Annual Report • Mar 28, 2015
Annual Report
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NAVIGATING THE REPORT In this document you will see a series of icons that demonstrate how we've integrated information about our business model with details of our strategy and risk. The easy to identify icons also tell you where to look for further information.
INTEGRATED REPORTING As members of the International Integrated Reporting Council pilot, we have committed to reporting the long-term value created by sustainable business. Our ambition is to have a report that fully meets the principles of the IIRC framework by 2016. Progress this year includes a revised depiction of our business model, which better demonstrates how we create long-term value through the eff ective use of our resources and relationships, and clear links between our KPIs and remuneration.
PLAN A Plan A is integrated throughout this report to demonstrate how it is embedded in every part of our business. This makes it easier for shareholders to see how our sustainability programme is creating value in our diff erent divisions. More detailed information is available in our online 2015 Plan A Report at marksandspencer.com/plana2015
ONLINE INFORMATION To keep
shareholders fully up-to-date, we have comprehensive fi nancial and company information on our website. It means that shareholders can access the information they require, 24 hours a day. To register, go to marksandspencer.com/investors and follow the 'Electronic Shareholder Communication' link.
INVESTOR RELATIONS APP Our Marks & Spencer Investor Relations app provides information to investors and the fi nancial media in an iPad™ optimised format. The app displays the latest share price information and corporate news. It also contains fi nancial reports, presentations and videos. For more information visit marksandspencer.com/investors
INTRODUCTION
M&S IS ONE OF THE UK'S LEADING RETAILERS, WITH OVER 1,330 STORES WORLDWIDE.
WE ARE COMMITTED TO DELIVERING SUSTAINABLE VALUE FOR OUR SHAREHOLDERS AND ENHANCING LIVES EVERY DAY THROUGH THE HIGH QUALITY, OWN BRAND FOOD, CLOTHING AND HOME PRODUCTS WE OFFER IN OUR STORES AND ONLINE BOTH IN THE UK AND INTERNATIONALLY.
STRATEGIC REPORT
SUPPLEMENTARY INFORMATION
OUR BUSINESS
From our values to our infrastructure, M&S is a more capable and better equipped business than it was a year ago – helping us become the modern, agile company we need to be.
ROBERT SWANNELL CHAIRMAN
6.4p INTERIM 11.6p FINAL 18.0p TOTAL DIVIDEND FOR 2014/2015
This year we have seen outstanding performance in some areas of the business but performance below our expectations in others. The overall result is that underlying profi ts before tax moved ahead 6.1% to £661.2m. We have achieved a number of the strategic priorities we set out at the beginning of the year, becoming a more capable company with signifi cantly stronger infrastructure, but we experienced some implementation issues along the way. We embedded new values aligned with our strategic goals. These values, which put integrity at their core, respect our heritage whilst helping us to become the modern, agile company we need to be. Above all, we remain focused on one thing: off ering our customers products of exceptional quality and value that they can trust, however they choose to shop with us.
PAID ON 9 JANUARY 2015
Our Food business had an outstanding year in a sector that continues to go through profound change. In the most competitive food market of recent years, we delivered like-for-like growth in every quarter and maintained our margin. We have a clear and distinct off ering and our growth plans look clear and achievable.
Our General Merchandise (GM) business delivered signifi cant margin gains – the fi rst step in reaping the benefi ts of the investment we have made – and our products were well received by our customers and the fashion press. Whilst our overall performance was aff ected by the implementation issues outlined below, it was pleasing to exit the year in the fi nal quarter with all elements of our GM business showing growth.
TO BE PAID ON 10 JULY 2015
Performance in our International business was disappointing. Strong sales performance in key owned markets, for example India and Hong Kong, was more than off set by macroeconomic issues and performance in key franchise markets, particularly Russia, Ukraine and Turkey.
We implemented two crucial pieces of infrastructure: our new M&S.com website and our automated distribution centre at Castle Donington, two of the largest projects of their kind in Europe. Whilst projects of this scale are likely to experience some initial performance issues, these were greater than we anticipated. Our skilled teams acted decisively to address the issues. The strategic rationale for both projects remains clear.
The Board's three priorities have remained the same since I became Chairman in 2011: we are focused on strategy and execution, people and succession, and values. Having completed the bulk of our major three-year investment programme to transform M&S into an international, multi-channel retailer, the Board's focus again this year was on ensuring that our substantial investment delivers the required returns. We also devoted time to ensuring we have the right talent and skills required in our business, and to debating and articulating our values, discussed below.
There have been a number of changes to the Board this year.
Jan du Plessis, our Senior Independent Director, stepped down in March 2015, having served on the Board since 2008. I would like to thank Jan for his commitment and contribution to M&S over the years. His insights and experience have been invaluable. Vindi Banga, who has served on our Board since 2012, took on the position of Senior Independent Director; he also chairs the Remuneration Committee.
In April 2015, Richard Solomons joined the Board as a non-executive director. Richard is Chief Executive of InterContinental Hotels Group and brings strong commercial, consumer, branding and global experience to the M&S Board.
On the executive team I would like to extend a warm welcome to Helen Weir, our new Chief Finance Offi cer. Helen has exceptional credentials in both retail and fi nance having previously held the same position at John Lewis Partnership, Lloyds Banking Group and Kingfi sher.
This year we reviewed our senior remuneration framework to align it more clearly with our strategic objectives. Further details are laid out in our Remuneration Summary on page 27.
The culture at M&S is important to the Board. Our values are a fundamental part of how we do business – they are what makes M&S diff erent. Last June we introduced four
Independence Half of our Board is made up of independent non-executive directors, in line with the UK Corporate Governance Code.
Senior Independent Director Our Senior Independent Director is Vindi Banga.
Accountability and election We have clear separation of duties between Chairman and CEO roles, and require all the directors to stand for re-election annually.
Evaluation An externally facilitated performance evaluation of the Board and its committees was undertaken during the year, as it is every three years.
Attendance The Directors have all attended an acceptable level of Board and Committee meetings.
Compliance The composition of all Board committees complies with the application recommendations of the Code.
Experience Throughout 2014/15, two members of the Audit Committee had recent and relevant fi nancial experience.
Tenure The tenure of our previous external auditor was over ten years. In 2014/15 we appointed a new statutory auditor, Deloitte, following a thorough tender process.
Non-audit policy We have a policy for the award of non-audit work performed by our auditor, which is disclosed on our website, and we have disclosed the limited non-audit work undertaken.
Auditor appointment We disclose our external auditor appointment policy.
Internal Audit Details on the internal audit function are provided with the Annual Report.
Performance-related pay A signifi cant part of our performance-related pay is delivered through shares.
Reward Our reward framework is simple and transparent and is designed to support and drive our business strategy.
The Board rigorously challenge each other on strategy, performance, responsibility and accountability to ensure that the decisions we make are of the highest quality.
The Board's performance is scrutinised in an annual eff ectiveness review. This examines the progress we are making against our plan, our collective and individual eff ectiveness, and the independence of our non-executive directors.
All of our decisions are discussed within the context of the risks involved. Eff ective risk management is central to us achieving our strategic objectives.
Maintaining strong relationships with our shareholders, both private and institutional, is crucial to achieving our aims. We hold numerous events throughout the year to maintain an open dialogue with investors.
new core values built on the principles that have guided M&S since it was founded in 1884. The values – Inspiration, Innovation, Integrity and In Touch – aim to equip us all to deliver our strategic plans.
But while the words are new, we have not changed what matters to us. Acting with integrity is at the heart of the way we do business. So our customers can be sure that the GM margin gains we achieve will not come at the expense of the standards we expect in our factories; they can be safe in the knowledge that we will not compromise on the provenance of our food; and they can rely on us to be a force for good in the communities in which we operate.
Our commitment to Plan A, the programme we launched eight years ago to become the world's most sustainable major retailer, remains as deeply held today as it ever was. As people become increasingly aware of how their behaviour impacts the world around them, we believe businesses need to connect with the communities in which they operate. From healthy living to ethical sourcing, we are committed to leading the way and striving to off er our customers the most sustainable options possible. As M&S becomes more international, our ability to lead with others on a global scale grows, whether by using our scale to drive improvements in our own supply chain, or by lending our expertise to global industry initiatives.
STAKEHOLDER ENGAGEMENT
Engaging with stakeholders and employees is particularly important during times of change. We communicate regularly with our shareholders to ensure they understand our progress and plans. Outside our results, this year, we held investor briefi ngs on M&S.com and our International business, and Marc Bolland and his executive team had many meetings with investors. All information shared at these events is available to shareholders at
marksandspencer.com/investors. We again held a governance event for our largest shareholders, which I led with our Senior Independent Director.
We have recently implemented a new loyalty scheme for our private investors. The scheme allows over 190,000 of our UK-registered private investors to use money from their dividend payment to buy an M&S Shareholder Card at a discount. It operates much like a gift card. The initiative refl ects the fact our private investors are also some of our most loyal customers and we value them greatly.
Our 'Fit for the Future' programme was one of our biggest ever engagement exercises, where employees discussed the shape of the new values. We also launched a scheme for the 3,500 section managers who between them manage 92% of our sales fl oor colleagues. The programme inspired and motivated these managers, who are the beating heart of M&S.
M&S is a more capable and better equipped business than it was a year ago. In the coming year we will continue to focus on growth in Food, improving GM performance, further improving margins and cash generation.
Our dividend policy remains a progressive one, with dividends broadly covered twice by earnings. We intend to pay a fi nal dividend of 11.6p this year, taking the total dividend to 18.0p, up 5.9% on last year. In the context of our increased free cash fl ow, we are also pleased to announce an ongoing programme of returns of capital to shareholders, starting this year, with a share buyback programme of £150m.
Finally, I would like to thank all our employees for their hard work and commitment at a time of signifi cant change. M&S employees are dedicated and upbeat – I am always struck by their positive attitude and energy. Their pride in M&S and commitment to the business are what makes us special. I want to thank every one of them in stores and in our offi ces for their contribution this year.
ROBERT SWANNELL CHAIRMAN
We create long-term value through the eff ective use of our resources and relationships. We manage these in line with our core values of Inspiration, Innovation, Integrity and In Touch.
These values infl uence how we behave and they run through everything we do – they make the M&S diff erence: enhancing lives every day through the products and services we off er our customers in the UK and internationally.
Generating returns for our stakeholders through eff ective management of our fi nancial resources
Maintaining our channels and supply chain infrastructure to meet customer demand
Strengthening our brand through creation and protection of our intellectual properties
Understanding our customers informs everything we do. Our Customer Insight Unit (CIU) listens and talks to around 60,000 customers a month, analysing the results to build a comprehensive understanding of what our customers want and how this is changing. We also engage with over 2.6 million customers every day via our social media channels, giving a constant fl ow of information about how they are feeling about M&S and our products. By keeping closely in touch with our customers, we can ensure that we stay relevant and continue to off er the products and services they want to see at M&S.
A well run business relies on robust fi nancial management and planning. We are committed to creating value for shareholders by making M&S a more profi table business through improved gross margin and strong cash generation, driven by rigorous control of costs and capex. In line with our strategy to build an infrastructure fi t to support the future growth of the business, we continue to invest in our supply chain and technology. We fund future growth through existing cash fl ows, a policy which supports our commitment to maintaining an investment grade rating.
