Annual Financial Report

RNS Number : 6700Q

Marks & Spencer Group PLC

07 June 2018

 

7 June 2018

Marks and Spencer Group plc (the "Company")

Annual Report and Financial Statements 2018

In compliance with Listing Rule 9.6.1, the Company announces that the following documents have today been submitted to the UK Listing Authority, and will shortly be available for inspection via the National Storage Mechanism at morningstar.co.uk/uk/NSM:  

·           Annual Report and Financial Statements 2018;

·           Notice of Annual General Meeting of the Company, which will be held at Wembley Stadium, Wembley, London HA9 0WS at 11am on Tuesday 10 July 2018; and

·           Proxy forms for the 2018 Annual General Meeting.

In accordance with DTR 6.3.5(3) the Annual Report and Financial Statements 2018 and the Notice of Annual General Meeting are accessible on marksandspencer.com/annualreport2018.

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 23 May 2018. 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 2018. To view the preliminary announcement, visit the Company website: marksandspencer.com/thecompany.   

For further information, please contact:

Group Secretariat: [phone]

Additional Information

Principal risks and uncertainties

As with any business, we face risks 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.

Below are details of our principal risks and uncertainties and the mitigating activities in place to address them. It is recognised that the Group is exposed to risks wider than those listed. However, we have disclosed those we believe are likely to have the greatest impact on our business at this moment in time and those that have been the subject of debate at recent Board or Audit Committee meetings.

