Marks and Spencer Group PLC Annual Report 2005

FY2005 Annual Report · Marks and Spencer Group PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS 2005

This publication includes the Chairman’s statement, the Chief
Executive’s review, the Financial review, the Corporate governance
statement, the Remuneration report, the Directors’ report, the Financial
statements and the Auditors’ report for the year ended 2 April 2005.
Reviews of ﬁnancial and operating performance are contained in a
separate report entitled Annual review and summary ﬁnancial
statement 2005.

This publication, together with the Annual review and summary
ﬁnancial statement 2005, comprise the full Annual Report and
Accounts of Marks and Spencer Group plc for 2005, prepared in
accordance with the Companies Act 1985.

1 CHAIRMAN’S STATEMENT
2 CHIEF EXECUTIVE’S REVIEW
3 FINANCIAL REVIEW

11 CORPORATE GOVERNANCE
16 REMUNERATION REPORT
26 DIRECTORS’ INTERESTS
26 DIRECTORS’ RESPONSIBILITIES
27 DIRECTORS’ REPORT
29 AUDITORS’ REPORT
30 CONSOLIDATED PROFIT AND

LOSS ACCOUNT

30 NOTE OF GROUP HISTORICAL

COST PROFITS AND LOSSES
30 CONSOLIDATED STATEMENT 

OF TOTAL RECOGNISED GAINS
AND LOSSES
31 BALANCE SHEETS
32 CONSOLIDATED CASH FLOW

INFORMATION

33 NOTES TO THE FINANCIAL

STATEMENTS

58 GROUP FINANCIAL RECORD
61 INDEX

The full Annual Report and Accounts with downloadable ﬁles 
are available online on the Marks & Spencer website at: 
www.marksandspencer.com/thecompany

Chairman’s statement

PAUL MYNERS

MARKS AND SPENCER GROUP PLC 1

LAST YEAR WAS ONE OF THE MOST CHALLENGING MARKS & SPENCER HAS EVER
FACED. BUT WE HAVE EMERGED AS A LEANER, BETTER RUN BUSINESS. 

At the start of the year the business was underperforming.

There were additional Board changes during the course of

This prompted an unsolicited approach on 27 May by

the year. Brian Baldock and Dame Stella Rimington retired

Revival Acquisitions. The Board was determined to make

as non-executives in July, to be replaced by Anthony

sure value was achieved for shareholders and that the

Habgood and Steven Holliday. Vittorio Radice, Maurice

business was not bought on the cheap. We took two

Helfgott, Mark McKeon and Laurel Powers-Freeling stepped

immediate decisions. 

down as executive directors as Stuart and his team set a new

The ﬁrst was that Luc Vandevelde, who had already

course for the Company with the Board’s full endorsement.

indicated he wanted to leave the Company early, should step

More recently, Alison Reed has stepped down as Finance

down as Chairman and that I should take his place on an

Director after 20 years with the Company. Ian Dyson has

interim basis. The second was that we should employ new

been appointed in her place. We thank our former colleagues

executive leadership to accelerate the process of restoring

for their contribution and welcome the new Board members.

the Company’s fortunes. On 31 May, Stuart Rose succeeded

Our relationship with Marks & Spencer investors – both

Roger Holmes as Chief Executive. Charles Wilson was also

individual and institutional – is high on the Board’s list of

appointed to the Board as an executive director.

priorities. Last year, we made sure a far greater proportion 

The new executive team was charged by the Board 

of shareholders had access to the Company’s management

with drawing up plans to improve business performance. 

than ever before. We also launched a shareholder voucher

Six weeks later, Stuart and his team laid these plans 

scheme in summer 2004, which proved very popular, offering

before institutional shareholders and analysts. Individual

discounts in-store during the autumn. We will be repeating

shareholders were given the same presentation at the

this in July 2005 and extending our offer to those who hold

Annual General Meeting two days later. It was on the

shares through nominee accounts. We are also improving

strength of these plans that the Board rejected Revival

virtual audiovisual access to the Annual General Meeting and

Acquisitions’ indicative offer of 400p a share, which we

we launched an improved version of the corporate website

believe undervalued the Company. 

earlier this year. 

We are refocusing the business on its core values,

In May 2005, we announced that Lord Burns will be

Quality, Value, Service, Innovation and Trust. We are conﬁdent

joining the Board as Deputy Chairman with effect from 

that progress is being made, albeit against a more challenging

1 October 2005 and will become Chairman from the Annual

retail environment.

General Meeting in July 2006, when I will step aside from

We also said we would acquire per una, dispose of 

the Board. I am delighted that he is joining the Board and

M&S Money and return £2.3bn to shareholders by way of 

that he will succeed me as Chairman. With the appointment

a Tender Offer. Together with the return in 2002, we have

of Terry, the Board can now work on completing the task of

returned over £4bn to shareholders in the last four years.

broadening the diversity and skills present around the table.

The Tender Offer strike price of 362p emerged close to the

The Board would like to thank shareholders for their

market price of the shares, thereby avoiding a transfer of

continued support and our employees and suppliers for their

value to exiting shareholders. Our balance sheet remains

hard work, commitment and passion, which has been and

strong, underpinned by the property portfolio, which was

remains crucial to the delivery of Marks & Spencer’s strategy.

independently revalued at £3.6bn in July 2004.

Paul Myners, Chairman

2 MARKS AND SPENCER GROUP PLC

Chief Executive’s review

STUART ROSE

MARKS & SPENCER IS A FINE BUSINESS WITH SIGNIFICANT STRENGTHS. BUT IT
NEEDS RADICAL CHANGE TO BECOME GREAT AGAIN.

Last year, within a tough marketplace, we embarked on a

maintained across the year, although sales dipped by 2.6%

programme of change to return the business to growth and

in like-for-like terms. Home had a year of transition as we

to its traditional values, Quality, Value, Service, Innovation

closed Lifestore and refocused on value and our traditional

and Trust. We did so with a clear understanding that, while

areas of bedroom, bathroom, kitchen and dining. Sales were

we needed to move fast, we also needed to do the right

21.4% lower at £0.4bn.

things for the medium to long term and that there were no

Our international operations performed strongly with

quick ﬁxes. 

operating proﬁts up 47.1% at £65m (up 51.2% at constant

At the Operational Review on 12 July 2004, we stated

exchange rates). 

that we would refocus the business in 2004/05, drive it in

We have clear objectives: better product and real choice

2005/06 and, beyond that, broaden its horizons. We also

in easy-to-shop ranges; sharper opening prices and real

highlighted the actions that needed to be taken to refocus

value across all ranges; and increased levels of new and

and these have now been achieved.

innovative product.

In 2004/05, we reviewed all expenditure and put tight

In Clothing, we have strengthened buying teams,

controls in place. Unacceptably high stock commitments

reduced stock commitments and developed consistent

were reduced by over 35% on the year. We are on course

working practices. We are establishing regional ofﬁces 

to deliver cost and margin savings and have a lower

to better manage the supply chain. Prices are constantly

customer-focused capital spend. We simpliﬁed processes to

monitored. We have reduced the total number of products

make us more product and service driven, and removed over

by around 17% to create more real choice and increased

650 roles from head ofﬁce. We also focused on 10 strategic

the level of new product in store.

projects that will add most value.

In Food, we have also focused on innovation, removed

We renegotiated supplier terms to reduce the cost of

slow lines, simpliﬁed ranges, continued to open more Simply

goods by £140m by the end of 2006/07, compared to

Food stores and begun to emphasise the quality and

2003/04. Overall, we are on course to achieve cost and

uniqueness of our food.

margin savings of £320m by the end of 2006/07.

We have put our most experienced people in charge of

Additionally, we closed Lifestore, acquired per una,

improving standards and service in stores, and are putting

returned £2.3bn to shareholders and sold M&S Money, our

more customer assistants on the sales ﬂoor. In addition, we

Financial Services business, to HSBC. 

simpliﬁed our return and refund policy, which remains the

We reduced the Executive Board to a team of three. 

most generous on the High Street.

The business unit directors all now report directly to the

Last year, we de-cluttered stores and improved signage.

Chief Executive and we have set up a stock planning function.

We also reinforced the Marks & Spencer brand with the

These actions have laid the foundations necessary to

launch of the Your M&S campaign, reduced the number of

drive the business in 2005/06. We are focusing on product,

sub-brands and tested a new store concept.

service and store environment.

This has been a year of great change at Marks & Spencer,

Group proﬁt before tax and exceptional items, although

but it has also been a year of action and progress, thanks to the

supported by strong cost control, ended the year 19% lower

hard work and loyalty both of our staff and our suppliers. I would

at £618.5m on a 52 week basis. UK retail sales at £7.8bn

like to thank everyone for their support through a difﬁcult year.

(inc VAT) were 1.9% lower than last year.

Clothing sales fell 3.1% to £3.8bn, led by continued

weakness in Womenswear, although per una performed

strongly. All other product groups suffered. Food sales were

£3.5bn, 2.4% higher in total and market share was broadly

Stuart Rose, Chief Executive

Financial review

Group summary

Summary of results

Continuing operations before exceptional items

Turnover (ex VAT)
Operating proﬁt
Net interest expense
Other ﬁnance income/(charges)

Proﬁt before tax from continuing operations before exceptional items

Operating proﬁt from discontinued operations

Proﬁt before tax and exceptional items

Exceptional income/(charges)

Group proﬁt before tax

Earnings per share from continuing operations
Basic earnings per share
Adjusted earnings per share

Earnings per share
Basic earnings per share
Adjusted earnings per share

MARKS AND SPENCER GROUP PLC 3

2005
52 weeks
£m

2004
52 weeks
£m

2004
53 weeks
£m

7,710.3
677.1
(102.3)
11.4

7,824.8
766.3
(44.5)
(15.2)

7,971.5
809.4
(45.8)
(15.2)

586.2

706.6

748.4

32.3

618.5

126.8

745.3

56.6

763.2

(23.4)

739.8

56.6

805.0

(23.4)

781.6

16.8p
20.4p

20.6p
21.1p

21.9p
22.4p

29.1p
21.9p

22.9p
23.4p

24.2p
24.7p

Continuing operations include the results of the UK Retail and International Retail businesses. The results for Financial Services, which was
sold during the year, have been disclosed as discontinued operations.

Group turnover from continuing operations

UK Retail
International Retail

Total

Group operating proﬁt from continuing operations
before exceptional items

UK Retail 
International Retail

Total 

2005
52 weeks
£m

7,034.7
675.6

2004
52 weeks
£m

7,159.8
665.0

2004
53 weeks
£m

7,293.7
677.8

7,710.3

7,824.8

7,971.5

2005
52 weeks
£m

2004
52 weeks
£m

2004
53 weeks
£m

612.1
65.0

677.1

722.1
44.2

766.3

762.0
47.4

809.4

The reporting period for this ﬁnancial year covers the 52 weeks to 2 April 2005, whereas the prior period covered the 53 weeks to 
3 April 2004. For comparative purposes, the commentary that follows, in so far as it relates to the proﬁt and loss account, is provided 
on a 52 week basis (to 2 April 2005 and 27 March 2004).

4 MARKS AND SPENCER GROUP PLC

Financial review continued

UK Retail

Turnover (£m)
Operating proﬁt (before exceptional items) (£m)
Number of stores (at the end of the year)
Selling space at the end of the year (m sq ft)

2005
52 weeks

2004
52 weeks

7,034.7
612.1
399
12.9

7,159.8
722.1
375
12.8

Turnover, including VAT, was down 1.9% on last year, down 5.1% on a like-for-like basis.

The performance of Clothing for the year as a whole was disappointing, with total Clothing sales down 3.1% on last year. Footfall and
clothing volumes were up on the year, but Clothing market share declined by 0.5 percentage points to 10.5%.

Home had a year of transition, as we closed Lifestore and refocused on the traditional areas of bedroom, bathroom, kitchen and dining.
Sales were 21.4% lower at £407.6m.

In Food, we continue to beneﬁt from additional footage as we extend the reach of the Food offer. Food sales were up 2.4% on last 
year, down 2.6% on a like-for-like basis. We opened 31 Simply Food stores during the year, 13 in partnership with Compass. New Simply
Food stores opening in 2005/06 will increase our food space by a further 3.3%. Like-for-like food deﬂation for the year was c.0.2%.

During the year, we renegotiated terms with suppliers across the business as a whole with the aim of reducing the cost of goods sold by
£140m by 2006/07 when compared to 2003/04. During the year, however, higher markdowns resulted in a 1.5 percentage points decline
in the Clothing and Home gross margin. The Food gross margin was maintained.

Logistics costs of £305.5m, which are included in cost of sales, were marginally below the same period last year beneﬁting from the full
year effect of the changes to the general merchandise logistics operation introduced last year.

UK Retail operating costs of £1,843.1m, excluding exceptional charges, were broadly level on last year:

•

•

•

•

employee costs increased by 1.1% to £922.4m as a result of new stores and the annual salary review, offset by a reduction in
headcount;
property, repair and renewal costs of £350.4m increased by 8.3% due to the occupancy costs associated with new footage and the
move to a new head ofﬁce;
depreciation and amortisation was £242.9m, an increase of 6.9%, due to the effect on the charge of prior year additions, store
modernisations, closures and amortisation of goodwill arising on the acquisition of per una; and
other operating costs of £327.4m decreased by 13.2% as a result of actions taken during the year to reduce the cost of non-
merchandise procurement together with savings in IT.

Including logistics costs, operating costs have decreased by 0.1% on last year. 

International Retail

Turnover (£m)
– Marks & Spencer branded businesses
– Kings Super Markets

Operating proﬁt (£m)
– Marks & Spencer branded businesses
– Kings Super Markets

Number of stores (at the end of the year)
– Owned
– Franchise

Selling space at the end of the year (000 sq ft)
– Owned
– Franchise

MARKS AND SPENCER GROUP PLC 5

2005
52 weeks

2004
52 weeks

455.8
219.8

675.6

60.7
4.3

65.0

45
191

426.2
238.8

665.0

41.8
2.4

44.2

43
155

1,024
1,317

908
1,068

Turnover for the year in the Marks & Spencer branded businesses (Republic of Ireland, franchises and Hong Kong) increased by 6.9%
(9.1% at constant exchange rates).

Operating proﬁt for the Marks & Spencer branded businesses increased by 45.2% to £60.7m. In the Republic of Ireland, sales were ahead
of last year and the performance of the new stores in Blanchardstown and Dundrum has been encouraging. Our franchisees have seen
good like-for-like sales increases and are investing in new footage. Hong Kong had a strong year, however, in 2005/06 some of our leases
will be surrendered to the landlord for development.

Sales at Kings Super Markets were broadly level over the period at constant exchange rates, compared with the same period last year.
Operating proﬁt at Kings over the period was £4.3m as a result of actions taken last year to improve ﬁnancial performance.

Financial Services
The Financial Services business was sold to HSBC on 9 November 2004 for £768.6m and the results of the business up to the date 
of disposal have been included under the heading of discontinued operations.

The Group has also entered into an agreement with HSBC, whereby the Group will continue to share in the success of the Financial
Services business. Under this agreement, the Group will receive income in the form of fees representing an amount equivalent to costs
incurred, 50% of the proﬁts of M&S Money (after a notional tax charge and after deducting agreed operating and capital costs) plus an
amount relating to the growth in sales of ﬁnancial services products. Fees received under this agreement since the date of disposal have
been included within other operating income in UK Retail.

Exceptional items
The Group has recorded exceptional income of £126.8m in the year, as follows:

Exceptional items

Operating exceptional items
Head ofﬁce relocation
Head ofﬁce restructuring programme
Board restructure
Closure of Lifestore 
Defence costs

Non-operating exceptional items
Loss/(proﬁt) on sale of property and other ﬁxed assets
Proﬁt on disposal of Financial Services
Release of European closure provision

Total exceptional (income)/charges

2005
£m

8.8
6.3
8.4
29.3
38.6

91.4

0.4
(208.9)
(9.7)

(218.2)

(126.8)

2004
£m

19.6
22.5
–
–
–

42.1

(18.7)
–
–

(18.7)

23.4

During the year, £8.8m of revenue costs were incurred in connection with the relocation of the head ofﬁce and have been charged as
exceptional operating costs. This relocation was completed at the end of October.

6 MARKS AND SPENCER GROUP PLC

Financial review continued

We have also incurred a further £6.3m of costs in the year in connection with the implementation of the head ofﬁce restructuring
programme which was announced at the end of last year.

Lifestore closure costs represent the anticipated cost of closing the Lifestore programme. These costs include stock provisions, asset
write-offs and other property-related costs.

Defence costs of £38.6m represent the costs incurred, primarily for professional advice, in developing and implementing the new business
strategy as a consequence of the possible offer from Revival Acquisitions Limited. Costs of £8.4m have also been incurred in making the
necessary changes to the Board.

The Group successfully completed the sale of the Financial Services business to HSBC on 9 November 2004. This resulted in a proﬁt 
on disposal, after costs, of £208.9m.

Following the disposal of two properties in Germany during the year, we have completed the majority of the actions required to close our
European operations and we have released, unutilised, £9.7m of the closure provision which we now anticipate is no longer required.

Interest
Net interest expense was £102.3m compared to £44.5m (52 week basis) for last year. The average rate of interest on borrowings during
the period was 5.7% (last year 5.3%).

Taxation
The tax charge reﬂects an effective tax rate for the full year of 28.5% before exceptional income, compared to 30.1% last year. The rate is
lower than the standard UK tax rate of 30% due to the impact of prior year credits and relief in respect of the exercise of employee share
options. The European Court of Justice heard the Group’s group relief claim on 1 February 2005 and their judgement is expected later this
year. No asset has been recognised in respect of this claim.

Shareholder returns and dividends
Adjusted earnings per share, which excludes the effect of exceptional items, has decreased by 11.3% to 21.9p per share (on a 52 week
basis, a decrease of 6.4%). Return on equity was 41.4% compared to 25.2% last year.

A ﬁnal dividend of 7.5p per share (last year 7.1p per share) is proposed, making the total dividend for the year 12.1p per share (last year
11.5p per share), an increase of 5.2%.

Capital expenditure
Group capital additions for the year were £220m compared to £434m last year. The major components of the additions are analysed
below:

Capital expenditure

New stores and extensions
Head ofﬁce relocation
Store renewal, refurbishment and new selling initiatives
Refrigeration equipment
IT equipment
Logistics
Other

UK Retail capital expenditure
International Retail
M&S Money

Total Group capital expenditure

2005
£m

88
–
25
10
18
16
29

186
33
1

220

2004
£m

118
40
44
39
40
95
32

408
20
6

434

The decrease in capital expenditure in part reﬂects the one-off costs last year relating to the acquisition of warehouses, as part of the
restructuring of the general merchandise logistics operation, and the relocation of the head ofﬁce. It also reﬂects a reduction in capital
expenditure on new and existing footage as we reviewed the performance of new formats to determine how to revitalise the portfolio in 
a cost effective way. Group capital expenditure for 2005/06 is expected to be £350m.

Balance sheet

Fixed assets
Stocks
Trade and other debtors
Trade and other creditors
Provisions
Net debt

Net assets before net post-retirement liability
Net post-retirement liability

Net assets

Gearing % (including net post-retirement liability) 

MARKS AND SPENCER GROUP PLC 7

2005
Group
£m

3,447.5
339.7
218.2
(830.4)
(80.4)
(2,099.0)

995.6
(474.2)

2004
Retail &
Corporate
£m

3,493.4
398.0
202.9
(895.7)
(49.3)
(823.7)

2,325.6
(469.5)

521.4

1,856.1

84.5%

44.7%

The Group balance sheet has changed signiﬁcantly since the last year end following the disposal of the Financial Services business during
the year. The commentary that follows, where relevant, compares the Group balance sheet at 2 April 2005 to the Retail and Corporate
balance sheet at 3 April 2004, which excludes the balance sheet for the Financial Services businesses at that date.

Fixed assets decreased by £45.9m to £3,447.5m. Included within this are properties owned by the Group with a net book value of
£2.1bn, of which £1.7bn was unencumbered, and goodwill of £122.4m relating to the acquisition of per una.

In July 2004, the Group commissioned DTZ Debenham Tie Leung, an External Valuer, to carry out a valuation of the Group’s property
portfolio. This valuation was carried out on an existing use value basis for the Group’s operational stores and other properties and a
market value basis for non-operational properties. This gave rise to a valuation for the Group’s properties of approximately £3.6bn.
Adjusting this valuation for movements in the Group’s portfolio since that date gives rise to a surplus over net book value as at 2 April
2005 of approximately £1.3bn. Had this valuation been incorporated into the Group’s balance sheet as at 2 April 2005 then net assets
would have increased by £1.3bn to £1.8bn.

Stock at the end of the year was £339.7m, a decrease of £58.3m on the balance at the end of last year largely as a result of better
controls over stock and commitment.

Provisions for liabilities and charges increased by £31.1m largely as a result of a £30m reduction in the deferred tax asset attributable to
the £400m pension contribution last year. The net post-retirement liability remained broadly level with the previous year.

Shareholders’ funds amounted to £521.4m, equivalent to 31.4p per share (last year 108.3p per share), a decrease of £1,932.6m in the
year primarily due to the £2.3bn Tender Offer. If the recent property valuation is included, Group gearing would have been 61.8% and
return on equity 22.0%.

Cash ﬂow
Analysis of free cash ﬂow (operating cash ﬂow before acquisitions and disposals and transactions with shareholders) is as follows:

Cash ﬂow analysis

Operating cash ﬂow from continuing operations
Operating cash ﬂow from discontinued operations
Capital expenditure
Proceeds from asset disposals
Interest paid
Tax paid

Free cash ﬂow

2005
£m

857.5
717.9
(232.2)
117.8
(101.6)
(166.7)

1,192.7

2004
£m

602.3
64.2
(428.8)
126.2
(49.8)
(220.4)

93.7

The Group generated an operating cash inﬂow for the year of £1,575.4m (last year cash inﬂow £666.5m). Within this, the cash inﬂow from
continuing operations was £857.5m (last year £602.3m). A major factor in the increase in operating cash ﬂow was the year-on-year net
decrease in contributions paid to the UK deﬁned beneﬁt pension scheme, following the one-off injection of £400m in March 2004.

During the period, the Group acquired tangible ﬁxed assets totalling £219.6m (last year £433.5m). After taking into account the timing of
payments, the cash outﬂow for capital expenditure was £232.2m (last year £428.8m). During the year, the Group received £117.8m (last
year £126.2m) from the sale of properties, including £115m from the sale of Michael House.

8 MARKS AND SPENCER GROUP PLC

Financial review continued

The total movements in net debt comprise the amounts shown in the table below:

Cash ﬂow analysis

Opening net debt
Free cash ﬂow
Equity dividends 
Net sale of ﬁxed asset investments
Acquisition of per una
Sale of Financial Services
Closure of Continental European operations
Issue of new shares under employee share schemes
Purchase of own shares
Tender Offer expenses
Net sale/(purchase) of own shares held by employee trusts
Redemption of B shares
Exchange movement

Closing net debt

Analysed between:

Continuing operations
Discontinued operations

Closing net debt

2005
£m

(1,994.7)
1,192.7
(236.9)
0.8
(125.9)
1,316.7
12.7
68.4
(2,300.0)
(14.9)
0.6
(19.2)
0.7

2004
£m

(1,831.4)
93.7
(247.1)
8.7
–
–
51.3
24.8
(54.4)
–
(3.6)
(33.4)
(3.3)

(2,099.0)

(1,994.7)

2005
£m

2004
£m

(2,099.0)
–

(823.7)
(1,171.0)

(2,099.0)

(1,994.7)

Transactions with shareholders (dividends paid, Tender Offer, redemption of B shares and the issue of new shares under employee share
schemes) resulted in a net cash outﬂow of £2,502.6m (last year £310.1m).

At the end of the period, net debt was £2,099.0m, an increase of £104.3m, giving rise to retail gearing of 84.5% (last year 44.7%)
including the net post-retirement liability.

Financing and capital structure
In August 2004, we signed two new banking facilities totalling £2bn, being a £1.2bn ﬁve-year term facility and an £800m bridging loan
pending completion of the sale of Financial Services. Part utilisation of these facilities, together with existing resources and the resultant
proceeds from the sale of Financial Services, were used to fund the return of £2.3bn to shareholders.

We currently have committed facilities of £1,260m available together with uncommitted bank facilities of £190m supporting our £1.5bn
Commercial Paper programme.

Average interest rates on borrowings were higher during the year at 5.7% (last year 5.3%). Interest cover was 8.2 times and ﬁxed charge
cover was 4.1 times.

On 28 October, we purchased 635,359,116 ordinary shares, representing 27.9% of the issued share capital, for cancellation at a price of
362p per share and a total cost of £2.3bn.

On 27 September 2004 and 29 March 2005, 16,454,305 and 10,967,542 B shares respectively, were redeemed at par, at a total cost of
£19.2m. Following this redemption, 93,822,916 B shares remain in issue. The next opportunity for redemption will be on 26 September 2005.

Treasury policy and ﬁnancial risk management
The Board approves treasury policies and senior management directly control day-to-day operations. The Board delegates certain
responsibilities to the treasury committee, comprising one executive director, one non-executive director, the Director of Corporate
Finance, the Group Treasurer and the Director, Financial Services. The treasury committee is empowered to take decisions, as necessary,
within that delegated authority.