Our own brand model sits at the very heart of the M&S diff erence. Our unique products set us apart and our innovative culture means we are always improving them for the better. By providing high-quality products alongside an industry leading approach to provenance, ethics and environmental standards, we have built a brand that our customers trust – this is our competitive advantage. M&S occupies a very special place in Britain and we work hard to protect that position by always acting with the integrity our customers have come to know and expect.
05 STRATEGIC REPORT 2015
We are committed to building and maintaining collaborative, sustainable relationships throughout our supply chain and in the communities where we operate. We encourage and support our suppliers to apply the same rigorous standards against which we measure ourselves. M&S has over 3,000 product, raw material and service suppliers with current social compliance assessments covering many aspects of human rights listed on the Supplier Ethical Data Exchange. We are longstanding members of the Ethical Trading Initiative and Global Social Compliance Programme. Our Global Sourcing Principles cover what we expect and require of our suppliers – we updated them this year to incorporate the UN's Guiding Principles on Business and Human Rights.
Our range of selling channels enables our customers to shop with us in the way which is most convenient for them. M&S.com off ers our full range in a stylish, editorial-led format that aims to inspire and excite our customers. We have a strong presence on the UK high street and in retail parks with a combination of larger full line stores and smaller stores, all supported by our Shop Your Way service that delivers our products wherever and whenever our customers want them. Our expanding Simply Food format means we are well positioned to respond to changing consumer shopping habits. We have a strong presence in key convenience locations, including city centres, hospitals and travel hubs, such as petrol stations, train stations and airports.
For the fi rst time, we have brought food and fashion together under one brand identity – Only M&S. This unifi ed brand provides the ideal platform from which to share the many stories that make our products unique. It also clearly communicates what M&S stands for through a unifi ed campaign. The refreshed brand delivers a simpler, more contemporary look and, importantly, 'Est. 1884' celebrates our 131-year history, refl ecting the value our customers place on our heritage. We have always prided ourselves on our commitment to customer service – it is a key part of our heritage. Every product is built around our customer. Our employees, trained to the highest standard, are united in their dedication to giving our customers the best shopping experience.
In 2014/15 we made further progress against our strategy to become a leading international, multi-channel retailer – as we enhanced our M&S.com infrastructure.
With our new infrastructure largely in place, we have been focused on execution. A number of key projects, for example improvements to our product allocation and replenishment systems, have been successfully implemented this year. We also built up our design capabilities and capitalised on our market leading food product development. Whilst we faced some diffi culties during the bedding in period of the website and distribution centre, we have learned more about how to improve our online customer experience and how best to stabilise the complex operations at Castle Donington. Thanks to our strengthened in-house capabilities, these learnings have been eff ectively put into practice, enabling us to return M&S.com to growth in the fi nal quarter of the year.
In 2014/15 we invested in our organisation and our people to get the very best from our new infrastructure and ensure we are truly fi t for the future. We have brought in key skills and competencies that have historically been outsourced – helping us work more profi tably and with greater pace. This has included strengthening our in-house clothing and home design capability and our software engineering team.
We developed four new core values of Inspiration, Innovation, Integrity and In Touch. By putting these values at the heart of everything we do, we are encouraging employees to do things diff erently and take a fresh look at how we can inspire our customers – with exquisite quality and styling in our clothing, and innovative, fi rst to market, exceptional quality food. This consistency will help customers recognise the values of our brand and what makes M&S diff erent.
We made good progress in three of our four key strategic priorities for the year. In driving Food growth we delivered an excellent performance with sales up 3.4% and growth ahead of the market. We signifi cantly increased our GM gross margin by 190bps. GM sales, however, were challenging, particularly in the third quarter due to the impact of the disruption at Castle Donington and the unseasonal weather. Finally, we continued to control costs tightly and reduced capital expenditure. This, combined with a focus on working capital, has delivered free cash fl ow pre dividends of £524.2m up 22.5%.
The strategy we set out in 2010 to be more of a specialist in Food is working very well and diff erentiates us from the competition. We had an outstanding year in a diffi cult market. Sales increased despite defl ation across the sector and our profi tability rose as we streamlined our processes. Our Food division has now seen 22 consecutive quarters of like-for-like sales growth. Customers continued to turn to M&S for both everyday quality and special moments. They love our constant innovation: over the year we launched 1,700 new products. It is this newness and innovation that makes M&S food special.
Customers recognised the improvements in the style and quality of our clothing. Our collections over the year were a stylish, wearable interpretation of the key trends, meeting with approval from the fashion press and customers alike. By the fourth quarter, all GM departments were seeing growth. The rise in gross margin came about through better buying and sourcing. We also focused on full price sales and saw customers trade up to our better and best ranges.
Despite a diffi cult start to the year, the performance of M&S.com steadily improved as we listened to customers' feedback and worked hard to improve the online shopping experience. The site made gains on three key metrics as the year progressed: traffi c, conversion and customer satisfaction levels. We now off er
We aim to excite and inspire our customers We are restless in our aim to improve things for the better
Using our strengthened capabilities, our priorities, both in the UK and International, will be to accelerate our Food growth, deliver an end-to-end GM operating model and to drive the experience on M&S.com. We will continue to develop a world class talent pool, further growing our skills in key strategic areas.
The UK food market will remain challenging but we are well positioned with a store format that caters for how shopping habits are changing. We opened 62 Simply Food stores this year, and we have a strong pipeline with the fastest Food store opening programme planned in M&S's history.
Whilst we expect the Clothing and Home market to remain highly competitive, we will deliver growth through a focus on stylish design, quality and newness, with better availability and more choice.
We anticipate that our International business will continue to be impacted by this year's weakening euro and macroeconomic factors will remain a challenge, particularly in our Middle East region. However, we will focus on delivering relevant ranges to our local customers, improving our like-for-like sales performance across our owned and franchised market and building our international supply chain.
FOOD SALES GROWTH GM GROSS MARGIN IMPROVEMENT IMPROVE GM PERFORMANCE STRONG CASH GENERATION
our customers a much more engaging online experience. M&S.com is a superior shop window for our products and our customers appreciate its strong editorial point of view: 8.2m people visited its Style & Living editorial section over the year. Together, this has resulted in a steady improvement in sales and we fi nished the year with growth of 13.8% in Q4. Over 7m people have registered to use the site, surpassing registrations on our old site.
We continue to improve our stores to make them more inspiring places to shop. We invested in the quality of the store environment, with refreshed Womenswear departments and new look Menswear departments. We also improved Shop Your Way with extended delivery cut-off times, off ering a more convenient and joined-up customer experience.
Our International business faced multiple macroeconomic challenges this year. These issues aff ected franchise partners, particularly in Russia, Ukraine and Turkey – our Middle East region – and resulted in reduced wholesale shipments, which led to lower profi ts. However, we were pleased by our performance in other priority markets, particularly India, and by the good growth in our Food business in Europe and Hong Kong.
The new core values are aligned with our business and will drive the behaviours needed to achieve our customer promise of 'enhancing lives, every day'. Our brand was enhanced by imaginative marketing. We launched Only M&S, a unifi ed campaign for Food and clothing – we are one brand with many stories to tell. In Food, 'Adventures in…' celebrated the creativity, craftsmanship and passion behind our food and was very well received by our customers. The clothing campaign marked a step change in approach and with renewed confi dence we showcased our edit of the latest trend. 'The Two Fairies' Christmas campaign combined bold ideas with imaginative use of social media to position M&S as a relevant, lively brand.
For M&S to thrive in the future, we have to be a modern, forward-looking and agile company today. Over the year, we continued to roll out the necessary systems and processes to ensure that – from top to bottom – we are in the right shape to meet future challenges. Our Fit for the Future programme saw us refi ne the way we do things. We streamlined our processes, clarifi ed lines of command and introduced initiatives to encourage entrepreneurialism. We also realigned our executive team's responsibilities. The changes ensure greater accountability and our new simplifi ed team structures allow us to move with more speed and agility.
Over the last 131 years, M&S has built a unique position and a signifi cant part of that is down to customer trust. Maintaining this position of integrity is central to the Company's future. Our customers trust us to always do the right thing, which is why Plan A 2020 is absolutely crucial. Plan A has taught us that we can achieve more when we collaborate inside and outside of the business. We celebrated a decade of Marks & Start, our scheme which provides training and work experience within M&S and our supply chain for the long-term unemployed. Make Your Mark, our programme that focuses on supporting young people facing barriers to employment, is part of Movement to Work, a larger programme we helped to found in 2013. Almost 200 of the UK's biggest companies are now signed up. Engaging with our communities underpins Plan A and this year our employees and customers raised a total of £7.5m for our local and national charity partners. We have a clear plan to further engage our customers and communities in Plan A. In 2010, we set out our goal to be the world's most sustainable retailer and this continues to drive our ambition to improve things for the better.
We always strive to do the right thing We listen actively and act thoughtfully
OUR PLAN IN ACTION:
In a crowded marketplace, our position as a food specialist sets us apart from our rivals. Customers love our innovation: it's a strategy that makes us truly diff erent. Last autumn, our Belgian Chocolate Jaff a Sphere became our fastest-selling dessert ever: we sold 170,000 in just six weeks. Such was the demand that our supplier went into 24-hour production.
We have improved levels of availability and choice. 112 stores now carry our full range of 6,300Food
products, increasing convenience for our customers. By off ering our full range in a larger number of stores we are helping people cater for their busy lives; over 40% of our customers buy food for today or tonight.
Our Simply Food format continues to grow strongly. We opened 62 new stores in the UK this year, taking our total to 504. Our franchise partners play a key role in this growth. In March we opened our 200th Simply Food store through our partnership with BP.
As part of our strategy to improve our margins, we are bringing much of our design in-house. 35% of our clothing is now created, designed and sourced by our own teams, up from 20% at the end of last year, and our target is 60% by 2016/17. Our Direct Design strategy has led to greater collaboration between our buying teams, our design teams and our regional Sourcing Offi ces.
See more in Financial reviewon p14-17
our margins, but some of the behindthe-scenes systems and processes which regulate this are over 25 years old. Our GM4 Programme is changing this – we are overhauling everything from our merchandise planning systems to our allocation and replenishment systems. GM4 will make us more effi cient and more profi table.
When we see a trend coming, we work quickly to interpret it for our customers. As the UK market leader in Womenswear denim, we knew that the recent denim catwalk trend would resonate with our shoppers. With strong editorial backing on M&S.com, a feature in Vogue, bold in-store visual merchandising and joinedup marketing, our range was a hit. We sold 4.3m pairs of women's jeans, up 7% on the year.
Customers love newness, so we've made sure that we send more to more stores, with new lines landing in store every 2-3 weeks. Our Limited Edition range is now in all stores and our Rosie for Autograph lingerie and sleepwear is in the majority of stores, giving more choice to more of our customers, no matter where they live.
Fit Development team, which is unique to M&S, undertook a major project to ensure a consistent, good fi t across all our brands. It has resulted in a 20% reduction in customer complaints about fi t. We want our customers to feel confi dent about fi nding stylish clothes that fi t and fl atter, whatever they buy.
STRATEGIC REPORT 2015
Prudent cost management has led to strong cash generation across the business. We run our stores more effi ciently than in the past. This year we launched a new Resource Planning System to increase the eff ectiveness of our colleagues' work patterns. We also saw the benefi ts of a new payroll system which centralised administration. Our free cash fl ow before dividends was £524.2m this year, compared to £427.9m last year.
