M
A
R
K
S
A
N
D
S
P
E
N
C
E
R
G
R
O
U
P
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
9
TRANSFORMATION
TAKING SHAPE
ANNUAL REPORT &
FINANCIAL STATEMENTS
+
NOTICE OF
ANNUAL GENER AL
MEETING
2019
AT A GLANCE
M&S IS A LEADING RETAILER with
A STRONG AND
UNIQUE HERITAGE
OF BRAND VALUES,
EXTRAORDINARY
COLLEAGUES AND
CUSTOMERS WHO WANT
TO SEE IT SUCCEED AGAIN.
We operate a family of accountable businesses, including Food and Clothing & Home,
using the M&S own-brand model, focused on delivering quality products at great value
for money.
Although primarily based in the UK, we sell into 57 countries from 1,487 stores,
and 35 websites around the world. We employ over 80,000 colleagues serving
about 32 million customers.
We are committed to transforming our business to ensure that once again M&S can
fulfil the potential of its brand and deliver long-term, sustainable, profitable growth
for our investors, colleagues and the communities that we serve.
Read more on
p08
FOOD
Read more on
CLOTHING
& HOME
p10
Read more on
p23
FINANCIAL
REVIEW
Cover image
In January, we launched our Plant
Kitchen range, a brand new collection
of delicious plant-based products, like
our Cashew Mac, to broaden our appeal
to more customers looking for great
tasting vegetarian or vegan ranges.
01
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
OVERVIEW
GROUP REVENUE
GROUP PROFIT BEFORE TAX
£10.4bn -3.0%
£84.6m +26.6%
PERCENTAGE OF UK CLOTHING
& HOME SALES ONLINE
22% +3.0%
TOTAL DIVIDEND*
13.9p -25.7%
* Dividend reset in February 2019. See page 26.
PROFIT BEFORE TAX
AND ADJUSTING ITEMS
APM
FOOD: VALUE FOR MONEY PERCEPTION1
£523.2m -9.9%
59%
BASIC EARNINGS PER SHARE
NET DEBT
APM
STORES: NET PROMOTER SCORE2
2.1p +31.3%
£1.55bn -15.3%
68
ADJUSTED EARNINGS PER SHARE APM
M&S.COM: NET PROMOTER SCORE2
25.4p -8.6%
54
WHY GO DIGITAL?
STRATEGIC REPORT
FINANCIAL STATEMENTS
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
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.
International, Property and Services
02 Chairman’s letter
04 Chief Executive’s statement
06 M&S business operating model
08 Food
10 Clothing & Home
12 Channels
14
15 Our people and culture
18 Plan A review
21 Non-financial information statement
22 Key performance indicators
23 Financial review
27 Risk management
29 Principal risks and uncertainties
GOVERNANCE
34 Chairman’s governance overview
36 Our Board
38
Board composition and
meeting attendance
39 Leadership and oversight
40 Board activities
42 Creating a joint venture
44 How we engage, consider and respond
46 Nomination Committee Report
48 Audit Committee Report
54 Remuneration overview
58 Remuneration in context
59 Summary Remuneration Policy
63 Remuneration Report
76 Other disclosures
81 Independent auditor’s report
91 Consolidated financial statements
95 Notes to the financial statements
137 Company financial statements
138 Notes to the Company
financial statements
142 Group financial record
143 Glossary
146 Notice of meeting
158 Shareholder information**
160 Index
** Shareholder information forms part
of the Directors’ Report.
1. Based on stores and online data from 2018 onwards
following a reset in internal measurements.
2. Net promoter score (NPS) equals the percentage
of ‘promoters’ minus the percentage of ‘detractors’.
This represents our total NPS score following a reset
in internal measurements from which we will measure
our future progress against.
APM 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 143-145 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.
T
R
O
P
E
R
’
S
R
O
T
C
E
R
D
I
T
R
O
P
E
R
C
G
E
T
A
R
T
S
I
E
C
N
A
N
R
E
V
O
G
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
02
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
CHAIRMAN’S
LETTER
In September 2017 I took over as Chairman
of M&S in the belief that, despite years
of decline, a far-reaching turnaround
programme driven by a strong leadership
team could revive one of the UK’s most
special brands. This letter outlines
my assessment of our progress in
this turnaround.
I made clear at the time that the genesis of
any turnaround starts with the unvarnished
truth, setting aside corporate vanity to
face the facts about the state of a business.
Behind most financial failures sits an
organisational failure and an inability to be
self-critical and embrace the challenges
ahead. In our case, a siloed, slow and
hierarchical culture that has proved
resistant to change.
As I made clear last year, the change
needed is not one dimensional, not a touch
of the tiller, and not just a question of
strategy. Highly capable management
teams have come and gone with perfectly
sensible plans and the long-term
downward trajectory of the business has
continued. Our failure to adapt, despite
rapidly changing markets, means M&S now
stands on a burning platform. So we are
aiming to transform all the pieces of the
jigsaw: the way we are organised, the way
we work, our technology, our store base,
our product, our supply chains and our
value in the market.
In tackling this challenge, we can draw
upon two exceptional qualities: a brand
that customers want to succeed again,
and fantastic colleagues in our stores who
have a remarkable commitment to the
business and are longing to be given the
freedom to get M&S back to its best.
In November 2017 Steve Rowe, CEO, laid out
our five-year transformation programme,
Making M&S Special Again. The objective of
this programme is not to “manage decline”
but to return M&S to sustainable, profitable
growth. Our progress against this plan is
detailed within the Annual Report.
Despite considerable changes and progress
in restoring the basics, we remain in the first
phase of the transformation and our in-year
performance reflects this. The last year
has seen further declines in like-for-like
sales in both our Food and Clothing &
Home businesses. The drivers for this are
many, as we identified at the start of the
transformation. We are at the early stages
of reshaping our store portfolio which has
been allowed to decay over decades.
We have not reshaped our store estate in
line with changing customer preferences
as our competitors have done and we
are paying the price. About 75% of our full-
line stores are over 25 years old and many
date from before the Second World War.
Our store layouts are still often difficult
and confusing to shop. In Clothing & Home,
we have suffered from “range creep” over
the years so our shape of buy is too wide,
lacks depth and clarity of choice or scale.
In Food, many of our stores lack car parking,
scope and reach, our price perception
is too high, and our facilities and equipment
maintenance are not good enough.
Behind all of this, while parts of the
organisation have dynamic, and sometimes
new management, and have adopted a
hands-on way of working, others remain
slow, bureaucratic and hierarchical.
Whilst progress feels frustratingly slow,
experience tells me this is typical in the first
phase of transformation and, while it is right
to be frustrated, it is also important to be
patient. The majority of the leadership team
are new to the business and we recently
restructured the organisation to create
accountable business units with their own
boards to drive clarity of decision-making
and pace of action. Some corporate
functions have yet to adapt to this new
structure which we are addressing. We have
started to rekindle the “voice of the stores”,
which had become disconnected from the
centre to put the customer back into the
heart of decision-making. Store managers
have once again been given sight of
their own profit and loss account and
information to manage food waste.
The drum beat of trading pressure and
store feedback is starting to drive a faster
pace in the centre. Store managers have
been given tablets, therefore no longer
bound to their desks and can spend more
time on the trading floor with colleagues
and customers, and HR is at last being
modernised and digitised.
Already as a result of some fairly basic
improvements to the online website and
fulfilment, we are seeing strong online
sales growth when product is available.
The relatively small changes in clothing
range and shape we have made have
proved successful and these changes will
accelerate this autumn. If our supply chain
and merchandising systems had delivered
the right quantity of buy and right size
“ Although we are in
the hard yards of
fixing the basics and
arresting decline,
we remain ambitious
for the business.”
ARCHIE NORMAN CHAIRMAN
FINANCIAL HIGHLIGHTS
INTERIM
Paid on 11 January 2019
6.8p
FINAL
To be paid on 12 July 2019
7.1p
TOTAL DIVIDEND FOR 2018/19
13.9p
03
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
“We have
started to
rekindle
the “voice of
the stores”.”
ratios, our sales would have been
significantly stronger and we have learnt
from our mistakes. In Food, although still
negative in value terms, our like-for-like
volume sales are beginning to grow again
and the energy in that business is palpable.
As a result of these and many other
changes, I do expect to see improvement
in trading in each of our major businesses
in the year ahead and, although we are in
the hard yards of fixing the basics and
arresting decline, we remain ambitious for
the business. This is why we committed to
buy half of Ocado retail and we believe
this joint venture could create the most
advantaged online food business in the
UK. The partnership will bring substantial
benefits to our core Food business in
purchasing scale and innovation speed and
the sharing of data should create one of the
most powerful consumer data pools in the
UK. Together with Ocado, our aspiration is
to significantly improve our share of UK
food retail by combining our strength in
food quality and innovation and Ocado’s
leading technology and service.
To finance the joint venture, but also to
nail down our finances for the next four
years, we have reduced the dividend and
committed to a £601.3m rights issue. We
have substantial debt repayments due on
our bond financing and a significant pension
obligation to fund. Although painful, these
steps provide the business with a stronger
balance sheet, resilient to the vagaries of an
unpredictable market and risks inherent in
rapid operating change. Having reset the
dividend to a sustainable level, we will aim
to grow returns to shareholders in line with
earnings over time.
Within this context I want to thank all
our colleagues for their support during a
testing time for the business. When we are
seeking to drive efficiency, seeing declining
sales, reducing hours and closing stores, life
has not been easy for our colleagues at any
level. Their commitment to making M&S
special again has been and continues to
be amazing.
I said last year that in an era of a new
management team with a mandate for
urgent change we needed a strong and
dedicated Board. We have now forged a
highly capable and energetic Board
committed to making the hard decisions
required to support the turnaround and
drive the pace. Vindi Banga, our Senior
Independent Director, stood down from the
Board after nearly seven years and leaves
with our grateful thanks. Pip McCrostie, Katie
Bickerstaffe and Justin King have joined us.
Serving on the M&S Board is not going to be
the easiest of roads. But none of us are here
to eat lunch or soak up applause. We are
here to make M&S special again and we are
on the road to doing exactly that.
ARCHIE NORMAN CHAIRMAN
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 04
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
CHIEF EXECUTIVE’S
STATEMENT
BECOMING A DIGITAL FIRST
RETAILER ACROSS M&S
In our digital operations, we began to
address the basics of our website which
has helped to deliver UK Clothing & Home
online growth of 9.8% in FY 2018/19. Online
now represents 22% of UK Clothing & Home
sales compared with 19% last year.
Improvements in site speed, a redesigned
homepage, enhanced product imagery, a
simpler check-out and an improved delivery
proposition have collectively contributed to
over nine percent improvement in the
conversion of website traffic to customer
purchases. Navigation and personalisation
on-site, as well as product marketing, remain
a significant opportunity.
Castle Donington had its best peak
performance since it opened with
significant improvements in most key
metrics including a later delivery cut-off,
following targeted investment to remedy
problems with its reliability and efficiency.
We are investing c.£9m in further process
improvements to meet our growth plans
for this year. However, we expect the need
for an additional fulfilment centre has
been successfully deferred for another
two to three years.
M&S in-store technology and systems
have been historically underinvested and
require improvement. Already we have
started to address this problem, giving
all store managers tablet computers and
extending the successful Honeywell hand
held terminal programme. In the year
ahead, we will roll out new applications and
accelerate our self-checkout programme
to reduce constant queuing issues. Our
in-store Wi-Fi will be upgraded to deliver a
universal “high speed anywhere” capability
for our customers and store colleagues.
We will also improve the personalisation
of our shopping experience. With the
potential to develop one of the best
customer data “lakes” in the UK, our Sparks
loyalty programme needs substantial
improvement and will be relaunched in
the next year.
We have made good progress in restoring
the basics of our technology organisation,
transitioning to a partnership with TCS,
migrating our online platform to the
cloud and rolling out new warehouse
management software to enable the
decommissioning of antiquated systems
and the old mainframe base, which will
deliver annualised savings of over £30m.
RESHAPING THE RANGES
AND CUSTOMER PROFILE
IN CLOTHING & HOME
UK Clothing & Home revenue declined
3.6%, partly due to our store closure
programme, with like-for-like revenue
down 1.6%. Encouraging progress in Q3
was constrained by weak availability in Q4
as we sold out of fast selling lines and
experienced supply issues.
Our range remained too wide in FY 2018/19
with multiple options splintering our buying
scale and making our shops challenging
to navigate. Our size ratios have been
historically misaligned with the profile of
the contemporary family age customer
we aim to appeal to. However, where we
have made progress in pruning options
and introducing slimmer fits and more
mid sizes, the customer response has
been very strong.
Creating a new range architecture in a
business with weak processes, a slow supply
chain and where buyers are building their
confidence has proven challenging, and
our sales both in store and online have
been frustrated by poor availability in Q4.
Although we made good progress reducing
overall stock levels, many popular lines
have sold out prematurely because of the
failure to buy in depth and the slowness of
the stock flow.
Despite these teething problems the
customer response to the initial changes
has been very encouraging. On page 10
we look at the year ahead in Clothing &
Home, where we expect to deliver a
more marked reduction in options and
range duplication. With the new range
architecture, we will continue to shift to a
“first price, right price” trading philosophy,
and further reduce the percentage of
Clothing & Home sold at discount,
which remains too high.
Our new range architecture and
presentation will be combined with a
rationalised, more contemporary in-store
environment. Progress on renewing the
stores has been limited to date, although
we have moved a lot of internal walls and
sight barriers. A “renewal” brand format
and a modernisation will be piloted in
the year ahead.
STEVE ROWE CHIEF EXECUTIVE
We are deep into the first phase of our
transformation programme and continue
to make good progress restoring the basics
and fixing many of the legacy issues we
face. As I have said, at this stage we are
judging ourselves as much by the pace of
change as by the trading outcomes and
change will accelerate in the year ahead.
Whilst there are green shoots, we have not
been consistent in our delivery in a number
of areas of the business. M&S is changing
faster than at any time in my career –
substantial changes to our processes,
ranges and operations and this has
constrained this year’s performance,
particularly in Clothing & Home. However,
we remain on track with our transformation
and are now well on the road to making
M&S special again.
TRANSFORMING OUR LEADERSHIP
AND ACCOUNTABILITY
Over the past two years we have built a
substantially new leadership team, bringing
fresh perspective, energy and challenge to
a business held back by deeply entrenched
cultural norms. Alongside this, we are
creating clear and accountable businesses
supported by common values, shared
infrastructure and customer data and
have continued the streamlining of
corporate functions.
However, over the years a business that
was famously product and store led has
developed a “Head Office knows best”
mentality, remote from the customer.
Looking ahead we will up the pace on
the steps we are taking to bring back the
“voice of the stores”. Our colleagues are
our biggest asset and unlocking their
potential will drive our transformation.
05
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
We have reduced the complexity of
our logistics network and are rolling out
the first phase of our “Fuse” programme
deploying new tools which will help us
remove excess stock trapped in stores
where it does not sell and holding it
centrally, improving availability and making
our stores easier to shop. We are still at the
early stages of modernising our supply
chain network, technology and process
and this remains a priority.
PROTECTING THE MAGIC AND
MODERNISING THE REST IN FOOD
The Food business is showing good signs
of progress in arresting the decline in
like-for-like sales. UK Food revenue
declined 0.6%, with like-for-like revenue
down 2.3% reflecting the adverse impact
of Easter timing in both Q1 and Q4.
Adjusted for Easter timing, FY 2018/19
like-for-like revenue declined 1.5% with
an improving trend in the second half
of the year, and volume growth in Q4.
As set out in further detail on page 8, our
Food brand remains very strong and our
strategy is to “protect the magic” – based
on our unique quality, freshness and
innovation credentials – whilst reshaping
our store estate, infrastructure, operating
systems, cost management and supply
relationships. The Ocado Joint Venture (‘JV’)
is a natural partner for the brand and,
combined with our Food transformation
plan, opens up the possibility of substantially
increasing our grocery market share in
the medium term.
Good progress has been made in restoring
trust in our value at relatively little cost
to margin. We have very nearly halved our
dependence on short-term promotions
and confusing multi-buys, reducing
promotional participation by over 10
percentage points as a percentage of
sales by year end, without significant loss
of customers. This enabled us to invest
in everyday prices, including reductions
in over 400 lines, narrowing our price
differential to the lowest it has been
for some years.
We have strengthened the communication
of value in stores and we began to see
encouraging transaction and volume
trends in Q4. In the current year, the shift to
trusted value will be supported by a series
of workstreams designed to simplify supply
relationships, reduce costs and increase the
pace of innovation.
CREATING A HIGH-QUALITY STORE
PORTFOLIO FIT FOR THE FUTURE
We are making good progress with the
reshaping of our full-line estate and have
closed 35 full-line stores as part of our
programme as at 30 March 2019, with sales
transfer rates to nearby stores remaining
above 20%. Reshaping the store portfolio
means tackling the legacy issues, but also
opening new full-line stores as well as Food
stores. As part of our Food strategy we are
concentrating on higher volume stores
with good access and car parking to enable
our customers to shop more of our range.
Therefore, some of the low volume, higher
cost Simply Food stores, mostly on short
leases, will also be progressively relocated
or rationalised. As we discuss in more detail
on page 12, although we anticipate further
net reductions in overall retail space, our
strategy is as much about right sizing and
relocating as it is about closures and we
anticipate our owned store base is likely
to remain broadly level.
JOINT VENTURE WITH OCADO
In February 2019, we announced the
creation of a new 50/50 JV with Ocado
Group Plc, the UK’s leading pure play digital
grocer, which will transform online grocery
shopping for UK consumers.
Under the JV, M&S is acquiring a 50% share
of Ocado’s UK retail business, which will
be supported by Ocado Smart Platform
technology, for an initial consideration of
£562.5m and deferred consideration of
up to £187.5m, plus interest. The Ocado JV
is expected to be recognised by M&S as an
associate applying the equity method of
accounting, reflecting the significant
influence that M&S will have over the entity.
REBUILDING PROFITABLE GROWTH
IN INTERNATIONAL
The International business was already
fully embarked on rationalisation and
repositioning prior to the transformation
programme and further good progress has
been made. Our objective is to create a
much more competitive localised version
of M&S in those selected markets where
we can attain a sustainable market share.
As we aim to build a scalable business
internationally, we continue to localise
our ranges for the market. This included a
substantial increase to around 15% of
locally designed clothing range including in
our growing Indian joint venture, which now
has 77 stores. In addition, we launched six
country specific websites and re-platformed
the website for our business in the Republic
of Ireland.
COST SAVINGS OF AT LEAST £350M
BY 2020/21
Last year we set out firm targets for cost
savings as part of the first phase of
transformation. We have made good
progress in the year, delivering savings
of c.£100m, in addition to the operating
costs of stores that have closed, and are on
the way to creating a leaner, more efficient
cost base for the business.
Savings in 2018/19 derived from the
retail management restructure, the IT
transformation plan, property costs,
depreciation and central costs enabled the
business to offset inflation, new space and
channel shift with the result that full year
UK operating costs declined by 1.2%.
As we change the culture of the business,
we are clear that challenging costs will
become a core part of our philosophy.
In 2019/20, we anticipate ongoing savings
from the annualisation of current year
initiatives and additional benefits in
areas, including a new contract for
store maintenance and in central costs,
which should result in a further decline
in total UK operating costs.
The JV combines the strength of M&S’s
brand and its leading food quality and
innovation with Ocado’s unique and
proprietary technology, to create an
unrivalled online offer for customers.
In bringing the best together, the JV will
benefit existing and new UK customers,
colleagues and suppliers.
The JV will trade as Ocado.com but will
benefit from access to M&S’s brand,
products and customer database from
September 2020 at the latest, following
the termination of the current Waitrose
sourcing agreement and migration of
JV sourcing to M&S.
We anticipate synergies of at least £70m
by the third full financial year following
completion through increased buying
scale, harmonised buying terms on
branded products and improved efficiencies
on new product development. We expect
some churn in customers as the JV transitions
from the previous sourcing arrangements;
however following the ‘frictional’ transition
we plan to accelerate growth in the JV.
There is a significant opportunity to reduce
customer acquisition costs in the JV by
marketing directly to our customer
data base.
LOOKING AHEAD
Whilst we have made progress, our priority
in the year ahead must be to increase the
pace of change. M&S has an extraordinary
workforce of loyal colleagues and I am
lucky and humbled to lead them.
Unlocking this power to build a faster,
more commercial culture will help us drive
transformational change. I would like to
thank all my colleagues for their passion,
dedication and hard work over the past
year in delivering our transformation.
We are now well on the way to making
M&S special again.
STEVE ROWE CHIEF EXECUTIVE
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 06
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
M&S BUSINESS
OPERATING MODEL
Marks and Spencer Group plc is one of the United Kingdom’s
leading retailers, with a unique heritage of brand values,
extraordinary colleagues and strong and deep relationships with
customers. We operate as a family of accountable businesses,
bound together not only by a common consumer brand but
also by shared sites, employment values and customer data.
OUR CUSTOMERS
M&S serves about 32 million customers every year from
across the UK. Our Food, Clothing & Home and other
retail businesses are focused on developing products and
services for our target customers, who we reach through
a channel network of 1,487 stores and online services
across 57 international markets.
OUR COLLEAGUES
We employ over 80,000 colleagues who demonstrate
extraordinary passion for the business, deliver great
customer experience through our channels, and bring
extensive technical skills giving us strength in areas
such as ingredients, sourcing, size and fit.
T H E GROUP
O F
Y
M I L
F A
A C C O UNTABLE BUSIN
E
S
S
C H ANNELS
E
S
A FAMILY OF ACCOUNTABLE BUSINESSES
M&S generates revenue and delivers value for shareholders
through a family of accountable businesses. Each is led
by its own integrated management team, with functional
accountability for their divisions, including marketing,
supply chain, finance and technology.
We predominantly sell own-brand products manufactured
and marketed exclusively under the M&S brand with quality,
innovation and trusted value at their core.
Food: M&S Food sells sustainably sourced, fresh,
convenient products of outstanding quality through
five main categories: protein deli and dairy; produce;
ambient and in-store bakery; meals dessert and frozen;
hospitality and ‘Food on the Move’.
Clothing & Home: M&S sells stylish own-brand clothing
and homeware through our principal product
departments: Womenswear, Menswear, Lingerie,
Kidswear and Home.
International: M&S exports the best of M&S Food and
Clothing & Home around the world in select target
markets across Europe, the Middle East and Asia,
and with an online presence in markets such as the
United States and Australia.
Services: Through M&S Bank (operated by HSBC)
we provide a range of financial services, including credit
cards, current account and savings, insurance and
mortgages. M&S Energy is a competitive fully renewable
energy source provider (operated by Octopus).
Property: We are building an active property
management team to maximise the value of our
property assets through investment and
development opportunities.
FOOD
CUSTOMERS
CLOTHING
& HOME
DIGITAL AND DATA
ONLINE
STORES
COLLEAGUES
SERVICES:
BANK AND
ENERGY
PROPERTY
INTERNATIONAL
DIGITAL AND D A T A
All of our businesses can draw from the same customer data.
We are investing in our data analytics and digital capabilities
to create a strong customer insight function, so we can better
leverage our insight to build customer loyalty.
THE GROUP
Our lean central team includes Group Finance, Corporate
Governance, Strategy and support functions such as
Communications and HR. The Group supports the business
as a whole, setting direction of its growth strategy, allocation
of capital and overseeing cost efficiencies.
07
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
OUR STRATEGIC PRIORITIES
The objective of our transformation programme,
Making M&S Special Again, is to restore the business to
sustainable, profitable growth over three to five years.
Last year we set out the nine key pillars of our first phase
of transformation – to restore the basics of our organisation
and infrastructure to transform us into a faster, lower-cost,
more commercial and digital business and provide the
platform for growth in the later phases of our plan.
STEP ONE
RESTORING
THE BASICS
STEP TWO
SHAPING
THE FUTURE
STEP THREE
MAKING
M&S SPECIAL
2018
2019
2020
2021
2022
TRANSFORMING OUR
LEADERSHIP
1 BUILDING GREATER
ACCOUNTABILITY
2 BECOMING A
DIGITAL FIRST
RETAILER
3
Read more on page 04 & page 15
Read more on page 15 & page 16
Read more on page 13
RESHAPING THE RANGES
AND CUSTOMER PROFILE
IN CLOTHING & HOME
4 PROTECTING THE
MAGIC AND MODERNISING
THE REST IN FOOD
5 REBUILDING
PROFITABLE GROWTH
IN INTERNATIONAL
6
Read more on page 10 & page 11
Read more on page 08 & page 09
Read more on page 14
CREATING A HIGH-QUALITY
STORE ESTATE FIT FOR
THE FUTURE
7 MODERNISING OUR FOOD
AND CLOTHING & HOME
SUPPLY CHAINS
8 COST SAVINGS OF
AT LEAST £350M
BY 2020/21
9
Read more on page 12
Read more on page 09 & page 11
Read more on page 05
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 08
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
FOOD
PROTECTING
THE MAGIC
AND MODERNISING
THE REST
Above We have started to tackle value perception through our marketing
calling out prices alongside product quality. M&S is no longer positioning
itself as special and different, but instead special and relevant with stand
out prices and the same renowned quality.
Left Our Best Ever Prawn Sandwich launched in August, having been
developed in eight weeks from concept to shelf, and quickly became
one of our bestselling sandwiches this year.
WHAT WE SAID LAST YEAR
In 2018 we acknowledged that our Food
business had become too premium and
lost some of its broader appeal. While
customers still recognised us for quality,
the competition had worked hard to match
our success by copying our innovation and
fresh product ranges and we hadn’t kept
up. The challenges were compounded by
our outdated supply chain, with excessive
waste, poor availability and high operating
costs eroding our profits.
We were clear that we needed to protect
the things that make M&S Food special:
industry-leading quality, exceptional
sourcing and famous innovation.
But against the relentless rise of the
discounters at one end, and supermarket
price competition at the other, M&S had
to become more relevant, more often –
with great value, everyday prices and
products that appeal to a family customer.
We outlined the action needed to
address these challenges and
restore like-for-like growth:
> Re-establish our value for
money credentials.
> Accelerate the pace of relevant
innovation to deliver commercial impact.
> Give more customers access to the
full M&S Food range of c.6,500 SKUs.
> Fix our outdated supply chain.
WHAT’S HAPPENING
The Food business saw encouraging signs
of progress with an improving trend in
like-for-like revenue in the second half of
the year as well as volume growth in the
final quarter. However, the business
continued to remain in decline with like-for-
like revenue for the year down 2.3% overall.
Our performance gains have continued to
be offset by the deep-rooted challenges of
our supply chain and systems resulting in
disappointing levels of waste and availability.
We continued to perform well on special
occasions, particularly Christmas, where
we saw strong volume growth. Meat was
one of our best-performing Christmas
categories – with lamb and beef proving
particularly popular with our customers.
We are beginning to capture these core
weekly shop categories all year round: 30%
of customers’ baskets contain a meat, fish or
poultry item and 34% include fresh produce.
Under the direction of our Food Managing
Director, Stuart Machin, our new leadership
team is injecting much needed pace and
energy into our transformation. The team
was strengthened by the arrival of our new
Commercial Director, George Wright, who
joined us from Tesco in April 2019, and the
return of April Preston in November 2018 as
Product Development Director, as well as
other important leadership appointments.
We’re working hard to rebuild trust in our
value credentials. Over the last 12 months
we have reduced our dependency on
short-term promotions and reduced
promotional participation by over 10%.
This has enabled us to maintain our quality
and invest in better everyday value and
reduce prices on over 400 of our most
popular lines. For example, we invested in
prices of staple products like our beef
mince and saw a positive customer
response with sales up 29% as a result.
We have also started to tackle value
perception through our marketing and, for
the first time, our campaigns consistently
called out prices alongside product quality.
We also began showcasing the best of
M&S Food into millions of homes each week
through our sponsorship of the 2019 series
of ITV’s Britain’s Got Talent.
09
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
We are re-engineering our development
pipeline to up the pace on delivering
more relevant innovation with commercial
impact. For example, in January we
launched our Plant Kitchen range in
response to the growing demand for a
plant-based diet and sold over 4.8 million
items from the range in its first three
months. We are also working to improve
our product development timeline from
24 weeks to 6 to make us more efficient in
bringing products to market, as the case
study on Our Best Ever Prawn Sandwich
opposite explains.
Our end-to-end supply chain transformation
programme is now well under way. With
support of outside expertise, our “Fuse”
project team has pinpointed the causes
and solutions to the most critical problems
and identified a number of savings. We are
determined to modernise and improve
our waste and availability and open up
our growth potential in Food. We have set
up a number of Academy stores across
the UK, so we can test and refine the new
processes using the expert knowledge
of our store colleagues.
While efforts have been focused on
restoring the basics, we have taken the
first major step in shaping our future
growth with the announcement of our
JV partnership with Ocado. Online food
retailing is set to grow from an £11bn
market in 2018 to £17bn in 2023 and,
to date, M&S has not had a viable online
grocery platform.
Combining the quality of M&S Food with
Ocado’s leading technology and award-
winning service will enable us to build an
unrivalled online offer for UK customers
and provide M&S with immediate, scalable
and profitable access to the fastest-
growing channel in food retailing.
potential to be applied cost-effectively
to new and existing M&S sites.
WHAT’S STILL TO DO
Our objective in phase one is to restore
like-for-like sales growth, by driving
frequency of shop and broadening
our appeal beyond special occasions.
We will continue to invest in price on
key items to restore our value for money
credentials. However, delivering trusted
value is much more than lowering prices.
It means offering easy to understand,
simple price points and providing better
value on large-size family packs. Confusing
multi-buys have been stripped back and
when we do run promotions, we need to
ensure that they are relevant to a family
customer’s specific needs and offer real
value. For example, our Family Meal Deal
for £8 provides an effortless solution to
‘dinner tonight or tomorrow’.
To fully unlock the volume opportunity,
we need to enable customers to shop
more of our range. From September
2020, our Ocado partnership will provide
immediate access to our full range of 6,500
products and reach our 12 million food
customers who account for one-third of
online grocery market spend – none of
which currently comes into M&S. But today,
in the absence of an online offer, access is
constrained by our portfolio of small food
halls, with only a dozen stores able to stock
the full range. Our property strategy looks
to bigger and better located stores that
offer the family-friendly facilities and
experience our target customer wants.
Our 2019/20 store-renewal programme will
enable us to develop a blueprint with the
This activity will be underpinned by a series
of workstreams designed to lower costs
and improve the quality of sourcing.
Although M&S retains a core of very strong
supplier relationships, over the years the
uniqueness and commitment of our supply
base has been eroded, as competitors
seek to copy our recipes and emulate our
quality. And in pursuit of innovation
and promotional complexity, we have
often become expensive to source. This
programme will therefore mean restoring
our sourcing capability, going back to
livestock and field, and creating more
joined up, vertically integrated programmes
with selected strategic suppliers.
Our waste levels remain among the highest
in the industry and availability has not
significantly improved. However, the
modernisation of our supply chain is
taking shape, and the new ways of working
and management information tools will
be rolled out across stores and support
teams in the year ahead. This is only the
start and there is still much to do but
there will be significant commercial gain
in getting it right.
The UK food market is in the midst of
seismic change and hard work lies ahead.
But our strength in innovation, quality
and time-saving fresh food, coupled
with the evolution of customer shopping
habits towards convenience and health,
presents a real opportunity to significantly
improve our market share in the medium
term. Underpinned by our far-reaching
plans, we are building a platform for
like-for-like growth.
FINANCIAL HIGHLIGHTS
STRATEGIC KPIs
REVENUE
£5.9bn -0.6%
CONTRIBUTION TO UK REVENUE
62.5%
+1.2%
LIKE-FOR-LIKE SALES
Like-for-like sales performance was down
but we saw encouraging volume growth in
the final quarter.
-2.3%
-0.3%
17/18
-2.3%
18/19
AVAILABILITY
Our availability is behind the industry
average and we are tackling this through
our “Fuse” programme.
92.6% +0.3%
VALUE FOR MONEY PERCEPTION1
The proportion of customers who rated us
highly on value for money. We have started
to address our value for money perception
through our marketing and price reductions.
59%
QUALITY PERCEPTION1
The proportion of customers who rated us
highly on quality. Our Food strategy is to
“protect the magic” including our unique
quality, freshness, and innovation credentials.
85%
1. Based on data covering stores from 2018 onwards
following a reset in internal measurements.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 10
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
CLOTHING & HOME
RESTORING
OUR REPUTATION
FOR STYLE
AND VALUE
Above Denim is one of our key categories with a loyal customer base
and strong customer franchise, and our Best Ever Fit campaign in
February helped us build on this position resulting in a 20% sales uplift.
Left Shoppable Instagram has been a key part of this year’s Holly’s
Must-Haves marketing campaign with our ambassador Holly Willoughby.
Our social media followers were given first access to Holly’s edit which
led to our biggest ever social revenue day on M&S.com.
WHAT WE SAID LAST YEAR
In 2018 we outlined the threats to our
Clothing & Home business including
the erosion of our style credentials,
increasing pressure from new and existing
competitors, an online business behind the
curve, and a delivery service unable to
meet customer demand at peak times.
These factors had combined over many
years to reduce our market share, resulting
in a process of gradual decline and the
ageing of our customer base. Restoring
the brand and customer appeal requires
far-reaching change in the range, shape
of buy, supply chain and systems.
In addressing these challenges, we set
out what we needed to do to deliver the
change required:
> Restore our style and value credentials
to broaden our appeal to a younger
family age customer.
> Restructure our shape of buy, reducing
breadth of range and focusing on
backing winning lines in high volume.
> Build on our loyal customer base and
strong customer franchise in denim,
lingerie, suits and back to school.
> Target one-third of our sales online
by 2022.
> Reform our supply chain and systems
to improve availability and deliver
for customers.
WHAT’S HAPPENING
Despite underlying progress this year,
our transformation in Clothing & Home
is yet to be reflected in like-for-like sales.
While we saw a rise in customer numbers
and growth in our online Clothing & Home
sales ahead of the market, we remain at
the early stages of our programme.
Our aspiration is to be famous for
contemporary, wearable style at great
value. Our efforts in restoring our style
credentials and value perceptions made
progress and saw some wins this year. Sales
of our £15 women’s jeggings were up 30%
over the campaign period. And when we
got the product fit and price right for the
contemporary, family-age customer we aim
to appeal to – such as our denim campaign
case study above – we saw product fly off
the shelves. But all too often our initial
tentative steps to buying in depth
meant many of the most popular lines
sold out prematurely and our sales
were constrained by poor availability.
Our digital capabilities have historically
been well behind the market. Our platforms
have not offered an inspirational or
effective customer experience and
our digital marketing hasn’t kept pace
with how our customers want to shop.
This year we delivered important enabling
improvements by redesigning and
improving our homepage to become
top quartile among our peers on page
load speed. We have invested in better
navigation and product imagery and are
delivering a more mobile-first and feature
rich experience, with new tools such as
Style Finder visual search. Digital marketing
of our Holly’s Must-Haves range generated
1.7 million clicks through to our website,
with tools such as Instagram Shoppable,
helping drive sales. As a result of these
actions, we saw UK Clothing & Home online
growth of 9.8% and improved our online
clothing market share. UK Clothing & Home
sales online now stand at 22%, up from 19%
last year.
We have begun to tackle our unwieldy
supply chain operation, which hampers our
speed to market, creates in-store handling
costs and exacerbates our availability
problems through slow-moving stock that
sits trapped in the network. The opening
of our new national Clothing & Home
distribution centre at Welham Green and
the closure of four regional sites has taken
us a step closer to creating a more efficient
and cost-effective single-tier network,
where products are moved to stores via
one single touch point. Alongside this, the
improvements made at our national online
fulfilment centre at Castle Donington
resulted in increased peak capacity.
WHAT’S STILL TO DO
Over many years the M&S clothing range
has widened and extended – resulting
in a fragmented buy, reductions in buying
power and stores that are confusing
to navigate.
We have made a start in reducing option
count in some areas. Our plan is to
substantially increase the number of
‘£1m’ high-volume great-value lines for
which M&S should be famous.
FINANCIAL HIGHLIGHTS
REVENUE
£3.5bn -3.6%
CONTRIBUTION TO UK REVENUE
37.5%
-1.9%
11
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
However, repositioning the range
architecture in a business that has been
habituated to covering every option, and
where buyers are building their confidence,
is a difficult process. Our clunky systems
and tools deepen this challenge, for
example our size ratios have been weighted
towards larger sizes and fit, rather than the
mid to smaller sizes of our target customer
– aggravating availability problems.
To address this, we plan to deliver a more
marked reduction in options and range
duplication. We will embed new range
planning processes and size ratio tools,
so we are set up to back more winning lines
and target the family-aged customer.
This will be reinforced by the update of the
sub brand strategy, including the Per Una
range where we have seen positive initial
customer reaction since it relaunched.
With the move to more volume and value,
our intention is to switch to a “first price,
right price” approach to help drive a more
active trading mentality across Clothing &
Home. If we are successful, this will remove
our reliance on discounted sales and
reduce the volume of goods we sell in
clearance mode.
A deeper buying plan will also give us the
scale to forge more strategic relationships
with suppliers and improve the value we
can offer our customers. We will uphold
our quality and maintain a “good, better
and best” pricing hierarchy, so that
alongside great everyday prices, we can
highlight the stunning value of designer-
class products such as leather jackets
and cashmere coats.
The changes we are making will improve
the customer experience and make our
range easier to shop by decluttering stores
with fewer but better and more relevant
product lines. Alongside this, work is under
way to free up store colleagues from the
unnecessary administration created by
our out-of-date systems and allow them to
focus on what they do best: serving our
customers. As set out on page 12 of this
report, we are radically enhancing the
quality of our store space and a store
renewal trial will commence this year.
In addition, we will treat our top 70 stores
as flagships, which offer a destination
shopping experience.
We will continue to accelerate our drive
towards delivering one-third of our
Clothing & Home sales online and improve
our integration of digital and store sales.
Our delivery to customers still lags behind
the market, both to home and in-store
collections. Our intention is to extend
our order cut-off point from 10pm to
11pm during 2019/20 and further improve
our product presentation to reduce
returns rates.
And finally, underpinning our
transformation is the reformation of
our supply chain. “Fuse”, our supply chain
taskforce, has started to tackle our
distribution network weaknesses, but
modernisation of our technology and
processes is at a very early stage.
STRATEGIC KPIs
LIKE-FOR-LIKE SALES
Like-for-like revenue was down this year.
Encouraging progress in Q3 was offset
by weak availability in Q4.
VALUE FOR MONEY PERCEPTION1
The proportion of customers who rated
us highly on value for money. We are
focused on restoring our reputation
for style and value.
-1.6%
-1.9%
-1.6%
17/18
18/19
65%
CLOTHING & HOME SPACE
We have made good progress in reshaping
our Clothing & Home space, with a
reduction of 4%.
STYLE PERCEPTION1
The proportion of customers who rated us
highly on style. We saw an encouraging
customer response to some of our ranges
this year such as our Denim Best Ever Fit.
-4%
11.1m sq ft
17/18
10.7m sq ft
18/19
58%
1. Based on stores and online data from 2018 onwards
following a reset in internal measurements.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 12
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
CHANNELS
STORES
RESHAPING THE STORE ESTATE 2019-24
Estimated number of stores
610
75
595
20
(85)
(25)
Year End
Owned
Stores 18/19
Close, downsize
or relocate
New or
relocated
Close, downsize
or relocate
New or
relocated
Year End
Owned
Stores 23/24
FULL LINE
FOOD
Includes format changes such as full-line to Simply Food
WHAT WE SAID LAST YEAR
Last year we set out how a reluctance to close
underperforming stores and years of chronic
underinvestment in rotating and modernising
our estate had become a drag on like-for-like
performance and damaging to the M&S
brand. This combined with the rapid migration
of customers online left us with a store estate
that required urgent transformation.
To make M&S fit for the future, our store
estate needs reshaping to meet the
changing shopping behaviours of our
customers. We therefore committed
to the following actions:
> Accelerate the reshape of our store
estate programme to ensure that
we have the right stores in the right
locations for our customers.
> Reduce and redirect our opening
programme in Food to focus on the
highest-returning locations.
> Experiment with new “renewal” formats
in both Clothing & Home and Food.
WHAT’S HAPPENING
Our store reshape programme, which is a
combination of relocating, right sizing or
closing stores, has made good progress
through the year.
We have an estate of 1,043 stores in
the UK which is older than those of our
competitors with numerous legacy issues.
* Net promoter score (NPS) equals percentage of
‘promoters’ minus the percentage of ‘detractors’.
This represents our total NPS score following a reset
in internal measurements from which we will measure
our future progress against.
About three-quarters of our Clothing &
Home stores were opened over 25 years
ago and nearly 75 of these were before the
Second World War. During the year we
concentrated on addressing the legacy
issues while also developing a forward
pipeline of high-volume stores where
we can better serve our target customer.
Although we anticipate further net
reductions in overall retail space, and we
currently expect to close a further c.85
full-line stores and c.25 Simply Food stores
in addition to the 35 full-line stores closed
in FY18/19, we believe the current retail
environment will allow us to secure some
excellent sites for relocations.
The changing sales pattern and rising
costs of real estate continues to put
pressure on low-performing stores and
declining high streets and shopping
centres. Most of our Clothing & Home
stores saw declining sales in the last year.
The pressure of business rates remains
onerous, although we are beginning to
see some benefit from rent reductions
as we negotiate lease renewals.
We also began a programme to reduce
some of our existing store space. Our large
old town centre stores remain in prime
locations but have surplus space. During
the year we appointed a new Property
Development Director to review and
unlock value from our portfolio by
identifying opportunities to redevelop
sites, releasing value and creating new
modern, fit-for-purpose stores.
STRATEGIC KPIs
FOOTFALL (AVERAGE PER WEEK)
18.6m -4.5%
TRANSACTIONS
(AVERAGE PER WEEK)
11.4m +0.3%
NET PROMOTER SCORE*
68
WHAT’S STILL TO DO
Looking ahead our three commitments
from last year remain to be fulfilled.
We plan to maintain the pace of our store
estate reshape, opening bigger and better
stores. Alongside this we will also expand
the programme to include low volume,
high cost Simply Food stores alongside
larger store redevelopment planning,
with our owned store base likely to remain
broadly level.
We plan to continue maximising the value
of our existing space alongside this, and
can expect to announce a number of
redevelopments in the year ahead.
As we shift our strategic focus from
locations to formats, we know our in-store
experience still requires improvement.
Up to 50% of our store estate has not had
major cosmetic refurbishment in the last
10 years. Our smaller stores lack authority
and our larger ones are either too cluttered
or have too much space to deliver
inspiration. We have seen some progress
on this front, such as our St Helens store,
which last year was relocated to a larger
format better suited to our target customer
and has performed ahead of expectations.
For now our immediate priority is to
continue restoring the basics and ensuring
that we have stores in the right locations
for our customers.
13
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
WHAT WE SAID LAST YEAR
WHAT’S HAPPENING
M&S.COM
We have been clear that to make M&S
special again we need an M&S.com platform
that supports and inspires our customers,
however they choose to shop, and end-to-
end digital capabilities and skills across
the business to fulfil this ambition.
Historically, M&S has been a business
that has neglected our online offer to
customers and last year we outlined the
scale of the task that faced us.
Our digital platforms were well behind
the best in market, which was rapidly
moving away from us. Our speed and
search capacities were slower than the
best, and Castle Donington – our online
distribution centre – was unable to meet
peak demands. In addressing these
challenges, we set out the following areas
which required our urgent attention:
> Accelerating our journey towards
becoming a Digital First retailer.
> Targeting one-third Clothing & Home
sales online.
> Fixing our base platform capability.
> Improving the performance of
Castle Donington.
> Creating better links for customers
between stores and our website.
> Improving our M&S.com customer
experience through technology and AI.
We have seen improvements in M&S.com
with site speed enhanced to rank in the
top quartile among our peers on load
speed, a redesigned homepage and better
product imagery, and an improved
checkout and delivery proposition.
Alongside this we moved the website to
the cloud to reduce performance issues
and costs. This collectively contributed to
over nine percent in the conversion of
website traffic to customer purchases.
We also improved our mobile shopping
experience, which is one of our fastest-
growing areas of customer traffic, with an
increasing number of customers becoming
confident in choosing to shop on mobile
with us and an improved conversion rate
as a result.
In our supply chain, following investment
in reliability, efficiency and capacity,
Castle Donington had its best peak
performance since it opened.
This combined to deliver UK Clothing & Home
online growth of 9.8% improving our online
clothing market share by 0.3 percentage points.
WHAT’S STILL TO DO
While we are seeing upward trends in the
performance of our website as a result of
addressing the basics, we still have much
further to go to deliver a seamless and
inspirational shopping environment for
customers. We will improve our search
functions and customer personalisation
to get the customer to the product they
want faster and enhance our end-to-end
journey across the ranges.
We will also improve the customer experience
across Click and Collect adding more collection
points in stores, improve fulfilment times
and free up time for our colleagues in stores
to provide a better service. This requires
significant re-engineering across many areas
of the business but is critical to putting our
customers’ needs at the heart of what we do.
Our Sparks loyalty programme should be
an integrated part of the way we deliver
personalised marketing to customers and
a combination of Sparks, online, the M&S
credit card and Ocado would be one of the
best customer data ‘lakes’ in the UK. But
these customer data bases are currently
disconnected and ineffective. Sparks needs
substantial improvement and in the next
year it will be repositioned, revamped
and relaunched.
Underpinning all of this is the need to
create a data-driven, digitally savvy culture.
This means making M&S a much more
attractive, fast-moving and less stuffy
place for digital engineers and data
analysts to work.
Our long-term partnerships with Microsoft,
Decoded, Founders Factory and True Capital
will also help give M&S the opportunity to
access the best of digital innovation and
entrepreneurial ideas and to become a
data-driven digitally enabled workforce.
We have made improvements to M&S.com
to bring us back to level and made
improvements to better meet the needs
of our customers. But there remains a
long way to go if we are to become a truly
Digital First business and be able to adapt
to the continuously changing behaviours
of our customers in future.
STRATEGIC KPIs
PERCENTAGE OF UK CLOTHING
& HOME SALES ONLINE
22% +3.0%
TRAFFIC (VISITS PER WEEK)
8.8m +5.7%
NET PROMOTER SCORE*
54
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 14
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
INTERNATIONAL,
PROPERTY AND SERVICES
HIGHLIGHTS
INTERNATIONAL CUSTOMER
SATISFACTION SCORE
77% +6%
Overall satisfaction score provided by
customers from across the International
business, including both owned and
franchise stores.
RETAINED MARKET SALES
+1.1%
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.
IMPACT OF MARKET RIGHT PRICING
Percentage performance in 52 weeks since launch
24%
INDONESIA
Price
-11%
Volume
Sales
-2.3%
11%
CYPRUS
Price
Volume
-7%
16%
Sales
-2.3%
8%
INDIA*
Price
-3%
Volume
17%
Sales
-2.3%
13%
KUWAIT
Price
-17%
Volume
Sales
-2.3%
12%
* Lingerie
34%
M&S is structured as a business with
strong shared brand values. An update
on the development of our wider family
of businesses is outlined below.
INTERNATIONAL
Last year our International business made
headway in its transformation, closing loss-
making stores and changing the business
model to focus on partnering with a limited
number of strong local franchisees in large
markets where we can build a significant
market presence. With this, profits improved
and we established a platform for growth
ahead. We said, however, that we had much
to do to improve our competitiveness,
with our supply chain to local partners not
yet flexible enough and pricing too high in
local markets to enable our partners to
compete with major fashion retailers.
We committed in the year ahead to
continue to improve our supply chain
arrangements, modernise and open stores
in growth markets, further adapt our
ranges in both price and style better to
local markets, and provide effective online
support for our franchise partners through
“pay and play” local websites.
This year we saw revenue decline by
13.4%, driven primarily by store closures
in loss-making markets. Excluding this,
revenues grew by 1.1%.
We grew our presence in key strategic
markets, opening 37 new stores and
modernising a further 56. We launched
six transactional websites during the year,
increasing the number of international
countries where customers can buy our
products online to 35. We completed the
roll-out of ‘market right pricing’, across
markets in Clothing & Home with average
price reductions of 10% to improve our
relevance to local customers, resulting
in sales up 8% and volumes up 20%.
These results give us confidence that
we are moving in the right direction.
We strengthened the management of
our international supply chain to increase
fulfilment rates in both Clothing & Home
and Food. These improvements ensured a
better service for our partners and helped
deliver more impactful seasonal launches
in market.
In the year ahead we will continue to improve
how and when we get product to market,
improving our speed and reducing costs.
We will continue to substantially localise
our ranges for our target markets, as well
as continuing to build our online offering,
better adapting to how our international
customers want to shop.
As a result of the decisive early action taken
in implementing our transformation
strategy, the outlook remains positive for our
International business unit and demonstrates
the potential for the wider business.
PROPERTY
M&S owns a portfolio of £1.8bn of property
at alternative use value and it is important we
manage this to safeguard its value, as well
as support the retail business. Many of the
larger legacy properties have significantly
underutilised space, and scope for more
management. We have therefore appointed a
Property Development Director, accountable
for active management of our property
assets and maximisation of value.
SERVICES
Through M&S Bank (managed by HSBC)
we provide financial services to our
customers, including credit cards, savings
accounts, mortgages, and personal loans,
online and at our in-store branches and
bureaux. M&S Bank income before adjusting
items was down £12.7m to £27.6m. This was
predominantly the result of an increase in
bad debt provisioning due to the impact
of revised forward estimates of economic
indicators, including the impact of Brexit,
and a modest increase in underlying bad
debt due to the risk of customer default.
Underlying credit income was slightly up
as a result of more competitive pricing.
M&S Bank income after adjusting items
increased £1.1m to £6.7m.
M&S Energy
We launched our strategic partnership with
Octopus, an energy industry disruptor with
strong digital capabilities, in September 2018
following the end of our relationship with
SSE earlier in the year. We selected a new
partner, despite the challenges that this
presented, to align with a company that closely
mirrors our transformation ambitions.
We are at an early stage of this relationship
and in FY19 M&S Energy represented 0.1% of
the Group’s total operating profit. However,
the compelling combination of our brand
strength and the digital capabilities and
customer service focus of Octopus,
underpinned by a fully renewable energy
offer, gives us confidence that we can grow
M&S Energy into a digital, progressive and
commercially competitive part of the
family of businesses.
15
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
STRATEGIC REPORT
OUR PEOPLE
AND CULTURE
We believe it can be too easy for businesses
to treat culture in a formulaic way: talking
in generic terms about business purpose
and values that are hard to disagree with
but are meaningless to its employees.
At Marks & Spencer we know our culture
has great historic depth but it also has
flaws that we need to address if we are to
succeed in our transformation.
Culture is made up of how people feel
about a business, think and act at work,
and how that translates into how things get
done. Our culture is a function of process,
governance and strategy implemented
with good intent by recent boards and
we seek to measure these. But it is also
informed by 135 years of history and a
business that has filled people’s lives in a
powerful and emotional way. The M&S
culture today is traceable back to the
“glory years” under past leadership, and
our people yearn to see it reincarnated in a
modern, up-to-date way, whilst staying true
to those core beliefs and values. At its heart
the M&S of the past believed strongly in
people, product and value for money and
was a vibrant energetic place where the
leadership was close to the front line and
acted with pace and responsibility. People
at M&S believed instinctively in acting with
high integrity, in building close trusted
relationships with suppliers, and taking a
long term view of innovation and business
investment. That is why our leadership
today is very focused on bringing back the
best of the M&S spirit but creating a more
involving and engaging organisation.
Most importantly, and unusually at that
time, Marks & Spencer fostered a strong
culture, which placed great emphasis on
caring for its people. At the heart of this
was a deeply held commitment to treat
every colleague in the business with equal
respect: to listen to them, value them and
help them to develop. As Marcus Sieff
remarked as Chairman, a business is only
as good as its people, and the work led
by Flora Solomon in the early 1930s in
introducing chiropody, dentistry and doctors
for colleagues, as well as new training
schemes, was truly revolutionary and
created a highly motivated workforce
with specialist skills.
This focus on creating a supportive and
caring environment was not borne of a
patriarchal philanthropic view of society;
the Marks & Spencer leadership were highly
commercial, entrepreneurial traders. It came
from a singular focus on the customer
and a belief that only by supporting and
empowering each and every colleague
would you recruit the best people and
create a culture where the customer was
king. By association, this meant that the
voice of store colleagues – the front line to
the customer – drove the business and
Simon Marks famously paid more attention
to feedback from customer assistants than
anyone else. As he remarked, it is easier to
buy than sell. It also drove a clarity of
communication and plain speaking – the
eponymous phrase that “good goods will
sell arse upwards” is indicative of this – and
an unremitting focus on data with detailed
trading figures and store performance
reviewed in depth at the start of every
week. Putting the customer at the heart
of the business also kept buyers honest;
goods were to be of the highest quality but
sold at the most competitive price to give
the customer the best value, and this was
delivered through forming partnerships
with suppliers built on mutual trust, as well
as listening keenly to the store managers.
