Marks and Spencer 2001 Annual Report Download

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When I joined I had to face up to the fact that, in
recent years, Marks & Spencer had allowed itself
to be distracted from its fundamental strengths and
values. Many of the initiatives were peripheral,
aimed at attracting new customers in the short
term, rather than serving our loyal supporters.
Meanwhile, we embarked upon an intense
programme of change, much of it long overdue.
It has been very disruptive but we have learnt
from it.
I’d like to tell you what we’ve been doing
to build on this first attempt at change. I took
over as Chief Executive in September 2000. My
priority was to put in place a strong Executive
team to take stock of where we were and create
a proper platform to return the Company to
growth. Four new Directors have joined the
Board since May 2000. Kevin Lomax and
Tony Ball joined as Non-Executive Directors and
David Norgrove and Roger Holmes as Executive
Directors. Together with Alison Reed, Finance
Director designate, who has worked closely with
Robert Colvill, they have already had a strong
and positive influence.
I would like to thank the seven Directors
who left the Board, particularly Peter Salsbury,
who preceded me as Chief Executive. Peter
inherited a formidable task and, to his credit,
had the courage to make many difficult but
necessary decisions. We have also recently
announced the retirement, at the forthcoming
AGM on 11 July, of three of our Non-Executive
Directors; Sir Michael Perry, Sir Ralph Robins
and Sir David Sieff. I thank them for their
considerable contributions over the years.
With the new team in place, we have been
able to conduct a thorough strategic review,
resulting in the Group restructure and UK Retail
operational plan announced on 29 March 2001.
We are streamlining the Company in order to
focus on our UK business, while providing a
more appropriate capital structure by returning
£2 billion to our shareholders. Although some
of the decisions we’ve taken are painful, they
are necessary if Marks & Spencer is to return
to growth, and they will improve our ability
to compete and respond more quickly to
operational demands.
Of course it was very hard to come to the
decision to propose the closure of our Continental
European and Direct catalogue businesses, and
to sell our two US businesses. The American
companies are trading well, but they do not
represent a basis for developing Marks & Spencer
in the USA. On the Continent, we could no
longer afford to make losses and so jeopardise
our main business. Our experience illustrates that
to succeed internationally when entering mature
Chairman’s statement
www.marksandspencer.com 1
One of the most revealing things about my first full year at Marks
& Spencer was that almost every action or announcement has
received front page and prime time television news coverage. This
is a powerful reminder to me of how important Marks & Spencer
is to British people, how close to the nation’s heart we really are.
Luc Vandevelde Chairman and Chief Executive

Table of contents

  • Page 1
    ... plan announced on 29 March 2001. We are streamlining the Company in order to focus on our UK business, while providing a more appropriate capital structure by returning £2 billion to our shareholders. Although some of the decisions we've taken are painful, they are necessary if Marks & Spencer...

  • Page 2
    ... buy within attractive store environments. Roger Holmes, Managing Director of UK Retail, joined us in January 2001 and he and his team have translated these strategic principles, in a short space of time, into a solid operational plan for our UK Retail business. Roger has appointed new design talent...

  • Page 3
    ... the UK Retail division based on the estimated rental value of the space occupied. The same occupancy costs are carried in the management accounts for the seven business units within UK Retail. Profit and loss accounts are also prepared for internal purposes at store level based on this market rent...

  • Page 4
    ... constant exchange rates. (a) Europe (excluding UK) An analysis of sales and operating profit before exceptional charges is shown below. Turnover 2001 £m 2000 £m Operating profit/(loss) 2001 £m 2000 £m (b) North America The Group operates two businesses in North America: Brooks Brothers and...

  • Page 5
    www.marksandspencer.com 5 The credit activities are carried out within Marks and Spencer Financial Services Limited, an institution authorised under the Banking Act 1987. The Unit Trust, Life Assurance and Corporate PEP/ISA businesses are carried out by companies regulated by IMRO, PIA and the FSA...

  • Page 6
    ... 0.4% of issued share capital) were purchased in the market for a total consideration of £20.3m, at an average price of 190.8p. This was undertaken in order to generate shareholder value. Balance sheet The Group balance sheet consolidates Retailing and Financial Services businesses which have very...

  • Page 7
    ...close all Marks & Spencer subsidiary stores in Continental Europe has led to a reassessment of our Euro Programme, but the Group's presence in the Republic of Ireland (four stores) and stated intention to accept the Euro as a foreign currency in the UK, means changes to systems and training of staff...

  • Page 8
    ...the non-executive directors, is chaired by Brian Baldock, and meets as required. Corporate Social Responsibility Committee: provides the Board with an overview of the social and ethical impact of the Group's activities including community involvement, environmental management and ethical trading. It...

  • Page 9
    ... reviewed by the Treasury Committee and any changes are approved by the Board. The Corporate Social Responsibility ('CSR') Committee co-ordinates the Group's CSR strategy including community involvement, environmental management, ethical trading, health and safety and employment policy. Assurance...

