Principal activities and Business review
Marks and Spencer Group plc (the ‘Company’) is the holding company of the Marks & Spencer Group of companies (the ‘Group’). M&S has grown from a single market stall to become an international, multi-channel retailer. With 766 stores across the UK and a growing e-commerce business, we sell high quality, great value food and remain the UK market leaders in womenswear, lingerie and menswear. We aim to provide the best shopping experience for our customers. We now operate in 51 territories across Europe, the Middle East and Asia and continue to grow our international presence through a multi- channel approach.
The Companies Act 2006 requires the Company to set out in this report a fair review of the business of the Group during the financial year ended 30 March 2013 including an analysis of the position of the Group at the end of the financial year, and a description of the principal risks and uncertainties facing the Group (known as a ‘Business review’).
The information that fulfils the Business review requirements is incorporated by reference and can be found in the following sections:
- Chairman’s statement
- Strategic review
- Our plan in action
- Principal risks and uncertainties in the Accountability section – Financial review
- Social, environmental and ethical matters on within our report on Plan A.
More information is given in the How We Do Business report available on our website at marksandspencer.com/plana2013
The sections Overview, Strategic Review and Governance (together with the sections of the Annual Report incorporated by reference) consist of a Directors’ report that has been drawn up and presented in accordance with and in reliance upon applicable English company law and the liabilities of the directors in connection with that report shall be subject to the limitations and restrictions provided by such law.
Other information to be disclosed in the Directors’ report is given in this section.
Profit and dividends
The profit for the financial year, after taxation, amounts to £466.7m (last year £573.1m). The directors have declared dividends as follows:
|Paid interim dividend of 6.2p per share (last year 6.2p per share)||99.0|
|Proposed final dividend of 10.8p per share (last year 10.8p per share)||173.5|
|Total ordinary dividend, 17.0p per share (last year 17.0p per share)||272.5|
The final ordinary dividend will be paid on 12 July 2013 to shareholders whose names are on the Register of Members at the close of business on 31 May 2013.
The Company’s issued ordinary share capital as at 30 March 2013 comprised a single class of ordinary share. Details of movements in the issued share capital can be found in note 24 to the financial statements. Each share carries the right to one vote at general meetings of the Company.
This year saw the first maturity of the 2009 ROI Save As You Earn Share Option Scheme, with individuals being able to exercise options at the price of 292p.
During the period, 8,381,090 ordinary shares in the Company were issued as follows:
- 868,952 shares under the terms of the 2002 Executive Share Option Scheme at prices between 270p and 352p.
- 7,369,406 shares under the terms of the United Kingdom Employees’ Save As You Earn Share Option Scheme at prices between 203p and 319p.
- 142,732 shares under the terms of the ROI Employees’ Save As You Earn Share Option Scheme at the price of 292p.
Restrictions on transfer of securities
There are no specific restrictions on the transfer of securities in the Company, which is governed by the Articles and prevailing legislation. Nor is the Company aware of any agreements between holders of securities that may result in restrictions on the transfer of securities or that may result in restrictions on voting rights.
Variation of rights
Subject to applicable statutes, rights attached to any class of share may be varied with the written consent of the holders of at least three-quarters in nominal value of the issued shares of that class, or by a special resolution passed at a separate general meeting of the shareholders.
Rights and obligations attaching to shares
Subject to the provisions of the Companies Act 2006, any resolution passed by the Company under the Companies Act 2006 and other shareholders’ rights, shares may be issued with such rights and restrictions as the Company may by ordinary resolution decide, or (if there is no such resolution or so far as it does not make specific provision) as the Board (as defined in the Articles) may decide. Subject to the Articles, the Companies Act 2006 and other shareholders’ rights, unissued shares are at the disposal of the Board.
Powers for the Company issuing or buying back its own shares
The Company was authorised by shareholders, at the 2012 AGM, to purchase in the market up to 10% of the Company’s issued share capital, as permitted under the Company’s Articles. No shares have been bought back under this authority during the year ended 30 March 2013. This standard authority is renewable annually; the directors will seek to renew this authority at the 2013 AGM. It is the Company’s present intention to cancel any shares it buys back, rather than hold them in treasury.
