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Saudi Electronic University Homework Help

ASSIMENT

Description

The company you chose Marks & Spencer

Accounting
2024/2025
Master in Management
Prince Mohammed Bin Salman College of Business & Entrepreneurship (MBSC)
KAEC, Saudi Arabia
Course Name:
Credits:
Contact Hours :

Accounting
2
25

Rubric of Individual Assignment: Analyzing Value Creation
Practices

INSTRUCTOR
Instructor Name: Dr. Larissa von Alberti
Office Location:
Office Hours: by appointment
Telephone:
E-mail address: [email protected]

Individual Assignment

Rubrics
The value creation assignment can be undertaken in two ways: you
either pick a company that already presents an integrated report here
or
you pick a company that doesn’t have an integrated report yet (any
other). It is either one or the other, not both (you won’t get extra marks
for doing both and I will not choose the better of two options to grade –
I will just grade what I read first).
If you choose an existing integrated report, you need to evaluate their
report according to the criteria below, if you choose a company without
a report, you need to develop an integrated reporting framework
according to the criteria below. Each of you needs to work on a different
company, so please make sure upfront that you are not duplicating the
companies in the assignment.

Points to be Evaluated
1. An overview of the selected case, and its
industry
2. Identify main capitals of corporate value
creation, and indicate which capital inputs lead
to which capital outcomes, does the company
provide well developed measures, clear evidence of
value creation identified is provided
3. A critical evaluation of the implementation of
the defined capitals of value creation
4. Wrap up

∑ Max Points 10
1.25
3.75

3.75
1.25

Grading Scale

Indicators of
Subject Content
Knowledge
Examines &
identifies the
requirements

Analyzes:
Identifies &
evaluates the
quality of
supporting
data/evidence;
detects
connections and
patterns

Constructs &
interprets:
Identifies and
evaluates
conclusions,
implications, &
consequences;
develops ideas

Level of Achievement
Average
Excellent
Sufficient
Adequate
knowledge
knowledge displayed
displays
from variety of
sources.
Does not
The main
The main
identify or
requirements
requirements are
summarize the
are moderately
clearly stated
requirements
identified and
accurately, if at
stated
all
No supporting
Evidence is
Evidence is
data or evidence sufficiently
adequately identified
is utilized;
used; relevance and carefully stated
separates into
&completeness; for accuracy,
few parts;
facts and
precision, relevance,
detects few
opinions are
and completeness;
connections or
stated but not
facts and opinions
patterns
clearly
are stated and
distinguished.
clearly
distinguished;
combines facts and
ideas to create clear
and comprehensive
understanding.
Only few facts
Sufficiently
Accurately identifies
and ideas are
combine facts
conclusions,
combined;
and ideas to
implications, and
needs more
draw
consequences with a
development;
conclusions,
adequate evaluative
conclusions,
implications,
summary to explain
implications;
and
relationships.
consequences ;
consequences
are not provided with a brief
evaluative
summary to
explain
relationships.
Total

Score

Pass
Limited
knowledge
shown

Note: Your assignment should not exceed a 2000-word article and should be word
processed using MS-Word (preferably). It should have a cover page, and contain your full
name, university ID number and your selected organization’s information

Making
every
moment
special

ANNUAL REPORT
& FINANCIAL
STATEMENTS 2017

FINANCIAL OVERVIEW

GROUP REVENUE

£10.6bn+2.2%
GROUP PROFIT BEFORE TAX AND
ADJUSTED ITEMS

GROUP PROFIT BEFORE TAX

£176.4m -63.5% £613.8m -10.3%
INTERIM AND FINAL DIVIDEND

6.8p + 11.9p = 18.7p Level
BASIC EARNINGS PER SHARE

ADJUSTED EARNINGS PER SHARE

7.2p -70.7%

30.4p -12.6%
Read more on p08-09

ABOUT OUR REPORTING
NAVIGATING THE REPORT

REPORTING PERIOD

PLAN A

Throughout this document a series of icons
demonstrate how we’ve integrated information
about our business model with details of our
strategy and risk.

This year we are reporting on the 52-weeks to 1st
April 2017 compared to last year when we reported
on a 53-week basis, as every six years an additional
week is included to ensure that the year-end date
stays in line with the end of March. To provide a
meaningful comparison with this year, all ﬁnancial
movements are reported on a 52-week basis,
and excluding the 53rd week last year, unless
otherwise noted.

Plan A is integrated throughout this report,
demonstrating how it is embedded in every part of
our business. This makes it easier for shareholders
to see how our sustainability programme is creating
value in our different divisions. More detailed
information is available in our online 2017 Plan A
Report at marksandspencer.com/plana2017.

A
R

PLAN A

RISK
STRATEGY – REMUNERATION LINK
READ MORE

Details of the 53-week comparisons can be
found in the Financial Review p26.
ALTERNATIVE PERFORMANCE MEASURES
This report provides alternative performance
measures (APMs) which are not deﬁned or speciﬁed
under the requirements of International Financial
Reporting Standards. We believe these APMs
provide readers with important additional
information on our business. New for this year,
we have included a glossary on page 133 which
provides a comprehensive list of the APMs that
we use, including an explanation of how they are
calculated, why we use them and how they can be
reconciled to a statutory measure where relevant.

ONLINE INFORMATION
We have comprehensive ﬁnancial and company
information on our website. To register for
notiﬁcations, go to marksandspencer.com/
investors and follow the Electronic Shareholder
Communication link.

01
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

INTRODUCTION

OUR PERFORMANCE

WE ARE COMMITTED TO
MAKING EVERY MOMENT SPECIAL
FOR OUR CUSTOMERS, THROUGH
OUR HIGH QUALITY, OWN-BRAND
FOOD, CLOTHING AND HOME
PRODUCTS WE OFFER IN OUR 1,433
STORES WORLDWIDE AND ONLINE.

OUR BUSINESS

M&S IS ONE OF THE
UK’S LEADING RETAILERS.

GOVERNANCE

FINANCIAL STATEMENTS

34 Chairman’s Governance overview
36 Our Board
39 Succession & induction
40 Board activities
42 Board effectiveness review
43 Responsibilities, oversight
& independence
44 Stakeholder engagement
46 Nomination Committee Report
48 Audit Committee Report
53 Pensions governance
54 Remuneration overview
56 Remuneration at a glance
58 Full Remuneration Policy
66 Remuneration Report

79 Other disclosures
84 Independent auditor’s report

*Directors’ Report
Shareholder information forms part
of the Directors’ Report.

132
133

135 SHAREHOLDER INFORMATION*

FINANCIAL STATEMENTS

OUR PERFORMANCE
18 Key performance indicators
22 Our People
23 Our Performance review
26 Financial review
30 Risk management

96
128
129

Consolidated ﬁnancial
statements
Notes to the ﬁnancial statements
Company ﬁnancial statements
Notes to the Company ﬁnancial
statements
Group ﬁnancial record
Glossary

GOVERNANCE

OUR BUSINESS
02 At a glance
04 Chairman’s statement
06 Market & customer insights
08 Chief Executive’s strategic update
12 Creating sustainable value
14 Connected value
16 Value creation in action

DIRECTORS’ REPORT*

STRATEGIC REPORT

WHAT’S IN THIS REPORT?

02
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR BUSINESS

AT A GLANCE
FOOD

CLOTHING & HOME

Making every food moment special is the
aim of our Food business, which accounts
for 60% of our UK turnover. Through the
innovation, quality and choice that we offer,
customers know they can come to us for
every occasion, whether it is healthy cooking
ideas, delicious meals from around the world
or convenient food on-the-go. We sell food
through 942 UK stores, including 253 owned
and 383 franchise Simply Food stores.

We sell beautifully designed, high quality,
own-brand clothing and homeware through
343 full-line stores, Outlets and our
M&S.com website. Our Womenswear,
Menswear, Kidswear, Lingerie, Beauty and
Home products account for 40% of our UK
turnover. With our focus on contemporary
style and wardrobe essentials, we are the
UK’s biggest clothing retailer by value.
We are also the market leader in Womenswear,
Lingerie and Menswear.

Read more on p24

marksandspencer.com/plana2017

INTERNATIONAL REVENUE

TOTAL PLAN A 2020 COMMITMENTS

GOVERNANCE

107

INTERNATIONAL STORES

COMMITMENTS ACHIEVED

COMMITMENTS NOT ACHIEVED

454

COMMITMENTS ON PLAN

COMMITMENTS BEHIND PLAN

TERRITORIES

-3

-14 net

new stores

COMMITMENTS CANCELLED

FINANCIAL STATEMENTS

£1.2bn

+10.7%

OUR PERFORMANCE

OUR BUSINESS

INTERNATIONAL

04
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR BUSINESS

CHAIRMAN’S
STATEMENT
This year Steve has set out clear and decisive plans. I will leave an
M&S that is well equipped for the digital age and totally focused
on its customers. This more relevant M&S is underpinned by effective
succession planning, good governance and active shareholder
engagement which have been my focus during my time as Chairman.
ROBERT SWANNELL CHAIRMAN

INTERIM

FINAL

6.8p
PAID ON 13 JANUARY 2017

11.9p 18.7p
TO BE PAID ON 14 JULY 2017

OVERVIEW

PERFORMANCE

This is my last Annual Report as Chairman
after more than six years at M&S. It has
been an extraordinary honour to serve
this company.

