AGM questions and answers

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Am I right in saying that if Mr Green's 400p offer was accepted, it would mean an immediate crystallisation of those shareholders' capital gains tax liability, with no option to defer by using their annual capital gains tax exemption?: A. There is no Philip Green offer at the moment, but if there were and it was a cash offer, for many shareholders it would crystallise a capital gain. It would also mean they would no longer share in the future performance of this business.
If the Company is taken over what do the Executive Directors stand to gain?: A. They would receive payments under their contracts (12 months salary & benefits) and the ability to exercise some of their options.
Will the Chairman and CEO publicly demonstrate the Board's confidence by agreeing to waive any share options unless the share price at the appropriate time equals or betters the offer made by Philip Green?: A. Paul Myners, our interim Chairman, is a current non-executive director and therefore does not hold share options. He is also taking no additional remuneration for assuming the role. Stuart has not yet received the share options due to him because M&S is in an offer period. When they are issued, it will be at the current market price. However, to underline Stuart's confidence in the future value of M&S, he has voluntarily said that he would donate to his charity, an African children's school, the proceeds of any difference in the gain from his share options between the grant price and 400p. Charles Wilson, Executive Director, has made a similar commitment.
In view of the Company share price, and the drop in credit ratings, will the Board explain how they can continue to justify their refusal to meet Mr Green?: The Board believes Revival's proposal of 400p per share significantly undervalues the business and its prospects. We believe that we demonstrated this at our meeting with the investment community on Monday 12th July and again with Shareholders at the AGM.
Is Mr Rose a friend of Mr Green?: A. Stuart Rose has known Philip Green for many years:- the world of retail is small.
Given Mr Green's experience in turning around retailers and Mr Rose's lack of experience, will the Board explain why they will not meet with Mr Green to discuss his proposal? How does this meet the best interests of the shareholders?: A. Stuart Rose has extensive retail experience which includes spending the first 17 years of his career at Marks & Spencer.

The Board has a duty, which it takes very seriously, to consider any offers - firm or proposed for Marks & Spencer.

After significant consideration, which has included talking to and listening to (many) shareholders, as well as extensive analysis of our prospects, the Board has concluded that any offer of 400p per share significantly undervalues the Group.
How do we maintain long term interest in the Company rather than going for short term gain?: A. We are driving the business for long term growth building on the core values we have worked with for over 100 years - quality, value, service, innovation and trust.

Our focus on customers and product will deliver long and short term objectives.
Why are you selling Marks & Spencer Money? Does this include the PEPs?: A. The sale of the business (which includes the PEPs) is part of the new operational review, to maximise shareholder value. The operations will now be managed jointly by HSBC and Marks & Spencer.
Can you confirm what is happening about the tie up between Marks & Spencer Money and HSBC. Is it just the credit card, or the whole financial services division?: A. Money has been an important partner for the retail business and will continue to be so. Following the successful launch of the "&more" Credit card in October 2003, we now felt it was an appropriate time to find a partner to further develop this business. This enables us to focus on our retail priorities while Money will benefit from the expertise and resource of HSBC.

The arrangements with HSBC are very attractive for Marks & Spencer shareholders. We will receive a consideration of £762 million and retain £60 million of net assets. In addition, the debt in relation to this business, standing at £1.24 billion on 3 April 2004, will be assumed or repaid by HSBC. M&S will continue to directly participate in the growth and performance of Money through an arrangement that provides for us to receive 50% of profits after charges for capital and overhead provided by HSBC and tax.

