Tax on retirement benefit schemes
Cash flow and net investment hedges
– fair value movements
– reclassified and reported in net profit3
– amount recognised in inventories
Tax on cash flow hedges and net
investment hedges
Other comprehensive income
Total comprehensive (expenses)/income
Transactions with owners:
Dividends
Recognition of financial liability4
Shares issued on exercise of employee
share options
Purchase of own shares held by
employee trusts
Credit for share-based payments
Deferred tax on share schemes
At 2 April 2011
At 3 April 2011
Profit/(loss) for the year
Other comprehensive income:
Foreign currency translation
Actuarial losses on retirement benefit schemes
Tax on retirement benefit schemes
Cash flow and net investment hedges
– fair value movements
– reclassified and reported in net profit3
– amount recognised in inventories
Tax on cash flow hedges and net
investment hedges
Other comprehensive income
Total comprehensive income/(expenses)
Transactions with owners:
Dividends
Transactions with non-controlling shareholders
Recognition of financial liability4
Shares issued on exercise of employee
share options
Purchase of own shares held by
employee trusts
Credit for share-based payments
Deferred tax on share schemes
At 31 March 2012
Ordinary
share capital
£m
395.5
–
Share
premium
account
£m
247.5
–
Capital
redemption
reserve
£m
2,202.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.7
7.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
396.2
396.2
–
–
–
–
255.2
255.2
–
–
–
–
2,202.6
2,202.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.2
39.1
–
–
–
–
–
–
–
–
–
–
–
–
–
Hedging
reserve
£m
Retained
Other
reserve1
earnings2
£m
£m
11.6 (5,970.5) 5,281.9
612.0
–
–
Non-
controlling
interest
£m
17.3
(13.4)
Total
£m
2,185.9
598.6
Total
£m
2,168.6
612.0
(0.7)
–
–
(60.4)
42.1
(11.2)
7.3
(22.9)
(22.9)
–
–
–
–
–
–
(11.3)
(11.3)
–
(1.1)
–
–
43.8
(23.0)
13.7
(7.3)
26.1
26.1
–
–
–
–
–
–
–
–
–
–
–
–
–
(15.7)
286.0
(78.0)
2.6
–
–
12.1
207.0
819.0
(16.4)
286.0
(78.0)
(57.8)
42.1
(11.2)
19.4
184.1
796.1
–
(71.9)
(247.5)
–
(247.5)
(71.9)
–
–
8.4
–
–
–
(12.0)
(12.0)
31.7
31.7
0.1
0.1
2,673.5
(6,042.4) 5,873.2
(6,042.4) 5,873.2 2,673.5
513.1
513.1
–
–
–
–
–
–
–
–
–
–
–
–
(71.9)
(14.0)
(189.9)
50.4
9.2
–
–
–
(144.3)
368.8
(267.8)
(6.4)
–
(15.1)
(189.9)
50.4
–
53.0
(23.0)
13.7
(7.3)
(118.2)
394.9
(267.8)
(6.4)
(71.9)
–
–
–
–
–
–
–
–
(13.4)
–
–
–
(16.4)
286.0
(78.0)
(57.8)
42.1
(11.2)
19.4
184.1
782.7
(247.5)
(71.9)
8.4
(12.0)
–
31.7
–
0.1
–
2,677.4
3.9
3.9 2,677.4
489.6
(23.5)
–
–
–
–
–
–
–
–
(23.5)
–
8.2
–
(15.1)
(189.9)
50.4
–
53.0
(23.0)
13.7
(7.3)
(118.2)
371.4
(267.8)
1.8
(71.9)
–
–
44.3
–
44.3
–
–
–
401.4
–
–
–
–
–
–
294.3 2,202.6
–
–
–
14.8
–
–
–
(13.2)
32.5
4.3
(6,114.3) 5,991.4 2,790.2
(13.2)
32.5
4.3
–
–
–
(13.2)
32.5
4.3
(11.4) 2,778.8
1 The ‘Other reserve’ was originally created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the
capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of Marks and
Spencer plc at the date of the transaction. The reserve also includes discretionary distributions to the Marks & Spencer UK Pension Scheme of £427.9m (last year £499.8m) (see note 11).
2 The ‘Retained earnings reserve’ includes a cumulative £5.1m gain (last year £19.1m gain) in the currency reserve.
3 Amounts reclassified and reported in net profit have all been recorded in cost of sales.
4 Following the Group’s payment of an interim dividend in relation to 2011/12, the associated distribution of £71.9m became payable to the Marks & Spencer UK Pension Scheme and has
been recognised as a liability (see note 12).
Financial statementsMarks and Spencer Group plc Consolidated cash flow information
Annual report and financial statements 2012
77
Consolidated statement of cash flows
Cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Purchase of current financial assets
Interest received
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Cash (outflow)/inflow from borrowings
Repayment of syndicated bank facility
Issue of medium-term notes
Redemption of medium-term notes
Monetisation of derivative assets
Decrease in obligations under finance leases
Payment of liability to the Marks & Spencer UK Pension Scheme
Equity dividends paid
Shares issued on exercise of employee share options
Purchase of own shares by employee trust
Net cash used in financing activities
Net cash (outflow)/inflow from activities
Effects of exchange rate changes
Opening net cash
Closing net cash
Reconciliation of net cash flow to movement in net debt
Opening net debt
Net cash (outflow)/inflow from activities
Increase in current financial assets
Decrease in debt financing
Partnership liability to the Marks & Spencer UK Pension Scheme (non-cash)
Exchange and other non-cash movements
Movement in net debt
Closing net debt
52 weeks ended
31 March 2012
£m
52 weeks ended
2 April 2011
£m
Notes
26
1,352.1
(149.1)
1,203.0
1,385.2
(185.3)
1,199.9
(564.3)
–
(156.4)
(44.8)
7.7
(757.8)
(135.9)
(41.4)
–
295.5
(307.6)
–
(13.0)
(71.9)
(267.8)
44.3
(13.2)
(511.0)
(65.8)
(1.9)
263.5
195.8
(327.3)
3.5
(126.5)
(44.3)
4.1
(490.5)
(146.4)
18.4
(217.5)
–
–
32.8
(15.7)
(67.9)
(247.5)
8.4
(12.0)
(647.4)
62.0
(1.2)
202.7
263.5
27
52 weeks ended
31 March 2012
£m
52 weeks ended
2 April 2011
£m
Notes
(1,900.9)
(65.8)
44.8
138.4
(71.9)
(1.7)
43.8
(1,857.1)
(2,068.4)
62.0
44.3
249.9
(71.9)
(116.8)
167.5
(1,900.9)
27
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Notes to the financial statements
Annual report and financial statements 2012
78
1 Accounting policies
Basis of preparation
The financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) and IFRS
Interpretations Committee (IFRS IC) interpretations, as adopted
by the European Union, and with those parts of the Companies
Act 2006 applicable to companies reporting under IFRS.
In adopting the going concern basis for preparing the financial
statements, the directors have considered the business
activities as set out on pages 1 to 37 as well as the Group’s
principal risks and uncertainties as set out on pages 46 to 47.
Based on the Group’s cash flow forecasts and projections, the
Board is satisfied that the Group will be able to operate within
the level of its facilities for the foreseeable future. For this
reason the Group continues to adopt the going concern basis
in preparing its financial statements.
There are no IFRS or IFRS IC interpretations that are effective
for the first time in this financial period that have had a material
impact on the Group.
The following IFRS, IFRS IC interpretations and amendments
have been issued but are not yet effective and have not been
early adopted by the Group:
IAS 19, ‘Employee benefits’ was amended in June 2011 and
is effective for periods beginning on or after 1 January 2013.
The impact will be to replace interest cost and expected return
on plan assets with a net interest amount that is calculated
by applying the discount rate to the net defined benefit liability/
asset. The Group is yet to assess the full impact of this
amendment.
There are no other IFRS or IFRS IC interpretations that are not
yet effective that would be expected to have a material impact
on the Group.
The Marks and Spencer Scottish Limited Partnership has
taken an exemption under paragraph 7 of the Partnership
(Accounts) Regulations 2008 for the requirement to prepare
and deliver financial statements in accordance with the
Companies Act.
A summary of the Company’s and the Group’s accounting
policies is given below:
Accounting convention
The financial statements are drawn up on the historical cost
basis of accounting, except as disclosed in the accounting
policies set out below.
Basis of consolidation
The Group financial statements incorporate the financial
statements of Marks and Spencer Group plc and all its
subsidiaries made up to the year end date. Where necessary,
adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used in line with
those used by the Group.
Subsidiaries
Subsidiary undertakings are all entities (including special
purpose entities) over which the Group has the power to
govern the financial and operating policies generally
accompanying a shareholding of more than one half of the
voting rights. Subsidiary undertakings acquired during the
year are recorded using the acquisition method of accounting
and their results are included from the date of acquisition.
The separable net assets, including property, plant and
equipment and intangible assets, of the newly acquired
subsidiary undertakings are incorporated into the consolidated
financial statements on the basis of the fair value as at the
effective date of control.
Intercompany transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Revenue
Revenue comprises sales of goods to customers outside the
Group less an appropriate deduction for actual and expected
returns, discounts and loyalty scheme vouchers, and is stated
net of value added tax and other sales taxes. Revenue is
recognised when goods are delivered and the significant risks
and rewards of ownership have been transferred to the buyer.
Dividends
Final dividends are recorded in the financial statements in
the period in which they are approved by the Company’s
shareholders. Interim dividends are recorded in the period
in which they are approved and paid.
Pensions
Funded pension plans are in place for the Group’s UK
employees and some employees overseas.
For defined benefit pension schemes, the difference between
the fair value of the assets and the present value of the defined
benefit obligation is recognised as an asset or liability in the
statement of financial position. The defined benefit obligation
is actuarially calculated using the projected unit credit method.
The service cost of providing retirement benefits to employees
during the year, together with the cost of any benefits relating
to past service, is charged to operating profit in the year.
A credit representing the expected return on the assets of
the retirement benefit schemes during the year is included
within finance income. This is based on the market value of
the assets of the schemes at the start of the financial year.
A charge is also made within finance income representing
the expected increase in the liabilities of the retirement benefit
schemes during the year. This arises from the liabilities of
the schemes being one year closer to payment.
Actuarial gains and losses are recognised immediately in the
statement of comprehensive income.
Payments to defined contribution retirement benefit schemes
are charged as an expense as they fall due.
Intangible assets
A. Goodwill Goodwill arising on consolidation represents the
excess of the consideration transferred and the amount of any
non-controlling interest in the acquiree over the fair value of
the identifiable assets and liabilities (including intangible assets)
of the acquired entity at the date of the acquisition. Goodwill is
recognised as an asset and assessed for impairment at least
annually. Any impairment is recognised immediately in the
income statement.
B. Brands Acquired brand values are held on the statement
of financial position initially at cost. Defined life intangibles are
amortised on a straight-line basis over their estimated useful
lives. Indefinite life intangibles are tested for impairment at
least annually. Any impairment in value is recognised
immediately in the income statement.
Financial statementsMarks and Spencer Group plc Annual report and financial statements 2012
79
1 Accounting policies continued
C. Software intangibles Where computer software is not
an integral part of a related item of computer hardware, the
software is treated as an intangible asset. Capitalised software
costs include external direct costs of goods, services and
payroll related costs for employees who are directly associated
with the project.
Capitalised software development costs are amortised on
a straight-line basis over their expected economic lives,
normally between three and ten years. Computer software
under development is held at cost less any recognised
impairment loss.
Any impairment in value is charged to the income statement.
Property, plant and equipment
The Group’s policy is to state property, plant and equipment
at cost less accumulated depreciation and any recognised
impairment loss. Property is not revalued for accounting
purposes. Assets in the course of construction are held at
cost less any recognised impairment loss. Cost includes
professional fees and, for qualifying assets, borrowing costs.
Depreciation is provided to write off the cost of tangible
non-current assets (including investment properties), less
estimated residual values, by equal annual instalments
as follows:
– freehold land – not depreciated;
– freehold and leasehold buildings with a remaining lease term
over 50 years – depreciated to their residual value over their
estimated remaining economic lives;
– leasehold buildings with a remaining lease term of less than
50 years – over the remaining period of the lease; and
– fixtures, fittings and equipment – 3 to 25 years according to
the estimated life of the asset.
Residual values and useful economic lives are reviewed annually.
Depreciation is charged on all additions to, or disposals of,
depreciating assets in the year of purchase or disposal.
Any impairment in value is charged to the income statement.
Leasing
Where assets are financed by leasing agreements and the
risks and rewards are substantially transferred to the Group
(finance leases) the assets are treated as if they had been
purchased outright, and the corresponding liability to the
leasing company is included as an obligation under finance
leases. Depreciation on leased assets is charged to the
income statement on the same basis as owned assets, unless
the term of the lease is shorter. Leasing payments are treated
as consisting of capital and interest elements and the interest
is charged to the income statement.
All other leases are operating leases and the costs in respect
of operating leases are charged on a straight-line basis over
the lease term. The value of any lease incentive received to
take on an operating lease (for example, a rent free period)
is recognised as deferred income and is released over the life
of the lease.
Leasehold prepayments
Payments made to acquire leasehold land are included
in prepayments at cost and are amortised over the life of
the lease.
Cash and cash equivalents
Cash and cash equivalents includes short-term deposits with
banks and other financial institutions, with an initial maturity of
three months or less and credit card payment received within
48 hours.
Inventories
Inventories are valued at the lower of cost and net realisable
value using the retail method, which is computed on the basis
of selling price less the appropriate trading margin. All
inventories are finished goods.
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event, and it is probable that
the Group will be required to settle that obligation. Provisions
are measured at the best estimate of the expenditure required
to settle the obligation at the end of the reporting period, and
are discounted to present value where the effect is material.
Share-based payments
The Group issues equity-settled share-based payments to
certain employees. A fair value for the equity-settled share
awards is measured at the date of grant. The Group measures
the fair value of each award using the Black-Scholes model
where appropriate.
The fair value of each award is recognised as an expense over
the vesting period on a straight-line basis, after allowing for an
estimate of the share awards that will eventually vest. The level
of vesting is reviewed annually; and the charge is adjusted to
reflect actual and estimated levels of vesting.
Foreign currencies
The results of overseas subsidiaries are translated at the
weighted average of monthly exchange rates for revenue
and profits. The statements of financial position of overseas
subsidiaries are translated at year end exchange rates. The
resulting exchange differences are dealt with through
reserves and reported in the consolidated statement of
comprehensive income.
Transactions denominated in foreign currencies are translated
at the exchange rate at the date of the transaction. Foreign
currency monetary assets and liabilities held at the end of the
reporting period are translated at the closing balance sheet
rate. The resulting exchange gain or loss is recognised within
the income statement.
Taxation
Tax expense comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent it
relates to items recognised in other comprehensive income or
directly in equity, in which case the related tax is also recognised
in other comprehensive income or directly in equity.
