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1
Never the Same Again
Forging a reshaped M&S
Annual Report & Financial Statements & Notice of Annual General Meeting 2021
Marks and Spencer Group plc
AT A GLANCE
M&S IS A BRITISH VALUE FOR MONEY RETAILER
focused on own label businesses, including
Food, Clothing & Home and Bank & Services in
the UK and internationally.
Today, we operate a family of businesses, selling high-quality, great-value
own-brand products in the UK and internationally, from 1,509 stores and over
100 websites globally. Together our 70,000 colleagues across our stores, support
centres, warehouses and supply chain serve nearly 30 million customers each year.
The objective of our transformation programme is to restore the M&S business and
brand, to deliver long-term, sustainable, profitable growth for
our investors, colleagues and wider communities.
In a year defined by the pandemic, through our Never the Same Again programme,
we have accelerated our transformation and forged a reshaped business
as we emerge from the crisis.
GROUP OVERVIEW
-11.8%
£9.0bn
Group revenue
£(201.2)m
Group loss before tax
(19/20: £67.2m)
(9.8)p
( 19/20: 1.3p)
Basic loss per share
No dividend paid for 20/21
£41.6m
-89.7%
APM Profit before tax and
adjusting items
£1.11bn
-20.1%
50.5%
(19/20: 22.5%)
Percentage of UK Clothing
& Home sales online
(19/20: 63%)
67%
Food: Value for money perception
(19/20: 68)
81
APM Net debt excluding lease liabilities
Stores: Net promoter score1
1.1p
(19/20: 16.7p)
(19/20: 57)
51
APM Adjusted earnings per share
M&S.com: Net promoter score1
Cover
Our colleagues,
including Vicky in
our York Vangarde
store, seen here with
our new Family Dine In
offer, went above and
beyond this year to
serve our customers and
local communities.
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 as adopted by the EU.
We believe these APMs provide readers with important additional information on our business.
We have included a glossary on pages 191 to 195 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.
53 week year
This year we are reporting statutory results on the 53 weeks to 3rd April 2021. In order to provide
a meaningful comparison with last year’s 52 week period financial information above has been
presented on a 52 week basis. Statutory results: Group revenue: £9,155.7m, Loss before tax:
£(209.4)m, Basic loss per share: (10.1)p.
1. Net promoter score (NPS) equals percentage of ‘promoters’ minus the percentage.
FOOD
See p10
Inside this report
Strategic report
02 Chairman’s letter
04 Chief Executive’s statement
07 Our strategic priorities
08 Market context
09 Business model
30 Plan A review
33 Non-financial information statement
34 Engagement & decision-making
37 Key performance indicators
38 Financial review
47 Risk management
48 Principal risks and uncertainties
CLOTHING
& HOME
See p16
STORE ESTATE
INTERNATIONAL
See p24
See p22
PEOPLE
& CULTURE
See p26
Governance
Financial statements
T
R
O
P
E
R
’
S
R
O
T
C
E
R
D
I
58 Chairman’s governance overview
60 Leadership and oversight
61
Board composition and
meeting attendance
62 Our Board
64 Balanced leadership
66 Board activities
70 Board review
71 Nomination Committee report
73 ESG Committee report
77 Audit Committee report
84 Remuneration overview
88 Remuneration in context
90 Remuneration Policy
94 Remuneration report
106 Other disclosures
111
Independent auditor’s report
123 Consolidated financial statements
129 Notes to the financial statements
182 Company financial statements
Notes to the Company
184
financial statements
189 Group financial record
191 Glossary
196 Notice of Annual General Meeting
210 Shareholder information1
212
Index
1.
Shareholder information forms part of the
Directors’ Report.
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01
Annual Report & Financial Statements 2021STRATEGIC REPORT
STRATEGIC REPORT
CHAIRMAN’S
LETTER
“
For all of our businesses we believe
we will come out of the pandemic year
not just changed but stronger.
Archie Norman, Chairman
“
Dear shareholder,
In the last year the Covid-19 pandemic
has thoroughly distorted our trading and
operations in all our businesses. For large
parts of the year, the majority of our floor
space has been closed and even in Food
large parts of the business have been
unable to trade. As a result, financially it
has been a “lost year”. Shareholders and
colleagues alike have borne the burden
of no bonus, no pay increase in 2020 and
no dividend.
With that, Covid-19 and the associated
lockdowns have accelerated changes
in the market that were previously
proceeding in the slow lane. In many areas,
it has been a case of “five years in one”.
The dramatic increase in the move to
online, including in food, the shift to
“informal” in clothing demand, the use
of technology to connect colleagues,
suppliers and customers, and the demise
of many high streets and shopping
centres are trends which will never reverse.
To add to this, Brexit has made it much
more costly to trade our businesses in the
EU and Northern Ireland. For customers,
competitors and suppliers, the landscape
has changed forever.
For a business like M&S in the third year of
a gargantuan transformation programme,
still wrestling with an old slow culture and
only halfway through profound change,
this posed a huge additional challenge.
Early on, therefore, we launched our
“Never the Same Again” programme to
recognise that things would never go back
to “normal” and it was time to change for
good. We were and are determined to
embrace the changes and get ahead
of them.
Probably the most profound acceleration
strategy in the year has been the
substantial shift to online and digital.
In September, M&S Food and a selection of
clothing basics successfully launched on
the Ocado platform through our partners.
In November, we announced the creation
of MS2, our integrated Clothing & Home
online and data business. We have as a
result pivoted towards online in both sales
and management organisation to become
a business selling through multiple
channels. The next stage will be to create
a seamless single face to the customer to
become “omni-channel”.
At the same time bringing forward
technology innovation in the store
channel has moved us to a much faster,
more flexible way of working, which in
turn enabled a significant reduction in the
numbers of colleagues. As a result, some
8,000 colleagues left the business, mostly
through voluntary redundancy, in 2020.
For all of our businesses, we believe we will
come out of the pandemic year not just
changed but stronger, and we look
forward to a resumption of full trading
across the estate. Our Clothing & Home
ranges were already going through
profound change to improve style and
buy fewer products in greater depth.
The Food business, which was performing
strongly prior to Covid-19, coped well with
the headwinds caused by lockdowns, the
closure of travel locations and hospitality,
and the shift to scratch cooking.
The ‘Magic’
of M&S Food
Market-leading
innovation, such as
our Taste Buds range
which was developed
with Great Ormond
Street Hospital for
children aged 4-10,
is a key part of our
Food strategy.
02
Marks and Spencer Group plc Some people have commented that our
transformation seems “perpetual” and
I understand why they say that, but we are
addressing decades of torpitude at a time
when the world is moving on at an ever
faster pace. One of our values is “talking
straight” and we are a long, long way from
declaring victory. There is more to do
in every aspect of the business but
especially in reforming our supply chain
and modernising the legacy store estate
where the need to speed up is absolute.
Retail is at heart a people business and
tackling what is probably the biggest
turnaround in UK retailing needs a top
team supported by an experienced
and engaged Board. We continue to
strengthen the talent in the business at all
levels and the Board has had a busy year,
often coming together for short sharp
weekly meetings to support the executive
as events came up through the
windscreen into view. We have been
delighted to welcome Eoin Tonge as a
strong new Chief Financial Officer and
Richard Price as Managing Director of
Clothing & Home. At non-executive Board
level, Tamara Ingram and Sapna Sood
joined nearly a year ago and Evelyn
Bourke, the former Chief Executive of
BUPA, joined in February. Fiona Dawson,
Global President of Mars Food, has
recently joined the Board and she brings
extensive experience in food retailing and
transformational change. Pip McCrostie,
who lit up our boardroom for three years
with her good humour and insight, stood
down with our heartfelt good wishes and
thanks. With great regret, we learned
shortly afterwards that she has left us.
Her contribution and what she stood for
will remain bright in our memory for years
to come.
For everyone in our business and all our
shareholders, this year has been a year like
no other. But we are emerging stronger,
leaner and fitter. It has brought out the
best in the M&S family of colleagues,
suppliers and customers. Many colleagues
have had to change role to put all hands to
the pump. Others have been furloughed
and come back in good heart. And some
have lost colleagues or family members
from the pandemic. It has truly been a year
of “all in it together” and we thank them all.
As ever,
Archie Norman, Chairman
Reopening
As retail across
the UK reopened,
we concentrated on
helping customers
look ahead to brighter
days and highlighted
our flexible, easy
shopping experience.
Renewed C&H
Product Engine
Focusing on contemporary design
and customer relevancy in the wake
of the pandemic has underpinned
our reshaped Clothing business.
03
Annual Report & Financial Statements 2021STRATEGIC REPORT STRATEGIC REPORT
CHIEF EXECUTIVE’S
STATEMENT
“ “
We are taking the right
actions and a more
resilient, reshaped
M&S is emerging
from the crisis.
Steve Rowe, Chief Executive
Our 2020/21 report bears the impact of the
pandemic, spanning the beginning of the
first UK-wide lockdown through to near to
the end of the third lockdown in the UK.
However, it also reflects an acceleration
of transformation which has enabled the
business to deliver a resilient performance
thanks to the enormous efforts our
colleagues. Within its chapters we outline
how we have used this period to accelerate
transformation under our Never the Same
Again programme to ensure a reshaped
business emerges from the crisis.
A RESILIENT FINANCIAL
PERFORMANCE IN A YEAR
OF DISRUPTION
The Group has delivered a profit before
tax and adjusting items this year of £41.6m
(19/20: £403.1m) alongside a statutory loss
of £201.2m.
Disciplined cost management has helped
us to deliver a stronger balance sheet
than first thought. In addition, reduced
discretionary costs, managed stock flow
and a focus on working capital resulted in
net debt, excluding lease liabilities down
£278.6m to £1.11bn and strong liquidity.
We are grateful for total government
support of £306.1m which has partly
offset the effect of lost trade.
Strong underlying Food performance
M&S Food delivered strong underlying
life-for-like (LFL) growth of 6.9% adjusting
for the closure of hospitality and the
adverse impact on franchise sales.
Operating profit before adjusting items
of £213.6m (19/20: £236.7m) reflected the
negative effects of product mix and
the impact of Covid-related costs on
convenience and hospitality businesses.
04
across the week, together with reduced
marketing costs, delivered a strong
improvement in profitability. The overall
result included the Group’s share of
insurance receipts related to business
interruption at the Andover customer
fulfilment centre (“CFC”).
The well planned switchover went smoothly
as we took M&S Food online for the first time,
with an overall positive customer response
and the M&S share of basket exceeded the
Waitrose level prior to switchover.
Accelerated Online growth of 53.9%
partially offsetting store decline of
56.2% in Clothing & Home
The overall Clothing & Home result for the
year was heavily impacted by lockdowns,
ongoing social distancing, steep decline in
formal and occasionwear, the location of
many of our stores in towns and shopping
centres, and the priority to clear stock.
As we implemented MS2 and took multiple
steps to improve online operating
performance, we were able to capitalise on
the change in customer shopping patterns
and saw a progressive increase in online sales
through the year. This was a result of strong
traffic, active customer growth, improving
frequency and lower returns. The business
had a good service and fulfillment
performance supported by previous
investment in the Castle Donington
distribution centre and substantial expansion
of our fulfillment from store capability.
As reported for Food, stores in high streets,
shopping centres and city centres created
an extra drag on sales performance, with
these channels representing c.70% of prior
year store sales.
Within categories, casual clothing,
kids and home outperformed but not
sufficiently to offset the adverse sales
mix in categories such as formal clothing
and holiday. As a result total revenue
declined 31.5%.
Clothing & Home recorded an operating
loss before adjusting items of £129.4m
as lower sales were only partly offset by
reduced operating costs. Losses
substantially reduced in the second half
as the actions we took to accelerate online
growth partly compensated for losses
in store. Overall, online had strong
profitability, with an operating margin of
c.14%, for the year. Conversely, the
operating loss in stores represented a
The strong underlying LFL growth was
delivered in the face of further additional
headwinds, including the exposure to
office and shopping centre locations.
Unlike some competitors M&S Food
reported sales do not benefit from a
direct online grocery presence, with these
sales reported through Ocado Retail.
Lockdown also resulted in steep declines in
convenience categories, such as Food on
the move given reduced footfall and ready
meals as customers switched to home
cooking. However, the repurposing of space
towards core categories, such as grocery,
household and meat, fish and poultry,
together with the continued transformation
of our ranges and value position, helped to
offset the loss of convenience trade.
Our Food business had a good Christmas
and a very strong Easter in 2021, which fell
into week 53 of the financial year.
The Food business incurred extra costs to
support customer and colleague safety of
£49.4m and incentives for non-furloughed
colleagues working through the pandemic
of £22.0m. Customer and colleague safety
is vitally important to us and we believe we
ran the most secure stores in the industry.
In addition £9.9m of costs were incurred as
a result of Brexit which are set out in more
detail in the Financial Review.
Exceptional Ocado Retail contribution
to results
Ocado Retail delivered 43.7% revenue
growth over the 52 weeks ended
28 February 2021 and contributed
a share of net income of £78.4m.
This has been an exceptional period
for grocery online and Ocado Retail
performed strongly. Higher than normal
basket size and a smoothed trading profile
Marks and Spencer Group plc margin on sales of c.(26)%. Stringent action
to reduce or postpone orders, together
with measures to hibernate a small
amount of stock, resulted in a relatively
clean stock position by the end of the year.
Resilient International profit as a
result of franchise partnerships and
strong online growth
International sales reflected the pandemic
impact across markets, offset by the
strong switch to online, which saw sales
growth of 114.3% at constant currency.
Operating profit before adjusting items
of £45.1m reflects in large part the lower
Clothing & Home sales.
The International business incurred
Brexit-related costs of £6.2m in the year.
Relaunched Sparks loyalty scheme and
M&S Bank customer offer
We relaunched the Sparks loyalty scheme
in July, shifting from a points-based plan
which was delivered through a physical
card to a more customer friendly digital
experience. Since relaunch total
membership has grown to over 10m
customers. Alongside Sparks we are
repositioning M&S Bank, closing down
branches and moving away from traditional
banking accounts, focusing instead on
credit, currency services and payments.
Balance sheet strengthened
At year end, the Group’s net debt
excluding lease liabilities declined by
£278.6m and total net debt was down
£434.7m. Cash flow was preserved
through a combination of actions, to
improve working capital, including new
terms with suppliers, adjustment to
arrangements with landlords, reduced
discretionary costs, careful management
of capital and government support.
During the period, the business
strengthened its overall liquidity position
by reducing net debt, refinancing its
2021/22 debt maturities and managing its
standby liquidity facility with its banks.
Adjusting items reflect cost
restructuring and the accelerated
store rotation programme
We have reported adjusting items of
£259.7m for the 53 week period. Significant
charges include £133.7m relating to the
costs of organisational change, including
the restructuring of operations
announced in the summer of 2020 and
in the Republic of Ireland. We have also
provided £95.3m for accelerated
depreciation and impairment as we
increase rotation of the estate, to address
the drag of legacy stores unsuitable for
modern trading or in declining locations.
A charge of £79.9m has been recognised
for intangible asset impairments, offset
by a £90.8m gain largely relating to the
release of a portion of the Covid-19
inventory provision made in the prior year.
A RESHAPED M&S EMERGING FROM
THE PANDEMIC PERIOD
Over the past three years, the objective of
the transformation has been to restore
M&S to sustainable growth through “facing
the facts” that the business had failed to
address. From the start of the pandemic,
we recognised that it would accelerate
market trends, providing an opportunity
to bring forward the transformation to
emerge as a reshaped business under our
Never the Same Again programme:
– Broadening M&S Food appeal: The Food
business is broadening its appeal through
more relevant family-focused innovation
and improved value perception led by the
expansion of “Remarksable Value” lines.
Growth is supported by significant cost
reduction, including synergies from
growth on Ocado, systems upgrades to
reduce waste and the Vangarde supply
chain programme, which is delivering
better availability.
– Transition to M&S product on Ocado
Retail completed: Penetration of M&S
lines on Ocado is consistently over 25%
of Ocado Retail sales, outperforming
Waitrose. The next stage is to grow
capacity by c.50% in the next 18 months
and to realise the further potential of
the joint venture.
– Omni-channel Clothing & Home
business emerging: Substantial
reshaping has created a product
engine providing a more contemporary,
focused M&S range. In addition we are
beginning to partner with a curated
range of guest brands. This helps us
build strength in hero categories and
relevance where we are weaker. We are
already trading with over 21 partners
and the customer response has been
positive. The creation of MS2 has brought
together the data and online teams to
prioritise online trading and growth while
leveraging our store estate more
effectively. MS2 draws on the data engine
and the relaunched Sparks loyalty
scheme, which has grown to over 10m
members enabling a more personalised
relationship with customers.
– Accelerating rotation of the store
estate: The drag on performance of
the legacy estate has been exacerbated
by Covid-19, bringing forward the
decline of some locations but also
creating opportunities for rotation. We
are increasing the speed of change to
create a group of well-invested full line
stores in c.180 prime and core markets.
The costs of the rotation programme
will be largely funded by the release of
cash from the development of freehold
and long leasehold sites.
– An International business focused
on major partnerships and online:
Online sales doubled in 2020/21 and
we are now investing in increasingly
localised fulfilment, expanding our
presence on marketplaces such as
Zalando and the launch of websites
including in a further 46 markets
announced in March. Digital trading
improvements, partner store
modernisation and supply chain
development are positioning the
business for rapid recovery as lockdowns
end. Following Brexit, the business is
reconfiguring trading with its EU
businesses to reflect the challenges
of exporting to the EU.
BUSINESS POSITIONED WELL
FOR THE MEDIUM-TERM DESPITE
NEAR-TERM UNCERTAINTY
Overall trading for the first six weeks of
the financial year has been ahead of the
comparable period two years ago in
2019/20 and our central case. Core Food is
in strong growth although hospitality and
franchise remain adversely affected, with
Clothing & Home sales growing since
reopening and online remaining robust.
While encouraging, it is unclear how the
recovery will develop and if consumer
activity will sustain in Clothing & Home as
well as what the eventual pace and shape
of recovery in hospitality and convenience
in Food will be. We have a strong
programme of capacity growth at Ocado
Retail although we expect some
normalisation of shape of week with
Driving app growth
With store restrictions in place, we
made sure M&S was at our customers’
fingertips through our app. Knowing
app shoppers are among our most
engaged and valuable customers,
Sparks was relaunched in summer as a
Digital First loyalty programme, fully
incorporated into our app. New digital
services improved the app further –
from Sparks Book & Shop – allowing
customers to reserve a shopping slot
at a time that suits them – to our Scan &
Shop checkout-free payment service,
enabling them to shop direct from their
mobile. In 2020 downloads increased
by over 150% on the previous year and
in the Autumn the M&S app topped the
Apple download charts following the
Sparks relaunch.
05
Annual Report & Financial Statements 2021STRATEGIC REPORT
CHIEF EXECUTIVE’S STATEMENT CONTINUED
respect to its economics. The business
also continues to face headwinds with
ongoing disruption in various International
markets, both the Clothing & Home and
Food supply chains and the costs of Brexit.
Our central case for the current year
therefore assumes a gradual return
towards more normal customer behaviour
in stores in Clothing & Home and
hospitality and franchise in Food. With
that, we are assuming the receipt of
business rates relief in line with
government guidance. Our scenario does
not assume further lockdowns.
In this central case UK costs normalise to
levels broadly consistent with 2019/20
underpinned by the benefit of the
restructuring announced last year, which will
largely offset an increase in base pay rates,
costs related to transformation and higher
variable costs such as online fulfilment.
The business is now exposed to additional
costs following Brexit, largely due to the
administrative burden on exports of food,
particularly to the island of Ireland. This
includes additional supply chain costs at
Motherwell and Faversham depots, as well
as costs of a digital track and trace
platform, additional variable cost per tray,
veterinary certification, and costs of
change. Potential tariffs relate to duty on
exports of Clothing & Home and elements
of the Food catalogue into the EU.
The total estimated cost impacts for the
business are included in the Financial
Review. Around £27-33m relate to
operations on the island of Ireland. We have
provided a range of potential tariffs
depending on the solutions implemented.
We are also working on longer term
initiatives including a review of European
business models, local sourcing and
re-routing product through European hubs.
Capital investment for the Group will
increase to similar levels to 2019/20 as we
invest in the transformation, restart a
programme of store maintenance and
accelerate rotation.
Our central case is therefore that we will
generate profit before tax and adjusting
items between £300-350m and our ambition
is for a further reduction in net debt.
A path to a transformed business in the
medium term
As the business emerges from Covid-19, we
have an ambitious plan for future growth
with a clear path to a transformed business.
Food is delivering growth in core
categories with larger baskets and is now
positioned to expand further in
convenience, build sales through larger
renewed stores and progressively improve
profitability. In addition, Ocado Retail has
already announced plans which will
increase peak day capacity by c.50% and
has a structurally profitable long-term
model for growth.
In Clothing & Home the new buying
approach and expanded online capability
is gaining traction with customers. We
have more active online customers and
stores are positioned for recovery. We are
targeting in excess of 40% of Clothing &
Home revenue online in three years, with
an overall operating margin ahead of
2019/20 levels. International has ambitious
plans to grow online sales, working with
partners in key markets and in time to
offset the costs of Brexit.
Capital Allocation to prioritise
the transformation
The priority is to fund investment in the
transformation and to rebuild balance
sheet metrics towards levels consistent
with investment grade. Our approach
will prioritise building omni-channel
capability, including investment in the
supply chain and maintenance of the
changing estate, with an expectation of
capital investment recovering to pre-
Covid levels. As above we are seeking to
fund the costs of rotation of the store
estate with the realisation of funds from
our asset management programme.
As we recover balance sheet metrics
consistent with investment grade,
we will assess the reintroduction of
dividend payments, although as we
focus on restoring profitability this is
unlikely in the current year.
In a year like no other we have delivered a
resilient trading performance, thanks in no
small part to the extraordinary efforts
of our colleagues. In addition, by going
further and faster in our transformation
through the Never the Same Again
programme, we moved beyond fixing the
basics to forge a reshaped M&S. With the
right team in place to accelerate change
in the trading businesses and build a
trajectory for future growth, we now have
a clear line of sight on the path to make
M&S special again. The transformation
has moved to the next phase.
Steve Rowe, Chief Executive
Bringing the best together
M&S and Ocado
1st September marked the beginning
of the transformational partnership
between M&S and Ocado, as customers
were able to order their favourite M&S
products online and have them delivered
as part of their weekly shop. The launch
has brought together M&S’ 6,000-strong
high-quality, innovative Food products
and 800 great-value everyday Clothing &
Home products, with Ocado’s award-
winning online service. Over 750 new
M&S Food products were created for the
launch to offer customers a bigger,
better range at the same or even better
value. Ocado Retail can currently reach
over 74% of British households and
is making significant investment to
expand capacity, which will increase
by c.50% over 18 months and much
further beyond.
06
Marks and Spencer Group plc STRATEGIC REPORT
OUR STRATEGIC PRIORITIES
The aim of our transformation is to restore the business to sustainable,
profitable growth and make M&S special once again. This objective remains
unchanged. This year, under our Never the Same Again programme, we have
accelerated the parts of our transformation necessary to increase our relevance
in a changed consumer landscape. As a result of the action taken,
a substantially reshaped M&S is emerging from the pandemic.
Within the chapters of this report, we set out our strategic
priorities for the year ahead, as follows:
1
2
3
4
5
A strong
Food business
positioned
for growth
p10
A successful
transition to
M&S product
on Ocado
Retail and
growing
capacity
p14
An omni-channel
Clothing &
Home business
driven by a
re-shaped
product engine
Accelerated
rotation of the
Store Estate
p24
An
International
business focused
on major
partnerships
and online
p16
p22
STEP ONE
FIXING
THE BASICS
STEP TWO
SHAPING
THE FUTURE
STEP THREE
MAKING
M&S SPECIAL
07
Annual Report & Financial Statements 2021STRATEGIC REPORT STRATEGIC REPORT
MARKET CONTEXT
2020/21 has been a year beyond comparison for retailers globally. The impact of
the pandemic on the sector, with three UK-wide lockdowns and restrictions on non-essential
retail around the world during most of the year, has been profound and led to
radical shifts in how, where and what customers shopped.
Following the first ever decline recorded
for retail sales in 2019, total retail sales in
2020 contracted a further 0.3% year on
year, the worst year on record according
to the BRC/KPMG Retail Sales Monitor.
This continued into the early months of
2021 as the impact of the UK’s national
lockdown continued to be felt.
In contrast, 2020 was also the year
where online shopping boomed,
with online retail sales experiencing
five years’ worth of growth in just
one year, as customers across all
demographics turned to digital
channels to make purchases.
FOOD
What customers bought
The grocery market returned
growth of 12% for the 52 weeks
ended 22 March 2021 to grow to
£131bn (Source: Kantar).
The impact of lockdowns led to marked shifts in which categories customers were buying into.
With local restrictions in place and more time spent at home, hospitality and our convenience
categories such as Food on the move and prepared meals declined. Customers instead turned
to scratch cooking, and we saw increases in our core categories such as meat, fish and poultry in
comparison to last year, as well as grocery and household items, with this shift best illustrated in
the tables below. The adversely impacted categories together accounted for around a third of
prior year sales. We reset our ranges in stores to adapt to this and played to our events strengths
across Easter and Christmas during the year in order to maintain a relevant offer, helping to also
offset the loss of convenience trade.
% change to 19/20
Meat, fish, poultry, deli
Produce & flowers
Beers, wines, spirits
Grocery & household
Frozen
Total
Where customers shopped
% change to 19/20
Hospitality
Food on the move
Bakery
Prepared meals
Confectionery
Total
13
8
25
27
36
15
-81
-47
-7
-5
-4
-26
Online continued to be the fastest growing channel in the market with 87% year on year growth
versus 5% decline in stores, as more customers turned to home deliveries as lockdowns came in
to force, resulting in declining footfall in stores particularly in city centres. Our partnership with
Ocado launched M&S Food online for the first time in September and positioned the business
strongly for growth (as outlined in more detail on page 14).
CLOTHING & HOME
What customers bought
Demand across categories was polarised as customers increased time at home off the back of
the pandemic restrictions, with declines in formal and holiday clothing, and customers instead
buying into casual clothing, kidswear and Home, with these changes in customer trends versus
last year illustrated in the tables below. Categories in the right-hand table below accounted for
c.18% of prior year sales. Our Goodmove activewear range performed strongly off the back of
this and our recent shift to a more contemporary product offering across our ranges positions
the business well as more casual trends become established long term.
% change to 19/20
Online Stores
% change to 19/20
Online Stores
Casual
Kids
Lingerie & men’s essentials
Home & beauty
Total
Where customers shopped
61
78
121
30
66
-56
-43
-54
-47
-51
Formal
Holiday
Shoes & accessories
Outerwear
Total
-15
-31
3
15
-7
-72
-72
-68
-52
-69
Online saw a step change in growth by 56.1 percentage points to account for 58.9% share of
total clothing sales across the market vs 29.9% last year, and supermarkets continued to make
headway through stores growing share by 13.2 percentage points on last year to account for
26.8% of store sales. The actions we took to improve M&S.com under our Never the Same Again
programme, alongside the launch of MS2 this year, helped us capture increased online demand
from customers with our reshaped business set to enable more customers to shop with ease
across all channels (as detailed on page 20).
The clothing market declined
by 20.9% year on year for the
52 weeks to 4 April 2021 to a
total value of £26.3bn (Source:
Kantar Worldpanel Fashion) as
customers restricted their
purchasing behaviours resulting in
the largest ever fall in the number
of products bought
during the year
(source: ONS).
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Marks and Spencer Group plc STRATEGIC REPORT
BUSINESS MODEL
We operate a family of accountable businesses of Food, Clothing & Home,
International, Services, and Property, and the strength and balance of our
combined business model has been a source of resilience during the pandemic.
OUR CUSTOMERS
A FAMILY OF ACCOUNTABLE BUSINESSES
M&S serves nearly 30 million
customers every year from across
the UK. Our Food, Clothing & Home
and other retail businesses are focused
on developing products and services to
make us more relevant, more often to our
customers and beyond, who we reach
through a channel network of 1,509 stores
and online services in the UK and across
over 100 international markets.
M&S operates a family of parallel
businesses, each led by its own integrated
management team, with functional
accountability for their divisions, including
marketing, supply chain and finance.
We predominantly sell own-brand
products, manufactured and marketed
exclusively under the M&S brand with
quality, innovation and trusted value at
their core.
OUR COLLEAGUES
We employ c.70,000 colleagues
across our stores, support centres,
logistics operations and
international teams, who demonstrate
extraordinary passion for the business,
deliver outstanding customer service
and bring extensive technical skills and
expertise in areas such as sourcing,
fit and product development.
THE GROUP
Our central team includes Group
Finance, Corporate Governance,
Strategy and support functions such as
Communications and Human Resources.
The Group supports the business as a
whole, setting direction of its growth
strategy, allocation of capital and
overseeing cost efficiencies.
T H E GROUP
M I L
F A
Y O F A C C O UNTABLE BUSIN
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C H ANNELS
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Food
Customers
Clothing
& Home
MS2
Stores
Property
Services:
Bank and
Energy
Colleagues
Ocado
International
Food: M&S Food sells sustainably
sourced products of exceptional
quality and value 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 selected target
markets. Customers purchase our
products through a network of
mainly partner-led businesses or
through online-only channels.
Services: Through M&S Bank
(operated by HSBC), we provide a
range of financial services – with a
focus on credit card and payment
solutions that create a rewarding
shopping experience. M&S Energy
is a competitive fully renewable
energy source provider (operated
by Octopus).
Property: We have an active
Property Development team to
maximise the value of our property
assets through investment and
development opportunities.
OCADO
M&S holds a 50% investment in
Ocado Retail, a relationship
between M&S and Ocado Group plc.
Since September 2020, the M&S Food
range and selected Clothing & Home
products have been available for
customers to shop on the Ocado
platform, giving the Group access
into the UK’s fastest-growing grocery
sales channel.
MS2
MS2 brings together our data
and online teams to invert the
conventional model where M&S.com
had been run as an extension of the stores
business and take advantage of the online
growth opportunity.
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Annual Report & Financial Statements 2021STRATEGIC REPORT STRATEGIC REPORT
FOOD
Financial highlights
-0.6%
£6.0bn
UK Food revenue
£213.6m
-9.8%
Operating profit before
adjusting items
Market fresh
Our Fresh Market Update campaign
celebrated the efforts our Select Farm
partners – including Scottish salmon farmer
Sarah Last (pictured) – take to bring M&S
customers great value, sustainable food.
By building long-term trusted partnerships
with our suppliers, we deliver exceptional-
quality fresh produce and meat.
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Marks and Spencer Group plc PERFORMANCE
The action taken over the last two and a
half years to broaden the appeal of M&S
Food meant we entered the crisis with
momentum, growing ahead of the market
and with the reshaping of the business
well under way. However, our strong
market position in convenience
categories and hospitality, and
substantial presence in city centre, travel
and shopping centre locations meant
the business was impacted by recurring
Covid-19 restrictions as shopping habits
changed. With “stay at home” orders in
place, there was a shift away from these
formats to larger out-of-town retail parks,
meaning we saw more customers doing
fewer, but fuller shops at M&S. Lockdown
conditions saw customers switch from
popular convenience ranges, such as
ready meals and Food on the move, and
enjoy more scratch cooking at home.
In the face of these Covid-19 headwinds,
M&S Food delivered a strong underlying
performance, with LFL growth of 6.9%
when adjusted for the closure of
hospitality and the adverse impact on our
travel franchise business. Our operating
profit before adjusting items of £213.6m
reflects the negative impact on our
product mix alongside the suspension of
hospitality and the Covid-related costs
to secure our operations, only partially
offset by cost saving programmes and
government support, as our colleagues
worked hard to play their part in feeding
the nation throughout the pandemic.
The good underlying LFL growth was
delivered in the face of further additional
headwinds, including the exposure to
office and shopping centre locations.
Unlike some competitors, M&S Food
reported sales do not benefit from a
direct online grocery presence, with
online sales of M&S product instead
reported through Ocado Retail.
The strong growth and exceptional
contribution made by Ocado Retail in
the first full year of our partnership is
set out on page 14.
The resilient performance is a result
of the progress made against our
transformation plan during and prior
to the pandemic coupled with the
incredible efforts of our colleagues and
trusted supplier partners to respond
swiftly to customers’ changing needs
and behaviours.
As customers shifted away from
convenience, we dedicated more space
towards the core grocery products our
customers were now searching for,
resulting in sales increases on last year.
This action, combined with the significant
overhaul of our ranges and value position
already in train, progressively offset the
loss of convenience trade.
In the absence of a direct online grocery
offer, the team responded quickly to
make our ranges more accessible to
shielding customers through temporary
partnerships with delivery firms and
added capacity and new ranges such as
two ambient essentials boxes to our
gifting on M&S.com in response to
sustained demand.
STRATEGIC KEY PERFORMANCE INDICATORS
52
Like-for-like sales
Like-for-like sales performance improved
in the face of Covid-19 headwinds.
+1.3%
19/20
+1.9%
20/21 +1.3%
Quality perception
The proportion of customers who rated
us highly on quality. Our food strategy of
“protect the magic” includes maintaining the
quality our food products are famous for.
(19/20: 86%)
88%
Availability
We continued our drive to improve
availability and reduce waste through
the Vangarde programme, designed
to improve the running of our stores.
95.5%
(19/20: 93.3%)
Value for money perception
The proportion of customers who rated us
highly on value for money. Our relaunched
Remarksable range of trusted value,
high-quality products now accounts
for 10% of sales.
67%
(19/20: 63%)
52 These figures are reported on a 52-week basis.
Dine-ins
Special event ranges offered
our customers the chance to
celebrate in style while
staying at home. Our special
Valentine’s Day Dine In
featured the Love Linguine
and heart-shaped Churros.
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Trick or treats
Identifying opportunities and
trading hard in smaller events,
including Halloween, drove a
strong performance in our
Food business.
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Annual Report & Financial Statements 2021STRATEGIC REPORT
STRATEGIC REPORT
A RESHAPED M&S FOOD:
REPOSITIONED FOR GROWTH
WITH OCADO
The objective for Food is to ‘protect the
magic’ by investing in our unique focus
on own-brand innovation and fresh,
easy-to-cook food and growing through
larger, more inspirational stores while
modernising the cost base and supply
chain. With strong customer perceptions
on quality and a reputation for innovation
and trust, yet a small market share,
the business has a substantial
growth opportunity.
– Protecting the ‘magic’ of our
innovation: The M&S Food range is
built on deep supplier relationships
and strong product knowledge to
drive a high level of innovation. Over
the past year, we created over 1,900
new lines to broadening appeal, in
healthy and family product. To help
deliver next-generation ideas,
a “Food Innovation Hub” has been
established, bringing together
packaging, product innovation and
nutrition in areas such as plant-based
protein and sustainable packaging.
– Delivering better value: The aim for
M&S Food is to be always great value,
with better quality and ingredient
content more than compensating for
any difference in price. We have
extended our position on trusted
value led by the expanded range of
Remarksable Value staple lines at an
everyday low price (see below). This has
supported a further improvement in
value perception, which is now at its
strongest level in almost three years.
– Larger and more inspirational stores:
Food renewal aims to create larger
stores with the efficiency of a
supermarket and the “soul of a fresh
food market” and has now been
implemented in 15 stores with current
year openings and renewals raising the
total to around 40. As an own-brand
retailer, our product range needs to be
front and centre, so customers can see
the breadth of our offer in terms of
freshness and value, but this needs to
be backed with efficient operations, and
this is part of the test and learn pilot
process. These stores offer an increased
focus on produce, ambient, grocery and
frozen in an inspiring environment. The
initial trial stores outside Covid-affected
city centres grew sales 15% last year.
– Moving to digital marketing and sales:
Food marketing has shifted focus in
the last two years, away from
conventional promotional activity
towards high-impact brand-building
programmes and increased social
media engagement. This helps create a
new “shop window” to the brand, which
can reach new audiences. As a result,
while we have reduced marketing spend
and promotional activity is down
substantially, the share of spend on
social media and digital marketing
increased by c.35% on the prior year.
FOOD
CONTINUED
As customers celebrated events at home,
we played to our strengths in special
occasions. We had a good Christmas and a
very strong Easter, which fell into the 53rd
week of the year. Alongside award-winning
great-value seasonal ranges, we offered
more relevant innovation – making our
special event ranges more accessible,
such as extending Plant Kitchen, and
introducing 30 products at Christmas
which drove sales up 55% on the previous
year. We also identified opportunities in
smaller events, including Halloween and
Burns Night, where we have historically
under-traded and delivered 22% sales
growth on last year in stores.
As families spent more time together,
we provided more reasons to shop at M&S
with the relaunch of the popular Dine In,
including a family of four offer for £15.
The new family offer is rotated with a
different monthly theme, such as Italian,
providing a great platform to show
our new innovations and larger family
pack sizes.
Remarksable
Value
In August 2020, we relaunched our
Remarksable Range – as a way of talking
to customers about trusted value,
with a promise to never compromise
our quality or sourcing standards.
Our TV campaign aimed to shift the
dial on value perception, by reassuring
customers they can shop with us for
those everyday essentials found in
their fridge, freezer and cupboards –
showcasing products such as our sliced
bread with added fibre and vitamin D for
65p and RSPCA assured milk for 85p.
Our Remarksable Value offer now
consists of over 340 products and
accounts for c.10% of volumes.
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Marks and Spencer Group plc T
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Renewal stores
Our renewal store format, as seen
here in Hedge End, puts our fantastic
own-brand product range centre
stage and offers customers a
contemporary shopping experience.
– A new ambient distribution centre:
To support growth of ambient ranges
and enable customers to do a fuller
shop, we made a further investment
in supply chain capacity, opening a
depot in Milton Keynes. This enabled
growth of 13% in ambient sales over the
Christmas peak, with the next phase of
capacity planned for 2021/22.
– Lower cost to operate: We have now
delivered over £180m of cost of goods
savings over the past two years to help
mitigate inflation and enable the
investment in trusted value. This
includes optimising volume with
strategic suppliers, reducing packaging
costs and re-specifying ingredients.
LOOK AHEAD
M&S Food is well positioned to recover
momentum, especially as the travel,
hospitality and the convenience sectors
begin to return. Our commitment to
‘protect the magic’ and modernise the rest
– coupled with the accelerated actions
taken under the Never the Same Again
programme – mean M&S Food is set up
for the future.
– Food on the move: Despite the impact
in office locations during Covid, we
expect our sales in Food on the move
to recover over time with further
opportunities for growth through new
channels to market. In addition, the M&S
café offer has now been refreshed and
simplified and this year will implement
modern quick to serve menus, which are
lower touch to prepare.
– Upgraded systems: High waste and
low availability in some instances reflect
a cumbersome and under-invested
supply chain and high touch forecasting
and range management systems.
We are now commencing a programme
to upgrade core systems to reduce
manual interventions and improve
efficiency. Most importantly, we are
updating forecasting and ordering
technology with an objective of
reducing waste by more than 10%.
In addition, we are replacing the
space and range and display system,
improving the tailoring of ranges
to store.
– Rolling out supply chain
improvements: The Vangarde
programme is now operating in c.350
stores served by five depots, with sales
uplifts from the first depot at over 3%,
compared with control stores, partly as
a result of improved availability. We will
be rolling this out to the full estate over
the rest of this year.
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Annual Report & Financial Statements 2021STRATEGIC REPORT
OCADO
STRATEGIC REPORT
PERFORMANCE
Over the 52 weeks ended 28th February
2021, Ocado Retail delivered 43.7%
revenue growth and contributed a share
of net income of £78.4m.
This financial year reflects a truly
extraordinary period for the online
grocery market, and Ocado Retail
performed strongly. Higher than normal
basket size and a smoothed trading profile
across the week, together with reduced
marketing costs, delivered a strong
improvement in profitability. The result
included insurance receipts related to
business interruption at the Andover
customer fulfilment centre (“CFC”).
Within the year, September marked a
milestone in our transformation, as the
M&S Food range was made available
online for the first time. The launch has
brought together M&S’ market-leading
quality food and Ocado’s award-winning
service and given us a new platform to
demonstrate the breadth and value of
our range to new family customers and
leverage our buying scale, through
volume growth.
Ahead of the launch, the two businesses
spent 12 months working closely together
in preparation, resulting in a seamless
switchover. M&S Food worked closely with
Ocado Retail to create a “one business”
mentality, setting common operating
procedures and business plans, and
sharing talent. Ocado customers were
introduced to a bigger, better range at
even better value as M&S matched and
improved on the approximately 4,000
Waitrose products with an extended range
of M&S products (see opposite). Over
6,000 M&S Food lines and over 800
Clothing & Home lines launched on
1st September 2020 – including school
uniform and other quality staples.
The customer response has been positive
and M&S ranges consistently account for
over c.25% of the average Ocado basket
and around half of Ocado fresh category
sales. The most popular products reflect
our investment in everyday value and
broader range, with our Remarksable
Value range staples like super soft bread
and British semi-skimmed milk topping
customers’ shopping lists.
The partnership supports our cost saving
programme and the increased volumes
sold through the Ocado switchover,
generating over £20m of synergies
in the year.
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Marks and Spencer Group plc
Further investments to increase the
reach of the business into parts of the
UK that Ocado Retail does not currently
serve fully are likely in the months ahead.
In addition, it plans to open more
than 12 Zoom sites expanding its
immediacy proposition across London
and major UK cities.
We have a strong programme of capacity
growth at Ocado Retail although we
expect some normalisation of shape of
week with respect to its economics.
In addition, Ocado Retail has already
announced plans which will increase peak
day capacity and has a structurally
profitable long-term model for growth.
OCADO RETAIL BRINGING
MULTI‑CHANNEL TO M&S FOOD
The investment in 50% of Ocado Retail
Limited (“ORL”), combined with the
successful switchover to M&S own brand
positions the business for a multi-channel
offer working closely with our Ocado
Group partners. The next stage is to
aggressively grow capacity and to create
further opportunities for both joint
venture partners.
We have begun to explore opportunities
for further collaboration across new
product development, data and
joint sourcing.
Over the next 18 months, Ocado Retail is
investing in c.50% increase in peak
day capacity, which will help meet
unfulfilled demand. In March this year, a
new mini CFC was opened in Bristol and
Ocado Retail will also open two larger
CFCs in Purfleet and Andover later in the
year. These CFCs alone will provide an
eventual 40% increase in sales capacity
at full utilisation.
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M&S and Ocado: Bringing the best together
Last summer, we officially
welcomed Ocado into the
M&S family. Our aim was to
create the UK’s best online
grocer by bringing the best
together: Ocado’s market
leading service with our
delicious quality food range.
While the launch marked the
beginning of our long term
partnership, it was also
an opportunity to show
customers the full range of
M&S products so they can
see that we are serious about
value whilst still maintaining
our high standards.
As more families shop for
M&S products online and
reappraise our range, they
will find that delicious, great
quality M&S Food costs less
than they think.
Exceptional growth
Revenue growth over the 52 weeks ended 28 February 2021
Penetration of M&S products on Ocado
43.7%
Share of net income
£78.4m
36%
34%
32%
30%
28%
26%
24%
Sept
Oct
Nov
Dec
Jan
Feb
Mar
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Annual Report & Financial Statements 2021
STRATEGIC REPORT
CLOTHING
& HOME
Financial highlights
£2.2bn
-31.5%
UK Clothing & Home revenue
-157.8%
£(129.4)m
Operating loss before
adjusting items
PERFORMANCE
In recent years before the impact of the
pandemic, we had set out a pathway to
reversing the decline of our Clothing &
Home (C&H) business. We set out to build a
confident Clothing business which would
offer modern, contemporary stylish
products of great quality and value.
But to achieve this, we needed to:
– Restore our style and value credentials
and broaden our appeal.
– Reduce our range and option counts.
– Back our bestsellers and increase
high-volume wardrobe staples in our
market-leading categories.
– Modernise our end-to-end supply chain.
– Build to one-third of sales online
by 2022.
Going into Covid-19, we were seeing the
early green shoots of work done to reset
categories. However, the impact of
Covid-19 across the total market has been
profound, which is best illustrated in the
decline in customer spend (with 590m
fewer items purchased in 2019 vs 2020).
As reported at the half year, the
dependence on stores in high streets,
shopping centres and city centres created
an extra drag on store sales performance,
and many customers shifted their spend
online instead. This store location
headwind was combined with an adverse
move in sales mix towards casual clothing
and away from formal and occasion wear,
markets in which M&S has strong shares.
Kids and Home outperformed but not
sufficiently to offset the demand mix.
In response to the initial impact of
Covid-19, the team took swift and
decisive action to mitigate the immediate
effect on the business and adapt to the
longer-term impacts:
– Sold through and managed excess
stock: Stringent action to reduce or
postpone orders together with
measures to hibernate a small amount
of stock after strong sell-through rates
resulted in a relatively clean stock
position by the end of the year.
– Adapted our services and space:
Took action to accelerate online growth
and adapted to the on-off restrictions
across the UK ensuring that our clothing
space and services traded in line with
government guidance and enabled our
customers to shop with confidence.
– Responded to pandemic‑driven
product choices: Boosted our product
offer and quickly responded to
changing customer trends by working
collaboratively with our sourcing offices
and suppliers. By improving efficiency
and reducing duplication of work we
were able to turn around products like
our ‘casual comforts’ range from Turkey
in 12 weeks.
The C&H result for the year is a reflection
of this, with lockdowns, sharp changes in
trends and purchasing behaviours, and
our priority of clearing stock; partially
offset by very strong growth in our online
business of 53.9%.
Losses substantially reduced in the
second half as the actions we took to
accelerate online growth partly
compensated for losses in store. Overall,
online had strong profitability, with an
operating margin of c.14%, for the year.
As a result, total revenue declined
31.5% and we recorded an operating
loss before adjusting items of £129.4m
(19/20 Profit of £223.9m).
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Marks and Spencer Group plc
Marks and Spencer Group plc Brands at M&S
We’ve adapted our Clothing
business to be more relevant
more often to customers,
by unveiling our Brands at
M&S offer. It includes exclusive
collaborations from
contemporary womenswear
brands Ghost (pictured),
Finery and other adjacent
third party brands.
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M&S X G H O S T
Annual Report & Financial Statements 2021
1717
STRATEGIC REPORT
CLOTHING
& HOME
CONTINUED
Autograph
Our in-house brands,
including Autograph,
Per Una and activewear
range Goodmove,
offer our customers
unbeatable everyday
style and value.
STRATEGIC REPORT
A RESHAPED AND INCREASINGLY
OMNI‑CHANNEL CLOTHING &
HOME BUSINESS
Our objective is to deliver an omni-
channel Clothing & Home business in
the UK, backed by exceptional data
and highly personalised customer
relationships. All channels will be driven
by a ‘product engine’ providing a more
contemporary focused M&S range bought
in greater depth alongside a family of
internal and external partner brands with
distinctive appeal to our customers.
A strengthened Clothing & Home
‘product engine’: M&S own-brand
product, with contemporary design and
sustainable sourcing, is our competitive
advantage. Over the last three years,
we have substantially reshaped our
ranges, reducing option count, increasing
depth of buy on core lines – we have made
the big, bigger – such as our denim
business which continues to go from
strength to strength. By Autumn 2021
total option count is expected to be
c.25% lower than 2018 with the team
implementing new range management
tools to maximise rate of sale of each
option. We continue to focus on relevancy
by responding to customer trends. For
example the launch of the Goodmove
activewear range in January 2020
delivered an exceptional performance
over the past year (+40%) and a number
one market share in full-price sales in its
category. As a result of the work done,
we have seen improvements in customer
perceptions of style incorporating more
contemporary fit and styling.
STRATEGIC KEY PERFORMANCE INDICATORS
52
Like-for-like sales
Like-for-like sales reflect the impact on
store sales of lockdowns and restrictions
throughout the year. However, performance
improved through the year as the online
business built momentum.
Quality perception
The proportion of customers who rated
us highly on quality. Our reshaped Clothing
& Home product engine is providing a more
contemporary focused M&S range.
-29.8%
-29.8%
-6.2%
19/20
20/21
80%
(19/20: 79%)
Value for money perception
The proportion of customers who rated
us highly on value for money. We are
accelerating our move towards trusted
value for customers.
64%
(19/20: 67%)
Clothing & Home space
We are focused on accelerating the reshape
of our store estate for customers.
-0.5%
19/20
20/21
10.4m sq ft
10.3m sq ft
52 These figures are reported on a 52-week basis.
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Launched MS2: In November, we
announced the launch of MS2 which has
brought together our digital, data and
online teams to shift the focus of the
business from a conventional model
where M&S.com was run as an extension
of stores, to prioritising online first.
The actions taken alongside the rise in
customers looking to shop online through
the pandemic resulted in a strong online
performance, as outlined in more detail
over the next page. We also looked to
drive the relevance of M&S by giving our
customers more reasons to shop on
M&S.com through the launch of a
curated range of complementary
third-party brands on our website for
the first time, as seen here in our case
study opposite.
Distribution networks to support
online demand: We had already invested
to simplify our distribution network and
grow capacity at Castle Donington. As
customer demand spiked, we supported
this by permanently increasing our
colleague numbers from the summer, as
well by recruiting for peak with an increase
of 1,000 colleagues for Christmas 2020 vs
Christmas 2019. We also grew our in-store
pick operation from c.80 stores to over
200 stores at our peak, and permanently
expanded our Bradford distribution centre
to support increased online demand,
underpinned by cost-efficient automation
across the site, helping to boost efficient
and dispatch capacity. This will enable us
to postpone the investment in a new
fulfillment centre for 2-3 years.
LOOK AHEAD
Our Clothing business is well placed as we
start to emerge from the pandemic, in
part due to the strong steps taken under
Never the Same Again to revitalise our
Clothing & Home product offering.
Over the last three years, huge strides
have been made in reshaping the ranges
around new trading principles, most
notably to buy fewer lines in greater depth
from fewer strategic suppliers. The extent
of the shift in range has been obscured
by Covid-19 and the related trading
turmoil but we believe there is a marked
underlying improvement in style, shape of
buy, and value, which combined with our
expanded online capabilities is helping to
broaden our appeal.
Marks and Spencer Group plc
Following an initial phase of wardrobe
replenishment later this year, we expect
there to be a permanent shift in demand,
including a reduction in formalwear
and tailoring.
With that, we have shifted to focus on
growth categories, such as the ‘new’ office
wear, kids, casual ranges and the
Goodmove activewear range.
The emergence of platforms and the
increasing cost of online customer
acquisition for smaller retailers creates
an opportunity for M&S to leverage its
customer base, infrastructure and Sparks
to partner with guest brands on the M&S
platform. We can offer time-pressured
customers a curated group of value for
money, contemporary, stylish brands with
sustainability credentials.
This work is being led by a stronger team
under Richard Price. New additions include
Heidi Woodhouse (joined in July to run
Home) and Fiona Lambert (joined in
February as MD of Jaeger). Anna
Braithwaite will join shortly as Director
of Marketing, with changing brand
perception an important part of setting
ourselves up for the future with energy,
confidence and style.
Seasalt
Womenswear brand
Seasalt was one of the
first wave of guest
brands to launch online
at M&S.com in spring
2021, alongside Hobbs,
Joules, Sosandar and
White Stuff.
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Last year, we announced we would add
complementary and curated guest
brands to M&S.com for the first time,
offering our customers more reasons to
browse and buy on the platform. Our
first brand, Nobody’s Child, launched in
October and the sustainably minded
offer has stretched appeal with nearly
10% of purchasers new to M&S
Womenswear. To date, we have launched
21 brands under owned, wholesale,
consignment or collaboration models –
such as our three drops of the exclusive
Ghost x M&S range. Popular brands have
included Elle Junior for Kidswear and
Seasalt Cornwall and Sosander for
Womenswear. These brands complement
our own ranges and in-house brands
(Autograph, Goodmove & Per Una), with
each brand offering a curated range for
M&S.com. Initial results from the brands
launched have been encouraging; for
instance, the top 10 lines in the dress
collaboration with Finery sold strongly
after just one week of trading.
As part of our brand strategy, in January
we purchased much-loved heritage
brand Jaeger for £6m and work is now
well under way to reimagine the brand.
We have made product we purchased
from the sale of Jaeger available to buy
on M&S.com and in selected outlet
stores – the first capsule collection under
the new in-house team will be available
from Autumn/Winter 2021. The team is
focused on protecting the independence
and heritage of the brand for customers
by creating product that is unique,
stylish and has tangible quality, and
leveraging M&S’s reach, infrastructure
and scale to achieve efficiencies.
19
Kidswear
Kids’ casual ranges are
one of the growth
categories we’re pivoting
our ranges to focus on
as clothing trends shift
post-pandemic.
Annual Report & Financial Statements 2021STRATEGIC REPORT
MS2
STRATEGIC REPORT
DRIVING OMNI‑CHANNEL GROWTH
At our Half Year Results, we announced
the creation of MS2 to prioritise online
growth, bringing together our data and
online teams.
Growth in the past year means Clothing &
Home now has a base of over 9m active
online customers making it one of the
largest platforms in the UK. With that,
we have an objective to achieve in excess
of 40% of Clothing & Home revenue
through MS2 in three years’ time.
The MS2 plan focuses on three
core objectives:
Improving the online offer: Our priority
is to increase availability in the online
channel from historic levels of 80% in
recent years introducing additional online
only ranges, recognising the different rate
of sale across channels, trialling “test and
repeat” products. Given that around
one-third of the M&S range is year-round
product, we will also expand bestseller
and never out of stock programmes.
Combined with a curated range of
third-party brands, we expect a
substantial improvement in the online
offer in the coming year.
Creating a digital‑led customer
experience: Recognising that a mobile-led
customer experience is central to online
success, we have increased investment in
optimising the site for mobile and growing
the M&S app, which generated over 3.5m
downloads last year as we relaunched
Sparks. In addition, within the app we have
built digital services such as scan and
shop to pay by phone and video-powered
retail services such as bra fit, beauty and
furniture sales.
To support the programmes of change
and deliver rewarding and convenient
experiences with M&S for customers,
M&S Bank, which is hosted by HSBC,
announced the transformation of its
product and service offering to create a
digitally enabled and uniquely rewarding
shopping and payment experience for
M&S customers.
Relaunching our Sparks loyalty programme
Driving greater engagement through our app
Weekly average app downloads (k)
350
300
250
200
150
100
50
0
New
Sparks
46k/wk
Average
69k/wk
Average
Apr
Jul
Oct
Jan
Mar
Creating a digital
experience
The M&S ambition for
Sparks is to build the UK’s
leading retail loyalty scheme
to support increased
customer frequency and
spend. In July, we relaunched
the programme shifting from
a points-based plan which
was largely delivered through
a physical card, to a digital
experience enhanced with
online services such as
‘Book & Shop’. Since relaunch,
total membership has grown
to over 10m customers, of
which the majority are active.
The relaunched Sparks
enables M&S to build on
recent investment in data
science to create a more
personalised relationship
with members as opposed
to the traditional model of
targeted promotions.
The purpose is not to drive
often unwanted promotions
to large groups of customers,
but to make their shopping
easier by reflecting their
personal requirements in
the products and sizes we
offer, when and where they
need them.
The relaunch has also
helped drive 3.5m M&S app
downloads, with M&S topping
the Apple download charts in
the autumn. Not only are app
customers typically highest
spending, but the app is also
the most cost-effective route
to market for M&S.com as it
reduces spend on search and
third-party marketing.
20
Marks and Spencer Group plc MS2
The creation of the MS2 division
brings together our data and
online teams to focus on creating
a best-in-class online offer.
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Due to launch in the summer, this will
include a new reward credit card offering
and a digital payment solution for M&S’
growing Sparks customer base. This
repositioning will offer customers a
number of new ways to pay, while
delivering personalised and rewarding
experiences with M&S at the same time.
Maximising M&S’s omni‑channel
advantage: Unlike pure play retailers,
M&S has an advantage in its store
network which provides an opportunity
for rapid collection and returns and drives
incremental in-store sales. Investment in
Castle Donington, expansion of our site
at Bradford and the repurposing of the
Thorncliffe warehouse means that M&S
has sufficient capacity for online deliveries
for the next 2-3 years.
Building on the success of our “buy online
ship from store” (BOSS) for fulfilment from
store stock, we are investing in technology
improvements to enable a low-cost rapid
click and collect offer from store stock
within hours. In addition as part of the
omni-channel strategy, we have launched
five “10x” stores. In these stores, we are
targeting a substantial increase in the use
of digital services, such as contactless
click and collect and returns and digital
payment and specific benefits for
Sparks members.
Through MS2 and the outlined
programmes of change, M&S is enabling
more customers to shop their way,
following the radical shift in purchasing
behaviours seen in the last year, and is well
positioned for further online growth as a
result. Given this, we are targeting in
excess of 40% of Clothing & Home
revenue online in three years.
Strategic Key Performance Indicators
50.5%
(19/20: 22.5%)
Percentage of UK Clothing &
Home sales online
13.5m
+40% 51
(19/20: 57)
Traffic (visits per week)
M&S.com net promoter score1
1. Net promoter score (NPS) equals percentage of ‘promoters’ minus the percentage
of ‘detractors’.
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Annual Report & Financial Statements 2021
STRATEGIC REPORT
INTERNATIONAL
Our International business is doubling down on digital growth by modernising our
operations, digitising our support for partners, and driving growth online through MS2.
Highlights
£45.1m
-59.3%
85
( 19/20: 85)
( 19/20: 44)
103
Operating profit before
adjusting items
Net promoter score
International websites
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Marks and Spencer Group plc
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Based on the strong online performance
this year, we have an ambition to more
than double International online retail
sales. This will be delivered by investing in
digital marketing, expanding our presence
on major marketplaces such as Zalando,
and entering into new markets such as the
46 countries announced in March. As the
business scales up, we expect to build
local warehouse and fulfillment capacity
to drive more rapid customer service and
to lower costs.
We are also modernising operations and
digitising our trading interface for
partners. This includes:
– Launching a fully “digital showroom”.
This transforms partners’ ability to
create curated ranges relevant to their
markets and plan floors, windows and
campaign without the cumbersome and
costly buying fairs previously held.
– Driving faster rotation of the store
estate with new digitally enabled stores.
This includes a first ‘10x’ trial, offering
partners omni-channel innovations
such as fitting room assistance,
self-checkout and QR codes to access
online ranges.
– Creating a UK hub for export at Hemel
Hempstead. This avoids the need for
International stock to enter the UK
network where it is broken down for
needless storage and keeps product
consolidated for onward shipment. In
addition, partners can continue to
call off stock regularly and have
flexibility in receiving shipments.
LOOK AHEAD
Alongside the continuing uncertainty
around the impact of the pandemic on all
our International markets and our ongoing
response, Brexit will be a major focus for
the business.
The full cost implications are outlined
in the Financial Review, but for our
International business the most
challenging effect of the Brexit deal is to
make the supply of fresh and chilled
product, especially prepared food, into
the EU very lengthy and bureaucratic
creating an enduring impact on
availability and trading costs.
This situation is unlikely to improve in
the near term and we therefore need
to reconfigure trading with our
EU businesses.
The most significant impact is on our
Food operations in the island of Ireland
and we are implementing multiple
medium-term solutions to stabilise the
business both in the North and the
Republic. We have already modified food
export into the Czech Republic and are
working with our partners in France to
review the model.
While these operations are relatively
small in the context of the Group, changes
to our EU businesses as a result of Brexit
related costs may result in future
restructuring charges.
Expanding our
international
online business
As part of our focus to turbocharge our
online business under our Never the Same
Again programme, in March this year we
launched 46 international flagship websites
in new markets, instantly expanding our
online reach to over 100 countries and
enabling millions more customers to
purchase M&S products online.
PERFORMANCE
Previously, we have outlined the decisive
actions our International business has taken
to reshape itself: exiting loss-making
markets, working with and supporting
select partners in large markets with growth
opportunities, and building our online
international sales channels for customers.
After the initial onset of the pandemic in
the final months of our 2019/20 financial
year, last year we outlined the first actions
taken which would be the basis for the
year ahead in responding to the pandemic
including: flexing our support for partners,
optimising online channels and relevant
product for customers and upskilling
colleagues where needed. This resulted in:
– An ongoing flexible support model for
partners in key markets – with key examples
including partners having the facility to call
off stock regularly rather than receiving
infrequent shipments, or buy the relevant
product for their customers through our
remote buying fairs.
– Expanding our dedicated international
e-commerce platform resulting in one
adaptable website which we can localise
and tailor to different markets and
make it relevant and compelling for
local customers.
Overall, International sales for the year
reflected the pandemic impact and local
restrictions across our owned and partner
markets, offset by the strong switch to
online sales from customers.
Clothing & Home sales declined 21.6% at
constant currency, largely driven by lower
store sales in the Republic of Ireland and
working with partners to manage the
effects of the pandemic in their markets
partly offset by online sales which more
than doubled.
Food sales were more resilient, particularly
in the Middle East and Asia as Covid-19
disruption changed customer demand to
favour eating in. This helped to offset a
weaker performance in travel franchise
sales in Europe and disruption from Brexit
in quarter four.
Operating profit before adjusting items of
£45.1m reflects in large part the lower
Clothing & Home sales.
As outlined in the Chief Executive’s
statement, our International business
incurred Brexit-related costs of £6.2m
in the year.
International business focused on
major partnerships and online
The International business has the
objectives of delivering market-relevant
product, great digital service for our
partners and driving growth online
through MS2.
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Annual Report & Financial Statements 2021
STRATEGIC REPORT
STORE ESTATE
We’re pressing fast forward on our plans to fully modernise our store estate
and ensure our bricks-and-mortar presence is fighting fit for the future.
PERFORMANCE
Prior to the pandemic, we had outlined
the challenges we faced with an
underinvested and ageing store estate,
which needed to be modernised to be fit
for the future through:
– A store rotation programme.
– Redeveloping sites to unlock additional
value and make the most of our space
across the estate.
– Trialling new store formats.
Last year, in the face of the initial impact
of Covid-19, we made it clear that
establishing a store estate that could
support the rapidly changing behaviours
of our customers in terms of how and
where they were choosing to shop was a
key part of our transformation.
Since then, we have seen that a continued
headwind to M&S brand perception and
performance continues to be the legacy
estate of full-line stores (selling both
Clothing & Home and Food), often in
declining locations or centres, with
inefficient space which is difficult to
shop and costly to replenish. We have
closed or relocated 59 full-line stores
overall, 16 Food stores and 8 outlets
but the effect of the pandemic means
we can move faster.
There has rarely been a better time to
acquire new replacement space on good
terms and we have approved 17 new or
expanded full-line stores to open over
the next two years, including a number
of Debenhams stores, with the pipeline
continuing to grow.
While long leases have historically
constrained our ability to rotate, we plan
to largely fund the future closure costs
through the redevelopment of freehold
and long leasehold properties.
ACCELERATING ROTATION OF
THE STORE ESTATE
M&S had 254 full-line stores at year end.
While practically all Clothing & Home
departments in these stores contribute
positive cash, a number are in long-term
decline, struggle to cover their allocated
central costs as a percentage of sales and
cannot justify future investment.
Our objective for the full-line estate is to
achieve a fully modernised core of c.180
stores. Our current best view of the future,
based on stress tests, regional modelling,
and current retail and efficiency
requirements, is as follows:
– Around 100 stores in prime retail
markets growing from the current
base of c.80. In these markets we will
invest in renewal, redevelopment or
replacement of existing stores.
– Around 80 stores in core markets,
growing from the current base of
c.65 stores through investments such
as the relocation of high street units
to retail parks.
– In c.110 remaining, locations we will
rotate the estate. This will mean either
relocating to a Food only store or
another full-line store as above, or
consolidating multiple stores into one.
In around 30 locations which can no
longer support a store we will close,
recapturing trade in nearby stores
or online.
The overall benefit of well-located space
is illustrated by the profitability metrics of
each group shown right. The average
Clothing & Home cash contribution
margin in 2019/20 of prime leasehold
stores was 25% of sales or £3.0m per store.
This represents a higher percentage
margin and more than 3x the average
cash contribution per store of those out
of which we plan to rotate.
Store Grouping
Prime stores
Core stores
Rotation stores
Total
C&H cash
contribution
margin1
Average
cash
contribution
£m1
25.4%
23.4%
18.5%
22.5%
3.0
1.3
0.9
1.4
The financial benefits of rotation are
compelling, for instance the table below
illustrates the benefit of consolidating
Northampton and Kettering stores into
one at Rushden Lakes Retail Park prior to
the pandemic. The previous stores were
ageing, with sales in decline and no
investment case to bring them up to
modern standards. The new retail park,
built between the two towns incorporates
shopping, dining and leisure facilities
on a site with good access and car parking.
The disposal of the freehold of one store,
helped to fund the closure and the lease
costs of the remaining term of the other.
The new store has generated a substantial
uplift in cash profit and LFL sales were in
growth pre-Covid. The net investment
cost of the new store was just £2.1m
resulting in a strong payback on the net
capital invested.
Kettering closure
Sales
Cash contribution
LFL 17/18 %
Northampton closure
Sales
Cash contribution
LFL 17/18 %
Rushden Lakes
Sales
Cash contribution
LFL 19/20 %
LOOK AHEAD
£m
14.3
1.1
-12.3
£m
24.2
2.5
-7.0
£m
39.0
4.8
+6.5
To reduce investment risk and maximise
returns to shareholders we have set a
target payback for relocations including
recapture of less than 4 years, with
standard lease terms of 10 years.
24
1. Metrics for 2019/20 adjusted for Covid impacts in March 2020. Leasehold stores exclude long leaseholds.
Marks and Spencer Group plc Highlights
9.7m
-46%
Footfall (average per week)
-41%
7m
Transactions (average per week)
(19/20: 68)
81
Stores net promoter score
Returns outside of these parameters are
considered where they enable an exit of
long-term liability or in exceptional
locations. We will work with landlords to
negotiate appropriate terms at exit and
repurpose or develop space. However in
some cases it will be more economic and
brand enhancing to have a vacant store
rather than lose the opportunity to move
to a better location.
Reflecting this at year end, further costs
of c.£268m are estimated over the life of
the programme, including for accelerated
depreciation and impairment. When
combined with the operational costs of
closure, we currently expect to incur total
cash costs of c.£260m over this period.
To fund the programme, we have a
number of freehold and long leasehold
properties which offer an opportunity
to release cash from development.
This includes our Marble Arch proposal
(outlined in our case study on the right)
and additional stores including a
number for residential development.
These properties tend to be in locations
where land values for alternative use are
higher than for existing use. We have an
objective to release at least £200m from
these projects.
While we acknowledge that the turbulence
of the past year means uncertainty
remains, we are currently forecasting for a
gradual return to more normal customer
behaviour, underlining the importance of
reshaping our store estate to enable our
customers to shop their way with M&S.
Redevelopment of Marble Arch
The redevelopment of the store will
see M&S work with partners in creating
a new building which combines a
modernised M&S store offering a
full range of trusted value products
across the bottom three levels,
while repurposing the upper levels
to offer best in class, Prime Grade A
sustainable office space, where we
anticipate a rebound in demand in
the coming years.
As part of our efforts to emerge
stronger from the pandemic
under our Never the Same Again
programme, in March we announced a
proposal to redevelop our flagship
store on Oxford Street – Marble Arch.
First opened in 1930, the building has
been expanded and altered many
times and as a result, despite being a
much loved store, today offers an
inefficient and confusing experience
for customers.
M&S is in the unique position where
40% of our owned space is freehold or
long leasehold enabling us to unlock
value and fund our rotation of the
estate through a programme of
redevelopment and alternative use of
space. These largely arise in locations
where the rental cost of the existing
store is below the cost for alternative
use such as office or residential space
– such as in the case of Marble Arch.
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STRATEGIC REPORT
OUR PEOPLE & CULTURE
The M&S family has been at its best during the myriad of challenges presented
by the pandemic. Our colleagues reacted to difficulty and uncertainty with
pace, resilience and innovation.
26
Marks and Spencer Group plc Prior to the pandemic, we outlined how we
were seeking to establish a culture that
would draw on the foundations on
which M&S was built and apply them in a
modern setting, to build a renewed and
reinvigorated workplace. Our aim
was to create the most engaging,
involving place to work in UK retail,
with a fast-moving, empowered
organisation and flat structure.
Over the past year, some of what we are
aiming to achieve has been accelerated
and our colleagues have shown M&S at its
best. With a focus on cost and clarity of
purpose, colleagues have been adaptable,
resilient, pacey, less hierarchical,
commercially minded and innovative,
all in service of doing what’s right for our
customers. At the same time, the way
colleagues have supported each other,
and the engagement from leadership
with the front line, has rekindled the
feeling of being part of the M&S family.
To embed these changes, and in
recognition of the critical role our people
have in our transformation, the executive
team took direct accountability for our
People Plan to drive real ownership and
delivery as part of our Never the Same
Again programme.
Our People Plan has
six key aims:
1 Transforming our organisational
design to drive ownership, pace
and commerciality.
2 Becoming a data enabled and
digitally focused business.
3 Creating empowered,
responsive and commercial
leaders who are close to the
front line.
4 Putting the voice of the stores
back at the core of the business.
5 Creating a culture of plain
speaking; data driven and
focused on performance.
6 Moving away from hierarchy to
an involving, engaging culture
where everyone has a voice and
can get on.
1 Transforming our organisational
design to drive ownership, pace
and commerciality
The crisis has enabled M&S to adapt and
modernise, and we have built on the
previous work to devolve accountability to
each of the family of parallel businesses
under our Never the Same Again
programme this year. Radical changes
have been made to our business in order
to best serve our customers and support
our long-term transformation.
In August, the Group announced a
programme to streamline its store
operations, regional management
structures and support centres.
This included:
– A new retail management structure
that reduced management layers and
removed duplication through better use
of technology and insight and enabled
more time on the shop floor. All store
manager offices have been opened up
to symbolise this shift, and each store
manager is now fully accountable to
drive customer service, deliver their
P&L, lead their team and manage
performance, as well as maintaining
store standards.
– A substantial restructuring and store
cost reduction programme, which
introduced new, more flexible working
for store teams across departments,
and a shift in focus and time to
front of house customer service
rather than backstage.
For our support centre colleagues,
an M&S Flexible Framework has been
put in place, moving to more dynamic
arrangements rather than permanently
office-based. The framework devolves
accountability to colleagues and line
managers to decide where and how they
do their best work. This means spending
more time with customers and suppliers,
with a minimum of two days per month
in stores and with partners, and spending
c.3 days a week in support centres to
enable collaboration, networking and
development, while recognising that
every role and every week is different.
COLLEAGUE REPRESENTATION MEASUREMENTS
Total employees1
Senior managers from ethnic minorities
Gender pay gap
Female
48,727
Male
20,850
69,577
( 19/20: 8%)
8%
Total senior managers1
Female
57 (19/20: 52)
Male
79 (19/20: 74)
Total Board1,2
Female
4 (19/20: 3)
Male
6 (19/20: 5)
1. As at 2021 year end.
2. As at 25 May 2021.
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10
We remain firmly committed to our target of
having 50% women and 15% BAME colleague
representation in our senior management team
by 2022, but have more to do to hit our targets.
This year we continued to support and engage
with our wide range of colleague diversity
networks across the business.
Engagement
82%
( 19/20: 81%)
The progressive engagement score from
our monthly ‘Colleague Voice’ survey.
Our engagement score through the year was
strong at 82%, with 91% of colleagues feeling
proud to work for M&S. Nearly 50,000 of our
colleagues chose to participate and voice their
feedback and ideas, helping to give us an
informed picture of how colleagues feel
about the business.
12.3%
( 19/20: 12.9%)
Our gender pay gap, the percentage
difference between average hourly earnings
for men versus women, marginally decreased
this year and remained lower than the
UK average.
27
Annual Report & Financial Statements 2021STRATEGIC REPORT OUR PEOPLE & CULTURE CONTINUED
All of these changes have been
underpinned by the efficacy of our
market-leading technology, as the
lead retail partner of Microsoft.
2 Becoming a data and digitally
enabled business
As outlined throughout this year’s report,
the shift to online by customers during the
pandemic has had a profound impact on
the retail sector. This year, we have taken
decisive steps towards omni-channel
retailing – including the roll-out of
efficient digital solutions in stores, and
capability and capacity upgrades to
M&S.com and our supply centre, Castle
Donington – helping us achieve strong
online growth this year.
However, with this shift not expected to
recede as we emerge from the pandemic,
we know we have to accelerate our focus
and culture to take advantage of the
online opportunity. The creation of MS2
is set to drive our focus to establish an
online first culture through:
– Bringing together our data, digital and
trading teams under MS2, jointly led by
Katie Bickerstaffe and Richard Price.
– Boosting our digital capabilities to
support growth – in May, we announced
the creation of 85 new technology roles,
including 70 software engineers, as part
of M&S’ new Chief Technology Officer
Mike Yorwerth’s team, and 15 new
trading roles in e-commerce.
– Empowering our colleagues through
technology – over 90% of our front-line
colleagues are now communicating
through Microsoft Teams, either on
their own devices or on tablets
which have been rolled out to all
management teams.
– A focus on placing data at the heart of
decision-making. M&S has over 800
terabytes of data at our disposal and
our data community is now over 800
strong, helping to decipher patterns
and deliver the insights we need to
support our growth.
– Launching a Beam Academy led
by the Digital & Data team, hosting
over 100 business-wide upskilling
events on data with over 22,000
colleagues participating including
our third Hackathon.
– Trialling new technology and omni-
channel trading initiatives – such
as video-powered retailing – in five
“10x” digital trial stores, with data
and digital teams working directly
with store teams.
3 Creating empowered, responsive
and commercial leaders who are
close to the front line
M&S continues to be a destination for
industry-leading talent. Eoin Tonge
joined as Chief Financial Officer and
Richard Price joined as Clothing & Home
Managing Director in July, with Katie
Bickerstaffe moving from the Board to
the executive team as Chief Strategy and
Transformation Director earlier in the year.
They now make up half of the streamlined
and strengthened central leadership team
led by CEO Steve Rowe.
Following financial year end, the
leadership team underwent a realignment
in responsiblities as we move on from
the “Fixing the Basics” phase of our
transformation, with Katie Bickerstaffe
and Stuart Machin becoming Joint Chief
Operating Officers, to bring even more
impetus to our core businesses. Alongside
this Eoin Tonge took on responsibility for
strategy and transformation planning as
part of his CFO remit.
28
There is more to do to engender our wider
leadership team with a sense of shared
mission and accountability and putting
in place a leadership development
framework and reviewing leadership
banding is a focus for this year.
4 Putting the voice of the stores back
at the core of the business
The adoption of Microsoft Teams, already
in train but sped up over the past year,
has been a key enabler to connecting all
colleagues, but critically also connecting
the trading areas to the store teams.
Whereas c.10% of colleagues were using
Yammer, now 90% of colleagues are using
Teams at least once a week, with 85% on
their mobile devices. Teams has been key
for connecting leaders to the front line,
and every store colleague is part of a Team
for operational and local communications,
which is the relevant trading area they are
part of, as well as receiving “all company”
corporate news. Shifts are booked via
Teams, with operational task management
being rolled out on Teams currently. This is
not only more efficient and delivers the
right, targeted information to colleagues,
but is also an enabler for building a more
digitally adept workforce.
While Teams has been critical to the
business operating over the past year, with
many advantages, face-to-face contact
remains key, and there has latterly been a
focus on equipping managers and store
colleagues with weekly briefs to support
regular huddles. There is, however, more to
do to ensure face-to-face engagement is
happening regularly across every store, and
that every leader in the trading businesses
is engaging their best sellers to drive a
virtuous cycle of engagement to get the
right insight and buy-in to sell more.
Over the past year, the Suggest to Steve
scheme – where anyone in the business
can make a suggestion directly to the CEO
– received 5,000 suggestions. Fantastic
ideas have been progressed: from being
the first retailer to introduce sunflower
lanyards, creating “We’re all in this
together” charity bags, to ideas that were
integrated into the relaunch of Sparks.
While there was a peak during the early
days of the pandemic, engagement began
to drop off and steps have been taken
to reinvigorate the scheme through
moving it onto Teams and reconnecting it
personally to the CEO, with calls and visits
to successful or regular suggesters.
5 Creating a culture of plain
speaking; data driven and focused
on performance
Last year, we launched four core
behaviours, with Talk Straight the one
colleagues felt was most needed and
relevant. While there is a need to “go again”
on embedding the behaviours, slowly but
surely a culture of more plain speaking is
beginning to emerge.
Marks and Spencer Group plc received is acted upon swiftly, and
collaboratively, is a key priority for the
year ahead.
Learning and development remains
an area where delivery is patchy, but
following the Academies trialled in the
Food business to develop behavioural
and leadership skills, they are beginning
to be rolled out more broadly. In addition,
34 Academy stores have been established
as centres of excellence for learning.
Academy teams have been supported
with a bespoke learning offer to enhance
their capability, including performance,
emotional intelligence and resilience
sessions. For the coming year, leadership
capability and coaching skills will also
be offered.
Building on our long-established
Marks & Start programme, through which
we welcomed 360 young people into the
business in the last year, we are proud to
be a lead partner for the government’s
new Kickstart programme. It is designed
to help young people currently on
Universal Credit who are at risk of
long-term unemployment to jumpstart
their careers, and not get left behind in the
pandemic. We have offered 350 Kickstart
places in our stores and have invested to
ensure that the experience we offer is
positive and consistent.
Clearly, other than the pandemic, the
death of George Floyd was one of the
defining moments of the last year.
We were, like everyone, horrified by what
happened and the groundswell of action
it spawned was a wake-up call for all
businesses – including ours – to do more.
We can point to some small steps forward:
inclusion and diversity training offered to
all colleagues in an accessible way, with
high levels of completion; participation
in schemes such as the Black Interns
Initiative; an enlivened Culture and
Heritage network; and improved guidance
on a wider range of issues for managers,
such as about colleagues participating in
Ramadan. We also continue to participate
in the 30% Club. However, representation
in our senior management population
remains flat, progress has been
frustratingly slow, and the fact is we
have a huge amount more to do in the
coming year.
Finally, fostering a sense of family within
the business has led us to launch an
alumni network, under the moniker
“M&S Family”, to capitalise on the pride and
sense of belonging we know colleagues
feel who have worked for M&S. The
network is the first scale alumni
programme in the UK, and since launching
in February has over 6,000 members
and is beginning to be a pipeline for
recruitment. In the future, we are looking
at how we can harness the power of this
network, whether through mentoring or
developing products and services.
29
The way the business reviews and rewards
performance has been re-set, led by
Stuart Machin as the executive lead for
talent, with the aim to foster this more
plain speaking style and drive a more
performance-driven culture. In our stores,
we have redefined what we expect of our
colleagues, which is backed up by training
and regular one-to-ones away from the
shop floor to check in and update on
performance. We’re measuring this
through specific questions in the
colleague survey, proportion of check-ins
being delivered every month, as well as
the overall impact on customer NPS and
sales. In the support centres, a clearer
cadence and process around performance
management has been put in place with a
simplified but consistent approach to
objective setting, more regular check-ins
on performance, and a bigger focus on
development and potential.
At the same time as improving our
approach to performance, we have
reviewed our pay and benefits package to
modernise it and align reward more to the
right behaviours and performance. Over
14,000 colleagues responded to tell us
what mattered most to them. Getting the
basics right was a strong message which is
one of the reasons why we have invested
significantly ahead of inflation for hourly
paid colleagues so all permanent
colleagues earn at least £9.50 per hour.