The Group’s ﬁnancial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items, such as trade
debtors and trade creditors, that arise directly from its operations. The main purpose of these ﬁnancial instruments is to raise ﬁnance for
the Group’s operations.

MARKS AND SPENCER GROUP PLC 9

The Group’s Treasury also enters into derivatives transactions, principally interest rate and currency swaps and forward currency contracts.
The purpose of such transactions is to manage the interest rate and currency risks arising from the Group’s operations and ﬁnancing.

It has been, and remains, the Group’s policy that no trading in ﬁnancial instruments shall be undertaken, except where ﬁnancial constraints
necessitate the need to liquidate any outstanding investments. The main ﬁnancial risks faced by the Group relate to interest rates, foreign
exchange rates, liquidity and counterparty risks. The policies and strategies for managing these risks are summarised as follows:

(a) Interest rate risk
Interest rate risk in respect of debt on the retail balance sheet is reviewed on a regular basis. At the balance sheet date, interest
obligations in respect of the property securitisation and the two Public Bond issues in Sterling were at ﬁxed rates.

(b) Foreign currency risk
Currency exposure arising from exports from the UK to overseas subsidiaries is managed by using forward currency contracts, out to 
15 months forward, to hedge between 80% and 100% of sales. Imports are primarily contracted in Sterling but, where relevant, imports
arising in a currency other than Sterling are fully hedged using forward contracts. The Group is increasing the proportion of imports
contracted in local currencies and a policy is in place for the hedging of these exposures, principally using forward currency contracts.

The Group does not use derivatives to hedge balance sheet and proﬁt and loss account translation exposures. Where appropriate,
borrowings are arranged in local currencies to provide a natural hedge against overseas assets.

(c) Liquidity risk
The objective is to ensure a mix of funding methods offering ﬂexibility and cost effectiveness to match the needs of the Group. Operating
subsidiaries are ﬁnanced by a combination of retained proﬁts, bank borrowings, commercial paper, medium-term note issuance and
securitised loan notes. Commercial paper issuance and short-term borrowings are backed by committed bank facilities totalling £1,260m.

(d) Counterparty risk
The objective is to reduce the risk of loss arising from default by counterparties. The risk is managed by using a number of banks and
allocating each a credit limit according to credit rating criteria. These limits are reviewed regularly by senior management. Dealing
mandates and derivative agreements are agreed with the banks prior to deals being arranged.

The details of derivatives and other ﬁnancial instruments required by FRS 13 – ‘Derivatives and Other Financial Instruments: Disclosures’,
are shown in notes 19, 22 and 24 to the ﬁnancial statements.

Pensions
The Group provides pension arrangements for the beneﬁt of employees through the Marks and Spencer UK Pension Scheme together
with some speciﬁc arrangements for our overseas operations. The deﬁned beneﬁt section of the UK scheme was closed to new entrants
with effect from 31 March 2002. At the year end it had some 35,000 active members, 56,000 deferred members and 36,000 pensioners.
The market value of the assets of the UK deﬁned beneﬁt scheme was £3.9bn at 2 April 2005. Full details of these assets, together with
the FRS 17 liabilities and the valuation assumptions made, are included in note 11 to the ﬁnancial statements. 

Following the last full actuarial valuation (which showed an actuarial deﬁcit of £585m as at 31 March 2003), the Group paid additional
contributions of £400m in March 2004 and agreed a Schedule of Contributions comprising annual service contributions at a level of
15.8% of pensionable salaries and nine annual payments of £33m, commencing 31 March 2007, to fund the remaining actuarial deﬁcit.

During the year there have been ongoing discussions between the Group and the Trustees of the Marks and Spencer UK Pension
Scheme with regard to the funding of the UK deﬁned beneﬁt scheme. These discussions have resulted in £115m of additional contributions
being paid into the scheme during March and April 2005, of which £64m had been paid in before the year end and is reﬂected in the
assets as at 2 April 2005. These amounts are in addition to the agreed Schedule of Contributions referred to above. They are designed to
address the less favourable investment conditions experienced over the last couple of years and anticipate the next full actuarial valuation
which is due as at 31 March 2006. The funding of the scheme will be reviewed again at that time and a new funding plan agreed.

The new deﬁned contribution section of the UK scheme, the Marks and Spencer Retirement Plan, has been open to new members from 
1 April 2003 and had some 4,000 active members at the year end. The contributions paid by the Group are charged in the accounting
period to which they relate and details are set out in note 11 to the ﬁnancial statements.

10 MARKS AND SPENCER GROUP PLC

Financial review continued

International Financial Reporting Standards
For the next ﬁnancial year, the Group will be required to adopt International Financial Reporting Standards. We have identiﬁed that the
greatest impact on the Group arises from changes in the accounting treatment for property, share-based payments, ﬁnancial instruments
and software. The Group has restated the results for the period ended 2 April 2005 to reﬂect these changes and a summary of the impact
is set out below:

Turnover (£m)
Operating proﬁt before exceptional items (£m)
Proﬁt before tax and exceptional items (£m)
Adjusted earnings per share (p)
Net assets at 2 April 2005 (£m)

2004/05

UK GAAP

IFRS

Change

7,942.3
709.4
618.5
21.9
521.4

7,942.3
689.2
596.0
21.0
938.6

–
(20.2)
(22.5)
(0.9)
417.2

Change
%

–
(2.8)
(3.6)
(4.1)
80.0

Going concern statement
After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the ﬁnancial statements.

Corporate governance

The Board is committed to high standards of corporate
governance and supports the Combined Code on Corporate
Governance (the ‘Code’), published in July 2003. The following
statement is intended to explain our governance policies and
practices and to provide insight into how the Board and
management run the business for the beneﬁt of shareholders. 
A detailed account of how we comply with the Code provisions
can be found on the Corporate Governance section of the
Company’s website, together with the terms of reference of 
the audit, remuneration and nomination committees, at
www.marksandspencer.com/investorrelations.

The Board
On 23 May 2005 the Board comprised the Chairman, Chief
Executive, one executive director and four non-executive directors,
who are collectively responsible for the success of the Company.
On 27 June 2005 our new Finance Director will join the Board. 
A list of directors, with details of their biographies and committee
membership, is given on page 17 of the Annual Review.

Paul Myners is Chairman and he is responsible for the working 
of the Board, for the balance of its membership subject to Board
and shareholder approval, and for ensuring that all directors are
enabled to play their full part in its activities to deliver value to
shareholders. He ensures effective communication with
shareholders and makes sure that Board members develop an
understanding of the views of major investors.

Stuart Rose is Chief Executive and he is responsible for all aspects
of the management of the Group and its business, which includes
developing the appropriate business strategy for Board approval
and securing its timely and effective implementation. He ensures
that, within the strategies agreed by the Board, appropriate
objectives and policies are adopted for each of the businesses 
of the Company, that appropriate budgets are set for them
individually, that their performance is effectively monitored and 
that guidance or direction is given where appropriate.

The Chairman ensures that the directors receive accurate, timely
and clear information. Directors are encouraged to update their
skills, knowledge and familiarity with the Group through their initial
induction, ongoing participation at Board and committee meetings,
and through meeting our people at store locations and elsewhere.
Views of customers and shareholders are also shared through
Board presentations and individual meetings. The Board is
regularly updated on governance and regulatory matters. There is
an established procedure whereby any director, wishing to do so in
the furtherance of their duties, may take independent professional
advice through the Group Secretary at the Company’s expense.
This has been extended to the audit, remuneration and nomination
committees to take their own independent advice.

Kevin Lomax is Senior Independent Director and he provides a
communication channel between the Chairman and the non-
executive directors and to ensure that the views of each non-
executive director are given due consideration. He is also an
additional contact point for shareholders if they have reason for
concern which contact through the normal channels of Chairman,
Chief Executive or Finance Director has failed to resolve or for
which contact is inappropriate. Brian Baldock was the Senior
Independent Director until his retirement on 14 July 2004.

MARKS AND SPENCER GROUP PLC 11

The non-executive directors provide a wide range of skills and
experience to the Group. They bring an independent judgement 
on issues of strategy, performance, risk and people through their
contribution at Board and committee meetings. The Board
considers that throughout the year each non-executive director
was independent in character and judgement and that they also
met the independence criteria set out in the Code. The non-
executive directors have ensured that they have sufﬁcient time to
carry out their duties. They are expected to serve two three-year
terms, although the Board may invite them to serve an additional
period. As a consequence of changes to the Board described in
the Directors’ report on page 27, less than half the Board were
independent non-executive directors for the period from 31 May 
to 9 November 2004. 

Graham Oakley, Group Secretary, acts as a sounding board to the
Chairman and individual directors. He plays a key role for the
Chairman in ensuring the effective functioning of the Board. He is
secretary of the audit, remuneration and nomination committees.
He also heads the Corporate Governance Group, which supports
the Board and its committees and commercial colleagues on a
wide range of issues.

The Board has a formal schedule of matters reserved for its
decision. It determines the overall Group strategy; creation,
acquisition or disposal of material corporate entities or assets;
development and protection of the brand; matters of public interest
that could affect the Group’s reputation; public announcements
including statutory accounts; signiﬁcant changes in accounting
policy; capital structure and dividend policy; operating plans and
key performance indicators; prosecution, defence or settlement of
material litigation; Group remuneration policy and Board structure,
composition and succession. 

The Board receives regular updates on performance against the
annual operating plan and investment decisions, together with
business reports and presentations from senior management.
During 2004/05 we reviewed all expenditure and put tight controls
in place. Stock commitments were reduced by over 35% year on
year. We are on course to deliver cost and margin savings and
have a lower customer-focused capital spend. We simpliﬁed
processes to make us more product and service driven, and
removed 650 roles from head ofﬁce. We also focused on 10
strategic projects that will add most value. 

We renegotiated supplier terms to reduce the cost of goods by
£140m by the end of 2006/07 compared to 2003/04. Overall, we
expect to achieve cost and margin savings of £320m by the end
of 2006/07. Additionally, we closed Lifestore, acquired per una,
returned £2.3bn to shareholders and sold M&S Money to HSBC.

We reduced the Executive Board to a team of three. The Business
Unit Directors all now report directly to the Chief Executive and
give regular presentations to the Board on strategies in their
relevant areas of the business.

The Board delegates to management, through the Chief Executive,
the overall performance of the Group which is conducted
principally through the setting of clear objectives and effective
performance coaching, building long-term management capability
and ensuring that the business is managed in a ﬁt and proper
manner in keeping with its values and business principles.

12 MARKS AND SPENCER GROUP PLC

Corporate governance continued

Under the Company’s Articles of Association, all directors seek
election at their ﬁrst Annual General Meeting following appointment
and all directors are required to offer themselves for re-election at
least every three years. In addition, any director who is aged 70 or
more is required to retire and seek re-election annually.

Committees of the Board
The audit committee comprises Kevin Lomax (chairman),
Anthony Habgood, Steven Holliday and Jack Keenan, all of whom
are independent, non-executive directors. Paul Myners was a
member until he was appointed Company Chairman on 31 May
2004. Brian Baldock and Dame Stella Rimington were members
until they retired on 14 July 2004. Anthony Habgood and Steven
Holliday joined the committee on their appointment on 15 July
2004. Its primary function is to maintain the integrity of the ﬁnancial
statements and other information to shareholders, to review the
systems of internal control and risk management; to maintain an
appropriate relationship with the Company’s external and internal
auditors and to review the effectiveness and objectivity of the audit
process. Additional items reviewed during the year include:
international accounting standards, clothing stock and
commitment controls, store assurance, business change,
information security and cash controls. Private meetings have 
also been held separately with the external auditors and the 
Chief Internal Auditor. From 1 May 2005 Stuart Rose and Charles
Wilson, supported by the Finance Group, will assume the
responsibilities normally performed by a Finance Director until the
appointment of Ian Dyson on 27 June 2005.

The audit committee keeps under review the independence and
objectivity of the external auditors, PricewaterhouseCoopers LLP
(‘PwC’), including the review of audit fee proposals and non-audit
fees. An engagement and fee approvals process is in place which
requires prior committee approval for some engagements and
excludes others. In some cases, the nature of the non-audit advice
may make it more timely and cost-effective to select PwC, who
already have a good understanding of the Group. PwC may also
be appointed for consultancy work, but only after rigorous checks,
including competitive tender, to conﬁrm they are the best provider.
PwC is also subject to professional standards which safeguard the
integrity of the auditing role performed on behalf of shareholders.
Details of this year’s fees are given in note 3 to the ﬁnancial
statements. 

The Board is conﬁdent that the collective experience of the audit
committee members enables them, as a group, to act as an
effective audit committee. The committee also has access to the
ﬁnancial expertise of the Group and its auditors and can seek
further professional advice at the Company’s expense if required.
Our search for a new non-executive director with recent and
relevant ﬁnancial experience to refresh the skills and experience of
the committee as a whole continues, having been interrupted by
the signiﬁcant Board restructures in May and November 2004.

The remuneration committee comprises Jack Keenan
(chairman), Anthony Habgood, Steven Holliday and Kevin Lomax,
all of whom are independent, non-executive directors. Dame Stella
Rimington was chairman until her retirement on 14 July 2004.
Barbara Cassani and Brian Baldock were members until their
retirement on 30 April and 14 July 2004 respectively. Kevin Lomax
became a member on 15 July 2004. Its primary role is to
recommend to the Board the remuneration strategy and framework,

giving due regard to the ﬁnancial and commercial health of the
company and to ensure the executive directors and senior
management are fairly rewarded for their individual contributions 
to the Company’s overall performance. The remuneration of the
non-executive directors is determined by the Chairman and the
executive directors.

The Remuneration Report is set out on pages 16 to 25 as required
by the Directors’ Remuneration Report Regulations 2002.

The nomination committee comprises Paul Myners (chairman),
Anthony Habgood, Steven Holliday, Jack Keenan and Kevin
Lomax, all of whom are independent non-executive directors, with
the exception of the Chairman. Brian Baldock and Dame Stella
Rimington were members until their retirement on 14 July 2004. 
Its role is to ensure that appropriate procedures are in place for the
nomination, selection, training and evaluation of directors and for
successional plans. It reviews Board structure, size, composition
and successional needs, thereby keeping under review the balance
of membership and the required blend of skills, knowledge and
experience of the Board.

Paul Myners was appointed as Chairman in May 2004 on an
interim basis until a permanent appointment is made, having been
appointed to the Board in April 2002 as an independent non-
executive director. He subsequently made more time available so
that he could continue in the role while the search for a permanent
Chairman continued. He is chairman of Aspen Insurance Holdings
Ltd and of Guardian Media Group plc. He is a non-executive
director of the Bank of New York and will join the Court of
Directors of the Bank of England on 1 June 2005. In 2004 he
retired as a non-executive director of mm02 and as a trustee of 
the Charities Aid Foundation.

Also in May 2004, Stuart Rose was appointed as Chief Executive
and Charles Wilson as executive director, both with considerable
experience in retail and turnaround situations. During the year
further candidate searches resulted in two non-executives being
appointed to the Board in July 2004 and a Finance Director to 
be appointed in June 2005, all recruited externally. In all cases
appointments were made on merit and against objective criteria 
to ensure that the Board maintains an appropriate balance of skills
and experience.

Kevin Lomax, an independent non-executive director, has led the
search for a new Chairman on behalf of the nomination committee.
The committee has also commissioned searches for new non-
executive directors to address successional arrangements and
broaden the skills, experience and diversity of the Board.

In May 2005 we announced that Lord Burns will be joining the
Board as Deputy Chairman with effect from 1 October 2005 and
will become Chairman from the Annual General Meeting in July
2006. Paul Myners will then step aside from the Board as, under
the Combined Code principles, the Board will not be able to
consider him as an independent director.

The corporate social responsibility (“CSR”) committee
comprises Paul Myners (chairman), Jack Keenan, Graham Oakley
and seven members of management. Mark McKeon and Alison
Reed were members until their retirement on 9 November 2004
and 30 April 2005 respectively. It provides the Board with an
overview of the social, environmental and ethical impacts of the
Group’s activities. Key CSR risks and opportunities are identiﬁed in

MARKS AND SPENCER GROUP PLC 13

areas such as product safety, sustainable raw materials, animal welfare, ethical trading, employment policy, health and safety and
community programmes. We are pleased that we continue to gain recognition for our CSR performance, including being named as
Business in the Community’s (BitC) 2004 Company of the Year. Further information is given on page 16 of the Annual Review and our
CSR report is available on the Company’s website. 

The following table sets out the number of meetings of the Board and its committees during the year and individual attendance by Board
members at those meetings:

Group
Board

Audit Remuneration
Committee

Committee

Nomination
Committee

CSR
Committee

Meetings held during the year1
Paul Myners, Chairman2
Stuart Rose, Chief Executive (appointed 31 May 2004)

Executive directors
Maurice Helfgott (retired 9 November 2004)
Mark McKeon (appointed 5 April 2004; retired 9 November 2004)
Laurel Powers-Freeling (retired 9 November 2004)
Vittorio Radice (retired 11 June 2004)
Alison Reed (retired 30 April 2005)
Charles Wilson (appointed 31 May 2004)

Non-executive directors
Brian Baldock (retired 14 July 2004)
Anthony Habgood (appointed 15 July 2004)
Steven Holliday (appointed 15 July 2004)
Jack Keenan
Kevin Lomax3
Dame Stella Rimington (retired 14 July 2004)

15
15
12

10
10
10
4
15
12

8
5
5
15
13
8

4
2
–

–
–
–
–
–
–

2
1
1
4
4
2

9
–
–

–
–
–
–
–
–

4
5
5
9
5
4

10
10
–

–
–
–
–
–
–

4
5
5
8
9
4

2
2
–

–
1
–
–
2
–

–
–
–
2
–
–

1These ﬁgures include a number of meetings held by the Board and its remuneration and nomination committees at short notice to deal with potential bid activity
and senior management changes throughout the year. Members of the Board and respective committees attended the majority of these meetings in person or by
telephone. Occasionally the short notice of such meetings prevented attendance when other ﬁxed commitments had been made. 
2Paul Myners retired from the Audit Committee on his appointment as Chairman on 31 May 2004.
3Kevin Lomax was appointed to the Remuneration Committee on 15 July 2004.

Luc Vandevelde attended the two Board meetings and one Nomination Committee, and Roger Holmes attended the two Board meetings, held before they both
retired from the Board on 31 May 2004. Barbara Cassani retired on 30 April 2004 and did not attend any of the above meetings. Ian Dyson is being appointed to
the Board on 27 June 2005. Lord Burns is being appointed to the Board on 1 October 2005.

Performance evaluation
Collective performance: Board and Committees
The nomination committee, through the Chairman, agreed our approach to reviewing the collective performance of the Board and its
committees, together with individual contributions, through a combination of questionnaire and individual feedback.

The Chairman issued a detailed questionnaire to all directors in March 2005 with speciﬁc questions grouped into areas headed
‘processes’, ‘roles and responsibilities’ and ‘committee and individual contributions’. Appreciating that time together as a new Board was
relatively short and that the reconstitution of the Board was not yet complete, it was still felt that a rigorous review would be valuable.
Directors were invited to focus speciﬁcally on areas requiring priority action and to give honest and constructive suggestions/comments 
so that the Board could review its performance in a thorough and thoughtful manner. 

The process was extended further this year to include external advice and support together with individual discussions with the Head of
Senior Succession and Board Performance allowing greater opportunity to explore issues on an individual basis. An executive summary
focusing on the key themes that emerge will be distributed to directors. The Chairman will lead a Board discussion based on the results of
the evaluation and use the process to improve constructively the effectiveness of the Board by maximising the strengths and tackling any
issues of concern.

Individual performance
The executive directors continue to have their performance individually reviewed by the Chief Executive against set objectives.
Remuneration and bonus is directly linked to these reviews and determined by the remuneration committee. Similarly, the Chief Executive
and Group Secretary’s performance is reviewed by the Chairman. The performance of the non-executive directors is reviewed individually
by the Chairman and that of the Chairman by the non-executive directors led by the Senior Independent Director. This year’s questionnaire
also allowed each director to comment on the individual performance of themselves, other directors and the Chairman.

14 MARKS AND SPENCER GROUP PLC

Corporate governance continued

Accountability and audit
The Group’s overriding corporate objective is to maximise long-
term shareholder value whilst exceeding the expectations of our
customers, employees and partners. In doing so, the directors
recognise that creating value is the reward for taking and 
accepting risk. 

The Board has overall responsibility for the Group’s approach to
assessing risk and systems of internal control, and for monitoring
their effectiveness in providing shareholders with a return that is
consistent with a responsible assessment and mitigation of risks.
This includes reviewing ﬁnancial, operational and compliance
controls and risk management procedures. The role of executive
management is to implement the Board’s policies on risk and
control, and present assurance on compliance with these policies.
Independent assurance is presented by internal audit, which
operates across the Group, and the external auditors. All
employees are accountable for operating within these policies. 

Because of the limitations that are inherent in any system of
internal control, this system is designed to manage, rather than
eliminate, the risk of failure to achieve corporate objectives.
Accordingly, it can only provide reasonable but not absolute
assurance against material misstatement or loss. 

Risk assessment
Every six months the Board reviews the Group Risk Proﬁle – the
tool that drives risk assessment and action planning. This is
supported by an ongoing process for identifying, evaluating and
managing the signiﬁcant risks faced by the Group. As an integral
part of planning and review, managers from each business area
and major projects identify the risks to their plans, the probability of
those risks occurring, the impact if they do occur and the actions
being taken to manage those risks to the agreed boundaries for
risk taking. This information is communicated upwards on a ﬁlter
basis, culminating in a comparison with the executive directors’
assessment of the Group’s risks and discussion by the Board.

This process has been in place for the year under review and up 
to the date of approval of the annual report and accounts. It has
been regularly reviewed by the Board and accords with the Internal
Control Guidance for directors on the Code produced by the
Turnbull working party. 

Internal control
The Board maintains full control and direction over appropriate
strategic, ﬁnancial, organisational and compliance issues. It has
delegated to executive management the implementation of the
systems of internal control within an established framework. 

The Board has put in place an organisational structure with
formally deﬁned lines of responsibility and delegation of authority.
There are also established procedures for planning, capital
expenditure, information and reporting systems, and for monitoring
the Group’s businesses and their performance. These include:

Plans and policies
•
•
•
•
•
•

communication of the Group’s strategy, objectives and targets;
annual operating and capital plans and future projections;
operating policies and procedures;
clearly deﬁned capital investment control guidelines;
review of treasury policies by the treasury committee; and
review of social, environmental and ethical matters by the
corporate social responsibility committee.

Competent people
•

appointment of employees of the necessary calibre to fulﬁl their
allotted responsibilities; and
clear roles and accountabilities with regular performance
reviews.

•

Monitor and control
•

review by operating divisions of their plans with the relevant
executive directors prior to submission to the Board for
approval, including identiﬁcation and assessment of risks;
• monthly comparison of operating divisions’ actual ﬁnancial

performance against budget; and
regular consideration by the Board of year-end forecasts.

•

Regulatory update
•
•

reporting of accounting and legal developments; and
regular brieﬁngs on latest best practice corporate governance
to the Board.

Assurance
On behalf of the Board, the audit committee examines the
effectiveness of the Group’s:
•

assessment of risk by reviewing evidence of risk assessment
activity and a report from internal audit on the process
undertaken; and
systems of internal control, primarily through approving the
internal audit plan and reviewing its ﬁndings, reviews of the
annual and interim ﬁnancial statements and a review of the
nature, scope and reports of the external audit.

•

Any signiﬁcant ﬁndings or identiﬁed risks are closely examined so
that appropriate action can be taken. Management is called upon
to present action plans and give representation. The audit
committee has completed its review of the effectiveness of the
Group’s systems of internal control during the year.

Internal audit’s work is focused on areas of priority as identiﬁed by
the Group Risk Proﬁle and in accordance with an annual audit plan
approved each year by the audit committee and by the Board. The
Board receives a full report from the Chief Internal Auditor each
year on the department’s work and ﬁndings and regular interim
updates on speciﬁc issues. 

The external auditors are engaged to express an opinion on the
ﬁnancial statements. They review and test the systems of internal
ﬁnancial control and the data contained in the ﬁnancial statements
to the extent necessary to express their audit opinion. They
discuss with management the reporting of operational results and
the ﬁnancial position of the Group and present their ﬁndings to the
audit committee. 

Relations with shareholders
We are committed to ongoing engagement with shareholders and
have a well established cycle of communication based on the
Group’s ﬁnancial reporting calendar. At times of rapid change it is
even more important to keep all investors properly informed. We
promote the use of electronic communication and relaunched our
corporate website in May 2005. All Company announcements and
presentations are made available simultaneously on our website,
which also contains corporate and customer information updated
on a regular basis. There is a corporate governance section which
includes our full response to the Code and terms of reference for
the principal Board committees. Our registrars have also
developed www.shareview.co.uk – an electronic service where

MARKS AND SPENCER GROUP PLC 15

At last year’s Annual General Meeting, the Chairman made a
commitment to explore how we could best reward our loyal
shareholders who are also customers. In August 2004 we sent
Café Revive and Spend and Save vouchers to shareholders
offering Autumn discounts in stores, which proved very popular.
We will be repeating this in July 2005, extending our offer to those
who hold shares through nominee accounts.