Deferred tax is accounted for using a temporary difference
approach, and is the tax expected to be payable or
recoverable on temporary differences between the carrying
amount of assets and liabilities in the statement of financial
position and the corresponding tax bases used in the
computation of taxable profit. Deferred tax is calculated based
on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, applying tax rates
and laws enacted or substantively enacted at the end of the
reporting period.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Notes to the financial statements continued
Annual report and financial statements 2012
80
1 Accounting policies continued
Taxation continued
Deferred tax liabilities are generally recognised for all taxable
temporary differences. Deferred tax liabilities are recognised
for taxable temporary differences arising on investments in
subsidiaries, associates and joint ventures, except where the
reversal of the temporary difference can be controlled by the
Group and it is probable that the difference will not reverse in
the foreseeable future.
including premiums payable on settlement or redemption and
direct issue costs, are accounted for using an effective interest
rate method and are added to the carrying amount of the
instrument to the extent that they are not settled in the period
in which they arise.
E. Loan notes Long-term loans are initially measured at fair
value and are subsequently held at amortised cost unless the
loan is hedged by a derivative financial instrument in which
case hedge accounting treatment will apply.
Deferred tax liabilities are not recognised on temporary
differences that arise from goodwill which is not deductible for
tax purposes.
F. Trade payables Trade payables are recorded initially at
fair value and subsequently measured at amortised cost.
Generally this results in their recognition at their nominal value.
Deferred tax assets are recognised to the extent it is
probable that taxable profits will be available against which
the deductible temporary differences can be utilised. The
carrying amount of deferred tax assets is reviewed at the
end of each reporting period and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are not recognised
in respect of temporary differences that arise on initial
recognition of assets and liabilities acquired other than
in a business combination.
Financial instruments
Financial assets and liabilities are recognised in the Group’s
statement of financial position when the Group becomes a
party to the contractual provisions of the instrument.
A. Trade receivables Trade receivables are recorded initially
at fair value and subsequently measured at amortised cost.
Generally, this results in their recognition at nominal value less
any allowance for any doubtful debts.
B. Investments and other financial assets Investments and
other financial assets are classified as either ‘available-for-sale’
or ‘fair value through profit or loss’. They are initially measured
at fair value, including transaction costs, with the exception of
‘fair value through profit or loss’. Financial assets held at fair
value through profit or loss are initially recognised at fair value
and transaction costs are expensed.
Where securities are designated as ‘fair value through profit or
loss’, gains and losses arising from changes in fair value are
included in net profit or loss for the period. For ‘available-for-
sale’ investments, gains or losses arising from changes in fair
value are recognised in comprehensive income, until the
security is disposed of or is determined to be impaired, at
which time the cumulative gain or loss previously recognised
in comprehensive income is included in the net profit or loss
for the period. Equity investments that do not have a quoted
market price in an active market and whose fair value cannot
be reliably measured by other means are held at cost.
C. Classification of financial liabilities and equity Financial
liabilities and equity instruments are classified according
to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting
all of its liabilities.
D. Bank borrowings Interest-bearing bank loans and
overdrafts are initially recorded at fair value, which equals the
proceeds received, net of direct issue costs. Finance charges,
G. Equity instruments Equity instruments issued by the
Company are recorded at the consideration received, net
of direct issue costs.
Derivative financial instruments and hedging activities
The Group primarily uses interest rate swaps and forward
foreign currency contracts to manage its exposures to
fluctuating interest and foreign exchange rates. These
instruments are initially recognised at fair value on the trade
date and are subsequently remeasured at their fair value at
the end of the reporting period. The method of recognising the
resulting gain or loss is dependent on whether the derivative
is designated as a hedging instrument and the nature of the
item being hedged.
The Group designates certain hedging derivatives as either:
– a hedge of a highly probable forecast transaction or change
in the cash flows of a recognised asset or liability (a cash
flow hedge);
– a hedge of the exposure to change in the fair value of
a recognised asset or liability (a fair value hedge); or
– a hedge of the exposure on the translation of net
investments in foreign entities (a net investment hedge).
Underlying the definition of fair value is the presumption
that the Group is a going concern without any intention
of materially curtailing the scale of its operations.
At inception of a hedging relationship, the hedging instrument
and the hedged item are documented and prospective
effectiveness testing is performed. During the life of the
hedging relationship, effectiveness testing is continued to
ensure the instrument remains an effective hedge of the
transaction. Changes in the fair value of derivative financial
instruments that do not qualify for hedge accounting are
recognised in the income statement as they arise.
A. Cash flow hedges Changes in the fair value of derivative
financial instruments that are designated and effective as hedges
of future cash flows are recognised in comprehensive income
and any ineffective portion is recognised immediately in the
income statement. If the firm commitment or forecast transaction
that is the subject of a cash flow hedge results in the recognition
of a non-financial asset or liability, then, at the time the asset or
liability is recognised, the associated gains or losses on the
derivative that had previously been recognised in comprehensive
income are included in the initial measurement of the asset or
liability. For hedges that do not result in the recognition of an
asset or a liability, amounts deferred in comprehensive income
are recognised in the income statement in the same period in
which the hedged items affect net profit or loss.
Financial statementsMarks and Spencer Group plc Annual report and financial statements 2012
81
1 Accounting policies continued
B. Fair value hedges For an effective hedge of an exposure
to changes in the fair value, the hedged item is adjusted for
changes in fair value attributable to the risk being hedged with
the corresponding entry in the income statement. Gains and
losses from remeasuring the derivative, or for non-derivatives
the foreign currency component of the carrying amount, are
recognised in the income statement.
C. Net investment hedges Changes in the fair value of
derivative or non-derivative financial instruments that are
designated and effective as hedges of net investments are
recognised in comprehensive income and any ineffective
portion is recognised immediately in the income statement.
Changes in the fair value of derivative financial instruments
that do not qualify for hedge accounting are recognised in the
income statement as they arise.
D. Discontinuance of hedge accounting Hedge accounting
is discontinued when the hedging instrument expires or is
sold, terminated or exercised, or no longer qualifies for hedge
accounting. At that time, any cumulative gain or loss on the
hedging instrument recognised in comprehensive income is
retained in equity until the forecast transaction occurs. If a
hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in comprehensive income
is transferred to net profit or loss for the period.
The Group does not use derivatives to hedge income
statement translation exposures.
Embedded derivatives
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of
the host contracts and the host contracts are not carried at
fair value, with unrealised gains or losses reported in the
income statement. Embedded derivatives are carried in the
statement of financial position at fair value from the inception
of the host contract.
Changes in fair value are recognised within the income
statement during the period in which they arise.
Critical accounting estimates and judgements
The preparation of consolidated financial statements requires
the Group to make estimates and assumptions that affect the
application of policies and reported amounts. Estimates and
judgements are continually evaluated and are based on
historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
The estimates and assumptions which have a significant risk
of causing a material adjustment to the carrying amount of
assets and liabilities are:
A. Impairment of goodwill and brands The Group is
required to test, at least annually, whether the goodwill or
brands have suffered any impairment. The recoverable amount
is determined based on value in use calculations. The use of
this method requires the estimation of future cash flows and
the choice of a suitable discount rate in order to calculate the
present value of these cash flows. Where there is a non-
controlling interest, goodwill is tested for the business as a
whole. This involves a notional increase to goodwill, to reflect
the non-controlling shareholders’ interest. Actual
outcomes could vary from those calculated. See note 14
for further details.
B. Impairment of property, plant and equipment and
computer software Property, plant and equipment and
computer software are reviewed for impairment if events or
changes in circumstances indicate that the carrying amount
may not be recoverable. When a review for impairment is
conducted, the recoverable amount is determined based
on value in use calculations prepared on the basis of
management’s assumptions and estimates. See notes 14
and 15 for further details.
C. Depreciation of property, plant and equipment and
amortisation of computer software Depreciation and
amortisation is provided so as to write down the assets to
their residual values over their estimated useful lives as set
out above. The selection of these residual values and
estimated lives requires the exercise of management
judgement. See notes 14 and 15 for further details.
D. Post-retirement benefits
The determination of the pension cost and defined benefit
obligation of the Group’s defined benefit pension schemes
depends on the selection of certain assumptions which
include the discount rate, inflation rate, salary growth, mortality
and expected return on scheme assets. Differences arising
from actual experiences or future changes in assumptions
will be reflected in subsequent periods. See note 11 for
further details of assumptions and note 12 for critical
judgements associated with the Marks & Spencer UK
Pension Scheme interest in the Marks and Spencer Scottish
Limited Partnership.
E. Refunds and loyalty scheme accruals Accruals for
sales returns and loyalty scheme redemptions are estimated
on the basis of historical returns and redemptions and these
are recorded so as to allocate them to the same period as
the original revenue is recorded. These accruals are reviewed
regularly and updated to reflect management’s latest best
estimates, however, actual returns and redemptions could
vary from these estimates.
Non-GAAP performance measures
The directors believe that the underlying profit and earnings
per share measures provide additional useful information for
shareholders on the underlying performance of the business.
These measures are consistent with how underlying business
performance is measured internally. The underlying profit
before tax measure is not a recognised profit measure under
IFRS and may not be directly comparable with adjusted profit
measures used by other companies. The adjustments made
to reported profit before tax are to exclude the following:
– profits and losses on the disposal of properties;
– significant and one-off impairment charges that distort
underlying trading;
– costs relating to strategy changes that are not considered
normal operating costs of the underlying business;
– one-off pension credits arising on changes of the defined
benefit pension scheme rules; and
– non-cash fair value movements in financial instruments.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
82
2 Segmental information
IFRS 8 requires operating segments to be identified on the basis of internal reporting on components of the Group that are
regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.
The chief operating decision maker has been identified as the executive directors. The executive directors review the
Group’s internal reporting in order to assess performance and allocate resources, across each operating segment. The
operating segments are UK and International which are reported in a manner consistent with the internal reporting to the
executive directors.
The UK segment consists of the UK retail business and UK franchise operations. The International segment consists of
Marks & Spencer owned businesses in the Republic of Ireland, Europe and Asia, together with international franchise operations.
The executive directors assess the performance of the operating segments based on a measure of operating profit. This measurement
basis excludes the effects of non-underlying items from the operating segments. Central costs are all classified as UK costs and
presented within UK operating profit. The executive directors also monitor revenue within the segments. To increase transparency, the
Group has decided to include an additional voluntary disclosure analysing revenue within the reportable segments, by subcategory.
The following is an analysis of the Group’s revenue and results by reportable segment:
General Merchandise
Food
UK revenue
Franchised
Owned
International revenue
Group revenue
UK operating profit1
International operating profit
Group operating profit
Finance income
Finance costs
Profit before tax
Management
£m
4,241.5
4,718.8
8,960.3
379.4
689.4
1,068.8
10,029.1
676.6
133.4
810.0
32.7
(136.8)
Adjustment2
£m
(46.4)
(45.7)
(92.1)
–
(2.7)
(2.7)
(94.8)
(18.6)
(44.9)
(63.5)
15.6
–
2012
Statutory
£m
4,195.1
4,673.1
8,868.2
379.4
686.7
1,066.1
9,934.3
658.0
88.5
746.5
48.3
(136.8)
Management
£m
4,273.0
4,543.9
8,816.9
343.7
665.8
1,009.5
9,826.4
677.9
147.0
824.9
42.3
(152.9)
Adjustment2
£m
(39.4)
(44.5)
(83.9)
–
(2.2)
(2.2)
(86.1)
1.1
10.9
12.0
54.3
–
2011
Statutory
£m
4,233.6
4,499.4
8,733.0
343.7
663.6
1,007.3
9,740.3
679.0
157.9
836.9
96.6
(152.9)
705.9
(47.9)
658.0
714.3
66.3
780.6
1 UK operating profit includes a contribution of £50.7m (last year £35.2m) in respect of fees received from HSBC in relation to M&S Money.
2 Adjustments to revenue relate to revenue deductions recognised in cost of sales for management accounting purposes. Management profit excludes profits and losses on the disposal of
properties, impairment charges, pension credits arising on changes of the defined benefit pension schemes, non-cash fair value movements in financial instruments and costs relating to
strategic changes that are not considered normal operating costs of the underlying business (see note 5).
Other segmental information
Additions to property, plant and equipment
and intangible assets (excluding goodwill)
Depreciation and amortisation
Impairment and asset write-offs
Total assets
Non-current assets
UK
£m
International
£m
671.4
435.8
7.3
6,247.1
4,894.6
66.1
34.3
50.5
1,026.2
918.6
2012
Total
£m
737.5
470.1
57.8
7,273.3
5,813.2
UK
£m
International
£m
463.6
434.5
3.4
6,287.6
4,751.1
27.9
33.0
–
1,056.5
951.3
2011
Total
£m
491.5
467.5
3.4
7,344.1
5,702.4
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2012
83
3 Expense analysis
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Other operating income
Non-GAAP adjustments to underlying profit
(see note 5)
Operating profit
Underlying
£m
9,934.3
(6,179.1)
3,755.2
(3,021.9)
76.7
–
810.0
Adjustments
£m
–
–
–
–
–
(63.5)
(63.5)
2012
Total
£m
9,934.3
(6,179.1)
3,755.2
(3,021.9)
76.7
(63.5)
746.5
Underlying
£m
9,740.3
(6,015.6)
3,724.7
(2,959.7)
59.9
–
824.9
The selling and administrative expenses are further analysed below:
Employee costs (see note 10A)
Occupancy costs
Repairs, renewals and maintenance of property
Depreciation, amortisation and asset write-offs
Other costs
Selling and administrative expenses
4 Profit before taxation
The following items have been included in arriving at profit before taxation:
Net foreign exchange losses/(gains)
Cost of inventories recognised as an expense
Depreciation of property, plant, and equipment
– owned assets
– under finance leases
Amortisation of intangible assets
Profit on property disposals
Operating lease rentals payable
– property
– fixtures, fittings and equipment
Adjustments
£m
–
–
–
–
–
12.0
12.0
2012
£m
1,253.5
637.9
101.4
479.7
549.4
3,021.9
2011
Total
£m
9,740.3
(6,015.6)
3,724.7
(2,959.7)
59.9
12.0
836.9
2011
£m
1,264.2
585.3
101.8
467.5
540.9
2,959.7
2012
£m
0.1
6,127.0
2011
£m
(3.0)
5,781.8
393.5
11.3
65.3
–
278.7
7.8
403.3
13.2
51.0
(2.9)
247.6
8.7
Included in administrative expenses is the auditors’ remuneration, including expenses for audit and non-audit services, payable
to the Company’s auditors PricewaterhouseCoopers LLP and its associates as follows:
Annual audit of the Company and the consolidated financial statements
Audit of subsidiary companies
Other services pursuant to legislation
Tax services
Other services
2012
£m
0.6
1.0
0.3
0.4
0.1
2.4
2011
£m
0.6
1.0
0.1
0.6
0.1
2.4
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
84
5 Non-GAAP performance measures
The adjustments made to reported profit before tax are income and charges that are one-off in nature, significant and distort
the Group’s underlying performance. These adjustments include:
– Profit and loss on the disposal of properties – these are one-off in nature and therefore create volatility in reported earnings;
– IAS 19 credit arising from changes to the Marks and Spencer Ireland defined benefit pension scheme rules whereby members’
future pensionable pay increases have been capped at 4.0%;
– IAS 36 impairment of assets – due to the continuing decline of the Greek economy, the carrying value of the Marks and
Spencer Marinopoulos B.V. goodwill has been fully impaired to reflect its recoverable value (note 14) and the net book value
of property, plant and equipment in loss making stores in the Greece group have been impaired (note 15). Last year, the value
of an investment property was impaired to reflect its recoverable value, in line with its current market value;
– IAS 39 fair value movement on the Czech put option – the put option value has been revised to reflect the latest three year
business plan;
– IAS 39 fair value movement of the embedded derivative in a lease contract based upon the expected future RPI versus the
lease contract in which rent increases are capped at 2.5%, with a floor of 1.5%; and
– Strategic programme costs relate to the strategy announcements made in November 2010 and include the costs associated
with the Focus on the UK plans. This includes brand segmentation and business integration costs, asset write-offs,
accelerated depreciation and exit from technology in the prior year. These costs are not considered normal operating costs
of the business.