The directors were granted authority at the 2012 AGM to allot relevant securities up to a nominal amount of £133,890,820. That authority will apply until the conclusion of the 2013 AGM. At this year’s AGM shareholders will be asked to grant an authority to allot relevant securities (i) up to a nominal amount of £134,566,483 and (ii) comprising equity securities up to a nominal amount of £269,132,966 (after deducting from such limit any relevant securities allotted under (i)), in connection with an offer of a rights issue, (the Section 551 Amount), such Section 551 amount to apply until the conclusion of the AGM to be held in 2014 or, if earlier, on 29 September 2014.
A special resolution will also be proposed to renew the directors’ powers to make non pre-emptive issues for cash in connection with rights issues and otherwise up to a nominal amount of £20,184,972. A special resolution will also be proposed to renew the directors’ authority to repurchase the Company’s ordinary shares in the market. The authority will be limited to a maximum of 161 million ordinary shares and sets the minimum and maximum prices which will be paid.
Interests in voting rights
Information provided to the Company pursuant to the Financial Conduct Authority’s (FCA) Disclosure and Transparency Rules (DTRs) is published on a Regulatory Information Service and on the Company’s website. As at 30 March 2013, the following information has been received, in accordance with DTR5, from holders of notifiable interests in the Company’s issued share capital.
|Ordinary shares||% of capital||Nature of holding|
|AXA S.A.||76,111,596||4.81%||Direct & indirect|
|Brandes Investment Partners, L.P||74,959,501||4.73%||Indirect interest|
|Capital Research & Management||63,140,887||3.93%||Indirect interest|
|The Wellcome Trust||47,464,282||3.01%||Direct interest||In the period 30 March 2013 to 20 May 2013 we recorded the following disclosures in accordance with DTR5. Capital Research and Management below 3% and Legal & General 3.05%.|
Deadlines for exercising voting rights
Votes are exercisable at a general meeting of the Company in respect of which the business being voted upon is being heard. Votes may be exercised in person, by proxy, or in relation to corporate members, by corporate representatives. The Articles provide a deadline for submission of proxy forms of not less than 48 hours before the time appointed for the holding of the meeting or adjourned meeting. However, when calculating the 48 hour period, the directors can, and have, decided not to take account of any part of a day that is not a working day.
Significant agreements – change of control
There are a number of agreements to which the Company is party that take effect, alter or terminate upon a change of control of the Company following a takeover bid. Details of the significant agreements of this kind are as follows:
- the £400m Medium Term Notes issued by the Company on 30 November 2009, the £300m Medium Term Notes issued by the company on 6th December 2011 and the £400m Medium Term Notes issued by the Company on 12 December 2012 to various institutions (‘MTN’) and under the Group’s £3bn Euro Medium Term Note (EMTN) programme contain an option such that, upon a change of control event, combined with a credit ratings downgrade to below sub-investment level, any holder of an MTN may require the Company to prepay the principal amount of that MTN;
- the $500m US Notes issued by the Company to various institutions on 6 December 2007 under section 144a of the US Securities Act contain an option such that, upon a change of control event, combined with a credit ratings downgrade to below sub-investment level, any holder of such a US Note may require the Company to prepay the principal amount of that US Note;
- the $300m US Notes issued by the Company to various institutions on 6 December 2007 under section 144a of the US Securities Act contain an option such that, upon a change of control event, combined with a credit ratings downgrade to below sub-investment level, any holder of such a US Note may require the Company to prepay the principal amount of that US Note;
- the £1.325bn Credit Agreement dated 29 September 2011 between the Company and various banks contains a provision such that, upon a change of control event, unless new terms are agreed within 60 days, the facility under this agreement will be cancelled with all outstanding amounts becoming immediately payable with interest;
- the amended and restated Relationship Agreement dated 1 February 2012 (originally dated 9 November 2004 as amended on 1 March 2005), between HSBC and the Company and relating to M&S Bank, contains certain provisions which address a change of control of the Company. Upon a change of control the existing rights and obligations of the parties in respect of M&S Bank continue and HSBC gains certain limited additional rights in respect of existing customers of the new controller of the Company. Where a third party arrangement is in place for the supply of financial services products to existing customers of the new controller, the Company is required to procure the termination of such arrangement as soon as reasonably practicable (whilst not being required to do anything that would breach any contract in place in respect of such arrangement). Where a third party arrangement is so terminated, or does not exist, HSBC gains certain exclusivity rights in respect of the sale of financial services products to the existing customers of the new controller. Where the Company undertakes a re-branding exercise with the new controller following a change of control (which includes using any M&S brand in respect of the new controller’s business or vice versa), HSBC gains certain termination rights (exercisable at its election) in respect of the Relationship Agreement;
- the Company does not have agreements with any director or employee that would provide compensation for loss of office or employment resulting from a takeover except that provisions of the Company’s share schemes and plans may cause options and awards granted to employees under such schemes and plans to vest on a takeover.
