marks and spencer plc

Marks and Spencer plc

Company profile

6 June 2013


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Prepared by: Brook Intelligence Centre in association with Property Week Date of publication 6 June 2013 | © Brook Intelligence Centre Limited 2013

BUSINESS DESCRIPTION

Marks and Spencer plc (‘M&S’ or ‘the Group’), known colloquially as Marks and Sparks or M&S, is one of the UK’s leading retailers,

with 20 million people visiting its stores each week. The Group, established in 1884, is headquartered in the City of Westminster

and has 766 stores across the UK (May 2013), in high streets, major shopping centres and retail parks, as well as railway stations,

airports, petrol and service stations and other locations ranging in size from over 100,000 sq ft, to Simply Food stores of around

7,000 sq ft. Overseas, M&S has 418 international stores in 51 territories across Europe, the Middle East and Asia (May 2013). M&S

also sells through other channels including: online, mobile site, in store ordering, telephone and home catalogue.

M&S sells clothing and home products, as well as food that is sourced from around 2,000 suppliers globally. The Group claims to

be the number one provider of womenswear and lingerie in the UK, and is rapidly growing its market share in menswear, kidswear

and home.

M&S is focused on becoming a multi-channel retailer (see Strategy). In FY13, multi-channel revenues, comprising sale across the

internet and mobile channels, reached £652m (generated across the UK and the International businesses).

Financial Services (M&S Bank)

M&S Bank launched in autumn 2012, built on the foundations of M&S Money, which provided a range of financial products for over

25 years. M&S Bank is the trading name of Marks & Spencer Financial Services plc, a wholly owned subsidiary of HSBC Bank plc,

and offers a range of financial services including:

Cards. Premium Current Accounts, Credit Card and Premium Club.

Loans. Personal Loan and Car Buying Plan.

Travel. Travel Money.

Insurance. Home Insurance, Car Insurance, Travel Insurance and Pet Insurance.

Save & Invest. Savings, Marks and Spencer Unit Trust Funds and HSBC World Selection Portfolios.

As well as Internet Banking and 24 hour Current Account support from a UK based Customer Services team, M&S Bank branches

are open whenever M&S stores are open – including evenings and weekends.

Business Line Retailing of food, clothing and homeware

UK Main Office Waterside House, 35 North Wharf Road, London W2 1NW

Status/Exchange/Index London Stock Exchange/ FTSE 100

Market cap: £7.32bn (6 June 2013)

Advisers

Auditor: PwC

Brokers: Morgan Stanley & Co International plc and Citi

Bank: HSBC Bank

Financial PR: RLM Finsbury

Property Adviser: Gerald Eve

Remuneration Consultant: New Bridge Street

Solicitors: SJ Berwin, Slaughter and May, Wragge & Co, Bond Dickinson, Field Fisher Waterhouse,

Osborne Clarke and Allen & Overy

Registrar: Equiniti Limited

Staff 81,734 (FY13) – UK: 74,519, Overseas: 7,215

Last Year End 31 March 2013


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OPERATING SEGMENTS

M&S engages in the retail of food (including fresh produce, groceries, partly-prepared meals and ready meals), homeware and

clothing products (womenswear, lingerie, menswear and kidswear). Its principal brands include Classic, per una, Indigo, Autograph

and Limited Collection, among others.

The Group reports the following operating segments:

UK

(89% of FY13 Group

revenue)

Comprises M&S’ UK retail business and franchise operations. UK turnover has a broadly even split

between Food and General Merchandise (Clothing & Home).

In FY13, Food accounted for 54% UK revenue and General merchandise the remaining 46%. In the

UK, the Group has 766 stores.

International

(11%)

Comprises M&S owned businesses in the Republic of Ireland, Europe and Asia, together with

international franchise operations.

SHOP FORMATS

Core shops typically feature a selection of the Group’s clothing ranges and an M&S Food hall. The range of clothing sold and

the space given to it depends on the location and customer demographic. The M&S Food halls sell groceries, mostly under the

M&S brand.

Outlet Shops offer M&S products with the majority of them discounting at least 30% from the original selling price. Many of the

Outlet shops are in locations such as retail parks and outlet centres, though some were previously main M&S shops which

converted to the Outlet format.

M&S Simply Food stores sell mostly food and groceries but usually also carry a small selection of general merchandise, such

as birthday cards and homeware. A number of these are run under franchise agreements including:

o Select Service Partner (SSP) runs 34 Simply Food outlets at rail locations, six at airports, alongside five retail outlets and

four cafés in UK hospitals. (Source: SSP website, February 2013).

o In 2005, in a drive to improve the overall service station experience, BP signed an agreement with M&S and there are now

over 120 M&S Simply Food at BP Connect stores (source: BP website, February 2013).


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FINANCIALS

ANNUAL FINANCIAL PERFORMANCE – MARKS AND SPENCER PLC

52 weeks ending - £ms

30 March 2013 31 March 2012 2 April 2011 3 April 2010* 28 March 2009

Revenue 10,026.8 9,934.3 9,740.3 9,536.6 9,062.1

Underlying operating profit 781.6 810.0 824.9 843.9 768.9

Underlying profit before tax 665.2 705.9 714.3 694.6 604.4

Profit before tax 564.3 658.0 780.6 702.7 706.2

Profit for the year 458.0 489.6 598.6 523.0 506.8

* FY10 comprises the 53 weeks ending 3 April 2010.