Flexibility to support work-life balance
was valued, prompting the re-introduction
of Holiday Buy – more popular than
additional leave – and extending our
Celebration Time to support centre and
logistics colleagues. Unsurprisingly,
wellbeing was a key theme, and in addition
to our existing support for colleagues,
Salary Finance and an easy-to-access
wellbeing app, Unmind, have been
rolled out.
Underpinning our nascent, but now
more focused, aim of driving a high-
performing culture is the new people
IT system – MyHR – which launches in
August. It will remove bureaucracy and
paperwork, better track the full colleague
lifecycle and performance, and move
to a more self-service model for managers
and colleagues.
6 Moving away from hierarchy to an
involving, engaging culture where
everyone has a voice and can get on
BIG, our Business Involvement Group,
has undergone its own transformation to
drive a more engaging and involving place
to work. It began with feedback through
the BIG Conversation, with thousands of
colleagues taking part. The output of this
has been framed as making “BIG Bigger”
with four key areas of focus: a simplified,
more accessible constitution rebadged
as the “Doing Business with BIG Charter”;
investing in representatives so they
have the right capabilities, with better
induction, clearer accountability for
line managers, and investment in their
learning and development; more digital
and dynamic communications, which
are a move on from the more arcane,
bureaucratic previous approach; a more
structured dialogue with the leadership
through “the BIG commitment”, which
sets out the rhythm and routine of BIG
representatives and business leaders and
holds leadership to account on what they
have agreed to. The Chair of National BIG
attends the Board four times a year,
and holds quarterly meetings with the
Executive Committee.
Leadership focus on formal colleague
engagement surveys dissipated
somewhat during the pandemic, with a
focus on “in the moment” direct feedback.
However, this has now been reactivated
with an improved survey, more accessible
to colleagues via Microsoft Teams, and –
crucially – a much bigger focus from the
executive team. Ensuring the feedback
Annual Report & Financial Statements 2021STRATEGIC REPORT STRATEGIC REPORT
PLAN A REVIEW
WE’RE ALL IN THIS TOGETHER
The full detail of the activity and progress
made against our sustainability priorities
is published separately in our Plan A 2021
report, which is available online at
corporate.marksandspencer.com/
Plan-A-Report-2021. The timeframe
covered by the report reflects a 12-month
period when families, communities,
businesses and governments across the
world have all had to face the once-in-a-
lifetime challenge that the pandemic has
placed on our society.
The enduring community spirit of M&S
has borne out in our response to the
crisis. We rallied these collective efforts
under the banner “We’re all in this
together”, as our incredible colleagues
and trusted supplier partners stepped up
to deliver for each other, our customers
and the communities they serve. In turn,
we supported our M&S family by topping
up pay for colleagues on furlough,
providing a financial hardship fund and
investing in the wellbeing of the team –
providing all colleagues with free access
to Unmind – an independent workplace
mental health app.
Whilst we know our colleagues continued
to support their local communities,
our structured community programmes
were suspended and we were not able to
formally track volunteering hours in
2020/21. The impact of the pandemic
placed a huge strain on our NHS this year,
and our customers and colleagues were
keen to find ways they could support.
In response, our 2020/21 community
programme focused on raising funds
for NHS Charities Together.
We acted quickly to launch a range of
products and promotions allowing our
customers to raise money from purchases
– such as our Rainbow Sale, which donated
10% of the cost of every clothing item
sold to NHS Charities Together, or our
All in this Together t-shirt – which sold
one t-shirt each second at launch with all
profits donated onwards. As a result M&S
donated £8.3m to support our fantastic
NHS heroes during the crisis, and over
28,000 customers continue to support by
selecting NHS Charities Together as their
chosen Sparks charity, with M&S donating
1p for every purchase.
Alongside the operational delivery of our
Plan A priorities, over the course of the
year we have committed to act on the
bigger sustainability challenges facing
businesses, our society and our planet.
In the face of an unprecedented crisis,
we did not lose sight of the goal of
our transformation; to return M&S to
sustainable, profitable growth and deliver
long-term value for all our stakeholders.
Through Plan A – our multi-year
sustainability action plan – we address
the risks and opportunities that
environmental and societal issues present
to us as business. It drives us to make
better choices to ensure M&S, and the
precious resources and planet we rely
on, are in better shape for the future.
While Plan A was launched in 2007, its
roots can be traced back to our founders,
who recognised the enormous value
derived from building trusted
partnerships, treating people fairly
and taking a long-term approach to
innovation and investment.
Throughout the year, we have made
progress in embedding Plan A into
our operating model as a family of
accountable businesses and putting
REINVIGORATING PLAN A
sustainability into the heart of our
commercial plans. In doing so, we have set
better standards, which help us deliver
on our customer promise of trusted value.
We set new standards for one of our
biggest hero categories, with the launch
of our most sustainable denim range yet
this Spring (see page 31 for more detail).
As part of our commitment to prevent
deforestation, we are exploring
alternatives to soy-based animal feed.
In Food, we completely eliminated soya
feed in our RSPCA Assured milk by
replacing it with nutritious alternatives
such as rapeseed oil and sugar beet,
avoiding 4,000 tonnes of soy being
used each year.
We made good progress on our
commitment to redistribute all
food surplus by 2025, thanks to the
collaborative efforts of colleagues across
the Food team and our stores. Working
together, the roll-out of a new digital app
to all our Food stores helped deliver a
126% increase in food redistribution.
30
Marks and Spencer Group plc Our most
sustainable
denim yet
All our cotton is responsibly sourced,
with the majority through the Better Cotton
Initiative – helping farmers to reduce their water
usage and increase their profits. The wash is the
process that gives denim its distinctive look and
finish but it’s typically a water-intensive process.
M&S partnered with Jeanologia – the leader
in sustainable finishing technologies – and
innovated together to produce a range, which
means that M&S jeans are now finished with
86% less water compared with the industry norm
for denim finishing. As part of our enhanced
chemical policies, M&S is switching from
standard indigo dyes to cleaner alternatives
that require less water and chemicals to
produce. 50% of the 2021 spring/summer range
has been made with this lower-impact dye.
Environment:
Now moving towards net zero
In November 2020, we extended our climate
change commitment, with a pledge to build on
the carbon neutral operations we have today
towards net zero emissions by 2035. This builds
on our existing science-based targets with a
greater emphasis on delivering reductions in
emissions that we currently offset.
We are preparing for the future adoption of
the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations. We have
demonstrated our progress on aligning our
climate reporting with these recommendations
and set out our plans for next year in our
ESG Committee Report.
Further detail on our climate disclosures
is on pages 74-76.
Social:
Leading on human rights
Sourcing ethically – and reporting transparently
on our supply chain practices – is core to how we
do business. It’s part of the promise we make to
our customers and this year we have provided
additional assurance that they can shop from
M&S with confidence. In January 2021, we were
the first major UK retailer to publicly support
the Coalition to End Forced Labour in the
Uyghur Region’s “Call to Action”, ensuring our
supply chains are not linked to the human rights
abuses in the Xinjiang region.
Setting standards in our own supply chains,
however rigorous, can only set a baseline. To be
serious about ensuring everyone who works
with M&S is treated with decency and respect,
we must hold a mirror up to make sure the
reflection is true. That is why we asked Oxfam to
conduct a gap analysis of our supply chain and
we published the findings in full. As part of our
response, we have taken action to scale our
worker voice programmes and committed to
share our learning to help drive meaningful
industry-wide change.
Governance:
Our new ESG Committee
Helping our customers, colleagues, and
communities lead happier, healthier and
fulfilling lives is core to the M&S brand and
great work continues to be delivered; but we
need to continue to reinvigorate Plan A and
put it back at the centre of our customer story.
In December, we established a new Board
Sub-Committee on Environmental, Social &
Governance (ESG), chaired by Tamara Ingram,
to provide focus and oversight of our Plan A
programme across the business. The invaluable
insight and experience of our Committee
members provides robust challenge to our
thinking as we look to reinvigorate Plan A
in 2021.
Further detail about the activity of the
Committee is set out on page 73.
Too good to waste:
Increasing food
redistribution
Founded in 2015, our redistribution
partnership with Neighbourly has been
updated with newly designed app
technology that enables stores to donate
any food surplus more efficiently to those
that need it most. Stores across the UK and
ROI are matched to a network of more than
1,400 community partners – such as our
Glasgow Pollok store, which partners with
Indigo Eats to deliver childcare services for
families with children from 6 weeks to 16
years old in the local area – who collect and
deliver surplus such as fresh fruit, vegetables
and bakery products daily. The new app
was designed with our store colleagues, and
their input ensured that it was successfully
integrated into our store routines and
processes. Since its launch, most of our
stores have more than doubled the amount
of stock they are donating. We donated a
total of 11.8m meals in 2020/21 and reduced
food waste in store by almost 5,000 tonnes.
OUR RENEWED PLAN A
As the world emerges from the
pandemic, we believe customers will
look to brands they can trust and
have confidence in to offer quality
and value through trading ethically.
Under our Never the Same Again
programme, we are forging a reshaped
M&S, that is set up to compete in a
post-Covid marketplace. This includes
reinvigorating Plan A for 2021 to invoke
the original pioneering spirit of the
programme and put sustainability at
the centre of our customer story.
Read more on Plan A:
corporate.marksandspencer.com/
Plan-A-Report-2021
31
Annual Report & Financial Statements 2021STRATEGIC REPORT PLAN A REVIEW CONTINUED
PLAN A MEASUREMENTS
FOOD WASTE
Donations of surplus in meals equivalent
Measurement
PACKAGING
Percentage of packaging classified as being
easily recyclable
WASTE TO LANDFILL
Percentage sent to landfill
M&S GREENHOUSE
GAS EMISSIONS (CO2e)
The gross carbon dioxide emissions from M&S operated
stores, offices, warehouses and delivery fleets worldwide.
In addition, we purchase renewable energy and carbon
offsets to match these emissions, making our global
operations carbon neutral
Progress
11.8m
meals
87%
Zero
298,000
tonnes CO2e
+126% on 2019/20
+10% on 2019/20
Zero in 2019/20
-13% on 2019/20*
MARKS & START
Number of UK placements offered
350
-81% on 2019/20*
COLLEAGUE
VOLUNTEERING
Number of paid volunteering hours provided by
M&S colleagues
Paused due to
Covid-19
n/a
COMMUNITY
AND CHARITIES
Donations raised by customers and colleagues
M&S donations relating to the Sparks loyalty scheme,
the Rainbow Sale which supported NHS Charities
Together and cause-related marketing
£2.4m
-64% on 2019/20*
£14.9m +210% on 2019/20*
In 2020/21, a number of Plan A measurements were materially impacted by the consequences of Covid-19. Whilst colleagues
continued to support their local communities, a number of our structured programmes were suspended or disrupted. In 2021/22
we will rebuild participation in the Marks & Start scheme in addition to supporting the UK Government’s Kickstart programme with
360 placements.
STREAMLINED ENERGY AND CARBON REPORTING
ENERGY AND TRANSPORT FUEL CONSUMED
GREENHOUSE GAS (GHG) EMISSIONS
This year
2020/21
(GWhs)
Last year
2019/20*
(GWhs)
%
change
This year
2020/21
(000 tonnes)
Last year
2019/20*
(000 tonnes)
%
change
UK operations
International operations
787
18
827
23
Group
* Performance has been restated to use actual data sourced from international
805
850
operations, in place of previous year estimates.
-5%
-21%
-5%
Direct emissions (scope 1)
of which UK:
In-direct emissions from
electricity (scope 2)
of which UK:
2020/21 saw a significant impact to the operational space in
our stores as we reacted to the national lockdowns, with entire
trading floors closed for several month’s at a time. The closure
of this space will have materially reduced the amount of
energy consumed.
The principle measures taken to improve energy efficiency in
2020/21 include continued roll-out of new refrigeration shelf-
edge technology, conversions to LED lighting and the trialling
of new fan technologies at certain locations.
Total gross/location-method
scope 1+2 GHG emissions
of which UK:
GHG intensity per 1,000 sq ft
of salesfloor
Procured renewable energy
Total market-method scope
1+2 GHG emissions
of which UK:
Procured carbon offsets
157
156
141
129
298
285
15
120
177
164
177
173
172
168
154
341
325
17
143
198
183
198
-9%
-9%
-16%
-16%
-13%
-12%
-12%
-16%
-11%
-10%
-11%
Total net scope 1+2
GHG emissions
GHG emissions are from operationally controlled activities in accordance with
WRI/WBCSD GHG Reporting Protocols (Revised edition) and 2015 Scope 2 Guidance
using DEFRA/ BEIS 2020 Greenhouse Gas Reporting Conversion Factors, which include
a 9% lower carbon intensity rating for UK grid electricity that reduces our emissions by
14,787 tonnes CO2e compared with our location-based 2019/20 figures. For full details,
please see our 2021 Plan A Report.
0
0
32
* Performance has been restated to use actual data sourced from international
operations, in place of previous year estimates.
Marks and Spencer Group plc
STRATEGIC REPORT
NON-FINANCIAL
INFORMATION STATEMENT
The statements below reflect our commitment to, and management of, people,
communities, the environment, human rights, anti-bribery and anti-corruption
in the last 12 months. Full details of all our policies on these matters can be found at
marksandspencer.com/thecompany.
PEOPLE
We are committed to providing all of
our colleagues with a safe working
environment and an organisational
culture which promotes diversity,
inclusivity, personal development and
mutual respect. We want people to enjoy
coming to work and for the workplace to
be free from discrimination, harassment
and victimisation. We know that our Board
and leadership team play a vital role in this
commitment, which is why we have laid
out our progress in balanced leadership
on pages 64 to 65. Further detail on
social matters can be found in People
and Culture on pages 26 to 29, and our
Section 172(1) statement on pages 34 to 36
and 68 to 69.
Read more on our commitment to
people in our:
– People Principles
– Code of Conduct
– Responsible Marketing Principles
– Equal Opportunities Policy
COMMUNITIES AND ENVIRONMENT
We have supported our local communities
throughout our 137 year history, because
we know that vibrant communities are
essential for our success. We aim to take a
progressive approach to our community
engagement, which is reflected in our
Plan A commitments. Sustainability is
also core to Plan A and to the M&S brand.
The framework brings together individual
business unit strategies into a shared
programme to drive behavioural change
and ensure the whole business operates
in a more sustainable way.
Read more on our commitment to
communities and the environment on
our dedicated corporate website areas:
– Community Engagement
– Delivering Plan A
– Our contributions towards, and consideration
of, communities is integrated throughout
the report and can also be found in our
Section 172(1) statement on pages 34 to 36
and 68 to 69 and the ESG Committee report
on pages 73 to 76.
HUMAN RIGHTS
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
Conduct 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 knowledge and
awareness on human rights for all of our
colleagues and suppliers, 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 in our:
– Modern Slavery Statement
– Human Rights Policy
– Code of Conduct
– M&S Global Sourcing Principles
– Child Labour Procedure
– M&S grievance procedure for Food
and Clothing & Home supply chains
– Confidential Reporting Procedures
– M&S Response to Covid-19: Workers
in Supply Chains
ANTI-BRIBERY AND
ANTI-CORRUPTION
Read more on our activities in these
areas this year:
– Environmental commitments and progress
can be found in the ESG Committee report
on pages 73 to 76 and the Plan A review on
pages 30 to 32, which includes details of our
Greenhouse Gas (‘GHG’) emissions.
M&S is committed to the highest
standards of ethics, honesty and integrity.
We have a zero-tolerance approach to
any form of bribery and corruption and
operate a compliance programme to
prevent bribery and corruption in our
business and supply chain.
Our Anti-Bribery and Anti-Corruption
policies outline the expected standards
of conduct that colleagues, contractors,
suppliers, business partners and any other
third parties who act for or on behalf of
M&S are obliged to follow. The Group
Policy outlines core principles and
approach, while the Colleague Policy
provides detailed guidance and sets out
the applicable procedures for colleagues,
workers and contractors. The Business
Partner Policy identifies the requirements
for service providers, suppliers and other
business parties.
Our programme includes detailed
procedures and controls 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. All
colleagues are required to undertake
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. Any potential incidents
reported internally or to the external
confidential reporting channels are
followed up and full investigations
launched where such action is deemed
appropriate after preliminary enquiries.
All investigations are subsequently
reported to the Audit Committee.
Bribery Risk Assessments are conducted
on an annual basis and an annual report
issued to the Audit Committee.
Read more on our commitment to
Anti-Bribery and Anti-Corruption in our:
– Business Partner Anti-Bribery and
Anti-Corruption Policy
– Code of Conduct
– Confidential Reporting Procedures
33
Annual Report & Financial Statements 2021STRATEGIC REPORT SECTION 172(1) STATEMENT
ENGAGEMENT &
DECISION-MAKING
SECTION 172(1) STATEMENT
We believe that considering our stakeholders
in key business decisions is not only the right
thing to do, but is fundamental to our ability
to drive value creation over the longer term.
Now, as we enter a new financial year in the
midst of recovering from a global pandemic,
balancing the needs and expectations of
our stakeholders has never been a more
important or challenging task.
Board directors are bound by their duties
under the Companies Act 2006 (the “Act”)
to promote the success of the Company
for the benefit of our members as a whole.
In doing so, however, they must have regard
for the interests of all of our stakeholders,
to ensure the long-term sustainability of the
Company. The Board is therefore responsible
for ensuring that it fulfils its obligations
to those impacted by our business, in its
stakeholder consideration and engagement.
Stakeholder consideration is embedded
throughout the business, with the Executive
Committee (“ExCo”) and senior management
actively engaged in communication and
involvement initiatives.
The following pages comprise our Section
172(1) statement, setting out how the Board
has, in performing its duties over the course of
the year, had regard to the matters set out in
Section 172(1) (a) to (f) of the Act, alongside
examples of how each of our key stakeholders
have been considered and engaged. Further
information can also be found throughout
the Strategic Report and in our exploration
of key strategic decisions made in the
Governance Report.
Read more:
Strategic Report, p2-57
Key Board Decisions & S172(1)
Considerations, p68-69
At marksandspencer.com/thecompany
STAKEHOLDER ENGAGEMENT & CONSIDERATIONS
SHAREHOLDERS
Why they matter
Securing our shareholders trust through
continuous engagement ensures their ongoing
investment and support.
Key priorities
For some, delivering sustainable, profitable
growth over the long term. For others, seeing
immediate returns on their investment.
Increasingly, seeing proactive and conscientious
“ESG” plans being formed and corresponding
good performance in Environmental, Social and
Corporate Governance areas.
Engagement approach
– Last year’s Digital AGM was the Board’s most
engaging and constructive yet because we
were able to reach shareholders directly in
their homes, instead of only those able to
attend a London-based meeting. Private
shareholder engagement was nearly trebled
with c.1,500 individual shareholders engaging
with our AGM platform, either to watch, vote
or submit questions. The webcast of the
meeting has been available to watch on our
website throughout this year.
– Our Private Shareholder Panel is a group
of randomly selected private shareholders
who have the opportunity to attend regular
meetings with our Board and senior
management, during which they can hear
more about M&S and provide their input on
the business’ direction of travel. Due to the
impact of the pandemic on planned
activities, we extended the tenure of our
2019/20 Panel and continued to hold
meetings with them digitally, to ensure
that they had ample opportunity to share
their views.
34
– Our Investor Relations team, alongside
the Chairman and senior management,
maintains a regular dialogue with key
institutional investors. Over the course of
the past year, the team met with (via video
conferencing and over the phone) over 100
institutional funds, engaging with investors
who we estimate represent over half of our
issued share capital.
Governance considerations
– Dividend decision-making, balancing the
desire of shareholders for immediate returns,
against the need to preserve liquidity and
ensure the sustainability of the business
throughout the Covid-19 pandemic and
uncertainties surrounding recovery timings.
– Overarching strategy and purpose setting,
aimed at delivering against shareholders’
needs for long-term, sustainable and
profitable growth.
– Audit Committee oversight of internal and
external audit processes, ensuring the
business’ internal framework of controls is
sufficiently adequate to protect shareholder
investment, and that the presentation of the
financial statements provides investors with
an accurate, fair and balanced view of
performance, strategy and operations.
CUSTOMERS
Why they matter
Our customers are at the heart of our business.
Maintaining and increasing their enthusiasm
and loyalty for the M&S brand ensures the
enduring success of our business.
Key priorities
Great quality and value products; having good
availability across product lines; a store estate
and an online offer that are easy and enjoyable
to shop in; a conscientious corporate citizen who
customers can rely on to have acted ethically
and sustainably when sourcing the products
they wear, eat, and bring into their homes.
Engagement approach
– We monitored Customer Mood during
Lockdown, surveying 1,000 customers a
week to understand their thoughts, feelings,
and mood, what they wanted from retailers,
and how they felt about M&S during this
period. With the insights directly influencing
senior management in shaping our tone and
content in communications and marketing.
– Having a great online shopping experience
became even more important during
lockdown. To improve our Dotcom
Experience, we conducted 50 in-depth
customer interviews across the whole
end-to-end online journey, covering 135
interaction evaluations, and then did a similar
exercise for a range of competitors to assess
user experiences. The findings are directly
contributing to the optimisation of our
website to maximise online growth.
– We regularly conduct focus groups, in-depth
interviews and surveys across the business.
For example, this year, we held 8 focus groups
and 20 in-depth interviews, and surveyed
2,000 customers to hear their thoughts on
our Lingerie offer. Using the findings,
management identified key customer
priority areas to focus on and ensure we
retain our number 1 market share position.
Governance considerations
– Approval of various organisational and
operational changes for the business to
adapt to the Covid-19 lockdowns, ensuring
that customers could shop confidently and
safely in stores, and that there was continuity
of supply to meet customer demand online.
– Oversight of the programme for launching
M&S product on the Ocado platform,
ensuring workstreams were proceeding to
schedule, with the ultimate aim of providing
new and existing customers access to M&S
Food products online for delivery.
Marks and Spencer Group plc COLLEAGUES
Why they matter
We cannot operate and achieve our strategic
goals without an engaged colleague base that
feels appreciated, and is motivated to deliver
for our customers and the business’ success.
Key priorities
Feeling valued and appropriately rewarded;
having an inclusive and diverse place to work
with a respectful corporate culture; being able
to share their views and have their colleague
voice heard in decision-making.
Engagement approach
– Our Business Involvement Group (BIG),
a network of elected representatives from
across all parts of the business, facilitates our
engagement with colleagues, with local BIG
teams regularly feeding back to National BIG.
– Colleague updates on performance and
strategy are provided by ExCo members and
senior management through regular
business area “huddles”, as well as by email,
virtual meetings, and our Microsoft Teams
communication and collaboration platform.
Colleagues are encouraged to be involved in
these forums by voicing their views, ideas and
questions with the leadership team directly.
– The ExCo this year updated our Inclusion &
Diversity (I&D) strategy, publishing seven
new I&D training modules and a suite of new
policies and line manager guides, aimed at
supporting and highlighting to colleagues
the importance of delivering an inclusive
culture within a diverse environment. Our
seven colleague-led I&D networks also
continued to provide peer support and
subject matter expertise to the business.
– Our monthly Colleague Voice Pulse Survey
gives the Board and ExCo an informed
picture of how colleagues feel about the
business. The progressive colleague
engagement score through the year was 82%,
with 91% of colleagues participating saying
that they feel proud to work for M&S.
Governance considerations
– The chair of BIG represents the collective
colleague voice by attending Board and
Remuneration Committee meetings
throughout the year, while ExCo members
attend National BIG meetings to understand
the issues that are important to colleagues.
– Commissioning a comprehensive Reward
and Wellbeing Survey across the business,
aimed at ensuring colleague pay and benefits
packages are fundamentally fair, reward the
right behaviours and performance, and are
competitively placed for us to retain talent.
COMMUNITIES
Why they matter
Community acceptance and mutual respect
provides us with a licence to operate and
ensures we are a force for good for the
people and places we impact. This includes
the wider environment, where considerate
use of resources contributes towards our
long-term sustainability.
Key priorities
A fair and valuable contribution to society
and the economy and for M&S to be a socially
responsible corporate, that cares about its’
long-term impact on the communities and
environment it operates in.
Engagement approach
– This year, our Charitable Donations reached
over £14.9m to charities and good causes,
including £8.3m donated to NHS Charities
Together to support NHS workers and
patients through the Covid-19 pandemic.
In addition, we continued to support our
long-term partners, such as Macmillan,
Breast Cancer Now and the Royal British
Legion, and expanded the Sparks rewards
scheme to support 35 charity partners.
– We supported local communities with over
£23m of product donations, including the
donation of 11.8m Meals to Community
Groups through our foods surplus
redistribution scheme.
– The M&S Company Archive focused on digital
opportunities for people to explore the rich
heritage of M&S. These included downloadable
learning packs for schools and home learning,
and digital reminiscence resources that have
supported older people in over 2,000 care
settings across the UK. Visit marksintime.
marksandspencer.com for more details.
Governance considerations
– Creating a Board Sub-Committee to oversee
ESG matters. These included the refresh
of our Plan A sustainability programme,
in recognition of growing community
and government interest in how we are
addressing the climate crisis.
– Board oversight of initiatives to support
communities throughout the Covid-19
pandemic, including clothing and food
donations to local hospitals and the addition
of charitable partners to our Sparks scheme.
SUPPLIERS
Why they matter
Our trusted suppliers enable us to provide
our customers with the high-quality, ethically
sourced and produced goods they expect.
Key priorities
A long-term, productive relationship with M&S,
allowing them to create great products, build
volume at equitable prices and achieve their
own strategic goals.
Engagement approach
– The Chairman hosts a rolling programme
of Listening Groups with suppliers.
– Our pool of dedicated dairy farmers are
guaranteed a set price for fresh milk under
our Milk Pledge Plus programme. Our price
accounts for the cost of production and
ensures that our supplying farms have
sufficient profit to invest in infrastructure,
animal welfare and environmental
improvements to maintain their leading
position. As a result, we were the first major
food retailer to have all its milk-producing
dairy farms assured by the RSPCA and have
also removed soya from the cows’ diet to
guarantee a non-deforestation position for
the environment.
– We measure Supplier Satisfaction using the
independent Advantage Report Mirror to
survey a proportion of our supplier base each
year. In recognition of some challenging
feedback we have received in recent years,
and to ensure we continually improve how we
work with suppliers, we have invested in a
full-time Supplier Engagement Manager.
– As a result of site visit limitations during Covid-19,
both in the UK in Foods and globally in C&H,
our Worker Voice Programme was expanded,
allowing us to hear directly from factory workers
in our supply chain on their experiences.
– We have continued working with our suppliers
on Preventing Modern Slavery, welcoming
the Independent Anti-Slavery Commissioner’s
maturity framework, against which we have
assessed ourselves predominantly as
“Evolving Good Practice”, with some activity
“Leading on Human Rights Innovation”.
Further details are available online in our
2021 Modern Slavery Statement.
Governance considerations
– Board and Audit Committee oversight of
risks relating to the rapid growth of online
sales during lockdown, emphasising the
importance of supply chain preparedness.
– Audit Committee review of compliance
with the Groceries Supply Code of Practice,
ensuring suppliers are treated respectfully
and fairly, and any concerns raised are
considered and addressed.
PARTNERS
Why they matter
Our partners provide avenues to expand our
reach and access to new customers - in the UK and
internationally. We also have partners critically
assessing and supporting our operations, to
ensure we constantly evolve and improve.
Key priorities
A corporate partner who responds to concerns,
acknowledges jurisdictional and technical
expertise, and provides peer-to-peer support.
Engagement approach
– This year, we invited Oxfam, as a critical
friend, to carry out a Gap Analysis across our
supply chains in India and the UK and provide
us with honest insights about the experiences
of those who work for, or with, us. To benefit
others in our sector and help us shape clear
priorities for action in 2021, we shared the
report and our response in full on our
corporate website (Working in Marks and
Spencer’s Food and Footwear Supply Chains).
– When we engaged with franchise partners
on ways we could support their operations in
lockdown, they told us that NHS Trusts were
looking to them to stock more basic groceries
in their Hospital Stores. We expanded our
range as a result, to help our partners serve
NHS staff working incredibly long hours.
Governance considerations
– ExCo review of our various international
franchise partnerships, ensuring that they
are equipped to handle the increase in tariffs
and administrative burden caused by Brexit.
– Consideration and approval of Ocado
Retail’s strategic five year plan, ensuring
the enduring success of our partnership.
35
Annual Report & Financial Statements 2021STRATEGIC REPORT
SECTION 172(1) STATEMENT
“NEVER THE SAME AGAIN” CONSIDERATIONS
During the year, as the Board made decisions implementing our strategy and Never the Same Again (NTSA) priorities,
the different interests of our stakeholder groups, and the impact of key decisions upon them, were considered.
In some cases, the interests and impacts between stakeholder groups conflicted, and the Board had to assess
these conflicts and attempt to balance them in their decision-making.
Here, we provide an overview of how decisions taken in furtherance of each of our NTSA priorities were influenced by,
and impacted, our six stakeholder groups. Further analysis of stakeholder considerations in some of the
Board’s key decisions made during the year can also be found on pages 68 to 69.
1
2
3
4
5
Faster Food growth
with Ocado Retail
Capture value in the
Food supply chain
Simplify range and
value in C&H
Turbocharge growth
at M&S.com
Store estate for the
new world
Key influences
– Customers, and their
increasing demand
for online delivery
services, particularly
during lockdowns.
– The potential for
significant volume
growth for existing
suppliers, and
introduction of new
brand suppliers to
the M&S Food offer.
– Improving M&S’ share
of Ocado Retail’s
returns, to ultimately
contribute to
shareholder value.
Impacts
– Valuable job
opportunities have
been provided in
communities,
by opening new
customer fulfilment
centres (“CFCs”).
– While CFC capacity
struggled to meet
customer demand
at the start of the
Covid-19 pandemic,
Ocado Retail’s
improving operations
mean that it is
now sustainably
performing at
capacity. The opening
of a new CFC in
Bristol and openings
in the forthcoming
year will continue
to grow rapidly
customer access
to M&S Food.
Key influences
– Shareholders,
and the efficient
use of their
investment to
maximise returns
through our
Food business.
– Customer demand
for good availability
of products at
great prices.
– The environment,
and the need to
reduce our waste
levels and ensure
that we can minimise
our use of resources.
Impacts
– The continued
roll-out of the
Vangarde supply
chain programme
has improved
availability in
participating
M&S Food stores,
contributing to
improving colleague
and customer
feedback.
Key influences
– Supplier
relationships, and
balancing the need
to support smaller
suppliers against the
need to have fewer,
strategic suppliers
for a more simplified
range.
– Customer
perceptions of our
existing range, and
their shifting demand
throughout the year
towards more lounge
and athleisure wear.
– The potential impact
on colleagues of
simplifying the range
and, as a result,
streamlining
operations.
Impacts
– Operational
efficiency with
our suppliers has
improved, as we are
now buying fewer
product lines in
greater depth.
– Supply chain
– This more economic
optimisation has
been an enabling
factor in our
continued
investment in
Remarksable Value,
meaning that
customer value
perception is
improved.
buying has
improved the
use of shareholder
investment.
– However,
restructuring our
C&H operations
to be fit for future
streamlined activities
has unfortunately
resulted in colleague
redundancies in
support centres.
Key influences
Key influences
– The need to maximise
shareholder return,
and the opportunities
for doing so
presented by the
shift in customer
behaviours towards
shopping online.
– Colleagues at
distribution centres,
and the pressures
they have been
experiencing
while operating at
maximum capacity to
fulfil online orders.
– The ongoing impact
on the environment
and customer
perceptions of
an inefficient
distribution network,
where orders are
fulfilled and
delivered from
various locations.
Impacts
– The creation of
our MS2 division is
improving the
customer experience
of M&S.com – with
website and mobile
app developments,
and by using Sparks
to have more
personalised
relationships with
customers.
– New partnerships
have been formed
by introducing
third-party brands on
M&S.com, adding to
our style credentials
with customers.
– Various customer
perceptions; for
some, we have a
declining store estate
which generates a
negative shopping
experience. For
others, they expect
an M&S presence in
the local community
to be maintained,
regardless of store
condition.
– Colleagues and
the importance of
their job security
in the event of any
store closures.
– Removing the burden
of long-term store
leases on our balance
sheet, to unlock
shareholder value.
Impacts
– Customer
perceptions and store
performance will
improve as our
ageing, high-street
stores are relocated
to new premises that
provide a better
customer experience.
– While closing stores
has inevitably led to
some job losses,
much of our store
rotation is being
achieved with
relocations, where
the vast majority of
colleagues from
closing stores are
redeployed.
36
Marks and Spencer Group plc
STRATEGIC REPORT
KEY PERFORMANCE
INDICATORS
GROUP REVENUE
£9.0bn-11.8%
17/18
18/19
19/20
20/21
FINANCIAL
52
APM
GROUP PROFIT BEFORE TAX (PBT)
& ADJUSTING ITEMS
52
APM
£41.6m -89.7%
10.7
10.4
10.2
9.0
17/18
18/19
19/20
20/21
41.6
580.9
511.7
403.1
Group revenue before adjusting items on a 52-week basis decreased
11.8%, with UK revenue down 11.3% driven by Clothing & Home revenue
declining 31.5%, and International revenue down 17.5%.
The Group delivered profit before tax and adjusting items of
£41.6m in a year characterised by unprecedented lockdowns,
resilient performance and disciplined management of costs.
RETURN ON CAPITAL EMPLOYED (ROCE)
ADJUSTED EARNINGS PER SHARE (EPS)
53
APM
52
APM
3.8%
17/18
18/19
19/20
20/21
3.8
14.0
11.8
10.0
1.1p -93.4%
17/18
18/19
19/20
20/21
1.1
27.8
23.7
16.7
The decrease in ROCE largely reflects the decrease in earnings
before interest, tax and adjusting items.
Adjusted basic earnings per share was 1.1p (last year earnings of 16.7p)
due to lower adjusted profit year on year.
DIVIDEND PER SHARE
NilNil
17/18
18/19
19/20
20/21
3.9
Nil
18.7
13.3
APM
FREE CASH FLOW
(PRE SHAREHOLDER RETURNS)
53
APM
£296.4m
17/18
18/19
19/20
20/21
417.5
580.8
Restated to 205.7
296.4
We did not pay a dividend in 2020/21. As we recover balance sheet
metrics consistent with investment grade, we will assess the
reintroduction of dividend payments, although as we focus on
restoring profitability this is unlikely in the current year.
The business generated free cash flow of £296.4m, largely driven
by working capital inflow, reduced capital expenditure and lower tax
payments, which more than offset the lower adjusted operating profit.
APM Alternative performance measures as outlined on the inside cover.
52 These figures are reported on a 52-week basis.
53 These figures are reported on a 53-week basis.
37
Annual Report & Financial Statements 2021STRATEGIC REPORT
STRATEGIC REPORT
FINANCIAL
REVIEW
Eoin Tonge,
Chief Financial
Officer
FINANCIAL SUMMARY
Group revenue before adjusting items
UK Food
UK Clothing & Home
International
53 weeks
ending
3 April 21
£m
9,166.9
6,138.5
2,239.0
789.4
52 weeks ending
27 March 21
£m
28 March 20
£m
Change %
(52 week)
8,972.7
5,994.8
2,198.6
779.3
10,181.9
6,028.2
3,209.1
944.6
-11.9
-0.6
-31.5
-17.5
Group operating profit before adjusting items
222.2
209.7
590.7
-64.5
UK Food
UK Clothing & Home
International
M&S Bank and Services
Share of result in associates and joint ventures
Interest payable on lease liabilities
Net financial interest
Profit before tax & adjusting items
Adjusting items
(Loss)/profit before tax
(Loss)/profit after tax
228.6
(130.8)
44.1
1.9
78.4
(124.9)
(47.0)
50.3
(259.7)
(209.4)
(201.2)
213.6
(129.4)
45.1
2.0
78.4
(122.5)
(45.6)
41.6
(242.8)
(201.2)
(194.4)
236.7
223.9
110.7
16.8
2.6
(133.4)
(54.2)
403.1
(335.9)
67.2
27.4
-9.8
-157.8
-59.3
-88.1
2,915.4
8.2
15.9
-89.7
27.7
-399.4
–
Basic (loss)/earnings per share
Adjusted basic earnings per share
Dividend per share
Net debt1
1. Due to a change in the Group’s accounting policy to recognise BACS payments at the settlement date, rather than when they are initiated, the comparative amounts for net debt
(10.1)p
1.4p
–
(9.8)p
1.1p
–
1.3p
16.7p
3.9p
£3.95bn
£3.52bn
–
–
-100
-10.9
n/a
and free cashflow have been restated.
Notes:
This year, we are reporting on the 53 weeks to 3 April 2021. Profit metrics are provided on a 53-week basis in the Financial Statements. To provide a meaningful comparison with last
year’s 52-week period, all performance commentary in this section is stated on an unaudited 52-week basis, and all cash and net debt commentary is on a 53-week basis, unless
otherwise noted.
There are a number of non-GAAP measures and alternative profit measures (“APMs”), discussed within this announcement and a glossary and reconciliation to statutory measures is
provided on page 191. Adjusted results are consistent with how business performance is measured internally and presented to aid comparability of performance. Refer to adjusting
items table below for further details.
38
Marks and Spencer Group plc Operating profit before
adjusting items
Operating profit before
adjusting items
£m
2019/20
Gross profit
236.7 2019/20
(60.7) Lost gross profit
from hospitality/
franchise
£m
236.7
(154.0)
Store staffing
30.8 Gross profit growth
93.3
Other store costs
Distribution and
warehousing
Central costs
from core
categories
56.3 Direct Covid costs
(46.8) Government
support
(2.7) Other cost savings
2020/21
213.6 2020/21
(69.0)
101.0
5.6
213.6
– Gross profit decreased £60.7m or c.84bps primarily as a result
of hospitality closures and lower convenience sales, partly
offset by strong growth in core categories and cost saving
programmes, including initial synergies of £21.4m from
Ocado supply.
– Store staffing costs declined £30.8m, primarily driven by
£45.5m of efficiencies enabled by technology improvements
in store. We incurred Direct Covid costs within store staffing
relating to incentives for retail colleagues of £20.8m and door
host costs of £33.7m. Store staffing costs include government
furlough support of £28.8m.
– The movement in other store costs largely relates to
government business rates relief of £70.8m, partly offset
by additional Covid-related cleaning and hygiene costs.
– Distribution and warehousing reflects the increased costs
as a result of online orders, as well as Brexit-related costs
of £9.0m and Covid-related hygiene and social distancing
measures. The Food business incurred total costs relating to
Brexit of £9.9m in the year; a detailed breakdown is given in
the Brexit section below.
GROUP RESULTS
Group revenue before adjusting items was £9,166.9m on a
53-week basis. On a 52-week basis, it decreased 11.9%, with UK
revenue down 11.3% driven by Clothing & Home revenue declining
31.5% and International revenue down 17.5%. The Group generated
an adjusted profit before tax of £50.3m and a statutory loss
before tax of £(209.4)m on a 53-week basis (or £41.6m and
£(201.2)m respectively on a 52-week basis).
Statutory loss before tax includes total charges for adjusting
items of £259.7m on a 53-week basis, including charges of £133.7m
related to organisational change, £95.3m in relation to store
closures identified as part of transformation plans, £79.9m for
intangible asset impairments, offset by a £90.8m gain largely
relating to the release of a portion of the Covid inventory
provision made in the prior year. For full details on adjusting
items and the Group’s related policy see notes 1 and 5 to the
financial statements.
UK: FOOD
UK Food revenue decreased 0.6%. Like for like (LFL) revenue grew
in the first three quarters but declined in the fourth quarter
as the UK-wide lockdown forced the hospitality business and
parts of our franchise business to close again. M&S Food reported
sales do not benefit from a direct online grocery presence,
with these sales instead reported through Ocado Retail.
Excluding franchise and hospitality, core M&S Food categories
performed strongly, particularly over key events, with LFL
revenue growth of 6.9% for the year.
% change to LY
Food
Food LFL
Food LFL ex
franchise and
hospitality
Q1
-2.1
2.0
Q2
1.6
3.4
Q3
2.2
2.6
Q4
-4.4
-2.7
FY
-0.6
1.3
7.7
8.6
8.4
2.8
6.9
Operating profit before adjusting items decreased 9.8%, largely
due to an adverse mix impact on gross margin, which was only
partially offset by reduced costs which benefitted from
government support.
52 weeks ended
Revenue
Operating profit before
adjusting items
Operating margin
27 March 21
£m
28 Mar 20
£m
5,994.8
6,028.2
Change %
-0.6
213.6
3.6%
236.7
3.9%
-9.8
-35bps
The table below sets out the drivers of the movement in operating
profit before adjusting items. To improve understanding we
provide additional information on Covid-related impacts with
adjusted profit. Some direct Covid costs and government support
are visible within the right-hand table as they were incremental to
2019/20, whereas other costs, for example the ongoing costs of
furloughed colleagues (£41.9m), were also incurred in 2019/20
and so are not visible. The full costs and government support
for furlough income and business rates are detailed in a
separate section.
39
Annual Report & Financial Statements 2021STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
OCADO RETAIL LIMITED
UK: CLOTHING & HOME
The Group holds a 50% interest in Ocado Retail Ltd ("Ocado
Retail"). The remaining 50% interest is held by Ocado Group
plc ("Ocado Group"). Full year results are consistent with the
quarterly results reported by Ocado Group on behalf of
Ocado Retail for the quarterly periods ended 31 May 2020,
30 August 2020, 29 November 2020 and 28 February 2021.
Group share of consolidated results of Ocado Retail Ltd
£m
Revenue
EBITDA before exceptional items
Exceptional items
Operating profit
Profit after tax
52 weeks
ended
28 Feb 2021
2,353.2
189.9
50.5
204.2
156.8
M&S 50% share of profit after tax
Ocado Retail Ltd is reported as an associate of M&S as certain rights are conferred on
Ocado Group plc for an initial period of at least five years from acquisition. Exceptional
items are defined within the Ocado Group plc Annual Report and Accounts 2020. A prior
year comparative is not provided here as the investment in Ocado Retail Ltd was made
part-way through 2019/20.
78.4
Revenue grew 43.7% on an annual basis due to strong demand
for online grocery, higher than normal basket size and a
smoothed trading profile across the week. Following switchover
on 1 September, M&S products have accounted for over 25% of
the average Ocado basket.
Ocado Retail EBITDA before exceptional items was £189.9m,
driven by the strong revenue growth and cost performance
reflecting a period of sustained high demand. Units per hour
throughput increased in customer fulfilment centres, with
operational improvements across the network. Trunking and
delivery costs reduced as a percentage of sales due to fewer
deliveries per van, as a result of a higher number of items
per basket.
In addition, Ocado Retail has recognised £50.5m of exceptional
income before tax, largely related to insurance receipts for
business interruption for the period up to 28 February 2021
arising from the Andover fire in 2019.
As a result of strong EBITDA growth and insurance receipts,
Group share of Ocado Retail profit after tax was £78.4m.
After a charge of £14.2m in adjusting items relating to the
amortisation of the intangible asset created by the investment,
Ocado Retail contributed £64.2m to Group profit after tax.
Clothing & Home revenue decreased 31.5% as a result of the
impact on store sales of lockdowns and restrictions throughout
the year. Performance improved following store reopening in
quarter two and either side of the national lockdown in quarter
three, and the online business built momentum through the year.
% change
Clothing & Home
Clothing &
Home stores
Clothing &
Home online
Clothing &
Home LFL
Q1
-61.5
Q2
-21.3
Q3
-25.1
Q4
-18.7
FY
-31.5
-83.8
-39.5
-46.5
-60.6
-56.2
21.5
46.4
47.5
105.8
53.9
-59.3
-21.2
-24.1
-15.5
-29.8
To enable greater insight into these movements, we are providing
further detail on the performance of each channel.
Online
52 weeks ended
27 Mar 21
28 Mar 20
% change
Traffic (m)
Active customers (m)
Conversion (%)
Average order value (£)
Returns rate (%)
Revenue £m
417.5
9.0
7.2
49.7
18.8
1,109.7
308.8
5.9
6.3
51.5
28.0
721.3
35.2
52.5
0.9 pts
-3.5
-9.2 pts
53.9
UK Clothing & Home online revenue increased 53.9%. Following
initial disruption in April, online sales remained strong and built
momentum, with quarter four revenue up 105.8%. Online
customer traffic increased 35.2% driven by both direct and paid
search helping to drive 52.5% growth in active customers to 9.0m.
Growth was led by mobile, with over 3.5m downloads of the M&S
app driven by the relaunch of Sparks. This led to increased app
usage, with 2.3m monthly active users (2019/20: 1.2m), which also
helped to drive better conversion. In addition, there was a benefit
from a c.0.9 percentage point reduction in returns rates
compared with last year due to changes in customer behaviour
and product mix during lockdown. This offset headwinds from
lower in-store orders, which are attributed to the online channel,
as well as a small decline in average order value as customers’
purchases focused on core product.
40
Marks and Spencer Group plc Stores
52 weeks ended
Footfall, m
(average/week)
Transactions, m
(average/week)
Basket value (£)
Revenue £m
27 Mar 21
28 Mar 20
% change
1.9
1.0
30.6
5.9
2.1
32.3
1,088.9m 2,487.8m
-67.8
-52.4
-5.3
-56.2
UK Clothing & Home store revenue decreased 56.2%: the impact
of national lockdowns, local restrictions and the shape of the
store estate adversely impacted the business with footfall down
67.8% and overall transactions down 52.4%. Basket value fell 5.3%
in stores in line with online as customers’ purchases focused on
core product.
Total Clothing & Home
The Clothing & Home business in total generated an underlying
operating loss before adjusting items for the year of £129.4m
compared with a profit of £223.9m in the prior year. While online
growth resulted in a substantial improvement in online operating
profit, this was more than offset by the decline in stores, with
lower costs insufficient to offset reduced overall sales.
52 weeks ended
Revenue
Operating (loss)/profit
before adjusting items
Operating margin
27 Mar 21
£m
2,198.6
28 Mar 20
£m
3,209.1
Change
%
-31.5
(129.4)
-5.9%
223.9
7.0%
-157.8
-12.9pts
The table below sets out the drivers of the movement in Clothing
& Home operating (loss)/profit before adjusting items. To improve
understanding, we provide additional information on Covid-19-
related impacts within adjusted profit. Some direct Covid costs
and government support are visible within the right-hand table
as they were incremental to 2019/20, whereas other costs, for
example the ongoing costs of furloughed colleagues (£129.1m),
were also incurred in 2019/20 and so are not visible. The full costs
and details of government support for furlough income and
business rates are detailed in a separate section.
Operating profit/(loss)
before adjusting items
Total C&H
£m
Operating profit/(loss)
before adjusting items
Total C&H
£m
2019/20
Gross profit
Store staffing
Other store costs
Distribution and
warehousing
Central costs
223.9 2019/20
(611.7) Lost gross profit
from stores
147.6 Gross profit growth
from online
109.3 Direct Covid costs
(43.2) Government
support
44.7 Other cost savings
2020/21
(129.4) 2020/21
223.9
(841.2)
229.5
(18.7)
196.4
80.7
(129.4)
– Gross profit decreased £611.7m or (218)bps. Adverse currency
movements and under-recovery of fixed logistics costs within
margin impacted by (78)bps. Discounting increased (140)bps
driven by an increased mix of clearance sales made at a higher
depth of cut than last year.
– Store staffing costs declined £147.6m, mostly as a result of
£42.6m of efficiencies enabled by technology improvements
in store. Store staffing costs include government furlough
support of £88.6m.
– The movement in other store costs largely relates to business
rates relief of £101.4m.
– Distribution and warehousing reflects the higher costs to serve
online demand, both from the Castle Donington warehouse
and shipments from store partially offset by volume savings
from reduced deliveries to store. The overall increase in
distribution and warehousing costs was offset by delivery
income within revenue.
– The decline in central costs was largely driven by lower
marketing activity, lower headcount and a reduction in
depreciation of technology assets as we move to cloud-based
solutions and assets reach the end of their useful lives.
Clothing & Home online generated an operating profit margin of
c.14%, with higher volumes leading to increased leverage of the
online fixed cost base. Profitability also benefitted from a
reduced returns rate, although this was partially offset by
the adverse impact of lower in-store orders. Conversely, the
operating loss in stores represented a margin on sales of c.(26)%.
INTERNATIONAL
International revenue decreased 17.3% at constant currency
("CC") as stores were adversely impacted by rolling Covid
lockdowns and restrictions. Online sales remained strong
throughout, particularly in markets in which the Group has a
store presence and through partner websites, with sales growth
of 114.3% to £165.7m.
% change to 2019/20
Q1 CC
Q2 CC
Q3 CC Q4 CC
FY CC
FY
Reported
Total revenue
-40.7
-9.2
-10.4 -10.2
-17.3
-17.5
52 weeks ended
Revenue
27 Mar 21
£m
28 Mar 20
£m
Change
%
Change
CC %
Clothing & Home
Food
Total
Memo:
Online revenue
483.2
296.1
779.3
620.7
323.9
944.6
-22.1
-8.6
-17.5
-21.6
-9.4
-17.3
165.7
77.2
114.6
114.3
41
Annual Report & Financial Statements 2021STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
The decline in Clothing & Home sales was driven by lower store
sales in the Republic of Ireland and India, and lower franchise
shipments, particularly to Asia, partly offset by online growth.
Food sales were more resilient, particularly in the Middle East
and Asia, as Covid disruption shifted habits to favour eating in.
This helped offset the steep decline in travel franchise sales in
Europe and Brexit related disruption in quarter four.
Operating profit before adjusting items was down 59.3% driven by
the lower Clothing & Home sales and incremental costs relating
to Brexit. A detailed breakdown of this is given in the Brexit
section below.
Operating profit before
adjusting items
Operating profit before
adjusting items
£m
2019/20
Gross profit
Store staffing
Other store costs
Distribution and
warehousing
Central costs
110.7 2019/20
(87.9) Lost gross profit
from stores
14.0 Gross profit growth
from online
16.4 Online growth costs
(11.7) Government
support
3.6 Other cost savings
2020/21
45.1 2020/21
£m
110.7
(131.3)
43.4
(23.6)
13.1
32.8
45.1
Gross profit decreased £87.9m as lower store sales were only
partially mitigated by strong online growth. Store staffing
and other store costs declined. The costs of £10.8m relating to
salary costs of colleagues on furlough were partially offset by
government furlough support of £6.3m and reduced overtime
hours, while the group benefited from a further £6.8m of
government support for rent and rates across owned markets,
and £7.1m of rent relief. The increase in distribution costs largely
relates to the growth of online sales and costs incurred as a
result of Brexit of £6.2m which was only partly offset by lower
distribution costs on shipments to stores. Central cost reductions
were enabled by the shift to digital events from buying fairs and
reduced travel.
M&S BANK & SERVICES
M&S Bank & Services income before adjusting items was down
£14.8m to £2.0m. This was the result of a significant decrease in
income from credit card and travel money sales. M&S Bank and
services income after adjusting items relating to PPI decreased
£4.6m to £(0.4)m.
COVID COSTS
In the following table we set out identifiable costs with adjusted
profit related to Covid. We incurred a number of direct Covid
costs such as door hosts and hygiene of £63.2m, incentives for
working through the pandemic for non-furloughed colleagues of
£28.5m and there was a slight reduction in colleague holiday
hours of £3.9m.
In addition business rates relief of £174.6m partly compensated
for the substantial loss of trade from closed space in Clothing &
Home and hospitality areas and franchise stores in Food.
Finally, identifiable costs include government grants for furlough
income of £131.5m, which were more than offset by the salary
costs incurred for furloughed colleagues of £181.8m.
Costs relating to
Covid within adjusted
loss before tax in
2020/21
Operational
costs related
to Covid
Incentive for
non-furloughed
colleagues
Estimated lower
colleague
holiday hours
Direct Covid
costs
Government
business rates
relief for
lost trade
Government
grants – furlough
income
Government
support
Year-on-year
Covid impacts
within
segmental
profit bridges
Salary costs for
furloughed
colleagues
Total cost
impact in
adjusted profit
Group
£m
C&H
£m
Food
£m
International
£m
(63.2)
(13.8)
(49.4)
–
(28.5)
(6.4)
(22.0)
(0.1)
3.9
1.5
2.4
–
(87.8)
(18.7)
(69.0)
(0.1)
174.6
101.4
70.8
2.4
131.5
95.0
30.2
306.1
196.4
101.0
6.3
8.7
218.3
177.7
32.0
8.6
(181.8)
(129.1)
(41.9)
(10.8)
36.5
48.6
(9.9)
(2.2)
42
Marks and Spencer Group plc BREXIT
ADJUSTING ITEMS
The Group makes certain adjustments to statutory profit
measures in order to derive alternative performance measures
(APMs) that provide stakeholders with additional helpful
information and to aid comparability of the performance of the
business. For further detail on these charges/gains and the
Group’s policy for adjusting items, please see notes 1 and 3 to
the financial statements.
Strategic programmes –
Organisation
Strategic programmes –
UK store estate
Strategic programmes –
Other
Directly attributable to Covid
Intangible asset impairments
Sparks loyalty
programme transition
Amortisation and fair
value adjustments arising
from the investment in
Ocado Retail Limited
Remeasurement of
contingent consideration
including discount unwind on
Ocado Retail investment
Establishing the investment
in Ocado Retail Limited
Store impairments and other
property charges
M&S Bank charges incurred
in relation to insurance
mis-selling and Covid
forward economic
guidance provision
Other
Adjusting items
53 weeks
ended
27 Mar 21
£m
52 weeks
ended
28 Mar 20
£m
Change
£m
(133.7)
(13.8)
(119.9)
(95.3)
(29.3)
(66.0)
(5.8)
90.8
(79.9)
(16.6)
(27.3)
(163.6)
(13.4)
21.5
254.4
(66.5)
–
(16.6)
(14.2)
(16.8)
2.6
(6.8)
(1.7)
(2.9)
(1.2)
(3.9)
(0.5)
6.9
(78.5)
85.4
(2.4)
(1.0)
(12.6)
23.5
(259.7)
(335.9)
10.2
(24.5)
76.2
The following estimated cost impacts were incurred by the Group
in 2020/21 as a result of Brexit.
2020/21
Administrative
operating costs
Tariffs
Net costs
UK Food International
Total
9.9
–
9.9
4.1
2.1
6.2
14.0
2.1
16.1
Administrative costs include additional supply chain costs at the
Motherwell and Faversham depots as well as costs of a digital
track and trace platform, additional variable cost per tray,
veterinary certification costs and the one-off costs of change.
Tariffs relate to duty on exports of Clothing & Home and
elements of the Food catalogue into the EU.
In addition, the Group saw adverse trade impacts including the
restriction of trade on certain products, port delays and
increased operational complexity reducing availability.
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
Net financial interest
Net interest payable on
lease liabilities
Net finance costs
52 weeks ended
27 Mar 21
£m
28 Mar 20
£m
Change
£m
(89.9)
4.7
(85.2)
47.2
(80.5)
14.5
(66.0)
23.6
(4.9)
(6.9)
(2.7)
(45.6)
(122.5)
(168.1)
(4.9)
(54.2)
(133.4)
(187.6)
(9.4)
(9.8)
(19.2)
23.6
2.0
2.2
8.6
10.9
19.5
Net finance costs decreased £19.5m to £168.1m. This was primarily
due to higher pension income due to the increased IAS19 pension
surplus at last year end. In addition, there was a decrease in the
interest payable on lease liabilities offset by lower interest
received on deposits and higher interest payable on debt due
to a credit rating downgrade and the premium paid as part
of the buyback of bonds.
GROUP PROFIT BEFORE TAX & ADJUSTING ITEMS
Group profit before tax and adjusting items was £50.3m on a
53-week basis, down £352.8m on last year. The profit decrease
was driven by the decline in Clothing & Home and International
operating profits.
GROUP LOSS BEFORE TAX
Group loss before tax was £209.4m on a 53-week basis, down
£276.6m on last year. This includes adjusting items of £259.7m
on a 53 week basis (last year £335.9m).
43
Annual Report & Financial Statements 2021STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
LOSS/EARNINGS PER SHARE
Basic loss per share was 9.8p (last year earnings of 1.3p), due to
the decrease in profit year on year and the increase in weighted
average shares outstanding. The weighted average number of
shares in issue during the period was 1,953.5m (2019/20: 1,894.9m).
Basic loss per share on a 53-week basis was 10.1p.
Adjusted basic earnings per share was 1.1p (last year earnings of
16.7p) due to lower adjusted profit year on year. Adjusted basic
earnings per share on a 53-week basis was 1.4p.
CAPITAL EXPENDITURE
UK store remodelling
New UK stores
International
Supply chain
IT & M&S.com
Property asset replacement
Acquisition of Jaeger brand
Capital expenditure
before property
acquisitions and disposals
Property acquisitions
and disposals
Capital expenditure
53 weeks
ended
3 Apr 21
£m
52 weeks
ended
28 Mar 20
£m
27.0
14.9
6.7
25.2
47.6
19.2
6.3
60.3
33.3
15.7
39.2
81.1
102.4
–
Change
£m
(33.3)
(18.4)
(9.0)
(14.0)
(33.5)
(83.2)
6.3
146.9
332.0
(185.1)
(0.3)
146.6
(2.7)
2.4
329.3
(182.7)
Group capital expenditure before disposals decreased £182.7m to
£146.6m as a result of careful management of discretionary
spending as a result of the pandemic.
UK store remodelling costs related to Food renewal stores and
the repurposing of space from Clothing & Home and cafes to
Food. Spend on New UK stores related to seven Simply Foods
and three full-line store openings in the year.
Supply chain expenditure reflects investment in Food equipment
and fleet to support anticipated volume growth, investment
in a second Food ambient national distribution centre in
Milton Keynes and spend on improvements to Castle Donington
capabilities and our Bradford warehouse to support
online expansion.
IT & M&S.com spend includes costs related to the licence for the
Food ordering and allocation system and investment in digital
capability for example, to support integration of more flexible
management structures into store operations.
Property asset replacement decreased £83.2m due to the prior
year asset replacement programme in stores, although this will
normalise towards pre-pandemic levels going forwards.
On a 53-week basis, adjusting items charges were £259.7m, with
£16.9m incurred in week 53, largely related to restructuring costs.
A charge of £133.7m has been incurred in relation to
organisational change. This included the integration of more
flexible management structures into store operations, as well as
the streamlining of store and management levels as part of the
Never the Same Again programme. This resulted in a reduction
of c.8,200 roles across support centres, regional management,
and UK stores, with associated redundancy costs of £99.7m.
We expect this restructuring to generate annualised cost savings
of at least £115m.
A charge of £95.3m has been recognised in relation to store
closures identified as part of transformation plans reflecting an
updated view of latest closure costs as a result of an increase in
the number of stores in the programme. Further material charges
relating to the closure and reconfiguration of the UK store estate
are anticipated as the programme progresses with total future
charges of up to c.£268m estimated over the next 10 years,
bringing anticipated total programme costs since 2016 to be
up to c.£926m.
A gain of £90.8m has been recognised as being directly
attributable to the Covid pandemic relating to the release
of a portion of the inventory provision made in the prior year
compared to initial estimates offset by further costs relating to
cancellations and storage. The sell-through of Clothing & Home
stock has been much stronger than anticipated.
A charge of £79.9m has been recognised in relation to
impairment of intangible assets, comprising £39.6m for the
impairment of Per Una goodwill, and the balance for replaced,
retired or decommissioned computer software assets.
Charges of £16.6m have been incurred in relation to the one-off
transition costs associated with the closure of the old Sparks
loyalty scheme following the launch of the new programme in
July 2020.
A charge of £14.2m has been recognised relating to the
amortisation of intangible assets acquired on the purchase
of our share in Ocado Retail.
A gain of £6.9m was recognised relating to the reversal of
previously recognised store impairments offset by newly
impaired stores. The Group has revised future projections for
UK stores (excluding those stores which have been captured as
part of the UK store estate programme) for the current view of
pressures impacting the retail industry, which is less negative
overall than previously projected.
Charges of £2.4m have been incurred relating to M&S Bank,
primarily due to the insurance mis-selling provision. The Group’s
share of the total insurance mis-selling and forward economic
guidance (FEG) provisions of £338.3m exceeds the total offset
against profit share of £225.1m to date and this deficit will
be deducted from the Group’s share of future profits from
M&S Bank.
TAXATION
The effective tax rate on profit before adjusting items was 56.5%
(50.3% on a 53 week basis; 2019/20: 20.7%). The effective tax rate
on statutory loss before tax was a credit of 3.4% (credit of 3.9% on
a 53 week basis; 2019/20: charge of 59.3%) due to the Group
statutory loss offset by the impact of disallowable adjusting
items. Given the lower level of profits, the effect of the recapture
of previous tax relief under the Marks and Spencer Scottish
Limited Partnership (“SLP”) structure has increased compared
with previous years. Next year, we anticipate an effective tax
rate on profit before adjusting items of c.26% partly due to the
continuation of the recapture of previous tax relief.
44
Marks and Spencer Group plc The business generated free cash flow of £296.4m, largely driven
by working capital inflow, reduced capital expenditure and lower
tax payments, which more than offset the lower adjusted
operating profit.
The working capital inflow since year end 2019/20 was driven
by higher payables in Clothing & Home and Food (c.£125m)
largely due to the extension of payment terms for C&H suppliers
and the timing of payments. Lower stock was a result of strong
Easter trading and the higher stock at prior year end resulting
from lockdown. Franchise receivables reduced due to travel
store closures.
Lower capital expenditure largely reflects the reduction
of discretionary spending as a result of the pandemic.
Cash capital expenditure includes £77.2m relating to prior
year capital accruals.
The decrease in financial interest and tax payments to £81.8m
is due to the reduction in UK corporation tax paid reflecting the
full year taxable loss position.
Defined benefit scheme pension funding of £37.1m reflects
the second limited partnership interest distribution to the
pension scheme.
Adjusting items cash outflow was £120.5m. This included
£92.1m relating to the costs of organisational change, £10.9m in
relation to the store closure programme, £6.2m paid for deep
storage and fabric during the Covid pandemic, £5.6m in relation
to the transition to the new Sparks loyalty programme, £2.4m for
M&S Bank, and £1.7m relating to costs associated with the launch
of M&S product on the Ocado Retail platform.
CASH FLOW
Adjusted operating profit
Depreciation and
amortisation before
adjusting items
Cash lease payments
Working capital
Defined benefit scheme
pension funding
Capex and disposals
Financial interest
and taxation
Investment in associate
Ocado Retail Limited
Investment in joint venture
Employee related
share transactions
Proceeds from rights issue
net of costs
Share of profit from associate
Cash received from
settlement of derivatives
Adjusting items outflow
Free cash flow
Dividends paid
Free cash flow after
shareholder returns
Opening net debt excluding
lease liabilities
Free cash flow after
shareholder returns
Exchange and other
non-cash movements
excluding leases
Closing net debt excluding
lease liabilities
Opening net debt
Free cash flow after
shareholder returns
Decrease in lease obligations
New lease commitments
and remeasurements
Exchange and other
non-cash movements
53 weeks
ended
3 Apr 21
£m
52 weeks
ended
28 Mar 20
restated
£m
222.2
590.7
603.1
(316.6)
268.1
(37.1)
(203.8)
632.5
(335.7)
(67.8)
(37.9)
(325.9)
Change
£m
(368.5)
(29.4)
19.1
335.9
0.8
122.1
(81.8)
(171.1)
89.3
11.2
(2.5)
18.5
–
(78.4)
14.0
(120.5)
296.4
–
(577.8)
(2.5)
589.0
–
9.7
8.8
574.4
(2.6)
7.7
(88.0)
205.7
(191.1)
(574.4)
(75.8)
6.3
(32.5)
90.7
191.1
296.4
14.6
281.8
(1,388.6)
(1,404.7)
16.1
296.4
14.6
281.8
(17.8)
1.5
(19.3)
(1,110.0)
(1,388.6)
278.6
(3,950.6)
(3,981.5)
30.9
296.4
184.3
14.6
201.4
281.8
(17.1)
(48.3)
(204.1)
155.8
2.3
19.0
(16.7)
Closing net debt
2019/20 net debt and free cash flow figures have been restated. Due to a change in
the Group’s accounting policy to recognise BACS payments at the settlement date,
rather than when they are initiated, to more appropriately reflect the nature of these
transactions, the comparative amounts have been restated.
(3,950.6)
(3,515.9)
434.7
45
Annual Report & Financial Statements 2021STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
NET DEBT
DIVIDEND
We did not pay a final dividend for 2019/20 and the Board has
previously announced the decision not to pay a dividend for the
2020/21 financial year.
PENSION
At 3 April 2021, the IAS 19 net retirement benefit surplus was
£631.4m (2019/20: £1,902.6m). The surplus at last year end had
increased significantly due to unusually high credit spreads as a
result of Covid. During the year, credit spreads have reverted to
more normalised levels giving rise to the decrease in the surplus.
The Trustee of the UK Defined Benefit Scheme has commenced
a triennial actuarial valuation of the Scheme at 31 March 2021 as
required by statute. The assumptions to be used are agreed
between the Trustee and the Company. The Scheme surplus on
a statutory basis was £652m at the last actuarial valuation in 2018.
In September 2020, the Scheme purchased additional pensioner
buy-in policies with insurers for approximately £750m. Together
with the policies purchased in April 2019 and March 2018, the
Scheme has now, in total, insured around 80% 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.
STATEMENT OF FINANCIAL POSITION
Net assets were £2,285.8m at the year end, a decrease of 38%
since the start of the year largely due to the decrease in the net
retirement benefit surplus and the Group loss for the year.
Eoin Tonge, Chief Financial Officer
Net debt excluding lease liabilities decreased £278.6m from the
start of the year.
There was a further reduction in the value of discounted lease
obligations outstanding. New lease commitments and
remeasurements in the period largely relating to 11 properties
were £48.3m of which 10 opened in the year. This was more
than offset by £184.3m of lease repayments.
The composition of Group net debt is as follows:
Cash and cash equivalents
Medium Term Notes
Current financial assets
and other
Partnership liability
Net debt excluding
lease liabilities
Lease liabilities
– Full-line stores
– Simply Food stores
– Offices, warehouses
and other
– International
53 weeks
ended
3 Apr 21
£m
674.4
(1,682.1)
52 weeks
ended
28 Mar 20
restated
£m
254.2
(1,536.2)
83.2
(185.5)
96.1
(202.7)
vs
£m
420.2
(145.9)
(12.9)
17.2
(1,110.0)
(1,388.6)
278.6
(2,405.9)
(982.6)
(727.0)
(2,562.0)
(1,054.8)
(747.7)
(494.5)
(201.8)
(523.7)
(235.8)
156.1
72.2
20.7
29.2
34.0
Group net debt
2019/20 net debt and free cash flow figures have been restated. Due to a change in the
Group’s accounting policy to recognise BACS payments at the settlement date, rather
than when they are initiated, to more appropriately reflect the nature of these
transactions, the comparative amounts have been restated.
(3,950.6)
(3,515.9)
434.7
Of the outstanding discounted lease commitment at period end,
approximately 40% related to full-line stores and 30% to Simply
Food stores, with 8% relating to International leases and the
balance largely relating to warehousing and offices.
LIQUIDITY
At year end, the Group held cash balances of £674.4m
(2019/20: £254.2m), with undrawn facilities of £1.1bn expiring
April 2023. This strong liquidity position is as a result of free
cashflow performance and a £300m bond issuance in November,
which was used to partly refinance the bond maturity due in
December 2021.
The refinancing of the Group’s December 2021 maturity, along
with the successful negotiations in March 2021 to extend the
relaxation of covenant measures on the revolving credit facility
up to and including March 2022 mean that the Group has liquidity
headroom of over £1.5bn.
46
Marks and Spencer Group plc STRATEGIC REPORT
RISK MANAGEMENT
The risks and uncertainties that we face as a business continue to evolve.
We see risk management as an essential tool to support the successful delivery of our
transformation and broader strategic priorities and allow us to respond effectively to the
challenges facing our business, the retail sector and the communities we serve.
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 identification of the
principal and emerging risks facing M&S.
The risk management process
mirrors the M&S operating model
with each business and functional area
being responsible for the ongoing
communication and feedback of their
existing and emerging risks. This process
comprises the identification, assessment
and effective mitigation of their risks, as
well as continuous monitoring for changes
to their risk profiles (see diagram below).
This includes:
– Risks consistently identified, measured
and reported against set criteria which
considers both the likelihood of
occurrence and potential impact to
the Group, with clear ownership.
– Each business and functional area
maintaining detailed risk registers
with mitigation plans which are
approved by their respective leadership
teams and discussed with appropriate
Executive Committee members.
– Direct reporting to the Audit
Committee of risk and mitigating
activities by each of our business and
functional leadership teams on an
annual basis.
– A formal half-yearly review of all risk
registers by the Group Risk team.
– Forming an overarching summary view
of risks, combining both top-down and
bottom-up perspectives, to provide a
consolidated view of Group-level risks.
– Swift and continuous action to
reassess risks across the business
in response to significant changes
or events.
– Proactive consideration of emerging
risks where the full extent and
implications may not be fully
understood but need to be
monitored nevertheless.
The overall assessment of our principal
risks and uncertainties considers the
impact of changes in the external
environment, our strategy, our
transformation programme, core
operations and our engagement with
external parties.
The output from the above process is
subject to periodic review and challenge
with the executive directors. Subsequently,
the principal risks are submitted to the
Audit Committee ahead of final review
and approval by the Board.
Underpinning this process is the Group
Risk Management Policy which continues
to be reviewed to ensure that it remains
appropriate for our business needs and
governance responsibilities. An overview
of the key features of the Policy and the
principal risks and uncertainties are set
out on the following pages.
The directors’ assessment of the long-term
viability of M&S is also reviewed annually,
mindful of the principal risks faced. The
approach for assessing long-term viability
can be found on page 57.
RISK MANAGEMENT PROCESS AND GOVERNANCE OVERVIEW
The following diagrams provide an
overview of the risk management
process and activities undertaken
within our business that allow
the Board to fulfil its obligations
under the Corporate Governance
Code 2018.
4
3
Ongoing
communication
& feedback
1
2
1 Risk identification & ownership
2 Risk assessment
3 Risk response
4 Risk monitoring,
reporting & escalation
Internal reporting
Parties involved
External reporting
Consolidated Group-level risks
– Consolidation of significant risks from
underlying risk registers
– Overlay of Group-level risks
– Review and agreement of the principal
risks by the executive directors
– Review and approval by the Audit Committee
Business and functional risk registers
– Development and ongoing maintenance of
risk registers, including consideration of
emerging risks, 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
leadership forums
Current issues and areas of change
– Monitoring of emerging areas of change
or issues that may become significant at
a Group level
– Audit
n – M&S Board
w
o
d
-
p
o
T
– Executive
Committee
Committee
– Group
Risk team
– Group
Risk team
– Business
and
functional
leadership
teams
p
u
-
m
o
t
t
o
B
Principal risks
and uncertainties
– A summarised
version of
principal risks for
external reporting
– Review and
approval by
the Board and
Audit Committee
47
Annual Report & Financial Statements 2021STRATEGIC REPORT STRATEGIC REPORT
PRINCIPAL RISKS AND
UNCERTAINTIES
The business has continued to follow
our risk management disciplines and
managed risks in line with good practice.
Our established processes have operated
to allow consideration of the principal risks
and uncertainties to be undertaken in
accordance with the methodology
outlined on the previous page, and in line
with our annual timetable. The impact of
the pandemic during the year triggered
the need to consider the specific
consequences of the virus on the risks we
manage, both at Group and at business
and functional level. This activity has
continued throughout the year.
Our disclosure therefore provides an
overview of the key actions we have
implemented and maintained as a result
of the pandemic, including those that
we will retain as a permanent feature of
business activity. The longer-term
consequences of the pandemic on our
principal risks and the mitigations that
feature alongside have been included
within the narrative on pages 51 to 56.
This should be read in conjunction with the
narrative included in the business updates
of the strategic report to provide an
understanding of the risks and, in some
instances, opportunities, facing M&S.
CHANGES TO OUR RISK PROFILE
We have made the following changes to
our principal risks to emphasise areas
where our focus has changed, and to
those where we want to strengthen the
articulation of our risks and reflect
their connectivity:
We are including social, ethical and
environmental considerations as a
new area of focus. This reflects our
awareness of the impact of our own, and
associated third-party, activities across
these areas of responsibility, and our
commitments to act in a manner that
meets with the expectations of
our stakeholders.
Following the launch of M&S products
online, our previously disclosed Food
Online risk has changed direction. This
has been replaced with a new risk that
emphasises our focus on shaping our
long-term investment in Ocado Retail
to drive further synergies and growth,
while continuing to maintain our
supply obligations.
Our articulation of the following risks
have evolved more materially:
– The focus of our Brexit risk has
shifted from the uncertainty of the
event itself, to understanding and
responding to the specific unknowns
that remain prominent, like the
implications at the end of the EU-GB
grace period on the flow of product
into the UK, and the long-term status
of the Northern Ireland Protocol on
our operations and performance.
– Our strategic third party relationships
play a significant role in supporting a
wide range of business activities and
risk mitigation, like supporting our
source-to-shelf processes, our
compliance obligations and in
helping maintain key infrastructure.
To reflect the extensive role of our
third-party relationships, we have
disaggregated our previously
disclosed Third Party Management
risk and incorporated key elements
into other principal risks.
– Taking a similar approach, our Brand,
loyalty and customer experience
risk has also been fragmented. A key
component of this risk was the state
of our loyalty programme, which had
previously not evolved in line with the
market and expectations. Following
the successful relaunch of our Sparks
programme, this risk element has
been removed, but we continue to
recognise the strategic importance of
our loyalty programme in supporting
our trading performance. In addition,
delivery of good customer experience
underpins a number of our other risks
and we believe that all of our risks
may have an overarching, adverse
impact on our brand and reputation
should they materialise.
EMERGING RISKS
As well as understanding the spectrum
of risks that we face today, awareness of
emerging risks is important in driving
effective strategic planning. This allows us
to monitor and understand future impacts
and build these into our decision-making
processes. Key emerging risks that we are
monitoring include:
– The impact of climate change on our
operations, supply chain, regulatory
environment and our ability to continue
providing high quality products to
our customers. Linked to this, our
response to climate change risks arising
48
from our business operations are
explained in our climate-related
disclosure on pages 74 to 76.
– The impact of regulatory changes,
such as the potential introduction of an
attestation over internal controls,
similar in nature to the US Sarbanes-
Oxley (“SOX”) legislation, in the UK and
the replacement of the Financial
Reporting Council with a new regulatory
body, which could impact the strength
and oversight received as well as
increase the scrutiny on auditing and
future reporting requirements.
Marks and Spencer Group plc WHAT WE HAVE LEARNT FROM
THE PANDEMIC
The impacts of the Covid-19 pandemic
as it evolved over the past year have
influenced the profile of our principal risks
and directed a stronger control
environment, with improved flexibility,
that allows key mitigating activities to
be adapted in response to such events.
We have taken the opportunity to
strengthen the overall governance and
effectiveness of our organisational
activities by re-examining our disciplines
and ways of working in key areas as a result
of what we have learnt from the pandemic.
Many of these activities now form a part of
permanent business activity.
What we have done well
The business has demonstrated great
resilience and capability in responding
to one of the biggest crises experienced.
Our ability to determine, plan and execute
changes swiftly and effectively with
streamlined processes, leaner teams
and enhanced technology and digital
enablement are some of our key success
factors. These also underpin our Never the
Same Again programme that has allowed
us to bring forward our transformation
and emerge as a more responsive,
adaptable and faster-moving business.
Key achievements include:*
Maximising commercial opportunities by:
– Quickly responding to customers
wanting greater flexibility, convenience,
and safer shopping, by improving our
website capabilities, our M&S app,
expanding online fulfilment, click &
collect and home delivery options.
1 9 10 12
Refocusing our strategy to:
– Establish our integrated Clothing &
Home online and data business division,
MS2, to maximise online opportunity. 1
– Use our stores as fulfilment centres for
online orders, enabling better stock
rotation and responsiveness to
customer demand. 1
Delivering key transformational projects,
and driving other improvements, with
more focus and agility through:
– The successful transition of M&S Food
online with Ocado Retail. 4
– The relaunch of Sparks as a Digital First
loyalty programme, which continues to
see high levels of membership uptake.
1 9
– Focused effort in Clothing & Home to
deliver a faster moving range,
supported by shorter supply chain
cycles that provide flexibility and speed
in adapting to changes in customer
demand. 1 2
– Improved collaboration with our
suppliers to reduce and/or postpone
Clothing & Home orders, improving our
liquidity and stock position. 2 7
Improving our organisation and Ways of
Working by:
– Using technology to enable a
permanent shift towards flexible
working that continues to allow the
business to work remotely (locally and
internationally) without the loss of
business-critical systems. 9 10
– Streamlining and strengthening
leadership roles. 5
– Restructuring our stores to focus on
front-of-house service, with leaner
multi-tasking teams, more flexible
working, roll-out of market-leading
store technology and an overall
reduction in operating costs. 2 7 9
– Adopting technology to support
assurance activities, including third-
party audits, and to access live data
relating to compliance activities.
6 9 12
– Collaborating with suppliers to use
technology capabilities on product
innovation, design and sampling. 9
Strengthening our governance by:
– Operating a simplified delegation of
authority that drives action-orientated
decision-making by removing the need
for excess hierarchy, which allowed us to
execute changes promptly in order to
optimise our pandemic response. 1 10
– Applying a more consistent approach to
return on investment and increased
focus on overall cash management,
including working capital. 2 7
Leading the pandemic response by:
– Actively influencing government
guidance in the retail sector for the safe
operating of our stores and warehouses.
1 10 12
Where we have more to do
While we have successfully navigated
our business through the pandemic,
we recognise that there are some areas
where we need to go further to prioritise
parts of our transformation and improve
our disciplines, such as to:
– Accelerate our store estate
transformation to meet with the needs
of a modern trading environment.
Executing this remains challenging due
to parts of our property portfolio being
considerably aged and the historic
underspend in this area, which are
exacerbated by the influence of the
pandemic on the property market.
– Address our historically slow
performance to drive improved
availability and lower levels of waste,
through an optimised supply chain. To
address this, the business is focusing on
delivering faster moving and innovative
ranges at trusted value, which will allow
for more efficient cost bases and
improved range and volume planning.
– Being better prepared to address a
similar crisis situation, like the
pandemic, by ensuring that we
communicate in an even more timely
manner with our stores around centrally
agreed response plans and activities to
allow colleagues more time to prepare
and execute changes effectively. This
includes equipping colleagues with the
required tools and guidance, as well as
consistent messaging from across
multiple central teams. In addition to
this we need to establish stronger
discipline in our stores and warehouses
to follow guidance, such as around
social distancing, to prevent breakouts
and multiple self-isolations.
* Principal risks
1 Trading performance
recovery
2 Business
transformation
3 Brexit
4 Ocado Retail
5 Talent, culture
and capability
6 Food safety
and integrity
9 Technology and
digital capability
10 Business continuity
and resilience
7 Liquidity and funding
11 Information security
8 Social, ethical
and environmental
responsibility
12 Corporate
compliance
and responsibility
49
Annual Report & Financial Statements 2021STRATEGIC REPORT HOW OUR ASSURANCE PROCESS HAS EVOLVED AS A RESULT OF THE PANDEMIC
Our Never the Same Again programme
has been used to implement learnings
from Covid-19 as part of our permanent
Ways of Working and to support key
risk mitigations.
