Marks and Spencer Group PLC Annual Report 2010

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FY2010 Annual Report · Marks and Spencer Group PLC

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marksandspencer.com

Read our online Annual Report and How We Do Business
Report at marksandspencer.com/annualreport2010

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What’s in this report?
Table of contents



About Us
See under
flap for the
M&S Overview

Annual report and financial statements 2010

Directors’ report

Overview

01 Chairman’s overview by Sir Stuart Rose
06 Management Board
07

Introduction from Marc Bolland

Performance & KPIs

08 Performance overview by Ian Dyson
10 Key performance indicators

Brand & Marketplace

12 Our brand by Steven Sharp
14 Our marketplace

Operating & Financial review

16 What we sell
Womenswear
Lingerie
Menswear
Kidswear
Home
Food

28 How we sell Multi-channel
32 Where we sell International
34 Efficient delivery IT, Logistics & Supply Chain
36 How we do business Plan A
40 Our people Being an employer of choice
42

Financial review

Governance

44 Overview and Board of Directors
46 Governance report
58 Remuneration report
72 Other disclosures
77 Auditors report

p01

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p08

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p12

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p16

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p44

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Financial statements and other information
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Financial statements

p78

78 Consolidated income statement
78 Consolidated statement of comprehensive income
79 Consolidated statement of financial position
80 Consolidated statement of changes in equity
81 Consolidated cash flow information
82 Notes to the financial statements
112 Company income statement
112 Company statement of financial position
113 Company statement of changes in shareholders’ equity
113 Company statement of cash flows
114 Company notes to the financial statements

116 Key performance measures
117 Shareholder information
120

Index

marksandspencer.com

Read our online Annual Report and How We Do Business
Report at marksandspencer.com/annualreport2010

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What’s in this report?
Table of contents



About Us
See under
flap for the
M&S Overview

Annual report and financial statements 2010

Directors’ report

Overview

01 Chairman’s overview by Sir Stuart Rose
06 Management Board
07

Introduction from Marc Bolland

Performance & KPIs

08 Performance overview by Ian Dyson
10 Key performance indicators

Brand & Marketplace

12 Our brand by Steven Sharp
14 Our marketplace

Operating & Financial review

16 What we sell
Womenswear
Lingerie
Menswear
Kidswear
Home
Food

28 How we sell Multi-channel
32 Where we sell International
34 Efficient delivery IT, Logistics & Supply Chain
36 How we do business Plan A
40 Our people Being an employer of choice
42

Financial review

Governance

44 Overview and Board of Directors
46 Governance report
58 Remuneration report
72 Other disclosures
77 Auditors report

p01



p08



p12



p16



p44



Financial statements and other information


Financial statements

p78

116 Key performance measures
117 Shareholder information
120

Index

About M&S Marks & Spencer is one of the UK’s leading retailers with over 21 million customers
visiting our stores every week. We sell high quality, great value clothing and home products and
outstanding quality food. We source our products responsibly from 2,000 suppliers around the
world. Over 76,000 people work for M&S both in the UK and in 41 territories overseas, where we
have a growing international business.

Our core values of Quality, Value, Service, Innovation and Trust are as important to us today
as they were when M&S was founded over 125 years ago.

What we sell Our core UK business

With an annual turnover of £8.4bn*, our UK business has a broadly even
split between General Merchandise (clothing and home) and Food.

Page 16 

General Merchandise £4.1bn sales (+4.0%)*
With more than 1 in 10 clothing items bought from M&S,
we remain the UK’s largest clothing retailer and the first
choice for stylish, great value clothes for the whole family.
We lead the market in womenswear, lingerie and menswear
and have an expanding kidswear and home business.

Market share (value)

11.0%
11.2%

Market share (volume)

Source: Kantar Worldpanel

Food £4.3bn sales (+1.8%)*
We are the UK’s leading provider of high quality food,
selling everything from fresh produce and groceries,
to partly-prepared meals and ready meals and an
award winning range of wines. Underpinning this is
our commitment to healthy eating, ethical sourcing
and innovation.

Market share

3.8%

Source: Kantar Worldpanel

How we sell Multi-channel

Page 28 

Customers shop with M&S in many ways – in stores, online or over the phone. Our aim is that
everyone receives the same consistently high level of service from purchase through to delivery.

Our UK stores
We have 690 stores across the UK – in a wide range of
convenient locations – from high streets to retail parks,
train stations to airports. Over the past four years we have
transformed these stores into bright and contemporary
destinations with a range of hospitality options.

M&S Direct £413m sales (+27%)*
M&S Direct is key to improving customer convenience and
service including via our website and our newly launched
‘Shop Your Way’ facility. We are on target to achieve
£500m in sales by 2010/11.

690 UK stores:

10 Premiere

42 Major

242 High Street

46 Outlets

156 Simply Food wholly-owned

194 Simply Food franchises

M&S Direct:

E-commerce website

Home catalogue

Flowers & wine delivery

Hampers

Food to Order

lunchtogo

Highlights from the past year

The statutory results for the year are for the 53 weeks ended
3 April 2010. In order to be able to compare these with
last year’s 52 week period, where appropriate, the 52 week
results have been stated. The Finance Review on page 42
explains the calculation of the 52 week results.

In September 2009 Kantar Worldpanel adjusted its market share data for the
period to March 2009. The market share data in this report is based on these
more accurate figures.

Group revenue

£9.5bn
+5.2%

(53 weeks)

£9.3bn
+3.2%

(52 weeks)

Adjusted Group operating profit

£843.9m
+9.8%

(53 weeks)

£779.3m
+1.4%

(52 weeks)

Group profit before tax

Adjusted Group profit before tax

£702.7m
–0.5%

(53 weeks)

£640.6m
–9.3%

(52 weeks)

Interim + final dividend

5.5p+9.5p

Total dividend 2009/10

=15.0p

£694.6m
+14.9%

(53 weeks)

£632.5m
+4.6%

(52 weeks)

Adjusted earnings per share

33.0p
+17.9%

(53 weeks)

30.0p
+7.1%

(52 weeks)

For all our full and detailed key
performance indicators See p10

10%
off

Where we sell International

Page 32 

How we do business Plan A

Page 36 

International £949m sales (+5.7%)*
With a portfolio of over 320 owned and franchised stores
in 41 territories we continue to grow our International
business. Our mix of ownership models and countries
enabled us to perform well over the past year even when
individual markets were weak.

Over the past three years, our eco and ethical plan, Plan A,
has helped us reduce our environmental impact, develop
new sustainable products and services and improve the lives
of people in our local communities. This year we extended
our plan to involve all our customers and employees and to
set ourselves the ambitious goal of becoming the world’s
most sustainable major retailer by 2015.

Why go online?
marksandspencer.com/annualreport2010
If you haven’t already tried it, visit our easy-to-use, fully interactive
online Annual Report. Many shareholders are now benefiting from
more accessible information and helping the environment too.

It’s a more engaging and interactive experience

It’s printable as individual pages

It saves paper and costs

*52 weeks.

This report is printed on Revive Pure uncoated, a 100%
recycled paper made from post-consumer collected waste.
Revive Pure uncoated is manufactured to the certified
environmental management system ISO 14001.

Designed and produced by Radley Yeldar ry.com
Printed by Royle Print

Our core values of Quality, Value, Service, Innovation and Trust are as important to us today
as they were when M&S was founded over 125 years ago.

What we sell Our core UK business

With an annual turnover of £8.4bn*, our UK business has a broadly even
split between General Merchandise (clothing and home) and Food.

Page 16 

Market share (value)

11.0%
11.2%

Market share (volume)

Source: Kantar Worldpanel

Market share

3.8%

Source: Kantar Worldpanel

How we sell Multi-channel

Page 28 

Customers shop with M&S in many ways – in stores, online or over the phone. Our aim is that
everyone receives the same consistently high level of service from purchase through to delivery.

690 UK stores:

10 Premiere

42 Major

242 High Street

46 Outlets

156 Simply Food wholly-owned

194 Simply Food franchises

M&S Direct:

E-commerce website

Home catalogue

Flowers & wine delivery

Hampers

Food to Order

lunchtogo

Highlights from the past year

In September 2009 Kantar Worldpanel adjusted its market share data for the
period to March 2009. The market share data in this report is based on these
more accurate figures.

Group revenue

£9.5bn
+5.2%

(53 weeks)

£9.3bn
+3.2%

(52 weeks)

Adjusted Group operating profit

£843.9m
+9.8%

(53 weeks)

£779.3m
+1.4%

(52 weeks)

Group profit before tax

Adjusted Group profit before tax

£702.7m
–0.5%

(53 weeks)

£640.6m
–9.3%

(52 weeks)

Interim + final dividend

5.5p+9.5p

Total dividend 2009/10

=15.0p

£694.6m
+14.9%

(53 weeks)

£632.5m
+4.6%

(52 weeks)

Adjusted earnings per share

33.0p
+17.9%

(53 weeks)

30.0p
+7.1%

(52 weeks)

For all our full and detailed key
performance indicators See p10

10%
off

Where we sell International

Page 32 

How we do business Plan A

Page 36 

It’s a more engaging and interactive experience

It’s printable as individual pages

It saves paper and costs

*52 weeks.

Designed and produced by Radley Yeldar ry.com
Printed by Royle Print

To find out more, visit marksandspencer.com/annualreport2010

Chairman’s overview
by Sir Stuart Rose

Overview

Performance & KPIs

Brand & Marketplace



p14 

p20 

Operating & Financial review p26 

Governance

Financial statements

p50 

p78 

Sir Stuart Rose Chairman

“Leading your very special
business for the last six years
has been a pleasure and
a privilege.”

A platform for growth
This year M&S returned to growth, demonstrating the resilience
of the brand through difficult times. 2009/10 has been about
leading the business through the recession without losing sight
of our long-term plan or our core values.

We remain committed to building a world-class retailer
through increasing the pace of change and driving operational
excellence in the business; building our multi-channel capability;
growing our international portfolio; and, as the economy returns
to a stronger footing, reinvigorating our brand communications.
Our progress was interrupted – but not altered – by the
recession. Last year, we continued to implement short-term
objectives to guide M&S through the economic downturn.
As a result of this decisive action our long-term strategy
remains in place. We have built a strong platform for growth
and have improved or maintained market share in all our
core areas.

We grew because we managed our costs prudently, listened

and responded to our customers’ changing needs and stayed
true to our core values of Quality, Value, Service, Innovation
and Trust, reminding our customers of what makes M&S
different. This year we have worked hard to further improve
our quality and our customers have told us they have noticed
this improvement.

A year ago, I told you the Board had cut the dividend by

20.9%. This was not an easy decision but it gave us the
flexibility to continue to invest in the business despite the
downturn. Although we scaled back investment in new stores
we continued to invest in our infrastructure, particularly our
supply chain and IT systems.

We also invested in our margins, to give customers the
extra value they were looking for without compromising quality.
Whilst some retailers attempted to meet this need by repositioning
themselves as ‘low cost’, M&S continued to stand for value
and not just price – an approach that is serving us well as
consumer confidence returns.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Overview

Chairman’s overview continued

QUALITY

Above: Wrapping up As Britain’s coldest winter in
decades took hold customers turned to M&S to
keep them cosy. In December we sold enough
knitwear to clothe every woman between the ages
of 20 and 84 living in London, with sales of
women’s knitwear up 18%.

You will see from Ian Dyson’s finance review
on page 8 that Group sales increased by
3.2%. Positive UK like-for-like sales have
returned, up 0.9% and we have seen growth
across all parts of the business, as the
external market conditions improved and our
customers became more confident.
Food has now delivered a sixth

consecutive quarter of growth. As outlined
in John Dixon’s review on page 24 this has
been achieved by better value, availability
and product innovation, whilst continuing
to deliver outstanding quality. The pace of
development in Food will not slow and this
year we committed to renewing 25% of
our food range every year.

Our clothing market share continues
to grow, up 0.3% to 11%, as our customers
have started to invest in their wardrobes
again. Feedback from them tells us we have
got the products right and are in touch with
the latest trends. As set out in Kate
Bostock’s clothing review on page 16 we’ve
responded to customer requests for an easy
to wear, casual range with the launch of
Indigo Collection. We have also used our
‘good’, ‘better’ and ‘best’ pricing structure
to ensure we continue to offer something for
everyone, making it easy for our customers
to trade up and down within M&S to suit
their priorities and budgets.

Despite the economic challenges, we have
also renewed our commitment to Plan A,
our eco and ethical plan. We know
environmental issues matter to our
customers and that the recession has not
altered their level of concern. They continue
to look to M&S to lead the way, so this year
we set out our vision to become the world’s
most sustainable major retailer by 2015.

Since its launch in 2007, we have moved
from the implementation of Plan A to making
it the key driver of how we do business.
In doing so, we have become more efficient
and in 2009/10 alone Plan A generated
£50m additional profit, which has been
invested back into the business.

This year I worked with the Board to
identify Marc Bolland as my successor as
Chief Executive. Though we remain cautious
about the year ahead, the worst effects of
the recession are behind us. Furthermore,
M&S is in a stronger position and I am
convinced that Marc is the right man to lead
the business forward, as he brings a wealth
of experience to the role. As Chairman, I will
continue to work with the Board and with
the management team to ensure a smooth
transition until I leave the business.

Our performance this year*

Marks & Spencer has had a good year,
with our adjusted profits up 4.6% on last
year to £632.5m. Before the £80.9m bonus
we paid to our colleagues to thank them for
their extraordinarily hard work, profits were
at £713.4m, a 17.5% increase on 2008/09.

QUALITY & INNOVATION

Above: Extending the asparagus season
John Chinn has been growing asparagus for
M&S for over six years: “In 2003 I went to an
asparagus growers’ conference where an M&S
buyer gave a talk and invited any growers interested
in extending the season to come and see him.”

Since then John, with the help of M&S, has
doubled the length of the British season by
growing early varieties on the south facing slopes of
his Wye Valley farm. The later-cropping asparagus
are planted on the north facing slopes which are still
being harvested well into July.

PlAn A: YOUR GREEN IDEA

Trust In March we launched Your Green Idea
a major Plan A competition, offering a chance
to win £100,000 to ‘green’ an organisation,
such as a school or a local community group.

Your Green Idea invited people to share their
ideas for new, ‘green actions’ that M&S
could implement under Plan A, so that all of
our 21 million customers can get involved in
helping the environment.

For more information about Plan A see
p36 or visit marksandspencer.com/plana

* 52 weeks.

To find out more, visit marksandspencer.com/annualreport2010

Overview

Performance & KPIs

Brand & Marketplace



p14 

p20 

Operating & financial review p26 

Governance

Financial statements

p50 

p78 

Well Suited Over the last 12
months we’ve strengthened
our share of the menswear
market to 10.4% by value.
We’ve sharpened our brands,
such as Collezione, featured left,
which we relaunched in February.
Find out more about the work we
have done on page 21.

Find out more at
marksandspencer.com

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Overview

Chairman’s overview continued

INNOVATION

left: Reversy Percy Customers told
us they like to eat Percy Pigs jelly ears first so
in March 2010 we reversed him to give fans more
of their favourite bits. Percy Pig is exclusive to
M&S and has his own Facebook Appreciation
Society, with over 200,000 members and over
1.5 million Percy Pigs are eaten a week!

We remain focused on helping our customers
shop with us whichever way they want,
bringing together our various shopping
channels to provide greater convenience
and flexibility. As explained on page 28 of
the report, this year we launched ‘Shop Your
Way’, a new ordering service that has been
rolled-out to over 300 stores, allowing
customers to place orders either in stores,
online or over the phone, for delivery to
either a nominated address or free of charge
to their nearest store.

Our International sales were up 5.7%,

despite difficult trading conditions in the
Republic of Ireland and Greece. We remain
confident in our International growth plans
and this year we have focused on building
sustainable businesses in emerging
economies such as India and China.

Improvements across M&S are a result
of our consistent delivery of quality and value
to our customers. Through good times and
through adversity we have remained true
to our core values. It is these values that
continue to set M&S apart from the
competition and I believe they are more
relevant than ever before in our 125
year history.

Trust

Our customers know they can trust us to
do the right thing and nowhere is this
better demonstrated than through Plan A.
This year we raised the bar – setting

ourselves the ambitious goal of
becoming the world’s most
sustainable major retailer by 2015.

Our extended Plan A will reach further and
move us faster – covering every part of our
business and reaching out to our 2,000
suppliers in the UK and overseas and into
the homes of our 21 million customers.

We are also encouraging our 76,000
employees to live ‘greener lifestyles’ and
this is explained in more detail in our people
section on page 40. As part of this all
M&S employees are now entitled to a
paid volunteer day – so that we can give
something back to the communities
we serve.

By 2020 we aim to convert the 2.7 billion

individual M&S food, clothing and home
products sold each year, to ‘Plan A
products’, so that each carries at least
one sustainable or ethical quality. In doing
so, we will make a positive contribution
to the environment and society across
everything we do and everything we sell.
Plan A is not just the right thing to
do ethically, it also makes commercial
sense. By further embedding sustainability
into the way we do business we will
continue to become more efficient, develop
new markets and build customer loyalty.

125th anniversary

Against the backdrop of recession, our
125th anniversary celebrations served as a
rallying call to remind both customers and
employees of the values M&S has stood
for throughout its 125 year history. To this
effect, we brought back the Penny Bazaar
under the original slogan – ‘Don’t ask the
price it’s a penny’ – attracting over three
million customers in just three days.
As part of the celebrations we also set our
employees a target of raising £1.25m in just

TRUST

Above: The Marks in Time exhibition was
launched as part of our 125 celebrations.
It showcased the M&S journey from market stall to
international retailer, highlighting its role in British
cultural history since Michael Marks opened his
first stall in 1884. Held at the University of Leeds,
it features nearly 200 items from the M&S Company
Archive and marks the beginning of a unique
partnership which will see the entire archive relocate
to the University in 2011. Sir Stuart Rose and
Twiggy opened the exhibition alongside University
Vice-Chancellor, Michael Arthur.

See more at marksintime.marksandspencer.com

SERVICE & TRUST

Below: Three lions One Tailor
As World Cup fever hits the
country this summer we’ll be
kitting out the England squad for
their trip to South Africa. Fans
won’t be left out and they can get
their hands on the same suits for
£199 and waistcoat for £35.

Overview

Performance & KPIs

Brand & Marketplace



p14 

p20 

Operating & Financial review p26 

Governance

Financial statements

p50 

p78 

QUALITY & TRUST

left: Cashmere Goats John Worley, our knitwear
product technologist conducted a fact-finding visit
to Inner Mongolia to discover more about the age
old production of cashmere, which we use in our
luxury knits. John’s hosts showed him how they
comb and remove the goats’ hair by hand to
ensure it’s of the highest quality. You have to
comb one and a half goats to collect enough
fibre to produce one men’s jumper.

We have taken the business back to its core
values of Quality, Value, Service, Innovation
and Trust. We reconnected with our
customers and employees by focusing on
these values and launching the successful
‘Your M&S’ campaign, as well as Plan A.
Our revenues have grown by £1.9bn,
with International revenues doubling since
2004. We have significantly expanded our
UK store base, from 375 stores to almost
700 today including putting M&S in
previously under-represented locations –
like out-of-town and retail parks.

We have revitalised our clothing offer,
filling the gaps in our ranges, keeping up to
date with key trends and making our prices
much more competitive. We now offer
stylish, good value and great quality
products for all our customers – regardless
of their age, lifestyle or budget. Six years
ago, for example, only 12% of our total
clothing offer was at our opening price
points, compared to just under a third today.
The growth we’ve seen in our market

share shows us that this approach is
working. We have strengthened our
performance across all areas of clothing –
in womenswear, lingerie, menswear
and kidswear – and our market share
has risen to 11%.

To find out more, visit marksandspencer.com/annualreport2010

INNOVATION

Above: Show stopping desserts This year our
pudding experts created the inside-out trifle, with
layers of swiss roll on the outside holding a filling
of custard and raspberry jelly. Also popular was
the Snow Storm – inspired by old fashioned snow
globes it’s made using transparent vanilla jelly
interspersed with coconut flakes on a white
chocolate panna cotta base.

125 days. Across the country, employees
rose to the challenge, more than doubling
this target to raise £2.8m benefiting over
500 local charities.

Foundations for the future

In October we held an Investor Day to
explain in more detail our long-term change
programme, which we launched a year
ago as Project 2020. This year we have
begun to accelerate the pace of activity
to fundamentally transform the way M&S
does business. It is:

– delivering a step-change in the way we

service our customers’ needs and the way
we operate our business;
– increasing the pace of change and
operational execution;
– accelerating Multi-channel; and
– driving our International business.

Our investment will not only create a
solid platform for future growth but will
also deliver tangible customer benefits
– from improved on shelf availability to
more convenient delivery times.

Handing over a stronger business

As we welcome Marc Bolland as our new
Chief Executive, I would like to reflect briefly
on what has been achieved over the past six
years. Marks & Spencer is a significantly
stronger business today than it was when
I became Chief Executive in 2004.

QUALITY & INNOVATION

left: In print Our Limited Collection geometric print
dress was our take on the graphic prints displayed
on the 2009/10 catwalk. Using the latest digital
print technology, it was a hit with both customers
and the fashion press, named by Sunday Times
Style Magazine as ‘the best print dress on the high
street – ever.’

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Overview

Chairman’s overview continued

MANAGEMENT BOARD

1. Sir Stuart Rose Chairman*

2. Marc Bolland Chief Executive**

Ian Dyson Group Finance and Operations
Director***

4. Steven Sharp Executive Director, Marketing

Kate Bostock Executive Director,
General Merchandising

6. John Dixon Executive Director, Food

Clem Constantine Director, International,
Property and Store Development

8. Tanith Dodge Director, Human Resources

nayna McIntosh Director, Store
Marketing and Design

10. Steve Rowe Director, Retail and M&S Direct

11. Andrew Skinner Trading Director, per una

12. Darrell Stein Director, IT and Logistics

From 31 July 2010, will handover CEO role,

leaving the Company by March 2011

** Joined 1 May 2010
***

Resigned from the Company on 5 May 2010. Ian will
step down from the Board following the AGM on 14 July
and will leave the Company on 31 August 2010.

We have also built up our position as the
UK’s leading retailer of good quality, fresh
food. We have driven innovation while staying
true to our quality and ethical sourcing
principles. We have improved our pricing
and made our Food offer more convenient.
We now have 350 Simply Food stores
across the UK – in locations such as high
streets, railway stations and airports – up
from 100 in 2004.

Meanwhile we have made significant,
long overdue investment in the business.
Our total capital expenditure has been
around £3.5bn of which £2.2bn has been
invested in stores. Over 80% of our store
portfolio has been completely renovated and
we are building new logistics and delivery
systems, which are essential to the future of
our business – especially our two key areas
of growth, Multi-channel and International.
We have also invested in our people –

with training and career paths – and we
reinstated an active customer feedback
programme. We know our customer service
has improved because of this. Our mystery
shopping scores currently stand at 89%, up
from 70% when we introduced this measure
in 2006.

Finally, over the same period, I am pleased
to say that we have given back around
£4.6bn to our shareholders in dividends and
buy-backs.

The M&S team

Marc will be able to benefit from the wealth
of experience within the management team
that has led M&S over the last year.

In 2009, I announced that Kate Bostock

would take responsibility for our Home
division, bringing our entire General
Merchandise offer under her leadership.
Over the last 12 months we have seen the
benefits of this, with greater collaboration
and shared learning across the GM business
units. Similarly, the management of all our
shopping channels transferred to Steve
Rowe, allowing us to better focus on our
ambitions as a multi-channel retailer.

In September 2009, John Dixon was
promoted to the Board as Executive Director
of Food. Since his appointment as Director
of Food in July 2008, John has been
instrumental in improving the performance of
the Food division and returning it to positive
like-for-like sales.

