TRANSFORMATION
UNDERWAY
ANNUAL REPORT
& FINANCIAL
STATEMENTS 2018
+
NOTICE OF
ANNUAL GENER AL
MEETING 2018
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AT A GLANCE
M&S is a unique retailer with a great heritage of brand values
and customers who want to see it succeed again. We operate Food,
Clothing & Home and other retail businesses using the M&S own-brand
model, focused on delivering great value for money. Although primarily
based in the UK, we sell into 57 countries from 1,463 stores and
20 websites around the world. We employ 81,000 colleagues serving
about 32 million customers. We are committed to a programme of
transformation to ensure that once again M&S can fulfil the potential
of its brand and deliver long-term sustainable, profitable growth
to investors, colleagues and the communities in which we operate.
GROUP REVENUE
£10.7bn
TOTAL DIVIDEND
18.7p
FINANCIAL OVERVIEW
+0.7%
GROUP PROFIT BEFORE TAX
-62.1%
£66.8m
ADJUSTED PROFIT BEFORE TAX
£580.9m
Level
NET DEBT
£1.83bn
-5.4%
-5.5%
BASIC EARNINGS PER SHARE
-77.8%
ADJUSTED EARNINGS PER SHARE
-8.6%
1.6p
27.8p
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
01 Digital First
02 Chairman’s statement
04 Chief Executive’s statement
06 Food performance
07 Clothing & Home performance
Channels to the Customer
08
performance
09 Our people
10 Our business model
11 Key performance indicators
15 Financial review
19 Non-financial information
20 Risk management
22 Principal risks & uncertainties
T
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R
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25 Chairman’s Governance overview
26 Our Board
28 Board activities
30 How we engage & respond
32 Board composition & attendance
33 Responsibilities & oversight
34 Nomination Committee Report
36 Audit Committee Report
42 Remuneration overview
46 Summary Remuneration Policy
50 Remuneration Report
63 Other disclosures
68
Independent auditor’s report
Consolidated financial statements
77
81 Notes to the financial statements
115 Company financial statements
116
Notes to the Company financial
statements
119 Group financial record
120 Glossary
122 Notice of meeting
130 Shareholder information*
* Directors’ Report
Shareholder information forms part
of the Directors’ Report.
ALTERNATIVE PERFORMANCE MEASURES
The report provides alternative performance measures (APMs) which are not defined or specified under the requirements of International
Financial Reporting Standards. We believe these APMs provide readers with important additional information on our business. We have
included a glossary on pages 120-121 which provides a comprehensive list of the APMs that we use, including an explanation of how they
are calculated, why we use them and how they can be reconciled to a statutory measure where relevant.
01
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
DIGITAL FIRST
M&S is transforming
In a competitive and rapidly evolving market, accelerated change is
the only option. We’re becoming more relevant, more often to our
existing customers and appealing to new ones, especially larger
households and busy families.
And the way we communicate is transforming too. This report is different.
We’ve cut down on the superfluous content so that we can cut down on
the amount of paper we use. It also includes the Notice of Meeting for our
2018 AGM which you will find at the back of the report.
Like in every area of our business, we are thinking Digital First.
So, there is more detail and insight available online via
marksandspencer.com/annualreport2018
WHY GO DIGITAL?
Access to more detailed and interactive content
The money saved on printing and postage will help lower our costs
Reduces our carbon footprint and saves paper
DIGITAL FIRST COMMUNITY
Join our Digital First community and sign up for online communications only,
in time for next year’s report. It’s much less fuss, much more interactive and you’ll be
helping M&S to reduce its impact on our environment.
To register, visit shareview.co.uk, a secure platform provided by our Registrar, Equiniti.
From the home page, simply click ‘Portfolio’ followed by ‘Open Portfolio Account’ and follow
the on-screen instructions. You will need your shareholder reference number to register.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 02
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
CHAIRMAN’S
STATEMENT
In September 2017, I took over as Chairman
of Marks & Spencer. I did so in the belief that
the right actions and a strong management
team can revive again one of the UK’s most
special brands – a business much loved by
its employees, customers, and suppliers.
Since that time, I have had an opportunity to
meet with many colleagues in the business
and examine the challenges we face from
the inside. There is no doubt in my mind
that we face formidable headwinds and
transformational changes are needed. The
continued migration of clothing and home
online, the further development of global
competition, the growth of home delivery in
food and the march of the discounters all
amount to threats that are eroding our
business and market position. These, together
with a challenging UK consumer market,
mean that we have a burning platform.
Accelerated change is the only option.
These threats are not new but the tide is
running more strongly against us now
than at any previous time. And I am very
conscious that previous generations of
highly capable managers and boards
have come and gone without arresting
the underlying drift in competitiveness.
Our failure to adapt has not therefore been a
result of weakness in strategic thinking, nor a
lack of talented leadership, nor of capital
expenditure. Behind most underperforming
businesses there sits organisational failure
and culture that has proved resistant to
change. Our case is no exception. That is
not to say we do not have many great and
passionate colleagues. We owe it to them to
make change an imperative, to simplify the
culture, and create a faster, lower cost, more
commercial business.
The genesis of any turnaround starts
with the recognition of the ‘unvarnished
truth’: the ability of the management to
set corporate vanity on one side and
communicate the urgency of change
and the true state of the business internally
and externally. In our case, store colleagues
on the front line feel the pressures of
trading every week. To them, and indeed
many shareholders, the hard facts are
no surprise. Indeed, it comes as a relief to
hear the leadership talk about the reality
and invite all colleagues to climb on board
with a far-reaching programme of change.
For this reason, at the time of our Half
Year Results in November, Steve Rowe set
out his diagnosis of our problems and
announced the beginning of a five-year
transformation programme, ‘Making M&S
Special Again.’ In this Annual Report we
set out in greater detail the composition
of that programme. The first phase is
about restoring the basics, getting the
organisational structure and infrastructure
of the business fit for the future.
This is vital because despite years of high
spending, the shape of the business is out
of date and much of our infrastructure is
inefficient. For instance, while competitors
have modernised their store estate, M&S
has been slow to close stores and renew
them. Our supply chains in both Clothing &
Home and in Food require significant
re-engineering. In fast-moving fashion this
means we are slower than most of our major
competitors to market and carry high levels
of stock. Although online sales are growing,
our online capability is behind the best of
our competitors, and our fulfilment centre
at Castle Donington has struggled to cope
with peak demand. Our technology support
is improving as we migrate off legacy
systems and an old mainframe. In both main
retail businesses, our customer base has
narrowed and we have lost share of younger
family-age customers.
Although we will present more detail of
the transformation strategy over the next
12 months, Steve has already announced
the pillars of this first phase. We are well
on the way to closing at least 25% of our
Clothing & Home space. The website is being
improved and we are investing to remedy
the problems at Castle Donington and build
a single-tier distribution network. We aim
to almost double our online share of
Clothing & Home sales to over 33%. We have
established a technology partnership with
TCS to improve our IT base. Teams have
been established to address the supply
chain issues in both main businesses.
We are taking steps to recover our appeal
to family-age customers in clothing,
reduce the number of product lines and
buy more stylish product in greater depth.
The expansion in Food space has been
slowed while we concentrate on refreshing
the format and driving sustainable growth.
Our International business has already been
rationalised and we are now creating a
“The genesis of any
turnaround starts with
the recognition of the
‘unvarnished truth’.”
ARCHIE NORMAN CHAIRMAN
INTERIM
Paid on 12 January 2018
6.8p
FINAL
To be paid on 13 July 2018
11.9p
TOTAL DIVIDEND FOR 2017/18
18.7p
03
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
competitive network of mainly franchise-
led businesses in territories where we can
grow. These are basic enabling steps which
should provide a platform for restoration
of growth in later stages.
Alongside this we have announced
formative changes in the organisation.
M&S has been managed as a single business
led by functional directors. However,
the Food business is very different from
Clothing & Home. Our property assets need
proactive management and M&S Bank is
clearly a very separate entity. Therefore, we
are moving from the heavyweight corporate
structure to a family of parallel businesses,
each with shared brand values but each led
by its own integrated management team.
Jill McDonald has already started to build a
top calibre team in Clothing & Home and
Stuart Machin joined to lead the Food
business in April. Sacha Berendji will lead
the development of a property strategy
alongside his other responsibilities.
Supporting the businesses will sit a
streamlined corporate layer including a
strong digital and data analytics capability.
At the senior level we are glad that
Humphrey Singer is joining us as
CFO, bringing his experience of the
transformation of Dixons Carphone.
Together with Steve Rowe he will oversee a
strong but lean corporate level team.
This new organisation structure should
help break down some of the historic
organisational silos and create a faster,
more commercial and accountable M&S.
These changes are urgent because the
world is changing around us. I am acutely
aware that shareholders at M&S have heard
about similar programmes before. Some
made progress, others proved to be false
dawns. The chill winds of competition in
all our markets are now such that time is
running out and we cannot afford to fail.
In tackling the problems, we still have
several important advantages. First, we have
a wonderful brand which most people in
the UK still hold in great affection. Second,
we have great operators in the stores and
many colleagues with extraordinary passion
for the business. Third, our technical
skills in both clothing and food and our
understanding of quality, ingredients,
sourcing, size and fit remain outstanding.
So, we have a lot on which to build.
The purpose of the transformation plan
is to restore the business to sustainable,
profitable growth. In doing so, the Board
remains committed to maintaining the
right balance between investment in the
business, dividends for shareholders
and balance sheet strength. Given the
continued net cash generation by the
business and our strong belief in the
potential of the transformation, we intend
to maintain the dividend at its current
level. M&S has a history of large-scale
capital spending, much of which has not
generated hoped-for returns. In the new
organisation we will continue to be frugal
in our allocation of capital and assess
investment against strict returns criteria.
I have a large number of board-level
colleagues to thank. My predecessor,
Robert Swannell, set the platform for the
current changes and established strong
corporate governance routines. Helen Weir
as CFO brought to the business much
intellectual challenge and financial
discipline. Patrick Bousquet-Chavanne has
overseen some extraordinary marketing
campaigns over the last six years. Miranda
Curtis played an important and challenging
role as a non-executive director. We thank
them all for their contribution.
As we enter a new era with a new
management team and new urgent
perspective on the need to change,
we need a strong board committed to
the road ahead. I am delighted therefore
that Katie Bickerstaffe and Pip McCrostie
will be joining shortly, subject to their
election by our shareholders at the AGM
on 10 July.
Finally, at a time of declining profit, it is the
colleagues on the ground who bear much
of the brunt of change. My thanks go to all
of them for their hard work and also to
our longstanding shareholders for their
patient support.
ARCHIE NORMAN CHAIRMAN
“ We owe it to our
people to make
change an imperative,
and create a faster,
lower cost, more
commercial business.”
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 04
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
CHIEF EXECUTIVE’S
STATEMENT
“M&S needs to change
and change fast.
We are now in the
first phase of our
transformation,
restoring the basics
so that we can deliver
sustainable, profitable
growth to investors,
colleagues and the
communities in which
we operate.”
STEVE ROWE CHIEF EXECUTIVE
M&S needs to change and change fast.
We have addressed a number of immediate
issues and are now embarking on the task
of transforming the business to arrest the
decline and restart long-term growth.
In November, I set out our five-year
transformation plan to make M&S special
again. We will execute this plan, flexing and
adapting as we go, at pace. A few miles into
our journey, I can see how much we need to
do and I am determined that this time M&S
will take the hard steps to make our business
a very different one in five years’ time.
Change comes with short term pain.
Group profit was heavily impacted by a
large number of charges, most notably
those relating to the acceleration of our
UK store closure programme. Profit before
adjusting items benefited from a substantial
improvement in International profit, but this
was insufficient to offset the continuing
pressures in our UK businesses.
RESTORING THE BASICS IN CLOTHING
& HOME AND FOOD
For M&S to become more relevant, more
often to more British households, we have
to reshape our Clothing & Home and
Food businesses. This transformation
starts with eliminating silos and creating
accountable businesses. To lead this change,
we appointed Jill McDonald who has
strengthened the team in Clothing & Home,
and Stuart Machin who joined us in April this
year to transform our Food business.
In Clothing & Home, we continued our focus
on full-price sales and removed promotions
and the number of clearance sales. Sales
declined as a result, but for the first time in
five years we grew the number of customers
shopping our clothing. Our ambition is to
be the UK’s essential clothing retailer –
famous for quality products that offer
contemporary wearable style, at great
prices. We will continue to sharpen our
ranges, by providing better choices with
fewer options and delivering more
wardrobe essentials at the right price.
In Food, our focus on being ‘special and
different’ saw us perform well at Christmas
and Easter but our performance was not
good enough throughout the year. We must
broaden our appeal – getting our pricing
and product ranges right – so that we can
retain our core customers and attract busy
families who want great tasting, quality
food at outstanding value.
BECOMING A DIGITAL FIRST RETAILER
If we are to deliver major cultural change at
M&S we have to be a Digital First business.
This change in approach was evident in
the partnership we announced with TCS
during the year and our migration off the
old mainframe system. Going forward we
will develop new partnerships which aim
to put digital innovation at the forefront of
our thinking.
Our store teams have cut costs and
improved customer service through the
roll-out of handheld devices in our stores,
reducing time spent on stock management
and enabling quicker response to customer
queries. In our offices we are introducing a
Smarter Working approach, reducing the
amount of expensive office space required
in central London by half and working better
and closer together.
IMPROVING OUR CHANNELS
TO CUSTOMERS
We accelerated our plan to operate from
fewer, larger, more inspirational Clothing &
Home stores with 32 stores either closed or
proposed for closure out of a planned
reduction of over 100. An encouraging
number of customers have moved their
shopping to nearby stores. As we reposition
our Food offer to deliver sustainable growth,
we also slowed our Simply Food openings to
focus only on the sites with the best returns.
Growth at M&S.com was behind the market
as we focused on full-price sales in a highly
promotional market. We remain behind the
market in several key areas: our download
speeds, though recently improved, are still
slower; we are not yet mobile first; and we
have an average search experience.
We will deliver one-third of our Clothing &
Home sales online within five years to
prevent further erosion of our market share
and to reflect the way that customers’
shopping habits are changing.
We delivered a sharp improvement in
profits in our International business,
completing the planned exit of loss-making
markets, on time and under budget, and
selling our Hong Kong business to a
franchise partner. We are focused on a
franchise model and developing our offer
to ensure better availability and sharper
prices. We were pleased to deliver a return
to profitable growth.
“ By recognising the
challenges we face
and focusing on
our transformation
we can make M&S
special again.”
05
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
SUPPLY CHAIN FIT FOR PURPOSE
In order to be a faster and more commercial
business we must improve our supply chain,
which is slow, inefficient and expensive.
In Clothing & Home, the announcement
of our investment in a new distribution
centre at Welham Green is a step towards
delivering a single-tier network of national
distribution centres. This will enable us to
reduce stock holding points which make
our store deliveries slow and mean we
carry many weeks’ more stock than
our competitors.
Our intention to be one-third online means
investing in e-commerce fulfilment. In the
near term this means improving our
operations at Castle Donington so that
we serve customers better at busy times.
In Food we have a high-cost distribution
model which limits availability and increases
waste. We are rolling out operational
improvements across our stores with
the aim of improving stock file accuracy,
reducing stock held in the back of our
stores and ensuring appropriate deliveries.
LOWER COST RETAILING
During the year, we have undertaken a
forensic review of our cost base, with the
ambition to reduce it by at least £350m in
the medium term. Our initiatives in our
stores and our supply chain will deliver a
significant proportion of these reductions.
The change in our culture and ways of
working is also delivering benefits in our
offices and our cost of goods through fewer
central London offices, changes to our
packaging specifications and the way we
work with our suppliers. This is enabling us to
improve our value proposition in Food and
to reduce costs for the business as whole.
LOOKING AHEAD
We have worked hard to put out the fires
in our business over the past couple of
years and are now in the first phase of
our transformation plan, restoring the
basics so that we can deliver sustainable,
profitable growth to investors, colleagues
and the communities in which we operate.
I would like to thank all of my colleagues for
their hard work and dedication. We have
great people at M&S and we want to tap into
their loyalty and passion for the brand to
help drive transformation. We’re doing this
both externally through better customer
engagement, like our extremely popular
‘My M&S favourite’ campaign, and internally
through our new ‘Suggest to Steve’ scheme
that allows colleagues right across the
business to share their ideas on how we
can improve. By working together, I am
optimistic that by recognising the
challenges we face and focusing on our
clear roadmap for transformation we
can make M&S special again.
STEVE ROWE CHIEF EXECUTIVE
TRANSFORMATION TIMEFRAME
STEP THREE
MAKING
M&S SPECIAL
STEP TWO
SHAPING
THE FUTURE
STEP ONE
RESTORING
THE BASICS
2017
2021
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 06
MARKS AND SPENCER GROUP PLC
PERFORMANCE REVIEW
FOOD
“Beginning the turnaround in Food”
REVENUE
£5.9bn
FACING FACTS
+3.9%
LIKE-FOR-LIKE SALES
CONTRIBUTION TO UK REVENUE
SIMPLY FOOD STORES
-0.3%
61%
696
WHAT’S HAPPENING
WHAT’S NEXT
It has been a tough year in Food with
underperformance against the market.
The origins of this poor performance
however are not recent. Our food remains
unique and customers still rate us as their
favourite supermarket. But over some
years, the range has gradually drifted
towards becoming more premium and we
have lost some of our appeal to broader
family-age shoppers. This problem has been
compounded by the rising intensity
of competition from the discounters at one
end and supermarkets at the other, both
seeking to emulate our success by copying
our fresh product ranges and innovation.
This problem is further compounded by
high operating costs, high waste and
markdowns, and below industry average
availability. This, together with rising rent
and wage costs, has eroded profit so that
urgent action is now needed.
We have already taken initial steps to arrest
the decline and restore like-for-like growth.
The rapid roll out of new owned space has
now been substantially slowed. We have
made selected investment in prices to
restore value for money. For instance, we
reduced prices on eggs by 18% and saw
sales rise by 43%. We have started to
rationalise our promotions so as to avoid
losing money and obliging customers to
spend more to obtain good value. With the
arrival of a new marketing team, we are
starting to communicate better our unique
product credentials in freshness and
traceability. Our food innovation pipeline
has been re-orientated towards more
mainstream, popular family products.
A project team, with outside help, has been
set up to address the problems in our
supply chain. We believe that significant
improvement in availability and waste can
be achieved without restructuring the
outdated network of distribution centres
and initial results are encouraging.
With the arrival of Stuart Machin as
Managing Director and the reorganisation
of brand marketing, we are establishing a
stronger, faster moving management team
committed to restoring the business to
like-for-like sales growth. This firstly means
re-establishing our value for money
credentials. M&S food should always be
great value for quality, freshness, taste
and ingredients. Where it does cost a little
more, it still saves customers’ time and
money in the form of less waste or surplus
ingredients. Where we run promotions,
they should be with a reason, helpful to
customers and profitable for our suppliers.
Trust in product and value is central to
our brand.
M&S has always been famous for our
innovation, and our food sourcing and
technical skills are industry leading.
Our intention is to accelerate the innovation
pipeline but focus more strongly on high
volume, popular family product. Gourmet
and treats will always have a role in our
range, but they should not be the range.
Even today, our food freshness and
authenticity is under-communicated,
and our marketing needs to express the
extraordinary lengths to which we go to
source the best product.
Finally, we are now embarking on a
programme to look again at our formats.
Much of our profit is made in the larger
stores which carry the full M&S range.
UK FOOD MARKETPLACE
The UK food market is undergoing an extraordinary period
of change. Although there have been some signs of growth,
most of this has been driven by inflation. The discount sector
will inevitably continue to grow, probably to 15% or more
of the market. Home delivery and online, where we have little
presence, are also growing at about 1% of the market a year
by 2022. And in an effort to support margin, the mainstream
players are seeking to match M&S in the quality end of the
market. Therefore, the competitive pressures on our business
remain intense and we do not expect this to change in the
year ahead. Consumer budgets remain tight and the business,
with our fresh emphasis, could also face complications from
Brexit and any border friction for food products.
A SLICE OF DETROIT FOR BRITISH FAMILIES
INSIGHT Customers told us they want
a deeper, more nourishing pizza without
skimping on the fillings, in larger pack
sizes that can feed a family.
RESPONSE In September, we launched
six new Deep & Loaded Pizzas inspired
by the famous pizzas of Detroit. From the
Whole Hog, with smoky sausage, spicy
pulled pork and barbecued burnt ends,
to the Meatball Marinara, topped with
mini meatballs and sautéed onions, these
deep pizzas priced at £6 are perfect for
families to share – we sold 1.2m Detroit
inspired pizzas in the year.
07
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
PERFORMANCE REVIEW
CLOTHING & HOME
“Restoring value and style in Clothing & Home”
REVENUE
£3.7bn
FACING FACTS
-1.4%
LIKE-FOR-LIKE SALES
CONTRIBUTION TO UK REVENUE
CLOTHING & HOME SPACE -1.3%
-1.9%
39%
11.1m sq ft
WHAT’S HAPPENING
WHAT’S NEXT
Clothing & Home revenues were down
although the business successfully recovered
margin by improving the percentage of
full-price sales and continuing to drive its
successful direct sourcing programme.
Over many years, M&S has lost position in
the market, as, despite our strong, latent
brand credentials, our reputation for fashion
and style has been eroded. New global
competitors have grown market share and
far outweigh M&S in sourcing scale. Our
online business is well behind market
leaders accounting for only 18.5% share of
sales. The growth of new ‘pure play’ online
competitors such as Amazon and ASOS has
highlighted the marked weakness in our
online capability. In platform technology we
are hampered by the lack of a ‘mobile first’
format, a search experience that’s average,
and slow download speeds. The inadequacy
of our logistics means we are unable to fulfil
our delivery promises to customers at peak
times. And, in our traditional ‘store’ channel,
M&S has not closed and upgraded store
locations in line with a changing high street.
As a result, although we retain a loyal customer
base and very strong positions in some
markets, our customer base has narrowed.
Against this context, the infrastructure
supporting the Clothing & Home business
needs substantial improvement. We operate
an outdated ‘factory to customer’ supply
chain which means we are slow to market, carry
too much stock and cannot replenish fast
moving lines. The very wide ranges result in
slow moving stock that has to be transported
and filled as singles, creating extra handling
costs. The historic M&S bias towards high
volume popular lines and great value has
diminished as successive generations of buyers
have bought ‘flat’ instead of backing winners.
Nevertheless, the clothing business
retains great technical skills and customer
understanding; a strong modern global
sourcing operation and ‘affection’ for the
brand remains strong. There is much on
which to build.
Jill McDonald joined as our new Managing
Director of Clothing & Home in October.
She has already announced a new leadership
team including heads of Womenswear,
Menswear and Home, alongside a new
Supply Chain Director, Marketing Director,
Online Director and other important changes.
Under this new team the business has
begun to face into the challenges. Already,
new range direction has been set to broaden
our appeal to family-age customers. Initial
steps have been taken to sharpen our value
credentials with further reduction in
promotions and investment in lower ‘first
price’. Marketing tone of voice has shifted
with the new ‘Love it for Less’ campaign.
For instance, highlighting our pure cotton
tapered chinos priced at £19.50, available
in a choice of ten colours.
Good progress is being made in the closure
of ageing stores and a comprehensive
programme has been put in hand to
improve the basic performance of our
online website, search and checkout
capability. On supply chain, an ‘end to end’
programme taskforce is now in step towards
a ‘single-tier’ distribution network so that
we no longer carry warehouse space whose
main role is just to store stock. We are also
closing centres at Hardwick and Neasden.
At our Castle Donington online fulfilment
centre we are investing to ‘debottleneck’
the facility to increase peak capacity.
At heart, our recovery in Clothing & Home
depends on the restoration of our style
credentials and broadening our appeal to a
younger family-age customer. Of course, this
means creating a top buying and design team
making great product decisions. Doing so will
require important changes to the buying
process and structure of the range.
M&S retains market-leading positions in core
categories such as lingerie, denim, business
shirts, suits and Back to School. These already
appeal to a broader, often younger customer
base. Our intention is to build on these positions.
The strength of our brand should be providing
great value choices for stylish wardrobe
essentials, the simple wearable classics that
everyone needs to have. Our strength is to
provide great value for people at a stage in
life where they are prepared to pay a bit more
for style and quality and move beyond the
‘throwaway’ culture.
To do this, we will embark on a restructure
of our ranges to buy deeper with fewer slow-
moving lines, including a further reduction of
over 10% in the year ahead. We will use our
global sourcing strength to restore more
strongly our value credentials and we will
review the role of our sub-brands, such as
per una, some of which have lost their identity
in recent years.
As our supply chain reforms start to impact,
our ambition is to substantially reduce working
capital and stock levels, reducing store labour
costs and accelerating speed to market. In
time, we expect to be able to replenish in
season our fastest moving lines, improving
availability and reducing markdown.
We have set a target of achieving one-third of
our sales online, which means growing double
digits each year. Once we have fixed the basic
issues in fulfilment and website performance,
there is enormous scope for developing the
M&S brand and product experience online
in the UK and potentially abroad.
UK CLOTHING & HOME MARKETPLACE
The clothing market declined by 1.5% (KantarWorldpanel, 52 w/e 9 April
2018), with a more challenging trend in the second half of the year. The
Clothing & Home markets were impacted by three long-term trends which are
likely to continue for at least the next two to three years. Firstly, the migration to
online; the UK clothing market is about 25% online today and we expect it to grow
to about 40% online. Secondly, the development of price-led discounters with the
continued growth of Primark, but also the major grocers in clothing. And thirdly,
the strength of global scale competitors such as Inditex, H&M and Uniqlo.
MADE TO FIT AND FLATTER
INSIGHT Customers told us they wanted a dedicated range
to fit and flatter their curves.
RESPONSE In January, we launched our new Curve collection,
offering stylish clothing to our plus-size customers. We consulted
with more than 2,000 customers as well as leading fashion blogger
Danielle Vanier on the range. Curve is available in sizes 18-32
and all the clothes have been designed using a size 24 as the
base shape, rather than a size 12 which is used in other collections.
We sold 63,000 pieces from the range during the year.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 08
MARKS AND SPENCER GROUP PLC
PERFORMANCE REVIEW
CHANNELS TO THE
CUSTOMER
UK STORES
1,035
STORES
M&S.COM SALES
+5.2%
SHOP YOUR WAY SALES
INTERNATIONAL STORES
64%
428
M&S.COM
INTERNATIONAL
FACING FACTS
M&S operates an ageing store estate reflecting
the fact that it has been reluctant to close
marginally contributing stores over many
years. As a result , we carry a long tail of
stores, some over 75 years old, which drag
down the like-for-like sales performance and
are brand damaging in their configuration.
Even though some of these stores trade
profitably, they will not warrant new
investment, not least because the high street
and shopping centres are changing fast.
In particular, our smaller high street stores
lack range authority and some of our larger
stores carry too much space. As the market
shifts and moves online these problems
will become worse unless we move fast.
WHAT’S HAPPENING
We are accelerating our store closure
programme which will result in the closure
of around a quarter of our 2016 Clothing &
Home space. 32 stores have already been
closed or been proposed for closure, out of
a reduction of over 100. Some of the larger
remaining stores are being downsized so we
will converge on a more cohesive portfolio.
The closure programme is producing good
results with significant sales transfer to
nearby, more profitable sites. There will be a
limited number of new openings of mid-size
stores in high potential sites. In Food, we cut
back on the opening programme, focusing
now only on the largest trading opportunities
in sites capable of good volume growth.
WHAT’S NEXT
Once the reshaping of our core store portfolio
is well underway, we will need to relook at our
formats to adapt them to a rapidly changing
shopping environment. Already, we can
see relatively low cost opportunities to
modernise our stores to drive sales and
improve customer experience. For instance,
through our Shop Your Way service, 64% of
our online sales are picked up in-store yet many
of our collection points are inconveniently
situated. Our payment and checkout facilities
need more modernising and rationalising
and a number of services will be brought
together. And many of our larger stores
have blocked sight lines and are hard for
time-pressed customers to navigate. In
the year ahead we will explore ‘capital lite’
options to refresh our existing estate and
develop formats for the future.
FACING FACTS
Our digital capability is behind the best in
the market and the state of the art is moving
rapidly. Although we have the second largest
online Clothing & Home market share in
the UK, we are losing share and are behind
the best of our competitors. Our download
speeds are slower than the best, our
search facility is average and our mobile
application needs improvement. Castle
Donington was built at great expense but
is never likely to achieve planned capacity,
lacks resilience and cannot currently meet
peak demand.
WHAT’S HAPPENING
We have an urgent programme in hand to
fix our base platform capability which
should see improvements this year in speed
and responsiveness. Already, the majority of
our orders are collected in-store and we are
investing to make this process faster and
more convenient, an advantage over our
online only competition. Steps are being
taken to ‘debottleneck’ Castle Donington
so that it can meet expected peak demand
this year and next. And we are extending
the cut off time (10.00 pm) for next-day
deliveries. Given the need to broaden our
appeal to family-age customers, we are
extending our presence and reach in social
media. In March, we were one of the first to
launch on Instagram Shoppable.
WHAT’S NEXT
Given the 8% growth online in the fourth
quarter, we believe that if we implement
these basic changes and the improvements
we plan in range and product, we will
see acceleration of growth towards our
one-third target. Combined with store
closures this will deliver a more profitable
and sustainable business.
Our ambition is also to become a truly digital
business, not only competitive online but
adept at using artificial intelligence to better
interact with customers and develop a more
personalised relationship. Given M&S’s skills
in style and fit and our expertise in fabric
we hope to develop innovative ways of
helping customers to gain inspiration online
and find the right product for their look.
Try Tuesday, our online inspiration service,
already has 160,000 customers signed up,
of which 62% say they have bought
something as a result.
FACING FACTS
Our international business saw a year of
successful reshaping as we closed loss-
making outlets and changed our business
model. As a result, profits more than doubled
and we now have a much more defined
platform for growth. However, much work
remains to improve competitiveness and
the supply chain to our franchise partners
to enable them to compete with our major
fashion retail competitors. Our ranges and
supply chain arrangements are not yet
flexible enough and our pricing is often high
relative to local competitors. And our model
for food supply continues to rely on high
cost UK exports which limits the potential
for an international food business.
WHAT’S HAPPENING
Our model for International is to focus
on large territories where we can build a
significant market presence and to operate
through a limited number of strong, aligned
franchise or joint venture partners.
Accordingly, we have completed our store
closure programme with exit costs under
budget. In total we closed 53 owned stores
in ten markets. In December, we sold our
Hong Kong business to Al-Futtaim, our
Middle East and Asia franchise partner, to
build our alliance further.
Now the rationalisation is nearly complete,
we are setting up an improved franchise
partner support team, as there is huge
scope to improve the way we work with
and support our partners. Already we have
improved Clothing & Home fulfilment by
7% and modernised 58 international stores.
WHAT’S NEXT
In the year ahead we intend to continue the
programme to greatly improve our fulfilment
and supply chain arrangements with our
major partners. We will modernise and open
over 100 new stores in growth markets such
as India and further adapt our ranges to move
away from our current UK-centric model.
We will also roll out lower pricing across our
markets following a successful trial in Indonesia
and Cyprus which saw average order volumes
increase by 32% on an average price reduction
of 18%. We will also provide effective online
support for our franchise partners by
providing a ‘pay and play’ local website and
ordering models as piloted in the UAE this
year. We are still at the early stages of
developing our online strategy for territories
not covered by franchise partners.
09
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
STRATEGIC REPORT
OUR PEOPLE
NUMBER OF EMPLOYEES
ENGAGEMENT SCORE
GENDER PAY GAP (MEAN)
MARKS & START PLACEMENTS
81,000
82%
12.3%
3,600
M&S has a longstanding tradition of
employing excellent colleagues and
creating an engaging and motivating
working environment. Even today we retain
extraordinary operating talent in our stores
and many long-serving colleagues, with
great technical skills. However, behind the
indifferent financial performance of M&S
over the last two decades lies an inability
to change, borne out of a slow-moving
organisation and bureaucratic culture. This is
a consequence, in part, of the organisational
structure which has been built around very
strong functional silos, resulting in a loss
of accountability and a ‘staff’ led decision-
making process to which too many people
are involved, and there is not enough speed
and commerciality. This top-down silo
structure has been compounded by a very
strong sense of hierarchy which often
means that ideas and challenges do not
feed back to the leadership and the value
of our passionate store management talent
does not get exploited.
Our transformation therefore depends
on simplifying this old culture and putting
in place the fast-moving, participative
organisation which is close to stores and
the customer that our own colleagues want
to see. That is why we have already moved
towards our ‘family of businesses’ model
in which accountability is driven down to
strong business leaders and their teams.
At the centre we will retain a streamlined
top level team concentrating on strategy,
finance, the consumer branding, and the
‘digital’ customer communications that
bind the businesses together. At the same
time we are moving towards a more ‘hands
on’ participative style of trading. With the
help of Julian Richer, one of Britain’s top
entrepreneurs, we are launching a new
suggestion programme and revitalising
two-way colleague communication. In the
first week of the ‘Suggest to Steve’ project
over 1,000 colleague suggestions went to
the CEO and are all receiving responses
from Steve.
We relaunched our Your Say Survey which
has very high levels of response. Despite
the difficult trading conditions and store
closures, this produced an 82% engagement
score, up slightly from 80% last year. But
there was unsurprisingly strong feedback
about the need to improve ‘enablement’,
with a score of 78%, and increase the speed
of decision making and change.
As we reshape the business and drive
productivity we are managing considerable
change at store colleague level and within
our distribution network. Most notably:
– We streamlined our IT function and
transferred 165 roles to TCS, our
technology partner;
– We consulted with 311 colleagues
about store closures at six initial
closure stores in the financial year
resulting in five redundancies; and
– As we completed our exit from ten
owned international markets and moved
to our new franchise model we reduced
c.1,800 roles, almost all outside the UK.
To help manage these changes M&S
operates a unique employee participation
model through our Business Involvement
Group (BIG). BIG is a network of elected
colleagues who feed up to a National
committee that works directly with the
leadership team. The Chair of National
BIG personally attends the main Board
meetings twice a year, ensuring that
colleague involvement is at the centre of
the Board process. As we navigate difficult
and sometimes painful changes, BIG
provides a powerful format for consultation,
ensuring that we engage colleagues fully
on the process.
M&S always used to be a ‘University of Talent’
for the retail industry. As we make changes
it is important to attract new talent to fuel
the exciting programme of change at all
levels. We are therefore entering new
recruitment partnership arrangements,
including with MBS, the recruitment agency
and we are reinvesting in our industry
leading graduate programme, recruiting
136 graduates last year.
Although we retain a gender pay gap, it is
lower than many of our competitors at a
12.3% mean compared to an industry
average of 16.4%. Diversity and progressive
working practices are at the heart of our
belief system and we are moving all of the
central team to open-plan Smarter Working
offices, enabling working from home, and
have launched a new diversity forum using
our BAME, LGBT+ and other network groups.
SMARTER WORKING
EMPLOYEE DIVERSITY AS AT 31 MARCH 2018
Total employees
Female 58,119
Male 22,668
Total senior managers
Female 49
Male 67
Total Board
Female 2
Male 7
8 %
2
72
%
80,787
8 %
5
42%
116
8 %
7
22%
9
We continue to move forward with our
Smarter Working plans, where improved
use of space, technology and different
ways of working will create a more agile
and enabled workforce. The changes
enable our people to work more
collaboratively from any location –
whether in store or from the office or
home. In December, a poll showed 87%
of employees believe Smarter Working
will enable them to work more flexibly.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 10
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
OUR BUSINESS MODEL
“ The M&S Way”
A family of businesses joined by common brands, channels,
and customer insights and a shared set of beliefs in quality,
ethical sourcing and delivering value for money.
FOOD
A leading fresh food own-label
supermarket focusing
on quality food for now or
tomorrow for the family.
Read more on p6
FINANCIAL
SERVICES
Through M&S Bank (managed
by HSBC) we provide trusted
services, including current
and savings accounts, cards,
insurance, mortgages
and travel money.
PROPERTY
A £2.4bn property
portfolio managed to
maximise investment
value and development
opportunities arising from
the retail brands.*
CLOTHING
& HOME
Contemporary styles and
wardrobe essentials at affordable
prices for busy family and
“encore” customers.
Read more on p7
CUSTOMER
DATA
Insight and loyalty building
with 32 million customers.
CHANNEL
MANAGEMENT
Shared retail outlets and
online communications with
great service experience.
BRAND
Unique own-brand model
using strong technical and
development skills to create
trusted quality, value for
money products.
* (as at 31 March 2018 Net Book Value)
11
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
STRATEGIC REPORT
KEY PERFORMANCE
INDICATORS
FINANCIAL
GROUP REVENUE
GROUP PROFIT BEFORE TAX (PBT) & ADJUSTING ITEMS
£10.7bn
+0.7%
£580.9m -5.4%
14/15
15/16
16/17
17/18
10.3
10.4
10.6
10.7
14/15
15/16
16/17
17/18
661.2
684.1
613.8
580.9
Group revenues increased as a result of new Food store openings,
offset by a reduction in International revenues as we completed
the exit from ten loss-making markets.
Group PBT before adjusting items was down on last year, largely due
to the reduction in Food gross margin and the increase in operating
costs associated with new space, volume growth and channel shift.
RETURN ON CAPITAL EMPLOYED (ROCE)
ADJUSTED EARNINGS PER SHARE (EPS)
14.0%
14/15
15/16
16/17
17/18
14.7
15.0
13.7
14.0
27.8p
-8.6%
14/15
15/16
16/17
17/18
33.1
34.8
30.4
27.8
The increase in ROCE largely reflects the reduction in the carrying
value of property, plant and equipment.
Basic EPS before adjusting items decreased primarily due to
the lower adjusted profit generated in the year. The weighted
average number of shares in issue during the period was 1,624.0m
(last year 1,623.1m).
DIVIDEND PER SHARE
FREE CASH FLOW (PRE SHAREHOLDER RETURNS)
18.7p
Level
14/15
15/16
16/17
17/18
18.0
18.7
18.7
18.7
£417.5m -28.7%
14/15
15/16
16/17
17/18
524.2
539.3
585.4
417.5
The board is recommending a final dividend of 11.9p per share,
resulting in a total dividend of 18.7p.
We delivered free cashflow down 28.7% on last year, primarily due to
the cash outflows in respect of adjusting items and working capital.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
12
MARKS AND SPENCER GROUP PLC
KEY PERFORMANCE INDICATORS CONTINUED
STRATEGIC KPIs
FOOD
LIKE-FOR-LIKE SALES
VALUE FOR MONEY PERCEPTION
Like-for-like performance was down. While performance in
key events was strong, our everyday performance was poor,
with intense competition reflecting the progressive decline in
value competitiveness in core ranges.
-0.8%
-0.3%
16/17
17/18
-0.3%
There was a marginal improvement in customer feedback on the
value for money of M&S Food. As part of our transformation we
are re-establishing our value for money credentials.
+1%
AVAILABILITY
QUALITY PERCEPTION
A project team with outside help has been set up to address the
problems in our supply chain, including improving our availability.
Customer feedback on the quality of M&S Food continued
to improve in the year.
92.4% -0.3%
+3%
LIKE-FOR-LIKE SALES
VALUE FOR MONEY PERCEPTION
CLOTHING & HOME
Like-for-like performance was down, as we eliminated two
clearance sales.
-3.4%
-1.9%
16/17
17/18
-1.9%
CLOTHING & HOME SPACE
There was a slight improvement in customer feedback on the value
for money of M&S Clothing & Home. We have taken initial steps to
sharpen our value credentials in promotions and investment into
lower ‘first price.’
+2%
STYLE PERCEPTION
We are accelerating our UK store closure programme, which will result
in the reduction of around 25% of our 2016 Clothing & Home space.
Customer feedback on the style of M&S Clothing improved but we
have much more to do to restore our style credentials to broaden
our appeal to a younger family-age customer.
16/17
17/18
11.3m sq ft
11.1m sq ft -1.3%
+3%
13
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
STRATEGIC KPIs
STORES
We are accelerating our UK store closure programme, which will result in the
reduction of around 25% of our 2016 Clothing & Home space.
FOOTFALL
(AVERAGE PER WEEK)
TRANSACTIONS
(AVERAGE PER WEEK)
NET PROMOTER SCORE*
19.5m -0.3%
11.1m +0.3%
+5
ONLINE
We aim for a third of Clothing & Home sales to be online by 2022.
PERCENTAGE OF SALES ONLINE
TRAFFIC (VISITS PER WEEK)
NET PROMOTER SCORE*
18.5% +1.3%
8.3m +1.1%
+8
RETAINED MARKETS SALES
CUSTOMER SATISFACTION SCORES
INTERNATIONAL
+2.8%
16/17
17/18
£0.8bn
£0.9bn
Sales from the International business
including sales from owned business
and sales to franchisees. Excludes sales
from owned exit markets and Hong
Kong following transition to franchise.
At constant exchange rates.
71% +6%
Overall satisfaction score provided by
customers as part of the customer
satisfaction survey conducted across
the International business, including
both owned and franchise stores.
* Net promoter score (NPS) equals ‘fans’ (those scoring 9-10 out of 10) minus ‘critics’ (those scoring 0-6) on a 11-point scale question of 0-10.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
14
MARKS AND SPENCER GROUP PLC
PEOPLE & PLAN A
PEOPLE
ENGAGEMENT
EMPOWERMENT
ENABLEMENT
+2%
82%
82%
78%
Our annual Your Say Survey was completed
by over 70,000 colleagues, with engagement
scores slightly higher than last year at 82%.
We introduced two new measures to our annual Your Say Survey: whether our people feel they
are supported and trusted in their role (empowerment) and whether our colleagues have the
right tools and environment to do their job (enablement). Feedback showed colleagues wanted
us to increase the speed of decision making and change.
NON-DEMOGRAPHIC
GENDER PAY GAP
1.5%
We are firmly committed to closing our
non-demographic gender pay gap within M&S
in the UK; this is the gap adjusted for different
gender demographic by grade and the
impact of disproportionately high female
numbers in our retail operation.
DIVERSITY & INCLUSION
M&S SENIOR MANAGEMENT DIVERSITY
22%Female members of the Board
11%Members of the Board drawn
from ethnic minorities
By 2022, we aim to have 50% female representation and at least 15% BAME (Black, Asian and
Minority Ethnic) representation on the M&S senior management team. As of 31 March 2018,
22% of our Board and 42% of employees in senior management positions across our global
business were women and 11% of our Board was drawn from ethnic minorities.
PLAN A
PRODUCTS WITH A
PLAN A QUALITY
OPERATIONAL GREENHOUSE
GAS EMISSIONS (CO2e)
VOLUNTEERING HOURS
83% +4%
This is the proportion of M&S products sold
worldwide that have additional social or
environmental benefits built into their
specifications. This represents an
improvement of 4% on last year. Our target is
to have at least one Plan A quality in all M&S
products by 2020, and by 2025 every product
will have attributes which address all priority
social, ethical and environmental impacts.
430,000 -10%
30,500 +31%
The gross carbon dioxide emissions resulting
from M&S stores, offices, warehouses and
vehicles worldwide are down 10% on last year.
In addition, we purchase renewable energy
and carbon offsets to match these emissions,
making us the only major carbon neutral
retailer in the world.
In 2017/18, we provided at least 30,500 hours
of work-time volunteering, including our
Making Every Moment Special in the
Community event, which was run across
the UK and Republic of Ireland in June 2017.
Between 2017 and 2025, we are committed
to supporting M&S colleagues worldwide
to provide one million hours of work-time
community volunteering.
15
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
STRATEGIC REPORT
FINANCIAL REVIEW
FULL YEAR REVIEW
Group revenue
Food
Clothing & Home
UK
International
Group operating profit
before adjusting items
UK
International
Net finance costs
Profit before tax &
adjusting items
Adjusting items
Profit before tax
52 weeks ended
31 Mar 18
£m
1 Apr 17
£m
Change
%
10,698.2
5,869.9
3,741.1
9,611.0
1,087.2
10,622.0
5,649.0
3,792.7
9,441.7
1,180.3
670.6
535.4
135.2
(89.7)
580.9
(514.1)
66.8
690.6
626.2
64.4
(76.8)
613.8
(437.4)
176.4
0.7
3.9
-1.4
1.8
-7.9
-2.9
-14.5
109.9
16.8
-5.4
17.5
62.1
CONSUMER AND RETAIL ENVIRONMENT
In 2017/18, consumer confidence remained broadly stable according
to data from GFK. However, there continued to be a divergence
between consumers’ views on their personal financial situation
which remained strong and their views on the economy as a whole,
which were more fragile. Against this backdrop the clothing market
declined 1.5% (Kantar Worldpanel, 52 w/e 9 April 2018), with a more
challenging trend in the second half of the year. The grocery market
returned to growth of 4% (Kantar Worldpanel, 52 w/e 25 March 2018),
although this was largely driven by inflation.
UK: CLOTHING & HOME
Clothing & Home revenue declined 1.4% with like-for-like revenue
down 1.9%, as we removed two clearance sales. Full-price sales
were broadly level. Revenue declined in the second half in a
more challenging market with unseasonal weather conditions.
We delivered solid growth in strategic focus areas such as Kidswear,
bras and footwear.
Gross margin was in line with expectations, up 50bps year-on-year.
We offset significant currency headwinds by working with our
supply base and through our direct sourcing programme. We put
c.8% less stock into sale across the year as a result of the planned
removal of two clearance sales. However, challenging trading
conditions in the second half resulted in an increased depth of cut.
M&S.com revenues increased by 5.2% at constant currency.
Performance was adversely impacted by the reduction in the
number of clearance sales and capacity remained constrained at
our Castle Donington warehouse in quarter three.
In the year ahead, we are building on early improvements in
Clothing & Home by further focusing our ranges and building
our style credentials, our offer in wardrobe essentials and our
appeal to family-age customers. We are also investing selectively
in value as we buy fewer items in greater depth.
In this first phase we are undertaking enabling actions including
fixing core elements of our website, improving our delivery
proposition and investing to increase the capacity of Castle
Donington at peak periods.
We have accelerated the reshaping of our store portfolio to address
the decline of the legacy estate and move to a more cohesive,
modern space and layout, resulting in a charge to adjusting items
of £321.1m. We anticipate further charges of up to £150m as we
complete this programme. We continue to expect cash costs of
the programme to be c.£200m. We have been encouraged by
the proportion of sales transferred to nearby stores from those
which have closed.
UK: FOOD
Food revenue increased 3.9% as we opened 62 new Simply Food
stores; however, like-for-like revenue was down 0.3%. While
performance in key events was strong, our everyday performance
was poor, with intense competition and reflecting a progressive
decline in competitiveness in the core ranges. Market share was
level year-on-year. (Kantar Worldpanel, 52 w/e 25 March 2018).
The decline in gross margin of 140bps year-on-year was more
than we expected. During the second half we continued to absorb
input cost inflation.
In the year ahead, our focus is on repositioning the business
to be more relevant, more often to our customers, to drive
sustainable sales growth. We are changing our approach to
product development to ensure we shift back to our strength in
key shopping missions, with new lines which have a broad appeal
to family-age customers and everyday occasions.
Our repositioning will require renewed investment in trusted value.
We believe however that this will be offset by cost reduction, volume
optimisation opportunities, removing excessive packaging costs,
and tackling issues which impact availability and waste.
As indicated at the half year we have reviewed our Simply Food
opening programme to limit future store expansion to only the
highest returning locations. In addition, our accelerated UK store
estate closure programme will result in a further reduction in the
number of Full Line stores.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 16
MARKS AND SPENCER GROUP PLC
FINANCIAL REVIEW CONTINUED
Reported International revenue decreased 7.9%. This was driven
by the exit from loss-making owned markets and the sale of our
operations in Hong Kong to our franchise partner.
Excluding these effects, revenue at constant currency was up
2.8%. We generated strong growth in franchise revenue, with an
improved performance in the Middle East, Russia and Turkey and
from expansion of our Food business. Revenue in owned retained
markets was down 1.1% with a strong performance in India where
we opened seven new stores, offset by difficult trading in the
Republic of Ireland.
International operating profit before adjusting items more than
doubled. We completed the planned exit of loss-making markets
and generated improved margins in owned retained markets,
largely driven by transactional currency gains.
NET FINANCE COST
Interest payable
Interest income
Net interest payable
Pension net finance income
Unwind of discount on Scottish
Limited Partnership liability
Unwind of discount on
provisions
Hedge ineffectiveness on
financial instruments
Net finance cost
52 weeks ended
31 Mar 18
£m
(95.4)
6.0
(89.4)
17.7
1 Apr 17
£m
(100.2)
6.6
(93.6)
29.3
Change
£m
4.8
(0.6)
4.2
(11.6)
(10.9)
(12.6)
1.7
(5.2)
(0.2)
(5.0)
(1.9)
(89.7)
0.3
(76.8)
(2.2)
(12.9)
Net finance cost increased by £12.9m to £89.7m, largely due to
reduced pension net finance income as a result of the lower UK
defined benefit scheme surplus at the start of the year and the
unwind of discount on property provisions. Net interest payable
reduced by £4.2m primarily due to the repayment of the
US$500m bond which matured in December 2017.
UK OPERATING COSTS
Store staffing
Other store costs
Distribution & warehousing
Marketing
Central costs
Total
52 weeks ended
31 Mar 18
£m
1 Apr 17
£m
Change
%
1,070.6
992.1
538.0
151.6
698.0
3,450.3
1,010.3
1,000.7
519.6
162.7
697.1
3,390.4
6.0
-0.9
3.5
-6.8
0.1
1.8
UK operating cost growth was 1.8%, which was below expectations.
Costs associated with new space and volume drove a c.2%
increase overall. Wage and other inflation-related increases and
investment in store staffing were largely offset by marketing and
retail efficiencies.
Other store costs reduced. Favourable rates settlements, lower
depreciation and reduced charges for utilities helped to offset the
costs of new space.
The growth in distribution and warehousing costs was largely
driven by inflation, volume and the costs of channel shift.
In Clothing & Home we delivered improved costs per single as
we increased utilisation of our Bradford warehouse.
Central costs increased in a number of areas including IT and the
introduction of the Government’s apprentice levy. However, these
were offset by reduced costs following the head office restructuring
and lower incentive costs year-on-year.
M&S BANK
M&S Bank income before adjusting items was down £9.9m to
£40.3m. This was a result of changes to the assumed effective
interest rate in both years and the implementation of IFRS 9, which
resulted in higher bad debt provisioning. There was also a modest
reduction in underlying interest-bearing balances.
INTERNATIONAL
Franchise
Owned Retained1
Total Retained
Owned Exit1
Total
Operating profit
before adjusting
items
Franchise
Owned Retained1
Total Retained
Owned Exit1
Total
52 weeks ended
31 Mar 18
£m
1 Apr 17
£m
Change
%
Change
CC %
Change
CC % excl.
Hong Kong
360.6
660.2
1,020.8
66.4
314.0
674.0
988.0
192.3
1,087.2 1,180.3
14.8
-2.0
3.3
-65.5
-7.9
13.3
-4.8
0.9
-66.7
-10.2
9.3
-1.1
2.8
-66.7
-10.4
86.1
53.1
139.2
(4.0)
135.2
81.9
16.8
98.7
(34.3)
5.1
216.1
41.0
88.3
64.4
109.9
1. Last year restated for closure of our online business in China. Hong Kong results reported
in owned retained until the business was sold to our franchise partner.
17
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
GROUP PROFIT BEFORE TAX AND ADJUSTING ITEMS
Group profit before tax and adjusting items was £580.9m, down
5.4% on last year. The decrease was due to the reduction in UK gross
profit and the increase in operating costs in the year.
On 30 December 2017, we completed the disposal of the retail
business in Hong Kong and Macau to the Al-Futtaim Group resulting
in a net profit on disposal of £5.8m. We also incurred charges for
potential liabilities for certain employee-related matters.
ADJUSTMENTS TO PROFIT BEFORE TAX
The Group makes certain adjustments to statutory profit measures
in order to derive alternative performance measures that
provide stakeholders with additional helpful information on the
performance of the business. For further detail on adjusting items
and the Group’s policy for adjusting items please see Note 5 and
Note 1 to the financial statements respectively.
TAXATION
The effective tax rate on profit before tax and adjusting items
was 21.6% (last year 19.9%). This is higher than the UK statutory rate
of 19.0% (last year 20.6%) due to the recapture of previous tax relief
under the Marks and Spencer Scottish Limited Partnership (“SLP”)
structure. The effective tax rate on statutory profit before tax was
56.4% (last year 34.4%) due to the impact of the SLP structure and
disallowable adjustments items.
52 weeks ended
31 Mar 18
£m
1 Apr 17
£m
Change
£m
TOTAL TAX CONTRIBUTION
Strategic programmes
– UK store estate
– UK organisation
– IT restructure
– UK logistics
– Changes to pay and pensions
– International store closures
and impairments
UK store impairments,
asset write-offs and onerous
lease charges
M&S Bank charges incurred in
relation to the insurance
mis-selling provision
Other
Adjusting items
(321.1)
(30.7)
(15.5)
(13.1)
(12.9)
(51.6)
(24.0)
–
9.8
(156.0)
(269.5)
(6.7)
(15.5)
(22.9)
143.1
(5.0)
(132.5)
127.5
(63.4)
(48.8)
(14.6)
(34.7)
(17.7)
(514.1)
(44.1)
9.8
(437.4)
9.4
(27.5)
(76.7)
We have recognised a number of charges in the period relating
to the implementation of our strategic programmes:
– A charge of £321.1m in relation to the impairment of assets,
accelerated depreciation and estimated onerous lease and
closure costs relating to our UK store estate programme;
– A charge of £30.7m primarily relating to the consolidation of
our central London Head Office buildings;
– A charge of £15.5m in relation to our technology transformation
programme reflecting costs associated with the simplification
and consolidation of our technology supplier base;
– A net charge of £13.1m as we continue to transition to a single
tier Clothing & Home UK distribution network;
– A charge of £12.9m for the first year of transitional payments
to employees impacted by the closure of the UK defined benefit
scheme to future accrual; and
– A charge of £5.0m relating to the International exit programme.
UK store impairments, asset write-offs and onerous lease charges:
since the announcement of the new UK store estate strategy,
the Group conducted a review of the £4.8bn net book value of
the property, plant and equipment on its balance sheet as at
1 April 2017. A one-off non-cash adjustment to depreciation of
leasehold buildings assets was made of £45.8m. Additionally,
we recognised charges in relation to UK store impairments and
other asset disposals.
We continue to incur charges in relation to M&S Bank insurance
mis-selling provision resulting in a reduction in income of
£34.7m during the year.
£921m
Corporation tax 9%
Customs duties 6%
Employer’s NI 9%
Employees’ NI 7%
Other taxes 1%
Business rates 20%
Excise duties 16%
VAT 19%
PAYE 13%
In 2018 our total cash tax contribution to the UK Exchequer was
£921m (2017: £881m), split between taxes ultimately borne by the
Company of £421m (2017: £423m) (i.e. corporation tax, customs
duties, employer’s NIC, business rates and sundry taxes) and taxes
attributable to the Company’s economic activity and which are
collected on behalf of the Government of £500m (2017: £458m)
(i.e. PAYE, employees’ NIC, value added tax, excise duties and
sundry taxes).
EARNINGS PER SHARE
Basic earnings per share decreased by 77.8% to 1.6p, as a result
of the lower adjusted operating profit and the increase in adjusting
items due to the Group’s strategic transformation programmes and
the increase in effective tax rate. The weighted average number of
shares in issue during the period was 1,624.0m (last year 1,623.1m).
Basic earnings per share before adjusting items decreased by
8.6% to 27.8p due to the lower adjusted profit generated in the year.
CAPITAL EXPENDITURE
UK store environment
New UK stores
International
Supply chain
IT & M&S.com
Property maintenance
Capital expenditure
before disposals
Proceeds from
property disposals
Capital expenditure
52 weeks ended
31 Mar 18
£m
1 Apr 17
£m
Change
£m
26.6
72.1
11.6
23.8
91.9
72.9
22.6
75.0
13.4
34.0
122.9
90.3
4.0
(2.9)
(1.8)
(10.2)
(31.0)
(17.4)
298.9
358.2
(59.3)
(3.2)
295.7
(27.0)
331.2
23.8
(35.5)
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 18
MARKS AND SPENCER GROUP PLC
FINANCIAL REVIEW CONTINUED
Group capital expenditure remains well controlled resulting in a
further 17% reduction year-on-year, before disposal proceeds.