The adjustments made to reported profit before tax to arrive at underlying profit before tax are:
Profit on property disposals
IAS 19 Ireland one-off pension credit
IAS 36 Impairment of assets
IAS 39 Fair value movement of financial instrument
IAS 39 Fair value movement of embedded derivative
Strategic programme costs
Total adjustments
6 Finance income/costs
Bank and other interest receivable
Pension finance income (net) (see note 11E)
Underlying finance income
Fair value movement on financial instrument (see note 5)
Finance income
Fee payable on the transfer of derivative assets to the pension fund
Interest on bank borrowings
Interest payable on syndicated bank facility
Interest payable on medium-term notes
Interest payable on finance leases
Unwind of discounts on financial instruments
Finance costs
Net finance costs
Note
11
14,15
6, 21
21
2012
£m
–
–
(44.9)
15.6
(0.2)
(18.4)
(47.9)
2012
£m
7.1
25.6
32.7
15.6
48.3
–
(5.5)
(3.0)
(126.4)
(0.7)
(1.2)
(136.8)
(88.5)
2011
£m
2.9
10.7
(6.3)
54.3
20.3
(15.6)
66.3
2011
restated
£m
4.7
37.6
42.3
54.3
96.6
(8.5)
(7.7)
(1.8)
(126.9)
(4.2)
(3.8)
(152.9)
(56.3)
The fair value movement on financial instrument represents the valuation of the put option over the 49% non-controlling interest
in the share capital of Marks and Spencer Czech Republic a.s. This excludes the annual unwind of the discount on the financial
instrument which is included in underlying finance costs (see note 21).
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued 7 Income tax expense
A. Tax charge
Current tax
UK corporation tax on profits for the year
– current year
– adjustments in respect of prior years
UK current tax
Overseas current tax
Total current tax
Deferred tax
– origination and reversal of temporary differences
– adjustments in respect of prior years
– changes in tax rate
Total deferred tax (see note 23)
Total income tax expense
B. Tax reconciliation
Profit before tax
Tax at the standard UK corporation tax rate of 26% (last year 28%)
Depreciation, charges and other amounts on non-qualifying fixed assets
Other income and expenses not taxable or deductible
Deferred tax rate change benefit
Overseas profits taxed at rates different to those of the UK
Benefit of current year losses not recognised
Adjustments to tax charge in respect of prior periods
Adjustments to underlying profit:
Profit on property disposals
IAS 19 Ireland one-off pension credit
IAS 36 Impairment of assets
IAS 39 Fair value movement of financial instrument
Deferred tax rate change benefit
Total income tax expense
Annual report and financial statements 2012
85
2012
£m
2011
£m
175.9
(9.3)
166.6
11.6
178.2
(10.5)
14.0
(13.3)
(9.8)
168.4
2012
£m
658.0
171.1
3.6
(11.1)
(13.1)
(8.6)
14.3
4.7
–
–
11.7
(4.0)
(0.2)
168.4
215.8
(8.6)
207.2
11.1
218.3
(30.4)
7.2
(13.1)
(36.3)
182.0
2011
£m
780.6
218.6
1.9
(11.2)
(12.9)
(4.2)
7.3
(1.4)
(0.8)
(1.7)
1.8
(15.2)
(0.2)
182.0
The effective tax rate was 25.6% (last year 23.3%) and the underlying effective tax rate was 24.5% (last year 25.1%).
On 21 March 2012, the Chancellor of the Exchequer announced the main rate of corporation tax will reduce from 26% to 24%
from 1 April 2012. This change of rate became substantively enacted for the purposes of IAS 12 “Income Taxes” on 26 March
2012 when the House of Commons passed a resolution in respect of it under the provisional Collection of Taxes Act 1968. The
Group has remeasured its UK deferred tax assets and liabilities at the end of the reporting period at 24%, which has resulted in
the recognition of a deferred tax credit of £13.3m in the income statement (reducing the total effective tax rate by 2.0%), and the
recognition of a deferred tax credit of £1.8m in other comprehensive income.
The Chancellor further stated his intention to reduce the main rate of corporation tax from 24% to 23% from 1 April 2013 and a
further 1% reduction to 22% from 1 April 2014. These changes have not been substantively enacted at the date of the statement of
financial position. Had these changes been enacted, then the cumulative effects would have been credits to the income statement
of £19.9m (23%) or £26.5m (22%), and credits to other comprehensive income of £2.7m (23%) or £3.6m (22%).
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
86
8 Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary
shares in issue during the year.
The underlying earnings per share figures have also been calculated based on earnings before profits and losses on the disposal
of properties, pension credits arising on changes to the defined benefit pension schemes, impairment charges, non-cash fair
value movements in financial instruments, and costs relating to strategic changes that are not considered normal operating
costs of the underlying business (see note 5). These have been calculated to allow the shareholders to gain an understanding
of the underlying trading performance of the Group.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of
all dilutive potential ordinary shares. The Group has only one class of dilutive potential ordinary shares being those share options
granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during
the year.
Details of the underlying earnings per share are set out below:
Profit attributable to equity share holders of the company
(Less)/add (net of tax):
Profit on property disposals
IAS 19 Ireland one-off pension credit
IAS 36 Impairment of assets
IAS 39 Fair value movement of financial instrument
IAS 39 Fair value movement of embedded derivative
Strategic programme costs
Underlying profit attributable to equity share holders of the company
Weighted average number of ordinary shares in issue
Potentially dilutive share options under Group’s share option schemes
Weighted average number of diluted ordinary shares
Basic earnings per share
Diluted earnings per share
Underlying basic earnings per share
Underlying diluted earnings per share
9 Dividends
Dividends on equity ordinary shares
Paid final dividend
Paid interim dividend
2012
£m
513.1
–
–
39.6
(15.6)
0.2
13.8
551.1
Million
1,579.3
12.9
1,592.2
Pence
32.5
32.2
34.9
34.6
2012
£m
170.2
97.6
267.8
2011
£m
612.0
(2.9)
(9.4)
6.3
(54.3)
(15.1)
11.5
548.1
Million
1,577.1
15.6
1,592.7
Pence
38.8
38.4
34.8
34.4
2011
£m
149.7
97.8
247.5
2012
per share
2011
per share
10.8p
6.2p
17.0p
9.5p
6.2p
15.7p
In addition, the directors have proposed a final dividend in respect of the year ended 31 March 2012 of 10.8p per share
amounting to a dividend of £172.3m. It will be paid on 13 July 2012 to shareholders who are on the Register of Members on
1 June 2012. In line with the requirements of IAS 10 – ‘Events after the Reporting Period’, this dividend has not been recognised
within these results.
The Group’s policy to grow dividends in line with underlying earnings per share is explained in the Financial Review on page 36.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2012
87
10 Employees
A. Aggregate remuneration
The aggregate remuneration and associated costs of Group employees were:
Wages and salaries
Social security costs
Pension costs
Share-based payments (see note 13)
Employee welfare and other personnel costs
Capitalised staff costs
Aggregate remuneration
One-off pension credit (see note 5)
Total aggregate remuneration
Details of key management compensation are given in note 28.
B. Average monthly number of employees
UK stores
– management and supervisory categories
– other
UK head office
– management and supervisory categories
– other
Overseas
Total average monthly number of employees
2012
Total
£m
1,061.3
77.7
57.7
32.5
46.0
(21.7)
1,253.5
–
1,253.5
2011
Total
£m
1,077.0
78.5
60.0
31.7
37.2
(20.2)
1,264.2
(10.7)
1,253.5
2012
2011
5,784
65,474
2,782
718
6,450
81,208
5,696
63,005
2,453
681
6,334
78,169
If the number of hours worked was converted on the basis of a normal working week, the equivalent average number of full-time
employees would have been 57,054 (last year 54,675).
C. Directors’ emoluments
Emoluments of directors of the Company are summarised below. Further details are given in the Remuneration Report on
pages 54 to 67.
Aggregate emoluments
2012
£000
7,796
2011
£000
11,618
The emoluments include payments to directors who retired from the Board in 2010/11 of £nil (last year £3,138,000).
11 Retirement benefits
The Group provides pension arrangements for the benefit of its UK employees through the Marks & Spencer UK Pension
Scheme. This has a defined benefit section, which was closed to new entrants with effect from 1 April 2002, and a defined
contribution section which has been open to new members with effect from 1 April 2003.
The defined benefit section operates on a final salary basis and at the year end had some 14,000 active members (last year
15,000), 56,000 deferred members (last year 56,000) and 51,000 pensioners (last year 51,000). At the year end, the defined
contribution section had some 9,000 active members (last year 9,000) and some 2,000 deferred members (last year 2,000).
The Group also operates a small funded defined benefit pension scheme in the Republic of Ireland. Retirement benefits also
include a UK post-retirement healthcare scheme and unfunded retirement benefits.
Within the total Group retirement benefit cost of £32.1m (last year £22.4m excluding a one-off pension credit of £10.7m),
£12.0m (last year £1.0m) relates to the UK defined benefit section, £15.9m (last year £14.3m) to the UK defined contribution
section and £4.2m (last year £7.1m) to other retirement benefit schemes.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information 11 Retirement benefits continued
A. Pensions and other post-retirement liabilities
Total market value of assets
Present value of scheme liabilities
Net funded pension plan asset
Unfunded retirement benefits
Post-retirement healthcare
Net retirement benefit asset
Analysed in the statement of financial position as:
Retirement benefit asset
Retirement benefit deficit
Annual report and financial statements 2012
88
2012
£m
6,186.4
(6,095.1)
91.3
(0.8)
(12.5)
78.0
2011
£m
5,398.1
(5,215.5)
182.6
(0.9)
(13.2)
168.5
91.3
(13.3)
78.0
182.6
(14.1)
168.5
B. Financial assumptions
A full actuarial valuation of the UK Defined Benefit Pension Scheme was carried out at 31 March 2009 and showed a deficit of
£1.3bn. A funding plan of £800m was agreed with the Trustees. The difference between the valuation and the funding plan is
expected to be met by investment returns on the existing assets of the pension scheme. The financial assumptions for the UK
scheme and the most recent actuarial valuations of the other post-retirement schemes have been updated by independent
qualified actuaries to take account of the requirements of IAS 19 – ‘Employee Benefits’ in order to assess the liabilities of the
schemes and are as follows:
Rate of increase in salaries
Rate of increase in pensions in payment for service
Discount rate
Inflation rate
Long-term healthcare cost increases
2012
%
1.0
2.3-3.1
4.6
3.1
7.1
2011
%
1.0
2.4-3.4
5.5
3.4
7.4
The inflation rate of 3.1% reflects the Retail Price Index (RPI) rate. In line with changes to legislation certain benefits have been
calculated with reference to the Consumer Price Index (CPI) as the inflationary measure and in these instances a rate of 2.1%
(last year 2.7%) has been used. Last year, the change from RPI to CPI for deferred revaluation was included in the results,
resulting in a gain of approximately £170m, taken as an actuarial gain on the obligation.
The amount of the surplus varies if the main financial assumptions change, particularly the discount rate. If the discount rate
increased/decreased by 0.1% the IAS 19 surplus would increase/decrease by c.£110m (last year £90m). If the inflation rate
increased by 0.1%, the IAS 19 surplus would decrease by c.£75m and if the inflation rate decreased by 0.1%, the IAS 19
surplus would increase by c.£65m.
C. Demographic assumptions
Apart from cash commutation and post retirement mortality, the demographic assumptions are in line with those adopted for
the last formal actuarial valuation of the scheme performed as at 31 March 2009. The allowance for cash commutation reflects
actual scheme experience. The post-retirement mortality assumptions are based on an analysis of the pensioner mortality trends
under the scheme for the period to March 2009 updated to allow for anticipated longevity improvements over the subsequent
years. The specific mortality rates used are based on the SAPS tables, adjusted to allow for the experience of scheme
pensioners. The life expectancies underlying the valuation are as follows:
Current pensioners (at age 65)
Future pensioners (at age 65)
– males
– females
– males
– females
An increase of one year in the life expectancies would decrease the IAS 19 surplus by c.£200m.
2012
years
22.1
23.4
23.2
24.3
2011
years
22.0
23.4
23.2
24.3
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2012
89
11 Retirement benefits continued
D. Analysis of assets and expected rates of return
The major categories of assets as a percentage of total plan assets are:
Scottish Limited Partnership interest (see note 12)
UK equities
Overseas equities
Government bonds
Corporate bonds
Swaps¹
Cash and other
Total market value of assets
1 The swaps hedge interest and inflation rate exposures within the schemes’ liabilities.
The expected long-term rates of return are:
Scottish Limited Partnership interest (see note 12)
UK equities
Overseas equities
Government bonds
Corporate bonds
Swaps
Cash and other
Overall expected return
2012
£m
664.8
232.6
777.4
1,750.9
1,455.7
275.9
1,029.1
6,186.4
2011
£m
656.0
303.3
839.4
1,446.9
1,531.4
(48.2)
669.3
5,398.1
2012
%
11
4
13
28
23
4
17
100
2012
%
3.5
7.8
7.8
3.3
4.9
3.3
3.3
4.9
2011
%
12
6
16
27
28
(1)
12
100
2011
%
4.6
8.4
8.4
4.3
5.8
4.1
4.1
5.8
The overall expected return on assets assumption is derived as the weighted average of the expected returns from each of
the main asset classes. The expected return for each asset class reflects a combination of historical performance analysis, the
forward-looking views of financial markets (as suggested by the yields available) and the views of investment organisations.