Board of directors
The membership of the Board and biographical details of the directors are given on the Board of Directors page and are incorporated into this report by reference. Details of directors’ beneficial and non-beneficial interests in the shares of the Company are shown within the Unaudited section of the Remuneration Report. Options granted under the Save As You Earn (SAYE) Share Option and Executive Share Option Schemes are shown in the Audited section of the Remuneration Report. Further information regarding employee share option schemes is given in note 13 to the financial statements.
Kate Bostock stepped down from the Board as Executive Director General Merchandise on 1 October 2012. John Dixon was appointed Executive Director, General Merchandise on 1 October 2012 having previously been Executive Director, Food. Steve Rowe joined the Board on 1 October 2012 as Executive Director, Food. Andy Halford joined the Board as a non-executive director on 1 January 2013 and will be appointed Chairman of the Audit Committee following Jeremy Darroch stepping down from the Board in June 2013.
Steve Sharp will step down from the Board following the Annual General Meeting on 9 July 2013 and will continue to work in the business as Creative Director until 28 February 2014.
Patrick Bousquet-Chavanne will take over responsibility for marketing and will be put forward for election to the Board as Executive Director, Marketing and Business Development at the AGM on 9 July 2013 to take up this new role from 10 July.
The appointment and replacement of directors is governed by the Company’s Articles, the UK Corporate Governance Code (the ‘Code’), the Companies Act 2006 and related legislation. The Articles may be amended by a special resolution of the shareholders. Subject to the Articles, the Companies Act 2006 and any directions given by special resolution, the business of the Company will be managed by the Board who may exercise all the powers of the Company. The Company may by ordinary resolution declare dividends not exceeding the amount recommended by the Board. Subject to the Companies Act 2006, the Board may pay interim dividends, and also any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment.
Appointment and retirement of directors
The directors may from time to time appoint one or more directors. The Board may appoint any person to be a director (so long as the total number of directors does not exceed the limit prescribed in the Articles). Under the Articles any such director shall hold office only until the next AGM and shall then be eligible for election. The Articles also require that at each AGM at least one-third of the current directors must retire as directors by rotation. All those directors who have been in office at the time of the two previous AGMs and who did not retire at either of them must retire as directors by rotation. In addition, a director may at any AGM retire from office and stand for re-election. However, in line with the UK Corporate Governance Code 2010, all directors will stand for annual election at the 2013 AGM.
Directors’ conflicts of interest
The Company has procedures for managing conflicts of interest in place. Should a director become aware that they, or their connected parties, have an interest in an existing or proposed transaction with Marks & Spencer, they should notify the Board in writing or at the next Board meeting. Internal controls are in place to ensure that any related party transactions involving directors, or their connected parties, are conducted on an arm’s length basis. Directors have a continuing duty to update any changes to these conflicts.
The Company maintains directors’ and officers’ liability insurance which gives appropriate cover for any legal action brought against its directors. The Company has also granted indemnities to each of its directors and the Group Secretary to the extent permitted by law. Qualifying third party indemnity provisions (as defined by section 234 of the Companies Act 2006) were in force during the year ended 30 March 2013 and remain in force, in relation to certain losses and liabilities which the directors (or Group Secretary) may incur to third parties in the course of acting as directors or Group Secretary or employees of the Company or of any associated company.
We remain committed to employee involvement throughout the business. Employees are kept well informed of the performance and strategy of the Group through personal briefings, regular meetings, personal letters home, email and broadcasts by the Chief Executive and members of the Board at key points in the year to all head office employees and store management. In addition many of our store colleagues can join the briefings by telephone to hear directly from the business. These types of communication are supplemented by our employee publications including ‘Your M&S’ magazine, Plan A updates and DVD presentations. More than 3,500 employees elected onto Business Involvement Groups (‘BIGs’) across every store and head office location to represent their colleagues in two-way communication and consultation with the Company. They have continued to play a key role in a wide variety of business changes, in what has been a very busy year.