UK store environment spend reflects the rebalancing of in-store
layouts towards strategic growth priorities such as Kidswear and
the rebranding of a number of Foodhalls.
Spend on UK store space was slightly down. Whilst we opened
40 new owned stores compared with 35 last year, the reduction
reflects a freehold purchase in the prior year and slightly higher
landlord contributions.
Supply chain expenditure reduced, reflecting the completion
of larger projects such as the Bradford distribution centre in the
prior year. During the second half we began investment in the
new Welham Green distribution centre as we move towards
completing our single tier network for Clothing & Home.
The decline in IT and M&S.com expenditure reflects the ongoing
move towards more cloud-based software solutions and the
investment in handheld devices and store technology in Retail
in the prior year. We are also investing to migrate from our
mainframe system.
Lower property disposal proceeds reflect the receipt of the
final instalment from the sale of the White City warehouse
received in the prior year.
CASHFLOW & NET DEBT
52 weeks ended
Adjusted operating profit
Depreciation and amortisation
before adjusting items
Working capital
Defined benefit scheme
pension funding
Capex and disposals
Interest and taxation
Non-cash share based
payment charges
Share transactions
Free cash flow before
adjusting items
Adjusting items cash outflow
Free cash flow
Ordinary dividends paid
Special dividend
Free cash flow after
shareholder returns
Opening net debt
Exchange and other
non-cash movements
Closing net debt
31 Mar 18
£m
670.6
580.6
(96.8)
(41.4)
(346.0)
(200.5)
18.9
(3.0)
582.4
(164.9)
417.5
(303.4)
–
1 Apr 17
£m
690.6
589.5
(7.5)
(36.6)
(383.2)
(202.6)
10.6
5.5
666.3
(80.9)
585.4
(303.0)
(74.5)
114.1
(1,934.7)
207.9
(2,138.3)
Change
£m
(20.0)
(10.1)
(89.3)
(4.8)
37.2
2.1
8.3
(8.5)
(83.9)
(84.0)
(167.9)
(0.4)
74.5
(93.8)
203.6
(6.9)
(1,827.5)
(4.3)
(2.6)
(1,934.7)
107.2
The business generated free cash flow before adjusting items of
£582.4m, down £83.9m on last year primarily as a result of lower
adjusted operating profit and a higher cash outflow on working
capital partially offset by lower capex. The working capital outflow is
driven by the impact of International market exits, a lower incentive
accrual year-on-year and higher Clothing & Home stock at year end.
Defined benefit scheme pension funding in the year reflects the
£36.4m second limited partnership interest distribution to the
pension scheme in the current year as well as the final contribution
for the defined benefit scheme paid after the prior year end.
Adjusting items in cashflow during the year include amounts
relating to the closure of stores in international markets of £85.7m,
the transition payments in respect of pensions and pay premia of
£36.7m and M&S Bank of £34.7m. These were partially offset by the
cash inflow associated with the disposal of the Hong Kong retail
business of £22.9m.
Despite the significant cash outflows associated with our strategic
programmes, net debt was down £107.2m on last year.
DIVIDEND
We have announced a final dividend of 11.9p (full year dividend
18.7p, level year-on-year). This will be paid on 13 July 2018 to
shareholders on the register of members as at close of business
on 1 June 2018, subject to approval by shareholders at the Annual
General Meeting, to be held on 10 July 2018.
PENSION
At 31 March 2018, the IAS 19 net retirement benefit surplus was
£948.2m (last full year £692.8m). The increase in the surplus is
largely due to an increase in the discount rate and a change in
mortality assumptions.
In March 2018, the UK defined benefit pension scheme entered
into pensioner buy-in policies with two insurers for £1.4bn which
reduced its longevity exposure to around one third of the
pensioner cash flow liabilities.
The Strategic Report, including pages 19-24, was approved by a duly
authorised Committee of the Board of Directors on 22 May 2018,
and signed on its behalf by
STEVE ROWE CHIEF EXECUTIVE
22 May 2018
19
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
STRATEGIC REPORT
NON-FINANCIAL
INFORMATION
Creating shared social and environmental
value continues to be an important part
of our transformation strategy and is
underpinned by 100 non-financial
commitments contained in our Plan A
2025 programme. The social, ethical and
environmental content contained in this
report complements more detailed
information available in our 2018 Plan A
Report which can be found online via
marksandspencer.com/plana
IMPACT
Approach We employ 81,000 colleagues
directly and are supported by hundreds of
thousands more in our franchised
operations and supply chain in the UK and
across the globe. And we sell over 3 billion
food, clothing, home and beauty products
to 32 million customers each year at our
1,463 stores worldwide and online. Many
different social, environmental and ethical
issues have an impact on our business,
either directly or through our global supply
chain. Consequently, we have to manage a
continually evolving set of issues and have a
number of commitments and policies in
place to address these challenges.
To read any of the policies listed on this
page visit marksandspencer.com/
thecompany
ENVIRONMENT
Approach We aim to offer our customers
great value, quality products while also
caring for the environment on which we all
depend. As part of Plan A 2025, we aim to
ensure 100% of the M&S products we sell
each year address 100% of their material
social and environmental impacts.
We will further improve the efficiency of our
own operations as well as cut 13.3m tonnes
of CO2e from our wider value chain. We will
continue to invest in carbon offsets for our
own operations in order to remain carbon
neutral. And we aim to be zero waste across
all that we do – our operations, our supply
chains and when our customers come to
remove packaging and use our products.
Plan A Report 2018
Plan A 2025 Commitments
SOCIAL MATTERS
Approach M&S has a long tradition of our
stores, offices and warehouses supporting
their local community. We believe we can
achieve more together than we can on
our own. As part of Plan A 2025, we are
committed to transforming 1,000
communities that we serve. We know
supporting vibrant communities is essential
to our own future success .
We are also committed to helping 10 million
people live happier and healthier lives.
We have a particular focus on addressing
issues of mental wellbeing and will work
hard to ensure support for colleagues and
customers with cancer, heart disease,
dementia and mental health issues.
also a signatory to the principles of the
United Nations Global Compact. We strive
to be a fair partner by paying a fair price to
suppliers, supporting local communities
and ensuring good working conditions
for everyone working in our business and
supply chains. We are committed to building
our employee and supplier knowledge and
awareness on human rights, encouraging
them to speak up about any concerns
without fear of retribution.
Human Rights Policy
Code of Ethics and Behaviours
M&S Global Sourcing Principles
M&S People Principles
Responsible Marketing Principles
Plan A Report 2018
Code of Practice on Ethical Trading
Plan A 2025 Commitments
Child Labour Procedure
PEOPLE
Approach We are committed to making
M&S a great place to work, with a safe
working environment and a culture
which promotes diversity, inclusivity,
personal development and respect.
We know it’s our people who make M&S
successful. Their talent, commitment to
our customers and pride in M&S are key
to our long-term growth.
Gender Pay Gap Report 2018
People Principles
Equal Opportunities Policy
Read more on Our People on p9
Read more on Board Diversity Policy
on p35
HUMAN RIGHTS
Approach M&S has a long history of
respecting human rights in the UK and
standing up for those values internationally.
Our commitment to human rights is
reinforced in our Human Rights Policy
and Code of Ethics and Behaviours and,
for all suppliers and business partners,
in our Global Sourcing Principles. We are
M&S grievance procedure for Food
and Clothing & Home supply chains
Modern Slavery Statement 2018
Plan A Report 2018
ANTI-CORRUPTION AND ANTI-BRIBERY
Approach M&S is committed to the
highest standards of ethics, honesty
and integrity. Our Anti-Corruption and
Anti-Bribery Policy outlines the expected
standards of conduct that employees,
contractors, suppliers, business partners,
and any other third parties who act for and
on behalf of M&S, are obliged to follow.
The policy also includes detailed
procedures around giving and receiving
gifts, hospitality and entertainment;
procedures for engaging new suppliers
and partners, specifically those who are
based in higher risk jurisdictions and
standard contract clauses; and clear
reporting channels, including confidential
reporting. For colleagues who work in
areas which may pose a higher risk we
provide mandatory Anti-Bribery and
Anti-Corruption e-learning.
Anti-Bribery Policy
Code of Ethics and Behaviours
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 20
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
RISK MANAGEMENT
As with any business,
we face risks and
uncertainties on a
daily basis. Effective
risk management is
essential to support
the achievement of
our strategic and
operational objectives.
See our Principal Risks on p22-24
APPROACH TO RISK MANAGEMENT
The Board is accountable for identifying
the principal risks facing the Company,
including those impacting its business
performance, customers, people,
values, operations and ongoing viability.
On behalf of the Board, the Audit
Committee reviews the effectiveness
of the risk management process, which
is illustrated in the diagram below.
Each business area is responsible for
formally identifying and assessing its risks
half-yearly, measuring them against a
defined set of criteria, and considering the
likelihood of occurrence and potential
impact to the Group. The Group Risk
function facilitates a similar exercise with
members of the Operating Committee,
before combining these perspectives to
create a consolidated view. In compiling
this risk profile, consideration is given to
risks that are external to our business,
core to our day-to-day operations,
shaped by business change, or any other
that may impact achievement of our
strategy. Current issues and areas
of change emerging outside the
half-yearly review are also monitored.
To ensure the most significant risks are
managed effectively, we have enhanced
our key risk analysis and reporting during
the year. The changes provide more
transparent insight into how these risks
are being managed and to what extent
performance is being impacted.
These improvements also drive clear
accountability and ownership for risk at
the most senior levels and improved
monitoring at the Operating Committee.
The principal risks identified by this process
form our Group Risk Profile, which is agreed
by the Operating Committee ahead of
approval by the Board. In addition to this
formal review, significant areas of risk are
subject to regular oversight and challenge
by the Operating Committee and, where
appropriate, by the Board and Audit
Committee, during the course of the year.
The directors’ assessment of the long-term
viability of the Company is also reviewed
annually, mindful of the principal risks faced.
Further detail on our approach to assessing
long-term viability can be found on page 21.
OUR APPROACH TO RISK MANAGEMENT
BUSINESS AREA RISK REGISTERS
– Updated by the business.
– Content owned by business area leadership.
KEY RISKS: DETAILED ANALYSIS
– Deep dive analysis of all risks included on Group Risk Profile.
– Content owned by individual Operating Committee members.
GROUP RISK PROFILE
– Group level summary including likelihood/impact.
– Internally monitored by Operating Committee.
– Process and output reviewed by Audit Committee.
PRINCIPAL RISKS
Externally disclosed in the Annual Report
approved by the Board.
I
N
T
E
R
N
A
L
R
E
P
O
R
T
I
N
G
BUSINESS UNIT/
FUNCTION OWNED
RISK REGISTERS
DETAIL OF RISKS,
MITIGATION & KPIs
KEY RISK ALLOCATED
TO OPERATING
COMMITTEE MEMBERS
EXTERNAL
DISCLOSURE
21
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
HOW OUR RISKS AFFECT ONE ANOTHER
We recognise that there is significant interdependency between our key risks. This diagram illustrates how changes to one risk might
impact those connected to it. By understanding this relationship, we are better placed to ensure we are managing them appropriately
and to understand our broader risk exposure. This is especially important when assessing the Company’s long-term viability.
Our business continues to operate in a
trading environment that is unpredictable
and highly competitive.
As part of our improvement programme, we invest
in technology to respond to changes in customer
preferences and behaviour, and drive operational
effectiveness. Meanwhile, improving our brand
and customer experience ensures we become
more relevant, more often, to our target customers.
While our business transformation, such as
reshaping our store estate, ensures we create
an environment that is relevant for today.
The strength of our brand is based, in part, on the way
we run our Company. Customers have high expectations
of us in terms of how we manage information security,
food safety and integrity, and corporate compliance
and responsibility risks.
TRADING
ENVIRONMENT
Read more
on p23
TECHNOLOGY
Read more
on p24
BUSINESS
TRANSFORMATION
Read more
on p23
CORPORATE
COMPLIANCE &
RESPONSIBILITY
Read more
on p23
BRAND &
CUSTOMER
EXPERIENCE
Read more
on p24
INFORMATION
SECURITY
Read more
on p24
FOOD SAFETY
& INTEGRITY
Read more
on p23
Operational execution is dependent on attracting, retaining and rewarding the right people –
and effectively working with our third-party suppliers and partners.
OUR APPROACH TO ASSESSING LONG-TERM VIABILITY
The UK Corporate Governance Code
requires us to issue a ‘viability statement’
declaring whether we believe the Company
is able to continue to operate and meet its
liabilities, taking into account its current
position and principal risks. The overriding
aim is to encourage directors to focus
on the longer term and be more actively
involved in risk management and
internal controls.
The Board is required to assess the
Company’s viability over a period greater
than 12 months. The increased levels of
uncertainty within the global economic
and political environment and the macro-
economic challenges being experienced
within the retail sector, mean the Board
continues to believe a three-year period
is appropriate for business planning,
measuring performance and remunerating
at a senior level. Our assessment of
viability therefore continues to align
with this three-year outlook.
The process adopted to assess the viability
of the Company involves collaborative
input from a number of functions across the
business to model severe but plausible
scenarios in which a number of the Group’s
principal risks and uncertainties materialise
within the period of the three-year plan.
We have modelled scenarios which group
together principal risks where we believe
interdependencies exist between the risks,
in addition to scenarios where unconnected
risks occur simultaneously. These scenarios
focused on both external factors, such as
Brexit and lower than expected market
growth, and internal factors, such as
strategic programmes delivering lower
than expected benefits. The scenario with
the most significant adverse impact was
reviewed against the current and projected
liquidity position to conclude on the
Company’s viability. The assessment
also took account of additional potential
mitigations available in the event of further
downside factors, including a reduction in
capital expenditure and reduced returns to
shareholders. The Audit Committee reviews
the output of the viability assessment in
advance of final evaluation by the Board.
In assessing viability the Board considered
a number of key factors, including our
business model (see page 10), our strategy
(see pages 4-5), risk appetite (see page 22)
and our principal risks and uncertainties
(see pages 22-24). These have been reviewed
in the context of our financial plans,
specifically the Annual Budget and
Three-Year Plan.
The directors also satisfied themselves that
they have the evidence necessary to
support the statement in terms of the
effectiveness of the internal control
environment in place to mitigate risk.
In making the statement, the directors
have applied the following assumptions
in preparing the scenarios:
– Bonds maturing during the assessment
period will be repaid through our existing
bank facilities.
– The actions included in our plan to grow
sales are not fully realised or are offset
by lower than expected market growth.
– The actions included in our plans to
mitigate input cost increases that we
expect are not delivered in full or the
input cost increases are greater than
expected.
– The UK government’s notification of its
intention to exit the European Union will
have adverse financial impacts, including
input cost inflation from increased tariffs
and a weakening in sterling, as well as
reduced UK consumer spending.
The Board’s assessment is that M&S is a
viable business. The Viability Statement
can be found on page 67.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
22
MARKS AND SPENCER GROUP PLC
RISK MANAGEMENT CONTINUED
PRINCIPAL RISKS &
UNCERTAINTIES
Our Group Risk Profile
evolves as circumstances
and priorities change.
This year we have
aggregated risks that
share common causes,
impacts or mitigation.
RISK APPETITE
The details of our principal risks and
uncertainties and the key mitigating
activities can be found on pages 23 and 24.
We disclose those we believe are likely to
have the greatest impact on our business
at this moment in time. Our risk profile
continues to evolve as we transform our
business and, while our principal risks and
uncertainties remain broadly consistent,
we have refined our disclosure to ensure
they remain relevant and reflect the
changing landscape. The diagram below
shows how our disclosure has evolved
since the prior year.
The Company is exposed to a wide range
of risks in addition to those listed. These are
monitored for any increase in likelihood
or impact and to ensure that appropriate
mitigations are in place. We also continue
to monitor current issues as they develop to
ensure they are being effectively managed.
While our capacity to influence external
risks is often limited, we recognise the
importance of operating a business model
that has the potential to flex and adapt
to a changing environment. For example,
the consequences of the UK’s decision
to leave the European Union is expected
to impact our business in a variety of
ways. While this impact is not yet fully
understood or quantifiable, we have
considered Brexit within each Group-
level risk where it is expected to have an
influence. We acknowledge the need to
be proactive, taking action as implications
are better understood and we therefore
monitor the Brexit risk profile of our
business at both a Group and business
area level.
EVOLUTION OF PRINCIPAL RISKS & UNCERTAINTIES
2016/17
2017/18
Clothing & Home recovery
Profitable growth
Margin
UK store estate
Food safety & integrity
Corporate responsibility
Trading environment
Business transformation
Food safety & integrity
Corporate compliance & responsibility
Information security (including cyber)
Information security (including cyber)
Technology
Talent & succession
Brand
Customer proposition & experience
Technology
Talent & capability
Brand and customer experience
Third party management
Third party management
Risk key
Consolidation of risks
Change in scope
No / Limited change year-on-year
23
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
RISK
DESCRIPTION & CONTEXT
MITIGATING ACTIVITIES
PRINCIPAL RISKS & UNCERTAINTIES
1
S
2
S
TRADING ENVIRONMENT
The performance of our business will be impacted if we fail to meet customer
expectations or respond to the continued pressures of a changing retail
environment. Aggressive competition, cost pressures and the consumer impact
of the UK’s departure from the European Union all contribute to the challenge that
is faced.
Our Clothing & Home business must respond to the continued shift in customer
preferences towards online and mobile shopping. Consequently, our strategy is
focused on the creation of a seamless, relevant customer experience and the need
to be ‘Digital First’. We must also continue to strengthen capability across all areas of
our Clothing & Home business to ensure we deliver contemporary, wearable style
and wardrobe essentials that our customers want.
Food consumers continue to be driven by value and we need to ensure our product
ranges resonate and are available at the right price. While we have limited influence
over a number of contributory factors, for example raw material prices and the
impact of Brexit, we recognise the need to manage costs, driving efficiencies and
delivering savings in areas such as packaging and waste.
This new risk is a consolidation of a number of risks, which were disclosed separately
in the prior year, to better reflect the increasingly challenging conditions facing
our business.
– Development of, and delivery against, the five-year transformation plan.
– Targeted recruitment to strengthen capabilities of our senior
leadership teams in both Clothing & Home and Food.
– Full strategic reviews and setting of clear short- and medium-term
priorities for our businesses.
– Delivery of our International strategy.
– Refining our operating model to eliminate silos and create devolved,
accountable businesses.
– Revised disciplines around store prices, ranges and promotions across
our business.
– Implementation of our Digital First initiatives.
– Improved alignment of business needs and engagement with the
UK store estate team, and changes to our Property leadership.
– Completion of a forensic review of costs and commencement of
our cost delivery plan.
BUSINESS TRANSFORMATION
As we build a platform for change, the successful delivery of our business
transformation programme is critical – a failure to execute faultlessly and
at pace will hinder progression. Our business is undertaking a number of
transformation projects; many of these are significant in their own right but the level
of interdependency also requires careful alignment. Transforming our business will
generate cost savings but also underpins the delivery of our strategic objectives.
– The reshaping of our UK store estate continues at an accelerated pace.
We need to ensure that the programme delivers against agreed targets and
that we incorporate changes in customer preferences into decision making
on a timely basis.
– We must deliver on our Digital First ambitions – improving customer experience,
reducing costs and working smarter across the business.
– Our supply chain must be fit for purpose. It is currently slow, outdated and
expensive, and must be improved.
This new risk is an expansion of the prior year’s specific risk around our store estate
programme and now incorporates a far broader range of transformational projects.
– Acceleration of our plan to operate from fewer, larger Clothing &
Home stores.
– Reassessment of the Simply Food store opening programme.
– Implementation of a Technology Transformation Programme,
leveraging the support of key third-party relationships.
– Improvements to our website.
– Commencement of an end-to-end review of our supply chain and
logistics network across both businesses to deliver improved
efficiency of picking, improved trade utilisation and a faster, more
reliable service for stores and customers.
– Operational improvements at Castle Donington.
– Strong programme governance to track progress against plan,
resourcing and capability and to monitor critical interdependencies.
– High levels of cross functional engagement to ensure consistency
and collaboration in setting and achieving objectives.
– Independent audit reviews of key programme delivery.
3 FOOD SAFETY & INTEGRITY
A food safety or integrity related incident occurs or is not effectively
managed. Food safety and integrity remains vital for our business. We need to
manage the potential risk to customer health and confidence that faces all food
retailers, while also considering how external pressures facing the food industry
could influence the integrity of our food, our reputation and shareholder value.
Many of these pressures, including inflationary costs, labour quality and availability,
increased regulatory scrutiny and the as yet unknown impact of Brexit are outside
of our control.
We also recognise the criticality of internal influences including the level of
change underway in our Food business and the significant levels of new
product development.
This all places greater demand on the technical team and suppliers to complete
required raw material testing and product safety checks to guarantee provenance,
safety and integrity.
4 CORPORATE COMPLIANCE & RESPONSIBILITY
Failure to deliver against our regulatory obligations, social commitments or
stakeholder expectations undermines our reputation as a responsible retailer.
Responsible corporate behaviour is a basic expectation of all businesses, especially
those that are consumer facing. Public sentiment can shift rapidly, especially as the
traditional influencers of public perception evolve and issues can escalate rapidly
through social media.
There are also many examples of where ‘good’ corporate behaviour has, over time,
become a legal or regulatory requirement. Human Rights, Modern Slavery,
Anti-Bribery and Data Protection are just a few examples impacting our business.
The mandatory nature of an increasingly broad and stringent legal and regulatory
framework creates pressure on both business performance and market reaction.
While our business operates appropriate controls, we recognise that potential non-
compliance is a risk for all businesses and that there can be no room for complacency.
Given the high level of trust we have with customers and stakeholders, coupled
with our high media profile, we must get this right.
– Clearly defined requirements through Terms of Trade, Codes of
Practice, Standard Operating Procedures and Specifications from
farm to fork, including in-store processes.
– Qualified and capable technical team. Professional status maintained
through training and Technologist Continual Professional
Development programme (independently validated by Institute
of Food Science and Technology).
– Clear accountabilities for policy and standard development at
technical leadership level coupled with individual accountability
for product safety at technologist level.
– Long established store, supplier and depot auditing programme in
place, including unannounced audits and raw material testing.
– Quarterly review of control framework by the technical leadership.
– Clear and tested crisis management plan in place to respond
to incidents.
– Sector-leading initiatives, such as over the provenance of our beef.
– Membership of Food Industry Intelligence Forum.
– Clear policies and procedures in place, including Human Rights,
Modern Slavery and Global Sourcing Principles.
– Mandatory induction briefings and annual training for relevant
colleagues for key regulations.
– Oversight from established committees where necessary, including
Data Protection, Fire Health & Safety and Plan A.
– Experienced in-house regulatory legal team with external expertise
sought as needed.
– Dedicated regulatory officers in place across the business responsible
for driving compliance.
– Strong and transparent engagement with regulators.
– Forward looking Plan A 2025 commitments with associated
governance to anticipate future environmental and social issues.
– Established audit and monitoring systems in place.
– Customer contact centre insight and analysis of live social media issues.
Risk key
Consolidation of risks
Change in scope
No / Limited change year-on-year
S Link to strategy
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 24
MARKS AND SPENCER GROUP PLC
RISK
DESCRIPTION & CONTEXT
MITIGATING ACTIVITIES
PRINCIPAL RISKS & UNCERTAINTIES CONTINUED
6
S
7
S
5 INFORMATION SECURITY (INCLUDING CYBER)
Failure to adequately prevent or respond to a data breach resulting in
business disruption, brand damage or loss of information for our customers,
stakeholders or our business. The increasing sophistication of potential
cyber-attacks, coupled with the General Data Protection Regulation, highlight
the escalating information security risk facing all businesses. Our reliance on a
number of third-parties to host and hold data also means the risk profile of
our information security is changeable.
We recognise the importance of ongoing education and vigilance within M&S
to reduce the likelihood of attack or breach in (i) an internal environment that is
undergoing significant transformation and (ii) an external environment that is
changing at pace. We must ensure that our control environment evolves and that
our systems operate effectively. A data protection breach would not only impact
our reputation, but would also cause business disruption and could result in a
significant fine.
TECHNOLOGY
To support future profitable growth, we need to keep pace and develop our
technology and innovation capability. The digital world continues to evolve at
an unprecedented rate, influencing consumer behaviours and setting a high bar
in terms of IT infrastructure requirements.
We have clearly communicated our aim to be Digital First, and recognise the need
to invest to achieve this.
Our existing IT infrastructure needs to be more flexible to lower costs,
leverage developments and enable us to move with pace to meet customer
and colleague needs.
In addition to developing our technology, we must develop the skills and
capabilities of our people. This will be critical to providing a top quartile,
seamless customer experience.
– Established security controls, including policies, procedures and use
of security technologies.
– Head of Data Governance and Data Governance Group in place.
– Dedicated Corporate Security team with ongoing focus on improving
the physical security environment.
– Dedicated Head of Cyber Security, leading a team of cyber security
experts and analysts, with 24/7 monitoring and defence tools.
– Third-party cyber maturity assessments performed and refreshed.
– Ongoing monitoring of developments in cyber security threats,
engaging with third-party specialists as appropriate.
– Periodic testing by Internal Audit.
– Control of sensitive data through limited and monitored access and
the roll-out of systems with enhanced security.
– Dedicated workstream focused on information security as part of
the Technology Transformation Programme.
– Technology Transformation Programme in place, supported by strong
governance principles, to enable the Digital First ambitions and to
deliver improved customer experience.
– New Technology Operating Model to drive clear accountabilities and
efficiencies, including the adoption of industry standard agile methods.
– Appointment of a leading technology company as our principal
partner, coupled with simplification and consolidation of the
technology supplier base.
– Proactive simplification of IT infrastructure through clearly
defined technology roadmaps for all business areas and strong
governance processes.
– Cross channel technology investment strategy in place and aligned
to the family of businesses to mutually agreed priorities.
– Quarterly reviews to ensure benefits are being delivered.
TALENT & CAPABILITY
We need to attract, develop, motivate and retain the right individuals to
achieve our operational and strategic objectives to transform the culture
and the business. As we transform our business, the calibre of our people is
integral to delivering operational and strategic objectives, and is especially
important in our drive to be Digital First.
Attracting, developing and retaining quality individuals is influenced by many
factors, a number of which are outside of our control. Growing market labour
shortages, which may be further compounded by Brexit, and the perceived
fragility of UK retail could influence our ability to attract external talent.
However, our focus cannot solely be outwards looking – our existing workforce
is one of our greatest assets. We need to ensure that our colleagues and culture
are developed to drive a Digital First and customer centric mindset, colleagues
need to feel empowered to drive change at pace.
– Talent identified as a critical component of our People Strategy
and a key enabler in the delivery of our overall business strategy.
– People KPIs in place supported by talent review at all levels of
the organisation.
– Established biannual employee engagement survey, enhanced
during the year to provide additional insight.
– Clear focus and transparent action on fair pay, including gender,
ethnicity, disability and age.
– Launch of a new diversity forum.
– Simplified, outputs focused framework introduced for
performance management.
– Commencement of externally facilitated culture assessment.
– Active engagement with our Business Involvement Group.
8 BRAND AND CUSTOMER EXPERIENCE
Our brand and underpinning customer experience need to evolve with
consumer lifestyles and attitudes for us to remain relevant and successfully
attract and retain customers. Consumer lifestyles and attitudes continue to
evolve at pace in an increasingly diversified and competitive retail environment.
We are proud of our strong brand recognition, but external pressures make it
more difficult for all businesses to drive brand relevance and attract and retain
customers, failure to do so creates the very real risk of a decline in market share.
We must attract and retain our core customer segments.
Our intention to be a customer-centric, Digital First business has been clearly
communicated. We need to ensure that our organisational design and operating
model support this aim and that we put the customer at the forefront of all our
decision making. Our Sparks loyalty programme, marketing strategies and cross
functional ways of working will be key enablers in achieving this, supported by
meaningful measurement of customer experience.
9 THIRD PARTY MANAGEMENT
To drive value for our business we need to successfully manage and leverage
our third-party relationships and partners. Our business is increasingly engaged
in significant third-party partnerships. These span our full operating model, from
products and services to franchise management and our international joint ventures.
To fully leverage these relationships, we need to have clear, consistently applied
processes to track performance, ensuring commercial expectations are delivered.
We also recognise the importance of managing the business interruption risk
conferred by such dependencies, and of maintaining appropriate contingency
plans in response.
We cannot lose sight of the expertise and effort that is required to effectively manage
third-parties, especially as we move through our transformation programme.
– Targeted external hires to strengthen capability.
– Revised operating model to better align brand and marketing with
the specific needs of our two businesses.
– Investment in capability to measure customer experience through
introduction of an end-to-end and multichannel Net Promoter Score
programme, supported by third party expertise.
– Established Customer Insight Unit and focus groups in place.
– Review of Sparks loyalty programme underway, supported by
proposition improvements to strengthen member engagement.
– Increasing our relevance and proactive monitoring of social media
to observe and respond to trends in customer experience.
– Clear procurement and supplier management policies in place,
including specific requirements for strategic suppliers.
– Defined service level agreements and key performance indicators
in place for key contracts.
– Defined contract governance and oversight standards, including
dedicated ‘supplier owners’ managing key contracts.
– Strong engagement with in-house legal and procurement teams.
– Key supplier business contingency planning .
– Internal audit engagement.
Risk key
Consolidation of risks
Change in scope
No / Limited change year-on-year
S Link to strategy
25
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
GOVERNANCE
SUPPORTING STAKEHOLDERS:
CHAIRMAN’S OVERVIEW
companies to appoint a female director and
with strong female representation over the
last decade.
As a result of the departures of Miranda
Curtis and Helen Weir, at the time of
publication of this report, we are below
our target of 30% female directors.
In May 2018, we announced that Katie
Bickerstaffe and Pip McCrostie would join
the Board, subject to their election at the
Annual General Meeting in July 2018.
Following these appointments, female
directors will comprise 30% of our Board.
BOARD ACTIVITIES
During the year we complied with all of
the provisions of the UK Corporate
Governance Code. In keeping with the
rest of this Annual Report, this year’s
Governance section is more concise, with
greater detail on the Board moving online to
www.marksandspencer.com/thecompany
in support of our future digital ambitions.
We will continue to drive the digital
experience for our shareholders and
reduce the clutter in our written reports
going forward. A summary of the Board’s
activities and discussions during the year
is presented on pages 28-29.
Over the last few months, the Board has
reviewed its activities and the roles of its
committees to ensure that it can focus on
driving transformational change at pace.
In particular, the Remuneration Committee
was asked to increase its remit to cover
senior leadership reward, pay policy,
gender pay and employee engagement.
This change was implemented ahead of
the FRC’s consultation on the revised
UK Corporate Governance Code.
The Committee’s activities and its
considerations on remuneration are
outlined in detail on pages 42-62.
SUCCESSION, AUDIT AND TALENT
The Audit Committee’s activities,
considerations and judgments, including
its review of our cyber and data protection
environment, incident management and
health & safety processes are set out on
pages 36-41.
The Board and Nomination Committee’s
senior talent changes to build a first-class
team to succeed in the retail environment
of the future are set out on page 34.
Following the external independent
evaluation last year, this year’s Board
Review was conducted by our
Group Secretary. A summary of this
and the actions for the year ahead are
set out on page 33 of this report.
COLLEAGUE ENGAGEMENT
Engagement with and feedback from
our colleagues across the business is vital,
especially as we drive our transformation.
A culture of transparency and open
dialogue is key to this, which is why I spend
my time as Chairman hosting numerous
listening groups with colleagues from
stores, distribution centres and offices.
We were delighted to invite the chair of
our Business Involvement Group (‘BIG’),
which represents the interests of all our
81,000 colleagues, to attend one of our
Board meetings and share with us colleague
perspectives on the issues under discussion.
Going forward, we have agreed that the
Chair of BIG will be invited to attend two
Board meetings a year and will also be
invited to attend at least one Remuneration
Committee meeting each year.
Good engagement with our colleagues is
vital as we embark on this period of change,
and to support this we will look at ways
to step up our communication with them
during the year ahead. Details of the ways in
which we engage with our stakeholders are
available on pages 30-31.
RETAIL SHAREHOLDERS
Our Private Shareholder Panel had a good
first year, meeting with members of the
Operating Committee and Board and
discussing a diverse range of topics
covering Brexit preparedness, food pricing,
customer trends and our Plan A community
challenges. The candour, challenge and
insights provided by these discussions
validates this initiative as part of our broader
stakeholder engagement programme.
We have an active programme to drive the
panel’s engagement in the year ahead.
ARCHIE NORMAN CHAIRMAN
“As we embark on the
journey ahead it is
important we have a highly
engaged board; one that
is close to the business,
able to both support and
challenge the executive
team and is well-equipped
to oversee governance,
financial controls and
risk management.”
ARCHIE NORMAN CHAIRMAN
AN ENGAGED BOARD
As we embark on the journey ahead it is
important we have a highly engaged
board; one that is close to the business,
able to both support and challenge the
executive team, and is well-equipped to
oversee governance, financial controls
and risk management.
There have been a number of changes
to the Board this year. In July, Humphrey
Singer will join as CFO following Helen Weir’s
departure at the end of March. In April,
Patrick Bousquet-Chavanne stepped
down from the Board, following the
incorporation of the marketing teams into
the Clothing & Home and Food businesses.
Finally, Miranda Curtis left the Board in
February. More information on these
changes is available on pages 34-35.
We have a strong non-executive team with a
breadth of experience and perspectives. We
recently added to this with appointments
of Katie Bickerstaffe and Pip McCrostie.
M&S has long championed the benefits of
a diverse board, being one of the first listed
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 26
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
LEADERSHIP AND EFFECTIVENESS
OUR BOARD
CHAIRMAN
Key strengths and experience
Archie Norman
Chairman
– Extensive retail and business leadership experience.
– Long-term track record of value creation and change in major
Appointed:
September 2017
N R
British companies.
Archie is an experienced Chairman and former Chief Executive having
led major transformation programmes at ITV, Lazard UK, Asda, Energis
and Hobbycraft and Deputy Chairman of Coles Limited. In 2016 he was
appointed as Lead Director at the Department for Business, Energy
and Industrial Strategy.
EXECUTIVE DIRECTORS
Key strengths and experience
Steve Rowe
Chief Executive
– Very extensive in-depth commercial and retail experience.
– Extensive knowledge of M&S having worked in all major areas
of the business.
Steve joined M&S in 1989 and worked in senior roles across all important
areas of the business prior to his appointment as CEO, including
Director of Home, Director of Retail, Director of Retail and E-commerce,
Executive Director, Food and Executive Director, General Merchandise.
– Strong financial background and extensive retail expertise.
– Significant experience in delivering the transformational strategies
of large listed businesses.
Humphrey will join M&S in July from Dixons Carphone, where he is
currently Group Finance Director. He was previously Group Finance
Director of Dixons Retail prior to its merger with Carphone Warehouse
Group, and has also held senior finance roles at Cadbury Schweppes
and Coca-Cola Enterprises UK. Humphrey is a non-executive director
of Taylor Wimpey plc.
Appointed:
Chief Executive in April 2016
N
Humphrey Singer
Chief Finance Officer
(Designate)
Appointed:
Incoming July 2018
BOARD DIVERSITY
GENDER DIVERSITY
SECTOR EXPERIENCE
31 March 2018
(as at year end)
Male
78%
Female
22%
22 May 2018
(as at date of Annual Report)
Male
Female
14%
86%
Retail
100%
0-3 years 33%
3-6 years 50%
Consumer
57%
43%
86%
Finance
E-commerce
& technology
NON-EXECUTIVE
DIRECTOR TENURE
0-3 years 33%
3-6 years 50%
6-7 years 17%
6-7 years 17%
DEPARTURES SINCE
1 APRIL 2017
Robert Swannell Chairman
Retired: 1 September 2017
Miranda Curtis Non-Executive
Director
Retired: 1 February 2018
Helen Weir Chief Finance Officer
Resigned: 31 March 2018
Patrick Bousquet-Chavanne
Executive Director, Customer,
Marketing & M&S.com
Resigned: 18 April 2018
0-3 years 33%
3-6 years 50%
6-7 years 17%
UK CORPORATE GOVERNANCE CODE
The UK Corporate Governance Code 2016 (the “Code”) is the standard against which we measured ourselves in 2017/18. A copy of the Code is available
from the Financial Reporting Council’s website.
We are pleased to confirm that we complied with all of the provisions set out in the Code for the period under review.
To keep this report concise, we have focused on the key governance issues only. Further detail on how we comply with the Code, including full biographies
of our directors and our corporate governance statement, is available on our corporate website, marksandspencer.com/thecompany. More information is
available on page 64.
27
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
KEY TO COMMITTEES
A Audit
N Nomination
R Remuneration
Committee Chair
Full biographical details of each director are available on marksandspencer.com/thecompany
INDEPENDENT NON-EXECUTIVE DIRECTORS
Key strengths and experience
Vindi Banga
Senior Independent Director
Appointed:
Non-Executive Director in
September 2011
Senior Independent Director in
March 2015
R N
– Extensive consumer brand knowledge and global business experience.
– Strong listed company board experience.
Vindi’s in-depth knowledge of both UK and international trade and
industry was gained over 33 years spent with Unilever, where he held a
number of senior positions and was a member of the Executive Board.
He has been a non-executive director at M&S since September 2011.
Andy Halford
Non-Executive Director
– Significant recent and relevant financial experience.
– International, consumer and digital experience.
Appointed:
January 2013
A N
Alison Brittain
Non-Executive Director
Appointed:
January 2014
A N
Andy’s strong finance background and broad knowledge of the UK
and international consumer market was gained from CFO positions
held in global listed companies. He is Chief Financial Officer of Standard
Chartered, which he joined after 15 years at Vodafone, nine of which
were spent as Chief Financial Officer.
– Financial and commercial experience.
– Considerable knowledge of running large-scale consumer businesses.
Alison is CEO of Whitbread, an international organisation with a broad
portfolio of hospitality brands, and was previously Group Director at
the Retail Division of Lloyds Banking Group, with responsibility for its
retail branch networks as well as its Retail Business Banking and UK
Wealth businesses.
Richard Solomons
Non-Executive Director
– Strong global consumer experience.
– Extensive financial and branding experience.
Appointed:
April 2015
N R
Richard’s breadth of consumer experience and considerable knowledge
of global businesses was acquired from numerous senior roles held
at IHG, where he was CEO until June 2017 and served as CFO prior to that,
as well as in investment banking earlier in his career.
Andrew Fisher
Non-Executive Director
– International consumer and technology sector experience.
– Extensive knowledge of high-growth digital businesses.
Appointed:
December 2015
A N
Andrew is Executive Chairman of Shazam, where he has been
instrumental in developing and executing a growth strategy to establish
one of the world’s leading mobile consumer brands, and brings over
20 years’ experience leading and growing numerous technology-
focused enterprises.
Katie Bickerstaffe
Non-Executive Director
Appointed:
Incoming July 2018
Extensive experience of retail transformation
from a career in a variety of functions in
leading UK retailers and consumer companies.
Katie will bring deep understanding of
retail and operations, as well as experience
in marketing, people, property, and as a
non-executive director, to M&S.
Pip McCrostie
Non-Executive Director
Appointed:
Incoming July 2018
With strong experience of finance and
transactions from a career at Ernst & Young
where she transformed and led the
Global Corporate Finance business, Pip’s
understanding of global businesses, M&A,
corporate transactions, and as a non-
executive director, will bring financial and
analytical discipline and skills to our Board.
GROUP SECRETARY
Amanda Mellor
Group Secretary and
Head of Corporate Governance
Appointed:
July 2009
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
28
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
LEADERSHIP AND EFFECTIVENESS
BOARD ACTIVITIES
The Board is responsible
for the stewardship of
the Company, overseeing
its strategy, conduct
and affairs to create
sustainable value growth
for its stakeholders.
The following pages summarise the Board’s
activities over the course of the year.
Although by no means exhaustive, the table
below provides a flavour of the discussions
and debates that take place within the
Boardroom and details some of the ways in
which the directors have discharged their
duty to promote the success of the Company.
During the year, the Board reviewed in
depth the challenges facing each of
the businesses and agreed with the
executive team to embark on a five-year
transformation programme designed to
make far-reaching changes to restore the
businesses to profitable growth. With the
executive team it has overseen significant
changes in structure, people and
organisation to enable the first phase
of transformation.
The Board has debated the Group’s key risks,
along with external market risks, including
the implications of Brexit and mitigating
actions based on our understanding of
the potential impact on the market, retail
environment, our customers, our people
and communities and our supply base.
STRATEGY & TRANSFORMATION
GOVERNANCE & RISK
TOPIC
BOARD DISCUSSIONS, DECISIONS AND ACTIONS
Strategic
priorities
– Discussed the ongoing transformation strategy with a continued focus
on driving sustainable, profitable growth, addressing extant structural
challenges and restoring the basics.
– Agreed the next phase of our transformation, focusing on establishing
M&S as the UK’s essential clothing retailer, repositioning our Food business,
growing International and substantially reducing our cost-base.
– Discussed business performance and the key strategic priorities for
Food, Clothing & Home and International with a focus on making our
shopping experience special, improving store service and simplifying
our head office structure.
– Agreed our strategic objective to become a Digital First organisation,
with a third of our Clothing & Home sales online.
Store estate
– Discussed the store estate programme, including criteria for further
openings, redevelopments and closures, and the critical need to adapt
our portfolio in a rapidly evolving market.
– Reviewed the necessary actions and costs associated with delivering the
strategic plan for the UK store estate.
– Agreed the acceleration of the Clothing & Home space rationalisation
plan and slowing of the Simply Food store opening plan.
International
operations
– Re-affirmed our commitment to retaining our position as an international
retailer, and working with our key international franchise partners to build a
growing, profitable international business in our chosen markets.
– Discussed the evolution of the franchise model in International, including
pricing, risks and the longer-term structure of the international business.
– Agreed the sale of our wholly-owned retail business in Hong Kong to an
existing franchise partner.
Supply chain
– Discussed the end-to-end supply chain in Food and impact on availability,
waste and potential cost efficiencies.
– Discussed our digital fulfilment capability and the need to continue to
invest in modernising our supply chain to enable rapid growth and help
us match increasingly fast competitor fulfilment rates.
Technological
capabilities
– Discussed the ongoing transformation of our technological capabilities
and its impact on business culture and our suppliers.
– Reviewed and agreed the next stage of the technology strategy with further
debate around future requirements and areas for further development.
– Ongoing progress made with strategic initiatives focused on simplification
and reduction of costs.
Finance
– Discussed the Group’s capital structure and assessed the Group’s ongoing
funding requirements under the transformation strategy.
– Reviewed Group performance versus budget and the agreed targets
for the year and approved the budget and targets for the year ahead.
– Reviewed cash flow, dividend cover and shareholder returns, agreeing a
full-year dividend of 18.7p.
TOPIC
Regulatory
environment
Board
succession
& diversity
BOARD DISCUSSIONS,
DECISIONS AND ACTIONS
– Discussed developments in the UK regulatory
environment and the internal governance
processes that support key projects.
– Received regular updates on meetings of the
Board’s principal committees and discussed
the key issues and topics raised.
– Reviewed the Board’s composition, diversity
and succession plans.
– Facilitated the transition for the new Chairman,
including his induction process.
– Agreed the appointment of Humphrey Singer
as Chief Finance Officer.
Board
Action Plan
and review
– Reviewed progress against the 2017/18
Board Action Plan and set the Action Plan for
2018/19, with a clear process for monitoring
ongoing progress.
– Conducted an internally facilitated Board
review covering the Board’s effectiveness,
processes and ways of working.
Risk
– Conducted half-yearly reviews of the Group
Risk Profile covering core internal and external
risks, risks driven by business
change and areas of emerging risk.
– Agreed the Group-level risks and appropriate
mitigating activities and reviewed the
processes and policies supporting these.
– Ongoing robust debate around risk, including
risk tolerance and factors contributing to any
re-evaluation of the severity of particular risks.
Data
governance
and cyber
security
– Discussed the Group’s cyber security
infrastructure in light of perpetually
evolving threats.
– Received regular updates on the Company’s
preparations for compliance with GDPR
ahead of May 2018, when the regulations
come into effect.
Modern
Slavery
– Approved the Company’s Modern
Slavery Statement for publication on
the corporate website.
29
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
For more information on the role
of the Board, see p33
OUTSIDE THE BOARDROOM – PRIVATE SHAREHOLDER PANELS
Outside of their scheduled Board meetings, the Chief Executive, Chairman
and members of the Operating Committee attended meetings of our
Private Shareholder Panels held throughout the year, strengthening links
between the Company and our retail investors.
The panel discussed a range of topics important to our retail investors
and feedback from these meetings has been extremely positive.
For more information on how we engage with investors and our other
stakeholders, see pages 30-31.
PEOPLE & CULTURE
CUSTOMERS, INVESTORS
& SUPPLIERS
TOPIC
BOARD DISCUSSIONS, DECISIONS AND ACTIONS
People
strategy &
capabilities
– Reviewed the people strategy and current priorities in terms of succession,
talent development and diversity across the business.
– Discussed changes during the year in key roles and appointments and
organisational structure to support the strategy.
TOPIC
Retail
environment
Culture &
ways of
working
– Discussed the necessary shift required in the culture and values of
the business to drive our transformation strategy and become a
high-performance organisation.
– Approved the consolidation and reconfiguration of our office space to
better align with our Smarter Working principles.
Employee
engagement
– Continued to encourage strong engagement between leadership and
colleagues across the business.
– Reviewed and evaluated the results of the annual Your Say survey
completed by colleagues from across the business and identified areas
of improvement.
– Discussed colleague sentiment, key areas of concern and the employee
perspective of M&S’s future opportunities and risks.
– Invited the Chair of the Business Involvement Group (BIG), our employee
representative body, to attend a Board meeting to discuss the Company’s
strategy and future plans from the perspective of colleagues from
across the Company’s stores and offices.
Investors
Communities &
Plan A
– Reflected on the impact and achievements of Plan A over the ten years
since launch, and discussed how Plan A can be shaped to benefit our
customers and the communities in which we operate over the next decade.
– Reviewed the progress made towards our Plan A commitments in 2017/18.
Gender pay
– Discussed the Company’s gender pay gap in the context of the
wider market.
Diversity &
inclusion
– Discussed our agenda to address the pipeline of women into senior
roles and to drive greater diversity and inclusion, in terms of gender,
ethnicity and social background, within the business.
Brand and
customer
proposition
– Discussed the viability of an M&S online
food delivery offer and approved a limited
trial to run over the course of the year.
BOARD DISCUSSIONS,
DECISIONS AND ACTIONS
– Discussed the challenging retail market,
market share, store footfall, competition
and market dynamics.
– Discussed the announced store closure
programme and impact on customer,
investor and colleague sentiment.
– Discussed the key drivers for consumer
sentiment, impact on consumer confidence,
spending intentions and the economy.
– Evaluated the customer insight research
conducted during the year and assessed
resulting recommendations, including those
in respect of our brand positioning, store
environments and customer offer.
– Reviewed independent study of major
investors’ views on our management
and performance, conducted by KPMG
Makinson Cowell.
– Reviewed the Company’s financial results
and press releases and approved the
Annual Report and year-end disclosures.
Suppliers
– Continued to increase the breadth and depth
of our work in the area of modern slavery.
– Reviewed codes of practice in relation to
our food suppliers.
AGM
– Reviewed specific issues raised by
shareholders to be addressed in the
Chairman’s AGM statement.
– Agreed the key topics raised by shareholders
to be communicated together with an update
on the Company’s progress in these areas.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 30
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
GOVERNANCE
HOW WE ENGAGE
& RESPOND
SHAREHOLDERS
COLLEAGUES
Our rich network of
stakeholder relationships
upholds the values on
which M&S was founded.
These relationships are
even more vital during
this period of change.
OUR APPROACH
Engaging with our stakeholders is
fundamental to the way we do business
at M&S. We have over 160,000 registered
shareholders, 81,000 colleagues and 32
million customers. We source our products
from suppliers in over 70 countries. These
individuals, businesses and communities
are all integral to our business. We will only
be able to successfully transform M&S
with their input, cooperation and trust.
As a Board, stakeholder considerations are
woven throughout our discussions and
decisions. Like any business, sometimes we
have to take decisions that adversely affect
one or more of these groups and, in such
cases, we always ensure that those
impacted are treated fairly.
We have invested in the development
and involvement of our stakeholder
communities as we believe it is the right
thing to do, not only for our stakeholders
but for our business. These pages provide
a snapshot of just some of the ways in
which we do this.
COLLEAGUE ENGAGEMENT SCORE
82%
While the Annual General Meeting has
traditionally been seen as the highlight
of the shareholder calendar, we believe
that engagement with our private
shareholders and institutional investors
should be an ongoing process, not
something we think about once a year.
We connect with shareholders on an
ongoing basis through a variety of
channels including face-to-face
meetings, webcasts, and an increasing
amount of online content.
ANNUAL GENERAL MEETING (AGM)
Our 2017 AGM was well attended and all our proposed
resolutions were passed, with votes in favour ranging
from 89.57% to 99.99%. We have been providing live
webcasts of our AGMs and preliminary and interim
announcements for over a decade, bringing these
events to thousands of shareholders all over the world.
ANNUAL REPORT AND ACCOUNTS
We go beyond our statutory obligations to provide
what we hope is a holistic and engaging view of the
business in a language that everybody can understand.
Added to this is a wealth of online content which is
publicly available on our corporate website.
ONGOING ENGAGEMENT
Members of our senior management and Investor
Relations teams held 450 meetings with 272 different
institutions during 2017/18. In addition, Archie Norman
met with a number of our shareholders prior to his
appointment as Chairman and continues to meet
with institutional investors to discuss key issues.
INVESTOR PERCEPTION STUDY
Each year the Board receives an independent report
from Makinson Cowell on our major investors’ views
on our management and performance. This enables
us to monitor what we’re doing right and where we
need to increase our focus.
PRIVATE SHAREHOLDER PANEL
Following a successful trial last year, we have now
formalised these regular meetings with groups of
private shareholders. These are typically attended by
either the CEO or a member of senior management
and give private shareholders the rare opportunity
to share their views in an informal setting.
ASSET REUNIFICATION
Through search programmes and changes to how
we pay dividends, we proactively seek to unite
shareholders promptly with their shares and
dividend payments.
We are committed to making M&S a great
place to work. To do this, it is vital that
colleagues are engaged with the
business, especially now, at the start
of this period of change.
BUSINESS INVOLVEMENT GROUP (BIG)
Engagement with our 81,000 colleagues is facilitated
through BIG, a network of c.3,400 elected
representatives from across all parts of the business.
Local BIG teams regularly feed back to National BIG,
whose chairman in turn represents the collective
colleague voice through regular meetings with
the Chairman and CEO. This year, BIG attended a
Board meeting and going forward will also attend a
Remuneration Committee meeting each year.
BIG played a key role in the store closure programme
in 2017/18, helping to mitigate personal impact to
colleagues while supporting the business objective
of rationalising the UK store estate.
COLLEAGUE UPDATES
Colleagues are kept informed of performance and
strategy through regular business area ‘huddles’ as
well as email, Skype and social media updates from
members of the Board and senior management. Store
colleagues also share their views with directors and
senior managers through listening groups, in-store
roundtables and online forums. Dedicated information
is also provided on our pension schemes.
A DIVERSITY & INCLUSION
This year we were again recognised in The Times
Top 50 Employers for women (eight years running).
We ran four employee-led networks on gender,
ethnicity (BAME), sexual orientation (LGBT+) and
health conditions. These networks give a voice to
under-represented groups, provide peer-to-peer
support and help to influence the Company to
become more inclusive. We also held our second
Diversity & Inclusion festival, engaging thousands
of colleagues across M&S.
TRAINING AND DEVELOPMENT
A wide number of initiatives and programmes are
available to colleagues across the business, including
subject-specific courses, inspirational talks, and
mentoring programmes.
A VOLUNTEERING
During 2017/18, thousands of colleagues volunteered
over 30,500 hours of work time to help hundreds of
community projects. Our stores raised over £1m for
charity and distributed over one million meals to
local organisations.
YOUR SAY SURVEY
Our annual Your Say survey gives us an informed
picture of how colleagues feel about the business.
Over 70,000 of our colleagues choose to participate
and share their feedback. The engagement score this
year was strong at 82%.
31
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Key
A
Link to Plan A
CUSTOMERS
COMMUNITY
SUPPLIERS
Our Insight team constantly gathers and
analyses feedback from our customers
to understand what they want from M&S.
In addition to sharing key findings with
the directors, we focused in 2017/18 on
making our wealth of insight available
throughout all levels of the business to
ensure decisions are based on facts. This
has enabled us to improve the shopping
experience and to better understand
how we need to position the business.
DIRECT FEEDBACK
We get direct feedback from our customers through a
variety of channels including surveys, face-to-face
interviews, and online input. During the year we
launched a new initiative which gives customers the
opportunity to feed back, either online or by telephone,
on every transaction using information from their
online or store receipt. This information is collated
centrally and allows us to spot common themes
quickly. Insight is then routed to the relevant teams
within M&S so that action can be taken.
CURVE
Engaging with our plus-sized customers to better
understand their clothing needs identified that they
often felt ignored in the clothing market and were
unable to find stylish clothes that fit well. We worked
directly with these customers to craft a range
specifically designed for shapely figures, engineered
to fit and flatter, with designs that are right on trend.
RETAILER CHOICE
52,000 people took part in our comprehensive study
into why customers choose one retailer over another.
Critically, this ensured that the gap between M&S and
key competitors was well understood and has informed
our decisions about where to invest our resources.
QUICK TO COOK
Insight about our customers led us to develop a new
range of part-prepared meal solutions that satisfy our
customers’ need for ultra-fast, protein-packed meals.
FOOTWEAR NAVIGATION
Customers told us that we should simplify how
we display our footwear and arrange it by end use
(e.g. work, occasion, sport). We took their feedback
on board and customers now find it easier to find
what they want.
A SPARKS CARD
6.6 million Sparks card holders currently receive
tailored offers plus the chance to engage with a Plan A
charity partner of their choice. Over £4m has been
raised to date.
At the heart of M&S’s engagement with
the community is Plan A, our social and
environmental sustainability
programme. Building on ten successful
years of this initiative, we launched Plan A
2025 in June last year, with three main
goals: to help 10 million people live
happier and healthier lives, to help
transform 1,000 communities, and to
become a zero-waste business. Find out
more at marksandspencer.com/plana.
A COMMUNITY TRANSFORMATION
We aim to secure meaningful economic, social and
environmental benefits to 1,000 communities around
our stores and beyond by 2025. We held face-to-face
consultations with representatives from ten pilot
communities this year to find out what they want us
to achieve, and now have detailed action plans and
measurement systems in place for these.
A TOWN CENTRE REGENERATION
Building on the Business in the Community-backed
‘Healthy High Streets’ programme, 58 of our retail
managers have played hands-on, lead roles in
collaborations to improve town and city centres
during the year, including a wide range of activities
to support the development of Business Improvement
Districts (BIDs) across the UK.
A WORK EXPERIENCE
Through Marks & Start we provide work experience
for thousands of disadvantaged people across the
UK and internationally. This year we offered over 3,600
work placements worldwide, with over 60% of those
completing a placement in the UK or Republic of Ireland
going on to find work.
A LOCAL FUNDRAISING
This year, 502 of our stores in the UK and the
Republic of Ireland adopted a charity of the year
and helped to raise over £1m. 514 of our stores
donated surplus food to local charities. M&S stores
in India also raised in excess of £40,000 in aid of
two Indian charities.
M&S COMPANY ARCHIVE
– Over 43,000 people enjoyed discovering the M&S
story through our Marks in Time Exhibition and the
Archive’s exciting programme of events in 2017/18.
Visit marksintime.marksandspencer.com.
– Our award-winning programme now has a network
of 50 specially trained Heritage Ambassadors in
stores across the UK, delivering inspiring
heritage-based sessions in local schools.
– We’ve expanded the Archive’s support for people with
dementia by extending our range of archive-based
memory boxes, which are free to borrow for care
homes and day centres across the UK.