To find out more, visit marksandspencer.com/annualreport2010

Overview

Performance & KPIs

Brand & Marketplace



p14 

p20 

Operating & Financial review p26 

Governance

Financial statements

p50 

p78 

Introduction

Marks & Spencer is a great brand and I am very
proud to have the opportunity to lead a company
with such a unique heritage. Since I arrived in May
I have been getting to know the business and our
customers and I am looking forward to working
with the team as we continue to build on the strong
foundations that have been put in place by Stuart.

Marc Bolland Chief Executive

Joined 1 May 2010

It has been a great pleasure and a privilege
to lead your very special business over
the past six years. I am confident that with
strong foundations in place, our core
values revitalised and a brand that inspires
confidence and recognition worldwide, M&S
is poised for an exciting new era of growth
under the direction of a new Chief Executive.

Sir Stuart Rose Chairman

In May 2010, Ian Dyson resigned from his
position as Group Finance & Operations
Director to join Punch Taverns plc as its
Group Chief Executive. On behalf of the
M&S Board, I would like to thank Ian for the
significant contribution he has made to M&S
over the last five years and wish him well
with his future career.

Our management team has worked
together throughout the recession, focusing
on both our long and short-term priorities,
enabling the business to emerge stronger and
ready to capitalise as the economy recovers.
The progress we have made would not
have been possible without the hard work
and commitment of our dedicated workforce
– particularly during the challenge of a
recession. I am delighted that we have been
able to pay all our staff a bonus this year.
I would like to say a personal thank you to
all of them.

QUALITY

Above: Super sweet carrots M&S organic carrots
are grown exclusively by Steven Jack on the wild
Moray coast in the shadow of the Grampian Mountains.
Long daylight hours in the summer mean sweeter,
better tasting carrots and the light sandy soils ensure
carrots with a fine skin that just need a gentle
brushing before cooking, so there is no need to
peel them.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Performance overview
Page Title
by Ian Dyson
Page Title continued

Ian Dyson Group Finance and Operations Director

Underlying cost savings

£145m

Group capital expenditure

£389m

net debt

£2.1bn

PlAn A: UK ECO FACTORY

Since its opening in 2008, our furniture
supplier’s first UK eco factory – the 150,000
sq ft Westbridge Furniture factory in Holywell,
Wales – has reduced its CO2 emissions by
48%, energy use by 56% and water
consumption by 30%. The factory is also
on target to send no waste to landfill by 2012.
At the same time it produces some of the
most stylish pieces in the M&S range.

For more information about Plan A see
p36 or visit marksandspencer.com/plana

* 52 weeks.

last year we took decisive action to give us the strength and flexibility we needed
to navigate the recession. As a result we have emerged in a stronger position and
delivered an improved performance, with an adjusted 52 week profit before tax of
£632.5m up 4.6% from £604.4m in 2008/09. Whilst we have tackled the short-term
issues caused by the downturn we have remained focused on our long-term
strategy. Over the last 12 months, we have continued to invest in M&S, building
a platform for future growth through Project 2020.

Our performance*

Cost management*

Total UK operating costs, excluding
bonuses, were £2,769m, an increase of
1.0%. Despite the pressure of increased
volumes, depreciation and inflation on
our cost base, through prudent cost
management we delivered savings of 5.3%
representing an underlying saving of £145m.

In addition, due to our significant
outperformance against our plan we have
paid a bonus of £81m to be shared by
employees across M&S.

Balance sheet management

Throughout 2009/10 we have remained
focused on improving our cash flows.
We reduced capital expenditure to £389m,
down from £652m in 2008/09 and have a
working capital inflow of £78m.

As a result we have generated a net
cash inflow of £412m after tax and dividend.
Focus on cash flow management has
enabled us to further reduce our net debt to
£2.1bn, from £2.5bn in 2008/09.

This year our Group sales were up 3.2% to
£9.3bn. A combination of improving market
conditions and our own efforts helped us
achieve an increase in UK sales of 2.9%,
with a strong performance in all areas
of our business. Despite tough trading
conditions, particularly in Republic of Ireland
and Greece, our International business
delivered a strong performance, with sales
up 5.7%.

GM has seen market share growth in
both value and volume, with sales up 4.0%.
Continued investment in our margins has
helped Food return to positive like-for-like
sales of +0.3%.

M&S Direct has delivered another good
performance, with sales increasing to £413m
and remains on track to deliver £500m
by 2010/11.

Margins*

Our UK gross margin was 41.2%, down 5 bps.
This reflects our continued investment in
Food margins to provide our customers with
the value they want, without compromising
quality. Food gross margin was down 95
bps at 30.6%, with investment in prices and
promotions partly offset by better buying
and a reduction in food waste. GM margin
was up 70 bps at 52.5%, despite the weak
sterling performance this year. Over the last
12 months we have worked with our
suppliers to manage currency pressures in
our supply chain and delivered tighter stock
control and management of markdowns.

INNOVATION

Right: Click to watch In December we launched
our iViewer TV – a British high street first. Viewers
can get BBC iPlayer straight to their screen with the
touch of a button. The TV also doubles as a digital
photoframe.

To find out more, visit marksandspencer.com/annualreport2010

Overview

Performance and KPIs

Brand & Marketplace

p01 



p20 

Operating & Financial review p26 

Governance

Financial statements

p50 

p78 

SERVICE

QUALITY

Above: Say it with flowers On Valentines Day
this year we delivered just under 30,000 bouquets
of flowers to customers up and down the UK.

Above: Store design We have now completed our
modernisation programme in over 80% of stores.

Refinancing

Dividend

We completed a buy-back of £200m
worth of bonds, enabling us to issue a new
longer term bond, taking advantage of the
favourable conditions in the debt capital
market. This has allowed us to strengthen
our long term position by extending the
average maturity life of our debt capital.

Defined Benefit Pension Scheme

In May 2010 we and the Trustees of our UK
Defined Benefit Pension Scheme agreed a
funding plan with a present value of £800m,
following the outcome of the Scheme’s
triennial actuarial valuation which showed a
deficit of £1.3bn at 31 March 2009.

The funding plan includes the following

contributions from M&S:

–

cash contributions of £35m per annum for
the first three years of the funding plan
increasing to £60m per annum until 2018.
This has a present day cash value of £376m;

–

£300m of value through the granting of
a further interest in the property-backed
partnership established between M&S and
the Pension Scheme in 2007. This new
interest entitles the Pension Scheme to
a fixed annual distribution of c. £36m for
15 years commencing in 2017 and a
capital sum in 2031 equal to the lower
of £350m or any funding deficit in the
Pension Scheme at that point in time; and

–

£124m of value through the transfer of
assets from existing US$ debt hedge
contracts held by M&S.

In May 2009 the Board made the difficult
decision to rebase the Group’s dividend
payment for 2009/10 to 15.0p per share to
provide us with greater flexibility during the
downturn. This decision resulted in a final
dividend of 9.5p per share (last year 9.5p).
Having rebuilt cover to two times, our policy
is to grow dividends in line with adjusted
earnings per share.

Investing for the future

In the midst of a recession, when it was easy
to focus only on the short-term, we decided
to re-examine our long-term strategy and
gave it a renewed sense of purpose, resulting
in the creation of Project 2020, which has
the following aims:

–

increase the pace of change and
operational execution
accelerate towards becoming a
multi-channel retailer
drive our International business

The overall objective of the programme is
to create long term sustainable growth in
shareholder value. This year we have
focused on three priorities – restructuring
our supply chain, implementing new IT
systems and driving operational execution.
There is more detail about our progress
in these specific areas on page 36.
These changes will deliver long-term
benefits including:

Improving our cost efficiency The
implementation of changes in our supply
chain and systems requires a capital
investment of £1bn by 2015/16. We expect
this to deliver cost efficiencies of around
£175m per year by 2012/13, rising to

£250m per year by 2015/16, made up of
£150m savings from our supply chain and
£100m from systems. We are on track
and this year we have achieved cost savings
of £35m.

Driving sales growth Through better
cataloguing and product control we will be
able to deliver improvements in on-shelf
availability. Customers have also started to
see tangible benefits, such as better
fulfilment in our online ordering.

Provide a platform for future profitable
growth Our current systems are outdated
and we need a better support infrastructure
so that we can grow profitably in both
Multi-channel and International. This year we
have made substantial progress, including
signing the lease on our new dedicated
e-commerce warehouse due to open in 2012.

looking ahead

Though market conditions have improved,
we remain cautious about the year ahead.
We are confident that the actions we have
taken have put the business in good financial
shape to weather uncertainty and emerge
strongly as the economy improves.

Throughout 2010/11 we will continue our
delivery of Project 2020, focused on our goal
of creating long-term sustainable growth.

Ian Dyson Finance and Operations Director

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Performance overview
Page Title
Key performance indicators
Page Title continued

Financial performance These financial performance indicators are based on the statutory 53 week period ended 3 April 2010.

Group revenue

£9.5bn
+5.2%

2009/10

2008/09

2007/08

2006/07

Adjusted Group operating profit*

£843.9m
+9.8%

2009/10

2008/09

2007/08

2006/07

Performance against our strategy

What we sell
Growing our core UK business

UK market share Clothing and footwear

£9,536.6m

£9,062.1m

£9.022.0m

£m

06/07

07/08

08/09

09/10

7,977.5 8,309.1 8,164.3 8,567.9

International

610.6

712.9

897.8

968.7

£8.588.1m

Total

8,588.1 9,022.0 9,062.1 9,536.6

£m

06/07

07/08

08/09

09/10

956.5

972.9

652.8

701.2

International

87.5

116.4

116.1

142.7

Total

1,044.0 1,089.3

768.9

843.9

£843.9m

£768.9m

£1,089.3m

£1,044.0m

UK market share Food

p16 

Analysis: During the year
we grew our value market
share and held on volume,
see page 16 onwards for
details of our clothing
business.

Source: Kantar Worldpanel

Value market share

11.0%

2008/09 10.7%
2007/08 11.0%
2006/07 11.1%

Volume market share

11.2%

2008/09 11.2%
2007/08 11.3%
2006/07 10.7%

Analysis: Our market share is slightly
down, reflecting the fact we were the
only retailer to lower prices during what
was an inflationary period. See page
24 for details on how we are working
to further improve our Food business.

Source: Kantar Worldpanel

3.8%

2008/09 3.9%
2007/08 4.3%
2006/07 4.2%

Average weekly UK footfall

Analysis: Around half of UK stores
have cameras fitted at the entrance
to allow us to track customer visits.
We calculate our average footfall by
analysing the ratios between visits
and sales in these stores and then
applying it to stores without cameras.

UK mystery shopping programme

Analysis: Mystery shoppers anonymously visit
all of our UK stores once a month – twice for
flagship stores – to evaluate the levels of
service, scoring factors such as how staff
welcome customers and the management of
store environment. This year over 6,500 visits
were conducted and we have seen a 5%
increase in service scores.

2006/07
21.0m

2007/08
21.8m

2008/09
21.6m

2009/10
21.0m

Average weekly footfall

21.0m

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

2009/10
2008/09

Visits completed

6,500
average
score 89%

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Adjusted Group profit before tax*

£694.6m
+14.9%

2009/10

2008/09

2007/08

2006/07

£694.6m

£604.4m

£1,007.1m

£965.2m

Group profit before tax

£702.7m
-0.5%

2008/09 £706.2m
2007/08 £1,129.1m
2006/07 £936.7m

Adjusted earnings per share*

33.0p

2008/09 28.0p
2007/08 43.6p
2006/07 40.4p

*The adjusted profit measures are stated before property disposals and exceptional items.

How we sell
Building our Multi-channel business

p28 

How we do business
Integrating Plan A across the business

p36 

M&S Direct sales

Improve carbon efficiency tonnes CO2e per 1000 sq ft

Analysis: We continue to invest
in our Direct business as part of
our commitment to become a
multi-channel retailer and remain
firmly on track to reach our £500m
target next year. See more on
page 28.

£413m*
+27%

Store, office, warehouse, business travel
and logistics carbon dioxide emissions in
tonnes CO2e per 1000 sq ft of salesfloor.
Residual emissions will be offset in 2012.

Why carbon efficiency?
Improving carbon efficiency reduces
green house emissions and costs.

2006/07
51*

2009/10
41* -20%

2012 target
0

Percentage of our stores refurbished since 2005

Improve store energy efficiency kWhs/sq ft

Analysis: Since 2005 we have
refurbished over 80% of our stores.
This year we opened 30 new
stores, adding approximately
3.2% of trading space. We continue
to invest in our stores to ensure
they offer a bright, contemporary
shopping environment.

However, this year our capital
expenditure has been focused on
laying the foundations for future
growth under Project 2020.

80%

Where we sell
Expanding our International business

p32 

International revenue as proportion of Group revenue

Analysis: Expanding our International
business is a key part of our future
plan and in 2007/08 we set a target
for it to account for 15-20% of
Group revenues within five years.
Our investment under Project 2020
will support this growth.

10.2%*
+0.3% pts

* 52 weeks.

Store energy usage in kWhs/sq ft
of sales floor

2006/07
67.9

2009/10
54.8† -19%

2012 target
51 -25%

Why energy efficiency?
Improving energy efficiency
reduces costs and helps to
meets the requirements of new
legislation effective from 2010.

Send no operational waste to landfill tonnes

Waste sent to landfill from M&S
stores, offices and warehouses
in tonnes

Why no waste to landfill?
Sending no waste to landfill will
reduce costs in the longer term
and help reduce carbon
emissions.

2006/07
69,000

2012 target
0

2009/10
46,000 -25%

* Recalculated in accordance with 2009 DEFRA/DECC carbon conversion factors

and reporting guidelines.

† Gas usage included in this calculation has been adjusted using standard degree days

to reflect the cold winter of 2009/10.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Our brand
by Steven Sharp

Steven Sharp Executive Director, Marketing

Our marketing campaigns remain a visible – and important way –
of communicating with our customers. Over the last 12 months we have
responded to the difficult market conditions by refocusing and increasing
our marketing activity, keeping the M&S brand fresh and relevant to our
customers’ changing needs. We are already seeing returns on this
investment, with improving sales across the business.

SERVICE

Above: Christmas wouldn’t be Christmas
Our ‘Christmas wouldn’t be Christmas without…’
campaign appealed to those customers – both
regular and occasional shoppers – who find it
impossible to imagine Christmas without M&S.
The result was our highest ever customer
recognition for an advertisment.

PlAn A: DOING THE RIGHT THInG

In Summer 2009 we
reflected our status as one
of Britain’s most trusted
brands through our Plan A
campaign – ‘Doing the right
thing’. Launched with a
‘manifesto’ setting out our
commitment to the highest
ethical credentials, the
campaign included a series of ads displaying
no nonsense user friendly expressions of why
we do what we do.

For more information about Plan A see
p36 or visitmarksandspencer.com/plana

Quality worth every penny

In 2009 we looked back over our 125 year
history and the core values M&S has always
stood for. ‘Quality Worth Every Penny’
is a simple message that demonstrated
the continued relevance of our founding
principles of Quality, Value, Service,
Innovation and Trust.

The campaign launched with a TV ad
to celebrate our 125th anniversary, taking
customers back to where M&S began
at Leeds Kirkgate market. In the midst of
a recession, the campaign resonated
particularly well, reassuring our customers
that M&S is a brand they can trust to deliver
quality and value.

We believe ‘Quality

Worth Every Penny’ has
ongoing relevance,
reinforcing the value for
money M&S offers and
this message continues
to underpin our
2010 campaigns.

new directions

In recent years our advertising has achieved
iconic status – however, though our core
values remain the same, M&S has not stood
still. As the economic situation slowly
improved in the latter part of the year, we felt
the time was right to refresh our marketing
activity and invest in a new look across our
advertising to better reflect our customers’
growing confidence.

This year we decided to take M&S Food

back into the heart of family life, with a
lighter, brighter campaign, fronted by
actress Caroline Quentin. The campaign
wraps up all of our core values in a single
story, capturing all the reasons why
customers turn to M&S – quality, innovative
products, provenance or simply good value
– in our new strap line – ‘Just because’.

As consumers showed greater willingness
to invest in their wardrobes, our clothing
campaign demonstrated the versatility
of the M&S range, encouraging customers
to ‘make your wardrobe earn its keep’.

Delivering

Our brand communications extend beyond
advertising – from our in-store promotions
through to our website they help us show
customers that we are in tune with their
changing needs. Investment in our marketing
activity delivers tangible benefits across the
business, with our internal measures pointing
to a direct correlation between improved
consumer perception of the M&S brand and
positive sales and profit growth.

Trust

M&S occupies a special place with the
British public and is repeatedly voted as one
of the UK’s most trusted brands. This is
demonstrated in the success of M&S Money
– which is celebrating 25 years. It continues
to perform strongly as consumers turn to
trusted brands like M&S for their financial
services. This year we launched our
Premium Club, which offers shopping and
travel benefits to M&S credit card holders.

looking ahead

The strength of the M&S brand has enabled
us to weather the recession and as we move
into 2010/11 we will continue to communicate
with our customers, delivering engaging,
relevant campaigns that bring our core
values to life.

Steven Sharp Executive Director, Marketing

To find out more, visit marksandspencer.com/annualreport2010

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Brand & marketplace

p01 

p14 



Operating & financial review p26 

Governance

Financial statements

p50 

p78 

new faces This year, Twiggy was
joined by a new line-up of celebrity
faces – popstar VV Brown, featured
on page 17, joins X-Factor judge
Dannii Minogue, Capital FM presenter
Lisa Snowdon and Brazilian
supermodel Ana Beatriz Barros
(featured). Customers responded
well to the upbeat, energetic feel of
the new ad and said it demonstrates
how M&S is in touch with fashion for
women of all ages.

Find out more at
marksandspencer.com

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Our marketplace
And how we have responded

CONSUMER CONFIDENCE INDEX

n
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3
0

p
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4
0

n
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p
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5
0

n
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-5

-10

-15

-20

-25

-30

-35

-40

-45

Customers are the heart of our business so it’s essential we understand what
they want from M&S. Our Customer Insight Unit (CIU) makes sure we are
listening to our customers, understanding what they think and how they behave.
Through a combination of market data analysis, research and customer
feedback, our CIU identifies emerging trends and how external factors are
impacting consumer behaviour. This ensures our customers’ needs are always
recognised in business decisions.

Source: CFK Consumer Confidence Index March 2010.

M&S CLOTHING RESPONSE

Our ‘good’, ‘better’, ‘best’ pricing structure
caters for ‘clever spending’, allowing
consumers to trade up or down to suit their
priorities. We’ve encouraged customers to
trade up by focusing on detailing and quality
fabrics in brands such as Autograph and
have extended Portfolio across footwear and
accessories so customers can update their
wardrobe and experiment with new trends.
See womenswear on page 16.

This section sets out some of the key trends
of the last year and outlines how M&S has
responded to them.

2009/10 MARKET OVERVIEW

Though Britain has returned to low levels
of economic growth, concerns about the
economy meant uncertainty continued to be
the main characteristic of the marketplace.
Consumer sentiment is that they’ve
‘weathered the storm’ and adapted well
in a difficult economic climate. As a
result consumer confidence levels have
doubled over the last 12 months, though
as illustrated in the index above, they
remain in negative territory.

However, increasing confidence has
not marked a return to frivolous spending.
Consumers remain cautious and have
adopted a trend for ‘clever spending’,
flexing their budget according to personal
priorities. Put simply, they are willing to
spend more, but only on the things that
matter to them.

M&S HOME RESPONSE

ClOTHInG MARKET TREnDS

The style credentials of M&S clothing have
been translated into our soft furnishings offer
to appeal to customers looking to spruce up
their home. We have focused on providing
great value, co-ordinated homeware so
customers can easily build an updated look.
See more on page 23.

Improving consumer confidence has seen the
clothing market return to growth this year.

Price remains one of the main drivers for
purchases, resulting in the continued growth
of the value market. However, after a year
of economising consumers have moved
beyond a wardrobe made up of cheaper
staples and started to invest in quality
versatile pieces, this trend is particularly
strong among the over 45s.

A greater appetite for investment pieces
has translated into growth in the mid-priced
clothing market and a strengthening position
in premium clothing.

Customers have sought easy, affordable
ways to experiment with key trends, such
as footwear and accessories.

In 2008/09 the lingerie market suffered as
women deemed luxurious underwear an
unnecessary extravagance and stuck to
basics, but this year women started to treat
themselves again.

HOME MARKET TREnDS

Mortgage lending remained broadly flat for
the year, providing little improvement to the
housing market.

Sales of large furniture and white goods
declined, as homeowners opted to stay
put and improve their existing home rather
than move.

In a slow market, consumers wanted to
‘individualise’ their home to give it a distinctive
stylish look – mixing and matching a range
of soft furnishings and accessories.

Shifting household demographics have
resulted in more people in their 20s living
with their parents, along with a rise in older
single households. This change has seen
greater demand for furniture offering flexible
living solutions, such as combined bedroom/
living and work space

To find out more, visit marksandspencer.com/annualreport2010

CONSUMER CONFIDENCE INDEX

p
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S

c
e
D

r
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M
6
0

n
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p
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c
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D

r
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7
0

n
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p
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c
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r
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8
0

n
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p
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c
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9
0

n
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p
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c
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r
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0
1

Overview

Performance & KPIs

Brand & marketplace

p01 

p14 



Operating & financial review p26 

Governance

Financial statements

p50 

p78 

-5

-10

-15

-20

-25

-30

-35

-40

-45

Source: CFK Consumer Confidence Index March 2010.

M&S FOOD RESPONSE

In 2008/09 a demand for value saw many
food retailers attempt to reposition themselves
as low cost providers. However, we invested
in margins to provide customers with better
value, without compromising quality. This has
served us well as customers began to trade
up. Quality remains the point of difference
between our ‘Dine In’ promotion and market
imitations. To keep the promotion fresh we
regularly include our newest products, mainly
from our Cook! range. See page 24 for
more detail.

M&S ONLINE RESPONSE

M&S is committed to becoming a multi-channel
retailer, integrating its online business with
other shopping channels. We launched
‘Shop Your Way’, explained fully on page 28,
to offer customers more flexible purchasing
and delivery options. We have also appointed
a Director of Multi-channel Development to
help us exploit the opportunity in this area.

FOOD MARKET TREnDS

FUTURE TREnDS

Over the year price inflation has worked its
way out of the market to the point of deflation,
with falling food prices masking the fact UK
customers were buying more.

Deals continued to be a key driver, with 30%
of the market sold on promotion. However,
copycat deals across the market meant
consumers responded well where quality
and innovation were the point of difference,
as they looked for deals that offered
something new and/or special.

As confidence improved consumers started
to trade up to an alternative supermarket or
switched to better, premium ranges within
their supermarket of choice.

Consumers also began to treat themselves
again, resulting in growth in confectionery
and bakery markets. They also adopted a
sense of nostalgia, creating a revival in retro
products with a modern update.

OnlInE MARKET TREnDS

Online market growth remains strong at
around 20%, but the rate of growth has
begun to stabilise as the market matures.

Consumers now expect a more engaging
experience from online shopping, as retailers
add more editorial, interactive content
to sites.

Developing technologies have meant
consumers expect greater flexibility and
tailored choices in both purchase and
delivery options.

The strongest opportunity for growth lies
with retailers that can integrate an online
offer with other shopping channels, such
as stores and call centres, to provide a
multi-channel service.

As we move into 2010/11, macro-economic
conditions will continue to influence
consumer behaviour. However, our
current research suggests the following
trends are likely:

The pace of mobile technology and growing
acceptance of its ‘intrusion’ into everyday
lives, means consumers will expect brands
to be ready to interact when they want,
requiring brands to be ‘on’ 24/7.