See more in Financial reviewon p14-17
to £527m, from £710m, following a period of major investment to bring our infrastructure up to date. We are now in a good position to maintain our existing assets while also having the headroom to invest in new ones as we fulfi l our ambition to be an international, multi-channel retailer.
| GROUP FINANCIAL OBJECTIVES | ||||
|---|---|---|---|---|
| OBJECTIVE | KPI | DEFINITION | 2014/15 DATA | |
| Grow Group revenue |
GROUP REVENUE |
Total Group sales including retail sales for owned business and wholesale sales to franchise partners. Group revenue was broadly fl at year-on year, with the growth in Food sales off set by the decline in GM and International. |
£10.3bn Level |
Group revenue £bn 10.3 10.3 10.0 9.9 11/12 12/13 13/14 14/15 |
| Increase earnings and returns |
UNDERLYING GROUP PROFIT BEFORE TAX |
Underlying profi t provides additional useful information on the underlying performance of the business adjusting for income and signifi cant one-off charges. Underlying PBT grew as a result of a signifi cantly improved performance in the UK business. |
£661.2m +6.1% |
13/14 £622.9m 12/13 £648.1m 11/12 £705.9m1 |
| RETURN ON CAPITAL EMPLOYED (ROCE) |
Return on capital employed is a relative profi t measurement that demonstrates the return the business is generating from its net operating assets. The reduction in ROCE from last year refl ects an increase in average net operating assets, partially off set by an increase in underlying earnings. |
14.7% LY14.8% |
13/14 14.8% 12/13 15.8% 11/12 16.4%1 |
|
| UNDERLYING EARNINGS PER SHARE |
Earnings per Share (EPS) is the underlying profi t divided by the average number of ordinary shares in issue. The weighted average number of shares in issue during the period was 1,635.6m (last year 1,615.0m). |
33.1p +2.8% |
13/14 32.2p 12/13 31.9p 11/12 34.9p1 |
|
| DIVIDEND PER SHARE |
Dividend per share declared in respect of the year. The Board is recommending a fi nal dividend of 11.6p per share, resulting in a total dividend of 18.0p, 1.0p above last year. |
18.0p +1.0p |
13/14 17.0p 12/13 17.0p 11/12 17.0p |
|
| Strong cash generation |
FREE CASH FLOW (PRE DIVIDEND) S |
Free cash fl ow is the net cash generated by the business in the period before dividend payment. Improvement was driven by better working capital management and improvements in underlying EBITDA. |
£524.2m +22.5% |
13/14 £427.9m 12/13 £204.1m 11/12 £385.2m |
| NON-FINANCIAL MEASURES | ||||
| Improve product sustainability |
PRODUCTS WITH A PLAN A QUALITY A |
A quality or feature regarded as a characteristic or inherent part of a product which has a demonstrable positive or signifi cantly lower environmental and/or social impact during its sourcing, production, supply, use and/or disposal. |
64% +7% |
M&S products 64% 2013/14 57% 2020 target 100% Plan A quality |
| Reduce impact |
GROSS Total gross CO2e emissions resulting GREENHOUSE from M&S operated activities worldwide. GAS EMISSIONS We continue to off set emissions to a net fi gure of zero (carbon neutrality). A |
592,000 CO 2e +4.4%2 |
Looking ahead Our aim is for all M&S products to have at least one Plan A quality by 2020. We have targets to improve energy effi ciency by 50% and reduce refrigeration gas |
|
| GROSS GREENHOUSE GAS EMISSIONS PER 1,000 SQ FT A |
Total gross CO2e emissions per 1,000 sq ft resulting from M&S operated activities worldwide. |
30 t CO 2e/1,000sq ft Level |
emissions by 80% by 2020. We also plan to continue to off set our gross greenhouse gas emissions to zero (carbon neutral). |
Read about Our Plan on p06-11 Read more on Remuneration on p27-29
international warehouse locations. 3. M&S.com sales for the year ending 2014/15 are on a post store returns basis. M&S.com sales have been restated on a consistent basis for years 2011/12 to 2013/14.
Linked to
Strong fi nancial disciplines are at the heart of how we run the business.
HELEN WEIR CHIEF FINANCE OFFICER
In 2014/15, we made progress in the delivery of our strategy, with sales of £10.3bn level on last year, and underlying profi t of £661.2m, up 6.1%. Underlying earnings per share were 33.1p, up 2.8% on last year.
Strong fi nancial management is at the heart of our strategic priorities. Focusing on margin and cash generation, we have fi nished the year in a stronger fi nancial position and delivered improved returns for shareholders, with a total dividend of 18.0p and signifi cant share price growth over the period.
UK Food revenue was up 3.4% and we outperformed the market by 3.5%. Food gross margin was up 30bps at 32.8% as we eliminated ineffi ciencies by streamlining our processes.
UK GM revenue was down 2.5% year-onyear. However, this decline was off set by the stronger gross margin. We delivered gross margin improvement of 190bps at 52.6%. 180bps of the increase was a result of improvement in the buying margin driven by the shift to direct design and sourcing which allow us to buy more eff ectively.
Whilst M&S.com delivered sales of £636.5m, down 2% on last year, we saw a steady improvement in performance, exiting the year with growth of 13.8% in Q4.
UK operating costs were up 1.5% against last year, to £3.2bn. However, 2.4% of this growth was accounted for by depreciation and asset impairments, meaning that the remaining costs were down, demonstrating our tight control of costs and the benefi t of initiatives such as better resource allocation in stores and new contractual terms with our main Food logistics supplier.
Whilst some key owned international markets continued to perform well despite challenging trading conditions, macroeconomic issues signifi cantly impacted International second half profi t, particularly in our franchise business. Wholesale shipments to our franchise partners in our Middle East region slowed as a result of some destocking. A review of our International store estate, coupled with the adverse euro exchange rates and tough consumer environment, resulted in writedowns of £37.2m relating to certain underperforming stores in Western Europe, Ireland and China.
M&S Bank performed well with underlying profi t contribution of £60.2m, up 5.3%, and there was good take up of the fee-free current account launched in May 2014.
Improved performance and eff ective balance sheet management have resulted in strong cash generation. As a result, our net debt position has reduced by £240.4m to £2.2bn. Fixed charge cover was 3.6 times, broadly level with last year.
We performed well against the criteria we set out for capital allocation at the start of the year:
Strong free cash fl ow pre dividends of £524.2m, up 22.5% on last year;
Reduced capital expenditure of £526.6m down by £183.0m;
Full year dividend at 18.0p, up 5.9% on last year, in line with our progressive policy;
BBB minus rating, in line with our commitment to maintaining an investment grade rating;
Net debt/EBITDA ratio of 1.7x, comfortably within our ratio range of 2.0x –1.5x.
After a period of signifi cant investment, our ROCE has now stabilised. By ensuring we achieve the appropriate balance between investment for growth and investment to maintain the business, we expect our returns to improve going forward.
Following the recent programme of investment, we now have a stronger, more capable business. While there is still more to do, the reduction in capital investment and the improving business performance will lead to strong cash generation.
The Board is now setting out a clear capital allocation policy:
Commitment to a strong balance sheet, including maintaining an investment grade credit rating;
Continuing to invest in the business for growth, underpinned by strong investment disciplines;
Progressive dividend policy, broadly twice covered by earnings; and
Returning any surplus cash generated to shareholders on a regular basis.
Consistent with this approach, we have announced an ongoing programme of returns of capital to shareholders. In 2015/16, we expect to return £150m of cash to shareholders in the form of a share buyback programme. This is the fi rst of what is expected to be an ongoing programme of returns, with the quantum and method determined by the Board each year based on the performance and needs of the business.
FIND OUT MORE
Investment to make our supply chain fi t for the future continued with a focus on our GM IT systems and logistics network. Upon completion, these two interdependent projects will deliver greater supply chain fl exibility and better availability for our customers. In IT, we completed the Allocation & Replenishment element of our GM4 programme, implementing a new stock distribution system that allocates stock to stores based on demand, ensuring our customers can get the products they want in the location in which they want them. In logistics, we continue to reshape our GM warehouse network, and the next milestone will be the launch of our redeveloped Bradford National Distribution Centre in 2016.
We added 1.5% of UK selling space, driven by our Simply Food growth programme. We opened 67 new stores this year, including 62 Simply Food stores. We closed 13 stores, of which fi ve were relocations, as we continue to reshape our portfolio to ensure that our stores are in the most convenient locations. We expect Food space to increase by 4.5% in 2015/16, again driven by growth in Simply Food store numbers. Our strategy is for GM space to remain fl at, although we will continue to manage our estate to improve the quality of stores for our customers.
Our commitment to Plan A drives us to run our business effi ciently. An eff ective, sustainable business plan ultimately
delivers value for shareholders. Investors recognise the long-term value of sourcing responsibly, cutting waste and using resources effi ciently.
As members of the International Integrated Reporting Council and the Prince's Accounting for Sustainability project (A4S), we are committed to reporting the longterm value created by sustainable business. We have participated in projects supporting natural capital accounting, and we are taking part in the development of natural capital protocols led by the Natural Capital coalition, with the results due in 2016.
We are committed to managing and reporting our global tax aff airs in keeping with our longstanding values and paying our fair share of tax. There is further detail on our tax contribution on page 16.
| 52 weeks ended 28 Mar 15 29 Mar 14 £m £m 10,311.4 10,309.7 9,223.1 9,155.7 1,088.3 1,154.0 741.9 762.5 670.2 619.2 92.3 122.7 622.9 661.2 (61.2) (42.5) 600.0 580.4 |
|||
|---|---|---|---|
| % var | |||
| Group revenue1 | Level | ||
| UK | +0.7 | ||
| International1 | -5.7 | ||
| Underlying operating profi t | +2.8 | ||
| UK | +8.2 | ||
| International | -24.8 | ||
| Underlying profi t before tax | +6.1 | ||
| Non-underlying items | -44.0 | ||
| Profi t before tax | +3.4 | ||
| Underlying basic earnings per share | 33.1p | 32.2p | +2.8 |
| Basic earnings per share | 29.7p | 32.5p | -8.6 |
| Dividend per share (declared) | 18.0p | 17.0p | |
| 1. On reported currency basis. |
FINANCIAL REVIEW CONTINUED
Group revenues were level (up 0.4% on a constant currency basis). UK revenues were up 0.7% in total with a like-for-like decrease of 1.0%. International revenues were down 5.7% (down 2.1% on a constant currency basis).
UK gross margin was up 75bps at 41.4% as a result of strong improvement in GM margin.
UK GM gross margin was up 190bps at 52.6% driven mainly by an improvement in buying margin as a result of sourcing initiatives. Despite a highly promotional marketplace, we remained focused on full price sales and we reduced the number of price promotions. However, clearance markdown was higher due to additional stock into sale as a result of unseasonal Autumn/Winter conditions.
Food gross margin was up 30bps at 32.8% due to ongoing operational effi ciencies. The benefi ts realised through streamlining our operations have been reinvested in price and quality, and also shared with our suppliers to help them create further effi ciencies.
| 52 weeks ended | |||
|---|---|---|---|
| 28 Mar 15 £m |
29 Mar 14 £m |
% var | |
| Retail staffi ng | 954.5 | 978.8 | -2.5 |
| Retail occupancy | 1,116.4 | 1,054.4 | +5.9 |
| Distribution | 408.7 | 445.5 | -8.3 |
| Marketing and related | 167.6 | 147.7 | +13.5 |
| Support | 560.2 | 533.2 | +5.1 |
| Total | 3,207.4 | 3,159.6 | +1.5 |
UK operating costs were up £47.8m (1.5%), with higher depreciation and asset impairments contributing £76.0m (2.4%) of the total increase.