– In March 2018, the Archive was successful in attaining
accredited status from National Archives, the first
ever retail archive to do so.
As one of the most trusted brands in
the high street, we believe we have a
responsibility to be a fair partner to our
suppliers. This covers the prices we pay
our suppliers to the support we provide
to the communities where we trade.
It also means ensuring good working
conditions throughout our supply chains
and sourcing our products with integrity.
PREVENTING MODERN SLAVERY
We have continued to increase the depth and breadth
of our work in the area of modern slavery, ensuring we
have in place the most effective responses to potential
risk. Further details of our efforts to eradicate modern
slavery throughout our supply chains and operations
are available in our 2018 Modern Slavery statement
which is available online.
A GLOBAL COMMUNITY PROGRAMME
The M&S Global Community Programme aims to
improve the lives of one million people in our suppliers’
communities by 2025. During the year, the programme
included projects across nine countries on issues
including health, finance, farming and gender equality.
GLOBAL SOURCING PRINCIPLES
All our suppliers of goods and services are required
to comply with our Global Sourcing Principles which
require them to provide good working conditions,
respect workers’ human rights, and be subject to
appropriate ethical monitoring. Food suppliers are
also considered as part of our annual GSCOP report.
SUPPLIER COLLABORATION
Through collaborative workshops and toolkits, we work
with suppliers to streamline processes and optimise
volumes. The resultant savings are reinvested in price
and quality and shared with suppliers to help them
create further efficiencies.
TRAINING AND SUPPORT
We offer our suppliers and partners a range of
training and development opportunities, including
conferences and practical workshops. These cover a
range of topics including local laws and sharing best
practice examples to accelerate embedding respect
for human rights into their businesses.
DAIRY FARM INITIATIVES
We continue to guarantee our pool of dedicated dairy
farmers a set price for fresh milk under our ‘Milk Pledge
Plus’ programme. During the year we also became the
first major food retailer to have all its milk producing
dairy farms assured by the RSPCA for animal welfare.
SUPPLIER SATISFACTION
Measuring supplier satisfaction is critical to our
understanding of how well we are engaging with them.
We use the independent Advantage Report Mirror
to survey a proportion of our own brand (M&S Brand)
supplier base each year. In 2017 we were ranked
second overall out of the seven participating retailers.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
32
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
GOVERNANCE
BOARD COMPOSITION
& ATTENDANCE
CHAIRMAN
Archie Norman
Robert Swannell
EXECUTIVE DIRECTORS
Chief Executive
Steve Rowe
Chief Finance Officer
Helen Weir
Executive Director
Patrick Bousquet-
Chavanne
NON-EXECUTIVE DIRECTORS
Vindi Banga
Alison Brittain
Miranda Curtis
Andrew Fisher
Andy Halford
Richard Solomons
BOARD COMPOSITION, ROLES AND ATTENDANCE AS AT YEAR END
ATTENDED
MAX
POSSIBLE
INDEPENDENT
RESPONSIBILITY IN 2017/18
LINKED TO
REMUNERATION
Board governance and performance, shareholder engagement
Board governance and performance, shareholder engagement
Strategy and Group performance
Group Financial Performance, Property,
IT and Clothing & Home distribution
Customer, Marketing and M&S.com
Independent non-executive directors assess, challenge and monitor the executive
directors’ delivery of strategy within the risk and governance structure agreed by the Board.
As Board Committee members, they also review the integrity of the Company's financial
information, recommend appropriate succession plans and monitor Board diversity.
6
2
8
8
8
8
8
6
8
8
8
6
2
8
8
8
8
8
6
8
8
8
This table provides details of scheduled meetings held in the 2017/18 financial year.
For information on what the Board did during
the year, see Board Activities on p28-29
BOARD MEETINGS
INDEPENDENCE OF DIRECTORS
The Board held eight scheduled meetings
during the year, and individual attendance
is set out above. Sufficient time is provided
at the start and end of each meeting for
the Chairman to meet privately with the
Senior Independent Director and the
non-executive directors to discuss any
matters arising.
The Board reviews the independence
of its non-executive directors as part of
its annual Board Effectiveness Review.
The Chairman is committed to ensuring
the Board comprises a majority of
independent non-executive directors
who objectively challenge management,
balanced against the need to ensure
continuity on the Board. None of the
non-executive directors have served
more than seven full years on the Board.
The Board considers that all of the
non-executive directors bring strong
independent oversight and continue
to demonstrate independence. The Board
recognises the recommended term within
the UK Corporate Governance Code.
It is mindful of the need for suitable
succession, and therefore maintains
a clear record of the time each non-
executive has served the Company
and the skill-set that each provides.
See details and experience of each director on p26-27
33
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
GOVERNANCE
RESPONSIBILITIES &
OVERSIGHT
ROLE OF THE BOARD AND ITS COMMITTEES
The Board is responsible for the
stewardship of the Company, overseeing
its strategy, conduct and affairs to create
sustainable value for the benefit of its
shareholders. The Board recognises that,
to be successful over the long term, it has
a wider duty to a broader stakeholder
community whose support is required to
create sustainable value. It is therefore
essential that the Board considers the
impact of the business and its decisions on
our colleagues, customers, shareholders,
suppliers and the communities in which
the Company operates. Pages 30 and 31
highlight how we consider and engage
with our stakeholders.
The Board discharges some of its
responsibilities directly and others through
its Board Committees and management.
Board and Committee Terms of Reference
are included in our Governance Framework,
published on our corporate website.
The Board agrees, and has collective
responsibility for, the strategy of the
Company, which is outlined on pages 1
to 24. The Board delegates the execution
of the Company’s strategy, day-to-day
management and operation of the
Company’s business to the Operating
Committee, and is responsible for
overseeing, guiding and holding to
account management in carrying out
these responsibilities.
The Board is responsible for:
– Ensuring leadership through effective
oversight and review. Supported by its
Board Committees, the Board sets the
strategic direction and aims to deliver
sustainable shareholder value over
the longer term;
– Overseeing the implementation of
appropriate risk assessment systems
and processes to identify, manage
and mitigate the principal risks of the
BOARD REVIEW
Company’s business. Much of this work
is delegated to the Audit Committee
(see pages 36-41); and
– Effective succession planning at Board
level and for assessing the processes in
place to ensure that there is appropriate
succession planning amongst senior
management. Much of this work is
delegated to the Nomination
Committee (see pages 34-35).
In addition to the other matters referred to
in its framework, the Board is responsible
for specific matters relating to strategy,
finance, risk management, culture, ethics
and behaviours, legal, reputation and
public company management, internal
control and audit. These matters, along
with the individual roles of the Board
members, are covered by the ‘Schedule
of Matters Reserved to the Board’ in our
Governance Framework, which is available
on our corporate website.
Our annual Board Review gives us the
opportunity to reflect on the effectiveness
of our activities, the range of our
discussions, quality of our decisions
and for each member to consider their
own performance and contribution.
This year our review was facilitated
internally by our Group Secretary and Head
of Corporate Governance, Amanda Mellor.
Amanda was considered a suitable and
independent sounding board for this
process, given her insight into the day-
to-day workings of the Board and its
Committees and the support and advice
provided to Board members throughout
the year. In line with previous years, focused
one-to-one discussions were held with
each director around the following topics:
– Composition, skills, balance, experience
and diversity of the Board;
– Culture and quality of contributions;
– Strategic and risk debate;
– Succession planning;
– Effectiveness of decision making;
– Resourcing of meetings, agenda
planning, quality of information;
– Corporate governance, regulatory
compliance and associated support;
– Evaluation of individual performance
and areas for improvement; and
– Committee effectiveness and
communications to the Board.
Following the Board review, the Senior
Independent Director meets with directors
to review the Chairman’s performance. This
review is then shared with the Chairman.
All recommendations are based on
best practice as described in the UK
Corporate Governance Code and
other current guidelines.
of the issues covered, with better
discussion and debate with the additional
involvement of the Operating Committee
and other colleagues. The quality of papers
along with comprehensive pre-reads to
support discussions were substantially
improved on previous years. Talent and
succession was considered well managed
during the year. Continued exposure to
colleagues across the business is
considered essential to ensure greater
insight on talent development and
capabilities. Governance knowledge,
information and engagement with
stakeholders was considered good and
Board members felt well supported.
Overall the Board is considered a high
calibre team, with a breadth of skills and
experience contributing a wide range of
perspectives and challenge. There is a
deep sense of commitment to M&S.
Board Committees were all considered to
work well with thorough debate, a clear
grasp of issues and subject knowledge.
Committees are considered to be well
chaired and managed.
The Chairmanship of Archie Norman is
viewed highly positively in focusing the
business agenda and purpose. Board
discussions are generally considered
open and challenging, with participation
of members actively encouraged.
The Board awayday was much improved
and considered more productive in terms
The Board has agreed an action plan for
the year ahead, with actions addressing
the key areas of board oversight and focus
on driving the transformation, reviewing
key performance indicators and ensuring
these are linked to the business objectives.
Further initiatives to drive Board
involvement in the business are in progress.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 34
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
LEADERSHIP AND EFFECTIVENESS
NOMINATION
COMMITTEE REPORT
INTRODUCTION
In my introduction to the Governance pages
of this report on page 25, I referenced the
importance to the business of an engaged
Board that offers both support and robust
challenge to our executive management,
an approach that underpinned the work
undertaken by the Nomination Committee
(the “Committee”) in light of the numerous
changes to the Board over the past year.
In September 2017, my predecessor,
Robert Swannell, retired after almost
seven years as Chairman. Miranda Curtis,
a non-executive director since 2012,
stepped down in February 2018. Helen Weir
and Patrick Bousquet-Chavanne left the
Board in March and April 2018 respectively.
Helen will be replaced by Humphrey Singer
when he joins the business in the summer.
On behalf of the Board, I would like to
thank Robert, Helen, Patrick and Miranda
for their significant contributions during
their tenures.
This year the Committee’s activities covered
director capabilities and succession
planning. The Board has long believed that
diversity, together with the right blend of
skills and experience, is an essential element
of an effective board. This was a key
consideration of the Committee in its
search for additions to our team.
In May 2018, we announced that
Katie Bickerstaffe and Pip McCrostie
would join the Board, subject to their
election at the Annual General Meeting
in July 2018. Following these appointments,
female directors will comprise 30% of
our Board.
The Committee also continues to take
an active interest in the quality and
development of talent and capabilities
below board level, ensuring that appropriate
opportunities are in place to develop
high-performing individuals and to build
diversity in senior roles across the business.
“The Committee is
focused on supporting
the development of
capabilities and talent
across the business”
ARCHIE NORMAN CHAIRMAN OF THE
NOMINATION COMMITTEE
EFFECTIVENESS OF THE NOMINATION COMMITTEE
NOMINATION COMMITTEE REVIEW
NOMINATION COMMITTEE ACTIVITY
The Committee’s performance was
reviewed within the framework of the
2017/18 internal Board Review. The
Committee is regarded as engaged and
challenging. It was particularly noted
for the additional time provided by its
members for a number of unscheduled
meetings to support key Board and
senior management appointments
during the year.
During the year, the Committee held
numerous unscheduled meetings
in support of the search for senior
appointments and continued to support
the ongoing quality, development
and capabilities of our senior talent.
The Committee recommended the
appointment of the Chairman, two
non-executive directors and the
appointment of Humphrey Singer as
CFO to the Board.
MEMBER ATTENDANCE
Robert Swannell
Archie Norman
Vindi Banga
Alison Brittain
Miranda Curtis
Andrew Fisher
Andy Halford
Steve Rowe
Richard Solomons
MEMBER
SINCE
4 Oct 2010
1 Sept 2017
3 Sept 2011
1 Jan 2014
3 Feb 2012
1 Dec 2015
1 Jan 2013
2 Apr 2016
13 Apr 2015
Archie Norman met with colleagues from
stores, distribution centres and offices,
along with shareholders and other
stakeholders as part of his induction.
ACTION PLAN 2018/19
For 2018/19, the Committee plans to:
– Continue to review succession plans
for the Board and key roles across
the business.
– Continue to review future talent pipeline.
– Review development initiatives
for directors.
NUMBER OF
MEETINGS
ATTENDED
MAXIMUM
POSSIBLE
MEETINGS
% OF MEETINGS
ATTENDED
1
2
5
5
4
5
5
5
5
1
2
5
5
4
5
5
5
5
100%
100%
100%
100%
100%
100%
100%
100%
100%
35
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
BOARD DIVERSITY POLICY
Ensure long lists of potential
non-executive directors include
50% female candidates.
All long lists for potential future
non-executive director appointments
include at least 50% female candidates.
Consider candidates for appointment
as non-executive directors from a wider
pool, including those with experience
outside of traditional listed boards.
During the year, the Nomination
Committee discussed non-executive
director appointments and succession.
It worked closely with executive search
agencies in compiling long and short lists
of candidates from various backgrounds
and industries. Candidates were identified,
interviewed and measured against
pre-determined criteria. Although we
do not currently openly advertise our
non-executive director positions, we
keep this under review.
Only engage executive search firms who
have signed up to the Voluntary Code
of Conduct for Executive Search Firms
on gender diversity and best practice.
The Board supports the provisions of the
Voluntary Code of Conduct for Executive
Search Firms and only engages executive
search firms who are signatories to
this code. During the year, our work on
succession was supported by Russell
Reynolds and JCA. Neither firm has any
other connection with the Company aside
from the provision of recruitment services.
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.
The Board continues to support and
encourage initiatives that strengthen
the pipeline of executive talent in the
Company. It continues to learn from
existing programmes, while introducing
new initiatives to provide development
opportunities to drive the quality of
talent throughout the business.
Key activities include:
– A comprehensive talent review
presented to the Board, mapping
successional candidates and
opportunities across all senior
roles within the business.
– Initiatives for high potential talent to
identify and partner key senior talent
across the business, broadening their
skill-sets and experience to prepare
them for future opportunities. This
has been supported through greater
Boardroom exposure, non-executive
and Trustee roles outside of M&S,
involvement in senior pipeline
programmes and participation in
mentoring schemes.
– Access to business school training.
– Senior management mentoring
and coaching schemes and
executive director-sponsored
engagement forums.
Report annually against these
objectives and other initiatives
taking place within the Company
which promote gender and other
forms of diversity.
Diversity and inclusion have continued
to be promoted across the business
with a number of initiatives:
– Employee-led networks on gender,
ethnicity (BAME), sexual orientation
(LGBT+) and health conditions. This year,
we held our second Diversity & Inclusion
festival, engaging thousands of
colleagues across M&S.
– Continued involvement in the 30% Club,
an organisation committed to increasing
female representation on UK boards.
– Active involvement in key campaigns
including LGBT+ Pride celebrations,
International Women’s Day, Black
History Month, National Inclusion
Week, Mental Health Awareness Week
and World Disability Day, raising
awareness and our profile as an
inclusive place to work.
– Our programmes to help people in our
communities, including Marks & Start
and Marks & Start International, continue
to support young people, the homeless,
lone parents and those with disabilities
in finding work in our stores and
distribution centres.
Our objective of driving the benefits of
a diverse Board, senior management
team and wider workforce is
underpinned by our Board Diversity
Policy (’the Policy’), which can be
viewed on our corporate website.
The Board keeps the Policy under
review to ensure it remains an effective
driver of diversity in its broadest
sense, having due regard to gender,
ethnicity, background, skill-set and
breadth of experience.
BOARD DIVERSITY: PROGRESS UPDATE
Maintain a level of at least 30%
female directors on the Board
over the short- to medium-term.
Following the departures of Helen Weir
and Miranda Curtis during the year, the
level of female representation on our
Board reduced from 30% in February
2018 to 14% in May 2018. In May 2018,
we announced that Katie Bickerstaffe
and Pip McCrostie would join the Board,
subject to their election at the Annual
General Meeting in July 2018. Following
these appointments, female directors
will comprise 30% of our Board.
The Board is committed to its target for
female representation and is mindful of the
target set out in the Hampton-Alexander
Review of 33% female representation by
2020. The Committee will continue to make
recommendations for new appointments
to the Board based on merit, with
candidates measured against objective
criteria and with regard to the skills and
experience they would bring to the Board.
Our principles for board diversity also
apply to our Operating Committee where
female representation currently stands
at 33%. The Board continues to strengthen
the pipeline of senior female executives
within the business, and ensure that there
are no barriers to women succeeding at the
highest levels within M&S. We are pleased
that M&S was listed in The Times Top 50
Employers for Women in 2018 for the
eighth year running.
See p20 of our Plan A Report for further
information on diversity across M&S, available
at marksandspencer.com/plana2018
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 36
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
ACCOUNTABILITY
AUDIT COMMITTEE
REPORT
INTRODUCTION
As Chairman of the Audit Committee
(the “Committee”), I am pleased to present
the Committee’s report for the year ended
31 March 2018. The following pages
provide an insight into how the Committee
discharged its responsibilities during the
year and the key topics that it considered
in doing so.
There were no significant changes to the
Committee’s primary functions this year,
which included monitoring the integrity of
the Company’s financial statements and
maintaining an appropriate relationship
with Deloitte, the Company’s Auditor. Also
core was reviewing the Company’s internal
controls and systems of internal control
and risk management, which included
the alignment of risk and strategy in the
context of sector disruption. In providing
this independent oversight, the Committee
continued to ensure that shareholder
interests in relation to the Company’s
financial reporting and systems of
internal control are protected.
This year, preparations for the
implementation of GDPR necessitated
the Committee’s increased focus on the
interrelated issues of data governance,
cyber security and business continuity,
with one or more of these subjects
considered at each of our meetings.
Another major area of consideration was
the UK store estate and in particular the
accounting judgements in relation to
store closures. Further information on
these and other key areas considered
by the Committee during the year can
be found within this report.
“The Committee plays
an essential role in
safeguarding the interests
of shareholders through
continual review,
challenge and debate.”
ANDY HALFORD CHAIRMAN OF THE
AUDIT COMMITTEE
MEMBERSHIP
The Committee is comprised solely of
independent non-executive directors,
whose names are set out below. Miranda
Curtis retired from the Board and the
Committee on 1 February 2018. Detailed
information on the experience, skills and
qualifications of all Committee members
can be found on pages 26 and 27.
MEMBERSHIP AND MEETINGS
The Board has confirmed that it is satisfied
that Committee members possess an
appropriate level of independence and
offer a depth of financial and commercial
experience across various industries,
including the sector in which the Company
operates. The Board has also confirmed
that it is satisfied that Andy Halford
possesses recent and relevant financial
experience and the requisite competence
in accounting.
MEMBER ATTENDANCE
MEMBER
SINCE
NUMBER OF
MEETINGS
ATTENDED
MAXIMUM
POSSIBLE
MEETINGS
% OF MEETINGS
ATTENDED
Andy Halford
Alison Brittain
Miranda Curtis1
Andrew Fisher
1 Jan 2013
11 Mar 2014
4 Mar 2015
3 Feb 2016
5
5
3
5
5
5
4
5
100%
100%
75%
100%
1. Miranda Curtis was unable to attend the meeting on 14 September 2017 due to an external business commitment. She
retired from the Board and the Committee on 1 February 2018 so was not eligible to attend the meeting on 13 March.
MEETINGS
The Committee held five meetings during
the year. Members of senior management
were invited to attend these meetings as
and when their specialist technical
knowledge was required.
The Committee also met without
management present before each full
meeting. We also met privately with the
lead Audit partners, and separately with
the Head of Internal Audit & Risk, after
each Committee meeting.
As Committee Chairman, it is important
that I fully understand any key areas of
concern so that I can facilitate a meaningful
dialogue during Committee meetings.
To support this, I meet regularly on a
one-to-one basis with the Chief Finance
Officer, Director of Group Finance, Head
of Internal Audit & Risk, other members
of senior management, and the lead
Audit partners.
37
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
COMMITTEE EFFECTIVENESS
It continues to provide the Board with a
high level of assurance that audit matters
are dealt with appropriately.
The Committee made good progress on
the 2017/18 action plan, particularly in
relation to the Internal Audit effectiveness
review and implementation of the key
findings. The Committee was also
commended for its review and challenge
in relation to GDPR preparedness and
cyber security protocols. The Committee
will build on this in 2018/19.
COMMITTEE ACTIVITIES
The Committee also monitors those
elements of the control framework that,
by necessity, are subject to regular review,
challenge and update, most notably
in relation to cyber security. As part of
the annual review of internal control,
the Committee revisits these matters
to ensure agreed actions are being
implemented to support a programme of
maintaining and improving internal control.
The Committee noted the findings
highlighted in the External Auditor Report
and confirms that it is satisfied that there
is no material misstatement and that
relevant actions are being taken to resolve
the control matters raised.
MANAGEMENT UPDATES
The Committee receives detailed updates
from one or more business areas at each
of its meetings. These presentations are
scheduled on a rolling 12-month basis, with
additional matters identified by Internal
Audit added throughout the year as they
arise. The following is an overview of some
of the updates presented during 2017/18.
Data Governance and Cyber Security
– Received regular updates on the
Company’s extensive programme
of work towards GDPR compliance;
challenged assumptions and
methodologies in relation to
readiness and milestones.
– Received updates on initiatives to drive
data and cyber security awareness and
cultural change across the business.
– Discussed and challenged the
Company’s Cyber Operations
Crisis Escalation Processes and
the communications policies and
procedures to be invoked in the
event of an incident.
Business Continuity
– Received updates on the continued
strengthening of crisis management
and business recovery capability across
all retail and distribution operations.
2018/19 ACTION PLAN
– Continue to monitor the
recommendations of the Internal
Audit effectiveness review undertaken
in 2017/18.
– Continue to oversee the company-wide
risk and assurance mapping.
– Continue to monitor oversight of data
governance and cyber security controls.
– Discussed key initiatives undertaken
during the year, including a number
of wide-reaching crisis management
exercises and the successful
introduction of increased incident
reporting capability.
– Endorsed the priorities for 2018/19,
including a review of the Company’s
top 30 critical suppliers, ongoing
assessment and testing of global
terrorism and cyber security
preparedness, and continued
enhancements to the My Safety app.
Fire, Health and Safety
– Updated on performance across all
aspects of trading safely and legally
and progress made in driving
compliance standards.
– Discussed recent enhancements
to international reporting lines
and procedures.
– Updated on the approach to Fire,
Health and Safety at the Castle
Donington distribution centre.
– Following the identification of a
masonry issue at one store, discussed
action taken to review and monitor
the condition of a number of buildings
of similar age and construction.
Food Safety and Integrity
– Received an update on enhancements
to the Company’s approach to food
safety governance and discussed the
expected outcomes and practical
considerations.
– Discussed the Company’s approach
in the context of the wider food market,
rapidly evolving regulatory backdrop
and inflationary pressures.
– Discussed the actions intended to
preserve the frictionless import and
export of goods post-Brexit.
– Discussed the Company’s continued
efforts to invest in the development
of technical staff.
EFFECTIVENESS REVIEW
The Committee’s performance was
reviewed within the framework of the
2017/18 internal Board review (discussed
on page 33). Feedback on the breadth of
oversight, level of challenge and quality of
Board updates provided by the Committee
was highly positive. The Committee is
considered to function well, with structured
meetings and good engagement and
challenge provided across its remit by all
members. It continues to be regarded as
thorough and effective, although mindful of
the time implications of its expanding brief.
CORE ACTIVITIES
The Committee undertook the following
core activities during the year:
– Monitored the integrity of the annual
and interim financial statements,
with a focus on key accounting
policies and judgements.
– Reviewed the Company’s internal
controls and risk management
processes.
– Maintained the relationship with the
external auditor, including monitoring
their independence and effectiveness.
– Monitored and reviewed the
effectiveness and independence
of the Company’s Internal Audit
and Risk function.
– Reviewed the effectiveness of the
Company’s whistleblowing procedures.
– Reviewed and approved the Company’s
statement of compliance with the
Groceries Supply Code of Practice.
– Reviewed the Board’s approach
to assessing the Company’s
long-term viability.
– Assessed whether the Annual Report,
taken as a whole, is fair, balanced and
understandable.
INTERNAL CONTROL UPDATES
The Committee receives updates on
internal control matters at each meeting.
This regular monitoring of the internal
control framework allows timely
identification of issues and formal tracking
of remediation plans. Instances where the
effectiveness of internal controls was
considered insufficient were discussed
during the year, either by the Audit
Committee or the full Board. These have
included controls in relation to furniture
returns, fixed asset classification, corporate
gift cards, and UK store estate strategy.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 38
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
AUDIT COMMITTEE REPORT CONTINUED
SIGNIFICANT ISSUES
The Audit Committee has assessed
whether suitable accounting policies
have been adopted and whether
management has made appropriate
judgements and estimates.
Throughout the year, the Finance team
has worked to ensure that the business
is transparent and provides the required
level of disclosure regarding significant
issues considered by the Committee in
relation to the financial statements, as well
as how these issues were addressed, while
being mindful of matters that may be
business-sensitive.
This section outlines the main areas of
judgement that have been considered by
the Committee to ensure that appropriate
rigour has been applied. All accounting
policies can be found in note 1 to the
financial statements. Where further
information is provided in the notes to
the financial statements, we have
included the note reference.
Each of the areas of judgement has been
identified as an area of focus and therefore
the Committee has also received detailed
reporting from Deloitte.
PRESENTATION OF THE
FINANCIAL STATEMENTS
The Committee gave consideration to the
presentation of the financial statements
and, in particular, the use of alternative
performance measures and the
presentation of adjusting items in
accordance with the Group accounting
policy. This policy states that adjustments
are only made to reported profit before
tax where income and charges are
significant in value and/or nature. The
Committee received detailed reports from
management outlining the judgements
applied in relation to the disclosure of
adjusting items. In the current year,
management has included in this category:
the reduction in M&S Bank income for
the impact of the M&S Bank provision for
financial product mis-selling; net costs
associated with the implementation of
strategic programmes in relation to UK
store estate, UK organisation, UK logistics,
IT transformational change and the closure
of International owned businesses;
impairments and write-off of the carrying
value of UK stores (including associated
onerous leases); charges arising in relation
to changes to pay and pensions; potential
claims/legal settlements; and the net profit
on disposal of the Hong Kong retail
business. This was an area of major focus for
the Committee, which was cognisant of the
need to ensure external disclosures are
fulsome given the significance of the
aggregate values (£514.1m charge) and the
recent guidelines on the use of alternative
performance measures issued by the
European Securities and Markets Authority.
future performance of the business are
board approved. The Committee is satisfied
that appropriate impairment of tangible and
intangible assets has been recognised.
See note 5 on p89-90
See notes 5, 14 and 15 on p89-90
and p101-104
PROPERTY MATTERS (INCLUDING
ASSET WRITE-OFFS, ONEROUS
LEASE CHARGES AND USEFUL
ECONOMIC LIVES)
The Committee has considered the
assessments made in relation to the
accounting associated with the Group’s
UK store estate strategy. The Committee
received detailed reports from
management outlining the accounting
treatment of the relevant charges including
impairment, accelerated depreciation, strips
and dilapidations, redundancy and onerous
lease costs (including void periods). The
Committee has reviewed the basis for the
key assumptions used in the estimation of
charges (most notably in relation to the
costs associated with property exit/sub-let
costs, the sale proceeds expected to be
recovered on exit, where relevant, and the
cash flows to be generated by each CGU in
the period to closure). The Committee has
challenged management and is satisfied
that these are appropriate. The Committee
is satisfied that appropriate costs and
associated provisions have been recognised
in the current financial year. The Committee
has considered the controls findings raised
in the Independent Auditor’s Report on
page 68 to 76.
See notes 1, 5, 15 and 22 on p81-86,
p89-90, p103-104 and p111
IMPAIRMENT OF GOODWILL, BRANDS,
TANGIBLE AND INTANGIBLE ASSETS
The Committee has considered the
assessments made in relation to the
impairment of goodwill, brands, tangible
and intangible fixed assets including land
and buildings, store assets and software
assets. The Committee received detailed
reports from management outlining the
treatment of impairments, valuation
methodology, the basis for key assumptions
(e.g. discount rate and long-term growth
rate) and the key drivers of the cash flow
forecasts. The Committee has challenged
management and is satisfied that these
are appropriate. The Committee has
also understood the sensitivity analysis
used by management in its review of
impairments. In addition, the business plans
detailing management’s expectations of
INVENTORY VALUATION AND
PROVISIONING
Inventory provisions include obsolete
stock, net realisable value below cost and
stock loss provisions. The Committee
has examined management papers
outlining the judgements made regarding
provisioning for inventory balances and is
satisfied that a sufficiently robust process
was followed to confirm quantities of
inventory and that net realisable of
inventory exceeds its cost at year end.
RETIREMENT BENEFITS
The Committee has reviewed the actuarial
assumptions such as discount rate, inflation
rate, expected return of scheme assets and
mortality, which determine the pension
cost and the UK defined benefit scheme
valuation, and has concluded that they are
appropriate. The assumptions have been
disclosed in the financial statements. The
Committee has considered the accounting
for the annuity buy-ins as disclosed on
page 83 and considers it to be appropriate.
See note 11 on p95-98
REVENUE RECOGNITION IN RELATION
TO REFUNDS, GIFT CARDS AND
LOYALTY SCHEMES
Revenue accruals for sales returns and
deferred income in relation to loyalty
scheme redemptions and gift card
and credit voucher redemptions are
estimated based on historical returns
and redemptions. The Committee has
considered the basis of these accruals,
along with the analysis of historical returns
and redemption rates and has agreed with
the judgements reached by management.
SUPPLIER INCOME
The Committee is satisfied that this
continues to be monitored closely by
management and robust controls are in
place to ensure appropriate recognition in
the correct period. The financial statements
include specific disclosures in relation to
the accounting policy and of the effect
of supplier income on certain balance
sheet accounts.
39
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
FAIR, BALANCED AND UNDERSTANDABLE
At the request of the Board, the
Committee has considered whether,
in its opinion, the 2018 Annual Report
and Financial Statements are fair,
balanced and understandable, and
whether they provide the information
necessary for shareholders to assess
the Group’s position and performance,
business model and strategy.
The structure of the report continues
to focus strongly on the key strategic
messages in the Strategic Report. It was
therefore important for the Committee
to ensure that this emphasis did not dilute
the overall transparency in the disclosures
made throughout the report, which we
know our stakeholders find useful, and that
the messages presented by the business
are both clear and reflective of the
Company as a whole.
The Committee received a full draft of
the report. Feedback was provided by the
Committee, highlighting the areas it was felt
would benefit from further clarity. The draft
report was then amended to incorporate
this feedback ahead of final approval.
The Committee was provided with a list of
the key messages included in the Annual
Report, highlighting which were positive
and which were reflective of the challenges
from the year. A supporting document was
also provided, specifically addressing the
following listed points, highlighting where
these could be evidenced within the report.
When forming its opinion, the Committee
reflected on the information it had received
and its discussions throughout the year.
In particular, the Committee considered:
IS THE REPORT FAIR?
– Is the whole story presented and has
any sensitive material been omitted
that should have been included?
– Is the reporting on the business
performance in the narrative
reporting consistent with those
used for the financial reporting in
the financial statements?
– Are the key judgements referred to in the
narrative reporting and the significant
issues reported in this Audit Committee
Report consistent with the disclosures
of key estimation uncertainties and
critical judgements set out in the
financial statements?
– How do the significant issues identified
compare with the risks that Deloitte
plans to include in its report?
IS THE REPORT UNDERSTANDABLE?
– Is there a clear and understandable
framework to the report?
– Are the key messages in the narrative
reflected in the financial reporting?
– Are the important messages highlighted
appropriately throughout the document?
– Are the KPIs disclosed at an appropriate
level based on the financial reporting?
– Is the layout clear with good linkage
throughout in a manner that reflects
the whole story?
IS THE REPORT BALANCED?
– Is there a good level of consistency
between the narrative reporting in
the front and the financial reporting
in the back of the report, and does the
messaging presented within each
remain consistent when one is read
independently of the other?
– Is the Annual Report properly a
document for shareholders?
– Are the statutory and adjusted
measures explained clearly with
appropriate prominence?
CONCLUSION
Following its review, the Committee
was of the opinion that the 2018 Annual
Report and Financial Statements are
representative of the year and present
a fair, balanced and understandable
overview, providing the necessary
information for shareholders to assess
the Group’s position, performance,
business model and strategy.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 40
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
AUDIT COMMITTEE REPORT CONTINUED
TENURE
Deloitte was appointed by shareholders
as the Group’s statutory auditor in
2014 following a formal tender process.
The lead audit partner, Ian Waller, has
held the position for four years. Following
the 2018/19 audit (his fifth year as lead
audit partner) a new lead audit partner
will be put in place. The external audit
contract will be put out to tender at
least every ten years.
The Committee recommends that Deloitte
be reappointed as the Company’s statutory
auditor for the 2018/19 financial year. We
believe the independence and objectivity of
the external auditor and the effectiveness
of the audit process are safeguarded and
remain strong. The Company has complied
with the Statutory Audit Services Order for
the financial year under review.
The FRC’s Audit Quality Review (“AQR”)
team selected to review the audit of the
Company’s 2016/17 financial statements
as part of their 2017 annual inspection of
audit firms. The focus of the review and their
reporting is on identifying areas where
improvements are required rather than
highlighting areas performed to or above
the expected level. The Chairman of the
Audit Committee received a full copy of the
findings of the AQR team and has discussed
these with Deloitte. The findings have also
been discussed by the Audit Committee.
Some matters were identified as requiring
improvement and we have agreed an action
plan with Deloitte to ensure the matters
identified by the AQR have been addressed
in the audit of the Company’s 2017/18
financial statements.
EFFECTIVENESS
The effectiveness of our external auditor
is assessed in accordance with a process
agreed by the Audit Committee, which
involves gathering information through a
series of questionnaires tailored to the
following target groups:
1. Heads of Finance: Food, Clothing
& Home and International: Short
questionnaire focusing on the audit team,
planning, challenge and interaction with
the business.
EXTERNAL AUDITOR
2. Chief Finance Officer and Director
of Group Finance: Longer questionnaire
covering all areas of the audit process and
taking into account the questionnaires
completed by the Heads of Finance.
3. Audit Committee: A high-level set
of questions with specific focus on
planning, execution, value, communication
and challenge. The Committee was
provided with a summary of the Chief
Finance Officer and Director of Group
Finance responses and had access to
copies of the completed management
questionnaires (sections 1 and 2 above)
to assist with its own considerations.
Feedback from each of the target groups
was positive overall. It was agreed that the
audit partners have a good understanding
of our business as well as our values and
culture, with an increased awareness of
property issues for which specialists within
Deloitte have been leveraged. Areas of
focus for the year ahead will be on driving
analysis and challenge around finance, risk
management and internal controls findings.
Adding a further Director to the team has
addressed previous issues with availability
and the team now appears to be well
resourced. It was also widely agreed that a
more critical lens was now being applied,
with increased evidence of challenge in
current judgements.
NON-AUDIT FEES
To safeguard the independence and
objectivity of the external auditor, the
Committee has put in place a robust
auditor engagement policy which it
reviews annually. The policy is disclosed
on marksandspencer.com/thecompany.
The Committee is satisfied that the
Company was compliant during the year
with both the UK Corporate Governance
Code and the FRC’s Ethical and Auditing
Standards in respect of the scope and
maximum permitted level of fees incurred
for non-audit services provided by Deloitte.
Where non-audit work is performed by
Deloitte, both the Company and Deloitte
ensure adherence to robust processes to
prevent the objectivity and independence
of the auditor from being compromised.
All non-audit work performed by Deloitte
was put to the Audit Committee for
consideration and approval, regardless of
size. Further details on non-audit services
provided by Deloitte can be found in note 4
to the financial statements.
The non-audit fees to audit fees ratio for
the financial year ended 31 March 2018 was
0.11:1, compared with the previous year’s
ratio of 0.16:1. The majority of the £0.2m in
non-audit fees paid in total to Deloitte
during 2017/18 was incurred for assurance
services provided during the year. These
comprised fees in respect of the Half Year
review, turnover certificates, the annual
Euro Medium Term Note (EMTN)
programme renewal, reviews of quarterly
trading statements and assurance services
for overseas entities. It is normal practice for
such assurance services to be provided by
the Company’s statutory auditor.
No additional recurring or one-off non-audit
services were provided during the year.
Business Consulting Services (“BCS”),
part of BDO Bangladesh, have been
providing employee payroll services to
our Bangladesh regional office since 2008,
acting as a sub-contractor of Ceridian
UK until March 2012 and subsequently
under a payroll service agreement agreed
directly between M&S and BCS. In March
2018, Deloitte UK were informed of their
Indian firm’s intention to acquire BCS
on 1 June 2018, at which point BCS
would become subject to the global
independence restrictions for M&S which
are applied across the Deloitte network.
As a result, the payroll service will not be
permissible from 1 June 2018. This was
immediately reported to M&S and the
Bangladesh regional office have confirmed
that these services will be transitioned to a
new provider before 1 June 2018.
41
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
ASSURANCE AND INTERNAL CONTROL ENVIRONMENT
2. Management updates Focusing
primarily on the key risks identified in the
Group Risk Profile, management provide
updates to the Committee on how these
risks are managed in individual business
areas. These updates are complemented
by independent reviews conducted by
Internal Audit.
3. Functional assurance Responsible for
maintaining control over critical areas of
risk, the processes and controls of these
functions are tested by Internal Audit & Risk
during relevant audits.
4. Committees Relevant committees within
the organisation provide regular updates to
the Audit Committee, including the Plan A
Committee, which also reports directly to
the Board.
GOVERNANCE
The Group was compliant throughout the
year with the provisions of the UK Corporate
Governance Code relating to internal
controls and the FRC’s revised Guidance
on Audit Committees and Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting.
The Committee has considered the controls
findings raised in the Independent Auditor’s
Report on pages 68-76. No other significant
failings or weaknesses were identified
during the Committee’s review in respect
of the year ended 31 March 2018 and up to
the date of this Annual Report.
Where the Committee has identified areas
requiring improvement, processes are in
place to ensure that the necessary action
is taken and that progress is monitored.
Further details of these processes can
be found within our detailed Corporate
Governance Statement which is available to
view in the Corporate Governance section
of our website.
INTERNAL ASSURANCE FRAMEWORK
Source of information
Frequency/nature of reporting
Internal
Audit
– Internal Audit Plan
– Regular reports against Plan
– Follow up of remediation
– Updates on fraud, whistleblowing
and other irregularity
Formal updates presented
to the Committee at
each meeting
Updates to Audit
Committee Chairman
Management
updates
Functional
assurance
Papers submitted on a range of
issues including:
– Information Security
– Bribery
– Code of Ethics and Behaviours
– GSCOP (Grocery Supplier
Code of Practice)
Functional audit activities
undertaken, including:
– Food Safety & Integrity
– Ethical Audits
– Trading Safely & Legally
Formal updates presented
to the Committee annually
and as appropriate
Updates provided to the
Committee as requested
or appropriate
Committees
– Fire, Health & Safety Committee
– Plan A Committee*
– Business Continuity Committee
Direct reporting lines
to the Committee, with
annual updates from
the relevant executive
* Note: also reports directly to the Board.
AUDIT
COMMITTEE
The Board assumes ultimate
responsibility for the effective
management of risk across the Group,
determining its risk appetite as well
as ensuring that each business area
implements appropriate internal controls.
The Group’s risk management systems
are designed to manage rather than
eliminate the risk of failure to achieve
business objectives, and can only provide
reasonable and not absolute assurance
against material misstatement or loss.
See p22-24 of the Strategic Report for
more information on our material risks
See p20-21 for further information on our
risk management processes
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 Group’s
Code of Ethics and Behaviours.
SOURCES OF ASSURANCE
The Board has delegated responsibility
for reviewing the effectiveness of the
Group’s systems of internal control to the
Audit Committee. This covers all material
controls including financial, operational and
compliance controls and risk management
systems. The Committee is supported by
a number of sources of internal assurance
from within the Group in order to complete
these reviews, in particular:
1. Internal Audit The Group’s primary
source of internal assurance remains
delivery of the Internal Audit Plan, which
is structured to align with the Group’s
strategic priorities and key risks and is
developed by Internal Audit with input from
management. Recommendations from
Internal Audit are communicated to the
relevant business area for implementation
of appropriate corrective measures, with
results reported to the Committee.
During the year, the Internal Audit function
was subject to an effectiveness review by
the Committee to ensure appropriate ways
of working. Resultant actions continue to
be closely monitored by the Committee.
The work completed by Internal Audit
during the year has been directed towards
key areas including information and data
security and cross-business risks mitigation
such as management of third parties.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 42
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
GOVERNANCE
REMUNERATION
OVERVIEW
VINDI BANGA CHAIRMAN OF THE REMUNERATION COMMITTEE
I am pleased that we not only secured the
employment of Humphrey Singer under
our normal framework, but that we were
able to further simplify our pay structures,
removing any additional allowances for
pension or car from his arrangements.
Reflecting on these arrangements, the
Committee believes that our Remuneration
Policy continues to provide appropriate
flexibility, while providing certainty that any
payments made in the implementation of
the Policy are in the best interests of both
the Company and our shareholders.
CONTEXT OF BUSINESS PERFORMANCE
As referenced earlier in this Annual Report,
a number of necessary steps taken to
transform the business impacted the
financial results for 2017/18. Group profit
was impacted by the acceleration of the
UK store closure programme; sales in
Clothing & Home declined as a result
of the continued focus on full-price sales,
the removal of promotions and the number
of clearance sales. Food performance was
not strong enough throughout the year.
As illustrated on page 43, there is a strong
alignment between a number of M&S's
key performance indicators (KPIs) and
the performance measures used in the
directors' incentive awards. As I describe
later, it therefore follows that as a
consequence of the above, total payments
made to directors were lower this year
than last year.
INTRODUCTION
On behalf of the Board, I am pleased to
present our 2018 Remuneration Report.
The Committee’s report covers the required
regulatory information, balanced against
commercial sensitivities, and also provides
further context and insight into our director
pay arrangements.
The report provides a comprehensive
picture of the structure and scale of our
remuneration framework, its alignment
with the business strategy and the rest of
the workforce, as well as the payments
approved by the Committee as a result of
business performance for this year.
M&S’s Remuneration Policy was approved
by an overwhelming majority of 99.08%
of shareholders at the 2017 AGM. In keeping
with the more concise reporting adopted
this year across the Annual Report,
a summary overview of the directors’
annual remuneration framework,
including recruitment and termination
policies reflecting the changes made
to the top team during the year, is provided
on pages 46-49. The full Policy can be
viewed on the Company's website at
marksandspencer.com/thecompany.
Detail of the approved Remuneration
Policy in action during the year, the
Committee’s considerations and the
intended arrangements for 2018/19 are
set out on pages 50-62 of this report.
BOARD CHANGES
The Committee was closely involved
with the arrangements in relation to a
number of executive director changes
announced during the year, including
the appointment of Humphrey Singer as
CFO and the departures of Helen Weir and
Patrick Bousquet-Chavanne. Details of the
leaving arrangements for Helen and Patrick
can be found on page 59 of this report.
“Remuneration in M&S is
aligned with the business
performance and is in
the best interests of
the Company and
its shareholders.”
VINDI BANGA CHAIRMAN OF THE
REMUNERATION COMMITTEE
IN THIS SECTION
REMUNERATION
Remuneration overview p42-45
Remuneration policy summary p46-49
Full policy available at
marksandspencer.com/thecompany,
and in the 2017 Annual Report
ANNUAL REPORT
ON REMUNERATION
Remuneration structure p50
Total single figure remuneration p50
Salary and benefits p51
Annual Bonus Scheme p52-53
Performance Share Plan p54-55
Directors’ share interests p56-57
Changes to Board membership p59
Non-executive directors’ remuneration p60
Remuneration Committee remit p61
See Remuneration report on p50
See our Strategy on p1-24
See our KPIs on p11-14
Read our full Remuneration Policy
at marksandspencer.com/
thecompany
43
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
STRATEGIC ALIGNMENT OF REMUNERATION FRAMEWORK WITH KPIs
Return on capital
employed (ROCE)
Adjusted earnings
per share (EPS)
PERFORMANCE
SHARE PLAN
Free cash flow
(pre shareholder returns)
International
sales growth
Group profit before
tax (PBT) and
adjusting items
Online sales
growth
Like-for-like
sales in Clothing &
Home and Food
ANNUAL
BONUS
SCHEME
Clothing & Home space
See KPIs on p11-14
Plan A including
products with a
Plan A quality and
greenhouse gas
emissions
2017/18 PERFORMANCE
GROUP PBT BEFORE
ADJUSTING ITEMS
RETURN ON CAPITAL
EMPLOYED
ADJUSTED EARNINGS
PER SHARE
FREE CASH FLOW
(PRE SHAREHOLDER RETURNS)
£580.9m
14.0%
27.8p
Group PBT was below the threshold
for bonus payments in the business
to begin. As such, the Committee
exercised its discretion and no bonus
payments were made to directors.
Average three-year ROCE
performance of 14.2% (including
14.0% for 2017/18) was below the
threshold required for this element
of the 2015 PSP award to vest.
EPS growth was -5.6% over the
three years ending in 2017/18 based
on the outturn above. This was below
the 5.0% growth required for any
vesting under this element of the
2015 PSP award.
£417.5m
Cumulative cashflow performance
for the three-year period ending in
2017/18 was £1,542m, which included
£417.5m for 2017/18. As a result,
5.3% of the 2015 PSP award will vest.
STRATEGIC ALIGNMENT OF PAY
To support the transformation plans
outlined by management, the Committee
has considered the measures and targets
used in M&S’s incentive schemes, to ensure
alignment of the Performance Share Plan
and Annual Bonus Scheme with the KPIs
being used within the business. This is
designed to ensure that performance
outcomes and any associated payments
are aligned with business performance
and the transformational journey of M&S.
The illustration above demonstrates
this strong linkage between the KPIs,
payments to directors, and business
performance over the short- and long-term.
As outlined earlier in this Annual Report,
M&S’s focus is resolutely on the journey of
transformation. The Committee is mindful
of the strategic business discussions when
considering incentive structures and
performance assessments for the senior
leadership team. As a result, and as outlined
on pages 11-14 of the Annual Report, KPIs
have been sharpened and focused to
align with and support the transformation.
These changes have been mirrored by the
reduction of the measures used within the
senior remuneration framework which are
disclosed on pages 53-55 of this report.
The Committee will continue to thoroughly
review the pay structures and incentive
arrangements for the senior leadership
team to ensure strong alignment between
the delivery of business performance and
the associated remuneration arrangements
as the business goes through the five-year
transformation programme.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 44
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
GOVERNANCE CONTINUED
SINGLE FIGURE REMUNERATION FOR 2017/18
Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir
£1,044
£707
£754
Fixed pay
PSP
Total bonus
Total £000
£76
£1,120
£777
£826
£70
£72
See Single figure remuneration on p50
See Annual Bonus Scheme below and p52-53
See PSP on p54-55
TERMS OF REFERENCE AND WIDER
WORKFORCE PAY ARRANGEMENTS
The role and remit of the Remuneration
Committee was reviewed this year and
broadened to include a more formal and
wider consideration of our reward
framework and fairness across the
organisation. The key focus remains on
ensuring that the M&S Remuneration Policy
is implemented and applied in such a way
to attract, retain and motivate its leadership,
within a framework designed to promote
the long-term success of M&S whilst being
aligned with shareholder interests. However,
M&S is a business of around 81,000 people
and it is essential that the context of the
wider workforce is taken into consideration
when the Remuneration Committee is
making decisions.
As a result of the review, the Committee
will now regularly debate and discuss
oversight of key people policy areas such
as performance management, diversity
and inclusion as well as gender pay
reporting and reward framework and
budgets. Furthermore, to demonstrate the
Committee’s commitment to meaningful
and transparent engagement on pay
practices in the wider workforce, the chair
of M&S’s employee representative body
will be invited to attend and contribute to a
Committee meeting each year. We welcome
the opportunity this direct engagement
will bring to the continued rigour of the
Committee’s discussions.
More detail around the remit and activities
of the Committee can be found on
page 61 and the Company's website at
marksandspencer.com/thecompany.
COMMITTEE JUDGEMENT
AND DISCRETION
The Remuneration Committee decided
that it would exercise its discretion such that
no payment would be made to any director
under the Annual Bonus Scheme for
2017/18. This decision was not taken lightly
and was the result of careful consideration
of a number of factors, including the PBT
outturn for the year against the financial
plan and annual bonus payments to be
made elsewhere within the business. In
addition, the PBT achievement of £580.9m
was below the threshold required to pay
bonuses to colleagues elsewhere in the
business and the Committee decided,
in the interests of fairness, it would not be
appropriate to pay a bonus to directors,
irrespective of any achievement against
each director’s individual objectives.
This decision not to pay a bonus is in line
not only with the Company’s approved
remuneration policy, but also the Bonus
Scheme rules including the terms and
conditions, which expressly allow the
Remuneration Committee wide discretion
to consider factors including the overall
Company performance, individual
contribution, future prospects of the
Company and external market conditions,
in deciding what, if any, bonus is payable.
In particular, any discretion applied allows
alteration, reduction or withholding of
payment even in circumstances where
targets are achieved.
However, in order to ensure continued
strong governance and transparent
reporting to shareholders, the Committee
discussed each director’s achievement
against the relevant performance targets,
noting their wider performance within the
respective areas of responsibility and also
achievement against Plan A targets and
M&S values, which once again underpinned
the Scheme. Final achievement against
each director’s individual objectives, as
noted by the Committee, is detailed on
page 52 of this report.
SINGLE FIGURE
The graph above summarises the total
payments made to executive directors
for 2017/18, illustrating the figures detailed
in the single figure chart set out later in this
report on page 50.
Overall pay levels for the executive
directors were c. 33% lower than last year,
reflecting the Committee’s decision to
apply discretion to not award bonus
payments to executive directors during
the year. In addition, 8.2% of the 2015
Performance Share Plan (PSP) awards
will vest in July 2018, for the three-year
performance period up to 31 March 2018.
The Committee is satisfied that incentive
payments made to executive directors
during the year are fair in the context of
business performance for 2017/18 and
payments made elsewhere in the business.
PERFORMANCE SHARE PLAN VESTING
Performance Share Plan awards granted in
July 2015 will vest in July 2018 to the extent
that the respective performance conditions
have been achieved.
At the time that measures and targets
were set, the Committee debated the
appropriateness of any metrics and targets
in line with the strategic and financial plans
of the Company. It determined that the
measures used for the 2015 award would
be EPS, ROCE and a financial strategic
scorecard, including International business
performance and Clothing & Home gross
margin. These measures reflected the key
drivers of shareholder value as well as the
strategic priorities and key growth areas
for the business.
The illustration opposite shows that 8.2%
of the 2015 award will vest in July. With
the exception of Clothing & Home
gross margin and cumulative cash flow,
performance against all measures was
below the threshold required for vesting
under any other element of the award. Page
55 of this report provides further detail on
the specifics of the targets set and the
respective achievement under each
measure. The remit of the Committee is to
ensure that targets set are considered to be
stretching yet achievable, rewarding the
delivery of sustainable, ambitious long-
term performance. While this vesting is
disappointing, the Committee is satisfied
that this vesting is reflective of the
disappointing business performance
Steve Rowe and Archie Norman have both
highlighted earlier in this Annual Report.
45
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
PERFORMANCE SHARE PLAN (PSP) VESTING 2018
Annualised EPS Growth
Maximum performance
Actual performance
50%
0%
Average ROCE
Maximum possible
Actual performance
20%
0%
International Cash Sales Growth
Maximum possible
Actual performance
7.5%
0%
vests to the extent that the Committee
deems justified when considering the
overall performance of the business across
the relevant performance period.
Together with the rest of the Board, I look
forward to hearing your views on the
remuneration arrangements I have
summarised on the preceding pages.
I will be available to answer any questions
you may have at the AGM.
VINDI BANGA
CHAIRMAN OF THE REMUNERATION COMMITTEE
Free Cashflow Growth
Maximum performance
Actual performance
7.5%
5.3%
Clothing & Home Gross
Margin Growth
Maximum possible
Actual performance
7.5%
2.9%
M&S.com Cash Sales Growth
Maximum possible
Actual performance
7.5%
0%
See Performance Share Plan on p54-55
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M&S.COM
I N T E R N A T I O N A L
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PAY ARRANGEMENTS FOR 2018/19
To ensure a consistent approach, when
reviewing salary levels, the Committee
takes into account a number of internal
and external factors, including Company
performance during the year, external
market data and the salary review principles
applied to the rest of the organisation.
Despite no increase to Steve Rowe’s salary
since appointment, in line with salary
freezes applied for the broader leadership
team, the Committee determined, and
Steve Rowe agreed, that it would not be
appropriate to award any salary increase
to the CEO for July 2018. Humphrey Singer
will not be eligible for an annual salary
review until July 2019.
The Annual Bonus Scheme remains
unchanged from 2017/18 and will continue
to be based on corporate financial targets
(currently 70%) and individual objectives
(currently 30%). The maximum opportunity
will remain at 200% of salary. The main
financial measure of bonus performance
will continue to be PBT. As we enter the first
phase of our transformation plan to restore
the basics to deliver growth in the medium
term, it is considered appropriate that PBT
continues to represent the largest element
of bonus potential. Individual objectives,
detailed on page 53, have been designed
to draw sharp focus to the activities that
are most critical to our future survival and
success. The PSP will be maintained in its
current form for 2018/19. The continued
inclusion of Relative TSR (TSR) as a measure
within the PSP reinforces the alignment
of executive interests with shareholders,
representing the shareholder experience
of M&S’s performance. In addition, the
financial measures of EPS and ROCE will
continue to give focus to profitable and
efficient business performance. Each of
the three measures will continue to have
equal weighting.
For this year, and reflecting the
transformation expected from the business,
the Committee has approved awards of
250% of salary to Steve Rowe and Humphrey
Singer under the 2018 PSP. This decision
was not taken lightly by the Committee and
involved very careful consideration and
discussion. It was agreed that maintaining
the 2017 grant value, despite a disappointing
business performance in 2017/18, would
represent a clear signal to the most senior
management that whilst there is hard work
ahead as we move along the transformation
journey to make M&S special again, truly
excellent performance will be rewarded.
Given the continued challenges faced within
the retail sector and the challenges faced
by M&S during the 2017/18 financial year,
the Committee believes that the targets set
for the 2018 award represent stretching
business performance. Maximum vesting
would be representative of outstanding
performance, both against the internal
measures of EPS and ROCE but also against
our peer group used for Relative TSR.
Maximum achievement of the 2018 PSP
targets would represent significant
added value to both the business and
shareholders. Whilst the appropriateness of
targets and measures have been carefully
considered, senior management should be
under no illusion that the Committee, as
demonstrated under 2017/18 Annual Bonus
Scheme, would not hesitate to exercise its
discretion to ensure that the 2018 PSP only
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
46
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
REMUNERATION
SUMMARY
REMUNERATION POLICY
This report sets out a summary of M&S’s policy on remuneration for executive and non-executive directors. The full policy was approved
by shareholders at the AGM on 11 July 2017 and can be found on our website at marksandspencer.com/thecompany. The policy took effect
from this date and may operate for up to three years. The policy is designed to attract, retain and motivate our leaders and ensure they
are focused on delivering business priorities within a framework designed to promote the long-term success of M&S, aligned with our
shareholders’ interests.
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 11 JULY 2017)
FIGURE 1: SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY TABLE
ELEMENT
OPERATION
BASE SALARY
Salaries are reviewed annually by the Committee, considering a number of factors, including:
– Salary increases in the wider M&S workforce.
– The experience, responsibility and contribution of the individual.
– Salaries for comparable roles in appropriate comparator groups (such as major retailers and
similarly-sized listed companies).
BENEFITS
In line with our policies, executive directors are eligible to receive benefits which may include:
– A car or cash allowance and a driver.
– Life assurance.
– Relocation and tax equalisation allowances in line with our mobility policies.
As with all employees, directors are also offered other benefits including:
– Employee discount.
– Salary sacrifice schemes.
– Participation in our all-employee share schemes.
PENSION
BENEFITS
M&S may choose to offer:
– Participation in our defined contribution pension scheme; or
– Cash payments in lieu of pension contributions.
The defined benefit pension scheme is closed to new members. Directors who are members of this
scheme will continue to accrue benefits as a deferred member.