Throughout the pandemic we have maintained robust
controls over our compliance responsibilities, such as
for Food Safety, and Fire, Health & Safety (FHS), and
recognised the importance of continued visibility of this.
Responding to the lockdowns and government guidance
on safety has allowed us to demonstrate how we can
evolve our assurance activities to maintain adequate
visibility of controls without significantly impacting
the effectiveness of our control environment.
Associated principal risks
Food safety and integrity 6
Corporate compliance and responsibility 12
Technology and digital capabilities 9
Assurance
activities
We have refined some of our assurance
programmes to allow for continuous desk-
based auditing combined with appropriate
in-person validations that replace entirely
on-site inspections.
Centralised compliance
platform and reporting
tool to view FHS data in
real time.
Colleague in store
confirming store opening
checks through our app.
Where we started
– Primarily site-based
audit programmes
across UK and
international locations,
including stores,
warehouses and offices,
as well as franchise-
owned stores and
supplier factories.
– FHS documentation
largely stored locally, on
paper (risk assessments,
evidence of safety
checks, etc).
– Manual submission
of incident and
accident data, used
centrally to create
management reporting.
The challenge
– Government guidance
Our response
– We redesigned our
and lockdown
restrictions in the UK
and internationally
making travel and
access to sites for FHS
inspections unfeasible.
– Resource pressures
impacting second line
assurance teams as
well as the experience
in stores.
– A substantial increase in
external enforcement
activity in the UK and
internationally.
processes by setting up
remote audits, including
live video streaming.
Leading the Food
industry response by
setting up remote
supplier factory
audits internationally.
– Use of third-party
assurance output to
support gaps in visibility
of supplier sites during
remote audits (e.g. pest
control reports).
– Introduced compliance
self-assessments for
sites, central storage
of risk assessments,
enabled live update of
accident data and of
store opening and
closing checks to a
central reporting
system and an app.
– Actively worked with our
UK Primary Authority
Partner to strengthen
our Covid-19 risk
assessments and agree
our revised assurance
methodology.
Never the Same Again
– Risk-based audit
programme with
targeted on-site
inspections supported
by remote assessments
using real-time data
and digitally stored
FHS information.
– Live data migrated to
our Big Data platform
and accessible through
an app.
– Driving greater
accountability at sites
for actively reporting
and supporting
remote audits.
Behavioural changes
driven by the
pandemic will keep
safety at the
forefront of
our minds for
many years.
50
– In International, our
assurance processes
continue to be adapted
as local lockdowns
change in different
countries. However
remote audits will
continue to be used in
the long term, to
support more frequent
visibility in higher-risk
areas and to upskill
local teams in FHS.
Marks and Spencer Group plc RISK
DESCRIPTION
MITIGATING ACTIVITIES
PRINCIPAL RISKS AND UNCERTAINTIES
1 Trading performance recovery
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, including recovery from the pandemic,
would adversely impact customer experience,
operational efficiency and business performance.
Context
– M&S competes with a diverse range of retailers in an
increasingly challenged sector faced with continued
cost and pricing pressures, shifts in consumer behaviours
and a broad range of macroeconomic uncertainties, all of
which have been exacerbated by Covid-19.
– Responding with commercial agility as we emerge from
the pandemic to deliver the right product ranges and
style credentials from source to shelf, with clear pricing
architecture and availability, has become more
imperative. Our ability to predict and meet changing
customer expectations and demand as conditions
‘normalise’ will impact our success in doing this.
– Underpinning our recovery is our programme of
transformational improvements, delays to which
could stem our recovery and negatively impact
our performance.
Oversight by Executive Committee
Link to strategic priorities
1 2 3 5
– Strong senior leadership team capabilities in both Food and
Clothing & Home through continued targeted recruitment.
– An established operating model consisting of a family of
accountable businesses who share M&S brand values,
support functions, technology and customer data.
– Managing Directors for each of these businesses with full
accountability for their performance.
– Operating Reviews to enable executive oversight and
effective governance of each business.
– Continued delivery and discipline around cost, range,
value, prices and availability to broaden customer appeal.
– Expanded initiatives to make products available
conveniently to customers through contactless home
delivery and Scan & Shop.
Key developments
– Our Never the Same Again programme clearly aligned with
the strategy and objectives for each area of the business.
– Established an integrated online division, MS2, to
turbocharge online growth for Clothing & Home, and
introduced new brands.
– Relaunched “Remarksable” in Food to promote trusted
value, and established our “Food Innovation Hub”.
– Proactive management of excess stock resulting from
the lockdowns.
– Expanded our International online business, with launch
of new websites providing access to more markets.
– Evolved our Sparks programme to reach 10m users,
with access to more customer data linked to driving
commercial decisions and personalised relationships.
RISK
DESCRIPTION
MITIGATING ACTIVITIES
– Continued focus on our Never the Same Again approach
to prioritise transformation delivery, balanced with robust
cash management disciplines.
– Applying programme governance principles for all core
projects with clear accountabilities and milestones in place.
– Maintained momentum to deliver supply chain
capabilities and efficiencies across the Food and
Clothing & Home businesses.
Key developments
– Set up of our Strategy and Transformation Office to drive
Group-level focus, consistency and challenge.
– Key online growth initiatives executed and planned
through Ocado Retail and MS2.
– Reshaping the store estate strategy to direct accelerated
transformation, including prioritised site redevelopments,
delivery of more new format stores and planned closures.
– Continued development of the Vangarde Supply
Chain Programme in Food, which is delivering
improved availability.
2 Business transformation
A failure to execute our transformation and cultural
change initiatives with pace, consistency and cross-
business buy-in will impede our ability to improve
operational efficiency, competitiveness, and to
restore the business to sustainable profitable growth.
Context
Critical projects underpinning our transformation include:
– Continuing to evaluate our transformation programme in
response to longer-term changes in customer behaviour,
including those directed by the pandemic and Brexit.
– Reshaping, modernising and delivering a UK store estate
that is fit for the future, with the right stores in the right
spaces, improved integration between online and store
experience as well as creating shopping facilities that
drive omni-channel growth and meet the expectations of
our target customers.
– Modernising our supply chain and logistics activities to
improve speed, operational effectiveness and availability and
to reduce costs. Supported by investment in legacy systems.
– Functionally led transformations relating to people,
technology, and digital and data are key to supporting
overall business change.
Oversight by Executive Committee, Strategy and
Transformation Office
Link to strategic priorities
1 2 3 4 5
Risk movement
No change
Increased net risk exposure
N New risk
Reduced net risk exposure
Strategic priorities
1 A strong Food business positioned
for growth
2 A successful transition to M&S product
on Ocado Retail and growing capacity
3 An omni-channel Clothing & Home business driven by a re-shaped
product engine
4 Accelerated rotation of the Store Estate
5 International business focused on major partnerships and online
51
Annual Report & Financial Statements 2021STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
RISK
DESCRIPTION
MITIGATING ACTIVITIES
3 Brexit
Failing to mitigate the continuing costs and friction
arising from the complexities surrounding the
border and further developments in the Trade and
Cooperation Agreement (“TCA”) may have a significant
and long-term impact on our trading performance.
Context
As a result of the implications of the UK’s exit from the
European Union (EU), our EU businesses need to be
reconfigured to manage new challenges. In addition,
a number of uncertainties still remain following Brexit that
are largely outside of our control and require continued
monitoring and flexibility in our response. Key implications
of these include:
– Permanent increases in cost base and time relating to the
movement of goods across borders and compliance
with the TCA (including the evolving requirements of the
Northern Ireland Protocol and eventual end of the EU-GB
grace period).
– Increased complexity and cost in effective markets,
particularly the Republic of Ireland, Northern Ireland
and France.
– Access to and availability of labour for our business and
within the supply chain.
– Costs passed on from our suppliers as they set their
post-Brexit policies.
– Viability of most-impacted suppliers and impact on
product availability.
Oversight by Brexit Steering Committee, the Board
– A cross-business working party remains in place to
coordinate post-Brexit activity, including scenario planning
with financial and operational impact assessments as
long-term implications are understood.
– Risk assessments undertaken by each of our businesses to
enable them to plan and execute the operational changes
needed to manage Brexit.
– Regular updates to the Board and Audit Committee
outlining risks and actions being undertaken.
– Continued engagement with key government and industry
bodies to represent M&S’s views, including the UK Border
Development Group, with access to the Department for
Environment, Food & Rural Affairs, HM Revenue & Customs
and the Food Standards Agency.
Key developments
– Worked quickly to expand our understanding of the TCA and
address immediate operational issues of product flow to our
European markets.
– Continued to actively work with government and industry
bodies to drive a simpler customs and exports process.
– Investigated tariff mitigation for the re-export of product,
including working with HMRC to reduce the burden of tariffs,
for example, Returned Goods Relief.
– Implemented a UK customs warehouse environment.
– Improved and automated activities linked to the customs
process to reduce administration costs.
RISK
DESCRIPTION
MITIGATING ACTIVITIES
4 Ocado Retail
A failure to effectively manage the strategic and
operational relationship with Ocado Retail would
significantly impact the achievement of our
multi-channel food strategy and our ability to
deliver shareholder value.
Context
– The investment in Ocado Retail is part of our strategy
for improving our online reach and capability. Since the
launch in September 2020, we have seen growth in the
online grocery market with an upward trajectory for
the future that offers us the opportunity to strengthen
our investment.
– M&S nominated directors are part of the Ocado Retail
Board, with collective sign-off of business plans directing
the growth of Ocado Retail.
– Established data and technology interfaces with
Ocado Retail.
– Continued communication under lockdown with the Board,
senior management and among the M&S-Ocado Retail
operational teams.
– Continued operation of a dedicated M&S Ocado delivery
team, supported by senior leadership, to coordinate
sourcing, product development, product ranging,
customer data and marketing.
Key developments
– Completed transition of M&S products (Food and Clothing &
– There are two core aspects of our relationship with Ocado
Home) to the Ocado platform.
– Invested to expand capacity with the launch of a new
customer fulfilment centre in March, and plans for two
more this calendar year.
Retail that we are actively focusing on:
· Developing our working relationship with Ocado Retail
and evolving our ways of working to ensure alignment
of our strategies in a way that supports innovation
and growth.
· Maintaining a seamless supply process to support
customer fulfilment – existing and in line with future
growth – and seeking opportunities to expand and
refine product ranges.
Oversight by Ocado Retail Board
Link to strategic priorities
1 2
N
52
Marks and Spencer Group plc PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
RISK
DESCRIPTION
MITIGATING ACTIVITIES
5 Talent, culture and capability
Our inability to evolve the culture of our business
as well as develop and retain the right talent and
capabilities will influence our means to expand the
business with agility and appropriate commercial
acumen. This will also impede the execution of our
transformation programme and impact our broader
strategic objectives and performance.
Context
– M&S is fortunate to employ a vast number of talented
individuals and it is essential that we have the right
processes in place to identify, develop and retain this
talent for the future.
– Understanding the changing retail landscape is core
to the strategic decisions we make on the skills and
capabilities needed for our business. From driving a
digitally focused mindset to managing change, our
strategic choices and investment are focused on the
knowledge and skills needed for the future.
– The challenge of effectively managing talent,
performance and succession using systems that have
become outdated could result in increased resource
management and development costs.
– The need to effectively engage, motivate and connect
with our colleagues across a multi-generational, diverse
workforce is key to delivering productivity and supporting
the transformation of our business while driving customer
loyalty through a differentiated service proposition.
– The broader implications of Brexit on the availability
of labour and key skills continue to be monitored.
Oversight by Executive Committee
– Continued investment in external hires to strengthen
capability, improve quality and diversity of talent at
all levels.
– Investment in internal talent to strengthen the leadership
pipeline and develop our future leaders.
– Embedded quality new starter experience across all areas
to allow effective onboarding, engagement and retention.
– Continued the project to update our HR systems.
– Business Involvement Group which is actively involved in
colleague engagement and representation throughout the
business, including Board meetings.
– Capitalising on the popularity of our M&S Alumni to engage,
energise and re-attract great talent.
Key developments
– Direct Executive Committee member ownership of HR
matters.
– Progressed our plans for enhancing skills and capabilities
through targeted talent, recruitment and development
programmes.
– Launch of an updated performance management process.
– Total reward review completed with benchmarking of all
pay and benefit components and transparency on fair pay,
including gender, ethnicity, disability and age. Commenced
implementing initiatives that reflect colleague expectations.
– Launch of a digital-specific apprenticeship programme
driving digital literacy and capability building.
RISK
DESCRIPTION
MITIGATING ACTIVITIES
6 Food safety and 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.
Context
– 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.
This includes considering how external pressures on the
food industry and wider economic and environmental
changes could impact the availability and integrity of
our food, the ability to operate all routine controls,
our reputation and shareholder value.
– Many of these external pressures, including inflationary
costs, labour quality and availability, increased regulatory
scrutiny and animal disease are heightened to a degree
by the pandemic and our exit from the European Union.
These are also largely outside our control but are
nevertheless monitored and mitigated where possible.
Oversight by Consumer Brand Protection Committee
– Food Safety Policy and Standards, with clear accountability
set at all levels.
– Defined Terms of Trade, manufacturing standards,
specifications for “from farm to fork” and operating procedures.
– Risk-based store, supplier and warehouse audit programmes
by an independent third party, including franchise operations.
– Qualified Food Technology team, with continuing
professional development.
– Risk assessment process in place for new food initiatives.
– Quarterly internal review of our control framework.
– Established processes for the development and legal
sign-off for product packaging.
– Food Industry Intelligence Network membership at Board
and Executive Committee level.
– Live and tested crisis management plan for food incidents.
Key developments
– Updated operating procedures in response to lockdown
restrictions and for the new initiatives launched, e.g. home
delivery channels in the UK and internationally.
– Remote audit and assurance programme launched for new
and existing suppliers.
– Covid-19 tests for technologists to enable urgent site visits.
– Enhanced monitoring of quality and customer complaints.
– Additional reporting to the leadership team of Covid-19
implications on our supplier assurance programme.
Risk movement
No change
Increased net risk exposure
N New risk
Reduced net risk exposure
Strategic priorities
1 A strong Food business positioned
for growth
2 A successful transition to M&S product
on Ocado Retail and growing capacity
3 An omni-channel Clothing & Home business driven by a re-shaped
product engine
4 Accelerated rotation of the Store Estate
5 International business focused on major partnerships and online
53
Annual Report & Financial Statements 2021STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
RISK
DESCRIPTION
MITIGATING ACTIVITIES
7
Liquidity and funding
An inability to maintain short- and long-term funding
to meet business needs or to effectively manage
associated risks may influence our ability to
transform at pace, as well as have an adverse
impact on business viability.
Context
– While we have continued to actively manage our cash,
liquidity and debt position during the pandemic,
resulting in a more positive out-turn than anticipated,
our focus on this remains strong.
– Availability of, and access to, appropriate sources and
levels of funding is important for the continued operation
of business activity, as well as successful and timely
delivery of our transformation. Our ability to repay debt
and fund working capital, capital expenditures and other
expenses depends on our operating performance,
ability to generate cash and to refinance existing debt.
– Recoverability of our trading performance will
influence our cash position as we emerge more fully
from the pandemic.
– We also have pension fund commitments that require
active management and monitoring.
Oversight by Executive Committee, the Board
– A £1.1bn undrawn, revolving credit facility in place until
April 2023 and £674.4m of cash and cash equivalents.
– Measures implemented to manage cash and liquidity at the
start of the pandemic continue to be maintained, including:
·
Increased scrutiny and challenge over expenditure such
as discretionary and capital spend.
· Dividend deferral.
· Use of government support measures like the temporary
furlough of colleagues, business rates holiday and
deferral of tax payments.
· Agreement to relax/waive covenant conditions for our
revolving credit facility.
– Close monitoring and stress testing of projected cash and
debt capacity, financial covenants and other rating metrics.
– Maintained counterparty credit risk and limits in line with our
risk appetite and treasury policy.
– Continued dialogue with the market and rating agencies.
– Pension fund assets fully offset pension scheme liabilities.
Key developments
– Implemented a robust three-year plan underpinned by
financial processes linked to strategic priorities.
– Active debt management with the issue of a £300m bond
and partial tender of the December 2021 bond maturity.
– Focus on working capital management to continue to
improve cash flow and reduce reliance on bank facilities.
– Agreement received from the syndicate of lending banks to
extend the relaxation of covenant measures on the
revolving credit facility up to March 2022.
RISK
DESCRIPTION
MITIGATING ACTIVITIES
N
8 Social, ethical and
environmental responsibility
Increasingly our customers, colleagues and investors
demand reassurance that we are managing ethical
and environmental issues across our business,
including supply chains. Our inability to uphold
adequate oversight of, and respond to, our
responsibility commitments may result in failing
to meet their expectations.
Context
– We continue to operate increasingly complex supply
chains where changes in the external environment and
challenging economic conditions, including the impact
of Covid-19 across the globe, make ethical and social
issues open to mismanagement and exploitation.
We recognise that these could occur anywhere in our
supply chain networks as well as our own operations.
– Setting and adhering to appropriate environmental,
human rights, animal welfare and ethical standards
and commitments is important in maintaining our
reputation as a responsible company.
Oversight by Executive Committee, ESG Committee
54
– Established ethical audit programme, aligned with Sedex,
including annual factory audits for manufacturers globally.
– Risk-based ethical assessment programme in Food across
all suppliers maintained.
– Code of Conduct and Global Sourcing Principals in place,
shared with third parties and included in legal agreements.
– Product and raw material standards outlining
environmental considerations, such as deforestation.
– Clothing Quality Charter and Environmental and Chemical
Policy in place for all suppliers.
– Modern slavery training rolled out across relevant teams.
– Human Rights & Modern Slavery Policy shared with
International owned-business and franchise teams.
– Mandated use of the Sustainable Apparel Coalition’s Higg
Facility Environmental Module, that measures social and
environmental impacts of factories.
– Live and tested capabilities and protocols to respond
immediately to an incident.
Key developments
– Group Plan A programme reset with clear accountabilities
set for each area in our family of businesses to address
environmental and ethical standards in products,
packaging, greenhouse gas emissions and waste.
– ESG Committee established.
– Continued strengthening of our due diligence approaches
with the roll out of a Worker Voice programme in the Food
business and piloting of transparency initiatives within
Clothing and Home.
– Modern Slavery Intelligence Network launched to alert
M&S to issues in the Food supply chain.
– Minimum standards for responsibility set for Clothing and
Home third-party brands.
Marks and Spencer Group plc PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
RISK
DESCRIPTION
MITIGATING ACTIVITIES
9 Technology and
digital capability
A failure to simplify and improve our core technology,
enhance our digital capabilities and reduce our
dependency on legacy systems could limit our ability
to keep pace with market competition and customer
expectations, preventing successful transformation.
Context
– The digital world continues to evolve at an unrelenting
pace, influencing consumer expectations and behaviours,
as well as placing increasing demands on our technology
and ways of working.
– Data underpins everything we do and we remain focused
on equipping colleagues with the right tools and
capabilities to drive effective decision-making.
– A simplified operating model, applications and
architecture will support us in continuing to deliver
capability, flexibility and cost-efficiency improvements.
– Increasing the use of tools such as AI and machine
learning is fundamental to providing insights and a
differentiated service to our customers.
Oversight by Executive Committee
Link to strategic priorities
1 2 3 4 5
– An omni-channel technology strategy, supported by
prioritised investment and aligned with Group and individual
business strategies.
– Quarterly benefits tracking of key programmes in line with
spend targets and value outcomes.
– Further investment in technology and digital innovation and
capabilities to enhance both customer and colleague
experience in store, like supporting the ‘10x’ store plan.
– Improved IT infrastructure, including increased bandwidth.
– Continued the shift to cloud-based technology.
– Ongoing collaboration with our technology partners to
drive our Digital First ambition, e.g. TCS and Microsoft.
– Ongoing focus on technology risk, assurance maturity and
roll-out of a structured IT control methodology.
Key developments
– New technology strategy and three-year investment plan
that is aligned with business strategies and objectives.
– Increased adoption of our mobile app by existing and new
customers providing access to valuable data.
– Successful launch of our BEAM Data Academy with
digital learning programmes for all colleagues.
– Increased personalisation of our end-to-end digital
customer experiences using in-house capability.
– Transforming our M&S Bank product and service offerings
to create a digitally enabled shopping and payment
experience for customers.
RISK
DESCRIPTION
MITIGATING ACTIVITIES
10 Business continuity
and resilience
Failures or resilience issues at key business locations,
such as at Castle Donington, our primary online
Clothing & Home distribution centre, could result in
significant business interruption. More broadly, an
inability to effectively respond to global events, such
as the pandemic or a supply chain disruption, would
also significantly impact business performance.
Context
– As our online business grows, the scale of risk to our sales
and growth ambitions increases from a sustained period
offline and an inability to fulfil online orders due to a
major incident at our Castle Donington fulfilment centre.
– The loss of other locations, such as the dedicated warehouses
that store beers, wines & spirits and frozen goods in the UK,
or support facilities (like for IT), could also impact us.
– Our dependency on major suppliers, service providers
and business partners means that significant incidents,
long-term resilience issues and recoverability for these
third parties would impact our own business.
– The risk stemming from the complexity and fragility of
global supply chains continues to be emphasised by the
pandemic – notably, the initial impact from China and in
turn from key sourcing locations like Bangladesh and
India where we have a high supply dependency.
Oversight by Executive Committee, Crisis Management Team
– A dedicated and experienced Business Continuity (BC)
team with an established Group Crisis Management process
that continued to operate throughout the pandemic.
– Maintained updated BC plans for key activities across our
operations, including offices, warehouses and IT sites in
response to changing government guidance.
– Group Incident Management procedures in place,
including for critical third parties.
– Risk-based BC assessments for stores, sourcing offices and
warehouses and validation of key supplier arrangements.
– Insurance to cover remediation and business interruption.
– Enhanced capabilities at Castle Donington to manage
technology failure.
– Active engagement with the Retail BC Association and
government-led forums.
– National Counter Terrorism Information exchange member.
Key developments
– Expanded fulfilment capabilities through “buy online ship
from store” (BOSS) and the use of other warehouses in our
network to meet online growth.
– Continued supporting suppliers through disruptions caused
by the pandemic and Brexit.
– Colleagues globally continued to work from home without
the loss of any business-critical systems.
– BC dashboard launched to shift our governance
programme to a live digital platform.
Risk movement
No change
Increased net risk exposure
N New risk
Reduced net risk exposure
Strategic priorities
1 A strong Food business positioned
for growth
2 A successful transition to M&S product
on Ocado Retail and growing capacity
3 An omni-channel Clothing & Home business driven by a re-shaped
product engine
4 Accelerated rotation of the Store Estate
5 International business focused on major partnerships and online
55
Annual Report & Financial Statements 2021STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
RISK
DESCRIPTION
MITIGATING ACTIVITIES
11 Information security
Failure to adequately prevent or respond to a data
breach or cyber-attack could adversely impact our
reputation, resulting in significant fines, business
disruption, loss of information for our customers,
employees or business and/or loss of stakeholder
and customer confidence.
Context
– The increasing sophistication and frequency of cyber-
attacks in the retail industry and within supply chains
highlight an escalating information security threat.
– Our reliance on several third parties hosting critical
services and holding M&S and customer data also means
weaknesses in their cyber and data controls may impact
us, and requires continued assessment and oversight.
– The profile of information technology will change as we
develop our data and digital capabilities, expand online
services, adopt cloud more widely, deliver ‘intelligent’
stores, and increase our reliance on insightful data.
– Longer-term changes stemming from the pandemic
such as the increase in customers using e-commerce,
the growing number of digital and mobile shopping
channels and changes in the pattern of office/home
working, all impact the overall risk.
Oversight by Executive Committee
– Dedicated Information Security function, with multi-
disciplinary specialists, supported by a 24-hour Security
Operation Centre and mature Incident Management.
– Information Security Improvement programme delivery,
aligned with our digital and data protection strategy.
– Information security obligations included in appropriate
third party contracts and a risk-based assurance
programme to monitor our exposure.
– Information security and data protection policies in place,
with a mandatory training programme for colleagues.
– Active detection of our threat environment, with continued
improvement in controls, policies and procedures.
– Embedded security throughout digital product lifecycle
and operations model.
– Focused security assurance, security architecture and
security hygiene around significant change activities.
– Network of Data Protection and Security Compliance
Managers in priority business areas.
Key developments
– Prioritised investment to improve our ability to detect and
respond to the increase in breaches during the pandemic.
– Completion of two independent cyber security reviews.
– Formal review of security controls in international offices.
– Targeted information security and Cyber Resilience review
of key suppliers.
RISK
DESCRIPTION
MITIGATING ACTIVITIES
12 Corporate compliance and
responsibility
Failure to deliver against our legal and regulatory
obligations, as well as responsibility commitments
would undermine 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.
Context
– The increasingly broad and stringent legal and regulatory
framework for retailers creates pressure on business
performance and market sentiment requiring continual
improvements in how we operate to maintain compliance.
– New and evolving regulatory requirements needing focus
and appropriate capabilities to comply with including
mandatory Task Force on Climate-related Financial
Disclosures (“TCFD”) recommendations, plastics recycling
targets, new restrictions on the promotion of foods high
in fat, sugar and salt and the proposed EU Directive on
Corporate Due Diligence and Accountability that
envisages mandating due diligence of key issues within
end-to-end business supply chains.
– 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 impacting our reputation.
Oversight by Executive Committee, Fire, Health & Safety
Committee, Consumer Brand Protection Committee,
Bank and Services Compliance Monitoring Committee
– Code of Conduct in place and underpinned by policies and
procedures in core areas of regulation and responsibility,
including human rights, modern slavery, anti-bribery and
corruption, health and safety, food safety, national
minimum wage, equal pay, cyber, data security and privacy,
and financial services and consumer credit regulations.
– Business-wide mandatory training programme for higher-risk
regulatory areas, like health and safety, anti-bribery and
corruption, data privacy, and information security.
– Established in-house regulatory legal team in place,
including specialist solicitors, which conducts horizon
scanning on key regulatory and legislative changes.
– Issue leaders embedded in the business to drive compliance
in key risk areas, e.g. GSCOP (Groceries Supply Code of
Practice) and ethical sourcing.
– Continued proactive engagement with regulators,
legislators, trade bodies and policy makers.
– Maintained monitoring and regulatory reporting
commitments on environmental and social issues.
– Continued operating auditing and monitoring systems.
– Customer feedback and public sentiment on regulatory
compliance is monitored, including social media trends.
Key developments
– First cycle of reporting Code of Conduct compliance to the
Audit Committee.
– Continued to manage compliance with evolving
government guidelines in relation to Covid-19.
– Established remote audit programmes for owned and
third-party operations during the lockdowns globally.
56
Marks and Spencer Group plc OUR APPROACH TO ASSESSING LONG-TERM VIABILITY
The UK Corporate Governance Code
requires us to issue a ‘viability statement’
declaring whether we believe the Group
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. In assessing
viability, the Board considered a number
of key factors, including our business
model (see page 9), our strategy (see
page 7), approach to risk management
(see page 47) and our principal risks and
uncertainties (see pages 48 to 56).
The Board is required to assess the
Group’s viability over a period greater than
12 months, and in keeping with the way
that the Board views the development of
our business over the long term, a period
of three years is considered 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 Group continues to have to evolve,
particularly as there remains significant
political and economic uncertainty
resulting from the Covid-19 pandemic,
and customer behaviours are changing,
especially in retail. In the immediate
short term, we have taken, and will
continue to take, measures to protect
the health and safety of our customers
and our colleagues. Coupled with this,
there has also been disruption to supply
chains caused by the pandemic and
Brexit, but the Group has worked with
suppliers to ensure an effective response
and to minimise the impact.
The refinancing of the Group’s December
2021 maturity, along with the successful
negotiations in March 2021 to extend the
relaxation of covenant measures on the
revolving credit facility up to and
including March 2022 mean that the
Group has liquidity headroom of
over £1.5bn.
In assessing viability, the Board
considered the position presented in the
Budget and Three-Year Plan, recently
approved by the Board. The process
adopted to prepare the financial model
for assessing the viability of the Group
involved collaborative input from
a number of functions across the
business to model a severe but
plausible downside scenario. This
scenario was based on the potential
financial impact from business
disruption as a consequence of one,
or more, of the Group’s principal risks
and uncertainties materialising and both
the specific risks associated with the
Covid-19 pandemic and the uncertain
high street trading environment.
This downside scenario assumes that:
– the Covid-19 pandemic worsens
over the Winter months and the
Government mandates four months
of lockdown restrictions between
December 2021 and March 2022,
resulting in store closures and a 3%
decline in Food sales. Over this period,
a range of 10% – 20% decline in
Clothing & Home sales has been
modelled, as well as a 10% decline in
International sales. These declines
have been set with reference to the
2020/21 results; and,
– following the cessation of the
Coronavirus Job Retention Scheme
in the UK, there will be a period of
economic recession in the UK from
October 2021 that continues on into
2022/23 and 2023/24, resulting in a
decline in sales of between 1% - 5% per
annum, continuing for three years,
across both sides of the business.
Other scenarios linked to key principal
risks (such as a failure to execute our
business transformation, a failure to
prevent a food safety incident, and
the failure to prevent a data breach or
cyber-attack) were also considered.
However, the estimated financial
impact of these risks cumulatively was
comparable to the downside scenario
outlined above. Moreover, the likelihood
of all these risks occurring concurrently
would be so remote as to be considered
a “black swan” event. As a result,
separate, further detailed modelling
was not performed.
The impact of the downside scenario
has been reviewed against the Group’s
projected cash flow position and
financial covenant over the three-year
viability period. In the event of the
downside scenario materialising,
mitigating actions would be available,
including, but not limited to, a reduction
in labour, marketing, technology and
head office costs, as well as deferring
or cancelling discretionary spend
(including discretionary bonuses)
and reducing capital expenditure.
As a result, even under this severe but
plausible downside scenario, the Group
would continue to have sufficient
liquidity headroom on its existing
facilities and meet the measurement
criteria against the revolving credit
facility financial covenant. The Audit
Committee reviews the output of the
viability assessment in advance of final
evaluation by the Board. The Board have
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.
Reverse stress testing has also been
applied to the model, which represents
a significant decline in sales compared
with the downside scenario. Such a
scenario, and the sequence of events
which could lead to it, is considered to
be extremely remote. Whilst the
occurrence of one or more of the
principal risks has the potential to affect
future performance, none of them are
considered likely either individually or
collectively to give rise to a trading
deterioration of the magnitude indicated
by the reverse stress testing and to
threaten the viability of the Group over
the three-year assessment period.
Having reviewed the current
performance, forecasts, debt servicing
requirements, total facilities and risks,
the Board has a reasonable expectation
that the Group has adequate resources
to continue in operation, meets its
liabilities as they fall due, retain sufficient
available cash across all three years of
the assessment period and not breach
the covenant under the revolving
credit facility. The Board therefore has
a reasonable expectation that the
Group will remain commercially
viable over the three-year period of
assessment. The Viability Statement
can be found on page 81.
The Strategic Report, including pages 1 to 57, was approved by a duly authorised Committee of the Board of Directors on
25 May 2021, and signed on its behalf by
Steve Rowe, Chief Executive
25 May 2021
57
Annual Report & Financial Statements 2021STRATEGIC REPORT GOVERNANCE
CHAIRMAN’S
GOVERNANCE OVERVIEW
“ “
The Board’s primary
objective has been to
navigate the business
through this time of
uncertainty.
Archie Norman, Chairman
58
As I’ve already noted in my Chairman’s
letter on pages 2 to 3, the events
of this past year have left a profound
mark on the business – changing how our
customers choose to shop and the way
that we operate as a result, and having an
impact on our ongoing strategic priorities.
An outline of our governance framework
and how these bodies interacted during
the year can be found on page 60. The
reports of the Audit, Nomination and
Remuneration Committees for 2020/21
are available on pages 77 to 83, 71 to 72,
and 84 to 105 respectively.
The Board’s primary objective has been
to navigate the business through this
time of uncertainty, ensuring that we
emerge in a strong position, having
continued to drive forward with our
strategy despite the persistent difficulties.
It has been essential for us to be highly
engaged, flexible with our time to support
and challenge senior leadership, and
committed to securing the financial
stability underpinning our recovery and
accelerated transformation into 2021 and
beyond. We, of course, continue to fulfil
our other core duties to oversee M&S’s
culture, governance, financial controls,
risk and change management.
The Governance section that follows is
by intention concise, in keeping with our
approach in previous years. Further detail
on the Board, its Committees and our
governance framework are available at
marksandspencer.com/thecompany.
CONDENSED GOVERNANCE
We noted last year the significance of the
scale and pace with which the Board had
coordinated the Company’s response to
the Covid-19 pandemic (detailed on pages
50 to 53 of our 2020 Annual Report).
That pace and agility has continued
through this year, with the Board joining
weekly calls right up until March 2021,
to collaborate with, support and guide
senior management.
Elsewhere in the business, operating
processes and management forums
have been consolidated, and the
number of opportunities for discussion
have been increased, to allow for
proactive engagement between the
Board and its Committees, the Executive
Committee and senior management.
Ultimately, this is improving our
responsiveness and streamlining
our decision-making processes.
A BALANCED BOARD
We saw substantial change during the year
on our Board and executive team. Two new
non-executives, Sapna Sood and Tamara
Ingram, joined us last June, as did our new
Chief Financial Officer, Eoin Tonge. Alison
Brittain and Katie Bickerstaffe stepped
down from the Board at the 2020 AGM
last July, with Katie having joined our
Executive Committee as Chief Strategy
and Transformation Director. Richard Price
also joined the executive team in July 2020
as Clothing & Home Managing Director.
In February 2021, Evelyn Bourke joined
our Board as a non-executive director,
while Pip McCrostie retired from the Board
in March. She left us with our very heartfelt
thanks for her candour, insight and
committed contribution to the Company.
We were saddened to hear that she passed
away after leaving the Board, and we offer
our condolences to her family.
More recently, we have welcomed Fiona
Dawson as a non-executive director to the
Board, and look forward to working with
her in the years ahead.
With these considerable changes,
and noting that his tenure is approaching
nine years, we are pleased that Andy
Halford will be staying with us for an
additional year. Having reviewed and
established that Andy remains
independent, the Nomination Committee
agrees that his role as Senior Independent
Director is an important constant while
new Board members settle into their roles.
Full details of these Board and executive
changes, and our talent and succession
processes, can be found in the Nomination
Committee Report. Board and Executive
Committee biographies and our
assessment of the balance of skills
and experience on these bodies can
be found on pages 62 to 65.
Marks and Spencer Group plc Last year’s
digital AGM
Last year’s AGM was the
Board’s most engaging
and constructive yet
because we were able to
reach shareholders directly
in their homes.
This year, we’ll be joined by Kamal Ahmed
who will be acting as your shareholder
advocate, sharing your views and
questioning me and the Board on your
behalf. If you would like us to hear from
you directly, you also have the option of
submitting a video question to be played
to the Board for response during the
meeting. I look forward to hearing from
you all then.
Information on how to participate
electronically, both in advance and on the
day, can be found on pages 207 to 209.
Archie Norman, Chairman
UK CORPORATE
GOVERNANCE CODE
The UK Corporate Governance Code
2018 (the “Code”) which is available
to view on the Financial Reporting
Council’s website is the standard
against which we measured ourselves
in 2020/21.
The Board confirms that we complied
with all of the provisions set out in the
Code for the period under review.
Details on how we have applied the
principles set out in the Code and how
governance operates at M&S have been
summarised throughout the Directors’
Report. Our full Corporate Governance
Statement outlining our compliance is
available on marksandspencer.com/
thecompany.
Change has not been limited to the Board
and senior leadership this year though.
The refreshed Executive Committee has
prioritised a review of talent, development
and succession throughout the business,
supported by the Nomination and
Remuneration Committees, and more
detail can be read in the respective
Committee reports.
Since the financial year end, the Executive
Committee has also realigned itself and its
member responsibilities. As announced
on 18 May 2021, Katie Bickerstaffe and
Stuart Machin have become Joint Chief
Operating Officers, adding additional
oversight and impetus to our core
businesses, while Eoin Tonge is
now responsible for strategy and
transformation planning as part of his CFO
remit. The overall composition and duties
of the Committee remain unchanged.
BOARD ACTIVITIES AND
CONSIDERATION OF STAKEHOLDERS
The Board’s focus during the year
has been to accelerate the Company’s
pursuance of its strategic priorities, while
managing the ongoing uncertainties
associated with Covid-19 and Brexit. In our
weekly calls, we have heard updates on
operating challenges and advised on
proposed measures to address them
urgently. In our formal monthly meetings,
we have been presented with “strategic
deep dives” by all areas of the business,
which we have then considered, debated
and challenged. All while being mindful of
the impact of any decisions made on the
business’ various stakeholders and on its
long-term, sustainable success, in line
with Section 172(1) of the Companies Act
2006 (“s.172(1)”).
Our colleagues in particular were
significantly impacted by our decisions
this year. We placed thousands of
colleagues on furlough, rewarding
those continuing to work in stores with a
15% uplift in pay and those in our support
centres with an equity grant of 5% of salary
for the first lockdown period. There were,
of course, unfortunate job losses as a
result of our organisational restructure,
but these were necessary to right-size the
business for a post-Covid world.
An overview of the range of matters that
the Board discussed and debated at its
meetings during the year can be found
on pages 66 to 67, with examples of
the Board’s key decisions and s.172(1)
considerations on pages 68 to 69.
The Company’s s.172(1) statement is
available on pages 34 to 36.
CREATION OF AN ESG COMMITTEE
In the latter part of the year, the Board
and Executive Committee’s attention
was drawn to the refresh of our Plan A
sustainability programme. In part
prompted by the events of the last year,
we have agreed that it is imperative to
ensure that Plan A is once again central
to our customer story, so that we can
continue to help our colleagues,
customers and communities lead happier,
healthier and more fulfilling lives.
The Board’s Environmental, Social &
Governance (“ESG”) Sub-Committee
was established to assist the Board in
providing focus and oversight of the Plan
A programme, both in its reinvigoration
and its ongoing effectiveness. The report
of the ESG Committee for 2020/21 is
available on pages 73 to 76.
DIVIDEND
Whilst a difficult decision, we continue to
agree, in line with our approach last year,
that non-payment of a dividend is
appropriate for the 2020/21 financial
year. This continues to be one of the
proactive steps we have taken to
strengthen our balance sheet and
maximise liquidity for our recovery
beyond the pandemic.
DIGITAL AGM
We know our Annual General Meeting
(“AGM”) provides investors with a valuable
opportunity to communicate with us.
In recognition of this, and building on
the unprecedented success of last year’s
meeting, we will be conducting this year’s
AGM digitally once again. In addition to
being able to vote and submit questions
electronically in advance, all shareholders
will be able to join the meeting online to
hear from Steve and me, ask questions
and vote on our resolutions.
59
Annual Report & Financial Statements 2021GOVERNANCE LEADERSHIP AND OVERSIGHT
During 2020/21 and dealing with the evolution of the Covid-19 pandemic, our governance framework was significantly
compressed to increase our responsiveness to the changing situation and streamline our decision-making process.
With an increase in the frequency of Board meetings and a rationalisation of the number of operating meetings and management
processes, the Board and its Committees, the Executive Committee and senior management were able to collaborate proactively,
consider issues and respond in the face of unprecedented uncertainty.
BOARD COMMITTEES
The Board is supported by its sub-
committees in discharging its duties.
Following each Committee meeting the
Chairs of the Committees provide an update
on their activities at the next Board meeting.
Audit Committee
see p77-83
Responsible for monitoring the integrity
of the financial statements, reviewing the
Group’s framework of internal controls
and maintaining the auditor relationship.
Remuneration Committee
see p84-105
Responsible for remuneration policy,
performance-linked pay schemes and
share-based incentive plans.
Nomination Committee
see p71-72
Responsible for reviewing Board
composition and diversity, proposing new
Board appointments and monitoring the
Board’s succession needs.
ESG Committee
see p73-76
Responsible for ensuring the Company’s
ESG strategy remains fit for purpose and
that plans are in place and reported on.
Disclosure Committee
Responsible for determining the disclosure
treatment of material information and
identifying inside information for the
purpose of maintaining the Company’s
project (insider) lists.
As with the Board and ExCo, the Board’s
sub-committees have adapted to the
business’ need for more responsive
decision-making, often meeting or
reviewing proposals outside of its usual
meeting cycles.
SENIOR LEADERSHIP FORUMS
Underlying this more agile governance
feedback loop between the Board, its
sub-committees and the ExCo, there are
forums comprising senior management that
support each of these governing bodies.
This year, as part of the Never the Same Again
programme and introduction of the ExCo, the
previous ‘Boards’ for each of the business units
have been removed in favour of more focused
‘Operating Review’ meetings with streamlined
memberships. Their main remit is for
management of key trading and operational
matters, with decision-making delegated to
them by the Group Delegation of Authority
and underpinned by business unit Delegations
of Authority.
60
BOARD
The Board is responsible for establishing the
Company’s purpose, values and strategy,
promoting its culture, overseeing its
conduct and affairs, and for promoting the
success of the Company for the benefit of
its members and stakeholders. It discharges
some of its responsibilities directly and
others through its sub-committees.
Terms of Reference for the Board and its
sub-committees are available in our
Governance Framework, published on
marksandspencer.com/the company.
Execution of the strategy and day-to-day
management of the Company’s business is
delegated to the ExCo, and subsequently
to senior leadership forums where relevant,
with the Board retaining responsibility
for overseeing, guiding and holding
management to account.
In addition to its monthly scheduled
meetings, this year the Board met and heard
from the ExCo and senior management
on a regular basis – sometimes weekly –
over the phone or by video call for faster,
more efficient decision-making and
reactiveness. With the UK government’s
roadmap out of lockdown under way and
progressing well, the Board held its last
weekly board call on 25 March 2021.
BOARD
BOARD
COMMITTEES
Governance
at M&S
EXECUTIVE
COMMITTEE
SENIOR
LEADERSHIP
FORUMS
EXECUTIVE COMMITTEE
The Executive Committee (“ExCo”) is the
leadership team responsible for executing
strategy, by managing, monitoring and
providing executive input to support the
Company’s strategic and operational
decisions, ensuring strong executive
alignment on business priorities and actions,
including business case investments.
The ExCo’s authority is conferred on it
by the Group Delegation of Authority,
as approved by the Board.
Consisting of the CEO, CFO, Chief Operating
Officers, and the Managing Directors of each
business unit, the ExCo reviews strategic
opportunities and initiatives from the five
key businesses and Group centralised
functions, ensuring that these align with the
overarching strategy as mandated by the
Board. In addition, and in support of the
Board’s purpose, values and culture setting,
the ExCo is responsible for all colleague
matters, including the structure and
operation of the HR function throughout the
business, the development and monitoring
of culture and values, and reviewing talent
and leadership development and succession
plans below ExCo level. Post year-end, the
division of responsibilities within the ExCo
changed, as announced on 18 May 2021.
However, the overall composition and duties
of the Committee remain unchanged.
Having been established as part of our
Never the Same Again programme, drawing
on learnings from the Covid-19 crisis and
capitalising on the opportunities, the ExCo
(formerly the Operating Committee) has
remained in constant contact, meeting as
and when required to respond quickly to
the changing situation. Initially on a weekly
basis, as the crisis has transitioned to being
the new normal and with the business set up
to succeed with new operating procedures,
this has moved to monthly meetings.
Additional forums have been established and
disbanded throughout the year as part of our
more responsive governance framework,
with the intention of supporting specific
projects, business needs, or strategic
priorities, and meeting as and when required.
Examples include:
Property Committee
For reviewing and approving
property investments.
Digital Board
For driving the Company’s Digital First
agenda across the Group.
Brand Forum
For reviewing use of the M&S brand, as well as
considering use of third-party brands.
Crisis Management Team
For determining and directing actions required
in response to crises. This team was especially
prominent during the first Covid-19 lockdown,
which we explored on pages 50 to 53 of our
2020 Annual Report. The team has since been
demobilised until another crisis requires it
to reconvene.
People Forum
For driving the People and Culture agenda
across the Group.
Compliance Monitoring Committee
Newly established to support the Audit
Committee’s oversight of credit broking
activities within the Group, as regulated by
the Financial Conduct Authority.
Marks and Spencer Group plc GOVERNANCE
BOARD COMPOSITION
AND MEETING ATTENDANCE
BOARD MEETING ATTENDANCE AND DIRECTOR RESPONSIBILITIES IN 2020/21
During the year, the Board held 11 scheduled
meetings and an additional 12 Board calls in
response to the Covid-19 pandemic, for
which individual attendance is set out below.
Additional unscheduled meetings were held as
and when required, typically on a weekly basis
throughout the year.
non-executive directors to discuss any
matters arising.
Sufficient time is provided, periodically,
for the Chairman to meet privately with the
Senior Independent Director (“SID”) and the
For information on what the Board did
during the year, see p66-69.
CHAIRMAN
Archie Norman*
Attended
Max possible
Scheduled Additional Scheduled Additional
12
12
11
11
12
2
12
12
12
10
10
12
6
6
–
12
10
* Considered independent on appointment.
EXECUTIVE DIRECTORS
Chief Executive
Steve Rowe
Chief Financial Officer
Eoin Tonge
(appointed 8 June 2020)
NON-EXECUTIVE DIRECTORS
Full Year
Andrew Fisher
Andy Halford
Justin King
Retired in 2020/21
Katie Bickerstaffe
Alison Brittain
Pip McCrostie
Appointed in 2020/21
Sapna Sood
Tamara Ingram
Evelyn Bourke
11
9
11
11
11
3
3
11
9
9
2
12
2
12
12
12
9*
10
12
6
6
–
11
9
11
11
11
3
3
11
9
9
2
* Unable to attend one meeting due to other business commitments.
12
10
11
3
STANDING ATTENDEES
Nick Folland –
General Counsel and
Company Secretary
David Surdeau –
Interim Chief
Finance Officer*
* Resigned June 2020.
ATTENDED BY INVITATION
Sacha Berendji
Katie Bickerstaffe*
Paul Friston
Stuart Machin
Richard Price
11
3
9
6
4
8
6
Independent Responsibility in 2020/21
Board governance and performance,
shareholder engagement.
Linked to
remuneration
Strategy and Group performance.
Group financial performance, investor relations and
risk management.
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, directors also review the integrity of
the Company's financial information, consider ESG issues, recommend
appropriate succession plans, monitor Board diversity and set the
directors’ remuneration.
Responsibility
Advising the Board on all legal and corporate governance issues, including
sustainability and Plan A.
Led the Finance function and attended Board meetings in line with the
responsibilities of the Interim CFO.
Role at Board meetings
The ExCo 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
ExCo attend Board meetings by invitation to present and discuss matters of
strategic importance.
Direct Reports to ExCo members also attend Board meetings by invitation as
and when input is required on their specific areas of expertise.
* Became Chief Strategy and Transformation Director (post year-end, Chief Operating Officer), and stepped down from the Board in July 2020.
Note: The tables above provide details of scheduled meetings held in the 2020/21 financial year and additional Board calls in response to the Covid-19 pandemic.
Monitoring non-executive director independence
The Board reviews the independence of its
non-executive directors as part of its annual Board
Effectiveness Review. The non-executive directors
also meet annually, led by the SID, to conduct the
Chairman’s appraisal. The results of the meeting
are then fed back to the Chairman by the SID.
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.
with our longest-serving non-executive director,
Andy Halford, having served on the Board since
January 2013.
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.
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,
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 p62-p64. For more
information on director tenure see p72.
61
Annual Report & Financial Statements 2021GOVERNANCE
GOVERNANCE
OUR BOARD
Archie Norman
Chairman
N R
Steve Rowe
Chief Executive
Eoin Tonge
Chief Financial Officer
Appointed: September 2017
Appointed: April 2016
Appointed: June 2020
Career and external
appointments: 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 was the Lead Director at the
Department for Business, Energy &
Industrial Strategy from 2016 to
2020. Archie is also the Chairman
of Signal AI and Non-Executive
Vice Chairman of Global Counsel.
Career and external
appointments: 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.
Steve is Chair of the Business in
the Community (‘BITC’) Place
Leadership Team. In addition, he
sits on the Board of the Consumer
Goods Forum, which brings
together leaders from global
retailers and manufacturers.
Career and external
appointments: Eoin joined the
business from Greencore, where
he had been CFO since 2016.
At Greencore, he oversaw the
divestment of their US operations,
strengthening the company’s
balance sheet, returning capital
to shareholders and simplifying
the business. Prior to that he
was MD of Greencore’s Grocery
business and also worked in a
variety of roles across strategy,
finance, treasury and capital
markets at Greencore and
previously Goldman Sachs.
Andy Halford
Senior Independent
Non-Executive Director
A N
Appointed: January 2013
Career and external
appointments: 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.
Andrew Fisher OBE
Independent
Non-Executive Director
R N
Justin King CBE
Independent
Non-Executive Director
A
N
Sapna Sood
Independent
Non-Executive Director
E
N
Tamara Ingram OBE
Independent
Non-Executive Director
E N R
Appointed: December 2015
Appointed: January 2019
Appointed: June 2020
Appointed: June 2020
Career and external
appointments: Andrew was
instrumental in establishing
mobile lifestyle app Shazam,
where he was Executive Chairman
until October 2018, as a leading
mobile consumer brand. Andrew
brings over 20 years’ experience
leading and growing numerous
technology-focused enterprises,
and is currently Chair of
Rightmove PLC.
Career and external
appointments: Justin was Vice
Chairman of Terra Firma until
May 2021, 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, Häagen-Dazs,
PepsiCo and Mars.
Full biographical details of
each director are available
on marksandspencer.com/
thecompany.
A breakdown of the Board’s
key skills and experience can
be found on p64-65.
62
Please see p60-61
for more detail on the
Board and Committee
governance structure,
and meeting attendance.
Career and external
appointments: Sapna was, until
recently, a senior executive at
Compass Group, as the Group
Director for International Clients
and Market Development
business. She has in-depth
knowledge of running complex
supply chains, including in food
and clothing, as well as experience
of leading large transformation
programmes. She has held leading
operational roles in the building
materials and industrial gas
sectors in Europe and Asia Pacific,
latterly as CEO and President of
LafargeHolcim in the Philippines.
Sapna was also a non-executive
director at Kering from 2016
to 2020.
Career and external
appointments: Tamara has a
longstanding leadership career in
advertising, marketing and digital
communications, having held
leadership roles at WPP since 2002.
Prior to this, she worked at Saatchi
& Saatchi where she held the roles
of CEO and Chair. Tamara
has led renowned marketing
campaigns for household brands
around the world and delivered
cultural and business
transformation at pace within
her own businesses as well as
on behalf of clients. She is a
non-executive director of Marsh
McLennan and Intertek Group,
and a Trustee of Save the Children.
Marks and Spencer Group plc Committees key
A
Audit
N
Nomination
Committee Chair
E
ESG
R
Remuneration
Executive
Evelyn Bourke
Independent
Non-Executive Director
(newly appointed)
A
N
Fiona Dawson CBE
Independent
Non-Executive Director
(newly appointed)
Appointed: February 2021
Appointed: May 2021
Career and external
appointments: Evelyn retired from
her role as CEO of Bupa Group in
December 2020 where she led
transformative change during her
nearly five-year tenure. She also
has extensive experience in
financial services, risk and capital
management and mergers and
acquisitions, having spent three
and a half years as Bupa’s CFO and
in leadership roles at Standard Life,
Friends Provident and the Bank
of Ireland, where she is currently a
non-executive director. Evelyn is
also a non-executive director of
Admiral PLC and will join AJ Bell
PLC on 1 July 2021.
Career and external
appointments: Fiona is part of the
Mars, Inc. Leadership Team, where
she rose from the Graduate Trainee
scheme to one of the top roles in
the company. Her leadership roles
have included President of Global
Retail and Mars Chocolate UK and
European Marketing Vice
President. Fiona also has a strong
track record in sustainability,
health and wellbeing, particularly
women’s entrepreneurship and
human rights. She was recently
awarded a CBE for services to
women and the economy.
Role status
Newly appointed
Outgoing
N
Pip McCrostie
Independent Non-Executive
Director (outgoing)
A
N
Nick Folland
General Counsel and
Company Secretary
Appointed: February 2019
Career and external
appointments: 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.
Appointed: July 2018
Retired: March 2021
Career and external
appointments: Pip was a member
of Ernst and Young’s Global
Executive Board from 2008
until her retirement in 2016.
At EY she gained extensive
financial experience and led and
transformed the Global Corporate
Finance business. She was founder
and co-founder respectively of the
Global Transaction Tax Network
and UK Transaction Tax Group
and a non-executive director of
Inmarsat from 2016 to 2019.
Pip retired from the Board in
March 2021 with our heartfelt
thanks. We were saddened to hear
that she passed away after leaving
the Board, and we offer our
condolences to her family.
OUR EXECUTIVE COMMITTEE
The Executive Committee leads the operational and day-to-day management of the Group in line with the strategy set by the Board.
The Committee reflects the Company’s businesses model, comprising the managing director of each business unit along with the joint
COOs, the CEO and CFO.
Katie Bickerstaffe
Chief Operating Officer
Stuart Machin
Chief Operating Officer
Career summary: Katie
joined as Chief Strategy
and Transformation
Director on 27 April 2020,
having previously spent
two years on the M&S
Board as a non-executive
director. Katie is currently a
non-executive director of
Barratt Developments PLC
and the England and
Wales Cricket Board.
She has also been Chief
Executive, UK and Ireland
of Dixons Carphone plc,
with extensive experience
of retail and operations
and leading consumer-
focused businesses.
On 18 May 2021, Katie
became joint Chief
Operating Officer.
Career summary: Stuart
joined M&S as Managing
Director of Food on
30 April 2018 with nearly
30 years’ experience in the
food, fashion and home
retail sector. Along with
Steve Rowe and Eoin
Tonge, Stuart is also a
Director of Ocado Retail
Ltd. Stuart has held
senior operational and
commercial roles in
UK retailers Sainsbury’s,
Tesco and ASDA and
more recently spent 10
years in Australia working
in Wesfarmers as COO
and CEO of Coles and
Target respectively.
On 18 May 2021, Stuart
became joint Chief
Operating Officer.
Richard Price
Clothing & Home
Managing Director
Career summary: Richard
joined M&S on 7 July 2020
as Clothing & Home
Managing Director. Prior to
this, Richard spent three
years as Managing Director
of BHS before becoming
CEO of F&F Clothing at
Tesco in 2015. From 2005
to 2012, Richard was
Head of Merchandise and
Menswear Trading Director
at M&S. Earlier in his career
he spent 15 years at Next in
a range of merchandising
roles. Richard’s career
demonstrates his proven
track record of delivering
growth through stylish,
great value product.
Paul Friston
International Director
Career summary: Paul
began his M&S career
on the Finance graduate
programme in 1996 and
qualified as a management
accountant in 2000.
He held a variety of roles
during his time at M&S,
including Interim CFO
and Executive Assistant to
former CEO, Marc Bolland.
Paul was appointed to his
current position in May
2016 and became Chair of
the M&S Inclusion Group
in April 2018.
Sacha Berendji
Group Property,
Store Development
and IT Director
Career summary: Sacha
joined M&S in 1994 through
the graduate programme.
He undertook various
appointments, including
General Manager of Marble
Arch Store, Regional
Manager for London, Head
of Property Planning &
Store Development,
Executive Assistant to the
Chief Executive, and
Director of Merchandising.
Sacha took up his position
as Retail, Operations and
Property Director in
November 2012, before
moving to his current
position in May 2021.
63
Annual Report & Financial Statements 2021GOVERNANCE GOVERNANCE
BALANCED LEADERSHIP
BOARD
Improving trend line
Events in the last year have refocused public consciousness on
diversity, and M&S has been no exception. In line with the acceleration
of the transformation and our Board diversity policy (the “Policy”),
we have taken further steps to deliver our ongoing diversity ambitions.
There have been a number of changes to our Board during the year
and up to the publication of this report, including the appointment of
four non-executive directors. In addition to the diverse wealth of skills
and experience they bring, our newest Board members contribute to
the improving trend line in gender and ethnic diversity, which are two
key objectives of the Policy.
Gender
Gender
identity*
identity*
Female (40%)
Female (40%)
Male (60%)
Male (60%)
* As at 25 May 2021.
Non-
Executive
Director
tenure*
0-2 years (62.5%)
3-5 years (25%)
6-8 years (12.5%)
Board
appointments
since April
2020*
Female (80%)
Male (20%)
Strategic alignment: Never the Same Again
The refreshed Board skills and experience matrix demonstrates three
key points and beliefs. Firstly, our Never the Same Again priorities have
been a critical consideration in the composition of the Board and its
Committees, making our leadership more equipped than ever before
to drive our strategy. Secondly, the matrix highlights key development
areas for consideration in our continued succession planning, such as
sustainability and technology. Thirdly, and crucially, M&S strongly
believes that improving gender and ethnic diversity in our leadership
is not only the right thing to do, but is invaluable to the success of
our business. The correlation between improving diversity and the
simultaneous improvements in strategically considered competencies
attests to the benefits of our Policy.
3
4
5
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Archie Norman
Andrew Fisher
Andy Halford
Tamara Ingram
Justin King
Sapna Sood
Steve Rowe
Eoin Tonge
Evelyn Bourke
Fiona Dawson
Pip McCrostie
Nick Folland
Newly appointed
Outgoing
General Counsel & Company Secretary
Never the Same Again priorities:
1
Faster Food growth with Ocado Retail
2
3
4
5
Capture value in Food supply chain
Simplify range and value in C&H
Turbocharge growth at M&S.com
Store estate for the new world
64
Marks and Spencer Group plc
BOARD CONTINUED
Targets met, ambition to surpass
Last year, we met the target set
out in the Hampton-Alexander
Review, ensuring at least 33%
of Board members identified
as female. This year, new
appointments focused on this
area and remained compliant
throughout, surpassing the
target towards the end of the
year. We also voiced our ambition
last year, in line with the Parker
Review, to appoint at least one
Board member from an ethnic
minority background by 2021,
which we were proud to achieve
with the appointment of Sapna
Sood in June 2020. In addition,
the independence and tenure of
our directors strikes a considered
balance, ensuring stability while
meeting the guidance set out in
the Code. However, meeting
these external targets is a
milestone and not an end
destination, and we remain
mindful and committed to
driving progress.
Hampton-Alexander Review
Parker Review
Target
M&S
Target
M&S
Target: 33% female Board
Target: One Board member from an
ethnic minority background by 2021
UK Corporate Governance Code 2018
Target
M&S
Target: Non-executive director tenure
not exceeding nine years
EXECUTIVE COMMITTEE
Wider leadership
While formal targets have focused on the Board, our ambition
to strengthen diversity extends throughout senior leadership.
We recognise that there is significant work to do in this area, and
believe that the talent pipeline and succession planning are key.
For that reason, we have highlighted the gender balance of direct
reports to the Executive Committee, for which more information
can be found on page 27.
ExCo
gender
identity*
ExCo direct
reports
gender
identity*
Female (14%)
Male (86%)
Female (44%)
Male (56%)
* As at 25 May 2021. Please see p27 and p62-63 for more detail.
3
4
5
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Skills and
experience
Steve Rowe
Eoin Tonge
Katie Bickerstaffe
Paul Friston
Sacha Berendji
Stuart Machin
Richard Price
Our objective of driving the benefits of a
diverse board, senior management team
and wider workforce is underpinned by
the Policy, which can be viewed on our
corporate website at marksandspencer.com/
thecompany.
In addition to the above mentioned
commitments to promote gender diversity,
ethnic diversity and succession planning,
the Policy covers other inclusion initiatives
taking place within the Company which are
sponsored and endorsed by the Board.
During the year, these have included:
– Employee-led networks on gender,
ethnicity (BAME), sexual orientation
(LGBTQ+), and disabilities and
health conditions.
OUR COMMITMENT
– Continued involvement in the 30% Club,
an organisation committed to increasing
female representation on UK boards
through developing our junior leaders.
– The Marks & Start programme, which
continues to support young people, the
homeless, lone parents and those with
disabilities in finding work at M&S.
– Continued active involvement in key
campaigns including LGBTQ+ 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.
– Launched mandatory Inclusion and
Diversity training on our Learning Hub
and updated our line manager guide for
gender identity to make sure it follows
the latest terminology.
– Added our first LGBTQ+ charity
partnership to Sparks for our customers
and colleagues to support AKT, a charity
supporting LGBTQ+ young people
aged 16-25 in the UK who are facing or
experiencing homelessness or living
in a hostile environment.
65
Annual Report & Financial Statements 2021GOVERNANCE
GOVERNANCE
BOARD ACTIVITIES
WHAT WAS ON THE BOARD’S AGENDA IN 2020/21?
Board meetings are an important mechanism
by which the directors discharge their duties,
including under Section 172(1) of the
Companies Act 2006.
For more information, see p34-36 for our
Section 172(1) statement and p68-69 for
decision case studies unpacking the
Board’s Section 172(1) considerations.
Board meetings are also an important platform
for the Board to debate robustly and challenge
management on elements of the Company’s
performance, specific projects or areas of
strategic significance.
Meeting agendas, agreed in advance by the
Chairman, CEO and Company Secretary,
combine a balance of regular standing items,
such as reports on current trading and financial
performance, with one or two detailed “deep
dives”. These pages give an overview of the
main topics on the Board’s agenda throughout
the year.
Key to
stakeholder
groups:
Shareholders
Colleagues
Suppliers
Customers
Communities
Partners
Key to the
Never the Same
Again priorities: 1 Faster Food
1
growth with
Ocado retail
2 Capture
2
value in Food
supply chain
3 Simplify
3
range and
value in C&H
4
Turbocharge
growth at
M&S.com
5
Store estate
for the
new world
STRATEGY Never the Same Again AND TRANSFORMATION
Updates on the progress of the transformation
programme were provided at each meeting,
supplemented by deep dives presented by
the relevant business areas. These updates
enabled the Board to monitor and drive the
transformation programme forwards, while
also providing guidance and challenge
where needed. At the start of the year our
transformation programme was already under
way with improvements in all core areas
of the business. Covid-19 and Brexit, two major
uncertainties, brought new challenges but
added further pace and acceleration to our
transformation. In response, we created our
five priorities under the Never the Same Again
(“NTSA”) programme, as announced at our
half-year results. All of the Board’s strategic
discussions have been principally focused on
the NTSA priorities, while being contextualised
and shaped by these two major
uncertainties. To drive change and navigate
these additional uncertainties, the Board has
continued to hold unscheduled calls as
required, often on a weekly basis,
supplementary to scheduled meetings
during 2020/21.
Read more about the Board’s condensed
governance cadence on p60.
For more information on our strategic
priorities, see p7.
COVID-19
BREXIT
The Board has continued to reflect on, and direct the Company’s
response to, the ongoing impacts on the business resulting from the
Covid-19 pandemic. In each of its strategic discussions, it has
considered how best to manage the uncertainties associated with
Covid-19 (and therefore this has not been repeated in the Strategic
Deep Dives section below). Most notably, the Board has discussed
during the year: the importance of improving and accelerating the
shift to online in the C&H business, especially during various
lockdowns in the UK and internationally when non-essential retail
has been closed; the urgency in future-proofing the UK store estate,
increasing our Food presence in popular retail parks and out of town
locations for more spacious and convenient “weekly shops”; and,
ensuring the success of the Ocado partnership amid increasing online
demand. 1 2 3 4 5
As with Covid-19, Brexit preparedness and its potential impact
has been continually discussed across all strategic areas. The
negotiations with the EU were monitored closely, but the Board and
management’s focus has remained resolutely committed to
mitigating the impact and ensuring that the businesses remained
focused on providing the best possible service to customers. The
Board has considered in detail throughout the year: the potential
financial impact on profits of the various scenarios of leaving the EU
with or without a trade agreement; post-deal, the need to reshape
our supply chain and overcome the logistical difficulties of sending
product from the UK, specifically to the island of Ireland; and finally,
coming to terms with the new operating model for the International
business, due to the increase in tariffs and administrative burden
Brexit caused. 1 2 3 4 5
At each meeting, the Board discussed strategically significant matters in greater depth to evaluate progress, provide insight and,
where necessary, test, challenge and decide on appropriate action. These included:
STRATEGIC DEEP DIVES
Clothing & Home
– Discussed the C&H proposition, brand framework
and supply chain, monitoring and challenging
against agreed transformation milestones.
– Debated investment and development in areas
such as product and design to drive the C&H
strategy, with particular regard to sustainable
change and future-proofing. 3 4 5
Third-party brands
– Guided and supported management to develop
the approach to third-party brands and debated
the criteria brands would need to meet in order to
be considered for investment, highlighting
the importance of the customer lens and
Plan A alignment.
– Considered the merits of acquisition,
collaboration, consignment and
wholesale models. 3 4 5
Food
– Discussed changing customer behaviour and
our responses to it, covering product range and
packaging, store layout, and plans for the
hospitality business.
– Monitored activities relating to the modernisation
of the end-to-end supply chain including the
roll-out of Vangarde. Discussing the need for
continuous improvement throughout the network
and the partnership model for the Food business.
1 2 5
66
Ocado
– Challenged and supported management’s
operational and marketing plans for the
September 2020 launch and subsequently
evaluated the success of the transition.
– Discussed Ocado’s trading performance and
plans to develop the joint venture relationship
with an absolute focus on the customer and
driving growth. 1 2 5
Marks and Spencer Group plc
STRATEGIC DEEP DIVES CONTINUED
Bank & Services
– Provided feedback on the updated commercial
framework and strategy for M&S Services and
discussed how this would support driving the
Group’s strategic priorities, including customer
proposition, plans for growth and partner
relationships. 4 5
Property
– Reviewed plans and received updates on
cost-saving initiatives, leases and rent
arrangements. Offering guidance on
negotiations with landlords and challenging
management to bring difficult questions for
the Board’s consideration.
– Took an active role in shaping the Company’s
response on business rates and the store closure
and renewal programmes. 5
Digital & Data
– Endorsed the MS2 concept to develop digital
talent in C&H, providing insight and guidance on
the critical success factors, and encouraging the
ExCo to proactively oversee the process.
Sparks
– Evaluated the success of the Sparks relaunch and
discussed ambitions to integrate Sparks more
deeply throughout the business, driving further
growth through the loyalty offer.
– Monitored transformation progress on M&S.com
– Discussed the merits of various Sparks initiatives
customer experience, personalisation and growth,
and on plans to integrate digital capabilities and
new technology in stores. 3 4 5
aimed at improving the customer offer and
loyalty, through non-financial rewards including
Sparks Live and Supersize Sparks. 4 5
Sustainability and Plan A
– Debated a new approach to Plan A and agreed to
modernise the framework of principles, closely
aligning this with the Company’s strategy and
stakeholder priorities, and embedded more
strongly into the M&S brand. The ESG Committee
was formed to support this, acknowledging
growing stakeholder interest in the topic.
1 2 3 4 5
International
– Against a backdrop of uncertainties across owned
and franchise markets, reviewed progress in the
International transformation programme.
– Focused management on understanding the
urgency of growing online, culminating in the
online launch in 46 new countries, increasing
agility in the supply chain, and modernising the
store portfolio. 2 3 4 5
ORGANISATION CULTURE AND BUSINESS INVOLVEMENT GROUP (‘BIG’)
– Focused on trading and operating safely, as well
as rewarding colleagues continuing to work during
the first lockdown, with store colleagues given a
one-off 15% pay increase for the period and
support centre colleagues given a one-off share
award amounting to 5% of salary for the period.
– The Board felt strongly that colleagues placed
on furlough should not experience a decline
between their ordinary pay and the government
grant, and therefore agreed to fund the difference
to ensure that colleagues received 100% of pay.
This informed later Remuneration Committee
discussions and approval for paying the national
living wage to all colleagues, effective from
June 2021.
– Debated organisational restructuring in Retail &
Property and C&H, considering the terms and
impact on the business over the long term and the
impact on and views of stakeholders, chiefly
colleague views. A voluntary redundancy
programme was regretfully agreed upon.
A consultation was communicated and managed
via BIG that culminated in 7,000 voluntary
redundancies.
– In addition to the annual standing invite to
three Board meetings and one Remuneration
Committee meeting, the Chair of National BIG was
invited to make use of attending in full and seeing
all papers in order to provide colleague insight and
sentiment in focused BIG deep dives, and to input
on agenda items throughout Board meetings.
– The Board gave thanks to the outgoing BIG Chair,
and welcomed the newly elected Chair to its
meeting in December 2020.
– Discussed talent and performance reviews
taking place across the business. Non-executive
directors offered insights to management from
their external experience on successful methods
for driving a high-performance culture and an
engaged and motivated workforce.
– Encouraged development and improved
communication of M&S’s culture and character
as an employer, to attract the flexible and
entrepreneurial talent required to execute the
digital agenda.
– Discussed inclusion and diversity initiatives taking
place throughout the year, such as National
Inclusion Week activity, new support and
e-learning for line managers on inclusion, and
the launch of the Culture & Heritage network.
CHIEF EXECUTIVE OFFICER UPDATE
CHIEF FINANCIAL OFFICER UPDATE
The CEO’s monthly presentation to the Board focuses on operational activities
of strategic significance across the business. In addition to deep-dive items,
transformation updates and People matters covered elsewhere, the Board
discussed trading in each business unit, including sales trends, supply base
performance, regional activity and performance against competitors. Insight
was also provided on events throughout the year such as brand launches,
seasonal trading at Christmas and Easter, and Black History Month.
Financial updates, provided by the CFO, are considered by the Board at every
meeting and cover monthly sales performance, profit, cash flow, cost base,
capital expenditure, and outlook for the year. The CFO updates during the year
also included discussion on “key event” items, such as budget setting, dividend
decisions, share price movements, measures to secure liquidity, feedback from
investors and changes in the finance leadership team.
GOVERNANCE
PRINCIPAL COMMITTEES
The Board and Committee calendar is arranged by
the General Counsel & Company Secretary in
conjunction with the Chairman to ensure the agility of
information flow and decision-making. The principal
Committees usually meet within the week before
the Board to provide the latest updates and
recommendations for approval at each Board
meeting, with the following discussed by the Board
in respect of the principal Committees:
Audit Committee
– Agreed the proposed Group-level principal
risks and the appropriate treatment and
mitigating activities.
– Discussed, agreed and made plans to
communicate and disclose the Group’s risk
appetite and tolerance, and evaluated the risk
profile at regular intervals against this.
– Reviewed half year, Q3 and full year results,
including exceptional items and the audit
timetable and plans of the external auditor.
– Evaluated Internal Audit activity, and approved
plans to appropriately reflect Covid-19 impacts.
Remuneration Committee
– Reviewed updates on senior leadership objectives,
targets and remuneration, including how these
would be communicated to key stakeholders.
– Discussed remuneration activities relating to
Covid-19, including furlough, store colleague pay
uplift and the 5% share award.
Nomination Committee
– Approved recommendations to appoint four
new non-executive directors and reviewed
updates on inductions.
ESG Committee
– Discussed the need for, and approval of, the
formation of the ESG Committee, announced in
December 2020.
– Considered the development of the Plan A
programme refresh.
– Received updates on the ESG communications
framework and approved recommendations for
ESG-related disclosures within the annual report,
including preparations for adopting the Task
Force on Climate-related Financial Disclosures
(“TCFD”) recommendations.
– Invited the Board to attend external speaker
sessions to develop insights on ESG issues.
OTHER GOVERNANCE
The General Counsel & Company Secretary provides a
legal and governance update at every Board meeting,
covering ongoing litigation, confidential project
status updates and closed periods, share register
analysis, shareholder insight and priorities, delegation
of authority updates, and updates to related parties
and potential conflicts of interest.
Building on the success of hybrid meetings in
previous years, the Board took the decision against
the Covid-19 backdrop to run an ostensibly digital
Annual General Meeting (“AGM”) in 2020, seeing
participation treble and all resolutions passed, with
votes ranging from 90.89% to 99.97% in favour.
Board impact
– Discussed insights and development plans from
the external evaluator, including one-to-one
mentor pairing between non-executive directors
and ExCo members.
67
Annual Report & Financial Statements 2021GOVERNANCE
BOARD ACTIVITIES CONTINUED
KEY BOARD DECISIONS
& S172(1) CONSIDERATIONS
In addition to the considerations, debates and decisions outlined already, the Board made some crucial decisions during the year,
promoting our purpose, strategy and long-term sustainability. All Board decisions, whether iterative and complex, or immediate
and straightforward, are made having considered the matters set out in Section 172(1) of the Companies Act 2006,
and here we analyse some of these decisions and considerations in detail.
Covid-19 working & colleague redundancies
There has not been a stakeholder who has been unaffected by this global pandemic,
both directly and indirectly. We detailed the Company’s initial response to the crisis in
last year’s report (pages 50 to 53 of the 2019/20 Annual Report), and the Board continued
to make decisions throughout this year to ensure that the business not only dealt with a
prolonged pandemic but also prepared itself to emerge into a changed world in a very
different, Never the Same Again, shape.
Stakeholder considerations
Despite customs embargoes or
changes in our buying volumes,
our suppliers have responded
dynamically and robustly to
support the pivot into categories
and products that our customers
have required over the past 12
months. The Board has therefore
striven to support suppliers, and
balance their often conflicting
interests. When the Clothing &
Home (“C&H”) business
anticipated being severely
constrained during lockdown,
the Board needed to act to secure
the Company’s liquidity for the
likely duration of the crisis, and its
options to do so included
amending our supplier payment
terms. In considering the impact
that this would have on them,
the Board resolved to ask our
larger suppliers to accept less
favourable payment terms, to
help offset the cost of providing
improved financial terms to our
smaller suppliers who rely on
prompt payment to remain
economically viable. In exchange,
the Board committed to
standing by our larger, long-term
suppliers, pledging that no
fabric would go to waste and all
orders placed before halting
production would be paid for
on normal terms.
Our category mix has had to
adapt to customer demands
during Covid-19, pivoting away
from formalwear and schoolwear
towards loungewear and home
accessories. This trend has been
compounded by the evolution
of how customers shop, and the
growth in online sales has
stretched the capacity of our
suppliers and distribution
network. The Board considered
68
this impact at length when
contemplating the appetite for,
and ways in which to maximise the
online opportunity, which it had
already agreed would be in the
best interests of customers (to
keep pace with their demands)
and shareholders (to ensure
the sustainability of the C&H
business). When it was ultimately
agreed to introduce third-party
brands to the M&S online offer,
the Board had contemplated
both the need to substantially
increase our online capacity to
avoid unnecessary strain on
warehouse colleagues (leading
directly to the Board’s later
decision to build a new
automated online warehouse
within the Bradford distribution
centre, creating 300 new jobs),
and the need to nurture
productive and effective
relationships with third-party
brand partners. These
arrangements were then
individually tailored to reflect the
level of M&S involvement and
support that the brand would
require (either through new
concession or wholesale
arrangements, or in the case
of Jaeger, an acquisition).
By being both a C&H and Food
retailer, with C&H deemed
non-essential retail for a
significant part of the various
lockdowns, continuing to trade
Food from stores also selling C&H
was a complex and constantly
evolving issue. Maintaining close
working relationships with local
authorities has been a constant
consideration of the Board as a
result. Only by considering and
consulting with the UK and
international governments,
the devolved UK administrations,
and local authorities, was the
Board able to navigate the
variety of trading rules, ensure
our colleagues and customers
feel safe in our stores, and
continue to trade the business
as much as possible in the UK
and internationally.
Our colleagues have been
remarkable throughout the
Covid-19 crisis, demonstrating
time and again what a hugely
important part they play in
maintaining the M&S brand.
When the Board has discussed
measures to preserve liquidity
and ensure that the business is
right-sized for the future, it has
done so with the need to support
and protect colleague interests
as a constant consideration:
– Given that a sizeable portion of
our C&H store estate was not
trading during the various
lockdowns, the Board took
the decision at the start of the
pandemic to place 27,000
colleagues on furlough,
agreeing that all furloughed
colleagues should receive their
full pay. Colleagues needing
to shield for medical reasons
were prioritised for furlough if
they were unable to work from
home, while additional training
and digital tools were rolled
out for colleagues to be able to
work flexibly across different
areas of the business, bringing
the number of furloughed
colleagues down to less than
1,000 at the time of writing
this report.
– The Board were keen to ensure
that colleagues working
throughout the first UK
national lockdown were
rewarded for their dedication
and loyalty; store colleagues
were awarded a temporary
15% uplift in pay, while support
centre colleagues received a
share award equivalent to
5% of their salary over the
same period.
– As part of the more digital and
flexible approach to working,
and the need to ensure that the
business is fit for purpose to
operate in a more digitally
enabled world, the Board
considered options for
streamlining the business and
reducing costs, which included
the possibility of colleague
redundancies. Noting that this
was the only viable option for
right-sizing the business for
the future and therefore in the
best interests of shareholders,
the Board was nonetheless
mindful of the potential
impact on colleagues and
communities. As such, the
Board agreed that colleague
choice should be a factor as far
as possible and that the
Business Involvement Group
(“BIG”) should play a pivotal
role in communicating with and
supporting colleagues through
any job losses. When the Board
decided to make 7,000 roles
redundant, they stipulated
that these were to be made
first by a voluntary redundancy
programme ahead of any
compulsory redundancies.
All 7,000 redundancies were
made voluntarily by colleagues
as a result.
Marks and Spencer Group plc Creation of MS2
Over the past three years, the Group has made significant
investment in its online capabilities, supported by expansion
of capacity and improvements to operations at the Castle
Donington distribution centre. However, M&S.com had
previously been structured as the online channel of a bricks
and mortar retailer, resulting in operations run in tandem with
physical store-based trading rather than competing head-to-
head with pure play competitors. Launching a new division
within the C&H business to maximise online growth, MS2,
builds on investments made in recent years and ways of
working adopted during lockdown, evolving from a number of
decisions the Board made in consideration of its stakeholders.
Stakeholder considerations
It was clear from the start of
lockdown that the impact of the
Covid-19 pandemic would leave
the C&H business forever changed.
To ensure the business’ ongoing
viability for shareholders, the
Board considered the importance
of continuing to trade online and
meeting customer expectations,
despite C&H store closures as a
result of being classified as
non-essential retail. To assist with
clearing store stock and to keep
pace with the growth in online
orders, the Board approved plans
for the “buy online, ship from store”
(“BOSS”) system of delivery to be
rolled out across C&H stores,
allowing for online orders to be
picked from store stock.
While the initial results of the
BOSS roll-out achieved the aim
of clearing surplus stock in
stores, the Board and
management received feedback
from colleagues that store
operations were being impacted.
In considering this feedback, the
Board approved plans to move
BOSS order picking outside store
opening hours and introduce night
shifts for colleagues. Further
feedback relayed to management
and the Board from customers
outlined issues with delays and
multiple deliveries arising from
a single order. On consideration
of this, and of the increasing
distribution costs and
environmental impacts of running
the BOSS system more widely,
the Board ultimately agreed
that a complete solution to
rapid fulfilment needed to be
developed, deciding to increase
capacity at Castle Donington in
the first instance.
Alongside the rapid growth of
online and fulfilment, the Board
considered customer demands
and the corresponding pressure on
our suppliers to meet changing
customer trends in product mix.
It therefore turned to the question
of whether to meet these demands
by introducing other brands into
the product mix. Having seen
unprecedented demand for the
Nobody’s Child collaboration,
and considering the short-term
shareholder and customer
benefits of being able to quickly
diversify into new product areas at
considerable scale, the Board
decided to introduce third-party
brands to the online C&H offer.
