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Marks & Spencer
ANNUAL REPORT AND FINANCIAL STATEM EN TS 1998
Marks & Spencer

Table of contents

  • Page 1
    Marks & Spencer A N N U A L R E P O R T A N D F I N A N C I A L STAT E M E N T S 1 9 9 8

  • Page 2
    ... till system in the UK and Continental Europe. FEBRUA RY 1998 • Work begins on converting Littlewoods stores to create 600,000 sq ft of extra selling space. MA RC H 1998 • We launch the first M& S mail order clothing catalogue. • Cribbs Causeway, 102,000 sq ft department store, opens near...

  • Page 3
    ... £0.4 billion REST OF THE WORLD £0.2 billion INFORMATION TECHNOLOGY WORLDWIDE • • • £1.6 billion UNITED KINGDOM from 13.3 million sq ft to 16.3 million sq ft 23% more space TOTAL EXISTING FOOTAGE as at 1.4.97 TOTAL 16,300,000 sq ft ADDITIONAL NEW FOOTAGE United Kingdom 10,600,000 sq...

  • Page 4
    ... our customers a more extensive choice than ever. for Easter trading, despite price deï¬,ation in several key areas. Product development, backed by the highest quality and safety standards, remains the lifeblood of our food business, with one quarter of the product range new each year. This rate of...

  • Page 5
    ... stores from Littlewoods, at a cost of £192.5m, all funded from cash. These will provide some 600,000 sq ft of extra selling space in prime town and city centre sites close to existing Marks & Spencer stores. The new stores will become operational towards the end of 1998/99, during which year...

  • Page 6
    ... by the local economic situation. Kings Super Markets recorded another year of sales progress, although profits were affected by pre-opening and other non-trading costs. In M arks & Spencer Canada, our new chief executive officer is implementing strategies to take the business forward in this...

  • Page 7
    ... operations staff qualified in retail level 2. The UK Government's Investors in People scheme has been successfully adopted in two of our stores and is now being extended to others as well as to a large section of our head office. I would like to pay tribute to our suppliers of goods and services...

  • Page 8
    ... People scheme to further areas of the business. Finally we aim to inspire the M arks & Spencer staff of the future. O ur new Working with Education initiative is helping stores nationwide to work practically with local schoolchildren and students in examining retail as a business - and as a career...

  • Page 9
    ... A ND SPENCER p.l.c. 7 FR IEN D LY EX PER T ISE In our largest stores there are Financial Services A ssistants trained to prom ote the range of financial products in a helpful and friendly w ay. SM AR T AD VIC E Fashion designer Julien M acD onald - seen here w ith Sheilagh Brow n, head of our...

  • Page 10
    M E E T IN G T HE C HA LLE N GE

  • Page 11
    ... FOR GIFT S Marks & Spencer is now the biggest single retailer of women's shoes in Britain - and this proportion is rising steadily. Our freshly relaunched Classics brand is the countr y's fourth largest name in cosmetics, while our gold jeweller y has advanced from Christmas hit to year-round...

  • Page 12
    ...ND GIFTS CONTINUED FROM PA GE 9 a valuable share within the currently unsettled UK retail market for shoes. Accessories continue to grow strongly. Further development of real gold jewellery during the year, along with a wider costume jewellery range, firmly established our position in this new area...

  • Page 13
    ... departments. Kitchenware remains very strong with marked growth in cookware. This helps in turn to boost our wedding list business, which remains the UK's largest own-brand bridal registry service. Customers have responded well to the expanding range of non-iron bedding and we retain market...

  • Page 14
    A TA S T E FOR T HE B E S T

  • Page 15
    ...eat. Since this scheme started 20 years ago, individual stores have formed partnerships with local organisations who can make best use of these goods. Such a policy helps both by reducing waste and by supporting those in need. Food is a good way to introduce the Marks & Spencer brand to new markets...

  • Page 16
    ... Direct mail helps Marks & Spencer meet the core objective of providing customers with wider, easier access to our products. In recent years we have developed a flourishing mail order business primarily based on delivering home furnishings, flowers, hampers and wine direct to our customers' homes...

  • Page 17
    S E RV IC E T O Y OU R DOOR Aimed at a growing UK market for home shopping and backed by the strength of our brand, we expect Marks & Spencer Direct to develop significant extra business for the Company. The scheme is being piloted in Scotland and south-east England with a 129-page catalogue ...