ANNUAL
BONUS
SCHEME
INCLUDING
DEFERRED
SHARE BONUS
PLAN (DSBP)
PERFORMANCE
SHARE PLAN
(PSP)
All directors are eligible to participate in the Annual Bonus Scheme, which is a discretionary, non-
contractual scheme. Performance is measured against quantifiable one-year financial and individual
performance targets linked with the sustainable delivery of our business plan. Targets are set at the
start of the year and approved by the Remuneration Committee. At least half of awards are measured
against financial measures which typically includes Group PBT before adjusting items (PBT).
Corporate and individual elements may be earned independently, but no part of the individual objectives
may be earned unless a ‘threshold’ level of PBT has been achieved. For threshold performance, up to
40% of maximum may be payable for the achievement of individual objectives (currently 30%).
Not less than 50% of any bonus earned is paid in shares which are deferred for three years. The value
of any dividends during the deferral period will be payable to the extent that the award vests.
The Committee retains the right to exercise discretion, both upwards and downwards, to ensure that the
level of award payable is appropriate and fair in the context of the director’s individual performance, the
Company’s overall performance and relative bonus payments across the organisation. Where exercised,
the rationale for this discretion will be fully disclosed to shareholders in the subsequent Annual Report.
The Committee can, in circumstances it believes appropriate, reduce to zero unvested deferred share
awards. In certain circumstances, the Committee can also reclaim all or part of the cash bonus for up to
three years after the payment date.
To encourage long-term shareholding, to retain directors and to provide greater alignment with shareholders’
interests, all directors are eligible to participate in the Performance Share Plan. This is a non-contractual,
discretionary scheme and is M&S’s main long-term incentive scheme. Performance may be measured
against appropriate financial, non-financial and/or strategic measures. Financial measures must comprise
at least 50% of awards. Measures currently include Adjusted Earnings Per Share (EPS), Return on Capital
Employed (ROCE) and Relative Total Shareholder Return (TSR).
The value of any dividends during the vesting period will be payable subject to the award vesting.
The Committee can, in circumstances it believes appropriate, reduce to zero unvested PSP awards.
In addition, the Committee can reclaim all or part of vested awards for up to two years after the
vesting date in certain specified circumstances.
Awards granted after 11 July 2017 will be subject to a further two-year holding period after the vesting
date. Directors may sell sufficient shares to satisfy the tax liability on exercise but must retain the net
number of shares until the end of this two-year period.
OPPORTUNITY
Annual increases are normally in line
with those in the wider workforce,
although no maximum is set.
Individual adjustments may be made
in appropriate circumstances (e.g.
where the role scope has changed
or as part of salary progression for
newly-appointed directors).
There is no set maximum,
however any provision will be
commensurate with local markets
and for all-employee shares
schemes, the local statutory limits.
Cash payments are capped at
25% of salary for executive directors
appointed prior to 11 July 2017.
For directors appointed to the
Board after 11 July 2017, the cash
alternative will be capped at a
maximum of 20% of salary.
Total maximum annual bonus
opportunity is capped at 200% of
salary for each executive director.
The maximum annual value of
shares at grant is capped at 300%
of salary for each executive director.
47
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY CONTINUED
FIGURE 2: RECRUITMENT POLICY & SERVICE CONTRACTS
The table below summarises the Company’s policy on the recruitment of new executive directors. Similar considerations may
also apply where a director is promoted within the Board.
ELEMENT
APPROACH
SERVICE
CONTRACT
– All executive directors have rolling contracts for service which may be terminated by M&S giving 12 months’ notice
and the individual giving six months’ notice.
BASE SALARY
– Salaries are set by the Committee, taking into consideration a number of factors including the current pay for other
executive directors, the experience, skill and current pay level of the individual and external market forces.
– The Committee may choose to set the salary below that of the market or the other directors with the intention
of applying staged increases.
BENEFITS
– The Committee will offer a benefits package in line with our benefits policy for executive directors. The benefits provided
will appropriately reflect the individual’s circumstances.
PENSION
BENEFITS
ANNUAL
BONUS
SCHEME
PSP
BUY-OUT
AWARDS
– Maximum contribution in line with our policy.
– Maximum bonus potential will be capped at 200% of salary in line with our policy.
– Maximum award of up to 300% of salary in line with our policy.
– The Committee may offer compensatory payments or buy-out awards where an individual forfeits outstanding variable
pay opportunities or contractual rights as a result of their appointment with M&S.
– The specifics of any buy-out awards would be dependent on the individual circumstances of recruitment and would be
determined on a case-by-case basis. On assessing such awards, the Committee will seek to make awards on a like-for-like
basis to ensure that the value awarded would be no greater than the value forfeited by the individual. The Committee
may choose to apply performance conditions to these awards.
In addition, the Committee in exceptional circumstances has discretion to include any other remuneration component or award which it
feels is appropriate, taking into account the specific circumstances of the individual, subject to the limit on variable remuneration set out
above. The rationale for any such component would be appropriately disclosed. For example, for internal promotional appointments to
the Board, the Committee would honour any pre-existing contractual remuneration arrangements which may be outside of the standard
policy summarised within this report.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 48
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
GOVERNANCE CONTINUED
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY CONTINUED
FIGURE 3: TERMINATION POLICY
The Company may choose to terminate the
contract of any executive director in line
with the terms of their service agreement
either by means of a payment in lieu of
notice or through a series of phased
payments subject to mitigation. Service
agreements may be terminated without
notice and, in certain circumstances, such
as gross misconduct, without payments.
ELEMENT
APPROACH
The Company’s policy toward exit payments
allows for a variety of circumstances
where a director may leave the business.
In all circumstances, the Committee does
not intend to ‘reward failure’ and will
make decisions based on the individual
circumstances ensuring they are in the best
interests of the Company and shareholders
at that time, and reflect the director’s
contractual and other legal rights.
The table below summarises our
termination policy for executive directors
under their service agreement and the
incentive plan rules.
BASE SALARY,
BENEFITS AND
PENSION
BENEFITS
ANNUAL
BONUS
SCHEME
LONG-TERM
INCENTIVE
AWARDS
– Payment made up to the termination date.
– There is no contractual entitlement to a bonus payment. If the director is under notice or not in active service at either the end of the bonus
year or on the payment date, awards (and any unvested deferred bonus shares) may lapse. The Committee may, however, use its discretion
to make a bonus award, typically pro-rated for time and based on the performance assessed at the end of the bonus year.
– The treatment of outstanding share awards is determined in accordance with the respective plan rules.
– For performance share awards held for at least 12 months, awards typically vest at the end of the relevant performance period (to the extent
to which any performance conditions are met) and are pro-rated for time. The plan rules allow for the Committee to permit these awards to vest
at the time the director leaves and to not apply time pro-rating. Awards which have not been held for 12 months upon leaving will lapse in full.
REPATRIATION
– M&S may pay for repatriation where a director has been recruited from overseas.
LEGAL
EXPENSES &
OUTPLACEMENT
– Where a director leaves by mutual consent, M&S may reimburse for reasonable legal fees and pay for professional outplacement services.
The full policy sets out further detail on the treatment of the executive directors’ pay arrangements, including the treatment of share
schemes in the event of a change of control or winding-up of the Company and some legacy long-term incentive plans which the
Company operates. No current executive director holds unexercised awards under these legacy plans.
CONSIDERATION OF WIDER WORKFORCE PAY & SHAREHOLDER VIEWS
The Committee monitors and reviews the
effectiveness of the senior remuneration
policy and has regard to its impact and
compatibility with remuneration policies in
the wider workforce. During the year the
Committee is provided with information
and context on pay in the wider workforce
to enable its decision-making. This includes
the approach for UK pay review, the total
annual bonus cost budget and PSP awards
to be made to directors below the Board.
including our annual ‘Your Say’ employee
survey which asks employees about the
relevance and recognition of excellence
within employee pay and benefits.
Employee representatives in our Business
Involvement Groups are annually provided
with an explanation of the executive
directors’ pay arrangements during the
year, and are able to ask questions on the
arrangements and their fit with the other
reward polices at this time.
The Committee receives updates on a
variety of employee engagement initiatives
The Committee is committed to an
open and transparent dialogue with its
shareholders. Where appropriate,
the Committee will actively engage
with shareholders and shareholder
representative bodies, seeking views
which may be taken into account when
making any decisions about changes
to the directors’ remuneration policy.
The Committee Chairman is available to
answer questions at the Annual General
Meeting (AGM) and the answers to specific
questions are posted on our website.
49
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 11 JULY 2017)
FIGURE 4: SUMMARY OF REMUNERATION POLICY
The diagram below illustrates the balance of pay and time period of each element of the remuneration policy for executive directors,
approved in July 2017. The Committee believes this mixture of short- and long-term incentives and fixed to performance-related pay
is appropriate for M&S's strategy and risk profile.
Year 1
Year 2
Year 3
Year 4
Year 5
FIXED
PAY
Base salary
Benefits
Pension benefits
Y
A
P
L
A
T
O
T
ANNUAL
BONUS
SCHEME
Up to 100% salary
Up to 100% salary
One-year performance
Three-year deferral period
Clawback provisions
apply
No further performance conditions
Malus provisions apply
PSP
Maximum 300% of salary
Three-year performance
Malus provisions apply
Two-year holding period post vesting
No further performance conditions
Clawback provisions apply
FIGURE 5: SUMMARY NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 11 JULY 2017)
The table below summarises our policy for the operation of non-executive director fees and benefits at the Company.
ELEMENT
OPERATION AND OPPORTUNITY
SERVICE
AGREEMENTS
– All non-executive directors have an agreement for an initial three-year term. The Chairman’s agreement requires six months’ notice by
either party. The non-executive directors’ agreements may be terminated by either party giving three months’ notice.
CHAIRMAN'S
FEES
Fees are reviewed annually by the Committee taking into consideration:
– Time commitment, demands and responsibility of the role.
– External market practice.
NON-
EXECUTIVE
DIRECTOR'S
BASIC FEE
ADDITIONAL
FEES
BENEFITS
The maximum aggregate fees for the Chairman and non-executive directors’ fees is £750,000 p.a. as set out in our Articles of Association.
Fees are reviewed annually by the executive directors taking into consideration:
– Time commitment, scope and responsibility of the role.
– External market practice.
The maximum aggregate fees for the non-executive directors’ fees, including the Chairman’s fee, is £750,000 p.a. as set out in our
Articles of Association.
Additional fees are paid for undertaking the extra responsibilities of:
– Board Chairman.
– Senior Independent Director.
– Committee Chairman.
In line with our other employees, the Chairman and non-executive directors are entitled to receive employee discount.
The Chairman may also be entitled to the use of a car and driver.
No further benefits are provided to the Chairman or non-executive directors.
RECRUITMENT
The Committee takes into account a number of factors when determining an appropriate fee level for the Chairman. The CEO and
executive directors determine appropriate fee levels for the non-executive directors and take into account the time commitment,
role responsibility and market practice in our comparator groups when doing so.
M&S may offer benefits to the Chairman in line with our policy.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
50
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
EXECUTIVE DIRECTORS’ REMUNERATION
The Remuneration Committee annually
reviews the senior remuneration framework
and considers whether the existing
incentive arrangements remain
appropriately challenging in the context
of the business strategy, current external
guidelines and a range of internal factors
including the pay arrangements and
policies throughout the rest of the
organisation. In its discussions, the
Remuneration Committee aims to ensure
that not only is the framework strategically
aligned to the delivery of business priorities,
but also that payments made during the
year fairly reflect the performance of the
business and individuals. As illustrated on
page 45, a significant proportion of the
performance measures used in the
incentive schemes are integrated with
M&S’s key performance indicators (KPIs)
detailed on pages 11-14. The diagram below
illustrates the achievement of each
executive director under the Company’s
incentive schemes as a result of short- and
long-term performance to the end of the
reported financial year and summarises the
main elements of the senior remuneration
framework. Further details of payments
made during the year are set out in the
single figure table below (Figure 7) and
later in this report.
FIGURE 6: REMUNERATION STRUCTURE 2017/18
Fixed pay
Annual bonus
PSP
Base salary
Benefits
Pension benefits
200% salary maximum
bonus opportunity
(with 50% deferral)
Measured against a
balance of Group PBT before
adjusting items (PBT) and
individual performance
250% salary awarded
in 2015
Measured against adjusted EPS
(EPS), average ROCE and a
scorecard of other strategic
priorities. Achievement was
8.2% against targets set
No salary increase
No bonus payment
8.2% of award vested
See KPIs on p11-14
Total pay
for 2017/18
Total
payments
are between 23% and
24% of maximum
potential
For more information see p52
For more information see p55
FIGURE 7: TOTAL SINGLE FIGURE REMUNERATION (AUDITED)
Director
Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir
Year
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
Salary
Benefits
£000
£000
Total
bonus
£000
Total PSP
vested
£000
Pension
benefits
£000
810
809
546
546
590
590
31
32
24
22
16
19
0
599
0
459
0
496
76
0
70
0
72
0
203
202
137
137
148
148
Total
£000
1,120
1,642
777
1,164
826
1,253
Helen Weir left M&S on 31 March 2018. Patrick Bousquet-Chavanne left the Board on 18 April 2018 and will leave M&S on 31 May 2018.
Further details of their leaving arrangements can be found on page 59 of this report.
The following sections detail additional disclosures regarding each of the components set out in the above single figure table.
51
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED
SALARIES
When reviewing salary levels, the Committee
takes into account a number of internal
and external factors, including Company
performance during the year, external
market data, historic increases made to
the individual and, to ensure a consistent
approach, the salary review principles
applied to the rest of the organisation.
As reported in last year’s report, all
executive directors were awarded a salary
increase by the Committee of 2% for
FIGURE 8: SALARIES
Steve Rowe
Humphrey Singer (July 2018)
BENEFITS (AUDITED)
The Remuneration Policy permits that each
executive director may receive a car or cash
allowance as well as being offered the
benefit of a driver. During the year, Steve
Rowe and Patrick Bousquet-Chavanne
received a car and the benefit of a driver.
Helen Weir received a cash allowance.
Humphrey Singer receives neither a car
nor cash allowance, and will not have the
benefit of a driver.
FIGURE 9: PENSION BENEFITS (AUDITED)
Steve Rowe
salaries effective July 2017 but, in support of
the proposed pay changes made elsewhere
in the UK organisation, they chose to decline
this increase.
Helen Weir and Patrick Bousquet-Chavanne
will no longer be employed by M&S in July
2018. Therefore, they were not eligible for a
salary review.
For salaries effective July 2018, only Steve
Rowe was eligible to be considered for a
review. In line with salary freezes for the
broader leadership team, the Committee
decided, and the CEO agreed, that it would
not be appropriate to award any salary
increase to the CEO for July 2018, despite
no increase in Steve Rowe's salary since
his appointment to CEO in 2016.
The next annual salary review for the CEO
and CFO will be effective in July 2019.
The table below details the executive
directors’ salaries as at 1 April 2018
and salaries which will take effect
from 1 July 2018.
The Company provides each director with
life assurance.
In line with all other employees, executive
directors receive employee product
discount and are eligible to participate
in salary sacrifice schemes such as
Cycle2Work.
Annual
salary as of
1 July 2018 (or
date of
appointment)
£000
810
600
Annual
salary as of
1 April 2018
£000
810
–
Change
in salary
% increase
0%
–
PENSION BENEFITS (AUDITED)
All executive directors during the year
received a cash payment in lieu of
participation in an M&S pension scheme.
In addition, Steve Rowe is a deferred
member of the Marks & Spencer UK Pension
Scheme. Details of the pension accrued
during the year ended 1 April 2018 are
shown below.
Humphrey Singer is eligible to participate in
the M&S pension scheme. He will not receive
any additional payments if he chooses not
to participate in this scheme.
Accrued
pension
entitlement
as at
year end
£000
Additional
value
on early
retirement
£000
Increase
in accrued
value
£000
Increase
in accrued
value
(net of
inflation)
£000
Normal
retirement
age
60
153
0
4
0
Transfer
value of
total
accrued
pension
£000
4,714
The accrued pension entitlement is the deferred pension amount that Steve Rowe would receive at age 60 if he left the Company on
1 April 2018. All transfer values have been calculated on the basis of actuarial advice in accordance with the current Transfer Value
Regulations. The transfer value of the accrued entitlement represents the value of the assets that the pension scheme would transfer
to another pension provider on transferring the scheme’s liability in respect of a director’s pension benefits. It does not represent sums
payable to a director and therefore cannot be added meaningfully to annual remuneration.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 52
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
REMUNERATION REPORT CONTINUED
ANNUAL BONUS SCHEME
ANNUAL BONUS SCHEME 2017/18 (AUDITED)
Annual performance for the year was
again primarily measured against Group
PBT before adjusting items (PBT) (70%)
and individual performance (up to 30%).
PBT is used as a core bonus measure as
it is considered to be an important
measure of overall performance and is
consistent with how business performance
is assessed internally by the Board and
Operating Committee.
Individual performance was measured
against a mixture of collective objectives
(10%) and performance aligned with each
director's specific areas of responsibility
(20%). These measures were aligned with the
key strategic business priorities identified
prior to the start of the financial year and
comprised a balance of financial and
quantitative non-financial measures.
PBT outturn for the year was £580.9m which
was below the threshold set to trigger
payments under the corporate element of
the Scheme. This level of PBT performance
meant that no bonuses would be paid
elsewhere in the organisation. As such, it was
decided that the Committee would exercise
its discretion such that there would not be
any bonus payment to any directors as a
result of this overall level of business
performance, irrespective of any
performance against individual objectives.
This decision was made following careful
and thorough consideration of several
factors, including the broader expected
and actual financial performance of the
Company together with the fairness of,
and likely impact on colleague morale,
where no bonuses would be awarded
elsewhere. The Committee decided,
and the CEO agreed, that it would not be
appropriate to pay any director a bonus
under these circumstances.
As a consequence of the Committee’s
application of discretion, no bonus
payments will be paid to directors in relation
to 2017/18 performance. The total bonus
paid column in Figure 10 is zero for all
directors. This figure directly corresponds
to the value shown in the single figure
table on page 50.
That said, the Committee did continue to
review the achievement of the individual
objectives set at the start of the financial
year to fulfil its remit and to enable
transparent disclosure to shareholders.
For completeness, the table below shows
the achievement against each director’s
individual objectives, as noted by the
Committee. In noting this performance,
the Committee considered not only the
achievement against the pre-determined
targets, but also the wider performance
within these specific areas to ensure that
any achievement noted was representative
of overall performance. In addition, and
consistent with prior years, success towards
Plan A targets and M&S values which
underpinned the Scheme was also taken
into account. The Committee noted that,
while Plan A remains an important
cornerstone of the way M&S does business,
the drive towards the transformation plan
has meant that at the end of the first year
of the new Plan A 2025 strategy, 12% of
targets are currently behind plan.
The Committee ensures that targets set
are the relevant drivers of required annual
performance, recognising that it operates in
the context of a highly competitive market.
Some of the specific targets set for 2017/18
remain too commercially sensitive to
disclose as they are not disclosed elsewhere
in this report. To the extent these targets
are able to be reported, they have been
described. The Committee will continue to
assess the commercial sensitivity of targets
with the aim of disclosure wherever possible,
while ensuring that any measures set are
those most appropriate to restore the
business to profitable growth.
FIGURE 10: ANNUAL BONUS SCHEME OUTTURN 2017/18 (AUDITED)
Director
Corporate (70%)
Customer (10%)
Strategic (10%)
Financial (10%)
Steve Rowe
PBT
Threshold
£585m
Stretch
£663m
Customer Satisfaction:
Clothing & Home Net Promoter
Score (NPS) significantly improved
achieving above stretch
performance, although this did
not translate to above Plan sales.
Food NPS was below target.
Succession Planning:
Key senior appointments made
during the year, in particular within
Clothing & Home and Food, to
support and drive continued
transformation and demonstrating
a commitment to building strong
internal succession planning.
UK Like-for-Like Sales:
Continued reduction in
promotional activity and
markdowns led to below
target UK like-for-like sales
of -0.9%.
£580.9m 0%
5%
5%
0%
Patrick Bousquet-Chavanne
PBT
Threshold
£585m
Stretch
£663m
Customer Satisfaction:
Clothing & Home Net Promoter
Score (NPS) significantly improved
achieving above stretch
performance, although this did
not translate to above Plan sales.
Food NPS was below target.
Sparks Activity:
Increased active user numbers and
resultant sales. Taking into account
this performance, plus wider
Sparks strategic progress, target
achievement agreed.
M&S.com UK Revenue and
Operating Profit:
Disappointing sales through the
UK M&S.com channel against
targets set led to below target
revenue and operating profit
for this year.
£580.9m 0%
5%
5%
0%
Total bonus
following application
of RemCo
£0k
/ £1.62m
Overall % of Salary
(200% max)
0%
£0k
/ £1.09m
Overall % of Salary
(200% max)
0%
Helen Weir
PBT
Threshold
£585m
Stretch
£663m
Customer Satisfaction:
Clothing & Home Net Promoter
Score (NPS) significantly improved
achieving above stretch
performance, although this did
not translate to above Plan sales.
Food NPS was below target.
Property:
UK store estate programme
delivered the change in space
within budget and timelines.
However, it was determined that
some of this delivery was a result
of disappointing overall M&S
performance and so only target
achievement noted.
Costs:
Cost savings target for the year
were achieved. A future cost
savings programme was also
initiated, but not all project
milestones and deliverables
achieved within agreed timelines.
£0k
/ £1.18m
Overall % of Salary
(200% max)
0%
£580.9m 0%
5%
5%
5%
53
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
DEFERRED SHARE BONUS PLAN
(AUDITED)
Currently 50% of any bonus payment is
compulsorily deferred into nil-cost options/
conditional shares. These awards vest
after three years subject to continued
employment as well as malus provisions.
The table opposite provides details of
share awards made during the year in
respect of bonus payments made in 2016/17.
The face value of each award reflects half
of the value shown for 2016/17 bonus
payments in the single figure table.
ANNUAL BONUS SCHEME CONTINUED
FIGURE 11: DSBP AWARDS MADE IN 2016/17 (AUDITED)
Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir
Basis of award
50% of bonus
50% of bonus
50% of bonus
Face value
of award1
£000
£300
£229
£248
End of
deferral period
23/06/2020
23/06/20202
23/06/20202
1. The face value of awards is calculated as the number of nil-cost options/conditional shares awarded multiplied by the
average mid-market share price on the five dealing days prior to the date of grant. For this year, the share price was
calculated as £3.433, being the average share price between 16 June 2017 and 22 June 2017.
2. As previously reported, Helen Weir left M&S on 31 March 2018. Patrick Bousquet Chavanne will leave the business on
31 May 2018. In line with our remuneration policy, all deferred bonus awards, including those above, will vest early upon
leaving. See Figure 24 for more information. Full leaving arrangements are detailed on page 59.
ANNUAL BONUS SCHEME FOR 2018/19
During the year, the Committee reviewed
the 2018/19 Scheme, considering the
five-year transformation programme,
‘Making M&S Special Again’ and bonus
arrangements elsewhere in the business.
It determined that the structure of the
2017/18 Scheme remained broadly
appropriate, with some necessary minor
amendments to further align the Scheme
with the pillars of transformation outlined
elsewhere in this report and with bonus
arrangements in the organisation. The
2018/19 Scheme is designed to focus
on restoring the business to profitable
growth with an emphasis not only on
profits but also other key financial areas
which drive this transformation journey.
Performance will be again focused on Group
PBT before adjusting items (PBT) (70%) with
individual measures set against key areas of
delivery of the transformation plan which
are deemed most critical to the future
sustainable success of M&S.
For 2018/19, individual performance
will again be measured independently
of PBT performance, but, mirroring
arrangements elsewhere in the business, no
individual element may be earned until the
threshold needed to secure payment under
the corporate element is similarly achieved.
As illustrated below, 70% of awards will once
again be measured against PBT under the
corporate element. The remaining 30%
of the bonus will be measured against a
scorecard of individual objectives.
The individual element of the Scheme
will comprise of a number of measures
identified as the measurable key priorities
required to drive the continued
transformation of M&S.
For the CEO, the measures within the
individual scorecard will focus on the
building and bedding-in of a strong new
management team, improvements in M&S’s
online sales and fulfilment capability, supply
chain improvements and the successful
evolution of the Sparks loyalty programme.
For the CFO, the scorecard measures will
focus on helping to deliver the financial
plan of the business, with an emphasis on
M&S’s operating costs, and control of capital
costs and expenditure across the business.
In addition, in this first year with M&S,
Humphrey’s objectives will also include a
review of the capabilities and controls within
his teams with a strong focus on talent
management and succession planning.
The performance targets for the
2018/19 Scheme are deemed by the Board
to be too commercially sensitive to disclose
at this time but, where possible, will be
disclosed in next year’s report.
The Committee, in its absolute discretion,
may use its judgement to adjust outcomes
to ensure that any payments made reflect
overall business and individual performance
during the year.
Achievement against areas such as Plan A,
M&S’s ecological and ethical plan for
creating long-term sustainable business
value, and delivery of the pillars of
transformation will also inform the
Committee’s decision making when
approving final payments for 2018/19.
FIGURE 12: ANNUAL BONUS SCHEME TARGETS 2018/19
Director
Steve
Rowe
Humphrey
Singer
CORPORATE TARGETS
INDIVIDUAL OBJECTIVES
Group PBT before adjusting items (PBT)
% bonus
70%
Scorecard of
Individual Measures
% bonus
Measure
30% Success of new management team
Online capabilities
Supply chain
Evolution of Sparks
70%
30% Operating costs
Control of capital costs and expenditure
Talent review
Review control environment
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 54
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
REMUNERATION REPORT CONTINUED
PERFORMANCE SHARE PLAN (PSP)
The Committee believes that long-term share awards reward executives for the delivery of long-term business goals and so makes annual
awards under the PSP to incentivise executive directors and M&S's most senior managers.
PSP AWARDS MADE IN 2017/18 (AUDITED)
As was reported last year, having considered
the extent to which the long-term incentive
framework remained relevant, the
Committee determined that whilst the
existing structural arrangements remained
appropriate, during this period of
transformation the business must continue
to ensure a focus on returns to shareholders.
As such, a Relative TSR (TSR) measure
was introduced, forming one-third of
performance conditions for PSP awards.
TSR is measured against a bespoke group
of 15 companies taken from the FTSE 350
General and Food & Drug Retailers indices
and are believed to be appropriately aligned
to M&S’s business operations to reflect the
value of shareholder investment in M&S
over the performance period (see Figure 14
for details of these companies).
As was reported last year, each executive
director was granted an award of conditional
shares of 250% of salary. The grant was
made on 14 August 2017. In line with policy,
awards will vest three years after the date of
grant, to the extent that the performance
conditions are met, and must then be held
for a further two years.
The remainder of the award is measured
equally against Adjusted EPS (EPS) and
Average ROCE. This balance of measures
has been designed to ensure an equal
focus on all three performance metrics.
Consistent with previous years, 20% of
awards will vest for threshold performance
increasing to 100% on a straight-line
basis between threshold and maximum
performance. Detailed targets can be
seen in Figure 13.
FIGURE 13: PERFORMANCE CONDITIONS FOR PSP AWARDS MADE IN 2017/18 (AUDITED)
2017/18 award
Threshold performance
Maximum performance
Adjusted EPS
in 2019/20
Average ROCE
(2017/18 – 2019/20)
(%)
1/3 of award
1/3 of award
Relative TSR
1/3 of award
31.7p
38.7p
13.0%
Median
17.0% Upper quartile
FIGURE 14: TSR COMPARATOR GROUP 2017/18 AND 2018/19 AWARD (AUDITED)
J Sainsbury
Wm Morrisons
Tesco
Ocado Group
ASOS
B&M European
Debenhams
Dixons Carphone
Dunelm Group
JD Sports Fashion
Kingfisher
N Brown Group
Next
Sports Direct International
WHSmith
FIGURE 15: PSP AWARDS MADE IN 2017/18 (AUDITED)
Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir
Basis of award
% of salary
250%
250%
250%
Face value
of award
£000
2,025
1,365
1,475
End of
performance
period
28/03/2020
28/03/2020
28/03/2020
Vesting date
14/08/2020
14/08/20201
14/08/20201
1. As previously reported, Helen Weir left M&S on 31 March 2018. Patrick Bousquet Chavanne will leave the business on 31 May 2018. In line with the Performance Share Plan Rules,
PSP awards made in 2017/18 will lapse in full upon leaving the company. See Figure 24 for more information. Full leaving arrangements are detailed on page 59.
When calculating the face value of awards to be granted, the number of conditional shares awarded is multiplied by the average mid-market
share price on the five dealing days prior to the date of grant. For this year, the share price was calculated as £3.297, being the average share
price between 7 August 2017 and 11 August 2017.
55
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
PERFORMANCE SHARE PLAN (PSP) CONTINUED
FIGURE 16: PSP AWARDS VESTING IN 2017/18 (AUDITED)
For directors in receipt of PSP awards granted in 2015, the awards will vest in June 2018 based on three-year performance over the period
to 31 March 2018. Performance has been assessed and it has been determined that 8.2% of the total award will vest.
Details of performance against the specific targets set are shown in the table below.
The total vesting values shown below directly correspond to the figure included in the single figure table on page 50.
Annualised
adjusted
EPS growth1
(%)
Average
ROCE
(%)
International
cash sales
growth1
(%)
M&S.com
cash sales
growth2
(%)
Clothing &
Home gross
margin
growth
(bps)
Free cashflow
growth3
(£m)
Financial strategic scorecard
2015/16 award
50% of award
20% of award
7.5% of award
7.5% of award
7.5% of award
7.5% of award
Threshold performance
Maximum performance
Actual performance achieved
Percentage of maximum achieved
5.0%
12.0%
-5.6%
0%
15.0%
16.5%
14.2%
0%
5.0%
15.0%
-0.6%
0%
11.0%
18.0%
10.6%
0%
350bps
550bps
396bps
2.9%
£1,350m
£1,650m
£1,542m
5.3%
Total vesting
% of award
8.2%
1. Excluding M&S.com/including Republic of Ireland.
2. Ex VAT, post returns.
3. Pre-dividends, enhanced shareholder returns and strategic options.
FIGURE 17: VESTING VALUE OF AWARDS VESTING IN 2017/18 (AUDITED)
Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir
On grant
At the end of performance period (31 March 2018)
Number of
shares granted
% of salary
granted
Number of
shares vesting
Number of
shares lapsing
Total vesting
of award
£000
260,826
255,905
276,527
250%
250%
250%
21,387
19,818
20,155
239,439
236,087
256,372
£76
£70
£72
Total vesting values are based on a share price of £2.94 (the average share price from 2 January 2018 to 29 March 2018) plus a dividend
equivalent of £0.61 per share. To provide an accurate indication of the total vesting value for Helen Weir and Patrick Bousquet-Chavanne,
the column detailing the number of shares lapsing takes into consideration shares lapsing due to the pro-ration applied to their awards on
leaving M&S. Further details on the treatment of share awards upon leaving can be found on page 59.
PSP AWARDS TO BE MADE IN 2018/19
During the year, the Committee reviewed
the long-term incentive framework at M&S,
assessing the extent to which it remained
appropriate. After consideration, it was
decided that the current structural
arrangements continue to be aligned to the
focus on maximising shareholder value by
restoring the business to profitable growth.
The three performance measures used in
the 2017 PSP award, Relative TSR (TSR),
Adjusted EPS (EPS) and Average ROCE
(ROCE), are still considered to be the key
drivers to deliver these core priorities. In line
with last year’s award, these measures will be
equally balanced to ensure an appropriate
focus on all three metrics.
TSR will once again be measured against the
bespoke group of 15 companies taken from
the FTSE 350 General and Food & Drug
Retailers indices. This group was reviewed
during the year to ensure the constituents
remain appropriately aligned to M&S’s
business operations to best reflect the value
of shareholder's investment in M&S over
the respective performance period. These
companies are listed in Figure 14 overleaf.
Targets set for the 2018 PSP award are in line
with those set for the 2017 award, and M&S's
financial plan, reflecting the continued
journey of the programme to Make M&S
Special Again. Targets were reviewed and are
considered to remain a balance of achievable
but stretching. Achievement of maximum
vesting would be indicative of exceptional
performance against these metrics.
The Committee is mindful of the need to
strongly incentivise the most senior leaders
of M&S. Following careful consideration and
discussion, for the 2018 PSP a grant of 250%
of salary was approved. It was agreed that
this award level would represent a clear
signal to the executive directors that whilst
there is hard work ahead as we move along
the transformation journey to make M&S
special again, truly exceptional performance
will be rewarded.
FIGURE 18: PERFORMANCE CONDITIONS FOR PSP AWARDS TO BE MADE IN 2018/19
2018/19 award
Threshold performance
Maximum performance
Adjusted EPS
in 2020/21
1/3 of award
31.7p
38.7p
Average ROCE
(2018/19 – 2020/21)
(%)
1/3 of award
13.0%
17.0%
Relative TSR
1/3 of award
Median
Upper Quartile
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 56
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTORS' REMUNERATION
FIGURE 19: DIRECTORS’ SHAREHOLDINGS (AUDITED)
The table below sets out the total number of shares held at 31 March 2018 by each executive director serving on the Board during the year.
Shares owned outright include those held by connected persons.
There have been no changes in the current directors’ interests in shares or options granted by the Company and its subsidiaries between the
end of the financial year and 22 May 2018. No director had an interest in any of the Company’s subsidiaries at the statutory end of the year.
Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir
Unvested
With
performance
conditions
Without
performance
conditions
Shares owned
outright
Performance
Share Plan
Deferred Share
Bonus Plan
253,408
123,098
50,000
1,430,660
1,044,459
1,128,628
179,231
138,459
159,238
Vested but
unexercised
shares
0
0
0
FIGURE 20: SHAREHOLDING REQUIREMENTS (AUDITED)
All executive directors are required to hold shares equivalent in value to a minimum percentage of their salary within a five-year period from
their appointment date. For the CEO, this requirement is 250% of salary and for other executive directors the requirement is 150% of salary.
Similar guidelines of 100% of salary also apply to all directors below Board level.
The chart below shows the extent to which each executive director has met their target shareholding as at 31 March 2018. For Steve Rowe,
his 250% shareholding requirement is measured from the date he was appointed CEO.
For the purposes of the requirements, the net number of unvested share awards not subject to performance conditions is included and is
reflected in the chart below. The Committee is satisfied that the current level of shareholding requirement provides an appropriate level of
investment in M&S for each director. The Committee will continue to keep this issue under review and will amend accordingly if necessary.
150% of salary
250% of salary
Steve Rowe
Patrick Bousquet-Chavanne
116.1%
101.0%
Helen Weir
61.5%
Key
Shares owned outright
Unvested DSBP shares
Vested and unexercised
Shareholding requirement
EMPLOYEE SHARE SCHEMES
ALL-EMPLOYEE SHARE SCHEMES
(AUDITED)
Executive directors may participate in both
ShareSave, the Company’s Save As You Earn
Scheme, and ShareBuy, the Company’s
Share Incentive Plan, on the same basis as
all other eligible employees. Further details
of the schemes are set out in note 13 to the
financial statements on pages 99 and 100.
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 currently met by
market purchase shares. 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 dilution limits set
by The Investment Association 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 2018
is as follows:
FIGURE 21: ALL SHARE PLANS
FIGURE 22: EXECUTIVE SHARE PLANS
Actual
Limit
5.14%
Actual
0%
10%
Limit
5%
57
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
FIGURE 23: EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (AUDITED)
EXECUTIVE DIRECTORS' REMUNERATION CONTINUED
Steve Rowe
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total
Patrick Bousquet-Chavanne
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total
Helen Weir
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total
Awarded during
the year
Exercised during
the year
Lapsed during
the year
Maximum
receivable at
2 April 2017
1,116,809
91,932
5,683
1,214,424
930,790
71,661
2,222
614,194
87,299
0
701,493
414,012
66,798
3,448
1,004,673
484,258
681,252
87,057
3,461
771,770
447,376
72,181
0
519,557
Maximum
receivable at
31 March 2018
(or date of
retirement)
1,430,660
179,231
3,461
1,613,352
1,044,459
138,459
3,448
1,186,366
300,343
0
2,222
302,565
300,343
0
2,222
302,565
0
0
0
0
1,128,628
159,238
3,461
1,291,327
0
0
0
0
0
0
0
0
0
0
0
0
No directors exercised awards during the financial year 2017/18 and so there are no aggregate gains to report. The market price of the shares
at the end of the financial year was 270.2p; the highest and lowest share price during the financial year were 395.5p and 265.3p respectively.
Helen Weir retired from the Board and left the Company on 31 March 2018. Patrick Bousquet-Chavanne retired from the Board on
18 April 2018 and will leave the Company on 31 May 2018. Details of their leaving arrangements are set out on page 59. For both outgoing
executive directors, the impact of their departure on their share awards falls within the 2018/19 financial year. This impact is therefore not
reflected in Figure 23 above.
However, to provide an accurate and transparent overview of directors' interests in discretionary share awards, Figure 24 below shows
the time horizons of outstanding discretionary share awards for all directors serving on the Board during the year, including Helen Weir
and Patrick Bousquet-Chavanne. As can be seen, all directors continue to hold significant interests in M&S's performance over the
forthcoming years.
FIGURE 24: VESTING SCHEDULE OF EXECUTIVE DIRECTORS' OUTSTANDING DISCRETIONARY SHARE AWARDS
Steve
Rowe
Patrick
Bousquet-Chavanne
Maximum receivable at
31 March 2018
(all discretionary
schemes)
Performance Share Plan
Deferred Share Bonus Plan
Performance Share Plan
1,430,660
179,321
1,044,459
2018/19
2019/20
2020/21
Maximum
Receivable
Lapsed
(239,439)
21,387
59,556
–
19,819 (236,087)
Maximum
Receivable
555,640
32,376
176,867
Lapsed
–
–
(197,675)
Maximum
Receivable
614,194
87,299
0
Deferred Share Bonus Plan
138,459
138,459
–
–
–
Helen
Weir
Performance Share Plan
Deferred Share Bonus Plan
1,128,628
159,238
20,155
159,238
(256,372)
–
168,635 (236,090)
–
–
Lapsed
–
–
(414,012)
–
(447,376)
–
–
0
–
As reported on page 55, the 2015 PSP awards included within the totals shown in Figure 23 will vest at 8.2% in July 2018 for all executive
directors. This has been reflected above in the 2018/19 'Lapsed' column.
As detailed earlier in this report, upon leaving M&S the awards held by Helen Weir and Patrick Bousquet-Chavanne under the Deferred
Bonus Scheme vest in full following their departure from the Company. This has been reflected above in the 2018/19 'Maximum Receivable'
column. Outstanding awards held by Helen and Patrick under the 2015 and 2016 PSP are pro-rated for time held upon leaving. This is
reflected by year of vest in the applicable 'Lapsed' column. In line with the Plan rules, upon leaving PSP awards granted in 2017 lapse in full.
This is reflected above in the 2020/21 'Lapsed' column.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 58
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTORS' REMUNERATION CONTINUED
FIGURE 25: PERFORMANCE AND CEO REMUNERATION COMPARISON
This graph illustrates the Company’s performance against the FTSE 100 over the past nine years. The FTSE 100 has been chosen as the
appropriate comparator as M&S is a constituent of this index. The calculation of TSR is in accordance with the relevant remuneration
regulations. The table below the TSR chart sets out the remuneration data for directors undertaking the role of CEO during each of the last
nine financial years.
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
Marks and Spencer
Group plc
FTSE 100 Index
Source: Thomson Reuters
300
250
200
150
100
50
0
28/03/15
01/04/17
31/03/18
03/04/10
30/03/13
02/04/12
29/03/14
02/04/16
29/03/11
28/03/09
CEO single figure of
remuneration (£000)
Annual bonus payment
(% of maximum)
PSP vesting
(% of maximum)
CEO1
Steve Rowe
Marc Bolland
Stuart Rose
Steve Rowe
Marc Bolland
Stuart Rose
Steve Rowe
Marc Bolland
Stuart Rose
–
–
4,294
–
–
97.00%
–
–
0.00%
–
5,998
269
–
45.80%
57.40%
–
–
0.00%
–
3,324
–
–
34.00%
–
–
31.96%
–
–
2,142
–
–
42.50%
–
–
0.00%
–
–
1,568
–
–
0.00%
–
–
7.60%
–
–
2,095
–
–
30.55%
–
–
4.70%
–
–
2,015
–
–
31.90%
–
–
4.80%
–
1,642
–
–
36.98%
–
–
0.00%
–
–
1,120
–
–
0.00%
–
–
8.20%
–
–
1. Marc Bolland was appointed CEO on 1 May 2010. His single figure for 2010/11 includes recruitment awards made to him at that time to compensate him for incentive awards forfeited on
cessation from his previous employer. Stuart Rose undertook the role of CEO from 31 May 2004 to 30 April 2010.
FIGURE 26: PERCENTAGE CHANGE IN CEO’S REMUNERATION
The table opposite sets out the change in
the CEO’s remuneration (i.e. salary, taxable
benefits and annual bonus) compared with
the change in our UK-based employees.
This group has been chosen as the majority
of our workforce is UK-based.
CEO (Steve Rowe)
UK employees (average per FTE)
% change 2016/17 – 2017/18
Base salary
Benefits
Annual bonus
0%
8.4%
1.2%
1.5%
-100%
-100%
The 8.4% percentage change in base salary
for UK employees is a consequence of a
review of the total reward offering to
customer assistants which included a
significant increase to base rate pay,
effective April 2017.
This review also included the integration
of some historic allowances into base pay.
The comparator data for 2016/17 UK
employee salaries has been adjusted to also
include such allowances so as to provide an
accurate year-on-year comparison.
FIGURE 27: RELATIVE IMPORTANCE OF SPEND ON PAY
The table opposite illustrates the
Company’s expenditure on pay in
comparison to profits before tax and
distributions to shareholders by way of
dividend payments and share buy back.
Total employee pay is the total pay for
all Group employees. Group PBT before
adjusting items has been used as a
comparison as this is the key financial
metric which the Board considers when
assessing Company performance.
Total employee pay
Total returns to shareholders1
Group PBT before adjusting items
2016/17
£m
1,552.6
377.5
613.8
2017/18
£m
1,578.9
303.4
580.9
% change
1.7%
-19.6%
-5.4%
1. Total returns to shareholders for 2016/17 is inclusive of special dividend.
59
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
EXECUTIVE DIRECTORS' REMUNERATION CONTINUED
FIGURE 28: SERVICE AGREEMENTS
In line with our policy, directors have rolling
contracts which may be terminated by the
Company giving 12 months’ notice or the
director giving six months’ notice.
Steve Rowe
Humphrey Singer
CHANGES TO EXECUTIVE MEMBERSHIP OF THE BOARD DURING 2017/18
PAYMENTS TO PAST DIRECTORS
(audited)
Laura Wade-Gery retired from the Board
on 30 September 2016. Laura had one more
outstanding award under the Performance
Share Plan. In accordance with the rules
of the Performance Share Plan, 8.2% of her
2015 award (8,496 shares) will vest in July
2018. This is estimated to be circa £30,200,
based on the average share price between
2 January 2018 and 29 March 2018, including
dividend equivalents. Laura has no further
outstanding awards.
Marc Bolland retired from the Board on
2 April 2016 and had two outstanding
awards under the Performance Share
Plan. In accordance with the rules of the
Performance Share Plan, 8.2% of his 2015
award (17,695 shares) will vest in July 2018.
This is estimated to be circa £62,899,
based on the average share price between
2 January 2018 and 29 March 2018, including
dividend equivalents. Marc has no further
outstanding awards.
CHANGES TO THE BOARD IN 2018/19
Humphrey Singer is expected to join the
Board in July 2018 as Chief Finance Officer.
His remuneration is in line with the approved
Recruitment Policy detailed on page 47.
As has already been disclosed, on
appointment Humphrey’s basic annual
salary will be £600,000, he will receive
neither a car allowance nor a pension cash
allowance. The rest of Humphrey’s incentive
arrangements will be aligned with the other
executive directors. He is eligible for a PSP
grant in July 2018 in accordance with the
Annual Remuneration Policy (see page 55
for further details). No share awards have
been granted to Humphrey in relation to
his appointment.
DIRECTORS APPOINTED TO THE BOARD
There were no directors appointed to the
Board during the 2017/18 financial year.
PAYMENTS FOR THE LOSS OF OFFICE
(audited)
Helen Weir left M&S on 31 March 2018.
Remuneration terms on leaving were in line
with the approved Remuneration Policy.
As was reported at the time, Helen will
receive salary and benefits, including
pension, by way of phased monthly
payments (subject to mitigation) from
1 April until 8 November 2018, reflecting
the remaining period of contractual notice.
The Committee determined good leaver
treatment in line with the plan rules and
therefore her unvested nil-cost options
granted under the Deferred Share Bonus
Plan vested in full on leaving. Unvested
nil-cost options, awarded under the 2015
and 2016 PSP, were time pro-rated to
March 2018 and will vest, to the extent the
performance conditions are met, on the
normal vesting date. The PSP award
made in 2017 lapsed in full on leaving in
accordance with the Plan rules.
As detailed earlier in this report, 8.2% of
PSP awards granted in 2015 will vest in
July 2018. Helen has one further unvested
PSP award, granted in 2016. To the extent
that performance conditions are met,
the subsequent vesting of this award will
be reported in next year's report.
FIGURE 29: EXTERNAL APPOINTMENTS
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 the Company. The policy is for
the individual director to retain any fee.
The table opposite sets out the details
for these fees earned for the period
2 April 2017 to 31 March 2018.
Date of
appointment
02/04/2016
July 2018
Notice period/unexpired term
12 months/6 months
12 months/6 months
Patrick Bousquet-Chavanne retired from
the Board on 18 April 2018 and will leave
M&S on 31 May 2018. Remuneration terms
on leaving were in line with the approved
Remuneration Policy. As was reported at the
time, Patrick will receive salary and benefits,
including pension, by way of phased
monthly payments (subject to mitigation)
from 1 June 2018 until 28 February 2019.
It has been announced that Patrick has
subsequently secured alternative
employment and so these monthly
payments will cease once his new
employment commences. The Committee
determined good leaver treatment in
line with the plan rules and therefore his
unvested conditional shares granted under
the Deferred Share Bonus Plan will vest in
full on leaving. Unvested conditional shares,
awarded under the 2015 and 2016 PSP, will
be time pro-rated to 31 May 2018 and will
vest, to the extent the performance
conditions are met, on the normal vesting
date. The PSP award made in 2017 will lapse
in full on leaving in accordance with the
Plan rules.
As detailed earlier in this report, 8.2% of PSP
awards granted in 2015 will vest in July 2018.
Patrick has one further unvested PSP
award, granted in 2016. To the extent that
performance conditions are met, the
subsequent vesting of this award will be
reported in next year's report.
Director
Patrick Bousquet-Chavanne
Helen Weir
Company
Brown-Forman
Rugby Football Union
Fee
000
$641
£30
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 60
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
REMUNERATION REPORT CONTINUED
FIGURE 30: NON-EXECUTIVE DIRECTORS’ TOTAL SINGLE FIGURE REMUNERATION (AUDITED)
NON-EXECUTIVE DIRECTORS' REMUNERATION
Non-executive directors receive fees
reflecting the time commitment, demands
and responsibilities of the role. The table
opposite details the fees paid to the
non-executive directors and Board
Chairman for 2017/18 and 2016/17.
During the year, the fees for all
non-executive directors were reviewed.
Taking into account the relevant market
data and salary freezes for senior managers
within M&S for July 2018, no increase to
fees was awarded. Fee levels will be
reviewed again during 2018/19.
Robert Swannell retired from the
Board on 1 September 2017 and
Miranda Curtis retired from the Board on
1 February 2018. As such, the payments
shown in the table relate to those made
until these respective dates.
Director
Archie Norman
(from 1 September 2017)
Robert Swannell
(to 1 September 2017)
Vindi Banga
Alison Brittain
Miranda Curtis
(to 1 February 2018)
Andrew Fisher
Andy Halford
Fees to Archie Norman are from his date of
appointment to M&S on 1 September 2017.
Richard Solomons
Year
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
Basic fees
£000
Additional fees
£000
Benefits
£000
Total
£000
41
0
29
70
70
70
70
70
58
70
70
70
70
70
70
70
309
0
159
380
30
30
0
0
0
0
0
0
15
15
0
0
0
0
9
21
0
0
0
0
0
0
0
0
0
0
0
0
350
0
197
471
100
100
70
70
58
70
70
70
85
85
70
70
FIGURE 31: NON-EXECUTIVE DIRECTORS’ SHAREHOLDINGS (AUDITED)
The non-executive directors are not
permitted to participate in any of the
Company’s incentive arrangements. All
non-executive directors are required to
build and maintain a shareholding of at least
2,000 shares in the Company within two
months of their appointment to the Board.
The table opposite details the shareholding
of the non-executive directors who served
on the Board during the year as at
31 March 2018 (or upon their date of retiring
from the Board), including those held by
connected persons.
There have been no changes in the current
non-executive directors’ interests in
shares in the Company and its subsidiaries
between the end of the financial year and
22 May 2018.
FIGURE 32: NON-EXECUTIVE DIRECTORS’ AGREEMENTS FOR SERVICE
Non-executive directors have an agreement
for service for an initial three-year term
which can be terminated by either party
giving three months’ notice (six months’
for the Chairman).
The table opposite sets out these terms
for all current members of the Board.
Director
Archie Norman
Vindi Banga
Alison Brittain
Andrew Fisher
Andy Halford
Richard Solomons
NON-EXECUTIVE DIRECTOR CHANGES TO THE BOARD DURING 2017/18
DIRECTORS APPOINTED TO THE BOARD
Archie Norman joined the Board as
Chairman on 1 September 2017, upon
Robert Swannell's retirement from the
business. In line with the policy set out on
page 49, Archie receives the standard
non-executive director fee plus an
additional fee as the Board Chairman.
Archie's total annual fee is £600,000.
DIRECTORS RETIRING FROM THE BOARD
Robert Swannell retired from the Board on
1 September 2017. There were no payments
for loss of office payable to Robert.
Miranda Curtis retired from the Board on
1 February 2018. There were no payments
for loss of office payable to Miranda.
Director
Number of shares held
Archie Norman
Robert Swannell
Vindi Banga
Alison Brittain
Miranda Curtis
Andrew Fisher
Andy Halford
Richard Solomons
43,000
169,298
93,700
5,096
5,500
3,536
21,000
5,000
Date of appointment
Notice period/unexpired term
01/09/2017
01/09/2011
01/01/2014
01/12/2015
01/01/2013
13/04/2015
6 months/6 months
3 months/3 months
3 months/3 months
3 months/3 months
3 months/3 months
3 months/3 months
CHANGES TO THE BOARD 2018/19
Katie Bickerstaffe and Pip McCrostie will
join the Board as non-executive directors,
and members of the Nomination
Committee, on 10 July 2018. Both Katie
and Pip will receive the standard annual
non-executive director fee of £70,000.
In addition to being appointed to the
Nomination Committee, Katie will join the
Remuneration Committee and Pip will
become a member of the Audit Committee.
61
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
REMUNERATION COMMITTEE
REMUNERATION COMMITTEE REMIT
During the year, the Remuneration Committee, under the chairmanship of Vindi Banga, agreed that the publication of the proposed
revisions to the UK Corporate Governance Code by the Financial Reporting Council, along with the appointment of Archie Norman to
Chairman of the Board and member of the Remuneration Committee, provided an excellent opportunity to review the Committee’s
Terms of Reference. Following a thorough review of the existing remit, new broader Terms of Reference were agreed.
The role of the Committee continues to be ensuring that the Senior Executive Group are appropriately rewarded, through making
recommendations regarding senior remuneration strategy and framework to the Board. Reflecting market direction and anticipating
incoming regulation, the revised Terms of Reference further extend the Committee’s remit to include greater responsibility for
demonstrating how pay and incentives align across the Company, along with defined mechanisms for workforce engagement.
Further demonstrating the Committee’s commitment to meaningful and transparent engagement on pay practices in the wider
workforce, the chair of M&S’s employee representative body will be invited to attend and contribute to a Committee meeting each
year. The broadened remit also includes oversight of key people policy areas such as performance management, diversity and
inclusion, and gender pay. The full Terms of Reference for the Committee can be found on the Company’s website at
marksandspencer.com/thecompany.
KEY RESPONSIBILITIES
– Setting a strategy that ensures the most talented
leaders are recruited, retained and motivated to
deliver results.
– Considering the appropriateness of the
senior remuneration framework when reviewed
against arrangements throughout the rest of
the organisation.
– Reviewing the effectiveness of the Group
remuneration frameworks with regards to
their impact.
– Determining the terms of employment and
remuneration for the Senior Executive Group,
including recruitment and termination
arrangements.
– Approving the design, targets and total payments/
awards for performance-related pay schemes
operated by the Group, seeking shareholder
approval where necessary.
– Assessing the appropriateness and subsequent
achievement of performance targets relating
to any share-based incentive plan for the
Senior Executive Group.
– Receiving direct feedback from the Group’s
employee representative body, employee
engagement surveys and management reports
to ensure employee views on Group culture,
including remuneration strategy, are considered.
– Reviewing initiatives relating to diversity and
inclusion and reviewing and approving the
Group’s diversity policy.
– Reviewing and noting employee-related external
reporting, including gender pay reporting.
REMUNERATION COMMITTEE AGENDA FOR 2017/18
REGULAR ITEMS
Pay arrangements
– In line with Company policies, annual review of
base salaries and benefits of the Senior Executive
Group and approval of any salary increase.
– Review of, and agreement to, remuneration
packages for new members of the Senior
Executive Group and termination arrangements
of outgoing members.
– Review of updated pay arrangements across
the Group.
Annual Bonus Scheme
– Review of achievement of Group PBT before
adjusting items against 2017/18 Annual Bonus
Scheme targets.
– Approval to apply discretion to reduce bonus
payments to zero.
– Review of achievement of the Senior Executive
Group against 2017/18 individual objectives.
– Review principles of 2017/18 bonus allocation
across the Group.
– Review of the structural design, measures and
approach to targets for the 2018/19 Annual
Bonus Scheme for the Senior Executive Group
and the wider workforce.
Performance Share Plan (PSP)
– Approval of the measures and targets for the
PSP awards granted during the year and in the
next year for the Senior Executive Group.
– Review and approval of awards made to executive
and operating committee directors under the
2018 PSP, taking into account the total value of
all awards made under this plan.
– Regular review of all in-flight performance plans
against targets.
– Approval of vesting level of the 2015 PSP awards
including clear articulation of the Committee’s
consideration for vesting and payment levels to
executive directors and senior managers.
– Consideration and debate of the senior
remuneration framework in the context of
external guidance and transformation plan.
Governance and external market
– Approval of the Directors’ Remuneration Report
for 2017/18 and review of the AGM voting outcome
for the 2016/17 Report.
– Review of Committee performance in 2017/18.
– Review and update of Committee Terms
of Reference.
– Approval of the renewal of the M&S Save As
You Earn Scheme, with final approval given by
shareholders at the 2017 AGM.
– Consideration of external market developments
and best practice in remuneration including the
proposed revisions to the UK Corporate
Governance Code.
– Assessment of the external environment
surrounding the Company’s current remuneration
arrangements.
– Consideration of remuneration arrangements for
the wider workforce, including review of gender
pay reporting outcomes.
REMUNERATION COMMITTEE ACTION PLAN 2018/19
– Ensure the principles of the revised Terms of
– Ensure a formal annual review of the wider
Reference and broader remit of the Committee
are embedded within Committee oversight.
workforce reward framework, including reporting
on issues such as gender pay.
– Ensure the continued strategic alignment of
– Review the effectiveness and transparency of
the directors’ incentive arrangements to support
and drive M&S’s transformation.
remuneration reporting.
– Debate and agree the appropriateness of
the senior remuneration framework in the
context of the rest of the organisation and
external governance.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 62
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE
REMUNERATION REPORT CONTINUED
REMUNERATION COMMITTEE CONTINUED
FIGURE 33: REMUNERATION COMMITTEE MEETINGS
The table opposite details the
independent non-executive
directors that were members
of the Committee during 2017/18.