Altogether, this created an involving,
fact-driven culture, where everyone was
worthy of equal respect and had a voice,
stores were the centre of the business,
with an “operator knows best” philosophy
which empowered stores to lead on
execution, and all colleagues, regardless
of role, viewed their role as serving
customers. It created a business much
loved by its employees, customers and
suppliers, which we are fortunate to
continue to enjoy and our staff turnover
remains lower than the industry average.
Right Store colleagues are
shaping the changes in our
academy stores this year.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 16
MARKS AND SPENCER GROUP PLC
OUR PEOPLE AND CULTURE CONTINUED
Some of the founding tenets of the
business remain visible today at least in
intent. We remain committed to helping all
of our colleagues to develop, and continue
to offer some specialist skills such as bra
fitting. We try to recruit on attitude and
make efforts – through our Marks and
Start programme – to help people furthest
from the workplace into employment.
To give colleagues a voice and access to
the leadership, the business recently
created a powerful way to listen to
colleagues’ views and ideas through the
Business Involvement Group (BIG), which
is made up of over 3,000 colleagues from
across stores, operations and offices.
We offer a broad package of measures to
support health and wellbeing, including
breast screening for colleagues aged 40-49,
time off for events such as fostering, having
a grandchild and adoption, and we have
pledged to make a positive difference to
mental health at work.
However we are very clear that much of
the power of the original culture has been
lost. Once the direct line of leadership from
Simon Marks through Marcus Sieff down to
Rick Greenbury had gone, the drum beat of
energy and authentic personal leadership
was dissipated. The driving, plain-speaking,
sometimes authoritarian, style was
replaced with professional management,
which was in many cases from outside the
business. Top-down entrepreneurial pace
was replaced with committees’ controls
and well-intended bureaucracy. As M&S
started to struggle with a changing market,
it became defensive and developed its own
rationalisation of the reasons for failure,
and as a result became inward-looking and
resistant to change. An organisation used
to hard-driving top-down leadership
reacted by creating complex corporate
functions with no profit accountability and
matrix decision-making. This enabled a
culture of collaboration to act as a cloak
for indecision. Progressively, the voice of
the stores – our critical link to the customer
– was diluted and the centre became
detached from the operators on the front
line. The corporate functions exploited the
faith of employees and created their own
hierarchies with an almost deferential
attitude so the feedback loop was lost and
decision-making was slow and often based
on consensus or corporate politics not
data. This cultural failure has been the root
cause of the underperformance of the
business and transforming the business
and transforming the culture of Marks &
Spencer are indivisible tasks.
Over the last 20 years, successive talented
leadership teams overseen by accomplished
boards have grappled with the problems
facing the business but struggled to arrest
the decline. In many cases, their strategies
are not so different from those we are
pursuing today. However, what never changed
was the slow corporate culture, the lack
of accountability, hierarchy and sense of
corporate vanity. It was against the rocks
of these intractable problems that the
well-intended plans of our predecessors
floundered. Today, as a result, we have a
legacy store portfolio, weak systems and
infrastructure. But despite all this, we still
have great people in our stores, passionate
store management and on the front line
the spirit of the original M&S is still alive.
That is why transforming the culture of
Marks & Spencer is critical to phase one of
our transformation plan.
Our objective is to make M&S a special
place to work again by drawing on the
principles of the past to create a renewed
and reinvigorated workplace. Product,
value for money, innovation and choice will
be at the heart of our marketplace mission,
underpinned by high levels of service
and quality. That has always been our
customer promise when we are at our
best and it is what we need to get back to.
Organisationally, we aim to create a
fast-moving environment, where people
take responsibility and make things
happen in a commercially responsible way,
safeguarding shareholders’ money. In place
of the old-fashioned hierarchy, we will embrace
an attitude of equal respect, humility and
involvement. We are approaching this in a
holistic way as the change required is total.
To break down the old attitudes of corporate
vanity and defensiveness, we have, from
the inception of the transformation plan,
adopted a different tone of voice, “facing
the facts” and being willing to talk openly
about the business failings and the challenges
ahead. By expressing through the leadership
what colleagues on the shop floor feel,
we have helped release energy and invite
Below Flora Solomon (centre) championed the Staff Welfare
Service at Marks & Spencer including setting up a training
department and a subsidised medical service.
“At its heart the M&S
of the past believed
strongly in people,
product and value
for money and was
a vibrant energetic
place where the
leadership was close
to the front line and
acted with pace and
responsibility.”
17
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
a new willingness to challenge. That spirit
is, we hope, also reflected in this Annual
Report and we believe humility and the
ability to be open about our mistakes is
critical to corporate learning.
To shift the driving force away from the
corporate functions we have fractured
the old structure: we have created a new
operating model recognising that we
manage not one business but several ones
operating in different markets with different
operating requirements. They are joined
by common systems, brand philosophy
and infrastructure. But they need their own
management teams and ability to deliver
without referring to the corporate bureaucracy.
We have therefore given functional
accountability to the Food business and
separately to the Clothing & Home
business. Bank and International also report
in separately. We have brought in leaders for
each who are energetic, highly capable and
bring new perspectives. Our senior leaders
are clear that transforming our culture will
only happen by “walking the talk”.
To embody the principles of equal respect
and ensure that everyone has a voice, we
have taken a number of important steps.
BIG representatives have joined Board
meetings to share the views of colleagues
and every colleague can make a suggestion
on how to improve the business to the
CEO and expect a response to be given
and action to be taken. We will make far-
reaching improvements to our colleague
engagement survey, making an integral
part of line management looking not only
at how engaged colleagues are but how
empowered and enabled they feel. To put
the store voice back at the heart of the
business, we have initiated weekly trading
calls chaired by Steve Rowe between
buyers and sellers. A focus on data as a
driver of decisions rather than position in
the hierarchy and gut feel has also begun
with the appointment of a Chief Digital
and Data Director, partnerships with digital
data-driven start-ups and the introduction
of NPS as a customer measure across
the business.
To bring back the idea that the store
manager is a critical position in the business
and “the operator knows best”, we are
embracing the principle of academy
stores and systematic piloting of change.
For instance, the “Fuse” supply chain
programme has been rolled out through
the academy stores and the store labour
scheduling programme was suspended
last year while we invited the leading
implementation stores to feed back on
the programme, as a result of which it was
substantially improved. In the year ahead,
we are investing significant capital to give
store managers the tools and data they
need to run their businesses with the
roll-out of tablets and store-level profit
and loss accounts. As a result, they will
have the information to be businessmen
or women in their own right and we are
freeing up their time from sitting in the
office to walking the shop floor.
Our ambition is to make M&S the most
engaging, involving place to work in UK
retail, with a fast-moving, empowered
organisation and flat organisational
structure. Because by good fortune
we have great colleagues in our stores
and a brand people profoundly believe
in, we truly believe our people can be a
source of competitive advantage again.
We recognise that we are in the foothills
of this project today and there are many
colleagues who have yet to climb on board
with the change. Transforming a deeply
entrenched culture, reinforced by years
of retreat in the marketplace, will take the
life of the transformation programme
at least. But the foundations of change
have been laid and we have a substantially
new leadership team who have joined the
business because they believe that we can
turn it around and who are determined to
live the change.
COLLEAGUE REPRESENTATION MEASUREMENTS
TOTAL EMPLOYEES*
Female 55,961
Male 22,636
9 %
2
71%
78,597
TOTAL SENIOR MANAGERS*
Female 58
Male 79
8 %
5
42%
137
TOTAL BOARD*
Female 3
Male 6
7 %
6
33%
9
SENIOR MANAGERS FROM
ETHNIC MINORITIES**
GENDER PAY GAP (MEAN)
5% Level
We remain firmly committed to our target of
having 50% women and 15% BAME colleague
representation in our senior management
team by 2022, and we continued to expand
and support our range of colleague diversity
networks across the business this year.
12.5% +0.2%
Our Gender Pay Gap, the percentage difference between average hourly earnings
for men versus women, increased this year but remained lower than the UK average.
These measures tell us that like many businesses we have further to go to be
more inclusive and diverse. We’re proud that three quarters of our Customer
Assistants are women but we need to do more to encourage diversity in senior roles.
EMPOWERMENT
ENGAGEMENT
ENABLEMENT
83% -1%
Of our colleagues feel that they are
trusted and have the freedom to
perform their role effectively.
81% -1%
Of our colleagues feel proud to
work at M&S and enjoy what they do.
76% -2%
Of our colleagues feel that they have
the right processes, support and tools
to do their job well.
* Employee diversity as at 30 March 2019.
** Updated from Board level diversity to Senior Managers in 2019 to better reflect internal measurements.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 18
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
PLAN A REVIEW
Plan A is a multi-year sustainability
transformation plan that has been updated
several times (2010, 2014 and 2017) to
reflect the evolution of our business and
the risks and opportunities that social and
environmental issues pose for us.
As we go through our business
transformation we are currently updating
Plan A to reflect our new structures and
commercial priorities. This process is not
yet complete but as in previous years
we are publishing datasets on our most
material issues in our 2019 Plan A
Performance update.
These datasets show a mixed performance
this year, reflecting a period of considerable
change across the business. We also offer
an audit trail where we highlight existing
commitments that we know already
we will not be pursuing in the future.
Leadership on social and environmental
issues remains central to our promise
to our customers and colleagues.
Once our current comprehensive review
of Plan A is completed we will publish our
new approach.
Our actions are aligned in support of the
United Nations Sustainable Development
Goals (symbols shown). Further details
about Plan A, our policies, performance
and activities can be found online at:
marksandspencer.com/plana
M&S 2019 Plan A Performance update
OUR HIGHLIGHTS
PLACES
To help transform
1,000 communities.
BEING PART OF THE COMMUNITY
This year we completed the first phase of
our programme to help positively transform
1,000 communities by 2025. We supported
over 230 activities which benefited an
estimated 2,800 people.
PEOPLE
To help 10 million
people live happier,
healthier lives.
PLANT KITCHEN RANGE
As part of our mission to provide sustainable
diets, we launched our extensive Plant Kitchen
range in January 2019, with prepared meals,
snacks and drinks suitable for customers who
want to adopt a vegan diet or just eat less
meat and dairy.
PLANET
To become
a zero-waste
business.
PRINCIPLES ON PLASTIC
To take a lead in responding to the global
concerns over pollution from plastic we’ve
developed a set of five Plastic Principles
(Re-use, Re-design, Re-duce, Re-turn and
Re-cycle). We’re working on projects to eliminate
1,000 tonnes of plastic packaging usage and
our plastic-free fruits and vegetables trial has
just been extended to a further two stores.
OUR HIGHLIGHTS
PLACES
PEOPLE
PLANET
19
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
RAISING MONEY FOR CAUSES THAT
MATTER TO OUR CUSTOMERS
During the year, we worked with our customers
and employees to help raise a total of £11.5m
for causes close to their hearts. This included
£1.6m for Macmillan Cancer Support and £1m
for Breast Cancer Now.
SUPPLY CHAIN CONFIDENCE
Last year it was beef, this year we’ve
added information on our sourcing of
seafood, wool, and tea and coffee to
an interactive digital map.
RAISED WITH OUR CUSTOMERS
AND EMPLOYEES
£11.5m -5%
TACKLING FOOD WASTE
During the last year, we’ve reduced our UK
retail food waste by 24%. We also used surplus
food to distribute 2.8 million meals to a range
of charities.
REDUCTION IN UK RETAIL FOOD WASTE
24%
interactivemap.marksandspencer.com
PROMOTING DIVERSITY
AND INCLUSION
We supported Purple Tuesday accessible
shopping day on 13 November 2018
and provide accessibility information for
UK stores through our partnership with
AccessAble. For colleagues we hold an
annual diversity festival, celebrated
Pride events throughout the year and
recognised International Women’s Day,
Black History Month and the International
Day of Disability.
Our employee-led diversity networks
help us find ways to be more inclusive
and collectively involve over
3,000 colleagues.
accessable.co.uk/organisations/
marks-and-spencer
EASY TO RECYCLE PACKAGING
In the next 12 months we’re aiming to have
collection points for difficult to recycle
plastic packaging in a selection of stores
across the UK. The plastic collected will be
recycled into more recycling bins, furniture
and playground equipment.
SUSTAINABLE
COTTON CLOTHING
As part of our wider approach to ethical
clothing, we’re now committed to
sourcing all the cotton used to make
M&S clothing from sustainable sources
such as the Better Cotton Initiative.
COMMITMENT TO SUSTAINABLE
COTTON FOR M&S CLOTHING
100%
bettercotton.org
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 20
MARKS AND SPENCER GROUP PLC
PLAN A REVIEW CONTINUED
PLAN A MEASUREMENTS
PLACES
TRANSFORMING COMMUNITIES
VOLUNTEERING HOURS
WORK PLACEMENTS
New
10
The number of communities engaged
as part of our Helping to Transform
Communities initiative. In 2019/20,
we’ll be starting to extend the
programme to the next 100 locations.
47,218 +54%
We provided 47,218 hours of
work-time volunteering across
the UK and Republic of Ireland.
2,554 -12%
2019 marks 15 years since we launched
our Marks & Start programme. This year,
we offered 2,554 work placements to
people from disadvantaged groups in the
community, so that they could gain key
skills leading to employment. 63% went
on to find employment.
PEOPLE
EMPOWERMENT
ENGAGEMENT
ENABLEMENT
83% -1%
Of our colleagues feel that they are
trusted and have the freedom to
perform their role effectively.
81% -1%
76% -2%
Of our colleagues feel proud to work
at M&S and enjoy what they do.
Of our colleague feel that they have
the right processes, support and tools
to do their job well.
PLANET
PACKAGING RECYCLED
WASTE SENT TO LANDFILL
70% New
70% of all M&S product packaging that
ends up with our customers is classified
as being widely recycled in the UK. We’re
aiming to make it all widely recycled or
recycled in store as soon as possible.
Zero Level
This year, the total amount of waste
generated by our stores, offices and
warehouses in the UK and ROI was
down by 7% on last year. For the
seventh consecutive year, the amount
sent to landfill was zero.
M&S GREENHOUSE
GAS EMISSIONS (CO2e)
360,000 -16%
The gross carbon dioxide emissions
from M&S stores, offices, warehouses
and vehicles worldwide was down 16%
on last year and 75% on 2006/07.
21
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
STRATEGIC REPORT
NON-FINANCIAL
INFORMATION STATEMENT
PEOPLE
HUMAN RIGHTS
ANTI-CORRUPTION AND ANTI-BRIBERY
We are committed to driving a sustainable
business that is both commercially
successful and socially and environmentally
responsible. This includes providing our
employees in the UK and overseas with a
safe and healthy working environment
and having an organisational culture which
promotes diversity, inclusivity, personal
development and respect. We know it’s our
people who make M&S successful. We want
people to enjoy coming to work and for the
workplace to be free from discrimination,
harassment and victimisation. In order to
achieve this we adhere to set policies and
principles which ensure outcomes of
responsible operations and supportive
environments for our colleagues.
Read more about our responsibilities towards
our people at marksandspencer.com/plana
– People principles
– Code of Ethics and Behaviours
– Responsible Marketing Principles
– Equal Opportunities Policy
–
–
Inclusion strategy
Inclusion networks
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 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, the outcomes of which
also enable us to comply with legislation
and meet the expectations of shareholders.
Read more on our commitment to human rights
at marksandspencer.com/plana
– Human Rights Policy
– M&S Global Sourcing Principles
– Code of Practice on Ethical Trading
– Child Labour Procedure
–
M&S grievance procedure for Food
and Clothing & Home supply chains
– Modern Slavery Statement
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 that may pose a higher risk,
we provide mandatory Anti-Bribery and
Anti-Corruption e-learning. The Company
will consider taking disciplinary action
against anyone who fails to comply with its
anti-bribery policy up to and including
dismissal. The outcomes of this are that any
potential incidents reported internally or
to the confidential whistleblowing hotline
are followed up and full investigations
launched where such action is deemed
appropriate following preliminary enquiries.
All investigations are subsequently reported
to the Audit Committee.
Read more on our commitment to anti-
corruption and anti-bribery at
marksandspencer.com/plana
– Anti-Corruption and
Anti-Bribery Policy
– Code of Ethics and Behaviours
– Whistleblowing Policy
M&S GREENHOUSE GAS EMISSIONS 2018/19
This table shows the Group’s greenhouse gas emissions against a 2006/07 baseline.
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
2018/19
000 tonnes
2017/18
000 tonnes
2006/07
000 tonnes
% change
on 2006/07
167
193
360
19
202
158
158
0
182
248
430
23
273
157
157
0
246
394
640
40
0
640
0
640
-32
-51
-44
-42
–
-75
–
–
Emissions are from operationally controlled activities in accordance with the WRI/WBCSD GHG Reporting Protocols
(Revised edition) and 2015 Scope 2 Guidance using 2018 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. Full disclosure in accordance with Task Force on
Climate Disclosure guidance can be found at cdp.net.
REDUCTION IN EMISSIONS
(AGAINST 2006/07)
75%
NET EMISSIONS
AFTER OFFSETTING
Zero
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 22
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT
KEY PERFORMANCE
INDICATORS
FINANCIAL
GROUP REVENUE
£10.4bn
-3.0%
15/16
16/17
17/18
18/19
10.4
10.6
10.7
10.4
GROUP PROFIT BEFORE TAX (PBT)
& ADJUSTING ITEMS
APM
£523.2m -9.9%
15/16
16/17
17/18
18/19
684.1
613.8
580.9
523.2
Group Revenue decreased, adversely impacted by store closures in
Clothing & Home, Easter timing and our investments in trusted value in
Food. International revenue also declined largely due to the closure of
stores in exit markets and the sale of the Group’s business in Hong Kong.
Profit before tax and adjusting items was down year-on-year
principally due to the reduction in UK gross profit, partially
offset by the decrease in operating costs in the year.
RETURN ON CAPITAL EMPLOYED (ROCE)
APM
ADJUSTED EARNINGS PER SHARE (EPS)
APM
14.1%
15/16
16/17
17/18
18/19
15.0
13.7
14.0
14.1
25.4p -8.6%
14/15
15/16
16/17
17/18
34.8
30.4
27.8
25.4
The increase in ROCE largely reflects the reduction in the
carrying value of property, plant and equipment outweighing
the decrease in EBIT.
Adjusted basic earnings per share decreased due to lower adjusted
profit year-on-year. The weighted average number of shares in
issue during the period was 1,624.1m (last year 1,624.0m).
DIVIDEND PER SHARE1
13.9p -25.7%
15/16
16/17
17/18
18/19
18.7
18.7
18.7
13.9
FREE CASH FLOW (PRE SHAREHOLDER RETURNS)
APM
£584.1m
+39.9%
15/16
16/17
17/18
Lorem ipsum
18/19
417.5
539.3
585.4
584.1
Announced final dividend of 7.1p per share, resulting in a
total dividend of 13.9p.
The business generated an increase in free cash flow year-on-year
primarily as a result of working capital inflow, lower capital
expenditure and lower interest and taxation payments.
APM Alternative performance measures as outlined on page 1.
1.
Dividend reset in February 2019. See page 26.
23
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
STRATEGIC REPORT
FINANCIAL
REVIEW
FULL YEAR REVIEW
UK OPERATING COSTS
52 weeks ended
30 Mar 19
£m
31 Mar 18
£m
Change
%
-3.0
-0.6
-3.6
-1.8
Store staffing
Other store costs
Distribution & warehousing
Marketing
-13.9
Central costs
Total
52 weeks ended
30 Mar 19
£m
1,044.7
31 Mar 18
£m
1,070.6
950.4
564.6
155.1
694.8
992.1
538.0
151.6
698.0
3,409.6
3,450.3
Change
%
-2.4
-4.2
4.9
2.3
-0.5
-1.2
UK operating costs decreased 1.2%. Store closures more than offset
the cost of new space and channel shift. Cost savings across the
business outweighed inflation related increases.
Store staffing costs reduced, as savings from store management
restructuring, closures and other efficiencies more than offset pay
inflation. Other store costs reduced driven by lower depreciation,
due to our closure programme and as a number of assets have
reached the end of their useful life, which more than offset rent
and rates inflation in the year.
The growth in distribution and warehousing costs was largely
driven by inflation and the costs of channel shift, as well as costs
associated with the closure of an equipment warehouse, with some
offset achieved from improved efficiencies at Castle Donington.
The increase in marketing costs reflected investments in our
Food brand and the planned increase in costs in the second
half of the year due to the timing of campaigns.
Central costs reduced as lower incentive costs year-on-year,
the benefits of technology transformation programmes and other
cost efficiencies more than offset system investment write offs
and expenditure on the Fuse programme.
M&S BANK
M&S Bank income before adjusting items was down £12.7m to
£27.6m. This was predominantly the result of an increase in bad
debt provisioning due to the impact of revised forward estimates
of economic indicators, including the impact of Brexit, and a
modest increase in underlying bad debt due to the risk of customer
default. Underlying credit income was slightly up, as a result
of more competitive pricing. M&S Bank income after adjusting
items increased £1.1m to £6.7m.
Group revenue
Food1
Clothing & Home1
UK
International
Group operating profit
before adjusting items
UK
International
Net finance costs
Profit before tax &
adjusting items
Adjusting items
Profit before tax
10,377.3
5,903.4
3,537.3
9,440.7
936.6
10,698.2
5,940.0
3,671.0
9,611.0
1,087.2
601.0
474.0
127.0
(77.8)
523.2
(438.6)
84.6
670.6
535.4
135.2
(89.7)
580.9
(514.1)
66.8
-10.4
-11.5
-6.1
13.3
-9.9
14.7
26.6
1. Prior year revenue has been restated for the reclassification of cards & gift wrap
from Clothing & Home to Food. For further detail please see Note 2 to the
financial statements.
UK: FOOD
Food revenue decreased 0.6%, with like-for-like revenue down
2.3%, or 1.5% when adjusted for the timing of Easter. Revenue
reflected the effects of price investment and a change in product
mix as we reduced promotions. However, during the second half,
we saw an improving trend with volumes up 1.8% in the fourth
quarter, adjusted for Easter. We opened 48 new stores during
the year in line with our plan to focus new store expansion on
only the highest returning locations, although the contribution
from space diminished through the year as our full-line closure
programme progressed.
Gross margin was down 15bps year-on-year at 31.1%. The benefit
of promotional savings and our cost reduction programmes
largely offset the effects of cost inflation and price investment.
UK: CLOTHING & HOME
UK Clothing & Home revenue declined 3.6%, partly driven
by our store closure programme, with LFL sales down 1.6%.
Discounted sales decreased, as a result of the planned reduction
in stock-into-sale. UK Clothing & Home online revenue grew 9.8%,
which was ahead of the clothing market, with strong growth in
womenswear, as we made improvements to our website and
delivery proposition and focused on key categories such as
dresses in our ‘Must Haves’ campaign.
Gross margin increased 20bps to 57.1%. Buying margin was down
20bps as adverse currency headwinds more than offset sourcing
gains across the year. Discounting reduced by 40bps, largely as a
result of the 14% reduction in stock into sale.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 24
MARKS AND SPENCER GROUP PLC
FINANCIAL REVIEW CONTINUED
INTERNATIONAL
Revenue
Franchise
Owned Retained1
Total Retained
Owned Exit1
Total
Operating profit
before adjusting
items
Franchise
Owned Retained1
Total Retained
Owned Exit1
52 weeks ended
30 Mar 19
£m
31 Mar 18
£m
Change
%
Change
CC %
Change
CC % excl.
Hong Kong
409.1
527.5
360.6
660.2
13.4%
13.3%
-20.1% -19.3%
936.6 1,020.8
66.4
–
-8.2%
-7.7%
–
–
2.2%
0.3%
1.1%
–
936.6 1,087.2
-13.9% -13.4%
-6.1%
72.2
52.7
124.9
2.1
86.1
53.1
-16.1%
-0.8%
139.2
-10.3%
(4.0) 152.5%
Total
127.0
135.2
-6.1%
1. Hong Kong results reported in owned retained until the business was sold to our
franchise partner in December 2017.
Total International revenue decreased 13.4% at constant currency
(‘CC’). Excluding the impact from exit markets and Hong Kong,
revenue at constant currency increased 1.1%. This was driven by
our franchise operations where Food revenue increased by 8%,
with notable growth in France, the Middle East and Singapore.
In Clothing & Home we implemented market right pricing across
most markets and saw an improving trend in retail sales in Q4.
Owned retained revenue reflects solid growth in India and
Greece, which largely offsets ongoing difficult trading conditions
in the Republic of Ireland.
International operating profit before adjusting items decreased
6.1% with total retained operating profit down 10.3%. This was
largely driven by the sale of our business in Hong Kong and the
implementation of market right pricing. The decline in franchise
operating profit reflects the allocation of £8m of costs from owned
to franchise following the closure of owned markets and the sale
of our business in Hong Kong, in addition to the implementation
of market right pricing. Owned retained profit increased, excluding
the effects of the disposal of Hong Kong. The £2.1m profit in
owned exit markets largely reflects the recovery of an historical
VAT receivable.
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
Ineffectiveness on financial
instruments
Net finance cost
52 weeks ended
30 Mar 19
£m
31 Mar 18
£m
Change
£m
(82.0)
7.6
(74.4)
25.8
(95.4)
6.0
(89.4)
17.7
13.4
1.6
15.0
8.1
(8.8)
(10.9)
2.1
(17.3)
(5.2)
(12.1)
(3.1)
(77.8)
(1.9)
(89.7)
(1.2)
11.9
Net finance cost decreased by £11.9m to £77.8m, primarily due to a
decrease in interest payable as a result of the repayment of the
US$500m bond which matured in December 2017. Pension net
finance income increased by £8.1m driven by a higher UK defined
benefit pension scheme surplus at the start of the year compared
to the start of the prior year. The unwind of discount on provisions
reflects our UK store estate programme and our central London
office reorganisation.
PROFIT BEFORE TAX AND ADJUSTING ITEMS
Profit before tax and adjusting items was £523.2m, down 9.9%
on last year. The decrease was principally due to a 2.3% reduction in
UK gross profit, partially offset by the decrease in operating costs
in the year.
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. Further material charges relating
to our strategic programmes are anticipated as programmes
progress. For further detail on these charges and the Group’s
policy for adjusting items please see Notes 1 and 5 to the
financial statements.
Strategic programmes
– UK store estate
– Organisation
– Operational transformation
– IT restructure
– UK logistics
– Changes to pay and pensions
– International store closures
and impairments
UK store impairments and other
property charges
M&S Bank charges incurred in
relation to the insurance
mis-selling provision
GMP and other pension
equalisation
Establishing the Ocado JV
Other
Adjusting items
52 weeks ended
30 Mar 19
£m
31 Mar 18
£m
Change
£m
(222.1)
(51.8)
(16.4)
(15.6)
(14.3)
(6.2)
(321.1)
(30.7)
–
(15.5)
(13.1)
(12.9)
99.0
(21.1)
(16.4)
(0.1)
(1.2)
6.7
(5.3)
(5.0)
(0.3)
(62.1)
(63.4)
1.3
(20.9)
(34.7)
13.8
(20.5)
(3.4)
–
–
–
(17.7)
(438.6)
(514.1)
(20.5)
(3.4)
17.7
75.5
We have recognised a number of charges in the period relating to
the implementation of our strategic programmes including:
> A charge of £222.1m in relation to our accelerated and expanded
store closure programme, which has been expanded to include
a number of Food stores. This charge includes accelerated
depreciation, impairment of assets, estimated onerous leases
and other closure costs. Further material charges relating to the
closure and re-configuration of the UK store estate are
anticipated as the programme progresses, the quantum of which
is subject to change through-out the programme period as
decisions are taken in relation to the size of the store estate and
the specific stores affected. Based on current plans, further
charges before the adoption of IFRS 16 are expected to be
incurred predominantly in the next two years and are anticipated
to be c.£100m, bringing total programme costs to c.£680m;
> A charge of £51.8m largely in relation to costs associated with
centralising and rationalising our London office functions as
well as redundancy costs related to the review of the retail
organisational structure;
> A charge of £16.4m in relation to the transformation and
simplification of our supply chain and operations across
Clothing & Home and Food. This includes initiatives to
reengineer the end to end supply chain, remove costs and
complexity and working capital;
> A charge of £15.6m in relation to our technology transformation
programme which we began in the prior year; and
25
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
> A net charge of £14.3m as we continue to transition to a single
tier Clothing & Home UK distribution network, including the
closure of two of our distribution centres.
In 2016/17 we announced our intention to close owned stores
in ten international markets. A net charge of £5.3m has been
recognised in the period reflecting the actualisation of previously
estimated closure costs.
In response to the ongoing pressures impacting the retail industry,
as well as reflecting our strategic focus towards growing online
market share, we have revised future projections for certain UK
stores. As a result, UK store impairment testing has identified stores
where the current and anticipated future performance does not
support the carrying value of the stores. A charge of £52.8m has
been incurred primarily in respect of the impairment of assets
associated with these stores. The charge has been classified as
an adjusting item on the basis of the significant value of the charge
in the year to the results of the Group. Additional detail is in note 15
and 22 to the financial statements.
We continue to incur charges in relation to M&S Bank insurance
mis-selling provision resulting in a charge of £20.9m during the
year. The deadline for any claims to be brought by customers
expires on 29 August 2019. The estimated liability continues to be
reviewed in 2019/20 to ensure it reflects the best estimate of likely
settlement, which could lead to further charges or releases.
We have recognised a non-cash charge of £20.5m in respect of the
Group’s defined benefit pension liability arising from equalisation
of guaranteed minimum pensions (“GMP”) and other pension
equalisation costs following a High Court ruling in October 2018.
Additional detail on the Group’s GMP assessment is detailed in
Note 11 to the financial statements.
In February 2019 we announced the creation of a new 50/50
Joint Venture with Ocado, the UK’s leading pure play digital
grocer. Transaction costs of £3.4m were incurred in the year.
TAXATION
The effective tax rate on profit before tax and adjusting items was
20.3% (last year 21.6%). This is higher than the UK statutory rate
predominantly due to the recapture of previous tax relief under the
Marks and Spencer Scottish Limited Partnership (“SLP”) structure,
partially offset by the recognition of deferred tax assets in our India
entity, following its return to profitability. The effective tax rate on
statutory profit before tax was 55.9% (last year 56.4%) due to the
impact of disallowable adjusting items.
EARNINGS PER SHARE
Basic earnings per share increased 31.3% to 2.1p, primarily due
to the impact from the lower adjusting items year on year. The
weighted average number of shares in issue during the period
was 1,624.1m (last year 1,624.0m).
Adjusted basic earnings per share decreased by 8.6% to 25.4p due
to lower adjusted profit year-on-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
Net capital expenditure
52 weeks ended
30 Mar 19
£m
31 Mar 18
£m
Change
£m
26.0
40.1
11.0
48.7
88.2
69.0
26.6
72.1
11.6
23.8
91.9
72.9
283.0
(48.1)
234.9
298.9
(3.2)
295.7
(0.6)
(32.0)
(0.6)
24.9
(3.7)
(3.9)
(15.9)
(44.9)
(60.8)
Group capital expenditure remains tightly controlled resulting
in a 5.3% reduction year-on-year, before disposal proceeds.
UK store environment spend was slightly down reflecting
investment in store layout in the prior year, partially offset by
investment in improved visual merchandising and click and collect
facilities in a number of stores. Spend on UK store space was lower
as we opened 15 fewer owned Food and full-line stores than the
prior year. International expenditure remains focused on the store
opening and modernisation programme.
Supply chain expenditure increased due to our investment in the
Welham Green distribution centre as we moved towards a single
tier network for Clothing & Home, and in improvements to our
capabilities in Castle Donington. Spend in IT and M&S.com was
driven by the migration from our mainframe system, investment
in the Welham Green distribution centre and website
enhancements to optimise user experience. Spend was slightly
lower than last year due to the on-going move towards
more cloud-based solutions and following the Technology
transformation programme. Property maintenance spend largely
relates to investment in our stores as well as investment in energy
efficiency projects and reconfiguring our central London office
building to rationalise the use of office space.
Proceeds from property disposals relate to the closure of six stores
and the sale and leaseback of eight Food stores.
STATEMENT OF FINANCIAL POSITION
Net assets were £2,680.9m at the year end, a decrease of 9.3% on
last year.
CASHFLOW & NET DEBT
Adjusted operating profit
Depreciation and amortisation
before adjusting items
Working capital
Defined benefit scheme
pension funding
Capex and disposals
Interest and taxation
Investment in Joint Venture
Non-cash share based
payment charges
Share transactions
Free cash flow before
adjusting items
Adjusting items cash outflow
Free cash flow
Ordinary dividends paid
Free cash flow after
shareholder returns
Opening net debt
Exchange and other
non-cash movements
Closing net debt
52 weeks ended
30 Mar 19
£m
31 Mar 18
£m
601.0
670.6
544.9
59.1
(37.9)
(264.8)
(184.7)
(2.5)
19.2
(4.9)
729.4
(145.3)
584.1
(303.5)
580.6
(96.8)
(41.4)
(346.0)
(200.5)
–
18.9
(3.0)
582.4
(164.9)
417.5
(303.4)
280.6
114.1
(1,827.5)
(1,934.7)
Change
£m
(69.6)
(35.7)
155.9
3.5
81.2
15.8
(2.5)
0.3
(1.9)
147.0
19.6
166.6
(0.1)
166.5
107.2
1.8
(6.9)
8.7
(1,545.1)
(1,827.5)
282.4
The business generated free cash flow before adjusting items of
£729.4m, up £147.0m on last year primarily as a result of working
capital inflow, lower capital expenditure and lower interest and
taxation payments. The working capital inflow was driven by the
planned reductions in Clothing & Home inventory levels and the
timing of creditors at year end.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 26
MARKS AND SPENCER GROUP PLC
FINANCIAL REVIEW CONTINUED
Lower interest and taxation payments reflect both the repayment
of a bond in December 2017 and lower taxable profit in the
prior year.
Defined benefit scheme pension funding in the year of £37.9m
largely reflects the second limited partnership interest distribution
to the pension scheme in the year.
Adjusting items in cash flow during the year were £145.3m.
These included £27.3m in relation to our store closure programme,
£24.9m in relation to organisational change, £20.9m for M&S Bank,
£12.7m relating to the closure of stores in International markets and
£11.1m in relation to our technology transformation programme.
Total adjusting items in cash flow are anticipated to be a similar
amount in 2019/20, prior to the implementation of IFRS 16.
After the payment of our final dividend from FY 17/18 and interim
dividend from H1 18/19, net debt was down £282.4m on last year.
DIVIDEND
On February 27th we announced the Board’s decision to reset our
dividend per share by 40% to a sustainable level, which we aim to
grow in line with earnings over time. We are declaring a final
dividend of 7.1p (full year dividend 13.9p). This will be paid on 12 July
2019 to shareholders on the register of members as at close of
business on 31 May 2019, subject to approval of shareholders
at the Annual General Meeting, to be held on 09 July 2019. The
2018/19 final dividend per share and prior dividends per share will
be restated in future accounts to reflect the bonus factor
adjustment resulting from the Rights Issue in due course. The
bonus factor adjustment arises due to the Rights Issue involving an
element of bonus shares because the Rights Issue price is below
the Closing Price of 271.2 pence per share.
PENSION
As indicated at our Interim Results, M&S plc (the Company) reached
an agreement with the Trustee of its UK Defined Benefit Pension
Scheme with regards to the triennial actuarial valuation as at
31 March 2018. This resulted in a statutory surplus of £652m and is
an improvement on the previous position at 31 March 2015
(statutory surplus of £204m), primarily due to lower assumed life
expectancy. The Company and Trustee have confirmed, in line with
the current funding arrangement, that no further contributions
will be required to fund past service as a result of this valuation
(other than those already contractually committed under the
existing Marks and Spencer Scottish Limited Partnership
arrangements and which are included in the calculation of the
statutory surplus – see Note 12).
At 30 March 2019, the IAS 19 net retirement benefit surplus was
£914.3m (last full year £948.2m). The IAS 19 surplus includes the
first partnership interest in the scheme assets, valued at £278.5m
(Note 12). The decrease in the surplus is largely due to a decrease
in the discount rate partially offset by a change in mortality
assumptions and by the return on scheme assets.
In April 2019, following the year-end, the UK Defined Benefit
pension scheme purchased additional pensioner buy-in policies
with two insurers for approximately £1.4bn. Together with the two
policies purchased in March 2018, the Defined Benefit pension
scheme has now, in total, hedged its longevity exposure for around
two thirds of the pensioner cash flow liabilities for pensions in
payment. The buy-in policies cover specific pensioner liabilities
and pass all risks to an insurer in exchange for a fixed premium
payment, thus reducing the Company’s exposure to changes in
longevity, interest rates, inflation and other factors.
IFRS 16
IFRS 16 ’Leases’ is effective for periods beginning on or after
1 January 2019. The Group will adopt the new financial reporting
standard from 31 March 2019. The financial statements for the
52 weeks ending 28 March 2020 will be the first prepared
under IFRS 16. The Group has decided to adopt using the fully
retrospective transition approach meaning the comparative
period will also be restated at this time.
There will be a significant impact on the balance sheet as at
31 March 2019. It is expected on a pre-tax basis that a right of use
asset of approximately £1.7bn and lease liability of approximately
£2.6bn will be recognised, along with the derecognition of onerous
lease provisions of approximately £0.2bn and other working capital
balances (including lease incentives) of approximately £0.4bn,
which results in an overall adjustment to retained earnings of
approximately £0.3bn.
Operating profit and EBIT before adjusting items increase due to
the depreciation expense being lower than the lease expense it
replaces. The overall impact on profit before tax and adjusting
items depends on the maturity of the lease.
Rounded to the nearest £10m, it is estimated that for the 52 weeks
ended 30 March 2019:
> Profit before tax when applying IFRS 16 is c.£10m higher than
that reported in these financial statements under current
accounting standards, including IAS 17 Leases;
> Profit before tax excluding adjusting items is c.£10m lower; and,
> Operating profit before tax and adjusting items is c.£130m higher.
The application of IFRS 16 requires a reclassification of cash flow
from operations to net cash used in financing activities, however,
the impact to the Group is cash flow neutral.
For further detail on IFRS 16 please see Note 1 to the
financial statements.
BREXIT
The continued delay in agreeing the nature and timing of the
UK’s exit from the European Union creates uncertainty that could
impact the performance of our business. Whilst an orderly exit
would allow business planning to more effectively address the
consequences of change against a defined timeframe, a no deal
outcome would have a more immediate and negative impact.
Either outcome is expected to place increased pressure on how
our business performs.
The potential impacts include:
> A continued deterioration in customer sentiment
> Operational complexity and costs due to restrictions on
the movement of goods and stricter border controls
> Costs passed through from our suppliers
> Continuity of supply and supplier viability
> The impact of import and export duties
> Volatility in currency and corporate bond rates
> Tightening of the labour market
> Additional regulatory responsibilities and costs
> Increased complexity and cost in our international operations,
including our franchise partners.
The Board continues to monitor the ongoing negotiations
between the UK and the EU to assess the potential impact and
any transitional arrangements that may be agreed.
The Strategic Report, including pages 27-33, was approved by a
duly authorised Committee of the Board of Directors on 21 May
2019, and signed on its behalf by
HUMPHREY SINGER CHIEF FINANCE OFFICER
21 May 2019
27
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
STRATEGIC REPORT
RISK MANAGEMENT
The risks and uncertainties
that we face as a
business evolve. M&S
recognises that effective
risk management is an
essential tool to support
the achievement of
our strategic and
operational objectives.
APPROACH TO RISK MANAGEMENT
Our approach to risk management
is simple and practical. The Audit
Committee, under delegated authority
from the Board, is accountable for
overseeing the effectiveness of our
risk management process, including
the identification of principal risks facing
M&S. An overview of the process and the
principal risks and uncertainties is
summarised on the following pages.
Our risk management process fully
reflects the M&S operating model with
each business and functional area being
responsible for the ongoing identification,
assessment and management of their risks.
This includes:
> Risks consistently identified, measured
and reported against a set criteria
considering the likelihood of occurrence
and potential impact to the Group.
> Risk added to the agenda for the
business boards established during the
year. This creates a forum to align risk
activities with business performance and
enables senior oversight and challenge.
> Periodic Audit Committee updates on
risk by business leadership teams.
> A formal half-yearly review of all risk
registers with the Group Risk Team.
This is overlaid with a Group-wide
review of risk to combine top-down and
bottom-up perspectives and create a
consolidated view in the Group Risk Profile.
In compiling the Group Risk Profile, an
assessment is made of changes in the
external environment, our strategy
and transformation programme,
core operations and our engagement
with external parties. This also includes
consideration of emerging risks.
The output from the above process is
subject to periodic review and challenge
with the executive directors. Following
which, the resulting principal risks are
agreed by the Audit Committee ahead
of final review and approval by the Board.
The directors’ assessment of the long-term
viability of the Company is also reviewed
annually, mindful of the principal risks
faced. M&S’s approach to assessing
long-term viability can be found on
the following page.
OUR APPROACH TO RISK MANAGEMENT
CURRENT ISSUES & AREAS OF CHANGE
– Monitoring of emerging areas of change or issues that may become
significant at a Group level
Parties involved in the process:
> Audit Committee
> Business and functions
> Group Risk team
BUSINESS & FUNCTIONAL RISK REGISTERS
– Development and ongoing maintenance of risk registers by the business and
functional leadership teams
– Review and challenge of risk content and quality of mitigation plans by Group Risk
– Review and challenge of risks at business boards
> Business boards
> Operating Committee members
> Business and functions
> Group Risk team
GROUP RISK PROFILE
– Consolidation of significant risks from underlying risk registers
– Review and agreement of the Group Risk Profile by
the executive directors
– Review and approval by the Audit Committee
PRINCIPAL RISKS
– A summarised version of the Group Risk Profile
– Review and approval by the Board
and Audit Committee
> Audit Committee
> Executive Directors
> Group Risk team
> M&S Board
> Audit Committee
> Executive Directors
> Group Risk team
R
E
P
O
R
T
I
N
G
I
N
T
E
R
N
A
L
I
D
S
C
L
O
S
U
R
E
E
X
T
E
R
N
A
L
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
28
MARKS AND SPENCER GROUP PLC
RISK MANAGEMENT CONTINUED
KEY AREAS OF FOCUS
We believe that the quality of risk
management improves as business
accountability and embedding increases,
with review and challenge at senior levels
of M&S. To drive this, we have focused on
the following activities over the past year:
> Realigned our risk reporting process with the changes in our operating model.
> Reinforced accountability and ownership for risk management across the
underlying business leadership teams.
> Completed a full review of all risk registers to confirm relevance and linkage
of risk to the transformational changes under way.
> Improved visibility of risk at business boards and at the Audit Committee
to allow enhanced challenge.
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 can 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 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. None of these
scenarios individually threatens the
viability of the Company, therefore the
compound impact of these scenarios
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 6),
our strategy (see pages 4-5), approach to
risk management (see page 27) and
our principal risks and uncertainties
(see pages 29-33). These have been
reviewed in the context of our financial
plans, specifically the annual budget and
three-year plan, the rights issue and the
proposed creation of a new 50/50 joint
venture with Ocado. 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
improve sales performance are not
fully realised or are offset by lower
than expected market growth.
> The actions included in our plans to
mitigate expected input cost increases
are not delivered in full or the input cost
increases are greater than expected.
> The expected benefits from the
proposed creation of a new 50/50
joint venture with Ocado Group plc
are not delivered in full.
> The UK’s exit from 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 79.
29
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
STRATEGIC REPORT
PRINCIPAL RISKS AND
UNCERTAINTIES
PRINCIPAL RISKS AND UNCERTAINTIES
The details of our principal risks and
uncertainties and the key mitigating
activities can be found below and on
the following pages. We disclose those
risks that could have the greatest impact
on our business at this moment in time.
This risk profile has also been reviewed at
recent Board and Audit Committee
meetings. As our transformational journey
continues and we undergo significant
changes to our business, our principal risks
and uncertainties also evolve to reflect this.
associated with our intention to enter
into the recently announced joint venture
with Ocado.
As such, we have included four new risks
relevant to our business. These include
the implications of the UK’s decision to
leave the European Union and the risks
In addition to the risks that we have
disclosed below, we actively monitor and
manage a wide range of other risks that
M&S is exposed to.
RISK
DESCRIPTION & CONTEXT
MITIGATING ACTIVITIES
PRINCIPAL RISKS & UNCERTAINTIES
1
N
BREXIT
An inability to quickly identify and effectively respond to the challenges
of a post-Brexit environment could have a significant impact on
performance across our business.
The continued delay in agreeing the nature and timing of the UK’s exit from
the European Union (EU) creates uncertainty that will impact the performance
of our business. While an orderly exit would allow business planning to more
effectively address the consequences of change against a defined timeframe,
a no deal outcome would have a more immediate and negative impact.
Either outcome is expected to place increased pressure on how our
business performs.
The potential impact includes:
– A continued deterioration in customer sentiment.
– Operational complexity and cost due to restrictions on the movement
of goods and stricter border controls.
– Costs passed through from our suppliers.
– Continuity of supply and supplier viability.
– Import and export duties.
– Volatility in currency and corporate bond rates.
– Tightening of the labour market.
– Additional regulatory responsibilities and costs.
– Increased complexity and cost in our international operations,
including our franchise activities.
– A cross-business working party is in place to undertake scenario
planning including financial and operational impact assessments and
to consider and drive “day 1” requirements.
– An Operational Brexit Team has been established.
– Updates are provided to the Board and Audit Committee outlining
risks and actions being undertaken.
– We are engaged with the government and industry bodies to represent
M&S’s views, including the UK Border Development Group with access
to the Department for Environment, Food and Rural Affairs (Defra),
HM Revenue and Customs (HMRC) and the Food Standards Agency
(FSA) to support operational planning.
– Specific mitigation plans have been developed and are being refined
for our core businesses. For example:
– In Food, plans are in place to build additional stock cover in ambient
and frozen in anticipation of a projected period of disruption.
We have secured additional ambient warehouse capacity to hold
product, extended our warehouse management systems and put
plans in place with our fresh suppliers to build raw material stocks
in key areas. We have also mapped the processes to import goods
from the EU, including certification and import notification, and
continue to maintain regular dialogue with our Top 30 food suppliers
to track readiness.
– While most Clothing & Home product is sourced from outside
the EU, we have engaged with suppliers to ensure trade flows are
maintained and are modelling the impact of changes to tariffs and
border processes. We have also accelerated delivery of certain
stock lines from key countries.
– For International, we have developed plans to minimise operational
and supply chain disruption to serve overseas operations. This
includes building additional food stock cover in EU markets and
setting up an ambient warehouse outside Paris. We have modified
aspects of our supply chain for exporting from UK warehouses and
to prepare for potential new customs requirements. We have also
worked with our franchise partners and owned businesses to set
up new import systems and evaluated options to maintain the
flow of products across our operations in Ireland.
Risk key
N New
Increasing
No movement
S Link to strategy
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 30
MARKS AND SPENCER GROUP PLC
RISK
DESCRIPTION & CONTEXT
MITIGATING ACTIVITIES
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
2
S
3
S
4
N
S
IMPROVING TRADING PERFORMANCE
A failure of our Food and/or Clothing & Home business to effectively
and rapidly respond to the pressures of an increasingly competitive and
changing retail environment would adversely impact business performance.
The retail industry is highly competitive, both on the high street and online.
M&S competes with a diverse range of retailers in both Food and Clothing
& Home. These operate different models and formats through a variety of
physical, digital and integrated distribution channels and offer a range of
distinct product propositions, from the premium to the value end of the market,
in the various markets in which we operate.
Continued cost and pricing pressures, the migration of customer activity online
and the consumer impact of the UK’s departure from the European Union,
as well as broader macroeconomic conditions, are all contributing to the
challenge that is faced.
A failure to successfully reshape the Clothing & Home and/or the Food
business would have an adverse effect on business results.
– Targeted recruitment to strengthen the capabilities of our senior
leadership teams in both Food and Clothing & Home has continued
during the year.
– Implementation of a revised operating model to create a family of
accountable businesses who share M&S brand values, colleagues,
technology and customer data.
– Managing Directors for each of these businesses who have
full accountability for their divisions including for marketing,
supply chain, finance and technology.
– Establishment of business boards to enable executive oversight
and effective governance of each business.
– Development of, and delivery against, business-specific
transformation plans incorporating revised disciplines around prices,
availability, value, ranges and promotions across both businesses.
– Continued progress against our stated target to deliver 30% of
Clothing & Home sales online by 2023 including a programme
of investment in technology and marketing to support an improved
online proposition.
– Announcement of the joint venture with Ocado for Food online.
– Ongoing implementation of a cost reduction plan.
BUSINESS TRANSFORMATION
A failure to execute our business transformation activities with pace
and agility could impede our ability to improve operational efficiency
and competitiveness.
The business is undertaking a number of projects connected to the five-year
transformation programme. The first phase of the programme is enabling the
organisation and infrastructure to be fit for the future. Key activities include
(although are not limited to):
– Established programme governance to track progress against the
overall transformation 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.
– Periodic independent audit reviews of key programme delivery.
– Increased alignment of retail operations and property through the
appointment of a single Managing Director.
– Reshaping, modernising and managing the UK store estate (at a time when
external factors such as falling property values and other retailers also
exiting space create further complexity).
– Continued operation of the UK Retail & Property Board and
Store Renewal Steering Group to oversee planned changes to
our store estate.
– Modernising our supply chain and logistics activities to improve speed,
– The appointment of a single service provider to support the efficient
operational effectiveness and reduce costs.
and effective delivery of all store maintenance activities.
– Delivering our Digital First ambitions to improve customer experience,
reduce costs and work smarter across the business (discussed further in the
Technology Capability and Talent, Culture and Capability risks below).
Underlying activities are significant in their own right but the level of
interdependency and volume of change create additional delivery risk.
Any delays in delivery of the transformation plan, or a key component, could
adversely impact the planned improvements in business performance.
– Ongoing delivery of “Fuse”, looking at how we plan, buy and manage
stock end to end across both Clothing & Home and Food businesses.
– Targeted operational improvements at Castle Donington to improve
our M&S.com fulfilment capacity.
– Establishment of a simpler, single-tier Clothing & Home logistics
network to reduce costs and working capital and improve speed.
– Rollout of new warehouse management software.
– Identification of M&S-nominated directors to form part of the
Ocado.com Board.
– Co-appointment of an appropriate management team to
lead Ocado.com.
– Establishment of a dedicated M&S programme team with senior
M&S leadership to support the Ocado.com set-up and ensure that
M&S interfaces and processes are developed to support the M&S
products going live online. This includes providing ongoing support of
sourcing and branding activities to the joint venture.
– Joint working group in place with Ocado Group Plc to establish the
systems, processes and ways of working to coordinate sourcing,
product development, product ranging, customer data and marketing.
FOOD ONLINE JOINT VENTURE
A failure to effectively plan for and execute the go-live of the proposed
joint venture with Ocado on time would hamper achievement of our food
online objectives.
The proposed joint venture (ocado.com) with Ocado Group Plc will enable us to
take our food online in a profitable, scalable and sustainable way, operating as a
fully aligned partnership with complementary skills and assets. Completion is
scheduled for Autumn 2019, with our commitment to provide M&S product
ranges and establish development capabilities to the proposed joint venture
from September 2020 at the latest. Delivery of this commitment is overlaid
with the challenge of applying and managing existing resources effectively
across our full transformation programme, including the joint venture, so that
all necessary steps are in place to achieve timely completion and successful
commencement of operations.
Activities to be completed include:
– Satisfaction of all contractual completion conditions.
– Successful separation of the joint venture operations and establishment
of associated services arrangements.
– Creation of an effective oversight and governance framework.
– Mobilisation of resources.
– Development of appropriate M&S range and interfaces to ensure that
M&S products are ready to go live in September 2020.
Risk key
N New
Increasing
No movement
S Link to strategy
31
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
RISK
DESCRIPTION & CONTEXT
MITIGATING ACTIVITIES
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
5 FOOD SAFETY & INTEGRITY
Failure to prevent or effectively respond to a food safety incident, or to
maintain the integrity of our products, could impact business performance,
customer confidence and our brand.
– Food safety and integrity remain vital for our business. We need to manage
the potential risks to customer health and consumer confidence that face all
food retailers, while also considering how external pressures on the food
industry and wider economic or environmental changes could impact the
integrity of our food, our reputation and shareholder value.
– Many of these external pressures, including inflationary costs, labour quality
and availability, increased regulatory scrutiny and the unknown impact of
Brexit, are outside our control but are nevertheless being monitored.