Consideration is also given to the rate of return expected to be available for reinvestment.
At year end, the UK scheme indirectly held 107,216 (last year 122,362) ordinary shares in the Company through its investment
in an Aquila Life UK Equity Index Fund.
E. Analysis of amount charged against profits
Operating cost
Current service cost
Curtailment charge
One-off pension credit (see note 5)
Finance cost
Expected return on plan assets
Interest on scheme liabilities
Net finance income
Total
F. Scheme assets
Changes in the fair value of the scheme assets are as follows:
Fair value of scheme assets at start of year
Expected return on scheme assets¹
Employer contributions
Contributions from scheme members
Benefits paid
Actuarial gain
Exchange movement
Fair value of scheme assets at end of year
1 The actual return on scheme assets was £888.4m (last year return of £447.2m).
2012
£m
56.7
1.0
–
57.7
(307.4)
281.8
(25.6)
32.1
2012
£m
5,398.1
307.4
131.9
–
(230.4)
581.0
(1.6)
6,186.4
2011
£m
59.0
1.0
(10.7)
49.3
(323.1)
285.5
(37.6)
11.7
2011
£m
4,948.6
323.1
259.8
0.2
(256.3)
124.1
(1.4)
5,398.1
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
90
11 Retirement benefits continued
Future contributions to the UK scheme will be made at the rate of 17.9% of pensionable salaries up to the next full actuarial
valuation. The Group expects to contribute c.£35m to the UK defined benefit scheme for the year ended 30 March 2013. In
addition to this, a further £32m (last year £35m) of cash contributions were made in March 2012 per the funding plan agreed
in May 2010.
G. Retirement benefit obligations
Changes in the present value of retirement benefit obligations are as follows:
Present value of obligation at start of year
Current service cost
Curtailment charge
One-off pension credit (see note 5)
Interest cost
Contributions from scheme members
Benefits paid
Actuarial loss/(gain)
Exchange movement
Present value of obligation at end of year
Analysed as:
Present value of pension scheme liabilities
Unfunded pension plans
Post-retirement healthcare
Present value of obligation at end of year
H. Cumulative actuarial gains and losses recognised in equity
Loss at start of year
Net actuarial (losses)/gains recognised in the year
Loss at end of year
I. History of experience gains and losses
Experience adjustments arising on scheme assets
Experience (losses)/gains arising on scheme liabilities
Changes in assumptions underlying the present value of scheme
liabilities
Actuarial (losses)/gains recognised in equity
Fair value of scheme assets
Present value of scheme liabilities
Pension scheme asset/(deficit)
2012
£m
581.0
(85.3)
(685.6)
(189.9)
2011
£m
124.1
(8.4)
170.3
286.0
6,186.4
(6,095.1)
91.3
5,398.1
(5,215.5)
182.6
2010
£m
867.7
36.2
(1,155.5)
(251.6)
4,948.6
(5,298.6)
(350.0)
2012
£m
5,229.6
56.7
1.0
–
281.8
–
(230.4)
770.9
(1.2)
6,108.4
6,095.1
0.8
12.5
6,108.4
2012
£m
(1,222.9)
(189.9)
(1,412.8)
2009
£m
(1,280.3)
81.2
2011
£m
5,315.1
59.0
1.0
(10.7)
285.5
0.2
(256.3)
(161.9)
(2.3)
5,229.6
5,215.5
0.9
13.2
5,229.6
2011
£m
(1,508.9)
286.0
(1,222.9)
2008
£m
(422.6)
(61.5)
272.0
(927.1)
1,089.5
605.4
3,977.0
(4,112.4)
(135.4)
5,045.5
(4,542.3)
503.2
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2012
91
12 Marks & Spencer UK Pension Scheme interest in the Scottish Limited Partnership
Marks and Spencer plc is a general partner and the Marks & Spencer UK Pension Scheme is a limited partner of the Marks
and Spencer Scottish Limited Partnership. As such, the partnership is consolidated into the results of the Group.
The Marks and Spencer Scottish Limited Partnership holds £1.5bn of properties which have been leased back to Marks and
Spencer plc at market rates. The Group retains control over these properties, including the flexibility to substitute alternative
properties. The limited partnership interest (held by the Marks & Spencer UK Pension Scheme) entitles the Pension Scheme
to receive an annual distribution of £71.9m from the profits of the Partnership earned from rental income, discretionary at the
instance of Marks and Spencer plc.
The discretionary right is exercisable if the Group does not pay a dividend or make any other form of return to its shareholders.
This is an equity instrument, disclosed within other reserves. Since the Group has paid an interim dividend in relation to 2011/12,
the associated distribution of £71.9m is payable to the Pension Scheme and has been recognised as a liability (last year £71.9m),
and is reflected as reduction in other reserves. When such reserves are no longer sufficient, this distribution will be charged to
retained earnings. The future value of total discretionary scheduled payments is approximately £719m (last year £791m).
Under IAS 19, the partnership interest of the Pension Scheme in the Marks and Spencer Scottish Limited Partnership is included
within the UK pension scheme assets, valued at £664.8m (last year £656.0m). For further details see note 11. The market value
of this non-quoted financial asset is measured based on the expected cash flows and benchmark asset-backed credit spreads.
As general partner, Marks and Spencer plc has a right of pre-emption in respect of a transfer by the Pension Scheme of its
limited partnership interest to another party. This allows the general partner to direct that, instead of transferring the limited
partnership interest to such a party, the general partner can instead nominate the transferee. In addition, the partnership
agreement includes a clause such that, following a default event (including the appointment of an administrator, liquidator,
receiver or similar officer in respect of Marks and Spencer plc or Marks and Spencer Group plc) or on a relevant change of
law, the net present value of the outstanding distributions becomes payable to the Pension Scheme by the Scottish Limited
Partnership at the option of the Pension Scheme. On the basis of the expected cash flows associated with such an event,
the related financial liability has been fair valued at £nil.
On 21 May 2012 the terms of the Scottish Limited Partnership were changed. See note 29.
13 Share-based payments
The charge for share-based payments for the year was £32.5m (last year £31.7m). Of the total share-based payments charge,
£15.0m (last year £11.4m) relates to the Save As You Earn Share Option scheme. The remaining charge is spread over the other
schemes. Further details of the option and share schemes that the Group operates are provided in the Remuneration report on
pages 59 to 60.
A. Save As You Earn Share Option Scheme
Under the terms of the scheme, the Board may offer options to purchase ordinary shares in the Company once in each financial
year to those employees who enter into an HM Revenue & Customs (HMRC) approved Save As You Earn (SAYE) savings contract.
HMRC rules limit the maximum amount saved to £250 per month. The price at which options may be offered is 80% of the average
mid-market price for three consecutive dealing days preceding the offer date. The options may normally be exercised during the six
month period after the completion of the SAYE contract, either three or five years after entering the scheme.
Outstanding at beginning of the year
Granted
Exercised
Forfeited
Expired
Outstanding at end of the year
Exercisable at end of year
Number of
options
54,295,921
18,366,990
(19,345,308)
(4,327,447)
(1,744,814)
47,245,342
2,803,103
2012
Weighted
average
exercise price
249.9p
258.0p
205.6p
285.6p
481.8p
259.3p
278.9p
Number of
options
52,560,561
8,162,499
(1,210,770)
(3,755,659)
(1,460,710)
54,295,921
2,150,364
2011
Weighted
average
exercise price
249.9p
319.0p
324.7p
266.4p
530.6p
249.9p
446.6p
For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 325.0p (last
year 366.3p).
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
92
13 Share-based payments continued
The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs
shown below:
Grant date
Share price at grant date
Exercise price
Option life in years
Risk-free rate
Expected volatility
Expected dividend yield
Fair value of option
2012
3-year plan
Nov 11
322p
258p
3 years
0.5%
31.4%
5.4%
67p
2011
3-year plan
Nov 10
399p
319p
3 years
1.5%
44.5%
4.0%
125p
Volatility has been estimated by taking the historic volatility in the Company’s share price over a three year period.
The resulting fair value is expensed over the service period of three years on the assumption that 15% of options will lapse over
the service period as employees leave the Group.
Outstanding options granted under the UK Employees’ SAYE Scheme are as follows:
Options granted
January 2006
January 2007
January 2008
January 2009
January 2010
January 2011
January 2012
Number of options
Weighted average remaining
contractual life (years)
2012
–
583,961
655,213
15,727,797
6,349,388
6,016,473
17,912,510
47,245,342
2011
538,403
630,926
2,178,087
35,826,944
7,253,289
7,868,272
–
54,295,921
2012
–
0.2
1.2
1.9
1.2
2.2
3.2
2.3
2011
0.2
1.2
0.9
2.0
2.2
3.2
–
2.2
Option price
349p
559p
517p
203p
292p
319p
258p
259p
B. Performance Share Plan*
The Performance Share Plan is the primary long-term incentive plan for approximately 100 of the most senior managers and
was first approved by shareholders in 2005. Under the plan, annual awards, based on a percentage of salary, may be offered.
The extent to which the awards vest is based on adjusted (underlying basic) earnings per share growth over three years. The
value of any dividends earned on the vested shares during the three years will also be paid on vesting. Further details are set
out in the Remuneration report on page 59. Awards under this scheme have been made in each year since 2005.
During the year, 7,887,169 shares (last year 7,788,119) were awarded under the plan. The weighted average fair value of the
shares awarded was 350.8p (last year 342.2p).
C. Deferred Share Bonus Plan*
The Deferred Share Bonus Plan was introduced in 2005/06 as part of the Annual Bonus Scheme for approximately 450 of
the most senior managers. As part of the scheme, the managers are required to defer a proportion of any bonus paid into
shares which will be held for three years. There are no further performance conditions on these shares, other than continued
employment, and the value of any dividends earned during the deferred period will be paid on vesting.
During the year, 2,366,847 shares (last year 4,982,573) have been awarded under the Plan in relation to the annual bonus. The
fair value of the shares awarded was 378.4p (last year 341.2p). As at 31 March 2012, 6,396,018 shares (last year 4,948,663)
were outstanding under the scheme.
D. Restricted Share Plan*
The Restricted Share Plan was established in 2000 as part of the reward strategy for retention and recruitment of senior
managers who are vital to the success of the business. The Plan operates for senior managers below executive director level.
Awards under the Plan are made as part of ongoing reviews of reward packages, and for recruitment. The shares are held in
trust for a period of between one and three years, at which point they are released to the employee, subject to them still being
in employment. The value of any dividends earned during the restricted period will also be paid at the time of vesting.
During the year, 1,356,046 shares (last year 651,000) have been awarded under the Plan. The weighted average fair value of the
shares awarded was 356.9p (last year 355.2p).
* Nil cost options
For the purposes of calculating the number of nil cost options awarded, the share price used is the average of the mid-market price for the five consecutive dealing days
preceding the grant date.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2012
93
13 Share-based payments continued
E. Republic of Ireland Save As You Earn Scheme
Sharesave, the Company’s Save As You Earn Scheme was introduced in 2009 to all employees in the Republic of Ireland for a
ten year period, after approval by shareholders at the 2009 AGM. The scheme is subject to Irish Revenue rules which limit the
maximum monthly saving to €500 per month. The Company chose in 2009 to set a monthly savings cap of €320 per month to
align the maximum savings amount allowed within the UK scheme. When the savings contract is started, options are granted to
acquire the number of shares that the total savings will buy when the contract matures, at a discounted price set at the start of
the scheme. The price at which the options may be offered is 80% of the average mid-market price for three consecutive days
preceding the offer date. Options cannot normally be exercised until a minimum of three years has elapsed.
During the year, 97,270 (last year 147,100) options were granted, at a fair value of 67.3p (last year 124.9p).
F. Marks and Spencer Employee Benefit Trust
The Marks and Spencer Employee Benefit Trust (the Trust) holds 10,621,823 shares (last year 8,851,592) with a book value
of £34.4m (last year £27.6m) and a market value of £40.2m (last year £29.8m). These shares were acquired by the Trust in the
market and are shown as a reduction in retained earnings in the consolidated statement of financial position. The Trust used
funds provided by Marks and Spencer plc to meet the Group’s obligations. Awards are granted to employees at the discretion of
Marks and Spencer plc and shares awarded to employees by the Trust in accordance with the wishes of Marks and Spencer plc
under senior executive share schemes. Dividends are waived on all of these plans except for the Deferred Bonus Share Plan and
Restricted Share Plan where dividends are paid via a Dividend Reinvestment Plan for awards made in the form of forfeitable shares.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
94
14 Intangible assets
At 3 April 2010
Cost or valuation
Accumulated amortisation
Net book value
Year ended 2 April 2011
Opening net book value
Additions
Transfers
Disposals
Amortisation charge
Exchange difference
Closing net book value
At 2 April 2011
Cost or valuation
Accumulated amortisation
Net book value
Year ended 31 March 2012
Opening net book value
Additions
Transfers
Disposals
Impairment
Amortisation charge
Exchange difference
Closing net book value
At 31 March 2012
Cost
Accumulated amortisation and impairment
Net book value
Goodwill
£m
127.9
–
127.9
127.9
–
–
–
–
(0.3)
127.6
127.6
–
127.6
127.6
–
–
–
(34.4)
–
(0.6)
92.6
127.0
(34.4)
92.6
Brands
£m
80.0
(29.3)
50.7
50.7
–
–
–
(5.3)
–
45.4
80.0
(34.6)
45.4
45.4
32.4
–
–
–
(5.3)
–
72.5
112.4
(39.9)
72.5
Computer
software
£m
Computer
software under
development
£m
239.2
(85.0)
154.2
154.2
83.4
104.9
(0.3)
(45.7)
–
296.5
427.1
(130.6)
296.5
296.5
72.9
37.0
(1.0)
–
(60.0)
(0.3)
345.1
535.4
(190.3)
345.1
120.0
–
120.0
120.0
43.1
(104.9)
–
–
–
58.2
58.2
–
58.2
58.2
52.9
(37.0)
–
–
–
–
74.1
74.1
–
74.1
Goodwill relates to the following business units:
Cost and net book value at 2 April 2011
Impairment
Exchange difference
Cost and net book value at 31 March 2012
Marks and
Spencer
Marinopoulos
B.V.
£m
34.4
(34.4)
–
–
Marks and
Spencer
Czech
Republic a.s.