FY13 GROUP OVERVIEW

Revenue increased 0.9% (+1.3% on a constant currency basis) on FY12 to £10bn, driven by sales growth in both International

and the UK, with particularly strong growth in Food.

Underlying operating profit decreased 3.5% on FY12 to £782m.

o M&S says it navigated the short-term market challenges through strong financial management. In a highly promotional

marketplace, it says it protected its margins through a tight control of mark downs and well targeted promotional activity.

Underlying profit before tax decreased 5.8% on FY12 to £665m.

Profit before tax fell 14.2% on FY12 to £564m.

Funding

The Group’s May 2012 bond matured in FY13 and was refinanced from existing facilities and operating cash.

At year end, the Group had a committed syndicated bank revolving credit facility of £1.325bn set to mature on 29 September

2017. M&S also has a number of undrawn uncommitted facilities available. At the year-end these amounted to £105m (FY12:

£105m), all of which are due to be reviewed within a year. At the balance sheet date a sterling equivalent of £81m (FY12: £nil)

was drawn under the committed facilities and £nil (FY12: £nil) was drawn under the uncommitted facilities.

In addition to the existing borrowings, the Group has a euro medium-term note programme of £3bn, of which £1.5bn (FY12:

£1.6bn) was in issuance as at the balance sheet date.

The 5.875% £267m bond was repaid in May 2012. A new 4.75% £400m bond was issued under the programme in December

2012 maturing in June 2025.

Revenue by Segment

41%

48%

4% 7%

UK - General Merchandise

UK - Food

Int'l - Franchised

Int'l - Owned

Revenue

£10bn +0.9% Underlying operating profit

£782m -3.5% Profit before tax

£564m -14.2%


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Divisional Performance

UK

Revenue increased 0.9% on FY12 to £8.9bn, with a like-for-like decrease of 1%. M&S

added 2.8% of space in the year, 2.6% in General Merchandise and 3.1% in Food, on a

weighted average basis.

o General Merchandise revenues fell 2.4% to £4.1bn.

o Food revenues increased 3.9%, with like-for-like sales up 1.7%, to £4.9bn.

Operating profit was £661m, down 2.2%.

International

Revenues increased 0.9% (4.5% on a constant currency basis) over FY12 to £1.1bn,

reflecting double digit growth in the Group’s priority markets as well as more challenging

conditions in its legacy European markets.

o Franchised store revenues were £393m, up 3.5%, with the franchise business in the

Middle East region delivering strong growth.

o Owned store revenues were £683m, down 0.6%. Owned businesses in India and

China delivered a strong performance, driven by good like-for-like growth and the

opening of new space.

Operating profit was £120m, down 10% (down 10.9% on a constant currency basis), due

to the impact of currency translation, prevailing macroeconomic conditions and start-up

costs in key markets.

o Franchised store operating profit fell 3.9% to £106.3m, with the Group’s European

franchise partners’ trading environments impacting on their business.

o Owned store operating profit also fell but by a more significant 39% to £13.9m, due to

continued macroeconomic pressures in Europe combined with initial start-up costs in

priority markets.

OUTLOOK

Group Outlook

As of May 2013 M&S expects the market to remain challenging for the foreseeable future. The Group also expects consumer

spending to remain cautious and carefully planned. However, the Group remains fully committed to the delivery of its plan (see

Strategy); ensuring that as M&S evolves, it remains in touch with customers so that it can anticipate and respond to their changing

needs. The transformation of M&S into a “leading multi-channel retailer” will be supported by “the creation of stronger, more agile

infrastructure – building a robust platform for our long-term growth.”

The Group’s guidance for FY14, reaffirmed in May 2013, is as follows:

Gross margin is expected to grow by 30bps to 50bps with a similar range in both General Merchandise and Food.

Operating costs are expected to increase by c. 3.5% as a result of inflation and volume growth, the addition of new space and

increase in depreciation.

Group capital expenditure is expected to be c. £775m, a reduction on the previous guidance of £850m. From FY15, M&S

expects it to fall to c. £550m per annum, a reduction on the previous guidance of £600m per annum.

M&S is targeting underlying profit improvement, but expects to incur c. £30m non-recurring dual running costs, as a result of the

transition to the new web platform and the opening of the new distribution centre in Castle Donington.

The planned opening of new space will add c. 2% to UK and c. 15% to International space.

Analysts’ Outlook

According to analysts’ estimates, Group revenues will be £10.4bn in FY14, up 3.5% on FY13. In FY15, revenues will reach

£10.8bn, an increase of 3.7% on FY14.

The consensus forecast, provided to M&S by a number of registered investment analysts and updated on 4 June 2013, is for Group

profit before tax to be £675m in FY14, £765m in FY15 and £845m in FY16.

Rev: 0.9%

Rev: 0.9%


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STRATEGY In November 2010, M&S set out its three year plan to transform the Group from a traditional, British retailer into a truly international,

multi-channel retailer. The first part of the plan, from 2010 to 2013, focuses on the UK, while the second part is aimed towards

developing the Group’s position on an international level.

In November 2010 M&S set out a target to grow its revenues by £1.5bn to £2.5bn over the next three years. As a result of the

deterioration in the economic environment since the plan was set out, M&S now expects to achieve a £1.1bn to £1.7bn increase

in revenues.