I believe our food is, without exaggeration,
among the best in the world. Once again,
we delivered a good performance in a
tough market. Sales grew as customers
responded to the quality of our food and
the convenience of our stores. We are very
pleased with the overall performance of
the Simply Food stores opened during
the year. The return on capital from the
format remains compelling. With product
innovation remaining the backbone of our
Food business and a strong, but measured,
store opening programme, we have a clear
path to growth.

Since Steve Rowe became Chief Executive,
he has set out clear plans to accelerate the
pace of change across M&S. By simplifying
the way we do things and by focusing on the
customer, we have laid solid foundations
for growth. We repositioned our Clothing &
Home business, made important decisions
about the future shape of our UK and
International store estates, and put in place
fairer pay and beneﬁts for our employees.
It has been a year of great change outside
M&S as well. Last summer’s vote to leave
the European Union has caused inevitable
uncertainty. Nobody yet knows what the
long-term effect of Brexit will be. Like many
businesses we have been impacted by the
depreciation of sterling, but it is our job to
seize the opportunities ahead and prepare
for all eventualities.
We have made some hard decisions. Some
have led to signiﬁcant adjustments to our
proﬁts this year and also, in the case of
repositioning our Clothing & Home business,
to some short-term reduction in our
adjusted proﬁts. However, these changes
needed to be made for the long-term
health of the business. Decisive action and
strong execution have never been more
important to compete in a fast-changing
retail environment. These actions allow us
to embrace the future from a position of
strength, well equipped for a digital age
and with a sustainable business model.

TOTAL DIVIDEND FOR 2016/17

We repositioned our Clothing & Home
business for sustainable growth by ending
a damaging cycle of promotions and
discounts. We also refocused our ranges on
stylish, wearable, great-quality essentials.
By implementing a sensible, competitive
pricing architecture for our customers,
we have seen encouraging improvements
in full-price sales. As expected, fewer
promotions and less discounting resulted
in lower sales. There is much work still to
do but we are beginning to see signs of
recovery. Steve made it clear a year ago
that this repositioning would have a shortterm negative impact on proﬁts but would
set us up for sustainable performance and
a stronger business in the long term. A year
on, we are even clearer that this was the
right thing to do.

Our International business had a
challenging year. However, we announced
a clear strategy to focus on our strong
franchise partnerships and our established
joint ventures, and operate in fewer owned
markets, by exiting ten owned, loss-making
markets and 53 stores.
Overall, adjusted proﬁt before tax was
£613.8m, down 10.3% on last year. However,
due to charges of £437.4m, Group proﬁts
fell to £176.4m. The main elements of the
charges relate to the cost of implementing
the new pay and pensions arrangements,
and the cost of the International store
closures. I was Chairman when about half of
these 53 stores opened and so must accept
my full share of the responsibility for this
disappointing result. However, consumer
behaviour has changed in the intervening
years. We had already signiﬁcantly scaled
back our ambitions in owned markets
before we announced these closure plans,
and just as there was a rationale for opening
the stores then, there is one for closing
them now. It is essential that we adapt to our
customers’ changing needs and recognise
the current realities of the markets in which
we operate, despite the short-term cost.
Having the right stores in the right places
is also why we are reshaping our UK store
portfolio, as we focus on having less, more
inspiring Clothing & Home space and
growing our Food space. At the end of this
ﬁve-year programme we will have increased
our space overall and employed more
people. Our stores will be more relevant
to the changing needs and habits of our
customers in a digital world.

05
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

As a Board we regularly discuss:
> Cyber and IT
> The M&S brand
> International
> Supply chain
> Risk
> Property
> Plan A
Read more on p34-83
44

MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

GOVERNANCE

OUR STAKEHOLDERS:
HOW WE LISTEN & ENGAGE

Spark Something Good
Over the last two years,
4,000 employee and
customer volunteers have
helped over 240 community
projects across 12 cities.

Marks & Start Training,
work placements and
employment have been
provided to thousands of
disadvantaged people.

Business community
engagement We help shape
our business environment by
responding to government
and industry consultations
and contributing to industry
discussions and events.

Global Community
Programme We continue
to improve the lives of over
40,000 people across our
global supply chain.

Institutional
investors

Sparks Card 5.6m
customers now receive
tailored offers plus
the chance to engage
with a Plan A charity
partner. Over £2m has
been raised to date.

Annual perception study
Each year the Board receives
an independent report from
Makinson Cowell into our
major investors’ views on our
management and performance.

Director breakfasts
Discussions between directors
and groups of employees from
all levels within the business.

Business Involvement
Group (BIG) Engagement with
our employees is facilitated
through BIG, our network
of elected employee
representatives from each
store and business area.

PLAN A

Our pioneering social
and environmental
Plan A
sustainability programme
continues to underpin the way
we do business at M&S.

COMMUNITY

Marketing We created our
2016 Christmas With Love
campaign in direct response
to feedback from thousands
of customers.

Consumer Barometer
Each month we listen
to c.70,000 customers
to create a snapshot of
consumer sentiment.
Customer Insight Unit (CIU)
Our CIU gathers feedback
through surveys, reviews and
focus groups to learn what
customers want from M&S.

CUSTOMERS
C
SHAREHOLDERS

Shareholder Panel
Regular discussions
between the directors
and groups of private
shareholders.

Private
shareholders

Performance Overview
Our annual business
overview designed and
written speciﬁcally for
the private shareholder.

LORD SIEFF DEPUTY CHAIRMAN OF M&S, 1964

Schools programme
Our award-winning
programme has reached
12,000 pupils since 2012,
having recently broadened
its reach through
videoconferencing.

M&S COMPANY
ARCHIVE
M&S

Crunch Costs In 2016 we
asked all our employees how
we could drive down costs
and inefficiencies. We used the
£20m saved to add over 3,000
colleagues to our stores.

Partnership with University
of Leeds Now in its ﬁfth year,
our strategic partnership
delivers collaborative
research projects and unique
student work opportunities.

Company
Our archive
safeguards M&S’s
heritage and
shares it with the
Archive
public through exhibitions and
events as well as online.

EMPLOYEES
Quarterly Skype updates
Our quarterly CEO/CFO
trading updates are
broadcast via Skype to our
store management teams.

Making Every Moment
Special We held an extensive
programme of in-store
events to ﬁnd out from our
employees how we could
make every moment special
for our customers.

Monthly CEO updates
We have introduced a monthly
CEO update to c.50,000
employees via social media.

“The main purpose of building
up a great business should
not be merely to make money.
A company has its responsibilities,
not only to shareholders but
also to the staff, the customers
and the whole community in
which it trades. Unless it gives
satisfaction, and even happiness
to all concerned, it will fail in
its aims in the long term.”

Exhibitions and events
Our Marks in Time exhibition
and programme of events
brought M&S’s heritage
to life for 38,000 people
during 2016/17.

Listening groups In early 2017
our colleagues shared their
views on a range of customerfocused questions.

Your Say survey Our
March 2017 employee survey
showed that engagement
was up by 3%.

SHAREHOLDERS

EMPLOYEES

We are always looking for ways to develop
our engagement with shareholders. This year
we introduced our regular Shareholder
Panel, where a small group of private
shareholders is invited to participate in
face-to-face discussions with members
of the Board and senior management.
For our large institutional investors and
investor advisory ﬁrms, we continue to hold
our Annual Governance Event. Our 2016
event was hosted by the Chairman and
attended by the Senior Independent Director,
the committee chairmen, Group Secretary,
and a senior representative from our
Plan A team.

The Board’s engagement with the Company’s
85,000 employees is facilitated through
our Business Involvement Group (BIG),
a network of 3,500 elected employee
representatives from across all parts of the
business. Local BIG teams regularly feed
back to National BIG, whose chairman in
turn represents the collective employee
voice through regular meetings with the
Chairman and CEO, plus annual attendance
at Board meetings. However, employee
engagement extends far beyond BIG: One
example from the year was a collaborative
exercise where we asked our store
colleagues what we all needed to do

Customer Research
Panel Our dedicated
panel of c.231,000
customers gives us
valuable input on
products in development.

differently to Make Every Moment Special
for our customers. Through 75 regional
leadership events and 1,500 events involving
all our store employees, we found new
ways to help empower our people to put
customers at the heart of the business
(more about this on page 8). Engagement
can also start in the community: Through
Marks & Start we offered work placements
to over 2,900 disadvantaged people in
2016/17. Over 65% of those who completed the
programme went on to ﬁnd work, either with
M&S or other employers. For further details
about how we engage with our employees,
see ‘Employee Involvement’ on pages 81-82.

OUR PERFORMANCE

Annual General Meeting
(AGM) Our 2016 AGM was
well attended and all our
proposed resolutions
were passed, with votes
in favour ranging from
90.53% to 99.99%.

Annual Governance Event
The Chairman hosts this
annual day of dialogue
and debate between
directors and the Company’s
largest investors.

Reminiscence work
We provide support to
people with dementia and
their carers through drop-in
sessions and the newly
launched Memory Café.

CUSTOMERS

COMMUNITY

Our Customer Insight Unit constantly
gathers feedback from our customers to
understand what they want from M&S. Key
insights are shared with the directors and
are critical to informing strategy. During
the year, customer feedback resulted in a
number of store improvements including
additional staff on shop ﬂoors. We also
engage with our customers to create
marketing campaigns that are relevant to
them, such as Christmas With Love in 2016
and the creation of Spend It Well. For more
on customer insight and engagement, see
‘Market & Customer Insights’ on pages 6-7
and ‘Engaging Our Customers’ on page 25.