Retail staffi ng costs were down in part as a result of lower volumes, but also helped by better resource allocation following the implementation of a new labour planning system. Our store customer satisfaction scores were up on the year.
The increase in occupancy costs mainly reflects increased depreciation and asset impairments arising from investment made in our UK store environment as well as the addition of new space in Food.
Distribution costs were down, refl ecting new contractual terms with a key Food logistics supplier, the benefi ts of the fi rst stage of our single tier network and lower volumes in GM.
Marketing and related costs increased due to the re-launch of the M&S brand, including new TV advertising campaigns across both Food and GM.
Support costs were up largely due to higher depreciation on the new M&S.com web platform and additional staff incentive costs this year, partially off set by the release of employee benefi t provisions.
Net underlying interest payable was down 15.9% to £94.8m due to a decrease in the average cost of funding to 5.0% (last year 5.4%) and a £240.4m reduction in net debt. This has resulted in a decrease in net fi nance costs of £12.8m.
Underlying profi t before tax grew by 6.1% to £661.2m (last year £622.9m) as a result of the signifi cantly improved performance in the UK business and lower interest costs.
| 52 weeks ended | ||
|---|---|---|
| 28 Mar 15 £m |
29 Mar 14 £m |
|
| Net M&S Bank charges incurred in relation | ||
| to the insurance mis-selling provision | (13.8) | (50.8) |
| Restructuring costs | (4.6) | (77.3) |
| IAS 39 Fair value movement of embedded derivative |
1.3 | (3.5) |
| (Loss)/profi t on disposal and impairment once commitment to closure |
(6.9) | 82.2 |
| International store review | (37.2) | (21.9) |
| UK and Ireland one-off pension credits | – | 27.5 |
| Strategic programme costs | – | (2.0) |
| Fees incurred on tax repayment | – | (1.6) |
| Adjustment to operating profi t | (61.2) | (47.4) |
| Interest income on tax repayment | – | 4.9 |
| Adjustment to profi t before tax | (61.2) | (42.5) |
Non-underlying adjustments to profi t were £61.2m net charge (last year £42.5m net charge). The main element of these charges is a provision for impairment in underperforming stores in Western Europe, Ireland and China.
The full year underlying eff ective tax rate was 18.9% (last year 18.8%) and statutory eff ective tax rate was 19.7% (last year 12.8%).
In 2015 our total cash tax contribution to the UK Exchequer was £767m (2014: £803m1 ); split between taxes ultimately borne by the Company of £388m (2014: £372m) (i.e. corporation tax, customs duties, employer's NIC, business rates and sundry taxes) and taxes attributable to the Company's economic activity which are collected on behalf of the government of £379m (2014: £431m1 ) (i.e. PAYE, employees' NIC, value added tax, excise duties and sundry taxes).
Underlying basic earnings per share increased by 2.8% to 33.1p per share. The weighted average number of shares in issue during the period was 1,635.6m (last year 1,615.0m).
We are pleased by the improvement in cash generation over the year. Following the increase in the interim dividend, the Board has proposed a 7.4% increase in the fi nal dividend to 11.6p. This will result in a total dividend of 18.0p, up 5.9% on last year.
| 52 weeks ended | ||
|---|---|---|
| 28 Mar 15 £m |
29 Mar 14 £m |
|
| UK store environment | 92.7 | 163.2 |
| New UK stores | 63.5 | 89.4 |
| International | 37.5 | 69.0 |
| Supply chain and technology | 273.8 | 346.2 |
| Maintenance | 94.5 | 67.2 |
| Proceeds from property disposals | (35.4) | (25.0) |
| Total capital expenditure | 526.6 | 710.0 |
Group capital expenditure was down £183.4m versus last year, as many of our large infrastructure projects have now been completed.
The largest proportion of spend continued to be on supply chain and technology as we developed our single tier distribution network and continued to roll out our GM4 commercial systems.
We also continued to invest in our UK store estate to create a more inspiring environment, including the launch of our new look and feel Menswear departments.
The proceeds from property disposals mainly relate to the deferred consideration from the sale of the White City warehouse, which is being received over three years.
| 52 weeks ended | ||
|---|---|---|
| 28 Mar 15 £m |
29 Mar 14 £m |
|
| Underlying EBITDA | 1,312.6 | 1,219.7 |
| Working capital | 179.5 | 47.9 |
| Pension funding | (143.0) | (92.0) |
| Capex and disposals | (664.4) | (616.6) |
| Interest and taxation | (177.1) | (175.2) |
| Share transactions | 16.6 | 44.1 |
| Free cash fl ow pre dividends | 524.2 | 427.9 |
| Dividends paid | (280.7) | (273.6) |
| Free cash fl ow | 243.5 | 154.3 |
| Opening net debt | (2,463.6) | (2,614.3) |
| Exchange and other non-cash | ||
| movements | (3.1) | (3.6) |
| Closing net debt | (2,223.2) | (2,463.6) |
The business delivered strong free cash fl ow pre dividends of £524.2m which, after the payment of dividends, led to a reduction in net debt of £240.4m. The improved free cash fl ow refl ects stronger business performance resulting in £1,312.6m of underlying EBITDA, an increase of £92.9m (7.6%) on last year. In addition, there was a £179.5m reduction in working capital, due to lower inventory levels and also higher creditor levels, in part due to the earlier timing of Easter this year. In addition, it includes an ex-gratia payment of £40.0m (last year nil) from HSBC following agreement reached over a number of issues in connection with the Relationship Agreement. These movements are partially off set by capital expenditure cash payments of £664.4m. These are higher than our actual capital expenditure as a result of high prior year end capex accruals which were paid in the fi rst half of this year. Pension funding includes £56.0m of additional defi cit reduction funding contributions paid into the UK defi ned benefi t scheme during the year.
The Financial Reporting Council (FRC) has asked retailers "to provide investors with suffi cient information on their accounting policies, judgements and estimates arising from their complex supplier arrangements". Due to our focus on own brand products, supplier income is a relatively small proportion of our value of stock expensed. As at the year end, accrued income in relation to supplier income was £13.5m (last year £9.3m).
At 28 March 2015 the IAS 19 net retirement benefi t surplus was £449.0m (last year £189.0m). The increase is due to movement in the UK defi ned benefi t surplus, specifi cally an increase in the market value of scheme assets attributable to higher than expected returns. This is partly off set by an increase in the present value of scheme liabilities due to a decrease in the discount rate from 4.45% to 3.10% from the movement in corporate bond yields.
The Strategic Report, including the market context on pages 18 to 19 and risk management on pages 21 to 23, was approved by a duly authorised Committee of the Board of the Directors on 19 May 2015, and signed on its behalf by
Helen Weir Chief Finance Offi cer 19 May 2015
In a fast-changing retail world, it is crucial that we listen to our customers and understand their needs. Our Customer Insight Unit (CIU) analyses responses from 60,000 customers a month. It combines this feedback with market research to monitor the consumer climate and understand how it is infl uencing shopping behaviour.
The UK economy continues to improve. Unemployment is falling and house prices are rising. Last summer, consumer confi dence moved into positive territory for the fi rst time since March 2005. As a result of the more optimistic outlook, there has been a gradual opening up of purses and wallets. Rather than increasing their everyday spending, people are looking to spend on the big purchases they put off in the downturn. This spending, however, is accompanied by a healthy dose of caution. Consumers still feel bruised by the credit crisis; they are looking to save, and spending remains careful and considered.
Feelings of stability among UK consumers have also been dented by a year of upheaval abroad. From the Middle East to Russia and Ukraine, the last 12 months have been tumultuous. This has tempered people's positivity. Domestically, the Scottish independence referendum and the recent general election had similar eff ects. People like certainty, and there is always uncertainty around the outcome of such events.
We saw more confi dence among our customers this year. They told us that they are feeling secure, stable and cautiously optimistic.
Although clothing sales were down year-onyear, customers were investing more in our 'better' and 'best' products. People told us they were excited to shop with us. They particularly loved the colours and vibrancy of our Spring/Summer 2015 collections. This renewed confi dence was refl ected in fewer promotions than last year. The shift towards convenience store shopping within the food market means there is intense competition for a limited number of sites. In order to help us address this challenge we have put in place a Simply Food surveying team to identify and secure the best located sites and we also benefi t from our longstanding franchise partnerships with the likes of BP and SSP. Customers in our smaller stores told us they wanted greater choice when they shopped. We responded by increasing the ranges available in those stores. When
it came to our in-store environment, customers told us that our stores are now more exciting and enjoyable places to shop.
But we also benefi ted from the continuing undercurrent of caution among shoppers. With consumers' focus on clever spending, they want to buy once and buy well, and turn to brands they can trust and whose quality can be relied on, like M&S.
Consumers' emphasis on celebrating life and indulging their loved ones played to our Food division's strengths. Our mission in Food is to excite customers with the newness, quality and diff erence of our products, and we continued to distinguish ourselves with unrivalled innovation. Britain is fast becoming a nation of foodies and, in an intensely price focused market, we focused on off ering high-quality, good value food to our customers. As a result, we outperformed the market once again. There is a sense of discovery in buying food at M&S, and our customers trust us when it comes to scouring the world for the best there is. We excelled during events such as Christmas and Valentine's Day. And we extended our events beyond dates in the calendar; our summer-long food campaign saw us promote our barbecue, grill and world food ranges throughout the season.
Convenience continues to drive growth in the European food market, with demand in France particularly strong. This presents good growth opportunities for our international Food off er and we opened six standalone Food stores in Paris this year in convenient city centre and transport locations. Following the popularity of our online stores on China's leading websites and in response to the expanding Chinese children's clothing market, we launched a dedicated Kidswear store on Tmall.com, which resulted in exceptional year-on-year growth. We continue to target the growth of the middle class and the expanding lingerie market in India with our Lingerie & Beauty stores. Our overseas shoppers see M&S as a respected brand and they like the fact that we are fi rmly grounded in our Britishness.
Technology continues to shape how customers shop. The proliferation of diff erent channels – stores, online, tablet, mobile – is turning shopping into a seamless experience. Mobile is increasingly the fi rst port of call for consumers' research and the number of shoppers using smartphones to search for clothing increased by more than half over the last year. Visits to M&S.com via mobile were also up 51%. We have adopted a mobile-fi rst approach to digital development, ensuring the primary devices our customers use are at the heart of the design. The pace of change in technology continued – with the launch of some of the fi rst wearable tech devices. Our Digital Labs team – made up of product design specialists and data scientists – ensure we stay at the forefront of technological developments. The team uses the agile techniques of the start-up world to help us test and validate new ideas and concepts and apply the learnings as quickly and effi ciently as possible. For example, the team was able to develop our popular Cook with M&S app for the Apple Watch ahead of its UK launch.
Last summer, consumer confi dence moved into positive territory for the fi rst time in almost a decade as people felt more secure about the macroeconomic environment. Although it has fl uctuated since, confi dence has remained consistently higher than in previous years. There remain regional diff erences throughout the UK. But wherever they are, consumers are looking for both value and quality.