We believe HSBC is the right partner for us. They provide the opportunity to enhance top-line growth and enhance profitability and importantly, they share our values and are firmly committed to upholding the M&S brand and taking care of our customers. Together we will increase the effectiveness of customer marketing and loyalty programmes and extend product choice for consumers.
Is the proposed return of capital to shareholders for all shareholders to date including those who just jumped on the bandwagon and bought shares recently?: A. All shareholders on the register at the time of the tender, details of which will be announced at the appropriate time, will be entitled to participate.
How do you justify buying back shares that are priced above net asset share value, have a dividend yield of 3.2% (over 4% would be available from banks)?: A. We will buy back shares if we have surplus cash flow, above operational and investment needs. (Shares will only be bought back if the net impact is to increase earnings per share).
Q. Can you assure me we will not lose the Marks & Spencer store chargecard and have to take a credit card?: A. There are no plans to discontinue the store chargecard.
If Marks & Spencer need money there are other ways of raising money rather than selling freehold and leaseback, provided that there is good performance.: A. The return to shareholders will be financed by the sale of Marks & Spencer Money, the repayment of inter-Company loans, existing resources and new bank facilities. Our property portfolio is a valuable asset and has recently been valued at £3.6bn, giving a surplus over net book value of approximately £1.4bn.
If the management wish the shareholders to back the Board, is the simple way of doing this to buy shares in the market and not distribute the cash to the shareholders?: A. The tender offer process will result in the Company buying shares, while giving shareholders the choice as whether to participate in the process or not.
In 2002 we had to redeem our shares and lost out, for every 21 shares held we got 17. What's happening with the tender offer and how will this benefit the private shareholder?: A. The return to shareholders in 2002 enabled shareholders to continue to own the same proportion of the Company before the return as afterwards. It was quite complicated, and we hope the tender offer will prove simpler. It will be by way of tender offer, with all shareholders given an equal right to participate. It will benefit the private shareholder by giving them the choice to sell their shares or to keep them. If they decide to keep them they will own a little bit more of the Company as the number of shares in issue will reduce.
Where is the money coming from to return £2.3 billion to shareholders?: A. The sale of Marks & Spencer Money, repayment of inter-Company loans, existing resources and new bank facilities.
Does Mr Rose think 18 months to two years is an acceptable, personal target to get this business moving again?: A. That has to be what we are judged by, and we will be very disappointed if we do not see like-for-like growth within 2 years. Clearly, the economy has slowed down and the level of growth of the last few years has reduced, but like-for-like growth is our objective.
When will we start seeing managers at all levels in the business taking accountability for poor performance within their areas?: A. A framework will be set that we will all operate within, and then hold people accountable for delivering. Morale in the business is good. Our people are ready for the challenge.
Can you tell us what each main business area contributes in terms of profit?: A. As you will see from the accounts, we do not break down the profitability of the individual business units. This is because we run the stores as one Marks & Spencer business.
The balance sheet of the group in the section Capital and Reserves shows, under the heading Other reserve, that there is a negative figure of £6,542.2 million. What is this?: A. This reserve was created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the capital reduction by Marks and Spencer Group plc (being the carrying value of the investment in Marks & Spencer plc) and the share capital, share premium and capital redemption reserve of Marks and Spencer plc at the date of the transaction.
How does the Board report to shareholders for the cost of share options given to Directors, and why isn't the answer in the accounts?: A. The Company is committed to full disclosure in the Annual Report and will continue this approach in the future. We do disclose the number and cost of all options for our Executive Directors within the Remuneration Report. We will continue to improve this disclosure following the changes under the International Accounting Standards.
Would it not be better if we kept the 1000 staff and sacked the Board?: A. The reference you make is to the Head Office Change Programme. It is clear that, as a business, we are carrying too many Head Office overheads. This review will achieve a more streamlined and efficient operation and we anticipate that this may result in approximately 650 job losses this financial year. We are committed to consulting with our employees on these proposals to ensure that we treat people with dignity and fairness. As part of this process we will consider voluntary redundancy.
Should not the long serving members of the Board share the responsibility for the state of the Company? Why have there been no changes?: A. We have seen significant changes to the composition of the Board this year, ensuring that we have the right talent and skills to take the business forward.
Could I ask about the large termination payment Board members have received?: A. Directors leaving the business only received what they were contractually entitled to and no more. It was vitally important that we recruited the best talent and at the time it was necessary to provide a competitive package to do this.
I would like to ask about the composition of the Board which is currently six executives and five non-executives, which is against best practice recommendations.: A. We support the recommendation of the Combined Code. We are currently seeking a new chairman and a further non-executive director as part of our successional arrangements to return the balance between executive and non-executive directors on the Board.
Will you be thinking carefully about the on cost to the Company of recruiting senior directors that only stay for the short term e.g. Vittorio Radice?: A. We have given serious consideration to how contracts should now be structured. Stuart Rose and Charles Wilson have demonstrated their commitment by including a mitigation clause and phased payments in their contracts.
The current interim chairman and his Board appeared to have supported the previous CEO. Why should they now expect us to accept their recommendations?: A. The former CEO had the support of the Board until circumstances made it clear that a change was needed.
The Annual Report and Accounts were sent to shareholders with reports of the then Chairman and CEO. One must presume the Board approved these.: A. The Annual Report and Accounts were approved by the Board in May 2004 and relate to the last reporting year, up to 31 March 2004.
Where did the CEO spend his career from the time Philip Green took over Arcadia until now?: A. Since leaving Arcadia in December 2002, Stuart remained a non-executive director of a number of companies and last year became Chairman of the British Fashion Council.
Could you tell us where Mr Rose has been involved in establishing a new business or building up an existing business?: A. Stuart is a hugely talented retailer, and committed to the business. He has significant experience of turnaround and bid situations, and 17 years' Marks & Spencer experience. We believe he is the right person to lead the company at this time. He has a rare retailing talent and an excellent track record. He achieved great success for shareholders at Argos, Booker, and Arcadia. Equally important, he knows and is passionate about M&S, having spent the first 17 years of his career with us, joining us as a trainee in 1972. Quite simply, Stuart thinks, talks, and acts like a shopkeeper.