2017 marks the tenth anniversary of
Plan A, our social and environmental
sustainability programme. Central to
Plan A is our goal of creating a positive
impact in society and improving people’s
lives, be they employees, customers,
workers in our supply chain, charity
partners or local communities around the
world. Find out more at marksandspencer.
com/plana. This year also marks the ﬁfth
anniversary of the M&S Company Archive,
whose educational and social activities
have enriched the lives of thousands of
local people. Visit the Archive’s website at
marksintime.marksandspencer.com.

GOVERNANCE

Annual Report and
Accounts We go beyond
our obligations to provide
a holistic and engaging
view of the business.

Ongoing engagement
Members of our senior
management and Investor
Relations teams held 406
meetings with 245 different
institutions during 2016.

FINANCIAL STATEMENTS

Webcasts We have been
providing live webcasts of
our AGMs and preliminary
and interim announcements
for over ten years.

OUR BUSINESS

Our rich network of stakeholder relationships upholds the values on which
M&S was founded. These remain vital to building a sustainable business.

This year marks the tenth anniversary of
Plan A. I am extremely proud of the work
we have done. From becoming a zero
waste to landﬁll business and sourcing
raw materials more responsibly, to our
ambitious programmes to support workers
throughout our global supply chain, we
have sought to lead the way on truly
sustainable change. We recently relaunched
Plan A and the latest version is aimed at
being even more relevant to customers
and the communities in which we trade.
BOARD CHANGES
Since I became Chairman in 2011 I have
consistently focused on succession
planning as one of the most important
tasks for the Board. Last year, after a
rigorous process, we appointed Steve as
Chief Executive, the ﬁrst internal appointee
for many years. Steve’s strategy is ﬁrmly in
place so this is now the right time for a new
Chairman to take over as plans for growth
in the longer term are developed.

INTRODUCTION

ARCHIE NORMAN
CHAIRMAN DESIGNATE

In May, we announced that Archie
Norman will join M&S as Chairman on
1 September 2017. Archie has signiﬁcant
retail experience and a long-term track
record of value creation in several
major British companies. He has led
transformations of major businesses
in the UK and abroad, and served on the
boards of several others, most recently
as Chairman of ITV plc.

After an equally rigorous process led
by Vindi Banga and our Nomination
Committee, I will be replaced as Chairman
by Archie Norman in September. Archie
brings a breadth and depth of relevant
experience to M&S and an extensive track
record in retail and brands. I am delighted
with Archie’s appointment and I wish him
great success in this role.
SHAREHOLDER RETURNS
AND DIVIDENDS
We know how important our dividend
is to shareholders. Our policy remains
progressive, with dividends broadly covered
twice by earnings. Despite a reduction
of 10.3% in our adjusted proﬁts, we have
decided to maintain the total dividend per
share for the year at the same level as last
year with the proposed payment of a ﬁnal
dividend of 11.9p per share; this dividend

We have worked to increase engagement
with our shareholders and employees.
Over the last six years, we have engaged
our major institutional shareholders in
depth in our business to ensure as much
transparency as possible. Now, through
our Shareholder Panel, we are engaging
with our private shareholders in an
unprecedented way. In addition, through
channels such as my regular meetings
with the Chair of our Business Involvement
Groups (BIG), M&S’s network of elected
employees, and his attendance at our
Board, we are engaging with our people
as never before.
Having focused on these three pillars –
governance, succession and engagement
– I believe M&S is now better prepared
for the further changes ahead.

OUR BUSINESS

This isn’t new; it is part of what has deﬁned
us for over a century. In 1964 Lord Sieff,
our then Deputy Chairman, spoke about
our values. “The main purpose of building
up a great business should not be
merely to make money,” Lord Sieff said.
“A company has its responsibilities, not only
to shareholders but also to the staff, the
customers and the whole community in
which it trades. Unless it gives satisfaction,
and even happiness to all concerned,
it will fail in its aims in the long term.”
His comments are as pertinent as ever
and this philosophy continues to guide
the way we do business at M&S.

A STRONGER COMPANY
I will leave M&S a stronger company. We are
now set up to compete, with a modern
distribution and logistics backbone and
excellent digital, design and sourcing
capabilities. I have been committed to
strong governance throughout my tenure
and your Board today has a balanced
breadth of talent, both among the
executives and the non-executives.

OUR PERFORMANCE

> A clear map illustrating our stakeholder
considerations and engagement;
> The outcome of our independent
Board Evaluation;
> Greater disclosure around Board
discussions and associated actions; and
> Our approach to risk and risk appetite.

remains well covered on a cash basis.
Given the cash costs associated with our
strategic change and the uncertain market
conditions, we consider it is prudent
not to make additional returns of cash
to shareholders under our enhanced
return programme.

There is no business I would have been
prouder to chair than M&S. I will miss being
part of it, its values and the place it holds
in customers’ hearts. My colleagues at
M&S are the most dedicated I have ever
worked with and I never fail to be impressed
by their commitment to the business.
They want M&S to succeed and they know
what ‘doing the right thing’ means.
The last six years have seen profound
changes in retail and at M&S; technology
has transformed the way that people shop.
Under Steve, change will continue unabated
– it must. To meet the challenges ahead,
M&S must be bold, ambitious and decisive.
It must think big and execute effectively.
And, as Lord Sieff said, it must also give
satisfaction and happiness to its customers,
its employees and its communities.
Finally, I would like to thank our customers,
our employees and our shareholders for
their support. It has been an unforgettable
privilege to be Chairman of M&S and
I wish the business every success in the
years ahead.

ROBERT SWANNELL CHAIRMAN

GOVERNANCE

The Governance report provides:
> A clear and honest review of the year;

> Strategy and
performance
> Culture and
behaviour
> Succession
planning
> Ecommerce

VALUES AND PLAN A

Our values of Inspiration, Innovation,
Integrity and In Touch run through
everything we do at M&S. This is a business
that tries to do the right thing and this is
demonstrated in many ways, from our Long
Service Awards to helping disadvantaged
people into work, to the charity support
delivered through Plan A.

FINANCIAL STATEMENTS

HIGHLIGHTS OF THIS YEAR’S
GOVERNANCE REPORT

06
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR BUSINESS

MARKET & CUSTOMER
INSIGHTS
Our actions are driven by listening to our customers and
analysing the market to build a rich and robust picture of our
customers’ shopping habits and outlooks. Everything we do as
a company is ﬁltered through the lens of what we know about
our customers and every decision starts with them.

UNDERSTANDING OUR CUSTOMERS
Our Customer Insight Unit (CIU) gathers
feedback through a number of different
channels, including store exit surveys,
online surveys and reviews, till surveys,
the Customer Contact Centre and focus
groups, to build a comprehensive picture
of what our customers want from M&S. This
year, we carried out over 700,000 customer
interviews, either in person or through
online surveys. Within CIU, we have created a
centralised data analytics team to ensure we
have a single accurate view of our customers.
Through anonymised data analysis, we can
better understand how our customers are
shopping with us by examining purchasing
behaviours and patterns both in our stores
and online. By understanding how our
customers choose to spend their money
and time at M&S, we can ensure we are
always working to deliver the products
and shopping experience they want.
Our Consumer Barometer gives us a regular
snapshot of how consumers are feeling
about their household ﬁnances and the
economy in general. Every month we talk
to 70,000 M&S customers across our key
customer groups, as well as those who
don’t shop with us regularly, to take the
nation’s pulse.
We overlay this insight with external market
data, such as weather patterns, travel time
to our stores, local footfall data and the
competitor environment, to build a solid
understanding of our customers and our
position in the overall retail landscape.
But gathering this crucial data is only half
of the equation – it’s how we use it to put our
customers centre stage that’s important.
By carefully analysing all the information that
we have, we can ensure we are in touch with
consumer attitudes and lifestyles. The data
allows us to identify patterns and groups of
customers. By understanding these groups
in detail, we can build our strategies from
the customer upwards rather than from
the boardroom downwards.

In short, the information allows us to
do a better job for our most important
stakeholders – the people who shop with
us – so that we are more relevant, more
often. By understanding and knowing our
customers through careful and detailed
data analysis, we can put customers right
at the heart of everything we do.
WHAT CUSTOMERS ARE TELLING US

broadly level, we saw an improvement in
ratings from our most frequent customers
and in our larger stores, so we know
customers are noticing the difference.
Although our Clothing & Home business
is still recovering, customers can see we
are doing the right things. Customers ﬁnd
M&S.com easy to navigate and customer
satisfaction has signiﬁcantly improved
over the last year.

After holding up reasonably well over
Christmas, consumer conﬁdence in
general dipped in the early months of 2017.
People started to feel a little less certain
about the wider economic outlook due
to concern around issues such as rising
inﬂation, the falling pound and uncertainty
as a result of the UK’s decision to leave
the European Union.

The information we gather gives us
a crucial insight into the context in which
we’re trading. Our insights mean nothing
unless we act on them. We share the
information with all our business units
and use the results to help us inform our
business decisions.