The eighteenth meeting of the European Works Council (‘EWC’) (established in 1995) will take place in September 2013. This Council provides an additional forum for informing, consulting and involving employee representatives from the countries in the European Community. The EWC includes members from our partly owned company in the Czech Republic, as well as representatives from Greece, Bulgaria, France, Slovenia, Romania, the Republic of Ireland and the UK. The EWC will have the opportunity to be addressed by the Chief Executive and other senior members of the Company on issues that affect the European business. This will include the Directors of International and Multi-channel and the Director of Plan A, which all have an impact across the European Community.
Directors and senior management regularly attend the National Business Involvement Group (BIG) meetings. They visit stores and discuss with employees matters of current interest and concern to both employees and the business through meetings with local BIG representatives, specific listening groups and informal discussions. The business has continued to engage with employees and drive involvement through a scheme called The BIG Idea. On a quarterly basis the business poses a question to gather ideas and initiatives on a number of areas including how we can better serve our customers. Several thousand ideas are put forward each time and the winning employee receives an award and the chance to see how this is implemented by the Company.
Share schemes are a long-established and successful part of our total reward package, encouraging and supporting employee share ownership. In particular, around 25,000 employees currently participate in Sharesave, the Company’s all employee Save As you Earn Scheme. Full details of all schemes are given within the Financial Statements (PDF 0.5MB).
We have a well established interactive wellbeing website, called planahealth.com, a completely bespoke website and service designed exclusively for M&S employees which was updated and re-launched in October 2012. It gives any employee the opportunity to access a wealth of information, help and support. We cover all areas of wellbeing, from healthy eating and exercise to help in overcoming issues such as stress, financial challenges, achieving a positive work-life balance and problems with sleeping. New this year is access to free physiotherapy, an enhanced counselling service and an improved wellbeing personal coach service.
The response has been excellent with 13,000 employees making personal pledges to improve a specific health or wellbeing issue. Employees are able to interact with one another, post information about clubs and groups in their area and can gain access to information about corporate projects which link to their personal health pledges.
We maintain contact with retired staff through communications from the Company and the Pension Trust. Member-nominated trustees have been elected to the Pension Trust Board, including employees and pensioners. We continue to produce a regular Pensions Update newsletter for members of our final salary pension scheme and the M&S Retirement Plan.
The Group is committed to an active equal opportunities policy from recruitment and selection, through training and development, performance reviews and promotion to retirement. It is our policy to promote an environment free from discrimination, harassment and victimisation, where everyone will receive equal treatment regardless of gender, colour, ethnic or national origin, disability, age, marital status, sexual orientation or religion. All decisions relating to employment practices will be objective, free from bias and based solely upon work criteria and individual merit. The Company is responsive to the needs of its employees, customers and the community at large. We are an organisation which uses everyone’s talents and abilities and where diversity is valued. We were one of the first major companies to remove the default retirement age in 2001 and have continued to see an increase in employees wanting to work past the state retirement age. Our oldest employee is 86 years old and joined the business at age 80. The Company once again featured in The Times Top 50 places for Women to work in April 2013 and considers this to highlight how equal opportunities are available for all.
Employees with disabilities
It is our policy that people with disabilities should have full and fair consideration for all vacancies. During the year, we continued to demonstrate our commitment to interviewing those people with disabilities who fulfil the minimum criteria, and endeavouring to retain employees in the workforce if they become disabled during employment. We will actively retrain and adjust their environment where possible to allow them to maximise their potential. We continue to work with external organisations to provide workplace opportunities through our innovative Marks & Start scheme and by working closely with JobCentrePlus. This year we have focused on introducing this scheme into our new distribution centre in Castle Donington, where we are working with Remploy to support people with disabilities and health conditions into work.
Essential contracts or arrangements
The Company is required to disclose any contractual or other arrangements which it considers are essential to its business. We have a wide range of suppliers for the production and distribution of products to our customers. Whilst the loss of or disruption to certain of these arrangements could temporarily affect the operations of the Group, none are considered to be essential, with the exception of certain warehouse operators and the provider of the Company’s e-commerce platform.
Groceries Supply Code of Practice
The Groceries (Supply Chain Practices) Market Investigation Order 2009 (“Order”) and The Groceries Supply Code of Practice (“GSCOP”) impose obligations on M&S relating to relationships with its suppliers of groceries. M&S operates systems and controls to ensure compliance with the Order and GSCOP including the following:
- The terms and conditions which govern the trading relationship between M&S and those of its suppliers that supply groceries to M&S incorporate GSCOP.
- New suppliers are issued with information as required by the Order.