Member
since
Maximum
possible
meetings
Number of
meetings
attended
% of
meetings
attended
MEMBER
Vindi Banga
(Chairman)
1 September 2011
Archie Norman
3 November 2017
Robert Swannell
until 1 September 2017
Miranda Curtis
until 1 February 2018
1 March 2015
1 February 2012
Richard Solomons
21 July 2015
3
1
2
3
3
3
1
2
3
3
100%
100%
100%
100%
100%
COMMITTEE ADVISERS
In carrying out its responsibilities, the
Committee is independently advised by
external advisers. The Committee was
advised by PwC during the year. PwC is a
founding member of the Remuneration
Consultants Group and voluntarily operates
under the code of conduct in relation to
executive remuneration consulting in the
UK. The code of conduct can be found at
remunerationconsultantsgroup.com.
The Committee has not explicitly
considered the independence of the advice
it receives, although it regularly reflects on
the quality and objectivity of this advice.
The Committee is satisfied that any
conflicts are appropriately managed.
PwC was appointed by the Committee as
its independent advisers in 2014 following
a rigorous and competitive tender process.
PwC provides independent commentary
on matters under consideration by the
Committee and updates on legislative
requirements, best practice and market
practice. PwC’s fees are typically charged
on an hourly basis with costs for work
agreed in advance. During the year, PwC
charged £38,700 for Remuneration
Committee matters. This is based on an
agreed fee for business as usual support
with additional work charged at hourly rates.
PwC has provided tax, consultancy and risk
consulting services to the Group in the
financial year.
REMUNERATION COMMITTEE STAKEHOLDER AND SHAREHOLDER ENGAGEMENT
The Committee is committed to ensuring
that executive pay remains competitive,
appropriate and fair in the context of the
external market, Company performance
and the pay arrangements of the wider
workforce. In collaboration with the Head
of Performance & Reward, the Committee
gives employees, through employee
representatives, the opportunity to raise
questions or concerns regarding the
remuneration of the executive directors.
During the year, employee representatives
were given the opportunity to discuss
in detail the directors’ pay arrangements.
Details of the directors’ pay arrangements
were discussed in the context of the reward
framework for the rest of the organisation
and external factors; no concerns
were raised either during these discussions
or subsequently.
SHAREHOLDER SUPPORT FOR THE 2016/17 DIRECTORS’ REMUNERATION REPORT
The Committee also seeks internal support
from the CEO, Group Secretary, HR Director
and Head of Performance & Reward as
necessary. All may attend the Committee
meetings by invitation but are not present
for any discussions that relate directly to
their own remuneration.
The Committee also reviews external survey
and bespoke benchmarking data including
that published by New Bridge Street
(the trading name of Aon Hewitt Limited),
KPMG, PwC, FIT Remuneration Consultants
and Willis Towers Watson.
The Committee is committed to a
continuous, open and transparent dialogue
with shareholders on the issue of executive
remuneration. Although the Committee did
not formally consult with shareholders in
2017/18, numerous conversations were held
on the subject of executive remuneration,
including the appointment of Archie
Norman to the position of Chairman.
At the Annual General Meeting on
11 July 2017, 92.01% of shareholders voted
in favour of approving the Directors’
Remuneration Report for 2016/17.
In addition, 99.08% of shareholders
voted in favour of the Remuneration Policy.
The Committee believes this illustrates
the strong level of shareholder support for
the senior remuneration framework.
The table below shows full details of
the voting outcomes for the 2016/17
Directors’ Remuneration Report and
Remuneration Policy.
FIGURE 34: VOTING OUTCOMES FOR 2016/17 REMUNERATION REPORT AND REMUNERATION POLICY
Remuneration Report
Remuneration Policy
APPROVED BY THE BOARD
VINDI BANGA CHAIRMAN OF THE REMUNERATION COMMITTEE
London, 22 May 2018
Votes for
% Votes for
Votes against
% Votes against
Votes withheld
942,558,230
1,020,561,621
92.01%
99.08%
81,901,767
9,498,526
7.99%
0.92%
7,972,863
2,368,960
This Remuneration Policy and these remuneration reports have been prepared in accordance with the relevant provision of the Companies Act 2006 and on the basis prescribed in the
Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (‘the Regulations’). Where required, data has been audited by Deloitte and this
is indicated appropriately.
63
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
OTHER DISCLOSURES
DIRECTORS’ REPORT
BOARD OF DIRECTORS
Marks and Spencer Group plc (the
“Company”) is the holding company of
the Marks & Spencer Group of companies
(the “Group”).
The Directors’ Report (which is also the
Management Report for the purpose of
Disclosure and Transparency Rule (DTR)
4.1.8R) for the year ended 31 March 2018,
comprises pages 25-67 and pages 130-131
of this report, together with the sections of
the Annual Report incorporated by
reference. As permitted by legislation,
some of the matters required to be included
in the Directors’ Report have instead been
included in the Strategic Report on pages
1-24, as the Board considers them to be of
strategic importance. Specifically, these are:
– Future business developments
(throughout the Strategic Report).
– Risk management on pages 20-21.
– Details of branches operated by
the Company on pages 6-9.
Information relating to financial instruments
can be found on pages 105-111.
For information on our approach to social,
environmental and ethical matters, please
refer to our Plan A Report, available online
at marksandspencer.com/plana.
Other information to be disclosed in the
Directors’ Report is given in this section.
Both the Strategic Report and the Directors’
Report have 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 those reports shall be subject to the
limitations and restrictions provided by
such law.
The membership of the Board and
biographical details of the directors are
provided on pages 26 and 27. Changes to
the directors during the year and up to the
date of this report are set out below. Details
of directors’ beneficial and non-beneficial
interests in the shares of the Company are
shown on pages 57 and 60. Options granted
to directors under the Save As You Earn
(SAYE) and Executive Share Option
Schemes are shown on page 57. Further
information regarding employee share
option schemes is provided in note 13 to
the financial statements.
Name
Role
Effective date of
appointment/
departure
Executive
Director
18 April 2018
Departures
Patrick
Bousquet-
Chavanne
Helen Weir
Miranda
Curtis
Robert
Swannell
Executive
Director
Non-Executive
Director
Chairman
Appointments
Archie
Norman
Chairman
Proposed Appointments
Executive
Humphrey
Director
Singer
Katie
Bickerstaffe
Non-Executive
Director
31 March 2018
1 February
2018
1 September
2017
1 September
2017
Effective
10 July 2018
Effective
10 July 2018
Pip
McCrostie
Non-Executive
Director
Effective
10 July 2018
The appointment and replacement of
directors is governed by the Company’s
Articles of Association (the “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.
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 where they will stand for
annual election.
DIRECTORS’ CONFLICTS OF INTEREST
The Company has procedures in place for
managing conflicts of interest. Should a
director become aware that they, or any
of 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 provides
appropriate cover for 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 2018
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.
Qualifying pension scheme indemnity
provisions (as defined by Section 235 of the
Companies Act 2006) were in force during
the course of the financial year ended
31 March 2018 for the benefit of the Trustees
of the Marks & Spencer Pension Scheme,
both in the UK and the Republic of Ireland.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 64
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
OTHER DISCLOSURES CONTINUED
CORPORATE GOVERNANCE STATEMENT
PROFIT AND DIVIDENDS
SHARE CAPITAL
Our compliance with key areas of the Code
is summarised as follows:
– Independence Over half of our Board
comprises independent non-executive
directors and the composition of all
Board Committees complies with
the Code.
– Senior Independent Director Our Senior
Independent Director is Vindi Banga.
– Accountability and election Clear
separation of duties between Chairman
and CEO roles, all the directors are to
stand for annual re-election.
– Evaluation An internally facilitated
performance evaluation of the Board
and its Committees was undertaken
during the year in accordance with
the requirements of the Corporate
Governance Code, following an external
evaluation undertaken the previous year.
– Attendance The directors have all
attended an acceptable level of Board
and Committee meetings.
– Experience The Audit Committee
chairman met the specific requirements
with regard to recent and relevant
financial experience throughout 2017/18.
– Auditor tenure We changed our
auditor in 2014/15, following a thorough
tender process.
– Non-audit policy This is disclosed on our
website, along with the limited non-audit
work undertaken during 2017/18.
– Auditor appointment We disclose our
external auditor appointment policy
on our website.
– Internal Audit Details on the Internal
Audit function are provided within
this report.
– Performance-related pay A significant
part of performance-related pay is
delivered through shares. Our reward
framework is simple, transparent and
designed to support and drive our
business strategy.
The profit for the financial year, after
taxation, amounts to £29.1m (last year
£115.7m). The directors have declared
dividends as follows:
Ordinary shares
£m
Paid interim dividend
of 6.8p per share
(last year 6.8p per share)
Proposed final dividend
of 11.9p per share
(last year 11.9p per share)
Total dividend of
18.7p per share for 2017/18
(last year 18.7p per share)
£110.3m
£193.1m
£303.4m
Subject to shareholder approval at this
year's AGM, the final ordinary dividend
will be paid on 13 July 2018 to shareholders
whose names were on the Register of
Members at the close of business on
1 June 2018.
The Company’s issued ordinary share
capital as at 31 March 2018 comprised a
single class of ordinary share. Each share
carries the right to one vote at general
meetings of the Company.
During the period, 29,500 ordinary shares in
the Company were issued under the terms
of the United Kingdom Employees’ Save As
You Earn Share Option Scheme at prices
between 260p and 369p.
Details of movements in the Company’s
issued share capital can be found on page
112 in note 24 to the financial statements.
RESTRICTIONS ON TRANSFER
OF SECURITIES
There are no specific restrictions on the
transfer of securities in the Company,
which is governed by its Articles of
Association and prevailing legislation.
The Company is not 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.
INTERESTS IN VOTING RIGHTS
Information provided to the Company
pursuant to the Financial Conduct
Authority’s (FCA) Disclosure and
Transparency Rules (DTRs) is published
on a Regulatory Information Service
and on the Company’s website. As at
31 March 2018, the following information
has been received, in accordance with
DTR 5, from holders of notifiable interests
in the Company’s issued share capital.
The information provided below was
correct at the date of notification; however,
the date received may not have been
within the current financial year. It should
be noted that these holdings are likely
to have changed since the Company was
notified. However, notification of any
change is not required until the next
notifiable threshold is crossed.
Notifiable interests
Schroders plc
Majedie Asset
Management Limited
Blackrock, Inc.
Ameriprise Financial, Inc.
and its group
The Wellcome Trust
% of capital
Ordinary shares
disclosed Nature of holding as per disclosure
1,624,741,572
5.549
Indirect Interest (5.547%),
CFD (0.001%)
81,070,667
4.99 Direct Interest
90,664,081
82,524,463
47,464,282
5.58
Indirect Interest (4.85%),
Securities lending (0.65%) &
CFD (0.06%)
Indirect Interest (5.054%),
Direct (0.025%)
3.01 Direct Interest
5.079
65
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
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 2017 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 were
bought back under this authority during
the year ended 31 March 2018.
This standard authority is renewable
annually; the directors will seek to renew
this authority at the 2018 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 2017 AGM to allot relevant securities
up to a nominal amount of £135,394,136.
This authority will apply until the conclusion
of the 2018 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 £135,397,323
and (ii) comprising equity securities up to
a nominal amount of £270,794,647 (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 2019 or, if earlier, on 1 October 2019.
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 £20,309,599.
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 162 million ordinary shares
and sets the minimum and maximum prices
which will be paid.
– The amended and restated £1.1bn
Credit Agreement dated 16 March 2016
(originally 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 6 October 2014
(originally dated 9 November 2004 as
amended on 1 March 2005), between
HSBC and the Company and relating to
M&S Bank, 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 Bank 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 practicable
(while not being required to do
anything that would breach such
a third party arrangement).
– Where a third-party arrangement is so
terminated, or does not exist, HSBC has
the exclusive right to negotiate proposed
terms for the offer and sale, of financial
services products to the existing
customers of the new controller by
HSBC on an exclusive basis.
– 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 may, depending
on the nature of the re-branding
exercise, have the right (exercisable at
HSBC’s election) to terminate the
Relationship Agreement.
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.
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 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 £400m Medium Term Notes issued
by the Company on 30 November 2009,
the £300m Medium Term Notes issued
by the Company on 6 December 2011,
the £400m Medium Term Notes issued
by the Company on 12 December 2012
and the £300m Medium Term Notes
issued by the Company on 8 December
2016 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 $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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 66
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
OTHER DISCLOSURES CONTINUED
The Company is responsive to the needs
of its employees, customers and the
community at large. M&S is an organisation
which uses everyone’s talents and abilities
and where diversity is valued.
M&S was one of the first major companies
to remove the default retirement age in
2001 and has continued to see an increase
in employees wanting to work past the
state retirement age.
EMPLOYEES WITH DISABILITIES
The Company is clear in its policy that
people with health conditions should have
full and fair consideration for all vacancies.
M&S has continued to demonstrate its
commitment to interviewing those people
with disabilities who fulfil the minimum
criteria, and endeavouring to retain
employees in the workforce if they become
disabled during employment. M&S will
actively retrain and adjust employees’
environments where possible to allow
them to maximise their potential and will
continue to work with external organisations
to provide workplace opportunities through
our innovative Marks & Start scheme and
by working closely with Jobcentre Plus.
The Marks & Start scheme was introduced
into the distribution centre at Castle
Donington in 2012/13, working with Remploy
to support people with disabilities and
health conditions into work.
RESEARCH & DEVELOPMENT
Research and innovation remain key
to our Food offer and the development
of improved product and fabric in
Clothing & Home. Further information is
provided in the Plan A report, available online.
GROCERIES SUPPLY CODE
OF PRACTICE
The Groceries (Supply Chain Practices)
Market Investigation Order 2009 (the
“Order”) and The Groceries Supply Code of
Practice (the “Code”) impose obligations on
M&S relating to relationships with its
suppliers of groceries. Under the Order and
Code, M&S is required to submit an annual
compliance report to the Audit Committee
for approval and then to the Competition
and Markets Authority and Groceries
Code Adjudicator (“GCA”).
M&S submitted its report, covering the
period from 2 April 2017 to 31 March 2018
to the Audit Committee on 17 May 2018.
M&S believes that it has complied in full with
GSCOP and the Order during the relevant
period. No formal disputes have arisen
during the reporting period. There have
been eight instances in which suppliers have
either alleged a breach of the Code or made
an express or implicit reference to potential
non-compliance with the Code. M&S does
not believe that any breaches took place
and has worked with suppliers to address
the issues raised.
A detailed summary of that compliance
report is available on our website.
POLITICAL DONATIONS
The Company did not make any political
donations or incur any political expenditure
during the year ended 31 March 2018.
M&S 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.
COLLEAGUE INVOLVEMENT
We remain committed to colleague
involvement throughout the business.
Colleagues are kept well informed of
the performance and strategy of the
Group. Examples of colleague involvement
and engagement are highlighted
throughout this Annual Report and
specifically on page 9.
Share schemes are a long-established and
successful part of colleagues’ total reward
packages, encouraging and supporting
employee share ownership. The Company
operates both an all employee Save As
You Earn Scheme and Share Incentive Plan.
Approximately 23,000 colleagues currently
participate in ShareSave, the Company’s
Save As You Earn Scheme. Full details of all
schemes are given on pages 99 and 100.
There are websites for both pension
schemes – the defined contribution
Scheme (Your M&S Pension Saving Plan)
and the defined benefit scheme (the M&S
Pension Scheme) – which are fully accessible
to employees and former employees
who have retained benefits in either
scheme. Employees are updated as
needed with any pertinent information
on their pension savings.
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. The Company’s
policy is to promote an environment free
from discrimination, harassment and
victimisation, where everyone will receive
equal treatment regardless of gender,
colour, ethnic or national origin, health
condition, age, marital or civil partner 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.
TOTAL GLOBAL M&S GREENHOUSE GAS EMISSIONS 2017/18
The disclosures required by law and additional information relating to the Group’s greenhouse gas emissions are included in the table below.
For full details of calculations and performance, see the 2018 Plan A Report.
Direct emissions (scope 1)
Indirect emissions from energy (scope 2)
Total gross/location-based emissions (scope 1 and 2)
Carbon intensity measure (per 1,000 sq ft of salesfloor)
Green tariffs and bio-methane procured
Remaining market-based emissions
Carbon offsets
Total net operational emissions
2017/18
000 tonnes
2016/17
000 tonnes
%
change
182
248
430
23
273
157
157
0
246
394
640
40
0
640
0
640
-26
-37
-33
-42
–
-75
–
–
Emissions are from operationally controlled activities in accordance WRI/WBCSD GHG Reporting Protocols (Revised edition) and 2015
Scope 2 Guidance using 2017 BEIS conversion factors. As these emissions account for less than 10% of M&S’s total carbon footprint we
also engage with suppliers to address the most significant sources. M&S has an approved Science Based Target for reducing emissions.
67
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
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 2 - 14 as
well as the Group’s principal risks and
uncertainties as set out on pages 22 - 24.
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 Board considers
it appropriate for the Group to adopt the
going concern basis in preparing its
financial statements.
See note 20 to the Financial Statements for
more information on our Facilities
The directors are also responsible for
preparing the Annual Report, the
Remuneration Report and Policy 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 (IFRS) 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 Group and the
Company for that period. In preparing these
financial statements, the directors are
required to:
LONG-TERM VIABILITY STATEMENT
The directors have assessed the prospects
of the Company over a three-year period to
March 2021. This has taken into account the
business model, strategic aims, risk appetite,
and principal risks and uncertainties, along
with the Company’s current financial
position. Based on this assessment, the
directors have a reasonable expectation
that the Company will be able to continue in
operation and meet its liabilities as they fall
due over the three-year period under review.
See our approach to assessing long-term
viability on p21
– Select suitable accounting policies
and then apply them consistently.
– Make judgements and accounting
estimates that are reasonable
and prudent.
– State whether applicable IFRS
(as adopted by the EU) have been
followed, subject to any material
departures disclosed and explained
in the financial statements.
– Prepare the financial statements on
a 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,
at any time and with reasonable accuracy,
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 Group
and the Company 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.
AUDITOR
Resolutions to reappoint Deloitte LLP as
auditor of the Company and to authorise
the Audit Committee to determine its
remuneration will be proposed at the
2018 AGM.
ANNUAL GENERAL MEETING
The AGM of Marks and Spencer Group plc
will be held at Wembley Stadium, Wembley,
London on 10 July 2018 at 11am. The
Notice of Meeting is given, together with
explanatory notes, on pages 122 - 131.
DIRECTORS’ RESPONSIBILITIES
The Board is of the view that the Annual
Report should be truly representative of
the year and provide shareholders with
the information necessary to assess the
Group’s position, performance, business
model and strategy.
The Board requested that the Audit
Committee review the Annual Report and
provide its opinion on whether the report
is fair, balanced and understandable. The
Audit Committee’s opinion is on page 39.
Each of the current directors, whose
names and functions are listed on pages 26
and 27, confirms that, to the best of their
knowledge:
– The Group financial statements, prepared
in accordance with the applicable set
of accounting standards, give a true and
fair view of the assets, liabilities, financial
position and profit or loss of the
Company and the undertakings included
in the consolidation taken as a whole.
– The Management Report includes
a fair review of the development
and performance of the business
and the position of the Company and
the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks
and uncertainties that they face.
– The Annual Report, taken as a whole,
is fair, balanced and understandable,
and provides the necessary information
for shareholders to assess the Group’s
position, performance, business model
and strategy.
DISCLOSURE OF INFORMATION
TO AUDITOR
Each of the persons who are directors at the
time when this Directors' Report is approved
confirms that, so far as he/she is aware, there
is no relevant audit information of which the
Company’s auditor is unaware and that he/
she 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 auditor is aware of
that information.
The Directors’ Report was approved by a
duly authorised committee of the Board
of Directors on 22 May 2018 and signed
on its behalf by
AMANDA MELLOR GROUP SECRETARY
London, 22 May 2018
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 68
MARKS AND SPENCER GROUP PLC
INDEPENDENT
AUDITOR’S REPORT
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
IN OUR OPINION:
BASIS FOR 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 2018 and of the group’s
profit for the 52 weeks then ended;
the group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union and IFRSs as issued
by the International Accounting
Standards Board (IASB);
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
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 IAS Regulation.
We have audited the financial statements
of Marks and Spencer Group plc (the
‘parent company’) and its subsidiaries
(the ‘group’) which comprise:
– the Consolidated Income Statement;
– the Consolidated Statement of
Comprehensive Income;
– the Consolidated and Company
Statements of Financial Position;
– the Consolidated and Company
Statements of Changes in Equity;
– the Consolidated and Company
Statements of Cash Flows;
– the Reconciliation of Net Cash Flow
to Movement in Net Debt; and
– the related notes 1 to 28 and C1 to C6.
The financial reporting framework that
has been applied in their preparation is
applicable law and 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.
We conducted our audit in accordance with International Standards on Auditing (UK)
(ISAs (UK)) and applicable law. Our responsibilities under those standards are further
described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the group and the parent company in accordance with the
ethical requirements that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
SUMMARY OF OUR AUDIT APPROACH
KEY AUDIT MATTERS
SCOPING
The key audit matters that we identified in
the current year were:
– Reporting financial performance;
– Accounting for the UK store
rationalisation programme;
– Impairment of UK store assets;
– UK Clothing & Home inventory provision;
– Retirement benefits; and
– Manual adjustments to reported revenue.
Within this report
Any new key audit matters
are identified with
Any key audit matters which
are the same as the prior
year identified with
MATERIALITY
The materiality that we used for the group
financial statements was £24.5 million
which was determined on the basis of 5%
adjusted profit before tax excluding certain
items based on their nature. We capped
materiality to £24.5 million so that it was
not higher than the prior period given
the group’s trading performance in the
current period.
We performed a full scope audit on three
components of the business (UK, India and
Ireland) representing 97% of the Group’s
revenue, 99% of the Group’s adjusted profit
before tax, 95% of the Group’s profit before
tax and 86% of the Group’s net assets.
SIGNIFICANT CHANGES
IN OUR APPROACH
Our audit approach is consistent with the
previous year, with the exception of:
– Accounting for the UK store
rationalisation programme has been
included as a new key audit matter due
to the level of estimation uncertainty
(as disclosed in Note 1) and the level
of audit effort required in evaluating
management’s estimate;
– Exit costs of certain wholly owned
international businesses has been
removed as a key audit matter as
the Group’s international closure
programme is substantially complete;
– Accounting for supplier rebates has
been removed as a key audit matter due
to the limited level of judgement; and
– In the current period India and Ireland
were subject to full scope audits
and France had specific audit work
performed in respect of the remaining
store closure provision. The change
compared with the previous period
reflects the reduction in scale of the
group’s owned international business.
69
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017
CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT
GOING CONCERN
We have reviewed the directors’ statement
in note 1 to the financial statements about
whether they considered it appropriate
to adopt the going concern basis of
accounting in preparing them and their
identification of any material uncertainties
to the group’s and company’s ability to
continue to do so over a period of at least
twelve months from the date of approval
of the financial statements.
We are required to state whether we have
anything material to add or draw attention
to in relation to that statement required
by Listing Rule 9.8.6R(3) and report if the
statement is materially inconsistent with
our knowledge obtained in the audit.
We confirm that we have nothing
material to report, add or draw attention
to in respect of these matters.
PRINCIPAL RISKS AND
VIABILITY STATEMENT
Based solely on reading the directors’
statements and considering whether they
were consistent with the knowledge we
obtained in the course of the audit, including
the knowledge obtained in the evaluation of
the directors’ assessment of the group’s and
the company’s ability to continue as a going
concern, we are required to state whether
we have anything material to add or draw
attention to in relation to:
– the disclosures on pages 22-24
that describe the principal risks and
explain how they are being managed
or mitigated;
– the directors’ confirmation on page 22
that they have carried out a robust
assessment of the principal risks facing
the group, including those that would
threaten its business model, future
performance, solvency or liquidity; or
KEY AUDIT MATTERS
– the directors’ explanation on page 21
as to how they have assessed the
prospects of the group, over what
period they have done so and why they
consider that period to be appropriate,
and their statement as to whether they
have a reasonable expectation that
the group will be able to continue in
operation and meet its liabilities as
they fall due over the period of their
assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions.
We are also required to report whether
the directors’ statement relating to the
prospects of the group required by Listing
Rule 9.8.6R(3) is materially inconsistent with
our knowledge obtained in the audit.
We confirm that we have nothing material
to report, add or draw attention to in
respect of these matters.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
KEY AUDIT MATTER
REPORTING FINANCIAL PERFORMANCE
1
KEY AUDIT MATTER DESCRIPTION
The Group has reported adjusted profits
of £581 million, which is derived from
statutory profit before tax of £67 million
and a number of adjustments for items
which the company considers meet
their definition of an adjusting item.
Judgement is exercised by management
in determining the classification of items
as ‘adjusting items’. This is a significant
issue considered by the Audit Committee
on page 38.
Explanations of each adjustment are set
out in note 5 to the financial statements
and are summarised in the graphic below:
£m
600
400
200
0
31
18
15
13
13
5
581
35
63
321
67
Statutory
PBT
UK Store
Estate
UK Store
impairments
and write-offs
M&S
Bank
UK
Reorganisation
Other
IT
Restructure
UK
Logistics
Pay and
Pensions
International
Adjusted
PBT
In calculating adjusted profit, we consider that there is a risk of:
– items being included in the adjustments inappropriately, distorting the reported
adjusted earnings; and
– items being omitted from the adjustments which are material, one-off or significant
in nature which distort the reported adjusted earnings.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
For adjusted profits, we evaluated the
appropriateness of the inclusion of items,
both individually and in aggregate, within
adjusting items, including assessing the
consistency of items included year on
year and ensuring adherence to IFRS
requirements and latest Financial
Reporting Council (“FRC”) guidance.
We also agreed a sample of these items
to supporting evidence.
We assessed all items, either highlighted
by management or identified through the
course of our audit, which were regarded
as significant in nature or value, but
included within adjusted profit to
determine whether these are not material
either individually or in aggregate.
For all adjustments recorded in calculating
profits before adjusting items, we
discussed the appropriateness of the
item with the Audit Committee and
any disclosure considerations.
Key observations
We are satisfied that the items excluded
from adjusted profit, and the related
disclosure of these items in the financial
statements, are appropriate.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 70
MARKS AND SPENCER GROUP PLC
INDEPENDENT AUDITOR’S REPORT CONTINUED
KEY AUDIT MATTERS CONTINUED
KEY AUDIT MATTER
ACCOUNTING FOR THE UK STORE RATIONALISATION PROGRAMME
2
KEY AUDIT MATTER DESCRIPTION
On 8 November 2017, as part of the Interim
Results statement, the Group announced
the acceleration of the UK store
rationalisation programme, including
closures, space reduction and relocations.
At 31 March 2018, the Group had identified
a number of stores for potential closure,
space reduction or relocation, and
recognised a charge of £321 million for
impairments, accelerated depreciation
and associated provisions. Further detail
of the charge is set out in note 5. This is
a significant issue considered by the
Audit Committee on page 38.
For each of the stores expected to be
impacted by the programme, the
company prepared a discounted cash
flow model to determine the required
impairments and provisions to reflect the
shortened economic lives of the store
assets and, for certain stores, the closure
of the store prior to lease expiry. Where the
affected store has been formally approved
or publicly announced, all associated
restructuring provisions (including any
lease exit and redundancy costs) have
been recognised. Where the closure of
the affected store has not been formally
approved or publicly announced,
impairment charges are recognised to the
extent that the store’s cash flows do not
support the carrying value, with an
onerous contract provision being
recognised where appropriate.
We pinpointed our key audit matter to the
following elements of accounting for the
UK store rationalisation programme:
– The accuracy and completeness of the
list of affected stores and anticipated
closure dates;
– The appropriateness of specific
assumptions in the discounted cash flow
models, including sublet income, sublet
lease incentives, void periods, freehold
sales proceeds and store closure costs;
– The mechanical accuracy of the
discounted cash flow models and
integrity of source data (such as lease
terms and rental values); and
– The accuracy and completeness of
associated provisions, including
provisions for dilapidations and strip
out costs, onerous contracts for loss-
making stores, and restructuring where
closures have been publicly announced.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
We focused our audit work on assessing the company’s store exit model and evaluating the appropriateness of the key assumptions
used in calculating the charge of £321 million. As part of our audit procedures, we:
– Made inquiries of management and
reviewed property board minutes
to evaluate the accuracy and
completeness of the store closure
list, and considered the commercial
rationale for exiting certain stores
whilst excluding other poor performing
stores from the store closure list;
– Inspected the minutes of Board
meetings and relevant sub-committees;
– Inspected supporting documentation
for each assumption in the store exit
model which included lease agreements,
agent valuations, surveyor plans and
rent invoices;
– Evaluated the company’s judgements
– Evaluated the completeness of
for a sample of properties in
consultation with retail real estate
experts and with reference to
benchmarked external data;
– Tested the mechanical accuracy of
the cash flow models and other
key calculations;
– Checked the integrity of lease data to
original lease agreements for a sample
of properties;
– Recalculated the provisions required for
a sample of stores and checked the
mechanical accuracy of provision
calculations; and
required provisions for a sample of
stores based on the status of the
store in the closure programme.
Key observations
We are satisfied with the company’s
estimate of the impairment charge but
note that this is at the prudent end of our
acceptable range. The disclosure of the
closure provisions recorded in the financial
statements is appropriate.
We have reported to the Audit Committee
where improvements are required to key
internal review controls over store closures
and significant property transactions.
71
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017
KEY AUDIT MATTERS CONTINUED
KEY AUDIT MATTER
IMPAIRMENT OF UK STORE ASSETS
3
KEY AUDIT MATTER DESCRIPTION
The Group held £2,979 million of UK store
assets at 31 March 2018 in respect of stores
not considered for closure in the UK store
rationalisation programme. The company
has undertaken an annual assessment
of indicators of impairment in respect
of these stores and has recognised an
impairment charge in the year of
£12 million. This is a significant issue
considered by the Audit Committee on
page 38.
As described in note 15 of the financial
statements, the company has estimated
the recoverable amount of store assets
based on value in use calculations. These
rely on certain assumptions and estimates
of future trading performance which
involve a high degree of estimation
uncertainty (as disclosed in Note 1)
particularly in light of current retail
market conditions.
The key assumptions applied by the
directors in the impairment reviews are:
– forecast periods in the context of
strategic decisions made to exit a
location;
– future revenue growth;
– gross margin;
– store costs, including the impact of the
National Living Wage; and
– discount rate.
The company considers that each retail
store constitutes its own cash generating
unit (‘CGU’), with the exception of the
outlet stores which are used to clear old
season Clothing and Home inventories
stock at a discount. The outlet stores are
considered to represent one CGU in
aggregate and strategic stores are
evaluated as part of a country-wide
impairment review.
The group’s accounting policy sets out a
relevant shelter period for new stores to
be taken into account when assessing
indicators of impairment during initial
years of trading to enable the store to
establish itself in the market.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
We considered the appropriateness of the
methodology applied by the company in
calculating the impairment charges, and
the judgements applied in determining
the CGUs of the business. In addition, we
assessed the design and implementation
of controls in respect of the impairment
review process, and considered the
adequacy of disclosures made in the
financial statements.
We assessed the impairment models and
calculations by:
– checking the mechanical accuracy of
the impairment models;
– assessing the discount rates applied to
the impairment reviews with support
from our internal valuations specialist
and comparing the rates to our internal
benchmark data;
– comparing forecast growth rates to
economic data; and
– evaluating the information included in
the impairment models through our
knowledge of the business gained
through reviewing trading plans,
strategic initiatives, minutes of property
board and investment committee
meetings, and meeting with regional
store managers and senior trading
managers from key product categories
and our retail industry knowledge.
We assessed the appropriateness of the
shelter period for each store opened within
that time frame, and compared the original
investment case for the store against its
current trading performance. Where stores
were trading significantly below the
original case, we considered the evidence
available to support future improvements
in performance, specifically by assessing
the trading plans and actions being taken
on an individual store basis.
Key observations
We assessed the level of impairment
recorded in respect of the UK business
and are satisfied that the judgements
applied by the company and the level
of impairments recorded in the year
are appropriate.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 72
MARKS AND SPENCER GROUP PLC
INDEPENDENT AUDITOR’S REPORT CONTINUED
KEY AUDIT MATTERS CONTINUED
KEY AUDIT MATTER
UK CLOTHING & HOME INVENTORY PROVISION
4
KEY AUDIT MATTER DESCRIPTION
At 31 March 2018, the Group held UK
Clothing & Home inventories of £591
million (2017: £541 million). As described
in the Accounting Policies in note 1 to
the Financial Statements, inventories
are carried at the lower of cost and net
realisable value. As a result, the directors
apply judgement in determining the
appropriate provisions for obsolete stock
and stock below cost based upon a
detailed analysis of old season inventory
and net realisable value below cost based
upon plans for inventory to go into sale.
We consider the assessment of inventory
provisions within UK Clothing & Home to
require the most judgement, with the risk
increased due to recent trading
performance and the increase in gross
inventory. This is a significant issue
considered by the Audit Committee on
page 38.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
We obtained assurance over the
appropriateness of the company’s
assumptions applied in calculating the
value of the inventory provisions by:
– assessing the validity, accuracy
and completeness of the information
used by management in computing
the provision;
– performing audit analytics on stock
holding and movement data to identify
product lines with indicators of low
stock turn and post-period negative
margin sales;
– verifying the mathematical accuracy
and logic of the models underpinning
the respective provisions;
– meeting with buyers to validate the
assumptions applied by the company
compared to the current purchasing
strategy and ranging plans; and
– testing the validity and completeness
of the stock flags and season codes
applied to individual inventory items.
Key observations
The results of our testing were satisfactory
and we concur that the level of UK
inventory provisions is appropriate.
KEY AUDIT MATTER
RETIREMENT BENEFITS
5
KEY AUDIT MATTER DESCRIPTION
As described in the Accounting Policies in
note 1 and in note 11 to the Financial
Statements, the Group has a defined
benefit pension plan for its UK employees.
This scheme is closed to new entrants and
benefits no longer accrue to members
following the move of all active members
to deferred members on 1 April 2017.
At 31 March 2018, the Group recorded a net
retirement benefit asset of £959 million
(2017: £702 million), being the net
of scheme assets of £9,989 million
(2017: £10,135 million) and scheme liabilities
of £9,030 million (2017: £9,433 million).
£8,908m of this liability relates to the
UK scheme.
The increase /(decrease) in scheme surplus
caused by a change in each of the key
assumptions is set out below:
Our key audit matter was pinpointed to
the valuation of UK scheme liabilities as it is
sensitive to changes in key assumptions
such as the discount rate, inflation and
mortality estimates.
The setting of these assumptions is
complex and an area of significant
judgement; changes in any of these
assumptions can lead to a material
movement in the net surplus.
A decrease in the discount
rate of 0.25%
A decrease in the inflation
rate of 0.25%
A decrease in the average life
expectancy of one year
2018
£m
2017
£m
(70)
(70)
(25)
(20)
305
370
This is a significant issue considered by the
Audit Committee on page 38.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
We evaluated the directors’ assessment of
the assumptions made in the valuation of
the scheme liabilities, and evaluated the
information contained within the actuarial
valuation reports for each scheme. We
assessed the design and implementation
of controls in respect of the pension
scheme valuation process.
With support from our own actuarial
specialists, we considered the process
applied by the Group’s actuaries, the scope
of the valuation performed and the key
assumptions applied and evaluated
their expertise. We benchmarked and
performed a sensitivity analysis on the
key variables in the valuation model.
Key observations
We are satisfied that all assumptions
applied in respect of the valuation of the
liabilities is appropriate.
73
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017
KEY AUDIT MATTERS CONTINUED
KEY AUDIT MATTER
MANUAL ADJUSTMENTS TO REPORTED REVENUE
6
KEY AUDIT MATTER DESCRIPTION
As described in the Accounting Policies in
note 1 to the Financial Statements, the
group’s revenue recognition policies
require the directors to make a number of
adjustments and estimates in determining
the reported revenue for the period.
The most significant adjustments are:
– gift cards and vouchers – the directors
apply an expected redemption rate
to the total value of gift cards
and vouchers in issue based on
historic trends.
– returns – customers are entitled to
return most products up to 35 days
after purchase, giving rise to a risk
that sales recognised during the period
will be reversed in the next financial
period. The directors apply judgement
in determining the provision required
for returns based on actual sales
data and recent product return rates.
Returns from online sales are commonly
at a higher level than traditional store
retailing, resulting in this judgement
becoming more significant
in determining the level of
provision required.
There is the potential for possible
manipulation of the rates applied to the
company’s estimate of gift card and
voucher non-redemptions and customer
returns given the significant amount of
judgement involved.
This is a significant issue considered by
the Audit Committee on page 38.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
We have considered each revenue-
impacting manual adjustment, and
assessed the appropriateness of the
assumptions and judgements applied
in deriving the material adjustments to
revenue. We assessed the design and
implementation of controls in respect of
these revenue judgements, in addition to
testing the effectiveness of key revenue
controls operating across the UK business.
For the key assumptions used in the gift
card and voucher, and loyalty scheme
provisions, we assessed the historic rates
of redemption and compared these to
the directors’ judgements.
We assessed the appropriateness of
the methodology and inputs used in
calculating the returns provision.
Key observations
We are satisfied that the key assumptions
applied in calculating the returns, gift card,
voucher and loyalty scheme provisions are
appropriate although note management’s
judgements are at the prudent end of our
acceptable range.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 74
MARKS AND SPENCER GROUP PLC
INDEPENDENT AUDITOR’S REPORT CONTINUED
We define materiality as the magnitude of
misstatement in the financial statements
that makes it probable that the economic
decisions of a reasonably knowledgeable
person would be changed or influenced.
We use materiality both in planning the
scope of our audit work and in evaluating
the results of our work.
Based on our professional judgement, we
determined materiality for the financial
statements as a whole as follows:
The materiality applied by the component
auditors for full scope audits (see below)
ranged from £2.2 million to £22.1 million
(2017: £2.5 million to £22.5 million)
depending on the scale of the component’s
operations and our assessment of
risks specific to each location.
We agreed with the Audit Committee
that we would report to the Committee
all audit differences in excess of £1 million
(2017: £1 million) for the group and parent
company, as well as differences below
that threshold that, in our view, warranted
reporting on qualitative grounds. We
also report to the Audit Committee on
disclosure matters that we identified when
assessing the overall presentation of the
financial statements.
OUR APPLICATION OF MATERIALITY
Group financial statements
Materiality
£24.5 million (2017: £24.5 million)
Basis for
determining
materiality
Group materiality was based on 5% reported
adjusted profit before tax of £581 million excluding
certain items based on their nature. The profit
used in our determination was £520 million.
The items we excluded from our determination
are listed below and explained further in note 5
to the financial statements:
– M&S Bank PPI charge – £35 million
– Logistics restructuring – £13 million
– UK store impairments and associated charges
within £63 million adjusting item in note 5 –
£13 million
Parent company financial
statements
£22.1 million
(2017: £22.1 million)
We used 3% of net
assets as the basis of
materiality and then
further capped this
at 90% of Group
materiality.
We capped materiality to £24.5 million so that it was
not higher than the prior period given the group’s
trading performance in the current period.
Adjusted profit before tax has been used as it is
the primary measure of performance used by
the group. We have used adjusted profit measures
that exclude certain items from our determination
to aid the consistency and comparability of our
materiality base each year.
£176m
£24.5m
PBT
The Parent Company
acts principally as a
holding company and
therefore net assets is
a key measure.
Rationale
for the
benchmark
applied
MATERIALITY
£520m
Adjusted PBT
for determining
materiality
£520m
£24.5m
PBT
Group materiality
Group materiality
£24.5m
Component
materiality range
£2.5m to £22.5m
Audit Committee
reporting threshold
£1m
Group materiality
Group materiality
£24.5m
Component
materiality range
£2.2m to £22.1m
Audit Committee
reporting threshold
£1m
75
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our group audit was scoped by obtaining
an understanding of the group and its
environment, including group-wide
controls, and assessing the risks of material
misstatement at the group level.
Based on our assessment we focused our
group audit scope on the retail businesses
in the UK, Republic of Ireland and India,
which were subject to a full audit. We also
performed audit procedures on specific
balances for the remaining store exit
provisions in France. This work was
performed by the group audit team. In the
prior period, China, Hong Kong and Czech
Republic were also subject to a full audit
but our scope changed following the
group’s reduction in scale of its owned
international business.
These components were selected to
provide an appropriate basis for
undertaking audit work to address the risks
of material misstatement identified above.
All other wholly owned and joint venture
businesses were subject to analytical review
procedures. Whilst we audit the revenues
received by the Group from franchise
operations, which account for 3% (2017: 3%)
of the Group’s revenue, we do not audit the
underlying franchise operations as part of
our Group audit.
At the parent entity level we also tested
the consolidation process and carried out
analytical procedures to confirm our
conclusion that there were no significant
risks of material misstatement of the
aggregated financial information of the
remaining components not subject to a
full audit.
3%
5%
97%
95%
REVENUE
PROFIT BEFORE TAX
1%
14%
99%
ADJUSTED PROFIT
BEFORE TAX
86%
NET ASSETS
Full audit scope
Specified audit procedures and
review at group level
The most significant component of the
group is its retail business in the United
Kingdom, which accounts for 90% (2017:
89%) of the Group’s reported revenue of
£10,698 million, and generates operating
profit of £23 million (2017: £328 million). The
group audit team performs the audit of the
UK business without the involvement of a
component team. During the course of our
audit, the group audit team, conducted 15
distribution centre and 35 retail store visits
in the UK to understand the current trading
performance and, at certain locations,
performed tests of internal controls and
validated levels of inventory held.
We operate a programme of planned visits
to overseas locations so that a senior
member of the group audit team visits each
of the components subject to a full audit
or specific audit procedures at least once
every two years, and the most significant of
them at least once a year. The programme
of visits are set out below, with future years
subject to change as the Group’s
operations continue to evolve.
Component
India
Republic of Ireland
2017
(Last year)
2018
(This year)
2019
(Next year)
✔
✔
✔
✔
✔
In addition to our programme of planned
visits, we send detailed instructions to our
component audit teams, include them in
our team briefings, discuss their risk
assessment, attend closing meetings,
and review their component reporting.
The directors are responsible for the
other information. The other information
comprises the information included in
the annual report other than the financial
statements and our auditor’s report thereon.
Our opinion on the financial statements
does not cover the other information and,
except to the extent otherwise explicitly
stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read
the other information and, in doing so,
consider whether the other information is
materially inconsistent with the financial
statements or our knowledge obtained
in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies
or apparent material misstatements, we are
required to determine whether there is a
material misstatement in the financial
OTHER INFORMATION
statements or a material misstatement
of the other information. If, based on the
work we have performed, we conclude
that there is a material misstatement of
this other information, we are required to
report that fact.
In this context, matters that we are
specifically required to report to you as
uncorrected material misstatements of
the other information include where we
conclude that:
– Fair, balanced and understandable –
the statement given by the directors
that they consider the annual report and
financial statements taken as a whole is
fair, balanced and understandable and
provides the information necessary
for shareholders to assess the group’s
position and performance, business
model and strategy, is materially
inconsistent with our knowledge
obtained in the audit; or
– Audit committee reporting – the section
describing the work of the audit
committee does not appropriately
address matters communicated by us
to the audit committee; or
– Directors’ statement of compliance with
the UK Corporate Governance Code – the
parts of the directors’ statement required
under the Listing Rules relating to the
company’s compliance with the UK
Corporate Governance Code containing
provisions specified for review by the
auditor in accordance with Listing Rule
9.8.10R(2) do not properly disclose a
departure from a relevant provision of
the UK Corporate Governance Code.
We have nothing to report in respect
of these matters.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 76
MARKS AND SPENCER GROUP PLC
INDEPENDENT AUDITOR’S REPORT CONTINUED
USE OF OUR REPORT
RESPONSIBILITIES OF DIRECTORS
This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the company’s
members those matters we are required to
state to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the company and the company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
As explained more fully in the directors’
responsibilities statement, the directors are
responsible for the preparation of the
financial statements and for being satisfied
that they give a true and fair view, and for
such internal control as the directors
determine is necessary to enable the
preparation of financial statements that
are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the
group’s and the parent company’s ability
to continue as a going concern, disclosing
as applicable, matters related to going
concern and using the going concern basis
of accounting unless the directors either
intend to liquidate the group or the parent
company or to cease operations, or have
no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT
OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion.
Reasonable assurance is a high level of
assurance, but is not a guarantee that
an audit conducted in accordance with
ISAs (UK) will always detect a material
misstatement when it exists. Misstatements
can arise from fraud or error and are
considered material if, individually or in
the aggregate, they could reasonably be
expected to influence the economic
decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities
for the audit of the financial statements is
located on the Financial Reporting
Council’s website at: frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditor’s report.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
OPINIONS ON OTHER MATTERS
PRESCRIBED BY THE COMPANIES
ACT 2006
In our opinion the part of the directors’
remuneration report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
MATTERS ON WHICH WE ARE
REQUIRED TO REPORT BY EXCEPTION
Adequacy of explanations received
and accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
– we have not received all the information
and explanations we require for our
audit; or
– the information given in the strategic
report and the directors’ report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements; and
– 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 strategic report and the directors’
report have been prepared in accordance
with applicable legal requirements.
– the parent company financial statements
are not in agreement with the accounting
records and returns.
OTHER MATTERS
Auditor tenure
Following the recommendation of the audit
committee, we were appointed by the
shareholders on 8 July 2014 to audit the
financial statements for the period ending
28 March 2015 and subsequent financial
periods. The period of total uninterrupted
engagement including previous renewals
and reappointments of the firm is 4 years,
covering the periods ending 28 March 2015
to 31 March 2018.
Consistency of the audit report with the
additional report to the audit committee
Our audit opinion is consistent with the
additional report to the audit committee
we are required to provide in accordance
with ISAs (UK).
In the light of the knowledge and
understanding of the group and the parent
company and their environment obtained
in the course of the audit, we have not
identified any material misstatements in
the strategic report or the directors’ report.
We have nothing to report in respect
of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if in our opinion certain
disclosures of directors’ remuneration have
not been made or the part of the directors’
remuneration report to be audited is not in
agreement with the accounting records
and returns.
We have nothing to report in respect
of these matters.
IAN WALLER (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF DELOITTE LLP
STATUTORY AUDITOR, LONDON, UNITED KINGDOM
22 May 2018
77
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
CONSOLIDATED INCOME STATEMENT
Notes
2, 3
2, 3, 5
6
6
4, 5
7
Revenue
Operating profit
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Owners of the parent
Non-controlling interests
Basic earnings per share
Diluted earnings per share
8
8
52 weeks ended 31 March 2018
52 weeks ended 1 April 2017
Profit before
adjusting items
£m
10,698.2
Adjusting items
£m
Total
£m
Profit before
adjusting items
£m
Adjusting items
£m
Total
£m
–
10,698.2
10,622.0
–
10,622.0
670.6
(514.1)
156.5
690.6
(437.4)
253.2
–
–
(514.1)
87.7
(426.4)
(426.4)
–
(426.4)
24.1
(113.8)
580.9
(125.4)
455.5
452.1
3.4
455.5
27.8p
27.8p
24.1
(113.8)
66.8
(37.7)
29.1
25.7
3.4
29.1
1.6p
1.6p
36.2
(113.0)
613.8
(122.4)
491.4
492.8
(1.4)
491.4
30.4p
30.2p
–
–
(437.4)
61.7
(375.7)
(375.7)
–
(375.7)
36.2
(113.0)
176.4
(60.7)
115.7
117.1
(1.4)
115.7
7.2p
7.2p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Profit for the year
Other comprehensive income:
Items that will not be reclassified to profit or loss
Remeasurements of retirement benefit schemes
Tax charge on items that will not be reclassified
Items that will be reclassified subsequently to profit or loss
Foreign currency translation differences
– movements recognised in other comprehensive income
– reclassified and reported in profit and loss
Revaluation of available for sale asset
Cash flow hedges and net investment hedges
– fair value movements recognised in other comprehensive income
– reclassified and reported in profit or loss
– amount recognised in inventories
Tax credit on cash flow hedges and net investment hedges
Other comprehensive income/(expense) for the year, net of tax
Total comprehensive income for the year
Attributable to:
Owners of the parent
Non-controlling interests
52 weeks ended
31 March 2018
£m
52 weeks ended
1 April 2017
£m
Notes
29.1
115.7
11
200.9
(39.0)
161.9
(23.4)
(36.2)
6.9
(208.7)
85.0
57.5
19.7
(99.2)
62.7
91.8
88.4
3.4
91.8
(68.9)
25.3
(43.6)
31.0
–
-
56.1
(72.4)
(20.1)
4.1
(1.3)
(44.9)
70.8
72.2
(1.4)
70.8
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 78
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at
31 March 2018
£m
As at
1 April 2017
£m
Notes
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
Deferred tax assets
Current assets
Inventories
Other financial assets
Trade and other receivables
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
Borrowings and other financial liabilities
Derivative financial instruments
Provisions
Current tax liabilities
Non-current liabilities
Retirement benefit deficit
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
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
14
15
16
11
17
21
23
16
17
21
18
19
12
20
21
22
11
19
12
20
21
22
23
24
599.2
4,393.9
15.5
7.0
9.9
970.7
209.0
27.1
–
6,232.3
781.0
13.7
308.4
7.1
–
207.7
1,317.9
7,550.2
1,405.9
71.9
125.6
73.8
98.8
50.0
1,826.0
22.5
333.8
263.6
1,670.6
30.7
193.1
255.7
2,770.0
4,596.0
2,954.2
406.2
416.4
2,210.5
(65.3)
(6,542.2)
6,531.1
2,956.7
(2.5)
2,954.2
709.0
4,837.8
15.5
7.0
3.0
706.0
234.1
56.8
–
6,569.2
758.5
14.5
318.6
163.1
–
468.6
1,723.3
8,292.5
1,553.8
71.9
518.0
10.5
147.2
66.6
2,368.0
13.2
328.5
324.6
1,711.7
0.8
113.5
281.8
2,774.1
5,142.1
3,150.4
406.2
416.4
2,210.5
17.3
(6,542.2)
6,648.1
3,156.3
(5.9)
3,150.4
The financial statements were approved by the Board and authorised for issue on 22 May 2018. The financial statements also comprise the
notes on pages 81 to 114.
Steve Rowe Chief Executive Officer
79
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 3 April 2016
Profit/(loss) for the year
Other comprehensive (expense)/income:
Foreign currency translation
Remeasurements of retirement
benefit schemes
Tax credit on items that will not be reclassified
Cash flow hedges and net investment hedges
– fair value movement recognised in other
comprehensive income
– reclassified and reported in profit or loss
– amount recognised in inventories
Tax on cash flow hedges and net
investment hedges
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Transactions with owners:
Dividends
Transactions with non-controlling shareholders
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
As at 1 April 2017
As at 2 April 2017
Profit/(loss) for the year
Other comprehensive (expense)/income:
Foreign currency translation
– movement recognised in other
comprehensive income
– reclassified and reported in profit and loss
Remeasurements of retirement benefit schemes
Tax credit on items that will not be reclassified
Revaluation of available for sale asset
Cash flow hedges and net investment hedges
– fair value movement recognised in other
comprehensive income
– reclassified and reported in profit or loss
– amount recognised in inventories
Tax on cash flow hedges and net
investment hedges
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Transactions with owners:
Dividends
Transactions with non-controlling shareholders
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
As at 31 March 2018
Ordinary
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Other
reserve¹
£m
Foreign
exchange
reserve
£m
Retained
earnings²
£m
Non-
controlling
interest
£m
Total
£m
Total
£m
405.8
–
411.3
–
2,210.5
–
32.3 (6,542.2)
–
–
(4.8) 6,932.3 3,445.2
117.1
117.1
–
(1.8) 3,443.4
115.7
(1.4)
35.3
–
31.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
5.1
–
–
–
–
–
–
–
–
–
–
–
–
(4.3)
–
–
77.7
(72.4)
(20.1)
4.1
(15.0)
(15.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35.3
35.3
–
–
–
(68.9)
25.3
(68.9)
25.3
(21.6)
–
–
–
(65.2)
51.9
56.1
(72.4)
(20.1)
4.1
(44.9)
72.2
–
–
–
–
–
–
–
–
(1.4)
31.0
(68.9)
25.3
56.1
(72.4)
(20.1)
4.1
(44.9)
70.8
(377.5)
–
(377.5)
–
–
(2.7)
(377.5)
(2.7)
–
5.5
–
5.5
–
–
–
406.2
–
–
–
416.4
–
–
–
2,210.5
–
–
–
–
–
–
17.3 (6,542.2)
–
–
–
30.5
–
13.5
(2.6)
–
13.5
(2.6)
6,617.6 3,156.3
–
–
–
–
13.5
(2.6)
(5.9) 3,150.4
406.2 416.4
–
–
2,210.5
–
17.3 (6,542.2)
–
–
30.5 6,617.6 3,156.3
25.7
25.7
–
(5.9) 3,150.4
29.1
3.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
406.2 416.4
–
–
–
–
–
0.2
–
–
–
–
– (211.0)
51.0
–
57.5
–
–
–
–
–
–
–
19.7
(82.6)
(82.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(23.6)
(36.2)
–
–
–
–
–
200.9
(39.0)
6.9
(23.4)
(36.2)
200.9
(39.0)
6.9
–
–
–
2.3
34.0
–
(208.7)
85.0
57.5
–
(59.8)
(59.8)
–
205.1
230.8
19.7
62.7
88.4
–
–
–
(303.4)
–
(303.4)
–
–
–
–
–
–
–
–
–
2,210.5 (65.3) (6,542.2)
–
–
–
–
–
–
(3.1)
18.5
–
(29.3) 6,560.4 2,956.7
(3.1)
18.5
–
–
–
–
–
–
–
–
–
–
–
3.4
–
–
–
(23.4)
(36.2)
200.9
(39.0)
6.9
(208.7)
85.0
57.5
19.7
62.7
91.8
(303.4)
–
–
–
–
–
(3.1)
18.5
–
(2.5) 2,954.2
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.
2. Amounts ‘reclassified and reported in profit or loss’ includes the revaluation of the cross currency swaps, offsetting the revaluation of the USD hedged bonds within finance costs.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 80
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds on property disposals
Purchase of property, plant and equipment
Proceeds on disposal of Hong Kong business
Purchase of intangible assets
Reduction of current financial assets
Interest received
Net cash used in investing activities
Cash flows from financing activities
Interest paid1
Cash inflow/(outflow) from borrowings
Repayment of syndicated loan
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
(Redemption)/issuance of medium-term notes
Net cash used in financing activities
Net cash (outflow)/inflow from activities
Effects of exchange rate changes
Opening net cash
Closing net cash
1. Includes interest on the partnership liability to the Marks & Spencer UK Pension Scheme.
Reconciliation of net cash flow to movement in net debt
Opening net debt
Net cash (outflow)/ inflow from activities
Decrease in current financial assets
Decrease in debt financing
Exchange and other non-cash movements
Movement in net debt
Closing net debt
52 weeks ended
31 March 2018
£m
52 weeks ended
1 April 2017
£m
944.1
(94.3)
849.8
3.2
(274.9)
22.9
(74.3)
0.8
6.0
(316.3)
(112.2)
43.8
–
(2.6)
(59.6)
(303.4)
0.1
(3.1)
(328.2)
(765.2)
(231.7)
(3.5)
406.2
171.0
1,165.7
(98.0)
1,067.7
27.0
(309.1)
–
(101.1)
4.6
6.6
(372.0)
(111.2)
(32.7)
(215.3)
(2.0)
(57.9)
(377.5)
5.5
–
300.0
(491.1)
204.6
5.6
196.0
406.2
Notes
26
27
52 weeks ended
31 March 2018
£m
52 weeks ended
1 April 2017
£m
Notes
(1,934.7)
(231.7)
(0.8)
346.6
(6.9)
107.2
(1,827.5)
(2,138.3)
204.6
(4.6)
7.9
(4.3)
203.6
(1,934.7)
27
81
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS
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 24 including the Group’s principal risks and
uncertainties as set out on pages 22 to 24. Based on the Group’s
cash flow forecasts and projections, the Board is satisfied that the
Group has adequate resources to continue in operational existence
and therefore it is appropriate to adopt the going concern basis in
preparing the consolidated financial statements for the year ended
31 March 2018.
The Marks and Spencer Scottish Limited Partnership has taken
an exemption under paragraph 7 of the Partnership (Accounts)
Regulations 2008 from the requirement to prepare and deliver
financial statements in accordance with the Companies Act.