FOCUS ON THE UK

The first part of M&S’ plan, from 2010 to 2013, focused on the Group’s UK business, which involves: developing and enhancing the

Group’s brand, developing its core Clothing, Home and Food offer, and making its stores easier to shop in.

Brand

The brand position ‘Only at Your M&S’ continues to underpin all of M&S’ campaigns. Additionally, in FY12, M&S launched its first

ever sub-brand advertising to support the transformation of the likes of its Autograph and Limited Collection from ‘labels’ into

distinctive, standalone brands (see below).

In an increasingly competitive marketplace, the M&S brand is meant to highlight the value and quality offered across the Group

– M&S’ campaigns are now serving a dual purpose: reassuring loyal customers and encouraging potential new shoppers to take

a fresh look at M&S.

o The ‘Only at Your M&S’ comprises mostly innovation-led ads.

In a context when customers are budgeting carefully, M&S is responding with promotions that address these priorities, such as

the upbeat kidswear ‘Happy Half Term’ offer and ‘Our Gift to You’ 25%-off deals in December 2012, which delivered a record

week of sales for menswear.

Clothing

In FY13, M&S’ underperforming womenswear division dragged the Group to a second consecutive decline in annual profits (see

SWOT) as UK sales fell 1% overall, with a particularly poor performance in general merchandise – mainly fashion and homewares

– where sales dropped 4.1% on a like-for-like basis.

CEO Marc Bolland has installed a new management team to revamp the Group’s womenswear ranges. A new head of general

merchandise, John Dixon, was appointed, and former Debenhams CEO Belinda Earl joined as part time style director.

In May 2013 Earl unveiled her first collection for M&S. The clothing ranges unveiled have been billed as a make-or-break

moment for the CEO Marc Bolland (see SWOT).

Additionally, as of May 2013 new store formats have been rolled out across 337 stores (65% of total sites) with the remaining

due for an upgrade by the end of 2013.

Food

M&S maintains its focus on freshness, speciality and convenience. Additionally, greater choice is being offered across all the

Group’s ranges.

In reinforcing its position as a specialist food retailer, during FY12 M&S embarked on a programme of changes to its Food Halls

– the Group re-launched its in-store bakeries and introduced new deli counters to some of its stores.

In FY12, seeking to maintain its reputation in innovation and choice in food offers, M&S introduced some 1,900 new lines,

including 100 international brands exclusive to M&S, as well as the Dessert Menu range and a 59 party food options for

Christmas. Additionally, the Group continues to work closely with its suppliers to deliver more innovation in quality produce.

In May 2012, with value front of mind, the Group introduced Simply M&S, a range of over 700 products that highlights M&S

quality at affordable prices. M&S plans to extend the range further in 2013.

Stores

In FY12 M&S began work on delivering a more inspiring shopping experience to its customers, through the roll out of a new store

format. Over two-thirds of the Group’s UK stores had been transformed by the end of FY13. At the same time, the Group continues

to extend its UK store portfolio.

As of May 2013 M&S had 766 stores across the UK in high streets and retail parks as well as stations, airports and other

locations ranging from large out-of-town and flagship stores of over 100,000 sq ft, to Simply Food stores of around 7,000 sq ft.

The Group’s largest store is located at Marble Arch on London's Oxford Street and has around 170,000 sq ft of selling space.

The breakdown by format as of May 2013 is as follows:

o Premier: 12 stores

o Outlet: 48 stores

o Major: 59 stores

o Simply Food (owned): 176 stores

o High street: 228 stores

o Simply Food (franchised): 243 stores

As of May 2013 M&S had plans to grow UK space at around 2% in FY14. The Group’s aim is for 95% of the population to be

within a 30 minute drive of a full line store by 2015.

In FY13 M&S increased its UK store portfolio through the addition of over 410,400 sq ft of space through new stores,

developments and extensions, equivalent to annual space growth of 2.8%, and bringing total space to 16.4 million sq ft.


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o M&S expects the planned opening of new space will add c.2% to the UK in FY14.

The Group opened a number of larger stores in retail parks including Crystal Peaks, Peterborough, Milton Keynes, Ashton Moss

and Newport. M&S also continued its modernisation programme, undertaking major updates in 19 stores including Camberley

and its flagship Marble Arch store.

o In August 2012, M&S opened Cheshire Oaks, its new 151,000 sq ft flagship store for the North West, second in size only to

the Group’s Marble Arch store in London and serving a catchment area of over 1.3 million people.

o In FY12 the Group opened 25 M&S Simply Food stores. A number of these are run under franchise agreements including

Select Service Partner (SSP) which runs 34 Simply Food outlets at rail locations, six at airports, alongside five retail outlets

and four cafés in UK hospitals.

o M&S has a pipeline of new stores and is committed to enhancing its position in major cities. The highlight in FY12 was the

opening of the Group’s 136,000 sq ft sustainable learning store at Westfield Stratford City.

A new store format was rolled out to 66 stores by March 2012, following a successful pilot scheme. Phase 1 of the new format is

now being rolled out across the UK stores and to a selection of International stores for completion date of mid 2013. Phase 2

will be rolled out by the end of 2013.

o The new format delivers increased brand differentiation and improved navigation. This includes defined brand areas that

reflect the unique handwriting of each clothing sub-brand, while the refreshed Food Halls support M&S’ position as a

speciality food retailer, with revamped artisan bakeries and fresh deli counters.

o The Group has also completed work to better segment its stores according to local demographics - stock is now

appropriately tailored to local demographics.

o During 1H13 M&S launched the second phase of its new store concept including new Home and Beauty departments, as

well as improvements to M&S Woman and per una. In August 2012, the Group opened a new store at Cheshire Oaks which

showcased the complete new look for the first time.