We encourage shareholders to make their views known to us 
by e-mail at chairman@marks-and-spencer.com, by telephone 
on 0845 302 1234 for customer queries and 0845 609 0810 
for shareholder queries as we continue to develop our products
and services.

Compliance with the combined code
For the year ended 2 April 2005 the Company complied with all
the provisions of the Combined Code on Corporate Governance,
except as follows:

Board Balance
A.3.2 At least half the Board, excluding the Chairman, should
comprise non-executive directors determined by the Board to be
independent. The Company’s position is explained on page 11.

Audit Committee Membership
C.3.1 The Board should satisfy itself that at least one member of
the Audit Committee has recent and relevant ﬁnancial experience.
The Company’s position is explained on page 11.

shareholders can check their shareholding, update their personal
details and elect to receive communications electronically, rather
than through the post.

Our Investor Relations department is the focal point for contact
with institutional investors and maintains regular dialogue
throughout the year. The Chairman ensures that the Board is
regularly updated on the views of our major shareholders, following
meetings they have with him, the Chief Executive, the Finance
Director or Investor Relations. In June the Board receives a
presentation from external advisers summarising the opinions 
of our principal shareholders following an extensive survey on 
their views after the release of our fourth quarter trading statement
in April. 

We regard the Annual General Meeting as an important forum for
us to engage with shareholders, particularly our private
shareholders, and it is very well attended. The business
presentations from the Chairman and Chief Executive are made
available on our website, together with the questions and answers
raised at the meeting.

The Board has taken the following steps to encourage increased
shareholder voting and improve the integrity and effectiveness of
the voting process:
•

campaigned ‘your vote counts’ and encouraged the greater 
use of electronic voting;
invited three-way voting on Annual General Meeting
resolutions: ‘for’, ‘against’ and ‘vote withheld’; and
conducted the vote at the Annual General Meeting by poll
rather than by show of hands.

•

•

The results of our voting are declared at the meeting, announced
to the London Stock Exchange and published on our website. In
July 2004 all Annual General Meeting resolutions were passed on a
poll conducted electronically. Approximately 40% of the ordinary
share capital was voted with ‘for’ resolutions ranging from 89.23%
to 99.98%.

At this year’s Annual General Meeting, in addition to routine
resolutions, shareholders will be asked to vote on:
•

separate resolutions relating to the Company’s auditors,
PricewaterhouseCoopers LLP. The ﬁrst relates to their re-
appointment and the second seeks authority for the audit
committee to determine the remuneration of the auditors on
behalf of the Board;
amendments to the Company’s Articles of Association to
authorise the Company to indemnify directors and fund legal
defence costs as now permitted by the Companies (Audit,
Investigations and Community Enterprise) Act 2004;
the introduction of a new Performance Share Plan and
Executive Share Option Plan following a review by the
remuneration committee to put in place an effective incentive
structure to focus senior executives on driving the Company’s
recovery whilst taking account of investor views and market
practice; and
the appointment of Lord Burns as a director with effect from 
1 October 2005.

•

•

•

16 MARKS AND SPENCER GROUP PLC

Remuneration report

Compliance
The Remuneration Committee has adopted the principles of good
governance relating to directors’ remuneration as set out in the
new Combined Code. This report complies with the Companies
Act 1985, as amended by the Directors’ Remuneration Report
Regulations 2002 and the Listing Rules of the Financial Services
Authority.

Part 1: Unaudited Information

Remuneration Committee
With effect from 15 July 2004, the Committee comprises Jack
Keenan (Chairman), Anthony Habgood, Steven Holliday and Kevin
Lomax, all of whom are independent, non-executive directors.
Dame Stella Rimington and Brian Baldock were members of the
Committee until they left the Company on 14 July 2004 and
Barbara Cassani, until she left the Company on 30 April 2004.
There were six meetings of the Remuneration Committee during
the period under review and all individuals who were a member of
the Committee at that time attended the meetings, with the
exception of Barbara Cassani, who did not attend the meeting on
21 April 2004. The Committee recommends to the Board the
remuneration framework to allow the Company to attract and
retain its executive directors and senior management, giving due
regard to the ﬁnancial and commercial health of the Company. In
addition, the Committee is responsible for setting the remuneration
for the Chairman. The Committee’s approach reﬂects the
Company’s overall philosophy that all employees should be
appropriately and competitively rewarded, in particular to recognise
that the highest standards of performance deliver improved
business results.

The Committee keeps itself fully informed of all relevant
developments and best practice in the ﬁeld of remuneration and
seeks advice where appropriate from external advisors. New
Bridge Street Consultants LLP have provided material advice to
the Committee and the Company on directors’ remuneration and
share schemes in the past year, in particular the role and shape of
the incentive schemes. 

The Company Chairman, Chief Executive, Group Secretary and
Head of Senior Remuneration also materially assisted the
Committee in its deliberations, except in relation to their own
remuneration.

Remuneration policy
Marks & Spencer depends upon the skill and experience of
motivated employees throughout all levels of the business. It is part
of our strategy to have a range of schemes to attract, motivate
and retain high calibre individuals to drive the Company’s recovery
and deliver improved performance. The Board considers the
principles of good governance when deciding the remuneration
strategy, and recognises that the level of remuneration and beneﬁts
we offer is key to supporting this objective and maintaining our
market position as an employer of choice.

Total remuneration for executive directors comprises base pay,
variable pay, pension and beneﬁts. Base pay and beneﬁts are set
having regard to market practice and levels paid by similar
companies. Variable pay provides the opportunity to earn greater
amounts for the highest standards of performance. The
performance-related element forms a signiﬁcant proportion of the
total potential package. 

During the year, the Remuneration Committee has undertaken a
comprehensive review of the remuneration policy, and in particular
the role of variable pay. Following this review, the Company is
proposing to make changes to the bonus and share incentive
arrangements. Shareholder approval will be sought for a new
Performance Share Plan and a new Executive Share Option Plan.
Full details of both these Plans are contained in the Notice of
Meeting. 

In summary, the proposals are:

•

•

•

•

To enhance annual bonus potential for approximately 
400 of the more senior executives. Payment will require 
the satisfaction of stretching targets and a signiﬁcant
proportion of the bonus payable will be deferred into shares 
for three years;
To adopt a new Performance Share Plan as the Company’s
primary long-term incentive arrangement. It is intended to
make awards under this Plan to approximately 100 of the most
senior executives. Vesting of these awards will be based on
demanding earnings per share growth targets;
To adopt a new Executive Share Option Scheme to be used
by the Remuneration Committee upon recruitment or in
exceptional circumstances, if it considers it appropriate 
to do so; and
To make no further awards under the Company’s Share
Matching Plan.

The proposals have been designed to rebalance the remuneration
package by weighting variable pay more towards annual
performance. To receive awards, executives will be required to
achieve demanding targets under the annual and long-term
arrangements, with the focus on targets that are most relevant 
to them.

The proposals will use substantially fewer shares than the current
arrangements, resulting in a lower cost to the Company at target
performance than is currently the case, and only results in
additional cost at high levels of performance.

Expected proportions of future annual remuneration
package for executive directors

Fixed

Performance-related

Salary
43%

Pension
9%

On-target
annual cash
bonus 
13%

Long-term
incentives
35%

The value placed on long-term incentives assumes ‘on-target’
performance and comprises the expected cash value to executives
after three years, discounted back to its present value, of i) bonus
compulsorily deferred into shares and ii) performance shares
awarded under the Performance Share Plan.

Chairman’s and non-executive directors’ remuneration
The remuneration for the non-executive directors is determined by
the Chairman and executive directors and is designed to recognise
both the responsibilities of non-executive directors and to attract
individuals with the necessary skills and experience to contribute to
the future growth of the Company. The non-executives are paid a
basic fee with additional fees payable for committee membership
and to the chair of the committees. These fees are neither

MARKS AND SPENCER GROUP PLC 17

No director has been invited to invest any element of their bonus 
in the Share Matching Plan for 2005. 

The Company is proposing to make changes to the bonus scheme
with effect from the 2005/06 ﬁnancial year to focus senior
executives on the speciﬁc operational improvements which need to
be made over the next year in order to drive the Company’s
recovery. The key measure for executive directors will be Group
proﬁt before tax, with demanding targets that require a signiﬁcant
recovery in the Company’s Performance.

In particular, the Group proﬁt before tax has been set taking into
account market expectations for 2005/06. 60% of salary is
payable for achieving target performance, and no bonus payable if
this target is not achieved. The target will need to be substantially
exceeded in order for a bonus of 100% of salary to be earned. All
targets will represent marked improvements on the reported proﬁt
of 2004/05. The maximum bonus for an executive director in
2005/06 is 150% of salary.

The executive directors will be required to defer 50% of any bonus
paid into shares which will be held for three years. There will be 
no match paid against these deferred shares, although the value 
of any dividends earned during the deferral will be paid at the end
of the period. The deferred shares will normally not be receivable 
in the event that the executive leaves employment during the
deferral period.

Long-term Incentive Schemes
(a) Executive Share Matching Plan
An Executive Share Matching Plan for senior management was
approved by shareholders at the Annual General Meeting in 2002
and was introduced in July 2002. The Plan operated in 2002, 
2003 and 2004 for up to 25 selected senior management. The
Company does not intend to operate this plan for executive
directors in 2005 or future years. Participants were required to
invest one-third of any annual bonus earned in shares of the
Company. Any part of the balance may have been invested
voluntarily.

The pre-tax value of the invested bonus would be matched by an
award of shares, with the extent of the match determined by
performance conditions. The current performance conditions are:

•

•

50% of the invested bonus receives a matching award based
on the Company’s Total Shareholder Return (‘TSR’)1 compared
to the constituents of the FTSE 100 at the start of the
performance period; and
50% of the invested bonus receives a matching award based
on the Company’s TSR compared to a selected comparator
group of UK retailers, which for 2004 is as follows:

Big Food Group
Boots
Dixons
GUS
House of Fraser
Kingﬁsher
Matalan
MFI

William Morrison
Next
Sainsbury
Somerﬁeld
Tesco
WH Smith
Woolworths

performance related nor pensionable. They do not participate in
any of the Company’s incentive plans or share schemes. The fees
for non-executive directors are reviewed regularly and the last
change was effective from 1 April 2003.

The Chairman’s fee for his initial period in ofﬁce from 31 May 2004
(when he stepped in at short notice to respond to a possible offer
for the Company) to 5 August 2004 was, at his request, the same
rate of £50,000 per annum as he had received as a non-executive
director. For the period from 5 August 2004 for continuing in the
role of Chairman, the Remuneration Committee was in the process
of considering appropriate market benchmarks for remuneration when
the Chairman signalled that he did not wish his remuneration to
exceed £200,000 per annum. The Committee was content to
agree to this level, which has applied since 10 August 2004 in
the knowledge that it is below the market rate for the role. On
appointment as Deputy Chairman on 1 October 2005, Lord Burns
will receive a fee of £175,000 per annum. His remuneration on
appointment to Chairman from July 2006 will be £400,000 per
annum.

Salaries and beneﬁts
Salaries and beneﬁts for executive directors are reviewed annually
and any change to salary is normally effective from 1 January. The
Remuneration Committee takes into consideration a range of
factors when reviewing salaries such as the Company
performance, level of salaries for large retailers and for other major
FTSE 100 companies, market conditions, the level of increase
awarded to employees throughout the business, and the wish to
recognise the responsibilities of individual directors. Current annual
salaries for executive directors are set out in the Directors’
emoluments table (see page 21).

Stuart Rose and Charles Wilson receive a payment of 20% of total
salary in respect of pension. A payment was also made in respect
of pension in the form of a supplement of 10% of the difference
between the pension earnings cap and their base salary to Roger
Holmes, Mark McKeon and Laurel Powers-Freeling up until their
respective leaving dates. These amounts are included in the
emoluments table as part of beneﬁts.

Laurel Powers-Freeling was provided with accommodation in
Chester to accommodate her working pattern (two days in
London, three days in Chester – the location of M&S Money). 
A taxable beneﬁt arose, which was met by the Company. For
executive directors, the provision of a car and fuel is included 
in the emoluments table as part of beneﬁts, where relevant.

Annual Bonus Scheme
The Annual Bonus Scheme is designed to reinforce the relationship
between team and corporate performance and reward. The targets
are determined annually by the Committee and for 2004/05
incorporated a mixture of ﬁnancial measures and personal
business targets. The Committee assesses the achievement of
targets for all executive directors, with advice from the Chairman
and Chief Executive. The 2004/05 bonus for directors starts at
40% of base salary for on-target performance rising to a maximum
of 100% for exceeding targets.

This year, the ﬁnancial targets have not been met and no award
has been made to any executive director under this element of the
scheme. Two directors received an award for delivery of revised
objectives relating to corporate activities following the possible offer
for the Company in May 2004, as shown in the emoluments table.

18 MARKS AND SPENCER GROUP PLC

Remuneration report continued

At the end of the three-year performance period2, the Company’s
TSR performance is ranked against the two comparator groups
and the following matching ratios applied:

TSR Performance 
Ranking in Group

Top Decile
Between Median and 
Top Decile
Median
Below Median

Ratio of Matching Award 
to relevant portion of 
invested bonus

2.5:1
Pro rata between 
1:1 and 2.5:1
1:1
Zero3

1TSR – The return to shareholders comprising the increase or decrease in share
price plus the value of dividends received assuming that they are reinvested.
2The performance period for the ﬁrst year of awards consists of the three
consecutive years following the most recent announcement of results prior to
the date of award. For subsequent awards, the performance period will consist
of three consecutive ﬁnancial years.
3With the exception of the 2002 Plan, any element of bonus that is compulsorily
invested in the Plan receives a minimum matching ratio of 0.25:1 irrespective 
of performance.

(b) Executive Share Option Scheme
Executive Share Option Schemes have operated for over 20 years
and in recent years have been open to approximately 400 senior
management.

Under the 2002 scheme, annual awards of up to 150% of basic
salary may be offered based on performance and potential and, for
exceptional performance and potential, grants of up to 250% of
basic salary may be awarded. Recruitment grants can be made up
to 400% of salary.

The performance targets for the current Scheme are adjusted
earnings per share (EPS) growth measured from the most recent
ﬁnancial year ending prior to grant of at least:

•

•

inﬂation plus an average of 3% per annum for 50% of each
grant; and
inﬂation plus an average of 4% per annum for the other 50%
of each grant.

Performance targets are assessed over an initial three-year period
from the date of grant. From the year 2004/05 there is no ability to
retest any grants.

The Remuneration Committee will ensure that during the transition
to International Financial Reporting Standards, a consistent basis 
is used in the measurement of EPS.

As part of the review undertaken by the Remuneration Committee,
the Company intends to adopt, subject to shareholder approval, a
new Executive Share Option Scheme. Whilst it does not intend to
use this Scheme on a regular basis, the Company wishes to have
the ﬂexibility to make grants from time to time in the future, upon
recruitment or in exceptional circumstances, if it considers it
appropriate to do so. Full details of the proposal are shown in the
Notice of Meeting.

2000 and 2002 Schemes
For options granted in 2001-03, the performance target is:

•

EPS growth of at least inﬂation plus an average of 3% per
annum for 50% of each grant, measured from a ﬁxed base of
14.5p or the EPS ﬁgure for the year ending prior to grant if
higher; and

•

EPS growth of inﬂation plus an average of 4% per annum 
for the other 50% of each grant, measured from a ﬁxed base
of 16.5p, or the EPS ﬁgure for the year ending prior to grant 
if higher.

For options granted since 2004, the measurement is from the EPS
ﬁgure at the end of the ﬁnancial year prior to the grant date as
published in Company’s Report and Accounts.

1997 Scheme
The ﬁrst grants under this scheme were in June 1998 and 
no options have been granted since June 2000. Options are
subject to the following performance targets on exercise:

•

•

Tier 1 Options: EPS growth over three years of at least inﬂation
plus an average of 3% per annum; and
Tier 2 Options: EPS growth over ﬁve years, placing the
Company in the upper quartile of the FTSE 100 companies.

1984 and 1987 Schemes
The last grants under these schemes were awarded in June 1997.
The performance targets for the exercise of options granted in
1996 and 1997 require EPS growth of at least inﬂation plus an
average of 2% per annum.

(c)  Performance Share Plan
The Remuneration Committee intends to propose to shareholders
the introduction of a Performance Share Plan. Subject to approval,
this plan will be used as the primary form of long-term incentive for
the 100 most senior management. Under the plan, annual awards
of up to 200% of salary may be offered based on performance and
potential, with a 300% limit in the case of recruitment. 

It is intended that the performance targets will be based on
adjusted EPS growth. For the initial awards made in 2005 the
targets will be as follows:

Average Annual EPS Growth 
in excess of Inﬂation (RPI) 

8%
15%
Between 8% and 15%

% of Award Vesting

20%
100%
Pro rata

The Committee considers that EPS within the Performance Share
Plan is the most appropriate measure because it is the key
indicator of management performance and will reward signiﬁcant
increases in proﬁts which then ﬂow through to increased
shareholder value. 

(d) All-Employee Share Schemes
Executive directors can also participate in the share schemes open
to all employees of the Company. The Save As You Earn (SAYE)
Scheme is currently offered annually. Details of grants and awards
made to executive directors under all schemes are given in part 2
of this report.

An SAYE Option Scheme was approved by shareholders in 1981
and renewed by shareholders in 1987 and 1997. Inland Revenue
rules limit the maximum amount saved to £250 per month. When
the savings contract is started, options are granted to acquire the
number of shares that the total savings will buy when the contract
matures. Options cannot normally be exercised until a minimum of
three years has elapsed.

MARKS AND SPENCER GROUP PLC 19

a spouse’s pension of two-thirds of the accrued preserved pension
is payable. In all circumstances, children’s allowances are also
payable, usually up to the age of 16. Substantial protection is 
also offered in the event of serious ill health.

Post-retirement increases for pensions earned from 6 April 1997
are awarded on a statutory basis. Pension earned prior to 6 April
1997 is guaranteed to increase by the rise in inﬂation, up to a
maximum of 3% per annum. 

The Marks & Spencer Deﬁned Beneﬁt Pension Scheme was
closed to new members with effect from 31 March 2002.

The Marks & Spencer Retirement Plan
Executive directors, along with other employees joining the
Company on or after 1 April 2002 are, on completion of one year’s
service, invited to join the contributory Retirement Plan. The Plan is
a deﬁned contribution arrangement, where employees may choose
to contribute between 3-15% of their salary. Member contributions
of 3-6% are matched by Company contributions of 6-12%. The
employee is free to choose from a range of investment vehicles,
where the total contribution will be invested. During the ﬁrst year of
membership, employees can contribute 3-15% of their salary and
receive 6-24% from the Company to enable the employee to be
compensated for the waiting period.

During the one-year waiting period before joining the Plan,
employees will be covered for death in service by a capital
payment of twice salary, increasing to four times salary from the
date of joining the Plan, subject to the statutory earnings cap. No
current executive director is a member of the Retirement Plan.

The Company is considering its response to the impact of the
change in pensions legislation which will take effect in April 2006.

In making our ﬁnal decision, we will take account of our
remuneration principles and market practice in addition to
investors’ views that companies should not compensate individuals
for changes in personal taxation.

External appointments
The Company recognises that executive directors may be invited
to become non-executive directors of other companies and that
such appointments can broaden their knowledge and experience,
to the beneﬁt of the Company. The individual director retains the
fees. The following current executive directors served as non-
executive directors elsewhere during the year and received fees as
follows: Stuart Rose (Land Securities plc – £39,500, NSB Retail
Systems plc – £14,850) and Alison Reed (British Airways plc –
£36,800, HSBC Bank plc – £10,800).

Service contracts
All members of senior management have service contracts. 
These contracts can be terminated by the Company providing
12 months’ notice. Exceptions may exist where new recruits have
been granted longer notice periods for the initial period of their
employment.

Senior management restructure
A restructure of the Board was undertaken at the end of May 
2004 which resulted in the appointment of Stuart Rose as Chief
Executive and Charles Wilson as executive director on 31 May
2004. Luc Vandevelde and Roger Holmes left the Company at 
that time. There has been further restructuring which has resulted
in Vittorio Radice, Mark McKeon, Maurice Helfgott and Laurel
Powers-Freeling leaving the Company. Alison Reed left the
Company at the end of April 2005. Ian Dyson has been appointed
Group Finance Director with effect from 27 June 2005 with a 
12-month rolling contract. His annual salary will be £420,000 and
no remuneration was received in the year 2004/05.

Dame Stella Rimington and Brian Baldock left the Company on
14 July 2004 and Barbara Cassani left on 30 April 2004. Anthony
Habgood and Steven Holliday were appointed as non-executive
directors with effect from 15 July 2004.

Shareholding policy
A requirement was introduced in 2002 that the executive directors,
within ﬁve years of 1 June 2002 or within ﬁve years of appointment
(whichever is the later), should hold shares whose market value at
that time is equivalent to or greater than their then current gross
annual base salary. It is intended to increase this holding for the
Chief Executive to shares whose market value at that time is
equivalent to or greater than twice his then current gross annual
base salary. The Remuneration Committee is satisﬁed that under
these rules, all current executive directors will have sufﬁcient
holdings in the Company to be able to comply with this
requirement in the appropriate timescale.

The Marks & Spencer Pension Scheme
Executive directors and all employees with a permanent
appointment date prior to 1 April 2002 are eligible to participate 
in the Company’s Deﬁned Beneﬁt Pension Scheme. The Scheme 
is non-contributory and the subject of an Independent Trust. Final
pension is based on basic salary. The normal retirement age under
the Pension Scheme for senior management is 60 to harmonise
with the Company contractual retirement age. Alison Reed was 
the only executive director who was a member of this Scheme at
2 April 2005.

The Pension Scheme enables members to achieve the maximum
pension of two-thirds of their pensionable salary in the 12 months
ending at normal retirement date after 30 years’ service. For
employees who joined the Scheme prior to 1 January 1996, no
actuarial reduction is applied to pensions payable from the age of
58. Employees who joined the Scheme on or after 1 January 1996
are subject to an actuarial reduction in their pension if payment
starts prior to their normal retirement date.

In the case of earnings over £100,000 per annum, the pensionable
salary is usually based on an average of the earnings over the last
three years to retirement.

Pension commutation to enable participants to receive a lump sum
on retirement is permitted within Inland Revenue limits.

For death before retirement, a capital sum equal to four times salary
is payable, together with a spouse’s pension of two-thirds of the
member’s prospective pension at the age of 65 (60 for senior
management). For death in retirement, a spouse’s pension is paid
equal to two-thirds of the member’s current pension. In the event of
death after leaving service but prior to commencement of pension, 

20 MARKS AND SPENCER GROUP PLC

Remuneration report continued

The Company retains the right to terminate the contract of any director summarily in accordance with the terms of their service agreement,
on payment of a sum equivalent to the contractual notice entitlement of 12 months’ salary and beneﬁts. In the case of service agreements
concluded from 1 April 2004, any such payments will be subject to mitigation and paid in monthly instalments. However, entitlement to
participate in future awards under the Company’s share schemes ceases on summary termination.

Executive directors
All executive directors have rolling service contracts, which can be terminated by the Company giving 12 months’ notice and by the
director giving six months’ notice.

Non-executive directors
The Chairman has a service agreement with the Company which, at his request, requires no notice of termination from the Company, but
requires him to give six months’ notice should he wish to terminate the agreement. 

The non-executive directors have service agreements with the Company for an initial three-year term, which are terminable on three
months’ notice. 

Name 

Anthony Habgood
Steven Holliday
Jack Keenan
Kevin Lomax

Date of appointment 

Notice period/unexpired term

15 July 2004
15 July 2004
1 September 2001
1 September 2000

3 mths/3 mths
3 mths/3 mths
3 mths/3 mths
3 mths/3 mths

Performance graph 
This graph illustrates the performance of the Company against the FTSE 100 over the past ﬁve years. The FTSE 100 has been chosen as
it is a recognised broad equity market index of which the Company has been a member throughout the period. Performance, as required
by the legislation, is measured by TSR (share price growth plus dividends paid).

Total Shareholder Return

180

160

140

120

100

80

60

40

20

0

1 Apr 00

31 Mar 01

30 Mar 02

29 Mar 03

3 Apr 04

2 Apr 05

The above graph looks at the value, at 2 April 2005, of £100 invested in Marks & Spencer Group on 1 April 2000 compared with the value of £100 invested in the 
FTSE 100 Index over the same period. The other points plotted are the values at the intervening financial period-ends.

