Marks and Spencer 2012 Annual Report Download - page 108

Financial statements Marks and Spencer Group plc Annual report and financial statements 2012 106
Notes to the financial statements continued
28 Related party transactions continued
D. Marks & Spencer Pension Scheme
Details of other transactions and balances held with the Marks & Spencer UK Pension Scheme are set out in notes 11 and 12.
E. Key management compensation
2012
£m
2011
£m
Salaries and short-term benefits 8.8 12.0
Post-employment benefits 0.1 0.1
Share-based payments 6.0 9.0
Total 14.9 21.1
Key management comprises Board directors only. Further information about the remuneration of individual directors is provided
in the Remuneration report. During the year, key management have purchased goods at the Group’s usual prices less a 20%
discount. This discount is available to all staff employed directly by the Group in the UK.
F. Other related party transactions
Supplier transactions occurred during the year between the Group and a company controlled by a close family member of
Kate Bostock, an executive director of the Group. These transactions amounted to £12.7m during the year (last year £9.3m)
with an outstanding trade payable of £1.3m at 31 March 2012 (last year £0.8m). The company was a supplier prior to Kate’s
employment by the Group.
Supplier transactions occurred during the year between the Group and a company controlled by Martha Lane Fox’s partner.
Martha is a non-executive director of the Group. These transactions amounted to £1.9m during the year (last year £1.7m) with
an outstanding trade payable of £0.5m at 31 March 2012 (last year £0.8m).
29 Events after the reporting period
On 21 May 2012 the Group changed the terms of the Scottish Limited Partnership (the Partnership) to waive the Group’s limited
discretionary right over the annual distributions from the Partnership to the Pension Trustee. These discretionary rights were agreed
with our Trustee in 2009, the time of the last triennial valuation. This change will not have any impact on the cash flows of the Group.
From 21 May 2012 this will result in a prospective change in the Group’s accounting treatment. The change will reflect the
de-recognition of the related equity instrument and recognition of a financial liability. The liability will initially be measured at fair value,
representing the present value of the remaining ten years of distributions of £71.9m per annum. The difference between the value of
the derecognised equity instrument and the fair value of the liability will be recognised in equity, in accordance with IAS 32.
As a result of the change, the Group’s reported net debt will include this liability, which at the end of financial year 2012/13 will
have a value of £537m and the Group’s interest charge will increase to reflect the unwinding of the discount on the liability which,
in financial year 2012/13, will be a charge of £17m. Similarly the impact on the Group’s net assets will be to reduce them by
£551m. The Group’s obligations to the Pension Trustee remain unchanged and this will not have any material impact on the
Group’s credit rating.
In March 2009, conscious of the Group’s obligations to the Pension Trustee and the Partnership (which is a partnership between
the Group and the Pension Trustee which holds a number of properties from which the Group trades and on which the Group
pays rent to the Partnership), we amended the terms of the Partnership to reflect a discretionary right agreed between the Group
and the Trustee. This right is such that in the circumstances when no ordinary dividend or other distribution is made to ordinary
shareholders, the annual distribution of £71.9m from the Partnership to the Pension Trustee would not be obliged to be made.
The impact of this change was to reclassify £572m from debt to equity in March 2009, and to reduce the Group’s interest
charge by £33m in the financial year 2009/10. The Audit Committee and the Board has consistently received accounting and
legal advice supporting this accounting treatment. There was no impact on the Group’s ultimate obligation to the Pension
Trustee and no impact on cash flows.
Following the publication of the 2009 Annual Report and Accounts, in February 2010 the Financial Reporting Review Panel
(FRRP) wrote to the company in relation to the change in accounting treatment of the obligation to the Pension Trustee. In the
dialogue that followed, and has continued until the present time, the FRRP expressed a concern that in the circumstances of the
Group’s pension arrangement this discretion was not sufficient to support classification of the Partnership interest as a
component of equity.
In the interest of bringing discussions with the FRRP to a close and given that the Group has a stated dividend policy and the
Board continues to expect that future dividend payments and resulting Partnership distributions will be made, the Group has
decided that it will reflect the obligation as a liability, and in order to achieve this will indefinitely waive its discretionary right. As
before, there is no change in the Group’s ultimate obligation to the Pension Trustee. The FRRP has confirmed that this change,
with the consequent accounting treatment, effective from 21 May 2012, will bring its discussions with the Group to a close.