When asked about their future spending
intentions, all consumers – rather than
M&S customers in particular – said they
were likely to trim back their discretionary
spending in the months ahead due to these
economic concerns. They also said they
were more likely than before to put their
money into experiences and events, such
as trips to the cinema, gym membership
or meals out, rather than into buying
consumer goods on the high street.
Net optimism, a measure of how positive
people are feeling, increased by 5% over
the year. In terms of their biggest concerns
in the immediate future, people cited rising
food prices, worries about the Brexit
negotiations and geopolitical uncertainty
following the American presidential
election last November.
But despite all this, consumer conﬁdence is
still relatively high compared with the period
between 2008 and 2013, when it suffered
a prolonged slump due to the credit crisis.
More of our food shoppers say that they
would recommend us to family and friends.
Our Net Promoter Score (NPS), which
measures customers’ willingness to
recommend M&S, in Food is up four points.
In Clothing & Home, while overall NPS was

HOW WE USE OUR INSIGHTS

From product development and design, to
the content we put on our website, to our
online delivery proposition – they are all
guided by what our customers tell us.
This year there were many examples of
how we took insights from our CIU and used
them to improve our customers’ experience,
for example:
> We changed the layout of our clothing

departments because of customer
feedback that our stores were sometimes
confusing to shop in. Until this year, we
organised Womenswear by sub-brand,
such as per una or Limited Edition. But this
led to a fragmented shopping experience
and product duplication where subbrands had similar garments. Our stores
now have clear product departments, with
the key products for the season brought
together at the front of the store, leading
to a more intuitive shopping experience.
> We have used our insights to increase

levels of personalisation for our 5.6m
Sparks members who now receive tailored
offers based on their interests and shopping
habits. We invite them to special Sparks
events and experiences, such as wine
tastings or fashion shows, depending on

07
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

M&S TODAY

> We used quantitative data from 7,000

customers to guide our investment in
improving service in our stores. This research
told us customers wanted to see more
Customer Assistants in our stores.
We responded by putting over 3,000
more colleagues into the departments
where our customers told us they value
service most, including Fitting Rooms,
Bra Fit, Men’s Suits and Footwear.

32m
NUMBER OF CUSTOMERS

CLOTHING & HOME CUSTOMERS
OUR BUSINESS

how many Sparks they have and what we
know they are passionate about. We are
also being more targeted in our email
communications by sending customers
updates speciﬁcally related to their local
store and area so they only get the
information that is most relevant to them.

8.3m
WEBSITE VISITS
PER WEEK

38%

62%

40%

OF OUR CUSTOMERS
ARE MALE

OF OUR CUSTOMERS
ARE FEMALE

FOOD CUSTOMERS SHOP
‘FOR TONIGHT’

40%

52%

OF CUSTOMERS SHOP
FOR BOTH CLOTHING &
HOME AND FOOD

OF ONLINE ORDERS ARE MADE
THROUGH TABLET AND MOBILE

> The Clothing & Home research panel

> For this year’s Christmas campaign, we

listened to thousands of customers
to understand what they want to see
from M&S at Christmas. The feedback
we gathered said they wanted us to own
Christmas in the traditional sense, but in
a way that was surprising and different.
So we created the Christmas with Love
campaign starring the often unsung hero
of Christmas, Mrs Claus, who epitomised
the huge efforts our customers put in to
making the festive season special.
This is just the beginning. The next few years
present exciting opportunities. For example,
since the launch of Sparks in 2015, nearly
1.5m people have downloaded our M&S app.
This combination of technology and loyalty
is powerful. It brings us closer to our customers
and will allow us to further enrich our
proposition. It will allow us to increase
customer engagement. And it will allow
us to drive frequency of purchase across
channels and categories.
Smart use of data can boost sales and
therefore create value for everyone: our
customers, our employees and, ultimately,
our shareholders.

23%

OF CUSTOMERS UNDER 35

UK FOOD MARKETPLACE
We face stiff competition across the UK food sector with rising inﬂation, recovery
among the main four supermarkets and the continued growth of the discounters.
Food retailers and suppliers also face cost headwinds due to rising raw material prices
and the depreciation of sterling. However, through listening to our customers and
monitoring the market, we keep on top of changing shopping habits. Consumers remain
as savvy as ever and relish innovation. They are also doing smaller ‘convenience’ shops.
These trends play to our strengths.
UK CLOTHING MARKETPLACE
The market remains highly competitive, with retailers facing cost pressures due to
increasing commodity prices and the impact of the fall in sterling. At the same time,
households are managing their ﬁnances carefully due to fears of inﬂation and political
uncertainty. Customers still love treating themselves, but consumer conﬁdence dipped
in the early months of 2017. Spending on clothing is also coming under pressure as
consumers spend more on experiences and retailers are vying with cinemas and
restaurants for spend. However, we believe we can attract consumers by focusing
on offering high quality, stylish products that are competitively priced.

GOVERNANCE

we use for product development has
a customer interaction every ﬁve seconds
through our dedicated panel of around
231,000 customers. With this we gain
invaluable feedback on new products
during design development, so we can
increase the buys on customer favourites
and eliminate products that score less
well at the concept stage, ensuring we
are shaping collections that most
resonate with our customers.

CONSUMER CONFIDENCE INDEX
10
5
0
-5
-10
-15
2015
N

Source: GfK

2016
J

2017
J

FINANCIAL STATEMENTS

the fashion press twice a year – Autumn/
Winter in May and Spring/Summer in
November – so our customers get to
see some of what’s coming next season.
This year, we responded to feedback that
customers increasingly want to buy into
new season trends as soon as they see
them with ‘See Now Buy Now’ capsule
collections, enabling customers to
shop key pieces from the new season
straight away.

OUR PERFORMANCE

> We showcase our clothing collections to

08
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR BUSINESS

CHIEF EXECUTIVE’S
STRATEGIC UPDATE
By listening to our customers and simplifying how we do things,
I believe we have the right strategy in place to make M&S a relevant,
proﬁtable and truly sustainable retailer.
STEVE ROWE CHIEF EXECUTIVE

OVERVIEW
A year ago, I started in my role as Chief
Executive by posing a series of questions
that I hoped would help unlock the future of
M&S, giving us a platform from which to ﬁrst
recover and then to grow. 2016/17 has been
a year of change as we started to answer
these questions, which I address below.
The steps we are taking are making a
difference and we are making progress.
However, as we said when we set out our
plan, it has resulted in some short-term
pain. Some of the action needed has been
costly and proﬁts are down. Clothing &
Home sales were down year-on-year as we
reduced promotions and markdown activity.
We expected this and we still believe we are
doing the right thing for the future of our
business. We have seen encouraging signs
from the increase in full-price Clothing &
Home sales and in the sales growth during
the key Christmas trading period. And in
Food, we continued to grow ahead of the
market with new stores outperforming
expectations.

The business has adapted well as we start to
build a sustainable foundation for the future.
We have laid a lot of the groundwork for
our recovery; however, we are not there yet.
I want to see consistent delivery over time
and I want to see us move out of recovery.
Even as our performance improves, we
can’t stand still. While we are still focused
on recovering our business and we have a
lot more to do, I am also starting to look
to future growth opportunities, some of
which I outline at the end of this update.
OUR CUSTOMERS
We asked how we could put customers at
the heart of everything we do. Due to the
changes we’ve made, we are now a more
data-driven organisation where decisions
are made based on what we know about
our customers, not what we think we know.
We conduct more customer listening
groups than ever before; all trading
meetings now begin with insight into our
customers; and, as we celebrate ten years
of leading the social and environmental
agenda, we have repurposed Plan A to
make it more customer-focused.

Our customer-focused changes are most
keenly felt in our stores. We invested in
customer service by recruiting additional
colleagues into the areas we know are most
important to our customers. We also rolled
out our Making Every Moment Special
in-store service initiative.
Read more about Making Every Moment
Special below

Our new Spend It Well marketing campaign –
like our Mrs Claus Christmas campaign
before it – focuses squarely on our
customers’ lifestyles. It taps into people’s
emotional connection with M&S and is
aimed at driving a reappraisal of our brand.
Life is short so we should Spend It Well. The
campaign encourages customers to make
the most of what’s relevant for them today.
CLOTHING & HOME
We asked how we could recover and grow
our Clothing & Home business. The answer
lay in making a series of common sense,
customer-focused changes to the way we
do things. In a tough market, I am pleased
with the progress we are making.

MAKING EVERY MOMENT SPECIAL
Our Making Every Moment Special
employee engagement programme has
been transformational for our customers
and our people alike. Through it, we believe
we’ve taken customer service to new levels.
Last summer, we gave over 70,000 store
colleagues interactive training with the
objective of putting customers at the heart
of what we do. We encouraged them to make
real-time decisions based on individual
customers’ needs and we removed noncustomer-facing tasks from their daily
routines, giving them more time to spend
with customers. The response from

colleagues has been phenomenal and as
positive as anything I’ve known in my 28
years at M&S. Our ‘Customer at the Heart’
site on Yammer, our internal social media
network, contains thousands of examples
of great service by our colleagues.
Throughout our 133-year history, we have
learnt that better service leads to better
sales. Making Every Moment Special shows
this principle in action. It has become our
mantra across the business. By empowering
our people to make customer-focused
decisions, our sales ﬂoors are buzzing
with a renewed sense of purpose.