He has already brought with him key colleagues and started building a new team. In particular, he joined your Group with Charles Wilson and Steven Sharp, who worked with Stuart for more than a decade. Together, they represent a formidable team.

Stuart's background meant that he picked up the reins very quickly when he arrived six weeks ago; he has wasted no time. Many important actions have already been taken, and a whole programme of significant change is underway.
What would the Chief Executive say to a change of the directors?: A. The current composition of the Board has been reviewed and enhanced with the appointment of new executive and non-executive Directors. The Nomination Committee, led by Paul Myners, will keep it under review and may consider future changes to maximise the performance of Marks & Spencer.
Can you elaborate on why you think your track record is better than Philip Green's? If you think that £4.00 a share significantly undervalues the Company, why will you not have your option struck at £4.00 or above? What level of shareholder requests do you need to open the books to Philip Green?: A. Paul Myners, our interim Chairman, is a current non-executive director and therefore does not hold share options. He is also taking no additional remuneration for assuming the role. Stuart has not yet received the share options due to him because M&S is in an offer period. When they are issued, it will be at the current market price. However, to underline Stuart's confidence in the future value of M&S, he has voluntarily said that he would donate to his charity, an African children's school, the proceeds of any difference in the gain from his share options between the grant price and 400p. Charles Wilson, Executive Director, has made a similar commitment.

We believe Stuart is the right person to lead your company at this time. He has a rare retailing talent and an excellent track record. He achieved great success for shareholders at Argos, Booker, and Arcadia. Equally important, he knows and is passionate about M&S, having spent the first 17 years of his career with us, joining us as a trainee in 1972. Quite simply, Stuart thinks, talks, and acts like a shopkeeper.

He has already brought with him key colleagues and started building a new team. In particular, he joined your Group with Charles Wilson and Steven Sharp, who worked with Stuart for more than a decade. Together, they represent a formidable team. Stuart's background meant that he picked up the reins very quickly when he arrived six weeks ago; he has wasted no time. Many important actions have already been taken, and a whole programme of significant change is underway.
With the proposed cash repayment, or Philip Green's cash and share payment, will there be an opportunity for shareholders to have a loan note or other alternative to structure their capital gains tax arrangements?: A. On 12th July 2004, Marks & Spencer announced that it proposes to return £2.3 billion to shareholders in September 2004. The return will be funded by the proceeds from the sale of Marks £ Spencer 'Money' and the repayment of inter-Company loans, existing resources and new bank facilities.

The return is to be implemented by way of a tender offer for the ordinary shares, which is one of the mechanisms used when companies wish to buy back shares from shareholders. A tender offer is totally different from the B Shares used as the vehicle to return cash to shareholders in 2002.

In a tender offer, the Company sets a price range within which eligible shareholders may tender their shares. The advisers to the tender offer will then set what is known as the 'strike price', which is the price within the price range at which the ordinary shares will actually be purchased.

In a tender offer, shareholders are not obliged to tender any of their shares if they do not wish to do so. If they do, they dispose of their shares and may be subject to Capital Gains Tax. Shares may be traded in the normal way during the tender offer period.