Retailers that allow consumers to have input
into product development will be well placed
in the future. Increasingly consumers want to
personalise purchases, through colour, style
and functionality, as well as providing
feedback to both retailers and peers about
how they believe products and services
could be enhanced.

Changes to family dynamics mean UK
consumers are looking for alternative
communities, either ‘real’ or ‘virtual’ to achieve
a sense of belonging. In the retail space,
this may lead to more brands setting
up community pages or forums.

TRUST

Above: Share your views To
provide a more interactive experience
we increased the prominence of
customer product reviews on our
website. Customers have responded
well to the peer-to-peer feedback
and conversion rates have increased
as a result.

Average customer rating

★ ★ ★ ★ ★

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

What we sell
Womenswear

Kate Bostock Executive Director,
General Merchandising

M&S remains the nation’s favourite in womenswear and over the last 12 months
we’ve grown our market share to 10.7% by value, up 0.2%, as women of all ages
continue to turn to us for great value, stylish clothing. This year we’ve expanded
our market share in casualwear, through the launch of Indigo Collection and
have listened and responded to our customers’ demands for more versatile
investment pieces. We’ve remained focused on refining our brands to deliver
the right looks for all our customers.

Womenswear value market share

Year in review

10.7%
+0.2% pts

Volume market share

9.1%
–0.1% pts

Over the last year our customers have
continued to weather the difficult economic
environment. Though they remain cautious
about the outlook, women have begun to
show signs that they feel more confident
about spending on their wardrobes again,
searching out investment pieces that offer
long-term value, such as coats and leather
boots collectively growing by 14% on
last year.

In response to this trend our Autograph

range, known for its luxurious fabrics and
high level of detailing, has performed well
with sales increasing by 3.9% over the last
12 months. We’ve introduced customers to
the two top Italian designers behind the per
una, Speziale label, Lorella and Cinzia de
Rosa and produced a new couture inspired
collection to cater for customers looking for
unique investment items.

However, our customers still want the
option of good opening price points, so they
can be flexible with how they spend their
individual clothing budgets. We continue to
differentiate ourselves from other womenswear
brands through our pricing hierarchy, offering
something for everyone through our ‘good’,
‘better’ and ‘best’ price points.

For example, at £15, a cashmilon™ long

sleeve knitted cardigan falls into our ‘good’
pricing category. A chunky knit open front
black cardigan at £29.50 is an example of
‘better’ pricing; while an Autograph pure
cashmere scoop neck cardigan at £59 is
a ‘best’ price point.

QuALITy

Above: Speziale
Our per una Speziale
label is inspired by chic
Italian design

Over the last 12 months, we have reviewed
the pricing mix in womenswear in response
to changing shopping habits. We’ve
maintained our level of competitive opening
price points but have strengthened our
position in ‘better’ and ‘best’ in categories
such as knitwear, as customers have shown
more willingness to trade up.

Versatility

Women have told us they want their
wardrobe to work harder for them and our
emphasis on quality and value has served us
well. We used our spring 2010 advertising
campaign to highlight the versatility of our
womenswear range, demonstrating how a
simple pair of black cropped stretch trousers
at £18 can be styled from day to evening.
Over the last year, products that lend

themselves to both dressed-up and dress-
down looks have proved popular with
customers and wardrobe staples such as
tunics, leggings, and casual shirt dresses
have been among our best sellers. This year
has also marked the return of the day dress
as customers responded to the value
offered by a one piece item that can be
transformed using simple accessories.

VALuE

Right: Wardrobe
Solution Our Indigo
Collection day dress
at £39.50 can easily
be dressed up or down.

To find out more, visit marksandspencer.com/annualreport2010

Overview

Performance & KPIs

Brand & marketplace

p01 

p14 

p20 

Operating & financial review 

Governance

Financial statements

p50 

p78 

Tribal prints Hot off the catwalk
tribal and animal prints are a fierce
fashion trend for Summer 2010.
We’ve translated this look across
our womenswear range, such as
the featured linen Blend Abstract
Print Textured Tulip Skirt at £25.
Modelled by VV Brown.

Find out more at
marksandspencer.com

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

What we sell

Womenswear continued

VALuE

Right: Quick fix Women loved these on trend
studded leather ankle boots, a simple solution to
bring an outfit right up to date.

Indigo Collection

In October 2009 we launched Indigo
Collection to meet our customers’ requests
for easy-to-wear outfit solutions that fit with
their busy lifestyles and to address the gap
we saw in the casualwear market. The new
range provides a selection of co-ordinated
separates in a soft colour palette, underpinned
by a strong denim collection. In its first six
months, Indigo Collection has exceeded our
expectations and its success has been at
the expense of our competitors, as our
market share in casualwear strengthened.

Our brands

To retain our position as market leaders
we know we must continue to deliver
clothing for ‘Every Woman, Every Time’.
We can only do this by listening and
responding to our customers,

so we continually assess our clothes
through focus groups with women
of all ages and lifestyles.

It is through our brands that we

can deliver on this promise – providing

looks that appeal to women of different
ages and with different budgets. Over the
last year we have continued to work hard to
ensure that each brand has a clear identity,
serving a different customer and addressing
specific needs.

Autograph A contemporary range, defined
by luxurious fabrics, a high level of detailing
and sleek modern silhouettes. It remains
popular among customers in search of stylish
career, occasional and weekend wear.
Classic Aimed at our more mature shopper
who wants comfortable, co-ordinated
designs for all occasions.
Indigo Collection This new brand provides
a complete casualwear range. Myleene
Klass promoted the launch with an Indigo
Collection roadshow giving shoppers across
the uK practical tips on putting together a
relaxed, casual look.
Limited Collection Our fast fashion range
is always first with the key catwalk trends of
the season. Over the last 12 months it has
continued to deliver a bold, confident look,
which is regularly refreshed in store. The
range sells to fashion devotees of all ages,
but has enabled us to further grow our
younger customer base.
per una This remains our most popular
brand and last summer saw the launch
of the first full collection designed by our
in-house team. We have taken the brand
back to its Italian roots and returned per
una to its core values of being feminine
and confident, with an emphasis on vibrant
colour, embellishment and quality fabrics.
Portfolio Now in its second year, this stylish
collection has successfully met our core
customers’ requests for a flattering, feminine
range that was appropriate for their age and
lifestyle and delivered a polished look.

INNOVATION

Left: Limited Collection corset dress This year
we’ve responded quickly to trends such as ‘underwear
as outerwear’ with our corset dress which was
praised by the fashion press.

Overview

Performance & KPIs

Brand & marketplace

p01 

p14 

p20 

Operating & financial review 

Governance

Financial statements

p50 

p78 

VALuE

Left: The year of the leg Hero products don’t
get more heroic than leggings, treggings and
even jeggings. These lycra-based garments have
become wardrobe staples for women of all ages
and shapes. Combining comfort and fashion,
they are a quick fix to update outfits and form
the basis of lots of different looks.

Looking ahead

We are not complacent about our market
leading position and we will continue to
consult our customers to make sure we
are delivering the right products for them.
We will ensure our brands retain distinct
identities, translating them across footwear
and accessories, making it easier
for customers to find the
products they want in store.
The investment we are making
in improving availability will also
help customers find exactly
what they are looking for every
time they shop with us.

The foundations we have
laid mean we are well placed
to capitalise on opportunities
in the womenswear market.
We will build on the success
of Indigo Collection, which
presents a great opportunity
to grow casualwear over the
next 12 months.

To find out more, visit marksandspencer.com/annualreport2010

We marked our 125th year with our ‘Dress
of the Decade’ campaign, a range of dresses
inspired by our archives and the styles of
bygone years. From Forties inspired polka
dots to Eighties power dressing, we had
something for everyone – proving that style
and quality never goes out of fashion.

Responding to trends

Over the last 12 months we have built on
our successful quick response supply base
in Limited Collection. These improvements
mean we are now able to add further
embellishments as well as finer fabrics and
yarns, bought from the Far East and India.
Collections are regularly refreshed in stores,
keeping our ranges firmly on trend. Our
regional offices in Sri Lanka, India, Hong Kong
and Turkey have played a large part in this
strategy. They have helped streamline the
approval process and enabled us to drive
product development forward.

Better availability

As part of our ‘Every Woman, Every Time’
commitment we want to make sure our
customers can have the product they want,
in the right size, colour and style every time
they shop with M&S. As part of our wider
Business Foundation Programme, discussed
on page 34, we have invested in our stock
management systems. This will help us
improve how we tailor products to individual
stores and therefore improve availability.

Outfit building

Sales of footwear and accessories have
increased during the economic downturn
as women used them as a quick and
easy way to update a tired wardrobe.
We responded to this trend by selling more
of our accessories alongside our clothing
to better show customers how a whole
outfit can be brought together.

Over the last year we have aligned our
branded clothing ranges with footwear and
accessories, making it easier for customers to
build a wardrobe within their favourite brand.

Style credentials

Our style credentials underpin our entire
womenswear range and in the autumn
we took part in Vogue’s Fashion Night Out,
a global event where high fashion met
high street. The year also included our
collaboration with Zandra Rhodes, who
designed two collections for us, based on
the bright prints for which she is best known.

PLAn A: SWAP SHOP

Since the launch of our Oxfam Clothing
Exchange in January 2008 our customers
have recycled over 4 million garments.
The scheme offers donors money-off
vouchers each time they recycle their
M&S clothes at Oxfam and following the
successful launch we have extended the
scheme to include soft furnishings.

For more information about Plan A see
p36 or visitmarksandspencer.com/ plana

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

What we sell
Lingerie

Lingerie value market share

25.9%
+0.7% pts

Lingerie volume market share

18.9%
+0.2% pts

SERVICE

Above: Perfect fit We fit more bras than any other
retailer and stock sizes to fit 99% of the uK’s
female population from 28AA to 40J. Over the last
year we have retrained our fitting room staff across
the country and conducted mystery shops to
improve our service. During this time we’ve seen
our market share continue to increase.

PLAn A: ECO FACTORy

Our supplier’s
Sri Lanka factory
was the world’s
first ‘eco factory’
devoted to
making lingerie.
From its
compressed
earth bricks, which require no kiln burning,
to its rooftop of grass and medicinal plants,
this revolutionary building is designed to
use less electricity and water than other
clothing factories. We now have four General
Merchandise eco factories supplying
M&S products.

For more information about Plan A see
p36 or visit marksandspencer.com/plana

When it comes to lingerie we are the UK’s number one choice, with one in four
women buying M&S underwear. In an ever competitive market we have grown
our volume market share to 18.9% and value market share to 25.9%. We make
sure we stay half a step ahead of the market by responding quickly to trends
and delivering innovation.

Our brands

Driving footfall

A clear, confident approach drives our
lingerie business and this year we’ve
worked to better align lingerie
with our womenswear brands
so customers can more easily
recognise their preferred brand:

Autograph A sophisticated collection
with detailed finishes and luxurious fabrics.
Limited Collection Our most fashion
focused collection, which over the next year
will replace the existing Ceriso range.
per una A vibrant collection, which now
has a greater focus on pretty detailing.
Portfolio Launched last year, the range
offers flattering, feminine styles. The Adored
range has now been brought under the
Portfolio label.
Body Solutions Our shaping range, famous
for its innovative ‘secret support’. This year
we’ve worked to make the range prettier,
as well as practical.

Pricing

We understand that different women invest
different amounts in their lingerie and we
cater for this. They can purchase cotton
knickers for just £1.50 and a bra for £7 at
the M&S quality they expect. However, for
those in search of something more special,
we offer luxurious, silk collections, especially
under the Autograph brand.

Trends

Last year we reduced our lead times to eight
weeks in some areas, allowing us to respond
more quickly to trends. This year we’ve
focused on turning around key fashion looks
to bring more Womenswear shoppers into
Lingerie and vice versa. For example, ‘Worn
to be seen’ (featured above) capitalises on
the trend for underwear as outerwear.
Although this range is stocked in our Lingerie
departments it is showcased on womenswear
mannequins to improve cross-selling.

Hosiery remains a key footfall driver for us
and sales have again grown year on year.
Sales of coloured and patterned tights have
fared well in a tougher climate, offering
women an easy and affordable way to
update their wardrobes. Sales also received
a boost during the cold snap in early 2010.

Innovation

Our success in lingerie is founded on our
continued emphasis on innovation. New for
summer 2010 is our backless bra – the
design uses pivotal technology, anchoring
the bra to the body through silicone lined
straps. A first to the uK market, it provides
the ideal lingerie solution for dramatic low
backed designs.

We have developed our shapewear
lingerie through the introduction of body
solution products such as an anti-cellulite
waist and thigh clincher. The range
responds to fashion trends and this year
we’ve launched skinny jeans shaping shorts
and ‘secret support’ magic leggings to help
give customers the confidence to wear the
styles they want. Sales of our ‘No VPL’
range have also benefited from slim fit
fashions, up 30% this year.

Looking ahead

We will continue to lead the way in
innovation, developing the lingerie solutions
women want. Our customers will experience
the benefits of the improvements we have
made in our fitting service this year. A closer
alignment with womenswear has created a
stronger brand identity and we will continue
to build on this. As ever, we will listen and
respond to our customers, ensuring we
remain their favourite for underwear.

To find out more, visit marksandspencer.com/annualreport2010

What we sell
Menswear

Overview

Performance & KPIs

Brand & marketplace

p01 

p14 

p20 

Operating & financial review 

Governance

Financial statements

p50 

p78 

Menswear value market share

10.4%
+0.2% pts

Menswear volume market share

We remain the market leaders in menswear and this year have grown market
share by 0.2% to 10.4% by value and maintained 13% by volume. Our leadership
position is underpinned by our ongoing commitment to quality, value, and
innovation. This year we have focused on improving our style credentials,
sharpening our market leading tailoring offer and brands. As a result we have
broadened our customer base both in terms of age and lifestyle.

13.0%
Level

INNOVATION

Above: Before the gym kicks in The post-
Christmas launch of our Bodymax Shaping Vest
grabbed the media’s attention, featuring on the
front page of the Daily Telegraph and even making
waves Down under, with a ten minute slot on the
product featured on Australia’s Channel Nine.

Above: new face in Menswear In March 2010,
Jamie Redknapp was named as the new face
across our menswear range.

Our brands

Innovation

This year we have used lessons from
womenswear, to help us refine our
menswear portfolio to ensure it meets
the needs of all our customers.

Autograph This collection is sharp and
contemporary and throughout the year we
have used designer collaborations to inject
freshness into the brand.
Blue Harbour We have taken Blue Harbour
back to its roots, providing classic casual
styles aimed at our core customer.
Collezione In February we re-launched
Collezione, reviving its Italian inspired origins.
Designed to help men pull together a
sophisticated, co-ordinated wardrobe,
it has been extended to include leisurewear
and accessories.
Limited Collection Following a successful
trial in January, the brand will roll-out during
2010. Focused on tailoring, it provides fast
fashion suits with a modern, slim silhouette
aimed at a younger male customer.
north Coast Re-launched this year to
address a similar need for casualwear as
Indigo Collection has in womenswear.
Focused on soft colour palettes, knitwear
and denims, its revamp has strengthened
our position in the casualwear market.

Responding to customers

With M&S comes an expectation of quality
and in Menswear this extends across our
fabrics, styling and fit. This year, some of our
customers told us they loved our shirts but
wanted a slimmer fit option. In response we
worked with our tailors to deliver a slim-fit
range and within a week of launch, two
of our new shirts were among our top five
best-sellers, delivering incremental sales.
We have now introduced a slim-fit cut to
other ranges, including tailoring and denim.

Continued innovation has helped maintain
our position as market leaders. This year we
developed Bodymax, a revolutionary range
of shapewear for men. Products contain a
hidden ‘stomach control panel’ to help
create a slimmer silhouette. The range lends
itself to the slim-fit styles we’ve translated
from the catwalks.

Design

Designer collaborations offer our style
conscious customers key seasonal pieces
that are affordable and great quality.
Our collaboration with leading London
based designer, Jsen Wintle, combined the
contemporary Autograph look with the
designer’s use of subtle colours and couture
cuts. To mark our 125th anniversary we
celebrated the best of British tailoring with
our 125 Collection, designed by Savile Row
tailor Timothy Everest.

Accessories

This year we have seen a move to outfit
building and believe accessories and
footwear offer a growth opportunity.
We are market leaders in
formal tailoring, with a 20%
market share and this year
we have focused on delivering
a stylish formal footwear range,
with a view to bringing our
footwear market share in line.

Looking ahead

With clear brands in place we remain on
track to grow our Menswear business.
We will continue to refine our ranges to
ensure we are offering what our customers
want. Quality is increasingly important to our
menswear shoppers and we will continue to
drive innovation to ensure M&S remains not
only good value, but delivers something
extra special.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

What we sell
Kidswear

Kidswear value market share

6.1%
+0.7% pts

Kidswear volume market share

6.3%
+0.4% pts

INNOVATION

Above: Living the Dream In April 2010 we
launched our Living the Dream boyswear range,
in association with the Vodaphone McLaren
Mercedes Formula 1 team and World Champions
Jenson Button and Lewis Hamilton.

PLAn A: ECO SCHOOL uNIFORM

Our top-to-toe recycled school
uniform was a high street first,
which used polyester made
from recycled plastic bottles
in the blazer, shirt, skirt and
trousers. Our E-leather shoes
are made from leather waste
that would usually end up
in landfill.

For more information about Plan A see
p36 or visit marksandspencer.com/plana

It has been another strong year for kidswear and we have grown market share
to 6.1% by value, up 0.7% and to 6.3% by volume. We are number four in the
kidswear market and have retained our number one spot for schoolwear,
against stiff competition from the supermarkets. We are committed to
reclaiming our position as the first choice store for parents in search of quality,
on-trend, great value kidswear.

Brand clarity

Fashionability

Parents come to M&S for all the landmark
stages – for newborn clothing and school
uniforms, partywear and teenage outfits.
Our kidswear must deliver the right products
for all these phases, as well as the practical,
everyday clothing kids need, like our essentials,
nightwear and footwear.

Over the last 12 months we have

worked to make our kidswear brands easier
for parents to identify and more closely
aligned to our adult clothing ranges.

Autograph Stylish pieces for both boys
and girls. This range provides, high quality,
contemporary style that is perfect for
special occasions.
Indigo Collection In January we launched
the Indigo Collection brand across boys and
girlswear, providing parents with mix and
match casualwear that offers easy, everyday
outfit solutions.
Girls Limited Like our adult Limited
Collection, this is a trend-led range with an
emphasis on providing accessible fashion.

Value and quality

Our focus remains fixed on delivering the
best quality, hardwearing clothes for
children, at great value. As always at M&S,
value is never at the expense of quality and
our schoolwear range is a good example of
this. The starting price point for an entire
school uniform remains at £6.50 and this
includes a 100% cotton jumper, a polo shirt
and a crease resistant skirt or pair of non-
iron trousers.

Parents come to M&S above the
competition for school uniform, so there is
a natural opportunity to be the first choice
for kids’ essentials like underwear, socks
and nightwear too. This year we have
focused on growing our market position
in this area, with sales up 16.9%.

We know from speaking to our customers
that the ‘fashionability’ of kidswear is
increasingly important to them. To keep our
ranges firmly on trend, we’ve worked closely
with our regional office in Turkey to help us
reduce our lead times. As a result, the entire
process of designing a product, making it
and delivering it to store can take as little as
eight weeks.

Destination shopping

Busy parents want to quickly browse and
buy and with this in mind, our Home division
launched ‘Kids at Home’ in November 2009
in 37 stores. ‘Kids at Home’ displays our
clothing, toys and kids interior collections in
a lifestyle setting to make it easier for parents
to shop. Further to this, Kidswear
collaborated with the
Home division to launch
‘My unusual Friends’ – a
nursery and babywear
range designed by
children’s illustrator and
author of Humphrey’s
Corner, Sally Hunter.

Our research has told us that many
parents like to shop at home online, once
their children have gone to bed. As a result,
we are placing more emphasis on developing
our multi-channel kidswear offer and are
increasing sales as a result.

Looking ahead

We remain committed to becoming the
number one destination for kidswear in
the uK. We will do this by building on our
achievements so far continuing to refresh
our ranges and providing excellent choice,
fashion and value for money.

To find out more, visit marksandspencer.com/annualreport2010

What we sell
Home

Overview

Performance & KPIs

Brand & marketplace

p01 

p14 

p20 

Operating & financial review 

Governance

Financial statements

p50 

p78 

Total Home Sales

£546.1m*
+2.1%

includes Beauty, which was not stated as part of the
2008/09 Home sales figure.

M&S Home has performed well in a difficult market with sales up 2.1% on
last year. During 2009/10 we have improved the way we showcase our offer,
selling more home products in a lifestyle setting alongside food and clothing
ranges. A new management structure has also helped us build closer links
between our clothing and home design teams. The strength of the M&S
brand has enabled us to expand further in energy and technology,
launching a new Home Energy Services division this year.

The market

Extending the range

Technology: Customers trust us
to provide an easy to shop, edited
technology range, including the best quality
branded goods and M&S own label products.
This year we set a target that all of our home
electrical products will carry a credible energy
efficiency rating by 2015.
Energy: This year M&S Energy customers
have grown from 65,000 to almost 300,000.
In January, we launched a Home Energy
Service division offering a range of energy
efficient products such as loft insulation and
solar panels.
Beauty: In spring we re-launched our skincare
offer in 30 stores and brought our existing
cosmetic ranges, under one new brand
Perfection. We’ve also improved our bath
and body products offer, with sales up 14%.

Looking ahead

We will continue to strengthen our Home
offer so we are in the best possible
position when confidence returns
to the housing market. We will
build on our work with other parts
of the business to showcase
products to customers better
and will continue to take
advantage of growth
opportunities. All of this will
be supported by our online
offer, which will play an even
bigger role in helping
customers make buying
decisions.

The static housing market meant more
customers embraced the ‘Improve don’t
Move’ trend. From tableware to bedding,
we provide co-ordinated mix and match
products to help customers build an updated
look for their home in line with their budget,
with sales of core products such as curtains
increasing by up to 85% on some ranges.

Fashion and design

Our Home and Clothing divisions now sit
under the same management structure,
enabling us to better apply the lessons
we’ve learnt in clothing. This year we’ve
worked with our regional offices in Turkey to
reduce lead times and respond more quickly
to trends. Closer links with clothing have
ensured we better reflect the latest fashions,
colours and fabrics in our products.

Showcasing the range

Displaying our entire Home range is a
challenge given the square footage
requirements. We have continued to
address this, opening two new M&S Home
stores in Aberdeen and Cheltenham, with
Tunbridge Wells due to open in autumn.
There are now five M&S Home stores, with a
further 413 carrying homeware products.

Our Home catalogue and website play a

vital role in helping customers browse our
range. We have improved the online experience,
introducing fabric swatches and e-catalogues,
as well as offering more exclusive online deals.
As a result online sales increased by 20% and
11% year on year across Home and Beauty
respectively.

We have collaborated with other M&S
divisions to showcase our Home offer better.
We launched a Spa range in partnership
with Lingerie, selling bathroom favourites like
towels and sponges as well as spa wear.
We also launched ‘Kids at Home’ explained
on page 22.

QuALITy

Above: Sally Bendelow, Head of Home Design
at M&S. “Working closely with our clothing design
team, we’ve translated the key trends of 2009/10
into our Home range, such as our ‘In Bloom’
selection, which picked up
on the floral prints and
vibrant colour palettes seen
on the catwalk this year.”

INNOVATION

Above: Tess Daly In October we launched our
award-winning range of Tess Daly beauty products
designed to help skin glow. Over Christmas a
product from the range was sold every 30 seconds.

