Annual Financial Report

RNS Number : 8818E

Marks & Spencer Group PLC

07 June 2012

 



Issued: 7 June 2012

Marks and Spencer Group plc (the "Company")

Publication Announcement: Annual Report 2012

In compliance with Listing Rule 9.6.1, the Company has today submitted a copy of the following documents to the UK Listing Authority, which will shortly be available for inspection via the National Storage Mechanism which can be viewed at hemscott.com/nsm.do:  

-     Annual report and financial statements 2012;

-     Annual review and summary financial statements 2012; and

-     The Notice of Annual General Meeting of the Company which will be held at the Royal Festival Hall, Southbank Centre, London SE1 8XX at 11am on Tuesday 10 July 2012.

In accordance with DTR 6.3.5(3) the Annual report and financial statements 2012, Annual review and summary financial statements 2012 and the Notice of Meeting will be available to view on the Company website: marksandspencer.com/annualreport2012.

A condensed set of Marks and Spencer Group plc financial statements and information on important events that have occurred during the year and their impact on the financial statements were included in the Company's preliminary announcement on 22 May 2012. That information together with the information set out below which is extracted from the Annual report and financial statements constitute the requirements of DTR 6.3.5 which is to be communicated via an RIS in unedited full text.  This announcement is not a substitute for reading the full Annual report and financial statements.  Page and note references in the text below refer to page numbers in the Annual report and financial statements 2012. To view the preliminary announcement, visit the Company website: marksandspencer.com/thecompany.   

Principal risks and uncertainties

As with any business, we face risk and uncertainties on a daily basis.  It is the effective management of these that places us in a better position to be able to achieve our strategic objectives and to embrace opportunities as they arise.  Information is provided below on our principal risks, the mitigating activities in place to address them and additional actions implemented to further reduce net risk to the Group.  It is recognised that the Group is exposed to a number of risks, wider than those listed.  However, a conscious effort has been made to disclose those of most concern to the business at this moment in time and those that have been the subject of debate at recent Board or Audit Committee meetings. 