Customer Insight Our customers tell us they want an inspiring shopping experience every time they enter an M&S store or visit our website. They also want to see ranges that are creative and exciting. We seek to inspire our customers with every product they buy from us, be it a prepared meal or a raincoat.
Customer Insight We know our customers look to M&S for innovative ideas. In a crowded retail market, they want to know that when they shop with us they will
Customer Insight Our customers tell us that they trust us to do the right thing. At M&S, we pride ourselves on the high levels of integrity
get high-quality products that are only available at M&S and are better than ever before.
Products & Channels Our ranges were positively received by the fashion press this year. Customers' feedback about the quality and style of our clothing ranges has improved, and they have noticed the better fi t of our clothing. With our Food ranges we want to delight our customers and we independently test all our products for taste and quality, ensuring our products are always a cut above the rest.
Products & Channels Over a quarter of our Food products were new this year. And our clothing ranges were constantly refreshed with wearable interpretations of the latest trends. As the UK market leader in lingerie, our bra fi t service is popular with our customers, however one in four will not go into store for a bra fi t. So our team of software engineers developed a digital solution. Our digital Bra Fit tool gives customers an accurate and convenient way of measuring themselves in the privacy of their own home.
Products & Channels Traceability is key. Due to our close relationship with our suppliers, we can pinpoint the very herd that produces any particular batch of our milk. This year, a third of our food products came from Gold and Silver sustainability standard producers, in line with our Plan A target. Today, 64% of our food and clothing products have a Plan A quality, up from 57% last year. The quality either relates to the materials that the products are made from or to the manufacturing process.
Brand & People Since we started our Shwopping initiative in 2012, customers have shwopped 10.6 million clothing garments for Oxfam, worth £7.3 million to the charity. Our Behind the Barcode initiative ensured that colleagues in our International stores were up to speed when it came to brand awareness and the service standards that make M&S a
bursting berries.
Brand & People Store presentation is crucial; we have great products and we want to showcase them at their best. So this year around 5,000 colleagues trained in The M&S Way, supported by an innovative online learning tool to promote consistent visual merchandising standards across our GM ranges. Our marketing campaigns constantly break new ground. Our 'Adventures In…' Food ads used new photography techniques to showcase our food innovation with dancing fruit and
Brand & People Our new M&S logo emphasises the heritage and quality for which we are known. It is just one of the ways that we have inspired customers this year. At Christmas, we carried out random acts of kindness all across the UK. The strategy forged a warm connection between our people and our customers at a special time of year.
world-class retailer.
in our products and in our supply chain. In a competitive and challenging food market, customers know that we will not cut corners when it comes to the quality and provenance of the food that we sell.
Customer Insight To stay relevant, our customers tell us we need to stay in touch with them, so we constantly talk to them and monitor their spending habits. As well as analysing responses from 60,000 customers a month, our CIU looks at 600 million unique customer transactions a year. We use the data to help us give our customers a great experience every time they
shop with us.
Products & Channels It is crucial that we are in touch with our customers through every channel available. M&S.com uses bespoke content to communicate with our customers 24 hours a day and is regularly updated to take into account customer feedback. Social media is an increasingly important way of communicating and we have a social media 'audience' of over 2.6 million via platforms and websites such as Twitter, Instagram and Facebook.
Brand & People We pride ourselves on the connections we have with the communities in which we work – staying in touch with the communities where we operate is central to Plan A. Whether it's through the volunteer work of our store colleagues, through our partnerships with local charities, or via community-based initiatives like the Big Beach Clean-Up, we aim to be a force for good in the towns and cities where we have stores and operations.
Our people are at the very heart of M&S: bringing our values to life and putting our strategy into action. To create value for our shareholders we must engage employees across the business in our strategic plans and ensure we have the right people, with the right mix of skills to drive our growth ambitions.
We have done a lot of work this year to ensure that we have the correct management structures in place to deliver on our promise of enhancing lives, every day. In the face of changing shopping habits, we have to make sure that our framework is fi t for the future.
Last summer we realigned our executive team's responsibilities to ensure greater accountability across the business. We also streamlined our processes and introduced more collaborative ways of working throughout the Company to speed up decision-making.
Our four new core values underpin everything we do: Inspiration, Innovation, Integrity and In Touch.
The changes we made last June saw UK Retail and International represented at Board level for the fi rst time. To refl ect the increasingly 'channel neutral' outlook of our customers, Laura Wade-Gery assumed responsibility for UK Retail as well as Multi-channel.
Patrick Bousquet-Chavanne took on responsibility for International, as well as Marketing, to help bolster M&S's global brand position.
We were delighted to welcome Helen Weir onto our Board as Chief Finance Offi cer on 1 April 2015. Helen, who replaced Alan Stewart, brings with her a wealth of retail, consumer and fi nancial experience. She was formerly Chief Finance Offi cer at the John Lewis Partnership. Prior to that she held senior positions at Lloyds Banking Group and Kingfi sher.
Our Management Committee helps shape our annual business priorities and drives the delivery of our plan. To ensure that all areas of our business work as one team, it was extended to ensure it is fully representative of the entire business. The Management Committee is ably supported by the Senior Leadership Group, whose key objective is to drive a high performance culture and promote a wide understanding of our plans and priorities, so that every employee feels clear and confi dent about the direction of our business.
In order to support the organisational changes, we launched a new leadership programme – Fit to Lead The Future. Designed to equip our people with the insights and practical techniques to build and lead high performing teams, it will ensure our leaders understand what's required of an organisation to remain sustainable in a quickly changing world. We are also running engagement events for our 1,300 head offi ce employees who have responsibility for directly managing individuals or teams to ensure they understand the important role that they play in driving high performance. Our new values are refl ected in our employee policies, including the behaviours we look for when we recruit, the induction of new employees, in performance management and as part of our development programmes.
Marc Bolland Chief Executive
Patrick Bousquet-Chavanne Executive Director, Marketing & International
John Dixon Executive Director, General Merchandise
Steve Rowe Executive Director, Food
Laura Wade-Gery Executive Director, Multi-channel
Helen Weir Chief Finance Offi cer Hugo Adams Director of Property Development & Facilities
Management Andy Adcock Director of Food Trading
Costas Antimissaris Director of International
Mike Barry Director of Plan A
Sacha Berendji Director of Retail
Carl Dawson Director of IT
Florence De Boosere Global Director of Store Environment & Product Presentation
Tanith Dodge Director of HR Belinda Earl Style Director
Paul Friston Executive Assistant & Business Development Director
Dominic Fry Director of Communications & Investor Relations
Dirk Lembregts Director of Supply Chain
Amanda Mellor Group Secretary & Head of Corporate Governance
Chris Taylor Business Improvement Director
David Walmsley Director of M&S.com
Rob Weston Global Brand & Marketing
who both joined the Board in April 2015.
We believe that eff ective risk management is critical to the achievement of our strategic objectives and the long-term sustainable growth of our business.
The Board has overall accountability for ensuring that risk is eff ectively managed across the Group and, on behalf of the Board, the Audit Committee reviews the eff ectiveness of the Group Risk Process. Each business area is responsible for identifying, assessing and managing the risks in their respective area.
Risks are identifi ed and assessed by all business areas half-yearly and are measured against a defi ned set of criteria, considering likelihood of occurrence and potential impact to the Group. The Group Risk function facilitates a risk identifi cation and assessment exercise with the Executive Board members. This information is combined to form a consolidated view of risk. The top risks (based on likelihood and impact) form our Group Risk Profi le, which is reported to the Executive Board for review and challenge, ahead of fi nal review and approval by the Group Board.
To ensure that our risk process drives continuous improvement across the business, the Executive Board monitors the ongoing status and progress of key action plans against each risk quarterly.
We continue to drive improvements to our risk management process and the quality of risk information generated, whilst at the same time maintaining a simple and practical approach. This year we have placed signifi cant focus on developing our approach to risk appetite.
The objective of our risk management approach is to identify and assess all signifi cant risks to the achievement of our strategic objectives. Risk appetite is an important consideration in strategic decisions made by the Board. It is an expression of the types and amount of risk we are willing to take or accept to achieve our plan and should support the defi nition of mitigating activities required to manage risk likelihood and impact to within acceptable levels. By defi ning our risk appetite we aim to support consistent, risk-informed decision-making across the Group.
This year we have taken steps to strengthen our approach to risk appetite, starting with the defi nition of draft, Group-level risk appetite statements. The purpose of these is to articulate the Board's desired risktaking approach to the achievement of our strategic objectives, in the context of managing our principal risks. During the 2015/16 fi nancial year we will further develop our approach to risk appetite, refi ning these statements and integrating them with our wider risk management processes.
As with any business, we face risks and uncertainties on a daily basis. It is the eff ective management of these that places us in a better position to be able to achieve our strategic objectives and to embrace opportunities as they arise.
Overleaf are details of our principal risks and uncertainties and the mitigating activities in place to address them. It is recognised that the Group is exposed to risks wider than those listed. However, we have disclosed those we believe are likely to have the greatest impact on our business at this moment in time and those that have been the subject of debate at recent Board or Audit Committee meetings.
To achieve a holistic view of the risks facing our business, both now and in the future, we consider those that are:
External to our business;
Core to our day-to-day operation;
Related to business change activity; and
Those that could emerge in the future.
The 'risk radar' below maps our principal risks against these categories. This tool is also used to facilitate wider Executive and Board level discussions on risk.