  • Page 10
    ...fic work is commissioned to supplement published information. The salaries of the Chairman and other senior management are set by the Remuneration Committee annually after consideration of the Company performance, market conditions, the level of increase awarded to employees throughout the business...

  • Page 11
    ...non-pensionable payments in lieu of holiday entitlement. 7 Barry Morris relinquished responsibility as Executive Director, Womenswear on 19 July 2000 and his emoluments to that date are shown in the table. On stepping down from the Board, he remained as Business Unit Director, Womenswear on a salary...

  • Page 12
    ...executive directors, management and employees (except for staff employed by Marks & Spencer Outlet Ltd) all participate in the Company's defined benefit Pension Scheme. The Scheme is non-contributory, fully funded and the subject of an Independent Trust. The normal retirement age under the Pension...

  • Page 13
    ... for awards made before this date. 2 The payment to Keith Oates for the year 2000 covered 14 months from the date of his retirement to 31 March 2000. 3 The pension scheme entitlement for Lord Sieff and Clinton Silver is supplemented by an additional, unfunded pension paid by the Company. 4 Payments...

  • Page 14
    ...UK employees, including executive directors, who have completed one year's service and who open an approved savings contract. Inland Revenue rules limit the maximum amount which can be saved to £250 per month. When the savings contract is started, options are granted to acquire the number of shares...

  • Page 15
    ...2003 May 1995 - May 2004 May 1997 - May 2005 July 2000 - Jan 2001 Weighted average price. Options are carried into retirement under the terms of the various schemes (see page 14). All SAYE options lapsed six months after date of retirement. Options are to 19 July 2000 when Barry Morris ceased to be...

  • Page 16
    ... information regarding employee share option schemes is given in note 10D. There has been no change in the directors' interests in shares or options granted by the Company and its subsidiaries between the end of the financial year and one month prior to the notice of the Annual General Meeting...

  • Page 17
    ...accordance with applicable United Kingdom accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the Financial Services Authority and our profession's ethical guidance. We report to you...

  • Page 18
    ... retail activities under the Marks & Spencer, Brooks Brothers and Kings Super Markets brand names. Financial Services consists of the operations of the Group's retail Financial Services companies, which provide account cards, personal loans, unit trust management, life assurance, personal insurance...

  • Page 19
    .... We continue to work with external organisations to provide work place opportunities on our 'Workstep Programme'. Creditor payment policy The Company's policy concerning the payment of its trade creditors is as follows: • General merchandise is automatically paid for 11 working days from the end...

  • Page 20
    ... and losses Notes 52 weeks ended 31 March 2001 £m 53 weeks ended 1 April 2000 £m Profit attributable to shareholders Exchange differences on foreign currency translation Unrealised (deficit)/surplus on revaluation of investment properties 25 25 1.3 13.3 (1.7) 12.9 258.7 (16.8) 3.0 244...

  • Page 21
    ... Share premium account Revaluation reserve Capital redemption reserve Profit and loss account Shareholders' funds (all equity) Minority interests (all equity) Total capital employed Approved by the Board 21 May 2001 Luc Vandevelde, Chairman and Chief Executive Robert Colvill, Group Finance Director...

  • Page 22
    ... Operating activities Received from customers Payments to suppliers Payments to and on behalf of employees Other payments Cash inï¬,ow from operating activities before exceptional items Exceptional operating cash outï¬,ow Cash inï¬,ow from operating activities Returns on investments and servicing of...

  • Page 23
    ...income. In determining their value, these surpluses are discounted at a risk-adjusted, post-tax rate. Changes in the value are included in the profit and loss account grossed up at the standard rate of corporation tax applicable to insurance companies. Operating leases Costs in respect of operating...

  • Page 24
    ... to customers outside the Group, less returns and sales taxes. Financial Services: Turnover represents the interest and other income attributable to the Financial Services companies and the captive insurance company and arises within the United Kingdom and the Channel Islands. Turnover 2001 £m 2000...

  • Page 25
    ... information (continued) Turnover and operating profit for North America and Europe comprise: 2001 £m Turnover 2000 £m Operating profit 2001 £m 2000 £m North America Brooks Brothers (including Japan) Kings Super Markets Corporate expenses M&S Canada Europe Continental Europe Other European...

  • Page 26
    ... units, the rationalisation of store management and the refocusing of existing store roles to customer facing activities, and the closure of two distribution centres. 2 The European restructuring costs last year were in respect of store closures in France and Germany. B Loss on sale of property...

  • Page 27
    ... of the trading performance of the Group. Details of the adjusted earnings per share are set out below: 2001 Basic pence per share Diluted pence per share Basic pence per share 2000 Diluted pence per share £m £m Basic earnings Exceptional operating charges Loss on sale of property and other...