Marks & Spencer Group

FTSE 100 Index

Source: Datastream

MARKS AND SPENCER GROUP PLC 21

Part 2: Audited Information

1  Directors’ emoluments

Chairman
Paul Myners1 
Chief Executive (appointed from)
Stuart Rose (31 May 2004)2

Executive directors
Alison Reed3
Charles Wilson (31 May 2004)2

Non-executive directors 
Steven Holliday (15 July 2004)
Anthony Habgood (15 July 2004)
Jack Keenan4
Kevin Lomax 

Directors retiring from the Board during the year
Brian Baldock (14 July 2004)5
Barbara Cassani (30 April 2004)
Maurice Helfgott (9 November 2004)7
Roger Holmes (31 May 2004)8
Mark McKeon (9 November 2004)9
Laurel Powers-Freeling (9 November 2004)10
Vittorio Radice (11 June 2004)11
Dame Stella Rimington (14 July 2004)5
Luc Vandevelde (31 May 2004)12

Former directors

Total

Current
annual
salary/fee
£000

Salary/fee
£000

Beneﬁts
£000

Bonus
£000

Termination
payments6
£000

200

850

400
500

50
50
60
60

–
–
–
–
–
–
–
–
–

–

147

708

389
417

36
36
56
60

30
4
213
103
211
262
97
30
76

–

2

1,411

35
997

–
–
–
–

–
–
20
15
24
52
30
–
5

–

2,875

2,591

–

–

200
–

–
–
–
–

–
–
–
–
–
350
–
–
–

–

550

Total
2005
£000

149

2,119

624
1,414

36
36
56
60

30
4
742
965
699
1,166
858
30
679

–

–

–

–
–

–
–
–
–

–
–
509
847
464
502
731
–
598

–

3,651

9,667

Total
2004
£000 

50

–

388
–

–
–
50
60

60
25
126
693
–
447
556
60
547

1,461

4,523

The elements included in the beneﬁts column of the emoluments table are described in detail in the Salaries and beneﬁts section on 
page 17 and have been audited.

1Paul Myners received a salary increase from £50,000 to £200,000 per annum effective from 10 August 2004, relating to his continuing in the role of Chairman 
as announced on 5 August 2004.
2Stuart Rose and Charles Wilson received a signing on fee of £1,250,000 and £900,000 respectively, which is included in the beneﬁts ﬁgure.
3Alison Reed received a salary increase from £360,000 to £400,000 effective from 14 July 2004.
4Jack Keenan received a fee increase from £50,000 to £60,000 per annum effective from 1 September 2004 related to his appointment as chair of the 
Remuneration Committee.
5The fees for Brian Baldock and Dame Stella Rimington include payment in lieu of notice for the period 15 July to 30 September 2004.
6Termination payments comprise one year’s salary and loss of beneﬁts which include bonus, car beneﬁts and loss of pensionable service.
7Maurice Helfgott retired from the Board on 9 November 2004, but remained in employment with the Company until 30 November 2004. During this period, the
following payments were received, which are included in the table above: Salary, £18,000, beneﬁts, £2,000. His termination payment was made up of salary,
£320,000, beneﬁts £189,000.
8Roger Holmes’ termination payment was made up of salary £600,000, beneﬁts £247,000.
9Mark McKeon was appointed to the Board on 5 April 2004 on a salary of £320,000 per annum. He retired from the Board on 9 November 2004, but remained in
employment with the Company until 30 November 2004. During this period, the following payments were received, which are included in the table above: Salary,
£19,000, beneﬁts, £2,000. His termination payment was made up of salary, £320,000, beneﬁts £144,000.

10Laurel Powers-Freeling retired from the Board on 9 November 2004, but remained in employment with the Company until 31 December 2004. During this period,
the following payments were received, which are included in the table above: Salary, £49,000, beneﬁts, £10,000. Her termination payment was made up of salary,
£350,000, beneﬁts £152,000.

11Vittorio Radice received a salary increase from £435,000 to £485,000 effective from 5 April 2004, reﬂecting his increased responsibilities. His termination payment

was made up of salary £485,000, beneﬁts £246,000.

12Luc Vandevelde’s salary was paid in the form of shares bought on the 10th of each month at the market price of shares on that day. His termination payment, was

made up of salary £593,000, beneﬁts £5,000. 

22 MARKS AND SPENCER GROUP PLC

Remuneration report continued

2 Directors’ interests in long-term incentive schemes
a) Executive Share Matching Plan

Executive directors

Alison Reed

Directors leaving during the year

Maurice Helfgott5

Roger Holmes6

Laurel Powers-Freeling7

Vittorio Radice8

Luc Vandevelde9

Maximum
receivable at
3 April 2004
or date of
appointment1

Awarded
in year

Vested
in year

Lapsed
in year

Maximum
receivable at
2 April 2005
or date of
leaving1

Performance
period for
matching
award

Date of
award

76,841
246,983
323,824

35,064
108,188
143,252

113,525
396,279
509,804

26,324
244,860
–
271,184

234,181

178,788

– 
– 
– 

– 
– 
– 

– 
– 
– 

– 
– 
8,236
8,236

– 

– 

– 
–
–

– 
– 
– 

76,841
246,983
323,824

30 July 20022
23 June 20033

2002 – 2005
2003 – 2006

–
1,702
1,702

–
3,302
3,302

5,686
8,162
8,236
22,084

35,064
106,486
141,550

113,525
392,977
506,502

20,638
236,698
–
257,336

2,384

231,797

–

178,788

–
–
–

–
–
–

–
–
–
–

–

–

30 July 20022
23 June 20033

2002 – 2005
2003 – 2006

30 July 20022
23 June 20033

2002 – 2005
2003 – 2006

30 July 20022
23 June 20033
28 June 20044

2002 – 2005
2003 – 2006
2004 – 2007

23 June 20033

2003 – 2006

30 July 20022

2002 – 2005

1The number of matching shares are the maximum (a match of 2.5:1) that could be receivable by the executive if the TSR performance conditions are fully met as
outlined in pages 17 and 18. These calculations have been independently performed by New Bridge Street Consultants using data from Datastream (an
independent data services provider).
2Market price on date of award was 339.0p. As at the end of March 2005, Marks & Spencer’s TSR was ranked 53rd out of 96 in the FTSE 100 Comparator Group
and 13th out of 19 in the Retailers Comparators Group. No match would be receivable if these positions are maintained. The ﬁnal measure for this scheme will be
21 May 2005.
3Market price on date of award was 304.5p. After two years of the 2003-06 performance period, Marks & Spencer’s TSR was ranked 87th out of 98 in the FTSE
100 Comparator Group and 14th out of 17 in the Retailers Comparators Group. No matching shares would be receivable on shares purchased voluntarily with
bonus if these positions were to be maintained for the full three-year performance period. A minimum match of 0.25:1 is receivable on shares purchased
compulsorily with bonus.
4Market price on date of award was 362.25p. Laurel Powers-Freeling was the only executive director who was a member of this scheme until she left the Group.
5All outstanding shares lapsed when Maurice Helfgott left the Group’s employment, apart from the 1,702 matching shares which represented a 0.25:1 match on
shares purchased with compulsorily invested bonus. These matching shares vested on 30 November 2004 when the share price was 328.25p, giving an
equivalent gain of £6,000. 
6All outstanding shares lapsed when Roger Holmes left the Group’s employment, apart from the 3,302 matching shares which represented a 0.25:1 match on
shares purchased with compulsorily invested bonus. These matching shares vested on 31 May 2004 when the share price was 359.5p, giving an equivalent gain
of £12,000.
7All outstanding matching shares lapsed when Laurel Powers-Freeling left the Group’s employment, apart from 5,686 and 8,236 shares which represented a
0.54:1 and 2.5:1 match respectively on shares purchased with invested bonus, and 8,162 matching shares which represented a 0.25:1 match on shares
purchased with compulsorily invested bonus. These matching shares vested on 31 December 2004 when the share price was 343.0p, and when the TSR
performance was calculated, giving an equivalent gain of £76,000.
8All outstanding shares lapsed when Vittorio Radice left the Group’s employment, apart from the 2,384 matching shares which represented a 0.25:1 match on
shares purchased with compulsorily invested bonus. These matching shares vested on 11 June 2004 when the share price was 366.0p, giving an equivalent gain
of £9,000. 
9All outstanding matching shares lapsed when Luc Vandevelde left the Group’s employment.

MARKS AND SPENCER GROUP PLC 23

b) Directors’ Share Option Schemes

The options detailed in the table below may not be exercisable for either of the following reasons:
(i)
(ii) The options have not met the appropriate performance criteria.

The options have not been held for three years and therefore cannot be exercised under scheme rules; or

At 3 April
2004 or 
date of
appointment

Granted
during
the year

Exercised/
lapsed
during
the year

At 2 April
2005 or
date of
leaving

Option
price
(p)

Exercise
price
(p)

Option
period

Chief Executive
Stuart Rose

Not Exercisable (A)
Granted

Executive directors
Alison Reed

Exercisable (B)
Exercisable (A)
Not Exercisable (B)
Not Exercisable (A)
Granted
Lapsed3
SAYE

Charles Wilson

Not Exercisable (A)
Granted

Directors leaving during the year
Maurice Helfgott
Exercisable (B)
Exercisable (A)
Not Exercisable (B)
Not Exercisable (A)
Granted
Exercised2
Lapsed3

Roger Holmes

Exercisable (B)
Not Exercisable (B)
Not Exercisable (A)
Lapsed3
SAYE
SAYE Lapsed

Mark McKeon
Granted
Lapsed3

Laurel Powers-Freeling

Exercisable (B)
Exercisable (A)
Not Exercisable (B)
Not Exercisable (A)
Granted 
Lapsed3
SAYE

148,836
70,661
140,624
677,691

10,166

139,534
41,899
173,682
334,683

871,794
249,022
893,828

6,951

979,825 

155,618 

37,942 

979,825

289,460
286,150
235,690
344,188

347.0 
347.0 

234.91
388.01
297.01
348.61
347.0 

Jul 2007 – Jul 2014
Jul 2007 – Jul 2014

Sept 2003 – Jun 2011
Jun 1998 – Dec 2011
Jun 2006 – Jul 2013
Jun 2005 – Jul 2014
Jul 2007 – Jul 2014

10,166

166.01

Jan 2005 – Jun 2006

576,367 

576,367

347.0 
347.0 

Jul 2007 – Jul 2014
Jul 2007 – Jul 2014

75,251
250,067

288.11
352.71

Nov 2004 – Nov 2005
Jun 2002 – Nov 2005

138,328 

239,142 
263,666 

347.0 
232.11

352.5 

Jul 2007 – Jul 2014

1,449,243

240.61

Dec 2003 – May 2005

565,401 

6,951

276,655

276,655 

347.0 

Jul 2007 – Jul 2014

235,690
548,569

297.0 
350.0 

Dec 2004 – Dec 2005
Dec 2004 – Dec 2005

784,259

4,046

201,728 

201,728 

347.0 

Jul 2007 – Jul 2014

4,046

228.0 

Jan 2005 – Jun 2005

24 MARKS AND SPENCER GROUP PLC

Remuneration report continued

b) Directors’ Share Option Schemes continued

Vittorio Radice

Exercisable (B)
Not Exercisable (B)
Not Exercisable (A)
Lapsed3

Luc Vandevelde

Exercisable (B)
Not Exercisable (B)
Not Exercisable (A)
Lapsed3

At 3 April
2004 or 
date of
appointment

Granted
during
the year

Exercised/
lapsed
during
the year

At 2 April
2005 or
date of
leaving

Option
price
(p)

Exercise
price
(p)

Option
period

216,048

306.0

Jun 2004 – Jun 2005

555,553

1,992,337
2,373,195
500,000

339,505

180,556 

4,684,976

266.71

Mar 2003 – May 2005

1Weighted average price.
2Maurice Helfgott exercised 139,534 options at an option price of 215.0p and 99,608 options at an option price of 256.0p. All were exercised at 352.5p, giving a
gain of £288,000.
3Options may have lapsed under one of the following scheme rules:
(i) The options have not been held for 12 months as at date of leaving.
(ii) The options vesting period has expired.
(iii) The options exercisable on leaving have been pro-rated with the balance lapsing.

The market price of the shares at the end of the ﬁnancial year was 344.75p; the highest and lowest share price during the ﬁnancial year were 374.0p and 264.0p
respectively.

Within the table, the breakdown of options is as follows:
Exercisable (A) – option price is above the market value on 2 April 2005, or date of leaving, options have vested.
Exercisable (B) – option price is below the market value on 2 April 2005, or date of leaving, options have vested.
Not Exercisable (A) – option price is above the market value on 2 April 2005, options have not matured.
Not Exercisable (B) – option price is below the market value on 2 April 2005, options have not matured.

In addition, the performance criteria attached to the Executive Share Matching Plan and the Executive Share Option Schemes as described in long-term incentive
schemes (section (a) and (b) on pages 17 and 18) have been audited.

3 Directors’ pension information
a) Pension beneﬁts
The Directors’ Remuneration Report Regulations 2002 require disclosure of deﬁned beneﬁt pension arrangements on a different basis to
that speciﬁed in the Listing Rules. Details of pension beneﬁts earned by the executive directors during the year ended 2 April 2005 are
shown below on both bases.

Accrued
entitlement
at 3 April
2004
£000

Additional
pension
earned
in the
year
£000

Roger Holmes1,2
Maurice Helfgott2
Laurel Powers-Freeling1,2
Alison Reed 

10
89
5
157

2
20
4
25

Transfer
value of
additional
pension

Accrued
in excess entitlement
at 2 April
of inﬂation
2005
(net of
or date
director’s
of leaving
contribution)
£000
£000

18
96
32
186

12
109
9
182

Additional
pension
earned
in the
year in
excess of
inﬂation
£000

2
18
4
20

Age at 
2 April
2005
or date 
of leaving

44
37
47
48

Transfer
value of
pension
at 3 April
2004
£000

71
455
46
1,369

Transfer
value of
pension
at 2 April

Increase
in transfer
2005 value (net of
director’s
of leaving contribution)
£000

or date

£000

91
573
81
1,697

20
118
35
328

1Roger Holmes and Laurel Powers-Freeling were subject to the pensions earnings ‘cap’ (£102,000 at 6 April 2004) which is reviewed annually by the Government.
As a result, they also received a pension-related salary supplement of 10% of the difference between the pensions earnings ‘cap’ and their base salary.
2The pensions for Roger Holmes, Maurice Helfgott and Laurel Powers-Freeling are based on their deferred pension on respective leaving dates of 31 May 2004,
30 November 2004 and 31 December 2004.

MARKS AND SPENCER GROUP PLC 25

a) Pension beneﬁts continued
The accrued entitlement represents the deferred pension at age 60 to which the director would have been entitled had they left the
Company on 3 April 2004 and 2 April 2005 respectively. The additional pension relates to the increase in the deferred pension during the
year gross and net of inﬂation under the Directors’ Remuneration Report Regulations 2002, and the Listing Rules respectively.

The transfer value of the deferred pension calculated as at 2 April 2005 is calculated by the actuary of the relevant Company Pension
Scheme in accordance with actuarial guidance note GN11. The equivalent transfer value calculated as at 3 April 2004 is on the
assumption that the director had left service at that date.

Inﬂation has been assumed to be equivalent to the actual rate of price inﬂation which was 3.1% for the year to 30 September 2004. The
measurement date accords with the Listing Rules.

The transfer values are the lump sums which could have been paid to another pension scheme for the beneﬁt of the director. It is not
possible for a transfer value to be paid directly to the director personally.

Luc Vandevelde, Vittorio Radice and Mark McKeon left the Company on 31 May 2004, 11 June 2004 and 30 November 2004
respectively. None of them participated in the Company Pension Scheme.

Stuart Rose and Charles Wilson do not participate in the Company Pension Scheme.

b) Payments to former directors
Details of payments made to former directors during the year are:

Early retirement pensions1 (payable until)

James Benﬁeld (22 April 2009)
Derek Hayes (19 November 2008)
Chris Littmoden (28 September 2003)
Unfunded pensions
Clinton Silver2

2005
£000

75
70
–

94

2004
£000

74
69
44

93

1Under the Early Retirement Plan the Remuneration Committee could, at its discretion, offer an unfunded Early Retirement Pension, separate from the Company
pension, which was payable from the date of retirement to age 60. With effect from 31 March 2000, the Early Retirement Plan was withdrawn but payments
continue for awards made before this date.
2The pension scheme entitlement for Clinton Silver is supplemented by an additional, unfunded pension paid by the Company.

Approved by the Board
Jack Keenan, Chairman of the Remuneration Committee
London
23 May 2005

26 MARKS AND SPENCER GROUP PLC

Directors’ interests

The beneﬁcial interests of the directors and connected persons in the shares of the Company are shown below. These include shares 
held under the Delayed Proﬁt Sharing Scheme. Options granted under the Save As You Earn (SAYE) Share Option and Executive Share
Option Schemes are shown on pages 40 to 41. Further information regarding employee share option schemes is given in note 10 to the
ﬁnancial statements.

There have been no other changes in the directors’ interests in shares or options granted by the Company and its subsidiaries between
the end of the ﬁnancial year and one month prior to the notice of the Annual General Meeting. The Register of Directors’ Interests (which 
is open to shareholders’ inspection) contains full details of directors’ shareholdings and options to subscribe for shares. No director had
any interest in any subsidiary at the beginning or end of the year.

Paul Myners
Stuart Rose (appointed 31 May 2004)
Alison Reed (retired 30 April 2005)
Charles Wilson (appointed 31 May 2004)
Anthony Habgood (appointed 15 July 2004) 
Steven Holliday (appointed 15 July 2004)
Jack Keenan
Kevin Lomax

Ordinary shares
as at 2 April 2005

B shares
as at 2 April 2005

Ordinary shares
as at 3 April 2004
or date of
appointment

B shares as at
3 April 2004
or date of
appointment

50,660 
350,416 
147,153 
100,000 
2,500 
2,500 
3,238 
16,190 

–
–
–
–
–
– 
–
– 

50,000 
135,416 
144,861 
– 
– 
– 
3,238 
16,190 

– 
– 
1,069 
– 
– 
– 
– 
– 

Directors’ responsibilities

Directors’ responsibilities for preparing the ﬁnancial statements
The directors are obliged under company law to prepare ﬁnancial statements for each ﬁnancial year and to present them annually to the
Company’s members in the Annual General Meeting.

The ﬁnancial statements, of which the form and content is prescribed by the Companies Act 1985 and applicable accounting standards,
must give a true and fair view of the state of affairs of the Company and the Group at the end of the ﬁnancial year, and of the proﬁt for 
that period.

The directors are also responsible for the adoption of suitable accounting policies and their consistent use in the ﬁnancial statements,
supported where necessary by reasonable and prudent judgements.

The directors conﬁrm that the above requirements have been complied with in the ﬁnancial statements.

In addition, the directors are responsible for maintaining adequate accounting records and sufﬁcient internal controls to safeguard the
assets of the Group and to prevent and detect fraud or any other irregularities, as described more fully on page 14.

MARKS AND SPENCER GROUP PLC 27

Directors’ report

Principal activities
During the year, the principal activities of the Group were Retailing and Financial Services. Financial Services activities were discontinued
during the period.

Retailing consists of the Group’s retail activities under the Marks & Spencer and Kings Super Markets brand names.

Review of activities and future performance
A review of the Group’s activities and of the future development of the Group is contained within the Annual review and summary 
ﬁnancial statement.

Proﬁt and dividends
The proﬁt for the ﬁnancial year, after taxation, minority interests and non-equity dividends, amounts to £584.2m (last year £549.3m).
The directors have declared dividends as follows:

Ordinary shares

Paid interim dividend of 4.6p per share (last year 4.4p per share)
Proposed ﬁnal dividend of 7.5p per share (last year 7.1p per share)

Total ordinary dividend, 12.1p per share (last year 11.5p per share)

£m

76.3
124.2

200.5

During the year, dividends of £2.8m (last year £3.0m) have been paid on non-equity shares.

The ﬁnal ordinary dividend will be paid on 15 July 2005 to shareholders whose names are on the Register of Members at the close 
of business on 3 June 2005.

Issue of new ordinary shares

Changes in share capital
(i)
During the period, 28,309,324 ordinary shares in the Company were issued as follows:
•
•
•
•

4,102,080 shares under the terms of the 1997 Executive Share Option Scheme at prices between 261p and 358p;
11,072,116 shares under the terms of the 2000 Executive Share Option Scheme at prices between 195p and 350p;
1,805,439 shares under the terms of the 2002 Executive Share Option Scheme at prices between 270p and 353p; and
11,329,689 shares under the terms of the United Kingdom Employees’ Save As You Earn Share Option Scheme at prices 
between 156p and 324p.

(ii) Purchase of ordinary shares
The Company is authorised by the shareholders to purchase, in the market, the Company’s own shares, as permitted under the
Company’s Articles of Association. The Company engages in share buy-backs to create value for the shareholders, when cash ﬂow
permits and there is not an immediate alternative investment use for the funds. During the year, no shares were bought back under this
authority. This authority is renewable annually and approval will be sought from shareholders at the Annual General Meeting in 2005 to
renew the authority for a further year.

(iii) Tender Offer
Under authority granted to the Company by the shareholders at the Extraordinary General Meeting held on 22 October 2004, the
Company purchased, and subsequently cancelled, by way of Tender Offer, 635,359,116 ordinary shares at a cost of £2.3bn, with 
a nominal value of £158.8m, at a price of 362p, representing 27.9% of the issued share capital.

(iv) Redemption of B shares
During the year, the Company redeemed 27,421,847 B shares, with a nominal value of £19.2m.

Major shareholders
As at 10 May 2005, the Company’s register of substantial shareholdings showed the following interests in 3% or more of the 
Company’s shares:

Brandes Investment Partners, LLC
Legal & General Investment Management

Ordinary
shares

251,969,136
55,510,977

% share
capital

15.30
3.37

Directors and their interests
On 23 May 2005, the directors were Paul Myners, Stuart Rose, Charles Wilson, Anthony Habgood, Steven Holliday, Jack Keenan and
Kevin Lomax. Their biographical details, together with those of Ian Dyson who joins the Board on 27 June 2005 and Lord Burns who joins
the Board on 1 October 2005, are given on page 17 of the Annual review and summary ﬁnancial statement.

Paul Myners was appointed as Chairman in May 2004, having been appointed to the Board in April 2002 as non-executive director. 
Stuart Rose was appointed as Chief Executive and Charles Wilson was appointed as executive director of the Company on 31 May 2004.
On 15 July 2004, Anthony Habgood and Steven Holliday were appointed non-executive directors. Ian Dyson will join as Finance Director
on 27 June 2005. Lord Burns will join as Deputy Chairman on 1 October 2005 and will become Chairman from the Annual General
Meeting in July 2006. 

Luc Vandevelde retired as Chairman and Roger Holmes retired as Chief Executive on 31 May 2004. Alison Reed retired as Group Finance
Director on 30 April 2005. Vittorio Radice retired as an executive director on 11 June 2004. Laurel Powers-Freeling and Maurice Helfgott

28 MARKS AND SPENCER GROUP PLC

Directors’ report continued

retired as executive directors on 9 November 2004. Mark McKeon
was appointed as executive director on 5 April 2004 and later
retired from that position on 9 November 2004. Brian Baldock 
and Dame Stella Rimington retired as non-executive directors 
on 14 July 2004 and Barbara Cassani retired as non-executive
director on 30 April 2004.  

The beneﬁcial interests of the directors and connected persons in the
shares of the Company and its subsidiaries are given on page 26.

Employee involvement
We have maintained our commitment to employee involvement
throughout the business.

Employees are kept well informed of the performance and
objectives of the Group through personal brieﬁngs, regular
meetings and e-mail. These are supplemented by our employee
publication, On Your Marks, and video presentations. Business
Involvement Groups in stores, distribution centres and head ofﬁce
represent employees in two-way communication and are involved
in the delivery of change and driving business improvement.

The tenth meeting of the European Council took place last
September. This council provides an additional forum for
communicating with employee representatives from the countries
in the European Community.

Directors and senior management regularly visit stores and
discuss, with employees, matters of current interest and concern
to the business.

We continue to support employee share ownership through 
long-established employee share schemes, membership of which
is service-related, details of which are given on pages 40 to 41.

Equal opportunities
The Group is committed to an active Equal Opportunities
Policy from recruitment and selection, through training and
development, appraisal and promotion to retirement.

It is our policy to promote an environment free from discrimination,
harassment and victimisation, where everyone will receive equal
treatment regardless of gender, colour, ethnic or national origin,
disability, age, marital status, sexual orientation or religion. All
decisions relating to employment practices will be objective, free
from bias and based solely upon work criteria and individual merit.

The Group is responsive to the needs of its employees, customers
and the community at large and we are an organisation that
endeavours to use everyone’s talents and abilities to the full.

Employees with disabilities
It is our policy that people with disabilities should have full and fair
consideration for all vacancies. During the year, we continued to
use the Government’s ‘two tick’ disability symbol to demonstrate
our commitment to interviewing those people with disabilities who
fulﬁl the minimum criteria, and endeavouring to retain employees in
the workforce if they become disabled during employment. We will
actively retrain and adjust their environment where possible to
allow them to maximise their potential.

We continue to work with external organisations to provide
workplace opportunities on the ‘Workstep Programme’.

•
•

ensure that suppliers are aware of the terms of payment; and
pay in accordance with its contractual and other legal obligations.

The main trading company, Marks and Spencer plc, has a policy
concerning the payment of trade creditors as follows:
•

general merchandise is automatically paid for 11 working days
from the end of the week of delivery;
food is paid for 13 working days from the end of the week of
delivery (based on the timely receipt of an accurate invoice); and
distribution suppliers are paid monthly, for costs incurred
in that month, based on estimates, and payments are adjusted
quarterly to reﬂect any variations to estimate.

•

•

Trade creditor days for Marks and Spencer plc for the year ended
2 April 2005 were 12.0 days, or 8.0 working days (last year 12.3
days, or 8.3 working days), based on the ratio of company trade
creditors at the end of the year to the amounts invoiced during the
year by trade creditors.

