Business review
The Companies Act 2006 requires the Company to set out in the Directors' report a fair review of the business of the Group during the financial year ended 28 March 2009 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 purpose of the Business review is to enable shareholders to assess how the directors have performed their duty under section 172 of the Companies Act 2006.
The information that fulfils the Business review requirements can be found in the following sections of this report.
Annual Report 2009 comprises 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.
An index to other Directors' report disclosures is given below.
Principal activities
Marks and Spencer Group plc is the holding company of the Marks & Spencer Group of companies (the 'Group'). We are 'Your M&S', having grown up from the Penny Bazaar stall to become the UK's leading retailer of clothing, food and home products. As well as having more than 21 million UK customers, we are also an expanding international force, now in 40 territories. A team of 78,000 people and 2,000 suppliers form the bedrock of our business, ensuring our brand will continue to be synonymous with Quality, Value, Service, Innovation and Trust.
Profit and dividends
The profit for the financial year, after taxation, amounts to £508.0m (last year £821.7m). The directors have declared dividends as follows:
| Ordinary shares |
£m |
Paid interim dividend of 8.3p per share
(last year 8.3p per share) |
130.5 |
Proposed final dividend of 9.5p per share
(last year 14.2p per share) |
145.9 |
Total ordinary dividend, 17.8p per share
(last year 22.5p per share) |
276.4 |
The final ordinary dividend will be paid on 10 July 2009 to shareholders whose names are on the Register of Members at the close of business on 29 May 2009.
Share capital
The Company's authorised and issued ordinary share capital as at 28 March 2009 comprised a single class of ordinary shares. Details of movements in the issued share capital can be found in note 25 to the financial statements. Each share carries the right to one vote at general meetings of the Company. During the period, 2,217,763 ordinary shares in the Company were issued as follows:
- 142,559 shares under the terms of the 2002 Executive Share Option Scheme at prices between 270p and 353p; and
- 2,075,204 shares under the terms of the United Kingdom Employees' Save As You Earn Share Option Scheme at prices between 156p and 559p.
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 the Companies Act 1985 and 2006 (in this section the 'Companies Acts'), rights attached to any class of shares 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 Acts, any resolution passed by the Company under the Companies Acts 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 Acts and other shareholders' rights, unissued shares are at the disposal of the Board.
Powers in relation to the Company issuing or buying back its own shares
The Company was authorised by shareholders, at the July 2007 AGM, to purchase in the market up to 170 million shares, representing 10% of its issued share capital, as permitted under the Company's Articles. The Company engages in share buy backs to create value for its shareholders, when cash flow permits and there is not an immediate alternative investment use for the funds. The Company announced on 6 November 2007 that it would begin a share buy back programme to purchase up to 10% of the Company's issued share capital. The Company continued to buy back shares until 19 June 2008, buying back a total of 136,643,168 of the ordinary shares in issue, with a nominal value of 25p each.
Of this total amount, 10,901,267 shares were bought back and cancelled in the 2008/09 financial year representing 0.64% of the Company's issued capital at 10 July 2007, the date of the 2007 AGM. No shares have been bought back under the authority granted at the 2008 AGM. An up-to-date summary of all share buy back transactions is available on our website. This standard authority is renewable annually; the directors will seek to renew this authority at the 2009 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 2008 AGM to allot relevant securities up to a nominal amount of £132,142,878. That authority will apply until the conclusion of this year's 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 £131,511,272, and (ii) comprising equity securities up to a nominal amount of £263,022,544 (after deducting from such limit any relevant securities allotted under (i)), in connection with an offer of a rights issue, (the section 80 Amount), such section 80 Amount to apply until the conclusion of the AGM to be held in 2010 or, if earlier, on 27 September 2010.
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 (the section 89 Amount) up to a nominal amount of £19,726,691.