* 52 weeks.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

What we sell
Food

John Dixon Executive Director, Food

UK Food sales

£4.3bn*
+1.8%

Food value market share

3.8%
-0.1% pts

QuALITy

Above: Christmas wouldn’t be Christmas
without your M&S. Our Christmas and party food
was awarded the top rating in a Daily Mail
comparison against all the uK’s supermarkets.

PLAn A: BRITISH GROWN MELONS

Exclusive to M&S, the first ever British melons
were grown reusing the soil bed and plastic
tunnels from the earlier British strawberry crop
– so it is not only a great tasting fruit but it
also allows the farmers to produce two crops
from their land.

For more information about Plan A see
p36 or visitmarksandspencer.com/plana

* 52 weeks.

Over the last year we have strengthened our position as the leading retailer of fine
quality fresh food in the UK. Our Food business has now returned to growth and we
have delivered consistent improvements in like-for-like sales over every quarter.
At the same time we delivered volume growth of 3% as customers put more of our
food in their baskets than they did a year ago. We have achieved this by listening
to our customers and giving them the best quality food at great value for money,
while continuing our focus on innovation, healthy eating and ethical sourcing.

Year in review

Last year we laid down our plans to drive
the M&S Food business out of the recession
based on our founding principles of Quality,
Value, Service, Innovation and Trust.
We invested in margins to offer our
customers even better value while retaining
our commitment to deliver the best quality
food on the high street. We launched new
ranges like Simply
Fuller Longer,
improved our service
by making our offer
more convenient and more complete, and
remained focused on our strong
environmental and ethical principles. This
approach has seen us return the business to
positive like-for-like growth for the first time
since Q2 2007/08.

Our customers remain cautious about
the economic outlook, but we have seen
signs of increased confidence in their
spending. This has translated into a renewed
trend for buying treats and greater indulgence
around special occasions. Celebration and
Eventing categories delivered 8% growth
on last year and the new ranges of luxury
cupcakes and layer cakes have driven
significant additional sales.

Our lower prices allowed customers to

both indulge and economise across the
M&S Food offer. Our ‘Wise Buys’ range
continues to underpin our value proposition
– demonstrating our price competitiveness
on everyday products, whilst retaining the
highest M&S quality credentials.

Customers turn to us for restaurant quality

food and inspiration as they opt to dine at
home more often, rather than eating out.
We also provide a range of cooking
solutions. For customers cooking from
scratch, we have expanded our range of raw
ingredients and also introduced ranges of

authentic pastes and marinades. For those
in search of a more convenient option, we
have increased choice in our Cook! range
and remain the market leaders in restaurant
quality, fully prepared ready meals.

QUALITY

Delivering great quality food has always
been at the heart of our business and this
year we have given our customers the
highest quality without cutting corners.
We are the uK’s leading quality food retailer
and independent research from Millward
Brown shows that customers turn to M&S
ahead of the competition when they want
food that delivers something special.

M&S leads the field in home cooking

solutions and convenient ready meals.
Against an increased level of competition
our quality sets us apart. We achieve this
through first to market launches, like 1234
Cook, which allows customers to build the
meal from a selection of the finest, easy
to cook mix and match products and by
the continual upgrading of core ranges.
This year we improved our Gastro Pub
Shepherds Pie, moving from lamb mince
which included a selection of cuts – to
slow cooked, shredded lamb shoulder.
The change provided more texture and
a deliciously rich home-cooked flavour
and sales have increased by 11%.

In autumn we began a trial of fresh meat

and fish counters in Meadowhall, Sheffield,
and Bluewater, Kent. Not only is this a great
way to showcase the quality of fresh meat,
fish and rotisserie chickens; it also offers our
customers a more personalised service and
improved in-store ambience.

To find out more, visit marksandspencer.com/annualreport2010

Clickstart to health The launch
of our Simply Fuller Longer range,
pictured below was accompanied by
our first ever health website. Designed
to encourage customers to manage
weight sensibly through balanced
menu planning the site offers healthy
recipe ideas, nutritional advice
and practical tools.

Find out more at
marksandspencer.com/health

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Governance

Financial statements

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Directors’ report

What we sell

Food continued

VALuE

SERVICE

Above: Budgeting – At M&S customers can
opt for Pork Sausages at 97p or Outdoor Bred
Pork Sausages at £2.69

Above: Hospitality Our customers can also enjoy
M&S food in store at one of our deli bars or M&S
cafés – the uK’s third largest coffee chain.

VALUE

Last year we invested in margin to improve
our prices whilst maintaining or improving
the quality of our food.

We extended ‘Wise Buys’ to highlight
our great value on every day products with
guaranteed M&S quality. There are now
around 600 items in this range representing
about 10% of our offer, including milk, eggs,
bread and meat. We run a weekly price
check against the competition to ensure
they remain competitive and customers can
see this comparison in store on our price
tickets.

Over the last 18 months the wider food
market has experienced high levels of price
inflation. As we expanded ‘Wise Buys’ and
continued to improve our values, we were
the only food retailer to reduce prices during
this period.

Much imitated by competitors, our original

‘Dine in for two for £10’ promotion remains a
firm favourite among M&S customers. We
have built on the success of this promotion,
adding new lines and expanding the deal at
special occasions such as a Mother’s Day
roast dinner for four at £15 and a stunning
Valentine’s Day menu that included treats like
scallops, champagne soufflé, fine wine and
a gift. Over half a million couples celebrated
with the Valentine’s menu all for just £20.

Dine-in promotions remain one of the key
drivers of footfall and we continue to look at
new ways of encouraging our more occasional
Dine-in shoppers to become more regular
ones. For example, this year we extended this
promotional format to more everyday meal
combinations, such as casserole, mash and
vegetables for £5.

SERVICE

Range

We aim to deliver a service that matches
the high quality of our food and we are doing
this by listening and responding to our
customers. We know how important it is to
meet the needs of our regular shoppers,
giving them an enjoyable shopping
experience every time.

Feedback showed that customers love
M&S food and wanted to do more of their
weekly shop with us. To help them do this
we have broadened our food range by
extending our own label products such as
dried herbs and ingredients and introduced
a greater choice of frozen goods. Following
a successful trial, we are also rolling out a
selection of 400 carefully chosen branded
products to all our stores by the end of this
summer, so customers can now pick up
their favourite brands like Coke or Ariel,
alongside all the M&S ranges.

Branded products will be focused in
areas where we have lower market share
such as beers and pet food or where we
have no equivalent product, like Marmite.
Importantly, no M&S products have been
discontinued to make way for branded
goods. All branded products have been
price matched against the competition and
we are confident that any own label
equivalent products compare favourably

alongside these brands, demonstrating
clearly to customers the great value of the
M&S products.

Since launch, branded goods have been
a welcome addition, improving convenience
for customers and increasing the average
number of items bought during each visit.

Better availability

This year we have improved on shelf
availability largely through restructuring and
retraining our merchandising and allocation
teams. At the same time as delivering
improved sales and better availability we have
managed to reduce levels of waste. Over the
next three years we believe there is a big
opportunity to improve this further and we are
introducing new IT systems to improve our
forecasting and ordering processes.

We want to make sure we display
our ranges in the best possible way to
demonstrate the breadth of our offer.
We have now put in place a new Ranging
& Display team to ensure we achieve this.

InnOVATIOn

M&S is recognised as a leader in product
innovation and this year we have set
ourselves the ambitious target of renewing
25% of our total food range every year.
This keeps many customers coming back,
as they return to see what is new and
exciting in store. This year we launched first
to market ranges, pioneering products and
updated old favourites, as well as adding
1,700 new lines. In January 2010 we
launched Simply Fuller Longer – a new,
exclusive to M&S range developed with the
Rowett Institute at Aberdeen university, to
provide meals that are nutritious and keep
you feeling full.

To find out more, visit marksandspencer.com/annualreport2010

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Financial statements

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QuALITy

TRuST & INNOVATION

Above: The Great British Breakfast This year
we committed to sourcing all our bacon, sausages
and eggs from British farmers. It reflects our
confidence in the quality of these products, and
makes us the first retailer to offer 100% British
across these ranges.

Above: Chocolate Butterflies We pride ourselves
on being first to market with innovative, sustainable
products. We were first to launch a chocolate
wrapper that grows into flowers. The wrapper’s
paper packaging includes seeds that grow into
Candytuft flowers, which attract butterflies.

INNOVATION

Below: Soft Brews Available in citrus, apple and
blackcurrant flavours, soft brews are produced in
the same way as beer. However, by stopping the
process before fermentation they have all the taste
but none of the alcohol.

Each dish contains a carefully calculated
balance of proteins and carbohydrates to
help you lose weight as part of a calorie
controlled eating plan.

We know health is a consideration in

40% of all food purchases and we are
already seeing new customers buying the
range, with hearty portion sizes appealing to
men. Its popularity has not been at the
expense of Count on us, where sales have
increased by 13%.

In September 2009 we launched the
M&S Sweet Shop, complete with the first
ever confectionery range to be 100% free
from artificial flavours and colours. The range
includes old favourites like cola cubes and
milk bottles. Our confectionery performance
has subsequently improved by over 5%.

We also introduced customers to black

apricots and peppers with high levels of
vitamins A, C and E, as well as baby pears
and the flower sprout – a cross between a
brussel sprout and kale, named exclusively

by Good Housekeeping readers.

TRUST

From clear product labelling to our
dealings with suppliers, customers trust
us to do the right thing. As we set out
on page 36 of our Plan A section, our
environmental and ethical credentials
are an essential feature of the food
we sell.

We have had a sustainable fishing
policy for over a decade and this year
became the first uK company to sign
the World Wildlife Foundation (WWF)
Seafood Charter to work towards our

objective of sourcing all seafood from
Marine Stewardship Council or other

sustainable fisheries by 2012. Over the next
year WWF will work with us to evaluate the
sustainability of our fish products and
identify and develop more
sustainable sources.

We continue to source
our fresh produce from the
uK and wherever possible
locally. For example, we
now sell uK grown flowers
all year round, such as
our Autograph bloom
chrysanthemums grown in
Cheshire. We have also sourced
sugar snap peas from British
growers for the first time.

Looking ahead

M&S has always been synonymous with
innovation and we will deliver on our promise
to renew 25% of our range each year, by
anticipating and setting new food trends.
We will ensure our stores offer the breadth
of goods required by our customers, while
continuing to build on our improved value
position and further developing our
promotional offers, to give our customers
the best quality and excellent value for
money.

Over the next two years, operational
improvements will ensure we get more of
the right products on to our shelves at the
right time. By enhancing on shelf availability
we will improve our customer service
proposition so that it matches the high
quality of our Food offer.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

How we sell
Multi-channel

Our Stores, Total UK Portfolio:

690
10 Premiere
42 Major
242 High Street
46 Outlets
156 Simply Food (wholly-owned)
194 Simply Food (franchises)

new UK stores opened in 2009/10

Total square footage

15.4m

M&S Direct Sales

£413.3m*
+27%

Includes: Website, home catalogue, flower
and wine delivery, Food to Order party catering
service, lunchtogo and call centres

SERVICE

Above: Catwalk style Customers told us they
loved shopping online with us, but that static
images made it hard to tell if an item of clothing
would suit them. As a result, we’ve introduced
catwalk style videos so customers can view the
product from every angle and better envisage how
it might look on them.

* 52 weeks.

Multi-channel: This year we have brought all of our shopping channels under the
same management to allow us to focus on becoming a seamless multi-channel
business, providing customers with the same high quality service every time
and whichever way they choose to shop with us. We’ve delivered another
strong performance in our Direct business, increasing sales by 27% to £413.3m
and remain on target to achieve £500m by 2010/11. This year we’ve also
launched ‘Shop Your Way’, to provide customers with more flexibility and
choice in their delivery options.

Driving a Multi-channel business

Online

Customers shop with M&S in many ways.
Whether they are shopping in store, at
home, in the office or over the phone,
our aim is that every customer receives
the same consistently high level of
service from purchase through to delivery.

Shop Your Way

Launched on a trial basis in July 2009, our
‘Shop your Way’ service enables customers
to place clothing, beauty and homeware
orders either in stores, online or over the
phone. They can then opt for delivery to
either a nominated address or free to their
nearest store for collection.

Since roll-out, the latter has proved very

popular, with around 13% of customers who
order online choosing to collect in store and
driving footfall as a result.

‘Shop your Way’ has been welcomed
by smaller stores, as the service brings the
wider M&S product catalogue to their local
customers. Weekly orders now stand at
£2.5m and following the successful trial,
‘Shop your Way’ has been rolled-out to
over 300 uK stores, with a roll-out to Simply
Food stores underway in 2010.

In October 2009 we relaunched our website,
responding to customer demands for a
more engaging, interactive web experience.
The refresh included the introduction
of catwalk videos and rotating images to
enable customers to see clothes from every
angle. We also introduced a more powerful
and flexible search facility allowing customers
to search by department for faster and more
accurate results. The upgrade includes
stock availability information to help avoid
disappointment. A pop-up shopping basket
means customers can now automatically
view and buy their selection without being
diverted from their shopping page.

Following the upgrade, the site was
ranked the uK’s most user-friendly retail
website in the 2009 Webcredible survey,
up from eighth in 2008. The improvements
have also increased revenues, with
conversion rates up 9% since launch.
Online clothing market share has also
increased from 5.3% to 5.6%.

QuALITy

Left: Swatch this space As part of our website
upgrade customers can now view actual fabric
swatches for products across our Home range.
The high clarity images provide a more accurate
depiction of colour and pattern, giving customers
greater confidence in their purchase. Since launch
Home sales online have increased by 20%.

To find out more, visit marksandspencer.com/annualreport2010

Green stores In line with our Plan A
commitments all our new stores are built
to the highest environmental standards.
Our Westfield store (featured below)
includes a displacement ventilation
system, low energy lighting accompanied
by sensors and controls and CO2 food
refrigeration.

Find out more at
marksandspencer.com

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How we sell

Multi-channel continued

QuALITy

Above: Wine Club The M&S Wine Club has
gained a loyal following since its launch in 2008,
with over 10,000 subscribers. Our Wine Plan now
offers customers the choice of a contemporary or
premium plan, providing a hand picked selection of
fine wines conveniently delivered direct to their door
on a monthly basis.

Launched in February 2009, M&S TV is part
of our website and uses video to showcase
our latest products and services, using M&S
experts to give advice on everything from
how to accessorise an outfit to cooking the
perfect Christmas dinner.

M&S TV features a Click-to-Buy function

that allows customers to quickly buy what
they see on screen, with click-through rates
as high as 30%. M&S TV content has
appeared on Facebook and Twitter and in
December we launched a youTube channel,
to further extend the reach.

Talking to customers

As part of the site refresh we also increased
the prominence of our customer product
ratings and reviews. We know our customers
value these independent views and that they
can boost conversation rates, as customers
that have read a product review are twice
as likely to buy than customers that haven’t.
We have also embraced broader social
networking opportunities such as Facebook
and Twitter. We currently have over 112,000
fans on our Facebook site, which provides
the ideal forum for us to test new product
ideas and tap into the opinions of an
engaged customer base.

Home catalogue

The circulation of our Home Catalogue
continues to grow, reaching over 1.6 million
customers this year and acting as a source
of ideas and inspiration. Given the square
footage requirements of furniture, it’s not
possible to showcase our full Home offer
in all stores but our Home catalogue is an
opportunity for customers to view the entire
range at their leisure.

M&S Home Catalogue was named
Best Catalogue at the 2009 Association
of Publishing Agencies (APA) International
Customer Publishing Awards.

International delivery

In October 2009 we expanded our
international delivery service and we now
deliver to 80 international destinations, from
France, Germany and Spain to Africa, uSA,
New Zealand, Australia and Canada.

Store strategy

Our stores remain the most popular way for
customers to shop with M&S, with 21 million
customers visiting us each week. There are
five main elements to our store strategy:

–

–
–
–

–

add new and extend existing major out of
town stores
enhance our position in major cities
extend our presence in retail parks
continue and complete our high street
modernisation strategy and review stores
that underperform
continue to build on our successful long-
term Simply Food business.

INNOVATION & SERVICE

Left: M&S goes mobile As traditional online retail
matures, mobile is expected to become the growth
area for internet retailing and in May 2010 M&S
become the first major uK high street retailer to
launch a mobile shopping site. Customers on
the move are able to search, browse and buy easily
from any web-enabled mobile phone or device.
The site is always in sync with the main M&S
website so that customers can log into their regular
online account and manage their shopping basket
from their mobile.

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In September 2009 we announced plans
for a dedicated e-commerce warehouse,
due to open in 2012. you can find more on
the improvements we have made in this
area on page 34 of the IT & logistics section
of this report.

Looking ahead

Our aim is to make shopping with M&S as
convenient as possible for our customers –
from the way they buy through to the way
products are delivered. By bringing together
our channels we will provide them with even
greater flexibility and choice, allowing them to
shop in the way that best suits their lifestyle.
Integrating the channels also represents

a significant opportunity for us, if we can
grow the number of people that shop online
with us to be equal to the number that shop
in store. We will continue to capitalise on this
opportunity by developing our services in line
with changing shopping habits and emerging
technologies. The M&S brand values also
put us in a strong position to grow and
develop in this area, as trust is essential in
remote purchasing, be it via a mobile or on
the internet. Our customers trust us to
deliver, whichever way they shop with us.

To find out more, visit marksandspencer.com/annualreport2010

SERVICE

Above: Putting customers first Customer service
has improved throughout the year, according to our
mystery shopper scores, which are up 5% on last
year to 89%.

Our stores

Over the last five years we have conducted
an extensive modernisation programme and
to date almost 80% of the M&S chain has
been updated. Our aim is to deliver a bright,
contemporary shopping environment where
goods are easy to find and where a range of
hospitality options are on offer.

Where possible we have added additional

space to our existing sites. Over the last
12 months we have undertaken major
developments of both our Liverpool store
and Pudsey store in Leeds, adding over
27,000 sq ft to these two sites alone.
This year we obtained planning

permission for a new 150,000 sq ft store
in Cheshire Oaks. Due to open in autumn
2012, Cheshire Oaks will be a state of the
art store, designed in line with our
environmental credentials. It will be our
largest store outside London – our flagship
Marble Arch store (pictured above) is
170,000 sq ft, whereas an average M&S
store is around 45,000 sq ft.

our Simply Food offer into hospital
sites, opening three successful stores
at St Georges’ in Tooting, St Thomas’
in London and the Royal Berkshire
in Reading.

Our cafés and restaurants now offer
coffee and snacks as well as a sit down
meal. They are inviting and encourage
our customers to relax and spend longer
in our stores.

Service in store

We are committed to maintaining the
highest standards of customer service and
to do so, all of our stores are visited once a
month – twice in the case of flagship stores
– by mystery shoppers. Staff are scored on
a number of factors, such as service at the
point of sale, body language and how they
welcome customers into store. Over the last
12 months customer service has improved,
with an average mystery shopper score of
89%, up 5% on last year.

We have responded to the popularity

Foundations for growth

Our distribution network supports all of our
shopping channels, ensuring we can fulfil
customer orders and deliver efficiently.

of retail park shopping, opening at four
new retail park sites in Swindon, Bristol,
Cheltenham and Aberdeen. We now have
30 stores in retail parks and plan to open
new stores at Haverford West and
Tunbridge Wells during 2010/11.

Our Simply Food stores, which are a
mixture of wholly-owned and franchised
stores, continue to perform well. With our
franchise partner SSP we have expanded

INNOVATION

Right: Cheshire Oaks At 150,000 sq ft Cheshire
Oaks store will be the largest new store built by
Marks & Spencer for over 10 years. Due to open in
autumn 2012 the store will offer extensive hospitality
options, including a M&S café, restaurant and deli. It
will also feature a 950-space car park.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Where we sell
International

SERvICE

above: product tailoring In India we sell polo
shirts in three times the number of colour variations
as we do in the UK, to cater for the local market’s
taste for bright colours.

M&S International sales*

£949.4m
+5.7%

M&S International as a share of Group revenue

10.2%
+0.3% pts

during 2009/10 sales in our International business grew by 5.7%, accounting
for 10.2% of total Group revenues. this year we have focused on developing
our partnership in India and growing our Central and eastern european
business. over the last 12 months we have invested in our operational
capabilities, resulting in a better product offer, tailored to meet the needs
of specific markets, as well as building a platform for future growth.

Growing our international business

In 2007/08 we set a target to grow our
International business to between 15 to 20%
of total Group Revenue within five years and
over the last 12 months we have focused
on four key elements to help us achieve
this namely:

–

growing our Central and Eastern European
partnerships;
building sustainable businesses in India
and China;
accelerating growth with our franchise
partners; and
continuing to explore new opportunities.

This year we have continued to expand our
global footprint. We now have 327 stores in
41 territories (includes Republic of Ireland),
with the average square footage of our
international stores increasing from 10,773
to 11,129.

Our International business model is made

up of partly and wholly-owned subsidiaries
and franchises. This broad spread of
ownership models and countries has enabled
us to perform well throughout a difficult
global economic environment even when
individual markets have been impacted.

Improving efficiency

Operational efficiency is key to building a
platform for growth. The introduction of our
International Range Planner last year has
improved our ability to tailor the product
offer for individual markets. It enables us to
plan for regional variations and accurately
stock the right colours and sizes to meet the
specific needs of our international customers,
responding to seasonal requirements in
Russia or greater colour variations in India
for example.

Improvements in our supply chain have
enabled us to move products through
our network faster and more efficiently.
We now move over 21% of our stock
through our four international hubs in Hong
Kong, Singapore, Sri Lanka and Istanbul
direct to their destination, as opposed to
shipping international stock via the UK.

partly owned

Indian subcontinent

Expanding our Indian operation with our
partner Reliance Retail has enabled us to
transform our position in the market.
Under our previous franchise relationship
we were a small premium retailer selling UK
products at higher prices from small stores.
Through our partnership with Reliance Retail
we have been able to open larger stores and
realign our prices by locally sourcing up to
38% of our products, with an aim to reach
over 60% by 2012. Local sourcing provides
us with the flexibility to respond to market
needs, for example in India pockets on
shirts are common, as jackets are rarely
worn in the heat, so we add these to locally
sourced shirts.

We have opened four new stores in
India this year, giving us a total of 16 stores.
We now have a strong platform in place from
which to significantly expand our presence
in this market.

India presents us with a huge opportunity
– with a population of 1.2 billion and economic
(GDP) growth at 7.2%. With the right product
and the right partner we are well placed to
take advantage of this.

SERvICE

above: International mystery shopping
This year we rolled out our successful mystery
shopping programme to our international stores.
We produced a tailored service manual and have
seen continued improvement across the year,
with scores now at 80% and we will be keeping
up this momentum with regular visits.

SERvICE

above: Fresh food Trading from 1,400 sq ft,
the new standalone food store in Wan Chai, Hong
Kong offers over 800 food and drink products.
300 of these are fresh chilled foods, including
a choice of traditional British and international
ready meals such as Italian and Indian. The store
also boasts an in-store bakery that freshly bakes
pastries and bread each day.

* 52 weeks.

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To find out more, visit marksandspencer.com/annualreport2010

our International operations
A net total of 34 new stores in 2009/10.

Mediterranean and Islands
23 stores

republic of Ireland
and Channel Islands
30 stores

Middle east
23 stores

Indian subcontinent
16 stores

Southern and
eastern europe
160 stores

Far east
74 stores

other: Bermuda
1store

eastern europe

In 2008 we bought controlling stakes in our
Czech and Greek businesses and since then
we have strengthened the management
teams on the ground to create the right
mixture of local and M&S knowledge.