Establishing an ESG Committee
The Board agreed that the ESG Committee should be created,
effective from 16 December 2020, to assist with the refresh of
the Plan A sustainability programme in the first instance, before
monitoring its ongoing execution and wider ESG initiatives and
compliance with regulations.
– The mounting pressure from
our wider community including
current and prospective
colleagues, voiced through the
media, to “do more” and be a
better corporate citizen.
– The need to minimise
our impact on the environment
and ensure that we do not
contribute any further to the
climate crisis.
Stakeholder considerations
In deciding to reinvigorate
Plan A and establish the ESG
Committee for oversight, the
Board considered:
– The growing contingent of our
investors expecting to see
environmental, social and
governance matters embedded
within our overarching strategy.
– Our customers, who are
becoming increasingly
concerned with ESG issues,
including climate change,
sustainable sourcing and ethical
trading, to the point where we
risk losing their loyalty if we
cannot demonstrate that we
are addressing these concerns.
Our most
sustainable
denim yet
69
GOVERNANCEAnnual Report & Financial Statements 2021 GOVERNANCE
BOARD REVIEW
The 2021 external Board Effectiveness and
Developmental Review was conducted
according to the principles of the UK
Corporate Governance Code 2018 (the
“Code”) and the supporting Guidance on
Board Effectiveness, and was facilitated
by Gurnek Bains of Global Future Partners
(“GFP”). Gurnek Bains, and GFP, has no
other connection with the Company,
other than the work that he is doing to
support the development of the Executive
Committee (“ExCo”) members as part
of their individual and collective
development plans.
The Company’s last externally facilitated
Board Review occurred in the previous
year and was detailed in the prior year’s
annual report on page 56.
One of the outcomes of last year’s
Board effectiveness review was to retain
GFP for this year, in part to review progress
against the previous year’s findings.
THE PROCESS
As with the previous year, in making its
assessment of the Board and principal
Committees’ effectiveness, GFP observed
proceedings of at least two Board
meetings. GFP was also given access to a
full year’s worth of Board and Committee
papers via a secure portal, to assist them
in assessing the quality of the information
that had been provided to the Board and
Committees during the year.
However, the key change from the prior
year was the number of one-on-one
sessions that Board members and key
Board contributors had with GFP. Due
to the travel restrictions imposed by the
Covid-19 pandemic, a host of these
interviews were conducted electronically,
and the one-on-one style worked for the
Board members and contributors, who
commented that they found the format
relaxed yet focused.
“ The Board had maintained
its existing strengths while
making excellent progress
on developing the ExCo and
ensuring that, collectively,
there was effective oversight
of key strategic themes.”
Gurnek Bains, Global Future Partners
These interviews were conducted with
Board members and the General Counsel
& Company Secretary, and feedback was
provided on GFP’s observations of the
Board and its Committees and the papers.
For the first time, and as a direct result of
one of the findings of the previous year’s
Board Effectiveness Review, interviews
were also held with the ExCo members
to gain insight into their performance,
and their relationships with the Board.
GFP provided observations and
recommendations on how these
relationships could be developed to
become more effective. These meetings
also provided Board members with the
opportunity to discuss further themes
that had emerged from the Board action
plan from last year, as well as addressing
topics that emerged from sessions held
this year.
OUTCOMES
The Chairman received feedback from all
Board members on his performance, as
well as on the effectiveness of the General
Counsel & Company Secretary, with a
particular focus on the onboarding of
new directors, and the Board involvement
programme. The Chairman was also
provided with feedback on the
performance and effectiveness of each
Board member, with particular attention
being paid to Committee Chairs and the
Senior Independent Director. These
assessments focused on the role, skills
and contributions made by individual
members and the Boardroom dynamics
at play.
The final GFP report was shared and
discussed with Board members separately,
in advance of the Board meeting held
on 24 May 2021. At that meeting, the
conclusions and insights gained were
formally agreed and an action plan for the
year ahead was developed and approved.
BOARD REVIEW INSIGHTS
This review established that the Board
had maintained its existing strengths while
making excellent progress on developing
the ExCo and ensuring that, collectively,
there was effective oversight of key
strategic themes, the transformation
programme and the cultural and
people agenda.
There was recognition of the effectiveness
of the increased involvement of the
Board during the pandemic, and
acknowledgement of the meaningful
contribution made through the Covid-19
crisis. New Board members have been
successfully integrated and describe a
“best in class” induction process. Board
members also expressed continuing
confidence in the operation of the Board
Committees and welcomed the creation
of the ESG Committee.
Committees
Board Committees were also reviewed
and, overall, were considered to function
well in terms of their effectiveness,
decision-making and the rigorous manner
in which they addressed any issues
brought to their attention.
Chairman
It was noted that the Chairman had driven
the transformation at pace, and had
strengthened the link between the
Board and senior leadership during the
course of the year, by encouraging the
mentorship of senior management by
non-executive directors. His leadership of,
and recruitment onto, the Board was
classed as purposeful.
Senior Independent Director
Due to the significant change over recent
years at Board level, the role played by
Andy Halford has been noted as having
an important stabilising effect on the
Board while new Board members settle
into their roles.
BOARD ACTION PLAN
The Board action plan for
2021/22 includes:
– Working closely with the senior
executive team on reporting into
the Board and monitoring of the
transformation programme.
– Continuing to increase the level
of engagement between the
Board and senior executives and
making progress with the ExCo
mentoring programme.
– Ensuring that the culture and people
agenda are at the heart of the
Company’s transformation.
– Monitoring and building on the work
done following the creation of the
ESG Committee.
70
Marks and Spencer Group plc GOVERNANCE
NOMINATION COMMITTEE
REPORT
COMMITTEE ROLE AND MEMBERSHIP
MEETINGS HELD IN 2020/21
The Committee reviews the leadership
and succession needs of the organisation
and ensures that appropriate procedures
are in place for nominating, inducting
and evaluating directors. In addition,
the Committee ensures that the Group’s
governance facilitates the appointment
and development of effective
management that can deliver
shareholder value over the longer term.
The full Terms of Reference for the
Committee can be found at
marksandspencer.com/thecompany.
The Committee comprises the non-
executive directors and is chaired by
Archie Norman. Individual meeting
attendance and changes to membership
are displayed in the adjacent table. More
information on the skills and experience
of all Committee members can be found
on pages 62 to 64.
“
The Committee’s
activities had
particular focus
on aligning our
leadership team’s
skills with the
post-Covid
strategy.
“
Archie Norman,
Chair of the Nomination Committee
Member
since
Number of
meetings
attended
Maximum
possible
meetings
Archie Norman
Andy Halford
Andrew Fisher
Justin King1
Sapna Sood
Tamara Ingram
Evelyn Bourke
Former non-executive directors who served on the Committee for part of 2020/21
Pip McCrostie2
Alison Brittain
Katie Bickerstaffe
1 Sept 2017
1 Jan 2013
1 Dec 2015
1 Jan 2019
1 Jun 2020
1 Jun 2020
1 Feb 2021
10 Jul 2018
1 Jan 2014
10 Jul 2018
5
5
5
4
4
4
1
4
1
1
5
5
5
5
4
4
1
5
1
1
1. Justin King was unable to attend the meeting on 12 April 2020 for personal reasons.
2. Pip McCrostie was unable to attend the meeting on 25 June 2020 for medical reasons.
More information on the Nomination Committee is available in our
full disclosure of compliance with the UK Corporate Governance Code at
marksandspencer.com/thecompany.
REVIEW OF THE YEAR
2020/21 was a busy year for the
Committee, which oversaw the induction
of a new Chief Financial Officer and the
appointment of four non-executive
directors. This was in addition to the
Committee’s usual talent and succession
activities which, as covered on pages
64 and 65, had particular focus on
strengthening diversity and aligning
our leadership team’s skills with the
post-Covid strategy. The Committee’s
performance was reviewed as part of
the 2020/21 externally facilitated Board
Evaluation, which is covered on page 70.
The review established that the
Committee functions well in terms of
planning succession to Board roles and
other senior positions. For directors and
senior leaders, developmental feedback
and support has also been provided as
part of the evaluation process.
BOARD UPDATES
Towards the end of last year, the
Committee discussed and guided the
creation of the role of Chief Strategy and
Transformation Director, which Katie
Bickerstaffe took up in April 2020.
As announced on 18 May 2021, Katie’s role
has now evolved into joint Chief Operating
Officer, along with Stuart Machin.
Also towards the end of last year,
the Committee was embarking on the
detailed process to appoint and induct a
new Chief Financial Officer, culminating in
the arrival of Eoin Tonge in June 2020.
Shortly after, the Committee identified
Sapna Sood and Tamara Ingram as
valuable additions to the Board and
ensured both non-executive directors
undertook comprehensive induction
processes on their joining the business in
June 2020, despite Covid-19 restrictions.
Their value was quickly demonstrated,
and the two became the first members
of the newly formed ESG Committee.
At the 2020 AGM, the Board gave
thanks to Alison Brittain, who stepped
down after six years of service as a
non-executive director.
More recently, the Committee
recommended to the Board the
appointment of Evelyn Bourke, who
formally joined the business in February
2021. As well as joining the Nomination
Committee, Evelyn is the newest
member to join the Audit Committee
and brings extensive financial and
risk-related experience, the value of
which has already been felt throughout
the year-end process.
At the very end of the financial year,
Pip McCrostie retired from the Board with
our heartfelt thanks for her active and
committed contribution to the Company.
The Committee was keen to maintain the
balance of diversity and skills at Board
level, and quickly commenced the process
71
GOVERNANCEAnnual Report & Financial Statements 2021 NOMINATION COMMITTEE REPORT CONTINUED
to identify our newest Board colleague.
In April 2021, the Committee was pleased
to recommend the appointment of Fiona
Dawson, who joins as a non-executive
director on 25 May 2021. Fiona joins
from Mars, Inc. with a wealth of global
marketing and sales experience and a
skillset which aligns with our accelerated
transformation strategy. Fiona’s
appointment ensures that the Company
maintains a 40% female Board, exceeding
both internal and external targets.
DIRECTOR TENURE
As at the publication of this report, all
directors have a tenure not exceeding
nine years. During the year, the
Committee considered the tenure of
Andy Halford, who will have served for
nine years in January 2022. On review,
it was established that Andy remains
independent, and provides a key point
of stability during a period of significant
change. It was further agreed that
Andy’s skills and experience remain
relevant, and his capabilities as Chair of
the Audit Committee are greatly valued
by the Company.
EXECUTIVE COMMITTEE AND
TALENT MANAGEMENT
One of the key leadership changes
supported by the Committee has been
the transition of the Operating Committee
into the Executive Committee (“ExCo”),
which is covered in more detail on
page 60.
The Committee agrees with management
that the composition of the ExCo
improves the efficiency and effectiveness
of decision-making, mirroring the Board’s
approach to a more condensed set of
governance arrangements.
The establishment of the ExCo included
the assignment of a Nomination
Committee mentor to each ExCo member.
In addition, the Committee supported
the CEO in his appointment of three new
members to his senior team, with Richard
Price joining Eoin and Katie on the
ExCo in July 2020 as Clothing & Home
Managing Director.
As part of a wider programme to assess
talent and succession in the business,
the Committee members have been
available to advise the ExCo in its review
of all senior leaders.
The focus on talent assessment and
development has extended throughout
the organisation and has culminated in a
different-shaped business with improved
controls around talent management.
While discussions have principally
taken place at the Board, ExCo and
Remuneration Committee, the
Committee believes that this reflects
the vital alignment between performance
and reward.
72
DIRECTOR SUCCESSION AND INDUCTION PROCESS
In light of the Committee’s active year, we have taken the opportunity to outline
our approach to recruiting and inducting non-executive directors. The process is
designed to ensure the search for and appointment of our directors is thorough and
inclusive, and that their inductions provide an effective introduction to the M&S
boardroom and, more crucially, facilitate a comprehensive understanding of
the business.
Search
Review
The Chairman leads the Committee, working
with the General Counsel & Company
Secretary to develop a candidate
specification, using a talent and expertise
matrix reflective of the one on page 64.
The candidate brief is then placed with an
executive search agency who must be a
signatory to the Voluntary Code of Conduct
for Executive Search Firms in line with our
Board Diversity Policy.
The executive search
agency reviews the
specification and
produces a long list of
candidates from
various backgrounds
and industries,
including those
with little or no FTSE
board experience.
Appoint
Assess
Identify
The successful
candidate is then
recommended for
appointment to the
Board, with the
General Counsel &
Company Secretary
tasked with the
formalities.
The candidates are
interviewed and assessed
against pre-determined
criteria and in line with
the specific candidate
brief. This includes meeting
Board members on
a more informal
basis to determine
interpersonal dynamics.
The Chairman
identifies a short list of
candidates following
feedback from the
Senior Independent
Director and other
members of
the Committee.
Induct
The final step in the recruitment process is to provide our new directors
with a robust induction to the business. The importance of this step
cannot be overestimated, as it forms the mechanism to support our
directors in meeting their statutory duties, embedding their
understanding of our strategic priorities and bringing the Board closer
to decision-makers and those tasked with running the day-to-day
management of the business.
Some activities included in this year’s inductions have been:
Before arrival:
– Board procedures
and PLC/Listed
Company duties.
– Comprehensive
pre-read of Board
and relevant
Committee papers
from the previous
12 months.
Within the first year:
– Attend National
BIG meeting and
colleague services
overview.
– Introduction to
our heritage and
visit to the M&S
Company Archive.
– Attendance at
management
meetings and
product previews.
Within the
first month:
Within the first
three months:
– Business unit
– Store visits,
leadership team
introductions.
– Stakeholder
priorities analysis
and overview,
including
introductions to
Investor Relations,
Corporate
Communications
and Plan A.
including visits to
renewal stores and
a morning spent
working in store.
– Logistics depot
visit, Castle
Donington
distribution centre
visit and website
demonstration.
– Partner
introductions
and visit to
Ocado’s offices.
– Customer services
visit and customer
data insight
overview.
– Meeting the
external auditors
and board
development
adviser.
Marks and Spencer Group plc GOVERNANCE
ESG COMMITTEE REPORT
“
Sustainability is
about securing the
long-term future
of a business and
protecting the
resources we all
depend on.
“
Tamara Ingram,
Chair of the Environmental,
Social & Governance Committee
ESTABLISHMENT
I was delighted to be asked to set up
the new Board Sub-Committee (the
“Committee”) on Environmental, Social &
Governance (“ESG”) matters. M&S is a very
special business – with loyal customers,
passionate committed colleagues and a
wonderful legacy of caring service,
environmental leadership and deep-
rooted community values. As Chair of the
Committee, I’m pleased to present our
report for the year covering activities from
our establishment in December 2020.
These have been focused on reviewing
our activity and ensuring our strategy
continues to lead the way and
communicates the M&S point of difference.
PLAN A
The importance of Plan A to the M&S
brand and culture cannot be overstated.
The programme, appropriately named
Plan A “because there is no Plan B”, was a
ground-breaking venture in 2007, creating
a fully integrated sustainability plan
reflective of the M&S values of helping our
colleagues, customers and communities
lead happier, healthier and more fulfilling
lives. It is through Plan A – our multi-year
sustainability action plan – that we
address the risks and opportunities that
environmental and societal issues present
to us as a business. It drives us to make
better choices to ensure that M&S, and the
precious resources and planet we rely on,
are in better shape for the future.
How a business approaches social and
environmental challenges is of increasing
importance to all stakeholder groups.
In recognition of this, the Committee
has met on a monthly basis in its first six
months, with an update to the Board after
each meeting. The Committee has been
frequently attended by members of the
Executive Committee (“ExCo”) and senior
management. As a Committee, our role is
to provide the additional rigour, support
and challenge for the business as we
reinvigorate our Plan A programme to
uphold its leadership and keep it at the
very heart of M&S’ customer proposition.
As part of that role, we’ve looked at
industry benchmarking, consumer insights
and future trends, discussed marketing
and communications frameworks, ways
to embed Plan A more deeply within the
business, as well as the framework against
which progress will be measured.
ESG-RELATED RISKS AND RESPONSE
In addition to overseeing the governance
underlying the various projects for Plan A’s
reinvigoration, the Committee has
supported the Audit Committee in its
review of new and existing risks relating
to ESG topics.
COMMITTEE ROLE AND MEMBERSHIP
The Committee is responsible for ensuring
that the Company has an ESG Strategy
(“Plan A”) that is both inspiring and
differentiates M&S from its competitors,
while also remaining fit for purpose. The
Committee will also review the effectiveness
of Plan A, including the governance
arrangements for ensuring the successful
delivery of the strategy and monitoring its
overall performance. The full Terms of
MEETINGS HELD IN 2020/21
Specifically, the Committee reviewed a
new “social, ethical and environmental
responsibility” risk, confirming its
appropriateness to the Audit Committee
as a distinct risk from the “corporate
compliance & responsibility” risk that
previously covered a range of ethical
considerations. This new risk includes a
broad spectrum of issues; environmental,
human rights, animal welfare and ethical
standards and commitments. In identifying
these issues, we acknowledge the trust
that customers place in the M&S brand
to source sustainably and ethically, and
their ongoing concern around issues
like deforestation and animal welfare.
We also recognise the increased focus
from regulators and investors on these
issues, particularly following ongoing
interest in human rights abuses in supply
chains in the UK and abroad.
As well as overseeing related risks, the
Committee has recognised that these
changes in the external environment are
current and require responsive action
now, and has advised management
accordingly. This wider support for
management has covered advising the
business ahead of signing the ‘Exit the
Uyghur Region’ Call to Action to address
human rights abuses. The Committee has
also critically reviewed, and subsequently
monitored progress with actions raised by,
the business’ co-authored Oxfam report.
Reference for the Committee can be found at
marksandspencer.com/thecompany.
The Committee comprises Tamara Ingram
as Chair and Sapna Sood, with Archie Norman,
Eoin Tonge and Nick Folland standing
attendees at Committee meetings. Steve
Rowe will also be a standing attendee for
2021/22. Individual meeting attendance is
displayed in the table below. More information
on the skills and experience of Committee
members can be found on pages 62 to 64.
Member
since
Number of
meetings
attended
Maximum
possible
meetings
Tamara Ingram
Sapna Sood
By standing invite
Archie Norman
Eoin Tonge
Nick Folland
16 Dec 2020
16 Dec 2020
N/A
N/A
N/A
3*
4
4
4
4
* Tamara Ingram was not present at the meeting on 18 January due to last-minute rescheduling and time zone
differences, but provided input in advance of the meeting and debriefed with members and attendees
immediately following the meeting.
4
4
4
4
4
73
GOVERNANCEAnnual Report & Financial Statements 2021 ESG COMMITTEE REPORT CONTINUED
ESG COMMITTEE REPORT CONTINUED
PREPARING TO ADOPT TCFD
Alongside the coordination of the Plan A
refresh, the Committee has been briefed
on the Listing Rule, which the Group is
required to adopt from FY 2021/22, for UK
premium listed companies to include a
statement in their annual financial report
setting out whether their climate-related
financial disclosures are consistent with
the recommendations of the Task Force
on Climate-related Financial Disclosures
(“TCFD”). While the Listing Rule will not be
applied by the Group until FY 2021/22,
the Committee has recommended that
the Group provides disclosure on its
progress towards adoption of the TCFD
recommendations, to demonstrate to our
investors and wider stakeholders that the
Company takes its disclosure obligations
and climate change seriously. Accordingly,
our progress on future TCFD reporting is
set out below.
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES REPORT
INTRODUCTION
This report sets out our climate-related financial
disclosures, which have been drafted to
demonstrate our progress towards alignment
with TCFD from FY2021/22. We have done this to
demonstrate, both internally and externally, the
importance of climate-related issues within our
broader sustainability programme, and also to
generate the internal momentum to ensure that
we are in a position to produce high-quality
disclosures in future years.
STRATEGY
The Board has considered climate change as
an emerging risk for a number of years.
However, it has previously concluded that it
should not be a standalone principal risk as
the impacts, and therefore mitigations, are
better served by incorporating climate change
into other existing principal risks. This year,
the Board, with input from the Executive
Committee (“ExCo”), ESG and Audit
Committees, has concluded that, while this
overall approach remains correct, the
Company should be more overt in positioning
climate change risk separately. This is due to
the urgency of the climate crisis, the increasing
demands from stakeholders, and the
forthcoming introduction of new regulatory
obligations and reporting requirements.
The ESG Committee reviewed a new “social,
ethical and environmental responsibility”
principal risk and recommended that it
should be called out as a new and distinct
risk from the “corporate compliance &
responsibility” risk.
We recognise that this is a complex issue and
the TCFD recommendations are stretching.
For the business to report more accurately,
it needs to build a compliance framework that
provides the Board and the ESG Committee
with the assurance that disclosures are robust.
This is complicated by the fact that the
majority of the commitments involve
medium- to long-term forward-looking
statements and, therefore, tracking progress
against future targets will be vital.
As a result, in this first TCFD report, we have
attempted to explain our current position,
state our expectations for the future and,
importantly, identify where additional work is
required for us to disclose fully against all
TCFD recommendations next year.
During the development and research phase
for the refresh of Plan A, our stakeholders,
particularly customers, highlighted the
concerns they expect M&S to be addressing,
with a broad spectrum of issues including
climate change and the environment at the
forefront of their expectations of M&S.
Furthermore, we have identified the need to
better understand transition risks as a
consequence of increasing regulation and
changing societal expectations. This will be
the focus of our scenario analysis work in
2021/22, which will be carried out to update our
understanding and quantify the impacts of
climate-related transition risks, as well as
physical risks and market opportunities in line
with the TCFD recommendations. The results
of this assessment will be reported in next
year’s Annual Report.
M&S is already taking action to address the
long-term implications of climate change
on our corporate reputation, regulatory
environment, physical assets, supply chain
continuity and impacts for products and
services. Our early targets to address climate
change mean that M&S already has emission
reduction plans in place for our own
operations (scope 1 and 2) which have been
established for over 14 years. This focus on
reducing energy consumption and increasing
the use of renewable energy has influenced
key investment decisions such as the creation
of our automated Clothing & Home warehouse
at Castle Donington with a roof-mounted solar
array. The business is committed to ensuring
that its stores, offices and distribution centres
are constructed and operated in a way that
considers economic, comfort, environmental
and energy whole-life impacts. Part of this
commitment and resulting approach means
we are ISO50001 ‘Energy Management
Systems’ certified.
ENGAGING SUPPLIERS IN CLIMATE-RELATED RISKS AND OPPORTUNITIES
An important part of our strategy on climate
change issues is to engage suppliers and
build greater awareness, action and resilience
to changes in climate across the food and
clothing industry. In the food supply chain,
we have worked in partnership with tea,
coffee and produce suppliers to ensure that
they are building capacity in their producer
and grower networks on climate change
resilience. This has included projects focused
on improving water management for coffee
growers in Peru and increasing resilience of
British growers through our Farming with
Nature programme, with an emphasis on
enhancing biodiversity and pollinator
protection programmes. To meet changing
customer demands for more vegan offerings
due to climate considerations, M&S also
launched a significant category of vegan
food in 2019 (Plant Kitchen). Furthermore in
2020, a new Food Innovation Hub was
established to spearhead sustainability
solutions, including soya-alternative proteins
74
for plant-based foods and the latest in
material science to reduce plastic packaging.
The Hub enables us to track emerging trends
and insights, and respond to our customers’
needs in the future.
In the textile industry, M&S is taking part
in a range of collaborative supply chain
programmes focused on reducing
greenhouse gas emissions, including WRAP’s
Textiles 2030 and the Sustainable Apparel
Coalition (“SAC”). As a signatory to Textiles
2030, we are committed to reducing the
aggregate greenhouse gas footprint of new
products by 50% by 2030. The SAC has
collaborated with industry partners to
develop and define a robust methodology
to measure the climate impacts of the
apparel industry annually using the Higg
Index. We have asked our top clothing
suppliers to adopt this index to provide us
with data visibility on environmental KPIs,
including greenhouse gas emissions. Our
Clothing & Home business also increased its
vegan footwear ranges in 2019.
Plant Kitchen
Food Innovation Hub partnerships will help
M&S Food build on its market share of plant
protein ranges.
Marks and Spencer Group plc TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES REPORT CONTINUED
POSITION AND AMBITION
M&S has a strategic ambition to enhance our
climate change commitments from carbon
neutral operations today to net zero emissions
by 2035. We are currently developing our
targets and delivery roadmap. This work will be
completed in FY2021/22 and will update our
position on the use of renewable energy and
the role of carbon removals (offsets). This
strategic ambition builds on earlier actions
taken on climate change as part of Plan A
and on the existing approved science-based
targets to reduce greenhouse gas emissions;
80% reduction by 2030, 90% reduction by
2035, and a cumulative project-based target
for our wider value-chain of 13.3 million tonnes
CO2e by 2030.
The adjacent chart demonstrates that this has
been an issue we have taken seriously, and we
have already made demonstrable progress
on reducing our operational emissions (scope 1
and 2) against the baseline of 2006/2007. Our
scope 3 baseline will be set against our 2016
position, in line with our science-based target.
Modelling indicates that our total value-chain
greenhouse gas emissions at that time were
c.6.4 million tonnes.
We intend to track our progress against scope 1
and scope 2 emissions in future years using the
adjacent chart, and will incorporate and track
progress against scope 3 emissions in the
coming years, building on our science-based
target in this area.
In addition to this, we will undertake scenario
analyses during 2021/22 to update our
understanding of climate-related risks,
including transition risks and opportunities
arising from the transition to a low-carbon
economy in line with the Paris Agreement.
WHAT HAVE WE ALREADY DONE
Over a decade ago, M&S recognised climate
change as a shared and potentially existential
environmental threat, and one that could pose
a challenge to our global business operations
and supply chain. In addition to our clear
corporate responsibility for cutting emissions
to avoid the worst consequences of climate
change, we recognised that our energy costs
could increase over time and we could be
required by law to cut emissions. We also
acknowledged that a changing climate could
make some raw materials scarce and more
expensive. It was our view that, by responding
effectively, we would build greater business
resilience and be better placed to benefit from
shifting market demands for lower emission
products and services.
That is why, in 2007, we committed to making
our UK and Republic of Ireland operations
(stores, offices, warehouses, business travel
and logistics) carbon neutral by 2012. M&S has
been a leader on climate change transparency,
being one of the early companies to make a
full submission to the Carbon Disclosure
Project and to publish GHG emissions, assured
by a third party under their proprietary
methodology, in 2008. Since then, we have
transparently reported on the progress
we have been making on reducing our
greenhouse gas emissions in our annual Plan A
reports and through the Carbon Disclosure
Baseline
In 2017, we agreed
Science-Based Targets
M&S Operational emissions (Scope 1 and 2)**
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
Baseline*
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
10-year performance snapshot
Location-Based
Market-Based
* Baseline year is 2006/07. This has been used consistently as our baseline year in annual Plan A performance
reports and our submissions to the Carbon Disclosure Project (CDP).
**In accordance with GHG protocol guidelines, and in absence of appropriate renewable sourcing in our
2015-16 reporting year and prior, our location-based emissions were equal to market-based emissions.
Significant reductions in market-based performance in 2017 is primarily due to the procurement of renewable
electricity. All figures represent scope 1 and 2 data only so as to present a fair and like-for-like trend
for comparison.
“ M&S is already taking action
to address the implications
of climate change, having had
emission reduction plans in
place for our own operations
for over 14 years.”
Steve Rowe, Chief Executive
Project. Greenhouse gas emissions data
for M&S operations (scope 1 and 2) in 2020/21
can be found within the streamlined energy
and carbon reporting section on page 32
and in our Plan A Report on pages 30-32,
available on our corporate website at
marksandspencer.com/plana.
We also took early action to understand the
physical risks associated with climate change,
commissioning specialist consultancies to
carry out reviews on our food and clothing
supply chain in 2012 and our property estate
in 2015. We knew we would have to revisit our
plans periodically to ensure they are keeping
pace with the need for decisive action on the
climate emergency.
Since then, much has changed. The increased
focus and awareness on climate change in the
investor community is noticeably different
from 2007. While this is our first year on the
journey to aligning our climate related
disclosures to the TCFD framework, these
disclosures will evolve to become even more
comprehensive as the Company implements
the actions outlined on page 76 during
2021/22. We believe we have made good
progress towards TCFD recommendations
this year and plan on delivering a fully
compliant disclosure for FY2021/22.
KEY MILESTONES IN OUR CLIMATE
CHANGE JOURNEY
2002
2006
2007
2012
2014
2017
2020
Full submission to Carbon
Disclosure Project
Established our global greenhouse
gas emissions reporting boundary
Launched Plan A, our sustainability
programme. Set an ambition to be
carbon neutral in operations by 2012
Achieved carbon neutrality in UK
and ROI operations and reduced
emissions by 22%
Achieved carbon neutrality in
International operations
New targets approved by the
Science Based Targets Initiative.
Signed up as a supporter to TCFD
Reduced emissions by 70% against
our 2006/7 baseline. Signed up to
British Retail Consortium’s Climate
Action roadmap
2021
Began preparations for the future
adoption of TCFD reporting
75
GOVERNANCEAnnual Report & Financial Statements 2021 ESG COMMITTEE REPORT CONTINUED
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES REPORT CONTINUED
PREPARING FOR TCFD – IMPROVING GOVERNANCE
Governance
At the end of 2020, in response to increasing stakeholder interest and
pressures relating to environmental, sustainability and governance
matters, we announced the creation of a new Board Sub-Committee
on ESG. While the creation of this new Committee provides enhanced
visibility at the top of the organisation, it is only part of the wider
governance arrangements in place to support the Committee, and
ultimately the Board, in leading the Company’s response to these
issues and discharging our responsibilities, particularly in this area of
increasing focus and regulation.
As with all matters delegated by the Board, the CEO is ultimately tasked
with the delivery of the Company’s ESG programme. To effectively
discharge these duties, his executive leadership team, the ExCo, have
collective responsibility for the delivery of the ESG targets, as approved
by the ESG Committee on behalf of the Board. The Managing Director
of each of the five accountable businesses (Food, Clothing & Home,
International, Retail & Property and Bank & Services) has responsibility
for the creation and delivery of targets in their business, in addition to
the collective responsibility they have as members of the ExCo.
During the course of the year, the Board, ESG Committee and ExCo have
made good progress on revitalising Plan A, which includes a strategic
ambition to be a net zero business. In addition to this, the ESG
Committee recommended that the Group provides disclosure on its
progress towards adoption of the TCFD recommendations, ahead of the
new Listing Rule coming into effect from our next year end. While the
detailed delivery plan and means of measurement underpinning this
net zero ambition and future TCFD statements will be developed in
2021/22, work is already under way to develop and agree short- and
medium-term targets for each of the businesses, as well as the structure
to aggregate them at Group level. Performance against these targets
will be tracked by our Transformation Project Office team, with quarterly
reports being provided to both the ExCo and ESG Committee, as well as
at least annually to the Board.
Risk Management
M&S has established a risk management framework that allows
consistent adherence to, and application of, risk management principles
across the Group, with each business and function accountable for
identifying its specific risks. Climate change is considered within
two principal risks in the Group risk assessment; “social, ethical and
environmental responsibility” has been identified as a new principal
risk in our 2020/21 Annual Report, and we have also specified future
compliance with mandatory TCFD reporting in our existing “corporate
compliance and responsibility” risk. At a business/functional level,
climate change considerations also form a part of the Plan A risks that
are being managed by our International and Property businesses within
their risk registers.
The structure of the Group’s overall risk management framework,
including climate-related risks, is the responsibility of the CFO,
supported by the Group Risk team. The Managing Directors of the five
accountable businesses are responsible for their business’ risk register,
and for managing and resourcing mitigating activities. The ExCo
members are individually responsible for reviewing and confirming risks
in their own areas, with the Executive Directors reviewing the entirety of
the principal risks, providing the Audit Committee with confidence that
significant risks are appropriately monitored and managed.
As required by the UK Corporate Governance Code, the Audit
Committee is tasked with ensuring the effectiveness of the risk
management process, as well as confirming that the principal risks and
uncertainties of the business are appropriately disclosed externally.
However, from this year and as part of our governance and non-financial
control arrangements, the ESG Committee has also supported this
process by reviewing and providing the Audit Committee with
recommendations on all ESG-related risks, including climate change.
Further details on the Group’s overall risk management process are
available on page 47.
METRICS AND TARGETS – WHAT ARE WE COMMITTING TO?
When we launched Plan A in 2007, we made
the commitment to have carbon neutral
operations by 2012. In 2012, we achieved our
original climate-related goal for our own
operations, reducing emissions by 22%,
sourcing renewable electricity and investing
in offsets to compensate for remaining
emissions. Since 2012, we have continued to
refine our targets and deliver further
emissions reductions. In 2017, we confirmed
our science-based targets. The first was a
commitment to reduce operational emissions
(scope 1 and 2) by 80% by 2030 (compared with
2007 levels). In 2020/21, our market-method
emissions were 177,000 tonnes CO2e, down
by 72% on 2006/7 (640,000 tonnes CO2e),
putting us in a good position to achieve our
first operational emissions science-based
target of 80% by 2030. Greenhouse gas
emissions data for M&S operations (scope 1
and 2) in 2020/21 can be found within the
streamlined energy and carbon reporting
section on page 32 and in our Plan A report
on pages 30-32 (available on our corporate
website). As detailed in the chart on page 75,
these measurements are set against our
original baseline year of 2006/7.
The second science-based target, over the
same time period, committed to cut emissions
in our supply chain (scope 3) by a cumulative
13.3 million tonnes (classified as being “well
under 2°C” by the Science Based Targets
Initiative). This was set against a baseline of
modelled emissions totalling c.6.4 million
tonnes annually.
Our strategic ambition is to enhance our
climate change commitments from carbon
neutral operations today to net zero emissions
by 2035. Over the course of the next 12
months, we will set out what we mean by that
and the role that reductions, renewable energy
and removals (offsets) play in meeting the
overall ambition. Detailed work will be
conducted in 2021/22 to determine the
delivery roadmap to achieve this ambition in
the short, medium and long term, including
the contributions required from each of the
accountable businesses and our supply chains.
The results from our scenario analyses will also
inform our proposed metrics and actions to be
taken on climate-related risks and opportunities.
CONCLUSION
ACTION WE WILL TAKE IN 2021/22
Playing our part in the retail sector
In September 2020, as part of supporting the low carbon
transition, we signed up as supporters to the British Retail
Consortium’s Climate Action Roadmap. M&S is committed to
working with other retailers, our suppliers, the government
and other stakeholders, and to support customers collectively
to deliver the retail industry’s net zero ambition.
– Publish the delivery roadmap to underpin our new
net zero ambition with clear targets across each of the
three scopes.
– Continue to track our performance against the baseline.
– Conduct scenario analysis.
– Publish the climate-related risks and opportunities over
the short, medium and long term.
76
Marks and Spencer Group plc GOVERNANCE
AUDIT COMMITTEE REPORT
“
Committee members
have guided
management on the
controls required to
navigate Covid-19
challenges and
re-position the
business for the
digital era.
“
Andy Halford,
Chair of
the Audit
Committee
INTRODUCTION
As Chair of the Audit Committee
(the “Committee”), I am pleased to
present the Committee’s report for the
year ended 3 April 2021. These pages
outline how the Committee discharged
the responsibilities delegated to it by the
Board over the course of the year, and
the key topics it considered in doing so.
While the Committee’s core duties were
unchanged, there was particular focus
on improving internal controls and
accountabilities to support agile decision-
making in a year of unprecedented
uncertainty and accelerated business
transformation. This included helping
the business navigate the risks and
uncertainties arising from Covid-19 and
Brexit. For understandable reasons, the
Committee has been focused on balance
sheet strengthening activity and business
continuity plans. Additionally, oversight
was provided to ensure comprehensive
measures were in place to safeguard the
health of our colleagues and customers,
prevent disruption in the supply chain, and
provide sufficient liquidity to continue
trading. These mitigating activities are
covered in more detail in the Principal
Risks and Uncertainties section on
pages 48 to 56.
However, the new environment in which
the business now operates has also
presented opportunities to drive the scale
and pace of change. Committee members
have offered guidance and advice to
management on the risks involved and
controls required in successfully
delivering activities in this new digital and
data space covering the creation of MS2,
the introduction of third-party brands
online and the relaunch of Sparks.
The Committee continued its work to
strengthen non-financial controls and
governance arrangements including:
introduction of the Code of Conduct
compliance framework; deepening the
understanding of responsibilities and
accountabilities within the Ocado Retail
joint venture; creation of the Compliance
Monitoring Committee to support
management in discharging their duties
relating to M&S Bank; and, ongoing work
to improve business unit level risk
reporting and monitoring.
The Committee fulfils 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, the
Company’s accelerated transformation
is supported and long-term value is
created. The Committee’s newest
member, Evelyn Bourke, brings significant
financial and risk experience to drive the
continued improvements provided by
the Committee. Our thanks go to Pip
McCrostie for her valuable contributions
over the last three years, having retired
from the Board and the Committee in
March 2021.
COMMITTEE MEMBERSHIP
MEETINGS HELD IN 2020/21
The Committee solely comprises independent
non-executive directors. At the 2020 AGM,
Alison Brittain stepped down from the Board
and the Committee. Pip McCrostie also
retired at the end of March, following the final
Committee meeting of the year, and the
Committee welcomed Evelyn Bourke as its
newest member in February 2021. Detailed
information on the experience, qualifications
and skillsets of all Committee members can
be found on pages 62 to 64.
INDEPENDENCE AND EXPERIENCE
The Board has confirmed that it is satisfied
that Committee members possess an
appropriate level of independence and
relevant financial and commercial experience
across various industries, including the
retail sector.
The Board has also confirmed that it is
satisfied that Andy Halford and Evelyn
Bourke possess recent and relevant financial
experience, as did Pip McCrostie who was a
member of the Committee for the duration
of the year.
The Committee held six meetings during the
year, with members of senior management
invited to attend and to present 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 Chair to
fully understand any topics of particular
concern to facilitate meaningful dialogue
during Committee meetings. To support him
in fulfilling this role during the year, Andy
Halford met regularly, on a one-to-one basis,
with the Chief Financial Officer,1 the Director
of Group Finance, the Head of Internal Audit &
Risk, members of senior management and
the lead audit partner from Deloitte.
More information about the Audit
Committee is available in our full disclosure
of compliance with the UK Corporate
Governance Code at marksandspencer.com/
thecompany.
Andy Halford
Justin King
Pip McCrostie
Alison Brittain2
Evelyn Bourke
Member
since
Number of
meetings
attended
Maximum
possible
meetings
1 Jan 2013
4 Nov 2019
10 Jul 2018
11 Mar 2014
1 Feb 2021
6
6
6
2
1
6
6
6
2
1
1. Meetings were held with the Interim Chief Financial Officer as required prior to Eoin Tonge joining the business.
2. Alison Brittain stepped down from the Committee on 3 July 2020.
77
GOVERNANCEAnnual Report & Financial Statements 2021 AUDIT COMMITTEE REPORT CONTINUED
WHAT WAS ON THE COMMITTEE’S AGENDA IN 2020/21
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 internal controls and risk
management processes particularly in the
context of challenges posed by Covid-19
and Brexit.
– Assessed and determined the treatment
for Covid-19 impacts on the balance sheet,
covering accounting treatment and
government support, specifically furlough
and business rates relief.
– Reviewed the Board’s approach
to assessing the Company’s
long-term viability.
– Debated and agreed changes to the
principal risks.
– Maintained the relationship with the
external auditor, including monitoring
their independence and effectiveness.
– Reviewed the effectiveness of the
Company’s whistleblowing, fraud, gifts
and hospitality procedures.
– Reviewed and approved the Company’s
statement of compliance with the
Groceries Supply Code of Practice.
– Assessed whether the Annual Report,
taken as a whole, was fair, balanced
and understandable.
– Reviewed and approved the Company’s
Euro Medium Term Note (“EMTN”)
programme, including buyback of
previously listed medium-term notes,
as well as supporting and approving the
decision to apply for the government’s
Covid Corporate Financing Facility (“CCFF”)
programme, which was successfully
obtained but remains undrawn.
– Reviewed the effectiveness and
independence of the Internal
Audit & Risk function.
– Reviewed for the second year the
appropriateness of segmental reporting
units and assumptions underlying the
cost allocations.
INTERNAL CONTROLS FRAMEWORK
The Committee received updates on internal
control matters from the Internal Audit team
at each meeting, as part of its key duty to
review the Company’s internal control
processes. This regular monitoring of the
internal control framework ensured timely
identification of issues and formal tracking
of remediation plans.
Instances where the effectiveness
of internal controls were deemed to be
insufficient were discussed during the year,
either by the Audit Committee or the full
Board, and the resulting improvement plans
were monitored by the Committee.
Risk and control updates
In line with the Group Risk Policy, our
accountable businesses and key functions
remain accountable for managing and
reporting their risks, as well as maintaining
their internal control environment. The output
of these activities are reviewed by the Audit
Committee through annual updates provided
directly by management. A summary of each
core management update is provided below.
External audit
The Committee also noted the internal control
findings highlighted in the external auditor’s
report and confirmed that it is satisfied that
there is no material misstatement and that
relevant actions are being taken to resolve
the control matters raised.
The FRC’s Audit Quality Review (“AQR”) team’s
review of last year’s audit resulted in an overall
rating of limited improvements required with
no key findings arising. Only one area of
testing (inventory) was identified as requiring
limited improvements. The audit of our going
concern basis of accounting was highlighted
by the FRC as an area of good practice.
Non-financial controls
Finally, the Committee reviewed improvements
to the Group’s overarching governance and
internal control framework. As reported last
year, the Company launched a new Code of
Conduct setting a floor of commitments and
responsibilities for business conduct based on
the Group’s principal risks and regulatory
requirements. During the course of the year,
the Committee has monitored compliance
with the Code on a bi-annual basis via metrics
measuring adherence to key policy areas. The
Committee believes that this change and the
supporting architecture of the compliance
metrics has provided sufficient visibility to
monitor and assess risk and produced an
overall improvement in the Company’s
non-financial controls.
MANAGEMENT UPDATES
The Committee received detailed updates
from one or more business area at each of
its meetings; an overview of each update is
summarised below. Each update includes a
review of the risk register, including progress
made to implement key mitigating actions,
emerging risks being monitored and
outstanding actions from Internal Audit
reviews completed. Management has also
confirmed how it continues to maintain key
control and assurance activities. These
presentations are scheduled on a rolling
12-month basis, with additional matters
identified by Internal Audit added throughout
the year as they arise.
Retail, Property & Business Continuity
– Evaluated results and agreed actions from
business continuity exercises, tests and
assurance reviews which had taken place
globally. Assessment areas included
Covid-19 outbreaks, terrorist threats,
disruption caused by Brexit, supplier
resilience, cyber-attacks and fire damage.
– Assessed updates on asset management,
covering strategic programmes in relation
to the UK store estate, lease management
and payment systems.
Clothing & Home
– Reviewed risks arising from rapid growth
in online sales and plans to mitigate
them, including warehouse capacity and
logistics, supply chain preparedness and
talent capability.
– Considered and monitored the risk appetite
for the third-party brands strategy.
– Discussed changing customer behaviour,
the uncertainty within the C&H market
arising from the pandemic, and reviewed
and monitored product design, stock
management plans and related activities.
Food
– Reviewed and assessed the changing nature
of risks relating to the Ocado Retail joint
venture, from the successful launch of
M&S product on the platform through to
increasing demand for online groceries
and the subsequent strategic impacts.
– Challenged management on GSCOP issues
and encouraged proactive engagement
with the new Grocery Code Adjudicator.
– Monitored customer health as an emerging
risk and the acceleration of our health and
nutrition strategy as a mitigating initiative.
International
– Evaluated the mitigating actions presented
by management against various Brexit
scenarios and differing responses to
Covid-19 in local jurisdictions.
– Reviewed and debated the developing
maturity of financial controls in each
market, including planned enhancements
such as sourcing optimisation and SAP
implementation.
Digital & Data and Sparks
– Assessed and debated the increasing
possibility of hacking and data breaches,
specifically the mitigations in place to
protect sensitive customer data.
– Discussed data use and ethics, encouraging
management to codify internal practices.
Bank & Services
– Considered the regulatory responsibilities
and risks associated with having commercial
partners operating under the M&S brand.
– Enhanced oversight and assurance
of FCA-regulated activities through
the creation of the Compliance
Monitoring Committee.
Technology transformation
– Reviewed new controls for prohibiting
unauthorised technology use, protecting
information security and managing
critical technology suppliers.
HR
– Challenged the merit of devolving HR
responsibilities into each business unit,
recommending that the Board review this
in detail.
– Scrutinised the methodology and
calculation for recording furlough income.
78
Marks and Spencer Group plc AUDIT COMMITTEE EFFECTIVENESS REVIEW
The Committee’s performance was
reviewed as part of the 2020/21 externally
facilitated Board Evaluation, which is
covered on page 70.
The review found that the Committee
functions effectively and that issues
are dealt with in a thoughtful, clear and
rigorous manner.
Feedback on the level of challenge and
quality of updates provided by the
Committee to the Board was positive.
The Committee was considered to be
operating well in terms of meeting
structure and the levels of engagement
provided by its members, with demands
on members’ time viewed as extensive but
not problematic. 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
actioned certain matters following
discussions with the Committee.
The Committee made good progress on
the 2020/21 action plan, particularly in
relation to increasing the focus on risk
reporting, compliance monitoring and
emphasising accountability for risk at
business unit level.
2021/22 ACTION PLAN
– Review the effectiveness of the Internal
Audit function and its activities.
– Continue to increase focus on risk
reporting and accountability for risk at
business unit level.
– Increase focus on financial and non-
financial controls, including monitoring
effectiveness of the Code of Conduct,
GSCOP compliance, the Financial
Controls Framework and master
data reviews.
– Review the implications of the BEIS
white paper on restoring trust in audit
and corporate governance.
– Monitor the progress of improvements
to the Company’s information
security, including the progress of
work taking place to migrate to
cloud-based systems.
FAIR, BALANCED AND UNDERSTANDABLE
At the request of the Board, the
Committee has considered whether,
in its opinion, the 2021 Annual Report &
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
focuses strongly on the key strategic
messages in the Strategic Report. It was
therefore important for the Committee
to ensure that this emphasis did not
dominate the overall transparency of 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 and provided feedback on it,
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?
– 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?
– Is the whole story presented and has
any sensitive material been omitted
that should have been included?
– How do the significant issues identified
compare with the risks that Deloitte
plans to include in its report?
– Is the narrative in the reporting on the
business performance in the front of
the report consistent with that used
for the financial reporting in the
financial statements?
IS THE REPORT UNDERSTANDABLE?
– Is there a clear and understandable
framework to the report?
– Are the important messages
– Are the key messages in the narrative
reflected in the financial reporting?
highlighted appropriately throughout
the document?
– Are the KPIs disclosed at an appropriate
level based on the financial reporting?
– Is the layout clear with good linkage
throughout in a manner that reflects
the whole story?
IS THE REPORT BALANCED?
– Is there a good level of consistency
between the narrative reporting in
the front and the financial reporting
in the back of the report; and does the
messaging presented within each 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?
CONCLUSION
Following its review, the Committee
was of the opinion that the 2021 Annual
Report & 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.
79
GOVERNANCEAnnual Report & Financial Statements 2021 AUDIT COMMITTEE REPORT CONTINUED
SIGNIFICANT ISSUES
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.
See notes 1, 5, 15 and 22 on p129, p141,
p158 and p175
IMPAIRMENT OF GOODWILL, BRANDS,
TANGIBLE AND INTANGIBLE ASSETS
The Committee has considered the
assessments made in relation to the
impairment of goodwill, brands, tangible
and intangible fixed assets, including land
and buildings, store assets and software
assets. The Committee received detailed
reports from management outlining
the treatment of impairments, valuation
methodology, the basis for key
assumptions (e.g. discount rate and
long-term growth rate) and the key drivers
of the cash flow forecasts. The Committee
has challenged management and is
satisfied that these are appropriate.
The Committee has also understood the
sensitivity analysis used by management
in its review of impairments, including
consideration of the specific sensitivity
disclosures in the relevant notes. 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 p129, p141
and p156-160
INVENTORY VALUATION
AND PROVISIONING
As a direct result of the restrictions on
non-essential retail imposed in response
to the Covid-19 pandemic, the Group’s
ability to sell through existing Clothing &
Home stock was deemed to be
significantly impacted, and additional
Clothing & Home inventory provisioning
was required at the end of last year.
However, stronger trading particularly in
online, albeit at lower margins, has allowed
the Group to continue to sell much higher
volumes of stock than assumed versus
the Covid-19 scenario. As a result, and
supported by the certainty provided by
vaccines and a clear government Covid-19
re-emergence strategy, a net credit
has been recorded. This represents a
significant release to the Covid-related
inventory provisions recorded in the
2019/20 financial statements, to align with
our latest estimates based on current
sales performance, offset by charges in
the period relating to reassessment of
storage and fabric cancellation provisions.
Incremental provisions remain in place
where risk remains and include a provision
against excess slow-moving personal
protective equipment, committed to
during the peak of the first Covid-19
lockdown and incurred directly in
response to the Covid-19 pandemic.
The Committee considered the Group’s
current provisioning policy, the impact
of expected future expectations of
sell-through impacting the recoverability
of the cost of inventories held at the
balance sheet date and the nature and
condition of current inventory. When
calculating inventory provisions, the
Group has considered the nature and
condition of inventory, as well as applying
assumptions around the easing of
Covid-19 restrictions. The Committee has
concluded that such are appropriate.
The assumptions have been disclosed
in the financial statements.
See notes 1 and 5 on p129 and p141
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: impairments of intangible
assets; the implementation and execution
of strategic programmes; directly
attributable (gains)/ expenses resulting
from the Covid-19 pandemic; impairments,
impairment reversals and write-offs of the
carrying value of stores and other
property charges; Ocado Retail Limited
related charges; the Sparks loyalty
programme transition; the reduction in
M&S Bank charges incurred in relation
to the insurance mis-selling provision;
and charges relating to GMP other
pension equalisation.
See note 5 on p141
80
Marks and Spencer Group plc SIGNIFICANT ISSUES CONTINUED
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 note 19 on p162
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 p129
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. A partial impairment reversal
of the prior year impairment charge has
been recorded (see note C6 Investments
on page 185). The Committee has reviewed
management papers outlining the key
assumptions used in calculating the
value in use and is satisfied that these
are appropriate.
GOING CONCERN AND
VIABILITY STATEMENT
The Committee has reviewed the Group’s
assessment of viability over a period
greater than 12 months. In assessing
viability, the Committee has considered
the Group’s position presented in the
budget and three-year plan recently
approved by the Board. In the context
of the current challenging environment
as a result of Covid-19, a downside
scenario was applied to the plan.
This was based on the potential financial
impact from business disruption as a
consequence of one, or more, of the
Group’s principal risks and uncertainties
materialising and both the specific risks
associated with the Covid-19 pandemic
and the uncertain high street trading
environment. The Committee
has concluded that these assumptions
are appropriate.
The Committee has also reviewed the
Group’s reverse stress test that was
applied to the model. The Committee
has reviewed this with management
and is satisfied that this is appropriate in
supporting the Group as a Going Concern.
In addition, the Committee received
regular updates on the steps taken
by management regarding liquidity,
including the extension of the relaxation
of covenant tests with the Group’s lending
syndicate of banks providing the £1.1bn
revolving credit facility, now up to and
including the period to March 2022.
The Committee is satisfied that these
measures have reduced liquidity risk.
See note 1 on p129
RETIREMENT BENEFITS
Following the significant reduction in
the pension surplus during the year, 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 p149
81
GOVERNANCEAnnual Report & Financial Statements 2021 AUDIT COMMITTEE REPORT CONTINUED
All non-audit work performed by
Deloitte, with fees in excess of £50,000,
was put to the Audit Committee for
prior consideration and approval. For
non-audit work where fees were below
£50,000, approval was obtained by the
Chief Finance Officer and the Audit
Committee notified of all work falling
within this threshold. 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 3 April 2021 was
0.09:1, compared with the previous year’s
ratio of 0.33:1. The majority of the £0.2m in
non-audit fees paid in total to Deloitte
during 2020/21 was incurred for assurance
services provided during the year. These
comprised fees in respect of the Half Year
review, turnover certificates and, the
annual Euro Medium Term Note (EMTN)
programme renewal. It is normal practice
for such assurance services to be provided
by the Company’s statutory auditor.
No additional recurring or one-off
non-audit services were provided during
the year.
In addition, the Committee reviewed and
approved the audit fee for the year,
making sure any fee increase was
understood and reasonable.
TENURE
Deloitte was appointed by shareholders
as the Group’s statutory auditor in 2014
following a formal tender process. The
lead audit partner, Richard Muschamp,
has been in post since the start of the
2019/20 audit. 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 2021/22 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 the Committee’s own views, as
well as providing opportunity to
comment, via completion of a
questionnaire, from a targeted group
that have regular interactions with the
external auditor. The targeted group
include: the Chief Financial Officer,
Director of Group Finance, the four
Finance Directors for Clothing & Home,
Food, International and Retail & Property,
the Head of Investor Relations, Head of
Finance Group Reporting and Head of
Finance Business Services.
EXTERNAL AUDITOR
The Committee was provided with a
summary of the responses received
from management to assist with its
own considerations.
Feedback from the target groups was
overall positive. It was agreed that
the audit team had continued to be
responsive and cooperative and had again
demonstrated flexibility and adaptability
in working with management day-to-day
to overcome the challenges faced both
throughout the year and during the year
end as a result of the pandemic and
continued remote working. Early
engagement throughout the year again
on a number of key issues had been
appreciated and had allowed a number
of items to be addressed in advance of
the year end.
The audit partners continue to have a
good understanding of our business.
A common theme reflected a desire for
more engagement outside of the peak
year end period.
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.
82
Marks and Spencer Group plc ASSURANCE AND INTERNAL CONTROL ENVIRONMENT
The Board assumes ultimate
responsibility for the effective
management of risk across the Group,
determining its risk appetite and
ensuring that each business area
implements appropriate internal
controls. The Group’s risk management
systems are designed to support the
business in actively managing risk, based
on our awareness of risk factors, rather
than to simply avoid risks, in order to
achieve business objectives, and can
only provide reasonable and not
absolute assurance against material
misstatement or loss. These systems are
also designed to be sufficiently agile to
respond to changes in circumstances,
such as the recent impact of Covid-19.
See p48-56 of the Strategic Report
for more information on our principal risks
and uncertainties.
The key features of the Group’s internal
control and risk management systems
that underpin 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 Conduct.
SOURCES OF ASSURANCE
The Board has delegated responsibility
for reviewing the effectiveness of the
Group’s systems of internal control to the
Audit Committee, which includes 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 to complete these reviews:
1. Internal Audit
The Group’s primary source of internal
assurance is 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. The plan has been
reviewed periodically throughout the year to
confirm it remains relevant for new and
emerging circumstances, particularly
changes during the pandemic which
impacted business priorities, our risk profile
and assurance activities. For example,
multiple lockdowns across all UK and
international locations impacted how food
safety audits were conducted at our own
sites and those managed and operated by
suppliers and franchise partners. The
findings and actions from Internal Audit
reviews are agreed with the relevant business
area, communicated to the Audit Committee
and tracked through to completion.
The work completed by Internal Audit
during the year focused on key risks
including information security,
preparations for the Ocado launch,
financial controls and new business
activity like external brands, as well as
areas driven by Covid-19, such as furlough,
supplier payments, elements of stock
management and food safety assurance
activities during the pandemic.
2. Management updates and risk
deep dives
As part of the Committee’s annual
calendar, it receives updates on risk
management, maturity of control and
assurance activities from individual
business areas and functions. These
updates are complemented by Internal
Audit’s independent audits performed
within these areas.
3. Functional assurance
A broad range of assurance activity has
been designed and deployed across
the business to target key risk areas, such
as ethical assurance, food safety, fire,
health and safety, and business continuity.
While reporting lines for these activities
are directly to business areas, the
processes and controls of these functions
are periodically tested by Internal Audit.
and activities, such as business continuity,
fire, health and safety, transformation
projects, and Brexit. The output from these
discussions forms part of the cyclical
updates provided to the Audit Committee.
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 111
to 122. No other significant failings or
weaknesses were identified during the
Committee’s review in respect of the year
ended 3 April 2021 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.
4. Operational oversight
Senior management forums and
committees provide oversight and
challenge on key risk areas within individual
business areas, cross-business programmes
Further details of these processes
can be found within our full disclosure
of compliance with the UK Corporate
Governance Code at marksandspencer.
com/thecompany.
INTERNAL ASSURANCE FRAMEWORK
Source of information
Internal Audit
Frequency/nature of reporting
– Internal Audit Plan
– Regular reports against Plan
– Follow-up of remediation
– Updates on fraud, whistleblowing
Formal updates
presented to the
Committee at
each meeting
Management
updates and
risk deep dives
Functional
assurance
Operational
oversight
and other irregularity
– Ad hoc engagement with
the business in response to new/
emerging risks or major incidents
– for example, Covid-19
Papers submitted on a range of
issues including:
– Information security
– Bribery
– Code of Conduct
– GSCOP
– Financial control
– Risk deep dives from individual
business areas and functions
Functional audit activities
undertaken, including:
– Food safety and integrity
– Ethical audits
– Trading safely and legally
For example:
– Compliance Monitoring
Committee
– Fire, Health & Safety Committees
– Customer & Brand
Protection Committee
– Business Continuity Committee
– Business Unit Operating Reviews
Updates to the
Audit Committee Chair
as required
Formal updates
presented to the
Committee annually
and as needed
Updates provided to
the Committee as part
of annual business
updates where
appropriate and
as requested
Updates presented
to the Committee
annually,
and as needed
Audit
Committee
83
GOVERNANCEAnnual Report & Financial Statements 2021 REMUNERATION
REMUNERATION OVERVIEW
INTRODUCTION
On behalf of the Board, I am pleased to
present our 2020/21 Remuneration Report.
The Remuneration 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 and the intended arrangements
for 2021/22.
IMPACT OF COVID-19 ON
REMUNERATION ARRANGEMENTS
As highlighted in last year’s report, the
Committee applied robust and proactive
discretion to the 2020/21 application of
the Remuneration Policy. This took the
form of cancelling the bonus scheme for
the year and mitigating against the risk of
windfall gains in Performance Share Plan
(PSP) outcomes by significantly reducing
the grant level for the year. In addition, and
with shareholders’ support, target setting
for the PSP award was delayed until
December 2020 to ensure, as best as
possible, that specific metrics were
challenging but achievable following the
significant impact of the pandemic.
The Committee remains focused on
ensuring flexibility in pay structures
allowing for appropriate reward and
recognition of executives, balanced
against shareholder interests and
uncertain external influences. As detailed
earlier in this Annual Report, the events of
the past year have had a marked impact
on customer behaviours, M&S’s trading
results and the delivery of the
transformation. The transformation
plan has been turbocharged and a
reshaped business has been forged from
the pandemic. As such, the Committee
reflected on the appropriateness of the
executive pay framework. It concluded
that there remains sufficient flexibility in
the current structures and metrics and
alignment with the business plans to
motivate and reward strong performance
at both the Group and individual level.
Following continued dialogue and
engagement with shareholders, the
Committee has agreed to reinstate in
full the incentive arrangement policies
previously approved by shareholders.
For 2021/22, executive directors will,
subject to the satisfaction of challenging
performance conditions, be eligible to
receive a bonus payment of up to 200% of
salary (split equally between cash and
deferred shares) and a PSP award of
the typical level, 250% of salary. The
Committee believes that this approach
is appropriate when retention and
motivation of the senior leadership team
remains critical. In approving this decision,
the Committee carefully considered
how to appropriately reward executives
where a successful Covid-19 recovery
performance would be in the best
interests of shareholders and 70,000
M&S colleagues. Further details of the
specifics of these incentives are detailed
on pages 96 to 98 of this report.
SHAREHOLDER ENGAGEMENT
AND FEEDBACK
As referenced earlier, the setting of
performance targets for the 2020 PSP
award was delayed to allow the business
time to assess the initial impact of
Covid-19 on the business and to review
the proposed strategic measures in light
of the business’s response to the post-
pandemic trading environment. Ahead of
confirmation, the Committee consulted
with our major shareholders (representing
almost 50% of total shares in issue) and
shareholder representative bodies to
discuss the proposed strategic measures
and targets.
This dialogue followed engagement
at the end of the last financial year
confirming the proposed approach to
delaying the targets and the weightings
of performance measures. As a result of
this ongoing process of consultation
and adjustments made to the proposed
measures and weightings disclosed in
last year’s report, no further adjustments
to the proposed targets and strategic
measures were made. Shareholders were
positive in their feedback and we thank
them for their continued support.
“
Retail at its heart is a
people business. The
Committee takes a keen
interest in all colleague
pay arrangements to
ensure fairness and
appropriateness of
pay principles across
the business.
“
Andrew Fisher,
Chair of the
Remuneration
Committee
IN THIS SECTION
REMUNERATION
Remuneration overview p84-87
Remuneration in context p88-89
Summary Remuneration Policy p90-93
ANNUAL REPORT ON
REMUNERATION
Remuneration structure p94
Total single figure remuneration p94
Salary and benefits p95
Annual Bonus Scheme p96-97
Performance Share Plan p97-98
Directors’ share interests p99-100
Changes to Board membership p102
Non-executive directors’
remuneration p102
Remuneration Committee remit p104
84
Marks and Spencer Group plc The Committee, represented by the Chair,
confirmed that targets set will support the
business over the remaining performance
period and are aligned with investor
expectations. The measures and targets
for the 2020 PSP awards are detailed on
page 97 of this report.
In addition, to explicitly support key areas
of transformation delivery, the Committee
with the support of its shareholders,
introduced a basket of strategic measures
comprising 20% of the total award. Metrics
in this basket include digital growth and
food sales targets aligned with financial
plans and the provision of a better
customer experience in stores as a result
of the delivery of the strategic measures.
There will be no associated payment for
threshold performance levels. The
Committee is clear that the delivery of
these measures is vital to M&S’s future
success; reward for partial achievement is
not considered appropriate. While
shareholders acknowledged that a
cliff-edge vesting for measures is unusual,
they recognised the clear message being
sent by the Committee and welcomed
the simplicity of these key targets.
Balanced against the remaining 80% of
the performance targets being measured
on a sliding scale, no significant issues
were raised during consultation.
STRATEGIC ALIGNMENT OF PAY
The Covid-19 pandemic has increased
focus at M&S on transformation, with a
view to never being the same again.
The measures and targets used in M&S’s
incentive schemes, namely those of the
Performance Share Plan and Annual
Bonus Scheme, were reviewed again during
the year to ensure alignment with the key
performance indictors (KPIs) and strategic
priorities being used across the business.
The illustration below demonstrates this
strong linkage between the KPIs and
strategic priorities with executive
remuneration at M&S. This strength of
alignment will enable the Committee to
ensure pay arrangements help to deliver
transformation and fulfil M&S’s potential
for long-term sustainable growth.
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 accelerated
transformation journey to emerge
stronger and more competitive.
STRATEGIC ALIGNMENT OF REMUNERATION FRAMEWORK WITH KPIS
Performance
Share Plan (PSP)
Annual Bonus
Scheme (ABS)
KPI/Strategic priority
As measured by
KPI
Adjusted earnings per share (EPS)
See KPIs
on p37
Strategic
priority
See
Strategic
priorities
on p7
Return on capital employed (ROCE)
Financial Results
Group PBT before adjusting items (PBT)
Food with Ocado re-positioned for growth
Delivering a reshaped and increasingly
omni-channel Clothing & Home business
Accelerating the rotation of the Store Estate
An International business focused on major
partnerships and online growth
Achievement
against objectives
2020/21 PERFORMANCE
ADJUSTED EARNINGS PER SHARE
RETURN ON CAPITAL EMPLOYED
GROUP PBT BEFORE ADJUSTING ITEMS
1.1p
9.3%
Adjusted EPS in 2020/21 was 1.1p. This was
below the 26.9p threshold required for any vesting
under this element of the 2018 PSP award.
Average three-year ROCE performance was 9.3%.
This was below the required 11.1% threshold for any
vesting under this element of the 2018 PSP award.
£41.6m
As reported in the 2019/20 Directors’ Remuneration
Report, as a result of performance in the prior
year and the unprecedented impact of the
Covid-19 pandemic, the Committee decided that
for 2020/21 only, there would be no bonus scheme
in operation for the executive directors.
USE OF DISCRETION
To ensure that pay outcomes
appropriately reflect individual and
business performance, together with
the wider economic and societal
climate, the Committee has overriding
discretions on directors’ pay in addition
to the ability to apply malus, clawback
and responsible application of discretion
to override formulaic outcomes of the
incentive schemes.
During the year, the Committee did not
apply any discretion to the variable pay
outcomes of the bonus and PSP. The
Committee agreed that the final vesting
of the 2018 PSP was reflective of the last
three years of M&S’s performance and that
the Policy operated as intended.
As was disclosed in last year’s report, the
Committee applied its discretion to cancel
the operation of the 2020/21 directors’
bonus scheme. The quantum of PSP
grants were also significantly reduced,
reflecting the Committee’s pro-active
decision to mitigate against future
windfall profits on vesting in view of the
impact of Covid-19 on the share price at
the time of grant.
85
GOVERNANCEAnnual Report & Financial Statements 2021 REMUNERATION OVERVIEW CONTINUED
WIDER WORKFORCE PAY ARRANGEMENTS
The Committee received regular and
varied updates during the year relating to
M&S pay arrangements. In addition to
those already outlined in the Committee’s
remit, detailed discussions ranged from
hourly pay for store colleagues, the review
of the pay and benefits package which was
undertaken during the year, to approving
an increase in the Save As You Earn share
scheme savings limit based on colleague
participation levels in prior years.
The Committee welcomes the
collaboration with the Business
Involvement Group (BIG) in receiving
direct feedback on colleagues’ views in
formal meetings. This dialogue ensures a
close link between the pay philosophies at
the most senior levels with those for the
broader population and understanding at
a colleague level any pay concerns and
questions raised.
To demonstrate the Committee’s
keen interest in wider workforce pay
arrangements within M&S, we have this
year expanded disclosure on these
specific areas; see pages 88 and 89.
As referenced earlier in this Annual
Report, the business has taken great care
to support all colleagues during the
Covid-19 pandemic, which the Committee
and the Board were supportive of. From a
pay perspective, these have included
supporting every colleague either to
self-isolate or shield themselves to do so
on full pay; paying full pay for those
lower-paid colleagues placed on furlough;
and rewarding hardworking front-line
store and e-commerce distribution
colleagues with an additional short-term
15% supplementary payment.
For the financial year 2021/22 the hourly
rate for customer assistants increased by
5.6% to £9.50 an hour, compared with a 1%
increase for the CEO. Between 2016 and
2021 the hourly rate paid to customer
assistants has increased by 24% and over
the same period the increase in base
salary for the CEO has totalled 4%, as
illustrated in the charts below.
Customer assistant hourly rate progression
Percentage change in pay for customer assistants
and the CEO
£10.00
£9.50
£9.00
£8.50
£8.00
£7.50
£7.00
Customer
Assistant
hourly rate
changes
CEO base
salary
changes
%
130
125
120
115
110
105
100
95
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22
SINGLE FIGURE AND INCENTIVE SCHEME OUTCOMES
As is shown in the table on page 94, the
total pay for the CEO was c.11% lower this
year, reflecting the lapse in full of the
2018 PSP award. Payments made to the
CFO reflect the annual contractual
remuneration payments since his
employment on 8 June together with the
specific arrangements made to facilitate
his recruitment. Further details are
provided on page 94.
None of the 2018 PSP will vest in respect
of the three-year performance period up
to 3 April 2021. Page 98 of this report
provides further detail on the specifics
of the targets set and the respective
achievement under each measure. The
remit of the Committee is to ensure that
targets set are stretching yet achievable,
rewarding the delivery of sustainable,
ambitious long-term performance.
Vesting under the PSP remains low when
reviewed in the context of the wider
market. However, the Committee is
satisfied that this level of vesting is
reflective of the challenging business
environment Steve Rowe and Archie
Norman have both highlighted earlier in
this Annual Report.
As previously disclosed, the 2020/21
Annual Bonus Scheme was not operated
for executive directors. To ensure
continued strong governance and
transparent reporting to shareholders,
and in line with the normal Committee
processes, executive directors continued
to be measured against a scorecard of
individual objectives aligned with the
strategic priorities set out earlier in this
report. No financial payment will be
made in respect of their achievements.
The Committee discussed each director’s
achievement against the relevant
individual performance targets and final
achievement against these individual
objectives and this is detailed on page 96
of this report. In particular, the Committee
noted the strong and responsible action
taken by Eoin Tonge to strengthen
liquidity and preserve cashflow during
the pandemic.
86
Under Steve Rowe’s leadership, M&S
successfully harnessed the impact of
Covid-19, ensuring the turbo charging of
the transformation while supporting
colleagues through this difficult period.
CEO single figure as a percentage
of maximum opportunity
PSP
22%
Fixed
Annual
Bonus
Marks and Spencer Group plc LOOKING AHEAD
Looking to the future, the Committee
intends to continue to review M&S’s pay
policies, ensuring appropriate alignment
between executive pay arrangements
and the wider workforce with a focus on
flexibility of reward and recognition in
uncertain times while maintaining
fundamental M&S values of fairness and
value for money. The Committee will
continue to carefully monitor the pay
frameworks at the most senior levels and
the organisation’s incentive arrangements
with a focus on M&S being an employer
of choice where hard work and financial
results are appropriately recognised
and rewarded.
As is detailed later in this report on
page 104, the Committee intends to also
discuss senior succession planning and
the link between Plan A and executive
reward, ensuring that solid foundations
are in place to nurture and develop the
leaders of the future, as M&S plans for
long-term financial and environmental,
social and governance (ESG) success.
On behalf of the Remuneration
Committee, I would like to thank our
shareholders for their continued
support and open dialogue during
this challenging year.
Andrew Fisher, Chair of the
Remuneration Committee
Having reduced award levels in 2020 to
acknowledge the shareholder experience
of Covid-19 and to mitigate against
windfall gains, the Committee believes,
in light of the return of the share price to
pre-pandemic levels, it is appropriate to
incentivise executives and ensure that
they remain aligned with shareholders’
long-term interests. It is therefore
intended to grant PSP awards of 250% of
salary in June 2021 to executive directors.
In determining the size of the 2021 PSP
awards, the Committee noted that as a
result of the share price recovery over the
last 12 months, fewer shares would be
awarded than in 2020. Further details are
set out on page 98.
SHAREHOLDING AGAINST
SHAREHOLDING GUIDELINES
The Committee is aware that an
executive’s level of shareholding is one
of the measures used by investors to
determine the alignment of interests
between shareholders and directors.
While the CEO has not reached the
targeted level of shareholding within five
years of his appointment to the role, the
Committee is satisfied that this does not
reflect Steve Rowe’s life-long commitment
to M&S. Rather, this is a consequence
of the challenging targets set by the
business in its incentive arrangements.
The Committee recognises that the CEO
demonstrably continues to make sound
decisions in the best interests of M&S
shareholders and colleagues, including
the voluntary reduction in his contractual
pension arrangements that was reported
last year. That said, the Committee
continues to keep a watching brief on
executives’ shareholdings against targets
to ensure that their attentions are focused
on the delivery of a positive shareholder
experience. The decisions implemented
for 2021/22 incentive arrangements
will help to provide an opportunity
for an increase in shareholdings,
subject to achievement of associated
performance targets.
PAY ARRANGEMENTS FOR 2021/22
When reviewing salary levels, the
Committee considers 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. As a result of performance in
the year and the considerable effort and
resilience shown by colleagues across the
wider organisation, despite the impact of
the Covid-19 pandemic, it was decided to
implement salary increases in the wider
organisation of between 1% and 5.6%. The
Committee agreed to award a salary
increase of 1% to the executive directors.
This increase is aligned to the increase
awarded to other management colleagues.
As already referenced, the Annual Bonus
Scheme will resume operation for 2021/22
as per the shareholder approved Policy.
Performance will once again be measured
against corporate financial targets
(currently 70%) and individual objectives
(30%). The Committee believes it remains
appropriate for PBT to continue to
represent the largest element of bonus
potential as M&S seeks to return to
significant levels of profitability. The
maximum opportunity will remain at
200% of base salary.
The Committee continues to ensure
that the remuneration framework for
executives is aligned with shareholder
interests. This means fully aligning
performance measures used in the
incentive schemes with the business
strategy and setting targets which are
stretching and yet motivating for
directors. It is proposed that the 2021
PSP will maintain measures applied to
the 2020 PSP awards, being 30% adjusted
EPS, 30% ROCE, 20% relative TSR and
20% strategic measures. Given the
continuing uncertainty of the impact
of the pandemic on macroeconomic
factors, the Committee has again delayed
the setting of PSP targets. Targets will
be disclosed by 31 December 2021 and
will be discussed with shareholders prior
to confirmation. Any targets proposed
will be set with reference to estimated
outturn, the business’s long-term
financial plans, consensus and brokers’
forecasts to ensure they are appropriately
stretching with maximum payments only
possible for significant outperformance
of expectations.
87
GOVERNANCEAnnual Report & Financial Statements 2021 REMUNERATION
REMUNERATION
IN CONTEXT
COLLEAGUE ENGAGEMENT
– Share ownership across our colleagues:
– Direct engagement with our colleagues:
M&S is a proud advocate of employee share
ownership. The Board believes that this
supports colleagues to not only share in
M&S’s success but also to behave as
owners of our business, aligned with our
shareholders’ interests. Across our UK and
Irish colleagues, M&S has a significant
number of participants in all employee
share schemes; colleagues hold over
120m SAYE options in our ShareSave
scheme and over 3,000 colleagues hold
shares in our Share Incentive Plan
ShareBuy. During the year, the Board
approved an increase to the monthly
savings limit for the 2020 ShareSave
scheme, from £250 to £500. Over 67% of
colleagues benefiting from the increased
limits are our front-line colleagues.
Since 2018, the Chair of the National
Business Involvement Group (BIG), our
colleague representative body, is invited
to attend a Remuneration Committee
meeting each year to engage and
contribute on a range of topics and
activities. During the year, representatives
from BIG have been engaged on a number
of pay-related topics, beyond the executive
level, including encouraging colleagues
to participate in the review of our pay and
benefits package; and providing feedback
and support on increasing the monthly
savings limit for our ShareSave scheme. The
collaborative relationship that we have with
BIG strongly reflects our belief in the key
role that BIG plays in ensuring that the
Committee has greater visibility of the
things that really matter to our colleagues.
This also gives the Committee the
opportunity to explain and discuss our pay
practices and how executive pay aligns with
pay across the wider workforce. In addition,
the Head of Executive Reward & Pay
Governance provides updates to the
Committee as appropriate on pay and
people-related issues during the year.
– Pay budgets: Under the remit of the
Remuneration Committee, total budgeted
salary expenditure across M&S for salary
review is noted, as are bonus and share
scheme budgets ensuring principles for
reward allocation are aligned across the
full workforce, inclusive of senior leaders.
CONSIDERATION OF COLLEAGUE PAY
The Committee monitors and reviews the
effectiveness of the executive reward
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 the
broader structure of Group bonus
provisions, which ensures appropriate
alignment with senior pay arrangements.
The Committee is provided throughout
the year with information detailing pay
in the wider workforce, which gives
additional context for the Committee to
make informed decisions. The Head of
Executive Reward & Pay Governance
advises the Committee of the approach
which will be adopted with the
forthcoming UK pay review and
the Committee then considers the
executive directors’ pay in line with
these arrangements.
In approving the budget for the annual
bonus, the Committee reviews all bonus
costs for the Company against the
operating plan. The Committee also
reviews and approves any PSP awards
made to executive directors and directors
below the Board prior to their grant.
The Committee receives updates on a
variety of colleague engagement
initiatives. During the year, we moved away
from an annual survey to more ‘in the
moment’ direct feedback. The new
monthly digital colleague pulse tracks
colleague sentiment throughout the year.
This year, a thorough review of M&S’s total
reward proposition was carried out and all
colleagues were asked to give their views
on the current reward package and to
highlight what really matters to them
both now and for the future. Over 14,000
colleagues provided their views. Results
were presented to the Remuneration
Committee which discussed findings and
the proposed policy updates as a result of
colleagues’ feedback.
Colleagues are encouraged to raise
questions at the periodic all-colleague
announcements led by the CEO. All
questions raised at this time are answered,
and comments made during the year
through surveys or our network of elected
colleague representatives via BIG are
considered. The Head of Executive Reward
& Pay Governance typically provides
an annual update to these colleague
representatives with an explanation of the
executive directors’ pay arrangements
during the year, and they are able to ask
questions on the arrangements and
their fit with the other reward policies
at this time.
CONSIDERATION OF
STAKEHOLDER VIEWS
The Committee is committed to an
open and transparent dialogue with
shareholders on the issue of executive
remuneration. Where appropriate,
the Committee will actively engage
with shareholders and shareholder
representative bodies, seeking views
which may be considered when making
any decisions about changes to the
directors’ Remuneration Policy.
The Committee seeks the views of
the largest shareholders individually
and others through shareholder
representative bodies when considering
making any significant changes to the
Remuneration Policy; this may be done
annually or on an ad hoc basis, dependent
upon the issue. This year, the Committee
consulted on the proposed strategic
measures and targets to be applied to
the PSP. The Committee, led by the Chair,
annually engages in a process of investor
consultation, which is typically in written
format, but has included face-to-face
meetings, telephone or video calls.
The Committee Chair is available to
answer questions at the AGM and the
answers to specific questions are
posted on our website.
As part of our socially responsible
reporting strategy, an annual shareholder
meeting is normally held and the
consideration of views on a variety
of topics, including executive pay,
is taken into account.
88
Marks and Spencer Group plc GENDER PAY GAP
CHIEF EXECUTIVE’S PAY RATIO
The M&S median gender pay gap for the
year to April 2020 is 4.1%, compared with a
national average of 15.5%. The M&S mean
gap for the same period is 12.3%.
During the year, we’ve made several steps
to further promote and enhance inclusion
and diversity at M&S, including hiring our
first Group Head of Inclusion and Diversity
to further drive the agenda throughout
the business, via a new strategy aimed at
creating an inclusive culture within a
diverse environment for our colleagues,
customers and communities.
We continue our partnerships with such
organisations as Business in the Community,
Retail Week’s Be Inspired programme (for
which a number of our senior leaders serve
as Ambassadors) and the 30% Club.
Our dynamic and fast-paced programme of
activity is supported by our seven colleague
networks, including the Gender Equality
Network, all of which hold events, celebrate
key events in the inclusion calendar, such as
International Women’s Day and raise
important discussions on gender equality
via their online social communities.
We’re proud that 73% of our Customer
Assistants are women but we need to do
more to encourage diversity in senior roles.
Inclusion and diversity remains a key priority
for us. We will not be letting our focus relent
through these challenging times.
4.1%
Gender pay gap (median)
Year
2021
2020
Methodology
Option A
Option A
As reported last year, the Committee
approved the use of Methodology A, as
set out in the regulations, as we believe it
to be the simplest, most appropriate and
robust way to calculate the ratio.
Option A requires the calculation of
pay and benefits of all UK colleagues to
identify the three colleagues at the 25th,
50th and 75th percentiles as at 3 April
2021. This is calculated on the same
basis as the CEO total single figure of
remuneration. The only exception being
the individual performance element of the
Annual Bonus Scheme applicable to the
relevant colleagues (when operating) is
assumed to be the respective target value,
as the actual value is not known at the
time of producing the Annual Report.