6 CORPORATE COMPLIANCE & RESPONSIBILITY
Failure to deliver against our legal, regulatory or social commitments
undermines our reputation as a responsible retailer, may result in legal
exposure or regulatory sanctions, and could negatively impact our ability
to operate and/or remain relevant to our customers.
– Responsible corporate behaviour is a basic requirement of all businesses and
the expectations of our customers and stakeholders (including regulators)
are increasingly demanding.
– The increasingly broad and stringent legal and regulatory framework for
retailers creates pressure on both business performance and market
sentiment requiring continual improvements in how we operate as a business
to maintain compliance.
– Non-compliance may result in fines, criminal prosecution for M&S or
colleagues, litigation, additional investment to rectify breaches, disruption
or cessation of business activity, as well as have an impact on our reputation
and financial results.
– Similarly, speed is vital to respond to heightened customer expectations,
such as the environmental impact of food packaging. Public sentiment
towards any business can change rapidly, especially in the age of social media,
if expected standards are not met.
– While our business operates appropriate controls, we recognise that
potential non-compliance remains a risk and that there can be no room
for complacency.
7
S
TECHNOLOGY CAPABILITY
Failure to rapidly improve our technology capabilities, reduce dependency
on legacy systems and enhance digital capability could limit our ability to
keep pace with customer expectations and competitors, enable business
transformation and grow profitably.
– The digital world continues to evolve at an unprecedented rate, enabling
competitive advantage, influencing consumer behaviours or expectations
and increasing demands on IT infrastructure.
– We have clearly communicated our aim to be Digital First, and recognise the
need to invest to achieve this.
– In addition, our existing IT infrastructure needs to be more flexible to lower
costs, leverage development opportunities and enable us to move with pace
to meet customer and colleague needs.
– As well as technology, we need to continue to develop the skills and
capabilities of our people. This will be critical to providing a top-quartile,
seamless customer experience.
Risk key
N New
Increasing
No movement
S Link to strategy
– Clearly defined requirements through Terms of Trade, Codes of
Practice, Standard Operating Procedures and Specifications
“from farm to fork”, including in-store processes.
– Maintenance of a qualified and capable technical team. Professional
status is maintained through training and an independently validated
Continuing Professional Development Programme.
– 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 programmes are
in place, including unannounced visits and raw material testing.
– Quarterly review of our control framework by the technical leadership
through established governance procedures and the Customer Brand
Protection Committee.
– Established processes for the development and legal sign-off for
product packaging.
– Clear and tested crisis management plan to respond to future incidents.
– Membership of the Food Industry Intelligence Forum at both Board
and Operating Committee level.
– Periodic Internal Audit reviews to consider process design and
operating effectiveness.
– Clear policies and procedures in place, including on human rights,
modern slavery, global sourcing, data protection, anti-bribery and
corruption, health & safety, food safety, cyber and data security.
– Immediate response to new requirements, such as for minimum
alcohol pricing in Scotland, implemented during the last financial year.
– Mandatory induction briefings and annual training for relevant
colleagues on key regulations.
– Oversight from committees and steering groups where necessary,
including on data protection, fire health & safety, food safety and
human rights.
– In-house regulatory legal team, including specialist solicitors,
with external expertise available as needed.
– Dedicated non-legal regulatory specialists and advisers in place
across the business responsible for driving compliance.
– Ongoing engagement with regulators, legislators, trade bodies
and policy makers.
– Published, monitored and reported commitments in relation to
environmental and social issues.
– Established auditing and monitoring systems in place.
– Customer contact centre insight and analysis of live social
media issues.
– Continuous improvement initiatives such as in-store trial of
plastic-free fruit and vegetable lines or launch of an initiative
where customers can drop non-recyclable plastic at our stores,
to be re-used in making equipment for use in stores and schools.
– A technology transformation programme is ongoing, supported by
project governance principles, to enable the Digital First ambitions
and to deliver improved customer experience.
– An established 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 consolidation of the technology supplier base.
– Simplification of IT infrastructure through clearly defined technology
roadmaps for all business areas, including the migration from an ageing
mainframe environment and improvements to our website, such as the
completed re-platform of our web sales site to the cloud.
– Improvements to our in-store technology.
– Development of strategic partnerships, such as with Microsoft
and Founders Factory.
– Establishment of Decoded – an externally developed and delivered
training and qualification programme to improve digital people skills.
– Cross-channel technology investment strategy in place and aligned
to the family of businesses to mutually agreed priorities.
– Quarterly reviews to track benefits realisation.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 32
MARKS AND SPENCER GROUP PLC
RISK
DESCRIPTION & CONTEXT
MITIGATING ACTIVITIES
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
8 INFORMATION SECURITY
Failure to adequately prevent or respond to a data breach or cyber-attack
could adversely impact our reputation, result in significant fines, business
disruption, loss of stakeholder confidence, and/or loss of information for
our customers, employees or business.
– The increasing sophistication and frequency of cyber-attacks, coupled with
the General Data Protection Regulation (GDPR), 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.
– This risk is more pronounced due to the pace at which our business is
changing and the volume of activities under way, both of which add to the
complexity of maintaining a secure environment.
– We recognise the importance of challenging our existing capabilities,
supporting the education of our teams and maintaining vigilance across
the business. This holistic approach is needed to reduce the likelihood of
attack or breach in an environment that is undergoing significant change
and facing an external threat that is changing at pace.
– A Data Governance function, overseen by the Data Governance
Steering Group.
– Mandatory data protection training for colleagues, including
responsibilities for the use of personal data in compliance with GDPR.
– Control of sensitive data through limited and monitored access
and the roll-out of systems with enhanced security.
– Dedicated Cyber Security function, comprising a multi-disciplinary
team of cyber security specialists, with 24/7 monitoring and
defence tools.
– Established security controls, including policies and procedures and
adoption of security technologies, subject to periodic independent
testing and improvement.
– Completion of a comprehensive maturity review by an independent
consultancy during the last financial year covering network security,
identity and access management, security software development, and
project and programme assurance.
– Third-party cyber maturity assessments performed and periodically
refreshed. Targeted reviews of third-party control compliance.
– Ongoing monitoring of developments in cyber security threats,
engaging with third-party specialists as appropriate.
– Periodic penetration testing by Internal Audit.
– Corporate Security team with ongoing focus on improving the
physical security environment.
BUSINESS CONTINUITY & RESILIENCE
– A dedicated Business Continuity team.
– A Group Crisis Management team is in place and subject to
periodic testing.
– Business continuity plans for key areas of the business and critical
points of failure, including offices, depots and IT sites, are developed
and tested.
– Group Incident Reporting & Management Procedures in place and used
to escalate incidents on site. These also include critical third parties.
– Insurance cover to mitigate the impact of remediation and
business interruption.
– Participation in the Retail Business Continuity Association,
which provides insight across the sector.
– Regular participation at government-led exercises at key locations.
– Membership of the National Counter Terrorism Information exchange.
– Mechanisms for checking that suppliers have appropriate business
continuity plans in place.
– Ongoing contingency planning for Brexit.
– Clear procurement and supplier management policies in place,
including specific requirements for strategic suppliers with dedicated
relationship ownership.
– Defined service level agreements and key performance indicators
in place for key contracts.
– Established franchise governance and management processes
with regular relationship meetings with partners for the UK and
International businesses.
– Integrated business planning processes to support franchise and
joint venture reviews in International.
– Customer satisfaction surveys introduced for franchise partners
with agreed performance targets.
– Regular review of franchise and joint venture markets.
– Engagement of in-house legal and procurement teams.
– Key supplier business contingency planning, selectively subject
to review by our Business Continuity team.
9
N
Failures or resilience issues at key business locations could result in
major business interruption. In particular, a major incident at our Castle
Donington e-commerce distribution centre may have a significant
impact on our ability to fulfil online orders.
– The effective operation of the Castle Donington distribution centre is vital
as it is the sole fulfilment centre for our online Clothing & Home business.
A major incident leading to a sustained period offline, while unlikely, would
not only impact current sales but potentially also hinder the growth of the
M&S.com business and achievement of the one-third online target.
– Operational risks also exist in other parts of the business, such as the high
volumes of goods sourced from Bangladesh, and at the dedicated
warehouses that store beers, wines & spirits and frozen goods in the UK.
– Our ability to develop effective continuity plans, build resilience in our
networks and capabilities to manage associated risks remains an area of focus.
10 THIRD-PARTY MANAGEMENT
An inability to successfully manage and leverage our strategic third-party
relationships, or a critical failure of a key supplier or partner, may have
an impact on delivery of transformational initiatives, our ability to
operate effectively and efficiently or, in some circumstances, our brand
and reputation.
– Our business is increasingly dependent on significant third-party
relationships. These span M&S and include products and services, franchise
relationships, our joint ventures and our banking partner.
– To fully leverage these relationships we continue to focus on developing clear
and consistently applied processes to track performance, ensuring that
commercial expectations and outcomes are met and to put in place plans to
manage potential business interruption risk created by such dependencies.
Risk key
N New
Increasing
No movement
S Link to strategy
33
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
RISK
DESCRIPTION & CONTEXT
MITIGATING ACTIVITIES
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
11
N
TREASURY & FUNDING
An inability to maintain short and long term funding to meet business
needs or to effectively manage associated risks, such as significant
fluctuations in foreign currency or interest rates, may have an adverse
impact on business viability.
– Availability of, and access to, appropriate funds is crucial in supporting core
business operations and the successful and timely delivery of our
transformation plan. The Group’s indebtedness primarily consists of bonds,
bilateral facilities and finance leases. The Group’s ability to make payments
on its debt and to fund working capital, capital expenditures and other
expenses will depend on the Group’s future operating performance and
ability to generate cash from operations and to refinance its existing debt.
– Brexit adds a further dimension to this financial risk because of the potential
impact on currency movements, corporate bond rates, changes in credit
regulations and the extent of government support of credit markets.
– Additionally, we have a pensions fund commitment that requires active
management and regular monitoring.
12
TALENT, CULTURE & CAPABILITY
A failure to attract, develop and motivate the right talent could slow down
our ability to achieve operational and strategic objectives, including
successful cultural and business transformation.
S
– 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 our control such as labour availability
and the challenges facing the UK retail sector.
– Our focus, however, cannot solely be outward 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
and ensure that colleagues feel empowered to drive change at pace.
– Building cross-functional experience for high-potential colleagues to
accelerate their development and to better prepare them for more senior
roles, as well as expanding our focus on early careers is important in helping
us build a bigger pool of future potential talent.
13 BRAND, LOYALTY & CUSTOMER EXPERIENCE
An inability to successfully evolve our brand, customer experience and
loyalty in line with expectations and innovations in the retail environment
could have an impact on our ability to attract and retain customers and
result in a decline in our market share.
– 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, especially in our target markets. Failure to do so creates the
risk of a decline in market share.
– Our organisational design and operating model need to support our aim
to be a customer-centric, Digital First business and 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.
– A £1.1bn undrawn committed credit facility in place until April 2023
and £285.4m of cash on deposit.
– Treasury executes forward buying of currency requirements and
is 90% hedged for FY2019/20.
– Close monitoring and stress testing of projected cash and debt
capacity, financial covenants and other rating metrics, in line with
our performance actuals and outlook.
– Regular dialogue with the market and rating agencies.
– Review of counterparty credit risk and limits in line with our risk appetite
and treasury policy.
– Pension fund assets fully offset pension scheme liabilities. At the
last triennial review in March 2018, the fund had a surplus of £652m.
– Talent is identified as a critical component of our people strategy
and a key enabler in the delivery of our overall business strategy.
– Targeted external hires to strengthen capability including in
Womenswear and Menswear, Food transformation and logistics,
digital, Bank & Services and cyber.
– People key performance indicators are in place supported by talent
reviews 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.
– A dedicated forum to lead the inclusion and diversity agenda on
behalf of the Operating Committee.
– Simplified, outputs-focused framework for performance
management.
– Ongoing culture assessment and roll-out of revised M&S Behaviours.
– Active engagement with our Business Involvement Group.
– Employee suggestion process directly overseen by the
Chief Executive’s office.
– Brand and marketing teams aligned with the operating model
to better address the specific needs of our family of businesses.
– Chief Digital & Data Officer in post to head Insights and
Loyalty programmes.
– 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 our Sparks loyalty programme.
– Increasing our presence and proactive monitoring of social media
to observe and respond to trends in customer experience with
initiatives such as Try Tuesday.
– Targeted use of celebrity engagement.
Risk key
N New
Increasing
No movement
S Link to strategy
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 34
MARKS AND SPENCER GROUP PLC
GOVERNANCE
CHAIRMAN’S
GOVERNANCE OVERVIEW
BOARD ACTIVITIES
During the year, we complied with all the
provisions of the UK Corporate Governance
Code 2016 and have also sought to
incorporate some of the changes
introduced by the substantially revised 2018
Code. The Governance section that follows
is by intention concise, in keeping with our
approach over the past couple of years. In
support of our digital ambitions, greater
detail on the Board is available at
marksandspencer.com/thecompany.
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 remit of the
Remuneration Committee was enhanced
to cover senior leadership reward, pay
policy, gender pay and employee
engagement. While we implemented this
change ahead of the Financial Reporting
Council’s (FRC’s) consultation on the revised
UK Corporate Governance Code, we feel
that it remains appropriate for M&S.
The Nomination Committee will also now
take on greater responsibility for the
development of the wider talent pipeline,
rather than focusing only on our Board
and Operating Committee.
An overview of the range of matters that
the Board discussed and debated at its
meetings during the year is presented on
pages 40-41.
The reports of the Audit and Remuneration
Committees for 2018/19 are available on
pages 48-53 and 54-75 respectively.
OCADO DEAL AND RIGHTS ISSUE
In February, we announced that M&S would
create a joint venture (JV) with Ocado Group
plc that the Board believes will transform
online grocery shopping for UK consumers.
The JV combines the strength of M&S’s
brand and its leading food quality and
innovation with Ocado’s unique and
proprietary technology to create an
unrivalled online offer for our customers.
“ The long-term, sustainable
success of M&S has been,
and will continue to be, the
Board’s primary objective.”
ARCHIE NORMAN CHAIRMAN
AN ENGAGED BOARD
We continue to face significant headwinds
in delivering our transformation strategy.
We are, however, ambitious for the future
and confident that we are on the road
towards making M&S special again.
Driving this agenda forward with an eye on
the long-term, sustainable success of M&S
has been, and will continue to be, the Board’s
primary objective. It is therefore essential for
us to be highly engaged, able to support
and challenge senior management and
committed to making the hard decisions
required to support the turnaround. We also
continue to fulfil our other core duties to
oversee M&S’s culture, governance, financial
controls, risk and change management.
This year saw the completion of a substantial
but necessary refresh of the Board’s
structure, which has ensured that we
have in place a strong non-executive team
with a breadth of skills, experience and
perspectives. Full details of these changes
are provided in the Nomination Committee
Report on pages 46-47.
M&S has long championed the benefits
of a diverse Board and has a strong track
record of female representation on the
Board. As at the date of this report, we are
pleased that female directors comprise
30% of our Board.
As announced in February, the transaction
will be primarily equity financed. The Board
intends to conduct a rights issue to raise
up to £601.3m, which will be launched in
due course following the publication of a
prospectus in May. While I recognise that
this will be dilutive for existing shareholders,
the Board strongly believes that the
deal with Ocado will create significant,
sustainable shareholder value over the
longer term and that it demonstrates our
commitment to becoming a truly digital
retailer that can thrive in the competitive
online landscape.
The process by which the deal was
negotiated and agreed was undoubtedly a
complex one and represents an excellent
case study of the importance of good
governance at M&S. An overview of this,
covering the process followed, the deal
controls that the Board ensured were in
place and the involvement of the Board,
its committees and key business areas,
can be found on pages 42 and 43.
DIVIDEND
In February, we also announced that we
had taken the difficult decision to reset
our dividend per share, reducing it by 40%.
We took this proactive step to strengthen
our balance sheet and to provide a secure
platform for the Group’s transformation
programme. It is our belief that this strikes
the right balance between investing in
our business and providing returns for
shareholders with the aim of creating a
sustainable, successful business in the
long term.
ENGAGING WITH OUR STAKEHOLDERS
Engagement with and feedback from
our colleagues across the business is vital,
especially as we drive forward with our
transformation. Open dialogue is key to
this, which is why I host numerous listening
groups with colleagues from stores,
distribution centres and offices. My Board
colleagues have also spent time meeting
with staff throughout the business as part
of our Board Involvement Programme to
understand fully the challenges we face
as a business.
Following the success of the pilot last year,
we have extended the number of Board
meetings that the chair of our Business
Involvement Group (BIG) (which represents
the interests of over 80,000 colleagues) is
invited to attend so that she can share
with us our colleagues’ perspectives
on the issues under discussion. This was
particularly constructive when we
35
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
considered the challenges facing the store
estate and consequently the number
of stores that we have taken the decision
to close.
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. This
approach pre-dated the UK Corporate
Governance Code 2018 changes, but we
believe that this model is the best fit for the
business as it gives our employees direct
access to the Board.
Good engagement with our colleagues
is vital as we continue this period of
transformational change, and to support
this we will look at ways to step up our
dialogue with them during the year ahead.
Details of the ways in which we engage with,
and have considered, our stakeholders are
available on pages 44-45.
RETAIL SHAREHOLDERS
Now in its third year, our successful Private
Shareholder Panel continues to meet with
members of the Operating Committee,
Board and senior leadership, discussing
a diverse range of topics relating to the
Company and its performance in an open
and honest fashion.
The candour of these discussions and the
insights they provide continue to reinforce
the importance of the Shareholder Panel as
a key element of our overall stakeholder
engagement programme. In line with our
policy of rotating its membership annually,
we have now recruited a new panel and
have an active programme to drive our
engagement with them over the course
of the coming year.
Additionally, we are arranging for additional
Private Shareholder Panels to take place to
focus on the specific topic of the Ocado
deal and resulting rights issue. We are
inviting back panelists from previous years
to participate in discussions about this
key strategic event, as it is important to us
that our private shareholders, not just
institutions, are engaged with and able to
participate in the rights issue.
ARCHIE NORMAN CHAIRMAN
The UK Corporate Governance Code 2016
(the “Code”) is the standard against which
we measured ourselves in 2018/19. We have
also chosen to adopt some key elements
of the new UK Corporate Governance
Code, as published in 2018 (the “2018
Code”), early and intend to comply in full
in our next Annual Report. Copies of the
Code and the updated 2018 Code are
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. Our compliance
with key areas of the Code and the 2018
Code are summarised below, together with
cross references, where applicable, to the
relevant sections of this report where more
information can be found.
Full details on how we comply with the
Code, including full biographies of our
directors and our Corporate Governance
Statement, is available on our website.
Where reference is made to the availability
of further information on our website,
it can be found at marksandspencer.com/
thecompany.
> Independence*
Over half of our Board (excluding the
Chairman) comprises independent non-
executive directors and the composition
of all Board Committees complies with
the Code. Additionally, the Chairman
was considered independent on his
appointment. More information about
the Board is available on pages 36-37.
> Senior Independent Director
Our Senior Independent Director is
Andy Halford.
UK CORPORATE GOVERNANCE CODE
> Accountability and election
> Non-audit policy
There is a clear separation of duties
between the Chairman and CEO roles,
and all the directors are to stand for
annual re-election.
This is disclosed on our website, along with
the limited non-audit work undertaken
during 2018/19. Details of non-audit fees
can be found on page 52.
> Evaluation
Following an external evaluation
undertaken in 2016/17, 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.
> Attendance
The directors have all attended an
acceptable level of Board and
Committee meetings, details of
which are available on page 38.
> Committee Chair Experience*
1. The Audit Committee chairman met
the specific requirements with regard to
recent and relevant financial experience
throughout 2018/19.
2. Andrew Fisher had been a member
of a remuneration committee (for
Moneysupermarket.com Group PLC)
for more than 12 months prior to his
appointment as Chair of the
Remuneration Committee.
> Governance Framework
Our full Governance Framework,
setting out full details of our corporate
governance practices, is available on
our website.
> Auditor tenure
We changed our auditor in 2014/15,
following a thorough tender process.
After five years as lead audit partner,
Ian Waller will be replaced by Richard
Muschamp following the completion of
the 2018/19 audit.
> Auditor appointment
We disclose our external auditor
appointment policy on our website.
> Internal Audit
Details of the Internal Audit function
are provided within this report on
page 53.
> Culture*
Information about how the Board has
assessed and monitored culture
can be found on pages 15-17 of the
Strategic 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 strategy.
More information on our approach to
investing in and rewarding our workforce
is available in the report of the
Remuneration Committee from page 54.
> Workforce engagement*
The Chair of the Company’s workforce
advisory panel, the Business
Involvement Group (BIG), is invited to
attend two Board meetings and one
Remuneration Committee meeting each
year. More detail on how M&S engages
with its key stakeholder groups is
presented on pages 44-45.
> Diversity*
Information about the diversity of our
Board, including its consideration of
diversity in its succession plans and in
developing senior management, can be
found on pages 36, 41, 44 and 47.
* Newly incorporated or amended disclosures to align with the 2018 Code.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 36
MARKS AND SPENCER GROUP PLC
GOVERNANCE
OUR BOARD
CHAIRMAN
EXECUTIVE DIRECTORS
Archie Norman
Chairman
N R
Steve Rowe
Chief Executive
Humphrey Singer
Chief Finance Officer
Appointed: September 2017
Appointed: April 2016 (as Chief Executive)
Appointed: July 2018
Key strengths and experience
Key strengths and experience
Key strengths and experience
– Extensive retail and business
leadership experience.
– Very extensive in-depth commercial
– Strong financial background and
and retail experience.
extensive retail expertise.
– Long-term track record of value creation
and change in major British companies.
Archie is an experienced Chairman and
former Chief Executive having led major
transformation programmes at ITV, Lazard,
Asda, Energis and Hobbycraft. He was
previously Deputy Chairman of Coles Limited
and, in 2016, was appointed Lead Director
at the Department for Business, Energy
& Industrial Strategy.
– Extensive knowledge of M&S having worked
– Significant experience in delivering
in all major areas of the business.
Steve joined M&S in 1989 and worked in senior
roles across all 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.
the transformational strategies of large
listed businesses.
Humphrey joined M&S in July 2018 from
Dixons Carphone plc, where he was Group
Finance Director. He was previously Group
Finance Director of Dixons Retail plc and
is currently a non-executive director of
Taylor Wimpey plc.
BOARD DIVERSITY
BOARD GENDER DIVERSITY
NON-EXECUTIVE DIRECTOR TENURE
Male
67%
Female
33%
0-1 years 43%
1-3 years 14%
3-4 years 14%
4-6 years 29%
SECTOR EXPERIENCE
DEPARTURES AND
APPOINTMENTS SINCE
1 APRIL 2018
Exec appointments in year:
Humphrey Singer
Exec resignations in year:
Patrick Bousquet-Chavanne
Exec resignations
after year end:
None
NED appointments in year:
Katie Bickerstaffe
Justin King
Pip McCrostie
NED resignations in year:
Vindi Banga
Richard Solomons
Retail78%89%56%33%ConsumerFinanceE-commerce& technologyRetail78%89%56%33%ConsumerFinanceE-commerce& technologyRetail78%89%56%33%ConsumerFinanceE-commerce& technologyRetail78%89%56%33%ConsumerFinanceE-commerce& technology
37
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
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
Andy Halford
Senior Independent Director
A N
Katie Bickerstaffe
Non-Executive Director
N R
Alison Brittain CBE
Non-Executive Director
A N
Appointed: January 2013
Appointed: July 2018
Appointed: January 2014
Key strengths and experience
Key strengths and experience
Key strengths and experience
– Significant recent and relevant
– Extensive experience of retail and operations.
– Financial and commercial experience.
financial experience.
– International, consumer and digital experience.
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.
– Significant understanding of UK retail and
leading consumer-focused businesses.
– Considerable knowledge of running large-
scale consumer businesses.
Katie was Chief Executive (Designate) of the new
independent British energy supply and services
company created by the proposed merger of SSE
plc’s retail unit and Npower and is subsequently
working on a separate project for the SSE Retail
Business. She was previously Chief Executive, UK
and Ireland of Dixons Carphone plc, having also
been on the board of Dixons Retail plc prior to
its merger.
Alison is CEO of Whitbread, a global
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.
Andrew Fisher OBE
Non-Executive Director
NR
Justin King CBE
Non-Executive Director
N
Pip McCrostie
Non-Executive Director
A N
Appointed: December 2015
Appointed: January 2019
Appointed: July 2018
Key strengths and experience
Key strengths and experience
Key strengths and experience
– International consumer and technology
– Extensive experience of working in
– Substantial experience of corporate
sector experience.
and leading large businesses.
finance and tax.
– Extensive knowledge of high-growth
digital businesses.
– Considerable knowledge of retail
transformation and operations.
– Extensive knowledge of global businesses
and corporate transactions.
Andrew was instrumental in establishing mobile
lifestyle app Shazam, where he was Executive
Chairman until October 2018, as a leading mobile
consumer brand, and brings over 20 years’
experience leading and growing numerous
technology-focused enterprises.
Justin is currently Vice Chairman of Terrafirma,
acting as adviser to the General Partner.
Between 2004 and 2014, he was the CEO of
Sainsbury’s, leading the business through a major
transformation. He has also previously held
senior positions at M&S as Head of Food, as well
as Asda, Haagen-Dazs, PepsiCo and Mars.
Pip’s extensive financial experience was gained
from a career at Ernst & Young, where she
transformed and led the Global Corporate
Finance business. She was the founder of
the Global Transaction Tax network, and has
been a non-executive director of Inmarsat
since 2016.
GROUP SECRETARY
Nick Folland
Group General Counsel and
Company Secretary
Appointed: February 2019
Nick has extensive legal and governance
experience, having been General Counsel and
Company Secretary in FTSE 100 businesses
since 2001. More recently, he has held positions
as Chief Executive of the Crown Prosecution
Service and Chief External Affairs Officer and
Chief of Staff to the CEO of the Co-op.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
38
MARKS AND SPENCER GROUP PLC
GOVERNANCE
BOARD COMPOSITION
AND MEETING ATTENDANCE
BOARD MEETING ATTENDANCE AND DIRECTOR RESPONSIBILITIES IN 2018/19
CHAIRMAN
ATTENDED
POSSIBLE INDEPENDENT RESPONSIBILITY IN 2018/19
MAX
LINKED TO
REMUNERATION
Archie Norman*
* Considered independent on appointment
EXECUTIVE DIRECTORS
Chief Executive
Steve Rowe
Chief Finance Officer
Humphrey Singer (appointed 9 July 2018)
Executive Director
Patrick Bousquet-Chavanne (resigned 18 April 2018)
NON-EXECUTIVE DIRECTORS
Vindi Banga (retired 1 October 2018)
Katie Bickerstaffe (appointed 10 July 2018)*
Alison Brittain
Andrew Fisher
Andy Halford
Justin King (appointed 1 January 2019)*
Pip McCrostie (appointed 10 July 2018)*
Richard Solomons (resigned 10 July 2018)
10
10
10
10
8
1
6
6
10
10
10
2
6
2
8
1
6
7
10
10
10
3
7
2
Board governance
and performance,
shareholder engagement
Strategy and Group performance
Group financial performance,
IT, investor relations and
data governance
Customer, marketing
and M&S.com
Role at Board meetings
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.
* At the meeting on 13 March 2019, Katie Bickerstaffe was unable to attend due to illness and Justin King was unable to attend due to a previous business commitment. Pip McCrostie was
unable to attend the meeting on 9 January 2019 due to a previous personal commitment.
Attended by invitation
Sacha Berendji – Retail, Operations & Property Director
Stuart Machin – Managing Director, Food
Jill McDonald – Managing Director, Clothing, Home & Beauty
Melanie Smith – Strategy Director
Paul Friston – International Director
David Guise – HR Director
Jeremy Pee – Chief Digital and Data Director
This table provides details of scheduled meetings held in the 2018/19 financial year.
5
4
7
10
3
1
1
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Role at Board meetings
The Operating Committee comprises the
Company’s senior leadership team below
board level and is tasked with running the
day-to-day operations of the business and
facilitating delivery of the strategy as approved
by the Board.
Members of the Operating Committee attend
board meetings by invitation to present and
discuss matters of strategic importance.
BOARD MEETINGS HELD IN 2018/19
MONITORING NON-EXECUTIVE DIRECTOR INDEPENDENCE
The Board held 10 scheduled meetings
during the year, and individual attendance
is set out above.
The Board reviews the independence of its
non-executive directors as part of its annual
Board Effectiveness Review.
Sufficient time is provided, periodically,
for the Chairman to meet privately with
the Senior Independent Director and the
non-executive directors to discuss any
matters arising.
For information on what the Board
did during the year, see Board activities
on p40-41
The Chairman was considered to be
independent on appointment and is committed
to ensuring that the Board comprises a majority
of independent non-executive directors who
objectively challenge management, balanced
against the need to ensure continuity on
the Board.
The Company maintains clear records of the
terms of service of the Chairman and non-
executive directors to ensure that they continue
to meet the requirements of the UK Corporate
Governance Code (the “Code”). Neither the
Chairman nor any of the non-executive directors
have exceeded the maximum nine-year
recommended term of service set out in the
Code, with our longest-serving non-executive
director, Andy Halford, having served less than
seven full years on the Board.
As such, the Board considers that all of its
non-executive directors continue to
demonstrate independence.
For information on the skills and experience of each director, see p36-37
39
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
GOVERNANCE
LEADERSHIP
AND OVERSIGHT
THE ROLE OF THE BOARD AND ITS COMMITTEES
The Board is responsible for establishing
the Company’s purpose, values and
strategy, promoting its culture and
overseeing its conduct and affairs to
create sustainable value for the benefit
of the Company’s members over the
long term.
It recognises that it has a wider duty to a
broad community of stakeholders whose
support is essential, and that the business
has impact on colleagues, customers,
shareholders, suppliers and the
communities in which it operates.
Pages 44 and 45 highlight how the
Board and the wider business have
sought to effectively engage with,
and encourage participation from,
our shareholders and stakeholders.
The Board discharges some of its
responsibilities directly and others
through its board committees and senior
management. Terms of Reference for the
Board and its committees are available in
our Governance Framework, published on
marksandspencer.com/thecompany.
The Board agrees, and has collective
responsibility for, the strategy of the
Company, which is outlined in the
Strategic Report on pages 1-33.
Execution of the strategy and day-to-day
management of the Company’s business is
delegated to the Operating Committee,
with the Board retaining responsibility
for overseeing, guiding and holding
management to account. The Board is
also responsible for:
> Assessing, monitoring and promoting
the Company’s culture, and ensuring
that this closely aligns with its strategy.
> Ensuring the necessary resources are
in place for the business to meet its
strategic objectives.
> Establishing workplace policies and
business practices that align with the
Company’s culture and values and
support its strategy.
> Overseeing the implementation of a
robust controls framework to allow
effective management of risk. Much
of this work is delegated to the Audit
Committee (see pages 48-53).
> Effective succession planning for key
senior personnel, much of which is
delegated to the Nomination
Committee (see pages 46-47).
While the above summarises the key areas
of board responsibility, it is not intended to
be exhaustive. More detail on this, together
with information on the roles of individual
board members, is covered by the
Schedule of Matters Reserved to the
Board, which is also available at
marksandspencer.com/thecompany.
Our annual Board Evaluation gives us the
opportunity to reflect on the effectiveness
of our activities, the quality of our decisions
and for board members to consider their
performance and contribution.
This year, our evaluation was facilitated
internally by our Group General Counsel
and Company Secretary, Nick Folland,
who was considered by the Board to be a
suitably independent sounding board
for this process. In line with previous years,
focused one-to-one discussions were held
between Nick and each member of the
Board. These covered a broad range of
topics relating to the Board, its Committees
and to the directors individually, including:
> What worked well during the year and
where improvements could be made.
> Board culture, teamwork and relationships
with management.
> Shareholders and stakeholders, including
communication and relationships.
> Board composition and
succession planning.
> Resourcing of meetings, agenda
planning, quality of information.
> Strategic oversight and implementation.
ANNUAL BOARD EVALUATION
> Corporate governance, regulatory
compliance and associated support.
> Committee effectiveness and
communications to the Board.
The Senior Independent Director also met
with directors to review the Chairman’s
performance. This review was then shared
with the Chairman.
All recommendations arising from the
review are based on best practice as
described in the UK Corporate Governance
Code and other applicable guidelines.
FINDINGS IN 2018/19
Overall, the Board was considered to have a
deep passion for the business and a good
mix of skills and experience of particular
relevance to M&S in its turnaround phase.
The degree of support and challenge
demonstrated by the directors was
at the correct level, albeit there was
acknowledgement of the fact that a number
of new non-executive directors (NEDs)
had joined during the year and that
it would therefore take time to settle into a
normal pattern of working.
The Chairmanship of Archie Norman was
viewed positively, particularly in focusing
the business agenda and facilitating
meaningful debate. The level of involvement
and engagement of the NEDs was
considered strong and the overall quality
of discussion during board meetings high.
There was a view that work was needed to
encourage more focused presentations to
allow even more time for board debate.
Coverage of governance, regulatory
compliance and risk management was
viewed positively, with good line of sight
to all key regulatory communications.
Board papers were seen as clear and the
specific actions the Board was required
to take helpfully sign-posted; however,
improvements could be made in terms
of making them more succinct and
reducing repetition.
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 Board has agreed an action plan for the
year ahead, focusing on the key areas of
board oversight and on driving the
transformation forward, reviewing key
performance indicators and ensuring that
these are linked to the business objectives.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 40
MARKS AND SPENCER GROUP PLC
GOVERNANCE
BOARD ACTIVITIES
WHAT WAS ON THE BOARD’S AGENDA IN 2018/19?
The following pages offer some insight into how the Board uses its meetings as a mechanism for discharging its duties
under s.172 of the Companies Act 2006, including the breadth of matters it discussed and debated during the year and
the key stakeholder groups that were central to those discussions (see the Stakeholder key to the right).
Each Board meeting follows a carefully tailored agenda agreed in advance by the Chairman, CEO and Company Secretary.
A typical meeting will comprise reports on current trading and financial performance from the CEO and CFO, legal and governance
updates, a review of the strategic transformation programme and one or two detailed deep dives into areas of particular strategic
importance. Details of the directors’ attendance at the 10 scheduled meetings that took place during the year can be found on page 38.
PRINCIPAL COMMITTEE UPDATES
The Chairs of the Audit, Remuneration and Nomination
Committees updated the Board on the proceedings
of those meetings, including the key discussion points
and any particular areas of concern.
TRANSFORMATION PROGRAMME
REVIEW AND KPI UPDATES
The Strategy Director attended each Board meeting
to update and discuss with the Board the progress
of the transformation programme, as well as strategic
key performance indicators (KPIs).
STRATEGY AND COMPANY PERFORMANCE
The CEO led discussions focusing on recent trading, general business performance and the key strategic initiatives under way:
Trading updates
– Considered trading performance updates
from across the Group’s family of businesses.
– Discussed operational issues arising and
responses, such as stock availability, supplier
relationships and general systems operations
and their impact on colleagues in stores.
– Discussed wider retail market pressures and
challenges, competitor performance and the
implications of these on trading.
For more detail, see p4-5
Strategic progress
and KPIs
– Discussed the ongoing transformation
strategy, with a continued focus on the key
strategic KPIs and the progress the Company
was making in achieving them.
– Agreed the cross-businesses strategic KPIs
and key enablers, as well as those for each of
the family of businesses, with regular updates
provided throughout the year.
– Received updates regarding the ongoing
improvements to M&S.com, including site
speed, fulfilment and impact on overall
customer experience and sales.
– Received updates on key milestones and
the progress made under each programme
of work underpinning delivery of the
transformation strategy.
For more detail, see p6-14
Digital
– Discussed new and planned initiatives
under the Digital First strategy, including
the Decoded programme to increase digital
awareness among our colleagues and
improve capability across the business.
For more detail, see p13
Property and store estate
– Reviewed progress in the store rationalisation
programme and its impact on colleagues
in stores, covering colleague redeployment
and sales transfer rates, and the future
redevelopment plans for older stores within
the estate.
– Discussed the combined pressures of rising
business rates and rent increases on the
Company’s cost base and the challenges
these pose to the UK high street.
For more detail, see p12
FINANCIAL UPDATES
Budget
Cash flow and dividend
Risk
– Considered performance vs the 2018/19
– Reviewed cash flow, dividend cover and
– Conducted half-yearly reviews of the
budget and agreed the budgets for each of
the family of businesses for 2019/20.
– Considered anticipated performance against
the agreed budget for the coming financial
year, including implications on
long-term performance, planned store
investment and the colleague perspective
on these issues.
– Discussed funding requirements for the next
phases of the transformation strategy,
including the proposed joint venture (JV)
with Ocado.
For more detail, see p42-43
shareholder returns, taking into consideration
financial performance, liquidity and credit
metrics, and agreed a dividend reset of 40%,
resulting in a full year dividend of 13.9p.
For more detail, see p26
Costs
– Reaffirmed the ambition to create a more
efficient cost base and generate savings of
at least £350m by 2020/21.
– Reviewed cost savings achieved during
the year relating to management structure,
property costs, IT transformation programme,
procurement and costs linked to store closures.
Group Risk Profile, covering core internal
and external risks, risks driven by business
change and areas of emerging risk.
– Agreed the Group-level risks to be monitored
and appropriate mitigating activities, and
delegated responsibility to the Audit
Committee to review the processes and
Group policies underpinning these.
For more detail, see p27-33
41
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
KEY: STAKEHOLDER GROUPS
Shareholders
Colleagues
Customers
Community
Suppliers
Board Involvement Programme
– Clarified developments in the roles of the
– Received regular litigation reports from
GOVERNANCE AND LEGAL
– Agreed a Board Involvement Programme
for 2019/20 to enhance the directors’
engagement with and understanding
of different areas of the business.
Board Action Plan and Evaluation
– Reviewed progress against the 2018/19 Board
Action Plan and set the Action Plan for
2019/20, with a clear process for monitoring
progress over the course of the year.
– Conducted an internally facilitated Board
Evaluation covering the Board’s effectiveness,
processes and ways of working, with
feedback from individual directors provided
and the outcome discussed by the Board.
Nomination and Remuneration Committees
in light of changes to the UK Corporate
Governance Code.
For more detail, see p39
the Company’s legal team.
– Monitored regulatory and legislative
developments and considered any potential
impact on the Company’s operations.
Board succession and diversity
Annual General Meeting (AGM)
– Reviewed specific issues raised by shareholders
throughout the year to be addressed in the
Chairman’s AGM statement.
– Agreed to deliver a hybrid AGM in 2019,
introducing the ability for shareholders
to participate by electronic means
for the first time without having to be
physically present.
– Considered and reviewed the Board’s
composition, diversity and succession plans,
facilitating the transition to a new CFO and
the addition of three new non-executive
directors, including their inductions.
For more detail, see p47
Legal and regulatory
– On the recommendation of the Audit
Committee, reviewed and approved the
Annual Report and Accounts, Notice of AGM,
Modern Slavery Statement and the Half and
Full Year Results announcements.
STRATEGIC DEEP DIVES
At each meeting, the Board received presentations on and discussed selected strategically significant matters in greater depth to
evaluate progress, provide insight and, where necessary, decide on appropriate action. These included:
Brexit
Clothing & Home
– Discussed preparations, scenario planning
and impact assessments covering tariffs,
import and export compliance and continuity
of product supply, and the options for
potential mitigating actions.
– Considered the potential impact on our
international partners and the ways in
which the business was able to support
them in a range of scenarios.
Culture and organisation
– Reviewed the results of the annual Your Say
colleague feedback survey, identified areas
for improvement and appropriate courses
of action.
– Received an update from the Chair of our
employee representative body, the Business
Involvement Group (BIG), and discussed
with her the Company’s strategy and future
plans from the perspective of colleagues.
– Discussed gender pay in the context of the
wider market, the development of women
into senior roles and driving greater diversity
and inclusion in terms of gender, ethnicity
and social background.
For more detail, see p15-17
– Discussions covered team structure, talent
pipeline, store closure impact, marketing
structure, range planning and phasing
changes, customer experience and logistics.
– Reviewed progress in the project to modernise
the Clothing & Home end-to-end supply
chain and the impact on availability,
waste and costs.
– Considered market positioning and strategic
priorities in Womenswear, and discussed
potential opportunities to drive growth.
For more detail, see p10-11
Food
– Discussed the key strategic priorities of
availability, store standards, price investment
and promotions, organisation and people.
– Discussed product innovation, development,
supplier relationships, customer quality
perception and the key areas of focus for the
Food business over the next three years.
For more detail, see p8-9
International
– Discussed the Company’s international
operating model and opportunities for
profitable growth.
– Discussed pricing strategy and brand
positioning to improve competitiveness
in key markets.
– Considered relationships with international
partners and the opportunities to develop
these further.
For more detail, see p14
Supply chain
– Discussed the end-to-end supply chain in
Clothing & Home and Food from design to
customer, noting impact on availability and
waste and relationships with our suppliers,
and reviewed progress towards resolving the
key challenges.
Joint venture with Ocado
– Evaluated the success of the limited Food
Online trial and potential solutions for a wider
roll-out, discussed options, agreed the
preferred course of action and approved the
final deal.
– Agreed the Audit Committee’s
recommendation to partially fund
the deal through a rights issue and
considered the impact of this on the
Company’s shareholders.
– Considered the colleague perspective on
the joint venture with the assistance of
BIG, and reviewed and approved the
shareholder communications plan.
For more detail, see p42-43
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
42
MARKS AND SPENCER GROUP PLC
GOVERNANCE
CREATING A
JOINT VENTURE
In February 2019, we announced that we would be creating a new 50/50 joint venture
(JV) with Ocado Group plc (“Ocado”). The JV will transform online grocery shopping
for our customers in the UK and represents one of the most significant strategic
initiatives undertaken by M&S for many years.
Good governance is vital in ensuring that projects of this type are delivered in an efficient,
effective and legally compliant way. It provides a framework for challenge, external input and
leadership. The timeline below provides an overview of the governance of each of the key stages
of this complex project, from its early conceptual stages to date.
OUR AMBITION: To deliver a market-leading online food offer for our customers by no later than September 2020.
PLANNING
PHASE
NEGOTIATION
PHASE
TO DECEMBER 2018
DECEMBER 2018 TO JANUARY 2019
CONSIDERING OPTIONS
Having closely monitored the
development of the online
food market for some time,
in 2018 the Board determined
that securing access to online
as the UK’s fastest-growing
retail channel was crucial for
delivering the Food strategy.
The Board tasked the business
to assess the successes and
limitations of the limited food
online trial launched in 2017
and to investigate other viable
options, including mergers
and acquisitions (M&A), and
to report its findings back to
the Board.
GROUP BOARD
> Identified food online
GB
as a key strategic priority
under the transformation
programme.
> Considered online food
market and approved
limited online trial to
test viability.
> Instructed Food and
M&S.com departments
to assess trial findings.
RESEARCH
AND FEEDBACK
NEGOTIATION
AND DUE DILIGENCE
CHECKING
COMMERCIAL ASSUMPTIONS
A Board sub-committee was
formed, comprising the Chairman,
CEO and at least one non-executive
director, to review market context,
consider potential next steps and
identify targets.
The Board appointed a Deal Team
comprising key personnel to take
the deal forward with Ocado,
with clear negotiating parameters
established and instructions to
report back as necessary.
It was concluded that M&A was the
approach most likely to deliver the
best results within an appropriate
timeframe. The food online project
was formally launched, with Ocado
identified as a preferred partner.
The Board considered the market
sensitivity of the project and
instructed the Disclosure
Committee to convene as often
as necessary to ensure that the
Company’s ongoing obligations
under the Market Abuse
Regulation (MAR) could be met.
During the progression of talks
with Ocado, the Deal Team engaged
a Review Team of individuals who
had not had any prior involvement
in the project and whose purpose
was to provide an entirely fresh
perspective, with particular
emphasis on the pricing of
the proposals.
Feedback was provided to the Deal
Team, which retained responsibility
for formulating a commercial view
of the viability of the project.
REVIEW TEAM
> Provided a cold review of
the commercial rationale
and structure of the deal.
RT
> Reviewed the pricing of the
deal and fed back directly
to the Deal Team.
GROUP BOARD
> Agreed the creation of a
Board sub-Committee to
review options.
> Identified Ocado as the
preferred partner with
which to explore the
potential for a deal.
GB
GROUP BOARD
> Appointed, set the
GB
negotiating parameters for
and received weekly updates
from the Deal Team.
DT
DC
DEAL TEAM
> Initiated and progressed
discussions with Ocado.
DISCLOSURE COMMITTEE
> Held regular meetings to
ensure MAR compliance.
> Assessed whether the
Company could at all times
ensure confidentiality of
relevant information.
DECEMBER 2018 TO JANUARY 2019
43
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
GOVERNANCE STRUCTURE
The chart to the right illustrates the committees and teams involved in
the negotiation process and the flow of information to the Board so that
decisions of a strategic nature could be taken at pace.
The Board instructed each of the Audit and Disclosure Committees and
the Deal Team in their specific roles and ensured that a strict governance
process was followed. This allowed for negotiation to progress efficiently
and confidentially until such time as both parties were ready to announce
an agreement.
In addition to receiving weekly progress updates from the Deal Team, the
Board met a further seven times outside of its agreed meeting schedule
between December 2018 and February 2019, when the deal was announced.
Read more about the role of the Board on p39 and its activities
during the year on p40-41
GB
GROUP BOARD
AC
DC
DT
RT
AUDIT
COMMITTEE
DISCLOSURE
COMMITTEE
DEAL TEAM
REVIEW TEAM
COMPLETION
PHASE
FEBRUARY 2019 ONWARDS
EVALUATING
FUNDING OPTIONS
OVERCOMING
GOVERNANCE CHALLENGES
AGREEMENT
AND DISCLOSURE
DELIVERING THE
RIGHTS ISSUE
As talks progressed and gained
pace, both parties considered and
evaluated the appropriateness of
different methods of funding the
potential deal.
Outside of the challenges that could
be expected for a deal of this
complexity, the negotiation process
was subject to two occurrences of
press speculation.
It was concluded that a rights
issue was the method that most
closely aligned with the Company’s
strategy to restore M&S to
sustainable, profitable growth and
maintain a strong balance sheet,
and was therefore in the best
interests of shareholders.
In line with the clear requirements
of MAR, the Company issued a
public announcement addressing
this speculation on 26 February
2019, confirming that talks were
under way and that there was no
certainty of an agreement being
reached at that stage.
An agreement was reached and
the deal concluded, with public
announcements made to the
London Stock Exchange. It was
approved by Ocado’s shareholders
on 20 May 2019.
Finally, formal approval was granted
to make arrangements to conduct a
rights issue to raise up to £601.3m to
fund the acquisition of 50% of the
Ocado Retail business that forms
the basis of the JV.
The Board intends to formally
launch the Rights Issue, which
will be fully underwritten on a
standby basis by Morgan
Stanley, in due course.
GROUP BOARD
> Approved Audit Committee
recommendation to fund
via a rights issue.
GB
DEAL TEAM
> Continued to progress talks
DT
and reported on key milestones
and negotiation challenges
to the Board.
AUDIT COMMITTEE
> Analysed funding options
AC
and formally recommended
the Rights Issue to the Board
as being most appropriate.
DISCLOSURE COMMITTEE
> Considered press
DC
speculation in the context
of the Company’s
MAR obligations.
GROUP BOARD
> Assessed the final proposal
and formally approved
the deal.
GB
> Approved the form of
Regulatory News Service (RNS)
announcement and authorised
its release to the market.
DEAL TEAM
> Concluded talks and
brought a cohesive final
proposal to the Board.
DT
DISCLOSURE COMMITTEE
> Approved form of RNS
DC
announcement and authorised
its release to the market.
GROUP BOARD
> Will formally approve
the Rights Issue terms.
GB
> Will agree the process by
which shareholders will be
invited to participate.
AUDIT COMMITTEE
> Will review the
AC
financial information
to be contained in
the Prospectus.
> Will meet to consider
relevant matters
when required.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 44
MARKS AND SPENCER GROUP PLC
GOVERNANCE
HOW WE ENGAGE,
CONSIDER AND RESPOND
Our rich network of
stakeholder relationships
supports the values on
which M&S was founded.
These relationships
are even more vital
during this period of
transformation.
OUR APPROACH
Engaging with our stakeholders is
fundamental to the way we do business
at M&S. We have over 150,000 registered
shareholders, 80,000 colleagues, and 32
million customers. We source our products
from suppliers worldwide. These individuals,
businesses and communities are all integral
to our business. We will only be able to
transform M&S successfully with their
input, cooperation and trust.
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.
On these pages you will also find examples
of how we considered our stakeholders
when making key decisions during the
year. As a Board, we have a duty to promote
the success of M&S for the benefit of
our members. In doing so, however,
we must have regard for the interests
of our colleagues, for the success of our
relationships with suppliers and customers,
for the impact of our operations on the
community, and for the desirability of
maintaining a reputation for high standards
of business conduct. These stakeholder
considerations are woven throughout all
of 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 look to ensure that those
impacted are treated fairly.
More information about how the directors
have discharged their duty under s.172 of
the Companies Act 2006 is available in the
Strategic Report, on pages 2-33.
Key
A
Link to Plan A
SHAREHOLDERS
COLLEAGUES
BOARD CONSIDERATIONS
All Board decisions are made with M&S’s success
in mind, which is ultimately for the long-term
benefit of our members. This year in particular
though, we made the decision to reduce our
dividend and proceed with a rights issue to
finance our JV with Ocado. We considered the
impact of this action on our shareholders in
detail, and agreed that our Ocado partnership
could have a transformational impact on our
future success, and consequently increase
value for shareholders in the long term.
ANNUAL GENERAL MEETING (AGM)
Our 2018 AGM was well attended and all our
proposed resolutions were passed, with votes in
favour ranging from 91.56% to 99.99%. We have
also 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 INVESTOR ENGAGEMENT
The Investor Relations team alongside
management maintains a regular dialogue with key
institutional investors. Over the course of the past
year, the team met with over 270 investors, from
over 170 institutions and participated in a dozen
industry conferences and roadshows. In the
course of their meetings, the team engaged
with investors representing well over half of our
issued share capital.
PRIVATE SHAREHOLDER PANEL
This year, we continued to hold regular meetings
with groups of private shareholders. These are
typically attended by either the CEO or a member
of senior management and give our private
shareholders the opportunity to share their
views in an informal setting.
ASSET REUNIFICATION
Through our asset reunification programme,
M&S proactively seeks to re-unite shareholders
promptly with their shares and unclaimed dividend
payments. Additionally, our move to mandatory
direct credit as our only means of issuing dividend
payments, which came into effect in July 2018,
will assist us in substantially reducing the quantity
of payments that go unclaimed each year and
to ensure that more of our private shareholders
receive their dividends as cleared funds on the
payment date.
BOARD CONSIDERATIONS
This year the chairman of BIG attended two
Board meetings, providing us with the colleague
perspective on key issues. We discussed our
transformation programme, and how our
colleagues feel about the improvements being
made to the way we work. Our colleagues’ positive
feedback and enthusiasm for our transformation
initiatives have spurred us on in driving to
maintain our programme of changes
throughout the business.
BUSINESS INVOLVEMENT GROUP (BIG)
Engagement with our colleagues is facilitated
through BIG, a network of 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 and by attending Board and Remuneration
Committee meetings during the year. Operating
Committee members also attend National BIG
meetings to understand the issues that are
important to our colleagues.
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,
and we encourage colleagues to respond to all of
these updates by sharing their views, ideas and
work experiences. Dedicated information is also
provided on our pension schemes.
A DIVERSITY & INCLUSION
This year we were recognised in The Times Top 50
Employers for Women for the ninth year running.
We actively support employee-led networks
on gender, ethnicity (BAME), sexual orientation
(LGBT+) and disabilities 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 third Diversity & Inclusion festival,
engaging thousands of colleagues across M&S.
TRAINING AND DEVELOPMENT
A range of learning offerings and development
programmes are available to colleagues, including
technical courses, inspirational talks and mentoring
programmes, as well as coaching support on
behavioural and leadership skills.
A VOLUNTEERING
During 2018/19, thousands of colleagues volunteered
over 47,000 hours of work time to help hundreds of
community projects. Our stores also used surplus
food to distribute 2.8 million meals to local charities.
YOUR SAY SURVEY
Our annual Your Say Survey gives us an informed
picture of how colleagues feel about the business.
Over 63,000 of our colleagues chose to participate
and share their feedback. The engagement score
this year was strong at 81%.
45
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
CUSTOMERS
COMMUNITY
SUPPLIERS
BOARD CONSIDERATIONS
The customer experience is crucial in our Board
discussions. This year, we especially considered
how our transformation programme has helped
us to improve our operations and efficiency,
and ultimately improve our customer experience.