Over the last 12 months our business
with our Czech partner has grown, opening
10 new stores across the Czech group in
Poland, Slovakia and Estonia, taking the
total number to 36. Over the next year, we
will continue to develop our presence in
these regions, focusing on key cities in the
Czech Republic, Poland and The Baltics.
Greece has been hit hard by the
economic downturn. But we continue to
work closely with our partner Marinopoulos
Group to keep stocks tight and manage
the business, to give us more flexibility in
this environment.

wholly-owned

the Far east

In 2008/09 we opened our first store in
Shanghai. Since its opening, we have
developed our knowledge of local trading
and put in place an infrastructure to support
sustainable growth in this market, including
a new warehouse and a strong head office
team. In the short-term, we will focus on
developing our presence in Shanghai and
plan to open a second store in the city in
summer 2010, with an aim of opening a
third by the end of the 2010/11.

The potential in China is similar to that of
India, with a large population and economic
(GDP) growth at 8.7%. This year we have
focused on adapting our product to suit the
needs of the local market. For example, we
have introduced size 6 and size 4 across
womenswear to cater for smaller size
requirements and are developing ‘Asian fit’
bras for the market. We will continue to
improve our product tailoring, through
increased local sourcing.

Our Hong Kong stores have delivered a
strong performance, despite the economic
pressures in the region. Following the
successful Food to Go trial, in May 2010
we opened our first standalone food store
in Hong Kong. The new store offers a
comprehensive range of chilled products, a
first for M&S in the international market. We
now have 11 stores in the region and plan to
open a further store later in 2010.

republic of Ireland

The economic environment in Republic of
Ireland continued to be challenging.
However, our pricing remains competitive
and we responded to the changes in alcohol
duty and vAT, offering an immediate
reduction to our customers ahead of our
competitors.

FranChISInG

Our franchise operations now account for
around 31% of total International sales.
With Fiba, our franchise partner in
Turkey, the Ukraine and Russia, we have
had a very good year and have opened
eight new stores.

SERvICE

above: Isha tambe is store manager of our
Mumbai store – our first store in India with partners
Reliance Retail, which opened in April 2009.

Al-Futtaim, our partner in the Gulf, has had
a tougher year. Our stores there performed
strongly until the autumn, when the Dubai
economy faltered. However, we remain
confident about this market – there is an
affluent customer base and we have a
strong property portfolio, including a number
of larger stores, enabling us to showcase
more of the product range.

We have a long established franchise
business in The Channel Islands, with the
rest of our franchise business located in
a variety of locations, including Tenerife,
Marbella, Gibraltar, Bermuda, Cyprus
and Hungary.

looking ahead

We want to build a platform for long-term
growth and to do this we know we must
continue our international expansion at a
sensible pace. Emerging markets represent
a great opportunity for M&S and we will
focus on creating sustainable businesses
in these countries. We will ensure our
products are right, editing ranges to suit our
markets and responding to the unique price
architecture of each country, locally sourcing
wherever possible. We will continue to
grow our property footprint, increasing
the average square footage of our stores.
All of this will be underpinned by an efficient
operating model.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Efficient delivery
IT, Logistics & Supply Chain

plan a – TEAR DROP TRUCKS

The fuel used in logistics transport accounts for
around 8% of our operational carbon emissions.
We’ve already achieved our 2012 Plan A target
– a 20% improvement in delivery fuel efficiency
to our stores – and this year extended it to a
35% improvement by 2015. We’ve introduced
a number of initiatives to help as achieve this
such as a dual fuel trial for our Tear drop trucks.
We’ve also adopted ‘loose loading’, enabling
us to increase the stock carried on each truck by
50%, reducing the number of journeys required.

For more information about plan a see
p36 or visit marksandspencer.com/plana

QUALITy & TRUST

Below: the Cape flora bouquet is arranged
from seasonal flowers sustainably harvested from
the Agulhas region of South Africa. The Cape floral
kingdom is the smallest plant kingdom in the world
but contains the highest known concentration of
plant species – more than 9,000 plant species
make up the region, 6,000 of which are found
nowhere else on Earth.

In october – under project 2020 – we set out a clear plan to deliver long-term
sustainable growth through creating a more efficient It and supply chain
infrastructure. In recent years we have invested in upgrading the inefficient,
20 year old systems that supported the business. this year we have begun
to accelerate the pace of activity to fundamentally transform the way M&S
does business.

Over the last 12 months we have focused
on our immediate priorities – restructuring
our supply chain, implementing new
information systems and improving
operational execution. These investments
will lay down the foundations for future
growth, especially in Multi-channel and
International, as well as delivering tangible
customer benefits, such as better availability
and more flexible delivery options.

Supply chain

Our business operations have changed
dramatically in the last decade – there are
faster lead times, a wider range of products
and extensive growth in both our
International and e-commerce businesses.
This year, we set out plans to restructure our
supply chain to better support these
changes. Our aim is to build a simpler supply
chain that will improve customer availability
and create a more efficient platform for
growth. In addition these changes will deliver
annual savings of £150m.

We have made good progress in 2009/10
and have saved £35m by consolidating some
of our warehouses and implementing a
number of efficiency projects.

Consolidation of warehouses

One of our biggest projects is the
consolidation of our GM warehouse
network, moving from 110 smaller
warehouses to a small number of ‘super’
warehouses, based in prime central
locations and a dedicated e-commerce
distribution centre in the Midlands.

This is a long-term project but the first
phase is well underway and we have begun
the closure of 21 sites. Work has progressed
quickly and the first of the new ‘super’
warehouses, a 1 million sq ft site in Bradford,
is due to open in summer 2010. Our
e-commerce site in the Midlands has been
identified and we plan to start construction
this year. All of our new warehouses will
have a state of the art design, with the aim
of achieving an excellent rating under
BREEAM, a voluntary measurement rating
for ‘green’ buildings.

Simplification

In addition to our consolidation programme,
we have simplified operating processes in
our warehouses to enable us to move
products through our supply chain more
quickly. We have done this in two
ways, firstly by streamlining
day-to-day processes –

To find out more, visit marksandspencer.com/annualreport2010

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SERvICE

above: on shelf service Staff across our
stores are receiving training on the new stock
management software, which provides real time
data to help us improve on shelf availability.

above: our new GM warehouse in Bradford
is 1 million sq ft – it could fit 12 Wembley pitches
inside and it’s a one mile walk around the outside
of the building. In the service yard there is a
2.1 metre diameter rainwater storage tank, which
when full holds 4 million litres of water.

looking ahead

Our work to date has already achieved cost
savings and efficiencies. But there is still
more we need to do to build an infrastructure
that will enable us to meet our ambitions
of becoming a truly multi-channel retailer,
with a stronger international presence.
We are confident we have an

experienced team in place to implement
these changes, without disruption to the
day-to-day running of the business.
The result will be a simplified, more efficient
business that can respond flexibly to
changing customer demands and give
M&S a solid platform for growth.

stores are receiving training in the new
system and this will be rolling-out during
2010. The new centralised system provides
real-time data from stores to a head office
team, providing an accurate picture of stock
levels at all times.

Business Foundation programme

Having reviewed the operational processes
across the business we established that our
old core head office systems were no longer
suitable to support the business’ needs.
We decided the best way to solve this was
to launch a Business Foundation Programme,
rolling out a new integrated software
application called SAP Retail.

The roll out of the new system will mean
that M&S data is held in just one centralised
location, replacing a myriad of old systems
and will standardise core business processes
across Clothing, Home and Food. The new
systems will improve our visibility of sales,
stock and margin data leading to better
decision making and improvements in the
way we manage our promotional spend.
To ensure a smooth transition the project
is being phased in and to date, we have
successfully implemented SAP software
across finance, purchasing and International.

such as reviewing the floor layout of
warehouses to reduce picking times and
introducing a loose loading initiative, which
has enabled us to carry more products on
our trucks – and secondly by reducing the
number of times we handle stock. Currently
all stock goes to a sorting centre and then a
regional distribution centre before being
moved to a store. Following a successful
trial this year, all stock will go via just one
place in the future.

our international supply chain

To support future international growth,
over the next three years we will make our
international supply chain more cost efficient
and deliver more products direct to our
international partners as opposed to going
via the UK. This year we have made good
progress and delivered 9.8 million singles
direct to our overseas stores, our plan is to
increase this to 30 million by 2013.

It and systems

This year we completed the in-store pilot of a
new Point of Sale System (POS) and will begin
the roll-out to all stores later this year. The new
system is not only more cost efficient but also
helps deliver a better customer experience,
through a simplified process for transactions
and refunds.

Following another pilot, we have

introduced new software to improve stock
management. Staff representatives from all

SERvICE

right: Meeting customers’ needs ‘Shop
your Way’ is underpinned by our new improved
customer ordering system, delivering greater
flexibility to customers and improving fulfilment.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

How we do business
Plan A

Visit the plan a website at
marksandspencer.com/ plana

new commitments added in 2009/10

total commitments

180

number of original 100 commitments
achieved so far

TRUST

above: digging deep Working with environmental
charity Groundwork we developed a wildlife habitat
at Paddington Recreation Ground in London.
The money was raised from profits from our 5p
carrier bag charge and the project transformed an
under-used area of the park into wetland meadow,
making it a great educational destination for local
children. This is one of 79 Greener Living Spaces
created as a result of the charge.

marksandspencer.com/plana
marksandspencer.com/hwdbreport2010

How We Do Business Report 2010

Q
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y

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u
e

S
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v

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e

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n
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v
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t
i

o
n

a
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d

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t

TRUST

above: Find out more our performance in our
full How We Do Business Report 2010 at
corporate.marksandspencer.com/
howwedobusiness

plan a is our five year eco and ethical plan which we launched in 2007. we have
already achieved 62 of our original 100 commitments and are on track to meet a
further 30, leaving only eight commitments where we face additional challenges.
our success gave us the confidence to extend plan a in 2010, adding 80 new
commitments and extending existing commitments further. the new plan
involves all our customers and employees and sets ourselves the ambitious
goal of becoming the world’s most sustainable major retailer by 2015.

Over the past three years Plan A has helped
us improve our environmental performance,
develop more sustainable products and
services and improve the lives of people in
communities where we trade. As well as
being the right thing to do, it’s also been
good for business and over the past year
alone Plan A generated £50m additional
profit, which we invested back into the
business.

In 2009/10, Plan A highlights:
a reduction in CO2 emissions of
50,000 tonnes;
1.8 million used clothing garments recycled
via Oxfam;
20,000 tonnes of waste diverted
from landfill;
a reduction in 400 million food carrier bags
being used by our customers;
130 million clothing hangers recycled
or reused;
£13.2m invested in community
programmes;
launch of new products and services,
including 300,000 customers from
M&S Energy;
certified to the Carbon Trust Standard; and
awarded Platinum status in the Business
in the Community Corporate Responsibility
Index.

Climate change

We’re determined to play our part to help
tackle climate change and we remain
committed to making our UK and ROI
operations carbon neutral by 2012.

We’ve cut our carbon emissions by 8%,
equivalent to 20% per sq ft by improving our
energy efficiency and reducing emissions
from our store refrigeration systems.
Our improvements in energy efficiency were
achieved by rolling out the lessons learned
at our five energy efficiency stores to other
stores. This will help us improve on this
figure in future. Additionally the efficiency of
our General Merchandise delivery fleets has
improved by 30%.

To help our customers reduce their
carbon footprint we’ve continued to extend
our range of energy efficient electrical
products and developed M&S Energy which
is now helping 300,000 customers cut their
energy use.

By 2015 we’ve committed to reduce

our energy use by 35% per sq ft, help our
suppliers significantly reduced environmental
impact and broaden our action on climate
change to include more ways to get our
customers and employees involved.

InnOvATIOn

Carrier bag use in 2009/10

400 million reduction

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think Green The your Green Idea judging
panel is chaired by Sir Stuart Rose, joined
by new CEO, Marc Bolland. The panel also
includes the well-known green faces of wildlife
Tv presenter, Kate Humble; former director
of Friends of the Earth and trustee of WWF,
Jonathan Porritt; and environmental writer,
Julia Hailes. This panel will decide on the top
three green ideas – which will then be put to
a public vote for consumers to decide which
idea they would like us to put into practice
across all our UK stores within the next year.

available in store and at
marksandspencer.com

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

How we do business

Plan A continued

TRUST & QUALITy

left: From farm to fork Paul Luney is one of our
food technologists, specialising in fish. As part of his
role he regularly visits our suppliers to ensure they
adhere to our industry leading code of practice. He
is pictured here on a visit to a sea farm in Oban on
the west coast of Scotland.

waste

We’re reducing waste and recycling
wherever possible and have committed to
send no operational or construction waste
to landfill by 2012. We’re pleased to be able
to report good progress.

By the end of 2009/10 we’d achieved
an 88% recycling rate and reduced the total
amount of waste we generate in our
operations by 16%. Food waste has been
reduced by 29% with over a quarter of
what is left being sent to generate energy.
We collected 133 million clothes hangers
in-store and reused 76% with the remainder
being recycled. We also recycled 89% of
our construction waste up from 65% in
2006/07.

We’ve continued to reduce packaging –

General Merchandise packaging by 36%
and Food by 20% – whilst also using more
sustainable materials such as recycled
plastics. We encourage recycling and waste
reduction in the communities we work in
and this year, we are signing deals with four
local authorities, including Somerset Waste
Partnership, which will help us to close our
packaging ‘loop’. These deals will bring us
two clear benefits – we will receive more
recycled materials to use in our food
packaging and we will ensure that the
equivalent amount of food packaging we
use every year is recycled.

Through the M&S and Oxfam Clothes
Exchange, some 500,000 customers have
raised £700,000 for Oxfam by returning
1.8 million used M&S garments. The success
of our work with Oxfam led to the expansion
of the scheme last summer to encourage
people to recycle their soft furnishings,
including cushions, curtains, throws and
bed linen.

A further £1.4m has been raised for
Groundwork thanks to donations for our
Food carrier bag charging, with their use
down by 81% since 2006/07. The money
raised is being used to fund 79 parks and
play areas, including our 125th anniversary
town centre project in Leeds.

We have stretched our waste targets

even further and by 2015 our aim is to
increase the number of M&S garments
recycled annually by Oxfam from 2 million
to 20 million and increase the percentage
of hangers we recycle to 70%. We will also
work with our suppliers to improve their
performance on waste and we aim to
source 25% of our food (by turnover) from
factories that send no waste to landfill
within the next five years.

natural resources

We want to ensure our key raw materials
come from the most sustainable sources
possible, so we protect the environment and
the world’s natural resources. We have
already done much work in this area,
including becoming the first major UK food
retailer to source only pole or line caught
tuna for all the tuna products we sell, from
sandwiches to steaks, and we also became
the first retailer to sign the WWF’s Seafood
Charter to ensure our entire range of
seafood products comes from sustainable
sources. Over 60% of our wild seafood is
now either Marine Stewardship Council
(MSC) certified or undergoing MSC
assessment.

In October 2009 we purchased GreenPalm

certificates to cover all the palm oil used in
M&S products and committed to use only
sustainable palm oil by 2015, with the first
eight ‘sustainable palm oil’ products launched
in March this year. We also improved our
sourcing of wood materials so that 72% of

TRUST

above: Model factories In our Brandix Seeduwa
factory in Sri Lanka workers enjoy a subsidised
canteen and store, medical facilities, an on site
counseller and free financial advice.

plan a RECyCLInG ALL OUR WASTE

Our Birstall store in yorkshire has become the
first M&S store in the UK to send none of its
waste to landfill. All the waste from the store –
which is one of our biggest Simply Foods – is
now segregated and returned in our lorries for
recycling.

For more information visit
marksandspencer.com/plana

To find out more, visit marksandspencer.com/annualreport2010

the wood we use in our products (and 90%
of wood products used in construction and
store fit-outs) are Forest Stewardship Council
certified, recycled or from sources that
otherwise protect forests and communities.
Under our new phase of Plan A we are
committed to becoming the first major retailer
to ensure traceability of all the key raw materials
used in our clothing and home products
including cotton, wool, polyester, nylon,
leather and wood. We will also increase the
amount of cotton we source from sustainable
sources to 25% by 2015 and 50% by 2020.
In Food our aim is to become the first major
retailer to ensure that the five key raw materials
we use – palm oil, soya, coca, beef, coffee –
come from sustainable sources that do not
contribute to deforestation.

Fair partner

One of the things that sets us apart from other
retailers is the way we work with our suppliers.
This year we’ve helped our suppliers to set
up 10 Ethical Model Factories to demonstrate
how good employment practices can result
in a more productive workforce and allow for
higher wages. We provided over 80,000
hours of supplier training (four times more
than last year) and held best practice
conferences around the world.

2009/10 was the sixth year of our Marks

& Start work experience programme –
providing work experience to some 700
participants who otherwise would face
barriers to employment, with 40% of them
subsequently finding jobs.

We’ve helped our customers and
employees raise £2.1m for Breakthrough
Breast Cancer during 2009, with £13.1m
raised for the charity over the past nine
years. This figure, 15% of Breakthrough
Breast Cancer’s 2009/10 funding, is used
to part fund the Breakthrough Generations

Study into long-term causes of the disease.
We’ve also supported the Prostate Cancer
charity for four years, helping to raise nearly
£200,000 in 2009/10 to part-fund a UK-
wide helpline.

new developments with our suppliers
include our new commitment to become the
first major retailer to actively tackle and bring
clarity to the ‘living’ wage debate. We will do
this by determining and agreeing a fair, living
wage before implementing a process to
ensure our clothing suppliers pay this wage
to their workers in Bangladesh, Sri Lanka
and India.

In Clothing and Homeware, we have

pledged to work with our suppliers to
provide training and education programmes
that will include basic healthcare and
workers’ rights, for 500,000 workers in
their factories. Meanwhile in Food, we are
encouraging 10,000 farmers who supply
our fresh produce to join our sustainable
agriculture programme.

health and wellbeing

Promoting active, healthier lifestyles for our
customers and employees has always been
important to us. This year one of our major
new launches was our Simply Fuller Longer
range, developed in collaboration with the
Aberdeen University, to help people eat less
by feeling full for longer. Healthier food now
makes up 38% of M&S Food ranges.

Since we launched Plan A in 2007 we’ve
removed artificial colours and flavouring from
all M&S food and soft drinks and met 91%
of the Food Standards Agency’s (FSA) 2010
salt reduction targets.

We use traffic light nutritional food
labelling alongside Guideline Daily Amounts
on all FSA recommended categories of food.
In 2009/10 we also introduced the use of
calorie labelling on price tickets in our cafés.

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InnOvATIOn

left: pet wine bottles We became the first retailer
to convert its entire range of mini (25cl) still wine
bottles to PET, a material traditionally used in-flight
catering where turnover is very fast. Working in
partnership with Paul Sapin and Roger Harris Wines,
we developed a new oxygen barrier technology,
guaranteed to keep wine fresh for at least 12 months.
88% lighter than glass bottles, PET bottles require
less energy to manufacture and reduce the carbon
footprint in transport and distribution.

To give customers and employees the

information they need to make healthier
choices we’ve improved our online services.
These include a ‘healthy lifestyle’ website
and a monthly health bulletin for customers,
along with a your Wellbeing website and
newsletter for employees.

looking ahead

Despite the recession, we know that
environmental and social issues remain
important to our customers. Plan A is
already delivering considerable benefits and
we have made significant progress against
our original commitments. Our goal to
become the world’s most sustainable major
retailer by 2015 is an ambitious one. Our
extended Plan A will reach further and move
us faster – covering every part of our
business and reaching out to forests,
farms, factories, lorries, warehouses
and into our customers’ and
employees’ homes. We believe
sustainability is a key ingredient of
business success and that Plan A
will continue to make us more
efficient, develop new markets
and build customer loyalty.
It remains the right thing to do
both morally and commercially.

TRUST

above: our Milk pledge plus guarantees the
milk prices paid to suppliers reflects the retail
price and now includes a bonus payment for high
animal welfare standards. Monitored by Bristol vet
school (part of Bristol University), the scheme not
only provides farmers with greater security, but
incentivises them to maintain a healthy herd, so
customers can enjoy our milk safe in the knowledge
it comes from farms with the highest standards.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Our people
Being an employer of choice

M&S number of employees

76,267

employee turnover rate

14.0%

percentage of our people who have been
with us for over five years

45.5%

percentage of our people who have been
with us for over ten years

26.5%

plan a HOME EnERGy SERvICE

To mark the launch of our new Home Energy
Service, M&S employees were offered free loft
or cavity wall insulation. We expect to insulate
over 30,000 homes, saving around 13,000
tonnes of carbon dioxide each year.

For more information about plan a see
p36 or visitmarksandspencer.com/plana

TRUST

above: the european works Council (ewC)
was set up so representatives from the European
stores we trade in can communicate directly
with the M&S leadership team on behalf of their
colleagues.

our people are fundamental to the delivery of our core values. It is their talent
that drives innovation and their commitment that upholds the high standards
of quality and service our customers expect. attracting and retaining talent is
essential to our long-term growth and will ensure the business is in the best
possible position to capitalise on opportunities as we emerge from recession.
despite ongoing economic uncertainties, we have continued to invest in our
people this year. we have improved our benefits package with a new wellbeing
offer, set out plans to engage colleagues in plan a and provided tailored training
programmes. our aim is to uphold our reputation as an employer of choice,
ensuring M&S remains a great place to work.

training and development

Providing meaningful development opportunities
is critical to our talent strategy. We want to
identify and nurture our future leaders, as
well as provide engaging and relevant
training to employees across M&S.

our development programmes include:
lead to Succeed This year over 100 of our
most senior employees have completed our
flagship leadership programme, ‘Lead to
Succeed’. This programme is built around
our brand values – Quality, value, Service,
Innovation and Trust – and aims to identify
and develop our pipeline of talent for
the future.
Managing for Success and leading
with Impact Last year we launched the first
phase of this training programme for the
2000 line managers across M&S.
your M&S Career path Employees across
the UK and Republic of Ireland benefit from
your M&S Career Path training and learning
programmes. Section and Store managers
receive tailored workshops and all newly
hired customer assistants complete a
thorough 26 week induction.
Graduate schemes Our graduate scheme
is an essential part of our talent pipeline.
Designed to fast track candidates to
management, the two year scheme is one of
the most popular in the sector. This year’s
scheme attracted over 9,300 applicants for
165 places.
work experience Through Business in the
Community’s Work Inspiration Campaign,
we have pledged to offer 2,000 work

experience places each year. We have
worked with schools, universities and the
Fashion Retail Academy to help bridge the
world of education and work and provide
more young people with meaningful work
experience.
Marks & Start Launched in 2004, Marks &
Start is our work experience scheme for the
homeless, disabled, lone parents and young
unemployed. Participants are paired up with
an M&S buddy, providing a rewarding
development opportunity for employees.
This year we have also reviewed our
head office induction programme and since
February 2010 all new joiners are required
to complete a week’s store attachment to
provide a better insight to the business.

rewards and benefits

M&S continues to offer a competitive reward
package, with a generous retirement plan,
Sharesave options and bonus scheme.
It’s important to recognise and reward hard
work and excellent customer service, even
in a difficult trading environment. This year,
our customer assistants were awarded a
‘Sharing in Success’ bonus, receiving
between £200 and £500 each.

We take a holistic approach to

employee benefits, encouraging a happier,
healthier workforce. Our WorkWell scheme
supports staff with a stress management
programme and we continue to provide two
year breast screening cycles for female
employees and female partners of employees.
We have introduced a your Wellbeing
website, a dedicated portal that provides all
staff with access to health and wellbeing
information, as well interactive tools to help
monitor their progress.

To find out more, visit marksandspencer.com/annualreport2010

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InnOvATIOn

above: our your wellbeing website for
employees was developed by Russel Turner, from
M&S Occupational Health: “The website provides
easy to use tailored programmes designed to help
employees achieve personal goals, be that improving

work-life balance or even getting a better night’s
sleep. Launched as part of ‘Wellbeing Week’,
where colleagues were offered free head massages
and advice from fitness experts, the site received
over 1,600 employee pledges in the first four days.”