This requires:
– Starting with colleague pay that was
calculated based on actual base pay,
benefits, bonus and long-term
incentives for the 12 monthly payrolls
within the full financial year. Earnings
for part-time colleagues are annualised
on a full-time equivalent basis to allow
equal comparisons.
– Adjusting the value of any bonus so that
it only reflects the amount earned in
respect of the 2020/21 financial year
25th percentile
ratio
55 : 1
64 : 1
50th percentile
ratio
50 : 1
59 : 1
75th percentile
ratio
42 : 1
51 : 1
and does not include the value of any
deferred shares.
– Adding in the employer pension
contribution from the Your M&S Pension
Saving Plan.
Joiners and leavers in the year have
been excluded from the calculations.
The percentile figures are therefore
representative of the whole colleague
population but do not include all
colleagues as at 3 April 2021.
The table above shows the ratio of CEO
pay in 2020/21, using the single total figure
remuneration as disclosed in Figure 7
(page 94) to the comparable equivalent
total reward of those colleagues whose
pay is ranked at the relevant percentiles in
our UK workforce. We believe the median
pay ratio this year is consistent with pay,
reward and progression policies for UK
colleagues as it reflects the consistent
approach to pay (pay freezes across the
whole company) along with M&S’s policy
to pay for performance. The reduction in
the pay ratio this year is predominantly the
result of the reduction of the CEO single
figure value due to no long-term incentive
vesting in 2021 and the decrease in the
cost of benefits provided in the year.
PAY ARRANGEMENTS FOR
COLLEAGUES DURING COVID-19
Pay data
The impact on our business during the year
was profound. For extended periods, most
if not all of our Clothing & Home store space
was closed and our cafes and hospitality
services have all been closed. Our franchise
business was also severely impacted,
particularly in travel hubs. Despite these
intense pressures, we have rightly
recognised the incredible efforts of our
colleagues; around 27,000 colleagues were
provided with government support via the
Coronavirus Job Retention Scheme (CJRS).
This support was welcomed by our
colleagues whose roles were significantly
impacted by the restricted trading
environment. With a large number of our
stores closed, a significant number of
redundancies have been avoided through
the benefit of the CJRS. To financially help
colleagues and their families during this
difficult period, M&S voluntarily ensured
that furloughed front-line colleagues
received full pay. A Colleague Support Fund
was set up to help colleagues experiencing
financial hardship as a result of the
pandemic. In addition, vulnerable
colleagues needing to self-isolate or shield
have done so on full pay. M&S is proud to
have been able to support our colleagues
in line with the values which underpin the
way we do business.
For those front-line colleagues continuing
to work, a short-term 15% supplementary
payment was made in recognition of
their efforts.
CEO remuneration
UK colleague 25th percentile
UK colleague 50th percentile
UK colleague 75th percentile
Salary
(£000)
2019/20
828
18
19
22
Total pay and
benefits
(£000)
2019/20
1,205
19
21
24
Salary
(£000)
2020/21
834
18
20
24
Total pay and
benefits
(£000)
2020/21
1,068
20
21
25
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 the average non-executive
director and our UK-based colleagues’ pay. This group has been chosen as the majority
of our workforce are based in the UK. Further details of the non-executive director pay
changes are shown on page 101.
CEO (Steve Rowe)
Average non-executive director
UK colleagues (average per FTE)
% change 2019/20 – 2020/21
Base salary/fees
0%
0%
0%
Benefits
-36.8%
0%
0%
Annual bonus
–
N/A
–
There were no annual base pay increases
awarded to the CEO, non-executive
directors or to colleagues in respect of
the 2020/21 financial year.
No award under the Annual Bonus
Scheme was made to either the CEO or
anyone else within the wider workforce
in either 2019/20 or 2020/21.
There has been no fundamental change in
the CEO benefit offering. During periods
of national lock down, Steve Rowe drove
himself, rather than make use of the
chauffeur service, to ensure the safety
of his driver and maintain the required
social distancing.
89
GOVERNANCEAnnual Report & Financial Statements 2021 REMUNERATION
SUMMARY
REMUNERATION POLICY
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 3 JULY 2020)
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 3 July 2020 and can be found on our website at marksandspencer.com/the company.
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.
FIGURE 1: EXECUTIVE DIRECTORS’ REMUNERATION POLICY TABLE
ELEMENT
OPERATION
OPPORTUNITY
Salaries are payable in cash and 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.
Normally in line with those in
the wider workforce, although
no maximum is set.
Base salary
Benefits
In line with our policies, directors are eligible to receive benefits which may include: a car
or cash allowance and a driver, life assurance and relocation and tax equalisation allowances
in line with our mobility policies.
As with all colleagues, directors are also offered other benefits including colleague
discount, salary sacrifice schemes and participation in all-employee share schemes.
Pension
benefits
Directors may participate in the Your M&S Pension Saving Plan (a defined contribution
arrangement), on the same terms as all other colleagues.
The defined benefit pension scheme is closed to new members. Directors who are members
of this scheme will continue to accrue benefits as a deferred member.
Annual Bonus
Scheme
including
Deferred Share
Bonus Plan
(DSBP)
Directors are eligible to participate in this non-contractual, discretionary scheme.
Performance is measured against one-year financial and individual performance targets
linked with the delivery of the business plan. At least half of awards are measured against
financial measures which typically include Group PBT before adjusting items (PBT).
Corporate and individual elements may be earned independently, but no part of the
individual objectives may be earned unless a threshold level of PBT has been achieved, 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.
Malus provisions apply to the deferred share awards. Cash bonus payments are subject to
two-year clawback provisions. Clawback would be triggered in specified events such as,
but not limited to, a material misstatement of the Company’s audited results, an error in
calculation of the award, gross misconduct, or events or behaviour that have a detrimental
impact on the reputation of any member of the Group.
There is no set maximum;
however, any provision will
be commensurate with local
markets and for all-employee
share schemes is in line with
local statutory limits.
A maximum employer
contribution currently of 12%
of salary where the employee
contributes 6% of salary.
From 3 July 2020, pension cash
supplements were removed for
future directors.
Total maximum annual
potential of up to 200% of
salary for each director.
Performance
Share Plan
(PSP)
Directors are eligible to participate in the Performance Share Plan. This is a non-contractual,
discretionary plan 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 value of shares
at grant is capped at 300% in
respect of a financial year.
Malus and clawback provisions apply to these awards. Clawback triggers include but are not
limited to, a material misstatement of the Company’s audited results, an error in calculation
of the award, gross misconduct or events or behaviour that has a detrimental impact on the
reputation of any member of the Group.
Awards are subject to a further two-year holding period after the vesting date.
Shareholding
Requirement
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.
Directors are required to continue to hold their shareholding requirement, or, if their level
of shareholding is below the requirement, their actual shareholding for two years after
leaving M&S.
For the CEO, this requirement
is 250% of salary. For all other
executive directors, the
requirement is 200%.
90
Marks and Spencer Group plc 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 to the Board.
In addition, the Committee has discretion to include any other remuneration component or award which it feels is appropriate,
considering the specific circumstances of the individual, subject to the limit on variable remuneration set out below. The rationale
for any such component would be appropriately disclosed.
ELEMENT
Service
contract
APPROACH
– All executive directors have rolling contracts for service which may be terminated by M&S giving 12 months’ notice and the
individual giving six months’ notice.
Base salary
– Salaries are set by the Committee, taking into consideration a number of factors, including the current pay for other executive
directors, the experience, skill and current pay level of the individual and external market forces.
Benefits
Pension
benefits
Annual Bonus
Scheme
PSP
Buy-out
awards
– The Committee will offer a benefits package in line with our benefits policy for executive directors.
– Maximum contribution in line with our policy for future executive directors (currently up to 12% of salary).
– Eligible to take part in the Annual Bonus Scheme with a maximum bonus of 200% of salary in line with our policy for
executive directors.
– A maximum award of up to 300% of salary in line with our policy.
– The Committee may offer compensatory payments or buy-out awards, dependent on the individual circumstances of
recruitment, determined on a case-by-case basis.
– The specifics of any buy-out awards would be dependent on the individual circumstances of recruitment. The Committee’s
intention would be that the expected value awarded is no greater than the expected value forfeited by the individual.
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 agreements and the incentive
plan rules.
ELEMENT
Base salary,
benefits and
pension
benefits
Annual Bonus
Scheme
Long-term
incentive
awards
Repatriation
Legal
expenses &
outplacement
APPROACH
– Payment made up to the termination date in line with contractual notice periods.
– There is no contractual entitlement to payments under the Annual Bonus Scheme. If the director is under notice or not in
active service at either the relevant year end or on the date of payment, awards (and any unvested deferred bonus shares)
may lapse. The Committee may use its discretion to make a bonus award.
– The treatment of outstanding awards is determined in accordance with the plan rules.
– M&S may pay for repatriation where a director has been recruited from overseas.
– 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.
91
GOVERNANCEAnnual Report & Financial Statements 2021 DIRECTORS
Steve Rowe
£000
£1,009
100%
Fixed
Eoin Tonge
£000
SUMMARY REMUNERATION POLICY CONTINUED
APPLICATION OF REMUNERATION POLICY
The charts below provide an illustration of what could be received by each of the executive directors in 2021/22 under the Policy.
These charts are illustrative, as the actual value which will ultimately be received will depend on business performance in the year
2021/22 (for the cash element of the Annual Bonus Scheme) and in the three-year period to 2023/24 (for the PSP), as well as share
price performance to the date of the vesting of the PSP awards in 2024.
BASIS OF CALCULATIONS AND KEY
£4,781
44%
35%
21%
£2,269
18%
37%
45%
Fixed
Fixed remuneration only.
Fixed remuneration
£5,824
Target
54%
29%
17%
No vesting under the ABS and PSP.
Includes all elements of fixed remuneration:
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.
– Base salary (effective 1 July 2021), as
shown in the table on page 95.
– Pension benefits as detailed on page 95.
– Benefits (using the value for 2020/21
included in the single figure table on
page 94). For Eoin Tonge this excludes
his temporary relocation allowances.
Target
Maximum
Maximum
+ 50%
£683
100%
Fixed
£1,589
19%
38%
43%
Target
£3,395
44%
37%
19%
£4,145
54%
29%
17%
Maximum
Maximum
+ 50%
Maximum Includes the following assumptions
for the vesting of the incentive
components of the package:
– ABS: 100% of maximum,
assumes no share price growth.
Annual Bonus Scheme (ABS)
Represents the potential total value of the
annual bonus for 2021/22. Half of any bonus
would be deferred into shares for three years
and this is included in the value shown.
– PSP: 100% of 250%, assumes no
share price growth.
PSP
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 represents the potential value of the
PSP to be awarded in 2021, which would vest
in 2024 subject to the relevant performance
targets. Awards would then be held for a
further two years.
– 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 2020/21 year end.
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 2020. 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
y
a
p
l
a
t
o
T
– Up to 100% salary
– Up to 100% salary (deferred shares)
(cash)
– One-year
performance
– Clawback
provisions apply
– 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
92
Marks and Spencer Group plc
FIGURE 5: NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY
The table below sets out our Policy for the operation of non-executive director fees and benefits at the Company. The Policy was
approved in July 2020 and may operate for up to three years.
ELEMENT
Chairman’s
fees
Non-executive
director’s
basic fee
Additional
fees
Benefits
Share
Ownership
OPERATION AND OPPORTUNITY
– Fees are reviewed annually and are determined by the Remuneration Committee.
– Total fee comprises the non-executive director basic fee and the additional fee for undertaking the role.
– 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 and are determined by the Chairman and executive directors.
– The maximum aggregate non-executive director basic fees, including the Chairman, 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 Chair.
– In line with our other colleagues, the Chairman and non-executive directors are entitled to receive colleague discount.
– The Company may reimburse the Chairman and non-executive directors for reasonable expenses in performing their duties
and may settle any tax incurred in relation to these.
– The Chairman may also be entitled to the use of a car and driver.
– All non-executive directors, including the Chairman, are required to build and maintain a shareholding of at least 2,000 shares
upon joining M&S.
– This shareholding must be held for the period of their tenure.
REMUNERATION FRAMEWORK FOR
THE REST OF THE ORGANISATION
M&S’s philosophy is to provide a fair
and consistent approach to pay.
Remuneration is determined by level
and is broadly aligned with those of
the executive directors.
Base salaries are reviewed annually and
reflect the local labour market.
All UK colleagues are eligible to
participate in the Your M&S Pension Saving
Plan on the same terms as the executive
directors. In addition, all UK colleagues
are provided with life insurance and
colleague discount, and may choose
to participate in the Company’s
all-employee share schemes and
salary sacrifice arrangements.
Around 170 of M&S’s top senior executives
may be invited to participate in the PSP,
measured against the same performance
conditions as executive directors. Award
levels granted are determined to be
aligned with market practice and reflect
an individual’s level of seniority as well as
their performance and potential within
the business.
A significant number of colleagues are
eligible to be considered to participate in
an annual bonus scheme which is partially
determined by Group PBT performance.
For M&S’s most senior executives, part
of the bonus is deferred into shares for
three years.
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GOVERNANCEAnnual Report & Financial Statements 2021 REMUNERATION
REMUNERATION REPORT
EXECUTIVE DIRECTORS’ REMUNERATION
Each year, the Remuneration Committee
assesses the current senior remuneration
framework to determine whether the
existing incentive arrangements remain
appropriately challenging in the context
of the business strategy, fulfil current
external guidelines and are aligned with 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. 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, as
illustrated on pages 37 and 7 respectively.
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 table below (Figure 7) and
later in this report.
FIGURE 6: REMUNERATION STRUCTURE 2020/21
Fixed pay
Annual bonus
PSP
Total pay for 2020/21
Base salary
Benefits
Pension benefits
200% of salary maximum
bonus opportunity
(with 50% deferral)
Measured against a balance
of Group PBT before
adjusting items and
individual performance
250% of salary awarded
in 2018
Measured against adjusted
EPS, average ROCE and TSR
Achievement was 0%
against targets set
Total payments are
c.22% of maximum
potential
No salary increase in line
with other M&S colleagues
Bonus not in operation
0% of award vested
For more information see p96
For more information see p98
FIGURE 7: TOTAL SINGLE FIGURE REMUNERATION (AUDITED)
Salary
Benefits
£000
£000
Total
bonus
£000
Total PSP
vested
£000
Pensions
benefits
£000
Total RSP
granted
£000
Total
pay
£000
Total
fixed pay
£000
Total
variable pay
£000
Director
Steve Rowe
Eoin Tonge
(from 8 June 2020)
Year
2020/21
2019/20
2020/21
2019/20
834
828
489
–
31
37
105
–
0
0
0
–
0
137
0
–
203
203
39
–
–
–
1,316
–
1,068
1,205
1,949
–
1,068
1,068
1,949
–
0
137
0
–
Note that the value of the PSP awards vesting in 2019/20 has been restated to reflect the actual share price on the date of vesting, £1.11.
In line with the approved Recruitment Policy, Eoin Tonge’s Restricted Share Plan (RSP) award reflects the total face value of share
awards granted to compensate him, on a fair value basis, for Greencore Group plc awards forfeited on joining M&S. The fair value was
calculated to take account of the original performance period and the estimated satisfaction of the performance conditions of the
original awards. The vesting timeline for the first tranche of this award is in line with the time horizons of the original awards. For the
remaining tranches the original time horizon has been extended by six months. In addition, as part of his recruitment package,
Eoin also received the benefit of a home search, temporary accommodation and relocation allowances (£83,000) and a travel
allowance (£15,000).
94
Marks and Spencer Group plc 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 2020, in light of the Covid-19
pandemic and the salary freeze across the
wider organisation, the Committee
discussed pay arrangements for all
colleagues and decided it was appropriate
to also freeze the salary for Steve Rowe.
Eoin Tonge joined the Company on 8 June
2020, his salary on joining was £600,000.
For salaries effective July 2021, in line with
increases for management positions, the
Committee has awarded Steve Rowe an
increase of 1%, making his salary £842,845.
Eoin Tonge was similarly awarded an
increase of 1% of salary. Effective 1 July
2021 his salary will increase to £606,000.
Across the wider population salary
increases ranged from 1% for management
roles to 5.6% for customer assistants.
The next annual salary review for the
executive directors will be effective in
July 2022.
The table below details the executive
directors’ salaries as at 3 April 2021
and salaries which will take effect from
1 July 2021.
Annual salary
as of
3 April 2021
£000
Annual salary
as of
1 July 2021
£000
834.5
600.0
842.8
606.0
Change in
salary
% increase
1%
1%
Steve Rowe is a deferred member of the
Marks & Spencer UK Pension Scheme.
Details of the pension accrued during the
year ended 3 April 2021 are shown below.
Eoin Tonge is a member of the Your M&S
Pension Savings Plan, as described on
page 90. Eoin contributes 6% of his salary
into the scheme and the Company
matches this with a 12% contribution.
The value of the Company’s contribution
in the year is shown in Figure 7 on page 94.
This is the maximum level of contribution
offered by M&S and is consistent with the
terms available to all other colleagues.
FIGURE 8: SALARIES
Steve Rowe
Eoin Tonge
BENEFITS (AUDITED)
PENSION BENEFITS (AUDITED)
During the year, Steve Rowe received a
cash payment in lieu of participation in
an M&S pension scheme. As reported last
year, the CEO has agreed that his pension
cash supplement be reduced to zero
over a three-year period. For 2021/22,
the CEO’s total annual cash supplement
will be reduced by one-third to £135,000
and will be reflected in the single figure
table in next year’s report.
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
during periods when England was not
under lockdown. Eoin Tonge does
not receive a car or cash allowance.
To facilitate Eoin Tonge’s recruitment
and relocation, he was provided with
temporary short-term travel and
accommodation allowances. The total
cost of this provision is reflected in the
single figure table.
In line with all other colleagues,
executive directors receive life assurance,
colleague discount and are eligible to
participate in salary sacrifice schemes
such as Cycle2Work.
FIGURE 9: PENSION BENEFITS (AUDITED)
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
Transfer value
of total
accrued
pension
£000
Normal
retirement
age
60
159.7
0
0.7
0
4,998
The accrued pension entitlement is the deferred pension amount that Steve Rowe would receive at age 60 if he left the Company on
3 April 2021. 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.
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GOVERNANCEAnnual Report & Financial Statements 2021 REMUNERATION REPORT CONTINUED
ANNUAL BONUS SCHEME
ANNUAL BONUS SCHEME 2020/21 (AUDITED)
As was disclosed in last year’s report, the
Committee took decisive action at the
start of the pandemic, and cancelled the
executive directors’ bonus scheme for
2020/21. Despite this, the Committee
continued to review the achievement of
the individual objectives aligned with
the strategic priorities set at the start of
the financial year to fulfil its remit and
to enable transparent disclosure to
shareholders. The table below describes
the achievements of the executive
directors, without disclosing the specific
targets associated. These targets are
considered commercially sensitive.
The Committee will continue to assess
the commercial sensitivity of targets with
the aim of disclosure wherever possible.
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.
FIGURE 10: INDIVIDUAL OBJECTIVES (AUDITED)
Director
Steve Rowe
Individual
Broadening M&S Food appeal
Significant overhaul of Food ranges and value position along with repurposing of space towards core categories allowing the
loss offset of convenience trade. Family focused innovation and the broadening appeal of Food led to strong Christmas and
Easter sales performance.
Food distribution
Significant Food cost reductions and synergy savings from Ocado growth. Better Food availability through the Vangarde
supply chain programme and food waste reductions.
Turbocharging online growth in Clothing & Home and Food
Successful launch of M&S products on Ocado from 1 September 2020. Positive customer response with M&S products forming
25% of sales, outperforming Waitrose.
Successful relaunch of Sparks with over 10m members reached. Creation of MS2 to further enhance the Sparks data insights
for customer personalisation.
Progressive increase in growth in online sales throughout the year satisfied by the Castle Donington distribution centre and
the expansion of BOSS capability resulted in overall online sales growth of 53.9%.
Establishing a store estate for the new world
15 Food stores renewed with a further 16 opening in the coming months, with the efficiency of a supermarket and the ‘soul of a
fresh food market’ offering customers quality produce, ambient, grocery and frozen in a distinctive environment.
Re-evaluated store estate roadmap and locations as part of three-year plan. Renegotiated rental arrangements to churn
Simply Foods. Launched five ‘10x’ stores as part of the omni-channel Clothing & Home strategy.
Restore M&S to sustainable, profitable growth
Delivery of a stronger balance sheet than expected through investment in technology to reduce fixed costs, reduction in
discretionary costs, managed stock flow and a focus on working capital.
Cashflow was preserved through a combination of actions including new terms with suppliers, adjustments to arrangements
with landlords and careful management of capital expenditure.
Strengthened liquidity by reducing net debt, refinancing 2022 finance commitments and managing standby liquidity with
the banks.
Implemented an effective planning and review process in annual and three-year financial planning including improvements
to budgeting.
Accelerate the transformation in Finance capability across the organisation
Successful recruitment and onboarding of high calibre Finance leaders to build a strong new management team to support
the family of businesses.
Eoin Tonge
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 2019/20,
no share awards under the Deferred
Share Bonus Plan (DSBP) were made
during the year. In relation to the 2020/21
performance year, as the Annual Bonus
Scheme did not operate, there will be no
awards under the DSBP made in 2021.
ANNUAL BONUS SCHEME FOR 2021/22
During the year, the Committee reviewed
the 2021/22 scheme, considering the
accelerated transformation programme
Never the Same Again together with
bonus arrangements elsewhere in
the business.
The Committee was satisfied that the
structure of the annual bonus scheme,
as approved by shareholders at the 2020
AGM, remains appropriate. Subject to the
achievement of stretching targets, set in
line with the 2021/22 financial plan, the
scheme provides for a competitive bonus
opportunity with a strong focus on
stretching PBT performance.
Executive directors are eligible to receive a
bonus payment of up to 200% of salary.
Performance will be focused on Group
PBT before adjusting items (PBT) (70%)
with individual measures set against key
areas of delivery of the transformation
plan. Individual performance will again
be measured independently of PBT
performance; no individual element
may be earned until a threshold level of
PBT is achieved.
96
Marks and Spencer Group plc ANNUAL BONUS SCHEME CONTINUED
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.
The performance targets for the 2021/22
Scheme are deemed by the Board to be
too commercially sensitive to disclose
at this time as they are not disclosed
elsewhere in the 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.
Any discretion applied will be clearly
disclosed and justified.
Director
Steve Rowe
Eoin Tonge
CORPORATE TARGETS
INDIVIDUAL OBJECTIVES
Group PBT before adjusting items PBT
Scorecard of
individual
measures
% bonus
% bonus Measures
70%
30% – Creation and implementation of revised Executive
Committee structure and roles and the development
of strong succession plans.
– Delivery of the transformation programme in
Clothing & Home.
– Reset the strategic relationship with Ocado regarding
platform integration, data sharing, infrastructure and
category strategy.
– Revitalise Plan A.
70%
30% – Drive a focus on financial delivery of critical transformation
strategies in Property and supply chain.
– Design and deliver critical Group investment evaluation
processes and models.
– Shape and strengthen the balance sheet.
– Deliver step change in the control environment.
PERFORMANCE SHARE PLAN (PSP)
PSP AWARDS MADE IN 2020/21 (AUDITED)
As reported last year, between September
2019 and January 2020, the Committee
reviewed the long-term incentive
framework at M&S, assessing the extent to
which it remained suitable and actively
consulted with shareholders during
this time. As part of this review and
engagement process and taking into
account shareholder feedback, it
was determined that 20% of the PSP
award would be based upon strategic
transformation goals relevant to the
achievement of the business strategy
over the next three years. The remaining
80% of the award would be based on
EPS (30%), ROCE (30%) and relative TSR
(20%) similar to recent years.
TSR is measured against a bespoke group
of 13 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 shareholders’
investment in M&S over the respective
performance period. These companies
are listed in Figure 12.
Recognising the material fall in share
price, the Committee significantly
reduced the quantum of the PSP grant
for 2020 only from the typical 250% of
salary to 175% of salary. The grant was
made on 6 July 2020.
Having taken the decision to delay target
setting, the Committee consulted with
shareholders on the proposed targets
and received support for the action taken
to reduce awards and for the proposed
targets and strategic measures. For clarity,
the Food like-for-like sales growth
excludes sales on Ocado as around 95% of
M&S product sold on Ocado does not pass
through the M&S network. Ocado sales are
incorporated into the EPS figures.
The strategic targets are deemed too
commercially sensitive to disclose but
will be reported at the time of vesting.
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. For financial
measures, 20% of awards will vest for
threshold performance increasing to 100%
on a straight-line basis between threshold
and maximum performance. For strategic
measures no payment shall be made if the
target is not achieved. This supports the
Committee’s view that delivery of these
strategic measures is critical; payment
for achievement below the target is not
appropriate. Detailed targets can be seen
in Figure 11.
FIGURE 11: PERFORMANCE CONDITIONS FOR PSP AWARDS MADE IN 2020/21 (AUDITED)
2020/21 award measures
Adjusted EPS in 2022/23 (p)
ROCE in 2022/23 (%)
Relative TSR
Strategic measures
Weighting
30%
30%
20%
20%
Details
Threshold
13p
9%
Maximum
22p
12%
Median Upper quartile
M&S.com growth
Food like-for-like sales
Store staff cost to sales ratio
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GOVERNANCEAnnual Report & Financial Statements 2021 REMUNERATION REPORT CONTINUED
PERFORMANCE SHARE PLAN (PSP) CONTINUED
FIGURE 12: TSR COMPARATOR GROUP 2020/21 AWARDS
J Sainsbury
Wm Morrisons
Tesco
ASOS
B&M European
Dixons Carphone
Dunelm Group
JD Sports Fashion
Kingfisher
FIGURE 13: PSP AWARDS MADE IN 2020/21 (AUDITED)
N Brown Group
Next
Frasers (formerly Sports Direct International)
WHSmith
Steve Rowe
Eoin Tonge
Basis of award
% of salary
175%
175%
Threshold
level of
vesting
20%
20%
Face value
of award
£000
1,460
1,050
End of
performance
period
01/04/2023
01/04/2023
Vesting date
06/07/2023
06/07/2023
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 2020 award,
the share price was calculated as £1.00, being the average share price between 29 June 2020 and 3 July 2020.
FIGURE 14: PSP AWARDS VESTING IN 2020/21 (AUDITED)
For directors in receipt of PSP awards granted in 2018, the awards will vest in July 2021 based on three-year performance over the
period to 3 April 2021. Performance has been assessed and it has been determined that 0% 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; no discretion was applied either for share price movements or for formulaic vesting outcomes.
Details of performance against the specific targets set are shown in the table below.
The total vesting values shown in Figure 15 directly correspond to the figure included in the single figure table on page 94.
2018/19 award
Threshold performance
Maximum performance
Actual performance achieved
Percentage of maximum achieved
Adjusted EPS in
2020/21
(p)
Average ROCE
(2018/19-2020/21)
(%)
TSR
1/3 of award
26.9
32.7
1.1
0%
1/3 of award
1/3 of award
11.1
Median
14.1 Upper quartile
9.3 Below median
0%
0%
Total vesting
% of award
0%
Targets outlined above are stated on a post-IFRS 16 basis and include adjustments that have been made for the impact of the
investment in Ocado Retail Limited. The original targets were EPS 31.7p-38.7p and ROCE 13.0%-17.0%.
FIGURE 15: VESTING VALUE OF AWARDS VESTING IN 2020/21 (AUDITED)
On grant
At the end of performance period (3 April 2021)
Number of
shares granted
(incl. rights issue
adjustment)
680,545
% of salary
granted
250%
Dividend
equivalents
accrued during
the performance
period
Number of
shares vesting
Number of
shares lapsing
Impact of
share price
performance
Total vesting
of award
£000
52,935
0
733,480
–
£0k
Steve Rowe
Dividend equivalents accrued during the performance period have been included in the table above.
PSP AWARDS TO BE MADE IN 2021/22
During the year, the Committee reviewed the long-term incentive framework at M&S, assessing the extent to which it remained
suitable. While the 2021 PSP will maintain the measures used for the 2020 PSP awards (30% adjusted EPS, 30% ROCE, 20% relative
TSR and 20% strategic measures), given the continuing uncertainty of the impact of the pandemic on macroeconomic factors, the
Committee has again decided to delay the setting of PSP targets. The targets will be disclosed by 31 December 2021 and will be
discussed with shareholders prior to confirmation. Having reduced award levels in 2020 to acknowledge the shareholder experience of
Covid-19 and to mitigate against windfall gains from directors’ awards, the Committee believes, in light of the return of the share price
to pre-pandemic levels, it is appropriate to incentivise the executives and ensure they remain aligned with shareholders’ long-term
interests. It is intended to grant PSP awards of 250% of salary for 2021, noting that the expected number of shares to be granted will
be fewer than in 2020 as a result of the share price recovery over the last 12 months.
98
Marks and Spencer Group plc RESTRICTED SHARE PLAN (RSP)
RSP AWARDS MADE TO EOIN TONGE IN 2020/21 (AUDITED)
As reported last year and in line with the
approved Recruitment Policy, Eoin Tonge
received replacement share awards to
compensate for the awards that he
forfeited on resigning from Greencore
Group PLC. The fair value of these
conditional share awards was calculated
taking account of the original
performance period and estimated
satisfaction of the performance
conditions of the original awards.
For the purposes of this award, the share
price was calculated as £1.00, being the
average share price between 29 June 2020
and 3 July 2020. The vesting timeline for
the first tranche of this award is in line
with the time horizons of the original
awards; for the remaining tranches, the
original time horizon has been extended
by six months.
Face value
of award
£000
Vesting
date
End of post vesting
holding period
526
526
263
10/12/2020
24/06/2022
19/06/2023
10/12/2022
24/06/2024
19/06/2025
Dividend equivalents will be paid on the
vesting date based on the number of
vested shares.
FIGURE 16: 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
3 April 2021. 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 25 May 2021. No director had an interest in any of the Company’s subsidiaries at the statutory
end of the year.
Steve Rowe
Eoin Tonge
Unvested
With
performance
conditions
Without
performance
conditions
Shares owned
outright
Performance
Share Plan
Restricted Share
Plan
562,662
277,999
3,228,450
1,049,538
–
789,252
Vested
unexercised
options
–
–
FIGURE 17: SHAREHOLDING REQUIREMENTS INCLUDING POST-CESSATION (AUDITED)
All executive directors are required to hold shares equivalent in value to a minimum percentage of their salary within a five-year period
from their appointment date. For the CEO, this requirement is 250% of salary and for other executive directors the requirement is
200% of salary. A similar requirement of 100% of salary currently applies to members of the Executive Committee below Board level.
The chart below shows the extent to which each executive director has met their target shareholding as at 3 April 2021. For Steve Rowe,
his 250% shareholding requirement is measured from the date he was appointed CEO. Although the respective target has not yet been
achieved, the Committee is satisfied that no shares granted or held have been sold by either the CEO or his related parties and that the
CEO’s interests remain strongly aligned with shareholders.
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.
Supporting the Committee’s intention to drive long-term, sustainable decision-making for the benefit of M&S and our shareholders
and in line with the 2018 Code changes and the Investment Association’s updated guidelines, in 2020 the Committee approved the
extension of shareholding guidelines beyond the time at which an executive director leaves M&S. Directors are required to maintain
their minimum shareholding requirement, or, if their level of shareholding is below this, their actual shareholding for two years after
leaving M&S. For the avoidance of doubt, the Committee has approved all vesting awards from 2020 grants onwards to be held in a
nominee vehicle to ensure the successful operation of this policy.
For the purposes of this calculation, an average share price is used to reduce the impact of share price volatility on the results. The
average share price for the year was £1.16, with resultant shareholdings illustrated in the chart below. At 3 April 2021, the share price
was £1.524, which would increase the CEO’s and CFO’s total shareholding by 33% (106% of salary) and 31% (177% of salary) respectively.
Steve
Rowe
Eoin
Tonge
81%
250% of salary
135%
200% of salary
Shares owned outright
Unvested DSBP/RSP shares
Shareholding requirement
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GOVERNANCEAnnual Report & Financial Statements 2021 REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED
EMPLOYEE SHARE SCHEMES
ALL-EMPLOYEE SHARE SCHEMES
(AUDITED)
Executive directors may participate in
both ShareSave, the Company’s Save As
You Earn Scheme, and ShareBuy, the
Company’s Share Incentive Plan, on the
same basis as all other eligible colleagues.
Further details of the schemes are set out
in note 13 to the financial statements on
pages 153 to 155.
DILUTION OF SHARE CAPITAL BY EMPLOYEE SHARE PLANS
Awards granted under the Company’s
Save As You Earn Scheme and
discretionary share plan can be
met by the issue of new shares when
the options are exercised or through
market purchase shares.
The Company monitors the number
of shares issued under these schemes
and their impact on dilution limits. The
Company’s usage of shares compared
with 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 3 April 2021 is as follows:
FIGURE 18: All share plans
Actual
Limit
8.86%
10%
FIGURE 19: Executive share plans
Actual
Limit
2.28%
5%
FIGURE 20: EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (AUDITED)
Steve Rowe
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total
Eoin Tonge
Performance Share Plan
Restricted Share Plan
SAYE
Total
Awarded during
the year
Exercised during
the year
Lapsed during
the year
Dividend
equivalents
accrued
Maximum
receivable at
3 April 2021
Maximum
receivable at
29 March 2020
2,499,156
90,744
9,557
2,599,457
1,459,732
–
21,951
1,481,683
–
–
–
–
1,049,538
1,315,420
21,951
2,386,909
267,878
90,744
–
358,622
–
526,168
–
526,168
566,932
–
9,557
576,489
104,372
–
–
104,372
3,228,450
–
21,951
3,250,401
–
–
–
–
–
–
–
–
1,049,538
789,252
21,951
1,860,741
The aggregate gain for Steve Rowe arising in the year from the exercise of awards granted under the DSBP and the PSP totalled
£395,471 based on the respective share price on the date of exercise of £1.100 and £1.113. The aggregate gain for Eoin Tonge arising
during the year from the exercise of awards granted under the RSP totalled £718,845 based on a share price on the date of exercise
of £1.3661. The market price of the shares at the end of the financial year was £1.524; the highest and lowest share price during the
financial year were £1.589 and £0.850 respectively.
Figure 21 shows the time horizons of outstanding discretionary share awards (including dividend equivalent shares accrued during
the performance period) for all directors serving on the Board during the year.
FIGURE 21: VESTING SCHEDULE OF EXECUTIVE DIRECTORS’ OUTSTANDING DISCRETIONARY SHARE AWARDS
Steve Rowe
Eoin Tonge
Performance Share Plan
Performance Share Plan
Restricted Share Plan
Maximum
receivable at
3 April 2021
(all discretionary
schemes)
3,228,450
1,049,538
789,252
2021/22
2022/23
2023/24
Maximum
receivable
Lapsed
Maximum
receivable
Lapsed
Maximum
receivable
Lapsed
– 733,480 1,035,238
–
–
–
526,168
–
–
–
1,459,732
– 1,049,538
263,084
–
–
–
–
As reported on page 98, the 2018 PSP awards included within the totals shown in Figure 21 will vest at 0% in July 2021. This has been
reflected above in the 2021/22 Lapsed column.
100
Marks and Spencer Group plc
EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED
FIGURE 22: PERFORMANCE AND CEO REMUNERATION COMPARISON
This graph illustrates the Company’s performance against the FTSE 100 over the past 10 years. While M&S is not currently a constituent
of the FTSE 100 Index, the Committee feels that it remains the most appropriate comparator. 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 10 financial years.
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
Marks and
Spencer
Group plc (£)
£
200
FTSE 100
Index (£)
Source:
Thomson
Reuters
CEO single
figure
remuneration
(£000)
150
100
50
0
29/03/11
02/04/12
30/03/13
29/03/14
28/03/15
02/04/16
01/04/17
31/03/18
30/03/19
£m
40
35
30
25
20
15
10
5
0
03/04/21
28/03/20
CEO single
figure (£000)
Annual bonus
payment
(% of maximum)
PSP vesting
(% of maximum)
CEO
Steve Rowe
Marc Bolland
Steve Rowe
Marc Bolland
Steve Rowe
Marc Bolland
–
3,324
–
–
2,142
–
34.00%
–
31.96%
42.50%
–
0.00%
–
1,568
–
0.00%
–
7.60%
–
2,095
–
30.55%
–
4.70%
–
2,015
–
31.90%
–
4.80%
1,642
–
36.98%
–
0.00%
–
1,123
–
0.00%
–
8.20%
–
1,517
–
0.00%
–
34.0%
–
1,205
–
0.00%
–
11.20%
–
1,068
–
0.00%
–
0.00%
–
FIGURE 23: PERCENTAGE CHANGE IN DIRECTORS’ REMUNERATION
Steve Rowe
Eoin Tonge
Archie Norman
Andy Halford
Alison Brittain
Andrew Fisher
Katie Bickerstaffe
Pip McCrostie
Justin King
Tamara Ingram
Sapna Sood
UK colleagues (average FTE)
% change 2019/20 - 2020/21
2019/20
Base salary/fees
Benefits
Annual bonus
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-36.8%
–
-74%
0%
0%
-100%
-100%
0%
100%
–
–
0%
–
–
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
–
The table sets out the annual percentage
change in salary, benefits and bonus for
each director compared with that of the
average full-time equivalent total reward
for all UK colleagues.
For non-executive directors, benefits
comprise taxable expense
reimbursements relating to travel,
accommodation and subsistence in
connection with the attendance at Board
and Committee meetings during the
year. The significant change in the taxable
benefits is a result of travel being
impacted by Covid-19 and not a change
in the benefits policy.
FIGURE 24: RELATIVE IMPORTANCE OF SPEND ON PAY
Total colleague pay
Total returns to shareholders
Group PBT before adjusting items
2019/20
£m
1,464.4
191.1
403.1
2020/21
£m
1,437.7
Nil
41.6
% change
-1.82%
-100%
-89.70%
The table opposite illustrates the
Company’s expenditure on pay in
comparison with profits before tax and
distributions to shareholders by way of
dividend payments and share buy-back.
Total colleague pay is the total pay for
all Group colleagues. 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.
101
Annual Report & Financial Statements 2021GOVERNANCE REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED
FIGURE 25: 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
Eoin Tonge
Date of
appointment
02/04/2016
08/06/2020
Notice period
12 months/6 months
12 months/6 months
CHANGES TO EXECUTIVE MEMBERSHIP OF THE BOARD DURING 2020/21
DIRECTORS APPOINTED TO THE BOARD
Eoin Tonge joined the Board on 8 June
2020 as Chief Financial Officer. His basic
annual salary is £600,000. Eoin does not
receive a pension supplement or car
allowance. Eoin has joined the pension
scheme on the same terms as all other
colleagues. Eoin received temporary
short-term travel and accommodation
allowances in the year. In line with the
Company’s recruitment policy, Eoin
received a replacement share award to
compensate him for shares forfeited by
him joining M&S. These shares will vest
broadly in line with the original award time
horizons although some have been
extended by six months. Further details of
Eoin’s award is set out on page 99. The rest
of Eoin’s incentive arrangements are
aligned with that of an executive director.
PAYMENTS FOR THE
LOSS OF OFFICE (audited)
There were no payments made for loss
of office during the period.
PAYMENTS TO PAST
DIRECTORS (audited)
There were no payments made to past
directors during the period.
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. There are currently
no external appointments held
by the executive directors.
FIGURE 26: NON-EXECUTIVE DIRECTORS’ TOTAL SINGLE FIGURE REMUNERATION (AUDITED)
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 2020/21 and 2019/20 are
detailed in the table opposite.
Benefits include expense reimbursements
relating to travel, accommodation and
subsistence in connection with the
attendance at Board and Committee
meetings during the year, which are
deemed by HMRC to be taxable.
The amounts in the table opposite
include the grossed-up cost of UK tax
paid by the Company on behalf of the
non-executive directors. Non-taxable
expense reimbursements have not been
included in the table.
During the year, fees for all non-executive
directors were reviewed. Taking into
account the relevant market data and the
increases for the wider workforce, it was
agreed that the basic non-executive fee
will be increased by 1% to £72,215 with
effect from 1 July 2021. The Board
Chairman was similarly awarded an
increase of 1% with effect from 1 July 2021.
The total aggregate fee for the Board
Chairman will be increased to £618,000.
Fee levels will be reviewed again during 2022/23 as per the normal annual process.
Basic fees
£000
Additional
fees
£000
Benefits
£000
Total
£000
Director
Archie Norman
Andy Halford
Alison Brittain
(to 3 July 2020)
Andrew Fisher
Katie Bickerstaffe
(to 27 April 2020)
Pip McCrostie
(to 24 March 2021)
Justin King
Tamara Ingram
(from 1 June 2020)
Sapna Sood
(from 1 June 2020)
Evelyn Bourke
(from 1 February 2021)
Year
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
2020/21
2019/20
71
71
71
71
18
71
71
71
6
71
71
71
71
71
60
0
60
0
12
0
541
538
31
31
0
0
16
15
0
0
0
0
0
0
5
0
0
0
0
0
5
19
0
0
0
0
0
2
0
3
0
0
1
0
0
0
0
0
0
0
617
628
102
102
18
71
87
88
6
74
71
71
72
71
65
0
60
0
12
0
102
Marks and Spencer Group plc NON-EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED
FIGURE 27: NON-EXECUTIVE DIRECTORS’ SHAREHOLDINGS (AUDITED)
Changes in the current non-executive
directors’ interests in shares in the
Company and its subsidiaries between the
end of the financial year and 25 May 2021
(or upon their date of retiring from the
Board) are shown in the table opposite.
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
upon joining M&S.
The table opposite details the
shareholding of the non-executive
directors who served on the Board during
the year as at 3 April 2021 (or upon their
date of retiring from the Board), including
those held by connected persons.
Director
Archie Norman
Andy Halford
Alison Brittain
Andrew Fisher
Katie Bickerstaffe
Pip McCrostie
Justin King
Tamara Ingram
Sapna Sood
Evelyn Bourke
Fiona Dawson
Number of
shares held
as at 3 April
2021
Number of
shares held
as at 25 May
2021
148,600 No change
25,200 No change
6,115 No change
4,243 No change
24,800 No change
7,200 No change
64,000 No change
2,000
2,000 No change
50,000 No change
12,352
0
0
FIGURE 28: 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
Andrew Fisher
Justin King
Tamara Ingram
Sapna Sood
Evelyn Bourke
Fiona Dawson
NON-EXECUTIVE DIRECTOR CHANGES TO THE BOARD DURING 2020/21
DIRECTORS APPOINTED TO THE BOARD
Evelyn Bourke joined the Board as a
non-executive director on 1 February 2021.
Evelyn receives the standard annual
non-executive director fee of £71,500
(increasing to £72,215 with effect from
1 July 2021) and is a member of the
Nomination and Audit Committee.
Fiona Dawson joined the Board as a
non-executive director on 25 May 2021.
Fiona receives the standard annual
non-executive director fee of £71,500
(increasing to £72,215 with effect from
1 July 2021) and is a member of the
Nomination Committee.
Date of appointment
01/09/2017
01/01/2013
01/12/2015
01/01/2019
01/06/2020
01/06/2020
01/02/2021
25/05/2021
Notice period
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
3 months/3 months
ROLE CHANGES WITHIN THE BOARD
Katie Bickerstaffe stepped down from
the Board at the AGM on 3 July 2020; she
started in her role of Chief Strategy and
Transformation Director on 27 April 2020.
DIRECTORS RETIRING FROM
THE BOARD
Pip McCrostie retired as a non-executive
director and stepped down from the
Board on 24 March 2021. As is required
from a reporting perspective, we can
confirm that there were no payments
made for loss of office to Pip.
103
Annual Report & Financial Statements 2021GOVERNANCE REMUNERATION REPORT CONTINUED
REMUNERATION COMMITTEE
REMUNERATION COMMITTEE REMIT
During the year, the Remuneration Committee reviewed the Terms of Reference ensuring that they reflected the government’s
latest recommendations and the revised principles of the Remuneration Policy, as set out in the UK Corporate Governance Code
2018. In particular the Committee, in its support of the Nomination Committee, expanded its remit to specifically discuss the talent
and succession in the senior leadership group and associated pay arrangements. The Terms of Reference can be found on the
Company’s website at corporate.marksandspencer.com/investors/corporate-governance/governance-framework
KEY RESPONSIBILITIES
The role of the Committee continues to have a
strong focus on ensuring an appropriate
alignment between the remuneration of
executive directors, the Executive Committee
and that of colleagues across M&S, ensuring
that the senior remuneration 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. The responsibilities are
broadly as follows:
– Setting remuneration policy and practices
that are designed to support strategy and
promote the long-term success of M&S
while following the below principles:
· Clarity – remuneration arrangements
are transparent and promote effective
engagement with shareholders and
the workforce.
· Simplicity – remuneration structures are
uncomplicated, and their rationale and
operation are easy to understand.
· Risk – ensure that 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. Outcomes
should not reward poor performance.
· Alignment with culture – incentive
schemes that drive behaviours
consistent with M&S’s purpose, values
and strategy.
– Determining the terms of employment and
remuneration for the executive directors
and the Executive Committee, 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.
– 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 directors
and Executive Committee.
– Receiving direct feedback from BIG, the
Group’s colleague representative body,
colleague voice surveys and management
reports to ensure colleague views on Group
culture, including remuneration strategy
and inclusion and diversity are considered.
REMUNERATION COMMITTEE AGENDA FOR 2020/21
REGULAR ITEMS
Pay arrangements
– Within the terms of the M&S Remuneration
Policy, approval of the remuneration
packages for the executive directors, the
Executive Committee, 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, ensuring principles
for reward allocation are aligned across M&S.
Annual Bonus Scheme
– Review of achievements against 2020/21
performance objectives for executive
directors and the Executive Committee.
– Approval of targets for the 2021/22 Annual
Bonus Scheme ensuring that the
performance conditions are transparent,
stretching and rigorously applied.
– Approval of the 2021/22 individual
performance objectives for executive
directors and the Executive Committee.
EFFECTIVENESS OF THE
REMUNERATION COMMITTEE
The Committee’s performance was reviewed
as part of the 2020/21 externally facilitated
Board Evaluation. The review found that the
Committee functions effectively and ensures
a sound independent review of remuneration
policies across the business.
104
– Noting of the total budgeted expenditure
for the Annual Bonus Scheme across M&S.
Long-term incentives
– Approval of 2021 PSP awards for the
executive directors and the Executive
Committee, following engagement with
key stakeholders.
– Approval of the vesting level of the 2018
PSP awards across M&S.
– Regular review of all in-flight performance
share plans against targets.
– Consideration of long-term share awards
granted to colleagues below Executive
Committee level.
Governance and external market
– Review of the M&S Remuneration Policy,
ensuring that it 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.
– Review the appropriateness of the
senior remuneration framework in the
context of the rest of the organisation
and external governance.
2021/22 ACTION PLAN
– Approval of the Directors’ Remuneration
Report for 2020/21 and review of the AGM
voting outcome for the 2019/20 Report.
– Review of the Committee’s performance
in 2020/21, 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 the Executive Committee.
– Review the effectiveness and transparency
of remuneration reporting.
– Noting of direct feedback from the
Business Involvement Group (BIG), M&S’s
colleague representative body, to ensure
that all employee views are received and
considered by the Board when making
remuneration and reward decisions.
Talent planning
– Noting the performance management
process across the business.
– Discussing senior leadership talent and
succession planning.
– Approve the 2021 PSP targets ensuring
appropriate alignment between driving
exceptional performance and motivating
and retaining top talent.
– Continue to review the pay framework for
senior leaders of the business with those in
the wider workforce to ensure a fairness of
principles in line with M&S’s values.
– Review and discuss the link between ESG,
executive pay and incentives to ensure
appropriate focus on Plan A goals with
strategic and transformational performance.
– Support the work of the Nomination
Committee through the assessment of
senior leadership talent, succession
planning and associated pay arrangements.
Marks and Spencer Group plc FIGURE 29: REMUNERATION COMMITTEE MEETINGS
REMUNERATION COMMITTEE CONTINUED
The table opposite details the
independent non-executive directors
that were members of the Committee
during 2020/21.
Member
since
Maximum
possible
meetings
Number of
meetings
attended
% of
meetings
attended
MEMBER
Andrew Fisher
(Committee Chair)
Archie Norman
Katie Bickerstaffe
(to 27 April 2020)
Tamara Ingram
1 October 2018
3 November 2017
10 July 2018
11 September 2020
8
8
2
5
8
8
2
5
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
£54,000 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, CFO, General
Counsel & Company Secretary and the
Head of Executive Reward & Pay
Governance 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
Aon Hewitt Limited, KPMG, PwC,
FIT Remuneration Consultants,
Korn Ferry 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 Executive Reward & Pay
Governance, the Committee gives
colleagues, through colleague
representatives, the opportunity to raise
questions or concerns regarding the
remuneration of the executive directors.
During the year, colleague representatives
were given the opportunity to raise their
views with the Remuneration Committee
via the BIG chair. 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 described
in the Committee Chair’s letter, dialogue
continued during the year, on the PSP
proposed measures and weightings.
Shareholders were positive in their
feedback and confirmed that the targets
set aligned with their expectations.
SHAREHOLDER SUPPORT FOR THE REMUNERATION POLICY AND 2019/20 DIRECTORS’ REMUNERATION REPORT
At the Annual General Meeting on 3 July
2020, 97.65% of shareholders voted in
favour of approving the Directors’
Remuneration Report for 2019/20.
In addition, 97.14% of shareholders voted
in favour of the Remuneration Policy.
The Committee believes that this
illustrates the strong level of shareholder
support for the senior remuneration
framework. The table below shows full
details of the voting outcomes for the
2019/20 Directors’ Remuneration Report
and Remuneration Policy.
FIGURE 30: VOTING OUTCOMES FOR THE REMUNERATION POLICY AND 2019/20 REMUNERATION REPORT AND
REMUNERATION POLICY AT THE 2020 AGM
Remuneration Policy
2019/20 Remuneration Report
APPROVED BY THE BOARD
Andrew Fisher, Chair of the
Remuneration Committee
London, 25 May 2021
Votes for
1,125,697,134
1,131,776,274
% Votes for
97.14%
97.65%
Votes against
33,187,602
27,184,460
% Votes against
2.86%
2.35%
Votes withheld
942,792
867,638
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.
105
Annual Report & Financial Statements 2021GOVERNANCE 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
3 April 2021 comprises pages 58 to 110 and
pages 210 to 211 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 57, as the
Board considers them to be of strategic
importance. Specifically, these are:
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.
– Future business developments
(throughout the Strategic Report).
– Risk management on page 47.
– Details of branches operated by the
Company on pages 9 to 23.
– Total global M&S greenhouse gas
emissions 2020/21 on page 32.
– Information on how the directors
have had regard for the Company’s
stakeholders, and the effect of that
regard, on pages 34 to 36.
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 164
to 175 and is incorporated by reference.
For information on our approach to
social, environmental and ethical matters,
please see our ESG Committee report on
pages 73 to 76, and refer to our Plan A
website marksandspencer.com/plana.
INFORMATION TO BE DISCLOSED
UNDER LR 9.8.4R
Listing Rule
9.8.4R (1) (2)
(5-14) (A) (B)
9.8.4R (4)
Detail
Not applicable
Long-term
incentive schemes
Page
reference
N/A
85-87,
90-93
and
97-98
BOARD OF DIRECTORS
The membership of the Board and
biographical details of the directors
are provided on pages 62 and 63. Changes
to the directors during the year and up to
the date of this report are set out opposite.
Details of directors’ beneficial and
non-beneficial interests in the shares of
the Company are shown on pages 99, 100
and 103. Options granted to directors
under the Save As You Earn (SAYE) and
Executive Share Option Schemes are
shown on page 100. Further information
regarding employee share option
schemes is provided in note 13 to the
financial statements on pages 153 to 155.
106
Name
Role
Departures
Pip
McCrostie
Alison
Brittain
Katie
Bickerstaffe
Appointments
Eoin
Tonge
Sapna
Sood
Tamara
Ingram
Evelyn
Bourke
Fiona
Dawson
Non-Executive
Director
Non-Executive
Director
Non-Executive
Director
Executive
Director
Non-Executive
Director
Non-Executive
Director
Non-Executive
Director
Non-Executive
Director
Effective date of
departure/
appointment
24 March
2021
3 July 2020
3 July 2020
8 June 2020
1 June 2020
1 June 2020
1 February
2021
25 May 2021
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 Annual General Meeting (“AGM”)
where they will stand for annual election.
Marks and Spencer Group plc 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 Company 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 3 April 2021 and remain in force in
relation to certain losses and liabilities
which the directors (or Company
Secretary) may incur to third parties in the
course of acting as directors or Company
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 3 April 2021 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 (loss)/profit for the financial year,
after taxation, amounts to £(194.4m)
(last year £27.4m). The directors have
declared dividends as follows:
Ordinary shares
No proposed interim dividend
(last year 3.9p per share)
No proposed final dividend
(last year no proposed final
dividend)
No dividend proposed for
2020/21
(last year 3.9p per share)
£m
–
–
–
SHARE CAPITAL
The Company’s issued ordinary share
capital as at 3 April 2021 comprised a
single class of ordinary share. Each share
carries the right to one vote at general
meetings of the Company.
During the financial year, 556 ordinary
shares in the Company were issued
under the terms of the United Kingdom
Employees’ Save As You Earn Share
Option Scheme at a price of 151p.
In addition, during the period, ordinary
shares were issued to satisfy employee
share awards at a price of 25p as follows:
Performance Share Plan
Restricted Share Plan
Deferred Bonus Share Plan
861,888
4,351,339*
1,240,000
* This includes shares issued to satisfy the Company’s
5% Covid-19 award made to colleagues for working
through the pandemic.
Details of movements in the Company’s
issued share capital can be found in
note 24 to the financial statements
on page 177.
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.
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 2020 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 3 April 2021 and up to the
date of this report.
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 3 April 2021, 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
Citadel LLC and its group
Blackrock, Inc.
% of capital
Voting rights
90,153,730
disclosed Nature of holding as per disclosure
5.549* Indirect interest (5.547%),
CFD (0.001%)
97,679,549 5.00052** Equity swap
112,631,280
5.74 Indirect interest (5.08%),
RWC Asset
Management LLP
Norges Bank
104,965,660
78,149,847
securities lending (0.43%),
CFD (0.23%)
5.38 Indirect interest
3.99 Direct interest (3.98%),
securities lending (0.1%)
* Disclosures made prior to the 2019 rights issue.
** Disclosed on 15 September 2020. A further disclosure was made on 15 September notifying the Company
that Citadel’s holding had decreased below the 5% notifiable threshold, which did not state the new position.
In the period from 3 April 2021 to the date of this report, we received four further
notifications in accordance with DTR 5 from Blackrock Inc., the most recent of
which was on 24 May 2021, disclosing a holding of 107,746,080 ordinary shares
(5.49%, broken down as follows: Indirect 5.01%; Securities lending, 0.39%; and
CFD, 0.09%).
107
Annual Report & Financial Statements 2021GOVERNANCE OTHER DISCLOSURES CONTINUED
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 $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.
– The amended and restated Relationship
Agreement dated 6 October 2014
(originally dated 9 November 2004 as
amended on 1 March 2005), between
HSBC and the Company and relating to
M&S Bank, contains certain provisions
which address a change of control of
the Company. Upon a change of control,
the existing rights and obligations of
the parties in respect of M&S Bank
continue and HSBC gains certain limited
additional rights in respect of existing
customers of the new controller of
the Company. Where a third-party
arrangement is in place for the supply of
financial services products to existing
customers of the new controller, the
Company is required to procure the
termination of such arrangement as
soon as practicable (while not being
required to do anything that would
breach such a third-party arrangement).
– Where a third-party arrangement is
so terminated, or does not exist, HSBC
has the exclusive right to negotiate
proposed terms for the offer and sale,
of financial services products to the
existing customers of the new controller
by HSBC on an exclusive basis.
– Where the Company undertakes a
re-branding exercise with the new
controller following a change of control
(which includes using any M&S brand in
respect of the new controller’s business
or vice versa), HSBC may, depending on
the nature of the re-branding exercise,
have the right (exercisable at HSBC’s
election) to terminate the Relationship
Agreement. The Company does not
have agreements with any director
or employee that would provide
compensation for loss of office or
employment resulting from a takeover
except that provisions of the Company’s
share schemes and plans may cause
options and awards granted to
employees under such schemes
and plans to vest on a takeover.
COLLEAGUE INVOLVEMENT
We remain committed to colleague
involvement throughout the business.
Colleagues are kept well informed
of the performance and strategy of
the Group. Examples of colleague
involvement and engagement, and
information on our approach to our
workforce, are highlighted throughout
this Annual Report and specifically on
pages 26 to 29, 34 to 36 and 66 to 69.
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. As at 3 April 2021, 15,738 colleagues
were participating in ShareSave, the
Company’s Save As You Earn Scheme.
Full details of all schemes are given on
pages 153 to 155.
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.
This standard authority is renewable
annually; the directors will seek to renew
this authority at the 2021 AGM.
The directors were granted authority
at the 2020 AGM to allot relevant
securities up to a nominal amount of
£162,504,984. This authority will apply
until the conclusion of the 2021 AGM. At
this year’s AGM, depending on the voting
outcome of resolutions 15, 16 and 22, which
have the effect of reducing the nominal
value of the Company’s ordinary shares
from £0.25 to £0.01, shareholders will be
asked to grant an authority to allot
relevant securities (i) up to a nominal
amount of (a) £163,043,966 (if resolution 15
is not passed) or (b) £6,521,758.64 (if
resolution 15 is passed) and (ii) comprising
equity securities up to a nominal amount
of (a) £326,087,932.25 (if resolution 15 is not
passed) or (b) £13,043,517.29 (if resolution
15 is passed) (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 2022
or, if earlier, on 1 October 2022.
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
(i) £24,456,595 (if resolution 15 is not
passed) or (ii) £978,263.80 (if resolution 15
is passed). 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 further
nominal amount of (i) £24,456,595
(if resolution 15 is not passed) or (ii)
£978,263.80 (if resolution 15 is passed).
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 195,652,759
ordinary shares and sets the minimum
and maximum prices which will be paid.
108
Marks and Spencer Group plc EQUAL OPPORTUNITIES
RESEARCH & DEVELOPMENT
GOING CONCERN
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 29 March 2020 to 3 April 2021
to the Audit Committee on 12 May 2021.
It was approved on 20 May 2021.
In accordance with the Order, a summary
of that compliance report is set out below.
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 four 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 three of
them have been resolved or closed. One
additional Code reference made by a
supplier before 29 March 2020 was also
resolved during the reporting period.
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
3 April 2021. 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.
In adopting the going concern basis for
preparing the financial statements, the
directors have considered the business
activities as set out on pages 10 to 25
as well as the Group’s principal risks and
uncertainties as set out on pages 48
to 56, including the downside sensitivities
outlined on page 57.
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 2024. 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 page 57.
AUDITOR
Resolutions to reappoint Deloitte LLP as
auditor of the Company and to authorise
the Audit Committee to determine its
remuneration will be proposed at the
2021 AGM.
ANNUAL GENERAL MEETING
The AGM of Marks and Spencer Group
plc will be broadcast online from
M&S’ Waterside House support centre
on 6 July 2021 at 11am. Shareholders
are advised not to travel to the venue on
the day. The Notice of Meeting is given,
together with explanatory notes and
guidance on how to access the meeting
and vote electronically, on pages 196
to 209.
The Group is committed to an active
inclusion, diversity and 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, gender identity or faith.
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 inclusion and diversity are valued.
M&S has a business-wide inclusion and
diversity strategy, which is led by the
Inclusion Activation Group and chaired by
a member of the Executive Committee.
Our seven employee-led diversity
networks are supported by a central
Inclusion and Diversity team, who work to
embed a culture of inclusion across the
organisation. In 2017, our inclusion and
diversity targets were agreed as: aiming to
have 50% female representation and 15%
ethnic minority representation on the
M&S senior management team by 2022.
Further information on our inclusion and
diversity initiatives can be found on pages
27 to 29, and page 65.
EMPLOYEES WITH DISABILITIES
The Company is clear in its policy that
people with health conditions, both
visible and non-visible, should have
full and fair consideration for all vacancies.
M&S has continued to demonstrate
its commitment to interviewing those
applicants 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, working
closely with The Prince’s Trust and
Jobcentre Plus, most recently via the
Kickstart programme.
109
Annual Report & Financial Statements 2021GOVERNANCE 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 25 May 2021 and signed
on its behalf by
Nick Folland, General Counsel
and Company Secretary
London, 25 May 2021
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 79.
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 are required to prepare the
group financial statements in accordance
with international accounting standards in
conformity with the requirements of the
Companies Act 2006 and International
Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union. 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.
OTHER DISCLOSURES CONTINUED
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
company’s transactions and disclose with
reasonable accuracy at any time the
financial position of the company and
enable them to ensure that the financial
statements comply with the Companies
Act 2006. They are also responsible for
safeguarding the assets of the company
and hence for taking reasonable steps for
the prevention and detection of fraud
and other irregularities. 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
62 and 63, 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.
110
Marks and Spencer Group plc INDEPENDENT
AUDITOR’S REPORT
TO THE MEMBERS OF MARKS AND SPENCER GROUP PLC
Report on the audit of the financial statements
1. OPINION
– the financial statements have been
prepared in accordance with the
requirements of the Companies
Act 2006.
We have audited the financial statements
which comprise:
– the Consolidated Income Statement;
– the Consolidated Statement of
Comprehensive Income;
– the Consolidated and Company
Statement of Financial Position;
– the Consolidated and Company
Statements of Changes in Equity;
– the Consolidated and Company
Statement of Cash Flows; and
– the related notes 1 to 31 and C1 to C7.
In our opinion:
– the financial statements of Marks and
Spencer Group plc (the ‘Company’)
and its subsidiaries (the ‘Group’) give
a true and fair view of the state of the
Group’s and of the Company’s affairs
as at 3 April 2021 and of the Group’s
loss for 53 weeks then ended;
– the Group financial statements have
been properly prepared in accordance
with international accounting
standards in conformity with the
requirements of the Companies Act
2006 and International Financial
Reporting Standards (‘IFRSs’) as
adopted by the European Union;
– the Company financial statements
have been properly prepared in
accordance with international
accounting standards in conformity
with the requirements of the
Companies Act 2006; and
The financial reporting framework that
has been applied in the preparation of the
Group financial statements is applicable
law and international accounting
standards in conformity with the
requirements of the Companies Act 2006
and IFRSs as adopted by the European
Union. The financial reporting framework
that has been applied in the preparation
of the Company financial statements
is applicable law and international
accounting standards in conformity
with the requirements of the Companies
Act 2006.
2. 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
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. The non-audit services
provided to the Group and Company for
the period are disclosed in note 4 to the
Group financial statements. We confirm
that the non-audit services prohibited
by the FRC’s Ethical Standard were not
provided to the Group or the Company.
We believe that the audit evidence
we have obtained is sufficient and
appropriate to provide a basis for
our opinion.
111
Annual Report & Financial Statements 2021GOVERNANCE INDEPENDENT AUDITOR’S REPORT CONTINUED
3. SUMMARY OF OUR AUDIT APPROACH
SIGNIFICANT CHANGES IN
OUR APPROACH
We have determined that the recognition
of lease balances under IFRS 16 Leases
and the accounting for the Ocado Retail
Limited transaction are no longer key
audit matters in the current period.
These changes are discussed further
in section 5.
KEY AUDIT MATTERS
MATERIALITY
The key audit matters that we identified
in the current period were:
– accounting for the UK store estate
programme;
– impairment of UK store assets;
– impairment of per una goodwill;
– inventory provisions for UK Clothing
& Home;
– disclosure of adjusting items as part
of alternative performance measures;
and
– the going concern basis of accounting.
Within this report, key audit matters are
identified as follows:
Increased level of risk
Similar level of risk
Decreased level of risk
The materiality that we used for the
Group financial statements was £16.0m
(2020: £18.0m) which was determined on
the basis of considering a number of
different metrics used by investors and
other readers of the financial statements.
These included:
– adjusted profit before tax;
– earnings before interest, tax,
depreciation and amortisation; and
– revenue.
SCOPING
We have performed a full-scope audit
on the UK component of the business,
representing 96% (2020: 95%) of the
Group’s revenue, 95% (2020: 93%) of
adjusted profit before tax, 93% (2020: 92%
of profit before tax) of loss before tax,
80% (2020: 82%) of total assets and 88%
(2020: 90%) of total liabilities. We perform
analytical review procedures on the
residual balances.
4. CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements,
we have concluded that the directors’ use
of the going concern basis of accounting
in the preparation of the financial
statements is appropriate.
Our evaluation of the directors’
assessment of the Group’s and Company’s
ability to continue to adopt the going
concern basis of accounting is discussed
in section 5.6.
Based on the work we have performed,
we have not identified any material
uncertainties relating to events or
conditions that, individually or collectively,
may cast significant doubt on the Group’s
and Company’s ability to continue as a
going concern for a period of at least
twelve months from when the financial
statements are authorised for issue.
In relation to the reporting on how the
Group has applied the UK Corporate
Governance Code, we have nothing
material to add or draw attention to in
relation to the directors’ statement in
the financial statements about whether
the directors considered it appropriate
to adopt the going concern basis of
accounting.
Our responsibilities and the
responsibilities of the directors with
respect to going concern are described
in the relevant sections of this report.
Key audit matters are those matters that,
in our professional judgement, were of
most significance in our audit of the
financial statements of the current period
and include the most significant assessed
risks of material misstatement (whether
or not due to fraud) that we identified.
These matters included those which had
the greatest effect on: the overall audit
strategy, the allocation of resources in
the audit; and directing the efforts of
the engagement team.
These matters were addressed in the
context of our audit of the financial
statements as a whole, and in forming our
opinion thereon, and we do not provide a
separate opinion on these matters.
5. KEY AUDIT MATTERS
Changes in the current period relative to
prior periods are as follows:
– We have not identified the recognition
of lease balances under IFRS 16 Leases
as a key audit matter in the current
period. The adoption of IFRS 16 in the
prior period was significant for the
Group as leased stores form a
significant proportion of the estate
and the application and judgements
made in transitioning to IFRS 16 were
significant. This is the second period
in which IFRS 16 is applied and the level
of complexity and judgement required
has reduced, accordingly we have not
identified this as a key audit matter.
– We have not identified the accounting
for the Ocado Retail Limited (“ORL”)
transaction as a key audit matter in the
current period. The ORL transaction
completed in the prior period and
accordingly there is a reduced audit
effort required and a number of
judgments and estimates, such as
the initial assessment of control and
the identification and valuation of
intangible assets, no longer apply.
112
Marks and Spencer Group plc 5.1 ACCOUNTING FOR THE UK STORE ESTATE PROGRAMME
KEY AUDIT MATTER DESCRIPTION
In February 2018, the Board approved a
list of stores marked for closure as part of
its UK store estate programme. The total
charge recognised in connection with this
closure programme in previous periods
was £562.3 million. A further net charge
of £95.3 million has been recognised in
the current period as a result of:
– accelerating rotation of the store
estate, with an increase in the number
of stores assessed as probable 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 information is set out in notes 1
and 5 to the financial statements and
page 24 of the strategic report.
– depreciation of store assets where
previously identified for closure 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.
Our key audit matter was focused on the
specific assumptions applied in the
discounted cash flow analysis prepared
by management including the discount
rate, expected sublet income, sublet
lease incentives, void periods, freehold
sales proceeds and store closure costs.
The Audit Committee considers this to be
a significant matter. Their consideration is
on page 80.
Key observations
We are satisfied that the Group’s estimate
of the impairments and store exit charges
and the associated disclosures are
appropriate.
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:
– obtained an understanding of relevant
– assessed the mechanical accuracy of
controls relating 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 management’s judgement where
stores previously marked for closure
are no longer expected to close and
additional stores have been identified
for closure;
– with the involvement of our internal
real estate specialists, we evaluated the
appropriateness of management’s
judgements for a representative
sample of properties and
benchmarked with reference to
external data;
discounted cash flow models and other
key provision calculations;
– assessed the integrity of key inputs
to the discounted cash flow models
including the discount rate, expected
sublet income, sublet lease incentives,
void periods, freehold sales proceeds
and store closure costs with reference
to supporting evidence;
– recalculated the closing provision for
a representative sample of stores;
– 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 IFRS.
113
Annual Report & Financial Statements 2021GOVERNANCE
INDEPENDENT AUDITOR’S REPORT CONTINUED
KEY AUDIT MATTERS CONTINUED
5.2 IMPAIRMENT OF UK STORE ASSETS
KEY AUDIT MATTER DESCRIPTION
As at 3 April 2021 the Group held £3,594.0
million (2020: £3,926.0 million) of UK
store assets in respect of stores not
considered for closure within the UK store
estate programme. In accordance with
IAS 36 Impairment of Assets, the Group
has undertaken an annual assessment of
indicators of impairment. An impairment
charge of £66.4 million (2020: £69.3
million) and the reversal of previously
recognised impairment charges of £64.5
million for the UK store assets have been
recognised within adjusting items as set
out in notes 5 and 15 to the financial
statements.
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 (which takes into account the time
new stores take to establish themselves
in the market), all of which involve a high
degree of estimation uncertainty (as
disclosed in note 1 and note 15). The level
of risk related to the impairment of UK
store assets has decreased relative to the
prior period as a result of some reduction
in the level of uncertainty in forecasting
future cash flows.
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’) and is assessed for
impairment separately, 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 be a single group
of assets for the purpose of impairment
testing.
The Audit Committee considers this to be
a significant matter. Their consideration is
on page 80.
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:
Key observations
We are satisfied that the judgements
applied, impairments and impairment
reversals recorded and disclosures within
the financial statements are appropriate.
– obtained an understanding of relevant
controls relating to the impairment
review process;
– evaluated and challenged
management’s range of impairment
indicators with due consideration given
to the profitability impact of
committed strategic changes to the UK
Clothing & Home and Food businesses
and the performance of new stores;
– assessed the mechanical accuracy of
the impairment models and the
methodology applied by management
for consistency with the requirements
of IAS 36;
– assessed the appropriateness of
forecast revenue and gross margin
growth rates through comparison with
external economic benchmarking data
and with reference to historical
forecasting accuracy;
– assessed the appropriateness of the
discount rates applied with the
involvement of 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 model 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 IFRS.
114
Marks and Spencer Group plc KEY AUDIT MATTERS CONTINUED
5.3 IMPAIRMENT OF PER UNA GOODWILL
KEY AUDIT MATTER DESCRIPTION
As at 3 April 2021 the Group held £16.5
million (2020: £56.1 million) of goodwill
associated with per una. The Group is
required to assess the goodwill and
intangible assets annually for impairment
in accordance with IAS 36. These
represent a key source of estimation
uncertainty as disclosed in note 1, and
management has provided sensitivities
in note 14.
The test for impairment of intangible
assets compares the carrying value of
related assets to the higher of their fair
value or value-in-use (a ‘recoverable
amount’) using an impairment model.
Developing a recoverable amount
requires significant management
judgement; the key judgements applied
by management in the development of
its impairment model are:
– the revenue and gross margin growth
rates;
– longer term growth forecasts; and
– the discount rate used.
Following the completion of the
impairment review, management has
recognised an impairment charge of
£39.6 million (2020: £13.4 million) in
relation to the per una goodwill.
We consider this to represent a key audit
matter reflecting the sensitivity of the
recoverable amount calculation to
changes in these key assumptions.
Refer to note 14 of the financial
statements.
The Audit Committee considers this to be
a significant matter. Their consideration is
on page 80.
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:
Key observations
We are satisfied that the assumptions
used by management in determining
their valuation and the disclosure made
are appropriate.
– obtained an understanding of relevant
– assessed the appropriateness of the
controls relating to the review and
approval of the impairment review;
– assessed the appropriateness of
forecast revenue and gross margin
growth rates through comparison with
external economic benchmarking data
to determine if it provided
corroborative or contradictory
evidence in relation to management’s
assumptions, and with reference to
historical forecasting accuracy;
– assessed the mechanical accuracy of
the impairment models and the
methodology applied by management
for consistency with the requirements
of IAS 36;
discount rates applied with the
involvement of our internal valuations
specialists and compared the rates
applied with our internal
benchmarking data;
– evaluated other material assumptions
applied to the cash flow forecasts with
reference to the macro-economic and
industry environment; and
– assessed the completeness and
accuracy of disclosures within the
financial statements in accordance
with IFRS.
115
Annual Report & Financial Statements 2021GOVERNANCE INDEPENDENT AUDITOR’S REPORT CONTINUED
5.4 INVENTORY PROVISIONS FOR UK CLOTHING & HOME
KEY AUDIT MATTERS CONTINUED
KEY AUDIT MATTER DESCRIPTION
As at 3 April 2021, the Group held UK
Clothing & Home inventories of £430.6
million (2020: £355.4 million), inclusive
of a provision of £78.2 million (2020:
£184.3 million).
In 2020 the Group recognised an
inventory write-down of £157.0 million
(of which £145.3 million related to UK
Clothing & Home inventory) which was
included within the Group’s directly
attributable gains/(expenses) resulting
from the Covid-19 pandemic adjusting
item.
In 2021 a net reversal of the inventory
impairment of £90.8 million (£101.6
million relating to UK Clothing & Home
inventory) has been recorded within the
same adjusting item as disclosed in
note 5.
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 due to historical trading
performance and the quantum of gross
inventory.
Whilst it remains a significant judgement,
the level of risk associated with inventory
provision has reduced in the period as a
result of a reduction in the uncertainty
associated with forecasting future sales.
Management has determined the level
of provision with reference to forecast
future sales and purchases, utilising
available data from the past period on
the saleability of stock in the current
environment. Management has
described its methodology for the
calculation of the inventory provision
in notes 1 and 5.
The Audit Committee considers this to be
a significant matter. Their consideration is
on page 80.
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:
– obtained an understanding of relevant
– challenged and validated the key
controls relating to inventory
management and the review and
approval of the inventory provision;
– assessed the validity, accuracy and
completeness of the information used
by management in computing the
provision;
– assessed the mechanical accuracy and
logic of the models underpinning the
provision;
– understood the changes in the
provisioning methodology and
challenged the appropriateness
thereof;
assumptions applied by management
in estimating the provision, by
performing enquiries of buyers and
merchandisers, considering the current
purchasing strategy and ranging plans,
assessed the historical accuracy of
forecasting stock to be subject to a
future discount;
– tested the accuracy of the process
used by management to identify
potentially impaired inventory across
a representative sample of individual
product lines; and
– assessed the completeness and
accuracy of disclosures within the
financial statements in accordance
with IFRS.
Key observations
We are satisfied with the judgements
taken by management and that the
resulting inventory provision for UK
Clothing & Home is appropriate. We
believe the disclosures made around the
level of uncertainty appropriately reflect
reasonably possible future changes to
management’s estimates.
116
Marks and Spencer Group plc 5.5 DISCLOSURE OF ADJUSTING ITEMS AS PART OF ALTERNATIVE PERFORMANCE MEASURES
KEY AUDIT MATTERS CONTINUED
KEY AUDIT MATTER DESCRIPTION
The Group has presented an alternative
performance measure being adjusted
profit before tax of £50.3 million (2020:
£403.1 million), which is derived from
statutory loss before tax of £209.4 million
(2020: profit before tax of £67.2 million)
adjusted for a number of items (totalling
£259.7 million (2020: £335.9 million))
which the Group considers meet
their definition of an ‘adjusting item’.
Judgement is exercised by management
in determining the classification of such
items and accordingly we consider there
to be a risk of fraud in the reporting of
adjusting items within the alternative
performance measures.
Guidance has been issued by the FRC
and European Securities and Markets
Authority (‘ESMA’) during the period in
relation to the impact of Covid-19 on
alternative performance measures which
encourages companies not to include
such costs within adjusting items, rather
to include separate disclosure.
Explanations of each adjusting item
are set out in note 5 to the financial
statements and are summarised in the
graphic to the right:
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In determining adjusted profit before tax,
we identified the following risks:
– the identification and classification
of items as ‘adjusting’ as part of
the presentation of alternative
performance measures may
be inappropriate, distorting the
reported results;
– the omission of items which are
considered material, one-off or
significant in nature, distorting the
alternative performance measures;
and
– the clarity and detail of disclosures in
respect of adjusting items as part of
alternative performance measures
may be insufficient, preventing
investors from obtaining a clear
understanding of the Group’s results
and performance.
The Group’s policy regarding adjusting
items is set out in note 1. This is a
significant matter considered by the
Audit Committee on page 80.
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:
Key observations
We are satisfied that the items included
in adjusting items within the alternative
performance measures (including the
directly attributable gains/(expenses)
resulting from the Covid-19 pandemic of
£90.8 million) are in line with the Group’s
policy and that they are appropriately
disclosed.
– obtained an understanding of relevant
controls, relating to the identification
and disclosure of adjusting items within
alternative performance measures;
– 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 period on period with
reference to guidance published
by ESMA and the FRC specifically
considering the treatment of directly
attributable gains/(expenses) resulting
from the Covid-19 pandemic;
– 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 display characteristics of being
material, significant or one-off in
nature;
– considered the impact of adjusting
items on the directors’ remuneration
targets to determine whether any
increased fraud risk factor existed
based on actual results for the period;
and
– assessed the completeness and
accuracy of disclosures within the
financial statements in accordance
with IFRSs.
117
Annual Report & Financial Statements 2021GOVERNANCE
INDEPENDENT AUDITOR’S REPORT CONTINUED
5.6 THE GOING CONCERN BASIS OF ACCOUNTING
KEY AUDIT MATTERS CONTINUED
KEY AUDIT MATTER DESCRIPTION
In undertaking their assessment of going
concern for the Group, which is
supported by the cash flows of the
Group, the Directors reviewed the
forecast future performance and
anticipated cash flows. In doing so they
considered the financing available to the
Group and associated debt covenants,
including the covenant relaxation that
the Group has obtained in relation to
its financing facility, and cost saving
actions that the Group have taken in their
response to the Covid-19 pandemic
including certain Government support
schemes (including the furlough scheme
and business rates holidays). The
Directors have also determined
appropriate sensitivities to these
forecasts and considered the results
in forming their conclusion.
Whilst there continues to be a high level
of judgement as a result of the current
challenges in the retail property market
and the increasing move towards online
retail as well as the longer-term wider
economic impact of Covid-19, the level of
risk associated with the going concern
conclusion has reduced as a result of a
reduction in the uncertainty associated
with forecasting future cash flows.
Taking into account the sensitivity
analyses performed by management the
Directors have concluded that the Group
has sufficient resources available to meet
its liabilities as they fall due and have
concluded that there are no material
uncertainties around the going concern
assumptions.
Further details of the Directors’
assessment, including the sensitivities
applied, are included within the Strategic
Report on pages 57 and 109 and in note 1
to the financial statements.
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:
Key observations
We are satisfied that the Directors’
conclusion that there are no material
uncertainties over the Group and
Company’s ability to continue as a
going concern is appropriate and the
associated disclosures are in accordance
with the accounting standards.
· testing the underlying data
generated to prepare the forecast
scenarios and determined whether
there was adequate support for the
assumptions underlying the
forecast;
· reviewing correspondence
confirming UK Government support
such as indirect tax holidays and
staff furlough;
· reviewing correspondence relating
to the availability of the Group’s
financing arrangements, including
the covenant relaxation obtained by
the Group in relation to its financing
facility;
· understanding and challenging the
level of further mitigations available
to the Group beyond those included
within the forecast; and
· considering the results of the
sensitivity analyses performed; and
– evaluated the Group’s disclosures on
going concern against the
requirements of IAS 1.