£m
15.5
–
(0.1)
15.4
per una
£m
69.5
–
–
69.5
Supreme
Tradelinks
Private
Limited
£m
8.2
–
(0.5)
7.7
Total
£m
567.1
(114.3)
452.8
452.8
126.5
–
(0.3)
(51.0)
(0.3)
527.7
692.9
(165.2)
527.7
527.7
158.2
–
(1.0)
(34.4)
(65.3)
(0.9)
584.3
848.9
(264.6)
584.3
Total
£m
127.6
(34.4)
(0.6)
92.6
Goodwill is not amortised, but tested annually for impairment with the recoverable amount being determined from value in use
calculations. Goodwill has been allocated for impairment testing purposes to groups of cash-generating units (CGUs) which
include the combined retail and wholesale businesses. The key assumptions for the recoverable amount of all units are the
long-term growth rate and the discount rate. The long-term growth rate used is purely for the impairment testing of goodwill
under IAS 36 – ‘Impairment of Assets’ and does not reflect long-term planning assumptions used by the Group for investment
proposals or for any other assessments. The pre-tax discount rate is based on the Group’s weighted average cost of capital,
taking into account the cost of capital and borrowings, to which specific market-related premium adjustments are made: per una
discount rate 10.6% (last year 9.9%), Marks and Spencer Marinopoulos B.V. 16.2% (last year 17.7%), Marks and Spencer Czech
Republic a.s. 12.3% (last year 11.9%) and Supreme Tradelinks Private Limited 12.7% (last year 13.3%).
The valuations use cash flows based on detailed financial budgets prepared by management covering a three year period. Cash
flows beyond this three year period are extrapolated for Marks and Spencer Czech Republic a.s. at a growth rate of 1.5% (last
year 2.0%) and Supreme Tradelinks Private Limited at a growth rate of 1.5% (last year 2.0%). To stress test, nil growth has been
assumed for per una and Marks and Spencer Marinopoulos B.V. These rates do not exceed the long-term average growth rate
for the Group’s retail businesses.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued
Annual report and financial statements 2012
95
14 Intangible assets continued
Based on the above assumptions and due to the current economic environment in Greece and neighbouring countries, the
Marks and Spencer Marinopoulos B.V. goodwill has been impaired in full giving rise to a charge of £34.4m. This loss has been
recognised within selling and administration expenses in the Income statement. No other goodwill impairment charges have
been recognised in 2011/12 (last year £nil).
If a zero per cent growth rate is assumed or the discount rate is increased by a pre-tax rate of 2.0%, per una, Marks and
Spencer Czech Republic a.s. and Supreme Tradelinks Private Limited goodwill would not be impaired.
Brands consist of the per una brand cost of £80.0m and the M&S Mode brands which were purchased on 2 May 2011 for
£32.4m. The per una brand is a definite life intangible asset and is amortised on a straight line basis over a period of 15 years
and is only assessed for impairment where such indicators exist. The M&S Mode brands have been attributed an indefinite life
as they give the Group the future right to use the ‘M&S’ brand across Europe. This is consistent with the Group’s expansion
plans in Europe and existing M&S brand recognition from its current presence. Similar to goodwill, the M&S Mode brands are
assessed for impairment annually based on their value in use. The M&S Mode brands have been allocated for impairment testing
across the European business. No brand impairment charge has been recognised in 2011/12.
15 Property, plant and equipment
At 3 April 2010
Cost
Accumulated depreciation
Net book value
Year ended 2 April 2011
Opening net book value
Additions
Transfers
Disposals
Asset write-offs
Depreciation charge
Exchange difference
Closing net book value
At 2 April 2011
Cost
Accumulated depreciation
Net book value
Year ended 31 March 2012
Opening net book value
Additions
Transfers
Disposals
Asset write-offs
Depreciation charge
Exchange difference
Closing net book value
At 31 March 2012
Cost
Accumulated depreciation
Net book value
Land and buildings
£m
2,576.4
(118.7)
2,457.7
2,457.7
23.1
22.4
(1.4)
–
(15.7)
(0.1)
2,486.0
2,730.0
(244.0)
2,486.0
2,486.0
17.1
25.3
(0.8)
(13.0)
(16.4)
(9.4)
2,488.8
2,759.4
(270.6)
2,488.8
Fixtures,
fittings and
equipment
£m
5,043.9
(2,900.8)
2,143.1
2,143.1
173.1
66.7
(1.3)
(3.4)
(400.8)
(2.1)
1,975.3
5,263.2
(3,287.9)
1,975.3
1,975.3
279.5
127.9
(6.8)
(10.4)
(388.4)
(6.1)
1,971.0
5,612.9
(3,641.9)
1,971.0
Assets in the
course of
construction
£m
121.2
–
121.2
121.2
168.8
(89.1)
–
–
–
–
200.9
200.9
–
200.9
200.9
282.7
(153.2)
–
–
–
(0.3)
330.1
330.1
–
330.1
Total
£m
7,741.5
(3,019.5)
4,722.0
4,722.0
365.0
–
(2.7)
(3.4)
(416.5)
(2.2)
4,662.2
8,194.1
(3,531.9)
4,662.2
4,662.2
579.3
–
(7.6)
(23.4)
(404.8)
(15.8)
4,789.9
8,702.4
(3,912.5)
4,789.9
The net book value above includes land and buildings of £43.6m (last year £44.3m) and equipment of £26.4m (last year £31.8m)
where the Group is a lessee under a finance lease.
Additions to property, plant and equipment during the year amounting to £6.0m (last year £nil) were financed by new
finance leases.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information 16 Other financial assets
Non-current
Unlisted investments
Current
Short-term investments1
Unlisted investments
Annual report and financial statements 2012
96
2012
£m
3.0
254.4
6.1
260.5
2011
£m
3.0
209.4
6.5
215.9
1 Includes £179.4m (last year £148.9m) and £49.2m (last year £44.2m) of money market deposits held by the Marks and Spencer Scottish Limited Partnership and Marks and Spencer plc
respectively. All short term investments are measured using Level 2 valuation techniques.
Non-current unlisted investments are carried as available-for-sale assets. Other financial assets are measured at fair value with
changes in their value taken to the income statement.
17 Trade and other receivables
Non-current
Other receivables
Prepayments and accrued income
Current
Trade receivables
Less: Provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
2012
£m
33.8
236.4
270.2
115.8
(1.2)
114.6
23.9
114.5
253.0
2011
£m
35.2
240.9
276.1
99.6
(1.3)
98.3
25.5
126.5
250.3
Trade receivables that were past due but not impaired amounted to £2.5m (last year £2.4m) and are mainly sterling
denominated. The directors consider that the carrying amount of trade and other receivables approximates their fair value.
18 Cash and cash equivalents
Cash and cash equivalents are £196.1m (last year £470.2m). The carrying amount of these assets approximates their fair value.
The effective interest rate on short-term bank deposits is 0.36% (last year 0.40%). These deposits have an average maturity of
four days (last year nine days).
19 Trade and other payables
Current
Trade and other payables
Social security and other taxes
Accruals and deferred income
Non-current
Other payables1
2012
£m
2011
£m
988.6
71.5
389.0
1,449.1
919.2
57.2
371.2
1,347.6
280.8
262.3
1 Includes the fair value of the put option over the 49% non-controlling interest in the share capital of Marks and Spencer Czech Republic a.s. of £nil (last year £14.6m) exercisable on
4 April 2013, and the fair value of the put option over the 20% non-controlling interest in the share capital of Marks and Spencer Greece S.A. of £nil exercisable in five or ten years time.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued
Annual report and financial statements 2012
97
20 Borrowings and other financial liabilities
Current
Bank loans and overdrafts1
6.375% £308m medium-term notes 20112
5.875% £267m medium-term notes 20122
Finance lease liabilities
Non-current
Bank loans
5.875% £267m medium-term notes 20122
5.625% £400m medium-term notes 20142
6.250% US$500m medium-term notes 20173
6.125% £400m medium-term notes 20192
6.125% £300m medium-term notes 20212
7.125% US$300m medium-term notes 20373
6.875% £250m puttable callable reset medium-term notes 20372,4
Finance lease liabilities
Total
1 Bank loans and overdrafts includes a £5.0m (last year £5.0m) loan from the Hedge End Park Limited joint venture (see note 28).
2 These notes are issued under Marks and Spencer plc’s £3bn European medium-term note programme and all pay interest annually.
3 Interest on these bonds is payable semi-annually.
4 These notes include an investor put and issuer call option exercisable in December 2012.
2012
£m
38.4
–
280.6
8.7
327.7
0.3
–
399.9
317.8
428.5
301.6
189.9
253.3
56.8
1,948.1
2,275.8
2011
£m
274.8
315.1
–
12.4
602.3
14.3
280.2
399.7
316.8
404.7
–
189.3
253.2
65.9
1,924.1
2,526.4
Finance leases
The minimum lease payments under finance leases fall due as shown in the table on the following page. It is the Group’s policy
to lease certain of its properties and equipment under finance leases. The average lease term for equipment is five years (last
year six years) and 125 years (last year 125 years) for property. Interest rates are fixed at the contract rate. All leases are on a
fixed repayment basis and no arrangements have been entered into for contingent payments. The Group’s obligations under
finance leases are secured by the lessors’ charges over the leased assets.
21 Financial instruments
Treasury policy
The Group operates a centralised treasury function to manage the Group’s funding requirements and financial risks in line with
the Board approved treasury policies and procedures, and their delegated authorities.
The Group’s financial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items,
such as trade receivables and trade payables, that arise directly from its operations. The main purpose of these financial
instruments is to finance the Group’s operations.
The Group treasury function also enters into derivative transactions, principally interest rate and currency swaps and forward
currency contracts. The purpose of these transactions is to manage the interest rate and currency risks arising from the Group’s
operations and financing.
It remains the Group’s policy not to hold or issue financial instruments for trading purposes, except where financial constraints
necessitate the need to liquidate any outstanding investments. The treasury function is managed as a cost centre and does not
engage in speculative trading.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012
98
21 Financial instruments continued
Financial risk management
The principal financial risks faced by the Group are liquidity/funding, interest rate, foreign currency and counterparty risks.
The policies and strategies for managing these risks are summarised on the following pages:
(a) Liquidity/funding risk
The risk that the Group could be unable to settle or meet its obligations at a reasonable price as they fall due;
– The Group’s funding strategy ensures a mix of funding sources offering flexibility and cost effectiveness to match the
requirements of the Group.
– Operating subsidiaries are financed by a combination of retained profits, bank borrowings, medium-term notes and committed
syndicated bank facilities.
At year end, the Group had a committed syndicated bank revolving credit facility of £1.325bn set to mature on 29 September
2016. This facility contains only one financial covenant being the ratio of earnings before interest, tax, depreciation, amortisation
and rents payable; to interest plus rents payable. The covenant is measured semi-annually. The Group also has a number of
undrawn uncommitted facilities available to it. At year end, these amounted to £105m (last year £105m), all of which are due to
be reviewed within a year. At the balance sheet date a sterling equivalent of £nil (last year £nil) was drawn under the committed
facilities and £nil (last year £nil) was drawn under the uncommitted facilities.
In addition to the existing borrowings, the Group has a euro medium-term note programme of £3bn, of which £1.6bn (last year
£1.6bn) was in issuance as at the balance sheet date.
The 6.375% £308m bond was repaid in November 2011 and a new 6.125% £300m bond was subsequently issued under the
programme in December 2011 maturing in 2021.
The contractual maturity of the Group’s non-derivative financial liabilities and derivatives is as follows:
Bank loans
and
overdrafts
£m
Syndicated
bank facility
£m
Medium-term
notes
£m
Timing of cash flows
Within one year
Between one and two years
Between two and five years
More than five years
Effect of discounting and foreign exchange
At 2 April 2011
Timing of cash flows
Within one year
Between one and two years
Between two and five years
More than five years
Effect of discounting and foreign exchange
At 31 March 2012
(274.8)
(14.3)
–
–
(289.1)
–
(289.1)
(38.4)
(0.3)
–
–
(38.7)
–
(38.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(439.9)
(380.1)
(650.9)
(1,992.8)
(3,463.7)
1,304.7
(2,159.0)
(398.5)
(517.1)
(283.8)
(2,310.9)
(3,510.3)
1,338.7
(2,171.6)
Finance
lease
liabilities
£m
(16.0)
(11.7)
(15.8)
(195.8)
(239.3)
161.0
(78.3)
(11.8)
(8.8)
(9.2)
(192.1)
(221.9)
156.4
(65.5)
Total
£m
Derivative
assets
£m
Derivative
liabilities
£m
1,389.3
96.5
100.7
830.2
2,416.7
(1,418.6)
(92.7)
(103.7)
(883.4)
(2,498.4)
1,540.1
163.6
110.5
804.6
2,618.8
(1,529.4)
(161.9)
(103.3)
(841.8)
(2,636.4)
(730.7)
(406.1)
(666.7)
(2,188.6)
(3,992.1)
1,465.7
(2,526.4)
(448.7)
(526.2)
(293.0)
(2,503.0)
(3,770.9)
1,495.1
(2,275.8)
Total
£m
(29.3)
3.8
(3.0)
(53.2)
(81.7)
10.7
1.7
7.2
(37.2)
(17.6)
This table does not include trade and other payables (see note 19) due to the low associated liquidity risk and the partnership
liability to the Marks & Spencer UK Pension Scheme (see note 12).
The present value of finance lease liabilities is as follows:
Within one year
Later than one year and not later than five years
Later than five years
Total
2012
£m
(8.7)
(8.7)
(48.1)
(65.5)
2011
£m
(12.4)
(17.3)
(48.6)
(78.3)
(b) Counterparty risk
Counterparty risk exists where the Group can suffer financial loss through default or non-performance by financial institutions.
Exposures are managed through Group treasury policy which limits the value that can be placed with each approved
counterparty to minimise the risk of loss. The counterparties are limited to the approved institutions with secure long-term credit
ratings A+/A1 or better, assigned by Moody’s and Standard & Poor’s respectively, unless approved by exception by the CFO.
Limits are reviewed regularly by senior management. The credit risk of these financial instruments is estimated as the fair value of
the assets resulting from the contracts.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2012
99
21 Financial instruments continued
The table below analyses the Group’s short-term investments and derivative assets by credit exposure excluding bank balances,
store cash and cash in transit.
Short-term investments¹
Derivative assets²
At 2 April 2011
Short-term investments¹
Derivative assets²
At 31 March 2012
AAAm
£m
193.1
–
193.1
AAAm
£m
198.5
–
198.5
AAA
£m
17.0
0.2
17.2
AAA
£m
–
–
–
Credit rating of counterparty4
AA
£m
54.3
0.5
54.8
AA
£m
2.0
1.9
3.9
AA-
£m
19.1
–
19.1
AA-
£m
42.8
9.8
52.6
A+
£m
79.1
4.0
83.1
A+
£m
27.1
–
27.1
A-
£m
–
–
–
A-
£m
20.0
18.2
38.2
A³
£m
–
0.8
0.8
A³
£m
–
7.6
7.6
Total
362.6
5.5
368.1
Total
290.4
37.5
327.9
1 Includes cash on deposit and money market funds held by Marks and Spencer Scottish Limited Partnership, Marks & Spencer plc and M.S. General Insurance LP.
2 Excludes derivative asset option which is embedded within the £250m puttable callable reset medium-term notes due 2037 and the embedded derivative within the lease host contract.