Market value of properties
The directors are of the opinion that market value of the Group’s
properties at 2 April 2005 exceeded the net book value by
approximately £1.3bn.

Charitable and political donations
During the year, the Group made charitable donations to 
support the community of £9.8m (last year £7.2m). These
principally consisted of cash donations of £3.0m (last year £5.1m)
which includes the cost of our ﬂagship community programme
Marks & Start, Breakthrough Breast Cancer and other charitable
donations, £2.0m (last year £1.2m) of employee time principally for
the Marks & Start programme and local community projects, and
stock donations of £4.3m (last year £0.4m) to a variety of charities
including Shelter, Fareshare, Birth Defects Foundation as well as to
the local community.

At the Annual General Meeting in July 2002, shareholders
authorised the Company, Marks and Spencer plc and Marks and
Spencer Financial Services plc to make donations to EU political
organisations and to incur EU political expenditure, under the
provisions of the Political Parties, Elections and Referendums Act
2000, of up to £100,000 in aggregate for each company in each
year until 10 July 2006.

It is our policy not to make donations to political parties and
accordingly no political payments were made. However, we have 
a long tradition of supporting the community and the Group may
support individuals in a number of ways for civic duties, which we
shall continue to do.

Auditors
Resolutions to reappoint PricewaterhouseCoopers LLP as 
auditors of the Company and to authorise the Audit Committee 
to determine their remuneration will be proposed at the Annual
General Meeting.

Annual General Meeting
The Notice of the Annual General Meeting to be held on 13 July
2005 is given, together with explanatory notes, in the booklet
which accompanies this report.

Creditor payment policy
For all trade creditors, it is the Group’s policy to:
•

agree the terms of payment at the start of business with
that supplier;

By order of the Board
Graham Oakley, Group Secretary
London 
23 May 2005

Auditors’ report

Independent auditors’ report to the members of
Marks and Spencer Group plc
We have audited the ﬁnancial statements which comprise 
the Consolidated proﬁt and loss account, the Balance sheets, 
the Consolidated cash ﬂow statement, the reconciliation of net 
cash ﬂow to movement in net debt, the note of group historical
cost proﬁts and losses, the consolidated statement of total
recognised gains and losses and the related notes. We have 
also audited the disclosures required by Part 3 of Schedule 7A 
to the Companies Act 1985 contained in the Remuneration report
(‘the auditable part’).

Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual report 
and the ﬁnancial statements in accordance with applicable 
United Kingdom law and accounting standards are set out in 
the statement of directors’ responsibilities. The directors are 
also responsible for preparing the Remuneration report.

Our responsibility is to audit the ﬁnancial statements and the
auditable part of the Remuneration report in accordance with
relevant legal and regulatory requirements and United Kingdom
Auditing Standards issued by the Auditing Practices Board. This
report, including the opinion, has been prepared for and only for
the Company’s members as a body in accordance with Section
235 of the Companies Act 1985 and for no other purpose. We do
not, in giving this opinion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by
our prior consent in writing.

We report to you our opinion as to whether the ﬁnancial
statements give a true and fair view and whether the ﬁnancial
statements and the auditable part of the directors’ Remuneration
report have been properly prepared in accordance with
the Companies Act 1985. We also report to you if, in our opinion,
the directors’ report is not consistent with the ﬁnancial statements,
if the Company has not kept proper accounting records, if we have
not received all the information and explanations we require for our
audit, or if information speciﬁed by law regarding directors’
remuneration and transactions is not disclosed.

We read the other information contained in the Annual Report and
consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
ﬁnancial statements. The other information comprises only the
Chairman’s statement, Chief Executive’s and Financial review, the
Corporate governance statement, the unaudited part of the
Remuneration report, Directors’ interests and the statement of
Directors’ responsibilities, the Directors’ report, the Group ﬁnancial
record and the Annual review and summary ﬁnancial statement.

MARKS AND SPENCER GROUP PLC 29

We review whether the Corporate governance statement reﬂects
the Company’s compliance with the nine provisions of the 2003
FRC Combined Code speciﬁed for our review by the Listing Rules
of the Financial Services Authority, and we report if it does not. We
are not required to consider whether the Board’s statements on
internal control cover all risks and controls, or to form an opinion
on the effectiveness of the Company’s or Group’s corporate
governance procedures or its risk and control procedures.

Basis of audit opinion
We conducted our audit in accordance with auditing standards
issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts
and disclosures in the ﬁnancial statements and the auditable part
of the Remuneration report. It also includes an assessment of the
signiﬁcant estimates and judgements made by the directors in the
preparation of the ﬁnancial statements, and of whether the
accounting policies are appropriate to the Company’s and Group’s
circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in
order to provide us with sufﬁcient evidence to give reasonable
assurance that the ﬁnancial statements and the auditable part of
the remuneration report are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming
our opinion we also evaluated the overall adequacy of the
presentation of information in the ﬁnancial statements.

Opinion
In our opinion:
•

the ﬁnancial statements give a true and fair view of the state 
of affairs of the Company and the Group at 2 April 2005 and 
of the proﬁt and cash ﬂows of the Group for the period then
ended;
the ﬁnancial statements have been properly prepared in
accordance with the Companies Act 1985; and
those parts of the remuneration report required by Part 3 of
Schedule 7A to the Companies Act 1985 have been properly
prepared in accordance with the Companies Act 1985.

•

•

PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
23 May 2005 

30 MARKS AND SPENCER GROUP PLC

Consolidated proﬁt and loss account

Turnover

Continuing operations
Discontinued operations

Total turnover

Operating proﬁt

Continuing operations
Acquired operations

Discontinued operations

Total operating proﬁt

(Loss)/proﬁt on sale of property and other ﬁxed assets
Proﬁt on sale/closure of operations:

Proﬁt/(loss) arising on sale/closure
Release/utilisation of prior year provision

Net proﬁt on sale/closure of operations

Net interest expense
Other ﬁnance income/(charges)

Proﬁt/(loss) on ordinary activities before taxation

Analysed between:
Continuing operations (including acquired operations)
Discontinued operations

Taxation on ordinary activities

Proﬁt/(loss) attributable to shareholders
Dividends (including dividends in respect of 

non-equity shares)

Retained proﬁt/(loss)

Earnings per share
Diluted earnings per share
Adjusted earnings per share
Diluted adjusted earnings per share
Dividend per share

Before Exceptional

52 weeks ended 2 April 2005
After
items exceptional
items
£m

(note 4)
£m

exceptional
items
£m

Before
exceptional
items
£m

53 weeks ended 3 April 2004
After
exceptional
items
£m

Exceptional
items
(note 4)
£m

Notes

7,710.3
232.0

2, 3

7,942.3

–
–

–

7,710.3
232.0

7,971.5
330.0

7,942.3

8,301.5

–
–

–

7,971.5
330.0

8,301.5

667.6
9.5

677.1
32.3

709.4

–

–
–

–
(102.3)
11.4

618.5

586.2
32.3

(176.5)

442.0

(203.3)

238.7

2, 3

4B
4C

5
11C

6

8

9
9
9
9
8

(91.4)
–

(91.4)
–

(91.4)

(0.4)

208.9
9.7

218.6
–
–

126.8

(91.8)
218.6

18.2

145.0

576.2
9.5

585.7
32.3

618.0

(0.4)

208.9
9.7

218.6
(102.3)
11.4

745.3

494.4
250.9

(158.3)

587.0

809.4
–

809.4
56.6

866.0

–

–
–

–
(45.8)
(15.2)

(42.1)
–

(42.1)
–

(42.1)

18.7

(26.8)
26.8

–
–
–

767.3
–

767.3
56.6

823.9

18.7

(26.8)
26.8

–
(45.8)
(15.2)

805.0 

(23.4)

781.6 

748.4
56.6

(242.0)

563.0 

(23.4)
–

12.7

(10.7)

–

(203.3)

(263.2)

–

145.0

383.7

299.8

(10.7)

29.1p
28.9p
21.9p
21.7p
12.1p

725.0
56.6

(229.3)

552.3 

(263.2)

289.1 

24.2p
24.1p
24.7p
24.6p
11.5p

NOTE OF GROUP HISTORICAL COST PROFITS AND LOSSES

Proﬁt on ordinary activities before taxation
Revaluation surplus realised on disposals
Revaluation element of depreciation charge

Historical cost proﬁt on ordinary activities before taxation

Historical cost retained proﬁt for the period

Notes

26
26

52 weeks ended
2 April
2005
£m

53 weeks ended
3 April
2004
£m

745.3
28.6
1.0

774.9

413.3

781.6
0.5
1.0

783.1

290.6

CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 52 weeks ended
2 April
2005
£m

Notes

53 weeks ended
3 April
2004
£m

Proﬁt attributable to shareholders
Exchange differences on foreign currency translation
Unrealised surplus on revaluation of investment properties
Impairment of previously revalued properties
Actuarial (losses)/gains net of taxation

Total recognised gains and losses relating to the period

26
26

26

587.0
0.2
4.0
–
(55.1)

536.1

552.3
(15.9)
7.3
(20.0)
150.4

674.1

Balance sheets

Fixed assets
Intangible assets
Tangible assets
Investments

Current assets
Stocks
Debtors:

Receivable within one year
Receivable after more than one year

Investments
Cash at bank and in hand

Current liabilities
Creditors: amounts falling due within one year

Net current (liabilities)/assets

MARKS AND SPENCER GROUP PLC 31

2 April
2005
£m

Notes

Group
3 April
2004
£m

2 April
2005
£m

Company
3 April
2004
£m

13
14
15

122.4
3,316.1
9.0

–
3,497.6
10.0

–
–
7,648.7

–
–
7,643.2

3,447.5

3,507.6

7,648.7

7,643.2

339.7

398.0

–

–

16A
16B
17
18

212.0
6.2
67.0
212.6

837.5

971.6
1,779.3
325.9
394.7

3,869.5

205.3
–
–
–

205.3

262.7
–
–
–

262.7

20

(1,289.3)

(1,884.7)

(2,225.2)

(2,325.9)

(451.8)

1,984.8

(2,019.9)

(2,063.2)

Total assets less current liabilities

2,995.7

5,492.4

5,628.8

5,580.0

Creditors: amounts falling due after more than one year
Provisions for liabilities and charges

Net assets before net post-retirement liability
Net post-retirement liability

Net assets

Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Other reserve
Proﬁt and loss account

Shareholders’ funds (including non-equity interests)

Equity shareholders’ funds
Non-equity shareholders’ funds

Total shareholders’ funds

Approved by the Board
23 May 2005
Stuart Rose, Chief Executive
Charles Wilson, Executive Director

21
23

11

(1,919.7)
(80.4)

995.6
(474.2)

(2,519.6)
(49.3)

2,923.5
(469.5)

–
–

–
–

5,628.8
–

5,580.0
–

521.4

2,454.0

5,628.8

5,580.0

25,26
26
26
26
26
26

26,27

27

480.2
106.6
2,102.8
330.8
(6,542.2)
4,043.2

651.2
45.2
1,924.8
356.4
(6,542.2)
6,018.6

480.2
106.6
2,102.8
–
–
2,939.2

651.2
45.2
1,924.8
–
–
2,958.8

521.4

2,454.0

5,628.8

5,580.0

455.7
65.7

521.4

2,369.1
84.9

5,563.1
65.7

5,495.1
84.9

2,454.0

5,628.8

5,580.0

32 MARKS AND SPENCER GROUP PLC

Consolidated cash ﬂow information

CASH FLOW STATEMENT

Cash inﬂow from continuing operating activities before contribution to the pension fund
Contribution to the pension fund following 2003 actuarial valuation

Cash inﬂow from continuing operating activities
Cash inﬂow from discontinued operating activities

Cash inﬂow from operating activities

Returns on investments and servicing of ﬁnance
Interest received
Interest paid
Non-equity dividends paid

Net cash outﬂow from returns on investments and servicing of ﬁnance

Taxation
UK corporation tax paid
Overseas tax paid

Cash outﬂow for taxation

Capital expenditure and ﬁnancial investment
Purchase of tangible ﬁxed assets
Sale of tangible ﬁxed assets
Purchase of ﬁxed asset investments
Sale of ﬁxed asset investments

Net cash outﬂow for capital expenditure and ﬁnancial investment

Acquisitions and disposals
Closure of operations
Sale of subsidiaries
Purchase of subsidiaries

Net cash inﬂow from acquisitions and disposals

Equity dividends paid

Notes

52 weeks
ended
2 April
2005
£m

857.5
–

857.5
717.9

28

1,575.4

53 weeks
ended
3 April
2004
£m

1,002.3
(400.0)

602.3
64.2

666.5

15.4
(114.2)
(2.8)

(101.6)

14.4
(61.2)
(3.0)

(49.8)

(161.3)
(5.4)

(166.7)

(216.3)
(4.1)

(220.4)

(232.2)
117.8
–
0.8

(113.6)

12.7
477.0
(125.9)

363.8

(428.8)
126.2
(0.6)
9.3

(293.9)

51.3
–
–

51.3

(236.9)

(247.1)

30B
30A

Cash inﬂow/(outﬂow) before management of liquid resources and ﬁnancing

1,320.4

(93.4)

Management of liquid resources and ﬁnancing
Management of liquid resources
Financing 

(Decrease)/increase in cash

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

(Decrease)/increase in cash 
Cash (inﬂow)/outﬂow from (decrease)/increase in liquid resources
Cash inﬂow from increase in debt ﬁnancing
Debt ﬁnancing net of liquid resources disposed with subsidiary
Exchange and other movements

Movement in net debt
Opening net debt

Closing net debt

29B
29C

66.7
(1,507.5)

(1,440.8)

(89.0)
347.0

258.0

(120.4)

164.6

52 weeks
ended
2 April
2005
£m

53 weeks
ended
3 April
2004
£m

(120.4)
(66.7)
(757.6)
839.7
0.7

164.6
89.0
(413.6)
–
(3.3)

(104.3)
(1,994.7)

(163.3)
(1,831.4)

(2,099.0)

(1,994.7)

Notes

29B
29C

31

31

31

Notes to the ﬁnancial statements

MARKS AND SPENCER GROUP PLC 33

1 ACCOUNTING POLICIES
Basis of preparation
The ﬁnancial statements have been prepared in accordance with
applicable accounting standards in the United Kingdom. 

A summary of the more important Group accounting policies,
which have been consistently applied, is given below.

Accounting convention and basis of consolidation
The Group ﬁnancial statements incorporate the ﬁnancial
statements of Marks and Spencer Group plc and all its subsidiaries
for the 52 weeks ended 2 April 2005.

The ﬁnancial statements are drawn up on the historical cost basis
of accounting, modiﬁed to include the valuation of certain United
Kingdom properties at 31 March 1988 and the valuation of
investment properties. Compliance with SSAP 19 – ‘Accounting for
Investment Properties’ requires a departure from the requirements
of the Companies Act 1985 relating to the depreciation of
investment properties as explained below.

On 19 March 2002, the Company acquired 100% of the issued
share capital of Marks and Spencer plc following the implementation
of a Scheme of Arrangement under Section 425 of the Companies
Act 1985. This Scheme of Arrangement was accounted for using
merger accounting principles, although it did not satisfy all of the
conditions required by Schedule 4 of the Act. In the opinion of the
directors, the Scheme of Arrangement was a Group reconstruction
rather than an acquisition since the shareholders in the Company
were the same as the former shareholders of Marks and Spencer
plc and the rights of each shareholder, relative to the others, were
unchanged. Therefore, the directors considered that to record the
Scheme of Arrangement as an acquisition by the Company,
attributing fair values to the assets and liabilities of the Group and
reﬂecting only the post Scheme of Arrangement results within the
ﬁnancial statements would fail to give a true and fair view of the
Group’s results and ﬁnancial position.

Accordingly, having regard to the overriding requirement under
Section 227(6) of the Companies Act 1985 for ﬁnancial statements
to give a true and fair view of the Group’s results and ﬁnancial
position, the directors adopted merger accounting principles in
drawing up the ﬁnancial statements. The directors consider that it
is not practicable to quantify the effect of this departure from the
Companies Act 1985 requirements.

Turnover
Retail turnover comprises sales of goods to customers outside the
Group less an appropriate deduction for actual and expected
returns, discounts and loyalty scheme voucher costs, and is stated
net of Value Added Tax and other sales taxes. Sales of furniture are
recorded on delivery.

Financial Services turnover comprises interest receivable from
customers together with other income attributable to the Financial
Services operation.

Operating leases
Costs in respect of operating leases are charged on a straight line
basis over the lease term.

Pensions
Funded pension plans are in place for the Group’s UK employees
and the majority of employees overseas. The assets of these
pension plans are managed by third-party investment managers
and are held separately in trust.

Regular valuations are prepared by independent professionally
qualiﬁed actuaries. These determine the level of contributions
required to fund the beneﬁts set out in the rules of the plans and
allow for the periodic increase of pensions in payment. Following
the full adoption of FRS 17, the regular service cost of providing
retirement beneﬁts to employees during the year, together with the
cost of any beneﬁts relating to past service, is charged to
operating proﬁt in the year.

A credit representing the expected return on the assets of the
retirement beneﬁt schemes during the year is included within other
ﬁnance income. This is based on the market value of the assets of
the schemes at the start of the ﬁnancial year.

A charge within other ﬁnance charges, representing the expected
increase in the liabilities of the retirement beneﬁt schemes during
the year, is included within net interest. This arises from the
liabilities of the schemes being one year closer to payment.

The difference between the market value of assets and the present
value of accrued pension liabilities is shown as an asset or liability
in the balance sheet net of deferred tax.

Differences between actual and expected returns on assets during
the year are recognised in the statement of total recognised gains
and losses in the year, together with differences arising from
changes in assumptions.

Goodwill
Prior to 31 March 1998, goodwill arising on consolidation was
written off to reserves in the year of acquisition. As permitted by
FRS 10, this goodwill has not been reinstated in the balance sheet
and remains written off to reserves. Goodwill arising on subsequent
acquisitions is capitalised and amortised over its useful economic
life. The proﬁt or loss arising on the sale of a previously acquired
business includes the attributable goodwill.

Fixed assets 
a Capitalised interest

Interest is not capitalised.

b Depreciation

Depreciation is provided to write off the cost or valuation of
tangible ﬁxed assets, less residual value, by equal annual
instalments as follows:
•
•

land: not depreciated;
freehold and leasehold buildings over 50 years;
depreciated to their estimated residual value over their
estimated remaining economic lives;
leasehold land and buildings under 50 years: over the
remaining period of the lease;
ﬁt out: 10-25 years according to the estimated life 
of the asset; and
ﬁxtures, ﬁttings and equipment: 3-15 years according 
to the estimated life of the asset.

•

•

•

Depreciation is charged on all additions to, or disposals of,
depreciating assets in the year of purchase or disposal.

Any impairment in value is charged to the proﬁt and loss
account except where, in certain circumstances, it relates to a
previously revalued asset, in which case it is charged through
the statement of total recognised gains and losses.

34 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction, or the forward
exchange contract rate where appropriate. Foreign currency assets
and liabilities held at the year-end are translated at year-end
exchange rates or the exchange rate of a related forward
exchange contract where appropriate. The resulting exchange 
gain or loss is dealt with in the proﬁt and loss account.

Deferred taxation
Deferred taxation is accounted for on an undiscounted basis at
expected tax rates on all differences arising from the inclusion of
items of income and expenditure in taxation computations in
periods different from those in which they are included in the
ﬁnancial statements. A deferred tax asset is only recognised when
it is more likely than not that the asset will be recoverable in the
foreseeable future out of suitable taxable proﬁts from which the
underlying timing differences can be deducted.

Policies relating to discontinued operations

Loans and advances to customers
Loans and advances are classiﬁed as impaired when an instalment
is in excess of 30 days overdue. Speciﬁc provisions are made
against all advances identiﬁed as impaired at the balance sheet
date to the extent that, in the opinion of the directors, recovery is
doubtful. Speciﬁc provisions against such exposures are calculated
using a bad debt provision model, which uses the last two years’
credit history to produce estimates of the likely level of asset
impairment. General provisions relate to latent bad and doubtful
debts which are present in any lending portfolio but have not been
speciﬁcally identiﬁed. General provisions are calculated using the
same bad debt provision model and an evaluation of current
economic and political factors.

Loans and advances are written off when there is no realistic
prospect of recovery, based on a predetermined set of criteria.
Account balances written off include those where no payment has
been received for a period of 12 months since the account was
identiﬁed as doubtful, and in other situations such as bankruptcy,
insolvency or fraud.

Long-term assurance business
The value of the long-term assurance business consists of the
present value of surpluses expected to emerge in the future
from business currently in force, and this value is included in
prepayments and accrued income. In determining their value,
these surpluses are discounted at a risk-adjusted, post-tax rate.
Changes in the value are included in the proﬁt and loss account
grossed up at the standard rate of corporation tax applicable to
insurance companies.

1 ACCOUNTING POLICIES continued

c

d

Land and buildings
The Group’s freehold and leasehold properties in the United
Kingdom were valued on the basis of open market value
for existing use in 1982. At 31 March 1988, those same
properties (excluding subsequent additions and adjusted for
disposals) were revalued. On adoption of FRS 15, the Group
followed the transitional provisions to retain the book value
of land and buildings which were revalued in 1988, but not
to adopt a policy of revaluation in the future.

These values are retained subject to the requirement to test
assets for impairment in accordance with FRS 11.

Investment properties
Investment properties are revalued annually and included in the
balance sheet at their open market value. In accordance with
SSAP 19, no depreciation is provided in respect of investment
properties. This represents a departure from the Companies
Act 1985 requirements concerning the depreciation of ﬁxed
assets. These properties are held for investment and the
directors consider that the adoption of this policy is necessary
to give a true and fair view.

Current asset investments
Current asset investments are stated at market value. All proﬁts
and losses from such investments are included in net interest
income or in Financial Services turnover as appropriate. This
represents a departure from the Companies Act 1985
requirements concerning the valuation of current asset
investments. These assets are held as investments in the
insurance and the long-term assurance businesses and the
directors consider that the adoption of this policy is necessary 
to give a true and fair view.

Stocks
Stocks are valued at the lower of cost and net realisable value
using the retail method. All stocks are ﬁnished goods.

Derivative ﬁnancial instruments
The Group uses derivative ﬁnancial instruments to manage
its exposures to ﬂuctuations in foreign currency exchange rates
and interest rates. Derivative instruments utilised by the Group
include interest rate and currency swaps, and forward currency
contracts. Amounts payable or receivable in respect of interest rate
swaps are recognised as adjustments to net interest income over
the period of the contract. Forward currency contracts are entered
into as hedges, with the instrument’s impact on proﬁt deferred until
the underlying transaction is recognised in the proﬁt and
loss account. 

Foreign currencies
The results of international subsidiaries are translated at the
weighted average of monthly exchange rates for sales and proﬁts.
The balance sheets of overseas subsidiaries are translated at year-
end exchange rates. The resulting exchange differences are dealt
with through reserves and reported in the consolidated statement
of total recognised gains and losses.

MARKS AND SPENCER GROUP PLC 35

2 SEGMENTAL INFORMATION
A Classes of business
During the year, the Group had two classes of business: Retailing and Financial Services. Financial Services activities were discontinued
during the period.

2005
£m

Turnover
2004
£m

Operating proﬁt
2004
£m

2005
£m

Operating assets
2004
£m

2005
£m

Retailing activities
Continuing operations:

Before exceptional operating charges
Exceptional operating charges

Acquired operation

Discontinued operations1

Total
(Loss)/proﬁt on sale of property and other ﬁxed assets
Proﬁt on sale/closure of operations
Net interest expense
Other ﬁnance income/(charges)

Proﬁt on ordinary activities before taxation

Net operating assets
Non-operating net liabilities 

Net assets

7,710.3

7,971.5

–

–

232.0

330.0

7,942.3

8,301.5

576.2
667.6
(91.4)
9.5

32.3

618.0
(0.4)
218.6
(102.3)
11.4

745.3

767.3
809.4
(42.1)
–

56.6

823.9
18.7
–
(45.8)
(15.2)

781.6

3,066.6

3,071.5

(2.8)

–

–

601.2

3,063.8

3,672.7

3,063.8
(2,542.4)

3,672.7
(1,218.7)

521.4

2,454.0

B Geographical split
The geographical segments disclose turnover and operating proﬁt by destination and reﬂect management responsibility.

United Kingdom
Continuing operations:

Before exceptional operating charges
Exceptional operating charges

Acquired operation

Discontinued operations1

International Retail

2005
£m

Turnover
2004
£m

Operating proﬁt
2004
£m

2005
£m

Operating assets
2004
£m

2005
£m

7,034.7

7,293.7

–

–

232.0

330.0

7,266.7
675.6

7,623.7
677.8

7,942.3

8,301.5 

511.2
602.6
(91.4)
9.5

32.3

553.0
65.0

618.0

719.9
762.0
(42.1)
–

56.6

776.5
47.4

2,869.2

2,954.2

(2.8)

–

–

601.2

2,866.4
197.4

3,555.4
117.3

823.9 

3,063.8

3,672.7

1Discontinued operations relate entirely to Financial Services activities. Operating proﬁt for Financial Services includes £1.6m (last year £9.3m) arising 
on Marks & Spencer Chargecard transactions. This fee is payable by UK Retail and has been deducted in arriving at UK Retail operating proﬁt. Operating
proﬁt for the comparative period has been restated to reﬂect the results of the Bureau de Change being reclassiﬁed from UK Retail to be included within the
Financial Services results.