In doing so, we have agreed to continue our
transformation at pace, and push on with
our plans to make M&S special again for
our customers.
DIRECT FEEDBACK
We get direct feedback from our customers
through a variety of channels including surveys,
interviews and online input. Customers also have
the opportunity to feed back, either online or by
phone, 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 so that action can be taken.
A SPARKS CARD
7.2 million Sparks card holders currently receive
tailored offers plus the chance to engage with a
Plan A charity partner of their choice. Over £5m
has been raised to date.
RETAILER CHOICE
Over 25,000 people took part in our study to
find out what motivates customers to shop at a
particular retailer, how important the drivers are
and how M&S and our competitors perform
against them.
A SUSTAINABILITY
3,000 people were asked about the areas of
sustainability and Plan A that were of greatest
importance to them, and how we and our
competitors perform in these areas. Their feedback
helped us identify a number of clear areas of focus
for the future development of our Plan A strategy.
IRELAND PRICE INVESTMENT
We held 40 focus groups and directly engaged with
over 900 customers in Ireland to understand the
impact of our investment in everyday lower prices.
The insights from this directly influenced changes
made to the tone, emphasis and content of our
campaign marketing materials.
TOP TIER
Quality is the reason people choose to shop at M&S
for food; however, competition remains fierce and
we are therefore reviewing our premium offer in
each of our major food categories. This workstream,
which includes an online study involving over 2,000
customers, will help us identify areas in which our
premium offer can be developed further and will
ensure that we continue to deliver in accordance
with the high expectations of our customers.
HOME POSITIONING
500 customers were surveyed to find out what they
thought of M&S Home, with the insights received
helping to define our Home Marketing Strategy.
BOARD CONSIDERATIONS
The impact of our operations on the communities
in which we work is an important consideration
in our Board discussions. When we have decided
to push forward with our stock improvement
initiatives, we have considered how improving our
efficiency has helped us to reduce our waste and
our impact on the environment. In continuing
our store closure programme, we have considered
the views of each of our store’s communities,
and how we can better address their needs
with an improved store offering.
TAX CONTRIBUTION
M&S remains one of the UK’s largest contributors of
taxes to the UK exchequer and we are committed
to paying our fair share of tax. We were identified in
PwC’s annual survey of the total tax contribution
of FTSE 100 constituents as the 27th highest payer
of tax and the 4th highest payer of business
rates in the UK in 2018. While this illustrates our
commitment to paying our way, it also highlights
the burden placed on “bricks and mortar” retailers
relative to other industries.
A COMMUNITY TRANSFORMATION
We aim to secure meaningful economic, social
and environmental benefits to 1,000 communities
around our stores and beyond by 2025. This year we
completed the first phase of our programme and
engaged 10 communities benefiting over 2,800
participants.
A CHARITABLE GIVING
With the help of our customers, this year we raised
a total of £11.5m for a range of charities including
Macmillan Cancer Support, Breast Cancer Now and
the Royal British Legion.
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
3,200 work placements worldwide, with over 63%
of those completing a placement in the UK or
Republic of Ireland going on to find work.
A LOCAL FUNDRAISING
This year 630 of our stores in the UK and the
Republic of Ireland adopted a charity of the
year and helped to raise £1m. M&S stores in
India also raised in excess of £40,000 in aid of
two Indian charities.
M&S COMPANY ARCHIVE
16,700 people visited the Marks in Time Exhibition
during the year to learn more about our long
history and rich heritage. The Archive also
continued to drive a range of engagement
initiatives in 2018/19 through its schools,
events and community outreach programmes.
Visit marksintime.marksandspencer.com
for more details.
BOARD CONSIDERATIONS
Our supplier relationships are vital to our overall
success, so as a Board we carefully consider
the selection of, and engagement and continued
relationship with, our key suppliers. This year,
in line with our transformation programme,
we reviewed our major suppliers and engaged
new suppliers that represent our ideals and are
equipped to assist us on our transformation.
PREVENTING MODERN SLAVERY
We have continued to increase the depth and breadth
of our work in the area of preventing modern slavery,
ensuring that 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 2019
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. Between April 2017
and March 2019 over 190,000 people were helped
either directly or indirectly.
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 Grocery
Supplier Code of Practice (GSCOP) report.
SUPPLIER COLLABORATION
We work with our suppliers to streamline processes
and optimise volumes through collaborative
workshops and toolkits. 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. We were also 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 supplier base
each year. In 2018, we were again ranked second
overall out of the seven participating retailers.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 46
MARKS AND SPENCER GROUP PLC
GOVERNANCE
NOMINATION
COMMITTEE REPORT
INTRODUCTION
In the Chairman’s governance overview,
I noted that this year saw the completion
of a substantial, but necessary, refresh of
the Board. This work, undertaken by the
Nomination Committee (the “Committee”)
during the year, has ensured that we have in
place a strong non-executive team
with a breadth of skills, experience and
perspectives that are relevant to the
transformation we are in the midst of at M&S.
During the year, the Committee continued
to focus on the combined skillset and
capabilities of the directors to ensure their
effectiveness in driving our transformation
strategy forward. It also continued to fulfil
its core responsibilities of reviewing the
structure of the Board and committees,
recommending new Board appointments
and ensuring adherence to formal
appointment and induction processes.
In July, we welcomed Humphrey Singer as
Chief Finance Officer and Katie Bickerstaffe
and Pip McCrostie as non-executive
directors. Richard Solomons stepped down
at the 2018 AGM while Vindi Banga, Senior
Independent Director (SID) and Chair of
the Remuneration Committee, retired as a
director in October after seven years of
dedicated service. Vindi was succeeded as
SID by Andy Halford and by Andrew Fisher
as Chair of the Remuneration Committee.
As a result of this, Andrew stepped down
from the Audit Committee.
Most recently, in January we welcomed
Justin King to the Board. In February, Nick
Folland joined as Group General Counsel
and Company Secretary, while Amanda
Mellor, our Group Secretary and Head
of Corporate Governance since 2009,
left the business with our sincere thanks.
“ We have in place a strong
non-executive team
with a breadth of skills,
experience and perspectives
that are relevant to
our transformation.”
ARCHIE NORMAN CHAIRMAN OF
THE NOMINATION COMMITTEE
COMMITTEE ROLE
ACTIVITIES AND EVALUATION
COMMITTEE MEMBERSHIP
NOMINATION COMMITTEE GOVERNANCE SNAPSHOT
The Committee reviews the leadership
and succession needs of the organisation
and ensures that appropriate procedures
are in place for nominating, training and
evaluating directors. Due regard is
given to the benefits of diverse senior
leadership, including gender, social
background and ethnicity.
In addition, the Committee ensures
that the Group’s governance facilitates
efficient, effective and entrepreneurial
management that can deliver
shareholder value over the longer term.
MEETINGS HELD IN 2018/19
During the year, the Committee
recommended the appointment of
Justin King as a non-executive director
and continued to support the search
for senior appointments and the
development of our senior talent.
The Committee’s performance was
reviewed as part of the 2018/19 Board
Evaluation (see page 39). It was regarded
as maintaining an effective oversight of
senior management changes and
succession during the year.
The Committee comprises the
non-executive directors and is chaired by
Archie Norman, with members of executive
management invited to attend meetings
as appropriate.
Details of individual attendance at the
meetings held during the year are set out
below. More information on the skills and
experience of all Committee members
can be found on pages 36 and 37.
More information on the Nomination
Committee is available in our full response
to the UK Corporate Governance Code at
marksandspencer.com/thecompany.
Archie Norman
Vindi Banga
Katie Bickerstaffe
Alison Brittain1
Andrew Fisher
Andy Halford
Justin King2
Pip McCrostie
Richard Solomons
1. Alison Brittain was unable to attend the meeting on 17 May 2018 due to a prior business commitment.
2. Justin King was unable to attend the meeting on 13 March 2019 due to a prior business commitment.
MEMBER
SINCE
1 Sept 2017
3 Sept 2011
10 Jul 2018
1 Jan 2014
1 Dec 2015
1 Jan 2013
1 Jan 2019
10 Jul 2018
13 Apr 2015
NUMBER OF
MEETINGS
ATTENDED
MAXIMUM
POSSIBLE
MEETINGS
3
2
2
2
3
3
0
2
1
3
2
2
3
3
3
1
2
1
47
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
BOARD DIVERSITY POLICY
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 Group. 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 supports and encourages
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.
> Initiatives for high-potential talent to
broaden their skillsets and experience
to prepare them for future senior roles;
for example, through boardroom
exposure, non-executive and trustee
roles outside of M&S and involvement
in our Leadership Programme.
> Providing access to business school
training as appropriate.
> Senior management mentoring
schemes and engagement forums
sponsored by Board directors and
Operating Committee members.
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, including:
> Employee-led networks on gender,
ethnicity (BAME), sexual orientation
(LGBT+), and disabilities and health
conditions. This year, we held our third
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.
> Signing up to Business in the
Community’s (BITC) Race at Work
Charter, affirming our commitment to
removing barriers that ethnic minorities
experience in the workplace.
> Launching the Breakthrough Leaders
programme – a pilot leadership and
development programme targeting
women and BAME talent and providing
inclusive leadership training for
delegates and their line managers.
> 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
International Day of Disability, raising
awareness and our profile as an inclusive
place to work.
> Our Marks & Start and Marks & Start
International programmes 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 that it remains an
effective driver of diversity in its
broadest sense, having due regard to
gender, ethnicity, social background,
skillset and breadth of experience.
PROGRESS UPDATE
Maintain a level of at least 30%
female directors on the Board
over the short to medium term.
Following the appointments of Katie
Bickerstaffe and Pip McCrostie to the
Board in July 2018, three of our nine
Board directors are women (33%).
As such, the Board’s minimum target has
been met as at the date of this report.
The Board remains committed to
its minimum 30% target for female
representation and is also pleased to
have now met the target set out in the
Hampton-Alexander Review of 33% female
representation by 2020. Setting these
targets aside, 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 offer.
Our principles for Board diversity also
apply to our Operating Committee,
three of whom are women from a total
membership of 11 (27%). The Board
continues to strengthen the pipeline
of senior female executives within the
business, and to ensure that there are
no barriers to women succeeding at the
highest levels within M&S. We are pleased
that M&S was again listed in The Times
Top 50 Employers for Women in 2019 for
the ninth year running. More information
on the gender balance of our senior
management can be found on page 17.
Ensure long lists of potential
non-executive directors include
50% female candidates.
All long lists of potential appointments
include at least 50% female candidates.
See p19 of our Plan A Review for further
information on diversity across M&S.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 48
MARKS AND SPENCER GROUP PLC
GOVERNANCE
AUDIT COMMITTEE
REPORT
“ The Committee provides
valuable independent
challenge and oversight,
ensuring shareholder
interests are protected,
and the Company’s
strategy is supported.”
ANDY HALFORD CHAIRMAN OF THE
AUDIT COMMITTEE
INTRODUCTION
As Chairman of the Audit Committee
(the “Committee”), I am pleased to present
the Committee’s report for the year ended
30 March 2019. The following pages offer
insight into how the Committee discharged
the responsibilities delegated to it by the
Board over the course of the year, as well
as the key topics it considered in doing so.
The Committee’s primary functions were
unchanged this year, and included
monitoring the integrity of the Company’s
financial statements and the effectiveness
of its Internal Audit function, maintaining an
appropriate relationship with and reviewing
the independence and effectiveness of the
Company’s external auditor, Deloitte, and
reviewing the Company’s systems of
internal control and risk management.
In addition to these principal activities,
the Committee continued to assess the
progress being made to maintain and
improve the Company’s data governance,
cyber security systems, business continuity
procedures and financial controls, and
monitored the pace with which its
recommendations in respect of internal
controls were remediated. It also considered
property valuations, including carrying
values and disclosures relating to the M&S
Scottish Limited Partnership. Additionally,
it assessed the implementation of IFRS 16,
the new accounting standard relating to
the presentation of leases, particularly
reviewing its impact on the Company’s
balance sheet and the appropriateness of
disclosures to be made. In addition to its
scheduled meetings, the Committee
convened as and when required to evaluate
the various potential financing options for
the Ocado joint venture (‘JV’), ensuring that
any underlying assumptions were robustly
challenged. This ultimately led to the
Committee’s recommendation to the Board
that a Rights Issue was the appropriate
funding model for this transaction.
In exercising its duties, the Committee
undertakes a vital role in the Company’s
governance framework, providing valuable
independent challenge and oversight
across the Company’s financial reporting
and internal control procedures. Ultimately,
it ensures that shareholder interests are
protected and the Company’s long-term
strategy is supported.
COMMITTEE MEMBERSHIP
INDEPENDENCE AND EXPERIENCE
MEETINGS HELD IN 2018/19
AUDIT COMMITTEE GOVERNANCE SNAPSHOT
The Committee solely comprises
independent non-executive directors.
Pip McCrostie joined the Committee upon
her appointment to the Board in July 2018,
and Andrew Fisher stood down from the
Committee on 1 October 2018 as a result
of his appointment as Chair of the
Remuneration Committee. Detailed
information on the experience, skills and
qualifications of all Committee members
can be found on pages 36 and 37.
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 retail sector.
The Board has also confirmed that it is
satisfied that both Andy Halford and
Pip McCrostie possess recent and
relevant financial experience.
Andy Halford
Alison Brittain
Andrew Fisher1
Pip McCrostie2
MEMBER
SINCE
NUMBER OF
MEETINGS
ATTENDED
MAXIMUM
POSSIBLE
MEETINGS
1 Jan 2013
11 Mar 2014
3 Feb 2016
10 Jul 2018
5
5
2
4
5
5
2
4
1. Andrew Fisher stood down from the Committee on 1 October 2018.
2. Pip McCrostie joined the Committee on her appointment to the Board on 10 July 2018.
The Committee held five meetings
during the year, with members of senior
management invited to attend as and when
specialist technical knowledge was required.
The Committee met without management
present before each full meeting. It also met
privately with the lead audit partners, and
separately with the Head of Internal Audit &
Risk, after each meeting.
It is important for the Committee Chairman
to fully understand any topics of particular
concern in order to facilitate meaningful
dialogue during Committee meetings. To
support this, Andy Halford meets regularly,
on a one-to-one basis, with the Chief Finance
Officer, Director of Group Finance, Head of
Internal Audit & Risk, members of senior
management and the lead audit partners.
More information about the Audit
Committee is available in our full response
to the UK Corporate Governance Code at
marksandspencer.com/thecompany.
49
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
AUDIT COMMITTEE EFFECTIVENESS REVIEW
The Committee’s performance was
reviewed within the framework of the
2018/19 internal Board Evaluation (discussed
on page 39). Feedback on the level of
challenge and quality of updates provided
by the Committee to the Board was positive.
The Committee was considered to function
well in terms of meeting structure and the
levels of engagement and challenge
provided by its members. It continues to be
regarded as thorough and effective, with
demands on members’ time viewed as
extensive but not problematic. Additionally,
it was noted that the Committee considered
that the key strategic concerns facing the
business, such as IT and systems, would
benefit from greater focus in the year ahead.
The range of assurance provided to the
Board by the Committee was deemed
appropriate. However, improvements could
be made in respect of the pace with which
the business actions certain matters
following discussions with the Committee.
The Committee made good progress
on the 2018/19 action plan, particularly in
relation to the Internal Audit effectiveness
review and implementation of its findings.
2019/20 ACTION PLAN
> Monitor the recommendations of the
Internal Audit effectiveness review
undertaken in 2018/19.
> Increase focus on risk reporting and
emphasising accountability for risk at
business unit level.
> Monitor the progress and pace of delivery
of the Company’s wider technology and
cyber security transformation.
WHAT WAS ON THE COMMITTEE’S AGENDA IN 2018/19
CORE DUTIES
The Committee undertook the following
core activities during the year:
> Monitored the integrity of the annual
and interim financial statements and any
formal announcements relating to the
Company’s financial performance,
with a focus on reviewing the significant
financial reporting policies and
judgements within them.
> Reviewed the implementation of the
new IFRS 16 accounting standard.
> Reviewed internal controls and risk
management processes.
> Maintained the relationship with the
external auditor, including monitoring
their independence and effectiveness.
> Reviewed the effectiveness and
independence of the Internal Audit &
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, was 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 were
considered insufficient were discussed
during the year, either by the Audit
Committee or the full Board. These
have included controls in relation to
IT systems access and management,
the Three-Year Plan and UK store estate
strategy. The Committee provided robust
challenge in respect of the speed of
change as well encouraging clearer
accountability for and measurement
of progress.
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 that 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’s 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 received 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 key activities
undertaken during 2018/19.
Data governance
> Reviewed the findings of a GDPR
Embedded Controls review undertaken
by the Internal Audit function.
> Discussed initiatives to drive data
awareness and cultural change
across the business.
Cyber security
> Received regular updates on the
work undertaken to ensure that
adequate cyber security systems
were maintained.
> Considered data breaches within the
market, and reviewed the results of
cyber-attack simulation scenarios
initiated in response.
> Discussed and challenged the
processes in place to deal with
internal security breaches.
Business continuity
> Received updates on the crisis
management and business recovery
capability across all retail and
distribution operations.
> Discussed key initiatives undertaken
during the year, including a number of
wide-reaching crisis management
exercises, improvements to incident
reporting capability, and a full review
of our approach to critical suppliers.
> Endorsed the business continuity
priorities for 2019/20, including reviewing
Castle Donington’s disaster recovery
plan, ongoing assessment and testing of
global terrorism and cyber security
preparedness, and enhancements to the
My Safety app and communications
channel with our colleagues.
Ocado JV
> Evaluated the financing options for the
deal and ultimately recommended a
Rights Issue to the Board.
Brexit
> Discussed the key risks associated
with a potential “no deal” Brexit, with a
focus on financial implications, including
increases in import duties, increases
in supplier costs and additional
administration and delays at ports.
> Reviewed and challenged the steps
being taken and potential actions to
mitigate the risks of “no deal”.
Clothing & Home risk management
> Received an update on the improving
systems of risk management and
accountability in Clothing & Home.
> Reviewed the business’ assessments of
its major risks, and challenged the
assumptions used in evaluating them.
> Discussed the ongoing management
and mitigation of the business’ primary
risks, relating to e-commerce site
recovery and disaster recovery at
Castle Donington.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 50
MARKS AND SPENCER GROUP PLC
AUDIT COMMITTEE REPORT CONTINUED
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 on these matters 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: net costs associated with the
implementation of strategic programmes
in relation to UK store estate, organisation,
operational transformation, IT restructure,
UK logistics, charges arising in relation to
changes to pay and pensions and
International store closures and
impairments (the closure of International-
owned businesses); impairments and
write-off of the carrying value of UK stores
and other property charges; the reduction
in M&S Bank charges incurred in relation
to the insurance mis-selling provision;
guaranteed minimum pension and other
pension equalisation; and charges relating
to establishing the Ocado JV.
SIGNIFICANT ISSUES
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 (£438.6m charge) and
the guidelines on the use of alternative
performance measures issued by the
European Securities and Markets Authority.
See note 5 on p105
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,
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 cash-generating
unit in the period to closure). The Committee
has challenged management and is
satisfied that the assumptions made are
appropriate. The Committee is also satisfied
that appropriate costs and associated
provisions have been recognised in the
current financial year.
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 future performance of
the business are Board approved. The
Committee is satisfied that appropriate
impairment of tangible and intangible
assets has been recognised.
See notes 1, 5, 14 and 15 on p101-102,
p105 and p116-119
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.
See note 11 on p110-113
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.
See notes 1, 5, 15 and 22 on p101,
p105, p118 and p131
See note 1 on p97
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.
SUPPLIER INCOME
The Committee is satisfied that this
continues to be monitored closely by
management and controls are in place
to ensure appropriate recognition in
the correct period. Further control
improvements are planned in the coming
year. The financial statements include
specific disclosures in relation to the
accounting policy and of the effect of
supplier income on certain balance
sheet accounts.
See note 1 on p97
51
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
IFRS 16
IFRS 16 Leases is effective for periods
beginning on or after 1 January 2019.
The Group will adopt the new financial
reporting standard from 31 March 2019
and the financial statements for the 52
weeks ended 28 March 2020 will be the first
prepared under the new standard. The
Group has decided to adopt using the fully
retrospective transition approach, meaning
the comparative period will also be restated
at this time. As a lessee, IFRS 16 removes
distinctions between operating and finance
leases and requires the recognition of a right
SIGNIFICANT ISSUES CONTINUED
of use asset and corresponding liability for
future lease payables. For further details,
see the Accounting policies section of
the financial statements. The Committee
has received regular updates from
management outlining the impact of the
new accounting standard, including the
judgements and key assumptions used in
the estimation of the impact. The
Committee has reviewed with management
and is satisfied that these are appropriate.
See note 1 on p96
VALUATION OF MARKS AND
SPENCER GROUP PLC
COMPANY ONLY INVESTMENT
Marks and Spencer Group plc holds
investments in Group companies which are
reviewed annually for impairment.
Management has prepared an impairment
review based on estimated value in use of
the Group. While the headroom is reduced
from the prior year, management has
concluded that no impairment should be
recognised in the year (see note C6
Investments on page 139). The Committee
has reviewed management papers outlining
the key assumptions used in calculating
the value in use and is satisfied that these
are appropriate.
FAIR, BALANCED AND UNDERSTANDABLE
At the request of the Board, the
Committee has considered whether,
in its opinion, the 2019 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 Annual 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 it knows 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 that
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 those that were
positive and those that 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 reporting on the business performance
in the narrative reporting consistent with
that used for the financial reporting in
the financial statements?
> Are the key messages in the narrative
reflected in the financial reporting?
> Are the KPIs disclosed at an appropriate
level based on the financial reporting?
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
part remain consistent when one is
read independently of the other?
> Is the Annual Report properly considered
a document for shareholders?
> Are the statutory and adjusted
measures explained clearly with
appropriate prominence?
> 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 important messages highlighted
appropriately throughout the document?
> Is the layout clear with good linkage
throughout in a manner that reflects
the whole story?
CONCLUSION
Following its review, the Committee
was of the opinion that the 2019 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 52
MARKS AND SPENCER GROUP PLC
AUDIT COMMITTEE REPORT CONTINUED
EXTERNAL AUDITOR
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.
It was agreed that the audit process and
audit team have challenged management’s
thinking and contributed to improved
standards. Areas of focus for the year ahead
will be on driving challenge and insight
around finance and internal controls.
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 prior
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 30 March 2019
was 0.21:1, compared with the previous
year’s ratio of 0.11:1. The majority of the
£0.42m in non-audit fees paid in total to
Deloitte during 2018/19 was incurred for
assurance services provided during the
year. These comprised fees in respect of
the Half Year review, Ocado joint venture
synergy review, turnover certificates,
the annual Euro Medium Term Note
(EMTN) programme renewal, reviews of
quarterly trading statements, aborted
EMTN issuance relating to the Ocado joint
venture and assurance services for overseas
entities. It is normal practice for such
assurance services to be provided by the
Company’s statutory auditor.
In addition, the Audit Committee has
pre-approved fees of up to £480k in
relation to the role of Deloitte as reporting
accountant in the rights issue, which
will be incurred and included in FY2019/20
non-audit fees.
No additional recurring or one-off non-audit
services were provided during the year.
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
been in post for five years. Following
completion of the 2018/19 audit he will
be replaced as lead audit partner by
Richard Muschamp. The external audit
contract will be put out to tender at
least every 10 years. The Committee
considers that it would be appropriate
to conduct an external audit tender
by no later than 2024.
The Committee recommends that Deloitte
be reappointed as the Company’s statutory
auditor for the 2019/20 financial year.
It believes the independence and
objectivity of the external auditor and
the effectiveness of the audit process
are safeguarded and remain strong.
The Company is in compliance with the
requirements of the Statutory Audit
Services for Large Companies Market
Investigation (Mandatory Use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014 and
the Corporate Governance Code. There are
no contractual obligations that restrict the
Committee’s choice of external auditor.
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 for Food, Clothing
& Home and International:
Short questionnaire focusing on the audit
team, planning, challenge and interaction
with the business.
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.
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.
53
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
ASSURANCE AND INTERNAL CONTROL ENVIRONMENT
2. Management updates
Management provides updates to the
Committee on how risks are managed in
individual business areas. These updates are
complemented by the independent reviews
conducted by Internal Audit.
3. Functional assurance
Responsible for maintaining control over
critical areas of risk. A key improvement
during the year has been the mobilisation
of a dedicated Change & Control team.
The processes and controls of these
functions are tested by Internal Audit
during periodic audits.
4. Committees
Relevant committees within the
organisation provide regular updates to
the Audit Committee, such as Fire, Health &
Safety and Business Continuity.
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 81-90. No other significant
failings or weaknesses were identified
during the Committee’s review in respect
of the year ended 30 March 2019 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
Management
updates
Functional
assurance
– 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
Papers submitted on a range
of issues including:
– Information security
– Bribery
– Code of Ethics and Behaviours
– GSCOP
– Financial Control
Functional audit activities
undertaken, including:
– Food safety and integrity
– Ethical audits
– Trading safely and 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 p29-33 of the Strategic Report for
more information on our material risks
See p27-28 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.
The work completed by Internal Audit
during the year has been directed towards
key areas including IT, information and
data security, core finance operations and
key areas of risk such as food safety and
GSCOP compliance.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 54
MARKS AND SPENCER GROUP PLC
REMUNERATION
REMUNERATION
OVERVIEW
ANDREW FISHER CHAIR OF THE REMUNERATION COMMITTEE
INTRODUCTION
On behalf of the Board, I am pleased to
present our 2018 Remuneration Report, my
first as the Chairman of the Remuneration
Committee. 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 decisions made by
the Committee as a result of business
performance for this year.
A summary of the approved Remuneration
Policy for the year, the Committee’s
considerations and the intended
arrangements for 2019/20 are set out on
pages 63-75 of this report. The full Policy
can be viewed on the Company's website at
marksandspencer.com/thecompany.
BOARD CHANGES
Following the departure of Helen Weir
at the end of the last financial year,
in July 2018 we were delighted to welcome
Humphrey Singer as CFO. As detailed in the
2018 report, the Committee was 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.
Early 2018 also saw the departure of
Patrick Bousquet-Chavanne. Details of
his leaving arrangements, along with full
recruitment details for Humphrey, can
be found on page 72 of this report. Due to
the principle of mitigation built into the
executive director Termination Policy, the
Company was only required to pay a small
proportion of Patrick's potential contractual
notice period that would have been required
had this principle not been in place.
Reflecting on these arrangements, the
Committee believes that our Remuneration
Policy continues to provide appropriate
flexibility in ensuring that any payments
made in the implementation of the Policy
are in the best interests of both the
Company and our shareholders while being
fair to the individual. As we look to the
future, the Committee continues to be
mindful of the ever-changing political and
retail trading landscape and the need to
ensure strategic alignment of the
remuneration framework together with a
motivational package for senior colleagues.
CONTEXT OF BUSINESS PERFORMANCE
As referenced earlier in this report, M&S
remains in the first ‘Restoring the Basics’
phase of the transformation. In Clothing &
Home, despite underlying progress this
year, transformation is yet to be reflected
in like-for-like sales. In Food, whilst
encouraging signs of volume growth were
seen in the final quarter, again like-for-like
sales were down and small improvement
gains continue to be offset by challenges
with our supply chain. As demonstrated on
page 55, and referenced throughout this
Remuneration Report, there is a strong
alignment between M&S’s key performance
indicators and the measures and targets of
director incentive schemes. As described
later, it is to be expected that payments
under both the Annual Bonus Scheme and
Performance Share Plan will be impacted by
this challenging trading environment and
the requirement of M&S to strengthen its
ability to transform and adapt with pace.
“ The Committee ensures
that executive pay
arrangements remain
appropriate when
considering M&S's overall
remuneration framework
and external regulatory
environment.”
ANDREW FISHER CHAIR OF THE
REMUNERATION COMMITTEE
IN THIS SECTION
REMUNERATION
Remuneration overview p54-57
Remuneration in context p58
Remuneration policy summary p59-62
Full policy available at
marksandspencer.com/thecompany
in the 2017 annual report
ANNUAL REPORT
ON REMUNERATION
Remuneration structure p63
Total single figure remuneration p63
Salary and benefits p64
Annual Bonus Scheme p65-66
Performance Share Plan p66-68
Directors’ share interests p69-70
Changes to Board membership p72
Non-executive directors’ remuneration p73
Remuneration Committee remit p74
55
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
STRATEGIC ALIGNMENT OF REMUNERATION FRAMEWORK WITH KPIS
Performance
Share Plan
(PSP)
Annual
Bonus
Scheme
(ABS)
Historic
Looking
Forward
KPI/Strategic Priority
KPI
See KPIs
on p22
Adjusted Earnings Per Share (EPS)
Return On Capital Employed (ROCE)
Free Cash Flow
Group PBT Before Adjusting Items
(PBT)
As measured by
Financial Results
STRATEGIC
PRIORITY
See Strategic
Priorities
on p7
1 Transforming Leadership Team
2 Building Greater Accountabilities
3 Digital First Retailer
4 Reshaping the Ranges and Customer
Profile in Clothing & Home
8 Modernising the Supply Chain
9 Cost Savings
New management team
Talent review
Team development
New management team
Team development
Clear and consistent
reporting
Accelerate culture and
organisation change
Sparks
Online capabilities
Technology enabled store
portfolio and operations
Accelerate Online Growth
Range management
Supply chain delivery
Operating costs and control
of capital expenditure
Cost Strategy Programme
2018/19 PERFORMANCE
ADJUSTED EARNINGS
PER SHARE
25.4p
RETURN ON CAPITAL
EMPLOYED
14%
CUMULATIVE FREE CASH FLOW
£1,587m
Adjusted EPS in 2018/19 was
25.4p. This was below the 28.9p
threshold required for any vesting
under this element of the 2016
PSP award.
Average three-year ROCE
performance was 14%. As a result,
9% out of a maximum of 20% of
the 2016 PSP will vest under
this element.
Cumulative free cash flow performance
for the three-year period ending in
2018/19 was £1,587m. As a result, 25%
out of a maximum of 30% of the 2016
PSP will vest under this element.
GROUP PBT BEFORE
ADJUSTING ITEMS
£523.2m
Group PBT was below the
threshold for bonus payments
to be made under the 2018/19
Annual Bonus Scheme.
STRATEGIC ALIGNMENT OF PAY
M&S is committed to transformation and,
in order to support this, the Committee
ensures alignment of the measures and
targets used in M&S’s incentive schemes,
specifically those of the Performance Share
Plan and Annual Bonus Scheme, with the
KPIs and strategic priorities being used
across the business. The illustration above
demonstrates this strong linkage between
the KPIs and strategic priorities, payments
to directors, and business performance over
the short- and long-term.
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 continues
along this five-year transformation journey.
TERMS OF REFERENCE AND WIDER
WORKFORCE PAY ARRANGEMENTS
This continues to be a time of significant
activity within the world of executive
remuneration. 2018 saw the Financial
Reporting Council publish its much-
anticipated revised 2018 UK Corporate
Governance Code and we welcome the
greater stakeholder focus and development
of UK corporate governance in a way that
supports existing good business practice.
I am pleased to be able to say that both
wider colleague pay alignment and cultural
context is woven throughout the remit and
activities of M&S's Remuneration
Committee. Throughout the year, the
Committee debates and discusses
oversight of key people policy areas such as
performance management and diversity
and inclusion, as well as gender pay
reporting and reward framework and
budgets. Furthermore, 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 is
invited to attend and contribute to a
Committee meeting each year to allow
two-way feedback. As evidence of our
commitment to transparent reporting,
along with embracing the spirit of the new
regulations, we have chosen to publish an
early indication of the M&S CEO : employee
pay ratio which can be found on page 58,
alongside M&S’s gender pay statistics, which
are included in the Remuneration Report for
the first time.
Within the principle of best practice, the
Remuneration Committee reviews its
Terms of Reference on an annual basis. In
anticipation of the revised 2018 UK Corporate
Governance Code, a thorough appraisal was
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 56
MARKS AND SPENCER GROUP PLC
REMUNERATION OVERVIEW CONTINUED
undertaken in 2017/18 during which the role
and remit of the Remuneration Committee
was reviewed and broadened to include a
more formal and wider consideration of our
reward framework and fairness across the
organisation. After 12 months of working
under these revised Terms of Reference,
the emphasis of the 2018/19 review was a
sharpening and focusing of activities of
the Committee, while ensuring they capture
all elements of the final published Code.
More detail around the remit and activities
of the Committee can be found on
page 74 and the Company's website at
marksandspencer.com/thecompany.
SINGLE FIGURE AND INCENTIVE
SCHEME OUTCOMES
The graph below summarises the total
payments made to executive directors in
2018/19, illustrating the figures detailed in
the single figure chart set out later in this
report on page 63.
Overall pay levels for the CEO were higher
than last year. Cumulative free cash flow has
driven an uplift in vesting under the 2016
Performance Share Plan (PSP) which will
vest at 34.0% in December 2019 for the
three-year performance period up to
30 March 2019. Page 67 of this report
provides further detail on the specifics
of the targets set and the respective
achievement under each measure, which
are also summarised in the illustration
opposite. The remit of the Committee is
to ensure that targets set are stretching
yet achievable, rewarding the delivery
of sustainable, ambitious long-term
performance. While this vesting is higher
than that seen in recent years under the
Performance Share Plan, it remains low
when reviewed in the context of the wider
market. However, the Committee is satisfied
that this vesting is reflective of the
challenging business performance Steve
Rowe and Archie Norman have both
highlighted earlier in this Annual Report.
The 2018/19 Annual Bonus Scheme was
designed on restoring the business to
profitable growth. Annual performance for
the year was again focused on Group PBT
before adjusting items (PBT) with individual
measures set against the key areas of
delivery deemed most critical to the
transformation journey. As with previous
years, individual performance was
measured independently of PBT
performance, but, mirroring arrangements
elsewhere in the business, no individual
element could be earned until the threshold
needed to secure payment under the PBT
element was similarly achieved. For the
2018/19 financial year, the PBT achievement
of £523.2m was below the threshold to
trigger a bonus payment and no bonus was
paid under the Annual Bonus Scheme to
anyone within the organisation, including
executive directors. However, in order to
ensure continued strong governance and
transparent reporting to shareholders, and
in line with the normal processes, the
Committee discussed each director’s
achievement against the relevant individual
performance targets. Final achievement
against these individual objectives is
detailed on page 65 of this report.
The Committee is satisfied that incentive
payments made to executive directors
during the year are appropriate in the
context of business performance for
2018/19 and payments made elsewhere in
the business.
PAY ARRANGEMENTS FOR 2019/20
When reviewing salary levels, the
Committee takes into account a number of
internal and external factors, primarily the
salary review principles applied to the rest of
the organisation, but also Company
performance during the year and external
market data. Salary reviews being awarded
across the wider organisation ranged from
2% to 4% and, to this extent, the Committee
decided that it would be appropriate to
award a salary increase of 3% to Steve Rowe
and 2% to Humphrey Singer. The Committee
felt that the salary increase awarded to
Steve Rowe is appropriate given that he has
not received a salary increase since his
appointment to CEO in 2016, despite his
salary being set significantly lower than that
of his predecessor. Humphrey Singer's
increase is in line with salary increases
granted to the management population.
As detailed within this report, the
Committee made the recommendation,
and Steve agreed, that this pay increase
would not apply to Steve’s pension
supplement. During the coming year, the
Committee will be considering the
treatment of executive director pension
supplements in M&S ahead of the 2020
Remuneration Policy renewal.
The Annual Bonus Scheme remains
unchanged from 2018/19 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. As we continue
our transformation the Committee believes
that it remains appropriate for PBT to
continue to represent the largest element
of bonus potential. This focus on
transformation is also reflected in the
individual objectives for both the CEO
and CFO which are further described on
page 66.
The Committee continues to ensure that
the remuneration framework for executives
is aligned to shareholder interests. This
means fully aligning performance measures
used in the incentive schemes to the
business strategy and setting targets which
are both stretching and yet motivating for
directors. While it is proposed that the 2019
Performance Share Plan (PSP) will maintain
measures used by the 2017 and 2018 PSP
awards, being equally split between
Adjusted EPS (EPS), Average ROCE (ROCE)
and Relative TSR (TSR), for the 2019 award we
have reset EPS targets from those seen in
awards from previous years. The intention to
make such an adjustment to these targets
was fully communicated to our main
shareholders and their feedback was taken
on board prior to any decisions being made.
Overall, the Committee believes that these
PSP targets are appropriately stretching in
the context of the business and analyst
expectations and remain as equally
challenging as those set at the start of the
performance period for previous awards.
Full details can be found on page 68.
SINGLE FIGURE REMUNERATION FOR 2018/19
Steve
Rowe
£1,046
Humphrey
Singer
£439
£0
Fixed pay
PSP
Total bonus
See Single figure remuneration on p63
See PSP on p67-68
See Annual Bonus Scheme on p65
Total £000
£621
£1,667
£439
57
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
PERFORMANCE SHARE PLAN (PSP) VESTING 2019
IMPACT OF SHARE PRICE CHANGE
ON PSP VESTING VALUES
CUMULATIVE
FREE
CASH FLOW
AVERAGE
ROCE
ADJUSTED
EPS
MAX
14.7%
Share price
decline
MAX
OUTTURN
OUTTURN
Value at
grant share price
(£3.28)
Value at
vesting share price
(£2.79)
See Performance Share Plan on p66-68
As we look to the future, the Committee
will also need to take into consideration
the impact of the joint venture between
M&S and Ocado, a partnership we believe
will bring substantial benefits and has
transformative potential for our business.
The Committee fully intends to review the
extent to which the joint venture impacts
structures, targets and applications of
M&S’s incentive arrangements in both
the short- and long-term.
I would like to thank our shareholders for
their continued support during the year.
I will be available at the Company’s Annual
General Meeting on 9 July 2019 to answer
any questions in relation to this
Remuneration Report.
ANDREW FISHER
CHAIR OF THE REMUNERATION COMMITTEE
VESTING OUTCOMES
Cumulative
Free cash flow
Maximum
Actual
Adjusted EPS
Maximum
Actual
Average ROCE
Maximum
Actual
Outturn
30%
25%
50%
0%
20%
9%
Maximum
Actual
100%
34%
LOOKING AHEAD
This will be the final year under the current
remuneration framework, as at the 2020
AGM we will be seeking your support and
approval for a new Remuneration Policy.
Any new Policy put to our shareholders will
remain steadfast in ensuring that executive
director pay arrangements support and
drive the business strategy while remaining
appropriate when considered within the
overall M&S remuneration framework
and the external regulatory environment.
A robust framework is especially crucial
given the challenging environment in which
we are operating. We will be supported by
our Committee advisors when formulating
the new Policy to ensure strong alignment
with business objectives, in both the short-
and long-term, with a view to delivering
strong performance and sustainable
shareholder returns. As ever, we will seek to
engage with our major shareholders as part
of this process to both reflect their views
and to maintain open dialogue on director
pay arrangements.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
58
MARKS AND SPENCER GROUP PLC
REMUNERATION
REMUNERATION
IN CONTEXT
COLLEAGUE ENGAGEMENT
CONSIDERATION OF COLLEAGUE AND STAKEHOLDER VIEWS
The Committee monitors and reviews the
effectiveness of the senior remuneration
policy and its impact and compatibility with
remuneration policies in the wider
workforce. Throughout the year, the
Committee reviews the frameworks and
budgets for key components of colleague
pay arrangements, together with broader
structure of group bonus provisions which
ensures appropriate alignment with senior
pay arrangements.
The Committee receives updates on a
variety of employee engagement initiatives
including our annual ‘Your Say’ employee
survey, which asks employees about
engagement, empowerment and
enablement. 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.
CHIEF EXECUTIVE'S PAY RATIO
The table below discloses the ratio of CEO
pay for 2018, using the single total figure
remuneration as disclosed in Figure 7
(page 63) to the comparable, indicative,
full-time equivalent total reward of those
colleagues whose pay is ranked at the 25th
percentile., medium and 75th percentile
in our UK workforce. Colleague pay was
calculated based on actual pay and benefits
Year
2019 Indicative Figures
for the 12 monthly payrolls within the
full financial year.
We believe that the final figures detailed
below are representative of the vast
majority of our colleague base, being
primarily customer assistants based in
our stores. Formal figures and disclosures
required under the updated regulation
will be reported next year.
25th percentile
ratio
50th percentile
ratio
75th percentile
ratio
92 : 1
88 : 1
79 : 1
PERCENTAGE CHANGE IN CEO’S REMUNERATION
The table below 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 colleagues' pay.
This group has been chosen as the majority
of our workforce is UK-based.
CEO (Steve Rowe)
UK employees (average per FTE)
% change 2017/18 – 2018/19
Base salary
Benefits
Annual bonus
0%
2.9%
1.4%
-0.8%
–
–
The 2.9% percentage change in base salary
for UK employees reflects the base pay
increase awarded to store colleagues
effective April 2018.
No award under the Annual Bonus Scheme
was made to either the CEO or anyone else
within the wider workforce in either 2017/18
or 2018/19.
The change in colleague benefits is
reflective of a shift in workforce structure
rather than a change in benefit offering,
which remains unchanged from 2017/18.
The slight increase in Steve Rowe's
benefits can be attributed to an increase
in driver salary.
> Share ownership across our
colleagues Across our UK and Irish
colleagues, M&S has a significant
number of participants in all
employee share schemes. M&S is a
proud advocate of employee share
ownership, encouraging colleagues
to share in M&S's success while
aligning interests with our
shareholders.
> Direct engagement with our
colleagues The chair of the M&S
colleague representative body is
invited to attend a Remuneration
Committee meeting each year to
engage and contribute on both
executive pay and pay across the
wider workforce.
> Pay Budgets Under the remit of the
Remuneration Committee, total
budgeted salary expenditure across
M&S for salary review is noted,
ensuring principles for reward
allocation are aligned across the full
workforce, inclusive of senior leaders.
GENDER PAY GAP
The M&S median gender pay gap for
the year to April 2018 is 4.2%, compared
to a national average of 17.9%. The M&S
mean gap for the same period is 12.5%.
In the last 12 months we've made several
steps to further promote and enhance
diversity and equality at M&S. This
includes, but is by no means limited to,
development of a formal female talent
pipeline, ensuring gender balanced
recruitment campaigns and building a
clear diversity & inclusion strategy
governed by an Inclusion Group made
up of directors and our employee
diversity network chairs.
We’re proud that 75% of our Customer
Assistants are women but we need to do
more to encourage diversity in senior roles.
GENDER PAY GAP (MEDIAN)
4.2%
59
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
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 is designed to attract, retain and motivate our leaders within a framework designed to promote the long-term success of
M&S and 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 external market data, historic increases made to the individual and salary
review principles applied to the rest of the organisation.
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.
OPPORTUNITY
Normally in line with those in
the wider workforce, although
no maximum is set.
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.
ANNUAL
BONUS
SCHEME
INCLUDING
DEFERRED
SHARE
BONUS
PLAN (DSBP)
All directors are eligible to participate in the discretionary, noncontractual Annual Bonus Scheme.
Performance is measured against quantifiable one-year financial and individual performance targets
linked with the sustainable delivery of our business plan. At least half of awards are measured against
financial measures which typically includes Group PBT before adjusting items (PBT).
Total maximum annual bonus
opportunity is capped at 200% of
salary for each executive director.
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 after which up to 40% of maximum may
be payable for the achievement of individual objectives.
Not less than 50% of any bonus earned is paid in shares which are deferred for three years.
The Committee retains the right to exercise discretion, both upwards and downwards, to ensure that the
level of award payable is appropriate. 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.
PERFORMANCE
SHARE PLAN
(PSP)
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.
The maximum annual value
of shares at grant is capped
at 300% of salary for each executive
director.
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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 60
MARKS AND SPENCER GROUP PLC
SUMMARY REMUNERATION POLICY CONTINUED
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 11 JULY 2017) 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
BASE
SALARY
– 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.
– 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.
BENEFITS
– The Committee will offer a benefits package in line with our benefits policy for executive directors.
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. Any value
awarded would be no greater than the value forfeited by the individual.
In addition, the Committee in exceptional circumstances has discretion to include any other remuneration component or award
which it feels is appropriate subject to the limit on variable remuneration set out above. The rationale for any such component would
be appropriately disclosed.
APPLICATION OF REMUNERATION POLICY
DIRECTORS
Steve Rowe
£000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
£1,071
100%
Fixed
£2,322
18%
36%
46%
Target
Humphrey Singer
£000
£4,825
43%
35%
22%
£5,868
53%
28%
18%
Maximum
Maximum
+ 50%
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
£612
100%
Fixed
£1,530
20%
40%
40%
Target
£3,366
45%
36%
18%
£4,131
56%
30%
15%
Maximum
Maximum
+ 50%
BASIS OF CALCULATIONS AND KEY
Fixed
Target
Fixed remuneration only.
No vesting under the ABS and PSP.
Includes the following assumptions for the vesting of the incentive
components of the package:
– ABS: 50% of maximum, assumes no share price growth.
– PSP: 20% of 250%, assumes no share price growth.
Maximum
Includes the following assumptions for the vesting of the incentive
components of the package:
– ABS: 100% of maximum, assumes no share price growth.
– PSP: 100% of 250%, assumes no share price growth.
Maximum
+50%
Share
Price
Growth
Includes the following assumptions for the vesting of the incentive
components of the package:
– ABS: 100% of maximum, assumes no share price growth.
– PSP: 100% of 250% with 50% share price growth.
– Grant share price for the purpose of demonstrating the 50% growth
taken as closing share price at 2018/19 year end.
Fixed remuneration
Includes all elements of fixed remuneration:
– Base salary (effective 1 July 2019, as shown in the table on page 64).
– Pension benefits as detailed on page 64.
– Benefits (using the value for 2018/19 included in the single figure table on page 63.
Annual Bonus Scheme (ABS)
Represents the potential value of the annual bonus for 2019/20. Half of any bonus
would be deferred into shares for three years and this is included in the value shown.
PSP
PSP represents the potential value of the PSP to be awarded in 2019, which would vest
in 2022 subject to the performance against the targets disclosed on page 68. Awards
would then be held for a further two years.
61
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 11 JULY 2017) 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.
The table below summarises our termination policy for executive directors under their service agreement and the incentive plan rules.
ELEMENT
APPROACH
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.
– The treatment of outstanding share awards is determined in accordance with the respective plan rules.
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.
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 currently 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
ANNUAL
BONUS
SCHEME
Up to 100% salary
(cash)
One-year performance
Clawback provisions
apply
Y
A
P
L
A
T
O
T
Up to 100% salary (deferred shares)
Three-year deferral period
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
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
62
MARKS AND SPENCER GROUP PLC
SUMMARY REMUNERATION POLICY CONTINUED
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 11 JULY 2017) CONTINUED
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
NON-
EXECUTIVE
DIRECTOR'S
BASIC FEE
ADDITIONAL
FEES
BENEFITS
Fees are reviewed annually by the Committee:
The maximum aggregate fees for the non-executive directors’ basic fees, including the Chairman’s basic fee, is £750,000 p.a.
as set out in our Articles of Association.
Fees are reviewed annually by the executive directors taking into consideration:
The maximum aggregate fees for the non-executive directors’ basic fees, including the Chairman’s basic 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.
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.
63
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
REMUNERATION
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 55,
a significant proportion of the performance
measures used in the incentive schemes
are integrated with M&S’s key performance
indicators (KPIs) and Strategic Priorities
detailed in the Strategic Report.
The diagram below (Figure 6) details 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 2018/19
Fixed pay
Annual bonus
PSP
Total pay
for 2018/19
Base salary
Benefits
Pension benefits
200% salary maximum
bonus opportunity
(with 50% deferral)
Measured against a
balance of Group PBT
before adjusting items and
individual performance
225% salary awarded in 2016
Measured against adjusted
EPS, average ROCE and
cumulative free cash flow.
Achievement was 34%
against targets set
Total
payments
are between 32-33%
of maximum potential
No salary increase
No bonus payment
34% of award vested
For more information see p65
For more information see p67-68
FIGURE 7: TOTAL SINGLE FIGURE REMUNERATION (AUDITED)
Director
Steve Rowe
Humphrey Singer
(from 9 July 2018)
Patrick Bousquet-Chavanne
(to 18 April 2018)
Year
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
Salary
Benefits
£000
£000
Total
bonus
£000
Total PSP
vested
£000
Pension
benefits
£000
810
810
439
–
47
546
33
31
0
–
0
24
0
0
0
–
0
0
621
79
0
–
198
73
203
203
0
–
11
137
Total
£000
1,667
1,123
439
–
256
780
Patrick Bousquet-Chavanne retired from the Board on 18 April 2018. Further details of his leaving arrangements can be found on page 72.
Note that the value of awards vesting in 2017/18 has been restated to reflect the actual share price at the point of vesting, being £3.09.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
64
MARKS AND SPENCER GROUP PLC
REMUNERATION REPORT CONTINUED
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 detailed in last year’s report, for salaries
effective July 2018, only Steve Rowe was
eligible to be considered for a review as
Humphrey Singer did not join the Company
until July 2018. The Committee decided, and
the CEO agreed, that no salary increase
would be awarded to the CEO for July 2018,
despite no increase in Steve Rowe's salary
since his appointment to CEO in 2016.
For salaries effective July 2019, the
Committee discussed the salary review
being awarded to other colleagues in M&S
ranging from 2% to 4%. In line with these
increases seen across the wider organisation,
the Committee felt it was appropriate to
grant a salary increase of 2% for Humphrey
Singer and 3% for Steve Rowe. As detailed
below, the salary increase for Steve Rowe will
not apply to his pension supplement.
The next annual salary review for the CEO
and CFO will be effective in July 2020.
The table below details the executive
directors’ salaries as at 30 March 2019
and salaries which will take effect from
1 July 2019.
FIGURE 8: SALARIES
Steve Rowe
Humphrey Singer
BENEFITS (AUDITED)
PENSION 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, in lieu
of a car allowance, Steve Rowe received a
car and the benefit of a driver, as did Patrick
Bousquet-Chavanne until he left the
Company. Humphrey Singer receives
neither a car nor cash allowance and does
not have the benefit of a driver.
During the year Steve Rowe and
Patrick Bousquet-Chavanne received a
cash payment in lieu of participation in
an M&S pension scheme. The Committee
is mindful of the external sentiment of
executive pension arrangements and
will be undertaking a thorough review of
pension practices as part of the overall
Remuneration Policy review ahead of
next year's policy renewal.
In line with all other colleagues,
executive directors receive life assurance,
employee discount and are eligible to
participate in salary sacrifice schemes
such as Cycle2Work.
With this in mind, in awarding Steve Rowe's
salary increase outlined above, the
Committee decided, and Steve agreed,
that whilst policy around pension is under
review, this salary increase would not apply
to his pension supplement.
FIGURE 9: PENSION BENEFITS (AUDITED)
Annual
salary as of
30 March 2019
£000
Annual
salary as of
1 July 2019
£000
810.0
600.0
834.5
612.0
Change
in salary
% increase
3%
2%
Steve Rowe is a deferred member of the
Marks & Spencer UK Pension Scheme.
Details of the pension accrued during the
year ended 30 March 2019 are shown below.
Whilst Humphrey Singer is eligible to join the
M&S pension scheme, he does not currently
participate. He does not receive any
additional payments in lieu of participation.
Steve Rowe
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
156
0
4
0
Transfer
value of
total
accrued
pension
£000
4,639
The accrued pension entitlement is the deferred pension amount that Steve Rowe would receive at age 60 if he left the Company on
30 March 2019. 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.
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
and uncertain market conditions. Some of
the specific targets set for 2018/19 remain
too commercially sensitive to disclose as
they are not disclosed elsewhere in this
report. To the extent these targets are not
able to be fully 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.
65
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
ANNUAL BONUS SCHEME
ANNUAL BONUS SCHEME 2018/19 (AUDITED)
Annual performance for the year was again
primarily measured against Group PBT
before adjusting items (PBT) (70%) and
individual performance (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.
As was disclosed last year, individual
performance was measured against a
scorecard of individual measures set against
key areas of delivery of the transformation
plan deemed most critical to the future
sustainable success of M&S. As with previous
years, individual performance was
measured independently of PBT
performance but for the first time under
the current remuneration framework, and
mirroring arrangements elsewhere in the
business, no individual element could be
earned until the threshold needed to secure
payment under the corporate element was
similarly achieved.
PBT outturn for the year was £523.2m which
was below the threshold set to trigger
payments under either the corporate
element or the individual element of the
Scheme. Therefore, no bonuses under the
2018/19 Annual Bonus Scheme will be paid
to anyone in the organisation, including
executive directors. This is reflected in the
total bonus paid column in Figure 10 and
directly corresponds to the value shown in
the single figure table on page 63.
Despite there being no bonus payment
under the 2018/19 Scheme, the Committee
continued 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 predetermined
targets, but also the wider performance
within these specific areas to ensure that
any achievement noted was representative
of overall performance.