PRINCIPAL RISKS AND UNCERTAINTIES
| RISK | DESCRIPTION | MITIGATING ACTIVITIES | ||
|---|---|---|---|---|
| BRAND AND REPUTATION | ||||
| one of the UK's most trusted brands | Our updated values of Inspiration, Innovation, Integrity and In Touch infl uence how we do business and our reputation for being | |||
| 1 | GM CUSTOMER ENGAGEMENT Continued loss of engagement with our customer |
As we strengthen our brand recognition and reassert our GM quality and style credentials, it is important that we understand and address our customers' needs in an increasingly competitive market. |
> Regular engagement with customers through data gathered by our Customer Insight Unit and focus groups. > Updated brand positioning and marketing approach with greater emphasis on product. > Continued focus on product quality and style, including adherence to our Clothing Quality Charter. |
> Continual updates to the M&S.com website to enhance the online customer shopping experience. > Ongoing improvements to store environment, addressing specifi c customer feedback. > Targeted marketing and promotional activity using customer loyalty data. |
| 2 | FOOD SAFETY AND INTEGRITY A food safety or integrity related incident occurs or is not eff ectively managed |
As a leading retailer of fi ne quality fresh food, it is of paramount importance that we manage the safety and integrity of our products and supply chain, especially as we grow our global food business and given the heightened risk of fraudulent behaviour in the supply chain. |
> Dedicated team responsible for ensuring that all products are safe for consumption through rigorous controls and processes. > Continuous focus on product quality. > Proactive horizon scanning, including focus on fraud and adulteration. |
> Food Standards Agency endorsed approach to reducing campylobacter. > Updated supplier and depot auditing programme. |
| 3 | FOOD COMPETITION Loss of market share, due to changes in the competitive landscape or customer behaviours |
With the current upheaval amongst the supermarkets and the polarisation between value and premium, it is important that we continue to provide a point of diff erence through product quality, value and innovation, as well as convenience. |
> Signifi cant focus on product innovation to retain point of diff erence and drive customer loyalty. > Continued focus on product availability to customers. |
> Regular review of price positioning. > Simply Food expansion to provide convenience to customers. |
| DAY-TO-DAY OPERATION | ||||
| We are a customer-centric business and strive to deliver an effi cient and eff ective operation | ||||
| 4 | GM MARGIN Failure to improve margin whilst maintaining our quality and Plan A standards |
As we drive increased GM margin through improved design and sourcing capability it is essential that we maintain our ethical sourcing standards and continue to drive improvements to product quality. |
> Margin targets defi ned and regularly monitored. > Robust and established supplier ethical audit programme in place. |
> Strong sourcing capability led by experienced overseas Sourcing Directors. > End-to-end review of GM design, trading and sourcing underway. |
| 5 | INFORMATION SECURITY We experience a major breach in cyber, system or information security |
The business is subject to external threats from hackers or viruses, or sensitive data is accessed without authorisation. |
> Extensive security controls in place including policies, procedures and security technologies. |
> Tight control of sensitive data through limited and monitored access and the roll-out of systems possessing enhanced security. > Established team dedicated to managing security requirements for M&S.com. |
| 6 | IT CHANGE Unforeseen impact of IT changes to new and existing systems disrupts business operations |
As we undertake a number of signifi cant change programmes, the rate and scale of IT change is substantial, with potential to signifi cantly impact our complex and interdependent systems. |
> Clear decision-making process for system changes, including established Change Approval Board process and change freezes during critical trading periods. |
> Proactive management of cross programme dependencies including 'release management' approach to Group system changes together. > Robust disaster recovery plans in place for critical business applications. |
RISK DESCRIPTION MITIGATING ACTIVITIES
| SELLING CHANNELS | ||||
|---|---|---|---|---|
| international, multi-channel retailer | We have ambitious plans for our UK, International and multi-channel businesses as part of our evolution to be a truly | |||
| 7 | M&S.COM BUSINESS RESILIENCE A major failure of our M&S.com platform or at our Castle Donington distribution centre impacts our ability to trade online |
As our online traffi c grows and our network infrastructure and operating model evolve, it is increasingly important to ensure that the M&S.com business and key dependencies are resilient. |
> Dual site M&S.com command centre operates 24/7 to monitor website availability and performance. > Social media monitored to observe and respond to trends in customer experience. |
> Business continuity plans, incident reporting and management procedures are well established and tested, with regular monitoring including quarterly Business Continuity Committee meetings. |
| 8 | INTERNATIONAL EXPANSION Our plan to grow our International business is limited by global volatility, the start up profi tability of new markets or substandard infrastructure |
As we continue to increase our international presence and build a leadership position in priority markets it is crucial that we maximise performance in both legacy and new markets, supported by robust systems and supply chain capability. It is also critical that we have systems in place to ensure that we can respond proactively to any geo-political issues, and to local regulatory matters, including taxation. |
> Geographic spread mitigates against localised geo-political or economic risks. > Local market knowledge provided by franchise and joint venture partnerships. > Performance monitoring by region, country and store, including focus on like-for-like performance and action planning for poor performing stores. |
> Property Board approval of new store openings and monitoring of returns on investment. > International representation in key Group initiatives. |
| PEOPLE AND CHANGE | ||||
| Our people are fundamental to the long-term success and growth of this business | ||||
| 9 | OUR PEOPLE Our organisational culture and structure limit our ability to adapt to market changes with pace |
As our evolution to a truly international, multi-channel retailer continues, it is essential that our organisational set-up allows us to respond to market changes and competition with pace. |
> Robust employee engagement process. > Alignment of employee development programmes with business strategy. |
> Fast decision-making enabled through the removal of structural complexity. > Employee reward based on performance in line with our values of Inspiration, Innovation, Integrity and In Touch. |
| 10 | STAFF RETENTION Failure to retain key people due to off ers from competitors or loss of confi dence in the business |
From our expert food technologists and product developers to our recently strengthened GM design teams, our people are in demand from our competitors. |
> Succession planning in place for key roles and senior leaders. > Performance management process and bonus scheme structure focused on rewarding high performers. |
|
| 11 | PROGRAMME AND WORKSTREAM MANAGEMENT Benefi ts from our major business programmes and workstreams are not realised |
We continue to undertake a number of major programmes to underpin the achievement of our plan; the delivery of forecasted benefi ts is critical to this. |
> Our Strategic Programme Offi ce provides central governance for major Group initiatives, including cross-programme inter-dependencies, supported by robust project management discipline. |
> Status and benefi ts realisation updates provided to the Executive Board. > Proactive management of programme portfolio and associated benefi ts in the context of current market conditions and the Group's three-year plan. |
| 12 | GM SUPPLY CHAIN AND LOGISTICS NETWORK We fail to evolve our supply chain and logistics network to maximise availability to customers and speed up delivery times |
As we stabilise and leverage the capability of our Castle Donington distribution centre, we must continue to focus on the implementation of our single-tier network, to provide a modern and fl exible infrastructure for our business. |
> Ongoing simplifi cation and stabilisation of Castle Donington distribution centre ahead of peak 2015. > Phased approach to distribution centre transformation. |
> Robust programme governance in place, including interdependencies with other Group initiatives. > Management team strengthened through external hires into key roles. > Ongoing review of progress against agreed operational and fi nancial objectives. |
Notes: The Group Risk Profi le will evolve as mitigating activities reduce net risk over time, or as new risks emerge. Two new risks have been added to the Group Risk Profi le since the prior year (Food competition and Staff retention); the remaining risks have essentially remained the same. No risks have been removed from the Group Risk Profi le since the prior year.
The risks listed do not comprise all those associated with Marks & Spencer and the numerical referencing does not denote an order of priority. Additional risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an adverse eff ect on the business.
We have built a team with the skills and experience to support our strategy and integrity underpins all of our discussions.
ROBERT SWANNELL CHAIRMAN
As I mentioned earlier in this report, this has been another year of mixed progress for the Company. Our Food business delivered another very strong year in a diffi cult market. In Food we continue to pursue a clear strategy with a distinct and diff erentiated position, remaining true to our values and with a well articulated plan for future growth.
We are encouraged by the improved performance across the business in the fi nal quarter 2014/15, particularly in GM and M&S.com. However, our full year performance was constrained by a number of issues associated with the necessary and signifi cant transformation of our infrastructure, implemented in the last few years, and macroeconomic and performance issues impacting delivery in a number of key international markets.
The launch of our new website and our distribution centre at Castle Donington represented the completion of two signifi cant investments, essential for the long-term growth of our business. This has been a key area of focus for the Board over the last two years. Yet, and despite rigorous planning and mitigation of potential risks, both experienced initial execution issues beyond those that we expected. We believe these issues are now resolved, or that plans are in place to resolve them, and both projects continue to be areas of focus for the Board.
As a Board we have taken away a number of learnings, particularly about our management of and approach to risk. The Board, supported by the Audit Committee, spent time discussing risk appetite across the business as well as our investment criteria. Whilst defi ning our approach to risk appetite remains a work in progress, we believe this will improve the quality of our investment process, the mitigation of associated risks and will deliver improved project implementation going forward. A greater understanding of risk appetite and its management will also support our ambition to become a more agile, innovative and entrepreneurial organisation, as embodied by 'Fit for the Future' and our updated values.
The scale of investment and transformation of the business over the last few years has necessitated this shift in our culture and behaviours. It will enable us to respond to the changing consumer landscape, the constant evolution in technologies, and our aim to be a leading international, multichannel business. But while we adapt and move forward, we are clear that staying true to the M&S tenet of integrity is non-negotiable.
Integrity underpins all of our Board discussions, from debate on the management of our teams, to the safety and integrity of our food supply chain. It aff ects the way we implement the changes required in our GM supply base to deliver our ambitious gross margin targets, while staying true to our high sourcing standards. It shapes how we operate in our international markets, and the management of our property assets. Integrity has protected the M&S brand and supported its reputation for over 130 years and the Board is focused on ensuring it continues to do so for the long term.
Having Integrity as a value also means being honest in how we judge our own performance as a Board and where we can do things better. We are disappointed not to have made more progress against our Board Action Plan this year. We are clear about how we can be more eff ective, and what information we need to monitor and challenge our progress and ensure proper debate.
I have highlighted before the importance of the Board as being critical friends. We have a strong team and we have had a number of robust discussions throughout the year on our execution issues at Castle Donington, the performance of the website and our International business, the results of unsatisfactory audits, our fi nancial performance and progress against our targets. We have refl ected, and will continue to debate openly the results of our Board evaluation and how we ensure we have the highest quality of debate, coupled with the right planning, information and environment to support this. We must do this to drive our eff ectiveness as a Board and to be fi t for the future.
Strategy and Company performance
Culture and behaviour
Succession planning
E-commerce
The M&S brand
International
Supply chain
Risk
Property
Plan A 2020
The introduction of 'Fit for the Future' brings greater focus on high performance, our teams, development and succession planning, all of which remain a key part of our Board and Committee agendas. Our Action Plan for the 2015/16 year is stretching and sets out specifi c objectives to improve our performance. The plan aims to support and enable greater debate and refl ection, and enhance the quality of our decisions. Through the Action Plan, we aim to ensure that our values underpin the manner in which we operate as a Board at all times.
Our governance framework is reviewed and benchmarked against best practice every year. It sets out the roles, accountabilities and expectations for our directors and our structures. This format has been adopted widely across the business and can be viewed at
Governance at M&S is seen as an important element of our Board environment, which feeds into how we do business and is refl ected in our Board eff ectiveness review. Our governance helps us test whether we are doing the right things in the right way, with the right safeguards, checks and balances, and whether the right considerations underpin every decision we take.
We continue to drive the agenda of diversity in its broadest sense across gender, experience, ethnicity and age.
The Audit Committee has played a key role in ensuring that the appropriate governance and challenge around risk and assurance is embedded throughout the business. It is closely monitoring the management of the problems generated by M&S.com and Castle Donington.
2014/15 saw signifi cant changes to the Board. Following the resignation of Alan Stewart in July 2014 we undertook a thorough search process resulting in the appointment of Helen Weir, who joined the business as Chief Finance Offi cer on 1 April 2015. Helen brings considerable retail and fi nance experience and we are delighted to welcome her to the Board.
In March 2015, Jan du Plessis retired after six years on the Board. Jan has been succeeded in his role of Senior Independent Director by Vindi Banga, who maintains his existing role as Chairman of the Remuneration Committee. Subsequently, I have joined the Remuneration Committee and Miranda Curtis has joined the Audit Committee.
As a result of Jan's retirement, and in order to provide the necessary balance, Richard Solomons was appointed to the Board on 13 April 2015. We had a clear specifi cation for this appointment and are delighted that he has joined our Board, bringing his experience as a serving CEO with great knowledge of operating an international, multi-channel consumer business. Both directors are undertaking a comprehensive induction programme.
The UK Corporate Governance Code 2012 (the 'Code') is the standard against which we were required to measure ourselves in 2014/15.
We are pleased to confi rm that we complied with all of the provisions set out in the Code for the period under review.
A summary of our governance profi le, outlining our compliance with key areas of the Code, has been set out on page 03 of the Strategic Report.
To keep this report interesting and engaging we continue to focus on the key insights from the business; however, further detail on how we comply with the Code can be found in our Corporate Governance Statement, available at marksandspencer.com/thecompany.