New accounting standards adopted by the Group
There have been no significant changes to accounting under
IFRS which have affected the Group’s results. The IFRS IC has
issued the annual improvements to IFRS: 2014-2016 cycle.
The majority of amendments in this cycle are effective for
annual periods on or after 1 January 2018 with the exception
of the changes to IFRS 12 which have already been implemented
and have not impacted the Group.
New accounting standards in issue but not yet effective
The following IFRS have been issued but are not yet effective:
– IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Financial
Instruments: Recognition and Measurement’. The standard
is effective for periods beginning on or after 1 January 2018
and therefore will be effective in the Group financial statements
for the 52 weeks ending 30 March 2019.
The standard introduces changes to three key areas:
– new requirements for the classification and measurement
of financial instruments;
– a new impairment model based on expected credit losses
for recognising provisions; and
– simplified hedge accounting through closer alignment with
an entity’s risk management methodology.
The Group has completed an assessment of the impact of
IFRS 9 and has concluded that adoption will not have a material
impact on either the Consolidated Income Statement or the
Consolidated Balance Sheet. The Group will apply all aspects
of the new standard at the transition date of 1 April 2018 by
adjusting opening retained earnings in the balance sheet and
no restatement of comparative periods.
The Group has an economic interest in M&S Bank which entitles
the Group to a 50% share of the profits of M&S Bank after
appropriate deductions. M&S Bank adopted IFRS 9 with effect
from 1 January 2018. The Group’s share of profits for the period
includes the post implementation impact of adopting the
expected credit loss model for provisioning in accordance
with the requirements of IFRS 9.
– IFRS 15 ‘Revenue from Contracts with Customers’ is effective for
periods beginning on or after 1 January 2018 and therefore will
be effective in the Group financial statements for the 52 weeks
ending 30 March 2019. The standard establishes a principles-based
approach for revenue recognition and is based on the concept of
recognising revenue for performance obligations only when they
are satisfied and the control of goods or services is transferred.
In doing so, the standard applies a five-step approach to the
timing of revenue recognition and applies to all contracts
with customers, except those in the scope of other standards.
It replaces the separate models for goods, services and
construction contracts under the current accounting standards.
The Group has completed its assessment of the impact of
IFRS 15 and based on the straightforward nature of the Group’s
revenue streams with the recognition of revenue at the point
of sale and the absence of significant judgement required in
determining the timing of transfer of control, the adoption of
IFRS 15 will not have a material impact on the timing or nature
of the Group’s revenue recognition.
– IFRS 16 ‘Leases’ is effective for periods beginning on or after
1 January 2019 and therefore will be effective in the Group
financial statements for the 52 weeks ending 28 March 2020.
Transition to IFRS 16 will take place for the Group on 31 March
2019. The standard introduces a comprehensive model for the
identification of lease arrangements and accounting treatments
for both lessors and lessees and will replace the current lease
accounting requirements including IAS 17 Leases and the
related interpretations.
For lessees, IFRS 16 removes distinctions between operating
leases and finance leases. These are replaced by a model where a
right of use asset and a corresponding liability are recognised
for all leases except for short-term leases and low value assets.
In contrast to lessee accounting, IFRS 16 substantially carries
forward the lessor accounting requirements in IAS 17, and
continues to require a lessor to classify a lease either as an
operating lease or a finance lease.
The Group has established a steering committee to oversee
the governance of the implementation project, which regularly
reports to the Group Audit Committee. During the current period
the Group has made progress in a number of areas including the
identification of leases and contracts that could be determined
to include a lease; the collation of lease data required for the
calculation of the impact assessment; identification of areas of
complexity or judgement relevant to the Group; identification of
necessary changes to systems and processes required to enable
reporting and accounting in accordance with IFRS 16; and
development of initial estimates for discount rates.
From the work performed to date and based on the
undiscounted lease commitments presented in note 25,
it is anticipated that implementation of the new standard will
have a significant impact on the reported assets and liabilities
of the Group. In addition, the implementation of the standard
will impact the income statement and classification of cash flows.
A reliable estimate of the financial impact on the Group’s
consolidated results is dependent on a number of unresolved
areas, including; choice of transition option, refinement of
approach to discount rates, estimates of lease-term for leases
with options to break and renew and conclusion of data collection.
In addition, the financial impact is dependent on the facts and
circumstances at the time of transition. For these reasons, it is not
yet practicable to determine a reliable estimate of the financial
impact on the Group.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
82
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Alternative Performance Measures
In reporting financial information, the Group presents alternative
performance measures, (“APMs”), which are not defined or specified
under the requirements of IFRS.
The Group believes that these APMs, which are not considered to be
a substitute for or superior to IFRS measures, provide stakeholders
with additional helpful information on the performance of the
business. These APMs are consistent with how the business
performance is planned and reported within the internal
management reporting to the Board and Operating Committee.
Some of these measures are also used for the purpose of setting
remuneration targets.
The key APMs that the Group uses include: like-for-like sales; gross
margin; profit before tax and adjusting items; adjusted earnings
per share; net debt; free cash flow; and return on capital employed.
Each of these APMs, and others used by the Group, are set out in
the Glossary on pages 120 to 121 including explanations of how they
are calculated and how they can be reconciled to a statutory
measure where relevant.
The Group reports some financial measures, primarily International
sales, on both a reported and constant currency basis. The constant
currency basis, which is an APM, retranslates the previous year
revenues at the average actual periodic exchange rates used in
the current financial year. This measure is presented as a means
of eliminating the effects of exchange rate fluctuations on the
year-on-year reported results.
The Group makes certain adjustments to the statutory profit
measures in order to derive many of these APMs. The Group’s policy
is to exclude items that are considered to be significant in nature
and/or quantum or are consistent with items that were treated as
adjusting in prior periods. Treatment as an adjusting item provides
stakeholders with additional useful information to assess the
year-on-year trading performance of the Group. On this basis,
the following items were included within adjusting items for the
52-week period ended 31 March 2018:
– Net charges associated with the strategic programme in relation
to the review of the UK store estate.
– Significant restructuring costs and other associated costs arising
from strategy changes that are not considered by the Group to
be part of the normal operating costs of the business.
– Significant pension charges arising as a result of the previous
year’s changes to the UK defined benefit scheme practices.
– Impairment charges and provisions that are considered to be
significant in nature and/or value to the trading performance
of the business.
– Charges arising from adjustments to depreciation of leasehold
assets and write-off of assets that are considered to be significant
in nature and/or value.
– Adjustments to income from M&S Bank due to a provision
recognised by M&S Bank for the cost of providing redress to
customers in respect of possible mis-selling of M&S Bank
financial products.
– Other adjusting items including profit on sale of Hong Kong and
charges for potential liabilities for employee related matters.
Refer to note 5 for a summary of the adjusting items.
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, as modified by financial assets and financial
liabilities (including derivative instruments) at fair value through
profit and loss.
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 period 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. This power is generally accompanied by the
Group having 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 to our franchise partners or the customer
and the significant risks and rewards of ownership have been
transferred to the buyer.
Supplier income
In line with industry practice, the Group enters into agreements
with suppliers to share the costs and benefits of promotional
activity and volume growth. The Group receives income from its
suppliers based on specific agreements in place. This supplier
income received is recognised as a deduction from cost of sales
based on the entitlement that has been earned up to the balance
sheet date for each relevant supplier agreement. Marketing
contributions, equipment hire and other non-judgemental, fixed
rate supplier charges are not included in the Group’s definition of
supplier income.
The types of supplier income recognised by the Group and the
associated recognition policies are:
A. Promotional contribution: Includes supplier contributions to
promotional giveaways and pre-agreed contributions to annual
‘spend and save’ activity.
Income is recognised as a deduction to cost of sales over the
relevant promotional period. Income is calculated and invoiced
at the end of the promotional period based on actual sales or
according to fixed contribution arrangements. Contributions earned
but not invoiced are accrued at the end of the relevant period.
B. Volume-based rebates: Includes annual growth incentives,
seasonal contributions and contributions to share economies of
scale resulting from moving product supply.
Annual growth incentives are calculated and invoiced at the end of
the financial year, once earned, based on fixed percentage growth
targets agreed for each supplier at the beginning of the year. They
are recognised as a reduction in cost of sales in the year to which
they relate. Other volume-based rebates are agreed with the
supplier and spread over the relevant season/contract period to
which they relate. Contributions earned but not invoiced are
accrued at the end of the relevant period.
83
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Uncollected supplier income at the balance sheet date is classified
within the financial statements as follows:
A. Trade and other payables: The majority of income due from
suppliers is netted against amounts owed to that supplier as the
Group has the legal right to offset these balances.
B. Trade and other receivables: Supplier income that has been
earned but not invoiced at the balance sheet date is recognised in
trade and other receivables and primarily relates to volume-based
rebates that run up to the period end.
In order to provide users of the accounts with greater understanding
in this area, additional balance sheet disclosure is provided in note 17
to the financial statements.
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 curtailment, is charged
to operating profit in the year. With effect from 1 April 2017 the
Group no longer incurs any service cost or curtailment costs related
to the UK defined benefit pension scheme as the scheme is closed
to future accrual.
The net interest cost on the net retirement benefit asset/liability is
calculated by applying the discount rate, measured at the beginning
of the year, to the net defined benefit asset/liability and is included
as a single net amount in finance income.
Remeasurements, being actuarial gains and losses, together with
the difference between actual investment returns and the return
implied by the net interest cost, are recognised immediately in
the statement of comprehensive income.
During the year the UK defined benefit (DB) pension scheme
purchased annuities in order to hedge longevity risk for pensioners
within the scheme. As permitted by IAS19, the Group has opted to
recognise the difference between the fair value of the plan assets
and the cost of the policy as an actuarial loss in the statement of
comprehensive income.
Payments to defined contribution retirement benefit schemes
are charged as an expense on an accruals basis.
Intangible assets
A. Goodwill Goodwill arising on consolidation represents the
excess of the consideration paid 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 annually or as triggering
events occur. Any impairment in value is recognised within the
income statement.
B. Brands Acquired brand values are held on the statement of
financial position initially at cost. Definite life intangibles are
amortised on a straight-line basis over their estimated useful lives.
Indefinite life intangibles are tested for impairment annually or as
triggering events occur. Any impairment in value is recognised
within the income statement.
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 and services, as well as internal
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 recognised within 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 on a straight line basis 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 – depreciated over the shorter of their useful economic
lives or the remaining period of the lease; and
– Fixtures, fittings and equipment – 3 to 25 years according to the
estimated economic 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 recognised within 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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 84
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Leasehold prepayments
Payments made to acquire leasehold land and buildings 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 payments received within 48 hours.
Inventories
Inventories are valued on a weighted average cost basis and carried
at the lower of cost and net realisable value. Cost includes all direct
expenditure and other attributable costs incurred in bringing
inventories to their present location and condition. All inventories
are finished goods. Certain purchases of inventories may be subject
to cash flow hedges for foreign exchange risk. The Group applies a
basis adjustment for those purchases in a way that the cost is initially
established by reference to the hedged exchange rate and not the
spot rate at the day of purchase.
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.
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.
Deferred tax liabilities are not recognised on temporary differences
that arise from goodwill which is not deductible for tax purposes.
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.
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.
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 at each reporting period 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 booked into 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,
except when deferred in other comprehensive income as qualifying
cash flow hedges and qualifying net investment hedges.
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 recognised in other comprehensive
income or directly in equity.
Provision is made for uncertain tax positions when it is considered
probable that there will be a future outflow of funds to a tax
authority. The provision is calculated using the single best estimate
where that outcome is more likely than not and a weighted average
probability in other circumstances. The position is reviewed on an
ongoing basis, to ensure appropriate provision is made for each
known tax risk.
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 and other receivables Trade receivables are recorded
initially at fair value and subsequently measured at amortised
cost. Subsequently, this results in their recognition at nominal
value less an allowance for any doubtful debts.
B. Other financial assets Other financial assets consist of
investments in debt and equity securities and short-term
investments and are classified as either ‘available-for-sale’ or ‘fair
value through profit and loss’. Available for sale financial assets are
initially measured at fair value, including transaction costs directly
attributable to the acquisition of the financial asset. Financial assets
held at fair value through profit and loss are initially recognised at
fair value and transaction costs are expensed.
Where securities are designated as ‘fair value through profit and
loss’, gains and losses arising from changes in fair value are included
in the income statement for the period. For ‘available-for-sale’
investments, gains or losses arising from changes in fair value are
recognised in other 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 other
comprehensive income is included in the income statement 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.
85
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
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. They are subsequently held at amortised
cost. Finance charges, 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
net of direct issue costs and are subsequently held at amortised
cost unless the loan is designated in a hedge relationship, in which
case hedge accounting treatment will apply.
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.
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, cross currency swaps
and forward foreign currency contracts to manage its exposures to
fluctuations in interest rates 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).
At the inception of a hedging relationship, the hedging instrument
and the hedged item are documented, along with the risk
management objectives and strategy for undertaking various
hedge transactions and prospective effectiveness testing is
performed. During the life of the hedging relationship, prospective
and retrospective effectiveness testing is performed 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 other comprehensive income
in the hedging reserve 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
other 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 other comprehensive income are
recognised in the income statement in the same period in which
the hedged items affect net profit or loss.
B. Fair value hedges Changes in the fair value of a derivative
instrument designated in a fair value hedge, or for non-derivatives
the foreign currency component of carrying value, are recognised
in the income statement. The hedged item is adjusted for changes
in fair value attributable to the risk being hedged with the
corresponding entry 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 other
comprehensive income in the hedging reserve 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, the hedge relationship no longer
qualifies for hedge accounting, the forecast transaction is
no longer expected to occur or the Group de-designates the
hedge relationship.
When a cash flow hedge is discontinued, any cumulative gain or loss
on the hedging instrument recognised in other comprehensive
income is retained in equity until the forecast transaction occurs.
Subsequent changes in the fair value of the hedging instruments
when the forecast transaction is no longer highly probable but is still
expected to occur, are recognised in the income statement. If a
hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in comprehensive income is
transferred to the income statement for the period.
When a fair value hedge is discontinued, the fair value adjustment to
the carrying amount of the hedged item arising from the hedged
risk is amortised to the income statement from that date.
When a net investment hedge is discontinued, the subsequent
changes in fair value of a derivative (or foreign exchange gains/
losses on recognised financial liabilities) are recognised in the
income statement. The gain or loss on the hedging instrument
recognised in other comprehensive income is reclassified to the
income statement only on disposal of the net investment.
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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 86
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Critical accounting judgements and sources of
estimation uncertainty
The preparation of consolidated financial statements requires
the Group to make estimates and judgements that affect the
application of policies and reported amounts.
Critical judgements represent key decisions made by management
in the application of the Group accounting policies. Where a
significant risk of materially different outcomes exists due to
management assumptions or sources of estimation uncertainty,
this will represent a critical accounting estimate. 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 judgements which have a significant risk of
causing a material adjustment to the carrying amount of assets
and liabilities are discussed below.
Critical accounting judgements
Adjusting items The directors believe that the adjusted profit and
earnings per share measures provide additional useful information
to shareholders on the performance of the business. These
measures are consistent with how business performance is
measured internally by the Board and Operating Committee. The
adjusted 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 classification
of adjusting items requires significant management judgement after
considering the nature and intentions of a transaction. The Group’s
definitions of adjusting items are outlined within both the Group
accounting policies and the glossary on pages 120 - 121.
These definitions have been applied consistently year-on-year.
Note 5 provides further details on current year adjusting items and
their adherence to Group policy.
Sources of estimation uncertainty
UK store estate The Group is undertaking a significant strategic
programme to review its UK store estate resulting in a net charge
of £321.1m in the year. A significant level of estimation has been
used to determine the charges to be recognised in the year. The
most significant judgement that impacts the charge is that the
stores identified as part of the programme are more likely than
not to close. Where a store closure has been announced there is a
reduced level of estimation uncertainty as the programme actions
are to be taken over a shorter and more immediate timeframe.
Further significant estimation uncertainty arises in respect of
determining the recoverable amount of assets and the costs to be
incurred as part of the programme. Significant assumptions have
been made including:
– reassessment of the useful lives of store fixed assets;
– estimation in respect of the expected shorter-term trading
value in use, including assumptions with regard to the period of
trading as well as changes to future sales, gross margin and
operating costs;
– estimation of the sale proceeds for freehold stores which is
dependent upon location specific factors, timing of likely exit and
future changes to the UK retail property market valuations;
– estimation of the value of dilapidation payments required for
leasehold store exits, which is dependent on a number of factors
including the extent of modifications of the store, the terms of
the lease agreement, and the condition of the property; and
– estimation of future contractual lease costs to be incurred
including uncertainty with regards to the cost of termination
and/or potential sub-let (including estimation of nature, timing
and value including any potential void periods and based on
assessment of location specific retail property market factors).
See notes 5 and 15 for further detail.
Useful lives and residual values of property, plant and
equipment and intangibles Depreciation and amortisation are
provided to write down the cost of property, plant and equipment
and intangibles to their estimated residual values over their
estimated useful lives, as set out above. The selection of the residual
values and useful lives gives rise to estimation uncertainty,
especially in the context of changing economic and market factors,
the channel shift from stores to online, increasing technological
advancement and the Group’s ongoing strategic transformation
programmes. The useful lives of property, plant and equipment and
intangibles are reviewed by management annually. See notes 14
and 15 for further details. Refer to the UK store estate section above
for specific sources of estimation uncertainty in relation to the
useful lives and residual values of property, plant and equipment
within stores identified as part of the UK store estate programme.
Impairment of property, plant and equipment and intangibles
Property, plant and equipment and computer software intangibles
are reviewed for impairment if events or changes in circumstances
indicate that the carrying amount may not be recoverable. Goodwill
and indefinite lived brands are reviewed for impairment on an
annual basis. When a review for impairment is conducted, the
recoverable amount is determined based on the higher of value in
use and fair value less costs to sell. The value in use method requires
the Group to determine appropriate assumptions (which are
sources of estimation uncertainty) in relation to the cash flow
projections over the three-year strategic plan period, the long-term
growth rate to be applied beyond this three-year period and the
risk-adjusted pre-tax discount rate used to discount the assumed
cash flows to present value. The assumption that cash flows
continue into perpetuity (with the exception of stores identified as
part of the UK store estate programme) is a source of significant
estimation uncertainty. A future change to the assumption of
trading into perpetuity for any CGU would result in a reassessment
of useful economic lives and residual value and could give rise to a
significant impairment of property, plant and equipment and
intangibles particularly where the store carrying value exceeds fair
value less cost to sell. See notes 14 and 15 for further details on the
Group’s assumptions and associated sensitivities.
Post-retirement benefits The determination of pension net interest
income and the 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,
pensionable 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. The fair value of unquoted investments within total plan
assets is determined using fair value estimates provided by the
manager of the investment or fund. See note 11 for further details
on the impact of changes in the key assumptions and estimates and
note 12 for critical judgements associated with the Marks & Spencer
UK Pension Scheme interest in the Marks and Spencer Scottish
Limited Partnership.
Revenue recognition Accruals for sales returns, deferred income in
relation to loyalty scheme redemptions and gift card and credit
voucher redemptions are estimated on the basis of historical
returns and redemptions. These are recorded so as to be allocated
against revenue in the same period as that in which the original
revenue is recorded. These balances are reviewed regularly and
updated to reflect management’s latest best estimates. However,
actual returns and redemptions could vary from those estimates.
Inventory provisioning Inventory provisions are recognised where
the net realisable value from the sale of inventory is estimated to be
lower than its carrying value, requiring estimation of the expected
future sale price. The estimation includes judgement on a number of
factors including historical sales patterns, expected sales profiles,
potential obsolescence and shrinkage.
87
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 Operating Committee. The Operating Committee reviews 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 Operating Committee.
The UK segment consists of the UK retail business and UK franchise operations. The International segment consists of Marks & Spencer
owned businesses in Europe, Asia and the international franchise operations.
The Operating Committee assesses the performance of the operating segments based on a measure of operating profit. This
measurement basis excludes the effects of adjusting items from the operating segments. The Operating Committee also monitors
revenue within the segments and gross profit within the UK segment. To increase transparency, the Group has decided to include an
additional voluntary disclosure analysing revenue within the reportable segments by sub-category and gross profit within the UK segment
by sub-category.
The following is an analysis of the Group’s revenue and results by reportable segment:
Clothing & Home revenue
Food revenue
UK revenue
Franchised
Owned
International revenue
Group revenue
Clothing & Home gross profit
Food gross profit
UK gross profit
UK operating costs
M&S Bank
UK operating profit
International operating profit
Group operating profit
Finance income
Finance costs
Profit before tax
52 weeks ended 31 March 2018
52 weeks ended 1 April 2017
Management2
£m
Logistics
Adjustment¹
£m
Adjusting
items
£m
Statutory
£m
Management2
£m
Logistics
Adjustment¹
£m
Adjusting items
£m
Statutory
£m
3,741.1
5,869.9
9,611.0
360.6
726.6
1,087.2
10,698.2
2,116.7
1,828.7
3,945.4
(3,450.3)
40.3
535.4
135.2
670.6
24.1
(113.8)
580.9
–
–
–
–
–
–
–
(370.0)
370.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,741.1
5,869.9
9,611.0
360.6
726.6
1,087.2
10,698.2
–
(477.5)
(34.7)
(512.2)
(1.9)
(514.1)
3,575.4
(3,557.8)
5.6
23.2
133.3
156.5
3,792.7
5,649.0
9,441.7
314.0
866.3
1,180.3
10,622.0
2,128.7
1,837.7
3,966.4
(3,390.4)
50.2
626.2
64.4
690.6
–
–
24.1
(113.8)
36.2
(113.0)
(514.1)
66.8
613.8
–
–
–
–
–
–
–
(360.5)
360.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,792.7
5,649.0
9,441.7
314.0
866.3
1,180.3
10,622.0
–
(254.5)
(44.1)
(298.6)
(138.8)
(437.4)
3,605.9
(3,284.4)
6.1
327.6
(74.4)
253.2
–
–
36.2
(113.0)
(437.4)
176.4
1. Management gross profit for the UK segment excludes certain expenses resulting in an adjustment between cost of sales and selling and administrative expenses of £370.0m
(last year £360.5m).
2. Management profit excludes the adjustments (income or charges) made to reported profit before tax that are significant in value and/or nature (see note 5). Please refer to the
accounting policy in note 1 and the glossary for more details on these adjustments.
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
2018
2017
UK1
£m
International
£m
Total
£m
UK1
£m
International
£m
Total
£m
322.4
615.7
228.3
7,242.4
6,022.3
13.2
24.6
5.3
307.8
210.0
335.6
640.3
233.6
7,550.2
6,232.3
374.1
549.1
72.7
7,917.3
6,324.4
12.2
29.1
31.2
375.2
244.8
386.3
578.2
103.9
8,292.5
6,569.2
1. UK assets include centrally held assets largely relating to IT systems that support the International business of £24.9m (last year; £34.0m).
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 88
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3 EXPENSE ANALYSIS
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Other operating income
Operating profit before adjusting items
Adjusting items (see note 5)
Operating profit
The selling and administrative expenses are further analysed below:
Employee costs1
Occupancy costs
Repairs, renewals and maintenance of property
Depreciation, amortisation and asset impairments and write-offs before adjusting items
Other costs
Selling and administrative expenses
2018
Total
£m
10,698.2
(6,650.9)
4,047.3
(3,426.2)
49.5
670.6
(514.1)
156.5
2018
Total
£m
1,521.0
705.6
94.7
580.6
524.3
3,426.2
2017
Total
£m
10,622.0
(6,534.2)
4,087.8
(3,460.4)
63.2
690.6
(437.4)
253.2
2017
Total
£m
1,491.4
757.2
95.1
589.5
527.2
3,460.4
1. There are an additional £57.9m (last year £61.2m) of employee costs recorded within cost of sales. These costs are included within the aggregate remuneration disclosures note 10A.
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
Write down of inventories to net realisable value
Depreciation of property, plant, and equipment
– owned assets
– under finance leases
Amortisation of intangible assets
Impairments and write-offs of assets
Operating lease rentals payable
– property
– fixtures, fittings and equipment
2018
£m
0.8
5,904.1
220.5
459.1
0.5
180.7
233.6
329.9
7.4
2017
£m
(0.2)
5,776.1
234.9
410.3
0.5
167.4
103.9
350.1
4.3
Included in administrative expenses is the auditor’s remuneration, including expenses for audit and non-audit services, payable to the
Company’s auditor Deloitte LLP and its associates as follows:
Annual audit of the Company and the consolidated financial statements
Audit of subsidiary companies
Audit-related assurance services
Total audit and audit-related assurance services fees
Other services
Other services
2018
£m
1.3
0.6
0.2
2.1
–
–
2017
£m
0.9
0.7
0.3
1.9
–
–
89
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS
The total adjusting items reported for the 52 week period ended 31 March 2018 is a net charge of £514.1m (last year £437.4m).
The adjustments made to reported profit before tax to arrive at adjusted profit are:
Strategic programmes - UK store estate
Strategic programmes - UK organisation
Strategic programmes - IT restructure
Strategic programmes - UK logistics
Strategic programmes - Changes to pay and pensions
Strategic programmes - International store closures and Impairments
UK store Impairments, asset write-offs and onerous lease charges
M&S Bank charges incurred in relation to the insurance mis-selling provision
Other
Adjustments to profit before tax
Notes
15, 22
15, 22
22
15, 22
22
22
15, 22
22
2018
£m
(321.1)
(30.7)
(15.5)
(13.1)
(12.9)
(5.0)
(63.4)
(34.7)
(17.7)
(514.1)
2017
£m
(51.6)
(24.0)
–
9.8
(156.0)
(132.5)
(48.8)
(44.1)
9.8
(437.4)
In the prior year, the Group announced a wide-ranging strategic review across a number of areas of the business including customer,
brand, UK organisation, UK store estate and International which has resulted in the Group recognising significant charges in both the prior
and current financial years.
Strategic programmes – UK store estate (£321.1m)
In November 2016, the Group announced a five-year strategic programme to transform the UK store estate. During the year, the Group
announced its intention to accelerate this programme in line with the strategic aim of significantly growing the online share of sales, as well
as better than expected levels of sales transfer achieved from recent store closures. This acceleration of the UK store estate programme
has resulted in an acceleration of the timing of recognition of the associated costs, primarily driven by a shortening of the useful economic
life, for impairment testing purposes, of those stores identified as part of the transformation plans.
The Group has recognised a charge of £321.1m in the year in relation to those stores identified as part of its transformation plans. The charge
includes the impairment of assets (reflecting the shortening of the useful economic life), accelerated depreciation of buildings, fixtures and
fittings and management’s best estimate of closure costs including onerous contracts and leases, dilapidations and, where closure has
been approved and announced, redundancy costs. Refer to notes 15 and 22 for further detail on these charges.
Whilst costs relating to the closure and re-configuration of the UK store estate will recur across future financial years, the Group considers
that they should be treated as an adjusting item given they are part of a strategic programme and are significant in value to the results of
the Group.
Strategic programmes – UK organisation (30.7m)
During the year, the Group recognised a charge of £28.2m in relation to the centralisation of its London Head Office functions into one
building. The remaining £2.5m charge in the period represents redundancy costs associated with changes to the UK Head Office structure.
These costs are considered to be an adjusting item as the total programme cost is significant in value and relates to a significant strategic
transformation programme of the Group. Treatment of the redundancy costs within adjusting items is consistent with the disclosure of
the original UK organisation charges in the prior year.
Strategic programmes – IT reorganisation (£15.5m)
As part of the five-year transformation strategy, the Group announced a technology transformation programme to create a more agile,
faster and commercial technology function that will work with the business to deliver both growth and cost efficiency. The £15.5m of
costs incurred in the year relate primarily to redundancy, transition costs associated with the implementation of a new technology
operating model and accelerated depreciation of IT assets which the Group expects to retire early as a result of the transformation
strategy. Further costs will be incurred in respect of this reorganisation in the financial year ending 30 March 2019. These costs are
considered to be an adjusting item as they relate to a significant strategic initiative of the Group and are significant in value, both in the
year and in total for the project.
Strategic programmes – UK Logistics (£13.1m)
As part of the previously announced long-term strategic programme to transition to a single-tier UK distribution network, the Group has
announced the opening of a new Clothing & Home distribution centre in Welham Green in 2019. As a direct result the Group has announced
the closure of two existing distribution centres. A net charge of £13.1m has been recognised in the period for redundancy, dilapidations,
accelerated depreciation, onerous contracts and project costs. The Group considers this cost to be an adjusting item as it is significant in
value and relates to a significant strategic initiative of the Group. Further costs will be incurred in respect of this reorganisation in the
financial year ending 30 March 2019. Treatment of the costs as being adjusting items is consistent with the treatment in previous periods
in relation to the creation of a single-tier logistics network.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 90
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS CONTINUED
Strategic programmes – Changes to pay and pensions (£12.9m)
In May 2016, the Group announced proposals for a fairer, simpler and more consistent approach to pay and premia as well as proposals
to close the UK defined benefit (DB) pension scheme to future accrual effective from 1 April 2017. As part of these proposals the Group
committed to making transition payments to impacted employees in relation to the closure of the UK DB scheme, expected to be
c. £25m in total over three years (commencing 2017/18). The charge in the period for the first year of these transitional payments to
employees is £12.9m.
As previously disclosed, the Group considers the costs directly associated with the closure of the UK DB scheme to be an adjusting item
on the basis that they relate to a significant cost, impacting the Group results. Treatment of the transition payments made in the period
within adjusting items is consistent with the disclosure of the UK DB scheme closure costs in the prior year.
Strategic programmes – International store closures and impairments (£5.0m)
In the prior year the Group announced its intention to close its owned stores in ten international markets, resulting in the recognition of
£132.5m of expected closure costs primarily relating to redundancy, lease exit and property dilapidations. A net charge of £5.0m has been
recognised in the period reflecting the actualisation of previously estimated closure costs and those costs which can only be recognised as
incurred such as legal costs. The net charge is considered to be an adjusting item as it relates to a significant strategic program, which over
the two years of charges has been significant in both value and nature to the results of the Group.
UK store impairments, asset write-offs and onerous lease contracts (£63.4m)
The Group has recognised a number of charges in the year associated with reductions to the carrying value of items of property, plant and
equipment.
UK store impairment testing (excluding those stores which have been captured as part of the UK store estate programme) has identified
certain stores where the current and anticipated future performance does not support the carrying value of the stores. As a result, a charge
of £12.6m has been incurred primarily in respect of the impairment of assets associated with these stores. Refer to note 15 for further details
on the impairments. This impairment charge is considered to be an adjusting item as it is considered to be consistent with the treatment of
related impairments in the prior period.
Following the announcement of the UK store estate strategy in November 2016, the Group conducted a review of the £4.8bn net book value
(as at 1 April 2017) of the property, plant and equipment on its balance sheet. A one-off non-cash adjustment was made to depreciation of
£45.8m. Of the £45.8m, £43.2m relates to assets in the UK and £2.6m relates to assets in Ireland. Additionally, the Group has recognised an
additional charge of £5.0m related to the write-off of store environment assets that are no longer used by the Group. The Group considers
these costs to be adjusting items as the charges are significant in nature and value to the results of the Group for the current period.
M&S Bank charges incurred in relation to the insurance mis-selling provision (£34.7m)
The Group has an economic interest in M&S Bank, a wholly owned subsidiary of HSBC, by way of a Relationship Agreement that entitles the
Group to a 50% share of the profits of M&S Bank after appropriate deductions. The Group does not share in any losses of M&S Bank and is not
obliged to refund any profit share received from HSBC although future income may be impacted by significant one-off deductions.
Since the year ended 31 December 2010, M&S Bank has recognised in its audited financial statements an estimated liability for redress
to customers in respect of possible mis-selling of financial products. The Group’s fee income from M&S Bank has been reduced by the
deduction of the estimated liability in both the current and prior years. The deduction in the period is £34.7m. The Group considers this
cost to be an adjusting item, despite its recurring nature, as the charges are significant in nature and value in each period to the results of
the Group.
Other (£17.7m)
Other includes profit on the disposal of our retail business in Hong Kong and charges for potential liabilities for certain employee related
matters in the current period. The prior period income related to litigation settlements. These amounts are considered to be adjusting items
as they are significant in nature and value to the results of the group in the current period.
On 30 December 2017, the Group completed the disposal of the retail business in Hong Kong and Macau to the Al-Futtaim Group for
consideration of HKD360.7m (£33.9m). The profit on disposal of the business was £5.8m including the recycling of amounts previously taken
to equity in respect of foreign currency translation and net investment hedging. This profit is considered to be an adjusting item as it is
significant in nature to both the results of the Group and the International segment. The profit on disposal is analysed as follows:
Proceeds
Disposal costs
Net disposal proceeds
Fair value of net assets disposed
Provision for transition services
Net foreign exchange amounts recycled from reserves
Profit on disposal
2018
£m
33.9
(0.9)
33.0
(28.6)
(0.8)
2.2
5.8
2017
£m
–
–
–
–
–
–
–
91
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6 FINANCE INCOME/COSTS
Bank and other interest receivable
Ineffectiveness on financial instruments
Pension net finance income (see note 11F)
Finance income
Interest on bank borrowings
Interest payable on syndicated bank facility
Interest payable on medium-term notes
Interest payable on finance leases
Ineffectiveness on financial instruments
Unwind of discount on provisions
Unwind of discount on partnership liability to the Marks and Spencer UK Pension Scheme (see note 12)
Finance costs
Net finance costs
7 INCOME TAX EXPENSE
A. Taxation charge
Current tax
UK corporation tax on profits for the year at 19% (last year: 20%)
– current year
– adjustments in respect of prior years
UK current tax
Overseas current taxation
– current year
– adjustments in respect of prior years
Total current taxation
Deferred tax
– origination and reversal of temporary differences
– recognition of previously unrecognised tax losses
– adjustments in respect of prior years
– changes in tax rate
Total deferred tax (see note 23)
Total income tax expense
2018
£m
6.0
0.4
17.7
24.1
(1.2)
(2.3)
(90.0)
(1.9)
(2.3)
(5.2)
(10.9)
(113.8)
(89.7)
2017
£m
6.6
0.3
29.3
36.2
(2.8)
(4.3)
(91.2)
(1.9)
–
(0.2)
(12.6)
(113.0)
(76.8)
2018
£m
2017
£m
65.4
7.5
72.9
10.3
(0.2)
83.0
(37.3)
(1.4)
(3.1)
(3.5)
(45.3)
37.7
98.3
(17.4)
80.9
8.9
7.3
97.1
(48.3)
–
11.5
0.4
(36.4)
60.7
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 92
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7 INCOME TAX EXPENSE CONTINUED
B. Taxation reconciliation
The effective tax rate was 56.4% (last year 34.4%) and is explained below.
Profit before tax
Notional taxation at standard UK corporation tax rate of 19% (last year: 20%)
Depreciation and other amounts in relation to fixed assets that do not qualify for tax relief
Other income and expenses that are not taxable or allowable for tax purposes
Retranslation of deferred tax balances due to the change in statutory UK tax rates
Overseas profits taxed at rates different to those of the UK
Overseas tax losses where there is no relief anticipated in the foreseeable future
Adjustments to the current and deferred tax charges in respect of prior periods
Adjusting items:
– depreciation and other amounts in relation to fixed assets that do not qualify for tax relief
– UK store and strategic programme impairments where no tax relief is available
– International store closures and impairments
– other strategic programme income and expenses that are not taxable or allowable for tax purposes
– other
– retranslation of deferred tax balances due to the change in statutory UK tax rates
– overseas profits taxed at rates different to those of the UK
Total income tax expense
2018
£m
66.8
12.7
3.0
14.8
(3.5)
(3.4)
–
4.2
8.0
6.6
(8.3)
3.4
0.2
–
–
37.7
2017
£m
176.4
35.3
4.7
(0.7)
(3.9)
(2.3)
0.5
1.4
–
7.7
26.0
(1.7)
–
4.3
(10.6)
60.7
After excluding adjustments to underlying profit, the underlying effective tax rate was 21.6% (last year: 19.9%).
Other income and expenses that are not taxable or allowable for tax purposes include a charge of £12.7m (2017 £4.1m credit) in relation
to the Marks and Spencer Scottish Limited Partnership. Under this structure tax relief for payments to be made to the Marks & Spencer
UK Pension Scheme in relation to the first partnership interest arose in the first ten years of the structure and some of this benefit is
recaptured in subsequent years.
On 15 September 2016, the Finance Bill received Royal Assent to enact the previously announced reductions in the rate of corporation
tax to 19% from 1 April 2017 and 17% from 1 April 2020. The Group has continued to remeasure its UK deferred tax assets and liabilities at the
end of the reporting period at the rates of 19% and 17% based on an updated expectation of when those balances are expected to unwind.
This has resulted in the recognition of a deferred tax credit of £3.5m in the income statement and the recognition of a deferred tax charge of
£0.1m in other comprehensive income.
93
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7 INCOME TAX EXPENSE CONTINUED
C. Current Tax Reconciliation
The current tax reconciliation shows the tax effect of the main adjustments made to the Group’s accounting profits in order to arrive at its
taxable profits. The reconciling items differ from those in Note 7B as the effects of deferred tax timing differences are ignored below.
Profit before taxation
Notional taxation at standard UK corporation tax rate of 19% (last year: 20%)
Disallowable accounting depreciation and other similar items
Deductible capital allowances
Adjustments in relation to employee share schemes
Adjustments in relation to employee pension schemes
Overseas profits taxed at rates different to those of the UK
Overseas tax losses where there is no tax relief anticipated in the foreseeable future
Other income and expenses that are not taxable or allowable
Adjusting items:
– depreciation and other amounts in relation to fixed assets that do not qualify for tax relief
– UK store and strategic programme impairments where no tax relief is available
– International store closures and impairments
– other strategic programme income and expenses that are not taxable or allowable for tax purposes
– pay and pensions
– other
– overseas profits taxed at rates different to those of the UK
Current year current tax charge
Represented by:
UK current year current tax
Overseas current year current tax
UK adjustments in respect of prior years
Overseas adjustments in respect of prior years
Total current taxation (Note 7A)
2018
£m
66.8
12.7
78.7
(70.6)
2.8
9.2
(3.4)
–
0.5
9.5
44.0
(16.2)
5.1
–
3.4
–
75.7
65.4
10.3
75.7
7.5
(0.2)
83.0
2017
£m
176.4
35.3
90.2
(67.2)
1.0
(11.7)
(2.3)
0.5
3.8
–
17.3
27.3
(1.8)
25.4
–
(10.6)
107.2
98.3
8.9
107.2
(17.4)
7.3
97.1
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 adjusted earnings per share figures have also been calculated based on earnings before adjusting items that are significant in nature
and/or quantum and are considered to be distortive (see note 5). These have been presented to provide shareholders with an additional
measure of the Groups’ year on year performance.
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 four types 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; unvested shares granted
under the Deferred Share Bonus Plan; unvested shares granted under the Restricted Share Plan and unvested shares within the
Performance Share Plan that have met the relevant performance conditions at the end of the reporting period.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 94
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
8 EARNINGS PER SHARE CONTINUED
Details of the adjusted earnings per share are set out below:
Profit attributable to equity shareholders of the Company
Add/(less) (net of tax):
Strategic programmes – UK store estate
Strategic programmes – UK organisation
Strategic programmes – IT restructure
Strategic programmes – UK logistics
Strategic programmes – Changes to pay and pensions
Strategic programmes – International store closures and impairments
UK store Impairments, asset write-offs and onerous lease charges
M&S Bank charges incurred in relation to the insurance mis-selling provision
Other
Profit before adjusting items attributable to equity shareholders of the Company
Weighted average number of ordinary shares in issue
Potentially dilutive share options under the Group's share option schemes
Weighted average number of diluted ordinary shares
Basic earnings per share
Diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
9 DIVIDENDS
Dividends on equity ordinary shares
Paid final dividend
Special dividend
Paid interim dividend
2018
per share
2017
per share
2018
£m
11.9p
–
6.8p
18.7p
11.9p
4.6p
6.8p
23.3p
193.1
–
110.3
303.4
The directors have approved a final dividend of 11.9p per share (last year 11.9p per share) which in line with the requirements of IAS 10
‘Events after the Reporting Period’, has not been recognised within these results. This final dividend of c.£193.1m (last year £193.1m) will be
paid on 13 July 2018 to shareholders whose names are on the Register of Members at the close of business on 1 June 2018. The ordinary
shares will be quoted ex dividend on 31 May 2018.
A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company.
For those shareholders electing to receive the DRIP the last date for receipt of a new election is 22 June 2018.
10 EMPLOYEES
A. Aggregate remuneration
The aggregate remuneration and associated costs of Group employees (including Operating Committee) were:
Wages and salaries
Social security costs
Pension costs
Share-based payments (see note 13)
Employee welfare and other personnel costs
Capitalised staffing costs
Total aggregate remuneration1
2018
Total
£m
1,359.7
91.7
76.7
18.9
56.6
(24.7)
1,578.9
2017
Total
£m
1,333.8
89.7
100.3
10.6
47.1
(28.9)
1,552.6
1. Excludes amounts recognised within adjusting items (see note 5) such as the transition payments the Group has committed to in respect of removal of premia and redundancy costs
associated with the UK and International strategic programmes.
Details of key management compensation are given in note 28.
2018
£m
25.7
264.7
28.0
12.5
10.7
10.4
(4.1)
61.6
28.1
14.5
452.1
Million
1,624.0
5.4
1,629.4
Pence
1.6
1.6
27.8
27.8
2017
£m
117.1
46.5
20.3
–
(9.2)
128.6
120.8
41.3
35.3
(7.9)
492.8
Million
1,623.1
8.0
1,631.1
Pence
7.2
7.2
30.4
30.2
2017
£m
192.7
74.5
110.3
377.5
95
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
10 EMPLOYEES CONTINUED
B. Average monthly number of employees
UK stores
– management and supervisory categories
– other
UK head office
– management and supervisory categories
– other
UK operations
– management and supervisory categories
– other
Overseas
Total average number of employees
2018
2017
6,004
66,540
3,088
856
89
1,153
6,891
84,621
5,617
66,385
3,172
862
191
1,267
7,445
84,939
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 58,928 (last year 59,764).
11 RETIREMENT BENEFITS
The Group provides pension arrangements for the benefit of its UK employees through the Marks & Spencer UK Pension Scheme (a defined
benefit (DB) arrangement) and Your M&S Pension Saving Plan (a defined contribution (DC) arrangement).
The UK DB pension scheme operated on a final pensionable salary basis and is governed by a Trustee board which is independent of the
Group. The UK DB scheme closed to future accrual on 1 April 2017. On closure of the UK DB scheme, all remaining active members moved
to deferred status which resulted in a curtailment charge of £127.0m in the prior year. There will be no further service charge relating to the
scheme and no future monthly employer contributions for current service. At year end the UK DB pension scheme had no active members
(last year nil), 60,402 deferred members (last year 62,655) and 51,802 pensioners (last year 51,198).
The most recent actuarial valuation of the Marks and Spencer UK Pension Scheme was carried out as at 31 March 2015 and showed a funding
surplus of £204m. No additional funding contributions were made during the year in respect of benefits already accrued by members, as
the final contribution of £28m, (agreed at the 2012 actuarial valuation) was paid in the prior year. The UK DB pension scheme will continue to
receive income from the Scottish Limited Partnership. See note 12 for further details.
The DC plan is a pension plan under which the Group pays contributions to an independently administered fund. Such contributions are
based upon a fixed percentage of employees’ pay. The Group has no legal or constructive obligations to pay further contributions to the
fund once the contributions have been paid. Members’ benefits are determined by the amount of contributions paid by the Group and the
member, together with the investment returns earned on the contributions arising from the performance of each individual’s investments
and how each member chooses to receive their retirement benefits. As a result, actuarial risk (that benefits will be lower than expected) and
investment risk (that assets invested in will not perform in line with expectations) fall on the employee. At the year end, the defined
contribution arrangement had some 54,001 active members (last year 53,661) and some 19,984 deferred members (last year 12,866).
The Group also operates a small funded DB pension scheme in the Republic of Ireland. This scheme closed to future accrual on 31 October
2013. Other retirement benefits also include a UK post-retirement healthcare scheme and unfunded retirement benefits.
The total Group retirement benefit cost was £58.9m (last year £198.4m). Of this, income of £14.7m (last year cost of £148.0m) relates to the UK
DB pension scheme which included a £127.0m curtailment charge in the prior year, £68.8m (last year £45.1m) to the UK DC plan and £4.8m
(last year £5.3m) to other retirement benefit schemes.
In March 2018, the UK DB pension scheme purchased pensioner buy-in policies with two insurers covering £1.4bn of UK pensioners’ liabilities
which is approximately one third of the pensioner portfolio. The buy-ins transfer longevity risk to the insurers and reduce the pension risks
being underwritten by the Group.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 96
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 surplus
Analysed in the statement of financial position as:
Retirement benefit asset
Retirement benefit deficit
Net retirement benefit surplus
2018
£m
9,989.3
(9,029.6)
959.7
(3.6)
(7.9)
948.2
970.7
(22.5)
948.2
2017
£m
10,135.1
(9,433.3)
701.8
(1.0)
(8.0)
692.8
706.0
(13.2)
692.8
In the event of a plan wind-up, the pension scheme rules provide M&S with an unconditional right to a refund of surplus assets assuming
the full settlement of plan liabilities. In the ordinary course of business, the Trustees have no rights to wind up or change the benefits due
to members of the scheme. As a result, any net surplus in the UK DB pension scheme is recognised in full.
B. Financial assumptions
The financial assumptions for the UK DB pension 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 pensions in payment for service
Discount rate
Inflation rate
Long-term healthcare cost increases
2018
%
2.0-3.2
2.65
3.15
7.15
2017
%
2.0-3.2
2.55
3.20
7.20
C. Demographic assumptions
The UK post-retirement mortality assumptions are based on an analysis of the pensioner mortality trends under the scheme for the
period to March 2015. The specific mortality rates used are based on the VITA lite tables. The life expectancies underlying the valuation are
as follows:
Current pensioners (at age 65)
– male
– female
Future pensioners – currently in deferred status (at age 65) – male
– female
2018
22.3
25.2
24.1
27.0
2017
23.2
24.7
24.7
27.1
D. Sensitivity analysis
The table below summarises the estimated impact of changes in the principal actuarial assumptions on the UK DB pension scheme surplus:
Decrease in scheme surplus caused by a decrease in the discount rate of 0.25%
Decrease in scheme surplus caused by a decrease in the inflation rate of 0.25%
Increase in scheme surplus caused by a decrease in the average life expectancy of one year
2018
£m
(70.0)
(25.0)
305.0
2017
£m
(70.0)
(20.0)
370.0
The sensitivity analysis above is based on a change in one assumption while holding all others constant. Therefore interdependencies
between the assumptions have not been taken into account within the analysis.
97
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
11 RETIREMENT BENEFITS CONTINUED
E. Analysis of assets
The investment strategy of the UK DB pension scheme is driven by its liability profile, including its inflation-linked pension benefits.
In addition to its interest in the Scottish Limited Partnership (refer to note 12), the scheme invests in different types of bonds (including
corporate bonds and gilts) and derivative instruments (including inflation, interest rate, cross-currency and total return swaps) in order to
align movements in the value of its assets with movements in its liabilities arising from changes in market conditions. Broadly the scheme
has hedging that covers 93% of interest rate movements and 91% of inflation movements, as measured on the Trustees’ funding
assumptions which use a discount rate derived from gilt yields.
By funding its DB pension schemes, the Group is exposed to the risk that the cost of meeting its obligations is higher than anticipated.
This could occur for several reasons, for example:
– Investment returns on the schemes’ assets may be lower than anticipated, especially if falls in asset values are not matched by similar
falls in the value of the schemes’ liabilities.
– The level of price inflation may be higher than that assumed, resulting in higher payments from the schemes.
– Scheme members may live longer than assumed, for example due to advances in healthcare. Members may also exercise (or not exercise)
options in a way that lead to increases in the schemes’ liabilities, for example through early retirement or commutation of pension
for cash.
– Legislative changes could also lead to an increase in the schemes’ liabilities.
In addition, the Group is exposed to additional risks through its obligation to the UK DB pension scheme via its interest in the Scottish
Limited Partnership (see note 12). In particular, under the legal terms of the Partnership, a default by the Group on the rental payments
to the Partnership or a future change in legislation could trigger earlier or higher payments to the pension scheme, or an increase in the
collateral to be provided by the Group.
The fair value of the total plan assets at the end of the reporting period for each category is as follows:
2018
Quoted
£m
Unquoted
£m
Total
£m
Quoted
£m
2017
Unquoted
£m
Debt investments
– Government Bonds net of repurchase
agreements1
– Corporate Bonds
– Asset backed securities and structured debt
Scottish Limited Partnership Interest
(see note 12)
Equity investments
– Developed markets
– Emerging markets
Growth Asset Funds
– Global Property
– Hedge and Reinsurance
– Private Equity and Infrastructure
Derivatives
– Interest and inflation rate swaps
– Foreign exchange contracts and
other derivatives
Cash and Cash equivalents
Other
– Buy In Insurance
– Secure Income Asset Funds
– Other
4,472.9
5.9
–
–
460.8
151.7
–
18.2
–
7.7
0.1
41.8
369.4
685.4
339.2
345.4
102.8
–
274.0
406.2
222.5
6.4
154.8
92.5
4,842.3
691.3
339.2
345.4
563.6
151.7
274.0
424.4
222.5
14.1
154.9
134.3
–
–
87.0
5,246.1
1,277.9
466.7
–
4,743.2
1,277.9
466.7
87.0
9,989.3
4,851.3
5.6
–
–
1,125.4
268.4
–
–
–
0.6
1.3
86.1
–
–
69.4
6,408.1
Total
£m
5,219.7
901.9
547.9
412.1
1,235.6
268.4
256.3
322.0
241.5
368.4
896.3
547.9
412.1
110.2
–
256.3
322.0
241.5
(29.5)
(28.9)
202.9
72.2
–
326.7
–
3,727.0
204.2
158.3
–
326.7
69.4
10,135.1
1. Repurchase agreements were £920.2m (last year £1,333.9m)
The fair values of the above equity and debt investments are based on publicly available market prices wherever available. Unquoted
investments, hedge funds and reinsurance funds are stated at fair value estimates provided by the manager of the investment or fund.
Property includes both quoted and unquoted investments. The fair value of the Scottish Limited Partnership interest is based on the
expected cash flows and benchmark asset-backed credit spreads. It is the policy of the scheme to hedge a proportion of interest rate
and inflation risk. The scheme reduces its foreign currency exposure using forward foreign exchange contracts.
At year end, the UK schemes (UK DB pension scheme and post-retirement healthcare) indirectly held 41,046 (last year 193,506) ordinary
shares in the Company through its investment in UK Equity Index Funds.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 98
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
11 RETIREMENT BENEFITS CONTINUED
F. Analysis of amounts charged against profits
Amounts recognised in comprehensive income in respect of defined benefit retirement plans are as follows:
Current service cost
Administration costs
Past service costs – curtailment charge
Net interest income
Total
Remeasurement on the net defined benefit surplus:
Actual return on scheme assets excluding amounts included in net interest income
Actuarial gain – demographic assumptions
Actuarial loss/(gain) – experience
Actuarial loss/(gain) – financial assumptions
Components of defined benefit income recognised in other comprehensive income
G. Scheme assets
Changes in the fair value of the scheme assets are as follows:
Fair value of scheme assets at start of year
Interest income based on discount rate
Actual return on scheme assets excluding amounts included in net interest income¹
Employer contributions
Benefits paid
Administration costs
Exchange movement
Fair value of scheme assets at end of year
1. The actual return on scheme assets was a gain of £164.6m (last year gain of £1,828.7m).
H. Pensions and other post-retirement liabilities
Changes in the present value of retirement benefit obligations are as follows:
Present value of obligation at start of year
Current service cost
Administration costs
Curtailment charge
Interest cost
Benefits paid
Actuarial loss/(gain) - experience
Actuarial (gain) - demographic assumptions
Actuarial (gain)/loss - financial assumptions
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
The average duration of the defined benefit obligation at 31 March 2018 is 19 years (last year 19 years).
2018
£m
0.3
3.5
–
(17.7)
(13.9)
88.2
(85.1)
26.3
(230.3)
(200.9)
2018
£m
10,135.1
253.4
(88.2)
40.7
(353.9)
(3.3)
5.5
9,989.3
2018
£m
9,442.3
0.3
0.2
–
235.7
(353.9)
26.3
(85.1)
(230.3)
5.6
9,041.1
9,029.6
3.6
7.9
9,041.1
2017
£m
47.2
3.2
128.0
(29.3)
149.1
(1,543.8)
–
(1.5)
1,614.2
68.9
2017
£m
8,515.3
284.9
1,543.8
87.7
(298.4)
(3.0)
4.8
10,135.1
2017
£m
7,691.2
47.2
0.2
128.0
255.6
(298.4)
(1.5)
–
1,614.2
5.8
9,442.3
9,433.3
1.0
8.0
9,442.3
99
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
12 MARKS AND SPENCER 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 (the Partnership). Under the partnership agreement, the limited partners have no ongoing involvement in
the management of the business and shall not take any part in the control of the partnership. The general partner is responsible for the
management and control of the partnership and as such, the Partnership is consolidated into the results of the Group.
The Partnership holds £1.5bn (last year £1.6bn) of properties which have been leased back to Marks and Spencer plc. The Group retains
control over these properties, including the flexibility to substitute alternative properties into the Partnership. The first limited partnership
interest (held by the Marks and Spencer UK Pension Scheme), entitles the Pension Scheme to receive an annual distribution of £71.9m until
June 2022 from the Partnership. The second limited partnership interest (also held by the Marks and Spencer UK Pension Scheme), entitles
the Pension Scheme to receive a further annual distribution of £36.4m from June 2017 until June 2031. All profits generated by the
Partnership in excess of these amounts are distributable to Marks and Spencer plc.
The partnership liability in relation to the first interest of £335.5m (last year £396.5m) is valued at the net present value of the future
expected distributions from the Partnership and is included as a liability in the Groups’ financial statements as it a transferable financial
instrument. During the year to 31 March 2018 an interest charge of £10.9m (last year £12.6m) was recognised in the income statement
representing the unwinding of the discount included in this obligation. The first limited partnership interest of the Pension Scheme is
included within the UK DB Pension Scheme assets, valued at £345.4m (last year £412.1m).
The second partnership interest is not a transferable financial instrument and therefore is not included as a plan asset within the UK DB
pension scheme surplus reported in accordance with IAS 19. Similarly the associated liability is not included on the Groups statement of
financial position.
13 SHARE-BASED PAYMENTS
This year a charge of £18.9m was recognised for share-based payments (last year charge of £10.6m). Of the total share-based payments
charge, £11.0m (last year £10.9m) relates to the Save As You Earn share option scheme and a charge of £2.3m (last year credit of £3.6m)
relates to the Performance Share Plan. The remaining charge of £5.6m (last year £3.3m) is spread over the other share plans. An additional
charge of £1.3m was recognised in relation to the Annual Bonus Scheme for 2016/17 last year under the Deferred Share Bonus Plan.
There is no charge in the current year. Further details of the operation of the Group share plans are provided in the Remuneration Report
on pages 50 to 62.
A. Save As You Earn Scheme
The SAYE scheme was approved by shareholders for a further 10 years at the 2017 AGM. 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 Her Majesty’s Revenue &
Customs (HMRC) approved SAYE savings contract. The Company has chosen to cap the maximum monthly saving amount at £250 which is
below the £500 per month allowed under HMRC Approved Schemes. 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.
Outstanding at beginning of the year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
2018
2017
Number of
options
Weighted average
exercise price
Number of
options
Weighted average
exercise price
43,294,094
13,351,790
(29,500)
(7,758,295)
(5,126,432)
43,731,657
4,976,777
310.6p
261.0p
269.7p
307.1p
402.5p
285.4p
362.3p
30,154,547
28,166,455
(1,763,039)
(12,881,484)
(382,385)
43,294,094
4,928,971
393.3p
260.0p
312.8p
391.8p
355.2p
310.6p
403.5p
For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 314.8p (last year 387.4p).