– obtained an understanding of relevant
controls relating to the assessment of
going concern models, including the
review of the inputs and assumptions
used in those models;
– obtained management’s board
approved three-year cash flow
forecasts and covenant compliance
forecasts, including the sensitivity
analyses;
– assessed the appropriateness of
forecast assumptions by:
· reading analyst reports, industry
data and other external information
and comparing these with
management’s estimates to
determine if they provided
corroborative or contradictory
evidence in relation to
management’s assumptions;
· comparing forecast sales with recent
historical financial information to
consider accuracy of forecasting;
· enquiring of management regarding
the mitigating actions to reduce
costs and manage cash flows and
challenging the quantum of those
actions with reference to supporting
evidence and assessing whether the
mitigating actions were within the
Group’s control;
118
Marks and Spencer Group plc 6.1 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:
6. OUR APPLICATION OF MATERIALITY
Materiality
Basis for
determining
materiality
Group financial statements
£16.0 million (2020: £18.0 million)
We considered the following metrics in the current
and prior period:
– Adjusted profit before tax
– Earnings before interest, tax, depreciation and
amortisation (‘EBITDA’)
– Revenue
Using professional judgement we determined
materiality to be £16.0m.
In determining our benchmark for materiality
we considered a number of different metrics
used by investors and other readers of the
financial statements.
Rationale
for the
benchmark
applied
Group materiality represents:
Metric
Adjusted profit before tax
EBITDA
Revenue
%
31.8
2.8
0.2
Company financial
statements
£14.4 million
(2020: £16.2 million)
3% of net assets.
We have used 3% of
net assets in both the
current and prior
periods, capped at
90% of Group
materiality, as the
basis for materiality.
Net assets is used as
the benchmark as the
Company operates
primarily as a holding
company for the
Group and we
therefore consider
this as the key metric
for the Company.
We capped materiality
at 90% of Group
materiality to reduce
the risk of a material
error arising as a
result of the
consolidation of the
Company’s result in
the Group financial
statements.
Company financial
statements
60% (2020: 50%) of
Company materiality
6.2 PERFORMANCE MATERIALITY
We set performance materiality at a level
lower than materiality to reduce the
probability that, in aggregate, uncorrected
and undetected misstatements exceed
the materiality for the financial
statements as a whole.
Performance
materiality
Basis and
rationale for
determining
performance
materiality
Group financial statements
60% (2020: 50%) of Group materiality
In determining performance materiality, we considered the following
factors:
– our cumulative knowledge of the Group and its environment, including
industry wide pressure on retailers;
– the level of change to the business in the period;
– the changes to management personnel;
– the level of centralisation in the Group’s financial reporting controls
and processes; and
– the level of misstatements identified in prior periods.
We have increased the performance materiality used as a percentage of
Group materiality, primarily due to the reduction in risk during this period
associated with the impact of Covid-19 on the Group’s internal control
environment and the financial close process compared with the prior
period.
6.3 ERROR REPORTING THRESHOLD
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.8 million (2020:
£0.9 million), 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.
119
Annual Report & Financial Statements 2021GOVERNANCE INDEPENDENT AUDITOR’S REPORT CONTINUED
7. AN OVERVIEW OF THE SCOPE OF OUR AUDIT
7.1 IDENTIFICATION AND SCOPING
OF COMPONENTS
Our 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.
Components were selected to provide an
appropriate basis for undertaking audit
work to address the risks of material
misstatement identified. Based on our
assessment we have focused our audit on
the UK business which was subject to full
audit procedures. We have performed our
full audit scope of the UK component
using a materiality of £15.2 million (or 95%
of Group materiality) (2020: £16.2 million)
as this makes up substantially all of the
Group’s operations (96% of the Group’s
revenue, 2020: 95%).
The Group holds 50% of the ordinary
shares of ORL, and this interest is
accounted for as an investment in
associate in accordance with IAS 28 on the
basis that the shareholders’ agreement
gives control over ORL to Ocado Group
plc. In the current period the Group
recorded a share of profit of associate
from ORL of £64.2 million and is subject to
specified audit procedures.
We have also tested the consolidation
process and carried out analytical
procedures in forming our conclusion
that there were no significant risks of
material misstatement remaining in
the consolidated financial information
arising from the components not subject
to a full audit.
4%
5%
96%
95%
Revenue
7%
Adjusted profit
before tax
20%
93%
80%
Total assets
Loss
before tax
12%
Full audit scope
Review at Group level
88%
Total liabilities
7.2 OUR CONSIDERATION OF THE
CONTROL ENVIRONMENT
Our audit strategy is to rely on controls
over certain processes within a number
of business cycles. These included
procurement within UK Clothing & Home
and Food, inventory, treasury and fixed
assets including IFRS 16 Leases. As part
of our controls testing, we obtained an
understanding of the Group’s processes
and tested controls through a
combination of tests of inquiry,
8. OTHER INFORMATION
observation, inspection and re-
performance.
On certain business cycles, we obtained
an understanding of, but did not rely on,
controls. These included inventory
provisions, food rebates and financial
close and reporting.
Given the importance of information
technology (“IT”) to the recording of
financial information and transactions, we
have tested General IT controls relating to
certain of the Group’s IT systems where
relevant to our audit work. We have been
able to place IT controls reliance across
these systems to support the audit over
a number of business cycles, such as
payables.
7.3 WORKING WITH OTHER AUDITORS
ORL is the only component of the Group
where work is conducted by a Deloitte
component auditor. We have issued
detailed instructions to the component
audit team to perform specified audit
procedures. Due to the non-co-terminus
year-end of ORL, we have performed a
review of the component auditor’s files
for the period ended 29 November 2020
and the reporting received from the
component auditor for the period
subsequent to 29 November 2020.
We have engaged regularly with the
component auditor throughout the audit
process, determining the nature, timing
and extent of the specified audit
procedures to be performed and to 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 other information comprises the
information included in the annual report,
other than the financial statements and
our auditor’s report thereon. The directors
are responsible for the other information
contained within the annual report.
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.
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 course of the audit, or otherwise
appears to be materially misstated.
If we identify such material inconsistencies
or apparent material misstatements, we
are required to determine whether this
gives rise to a material misstatement in
the financial statements themselves. 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.
We have nothing to report in this regard.
9. RESPONSIBILITIES OF DIRECTORS
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 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
Company or to cease operations, or have
no realistic alternative but to do so.
120
Marks and Spencer Group plc 10. 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.
11. EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF
DETECTING IRREGULARITIES, INCLUDING FRAUD
– the matters discussed among the audit
engagement team and relevant internal
specialists, including tax, valuations,
pensions, IT and industry specialists
regarding how and where fraud might
occur in the financial statements and
any potential indicators of fraud.
As a result of these procedures, we
considered the opportunities and
incentives that may exist within the
organisation for fraud and identified the
greatest potential for fraud in the areas in
which management is required to exercise
significant judgment, such as disclosure of
adjusting items. In common with all audits
under ISAs (UK), we are also required to
perform specific procedures to respond to
the risk of management override.
We also obtained an understanding of the
legal and regulatory framework that the
Group operates in, focusing on provisions
of those laws and regulations that had a
direct effect on the determination of
material amounts and disclosures in
the financial statements. The key laws
and regulations we considered in this
context included UK Companies Act,
Financial Conduct Authority regulations
including the Listing Rules, pensions and
tax legislation.
In addition, we considered provisions of
other laws and regulations that do not
have a direct effect on the financial
statements but compliance with which
may be fundamental to the Group’s ability
to operate or to avoid a material penalty.
These included the competition and
anti-bribery laws, data protection,
Groceries Supply Code of Practice,
and employment, environmental and
health and safety regulations.
Irregularities, including fraud, are
instances of non-compliance with laws
and regulations. We design procedures in
line with our responsibilities, outlined
above, to detect material misstatements
in respect of irregularities, including fraud.
The extent to which our procedures are
capable of detecting irregularities,
including fraud is detailed below.
11.1 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, we considered the following:
– the nature of the industry and sector,
control environment and business
performance including the design of
the Group’s remuneration policies, key
drivers for directors’ remuneration,
bonus levels and performance targets;
– the Group’s own assessment of the
risks that irregularities may occur either
as a result of fraud or error that was
approved by the board;
– results of our enquiries of management,
internal audit and the Audit Committee
about their own identification and
assessment of the risks of irregularities;
– any matters we identified having
obtained and reviewed the Group’s
documentation of their policies and
procedures relating to:
·
identifying, evaluating and complying
with laws and regulations and
whether they were aware of any
instances of non-compliance;
· 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 of fraud or
non-compliance with laws and
regulations; and
11.2 AUDIT RESPONSE TO
RISKS IDENTIFIED
As a result of performing the above, we
identified the disclosure of adjusting items
as a key audit matter related to the
potential risk of fraud. The key audit
matters section of our report explains the
matters 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 provisions of relevant laws and
regulations described as having a direct
effect on the financial statements;
– enquiring of management, the Audit
Committee and in-house 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
remained alert to any indications of
fraud or non-compliance with laws and
regulations throughout the audit.
121
Annual Report & Financial Statements 2021GOVERNANCE INDEPENDENT AUDITOR’S REPORT CONTINUED
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
– the board’s confirmation that it has
carried out a robust assessment of the
emerging and principal risks set out on
page 110;
– the section of the annual report that
describes the review of effectiveness of
risk management and internal control
systems set out on pages 47 to 57; and
– the section describing the work of the
audit committee set out on pages 77
to 83.
14. MATTERS ON WHICH WE ARE
REQUIRED TO REPORT BY EXCEPTION
14.1 Adequacy of explanations received
and accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
– we have not received all the information
and explanations we require for our
audit; or
– adequate accounting records have not
been kept by the Company, or returns
adequate for our audit have not been
received from branches not visited by
us; or
– the Company financial statements are
not in agreement with the accounting
records and returns.
We have nothing to report in respect
of these matters.
14.2 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.
15. OTHER MATTERS WHICH WE ARE
REQUIRED TO ADDRESS
15.1 Auditor tenure
Following the recommendation of the
Audit Committee, we were appointed by
the shareholders on 8 July 2014 to audit
the financial statements for the period
ending 28 March 2015 and subsequent
financial periods. The period of total
uninterrupted engagement including
previous renewals and reappointments of
the firm is 7 periods, covering the periods
ending 28 March 2015 to 3 April 2021.
15.2 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).
16. 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.
Richard Muschamp FCA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London
25 May 2021
12. 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 period 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
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.
13. CORPORATE GOVERNANCE
STATEMENT
The Listing Rules require us to review the
directors’ statement in relation to going
concern, longer-term viability and that
part of the Corporate Governance
Statement relating to the Group’s
compliance with the provisions of
the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of
our audit, we have concluded that each of
the following elements of the Corporate
Governance Statement is materially
consistent with the financial statements
and our knowledge obtained during the
audit:
– the directors’ statement with regards to
the appropriateness of adopting the
going concern basis of accounting and
any material uncertainties identified set
out on page 109;
– the directors’ explanation as to its
assessment of the Group’s prospects,
the period this assessment covers and
why the period is appropriate set out on
page 57;
– the directors’ statement on fair,
balanced and understandable set out
on page 110;
122
Marks and Spencer Group plc CONSOLIDATED INCOME STATEMENT
53 weeks ended
3 April 2021
52 weeks ended
28 March 2020
Notes
2, 3
Total
£m
Total
£m
9,155.7
10,181.9
Revenue
Share of result in associate – Ocado Retail Limited
3, 5, 29
64.2
(14.2)
Operating (loss)/profit
Finance income
Finance costs
(Loss)/profit before tax
Income tax credit/(expense)
(Loss)/profit for the year
Attributable to:
Owners of the parent
Non-controlling interests
(Loss)/earnings per share
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Reconciliation of profit before tax & adjusting items:
(Loss)/profit before tax
Adjusting items
Profit before tax & adjusting items – non-GAAP measure
Adjusted earnings per share – non-GAAP measure
Adjusted basic earnings per share
Adjusted diluted earnings per share
2, 3, 5
(30.7)
254.8
5, 6
5, 6
4, 5
7
8
8
5
8
8
57.4
(236.1)
(209.4)
8.2
(201.2)
(198.0)
(3.2)
(201.2)
(10.1p)
(10.1p)
46.9
(234.5)
67.2
(39.8)
27.4
23.7
3.7
27.4
1.3p
1.2p
(209.4)
259.7
50.3
67.2
335.9
403.1
1.4p
1.4p
16.7p
16.6p
123
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Loss)/profit for the year
Other comprehensive (expense)/income:
Items that will not be reclassified subsequently to profit or loss
Remeasurements of retirement benefit schemes
Tax credit/(charge) on retirement benefit schemes
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences
– movements recognised in other comprehensive income
– reclassified and reported in profit or loss
Cash flow hedges
– fair value movements recognised in other comprehensive income
– reclassified and reported in profit or loss
Tax credit/(charge) on cash flow hedges
Other comprehensive (expense)/income for the year, net of tax
Total comprehensive (expense)/income for the year
Attributable to:
Owners of the parent
Non-controlling interests
53 weeks ended
3 April 2021
£m
52 weeks ended
28 March 2020
£m
Notes
(201.2)
27.4
11
21
21
(1,352.0)
256.5
(1,095.5)
927.9
(196.7)
731.2
(27.7)
3.7
(215.5)
26.5
37.0
(176.0)
(1,271.5)
(1,472.7)
(1,469.5)
(3.2)
(1,472.7)
5.1
2.9
140.3
(18.4)
(27.0)
102.9
834.1
861.5
857.8
3.7
861.5
124
Marks and Spencer Group plc CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 3 April
2021
£m
As at 28 March
2020 (Restated)1
£m
As at 30 March
2019 (Restated)1
£m
Notes
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Investments in joint ventures and associates
Other financial assets
Retirement benefit asset
Trade and other receivables
Derivative financial instruments
Current assets
Inventories
Other financial assets
Trade and other receivables
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
Borrowings and other financial liabilities
Derivative financial instruments
Provisions
Current tax liabilities
Non-current liabilities
Retirement benefit deficit
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
Borrowings and other financial liabilities
Derivative financial instruments
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium account
Capital redemption reserve
Hedging reserve
Cost of hedging reserve
Other reserve
Foreign exchange reserve
Retained earnings
Equity attributable to owners of the parent
Non-controlling interests
Total equity
14
15
29
16
11
17
21
5
16
17
21
18
19
12
20
21
22
11
19
12
20
21
22
23
24
24
21
21
232.0
5,058.6
15.2
825.8
9.7
639.2
261.4
0.3
7,042.2
624.6
18.4
209.6
32.8
35.4
674.4
1,595.2
8,637.4
1,599.0
124.9
432.8
96.0
43.1
–
2,295.8
7.8
192.3
68.6
3,659.9
10.7
74.2
42.3
4,055.8
6,351.6
2,285.8
489.2
910.4
2,210.5
(54.8)
4.6
(6,542.2)
(59.9)
5,325.2
2,283.0
2.8
2,285.8
399.1
5,494.2
15.5
760.4
9.7
1,915.0
262.6
112.4
8,968.9
564.1
11.7
298.0
73.5
19.3
254.2
1,220.8
10,189.7
1,501.0
71.9
247.8
13.0
21.5
–
1,855.2
12.4
222.6
135.5
3,865.9
0.7
56.5
332.4
4,626.0
6,481.2
3,708.5
487.6
910.4
2,210.5
68.6
5.7
(6,542.2)
(35.9)
6,597.8
3,702.5
6.0
3,708.5
499.9
5,662.3
15.5
4.0
9.9
931.5
273.0
19.8
7,415.9
700.4
141.8
267.2
40.3
–
310.4
1,460.1
8,876.0
1,518.2
71.9
625.6
7.3
100.7
26.2
2,349.9
17.2
15.6
200.5
3,628.5
2.8
72.7
119.6
4,056.9
6,406.8
2,469.2
406.3
416.9
2,210.5
(14.6)
11.7
(6,542.2)
(43.9)
6,024.8
2,469.5
(0.3)
2,469.2
1. See note 1 for details of a change in accounting policy and the resulting restatement of prior years.
The financial statements were approved by the Board and authorised for issue on 25 May 2021. The financial statements also comprise
notes 1 to 31.
Steve Rowe, Chief Executive Officer
Eoin Tonge, Chief Financial Officer
125
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Ordinary
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Cost of
hedging
£m
Other
reserve¹
£m
Foreign
exchange
reserve
£m
Retained
earnings2
£m
Non-
controlling
interest
£m
Total
£m
Total
£m
As at 31 March 2019
Profit for the year
Other comprehensive
income/(expense):
Foreign currency translation
– movements recognised in other
comprehensive income
– reclassified and reported in
profit or loss
Remeasurements of retirement
benefit schemes
Tax charge on retirement
benefit schemes
Cash flow hedges
– fair value movement in other
comprehensive income
– reclassified and reported in
profit or loss
Tax on cash flow 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
Shares issued on rights issue3
Purchase of own shares held by
employee trusts
Credit for share-based payments
Deferred tax on share schemes
406.3 416.9 2,210.5 (14.6)
–
–
–
–
11.7 (6,542.2)
–
–
(43.9) 6,024.8 2,469.5
23.7
23.7
–
(0.3) 2,469.2
27.4
3.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
81.3 493.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
147.8
(7.5)
(18.4)
(28.5)
–
1.5
– 100.9
(6.0)
– 100.9
(6.0)
–
–
–
–
–
–
–
–
–
(21.8)
4.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.1
2.9
–
–
–
–
–
–
–
5.1
2.9
927.9
927.9
(196.7)
(196.7)
–
–
–
140.3
(18.4)
(27.0)
8.0
731.2
834.1
–
–
–
–
–
–
–
–
5.1
2.9
927.9
(196.7)
140.3
(18.4)
(27.0)
834.1
8.0
754.9
857.8
3.7
861.5
–
–
–
–
–
–
–
–
–
–
–
(21.8)
4.1
(191.1)
(191.1)
–
–
–
(21.8)
4.1
(191.1)
–
–
–
(8.9)
18.5
(0.4)
–
2.6
2.6
0.1
574.7
(8.9)
18.5
(0.4)
–
–
–
–
–
0.1
574.7
(8.9)
18.5
(0.4)
As at 28 March 2020
487.6 910.4 2,210.5
68.6
5.7 (6,542.2)
(35.9) 6,597.8 3,702.5
6.0 3,708.5
126
Marks and Spencer Group plc CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONTINUED
Ordinary
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Cost of
hedging
£m
Other
reserve¹
£m
Foreign
exchange
reserve
£m
Retained
earnings2
£m
Non-
controlling
interest
£m
Total
£m
Total
£m
As at 29 March 2020
Loss for the year
Other comprehensive
(expense)/income:
Foreign currency translation
– movements recognised in other
comprehensive income
– reclassified and reported in
profit or loss
Remeasurements of retirement
benefit schemes
Tax credit on retirement benefit
schemes
Cash flow hedges
– fair value movement in other
comprehensive income
– reclassified and reported in
profit or loss
Tax on cash flow hedges
Other comprehensive
(expense)/income
Total comprehensive
(expense)/income
Cash flow hedges recognised in
inventories
Tax on cash flow hedges
recognised in inventories
Transactions with owners:
Shares issued in respect of
employee share options
Purchase of own shares held by
employee trusts
Credit for share-based payments
Deferred tax on share schemes
As at 3 April 2021
487.6 910.4 2,210.5
–
–
–
68.6
–
5.7 (6,542.2)
–
–
(35.9) 6,597.8 3,702.5
(198.0)
(198.0)
–
6.0 3,708.5
(201.2)
(3.2)
–
–
–
–
–
–
–
–
–
–
–
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (214.2)
(1.3)
–
–
26.5
36.8
–
0.2
– (150.9)
(1.1)
– (150.9)
(1.1)
–
–
–
33.9
(6.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(27.7)
3.7
–
–
(27.7)
3.7
–
–
(27.7)
3.7
– (1,352.0) (1,352.0)
– (1,352.0)
–
–
–
–
256.5
256.5
–
–
–
(215.5)
26.5
37.0
–
–
–
–
256.5
(215.5)
26.5
37.0
(24.0) (1,095.5)
(1,271.5)
– (1,271.5)
(24.0) (1,293.5) (1,469.5)
(3.2) (1,472.7)
–
–
–
–
–
33.9
(6.4)
(1.6)
–
–
–
–
33.9
(6.4)
–
–
–
–
–
–
–
489.2 910.4 2,210.5 (54.8)
–
–
–
–
–
–
–
–
–
–
–
–
4.6 (6,542.2)
–
–
–
(0.8)
(0.8)
19.3
19.3
4.0
4.0
(59.9) 5,325.2 2,283.0
–
–
–
(0.8)
19.3
4.0
2.8 2,285.8
1. The “Other reserve” was originally created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued
prior to the capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption
reserve of Marks and Spencer plc at the date of the transaction.
2. Included within Retained earnings is the fair value through other comprehensive income reserve.
3. The share premium amount of £493.4m is net of £26.6m in relation to transaction costs associated with the rights issue.
127
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds on property disposals
Purchase of property, plant and equipment
Purchase of intangible assets
(Purchase)/sale of current financial assets
Purchase of investments in associates and joint ventures2
Interest received
Net cash used in investing activities
Cash flows from financing activities
Interest paid3
Issuance of Medium Term Notes
Redemption of Medium Term Notes
Repayment of lease liabilities
Payment of liability to the Marks & Spencer UK Pension Scheme
Equity dividends paid
Shares issued on exercise of employee share options
Proceeds from rights issue net of issue costs
Purchase of own shares by employee trust
Cash received from settlement of derivatives
Net cash used in financing activities
Net cash inflow/(outflow) from activities
Effects of exchange rate changes
Opening net cash
Closing net cash
53 weeks ended
3 April 2021
£m
Notes
52 weeks ended
28 March 2020
(Restated)1
£m
26
876.7
(5.8)
870.9
1,045.4
(91.6)
953.8
2.9
(158.9)
(47.8)
(6.7)
8.7
9.2
(192.6)
(219.3)
300.0
(136.4)
(184.3)
(17.2)
–
–
–
(0.8)
14.0
(244.0)
434.3
(3.3)
238.7
669.7
2.7
(251.0)
(77.6)
130.1
(580.3)
10.4
(765.7)
(224.2)
250.0
(400.0)
(201.4)
(63.5)
(191.1)
0.1
574.4
(8.9)
7.7
(256.9)
(68.8)
0.5
307.0
238.7
9
24
24
27
1. See note 1 for details on a change in accounting policy and the resulting restatement.
2. Includes inflow of £11.2m upon finalisation of the completion statement in relation to the investment in Ocado Retail Limited (last year: outflow of £577.8m) and outflow of £2.5m
(last year: £2.5m) in relation to Founders Factory Retail Limited.
3. Includes interest paid on the partnership liability to the Marks & Spencer UK Pension Scheme of £6.4m (last year: £8.4m) and interest paid on lease liabilities of £132.3m
(last year: £134.3m).
128
Marks and Spencer Group plc 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 Company and its subsidiaries (the
“Group”) and the nature of the Group’s operations is as a Clothing
& Home and Food retailer.
These financial statements are presented in sterling, which is
also the Company’s functional currency, and are rounded to the
nearest hundred thousand. Foreign operations are included in
accordance with the policies set out within this note.
Basis of preparation
The financial statements have been prepared for the 53 weeks
ended 3 April 2021 (last year: 52 weeks ended 28 March 2020)
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and the International Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
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.
The financial statements have been prepared on a going concern
basis. In adopting the going concern basis, the directors have
considered the business activities as set out on pages 10 to 25,
the financial position of the Group, its cash flows, liquidity
position and borrowing facilities as set out in the Financial
Review on pages 38 to 46, the Group’s financial risk management
objectives and exposures to liquidity and other financial risks as
set out in note 21 and the principal risks and uncertainties as set
out on pages 48 to 56.
At 3 April 2021, the Group had available liquidity of £1,799.4m,
comprising cash and cash equivalents of £674.4m, an undrawn
committed syndicated bank revolving credit facility (“RCF”) of
£1.1bn (set to mature in April 2023), and undrawn uncommitted
facilities amounting to £25.0m. This is an increase of £395.2m
compared to the £1,404.2m liquidity position as at 28 March
2020 and has been achieved through the active measures taken
by the Group to strengthen liquidity in response to the risks
posed by the Covid-19 pandemic. In addition to operational
cash preservation actions, the following measures have also
been undertaken:
– Refinancing the upcoming December 2021 bond maturity with
a £300m 2026 bond issuance.
– Extending the relaxation of covenant tests with the lending
syndicate of banks providing the £1.1bn revolving credit facility,
up to and including the period to March 2022.
In adopting the going concern basis of preparation, the directors
have assessed the Group’s cash flow forecasts which incorporate
a latest estimate of the ongoing impact of Covid-19 on the Group.
The forecast assumes that the UK government’s four-step
roadmap out of lockdown continues as planned, but that a full
lifting of restrictions does not occur until Q3 2021/22.
Under these latest forecasts, the Group is able to operate without
the need to draw on its available facilities and without taking any
supplementary mitigating actions, such as reducing capital
expenditure and other discretionary spend. The forecast cash
flows also indicate that the Group will comply with all relevant
banking covenants during the forecast period, being at least
12 months from the approval of the financial statements.
The directors have reviewed the evolution of Covid-19 and
the impact on the business and considered the potential
longer-term impacts of the pandemic by modelling a more
severe, but plausible, downside scenario. This downside scenario
assumes that:
– A four-month lockdown between December 2021 and
March 2022 will be mandated by the government, resulting
in store closures and a 3% decline in Food sales. Between this
period, a range of 10% – 20% decline in Clothing & Home sales
has been modelled, as well as a 10% decline in International
sales. These declines have been set with reference to the
2020/21 results; and,
– An economic recession in the UK from October 2021, following
the cessation of the Coronavirus Job Retention Scheme in
the UK, that continues into 2022/23 and 2023/24, resulting in a
decline in sales of between 1% – 5% per annum, continuing for
three years, across both sides of the business.
Even under this severe but plausible downside scenario, the
Group would continue to have sufficient liquidity headroom
on its existing facilities and against the revolving credit facility
financial covenant for the forecast period. Although should
such a scenario arise, there are a range of mitigating actions that
could be taken to reduce the impact. Given current trading and
expectations for the business, the directors consider that this
downside scenario reflects a plausible, but remote, outcome for
the Group.
In addition, reverse stress testing has been applied to the model,
which represents a significant decline in sales compared to the
downside scenario. Such a scenario, and the sequence of events
which could lead to it, is considered to be remote.
As a result, the directors believe that the Group is well placed to
manage its financing and other significant risks satisfactorily
and that the Group will be able to operate within the level of its
facilities for the foreseeable future, being a period of at least
12 months from the approval of the financial statements.
For this reason, the directors consider it appropriate for the
Group to adopt the going concern basis in preparing its
financial statements.
Change in accounting policy
Due to a change in the Group’s accounting policy to recognise
BACS payments at the settlement date, rather than when they
are initiated, to more appropriately reflect the nature of these
transactions, the comparative amounts have been restated.
The impact on the 28 March 2020 balance sheet is an increase
to current trade and other payables of £74.6m (2019: £93.8m),
a decrease to bank loans and overdrafts, within current liabilities,
of £68.8m (2019: £68.8m) and an increase to cash and cash
equivalents of £5.8m (2019: £25.0m). Net cash outflow from
activities in 2019/20 has increased by £19.3m while net debt
as at 28 March 2020 has decreased by £74.6m (2019: £93.9m).
There is no impact on the income statement, earnings per share
or net assets.
New accounting standards adopted by the Group
The Group has applied the following new standards and
interpretations for the first time for the annual reporting period
commencing 29 March 2020:
– Amendments to IAS 1 and IAS 8: Definition of Material
– Amendments to IFRS 3: Definition of a Business
– Amendments to References to the Conceptual Framework in
IFRS Standards
129
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
The Group also elected to adopt the following amendment early:
– Amendment to IFRS 16: Covid-19-Related Rent Concessions
The impact of early adopting the amendment to IFRS 16 is
described below.
The adoption of the other standards and interpretations listed
above 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.
Amendment to IFRS 16: Covid-19-Related Rent Concessions
The Group has applied the amendment to IFRS 16 in advance of
its effective date and, as a result, has treated rent concessions
occurring as a direct consequence of Covid-19 as variable lease
payments rather than as lease modifications.
The amount recognised in profit or loss in the period to reflect
changes in lease payments arising from Covid-19-related rent
concessions was a gain of £10.9m.
New accounting standards in issue but not yet effective
New standards and interpretations that are in issue but not yet
effective are listed below:
– IFRS 17 Insurance Contracts
– Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform Phase 2
– Amendments to IFRS 10 and IAS 28: Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture
– Amendments to IAS 1: Classification of Liabilities as Current
or Non-Current
– Amendments to IFRS 3: Reference to the Conceptual Framework
– Amendments to IAS 16: Property, Plant and Equipment –
Proceeds before Intended Use
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 significant in 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. The Group’s definition of adjusting
items is consistent with prior periods. Previously these were
presented in the consolidated income statement in a columnar
format; the Group now presents a reconciliation of profit before
tax and adjusting items to profit before tax on the face of the
consolidated income statement. Adjusted results are consistent
with how business performance is measured internally and
presented to aid comparability of performance. On this basis,
the following items were included within adjusting items for the
53-week period ended 3 April 2021:
– 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.
– Impairment charges and provisions that are considered to be
significant in nature and/or value to the trading performance
of the business.
– Charges and reversals of previous impairments arising from
the write-off of assets and other property charges that are
considered to be significant in nature and/or value.
– Amendments to IAS 37: Onerous Contracts – Cost of Fulfilling
– 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.
– 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 investment in
Ocado Retail Limited.
– Amortisation of the identified intangible assets arising as part
of the investment in Ocado Retail Limited.
– Remeasurement of contingent consideration including
discount unwind.
– Directly attributable gains and expenses resulting from the
Covid-19 pandemic.
– Transition costs associated with the Sparks loyalty programme1.
1. Adjusting items in the current year include the charges associated with the transition
of the Sparks loyalty programme. While the Group provides vouchers to customers as
part of its ongoing operations, vouchers of this nature and quantum have never been
provided before in relation to a one-off event (refer to note 5 for further details).
The Group has reviewed how it applies its policy and has concluded to include these
charges in adjusting items.
Refer to note 5 for a summary of the adjusting items.
a Contract
– Annual Improvements to IFRS Standards 2018-2020 Cycle:
Amendments to IFRS 1 First-time Adoption of International
Financial Reporting Standards, IFRS 9 Financial Instruments,
IFRS 16 Leases and IAS 41 Agriculture
The adoption of the above standards and interpretations is not
expected to 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.
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 Executive
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; operating profit before adjusting items; profit before tax
and adjusting items; adjusted basic earnings per share; net debt;
net debt excluding lease liabilities; 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.
130
Marks and Spencer Group plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 certain financial instruments
(including derivative instruments) and plan assets of defined
benefit pension schemes which are measured at fair value 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 entity;
is exposed, or has rights to, variable returns from its involvement
with the entity; and has the ability to use its power to affect its
returns. The Company reassesses whether or not it controls an
entity if facts and circumstances indicate that there are changes
to one or more of these three elements of control. 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
on consolidation.
Associates
An associate is an entity over which the Group has significant
influence and that is neither a subsidiary nor an interest in a
joint venture. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but is
not control or joint control over those policies. The results and
assets and liabilities of associates are incorporated in these
financial statements using the equity method of accounting.
Under the equity method, an investment in an associate is
recognised initially in the consolidated statement of financial
position at cost and adjusted thereafter to recognise the Group’s
share of the profit or loss and other comprehensive income of
the associate. When the Group’s share of losses of an associate
exceeds the Group’s interest in that associate (which includes any
long-term interests that, in substance, form part of the Group’s
net investment in the associate), the Group discontinues
recognising its share of further losses. Additional losses are
recognised only to the extent that the Group has incurred legal
or constructive obligations or made payments on behalf of
the associate. Dividends received or receivable from an associate
are recognised as a reduction in the carrying amount of
the investment.
Associated undertakings acquired during the year are recorded
using the equity method of accounting and their results are
included from the date of acquisition. On acquisition of the
investment in an associate, any excess of the cost of the
investment over the Group’s share of the net fair value of the
identifiable assets and liabilities of the investee is recognised as
goodwill, which is included within the carrying amount of the
investment. Any excess of the Group’s share of the net fair value
of the identifiable assets and liabilities over the cost of the
investment, after reassessment, is recognised immediately in
profit or loss in the period in which the investment is acquired.
The Group’s share of the net fair value of identified intangible
assets is amortised over the expected useful economic life of
the assets.
The requirements of IAS 36 are applied to determine whether it is
necessary to recognise any impairment loss with respect to the
Group’s investment in an associate. When necessary, the entire
carrying amount of the investment (including goodwill) is tested
for impairment in accordance with IAS 36 as a single asset by
comparing its recoverable amount (higher of value in use and
fair value less costs of disposal) with its carrying amount.
When a Group company transacts with an associate of the Group,
profits and losses resulting from the transactions with the
associate are recognised only to the extent of interests in the
associate that are not related to the Group.
Revenue
Revenue comprises sales of goods to customers outside the
Group less an appropriate deduction for actual and expected
returns, discounts and loyalty scheme vouchers, and is stated net
of value added tax and other sales taxes. Revenue is recognised
when 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. Online sales are
recognised when items are delivered, as this is when the
performance obligation is deemed to have been satisfied.
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.
131
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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.
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 contractual 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.
Government grants
Government grants are recognised where there is reasonable
assurance that the grants will be received and that the Group will
comply with the conditions attached to them.
Government grants that compensate the Group for expenses
incurred are recognised in profit or loss, as a deduction against
the related expense, over the periods necessary to match them
with the related costs.
Government grant income is disclosed in note 30.
Pensions
Funded pension plans are in place for the Group’s UK employees
and some overseas employees.
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.
Payments to defined contribution retirement benefit schemes
are charged as an expense on an accruals basis.
For further details on pension schemes and the partnership
liability to the Marks & Spencer UK Pension scheme, see notes 11
and 12.
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. Acquired intangible assets Acquired intangible assets include
trademarks or brands. These assets are capitalised on acquisition
at cost and amortised on a straight-line basis over their estimated
useful lives.
Acquired intangible assets 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.
132
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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. Leasehold
buildings with lease premiums and ongoing peppercorn lease
payments are considered in-substance purchases and are
therefore included within the buildings category of property,
plant and equipment.
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.
– Buildings – depreciated to their residual value over their
estimated remaining economic lives of 25–50 years.
– 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, or reversal of an impairment,
is recognised within the income statement.
Leasing
The Group recognises a right-of-use asset and corresponding
liability at the date at which a leased asset is made available for
use by the Group, except for short-term leases (defined as leases
with a lease term of 12 months or less) and leases of low-value
assets. For these leases, the Group recognises the lease
payments as an operating expense on a straight-line basis over
the term of the lease.
Lease liabilities are measured at the present value of the future
lease payments, excluding any payments relating to non-lease
components. Future lease payments include fixed payments,
in-substance fixed payments, and variable lease payments
that are based on an index or a rate, less any lease incentives
receivable. Lease liabilities also take into account amounts
payable under residual value guarantees and payments to
exercise options to the extent that it is reasonably certain that
such payments will be made. The payments are discounted at
the rate implicit in the lease or, where that cannot be readily
determined, at an incremental borrowing rate.
Right-of-use assets are measured initially at cost based on
the value of the associated lease liability, adjusted for any
payments made before inception, initial direct costs and an
estimate of the dismantling, removal and restoration costs
required in the terms of the lease. The Group presents right-of-
use assets in ‘property, plant and equipment’ in the consolidated
statement of financial position.
Subsequent to initial recognition, the lease liability is reduced
for payments made and increased to reflect interest on the lease
liability (using the effective interest method). The related right-of-
use asset is depreciated over the term of the lease or, if shorter,
the useful economic life of the leased asset. The lease term shall
include the period of an extension option where it is reasonably
certain that the option will be exercised. Where the lease contains
a purchase option the asset is written off over the useful life of
the asset when it is reasonably certain that the purchase option
will be exercised.
The Group remeasures the lease liability (and makes a
corresponding adjustment to the related right-of-use
asset) whenever:
– The lease term has changed or there is a change in the
assessment of exercise of a purchase option, in which case the
lease liability is remeasured by discounting the revised lease
payments using a revised discount rate.
– The lease payments change due to changes in an index or
rate or a change in expected payment under a guaranteed
residual value, in which cases the lease liability is remeasured
by discounting the revised lease payments using the initial
discount rate (unless the lease payments change is due to a
change in a floating interest rate, in which case a revised
discount rate is used).
– A lease contract is modified and the lease modification is not
accounted for as a separate lease, in which case the lease
liability is remeasured by discounting the revised lease
payments using a revised discount rate.
Leases for which the Group is a lessor are classified as finance or
operating leases. A lease is classified as a finance lease if it
transfers substantially all the risks and rewards of ownership
to the lessee and classified as an operating lease if it does not.
When the Group is an intermediate lessor, it accounts for the head
lease and the sub-lease as two separate contracts. The sub-lease
is classified as a finance or operating lease by reference to the
right-of-use asset arising from the head lease.
Amounts due from lessees under finance leases are recognised
as receivables at the amount of the Group’s net investment in the
leases. Finance lease income is allocated to accounting periods
so as to reflect a constant periodic rate of return on the Group’s
net investment in the lease. Rental income from operating
leases is recognised on a straight-line basis over the term of the
relevant 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. Bank transactions are recorded on
their settlement date.
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 initial cost of hedged inventory is adjusted by
the associated hedging gain or loss transferred from the cash
flow hedge reserve (“basis adjustment”).
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.
133
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Foreign currencies
The financial statements are presented in sterling which is the
Company’s functional currency.
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. On disposal
of an overseas subsidiary the related cumulative translation
differences recognised in reserves are reclassified to profit or
loss and are recognised as part of the gain or loss on disposal.
Transactions denominated in foreign currencies are translated
at the exchange rate at the date of the transaction. Foreign
currency monetary assets and liabilities held at the end of the
reporting period are translated at the closing balance sheet rate.
The resulting exchange gain or loss is recognised within the
income statement.
Taxation
Tax expense comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent that 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. In addition, 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 that 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.
134
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. Financial assets
are initially classified as at fair value through profit and loss, fair
value through other comprehensive income or amortised cost
depending on the Group’s business model for managing the
financial asset and its cash flow characteristics. Financial assets
that are held for collection of contractual cash flows, where those
cash flows represent solely payments of principal and interest,
are measured at amortised cost.
A. Trade and other receivables Trade receivables are recorded
initially at transaction price 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 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 unlisted 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 (FVOCI) or fair value through profit and loss (FVPL).
Financial assets held at FVOCI are initially measured at fair value,
including transaction costs directly attributable to the acquisition
of the financial asset. Financial assets held at FVPL are initially
recognised at fair value and transaction costs are expensed.
For equity investments at FVOCI, 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 and accumulated in the FVOCI reserve
is transferred to retained earnings.
The Group designated all non-listed equity investments not held
for trading as FVOCI on initial recognition because the Group
intends to hold them for long-term strategic purposes.
Financial assets that do not meet the criteria for being measured
at amortised cost or FVOCI are measured at FVPL with gains and
losses arising from changes in fair value included in the income
statement for the period.
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 or
deducted from the carrying amount of the instrument.
E. Loan notes Long-term loans are initially measured at fair value
net of direct issue costs and are subsequently held at amortised
cost. If the loan is designated in a fair value hedge relationship,
the carrying value of the loan is adjusted for fair value gains or
losses attributable to the risk being hedged.
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
Group are recorded at the consideration received, net of direct
issue costs.
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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); or
– A hedge of the exposure to change in the fair value of a
recognised asset or liability (a fair value 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 to ensure that
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.
In 2019/20, the Group early adopted the Phase 1 amendments
Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39
and IFRS 7. These amendments modify specific hedge accounting
requirements to allow hedge accounting to continue for affected
hedges during the period of uncertainty before the hedged items
or hedging instruments affected by the current interest rate
benchmarks are amended as a result of the ongoing interest rate
benchmark reforms. The application of the amendments impacts
the Group’s accounting in relation to a sterling denominated fixed
rate debt, for which it fair value hedge accounts using sterling
fixed to GBP LIBOR interest rate swaps. The amendments permit
continuation of hedge accounting even if in the future the
hedged benchmark interest rate, GBP LIBOR, may no longer be
separately identifiable. However, this relief does not extend to the
requirement that the designated interest rate risk component
must continue to be reliably measurable. If the risk component
is no longer reliably measurable, the hedging relationship
is discontinued.
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. The element of the change in fair value which relates
to the foreign currency basis spread is recognised in the cost
of hedging reserve, with the remaining change in fair value
recognised in the hedging reserve and any ineffective portion is
recognised immediately in the income statement in finance costs.
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
and accumulated in the cash flow hedge reserve are removed
directly from equity and included in the initial measurement of
the asset or liability. If the hedged item is transaction-related the
foreign currency basis spread is reclassified to profit or loss
when the hedged item affects profit or loss. If the hedged item is
time-period related, then the amount accumulated in the cost of
hedging reserve is reclassified to profit or loss on a systematic
and rational basis. Those reclassified amounts are recognised in
profit or loss in the same line as the hedged item. If the hedged
item is a non-financial item, then the amount accumulated in the
cost of hedging reserve is removed directly from equity and
included in the initial carrying amount of the recognised
non-financial item.
For hedges that do not result in the recognition of an asset or a
liability, amounts deferred in the cash flow hedge reserve 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 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.
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.
C. Discontinuance of hedge accounting Hedge accounting is
discontinued when the hedge relationship no longer qualifies for
hedge accounting. This includes when the hedging instrument
expires, is sold, terminated or exercised, or when occurrence of
the forecast transaction is no longer highly probable. 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 accumulated in the cash flow
hedge reserve is retained in equity until the forecast transaction
occurs. Subsequent changes in the fair value are recognised in
the income statement. If a hedged transaction is no longer
expected to occur, the net cumulative gain or loss accumulated
in the cash flow hedge reserve 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 based on the
recalculated effective interest rate at that date.
The Group does not use derivatives to hedge income statement
translation exposures.
Reserves
The following describes the nature and purpose of each reserve
within equity:
A. Share premium account Proceeds received in excess of the
nominal value of shares issued, net of any transaction costs.
B. Capital redemption reserve Amounts transferred from share
capital on redemption or repurchase of issued shares.
C. Hedging reserve Cumulative gains and losses on hedging
instruments deemed effective in cash flow hedges.
D. Cost of hedging Cumulative gains and losses on the portion
excluded from the designated hedging instrument that relates to
changes in the foreign currency basis.
E. Other reserve 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.
F. Foreign exchange reserve Gains and losses arising on
retranslating the net assets of overseas operations into sterling.
G. Retained earnings All other net gains and losses and
transactions with owners (e.g. dividends) not recognised elsewhere.
135
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Critical accounting judgements and key sources of
estimation uncertainty
The preparation of consolidated financial statements requires
the Group to make estimates and judgements that affect the
application of policies and reported amounts.
Critical judgements represent key decisions made by
management in the application of the Group accounting policies.
Where a significant risk of materially different outcomes exists
due to management assumptions or sources of estimation
uncertainty, this will represent a 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 Executive 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, with additional items due to the
transition of the Sparks loyalty programme.
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 3 April 2021. The
directors have made the judgement that these amounts meet
the requirements of recoverability on the basis that paragraph
11(b) of IFRIC 14 applies, enabling a refund of surplus assuming
the gradual settlement of the scheme liabilities over time until all
members have left the scheme, and a surplus of £639.2m has
been recognised.
Assessment of control
The directors have assessed that the Group has significant
influence over Ocado Retail Limited and has therefore accounted
for the investment as an associate (see note 29). This assessment
is based on the current rights held by the respective shareholders
and requires judgement in assessing these rights. These rights
include determinative rights currently held by Ocado Group Plc,
after agreed dispute-resolution procedures, in relation to the
approval of the Ocado Retail Limited business plan and budget
and the appointment and removal of Ocado Retail Limited’s
Chief Executive Officer. Any future change to these rights
requires a reassessment of control and could result in a change
in the status of the investment from associate to joint venture,
subsidiary or investment.
Determining the lease term
The Group determines the lease term as the non-cancellable
term of the lease, together with any periods covered by an option
to extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease if it is
reasonably certain not to be exercised.
The Group has several lease contracts for land and buildings that
include extension and termination options. The Group applies
judgement in evaluating whether it is reasonably certain whether
or not to exercise the option to renew or terminate the lease.
That is, it considers all relevant factors that create an economic
incentive for it to exercise either the renewal or termination,
including: whether there are significant penalties to terminate (or
not extend); whether any leasehold improvements are expected
to have a significant remaining value; historical lease durations;
the importance of the underlying asset to the Group’s operations;
and the costs and business disruption required to replace the
leased asset.
Most renewal periods and periods covered by termination
options are included as part of the lease term for leases of land
and buildings. The Group typically exercises its option to renew
(or does not exercise its option to terminate) for these leases
because there will be a significant negative effect on trading
if a replacement property is not readily available.
The lease term is reassessed if a significant event or a significant
change in circumstances occurs which affects the assessment of
reasonable certainty, for example if a store is identified to be
closed as part of the UK store estate strategic programme.
Determining whether forecast purchases are highly probable
The Group is exposed to foreign currency risk, most significantly
to the US dollar as a result of sourcing Clothing & Home products
from Asia which are paid for predominantly in US dollars.
The Group hedges these exposures using forward foreign
exchange contracts and hedge accounting is applied when the
requirements of IFRS 9 are met, which include that a forecast
transaction must be “highly probable”.
The Group has applied judgement in assessing whether forecast
purchases are “highly probable”. In making this assessment,
the Group has considered the most recent budgets and plans.
The Group’s policy is a “layered” hedging strategy where only a
small fraction of the forecast purchase requirements are initially
hedged, approximately 15 months prior to a season, with
incremental hedges layered on over time as the buying period
for that season approaches and therefore as certainty increases
over the forecast purchases. As a result of this progressive
strategy, a reduction in the supply pipeline of inventory does not
immediately lead to over-hedging and the disqualification of
“highly probable”. If the forecast transactions were no longer
expected to occur, any accumulated gain or loss on the hedging
instruments would be immediately reclassified to profit or loss.
Last year, a £2.9m gain was recognised in the income statement
as a result of US$76.6m notional forecast purchases no longer
being expected to occur. There was no such occurrence in the
current year.
During the year, the settlement of certain forecast purchases
were delayed as a result of the Covid-19 pandemic and, as a
result, the deferred fair value of the applicable forward foreign
exchange contracts has been retained in reserves to be recycled
in line with the delayed forecast purchases. As discussed above,
due to our progressive hedging strategy, this delay does not
affect the qualification of “highly probable”. At 3 April 2021, the
Group had £4.0m of deferred fair value retained in the cash flow
hedge reserve which will be released over the first half of 2021/22.
136
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Key sources of estimation uncertainty
UK store estate programme
The Group is undertaking a significant strategic programme to
review its UK store estate resulting in a net charge of £95.3m
(last year: £29.3m) 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.
The assumptions most likely to have a material impact are
closure dates and changes to future sales. See notes 5 and 15
for further detail.
Useful lives and residual values of property, plant and
equipment and intangibles
Depreciation and amortisation are provided to write down the
cost of property, plant and equipment and 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 programme section
above for specific sources of estimation uncertainty in relation
to the useful lives of property, plant and equipment for stores
identified as part of the UK store estate programme. Due to the
nature of the Group’s property, plant and equipment, it is not
practicable to provide a meaningful sensitivity analysis.
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 life 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 in relation to the cash flow projections over the
three-year strategic plan period (which is a key source of
estimation uncertainty), 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. See notes 14 and 15 for further details on the Group’s
assumptions and associated sensitivities.
The assumption that cash flows continue into perpetuity (with
the exception of stores identified as part of the UK store estate
programme) is a source of significant estimation uncertainty.
A future change to the assumption of trading into perpetuity for
any 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. Due to the nature of the
Group’s property, plant and equipment, it is not practicable to
provide a meaningful sensitivity analysis for this source of
estimation uncertainty.
Inventory provisioning
The Group assesses the recoverability of inventories by applying
assumptions around the future saleability and estimated
selling prices of items. At 28 March 2020, the Group recorded a
write-down of £157.0m, based on the estimated impact of trade
restrictions introduced in response to the Covid-19 pandemic.
Performance during 2020/21 has exceeded the estimates made
at last year end and the Group has updated the assumptions
regarding future performance. As a result, and supported by the
certainty provided by vaccines and a clear government Covid-19
re-emergence strategy, a net release of £101.6m of this provision
has been recognised in the period. See note 5 for further details
on the 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 and mortality rates.
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.
137
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2 SEGMENTAL INFORMATION
IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reporting on components of
the Group that are regularly reviewed by the chief operating decision-maker to allocate resources to the segments and to assess
their performance.
The chief operating decision-maker has been identified as the Executive Committee. The Executive Committee reviews the Group’s
internal reporting in order to assess performance and allocate resources across each operating segment.
The Group’s reportable operating segments have therefore been identified as follows:
– UK Clothing & Home – comprises the retailing of womenswear, menswear, lingerie, kidswear and home products through UK retail
stores and online.
– UK Food – includes the results of the UK retail food business and UK Food franchise operations, with the following five main
categories: protein deli and dairy; produce; ambient and in-store bakery; meals, dessert and frozen; and hospitality and ‘Food on
the Move’; and direct sales to Ocado Retail Limited.
– International – consists of Marks and Spencer owned businesses in Europe and Asia and the international franchise operations.
– Ocado – includes the Group’s share of profits or losses from the investment in Ocado Retail Limited.
The Ocado operating segment has been identified as reportable in the current period based on the quantitative thresholds in IFRS 8.
As the Group’s reportable segments have changed, the comparative information has been restated.
Other business activities and operating segments, including M&S Bank and M&S Energy, are combined and presented in “All other
segments”. Finance income and costs are not allocated to segments as each is managed on a centralised basis.
The Executive Committee assesses the performance of the operating segments based on a measure of operating profit before
adjusting items. This measurement basis excludes the effects of adjusting items from the operating segments.
The following is an analysis of the Group’s revenue and results by reportable segment:
53 weeks ended 3 April 2021
52 weeks ended 28 March 2020
UK
Clothing &
Home
£m
UK Food
£m
International
£m
Ocado
£m
All other
segments
£m
UK
Clothing &
Home
£m
Group
£m
UK Food
£m
International
£m
Ocado
£m
All other
segments
£m
Group
£m
2,239.0 6,138.5
789.4
–
– 9,166.9 3,209.1 6,028.2
944.6
–
– 10,181.9
(130.8)
228.6
44.1
78.4
1.9
222.2
223.9
236.7
110.7
2.6
16.8
590.7
57.4
(229.3)
44.0
(231.6)
(130.8)
228.6
44.1
78.4
1.9
50.3
223.9
236.7
110.7
2.6
16.8
403.1
(259.7)
(335.9)
(130.8)
228.6
44.1
78.4
1.9 (209.4)
223.9
236.7
110.7
2.6
16.8
67.2
Revenue before
adjusting items1
Operating (loss)/
profit before
adjusting items2
Finance income
before adjusting
items
Finance costs before
adjusting items
(Loss)/profit
before tax and
adjusting items
Adjusting items
(Loss)/profit
before tax
1. Revenue is stated prior to adjusting items of £11.2m (see note 5).
2. Operating (loss)/profit before adjusting items is stated as gross profit less operating costs prior to adjusting items. At reportable segment level costs are allocated where directly
attributable or based on an appropriate cost driver for the cost.
138
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2 SEGMENTAL INFORMATION CONTINUED
Other segmental information
53 weeks ended 3 April 2021
52 weeks ended 28 March 2020
UK
Clothing &
Home
£m
UK Food
£m
International
£m
Ocado
£m
All other
segments
£m
UK
Clothing &
Home
£m
Group
£m
UK Food
£m
International
£m
Ocado
£m
All other
segments
£m
Group
£m
Additions to
property, plant
and equipment,
and intangible
assets (excluding
goodwill and
right-of-use assets)
Depreciation and
amortisation1,2
Impairment charges,
impairment reversals
and asset write-offs1
50.5
105.0
6.8
(312.3)
(259.4)
(25.1)
(155.1)
(34.9)
(4.7)
–
–
–
–
–
162.3
166.5
170.1
15.7
(596.8)
(350.6)
(283.4)
(34.6)
–
(194.7)
(69.9)
(45.3)
(10.3)
–
–
–
–
–
–
352.3
(668.6)
(125.5)
1 . These costs are allocated to a reportable segment where they are directly attributable. Where costs are not directly attributable, a proportional allocation is made to each segment
based on an appropriate cost driver.
2. Includes £0.3m (last year: £nil) depreciation charged on the investment property.
Segment assets and liabilities, including investments in associates and joint ventures, are not disclosed because they are not reported
to or reviewed by the Executive Committee.
3 EXPENSE ANALYSIS
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Other operating income
Share of results of Ocado Retail Limited
Operating (loss)/profit
2021
Total
£m
9,155.7
(6,244.1)
2,911.6
(3,018.9)
12.4
64.2
(30.7)
2020
Total
£m
10,181.9
(6,746.5)
3,435.4
(3,225.2)
58.8
(14.2)
254.8
The figures above include revenue adjusting item charges of £11.2m (last year: £nil) and operating profit adjusting item charges of
£241.7m (last year: £335.9m), totalling £252.9m (last year: £335.9m) adjusting item charges within operating (loss)/profit.
The £252.9m (last year: £335.9m) adjusting items charges for the year (see note 5) are further analysed against the categories of
revenue (£11.2m; last year: £nil), cost of sales (£86.3m gain; last year: £157.0m charge), selling and administrative expenses (£313.8m; last
year: £188.8m), other operating income (£nil; last year: £26.7m) and share of results of Ocado Retail Limited (£14.2m; last year: £16.8m).
The selling and administrative expenses are further analysed below:
Employee costs1,2
Occupancy costs
Repairs, renewals and maintenance of property
Depreciation, amortisation and asset impairments and write-offs3
Other costs
Selling and administrative expenses
2021
Total
£m
1,339.1
223.9
95.8
791.7
568.4
3,018.9
2020
Total
£m
1,434.3
352.5
81.0
772.4
585.0
3,225.2
1. There are an additional £68.8m (last year: £53.1m) employee costs recorded within cost of sales. These costs are included within the aggregate remuneration disclosures in note 10A.
2. Includes furlough income (see note 30).
3. Includes £0.3m (last year: £nil) depreciation charged on the investment property.
Adjusting items categorised as selling and administrative expenses are further analysed as employee costs £100.4m (last year £23.1m);
occupancy costs £6.1m (last year: release £25.2m); depreciation, amortisation and asset impairments/reversals and write-offs £188.6m
(last year: £139.9m); and other costs £18.7m (last year: £51.0m).
139
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4 (LOSS)/PROFIT BEFORE TAXATION
The following items have been included in arriving at (loss)/profit before taxation:
Net foreign exchange gains
Cost of inventories recognised as an expense
Write-down of inventories recognised as an expense
Depreciation of property, plant and equipment
– owned assets1
– right-of-use assets
Amortisation of intangible assets
Impairments and write-offs of intangible assets and property, plant and equipment
Impairment reversals of property, plant and equipment
Impairments of right-of-use assets
Impairment reversals of right-of-use assets
1.
Includes £0.3m (last year: £nil) depreciation charged on the investment property.
2021
£m
2.9
5,427.6
117.0
312.1
153.1
131.6
252.0
(73.1)
52.7
(36.9)
2020
£m
(2.1)
5,762.3
389.0
329.2
174.6
164.8
149.4
(58.1)
84.4
(50.2)
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
2021
£m
1.6
0.6
2.2
0.2
–
0.2
2.4
2020
£m
1.4
0.6
2.0
0.2
0.5
0.7
2.7
140
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS
The total adjusting items reported for the 53-week period ended 3 April 2021 is a net charge of £259.7m (last year: £335.9m).
The adjustments made to reported profit before tax to arrive at adjusted profit are:
Included in revenue
Sparks loyalty programme transition
Included in operating profit
Strategic programmes – Organisation
Strategic programmes – UK store estate1
Strategic programmes – International store closures and impairments
Strategic programmes – UK logistics
Strategic programmes – Operational transformation
Strategic programmes – Changes to pay and pensions
Strategic programmes – IT restructure
Directly attributable gains/(expenses) resulting from the Covid-19 pandemic1
Intangible asset impairments
Store impairments, impairment reversals and other property charges1
Amortisation and fair value adjustments arising as part of the investment in
Ocado Retail Limited
Sparks loyalty programme transition
M&S Bank charges incurred in relation to insurance mis-selling and Covid-19 forward
economic guidance provision
Establishing the investment in Ocado Retail Limited
GMP and other pension equalisation
Other
Included in net finance costs
Remeasurement of contingent consideration including discount unwind
Directly attributable gains/(expenses) resulting from the Covid-19 pandemic1,2
Notes
15, 22
15, 22
22
15, 22
22
22
14
15, 22
11
2021
£m
(11.2)
(11.2)
(133.7)
(95.3)
(3.6)
(2.2)
–
–
–
90.8
(79.9)
6.9
(14.2)
(5.4)
(2.4)
(1.7)
(1.0)
–
(241.7)
(6.8)
–
(6.8)
2020
£m
–
–
(13.8)
(29.3)
(2.2)
(10.2)
(11.6)
(2.9)
(0.4)
(166.5)
(13.4)
(78.5)
(16.8)
–
(12.6)
(1.2)
–
23.5
(335.9)
(2.9)
2.9
–
Adjustments to profit before tax
(259.7)
(335.9)
1. Gains/(expenses) directly attributable to the Covid-19 pandemic in the current and prior year are presented below; this includes the resulting incremental impairment charge
disclosed within the strategic programmes above related to the UK store estate, UK store impairments, International store impairments and the impairment of per una goodwill.
Directly attributable gains/(expenses) resulting from the Covid-19 pandemic – included in operating profit
Directly attributable gains/(expenses) resulting from the Covid-19 pandemic – included in net finance costs2
UK store estate impairments
Store impairments
Goodwill impairment – per una
Total Covid-19 gains/(charges)
2021
£m
90.8
–
–
–
–
90.8
2020
£m
(166.5)
2.9
(11.6)
(24.2)
(13.4)
(212.8)
2. The 2019/20 gain for Directly attributable gains/(expenses) resulting from the Covid-19 pandemic within net finance costs is a £2.9m gain relating to forecast purchases no longer
expected to occur.
141
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS CONTINUED
Strategic programmes – Organisation (£133.7m)
During 2020/21, the Group announced a commitment to
integrate more flexible management structures into store
operations as well as streamline the business at store and
management level in the UK and Republic of Ireland as part
of the ‘Never the Same Again’ transformation. As part of the
transformation, the Group has incurred £9.5m of consultancy
costs. The changes have resulted in a reduction of c.8,200 roles
across central support centres, regional management and stores,
with a charge of £99.7m recognised in the period primarily for
redundancy costs associated with these changes. The majority
of the charges have been settled during 2020/21, with a provision
being held on the balance sheet for the remaining charges.
The provision is expected to be fully utilised during 2021/22,
with no further significant charges anticipated.
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. A further £24.5m of
costs have been recognised in the period associated with
centralising the Group’s London Head Office functions, with a
£9.7m charge relating to the sub-let of previously closed offices.
£14.8m of these charges relate to closure costs to further
consolidate our London Head Office functions as announced
in February 2021. Total costs of centralising our London Head
Office functions into one building incurred to date are c.£98m.
Any future charges will relate to the updating of assumptions
and market fluctuations over the life of the sub-let lease.
These costs are reported as adjusting items on the basis that they
are significant in quantum, relate to a strategic initiative focused
on reviewing our organisation structure and to aid comparability
from one period to the next. The treatment as adjusting items is
consistent with the disclosure of costs for similar restructuring
and centralisation programmes previously undertaken.
Strategic programmes – UK store estate (£95.3m)
In November 2016, the Group announced a strategic programme
to transform the UK store estate with the overall objective to
improve our store estate to better meet our customers’ needs.
The Group has incurred charges of £562.3m up to March 2020
under this programme primarily relating to closure costs
associated with stores identified as part of the strategic
transformation plans.
While Covid-19 has continued to impact the Group’s day-to-day
operations, the Group has experienced a significant channel shift
from stores to online. The pandemic has driven a much faster and
more acute switch to online, accelerating the Group’s ambition
to now achieve a Clothing & Home online sales mix of at least
40% over the next three years. This acceleration in channel shift
has required the Group to revise the UK store estate strategic
programme in order to ensure the estate continues to meet our
customers’ needs. As a result, the programme has been further
accelerated with additional stores identified as part of the
transformation, extending the length to 10 years. Coupled with
this, the Group is identifying opportunities to unlock value from
the estate through redevelopments and new site acquisitions,
with charges and gains associated with these activities now
included within the UK store estate programme.
The Group has recognised a charge of £95.3m in the year
in relation to those stores identified as part of the revised
transformation plans. The charge primarily reflects a revised view
of latest store exit routes and assumptions underlying estimated
store closure costs in response to the unanticipated acceleration
in channel shift experienced as a result of the pandemic. The
charge primarily relates to impairment of buildings and fixtures
and fittings, and depreciation as a result of shortening the useful
142
economic life of stores based on the latest approved exit routes.
Refer to notes 15 and 22 for further detail on these charges.
Further material charges relating to the closure and
reconfiguration of the UK store estate are anticipated over the
next 10 years 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. Following the latest view of store
closure costs, at 3 April 2021, further charges of c.£268m are
estimated within the next 10 financial years, bringing anticipated
total programme costs since 2016 up to c.£926m.
These costs are reported as adjusting items on the basis that they
are significant in quantum, relate to a strategic initiative focused
on reviewing our store estate and to aid comparability from one
period to the next.
Strategic programmes – International store closures and
impairments (£3.6m)
In 2016/17, the Group announced its intention to close owned
stores in 10 international markets. A charge of £3.6m 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, taking the programme
cost to date to £148.6m.
The net charge is considered to be an adjusting item as it is part of
a strategic programme which over the five years of charges has
been significant in both quantum and nature to the results of the
Group. No further significant charges are expected.
Strategic programmes – UK logistics (£2.2m)
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. As a direct result, the
Group announced the closure of two existing distribution centres.
In February 2020, the next phase of the single-tier programme
was announced with the closure of two further distribution
centres across 2020/21 and 2021/22. A net charge of £2.2m has
been recognised in the period, reflecting an updated view of
estimated closure costs and transition project costs relating to
these closures. Total programme costs to date are £39.8m with
further charges next financial year.
The Group considers these costs to be adjusting items as they
have been significant in quantum 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.
Directly attributable gains/(expenses) resulting from the
Covid-19 pandemic (£90.8m gain)
In March 2020, following the onset of the Covid-19
global pandemic and subsequent UK government restrictions,
the Group sustained significant disruption to its operations.
In response to the uncertainty resulting from the pandemic,
coupled with the fast-paced changes taking place across
the retail sector, the Board approved a Covid-19 scenario
to reflect management’s best estimate of the significant
volatility and business disruption expected as a result of the
ongoing pandemic.
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS CONTINUED
As a result, in 2019/20 the Group identified total Covid-19 charges
of £212.8m across four adjusting items programmes. The charges
related to three separately identifiable areas of accounting
judgement and estimates: the write-down of inventories to net
realisable value; impairments of intangible assets and property,
plant and equipment; and onerous contract provisions,
cancellation charges and one-off costs. The Group disclosed
in 2019/20 that should the estimated charges prove to be in
excess of the amounts required, the release or reassessment of
any amounts previously provided would also be treated as
adjusting items.
The pandemic continued to impact the Group throughout
2020/21 and it became increasingly more difficult to differentiate
Covid-19 items from costs that support the underlying
performance of the business. In addition, the estimated
timeframe over which these effects may impact the business
increased. As a result, the Group took the decision in the interim
2020/21 results to only include changes in estimates to items that
were included in adjusting items in 2019/20, in this case relating to
the inventory provision. Impairment reversals in the period were
not able to be reliably differentiated from the underlying
performance of the business and therefore have not been
recognised within this category.
Write-back of inventories to net realisable value (£90.8m gain)
The carrying value of the Group’s inventories at 28 March 2020
was £564.1m. The carrying value of this inventory split across the
UK Clothing & Home, UK Food and International businesses
included gross inventories of £539.7m, £162.9m and £66.3m
respectively, against which a provision of £184.3m, £8.3m and
£12.2m was recognised.
Included within directly attributable expenses resulting from the
Covid-19 pandemic of £163.6m at 2019/20, was an incremental
write-down of inventory to net realisable value of £157.0m (UK
Clothing & Home: £145.3m; UK Food: £6.0m; and International:
£5.7m), reflecting management’s best estimate of the impact
on the Group of the Covid-19 pandemic. Accordingly, of the total
£204.8m inventory provision, £157.0m was recognised in
adjusting items and £47.8m in the underlying results.
The Group’s half year results announced on 4 November 2020
included a partial release of the £157.0m incremental write-down
of inventory. At the time of our half year results announcement,
a second national lockdown had just been implemented with the
return of restrictions on non-essential retail and an expectation
that at the end of national lockdown the United Kingdom would
remain under regional tiered restrictions. However, stronger
trading, particularly in online, has allowed the Group to continue
to sell much higher volumes of stock than assumed versus the
Covid-19 scenario.
As a result, and supported by the certainty provided by vaccines
and a clear government Covid-19 re-emergence strategy, a net
credit of £90.8m has been recorded, representing a significant
release to the inventory provisions recorded in the 2019/20
financial statements to align to our latest estimates based on
current sales performance, offset by charges in the period
relating to reassessment of storage and fabric cancellation
provisions. Incremental provisions remain in place where risk
remains and include a provision of £10.8m against excess slow
moving personal protective equipment, committed to during the
peak of the first Covid-19 lockdown and incurred directly in
response to the Covid-19 pandemic. The total remaining provision
held is £35.0m.
The carrying value of the Group’s inventories at 3 April 2021 is
£624.6m, split across the UK Clothing & Home, UK Food and
International businesses represents gross inventories of
£508.8m, £144.0m and £78.5m respectively, against which a
provision of £78.2m, £15.9m and £12.6m has been recognised.
Included within the UK Clothing & Home provision is an
incremental write-down of inventory to net realisable value of
£18.6m reflecting management’s best estimate of the impact
of the Covid-19 pandemic on UK Clothing & Home inventory as at
3 April 2021. The total UK Clothing & Home inventory provisions
represent 15.4% of UK Clothing & Home inventory. The UK
Clothing & Home inventory provision is based on future trading
assumptions in line with the Group’s 2021/22 Budget. However,
trading could be higher or lower than expected and a 5% increase
in the UK Clothing & Home inventory provision (from 15% to 20%)
would result in a reduction in the valuation of inventory held on
the balance sheet of £25.4m and would result in a corresponding
increase to recognised loss before tax in the period.
The £90.8m directly attributable net gains from the Covid-19
pandemic are considered to be adjusting items as they meet the
Group’s established definition, being both significant in nature
and value to the results of the Group in the current period and
treatment as adjusting items is consistent with the treatment of
charges of a consistent nature recognised in 2019/20. Further
charges may be incurred in 2021/22 should government
lockdown restrictions be reinstated and restrictions on trade and
consumer behaviour return. Any future credits relating to these
items will continue to also be classified as adjusting.
The impact that Covid-19 has had on underlying trading
continues not to be recognised within adjusting items. The Group
has provided additional disclosure of the significant impacts of
Covid-19 on the underlying results on pages 38 to 42.
Within this, the Group has received support from the government
during the period in the form of Business Rates relief of £174.6m
and the Coronavirus Job Retention Scheme of £131.5m. Further
details of which are provided in note 30 – government support.
Intangible asset impairments (£79.9m)
The Group has recognised impairment charges in the period for
certain intangible assets.
A further impairment charge of £39.6m has been recorded
against per una goodwill. The charge primarily reflects an
updated view of assumptions and cash flows to reflect the impact
of the new broader Brands strategy and a longer Covid-19
recovery period. Refer to note 14 for further details on the
impairment charge related to per una goodwill.
The per una goodwill impairment charge has been classified as
an adjusting item on the basis of the significant quantum of the
charge in the period to the results of the Group and for
consistency with prior periods.
In November 2020, the Group performed a critical review of the
UK Clothing & Home operations leading to the launch of the
new MS2 division within UK Clothing & Home to build on our
investment in data and digital and step change online growth.
The Group conducted a review of the intangible computer
software assets held on the balance sheet which were to be
replaced, retired or decommissioned as part of the MS2
programme. An impairment charge of £40.3m has been
recognised reflecting significant changes to certain intangible
assets used by UK Clothing & Home.
These costs are considered to be adjusting items as they relate to
the transformation and the total costs are significant in quantum
and as a result not considered to be normal operating costs of
the business. No further significant charges are expected to be
recognised within adjusting items in relation to MS2.
143
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS CONTINUED
Store impairments, impairment reversals and property
charges (£6.9m gain)
The Group has recognised a number of charges and credits in the
period associated with the carrying value of items of property,
plant and equipment.
In response to the ongoing pressures impacting the retail
industry in light of the ongoing Covid-19 pandemic, as well as
reflecting the Group’s strategic focus towards growing online
market share, the Group has revised future cash flow projections
for UK and International stores (excluding those stores that have
been captured as part of the UK store estate programme). As a
result, 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 £66.4m has been
incurred primarily in respect of the impairment of assets
associated with these stores. In addition, a credit of £73.3m has
been incurred for the reversal of store impairments recognised
in previous periods, where revised future cash flow projections
more than support the carrying value of the stores, reflecting
improved trading expectations compared to those assumed
at the prior year end. Refer to note 15 for further details on
the impairments.
The charges/credits have been classified as an adjusting item on
the basis of the significant quantum of the charge/credit in the
period to the results of the Group.
Amortisation and fair value adjustments arising as part of
the investment in Ocado Retail Limited (£14.2m)
Intangible assets of £366.0m were acquired as part of the
investment in Ocado Retail Limited in 2019/20 relating to the
Ocado brand and acquired customer relationships. These
intangibles are being amortised over their useful economic lives
of 10–40 years with an amortisation charge of £17.5m recognised
in the period and a related deferred tax credit of £3.3m.
The amortisation charge and changes in the related deferred tax
liability are included within the Group’s share of the profit or loss
of the associate and are considered to be adjusting items as they
are based on judgements about their value and economic life and
are not related to the Group’s underlying trading performance.
Identifying these items as adjusting allows greater comparability
of underlying performance.
Sparks loyalty programme transition (£16.6m)
In July 2020, the Group relaunched its Sparks loyalty programme
as a Digital First loyalty scheme. The new Sparks programme
removed certain elements of the old, such as points and sale
access tiers, and introduced new instant rewards to deliver
immediate and clearer value to customers for shopping with
M&S. As part of the transition to the new Sparks programme,
customers who were members of the old loyalty scheme were
provided with ‘thank you’ gifts for their loyalty, the value of which
was determined in part with reference to the number of Sparks
points earned historically. These ‘thank you’ gifts consisted of
tote bags and vouchers for money off future purchases. As a
result, a charge of £16.6m has been recognised in the period
relating to one-off transition and ‘thank-you’ costs associated
with the closure of the old Sparks programme.
These costs are directly attributable to the closure of the old
Sparks programme and are considered to be adjusting as they
are significant in quantum, are one-off in nature and not
considered to be part of the normal operating costs of the
business. No similar charges of this type have been incurred by
the Group in the past, and no further charges are expected in
future years.
144
M&S Bank charges incurred in relation to insurance mis-selling
and Covid-19 forward economic guidance provision (£2.4m)
The Group has an economic interest in Marks and Spencer
Financial Services plc (trading as M&S Bank), a wholly owned
subsidiary of HSBC UK Bank plc, 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 profit share and fee income
from M&S Bank has been reduced by the deduction of the
estimated liability in both the current and prior years. In line with
the accounting treatment under the Relationship Agreement,
there is a cap on the amount of charges that can be offset against
the profit share in any one year, whereby excess liabilities carried
forward are deducted from the Group’s future profit share from
M&S Bank. The deduction in the period is £2.4m.
The treatment of this in adjusting items is in line with previous
charges in relation to settlement of PPI claims and although it
is recurring, it is significant in quantum in the context of the
total charges recognised for PPI mis-selling to-date and is not
considered representative of the normal operating performance
of the Group. As previously noted, while the August 2019 deadline
to raise potential mis-selling claims has now passed, costs
relating to the estimated liability for redress are expected to
continue. The total charges recognised in adjusting items since
September 2012 for both PPI and Covid-19 forward economic
guidance provision is £338.3m which exceeds the total offset
against profit share of £225.1m to date and this deficit will
be deducted from the Group’s share of future profits from
M&S Bank.
Establishing the investment in Ocado Retail Limited (£1.7m)
In 2018/19, the Group announced its 50/50 investment in Ocado
Retail Limited. £4.6m of charges were recognised across 2018/19
and 2019/20 primarily relating to due diligence for the Ocado
Retail transaction and one-off charges, that are not part of the
day-to-day operational costs of our business with Ocado Retail,
incurred in preparation for the launch in September 2020.
A further £1.7m of “getting ready” charges were incurred in
the period prior to launch on 1 September, bringing the total
one-off charges relating to Ocado Retail to £6.3m. No further
costs are expected.
These costs are adjusting items as they relate to a major
transaction and as a result are not considered to be normal
operating costs of the business.
GMP and other pension equalisation (£1.0m)
The Group has recognised a charge of £1.0m in respect of the
Group’s defined benefit pension liability arising from equalisation
of GMP for past transfers following a High Court ruling in
November 2020. Additional detail on the Group’s GMP
assessment is provided in note 11.
Treatment of the costs as being adjusting items is consistent with
the treatment of charges recognised in 2018/19 in relation to the
equalisation of GMP and other pension equalisation. Total GMP
and other pension equalisation costs are £21.5m.
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 ADJUSTING ITEMS CONTINUED
Remeasurement of contingent consideration including discount unwind (£6.8m)
Contingent consideration, resulting from the investment in Ocado Retail Limited, is remeasured at fair value at each reporting date
with the changes in fair value recognised in profit or loss. A charge of £6.8m has been recognised in the period, representing the
revaluation of the contingent consideration payable. The change in fair value is considered to be an adjusting item as it relates to a
major transaction and consequently is not considered representative of the normal operating performance of the Group. The
remeasurement will be recognised in adjusting items until the final contingent consideration payment is made in 2024/25.
6 FINANCE INCOME/COSTS
Bank and other interest receivable
Other finance income
Pension net finance income (see note 11F)
Interest income of subleases
Finance income before adjusting items
Finance income in adjusting items
Finance income
Other finance costs
Interest payable on syndicated bank facility
Interest payable on Medium Term Notes
Interest payable on commercial paper facility
Interest payable on lease liabilities
Unwind of discount on provisions
Unwind of discount on partnership liability to the Marks & Spencer UK Pension Scheme (see note 12)
Finance costs before adjusting items
Finance costs in adjusting items
Finance costs
Net finance costs
7 INCOME TAX (CREDIT)/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
– adjustments in respect of prior years
– changes in tax rate
Total deferred tax (see note 23)
Total income tax (credit)/expense
2021
£m
2.9
1.8
47.2
5.5
57.4
–
57.4
(0.6)
(3.9)
(86.4)
(0.4)
(130.4)
(2.7)
(4.9)
(229.3)
(6.8)
(236.1)
(178.7)
2020
£m
8.6
5.9
23.6
5.9
44.0
2.9
46.9
–
(2.3)
(78.2)
–
(139.3)
(4.9)
(6.9)
(231.6)
(2.9)
(234.5)
(187.6)
2021
£m
2020
£m
3.7
(12.1)
(8.4)
0.2
(0.2)
(8.4)
6.7
(5.9)
(0.6)
0.2
(8.2)
42.8
(4.1)
38.7
8.8
(0.1)
47.4
0.4
(4.1)
(3.9)
(7.6)
39.8
145
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7 INCOME TAX (CREDIT)/EXPENSE CONTINUED
B. Taxation reconciliation
The effective tax rate was 3.9% (last year: 59.3%) and is explained below.
(Loss)/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
Joint venture results accounted for as profit after tax
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
Movement in unrecognised overseas deferred tax assets
Adjustments to the current and deferred tax charges in respect of prior periods
Capital losses no longer recognised
Adjusting items:
– UK store and strategic programme impairments and other property charges 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
– Amortisation arising as a part of the investment in Ocado Retail Limited
Total income tax (credit)/expense
The effective tax rate of profit before tax and adjusting items was 50.3% (last year: 20.7%).
2021
£m
(209.4)
(39.8)
5.2
8.6
(14.6)
–
0.7
0.9
(18.2)
25.8
8.5
(1.0)
13.0
2.7
(8.2)
2020
£m
67.2
12.8
4.8
16.5
–
(6.6)
(0.6)
0.8
(8.3)
–
11.5
0.7
5.0
3.2
39.8
Other income and expenses that are not taxable or allowable for tax purposes include a charge of £4.1m (last year: £12.8m 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.
Capital losses no longer recognised relate to a restriction on deferred tax assets recognised following changes to the UK tax
legislation. Please refer to note 23.
The UK Budget 2021 announcements on 3 March 2021 included measures to support economic recovery as a result of the ongoing
Covid-19 pandemic. These included an increase to the UK’s main corporation tax rate to 25%, which is due to be effective from 1 April
2023. These changes were not substantively enacted at the balance sheet date and hence have not been reflected in the measurement
of deferred tax balances at the period end. If the Group’s deferred tax balances at the period end were remeasured at 25% this would
result in a deferred tax charge of £13.3m. It is not possible to accurately calculate how much of the deferred tax liability at the balance
sheet date would reverse at 19% vs 25%. This is because a large portion of the liability relates to the pension surplus for which future
actuarial gains or losses cannot be reliably forecasted.
146
Marks and Spencer Group plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7 INCOME TAX (CREDIT)/EXPENSE CONTINUED
C. Current tax reconciliation
The current tax reconciliation shows the tax effect of the main adjustments made to the Group’s accounting profits in order to arrive
at its taxable profits. The reconciling items differ from those in note 7B as the effects of deferred tax temporary differences are
ignored below.
(Loss)/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
Movement in unrecognised overseas deferred tax
Joint venture results accounted for as profit after tax
Current year losses carried forward
Other income and expenses that are not taxable or allowable
Adjusting items:
– UK store and strategic programme impairments and other property charges 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
– Impairment to per una goodwill
– Amortisation arising as a part of the investment in Ocado Retail Limited
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)
8 EARNINGS PER SHARE
2021
£m
(209.4)
(39.8)
75.1
(50.0)
1.9
(4.7)
0.7
0.9
(14.6)
11.3
(0.1)
8.5
(1.0)
5.5
7.5
2.7
3.9
3.7
0.2
3.9
(12.1)
(0.2)
(8.4)
2020
£m
67.2
12.8
52.5
(56.8)
2.3
8.2
(0.6)
0.8
–
–
4.6
21.0
0.5
3.1
–
3.2
51.6
42.8
8.8
51.6
(4.1)
(0.1)
47.4
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.