Reduced Capex

In light of increased growth in e-commerce (see below), M&S has reviewed its space requirements and has taken the decision to

reduce its capital investments in UK space: in FY13, due to the store upgrades and the improvement in the supply chains (see

below), M&S’ capital spending hit £821m. This is due to fall to £775m in FY14 and £550m from FY15 onwards. In turn, M&S will

continue to develop the Group’s space especially through the Simply Food format.

The planned opening of new space will add c. 2% to UK and c. 15% to International space.

MULTI-CHANNEL

Above all, M&S wants more of its customers to shop with the Group across more of its channels. The Group is looking to build a

platform for future international, multi-channel growth.

Online. In FY13, multi-channel revenues, comprising sales across the internet and mobile channels, reached £652m

(generated across the UK and the International businesses), a 16.6% increase on FY12. The Group’s target is to increase sales

by £300m to £500m by FY14. Weekly site visitors grew by 18% over FY12 to 3.6 million.

o Recent improvements to make online shopping more attractive include: extending next day delivery options, adding

improved search functions, giving customers more choice and adding more online-exclusive products.

o In July 2012 M&S’ first transactional iPhone app went live with over 340,000 downloads to reach the top position in iTunes

Free UK Lifestyle Apps.

o In May 2012 M&S re-launched its mobile-optimised site, with improved browsing and search functionality.

o In February 2012 the Group launched M&S Outlet online, offering up to 40% off clothing prices.

o CEO Marc Bolland has described the online business as M&S's new "flagship store." However, he said there are no plans to

introduce an online home delivery service for food, despite it being one of the few areas of success for the business.

International. In October 2011 and April 2012 respectively, M&S took its first steps to become an international multi-channel

retailer, with the launch of its first international websites for the French and Irish markets, and the continued growth of

international deliveries from M&S’ UK site.

o M&S planned to add eight new international websites by the end of FY13 and is making progress with design and build of

the Group’s new platform, which will provide M&S with capabilities to fulfil its multi-channel ambitions. Laura Wade-Gery

joined M&S as Executive Director, Multi-channel E-commerce, and recruited a team of industry leaders to drive the delivery

of all aspects of the plan.

o In October 2012 M&S entered four new European markets with the launch of localised customer websites in Germany,

Spain, Austria and Belgium. The move marked significant progress against plans outlined in May 2012 to trade online in ten

international markets in FY13.

INTERNATIONAL

With a new structure embedded (see below), a key priority for M&S is to grow its International business to reduce its dependency

on the UK economic cycle. To this end, the Group will continue to expand its presence in priority markets and work with existing

partners to enter new markets with a clearly defined business plan - a ‘bricks and clicks’ approach. The Group will also roll out its

new store format across its international portfolio. In the years up to 2015, M&S’ key priority will be to drive its international

presence.


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As of May 2013 M&S traded in 51 territories from 418 stores totalling 5.4 million sq ft and it has further extended the reach of

the M&S brand through the launch of new in-country websites (see above). In FY13, space increased by c.16% (31 net new

stores), predominantly in the Group’s key strategic territories of India, China, the Middle East and Russia.

New structure. In FY12, M&S put in place a new structure for its International business, dividing it into three regions: Europe,

Asia and the Middle East. A director was appointed to lead each region, supported by a head of business development to drive

new market growth. M&S also created an international visual merchandising team to ensure M&S customers have a more

consistent brand experience wherever they are.

o M&S is increasingly operating as a more international business, having integrated international marketing and buying into

the core teams.

Priority markets. M&S is focused on the clear growth opportunities in the Group’s existing territories: China, India, Russia and

the Middle East.

o China. Concentrated in the Shanghai region, M&S’ Chinese stores continue to perform strongly and the Group had seven

stores as of June 2012, having opened three in FY12.

o India. Working with partner Reliance Retail, M&S has accelerated growth in India and had 24 stores in total as of November

2012. Six new stores were added in FY12 including M&S’ first high street stores at Connaught Place and South Extension in

Delhi.

Expansion. In FY12 M&S opened a total of 37 new international stores and in June 2012 announced plans to accelerate

growth over the next 18 months, opening around 100 stores and multiple country websites per year. As a result, M&S expects

to increase its investment in the International business by £50m over the three years of the plan.

o In 1H13 M&S opened 19 new international stores and more than 30 were to follow in 2H13. The openings in 1H13 brought

the Group’s international operations to over 400 stores in 44 territories. In Asia, M&S opened nine new stores, focusing on

driving growth in its key priority territories of India and China.

Franchises. The Group’s franchise operations are central to M&S’ international plans. Franchise partners account for 35% of

International sales. In FY12, M&S opened 24 new stores with its 18 global franchise partners.

o With partner Fiba, M&S opened eight new Russian stores in FY12, expanding in key locations such as Moscow and new

cities including Kazan.

o With Al-Futtaim, M&S grew its Middle East presence – opening five stores in FY12 including a second store in Cairo, Egypt

and three in the UAE.