3 Exposure to a counterparty approved as an exception to treasury policy.
4 Standard & Poor’s equivalent rating shown as reference to the lowest credit rating of the counterparty from either Standard & Poor’s or Moody’s.
The Group has very low retail credit risk due to transactions being principally of a high volume, low value and short maturity.
The maximum exposure to credit risk at the balance sheet date was as follows: trade receivables £115m (last year £98m), other
receivables £58m (last year £61m), cash and cash equivalents £196m (last year £470m) and derivatives £111m (last year £40m).
(c) Foreign currency risk
Transactional foreign currency exposures arise from both the export of goods from the UK to overseas subsidiaries, and from the
import of materials and goods directly sourced from overseas suppliers.
Group treasury hedges these exposures principally using forward foreign exchange contracts progressively covering up to 100%
out to 18 months. Where appropriate, hedge cover can be taken out longer than 18 months, with Board approval. The Group is
primarily exposed to foreign exchange risk in relation to sterling against movements in US dollar and euro.
Forward foreign exchange contracts in relation to the Group’s forecast currency requirements are designated as cash flow
hedges with fair value movements recognised directly in comprehensive income. To the extent that these hedges cover actual
currency payables or receivables, then associated fair value movements previously recognised in comprehensive income are
recorded in the income statement in conjunction with the corresponding asset or liability. As at the balance sheet date the gross
notional value in sterling terms of forward foreign exchange sell or buy contracts amounted to £1,221m (last year £1,062m) with
a weighted average maturity date of seven months (last year six months).
Gains and losses in equity on forward foreign exchange contracts as at 31 March 2012 will be released to the income statement
at various dates over the following 15 months (last year 14 months) from the balance sheet date.
The Group uses a combination of foreign currency debt and derivatives to hedge balance sheet translation exposures. As at the
balance sheet date €242m (last year €201m) and HK$291m (last year HK$192m) of derivatives was hedging overseas net assets.
The Group also hedges foreign currency intercompany loans where these exist. Forward foreign exchange contracts in relation
to the hedging of the Group’s foreign currency intercompany loans are designated as held for trading with fair value movements
being recognised in the income statement. The corresponding fair value movement of the intercompany loan balance results in
an overall £nil impact on the income statement. As at the balance sheet date, the gross notional value of intercompany loan
hedges was £187m (last year £175m).
After taking into account the hedging derivatives entered into by the Group, the currency and interest rate exposure of the
Group’s financial liabilities excluding short-term payables, the liability to the Marks & Spencer UK Pension Scheme and the
Marks and Spencer Czech Republic a.s. put option, is set out below:
Currency
Sterling
Euro
Hong Kong dollar
Other
Fixed rate
£m
Floating rate
£m
2,030.4
6.8
–
–
2,037.2
205.2
5.1
–
28.3
238.6
2012
Total
£m
2,235.6
11.9
–
28.3
2,275.8
Fixed rate
£m
Floating rate
£m
2,030.1
7.1
–
–
2,037.2
411.8
33.7
–
43.7
489.2
2011
Total
£m
2,441.9
40.8
–
43.7
2,526.4
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012 100
21 Financial instruments continued
The floating rate sterling and euro borrowings are linked to interest rates related to LIBOR. These rates are for periods between
one and three months.
As at the balance sheet date and excluding finance leases, the fixed rate sterling borrowings are at an average rate of 5.8%
(last year 5.9%) and the weighted average time for which the rate is fixed is nine years (last year nine years).
(d) Interest rate risk
The Group is exposed to interest rate risk in relation to sterling, US dollar, euro and Hong Kong dollar variable rate financial
assets and liabilities.
The Group’s policy is to use derivative contracts where necessary to maintain a mix of fixed and floating rate borrowings to
manage this risk. The structure and maturity of these derivatives correspond to the underlying borrowings and are accounted
for as fair value or cash flow hedges as appropriate.
At the balance sheet date, fixed rate borrowings amounted to £2,037.2m (last year £2,037.2m) representing the public bond
issues and finance leases, amounting to 90% (last year 81%) of the Group’s gross borrowings.
The effective interest rates at the balance sheet date were as follows:
Committed and uncommitted borrowings
Medium-term notes
Finance leases
Derivative financial instruments
Current
Options
Forward foreign exchange contracts
Interest rate swaps
– held for trading
– cash flow hedges
– held for trading
– net investment hedges
– held for trading
Non-current
Cross currency swaps
Forward foreign exchange contracts
Interest rate swaps
Embedded derivative (see note 5)
– cash flow hedges
– cash flow hedges
– fair value hedge
2012
%
0.5
5.8
4.5
Assets
£m
14.4
2.8
1.2
–
–
18.4
–
0.7
0.8
20.3
21.8
2011
%
–
5.9
4.6
2011
Liabilities
£m
(14.4)
(29.9)
(2.4)
(2.7)
(1.3)
(50.7)
(37.5)
–
–
–
(37.5)
Assets
£m
53.6
13.3
0.1
–
–
67.0
–
0.1
24.0
20.1
44.2
2012
Liabilities
£m
(53.6)
(5.1)
(1.3)
(0.5)
–
(60.5)
(26.5)
(0.7)
–
–
(27.2)
The amounts reported as options held for trading in derivatives assets and liabilities represent the fair value of the call option
with the puttable callable reset notes mirrored by the fair value of the sold option to have this call assigned. The Group holds
a number of interest rate swaps to re-designate its sterling fixed debt to floating debt. These are reported as fair value hedges.
The Group also holds a number of cross currency swaps to re-designate its fixed rate US dollar debt to fixed rate sterling debt.
These are reported as cash flow hedges.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2012 101
21 Financial instruments continued
Sensitivity analysis
The table below illustrates the estimated impact on the income statement and equity as a result of market movements in foreign
exchange and interest rates in relation to the Group’s financial instruments. The Directors consider that a 2% +/- (last year 2%)
movement in interest rates and a 20% +/- (last year 20%) weakening in sterling represents a reasonable possible change.
However this analysis is for illustrative purposes only.
The impact in the income statement due to changes in interest rates reflects the effect on the Group’s floating rate debt as at
the balance sheet date. The impact in equity reflects the fair value movement in relation to the Group’s cross currency swaps.
The impact from foreign exchange movements reflects the change in the fair value of the Group’s transactional foreign exchange
cash flow hedges and the net investment hedges at the balance sheet date. The equity impact shown for foreign exchange
sensitivity relates to derivative and non-derivative financial instruments hedging net investments. This value is expected to be
fully offset by the re-translation of the hedged foreign currency net assets leaving a net equity impact of zero.
The table excludes financial instruments that expose the Group to interest rate and foreign exchange risk where such risk is
fully hedged with another financial instrument. Also excluded are trade receivables and payables as these are either sterling
denominated or the foreign exchange risk is hedged.
At 2 April 2011
Impact on income statement: gain/(loss)
Impact on other comprehensive income: (loss)/gain
At 31 March 2012
Impact on income statement: gain
Impact on other comprehensive income: (loss)/gain
2% decrease
in interest
rates
£m
2% increase
in interest
rates
£m
20%
weakening
in sterling
£m
20%
strengthening
in sterling
£m
0.5
(6.7)
1.5
(5.3)
2.2
6.4
0.8
3.0
(2.8)
44.3
–
70.2
2.4
(29.5)
–
(46.8)
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
– Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
– Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
– Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data. Unlisted equity investments are included in Level 3. The fair value of embedded derivatives is
determined using the present value of the estimated future cash flows based on financial forecasts. The nature of the valuation
techniques and the judgement around the inputs mean that a change in assumptions could result in significant change in the
fair value of the instrument.
As at the end of the reporting period, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
Financial assets at fair value through
profit and loss
– Trading derivatives
Derivatives used for hedging
Embedded derivatives (note 5)
Available-for-sale financial assets
– equity securities
Liabilities measured at fair value
Financial liabilities at fair value through
profit and loss
– Trading derivatives
Derivative used for hedging
Put option over non-controlling interest
–
–
–
–
–
–
–
Level 1
£m
Level 2
£m
Level 3
£m
Level 1
£m
Level 2
£m
Level 3
£m
2012
Total
£m
53.7
37.4
20.1
53.7
37.4
–
–
–
20.1
–
3.0
3.0
(54.9)
(32.8)
–
–
–
–
(54.9)
(32.8)
–
2011
Total
£m
15.6
4.3
20.3
–
–
–
–
–
–
–
15.6
4.3
–
–
–
20.3
–
3.0
3.0
(18.1)
(70.1)
–
–
–
(14.6)
(18.1)
(70.1)
(14.6)
There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value
measurements in the current or prior years.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012 102
21 Financial instruments continued
The following table presents the changes in Level 3 instruments:
Opening balance
Additions (see note 5)
Gains and losses recognised in the income statement
Closing balance
2012
£m
8.7
–
14.4
23.1
2011
£m
(60.5)
20.3
48.9
8.7
The gains recognised in the income statement relate to the valuation of the put option over a non-controlling interest and the
valuation of the embedded derivative in a lease contract. A discount unwind on the put option of £1.0m (last year £5.4m) has
been recorded within underlying interest charges, with the fair value movement of the put option of £15.6m (last year £54.3m)
and the fair value movement of the embedded derivative of £0.2m treated as adjustment to reported profit (see note 5).
Fair value of financial instruments
With the exception of the Group’s fixed rate bond debt, there were no material differences between the carrying value of
non-derivative financial assets and financial liabilities and their fair values as at the balance sheet date.
The carrying value of the Group’s fixed rate bond debt was £2,171.6m (last year £2,159.0m); the fair value of this debt was
£2,121.7m (last year £2,080.1m).
Capital policy
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide
optimal returns for shareholders and to maintain an efficient capital structure to reduce the cost of capital.
In doing so the Group’s strategy is to maintain a capital structure commensurate with an investment grade credit rating and to
retain appropriate levels of liquidity headroom to ensure financial stability and flexibility. To achieve this strategy the Group
regularly monitors key credit metrics such as the gearing ratio, cash flow to net debt (see note 27) and fixed charge cover to
maintain this position. In addition, the Group ensures a combination of appropriate committed short-term liquidity headroom with
a diverse and balanced long-term debt maturity profile. As at the balance sheet date the Group’s average debt maturity profile
was nine years (last year nine years). During the year the Group maintained an investment grade credit rating of Baa3 (stable)
with Moody’s and BBB- (stable) with Standard & Poor’s.
In order to maintain or realign the capital structure, the Group may adjust the number of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce debt.
22 Provisions
At start of year
Provided in the year
Released in the year
Utilised during the year
Exchange differences
At end of year
Analysis of provisions:
Current
Non-current
Total provisions
2012
£m
44.7
7.8
(3.4)
(16.5)
(0.2)
32.4
8.4
24.0
32.4
2011
£m
51.1
10.8
(1.7)
(15.4)
(0.1)
44.7
22.7
22.0
44.7
The provisions primarily comprise one-off strategic programme costs associated with the Focus on the UK plans as well as
onerous lease provisions relating to the 2008/09 UK restructuring.
The current element of the provision primarily relates to onerous leases, redundancies and strategic costs.
The non-current element of the provision relates to store closures, primarily onerous leases, and is expected to be utilised over
a period of ten years.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2012 103
23 Deferred tax
Deferred tax is provided under the balance sheet liability method using a tax rate of 24% (last year 26%) for UK differences and
local tax rates for overseas differences. Details of the changes to the UK corporation tax rate and the impact on the Group are
described in note 7.
The movements in deferred tax assets and liabilities (after offsetting balances within the same jurisdiction as permitted by IAS 12
– ‘Income Taxes’) during the year are shown below.
Deferred tax (liabilities)/assets
At 4 April 2010
Credited/(charged) to the income statement
(Charged)/credited to equity
At 2 April 2011
At 3 April 2011
Credited/(charged) to the income statement
(Charged)/credited to equity
At 31 March 2012
Non-current
assets temporary
differences
£m
(74.3)
10.5
–
(63.8)
(63.8)
5.6
–
(58.2)
Accelerated
capital
allowances
£m
(123.7)
18.9
–
(104.8)
(104.8)
4.2
–
(100.6)
Pension
temporary
differences
£m
81.2
3.0
(112.0)
(27.8)
(27.8)
4.4
(5.1)
(28.5)
Other
short-term
temporary
differences
£m
(3.2)
7.1
6.1
10.0
10.0
(2.9)
(0.6)
6.5
Total
UK
deferred
tax
£m
(120.0)
39.5
(105.9)
(186.4)
(186.4)
11.3
(5.7)
(180.8)
Overseas
deferred
tax
£m
(5.8)
(3.2)
(1.1)
(10.1)
(10.1)
(1.5)
(3.3)
(14.9)
Total
£m
(125.8)
36.3
(107.0)
(196.5)
(196.5)
9.8
(9.0)
(195.7)
The deferred tax liability on non-current assets is stated net of the benefit of capital losses with a tax value of £71.4m (last year
£65.0m). No benefit has been recognised in respect of unexpired trading losses carried forward in overseas jurisdictions with a
tax value of £26.8m (last year £16.1m).
In addition, the Group is claiming UK tax relief for losses incurred by some of its current and former European subsidiaries. In
light of the continuing litigation no asset has been recognised in respect of these claims.
No deferred tax has been recognised in respect of undistributed earnings of overseas subsidiaries and joint ventures, as no
material liability is expected to arise on distribution of these earnings under applicable tax legislation.
24 Ordinary share capital
Issued and fully paid ordinary shares of 25p each
At start of year
Shares issued on exercise of share options
At end of year
Shares
2012
£m
Shares
1,584,863,882
20,643,220
1,605,507,102
396.2
5.2
401.4
1,582,316,581
2,547,301
1,584,863,882
2011
£m
395.5
0.7
396.2
Issue of new shares
20,643,220 (last year 2,547,301) ordinary shares having a nominal value of £5.2m (last year £0.7m) were allotted during the year
under the terms of the Company’s schemes which are described in note 13. The aggregate consideration received was £44.3m
(last year £8.4m).
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2012 104
25 Contingencies and commitments
A. Capital commitments
Commitments in respect of properties in the course of construction
2012
£m
71.4
2011
£m
90.8
In respect of its interest in a joint venture, the Group is committed to incur capital expenditure of £nil (last year £0.5m).
B. Other material contracts
In the event of a material change in the trading arrangements with certain warehouse operators, the Group has a commitment to
purchase property, plant and equipment, at values ranging from historical net book value to market value, which are currently
owned and operated by the warehouse operators on the Group’s behalf.
See note 12 for details on the partnership arrangement with the Marks & Spencer UK Pension Scheme.
C. Commitments under operating leases
The Group leases various stores, offices, warehouses and equipment under non-cancellable operating lease agreements. The
leases have varying terms, escalation clauses and renewal rights.
Total future minimum rentals payable under non-cancellable operating leases are as follows:
Within one year
Later than one year and not later than five years
Later than five years and not later than ten years
Later than ten years and not later than 15 years
Later than 15 years and not later than 20 years
Later than 20 years and not later than 25 years
Later than 25 years
Total
The total future sublease payments to be received are £63.3m (last year £65.8m).
