Marks and Spencer 2010 Annual Report Download - page 13

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Brand & Marketplace p20
Operating & Financial review p26
Governance p50
Financial statements p78
To find out more, visit marksandspencer.com/annualreport2010 09
Overview p01
Performance and KPIs
Refinancing
We completed a buy-back of £200m
worth of bonds, enabling us to issue a new
longer term bond, taking advantage of the
favourable conditions in the debt capital
market. This has allowed us to strengthen
our long term position by extending the
average maturity life of our debt capital.
Defined Benefit Pension Scheme
In May 2010 we and the Trustees of our UK
Defined Benefit Pension Scheme agreed a
funding plan with a present value of £800m,
following the outcome of the Scheme’s
triennial actuarial valuation which showed a
deficit of £1.3bn at 31 March 2009.
The funding plan includes the following
contributions from M&S:
cash contributions of £35m per annum for –
the first three years of the funding plan
increasing to £60m per annum until 2018.
This has a present day cash value of £376m;
£300m of value through the granting of –
a further interest in the property-backed
partnership established between M&S and
the Pension Scheme in 2007. This new
interest entitles the Pension Scheme to
a fixed annual distribution of c. £36m for
15 years commencing in 2017 and a
capital sum in 2031 equal to the lower
of £350m or any funding deficit in the
Pension Scheme at that point in time; and
£124m of value through the transfer of –
assets from existing US$ debt hedge
contracts held by M&S.
Dividend
In May 2009 the Board made the difficult
decision to rebase the Group’s dividend
payment for 2009/10 to 15.0p per share to
provide us with greater flexibility during the
downturn. This decision resulted in a final
dividend of 9.5p per share (last year 9.5p).
Having rebuilt cover to two times, our policy
is to grow dividends in line with adjusted
earnings per share.
Investing for the future
In the midst of a recession, when it was easy
to focus only on the short-term, we decided
to re-examine our long-term strategy and
gave it a renewed sense of purpose, resulting
in the creation of Project 2020, which has
the following aims:
increase the pace of change and –
operational execution
accelerate towards becoming a –
multi-channel retailer
drive our International business –
The overall objective of the programme is
to create long term sustainable growth in
shareholder value. This year we have
focused on three priorities – restructuring
our supply chain, implementing new IT
systems and driving operational execution.
There is more detail about our progress
in these specific areas on page 36.
These changes will deliver long-term
benefits including:
Improving our cost efficiency The
implementation of changes in our supply
chain and systems requires a capital
investment of £1bn by 2015/16. We expect
this to deliver cost efficiencies of around
£175m per year by 2012/13, rising to
SERVICE
Above: Say it with flowers On Valentines Day
this year we delivered just under 30,000 bouquets
of flowers to customers up and down the UK.
QUALITY
Above: Store design We have now completed our
modernisation programme in over 80% of stores.
£250m per year by 2015/16, made up of
£150m savings from our supply chain and
£100m from systems. We are on track
and this year we have achieved cost savings
of £35m.
Driving sales growth Through better
cataloguing and product control we will be
able to deliver improvements in on-shelf
availability. Customers have also started to
see tangible benefits, such as better
fulfilment in our online ordering.
Provide a platform for future profitable
growth Our current systems are outdated
and we need a better support infrastructure
so that we can grow profitably in both
Multi-channel and International. This year we
have made substantial progress, including
signing the lease on our new dedicated
e-commerce warehouse due to open in 2012.
Looking ahead
Though market conditions have improved,
we remain cautious about the year ahead.
We are confident that the actions we have
taken have put the business in good financial
shape to weather uncertainty and emerge
strongly as the economy improves.
Throughout 2010/11 we will continue our
delivery of Project 2020, focused on our goal
of creating long-term sustainable growth.
Ian Dyson Finance and Operations Director