The Netherlands. In April 2013, M&S announced that it will return to the Netherlands with a combined e-commerce and stores

‘clicks & bricks' strategy. The move replicates M&S's successful return to France in 2011 (see below) M&S' strategy for the

Netherlands comprises:

o A brand new Dutch website serving customers across the country and a complementary mobile optimised.

o A multi-channel M&S store located on the Kalverstraat in the heart of Amsterdam's shopping district.

o A new agreement with BP to open six M&S Simply Food pilots at BP forecourts at key locations in Randstad, with the first

store opening in Utrecht in September 2013.

The new agreement is part of M&S's plans to open franchise M&S Simply Food stores in Western Europe and builds

on the successful UK partnership between M&S and BP which launched in 2005. There are now over 160 M&S Simply

Food stores at BP UK forecourts which M&S and BP will continue to strengthen and grow over the next few years.

o The opening of two full-line M&S stores at De Markies in The Hague and a flagship store at The Rokin in Amsterdam.

De Markies. The completely modernised development will include a 4,800 sq m M&S store opening in spring 2014.

The Rokin. Due to open in autumn 2015, the 6,100 sq m flagship store will be one of M&S's largest international

stores.

Benelux. Following the launch of its dedicated Belgian website in October 2012 M&S also plans to open a flagship store at

Toison D'Or, Brussels, in 2015. Additionally, in April 2013 M&S launched a dedicated website for customers in Luxemburg.

France. In November 2011, M&S returned to the French market, with a clear ‘bricks and clicks’ strategy. The Group has defined

this approach as central to its international expansion, both in existing and new markets; enabling M&S to combine stores, the

web and digital technologies to quickly extend the reach of the brand.

o M&S returned to France with a brand new store in the heart of Paris, supported by an e-commerce offer. Trading over three

floors, the Group’s new Paris store occupies a flagship location on the iconic Champs Élysées.

o In October 2012 M&S opened its first new full-line Paris store at So Ouest in Levallois-Perret. Trading over three floors, the

new 6,900 square metre full-line store is part of M&S's ‘bricks & clicks' strategy for France across stores and e-commerce.

o M&S is continuing to grow its presence in Paris and has already confirmed two further full-line Paris store locations at

Beaugrenelle and Aeroville – due to open in spring 2013 and at the end of 2013 respectively.

SUPPLY CHAIN TRANSFORMATION

M&S is in the middle of a £1bn programme, which began in 2009 and will run through to 2015/16, to improve ageing IT and

distribution systems. The changes will also reduce the amount of stock the Group needs to hold by a third and help it to cut costs by

using just three distribution centres rather than more than 50 warehouses at present. The Group expects that the programme will

deliver annual benefits of £300m. The programme is made up of three key elements:

New supply chain. M&S is building a new fast, agile, flexible and reliable supply chain network that will create a more efficient

M&S and improve availability and customer service. It is a process that began in 2009 and will continue until 2016. It involves:


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o Moving from a network of 110 small warehouses for clothing, home and gift products to a small number of large, modern

distribution centres. The new network will significantly reduce the time it takes to move products from port to stores.

o Reducing reliance on full service vendors (suppliers that manufacture, store and distribute products for M&S) and migrating

suppliers to a direct sourcing model, bypassing the need for suppliers to handle distribution and storage.

o In May 2013 M&S opened its new 900,000 sq ft distribution centre (DC) in Castle Donington. The new site will handle all

orders (except food to order; flowers, beers, wines and spirits; and furniture) placed through www.marksandspencer.com

and will be a national distribution centre for M&S stores. The DC is capable of processing one million products a day and

has capacity to store 150,000 different products and 16 million individual products in total-

New business management systems. M&S is transforming its IT and business management systems from out-dated,

complex systems to new, modern and simple systems that help deliveries, improving availability and customer service.

o The Group has overhauled its food IT systems, helping buyers better forecast demand and buy more accurately for stores

with different needs. The changes have helped improve food availability by 3% since 2010.

o New systems in clothing, home and gifts will reduce markdown costs and lead to better stock availability.

o New HR systems have been installed in stores and offices to automate HR processes and deliver accurate HR information.

New multi-channel platform and e-commerce distribution centre. As part of its strategy to become a leading multi-channel

retailer, M&S is building a new, bespoke multi-channel platform that will drive www.marksandspencer.com (to launch in 2014)

and power all M&S’ multi-channel technology. Supported by the new e-commerce distribution centre at Castle Donington (see

above), the new website and multi-channel offer will improve availability.


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SWOT

STRENGTHS

Market leader. M&S claims to be the number one provider of clothing & footwear and lingerie in the UK,

with 11.2% and 26.8% market share (by value) respectively. It is also growing its market share in

menswear and kidswear, due in part to its growing online business, with a 11.4% and 6.4% share

respectively (Source: Kantar Worldpanel, April 2013).

Strong foothold. M&S’ products are sold through 766 UK stores and more than 400 internationally,

across 51 territories. Over 93% of the UK population is within in a 30-minute drive of a full line M&S store

and the Group’s franchise partnerships ensure M&S’ Simply Food offer is available in the most

convenient locations – from railway stations to motorway services.

WEAKNESSES

Ratings downgrade. In May 2013, Fitch Ratings downgraded M&S’ Long-term Issuer Default Rating

(IDR) and senior unsecured rating to 'BBB-' from 'BBB'. The downgrade reflects M&S's weakened

business risk profile as highlighted in its FY13 results, with a drop in underlying operating profit. It is also

reflective of a difficult consumer environment and the structural changes affecting large UK clothing

retailers, including: competition from value clothing retailers such as Primark and the supermarkets, the

growth of multi-channel retailing, the intensity of promotional activities and the fact that consumers are

less loyal to brands/retailers, switching between retailers for better promotions or deals.