26 Analysis of cash flows given in the statement of cash flows
Cash flows from operating activities
Profit on ordinary activities after taxation
Income tax expense
Finance costs
Finance income
Operating profit
Increase in inventories
(Increase)/decrease in receivables
Payments to acquire leasehold properties
Increase in payables
Non-underlying operating cash outflows
Depreciation, amortisation and asset write-offs
Share-based payments
Pension costs charged against operating profit
Cash contributions to pension schemes
Non-underlying operating profit items (see note 5)
Cash generated from operations
2012
£m
2011
£m
257.8
997.4
1,029.5
772.7
385.1
259.3
1,210.1
4,911.9
2012
£m
489.6
168.4
136.8
(48.3)
746.5
(0.1)
(17.1)
(1.2)
103.4
(22.9)
479.7
32.5
57.7
(89.9)
63.5
1,352.1
242.6
923.0
990.8
767.4
402.9
243.1
1,210.3
4,780.1
2011
£m
598.6
182.0
152.9
(96.6)
836.9
(72.1)
2.9
(1.4)
175.2
(12.3)
467.5
31.7
60.0
(91.2)
(12.0)
1,385.2
Non-underlying operating cash outflows primarily relate to the utilisation of the provisions for UK restructuring and strategic
programme costs.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2012 105
27 Analysis of net debt
A. Reconciliation of movement in net debt
Net cash
Bank loans, overdrafts and syndicated bank facility (note 20)
Less: amounts treated as financing (see below)
Cash and cash equivalents (note 18)
Net cash per statement of cash flows
Current financial assets (see note 16)
Debt financing
Bank loans and overdrafts treated as financing (see above)
Medium-term notes
Finance lease liabilities (note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (note 12)
Debt financing
Net debt
B. Reconciliation of net debt to statement of financial position
Statement of financial position and related notes
Cash and cash equivalents
Current financial assets (note 16)
Bank loans and overdrafts (note 20)
Medium-term notes – net of hedging derivatives
Finance lease liabilities (note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (note 12)
Interest payable included within related borrowing
Total net debt
28 Related party transactions
At
3 April
2011
£m
(289.1)
82.4
(206.7)
470.2
263.5
215.9
(82.4)
(2,147.7)
(78.3)
(71.9)
(2,380.3)
(1,900.9)
Exchange and
other non-cash
movements
£m
At
31 March
2012
£m
Cash flow
£m
247.8
(41.4)
206.4
(272.2)
(65.8)
44.8
41.4
12.1
13.0
71.9
138.4
117.4
2.6
(2.6)
–
(1.9)
(1.9)
(0.2)
2.6
(2.0)
(0.2)
(71.9)
(71.5)
(73.6)
(38.7)
38.4
(0.3)
196.1
195.8
260.5
(38.4)
(2,137.6)
(65.5)
(71.9)
(2,313.4)
(1,857.1)
2012
£m
2011
£m
196.1
260.5
(38.7)
(2,181.8)
(65.5)
(71.9)
(1,901.3)
44.2
(1,857.1)
470.2
215.9
(289.1)
(2,194.0)
(78.3)
(71.9)
(1,947.2)
46.3
(1,900.9)
A. Subsidiaries
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and
are not disclosed in this note. Transactions between the Company and its subsidiaries are disclosed in the Company’s separate
financial statements.
On 30 March 2012 the Group acquired the remaining 50 per cent shareholding of Marks & Spencer Marinopoulos BV for €1,
taking its share in the Balkan states (Greece, Romania, Croatia, Slovenia, Bulgaria, Serbia, and Montenegro) to 100 per cent.
At the same time, the Group sold 20 per cent of the share capital of Marks & Spencer Greece SA (‘Greece’) to Marinopolous
Holding Sarl for €1, leaving the Group’s effective share in Greece at 80 per cent. The sale and purchase agreement includes call
and put options over this 20 per cent of the share capital of Greece, exercisable in five or ten years time. The fair value of the put
option at 31 March 2012 was £nil. On an undiscounted basis this liability has a value of £nil.
Both of these transactions have been accounted for through equity, as the Group already controlled these entities and
consolidated them as subsidiaries.
B. Hedge End joint venture
A loan of £5.0m was received from the joint venture on 9 October 2002. It is repayable on five business days’ notice and was
renewed on 1 January 2012. Interest was charged on the loan at 2.0% until 31 December 2009 and 0.5% thereafter.
C. Lima (Bradford) joint venture
A loan facility was provided to the joint venture on 11 August 2008. At 31 March 2012, £25.4m (last year £25.4m) was drawn
down on this facility. Interest was charged on the loan at 1.1% above 3-month LIBOR. The Group has entered into a rental
agreement with the joint venture and £4.5m (last year £4.5m) of rental charges were incurred. There was no outstanding balance
at March 2012.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Annual report and financial statements 2012 106
28 Related party transactions continued
D. Marks & Spencer Pension Scheme
Details of other transactions and balances held with the Marks & Spencer UK Pension Scheme are set out in notes 11 and 12.
E. Key management compensation
Salaries and short-term benefits
Post-employment benefits
Share-based payments
Total
2012
£m
8.8
0.1
6.0
14.9
2011
£m
12.0
0.1
9.0
21.1
Key management comprises Board directors only. Further information about the remuneration of individual directors is provided
in the Remuneration report. During the year, key management have purchased goods at the Group’s usual prices less a 20%
discount. This discount is available to all staff employed directly by the Group in the UK.
F. Other related party transactions
Supplier transactions occurred during the year between the Group and a company controlled by a close family member of
Kate Bostock, an executive director of the Group. These transactions amounted to £12.7m during the year (last year £9.3m)
with an outstanding trade payable of £1.3m at 31 March 2012 (last year £0.8m). The company was a supplier prior to Kate’s
employment by the Group.
Supplier transactions occurred during the year between the Group and a company controlled by Martha Lane Fox’s partner.
Martha is a non-executive director of the Group. These transactions amounted to £1.9m during the year (last year £1.7m) with
an outstanding trade payable of £0.5m at 31 March 2012 (last year £0.8m).
29 Events after the reporting period
On 21 May 2012 the Group changed the terms of the Scottish Limited Partnership (the Partnership) to waive the Group’s limited
discretionary right over the annual distributions from the Partnership to the Pension Trustee. These discretionary rights were agreed
with our Trustee in 2009, the time of the last triennial valuation. This change will not have any impact on the cash flows of the Group.
From 21 May 2012 this will result in a prospective change in the Group’s accounting treatment. The change will reflect the
de-recognition of the related equity instrument and recognition of a financial liability. The liability will initially be measured at fair value,
representing the present value of the remaining ten years of distributions of £71.9m per annum. The difference between the value of
the derecognised equity instrument and the fair value of the liability will be recognised in equity, in accordance with IAS 32.
As a result of the change, the Group’s reported net debt will include this liability, which at the end of financial year 2012/13 will
have a value of £537m and the Group’s interest charge will increase to reflect the unwinding of the discount on the liability which,
in financial year 2012/13, will be a charge of £17m. Similarly the impact on the Group’s net assets will be to reduce them by
£551m. The Group’s obligations to the Pension Trustee remain unchanged and this will not have any material impact on the
Group’s credit rating.
In March 2009, conscious of the Group’s obligations to the Pension Trustee and the Partnership (which is a partnership between
the Group and the Pension Trustee which holds a number of properties from which the Group trades and on which the Group
pays rent to the Partnership), we amended the terms of the Partnership to reflect a discretionary right agreed between the Group
and the Trustee. This right is such that in the circumstances when no ordinary dividend or other distribution is made to ordinary
shareholders, the annual distribution of £71.9m from the Partnership to the Pension Trustee would not be obliged to be made.
The impact of this change was to reclassify £572m from debt to equity in March 2009, and to reduce the Group’s interest
charge by £33m in the financial year 2009/10. The Audit Committee and the Board has consistently received accounting and
legal advice supporting this accounting treatment. There was no impact on the Group’s ultimate obligation to the Pension
Trustee and no impact on cash flows.
Following the publication of the 2009 Annual Report and Accounts, in February 2010 the Financial Reporting Review Panel
(FRRP) wrote to the company in relation to the change in accounting treatment of the obligation to the Pension Trustee. In the
dialogue that followed, and has continued until the present time, the FRRP expressed a concern that in the circumstances of the
Group’s pension arrangement this discretion was not sufficient to support classification of the Partnership interest as a
component of equity.
In the interest of bringing discussions with the FRRP to a close and given that the Group has a stated dividend policy and the
Board continues to expect that future dividend payments and resulting Partnership distributions will be made, the Group has
decided that it will reflect the obligation as a liability, and in order to achieve this will indefinitely waive its discretionary right. As
before, there is no change in the Group’s ultimate obligation to the Pension Trustee. The FRRP has confirmed that this change,
with the consequent accounting treatment, effective from 21 May 2012, will bring its discussions with the Group to a close.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Company statement of financial position
Annual report and financial statements 2012 107
Assets
Non-current assets
Investments in subsidiary undertakings
Total assets
Liabilities
Current liabilities
Amounts owed to subsidiary undertakings
Total liabilities
Net assets
Equity
Ordinary share capital
Share premium account
Capital redemption reserve
Merger reserve
Retained earnings
Total equity
Notes
C5
As at
31 March 2012
£m
As at
2 April 2011
£m
9,194.6
9,194.6
9,179.8
9,179.8
2,541.7
2,541.7
6,652.9
401.4
294.3
2,202.6
1,397.3
2,357.3
6,652.9
2,591.8
2,591.8
6,588.0
396.2
255.2
2,202.6
1,397.3
2,336.7
6,588.0
The financial statements were approved by the Board and authorised for issue on 21 May 2012. The financial statements also
comprise the notes on pages 108 and 109.
Marc Bolland Chief Executive Officer
Alan Stewart Chief Finance Officer
Company statement of changes in shareholders’ equity
At 4 April 2010
Profit for the year
Dividends
Capital contribution for share-based payments
Shares issued on the exercise of employee share options
At 2 April 2011
At 3 April 2011
Profit for the year
Dividends
Capital contribution for share-based payments
Shares issued on the exercise of employee share options
At 31 March 2012
Company statement of cash flows
Cash flows from investing activities
Dividends received
Net cash generated from investing activities
Cash flows from financing activities
Shares issued on exercise of employee share options
Repayment of intercompany loan
Equity dividends paid
Net cash used in financing activities
Net cash inflow from activities
Cash and cash equivalents at beginning and end of year
Ordinary
share
capital
£m
395.5
–
–
–
0.7
396.2
396.2
–
–
–
5.2
401.4
Share
premium
account
£m
247.5
–
–
–
7.7
255.2
255.2
–
–
–
39.1
294.3
Capital
redemption
reserve
£m
2,202.6
–
–
–
–
2,202.6
2,202.6
–
–
–
–
2,202.6
Merger
reserve
£m
1,397.3
–
–
–
–
1,397.3
1,397.3
–
–
–
–
1,397.3
Retained
earnings
£m
2,322.2
250.8
(247.5)
11.2
–
2,336.7
2,336.7
273.6
(267.8)
14.8
–
2,357.3
Total
£m
6,565.1
250.8
(247.5)
11.2
8.4
6,588.0
6,588.0
273.6
(267.8)
14.8
44.3
6,652.9
52 weeks ended
31 March
2012
£m
52 weeks ended
2 April
2011
£m
273.6
273.6
44.3
(50.1)
(267.8)
(273.6)
–
–
250.8
250.8
8.4
(11.7)
(247.5)
(250.8)
–
–
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Company notes to the financial statements
Annual report and financial statements 2012 108
C1 Accounting policies
The Company’s accounting policies are the same as those set out in note 1 of the Group financial statements, except as
noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. The Company grants
share-based payments to the employees of subsidiary companies. Each period the fair value of the employee services received
by the subsidiary as a capital contribution from the Company is reflected as an addition to investments in subsidiaries.
Loans from other Group undertakings and all other payables are initially recorded at fair value, which is generally the proceeds
received. They are then subsequently carried at amortised cost. The loans are non-interest bearing and repayable on demand.
The Company’s financial risk is managed as part of the Group’s strategy and policies as discussed in note 21 of the Group
financial statements.
In accordance with the exemption allowed by Section 408 of the Companies Act 2006, the Company has not presented its own
income statement.
C2 Employees
The Company had no employees during the current or prior year. Directors received emoluments in respect of their services to
the Company during the year of £932,000 (last year £698,000). The Company did not operate any pension schemes during the
current or preceding year.
C3 Auditors’ remuneration
Auditors’ remuneration in respect of the Company’s annual audit has been borne by its subsidiary Marks and Spencer plc and
has been disclosed on a consolidated basis in the Company’s consolidated financial statements as required by Section 494 of
the Companies Act 2006.
C4 Dividends
Dividends on equity ordinary shares
Paid final dividend
Paid interim dividend
2012
per share
2011
per share
10.8p
6.2p
17.0p
9.5p
6.2p
15.7p
2012
£m
170.2
97.6
267.8
2011
£m
149.7
97.8
247.5
In addition, the directors have proposed a final dividend in respect of the year ended 31 March 2012 of 10.8p per share
amounting to a dividend of £172.3m. It will be paid on 13 July 2012 to shareholders who are on the Register of Members on
1 June 2012. In line with the requirements of IAS 10 – ‘Events after the Reporting Period’, this dividend has not been recognised
within these results.
C5 Investments
A. Investments in subsidiary undertakings
Beginning of the year
Additional investment in subsidiary undertakings relating to share-based payments
End of year
Shares in subsidiary undertakings represent the Company’s investment in Marks and Spencer plc.
2012
£m
9,179.8
14.8
9,194.6
2011
£m
9,168.6
11.2
9,179.8
Financial statementsMarks and Spencer Group plc
Annual report and financial statements 2012 109
C5 Investments continued
B. Principal subsidiary undertakings
The Company’s principal subsidiary undertakings are set out below. A schedule of interests in all undertakings is filed with the
Annual Return.
Marks and Spencer plc
Marks and Spencer International Holdings Limited
Marks and Spencer (Nederland) BV
Marks and Spencer Marinopoulos BV
Marks and Spencer Czech Republic a.s.
Marks and Spencer (Ireland) Limited
Marks and Spencer (Asia Pacific) Limited
Marks and Spencer Simply Foods Limited
Marks and Spencer Marinopoulos Greece SA
M.S. General Insurance L.P.
per una Group Limited
Marks and Spencer Scottish Limited Partnership
Principal activity
Retailing
Holding company
Holding company
Holding company
Retailing
Retailing
Retailing
Retailing
Retailing
Financial services
Procurement
Property investment
Country of incorporation and operation
Great Britain
Great Britain
The Netherlands
The Netherlands
Czech Republic
Republic of Ireland
Hong Kong
Great Britain
Greece
Guernsey
Great Britain
Great Britain
Proportion of voting rights
and shares held by:
Company
100%
–
–
–
–
–
–
–
–
–
–
–
A subsidiary
–
100%
100%
100%
51%
100%
100%
100%
80%
100%
100%
–¹
1 Marks and Spencer plc is the general partner.
The Company has taken advantage of the exemption under Section 410 of the Companies Act 2006 by providing information
only in relation to subsidiary undertakings whose results or financial position, in the opinion of the directors, principally affected
the financial statements.