Getting involved

Communicating with employees

Against a backdrop of continued economic
uncertainty, it’s vital that we maintain an
open dialogue with all employees. We do
this through a number of channels including:

Business Involvement Group (BIG)
is made up of over 3,500 elected staff
representatives from across M&S. BIG
represents employee views on matters
relating to work and employment, leading
consultation processes on behalf of stores
and head office.
director Breakfasts
Informal Q&A sessions
for store colleagues with
business unit leaders.
In-store listening
groups Regularly
hosted by store managers so any issues
can be communicated to Head Office
M&S Intranet Our employee portal,
updated daily with announcements from
the business, as well as regular news
from the wider retail sector.
Quarterly results broadcast A regular
financial update to all employees, outlining
the Company’s performance
top 100 briefing A monthly cascade of
Head Office information to top managers.

Research has told us that increasingly
people make a decision about the company
they want to work for based on its social
and environmental agenda. Employees need
to trust their employer to act responsibly
towards them as individuals and increasingly
they want to be able to trust a business to
act in the best interest of society. Plan A
provides an excellent platform for M&S to
demonstrate its ethical and eco commitment
to current and future employees. As part
of this year’s relaunch we set out to further
engage colleagues in Plan A and encourage
them to lead greener lifestyles.

All M&S employees are now entitled

to a paid day off to volunteer in their local
communities and we have introduced Plan A
targets into the bonus framework for senior
executives. We continue to recognise the
work employees do across the community
and in the workplace with our annual Plan A
volunteer awards.

a year of celebration

Last year M&S celebrated its 125th
anniversary and our people were at the heart
of the celebrations. To mark the occasion
we set colleagues a 125 Challenge, to raise
£1.25m for local community charities in
125 days between May and September.
M&S stores and offices up and down the
country got involved – from bake sales
to cycling challenges and even hiking 84
miles along Hadrian’s Wall – our colleagues
rose to the challenge and smashed
our original target, raising £2.8m.

Our 125th year was
topped off with a gala party,
with colleagues across the
country coming together
to celebrate.

your M&S employee
magazine
Bi-monthly magazine that
provides employees with
features on the latest M&S
initiatives and employee
stories.

your Say Survey

Launched in 2006, our annual employee
your Say Survey provides us with a
comprehensive view of employee opinion.
Response rates for our most recent poll
were up 3% to 94% participation and our
overall positivity score increased to 74%
demonstrating the progress we have made
in a challenging year.

This year, we added questions to the

survey to help individual line managers
identify what they are doing well and where
they need to improve. Following the survey,
each line manager will now receive a
Manager’s Personal Report.

looking ahead

A great business is founded on great
people. As we look forward we will continue
to harness the full potential of all of our
employees so we can emerge as a stronger
and more competitive business.

We will do this through ongoing

investment in our people, ensuring that our
employees have the right skills to support
our growth ambitions and that they have the
opportunity to fully understand the plans and
priorities of the business.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Financial review*

Summary of results

2009/10
£m
(53 wks)

2009/10
£m
(52 wks)

2008/09
£m
(52 wks)

Group revenue

9,536.6 9,347.6 9,062.1

change
%
(52 wks)

+3.2

operating profit before
property disposals

profit before tax and
property disposals

profit before tax

adjusted epS

dividend per share
(declared)

843.9

779.3

768.9

+1.4

694.6

702.7

33.0p

632.5

640.6

30.0p

604.4

706.2

28.0p

+4.6

–9.3

+7.1

15.0p

17.8p

–15.7

2009/10 was a 53 week reporting period. In order to make a
comparison to last year, all reported income statement numbers in
the Financial Review are stated on a 52 week basis unless specified
otherwise. The 52 week results exclude UK revenue of £169.7m
(£76.6m General Merchandise and £93.1m Food) and UK variable
operating costs of £13.4m, that relate only to the 53rd week, as well
as International operating profits of £7.4m and a net interest charge
of £2.5m. The 52 week UK operating costs stated include annual
costs on the same basis as reported in any 52 week reporting period.

revenues

Total revenues were up 3.2% driven by an improvement in like-for-
like sales as well as the addition of new space in the UK and a
strong performance in our International business.

UK revenues were up 2.9% in total with a like-for-like increase of
0.9%, reflecting both the actions we have taken over the last year to
manage the business through the downturn and an improvement in
market conditions and consumer spending. During the year, we
added c. 3.2% of space, representing 1.9% in Food and 3.9% in
General Merchandise.

International revenues were up 5.7%, with a 2.7% positive
impact from the movement in the exchange rates. Whilst some of
our overseas businesses were impacted by the continued global
economic downturn, particularly in the Republic of Ireland and
Greece, many delivered good growth in the year, with areas such
as India, Hong Kong and the Czech Republic particularly strong.
Our franchise business also continued to perform well despite the
slowdown in the Middle East, with countries including Turkey and
Russia growing strongly.

General merchandise gross margin was up 70 basis points at 52.5%,
with better sourcing and tight control over stock and markdowns,
mitigating the adverse currency pressures. Food gross margin was
down 95 basis points at 30.6% reflecting further investment in price
and increased promotional activity, offset by better buying and a
reduction in food waste.

UK operating costs before bonus were up 1.0% to £2,769.3m.

A breakdown of UK operating costs is shown below:

Retail staffing

Retail occupancy

Distribution

Marketing and related

Support

total before bonus
Bonus

total including bonus

52 weeks ended

27 March
2010
£m

28 March
2009
£m

% increase/
decrease

858.4

972.7

394.4

122.9

420.9

863.3

948.0

410.3

127.4

391.6

2,769.3

2,740.6

80.9

2.8

2,850.2

2,743.4

–0.6

+2.6

–3.9

–3.5

+7.5

+1.0

–

+3.9

Retail staffing costs were tightly managed, with improved
productivity offsetting the impact of space growth and the annual
pay review. The increase in occupancy costs reflects an increase
in both the depreciation charge and space growth. Despite the
increase in volumes and space, and strong growth in Direct,
distribution costs were down 3.9% as a result of ongoing initiatives
under Project 2020 to make our warehousing and distribution
network more cost efficient. We generated underlying savings of
£35m in this area in 2009/10. Marketing spend was down due to a
reduced number of external marketing campaigns. Support costs,
which include non-store related overheads, increased due to
depreciation related to the ongoing overhaul of our IT systems.

The bonus payment of £80.9m (last year £2.8m) reflects the

outperformance of the business against our operating plan.

The UK operating profit includes a contribution of £30.4m
(last year £24.8m) from the Group’s continuing economic interest
in M&S Money.

International operating profit before property disposals was
up 16.5% at £135.3m (last year £116.1m). Owned store operating
profits were £57.7m, up 26.0%, reflecting profits in Ireland and
Hong Kong, offset by small losses in China, India and Greece.
Franchise operating profits were up 10.4% to £77.6m due to
continuing strong sales performance.

operating profit

Operating profit before property disposals and exceptional items
was £779.3m, up 1.4%.

In the UK, operating profit before property disposals was down
1.3% at £644.0m. Gross margin was down 5 basis points at 41.2%.

profit on property disposals

Profit on property disposals was £8.1m (last year £6.4m). This mainly
relates to the sale of retail space adjacent to our store in Grafton
Street, Dublin.

To find out more, visit marksandspencer.com/annualreport2010

overview

performance & KpIs

Brand & marketplace

p01 ß

p14 ß

p20 ß

operating & financial review 

Governance

Financial statements

p50 

p78 

net finance costs

Interest payable

Interest income

Group capital expenditure for the year was £389m. We continued to
invest in our supply chain and technology in line with our strategy to
build an infrastructure fit to support the future growth of the business.

We added 3.2% of trading space in the UK, trading from

15.4m sq ft at the end of March 2010. We opened 24 stores during
the year, including 16 Simply Foods, mainly franchises.

52 weeks ended

27 March
2010
£m

28 March
2009
£m

(133.7)

(166.0)

2.1

14.6

Cash flow and net debt

net interest payable
Unwinding of discount on partnership liability
to the Marks and Spencer UK Pension Scheme

One-off premium on repurchase of debt

Pension finance income (net)

Fair value movement on financial instruments

(131.6)

(151.4)

(4.0)

(13.5)

10.8

(8.5)

(38.0)

–

35.4

(10.5)

net finance costs

(146.8)

(164.5)

net interest payable was down 13.1% at £131.6m reflecting a
decrease in the average net debt over the year, offset by a £13.5m
one-off premium on repurchase of debt. net finance costs were
down £17.7m after pension finance income of £10.8m (last year
£35.4m), and the unwinding of the discount on the partnership
liability to the pension scheme. The Group’s average cost of funding
was down to 5.9% (last year 6.5%).

taxation

The taxation charge is based on a full year pre-exceptional effective
tax rate of 25.6% (last year 27.0%).

earnings per share

Adjusted earnings per share from continuing operations, which
excludes the effect of property disposals, increased by 17.9% to
33.0p per share. The weighted average number of shares in issue
during the period was 1,572.2m (last year 1,573.2m).

dividend

In May 2009 the Board took the decision to rebase the Group’s
dividend payment for 2009/10 to 15p per share. In line with this
decision a final dividend of 9.5p per share (last year 9.5p) has been
approved. Having rebuilt cover to two times, the Board’s policy is to
grow dividends in line with adjusted earnings per share.

Capital expenditure

Store modernisation programme

new stores

International

Supply chain and technology

Maintenance

total capital expenditure

year ended

28 March
2009
£m

3 april
2010
£m

194

389

216

150

188

652

Cash flow from operations

Capex and disposals

Interest and taxation

Dividends and share issues

Share buyback

Other movements

net cash flow

opening net debt
Partnership liability to the UK Pension Scheme

Exchange and other non-cash movements

Closing net debt

year ended

28 March
2009
£m

3 april
2010
£m

1,349.7

1,371.9

(408.6)

(281.4)

(223.6)

–

(24.4)

411.7

(604.1)

(265.7)

(349.3)

(40.9)

(4.4)

107.5

(2,490.8)

(3,077.7)

–

10.7

539.6

(60.2)

(2,068.4)

(2,490.8)

The Group reported a net cash inflow of £411.7m (last year – inflow
£107.5m). Cash inflow from operations decreased by £22.2m,
reflecting growth in profits offset by a working capital inflow of
£77.9m compared with a £194.0m inflow last year. Inventory levels
were higher due to a further increase in direct buying, as well as an
improved sales performance. Capital expenditure, net of disposals,
was £408.6m (last year – £604.1m) reflecting further investment in
our supply chain and IT as well as new space growth. net debt was
£2,068.4m, down £422.4m on last year.

pensions

At 3 April 2010 the IAS 19 net retirement benefit deficit was
£366.5m (28 March 2009 £152.2m). The increase is due to a
decrease in the discount rate from 6.75% to 5.5%, as well as the
increase in the inflation rate from 2.9% to 3.6%, which have
increased the pension liability by c. £1.2bn. This increase has been
offset in part by a c. £1.0bn increase in the market value of the UK
scheme’s assets.

On 12 May 2010 the Group announced the outcome of its
triennial actuarial valuation which showed a deficit of £1.3bn at
31 March 2009. The details of the funding plan are explained in
the performance overview on page 9.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Governance overview
Board of directors

Chairman’s overview

We have one of the most trusted brands on
the high street, a clear plan, strong leadership
and motivated employees, who are all
focused on offering our customers great
products at great value and great service.
We want our governance to be
meaningful, relevant and focused on
improving our business:

–
–

–

promoting our strong brand values;
driving the business supported by
sound plans;
providing strong leadership and
accountability;
getting the best from our people by
developing and motivating them;
keeping our customers happy and giving
them what they want; and
running the business with effective risk
management and appropriate controls.

The Board needs a clear view of the
Company’s leadership and the day-to-day
activities of the Group, including current

trading, key risks and mitigation. Directors
also have a duty to take into account the
long-term, employees, relationships with
suppliers, customers and others, local
communities, the environment and how
business is conducted. Therefore, the
Management Board, operational committees
and functions support the Board in reviewing
strategy and performance whilst taking
these wider interests into account.

The Board is also responsible for
maintaining our values, supporting Plan A,
monitoring our code of ethics and protecting
our heritage.

While we try to make sure we are in line
with best practice the Board took a difficult
decision in 2008 to combine the roles of
Chairman and Chief Executive. The Board
believed this to be in the best interests of
the Company at the time to provide for
appropriate succession. We have delivered
the first phase of our transition back to best
practice with Marc Bolland’s appointment
as Chief Executive. By the end of July we
will have separated the roles, and by March
2011 at the latest we will have appointed
an independent Chairman.

Sir Stuart Rose Chairman

Deputy Chairman’s overview

At M&S, governance is about doing the right
thing, the right way. The Board seeks to ensure
that the right balances and accountabilities
are in place by:

–

demonstrating independence to bring
fresh perspectives and hold management
to account;
seeking full information to form views,
question management and take strategic
decisions; and
acting responsibly to make sure we meet
our accountabilities to shareholders and
wider stakeholders.

This year we assessed our progress against
these three requirements and also against
the actions developed from last year’s
performance review.

During the coming year we want to
improve the understanding of governance
and its relevance to the business and our
people, whatever part they play in serving
our customers – in stores, online, in the UK
and overseas. We will do this through our
Business Involvement Groups across stores
and head office and with a specific article in
our employee magazine.

Board of directors

 Independent
 Audit Committee
 Remuneration Committee
 Nomination &

Governance Committee

1 Sir Stuart Rose Chairman 
Appointed in May 2004. Age 61. Stuart will step down as
Executive Chairman on 31 July 2010 when he will become
Chairman. He will leave the Company by March 2011.
Stuart is Chairman of Business in the Community and a
non-executive director of Land Securities plc. Stuart began
his career in retail at Marks & Spencer in 1971 where he
remained until 1989, before going on to become Chief
Executive at a number of well known UK retailers, including
Argos plc, Booker plc and Arcadia Group plc.

2 Sir David Michels Deputy Chairman  (Chairman)
Appointed in March 2006. Age 63. David is Deputy
Chairman, Chairman of the Nomination & Governance
Committee and Senior Independent Director. He is
Chairman of Paramount Restaurants, Deputy Chairman of
easyJet plc, a non-executive director of Strategic Hotels &
Resorts and Jumeriah Group, Dubai. David was previously
Senior Independent Director of The British Land Company
plc, non-executive director of Arcadia Group and Chief
Executive of Hilton Group plc.

3 Marc Bolland Chief Executive 
Appointed on 1 May 2010. Age 51. Marc joined Marks
& Spencer from Morrison Supermarkets plc, where
he had been Chief Executive since 2006. Prior to this,
Marc worked for 20 years at Heineken NV in a variety of
management and marketing roles. He went on to become
an Executive Board member and Chief Operating Officer.
He is a non-executive director of Manpower inc.

5 Kate Bostock Executive Director, General Merchandise
Appointed in March 2008. Age 53. Kate joined
Marks & Spencer in October 2004. Previously, Kate was
Product Director for Childrenswear at Next from 1994,
before joining Asda in 2001 as Product Director for the
George Global Brand. She was responsible for the launch
of the standalone George concept and the launch of the
George brand globally.

4 Ian Dyson Group Finance and Operations Director
Appointed in June 2005. Age 47. Ian joined
Marks & Spencer as Group Finance Director, becoming
Group Finance and Operations Director in March 2008.
Ian was appointed a non-executive director of Betfair
Group Limited in February 2010. Previously, Ian was
Finance Director of The Rank Group plc and Group
Financial Controller of Hilton Group plc. Ian was a non-
executive director of Misys plc until September 2005.

We announced Ian’s resignation on 5 May 2010 and have
commenced our search for a new finance director. Ian will
step down from the Board on 14 July and will leave the
Company on 31 August 2010.

6 John Dixon Executive Director, Food
Appointed on 9 September 2009. Age 42. John joined
Marks & Spencer over 20 years ago as a store management
trainee. He has worked across the business in a variety
of senior roles, from Executive Assistant to the Chief
Executive, to Director of Home and M&S Direct. John
was Director of Food from July 2008 until his appointment
to the Board.

To find out more, visit marksandspencer.com/annualreport2010

Deputy Chairman’s overview

Our governance structure

Operating & Financial review p16 ß

Governance

Financial statements



p78 

Management
Board

d
i
t

i
t

Group
Investment
Committee

m u n eratio
mittee

R e

Customer
Insight Unit

Business
Continuity
Committee

n &
ominatio
e
c
overn a n
m itt e
om
C

Fire, Health
and Safety
Committee

nce

Business
Involvement
Groups

& Spen

M ar k
Group
Board

overn a n

c e

How We Do
Business Committee

We believe better communication of
governance can help support business
performance and define behaviours.
We have aligned this Governance
section with the themes in the FRC’s
recommended new UK Corporate
Governance Code:

–
–
–
–
–

leadership (pages 46 to 48);
effectiveness (pages 49 to 53);
accountability (pages 54 and 56-57);
communication (page 55); and
remuneration (pages 58 to 71).

We have made further progress with
our governance with the appointment
of Marc Bolland as Chief Executive.
The Nomination & Governance Committee
conducted a thorough process for Marc’s
appointment and is applying the same
approach to the search for a new Chairman.
Each year the Board tracks its progress
against an action plan to ensure that what
it does continues to meet the needs of the
business. This year it has been influenced
by our Board and Committee performance
reviews, which I have led as Deputy
Chairman.

I am satisfied that we have taken
a rigorous approach to looking at our
effectiveness and throughout the year
encouraged independent challenge to
the executive at all levels.

Sir David Michels Deputy Chairman

Group Secretary

7 Steven Sharp Executive Director, Marketing
Appointed in November 2005. Age 59. Steven joined
Marks & Spencer in May 2004. He is a non-executive
director of Adnams plc and an elected member of the
Tate Members’ Council. Steven was previously Marketing
Director at Asda, the Burton Group, Booker plc and
Arcadia Group plc.

8 Jeremy Darroch Non-Executive Director  (Chairman)
Appointed in February 2006. Age 47. Jeremy is Chairman
of the Audit Committee. He is Chief Executive of British
Sky Broadcasting Plc, having been the company’s Chief
Financial Officer. Jeremy was previously Group Finance
Director and Retail Finance Director at Dixons Group plc.

9 Martha Lane Fox Non-Executive Director 
Appointed in June 2007. Age 37. Martha is the UK’s Digital
Champion and a non-executive director of Channel 4
Television. She is founder and Chairman of Lucky Voice,
and of her own grant giving foundation, Antigone. Martha
was a co-founder of lastminute.com.

10 Steven Holliday Non-Executive Director 
(Chairman)
Appointed in July 2004. Age 53. Steve is Chairman of the
Remuneration Committee. He is Group CEO of National
Grid plc, having been responsible for the UK Electricity and
Gas businesses. Previously he was on the Board of British
Borneo Oil and Gas and held senior positions with the Exxon
Group. He has also developed business opportunities in
countries such as China, Australia, West Africa and Brazil.

11 Louise Patten Non-Executive Director 
Appointed in February 2006. Age 56. Louise is a senior
adviser to Bain & Co and a non-executive director of
Bradford & Bingley. She was formerly Chairman of Brixton
plc, and a non-executive director of Hilton Group plc,
GUS plc, Somerfield plc and Harveys Furnishings plc.

12 Jan du Plessis Non-Executive Director 
Appointed in November 2008. Age 56. Jan is Chairman
of Rio Tinto plc. He was Chairman of British American
Tobacco plc until October 2009 and a non-executive
director of Lloyds Banking Group plc until April 2009.
He was also Chairman of RHM plc from 2005 to 2007.
Jan was previously Group Finance Director of Richemont,
the Swiss luxury goods group until 2004.

13 Amanda Mellor Group Secretary and
Head of Governance
Age 46. Appointed on 8 July 2009. Amanda joined
Marks & Spencer in 2004 as Head of Investor Relations.
Her previous roles include Director of Corporate Relations
at Arcadia Group plc, and over 10 years working in
investment banking.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Governance report
Leadership

Who is on our Board?

What is our approach to governance?

Sir Stuart Rose leads the Board as Chairman and Marc Bolland
will lead the business as Chief Executive from the end of July
following his induction. Sir David Michels is Deputy Chairman,
Senior Independent Director and Chairman of our Nomination
& Governance Committee. The Chairmen of our Audit and
Remuneration Committees are Jeremy Darroch and Steven
Holliday. Other Board members are given on pages 44-45.

During the year we made the following changes:

–

Marc Bolland joined the Board on 1 May 2010. He brings a
wealth of experience and made a great success of leading
Morrisons since 2006.
John Dixon was appointed Executive Director on 9 September
2009. He joined M&S in 1986 and has worked in a number
of senior roles, including Director of Home, Direct and Food.
We announced the resignation of Ian Dyson on 5 May 2010
and have commenced our search for a new finance director.
Ian will step down from the Board on 14 July and will leave the
Company on 31 August 2010.
The Board is supported by the Group Secretary and Head
of Governance. Amanda Mellor was appointed on 8 July 2009
having been our Head of Investor Relations since 2004.

In March 2010 the Board renewed the contracts of two non-
executives for a further three years: Steven Holliday having served
six years and Martha Lane Fox, three years.

At the AGM on 14 July 2010 shareholders will be asked to elect

to the Board our new directors, Marc Bolland and John Dixon.
Sir Stuart Rose is seeking annual re-election as the Board determined
when he assumed the dual role. Ian Dyson, Steven Holliday and
Martha Lane Fox are retiring by rotation. Ian Dyson will not seek
re-election, and will step down from the Board. Martha Lane Fox
and Steven Holliday will seek re-election as directors.

What has the Board done during the year?

We aim to connect governance with what matters for running a
successful business. In Box A we’ve given examples of the Board’s
focus during 2009/10. The Board agendas are linked to the
fundamentals of: a trusted brand, clear plan, strong leadership,
motivated employees and delighted customers, together with the
necessary checks and balances. While we recognise the importance
of compliance, we avoid spending unnecessary time on procedure
and operational detail. We focus on the long-term plans for our
business as well as the issues that matter on the ground and what
our management and people are doing day-to-day.

Governance helps us do the right thing, the right way – for our
shareholders and our customers, employees, suppliers, local
communities and the environment. Our governance is focused
on how to get it right, not only in the boardroom but also across
the business.

We set out what we expect from our directors in the Governance

Framework which we publish on our website. This covers their
individual accountabilities as well as terms of reference for the
Board, Committees and business functions which support
our governance.

During the year we reviewed our approach to identifying,
evaluating and managing our risks – more about this is given
on page 54.

What do we mean by doing the right thing?

To make sure M&S succeeds, we have to get things right across
the business with the right checks and balances. It is not just what
we do but how we do it, such as:

–

behaving properly to each other as colleagues, making sure we
feel valued, motivated and rewarded;
treating our customers, suppliers and local communities with
respect; and
respecting the environment, involving our employees and
customers through Plan A.

At the heart of it all is making sure the people who own M&S – our
shareholders – get a good return on their investment. If we do the
right thing, the right way then the business will be successful.

HOW DID We COMPLy WItH tHe GOveRnAnCe CODe?

The governance rules which apply to UK companies listed on
the London Stock Exchange are found in the Combined Code
on Governance 2008 (the ‘Code’). Throughout the year ended
3 April 2010 the Company complied with all Code provisions
with the exception that from 1 June 2008 the role of Chairman
and Chief Executive has been exercised by the same individual,
Sir Stuart Rose. We recognise that this has been out of line with
best practice. We understand the concerns of shareholders but
believe that we have maintained robust governance while at the
same time benefiting from having Stuart at the helm.

On 1 May 2010 Marc Bolland joined us as Chief Executive.
On 31 July 2010 Stuart will step down as Executive Chairman,
remaining as Chairman until we conclude our search for an
independent Chairman to succeed him, no later than
March 2011.