2UK Retail turnover including VAT comprises Clothing £3,837.3m (last year £4,032.6m); Home £407.6m (last year £526.6m) and Foods £3,509.7m (last year
£3,490.2m). VAT on UK Retail turnover was £719.9m (last year £755.7m). 

3Turnover from continuing operations originates in the following geographical segments: United Kingdom £7,208.9m (last year £7,453.4m) and International
£501.4m (last year £518.1m).

4The value of goods exported from the UK, including shipments to international subsidiaries, amounted to £319.9m (last year £293.0m).

36 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

3 OPERATING PROFIT

Turnover
Cost of sales

Gross proﬁt

Employee costs (see note 10)
Occupancy costs
Repairs, renewals and 

maintenance of ﬁxed assets

Depreciation
Goodwill amortisation
Other costs2

Total net operating expenses3

Operating proﬁt

Continuing
operations1
£m

Discontinued
operations
£m

Continuing
operations1
£m

Discontinued
operations
£m

2005

Total
£m

7,942.3
(5,123.5)

2,818.8

(1,050.8)
(323.3)

(75.8)
(267.3)
(3.1)
(480.5)

232.0
(94.0)

138.0

(36.5)
(2.9)

(0.9)
(1.8)
–
(63.6)

7,971.5 
(5,153.9)

2,817.6 

(1,023.5)
(280.0)

(91.3)
(243.1)
–
(412.4)

(105.7)

(2,200.8)

(2,050.3)

32.3

618.0

767.3 

2004

Total
£m

8,301.5 
(5,259.9)

3,041.6 

(1,091.5)
(285.6)

(93.2)
(246.1)
–
(501.3)

(2,217.7)

823.9 

330.0 
(106.0)

224.0 

(68.0)
(5.6)

(1.9)
(3.0)
–
(88.9)

(167.4)

56.6 

7,710.3
(5,029.5)

2,680.8

(1,014.3)
(320.4)

(74.9)
(265.5)
(3.1)
(416.9)

(2,095.1)

585.7

The directors consider that the nature of the business is such that the analysis of expenses shown above is more informative than that set
out in the formats of the Companies Act 1985.

1Included within continuing operations is operating proﬁt derived from acquisitions and exceptional charges as analysed below:

Turnover
Cost of sales

Gross proﬁt

Employee costs (see note 10)
Occupancy costs
Repairs, renewals and maintenance of ﬁxed assets
Depreciation
Goodwill amortisation
Other costs

Total net operating expenses

Operating proﬁt

2005

Acquired
operations
£m

Exceptional
charges
£m

Acquired
operations
£m

2004

Exceptional
charges
£m

–
17.3

17.3

(4.0)
(0.2)
–
(0.1)
(3.1)
(0.4)

(7.8)

9.5

–
(3.3)

(3.3)

(7.2)
(10.6)
(0.3)
(15.1)
–
(54.9)

(88.1)

(91.4)

–
–

–

–
–
–
–
–
–

–

–

–
–

–

(24.5)
(5.2)
–
(4.2)
–
(8.2)

(42.1)

(42.1) 

All turnover from acquired operations is to another group company. The reduction in cost of sales of £17.3m is attributable to the lower cost of purchases 
in the post-acquisition period.

2Included in ‘Other costs’ is the auditors’ remuneration including expenses for audit and non-audit services as follows:

Statutory audit services
Annual audit 

Non-audit related services
Further assurance services
Tax advisory services
Other services

2005
£m

1.2

1.9
0.4
0.2

2.5

Group

2004
£m

1.2

0.1
0.9
0.4

1.4

2005
£m

0.2

–
–
–

–

Company

2004
£m

0.2

–
–
–

–

Included in the above are fees paid to the Group’s auditors in the UK in relation to the Tender Offer of £0.4m, the sale of Financial Services of £0.5m, the acquisition
of per una of £0.1m and Defence of £0.8m. Of these costs, £1.6m is included within further assurance services and £0.2m within tax advisory services.

3Included in ‘Total net operating expenses’ are rentals under operating leases, comprising £3.9m for hire of plant and machinery (last year £4.1m) and £139.6m 
of other rental costs (last year £108.9m).

4 EXCEPTIONAL ITEMS
A Exceptional operating charges

Head ofﬁce relocation
Head ofﬁce restructuring programme
Board restructure
Closure of Lifestore
Defence costs

B (Loss)/proﬁt on sale of property and other ﬁxed assets

(Loss)/proﬁt on sale of property and other ﬁxed assets

C Proﬁt on sale/closure of operations

Proﬁt/(loss) arising on sale/closure
Release/utilisation of prior year provision

Net sale proceeds less net assets
Release of prior year provision

Net proﬁt on sale/closure of operations

MARKS AND SPENCER GROUP PLC 37

2005
£m

8.8
6.3
8.4
29.3
38.6

91.4

2005
£m

(0.4)

2005
£m

208.9
9.7

218.6

Financial
Services
£m

Continental
Europe
£m

208.9
–

208.9

–
9.7

9.7

2004
£m

19.6
22.5
– 
– 
–

42.1

2004
£m

18.7

2004
£m

(26.8)
26.8

–

Total
£m

208.9
9.7

218.6

The loss on sale/closure of operations in the prior year relates to the closure of the Continental European operations.

On 9 November 2004, the Group completed the sale of Marks and Spencer Retail Financial Services Holdings Limited to HSBC Holdings
plc. The net sale proceeds were £533.6m (see note 30B) after accounting for a pre-sale dividend of £235.0m together with associated
disposal costs. At the same time, the Group and HSBC entered into a relationship under which the Group will continue to share in the
success of the business. Under this relationship, the Group will receive income in the form of fees representing an amount equivalent to
costs incurred, 50% of the proﬁts of M&S Money (after a notional tax charge and after deducting agreed operating and capital costs)
together with an amount relating to sales growth. In the period since 9 November 2004, the fees received were £16.4m. 

In addition, the Group has also received £15.1m for costs incurred as part of the transition of M&S Money to HSBC and £1.1m for rent.
The Group also conducts settlement transactions with M&S Money in the normal course of business. At 2 April 2005, the amount owed
by M&S Money was £16.2m.

5 NET INTEREST EXPENSE

Bank and other interest income
Less: amounts included in turnover of Financial Services

Interest expenditure
Less: interest charged to cost of sales of Financial Services

Net interest expense

Interest expenditure comprises:
Amounts repayable within ﬁve years:

Bank loans, overdrafts and other borrowings
Syndicated bank facility
Medium term notes
Securitised loan notes

Amounts repayable after ﬁve years:

Medium term notes
Securitised loan notes

£m

169.9
(153.2)

(183.6)
64.6

(43.5)
(7.8)
(64.6)
(1.4)

(47.2)
(19.1)

2005
£m

16.7

(119.0)

(102.3)

(117.3)

(66.3)

(183.6)

£m

248.5
(235.2)

(136.1)
77.0

(22.2)
–
(68.1)
(1.2)

(24.8)
(19.8)

2004
£m

13.3

(59.1)

(45.8)

(91.5)

(44.6)

(136.1)

38 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

6 TAXATION ON PROFIT ON ORDINARY ACTIVITIES
A Taxation charge for the period

£m

2005
£m

£m

2004
£m

Current taxation

UK corporation tax at 30% (last year 30%):
Current year
Prior years

Overseas taxation

Total current taxation

Deferred taxation (see note 23)

Current year
Prior years

Total deferred taxation

115.4
(17.5)

205.7
(3.6)

97.9
6.0

103.9

54.4

158.3

44.0
10.4

26.0
(2.5)

Included in the tax charge for the year is a credit of £18.2m (last year £12.7m credit) which is attributable to exceptional charges.

B Taxation reconciliation

Proﬁt before taxation

Taxation at the standard UK corporation tax rate of 30% (last year 30%)
Permanent differences
Capital allowances less than/(in excess of) depreciation
Other timing differences
Net effect of restructuring charges
Net effect of different rates of tax in overseas businesses
Adjustments to tax charge in respect of prior periods
Proﬁt on sale of Financial Services
Other exceptional charges

Total current taxation

2005
£m

745.3

223.6
6.2
3.1
(47.1)
–
(8.1)
(17.5)
(61.8)
5.5

103.9

202.1
3.7

205.8

23.5

229.3

2004
£m

781.6

234.5
6.0
(1.8)
(24.2)
1.9
(7.0)
(3.6)
–
–

205.8

7 PROFIT FOR THE FINANCIAL YEAR
As permitted by Section 230 of the Companies Act 1985, the proﬁt and loss account of the Company is not presented as part of these
ﬁnancial statements.

A proﬁt before tax of £2,518.3m (last year £262.1m) is dealt with in the ﬁnancial statements of the Company. Proﬁt before tax includes
dividends received from a subsidiary of £2,516.6m (last year £262.1m).

8 DIVIDENDS

Dividends on equity shares
Paid interim ordinary dividend of 4.6p per share (last year 4.4p per share)
Proposed ﬁnal ordinary dividend of 7.5p per share (last year 7.1p per share)

Total ordinary dividend of 12.1p per share (last year 11.5p per share)

Dividends on non-equity shares
Interim B share dividend paid at 3.36% (last year 2.73%)
Final B share dividend paid at 3.78% (last year 2.86%)

2005
£m

76.3
124.2

200.5

1.4
1.4

2.8

2004
£m

99.5
160.7

260.2

1.6
1.4

3.0

203.3

263.2

MARKS AND SPENCER GROUP PLC 39

9 EARNINGS PER SHARE 
The calculation of earnings per ordinary share is based on earnings after tax, minority interests and non-equity dividends, and the
weighted average number of ordinary shares in issue during the year.

An adjusted earnings per share ﬁgure has been calculated in addition to the earnings per share required by FRS 14 – ‘Earnings per Share’
and is based on earnings excluding the effect of the exceptional items on an after tax basis. It has been calculated to allow shareholders
to gain a clearer understanding of the underlying trading performance of the Group. Details of the adjusted earnings per share are set
out below:

Basic earnings 
Exceptional operating charges
Loss/(proﬁt) on sale of property and other ﬁxed assets
Proﬁt on sale/closure of operations

Adjusted earnings
Earnings from discontinued operations

Adjusted earnings from continuing operations

Basic
pence 
per share

2005
Diluted
pence 
per share

29.1
3.6
–
(10.8)

21.9
(1.5)

20.4

28.9
3.6
–
(10.8)

21.7
(1.5)

20.2

£m

584.2
72.2
0.4
(217.6)

439.2
(30.0)

409.2

£m

549.3
29.4
(18.7)
–

560.0
(52.7)

507.3

The weighted average number of ordinary shares used in the calculation of earnings per share are as follows:

Basic
pence
per share

2004
Diluted
pence
per share

24.2
1.3
(0.8)
–

24.7
(2.3)

22.4

24.1
1.3
(0.8)
–

24.6
(2.3)

22.3

2005
m

2004
m

2,006.2
17.3

2,266.7
15.4

2,023.5

2,282.1

Weighted average ordinary shares in issue during the year 
Potentially dilutive share options under the Group’s share option schemes

Weighted average ordinary shares for diluted earnings per share

10 EMPLOYEES
A Aggregate remuneration
The aggregate remuneration and associated costs of Group employees were:

Continuing
operations1
£m

Discontinued
operations
£m

Wages and salaries
Social security costs
Pension costs (see note 11)
Employee welfare and other personnel costs

Employee costs

821.9
56.2
100.7
35.5

1,014.3

27.3
2.0
2.5
4.7

36.5

2005

Total
£m

849.2
58.2
103.2
40.2

Continuing
operations1
£m

Discontinued
operations
£m

815.6 
52.9 
118.4 
36.6 

52.7 
2.9 
5.4 
7.0 

68.0 

1,050.8

1,023.5 

2004

Total
£m

868.3 
55.8 
123.8 
43.6 

1,091.5 

1Included within continuing operations is operating proﬁt derived from acquisitions and exceptional items as analysed below:

Wages and salaries 
Social security costs
Pension costs (see note 11)
Employee welfare and other personnel costs

Employee costs

2005
Exceptional
charges/
(income)
£m

Acquired
operations
£m

2004
Exceptional
charges/
(income)
£m

Acquired
operations
£m

3.2
0.3
0.1
0.4

4.0

15.0
0.9
(11.0)
2.3

7.2

–
–
–
–

–

23.0
0.1
–
1.4

24.5

40 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

10 EMPLOYEES continued
B Average number of employees
The average number of employees of the Group during the year was:

UK stores

UK head ofﬁce

Management and supervisory categories
Other
Management and supervisory categories
Other

Acquired operations
Overseas
Discontinued operations

2005

2004

4,863
56,269
2,525
807
173
4,399
1,514

70,550

4,901
55,526
2,755
919
–
4,381
1,619

70,101

If the number of hours worked was converted on the basis of a normal working week, the equivalent average number of full-time
employees for continuing operations would have been 46,962 (last year 45,222) and for discontinued operations 1,340 (last year 1,432).
Comparatives for UK store stafﬁng have been recategorised to reﬂect the reclassiﬁcation of divisional staff.

C United Kingdom Share Incentive Plan
The Company adopted the free share element of the new all-employee Share Incentive Plan, which is approved by the Inland Revenue.
This is a discretionary plan and the Company decides each year whether an award is to be made, depending upon the year-end proﬁts.
No award will be made in July 2005 in respect of the ﬁnancial year ended 2 April 2005. The last award under this scheme was made in
July 2003.

D United Kingdom Employees’ Save As You Earn Share Option Scheme
Under the terms of the Scheme, the Board may offer options to purchase ordinary shares in the Company once in each ﬁnancial year to
those employees who enter into an Inland Revenue approved Save As You Earn (SAYE) savings contract. The price at which options may
be offered is 80% of the market price for three consecutive dealing days preceding the date of offer. The options may normally be
exercised during the period of six months after the completion of the SAYE contract, either three, ﬁve or seven years after entering the
Scheme.

Outstanding options granted under the United Kingdom Employees’ Save As You Earn Share Option Scheme are as follows:

Options granted

January 1997
January 1998
January 1999
January 2000
January 2001
January 2002
January 2003
January 2004
January 2005

Number of shares
2004

2005

Option
price

Expired
1,038,090
1,594,114
4,398,817
13,572,339
4,702,766
7,988,919
10,812,290
8,080,928

1,499,213
1,160,288
3,832,848
11,292,814
15,825,503
8,720,985
9,729,981
12,811,587
–

389p
467p
324p
223p
156p
250p
283p
228p
280p

E Executive Share Option Schemes
Under the terms of the current Scheme, approved by shareholders in 2002, the Board may offer options to purchase ordinary shares in
the Company to executive directors and senior employees at the market price on a date to be determined prior to the date of the offer. 
No further options may be granted under the 1984, 1987 and 1997 Schemes (further details are set out in the Remuneration report on
page 18). Outstanding options granted under all executive share option schemes are as follows:

Options granted

(1984 Scheme)
May 1994
October 1994
May 1995
May 1996
November 1996
June 1997

(1987 Scheme)
June 1997

Number of shares
2004

2005

Option
price

–
–
1,025,065
39,376
6,172
11,384

1,071,186
21,541
1,060,075
45,850
6,172
17,076

404p
402p
414p
458p
486p
527p

Option dates

May 1997 – May 2004
Oct 1997 – Oct 2004
May 1998 – May 2005
May 1999 – May 2006
Nov 1999 – Nov 2006
Jun 2000 – Jun 2007

–

1,269,006

527p

Jun 2000 – Jun 2004

MARKS AND SPENCER GROUP PLC 41

Number of shares
2004

2005

Option
price

141,720
20,544
411,922
–
–

705,973
20,544
603,984
21,583
–

194,906
–
–
1,129,506
–
997,463

134,436
–
–
744,388
–
796,167

3,078,332
439,463
111,111
–
56,306
3,995,346
370,651
53,632
48,148
5,028,335
472,188

2,525,361
264,685
101,010
–
56,306
3,398,786
229,641
43,252
37,037
3,957,495
418,698

172,429
179,008
449,913
59,352
1,992,337

884,667
20,544
648,081
59,352
1,992,337

1,792,689
451,281
105,504
5,403,205
168,674
1,204,236

1,839,642
435,897
105,504
2,734,313
156,626
985,798

4,170,578
567,519
242,424
282,678
111,486
5,838,559
564,256
–
–
–
–

3,515,049
330,546
222,222
272,875
101,351
5,082,684
349,173
–
–
–
–

557p
404p
358p
278p
261p

557p
404p
358p
278p
261p

215p
195p
218p
256p
249p
350p

215p
195p
218p
256p
249p
350p

350p
353p
297p
306p
296p
297p
270p
289p
270p
347p
337p

350p
353p
297p
306p
296p
297p
270p
289p
270p
347p
337p

Option dates

Jun 2001 – Jun 2008
Nov 2001 – Nov 2008
Jun 2002 – Jun 2009
Nov 2002 – Nov 2009
Mar 2003 – Mar 2010

Jun 2003 – Jun 2008
Nov 2003 – Nov 2008
Jun 2004 – Jun 2009
Nov 2004 – Nov 2009
Mar 2005 – Mar 2010

Sep 2003 – Sep 2010
Dec 2003 – Dec 2010
Mar 2004 – Mar 2011
Jun 2004 – Jun 2011
Jul 2004 – Jul 2011
Dec 2004 – Dec 2011

Sep 2003 – Sep 2010
Dec 2003 – Dec 2010
Mar 2004 – Mar 2011
Jun 2004 – Jun 2011
Jul 2004 – Jul 2011
Dec 2004 – Dec 2011

Jun 2005 – Jun 2012
Nov 2005 – Nov 2012
Jan 2006 – Jan 2013
Mar 2006 – Mar 2013
Mar 2006 – Mar 2013
Jun 2006 – Jun 2013
Nov 2006 – Nov 2013
Jan 2007 – Jan 2014
Feb 2007 – Feb 2014
Jul 2007 – Jul 2014
Nov 2007 – Nov 2014

Jun 2005 – Jun 2012
Nov 2005 – Nov 2012
Jan 2006 – Jan 2013
Mar 2006 – Mar 2013
Mar 2006 – Mar 2013
Jun 2006 – Jun 2013
Nov 2006 – Nov 2013
Jan 2007 – Jan 2014
Feb 2007 – Feb 2014
Jul 2007 – Jul 2014
Nov 2007 – Nov 2014

10 EMPLOYEES continued

Options granted

(1997 Scheme – Tier 1)
June 1998
November 1998
June 1999
November 1999
March 2000

(1997 Scheme – Tier 2)
June 1998
November 1998
June 1999
November 1999
March 2000

(2000 Scheme +3%)
September 2000
December 2000
March 2001
June 2001
July 2001
December 2001

(2000 Scheme +4%)
September 2000
December 2000
March 2001
June 2001
July 2001
December 2001

(2002 Scheme +3%)
June 2002
November 2002
January 2003
March 2003
March 2003
June 2003
November 2003
January 2004
February 2004
July 2004
November 2004

(2002 Scheme +4%)
June 2002
November 2002
January 2003
March 2003
March 2003
June 2003
November 2003
January 2004
February 2004
July 2004
November 2004

F Executive Share Matching Plan
An Executive Share Matching Plan for senior management was approved by shareholders at the Annual General Meeting in 2002 and was
introduced for the ﬁrst time in July 2002. The plan currently operates for nine members of senior management. Participants are required to
invest one-third of any annual bonus earned in shares in the Company. The balance of the annual bonus may be invested voluntarily.

The pre-tax value of the invested bonus will be matched by an award of shares, with the extent of the match determined by performance
conditions over a three-year period. Further details of the plan are given in the Remuneration report on page 17. £0.3m (last year £0.5m
charge) has been credited to proﬁts for this year.

42 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

10 EMPLOYEES continued
G Fair value of share awards
As part of the Group’s preparation for the transition to International Financial Reporting Standards (IFRS), the Group intends to apply IFRS 2 -
‘Share Based Payments’, to share scheme awards granted before 7 November 2002. IFRS 2 requires the disclosure of the fair values of
share based awards granted prior to 7 November 2002 before the formal adoption of IFRS. Details are given below of the fair values of 
all grants prior to 7 November 2002 that will impact the consolidated proﬁt and loss account, prepared under IFRS, for the period ended
2 April 2005, the comparative period for IFRS implementation.

Date of award

25 November 1997
25 November 1998
24 November 1999
24 November 1999
22 November 2000
22 November 2000
29 June 2001
12 July 2001
21 November 2001
21 November 2001
06 December 2001
25 June 2002
12 July 2002
30 July 2002

Scheme

Save As You Earn
Save As You Earn
Save As You Earn
Save As You Earn
Save As You Earn
Save As You Earn
Executive Share Option
Executive Share Option
Save As You Earn
Save As You Earn
Executive Share Option
Executive Share Option
Restricted Share Plan
Executive Share Matching Plan

Vesting
period
(years)

Fair Value of individual
award at grant date
(pence)

7
7
7
5
7
5
3
3
5
3
3
3
3
3

221.8
120.8
62.7
64.3
55.8
59.7
76.5
72.4
120.9
117.0
114.8
116.0
308.0
452.7

11 RETIREMENT BENEFITS
The Group adopted FRS 17 – ‘Retirement Beneﬁts’ in full in 2004. 

The total cost of retirement beneﬁts for the Group was £84.8m (last year £139.0m) of which £103.2m (last year £123.8m) has been
charged against operating proﬁt, £7.0m (last year £nil) has been credited within proﬁt on sale of operations and £11.4m (last year a
charge of £15.2m) has been credited within other ﬁnance charges. 

The charge against operating proﬁt this year includes a £14.0m credit (of which £11.0m has been included within exceptional items) in
respect of curtailment gains in the UK deﬁned beneﬁt pension scheme. Excluding these curtailment gains, the charge against operating
proﬁt would have been £117.2m.

Within the total Group retirement beneﬁt cost of £84.8m, £74.0m relates to the UK deﬁned beneﬁt pension scheme. The Group also
operates small deﬁned beneﬁt pension schemes in the Republic of Ireland and at Kings Super Markets in the USA. Retirement beneﬁts
also include a UK post-retirement healthcare scheme and unfunded pension plans.

Contributions to non-deﬁned beneﬁt pension schemes in the year were £6.5m (last year £2.3m).

A Financial assumptions
A full actuarial valuation of the UK deﬁned beneﬁt pension scheme was carried out at 31 March 2003 and showed a deﬁcit of £585m. The
demographic assumptions were reviewed and updated at that time. The ﬁnancial assumptions for the UK scheme and the most recent
actuarial valuations of the other post-retirement schemes have been updated by independent qualiﬁed actuaries to take account of the
requirements of FRS 17 in order to assess the liabilities of the schemes at 2 April 2005: 

Rate of increase in salaries
Rate of increase in pensions in payment1
Discount rate
Inﬂation rate
Long-term healthcare cost increases

1For 2005 it has been assumed that pension increases will not be above the increases guaranteed in the scheme rules.

2005
%

3.7
2.6
5.5
2.9
7.9

2004
%

3.5
2.7
5.6
2.7
7.7

2003
%

3.5
2.5
5.5
2.5
7.5

MARKS AND SPENCER GROUP PLC 43

11 RETIREMENT BENEFITS continued
B Market value of assets and expected rates of return
The market value of the assets in the Group deﬁned beneﬁt pension schemes and the expected long-term rates of return as at 
year end were:

Expected long-term rate of return p.a.
2003
%

2004
%

2005
%

UK equities
Overseas equities
Government bonds
Corporate bonds (Triple B or above)
Other

Total market value of assets1
Present value of scheme liabilities

Pension scheme deﬁcit
Unfunded pension plans
Post-retirement healthcare

Total post-retirement liabilities
Less: related deferred tax asset

Net post-retirement liability

8.1
8.4
4.8
5.5
3.8

6.7

8.1
8.6
4.8
5.6
3.7

6.8

8.7
9.0
4.6
5.5
4.0

7.3

2005
£m

1,025.1
1,065.1
1,249.0
503.3
114.3

2004
£m

974.7
1,011.4
833.4
483.3
331.4

3,956.8
(4,611.0)

3,634.2
(4,280.1)

(654.2)
(2.5)
(19.3)

(676.0)
201.8

(474.2)

(645.9)
(3.2)
(20.4)

(669.5)
200.0

(469.5)

Value
2003
£m

757.0
777.2
500.2
561.1
43.0

2,638.5
(3,888.1)

(1,249.6)
(3.9)
(24.7)

(1,278.2)
382.4

(895.8)

1The expected return on assets of 6.8% for 2004 was based on the assumption that cash of £306m (included under ‘other’) was invested in government
bonds immediately following the year end.