  • Page 18
    ... 297 249 A TRUS TED S ERVICE PROVIDER M&S UNIT TRUSTS PERFORMANCE RANKINGS Investment portfolio UK Selection 6th out of 26 Unit 100 companies 2nd out of 158 30th out of 141 Source: Hindsight offer to bid 12 months to 31.3.98 net income reinvestment STRONG PROFIT GROWTH £m 98 97 96 95 94 89...

  • Page 19
    ...'s introduction of Individual Savings Accounts (ISAs) and stakeholder pensions. During the year we completed the expansion of our head office in Chester. Staff numbers grew by 7% to more than 1,200. Major investment in information technology systems will help us boost customer service through...

  • Page 20
    ... ER A T I ONA L R EV I EW Development is well under way of Marks & Spencer's largest ever store, a state-of-theart 200,000 sq ft, four-ï¬,oor store in Manchester city centre set to open in time for the millennium. Featuring a full range of our new in-store customer services and facilities - not to...

  • Page 21
    ...the Company's strategy for anchoring major new shopping developments, while remaining committed to town centre development. We opened neighbourhood stores in Whetstone, Greater London, and Newry in Northern Ireland. In addition we extended 16 existing stores by converting non-retail space, expanding...

  • Page 22
    ... stock and customer ordering systems. Technology is central to delivering the services that customers want. For example in-store ordering, whereby customers can have any St Michael product delivered to their local store within 48 hours, now represents 3.5% of our sales. Effective systems keep costs...

  • Page 23
    ... their direct links to financial and information systems and their ability to accept international currencies, including the euro. MORE S PAC E, MORE S ERVIC ES Ex panding store footage means we can widen the ser vice initiatives that enhance shopping at Marks & Spencer. Most widespread are our...

  • Page 24
    ... opportunities for property acquisition. TURNOVER OPERATING PROFIT In France, 10 of our 20 stores are in the Paris area, which houses 20% of the country's population; this market remains our most significant on the continent. We opened one new store in Spain and plan further expansion next year...

  • Page 25
    MA RKS A ND SPENCER p.l.c. 23 Marks & Spencer has ambitious plans for Germany. By the year 2000 we intend to open five new stores in the country, operating from prime sites already acquired in Essen, Dortmund, Wuppertal and Frankfurt (two sites) in addition to our busy, ex isting store in A S ...

  • Page 26
    ...In Australia we formed a partnership with an experienced local clothing retailer. If the right sites emerge in Sydney and M elbourne, we hope to open franchise footage in this new market in the coming year. NUMBER OF MARKS & SPENCER STORES NUMBER OF FRANCHISE STORES BUILDING THE BRAND IN HONG KONG...

  • Page 27
    ...cation, while management training is creating the bedrock of ex per tise so essential to successful ex pansion. Penny Y ip is our first secondee in the Far East. A s well as selling menswear in Shatin, Hong Kong, she is helping young people with learning difficulties through par t-time work with...

  • Page 28
    ... 119. Outlet stores continue to perform strongly, while the mail order business has been improved by investment in a new warehouse management system improving order fulfilment. TURNOVER OPERATING PROFIT MA RKS & SPENCER CA NA DA NUMBER OF BROOKS BROS STORES/ FRANCHISES NUMBER OF KINGS SUPER MARKETS...

  • Page 29
    ...- to prepare for the introduction of delicatessens in UK stores during 1998. Staff from our Kings Super Markets in New Jersey showed them how to match the finest speciality foods with the finest levels of personal service. MEET ING T HE HIGHES T EX PEC TAT IONS A merican shoppers ex pect supreme...

  • Page 30
    ... community During the year Marks & Spencer contributed more than £10 million to the communities in which we operate. Mostly we gave cash donations to carefully selected organisations where our help can bring real benefit. Our support is targeted at small, local initiatives in the fields of health...

  • Page 31
    ... A ND SPENCER p.l.c. 29 where it is needed. More than 260 staff took part during the year, either on part-time projects or longer term assignments. We are extending this policy overseas, where secondment is proving a powerful way to export the values that are important to us. Further support came...