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 158 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 Services Authority's (FSA) Disclosure and Transparency Rules (DTRs) is published on a Regulatory Information Service and on the Company's website. As at 5 May 2009, the Company had been notified under DTR5 of the following significant holdings of voting rights in its shares.
| |
Ordinary
shares |
% of
capital |
Nature of holding |
Brandes Investment
Partners, L.P. |
111,595,173 |
6.57% |
Indirect interest |
Capital Research
& Management |
80,002,869 |
5.07% |
Indirect interest |
Legal & General
Group plc |
80,527,284 |
5.00% |
Direct and
indirect interest |
| The Wellcome Trust |
47,464,282 |
3.01% |
Direct interest |
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 (MTNs) issued by the Company to various institutions on 28 March 2007 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 £250m puttable and callable reset notes issued by the Company to various institutions on 11 December 2007 under the Group's £3bn 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 £1.2bn Credit Agreement dated 13 August 2004 and the £400m Credit Facility Agreement dated 3 February 2008 between the Company and various banks both contain a provision such that, upon a change of control event, unless new terms are agreed within 60 days, the facilities under these agreements will be cancelled with all outstanding amounts becoming immediately payable with interest;
- the agreement between HSBC and the Company relating to M&S Money dated 9 November 2004 (as amended and restated on 1 March 2005) contains a clause such that, upon a change of control of the Company, any new owner would be obliged to give undertakings to HSBC in respect of the continuation of the agreement, negotiate revised terms or terminate the agreement; and
- the agreement between Marks and Spencer plc and Marks and Spencer Pension Trust Limited (as trustee of The Marks and Spencer Pension Scheme) (the 'Pension Fund') dated 25 March 2009 relating to Marks and Spencer Scottish Limited Partnership (the 'Partnership') contains a clause such that, upon a change of control of the Company, Marks and Spencer plc shall elect either to cause the Partnership to surrender its discretion over the payment of annual distributions to the Pension Fund or to increase the rate at which compensatory interest accrues on any annual payments that Marks and Spencer plc has elected to defer.
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 and are incorporated into this report by reference. Details of directors' beneficial and non-beneficial interests in the shares of the Company are shown in Total shareholder return. Options granted under the Save As You Earn (SAYE) Share Option and Executive Share Option Schemes are shown on Audited information section. Further information regarding employee share option schemes is given in note 12 to the financial statements.
Jan du Plessis was appointed to the Board as a non-executive director on 1 November 2008 and will stand for election at the AGM in 2009. On 8 July 2009 the Group Secretary, Graham Oakley, will retire and will be succeeded by Amanda Mellor, current Head of Investor Relations. Lord Burns and Steven Esom retired from the Board on 1 June 2008 and 1 July 2008 respectively. The appointment and replacement of directors is governed by the Company's Articles of Association, the Combined Code, the Companies Acts and related legislation. The Articles may be amended by a special resolution of the shareholders. Subject to the Articles, the Companies Acts and any directions given by special resolution, the Company's business 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 Acts, 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). Any such director shall hold office only until the next AGM and shall then be eligible for election.
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. In accordance with the Combined Code, any director who has served more than three three-year terms (other than as a director holding an executive position) is subject to annual re-election. The Board has determined that Sir Stuart Rose will seek re-election each year during his tenure as Executive Chairman.
Directors' conflicts of interest
Conflicts of interest provisions came into effect on 1 October 2008. A survey of Board members' interests and other appointments was carried out and procedures for managing conflicts were agreed. Should a director become aware that he/she, or their connected parties, has an interest in an existing or proposed transaction with Marks & Spencer, he/she should notify the Board in writing or at the next Board meeting. Internal controls are in place to ensure that any related party transactions involving directors, or their connected parties, are conducted on an arm's length basis. Directors have a continuing duty to update any changes to these conflicts.
Directors' indemnities
The Company maintains directors' and officers' liability insurance which 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 28 March 2009 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.
Employee involvement
We have maintained our commitment to employee involvement throughout the business.
Employees are kept well informed of the performance and objectives of the Group through personal briefings, regular meetings, email and Chairman broadcasts 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 Board. These types of communication are supplemented by our employee publications including, 'Your M&S' magazine, and DVD presentations. More than 3,500 employees were 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 challenging year.
The fourteenth meeting of the European Works Council ('EWC') (established in 1995) will take place in July 2009. This Council provides an additional forum for informing, consulting and involving employee representatives from the countries in the European Community. The EWC will include observers attending from our subsidiary companies established in the Czech Republic and Greece.