FIGURE 10: ANNUAL BONUS SCHEME OUTTURN 2018/19 (AUDITED)
Director
Corporate (70%)
Individual (30%)
New management team
Online capabilities
Supply chain
Evolution of Sparks
Significant improvement
of website search speed
and experience, along
with enhanced checkout
performance. Donington
successfully delivering
through Christmas peak
trading as per plan.
Some success
through the roll out of
new initiatives in Food
such as our “Fuse”
programme but limited
improvements in core
metrics as yet, and slow
progress in Clothing &
Home.
Limited progress on
Evolution of Sparks. Planning
for integrated data use and
personalised marketing at
early stage.
Total bonus
£0k
/ £1.62m
Overall % of Salary
(200% max)
0%
Control of capital costs
and expenditure
Capital spending
below target with
improvements made
to Investment
Committee process.
Talent review
Review of capabilities
and controls undertaken,
including the recruitment
and onboarding of new
senior leadership team
and talent elsewhere in
the Finance group.
Review control
environment
While a thorough review
of the control environment
was initiated, not all project
milestones and deliverables
were achieved within the
agreed timelines.
£0k
/ £1.2m
Overall % of Salary
(200% max)
0%
Successful recruitment
and onboarding of high
calibre senior leaders
building a strong new
management team.
Continued devolvement
of profit and loss
responsibility to further
drive accountability and
autonomy within new
family of businesses
structure.
Operating costs
Operating costs lower
than plan with further
savings identified.
Steve Rowe
PBT
Threshold
£540m
£523m
Stretch
£620m
0%
Humphrey Singer
PBT
Threshold
£540m
£523m
Stretch
£620m
0%
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 66
MARKS AND SPENCER GROUP PLC
REMUNERATION REPORT CONTINUED
ANNUAL BONUS SCHEME CONTINUED
DEFERRED SHARE BONUS
PLAN (AUDITED)
Currently 50% of any bonus payment
is compulsorily deferred into shares. These
awards vest after three years subject to
continued employment as well as malus
provisions. As no bonus was awarded in
respect of performance year 2017/18, no
share awards under the Deferred Share
Bonus Plan (DSBP) were made during the
year. In relation to the 2018/19 performance
year, as no bonus awards under the Annual
Bonus Scheme have been made, there will
be no awards under the DSBP made in
June 2019.
ANNUAL BONUS SCHEME FOR 2019/20
During the year, the Committee reviewed
the 2019/20 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
existing Scheme remained appropriate and
was aligned with bonus arrangements seen
elsewhere in the organisation.
As with the existing Scheme, the 2019/20
Bonus Scheme is designed to focus on
restoring the business to profitable growth
with an emphasis not only on profits but
also other key areas which will 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 2019/20,
individual performance will again be
measured independently of PBT
performance and, mirroring arrangements
elsewhere in the business, no individual
element may be earned until the threshold
needed to secure payment under the
corporate element for all participating
colleagues is similarly achieved.
The remaining 30% of the bonus will be
measured against a scorecard of individual
objectives, 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 acceleration of the
transformation programme, including
improvements in supply chain and range
management, along with digital capabilities
both online and instore. In addition, a key
focus for the year will be the successful
establishment of the Ocado joint venture
and the transformation of M&S’s
organisation and culture.
For the CFO, the scorecard measures will
focus on the delivery of the financial plan
with an emphasis on Group PBT, cash flow
and operating cost budgets, alongside the
establishment of a cost strategy
programme. From a commercial
perspective, there will be a focus on
the delivery of faster and more effective
governance, controls and reporting
within a strong, happy and commercially
focused team.
The performance targets for the 2019/20
Scheme are deemed by the Board to be too
commercially sensitive to disclose at this
time as they are not disclosed elsewhere in
this report. Where possible, they 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.
FIGURE 11: ANNUAL BONUS SCHEME TARGETS 2019/20
Director
Steve
Rowe
Humphrey
Singer
CORPORATE TARGETS
INDIVIDUAL OBJECTIVES
Group PBT before adjusting items (PBT)
Scorecard of
Individual Measures
% bonus
% bonus
Measure
70%
30% – Accelerate the transformation in culture, organisation and
capability across the business.
– Oversee the improvements in supply chain and range
management in both Clothing & Home and Food businesses.
– Accelerate growth online and exploitation of digital capabilities.
– Drive the transition towards a more modern technology enabled
store operation and store portfolio.
– Successfully establish the Ocado joint venture including
leadership, operations and financing.
70%
30% – Establish a cost strategy programme, including the delivery of
UK operating cost budget.
– Deliver faster, more effective governance and controls.
– Drive a focus on clear and consistent internal reporting regimes
to support and drive greater accountabilities across the business.
– Continued team development to support M&S’s commercial success.
PERFORMANCE SHARE PLAN (PSP)
PSP AWARDS MADE IN 2018/19 (AUDITED)
As reported last year, having considered
the extent to which the long-term incentive
framework remained relevant, the
Committee determined that the existing
structural arrangements remained aligned
with the focus on maximising shareholder
value by restoring the business to profitable
growth. The three performance measures
used in the 2017 PSP award, Adjusted EPS
(EPS), Average ROCE (ROCE) and Relative
TSR (TSR), were still considered to be the key
drivers to deliver these core priorities. In line
with the 2017/18 award, measures used in
2018/19 were equally balanced to ensure an
appropriate focus on all three metrics.
TSR is once again measured against the
bespoke group of 15 companies taken
from the FTSE 350 General and Food &
Drug Retailers indices, reviewed prior to
grant to ensure the constituents remained
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 13.
The remainder of the award is measured
equally against EPS and ROCE ensuring
a balanced focus on all three
performance metrics.
As was reported last year, each executive
director was granted an award of conditional
shares of 250% of salary. The grant was
made on 27 July 2018. 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. Clawback provisions
apply during this holding period.
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 12.
67
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FIGURE 12: PERFORMANCE CONDITIONS FOR PSP AWARDS MADE IN 2018/19 (AUDITED)
PERFORMANCE SHARE PLAN (PSP) CONTINUED
2018/19 award
Threshold performance
Maximum performance
Adjusted EPS
in 2020/21
(p)
Average ROCE
(2018/19 – 2020/21)
(%)
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 13: TSR COMPARATOR GROUP 2018/19 AWARD
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
Targets outlined above are stated on a pre-IFRS16 basis and before any adjustments have been made for the impact of the recently
announced M&S joint venture with Ocado, be that either the joint venture itself, or associated Rights Issue. The Committee will review the
targets and TSR comparator group at an appropriate time and will fully disclose any adjustments required. Pre-vesting deliberations will also
take into consideration the impact of the de-listing of Debenhams.
FIGURE 14: PSP AWARDS MADE IN 2018/19 (AUDITED)
Steve Rowe
Humphrey Singer
Basis of award
% of salary
250%
250%
Face value
of award
£000
2,025
1,500
End of
performance
period
03/04/2021
03/04/2021
Vesting date
27/07/2021
27/07/2021
PSP grants were made as a conditional share award. When calculating the face value of awards to be granted, the number of shares awarded
was multiplied by the average mid-market share price on the five dealing days prior to the date of grant. For the 2018 award, the share price
was calculated as £3.093, being the average share price between 20 July 2018 and 26 July 2018.
FIGURE 15: PSP AWARDS VESTING IN 2018/19 (AUDITED)
For directors in receipt of PSP awards granted in 2016, the awards will vest in December 2019 based on three-year performance
over the period to 30 March 2019. Performance has been assessed and it has been determined that 34% of the total award will vest.
The Committee reviewed this level of vesting against the wider business performance of the period and determined this level of
payment was appropriate.
Details of performance against the specific targets set are shown in the table below.
The total vesting values shown in Figure 16 directly correspond to the figure included in the single figure table on page 63.
2016/17 award
Threshold performance
Maximum performance
Actual performance achieved
Percentage of maximum achieved
Adjusted EPS
in 2018/19
(p)
Average
ROCE
(2016/17-
2018/19)
(%)
Cumulative
free cash flow
(2016/17-
2018/19)
50% of award
20% of award
30% of award
28.9p
35.8p
25.4p
0%
13%
16%
14%
9%
£1,350
£1,650
£1,587
25%
Total vesting
% of award
34%
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 68
MARKS AND SPENCER GROUP PLC
REMUNERATION REPORT CONTINUED
FIGURE 16: VESTING VALUE OF AWARDS VESTING IN 2018/19 (AUDITED)
PERFORMANCE SHARE PLAN (PSP) CONTINUED
On grant
At the end of performance period (30 March 2019)
Number of
shares granted
% of salary
granted
Number of
shares vesting
Number of
shares lapsing
Impact of
share price
performance
Total vesting
of award
£000
Steve Rowe
Patrick Bousquet-Chavanne
555,640
374,542
225%
225%
188,918
60,135
366,722
314,407
-14.7%
£621
£198
Total vesting values are based on a share price of £2.79 (the average share price from 2 January 2019 to 29 March 2019) plus a dividend
equivalent of £0.49 per share. To provide an accurate indication of the total vesting value for Patrick Bousquet-Chavanne, the column
detailing the number of shares lapsing takes into consideration shares lapsing due to the pro-ration applied to his award on leaving M&S.
Further details on the treatment of share awards upon leaving can be found on page 72.
The final vesting values also reflect a 14.7% decline in share price between grant and vesting, as illustrated on page 57 of this report.
PSP AWARDS TO BE MADE IN 2019/20
During the year, the Committee reviewed
the long-term incentive framework at M&S,
assessing the extent to which it remained
suitable. Whilst the 2019 PSP maintains the
measures used by the 2017 and 2018 PSP
awards, being equally split between
Adjusted EPS (EPS), Average ROCE (ROCE)
and Relative TSR (TSR), following careful
consideration and shareholder consultation,
EPS targets have been reset from those
seen in awards from previous years. In
making this decision, the Committee was
mindful of the need to ensure that M&S’s
performance share plan motivates senior
leaders to drive the required transformation
to secure M&S’s long-term success whilst
balancing shareholder interests. As detailed
in the Remuneration Committee Chairman's
letter, the intention to make such an
adjustment to these targets was fully
communicated to our main shareholders
and their feedback was taken on board prior
to any decisions being made. Overall, the
Committee believes that these PSP targets
are appropriately stretching in the context
of the business and analyst expectations
and remain as equally challenging as those
set at the start of the performance period
for previous awards.
TSR will once again be measured against a
bespoke group of companies taken from
the FTSE 350 General and Food & Drug
Retailers indices. The existing group of 15
companies, as detailed in Figure 13, was
thoroughly reviewed to ensure the
constituents remained appropriate and
aligned to M&S’s business operations. This
review resulted in the removal of
Debenhams, as they are no longer listed on
the FTSE, and Ocado, who were removed
due to the recently announced M&S and
Ocado joint venture. The revised TSR
comparator group of 13 companies can be
found in Figure 18.
All targets for the 2019 PSP have been set
on a pre-IFRS 16 basis and before any
adjustments have been made for the
impact that the recently announced M&S
joint venture with Ocado, be that either the
joint venture itself, or associated rights issue.
The Remuneration Committee will review
the targets at an appropriate time and will
fully disclose any adjustments required at
that point. Any changes to targets will
ensure the performance conditions remain
representative of corresponding business
performance on a pre-adjustment basis.
For the 2019 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 17: PERFORMANCE CONDITIONS FOR PSP AWARDS TO BE MADE IN 2019/20
2019/20 award
Threshold performance
Maximum performance
FIGURE 18: TSR COMPARATOR GROUP 2019/20 AWARD
J Sainsbury
Wm Morrisons
Tesco
ASOS
B&M European
Dixons Carphone
Dunelm Group
JD Sports Fashion
Kingfisher
N Brown Group
Adjusted EPS
in 2021/22
(p)
1/3 of award
24.0p
31.0p
Average ROCE
(2019/20 – 2021/22)
(%)
1/3 of award
13.0%
17.0%
Relative TSR
1/3 of award
Median
Upper Quartile
Next
Sports Direct International
WHSmith
69
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
EXECUTIVE DIRECTORS' REMUNERATION
FIGURE 19: DIRECTORS’ SHAREHOLDINGS (AUDITED)
The table below sets out the total number of shares held by each executive director serving on the Board during the period to 30 March
2019, or at their date of retirement from the Board. 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 21 May 2019. No director had an interest in any of the Company’s subsidiaries at the statutory end of the year.
Steve Rowe
Humphrey Singer
Patrick Bousquet-Chavanne (to 18 April 2018)
FIGURE 20: SHAREHOLDING REQUIREMENTS (AUDITED)
Unvested
With
performance
conditions
Without
performance
conditions
Shares owned
outright
Performance
Share Plan
Deferred Share
Bonus Plan
296,173
0
123,098
1,824,538
484,966
176,876
119,675
0
0
Vested but
unexercised
shares
0
0
0
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 currently 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 30 March 2019, or date of
retirement from the board. 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 continues to keep both shareholding requirement guidelines and actual director shareholdings
under review and will take appropriate action should they feel it to be necessary.
The Committee is aware of post-cessation shareholder requirements introduced under the 2018 Corporate Governance Code. Our existing
share restrictions of a three-year deferral and two-year further holding period continue to apply post cessation of employment, resulting in
a potential significant holding of shares following a director’s departure. The approach towards shareholding requirements at M&S will be
considered ahead of the in 2020 Remuneration Policy renewal and will take into account new shareholder guidance in this area.
Steve Rowe
Humphrey Singer
0%
Patrick Bousquet-Chavanne
(at 18 April 2018)
65.4%
Key
Shares owned outright
Unvested DSBP/RSP shares
Shareholding requirement
EMPLOYEE SHARE SCHEMES
ALL-EMPLOYEE SHARE SCHEMES
(AUDITED)
DILUTION OF SHARE CAPITAL
BY EMPLOYEE SHARE PLANS
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 colleagues. Further details of
the schemes are set out in note 13 to the
financial statements on pages 114 to 116.
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
150% of salary
250% of salary
123.8%
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 30 March 2019
is as follows:
FIGURE 20: ALL SHARE PLANS
FIGURE 21: EXECUTIVE SHARE PLANS
Actual
4.42%
Limit
10%
Actual
Limit
0%
5%
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 70
MARKS AND SPENCER GROUP PLC
REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTORS' REMUNERATION CONTINUED
FIGURE 21: EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (AUDITED)
Steve Rowe
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total
Humphrey Singer
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total
Patrick Bousquet-Chavanne
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total
Maximum
receivable at
1 April 2018
1,430,660
179,231
3,461
1,613,352
0
0
0
0
1,044,459
138,459
3,448
1,186,366
Awarded during
the year
Exercised during
the year
Lapsed during
the year
654,704
0
0
654,704
484,966
0
0
484,966
21,387
59,556
0
80,943
239,439
0
0
239,439
0
0
0
0
0
0
0
0
0
0
0
0
19,819
138,459
0
158,278
847,773
0
3,448
851,221
Maximum
receivable at
30 March 2019
(or date of
retirement)
1,824,538
119,675
3,461
1,947,674
484,966
0
0
484,966
176,867
0
0
176,867
The aggregate gains of directors arising in the year from the exercise of awards granted under the PSP and DSBP totalled £707,782. The
market price of the shares at the end of the financial year was 278.9p; the highest and lowest share price during the financial year were 314.5p
and 242.4p respectively.
Patrick Bousquet-Chavanne retired from the Board on 18 April 2018 and left the Company on 31 May 2018. Details of his leaving
arrangements are set out on page 72. His outstanding Deferred Share Bonus awards vested in full upon leaving, as reflected in the
‘Exercised during the year’ column’. His outstanding Performance Share Plan awards were pro-rated for time held on leaving as shown
in the ‘Lapsed during the year’ column.
Figure 22 shows the time horizons of outstanding discretionary share awards for all directors serving on the Board during the year.
FIGURE 22: VESTING SCHEDULE OF EXECUTIVE DIRECTORS' OUTSTANDING DISCRETIONARY SHARE AWARDS
2019/20
2020/21
2021/22
Steve
Rowe
Humphrey
Singer
Maximum receivable at
30 March 2019
(all discretionary
schemes)
Performance Share Plan
Deferred Share Bonus Plan
Performance Share Plan
1,824,538
119,675
484,966
Maximum
Receivable
188,918
32,376
–
Lapsed
(366,722)
–
–
Maximum
Receivable
614,194
87,299
–
Deferred Share Bonus Plan
–
–
–
Patrick
Bousquet-Chavanne
Performance Share Plan
Deferred Share Bonus Plan
176,867
–
60,135
–
(314,407)
–
Lapsed
–
–
–
–
(414,012)
–
Maximum
Receivable
654,704
–
484,966
–
–
–
Lapsed
–
–
–
–
–
–
–
0
–
As reported on page 67, the 2016 PSP awards included within the totals shown in Figure 21 will vest at 34% in December 2019. This has been
reflected above in the 2019/20 'Lapsed' column. In addition, and as detailed above, outstanding awards held by Patrick under the 2016 PSP
were pro-rated for time held upon leaving. This is also reflected in the 2019/20 'Lapsed' column. In line with the Plan rules, upon leaving
Patrick’s PSP awards granted in 2017 lapsed in full. This is reflected above in the 2020/21 'Lapsed' column.
71
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
EXECUTIVE DIRECTORS' REMUNERATION CONTINUED
FIGURE 23: PERFORMANCE AND CEO REMUNERATION COMPARISON
This graph illustrates the Company’s performance against the FTSE 100 over the past ten 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
ten financial years.
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
Marks and Spencer
Group plc
FTSE 100 Index
Source: Thomson Reuters
300
250
200
150
100
50
0
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
28/03/15
01/04/17
31/03/18
30/03/19
02/04/12
29/03/14
02/04/16
03/04/10
30/03/13
29/03/11
–
–
4,294
–
–
–
3,324
–
–
–
5,998
269
–
–
2,142
–
–
45.80% 34.00% 42.50%
–
–
0.00%
–
–
–
31.96%
–
97.00% 57.40%
–
–
0.00%
–
–
0.00%
–
1,568
–
–
–
2,095
–
–
–
2,015
–
–
0.00% 30.55% 31.90%
–
–
4.80%
–
–
–
4.70%
–
–
–
7.60%
–
1,642
–
–
36.98%
–
–
0.00%
–
–
1,123
–
–
0.00%
–
–
8.20%
–
–
1,667
–
–
0.00%
–
–
34.0%
–
–
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 24: PERCENTAGE CHANGE IN CEO'S REMUNERATION
Read more on p58
FIGURE 25: RELATIVE IMPORTANCE OF SPEND ON PAY
Total employee pay
Total returns to shareholders
Group PBT before adjusting items
2017/18
£m
1,578.9
303.4
580.9
2018/19
£m
1,511.0
303.5
523.2
% change
-4.3%
0.0%
-9.9%
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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 72
MARKS AND SPENCER GROUP PLC
REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTORS' REMUNERATION CONTINUED
FIGURE 26: 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 2018/19
DIRECTORS APPOINTED TO THE BOARD
As reported in the 2017/18 report,
Humphrey Singer was appointed to the
Board on 9 July 2018 as Chief Finance
Officer. His remuneration upon
appointment was in line with the approved
Recruitment Policy detailed on page 60 with
a basic annual salary of £600,000. Humphrey
receives neither a car allowance nor a
pension cash allowance. The rest of
Humphrey’s incentive arrangements are
aligned with that of an executive director.
No share awards have been granted to
Humphrey in relation to his appointment.
PAYMENTS FOR THE LOSS OF OFFICE
(audited)
As reported in the 2017/18 report, Patrick
Bousquet-Chavanne retired from the Board
on 18 April 2018 and left M&S on 31 May 2018.
Remuneration terms on leaving were in line
with the approved Remuneration Policy.
Patrick was entitled to receive salary and
benefits, including pension, by way of
phased monthly payments from 1 June
2018 for a maximum of 12 months, subject
to mitigation. As per the terms of the
Policy, these payments ceased upon the
commencement of his new employment
on 4 August 2018. 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 vested in
full on leaving. Unvested conditional shares
awarded under the 2015 and 2016 PSP were
time pro-rated to 31 May 2018. As reported
last year, 8.2% of PSP awards granted in 2015
vested in July 2018 at a value of £73,418.
As detailed earlier in the report, 34% of
PSP awards granted in 2016 will vest in
December 2019 at an estimated value of
circa £197,556 based on the average share
price between 2 January 2019 and 29 March
2019 plus a dividend equivalent of £0.49 per
share. The PSP award made in 2017 lapsed
in full on leaving in accordance with the
Plan rules. Patrick has no further
outstanding awards.
Date of
appointment
02/04/2016
09/07/2018
Notice period/
unexpired term
12 months/6 months
12 months/6 months
PAYMENTS TO PAST DIRECTORS
(audited)
Helen Weir retired from the Board on
31 March 2018 and had two outstanding
awards under the PSP. In accordance with
the rules of the Performance Share Plan,
8.2% of her 2015 award vested in July 2018 at
a value of £74,666. As detailed earlier in the
report, 34% of PSP awards granted in 2016
will vest in December 2019 at an estimated
value of circa £188,361 based on the average
share price between 2 January 2019 and
29 March 2019 plus a dividend equivalent
of £0.49 per share. Helen has no further
outstanding awards.
Director
Period earned
Company
Humphrey Singer
09/07/2018 – 30/03/2019
Taylor Wimpey
Fee
000
£57
FIGURE 27: 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 fees in the
table opposite reflect those earned by
Humphrey Singer from his appointment
to the Board on 9 July 2018 to the end of
the 2018/19 financial year.
Any fees Patrick Bousquet-Chavanne
received for his external non-executive
director role for the period from 1 April
2018 to 18 April 2018 were retained by
him and have not been communicated to
the Company.
73
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FIGURE 28: 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. Fees paid
to the non-executive directors and Board
Chairman for 2018/19 and 2017/18 are
detailed in the table opposite.
During the year, these fees were reviewed.
Taking into account relevant market data,
and given fees have remained frozen since
2011 while responsibilities have increased,
it was agreed that the basic non-executive
and senior non-executive director fee will
be increased by 2.5% to £71,500 and
£102,500 respectively. The additional fee
for chairing a committee will increase by
3.3% to £15,500. The total aggregate fee of
the Board Chairman will be increased by
2% to £612,000. Increases will be effective
from 1 July 2019 and are in line with
increases seen across the wider workforce.
Director
Archie Norman
(from 1 September 2017)
Andy Halford
Alison Brittain
Andrew Fisher
Katie Bickerstaffe
(from 10 July 2018)
Pip McCrostie
(from 10 July 2018)
Justin King
(from 1 January 2019)
Fee levels will be reviewed again during
2019/20 as per the normal annual process.
Vindi Banga
(to 1 October 2018)
Changes to the Board during the year are
detailed below and are also reflected in the
table opposite.
Richard Solomons
(to 10 July 2018)
Year
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
2018/19
2017/18
Basic fees
£000
Additional fees
£000
Benefits
£000
70
41
70
70
70
70
70
70
51
–
51
–
18
–
35
70
19
70
530
309
23
15
0
0
8
0
0
–
0
–
0
–
15
30
0
0
0
0
0
0
0
0
0
0
0
–
0
–
0
–
0
0
0
0
Total
£000
600
350
93
85
70
70
78
70
51
–
51
–
18
–
50
100
19
70
FIGURE 29: 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
30 March 2019 (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 21 May 2019.
FIGURE 30: 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
Andy Halford
Alison Brittain
Andrew Fisher
Katie Bickerstaffe
Pip McCrostie
Justin King
NON-EXECUTIVE DIRECTOR CHANGES TO THE BOARD DURING 2018/19
DIRECTORS APPOINTED TO THE BOARD
Katie Bickerstaffe and Pip McCrostie
joined the Board as non-executive directors
on 10 July 2018, as did Justin King on
1 January 2019. Katie, Pip and Justin
receive the standard annual non-executive
director fee of £70,000 and are members
of the Nomination Committee. In addition
to being appointed to the Nomination
Committee, Katie is a member of the
Remuneration Committee and Pip is
a member of the Audit Committee.
ROLE CHANGES WITHIN THE BOARD
Upon Vindi Banga’s retirement from the
Board, Andrew Fisher became Chairman
of the Remuneration Committee and
Andy Halford was appointed to the role
of Senior Independent Director. These
appointments were effective on 1 October
2018 and from this date Andrew and
Andy received additional fees in accordance
with the increased responsibility of their
roles as described in the Remuneration
Policy on page 62.
Director
Number of shares held
Archie Norman
Andy Halford
Alison Brittain
Andrew Fisher
Katie Bickerstaffe
Pip McCrostie
Justin King
Vindi Banga
Richard Solomons
78,000
21,000
5,096
3,536
2,000
6,000
20,000
93,700
5,000
Date of appointment
Notice period/unexpired term
01/09/2017
01/01/2013
01/01/2014
01/12/2015
10/07/2018
10/07/2018
01/01/2019
6 months/6 months
3 months/3 months
3 months/3 months
3 months/3 months
3 months/3 months
3 months/3 months
3 months/3 months
DIRECTORS RETIRING FROM THE BOARD
Richard Solomons retired from the Board
on 10 July 2018 and Vindi Banga retired
from the Board on 1 October 2018. There
were no payments for loss of office payable
to Richard or Vindi.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 74
MARKS AND SPENCER GROUP PLC
REMUNERATION REPORT CONTINUED
REMUNERATION COMMITTEE
REMUNERATION COMMITTEE REMIT
During the year, the Remuneration Committee agreed that while the broader Terms of Reference implemented following the detailed
review in 2017/18 were working well, the publication of the final revisions to the 2018 Corporate Governance Code, along with the
appointment of Andrew Fisher to Chairman of the Remuneration Committee, provided an excellent opportunity to undertake a further
light touch review. The 2018/19 review primarily involved a sharpening and focusing of Committee activities along with a refinement and
clarity of language.
The full Terms of Reference for the Committee can be found on the Company’s website at marksandspencer.com/thecompany
KEY RESPONSIBILITIES
The role of the Committee continues to
have a strong focus on ensuring an
appropriate alignment between executive
directors’ and Operating Committee
directors’ remuneration with that of
colleagues across M&S, ensuring the senior
remuneration strategy and framework is
strategically aligned with the business but
that it also attracts and recognises the
talent required to drive transformation and
cultural change within M&S. Broadly, the
responsibilities are as follows:
– Setting remuneration policy and practices
that are designed to support strategy and
promote the long-term success of M&S whilst
following the below principles:
– Clarity – remuneration arrangements are
transparent and promote effective
engagement with shareholders and M&S
colleagues;
– Simplicity – remuneration structures are
uncomplicated with easy to understand
rationale and operation;
– Risk – reputational and other risks from
excessive rewards, and behavioural risks
that can arise from target-based incentive
plans, are identified and mitigated;
– Predictability – the range of possible
values of rewards to executive directors
are identified and explained at the time of
approving the policy;
– Proportionality – the link between
individual awards, the delivery of strategy
and the long-term performance of the
Company is clear and that outcomes do
not reward poor performance; and
– Alignment to culture – incentive schemes
drive behaviours consistent with M&S’s
purpose, values and strategy.
– Determining the terms of employment and
remuneration for the executive directors and
Operating Committee directors, including
recruitment and termination arrangements.
– Considering the appropriateness of the
senior remuneration framework and
exercising independent judgement and
discretion when authorising remuneration
outcomes, taking account of Company and
individual performance, and the context of
the wider workforce.
REMUNERATION COMMITTEE AGENDA FOR 2018/19
– Noting the total pay budgets including salary,
bonus and share scheme allocations across
all of M&S together with the principles of
allocation to ensure appropriate consistency
with the senior pay frameworks.
– Approving the design, targets and total
payments for all performance-related pay
schemes operated by M&S, seeking
shareholder approval where necessary.
– Assessing the appropriateness and
subsequent achievement of performance
targets relating to any share-based incentive
plan for the executive and Operating
Committee directors.
– Receiving direct feedback from the Group’s
employee representative body, employee
engagement surveys and management
reports to ensure colleague views on Group
culture, including remuneration strategy and
diversity & inclusion are considered.
REGULAR ITEMS
Pay arrangements
– Within the terms of the M&S Remuneration
Policy, approval of the total individual
remuneration packages for the executive
directors and Operating Committee
directors, and any termination payments
where applicable.
– Consideration of the appropriateness of the
senior remuneration framework in the
context of the rest of the organisation and
external governance.
– Noting of the total budgeted salary
expenditure across M&S for salary review,
ensuring principles for reward allocation are
aligned across M&S.
Annual Bonus Scheme
– Review of achievements against 2018/19
performance objectives for executive
directors and Operating Committee
directors.
– Approval of target for the 2019/20 Annual
Bonus Scheme ensuring the performance
conditions are transparent, stretching and
rigorously applied.
– Approval of the 2019/20 performance
objectives for executive directors and
Operating Committee directors.
– Noting of the total budgeted expenditure for
the Annual Bonus Scheme across M&S.
Performance Share Plan (PSP)
– Approval of the measures and targets for the
2019 PSP awards for the executive directors
and Operating Committee directors
following engagement with shareholders and
other applicable stakeholders.
– Approval of vesting level of the 2016 PSP
awards across M&S.
– Regular review of all in-flight performance
share plans against targets.
Governance and external market
– Approval of the Directors’ Remuneration
Report for 2018/19 and review of the AGM
voting outcome for the 2017/18 Report.
– Review of the Committee’s performance in
2018/19, including assurance that the
principles of the revised Terms of Reference
and broader remit of the Committee are
embedded.
– Assessment of the external market when
considering remuneration arrangements for
executive directors and Operating
Committee directors.
– Noting of direct feedback from the Business
Involvement Group ‘BIG’ M&S’s employee
representative body to ensure all employee
views are received and considered by the
Board when making Remuneration and
Reward decisions.
REMUNERATION COMMITTEE ACTION PLAN 2019/20
– Full review of the M&S Remuneration Policy in
anticipation of the binding shareholder vote
at the 2019 AGM, ensuring the Policy
continues to support the long-term success
of M&S and is aligned with the 2018 UK
Corporate Governance Code, other external
governance and emerging best practice.
– Ensure the continued strategic alignment
of the directors’ incentive arrangements to
support and drive M&S’s transformation.
– Review the appropriateness of the
senior remuneration framework in the
context of the rest of the organisation
and external governance.
– Review the effectiveness and transparency
of remuneration reporting.
75
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FIGURE 31: REMUNERATION COMMITTEE MEETINGS
REMUNERATION COMMITTEE CONTINUED
The table opposite details the
independent non-executive
directors that were members
of the Committee during 2018/19.
Member
since
Maximum
possible
meetings
Number of
meetings
attended
% of
meetings
attended
MEMBER
Andrew Fisher
(Chairman)
1 October 2018
Archie Norman
3 November 2017
Katie Bickerstaffe
10 July 2018
Vindi Banga
(Chairman)
(to 1 October 2018)
Richard Solomons
(to 10 July 2018)
1 September 2011
21 July 2015
2
5
3
3
2
2
5
3
3
2
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 £56,500 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.
The Committee also seeks internal support
from the CEO, Group General Counsel and
Company 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, Korn
Ferry Hay Group and Willis Towers Watson.
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.
The Committee is committed to a
continuous, open and transparent dialogue
with shareholders on the issue of executive
remuneration, as demonstrated by recent
engagement regarding 2019 Performance
Share Plan targets.
SHAREHOLDER SUPPORT FOR THE REMUNERATION POLICY AND 2017/18 DIRECTORS’ REMUNERATION REPORT
At the Annual General Meeting on 10 July
2018, 98.70% of shareholders voted in favour
of approving the Directors’ Remuneration
Report for 2017/18. The Committee believes
this illustrates the strong level of
shareholder support for the senior
remuneration framework. As this was
a non-policy renewal year, there was no
vote regarding the Remuneration Policy.
The table below shows full details of the
voting outcomes for the 2017/18 Directors’
Remuneration Report.
FIGURE 32: VOTING OUTCOMES FOR THE REMUNERATION POLICY AND 2017/18 REMUNERATION REPORT
Remuneration Policy (at the 2017 AGM)
2017/18 Remuneration Report (at the 2018 AGM)
1,020,561,621
1,009,866,132
99.08%
98.70%
9,498,526
13,263,809
0.92%
1.30%
2,368,960
19,095,928
Votes for
% Votes for
Votes against
% Votes against
Votes withheld
APPROVED BY THE BOARD
ANDREW FISHER CHAIRMAN OF THE REMUNERATION COMMITTEE
London, 21 May 2019
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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 76
MARKS AND SPENCER GROUP PLC
GOVERNANCE
OTHER DISCLOSURES
DIRECTORS’ REPORT
Marks and Spencer Group plc
(the “Company”) is the holding company
of the Marks & Spencer Group of
companies (the “Group”).
The Directors’ Report for the year ended
30 March 2019 comprises pages 34 to 80
and pages 158 to 159 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 to 33, as the Board
considers them to be of strategic
importance. Specifically, these are:
>Future business developments
(throughout the Strategic Report).
>Risk management on pages 27 to 28.
>Details of branches operated by
the Company on pages 8 to 14.
>Total global M&S greenhouse gas
emissions 2018/19 on page 21.
The Strategic Report and the Directors’
Report together form the Management
Report for the purposes of the Disclosure
Guidance and Transparency Rules
(DTR) 4.1.8R.
Information relating to financial instruments
can be found on pages 121-130 and is
incorporated by reference.
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.
The Directors’ Report fulfils the
requirements of the corporate governance
statement for the purposes of DTR 7.2.3R.
Further information is available online at
marksandspencer.com/thecompany
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.
INFORMATION TO BE
DISCLOSED UNDER LR 9.8.4R
Listing Rule
Detail
9.8.4R (1) (2)
(5-14) (A) (B) Not applicable
9.8.4R (4)
Long-term
incentive schemes
Page
reference
N/A
55-57,
59-61
and
66-68
BOARD OF DIRECTORS
The membership of the Board and
biographical details of the directors are
provided on pages 36 and 37. 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 69 and 73. Options
granted to directors under the Save As You
Earn (SAYE) and Executive Share Option
Schemes are shown on page 70. Further
information regarding employee share
option schemes is provided in note 13 to the
financial statements on pages 114 to 116.
Name
Role
Executive
Director
Departures
Patrick
Bousquet-
Chavanne
Richard
Solomons
Vindi Banga Non-Executive
Non-Executive
Director
Director
Appointments
Humphrey
Singer
Katie
Bickerstaffe
Pip
McCrostie
Justin King Non-Executive
Executive
Director
Non-Executive
Director
Non-Executive
Director
Director
Effective date of
departure/
appointment
18 April 2018
10 July 2018
1 October
2018
9 July 2018
10 July 2018
10 July 2018
1 January
2019
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 30 March 2019
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 30 March 2019 for the benefit
of the Trustees of the Marks & Spencer UK
Pension Scheme, both in the UK and the
Republic of Ireland.
PROFIT AND DIVIDENDS
The profit for the financial year, after
taxation, amounts to £37.3m (last year
£29.1m). 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 7.1p per share
(last year 11.9p per share)
Total dividend of
13.9p per share for 2018/19
(last year 18.7p per share)
£110.3m
£115.4m
£225.7m
Subject to shareholder approval at this
year's AGM, the final ordinary dividend
will be paid on 12 July 2019 to shareholders
whose names were on the Register of
Members at the close of business on
31 May 2019.
SHARE CAPITAL
The Company’s issued ordinary share
capital as at 30 March 2019 comprised a
single class of ordinary share. Each share
carries the right to one vote at general
meetings of the Company.
During the period, 242,884 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 261p.
Details of movements in the Company’s
issued share capital can be found in note 24
to the financial statements on page 132.
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.
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.
77
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
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 may decide.
POWERS FOR THE COMPANY ISSUING
OR BUYING BACK ITS OWN SHARES
The Company was authorised by
shareholders at the 2018 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 30 March 2019 and up to the
date of this report.
This standard authority is renewable
annually; the directors will seek to renew
this authority at the 2019 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 2018 AGM to allot relevant securities
up to a nominal amount of £135,397,323.
This authority will apply until the conclusion
of the 2019 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 £162,504,984
and (ii) comprising equity securities up
to a nominal amount of £325,009,968
(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
2020 or, if earlier, on 1 October 2020.
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 £24,375,748.
In addition, this year a separate special
resolution will be proposed, in line with
institutional shareholder guidelines, to
authorise the directors to make non pre-
emptive issues for cash in connection with
acquisitions/specified capital investments,
up to a nominal amount of £24,375,748.
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 195 million ordinary shares
and sets the minimum and maximum prices
which will be paid.
The Company is currently conducting a
rights issue to raise up to £601.3m, the terms
of which were announced on 22 May 2019,
using authorities granted at the 2018 AGM.
Further details are in the Company’s
announcement made on that date.
INTERESTS IN VOTING RIGHTS
Information provided to the Company
pursuant to the Financial Conduct
Authority’s (FCA) Disclosure Guidance and
Transparency Rules (DTRs) is published
on a Regulatory Information Service
and on the Company’s website. As at
30 March 2019, 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 Bank of Nova Scotia
% of capital
Ordinary shares
disclosed Nature of holding as per disclosure
90,130,249
5.549
Indirect interest (5.547%),
CFD (0.001%)
81,070,667
4.99 Direct interest
77,449,103
82,524,463
2,578,006
7.78
Indirect interest (4.76%),
securities lending (2.53%),
CFD (0.48%)
Indirect interest (5.054%),
direct interest (0.025%)
3.15 Direct interest (0.15%),
5.079
In the period from 30 March 2019 to the date of this report, we received no further notifications.
swap (2.99%)
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 78
MARKS AND SPENCER GROUP PLC
OTHER DISCLOSURES CONTINUED
> The amended and restated Relationship
COLLEAGUE INVOLVEMENT
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.
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, and information on our
approach to our workforce, are highlighted
throughout this Annual Report and
specifically on pages 15 to 17 and on
page 44.
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 18,969 colleagues currently
participate in ShareSave, the Company’s
Save As You Earn Scheme. Full details of all
schemes are given on pages 114-116.
There are websites for both pension
schemes – the defined contribution scheme
(Your M&S UK Pension Saving Plan) and the
defined benefit scheme (the Marks &
Spencer UK 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.
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.
The directors support a business-wide
inclusion strategy, with each member of
the Operating Committee sponsoring an
element of diversity, helping our employee-
led diversity networks grow in numbers and
strength and to embed a culture of inclusion
across the organisation.
Further information on our diversity
and inclusion initiatives can be found on
page 47.
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 (MTN)
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 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.
> 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.
79
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
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, and this year
marked 15 years since we launched the
Marks & Start programme.
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 regarding its 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 1 April 2018 to 30 March 2019,
to the Audit Committee on 16 May 2019.
A detailed summary of the 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 30 March 2019.
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.
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 to 22 as
well as the Group’s principal risks and
uncertainties as set out on pages 29 to 33.
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
LONG-TERM VIABILITY STATEMENT
The directors have assessed the prospects
of the Company over a three-year period to
March 2022. 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 p28
In accordance with the Order, a summary of
that compliance report is set out below.
AUDITOR
M&S believes that it has materially complied
with the Code and the Order during the
relevant period. No formal disputes under
the Code have arisen during the reporting
period. There have been seven instances
during the reporting period in which
suppliers have either alleged a breach
or made a reference to potential non-
compliance with the Code. M&S has worked
with the suppliers to address the issues
raised and they have all now been resolved
or closed. One additional Code reference
made by a supplier before 1 April 2018 was
also resolved during the reporting period.
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
2019 AGM.
ANNUAL GENERAL MEETING
The AGM of Marks and Spencer Group plc
will be held at Wembley Stadium, Wembley,
London on 9 July 2019 at 11am. The
Notice of Meeting is given, together with
explanatory notes, on pages 146-157.
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 51.
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:
> 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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 80
MARKS AND SPENCER GROUP PLC
OTHER DISCLOSURES CONTINUED
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 21 May 2019 and signed
on its behalf by
NICK FOLLAND GROUP GENERAL COUNSEL
AND COMPANY SECRETARY
London, 21 May 2019
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.
Each of the current directors, whose
names and functions are listed on pages
36 and 37, 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.
81
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
INDEPENDENT
AUDITOR’S REPORT
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
IN OUR OPINION:
BASIS FOR OPINION
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 Financial Reporting Council’s (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:
> Disclosure of adjusting items;
> Accounting for the UK store
rationalisation programme;
> Impairment of UK store assets;
> Inventory provisioning for
UK Clothing & Home;
> Valuation of UK defined benefit
obligation; and
> IFRS 16 Leases disclosures.
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 £20.0m
(2018: £24.5m) using a benchmark of
adjusted profit before tax but excluding
the impact of certain adjusting items,
as set out on page 88 of this report.
We performed a full scope audit on three
components of the business (UK, India and
Ireland) representing 99% of the Group’s
revenue, 95% of the Group’s adjusted profit
before tax, 92% of the Group’s profit before
tax, 80% of the Group’s total assets, and 99%
of the Group’s total liabilities.
SIGNIFICANT CHANGES
IN OUR APPROACH
Our audit approach is consistent with the
previous year, with the exception of:
>Manual adjustments to reported revenue
has been removed as a key audit matter
on account of the quantum of
adjustments applied and the limited
scope of judgement involved; and
>IFRS 16 Leases disclosures has been
included as a key audit matter due to the
inherent level of judgement involved in
determining the quantum of the impact
and the level of audit effort required in
evaluating the appropriateness of the
supporting disclosures.
the financial statements of Marks and
Spencer Group plc (the “Parent
Company”) and its subsidiaries
(the “Group”) give a true and fair
view of the state of the Group’s and
of the Parent Company’s affairs as at
30 March 2019 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
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 Reconciliations of movement in net
debt and net debt to the Consolidated
statement of financial position; and
> the related notes 1 to 30 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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 82
MARKS AND SPENCER GROUP PLC
INDEPENDENT AUDITOR’S REPORT CONTINUED
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 considered as part of our risk
assessment the nature of the Group,
its business model and related risks,
including where relevant the impact of
Brexit, the requirements of the applicable
financial reporting framework and the
system of internal control. We evaluated
the directors’ assessment of the Group’s
ability to continue as a going concern,
including challenging the underlying data
and key assumptions used to make the
assessment, and evaluated the directors’
plans for future actions in relation to their
going concern assessment.
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.
> The directors’ confirmation on page 28
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
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 29-33
that describe the principal risks and
explain how they are being managed
or mitigated;
> The directors’ explanation on page 28 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.
83
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
KEY AUDIT 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
audits, 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
DISCLOSURE OF ADJUSTING ITEMS
1
KEY AUDIT MATTER DESCRIPTION
The Group has reported adjusted profit
before tax of £523.2m, which is derived
from statutory profit before tax of £84.6m
adjusted for a number of items which the
Group considers meet their definition of
an “adjusting item”. Judgement is exercised
by management in determining the
classification of such items. This represents
a significant matter considered by the
Audit Committee on page 50.
Explanations of each adjusting item
are set out in note 5 to the financial
statements and are summarised in
the graphic opposite:
£m
600
400
200
0
51.8
16.4
15.6
14.3
6.2
5.3
222.1
62.1
20.9
20.5
3.4
523.2
84.6
T
B
P
y
r
o
t
u
t
a
t
S
K
U
e
t
a
t
s
e
e
r
o
t
s
n
o
i
t
a
s
i
n
a
g
r
O
l
a
n
o
i
t
a
r
e
p
O
n
o
i
t
a
m
r
o
f
s
n
a
r
t
e
r
u
t
c
u
r
t
s
e
r
T
I
s
c
i
t
s
i
g
o
l
K
U
s
n
o
i
s
n
e
p
d
n
a
y
a
p
o
t
s
e
g
n
a
h
C
d
n
a
s
e
r
u
s
o
l
c
e
r
o
t
s
l
a
n
o
i
t
a
n
r
e
t
n
I
s
t
n
e
m
r
i
a
p
m
i
s
t
n
e
m
r
i
a
p
m
i
e
r
o
t
s
K
U
s
e
g
r
a
h
c
y
t
r
e
p
o
r
p
d
n
a
s
e
g
r
a
h
c
k
n
a
B
S
&
M
r
e
h
t
o
d
n
a
P
M
G
n
o
i
t
a
s
i
l
a
u
q
e
n
o
i
s
n
e
p
V
J
o
d
a
c
O
i
e
h
t
g
n
h
s
i
l
b
a
t
s
E
T
B
P
d
e
t
s
u
d
A
j
In determining adjusted profit before tax, we identified the following risks:
> The identification and classification of items as “adjusting” may be inappropriate,
distorting the reported results;
> The omission of items which are considered material, one-off or significant in nature,
distorting the reported results; and
> The clarity and detail of disclosures in respect of adjusting items may be insufficient,
precluding investors from obtaining a clear understanding of the Group’s results
and performance.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
In responding to the identified key audit
matter, we completed the following
audit procedures:
> Assessed the design and
implementation of key controls
pertaining to the identification and
disclosure of adjusting items;
> Performed enquiries of management to
understand the rationale applied in
identifying items as adjusting and
completed an independent assessment
as to the selection and presentation of
adjusting items based on their nature;
> Assessed the identification and
consistency of items reported as
adjusting year on year in light of the
latest guidance published by the
European Securities and Markets
Authority (‘ESMA’) and the FRC;
> Performed tests over a representative
sample of adjusting items through
agreement to supporting evidence;
> Used our cumulative audit knowledge
and applied data analytics to identify
and test other transactions outside of
the normal course of business, or which
displayed characteristics of being
material, significant or one-off in
nature; and
> Assessed the completeness and
accuracy of disclosures within the
financial statements in accordance
with IFRSs.
Key observations
We are satisfied that the items included in
arriving at adjusted profit and the related
disclosures within the financial statements
are appropriate.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
84
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
In February 2018 the Board approved a list
of stores marked for closure as part of the
UK store rationalisation programme, with a
total charge of £321.1m recorded in the
prior year in respect of impairment,
accelerated depreciation and property
exit costs. In the current year, a further
charge of £222.1m has been recognised
as a result of:
> Management revisiting its assessment
of stores approved for closure and the
adequacy of estimates made in light
of known developments in the exit
strategy, including current trading
performance, negotiations with
landlords and changes in the retail
property market;
> Further accelerated depreciation of
stores identified for closure in the prior
year (as they approach their planned
closure dates); and
> Accelerated depreciation and
impairment of buildings and fixtures and
fittings in respect of additional stores
added to the programme.
Further information is set out in notes
1 and 5 to the financial statements.
This represents a significant matter
considered by the Audit Committee on
page 50.
Our key audit matter was focused on
the following areas of risk:
> Provisions encompassing onerous
contracts, store strip-out costs,
restructuring and dilapidations are
incomplete or inaccurate;
> Specific assumptions applied in
management’s discounted cash flow
analysis, including the discount rate,
sublet income, sublet lease incentives,
void periods, freehold sales proceeds
and store closure costs are
inappropriate; and
> Significant property transactions such
as disposals and lease surrenders are
accounted for incorrectly.
We consider this to represent a key audit
matter reflecting the level of judgement
applied by management. Our audit work
focused on assessing the Group’s UK store
exit model and evaluating the continued
appropriateness of the key assumptions
used in determining the extent of
provisioning required.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
In responding to the identified key audit matter, we completed the following audit procedures:
> Assessed the design and
implementation of key controls
pertaining to the review and approval
of the Group’s UK store exit model;
> Performed enquiries of management
and inspected the latest strategic plans,
Board and relevant sub-committee
minutes of meetings;
> Understood and challenged the basis
of the Group’s decisions where stores
previously marked for closure are no
longer expected to close;
> Evaluated the appropriateness of the
Group’s judgements for a representative
sample of properties in consultation
with our internal real estate specialists
and with reference to external
benchmarking data;
> Assessed the mechanical accuracy of
discounted cash flow models and other
key provision calculations;
> Assessed the integrity of key
inputs including lease data, agent
valuations, surveyor plans and rental
payments through agreement to
supporting documentation;
> Recalculated the closing provision
for a representative sample of stores
and agreed any movement to the
income statement;
> Evaluated the accuracy and
completeness of provisions recorded
in light of the status of the Group’s UK
store rationalisation plan; and
> Assessed the completeness and
accuracy of disclosures within the
financial statements in accordance
with IFRSs.
Key observations
We are satisfied with the Group’s estimate
of the impairments and store exit charges
recorded. Further, the disclosure of
amounts recorded in the financial
statements is appropriate.
85
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
KEY AUDIT MATTER
KEY AUDIT MATTERS CONTINUED
IMPAIRMENT OF UK STORE ASSETS
3
KEY AUDIT MATTER DESCRIPTION
As at 30 March 2019 the Group held
£2,859.9m of UK store assets in respect of
stores not considered for closure within the
UK store rationalisation programme. In
accordance with IAS 36 Impairment of
Assets, the Group has undertaken an
annual assessment of indicators of
impairment. An impairment charge of
£52.8m has been recognised within
adjusting items as set out in notes 5 and 15
to the financial statements.
This represents a significant matter
considered by the Audit Committee
on page 50.
As described in note 15 to the financial
statements, the Group has estimated the
recoverable amount of store assets based
on their value in use, derived from a
discounted cash flow model prepared by
management. The model relies on certain
assumptions and estimates of future
trading performance, incorporating
committed strategic changes to the UK
Clothing & Home and Food businesses and
the performance of new stores operating
within their shelter period, all of which
involve a high degree of estimation
uncertainty (as disclosed in note 1),
particularly in light of current retail
market conditions and the impact of
wider economic uncertainty.
The key assumptions applied by
management in the impairment reviews
performed are:
> Future revenue growth and changes in
gross margin;
> Long-term growth rates; and
> Discount rates.
The Group considers that each retail store
constitutes its own cash-generating unit
(“CGU”), with the exception of the outlet
stores which are used to clear aged
seasonal Clothing & Home inventory at a
discount. The outlet stores are considered
to represent one CGU in aggregate.
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 the first
two years of trading to enable stores to
establish themselves within the market.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
In responding to the identified key audit matter, we completed the following audit procedures:
> Assessed the design and
> Assessed the appropriateness of
implementation of key controls
pertaining to the impairment
review process;
> Evaluated and challenged
management’s range of impairment
indicators with due consideration paid
to the profitability impact of committed
strategic changes to the UK Clothing &
Home and Food businesses and the
performance of new stores operating
within their shelter periods;
> Assessed the mechanical accuracy
of the impairment models and the
methodology applied by management
for consistency with the requirement of
IAS 36;
forecast revenue and gross margin
growth rates through comparison with
external economic benchmarking data;
> Assessed the appropriateness of the
discount rates applied in conjunction
with support from our internal
valuations specialists and compared
the rates applied with our internal
benchmarking data;
> Evaluated the appropriateness and
completeness of information included
in the impairment models based on
our cumulative knowledge of the
business driven by our review of trading
plans, strategic initiatives, minutes of
property and investment committee
meetings, and meetings with regional
store managers and senior trading
managers from key product categories,
together with our wider retail industry
knowledge; and
> Assessed the completeness and
accuracy of disclosures within the
financial statements in accordance
with IFRSs.
Key observations
We are satisfied that the judgements
applied, the impairments recorded, and
the related disclosures within the financial
statements are appropriate.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 86
MARKS AND SPENCER GROUP PLC
INDEPENDENT AUDITOR’S REPORT CONTINUED
KEY AUDIT MATTERS CONTINUED
KEY AUDIT MATTER
INVENTORY PROVISIONING FOR UK CLOTHING & HOME
4
KEY AUDIT MATTER DESCRIPTION
As at 30 March 2019, the Group held
UK Clothing & Home inventories of
£496.1m (2018: £591.5m). 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, judgement is applied in
determining the appropriate provisions
required for obsolete inventory and
inventory expected to be sold below cost
based upon a detailed analysis of old
season inventory and forecast net
realisable value 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 quantum of
gross inventory.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
In responding to the identified key audit
matter, we completed the following
audit procedures:
> Assessed the mechanical accuracy and
logic of the models underpinning the
respective provisions;
> Assessed the design and
implementation of key controls
pertaining to inventory management
and the review and approval of the
UK’s inventory provision;
> Assessed the validity, accuracy and
completeness of the information
used by management in computing
the provision;
> Understood any changes in the
provisioning methodology and
challenged the appropriateness thereof;
> Challenged and validated the key
assumptions applied by management in
estimating the provision by performing
enquiries of buyers and merchandisers,
considering the current purchasing
strategy and ranging plans, and by using
audit analytics; and
KEY AUDIT MATTER
VALUATION OF UK DEFINED BENEFIT OBLIGATION
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 membership on 1 April 2017.
As at 30 March 2019, the Group recorded
a total (including the UK) net funded
retirement benefit asset of £923.4m (2018:
£959.7m), being the net of scheme assets of
£10,224.7m (2018: £9,989.3m) and scheme
liabilities of £9,301.3m (2018: £9,029.6m).