  • Page 32
    ... companies which make or use large amounts of packaging to fund recycling schemes. Marks & Spencer, which has been advising the Government on this legislation since 1993, has responded by joining forces with several suppliers and UK Waste Management Ltd to launch the first scheme of the initiative...

  • Page 33
    ...to individual stores, we have systems for maintaining safety as both a priority and an essential value within our culture. Managing the risk in this way is important to staff, customers and shareholders alike. A FR IEN D LY O FFIC E The new office building for Marks & Spencer Financial Services in...

  • Page 34
    .... Member of the supervisory board Philips Electronics N.V. KEIT H OAT ES Deputy Chairman and Joint Managing Director A ge 55 Capital Expenditure, Finance, Financial Services, The Americas and Far East Retail & Franchises, Legal, Audit, Group Estates, Store Development, H O Premises. Non-ex ecutive...

  • Page 35
    ... East Retail and Franchise. Fellow of Institute of Personnel Management. Chairman of the Board of Trustees of Befrienders International. DON TRANGMAR A ge 58 M enswear, General M erchandise Technology. Retired 31/3/98. Trustee of Sick Children's Trust. D ivisional directors KEITH BOGG Information...

  • Page 36
    ... average and constant rates of ex change. At constant rates, total overseas sales grew by 7.3% FOOTAGE AND NEW STORES CAPITAL EXPENDITURE Capital ex penditure during the year totalled £740 million, the main components of this figure being: Littlewoods acquisition £192.5m UK footage development...

  • Page 37
    ... The Company received a payment of £53.2 million in respect of VAT previously paid to H. M. Customs & Ex cise, but refunded following an appeal brought by Littlewoods Home Shopping. This amount is in respect of VAT applied to credit sales in previous years through the Marks & Spencer account cards...

  • Page 38
    ...relates mainly to our investment interest in the Gyle Shopping Centre. (See note 11C on page 60.) TREASURY POLICY The Group has announced a number of measures designed to improve the efficiency of the Company's capital structure including: a) Market purchase of shares for the profit sharing schemes...

  • Page 39
    ... the Group Capital Plan, - Clearly defined capital investment control guidelines and procedures set by the Board, - Regular reporting of legal and accounting developments to the Board. The Group's control systems address key business and financial risks. The work of the Internal A udit Department is...

  • Page 40
    ..., train, develop and retain a large pool of talent at all levels within the Company. The level of remuneration and benefits we are able to offer is a key factor in successfully achieving this objective. The Company sets out to provide highly competitive salaries and benefits for all its employees...

  • Page 41
    ...His accrued pension entitlement at the end of the year was £268,000 (last year £221,000). In line with all other members of staff, directors per forming their duties mainly in the UK are allocated a profit share based on a percentage of their salar y. Further information on profit sharing is given...

  • Page 42
    ...PENSION INFORMATION (i) Pension Scheme The ex ecutive directors, management and staff all participate in the Company's Pension Scheme. The Scheme is non-contributor y, fully funded and the subject of an Independent Trust. With effect from 1 Januar y 1997, the normal retirement age under the Pension...

  • Page 43
    ... the actual rate of price inflation which was 3.6% for the year to 30 September 1997. This measurement date has been amended in accordance with the Stock Ex change Listing Rules. The pension entitlement shown above for the 15 participating directors is that which would be paid on retirement based on...

  • Page 44
    ... ecutive directors, who have completed two years' ser vice and who open an approved savings contract. Inland Revenue rules limit the max imum amount which can be saved to £250 per month. When the savings contract is star ted options are granted to acquire the number of shares that the total savings...

  • Page 45
    ...SPENCER p.l.c. 43 REPO RT O F TH E REM UN ERATIO N CO M M ITTEE 5 LONG TERM BENEFITS continued A t 1 A pril 1997 Granted during the year Ex ercised during the year At 31 March 1998 Option price (pence) Ex ercise price... 11,983(2) 356,385 (1) Weighted average price. (2) SAYE grant or ex ercise.

  • Page 46
    ... shares held under the Profit Sharing Scheme. Options granted under the Save A s You Earn (SAYE) Share Option and Senior Staff Share Option Schemes are shown on pages 42 to 44. Further information regarding employee share option schemes is given in note 9D. There has been no change in the directors...