- M&S has a Code Compliance Officer as required under the Order, supported by our in-house legal department.
- Employee training on GSCOP is provided, including annual refresher programmes and new starter training.
Under the Order and GSCOP, M&S is required to submit an annual report detailing its compliance with GSCOP to the Audit Committee for approval and to the Office of Fair Trading. M&S submitted its report to the Audit Committee on 10 May 2013 covering the period from 1 April 2012 to 30 March 2013. In accordance with the Order, a summary of that compliance report is set out below:
M&S believes that it has complied in full with GSCOP and the Order during the relevant period. Only two suppliers alleged breaches of the Order/GSCOP. One of the allegations led to a dispute, which is detailed below, and the other was withdrawn by the supplier and the issue resolved to the satisfaction of both parties.
One formal dispute has arisen under the Order/GSCOP between M&S and a grocery supplier in the reporting period. M&S completely denies any breach and arbitration proceedings have not yet been initiated by the supplier.
Creditor payment policy
For all trade creditors, it is the Group’s policy to:
- agree the terms of payment at the start of business with that supplier;
- ensure that suppliers are aware of the terms of payment; and
- pay in accordance with its contractual and other legal obligations.
The main trading company, Marks and Spencer plc, has a policy concerning the payment of trade creditors as follows:
- general merchandise payments are received between 25 and 60 days after the stock was invoiced
- food payments are received between 19 and 54 days after the stock was invoiced; and
- distribution suppliers are paid monthly, for costs incurred in that month, based on estimates, and payments are adjusted quarterly to reflect any variations to estimate.
Trade creditor days for Marks and Spencer plc for the year ended 30 March 2013 were 24 days, or 16 working days (last year 26 days, or 17 working days), based on the ratio of Company trade creditors at the end of the year to the amounts invoiced during the year by trade creditors.
Market value of properties
The Directors believe that the open market value of the properties of the Group exceeds their net book value.
In line with our Plan A commitments, during the year, the Group made charitable donations to support the community of £11m (last year £11.4m), excluding management costs and memberships. These principally consisted of cash donations of £6.2m (last year £6.9m) which included UNICEF, WWF, MCS, Breakthrough Breast Cancer, Macmillan Cancer Support,
Royal British Legion, our Marks & Start programme and local community donations. We also donated £1.2m (last year £1.3m) of employee time, principally from fundraising, volunteering, Marks & Start and school work experience, and stock donations of £3.6m (last year £3.2m) to a variety of charities, including Shelter and The Newlife Foundation.
We also had another successful year supporting a number of our charity partners in raising funds of £8.2m (last year £8.5m). This principally consisted of funds raised from customer clothing donations to Oxfam through ‘Shwopping’ our clothes recycling initiative, funds raised by our Marks & Start charities as a result of M&S support and other employee and customer donations.
No political donations were made during the year ended 30 March 2013. Marks & Spencer has a policy of not making donations to political organisations or independent election candidates or incurring political expenditure anywhere in the world as defined in the Political Parties, Elections and Referendums Act 2000.
In adopting the going concern basis for preparing the financial statements, the directors have considered the business activities as set out on pages 1 to 37 as well as the Group’s principal risks and uncertainties as set out within the Overview and Strategic Review. Based on the Group’s cash flow forecasts and projections, the Board is satisfied that the Group will be able to operate within the level of its facilities for the foreseeable future. For this reason the Group continues to adopt the going concern basis in preparing its financial statements.
Resolutions to reappoint PricewaterhouseCoopers LLP as auditors of the Company and to authorise the Audit Committee to determine their remuneration will be proposed at the 2013 AGM.
Annual General Meeting
The AGM of Marks and Spencer Group plc will be held at Wembley Stadium, London on 9 July 2013 at 11am. The Notice of Meeting is given, together with explanatory notes, in the booklet which accompanies this report.
The directors are responsible for preparing the Annual Report, the Remuneration report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Company and Group for that period. In preparing these financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable IFRSs as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements and the Remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Each of the directors, whose names and functions are listed on the Board of Directors page, confirm that, to the best of their knowledge:
- the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
- the Business review contained in this report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
Disclosure of information to auditor
Each director confirms that, so far as he/she is aware, there is no relevant audit information of which the Company’s auditors are unaware and that each director has taken all the steps that he/she ought to have taken as a director to make himself/ herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
By order of the Board
Amanda Mellor, Group Secretary
20 May 2013