Description	Mitigating activities
Finance   We continue to focus on maintaining a strong financial position that supports improvements to our business.
Economic outlook Worsening economic conditions impact consumer confidence and our ability to achieve the plan As consumers' disposable incomes come under pressure from price inflation and government austerity measures, trading conditions continue to remain a challenge for our business.	We regularly review and monitor the effectiveness of our pricing and promotional strategies across our General Merchandise (GM) and Food businesses, tailoring our consumer offering where appropriate. The business continues to actively manage and minimise costs where appropriate and regularly reviews customer feedback and our positioning in the market place to ensure we meet customer expectations.
Financial position Deterioration in our financial position limits our flexibility and ability to fund and grow the business In the event that the Group's financial performance does not meet market expectations, our ability to borrow from lenders on our existing terms may be impacted, resulting in increases to the cost of borrowing and insufficient funding to meet our capital requirements and growth plans.	Group Treasury regularly carries out forecasting of our debt capacity, financial covenants and other rating metrics within current rating bands.  The funding level of our pension scheme is monitored in collaboration with the Trustees on a regular basis, with clear parameters in place that would trigger an intra-valuation debate between the Trustees and the Company. We have regular communication with rating agencies and brokers. Group Treasury proactively monitor the potential for a Eurozone break up and where possible assess the impact this could have on the Group's financing and derivatives.
Brand and reputation   Our founding principles of Quality, Value, Service, Innovation and Trust continue to influence 'how we do business' and our reputation for being one of the UK's most trusted brands.
Corporate reputation External expectations relating to our financial performance, Plan A commitments or corporate governance are not adequately managed Our brand continues to be trusted in the marketplace, with Plan A and robust governance being integral components. A strong brand brings high expectations and the need to consistently deliver quality, value and trust to our wide stakeholder base. The business must also manage significant external expectation regarding our plan.	The business follows a clear plan to effectively communicate key information to internal and external stakeholders (and other external parties). Group KPIs and benefits tracking for all strategic initiatives enable regular monitoring of business and key programme performance. Our commitment to Plan A and becoming the world's most sustainable retailer by 2015 remains a priority for the Group with one of our key objectives being for all M&S products to have at least one Plan A quality by 2020.  Policies and procedures are in place to meet the requirements of the Bribery Act, supported by a training programme.
Our customers Loss of engagement with our core 55+ customer As we seek to enhance the M&S brand and make our sub brands more distinctive, it is important that we continue to address our core customers' specific needs in an increasingly competitive and economically uncertain market.	GM and Marketing have prioritised focus on our core customer and will continue to respond to sales and customer reaction to product/in-store experience through focus groups, online reviews and our in-house Customer Insight Unit.  We are in the process of delivering improvements to our stores to strengthen and clarify our brand in response to customer research.
Food safety A food safety incident occurs or is not effectively managed As a leading retailer of fine quality fresh food in the UK, it is paramount that the food products we sell to our customers are safe, especially as we introduce more operational complexity such as delis and bakeries as part of our new store format.	We have a dedicated team in place to ensure that all M&S food products are safe for consumption through rigorous controls and processes, with a continuous focus on quality. We apply this approach to all new initiatives and locations. We maintain robust governance of the supply base through our supplier audit programme and reporting process. Depot auditing is now also well established.
People and change   Our people are fundamental to the long-term success and growth of this business.
Our people Reduced engagement and retention of key employees impacts our ability to deliver business plans As we go through a period of economic uncertainty as well as a number of internal change initiatives, it is ever more important to ensure that M&S remains a great place to work.	A monthly briefing is cascaded to our top managers, a quarterly results broadcast is held for all employees and Directors regularly hold employee engagement sessions to communicate the growth ambitions and underlying plans for the business.  Development of future talent remains a key priority. Managers attend our 'Lead to Succeed' programme, helping them to realise their full potential, whilst succession planning is a key area of focus for the Board.  We plan to roll out an improved performance and talent management process to ensure robust career development discussions take place across the business.
Programme and workstream management Benefits from our major business programmes and workstreams are not realised We continue to undertake a number of major strategic programmes to underpin the achievement of our plan; the delivery of forecasted benefits is critical to this.	Our Strategic Programme Office centrally governs the strategic initiatives across the Group, performs regular reviews and updates the Executive Board on their status, tracking of costs and realisation of benefits.  All major programmes possess their own governance structures, supported by robust project management discipline.
Distribution centre restructure             NEW We fail to effectively deliver our new national e-commerce distribution centre We are opening a new national distribution centre which will also service all customer orders placed through Shop Your Way. The implementation of this distribution centre relies on a number of new facilities, business processes and systems.	We are taking a phased approach to implementation for our new distribution centre, and robust governance structures exist to engage all areas of the business.  Simulation models are being used to test the robustness of the facility in different scenarios and a programme is in place to ensure open dialogue with key partners.  We will continue to implement measures to test and manage facility performance.
Selling channels   We have ambitious plans for our UK, International and Multi-channel businesses as part of our commitment to becoming a leading international multi-channel retailer by 2015.