These appointments bring new challenge and oversight to the Board. Their skills and experience build on our existing talent, standing us in good stead for the year ahead.
We are a more capable business following a sustained period of investment in our infrastructure and people. Our focus will continue to be on delivery of our strategy and improvement in shareholder returns.
ROBERT SWANNELL CHAIRMAN
1 Robert Swannell Chairman 2 Marc Bolland Chief Executive 3 Helen Weir Chief Finance Offi cer 4 Patrick Bousquet-Chavanne Executive Director, Marketing & International
5 John Dixon Executive Director, General Merchandise
6 Steve Rowe Executive Director,
7 Laura Wade-Gery Executive Director, Multi-channel 8 Vindi Banga
9 Alison Brittain Non-Executive Director
10 Miranda Curtis Non-Executive Director 11 Martha Lane Fox Non-Executive Director
12 Andy Halford
Non-Executive Director 13 Richard Solomons Non-Executive Director 14 Amanda Mellor Group Secretary and Head of Corporate Governance
Senior Independent Director
Food
8
10
12
R N CC
A N R A N
11
13
N A
N
Full biographical details of each director are available on marksandspencer.com/thecompany
The Board diversity policy was launched in 2012 with the intention of ensuring that diversity, in its broadest sense, remains a central feature of the Board.
The Board continues to take positive steps towards broadening the diversity of both the Board and our senior management. Our Board Diversity policy on page 43 of the Annual Report sets out our ambitions with regard to diversity and what this means for our business, customers and stakeholders, as well as the progress we continue to make against those ambitions.
The tables and graphics opposite provide a visual outline of our Board diversity in terms of gender, range of experience and length of tenure.
A N CC
46%
VINDI BANGA CHAIRMAN OF THE REMUNERATION COMMITTEE
| Salary | Benefi ts3 | Total Bonus4 |
Total PSP vested5 |
Pension benefi ts6 |
Total | ||
|---|---|---|---|---|---|---|---|
| Year | £000 | £000 | £000 | £000 | £000 | £000 | |
| 2014/15 | 975 | 19 | 596 | 193 | 293 | 2,076 | |
| Marc Bolland | 2013/14 | 975 | 41 | 0 | 259 | 293 | 1,568 |
| 2014/15 | 525 | 36 | 222 | 59 | 131 | 973 | |
| Patrick Bousquet-Chavanne1 | 2013/14 | 380 | 29 | 0 | – | 95 | 504 |
| 2014/15 | 600 | 25 | 217 | 111 | 150 | 1,103 | |
| John Dixon | 2013/14 | 600 | 46 | 0 | 143 | 150 | 939 |
| 2014/15 | 525 | 42 | 653 | 60 | 131 | 1,411 | |
| Steve Rowe | 2013/14 | 525 | 53 | 0 | 77 | 131 | 786 |
| 2014/15 | 162 | 6 | 0 | 0 | 40 | 208 | |
| Alan Stewart2 | 2013/14 | 579 | 34 | 0 | 146 | 145 | 904 |
| 2014/15 | 552 | 21 | 219 | 107 | 138 | 1,037 | |
| Laura Wade-Gery | 2013/14 | 552 | 26 | 0 | 167 | 138 | 883 |
The amounts shown for 2013/14 refl ect that Patrick Bousquet-Chavanne joined the Board on 10 July 2013.
The amounts shown for 2014/15 refl ect that Alan Stewart resigned from the Board on 10 July 2014.
Benefi ts include the value of car allowance and intrinsic value of SAYE in addition to the taxable value of car, driver and life assurance, as applicable to each director.
Half of any award will be deferred into Company shares for a period of three years. Further details of the 2014/15 Annual Bonus Scheme are shown on page 28. 5. The value of awards vesting in 2013/14 has been restated to refl ect the actual value of dividend equivalents and share price at the time of vesting. The value of awards vesting in 2014/15 has been estimated based on the three-month average share price from 2 January 2015 – 27 March 2015 as these awards do not vest until after the end of the fi nancial year. This value also includes the anticipated value of dividend equivalents which will be payable in July 2015 (and January 2016 for Patrick Bousquet-Chavanne). These estimated fi gures will be restated in next year's report.
Pension benefi ts comprise the value of cash provided in lieu of participation in the Your M&S Pension Saving Plan.
When reviewing salary levels, the Committee takes into account a number of internal and external factors, including Company performance during the year, external market data and the salary review principles applied to the rest of the organisation to ensure a consistent approach.
No increases were awarded during the year. The next salary review date for the executive directors will be July 2015. Marc Bolland will not receive a salary increase in July; he has again, at his own request, proposed not to receive an increase. He has not had a salary increase since his appointment in 2010.
Each executive director receives a car or cash allowance and is off ered the benefit of a driver. The Company also provides each director with life assurance. Executive directors receive employee product discount and are eligible to participate in salary sacrifice schemes such as Cycle2Work in line with all other employees.
With the exception of the Chief Executive Officer (CEO), executive directors receive a 25% salary supplement in lieu of membership of the Your M&S Pension Saving Plan. The CEO receives a supplement of 30% of salary.
REMUNERATION SUMMARY CONTINUED
For 2014/15, directors had the opportunity to earn an award of up to 200% of salary, with half of any award being payable in deferred shares. Performance measures used to determine the entitlement to any payment were set against challenging profi tability targets and individual objectives. Profi tability targets formed 60% of any bonus award. For those executive directors with business unit responsibility, profi tability measures were equally split between Group PBT and profi t measures for their business unit. As a result of his additional International responsibilities, from July 2014 Patrick Bousquet-Chavanne's corporate element was calibrated to include
International operating profi t from this time. For Marc Bolland, profi tability was wholly measured against Group achievement. Each director also had three individual objectives, together accounting for 40% of the total bonus. These objectives were set against their key areas of focus and accountability which refl ect the primary drivers of short and medium-term strategic success of the Company.
Plan A (our environmental and ethical plan) is an integral driver of the way we do business; success against Plan A targets underpinned the entire 2014/15 bonus scheme. The Committee assessed performance against all corporate and
individual measures. The Committee was also satisfi ed that each director continued to ensure that Plan A remained a major focus of the ways of working at M&S and that the subsequent performance supported this.
Figure 2 below illustrates each director's achievement against corporate profi tability and individual targets for the 2014/15 Scheme. PBT outturn for the fi nancial year was £661.2m which was above the target set to trigger payments under both elements of the Scheme. As a result of performance, directors' payments were between 18% and 62% of maximum bonus opportunity.
| PROFITABILITY TARGETS | INDIVIDUAL OBJECTIVES | TOTAL PAYMENT | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| GROUP PBT BUSINESS UNIT PROFIT |
|||||||||||||
| Target & performance | Achievement | Performance | Achievement | Performance | Achievement | ||||||||
| DIRECTOR | Min | Max | Actual | % bonus | % salary | % bonus | % salary | % bonus | % salary | % salary | £000 | ||
| Marc Bolland | £650m £732m £661m 12.4% | 24.8% | – | – | – | 18.2% | 36.3% | 61.1% | 596 | ||||
| Patrick Bousquet-Chavanne | £650m £732m £661m | 7.7% | 15.4% | 0.0% | 0.0% | 13.4% | 26.9% | 42.3% | 222 | ||||
| John Dixon | £650m £732m £661m | 6.2% | 12.4% | 1.9% | 3.8% | 10.0% | 20.0% | 36.2% | 217 | ||||
| Steve Rowe | £650m £732m £661m | 6.2% | 12.4% | 30.0% 60.0% | 26.0% | 52.0% | 124.4% | 653 | |||||
| Laura Wade-Gery | £650m £732m £661m | 6.2% | 12.4% | 0.0% | 0.0% | 13.6% | 27.3% | 39.7% | 219 | ||||
| Performance assessment key | Below Threshold | Threshold > Target | Plan A underpin targeted objectives | Target > Stretch | Stretch or above |
The Performance Share Plan (PSP) is the primary long-term incentive for executive directors and senior managers.
The Committee believes that long-term share awards help retain and reward executives for the delivery of long-term business goals.
For directors in receipt of PSP awards granted in 2012, the awards will vest on 1 June 2015, (5 December 2015 for Patrick Bousquet-Chavanne) based on three-year performance over the period to 28 March 2015. Performance has been assessed and it has been determined that 4.7% of the award will vest.
Details of performance against the specific targets set are set out in the table below.
| Performance target | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Cumulative | Revenue (£ 2014/15) | ||||||||
| EPS2 | ROCE (%) | UK3 | Multi-channel4 | International5 | |||||
| 50% of award | 20% of award | 10% of award | 10% of award | 10% of award | Total vesting6 | ||||
| Threshold performance targets1 | 110p | 15.0% | £8,900m | £800m | £1,300m | ||||
| Maximum performance targets1 | 130p | 18.5% | £9,600m | £1,000m | £1,700m | ||||
| Actual performance achieved | 99.7p | 15.2% | £8,470m | £776m | £1,065m | ||||
| Percentage of maximum achieved | 0.0% | 4.7% | 0.0% | 0.0% | 0.0% | 4.7% |
20% of an award vests for threshold performance with full vesting for achieving or exceeding maximum peformance. Vesting is a straight line between these two points.
Actual performance achieved has been re-stated to Pre-IAS 19 values, to allow a like-for-like measurement against targets.
Excluding Multi-channel.
Net of VAT/gross of returns.
and 2013/14.
the year.
Non-executive directors receive fees reflective of the time commitment, demands and responsibilities of the role. The table opposite details the fees paid to the non-executive directors for 2014/15
There was no increase to the fees during
| Basic fees | Additional fees |
Benefi ts | Total | ||
|---|---|---|---|---|---|
| Year | £000 | £000 | £000 | £000 | |
| Robert Swannell | 2014/15 | 70 | 380 | 18 | 468 |
| 2013/14 | 70 | 380 | 21 | 471 | |
| Vindi Banga1 | 2014/15 | 70 | 12 | 0 | 82 |
| 2013/14 | 70 | 0 | 0 | 70 | |
| Alison Brittain2 | 2014/15 | 70 | 0 | 0 | 70 |
| 2013/14 | 18 | 0 | 0 | 18 | |
| Miranda Curtis | 2014/15 | 70 | 0 | 0 | 70 |
| 2013/14 | 70 | 0 | 0 | 70 | |
| Martha Lane Fox | 2014/15 | 70 | 0 | 0 | 70 |
| 2013/14 | 70 | 0 | 0 | 70 | |
| Martha Lane Fox | 2014/15 | 70 | 0 | 0 | 70 |
|---|---|---|---|---|---|
| 2013/14 | 70 | 0 | 0 | 70 | |
| Andy Halford3 | 2014/15 | 70 | 15 | 0 | 85 |
| 2013/14 | 70 | 11 | 0 | 81 | |
| Steven Holliday4 | 2014/15 | 19 | 4 | 0 | 23 |
| 2013/14 | 70 | 15 | 0 | 85 | |
| Jan du Plessis5 | 2014/15 | 64 | 28 | 0 | 92 |
| 2013/14 | 70 | 30 | 0 | 100 | |
The amounts shown refl ect that Vindi Banga was appointed as Remuneration Committee Chair on 8 July 2014 and Senior Independent Director from 4 March 2015.
The amounts shown for 2013/14 refl ect that Alison Brittain joined the Board on 1 January 2014.