Full details of the tender offer, including its terms and conditions, will be sent to shareholders in due course.
Why don't shareholders get a discount?: A. We will examine very positively the case for introducing a shareholder benefit in terms of a discount or special offer in our stores.
In light of current events, what steps do the Board intend to take to consult with and listen to the small shareholder?: A. Today's AGM is a very important forum to gauge the feeling of our private shareholders and we have shared the presentation we gave to institutional investors with you. We also put it on the website and mailed it to all shareholders. I have given you an e-mail address to communicate your views, which we look forward to hearing from you.
. Are any of the American institutions or other major shareholders represented here today?: A. To the best of my knowledge they are not.
We had to queue in the rain for the AGM. How are we to judge your ability to run the Company if you can't organise this?: A. Our Events team did arrange for awnings to be put up, should it rain. Due to the large numbers attending this year, it took longer to get everyone into the building and some of you may have been caught in the rain, for which we apologise.
Could you notify shareholders, and most importantly, long service members of staff like myself, who have lost our free shares, that the Board will not be awarded huge golden handshakes if they fail to perform?: We do very much respect the work you put in. Unfortunately, last year we were unable to give bonus shares, as the Company did not perform well enough. I believe in reward for success and not reward for failure. Let us hope next year is a more successful one for all of us.
Will the Pension Trustees ask Stuart Rose and the current Board of Marks & Spencer to fill the pension gap that they are requesting Philip Green to satisfy if he purchases the Company?: A. The Company cannot reply on behalf of the Trustees who act independently. However, they have made it clear that they will be concerned about the financial strength of the employer, as the continuing support is vital.

The Company did inject a further £400 million into the pension scheme last year, which demonstrates its commitment to continuing to provide security for pension provision. This Board regards that as being of utmost importance.

The Trustees will be writing to employees and pensioners.
How secure is my pension as an ex-employee, particularly in the event of a takeover?: A. The Trustees of the pension scheme are independent, and their obligations are to the members of the scheme. They have taken professional advice to arrive at correct and proper decisions in respect of their obligations to their members. We care enormously about our pension and will ensure to the best of our ability, those commitments are honoured.
Would the Board confirm the size of the pension fund's deficit and outline their plans to make good the shortfall with timescales?: It was valued on 31 March 2003 as having a deficit of £585 million. We made a £400 million contribution in March 2004. The next valuation is due in March 2006.

It is hoped that stock market performance will improve the deficit position in the meantime, but the Company has committed to a contribution rate which is designed to eliminate the deficit in the longer term.
If we are a business in crisis, how can we pay millions to fund Board changes when many employees did not get a pay rise or store bonus payment?: A. The salary review budget for all employees was 2% this year, reflecting disappointing business performance. For the Board changes, exceptional circumstances meant we needed to move swiftly to put the best talent in place.
How will the pension scheme be affected by any possible takeover bid?: A. A bid does not, of itself, affect the pension scheme. The pension scheme assets are separate from Company assets and looked after by trustees acting independently of the Company. Whatever happens to the Company, the scheme will be run by Trustees who have obligations to the members.
The Company is now facing substantial legal costs and financial penalties as a result of actions being brought following the outsourcing of almost 200 loss prevention staff. Can you comment?: A. After careful consideration, the decision to outsource store based loss prevention to Securicor was made to further our drive to concentrate on core capabilities and to use external expertise in non-core areas - we still believe this was an appropriate business decision. We carried out a process of consultation with affected employees and a recent Tribunal Decision has confirmed the Company's position, that this was a TUPE transfer. However, we are unable to comment further, as this matter is subject to on-going litigation.
Is Marks & Spencer going to change its refund policy in the near future?: A. There are currently no plans to change it. It does help differentiate us from the competition.
The current advertising campaign seems to be ashamed of the name as the choice of colour seems to make it invisible?: A. We test our advertising in research and our new advertising has tested very well. It appeals to the sense that customers of Marks & Spencer are very different from any other Company, and if we let them down they feel personally very disappointed.
Why am I unable to change the PIN number of my M&S Money Mastercard to a more memorable one?: A. We are discussing this with our new partners, HSBC, and expect to start to introduce changes from Spring 2005.
I am in my 50's, middle class, dressed head to toe in M & S but I cannot find anything that it is not covered in pattern or braiding. I want something, which is plain, but quality. When are you going to ask me what I want?: We would like to think there is some merchandise that we could clothe you with, but clearly you are having trouble finding it. Changing this situation for our core customers is a priority.
I'm pleased to see that you will focus on the mature female. I would like to know how soon we will see your changes?: A. These customers are very important to us. I said in my presentation that I do literally regard them as gold. Approximately 120,000 people per month reach the age of 50. Changes will be mainly visible from Spring 2005.
Your women's clothes are still missing the mark for all ages and the quality could be bought in other shops for much less.: A. Stuart Rose is working directly with the clothing teams to improve this. We will be reviewing all aspects of our offer to ensure we return to value and quality, along with stylish product.
Why do you not stock more clothes for women of 5' 6" and under?: A. Though we need to concentrate on areas of largest sales, we want everyone to find something they love. We agree that this is an important segment and we will be looking at our offer here as part of our overall look in womenswear.
You are intending to concentrate on the core areas of ladies clothes. Can I have the assurance that you are not going to discard men's clothes or food stores?: A. Menswear is a key part of our offer, and we are committed to it. We will continue to roll out the Simply Food stores, which provide customers with quality food in convenient locations.
Why don't you produce more of the average sizes, that sell out quickly, e.g. 12's and 14's?: A. We are addressing availability and looking to improve speed of supply chain and accuracy of stock reporting systems.
As part of the rebranding that has been announced, are you proposing to do away with the green carrier bags?: A. Our brand is one of the strongest in the UK and is trusted by customers. Marks & Spencer remains our core brand. Shareholders will have seen our new "YOUR M&S" logo which will feature on our carrier bags which will continue to be in a shade of green.
In the press I have seen that the main target will be women of 35-55 years old - are you going to abandon the rest of us?: A. We are focusing on this age range as they represent the largest section of customers & sales. But we want everyone who comes into our stores to find something they love.
Where did you buy your suit?: A. Marks & Spencer.
The quality of clothes has deteriorated, with limited choice - you state you are going to make further cuts in stock, which will mean even less choice?: A. We aim to focus on offering high quality, stylish clothing to our core customers. Autumn Clothing ranges are largely bought but, looking beyond this, we will have fewer lines with ranges bought in greater depth.