£9,175.1m of this liability relates to the
UK scheme (2018: £8,907.6m).
Our key audit matter related to the
valuation of UK scheme liabilities on
account of the sensitivity to changes in
key assumptions such as the discount rate,
inflation and mortality estimates.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
In responding to the identified key audit
matter we completed the following
audit procedures:
actuarial valuation reports for each
scheme in conjunction with our internal
pension specialist team;
> Assessed the design and
implementation of relevant controls
pertaining to the estimation and
valuation of the pension liability;
> Evaluated the appropriateness of the
assumptions applied in the valuation of
scheme liabilities, and the information
contained within the supporting
> Assessed the integrity of key inputs
through agreement of a representative
sample of membership scheme records;
> Performed sensitivity analysis on the key
variables within the valuation model in
accordance with external benchmarking
data; and
> Tested the validity and completeness of
the inventory flags and season codes
applied to a representative sample of
individual product lines.
Key observations
We concur that the judgements taken by
management are appropriate and that the
resultant level of inventory provisioning
recorded in respect of UK Clothing & Home
is acceptable.
This represents a significant matter
considered by the Audit Committee on
page 50.
The setting of the assumptions identified
above is complex and an area of significant
judgement whereby changes in any of
these assumptions could lead to a
material movement in the net surplus.
The increase/(decrease) in scheme surplus
caused by a change in each of the key
assumptions is set out in note 11 to the
financial statements.
> Assessed the completeness and
accuracy of disclosures within the
financial statements in accordance
with IFRSs.
Key observations
We are satisfied that the assumptions
applied in determining the valuation of the
defined benefit obligation are appropriate.
87
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
KEY AUDIT MATTERS CONTINUED
KEY AUDIT MATTER
IFRS 16 LEASES DISCLOSURES
6
KEY AUDIT MATTER DESCRIPTION
In advance of adopting IFRS 16 Leases from
31 March 2019, the Group has finalised its
assessment of the impact that the new
accounting standard will have on its
statement of financial position. The
expected impact of IFRS 16 as at 30 March
2019 is disclosed in note 1 to the financial
statements. A number of judgements have
been applied and estimates made in
determining the impact of the standard.
This represents a significant matter
considered by the Audit Committee on
pages 50-51.
In order to compute the transition impact
of IFRS 16, a significant data extraction
exercise was undertaken by management
to summarise all property and equipment
lease data such that the respective inputs
could be uploaded into management’s
model. The incremental borrowing rate
(“IBR”) method has been adopted where
the implicit rate of interest in a lease is not
readily determinable.
Our key audit matter was focused on the
following areas of risk:
> Leasing arrangements within the scope
of IFRS 16 are not identified or
appropriately included in the calculation
of the transitional impact;
> Specific assumptions applied to
determine the discount rates for
each lease are inappropriate;
> The underlying lease data used to
calculate the transitional impact is
incomplete and/or inaccurate;
> The mechanical accuracy of lease
calculations is flawed; and
> The disclosures in the financial
statements are insufficient,
precluding investors from obtaining
a clear understanding as to the
transitional impact of the change in
accounting standard.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE KEY AUDIT MATTER
In responding to the identified key audit
matter, we completed the following
audit procedures:
> Assessed the design and
implementation of key controls
pertaining to the determination of the
IFRS 16 transition impact disclosures;
> Assessed the appropriateness of the
discount rates applied in determining
lease liabilities with input from our
valuation specialists;
> Verified the accuracy of the underlying
lease data by agreeing a representative
sample of leases to original contract or
other supporting information, and
checked the integrity and mechanical
accuracy of the IFRS 16 calculations
for each lease sampled through
recalculation of the expected
IFRS 16 adjustment;
> Considered completeness by testing
the reconciliation to the Group’s
operating lease commitments
(disclosed per note 25 to the financial
statements), and by investigating key
service contracts to assess whether they
contained a lease under IFRS 16; and
> Assessed whether the disclosures within
the financial statements are appropriate
in light of the requirements of IAS 8
Accounting Policies, Changes in
Accounting Estimates and Errors.
Key observations
We are satisfied that the disclosure of
the expected impact of IFRS 16 is in
accordance with the Group’s stated
accounting policy and the related
disclosure of these items per note 1 to
the financial statements is appropriate.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Parent company financial
statements
£18.0m (2018: £22.1m)
We used 3% of net
assets as the basis of
materiality and then
further capped this at
90% of Group
materiality.
The Parent Company
acts principally
as a holding company
and therefore net
assets is deemed a
key measure.
Group materiality
£24.5m
Component
materiality range
£2.5m to £22.5m
Audit Committee
reporting threshold
£1m
88
MARKS AND SPENCER GROUP PLC
INDEPENDENT AUDITOR’S REPORT CONTINUED
OUR APPLICATION OF MATERIALITY
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 component
auditors for full scope audits ranged
from £2.0m to £18.0m (2018: £2.2m
to £22.1m) 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 £1.0m
(2018: £1.0m), 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.
Materiality
Basis for
determining
materiality
Rationale
for the
benchmark
applied
Group financial statements
£20.0m (2018: £24.5m)
The principal measure considered in both the
current and prior year was a benchmark of 5%
of adjusted profit before tax but excluding the
impact of certain adjusting items, which would
give a materiality of £21.5m. The items we excluded
from our determination are listed below and
explained further in note 5 to the financial
statements:
> M&S Bank charges (PPI) – £20.9m
> UK logistics – £14.3m
> UK store impairments and associated charges
within £62.1m adjusting item in note 5 – £52.8m
In light of recent trading performance, the
continued challenging market conditions in which
the Group operates, and the broader level of
uncertainty associated with the UK’s exit from the
European Union we applied professional judgement
to reduce materiality to £20.0m.
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
MATERIALITY
£523.2m
Adjusted PBT
for determining
materiality
£523.2m
£20.0m
Adjusted PBT
Group materiality
£24.5m
PBT
Group materiality
Group materiality
£20.0m
Component
materiality range from
£2.0m to £18.0m
Audit Committee
reporting threshold
£1.0m
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, and consistent
with the prior year, we focused our group
audit scope on the retail businesses in the UK,
India and Ireland, 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.
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.
While we audit the revenues received by
the Group from franchise operations, which
account for 4% (2018: 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.
1%
5%
8%
99%
95%
92%
REVENUE
ADJUSTED PBT
PBT
20%
1%
80%
99%
TOTAL ASSETS
TOTAL LIABILITIES
Full audit scope
Specified audit procedures and
review at group level
The most significant component of the
Group is its retail business in the UK,
which accounts for 91% (2018: 90%) of
the Group’s reported revenue of £10,377.3m
(2018: £10,698.2m, and generates operating
profit of £52.8m (2018: £23.2m). 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 10
distribution centre and 25 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 such 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.
89
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
AN OVERVIEW OF THE SCOPE OF OUR AUDIT CONTINUED
The programme of visits in the current and
prior year is set out below.
Component
India
Republic of Ireland
2018
(Last year)
2019
(This year)
✔
✔
✔
In addition to our programme of planned
visits, we issue detailed referral instructions
to our component audit teams, engage
regularly with them in our audit team
briefings, consider and discuss the
appropriateness of their local risk
assessment, attend closing meetings
with them and component management
teams, and review their component
reporting. A dedicated member of the
group audit team is assigned to facilitate an
effective and consistent approach
to component oversight.
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
OTHER INFORMATION
required to determine whether there is a
material misstatement in the financial
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
RESPONSIBILITIES OF DIRECTORS
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.
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 FRC’s website at:
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
auditor’s report.
Details of the extent to which the audit
was considered capable of detecting
irregularities, including fraud, are set
out below.
EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD
We identify and assess the risks of material
misstatement of the financial statements,
whether due to fraud or error, and then
design and perform audit procedures
responsive to those risks, including
obtaining audit evidence that is sufficient
and appropriate to provide a basis for
our opinion.
IDENTIFYING AND ASSESSING
POTENTIAL RISKS RELATED TO
IRREGULARITIES
In identifying and assessing risks of material
misstatement in respect of irregularities,
including fraud and non-compliance with
laws and regulations, our procedures
included the following:
> Enquiring of management, Internal Audit,
internal legal counsel, and the Audit
Committee, including obtaining and
reviewing supporting documentation,
concerning the Group’s policies and
procedures relating to:
> Identifying, evaluating and complying
with laws and regulations and whether
they were aware of any instances of
non-compliance;
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 90
MARKS AND SPENCER GROUP PLC
INDEPENDENT AUDITOR’S REPORT CONTINUED
EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES,
INCLUDING FRAUD CONTINUED
> Detecting and responding to the risks
of fraud and whether they have
knowledge of any actual, suspected or
alleged fraud;
> The internal controls established to
mitigate risks related to fraud or non-
compliance with laws and regulations
including the Group’s controls relating
to Groceries Supply Code of Practice
(“GSCOP”) requirements;
> Discussing among the engagement
team, including significant component
audit teams and involving relevant
internal specialists, including tax,
valuations, real estate, pensions and IT
specialists, regarding how and where
fraud might occur in the financial
statements and any potential indicators
of fraud. As part of this discussion, we
identified potential for fraud in the
disclosure of adjusting items; and
> Obtaining an understanding of the legal
and regulatory frameworks that the
Group operates in, focusing on those
laws and regulations that had a direct
effect on the financial statements.
The key laws and regulations we
considered in this context included the
UK Companies Act 2006, the Listing
Rules, UK Corporate Governance Code,
pensions legislation and UK and overseas
tax legislation. The key laws and
regulations which had a fundamental
effect on the operations of the Group
included GSCOP, employment law and
health and safety legislation.
AUDIT RESPONSE TO RISKS IDENTIFIED
As a result of performing the above, we
identified the disclosure of adjusting items
as a key audit matter. The key audit matters
section of our report explains the matter in
more detail and also describes the specific
procedures we performed in response to
that key audit matter.
In addition to the above, our procedures
to respond to risks identified included
the following:
> Reviewing the financial statement
disclosures and testing to supporting
documentation to assess compliance
with relevant laws and regulations
discussed above as having a direct effect;
> Enquiring of management, the Audit
Committee and in-house and external
legal counsel concerning actual and
potential litigation and claims;
> Performing analytical procedures to
identify any unusual or unexpected
relationships that may indicate risks of
material misstatement due to fraud;
> Reading minutes of meetings of those
charged with governance, reviewing
Internal Audit reports and reviewing
correspondence with HMRC; and
> In addressing the risk of fraud through
management override of controls,
testing the appropriateness of journal
entries and other adjustments; assessing
whether the judgements made in making
accounting estimates are indicative
of a potential bias; and evaluating the
business rationale of any significant
transactions that are unusual or outside
the normal course of business.
We also communicated relevant identified
laws and regulations and potential fraud
risks to all engagement team members
including internal specialists and significant
component audit teams, and remained
alert to any indications of fraud or
non-compliance with laws and regulations
throughout the audit.
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:
> 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
> The strategic report and the directors’
report have been prepared in accordance
with applicable legal requirements.
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 not received all the information
and explanations we require for our
audit; or
> Adequate accounting records have not
been kept by the Parent Company, or
returns adequate for our audit have not
been received from branches not visited
by us; or
> The Parent Company financial
statements are not in agreement with the
accounting records and returns.
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.
MATTERS ON WHICH WE ARE
REQUIRED TO REPORT BY EXCEPTION
OTHER MATTERS
periods. The period of total uninterrupted
engagement including previous renewals
and reappointments of the firm is 5 years,
covering the periods ending 28 March 2015
to 30 March 2019.
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).
USE OF OUR REPORT
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.
Adequacy of explanations received
and accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
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
IAN WALLER (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF DELOITTE LLP
STATUTORY AUDITOR, LONDON, UNITED KINGDOM
21 May 2019
91
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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
CONSOLIDATED INCOME STATEMENT
52 weeks ended 30 March 2019
52 weeks ended 31 March 2018
Profit before
adjusting items
£m
10,377.3
Adjusting items
£m
Total
£m
Profit before
adjusting items
£m
Adjusting items
£m
Total
£m
–
10,377.3
10,698.2
–
10,698.2
601.0
(438.6)
162.4
670.6
(514.1)
156.5
–
–
(438.6)
58.7
(379.9)
(379.9)
–
(379.9)
33.8
(111.6)
523.2
(106.0)
417.2
413.4
3.8
417.2
25.4p
25.4p
33.8
(111.6)
84.6
(47.3)
37.3
33.5
3.8
37.3
2.1p
2.1p
24.1
(113.8)
580.9
(125.4)
455.5
452.1
3.4
455.5
27.8p
27.8p
–
–
(514.1)
87.7
(426.4)
(426.4)
–
(426.4)
24.1
(113.8)
66.8
(37.7)
29.1
25.7
3.4
29.1
1.6p
1.6p
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 credit/(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 in other comprehensive income
– reclassified and reported in profit or loss
– amount recognised in inventories
Tax (charge)/credit on cash flow hedges and net investment hedges
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to:
Owners of the parent
Non-controlling interests
52 weeks ended
30 March 2019
£m
52 weeks ended
31 March 2018
£m
Notes
37.3
29.1
11
(79.9)
14.0
(65.9)
(15.4)
–
–
132.0
(16.0)
–
(19.0)
81.6
15.7
53.0
49.2
3.8
53.0
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
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 92
MARKS AND SPENCER GROUP PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at
30 March 2019
£m
As at
31 March 2018
£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
Current assets
Inventories
Other financial assets
Trade and other receivables
Derivative financial instruments
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 reserves
Other reserve
Foreign exchange reserve
Retained earnings
Total shareholders’ equity
Non-controlling interests in equity
Total equity
14
15
16
11
17
21
16
17
21
18
19
12
20
21
22
11
19
12
20
21
22
23
24
499.9
4,028.5
15.5
4.0
9.9
931.5
200.7
19.8
5,709.8
700.4
141.8
322.5
40.3
285.4
1,490.4
7,200.2
1,461.3
71.9
513.1
7.3
148.6
26.2
2,228.4
17.2
322.4
200.5
1,279.5
2.8
250.1
218.4
2,290.9
4,519.3
2,680.9
406.3
416.9
2,210.5
(2.9)
(6,542.2)
(44.7)
6,237.1
2,681.0
(0.1)
2,680.9
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)
(29.3)
6,560.4
2,956.7
(2.5)
2,954.2
The financial statements were approved by the Board and authorised for issue on 21 May 2019. The financial statements also comprises
notes 1 to 30.
Steve Rowe Chief Executive Officer
Humphrey Singer Chief Finance Officer
93
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 2 April 2017
Profit for the year
Other comprehensive (expense)/income:
Foreign currency translation
– movements recognised in other
comprehensive income
– reclassified and reported in profit or loss
Revaluation of available for sale asset
Remeasurements of retirement
benefit schemes
Tax charge on items that will not be reclassified
Cash flow hedges and net investment hedges
– fair value movements 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
As at 1 April 2018
Adjustment on initial application of IFRS 9
(note 29)
Adjusted opening shareholders equity
Profit for the year
Other comprehensive (expense)/income:
Foreign currency translation
– movements recognised in other
comprehensive income
Remeasurements of retirement benefit schemes
Tax credit on items that will not be reclassified
Cash flow hedges and net investment hedges
– fair value movement in other
comprehensive income
– reclassified and reported in profit or loss
Tax on cash flow hedges and
net investment hedges
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Cash flow hedges recognised in inventories
Tax on cash flow hedges recognised in
inventories
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
Hedging
reserve2
£m
Cost of
hedging
£m
Other
reserve¹
£m
Foreign
exchange
reserve
£m
Retained
earnings3
£m
Non-
controlling
interest
£m
Total
£m
Total
£m
(6,542.2)
30.5
6,617.6
3,156.3
–
25.7
25.7
Ordinary
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
406.2
416.4
2,210.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17.3
–
0.2
–
–
–
–
(211.0)
51.0
57.5
19.7
(82.6)
(82.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(23.6)
(36.2)
–
–
–
–
–
–
–
–
–
6.9
(23.4)
(36.2)
6.9
200.9
(39.0)
200.9
(39.0)
2.3
34.0
–
–
(208.7)
85.0
57.5
19.7
62.7
88.4
(59.8)
(59.8)
205.1
230.8
–
–
–
–
–
–
(303.4)
(303.4)
–
–
(3.1)
18.5
–
–
–
(3.1)
18.5
–
406.2
416.4
2,210.5
(65.3)
406.2
416.4
2,210.5
(65.3)
(6,542.2)
(29.3)
6,560.4
2,956.7
(2.5)
2,954.2
(6,542.2)
(29.3) 6,560.4
2,956.7
(2.5) 2,954.2
–
–
–
406.2
416.4
2,210.5
(10.7)
(76.0)
10.7
10.7
–
–
(0.5)
(0.5)
–
(0.5)
(6,542.2)
(29.3) 6,559.9
2,956.2
(2.5) 2,953.7
–
33.5
33.5
3.8
37.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
130.5
(16.0)
1.5
–
(18.5)
(0.5)
96.0
96.0
(42.7)
8.1
–
–
–
–
–
–
1.0
1.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(79.9)
14.0
(15.4)
(79.9)
14.0
–
–
–
–
–
132.0
(16.0)
(19.0)
15.7
49.2
(42.7)
8.1
(15.4)
(15.4)
(65.9)
(32.4)
(15.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
(303.5)
(303.5)
–
–
(5.5)
19.2
(0.6)
–
(1.4)
(1.4)
0.6
(5.5)
19.2
(0.6)
–
–
–
–
0.6
(5.5)
19.2
(0.6)
(5.9)
3.4
3,150.4
29.1
–
–
–
–
–
–
–
–
–
–
3.4
–
–
–
–
–
–
(23.4)
(36.2)
6.9
200.9
(39.0)
(208.7)
85.0
57.5
19.7
62.7
91.8
(303.4)
–
–
(3.1)
18.5
–
–
–
–
–
–
–
–
3.8
–
–
–
(15.4)
(79.9)
14.0
132.0
(16.0)
(19.0)
15.7
53.0
(42.7)
8.1
(303.5)
As at 30 March 2019
406.3
416.9
2,210.5
(14.6)
11.7
(6,542.2)
(44.7)
6,237.1
2,681.0
(0.1) 2,680.9
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” in 2017/18 includes the revaluation of the cross currency swaps, offsetting the revaluation of the USD hedged bonds within finance costs.
3. Included within Retained Earnings is the fair value through other comprehensive income reserve.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 94
MARKS AND SPENCER GROUP PLC
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
(Purchase)/sale of current financial assets
Interest received
Purchase of investment in joint venture
Net cash used in investing activities
Cash flows from financing activities
Interest paid¹
Cash outflow from borrowings
Cash inflow from borrowings
Payment of 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
Issuance/(redemption) of Medium Term Notes
Net cash used in financing activities
Net cash inflow/(outflow) 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 inflow/(outflow) from activities
Increase/(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
30 March 2019
£m
52 weeks ended
31 March 2018
£m
1,041.0
(105.7)
935.3
48.1
(217.8)
–
(95.1)
(128.1)
7.4
(2.5)
(388.0)
(86.4)
(46.7)
–
(3.3)
(61.6)
(303.5)
0.6
(5.5)
1.4
(505.0)
42.3
(0.2)
171.0
213.1
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
Notes
26
27
52 weeks ended
30 March 2019
£m
52 weeks ended
31 March 2018
£m
Notes
(1,827.5)
42.3
128.1
110.2
1.8
282.4
(1,545.1)
(1,934.7)
(231.7)
(0.8)
346.6
(6.9)
107.2
(1,827.5)
27
95
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
General information
Marks and Spencer Group plc (the Company) is a public Company
limited by shares incorporated in the United Kingdom under
the Companies Act and is registered in England and Wales.
The address of the Company’s registered office is Waterside
House, 35 North Wharf Road, London W2 1NW.
The principal activities of the Group and the nature of the Group’s
operations is as a Clothing and Home and Food retailer.
These financial statements are presented in Sterling, which is the
currency of the primary economic environment in which the Group
operates and are rounded to the nearest million. Foreign operations
are included in accordance with the policies set out within this note.
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
including the Group’s principal risks and uncertainties. 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 30 March 2019.
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 significant changes to accounting under
IFRS which have affected the Group’s financial statements.
New standards and interpretations effective for periods
commencing on or after 1 January 2018 and therefore applicable
to the Group’s financial statements for the 52 weeks ended
30 March 2019 are listed below:
> IFRS 9 Financial Instruments.
> IFRS 15 Revenue from Contracts with Customers.
> Amendments to IFRS 4 Insurance Contracts regarding the
implementation of IFRS 9 Financial Instruments.
> Interpretation IFRIC 22 Foreign Currency Transactions and
Advance Consideration.
> Amendments to IAS 40 Transfer of Investment Property.
> Amendments to IFRS 2 Share-Based Payments, on clarifying
how to account for certain types of share-based payment
transactions.
> Annual improvements to IFRS Standards 2014-2016 Cycle
(certain items effective from 1 January 2017).
With the exception of the adoption of IFRS 9 and IFRS 15, the
adoption of the above standards and interpretations has not
led to any changes to the Group’s accounting policies or had any
other material impact on the financial position or performance of
the Group.
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments:
Recognition and Measurement. The standard is effective for periods
commencing on or after 1 January 2018 and therefore has been
implemented with effect from 1 April 2018. 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.
> Simplified hedge accounting through closer alignment with an
entity’s risk management methodology.
The adoption of IFRS 9 has not had a material impact on either the
Consolidated Income Statement or the Consolidated Statement of
Financial Position. The Group has adopted IFRS 9 using the modified
transition approach and has therefore adjusted opening retained
earnings for the impact of IFRS 9 on the opening bad debt provision
and has not restated the prior period comparatives. The impact of
the adoption of the new standard is shown in note 29 which includes
additional disclosures relating to hedge accounting (including a new
cost of hedging reserve), credit risk management and impairment of
financial assets.
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 prior period includes the
post-implementation impact of adopting the expected credit loss
model for provisioning in accordance with the requirements of
IFRS 9 which had an immaterial impact in the prior period.
IFRS 15 Revenue from Contracts with Customers is effective for
periods beginning on or after 1 January 2018 and therefore has
been implemented with effect from 1 April 2018. 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 previous accounting
standard. Due to 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 has not
had a material impact on the timing or nature of the Group’s
revenue recognition.
Under IFRS 15 a right of return is not a separate performance
obligation and the Group is required to recognise revenue net of
estimated returns. A refund liability and a corresponding asset
representing the right to recover products from the customer
is also recognised. There is no change to the Group’s revenue
recognition under IFRS 15. However, the refund provision was
previously recorded on a net basis within Current Liabilities and
therefore on adoption of IFRS 15 the Group was required to adjust
inventories and the refund provision to a gross basis.
The Group has adopted IFRS 15 using the modified transition
approach and has therefore not restated the prior period
comparatives for the separate recognition of the refund asset
and the increase in the refund provision.
In addition to the changes to the accounting policies, the Group
is required to disclose how the adoption of the new accounting
standard has affected the financial statements. There is no impact
on the Consolidated Income Statement, however the impact on the
Consolidated Statement of Financial Position for the change in
accounting for the refund provision is as follows:
At 30 March 2019, the refund provision on the balance sheet was
accounted for on the gross basis under IFRS 15. There is a liability of
£22.2m and a related refund asset of £8.9m. If accounted for on a net
basis, the refund provision on the balance sheet would be £13.3m.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 96
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
New accounting standards in issue but not yet effective
New standards and interpretations effective for periods
commencing on or after 1 January 2019 and therefore applicable to
the Group for the 52 weeks ending 28 March 2020 are listed below:
> Annual improvements to IFRS Standards 2015-2017 Cycle.
> Amendments to IFRS 9 Financial Instruments, on prepayment
features with negative compensation.
> Amendments to IAS 28 Investments in Associates, on long term
interests in associates and joint ventures.
> Amendments to IAS 19 Employee Benefits on plan amendment,
curtailment or settlement.
> IFRIC 23 Uncertainty over Income Tax Treatments.
> IFRS 16 Leases.
With the exception of the adoption of IFRS 16, the adoption of the
above standards and interpretations will not lead to any changes to
the Group’s accounting policies or have any other material impact
on the financial position or performance of the Group.
IFRS 16 Leases is effective for periods beginning on or after
1 January 2019. The Group will adopt the new financial reporting
standard from 31 March 2019. The financial statements for the
52 weeks ending 28 March 2020 will be the first prepared under
IFRS 16. The Group has decided to adopt using the fully
retrospective transition approach meaning the comparative
period will also be restated at this time.
Impact of application of IFRS 16 Leases
As a lessee, IFRS 16 removes distinctions between operating and
finance leases and requires the recognition of a right of use asset
and corresponding liability for future lease payables. The right of
use asset will be subsequently depreciated on a straight-line basis
over the life of the lease. Interest will be recognised on the lease
liability. This will result in earlier recognition of expense for leases
currently classified as operating leases, although over the life
of a lease the total expense recognised will not change.
Right of use assets recognised by the Group comprise of property,
motor vehicles and equipment, including those in scope under
certain logistics contracts. The Group has elected not to recognise
right of use assets and lease liabilities for leases of low-value assets,
and lease payments associated with those assets will be recognised
as an expense on a straight-line basis. In addition, amounts for leases
with variable consideration, such as turnover leases, will continue to
be recognised on a straight-line basis.
As a lessor, subleases previously classified as operating must be
reassessed in consideration of the remaining contractual term and
conditions with reference to the right of use asset arising from the
head lease. The Group will reclassify certain sublease agreements as
finance leases and recognise a net investment in lease, resulting in a
change in timing of recognition of sublease income.
There will be a significant impact on the balance sheet as at
31 March 2019. It is expected on a pre-tax basis that a right of use
asset of approximately £1.7bn and lease liability of approximately
£2.6bn will be recognised, along with the derecognition of onerous
lease provisions of approximately £0.2bn and other working capital
balances (including lease incentives) of approximately £0.4bn,
which results in an overall adjustment to retained earnings of
approximately £0.3bn.
Operating profit and EBIT before adjusting items increase due to
the depreciation expense being lower than the lease expense it
replaces. The overall impact on profit before tax and adjusting items
depends on the relative maturity of the lease portfolio. Rounded
to the nearest £10m, it is estimated that for the 52 weeks ended
30 March 2019:
> Profit before tax when applying IFRS 16 is c.£10m higher than that
reported in these financial statements under current accounting
standards, including IAS 17 Leases.
> Profit before tax excluding adjusting items is c.£10m lower.
> Operating profit before tax and adjusting items is c.£130m higher.
The application of IFRS 16 requires a reclassification of cash flow
from operations to net cash used in financing activities, however,
the impact to the Group is cash flow neutral.
The Group has had in place a working group and steering committee
to assess the impact and oversee the implementation of the new
standard. The adoption of the new standard is nearing completion,
including the implementation of appropriate internal controls and a
governance framework to ensure the requirements of the new
standard continue to be met including an assessment of new
contracts requiring judgement as to whether they are in scope
of the standard.
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 revenue
growth; like-for-like revenue growth adjusted for Easter;
management 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 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 both
nature and/or quantum to the financial statement line item or
applicable disclosure note 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 30 March 2019:
> 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.
97
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Alternative Performance Measures continued
> Charges arising from the write-off of assets and other
property charges that are considered to be significant in
nature and/or value.
> Significant non-cash charges relating to the Group’s defined
benefit scheme arising from equalisation of guaranteed
minimum pensions (GMP) and other pension equalisation.
> Significant costs arising from establishing the new joint venture
with Ocado.
> 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, in the prior year, 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, except for the revaluation of financial instruments
(including derivative instruments) and defined benefit pension
schemes which are measured at fair values at the end of each
reporting period, as explained in the accounting policies below.
Basis of consolidation
The Group financial statements incorporate the financial
statements of Marks and Spencer Group plc and all its subsidiaries
made up to the 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 Company has control. Control is achieved
when the Company has the power over the subsidiary; is exposed,
or has rights to, variable returns from its involvement with the
subsidiary; and has the ability to use its power to affect its returns.
Consolidation of a subsidiary begins when the Company obtains
control over the subsidiary and ceases when the Company loses
control of the subsidiary. 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
2018 (IAS 18): 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.
2019 (IFRS 15): 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 performance obligations are satisfied and goods
are delivered to our franchise partners or the customer and the
control of goods is transferred to the buyer.
Under IFRS 15 a right of return is not a separate performance
obligation and the Group is required to recognise revenue net of
estimated returns. A refund liability and a corresponding asset in
inventory representing the right to recover products from the
customer are recognised.
The Group enters into agreements which entitle other parties to
operate under the Marks & Spencer brand name for certain activities
and operations, such as M&S Bank and M&S Energy. These contracts
give rise to performance-based variable consideration. Income
dependent on the performance of the third party operations is
recognised when it is highly probable that a significant reversal in
the amount of income recognised will not occur, and presented as
other operating income.
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.
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 and intention to offset these balances.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 98
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Supplier income continued
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.
M&S Bank
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.
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. An asset can be
recognised as in the event of a plan wind up, the pension scheme
rules provide the Group with an unconditional right to a refund of
surplus assets assuming a 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 the members of the scheme. As a
result, any net surplus in the UK Defined Benefit (DB) scheme is
recognised in full.
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. The Group no longer incurs any
service cost or curtailment costs related to the UK DB 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 other
comprehensive income.
During the prior year the UK defined benefit pension scheme
purchased annuities in order to hedge longevity risk for pensioners
within the scheme. As permitted by IAS 19, 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 other
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.
Brands are tested for impairment 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 3 and 10 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.
> 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.
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.
99
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
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.
Provisions
Provisions are recognised when the Group has a present obligation
as a result of a past event, and it is probable that the Group will be
required to settle that obligation. Provisions are measured at the
best estimate of the expenditure required to settle the obligation
at the end of the reporting period, and are discounted to present
value where the effect is material.
Share-based payments
The Group issues equity-settled share-based payments to certain
employees. A fair value for the equity-settled share awards is
measured at the date of grant. The Group measures the fair value
of each award using the Black-Scholes model where appropriate.
The fair value of each award is recognised as an expense over the
vesting period on a straight-line basis, after allowing for an estimate
of the share awards that will eventually vest. The level of vesting is
reviewed 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 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.
Deferred tax assets are recognised to the extent it is probable
that taxable profits will be available against which the deductible
temporary differences can be utilised. The carrying amount of
deferred tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the
asset to be recovered.
Deferred tax assets and liabilities are not recognised in respect of
temporary differences that arise on initial recognition of assets and
liabilities acquired other than in a business combination.
Financial instruments
Financial assets and liabilities are recognised in the Group’s
statement of financial position when the Group becomes a party
to the contractual provisions of the instrument.
A. Trade and other receivables Trade receivables are recorded
initially at fair value and subsequently measured at amortised cost.
This results in their recognition at nominal value less an allowance
for any doubtful debts. The allowance for doubtful debts was
recognised under an “incurred loss” model until 1 April 2018 and
therefore it was dependent upon the existence of an impairment
event. From 1 April 2018, the allowance for doubtful debts is
recognised based on management’s expectation of losses
without regard to whether an impairment trigger happened
or not (an “expected credit loss” model).
B. Other financial assets Other financial assets consist of
investments in debt and equity securities and short-term
investments with a maturity date of over 90 days and are classified
as either “fair value through other comprehensive income”
(“available for sale” for periods before 1 April 2018) or “fair value
through profit and loss”. Financial assets held at fair value through
other comprehensive income or available for sale for the periods
before 1 April 2018 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 equity investments at “fair value through comprehensive
income”, gains or losses arising from changes in fair value are
recognised in other comprehensive income, until the security is
disposed of, at which time the cumulative gain or loss previously
recognised in other comprehensive income is included directly in
retained earnings and is not recycled to the income statement.
For the periods before 1 April 2018, the gains or losses
accumulated at the time of sale or impairment are recycled
to the income statement.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 100
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Financial instruments continued
For debt instruments at “fair value through comprehensive income”
or “available for sale” in the periods before 1 April 2018, gains and
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. Until 1 April 2018, debt
securities were deemed impaired based on whether an impairment
trigger happened and it resulted in an incurred loss. From 1 April
2018, impairments in debt securities are recognised based on
management’s expectation of losses in each investment
(“expected credit loss” model).
Until 1 April 2018, 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. From 1 April 2018,
all equity investments must be measured at fair value under IFRS 9.
C. Classification of financial liabilities and equity Financial
liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
D. Bank borrowings Interest-bearing bank loans and overdrafts are
initially recorded at fair value, which equals the proceeds received,
net of direct issue costs. 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).
> 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
effectiveness testing is performed (before 1 April 2018, both
prospective and retrospective tests were required) 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. From
1 April 2018, the element of the change in fair value which relates to
the currency spread is recognised in the cost of hedging reserve,
with the remaining change in fair value recognised in the hedging
reserve (in the period before 1 April 2018, the entire change in fair
value was recognised 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. From 1 April 2018 the Group cannot
voluntarily de-designate a hedging 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
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.
101
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Critical accounting judgements and key sources of
estimation uncertainty
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.
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 key source of estimation uncertainty. 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 which have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities within
the next 12 months 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 profit before tax and adjusting items 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. 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.
UK Defined Benefit pension surplus
Where a surplus on a defined benefit scheme arises, the rights of the
Trustees to prevent the Group obtaining a refund of that surplus in
the future are considered in determining whether it is necessary to
restrict the amount of the surplus that is recognised. The UK Defined
Benefit scheme is in surplus at 30 March 2019. The directors have
made the judgement that these amounts meet the requirements
of recoverability and a surplus of £931.5m has been recognised.
Key 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
£222.1m (last year £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. Further significant closure costs and
impairment charges may be recorded in future years depending on
decisions made about further store closures and the successful
delivery of the transformation programme.
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 and
closure dates.
> 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.
> Estimation of future contractual lease costs to be incurred
including uncertainty with regards to the cost of termination,
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.
Property provision The Group has a number of property provisions
totalling £345.8m at 30 March 2019 (last year: £233.3m), which
include amounts in respect of onerous leases and sublet shortfalls.
The net present value of the future onerous leases and sublet
shortfalls has been provided for based on the contracted
future cash flows, assumptions related to sublet income (including
periods where properties are not sublet) and lease incentives, and
discounted to reflect the time value of money, with adjustments for
credit risk where it is not included in the underlying cash flows.
Included within these provisions is a sublet shortfall of £89.2m for
surplus office space in the Merchant Square building in London,
which is sublet for the remaining duration of the lease. The valuation
of the provision is sensitive to movements in the discount rate, or to
an event of default by the subtenant. If an event of default had
occurred at 30 March 2019 and no alternative sublet income was
assumed, the provision would have increased by £65.2m. In this event,
the Group would seek alternative subtenants for the property.
Across all property provisions, an increase in the discount rate of
25bps would decrease the provision by £5.6m.
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 certain 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 for stores
identified as part of the UK store estate programme.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 102
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Key sources of estimation uncertainty continued
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. In calculating the discount rate the
Group has taken into account volatility in the inputs to the
calculation that are reflective of the market uncertainty for Brexit.
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 certainty. A future
change to the assumption of trading into perpetuity for any Cash-
Generating Unit (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
estimated with consideration of 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.
103
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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, UK franchise operations, M&S Bank and M&S Energy. The International segment consists
of Marks & Spencer owned businesses in Europe and Asia and the international franchise operations.
The Operating Committee assesses the performance of the operating segments based on a measure of operating profit referred to as
management group 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:
52 weeks ended 30 March 2019
52 weeks ended 31 March 2018 (restated3)
Management1
£m
Logistics
Adjustment2
£m
Adjusting
items
£m
Statutory
£m
Management1
£m
Logistics
Adjustment2
£m
Adjusting
items
£m
Food revenue
Clothing & Home revenue
UK revenue
Franchised
Owned
International revenue
Group revenue
Food gross profit3
Clothing & Home gross profit3
UK gross profit3
UK operating costs
M&S Bank
M&S Energy
UK operating profit
International operating profit
Group operating profit
Finance income
Finance costs
Profit before tax
5,903.4
3,537.3
9,440.7
409.1
527.5
936.6
10,377.3
1,834.7
2,021.2
3,855.9
(3,409.6)
27.6
0.1
474.0
127.0
601.0
33.8
(111.6)
523.2
–
–
–
–
–
–
–
(384.9)
384.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,903.4
3,537.3
9,440.7
409.1
527.5
936.6
10,377.3
–
(400.3)
(20.9)
–
(421.2)
(17.4)
(438.6)
3,471.0
(3,425.0)
6.7
0.1
52.8
109.6
162.4
5,940.0
3,671.0
9,611.0
360.6
726.6
1,087.2
10,698.2
1,854.8
2,090.6
3,945.4
(3,450.3)
40.3
–
535.4
135.2
670.6
–
–
33.8
(111.6)
24.1
(113.8)
(438.6)
84.6
580.9
–
–
–
–
–
–
–
(370.0)
370.0
–
–
–
–
–
–
–
–
Statutory
£m
5,940.0
3,671.0
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
–
–
24.1
(113.8)
(514.1)
66.8
1. Management profit excludes the adjustments (income and charges) made to reported profit before tax that are significant in value and/or nature (see note 5 – adjusting items). Refer to
the accounting policy in note 1 and the glossary for more details on these adjustments.
2. Management gross profit for the UK segment excludes certain expenses resulting in an adjustment between cost of sales and selling and administrative expenses of £384.9m
(last year: £370.0m).
3. During the year, as a result of a change to internal management reporting, the reporting of cards and gift-wrap has been transferred from Clothing & Home to Food for both revenue and
gross profit. The prior period comparatives have been restated to reflect this, £70.1m of revenue has been transferred from Clothing & Home to Food with a corresponding transfer of
gross profit of £26.1m.
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
2019
2018
UK1
£m
International
£m
Total
£m
UK1
£m
International
£m
Total
£m
283.1
613.0
126.3
6,900.1
4,558.9
13.9
13.1
1.6
300.1
199.7
297.0
626.1
127.9
7,200.2
4.758.6
322.4
615.7
228.3
7,242.4
5,024.5
13.2
24.6
5.3
307.8
210.0
335.6
640.3
233.6
7,550.2
5,234.5
1. UK assets include centrally held assets largely relating to IT systems that support the International business of £20.9m (last year: £24.9m).
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 104
MARKS AND SPENCER GROUP PLC
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 before adjusting items
2019
Total
£m
10,377.3
(6,547.2)
3,830.1
(3,271.1)
42.0
601.0
(438.6)
162.4
2019
Total
£m
1,450.0
652.7
87.6
544.9
535.9
3,271.1
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
1. There are an additional £61.0m (last year: £57.9m) employee costs recorded within cost of sales. These costs are included within the aggregate remuneration disclosures in note 10A.
2. The £438.6m adjusting items charges for the year are further analysed against the categories of selling and administrative expense £418.8m (last year: £485.2m) and other operating
income £19.8m (last year: £28.9m) accordingly; employee costs £64.9m (last year: £47.9m); occupancy costs £113.6m (last year: £124.7m); depreciation, amortisation and asset impairments
and write-offs £209.1m (last year: £293.3m); other expenses £31.2m (last year: £18.5m); and other operating income £19.8m (last year: £28.9m).
4 PROFIT BEFORE TAXATION
The following items have been included in arriving at profit before taxation:
Net foreign exchange (gains)/losses
Cost of inventories recognised as an expense
Write down of inventories recognised as an expense
Depreciation of property, plant and equipment
– owned assets
– under finance leases
Amortisation of intangible assets
Impairments and write-offs of intangible assets and property, plant and equipment
Operating lease rentals payable
– property
– fixtures, fittings and equipment
2019
£m
(3.4)
5,765.4
214.1
440.0
1.7
184.4
127.9
302.5
11.8
2018
£m
0.8
5,904.1
220.5
459.1
0.5
180.7
233.6
329.9
7.4
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
Total audit fees
Audit-related assurance services
Transaction related services
Total non-audit services fees
Total audit and non-audit services fees
Transaction related services provided by the auditor relate to establishing the Ocado joint venture (see note 5).
2019
£m
1.3
0.6
1.9
0.2
0.2
0.4
2.3
2018
£m
1.3
0.6
1.9
0.2
–
0.2
2.1
105
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS
The total adjusting items reported for the 52 week period ended 30 March 2019 is a net charge of £438.6m (last year: £514.1m). The adjustments
made to reported profit before tax to arrive at adjusted profit are:
Strategic programmes – UK store estate
Strategic programmes – Organisation
Strategic programmes – Operational transformation
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 and other property charges
M&S Bank charges incurred in relation to the insurance mis-selling provision
GMP and other pension equalisation
Establishing the Ocado joint venture
Other
Adjustments to profit before tax
Notes
15, 22
15, 22
22
15, 22
22
22
15, 22
11, 22
2019
£m
222.1
51.8
16.4
15.6
14.3
6.2
5.3
62.1
20.9
20.5
3.4
–
438.6
2018
£m
321.1
30.7
–
15.5
13.1
12.9
5.0
63.4
34.7
–
–
17.7
514.1
Strategic programmes – UK store estate (£222.1m)
In November 2016, the Group announced a strategic programme to transform the UK store estate. During 2017/18 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 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 £222.1m in the year which relates in part to the accelerated and expanded store closure programme
which now includes a number of Simply Foods stores. The charge primarily relates to accelerated depreciation (due to shortening the useful
economic life) and impairment of buildings and fixtures and fittings. Refer to notes 15 and 22 for further detail on these charges.
Further material charges relating to the closure and re-configuration of the UK store estate are anticipated as the programme progresses,
the quantum of which is subject to change throughout the programme period as decisions are taken in relation to the size of the store
estate and the specific stores affected. Based on current plans, further charges (before restatement to reflect the impact of the adoption
of IFRS 16) are expected to be incurred predominantly in the next two years and are anticipated to be c.£100m, bringing total programme
costs to c.£680m.
Strategic programmes – Organisation (£51.8m)
During 2016/17 the Group announced a wide ranging strategic review across a number of areas of the business which included
UK organisation and the programme to centralise our London Head Office functions into one building.
The Group has now conducted a review of the retail field and management team organisational structure. The proposals will result in a
net reduction of c.700 retail roles achieved through a combination of natural attrition and redundancies. A charge of £18.6m has been
recognised in the period for redundancy costs associated with these changes.
In addition, a further £33.2m of costs have been recognised in the period associated with centralising the Group’s London Head Office
functions and rationalisation of Head Office functions.
As the Group executes the three phases of the transformation strategy further material organisational costs are likely to occur in order to
meet the transformation objective. These costs are considered to be adjusting items as the costs are part of the strategic programme,
significant in value, and are consistent with the disclosure of other similar charges in prior years.
Strategic programmes – Operational transformation (£16.4m)
The Group is undertaking a number of key transformation initiatives with the aim of re-engineering end-to-end supply chain, removing
costs, complexity and working capital. Part of this transformation has included a fundamental review of the Group’s Clothing & Home and
Food end-to-end processes. A charge of £16.4m has been recognised primarily for consultancy costs for the transformation and
simplification of our supply chain and operations across Clothing & Home and Food.
These costs are considered to be adjusting items as they relate to a strategic programme and the total costs are significant in quantum and
as a result not considered to be normal operating costs of the business. Further operational transformation initiatives are planned for
2019/20 which will result in additional related charges within adjusting items.
Strategic programmes – IT restructure (£15.6m)
In 2017/18 as part of the five-year transformation strategy, the Group announced a technology transformation programme to create a
faster, more agile and more commercial technology function. A charge of £15.6m has been recognised in the year relating primarily to
transition costs associated with the implementation of a new technology operating model and accelerated depreciation of IT assets which
the Group is retiring early as a result of the transformation strategy. Further charges of c.£2m are expected in 2019/20 and 2019/20 is
expected to be the final year of the IT restructure programme.
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 programme.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 106
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS CONTINUED
Strategic programmes – UK logistics (£14.3m)
In 2017/18 as part of the previously announced long-term strategic programme to transition to a single-tier UK distribution network,
the Group announced the opening of a new Clothing & Home distribution centre in Welham Green in 2019. As a direct result, the Group
announced the closure of two existing distribution centres. A net charge of £14.3m has been recognised in the year for redundancy,
accelerated depreciation and project costs.
The Group considers these costs to be adjusting items as they are significant in value and relate to a significant strategic initiative of the
Group. Treatment of the costs as being adjusting items is consistent with the treatment of charges in previous periods in relation to the
creation of a single-tier logistics network. Further charges are expected in 2019/20 of c.£12m.
Strategic programmes – Changes to pay and pensions (£6.2m)
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 affected employees in relation to the closure of the UK DB scheme, expected to be c.£25m
in total over the three years commencing 2017/18. The charge in the year in relation to these transition payments to employees is £6.2m.
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 year within
adjusting items is consistent with disclosure of the same costs in 2017/18 and the original disclosure of the UK DB scheme closure costs
in 2016/17.
Strategic programmes – International store closures and impairments (£5.3m)
In 2016/17 the Group announced its intention to close its owned stores in 10 international markets. A net charge of £5.3m has been
recognised in the year reflecting an updated view of the estimated final closure costs for certain markets and those costs which can only
be recognised as incurred.
The net charge is considered to be an adjusting item as it is part of a strategic programme which over the three years of charges has been
significant in both value and nature to the results of the Group. No further significant charges are expected.
UK store impairments and property charges (£62.1m)
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.
In response to the ongoing pressures impacting the retail industry, as well as reflecting the Group’s strategic focus towards growing online
market share, the Group has revised future projections for UK stores (excluding those stores which have been captured as part of the
UK store estate programme). As a result, UK store impairment testing has identified stores where the current and anticipated future
performance does not support the carrying value of the stores. A charge of £52.8m 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.
In addition, the Group has entered in to property arrangements impacting 10 stores. The Group has recognised a net charge of £9.3m
associated with the sale and leaseback or lease surrender costs for these stores.
The charges have been classified as an adjusting item on the basis of the significant value of the charge in the year to the results of
the Group.
M&S Bank charges incurred in relation to the insurance mis-selling provision (£20.9m)
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 year is £20.9m. 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 year to the results of the Group.
The estimated liability for redress will continue to be reviewed in 2019/20 to ensure it reflects the best estimate of likely settlement,
which could lead to further charges or releases.
GMP and other pension equalisation (£20.5m)
The Group has recognised a non-cash charge of £20.5m in respect of the Group’s defined benefit pension liability arising from equalisation
of GMP following a high court ruling in October 2018 and other pension equalisation charges. Additional detail on the Group’s GMP
assessment is detailed in note 11.
The amounts recognised in relation to GMP and other pension equalisation charges are considered to be adjusting items as they are
significant in nature and value to the results of the Group in the current period.
Establishing the Ocado joint venture (£3.4m)
In February 2019 the Group announced the creation of a new 50/50 joint venture (JV) with Ocado Group Plc (Ocado), the UK’s leading
pure play digital grocer, that will transform online grocery shopping for UK consumers. Transaction costs of £3.4m were incurred during
the period.
The Group considers the costs directly associated with the Ocado transaction to be an adjusting item on the basis that they relate to a
major transaction and as a result are not considered to be normal operating costs of the Group. Further costs of c.£30.0m will be incurred in
2019/20, the majority of which will be capitalised within the cost of investment upon completion or included within the cost of equity as part
of the rights-issue.
107
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS CONTINUED
Other (£nil)
Other in the prior year included the profit on the disposal of our retail business in Hong Kong and charges for probable liabilities for certain
employee related matters in the prior period. These amounts were considered to be adjusting items as they were significant in nature and
value to the results of the Group in the prior period.
The prior year profit on disposal is analysed as follows:
Proceeds
Disposal costs
Net disposal proceeds
Fair value of net assets disposed
Provision for IT transition services
Net foreign exchange amounts recycled from reserves
Profit on disposal
6 FINANCE INCOME/COSTS
Bank and other interest receivable
Other finance income
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 & 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: 19%)
– 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
2019
£m
–
–
–
–
–
–
–
2019
£m
7.6
0.4
25.8
33.8
(0.6)
(2.3)
(77.4)
(1.7)
(3.5)
(17.3)
(8.8)
(111.6)
(77.8)
2018
£m
33.9
(0.9)
33.0
(28.6)
(0.8)
2.2
5.8
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)
2019
£m
2018
£m
78.4
(4.6)
73.8
8.9
(0.8)
81.9
(36.1)
–
2.3
(0.8)
(34.6)
47.3
65.4
7.5
72.9
10.3
(0.2)
83.0
(37.3)
(1.4)
(3.1)
(3.5)
(45.3)
37.7
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 108
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7 INCOME TAX EXPENSE CONTINUED
B. Taxation reconciliation
The effective tax rate was 55.9% (last year: 56.4%) and is explained below.
Profit before tax
Notional taxation at standard UK corporation tax rate of 19% (last year: 19%)
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
Recognition of overseas deferred tax assets
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
Total income tax expense
After excluding adjustments to profit before tax the adjusted effective tax rate was 20.3% (last year: 21.6%).
2019
£m
84.6
16.1
1.2
15.0
(1.1)
0.8
(6.2)
(3.1)
–
14.9
0.8
8.9
–
47.3
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
Other income and expenses that are not taxable or allowable for tax purposes include a charge of £12.6m (last year: £12.7m charge) 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 10 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 £0.8m in the income statement and the recognition of a deferred tax charge of
£2.3m in other comprehensive income.
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 tax
Notional taxation at standard UK corporation tax rate of 19% (last year: 19%)
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
Utilisation of unrecognised losses
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
– other
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)
2019
£m
84.6
16.1
68.0
(59.4)
2.7
10.7
0.8
(1.4)
4.4
–
32.0
0.8
12.6
–
87.3
78.4
8.9
87.3
(4.6)
(0.8)
81.9
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
109
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 Group’s 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.
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 – Organisation
Strategic programmes – Operational transformation
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 and property charges
M&S Bank charges incurred in relation to the insurance mis-selling provision
GMP and other equalisation
Establishing the Ocado joint venture
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 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
Paid interim dividend
2019
per share
2018
per share
2019
£m
11.9p
6.8p
18.7p
11.9p
6.8p
18.7p
193.1
110.4
303.5
The directors have approved a final dividend of 7.1p 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.£115.4m (last year: £193.1m) will be paid on
12 July 2019 to shareholders whose names are on the Register of Members at the close of business on 31 May 2019. The ordinary shares will
be quoted ex dividend on 30 May 2019.
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 21 June 2019.
2019
£m
33.5
194.6
46.3
13.2
12.7
11.8
5.1
5.1
54.2
16.9
16.6
3.4
–
413.4
Million
1,624.1
3.8
1,627.9
Pence
2.1
2.1
25.4
25.4
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
2018
£m
193.1
110.3
303.4
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 110
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
2019
Total
£m
1,293.2
85.0
77.4
19.2
53.8
(17.6)
1,511.0
2018
Total
£m
1,359.7
91.7
76.7
18.9
56.6
(24.7)
1,578.9
1. Excludes amounts recognised within adjusting items of £64.9m (last year: £47.9m) (see notes 3 and 5) such as the transition payments the Group has committed to in respect of removal
of premia, redundancy costs associated with the UK and International strategic programmes and GMP and other pension equalisation costs.
Details of key management compensation are given in note 28.
B. Average monthly number of employees
UK stores
– management and supervisory categories
– other
UK head office
– management and supervisory categories
– other
UK operations
– management and supervisory categories
– other
Overseas
Total average number of employees
2019
2018
5,480
63,957
2,968
832
81
1,066
5,713
80,097
6,004
66,540
3,088
856
89
1,153
6,891
84,621
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 55,440 (last year: 58,928).
11 RETIREMENT BENEFITS
The Group provides pension arrangements for the benefit of its UK employees through the Marks & Spencer UK Pension Scheme
(a 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 2016/17. There will be no further service charges 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), 58,079 deferred members (last year: 60,402) and 52,217 pensioners (last year: 51,802).
The most recent actuarial valuation of the Marks & Spencer UK Pension Scheme was carried out as at 31 March 2018 and showed a funding
surplus of £652m. This is an improvement on the previous position at 31 March 2015 (statutory surplus of £204m), primarily due to lower
assumed life expectancy. The Company and Trustee have confirmed, in line with the current funding arrangement, that no further
contributions will be required to fund past service as a result of this valuation (other than those already contractually committed under
the existing Marks and Spencer Scottish Limited Partnership arrangements – see note 12).
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 53,536 active members (last year: 54,001) and some 26,709 deferred members (last year: 19,984).
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 £69.5m (last year: £58.9m). Of this, income of £4.5m (last year: income of £14.7m) relates to the
UK DB pension scheme, costs of £68.7m (last year: costs of £68.8m) to the UK DC plan and costs of £5.3m (last year: costs of £4.8m) 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.