147
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
8 EARNINGS PER SHARE CONTINUED
Details of the adjusted earnings per share are set out below:
(Loss)/profit attributable to equity shareholders of the Company
Add/(less):
Adjusting items (see note 5)
Tax on adjusting items
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 schemes1
Weighted average number of diluted ordinary shares
1. Potentially dilutive share options only considered in relation to adjusted diluted earnings per share as the Group made a basic loss per share.
Basic (loss)/earnings per share
Diluted (loss)/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
2021
£m
(198.0)
259.7
(33.5)
28.2
Million
1,953.5
15.0
1,968.5
Pence
(10.1)
(10.1)
1.4
1.4
2020
£m
23.7
335.9
(43.6)
316.0
Million
1,894.9
10.7
1,905.6
Pence
1.3
1.2
16.7
16.6
2020
£m
115.1
76.0
191.1
2021
per share
2020
per share
2021
£m
–
–
–
6.8p
3.9p
10.7p
–
–
–
The Board of Directors has not proposed a final dividend for 2020/21. The Board of Directors continues to defer consideration of
further dividends until visibility of the pace and scale of market recovery has improved.
10 EMPLOYEES
A. Aggregate remuneration
The aggregate remuneration and associated costs of Group employees (including Executive 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
1. Excludes amounts recognised within adjusting items of £100.4m (last year: £23.1m) (see notes 3 and 5).
Details of key management compensation are given in note 28.
2021
Total
£m
1,210.3
99.5
71.3
19.3
43.7
(6.4)
1,437.7
2020
Total
£m
1,263.7
80.0
72.9
18.5
51.8
(22.5)
1,464.4
148
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
10 EMPLOYEES CONTINUED
B. Average monthly number of employees
UK stores
– management and supervisory categories
– other
UK head office
– management and supervisory categories
– other
UK operations
– management and supervisory categories
– other
Overseas
Total average number of employees
2021
2020
4,870
54,076
2,948
749
117
1,507
5,579
69,846
5,278
62,027
2,947
764
115
1,302
5,598
78,031
The average number of full-time equivalent employees is 49,177 (last year: 53,988).
11 RETIREMENT BENEFITS
The Group provides pension arrangements for the benefit of its UK employees through the Your M&S Pension Saving Plan (a defined
contribution (DC) arrangement) and prior to 2017, through the Marks & Spencer Pension Scheme (“UK DB Pension Scheme”) (a defined
benefit (DB) 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 Pension Scheme closed to future accrual on 1 April 2017. 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), 53,674 deferred members (last year: 55,887) and 52,794 pensioners (last year: 52,165).
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 46,191 active members (last year: 52,059) and some
40,604 deferred members (last year: 33,578).
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 £23.9m (last year: £49.2m). Of this, income of £43.3m (last year: income of £20.2m) relates
to the UK DB Pension Scheme, costs of £64.0m (last year: costs of £65.6m) to the UK DC plan and costs of £3.2m (last year: costs of
£3.8m) to other retirement benefit schemes.
The most recent actuarial valuation of the UK DB 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). We have yet to reach agreement with the Trustee of the
UK DB Pension Scheme with regards to the triennial actuarial valuation of the scheme as at 31 March 2021.
In September 2020, the UK DB Pension Scheme purchased additional pensioner buy-in policies with two insurers for approximately
£750m. Together with the policies purchased in April 2019 and March 2018, the Scheme has now, in total, insured around 80% 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.
In November 2020, there was a further High Court ruling in relation to guaranteed minimum pension benefits. The latest ruling states
that trustees of defined benefit (DB) schemes that provided guaranteed minimum payments should revisit, and where necessary,
top-up historic cash equivalent transfer values that were calculated on an unequalised basis if an affected member makes a
successful claim. The impact of the ruling implies that pension scheme trustees are responsible for equalising the guaranteed
minimum payments for members who transferred out of its DB pension scheme. This has resulted in an increase in the liabilities of
the UK DB Pension Scheme of £1.0m, which was recognised in the results as a past service cost.
149
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
11 RETIREMENT BENEFITS CONTINUED
A. Pensions and other post-retirement liabilities
Total market value of assets
Present value of scheme liabilities
Net funded pension plan asset
Unfunded retirement benefits
Post-retirement healthcare
Net retirement benefit surplus
Analysed in the statement of financial position as:
Retirement benefit asset
Retirement benefit deficit
Net retirement benefit surplus
2021
£m
10,442.9
(9,803.7)
639.2
(3.8)
(4.0)
631.4
2020
£m
10,653.8
(8,743.3)
1,910.5
(3.9)
(4.0)
1,902.6
639.2
(7.8)
631.4
1,915.0
(12.4)
1,902.6
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 Trustee has 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 for RPI
Long-term healthcare cost increases
2021
%
2.2–3.2
2.00
3.30
7.30
2020
%
1.9–2.7
2.40
2.70
6.70
C. Demographic assumptions
The UK demographic assumptions are mainly 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, with future
projections based on up-to-date industry models, parameterised to reflect scheme data. 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
2021
22.2
25.0
24.0
26.8
2020
22.2
24.9
24.0
26.8
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)/increase in scheme surplus caused by a decrease in the discount rate of 0.25%
(Decrease)/increase in scheme surplus caused by a decrease in the discount rate of 0.50%
Decrease in scheme surplus caused by a decrease in the inflation rate of 0.25%
Decrease in scheme surplus caused by a decrease in the inflation rate of 0.50%
Increase in scheme surplus caused by a decrease in the average life expectancy of one year
2021
£m
(20.0)
(30.0)
(20.0)
(30.0)
300.0
2020
£m
50.0
100.0
(50.0)
(100.0)
240.0
The discount rate sensitivity is comparable to the sensitivity quoted last year-end. However, the sign has changed from an increase in
surplus to a reduction in surplus, as the ‘IAS19 over-hedge’ on gilt yields increased materially during the previous year. Consequently,
assets are projected to grow by less than liabilities this year, whereas assets were projected to grow by more than liabilities last year.
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.
150
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 bond (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 105% of interest rate movements and 102% of inflation movements, as measured on the Trustee’s
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
2021
2020
Quoted
£m
Unquoted
£m
Total
£m
Quoted
£m
Unquoted
£m
Total
£m
3,945.2
6.4
–
–
450.9
131.1
5.4
43.8
–
18.4
93.2
13.6
(1,443.5)
1,036.6
256.1
142.5
2,501.7
1,043.0
256.1
142.5
3,596.8
6.2
–
–
–
–
276.8
299.0
224.1
298.6
4.5
148.9
450.9
131.1
282.2
342.8
224.1
317.0
97.7
162.5
338.7
90.3
5.8
32.6
–
19.9
(0.4)
108.1
352.0
728.3
264.4
211.2
56.6
–
291.4
385.1
175.4
253.7
162.4
181.8
3,948.8
734.5
264.4
211.2
395.3
90.3
297.2
417.7
175.4
273.6
162.0
289.9
–
–
38.7
4,746.7
3,177.0
1,064.4
211.2
5,696.2
3,177.0
1,064.4
249.9
10,442.9
–
–
28.8
4,226.8
2,430.0
934.6
0.1
6,427.0
2,430.0
934.6
28.9
10,653.8
1. Repurchase agreements were £1,443.5m (last year: £820.5m)
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 75,223 (last year: 63,527)
ordinary shares in the Company through its investment in UK Equity Index Funds.
151
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
11 RETIREMENT BENEFITS CONTINUED
F. Analysis of amounts charged against profits
Amounts recognised in comprehensive income in respect of defined benefit retirement plans are as follows:
Current service cost
Administration costs
Past service costs
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)/loss – demographic assumptions
Actuarial gain – experience1
Actuarial loss/(gain) – financial assumptions
Components of defined benefit expense/(income) recognised in other comprehensive income
1.
Includes a £2.5m loss (last year: £nil) relating to an equalisation charge recognised in 2018/19 that was reclassified from provisions in the current period.
G. Scheme assets
Changes in the fair value of the scheme assets are as follows:
2021
£m
0.2
4.5
1.0
(47.2)
(41.5)
117.5
(12.5)
(82.6)
1,332.1
1,354.5
2020
£m
0.2
4.5
–
(23.6)
(18.9)
(477.3)
10.0
(46.1)
(414.5)
(927.9)
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 £137.4m (last year: gain of £722.7m).
H. Pensions and other post-retirement liabilities
Changes in the present value of retirement benefit obligations are as follows:
Present value of obligation at start of year
Current service cost
Administration costs
Past service cost
Interest cost
Benefits paid
Actuarial gain – experience1
Actuarial (gain)/loss – 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
2021
£m
10,653.8
254.9
(117.5)
41.5
(379.4)
(4.3)
(6.1)
10,442.9
2020
£m
10,224.7
245.4
477.3
41.8
(333.2)
(4.3)
2.1
10,653.8
2021
£m
8,751.2
0.2
0.2
1.0
207.7
(379.4)
(82.6)
(12.5)
1,332.1
(6.4)
9,811.5
9,803.7
3.8
4.0
9,811.5
2020
£m
9,310.4
0.2
0.2
–
221.8
(333.2)
(46.1)
10.0
(414.5)
2.4
8,751.2
8,743.3
3.9
4.0
8,751.2
1.
Includes a £2.5m loss (last year: £nil) relating to an equalisation charge recognised in 2018/19 that was reclassified from provisions in the current period.
The average duration of the defined benefit obligation at 3 April 2021 is 19 years (last year: 19 years).
152
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: £1.4bn) 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 £193.5m (last year: £207.4m) is included as a financial liability in the Group’s
financial statements as it is a transferable financial instrument and measured at amortised cost, being the net present value of the
future expected distributions from the Partnership. During the year to 3 April 2021, an interest charge of £4.9m (last year: £6.9m)
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 £142.5m (last year: £211.2m).
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 £19.3m was recognised for share-based payments (last year: charge of £18.5m). Of the total share-based
payments charge, £9.2m (last year: £7.6m) relates to the Save As You Earn share option scheme and a charge of £1.7m (last year: £4.9m)
relates to the Performance Share Plan. The remaining charge of £8.4m (last year: £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 scheme allows
participants to save up to a maximum of £500 (last year: £250) each month. The price at which options may be offered is 80% of the
average mid-market price for three consecutive dealing days preceding the offer date. The options may normally be exercised during
the six-month period after the completion of the SAYE contract.
Outstanding at beginning of the year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
2021
2020
Number of
options
53,139,941
101,466,321
(556)
(23,811,474)
(11,642,826)
119,151,406
7,211,376
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
190.7p 38,023,501
82.0p 34,087,655
(49,610)
151.0p
155.7p (15,727,568)
(3,194,037)
248.7p
53,139,941
99.4p
11,272,515
212.5p
267.9p
151.0p
250.2p
237.9p
380.2p
190.7p
249.6p
For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 152.4p (last year: 265.7p).
153
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13 SHARE-BASED PAYMENTS CONTINUED
The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs
shown below:
Grant date
Share price at grant date
Exercise price
Option life in years
Risk-free rate
Expected volatility
Expected dividend yield
Fair value of option
Incremental fair value of option
2021
2020
3-year plan
3-year plan
2020 modified1
3-year plan
Dec-20
103p
82p
3 years
0.0%
45.6%
0.0%
34p
N/A
Dec-20
103p
151p
3 years
0.0%
45.6%
0.0%
19p
15p
Dec 19
189p
151p
3 years
0.5%
27.6%
5.7%
33p
N/A
1.
In the current year, there has been a modification to the 2021 scheme relating to employees cancelling awards from previous years in substitution for awards granted under the 2021
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 2021
options, being 34p, and the fair value of repriced previous awards, calculated using 2020 award assumptions, keeping the initial exercise price consistent. The fair value of the
modified options, being 15p for 2021 modified options is already recognised in operating loss.
Volatility has been estimated by taking the historical 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 Employee SAYE Scheme are as follows:
Options granted1
January 2016
January 2017
January 2018
January 2019
February 2020
February 2021
Number of options
Weighted average remaining contractual life (years)
2021
2020
–
9,202
4,112,855
3,405,862
12,331,683
99,291,804
119,151,406
3,720
11,344,003
5,557,053
4,910,783
31,324,382
–
53,139,941
2021
–
–
0.3
1.3
2.3
3.3
3.1
2020
Option price
–
0.3
1.3
2.3
3.3
–
2.4
416p
250p
251p
238p
151p
82p
99p
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 170 of the most senior managers within
the Group. It was first approved by shareholders at the 2005 AGM and again at the 2020 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 2020/21 included earnings per share (EPS), return on capital employed (ROCE), total shareholder return (TSR) and
strategic measures. The value of any dividends earned on the vested shares during the three years may also be paid on vesting.
Awards under this plan have been made in each year since 2005. More information is available in relation to this plan within the
Remuneration Report.
During the year, 19,777,921 shares (last year: 12,924,621) were awarded under the plan. The weighted average fair value of the shares
awarded was 101.4p (last year: 161.0p). As at 3 April 2021, 33,878,325 shares (last year: 20,502,705) 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 and was approved by
shareholders at the 2020 AGM. It may be operated for approximately 4,000 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 may also be paid on vesting. More information is available in relation to this
plan within the Remuneration Report.
During the year, no shares (last year: no shares) have been awarded under the plan in relation to the annual bonus. As at 3 April 2021,
422,672 shares (last year: 1,359,166) were outstanding under the plan.
154
Marks and Spencer Group plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13 SHARE-BASED PAYMENTS CONTINUED
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 and was approved by shareholders at the 2020 AGM. The plan operates for the
senior management team. 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 may also be paid on vesting. More information is available in relation to this plan within the
Remuneration Report.
During the year, 11,996,948 shares (last year: 3,645,421) have been awarded under the plan. The weighted average fair value of the
shares awarded was 124.3p (last year: 150.0p). As at 3 April 2021, 10,722,919 shares (last year: 4,896,084) were outstanding under
the plan.
E. Republic of Ireland Save As You Earn scheme
Sharesave, the Company’s Save As You Earn scheme, was introduced in 2009 to all employees in the Republic of Ireland for a 10-year
period, after approval by shareholders at the 2009 AGM and again at the 2019 AGM. The scheme is subject to Irish Revenue rules and
allows participants to save up to a maximum of €500 (last year: €320) each month. The price at which options may be offered is 80% of
the average mid-market price for three consecutive dealing days preceding the offer date. The options may normally be exercised
during the six-month period after the completion of the SAYE contract.
During the year, 1,409,129 options (last year: 327,689) were granted, at a fair value of 33.7p (last year: 33.4p). As at 3 April 2021,
1,846,589 options (last year: 790,977) were outstanding under the scheme.
F. Marks and Spencer Employee Benefit Trust
The Marks and Spencer Employee Benefit Trust (the “Trust”) holds 527,116 (last year: 1,557,996) shares with a book value of £0.1m
(last year: £3.4m) and a market value of £0.8m (last year: £1.5m). These shares were acquired by the Trust through a combination of
market purchases and new issues 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 the 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 both this year and last year were 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.
155
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
14 INTANGIBLE ASSETS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
At 30 March 2019
Cost
Accumulated amortisation and impairments
Net book value
Year ended 28 March 2020
Opening net book value
Additions
Transfers and reclassifications
Asset impairments
Asset write-offs
Amortisation charge
Exchange difference
Closing net book value
At 28 March 2020
Cost
Accumulated amortisation, impairments and write-offs
Net book value
Year ended 3 April 2021
Opening net book value
Additions
Transfers and reclassifications
Asset impairments1
Asset write-offs
Amortisation charge
Exchange difference
Closing net book value
At 3 April 2021
Cost
Accumulated amortisation, impairments and write-offs
Net book value
Goodwill
£m
Brands
£m
Computer
software
£m
Computer
software under
development
£m
136.5
(59.0)
77.5
77.5
–
–
(13.4)
–
–
(0.1)
64.0
136.4
(72.4)
64.0
64.0
–
–
(39.6)
–
–
(0.7)
23.7
112.3
(109.5)
2.8
1,402.2
(1,025.1)
377.1
2.8
–
–
–
–
(2.8)
–
–
377.1
1.1
91.8
–
(0.5)
(162.0)
–
307.5
112.3
(112.3)
–
1,495.1
(1,187.6)
307.5
–
6.3
–
–
–
(0.2)
–
6.1
307.5
0.1
44.7
(40.0)
(3.2)
(131.4)
(0.3)
177.4
135.7
(112.0)
23.7
118.6
(112.5)
6.1
1,539.6
(1,362.2)
177.4
74.6
(32.1)
42.5
42.5
76.5
(91.4)
–
–
–
–
27.6
59.7
(32.1)
27.6
27.6
41.4
(44.2)
–
–
–
–
24.8
56.9
(32.1)
24.8
Total
£m
1,725.6
(1,225.7)
499.9
499.9
77.6
0.4
(13.4)
(0.5)
(164.8)
(0.1)
399.1
1,803.5
(1,404.4)
399.1
399.1
47.8
0.5
(79.6)
(3.2)
(131.6)
(1.0)
232.0
1,850.8
(1,618.8)
232.0
Goodwill related to the following assets and groups of cash generating units (CGUs):
Net book value at 28 March 2020
Asset impairments
Exchange difference
Net book value at 3 April 2021
per una
£m
56.1
(39.6)
–
16.5
India
£m
7.2
–
(0.7)
6.5
Other
£m
Total goodwill
£m
0.7
–
–
0.7
64.0
(39.6)
(0.7)
23.7
1. Asset impairments of £79.6m made up of: £39.6m charge recorded against per una goodwill, £40.0m in relation to replaced, retired or decommissioned as part of MS2 (see note 5).
156
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14 INTANGIBLE ASSETS CONTINUED
Goodwill impairment testing
Goodwill is not amortised but is tested annually for impairment with the recoverable amount being determined from value in
use calculations.
The goodwill balance relates to the goodwill recognised on the acquisition of per una £16.5m (last year: £56.1m), India £6.5m
(last year: £7.2m) and other £0.7m (last year: £0.7m).
Goodwill for India is monitored by management at a country level, including the combined retail and wholesale businesses, and has
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 £nil (last year: £nil). 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 historical performance and knowledge of the current market, together with the Group’s views on the
future achievable growth and the impact of committed cash flows. The cash flows include ongoing capital expenditure required to
maintain the store network but exclude any growth capital initiatives not committed.
Cash flows beyond this three-year period are extrapolated using a long-term growth rate based on the Group’s current view of
achievable long-term growth. The Group’s current view of achievable long-term growth for per una is 0.5% (last year: 0.7%), which is a
reduction from the overall Group long-term growth rate of 1.75% (last year: 2%). The Group’s current view of achievable long-term
growth for India is 5.9% (last year: 5.9%).
Management estimates discount 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 (“WACC”)
which has been calculated using the capital asset pricing model, the inputs of which include a country risk-free rate, equity risk
premium, Group size premium and a risk adjustment (beta). The post-tax WACC is subsequently grossed up to a pre-tax rate and was
11.0% for per una (last year: 9.7%) and 12.9% for India (last year: 14.3%).
Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably 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, 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 future cash flows applied in the per una calculation reflect the Group’s current plan for the per una brand over the next three
years. These plans reflect the updated trading position of the per una brand post Covid-19 and rationalisation of the per una range
whereby certain product ranges have been removed from the brand.
The trading assumptions applied in the prior year reflected the expectation that the impact of Covid-19 would last 12 months, with
sales and customer trends returning to pre-pandemic levels in 2021/22. Therefore, the impact of Covid-19 was reflected within the
forecast per una sales for 2020/21 only, with return to pre Covid-19 levels by February 2021. A year on, it has become apparent that the
recovery of per una sales will take longer and that there is likely to be a permanent shift in customer behaviour and habits, especially
triggered by two additional lockdowns in the second half of the financial year. As a result, the revised plan assumes a per una sales
decline of c. 40% in 2021/22 vs 2019/20, followed by moderate increases in sales in years 2 and 3 of the plan. The revised plan does not
return to 2019/20 sales levels.
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 0.5% (last year: 0.7%) growth into perpetuity, which is the per una sales
growth assumed in year 3 of the plan. If a shorter trading period was assumed then this could result in a further impairment.
The outcome of the value in use calculation is an impairment of £39.6m (prior year impairment charge of £13.4m).
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 a further impairment. Management has
performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key
assumptions for the per una brand. Individually a 50-basis point increase in the WACC rate or a reduction in the perpetuity growth rate
to 0% would cause an increase in the impairment below £0.7m. A 20% reduction in cash flows over the whole three-year plan period
would cause a £3.3m further impairment and in combination, these reasonably possible changes in the key assumptions would cause a
further impairment of £3.9m.
Computer software impairment testing
Following the announcement of the new MS2 division, the Group conducted a review of the intangible computer software assets held
on the balance sheet which were to be decommissioned, replaced or retired as part of the MS2 programme. An impairment charge and
write off of £40.0m has been recognised reflecting significant changes to certain intangible assets used by UK Clothing & Home.
Jaeger
During the period, the Group recognised additions to brand intangible assets of £6.3m, relating to the purchase of the Intellectual
Property of the Jaeger brand (including registered trademarks, goodwill, logos, domain names and social media accounts) as part of
an asset acquisition.
157
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 PROPERTY, PLANT AND EQUIPMENT
The Group’s property, plant and equipment of £5,058.6m (last year: £5,494.2m) consists of owned assets of £3,562.6m (last year:
£3,863.9m) and right-of-use assets of £1,496.0m (last year: £1,630.3m).
PROPERTY, PLANT AND EQUIPMENT – OWNED
At 30 March 2019
Cost
Accumulated depreciation, impairments and write-offs
Net book value
Year ended 28 March 2020
Opening net book value
Additions
Transfers and reclassifications
Impairment reversals
Impairment charge
Asset write-offs
Depreciation charge
Exchange difference
Closing net book value
At 28 March 2020
Cost
Accumulated depreciation, impairments and write-offs
Net book value
Year ended 3 April 2021
Opening net book value
Additions
Transfers and reclassifications
Impairment reversals
Impairment charge1
Asset write-offs
Depreciation charge
Exchange difference
Closing net book value
At 3 April 2021
Cost
Accumulated depreciation, impairments and write-offs
Net book value
Land and
buildings
£m
Fixtures, fittings
and equipment
£m
Assets in the
course of
construction
£m
Total
£m
2,885.9
(637.1)
2,248.8
2,248.8
2.1
22.2
25.7
(73.9)
(1.8)
(62.0)
6.3
2,167.4
2,887.5
(720.1)
2,167.4
2,167.4
3.8
7.2
36.9
(73.2)
(29.8)
(83.3)
(6.6)
2,022.4
2,809.9
(787.5)
2,022.4
5,673.6
(4,015.6)
1,658.0
1,658.0
27.7
183.6
32.4
(52.7)
(7.1)
(267.2)
1.8
1,576.5
5,457.1
(3,880.6)
1,576.5
1,576.5
18.6
157.0
36.2
(48.7)
(17.4)
(228.5)
(2.8)
1,490.9
5,450.2
(3,959.3)
1,490.9
98.1
(18.0)
80.1
8,657.6
(4,670.7)
3,986.9
80.1
244.9
(205.0)
–
–
–
–
–
120.0
138.0
(18.0)
120.0
120.0
92.1
(162.6)
–
–
(0.1)
–
(0.1)
49.3
3,986.9
274.7
0.8
58.1
(126.6)
(8.9)
(329.2)
8.1
3,863.9
8,482.6
(4,618.7)
3,863.9
3,863.9
114.5
1.6
73.1
(121.9)
(47.3)
(311.8)
(9.5)
3,562.6
67.5
(18.2)
49.3
8,327.6
(4,765.0)
3,562.6
1. Asset impairments of £121.9m made up of: £48.2m charge as a result of UK store impairment testing, £73.4m charge relating to the ongoing UK store estate programme and
£0.3m in relation to assets replaced, retired or decommissioned as part of the MS2 programme (see note 5).
Asset write-offs in the year include assets with gross book value of £67.4m (last year: £680.5m) and £nil (last year: £nil) net book value
that are no longer in use and have therefore been retired.
158
Marks and Spencer Group plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 PROPERTY, PLANT AND EQUIPMENT CONTINUED
Right-of-use assets
The Group adopted IFRS 16 Leases from 31 March 2019. Refer to note 1 for the accounting policy. The right-of-use assets recognised on
adoption of IFRS 16 are reflected in the underlying asset classes of property, plant and equipment.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:
As at 30 March 2019
Additions
Transfers and reclassifications
Disposals
Impairment reversals
Impairment charge
Depreciation charge
Exchange difference
As at 28 March 2020
Additions
Transfers and reclassifications
Disposals
Impairment reversals
Impairment charge
Depreciation charge
Exchange difference
As at 3 April 2021
Land and
buildings
£m
Fixtures, fittings
and equipment
£m
1,637.8
140.3
0.2
(18.9)
50.2
(84.4)
(155.9)
1.8
1,571.1
37.2
0.3
(5.5)
36.9
(52.7)
(132.0)
(10.6)
1,444.7
37.6
40.4
(0.2)
–
–
–
(18.7)
0.1
59.2
13.1
–
0.2
–
–
(21.1)
(0.1)
51.3
Total
£m
1,675.4
180.7
–
(18.9)
50.2
(84.4)
(174.6)
1.9
1,630.3
50.3
0.3
(5.3)
36.9
(52.7)
(153.1)
(10.7)
1,496.0
Impairment of property, plant and equipment and right-of-use assets
For impairment testing purposes, the Group has determined that each store is a separate CGU, with the exception of Outlets stores,
which are considered together as one CGU. Click & Collect 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 ongoing Covid-19 pandemic
is considered an impairment trigger and as a result all stores have been tested for impairment.
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’s 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.
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, which has been calculated using the capital asset pricing model, the inputs of which include a
country risk-free rate, equity risk premium, Group size premium and a risk adjustment (beta). The pre-tax discount rates range from
8.9% to 14.0% (last year: 8.6% to 16.8%). 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.
159
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 PROPERTY, PLANT AND EQUIPMENT CONTINUED
Impairments – UK stores excluding the UK store estate programme
During the year, the Group has recognised an impairment charge of £66.4m and impairment reversals of £64.5m as a result of UK store
impairment testing unrelated to the UK store estate programme (last year: impairment charge of £69.3m). The impaired stores were
impaired to their ‘value in use’ recoverable amount of £98.5m, which is their carrying value at year end. The stores with impairment
reversals were written back to their ‘value in use’ recoverable amount of £223.0m. These impairments and impairment reversals 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 1.75%, adjusted to 0% where management believes the current trading performance and future expectations of the store
do not support the growth rate of 1.75%. The rate used to discount the forecast cash flows for UK stores is 8.9% (last year: 8.6%).
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 5% from the three-year plan in year 3 would result in an increase in the impairment charge of £33.0m and a
25 basis point reduction in gross profit margin from year 3 onwards would increase the impairment charge by £4.0m. In combination,
a 1% fall in sales and a 10 basis point fall in gross profit margin would increase the impairment charge by £7.0m. Reasonably possible
changes of the other key assumptions, including a 50 basis point increase in the discount rate or reducing the long-term growth rate
to 0% across all stores, would not result in a significant increase to the impairment charge, either individually or in combination.
A reduction in sales of 5% from the three-year plan in year 3 would result in a reduction in the reversal of £1.1m and a 25 basis point
reduction in gross profit margin from year 3 onwards would have no impact on the reversal. In combination, a 5% fall in sales and a
25 basis point fall in gross profit margin would reduce the reversal by £2.0m.
Impairments – UK store estate programme
During the year, the Group has recognised an impairment charge of £107.9m and impairment reversals of £36.7m relating to the
ongoing UK store estate programme (last year: impairment charge of £132.0m and impairment reversals of £108.3m). These stores
were impaired to their ‘value in use’ recoverable amount of £109.6m, which is their carrying value at year end. The impairment
charge relates to the store closure programme and has been recognised within adjusting items (see note 5). Impairment reversals
predominantly reflect improved trading expectations compared to those assumed at the end of the prior year end.
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 8.9% (last year: 8.6%).
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 £24.7m. A 5%
reduction in planned sales in years 2 and 3 (where relevant) would result in an increase in the impairment charge of £21.7m. Neither a
50 basis point increase in the discount rate, a 25 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.
Impairments – International stores
During the year, the Group has recognised an impairment reversal of £8.8m in Ireland (last year: impairment charge of £9.0m) and
£nil in the Czech Republic (last year: £0.2m) as a result of store impairment testing.
For Irish stores, cash flows beyond the three-year period are extrapolated using a long-term growth rate of 0%. The rate used to
discount the forecast cash flows for Irish stores is 10.0% (last year: 14.1%).
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.
For Irish stores, reasonably possible changes in other key assumptions, including a reduction in sales of 5% from the three-year plan in
years 2 and 3 to reflect a potential recession, a 25 basis point reduction in gross profit margin throughout the plan period, a 50 basis
point increase in the discount rate or a 1% fall in sales combined with a 10 basis point fall in gross profit margin would not result in a
change in the impairment reversal.
160
Marks and Spencer Group plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16 OTHER FINANCIAL ASSETS
Non-current
Unlisted investments
Current
Short-term investments¹
2021
£m
9.7
18.4
2020
£m
9.7
11.7
1.
Includes £9.2m (last year: £5.8m) of money market deposits held by Marks and Spencer plc in an escrow account.
Upon transition to IFRS 9, unlisted equity investments were irrevocably designated as fair value through other comprehensive income.
Other financial assets are measured at fair value with changes in their value taken to the income statement.
17 TRADE AND OTHER RECEIVABLES
Non-current
Trade receivables
Lease receivables – net
Other receivables
Prepayments
Current
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Lease receivables – net
Other receivables
Prepayments
Accrued income
2021
£m
0.1
62.8
2.1
196.4
261.4
109.8
(3.7)
106.1
–
30.5
53.9
19.1
209.6
2020
£m
0.2
69.2
2.2
191.0
262.6
150.8
(4.0)
146.8
0.1
41.0
84.8
25.3
298.0
The directors consider that the carrying amount of trade and other receivables approximates their fair value. The Group’s assessment
of any expected credit losses is included in note 21. Included in accrued income is £5.7m (last year: £17.4m) of accrued supplier income
relating to rebates that have been earned but not yet invoiced. An immaterial amount of 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 impact on
inventory is immaterial as these rebates relate to food stock which has been sold through by the year end.
The maturity analysis of the Group’s lease receivables is as follows:
Timing of cash flows
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
More than five years
Total undiscounted cash flows
Effect of discounting
Present value of lease payments receivable
Less: provision for impairment of receivables
Net investment in the lease
2021
£m
4.8
4.8
4.7
4.7
6.1
128.9
154.0
(79.3)
74.7
(11.9)
62.8
2020
£m
7.1
4.7
4.7
4.7
4.7
135.0
160.9
(86.9)
74.0
(4.7)
69.3
161
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
18 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are £674.4m (last year: £254.2m (restated)). The carrying amount of these assets approximates their
fair value.
The effective interest rate on short-term bank deposits is 0.06% (last year: 0.42%). These deposits have an average maturity of 5 days
(last year: 3 days).
19 TRADE AND OTHER PAYABLES
Current
Trade and other payables1
Social security and other taxes
Accruals
Deferred income
Non-current
Other payables
Deferred income
2021
£m
2020
(Restated)
£m
1,091.5
46.8
407.5
53.2
1,599.0
179.2
13.1
192.3
1,017.8
64.4
379.3
39.5
1,501.0
206.6
16.0
222.6
1. See note 1 for details on a change in accounting policy and the resulting restatement.
Included within current trade and other payables is £33.6m (last year: £nil) and non-current other payables is £178.4m (last year:
£202.4m) of contingent consideration relating to the investment in Ocado Retail Limited. See note 21 for further details.
A contract liability arises in respect of gift cards and voucher schemes 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:
Opening balance
Issues
Released to the income statement
Closing balance
2021
£m
2020
£m
180.8
363.2
(349.6)
194.4
186.9
423.8
(429.9)
180.8
The Group operates a number of supplier financing arrangements, under which suppliers can obtain accelerated settlement on
invoices from the finance provider. This is a form of reverse factoring which has the objective of serving the Group’s suppliers by
giving them early access to funding. The Group settles these amounts in accordance with each supplier’s agreed payment terms.
The Group is not party to these financing arrangements and the arrangements do not permit the Group to obtain finance from the
provider by paying the provider later than the Group would have paid its supplier. The Group does not incur any interest towards the
provider on the amounts due to the suppliers. The Group therefore discloses the amounts factored by suppliers within trade payables
because the nature and function of the financial liability remain the same as those of other trade payables.
The payments by the Group under these arrangements are included within operating cash flows because they continue to be part
of the normal operating cycle of the Group and their principal nature remains operating – i.e. payments for the purchase of goods
and services.
At 3 April 2021, £272.6m (last year: £215.6m) of trade payables were amounts owed under these arrangements. During the year,
the maximum facility available at any one time under the arrangements was £305.0m (last year: £299.0m).
In response to the Covid-19 pandemic, during the year the Group implemented extended payment terms for suppliers in
Clothing & Home.
162
Marks and Spencer Group plc
20 BORROWINGS AND OTHER FINANCIAL LIABILITIES
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Current
Bank loans and overdrafts
Lease liabilities
6.125% £400m Medium Term Notes 20211
Interest accrued on Medium Term Notes
Non-current
6.125% £300m Medium Term Notes 20211
3.00% £300m Medium Term Notes 20231
4.75% £400m Medium Term Notes 20251,5
3.75% £300m Medium Term Notes 20261,4
3.25% £250m Medium Term Notes 20271
7.125% US$300m Medium Term Notes 20372,3
Revaluation of Medium Term Notes6
Lease liabilities
Total
2021
£m
2020
(Restated)7
£m
4.7
219.4
163.5
45.2
432.8
–
298.5
412.2
298.3
248.0
192.2
24.2
2,186.5
3,659.9
4,092.7
15.5
197.2
–
35.1
247.8
299.2
298.0
399.4
–
247.6
192.1
64.8
2,364.8
3,865.9
4,113.7
1. These notes are issued under Marks and Spencer plc’s £3bn Euro Medium Term Note programme and all pay interest annually.
2. Interest on these bonds is payable semi-annually.
3. US$300m Medium Term Note exposure swapped to sterling (fixed-to-fixed cross currency interest rate swaps).
4. In November 2020, a £300m 3.75% Medium Term Note was issued which matures in May 2026.
5. The Group occasionally enters into interest rate swaps to manage interest rate exposure. At year end, £nil (last year: £175m) was swapped from fixed to floating rate. Also includes
£13.6m (last year: £1.2m) of fair value adjustment for terminated hedges to be amortised over the remaining debt maturity.
6. Revaluation consists of foreign exchange loss on revaluation of the 7.125% US$300m Medium Term Notes 2037 of £24.2m (last year: £50.8m). Last year this also included a fair value
hedge adjustment of £13.6m.
7. See note 1 for details on a change in accounting policy and the resulting restatement.
Leases
The Group leases various stores, offices, warehouses and equipment with varying terms, escalation clauses and renewal rights.
The Group has certain leases with lease terms of 12 months or less and leases of assets with low values. The Group applies the
‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases.
Set out below are the carrying amounts of lease liabilities and the movements during the period.
Opening lease liabilities
Additions
Interest expense relating to lease liabilities
Payments
Disposals
Exchange difference
Current
Non-current
2021
£m
2,562.0
48.3
133.8
(316.7)
(7.8)
(13.7)
2,405.9
219.4
2,186.5
2020
£m
2,576.8
204.1
141.3
(335.7)
(25.7)
1.2
2,562.0
197.2
2,364.8
The maturity analysis of lease liabilities is disclosed in note 21 (a).
Future cash outflows related to the post break clause period included in the lease liability
The Group holds certain leases that contain break clause options to provide operational flexibility. In accordance with IFRS 16, the
Group has calculated the full lease term, beyond break, to represent the reasonably certain lease term (except for those stores
identified as part of the UK store estate programme) within the total £2,405.9m of lease liabilities held on the balance sheet.
The following amounts were recognised in profit or loss:
Expenses relating to short-term leases
Expenses relating to low-value assets
Expenses relating to variable consideration
2021
£m
4.6
1.0
2.5
2020
£m
1.0
2.4
6.0
163
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 risk management
The principal financial risks faced by the Group are liquidity and funding, counterparty, foreign currency and interest rate 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 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 and amortisation; to net interest and
depreciation on right-of-use assets under IFRS 16. The covenant is measured semi-annually. The Group was not in breach of this
covenant at the reporting date.
Due to uncertainty around the ramifications of the Covid-19 pandemic on the reported covenant, formal agreement has been
reached with the lending syndicate of banks to substantially relax the covenant conditions for the tests arising in September 2021
and March 2022.
The Group also has a number of uncommitted facilities available to it. At year end, these amounted to £25m (last year: £50m), all of
which are due to be reviewed within a year. At the balance sheet date, a sterling equivalent of £nil (last year: £nil) was drawn under the
committed facilities and £nil (last year: £nil) was drawn under the uncommitted facilities.
In addition to the existing borrowings, the Group has a Euro Medium Term Note programme of £3bn, of which £1.4bn (last year: £1.3bn)
was in issuance as at the balance sheet date. The initial rate of interest is fixed at the date of issue and the Notes are referred to as fixed
rate borrowings throughout the Annual Report as the coupon does not change with movements in benchmark interest rates. However,
the rate of interest on certain Notes varies both up and down in response to third-party credit ratings (to above/below Baa3 or above/
below BBB-) that reflects the relative deterioration or improvement in the Group’s cost of credit, and the interest payable on these
Notes increases from the next interest payment date following a relevant credit rating downgrade. As the original contractual terms
of these Notes provide for changes in cash flows to be reset to reflect the relative deterioration or improvement in the Group’s cost
of credit, the Group considers these Notes to be floating rate instruments when determining amortised cost under IFRS 9 and
consequently the Group applied IFRS 9 paragraph B5.4.5, which requires no adjustment to the carrying amount of the liabilities or
immediate impact on profit and loss. If the Group had determined these Notes to be fixed rate instruments, the Notes would be
remeasured to reflect the revised cash flows discounted at the original effective rate. This would result in initially a higher interest
expense to profit or loss, offset by lower interest charges subsequently, when compared to the Group’s treatment. The Group
assessed that there are also no implications on the application of fair value hedge accounting. Prior to the early settlement of the
Group’s interest rate swaps, the hedge effectiveness requirements of IFRS 9 were met, with an identified economic relationship in
existence between the designated hedged item and the hedging instrument, with their respective fair values expected to move in
opposite directions.
As part of the Ocado Retail Limited investment, Ocado Retail Limited entered into a £30m, three-year revolving credit facility.
Along with Ocado Group Plc, the Group has provided a parent guarantee to cover 50% of the £30m revolving credit facility provided
by BNPP to Ocado Retail Limited.
164
Marks and Spencer Group plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
The table below summarises the contractual maturity of the Group’s non-derivative financial liabilities and derivatives, excluding trade
and other payables and accruals. The carrying value of all trade and other payables (excluding contingent consideration payable)
and accruals of £1,466.2m (last year: £1,401.3m) is equal to their contractual undiscounted cash flows (see note 19) which are due within
one year. Contingent consideration (see the fair value hierarchy section within note 21) of £33.7m (last year: £nil) is expected to become
payable within one year and £190.8m (last year: £222.6m) between two and five years.
Bank loans and
overdrafts
£m
Medium Term
Notes
£m
Lease
liabilities3
£m
Partnership
liability to the
Marks & Spencer
UK Pension
Scheme (note 12)
£m
Total borrowings
and other
financial
liabilities
£m
Cash inflow on
derivatives1
£m
Cash outflow on
derivatives1
£m
Total derivative
assets and
liabilities
£m
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 28 March 2020
(restated)2
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 3 April 2021
(15.5)
(71.9)
(340.2)
(71.9)
(499.5)
1,972.0
(1,898.0)
–
–
–
(371.9)
(329.4)
(71.9)
(773.2)
183.5
(167.2)
(451.6)
(1,164.0)
(834.2)
(3,674.2)
(71.9)
–
(1,357.7)
(4,838.2)
296.8
235.3
(238.4)
(188.3)
74.0
16.3
58.4
47.0
(15.5)
–
(2,059.4)
523.2
(5,178.0)
2,616.0
(215.7)
8.3
(7,468.6)
3,147.5
2,687.6
(2,491.9)
195.7
(15.5)
(1,536.2)
(2,562.0)
(207.4)
(4,321.1)
(4.7)
(244.8)
(326.3)
(124.9)
(700.7)
2,082.2
(2,143.0)
(60.8)
–
–
–
(74.8)
(289.1)
(71.9)
(435.8)
208.8
(210.2)
(1.4)
(898.8)
(987.7)
(754.6)
(3,293.2)
–
–
(1,653.4)
(4,280.9)
46.5
404.0
(43.8)
(368.6)
2.7
35.4
(4.7)
–
(4.7)
(2,206.1)
524.0
(1,682.1)
(4,663.2)
2,257.3
(2,405.9)
(196.8)
3.3
(193.5)
(7,070.8)
2,784.6
(4,286.2)
2,741.5
(2,765.6)
(24.1)
1. Cash inflows and outflows on derivative instruments that require gross settlement (such as cross currency swaps and forward foreign exchange contracts) are disclosed gross.
Cash inflows and outflows on derivative instruments that settle on a net basis are disclosed net.
2. See note 1 for details on a change in accounting policy and the resulting restatement.
3. Total undiscounted lease payments of £764.0m relating to the period post break clause, and the earliest contractual lease exit point, are included in lease liabilities. These
undiscounted lease payments should be excluded when determining the Group’s contractual indebtedness under these leases, where there is a contractual right to break.
(b) Counterparty risk
Counterparty risk exists where the Group can suffer financial loss through the default or non-performance of the counterparties
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.
165
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
The table below analyses the Group’s short-term investments and derivative assets by credit exposure excluding bank balances,
store cash and cash in transit.
Short-term investments1
Net derivative assets2
At 28 March 2020
Short term investments1
Net derivative assets2
At 3 April 2021
AAA
£m
–
–
–
AAA
£m
–
–
–
AA+
£m
–
–
–
AA+
£m
–
–
–
AA
£m
–
–
–
AA
£m
–
–
–
Credit rating of counterparty
AA-
£m
42.4
79.2
121.6
AA-
£m
54.4
–
54.4
A+
£m
59.4
66.2
125.6
A+
£m
182.4
8.3
190.7
A
£m
15.7
26.8
42.5
A
£m
250.3
0.6
250.9
A-
£m
–
–
–
A-
£m
4.7
–
4.7
BBB+
£m
3.6
–
3.6
BBB+
£m
3.3
–
3.3
Total
£m
121.1
172.2
293.3
Total
£m
495.1
8.9
504.0
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 of £197.7m (last year: £144.8m).
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 £106.2m (last year: £147.0m),
lease receivables £62.8m (last year: £69.3m), other receivables £32.6m (last year: £43.2m), cash and cash equivalents £674.4m
(last year: £254.2m) and derivatives £33.1m (last year: £172.2m).
Impairment of financial assets
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.
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 lease receivables.
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. In addition to the expected credit losses calculated using a provision matrix, the Group may provide
additional provision for the receivables of particular customers if the deterioration of financial position was observed. The Group’s
trade receivables are of very low credit risk due to transactions being principally of high volume, low value and short maturity.
Therefore, it also has very low concentration risk.
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.
Historical experience has indicated that debts aged 180 days or over are generally not recoverable. 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.
Impairment losses on trade receivables are presented as net impairment losses within operating profit and subsequent recoveries are
credited to the same line item.
166
Marks and Spencer Group plc
21 FINANCIAL INSTRUMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
As at 28 March 2020
Gross carrying amount –
trade receivables
Expected loss rate
Lifetime expected credit loss
Net carrying amount
As at 3 April 2021
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
127.7
1.59%
2.0
125.7
19.6
2.63%
0.5
19.1
1.7
24.60%
0.4
1.3
0.4
3.75%
–
0.4
0.5
29.22%
0.2
0.3
0.9
100.0%
0.9
–
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
95.0
1.45%
1.4
93.6
9.9
5.43%
0.5
9.4
2.0
12.88%
0.3
1.7
0.8
15.78%
0.1
0.7
0.8
17.06%
0.1
0.7
1.3
100.0%
1.3
–
The closing loss allowances for trade receivables reconciles to the opening loss allowances as follows:
Trade receivables expected loss provision
Opening loss allowance as at 28 March 2020
(Decrease)/increase in loss allowance recognised in profit and loss during the year
Receivables written off during the year as uncollectable
Closing loss allowance as at 3 April 2021
The closing loss allowances for lease receivables reconciles to the opening loss allowances as follows:
Lease receivables expected loss provision
Opening loss allowance as at 28 March 2020
Increase in loss allowance recognised in profit and loss during the year1
Receivables written off during the year as uncollectable
Closing loss allowance as at 3 April 2021
2021
£m
4.0
(0.3)
–
3.7
2021
£m
4.7
7.2
–
11.9
Total
£m
150.8
2.67%
4.0
146.8
Total
£m
109.8
3.40%
3.7
106.1
2020
£m
3.2
0.9
(0.1)
4.0
2020
£m
–
4.7
–
4.7
1. Relates to the sub-let of previously closed offices associated with the strategic programme to centralise the Group’s London Head Office functions (see note 5).
The provision for other receivables is highly immaterial (it can be quantified) and therefore no disclosure is provided.
(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 14 months ahead of the start of the season, with between 80% and 100% of the
risk hedged eight 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 £1,776.6m (last year: £1,872.9m) with a weighted average maturity date of six months (last year: six months).
Gains and losses in equity on forward foreign exchange contracts designated in cash flow hedge relationships as at 3 April 2021 will be
reclassified to the income statement at various dates over the following 16 months (last year: 18 months) from the balance sheet date.
167
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
The foreign exchange 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 – cost of hedging reserve. The change in the fair value of the hedging instrument, to
the degree effective, is deferred in equity and subsequently either reclassified to profit or loss or removed from equity and included in
the initial cost of inventory as part of the “basis adjustment”. This will be realised in the income statement once the hedged item is sold.
The Group has considered and elected not to recognise the currency basis spread element in the cost of hedging reserve, owing to the
relatively short-dated nature of the hedging instruments.
The Group regularly reviews the foreign exchange hedging portfolio to confirm whether the underlying transactions remain highly
probable. Any identified instance of over-hedging or ineffectiveness would result in immediate recycling to the Income Statement.
A change in the timing of a forecast item does not disqualify a hedge relationship nor the assertion of “highly probable” as there
remains an economic relationship between the underlying transaction and the derivative. In accordance with the Group’s treasury
policy, hedges are entered into by business line and by season. In the prior period, management identified over-hedging in Clothing &
Home stock purchases resulting in a gain of £2.9m in profit and loss. No such over-hedging has been identified in the current period.
The foreign exchange forwards are recognised at fair value. 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 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 other
comprehensive income, segregated by cost and effect of hedging. Under IFRS 9 the currency basis on the cross-currency swaps is
excluded from the hedge designation and recognised in other comprehensive income – 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. In order to more closely align the hedging instrument with the original hypothetical,
the Group successfully renegotiated the cross-currency swaps portfolio during the prior year, receiving £7.7m cash settlement from
the counterparty banks, and increasing the average pay fixed GBP leg from 7.3% to 7.5%.
The cross-currency swaps are recognised at fair value. The inclusion of credit risk on cross-currency swaps will cause ineffectiveness
of the hedge relationship. 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 classified as fair value through profit and loss. The corresponding fair
value movement of the intercompany loan balance resulted in a £1.4m gain (last year: £3.4m gain) in the income statement. As at the
balance sheet date, the gross notional value of intercompany loan hedges was £172.0m (last year: £157.0m).
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
2021
2020
Fixed rate
£m
Floating rate
£m
Total
£m
Fixed rate
£m
Floating rate
£m
Total
£m
3,886.2
95.8
106.0
4,088.0
4.7
–
–
4.7
3,890.9
95.8
106.0
4,092.7
3,672.2
109.8
126.1
3,908.1
205.6
–
–
205.6
3,877.8
109.8
126.1
4,113.7
The floating rate sterling borrowings are cash balances classified as overdrafts.
As at the balance sheet date and excluding lease liabilities, post-hedging the GBP and USD fixed rate borrowings are at an average rate
of 5.3% (last year: 4.8%) and the weighted average time for which the rate is fixed is six years (last year: six years).
During the year, the Group closed out all interest rate swaps designated in hedge relationships (last year: £175m).
168
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 £4,088.0m (last year: £3,908.1m) representing the public bond issues
and lease liabilities, amounting to 99% (last year: 95%) 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
Leases
2021
%
N/A
5.3%
5.4%
2020
%
N/A
4.6%
5.5%
The Group has closely monitored the market and the output from the various industry working groups managing the transition
to new benchmark interest rates. This includes announcements made by LIBOR regulators (including the Financial Conduct
Authority (FCA)) regarding the transition away from GBP LIBOR to the Sterling Overnight Index Average Rate (SONIA).
In March 2021, the FCA announced that it will no longer seek to persuade, or compel, banks to submit LIBOR from 31 December 2021
(for USD LIBOR: 30 June 2023).
In response to the announcements, the Group has identified any contracts with reference to LIBOR within the business and has
appointed a project team to ensure a smooth transition to alternative benchmark rates under the governance of the Head of Treasury.
The work is ongoing but is expected to complete well ahead of the cessation of the publication of LIBOR.
During the year, the Group closed out all pay six-month GBP LIBOR, receive GBP fixed interest rate swaps (last year: £175m). The Group
no longer holds any derivatives or hedge relationships that reference LIBOR.
The Group will continue to apply the Phase 1 amendments to IFRS 9 (which were adopted last year) until the uncertainty arising from
the interest rate benchmark reforms that the Group is exposed to ends. The Group has assumed that this uncertainty will not end until
the Group’s contracts that reference LIBORs are amended to specify the date on which the interest rate benchmark will be replaced,
the alternative benchmark rate and the relevant spread adjustment. This will, in part, be dependent on the introduction of fallback
clauses which have yet to be added to the Group’s contracts and the negotiation with lenders.
169
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
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.
Forward foreign
exchange
contracts
£m
Cash flow
hedges
1,699.3
71.0
(10.2)
to Feb 2021
100%
Highly
probable
transactional
FX exposures
33.4
(37.3)
–
Forward foreign
exchange
contracts
£m
Cash flow
hedges
1,585.9
32.1
(83.9)
to Sep 2021
100%
Highly
probable
transactional
FX exposures
(100.2)
100.2
GBP/USD
1.32,
GBP/EUR1.13
–
40.6
–
Current
Forward foreign
exchange
contracts
£m
FVTPL
157.0
2.5
(2.8)
to Oct 2020
100%
Inter-
company
loans/
deposits
(0.6)
4.0
N/A
3.4
N/A
N/A
Current
Forward foreign
exchange
contracts
£m
FVTPL
333.8
0.7
(12.1)
to Jan 2022
100%
Inter-
company
loans/
deposits
(11.1)
12.5
–
1.4
–
–
28 March 2020
Interest
rate swaps
£m
Fair value
hedges
–
–
–
–
–
GBP fixed
rate
borrowing
–
–
–
–
N/A
N/A
Non-current
Forward foreign
exchange
contracts
£m
Cash flow
hedges
173.6
10.2
(0.7)
to Aug 2021
100%
Highly
probable
transactional
FX exposures
11.1
(11.1)
Cross-currency
swaps
£m
Cash flow
hedges
193.5
83.8
–
Dec 2037
100%
USD fixed
rate
borrowing
79.7
(79.7)
7.5%GBP/USD 1.32,
GBP/EUR 1.15
–
5.9
(40.1)
(7.1)
(9.8)
–
3 April 2021
Non-current
Interest
rate swaps
£m
Fair value
hedges
–
–
–
–
–
–
–
–
–
–
–
–
Cross-currency
swaps
£m
Cash flow
hedges
193.5
–
(8.1)
Forward foreign
exchange
contracts
£m
Cash flow
hedges
190.7
0.3
(2.6)
to Dec 2037 to May 2022
100%
Highly
probably
transactional
FX exposures
(11.8)
100%
USD fixed
rate
borrowing
(91.7)
93.0
7.5%
1.3
25.4
(5.8)
11.8
GBP/USD
1.28, GBP/
EUR1.12
–
2.2
–
Interest
rate swaps
£m
Fair value
hedges
175.0
18.4
–
Jun 2025
100%
GBP fixed
rate
borrowing
3.8
(3.8)
–
–
N/A
N/A
Interest
rate swaps
£m
Fair value
hedges
–
–
–
–
–
–
–
–
–
–
–
–
Hedging risk strategy
Notional/currency legs
Carrying amount assets
Carrying amount (liabilities)
Maturity date
Hedge ratio
Description of hedged item
Change in fair value of
hedging instrument
Change in fair value of hedged item
used to determine hedge effectiveness
Weighted average hedge rate for the year GBP/USD 1.3,
GBP/EUR 1.15
2.9
(30.5)
Amounts recognised within finance
costs in profit and loss
Balance on cash flow hedge reserve at
28 March 2020
Balance on cost of hedging reserve at
28 March 2020
Hedging risk strategy
Notional/currency legs
Carrying amount assets
Carrying amount (liabilities)
Maturity date
Hedge ratio
Description of hedged item
Change in fair value of
hedging instrument1
Change in fair value of hedged item
used to determine hedge effectiveness
Weighted average hedge rate for the year
Amounts recognised within finance
costs in profit and loss
Balance on cash flow hedge reserve at
3 April 2021
Balance on cost of hedging reserve at
3 April 2021
1. The £(11.1)m fair value change represented in the fair value movement of the forward contracts under FVTPL consists of economic hedges of certain intercompany loans/deposits
and forward contracts that are no longer in hedge relationships (total equivalent notional: £333.8m). Of this fair value change, £(10.2)m relates to movements in valid hedge
relationships that de-designated at the end of the financial year and were reclassified to the cost of inventory. This line also includes the cash settlements of the derivative positions
during the year.
170
Marks and Spencer Group plc 21 FINANCIAL INSTRUMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3 April 2021
28 March 2020
Notional value
Fair value
Notional value
Fair value
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
Current
Forward foreign
exchange contracts
Non-current
Cross currency swaps
Forward foreign
exchange contracts
Interest rate swaps
– cash flow
hedges
– FVTPL
– cash flow
hedges
– cash flow
hedges
– fair value
hedges
449.0
1,136.9
32.1
(83.9)
1,385.0
314.3
72.2
521.2
261.6
1,398.5
–
193.5
46.2
144.5
–
–
0.7
32.8
–
0.3
–
(12.1)
(96.0)
61.9
1,446.9
95.1
409.4
71.0
2.5
73.5
(8.1)
193.5
–
83.8
(2.6)
153.1
20.5
–
175.0
–
10.2
18.4
(10.2)
(2.8)
(13.0)
–
(0.7)
–
The Group’s hedging reserves disclosed in the consolidated statement of changes in equity, relate to the following hedging
instruments:
46.2
338.0
0.3
(10.7)
521.6
20.5
112.4
(0.7)
Opening balance 31 March 2019
Add: Change in fair value of hedging instrument
recognised in OCI2
Add: Costs of hedging deferred and recognised
in OCI
Less: Reclassified to the cost of inventory
Less: Reclassified from OCI to profit or loss –
included in finance costs
Less: Deferred tax
Closing balance 28 March 2020
Opening balance 29 March 2020
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: Deferred tax
Closing balance 3 April 2021
1. Cross-currency interest rate swaps.
2. Other comprehensive income.
Cost of
hedging
reserve FX
derivatives
£m
Cost of
hedging
reserve
CCIRS1
£m
Deferred
tax
£m
Total
cost of
hedging
reserve
£m
Hedge
reserve FX
derivatives
£m
Hedge
reserve
CCIRS
£m
Hedge
reserve
gilt locks
£m
Deferred
tax
£m
Total
hedge
reserve
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(14.6)
2.9
(11.7)
(11.1)
32.9
0.2
(7.4)
14.6
–
7.5
–
–
–
(7.1)
(7.1)
–
1.3
–
–
–
(5.8)
–
–
–
–
(1.5)
1.4
1.4
–
(59.2)
(88.6)
7.5
–
–
(1.5)
(5.7)
(5.7)
–
21.8
2.9
–
(45.6)
(45.6)
–
–
15.6
–
(40.1)
(40.1)
–
–
122.2
92.0
–
–
–
(0.2)
1.2
1.3
–
–
(0.2)
(4.6)
–
(33.9)
–
–
42.7
–
–
(26.5)
–
25.4
–
–
–
(0.1)
–
0.1
0.1
–
–
–
–
–
0.1
–
–
–
–
24.4
17.0
17.0
(147.8)
–
21.8
18.4
24.4
(68.6)
(68.6)
–
214.2
–
–
–
(30.4)
(13.4)
–
(33.9)
(26.5)
(30.4)
54.8
171
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
In the previous year, management identified over-hedging in Clothing & Home stock purchases. The portion transferred from the cash
flow hedge reserve and recognised in profit or loss in relation to forecast purchases not expected to occur amounted to a gain of
£2.9m. The corresponding cash flow hedges were discontinued prospectively; derivatives with the notional value of US$76.6m were
subsequently accounted for at fair value through profit or loss. No such over-hedging has been identified in the current year.
During the year, the Group closed out all interest rate swaps designating its GBP fixed debt to floating debt which were reported as
fair value hedges (see note 20 for details of fair value adjustment). At 3 April 2021, the Group had a deferred fair value adjustment of
£13.6m in borrowings relating to terminated fair value hedges. The ineffective portion recognised in profit or loss that arose from fair
value hedges amounted to a nil gain or loss as the loss on the hedged items was £4.4m (last year: gain of £3.8m) and the gain on the
hedging instruments was £4.4m (last year: loss of £3.8m).
Movement in hedged items and hedging instruments
Net gain/(loss) in fair value of interest rate swap
Net (loss)/gain on hedged items
Ineffectiveness
2021
£m
4.4
(4.4)
–
2020
£m
(3.8)
3.8
–
The Group holds a number of cross-currency interest rate swaps to designate its USD to GBP fixed debt. These are reported as
cash flow hedges. The ineffective portion recognised in profit or loss that arises from the cash flow hedge amounts to a £1.3m gain
(last year: nil gain or loss) as the gain on the hedged items was £93.0m (last year: £79.7m loss) and the movement on the hedging
instruments was a £91.7m loss (last year: £79.7m gain). A nil gain or loss (last year: £5.9m gain) was recognised in profit or loss as
previously realised ineffectiveness reversed out.
Movement in hedged items and hedging instruments
Net (loss)/gain in fair value of cross-currency interest rate swap
Net gain/(loss) on hedged items
Ineffectiveness
2021
£m
(91.7)
93.0
1.3
2020
£m
79.7
(79.7)
–
Sensitivity analysis
The table below illustrates the estimated impact on the income statement and equity as a result of market movements in foreign
exchange and interest rates in relation to the Group’s financial instruments. The directors consider that a 2% +/– (last year: 2%)
movement in interest rates and a 20% +/– (last year: 20%) movement in sterling against the relevant currency represents a reasonably
possible change. However, this analysis is for illustrative purposes only. The Group believes that these illustrative assumed movements
continue to provide sufficient guidance.
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 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 28 March 2020
Impact on income statement: gain/(loss)
Impact on other comprehensive income: gain/(loss)
At 3 April 2021
Impact on income statement: (loss)/gain
Impact on other comprehensive income: (loss)/gain
2% decrease in
interest rates
£m
2% increase in
interest rates
£m
20% weakening
in sterling
£m
20%
strengthening
in sterling
£m
3.1
26.8
(9.2)
(2.1)
(1.7)
(19.7)
9.2
4.7
–
212.7
–
199.4
–
(212.7)
–
(199.4)
172
Marks and Spencer Group plc
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 amount shown in the tables below to the Statement of
Financial Position, items which are not subject to offsetting should be included.
At 28 March 2020
Trade and other receivables
Derivative financial assets
Trade and other payables
Derivative financial liabilities
At 3 April 2021
Trade and other receivables
Derivative financial assets
Trade and other payables
Derivative financial liabilities
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
18.6
185.9
204.5
(272.8)
(13.7)
(286.5)
(14.3)
–
(14.3)
14.3
–
14.3
4.3
185.9
190.2
(258.5)
(13.7)
(272.2)
–
(13.7)
(13.7)
–
13.7
13.7
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
16.5
33.1
49.6
(257.4)
(106.7)
(364.1)
(12.8)
–
(12.8)
12.8
–
12.8
3.7
33.1
36.8
(244.6)
(106.7)
(351.3)
–
(33.1)
(33.1)
–
33.1
33.1
Net
£m
4.3
172.2
176.5
(258.5)
–
(258.5)
Net
£m
3.7
–
3.7
(244.6)
(73.6)
(318.2)
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 agreements where each party has the option to settle amounts on a net basis
in the event of default of the other party.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
– Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities. The Group had no level 1 investments or
financial instruments.
– 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 include 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.
173
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
At the end of the reporting period, the Group held the following financial instruments at fair value:
Level 1
£m
2021
Level 2
£m
Level 3
£m
Total
£m
Level 1
£m
2020
Level 2
£m
Level 3
£m
Total
£m
Assets measured at fair value
Financial assets at fair value
through profit or loss
– derivatives held at FVTPL
Derivatives used for hedging
Short-term investments
Unlisted investments1
Liabilities measured at fair value
Financial liabilities at fair value
through profit or loss
– derivatives held at FVTPL
– contingent consideration2
Derivatives used for hedging
–
–
–
–
–
–
–
0.7
32.4
18.4
–
–
–
–
9.7
0.7
32.4
18.4
9.7
(12.1)
–
(94.6)
–
(212.0)
–
(12.1)
(212.0)
(94.6)
–
–
–
–
–
–
–
2.5
183.4
11.7
–
–
–
–
9.7
2.5
183.4
11.7
9.7
(2.8)
–
(10.9)
–
(202.4)
–
(2.8)
(202.4)
(10.9)
There were no transfers between the levels of the fair value hierarchy during the period. There were also no changes made to any of
the valuation techniques during the period.
1. The Group holds £9.7m in unlisted equity securities measured at fair value through other comprehensive income (last year: £9.7m) (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.
2. As part of the investment in Ocado Retail Limited, a contingent consideration arrangement was agreed. The fair value of contingent consideration payable is estimated by
calculating the present value of the future expected cash flows. The contingent consideration arrangement comprises three separate elements which only become payable on the
achievement of three separate financial and operational performance targets, the most significant of which is Ocado Retail Limited achieving a specified target level of earnings in
the financial year ending November 2023. The maximum potential undiscounted amount of all future payments that the Group could be required to make under the arrangement is
£187.5m plus interest of 4%.
The fair value was estimated by applying an appropriate discount rate to the expected future payments. The key assumptions take into consideration the probability of meeting
each performance target and the discount factor. The performance targets are binary and, based on the latest five-year plan of Ocado Retail Limited, are expected to be met and
therefore the fair value reflects the full, discounted £187.5m plus interest, and it is therefore expected that £33.7m will become payable in 2021/22 and £190.8m will become payable
in 2024/25. Should some, or all, of these targets not be met, less, or no, consideration would be payable. Should the discount rate applied be changed, the fair value of the
contingent consideration would change, but the amount of consideration that would ultimately be paid would not necessarily change. The discount rates used ranged from 0.8% to
2.0% (last year: 1.7% to 2.2%) and a 1.0% change in the discount rates would result in a change in fair value of £6.0m (last year: £7.3m). A 5% change in the forecast level of earnings used
to assess the performance targets would not result in a significant change in fair value of the contingent consideration.
The Marks & Spencer UK Pension Scheme holds a number of financial instruments which make up the pension asset of £10,442.9m
(last year: £10,653.8m). Level 1 and Level 2 financial assets measured at fair value through other comprehensive income amounted to
£5,446.0m (last year: £6,328.7m). Additionally, the scheme assets include £4,996.9m (last year: £4,325.1m) 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
2021
£m
4,325.1
68.3
603.5
4,996.9
2020
£m
3,216.1
(130.1)
1,239.1
4,325.1
Fair value of financial instruments
With the exception of the Group’s fixed rate bond debt and the Partnership liability to the Marks & Spencer UK Pension Scheme
(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 fixed rate bond debt (level 1 equivalent) was £1,682.1m (last year: £1,536.2m); the fair value of this debt
was £1,807.6m (last year: £1,531.4m) which has been calculated using quoted market prices and includes accrued interest. The carrying
value of the Partnership liability to the Marks & Spencer UK Pension Scheme (level 2 equivalent) is £193.5m (last year: £207.4m) and the
fair value of this liability is £185.5m (last year: £202.7m).
174
Marks and Spencer Group plc
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Capital policy
The Group’s objectives when managing capital (defined as net debt plus equity) are to fund investment in the transformation and
rebuild balance sheet metrics towards levels consistent with investment grade, 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 rebuild a capital structure commensurate with an investment grade credit rating and to retain
appropriate levels of liquidity headroom to ensure financial stability and flexibility. To achieve this strategy, the Group regularly
monitors key credit metrics such as the gearing ratio, cash flow to net debt and fixed charge cover to maintain this position. In addition,
the Group ensures a combination of appropriate committed short-term liquidity headroom with a diverse and balanced long-term
debt maturity profile. As at the balance sheet date, the Group’s average debt maturity profile was six years (last year: six years).
During the year, the Group maintained credit ratings of Ba1 (negative) with Moody’s and BB+ (negative) 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.
22 PROVISIONS
At 28 March 2020
Provided in the year – charged to profit or loss
Provided in the year – charged to property, plant and equipment
Released in the year
Utilised during the year
Exchange differences
Discount rate unwind
Reclassified to the pension liability
At 3 April 2021
Analysed as:
Current
Non-current
Property
£m
Restructuring
£m
Other
£m
60.0
22.5
25.9
(29.8)
(4.6)
–
2.7
–
76.7
12.6
105.2
–
(7.6)
(81.6)
(0.1)
–
–
28.5
5.4
9.6
–
(0.1)
(0.3)
–
–
(2.5)
12.1
2021
£m
78.0
137.3
25.9
(37.5)
(86.5)
(0.1)
2.7
(2.5)
117.3
43.1
74.2
2020
£m
173.4
44.3
(16.9)
(93.2)
(35.1)
0.6
4.9
–
78.0
21.5
56.5
Property provisions relate primarily to obligations such as dilapidations arising as a result of the closure of stores in the UK, as part of
the UK store estate strategic programme. These provisions are expected to be utilised over the period to the end of each specific lease
(up to 10 years).
Restructuring provisions relate to the estimated costs associated with the strategic programme to reduce roles across central support
centres, regional management and our UK and Republic of Ireland stores; the historical 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 and
over the period of closure of sites.
Other provisions include amounts in respect of probable liabilities for employee-related matters.
Provisions related to adjusting items were £100.8m at 3 April 2021 (last year: £71.1m), with a net charge in the year of £90.1m (see note 5).
175
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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% as applicable (last year: 19%) 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 31 March 2019
Credited/(charged) to
income statement
Credited/(charged) to equity/
other comprehensive income
At 28 March 2020
At 29 March 2020
Credited/(charged) to
income statement
Credited/(charged) to equity/
other comprehensive income
At 3 April 2021
Land and
buildings
temporary
differences
£m
Capital
allowances in
excess of
depreciation
£m
Pension
temporary
differences
£m
Other
short-term
temporary
differences
£m
Total UK
deferred tax
£m
Overseas
deferred tax
£m
(30.1)
(6.1)
(195.2)
110.4
(121.0)
1.8
–
(28.3)
(28.3)
(22.0)
–
(50.3)
5.9
–
(0.2)
(0.2)
22.8
–
22.6
(7.1)
9.2
9.8
(196.5)
(398.8)
(398.8)
(24.4)
95.2
95.2
(220.9)
(332.1)
(332.1)
(7.6)
4.5
(2.3)
257.7
(148.7)
35.8
135.5
293.5
(40.9)
1.4
(2.2)
0.5
(0.3)
(0.3)
2.1
(3.2)
(1.4)
Total
£m
(119.6)
7.6
(220.4)
(332.4)
(332.4)
(0.2)
290.3
(42.3)
Other short-term temporary differences relate mainly to employee share options, financial instruments and IFRS 16.
The deferred tax liability on land and buildings temporary differences is reduced by the benefit of capital losses with a gross value of
£228.0m (last year: £335.7m) and a tax value of £43.3m (last year: £63.8m). From 1 April 2020, the UK rules restricting the use of brought
forward losses to 50% of profits or gains in excess of £5m per year were extended to include capital losses. The change in tax legislation
has resulted in a restriction in the capital losses recognised by £108.6m (last year: £nil). It is not considered there are sufficient future
taxable profits to recognise the carry forward loss which is considered an unrecognised deferred tax asset at the year end. 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 £11.0m (last year: £9.5m) and a tax value of £3.0m (last year: £2.6m).
A deferred tax asset of £10.5m has been recognised on current year trading losses in the UK which are being carried forward. The
utilisation of these losses is dependent on the existence of future taxable profits, which we expect to arise in future years without the
one-off current year impact on trading from Covid-19.
No deferred tax is recognised in respect of undistributed earnings of overseas subsidiaries and joint ventures with a gross value
of £24.1m (last year: £27.0m) 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 £2.3m (last year: £2.6m) however this has not been
recognised by the Group, and it is probable that the temporary difference will not reverse in the foreseeable future.
176
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 rights issue
Shares issued in respect of share option schemes
At end of year
Shares
2021
£m
Shares
1,950,059,808
–
6,453,783
1,956,513,591
487.6 1,625,000,230
325,009,968
49,610
489.2 1,950,059,808
–
1.6
2020
£m
406.3
81.3
–
487.6
Issue of new shares
In May 2019, the Company offered a fully underwritten rights issue to existing shareholders on the basis of 1 share for every 5 fully paid
ordinary shares held. As a result, 325,009,968 ordinary shares with an aggregate nominal value of £81.3m were issued for cash
consideration of £601.1m. Transaction costs of £26.4m were incurred resulting in £493.4m being recognised in share premium.
6,453,783 (last year: 49,610) ordinary shares having a nominal value of £1.6m (last year: £0.0m) were allotted during the year under the
terms of the Company’s share schemes which are described in note 13 of the Group financial statements. The increase from prior year
is driven by DSBP, PSP and RSP schemes which were previously satisfied through market purchase. The aggregate consideration
received was £0.0m (last year: £0.1m).
25 CONTINGENCIES AND COMMITMENTS
A. Capital commitments
Commitments in respect of properties in the course of construction
Software capital commitments
2021
£m
88.3
10.6
98.9
2020
£m
78.7
8.6
87.3
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.
26 ANALYSIS OF CASH FLOWS GIVEN IN THE STATEMENT OF CASH FLOWS
Cash flows from operating activities
(Loss)/profit on ordinary activities after taxation
Income tax (credit)/expense
Finance costs
Finance income
Operating (loss)/profit
Share of results of Ocado Retail Limited
Decrease/(increase) in inventories
Decrease/(increase) in receivables
Increase/(decrease) in payables1
Depreciation, amortisation and write-offs
Non-cash share-based payment expense
Defined benefit pension funding
Adjusting items net cash outflows2,3
Adjusting items M&S Bank4
Adjusting operating profit items
Cash generated from operations
2021
£m
(201.2)
(8.2)
236.1
(57.4)
(30.7)
(78.4)
41.2
67.4
159.5
603.1
19.3
(37.1)
(118.1)
(2.4)
252.9
876.7
2020
£m
27.4
39.8
234.5
(46.9)
254.8
(2.6)
(29.3)
(9.2)
(29.3)
632.5
18.5
(37.9)
(75.4)
(12.6)
335.9
1,045.4
1. See note 1 for details on a change in accounting policy and the resulting restatement.
2. Excludes £12.4m (last year: £11.3m) of surrender payments included within repayment of lease liabilities in the consolidated statement of cash flows relating to leases within the
UK store estate programme.
3. Adjusting items net cash outflows relate to strategic programme costs associated with the UK store estate, organisation, UK logistics, the utilisation of the provisions for
International store closures and impairments, expenses directly attributable to the Covid-19 pandemic, cash outflows incurred as part of the Sparks loyalty programme transition
and establishing the investment in Ocado Retail Limited.
4. 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.
177
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27 ANALYSIS OF NET DEBT
A. Reconciliation of movement in net debt
Net debt
Bank loans, overdrafts and syndicated bank facility
(see note 20)1
Cash and cash equivalents (see note 18)1
Net cash per statement of cash flows
Current other financial assets (see note 16)
Medium Term Notes (see note 20)
Lease liabilities (see note 20)
Partnership liability to the Marks & Spencer UK
Pension Scheme (see note 12)
Derivatives held to hedge Medium Term Notes
Liabilities from financing activities
Less: Cashflows related to interest and
derivative instruments
Net debt
Net debt
Bank loans, overdrafts and syndicated bank facility
(see note 20)1
Cash and cash equivalents (see note 18)1
Net cash per statement of cash flows
Current other financial assets (see note 16)
Medium Term Notes (see note 20)
Lease liabilities (see note 20)
Partnership liability to the Marks & Spencer UK
Pension Scheme (see note 12)
Derivatives held to hedge Medium Term Notes
Liabilities from financing activities
Less: Cashflows related to interest and
derivative instruments
Net debt
At 31 March
2019
£m
Cash flow
£m
Changes
in fair
values
£m
Lease additions
and
remeasurements
£m
Exchange and
other non-cash
movements2
£m
At 28 March
2020
£m
(3.5)
(3.5)
310.5
307.0
141.8
(1,673.8)
(2,576.8)
(266.2)
23.9
(4,492.9)
62.6
(3,981.5)
(12.0)
(12.0)
(56.8)
(68.8)
(130.1)
230.1
335.7
71.9
(7.7)
630.0
(215.1)
216.0
–
–
–
–
–
–
–
–
86.0
86.0
(86.0)
–
–
–
–
–
–
–
(204.1)
–
–
(204.1)
–
(204.1)
–
–
0.5
0.5
–
(92.5)
(116.8)
(8.4)
–
(217.7)
(15.5)
(15.5)
254.2
238.7
11.7
(1,536.2)
(2,562.0)
(202.7)
102.2
(4,198.7)
236.2
19.0
(2.3)
(3,950.6)
At 29 March
2020
£m
Cash flow
£m
Changes
in fair
values
£m
Lease additions
and
remeasurements
£m
Exchange and
other non-cash
movements2
£m
At 3 April
2021
£m
(15.5)
(15.5)
254.2
238.7
11.7
(1,536.2)
(2,562.0)
(202.7)
102.2
(4,198.7)
(2.3)
(3,950.6)
10.8
10.8
423.5
434.3
6.7
(87.9)
316.7
23.6
(14.0)
238.4
(212.6)
466.8
–
–
–
–
–
–
–
–
(96.3)
(96.3)
96.3
–
–
–
–
–
–
–
(48.3)
–
–
(48.3)
–
(48.3)
–
–
(3.3)
(3.3)
–
(58.0)
(112.3)
(6.4)
–
(176.7)
196.2
16.2
(4.7)
(4.7)
674.4
669.7
18.4
(1,682.1)
(2,405.9)
(185.5)
(8.1)
(4,281.6)
77.6
(3,515.9)
178
Marks and Spencer Group plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27 ANALYSIS OF NET DEBT CONTINUED
B. Reconciliation of net debt to statement of financial position
Statement of financial position and related notes
Cash and cash equivalents (see note 18)1
Current other financial assets (see note 16)
Bank loans and overdrafts (see note 20)1
Medium Term Notes – net of foreign exchange revaluation (see note 20)
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
2021
£m
2020
£m
674.4
18.4
(4.7)
(1,657.9)
(2,405.9)
(193.5)
(3,569.2)
254.2
11.7
(15.5)
(1,471.4)
(2,562.0)
(207.4)
(3,990.4)
53.3
(3,515.9)
39.8
(3,950.6)
1. See note 1 for details on a change in accounting policy and the resulting restatement.
2. Exchange and other non-cash movements includes interest charge on Medium Term Notes of £86.4m (last year: £78.2), interest charge on lease liabilities of £130.4m
(last year: £139.3) and interest charge relating to Partnership liability to the Marks & Spencer UK Pension Scheme of £4.9m (last year: £6.9m).
28 RELATED PARTY TRANSACTIONS
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. Joint ventures and associates
A shareholder loan facility with Ocado Retail Limited was established in the prior year, with Ocado Retail Limited having the ability to
draw down up to £30m from each shareholder. The facility was not utilised by Ocado Retail Limited during the year ended 3 April 2021
(last year: not utilised).
As part of the Ocado Retail Limited investment, Ocado Retail Limited entered into a £30m, three-year revolving credit facility. Along
with Ocado Group Plc, the Group has provided a parent guarantee to cover 50% of the £30m revolving credit facility provided by BNPP
to Ocado Retail Limited. The revolving credit facility was undrawn at 3 April 2021 (last year: undrawn).
The following transactions were carried out with Ocado Retail Limited, an associate of the Group.
Sales and purchases of goods and services:
Sales of goods and services
Purchases of goods and services
2021
£m
28.5
–
2020
£m
–
–
Included within trade and other receivables is a balance of £2.3m (last year: £nil) owed by Ocado Retail Limited.
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 Executive Committee.
Salaries and short-term benefits
Share-based payments
Total
2021
£m
8.6
3.2
11.8
2020
£m
5.9
1.7
7.6
179
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
The Group holds a 50% interest in Ocado Retail Limited, a company incorporated in the UK. The remaining 50% interest is held by
Ocado Group Plc. Ocado Retail Limited is an online grocery retailer, operating through the ocado.com and ocadozoom.com websites.
Ocado Retail Limited is considered an associate of the Group as certain rights are conferred on Ocado Group Plc for an initial period of
at least five years from acquisition in August 2019, giving Ocado Group Plc control of the company. Following this initial period, a
reassessment of control will be required as the Group will have an option to obtain more power over Ocado Retail Limited if certain
conditions are met. If the Group is deemed to have obtained control, Ocado Retail Limited will then be consolidated as a subsidiary of
the Group. Through Board representation and shareholder voting rights, the Group is currently considered to have significant
influence, therefore the investment in Ocado Retail Limited is treated as an associate and applies the equity method of accounting.
Ocado Retail Limited has a financial year end date of 29 November 2020, aligning with its parent company, Ocado Group Plc. For the
Group’s purpose of applying the equity method of accounting, Ocado Retail Limited has prepared financial information to the nearest
quarter-end date of its financial year end, as to do otherwise would be impracticable. The results of Ocado Retail Limited are
incorporated in these financial statements from 2 March 2020 to 28 February 2021. There were no significant events or transactions in
the period from 28 February 2021 to 3 April 2021.
The carrying amount of the Group’s interest in Ocado Retail Limited is £819.0m (last year: £754.8m). The Group’s share of Ocado Retail
Limited profits of £64.2m (last year: £14.2m loss) includes the Group’s share of underlying profits of £78.4m, which includes £25.2m of
exceptional income before tax related to insurance receipts (share of profit last year: £2.6m) and adjusting item charges of £14.2m
(last year: £16.8m) (see note 5).
Summarised financial information in respect of Ocado Retail Limited (the Group’s only material associate) is set out below and
represents amounts in the Ocado Retail Limited financial statements prepared in accordance with IFRS, adjusted by the Group for
equity accounting purposes.