During the year Sir David Michels, Deputy Chairman, has
taken the lead on all governance matters. This has included
engaging shareholders on their views, chairing the Nomination
& Governance Committee and conducting the review of Board
performance. At least half the Board comprises independent
directors, all of whom have been appointed since 2004.

To find out more, visit marksandspencer.com/annualreport2010

Operating & Financial review p16 ß

Governance

Financial statements



p78 

BOx A: WHAT THE BOARD HAS DONE DURING 2009/10

–

Checks and balances
Responded to the economic downturn
through a clear programme of cost control,
balance sheet and pension liability
management and dividend reduction
Initiated, through the Audit Committee, a
major review of our risk governance and
defined our risk tolerance
Assessed the effectiveness of our financial
reporting controls, internal control and
assurance processes
Reviewed our approach to health and safety;
business continuity and data protection

–

trusted brand
Reinvigorated our brand values through
‘quality worth every penny’ and other new
marketing campaigns
Checked on our approach to helping long-
term suppliers during the economic crisis
Debated the impact of introducing third party
branded products in Food
Reviewed our code of ethics and held
management accountable by widening the
scope of responsibility

–

Delighted customers
Listened to customer feedback in
the boardroom, at the AGM and on
the sales floor
Discussed the Management Board’s
review of product and service ranges
and store performance
Received regular updates on
marketplace trends and changes in
customer behaviour
Reviewed with the Retail Director
how his team runs our stores

Checks and
balances

Trusted
brand

s & Spenc

a r k

Delighted
customers

Doing the
right thing

Clear
plan

Govern a n c

Motivated
employees

Strong
leadership

–

Clear plan
Approved strategic plans for Clothing,
Food, Home and Beauty
Invested in buying and supply chain
systems to meet our Project 2020
ambitions including e-commerce IT
systems and centralised warehousing
Reviewed with management the key
risks and the quality of our risk
management systems
Relaunched Plan A which aims
to make us the most sustainable
retailer in the world by 2015

–

Motivated employees
Overseen the continuing implementation of
our 2020 strategy aimed at making sure we
have the right people and processes in place
Discussed with management the introduction
of a new remuneration and performance
framework for all employees
Reinvigorated our employee communication
through Business Involvement Groups,
Director breakfasts, in-store listening groups,
Chairman and Top 100 briefings and our
annual Your Say survey
Introduced major leadership development
programme and a suite of management and
employee training packages

–

Strong leadership
Appointed Marc Bolland
as our new Chief Executive
Initiated the search for an independent
Chairman through the Nomination &
Governance Committee
Assessed the total reward framework for
directors and senior management through
the Remuneration Committee
Tracked the flagship leadership programme,
Lead to Succeed, to identify and develop
people for succession

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Governance report
Leadership continued

How is our governance structured?

What does the Governance Group do?

Our structure is set out in the governance wheel and detailed
in Box B below. At the core of this is the Group Board which is
accountable to shareholders for the long-term performance of the
Company. The non-executives carry out the detailed work on the
governance committees with a particular focus on governance and
succession, controls and risk, and remuneration.

There have been a few changes since last year. We strengthened
our operational governance as part of our 2020 Change Programme.
The Executive Committee has been reconstituted as the Management
Board to clarify its accountability for strategic initiatives, risk management,
business processes, systems and controls. The Capital Approval
Committee has been reconstituted as the Group Investment
Committee giving greater visibility, control and consistency to the
approval process across the Group. The Information Security
Committee proposals, including data protection, have been adopted
and as a result, day-to-day oversight of this is now managed by the
Governance Group, with regular updates to the Board.

The Governance Group helps colleagues to do the right thing,
the right way, with governance that is meaningful, relevant and
focused on improving the business, both in the UK and overseas.
Its activities include:

–

–
–
–

–
–
–
–
–
–

implementing practical and cost-effective responses to legislation
and regulation;
giving guidance to colleagues on our policies and practices
including our code of ethics;
minimising trading disruption and legislative consequences;
leveraging business initiatives and sharing best practice;
negotiating contractual terms and protecting our brands
and innovation;
providing assurance on internal controls and visibility of key risks;
minimising insurance premiums, claims and fines;
protecting and promoting our heritage;
enabling the Company to meet its pension liabilities;
assisting employee and shareholder engagement; and
supporting directors in their Board and Committee roles.

BOx B: HOW OUR GOVERNANCE IS STRUCTURED

Our governance structure is best illustrated by our
“Governance Wheel” set out on page 45. the Committees
and functions are listed below along with an overview
of their activities and the key person responsible.

Corporate Governance

Operational Governance

Group Board (Sir Stuart Rose) relies on management to run the
business and on our people to give customers great service
every time they shop with us. The Board therefore monitors what
management are doing, holding them accountable for
performance against our targets and standards and probing their
thinking to make sure we are on the right track. The Board works
closely with management in thinking through our direction and
long-term plans, the opportunities, the risks and making sure
we’re developing the right management team for the future.
The non-executives provide independent challenge and
review, bringing wide experience, specific expertise and a fresh,
objective perspective. As members of the Board Committees,
they play a crucial role in undertaking detailed governance work
with a particular focus on shareholders:

nomination & Governance Committee (Sir David Michels)
recommends Board appointments, reviews business succession
plans and makes sure our governance is fit for purpose;

Audit Committee (Jeremy Darroch) monitors the integrity of the
financial statements and reviews effectiveness of internal
controls, risk management and audit;

Remuneration Committee (Steven Holliday) recommends
remuneration strategy and framework to recruit, retain and
reward senior executives for their individual performance.

Their committee activity reports are given on pages 51-52.

Governance Group (Amanda Mellor) helps colleagues to do the
right thing, the right way, with governance that is meaningful,
relevant and focused on improving the business, both in the
UK and overseas. It comprises legal, audit and risk, insurance,
archive, pensions, BIG (employee representatives) and secretariat.

Management Board (Sir Stuart Rose) is accountable for
executing our strategy, running the business and making sure we
are doing the right thing day-to-day. It keeps the Board informed
on the business and how we work with our different
stakeholders. Its work is supported by a number of operational
committees and functions:

Group Investment Committee (Sir Stuart Rose) allocates capital
and controls all investments with a risk of material impact on
financial results, brand or strategy;

Customer Insight Unit (Steve Bond) influences decision-making
by tracking marketplace trends and customer views;

How we do business Committee (Richard Gillies) drives our
social, environmental and ethical commitments (Plan A) in line with
stakeholder expectations, ensures they are integrated into
everyday activities and supports our aim to be the world’s most
sustainable retailer;

Business Involvement Groups (Malcolm Heaven) are the
elected representatives through which the business informs,
involves and consults employees so their views can be taken into
account to influence business change and decision-making;

Fire, Health and Safety Committee (Steve Rowe) promotes the
safety and wellbeing of our employees, customers and visitors and
minimises the risk of financial penalties;

Business Continuity Committee (Steve Rowe) equips the
business to continue to trade in the event of a crisis or disaster at
any M&S location at any time.

To find out more, visit marksandspencer.com/annualreport2010

Governance report
Effectiveness

Operating & Financial review p16 ß

Governance

Financial statements



p78 

How do we make sure our Board is effective?

Board performance
Last year we said that to achieve good governance, we need
a Board that demonstrates independence, is well-informed and
acts responsibly. We put particular effort into this year’s Board
performance review, by tracking progress against these requirements,
‘drilling down’ into specific areas that we feel matter, and looking
at how we can drive better governance through to the business.
We are confident that putting effort into getting the self-assessment
right has resulted in a more rigorous review as we set out in Box C.
We took a more robust approach to our self-assessment by

engaging the governance specialists, Independent Audit. They
provided external facilitation by challenging us on the questions we
asked ourselves and helping us analyse the results.

Committee performance
The Nomination & Governance, Audit and Remuneration Committees
have each conducted reviews of their own performance as described
for the Board. More information is given on pages 51-52.

BOx C: HOW WE REVIEWED OUR EFFECTIVENESS

“ Last year we set an action plan
to address being an independent,
informed and responsible Board.
Our performance review focused
on these three key areas.”

Sir David Michels Deputy Chairman

Sir David Michels, Deputy Chairman, talks about the
2009/10 Board performance review
This year we reviewed how we ensure independent challenge
around strategy, succession, leadership, risk and reward. We felt
that we had responded to external concerns regarding the
Chairman/CEO role and increased the level of dialogue with our
investors. At least half the Board comprises independent directors
who bring experience from other retail and consumer-facing
sectors, finance, property, international and online businesses.

Accountability is strengthened by ensuring there is sufficient time

for debate in the boardroom. The committees carry out detailed
independent oversight on behalf of the Board to ensure we have the
right processes in place for succession, audit and remuneration. The
Board receives independent analysis on stakeholder feedback from
our Customer Insight Unit; Director of Plan A, CSR and Sustainable
Business; and an annual investor audit produced by Makinson
Cowell. This combination of experience, objective opinions, detailed
review and debate has enabled strong, independent challenge.

We checked how we are kept informed and believe that we
get enough detail and the right amount of non-financial information
including employee and customer feedback. The non-executives
get direct access to the management team and sit on Board
committees so they have been kept informed on management’s
response to the current economic climate. The Group Secretary
makes sure that timely information is given to all directors. She
also keeps them informed on governance, regulation, key legal
issues and legislative change through a written report at each
Board meeting. Our online Board portal provides easy access to
information for directors to carry out their duties and for ongoing
development.

Individual performance
The Chairman reviewed the performance of the executive directors
individually against business and individual objectives. Remuneration
is directly linked to these reviews and is determined by the
Remuneration Committee.

Our Governance Framework gives particular emphasis to the
governance accountabilities of the Chairman, Deputy Chairman and
non-executive directors. The Deputy Chairman has reviewed the
performance of the Chairman against these accountabilities and
business objectives and confirms that he has continued to
demonstrate strong leadership of the Group during a time of
considerable economic uncertainty.

Following discussions the Chairman held with individual
directors, the Board confirms that each non-executive director is
independent in character and judgement; commits sufficient time
and energy to the role, and continues to make a valuable
contribution to the Board and its Committees.

We also asked ourselves about our commitment to being
responsible. We felt we gave significant time to discussions
around our brand, Plan A, code of ethics and heritage. The Board
has a clear view of its accountabilities to shareholders and wider
stakeholders. The Board’s challenge is to make sure this is put
into practice and is built into the way we work. We don’t get it
right 100% of the time and we rely on the Management Board to
make sure it happens on a day-to-day basis. This coming year we
want to look closely at how we can extend the impact of
governance on the wider business and keep under review what
guides our behaviours – see Box D.

“We also reviewed our performance on risk and our people.”

We asked questions around “making sure things go to plan”.
We covered risk management, the organisational response to risk
and control, information on risks and assurances on controls.
Overall we were satisfied that oversight on risk issues has
improved on last year, is robust and that we tackle risk effectively:
although we want to strengthen this further.

We also looked at “doing the right thing by our people”.

This year we gave considerable emphasis to leadership
development through the Lead to Succeed programme, which
was attended by our directors and the top management team.
The Management Board reviewed feedback from Lead to
Succeed participants; the annual employee ‘Your Say’ survey
which gives a good indicator to morale and management style
in the business; and working forums conducted as part of our
Project 2020 change programme. This included views on
responsiveness to stores and customers; engaging and motivating
teams; how business performance is managed; and how the
organisation communicates. As a result, the rollout of our Lead
to Succeed programme for our top 100 people has been
accelerated; performance management processes have been
strengthened further; and a leadership index introduced in our
employee survey to help line managers benchmark and improve
their performance. Furthermore, management performance is
now linked to individual bonus.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Governance report
Effectiveness continued

Action Plan 2010/11

Who is on our Committees?

Overall we felt we had addressed all the points on our 2009/10
action plan. The Board has strengthened its structures and
approach and is working well. But there is always scope for doing
better so this year we have set ourselves actions to support our
commitment to driving further improvement.

In 2010/11, in addition to its other responsibilities, the Board will

focus on:

–
–
–

–

developing leaders within the business;
ensuring the reward systems are appropriate and stretching;
monitoring the level of risk and the governance to support risk
management; and
making the most of our heritage and values.

We will report on our progress again next year.

Our non-executive directors play an important governance role in
the detailed work they carry out on our Committees on behalf of
the Board. On 9 September 2009 we made a number of changes.
Steven Holliday, who has been a member of the Remuneration
Committee since his appointment to the Board in July 2004,
stepped up to chair that Committee and Jan du Plessis was
appointed a member. Louise Patten was also appointed a member
of the Audit Committee. The Group Secretary supports the
Committee Chairmen in making sure members are equipped for
robust debate and informed decision-making and that they allocate
their time to the right things.

The Board has satisfied itself that at least one member of the
Audit Committee has recent and relevant financial experience and
is confident that the collective experience of its members enables
it to be effective. It also has access to the financial expertise of
the Group, the external and internal auditors and can seek further
professional advice at the Company’s expense, if required.

nomination & Governance Committee
Sir David Michels, Chairman
Sir Stuart Rose
Marc Bolland*
Jeremy Darroch
Martha Lane Fox
Steven Holliday
Louise Patten
Jan du Plessis

Audit Committee
Jeremy Darroch, Chairman
Sir David Michels
Martha Lane Fox
Steven Holliday
Louise Patten**
Jan du Plessis

Remuneration Committee
Steven Holliday**, Chairman
Martha Lane Fox
Sir David Michels
Louise Patten
Jan du Plessis**

* Appointed 1May 2010.
** Appointed on 9 September 2009.

What have the Committees done during the year?

In 2009/10 the Board had to make some high profile decisions
during a period of continuing economic uncertainty which had
an understandable impact on consumer and investor confidence.
As a result our non-executives committed significant time in addition
to their scheduled meetings set out on page 53. Our Chairmen
have set out overleaf the key areas of focus of Committees last year,
as illustrated in Box e.

BOx D: WHAT GUIDES OUR BEHAVIOURS

the Board is the guardian of the M&S brand, its reputation
and stakeholder relationships. If we do the right thing, the
right way these will be protected.

The Board monitors this and seeks to set the right tone from the
top. More specifically, it regularly discusses and reviews:

–

brand values

quality, value, service, innovation and trust;

–

Plan A and sustainability
ethical and social commitments; and

our ambitious environmental,

– code of ethics a guide to the values, behaviours and

ways of working we uphold.

In 2009/10 we reinvigorated our performance management.
Line managers are now more accountable for creating the right
conditions for people to perform at their best. This includes giving
regular feedback, not only against set objectives but also against
the eight business competencies which describe the behaviours
required at M&S.

Our heritage is important and affects what people expect
from us. We must build on our history and values to keep them
relevant to doing business today so that our past can inform our
future. Last year we celebrated our 125th anniversary with our
customers and employees. We know we are only as strong as the
communities in which we trade so we also challenged employees
to raise £1.25m for local charities in just 125 days. Across the
country, employees rose to the challenge, more than doubling
this target to raise £2.8m benefitting over 500 local charities.

We are proud to have built up one of the best corporate
archives in the UK which we will be moving to the University of
Leeds in 2011. Our archive comprises over 60,000 items
including clothing, artefacts and photographs. It illustrates our
past but also challenges us to make sure we continue to do the
right thing for the continued success of M&S.

“Quite rightly, people have very high expectations of
Marks & Spencer – our products, our services and our people.
If ever I’m in any doubt about the right thing to do, I know I can
look to our enduring brand values of quality, value, service,
innovation and above all, trust.”

Lesley Brownett, Deputy Secretary

To find out more, visit marksandspencer.com/annualreport2010

Operating & Financial review p16 ß

Governance

Financial statements



p78 

nomination & Governance Committee

Sir David Michels Committee Chairman

We put a great deal of time and effort into finding the right CEO: we
spent considerable time with our external consultants, defining our
needs and reviewing prospective candidates. We managed a
thorough, orderly search and interviewed rigorously. I am confident
that as a result we’ve been successful in securing a strong CEO
in Marc Bolland. We also recommended the appointment of John
Dixon as an executive director, made changes to our Committee
membership and appointed a new Group Secretary.

We have given increased focus to leadership development
through the Lead to Succeed programme and strengthened our
performance management processes. We want to ensure we have
a high performing workforce to get us through the current tough
trading conditions. We want to be better at identifing tomorrow’s
leaders. Those demonstrating high potential qualities are included in
the business succession plan. We have also reviewed induction to
help our new joiners get off to the best start. For our part, we have
taken a rigorous approach to Board and committee performance
reviews. Prior to his appointment as an executive director, John
Dixon spent time with one of our non-executive directors to prepare
him for his wider accountabilities as a Board member.

Reflecting Stuart’s earlier comments, we reviewed how we can

make our governance more meaningful to our people in the
business so that we can all make sure we are doing the right thing,
the right way at Marks & Spencer.

Audit Committee

Jeremy Darroch Committee Chairman

With the continuing changes in our business and the very challenging
economic climate, a key focus this year has been the Group’s
approach to risk, keeping a close eye on our financial performance
and strength. To enable the Board to make more informed decisions
on strategy and business priorities, we made our approach to risk
more dynamic and insightful, whilst keeping it simple and practical.
The Board confirmed that it would increase the time it spent on risk
appetite whilst continuing to rely on the Audit Committee for risk
oversight; therefore a separate risk committee is not required.

The effectiveness of our external auditors is key to giving us
confidence in the Group’s approach to controls and risk and to enable
us to recommend the reappointment of PricewaterhouseCoopers
LLP. We judge them on the quality of their audit findings,
management’s response and stakeholder feedback. We check on
their independence by making sure they are sufficiently challenging
on management. We also set the audit and non-audit fees (see
page 88) and make sure that our auditor engagement policy is
adhered to when commissioning non-audit work. Audit partner
rotation is important to retain the objectivity of the process – Stuart
Watson was appointed lead audit engagement partner in 2008/09.

We review the effectiveness of internal audit which focuses its
work on business priorities identified by the Group Risk Profile.
We track their key findings and the responsiveness of management.
To do this we made more time to meet with senior management to
understand how they run their businesses, mitigate their risks and
keep it all under control. The independence of internal audit is also
important. Paul Shearer was appointed Head of Internal Audit and
Risk in July 2009. He reports to the Group Secretary and has direct
access to me to support him in his role.

As a final safeguard, at the end of each meeting the Committee

holds separate meetings with the external and internal auditors,
without management present, to discuss their respective areas
and any issues arising from their audits.

Remuneration Committee

Steven Holliday Committee Chairman

Our long-term philosophy is to attract and retain leaders who are
focused and encouraged to deliver business priorities within a
framework that is aligned with the interests of the Company’s
shareholders.

Our remuneration strategy continues to ensure that a significant

percentage of the package remains ‘at risk’. This approach has
informed the Committee’s considerations relating to Marc Bolland’s
remuneration on his appointment as the new Chief Executive,
to succeed Sir Stuart Rose.

The Committee agreed a salary and benefits package for Marc

which is consistent with the Company’s current remuneration
framework for executive directors. The salary is in line with existing
M&S remuneration policies and the external market, with the largest
part of the package ‘at risk’, as awards will only be received in the
event that the Annual Bonus Scheme pays out and if share grants,
made under the Company’s Performance Share Plan, hit challenging
targets throughout the next two to three years. The Committee
considers that payout at maximum levels under these schemes will
be as a result of significant outperformance by the business, with
substantial levels of return for investors. The Committee put in place
a recruitment package which fairly compensated Marc for his
awards that were forfeited with his previous employer and which the
Committee was fully satisfied would meet their performance targets
and pay out had Marc remained in their employ.

The Committee also agreed the remuneration for Stuart’s

transition to Chairman at the end of July 2010.

In 2009/10, the Company clearly outperformed the targets set both

in the internal operating plan and those expected by the City. This
level of performance resulted in a bonus being paid for the first time
in three years across the whole organisation. Given the economic
forecasts that prevailed at the start of this financial year, these
payments reflect significant performance both at an individual and
Company level.

For 2010/11, the targets for the Company’s long-term incentive

plan have been amended upward to ensure that they remain
challenging and at least as demanding as the targets set in previous
years.

The remuneration of the non-executive directors is determined

by the Chairman, Deputy Chairman and the executive directors.
Further information the Remuneration Committee’s activities are
given in the Remuneration report on pages 58-71.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Governance report
Effectiveness continued

BOx e: WHAT THE COMMITTEES HAVE DONE DURING 2009/10

nomination & Governance
Committee

–

Agreed process and timetable for new
CEO, shortlisted candidates and
recommended Marc Bolland to the
Board;
Reviewed Committee Chairmen and
membership;
Recommended John Dixon’s
appointment as Executive Director and
Amanda Mellor’s appointment as
Group Secretary; and
Reviewed the impact of governance
from the boardroom to the business.

Audit Committee

Remuneration Committee

–

Reviewed the Group’s approach to risk
to make it more dynamic and insightful,
whilst keeping it simple and practical;
Met separately with the directors of
GM, Food, Retail and Direct and IT and
Logistics to review risks and mitigating
actions;
Received reports from external and
internal audit on the major findings
on their work and progress of
management follow up; and
Received assurance on going concern,
counterparty risks, pension valuation,
property values, code of ethics and
Plan A.

–

Agreed remuneration arrangements for
new Chief Executive and outgoing
Chairman;
Reviewed total reward framework
for directors and senior managers,
including long-term and short-term
incentives and performance measures;
Challenged and revised the targets for
June 2010 Performance Share Plan;
and
Engaged with investors regarding the
principles of senior remuneration.

How have the Committees rated their performance?

In February 2010 Committee members completed a questionnaire electronically to rate their performance. An unattributed executive
summary was then distributed to all members for discussion at their respective meetings and key actions agreed:

Committee

Review of 2009/10 confirmed that

Key actions for 2010/11

nomination &
Governance

–

the appointment process for our new CEO was
robust and delivered an excellent candidate;
we are on track to appoint an independent
Chairman by March 2011; and
during this period of economic uncertainty,
Lead to Succeed is having a positive impact
on our leadership.

–

–
–

–

support Stuart and Marc through the transition to separate
Chairman and Chief Executive roles by end July 2010;
conclude search for new Chairman and finance director
review skills mix of the wider Board and committees
following these appointments
keep governance connected with the business, spending
time with leadership and our people.

Audit

–

the Committee’s challenge on risk has improved
the process and given leadership a more
focused approach; and
management presentations have increased the
Committee’s understanding of the key business issues.

–

keep the risks and controls of our new business
processes and IT systems under review; and
work with the Board in reviewing any changes
to our risk appetite and tolerance.

Remuneration

–

our approach to remuneration philosophies has
been rigorously debated during a time of economic
uncertainty and intense media scrutiny; and
the Committee has been kept informed of wide-ranging
investor opinion.

–

review the senior remuneration strategy in line with any
changes to business priorities following the appointment
of our new Chief Executive; and
review impact of remuneration on culture and behaviour, at
all levels in the business.

To find out more, visit marksandspencer.com/annualreport2010

Operating & Financial review p16 ß

Governance

Financial statements

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p78 

PenSIOn SCHeMe GOveRnAnCe

The Group operates a defined benefit (‘DB’) scheme for all
employees with an appointment date prior to 1 April 2002 and a
defined contribution (‘DC’) scheme open to those joining the
Company on or after 1 April 2002. More information is given in
note 11 on pages 92 to 94.

The Board of the Pension Trust (‘Trustee Board’) manages

the assets of the pension scheme which are held under trust
separately from those of the Group. The Trustee Board comprises
Tony Watson as independent Chairman and Law Debenture
Trust as independent Trustee, together with five company
representatives and five member representatives (Member
Nominated Trustees – ‘MNTs’). There are four main committees:
DB, DC, Investment and Actuarial Valuation. MNTs are appointed
through a selection process.