C Analysis of the amount charged against proﬁts

Operating cost
Current service costs
Curtailment gain

Proﬁt on sale/closure of operations
Curtailment gain on disposal of Financial Services

Finance cost
Expected return on scheme assets
Interest on scheme liabilities

Net ﬁnance (income)/charges

Total cost of retirement beneﬁts

D Analysis of the amount recognised in the consolidated statement of total recognised gains and losses

Actual return less expected return on scheme assets
Experience losses arising on scheme liabilities
Changes in assumptions underlying the present value of scheme liabilities

Actuarial (loss)/gain recognised in the consolidated statement of total recognised gains and losses

2005
£m

117.2
(14.0)

103.2

2004
£m

123.8
–

123.8

(7.0)

–

(248.9)
237.5

(11.4)

84.8

2005
£m

77.4
(24.0)
(131.5)

(78.1)

(196.9)
212.1

15.2

139.0

2004
£m

401.9
(30.3)
(157.8)

213.8

44 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

11 RETIREMENT BENEFITS continued
E Movements in liability during year

Post-retirement liability at beginning of year
Current service cost1
Curtailment gain
Cash contribution2, 3
Net ﬁnance income/(charges)
Actuarial (loss)/gain
Exchange movement

Post-retirement liability at end of year

2005
£m

(669.5)
(117.2)
21.0
156.4
11.4
(78.1)
–

(676.0)

2004
£m

(1,278.2)
(123.8)
–
533.7
(15.2)
213.8
0.2

(669.5)

1The UK deﬁned beneﬁt pension scheme is closed to new members and so under the projected unit method the service cost rate would be expected to
increase over time due to the expected increase in the average age of employed members subject to actual experience.

2The cash contribution for 2005 includes an additional contribution of £64.0m paid into the UK deﬁned beneﬁt pension scheme in March 2005. The cash
contribution for 2004 of £533.7m includes £400.0m paid to the UK deﬁned beneﬁt pension scheme in respect of the deﬁcit identiﬁed at the time of the full
actuarial valuation of the scheme at 31 March 2003. 

3Future contributions to the UK scheme will be made at the rate of 15.8% of pensionable salaries up to the next full actuarial valuation.

F History of experience gains and losses

Actual return less expected return on scheme assets:

Amount
% of scheme assets at end of year

Experience (losses)/gains arising on scheme liabilities:

Amount
% of scheme liabilities at end of year

Total amount recognised in statement of total recognised gains and losses:

Amount
% of scheme liabilities at end of year

2005
£m

77.4
2.0%

(24.0)
(0.5%)

(78.1)
(1.7%)

2004
£m

2003
£m

401.9
11.1%

(713.3)
(27.0%)

(30.3)
(0.7%)

213.8
5.0%

16.0
0.4%

(893.4)
(23.0%)

12 DIRECTORS
A Emoluments
Emoluments of directors of the Company are summarised below. Further details are given in the Remuneration report on pages 16 to 25.

Aggregate emoluments
Termination payments

2005
£000

6,016
3,651

2004
£000

3,769
754

B Transactions with directors
During the year, transactions entered into by Marks and Spencer Financial Services plc with directors and connected persons resulted 
in the following outstanding balances on their combined credit and loyalty cards as at 2 April 2005:

2005
Total
balances
£

2004
Total
balances
£

No. of
persons

–

10

41,236

No. of
persons

–

Following the disposal during the year of Marks and Spencer Financial Services plc, the directors and connected persons had no balances
with any subsidiary of the Group at 2 April 2005. Except as noted above, there was no contract of signiﬁcance to which the Company, or
any of its subsidiaries, was a party and in which a director of the Company was materially interested during the year.

13 INTANGIBLE FIXED ASSETS

Cost
Additions

At 2 April 2005

Accumulated amortisation
Charge for the period

At 2 April 2005

Net book value at 2 April 2005

MARKS AND SPENCER GROUP PLC 45

Group
Goodwill
£m

125.5

125.5

3.1

3.1

122.4

On 4 October 2004, the Group acquired Per Una Group Limited for a consideration of £125.9m (see note 30A). The goodwill arising on
the acquisition of Per Una Group Limited is being amortised on a straight-line basis over a period of 20 years.

14 TANGIBLE FIXED ASSETS
A Tangible ﬁxed assets

Cost or valuation
At 4 April 2004
Additions
Transfers
Revaluation surplus
Disposals
Disposal of subsidiaries
Differences on exchange

At 2 April 2005

Accumulated depreciation
At 4 April 2004
Depreciation for the year
Disposals
Disposal of subsidiaries
Differences on exchange

At 2 April 2005

Net book value at 2 April 2005

At 3 April 2004

Analysis of land and buildings

At valuation
At cost

Accumulated depreciation

Net book value at 2 April 2005

At 3 April 2004

Land &
buildings
£m

2,269.2
26.6
14.3
4.0
(129.7)
–
1.7

Fixtures, Assets in the
course of
ﬁttings &
equipment construction
£m

£m

3,156.8
177.8
29.9
–
(152.5)
(50.0)
0.1

50.4
15.2
(44.2)
–
–
–
0.2

Group

Total
£m

5,476.4
219.6
–
4.0
(282.2)
(50.0)
2.0

2,186.1

3,162.1

21.6

5,369.8

117.3
14.0
(4.1)
–
–

1,861.5
253.3
(150.6)
(37.5)
(0.2)

127.2

1,926.5

2,058.9

1,235.6

2,151.9

1,295.3

–
–
–
–
–

–

21.6

50.4

Freehold
£m

607.6
719.3

1,326.9
(62.5)

1,264.4

1,349.7

Long
leasehold
£m

Short
leasehold
£m

379.1
392.2

771.3
(12.9)

758.4

779.8

12.2
75.7

87.9
(51.8)

36.1

22.4

1,978.8
267.3
(154.7)
(37.5)
(0.2)

2,053.7

3,316.1

3,497.6

Group

Total
£m

998.9
1,187.2

2,186.1
(127.2)

2,058.9

2,151.9

46 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

14 TANGIBLE FIXED ASSETS continued
B Investment properties
Freehold land and buildings include investment properties as follows:

Cost or valuation
At 4 April 2004
Additions
Revaluation surplus

At 2 April 2005

Group
£m

37.8
0.8
4.0

42.6

The freehold properties were valued as at 2 April 2005 by qualiﬁed professional valuers working for DTZ Debenham Tie Leung, Chartered
Surveyors, acting in the capacity of External Valuers. All such valuers are Chartered Surveyors, being members of the Royal Institution of
Chartered Surveyors (RICS). The properties were valued on the basis of Market Value at an aggregate value of £42.6m. All valuations were
carried out in accordance with the RICS Appraisal and Valuation Standards.

DTZ Debenham Tie Leung have been carrying out valuations for the Group for a continuous period since 2002. They provide and have
provided valuations of the Group’s occupational properties and, in addition, have provided ad hoc property advice in connection with
various aspects of the Group’s property portfolio. DTZ Debenham Tie Leung is a wholly-owned subsidiary of DTZ Holdings Plc (the ‘DTZ
Group’). In the DTZ Group’s ﬁnancial year to 30 April 2004, the proportion of total fees payable by Marks & Spencer to the total fee
income of the DTZ Group was less than 5%.

C Tangible ﬁxed assets at cost
Gerald Eve, a ﬁrm of independent Chartered Surveyors, valued the Group’s freehold and leasehold properties in the United Kingdom as at
31 March 1982. This valuation was on the basis of open market value for existing use. At 31 March 1988, the directors, after consultation
with Gerald Eve, revalued those of the Group’s properties which had been valued as at 31 March 1982 (excluding subsequent additions
and adjusted for disposals). The directors’ valuation was incorporated into the ﬁnancial statements at 31 March 1988.

If the Group’s land and buildings had not been valued as set out above, their net book value would have been:

At valuation at 31 March 19751
At cost

Accumulated depreciation

Closing net book value 

2005
£m

225.6
1,330.6

1,556.2
(153.6)

2004
£m

227.1
1,402.0

1,629.1
(146.3)

1,402.6

1,482.8

1The Group also valued its land and buildings in 1955 and in 1964. In the opinion of the directors, unreasonable expense would be incurred in obtaining the
original costs of the assets valued in those years and in 1975.

15 FIXED ASSET INVESTMENTS
A Investments

Cost
At 4 April 2004
Disposals
Share of joint venture’s proﬁts

At 2 April 2005

Accumulated provision and amortisation
At 4 April 2004
Provision for impairment

At 2 April 2005

Net book value at 2 April 2005

At 3 April 2004

Joint 
venture1
£m

Other
investments2
£m

8.5
–
0.2

8.7

–
–

–

8.7

8.5

15.9
(0.8)
–

15.1

14.4
0.4

14.8

0.3

1.5

Group

Total
£m

24.4
(0.8)
0.2

23.8

14.4
0.4

14.8

9.0

10.0

1The joint venture represents a 50% equity interest in Hedge End Park Limited, a property investment company incorporated in Great Britain. The partner 
in the joint venture is J Sainsbury plc. The Group’s investment in the joint venture includes accumulated reserves of £2.6m (last year £2.4m).

2Other investments include listed securities held by a subsidiary. The difference between their net book value and market value is negligible. 

MARKS AND SPENCER GROUP PLC 47

15 FIXED ASSET INVESTMENTS continued

At 2 April 2005

At 3 April 2004

Company
Shares in group
undertakings
£m

7,648.7

7,643.2

Shares in Group undertakings represents the Company’s investment in Marks and Spencer plc.

B Principal subsidiary undertakings
The Company’s principal subsidiary undertakings are set out below. A schedule of interests in all undertakings is ﬁled with the 
Annual Return.

Marks and Spencer plc
Marks and Spencer International Holdings Limited
Marks and Spencer (Nederland) BV
Marks & Spencer Finance Inc
Marks and Spencer (Ireland) Limited
Kings Super Markets Inc
Marks and Spencer (Asia Paciﬁc) Limited
M&S Card Services Limited
M.S. Insurance L.P.
M.S. II Insurance L.P.
Marks and Spencer Investments Limited
St Michael Finance plc
Marks and Spencer Finance plc
Amethyst Leasing (Properties) Limited
Amethyst Finance plc
Marks and Spencer Chester Limited
Marks and Spencer SCM Limited
Per Una Group Limited
The Zip Project Limited

Principal
activity

Retailing
Holding Company
Holding Company
Holding Company
Retailing
Retailing
Retailing
Credit Card Handling
Financial Services
Financial Services
Finance
Finance
Finance
Finance
Finance
Property Investment
Procurement
Procurement
Procurement

Country of
incorporation
and operation

Great Britain
Great Britain
The Netherlands
United States
Republic of Ireland
United States
Hong Kong
Great Britain
Guernsey
Guernsey
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain

Proportion of voting rights
and shares held by:
Company A subsidiary

100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–1
100%
100%
100%
100%

The Company has taken advantage of the exemption under Section 231(5) of the Companies Act 1985 by providing information only in relation to subsidiary
undertakings whose results or ﬁnancial position, in the opinion of the directors, principally affected the ﬁnancial statements.

1Amethyst Finance plc is a wholly-owned subsidiary of a non-group company but has been consolidated in these accounts as a quasi-subsidiary in
accordance with FRS 5. The quasi-subsidiary has net assets of £0.1m (last year £nil), the material balances being securitised loan notes of £322.9m 
(last year £325.6m) offset by a receivable from a group company.

16 DEBTORS

A Amounts receivable within one year
Trade debtors
Customer advances
Amounts owed by Group undertakings
Other debtors1
Deferred tax asset (see note 23)
Prepayments and accrued income2

B Amounts receivable after more than one year3
Customer advances
Other debtors1
Prepayments and accrued income2

2005
£m

27.8
–
–
44.8
–
139.4

212.0

Group
2004
£m

30.5
740.8
–
44.0
3.5
152.8

971.6

–
6.1
0.1

6.2

1,711.6
8.8
58.9

1,779.3

2005
£m

–
–
205.2
0.1
–
–

205.3

–
–
–

–

Company
2004
£m

–
–
262.1
0.6
–
–

262.7

–
–
–

–

1Other debtors include interest-free loans to a director and ofﬁcer of the Company of £nil (last year £45,586).

2Prepayments and accrued income include £65.6m (last year £76.0m) in respect of the UK pension scheme. In addition, prepayments include £nil (last year
£61.3m) relating to the long-term assurance business.

3Amounts receivable after more than one year include £2.0m (last year £61.1m) of non-ﬁnancial assets which have been excluded from the analysis in note 19. 

48 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

17 CURRENT ASSET INVESTMENTS

Listed investments:

Government securities
Listed in the United Kingdom
Listed overseas
Unlisted investments

2005
£m

–
51.0
11.4
4.6

67.0

Group
2004
£m

86.9
191.8
42.6
4.6

325.9

Listed investments include £nil (last year £175.5m) in relation to the long-term assurance business.

18 CASH AT BANK AND IN HAND
Cash at bank includes commercial paper and short-term deposits with banks and other ﬁnancial institutions with initial maturity of three
months or less.

19 ANALYSIS OF FINANCIAL ASSETS
After taking into account the various interest rate swaps entered into by the Group, the currency and interest rate exposure of the Group’s
ﬁnancial assets is set out below. There are no ﬁnancial assets other than short-term debtors excluded from this analysis.

A Interest rate and currency analysis

Currency

Sterling
US dollar
Euro
Other

Fixed rate Floating rate
£m

£m

Non-interest
bearing
£m

38.8
–
–
–

38.8

118.5
12.9
5.2
9.3

145.9

74.5
7.2
12.3
5.4

99.4

2005

Total
£m

231.8
20.1
17.5
14.7

284.1

Fixed rate Floating rate
£m

£m

Non-interest
bearing
£m

624.2
–
–
–

624.2

1,633.9
15.0
19.6
18.5

1,687.0

110.5
3.7
6.3
8.6

129.1

Group
2004

Total
£m

2,368.6
18.7
25.9
27.1

2,440.3

The ﬂoating rate sterling, US dollar and euro assets are at interest rates linked to LIBID. The non-interest bearing ﬁnancial assets are
predominantly cash in tills and uncleared deposits.

B Analysis of ﬁxed interest rate assets

Currency

Sterling

C Analysis of ﬁnancial assets

2005
Weighted
average
interest rate
%

4.8

2004
Weighted
average
interest rate
%

5.6

2005
Weighted average
period for which
rate is ﬁxed
Years

0.3

Current asset investments
Cash at bank and in hand
Customer advances falling due in more than one year
Fixed asset investments
Other amounts receivable after more than one year

Financial assets as deﬁned by FRS 13

Customer advances falling due in less than one year

Financial assets including short-term customer advances

Group
2004
Weighted average
period for which
rate is ﬁxed
Years

2.5

Group
2004
£m

325.9
394.7
1,711.6
1.5
6.6

2,440.3

2005
£m

67.0
212.6
–
0.3
4.2

284.1

–

740.8

284.1

3,181.1

20 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

Bank loans, overdrafts and commercial paper1
Syndicated bank facility
Medium term notes (see note 22B)
Securitised loan notes (see note 22B)
Trade creditors
Amounts owed to Group undertakings
Taxation
Social security and other taxes
Other creditors2
Customer deposits
Accruals and deferred income
Proposed ﬁnal dividend (see note 8)

MARKS AND SPENCER GROUP PLC 49

2005
£m

212.9
200.0
58.3
3.2
195.3
–
15.5
40.4
178.7
–
260.8
124.2

Group
2004
£m

126.0
–
216.5
2.7
210.2
–
79.8
43.1
297.7
439.3
308.7
160.7

2005
£m

–
–
–
–
–
2,100.1
0.5
–
–
–
0.4
124.2

Company
2004
£m

–
–
–
–
–
2,165.0
–
–
–
–
0.2
160.7

1,289.3

1,884.7

2,225.2

2,325.9

1Bank loans, overdrafts and commercial paper includes a £5.0m (last year £5.0m) loan from the Hedge End Park Limited joint venture.

2Other creditors include £2.3m (last year £32.6m) which is shown in the calculation of the Group’s net debt and is treated as ﬁnancing within the cash 
ﬂow statement.

21 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

Medium term notes (see note 22B)
Securitised loan notes (see note 22B)
Other creditors1,2

2005
£m

1,588.6
310.4
20.7

Group
2004
£m

1,980.0
313.3
226.3

1,919.7

2,519.6

Company
2004
£m

2005
£m

–
–
–

–

–
–
–

–

1Other creditors includes £2.9m (last year £44.2m) which is shown in the calculation of the Group’s net debt and is treated as ﬁnancing within the cash ﬂow
statement, and £17.8m (last year £182.1m) of non-ﬁnancial liabilities which have been excluded from the analysis in note 22B.

2Other creditors include £nil (last year £179.5m) in relation to the long-term assurance business.

22 ANALYSIS OF FINANCIAL LIABILITIES
A Interest rate and currency analysis
After taking into account the various interest rate and currency swaps entered into by the Group, the currency and interest rate exposure
of the Group’s ﬁnancial liabilities are set out below. There are no ﬁnancial liabilities other than short-term creditors excluded from this
analysis.

Currency

Sterling1
US dollar
Euro
Other

Fixed rate Floating rate
£m

£m

1,086.7
–
–
–

1,349.1
8.3
0.2
–

2005
Total
£m

2,435.8
8.3
0.2
–

Fixed rate Floating rate
£m

£m

1,731.6
–
–
–

1,056.6
8.3
3.6
0.1

Group
2004
Total
£m

2,788.2
8.3
3.6
0.1

1,086.7

1,357.6

2,444.3

1,731.6

1,068.6

2,800.2

1Included within ﬂoating rate liabilities are £65.7m (last year £84.9m) of unredeemed B Shares.

The ﬂoating rate sterling, US dollar and euro borrowings are linked to interest rates related to LIBOR. These rates are for periods ranging
from one month to six months. The ﬁxed rate Sterling borrowings are at a weighted average rate of 6.1% (last year 5.5%) and the
weighted average time for which the rate is ﬁxed is 11.4 years (last year 8.6 years). 

50 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

22 ANALYSIS OF FINANCIAL LIABILITIES continued
B Maturity of ﬁnancial liabilities

Repayable within one year or on demand:

Bank loans, overdrafts and commercial paper
Syndicated bank facility
Medium term notes
Securitised loan notes
B shares (see note 25)
Other creditors

Repayable between one and two years:

Medium term notes
Securitised loan notes
Other creditors

Repayable between two and ﬁve years:

Medium term notes
Securitised loan notes
Other creditors

Repayable in ﬁve years or more:

Medium term notes1
Securitised loan notes2

2005
£m

212.9
200.0
58.3
3.2
65.7
2.3

542.4

820.7
3.5
2.2

826.4

–
12.5
0.7

13.2

767.9
294.4

Group
2004
£m

126.0
–
216.5
2.7
84.9
32.6

462.7

309.8
3.2
22.3

335.3

903.4
11.4
21.9

936.7

766.8
298.7

1,062.3

1,065.5

2,444.3

2,800.2

1Relates to two ﬁxed rate bonds at rates of 6.375% repayable on 7 November 2011 and 5.625% repayable on 24 March 2014.

2Relates to three separate bonds securitised against 45 of the Group’s properties. Two are repayable in instalments. The gross amounts before ﬁnance costs
are £54.6m and £131.0m respectively. The ﬁrst is a ﬂoating rate bond which has been swapped into a ﬁxed rate of 6.34%, amortised on a quarterly basis
from 12 March 2002, with ﬁnal payment due on 12 September 2015. The second is a ﬂoating rate bond which has been swapped into a ﬁxed rate of
6.344%, amortised on a quarterly basis from 12 September 2015, with ﬁnal payment due on 12 December 2026. The gross amount of the remaining bond 
is £140.0m before ﬁnance costs. It relates to a ﬁxed rate bond at a rate of 6.282% and is repayable in full on 12 December 2026.

C Borrowing facilities
At 2 April 2005, the Group had a ﬁve-year syndicated bank facility of £1.2bn, of which £200m had been drawn, and an undrawn
committed facility of £60m (last year £405m) linked to its commercial paper programme, which is subject to annual review. The Group also
has a number of undrawn uncommitted facilities available to it. At 2 April 2005, these amounted to £190m (last year £415m), all of which
are due to be reviewed within a year. 

23 PROVISIONS FOR LIABILITIES AND CHARGES

At 4 April 2004
Transfer from deferred tax asset (see note 16A)
Provided in the period
Net closure proﬁt in Continental Europe
Utilised during the period
Movement in net post-retirement liability
Disposal of subsidiaries
Released
Exchange differences

At 2 April 2005

MARKS AND SPENCER GROUP PLC 51

UK
restructuring1
£m

Overseas
restructuring2
£m

Deferred
tax3
£m

32.2
–
30.4
–
(26.0)
–
–
(1.4)
–

35.2

17.1
–
–
1.2
–
–
–
(9.7)
1.1

9.7

–
(3.5)
54.4
–
–
(21.2)
5.8
–
–

35.5

Group

Total
£m

49.3
(3.5)
84.8
1.2
(26.0)
(21.2)
5.8
(11.1)
1.1

80.4

1The provision for UK restructuring costs relates to the costs of restructuring the Group’s UK operations. The majority of these costs are expected 
to be incurred during the next ﬁnancial year.

2The provision for Overseas restructuring costs primarily relates to further closure costs in respect of the Group’s discontinued operations 
in Continental Europe.

3The deferred tax balance comprises the following:

Accelerated capital allowances
Pension prepayment
Other short-term timing differences

Deferred tax liability/(asset)

2005
£m

76.4
(40.2)
(0.7)

35.5

2004
£m

72.3
(67.2)
(8.6)

(3.5)

Deferred tax is not provided in respect of liabilities which might arise on the distribution of unappropriated proﬁts of international subsidiaries.

The Group is claiming UK tax relief for losses incurred by some of its current and former European subsidiaries. The case was heard by the European Court of
Justice (ECJ) on 1 February 2005 and the judgement of the ECJ should be received later this year. No asset has been recognised in respect of this claim.

24 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
A Fair values of ﬁnancial instruments
Set out below is a comparison of fair and book values of all the Group’s ﬁnancial instruments by category. Where market prices are not
available for a particular instrument, fair values have been calculated by discounting cash ﬂows at prevailing interest rates and exchange
rates.

Assets/(liabilities)

Customer advances falling due in more than one year
Current asset investments1
Fixed asset investments
Cash at bank and in hand1
Other ﬁnancial assets due after more than one year
Borrowings due within one year2
B shares
Financial liabilities due after more than one year2
Cross currency swaps2
Interest rate swaps2
Forward foreign currency contracts2

Book value
£m

2005
Fair value
£m

Book value
£m

–
67.0
0.3
212.6
4.2
(476.7)
(65.7)
(1,901.9)
–
–
–

–
67.0
0.3
212.6
4.2
(476.4)
(65.7)
(1,935.8)
56.3
3.7
(0.4)

1,711.6
325.9
1.5
394.7
6.6
(377.8)
(84.9)
(2,337.5)
–
–
–

Group
2004
Fair value
£m

1,712.3
325.9
1.5
394.7
6.6
(372.0)
(84.9)
(2,392.6)
24.5
11.9
3.8

1Current asset investments and cash at bank are predominantly short-term deposits placed with banks, ﬁnancial institutions and on money markets, and
investments in short-term securities. Therefore, these fair values closely approximate book values.

2Interest rate, cross currency swaps and forward foreign currency contracts have been marked to market to produce a fair value ﬁgure.

52 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

24 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT continued
B Hedges of future transactions
Unrecognised gains and losses on instruments used for hedging and those recognised in the period ended 2 April 2005 are as follows:

Unrecognised gains/(losses) on hedges at 

beginning of the period

(Gains)/losses arising in previous years recognised 

in the period

Gains/(losses) in previous years not recognised 

in the period

Gains/(losses) arising in the period

Unrecognised gains/(losses) on hedges 

at end of the period

Of which:
Gains/(losses) expected to be recognised 

within one year

Gains/(losses) expected to be recognised 

after one year

Gains
£m

Losses
£m

2005
Net total
£m

Gains
£m

Losses
£m

2004
Net total
£m

74.3

(34.1)

(12.7)

25.8

61.6
12.8

(8.3)
(6.5)

40.2

13.1

53.3
6.3

114.8

(57.6)

57.2

(26.1)

12.5

(13.6)

88.7
(14.4)

(45.1)
11.0

43.6
(3.4)

74.4

(14.8)

59.6

74.3

(34.1)

40.2

2.9

(3.6)

(0.7)

71.5

(11.2)

60.3

10.4

63.9

(12.1)

(1.7)

(22.0)

41.9

C Currency risk
The effect of currency exposures arising from the translation of overseas investments is mitigated by Group borrowings in local currencies
as appropriate. Gains and losses arising on net investments in overseas subsidiaries are recognised in the consolidated statement of total
recognised gains and losses.

After taking into account the effect of any hedging transactions that manage transactional currency exposures, no Group company had
any material monetary assets or liabilities in currencies other than their functional currencies at the balance sheet date.

25 CALLED UP SHARE CAPITAL

Authorised:
3,200,000,000 ordinary shares of 25p each (last year 3,200,000,000)
3,200,000,000 non-equity B shares of 70p each (last year 3,200,000,000)

Allotted, called up and fully paid:
1,658,095,142 ordinary shares of 25p each (last year 2,265,144,934)
93,822,916 non-equity B shares of 70p each (last year 121,244,763)

2005
£m

2004
£m

800.0
2,240.0

800.0
2,240.0

414.5
65.7

480.2

566.3
84.9

651.2

Issue of new shares:
28,309,324 ordinary shares having a nominal value of £7.0m were allotted during the year under the terms of the Company’s share
schemes which are described in note 10. The aggregate consideration received was £68.4m.