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
Incremental fair value of option
2018
2018
2017
2017
2017
3-year plan
2016 modified1
3-year plan
3-year plan
3-year plan
2016 modified2
3-year plan
2015 modified2
Nov 17
298p
261p
3 years
0.5%
27.8%
6.3%
42p
N/A
Nov 17
298p
432p
3 years
0.5%
27.8%
6.3%
32p
10p
Nov 16
335p
260p
3 years
0.2%
28.5%
5.6%
66p
N/A
Nov 16
335p
432p
3 years
0.2%
28.5%
5.6%
19p
47p
Nov 16
335p
369p
3 years
0.2%
28.5%
5.6%
30p
36p
1. In the current year, there has been a modification to the 2018 scheme relating to employees cancelling awards from previous years in substitution for awards granted under the 2018
scheme. The fair value of the modified awards will be amortised based on the incremental fair value. The incremental fair value is the difference between the fair value of the 2018 options,
being 42p, and the fair value of repriced previous awards, calculated using 2018 award assumptions, keeping the initial exercise price consistent. The fair value of the modified options,
being 10p for 2016 modified options is already recognised in operating profit.
2. In the prior year, there was a modification to the 2017 scheme relating to employees cancelling awards from previous years in substitution for awards granted under the 2017 scheme.
The fair value of the modified awards will be amortised based on the incremental fair value. The incremental fair value is the difference between the fair value of the 2017 options, being
66p, and the fair value of repriced previous awards, calculated using 2017 award assumptions, keeping the initial exercise price consistent. The fair value of the modified options, being
19p for 2016 modified options and 30p for 2015 modified options is already recognised in operating profit.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 100
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13 SHARE-BASED PAYMENTS CONTINUED
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 10% (last year 10%) 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 2014
January 2015
January 2016
January 2017
January 2018
Number of options
Weighted average remaining contractual life (years)
2018
2017
–
4,703,165
3,397,156
22,925,562
12,705,774
43,731,657
4,854,749
6,280,741
4,676,198
27,482,406
–
43,294,094
2018
–
0.2
1.2
2.2
3.3
2.2
2017
0.2
1.2
2.2
3.2
–
2.5
Option price
405p
369p
432p
260p
261p
285p
B. Performance Share Plan*
The Performance Share Plan (PSP) is the primary long-term incentive plan for approximately 120 of the most senior managers within
the Group. It was first approved by shareholders at the 2005 AGM and again at the 2015 AGM. Under the plan, annual awards, based on a
percentage of salary, may be offered. The extent to which an award vests is measured over a three-year period against financial targets
which for 2017/18 included Adjusted Earnings Per Share (EPS), Return on Capital Employed (ROCE), and Total Shareholder Return (TSR).
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 pages 50 - 62. Awards under this plan have been made in each year since 2005.
During the year, 7,880,779 shares (last year 7,569,499) were awarded under the plan. The weighted average fair value of the shares awarded
was 268.4p (last year 328.0p). As at 31 March 2018 17,624,385 shares (last year 14,816,764) were outstanding under the plan.
C. Deferred Share Bonus Plan*
The Deferred Share Bonus Plan (DSBP) was introduced in 2005/06 as part of the Annual Bonus Scheme for approximately 500 of the most
senior managers within the Group. As part of the plan, 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 within the
Group and the value of any dividends earned on the vested shares during the deferred period will also be paid on vesting.
During the year, 1,892,215 shares (last year 1,563,439) have been awarded under the Plan in relation to the annual bonus. The fair value of the
shares awarded was 343.3p (last year 355.8p). As at 31 March 2018, 4,248,291 shares (last year 3,033,709) were outstanding under the plan.
D. Restricted Share Plan*
The Restricted Share Plan (RSP) 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 vest at the end
of the restricted period (typically between one and three years) subject to the participant still being in employment of the Company on the
relevant vesting date. There are no further performance conditions on these shares, other than continued employment within the Group
and the value of any dividends earned on the vested shares during the deferred period will also be paid on vesting.
During the year, 1,105,428 shares (last year 321,229) have been awarded under the plan. The weighted average fair value of the shares
awarded was 314.0p (last year 326.6p). As at 31 March 2018, 1,555,748 shares (last year 888,027) were outstanding under the plan.
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 to
that allowed within the UK scheme. 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.
During the year, 210,486 options (last year 324,768) were granted, at a fair value of 41.5p (last year 66.3p). As at 31 March 2018, 644,325 options
(last year 521,837) were outstanding under the scheme.
F. Marks and Spencer Employee Benefit Trust
The Marks and Spencer Employee Benefit Trust (the Trust) holds 2,247,837 (last year 2,173,101) shares with a book value of £9.8m (last year
£10.7m) and a market value of £6.1m (last year £7.3m). 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. Awards are granted to employees at the discretion of Marks and
Spencer plc and the Trust agrees to satisfy the awards in accordance with the wishes of Marks and Spencer plc under senior executive share
plans described above. Dividends are waived on all of these shares.
G. ShareBuy
ShareBuy, the Company’s share incentive plan enables the participants to buy shares directly from their gross salary. This scheme does not
attract an IFRS 2 charge.
* All DSBP awards and 297,114 of the RSP awards (last year 321,229) were nil cost options, all remaining shares awarded were nil cost awards. For the purposes of calculating the number of
shares awarded, the share price used is the average of the mid-market price for the five consecutive dealing days preceding the grant date.
101
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Computer
Software
£m
Computer software
under
development
£m
14 INTANGIBLE ASSETS
At 2 April 2016
Cost or valuation
Accumulated amortisation and impairments
Net book value
Year ended 1 April 2017
Opening net book value
Additions
Transfers
Asset Impairments
Asset write-offs
Amortisation charge
Other1
Exchange difference
Closing net book value
At 1 April 2017
Cost or valuation
Accumulated amortisation, impairments and write-offs
Net book value
Year ended 31 March 2018
Opening net book value
Additions
Transfers
Asset impairments
Asset write-offs
Amortisation charge
Exchange difference
Closing net book value
At 31 March 2018
Cost or valuation
Accumulated amortisation and impairments and write-offs
Net book value
Goodwill
£m
136.2
(53.5)
82.7
82.7
–
–
–
–
–
(5.5)
1.2
78.4
137.4
(59.0)
78.4
78.4
–
–
–
–
–
(1.0)
77.4
136.4
(59.0)
77.4
Goodwill relate to the following groups of cash generating units (CGU’s):
Net book value at 1 April 2017
Exchange difference
Net book value at 31 March 2018
Brands
£m
112.3
(93.6)
18.7
18.7
–
–
–
–
(5.3)
–
–
13.4
112.3
(98.9)
13.4
13.4
–
–
–
–
(5.3)
–
8.1
112.3
(104.2)
8.1
per una
£m
69.5
–
69.5
1,272.0
(644.3)
627.7
627.7
0.3
95.8
6.1
(9.6)
(162.1)
–
0.2
558.4
1,368.3
(809.9)
558.4
558.4
0.2
94.2
–
(5.8)
(175.4)
0.3
471.9
1,400.0
(928.1)
471.9
India
£m
8.2
(1.0)
7.2
Total
£m
1,609.9
(807.1)
802.8
802.8
101.1
(11.8)
1.0
(12.5)
(167.4)
(5.5)
1.3
709.0
1,700.5
(991.5)
709.0
709.0
74.3
5.0
–
(7.5)
(180.7)
(0.9)
599.2
1,714.3
(1,115.1)
599.2
89.4
(15.7)
73.7
73.7
100.8
(107.6)
(5.1)
(2.9)
–
–
(0.1)
58.8
82.5
(23.7)
58.8
58.8
74.1
(89.2)
–
(1.7)
–
(0.2)
41.8
65.6
(23.8)
41.8
UK
£m
0.7
–
0.7
Total goodwill
£m
78.4
(1.0)
77.4
1. Other adjustments relate to the adjustment of the provision values for business combinations related to the acquisition of Lima (Bradford) S.à.r.l in the prior period.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 102
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14 INTANGIBLE ASSETS CONTINUED
Impairment testing
Goodwill is not amortised but is tested annually for impairment with the recoverable amount being determined from value in use
calculations. Goodwill for India and the UK has been allocated for impairment testing purposes to groups of cash-generating units (CGUs)
which include the combined retail and wholesale businesses for each location.
The costs in relation to the per una brand are £80.0m (net book value £8m). The per una brand is a definite life intangible asset amortised
on a straight-line basis over a period of 15 years and is only assessed for impairment where such indicators exist. The per una goodwill and
brand are allocated for impairment testing purposes to a single CGU.
The key estimates that management uses in the value in use calculations are expected changes to future cash flows and discount rates.
Management estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the
risks specific to each CGU. The pre-tax discount rates are derived from the Group’s post-tax weighted average cost of capital adjusted for
the specific risks relating to each CGU.
The cash flows used for impairment testing are based on the Group’s latest budget and forecast cash flows, covering a three-year period,
which have regard to historic performance and knowledge of the current market, together with the Group’s views on the future achievable
growth and the impact of committed cash flows. The cash flows include ongoing capital expenditure required to maintain the store network,
but exclude any growth capital initiatives not committed. Cash flows beyond this three-year period are extrapolated using a long-term
growth rate based on the Group’s current view of achievable long-term growth. The long-term growth rates do not exceed the long-term
growth rate for the UK, the long-term growth rate in the Group’s Clothing & Home business or the long-term growth rate in India.
Management has performed sensitivity analysis on the key assumptions both with other variables held constant and with other variables
simultaneously changed. Management has concluded that there are no reasonably possible changes in any key assumptions that would
cause the carrying amounts of goodwill or brands to exceed the value in use for India or the UK.
However, the context in which these estimates have been made for the per una CGU is more uncertain due to the significant change in the
UK retail market. The following key assumptions would have to change as follows to eliminate the headroom in the per una CGU:
– In the short-term, assuming that cost reductions are materially in line with plan, the key assumption driving the value in use calculated is
the ability to deliver cash flow forecasts. Cash flow forecasts in each of the years covered by the three-year plan would have to be 38%
below current expectations to eliminate the headroom in the per una CGU;
– In the medium to long-term, the key assumption driving the value in use is the ability to generate profitable growth in the context of
significant change in the UK retail market. This is reflected within the estimate of the long-term growth rate of -3.0%. Long-term growth
rates, including a commensurate decline in cash flows over the period of the Group’s three-year plan, would have to decline by 9.4% to
eliminate the headroom in these calculations; and,
– An increase of 9.2% in the pre-tax discount rate to 17.8% would eliminate the headroom in the per una CGU.
103
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 PROPERTY, PLANT AND EQUIPMENT
At 2 April 2016
Cost
Accumulated depreciation, impairments and write-offs
Net book value
Year ended 1 April 2017
Opening net book value
Additions
Transfers
Disposals
Asset impairments
Asset write-offs
Depreciation charge
Exchange difference
Closing net book value
At 1 April 2017
Cost
Accumulated depreciation, impairments and write-offs
Net book value
Year ended 31 March 2018
Opening net book value
Additions
Transfers
Disposals
Asset impairments
Asset write-offs
Depreciation charge
Exchange difference
Closing net book value
At 31 March 2018
Cost
Accumulated depreciation, impairments and write-offs
Net book value
Land and buildings
£m
Fixtures, fittings
and equipment
£m
Assets in the
course of
construction
£m
2,981.6
(386.7)
2,594.9
2,594.9
–
17.4
(0.6)
(11.6)
(6.0)
(16.3)
10.0
2,587.8
3,008.4
(420.6)
2,587.8
2,587.8
0.2
10.2
(2.1)
(104.8)
(16.5)
(59.8)
2.9
2,417.9
2,963.4
(545.5)
2,417.9
7,476.3
(5,113.5)
2,362.8
2,362.8
76.2
189.6
(1.0)
(68.6)
(1.8)
(394.5)
9.2
2,171.9
7,750.3
(5,578.4)
2,171.9
2,171.9
56.5
186.6
(15.4)
(103.3)
1.5
(399.8)
(0.8)
1,897.2
7,059.0
(5,161.8)
1,897.2
82.9
(13.5)
69.4
69.4
209.0
(196.2)
–
(1.9)
(2.5)
–
0.3
78.1
96.0
(17.9)
78.1
78.1
204.6
(200.8)
–
–
(3.0)
–
(0.1)
78.8
96.8
(18.0)
78.8
Total
£m
10,540.8
(5,513.7)
5,027.1
5,027.1
285.2
10.8
(1.6)
(82.1)
(10.3)
(410.8)
19.5
4,837.8
10,854.7
(6,016.9)
4,837.8
4,837.8
261.3
(4.0)
(17.5)
(208.1)
(18.0)
(459.6)
2.0
4,393.9
10,119.2
(5,725.3)
4,393.9
Asset write-offs in the year include assets with gross book value of £784.9m and £nil net book value that are no longer in use and have
therefore been retired.
The net book value above includes land and buildings of £41.6m (last year £42.1m) and equipment of £nil (last year £nil) where the Group
is a lessee under a finance lease.
Additions to property, plant and equipment during the year amounting to £nil (last year £nil) were financed by finance leases.
Impairment of property, plant and equipment
For impairment testing purposes, the Group has determined that each store is a separate CGU, with the exception of outlet stores, which are
considered together as one CGU. Each CGU is tested for impairment at the balance sheet date if any indicators of impairment have been
identified. One of the indicators of impairment is whether a store is identified within the Groups’ UK store estate programme (see note 5).
The recoverable value of each CGU is determined to be the higher of value in use and fair value less costs to sell.
The value in use of each CGU is calculated based on the Group’s latest budget and forecast cash flows, covering a three-year period, which
have regard to historic performance and knowledge of the current market, together with the Group’s views on the future achievable growth
and the impact of committed initiatives. The cash flows include ongoing capital expenditure required to maintain the store network, but
exclude any growth capital initiatives not committed. Cash flows beyond this three-year period are extrapolated using a long-term growth
rate for UK stores based on historic growth rates and management future expectations, with reference to forecast GDP growth for other
territories. These growth rates do not exceed the long-term growth rate for the Group’s retail businesses in these territories. If the CGU
relates to a store which the Group has been identified as part of the UK store estate programme, the value in use calculated has been
modified by estimation of the future cash flows up to the point where it is estimated that trade will cease and then estimation of the
timing and amount of costs associated with closure detailed fully in note 5.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 104
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 PROPERTY, PLANT AND EQUIPMENT CONTINUED
Impairment of property, plant and equipment continued
The key assumptions in the value in use calculations are the growth rates of sales and gross profit margins, changes in the operating cost
base, long-term growth rates and the risk-adjusted pre-tax discount rate. The pre-tax discount rates are derived from 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 for each territory. The pre-tax discount rates range from 8% to 15% (last year 7% to 21%). If the CGU relates to a store which the Group
has identified as part of the UK store estate programme, the additional key assumptions in the value in use calculations are costs associated
with closure, the proceeds and timing of exit.
Where appropriate, fair value less cost to sell is determined with regard to the expected rent and yield for each property and reflect the
specific characteristics relevant to each property and the location in which it is based. The fair values have been determined with the
assistance of independent, professional valuers.
During the year, the Group has recognised an impairment charge of £196.2m and no impairment reversal as a result of the announced UK
store estate programme. The impairment charge relates to the acceleration in the year of the programme announced in November 2016
(see note 5). These impairments have been recognised within adjusting items (see note 5).
The Group has performed sensitivity analysis on the impairment tests associated with the UK store estate programme. A delay of 12 months
in the probable date of each store exit would result in a decrease in the impairment charge of £43.2m. A 2% reduction in the year 1 sales
growth would result in an increase in the impairment charge of £5.5m. Neither a 1% increase in the discount rate, a 20 basis point reduction
in gross margin during the period of trading nor a 2% increase in the costs associated with exiting a store would result in a significant increase
to the impairment charge.
During the year the Group has recognised an impairment charge of £11.9m and no impairment reversals as a result of store impairment
testing unrelated to the UK store estate programme. The gross impairment charge relates to stores in the UK. These impairments have been
recognised within adjusting items (see note 5).
The Group has performed a sensitivity analysis on the key assumptions in the impairment model for those UK stores not expected to
be included in the UK store estate programme described above. A 1% reduction in the sales growth would result in an increase in the
impairment charge of £1.0m and a 20 basis point reduction in gross margin would increase the impairment charge by £0.4m. A 100 basis
point increase in the pre-tax discount rate would increase the impairment charge by £5.4m.
16 OTHER FINANCIAL ASSETS
Non-current
Unlisted investments
Current
Short-term investments¹
2018
£m
9.9
13.7
2017
£m
3.0
14.5
1. Includes £5.8m (last year £5.3m) of money market deposit held by Marks and Spencer plc in an escrow account, as part of the Group’s self-funded captive insurance scheme.
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
2018
£m
2.3
206.7
209.0
114.3
(0.4)
113.9
30.9
163.6
308.4
2017
£m
15.1
219.0
234.1
111.0
(1.7)
109.3
28.5
180.8
318.6
Trade and other receivables that were past due but not impaired amounted to £21.3m (last year £20.8m) and are mainly sterling
denominated. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Included in
prepayments and accrued income is £28.2m (last year £31.5m) of accrued supplier income relating to rebates which have been earned
but not yet invoiced. Supplier income that has been invoiced but not yet settled against future trade creditor balances is included within
trade creditors where there is a right to offset. The remaining amount is immaterial.
18 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are £207.7m (last year £468.6m). The carrying amount of these assets approximates their fair value.
The effective interest rate on short-term bank deposits is 0.40% (last year 0.21%). These deposits have an average maturity of 23 days
(last year eight days).
105
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
19 TRADE AND OTHER PAYABLES
Current
Trade and other payables
Social security and other taxes
Accruals and deferred income
Non-current
Other payables , accruals and deferred income
20 BORROWINGS AND OTHER FINANCIAL LIABILITIES
Current
Bank loans and overdrafts1
Finance lease liabilities
6.250% US$500m medium-term notes 20173,4
Interest accrued on medium-term notes
Revaluation of medium-term notes
Non-current
6.125% £400m medium-term notes 20192,5
6.125% £300m medium-term notes 20212
3.00% £300m medium-term notes 20232
4.75% £400m medium-term notes 20252,5
7.125% US$300m medium-term notes 20373,4
Revaluation of medium-term notes
Finance lease liabilities
Total
2018
£m
2017
£m
872.9
57.1
475.9
1,405.9
967.5
55.0
531.3
1,553.8
333.8
328.5
2018
£m
88.4
0.3
–
36.9
–
125.6
400.1
298.2
296.9
397.5
192.0
38.2
47.7
1,670.6
1,796.2
2017
£m
70.3
0.4
328.1
46.4
72.8
518.0
400.2
297.8
296.3
397.1
191.9
80.1
48.3
1,711.7
2,229.7
1. Bank loans and overdrafts include 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. US$500m and US$300m medium-term notes exposure swapped to sterling (fixed-to-fixed cross currency interest rate swaps).
5. The Group occasionally enters into interest swaps to manage interest rate exposure. At year end, the £425m (last year £425m) was swapped from fixed to floating rate.
Finance leases
The minimum lease payments under finance leases fall due as shown in the table on the following page. The weighted average lease term
for equipment is two years (last year three years) and 93 years (last year 95 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 swaps, cross currency swaps and forward
currency contracts. The purpose of these transactions is to manage the interest rate and foreign 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 STATEMENTSGOVERNANCESTRATEGIC REPORT 106
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Financial risk management
The principal financial risks faced by the Group are liquidity and funding, interest rate, foreign currency and counterparty risks. The policies
and strategies for managing these risks are summarised on the following pages:
(a) Liquidity and 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 sufficient headroom, maturity and flexibility and cost
effectiveness to match the requirements of the Group.
– Marks & Spencer plc is financed by a combination of retained profits, bank borrowings, medium-term notes and a committed syndicated
bank facility.
– Operating subsidiaries are financed by a combination of retained profits, bank borrowings and intercompany loans.
At year end, the Group had a committed syndicated bank revolving credit facility of £1.1bn set to mature on 15 April 2023, following the
Group’s second and final request to extend the facility by one further year. The 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 uncommitted facilities available to it. At year end, these amounted to £100m (last year
£150m), 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 £45m (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 £1.4bn (last year £1.4bn)
was in issuance as at the balance sheet date.
The contractual maturity of the Group’s non-derivative financial liabilities (excluding trade and other payables (see note 19) and derivatives
is as follows:
Bank loans
and
overdrafts
£m
Syndicated
bank facility
£m
Medium-
term notes
£m
Finance lease
liabilities
£m
Partnership
liability to the
Marks &
Spencer UK
pension
(note 12)
£m
Total
borrowings
and other
financial
liabilities
£m
Derivative
assets1
£m
Derivative
liabilities1
£m
Total
Derivative
assets and
liabilities
£m
(70.3)
–
–
–
(70.3)
–
(70.3)
(88.4)
–
–
–
(88.4)
–
(88.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(514.2)
(88.0)
(915.1)
(1,309.0)
(2,826.3)
715.6
(2,110.7)
(86.1)
(486.1)
(466.3)
(1,207.2)
(2,245.7)
585.9
(1,659.8)
(2.5)
(2.6)
(7.3)
(176.0)
(188.4)
139.7
(48.7)
(2.3)
(2.3)
(6.9)
(168.9)
(180.4)
132.4
(48.0)
(71.9)
(71.9)
(215.6)
(71.9)
(431.3)
34.8
(396.5)
(71.9)
(71.9)
(215.5)
–
(359.3)
23.8
(335.5)
(658.9)
(162.5)
(1,138.0)
(1,556.9)
(3,516.3)
890.1
(2,626.2)
(248.7)
(560.3)
(688.7)
(1,376.1)
(2,873.8)
742.1
(2,131.7)
543.6
26.7
63.9
519.5
1,153.7
(373.4)
(14.5)
(41.2)
(413.2)
(842.3)
170.2
12.2
22.7
106.3
311.4
30.0
21.9
270.0
223.1
545.0
(88.2)
(18.1)
(248.5)
(198.5)
(553.3)
(58.2)
3.8
21.5
24.6
(8.3)
Timing of cash flows
Within one year
Between one and two years
Between two and five years
More than five years
Effect of discounting
At 1 April 2017
Timing of cash flows
Within one year
Between one and two years
Between two and five years
More than five years
Effect of discounting
At 31 March 2018
1. Derivative cash flows are disclosed based on actual settlement. All derivatives are settled net, except for currency swaps.
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
2018
£m
(0.3)
(1.1)
(46.6)
(48.0)
2017
£m
(0.4)
(1.6)
(46.7)
(48.7)
107
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Financial risk management continued
(b) Counterparty risk
Counterparty risk exists where the Group can suffer financial loss through the default or non-performance of the financial institutions with
whom it transacts.
Exposures are managed in accordance with the Group treasury policy which limits the value that can be placed with each approved
counterparty to minimise the risk of loss. The minimum long-term rating for all counterparties is long-term Standard & Poor’s (A-)/Moody’s
((A3)/(BBB+/Baa1 for committed lending banks)). In the event of a rating by one agency being different to the other, reference will be made
to Fitch to determine the casting vote of the rating group. In the absence of a Fitch rating the lower agency rating will prevail. 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.
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 1 April 2017
Short-term investments1
Derivative assets2
At 31 March 2018
AAA+
£m
–
–
–
AAA
£m
–
–
–
AAA+
£m
AAA
£m
–
–
–
–
–
–
AA
£m
–
–
–
AA
£m
2.6
–
2.6
AA-
£m
17.4
62.8
80.2
AA-
£m
9.8
–
9.8
A+
£m
149.3
84.1
233.4
A+
£m
33.6
–
33.6
A
£m
185.0
19.0
204.0
A
£m
7.9
8.0
15.9
A-
£m
–
–
–
A-
£m
2.7
–
2.7
BBB+
£m
–
41.0
41.0
BBB+
£m
1.5
2.9
4.4
Total
£m
351.7
206.9
558.6
Total
£m
58.1
10.9
69.0
1. Includes cash on deposit and money market funds held by Marks & Spencer Scottish Limited Partnership, Marks & Spencer plc and Marks & Spencer General Insurance. Excludes cash in
hand and in transit £149.6m (last year £116.9m).
2. Standard & Poor’s equivalent rating shown as reference to the majority credit rating of the counterparty from either Standard & Poor’s, Moody’s or Fitch where applicable.
The Group has a very low retail credit risk due to transactions principally being of high volume, low value and short maturity.
The maximum exposure to credit risk at the balance sheet date was as follows: trade receivables £114m (last year £111m), other receivables
£33m (last year £44m), cash and cash equivalents £208m (last year £469m) and derivatives £34m (last year £220m).
(c) Foreign currency risk
Transactional foreign currency exposure arises primarily from the import of goods sourced from overseas suppliers and also from the
export of goods from the UK to overseas subsidiaries. The most significant exposure is to the US dollar, incurred in the sourcing of Clothing &
Home products from Asia.
Group Treasury hedges these exposures principally using forward foreign exchange contracts progressively based on dynamic forecasts
from the business. Hedging begins around 15 months ahead of the start of the season, with between 80% and 100% of the risk hedged nine
months before the start of the season.
Other exposures arising from the export of goods to overseas subsidiaries are also hedged progressively over the course of the year
before they are incurred. As at the balance sheet date, the gross notional value in sterling terms of forward foreign exchange sell or buy
contracts amounted to £1,963m (last year £2,023m) with a weighted average maturity date of six months (last year six months).
Gains and losses in equity on forward foreign exchange contracts designated in cash flow hedge relationships as at 31 March 2018 will be
released to the income statement at various dates over the following 17 months (last year 17 months) from the balance sheet date.
The Group previously used a combination of foreign currency debt and foreign exchange contracts to hedge its net balance sheet
translation exposure by currency arising from investment in overseas operations. The treasury policy was changed during the current
financial year and the Group no longer hedges these. Last year, €26m and HK$190m of foreign exchange contracts were in place hedging
overseas net assets.
The Group also holds a number of cross currency swaps to designate its fixed rate US dollar debt to fixed rate sterling debt. These are
reported as cash flow hedges.
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 resulted in a £3.3m gain (last year
£2.3m gain) in the income statement. As at the balance sheet date, the gross notional value of intercompany loan hedges was £217m
(last year £367m).
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 108
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Financial risk management continued
(c) Foreign currency risk continued
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 and the liability to the Marks & Spencer UK Pension Scheme, is set out below:
Currency
Sterling
Euro
Other
2018
2017
Fixed rate
£m
Floating rate
£m
Total
£m
Fixed rate
£m
Floating rate
£m
Total
£m
1,276.2
6.5
0.1
1,282.8
511.6
–
1.8
513.4
1,787.8
6.5
1.9
1,796.2
1,727.8
6.6
0.1
1,734.5
492.3
0.7
2.2
495.2
2,220.1
7.3
2.3
2,229.7
The floating rate sterling and euro borrowings are linked to interest rates related to LIBOR. These rates are for periods between one and
six months.
As at the balance sheet date and excluding finance leases, the fixed rate sterling borrowings are at an average rate of 4.7% (last year 5.0%)
and the weighted average time for which the rate is fixed is six years (last year six years).
(d) Interest rate risk
The Group is exposed to interest rate risk in relation to sterling, US dollar and euro 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 £1,282.8m (last year £1,734.5m) representing the public bond issues and
finance leases, amounting to 71% (last year 78%) 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
Cross-currency swaps
– cash flow hedges
Forward foreign exchange contracts – cash flow hedges
– held for trading
– net investment hedges
Non-current
Cross-currency swaps
– cash flow hedges
Forward foreign exchange contracts – cash flow hedges
– fair value hedges
Interest rate swaps
2018
%
1.0
4.7
4.3
2017
%
0.3
5.0
4.3
2018
Assets
£m
Liabilities
£m
2017
Assets
£m
Liabilities
£m
–
5.1
2.0
–
7.1
–
0.4
26.7
27.1
–
(73.6)
(0.2)
–
(73.8)
(26.7)
(4.0)
–
(30.7)
72.6
89.1
0.7
0.7
163.1
14.0
1.3
41.5
56.8
–
(9.0)
(1.5)
–
(10.5)
–
(0.8)
–
(0.8)
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 ineffective portion recognised in the profit or loss that arises from fair value hedges amounts to a £0.4m gain (last year £0.3m)
as the gain on the hedged items was £15.0m (last year £0.3m) and the movement on the hedging instruments was £14.6m loss (last year £nil).
The Group holds a number of cross currency interest rate swaps to re-designate its USD to GBP fixed debt. These are reported as
cash flow hedges. The ineffective portion recognised in the profit and loss that arises from the cash flow hedges amounts to a £2.3m loss
(last year £nil) as the gain on the hedged items was £24.9m (last year £nil) and the movement on the hedging instruments was £27.2m loss
(last year £nil).
109
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 and
a 20% +/- (last year 20%) weakening in sterling against the relevant currency represents a reasonable possible change. However this analysis
is for illustrative purposes only.
The table excludes financial instruments that expose the Group to interest rate and foreign exchange risk where such a 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.
Interest rates: 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 transactional foreign exchange cash
flow hedges and the net investment hedges at the balance sheet date. The impact in equity reflects the fair value movement in relation to
the Group’s cross-currency swaps.
Foreign exchange: 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.
At 1 April 2017
Impact on income statement: gain/(loss)
Impact on other comprehensive income: (loss)/gain
At 31 March 2018
Impact on income statement: gain/(loss)
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
7.8
(2.2)
8.9
(15.6)
(2.1)
0.3
(9.1)
10.6
–
246.4
–
215.7
–
(164.3)
–
(222.4)
Offsetting of financial assets and liabilities
The following tables set out the financial assets and financial liabilities which are subject to offsetting, enforceable master netting
arrangements and similar agreements. Amounts which are set off against financial assets and liabilities in the Group’s balance sheet are set
out below. For trade and other receivables and trade and other payables, amounts not offset in the balance sheet but which could be offset
under certain circumstances are also set out.
At 1 April 2017
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Trade and other payables
Derivative financial liabilities
Bank loans and overdrafts
At 31 March 2018
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Trade and other payables
Derivative financial liabilities
Bank loans and overdrafts
Gross financial
assets/(liabilities)
£m
Gross financial
(liabilities)/
assets set off
£m
Net financial
assets/(liabilities)
per statement of
financial position
£m
Related amounts
not set off in
the statement of
financial position
£m
25.1
219.9
42.4
287.4
(279.2)
(11.3)
(103.9)
(394.4)
(22.8)
–
(41.6)
(64.4)
22.8
–
41.6
64.4
2.3
219.9
0.8
223.0
(256.4)
(11.3)
(62.3)
(330.0)
–
(11.3)
–
(11.3)
–
11.3
–
11.3
Gross financial
assets/(liabilities)
£m
Gross financial
(liabilities)/
assets set off
£m
Net financial
assets/(liabilities)
per statement of
financial position
£m
Related amounts
not set off in
the statement of
financial position
£m
31.3
34.2
46.3
111.8
(276.4)
(104.5)
(82.5)
(463.4)
(29.9)
–
(46.0)
(75.9)
29.9
–
46.0
75.9
1.4
34.2
0.3
35.9
(246.5)
(104.5)
(36.5)
(387.5)
–
(34.2)
–
(34.2)
–
34.2
–
34.2
Net
£m
2.3
208.6
0.8
211.7
(256.4)
–
(62.3)
(318.7)
Net
£m
1.4
–
0.3
1.7
(246.5)
(70.3)
(36.5)
(353.3)
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 110
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Offsetting of financial assets and liabilities continued
The gross financial assets and liabilities set out in the balance sheet primarily relate to cash pooling arrangements with banks. Amounts
which do not meet the criteria for offsetting on the balance sheet but could be settled net in certain circumstances principally relate to
derivative transactions under ISDA (International Swaps and Derivatives Association) agreements where each party has the option to settle
amounts on a net basis in the event of default of the other party.
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 and liabilities;
– Level 2: not traded in an active market but the fair values are based on quoted market prices or alternative pricing sources with reasonable
levels of price transparency. The Group’s level 2 financial instruments includes interest rate and foreign exchange derivatives. Fair value is
calculated using discounted cash flow methodology, future cash flows are estimated based on forward exchange rates and interest rates
(from observable market curves) and contract rates, discounted at a rate that reflects the credit risk of the various counterparties for
those with a long maturity; 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. No level 3 instruments were in place at the year end.
At the end of the reporting period, the Group held the following financial instruments at fair value:
Level 1
£m
2018
Level 2
£m
Level 3
£m
Total
£m
Level 1
£m
2017
Level 2
£m
Level 3
£m
Total
£m
Assets measured at fair value
Financial assets at fair value
through profit or loss
– trading derivatives
Derivatives used for hedging
Short- term investments
Liabilities measured at fair value
Financial liabilities at fair value
through profit or loss
– trading derivatives
Derivatives used for hedging
–
–
–
–
–
2.0
32.2
13.7
(0.2)
(104.3)
–
–
–
–
–
2.0
32.2
13.7
(0.2)
(104.3)
–
–
–
–
–
0.7
219.2
14.5
(1.5)
(9.8)
–
–
–
–
–
0.7
219.2
14.5
(1.5)
(9.8)
The Marks & Spencer UK DB Pension Schemes holds a number of financial instruments which make up the pension asset of £9,989.3m
(last year £10,135.1m). Level 1 and Level 2 financial assets measured at fair value through other comprehensive income amounted to
£7,152.4m (last year £8,690.2m). Additionally, the scheme assets include £2,836.9m (last year £1,444.9m) of Level 3 financial assets.
See note 11 for information on the Group’s retirement benefits.
There were no transfers between the levels of the fair value hierarchy. In addition to the above, the Group has £9.9m (last year £3.0m) in
unlisted equity securities measured at fair value (see note 16).
The following table represents the changes in Level 3 instruments held by the Pension Schemes:
Opening balance
Fair value (loss)/gain recognised in other comprehensive income
Additional investment/(derecognition)
Closing balance
2018
£m
1,444.9
(74.9)
1,466.9
2,836.9
2017
£m
1,219.1
100.6
125.2
1,444.9
Fair value of financial instruments
With the exception of the Group’s fixed rate bond debt and the Partnership liability to the Marks & Spencer UK Pension Scheme, 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 (level 1 equivalent) was £1,659.9m (last year £2,110.7m), the fair value of this debt was
£1,761.0m (last year £2,236.7m).
111
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
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 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 six years (last year seven 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 1 April 2017
Provided in the year
Released in the year
Utilised during the year
Exchange differences
Discount rate unwind
Reclassification from trade and other payables
At 31 March 2018
Analysed as:
Current
Non-current
Property
£m
Restructuring
£m
128.7
135.2
(12.6)
(23.5)
0.3
5.2
–
233.3
101.6
23.7
(12.9)
(85.9)
1.9
–
–
28.4
Other
£m
30.4
28.1
(3.3)
(23.6)
–
–
(1.4)
30.2
2018
£m
260.7
187.0
(28.8)
(133.0)
2.2
5.2
(1.4)
291.9
98.8
193.1
2017
£m
66.0
246.0
(26.3)
(30.2)
3.4
0.2
1.6
260.7
147.2
113.5
Property provisions relate to onerous lease contracts and dilapidations primarily arising as a result of the closure of stores in the UK,
as part of the UK Store Estate strategic programme, together with the centralisation of the London Head Office functions into one building.
These provisions are expected to be utilised over the period to the end of each specific lease.
Restructuring provisions relate to the estimated costs associated with the International exit strategy and the strategic programme to
transition to a single tier UK distribution network. These provisions are expected to be utilised within the next year.
Other provisions include amounts in respect of potential liabilities for employee-related matters. The utilisation during the year primarily
related to the payment of transition amounts in respect of pay and premia.
Please see note 5 for further information on these provisions.
23 DEFERRED TAX
Deferred tax is provided under the balance sheet liability method using the tax rate at which the balances are expected to unwind of 19%
and 17% as applicable (last year 19% and 17%) 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 the offsetting of balances within the same jurisdiction as permitted by IAS 12 –
‘Income Taxes’) during the year are shown below.
Deferred tax assets/(liabilities):
At 2 April 2016
Credited/(charged) to income statement
Credited/(charged) to equity/
other comprehensive income
Other Balance Sheet movement
At 1 April 2017
At 2 April 2017
Credited/(charged) to income statement
Credited/(charged) to equity/
other comprehensive income
Other Balance Sheet movement
At 31 March 2018
Land and
buildings
temporary
differences
£m
Capital
allowances in
excess of
depreciation
£m
(46.8)
3.5
–
–
(43.3)
(43.3)
8.0
–
1.4
(33.9)
(80.1)
17.7
–
–
(62.4)
(62.4)
33.1
–
–
(29.3)
Pension
temporary
differences
£m
(205.5)
14.5
21.6
–
(169.4)
(169.4)
1.2
(39.8)
–
(208.0)
Other short-
term
temporary
differences
£m
Total UK
deferred tax
£m
Overseas
deferred tax
£m
(1.9)
1.4
4.8
(1.6)
2.7
2.7
1.3
19.9
–
23.9
(334.3)
37.1
26.4
(1.6)
(272.4)
(272.4)
43.6
(19.9)
1.4
(247.3)
(3.3)
(0.7)
(5.2)
(0.2)
(9.4)
(9.4)
1.7
0.5
(1.2)
(8.4)
Total
£m
(337.6)
36.4
21.2
(1.8)
(281.8)
(281.8)
45.3
(19.4)
0.2
(255.7)
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 112
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
23 DEFERRED TAX CONTINUED
Deferred tax assets/(liabilities) continued
Other short-term term temporary differences relate mainly to employee share options and financial instruments.
The deferred tax liability on land and buildings temporary differences is reduced by the benefit of capital losses with a gross value of
£283.2m (last year £254.5m) and a tax value of £53.8m (last year £48.4m). Due to uncertainty over their future use, no benefit has been
recognised in respect of trading losses carried forward in overseas jurisdictions with a gross value of £80.1m (last year £147.9m) and a tax
value of £16.9m (last year £34.2m).
No deferred tax is recognised in respect of undistributed earnings of overseas subsidiaries and joint ventures with a gross value of £48.4m
(last year £38.2m) unless a material liability is expected to arise on distribution of these earnings under applicable tax legislation. There is a
potential tax liability in respect of undistributed earnings of £11.5m (last year £9.0m) however this has not been recognised on the basis the
distribution can be controlled by the Group.
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
2018
Shares
2017
£m
Shares
£m
1,624,727,846
29,500
1,624,757,346
406.2 1,622,964,807
1,763,039
406.2 1,624,727,846
–
405.8
0.4
406.2
Issue of new shares
29,500 (last year 1,763,039) ordinary shares having a nominal value of £0.0m (last year £0.4m) were allotted during the year under the terms
of the Company’s schemes which are described in note 13. The aggregate consideration received was £0.1m (last year £5.5m).
25 CONTINGENCIES AND COMMITMENTS
A. Capital commitments
Commitments in respect of properties in the course of construction
Software capital commitments
2018
£m
121.8
17.2
139.0
2017
£m
156.4
11.0
167.4
B. Other material contracts
In the event of termination of our trading arrangements with certain warehouse operators, the Group has a number of options and
commitments to purchase some 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 £27.4m (last year £34.6m).
2018
£m
2017
£m
288.5
1,026.1
896.8
503.8
304.6
149.4
1,026.8
4,196.0
342.0
1,115.9
964.1
421.9
285.3
166.8
1,069.5
4,365.5
Of the total commitments under operating leases disclosed above, £172.5m (2017: £129.1m) is already provided for on the balance sheet as
onerous lease provisions with regards to stores identified as part of the UK store estate programme. In relation to the International strategic
programme, in 2017, £70m of total commitments under operating leases are already provided for with regards to expected lease exit costs.
No commitments remain in the current year relating to the International strategic programme.
113
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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)/decrease in inventories
Decrease/(increase) in receivables
Decrease in payables
Adjusting items net cash outflows
Non-cash share-based payment charges
Depreciation, amortisation and write-offs
Defined benefit pension funding
Adjusting items non-cash
Adjusting operating profit items
Cash generated from operations
2018
£m
29.1
37.7
113.8
(24.1)
156.5
(38.2)
28.8
(87.4)
(153.1)
18.9
580.6
(41.4)
(34.7)
514.1
944.1
2017
£m
115.7
60.7
113.0
(36.2)
253.2
53.9
(9.9)
(51.5)
(36.8)
10.6
589.5
(36.6)
(44.1)
437.4
1,165.7
Adjusting items net cash outflows relate to the utilisation of the provisions for international store closures, strategic programme costs
associated with both the UK store estate, UK organisation, UK logistics, IT reorganisation and changes to pay and pensions. Adjusting items
non-cash relate to the reduction in M&S Bank income for the impact of the financial product mis-selling provision.
27 ANALYSIS OF NET DEBT
A. Reconciliation of movement in net debt
Net cash
Bank loans, overdrafts and syndicated bank facility (see note 20)
Less: amounts treated as financing (see below)
Cash and cash equivalents (see 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 (see note 20)
Finance lease liabilities (see note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12)
Debt financing
Net debt
At 2 April
2017
£m
(70.3)
7.9
(62.4)
468.6
406.2
14.5
(7.9)
(1,911.4)
(48.7)
(387.4)
(2,355.4)
(1,934.7)
Exchange and
other non-cash
movements
£m
Cash flow
£m
At 31 March
2018
£m
(18.1)
43.8
25.7
(257.4)
(231.7)
(0.8)
(43.8)
328.2
2.6
59.6
346.6
114.1
–
–
–
(3.5)
(3.5)
–
–
(1.5)
(1.9)
–
(3.4)
(6.9)
(88.4)
51.7
(36.7)
207.7
171.0
13.7
(51.7)
(1,584.7)
(48.0)
(327.8)
(2,012.2)
(1,827.5)
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 114
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27 ANALYSIS OF NET DEBT CONTINUED
B. Reconciliation of net debt to statement of financial position
Statement of financial position and related notes
Cash and cash equivalents (see note 18)
Current financial assets (see note 16)
Bank loans and overdrafts (see note 20)
Medium-term notes – net of hedging derivatives
Finance lease liabilities (see note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12 and 21)
Interest payable included within related borrowing and the partnership liability to the Marks & Spencer UK
Pension Scheme
Total net debt
28 RELATED PARTY TRANSACTIONS
2018
£m
2017
£m
207.7
13.7
(88.4)
(1,621.7)
(48.0)
(335.5)
(1,872.2)
44.7
(1,827.5)
468.6
14.5
(70.3)
(1,957.8)
(48.7)
(396.5)
(1,990.2)
55.5
(1,934.7)
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.
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
31 December 2017. Interest was charged on the loan at 2.0% until 31 December 2009 and 0.5% thereafter.
C. Marks & Spencer UK Pension Scheme
Details of other transactions and balances held with the Marks & Spencer UK Pension Scheme are set out in notes 11 and 12.
D. Key management compensation
The Group has determined that the key management personnel constitute the Board and the members of the Operating Committee.
For the prior year, the members of the Board were considered to be key management personnel for the whole year, and members of the
Operating Committee with effect from November 2016 when the terms of reference of the Operating Committee were ratified.
Salaries and short-term benefits
Share-based payments
Total
2018
£m
7.9
0.4
8.3
2017
£m
8.1
–
8.1
115
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
COMPANY STATEMENT OF FINANCIAL POSITION
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
C6
As at
31 March 2018
£m
As at
1 April 2017
£m
9,260.3
9,260.3
9,249.3
9,249.3
2,550.6
2,550.6
6,709.7
406.2
416.4
2,210.5
1,397.3
2,279.3
6,709.7
2,552.2
2,552.2
6,697.1
406.2
416.4
2,210.5
1,397.3
2,266.7
6,697.1
The Company’s profit for the year was £305.0m (last year £379.0m).
The financial statements were approved by the Board and authorised for issue on 22 May 2018. The financial statements also comprise the
notes on pages 116 to 118.
Steve Rowe Chief Executive Officer
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Ordinary
share capital
£m
Share premium
account
£m
Capital redemption
reserve
£m
At 3 April 2016
Profit for the year
Dividends
Capital contribution for share-based
payments
Shares issued on exercise of employee share
options
At 1 April 2017
At 2 April 2017
Profit for the year
Dividends
Capital contribution for share-based
payments
At 31 March 2018
405.8
–
–
–
0.4
406.2
406.2
–
–
–
406.2
411.3
–
–
–
5.1
416.4
416.4
–
–
–
416.4
2,210.5
–
–
–
–
2,210.5
2,210.5
–
–
–
2,210.5
Merger
reserve
£m
1,397.3
–
–
–
–
1,397.3
1,397.3
–
–
–
1,397.3
Retained
earnings
£m
2,251.7
379.0
(377.5)
13.5
–
2,266.7
2,266.7
305.0
(303.4)
11.0
2,279.3
Total
£m
6,676.6
379.0
(377.5)
13.5
5.5
6,697.1
6,697.1
305.0
(303.4)
11.0
6,709.7
COMPANY STATEMENT OF CASH FLOWS
Cash flow 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
52 weeks ended
31 March 2018
£m
52 weeks ended
1 April 2017
£m
305.0
305.0
–
(1.6)
(303.4)
(305.0)
–
–
379.0
379.0
5.5
(7.0)
(377.5)
(379.0)
–
–
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 116
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
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.
Sources of estimation uncertainty
Impairment of investments in subsidiary undertakings
The carrying value of the investment in subsidiary undertakings is reviewed for impairment on an annual basis. The recoverable amount
is determined based on value in use which requires the determination of appropriate assumptions (which are sources of estimation
uncertainty) in relation to the cash flows over the three-year strategic plan period, the long-term growth rate to be applied beyond
this three-year period and the risk-adjusted pre-tax discount rate used to discount the assumed cash flows to present value.
Estimation uncertainty arises due to changing economic and market factors, the channel shift from stores to online, increasing
technological advancement and the Group’s ongoing strategic transformation programmes.
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(3) of the Companies Act 2006, the Company has not presented its own income
statement or statement of comprehensive income.
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 £999,922 (last year £936,000). The Company did not operate any pension schemes during the current or
preceding year.
C3 AUDITOR’S REMUNERATION
Auditor’s 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(4)(a) of the Companies
Act 2006.
C4 DIVIDENDS
Dividends on equity ordinary shares
Paid final dividend
Special dividend
Paid interim dividend
2018
per share
2017
per share
2018
£m
11.9p
–
6.8p
18.7p
11.9p
4.6p
6.8p
23.3p
193.1
–
110.3
303.4
2017
£m
192.7
74.5
110.3
377.5
The directors have approved a final dividend of 11.9p per share (last year 11.9p per share) which in line with the requirements of IAS 10
‘Events after the Reporting Period’, has not been recognised within these results. This final dividend of c.£193.1m (last year £193.1m) will be
paid on 13 July 2018 to shareholders whose names are on the Register of Members at the close of business on 1 June 2018. The ordinary
shares will be quoted ex dividend on 31 May 2018.
A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company.
For those shareholders electing to receive the DRIP the last date for receipt of a new election is 22 June 2018.
C5 RELATED PARTY TRANSACTIONS
During the year, the Company has received dividends from Marks and Spencer plc of £305.0m (last year £379.0m) and decreased its loan
from Marks and Spencer plc by £1.6m (last year £7.0m). The outstanding balance was £2,550.6m (last year £2,552.2m) and is non-interest
bearing. There were no other related party transactions.
C6 INVESTMENTS
A. Investments in subsidiary undertakings
Beginning of the year
Additional investment in subsidiary undertakings relating to share-based payments
End of the year
2018
£m
9,249.3
11.0
9,260.3
2017
£m
9,235.8
13.5
9,249.3
Shares in subsidiary undertakings represent the Company’s investment in Marks and Spencer plc. The directors believe that the carrying
value of the investments is supported by their underlying net assets.
117
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
C6 INVESTMENTS CONTINUED
A. Investments in subsidiary undertakings continued
Sensitivity analysis has been performed on the impairment testing of the carrying value of investments. The following key assumptions
would have to change as follows in order to eliminate the headroom within the impairment test:
– the cash flow forecasts in each of the years covered by the three-year forecast would have to be 28% below forecast;
– the long-term growth rate of cash flows would have to decline to -9% per annum; or
– the pre-tax discount rate would have to increase to 17.9%.
The directors do not consider that any of these scenarios are reasonably likely.
B Related undertakings
In accordance with Section 409 of the Companies Act 2006, a full list of related undertakings, the country of incorporation and the effective
percentage of equity owned, as at 31 March 2018 is disclosed below.
Subsidiary undertakings registered in the UK(i)
Name
Amethyst Leasing (Holdings) Limited
Hedge End Park Limited
Registered Office: 33 Holborn, London, EC1N 2HT
M&S Limited
Manford (Textiles) Limited
Marks & Spencer Company Archive CIC
Marks & Spencer Outlet Limited
Marks & Spencer Simply Foods Limited
Marks and Sparks Limited
Marks and Spencer (Northern Ireland) Limited
Registered Office: 8 Laganbank Road, Belfast, BT1 3LR
Share Class
£1 Ordinary
£1 Ordinary
£1 Ordinary
£1 Ordinary
£1 Ordinary
£1 Ordinary
£1 Ordinary
£1 Ordinary
£1 Ordinary
Marks and Spencer (Property Investments) Limited
£1 Ordinary
Marks and Spencer Chester Limited
Marks and Spencer France Limited
£1 Ordinary
£1 Ordinary
Marks and Spencer Guernsey Investments LLP
Partnership interest
Marks and Spencer International Holdings Limited
£1 Ordinary
Proportion
of shares
held by the
Company
(%)
Proportion
of shares
held by
subsidiary
(%)
Name
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
50
100
100
100
100
100
100
100
100
100
100
100
100
Marks and Spencer Pension Trust
Investments Limited
Marks and Spencer Pension Trust Limited(ii)
Marks and Spencer plc
Share Class
£1 Ordinary
£1 A Ordinary
£1 B Ordinary
£1 C Ordinary
£0.25 Ordinary
Marks and Spencer Property Developments Limited £1 Ordinary
Marks and Spencer Scottish Limited Partnership(iii)
Registered Office: 2-28 St Nicholas Street,
Aberdeen, AB10 1BU
Marks and Spencer Shared Services Limited
Minterton Services Limited
Marks and Spencer (Bradford) Limited
Ruby Properties (Enfield) Limited
St. Michael (Textiles) Limited
St. Michael Finance plc
Partnership interest
£1 Ordinary
£1 Ordinary
£1 Ordinary
£1 Ordinary
£1 Ordinary
£1 Ordinary
Proportion
of shares
held by the
Company
(%)
Proportion
of shares
held by
subsidiary
(%)
–
100
–
–
100
–
–
–
–
–
–
–
–
100
–
–
–
–
100
100
100
100
100
100
100
100
UK registered subsidiaries exempt from audit
The following UK subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the year
ended 31 March 2018. Unless otherwise stated, the undertakings listed below are registered at Waterside House, 35 North Wharf Road,
London, W2 1NW, United Kingdom, and all have a single class of ordinary share with a nominal value of £1.
Proportion of
shares held by the
Company (%)
Proportion
of shares
held by
subsidiary
(%)
Company
Number
Name
Proportion of
shares held by the
Company (%)
Proportion
of shares
held by
subsidiary
(%)
Company
Number
Name
Amethyst Leasing (Properties) Limited
Busyexport Limited
Marks and Spencer (Initial LP) Limited
Registered Office: No. 2 Lochrin Square,
96 Fountainbridge, Edinburgh, Midlothian, EH3 9QA
–
–
100
Marks and Spencer (Property Ventures) Limited
–
Marks and Spencer 2005 (Brooklands Store) Limited –
Marks and Spencer 2005
(Chester Satellite Store) Limited
Marks and Spencer 2005 (Chester Store) Limited
Marks and Spencer 2005
(Fife Road Kingston Store) Limited
Marks and Spencer 2005
(Glasgow Sauchiehall Store) Limited
Marks and Spencer 2005 (Hedge End Store) Limited
–
–
–
–
–
Marks and Spencer 2005 (Kensington Store) Limited –
Marks and Spencer 2005
(Kingston-on-Thames Satellite Store) Limited
Marks and Spencer 2005
(Kingston-on-Thames Store) Limited
–
–
100
100
4246934
4411320
––
SC315365
100
100
100
100
100
5502513
5502608
5502519
5502542
5502598
Marks and Spencer 2005
(Parman House Kingston Store) Limited
Marks and Spencer 2005 (Pudsey Store) Limited
Marks and Spencer 2005
(Warrington Gemini Store) Limited
Marks and Spencer Hungary Limited
Marks and Spencer Investments
Marks and Spencer Property Holdings Limited
Ruby Properties (Cumbernauld) Limited
Ruby Properties (Hardwick) Limited
Ruby Properties (Long Eaton) Limited
100
5502546
Ruby Properties (Thorncliffe) Limited
Ruby Properties (Tunbridge) Limited
Simply Food (Property Investments)
Simply Food (Property Ventures) Limited
100
100
100
5502538
5502478
5502523
100
5502520
–
–
–
–
–
–
–
–
–
–
–
–
–
100
5502588
100
100
100
100
100
100
100
100
100
100
100
100
5502544
5502502
8540784
4903061
2100781
4922798
4716018
4716031
4716110
4716032
5502543
2239799
The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date of £5.1m in accordance with section 479C of the Companies Act 2006.
The Company has assessed the probability of loss under the guarantee as remote.
(i) All companies registered at Waterside House, 35 North Wharf Road, London, W2 1NW, United Kingdom, unless otherwise stated.
(ii) In accordance with the articles of association of Marks and Spencer Pension Trust Limited, the holders of B and C Ordinary shares are both directors of that company.
(iii) Marks and Spencer (Initial LP) Limited and Marks and Spencer Pension Trust Limited are the limited partners; Marks and Spencer plc is the General Partner.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 118
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
Canada
Common
100
UAB MSF Lithuania
Gedimino pr. 20, Vilnius,
Lithuania
Lithuania
€28.96 Ordinary
Proportion
of shares
held by
subsidiary
(%)
100
100
100
100
100
100
100
Common
Class A
Preference
Class B
Preference
Common
Class A
Preference
Name
Registered Address
Country
Share Class
Proportion
of shares
held by
subsidiary
(%)
Supreme Tradelinks
Private Limited
First Floor, Anand Bhawan,
Sansar Chandra Road, Jaipur,
302 001, India
India
INR 10 Ordinary
100
Aprell Limited
24-29 Mary Street,
Dublin 1, Ireland
Marks and Spencer
(Ireland) Limited
24-27 Mary Street,
Dublin 1, Ireland
Marks and Spencer
(Israel) Limited
31 Ahad Haam Street,
TEL AVIV 65202, Israel
Per Una Italia SRL
(in liquidation)
via Giotto 25 - 59100
Prato, Italy
Marks and Spencer
(Jersey) Limited
15 Esplanade, St. Helier,
JE1 1RB, Jersey
Ireland
€1.25 Ordinary
Ireland
€1.25 Ordinary
Israel
Italy
NIS Ordinary
€ Quota
Jersey
£1 Ordinary
Registered
Capital
Registered
Capital
CZK 1,000
Ordinary
CZK 100,000
Ordinary
CZK 1,000,000
Ordinary
Registered
Capital
Registered
capital
€1,060 Ordinary
€3 Ordinary
100
100
100
100
100
100
100
100
80
Marks and Spencer
Montenegro DOO
Podgorica
(under liquidation)
C/O Eurofast Global Limited,
112 Bul Svetog Petra
Cetinjskog, 8100 Podgorica,
Montenegro
M & S Mode
International B.V.
Prins Bernhardplein 200,
1097JB Amsterdam,
Netherlands
Montenegro
€ Ordinary
Netherlands
€100 Ordinary
100
Marks and Spencer
(Nederland) B.V.
Prins Bernhardplein 200, 1097
JB , Amsterdam, Netherlands
Netherlands
€450 Ordinary
Marks and Spencer BV Prins Bernhardplein, 1097 JB,
Netherlands
€100 Ordinary
Amsterdam, Netherlands
Marks and Spencer
Nederland (Retail) B.V.
Prins Bernhardplein, 1097 JB,
Amsterdam, Netherlands
Netherlands
€100.00 Ordinary
Marks and Spencer
Stores B.V.