  • Page 47
    ... Practices Board. That guidance does not require us to per form the additional work necessar y to, and we do not, ex press any opinion on the effectiveness of either the Group's system of internal financial control or its corporate governance procedures, nor on the ability of the Group and Company...

  • Page 48
    ... Ser vices companies, which provide account cards, personal loans, unit trust management, life assurance and pensions. The Group's Captive insurance company is also included in this segment as a significant part of its business is generated from the provision of related insurance services. REVIEW OF...

  • Page 49
    ... Employees' Profit Sharing and SavingsRelated Share Option Schemes, membership of which is ser vicerelated. 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...

  • Page 50
    ....0 Loss on sale of property and other fix ed assets Net interest income PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4 2 5 Tax ation on ordinar y activities PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION Minority interests (all equity) PROFIT ATTRIBUTABLE TO SHAREHOLDERS Dividends UNDISTRIBUTED...

  • Page 51
    ....2 Investments CURRENT ASSETS Stocks Debtors: Receivable within one year Receivable after more than one year Investments Cash at...share capital Share premium account Revaluation reser ve Profit and loss account SHAREHOLDERS' FUNDS (all equity) Minority interests (all equity) TOTAL CAPITAL EMPLOYED...

  • Page 52
    ... Received from customers Payments to suppliers Payments to and on behalf of employees Other payments CASH INFLOW FROM OPERATING ACTIVITIES RETURNS ON INVESTMENTS AND SERVICING OF FINANCE TAXATION CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT ACQUISITIONS AND DISPOSALS EQUITY DIVIDENDS PAID 7,974...

  • Page 53
    ...charged through the profit and loss account. PENSION CONTRIBUTIONS Funded pension plans are in place for the Group's UK employees and the majority of staff overseas. The assets of these pension plans are managed by third party investment managers and are held separately in trust. Regular valuations...

  • Page 54
    ... 1998 1997 £m £m Retailing Before ex ceptional operating income Ex ceptional operating income (see note 3) Financial Ser vices (1) Total operating activities A dd: ex cess interest charged to cost of sales of Financial Ser vices (1) Total operating profit Loss on sale of property and other fix ed...

  • Page 55
    ...128.3 - 128.3 (1) The operating loss for Marks & Spencer Canada is stated after a charge of £3.4m for restructuring costs (last year £nil). The profits generated from sourcing merchandise and technological ser vices in Hong Kong together with the costs of an overseas office in mainland China and...

  • Page 56
    ...3 OPERATING PROFIT 1998 £m £m £m 1997 £m Turnover Cost of sales Gross profit Staff costs (see note 9) Occupancy costs Repairs, renewals and maintenance of fix ed assets Depreciation Other costs before ex ceptional operating income(1) Ex ceptional operating income(2) Total other costs Total net...

  • Page 57
    ... tax ation relief Overseas tax ation 9.5 331.3 Deferred tax ation (see note 21) Current year Prior years 6.6 0.8 7.4 338.7 10.7 0.3 11.0 346.1 6 PROFIT FOR THE FINANCIAL YEAR A s permitted by Section 230 of the Companies A ct 1985, the profit and loss account of the Company is not presented...

  • Page 58
    ...basis of a normal working week, the equivalent average number of full-time employees would have been 48,200 (last year 45,805). The aggregate remuneration and associated costs of Group employees were: Wages and salaries UK profit sharing (see note 9C) Social security costs Pension costs (see note 9A...

  • Page 59
    ... in payment return on investments increase in dividend income interest applied to discount liabilities 6.0% 4.0% 9.0% 5.0% 9.0% A fter allowing for certain changes to benefits, the latest actuarial valuation revealed a shortfall of £90.0m in the actuarial value of the assets of the UK Scheme of...

  • Page 60
    ... SCHEMES Under the terms of the 1984 and 1987 Schemes, following the announcement of the Company 's results, the Board may offer options to purchase ordinar y shares in the Company to ex ecutive directors and senior employees at the higher of the nominal value of the shares and the market price...

  • Page 61
    ... THE COMPA NY A ssets Fix tures, in the fittings & course of equipment construction £m £m Land & buildings £m Total £m Land & buildings £m Total £m Cost or valuation A t 1 A pril 1997 A dditions Transfers Disposals Revaluation surplus Differences on ex change At 31 March 1998 Accumulated...