The amounts shown for 2013/14 refl ect that Andy Halford was appointed as Audit Committee Chair on 1 July 2013. 4. The amounts shown for 2014/15 refl ect that Steven Holliday retired from the Board on 8 July 2014.
The amounts shown for 2014/15 refl ect that Jan du Plessis retired from the Board on 4 March 2015.
| 52 weeks ended 28 March 2015 52 weeks ended 29 March 2014 |
||||||
|---|---|---|---|---|---|---|
| Underlying £m |
Non-underlying £m |
Total £m |
Underlying £m |
Non-underlying £m |
Total £m |
|
| Revenue | 10,311.4 | – | 10,311.4 | 10,309.7 | – | 10,309.7 |
| Operating profi t | 762.5 | (61.2) | 701.3 | 741.9 | (47.4) | 694.5 |
| Finance income | 15.5 | – | 15.5 | 20.1 | 4.9 | 25.0 |
| Finance costs | (116.8) | – | (116.8) | (139.1) | – | (139.1) |
| Profi t before tax | 661.2 | (61.2) | 600.0 | 622.9 | (42.5) | 580.4 |
| Income tax expense | (124.8) | 6.5 | (118.3) | (117.1) | 42.7 | (74.4) |
| Profi t for the year | 536.4 | (54.7) | 481.7 | 505.8 | 0.2 | 506.0 |
| Attributable to: | ||||||
| Owners of the parent | 541.2 | (54.7) | 486.5 | 520.0 | 4.8 | 524.8 |
| Non-controlling interests | (4.8) | – | (4.8) | (14.2) | (4.6) | (18.8) |
| 536.4 | (54.7) | 481.7 | 505.8 | 0.2 | 506.0 | |
| Basic earnings per share | 33.1p | (3.4p) | 29.7p | 32.2p | 0.3p | 32.5p |
| Diluted earnings per share | 32.9p | (3.4p) | 29.5p | 31.9p | 0.3p | 32.2p |
| As at 28 March 2015 £m |
As at 29 March 2014 £m |
|
|---|---|---|
| Assets | ||
| Non-current assets | ||
| Intangible assets | 858.2 | 808.4 |
| Property, plant and equipment | 5,031.1 | 5,139.9 |
| Investment property | 15.6 | 15.7 |
| Investment in joint ventures | 12.2 | 12.7 |
| Other fi nancial assets | 3.0 | 3.0 |
| Retirement benefi t asset | 460.7 | 200.7 |
| Trade and other receivables | 283.3 | 313.5 |
| Derivative fi nancial instruments | 75.8 | 40.6 |
| Deferred tax assets | 1.2 | – |
| 6,741.1 | 6,534.5 | |
| Current assets | ||
| Inventories | 797.8 | 845.5 |
| Other fi nancial assets | 11.6 | 17.7 |
| Trade and other receivables | 321.8 | 309.5 |
| Derivative fi nancial instruments | 117.9 | 13.7 |
| Cash and cash equivalents | 205.9 | 182.1 |
| 1,455.0 | 1,368.5 | |
| Total assets | 8,196.1 | 7,903.0 |
| Liabilities | ||
| Current liabilities | ||
| Trade and other payables | 1,642.4 | 1,692.8 |
| Partnership liability to the Marks & Spencer UK Pension Scheme | 71.9 | 71.9 |
| Borrowings and other fi nancial liabilities | 279.4 | 448.7 |
| Derivative fi nancial instruments | 7.7 | 51.5 |
| Provisions | 46.2 | 44.8 |
| Current tax liabilities | 64.0 | 39.6 |
| 2,111.6 | 2,349.3 | |
| Non-current liabilities | ||
| Retirement benefi t defi cit | 11.7 | 11.7 |
| Trade and other payables | 319.7 | 334.0 |
| Partnership liability to the Marks & Spencer UK Pension Scheme | 441.0 | 496.8 |
| Borrowings and other fi nancial liabilities | 1,745.9 | 1,655.1 |
| Derivative fi nancial instruments | 20.0 | 75.4 |
| Provisions | 32.1 | 31.4 |
| Deferred tax liabilities | 315.3 | 242.6 |
| 2,885.7 | 2,847.0 | |
| Total liabilities | 4,997.3 | 5,196.3 |
| Net assets | 3,198.8 | 2,706.7 |
| Equity | ||
| Issued share capital | 412.0 | 408.1 |
| Share premium account | 392.4 | 355.5 |
| Capital redemption reserve | 2,202.6 | 2,202.6 |
| Hedging reserve | 64.3 | (41.8) |
| Other reserve | (6,542.2) | (6,542.2) |
| Retained earnings | 6,670.5 | 6,325.1 |
| Total shareholders' equity | 3,199.6 | 2,707.3 |
| Non-controlling interests in equity | (0.8) | (0.6) |
| Total equity | 3,198.8 | 2,706.7 |
The fi nancial statements were approved by the Board and authorised for issue on 19 May 2015.
Marc Bolland Chief Executive Offi cer
Helen Weir Chief Finance Offi cer
| 52 weeks ended 28 March 2015 £m |
52 weeks ended 29 March 2014 £m |
|
|---|---|---|
| Cash fl ows from operating activities | ||
| Cash generated from operations | 1,349.1 | 1,175.5 |
| Income tax paid | (71.1) | (45.9) |
| Net cash infl ow from operating activities | 1,278.0 | 1,129.6 |
| Cash fl ows from investing activities | ||
| Proceeds on property disposals | 35.4 | 25.0 |
| Purchase of property, plant and equipment | (521.8) | (440.1) |
| Purchase of intangible assets | (178.0) | (201.5) |
| Reduction/(purchase) of current fi nancial assets | 6.0 | (1.7) |
| Interest received | 9.3 | 3.4 |
| Net cash used in investing activities | (649.1) | (614.9) |
| Cash fl ows from fi nancing activities | ||
| Interest paid1 | (115.3) | (132.7) |
| Cash (outfl ow)/infl ow from borrowings | (165.7) | 167.5 |
| (Repayment)/drawdown of syndicated loan notes | (10.2) | 154.1 |
| Redemption of medium-term notes | – | (400.0) |
| Decrease in obligations under fi nance leases | (4.8) | (7.3) |
| Payment of liability to the Marks & Spencer UK Pension Scheme | (54.4) | (50.3) |
| Equity dividends paid | (280.7) | (273.6) |
| Shares issued on exercise of employee share options | 40.8 | 44.2 |
| Purchase of own shares by employee trust | (24.2) | – |
| Net cash used in fi nancing activities | (614.5) | (498.1) |
| Net cash infl ow from activities | 14.4 | 16.6 |
| Eff ects of exchange rate changes | (2.3) | (1.6) |
| Opening net cash | 175.7 | 160.7 |
| Closing net cash | 187.8 | 175.7 |
| 52 weeks ended 28 March 2015 £m |
52 weeks ended 29 March 2014 £m |
|
|---|---|---|
| Reconciliation of net cash fl ow to movement in net debt | ||
| Opening net debt | (2,463.6) | (2,614.3) |
| Net cash infl ow from activities | 14.4 | 16.6 |
| (Decrease)/increase in current fi nancial assets | (6.0) | 1.7 |
| Decrease in debt fi nancing | 235.1 | 136.0 |
| Exchange and other non-cash movements | (3.1) | (3.6) |
| Movement in net debt | 240.4 | 150.7 |
| Closing net debt | (2,223.2) | (2,463.6) |
| 2015/16 fi nancial calendar and key dates | ||
|---|---|---|
| 28 May 2015 | Ex-dividend date – Final dividend | |
| 29 May 2015 | Record date to be eligible for the fi nal dividend | |
| 07 July 2015 | Results – Quarter 1 Interim Management Statement† | |
| 07 July 2015 | Annual General Meeting (11am) | |
| 10 July 2015 | Final dividend payment date for the year to 28 March 2015 | |
| 04 November 2015* | Results – Half Year† | |
| 12 November 2015* | Ex-dividend date – Interim dividend | |
| 13 November 2015* | Record date to be eligible for the interim dividend | |
| January 2016* | Results – Quarter 3 Interim Management Statement† | |
| 08 January 2016* | Interim dividend payment date |
† Those who have registered for electronic communication or news alerts at marksandspencer.com/thecompany will receive notifi cation by email when this is available.
* Provisional dates.
Shareholders can manage their holdings online by registering with Shareview, the internet based platform provided by Equiniti. Registration is a straightforward process and allows shareholders to:
Sign up for electronic shareholder communication;
Receive trading updates by email;
View all of their shareholdings in one place;
Update their records following a change of address;
Have dividends paid into their bank account; and
Vote in advance of company general meetings.
M&S encourages shareholders to sign up for electronic communication as the reduction in printing costs and paper usage makes a valuable contribution to our Plan A commitments. It is also benefi cial to shareholders, who can be notifi ed by email whenever we release trading updates to the London Stock Exchange, which are not mailed to shareholders.
To fi nd out more information about the services off ered by Shareview and to register, please visit shareview.co.uk.
Paid in January and July each year. We encourage shareholders to have their dividends paid directly into their bank account to ensure effi cient payment and that cleared funds are received on the payment date. Shareholders
An increasing number of shareholders have been contacting us to report unsolicited and suspicious phone calls received from purported 'brokers' who off er to buy their shares at a price far in excess of their market value. It is unlikely that fi rms authorised by the Financial Conduct Authority (FCA) will contact you with off ers like this. As such, we believe these calls are part of a scam, commonly referred to as a 'boiler room'. The callers obtain your details from publicly available sources of information, including the Company's share register, and can be extremely persistent and persuasive.
Shareholders are cautioned to be very wary of any unsolicited advice, off ers to buy shares at a discount, sell your shares at a premium or requests to complete confi dentiality 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. An overview of current common scams is available on the Action Fraud website actionfraud.police.uk.
who receive their dividend payments in this way receive a single, consolidated tax voucher annually in January, covering both dividend payments made during the tax year. We are able to send separate tax vouchers if preferred.
Shareholders can change their preferred dividend payment method online at shareview.co.uk or by contacting Equiniti.
Waterside House, 35 North Wharf Road, London W2 1NW Telephone +44 (0)20 7935 4422 Registered in England and Wales (no. 4256886)
Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA United Kingdom Telephone 0845 609 0810 and outside the UK +44 (0) 121 415 7071 Online: help.shareview.co.uk (from here, you will be able to securely email Equiniti with your enquiry).
of Corporate Governance Amanda Mellor
An interactive version of our Annual Report is available online at
Additionally, both the Annual Report and Strategic Report are available for download in pdf format at
marksandspencer.com/thecompany.
Alternatively, call 0800 591 697.
Please note, students are advised to source information from our website.
Customer queries: 0845 302 1234 Shareholder queries: 0845 609 0810 Alternatively, email us at [email protected].
The recipe for the Strawberry, White Chocolate and Almond Semifreddo made using M&S ingredients is available on the Cook with M&S app, which can be downloaded on Apple and Android devices.
This report is printed on Cocoon preprint 100 off set, a 100% recycled paper made from post-consumer waste. Cocoon is manufactured to the certifi ed environmental management system ISO 14001.
Designed and produced by Friend www.friendstudio.com Printed by CPI Colour.
CPI Colour are ISO 14001 certifi ed, CarbonNeutral®, Alcohol Free and FSC® Certifi ed.
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