Clothing drags down profits. In 1H13 M&S’ profit before tax fell 10% to £290m – the Group’s second

consecutive drop – after it missed key fashion trends in womenswear early in 2012. Continuing the trend,

in FY13, M&S reported its lowest annual profit in four years, in line with analyst estimates, as the Group’s

struggling general merchandise division dragged on the growth in food sales. As of March 2013, M&S’

clothing business had posted seven consecutive quarters of underlying sales declines.

o M&S announced in May 2013 that growth in FY14 will be held back by investment in its online

business and logistics.

Online tax scheme. In May 2013, M&S faced criticism from tax campaigners over the way it structures

its online sales to Europe. The Group has been expanding its online operations to several countries

across Europe (see Strategy), but its structure involves shipping goods from the UK while invoicing the

transaction to Ireland, which has the lowest corporation tax rates in Europe. The Group's UK branch is

paid a wholesale price for the goods it ships by M&S Ireland, and this is subject to UK corporation tax, but

the rest of the retail markup is subject to Ireland's much lower rate of 12.5%. The disclosure came amid

mounting cross-party political focus on corporate tax avoidance, and tax campaigners have been

angered by the revelations, accusing M&S of “trading off its British reputation.”

Womenswear. M&S' share of the womenswear market – its biggest source of revenue – fell from 10.4%

to 9.9% in FY13. Underlying sales of M&S' clothing and homewares have been falling for nearly two

years. The brand has been in decline for much longer than that as shoppers have turned to a whole

range of cheaper, more fashionable or more luxurious alternatives.

OPPORTUNITIES

Online retail. More consumers are choosing to shop across a combination of channels, a trend that is

being supported by the dramatic growth of smartphone and tablet ownership in the UK. Conlumino

analyst Neil Saunders predicted in mid-2012 that online sales would grow 13% that year, against a retail

market that was expected to shrink by c. 1%. M&S’ multi-channel strategy is already proving successful

and, in FY13, multi-channel sales were up 16.6%. Traffic to the Group’s site continued to grow to an

average of over 3.6 million weekly visitors.

Clothing strategy well received. In May 2013 M&S revealed its new womenswear collections to City

analysts and investors have given an initial positive reception to the much anticipated new clothing

strategy and ranges. Eithne O'Leary at Oriel Securities said: “Both sales and profits are likely to benefit

from an increasingly well-defined and confident range of stylish and high quality clothing which

showcased.” The Guardian's Jess Cartner-Morley said the collection "could be a high street game

changer."

International. M&S is advancing with its strategy to become an international business. In FY12, it

opened 37 new stores and has plans to open around 100 stores and multiple country websites over the

18 months to 2014. The Group’s priority markets in India and China have delivered a good performance

in 1H13, in sharp contrast to Europe where trading conditions remain difficult.

THREATS

CEO under pressure. In January 2013 David Cumming of Standard Life Investments, M&S’ 10th largest

shareholder, said CEO Marc Bolland had six to nine months to sort out M&S’ underperforming clothing

business if he wanted to keep his job. Keith Bowman from Hargreaves Lansdown, said Bolland had "yet

to deliver" since being appointed in 2010. In June 2013, after M&S reported its lowest profit in four years,

Bolland was denied a performance payout and his pay was slashed by more than a third.

US competition. According to Morgan Stanley, retailers such as M&S could soon be facing a new wave

of competition from US clothing retailers. At least ten big US retailers are either already in the UK or

could arrive in the next couple of years. With supply chain globalisation and online shopping making it

possible to have a UK presence with only a few dozen stores, the threat is greater than ever before.


P a g e | 11


Analysts estimate it is possible US retailers could capture 5% to 10% of the UK market over five years.

UK downturn. FY13 was a year of continued economic turbulence, and during the year there was little

economic growth in the UK, with a GDP increase of just 0.3% in 2012. Vacancy rates remained high and

over the course of the year a number of well known retailers disappeared from the high street. Rising

energy costs and petrol price increases further squeezed household budgets, which resulted in a

decreased market footfall of 1.6%. In January 2013 M&S stated that it expects the pressure on

consumers’ disposable incomes to continue in 2013.

Eurozone. In 1H13, Trading in M&S’ European businesses was once again impacted by macroeconomic

pressures, particularly in the Republic of Ireland and Greece, and M&S took the decision to close four

stores across Greece and Eastern Europe.

o In 2010 M&S set out a target to grow its revenues by £1.5bn to £2.5bn over the next three years. As a

result of the deterioration in the economic environment since then, it now expects to achieve a £1.1bn

to £1.7bn increase in revenues.

New format competitors. Many large retail chains are widening their product offerings to cater to a

broader customer segment. Alongside this, product diversification has transformed many specialty

retailers into general retailers. In addition, M&S has to compete against a new crop of online only retailers

such as ASOS and the likes of Next which has an enhanced online offering and around 700 stores in the

UK, Ireland, Europe and the Middle East.


P a g e | 12


OTHER KEY EVENTS

PEOPLE

In May 2013 M&S appointed Jo Jenkins as Director of Lingerie and Beauty. In this role, Jenkins will form part of the General

Merchandise leadership team, reporting directly to John Dixon, Executive Director of General Merchandise.