09
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

OUR STRATEGY

CUSTOMERS AND BRAND

PUTTING THE CUSTOMER AT THE HEART
OF EVERYTHING WE DO
CONTINUE TO GROW

FOOD

AUTHORITY

NEWNESS

CONVENIENCE

Focus on product

Drive execution

Focus on product

Drive execution

Style, wardrobe
essentials and ﬁt

Price, availability
and service

Innovation, health
and capability

Price, availability
and convenience

UK STORE ESTATE

INTERNATIONAL

ORGANISATION & COSTS

> Grow Food space

> Focus on partnership
model and online
> Drive execution –
price, availability and service

> Create a lean, effective
Head Office
> Continue to develop
cost culture

> c.60 fewer, more inspirational
Clothing & Home stores
> Rebalance c.50 stores
to growth areas

We made shopping simpler for customers
by reducing the number of times we launch
new lines from 14 to nine times a year.
We cut the number of garment options
by 10%. We are phasing out the Indigo,
Collezione and North Coast sub-brands.
These measures enabled us to improve
availability across our ranges. Previously,
we acted too much like a ‘fast fashion’
company, prioritising frequency over quality
and taking too many cues from catwalk
fashions. So we improved our ﬁts, fabrics
and ﬁnishes, we increased availability and
we refocused on delivering contemporary
wearable style and wardrobe essentials.
Our ranges are now more relevant to what
customers want from M&S.

We started offering better value than ever
before by reducing prices on 2,400 Clothing
& Home lines. We simultaneously reduced
our promotional activity. This put an end to
confusing pricing which meant our products
were either too expensive or too heavily
discounted. Not only have these changes
given clarity to customers, but they made
our sales more proﬁtable and boosted our
full-price market share.
We also made our stores far easier to shop
in by merchandising more of our clothes
by product category rather than by brand.
This change in emphasis reﬂected the
changes we made last year to the way our
teams design and buy products. Our shops
are now simpler and more intuitive. They are
based around customers’ needs.

We are still in the recovery phase of our plan
and getting it right is absolutely crucial to
our success. In May this year, we announced
a new role to lead this work. Jill McDonald
will join as Managing Director, Clothing,
Home & Beauty and will have overall proﬁt
and loss accountability for all aspects of
our Clothing & Home business, from design
and sourcing through to supply chain and
logistics. The scope of this role highlights
the importance we are placing on
continuing to recover and starting to
grow Clothing & Home. We are making
encouraging progress and I believe we
are on the right path to growth.

OUR PERFORMANCE

QUALITY

GOVERNANCE

QUALITY

FINANCIAL STATEMENTS

STYLE

OUR BUSINESS

RECOVER AND GROW

CLOTHING & HOME

10
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

CHIEF EXECUTIVE’S STRATEGIC UPDATE CONTINUED

OUR OPERATING MODEL

OUR PEOPLE
By thinking, working and behaving with
a truly customer-centric mindset, I believe
our people are integral to our success.

LOGISTICS

FOOD

M&S
.CO

IN
TE

CUSTOMERS

A
PLAN A

S TO R E S

PROPERTY

MARKETING

Last year I asked what our right cost base,
shape and structure was, and how this
would affect our people. In April 2017, we
ﬁnalised the pay and pensions changes
that I outlined last year and we now reward
our people in a fairer, more consistent way.
I am immensely proud that we now have
pay and beneﬁt parity across the business.
Following detailed consultation with our
National Business Involvement Group of
elected employee representatives, we now
offer one of the best reward packages in
UK retail.
In November, we outlined further plans to
simplify the business and lower our costs.
This resulted in a reduction of roles at our
Head Office and the decision to reduce our
central London office space as we move
to more efficient ways of working. Some
of these decisions had a direct impact on
a number of our employees. But I believe
our people recognise that we made them
for the right reasons and that they were
necessary for our sustainable growth.
I would like to thank all our people for their
dedication and professionalism in a year
of signiﬁcant but necessary change.
STORE ESTATE AND INTERNATIONAL
Our customers’ shopping habits are
changing, so I asked whether our UK and
International store estate is the right shape
for the future. It is not. Customers’ behaviour
is evolving, and the pace of change is
accelerating. Rather than doing one big
food shop a week, there is a growing trend
of customers picking up food for now or for
tonight. Look at how people use technology.
They’ll browse or buy online and collect in
store. Or they’ll buy on their smartphone
for home delivery. Sales on M&S.com now
account for 17% of Clothing & Home sales.

THING & HO
ME
CLO

FOOD
Convenient. Special. Different. These are
the reasons why customers love our food.
These are also the reasons why our Food
business is on a clear path to sustainable
growth. We know that selling quality food
from convenient locations is a winning
formula: sales from the 30 owned Simply
Food stores we opened this year are ahead
of plan. We’ll continue to grow our Food
business by opening 250 further Food
stores by 2020. We’re succeeding in
our aim of making every food moment
special. Customers love our high levels of
innovation – we renew around a quarter
of our range every year – and they love
the high quality of our products. We won’t
accept second-rate ingredients. In a world
where you get what you pay for, it shows.
This year we extended Collection, our
top tier range for customers who want
something extra special. And customers
know they can trust us on health. It is their
number one concern when it comes to
buying food, so we launched 200 new
products aimed at helping our customers
to eat well, and extended our Made Without,
Balanced for You and Eat Well ranges.
The grocery market continues to be very
competitive but we will continue to set
ourselves apart with superior quality,
innovation and convenient food in
convenient locations. As we grow our
Food store presence, our food will be even
more accessible to more customers.

MAR K E T I N G

IONAL
AT
RN

Simplicity and accountability are key
to running an agile and successful
business. We are therefore changing our
operating model to give us two clear proﬁt
and loss accountabilities – one for our
Clothing & Home business unit and one
for our Food business unit. Both sides of
the business are now responsible for their
own end-to-end proﬁt & loss. As part of
the change, M&S.com has moved from
being a separate business unit to being
a sales channel, along with Stores and
International. All three channels now
feed into our two business units, with our
customers at the centre. Underpinning
these changes is the ongoing drive for
simplicity in the way we do things.

FINANCE

CORPORATE
GOVERNANCE

COMMUNICATIONS

At the same time, customers want to shop in
modern stores that offer a great experience.
Our store portfolio needs to reﬂect how
people live their lives today.
So we announced plans to rebalance our
UK space to meet changing customer
needs. The transformation will enable us
to grow Clothing & Home sales through
fewer, better stores. Over ﬁve years, we will
change the use of around 25% of our space,
with more of it being deployed to Food and
other growth areas. Clothing & Home space
will reduce by around 10%. Approximately
30 full-line stores will close, and 45 will be
converted to Simply Food.
To be clear, this is neither a withdrawal nor a
retrenchment. Due to our ambitious Food
expansion we will have more stores in the
future, not fewer. But our estate will be the
shape which meets how our customers
want to shop at M&S.
Our International operations have also
changed. While our franchise business with
our knowledgeable partners is proﬁtable,
our owned estate is not. This is unsustainable,
so we are focusing on our joint venture and
franchise partnerships and our growing
online business, and exiting ten of our lossmaking owned markets. The programme is
on track. We have now closed all ten of our
stores in China and completed employee
consultations in the remaining markets.
We remain a signiﬁcant player on the global
stage with a store or online presence in
55 markets. I believe in an international
business for M&S and remain committed
to it.
These changes show that we’re willing to
adapt to ensure we’re in the best shape for
our customers.

11
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

While proﬁts were signiﬁcantly down,
I continue to believe in good cash
management, a robust balance sheet and
a progressive dividend policy. We know how
important our dividend is to shareholders
big and small.
Read more in the Financial Review on p26-29

LOOKING AHEAD
My priorities for the year ahead are to
continue to recover and grow Clothing &
Home and to grow our Food business. I will
also establish the foundations for new
paths to growth. In the UK, these will focus
on areas of market share opportunity in
Kidswear, Footwear, Home and Beauty.
Internationally, we will explore new territories
with our franchise partners. And I will continue
to develop talent within the organisation.
It continues to be a privilege to lead this
fantastic company. Our job as a retailer is
quite simple: we must offer customers great
products at the right price in physical or
digital environments that they enjoy, with
great service. If we do this, they will come
back to us for more.

But to do this year-in, year-out, we must
constantly adapt. We must adapt both to stay
in tune with our customers’ needs and in the
way we sell our products. Shopping habits
won’t stop changing, so neither must we.
As Chief Executive, I want to make M&S agile
and ﬂexible enough to change with our
customers. I want to see the end of big
transformation programmes followed by
years of standing still, followed by yet more
transformation. Remaining relevant should
be a continuous process.
By simplifying how we do things and really
listening to our customers, we’ve already
become more agile this year. By rationalising
our Clothing ranges and reshaping our store
portfolio, we’ve started to put this agility
into practice. In doing this, we’ve built a solid
foundation for growth. We must never stop
adapting our business for our customers.

OUR BUSINESS

OUR CHAIRMAN
Our Chairman, Robert Swannell ,has
announced that he will step down in
September. On behalf of all of us at M&S, I
wish Robert well. He has overseen signiﬁcant
change at M&S. Our infrastructure now
provides a strong platform for growth, and
Robert has been instrumental in driving
shareholder engagement, good governance
and succession planning. He has also been
a tremendous support to me personally
over the last year. On behalf of the whole
business, I would like to welcome Robert’s
successor, Archie Norman.

Nothing makes me prouder of the work our
teams do than hearing from our customers
and what they love about M&S. Those
customers are the reason we’re here. They
will remain at the heart of everything we do.