Directors and senior management regularly visit stores and discuss with employees matters of current interest and concern to them and the business through listening groups, meetings with BIG members and informal discussion.
Share schemes are a long-established part of our total reward package, encouraging and supporting employee share ownership. In particular, over 26,000 employees currently participate in Sharesave, the Company's all employee Save As you Earn Scheme. Full details of all schemes are given in note 12.
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.
Equal opportunities
The Group is committed to an active Equal Opportunities Policy from recruitment and selection, through training and development, appraisal 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 age, gender, gender reassignment, colour, ethnic or national origin, disability, hours of work, nationality, religion or belief, marital or civil partner status, disfigurement, political opinions or sexual orientation. 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 and we are an organisation which uses everyone's talents and abilities and where diversity is valued.
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 for employment, 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.
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.
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 19 and 26 days after the stock was delivered;
- food payments are received between 18 and 25 days after the stock was delivered; 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 28 March 2009 were 20.5 days, or 13.7 working days (last year 15.3 days, or 10.2 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 last formal valuation of the Group's properties was carried out in September 2006. Taking into account movements in the Group's property portfolio since that date, the directors are of the opinion that the market value of the Group's fixed assets and leasehold properties, at 28 March 2009 exceeded their net book value (including prepayments in respect of leasehold land) by approximately £0.8m.
Charitable donations
During the year, the Group made charitable donations to support the community of £12.7m (last year £15m). These principally consisted of cash donations of £5.4m (last year £5.4m) which included Breakthrough Breast Cancer, Groundwork, WWF, Shelter, our Marks & Start programme and local community donations. We also donated £1.3m (last year £1.9m) of employee time, principally on Marks & Start and school work experience programmes, and stock donations of £5.7m (last year £7.5m) to a variety of charities including Newlife Foundation for Disabled Children and Shelter.
Political donations
It is our policy not to make donations to any political party. Accordingly neither the Company nor its subsidiaries made any donation to any registered party or other EU political organisation, or incurred any EU political expenditure during the year, as defined in the Political Parties, Elections and Referendums Act 2000 ('PPERA').
The PPERA gives wide definitions of what constitutes political donations and expenditure. Accordingly, as a precautionary measure, to protect the Company, should the Company inadvertently breach the legislation, by making a payment which could be classified as a political donation, approval was granted at the 2006 AGM for the Company and its five principal employing companies to make donations to political organisations and to incur political expenditure up to a maximum of £100,000 per year. This authority will expire at the 2010 AGM.
Post balance sheet event
On 31 March 2009, Marks and Spencer Reliance India Pvt Limited, a 51% subsidiary of the Group, completed the acquisition of 100% of the issued share capital of Supreme Tradelinks Private Limited, which up until this date was the Group's franchisee in India, for cash consideration of £6.5m.
Going concern
In adopting the going concern basis for preparing the financial statements, the directors have considered the business activities as set out on the Overview section as well as the Group's principal risks and uncertainties. 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.
Auditors
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 2009 AGM.
Annual General Meeting
The AGM of Marks and Spencer Group plc will be held at the Royal Festival Hall, Southbank Centre, London on 8 July 2009. The Notice of AGM is given, together with explanatory notes, in the booklet which accompanies this report.
Directors' responsibilities
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. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and the Group and of the profit of the Company and Group for that period.
In preparing those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state that the financial statements comply with IFRSs as adopted by the EU; and
- prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Group will continue in business, in which case there should be supporting assumptions or qualifications as necessary.
The directors are responsible for keeping proper accounting records that 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 Acts 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. The directors confirm that, to the best of their knowledge:
- the Group and Company 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 Company; 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 and the Company, 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 ensure that the Company's auditors are aware of that information.
Index to principal Directors' report disclosures
The Directors' report is set out in the first part of the Annual Report 2009. Reference to information that fulfils the Business review can be found under Business review on this page. Other disclosures required in the Directors' report can be found on the following pages:
By order of the Board
Graham Oakley, Group Secretary
London
18 May 2009