111
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
11 RETIREMENT BENEFITS CONTINUED
On 26 October 2018, the High Court issued a judgement in a claim involving Lloyds Banking Group’s DB pension schemes. This judgement
concluded the schemes should be amended in order to equalise pension benefits for men and women in relation to guaranteed minimum
pension benefits. The issues determined by the judgement have resulted in an increase in the liabilities of the Marks & Spencer UK DB
Pension Scheme of £18.0m. This increase has been reflected in the results as a past service cost.
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
2019
£m
10,224.7
(9,301.3)
923.4
(3.5)
(5.6)
914.3
931.5
(17.2)
914.3
2018
£m
9,989.3
(9,029.6)
959.7
(3.6)
(7.9)
948.2
970.7
(22.5)
948.2
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
2019
%
2.1-3.3
2.45
3.25
7.25
2018
%
2.0-3.2
2.65
3.15
7.15
C. Demographic assumptions
The UK demographic assumptions are in line with those adopted for the last formal actuarial valuation of the scheme performed as at
31 March 2018. The UK post-retirement mortality assumptions are based on an analysis of the pensioner mortality trends under the scheme
for the period to March 2018. 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
2019
22.0
24.9
23.8
26.7
2018
22.3
25.2
24.1
27.0
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
2019
£m
(70.0)
(25.0)
315.0
2018
£m
(70.0)
(25.0)
305.0
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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
112
MARKS AND SPENCER GROUP PLC
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 96% of interest rate movements and 94% 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 leads 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:
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
2019
Quoted
£m
Unquoted
£m
Total
£m
Quoted
£m
2018
Unquoted
£m
4,373.9
6.1
–
–
398.0
103.7
–
24.3
–
15.9
0.1
51.1
–
–
41.5
5,014.6
367.2
731.8
296.6
278.5
57.9
–
328.4
412.4
223.3
148.4
127.5
122.2
4,741.1
737.9
296.6
278.5
455.9
103.7
328.4
436.7
223.3
164.3
127.6
173.3
1,273.7
842.2
–
5,210.1
1,273.7
842.2
41.5
10,224.7
4,472.9
5.9
–
–
460.8
151.7
–
18.2
–
7.7
0.1
41.8
–
–
87.0
5,246.1
369.4
685.4
339.2
345.4
102.8
–
274.0
406.2
222.5
6.4
154.8
92.5
1,277.9
466.7
–
4,743.2
Total
£m
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
1,277.9
466.7
87.0
9,989.3
1. Repurchase agreements were £1,025.1m (last year: £920.2m).
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 41,841 (last year: 41,046) ordinary
shares in the Company through its investment in UK Equity Index Funds.
113
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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
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 – experience
Actuarial loss/(gain) – financial assumptions
Components of defined benefit expense/(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 £543.3m (last year: gain of £164.6m).
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
Past service cost
Interest cost
Benefits paid
Actuarial loss – experience
Actuarial (gain) – demographic assumptions
Actuarial loss/(gain) – 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 30 March 2019 is 19 years (last year: 19 years).
2019
£m
0.2
3.9
18.0
(25.8)
(3.7)
(283.8)
(90.2)
19.2
434.7
79.9
2019
£m
9,989.3
259.5
283.8
42.0
(346.2)
(3.7)
–
10,224.7
2019
£m
9,041.1
0.2
0.2
18.0
233.7
(346.2)
19.2
(90.2)
434.7
(0.3)
9,310.4
9,301.3
3.5
5.6
9,310.4
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
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 114
MARKS AND SPENCER GROUP PLC
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 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 £1.4bn (last year: £1.5bn) 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 & 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 & 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 £272.4m (last year: £335.5m) is valued at the net present value of the future
expected distributions from the Partnership and is included as a liability in the Group’s financial statements as it is a transferable financial
instrument. During the year to 30 March 2019 an interest charge of £8.8m (last year: £10.9m) 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 £278.5m (last year: £345.4m).
The second partnership interest is not a transferable financial instrument as the Scheme Trustee does not have the right to transfer it to any
party other than a successor Trustee. It is therefore 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 Group’s statement of financial position, rather the annual
distribution is recognised as a contribution to the scheme each year.
13 SHARE-BASED PAYMENTS
This year a charge of £19.2m was recognised for share-based payments (last year: charge of £18.9m). Of the total share-based payments
charge, £9.2m (last year: £11.0m) relates to the Save As You Earn share option scheme and a charge of £4.1m (last year: £2.3m) relates to the
Performance Share Plan. The remaining charge of £5.9m (last year: £5.6m) is spread over the other share plans. Further details of the
operation of the Group share plans are provided in the Remuneration Report.
A. Save As You Earn Scheme
The Save As You Earn (SAYE) scheme was approved by shareholders for a further 10 years at the 2017 Annual General Meeting (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
2019
2018
Number of
options
Weighted average
exercise price
Number of
options
Weighted average
exercise price
43,731,657
10,337,468
(241,813)
(10,455,905)
(5,347,906)
38,023,501
2,542,320
285.4p
247.0p
260.1p
274.0p
358.7p
267.9p
421.0p
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
For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 290.8p (last year: 314.8p).
115
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13 SHARE-BASED PAYMENTS CONTINUED
A. Save As You Earn Scheme continued
The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs
shown below:
Grant date
Share price at grant date
Exercise price
Option life in years
Risk-free rate
Expected volatility
Expected dividend yield
Fair value of option
Incremental fair value of option
2019
2018
2018
3-year plan
3-year plan
3-year plan
2016 modified1
Nov 18
309p
247p
3 years
0.8%
27.9%
6.1%
54p
n/a
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
1. In the prior year, there was a modification to the 2016 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 the repriced previous awards being 32p, calculated using 2018 award assumptions, keeping the initial exercise price consistent. The incremental fair value of
the modified options, being 10p for the 2016 modified options, is already recognised in operating profit.
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 granted1
January 2015
January 2016
January 2017
January 2018
January 2019
Number of options
Weighted average remaining contractual life (years)
2019
2018
–
2,436,408
17,140,666
8,711,023
9,735,404
38,023,501
4,703,165
3,397,156
22,925,562
12,705,774
–
43,731,657
2019
–
0.3
1.3
2.3
3.3
1.9
2018
0.2
1.2
2.3
3.3
–
2.2
Option price
369p
432p
260p
261p
247p
268p
1. For the purpose of the above table the option granted date is the contract start date.
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 2018/19 included 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. Awards under this plan have been made in each year since 2005. More information is available in relation to this scheme within the
Remuneration Report.
During the year, 8,006,094 shares (last year: 7,880,779) were awarded under the plan. The weighted average fair value of the shares awarded
was 264.2p (last year: 268.4p). As at 30 March 2019 17,296,405 shares (last year: 17,624,385) were outstanding under the plan.
C. Deferred Share Bonus Plan*
The Deferred Share Bonus Plan (DSBP) was first introduced in 2005/06 as part of the Annual Bonus Scheme. It is now operated for
approximately 40 (last year: 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. More information is available in relation to this scheme within the Remuneration Report.
During the year, no shares (last year: 1,892,215) have been awarded under the plan in relation to the annual bonus. The fair value of the
shares awarded last year was 343.3p. As at 30 March 2019, 2,595,337 shares (last year: 4,248,291) 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. The value of any dividends earned on the vested shares during the restricted period will also be paid on vesting.
More information is available in relation to this scheme within the Remuneration Report.
During the year, 1,710,368 shares (last year: 1,105,428) have been awarded under the plan. The weighted average fair value of the shares
awarded was 295.2p (last year: 314.0p). As at 30 March 2019, 2,364,783 shares (last year: 1,555,748) were outstanding under the plan.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 116
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13 SHARE-BASED PAYMENTS CONTINUED
E. Republic of Ireland Save As You Earn Scheme
Sharesave, the Company’s Save As You Earn scheme was introduced in 2009 to all employees in the Republic of Ireland for a 10 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. The Company will be seeking shareholder reapproval of this scheme on similar terms to those outlined above at this year’s AGM.
During the year, 169,422 options (last year: 210,486) were granted, at a fair value of 53.6p (last year: 41.5p). As at 30 March 2019, 672,203 options
(last year: 644,325) were outstanding under the scheme.
F. Marks and Spencer Employee Benefit Trust
The Marks and Spencer Employee Benefit Trust (the “Trust”) holds 1,712,922 (last year: 2,247,837) shares with a book value of £5.1m (last year:
£9.8m) and a market value of £4.8m (last year: £6.1m). 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 awards this year were conditional shares, last year all DSBP and 297,114 RSP awards were awarded as nil-cost options with the remainder being awarded as conditional shares. 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.
14 INTANGIBLE ASSETS
At 1 April 2017
Cost
Accumulated amortisation and impairments
Net book value
Year ended 31 March 2018
Opening net book value
Additions
Transfers and reclassifications
Asset write-offs
Amortisation charge
Exchange difference
Closing net book value
At 31 March 2018
Cost
Accumulated amortisation, impairments and write-offs
Net book value
Year ended 30 March 2019
Opening net book value
Additions
Transfers and reclassifications
Asset write-offs
Amortisation charge
Exchange difference
Closing net book value
At 30 March 2019
Cost
Accumulated amortisation and impairments and write-offs
Net book value
Goodwill
£m
137.4
(59.0)
78.4
78.4
–
–
–
–
(1.0)
77.4
136.4
(59.0)
77.4
77.4
–
–
–
–
0.1
77.5
136.5
(59.0)
77.5
Computer
software
£m
Computer software
under
development
£m
Brands
£m
112.3
(98.9)
13.4
13.4
–
–
–
(5.3)
–
8.1
112.3
(104.2)
8.1
8.1
–
–
–
(5.3)
–
2.8
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
471.9
10.3
81.0
(5.9)
(179.1)
(1.1)
377.1
112.3
(109.5)
2.8
1,402.2
(1,025.1)
377.1
Total
£m
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
599.2
95.1
5.3
(14.3)
(184.4)
(1.0)
499.9
1,725.6
(1,225.7)
499.9
82.5
(23.7)
58.8
58.8
74.1
(89.2)
(1.7)
–
(0.2)
41.8
65.6
(23.8)
41.8
41.8
84.8
(75.7)
(8.4)
–
–
42.5
74.6
(32.1)
42.5
117
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14 INTANGIBLE ASSETS CONTINUED
Goodwill related to the following assets and groups of Cash Generating Units (CGU’s):
Net book value at 31 March 2018
Exchange difference
Net book value at 30 March 2019
per una
£m
69.5
–
69.5
India
£m
7.2
0.1
7.3
UK
£m
0.7
–
0.7
Total goodwill
£m
77.4
0.1
77.5
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 is monitored by management at a country level, including the combined retail and wholesale businesses for
each location, and have been tested for impairment on that basis.
The per una brand is a definite life intangible asset amortised on a straight-line basis over a period of 15 years. The brand intangible was
acquired for a cost of £80.0m, and is held at a net book value of £2.8m (last year: £8.1m). The per una goodwill and brand are considered
together for impairment testing purposes and are therefore tested annually for impairment.
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. The latest budget and three-year plan reflect a more conservative view of the
short-term future performance of the UK and per una businesses.
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 Group’s current view of achievable long-term growth for the UK and per una is 2.3%, which combines the long-term
inflation rate of 1.8% with a 0.5% real uplift for growth. This is higher than the rate used in the prior year, reflecting our confidence in the ability
of the strategic programme to transform the business and achieve a higher terminal growth rate. The Group’s current view of achievable
long-term growth for India is 6.6%.
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 asset or 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 asset or CGU, and were 9.1% for the UK and per una (last year: 8.6%) and 17.3% for India
(last year: 14.8%).
Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonable possible changes in
these key assumptions, both individually and in combination. Management has considered reasonably possible changes in key assumptions
that would cause the carrying amounts of goodwill or brands to exceed the value in use for each asset.
For India and the UK, there is no reasonably possible change in key assumptions that would lead to an impairment and the assumptions do
not give rise to a key source of estimation uncertainty.
Per una
The assumptions applied to the impairment test for per una give rise to a key source of estimation uncertainty, and the management’s
sensitivity analysis has identified a reasonably possible change in key assumptions that would lead to a material impairment charge.
The future cashflows applied in the per una calculation reflect the Group’s plans to grow the per una brand over the next three years.
The success of these plans will determine the strategic role of the brand within the Group.
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. The model assumes growth into perpetuity, as set out above which, given uncertain market
conditions is considered sensitive. If a shorter trading period was assumed then this could result in an impairment.
The outcome of the value in use calculation supports the carrying value of the asset, with a headroom of £39.0m.
As disclosed in the accounting policies (note 1), the cash flows used within the impairment model are based on assumptions which are
sources of estimation uncertainty and small movements in these assumptions, given the level of headroom, could lead to an impairment.
The following key assumptions would have to change 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 35% below forecast;
> The long-term growth rate of cash flows would have to decline to -2.2% per annum; or
> The pre-tax discount rate would have to increase to 12.9%.
Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonable possible changes in
these key assumptions, such as assuming that forecast growth is not achieved.
> In the scenario where per una sales declined by 2.5% in each of the 3 years forecast, combined with no growth into perpetuity, headroom
would reduce to nil.
> In the scenario where per una sales declined by 15% in each of the 3 years forecast, combined with no growth into perpetuity an
impairment of £22.7m would result.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 118
MARKS AND SPENCER GROUP PLC
15 PROPERTY, PLANT AND EQUIPMENT
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Land and buildings
£m
Fixtures, fittings
and equipment
£m
Assets in the
course of
construction
£m
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 and reclassifications
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
Year ended 30 March 2019
Opening net book value
Additions
Transfers and reclassifications
Disposals
Asset impairments
Asset write-offs
Depreciation charge
Exchange difference
Closing net book value
At 30 March 2019
Cost
Accumulated depreciation, impairments and write-offs
Net book value
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
2,417.9
0.9
(3.2)
(2.5)
(11.5)
(35.3)
(89.7)
(2.7)
2,273.9
2,923.9
(650.0)
2,273.9
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
1,897.2
30.9
166.7
(0.4)
(58.2)
(8.6)
(352.0)
(1.1)
1,674.5
5,729.1
(4,054.6)
1,674.5
96.0
(17.9)
78.1
78.1
204.6
(200.8)
–
–
(3.0)
–
(0.1)
78.8
96.8
(18.0)
78.8
78.8
170.1
(168.8)
–
–
–
–
–
80.1
98.1
(18.0)
80.1
Total
£m
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
4,393.9
201.9
(5.3)
(2.9)
(69.7)
(43.9)
(441.7)
(3.8)
4,028.5
8,751.1
(4,722.6)
4,028.5
Asset write-offs in the year include assets with gross book value of £1,467.9m (last year: £784.9m) and £nil (last year: £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 £31.1m (last year: £41.6m) 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. Shop Your Way (SYW) sales are included in the cash flows of the relevant CGU.
Each CGU is tested for impairment at the balance sheet date if any indicators of impairment have been identified. Stores identified within the
Group’s UK store estate programme are automatically tested for impairment (see note 5).
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 based on management future expectations, with reference to forecast GDP growth. These growth rates do not exceed the long-term
growth rate for the Group’s retail businesses in the relevant territory. If the CGU relates to a store which the Group has 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.
119
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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 9% to 21% (last year: 8% to 15%). 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 disposal proceeds from store exits and the timing of the store exits.
Impairments – UK stores (excluding the UK store estate programme)
During the year the Group has recognised an impairment charge of £52.8m and no impairment reversals as a result of UK store impairment
testing unrelated to the UK store estate programme (last year: £11.9m). These impairments have been recognised within adjusting items
(see note 5).
For UK stores, cash flows beyond the three-year period are extrapolated using the Group’s current view of achievable long-term growth of
2.3%, adjusted to 0% where management believe the current trading performance and future expectations of the store do not support the
growth rate of 2.3%. This rate combines the long-term inflation rate of 1.8% with a 0.5% real uplift for growth. This is higher than the rate used
in the prior year, reflecting our confidence in the ability of the strategic programme to transform the business and achieve a higher terminal
growth rate. The rate used to discount the forecast cash flows for UK stores is 9.1%.
As disclosed in the accounting policies (note 1), the cash flows used within the impairment model are based on assumptions which are
sources of estimation uncertainty and small movements in these assumptions could lead to further impairments. Management has
performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key
assumptions across the UK store portfolio.
A reduction in sales of 2% from the three-year plan would result in an increase in the impairment charge of £7.1m and a 20 basis point
reduction in gross profit margin would increase the impairment charge by £2.2m. In combination, a 1% fall in sales and a 10 basis point fall
in gross profit margin would increase the impairment charge by £4.7m. Reasonably possible changes of the other key assumptions,
including reducing the long term growth rate to 0% across all stores, would not result in an increase to the impairment charge.
Impairments – UK store estate programme
During the year, the Group has recognised an impairment charge of £16.9m relating to the on-going UK store estate programme
(last year: £196.2m). The impairment charge relates to the accelerated and expanded store closure programme and has been recognised
within adjusting items (see note 5).
Where the planned closure date for a store is outside the three-year plan period, no growth rate is applied. The rate used to discount the
forecast cash flows for UK stores is 9.1%.
As disclosed in the accounting policies (note 1), the cash flows used within the impairment models for the UK store estate programme are
based on assumptions which are sources of estimation uncertainty and small movements in these assumptions could lead to further
impairments. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible
changes in these key assumptions across 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 £31.4m. A 2% reduction
in the year 1 sales growth would result in an increase in the impairment charge of £4.9m. Neither a 25 basis point increase in the discount rate,
a 20 basis point reduction in management 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, individually or in combination with the other reasonably possible
scenarios considered.
16 OTHER FINANCIAL ASSETS
Non-current
Unlisted investments
Current
Short-term investments¹
2019
£m
9.9
141.8
2018
£m
9.9
13.7
1. Includes £5.0m (last year: £5.8m) of money market deposits held by the Marks and Spencer plc in an escrow account.
Non-current unlisted investments are carried as fair value through other comprehensive income (available for sale assets before
1 April 2018). Other financial assets are measured at fair value with changes in their value taken to the income statement.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 120
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
17 TRADE AND OTHER RECEIVABLES
Non-current
Other receivables
Prepayments
Current
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments
Accrued income
2019
£m
2.0
198.7
200.7
121.8
(3.2)
118.6
31.5
144.1
28.3
322.5
2018
£m
2.3
206.7
209.0
114.3
(0.4)
113.9
30.9
134.2
29.4
308.4
Trade and other receivables that were past due but not impaired amounted to £7.2m (last year: £21.3m) and are mainly sterling denominated.
The directors consider that the carrying amount of trade and other receivables approximates their fair value. These balances are subject to
an assessment of expected credit losses (see note 21). Included in accrued income is £21.9m (last year: £28.2m) of accrued supplier income
relating to rebates that 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. The impact on
inventory is immaterial as these rebates relate to food stock which has been sold through by the year end.
18 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are £285.4m (last year: £207.7m). The carrying amount of these assets approximates their fair value.
The effective interest rate on short-term bank deposits is 0.74% (last year: 0.40%). These deposits have an average maturity of 9 days
(last year: 23 days).
19 TRADE AND OTHER PAYABLES
Current
Trade and other payables
Social security and other taxes
Accruals
Deferred income
Non-current
Other payables
Accruals
Deferred income
2019
£m
2018
£m
911.2
43.7
452.0
54.4
1,461.3
3.0
43.9
275.5
322.4
872.9
57.1
425.9
50.0
1,405.9
4.6
48.1
281.1
333.8
Under IFRS 15, disclosure of contract liabilities held on the balance sheet at the start and end of the period and revenue recognised during
the period which relates to the contract liabilities held at the start of the period is required. Gift card liabilities/voucher schemes are contract
liabilities as payment has been received for a performance obligation which will be performed at a later point in time. Included within trade
and other payables are gift card/voucher scheme liabilities:
Year ended 30 March 2019
Opening balance
Issues
Released to the income statement
Closing balance
£m
199.4
413.6
(426.1)
186.9
The Group operates a number of supplier financing arrangements, under which suppliers can obtain accelerated settlement on invoices
from the finance provider. The Group settles these amounts in accordance with each suppliers agreed payment terms.
The Group’s trade creditors balance includes £200.0m (last year: £212.0m) relating to payments due to M&S suppliers under these
arrangements. During the year ended 30 March 2019 the arrangements were used by 183 suppliers, with a maximum facility available
of £381.0m.
121
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
20 BORROWINGS AND OTHER FINANCIAL LIABILITIES
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Current
Bank loans and overdrafts1
Finance lease liabilities
6.125% £400m Medium Term Notes 20192,5
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
2019
£m
72.3
0.3
399.8
37.0
3.7
513.1
–
298.7
297.4
399.3
192.1
45.8
46.2
1,279.5
1,792.6
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
1. Bank loans and overdrafts in the prior year include a £5.0m loan from the Hedge End Park Limited joint venture that was repaid during the year (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$300m Medium Term Note 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, £375m (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 within note 21. The weighted average
lease term for equipment is nil years (last year: two years) and 91 years (last year: 93 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 122
MARKS AND SPENCER GROUP PLC
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 and Spencer plc is financed by a combination of retained profits, bank borrowings, Medium Term Notes and committed syndicated
bank facilities.
> 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. 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: £100m), all of which are due to be reviewed within a year. At the balance sheet date, a
sterling equivalent of £nil (last year: £nil) was drawn under the committed facilities and £nil (last year: £45m) 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
liabilities1
£m
Partnership
liability to the
Marks &
Spencer UK
Pension
Scheme
(note 12)
£m
Total
borrowings
and other
financial
liabilities
£m
Derivative
assets2
£m
Derivative
liabilities2
£m
Total
derivative
assets and
liabilities
£m
(88.4)
–
–
–
(88.4)
–
(88.4)
(72.3)
–
–
–
(72.3)
–
(72.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(86.1)
(486.1)
(466.3)
(1,207.2)
(2,245.7)
585.9
(1,659.8)
(487.2)
(62.7)
(751.3)
(895.5)
(2,196.7)
572.4
(1,624.3)
(2.3)
(2.3)
(6.9)
(168.9)
(180.4)
132.4
(48.0)
(2.3)
(2.3)
(6.8)
(160.3)
(171.7)
125.2
(46.5)
(71.9)
(71.9)
(215.5)
–
(359.3)
23.8
(335.5)
(71.9)
(71.9)
(143.6)
–
(287.4)
15.0
(272.4)
(248.7)
(560.3)
(688.7)
(1,376.1)
(2,873.8)
742.1
(2,131.7)
(633.7)
(136.9)
(901.7)
(1,055.8)
(2,728.1)
712.6
(2,015.5)
30.0
21.9
270.0
223.1
545.0
58.0
24.2
282.4
230.8
595.4
(88.2)
(18.1)
(248.5)
(198.5)
(553.3)
(58.2)
3.8
21.5
24.6
(8.3)
(20.6)
(16.2)
(241.4)
(191.5)
(469.7)
37.4
8.0
41.0
39.3
125.7
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 2018
Timing of cash flows
Within one year
Between one and two years
Between two and five years
More than five years
Total undiscounted cash flows
Effect of discounting
At 30 March 2019
1. The cash flows relating to finance lease liabilities reflect the remaining minimum lease payments which were fixed at inception and therefore are reflected within the present value of
finance lease liabilities. At 30 March 2019 the total value of additional committed contingent rents are £382.6m which will be expensed as incurred. In the year ending 30 March 2019
contingent rents of £35.0m were recognised within the operating lease rentals payable in note 4.
2. 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
2019
£m
(0.3)
(1.1)
(45.1)
(46.5)
2018
£m
(0.3)
(1.1)
(46.6)
(48.0)
123
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS 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 (S&P)/Moody’s
A-/A3 (BBB+/Baa1 for committed lending banks). In the event of a rating by one agency being different from 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 31 March 2018
Short-term investments1
Derivative assets2
At 30 March 2019
AAA
£m
–
–
–
AAA
£m
–
–
–
AA+
£m
–
–
–
AA+
£m
–
–
–
AA
£m
2.6
–
2.6
AA
£m
–
–
–
Credit rating of counterparty
AA-
£m
9.8
–
9.8
AA-
£m
16.4
16.9
33.3
A+
£m
33.6
–
33.6
A+
£m
168.3
21.0
189.3
A
£m
7.9
8.0
15.9
A
£m
83.9
11.8
95.7
A-
£m
2.7
–
2.7
A-
£m
–
–
–
BBB+
£m
1.5
2.9
4.4
BBB+
£m
0.7
0.3
1.0
Total
£m
58.1
10.9
69.0
Total
£m
269.3
50.0
319.3
1. Includes cash on deposit and money market funds held by Marks and Spencer Scottish Limited Partnership, Marks and Spencer plc and Marks and Spencer General Insurance. Excludes
cash in hand and in transit £157.9m (last year: £149.6m).
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 £121.8m (last year: £114.3m), other
receivables £33.5m (last year: £33.2m), cash and cash equivalents £285.4m (last year: £207.7m) and derivatives £60.1m (last year: £34.2m).
Impairment of financial assets
From 1 April 2018, the Group’s financial assets subject to the expected credit loss (ECL) model are primarily trade and other receivables.
The credit risk management practices of the Group include internal review and reporting of the ageing of trade and other receivables by
days past due by a centralised accounts receivable function, and grouped by respective contractual revenue stream, along with liaison with
the debtors by the credit control function.
From 1 April 2018, the Group applies the IFRS 9 simplified approach in measuring expected credit losses which use a lifetime expected credit
loss allowance for all trade receivables and contract assets.
To measure expected credit losses, trade receivables have been grouped by shared credit risk characteristics along the lines of differing
revenue streams such as international franchise, food, UK franchise, corporate and sundry as well as by geographical location and days
past due.
The expected loss rates are determined based on the average write-offs as a proportion of average debt over a period of 36 months prior to
the reporting date. The historical loss rates are adjusted for current and forward-looking information where significant. The Group considers
GDP growth, unemployment, sales growth and bankruptcy rates of the countries in which goods are sold to be the most relevant factors,
and where the impact of these is significant adjusts the historical loss rates based on expected changes in these factors.
The Group considers credit risk to have significantly increased for debts aged 180 days or over. The Group has incorporated this into the
expected loss model through a uniform loss rate for ageing buckets below 180 days dependent on the revenue stream and country, and
providing for 100% of debt aged over 180 days past due. Where the Group specifically holds insurance or holds the legal right of offset with
debtors which are also creditors, the loss provision is applied only to the extent of the uninsured or net exposure.
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there may be no reasonable
expectation of recovery include the failure of the debtor to engage in a payment plan, and failure to make contractual payments within
180 days past due.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 124
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Impairment of financial assets continued
Impairment losses on trade receivables are presented as net impairment losses within operating profit and subsequent recoveries are
credited to the same line item.
Gross carrying amount –
trade receivables
Expected loss rate
Lifetime expected credit loss
Net carrying amount
Current
£m
Up to 30 days past
due
£m
31-60 days past
due
£m
61-90 days past
due
£m
91-180 days past
due
£m
181 days or more
past due
£m
111.9
0.51%
0.5
111.4
3.9
2.69%
0.1
3.8
0.8
6.49%
0.1
0.7
1.6
11.34%
0.2
1.4
1.7
20.41%
0.4
1.3
1.9
100.0%
1.9
–
The closing loss allowances for trade receivables as at 30 March 2019 reconciles to the opening loss allowances as follows:
Trade receivables expected loss provision
31 March 2018 – calculated under IAS 39
Amounts restated through opening retained earnings
Opening loss allowance as at 1 April 2018 calculated under IFRS 9
Increase in loss allowance recognised in profit and loss during the year
Receivables written off during the year as uncollectable
At 30 March 2019
Total
£m
121.8
2.62%
3.2
118.6
£m
0.4
0.6
1.0
2.4
(0.2)
3.2
In relation to other financial assets not forming part of trade receivables, a simplified approach is utilised where lifetime expected credit
losses are calculated rather than 12 month expected credit losses. For ex-employee debt the average write-offs are divided by the average
debtor balance to determine a write off rate, fees from collection agencies used to collect the balances are factored into the loss allowance
based on the size of the individual debt and future unemployment rates are factored into the calculation of allowance as well as the impact
of discounting of the aged debt.
The loss allowance for other receivables is recognised within provisions within current liabilities in the consolidated statement of financial
position. The closing loss allowance as at 30 March 2019 reconciles to the opening loss allowance as follows:
Other receivables expected loss provision
31 March 2018 – calculated under IAS 39
Amounts restated through opening retained earnings
Opening loss allowance as at 1 April 2018 calculated under IFRS 9
Increase in loan loss allowance recognised in profit and loss during the year
Receivables written off during the year as uncollectable
At 30 March 2019
£m
0.4
(0.1)
0.3
0.6
(0.6)
0.3
In the prior year, the impairment of trade and other receivables was assessed on an incurred loss model basis. Individual receivables that
were considered to be uncollectable were written off by reducing the carrying value directly. Individual receivables were assessed to
determine if there was evidence of impairment, and losses were recognised in a separate provision for impairment. The Group considered
the following to be indicators of evidence of impairment:
> Significant financial difficulties of the debtor.
> Probability that the debtor would enter bankruptcy.
> Default of late payments, the extent to which they were overdue being determined on a case-by-case basis with reference to the
knowledge and communication with the debtor and their relationship with the business.
The impairment loss provision in the prior year opened at £1.7m and closed at £0.4m. Where an impairment provision was recognised,
receivables were written off against the provision when there was no expectation of recovering any further debt.
125
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
(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 £1,755.6m (last year: £1,962.8m) with a weighted average maturity date of seven months (last year: six months).
Gains and losses in equity on forward foreign exchange contracts designated in cash flow hedge relationships as at 30 March 2019 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 FX forwards are designated as cash flow hedges of highly probable forecast transactions. Both spot and forward points are designated
in the hedge relationship, under IFRS 9 the currency basis spread may be excluded from the hedge relationship and recognised in other
comprehensive income (OCI) – cost of hedging reserve. The change in the fair value of the hedging instrument, to the degree effective, is
retained in OCI and recycled to inventory as part of the “basis adjustment”. This will be realised in the income statement once the hedged item is
sold. There have been no discontinued or restarted hedges, and no ineffectiveness in the FX forwards has been reported this financial year or last.
The FX forwards are recognised at their fair value (IFRS 13 level 2 measurement). The Group has considered and elected not to apply
credit/debit valuation adjustments, owing to their relatively short dated nature. The risks at the reporting date are representative of the
financial year.
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 previous
financial year and the Group no longer hedges these and all contracts outstanding were terminated in the prior year.
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 change in the fair value of the hedging instrument, to the degree effective, is retained in OCI, segregated by cost and effect of hedging.
Under IFRS 9 the currency basis on the cross-currency swaps are excluded from the hedge designation and recognised in OCI – cost of
hedging reserve. Effectiveness is measured using the hypothetical derivative approach. The contractual terms of the cross-currency swaps
include break clauses every five years which allow for the interest rates to be reset (last reset December 2017). The hypothetical derivative is
based on the original critical terms and so ineffectiveness may result.
The cross-currency swaps are recognised at their fair value (IFRS 13 level 2 measurement), the Group has considered and elected to apply
credit/debit valuation adjustments, owing to the swaps’ relative materiality and longer dated nature.
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 £3.9m gain (last year:
£3.3m gain) in the income statement. As at the balance sheet date, the gross notional value of intercompany loan hedges was £129.0m
(last year: £217.2m).
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
2019
2018
Fixed rate
£m
Floating rate
£m
Total
£m
Fixed rate
£m
Floating rate
£m
Total
£m
1,339.6
6.0
–
1,345.6
447.0
–
–
447.0
1,786.6
6.0
–
1,792.6
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
The floating rate sterling borrowings are linked to interest rates related to LIBOR, mainly for periods of six months.
As at the balance sheet date and excluding finance leases, post-hedging the GBP and USD fixed rate borrowings are at an average rate of
4.8% (last year: 4.7%) and the weighted average time for which the rate is fixed is five years (last year: six years).
Other than the termination of net investment hedges and the separation of the cost of hedging in the statement of changes in equity and
statement of comprehensive income, there were no other significant changes in hedge accounting when compared with the prior year.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 126
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
(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 £1,345.6m (last year: £1,282.8m) representing the public bond issues and
finance leases, amounting to 75% (last year: 71%) 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
2019
%
–
4.8
4.3
2018
%
1.0
4.7
4.3
The interest rate swaps are recognised at their fair value (IFRS 13 level 2 measurement). The Group has considered and elected to apply credit/
debit valuation adjustments, owing to the swaps’ relative materiality and longer dated nature. The contractual terms on £150m of the £175m
notional of interest rate swaps relating to the 2025 debt allow for early termination every five years (next optional termination date April 2023).
Variable interest periods on the pay legs are six monthly compared with twelve monthly on the receive fixed legs and related debt.
Derivative financial instruments
The below table illustrates the effects of hedge accounting on the consolidated statement of financial position and consolidated income
statement through detailing separately by risk category and each type of hedge the details of the associated hedging instrument and
hedged item.
Hedging risk strategy
Notional/currency legs
Carrying amount assets/(liabilities)
Maturity date
Hedge ratio
Description of hedged item
Change in fair value of hedging instrument2
Change in fair value of hedged item used
to determine hedge effectiveness2
Weighted average hedge rate for
the year
Amounts recognised within
finance costs in profit and loss3
Balance on cashflow hedge reserve
at 30 March 2019
Balance on cost of hedging reserve
at 30 March 2019
Forward foreign
exchange
contracts
£m
Cash flow
hedges
1,423.6
27.4
to Mar 2020
100%1
Highly probable
transactional FX
exposures
Current
Forward foreign
exchange
contracts
£m
Held for
trading
129.0
0.3
to Mar 2020
100%
Interest
rate swaps
£m
Fair value
hedges
200.0
5.3
Dec 2019
100%
Cross-currency
swaps
£m
Cash flow
hedges
193.5
4.0
Dec 2037
100%
Inter-company
loans/deposits
GBP fixed rate
borrowing
USD fixed rate
borrowing
95.9
(1.5)
(95.9)
GBP/EUR 1.12,
GBP/USD 1.35
–
(12.8)
–
5.4
N/A
3.9
N/A
N/A
(5.0)
5.0
3.4%
–
N/A
N/A
(7.9)
4.4
7.3%
(3.5)
(8.4)
(14.6)
Non Current
Forward foreign
exchange
contracts
£m
Cash flow
hedges
203.0
(1.6)
to Sep 2020
100%1
Highly probable
transactional FX
exposures
2.0
(2.0)
GBP/EUR 1.12,
GBP/USD 1.32
–
1.7
–
30 March 2019
Interest
rate swaps
£m
Fair value
hedges
175.0
14.6
Jun 2025
100%
GBP fixed rate
borrowing
0.5
(0.4)
3.2%
0.1
N/A
N/A
1. Percentage of the amount permitted under treasury policy in relation to layered hedges on a rolling basis.
2. The £1.5m fair value change represented in the fair value movement of the forward contracts under the held for trading strategy is used to economically hedge certain intercompany
loans/deposits which are represented in the £5.4m as the net foreign exchange gains and losses under this strategy.
3. Amount in relation to cross currency swaps represents ineffectiveness.
127
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Derivative financial instruments continued
Current
Forward foreign exchange contracts – cash flow hedges
Interest rate swaps
– held for trading
– fair value hedges
Non-current
Cross-currency swaps
– cash flow hedges
Forward foreign exchange contracts – cash flow hedges
– fair value hedges
Interest rate swaps
Current
Forward foreign exchange contracts – cash flow hedges
Interest rate swaps
– held for trading
– fair value hedges
Non-current
Cross-currency swaps
– cash flow hedges
Forward foreign exchange contracts – cash flow hedges
– fair value hedges
Interest rate swaps
Notional Value
Fair Value
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
31 March 2018
343.6
149.8
–
493.4
–
48.0
425.0
473.0
1,213.4
67.4
–
1,280.8
193.5
140.6
–
334.1
5.1
2.0
–
7.1
–
0.4
26.7
27.1
(73.6)
(0.2)
–
(73.8)
(26.7)
(4.0)
–
(30.7)
Notional Value
Fair Value
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
30 March 2019
1,073.8
53.9
200.0
1,327.7
–
84.8
175.0
259.8
349.8
75.1
–
424.9
193.5
118.2
–
311.7
34.3
0.7
5.3
40.3
4.7
0.5
14.6
19.8
(6.9)
(0.4)
–
(7.3)
(0.7)
(2.1)
–
(2.8)
The Group’s hedging reserves disclosed in the consolidated statement of changes in equity, relate to the following hedging instruments:
Cost of
hedging
reserve FX
derivatives
£m
Cost of
hedging
reserve
CCIRS1
£m
–
0.8
0.8
–
(13.9)
(13.9)
–
–
(0.8)
(0.7)
–
–
–
–
–
–
–
–
–
(14.6)
IAS 39 closing balance
Adjustment on adoption of IFRS 9
Opening Balance 1 April 2018
under IFRS 9
Add: Change in fair value of
hedging instrument recognised
in OCI
Add: Costs of hedging deferred
and recognised in OCI
Less: Reclassified to the cost of
inventory
Less: Reclassified from OCI to
profit or loss
Less: Reclassified from OCI to profit or
loss – included in finance costs
Less: Deferred tax
Closing Balance 30 March 2019
1. Cross-currency interest rate swaps.
Deferred
tax
£m
Total cost
of hedging
reserve
£m
Hedge
reserve FX
derivatives
£m
Hedge
reserve
CCIRS
£m
Hedge
reserve gilt
locks
£m
Hedge
reserve
2037 debt
£m
Deferred
tax
£m
Total hedge
reserve
£m
–
2.4
2.4
–
–
–
–
–
(10.7)
58.3
(0.8)
(10.7)
57.5
–
(111.3)
(1.5)
–
–
–
42.7
–
–
–
(8.8)
–
(8.8)
–
–
–
–
0.4
–
–
0.5
2.9
–
0.5
(11.7)
(11.1)
(8.4)
0.4
–
0.4
–
–
–
–
(0.2)
–
0.2
30.8
13.9
(15.4)
(2.4)
65.3
10.7
44.7
(17.8)
76.0
(19.2)
–
–
15.8
–
–
41.3
–
–
–
–
–
10.4
(7.4)
(130.5)
–
42.7
15.8
0.2
10.4
14.6
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 128
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Derivative financial instruments continued
There were no reclassifications from the cashflow hedge reserve to profit and loss during the period in relation to forward currency contracts.
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 £0.1m gain (last year: £0.4m
gain) as the gain on the hedged items was £4.6m (last year: £15.0m gain) and the movement on the hedging instruments was £4.5m loss
(last year: £14.6m loss).
Movement in hedged items and hedging instruments
Net gain/(loss) in fair value of interest rate swap
Net gain/(loss) on hedged items
Ineffectiveness
2019
£m
(4.5)
4.6
0.1
2018
£m
(14.6)
15.0
0.4
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 £3.5m loss (last year:
£2.3m loss) as the gain on the hedged items was £4.4m (last year: £24.9m gain) and the movement on the hedging instruments was £7.9m
loss (last year: £27.2m loss).
Movement in hedged items and hedging instruments
Net gain/(loss) in fair value of cross-currency interest rate swap
Net gain/(loss) on hedged items
Ineffectiveness
2019
£m
4.4
(7.9)
(3.5)
2018
£m
24.9
(27.2)
(2.3)
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%) movement in sterling against the relevant currency represents a reasonably 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 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 at the balance sheet date. The equity impact shown for foreign exchange sensitivity relates to derivatives.
This value is expected to be materially offset by the re-translation of the related transactional exposures.
At 31 March 2018
Impact on income statement: gain/(loss)
Impact on other comprehensive income: (loss)/gain
At 30 March 2019
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
8.9
(15.6)
5.4
(4.3)
(9.1)
10.6
(4.0)
2.5
–
215.7
–
226.8
–
(222.4)
–
(226.8)
129
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
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. To reconcile the amounts shown in the tables below to the Statement of Financial
Position, items which are not subject to offsetting should be included.
To reconcile the amount shown in the tables below to the Statement of Financial Position, items which are not subject to offsetting should
be included.
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
At 30 March 2019
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
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
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
24.9
60.1
34.8
119.8
(264.6)
(10.1)
(107.1)
(381.8)
(21.7)
–
(34.8)
(56.5)
21.7
–
34.8
56.5
3.2
60.1
–
63.3
(242.9)
(10.1)
(72.3)
(325.3)
–
(10.1)
–
(10.1)
–
10.1
–
10.1
Net
£m
1.4
–
0.3
1.7
(246.5)
(70.3)
(36.5)
(353.3)
Net
£m
3.2
50.0
–
53.2
(242.9)
–
(72.3)
(315.2)
The gross financial assets and liabilities set off 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.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 130
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
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.
> Level 3: techniques that use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
At the end of the reporting period, the Group held the following financial instruments at fair value:
Level 1
£m
2019
Level 2
£m
Level 3
£m
Total
£m
Level 1
£m
2018
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
Unlisted investments1
Liabilities measured at fair value
Financial liabilities at fair value
through profit or loss
– trading derivatives
Derivatives used for hedging
–
–
–
–
–
–
0.7
59.4
141.8
–
–
–
–
9.9
0.7
59.4
141.8
9.9
(0.4)
(9.7)
–
–
(0.4)
(9.7)
–
–
–
–
–
–
2.0
32.2
13.7
–
–
–
–
9.9
2.0
32.2
13.7
9.9
(0.2)
(104.3)
–
–
(0.2)
(104.3)
1. There were no transfers between the levels of the fair value hierarchy. The Group holds £9.9m in unlisted equity securities measured at fair value through other comprehensive income
(last year: £9.9m measured as available for sale) (see note 16) which is a level 3 instrument. The fair value of this investment is determined with reference to the net asset value of the entity
in which the investment is held, which in turn derives the majority of its net asset value through a third party property valuation.
The Marks & Spencer UK DB Pension Schemes holds a number of financial instruments which make up the pension asset of £10,224.7m
(last year: £9,989.3m). Level 1 and Level 2 financial assets measured at fair value through other comprehensive income amounted to
£7,008.6m (last year: £7,152.4m). Additionally, the scheme assets include £3,216.1m (last year: £2,836.9m) of Level 3 financial assets.
See note 11 for information on the Group’s retirement benefits.
The following table represents the changes in Level 3 instruments held by the Pension Schemes:
Opening balance
Fair value gain/(loss) recognised in other comprehensive income
Additional investment
Closing balance
2019
£m
2,836.9
136.3
242.9
3,216.1
2018
£m
1,444.9
(74.9)
1,466.9
2,836.9
Fair value of financial instruments
With the exception of the Group’s Medium Term Notes and the Partnership liability to the Marks & Spencer UK Pension Scheme (note 12),
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 Medium Term Notes was £1,673.8m (last year £1,659.9m), the fair value of this debt was £1,724.0m
(last year £1,761.0m).
Capital policy
The Group’s objectives when managing capital (defined as net debt plus equity) 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 five years (last year: six years). During the year the Group
maintained an investment grade credit rating of Baa3 (stable) with Moody’s and BBB- (negative outlook (revised from stable during the
year)) with Standard & Poor’s.
In order to maintain or realign the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.
131
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
22 PROVISIONS
At 31 March 2018
Provided in the year
Released in the year
Utilised during the year
Exchange differences
Discount rate unwind
Reclassification to trade and other payables
At 30 March 2019
Analysed as:
Current
Non-current
Property
£m
Restructuring
£m
233.3
181.5
(22.8)
(63.3)
(0.1)
17.3
(0.1)
345.8
28.4
29.2
(2.4)
(32.3)
(0.3)
–
(1.1)
21.5
Other
£m
30.2
3.6
(1.4)
(1.0)
–
–
–
31.4
2019
£m
291.9
214.3
(26.6)
(96.6)
(0.4)
17.3
(1.2)
398.7
148.6
250.1
2018
£m
260.7
187.0
(28.8)
(133.0)
2.2
5.2
(1.4)
291.9
98.8
193.1
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. These provisions are expected to be utilised within the next year.
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 2017
Credited/(charged) to income statement
Credited/(charged) to equity/
other comprehensive income
Other balance sheet movement
At 31 March 2018
At 1 April 2018
Credited/(charged) to income statement
Credited/(charged) to equity/
other comprehensive income
At 30 March 2019
Land and
buildings
temporary
differences
£m
Capital
allowances in
excess of
depreciation
£m
(43.3)
8.0
–
1.4
(33.9)
(33.9)
3.8
–
(30.1)
(62.4)
33.1
–
–
(29.3)
(29.3)
23.2
–
(6.1)
Pension
temporary
differences
£m
(169.4)
1.2
(39.8)
–
(208.0)
(208.0)
(1.6)
14.4
(195.2)
Other short-
term
temporary
differences
£m
Total UK
deferred tax
£m
Overseas
deferred tax
£m
2.7
1.3
19.9
–
23.9
23.9
3.9
(11.5)
16.3
(272.4)
43.6
(19.9)
1.4
(247.3)
(247.3)
29.3
2.9
(215.1)
(9.4)
1.7
0.5
(1.2)
(8.4)
(8.4)
5.3
(0.2)
(3.3)
Total
£m
(281.8)
45.3
(19.4)
0.2
(255.7)
(255.7)
34.6
2.7
(218.4)
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
£321.7m (last year: £283.2m) and a tax value of £61.1m (last year: £53.8m). 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 £70.5m (last year: £80.1m) and a tax
value of £14.5m (last year: £16.9m).
No deferred tax is recognised in respect of undistributed earnings of overseas subsidiaries and joint ventures with a gross value of £44.5m
(last year: £48.4m) 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 £2.7m (last year: £11.5m), however, this has not been recognised on the basis that
the distribution can be controlled by the Group.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 132
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
2019
Shares
2018
£m
Shares
£m
1,624,757,346
242,884
1,625,000,230
406.2 1,624,727,846
29,500
406.3 1,624,757,346
0.1
406.2
–
406.2
Issue of new shares
242,884 (last year: 29,500) ordinary shares having a nominal value of £0.1m (last year: £0.0m) were allotted during the year under the terms
of the Company’s schemes which are described in note 13. The aggregate consideration received was £0.6m (last year: £0.1m).
25 CONTINGENCIES AND COMMITMENTS
A. Capital commitments
Commitments in respect of properties in the course of construction
Software capital commitments
2019
£m
90.1
6.8
96.9
2018
£m
121.8
17.2
139.0
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. These options and commitments would have
an immaterial impact on the Group’s Statement of Financial Position.
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 10 years
– Later than 10 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 £214.6m (last year: £27.4m).
2019
£m
2018
£m
296.1
1,053.7
871.2
499.5
280.1
124.8
964.5
4,089.9
288.5
1,026.1
896.8
503.8
304.6
149.4
1,026.8
4,196.0
Of the total rental payable commitments under operating leases disclosed above, £308.5m (last year: £172.5m) 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.
133
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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
Decrease/(increase) in inventories
(Increase)/decrease 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 M&S Bank
Adjusting operating profit items
Cash generated from operations
2019
£m
37.3
47.3
111.6
(33.8)
162.4
73.8
(1.0)
(13.7)
(124.4)
19.2
544.9
(37.9)
(20.9)
438.6
1,041.0
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
Adjusting items net cash outflows relate to the utilisation of the provisions for International store closures and impairments, strategic
programme costs associated with the UK store estate, organisation, operational transformation, UK logistics, IT restructure, changes to pay
and pensions, UK store impairments and property charges, GMP and other pension equalisation and establishing the Ocado joint venture.
Adjusting items M&S Bank relates to M&S Bank income recognised in operating profit offset by charges incurred in relation to the insurance
mis-selling provision, which is a non-cash item.
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 note18)
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 134
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27 ANALYSIS OF NET DEBT CONTINUED
A. Reconciliation of movement in net debt continued
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
B. Reconciliation of net debt to statement of financial position
At 1 April
2018
£m
(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)
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
Exchange and
other non-cash
movements
£m
Cash flow
£m
At 30 March
2019
£m
11.1
(46.7)
(35.6)
77.9
42.3
128.1
46.7
(1.4)
3.3
61.6
110.2
280.6
5.0
(5.0)
–
(0.2)
(0.2)
–
5.0
(1.2)
(1.8)
–
2.0
1.8
2019
£m
285.4
141.8
(72.3)
(1,624.3)
(46.5)
(272.4)
(1,588.3)
43.2
(1,545.1)
(72.3)
–
(72.3)
285.4
213.1
141.8
–
(1,587.3)
(46.5)
(266.2)
(1,900.0)
(1,545.1)
2018
£m
207.7
13.7
(88.4)
(1,621.7)
(48.0)
(335.5)
(1,872.2)
44.7
(1,827.5)
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 was 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. The loan was extinguished on
8 March 2019 through a capital reduction of the investment in the joint venture by £5.0m.
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.
Salaries and short-term benefits
Share-based payments
Total
2019
£m
8.0
1.1
9.1
2018
£m
7.9
0.4
8.3
135
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29 IMPACT OF NEW ACCOUNTING STANDARDS ADOPTED IN THE YEAR
IFRS 9 and IFRS 15 were new accounting standards adopted in the year and effective for the Group from 1 April 2018. IFRS 15 has not had
a material impact on the financial statements of the Group and the impact of adoption is disclosed within note 1. As IFRS 9 has a more
extensive impact on the opening balances of the financial statements of the Group on adoption the impact has been disclosed in
detail below.
IFRS 9
IFRS 9 was adopted using the modified transition approach without restating comparative information. The reclassification and adjustments
in relation to the new impairment rules are recognised in the opening balance sheet on 1 April 2018 and not reflected in the comparative
balance sheet.
The table below shows the amount of adjustment for each financial statement line impacted by the adoption of IFRS 9.
Consolidated Statement of Financial Position
Non-current assets
Other financial assets
Current assets
Trade and other receivables
Current liabilities
Provisions
Equity
Retained earnings
Hedging reserve
Cost of hedging reserve
As at 31 March
2018
£m
IFRS 9
Adjustment
£m
1 April 2018
restated
£m
9.9
–
9.9
308.4
(0.6)
307.8
98.8
(0.1)
98.7
6,531.1
(65.3)
–
(0.5)
(10.7)
10.7
6,530.6
(76.0)
10.7
The adoption of IFRS 9 Financial Instruments resulted in changes in accounting policies and adjustments to the amounts recognised in the
financial statements. The total impact on the Group’s retained earnings is as follows:
Closing retained earnings as at 31 March 2018
Increase in provision for trade receivables
Decrease in provision for other receivables
Adjustment to retained earnings from adoption of IFRS 9 on 1 April 2018
Opening retained earnings on 1 April 2018
£m
6,531.1
(0.6)
0.1
(0.5)
6,530.6
Classification and measurement
On 1 April 2019, the Group’s management has assessed which business models apply to the financial assets held by the Group and has
classified its financial instruments into the appropriate IFRS 9 categories being fair value through profit and loss (FVPL), fair value through
other comprehensive income (FVOCI) and amortised cost. Available for sale (AFS) category allowable under IAS 39 is not an allowable IFRS 9
categorisation. The main effects resulting from this classification are as follows:
Financial assets at 31 March 2018
Reclassify available for sale financial assets to FVOCI
Opening balance at 1 April 2018
The impact of the changes on the Group’s equity is as follows:
Opening balance at 31 March 2018 under IAS 39
Reclassify available for sale financial assets to FVOCI
Opening balance at 1 April 2018 under IFRS 9
FVPL
£m
47.9
–
47.9
FVOCI
£m
Available for sale
£m
Amortised cost
£m
–
9.9
9.9
9.9
(9.9)
–
176.5
–
176.5
AFS reserve
£m
FVOCI reserve
£m
6.9
(6.9)
–
–
6.9
6.9
All equity financial instruments classified as available for sale under IAS 39 were irrevocably designated as fair value through other
comprehensive income under IFRS 9 whereby gains or losses will never recycle to the profit and loss, instead being recognised as
movements within retained earnings in other comprehensive income only. The classification was considered appropriate as the investments
are expected to be held for the long term and not expected to be sold in the short to medium term. The cumulative associated available
for sale reserve within equity of £6.9m was recognised as an adjustment within the other comprehensive income reserve on adoption of
the standard.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 136
MARKS AND SPENCER GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29 IMPACT OF NEW ACCOUNTING STANDARDS ADOPTED IN THE YEAR CONTINUED
Classification and measurement continued
On the date of initial application, 1 April 2018, the Group’s financial instruments were as follows with any reclassifications noted:
Original classification
(IAS 39)
New classification
(IFRS 9)
Original carrying
amount
£m
New carrying
amount
£m
Difference in
carrying amount
£m
Non-current financial assets
Trade and other receivables
Other financial assets
Derivative financial instruments
Current financial assets
Other financial assets
Trade and other receivables
Derivative financial instruments
Current financial liabilities
Trade and other payables
Borrowings and other financial liabilities
Derivative financial instruments
Non-current financial liabilities
Trade and other payables
Borrowings and other financial liabilities
Amortised cost Amortised cost
Available
for sale
FVPL
FVOCI
FVPL
FVPL
FVPL
Amortised cost Amortised cost
FVPL
FVPL
2.3
9.9
27.1
13.7
174.2
7.1
2.3
9.9
27.1
13.7
173.6
7.1
Amortised cost Amortised cost
Amortised cost Amortised cost
FVPL
FVPL
1,355.9
125.6
73.8
1,355.9
125.6
73.8
Amortised cost Amortised cost
Amortised cost Amortised cost
52.7
1,670.6
52.7
1,670.6
–
–
–
–
(0.6)
–
–
–
–
–
–
Derivatives and hedging activities
IFRS 9 more closely aligns the hedge accounting with financial risk management methodology. All hedge relationships were regarded as
continuing hedge relationships, as all which were designated hedges under IAS 39 as at 31 March 2018 met the criteria for hedge accounting
under IFRS 9 as the Group’s risk management strategies and hedge documentation were aligned to the new standard.