STEVE ROWE CHIEF EXECUTIVE

OUR PERFORMANCE

COSTS
Cost control remains a top priority.
Our operating costs were up 3.8% this
year as we put more colleagues into stores
and absorbed the costs of our Food store
opening programme. We funded some of
this through our Crunch Costs initiative,
which challenged all of our people to tackle
unnecessary costs, and from simplifying
our Head Office structure. Better buying
initiatives, such as direct design and food
packaging optimisation, mitigated the
currency headwinds we saw on both sides
of the business. The steps we’ve taken to
transform M&S led to charges of £437.4m
this year. These were largely driven by
charges for International store closures
and for the changes to pay and pensions.

Helen Weir
Chief Finance Officer

Patrick Bousquet-Chavanne
Executive Director, Customer,
Marketing & M&S.com

Andy Adcock
Food Director

Sacha Berendji
Retail Director

Paul Friston
International Director

Dominic Fry
Communications & Investor
Relations Director

David Guise
Human Resources Director

Jo Jenkins
Womenswear, Lingerie &
Beauty Director

Amanda Mellor
Group Secretary and Head
of Corporate Governance

FINANCIAL STATEMENTS

Steve Rowe
Chief Executive

GOVERNANCE

OPERATING COMMITTEE

12
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR BUSINESS

CREATING SUSTAINABLE
VALUE
OUR BUSINESS MODEL
We create long-term value through
the effective use of our resources and
relationships. We manage these in line
with our core values of Inspiration,
Innovation, Integrity and In Touch.
These values inﬂuence how we behave
and they run through everything we
do – they make the M&S difference:
making every moment special through
the products and services we offer our
customers in the UK and internationally.

OUR RESOURCES & RELATIONSHIPS

FINANCIAL
Generating returns for our stakeholders
through effective management
of our ﬁnancial resources

OUR PRODUCTS & CHANNELS
Maintaining our channels and supply
chain infrastructure to meet
customer demand
OUR INTELLECTUAL CAPITAL
Strengthening our brand through
creation and protection of our
intellectual property

THE M&S DIFFERENCE

1 LISTEN & RESPOND

2 STRATEGY & PLANNING

3 DEVELOP & DESIGN

Activities: Our customers are at the heart
of everything we do, and our strategy
today is more customer-focused than ever
before. By understanding what drives their
behaviour, both within M&S and externally,
we can ensure we work to deliver the
products and experiences that customers
want. This year we strengthened the data
and analytics team within our Customer
Insight Unit (CIU), which gathers and
interprets customer data, as well as a
wealth of external sources. The CIU then
ensures that its insights are used across
our business units. Through the CIU, we can
understand each customer’s needs and
relationship with M&S – wherever and
however they shop.

Activities: Efficient implementation of our
strategy is key. This year, changes to our
organisational structure saw us streamline
our senior management team and bring
each channel’s merchandising operations
together, increasing efficiency. We also
revised our operating model, which will
give our two business units – Clothing &
Home and Food – clear proﬁt and loss
accountability. Through our Smarter
Working programme, we created a new
technology hub which will roll-out
signiﬁcant technology improvements
to increase our digital savviness across
the business.

Activities: By fostering talent and
encouraging entrepreneurialism among
our people, we can continue to develop
high quality products for our customers.
Our product developers are experts in their
ﬁelds, whether they are food technologists
or experienced tailors. Our food innovation
sets us apart and with talent ranging from
Michelin-trained chefs to Masters of Wine,
our Food team is among the best in the
business. We now design 68% of our
clothing ranges in-house and buy our
clothes by product category rather than
sub-brand.

Outcome: By listening to customers and
responding to what they tell us, we can
create products and shopping experiences
that are relevant to them.

Outcome: Successfully implementing our
strategy allows us to improve our ﬁnancial
performance through increased proﬁts
and strengthened cash ﬂow.

Outcome: The talent in our Food team
underpins the innovation that our
customers love. By developing and
designing clothing in-house, we have
reduced product proliferation, designed
ranges characterised by a more consistent
colour palette and reﬁned our quality
through improved ﬁt, upgraded fabric
and better ﬁnishes.

13
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

FIND OUT MORE

Read about how our business model
creates value on p14-15

PLAN A

&R
ES

OUR BUSINESS

OUR RESOURCES & RELATIONSHIPS

INSPIRATION

OUR PEOPLE

Aim to excite and
inspire our customers

Developing our employees
and their knowledge

N D & SE LL

Listen actively
and act
thoughtfully

Core purpose

INNOVATION

MAKING
EVERY MOMENT
SPECIAL

Aim to improve
things for the
better

INTEGRITY
SO

Strive to do
the right thing

OUR STAKEHOLDERS
Building and nurturing relationships with
our customers and suppliers, and in the
communities in which we operate
NATURAL RESOURCES
Sourcing responsibly and using
natural resources efficiently

TEGY & PLAN
STRA
NI

BR A

IN TOUCH

OUR PERFORMANCE

E
RV

L IS T

GE
GA
EN

D
N

Read about how our
business model works on p16-17

PLAN A

Y
DE V E LO P

S
DE

4 SOURCE & BUY

5 BRAND & SELL

6 SERVE & ENGAGE

Activities: A strong, ethical supply chain is
crucial in creating sustainable value. We work
with our suppliers to ensure continuous
social and environmental improvement,
whether it relates to sourcing cotton or
ﬁshing more sustainably. We are committed
to being more transparent about our supply
chains, and our interactive Supplier Map
details all the clothing, home, beauty and
food factories that supply M&S. All 3,000 of
our suppliers must adhere to our Global
Sourcing Principles, which cover working
conditions and workers’ rights. We comply
with the Groceries Supply Code of Practice
(GSCOP) and help build global approaches
to ethical sourcing through organisations
such as the Consumer Goods Forum.

Activities: We constantly evolve how we sell
our products to suit customers’ changing
lifestyles. Customers today are increasingly
looking for deeper engagement with brands;
they want richer and more meaningful
experiences. They want moments that matter.
We therefore work across departments
and channels to create great customer
experiences. For example, our stores are now
laid out in product areas, more aligned with
M&S.com, and M&S.com is evolving from a
purely transactional experience to a place of
inspiration and personalisation. Our Spend
It Well campaign reﬂects the unique feeling
that our customers have about M&S and our
high quality own-brand products. We’re also
making ‘doing the right thing’ synonymous
with the M&S brand by committing to all our
products having a Plan A story to tell by 2020.

Activities: We build on our privileged position
of trust among customers with high levels
of service. This year our Making Every Moment
Special employee engagement initiative
saw 70,000 store colleagues receive training
in giving better customer service and
making the shopping experience effortless
for customers. In understanding our
customers better, we can become more
relevant more often. We also serve and
engage with our customers via our Sparks
loyalty scheme. Through Sparks, they share
their passions and preferences with us,
so we can introduce new services, products
and channels that we know will interest
them. We also serve and engage with the
communities in which we operate.

Outcome: An effective sourcing strategy
creates sustainable value by driving
efficiencies and margin improvement,
while using our scale to deliver great
quality at every price point.

Outcome: Our own brand creates value by
distinguishing us from our competitors and
our Plan A ambitions make sustainability
accessible to all.

Outcome: Good service and engaging with
our customers in a way that is relevant to
them drives higher sales and customer
loyalty. This creates long-term sustainable
value across the business.

GOVERNANCE

FINANCIAL STATEMENTS

14
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR BUSINESS

CONNECTED VALUE
INPUTS

CORE OBJECTIVES

Our resources and relationships
Across our business, we depend
upon key resources and
relationships to create ﬁnancial,
non-ﬁnancial and strategic value.

Group ﬁnancial
objectives

BUSINESS MODEL THE M&S DIFFERENCE

How our activities deliver ﬁnancial value

Grow Group revenue
Increase earnings
and returns
Strong cash generation
See KPIs p18

Listen & Respond

Source & Buy

We use comprehensive data to
understand what customers want
to buy and how they want to shop.

We capitalise on the strong,
long-term relationships we have with
our suppliers to deliver efficiencies,
improve margins and drive
proﬁtability without compromising
on the quality of our products.

Strategy & Planning
Robust ﬁnancial management
ensures we are able to continue
to invest in our business and
deliver proﬁtable growth for
our shareholders.
Develop & Design
New ideas fuel future performance,
which is why attracting and
developing talent is central to
the future of our business.

FINANCIAL

Brand & Sell
Our brand is at the heart of the M&S
difference and we create unique
products that drive ﬁnancial value.
Serve & Engage
We build and maintain customer
loyalty by prioritising customer
service and linking it to our
employee beneﬁts.

non-ﬁ
ﬁnancial
nanciall value
How our activities deliver non

OUR PRODUCTS
& CHANNELS

OUR INTELLECTUAL
CAPITAL

Non-ﬁnancial
objectives
Engage, serve and
retain customers
Foster a skilled,
motivated and
engaged team
Source products
with integrity
Efficient and
responsible operations
See KPIs p19

OUR PEOPLE

Listen & Respond

Source & Buy

Our customers’ trust in the M&S
brand is a key point of difference.
We retain this competitive advantage
by doing things in the most
responsible way – we do the work
so our customers don’t have to.

We are leading the way on sourcing
products with integrity to exceed
customers’ expectations on quality,
safety and sustainable sourcing.