DESCRIPTION & CONTEXT	MITIGATING ACTIVITIES
Trading Environment The performance of our business will be impacted if we fail to meet customer expectations or respond to the continued pressures of a changing retail environment. Aggressive competition, cost pressures and the consumer impact of the UK's departure from the European Union all contribute to the challenge that is faced. Our Clothing & Home business must respond to the continued shift in customer preferences towards online and mobile shopping. Consequently, our strategy is focused on the creation of a seamless, relevant customer experience and the need to be 'digital first'. We must also continue to strengthen capability across all areas of our Clothing & Home business to ensure we deliver contemporary, wearable style and wardrobe essentials that our customers want. Food consumers continue to be driven by value and we need to ensure our product ranges resonate and are available at the right price. While we have limited influence over a number of contributory factors, for example raw material prices and the impact of Brexit, we recognise the need to manage costs, driving efficiencies and delivering savings in areas such as packaging and waste. This new risk is a consolidation of a number of risks, which were disclosed separately in the prior year, to better reflect the increasingly challenging conditions facing our business.	- Development of, and delivery against, the five-year transformation plan. - Targeted recruitment to strengthen capabilities of our senior leadership teams in both Clothing & Home and Food. - Full strategic reviews and setting of clear short- and medium-term priorities for our businesses. - Delivery of our International strategy. - Refining our operating model to eliminate silos and create devolved, accountable businesses. - Revised disciplines around store prices, ranges and promotions across our business. - Implementation of our digital first initiatives. - Improved alignment of business needs and engagement with the UK store estate team, and changes to our Property leadership. - Completion of a forensic review of costs and commencement of our cost delivery plan.
Business Transformation As we build a platform for change, the successful delivery of our business transformation programme is critical - a failure to execute faultlessly and at pace will hinder progression. Our business is undertaking a number of transformation projects; many of these are significant in their own right but the level of interdependency also requires careful alignment. Transforming our business will generate cost savings but also underpins the delivery of our strategic objectives. -       The reshaping of our UK store estate continues at an accelerated pace. We need to ensure that the programme delivers against agreed targets and that we incorporate changes in customer preferences into decision making on a timely basis. -       We must deliver on our digital first ambitions - improving customer experience, reducing costs and working smarter across the business. -       Our supply chain must be fit for purpose. It is currently slow, outdated and expensive, and must be improved. This new risk is an expansion of the prior year's specific risk around our store estate programme and now incorporates a far broader range of transformational projects.	- Acceleration of our plan to operate from fewer, larger Clothing & Home stores. - Reassessment of the Simply Foods store opening programme. - Implementation of a Technology Transformation Programme, leveraging the support of key third-party relationships. - Improvements to our website. - Commencement of an end-to-end review of our supply chain and logistics network across both businesses to deliver improved efficiency of picking, improved trade utilisation and a faster more reliable service for stores and customers. - Operational improvements at Castle Donington. - Strong programme governance to track progress against plan, resourcing and capability and to monitor critical interdependencies. - High levels of cross functional engagement to ensure consistency and collaboration in setting and achieving objectives. - Independent audit reviews of key programme delivery.
Food Safety and Integrity A food safety or integrity related incident occurs or is not effectively managed. Food safety and integrity remains vital for our business. We need to manage the potential risk to customer health and confidence that faces all food retailers, while also considering how external pressures facing the food industry could influence the integrity of our food, our reputation and shareholder value. Many of these pressures, including inflationary costs, labour quality and availability, increased regulatory scrutiny and the as yet unknown impact of Brexit are outside of our control. We also recognise the criticality of internal influences including the level of change underway in our Food business and the significant levels of new product development. This all places greater demand on the technical team and suppliers to complete required raw material testing and product safety checks to guarantee provenance, safety and integrity.	- Clearly defined requirements through Terms of Trade, Codes of Practice, Standard Operating Procedures and Specifications from farm to fork, including in-store processes. - Qualified and capable technical team. Professional status maintained through training and Technologist Continual Professional Development programme (independently validated by Institute of Food Science and Technology). - Clear accountabilities for policy and standard development at technical leadership level coupled with individual accountability for product safety at technologist level. - Long established store, supplier and depot auditing programme in place, including unannounced audits and raw material testing. - Quarterly review of control framework by the technical leadership. - Clear and tested crisis management plan in place to respond to incidents. - Sector leading initiatives, such as over the provenance of our beef. - Membership of Food Industry Intelligence Forum.
Corporate Compliance and Responsibility Failure to deliver against our regulatory obligations, social commitments or stakeholder expectations undermines our reputation as a responsible retailer. Responsible corporate behaviour is a basic expectation of all businesses, especially those that are consumer facing. Public sentiment can shift rapidly, especially as the traditional influencers of public perception evolve and issues can escalate rapidly through social media. There are also many examples of where 'good' corporate behaviour has, over time, become a legal or regulatory requirement. Human Rights, Modern Slavery, Anti-Bribery and Data Protection are just a few examples impacting our business. The mandatory nature of an increasingly broad and stringent legal and regulatory framework creates pressure on both business performance and market reaction. While our business operates appropriate controls, we recognise that potential noncompliance is a risk for all businesses and that there can be no room for complacency. Given the high level of trust we have with customers and stakeholders, coupled with our high media profile, we must get this right.	- Clear policies and procedures in place, including Human Rights, Modern Slavery and Global Sourcing Principles. - Mandatory induction briefings and annual training for relevant colleagues for key regulations. - Oversight from established committees where necessary, including Data Protection, Fire Health & Safety and Plan A. - Experienced in-house regulatory legal team with external expertise sought as needed. - Dedicated regulatory officers in place across the business responsible for driving compliance. - Strong and transparent engagement with regulators. - Forward looking Plan A 2025 commitments with associated governance to anticipate future environmental and social issues. - Established audit and monitoring systems in place. - Customer contact centre insight and analysis of live social media issues.