  • Page 28
    ...aggregate remuneration and associated costs of Group employees were: 2001 Before exceptional charges £m Exceptional charges £m Before exceptional charges £m Exceptional charges £m 2000 Total £m Total £m Wages and salaries UK profit sharing (see note 10C) Social security costs Pension costs...

  • Page 29
    ...the terms of the Scheme, the Board may offer options to purchase ordinary shares in the Company once in each financial year to those employees who enter into an Inland Revenue approved Save As You Earn (SAYE) savings contract. The price at which options may be offered is 80% of the market price for...

  • Page 30
    ... 324p 223p 156p E Executive Share Option Schemes Under the terms of the 2000 Scheme, the Board may offer options to purchase ordinary shares in the Company to executive directors and senior employees at the market price on a date to be determined prior to the date of the offer. No further options...

  • Page 31
    ...given in the Remuneration Report on pages 10 to 15. 2001 £'000 2000 £'000 Aggregate emoluments Termination payments 3,998 2,742 6,534 - B Transactions with directors Interest-free loans were made, during the financial year, under the employees' loan scheme by the Company as follows: • £501...

  • Page 32
    ... their book value and market value is negligible. Other investments also include 3,525,198 shares in the Company held by employee share trusts ('the Trusts'). Of these shares, 3,525,198 (last year 468,263) were held by the Marks and Spencer p.l.c. Qualifying Employee Share Ownership Trust (see...

  • Page 33
    ...Retailing Retailing Credit Card Handling Holding Company Financial Services Financial Services Financial Services Financial Services Financial Services Finance Finance Property Investment Great Britain The Netherlands United States Great Britain France Belgium Spain Portugal The Netherlands Germany...

  • Page 34
    ... in hand Cash at bank includes commercial paper and short-term deposits with banks and other financial institutions with initial maturity of three months or less. 18. Analysis of financial assets After taking into account the various interest rate swaps entered into by the Group, the currency and...

  • Page 35
    ... 35 19. Creditors: amounts falling due within one year 2001 £m The Group 2000 £m 2001 £m The Company 2000 £m Bank loans and overdrafts Medium term notes (see note 21B) Trade creditors Amounts owed to Group undertakings Taxation Social security and other taxes Other creditors1 Accruals and...

  • Page 36
    36 Marks and Spencer p.l.c. Notes to the financial statements 21. Analysis of financial liabilities (continued) B Maturity of financial liabilities Repayable within one year: Bank loans, overdrafts and commercial paper Medium term notes Other creditors Repayable between one and two years: ...

  • Page 37
    ... value of the Company's subsidy of the Marks & Spencer Health Insurance Scheme, in so far as it relates to private medical benefits for retired employees and their dependants, for whom the Company meets the whole, or part, of the cost (see note 10B for further details). 2 The provision for UK...

  • Page 38
    ... 20.2 3.1 Current asset investments and cash at bank are predominantly short-term deposits placed with banks, financial institutions and on money markets, and investments in short-term securities. Borrowings are at ï¬,oating rates. Therefore, fair values closely approximate book values. 2 Fixed...

  • Page 39
    ... Employee Share Ownership Trust (the 'QUEST') at market value of £6.8m. Of these shares, 208,913 were allocated to employees, including executive directors, in satisfaction of options exercised under the Marks and Spencer United Kingdom Employees' Save As You Earn Share Option Scheme. The Company...

  • Page 40
    ...Analysis of cash ï¬,ows given in the cash ï¬,ow statement 2001 £m The Group 2000 £m A Exceptional operating cash ï¬,ows UK redundancy costs paid European restructuring costs paid Exceptional operating cash outï¬,ow (29.5) (0.8) (30.3) (44.7) (4.5) (49.2) B Returns on investments and servicing...

  • Page 41
    ... investments Net sale of unlisted investments Net decrease/(increase) in short-term deposits Cash inï¬,ow/(outï¬,ow) from decrease/(increase) in liquid resources 135.5 (67.5) (0.3) 2.0 194.0 263.7 18.4 (5.0) (12.9) 31.0 (194.0) (162.5) G Financing Increase in bank loans, overdrafts and commercial...

  • Page 42
    ...to their annual returns. E Other material contracts: In the event of a material change in the trading arrangements with certain warehouse operators, the Company has a commitment to purchase fixed assets, at values ranging from historical net book value to market value, which are currently owned and...

  • Page 43
    ...Profit and loss account1,2 Turnover: General Foods Financial Services Total turnover (excluding sales taxes) Retailing Financial Services Operating profit United Kingdom Europe (excluding UK)3 North America Far East Excess interest charged to cost of sales of Financial Services Total operating pro...

  • Page 44
    ...operating activities Returns on investments and servicing of finance Taxation Capital expenditure and financial investment Acquisitions and disposals Equity dividends paid Cash inï¬,ow/(outï¬,ow) before management of liquid resources and financing Management of liquid resources Financing Increase...