2015 Share Buy Back

Questions

What has the Company announced?

The Company has announced that it is to engage in an ongoing and sustainable programme of returns of capital to shareholders. This year, the Board has decided that the Company will spend up to £150m buying back its shares during the next year, initially using shareholder authority given at the AGM.

What is a share buy-back?

The Company instructs its Stockbrokers to purchase the Company’s own shares in the market, which are then cancelled. This reduces the number of shares the Company has in issue and, as a result, existing shareholders will own a larger percentage of the company than they did before. The objective is to maintain our commitment to strong capital management disciplines and a strong balance sheet position whilst ensuring that shareholders are able to share in the surplus cash generated by the Company.

Why is the Company doing this now?

M&S is currently a cash generative business. In recent years much of the cash generated by the Company has been invested in upgrading our store portfolio and infrastructure. In the last 2 years the surplus cash we have generated has enabled us to reduce our net debt by almost £400m. Now that we have largely completed our capital investment programme, we are well placed to share the surplus cash we generate with our shareholders.

How does a share buy-back work?

The objective is to create shareholder value by improving the balance sheet efficiency (debt/equity ratio) and reducing the overall weighted average cost of capital. It also increases the earnings per share and indirectly creates value for existing shareholders by increasing the percentage of the company that they own, through there being fewer shares in issue.

I’ve heard you’re returning £150m to shareholders?

We intend to return up to £150m to our shareholders by buying back a quantity of our shares in the market and cancelling them. At the current share price (£570p as at 15 May 2015), the number of shares bought back would be approximately 26 million (around 1.6% of our issued share capital). Shareholders will not receive any money directly. However, they will own a larger portion of the Company than they did before.

When do I get my money?

The buyback is an operation that the Company undertakes through its Brokers, who repurchase its shares in the open market. As such, no cash is paid directly by the Company to specific shareholders. The repurchase and cancellation of the Company’s shares reduces its total issued share capital, which in turn increases the percentage of the Company owned by individual shareholders. No money is paid to shareholders.

Why didn’t you issue a special dividend?

We are committed to maintaining a disciplined approach to capital management and, while we are keen for our shareholders to share in our success, we must ensure that our programme of returns of capital to shareholders is sustainable. We consider that an increase in the dividend of 7.4% to 11.6p in conjunction with the share buy-back is in line with this approach, balancing the interests of our various stakeholders whilst allowing the Company to retain the flexibility to continue to invest in the business.

What effect will the buy-back have on the share price?

We are not able to comment on how the share price will be affected by the share buy-back as there are many other factors that contribute to fluctuations in the share price each day. However, we would not be undertaking the buy-back if we did not feel that it would create value for shareholders.

How is the buy-back being financed / where is the £150m coming from?

The buy-back programme is being financed by the Company’s cash surplus. It is intended that this share buy-back will be the first step in an ongoing programme of returns of capital to shareholders.

Will M&S be taking on more debt to pay for the buy-back?

The buy-back will be financed using the cash surplus generated by increased profitability and decreased capital expenditure.

Doesn’t the company have anything better to use this money for?

Following the recent programme of investment, we now have a stronger, more capable business. There is still more to do and we will continue to invest in the business alongside the buy-back as a key part of our three year plan. The ability to return this capital to shareholders is driven in part by the strong cash generation of the business that has resulted from the significant investment undertaken in recent years. The buy-back will enhance the Company’s balance sheet efficiency without constraining its future investment plans.

Is there a meeting of shareholders that I need to attend?

No. A buy-back of anything up to 10% of our shares in one year is within the routine authority sought from our shareholders annually at the AGM.