Less is more - there will be less proliferation but with more choice.
Bras for the 'not so young'- may we please have more 34 size and no under-wiring?: A. All Bras are offered in 34 in various cup sizes from A-G. There is a broad selection within Boxed Bras and we are introducing a broader offer of non-wired bras into Collections (matching sets) from September.
Why does the Company use incorrect English on the notice on the Express tills in foods stores? It should be "Five items or fewer" not "Five items or less".: A. While you are technically correct, this colloquial expression is widely recognised throughout the shops of our nation.
Will the admirable payment terms and treatment of our suppliers continue?: A. Supplier payment terms are within 14 days on general merchandise and food. Our credit policy payment details are outlined on page 26 of the Annual Report.
Why have we broken contracts with suppliers where the previously agreed discount was 3.75% and is now 7.5% and 10% from September 1st?: A. We are committed to long term partnership and paying fair prices. In recent weeks have had discussions with 70% of suppliers. They have been understanding of our need to improve efficiency in our whole business. We will not allow these changes to affect quality or labour standards.
Will you keep the Simply Food store in Twickenham and Richmond?: The Simply Food format works well, and we have no current plans at all to shut our stores at Twickenham or Richmond. The Simply Food rollout is continuing but focusing on stores that take over £3m a year.
Is the Board committed to providing the convenience stores Simply Food as customers want convenience?: A. The Simply Food rollout is continuing, but focusing on stores that deliver over £3m a year. We are also looking at layout of main stores and the whole food catalogue to ensure we offer real choice in an easy to shop environment.
Could you clarify what you said about spending money on the Richmond store?: I know that Richmond is a very good area for us to trade in, and I know the store could do with some refurbishing. Within the constraints of our capital expenditure budget for this year we will look at this very favourably.
Why did the Board agree to build a Head Office that does not allow for the current size of the business, let alone the future growth anticipated?: A. We needed to move to modernise, and have developed a network of offices, which gives us flexibility in a rapidly shifting business environment.
Why does a security officer stop me every time I purchase something at the Watford store?: A. We take care in protecting People, Property, Profit and Brand. The key focus is in providing a safe and secure environment for our customers and staff, free from crime and the fear of crime. Our losses and our incidents of violence and public order are amongst the lowest in retail.

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AGM questions and answers