Strategy & Planning
We improve efficiency and reduce
waste across the business through
the effective use of our resource
and sourcing systems.
Develop & Design
By cultivating talent and
encouraging diversity we have
an engaged and autonomous
workforce empowered to put
our customers ﬁrst.

Brand & Sell
We have built our brand on robust
standards of responsibly sourced
products and services.
Serve & Engage
We bring our brand to life by driving
engagement and participation
in store, online and through
community support and
volunteering.

How our activities deliver strategic
c value

Strategic
objectives
OUR
STAKEHOLDERS

Drive growth
Reach customers
Improve proﬁtability
See KPIs p20-21

NATURAL
RESOURCES

Listen & Respond

Source & Buy

By analysing what our customers
want, we ensure our growth plans
are right for the future of M&S.

Our progress towards a more
ﬂexible and direct sourcing
operation is beneﬁting our
Clothing & Home margins.

Strategy & Planning
Our UK store estate programme will
drive sales growth by ensuring that
we have an estate that reﬂects how
our customers want to shop.
Develop & Design
By constantly improving product
quality and choice, we drive growth
by making M&S more relevant to
our customers more often.

Brand & Sell
We sell our products through our
own branded channels, empowering
us with the ability to grow and develop
them in the way that is right for
our customers.
Serve & Engage
The rationale behind every strategic
decision starts with our customer –
we want a winning culture built
around giving them great products
and service.

15
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

RELATED RISK FACTORS

ACCOUNTABILITY

OUTPUTS

KEY OUTCOMES

Financial performance risks

Financial accountability

Key ﬁnancial measures

Financial value created

Adjusted earnings per share

Strong proﬁts build
strong cash position

See Governance p34-84

Dividend per share

Returns to shareholders

See Remuneration p66-78

Return on capital employed

Taxes to government

OPERATING COMMITTEE

8. Margin
12. Third party management

Free cash ﬂow (pre-shareholder
returns)

See Risk p32-33

Increased investment
opportunities

See KPIs p18

There are a number of risks
related to how we deliver
non-ﬁnancial value:
1. Clothing & Home recovery

Non-ﬁ
Non
ﬁnancial
nancial accountability
BOARD

Non-ﬁ
Non
ﬁnancial
nancial performance risks

OPERATING COMMITTEE

2. Food safety and integrity
4. Information security
(including cyber)

ADVISORY PLAN A COMMITTEE

3. Corporate responsibility

OPERATIONAL PLAN A COMMITTEE

Key non-ﬁ
non ﬁnancial
nancial measures

Total Clothing & Home customers
and average number of shops
per customer
Employee engagement score
Percentage of products with
a Plan A quality
Greenhouse gas emissions
(tonnes)

7. Talent & succession

Greenhouse gas emissions
(per sq ft)

Better trained and fully
committed employees
Stronger relationships with
suppliers and communities
Culture where innovation
and agility thrive

See KPIs p19

Strategic accountability
BOARD

There are a number of risks related
to how we deliver strategic value:

Maintained and
improved reputation
with consumers

See Plan A Report

See Risk p32-33

Strategic performance risks

Non-ﬁ
Non
ﬁnancial
nancial value created

Total Food customers and
average number of shops
per customer

6. Customer proposition &
experience
9. Brand

Employee rewards

Key strategic measures

Strategic value created

Food UK revenue
Food gross margin
UK space growth – Food

Growth in sales, product
range and presence

8. Margin

See Governance on p34-84

Clothing & Home UK revenue

Supply chain efficiency

10. UK store estate

See Remuneration p66-78

Clothing & Home gross margin

Increased customer base
with broadening appeal

1. Clothing & Home recovery

OPERATING COMMITTEE

5. Technology

11. Proﬁtable growth
See Risk p32-33

GOVERNANCE

11. Proﬁtable growth

Group proﬁt before tax
and adjusted items

Food like-for-like revenue growth

Clothing & Home UK like-for-like
revenue growth
International revenue
International operating proﬁt
International space growth
M&S.com sales
M&S.com weekly site visits
See KPIs p20-21

A more dynamic,
ﬂexible and agile business

FINANCIAL STATEMENTS

1. Clothing & Home recovery

Group revenue

OUR PERFORMANCE

BOARD

There are a number of risks related
to how we deliver ﬁnancial value:

OUR BUSINESS

We are committed to delivering sustainable value for stakeholders.
Here, we summarise how our business model drives value creation,
how the process is managed, and how we measure the value created.

16
ANNUAL MARKS
REPORTAND
ANDSPENCER
FINANCIAL
GROUP
STATEMENTS
PLC
2017
STRATEGIC REPORT

VALUE CREATION IN ACTION:

FOOD
1 LISTEN & RESPOND

We have seen a big change in how our
customers shop for healthy food. As
interests have shifted away from dieting,
consumers are looking for ways to live
healthier lifestyles every day and 81% of our
customers tell us that health is their number
one concern when buying food. We have also
seen an increase in interest in wheat-free and
plant-based eating, with vegan products
being one of the biggest product requests
we receive from our customers. This isn’t just
vegetarians and vegans – industry data
suggests there is a growing number of
people in the UK who identify as ﬂexitarian in
that they eat a largely plant-based diet with
the occasional addition of meat and ﬁsh.

4 SOURCE & BUY
Our buying teams worked with our
suppliers to source unusual grains and
on-trend ingredients, such as buckwheat
and cauliﬂower couscous, to bring
something new and different to our
customers. The Avocado & Egg Nourish
Bowl is the ﬁrst product on the UK high
street to use sorghum, a protein and ﬁbre
rich wholegrain similar to pearl barley,
while the Edamame & Black Rice and the
Sweet Potato Nourish Bowls are our ﬁrst
vegan Food on the Move salads.

2 STRATEGY & PLANNING

3 DEVELOP & DESIGN

With a 4.5% market share in the on-thego lunchtime food market, we saw an
opportunity for us to add to our Food on
the Move range by bringing these trends
to our customers. We also noticed there
was a gap in the market for vegan-friendly
lunchtime options. Our product development
team went on a research trip to California,
the home of healthy eating, to get ideas and
inspiration. The big trend in San Francisco was
for nourish bowls – colourful, wholesome
salad bowls composed of vegetables, healthy
grains and protein.

Taking the customer insight, market trend
data and inspiration from their trip, the
team developed a new range of Nourish
Bowls, featuring hearty, wholesome and
fresh ingredients including edamame,
black rice, avocado and sweet potato.
They also developed our ﬁrst ever vegan
sandwiches and a range of vegetable wraps,
made with beetroot, pumpkin or spinach,
which all contain a portion of vegetables.

RESEARCH:
SAN FRANCISCO,
CALIFORNIA

5 BRAND & SELL

6 SERVE & ENGAGE
The January edition of our Adventures in
Food customer newspaper was all about
the new ranges, with information on some
of the more unusual ingredients, tips for
ways to eat more healthily and recipe
ideas for creating healthy meals at home.
Communications went to all stores to
educate colleagues on the new ranges and
we hosted tasting events in 50 stores, giving
customers the chance to try the Nourish
Bowls and the new wraps and sandwiches.

We launched the new range in January,
when consumers are typically looking
for new ways to eat healthily. Our TV and
print campaign, Adventures in Wonderfood,
showcased products from the new ranges
in a vibrant and exciting way, and this was
supported by a coordinated campaign
in our stores and editorial features on
M&S.com. With its range of new ﬂavours, we
introduced the Nourish Bowls to customers
as part of our lunch meal deal, and ran a
special promotion for Sparks members with
10% off all Eat Well products, which included
the new Food on the Move products.

17
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

3 DEVELOP & DESIGN

We have set out a clear strategy to focus
on style over fashion trends, and we know
our customers want a consistent ﬁt that
ﬂatters with good quality fabrics. We also
know we are at our best when we focus on
what we are famous for. In order to maximise
the opportunity, our Womenswear team set
out to create a collection of pea coats that
used quality fabrics and styling to deliver a
range suitable for our broad customer base.

Following the changes to the structure
of our Womenswear team, our products
are now designed and bought by category
rather than by brand. Our Outerwear design
team created a collection which took that
classic shape and updated it with different
colours and interesting fabrics. Using our
sub-brands, the team created distinct
products for our customers. This gave
the range a clear point of difference across
M&S Collection and the sub-brands; from
the coats’ length, fabric and colour to styling
details such as pockets, trims or collar shape.
At £55, our M&S Collection opening price
point pea coat gave customers a wardrobe
classic at a great price, while the per una
pea coat featured gold military buttons
and a faux fur collar, as we know per una
customers like a touch of elegance.

5 BRAND & SELL

6 SERVE & ENGAGE

The pea coat is a consistently popular
style and it has joined garments such
as the trench and the camel coat as
a timeless classic. It’s also a style that is
consistently popular with our customers –
our Winter 15 collection featured a classic
pea coat in two colours that was an instant
hit and sold out early in the season. As the
market leader in coats, we know this is a
style we need to get right.

4 SOURCE & BUY
With conﬁdence in the style, we bought
our classic £55 pea coat in greater depth
and more colours. For the more trend-led
£99 version, we bought it in the two key
colours of the season – navy and khaki.
Leveraging our direct sourcing capabilities,
we have consolidated some of our supply
base, which has enabled us to work more
closely with our key suppliers to source
better quality fabrics and focus on styling
and ﬁt.