New store format Failure to deliver improvements across our store estate to time, to budget or to the desired quality We are delivering improvements to our stores to strengthen and clarify our brand in response to customer research. As we move into the second phase of the roll-out, adherence to programme schedules, budget and quality standards will be key to successful delivery.	Our new store format initiative, designed to improve the customer shopping experience and our brand positioning, is well underway and we continue to implement a phased roll out across our store estate.  Close monitoring of costs and of progress against plan is in place, with direct reporting lines into the Executive Board. This will continue as we move into the second phase of roll-out.  We are closely managing the impact on our stores and have developed innovative training programmes to minimise time off the shop floor.
Multi-channel A new online platform with flexibility to support future growth is not delivered by the time our contract with Amazon expires To achieve our target to become a leading multi-channel retailer and to make our brand more accessible, we are investing in a new online platform that will provide both an enhanced shopping experience and help to accelerate our growth.	Our multi-channel growth strategy is underpinned by a clear plan for implementation of the new platform both in the UK and overseas.  We are working closely with our partner Amazon to ensure the quality of our existing online offering is not compromised whilst we build the new platform.  A phased approach for implementation of the new platform is planned.
International Failure to leverage our systems, processes and controls limits growth of our International business To increase our international presence and build a leadership position in priority markets, we must adopt an organisation structure that is supported by robust systems and supply chain capability.	The appointment of Heads of Region for Europe, Middle East and Asia will facilitate the implementation of our international growth plans.  The focus on enhancing international systems and processes has continued throughout the year in alignment with the development of our international strategy and will remain a priority for the year ahead.
Day-to-day operation   We are a customer-centric business and strive to deliver an efficient and effective operation.
GM stock management Ineffective stock management control impacts either gross margin delivery or product availability Effective stock management is integral to ensuring that we provide good availability to our customers, whilst minimising markdowns which can impact profitability.	General Merchandise (GM) continue to closely monitor stock levels, targeting areas with more or less than required. Promotions are tightly controlled, and we are focusing on our ability to respond in-season to current trends and sales performance.  A Stock, Sales & Intake tool is now being used across GM and we have implemented a new stock ledger in parallel run with legacy systems, prior to full business adoption.
Key supplier failure Failure of a key supplier or third party provider Economic or geo-political conditions, or changes to the way we source our goods and services, cause a key supplier to fail, or disrupt the supply of key product lines or services.	We have strengthened our monitoring of top suppliers, with a quarterly risk assessment process in place for key merchandise and non-merchandise suppliers. Alternative supply routes are continually monitored and, where appropriate, the supply base has been consolidated. We continue to offer payment terms that are sufficiently flexible to assist suppliers as required.
IT security We experience a major breach in IT security The business is subject to external threats from hackers or viruses, or sensitive data is accessed without authorisation.	Extensive security controls are in place in accordance with International Standards, along with a number of policies and technologies designed to enhance security.  Sensitive data is tightly controlled through limited and monitored access, and the roll-out of systems incorporating enhanced security.
IT change Unforeseen impact of IT changes to new and existing systems disrupts business operations As we undertake a number of significant change programmes, the rate and scale of IT change is increasing, with potential to significantly impact our complex and interdependent systems.	We continue to proactively manage cross programme dependencies and have introduced 'release management' to group system changes together.  We have a clear decision-making process for system changes, including the adoption of change freezes during critical trading periods.  Disaster Recovery plans for critical business applications have been tested.
Business continuity      NEW We fail to adequately manage or respond to a Group-wide disaster The business faces a heightened level of risk as a result of the Summer 2012 events taking place in the UK.	Group continuity plans, incident reporting and management procedures are well established. We monitor these through an annual crisis management exercise and quarterly committee meetings.  We have a number of policies and procedures in place to manage the safety of our employees when abroad, and have links with the Home Office and government agencies to receive information on known threats.
We have removed a number of risks from our Group Risk Profile since the prior year, including Food competition, Product costs and Supply chain management. The Group has undertaken significant mitigating activity in response to these risks and as such their inclusion in the Group Risk Profile is not deemed necessary at this moment in time.

The risks listed do not comprise all those associated with Marks & Spencer and are not set out in any order of priority. Additional risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business.

Further information on the financial risks we face and how they are managed is provided on pages 97 to 102.

Directors' Responsibility Statement

The 2012 Annual Report contains the following statements regarding responsibility for the financial statements in compliance with DTR 4.1.12.  Responsibility is for the full Annual report and financial statements 2012 and not the condensed statements required to be set out in the Annual Financial Report announcement.

The directors are responsible for the maintenance and integrity of the Company's website.  Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.  Each of the directors confirm that, to the best of their knowledge:

- the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

- the Business review contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

The Directors of Marks and Spencer Group plc are listed in the Group's 2012 Annual Report, and on the Group's website: marksandspencer.com/the company.

For further information, please contact:

Group Secretariat: [phone]

 

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