C6 Related party transactions
During the year, the Company has received dividends from Marks and Spencer plc of £273.6m (last year £250.8m) and
decreased its loan from Marks and Spencer plc by £50.1m (last year £11.7m). The outstanding balance was £2,541.7m (last
year £2,591.8m) and is non-interest bearing. There were no other related party transactions.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Group financial record
Income statement
Revenue¹
UK
International
Operating profit¹
UK
International
Total operating profit
Net interest payable
Pension finance income
Profit on ordinary activities before taxation – continuing operations
Analysed between:
Underlying profit before tax
Adjustments to reported profit
Income tax expense
Profit after taxation
Basic earnings per share¹
Underlying basic earnings per share¹
Dividend per share declared
in respect of the year
Dividend cover
Retail fixed charge cover
Statement of financial position
Net assets (£m)
Net debt² (£m)
Capital expenditure3 (£m)
Stores and space
UK stores
UK selling space (m sq ft)
International stores
International selling space (m sq ft)
Staffing (full-time equivalent)
UK
International
Basic earnings/ Weighted
average ordinary shares in issue
Underlying basic earnings/
Weighted average ordinary
shares in issue
Underlying earnings per share/
Dividend per share
Operating profit before
depreciation and operating lease
charges/ Fixed charges
1 Based on continuing operations.
2 Excludes accrued interest.
3 2012 includes £32.4m of M&S Mode brands and 2008 includes £48.4m of goodwill.
Annual report and financial statements 2012 110
2012
52 weeks
£m
2011
52 weeks
£m
2010
53 weeks
£m
2009
52 weeks
£m
2008
52 weeks
£m
8,868.2
1,066.1
9,934.3
8,733.0
1,007.3
9,740.3
8,567.9
968.7
9,536.6
8,164.3
897.8
9,062.1
658.0
88.5
746.5
(114.1)
25.6
658.0
705.9
(47.9)
(168.4)
489.6
679.0
157.9
836.9
(93.9)
37.6
780.6
714.3
66.3
(182.0)
598.6
701.1
150.9
852.0
(160.1)
10.8
702.7
694.6
8.1
(179.7)
523.0
755.0
115.7
870.7
(199.9)
35.4
706.2
604.4
101.8
(199.4)
506.8
8,309.1
712.9
9,022.0
1,095.9
115.4
1,211.3
(141.1)
58.9
1,129.1
1,007.1
122.0
(308.1)
821.0
2012
52 weeks
2011
52 weeks
2010
53 weeks
2009
52 weeks
2008
52 weeks
32.5p
38.8p
33.5p
32.3p
49.2p
34.9p
34.8p
33.0p
28.0p
43.6p
17.0p
17.0p
15.0p
17.8p
22.5p
2.1x
2.0x
2.2x
1.6x
1.9x
3.9x
4.0x
4.0x
3.5x
5.3x
2,778.8
1,857.1
737.5
2,677.4
1,900.9
491.5
2,185.9
2,068.4
397.1
2,100.6
2,490.8
653.3
1,964.0
3,077.7
1,102.9
731
16.0
388
4.7
703
15.6
361
4.2
690
15.4
320
3.6
668
14.9
296
3.1
622
14.3
278
2.9
51,938
5,116
49,922
4,753
48,722
4,272
50,614
3,539
49,703
2,573
Financial statementsMarks and Spencer Group plc Other information
Annual report and financial statements 2012 111
Shareholder information
Analysis of share register
Ordinary shares
As at 31 March 2012, there were 204,186 holders of ordinary shares whose shareholdings are analysed below.
Range
1 – 500
501 – 1,000
1,001 – 2,000
2,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 1,000,000
1,000,001 – HIGHEST
Total
Number of
holdings
102,866
40,794
31,212
20,859
5,356
2,513
421
165
204,186
Percentage
of total
shareholders
Number of
ordinary shares
Percentage
of ordinary
shares
20,237,112
50.38
30,526,950
19.98
44,810,404
15.29
64,144,009
10.21
37,189,668
2.62
58,554,862
1.23
144,603,713
0.21
0.08 1,205,440,384
100.00 1,605,507,102
1.26
1.90
2.79
3.99
2.32
3.65
9.01
75.08
100.00
Many private investors hold their shares through nominee companies, therefore the percentage of private holders is much higher
than that shown – we estimate approximately 30%.
Holders
Private
Institutional and Corporate
Total
Number of
holdings
196,073
8,113
204,186
Percentage
of total
shareholders
Number of
ordinary shares
Percentage
of ordinary
shares
96.03
260,111,955
3.97 1,345,395,147
100.00 1,605,507,102
16.20
83.30
100.00
Managing your shares
Corporate website
The Company’s register of shareholders is maintained by our
Registrar, Equiniti. Shareholders with queries relating to their
shareholding should contact Equiniti directly. Their contact
details can be found overleaf. Alternatively, shareholders may
find the ‘Investors’ section of our corporate website useful for
general queries.
Dividends
Paid in January and July each year. We encourage
shareholders to have dividends paid directly into their bank
account to ensure efficient payment and cleared funds on the
payment date. Those selecting this payment method receive
an annual consolidated tax voucher in January, showing both
dividend payments in the respective tax year. However, we
are able to send separate tax vouchers with each payment,
if preferred.
To change how you receive your dividends either log on to
shareview.co.uk or contact Equiniti.
Whether you are interested in learning more about
our Heritage, our Social, Environmental and Ethical
responsibilities, our approach to Corporate Governance
or viewing our latest Press releases, the M&S corporate
website provides a wealth of information for shareholders.
If you have a general query regarding your shareholding, it
can often be worthwhile making the ‘Investors’ section of our
corporate website your first port of call as it contains much
of the information that is most frequently requested from our
shareholder helpline. Shareholders are also encouraged to
sign up to receive emailed news alerts, which include all
financial news releases throughout the year. These are not
mailed to shareholders. You can access the corporate website
at marksandspencer.com/thecompany.
The directors are responsible for the maintenance and integrity
of the financial information on our website. This information
has been prepared under the relevant accounting standards
and legislation.
Duplicate documents
ShareGift
Around 10,000 shareholders still receive duplicate
documentation and split dividend payments due to having
more than one account on the share register. If you think you
fall into this group and would like to combine your accounts,
please contact Equiniti.
If you move house
It is extremely important that you contact Equiniti to inform
them of your new address as soon as possible. If you hold
1,500 shares or fewer, and reside in the UK, this can be done
quickly over the phone. However, for holdings greater than
1,500 your instruction will need to be in writing, quoting your
full name, shareholder reference number (if known), previous
address and new address.
Do you have a small shareholding which is uneconomical
to sell? You may want to consider donating it to ShareGift
(Registered charity no. 1052686), a charity that specialises
in donating unwanted small shareholdings to good causes.
You can find out more by visiting sharegift.org or by calling
+44 (0)207 930 3737.
Marks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Other information
Annual report and financial statements 2012 112
Shareholder information continued
Electronic communication
Capital Gains Tax
In recent years, changes in legislation have removed the
need for companies to mail endless amounts of paper to
shareholders. Instead, companies are turning to the speed,
environmental and cost-saving benefits of communicating
with their shareholders via the internet. M&S has actively
been encouraging shareholders to sign up to this method
of communication, as the reduction in printing costs and
paper usage make a valuable contribution to our ‘Plan A’
commitments. It is equally beneficial to shareholders, who
can be notified by email whenever we release trading updates
for investors to the London Stock Exchange. These are not
mailed to shareholders.
Registration is very straightforward through Shareview, the
internet based platform provided by Equiniti. For information
about how to register, please visit the ‘Investors’ section of
our corporate website.
Shareholder security
REMEMBER: if it sounds too good to be true, it probably is!
It sounds obvious, but if a stranger rings you out of the blue
and tries to sell you shares in companies you have probably
never even heard of – take great care. They may be part of a
financial scam using hard-sell tactics to persuade you to buy
shares. Shareholders are advised to be very wary of any
unsolicited advice, offers to buy shares at a discount, or
offers of free reports about the Company. Further information
can be found at cityoflondon.police.uk/citypolice within the
Economic Crime section.
Key dates for your diary
30 May 2012
1 June 2012
10 July 2012
10 July 2012
13 July 2012
6 November 2012*
14 November 2012*
16 November 2012*
January 2013*
11 January 2013*
For the purpose of Capital Gains Tax, the price of an ordinary
share on 31 March 1982 was 153.5p, which when adjusted for
the 1 for 1 scrip issue in 1984, gives a figure of 76.75p. Following
the capital reorganisation in March 2002, HMRC has confirmed
the base cost for CGT purposes was 372.35p (81.43%) for an
ordinary share and 68.75p (18.75%) for a B share.
American Depositary Receipts (ADRs)
The Company has a Level 1 ADR program. This enables US
investors to purchase Marks & Spencer American Depository
Shares (ADS) in US dollars ‘over the counter’. The Company
has chosen to have the ADRs quoted on the OTC market’s
highest tier, International PremierQX.
For information on OTCQX go to
otcqx.com
For Deutsche Bank email:
DB@amstock.com
ADR website: adr.db.com
Toll free callers within the US:
1 866 249 2593
For those calling outside the US:
+1 (718) 921 8137
AGM 2012
This year’s AGM will be held at Royal Festival Hall, Southbank
Centre, London SE1 8XX on Tuesday 10 July 2012. The
meeting will start at 11am and registration will be available
from 9.30am.
Ex-dividend date – Final dividend
Record date to be eligible for the final dividend
Results – Quarter 1 Interim Management Statement†
Annual General Meeting
Final dividend payment date for the year to 31 March 2012
Results – Half Year†
Ex-dividend date – Interim dividend
Record date to be eligible for the interim dividend
Results – Quarter 3 Interim Management Statement†
Interim dividend payment date
* provisional dates.
† Those registered for electronic communication or news alerts at marksandspencer.com/thecompany will receive notification by email when this is available.
How to get in touch
Registered office and Head office
Waterside House, 35 North Wharf Road,
London W2 1NW
Telephone +44 (0)20 7935 4422
Registered in England and Wales (no. 4256886)
Registrars
Equiniti Limited,
Aspect House, Spencer Road, Lancing,
West Sussex BN99 6DA
United Kingdom
Telephone 0845 609 0810
and outside the UK +44 (0) 121 415 7071
Online: help.shareview.co.uk
From here, you will be able to securely
email Equiniti with your enquiry.
Group Secretary and Head of Corporate Governance
Amanda Mellor
Additional documents
For both the Annual Report or Annual Review go to
marksandspencer.com/thecompany
Alternatively, call 0800 591 697
Please note, students are advised to source information
from our website.
Contact us
email us at chairman@marks-and-spencer.com
Customer queries: 0845 302 1234
Shareholder queries: 0845 609 0810
Marks and Spencer Group plc Highlights of the year
Index
A
PAGe
F
PAGe
N
FINANCIAL HIGHLIGHTS
Group revenue
£9.9bn
2.0%
Group profit
before tax
Underlying Group
operating profit
£810.0m
1.8%
Underlying
earnings per share
£658.0m
15.7%
34.9p
0.3%
Underlying Group
profit before tax
£705.9m
1.2%
Interim + final dividend
6.2p+10.8p
=17.0p
level
UK
Our UK turnover has a
broadly even split
between Food and
General Merchandise
(Clothing and Home).
With 731 UK stores, we
sell high-quality, great
value food and are the
UK market leaders in
womenswear, lingerie
and menswear.
MULTI-CHANNeL
However they shop
with us – in stores,
online or by phone
– we aim to provide
the best and most
convenient shopping
experience for our
customers, from
purchase through
to delivery.
INTeRNATIONAL
With 387 stores in
43 territories across
Europe, the Middle
East and Asia,
we are growing
our international
presence to make
the M&S brand
more accessible to
customers around
the world.
Clothing & Home
revenue
£4.2bn
0.9%
Multi-channel*
revenue
£559m
18%
Food revenue
Weekly site visits
International
revenue
£1.1bn
5.8%
International
stores
387
26
£4.7bn
3.9%
Number of
UK stores
731
28 stores
3.4m
11.2%
Shop Your Way
Territories
455
11 stores
43
1 new territory
See page 15
See page 26
See page 28
PLAN A
We aim to become the world’s most sustainable retailer and our eco and
ethical programme is at the heart of how we do business.
Total Plan A
commitments
180
See page 30
Commitments
achieved
Commitments
on target
138
43
30
* Excluding VAT and is generated across the UK and International business. Last year published including VAT.
Accountability
Accounting policies
Audit Committee
Auditors’ remuneration
Auditors’ report
B
Board
Borrowing facilities
Brand
C
Capital commitments
Capital expenditure
Cash flow statement
Corporate governance
Cost of sales
Critical accounting estimates
and judgements
D
Deferred tax
Depreciation
Derivatives
Diluted earnings per share
Directors’ emoluments
Directors’ interests
Directors’ report index
Directors’ responsibilities
Dividend cover
Dividend per share
e
45
78
52
108
73
40
97
16
Finance costs/income
Finance leases
Financial assets
Financial instruments
Financial liabilities
Financial review
Fixed charge cover
Food
Footfall
G
104
Going concern
36
77
38
83
81
Goodwill
H
Hedging reserve
Home
I
103
79, 83, 95
80
74
65
63
72
72
110
108
Income statement
Intangible assets
Interests in voting rights
International Financial Reporting
Standards
International
Inventories
Investment property
K
Key Performance Measures
Kidswear
L
Lingerie
Earnings per share
86
M
Employees
Environment
32, 70, 87
Management Committee
30
Margin (gross)
Marketplace
Market value of properties
Menswear
Multi-channel
84
79
96
97
97
34
110
21
12
72
78
76
20
74
94
68
78
28
79
96
12
20
18
14
35
4
71
20
26
Nomination Committee
Non-GAAP performance
measures
P
Plan A
Principal risks and uncertainties
R
Remuneration Committee
Remuneration report
S
Segmental information
Shareholder information
Share capital
Share schemes
PAGe
51
84
30
45
54
54
82
111
68, 103
91
Statement of comprehensive income 74
Statement of financial position
Stores
Subsidiary undertakings
75
24
78
T
Taxation
TSR
Trade and other payables
Trade and other receivables
W
Womenswear
36, 79, 85
64
96
96
18
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VIEW This Annual Report and our How We Do Business Report online
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Annual report and financial statements 2012