  • Page 62
    ... been valued at open market value as at 31 March 1998 by ex ternal valuers, Gerald Eve, Chartered Sur veyors. The valuation attributed to the Company's investment interest in the Gyle Shopping Centre is subject to the lease to the Company of the Marks & Spencer store at a nominal fix ed rent until...

  • Page 63
    ...and Spencer (Hong Kong) Limited Marks and Spencer Retail Financial Services Holdings Limited Marks and Spencer Financial Ser vices Limited Marks and Spencer Unit Trust Management Limited Marks and Spencer Savings and Investments Limited Marks & Spencer Life A ssurance Limited MS Insurance Limited St...

  • Page 64
    ... comprise deposits placed with banks, financial institutions and on markets at call, 7 day and monthly rates. The investments comprise of both fix ed and floating rate securities. The weighted average interest rate on the debt securities held is 7.79% (last year 7.23%) and the weighted average time...

  • Page 65
    ... US dollar borrowings are at interest rates related to LIBOR. These rates are for periods ranging from one month to six months. B MATURITY OF BORROWINGS THE GROUP 1998 £m 1997 £m Repayable within one year: Bank loans, overdrafts and commercial paper Medium term notes 738 ⁄ % Guaranteed bonds...

  • Page 66
    ... on short-term timing differences Deferred tax asset arising on post-retirement health benefits Recoverable A CT...account the effect of any currency swaps and for ward foreign ex change contracts. Matched assets and liabilities are those that generate no gain or loss in the profit and loss account...

  • Page 67
    ...-term securities. Borrowings are at floating rates. Therefore, fair values closely approx imate book values. Interest rate swaps and for ward ex change contracts have been marked to market to produce a fair value figure. FTSE 100 put options provide no loss guarantees on certain Unit Trust offers...

  • Page 68
    ... relating to scrip dividends Shares issued under the Company's share schemes At 31 March Revaluation reserve: A t 1 A pril Surplus on revaluation of investment properties Share of joint venture's movement in revaluation reser ve Realised during the year At 31 March Profit and loss account reserve...

  • Page 69
    ...joint venture Net cash inflow/(outflow) for acquisitions and disposals E MANAGEMENT OF LIQUID RESOURCES Decrease in cash deposits treated as liquid resources Net sale/ (purchase) of government securities Net sale/ (purchase) of listed investments Net sale of unlisted investments Net cash inflow from...

  • Page 70
    ... foreign ex change rates used in the financial statements are as follows (local currency equivalent of £1): SA LES AVERA GE RATE 1998 1997 PROFIT AVERA GE RATE 1998 1997 BA LA NCE SHEET RATE 1998 1997 Republic of Ireland France Belgium Germany The Netherlands Spain United States Canada Hong Kong...

  • Page 71
    ...weeks PROFIT AND LOSS ACCOUNT (1) Turnover: General Foods Financial Ser vices Total turnover (excluding sales taxes) Retailing - continuing - discontinued Financial Ser vices Operating profit(2) : United Kingdom Europe (ex cluding UK) A mericas (3) Far East Ex cess interest charged to cost of sales...

  • Page 72
    ... (8) Weighted average ordinar y shares in issue IIMR Earnings per share adjusted for ex ceptional income Dividend per share Dividend cover Profit attributable to shareholders Dividends Return on equity (3) Profit after tax and minority interests Average shareholders' funds Capital ex penditure...

  • Page 73
    ...the following address: Cazenove and Co 12 Tokenhouse Yard London EC2R 7A N Personal Equity Plans The Group operates Corporate Personal Equity Plans for the ex clusive holding of Marks & Spencer shares. For further details please contact: Marks and Spencer Savings and Investments Limited Kings Meadow...

  • Page 74
    ... million ordinar y shares; (b) the Company does not pay less than 25p for each share; (c) the Company does not pay more for each share than 105 per cent of the average of the middle market price of the ordinar y shares according to the Daily Official List of the London Stock Ex change for the five...

  • Page 75
    ...for disabled people have been arranged. Shareholders who need assistance should contact a member of Marks & Spencer staff on arrival. To help those who are hard of hearing to participate in the A nnual General Meeting there is an induction loop system at the Grosvenor House Hotel and a sign-language...

  • Page 76
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