BID RUMOURS

In March 2013 the media reported that M&S could be subject to a bid from one of the Middle East's largest investment funds, the

Qatar Investment Authority. The fund was said to be assembling a group of private equity investors to make an £8bn bid for the

Group. CVC was said to be among the groups the Qataris had approached about backing a bid.

o Analysts stated that M&S could be attractive to the Qataris thanks to its £8bn property portfolio: the Group owns 65% of its

stores and, if the value is realised, a sale and leaseback programme could see any investor make a quick return. However,

many of the sites have been described as unattractive to landlords and the M&S pension fund holds £1.5bn of freeholds as

part of a plan to reduce the pension deficit by £1bn in 2009.

o Rumours of the takeover bid pushed the Group’s shares to a 28-month high but, sources played down the speculation.

However, neither M&S nor the Qatar Investment Authority issued a statement denying the rumours.

o At the time, analysts said M&S was vulnerable to a bid after a string of disappointing sales updates (see SWOT).


P a g e | 13


KEY PEOPLE

Robert Swannell - Chairman

Robert was appointed a non-executive

director in October 2010 and Chairman in

January 2011. He is also Chairman of the

Nomination and Governance Committee.

Robert has spent over 30 years in

investment banking with Schroders/

Citigroup. He was formerly Vice-Chairman

of Citi Europe and Co-Chairman of Citi’s European

Investment Bank. Robert has wide Board experience: he was

Chairman of HMV Group plc until March 2011 and a non-

executive director until June 2011. He was Senior

Independent Director of both The British Land Company plc

and of 3i Group plc until 2010. Robert’s regulatory and

government department experience includes the Regulatory

Decisions Committee of the FSA, the Takeover Panel Appeal

Board and the Industrial Advisory Board of BIS (Department

for Business, Innovation and Skills). He was also a director

and trustee of the educational charity Career Academies UK

from 2003-2010. He is a qualified Chartered Accountant and

Barrister.

EXECUTIVE COMMITTEE

Marc Bolland - Chief Executive

Marc was appointed CEO in 2010. He

began his career at Heineken NV in The

Netherlands in 1987, occupying several

Marketing & Sales management roles. In

1995 he was appointed MD for Heineken

in Slovakia, becoming Managing Director

for Heineken Export Worldwide in 1999. Marc was then

appointed to the Board of Heineken NV in 2001 with

responsibility for Western Europe, US, Latin America,

Northern Africa and Global Marketing. In 2005 he became

Chief Operating Officer. He joined Morrisons in 2006 as

CEO. Marc is currently non-executive Director of Manpower

Inc US, and has previously held non-executive Director roles

at Hotel de I’Europe, The Netherlands (2003-2006), Quilmes,

Argentina (2001-2003).

Alan Stewart - Chief Finance Officer

Alan was appointed CFO in 2010. He has

extensive experience of retail and other

highly competitive industries, including

travel and banking. Alan spent nine years

working for HSBC Investment Bank before

joining Thomas Cook in 1996, where he

spent seven years, in roles including CEO of Thomas Cook

UK and Group Chief Financial Officer of Thomas Cook

Holdings. Alan joined WH Smith plc in 2005 as Group

Finance Director. In 2008 Alan joined AWAS, a leading

aircraft leasing company, as Chief Financial Officer until

2010. He was previously a non-executive director of Games

Workshop Group plc.

John Dixon - Executive Director, General Merchandise

John began his M&S career in UK store

management before moving to Paris for

three years where he held a variety of

commercial roles in European stores and

the Paris Head Office. He joined the UK

Head Office as a Food Buyer before

progressing to Category Manager for Fresh Produce. In

2002, he was appointed to Executive, heading up the fresh

food trading division. In 2004 John was appointed Executive

Assistant to the CEO. In 2007, he became Director of M&S

Direct. In 2008, he became Director for Home in addition to

M&S Direct and was also appointed to the Executive

Committee. John was appointed Director of Food in 2008

and Executive Director of General Merchandise in October

2012.

Steve Rowe - Executive Director, Food

Steve joined M&S in 1989 where he

progressed in a variety of roles within

store management. He joined Head Office

in 1992 as a Merchandiser for Menswear,

working across all areas of the Group. In

1998 he became Category Manager in the

Furniture Department, leading the team developing the

Home Growth Strategy. Steve was appointed Head of Home

categories in 2003 going on to become Director of Home in

2004. Between 2004 and 2008, he also assumed

responsibility for Beauty and New Business Development.

He was appointed Director of Retail and a member of the

Executive Committee in 2008 becoming Director of Retail

and E-commerce in 2009, reverting to Director of Retail in

2011, before being appointed as Executive Director, Food in

October 2012. Steve is Director on the Strategic Board of

The New West End Company.

Laura Wade-Gery - Executive Director, Multi-Channel E-

Commerce

Laura joined the Board in July 2011. She

was previously at Tesco plc where she

held a variety of senior roles from 1997.

Laura brings considerable retail and

consumer experience, including significant

e-commerce knowledge as CEO of Tesco.com and Tesco

Direct. Prior to joining Tesco, Laura held various roles at

Gemini Consulting and Kleinwort Benson. She has been a

non-executive director of Trinity Mirror since 2006.

Andy Adcock - Trading Director, Food Andy joined M&S in 2009 as a

Commercial Director in Food, more

recently becoming Trading Director, Food.