Information Security (including Cyber) Failure to adequately prevent or respond to a data breach resulting in business disruption, brand damage or loss of information for our customers, stakeholders or our business. The increasing sophistication of potential cyber-attacks, coupled with the General Data Protection Regulation, highlight the escalating information security risk facing all businesses. Our reliance on a number of third-parties to host and hold data also means the risk profile of our information security is changeable. We recognise the importance of ongoing education and vigilance within M&S to reduce the likelihood of attack or breach in (i) an internal environment that is undergoing significant transformation and (ii) an external environment that is changing at pace. We must ensure that our control environment evolves and that our systems operate effectively. A data protection breach would not only impact our reputation, but would also cause business disruption and could result in a significant fine.	- Established security controls, including policies, procedures and use of security technologies. - Head of Data Governance and Data Governance Group in place. - Dedicated Corporate Security team with ongoing focus on improving the physical security environment. - Dedicated Head of Cyber Security, leading a team of cyber security experts and analysts, with 24/7 monitoring and defence tools. - Third-party cyber maturity assessments performed and refreshed. - Ongoing monitoring of developments in cyber security threats, engaging with third-party specialists as appropriate. - Periodic testing by Internal Audit. - Control of sensitive data through limited and monitored access and the roll-out of systems with enhanced security. - Dedicated workstream focused on information security as part of the Technology Transformation Programme.
Technology To support future profitable growth, we need to keep pace and develop our technology and innovation capability. The digital world continues to evolve at an unprecedented rate, influencing consumer behaviours and setting a high bar in terms of IT infrastructure requirements. We have clearly communicated our aim to be digital first, and recognise the need to invest to achieve this. Our existing IT infrastructure needs to be more flexible to lower costs, leverage developments and enable us to move with pace to meet customer and colleague needs. In addition to developing our technology, we must develop the skills and capabilities of our people. This will be critical to providing a top quartile, seamless customer experience.	- Technology Transformation Programme in place, supported by strong governance principles, to enable the Digital First ambitions and to deliver improved customer experience. - New Technology Operating Model to drive clear accountabilities and efficiencies, including the adoption of industry standard agile methods. - Appointment of a leading technology company as our principal partner, coupled with simplification and consolidation of the technology supplier base. - Proactive simplification of IT infrastructure through clearly defined technology roadmaps for all business areas and strong governance processes. - Cross channel technology investment strategy in place and aligned to the family of businesses to mutually agreed priorities. - Quarterly reviews to ensure benefits are being delivered.
Talent and Capability We need to attract, develop, motivate and retain the right individuals to achieve our operational and strategic objectives to transform the culture and the business. As we transform our business, the calibre of our people is integral to delivering operational and strategic objectives, and is especially important in our drive to be Digital First. Attracting, developing and retaining quality individuals is influenced by many factors, a number of which are outside of our control. Growing market labour shortages, which may be further compounded by Brexit, and the perceived fragility of UK retail could influence our ability to attract external talent. However, our focus cannot solely be outwards looking - our existing workforce is one of our greatest assets. We need to ensure that our colleagues and culture are developed to drive a Digital First and customer centric mindset, colleagues need to feel empowered to drive change at pace.	- Talent identified as a critical component of our People Strategy and a key enabler in the delivery of our overall business strategy. - People KPIs in place supported by talent review at all levels of the organisation. - Established biannual employee engagement survey, enhanced during the year to provide additional insight. - Clear focus and transparent action on fair pay, including gender, ethnicity, disability and age. - Launch of a new diversity forum. - Simplified, outputs focused framework introduced for performance management. - Commencement of externally facilitated culture assessment. - Active engagement with our Business Involvement Group.
Brand and Customer Experience Our brand and underpinning customer experience need to evolve with consumer lifestyles and attitudes for us to remain relevant and successfully attract and retain customers. Consumer lifestyles and attitudes continue to evolve at pace in an increasingly diversified and competitive retail environment. We are proud of our strong brand recognition, but external pressures make it more difficult for all businesses to drive brand relevance and attract and retain customers, failure to do so creates the very real risk of a decline in market share. We must attract and retain our core customer segments. Our intention to be a customer-centric, digital first business has been clearly communicated. We need to ensure that our organisational design and operating model support this aim and that we put the customer at the forefront of all our decision making. Our Sparks loyalty programme, marketing strategies and cross functional ways of working will be key enablers in achieving this, supported by meaningful measurement of customer experience.	- Targeted external hires to strengthen capability. - Revised operating model to better align brand and marketing with the specifi c needs of our two businesses. - Investment in capability to measure customer experience through introduction of an end to end and multichannel Net Promoter Score programme, supported by third party expertise. - Established Customer Insight Unit and focus groups in place. - Review of Sparks loyalty programme underway, supported by proposition improvements to strengthen member engagement. - Increasing our relevance and proactive monitoring of social media to observe and respond to trends in customer experience.
Third Party Management To drive value for our business we need to successfully manage and leverage our third-party relationships and partners. Our business is increasingly engaged in significant third-party partnerships. These span our full operating model, from products and services to franchise management and our international joint venture. To fully leverage these relationships, we need to have clear, consistently applied processes to track performance, ensuring commercial expectations are delivered. We also recognise the importance of managing the business interruption risk conferred by such dependencies, and of maintaining appropriate contingency plans in response. We cannot lose sight of the expertise and eff ort that is required to effectively manage third-parties, especially as we move through our transformation programme.	- Clear procurement and supplier management policies in place, including specific requirements for strategic suppliers. - Defined service level agreements and key performance indicators in place for key contracts. - Defined contract governance and oversight standards, including dedicated 'supplier owners' managing key contracts. - Strong engagement with in-house legal and procurement teams. - Key supplier business contingency planning. - Internal audit engagement.

The risks listed do not comprise all those associated with Marks & Spencer and are not listed in 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. These less material risks are kept in view in case their likelihood or impact should show signs of increasing.

Further information on the financial risks we face and how they are managed is provided on pages 105 to 111.

Directors' Responsibility Statement

The 2018 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 2018 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, whose names and functions are listed on pages 26 and 27 of the Annual Report, confirm that, to the best of their knowledge:

- The Group financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole.

- The Management Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

- The Annual Report, taken as a whole, is fair, balanced and understandable, and provides the necessary information for shareholders to assess the Group's performance, business model and strategy.

The Directors of Marks and Spencer Group plc are listed in the Group's 2018 Annual Report, and on the Group's website: marksandspencer.com/thecompany.

 

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