Ocado Retail Limited
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Revenue
Profit for the period
Other comprehensive income
Total comprehensive income
As at 28 Feb
2021
£m
As at 1 Mar
2020
£m
353.9
336.8
(245.7)
(264.6)
180.4
484.9
206.6
(489.7)
(178.2)
23.6
2 Mar 2020 to
28 Feb 2021
£m
5 Aug 2019 to
1 Mar 2020
£m
2,353.2
156.8
–
156.8
979.7
5.1
–
5.1
Reconciliation of the above summarised financial information to the carrying amount of the interest in Ocado Retail Limited
recognised in the consolidated financial statements:
180
Marks and Spencer Group plc
29 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Ocado Retail Limited
Net assets
Proportion of the Group’s ownership interest
Goodwill
Brand
Customer relationships
Other adjustments to align accounting policies
Acquisition costs
Carrying amount of the Group’s interest in Ocado Retail Limited
As at 3 Apr
2021
£m
As at 28 Mar
2020
£m
180.4
90.2
449.1
249.2
88.3
(63.5)
5.7
819.0
23.6
11.8
449.1
255.7
98.9
(66.4)
5.7
754.8
In addition, the Group holds immaterial investments in joint ventures totalling £6.8m (last year: £5.6m). The Group’s share of losses
totalled £1.3m (last year: £0.9m loss).
30 GOVERNMENT SUPPORT
During the year, the Group has received support from governments in connection with its response to the Covid-19 pandemic.
This support included furlough and job retention scheme reliefs, tax payment deferral schemes and business rates relief.
The Group has recognised government grant income of £131.5m in relation to furlough programmes, such as the Coronavirus Job
Retention Scheme (CJRS) in the UK, and its equivalents in other countries. The salary expense relating to those colleagues on
furlough during the period was £181.8m.
The Group also benefited from the business rates holiday for the retail, hospitality and leisure sector of £174.6m.
There are no unfulfilled conditions or contingencies attached to these grants.
31 SUBSEQUENT EVENTS
Subsequent to the balance sheet date, the Group has monitored trade performance, internal actions, as well as other relevant external
factors (such as changes in any of the government restrictions). No material changes in key estimates and judgements have been
identified as adjusting post balance sheet events. There have been no material non-adjusting events since 3 April 2021.
181
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS 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
As at 3 April
2021
£m
As at 28 March
2020
£m
Notes
C6
9,730.8
9,730.8
8,763.2
8,763.2
2,541.8
2,541.8
7,189.0
489.2
910.4
2,210.5
1,262.0
2,316.9
7,189.0
2,543.4
2,543.4
6,219.8
487.6
910.4
2,210.5
311.0
2,300.3
6,219.8
C7
C7
C7
The Company’s profit for the year was £951.0m (last year: loss of £892.5m).
The financial statements were approved by the Board and authorised for issue on 25 May 2021. The financial statements also comprise
the notes C1 to C7.
Steve Rowe, Chief Executive Officer
Eoin Tonge, Chief Financial Officer
Registered number: 04256886
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
At 31 March 2019
Loss for the year
Dividends
Capital contribution for share-based payments
Shares issued on rights issue
Shares issued on exercise of employee share options
Realisation of merger reserve
At 28 March 2020
At 29 March 2020
Profit for the year
Capital contribution for share-based payments
Shares issued on exercise of employee share options
Reclassification to merger reserve
At 3 April 2021
Ordinary share
capital
£m
Share premium
account
£m
Capital
redemption
reserve
£m
Merger reserve
£m
406.3
–
–
–
81.3
–
–
487.6
487.6
–
–
1.6
–
489.2
416.9
–
–
–
493.4
0.1
–
910.4
910.4
–
–
–
–
910.4
2,210.5
–
–
–
–
–
–
2,210.5
2,210.5
–
–
–
–
2,210.5
1,397.3
–
–
–
–
–
(1,086.3)
311.0
311.0
–
–
–
951.0
1,262.0
Retained
earnings
£m
2,290.0
(892.5)
(191.1)
7.6
–
–
1,086.3
2,300.3
2,300.3
951.0
16.6
–
(951.0)
2,316.9
Total
£m
6,721.0
(892.5)
(191.1)
7.6
574.7
0.1
–
6,219.8
6,219.8
951.0
16.6
1.6
–
7,189.0
182
Marks and Spencer Group plc
COMPANY STATEMENT OF CASH FLOWS
Cash flow from investing activities
Dividends received
Additional investment in subsidiary
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Shares issued on exercise of employee share options
Repayment of intercompany loan
Proceeds from rights issue net of costs
Equity dividends paid
Net cash generated from/(used in) financing activities
Net cash inflow
Cash and cash equivalents at beginning and end of year
53 weeks ended
3 April 2021
£m
52 weeks ended
28 March 2020
£m
–
–
–
1.6
(1.6)
–
–
–
–
–
193.8
(572.4)
(378.6)
0.1
(5.1)
574.7
(191.1)
378.6
–
–
183
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS 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 Company’s functional currency, and are rounded to the nearest
hundred thousand.
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 or impairment reversal 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. While performance during 2020/21 has
exceeded the estimates made at last year end, there is still significant uncertainty regarding the impact of Covid-19 on the Group’s
operations and on the global economy. See note C6 for further details on the assumptions and associated sensitivities.
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 £1,093,458 (last year: £1,081,875). 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
2021
per share
2020
per share
2021
£m
–
–
–
6.8p
3.9p
10.7p
–
–
–
2020
£m
115.1
76.0
191.1
The Board of Directors has not proposed a final dividend for 2020/21. The Board of Directors will continue to defer consideration of
further dividends until visibility of the pace and scale of market recovery has improved.
C5 RELATED PARTY TRANSACTIONS
During the year, the Company has not received any dividends from Marks and Spencer plc (last year: £193.8m) and decreased its
loan from Marks and Spencer plc by £1.6m (last year: £5.1m). The outstanding balance was £2,541.8m (last year: £2,543.4m) and is
non-interest bearing. There were no other related party transactions.
184
Marks and Spencer Group plc
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
C6 INVESTMENTS
A. Investments in subsidiary undertakings
Beginning of the year
Contributions to subsidiary undertakings relating to share-based payments
Additions
Impairment reversal/(charge)
End of year
2021
£m
8,763.2
16.6
–
951.0
9,730.8
2020
£m
9,269.5
7.6
572.4
(1,086.3)
8,763.2
Shares in subsidiary undertakings represent the Company’s investment in Marks and Spencer plc and Marks and Spencer
Holdings Limited.
During the previous year, the Company purchased additional shares in Marks and Spencer Holdings Limited (£572.4m) to fund the
investment in Ocado Retail Limited.
Impairment of investments in subsidiary undertakings
The Company evaluates its investments in subsidiary undertakings annually for any indicators of impairment or impairment reversal.
The Company considers the relationship between its market capitalisation and the carrying value of its investments, among other
factors, when reviewing for indicators of impairment. As at 3 April 2021, the market capitalisation of the Group was significantly below
the carrying value of its investment in Marks and Spencer plc of £8,207.4m, indicating a potential impairment. However, performance
of the Group during 2020/21 has been more favourable than the estimates assumed in the Covid-19 scenario in 2019/20, indicating a
potential impairment reversal.
The recoverable amount of the investment in Marks and Spencer plc is determined based on a value in use calculation. The Company
has updated its assumptions as at 3 April 2021, reflecting the latest budget and forecast cash flows covering a three-year period.
The pre-tax discount rate of 8.9% (last year: 8.6%) was derived from the Group’s weighted average cost of capital, the inputs of which
included a country risk-free rate, equity risk premium, Group size premium and a risk adjustment (beta). The long-term growth rate of
1.75% (last year: 2.00%) was based on inflation forecasts by recognised bodies and with reference to rates used within the retail industry.
The Company has determined that the recoverable amount of its investment in Marks and Spencer plc is £9,158.4m and as a result has
recognised an impairment reversal of £951.0m. This reversal primarily relates to improved trading expectations, reflecting the Group’s
strategy and current three-year plan which reflects the latest view of trading and recovery from the pandemic as well as the year-on-
year reduction in net debt. Refer to the strategic report for details of the key drivers of the strategic plans which cash flow projections
are based on for the purpose of determining value in use.
Sensitivity analysis
As disclosed in the accounting policies note C1, the cash flows used within the value in use model, the long-term growth rate and the
discount rate are sources of estimation uncertainty. Management has performed a sensitivity analysis on the key assumptions and
using reasonably possible changes would result in the following impacts:
– A 25-basis point decrease in the long-term growth rate would reduce the impairment reversal by £306.6m;
– A 5% reduction in cash flows from the three-year plan would reduce the impairment reversal by £506.6m;
– A 50-basis point increase in the discount rate would reduce the impairment reversal by £655.7m.
In the event that all three were to occur simultaneously, an impairment charge of £431.5m would be recorded.
185
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
C6 INVESTMENTS CONTINUED
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 3 April 2021 is disclosed below.
Subsidiary and other related undertakings registered in the UK(i)
Name
Amethyst Leasing (Holdings) Limited
Founders Factory Retail Limited
Registered office: Northcliffe
House, Young Street, London,
England, W8 5EH
Hedge End Park Limited
Registered Office: 33 Holborn,
London, EC1N 2HT
M&S Limited
Manford (Textiles) Limited
Marks and Spencer Company
Archive (CIC)(ii)
Marks and Sparks Limited
Marks and Spencer
(Northern Ireland) Limited
Registered Office: Waterfront Plaza,
8 Laganbank Road, Belfast, BT1 3LR
Marks and Spencer
France Limited
Marks and Spencer Guernsey
Investments LLP
Share class
£1 ordinary
£0.0001
ordinary
£0.0001
preferred
£1 ordinary B
£1 ordinary
£1 ordinary
N/A
£1 ordinary
£1 ordinary
€1.14
ordinary
Partnership
interest
Proportion
of shares
held by the
Company
(%)
Proportion
of shares
held by
subsidiary
(%)
Name
–
–
–
–
–
–
–
–
–
–
–
100
0.004
Marks and Spencer
Pension Trust Limited(iii)
Marks and Spencer plc
Marks and Spencer Property
Developments Limited
Marks and Spencer
Scottish Limited Partnership(iv)
Registered Office: 2-28 St Nicholas
Street, Aberdeen, AB10 1BU
Ocado Retail Limited
Registered Office: Apollo Court
2 Bishop Square, Hatfield Business
Park, Hatfield, Hertfordshire,
United Kingdom, AL10 9EX
St. Michael (Textiles) Limited
St. Michael Finance plc
100
50
100
100
–
100
100
100
100
Proportion
of shares
held by the
Company
(%)
Proportion
of shares
held by
subsidiary
(%)
100
–
–
100
–
–
–
–
–
–
–
–
–
100
100
50
100
100
Share class
£1 ordinary A
£1 ordinary B
£1 ordinary C
£0.25
ordinary
£1 ordinary
Partnership
interest
£0.01
ordinary
£1 ordinary
£1 ordinary
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
3 April 2021. 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.
Name
Amethyst Leasing (Properties) Limited
Busyexport Limited
Marks & Spencer Outlet Limited
Marks & Spencer Simply Foods Limited
Marks and Spencer (Bradford) Limited
Marks and Spencer (Initial LP) Limited
Registered Office: No. 2 Lochrin Square,
96 Fountainbridge, Edinburgh,
Midlothian, EH3 9QA
Marks and Spencer (Jaeger) Limited
Marks and Spencer
(Property Investments) Limited
Marks and Spencer
(Property Ventures) Limited
Marks and Spencer 2005
(Brooklands Store) Limited
Marks and Spencer 2005 (Chester
Satellite Store) Limited
Marks and Spencer 2005 (Chester Store)
Limited
Marks and Spencer 2005 (Fife Road
Kingston Store) Limited
Marks and Spencer 2005 (Glasgow
Sauchiehall Store) Limited
Marks and Spencer 2005 (Hedge End
Store) Limited
Marks and Spencer 2005 (Kensington
Store) Limited
Proportion
of shares
held by the
Company
(%)
Proportion
of shares
held by
subsidiary
(%)
–
–
–
–
–
100
100
100
100
100
Company
number
4246934
4411320
4039568
4739922
10011863
100
–
SC315365
100
100
13098074
5502582
100
5502513
100
5502608
Name
Marks and Spencer 2005 (Kingston-on-
Thames Satellite Store) Limited
Marks and Spencer 2005 (Kingston-on-
Thames Store) Limited
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 2005 Chester
Limited
Marks and Spencer Holdings Limited
Marks and Spencer Hungary Limited
Marks and Spencer International
Holdings Limited
100
5502519
Marks and Spencer Investments
100
5502542
Marks and Spencer Property
Holdings Limited
Minterton Services Limited
100
5502598
Ruby Properties (Cumbernauld) Limited
100
5502546
100
5502538
100
5502478
Ruby Properties (Hardwick) Limited
Ruby Properties (Long Eaton) Limited
Properties (Thorncliffe) Limited
Ruby Properties (Tunbridge) Limited
Simply Food (Property Investments)
Simply Food (Property Ventures) Limited
–
–
–
–
–
–
–
–
–
–
Proportion
of shares
held by the
Company
(%)
Proportion
of shares
held by
subsidiary
(%)
Company
number
–
–
–
–
–
–
100
5502523
100
5502520
100
5502588
100
5502544
100
5502502
100
5174129
100
–
11845975
–
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
100
100
100
100
100
100
100
100
8540784
2615081
4903061
2100781
4763836
4922798
4716018
4716031
4716110
4716032
5502543
2239799
The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date of £38.3m 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.
186
Marks and Spencer Group plc NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
C6 INVESTMENTS CONTINUED
B. Related undertakings continued
International subsidiary undertakings(i)
Name
Marks and
Spencer
(Australia)
Pty Limited
Registered
address
Aurora Place,
88 Phillip Street,
Sydney, NSW
2000, Australia
Marks and
Spencer
(Belgium) SPRL
4th Floor, 97 Rue
Royale, 1000
Brussels, Belgium
Marks &
Spencer Inc.
Marks and
Spencer
(Shanghai)
Limited
Marks and
Spencer Czech
Republic a.s
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
Vyskocilova
1481/4, Michle,
140 00, Praha 4,
Czech Republic
Marks and
Spencer
Services S.R.O
Vyskocilova
1481/4, Michle,
140 00, Praha 4,
Czech Republic
33-35 Ermou
Street, Athens,
Greece
Marks &
Spencer
Marinopoulos
Greece SA
Ignazia Limited Heritage Hall, Le
Marchant Street,
St Peter Port, GY1
4JH, Guernsey
Teranis
Limited
M.S. General
Insurance L.P.
Marks and
Spencer
(Hong Kong)
Investments
Limited
Marks and
Spencer (India)
Pvt Limited
Marks and
Spencer
Reliance India
Pvt Limited
Heritage Hall, Le
Marchant Street,
St Peter Port, GY1
4JH, Guernsey
Heritage Hall, Le
Marchant Street,
St Peter Port, GY1
4JH, Guernsey
Suite 1009,
10/F, Tower 6 The
Gateway, 9 Canton
Road, Tsim Sha
Tsui, Kowloon,
Hong Kong
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
Country
Share class
Proportion of
shares held by
subsidiary (%)
Australia
AUD 2 Ordinary
100
Belgium
€1.21 Ordinary
100
Canada
CAD 1 Common
100
China
Registered
Capital
Czech
Republic
Czech
Republic
CZK 1,000
Ordinary
CZK 100,000
Ordinary
CZK 1,000,000
Ordinary
Registered
Capital
100
100
100
100
100
Greece
€3 Ordinary
80
Guernsey
£1 Ordinary
99.99
Guernsey
£1 Ordinary
99.99
Guernsey
Partnership
Interest
100
Hong Kong
HKD1 Ordinary
100
India
INR10 Ordinary
100
India
INR 10 Class A
(14.619% of total
capital)
INR 10 Class B
(43.544% of total
capital)
INR 5 Class C(ii)
(41.837% of total
capital)
51
100
0
Aprell Limited 24/29 Mary Street,
Ireland
€1.25 Ordinary
100
Dublin 1, Ireland
Registered
address
24-27 Mary Street,
Dublin 1, Ireland
Country
Ireland
Proportion of
shares held by
subsidiary (%)
Share class
€1.25 Ordinary
100
24-27 Mary Street,
Dublin 1, Ireland
Ireland
N/A(iii)
–
31 Ahad Haam
Street., Tel Aviv
65202, Israel
Israel
NIS Ordinary
100
Via Giotto 25 –
59100 Prato, Italy
Italy
€1 Ordinary
100
Name
Marks and
Spencer
(Ireland)
Limited
Marks and
Spencer
Pensions Trust
(Ireland)
Company
Limited By
Guarantee
Marks and
Spencer (Israel)
Limited (in
liquidation)
Per Una Italia
SRL (in
liquidation)
Jersey
£1 Ordinary
100
Netherlands
€100 Ordinary
100
Netherlands
€450 Ordinary
100
Netherlands
€100 Ordinary
100
Netherlands
€450 Ordinary
100
Portugal
€1 Ordinary
100
Singapore
No Par Value
Ordinary
Spain
€1 Ordinary
South Africa ZAR 2 Ordinary
Turkey
TRL 25.00
Ordinary
Romania
RON 18.30
Ordinary
Marks and
Spencer
(Jersey) Limited
15 Esplanade, St.
Helier, JE1 1RB,
Jersey
M & S Mode
International
B.V.
Marks and
Spencer
(Nederland)
B.V.
Marks and
Spencer BV
Marks and
Spencer
Stores B.V.
Prins
Bernhardplein
200, 1097JB,
Amsterdam,
Netherlands
Prins
Bernhardplein
200, 1097 JB,
Amsterdam,
Netherlands
Prins
Bernhardplein
200, 1097 JB,
Amsterdam,
Netherlands
Prins
Bernhardplein
200, 1097 JB,
Amsterdam,
Netherlands
Marks &
Spencer
(Portugal) Lda.
(in liquidation)
Avenida da
Liberdade 249,
1250-143, Lisbon,
Portugal
Marks and
Spencer
(Singapore)
Investments
Pte. Ltd.
77 Robinson Road,
#13-00 Robinson
77, Singapore
068896,
Singapore
M&S (Spain) S.L.
(in liquidation)
Calle Fuencarral
No. 119, 28010,
Madrid, Spain
Marks and
Spencer (SA)
(Pty) Limited
Marks and
Spencer
Clothing
Textile Trading
J.S.C
Marks and
Spencer
Romania SA
(in liquidation)
Woolworths
House, 93
Longmarket
Street, Cape Town
8001, South Africa
Havalani Karsisi
istanbul Dunya
Ticaret Merkezi
A3 Blok, Kat:11
Yesilkoy, Bakirkoy
Istanbul Turkey
Anchor Plaza, No.
26Z Timisoara
Boulevard, 3rd
floor, premises no.
3B-1, 6th District,
Bucharest,
Romania
100
100
100
100
100
187
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 5 Class C shares 100% owned by JV partner.
(iii) No share capital as the company is limited by guarantee.
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
C7 SHARE CAPITAL AND OTHER RESERVES
Issue of new shares
In May 2019, the Company offered a fully underwritten rights issue to existing shareholders on the basis of 1 share for every 5 fully
paid ordinary shares held. As a result, 325,009,968 ordinary shares with an aggregate nominal value of £81.3m were issued for cash
consideration of £601.3m. Transaction costs of £26.6m were incurred resulting in £493.4m being recognised in share premium.
6,453,783 (last year: 49,610) ordinary shares having a nominal value of £1.6m (last year: £0.0m) were allotted during the year under the
terms of the Company’s share schemes which are described in note 13 of the Group financial statements. The aggregate consideration
received was £0.0m (last year: £0.1m).
Merger reserve
The Company’s merger reserve was created as part of a Group reorganisation that occurred in 2001/02 and has an economical
relationship to the Company’s investment in Marks and Spencer plc. Last year, an amount equal to the impairment charge of
£1,086.3m was transferred from the merger reserve to retained earnings as that amount has become a realised profit in accordance
with TECH 02/17. Following the reversal of impairment recognised in the current year, an amount equal to the reversal of £951.0m has
been transferred from retained earnings to the merger reserve, in accordance with TECH 02/17.
188
Marks and Spencer Group plc GROUP FINANCIAL RECORD
2021
53 weeks
£m
2020
52 weeks
(Restated)
£m
2019
52 weeks
(Restated)
£m
2018
52 weeks
£m
2017
52 weeks
£m
Income statement
Revenue¹
UK Clothing & Home
UK Food
Total UK
International
Revenue before adjusting items
Adjusting items included in revenue
Revenue
Operating profit/(loss)¹
UK Clothing & Home
UK Food
Ocado
Other
Total UK
International
Total operating profit before adjusting items
Adjusting items included in operating profit
Total operating profit
Net interest payable
Pension finance income
Net finance costs before adjusting items
Adjusting items included in net finance costs
Net finance costs
Profit before tax and adjusting items
(Loss)/profit on ordinary activities before taxation
Income tax credit/(expense)
(Loss)/profit after taxation
2,239.0
6,138.5
8,377.5
789.4
9,166.9
(11.2)
9,155.7
(130.8)
228.6
78.4
1.9
178.1
44.1
222.2
(252.9)
(30.7)
(219.1)
47.2
(171.9)
(6.8)
(178.7)
50.3
(209.4)
8.2
(201.2)
3,209.1
6,028.2
9,237.3
944.6
10,181.9
–
10,181.9
3,499.8
5,903.4
9,403.2
974.1
10,377.3
–
10,377.3
9,611.0
1,087.2
10,698.2
–
10,698.2
9,441.7
1,180.3
10,622.0
–
10,622.0
223.9
236.7
2.6
16.8
480.0
110.7
590.7
(335.9)
254.8
(211.2)
23.6
(187.6)
–
(187.6)
403.1
67.2
(39.8)
27.4
355.2
212.9
–
27.0
595.1
130.5
725.6
(427.5)
298.1
(239.7)
25.8
(213.9)
–
(213.9)
511.7
84.2
(38.9)
45.3
535.4
135.2
670.6
(514.1)
156.5
(107.4)
17.7
(89.7)
–
(89.7)
580.9
66.8
(37.7)
29.1
626.2
64.4
690.6
(437.4)
253.2
(106.1)
29.3
(76.8)
–
(76.8)
613.8
176.4
(60.7)
115.7
189
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS GROUP FINANCIAL RECORD CONTINUED
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/Fixed charges
Basic earnings per share¹
Adjusted basic earnings per share¹
Dividend per share declared in
respect of the year
Dividend cover
Retail fixed charge cover
Statement of financial position
Net assets (£m)
Net debt2,3 (£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
2021
52 weeks
2020
52 weeks
2019
52 weeks
2018
52 weeks
2017
52 weeks
(10.1)p
1.3p
2.5p
1.6p
7.2p
1.4p
16.7p
23.7p
27.8p
30.4p
13.3p
18.7p
18.7p
3.9p
4.3x
3.4x
1.8x
3.6x
1.5x
3.8x
3,708.5
3,950.6
332.0
2,469.2
3,981.5
294.5
2,954.2
1,827.5
300.5
1,038
16.8
483
5.0
1,043
17.2
445
4.9
1,035
17.6
429
5.2
1.6x
3.4x
3,150.4
1,934.7
331.2
979
17.4
455
5.9
–
–
2.0x
2,285.8
3,515.9
146.9
1,037
16.8
472
5.1
44,423
4,754
49,094
4,894
50,578
4,862
53,273
5,655
53,562
6,202
The above results are prepared under IFRS for each reporting period on a consistent basis, with the exception of the adoption of IFRS 9 and IFRS 15 in 2019 for which comparative periods
have not been restated and the adoption of IFRS 16 in 2020 for which the comparative period of 2019 has been restated.
1. Based on continuing operations.
2. Excludes accrued interest.
3. See note 1 for details on a change in accounting policy and the resulting restatement in 2020 and 2019.
190
Marks and Spencer Group plc 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 with 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.
UK Food
Like-for-like
Net new space1
Week 53
Total UK Food revenue
UK Clothing & Home
Like-for-like
Net new space
Week 53
Total UK Clothing & Home revenue
2020/21
£m
2019/20
£m
5,831.1
163.7
143.7
6,138.5
2,164.5
34.1
40.4
2,239.0
5,754.4
273.8
–
6,028.2
3,084.5
124.6
–
3,209.1
Food LFL ex
hospitality and
franchise
Movement in
revenue per
the Income
Statement
Sales from non
like-for-like stores
and hospitality
and franchise
categories
1. UK Food net new space includes sales to Ocado Retail Limited.
The period-on-period change in Food excluding the hospitality and
franchise categories’ revenue (excluding VAT) from stores which have
been trading and where there has been no significant change (greater
than 10%) in footage for least 52 weeks and online sales. The LFL 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. The hospitality category includes cafés,
counters and marketplace. This measure has been introduced as both
hospitality and franchise were closed for a majority of the year.
UK Food
Like-for-like
Hospitality
Franchise
Like-for-like ex hospitality
and franchise
2020/21
£m
2019/20
£m
5,831.1
(52.0)
(420.2)
5,754.4
(249.4)
(491.0)
5,358.9
5,014.0
%
1.3
(79.1)
(14.4)
6.9
191
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS APM
Closest equivalent
statutory measure
Reconciling items to
statutory measure
Definition and purpose
GLOSSARY CONTINUED
Income Statement Measures continued
Clothing & Home
stores/Clothing &
Home online
None
Not applicable
M&S.com revenue/
Online revenue
None
Not applicable
International online None
Not applicable
Revenue growth at
constant currency
None
Not applicable
Adjusting items
None
Not applicable
192
Clothing & Home revenue through stores and through the Clothing &
Home online platforms. These revenues are reported within the UK
Clothing & Home segment results. Store revenue excludes revenue from
‘shop your way’ and click & collect, which are included in online revenue.
The growth in revenues on a year-on-year basis is a good indicator of the
performance of the stores and online channels. This measure has been
introduced given the Group’s focus on online sales.
UK Clothing & Home
Stores
Online
Total UK Clothing & Home
revenue – 52-week basis
Week 53
Total UK Clothing &
Home revenue
2020/21
£m
2019/20
£m
1,088.9
1,109.7
2,198.6
40.4
2,487.8
721.3
3,209.1
–
%
(56.2)
53.9
(31.5)
–
2,239.0
3,209.1
(30.2)
Total revenue through the Group’s online platforms. These revenues are
reported within the relevant UK Clothing & Home, UK Food 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 an explanation of why this measure is used
within incentive plans.
International revenue through International online platforms. These
revenues are reported within the International segment results. The
growth in revenues on a year-on-year basis is a good indicator of the
performance of the online channel. This measure has been introduced
given the Group’s focus on online sales.
International revenue
Stores
Online
Week 53
At reported currency
2020/21
£m
2019/20
£m
613.6
165.7
10.1
789.4
867.4
77.2
–
944.6
%
(29.3)
114.6
–
(16.4)
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
International revenue –
52-week basis
Week 53
At reported currency
2020/21
£m
2019/20
£m
779.3
–
779.3
10.1
789.4
942.7
1.9
944.6
–
944.6
%
(17.3)
–
(17.5)
–
(16.4)
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 Executive Committee.
Marks and Spencer Group plc APM
Closest equivalent
statutory measure
Reconciling items to
statutory measure
Definition and purpose
GLOSSARY CONTINUED
Income Statement Measures continued
Revenue before
adjusting items
Revenue
Adjusting items
(See note 5)
Operating
profit before
adjusting items
Finance
income before
adjusting items
Operating profit Adjusting items
(See note 5)
Finance income Adjusting items
(See note 5)
Finance costs before
adjusting items
Finance costs
Adjusting items
(See note 5)
Interest on leases
Finance
income/costs
Net financial
interest
Finance
income/costs
Finance
income/costs
(See note 6)
Finance
income/costs
(See note 6)
EBIT before
adjusting items
EBIT1
Adjusting items
(See note 5)
Ocado Retail
Limited EBITDA
Profit before tax
and adjusting items
EBIT1
Not applicable
Profit before tax Adjusting items
(See note 5)
Adjusted basic
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)
Revenue before the impact of adjusting items. 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 Executive Committee. This measure has been introduced as
certain adjustments have been made to revenue for the first time in
accordance with the Group’s policy for adjusting items.
Operating profit before the impact of adjusting items. 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 Executive Committee.
Finance income before the impact of adjusting items. 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 Executive Committee.
Finance costs before the impact of adjusting items. 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 Executive Committee.
The net of interest income on subleases and interest payable on lease
liabilities. This measure has been introduced as it allows the Board and
Executive Committee to assess the impact of IFRS 16 Leases.
Calculated as net finance costs, excluding interest on leases and
adjusting items. 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 Executive 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.
Calculated as Ocado Retail Limited earnings before interest, tax,
depreciation, amortisation, impairment and exceptional items.
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 Executive Committee.
This is a measure used within the Group’s incentive plans. Refer to the
Remuneration Report for an 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 an 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.
193
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS APM
Closest equivalent
statutory measure
Reconciling items to
statutory measure
Definition and purpose
GLOSSARY CONTINUED
Income Statement Measures continued
52-week basis
for the 2020/21
financial year
Corresponding
equivalent
statutory measure
Last trading
week of 2020/21
The Group’s financial year ends on the nearest Saturday to 31 March.
The current financial year is for the 53 weeks ended 3 April 2021 with the
comparative financial year being for the 52 weeks ended 28 March 2020.
In order to provide comparability with the prior year results, adjustments
have been made to the 2020/21 53-week income statement to remove
sales, operating costs and other items relating to the last trading week
of the 2020/21 financial year. In determining the week 53 adjustment,
revenue and cost of goods sold represent the actual trading
performance in that week, with overhead expenses allocated
proportionally to week 53.
Revenue
UK Food
UK Clothing & Home
Total UK Retail
International
Total Group
Operating profit/(loss) before
adjusting items
UK Food
UK Clothing & Home
International
Adjusted profit before tax
Total Group
Loss before tax
Total Group
2020/21
£m
Exclude week 53
£m
2020/21
52-week basis
6,138.5
2,239.0
8,377.5
789.4
9,166.9
(143.7)
(40.4)
(184.1)
(10.1)
(194.2)
5,994.8
2,198.6
8,193.4
779.3
8,972.7
228.6
(130.8)
44.1
(15.0)
1.4
1.0
213.6
(129.4)
45.1
50.3
(8.7)
41.6
(209.4)
8.2
(201.2)
Net debt comprises total borrowings (bank and bonds net of accrued
interest and lease liabilities), 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. Net debt does not include
contingent consideration as it is conditional upon future events which
are not yet certain at the balance sheet date.
This measure is a good indication of the strength of the Group’s balance
sheet position and is widely used by credit rating agencies.
Calculated as net debt less lease liabilities. This measure is a good
indication of the strength of the Group’s balance sheet position and is
widely used by credit rating agencies.
See Financial
Review
The cash generated from the Group’s operating activities less capital
expenditure, cash lease payments and interest paid.
See Financial
Review
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.
Reconciliation
of net debt
(see note 27)
Reconciliation
of net debt
(see note 27)
Lease liabilities
(see note 20)
Balance sheet measures
Net debt
None
Net debt excluding
lease liabilities
None
Cash flow measures
Free cash flow
Free cash flow
pre-shareholder
returns
Net cash inflow
from operating
activities
Net cash inflow
from operating
activities
194
Marks and Spencer Group plc APM
Other measures
Covid-19 scenario
GLOSSARY CONTINUED
Closest equivalent
statutory measure
Reconciling items to
statutory measure
Definition and purpose
None
Not applicable
As part of the Group’s normal financial planning process, the Board
approved the 2020/21 budget and three-year plan.
Capital expenditure None
Not applicable
Ocado Retail Limited None
Not applicable
Return on capital
employed
None
Not applicable
As a result of the UK government restrictions on trade that were
announced in response to the Covid-19 pandemic, the Group revisited the
2020/21 budget and three-year plan to determine a downside scenario.
The downside scenario assumed the government guidelines at the
period end continued for a period of at least four months, resulting in a
significant decline in sales for the remainder of 2020/21, as outlined
in the basis of preparation in the Group’s 2020 Annual Report and
Financial Statements.
This downside scenario was approved by the directors and is defined as
the Covid-19 scenario.
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 or through an investment in an associate.
References made to Ocado Retail Limited also include its two
subsidiaries, Speciality Stores Limited (disposed on 31 January 2021) and
Paws & Purrs Limited.
Calculated as being EBIT1 before adjusting items divided by the average
of opening and closing capital employed. The measures used in this
calculation are set out below:
EBIT1 before adjusting items
Net assets
Add back:
Partnership liability to the
Marks & Spencer UK Pension Scheme
Deferred tax liabilities
Non-current borrowings and other
financial liabilities
Retirement benefit deficit
Derivative financial instruments
Current tax liabilities
Less:
Investment property
Derivative financial instruments
Retirement benefit asset
Current tax assets
Net operating assets
Add back: Provisions related to
adjusting items
Capital employed
Average capital employed
ROCE %
2020/21
£m
222.2
2019/20
£m
590.7
2,285.8
3,708.5
193.5
42.3
3,659.9
7.8
73.6
–
(15.2)
–
(639.2)
(35.4)
5,573.1
100.8
5,673.9
5,874.8
3.8%
207.4
332.4
3,865.9
12.4
–
–
(15.5)
(172.2)
(1,915.0)
(19.3)
6,004.6
71.1
6,075.7
5,887.5
10.0%
1. EBIT is not defined within IFRS but is a widely accepted profit measure being earnings before interest and tax.
This measure is used within the Group’s incentive plans. Refer to the
Remuneration Report for an explanation of why this measure is used
within incentive plans.
195
Annual Report & Financial Statements 2021FINANCIAL STATEMENTS
Important notice
NOTICE OF ANNUAL
GENERAL MEETING
2021
Tuesday 6 July 2021 at 11am
Held at, and broadcast from, Waterside House
35 North Wharf Road, London, W2 1NW
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.
196
Marks and Spencer Group plc NOTICE OF MEETING 2021
DEAR SHAREHOLDER
“
I am pleased to
announce the 20th
Annual General
Meeting of Marks and
Spencer Group plc
will be held on
6 July 2021.
“
Nick Folland,
General Counsel and
Company Secretary
ANNUAL GENERAL MEETING (AGM)
YOUR VOTE COUNTS
As the Chairman has touched on in his
message to shareholders contained
in your Notice of Availability, last year’s
AGM was an unprecedented success.
While Covid-19 restrictions prohibited
public gatherings so that physical
attendance was not permitted, our first
fully digital meeting received higher levels
of shareholder engagement than we’ve
seen in recent years. Nearly three times as
many of you took the time to watch the
broadcast live, vote or submit questions to
our Board, for which we were truly grateful.
To build on last year’s success and ensure
that we provide another accessible,
engaging and democratic AGM, this year
we will be hosting another fully digitally
enabled meeting. I’m very pleased to say
that we will also be joined by Kamal
Ahmed who will be acting as a shareholder
advocate, to help share your views and
ensure that shareholder questions are put
to the Board. Kamal will be known to many
of you as he previously held roles as the
Editorial Director, Economics Editor and
Business Editor at the BBC.
The 2021 AGM will be broadcast from
M&S’s Waterside House Support Centre
at 11am on 6 July 2021.
For statutory and regulatory purposes,
the place of the meeting will be Waterside
House, 35 North Wharf Road, London
W2 1NW. Shareholders are invited to
participate in the AGM electronically via a
live webcast, which you can access by
logging on to https://web.lumiagm.com.
On this website, you can also submit
questions and your voting instructions,
both during the meeting and in advance.
A step-by-step guide on how to join the
meeting electronically and submit your
votes and questions can be found on
pages 207 to 209. We strongly encourage
you to log on and submit any questions
you might have in advance of the meeting,
so that your views are heard even if you are
unable to participate live.
As the meeting will be predominantly
digital, Board members physically at the
place of meeting will not be available for
shareholder interaction in person, as they
will be taking part in the meeting
broadcast under studio conditions.
Shareholders are advised not to travel to
the venue on the day.
Your vote is important to us. You can:
– Register your proxy vote electronically
by logging on to either the Lumi AGM
platform, our Registrar’s website,
shareview.co.uk, or by using the service
offered by Euroclear UK & Ireland
Limited for members of CREST.
– Complete and return a paper proxy
form (enclosed with this notice if
you have elected for hard copy
documents, or otherwise available
from Equiniti on request).
– Join the AGM online and vote
electronically. Please see page 208
of this Notice for further details.
VOTING BEFORE THE MEETING
Your vote counts and all shareholders are
encouraged to vote either in advance or
on the day. There are several ways to
submit your voting instructions in advance
of the meeting, which are available from
the publication date of this Notice:
(1) The Lumi website.
(2) Equiniti’s Shareview website.
(3) The CREST or Proxymity electronic
proxy appointment platforms.
(4) By completing and returning a paper
proxy form.
Paper proxy votes must be received by
no later than 11am on Friday 2 July 2021.
Paper proxy forms are available from
Equiniti on request; you can call our
shareholder helpline on 0345 609 0810,
or use any of Equiniti’s alternative contact
details listed on page 210. Votes submitted
electronically via the Lumi or Shareview
websites, or via the CREST or Proxymity
platforms, (options 1, 2 and 3 above)
should be registered by no later than 11am
on Friday 2 July 2021. After then, you will
no longer be able to submit your proxy
vote via Shareview, CREST or Proxymity.
Voting via the Lumi website will also close
at this time, but will reopen for voting on
the day of the meeting.
You will be able to vote in one of three
ways for each of the resolutions: “For”,
“Against” or “Vote Withheld”. Please
note that a “Vote Withheld” is not a vote
in law and will not be counted in the
calculation of votes “For” and “Against”
each resolution.
197
Annual Report & Financial Statements 2021 JOINING THE MEETING AND
VOTING ON THE DAY
You can watch the broadcast live, vote and
ask questions on the day of the meeting
via the Lumi website. Please refer to pages
207 to 208 for instructions on how to join
the meeting and submit your votes and
questions on the day.
Voting on all resolutions on the day will
be by way of a poll and the Lumi website
will reopen at 9.30am on Tuesday 6 July
for this purpose. Votes can be cast once
the Chairman has declared the poll open.
QUESTIONS
On the day, your questions will be posed
to the Board by Kamal Ahmed. Where we
receive a number of questions covering
the same topic, Kamal will group these to
address as many of your queries as
possible.
It is, of course, important to us that we
have the opportunity to hear from you,
our shareholders, directly. If you would like
to ask your question at the AGM in person,
you can send us a video recording of
yourself asking your question by email to
AGMquestionsubmission@marks-and-
spencer.com, to be received by no later
than 5pm on Friday 2 July.
VOTING RESULTS
The results of the voting will be
announced through a Regulatory
Information Service and will be published
on our website marksandspencer.com/
thecompany on 6 July 2021, or as soon
as reasonably practicable thereafter.
In 2020, all resolutions were passed at the
meeting with votes ranging from 90.89%
to 99.97% in favour.
EXPLANATORY NOTES
An explanation of each of the resolutions
to be voted on at the AGM is set out below
and on pages 202 to 204.
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.
EXPLANATORY NOTES TO THE RESOLUTIONS
TO RECEIVE THE REPORTS
AND ACCOUNTS
1
The Board asks that shareholders receive the Annual Report
and Financial Statements for the 53 weeks ended 3 April 2021.
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
3 April 2021. In line with legislation, this vote is advisory and the
directors’ entitlement to remuneration is not conditional on it.
ELECTION OF
DIRECTORS
3–12
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 in office at the time of the
evaluation 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). Evelyn Bourke joined
the Board on 1 February 2021. Evelyn has led transformative
change and brings extensive experience in financial services,
risk and capital management and mergers and acquisitions.
Fiona Dawson also joined the Board on 25 May 2021. Fiona has
an in-depth knowledge of the UK and global food retail industry
and a strong track record in sustainability, health and wellbeing,
particularly women’s entrepreneurship and human rights.
In accordance with the UK Corporate Governance Code, all
directors will stand for election or re-election, as relevant, at the
AGM this year. Biographies are available on pages 62 and 63 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 reappointed
as auditor of the Company.
Resolution 14 proposes that the Audit Committee be authorised
to determine the level of the auditor’s remuneration.
AUTHORITY TO SUB-DIVIDE
THE ORDINARY SHARES
15
Resolutions 15, 16 and 22 relate to the nominal value of the
Company’s ordinary shares, having the effect of reducing the
nominal value from £0.25 to £0.01.
At last year’s AGM, shareholders approved resolutions to
amend the Company’s share plan rules, ensuring that they all
permit the use of treasury or new issue shares to satisfy share
awards. References to share plans means the Marks and
Spencer Group Restricted Share Plan 2015, the Marks and
Spencer Group Deferred Share Bonus Plan 2015, and the Marks
and Spencer Group Performance Share Plan 2015, all as
amended and all together the “Plans”.
198
Marks and Spencer Group plc EXPLANATORY NOTES TO THE RESOLUTIONS CONTINUED
The move from purchasing shares in the market to issuing new
shares for the purposes of satisfying share awards under the
Plans has significantly lowered the Company’s costs of awarding
equity to colleagues, and, as a result, improved the efficiency
with which the Board uses shareholder funds. However, it still
costs the Company disproportionately more than its peers to
issue equity for share awards because of the relatively high
nominal value of the Company’s ordinary shares. The Company
funds the £0.25 nominal value when shares are awarded rather
than pass this cost to colleagues, as the nominal value
deduction could represent a significant proportion of a
colleague’s award. By reducing the nominal value of the
Company’s ordinary shares to a level more akin to market
norms, and by transferring the nominal value burden to the
award recipient, the administrative cost of issuing equity to
satisfy share awards under the Plans will be largely eliminated.
We believe that this administrative change produces a more
favourable outcome for shareholders and ensures that the
Company’s resources are used in a way that minimises
unnecessary costs. As detailed below, this change should not
impact the Company’s market share price.
Resolution 15 proposes that each existing ordinary share of
£0.25 (each an “Existing Ordinary Share”) in issue at the close of
business on the date of the AGM will be subdivided into one
ordinary share of £0.01 in the Company (each a “New Ordinary
Share”) and one deferred share of £0.24 in the Company (each a
“Deferred Share”) (the “Share Subdivision”). The purpose of the
Deferred Shares is to ensure that the reduction in the nominal
value of the ordinary shares does not result in a reduction in the
capital of the Company. Each ordinary shareholder’s
proportionate interest in the Company’s issued ordinary share
capital will remain unchanged as a result of the Share
Subdivision. Aside from the change in nominal value, the rights
attaching to the New Ordinary Shares (including voting and
dividend rights and rights on a return of capital) will be identical
to those of the Existing Ordinary Shares. No new share
certificates will be issued in respect of the New Ordinary Shares
as existing share certificates will remain valid in respect of the
same number of New Ordinary Shares arising from the Share
Subdivision. The number of ordinary shares of the Company
listed on the Official List and admitted to trading on the London
Stock Exchange’s main market for listed securities will not
change as a result of the Share Subdivision. The Share
Subdivision will not affect the Company’s net assets.
Consequently, the market price for a New Ordinary Share
immediately after the completion of the Share Subdivision
should, theoretically, be the same as the market price of an
Existing Ordinary Share immediately prior to the Share
Subdivision. Resolution 15 is conditional on the passing of
resolution 16.
APPROVING THE TERMS
OF THE DEFERRED SHARES
16
Resolution 16 relates to the terms of the Deferred Shares to be
issued as a result of the Share Subdivision proposed in
resolution 15. The Deferred Shares created on the Share
Subdivision becoming effective will have no voting or dividend
rights and, on a return of capital on a winding up of the
Company, the Deferred Shares will have the right to receive the
amount paid up on them only after ordinary shareholders have
received, in aggregate, any amounts paid up on their ordinary
shares plus £10 million per ordinary share. No share certificates
will be issued in respect of the Deferred Shares, nor will CREST
accounts of shareholders be credited in respect of any
entitlement to Deferred Shares, nor will they be admitted to the
Official List or to trading on the London Stock Exchange or any
other investment exchange. The Deferred Shares will not be
transferable at any time, other than with the prior written
consent of the Directors of the Company. The rights attaching
to, and restrictions upon, the Deferred Shares are set out in
resolution 16 and in accordance with Article 4 of the Articles of
Association of the Company, if such resolution is approved, will
apply to the Deferred Shares as if such rights and restrictions
were set out in the Articles of Association of
the Company.
The rights attaching to the Deferred Shares will also grant
irrevocable authority to the Company to, inter alia:
– Transfer the Deferred Shares to a person nominated by the
Directors for no consideration and without requiring the
consent of any holder of Deferred Shares to be obtained.
– Purchase any or all of the Deferred Shares without any further
approval from the holders of the Deferred Shares.
– Appoint any person on behalf of the holders of the Deferred
Shares to execute a contract for the Company’s purchase of
the Deferred Shares for an aggregate consideration of £0.01.
– Cancel the Deferred Shares without payment to the holders.
Any buyback of the Deferred Shares would be effected by
notice to the registered office of the Company addressed to a
person nominated by the Directors to act on behalf of the
holders of the Deferred Shares.
Resolution 16 is conditional on the passing of resolution 15.
RENEWAL OF THE POWERS
OF THE BOARD TO ALLOT SHARES
17
Paragraph (A) of this resolution 17 would give the directors
the authority to allot ordinary shares of the Company up
to an aggregate nominal amount equal to (i) £163,043,966
(if resolution 15 is not passed) or (ii) £6,521,758.64 (if resolution
15 is passed). These amounts represent 652,175,864 ordinary
shares, being approximately one-third (33.33%) in each case of
the nominal value of (i) the Existing Ordinary Shares in issue as
at 25 May 2021, the latest practicable date before the
publication of this Notice, or (ii) the New Ordinary Shares
calculated on the basis of the number of Existing Ordinary
Shares in issue as at the same date (anticipating, for this
purpose, that the share subdivision described in resolution 15
will be approved at the 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 (i) £326,087,932.25 (if resolution 15
is not passed) or (ii) £13,043,517.29 (if resolution 15 is passed),
as reduced by the nominal amount of any shares issued under
paragraph (A) of this resolution. These amounts (before any
reduction) represent 1,304,351,729 ordinary shares, being
approximately two-thirds (66.66%) in each case of the nominal
value of (i) the Existing Ordinary Shares in issue as at 25 May
2021, the latest practicable date before the publication of this
Notice, or (ii) the New Ordinary Shares calculated on the basis of
the number of Existing Ordinary Shares in issue as at the same
date (anticipating, for this purpose, that the share subdivision
described in resolution 15 will be approved at the AGM).
The authorities sought under paragraphs (A) and (B) of this
resolution will expire at the conclusion of the AGM in 2022 or
on 1 October 2022, whichever is sooner. The directors have
no present intention to exercise either of the authorities
sought under this resolution; 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.
199
Annual Report & Financial Statements 2021 EXPLANATORY NOTES TO THE RESOLUTIONS CONTINUED
AUTHORITY TO MAKE
POLITICAL DONATIONS
18
The Companies Act 2006 (the “2006 Act”) prohibits companies
from making political donations to UK political organisations or
independent candidates, or incurring UK political expenditure,
unless authorised by shareholders in advance.
The Company does not make, and does not intend to make,
donations to political organisations or independent
election candidates, nor does it incur or intend to incur any
political expenditure.
However, the definitions of political donations, political
organisations and political expenditure used in the 2006
Act are very wide. As a result, they 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.
AUTHORITY TO DISAPPLY
PRE-EMPTION RIGHTS
19–20
Resolutions 19 and 20 are proposed as special resolutions. If the
directors wish to allot new shares or 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 19, that this authority be
renewed. If approved, the resolution will authorise the directors
to issue shares in connection with pre-emptive offers, or
otherwise to issue shares for cash up to an aggregate nominal
amount of (i) £24,456,595 (if resolution 15 is not passed) or
(ii) £978,263.80 (if resolution 15 is passed) 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 97,826,380 ordinary shares, being approximately
5% in each case of the nominal value of (i) the Existing Ordinary
Shares in issue as at 25 May 2021, the latest practicable date
before the publication of this Notice, or (ii) the New Ordinary
Shares calculated on the basis of the number of Existing
Ordinary Shares in issue as at the same date (anticipating, for
this purpose, that the share subdivision described in resolution
15 will be approved at the AGM).
The Pre-Emption Group’s Statement of Principles also supports
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
200
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.
Accordingly, the purpose of resolution 20 is to authorise
the directors to allot new shares and other equity securities
pursuant to the allotment authority given by resolution 17,
or sell treasury shares for cash, without first being required to
offer such securities to existing shareholders, up to a further
nominal amount of (i) £24,456,595 (if resolution 15 is not passed)
or (ii) £978,263.80 (if resolution 15 is passed). This aggregate
nominal amount represents 97,826,380 ordinary shares, being
approximately 5% in each case of the nominal value of (i) the
Existing Ordinary Shares in issue as at 25 May 2021, the latest
practicable date before the publication of this Notice, or (ii)
the New Ordinary Shares calculated on the basis of the
number of Existing Ordinary Shares in issue as at the same
date (anticipating, for this purpose, that the share subdivision
described in resolution 15 will be approved at the AGM). 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 20 is used, the Company will publish details
of its use in its next Annual Report.
The authority granted by resolution 20 would be in addition to
the general authority to disapply pre-emption rights under
resolution 19. The maximum nominal value of equity securities
that could be allotted if both authorities were used would be
(i) £48,913,190 (if resolution 15 is not passed) or (ii) £1,956,527.59
(if resolution 15 is passed), which represents in each case
approximately 10% of the nominal value of (i) the Existing
Ordinary Shares in issue as at 25 May 2021, being the latest
practicable date before the publication of this Notice, or (ii)
the New Ordinary Shares calculated on the basis of the number
of Existing Ordinary Shares in issue as at the same date
(anticipating, for this purpose, that the share subdivision
described in resolution 15 will be approved at the AGM).
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 19 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 have no current intention to allot shares except in
connection with employee share schemes. These authorities will
expire at the conclusion of the AGM in 2022 or on 1 October
2022, whichever is sooner.
Marks and Spencer Group plc
EXPLANATORY NOTES TO THE RESOLUTIONS CONTINUED
AUTHORITY FOR THE COMPANY TO
PURCHASE ITS OWN SHARES
21
This is the same authority as was sought and granted at last
year’s AGM.
Authority is sought for the Company to purchase up to 10% of
its issued ordinary shares renewing the authority granted by
the shareholders at previous AGMs.
The directors have no present intention of exercising the
authority to purchase the Company’s own ordinary 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 resolution specifies
the minimum and maximum prices which may be paid for any
ordinary shares purchased under this authority, reflecting the
requirements of the Listing Rules.
The Company has options outstanding over 115 million ordinary
shares, representing 5.92% of the Company’s issued ordinary
share capital as at 25 May 2021, the latest practicable date
before the publication of this Notice.
If the existing authority given at the 2020 AGM and the
authority now being sought by this resolution were to be fully
used, these options would represent 6.58% of the Company’s
ordinary share capital in issue at that date.
AUTHORITY FOR THE COMPANY TO
PURCHASE ITS DEFERRED SHARES
22
Authority is sought for the Company to make an off-market
purchase of its Deferred Shares of £0.24 each in accordance
with the terms of (i) the Deferred Shares (which shall have such
rights and restrictions attached to them as detailed in
resolution 16) and (ii) the share purchase agreement made
available to shareholders pursuant to Section 696(2) of the
2006 Act; with such power to apply until 6 July 2026.
It is the Company’s intention to complete the purchase of its
Deferred Shares as soon as practicable after the Share
Subdivision detailed in resolution 15, and subsequently to
cancel the Deferred Shares.
Resolution 22 is conditional on the passing of resolutions 15
and 16.
NOTICE OF
GENERAL MEETING
23
In accordance with 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 23 seeks such approval and, should this resolution
be approved, it will remain valid until the end of the next AGM.
AMENDMENTS TO THE ARTICLES
OF ASSOCIATION
24
The Board is proposing that the Company adopt new articles
of association (the “New Articles”), the principal changes of
which are set out below. The main objective of these changes
is to improve our overall engagement with shareholders, and
shareholders’ experiences with managing their shareholding.
These changes do not impact institutional or nominee
shareholdings.
Of our circa 140,000 private shareholders owning equity in their
own name, there are at least 10,000 shareholders based on our
analysis who we have lost contact with or are unable to pay
dividends to, because their personal details have changed or
they have not provided us with their dividend bank mandate.
For the protection of shareholders’ personal information and
in line with our Plan A, cost saving and operational efficiency
objectives, the New Articles will allow us to act sooner to cease
sending documents to addresses where we know a shareholder
no longer lives, and also to forfeit shares and dividends where
we have been unable to make contact with a shareholder for a
period of six years.
In summary, the New Articles:
(A) Clarify that shareholder bank mandates for dividends can
also be used for “other money payable in cash relating to a
share”, ensuring that cheques are no longer used for any
payments due to shareholders in relation to their shares.
(B) Clarify the Company’s definition of inactive or “gone away”
shareholders, to ensure that we do not continue to send mail
to shareholders after one instance of returned and
unopened mail, and we do not continue to pay dividends by
bank transfer after one instance of a failed dividend
payment (in either case following reasonable enquiries to
establish the shareholder’s current correct details).
(C) Reduce the period of time after which we are able to forfeit a
dormant shareholder’s dividends and shares, from 12 years
to six years, following efforts to trace the shareholder.
(D) Clarify that a shareholder can exercise their “right to speak”
during a general meeting, when the chairman of the
meeting is satisfied that arrangements are in place for
shareholders to communicate any questions and opinions
they may have on the business of the meeting.
The New Articles showing all the proposed changes to the
Company’s existing articles are available for inspection,
as noted on page 205 of this document.
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 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, General Counsel
and Company Secretary
London, 25 May 2021
201
Annual Report & Financial Statements 2021 MARKS AND SPENCER GROUP PLC
NOTICE OF MEETING
6 JULY 2021
Notice is given that the Annual General
Meeting of Marks and Spencer Group plc
(the “Company”) will be held at and
broadcast from Waterside House, 35
North Wharf Road, London, W2 1NW,
in accordance with the information
provided on page 207, on Tuesday 6
July 2021 at 11am (the “AGM”) for the
purposes set out below.
Resolutions 1 to 18 will be proposed as
ordinary resolutions, and resolutions 19 to
24 will be proposed as special resolutions.
1. To receive the Annual Report and
Financial Statements for the 53 weeks
ended 3 April 2021.
2. To approve the Directors’ Remuneration
Report for the year ended 3 April 2021, as
set out on pages 94 to 105 of the
Annual Report.
To re-elect the following directors who are
seeking annual re-election in accordance
with the UK Corporate Governance Code:
3. Archie Norman
4. Steve Rowe
5. Eoin Tonge
6. Andrew Fisher
7. Andy Halford
8. Tamara Ingram
9. Justin King
10. Sapna Sood
To elect the following directors
appointed to the Board since the
last Annual General Meeting:
11. Evelyn Bourke
12. Fiona Dawson
13. To resolve that Deloitte LLP be, and is
hereby, reappointed as auditor of the
Company to hold office until the
conclusion of the next general meeting
at which accounts are laid before
the Company.
To view our Board biographies go to
the Investors section of our corporate
website, marksandspencer.com/
thecompany
202
14. To resolve that the Audit Committee
determine the remuneration of the
auditor on behalf of the Board.
15. DIRECTORS’ AUTHORITY TO
SUBDIVIDE ORDINARY SHARES
To resolve that, subject to the passing
of resolution 16, each of the ordinary
shares of £0.25 in the capital of the
Company in issue at the close of business
on the date of this meeting (or such other
time and date as the directors may
determine) be subdivided into one
ordinary share of £0.01 in the capital of the
Company, having the same rights and
being subject to the same restrictions
in all respects as the existing ordinary
shares of £0.25 each in the capital of the
Company (save as to nominal value) and
one deferred share of £0.24 in the capital
of the Company, having the rights and
being subject to the restrictions set out in
resolution 16 below.
16. DEFERRED SHARES
To resolve that, subject to the passing
of resolution 15, the deferred shares of
£0.24 in the capital of the Company shall
confer on the holder such rights, and shall
be subject to the restrictions, as follows:
(A) A deferred share:
(i) Does not entitle its holder to
receive any dividend or distribution
declared, made or paid or any
return of capital (save as provided
in (A)(ii) below) and does not entitle
its holder to any further or other
right of participation in the assets
of the Company.
(ii) Entitles its holder to participate on
a return of assets on a winding up
of the Company, such entitlement
to be limited to the repayment of
the amount paid up or credited as
paid up on such share and shall be
paid only after the holders of any
and all ordinary shares then in
issue have received (1) payment in
respect of such amount as is paid
up or credited as paid up on those
ordinary shares held by them at
that time, plus (2) the payment in
cash or in specie of £10,000,000
on each such ordinary share.
(iii) Does not entitle its holder to
receive a share certificate in
respect of their shareholding,
save as required by law.
(iv) Does not entitle its holder to
receive notice of, nor attend,
speak or vote at any general
meeting of the Company.
(v) Shall not be transferrable at any
time other than with the prior
written consent of the directors of
the Company.
(B)
The Company may at its option and is
irrevocably authorised at any time
after the creation of the deferred
shares to:
(i) Appoint any person to act on
behalf of any or all holders of a
deferred share, without obtaining
the sanction of the holders, to
transfer any or all of such deferred
shares held by such holder(s) for nil
consideration to any person
appointed by the directors of
the Company.
(ii) Without obtaining the sanction
of the holder(s), but subject to the
Companies Act 2006, purchase
any or all of the deferred shares
then in issue and to appoint any
person to act on behalf of all
holders of deferred shares to
transfer and execute a contract
of sale and a transfer of all the
deferred shares to the Company
for an aggregate consideration
of £0.01.
(C)
Any offer by the Company to
purchase the deferred shares may
be made by the directors of the
Company depositing at the registered
office of the Company a notice
addressed to such person as the
directors shall have nominated
on behalf of the holders of the
deferred shares.
(D) The Company shall have the
irrevocable authority to authorise and
instruct a single holder or any other
person on behalf of all holders of
deferred shares to exercise any vote
to which holders of deferred shares
may be entitled by law or in any other
circumstances or for any other matter
connected to the deferred shares.
Marks and Spencer Group plc
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 2022
or on 1 October 2022, 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.
18. 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 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 2022 or on 1 October 2022,
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.
(E)
The rights attached to the deferred
shares shall not be deemed to be
varied or abrogated by the creation or
issue of any new shares ranking in
priority to or pari passu with or
subsequent to such shares, any
amendment or variation of the rights
of any other class of shares of the
Company, the Company reducing
its share capital or share premium
account or the surrender,
cancellation, redemption or purchase
of any share, whether a deferred
share or otherwise.
(F)
The Company shall have the
irrevocable authority to cancel any
deferred share without making any
payment to the holder and such
cancellation shall not be deemed
to be a variation or abrogation
of the rights attaching to such
deferred share.
Such rights and restrictions in (A) - (F)
above attaching to the deferred shares
shall apply to the deferred shares as if
they were set out in the Company’s
Articles of Association.
17. DIRECTORS’ AUTHORITY TO
ALLOT SHARES
To resolve that the directors be and
are 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
(B)
£163,043,966 (if resolution 15 is
not passed) or £6,521,758.64 (if
resolution 15 is passed) (and in either
case such amount to be reduced by
any allotments or grants made under
paragraph (B) below in excess of such
sum); and
Comprising equity securities (as
defined in Section 560(1) of the
Companies Act 2006) up to a nominal
amount of £326,087,932.25 (if
resolution 15 is not passed) or
£13,043,517.29 (if resolution 15 is
passed) (and in either case 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;
19. GENERAL DISAPPLICATION OF
PRE-EMPTION RIGHTS
To resolve as a special resolution that,
subject to the passing of resolution 17,
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 17, by way of a
rights issue only):
(i) to ordinary shareholders in
proportion (as nearly as may
be practicable) to their existing
holdings; and
(ii) to holders of other equity
securities as required by the
rights of those securities or
as the directors otherwise
consider necessary;
and so that the directors may impose
any limits or restrictions and make any
arrangements which they consider
necessary or appropriate to deal with any
treasury shares, fractional entitlements,
record dates, legal, regulatory or practical
problems in, or under the laws of, any
territory or any other matter; and
(B)
in the case of the authority granted
under paragraph (A) of resolution 17
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 £24,456,595 (if resolution
15 is not passed) or £978,263.80
(if resolution 15 is passed);
and shall expire at the conclusion of the
AGM to be held in 2022 or on 1 October
2022, 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.
203
Annual Report & Financial Statements 2021
20. ADDITIONAL DISAPPLICATION
OF PRE-EMPTION RIGHTS
21. COMPANY’S AUTHORITY TO
PURCHASE ITS OWN SHARES
22. COMPANY’S AUTHORITY TO
PURCHASE DEFERRED SHARES
To resolve as a special resolution that,
subject to the passing of resolution 17,
the directors be empowered in addition
to any authority granted under resolution
19 to allot equity securities (as defined in
the Companies Act 2006) for cash under
the authority given by that resolution 17
(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 £24,456,595
(if resolution 15 is not passed) or
£978,263.80 (if resolution 15 is
passed); 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 2022 or on 1 October
2022, 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.
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 £0.25 each (if resolution 15 is not
passed) or of its ordinary shares of £0.01
each (if resolution 15 is passed), such
power to be limited:
(A) to a maximum number of 195,652,759
ordinary shares;
(B)
by the condition that the minimum
price which may be paid for an
ordinary share is £0.25 (if resolution 15
is not passed) or £0.01 (if resolution 15
is passed) 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 venue 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 2022 or until 1 October 2022,
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.
To resolve as a special resolution, subject
to and conditional upon the passing of
resolutions 15 and 16, that:
(A) the share purchase agreement made
available to shareholders pursuant to
Section 696(2) of the Companies Act
2006 (the “Off-market Share Purchase
Contract”) is authorised; and
(B)
the Company is authorised for the
purposes of Section 694 of the
Companies Act 2006 to make an
off-market purchase (as defined in
Section 693(2) of the Companies Act
2006) of its deferred shares of £0.24
each in accordance with the terms of:
(i) the Deferred Shares as detailed in
resolution 16 above; and
(ii) the Off-market Share Purchase
Contract;
with such authorisation to apply until
6 July 2026.
23. 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.
24. AMENDMENTS TO THE ARTICLES
OF ASSOCIATION
To resolve as a special resolution that,
with effect from the end of the AGM, the
articles of association produced to the
meeting and signed by the Chairman for
the purpose of identification, are adopted
as the articles of association of the
Company in substitution for, and to the
exclusion of, the Company’s existing
articles of association.
By order of the Board
Nick Folland, General Counsel
and Company Secretary
London, 25 May 2021
Registered office Waterside House,
35 North Wharf Road, London W2 1NW.
Registered in England and Wales
No. 4256886.
204
Marks and Spencer Group plc 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. Votes submitted in advance of the
meeting using the Lumi website will
constitute an instruction to appoint the
Chairman of the meeting as proxy. The
shares covered by the instruction will be
voted as directed by the shareholder in
respect of the resolutions referred to in
this Notice of Meeting at the meeting and
at any adjournment of it.
6. 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 2 July 2021.
7. The return of a completed paper proxy
form, other such instrument or any
CREST proxy instruction (as described
in paragraph 15 on the following page)
will not prevent a shareholder voting later
if they wish to do so.
8. 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 them and
the shareholder by whom they were
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, they may,
under any such agreement, have a right
to give instructions to the shareholder
as to the exercise of voting rights.
9. The statement of the rights of
shareholders in relation to the
appointment of proxies in paragraphs
2 to 7 does not apply to Nominated
Persons. The rights described in these
paragraphs can only be exercised by
shareholders of the Company.
10. Nominated Persons are reminded that
they should contact the registered holder
of their shares (and not the Company) on
matters relating to their investments in
the Company.
1. Biographies of the directors seeking
election (or re-election) are given in the
Annual Report on pages 62 and 63,
including their 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. To request one or more paper
proxy forms (to appoint more than one
proxy), please contact our shareholder
helpline on 0345 609 0810. 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 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,
you can do so by accessing the Lumi
website, https://web.lumiagm.com.
Instructions are available on page 208
of this Notice. Alternatively, you can
submit your instruction by visiting
shareview.co.uk (see page 209 for further
instructions). You are advised to read the
terms and conditions of use. All advance
proxy votes regardless of how they are
cast are to be returned by 11am on Friday
2 July 2021. If you return paper and
electronic instructions, those received last
by the Registrar before 11am on Friday 2
July 2021 will take precedence. Electronic
communication facilities are available to
all shareholders and those that use them
will not be disadvantaged.
11. To be entitled to join the meeting,
submit questions and vote (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 2 July 2021 (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 join, submit questions and vote at
the meeting.
12. 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. Email company.secretary@
marks-and-spencer.com during
normal business hours on any weekday
(excluding public holidays).
(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 current Articles of
(v)
Association of the Company, marked
to show the changes proposed by
resolution 24, together with a copy of
the proposed new Articles of
Association of the Company.
The draft share purchase agreement
in relation to the Company’s off-
market purchase of the Deferred
Shares which is proposed to be
executed by the Company and a
person nominated by the Company
to act on behalf of the Company’s
shareholders (in accordance with
the terms of the Deferred Shares in
resolution 16 and the Company’s
authority to purchase the Deferred
Shares in resolution 22, each
such resolution as proposed
to shareholders).
Copies of these documents will also be
available at the AGM upon request, from
9.30am on the morning of the AGM until
the meeting’s conclusion.
13. 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.
205
Annual Report & Financial Statements 2021 14. As at 25 May 2021 (the latest
practicable date before the publication of
this Notice), the Company’s issued share
capital consists of 1,956,527,593 ordinary
shares carrying one vote each. No shares
are held in treasury. Therefore, the total
voting rights in the Company as at 25 May
2021 are 1,956,527,593.
15. 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.
16. 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 2 July 2021. 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.
NOTES CONTINUED
17. 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 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.
18. 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.
19. If you are an institutional investor,
you may be able to appoint a proxy
electronically via the Proxymity platform,
a process which has been agreed by the
Company and approved by the Registrar.
For further information regarding
Proxymity, please go to www.proxymity.io.
Your proxy must be lodged by 11am on
Friday 2 July 2021 in order to be considered
valid. Before you can appoint a proxy via
this process you will need to have agreed
to Proxymity’s associated terms and
conditions. It is important that you read
these carefully as you will be bound by
them and they will govern the electronic
appointment of your proxy.
20. 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.
21. 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)
(ii)
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
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 no
later than the time when it makes the
statement available on the website. The
business that may be dealt with at the
AGM includes any statement that the
Company has been required to publish on
a website under Section 527 of the
Companies Act 2006.
22. Any member joining the meeting has
the right to ask questions. The Company
must cause to be answered 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.
23. A copy of this Notice, and other
information required by Section 311A of
the Companies Act 2006, can be found at
marksandspencer.com/thecompany
24. Please see the letter dated 25 May 2021
from the General Counsel and Company
Secretary on pages 197 to 201 for further
explanatory notes.
206
Marks and Spencer Group plc INFORMATION FOR THE DAY
TIMINGS
LOGGING IN
VOTING
Date: Wednesday 2 June 2021
9.00am
Registration opens for
vote casting and question
submission in advance of
the meeting.
Friday 2 July 2021
Date:
11.00am Opportunity to submit
Date:
9.30am
votes and questions
in advance of the
meeting closes.
Tuesday 6 July 2021
Online meeting
opens and question
submission reopens.
11.00am AGM begins and you will
be able to vote once the
Chairman declares the
poll open.
1.00pm AGM closes. The results of
the poll will be released to
approx.
the London Stock
Exchange once collated.
PHYSICAL ATTENDANCE
Following the success of last year’s
AGM, this year’s meeting will once
again be fully digitally enabled.
Shareholders are advised not to
travel to the venue on the day.
Please refer to the following
information and the user guides
provided on pages 208 and 209 for
details of how to join and participate
in the meeting electronically.
ELECTRONIC
PARTICIPATION
Shareholders are encouraged to
view and participate in the 2021 AGM
electronically. This can be done
by accessing the AGM website:
https://web.lumiagm.com
ACCESSING THE
AGM WEBSITE
Lumi AGM can be accessed online
using most well-known internet
browsers such as Internet Explorer
(version 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.
On accessing the AGM website you will
be asked to enter a ‘Meeting ID’, which
is 151-557-065. You will then be
prompted to enter your Shareholder
Reference Number and PIN. These can
be found printed on your Notice of
Availability or Voting Card sent to you
by post. Access to the AGM website to
vote and submit questions in advance
will be available from 9am on 2 June
2021 until 11am on 2 July 2021. Access
to the AGM website will reopen to
participate on the day from 9.30am
on 6 July 2021.
QUESTIONS
You are able to submit questions live
during the meeting on the Lumi
website by clicking on the message
feature. You can also submit questions
in advance via Lumi and Shareview –
step-by-step guides to voting and
question submission is on pages 208
and 209.
As noted in the Company Secretary’s
letter on pages 197 to 198 of this Notice,
Kamal Ahmed will be posing your
questions to the Board during the
meeting. If you would like to ask your
question in person though, you can
submit your recorded video question
by email to AGMquestionsubmission@
marks-and-spencer.com, to be
received by no later than 5pm on Friday
2 July 2021. Please ensure that your
question recording lasts no longer than
one minute, so that we can hear from as
many shareholders as possible. By
submitting a video question, you
consent to your video being played
during the AGM broadcast; please note
that the AGM recording will be made
publicly available on our corporate
website after the meeting.
Shareholder questions and answers will
be published on the corporate website
as soon as practicable after the
meeting. As with the AGM live
broadcast, where we receive a number
of questions covering the same topic,
we will publish summarised questions
and answers addressing as many
questions received as possible.
If you’re voting live during the
meeting, the voting options will
appear on the screen after the
resolutions have been proposed.
Press or click the option that
corresponds with the way in which
you wish to vote: “For”, “Against” or
“Withheld”. Once you have selected
your choice, you will see a message
on your screen confirming that your
vote has been received for each of
the resolutions. There is no final
submit button. If you make a
mistake or wish to change your
voting instruction, simply press
or click the correct choice for that
resolution until the poll is closed.
If you wish to cancel your “live”
vote, 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.
Advance voting is also available
from 2 June 2021, and details on the
different methods for voting in
advance are set out in the Company
Secretary’s letter on pages 197 to 198
of this Notice.
Step-by-step guides to voting in
advance via the Lumi and Shareview
websites, as well as live on the day,
are on pages 208 to 209.
PROXIES & CORPORATE
REPRESENTATIVES
If you are a duly appointed proxy or
corporate representative, please
contact the Company’s registrar,
Equiniti, before 11am on Monday 5
July 2021 on 0345 609 0810, or
+44 121 415 7071 if you are calling
from outside the UK, for your unique
username and password to join the
meeting. Please ensure a valid proxy
appointment has been made by no
later than the voting deadline
detailed on page 197.
Lines are open 8.30am to 5.30pm
Monday to Friday (excluding public
holidays in England & Wales).
207
Annual Report & Financial Statements 2021 ONLINE USER GUIDE TO THE ELECTRONIC 2021 ANNUAL GENERAL MEETING
LUMI AGM PLATFORM GUIDE: BEFORE THE AGM
1
2
3
Go to https://web.lumiagm.com where you
will be prompted to enter the Meeting ID:
151-557-065
After entering the Meeting ID, you will be
prompted to enter your Shareholder Reference
Number and PIN, both of which can be found in
your Notice of Availability.
When successfully authenticated, shareholders
will be taken to the Information Page. To cast a
proxy vote, select the voting icon at the top of
the screen. The resolutions and voting choices
will be displayed.
4
5
6
To vote, select your voting direction from the
options shown on screen. To change your mind,
simply select a different option.
Note: Proxy voting will close at 11am on Friday 2
July 2021.
A confirmation message will appear to show
your vote has been received after each motion.
There is no final submit button.
During the proxy voting period, shareholders
can submit a question by typing it into the
message feature.
LUMI AGM PLATFORM GUIDE: ON THE DAY
7
8
9
The AGM will commence at 11am on Tuesday 6
July 2021. It can be accessed through the same
platform: https://web.lumiagm.com. You will
be prompted to re-enter the Meeting ID
(151-557-065), followed by your Shareholder
Reference Number and PIN. All of these details
can be found in your Notice of Availability.
The meeting presentation will begin at the
start of the AGM, when the Broadcast Panel will
automatically appear at the side of the screen.
You can expand and minimise the screen
by pressing the Broadcast arrow at the top
of the page.
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.
10
11
12
For each resolution, press the choice
corresponding with the way in which you
wish to vote. When selected, a confirmation
message will appear.
To change your mind, simply press the correct
choice which will override your previous
selection. 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. Click the send button to submit.
208
Marks and Spencer Group plc MARKS AND SPENCER GROUP PLC
SHAREVIEW AGM
GUIDE
REGISTERING FOR SHAREVIEW
1
2
3
4
To continue with your account
set-up, please complete all fields
including the security questions.
You have now successfully
registered for a Shareview
portfolio. To activate your account,
enter the activation code sent on
the Notice of Availability and
select the “Activate” button.
Navigate to the following URL:
https://www.shareview.co.uk
You will be presented with the
above home screen. Please select
the “Register” button in
the top right hand corner.
Then select the “Open Portfolio
Account” button.
You will then be presented with
the above screen.
Please complete all fields, then
select “Set Up Your Account”.
Your shareholder reference
number will be included on
your Notice of Availability.
VOTING AND SUBMITTING A QUESTION
Note: Votes can only be submitted in advance. You will not be able to vote live on the day via Shareview.
5
6
7
You can also select the option
to “Vote online” from the
“My Investments” page.
Once you have activated your
account, you will be directed to the
“Welcome Page”. You can select
the option to submit a proxy vote,
under the “Vote Online” section.
Proxy voting and the option
to submit questions via
Shareview will close at 11am
on Friday 2 July 2021. Voting via
Shareview will not be available
on the day of the meeting.
Once you have selected the option
to “Vote Online”, you will then be
presented with the following
voting page.
To submit a question, click the link
at the top of the page before
submitting your vote. When
submitting a question, please
include your full name details in
the subject line.
In order to submit your vote for
each resolution, press the choice
corresponding with the way in
which you wish to vote. Once you
have completed this section,
please select “Go”.
You have now successfully
submitted your vote.
209
Annual Report & Financial Statements 2021 SHAREHOLDER INFORMATION
ANALYSIS OF SHARE REGISTER
Ordinary shares
As at 3 April 2021, the Company had 145,209 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
76,000
26,905
21,422
14,816
3,879
1,746
269
172
145,209
52.34
18.53
14.75
10.20
2.67
1.20
0.19
0.12
100
14,082,267
20,073,834
30,584,827
45,224,700
26,611,056
38,645,166
105,190,412
1,676,101,329
1,956,513,591
0.72
1.03
1.56
2.31
1.36
1.97
5.38
85.67
100
Number of
shareholders
141,744
3,465
145,209
Percentage
of total
shareholders
Number of
ordinary
shares
Percentage
of issued
share capital
97.62
2.38
100
161,043,698
1,795,469,893
1,956,513,591
8.23
91.77
100
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).
Students
Please note, students are advised to
source information from our website.
Additional documents
An interactive version of our
Annual Report is available online at
marksandspencer.com/
annualreport2021
Additionally, the Annual Report
(which contains the Strategic Report)
is available for download in pdf format
at marksandspencer.com/
annualreport2021
General Counsel and
Company Secretary
Nick Folland
2020/21 FINANCIAL CALENDAR AND KEY DATES
6 July 2021
10 November 2021*
13 January 2022*
Annual General Meeting (11am)
Results, Half Year†
Results, Quarter 3 Trading Update†
† 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.
210
Marks and Spencer Group plc SHAREHOLDER QUERIES
DIVIDENDS
SHAREHOLDER INFORMATION CONTINUED
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 210. For more general queries,
shareholders should consult the Investors
section of our corporate website.
MANAGING YOUR SHARES ONLINE
Shareholders can manage their holdings
online by registering with Shareview,
a secure online platform provided by
Equiniti. Registration is a straightforward
process and allows shareholders to:
– Sign up for electronic shareholder
communications.
– Receive trading updates and other
electronic-only broadcasts by the
Company via 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 communications
(“e-comms”) as the Company has found
this creates a more engaged shareholder
base. For example, following the move
from paper to e-comms as a method
of soliciting Shareholder Panel
member interest, we have received
217 enquiries from those registered for
digital communication compared to
26 paper-based enquiries. This is just
one of the most recent examples that
supports our approach of encouraging
shareholders to manage their shares
and engage with the Company digitally.
The reduction in printing costs and paper
usage also makes a valuable contribution
to our Plan A commitments.
To find out more information about the
services offered by Shareview and to
register, please visit shareview.co.uk.
Further to the announcements made
by the Company on 20 March 2020 and
again on 28 April 2020, the Board will not
be making a final dividend payment for
the 2020/21 financial year.
DUPLICATE DOCUMENTS
Many shareholders have more than
one account on the Share Register and
receive duplicate documentation from
us as a result. If you fall into this group,
please contact Equiniti to combine
your accounts.
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.
SHAREGIFT
AGM
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.
This year’s AGM will be held and broadcast
from Waterside House on 6 July 2021.
The meeting will start at 11am.
Following the success of the 2020
digital AGM, the 2021 AGM will again
be broadcast online from Waterside
House. We strongly encourage
shareholders to participate in the
meeting electronically by accessing
the AGM website, https://web.lumiagm.
com. Further details can be found on page
207 of the Notice of Meeting and in the
user guides on pages 208 and 209.
The meeting will also be available to view
online after the event at
marksandspencer.com/thecompany.
M&S reserves the right to retain and use
footage or stills for any purpose, including
Annual Reports, marketing materials and
other publications.
211
Annual Report & Financial Statements 2021 A
Page
E
Page
N
INDEX
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
129
141
62, 106
77-83
82
140
111-122
196-209
62-63
163
09
177
44
108
107
58
139
136
D
Deadlines for exercising voting rights 108
176
Deferred tax
133, 158
Depreciation
164
Derivatives
147, 148
Diluted earnings per share
107
Directors’ indemnities
100
Directors’ interests
Directors’ responsibilities
110
Directors’ single figure
of remuneration
Disclosure of information to auditor
Dividend cover
Dividend per share
102
110
190
37
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
K
Key performance
indicators
147
148
109
109
145
163
161
134, 164
163
38
190
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
Page
71
30
48
107
107
109
47
90
84
94
S
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
138
210
177, 188
153
108
128
124
125
07
186
T
191
129
156
109
127
123
156
107
129
133, 137
125
Taxation
Total shareholder return
Trade and other payables
Trade and other receivables
Transfer of securities
V
11, 18, 21, 37
Variation of rights
Viability statement
145
101
162
161
107
107
57
FINANCIAL STATEMENTS
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of
changes in equity
Consolidated cash flow statement
Note
1 Accounting policies
2
Segmental information
3
Expense analysis
4 Profit before taxation
5 Adjusting items
6
Finance income/costs
Income tax expense
7
8 Earnings per share
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
145
147
148
148
149
153
153
156
158
161
161
162
162
163
123
124
125
126
128
129
138
139
140
141
145
212
164
21 Financial instruments
175
22 Provisions
176
23 Deferred tax
24 Ordinary share capital
177
25 Contingencies and commitments 177
26 Analysis of cash flows given in
the statement of cash flows
27 Analysis of net debt
28 Related party transactions
29
Investments in joint ventures
and associates
30 Government support
31 Subsequent events
Company financial statements
Notes to the company
financial statements
Group financial record
177
178
179
180
181
181
182
184
189
Marks and Spencer Group plc
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Back cover
One of M&S’s Insiders, Sophie from
Islington in our Polka Dot Angel
Sleeve Midi Dress and Cotton
Camo High Neck Utility Jacket.
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