He was appointed to the Management

Committee in 2012. Prior to M&S Andy

held a number of senior positions within

Trading, Marketing and Merchandising at Asda Walmart,

where he went on to become Brand Director. Andy started

his career at J Sainsbury’s where he worked in a number of

buying departments. He has over 20 years' experience in the


P a g e | 14


retail sector and has held a number of roles across all areas

of Food, Beverage and Beauty.

Sacha Berendji - Director of Retail

Sacha was appointed as Director of Retail

in November 2012. Sacha joined M&S in

1994 through the Graduate training

programme. He undertook various Retail

appointments across the country including

General Manager of Marble Arch Store

and Regional Manager for London. In 2007 Sacha joined the

Property Group as Head of Property Planning & Store

Development where he was responsible for both new space

development and the store modernisation programme,

before being appointed Executive Assistant to the Chief

Executive in 2009. Following this Sacha joined the General

Merchandise division as Director of Merchandising before

taking up his current position.

Patrick Bousquet-Chavanne - Corporate Director of

Strategy Implementation & Business Development

Patrick has more than 25 years

experience in the international branded

consumer goods industry, in London,

Paris and New York. He joined Estée

Lauder in 1989 as VP and General

Manager, Aramis International, before

running Estée Lauder’s worldwide Travel Retailing business.

Between 1998 and 2008 Patrick was a member of Estée

Lauder’s Executive Committee, where he served as

President of International. Most recently Patrick was Group

President of the Estée Lauder companies, where he oversaw

some of its largest brands. He stepped down from Estée

Lauder in 2008 to pursue new opportunities in the new

technologies field. Patrick sits on the Board of Brown-

Forman Inc, a global spirits company and HSN Inc.

Clem Constantine - Director of Property

Clem trained as a Chartered Accountant

at Stoy Hayward, joining Debenhams in

1989, as a Financial Analyst. He was

appointed to his first finance directorship

in 1993, for the IS brand of the Burton

Group plc, and moved through several

other finance directorships with variable responsibilities

including systems and retail until he was made Group

Property and Retail Planning Director, for the Arcadia Group

plc in February 1999. In this role he was able to apply his

considerable financial and retail expertise to maximise

profitability from the group's property portfolio while

executing a focused acquisition plan. He remained in this

role, with additional responsibility for Store Development until

recently. He joined the M&S team in 2006.

Steve Finlan - Director of International Operations

Steve was appointed to his current role in

January 2013. He has over 28 years'

experience of working within the retail

sector. Steve started his career at M&S in

1990 managing International and

Franchise operations before moving into

the role of Head of Training and Development. He moved to

Gap in 1999 where he was VP of HR Europe, before moving

to Thomas Cook where he was Managing Director of Sales.

He returned to M&S in 2006 as Director of Retail. Steve is

also a Non-Executive Director for the Bedfordshire NHS

Trust.

Jan Heere - Director of International

Appointed in May 2011, Jan is Director of

International at M&S. He has extensive

international experience and began his

career at Manpower in Spain in 1997.

Between 2000 and 2002 he held a variety

of senior management roles at fashion

retailer Zara, real estate company Groupo Inmobiliario

Lupaco and e-learning group Charanga. In 2002 Jan joined

Inditex where he held a number of international roles. Most

recently Jan was General Manager for Inditex Russia, where

in the last five years he grew its presence from some 20

stores to more than 170 stores employing around 4,500

people. Jan is fluent in English, Spanish, French, Dutch and

Russian.

Tanith Dodge - Director of Human Resources

Dominic Fry - Director of Communications & Investor

Relations

Steven Sharp - Executive Director, Marketing

Dirk Lembregts - Director of Supply Chain

Nayna McIntosh - Director of Store Environment &

Product Presentation

Darrell Stein - Director of IT

Amanda Mellor - Group Secretary and Head of Corporate

Governance

Non-Executive Directors

Vindi Banga - Member of the Nomination and

Remuneration Committees.

Miranda Curtis - Member of the Nomination and

Remuneration Committees.

Jeremy Darroch - Member of the Nomination Committee.

Andy Halford - Member of the Nomination and Audit

Committees.

Steven Holliday - Member of the Audit and Nomination

Committees.

Martha Lane Fox - Member of the Audit and Nomination

Committees.

Jan du Plessis - Senior Independent Director. Member of

the Audit, Remuneration and Nomination Committees.

OTHER KEY STAFF

Robert Ivens - Head of Legal

Robert is Head of Legal, responsible for

the day-to-day provision of legal advice to

the Group worldwide. He heads a legal

team of 18 lawyers, plus support based at

M&S’ head office at Paddington, London,

which provides advice principally on

employment, commercial contracts,

marketing and advertising, real estate, intellectual property,

consumer protection and regulatory, and compliance law

(Source: Consero Group LLC, 2013). While a lot of work is

retained in-house at M&S, external legal spend is never less

than £4m a year (Source: Legal Business, 2013).


P a g e | 15


Qualifying as a solicitor in 1983, Robert worked in private

practice with major London firms before joining M&S in 1985

as a solicitor. He was appointed Head of Legal in 1989.

Robert is a member of the faculty for Consero’s 2013

European General Counsel Forum.

M&S made headlines in 2004 when Robert helped the Group

fight off a £9.1bn acquisition bid by businessman Philip

Green, who owns a number of large high street retail brands.


P a g e | 16


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