Purchase of own shares:
On 28 October 2004, 635,359,116 ordinary shares with a nominal value of £158.8m were purchased by the Group by way of a Tender
Offer for an aggregate consideration of £2.3bn. These shares were then cancelled and the nominal value transferred to the capital
redemption reserve (see note 26).

Redemption of B shares:
During the period, 27,421,847 B shares were redeemed at par at a total cost of £19.2m. The nominal value of £19.2m has been
transferred to the capital redemption reserve (see note 26).

MARKS AND SPENCER GROUP PLC 53

25 CALLED UP SHARE CAPITAL continued
The holders of B shares are not entitled to receive notiﬁcation of any general meeting of Marks and Spencer Group plc, or to attend,
speak or vote at any such meeting. B shares carry the right to a sub-LIBOR dividend paid on a semi-annual basis in priority to any
dividend paid to the holders of ordinary shares. In the event of the winding up of Marks and Spencer Group plc, the holders of B shares
will be entitled to 70p in respect of each B share held, together with the relevant proportion of the dividend payable. The B shares may be
redeemed at six monthly intervals. The next redemption date will be 26 September 2005. Marks and Spencer Group plc has the option, on
giving notice in writing to the holders of the B shares, to redeem all, but not some, of the B shares in issue on that date. The redemption
shall be on the basis of 70p per share.

26 SHAREHOLDERS’ FUNDS

At 4 April 2004 
Purchase of own shares
Tender Offer expenses
Redemption of B shares
Sale of own shares held
by employee trusts3
Shares issued on exercise of 

share options

Revaluation of investment properties
Revaluation surplus realised 

on disposals

Revaluation element of 
depreciation charge

Actuarial loss on post-retirement liability
Exchange differences on foreign 

currency translation 

Proﬁt for the period

At 2 April 2005

Share capital
Ordinary Non-equity
B shares
£m

shares
£m

566.3
(158.8)
–
–

84.9
–
–
(19.2)

–

7.0
–

–

–
–

–
–

–

–
–

–

–
–

–
–

45.2
–
–
–

–

61.4
–

–

–
–

–
–

Share

Capital
premium redemption Revaluation
reserve
reserve
account
£m
£m
£m

Other
reserve
£m

Proﬁt1,2

and loss
account
£m

1,924.8
158.8
–
19.2

356.4 (6,542.2) 6,018.6
(2,300.0)
(14.9)
(19.2)

–
–
–

–
–
–

Group

Total
£m

2,454.0
(2,300.0)
(14.9)
(19.2)

68.4
4.0

–

–
(55.1)

0.2
383.7

521.4

0.3

0.3

–

–
–

–

–
–

–
–

–

–
4.0

(28.6)

(1.0)
–

–
–

–

–
–

–

–
–

–
–

–
–

28.6

1.0
(55.1)

0.2
383.7

414.5

65.7

106.6

2,102.8

330.8 (6,542.2) 4,043.2

1Included in the proﬁt and loss account reserve is a pension reserve of £474.2m (last year £469.5m) which equates to the net post-retirement liability under 
FRS 17 (see note 11).

2Cumulative goodwill of £62.0m (last year £62.0m) arising on the acquisition of subsidiaries has been written off against the proﬁt and loss account reserve. 
As permitted by FRS 10, this goodwill has not been reinstated in the balance sheet and remains written off to reserves.

3The Marks and Spencer ESOP Trust (‘the Trust’) holds 1,526,270 (last year 1,796,970) shares with a net book value of £3.7m (last year £4.0m) and a market
value of £5.3m (last year £5.1m). These shares were acquired by the Trust in the market. The Trust used funds provided by Marks and Spencer plc to meet
the Group’s obligations. Awards are granted to employees at the discretion of Marks and Spencer plc and shares are awarded to employees by the Trust in
accordance with the wishes of Marks and Spencer plc under senior executive share schemes, the Share Matching Plan and Restricted Share Plan.

At 4 April 2004 
Purchase of own shares
Tender Offer expenses
Redemption of B shares
Shares issued on exercise of share options
Proﬁt for the period

At 2 April 2005

Ordinary
shares
£m

566.3
(158.8)
–
–
7.0
–

414.5

Share capital
Non-equity
B shares
£m

Share

Capital
premium redemption
reserve
account
£m
£m

84.9
–
–
(19.2)
–
–

65.7

45.2
–
–
–
61.4
–

1,924.8
158.8
–
19.2
–
–

Proﬁt
and loss
account
£m

2,958.8
(2,300.0)
(14.9)
(19.2)
–
2,314.5

Company

Total
£m

5,580.0
(2,300.0)
(14.9)
(19.2)
68.4
2,314.5

106.6

2,102.8

2,939.2

5,628.8

54 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

27 RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS’ FUNDS

Proﬁt attributable to shareholders
Dividends

Other recognised gains/(losses) relating to the year
Actuarial (losses)/gains net of taxation
Sale/(purchase) of shares held by employee trusts
New share capital subscribed
Redemption of B shares
Purchase of own shares
Tender Offer expenses 

Net (decrease)/increase in shareholders’ funds
Opening shareholders’ funds 

Closing shareholders’ funds

2005
£m

587.0
(203.3)

383.7
4.2
(55.1)
0.3
68.4
(19.2)
(2,300.0)
(14.9)

(1,932.6)
2,454.0

Group
2004
£m

552.3
(263.2)

289.1
(28.6)
150.4
(2.2)
24.8
(33.4)
(54.4)
–

345.7
2,108.3

521.4

2,454.0

28 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES

Continuing operations

Operating proﬁt
Exceptional operating charges (see note 4A)

Operating proﬁt before exceptional operating charges
Depreciation
Amortisation of goodwill
Decrease/(increase) in stocks
(Increase)/decrease in debtors
(Decrease)/increase in creditors

Net cash inﬂow before exceptional operating cash outﬂow
Exceptional operating cash outﬂow (see note 29A)

Cash inﬂow from continuing operating activities before contribution to the pension fund
Contribution to the pension fund following 2003 actuarial valuation

Cash inﬂow from continuing operating activities1

Discontinued operations

Operating proﬁt
Depreciation
Increase in customer advances
Increase in customer deposits
Decrease/(increase) in debtors
(Decrease)/increase in creditors

Cash inﬂow from discontinued operating activities2

Cash inﬂow from operating activities

2005
£m

585.7
91.4

677.1
250.4
3.1
55.7
(3.5)
(38.0)

944.8
(87.3)

857.5
–

857.5

32.3
1.8
(19.6)
697.3
6.7
(0.6)

717.9

1,575.4

Group
2004
£m

767.3 
42.1 

809.4 
238.9 
–
(38.9)
38.8 
2.3

1,050.5 
(48.2)

1,002.3 
(400.0)

602.3 

56.6 
3.0 
(436.5)
360.7 
(17.6)
98.0 

64.2 

666.5 

1Included within cash inﬂow from continuing operating activities is a cash inﬂow attributable to acquired operations of £15.7m.

2In relation to discontinued operating activities, cash outﬂows of £nil (last year £24.4m ) and £0.5m (last year £5.8m) were incurred in respect of corporation tax
and ﬁxed assets purchases respectively.

MARKS AND SPENCER GROUP PLC 55

29 ANALYSIS OF CASH FLOWS GIVEN IN THE CASH FLOW STATEMENT

A Exceptional operating cash ﬂows
UK restructuring costs
Closure of Lifestore
Defence costs
Board restructure
Head ofﬁce relocation
Restructuring of general merchandise logistics operations

Exceptional operating cash outﬂow

B Management of liquid resources
Decrease/(increase) in cash deposits treated as liquid resources
Net sale of government securities
Net sale/(purchase) of listed investments
Net purchase of unlisted investments

Cash inﬂow/(outﬂow) from decrease/(increase) in liquid resources

C Financing
Increase/(decrease) in bank loans, overdrafts and commercial paper treated as ﬁnancing
Drawdown of syndicated bank facility
(Redemption)/issue of medium term notes
Redemption of securitised loan notes
Increase/(decrease) in other creditors treated as ﬁnancing

Debt ﬁnancing as shown in analysis of net debt (see note 31)
Purchase of own shares
Tender Offer expenses
Net sale/(purchase) of own shares held by employee trusts
Redemption of B shares
Shares issued under employees’ share schemes

Net cash (outﬂow)/inﬂow from (decrease)/increase in ﬁnancing

2005
£m

(27.0)
(3.1)
(36.2)
(7.7)
(12.6)
(0.7)

(87.3)

55.7
7.8
3.3
(0.1)

66.7

649.0
200.0
(95.2)
(2.8)
6.6

757.6
(2,300.0)
(14.9)
0.6
(19.2)
68.4

(1,507.5)

Group
2004
£m

(8.0)
–
–
–
(10.5)
(29.7)

(48.2)

(65.5)
44.6
(67.9)
(0.2)

(89.0)

(22.3)
–
441.7
(2.5)
(3.3)

413.6
(54.4)
–
(3.6)
(33.4)
24.8

347.0

30 ACQUISITION AND DISPOSALS
A Acquisition of per una
As described in note 13, on 4 October 2004 the Group acquired the per una group of companies for a total consideration of £125.9m.

Net assets acquired1
Goodwill

Consideration

Consideration satisﬁed by:
Cash

£m

0.4
125.5

125.9

125.9

1Net assets acquired include £1.4m of assets offset by £1.0m of liabilities. There were no fair value adjustments. The Group has adopted acquisition
accounting for the acquisition of the per una group of companies.

Per Una Group Limited was a newly formed entity into which the net assets and liabilities acquired were transferred immediately prior to the acquisition date.
As separate accounts were not maintained for this entity in the period prior to the acquisition date, separate ﬁgures for proﬁt after tax are not available. Based
on the available information, the proﬁt before tax attributable to the acquired business in the year to 31 March 2004 and in the six months prior to acquisition
was approximately £17m and £15m respectively. These pre-acquisition ﬁgures for the acquired business have been adjusted to reﬂect the post acquisition
structure for the per una group. In the six months prior to acquisition, the value of goods purchased from the acquired business was £85.2m.

56 MARKS AND SPENCER GROUP PLC

Notes to the ﬁnancial statements continued

30 ACQUISITION AND DISPOSALS continued
B Disposal of Marks and Spencer Retail Financial Services Holdings Limited
As described in note 4C, on 9 November 2004 the Group disposed of its interest in Marks and Spencer Retail Financial Services Holdings
Limited to HSBC Holdings plc.

Tangible ﬁxed assets
Debtors
Prepayments
Cash and current asset investments
Bank loans and overdrafts
Creditors: amounts falling due within one year
Creditors: amounts falling due after more than one year

Net assets disposed1
Proﬁt on disposal (see note 4C)

Disposal proceeds (net of costs)1
Less net cash disposed in net assets sold

Net cash ﬂow from disposal

1Proﬁt on disposal is analysed as follows:

Agreed sale proceeds (net of costs)
Less: pre-sale dividend

Net proceeds
Net assets (before pre-sale dividend)
Less: pre-sale dividend

Net assets disposed

Proﬁt on disposal

31 ANALYSIS OF NET DEBT

Net cash:
Cash at bank and in hand (see note 19C)
Less: deposits treated as liquid resources (see below)

Bank loans, overdrafts and commercial paper (see note 22B)
Less: amounts treated as ﬁnancing (see below)

Net cash per cash ﬂow statement

Liquid resources:
Deposits included in cash (see above)
Current asset investments (see note 17)

Liquid resources per cash ﬂow statement

Debt ﬁnancing:
Bank loans, overdrafts and commercial paper treated 

as ﬁnancing (see above)

Syndicated bank facility (see note 22B)
Medium term notes (see note 22B)
Securitised loan notes (see note 22B)
Other creditors (see note 22B)

Debt ﬁnancing (see note 29C)

Net debt

£m

12.5
2,517.3
71.6
225.4
(5.6)
(1,995.1)
(501.4)

324.7
208.9

533.6
(56.6)

477.0

£m

533.6

324.7

208.9

£m

768.6 
(235.0)

559.7
(235.0)

At 4 April
2004
£m

Cash ﬂow
£m

Exchange
and other
Disposal movements
£m

£m

At 2 April
2005
£m

394.7
(120.6)

274.1

(126.0)
55.6

(70.4)

203.7

120.6
325.9

446.5

(55.6)
–
(2,196.5)
(316.0)
(76.8)

(121.0)
55.7

(65.3)

(92.5)
94.0

1.5

(63.8)

(55.7)
(11.0)

(66.7)

(649.0)
(200.0)
95.2
2.8
(6.6)

(62.2)
–

(62.2)

5.6
–

5.6

1.1
0.1

1.2

–
–

–

(56.6)

1.2

–
(247.9)

(247.9)

555.0
–
454.4
–
78.2

212.6
(64.8)

147.8

(212.9)
149.6

(63.3)

84.5

64.8
67.0

131.8

(149.6)
(200.0)
(1,646.9)
(313.6)
(5.2)

(2,315.3)

(2,099.0)

(0.1)
–

(0.1)

–
–
–
(0.4)
–

(0.4)

0.7

(2,644.9)

(757.6)

1,087.6

(1,994.7)

(888.1)

783.1

MARKS AND SPENCER GROUP PLC 57

32 COMMITMENTS AND CONTINGENT LIABILITIES

A Commitments in respect of properties in the course of development

2005
£m

34.5

Group
2004
£m

74.9

B Marks and Spencer (Ireland) Limited and its subsidiary Aprell Limited have availed themselves of the exemption provided for in S17 
of the Companies (Amendment) Act 1986 (Ireland) in respect of the documents required to be annexed to their annual returns.

C Other material contracts:

In the event of a material change in the trading arrangements with certain warehouse operators, the Group has a commitment to
purchase ﬁxed assets, at values ranging from historical net book value to market value, which are currently owned and operated by
them on the Group’s behalf.

D Commitments under operating leases:

At 2 April 2005, the Group had annual commitments under operating leases as follows:

Expiring within one year
Expiring in the second to ﬁfth years inclusive
Expiring in more than ﬁve years

Land &
buildings
£m

1.7
8.6
114.3

124.6

2005

Other
£m

0.5
3.0
–

3.5

Land &
buildings
£m

1.2
14.6
99.7

115.5

2004

Other
£m

0.4
3.1
–

3.5

33 FOREIGN EXCHANGE RATES
The principal foreign exchange rates used in the ﬁnancial statements are as follows (local currency equivalent of £1):

Euro
US dollar
Hong Kong dollar

Weighted average
sales rate
2004

2005

1.46
1.85
14.41

1.44
1.69
13.23

Weighted average
proﬁt rate
2004

2005

1.46
1.86
14.47

1.43
1.71
13.44

Balance sheet rate
2005
2004

1.46
1.89
14.73

1.50
1.85
14.39

34 RELATED PARTY TRANSACTIONS
There were no material transactions with related parties as deﬁned by FRS 8 – ‘Related Party Transactions’, with the exception 
of transactions with M&S Money (see note 4), the Hedge End joint venture (see notes 15A and 20) and per una (see note 30A).

58 MARKS AND SPENCER GROUP PLC

Group ﬁnancial record

Proﬁt and loss account
Turnover

Continuing operations
Discontinued operations

2005
52 weeks
£m

2004
53 weeks
£m

2003
52 weeks
£m

2002
52 weeks
£m

2001
52 weeks
£m

7,710.3
232.0

7,971.5
330.0

7,689.2
329.9

7,268.6
866.8

6,979.5
1,096.2

Total turnover (excluding sales taxes)

7,942.3

8,301.5

8,019.1

8,135.4

8,075.7

Operating proﬁt
Continuing operations

United Kingdom
Overseas
Excess interest charged to cost of sales 
of Financial Services

Discontinued operations

Total operating proﬁt

Analysed as:

Before exceptional operating charges
Exceptional operating charges

Provision for loss on operations to be discontinued
Proﬁt/(loss) on sale/closure of businesses
(Loss)/proﬁt on disposal of property and other ﬁxed assets
Net interest (expense)/income
Other ﬁnance income/(charge)

Proﬁt before taxation
Taxation on ordinary activities
Minority interests

Proﬁt/(loss) attributable to shareholders
Dividends

Proﬁt/(loss) for the period

520.7
65.0

–

585.7
32.3

618.0

709.4
(91.4)

–
218.6
(0.4)
(102.3)
11.4

745.3
(158.3)
–

587.0
(203.3)

383.7

719.9
47.4

–

767.3
56.6

823.9

866.0
(42.1)

–
–
18.7
(45.8)
(15.2)

781.6
(229.3)
–

552.3
(263.2)

289.1

599.9
42.8

–

642.7
86.4

729.1

773.0
(43.9)

–
(1.5)
1.6
(40.5)
27.0

715.7
(208.8)
0.4

507.3
(246.0)

261.3

505.2
33.3

6.4

544.9
98.9

643.8

643.8
–

–
(366.7)
41.2
17.6
–

335.9
(182.5)
(0.4)

153.0
(238.9)

(85.9)

308.3
41.9

7.9

358.1
82.4

440.5

467.0
(26.5)

(224.0)
(1.7)
(83.2)
13.9
–

145.5
(149.5)
(1.5)

(5.5)
(258.3)

(263.8)

Comparatives for 2002 and 2001 were not restated following the adoption of FRS 17 – ‘Retirement Beneﬁts’, Application Note G of 
FRS 5 – ‘Revenue Recognition’ and UITF 38 – ‘Accounting for ESOP Trusts’ in 2004. Comparatives for 2001 were restated following 
the adoption of FRS 19 – ‘Deferred Taxation’ in 2002.

Balance sheet
Intangible ﬁxed assets
Tangible ﬁxed assets
Fixed asset investments
Current assets

Total assets
Creditors: amounts falling due within one year

Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities and charges
Net post-retirement liability

Net assets

Cash ﬂow
Net cash inﬂow from operating activities
Dividends received from joint venture
Returns on investments and servicing of ﬁnance
Taxation
Capital expenditure and ﬁnancial investment
Acquisitions and disposals
Equity dividends paid

Cash inﬂow/(outﬂow) before management of liquid

resources and ﬁnancing
Management of liquid resources
Financing

(Decrease)/increase in cash

MARKS AND SPENCER GROUP PLC 59

2005
52 weeks
£m

2004
53 weeks
£m

2003
52 weeks
£m

2002
52 weeks
£m

2001
52 weeks
£m

122.4
3,316.1
9.0
837.5

4,285.0
(1,289.3)

2,995.7
(1,919.7)
(80.4)
(474.2)

–
3,497.6
10.0
3,869.5

7,377.1
(1,884.7)

5,492.4
(2,519.6)
(49.3)
(469.5)

–
3,435.1
29.7
3,246.3

6,711.1
(1,710.9)

5,000.2
(1,810.0)
(186.1)
(895.8)

–
3,381.2
50.3
3,760.7

7,192.2
(1,750.8)

5,441.4
(2,156.3)
(203.8)
–

–
4,118.9
58.3
3,516.2

7,693.4
(1,981.6)

5,711.8
(735.1)
(395.3)
–

521.4

2,454.0

2,108.3

3,081.3

4,581.4

2005
52 weeks
£m

2004
53 weeks
£m

2003
52 weeks
£m

2002
52 weeks
£m

2001
52 weeks
£m

1,575.4
–
(101.6)
(166.7)
(113.6)
363.8
(236.9)

1,320.4
66.7
(1,507.5)

(120.4)

666.5
–
(49.8)
(220.4)
(293.9)
51.3
(247.1)

(93.4)
(89.0)
347.0

164.6

1,168.7
8.0
(46.2)
(216.9)
(294.4)
(38.8)
(225.4)

355.0
(46.9)
(712.3)

(404.2)

1,093.7
–
36.8
(179.4)
176.0
261.6
(256.7)

1,132.0
(29.1)
(730.2)

372.7

676.4
–
12.6
(164.6)
(258.2)
5.9
(258.6)

13.5
263.7
(265.4)

11.8

26.4

Increase/(decrease) in net debt deﬁned by FRS 1

104.3

163.3

(75.6)

629.2

60 MARKS AND SPENCER GROUP PLC

Group ﬁnancial record continued

Key performance measures

Gross margin1

Net margin1

Gross proﬁt

Turnover

Operating proﬁt

Turnover

2005
52 weeks

2004
53 weeks

2003
52 weeks

2002
52 weeks

2001
52 weeks

34.8%

35.3%

34.8%

34.4%

32.6%

7.6%

9.6%

8.4%

7.5%

5.1%

Net margin excluding exceptional items1

8.8%

10.2%

8.9%

7.5%

5.5%

Proﬁtability1

Proﬁt before tax

Turnover

6.4%

9.1%

8.2%

8.3%

4.1%

Proﬁtability excluding exceptional items1

7.6%

9.4%

8.8%

7.7%

5.7%

Earnings per share
(Deﬁned by FRS 14)

Standard earnings

Weighted average ordinary
shares in issue

29.1p

24.2p

21.8p

5.4p

(0.2)p

Earnings per share adjusted for exceptional items

21.9p

24.7p

23.3p

16.3p

11.2p

Dividend per share

Dividend cover2

Proﬁt attributable to shareholders

Dividends

12.1p

11.5p

10.5p

9.5p

9.0p

2.9x

2.1x

2.1x

2.2x

n/a

Return on equity2

Proﬁt attributable to equity shareholders

Average equity shareholders’ funds

41.4%

25.2%

22.4%

11.5%

(0.1)%

Retail debt + net post-retirement liability

Retail debt + net post-retirement liability
+ retail shareholders’ funds 

Operating proﬁt before depreciation
and operating lease charges

Fixed charges3

Retail gearing

Retail ﬁxed charge cover

Net debt

Capital expenditure

84.5%

44.7%

53.0%

27.0%

n/a

4.1x

7.3x

6.9x

12.6x

10.2x

£2,099.0m £1,994.7m £1,831.4m £1,907.0m £1,277.8m

£219.6m £433.5m £311.0m £290.5m £255.7m

1Based on results from continuing operations only.

2Stated before goodwill written off of £368.2m in 2002, dividend cover and return on equity are 0.6 times and 3.4% respectively after writing off of goodwill.

3Fixed charges are deﬁned as interest and operating lease charges.

MARKS AND SPENCER GROUP PLC 61

Index

A

Page

F

Page

P

Accounting policies
Acquisition and disposals
Assets in the course of construction
Audit committee
Auditors’ remuneration
Auditors’ report
Authorised share capital

33
55
45
12
36
29
52

B

B shares
Balance sheets
Borrowing facilities

C

Capital commitments
Capital expenditure
Cash ﬂow statement
Chairman’s statement
Charitable donations
Chief Executive’s review
Contingent liabilities
Corporate governance
Cost of sales
Creditors
Currency risk
Customer advances

D

Debtors
Deferred taxation
Depreciation
Diluted earnings per share
Directors’ emoluments
Directors’ interests
Directors’ report
Directors’ responsibilities
Dividend cover
Dividend per share

E

Earnings per share
Employee emoluments
Employee numbers
Equity shareholders’ funds
Exceptional items

52, 53
7, 31
8, 50

57
6, 45, 60
32
1
28
2
57
11
36
49
9, 52
47

47
38, 51
36, 45
30, 39
21
26
27
26
60
30, 38, 60

30, 39, 60
39
40
31
5, 37, 55

Financial assets
Financial instruments
Financial liabilities
Financial record
Financial review
Financial Services
Fixed charge cover
Foreign exchange
Free cash ﬂow

G

Gearing (retail)
Geographical analysis
Going concern
Goodwill
Gross proﬁt

I

Intangible ﬁxed assets
Interest
International Retail
Investment properties
Investments
Issued share capital
International Financial Reporting 
Standards

J

Joint venture

L

Liquid resources

M

48
51
49
58
3
5, 37, 56
8, 60
57
7

7, 8, 60
35
10
45, 53
36

45
37
5
46
46, 48
52, 53

10

46, 49

55

Margin (gross and net)

36, 60

N

Net debt
Non-equity shareholders’ funds
Notes to the ﬁnancial statements

8, 32, 56, 60
31
33

O

Operating assets
Operating costs
Operating leases
Operating proﬁt
Ordinary shares
Occupancy costs

35
4, 36
36, 57
30, 35, 36
52, 53
36

Pensions
Proﬁt and loss account
Proﬁt and loss reserve
Proﬁtability
Property valuation
Provisions

Q

Quasi-subsidiary

R

Related party transactions
Remuneration report
Reserves
Retained proﬁt
Return on equity
Risk management

S

Segmental information
Share buy back
Share capital
Share Incentive Plan
Share issues
Share options
Shareholders’ funds
Social security
Stock
Subsidiary undertakings
Substantial shareholdings
Swaps

T

Tangible ﬁxed assets
Taxation
Tender Offer
Treasury management
Turnover

U

UK Retail

Page

9, 42
30
53
60
7, 45
51

47

57
16
53
30
60
14

35
27, 52
52, 53
40
27, 52
22, 23, 40, 42
31, 53, 54
39
31
47
27
9, 49, 51 

45
38
27, 54
8
30, 35, 36

4

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Additional copies of this document and the
Annual review and summary ﬁnancial
statements 2005 or an audio tape or CD,
giving highlights can be obtained by calling
0800 591 697. 

Further information for shareholders can be
found in the Annual review and summary
ﬁnancial statement 2005 on pages 28 and 29.

www.marksandspencer.com