Under IAS 39 the Group included the cost of hedging within the hedge relationship. On transition, IFRS 9 allows the choice to separate
aspects of the costs of hedging from the designation within a hedge relationship as part of the hedging instrument. Similarly under IFRS 9
in relation to cross-currency interest rate swaps, the currency basis is separated into the cost of hedging reserve and separated from the
hedge relationship.
On transition to IFRS 9, a classification change between the hedging reserve and cost of hedging reserve within equity of £10.7m debit
to hedging reserve and credit to cost of hedging reserve was recognised.
Impairment of financial assets
The Group holds the following types of financial assets subject to IFRS 9’s new expected credit loss model:
> Trade receivables.
> Other receivables.
The Group was required to revise its impairment methodology under IFRS 9 for each of these classes of assets. The impact of the change in
impairment methodology on the Group’s retained earnings and equity is illustrated above, while a detailed description of the methodology
is included with the credit risk disclosures in note 21.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected credit loss allowance
for all trade receivables. This resulted in an increase in the loss allowance on 1 April 2018 by £0.6m for trade receivables and a decrease of
£0.1m for other receivables.
30 SUBSEQUENT EVENTS
Subsequent to the year end, the UK Defined Benefit pension scheme purchased additional pensioner buy-in policies with two insurers
for approximately £1.4bn. Together with the two policies purchased in March 2018, the Defined Benefit pension scheme has now, in total,
hedged its longevity exposure for approximately two thirds of the pensioner cash flow liabilities for pensions in payment. The buy-in policies
cover specific pensioner liabilities and pass all risks to an insurer in exchange for a fixed premium payment, thus reducing the Group’s
exposure to changes in longevity, interest rates, inflation and other factors.
137
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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
30 March 2019
£m
As at
31 March 2018
£m
9,269.5
9,269.5
9,260.3
9,260.3
2,548.5
2,548.5
6,721.0
406.3
416.9
2,210.5
1,397.3
2,290.0
6,721.0
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
The Company’s profit for the year was £305.0m (last year: £305.0m).
The financial statements were approved by the Board and authorised for issue on 21 May 2019. The financial statements also comprise the
notes C1 to C6.
Steve Rowe Chief Executive Officer
Humphrey Singer Chief Finance Officer
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Ordinary
share capital
£m
Share premium
account
£m
Capital redemption
reserve
£m
At 2 April 2017
Profit for the year
Dividends
Capital contribution for
share-based payments
At 31 March 2018
At 1 April 2018
Profit for the year
Dividends
Capital contribution for
share-based payments
Shares issued on exercise of
employee share options
At 30 March 2019
406.2
–
–
–
406.2
406.2
–
–
–
0.1
406.3
416.4
–
–
–
416.4
416.4
–
–
–
0.5
416.9
Merger
reserve
£m
1,397.3
–
–
–
1,397.3
1,397.3
–
–
Retained
earnings
£m
2,266.7
305.0
(303.4)
11.0
2,279.3
2,279.3
305.0
(303.5)
Total
£m
6,697.1
305.0
(303.4)
11.0
6,709.7
6,709.7
305.0
(303.5)
2,210.5
–
–
–
2,210.5
2,210.5
–
–
–
–
9.2
9.2
–
2,210.5
–
1,397.3
–
2,290.0
0.6
6,721.0
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
Cash and cash equivalents at beginning and end of year
52 weeks ended
30 March 2019
£m
52 weeks ended
31 March 2018
£m
305.0
305.0
0.6
(2.1)
(303.5)
(305.0)
–
–
305.0
305.0
–
(1.6)
(303.4)
(305.0)
–
–
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 138
MARKS AND SPENCER GROUP PLC
NOTES TO THE COMPANY FINANCIAL STATEMENTS
C1 ACCOUNTING POLICIES
General information
Marks and Spencer Group plc (the Company) is a public Company limited by shares incorporated in the United Kingdom under the
Companies Act and is registered in England and Wales. The address of the Company’s registered office is Waterside House, 35 North Wharf
Road, London W2 1NW.
The principal activities of the Company and the nature of the Company’s operations is as a holding entity.
These financial statements are presented in Sterling, which is the currency of the primary economic environment in which the Company
operates and are rounded to the nearest million.
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.
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.
Key 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.
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 £1,028,666 (last year: £999,922). The Company did not operate any pension schemes during the current
or preceding year. For further information see the Remuneration Report.
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
Paid interim dividend
2019
per share
2018
per share
2019
£m
11.9p
6.8p
18.7p
11.9p
6.8p
18.7p
193.1
110.4
303.5
2018
£m
193.1
110.3
303.4
The directors have approved a final dividend of 7.1p 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.£115.4m (last year: £193.1m) will be paid on
12 July 2019 to shareholders whose names are on the Register of Members at the close of business on 31 May 2019. The ordinary shares will
be quoted ex dividend on 30 May 2019.
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 21 June 2019.
C5 RELATED PARTY TRANSACTIONS
During the year, the Company has received dividends from Marks and Spencer plc of £305.0m (last year: £305.0m) and decreased its loan
from Marks and Spencer plc by £2.1m (last year: £1.6m). The outstanding balance was £2,548.5m (last year: £2,550.6m) and is non-interest
bearing. There were no other related party transactions.
139
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
C6 INVESTMENTS
A. Investments in subsidiary undertakings
Beginning of the year
Additional investment in subsidiary undertakings relating to share-based payments
End of year
Shares in subsidiary undertakings represent the Company’s investment in Marks and Spencer plc.
The Company tests investments in subsidiary undertakings annually for impairment.
2019
£m
9,260.3
9.2
9,269.5
2018
£m
9,249.3
11.0
9,260.3
The recoverable amount of the investment is determined from value in use calculations. The key assumptions for the value in use
calculation are those regarding the discount rate, growth rates, and expected trading performance. These assumptions have been revised in
the year in light of the current economic outlook which has softened in the period since the last impairment review was undertaken.
The cash flows used in the value in use calculation 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. The latest budget and three-year plan reflect a more conservative
view of the short-term future performance of the Group.
Cash flows beyond this three-year period are extrapolated for a further two years using the expected growth rates expected in year three
and then extrapolated beyond this period using the Group’s current view of achievable long-term growth of 2.3%. This rate combines the
long-term inflation rate of 1.8% with a 0.5% real uplift for growth. This is higher than the rate used in the prior year, reflecting our confidence in
the outcome of the strategic programme to transform the business in achieving a higher terminal growth rate.
Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks
specific to the Group. The rate used to discount the forecast cash flows is 9.1%.
The value in use calculation also includes the intercompany payable due from the company to the subsidiary of £2,548.5m.
The outcome of the value in use calculation supports the carrying value of the investment in subsidiary undertakings, with a headroom of
£336.7m. This is significantly lower than the £1.8bn headroom calculated in the prior year (having corrected a mechanical error in the prior
year calculation) reflecting the impact of the current outlook and the updated forecasts discussed above.
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 3.9% below forecast
(last year restated: 17.3%);
> The long-term growth rate of cash flows would have to decline to 2.0% per annum (last year: -2.1%); or
> The pre-tax discount rate would have to increase to 9.4% (last year: 10.4%).
As disclosed in the accounting policies note C1, the cash flows used within the impairment model are based on assumptions which are
sources of estimation uncertainty and small movements in these assumptions, given the reduced level of headroom, could lead to an
impairment. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible
changes in these key assumptions. A 3% reduction in cash flows from the three-year plan would reduce the headroom by £261.9m, a 25 basis
point increase in the discount rate would reduce the headroom by £297.1m, neither of which in isolation would result in an impairment. A 50
basis point decrease in the long-term growth rate (reducing the growth rate down to just reflect the expected long-term inflation rate) would
result in an impairment of £134.2m. In the event that all three were to occur simultaneously, an impairment of £643.7m would be recorded.
Based on the corrected prior year headroom, a 3% reduction in cash flows from the three-year plan would have reduced the headroom by
£311m, a 25 basis point increase in the discount rate would have reduced the headroom by £290m and a 50 basis point decrease in the long-
term growth rate would have reduced the headroom by £499m. In the event that all three were to occur simultaneously, no impairment
would have resulted.
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 30 March 2019 is disclosed below.
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 140
MARKS AND SPENCER GROUP PLC
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
C6 INVESTMENTS CONTINUED
Subsidiary and other related undertakings registered in the UK(i)
Proportion
of shares
held by
subsidiary
(%)
Proportion
of shares
held by the
Company
(%)
Share class
Name
Name
Share class
Amethyst Leasing (Holdings) Limited
Founders Factory Retail Limited
Hedge End Park Limited
Registered Office: 33 Holborn, London, EC1N 2HT
M&S Limited
Manford (Textiles) Limited
£1 Ordinary
£0.0001 Ordinary
£0.0001 Preferred
£1 B Ordinary
£1 Ordinary
£1 Ordinary
Marks & Spencer Company Archive CIC(ii)
N/A
Marks & Spencer Simply Foods Limited
Marks and Sparks Limited
Marks and Spencer (Northern Ireland) Limited
Registered Office:
8 Laganbank Road, Belfast, BT1 3LR
£1 Ordinary
£1 Ordinary
£1 Ordinary
Marks and Spencer France Limited
€1.14 Ordinary
–
–
–
–
–
–
–
–
–
–
100
100
–
100
100
100
100
100
0.002
Marks and Spencer Guernsey Investments LLP
Partnership interest
Marks and Spencer Holdings Limited
£1 Ordinary
49.999
Marks and Spencer International Holdings Limited
£1 Ordinary
50
Marks and Spencer Pension Trust Limited(iii)
£1 A Ordinary
£1 B Ordinary
£1 C Ordinary
£0.25 Ordinary
Marks and Spencer plc
Marks and Spencer Property Developments Limited £1 Ordinary
Marks and Spencer Scottish Limited Partnership(iv)
Registered Office:
2-28 St Nicholas Street, Aberdeen, AB10 1BU
Partnership interest
St. Michael (Textiles) Limited
St. Michael Finance plc
£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
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 30 March 2019. 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 & Spencer Outlet Limited
Marks and Spencer (Initial LP) Limited
Registered Office: No. 2 Lochrin Square,
96 Fountainbridge, Edinburgh, Midlothian, EH3 9QA
Marks and Spencer (Bradford) Limited
Marks and Spencer (Property Investments) Limited
Marks and Spencer (Property Ventures) Limited
–
–
–
100
–
–
–
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
100
–
100
100
100
100
100
100
100
04246934
04411320
04039568
SC315365
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 Chester Limited
10011863
Marks and Spencer Hungary Limited
05502582
Marks and Spencer Investments
05502513
Marks and Spencer Property Holdings Limited
05502608
Marks and Spencer Shared Services Limited
05502519
Minterton Services Limited
05502542
05502598
Ruby Properties (Cumbernauld) Limited
Ruby Properties
(Enfield) Limited (Strike off requested)
100
05502546
100
100
100
05502538
05502478
05502523
100
05502520
Ruby Properties (Hardwick) Limited
Ruby Properties (Long Eaton) Limited
Ruby Properties (Thorncliffe) Limited
Ruby Properties (Tunbridge) Limited
Simply Food (Property Investments)
Simply Food (Property Ventures) Limited
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
05502588
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
05502544
05502502
05174129
08540784
04903061
02100781
04461788
04763836
04922798
04716390
04716018
04716031
04716110
04716032
05502543
02239799
The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date of £6.4m 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) No share capital, as the company is limited by guarantee. Marks and Spencer plc is the sole member.
(iii) 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.
(iv) 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.
141
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS 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
Canada
CAD 1 Common
Marks & Spencer Inc.
Marks and Spencer
(Shanghai) Limited
Marks and Spencer
Commercial
(Shanghai) Ltd
Brunswick Square,
1 Germain Street Suite 1700,
Saint-John, New Brunswick,
E2L 4W3, Canada
Unit 03-04 6/F, Eco City 1788,
1788 West Nan Jing Road,
Shanghai, China
Room 2090, Block 1,
HKRI Taikoo Hui,
288 Shimen No One Road,
Jing’An District, Shanghai, China
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
Praha 4, Michle, Vyskocilova
1481/4, Czech Republic
Czech Republic
Registered
Capital
Registered
Capital
CZK 1,000
Ordinary
CZK 100,000
Ordinary
CZK 1,000,000
Ordinary
Registered
Capital
Registered
Capital
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
€1,060 Ordinary
33-35 Ermou Street,
Athens , Greece
Greece
€3 Ordinary
Proportion
of shares
held by
subsidiary
(%)
100
100
100
100
100
100
100
100
100
100
100
80
Name
Registered Address
Country
Share Class
Supreme Tradelinks
Private Limited
First Floor, Anand Bhawan,
Sansar Chandra Road,
Jaipur, 302 001, India
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
UAB MSF Lithuania
M & S Mode
International B.V.
Marks and Spencer
(Nederland) B.V.
A. Goštauto g. 40B,
Viliniaus m., Lithuania
Prins Bernhardplein 200,
1097 JB , Amsterdam,
Netherlands
Prins Bernhardplein 200,
1097 JB , Amsterdam,
Netherlands
India
INR 10 Ordinary
Ireland
€1.25 Ordinary
Ireland
€1.25 Ordinary
Israel
Italy
NIS Ordinary
€ Quota
Jersey
£1 Ordinary
Lithuania
LTL 100 Ordinary
Netherlands
€100 Ordinary
Netherlands
€450 Ordinary
Marks and Spencer BV Prins Bernhardplein 200,
Netherlands
€100 Ordinary
Marks and Spencer
Nederland (Retail) B.V.
Marks and Spencer
Stores B.V.
1097 JB, Amsterdam,
Netherlands
Prins Bernhardplein 200,
1097 JB , Amsterdam,
Netherlands
Prins Bernhardplein 200,
1097 JB, Amsterdam,
Netherlands
Netherlands
€100 Ordinary
Netherlands
€450 Ordinary
Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4JH, Guernsey
Guernsey
£1 Ordinary
99.99
Marks and Spencer
Poland Sp z o.o.
UL Marynarska 11, XI pitro
02-674 Warsaw, Poland
Poland
PLN 50.00
Ordinary
Guernsey
£1 Ordinary
100
Marks & Spencer
(Portugal) Lda.
Avenida da Liberdade 249,
1250-143, Lisbon, Portugal
Portugal
€1 Ordinary
Marks and Spencer
(Alderney) Limited
Linwood, Alles es Fees,
Alderney
Teranis Limited
M.S. General
Insurance L.P.
Marks and Spencer
(Hong Kong)
Investments Limited
Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4JH, Guernsey
Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4JH, Guernsey
Suites 1520-25, 15/F, Ocean
Centre, 5 Canton Road,
Tsim Sha Shui, Kowloon,
Hong Kong
Guernsey
£1 Ordinary
99.99
Guernsey
Partnership
interest
Hong Kong
HKD1 Ordinary
Marks and Spencer
(Hungary) Kft
Fehérvári út 50-52, 1117
Budapest, Hungary
Hungary
HUF280,500,000
Quota
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
4th Floor, Court House,
Lokmanya Tilak Marg,
Dhobi Talao, Mumbai,
400 002, India
India
INR10 Ordinary
India
INR 10 Class A
INR 10 Class B
INR 5 Class C(ii)
Marks and Spencer
Romania SA
(in liquidation)
Anchor Plaza, No. 26Z
Timisoara Boulevard, 3rd floor,
premises no. 3B-1, 6th District,
Bucharest, Romania
Romania
RON 18.30
Ordinary
Marks and Spencer
(Singapore)
Investments Pte. Ltd.
77 Robinson Road
#13-00 Robinson 77
Singapore 068896
Singapore
MSF Slovakia S.R.O
Marks and Spencer
(SA) (Pty) Limited
M&S (Spain) S.L.
Marks and Spencer
Clothing Textile
Trading L.L.C
Europeum Business Center,
Suché Mýto 1,
811 02 Bratislava, Slovakia
Woolworths House,
93 Longmarket Street,
Cape Town 8001, South Africa
Calle Fuencarral No. 119,
28010 , Madrid, Spain
Havalani Karsisi istanbul
Dunya Ticaret Merkezi,
A3 Blok, Kat:11 Yesilkoy,
Bakirkoy, Istanbul, Turkey
Singapore
No Par Value
Ordinary
Slovakia
Registered
capital
South Africa
ZAR 2 Ordinary
Spain
Turkey
€1 Ordinary
TRL 25.00
Ordinary
100
100
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 and INR 10 Equity shares 100% owned by joint venture partner.
Proportion
of shares
held by
subsidiary
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 142
MARKS AND SPENCER GROUP PLC
GROUP FINANCIAL RECORD
2019
52 weeks
£m
2018
52 weeks
£m
2017
52 weeks
£m
2016
53 weeks
£m
2015
52 weeks
£m
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 and adjusting items
Adjusting items
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
Basic earnings/
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
9,440.7
936.6
10,377.3
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
52.8
109.6
162.4
(103.6)
25.8
84.6
523.2
(438.6)
(47.3)
37.3
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
2019
52 weeks
2018
52 weeks
2017
52 weeks
2016
53 weeks
2015
52 weeks
2.1p
1.6p
7.2p
24.9p
29.7p
25.4p
18.7p
1.4x
27.8p
18.7p
1.5x
30.4p
18.7p
1.6x
35.0p
18.7p
1.9x
33.1p
18.0p
1.8x
3.8x
3.8x
3.4x
3.7x
3.6x
2,680.9
1,545.1
294.5
1,043
17.2
444
4.9
50,578
4,862
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
53,562
6,202
52,388
6,507
52,247
6,849
The above results are prepared under IFRS for each reporting period on a consistent basis, with the exception of the implementation of IFRS 9 and IFRS 15 in 2018/19 for which comparative
periods have not been restated.
1. Based on continuing operations.
2. Excludes accrued interest.
143
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
GLOSSARY
The Group tracks a number of alternative performance measures in managing its business, which are not defined or specified under the
requirements of IFRS because they exclude amounts that are included in, or include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with IFRS, or are calculated using financial measures that are not calculated
in accordance with IFRS.
The Group believes that these alternative performance measures, 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 alternative performance
measures are consistent with how the business performance is planned and reported within the internal management reporting to the
Board. Some of these alternative performance measures are also used for the purpose of setting remuneration targets.
These alternative performance measures should be viewed as supplemental to, but not as a substitute for, measures presented in the
consolidated financial information relating to the Group, which are prepared in accordance with IFRS. The Group believes that these
alternative performance measures are useful indicators of its performance. However, they may not be comparable to similarly-titled
measures reported by other companies due to differences in the way they are calculated.
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
The period-on-period change in revenue (excluding VAT) from stores
which have been trading and where there has been no significant change
(greater than 10%) 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.
M&S.com revenue/
Online revenue
None
Not applicable
Revenue growth at
constant currency
None
Not applicable
Food
Like-for-like
Net new space
Total Food revenue
Clothing & Home
Like-for-like
Net new space
Total Clothing & Home revenue
52 weeks ending
30 March 2019
£m
31 March 2018
£m
5,630.4
273.0
5,764.0
176.0
5,903.4
5,940.0
3,479.3
58.0
3,537.3
3,534.2
136.8
3,671.0
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 18/19
£m
FY 17/18
£m
936.6
–
936.6
1,081.3
5.9
1,087.2
%
(13.4)
(13.9)
UK Food like-for-like
revenue growth
adjusted for Easter
Movement in
revenue per the
income statement
Sales from non like-
for-like stores &
adjustments for
Easter dates
The period-on-period change in like-for-like Food revenue (excluding VAT)
adjusted for any differences in the timing of Easter between comparative
periods. This adjusted revenue measure is a good indicator of the underlying
performance of the Food business, as it eliminates the effect of Easter
trading on period-on period reported results.
UK Food Revenue
Easter adjusted LFL
Impact of Easter
Like-for-like
Net new space
Statutory Total
FY 18/19
FY 17/18
£m
£m
5,630.4
–
5,630.4
273.0
5,713.9
50.1
5,764.0
176.0
%
(1.5)
(2.3)
5,903.4
5,940.0
(0.6)
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 144
MARKS AND SPENCER GROUP PLC
GLOSSARY CONTINUED
APM
Closest equivalent
statutory measure
Reconciling
items to statutory
measure
Definition and purpose
Income Statement Measures continued
International
owned retained
and franchise
revenue growth at
constant currency
Movement in
revenue per
the income
statement
Sales from
closure markets
Management
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)
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 their tax
impact (see note 5)
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 18/19
£m
FY 17/18
£m
%
936.6 1,087.2
(66.4)
–
936.6 1,020.8
(6.1)
–
(13.9)
100
(8.2)
100
936.6
1,014.7
(7.7)
Where referred to throughout the Annual Report, management gross
margin is calculated as gross profit 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 as disclosed on the face of the Consolidated Income Statement. This
measure is used in calculating the Return on Capital Employed for the Group.
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.
145
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
APM
Closest equivalent
statutory measure
Reconciling
items to statutory
measure
Definition and purpose
GLOSSARY CONTINUED
Balance Sheet Measures
Net debt
None
Reconciliation
of net debt
(see note 27)
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 Marks
and Spencer UK pension scheme less cash, cash equivalents and unlisted
and short-term investments.
Capital employed
Net assets
Refer to definition
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
statement 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. The measures used in this calculation
are set out below:
EBIT before adjusting items
Average capital employed
FY 18/19
£m
FY 17/18
£m
601.0
670.6
4,267.9 4,785.3
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.
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 146
146
NOTICE OF ANNUAL GENERAL MEETING 2019
MARKS AND SPENCER GROUP PLC
IMPORTANT NOTICE
NOTICE OF
ANNUAL
GENERAL
MEETING
2019
WEMBLEY STADIUM, WEMBLEY
LONDON HA9 0WS
Tuesday 9 July 2019 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 accompanying
documents (except any personalised form of proxy, if applicable) 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.
147
NOTICE OF ANNUAL GENERAL MEETING 2019
NOTICE OF MEETING 2019
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 attending in person or
electronically.
The results of the voting will be announced
through a Regulatory Information Service
and will be published on our website
marksandspencer.com/thecompany
on 9 July 2019 or as soon as reasonably
practicable thereafter.
If you have already appointed a proxy you
will still be able to attend and vote at the
meeting and your vote on the day will
replace your previously lodged proxy
voting instructions.
In 2018, all resolutions were passed at the
meeting with votes ranging from 91.56%
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. In addition, this year
we will be enabling shareholders unable
to attend the meeting in person to do so
electronically. Further information on how
to join the meeting electronically can be
found on page 156.
More details about the day and
how to get there, including a map,
can be found on pages 155 and 156
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 in person
or electronically, we would still like to
understand the themes and issues of
concern to you, as shareholders. You
may send your comments by email to
chairman@marks-and-spencer.com
with the heading AGM 2019.
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 either in
person or electronically – see page 156
of this Notice for further details.
“
I am pleased to invite
shareholders to the
18th Annual General
Meeting of Marks and
Spencer Group plc.”
NICK FOLLAND GROUP GENERAL
COUNSEL AND COMPANY 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.
148
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 30 March 2019, together with the report of the auditor.
1
Paragraph (A) of this resolution 15 would give the directors the
authority to allot ordinary shares of the Company up to an
aggregate nominal amount equal to £162,504,984 (representing
650,019,936 ordinary shares of 25p each). This amount represents
approximately one-third (33.33%) of the Company’s anticipated
issued share capital following completion of the Rights Issue.
APPROVAL OF THE DIRECTORS’ REMUNERATION REPORT 2
The Directors’ Remuneration Report sets out the pay and benefits
received by each of the directors for the year ended 30 March 2019.
In line with legislation, this vote is advisory and the directors’
entitlement to remuneration is not conditional on it.
FINAL DIVIDEND
3
The Board proposes a final dividend of 7.1p per share for the year
ended 30 March 2019. If approved, the recommended final dividend
will be paid on 12 July 2019 to all shareholders who were on the
Register of Members at the close of business on 31 May 2019.
ELECTION OF DIRECTORS
4–12
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
36 and 37 of the Annual Report, with further details available
on our website, marksandspencer.com/thecompany. It is the
Board’s view that the directors’ biographies illustrate why each
director’s contribution is, and continues to be, important to the
Company’s long term sustainable success.
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.
RENEWAL OF THE POWERS
OF THE BOARD TO ALLOT SHARES
15
The Company is currently conducting a rights issue (the “Rights
Issue”) to raise up to £601.3m, the terms of which were announced
on 22 May 2019, using authorities granted at the 2018 AGM. Further
details are in the Company’s announcement, made on that date.
The Rights Issue is expected to complete before the date of the
2019 AGM, and is not dependent on the resolutions proposed at
that AGM.
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 £325,009,968 (representing 1,300,039,872 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 (66.66%) of the anticipated
issued ordinary share capital of the Company following completion
of the Rights Issue.
The authorities sought under paragraphs (A) and (B) of this
resolution will expire at the conclusion of the AGM in 2020 or
on 1 October 2020, whichever is sooner. The directors have no
present intention to allot shares, except to satisfy options under the
Company’s share option schemes and in connection with the Rights
Issue; 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.
AUTHORITY TO DISAPPLY PRE-EMPTION RIGHTS 16–17
Resolutions 16 and 17 are proposed as special resolutions. If the
Directors wish to allot new shares and other equity securities, or sell
treasury shares, for cash (other than in connection with an employee
share scheme), company law requires that these shares are first
offered to shareholders in proportion to their existing holdings.
At last year’s AGM, a special resolution was passed, in line with
institutional shareholder guidelines, empowering the directors to
allot equity securities for cash without first offering them to existing
shareholders in proportion to their existing holdings. It is proposed,
under resolution 16, that this authority be renewed. If approved,
the resolution will authorise directors to issue shares in connection
with pre-emptive offers, or otherwise to issue shares for cash up
to an aggregate nominal amount of £24,375,748 (representing
97,502,990 ordinary shares) which includes the sale on a non
pre-emptive basis of any shares the company holds in treasury
for cash. This aggregate nominal amount represents approximately
5% of the anticipated issued ordinary share capital of the Company
following completion of the Rights Issue.
The Pre-Emption Group’s Statement of Principles also support the
annual disapplication of pre-emption rights in respect of allotments
of shares and other equity securities and sales of treasury shares
for cash where these represent no more than an additional 5% of
issued ordinary share capital (exclusive of treasury shares) and are
used only in connection with an acquisition or specified capital
investment. The Pre-Emption Group’s Statement of Principles
defines “specified capital investment” as meaning one or more
specific capital investment related uses for the proceeds of an issue
of equity securities, in respect of which sufficient information
regarding the effect of the transaction on the Company, the assets
the subject of the transaction and (where appropriate) the profits
attributable to them is made available to shareholders to enable
them to reach an assessment of the potential return.
149
NOTICE OF ANNUAL GENERAL MEETING 2019
EXPLANATORY NOTES TO THE RESOLUTIONS CONTINUED
Accordingly, the purpose of resolution 17 is to authorise the
directors to allot new shares and other equity securities pursuant
to the allotment authority given by resolution 15, or sell treasury
shares for cash, without first being required to offer such securities
to existing shareholders, up to a further nominal amount
of £24,375,748 (representing 97,502,990 ordinary shares),
representing approximately 5% of the anticipated issued ordinary
share capital of the Company following completion of the Rights
Issue. The authority granted by this resolution, if passed, will only
be used in connection with an acquisition or specified capital
investment which is announced contemporaneously with the
allotment, or which has taken place in the preceding six-month
period and is disclosed in the announcement of the issue. If the
authority given in resolution 17 is used, the Company will publish
details of its use in its next Annual Report.
The authority granted by resolution 17 would be in addition to the
general authority to disapply pre-emption rights under resolution
16. The maximum nominal value of equity securities which could
be allotted if both authorities were used would be £48,751,496,
which represents approximately 10% of the anticipated issued
ordinary share capital of the Company following completion
of the Rights Issue.
The directors intend to adhere to the provisions in the Pre-emption
Group’s Statement of Principles and not to allot shares or
other equity securities or sell treasury shares for cash on a non
pre-emptive basis pursuant to the authority in resolution 16 in
excess of an amount equal to 7.5% of the total issued ordinary share
capital of the Company, excluding treasury shares, within a rolling
three-year period, other than:
(i) With prior consultation with shareholders; or
(ii)
In connection with an acquisition or specified capital
investment which is announced contemporaneously with the
allotment or which has taken place in the preceding six-month
period and is disclosed in the announcement of the allotment.
The directors consider the authorities in resolutions 16 and 17 to
be appropriate in order to allow the Company flexibility to finance
business opportunities or to conduct a pre-emptive offer or rights
issue without the need to comply with the strict requirements of the
statutory pre-emption provisions.
These authorities will expire at the conclusion of the AGM in 2020 or
on 1 October 2020, whichever is sooner.
AUTHORITY FOR THE COMPANY TO
PURCHASE ITS OWN SHARES
18
Authority is sought for the Company to purchase up to 10% of
its ordinary shares anticipated to be in issue following completion
of the Rights Issue, 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, that 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 37.5 million ordinary
shares, representing 2.31% of the Company’s issued ordinary
share capital as at 21 May 2019, the latest practicable date before
the publication of this Notice.
If the existing authority given at the 2018 AGM and the authority
now being sought by this resolution were to be fully used, these
options would represent 2.96% of the Company’s ordinary share
capital in issue at that date.
NOTICE OF GENERAL MEETING
19
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 19 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.
150
MARKS AND SPENCER GROUP PLC
EXPLANATORY NOTES TO THE RESOLUTIONS CONTINUED
AUTHORITY TO MAKE POLITICAL DONATIONS
20
THE REPUBLIC OF IRELAND SHARESAVE PLAN 2019 21
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
and to incur 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.
The existing Marks and Spencer Group Republic of Ireland
Sharesave Plan was approved by shareholders in 2009, and is due
to expire this year. It is proposed a new Republic of Ireland Sharesave
Plan (the “ROI Sharesave Plan 2019”) be approved by shareholders
to replace the existing plan. The terms of the ROI Sharesave Plan
2019 are substantially the same as the existing Republic of Ireland
Sharesave Plan, and the Marks and Spencer Group UK Sharesave
Plan. The principal terms of the ROI Sharesave Plan 2019 are
summarised in Appendix 1 to this Notice of Meeting.
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,
NICK FOLLAND GROUP GENERAL COUNSEL
AND COMPANY SECRETARY
London, 21 May 2019
151
NOTICE OF ANNUAL GENERAL MEETING 2019
MARKS AND SPENCER GROUP PLC
NOTICE OF MEETING
9 JULY 2019
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 and electronically in
accordance with the information provided
on page 156 on Tuesday 9 July 2019 at
11am (the “AGM”) for the purposes set
out below.
Resolutions 1 to 15, 20 and 21 will be
proposed as ordinary resolutions, and
Resolutions 16 to 19 will be proposed as
special resolutions.
1. To receive the Strategic Report, Directors’
Report, and the financial statements for the
52 weeks ended 30 March 2019, together
with the report of the auditor.
2. To approve the Directors’ Remuneration
Report for the year ended 30 March 2019, as
set out on pages 63-75 of the Annual Report.
3. To declare a final dividend of 7.1p per
ordinary share.
To re-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. Humphrey Singer
7. Katie Bickerstaffe
8. Alison Brittain
9. Andrew Fisher
10. Andy Halford
11. Pip McCrostie
To elect the following director appointed to
the Board since the last Annual General
Meeting:
12. Justin King
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
£162,504,984 (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 £325,009,968
(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 at the conclusion of the AGM of
the Company to be held in 2020 or on
1 October 2020, 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. GENERAL 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
152
MARKS AND SPENCER GROUP PLC
NOTICE OF MEETING CONTINUED
18. 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 195 million
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 of an ordinary
share and the highest current
independent bid for an ordinary
share on the trading venues where
the purchase is carried out, in each
case, exclusive of expenses,
such power to apply until the end of the
AGM to be held in 2020 or until 1 October
2020, 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.
19. 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 no fewer
than 14 clear days’ notice.
20. 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 to:
(A) make political donations to political
parties or independent election
candidates, not exceeding £50,000 in
total;
(B) make political donations to political
organisations other than political
parties, not exceeding £50,000 in total;
and
(C) incur political expenditure not
exceeding £50,000 in total,
provided that the aggregate amount of any
such donations and expenditure shall not
exceed £50,000, during the period
beginning with the date of the passing of
this resolution and ending at the conclusion
of the AGM to be held in 2020 or on
1 October 2020, whichever is sooner.
For the purpose of this resolution the terms
“political donations”, “political parties”,
“independent election candidates”, “political
organisations” and “political expenditure”
have the meanings set out in sections 363
to 365 of the Companies Act 2006.
21. THE MARKS AND SPENCER GROUP
REPUBLIC OF IRELAND SHARESAVE
PLAN 2019
To resolve that the Marks and Spencer
Group Republic of Ireland Sharesave Plan
2019 (the “ROI Sharesave Plan 2019”), the
principal terms of which are summarised in
the Appendix to this Notice and the rules of
which are produced to the meeting and
signed by the Chairman for the purposes of
identification, be approved and the directors
of the Company be authorised to do all such
acts and things they consider necessary or
expedient to implement and to give effect
to the ROI Sharesave Plan 2019, including
but not limited to making any modifications
to the ROI Sharesave Plan 2019 as may
be necessary or desirable to obtain
the approval of the Irish Revenue
Commissioners for the ROI Sharesave
Plan 2019.
By order of the Board
NICK FOLLAND GROUP GENERAL COUNSEL
AND COMPANY SECRETARY
London, 21 May 2019
Registered office Waterside House,
35 North Wharf Road, London W2 1NW.
Registered in England and Wales
No. 4256886.
(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 £24,375,748 and shall expire
at the conclusion of the AGM to be held
in 2020 or on 1 October 2020, 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 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. ADDITIONAL DISAPPLICATION
OF PRE-EMPTION RIGHTS
To resolve as a special resolution that,
subject to the passing of Resolution 15, the
directors be empowered in addition to any
authority granted under Resolution 16 to
allot equity securities (as defined in the
Companies Act 2006) for cash under the
authority given by that Resolution 15
(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:
(A) Limited to the allotment of equity
securities or sale of treasury shares up to a
nominal amount of £24,375,748; and
(B) Used only for the purposes of financing
(or refinancing, if the authority is to be
used within six months after the original
transaction) a transaction which the
directors of the Company determine to
be an acquisition or other capital investment
of a kind contemplated by the Statement
of Principles on Disapplying Pre-Emption
Rights most recently published by the
Pre-Emption Group prior to the date of
this Notice of Meeting, and shall expire at
the conclusion of the AGM to be held in 2020
or on 1 October 2020, 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
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.
1. Biographies of the directors seeking
election are given in the Annual Report on
pages 36 and 37, 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
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 in advance of the AGM,
please visit sharevote.co.uk, where there
are full instructions, and submit your vote
by no later than 11am on Friday 5 July 2019.
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 5
July 2019 will take precedence. Electronic
communication facilities are available to all
shareholders and those that use them will
not be disadvantaged.
153
NOTICE OF ANNUAL GENERAL MEETING 2019
NOTES
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
5 July 2019.
6. The return of a completed proxy form,
other such instrument or any CREST proxy
instruction (as described in paragraph 14 on
this page) will not prevent a shareholder
attending the AGM and voting in person or
electronically 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.
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 5 July 2019
(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 9 July 2019
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.
(v) A copy of the ROI Sharesave Plan 2019.
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 2019 (the latest practicable
date before the publication of this Notice)
the Company’s issued share capital consists
of 1,625,049,840 ordinary shares carrying
one vote each. Therefore, the total voting
rights in the Company as at 21 May 2019
are 1,625,049,840. Following completion of
the Rights Issue, the Company’s issued
share capital is expected to consist of
1,950,059,808 ordinary shares carrying
one vote each.
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.
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 5 July 2019.
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.
154
MARKS AND SPENCER GROUP PLC
NOTES CONTINUED
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
(i)
To do so would interfere unduly with
the preparation for the meeting or
involve the disclosure of confidential
information;
(ii)
The answer has already been given
on a website in the form of an answer
to a question; or
(iii) 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 21 May 2019
from the Group General Counsel and
Company Secretary on pages 147 to 150
for further explanatory notes.
APPENDIX 1: Republic of Ireland
Sharesave Plan 2019
Summary of principal terms of the Marks
and Spencer Group Republic of Ireland
Sharesave Plan 2019 (the “Plan”).
Operation
The operation of the Plan will be supervised
by the Board of directors of the Company
(the “Board”). It will be approved by the
Revenue Commissioners of Ireland in order
to provide tax-advantaged options to
employees based in the Republic of Ireland.
Eligibility
Employees and full-time directors of the
Company and any designated participating
subsidiary who are Irish resident taxpayers
are eligible to participate. The Board may
require employees to have completed a
qualifying period of employment of up
to three years before the grant of options.
The Board may also allow other employees
to participate.
Grant of Options
Options can only be granted to employees
who enter into a certified contractual
savings scheme with a savings carrier that
has been approved for this purpose by the
Revenue Commissioners of Ireland, under
which monthly savings are normally made
over a period of three or five years. Options
will be granted within 30 days (or 42 days if
applications are scaled back) of the first day
by reference to which the option price is set.
The number of shares over which an option
is granted will be such that the total option
price payable for those shares will
correspond to the proceeds on maturity of
the related savings contract.
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 that 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.
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.
Awards may only be granted within the six-
week period following (i) approval of the
Plan by the Revenue Commissioners of
Ireland or (ii) announcement of the
Company’s results for any period or (iii) on
any day on which the Board determines that
exceptional circumstances exist. However,
options will not be granted at any time when
the grant is prohibited by, or in breach of:
(i)
the Market Abuse Regulation or any
other law or regulation with the force of
law; or
(ii) any rule of an investment exchange on
which the Company’s shares are listed
or traded, or any non-statutory rule
with a purpose similar to any part of the
Market Abuse Regulation that binds the
Company or with which the Board has
resolved to comply.
If there is a restriction on dealing, options
will be granted during the 14 days
immediately following the day on which
such restriction ceases to have effect.
Options may not be granted more than
10 years after shareholder approval of the
Plan. Options are not transferable, except
on death. Options are not pensionable.
Individual participation
Monthly savings by an employee under
all savings contracts linked to options
granted under the Plan and any other
savings related share option scheme
approved by the Revenue Commissioners
of Ireland Sharesave Plan may not exceed
the statutory maximum (currently €500).
The Board may set a lower limit in relation
to any particular grant.
Option price
The price per share payable upon the
exercise of an option will not be less than
the higher of: (i) 75% of the middle-market
quotation of a Company share on the
London Stock Exchange on the day (or the
three days) preceding a date specified in an
invitation to participate in the Plan (or such
other day or days as may be agreed with the
Revenue Commissioners of Ireland); and
(ii) if the option relates only to new issue
shares, the nominal value of a share.
The option price will be determined by
reference to dealing days which fall within
six weeks of the Company’s announcement
of its results for any period or at any other
time when the Board considers there are
exceptional circumstances which justify
offering options under the Plan.
Exercise of options
Options will normally be exercisable for
six months from the third, fifth or seventh
anniversary of the start of the related
savings contracts. Earlier exercise is
permitted, however, in the following
circumstances:
155
NOTICE OF ANNUAL GENERAL MEETING 2019
– Following cessation of employment
by reason of death, injury, disability,
redundancy, retirement on reaching
age 65 (or any other age at which the
option holder is bound to retire under
his terms of employment provided
it is between age 60 and 66 years) or the
business or company that the employee
works for ceasing to be part of the
Company’s group;
– When an employee reaches 65;
– Where employment ceases more than
three years from grant; and
– In the event of a takeover, amalgamation,
reconstruction or voluntary winding-up
of the Company, except in the case of
an internal corporate re-organisation
where option holders are offered the
opportunity to exchange their existing
options for equivalent new options over
shares in a new holding company.
Except where described above, options will
lapse on cessation of employment or
directorship with the Company’s group.
NOTES CONTINUED
Shares will be allotted or transferred to
participants within 30 days of exercise.
Plan limits
The Plan may operate over new issue
shares, treasury shares or shares purchased
in the market.
In any 10-calendar-year period, the
Company may not issue (or grant rights to
issue) more than 10% of the issued ordinary
share capital of the Company under the
Plan and any other employee share plan
adopted by the Company.
Treasury shares will count as new issue
shares for the purposes of these limits
unless the institutional investors decide
that they need not count.
Variation of share capital
If there is a variation in the Company’s share
capital then the Board may, subject to the
approval of the Revenue Commissioners
of Ireland, make such adjustment as it
considers appropriate to the number of
shares under option and the option price.
Rights attaching to shares
Any shares allotted when an option is
exercised under the Plan will rank equally
with shares then in issue (except for rights
arising by reference to a record date prior
to their allotment).
Alterations to the Plan
The Board may amend the provisions of the
Plan in any respect, provided that the prior
approval of shareholders is obtained for any
amendments that are to the advantage
of participants in respect of the rules
governing eligibility, limits on participation,
the overall limits on the issue of shares or
the transfer of treasury shares, the basis for
determining a participant’s entitlement to,
and the terms of, the shares to be acquired
and the adjustment of options.
The requirement to obtain the prior
approval of shareholders will not, however,
apply to any minor alteration made to
benefit the administration of the Plan,
to take account of a change in legislation
or to obtain or maintain favourable tax,
exchange control or regulatory treatment
for participants or for any company in the
Company’s group.
TUESDAY 9 JULY 2019
Wembley Stadium,
Wembley,
London HA9 0WS
Live webcast from 11am via
our website marksandspencer.
com/thecompany
and online interactive meeting
via the Lumi app. Details of how
to participate electronically can
be found on page 156.
Y
A
W
E
PIR
M
E
AGM LOCATION
WEMBLEY PARK
FULTON ROAD
565
4
B
)
y
a
w
k
l
a
w
n
a
i
r
t
s
e
d
e
P
(
I
Y
A
W
C
P
M
Y
L
O
Y
A
W
D
R
O
F
R
E
H
T
U
R
F
U
L
T
O
N
R
O
YELLOW
CAR PARK
A
D
FIRST W A Y
ENGINEERS ROAD
WEMBLEY
ARENA
ARENA
SQUARE
GREEN CAR/COACH
PARK ENTRANCE
LAKESIDE WAY
Car / coach
park entrance
M&S AGM
Club Wembley
main entrance
– Level B2
y
a
w
e
n
O
ENGINEERS WAY
YORK
HOUSE
ROYAL ROUTE
PLAZA
HOTEL
RED CAR
PARK
E
G
I B I S
S O U T H W AY
R I D
E B
S
R
O
E H
H I T
W
L
L
I
H
Y
E
L
B
M
E
W
WEMBLEY STADIUM
HARRO
W R
O
A
D
WEMBLEY CENTRAL
(Allow 15 minutes’ walk
to the stadium)
HIGH ROAD A404
Y
A
W
T
S
FIR
One way
7
5
5
4
B
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 from previous year’s
meetings 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
10-minute walk. If you are unable to make
this unassisted, please do ensure that
you have arranged alternative transport.
There is a car park available to shareholders
(parking fees apply), and taxis are
permitted to drop off in front of the venue.
TIMINGS
Date:
Tuesday 9 July 2019
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
Admission will be through the Club
Wembley main entrance on Level B2
(see map opposite). Please plan to arrive
before 10.30am to allow enough time
for registration and security clearance,
bringing your attendance card with you.
The attendance card is either attached to
your proxy form or 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.
156
MARKS AND SPENCER GROUP PLC
AGM LOCATION CONTINUED
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.
TRANSPORT
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 opposite.
Parking is operated by APCOA and
payment for spaces can be made at
the ‘pay on foot’ machines within the car
park. The postcode is HA9 0EG.
ELECTRONIC MEETING
For the 2019 AGM, M&S is for the first time
enabling shareholders to attend and
participate in the meeting electronically,
should they wish to do so. This can be
done by either downloading the dedicated
“Lumi AGM” app or by accessing the
AGM website, http://web.lumiagm.com
DOWNLOADING THE AGM APP
To access the AGM you will need to
download the latest version of the
dedicated AGM App, called “Lumi AGM”,
onto your smartphone from the Google
Play Store™ or the Apple® App Store. We
recommend that you do this in advance of
the meeting date. Please note that the
app is not compatible with older devices
operating Android 4.4 (and below) or iOS 9
(and below).
ACCESSING THE AGM WEBSITE
Lumi AGM can also be accessed online
using most well-known internet browsers
such as Internet Explorer (versions 10 and
11), Chrome, Firefox and Safari on a PC,
laptop or internet-enabled device such as a
tablet or smartphone. If you wish to access
the AGM using this method, please go to
https://web.lumiagm.com on the day.
Logging In
On accessing either the app or AGM
website, you will be asked to enter a
Meeting ID which is 104-982-087. You will
then be prompted to enter your unique
username and password. These can be
found printed on your Company
Secretary’s letter. Access to the meeting
via the app or website will be available from
9.30 a.m. on 9 July 2019; however, please
note that your ability to vote will not be
enabled until the Chairman formally opens
the meeting at 11am.
Voting
After the resolutions have been proposed,
voting options will appear on the screen.
Press or click the option that corresponds
with the way in which you wish to vote, “For”,
“Against” or “Abstain”. Once you have
selected your choice, you will see a
message on your screen confirming that
your vote has been received. If you make a
mistake or wish to change your voting
instruction, simply press or click the
correct choice until the poll is closed on
that resolution. If you wish to cancel your
“live” vote, please press “Cancel”.
Please note that an active internet
connection is required in order to
successfully cast your vote when the
Chairman commences polling on the
resolutions. It is your responsibility to
ensure connectivity for the duration
of the meeting.
Process
The process of asking questions, voting
and accessing the AGM presentation will be
further explained by the Chairman during
the meeting.
Duly appointed proxies and corporate
representatives
Please contact the Company’s registrar
before 10.00am on 9 July 2019 on
0345 609 0810 or +44 121 415 7071 if you
are calling from outside the UK for your
unique username and password.
Lines are open 8.30am to 5.30pm Monday
to Friday (excluding public holidays in
England & Wales).
Shareholders should note that electronic
entry to the AGM will open at 10.30am
on 9 July 2019.
157
NOTICE OF ANNUAL GENERAL MEETING 2019
MARKS AND SPENCER GROUP PLC
ONLINE USER GUIDE TO
THE ELECTRONIC 2019
ANNUAL GENERAL MEETING
ONLINE (MOBILE) USER GUIDE
1
2
3
4
> Open the Lumi AGM app
and you will be prompted
to enter the Meeting ID.
If a shareholder attempts
to log in to the app
before the meeting is live,*
a pop-up dialogue box
will appear.
* After 09.30am on 9 July 2019
> After entering the Meeting
ID, you will be prompted to
enter your unique
username and password.
> When successfully
> To view the meeting
authenticated, a shareholder
will be taken to the
Home Screen.
presentation, expand
the “Broadcast Panel”,
located at the bottom of
your device. This can be
minimised by pressing
the same button.
5
6
7
8
> When the Chairman
declares the poll open,
a list of all resolutions
and voting choices will
appear on your device.
> Scroll through the list to
view all resolutions.
> For each resolution, press
the choice corresponding
with the way in which you
wish to vote.
> To change your mind,
simply press the correct
choice which will override
your previous selection.
> When selected, a
confirmation message
will appear.
> To cancel your vote,
press Cancel.
> If you would like to ask
a question, select the
messaging icon.
> Type your message
within the chat box at
the bottom of the
messaging screen.
> Once you are happy
with your message click
the send button.
158
MARKS AND SPENCER GROUP PLC
ANALYSIS OF SHARE REGISTER
SHAREHOLDER INFORMATION
Ordinary shares
As at 30 March 2019, the Company had 152,756 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
80,282
28,988
22,180
14,997
3,914
1,867
382
146
52.55
18.98
14.52
9.82
2.56
1.22
0.25
0.10
15,077,363
21,713,781
31,950,891
45,968,595
26,827,246
43,247,559
132,723,925
1,307,490,870
0.93
1.34
1.96
2.83
1.65
2.66
8.17
80.46
152,756
100.00 1,625,000,230
100.00
Number of
shareholders
148,334
4,422
152,756
Percentage
of total
shareholders
Number of
ordinary
shares
Percentage
of issued
share capital
97.11
2.89
167,334,192
1,457,666,038
100.00
1,625,000,230
10.30
89.70
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/annualreport2019
Additionally, the Annual Report
(which contains the Strategic Report)
is available for download in pdf format
at marksandspencer.com/annualreport2019
Alternatively, call 0800 591 697.
Students
Please note, students are advised to
source information from our website.
Group General Counsel and
Company Secretary
Nick Folland
30 May 2019
31 May 2019
9 July 2019
12 July 2019
6 November 2019*
14 November 2019*
15 November 2019*
9 January 2020*
10 January 2020*
2019/20 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 30 March 2019
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.
159
NOTICE OF ANNUAL GENERAL MEETING 2019
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 page 158. For more
general queries, shareholders should
consult the Investors section of our
corporate website.
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.
MANAGING YOUR SHARES ONLINE
DUPLICATE DOCUMENTS
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:
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.
– Sign up for electronic shareholder
communication.
SHAREGIFT
– 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
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/protect-yourself-scams.
An overview of current common scams is
available on the Action Fraud website
actionfraud.police.uk
AGM
This year’s AGM will be held at Wembley
Stadium, Wembley, London HA9 0WS on
Tuesday 9 July 2019. The meeting will start
at 11.00am and registration will be open
from 9.30am.
For the 2019 AGM, M&S is for the first time
enabling shareholders to attend and
participate in the meeting electronically,
should they wish to do so. This can be
done by either downloading the dedicated
“Lumi AGM” app or by accessing the
AGM website, web.lumiagm.com. For
further information, see p156-157.
The meeting will also 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
purpose, including Annual Reports,
marketing materials and other publications.
If you have any queries about the AGM or
the contents of this document, please call
+44 (0)20 7935 4422.
160
MARKS AND SPENCER GROUP PLC
INDEX
A
Page
E
Page
N
Page
Accounting policies
Adjusting items
Appointment and retirement
of directors
Audit Committee Report
Auditor
Auditor’s remuneration
Auditor’s report
Annual General Meeting
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
95
105
36, 76
48-53
52
104
81
79
36
121
6
132
25
78
76
34
104
101
78
131
98, 101, 118
112
91
76
70
79
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
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
Segmental information
2
3
Expense analysis
4 Profit before taxation
5 Adjusting items
6
Finance income/costs
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
109
110
79
78
107
121
119
99
121
23
142
143
79
98
79
92
91
116
77
95
92
92
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
46
18
29
77
77
79
27
59
74
63
Segmental information
Shareholder information
Share capital
Share schemes
Significant agreements
Statement of cash flows
Statement of comprehensive income
Statement of financial position
Strategic priorities
Subsidiary undertakings
102
158
77, 132
114
78
94
91
92
7
97
T
Taxation
Total shareholder return
Trade and other payables
Trade and other receivables
Transfer of securities
K
Key performance indicators
9, 11, 12, 13
V
Variation of rights
Viability statement
99
71
120
120
77
77
79
Income tax expense
Earnings per share
7
8
9 Dividends
10 Employees
11 Retirement benefits
Marks and Spencer
12
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
107
109
109
110
110
114
114
116
118
119
120
120
120
121
121
21 Financial instruments
131
22 Provisions
131
23 Deferred tax
24 Ordinary share capital
132
25 Contingencies and commitments 132
26 Analysis of cash flows given in the
statement of cash flows
27 Analysis of net debt
28 Related party transactions
29 Impact of new accounting
standards adopted in the year
30 Subsequent events
Company financial statements
Notes to the company
financial statements
Group financial record
133
133
134
135
136
137
138
142
63
80
142
109
91
91
92
93
94
95
102
104
104
105
107
This report is printed on Revive 100 offset, a 100% recycled paper made
from post-consumer waste. Revive is manufactured to the certified
environmental management system ISO 14001.
Designed and produced by Friend www.friendstudio.com
Printed by CPI Colour.
CPI Colour are ISO 14001 certified, CarbonNeutral®, Alcohol Free.
M
A
R
K
S
A
N
D
S
P
E
N
C
E
R
G
R
O
U
P
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
9