The £99 M&S Collection wool-mix pea
coat was the star of our Autumn/Winter
marketing campaign, and was available
to customers in all our stores. In line with
our pricing strategy to offer consistently
good prices, from our £55 opening price
point pea coat to the £199 100% lambswool
version, we offered great value and quality
at every price point.

We know coats are one of the most
important product categories for our
customers when it comes to determining
their view of M&S. Coats are quick to try
on during a shopping trip and customers
want to be able to easily compare the look
and feel of each item. For Autumn/Winter 16,
we made our coats easier to shop with a
Coats destination area at the front of our
stores. The area featured an event zone
which showcased the key coats of the
season, with unstructured coats in early
autumn switching to the warmer pea coats
as the weather got colder.

OUR PERFORMANCE

2 STRATEGY & PLANNING

GOVERNANCE

1 LISTEN & RESPOND

FINANCIAL STATEMENTS

CLOTHING & HOME

OUR BUSINESS

VALUE CREATION IN ACTION:

18
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR PERFORMANCE

KEY PERFORMANCE
INDICATORS
GROUP FINANCIAL OBJECTIVES
OBJECTIVE

KPI

2016/17 PERFORMANCE (52 weeks to 1 April 2017)1

Grow Group
revenue

GROUP REVENUE

£10.6bn

Increase
earnings
and returns

Total Group revenue, including retail
sales for owned businesses and
wholesale sales to franchise partners.

+2.2%

GROUP REVENUE £bn
13/14

10.3

14/15

10.3

15/16

10.4

16/17

10.6

GROUP PROFIT BEFORE TAX (PBT)
AND ADJUSTED ITEMS

£613.8m

Adjusted proﬁt provides additional
information on performance, adjusting
for items considered to be signiﬁcant
in nature and/or value.

GROUP PROFIT BEFORE TAX
AND ADJUSTED ITEMS £m

-10.3%

622.9

13/14

684.1
613.8

16/17

RETURN ON CAPITAL
EMPLOYED (ROCE)

13.7%

Return on capital employed is
a relative proﬁt measure of the
returns from net operating assets.

RETURN ON CAPITAL EMPLOYED %

The decrease in ROCE primarily reﬂects
the decrease in earnings before interest,
tax and adjusted items.

13/14

14.8

14/15

14.7
15.0

15/16

13.7

16/17

ADJUSTED EARNINGS
PER SHARE (EPS)

30.4p

Adjusted earnings per share (EPS) is the
proﬁt before the impact of adjusted
items divided by the weighted average
number of ordinary shares in issue.

ADJUSTED EARNINGS PER SHARE p

-12.6%

13/14

32.2

14/15

33.1

18.7p

30.4

The Board is recommending a ﬁnal
dividend of 11.9p per share, resulting
in a total dividend of 18.7p.

Level

DIVIDEND PER SHARE p
17.0

13/14

18.0

14/15

Strong
cash
generation

FREE CASH FLOW
(PRE SHAREHOLDER
RETURNS)
Free cash ﬂow is the net cash generated
by the business in the period before
returns to shareholders excluding the
impact of exchange rates on translation
of foreign currency denominated
cash balances.

15/16

18.7

16/17

18.7

£585.4m

+8.5%

FREE CASH FLOW
(PRE SHAREHOLDER RETURNS) £m
13/14

427.9

14/15

524.2

15/16

539.3

16/17

Basic adjusted EPS decreased primarily
due to the lower proﬁt generated in the
year. The weighted average number of
shares in issue during the period was
1,623.1m (last year 1,635.9m).

34.8

15/16
16/17

Dividend per share declared in respect
of the year.

Group PBT before adjusted items was
down on last year largely due to the
reduction in Clothing & Home gross
proﬁt and the increase in operating
costs in the year.

661.2

14/15
15/16

DIVIDEND PER SHARE

Group revenues were up this year,
mainly driven by the growth in our
Food business as we opened new
stores and an improvement in
International revenues.

We delivered free cash ﬂow up 8.5%
on last year mainly due to the impact
of reduced capital expenditure,
which was partially offset by weaker
business performance.

585.4

1. To provide a meaningful comparison with last year the revenue and proﬁt KPIs are relative to the 52 week period to 26 March 2016.

19
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

KEY TO RESOURCES & RELATIONSHIPS AFFECTED

Financial

Our Products
& Channels

Our Intellectual
Capital

Our People

Our
Stakeholders

Natural
Resources

Linked to
remuneration

Read more in the glossary of alternative performance measures on p133-134

KPI

2016/17 PERFORMANCE

Engage, serve
and retain
our customers

FOOD

TOTAL
CUSTOMERS

Total number of UK Food customers
per year and average number of shops
per customer resulting in a purchase
across all UK shopping channels.

20.5m 22.5
+0.4m

Level

CLOTHING & HOME

TOTAL
CUSTOMERS

AVERAGE
NUMBER OF
SHOPS PER YEAR

Total number of UK Clothing & Home
customers per year and average
number of shops per customer
resulting in a purchase across all
UK shopping channels.

EMPLOYEE ENGAGEMENT

Source
products
with integrity

PRODUCTS WITH A
PLAN A QUALITY

Efficient and
responsible
operations

24.6m 7.2
-0.1m

81%

Engagement is a key driver of
performance. Our Your Say survey
looks at the key drivers of employee
engagement such as pride in M&S
and our products, feelings about
M&S as an employer and the role
of line managers.

This represents an improvement
of 6%. Our target is to have at
least one Plan A quality in all
M&S products by 2020.

79%

M&S products
2015/16 73%
GOVERNANCE

2020 target 100%

526,000 CO e

We achieved a 7% reduction,
mainly through lower carbon
UK grid electricity. We also
maintained our position of carbon
neutrality (zero net emissions)
by sourcing renewable energy
and carbon offsets.

26 tCO e/

We achieved a 10% per sq ft
improvement, mainly through
lower carbon UK grid electricity.
This has contributed towards the 7%
reduction in total gross emissions.

-7%

Total gross CO2e emissions
resulting from M&S operated
activities worldwide.

Total gross CO2e emissions
per 1,000 sq ft resulting from
M&S operated activities worldwide.

We are still in the recovery phase
of our plan for Clothing & Home.
We grew the number of customers
shopping through M&S.com but this
was more than offset by a decline
in customers in our stores.

The annual survey was completed
by 80% of employees. Employee
engagement results were positive
and up on last year.

+6%

This is a quality or feature regarded
as a characteristic or inherent part of
a product which has a demonstrable
positive or signiﬁcantly lower
environmental and/or social impact
during its sourcing, production,
supply, use and/or disposal.

GROSS GREENHOUSE GAS
EMISSIONS PER 1,000 SQ FT

+3%

79%

GROSS GREENHOUSE
GAS EMISSIONS

-5.3%

Our convenient, special and different
food and our continued Simply Food
store opening programme continue
to draw customers in.

1,000 sq ft
-10%

FINANCIAL STATEMENTS

Foster
a skilled,
motivated and
engaged team

AVERAGE
NUMBER OF
SHOPS PER YEAR

OUR PERFORMANCE

OBJECTIVE

OUR BUSINESS

NON-FINANCIAL OBJECTIVES

20
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

KEY PERFORMANCE INDICATORS CONTINUED

STRATEGIC OBJECTIVES
OBJECTIVE

KPI

FOOD

Drive
growth

REVENUE

UK REVENUE

Reach
customers

CLOTHING & HOME
UK REVENUE

£5.6bn

£3.8bn

2015/16: £5.4bn

2015/16: £3.9bn

Deﬁnition UK Food sales including sales
from our owned business and sales to
our UK franchisees.

Deﬁnition UK Clothing & Home sales
from our owned business.

+4.2%

REVENUE GROWTH/
SPACE GROWTH/
ONLINE VISITS

-2.8%

Performance Growth was driven by
new space. Our strategic objectives
in Food remain consistent: superior
quality, innovation and convenient
food in convenient locations.

Performance As expected, Clothing &
Home revenues declined as a result of
our strategy to reduce promotions and
markdown activity. However, we are
encouraged by some early evidence that
our strategy is working, with full-price
sales up.

UK LFL REVENUE GROWTH

-0.8%

-3.4%

Deﬁnition Sales growth from stores open
at least 52 weeks and with no signiﬁcant
change in footage.

Performance Sales were down slightly
in a competitive market.

Performance As expected, Clothing &
Home revenues declined 3.4% as a result
of our strategy to reduce promotions
and markdown activity.

UK FOOD SPACE GROWTH

+5.1%
Deﬁnition Increase in absolute Food
selling space.
Performance We increased the reach and
convenience of our offer by opening 68
new Food stores, of which 38 were franchise.
Franchise accounted for c.10% of new space
growth.

Improve
proﬁtability

GROSS MARGIN/
OPERATING PROFIT

UK GROSS MARGIN

32.5%

56.1%

Deﬁnition Gross margin is the percentage
of revenue retained after costs for
producing and transporting goods.

Performance Gross margin was below
expectations, owing to input cost inﬂation
and higher than anticipated waste in the
second half of the year.

Performance Gross margin was ahead
of expectations. This was driven by the
improvement in the buying margin
which offset currency headwinds as
we continued to deliver beneﬁts from
leveraging our direct sourcing capabilities.
Gross margin also beneﬁted from
reduced discounting.

-25bps

+105bps

21
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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