Marks and Spencer 2015 Annual Report Download - page 50

48
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE
The Committee receives a detailed update
from the business at each Committee meeting ,
with one or more areas represented. Business
updates are planned on a rolling 12-month
basis and reviewed at every meeting. Some of
the 2014/15 updates are listed below:
ETHICAL SOURCING
> Updated our GM ethical trading approach,
including M&S standards and auditing.
> Discussed the monitoring process,
site rankings and escalation procedures
and improvements made in this area.
> Received examples of high, medium
and low risk suppliers, noting those
that M&S works with.
> Updated on training and innovation, and
noted the introduction of new technologies
and methodologies in this area.
FOOD SUPPLIER TERMS AND
CONDITIONS REPORT
> Discussed the outcome and
recommendations of the internal audit into
Food Supplier Rebates, including the types
and mechanics of Food Supplier income
and proposed improvements in the control
environment.
> Updated on the areas of greater potential
risk and opportunities for an associated
higher level of risk-based monitoring.
> Discussed the importance of accounting
standards, controls and appropriate training.
INTERNATIONAL OPERATIONS
> Updated on the risks and mitigating actions
to deliver the international strategy,
including e ective supply of goods.
> Discussed the challenges facing the
International business including the
impact of the social-economic and
geopolitical climates.
> Updated on the international growth
strategy, including the franchise model, the
international control environment and the
performance of the India business model.
> Discussed the International food strategy,
fi re, health & safety, and improvements
in business continuity.
GM SOURCING
> Updated on the improvements in
GM margin and sourcing strategy, key
drivers to delivering the target growth
in the plan, and key areas of risk.
> Updated on the key changes to the M&S
ways of working to deliver the margin
initiatives, including changes in supplier
models and a better buying model.
> Noted the risks and impact of external
factors and mitigating actions, including
currency volatility risk.
> Discussed ways of working with our GM
supply base and how this has changed
over time and key areas of change going
forward, including change in culture.
HEDGING POLICY
> Updated on the key areas relating to
transaction and translation exposure, the
associated level of exposure and specifi c
approaches to transactional hedging.
> Discussed the impact of currency
on overseas franchise income.
> Updated on net asset hedging and
approach, including risk appetite and
associated limits.
M&S.COM AND CASTLE DONINGTON
DISTRIBUTION CENTRE RESILIENCE
> Updated on Castle Donington business
continuity, including contingency options
and devising a plan for e-commerce
fulfi lment.
> Discussed the Castle Donington
operating model, including planning
and forecasting models and resourcing,
and operating procedures.
> Updated on the M&S.com platform
resilience and noted that the resilience
solution for the M&S.com platform had
been embedded, but would be regularly
re-tested.
> Discussed the recovery testing and
the process for evaluating and testing
management judgement for unplanned
recovery.
BUSINESS CONTINUITY
> Discussed the 2014/15 performance by
key incident areas and the benefi ts from
tracking incident data.
> Updated on progress made in the
International business, including legacy
joint venture countries and franchise.
> Discussed the current national threat
level, level of preparedness and key areas
for improvement, including working with
our franchise partners.
> Discussed the strategy and focus for
2015/16 with the key areas of focus being
Castle Donington and International.
AUDIT COMMITTEE UPDATES
The Audit Committee has assessed whether
suit a b le ac count i ng pol i cies have bee n
adopted and whether management has made
appropriate judgements and estimates.
Throughout the year, the fi nance team has
worked closely with Deloitte to ensure that
the business is transparent and provides
the required level of disclosure regarding
signifi cant issues considered by the
Committee in relation to the fi nancial
statements, as well as how these issues
were addressed, whilst being mindful of
matters that may be business sensitive.
The main areas of judgement that have been
considered by the Committee to ensure that
appropriate rigour has been applied are outlined
in this section. All accounting policies can be
found in note 1 on pages 94 to 97. Where
further information is provided in the notes to
the fi nancial statements, we have included the
note reference.
Each of the areas of judgement below has
been identifi ed as an area of focus and
therefore the Committee has also received
detailed reporting from Deloitte.
IMPAIRMENT OF GOODWILL,
BRANDS AND TANGIBLE ASSETS
The Committee has considered the
assessments made in relation to the impairment
of goodwill, brands and tangible fi xed assets,
including land and buildings and store assets.
The Committee received detailed reports
from management outlining the treatment of
impairments where we are committed to close
a store, valuation methodology, the basis for
key assumptions (discount rate and long-term
growth rate) and the key drivers of the cash
fl ow forecasts. The Committee has challenged
management and is satisfi ed that these
are appropriate. The Committee has also
understood the sensitivity analysis used by
management in their review of goodwill and
brand impairment. In addition, the business
plans detailing management’s expectations
of future performance of the businesses are
Board approved. The Committee is satisfi ed
that no impairment of goodwill or brand is
required and appropriate impairment of
tangible assets has been recognised.
See notes 14 and 15 on pag e 110 -111
INVENTORY VALUATION
AND PROVISIONING
Inventory provisions include stock in transit,
obsolete stock, net realisable value below cost
and stock loss provisions. The Committee
has examined in detail management papers
outlining the judgements made regarding
provisioning for inventory balances and is
satisfi ed that a su ciently robust process was
followed to confi rm quantities of inventory
and that net realisable value of inventory
exceeds its cost at year end.
SIGNIFICANT ISSUES
ACCOUNTABILITY
AUDIT COMMITTEE REPORT CONTINUED