Prins Bernhardplein 200, 1097
JB, Amsterdam, Netherlands
Netherlands
€450 Ordinary
Marks and Spencer
Poland Sp z o.o.
Ul. Marszałkowska 104/122,
00-017 Warszawa, Poland
Poland
PLN 50.00
Ordinary
Marks & Spencer
(Portugal) Lda.
Avenida da Liberdade 249,
1250-143, Lisbon, Portugal
Portugal
€1 Ordinary
Marks and Spencer
Romania SA
(in liquidation)
Anchor Plaza, No. 26Z Timisoara
Boulevard, 3rd floor, premises
no. 3B-1, 6th District, Bucharest
Romania
RON 18.30
Ordinary
Marks and Spencer Doo
Beograd (in liquidation)
Patrisa Lumumbe no. 70,
11000 Belgrade
Serbia
RSD Quotas
C6 INVESTMENTS CONTINUED
B Related undertakings continued
International subsidiary undertakings(i)
Name
Registered Address
Country
Share Class
Marks and Spencer
(Australia) Pty Limited
Aurora Place, 88 Phillip Street,
Sydney, NSW 2000, Australia
Australia
AUD 2 Ordinary
Marks and Spencer
(Belgium) SPRL
4th Floor, 97 Rue Royale,
1000 Brussels, Belgium
Belgium
€1.21 Ordinary
Marks & Spencer
Canada Incorporated
(in liquidation)
Brunswick Square, 1 Germain
Street Suite 1700, Saint-John,
New Brunswick, E2L 4W3,
Canada
Canada
Canada
Marks & Spencer
Holdings Canada
Incorporated
(in liquidation)
Marks & Spencer Inc.
Brunswick Square, 1 Germain
Street Suite 1700, Saint-John,
New Brunswick, E2L 4W3,
Canada
Brunswick Square, 1 Germain
Street Suite 1700, Saint-John,
New Brunswick, E2L 4W3,
Canada
Marks and Spencer
(Shanghai) Limited
Marks and Spencer
Commercial
(Shanghai) Ltd
Unit 03-04, 6/F, ECO City 1788,
1788 West Nan Jing Road,
Shanghai, China
China
Room 2090, Block 1, HKRI
Taikoo Hui, 288 Shimen No One
Road, Jing’An District,
Shanghai, China
China
Marks and Spencer
Czech Republic a.s
Praha 4, Michle, Vyskocilova
1481/4, Czech Republic
Czech Republic
Marks and Spencer
Services S.R.O
Vyskocilova 1481/4, 14000
Praha 4, Michle, Czech Republic
Czech Republic
Oü MSF Estonia
Andis SARL
Marks & Spencer
Marinopoulos
Greece SA
Ignazia Limited
Paldiski mnt 102, Tallinn,
13522, Estonia
Estonia
48 Rue de la Chaussée-d'Antin,
75009 Paris, France
France
33-35 Ermou Street, Athens ,
Greece
Greece
Teranis Limited
M.S. General
Insurance L.P.
Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4HY, Guernsey
Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4HY, Guernsey
Marks and Spencer
(Hong Kong)
Investments Limited
Suite 1009, 10/F, Tower 6,
The Gateway, 9 Canton Road,
Kowloon, Hong Kong
Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4JH, Guernsey
Guernsey
£1 Ordinary
99.99
Marks and Spencer
(Singapore) Investments
Pte. Ltd.
77 Robinson Road #13-00
Robinson 77 Singapore 068896
Singapore
Singapore
Marks and Spencer
(Alderney) Limited
Linwood, Alles es Fees,
Alderney
Guernsey
£1 Ordinary
100
MSF Slovakia S.R.O
Ivanská cesta 16 , Bratislava, 821
04 , Slovakia
Slovakia
No Par Value
Ordinary
Registered
capital
Guernsey
£1 Ordinary
99.99
Marks and Spencer
(SA) (Pty) Limited
Woolworths House, 93
Longmarket Street, Cape Town
8001, South Africa
South Africa
ZAR 2 Ordinary
Guernsey
Partnership
interest
100
M&S (Spain) S.L.
Hong Kong
HKD1 Ordinary
100
Marks and Spencer
(Thailand) Limited
Calle Fuencarral No. 119,
28010, Madrid, Spain
1011 Supalai Grand Tower,
24th Floor, Rama 3 Road,
Kwaeng Chongnonsi, Khet
Yannawa, Bangkok
10120, Thailand
Spain
€1 Ordinary
Thailand
THB 100.00
Ordinary
Marks and Spencer
Clothing Textile
Trading L.L.C
Havalani Karsisi istanbul
Dunya Ticaret Merkezi, A3 Blok,
Kat:11 Yesilkoy, Bakirkoy,
Istanbul, Turkey
Turkey
TRL 25.00
Ordinary
Marks and Spencer
(Hungary) Kft
Fehérvári út 50-52, 1117
Budapest, Hungary
Hungary
Marks and Spencer
(India) pvt Limited
Marks and Spencer
Reliance India Pvt Ltd
Tower C, RMZ Millenia, 4th Floor,
Lake Wing, #1 Murphy Road,
Bangalore, 560008, India
India
4th Floor, Court House,
Lokmanya Tilak Marg, Dhobi
Talao, Mumbai, 400 002, India
India
HUF280,500,000
Quota
INR10 Ordinary
INR 10 Class A
INR 10 Class B
INR 10 Class C(ii)
100
100
51
100
0
NOTE: A number of the companies listed are legacy companies which no longer serve any operational purpose.
(i) The shares of all international subsidiary undertakings are held by companies within the Group other than the Company (Marks and Spencer Group plc).
(ii) INR 10 Class C shares 100% owned by JV partner.
(iii) No share capital as the company is limited by guarantee.
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
119
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
GROUP FINANCIAL RECORD
Income statement
Revenue¹
UK
International
Operating profit/(loss)¹
UK
International
Total operating profit
Net interest payable
Pension finance income
Profit on ordinary activities before taxation
Analysed between:
Profit before tax after adjusting items
Adjustments to reported profit
Income tax expense
Profit after taxation
Basic earnings per share¹
Adjusted basic earnings
per share¹
Dividend per share declared
in respect of the year
Dividend cover
Retail fixed charge cover
Profit after tax/
Weighted average
ordinary shares in issue
Adjusted basic earnings/
Weighted average ordinary
shares in issue
Adjusted earnings per share/
Dividend per share
Operating profit before
depreciation and operating
lease charges/Fixed charges
Statement of financial position
Net assets (£m)
Net debt² (£m)
Capital expenditure (£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
1. Based on continuing operations.
2. Excludes accrued interest.
2018
52 weeks
£m
2017
52 weeks
£m
2016
53 weeks
£m
2015
52 weeks
£m
2014
52 weeks
£m
9,611.0
1,087.2
10,698.2
9,441.7
1,180.3
10,622.0
9,470.8
1,084.6
10,555.4
9,223.1
1,088.3
10,311.4
9,155.7
1,154.0
10,309.7
23.2
133.3
156.5
(107.4)
17.7
66.8
580.9
(514.1)
(37.7)
29.1
327.6
(74.4)
253.2
(106.1)
29.3
176.4
613.8
(437.4)
(60.7)
115.7
627.3
(43.2)
584.1
(110.6)
15.3
488.8
689.6
(200.8)
(84.4)
404.4
640.6
60.7
701.3
(111.8)
10.5
600.0
661.2
(61.2)
(118.3)
481.7
600.3
94.2
694.5
(125.8)
11.7
580.4
622.9
(42.5)
(74.4)
506.0
2018
52 weeks
2017
52 weeks
2016
53 weeks
2015
52 weeks
2014
52 weeks
1.6p
7.2p
24.9p
29.7p
32.5p
27.8p
18.7p
1.5x
30.4p
18.7p
1.6x
35.0p
18.7p
1.9x
33.1p
18.0p
1.8x
32.2p
17.0p
1.9x
3.8x
3.4x
3.7x
3.6x
3.4x
2,954.2
1,827.5
300.5
1,035
17.6
428
5.2
53,273
5,655
3,150.4
1,934.7
331.2
979
17.4
454
5.9
3,443.4
2,138.3
525.1
914
17.0
468
6.1
3,198.8
2,223.2
526.6
852
16.8
480
6.0
2,706.7
2,463.6
710
798
16.6
455
5.8
53,562
6,202
52,388
6,507
52,247
6,849
54,678
6,498
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 120
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS
GLOSSARY
APM
Closest equivalent
statutory measure
Reconciling
items to statutory
measure
Definition and purpose
Income Statement Measures
Like-for-like revenue
growth
Movement in
revenue per the
Income Statement
Sales from non like-
for-like stores
M&S.com revenue/
Online revenue
None
Not applicable
Revenue growth at
constant currency
None
Not applicable
The period-on-period change in revenue (excluding VAT) from stores which
have been trading and where there has been no significant change in
footage for at least 52 weeks and online sales. The measure is used widely
in the retail industry as an indicator of sales performance. It excludes the
impact of new stores, closed stores or stores with significant footage
change.
UK Revenue
Like-for-like
Net new space
Statutory Total
FY 17/18
£m
FY 16/17
£m
9,252.2 9,338.8
102.9
358.8
%
(0.9)
9,611.0 9,441.7
1.8
Total revenue through the Group’s online platforms. These revenues
are reported within the relevant UK and International segment results.
The growth in revenues on a year-on-year basis is a good indicator of the
performance of the online channel and is a measure used within the Group’s
incentive plans. Refer to the Remuneration Report for explanation of why
this measure is used within incentive plans.
The period-on-period change in revenue retranslating the previous year
revenue at the average actual periodic exchange rates used in the current
financial year. This measure is presented as a means of eliminating the
effects of exchange rate fluctuations on the period-on-period reported
results.
International Revenue
At constant currency
Impact of FX retranslation
At reported currency
FY 17/18
£m
FY 16/17
£m
%
1,087.2
–
1,087.2
1,211.3
(31.0)
1,180.3
(10.2)
(7.9)
International owned
retained and
franchise revenue
growth at constant
currency
Movement in
revenue per the
Income Statement
Sales from closure
markets
The period-on-period change in revenue relating to those international
markets in which the Group continues to trade subsequent to the
completion of the International exit strategy retranslating the previous
year revenue at the average actual periodic exchange rates used in the
current financial year. This measure is presented as a means of eliminating
the effects of the International exit programme and exchange rate
fluctuations on the period-on-period reported results.
International Revenue
Reported currency
Owned exit
Owned retained and franchise
Impact of FX translation
Owned retained and franchise at constant
currency
FY 17/18
£m
FY 16/17
£m
(66.4)
1,020.8
1,087.2 1,180.3
(192.3)
988.0
23.5
%
(7.9)
3.3
1,020.8
1,011.5
0.9
Where referred to throughout the Annual Report, gross margin is calculated
as gross profit before adjusting items on a management basis divided by
revenue. The gross profit used in this calculation is based on an internal
measure of margin rather than the statutory margin, which excludes certain
downstream logistics costs. This is a key internal management metric for
assessing category performance.
Those items which the Group excludes from its adjusted profit metrics in
order to present a further measure of the Group’s performance. Each of
these items, costs or incomes, is considered to be significant in nature and/or
quantum or are consistent with items treated as adjusting in prior periods.
Excluding these items from profit metrics provides readers with helpful
additional information on the performance of the business across periods
because it is consistent with how the business performance is planned by,
and reported to the Board and the Operating Committee.
Calculated as profit before the impact of adjusting items, net finance costs
and tax. This measure is used in calculating the Return on Capital Employed
for the Group.
Gross margin
Gross profit
margin1
Certain
downstream
logistics costs
(see Note 2)
Adjusting items
None
Not applicable
EBIT before
adjusting items
EBIT2
Adjusting items
(see Note 5)
121
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
GLOSSARY CONTINUED
APM
Closest equivalent
statutory measure
Reconciling
items to statutory
measure
Definition and purpose
Income Statement Measures continued
Profit before tax
and adjusting items
Profit before tax
Adjusting items
(see Note 5)
Adjusted earnings
per share
Earnings per share Adjusting items
(see Note 5)
Adjusted diluted
earnings per share
Diluted earnings
per share
Adjusting items
(see Note 5)
Effective tax rate
before adjusting items
Effective tax rate Adjusting items and
Balance Sheet Measures
Net debt
None
their tax impact
(see Note 5)
Reconciliation
of net debt
(see note 27)
Capital employed
Net assets
Refer to definition
Profit before the impact of adjusting items and tax. The Group considers this
to be an important measure of Group performance and is consistent with
how the business performance is reported and assessed by the Board and
the Operating Committee.
This is a measure used within the Group’s incentive plans. Refer to the
Remuneration Report for explanation of why this measure is used within
incentive plans.
Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares
in issue during the financial year.
This is a measure used within the Group’s incentive plans. Refer to the
Remuneration Report for explanation of why this measure is used.
Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares
in issue during the financial year adjusted for the effects of any potentially
dilutive options.
Total income tax charge for the Group excluding the tax impact of adjusting
items divided by the profit before tax and adjusting items. This measure is an
indicator of the ongoing tax rate for the Group.
Net debt comprises total borrowings (bank, bonds and finance lease
liabilities net of accrued interest), net derivative financial instruments
that hedge the debt and the Scottish Limited Partnership liability to the
UK pension scheme less cash, cash equivalents and unlisted and short
term investments.
This measure is a good indication of the strength of the Group’s balance
sheet position and is widely used by credit rating agencies.
The net total of assets and liabilities as reported in the annual financial
statements excluding assets and liabilities in relation to investment
property, net retirement benefit position, derivatives, current and deferred
tax liabilities, Scottish Limited Partnership liability, non-current borrowings
and provisions in respect of adjusting items.
This measure is used in the calculation of return on capital employed.
See Financial
Review
The cash generated from the Group’s operating activities less capital
expenditure and interest paid.
Cash Flow Measures
Free cash flow
Free cash flow
pre-shareholder
returns
Net cash inflow
from operating
activities
Net cash inflow
from operating
activities
See Financial
Review
Other Measures
Capital expenditure None
Not applicable
Return on capital
employed
None
Not applicable
This measure shows the cash retained by the Group in the year.
Calculated as the cash generated from the Group’s operating activities less
capital expenditure and interest paid excluding returns to shareholders
(dividends and share buyback).
This measure shows the cash generated by the Group during the year that
is available for returning to shareholders and is used within the Group’s
incentive plans.
Calculated as the purchase of property, plant and equipment, investment
property and intangible assets during the year less proceeds from asset
disposals excluding any assets acquired or disposed of as part of a business
combination.
Calculated as being EBIT before adjusting items divided by the average
of opening and closing capital employed which are defined above.
The measures used in this calculation are set out below:
EBIT before adjusting items
Average capital employed
FY 17/18
£m
FY 16/17
£m
670.6
690.6
4,785.3 5,031.6
This measure is used within the Group’s incentive plans. Refer to the
Remuneration Report for explanation of why this measure is used within
incentive plans. It is calculated year-on-year.
1. Gross profit margin is not defined within IFRS but is a widely accepted profit measure being derived from revenue less cost of sales divided by revenue.
2. EBIT is not defined within IFRS but is a widely accepted profit measure being earnings before interest and tax.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 122
MARKS AND SPENCER GROUP PLC
IMPORTANT NOTICE
NOTICE OF
ANNUAL GENERAL
MEETING 2018
WEMBLEY STADIUM, WEMBLEY
LONDON HA9 0WS
Tuesday 10 July 2018 at 11am
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to the action you should take, you should immediately consult
your stockbroker, bank manager, solicitor, accountant or other independent professional
adviser authorised under the Financial Services and Markets Act 2000 if you are resident
in the United Kingdom or, if you reside elsewhere, another appropriately authorised financial
adviser. If you have sold or otherwise transferred all your shares in the Company, please
forward this document and the accompanying form of proxy to the purchaser or transferee,
or to the stockbroker or other agent through whom the sale or transfer was effected,
for transmission to the purchaser or transferee.
123
NOTICE OF ANNUAL GENERAL MEETING 2018
NOTICE OF MEETING 2018
DEAR SHAREHOLDER
ANNUAL GENERAL MEETING (“AGM”)
VOTING
The accompanying proxy form invites you
to vote in one of three ways for each of the
resolutions: ‘for’, ‘against’ or ‘vote withheld’.
Voting on all resolutions will be by way of a
poll. Your vote counts whether you are able
to attend the meeting or not and we think
poll voting is the most democratic approach
as the proxy results are added to the votes
of shareholders present.
The results of the voting will be announced
through a Regulatory Information Service
and will be published on our website
marksandspencer.com/thecompany
on 10 July 2018 or as soon as reasonably
practicable thereafter.
If you have already voted by proxy you will
still be able to vote at the meeting and your
vote on the day will replace your previously
lodged proxy vote.
In 2017, all resolutions were passed at the
meeting with votes ranging from 89.57%
to 99.99% in favour.
EXPLANATORY NOTES
An explanation of each of the resolutions
being proposed at the AGM is set out on
the following pages.
The AGM is an important day in our calendar
and is the Board’s opportunity to present
the Company’s performance and strategy
to shareholders and to listen and respond
to your questions.
The AGM will be held at Wembley Stadium,
Wembley, London, HA9 0WS. This venue
offers superb facilities and is accessible
by bus, rail and tube.
More details about the day and how to
get there, including a map, can be found
on page 129 of this Notice.
The formal Notice of Meeting follows this
letter. The meeting will start at 11am, with
light refreshments available before the
meeting and following its conclusion.
After the meeting, a lunch bag will be
provided for you to enjoy either at the
venue or during your onward journey.
If you cannot attend the meeting, we would
still like to understand the themes and
issues of concern to you, as shareholders.
You may send your comments by e-mail
to chairman@marks-and-spencer.com
with the heading AGM 2018.
YOUR VOTE COUNTS
Your vote is important to us. You can:
– Register your proxy vote electronically
by logging on to our Registrar’s website,
sharevote.co.uk, or by using the service
offered by Euroclear UK & Ireland Limited
for members of CREST.
– Complete and return the enclosed
proxy form.
– Attend and vote at the AGM.
"I am pleased to invite
shareholders to the
16th Annual General
Meeting of Marks and
Spencer Group plc."
AMANDA MELLOR GROUP SECRETARY
M&S WEBSITE
Our corporate website,
marksandspencer.com/thecompany,
is the principal means we use to
communicate with our shareholders.
There is a wealth of information
online including:
A copy of our full Annual
Report, which includes
our Strategic Report.
All the latest M&S news,
press releases and investor
presentations.
A detailed account of
our approach to corporate
governance at M&S.
124
MARKS AND SPENCER GROUP PLC
EXPLANATORY NOTES TO THE RESOLUTIONS
TO RECEIVE THE REPORTS AND ACCOUNTS
The Board asks that shareholders receive the Strategic Report,
Directors’ Report, and the financial statements for the 52 weeks
ended 31 March 2018, together with the report of the auditor.
APPROVAL OF THE DIRECTORS’ REMUNERATION REPORT 2
The Directors’ Remuneration Report is provided on pages 50 - 62
of the Annual Report. It sets out the pay and benefits received by
each of the directors for the year ended 31 March 2018. In line with
legislation this vote will be advisory and in respect of the overall
remuneration package.
FINAL DIVIDEND
3
The Board proposes a final dividend of 11.9p per share for the year
ended 31 March 2018. If approved, the recommended final dividend
will be paid on 13 July 2018 to all shareholders who were on the Register
of Members at the close of business on 1 June 2018.
ELECTION OF DIRECTORS
4 – 9
The directors believe that the Board continues to maintain an
appropriate balance of knowledge and skills and that all the non-
executive directors are independent in character and judgement.
This follows a process of formal evaluation which confirms that each
director makes an effective and valuable contribution to the Board
and demonstrates commitment to the role (including making
sufficient time available for Board and Committee meetings and
other duties as required). In accordance with the UK Corporate
Governance Code and in line with previous years, all directors will
again stand for election or re-election, as relevant, at the AGM
this year. Biographies are available on pages 26 and 27 of the
Annual Report, with further details available on our website,
marksandspencer.com/thecompany.
APPOINTMENT OF FUTURE DIRECTORS
10 – 12
On 10 January 2018, the Company announced that Humphrey
Singer would join the Board as Chief Finance Officer, and on 21 May
2018, the market was notified of the proposed appointments of
Katie Bickerstaffe and Pip McCrostie as a Non-Executive Directors.
Humphrey is an experienced Finance Director with an extensive
track record in finance roles in retail and brands.
Katie has wide-ranging experience of retail transformation from
a career in a variety of functions in leading UK retailers and
consumer companies.
Pip brings extensive experience of finance and transactions from
a career at Ernst & Young where she transformed and led the
Global Corporate Finance business.
The Board is pleased to recommend Humphrey, Katie and Pip for
election by shareholders at the Annual General Meeting and they
will be formally appointed to the Board following their election.
Biographical details are given on pages 26 and 27 of the
Annual Report.
APPOINTMENT AND REMUNERATION
OF AUDITOR
13 – 14
On the recommendation of the Audit Committee, the Board
proposes in resolution 13 that Deloitte LLP be re-appointed as
auditor of the Company.
Resolution 14 proposes that the Audit Committee be authorised
to determine the level of the auditor’s remuneration.
1
RENEWAL OF THE POWERS OF THE BOARD
TO ALLOT SHARES
15
Paragraph (A) of this resolution would give the directors the
authority to allot ordinary shares of the Company up to an
aggregate nominal amount equal to £135,397,323 (representing
541,589,293 ordinary shares of 25p each). This amount represents
approximately one-third of the Company’s issued share capital
as at 21 May 2018, the latest practicable date before the publication
of this Notice.
In line with guidance issued by the Investment Association (“IA”),
paragraph (B) of this resolution would give the directors authority
to allot ordinary shares in connection with a rights issue in favour
of ordinary shareholders up to an aggregate nominal amount
equal to £270,794,647 (representing 1,083,178,587 ordinary shares),
as reduced by the nominal amount of any shares issued under
paragraph (A) of this resolution. This amount (before any reduction)
represents approximately two thirds of the issued ordinary share
capital of the Company as at 21 May 2018, the latest practicable
date before the publication of this Notice.
The authorities sought under paragraphs (A) and (B) of this
resolution will expire on the date of the AGM in 2019 or on
1 October 2019, whichever is sooner. The directors have no present
intention to exercise either of the authorities sought under this
resolution except, under paragraph (A), to satisfy options under
the Company’s share option schemes; however, the Board wishes
to ensure that the Company has maximum flexibility in managing
the Group’s capital resources.
As at the date of this Notice, no shares are held by the Company
in treasury.
DISAPPLICATION OF PRE-EMPTION
RIGHTS IN CERTAIN CIRCUMSTANCES
16
The directors are also seeking authority to allot ordinary shares
for cash without first offering them to existing shareholders in
proportion to their existing holdings.
The power set out in resolution 16 would be limited to:
(a) allotments or sales in connection with pre-emptive offers, or
(b) otherwise up to an aggregate nominal amount of £20,309,599
(representing 81,238,394 ordinary shares). This aggregate nominal
amount represents approximately 5% of the issued ordinary
share capital of the Company as at 21 May 2018, being the latest
practicable date before the publication of this Notice.
In respect of the power granted under resolution 16(B), the directors
confirm their intention to follow the provisions of the Pre-Emption
Group’s Statement of Principles regarding cumulative usage of
authorities within a rolling three-year period where the Principles
provide that usage in excess of 7.5% of the issued ordinary share
capital of the Company should not take place without prior
consultation with shareholders.
The directors have no current intention to allot shares except in
connection with employee share schemes.
The Company has issued 8,589,748 ordinary shares representing
0.53% of issued share capital over the past three years on a
non-pre-emptive basis.
If approved, the authority sought under this resolution will expire
on the date of the AGM in 2019 or on 1 October 2019, whichever
is sooner.
125
NOTICE OF ANNUAL GENERAL MEETING 2018
EXPLANATORY NOTES TO THE RESOLUTIONS CONTINUED
AUTHORITY FOR THE COMPANY TO
PURCHASE ITS OWN SHARES
17
AUTHORITY TO MAKE
POLITICAL DONATIONS
19
Authority is sought for the Company to purchase up to 10% of its
issued ordinary shares, renewing the authority granted by the
shareholders at previous AGMs.
The directors have no present intention of exercising the authority
to purchase the Company’s own shares; however, this authority
would provide them with the flexibility to do so in the future, if the
prevailing market conditions made such purchases in the best
interests of shareholders generally.
Ordinary shares purchased by the Company pursuant to this
authority may be held in treasury or may be cancelled. It remains
the Company’s intention to cancel any shares it buys back rather
than hold them in treasury. The Company currently holds no shares
in treasury. The minimum price, exclusive of expenses, which may
be paid for an ordinary share is 25p. The maximum price, exclusive
of expenses, which may be paid for an ordinary share is the
highest of:
(i) an amount equal to 105% of the average market value for an
Ordinary Share for the five business days immediately preceding
the date of the purchase; and
(ii) the higher of the price of the last independent trade and the
highest current independent bid on the trading venues where the
purchase is carried out.
The Company has options outstanding over 43 million ordinary
shares, representing 2.65% of the Company’s issued ordinary
share capital as at 21 May 2018, the latest practicable date before
the publication of this Notice.
If the existing authority given at the 2017 AGM and the authority
now being sought by this resolution were to be fully used, these
options would represent 2.94% of the Company’s ordinary share
capital in issue at that date.
NOTICE OF GENERAL MEETING
18
In accordance with the Companies Act 2006 (the “2006 Act”),
the notice period for general meetings (other than an AGM) is
21 clear days’ notice unless the Company:
(i) has gained shareholder approval for the holding of general
meetings on 14 clear days’ notice by passing a special resolution
at the most recent AGM; and
(ii) offers the facility for all shareholders to vote by electronic means.
The Company would like to preserve its ability to call general
meetings (other than an AGM) on 14 clear days’ notice. This shorter
notice period would not be used as a matter of routine, but only
where the flexibility is merited by the business of the meeting and
is thought to be in the interests of shareholders as a whole.
Resolution 18 seeks such approval and, should this resolution be
approved, it will be valid until the end of the next AGM. This is the
same authority that was sought and granted at last year’s AGM.
The 2006 Act prohibits companies from making any political
donations to EU political organisations or independent candidates,
or incurring EU political expenditure, unless authorised by
shareholders in advance.
The Company does not make, and does not intend to make,
donations to EU political organisations or independent
election candidates, nor does it incur or intend to incur any
EU political expenditure.
However, the definitions of political donations, political
organisations and political expenditure used in the 2006 Act
are very wide. As a result, this can cover activities such as
sponsorship, subscriptions, payment of expenses, paid leave for
employees fulfilling certain public duties, and support for bodies
representing the business community in policy review or reform.
Shareholder approval is being sought on a precautionary basis
only, to allow the Company and any company which, at any time
during the period for which this resolution has effect, is a subsidiary
of the Company, to continue to support the community and put
forward its views to wider business and government interests,
without running the risk of inadvertently breaching legislation.
The Board is therefore seeking authority to make political
donations to EU political organisations and independent election
candidates not exceeding £50,000 in total and to incur EU political
expenditure not exceeding £50,000 in total. In line with best
practice guidelines published by the IA, this resolution is put to
shareholders annually rather than every four years as required
by the 2006 Act. For the purposes of this resolution, the terms
‘political donations’, ‘political organisations’, ‘independent election
candidate’ and ‘political expenditure’ shall have the meanings
given to them in sections 363 to 365 of the 2006 Act.
RECOMMENDATION
Your directors believe that the proposals described above
are in the best interests of the Company and its shareholders
as a whole and recommend you to give them your support
by voting in favour of all the resolutions, as they intend to
in respect of their own beneficial shareholdings.
Yours faithfully,
Amanda Mellor Group Secretary
7 June 2018
126
MARKS AND SPENCER GROUP PLC
MARKS AND SPENCER GROUP PLC
NOTICE OF MEETING
10 JULY 2018
Notice is hereby given that the Annual
General Meeting of Marks and Spencer
Group plc (the “Company”) will be held
at Wembley Stadium, Wembley, London,
HA9 0WS on Tuesday 10 July 2018 at
11am (the “AGM”) for the purposes
set out below.
Resolutions 1 to 15 and 19 will be proposed
as ordinary resolutions, and resolutions 16
to 18 will be proposed as special resolutions.
1. To receive the Strategic Report, Directors’
Report, and the financial statements for the
52 weeks ended 31 March 2018, together
with the report of the auditor.
2. To approve the Directors’ Remuneration
Report.
3. To declare a final dividend of 11.9p per
ordinary share.
To elect the following directors who are
seeking annual re-election in accordance
with the UK Corporate Governance Code:
4. Archie Norman
5. Steve Rowe
6. Vindi Banga
7. Alison Brittain
8. Andy Halford
9. Andrew Fisher
To appoint the following directors with
effect from 10 July 2018
10. Humphrey Singer
11. Katie Bickerstaffe
12. Pip McCrostie
To view our Board biographies go to
the Investors section of our corporate
website, marksandspencer.com/
thecompany.
13. To resolve that Deloitte LLP be, and is
hereby, re-appointed as auditor of the
Company to hold office until the conclusion
of the next general meeting at which
accounts are laid before the Company.
14. To resolve that the Audit Committee
determine the remuneration of the
auditor on behalf of the Board.
15. DIRECTORS’ AUTHORITY TO
ALLOT SHARES
To resolve that the directors be and
are hereby authorised generally and
unconditionally to exercise all the powers
of the Company to allot shares in the
Company and to grant rights to subscribe
for or convert any security into shares in
the Company:
(A) Up to a nominal amount of £135,397,323
(such amount to be reduced by any
allotments or grants made under paragraph
(B) below in excess of such sum); and
(B) Comprising equity securities (as defined
in section 560(1) of the Companies Act
2006) up to a nominal amount of
£270,794,647 (such amount to be reduced
by any allotments made under paragraph
(A) above) in connection with an offer by
way of a rights issue:
(i) To ordinary shareholders in proportion
(as nearly as may be practicable) to their
existing holdings; and
(ii) To holders of other equity securities as
required by the rights of those securities
or as the directors otherwise consider
necessary, and so that the directors may
impose any limits or restrictions and make
any arrangements which they consider
necessary or appropriate to deal with any
treasury shares, fractional entitlements,
record dates, legal, regulatory or practical
problems in, or under the laws of, any
territory or any other matter.
The authorities conferred on the directors
to allot securities under paragraphs (A) and
(B) will expire on the date of the AGM of the
Company to be held in 2019 or on 1 October
2019, whichever is sooner, unless previously
revoked or varied by the Company, and such
authority shall extend to the making before
such expiry of an offer or an agreement that
would or might require relevant securities
to be allotted after such expiry, and the
directors may allot relevant securities in
pursuance of that offer or agreement as
if the authority conferred hereby had
not expired.
16. DISAPPLICATION OF
PRE-EMPTION RIGHTS
To resolve as a special resolution that,
subject to the passing of resolution 15,
the directors be empowered to allot equity
securities (as defined in the Companies Act
2006) for cash under the authority given
by that resolution (set out in this Notice of
Meeting), and/or to sell ordinary shares held
by the Company as treasury shares for cash,
as if section 561 of the Companies Act 2006
did not apply to any such allotment or sale,
provided that such authority be limited:
(A) To the allotment of equity securities and
sale of treasury shares in connection with
an offer of, or invitation to apply for, equity
securities (but in the case of the authority
granted under paragraph (B) of resolution
15, by way of a rights issue only):
(i) To ordinary shareholders in proportion
(as nearly as may be practicable) to their
existing holdings; and
(ii) To holders of other equity securities
as required by the rights of those
securities or as the directors otherwise
consider necessary,
and so that the directors may impose
any limits or restrictions and make any
arrangements which they consider
necessary or appropriate to deal with any
treasury shares, fractional entitlements,
record dates, legal, regulatory or practical
problems in, or under the laws of, any
territory or any other matter; and
(B) In the case of the authority granted
under paragraph (A) of resolution 15 and/or
in the case of any sale of treasury shares,
to the allotment of equity securities or sale
of treasury shares (otherwise than under
paragraph (A) above) up to a nominal
amount of £20,309,599 and shall expire at
the conclusion of the AGM to be held in 2019
or on 1 October 2019, whichever is sooner
(unless previously revoked or varied by the
Company in general meeting), provided that
the Company may before that date make
offers, and enter into agreements, which
would, or might, require equity securities to
127
NOTICE OF ANNUAL GENERAL MEETING 2018
NOTICE OF MEETING CONTINUED
be allotted (and treasury shares to be sold)
after the authority ends and the directors
may allot equity securities (and sell treasury
shares) under any such offer or agreement
as if the authority had not ended.
17. COMPANY’S AUTHORITY TO
PURCHASE ITS OWN SHARES
To resolve as a special resolution that the
Company is authorised for the purposes
of section 701 of the Companies Act 2006
to make one or more market purchases (as
defined in section 693(4) of the Companies
Act 2006) of its ordinary shares of 25p each
(“Ordinary Shares”), such power to be limited:
(A) To a maximum number of 162m
Ordinary Shares.
(B) By the condition that the minimum price
which may be paid for an Ordinary Share is
25p and the maximum price which may be
paid for an Ordinary Share is the highest of:
(i) an amount equal to 105% of the average
market value of an Ordinary Share for the
five business days immediately preceding
the day on which that Ordinary Share is
contracted to be purchased; and
(ii) the higher of the price of the last
independent trade and the highest
current independent bid on the trading
venues where the purchase is carried out,
in each case, exclusive of expenses,
19. POLITICAL DONATIONS
To resolve that in accordance with section
366 of the Companies Act 2006 the
Company and any company which, at any
time during the period for which this
resolution has effect, is a subsidiary of the
Company, be and are hereby authorised:
such power to apply until the end of the
AGM to be held in 2019 or until 1 October
2019, whichever is sooner, but in each case
so that the Company may enter into a
contract to purchase Ordinary Shares which
will or may be completed or executed
wholly or partly after the power ends and
the Company may purchase Ordinary
Shares pursuant to any such contract
as if the power had not ended.
(i) to make political donations to EU political
organisations or independent election
candidates not exceeding £50,000 in
total; and
(ii) incur EU political expenditure not
exceeding £50,000 in total, in each case
during the period commencing on the date
of this resolution and ending on the date of
the AGM of the Company to be held in 2019
or on 1 October 2019, whichever is sooner.
18. CALLING OF GENERAL MEETINGS
ON 14 DAYS’ NOTICE
To resolve as a special resolution that a
general meeting other than an Annual
General Meeting may be called on not
less than 14 clear days’ notice.
By order of the Board
Amanda Mellor, Group Secretary
7 June 2018, London
Registered office Waterside House, 35
North Wharf Road, London W2 1NW.
Registered in England and Wales
No. 4256886.
1. Biographies of the directors seeking
election are given in the Annual Report on
pages 26 and 27, including membership of
the principal committees. The terms of the
current directors’ service contracts are such
that all executive director appointments
may be terminated by the Company giving
12 months’ notice and by the individual
giving six months’ notice; non-executive
directors have agreements for service
which can be terminated on three months’
notice by either party; the Chairman has
an agreement for service which requires
six months’ notice by either party.
2. Registered Shareholders: Members are
entitled to appoint a proxy to exercise all or
any of their rights to attend, speak and vote
on their behalf at the AGM. Members may
appoint more than one proxy in relation
to the AGM provided that each proxy is
appointed to exercise the rights attached
to a different share or shares held by that
shareholder. A proxy need not be a
shareholder of the Company. A proxy
form which may be used to make such
appointment and give proxy instructions
accompanies this Notice. If you do not have
a proxy form and believe that you should
have one, or if you require additional proxy
forms (to appoint more than one proxy),
please contact our shareholder helpline
on 0345 609 0810 or, alternatively, you may
photocopy the enclosed proxy form. Please
indicate the number of shares in relation to
which each proxy is authorised to act in the
NOTES
box below the proxy holder’s name. Please
also indicate if the instruction is one of
multiple instructions being given, and if a
proxy is being appointed for less than your
full entitlement, please enter the number of
shares in relation to which each such proxy is
entitled to act in the box below the relevant
proxy holder’s name. The proxy form
accompanying this Notice assumes you
wish to vote on all your shares in the same
way. To vote only part of your holding or
to vote some shares one way and some
another, please contact the shareholder
helpline. All proxy forms must be signed
and should be returned together.
3. If you would like to submit your vote
electronically, please visit sharevote.co.uk,
where there are full instructions, and submit
your vote by no later than 11am on Friday 6
July 2018. You are advised to read the terms
and conditions of use. If you return paper
and electronic instructions, those received
last by the Registrar before 11am on Friday 6
July 2018 will take precedence. Electronic
communication facilities are available to all
shareholders and those that use them will
not be disadvantaged.
4. In the case of joint holders, where more
than one of the joint holders purports to
appoint a proxy, only the appointment
submitted by the most senior holder will
be accepted. Seniority is determined by
the order in which the names of the joint
holders appear in the Company’s register
of members in respect of the joint holding
(the first-named being the most senior).
5. To be valid, any proxy form or other
instrument appointing a proxy must be
received by post (during normal business
hours only) or by hand at Equiniti, Aspect
House, Spencer Road, Lancing, West Sussex,
BN99 6DA no later than 11am on Friday
6 July 2018.
6. The return of a completed proxy form,
other such instrument or any CREST proxy
instruction (as described in paragraph 14
on page 128) will not prevent a shareholder
attending the AGM and voting in person if
he/she/they wishes to do so.
7. Indirect Shareholders: Any person to
whom this Notice is sent who is a person
nominated under section 146 of the
Companies Act 2006 to enjoy information
rights (a “Nominated Person”) may, under
an agreement between him/her and the
shareholder by whom he/she was
nominated, have a right to be appointed
(or to have someone else appointed) as a
proxy for the AGM. If a Nominated Person
has no such proxy appointment right or
does not wish to exercise it, he/she may,
under any such agreement, have a right to
give instructions to the shareholder as to
the exercise of voting rights.
8. The statement of the rights of
shareholders in relation to the appointment
of proxies in paragraphs 2 to 6 does not
apply to Nominated Persons. The rights
described in these paragraphs can only be
exercised by shareholders of the Company.
128
MARKS AND SPENCER GROUP PLC
NOTES CONTINUED
14. In order for a proxy appointment or
instruction made using the CREST service
to be valid, the appropriate CREST message
(a ‘CREST proxy instruction’) must be
properly authenticated in accordance
with Euroclear UK & Ireland Limited’s
specifications and must contain the
information required for such instruction,
as described in the CREST manual (available
via euroclear.com). The message, regardless
of whether it constitutes the appointment
of a proxy or is an amendment to the
instruction given to a previously appointed
proxy must, in order to be valid, be
transmitted so as to be received by Equiniti
(ID RA19) by 11am on Friday 6 July 2018. For
this purpose, the time of receipt will be
taken to be the time (as determined by the
time stamp applied to the message by the
CREST Application Host) from which Equiniti
is able to retrieve the message by enquiry to
CREST in the manner prescribed by CREST.
After this time, any change of instructions to
proxies appointed through CREST should be
communicated to the appointee through
other means.
15. CREST members and, where applicable,
their CREST sponsors, or voting service
providers should note that Euroclear UK &
Ireland Limited does not make available
special procedures in CREST for any
particular message. Normal system timings
and limitations will, therefore, apply in
relation to the input of CREST proxy
instructions. It is the responsibility of
the CREST member concerned to take
(or, if the CREST member is a CREST personal
member, or sponsored member, or has
appointed a voting service provider, to
procure that his/her/their CREST sponsor
or voting service provider(s) take(s)) such
action as shall be necessary to ensure that a
message is transmitted by means of the
CREST system by any particular time. In this
connection, CREST members and, where
applicable, their CREST sponsors or voting
system providers are referred in particular
to those sections of the CREST manual
concerning practical limitations of the
CREST system and timings.
16. The Company may treat as invalid a
CREST proxy instruction in the circumstances
set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
17. Any corporation which is a member
can appoint one or more corporate
representatives who may exercise on
its behalf all of its powers as a member,
provided that they do not do so in relation
to the same shares.
9. To be entitled to attend, speak, and vote
at the meeting (and for the purpose of the
determination by the Company of the votes
they may cast), shareholders must be
entered on the Register of Members of the
Company by 6.30pm on Friday 6 July 2018
(or, in the event of any adjournment, 6.30pm
on the date which is two working days prior
to the adjourned meeting). Changes to the
Register of Members after the relevant
deadline shall be disregarded in
determining the rights of any person to
attend, speak and vote at the meeting.
10. The following documents are available
for inspection at an agreed time at the
Company’s registered office: Waterside
House, 35 North Wharf Road, London
W2 1NW. Please ring +44 (0) 20 8718 9888
during normal business hours on any
weekday (excluding public holidays).
These documents will also be available for
inspection at Wembley Stadium, Wembley,
London HA9 0WS from 10am on 10 July 2018
until the conclusion of the AGM.
(i)
Copies of the executive directors’
service contracts.
(ii) Copies of the non-executive directors’
letters of appointment.
(iii) Copies of the directors’ Deeds
of Indemnity.
(iv) A copy of the Articles of Association
of the Company.
11. Shareholders are advised that, unless
otherwise specified, the telephone
numbers, website and email addresses set
out in this Notice or proxy forms are not
to be used for the purpose of serving
information or documents on the Company,
including the service of documents or
information relating to proceedings at
the Company’s AGM.
12. As at 21 May 2018 (the latest practicable
date before the publication of this Notice)
the Company’s issued share capital consists
of 1,624,767,881 ordinary shares carrying one
vote each. Therefore, the total voting rights
in the Company as at 21 May 2018 are
1,624,767,881.
13. CREST members who wish to appoint a
proxy or proxies through the CREST
electronic proxy appointment service may
do so for the AGM and any adjournment
thereof by using the procedures described
in the CREST manual. CREST personal
members or other CREST sponsored
members, and those CREST members
who have appointed a service provider,
should refer to their CREST sponsor or
voting service provider, who will be able to
take the appropriate action on their behalf.
18. Under section 527 of the Companies
Act 2006, members meeting the threshold
requirements set out in that section have
the right to require the Company to publish
on a website a statement setting out any
matter relating to:
(i) the audit of the Company’s accounts
(including the auditor’s report and the
conduct of the audit) that are to be laid
before the AGM; or
(ii) any circumstance connected with an
auditor of the Company ceasing to hold
office since the previous meeting at which
annual accounts and reports were laid
in accordance with section 437 of the
Companies Act 2006. The Company may
not require the shareholders requesting any
such website publication to pay its expenses
in complying with sections 527 or 528 of the
Companies Act 2006. Where the Company
is required to place a statement on a website
under section 527 of the Companies Act
2006, it must forward the statement to the
Company’s auditor not later than the time
when it makes the statement available
on the website. The business which may
be dealt with at the AGM includes any
statement that the Company has been
required under section 527 of the Companies
Act 2006 to publish on a website.
19. Any member attending the meeting
has the right to ask questions. The Company
must have cause to answer any such
question relating to the business being
dealt with at the meeting but no such
answer need be given if
(A) to do so would interfere unduly with the
preparation for the meeting or involve the
disclosure of confidential information,
(B) the answer has already been given on
a website in the form of an answer to a
question, or
(C) it is undesirable in the interests of the
Company or the good order of the meeting
that the question be answered.
20. A copy of this Notice, and other
information required by section 311A of
the Companies Act 2006, can be found at
marksandspencer.com/thecompany.
21. Please see the letter dated 7 June 2018
from the Group Secretary on pages 123 to
125 for further explanatory notes.
129
NOTICE OF ANNUAL GENERAL MEETING 2018
AGM LOCATION
WEMBLEY PARK
TUESDAY 10 JULY 2018
FULTON ROAD
Wembley Stadium,
Wembley,
London HA9 0WS
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Live webcast from
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marksandspencer.com/
thecompany
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Car / coach
park entrance
M&S AGM
Club Wembley
main entrance
– Level B2
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(Allow 15 minutes’ walk
to the stadium)
HIGH ROAD A404
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SOUTH W A Y
Olympic Way
Bobby Moore Statue
From North Circular
Shareholders enter
through Club Wembley
main entrance
– Level B2
TRAVEL FROM THE STATION TO
THE VENUE
Following feedback during last year’s
meeting we have looked again at the
shareholder journey from the station to
the venue. Unfortunately, due to location
restrictions, we are unable to offer support
from the station and you will be required
to make your own way to the venue. Please
be advised that this is at least a ten minute
walk. If you are unable to make this
unassisted, please do ensure that you
have arranged alternative transport.
There is a paid-for carpark available to
shareholders and taxis are permitted
to drop-off in front of the venue.
TIMINGS
Date:
Tuesday 10 July 2018
9.30am
Doors open, registration
begins. Question Desk opens in
the Bobby Moore Room on
level 1. Tea and coffee available.
10.15am Doors to the Great Hall open.
Please make your way to
the Great Hall on level 3
where hosts will direct
you to your seats.
11.00am AGM begins.
1.00pm
(approximately) AGM closes.
The results of the poll will be
released to the London Stock
Exchange once collated.
ADMISSION
TRANSPORT
Admission will be through the Club
Wembley Main Entrance on Level B2
(see map above). Please plan to arrive
before 10.30am to allow enough time
for registration and security clearance,
bringing your attendance card with you.
This is either attached to your proxy form,
Notice of Availability, or, for those registered
for electronic communications, is attached
to the email you will have received. This will
help us to register you more swiftly.
SHAREHOLDERS WITH DISABILITIES
Wembley Stadium is easily accessible by
wheelchair users and has lift access inside.
There will also be an assisted hearing loop
system in The Great Hall. For further
information on the facilities at the venue,
please call Wembley Stadium direct on:
020 8795 9748 or 020 8795 9660.
SECURITY
Security measures will be in place to ensure
your safety. Please note that bag searches
will be in operation and any items deemed
inappropriate will be removed and stored
until the end of the event. It is highly
unlikely, but should it be required, body
searches may also be in operation. Flash
photography is not allowed at the AGM.
Wembley Stadium is well served by
numerous public transport links.
In line with our Plan A commitments, we
recommend that shareholders use these
to travel to the meeting if possible.
London Underground and Main Line
Railway Stations Wembley Stadium is
served by three stations:
– Wembley Park (600m walk) –
Jubilee and Metropolitan lines. There is
only one lift to street level at this station,
so please allow sufficient time to make
your way to the venue.
– Wembley Stadium (750m walk) –
on the Chiltern Main Line, linking London
Marylebone and the Midlands,
Oxfordshire and Buckinghamshire.
– Wembley Central (2km walk) –
Bakerloo line and London Overground.
Bus routes 83, 92 and 182 run towards
Wembley Stadium from stop CM.
For further information regarding your
journey, please contact Transport for
London travel information on 0343 222
1234, or visit tfl.gov.uk.
CAR PARKING
For those who wish to travel to the AGM
by car, there is parking available in the
Yellow Car Park. The location of the car park
is indicated on the map above. Parking is
operated by APCOA and car park spaces
are pay on foot machines on departure.
The postcode is HA9 0EG.
130
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
SHAREHOLDER INFORMATION
ANALYSIS OF SHARE REGISTER
Ordinary shares
As at 31 March 2018, the Company had 162,250 registered holders of ordinary shares. Their shareholdings are analysed below. It should
be noted that many of our private investors hold their shares through nominee companies; therefore the actual number of shares held
privately will be higher than indicated below.
Range of shareholding
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
Category of shareholder
Private
Institutional and corporate
Total
USEFUL CONTACTS
Marks and Spencer Group plc
Registered Office
Waterside House, 35 North Wharf Road,
London W2 1NW
Telephone +44 (0)20 7935 4422
Registered in England and Wales
(no. 4256886)
General queries
Customer queries: 0333 014 8555
Shareholder queries: 0345 609 0810
Or, email
chairman@marks-and-spencer.com
Number of
shareholders
Percentage
of total
shareholders
Number of
ordinary
shares
Percentage
of issued
share capital
85,304
30,922
23,732
15,736
4,051
1,964
402
139
16,054,377
52.57
23,142,759,
19.06
34,129,521
14.63
48,161,629
9.70
27,912,783
2.50
46,238,368
1.21
136,053,851
0.25
0.08 1,293,064,058
0.99
1.42
2.10
2.96
1.72
2.85
8.37
79.59
162,250
100.00 1,624,757,346
100.00
Number of
shareholders
157,312
4,938
162,250
Percentage
of total
shareholders
Number of
ordinary
shares
Percentage
of issued
share capital
96.96
178,948,977
3.04 1,445,808,369
100.00 1,624,727,346
11.01
88.99
100.00
Registrar/Shareholder queries
Equiniti Limited, Aspect House, Spencer
Road, Lancing, West Sussex BN99 6DA,
United Kingdom
Telephone 0345 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).
Additional documents
An interactive version of our
Annual Report is available online at
marksandspencer.com/annualreport2018.
Additionally, the Annual Report
(which contains the Strategic Report)
is available for download in pdf format
at marksandspencer.com/thecompany.
Alternatively, call 0800 591 697.
Students
Please note, students are advised to
source information from our website.
Group Secretary and
Head of Corporate Governance
Amanda Mellor
31 May 2018
1 June 2018
10 July 2018
13 July 2018
7 November 2018*
15 November 2018*
16 November 2018*
January 2019*
11 January 2019*
2018/19 FINANCIAL CALENDAR AND KEY DATES
Ex-dividend date – Final dividend
Record date to be eligible for the final dividend
Annual General Meeting (11am)
Final dividend payment date for the year to 31 March 2018
Results – Half Year†
Ex-dividend date – Interim dividend
Record date to be eligible for the interim dividend
Results, Quarter 3 Trading Update†
Interim dividend payment date
† Those who have registered for electronic communication or news alerts at marksandspencer.com/thecompany will receive notification by email when this is available.
* Provisional dates.
131
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
SHAREHOLDER INFORMATION CONTINUED
SHAREHOLDER QUERIES
DIVIDENDS
The Company’s share register is maintained
by our Registrar, Equiniti. Shareholders with
queries relating to their shareholding should
contact Equiniti directly using one of the
methods listed on p30. For more general
queries, shareholders should consult the
‘Investors’ section of our corporate website.
MANAGING YOUR SHARES ONLINE
Shareholders can manage their holdings
online by registering with Shareview, a
secure online platform provided by Equiniti.
Registration is a straightforward process
and allows shareholders to:
– Sign up for electronic shareholder
communication.
– Receive trading updates by email.
– View all of their shareholdings in one place.
– Update their records following a change
of address.
– Have dividends paid into their
bank account.
– Vote in advance of Company
general meetings.
M&S encourages shareholders to sign
up for electronic communication as the
reduction in printing costs and paper
usage makes a valuable contribution to our
Plan A commitments. It is also beneficial to
shareholders, who can be notified by email
whenever we release trading updates to
the London Stock Exchange, which are
not mailed to shareholders.
To find out more information about the
services offered by Shareview and to
register, please visit shareview.co.uk.
Subject to the relevant Board and
shareholder approvals, dividends are paid
in January and July each year. Shareholders
who receive their dividend payments
directly into their bank accounts will receive
an Annual Dividend Confirmation in
January, covering both dividend payments
made during the tax year.
DUPLICATE DOCUMENTS
Many shareholders have more than one
account on the share register and receive
duplicate documentation from us as a
result. If you fall into this group, please
contact Equiniti to combine your accounts.
SHAREGIFT
If you have a very small shareholding that
is uneconomical to sell, you may want
to consider donating it to ShareGift
(Registered charity no. 1052686), a charity
that specialises in the donation of small,
unwanted shareholdings to good
causes. You can find out more by
visiting sharegift.org or by calling
+44 (0)207 930 3737.
SHAREHOLDER SECURITY
An increasing number of shareholders have
been contacting us to report unsolicited and
suspicious phone calls received from purported
‘brokers’ who offer to buy their shares at a
price far in excess of their market value. It is
unlikely that firms authorised by the Financial
Conduct Authority (FCA) will contact you
with offers like this. As such, we believe these
calls are part of a scam, commonly referred
to as a ‘boiler room’. The callers obtain your
details from publicly available sources of
information, including the Company’s share
register, and can be extremely persistent
and persuasive.
Shareholders are cautioned to be very wary
of any unsolicited advice, offers to buy shares
at a discount, sell your shares at a premium
or requests to complete confidentiality
agreements with the callers. Remember, if it
sounds too good to be true, it probably is!
More detailed information and guidance is
available on our corporate website. We also
encourage shareholders to read the FCA’s
guidance on how to avoid scams at fca.org.
uk/consumers/scams. An overview of current
common scams is available on the Action
Fraud website actionfraud.police.uk.
WEBCAST
For shareholders unable to attend the AGM,
the meeting will be webcast live from 11.00am
via our corporate website. This will be
publicly available to all internet users and
will also be available to view online after the
event. To register to view the webcast, please
visit the website and follow the relevant links.
Shareholders attending the AGM should
be aware that the proceedings of the
meeting will be filmed for the purposes of
this webcast. M&S reserves the right to
retain and use footage or stills for any
purposes, including Annual Reports,
marketing materials and other publications.
If you have any queries about the AGM or
the contents of this document, please call
Marks & Spencer Group Secretariat on
+44 (0)20 8718 9888.
132
MARKS AND SPENCER GROUP PLC
INDEX
A
Page
E
Page
N
Accounting policies
Adjusting items
Appointment and retirement
of directors
Audit Committee Report
Auditor
Auditor’s remuneration
Auditor’s report
Annual General Meeting
81
89
26-27, 63
36-41
40
88
68
67
B
Board
Borrowing facilities
Business model
C
Capital commitments
Capital expenditure
Colleague involvement
Conflicts of interest
Corporate governance
Cost of sales
Critical accounting judgements
D
26
105
10
112
17
66
63
25
88
86
65
111
83, 86, 103
106
77
63
57
67
Deadlines for exercising voting rights
Deferred tax
Depreciation
Derivatives
Diluted earnings per share
Directors’ indemnities
Directors’ interests
Directors’ responsibilities
Directors’ single figure of
remuneration
Disclosure of information to auditor
Dividend cover
Dividend per share
Earnings per share
Employees
Employees with disabilities
Equal opportunities
F
Finance income/costs
Finance leases
Financial assets
Financial instruments
Financial liabilities
Financial review
Fixed charge cover
G
Glossary of alternative
performance measures
Going concern
Goodwill
Groceries Supply Code of Practice
H
Hedging reserve
I
Income statement
Intangible assets
Interests in voting rights
International Financial Reporting
Standards
Inventories
Investment property
93
94
66
66
91
105
104
105
105
15-18
119
120
67
83
66
79
77
101
64
81
84
78
Nomination Committee
P
Plan A
Principal risks and uncertainties
Profit and dividends
Power to issue shares
Political donations
R
Risk management
Remuneration policy
Remuneration Committee
Remuneration Report
S
Segmental information
Shareholder information
Share capital
Share schemes
Significant agreements
Statement of cash flows
Statement of comprehensive income
Statement of financial position
Subsidiary undertakings
87
130
64, 112
56, 99
65
80
77
78
116
T
Taxation
Total shareholder return
Trade and other payables
Trade and other receivables
Transfer of securities
V
Variation of rights
Viability statement
K
44, 50
67
119
94
Key performance indicators
11-14
M
Market and customer insights
6, 7
FINANCIAL STATEMENTS
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of
changes in equity
Consolidated cash flow statement
Note
1 Accounting policies
2 Segmental information
3 Expense analysis
4 Profit before taxation
5 Adjusting items
6 Finance income/costs
77
77
78
79
80
81
87
88
88
89
91
Income tax expense
7
8 Earnings per share
9 Dividends
10 Employees
11 Retirement benefits
12 Marks and Spencer
Scottish Limited Partnership
13 Share-based payments
14 Intangible assets
15 Property, plant and equipment
16 Other financial assets
17 Trade and other receivables
18 Cash and cash equivalents
19 Trade and other payables
20 Borrowings and other
financial liabilities
91
93
94
94
95
99
99
101
103
104
104
104
105
105
21 Financial instruments
22 Provisions
23 Deferred tax
24 Ordinary share capital
25 Contingencies and commitments
26 Analysis of cash flows given in the
statement of cash flows
27 Analysis of net debt
28 Related party transactions
Company financial statements
Notes to the Company
financial statements
Page
34
19
22
64
65
66
20-21
46
61
50
17
58
83
83
64
65
67
Page
105
111
111
112
112
113
113
114
115
116
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