The Trustee Board has a business plan and at the start of each year
the Trustee reviews the plan and objectives from the previous year
and agrees its objectives and associated budget for the current
year. There is a communications strategy and plan, a risk register
and action plan, a conflicts of interest policy and a register and
code of ethics, all of which are reviewed at least annually. There is
also an annual board effectiveness review and each Trustee has an
individual training plan which is based on the Pension Regulator’s
Trustee Knowledge and Understanding requirements.

All advisers and suppliers are appointed through a rigorous

tender process. They are monitored via quarterly reports and
periodic meetings. There is a rolling programme of adviser reviews
with an informal review annually and a formal review every three to
five years. The most recent appointment, in August 2008, was
Ernst & Young as Company covenant monitoring adviser.

Board and Committee attendance

The following table sets out the number of meetings of the Group Board and its principal committees during 2009/10 and individual
attendance by Board and committee members at those meetings.

Board Meetings

Nomination &
Governance Committee

Audit Committee

Remuneration Committee

Name of director

Chairman
Sir Stuart Rose(1)

Deputy Chairman
Sir David Michels(2)

Chief executive
Marc Bolland
(appointed 1 May 2010)

executive directors
Kate Bostock(3)

John Dixon
(appointed 9 September 2009)

Ian Dyson

Steven Sharp

non-executive directors
Jeremy Darroch(4)
Martha Lane Fox(5)
Steven Holliday(6)
Louise Patten(7)
Jan du Plessis(8)

–

10C

–

5C
5

–

10
10C
10

–

A = Maximum number of meetings the director could have attended.
B = Number of meetings the director actually attended.
C = Committee Chairman

1
2

3
4

6
7
8

Sir Stuart Rose did not attend the Nomination & Governance Committee meeting on 26 February 2010 as it concerned the succession of Chairman.
Sir David Michels was unable to attend the Audit Committee meeting on 14 January 2010 due to other M&S Commitments and on 17 March 2010 due to personal
commitments. He was unable to attend the Remuneration Committee meeting on 18 November 2009 and 24 February 2010 due to overseas business commitments.
Kate Bostock was unable to attend the Board Meeting on 9 December 2009 through illness.
Jeremy Darroch was unable to attend the Board Meeting on 6 May 2009 and the Nomination & Governance Committee meetings on 6 May and 16 November 2009 due to
overseas business commitments with BskyB.
Martha Lane Fox was unable to attend the Remuneration Committee meeting on 22 May 2009 and the Nomination & Governance Committee on 2 September 2009 due to
other business commitments.
Steven Holliday was unable to attend the Board Meeting on 3 November 2009 due to overseas business commitments with National Grid.
Louise Patten was unable to attend the Nomination & Governance Committee meeting on 29 September 2009 due to other business commitments.
Jan du Plessis was unable to attend the Audit Committee meeting on 12 May 2009 due to business commitments with Rio Tinto.

All reviewed the relevant papers and provided comments to the Chairman or Committee Chairman as appropriate.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Governance report
Accountability

How do we manage our risks and controls?

How does the Board get a clearer picture of the risks?

Our aim is to build a sustainable business through consistent, profitable
growth and to make sure that our customers and wider stakeholders
can always trust us to do the right thing. We recognise that creating
shareholder value is the reward for taking acceptable risks.

The Board has overall accountability for running the business

effectively – making sure risks are managed and it’s all under
control. Internal controls and risk management are designed to limit
the chance of failure to achieve corporate objectives. Independent
assurance is provided by the external auditors and internal audit,
who present their findings regularly to the Audit Committee.
We have adopted an integrated approach to our risk
management, independent assurance and internal controls to
ensure greater linkage across our review and assessment of risk.

How does the Board know it’s all under control?

We are an extensive business with a wide range of objectives
and risks. The Board is responsible for ensuring that everything
goes according to plan and that reporting lines and individual
accountabilities are clearly understood. We also have operating
policies and procedures covering everything from financial planning
and reporting, capital expenditure, project governance and
information security to business continuity, employee performance
management and how we do business. Detailed policies and
procedures are in place to ensure the accuracy and reliability of
financial reporting and the preparation of consolidated financial
statements.

This year the Board has reviewed and agreed changes to

some key polices and procedures including:

–

reconstitution of the Management Board to clarify its
accountabilities for strategic initiatives, risk management, business
processes, systems and controls;
establishment of the Group Investment Committee through which
all investment and commitment between £1m-£15m is now
reviewed, giving greater visibility, control and consistency to the
approval process across the Group;
acceleration of Lead to Succeed, our leadership development
programme that started last year, to drive the business forward
through collaborative working, sharper focus on the customer and
clearer accountabilities; and
ongoing tight control of our cash flow, working capital, cost
management and capital expenditure. We have also reviewed our
financial headroom and debt profile resulting in a bond
buy-back and issue of new debt.

Every six months the Board reviews the Group Risk Profile – the tool
that drives business improvement and internal audit activity. This is
supported by an ongoing process for identifying, evaluating and
managing the significant risks faced by the Group. Our principal risks
and uncertainties are set out on pages 56-57.

The Audit Committee is responsible for monitoring the risk process

and this year provided challenge in a number of areas. As a result we
have improved the risk process to make it more dynamic and
insightful, whilst keeping it simple and practical. Key changes include:

–

greater Management Board engagement so that risks are clearly
understood and owned by executives;
clearer categorisation of risk likelihood and impact criteria to draw
out the most critical risks;
more detailed understanding of the potential causes and
consequences for the top risks in each business area and the
impact of any existing mitigation and assurance activity; and
more insightful risk reporting to highlight consistent themes,
enable the Board to make informed decisions on strategy and
provide the Audit Committee with assurance over the adequacy
and effectiveness of risk management.

Further discussion on financial risk management is given on pages
102 to 105.

ASSURAnCe

On behalf of the Board, the Audit Committee examines the
effectiveness of the Group’s:

– systems of internal control, primarily through approving the
internal audit plan and reviewing its findings, reviews of the
annual and half year financial statements and a review
of the nature, scope and reports of external audit;

– management of risk by reviewing evidence of risk assessment

activity and an internal audit report on the process;

– action taken or to be taken to manage critical risks or to
remedy any control failings or weaknesses identified.

The Audit Committee has completed its review of the
effectiveness of the Group’s systems of internal control during
the year, which are in compliance with the Turnbull Guidance
2005. It confirms the necessary action plans to remedy identified
weaknesses in internal control are in place and have been
throughout the year.

To find out more, visit marksandspencer.com/annualreport2010

Governance report
Communication

Operating & Financial review p16 ß

Governance

Financial statements



p78 

Sir David Michels, Deputy Chairman

What happens at our AGM?

During 2009/10 it has been particularly important to keep in touch
with our principal investors and we have aimed to have better
ongoing dialogue with them. Timely and productive discussions
require greater effort on both sides, particularly when dealing with
high profile matters and media attention.

Both Steven Holliday, Remuneration Committee Chairman,

and I have met with investors and shareholder representative
bodies, on remuneration and succession, accompanied by the
Group Secretary, and have kept the Board informed. We have
listened to ensure we understand their concerns. They hold a
wide range of views and we do not always agree – it would not
be possible given the diversity of opinion among investor groups.
However, to do the right thing for M&S the Board needs to be fully
informed of their views. We will continue to keep the channels of
communication open.

All executive directors attend our full and half year results
presentations. Our wider leadership team also met a large number
of investors at our Investor Day on 13 October 2009. This focused
on our project 2020 change programme and the significant
investment we are making in supply chain and IT systems to meet
our multi-channel ambitions.

Independent feedback on investor relations is provided to
the Board through an annual presentation by Makinson Cowell.
This contains major investor views on Company management and
performance, based on the results of an extensive survey. This
keeps our investor relations programme on track and during the
year, our IR team met with representatives from over 275 investment
institutions to keep them updated on business performance.

Amanda Mellor, Group Secretary

We welcome the proposed stewardship code for institutional
investors, which is being developed alongside the new UK
Corporate Governance Code. Following the requisitioned resolution
at our AGM in July 2009 we’ve had more contact with a wider group
of investors and shareholder representative bodies. This active
dialogue has enabled us to feedback a wide range of views to the
Board and develop a better understanding of mutual objectives.
This ongoing dialogue will continue to be a key focus going forward.
We have a special relationship with our private shareholders.
They own a high percentage of our shares (c30%), many of them
are long-term investors and 30,000 of them are employees.
We welcome shareholder feedback and mail a topics card with
the AGM Notice of Meeting. Over 8,000 replied last year, the vast
majority of comments related to our products and stores. Throughout
the year shareholders also email the Chairman with their comments,
write to us or call our telephone helplines.

Many of our shareholders are loyal customers. We distribute
shareholder ‘spend & save’ vouchers with our January dividend
and these continue to be very popular. Along with our registered
shareholders, we distribute over 100,000 vouchers to indirect
investors through the wide participation of nominee companies.
We do our best to look after private shareholder interests.
We encourage them to have their dividends paid into their bank
accounts and to keep us informed of their details. However, some
fail to do so and as a result, we have reviewed our approach to
untraced shareholders – further details are contained in Appendix 1
to the Notice of Meeting.

Our AGM is one of the most well-attended meetings in the FTSE 100,
regularly attracting over 1,500 people, with many more watching via
our webcast. Shareholders who are unable to attend are encouraged
to vote electronically in advance of the meeting at sharevote.co.uk
or use the proxy card mailed to them. In 2009 91% of the proxy
votes received were lodged electronically through the CREST system.
Before the meeting an exhibition is hosted by our senior retail

and business managers. The meeting begins with a business
presentation, followed by the Chairman, and other Board members,
answering questions raised by shareholders. Shareholders are then
invited to vote on the resolutions by electronic poll. This gives a
more democratic result as all shares represented on the day and
those lodged before the meeting are included. The indicative result
is screened at the meeting with the final results announced via the
London Stock Exchange.

The Notice of Meeting sets out the resolutions being proposed
at the AGM on 14 July 2010. Last year all resolutions were passed,
with votes ranging from 87.12% to 99.9%, with the exception of
the resolution put by the Local Authority Pension Fund Forum.
This proposed bringing forward the appointment of an independent
Chairman to July 2010. This resolution was defeated with 62.3%
support for the Board’s approach to succession, being the
appointment of a Chief Executive first, followed by an independent
Chairman by May 2011.

Information regarding our share capital is detailed on page 72

of the directors report.

“It was a really informative day, meeting shareholders and colleagues
from stores and head office. It was good to see the Board in action,
presenting our results, future strategy and answering shareholder
questions. Not to mention our 125th anniversary celebrations for
which our store raised £23,000.”

Silvana Carlberg shareholder and employee at Shoreham store

CORPORAte WeBSIte

There is a wealth of information online, including:
marksandspencer.com/thecompany

– our Governance Framework with individual accountabilities as

well as Board and committee terms of reference;

– annual reports and investor presentations;
– latest M&S news and press releases:
– a detailed account of how we have complied with the
Combined Code on Corporate Governance 2008;

– our Auditor Engagement Policy for the external auditors;
– our code of ethics; and
– our Articles of Association.

“I just wanted to applaud you on a job well done with the annual
report – it’s fun, inviting, interesting with lots of colour. I am an
accountant and sometimes find these documents incredibly boring.
During the course of any week I rarely go without popping into M&S
to see what’s new.”

Anne Chin private shareholder

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Governance report
Principal risks and uncertainties

Our approach to risk management

Example: Risk proﬁle reporting

Seeking opportunity and managing risk is at the heart of what we
do and is an integral part of day-to-day management.

We capture and report risk in a consistent manner across each

business area enabling Internal Audit and Risk to build a bottom
up and top down picture of the key risks facing the Group in
consolidated form of the Group Risk Profile (‘GRP’).

The example given opposite illustrates how we report risk.
It includes both ‘Gross’ and ‘Net’ risk positions with arrows to show
how management has reduced risks through appropriate controls
and mitigating activity. This prioritises the Internal Audit plan to
make sure we test the effectiveness of the most important controls.

The Board reviews the GRP every six months and the
Management Board reviews progress quarterly against agreed
actions to keep a close watch on how we are managing our
risks. The executives give regular reports to the Group Board,
Management Board and Audit Committee which give them a more
focused approach to identifying and managing their key risks.

D
O
O
H
L
E
K
L

n
a
t
r
e
c
t
s
o
m
A

y
e
k
L

e
b
s
s
o
P

y
e
k

i
l

n
U

Gross risk
assessed
before
mitigation

Net risk
assessed
after mitigation

Minor

Moderate

Major

Critical

IMPACT

Our principal risks

Our risk process is designed to identify, evaluate and manage key business risks. The table below gives examples of what we do to
manage these risks. The Board considers these to be the most significant risks to achieving our business goals. The risks listed do not
comprise all those associated with Marks & Spencer and are not set out in any order of priority. Additional risks not presently known to
management, or currently deemed to be less material, may also have an adverse effect on the business.

Risk and Impact

Mitigating activities

Strategy and finance
Our current priorities place a greater emphasis on managing our business through the downturn, underpinning our strong financial
position and continuing to invest for the long term, to be well placed when the market improves.

economic outlook Poor outlook for
the UK and global economy impacts
our ability to deliver our market share
and margin ambitions

–

–
–

Regular review of pricing, promotion and marketing strategies for appropriateness and their
ability to adapt to a changing consumer market
Ongoing close working with suppliers to help them take cost out of their supply base
Adapting product ranges to meet changing customer needs

Competition Increasing competitor
activity impacts our ability to increase
or maintain UK market share across
GM, Food and/or online
Financial position Deterioration in
our financial position limits our
flexibility and ability to grow the
business

–
–
–

Comparative shops and feedback with core customer panels
Targeted marketing strategy in place to respond to new competitors in key locations
Maintenance of our opening price point values

–

Regular forecasting of debt capacity, financial covenants and other rating metrics within
current rating bands
Key management and external advisers fully engaged in formulating strategy for agreeing
the pension deficit and funding plan
Ongoing communication with rating agencies and brokers

Brand and reputation
We are proud of our brand values of Quality, Value, Service, Innovation and Trust which differentiate our products and services.
We have also set ourselves the goal through Plan A to be the most sustainable major retailer in the world by 2015.

Brand/reputation Failure to meet
customer and/or external stakeholder
expectations impacts the M&S brand

Plan A Failure to meet our
commitments reduces stakeholder
trust and confidence

–
–

–

–
–
–

Brand values reinvigorated through ‘quality worth every penny’
Customer Insight Unit obtains monthly customer feedback and regularly presents findings
to the Group Board, Management Board and the business to drive improvement
Code of ethics communicated to the Group and third parties to make sure business is carried
out in line with our policies and procedures
Clear communications plan in place to respond to a major crisis, which is tested annually

Plan A team in place supported by a dedicated programme manager
Clear accountabilities set at director level to ensure delivery against our Plan A commitments
Regular reporting to the How we do business Committee and the Group Board with
independent assurance from Ernst & Young

To find out more, visit marksandspencer.com/annualreport2010

Operating & Financial review p16 ß

Governance

Financial statements



p78 

Risk and Impact

Mitigating activities

People and change
As we increase the pace of change in the business and continue to invest for the future, it is important to keep strengthening our people
and processes at every level.

People Failure to attract, develop
and retain key employees (head office
and stores) limits our ability to deliver
our plans

Change projects Failure to
effectively deliver our major change
projects and minimise disruption to
day-to-day operations impacts our
business

–

–
–

–

Formalised objective setting in place for all employees, including behaviours aligned to the
M&S brand values
Lead to Succeed leadership programme underway to develop and fast track current and
potential leaders
Learning and development opportunities available and promoted across all business areas
Bonus scheme in place for all employees based on business and individual objectives

Governance structures and delivery teams in place with robust project management discipline
across all major change programmes
2020 Cross Workstream Dependency Management Forum in place to oversee major
change projects
New Group Investment Committee and expenditure policy established for all investment
and commitment between £1m-£15m
Regular updates to the Group Board on progress against key project milestones

Day-to-day operation
We are the UK’s leading retailer of quality clothing, food and home products, with more than 21 million UK customers and over 2,000 suppliers.

Stock management Ineffective
stock management impacts
availability in stores and online
(GM, Food and International)

It security Major breach in IT
security results in severe service
disruption or disclosure of personal
customer information

Suppliers/third parties Failure of
a key supplier or third party provider
impacts the service provided to our
customers

Supply chain Major disruption to the
supply chain impacts the delivery of
the Group’s objectives

–

Significant investment in IT and aligned business processes across the Group to improve
forecasting, availability and stock control
New and improved commercial tools to enable business areas to manage stock better

–

–
–

Business crisis management team and processes in place to deal with significant IT security
incidents that impact our ability to trade
Clear policies and agreements in place where data is shared or processed by third parties
Extensive controls in place in accordance with international standards for establishing and
maintaining information security management

–

Financial monitoring of all suppliers and flexible payment terms for major suppliers during
difficult economic conditions
Dialogue with suppliers and third party providers to identify any issues early on and ensure
good working relationships
Review of our supply base to reduce reliance on key suppliers where appropriate

–
–

Central IT and back up available to provide support in the event of a system failure at a key site
Business continuity and disaster recovery plans in place and tested at least annually

Selling channels
We have ambitious plans for our M&S Direct and International businesses as part of our commitment to broadening our multi-channel offer.

M&S Direct Failure to keep pace
with customer expectations in a fast-
developing sector inhibits our ability
to compete and grow our Direct
business
International Failure to leverage our
systems and processes limits growth
of our International business through
franchises, partnerships and wholly-
owned businesses

–
–
–

Clear growth strategy for Direct
Ongoing focus on performance of website platform, order fulfilment and customer service
Continual review against the market and our competitors

–
–

–

New leadership, operating structure and people in place to support the International business
Regular executive business reviews and updates to the Group Board to ensure progress
against key milestones and identification of emerging business opportunities
Plans underway to improve systems and processes supporting our International business

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Remuneration report

Steven Holliday Chairman of the Remuneration Committee

Our remuneration strategy continues to ensure that a significant

The Committee agreed a salary and benefits package for
Marc which is consistent with the Company’s current remuneration
framework for executive directors. The salary is in line with existing
M&S remuneration policies and the external market, with the largest
part of the package ‘at risk’, as awards will only be received in the
event that the Annual Bonus Scheme pays out and if share grants,
made under the Company’s Performance Share Plan, hit challenging
targets throughout the next two to three years. The Committee
considers that payout at maximum levels under these schemes will
be as a result of significant outperformance by the business, with
substantial levels of return for investors. The Committee put in place
a recruitment package which fairly compensated Marc for his
awards that were forfeited with his previous employer and which the
Committee was fully satisfied would meet their performance targets
and pay out had Marc remained in their employ.

The Committee also agreed the remuneration for Stuart’s

transition to Chairman at the end of July 2010.

In 2009/10, the Company clearly outperformed the targets set
both in the internal operating plan and those expected by the City.
This level of performance resulted in a bonus being paid for the first
time in three years across the whole organisation. Given the
economic forecasts that prevailed at the start of this financial year,
these payments reflect significant performance both at an individual
and Company level.

The Committee has once again taken account of risk in its
annual review of senior remuneration. With all packages highly
geared towards share incentive schemes, the Committee believes
that the pay and benefits of the business leaders sufficiently takes
account of reward versus risk. For 2010/11, the targets for the
Company’s long-term incentive plan have been amended upward
to ensure that they remain challenging and at least as demanding as
the targets set in previous years.

During 2010/11, the Committee intends to review the senior
remuneration strategy in line with any changes to business priorities
as a result of Marc joining the Company, ensuring our remuneration
framework continues to motivate, reward and retain our senior
managers to deliver the business strategy.

This Remuneration Report has been prepared on behalf of the
Board by the Remuneration Committee. The Committee adopts
the principles of good governance as set out in the Combined
Code on Corporate Governance 2008 and complies with the Listing
Rules of the Financial Services Authority and the relevant schedules
of the Companies Act 2006 and the Directors’ Remuneration
Report Regulations 2002. These regulations require the Company’s
auditors to report on the ‘Audited Information’ in the report and to
state that this section has been properly prepared in accordance
with these regulations. For this reason, the report is divided into
audited and unaudited information, and is subject to shareholder
approval at the Annual General Meeting (AGM) on 14 July 2010.

Part 1: UnAUDITED InFORMATIOn

remuneration Committee

Who are the members of the remuneration Committee?

The following independent non-executive directors were members of
the Committee during 2009/10 and continue to be members:

Member

Steven Holliday
(Chairman since 8 September 2009)
Martha Lane Fox

Louise Patten
(Chairman until 8 September 2009)
Sir David Michels

Jan du Plessis

From

Period

15 July 2004

To date

1 June 2007

1 February
2006

26 May 2006

8 September
2009

To date

The Committee met 10 times during the year under review and
attendance at the meetings is shown in the attendance table on
page 53.

What is the remit of the remuneration Committee?

The remit of the Committee covers the total remuneration of
executive directors and other senior managers. The full terms of
reference for the Committee can be found on the Company’s
website, with the key responsibilities summarised as follows:

–

setting a senior remuneration strategy that ensures the most
talented leaders are recruited, retained and motivated to deliver
results;
ensuring that the remuneration for executive directors and senior
managers reflects both their individual performance and their
contribution to the overall Company results;
determining the terms of employment and remuneration for
executive directors and senior managers, including recruitment
and termination terms;
approving the design and targets for any annual incentive
schemes that include executive directors and senior managers;
agreeing the design and targets, where applicable, of all share
incentive plans requiring shareholder approval;
assessing the appropriateness and subsequent achievement
of the performance targets related to any share incentive plans;
and
selecting and appointing the external advisors to the Committee.

To find out more, visit marksandspencer.com/annualreport2010

Operating & Financial review p16 ß

Governance

Financial statements

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p78 

Senior remuneration framework

How is the senior remuneration framework aligned to
Company strategy?

A vital part of the Committee’s role is to ensure that the remuneration
of senior managers, including executive directors, is aligned to the
Company strategy described earlier in this Annual Report. The
Company must be able to attract and retain leaders who are
focused and encouraged to deliver these business priorities within
a framework that is also aligned with the interests of the Company’s
shareholders, for example through bonus deferral and shareholding
requirements. In addition, incentive plans need to be effective not
only in delivering financial results but also in driving behaviours that
uphold the Company’s high ethical standards and adequately take
account of risk, for example through individual objectives.

When setting the remuneration for directors, the Committee has

the discretion to take into account performance on environmental,
social and governance matters. Having reviewed the performance
targets for 2010/11, the Committee has again decided that these
should continue to be an integral part of individual objectives rather
than taken into specific account. All executive directors and senior
managers have individual objectives aligned to Plan A, the
Company’s ‘eco plan’. The Committee believes that current
structures already encourage and reward appropriate behaviours
and that the relevant operational controls relating to such matters
equally exist.

What are the key elements of remuneration for executive
directors?

The key elements of remuneration are:

–

salary and benefits;

–

Annual Bonus Scheme with compulsory deferred shares; and

–

Performance Share Plan (PSP), the Company’s long-term
incentive plan.

The Committee considers these components in total to ensure there
is the right balance between reward for short-term success and
long-term growth.

The Committee continued to retain the services of Hewitt new
Bridge Street as independent external advisors. It also seeks
internal support from the Executive Chairman, Group Secretary,
Director of Human Resources and Head of Employee Relations
and Reward. They attend the Committee meetings by invitation
but are not present for any discussions that relate directly to their
own remuneration.

The Committee also regularly reviews external data produced
through several surveys and bespoke benchmarking data, including
those published by Hewitt new Bridge Street, Monks PwC, and
Towers Watson.

What have been the key activities of the remuneration
Committee during the year?

In line with its remit, the following key issues were discussed
by the Committee during the year:

–

–
–

–

–
–

approval of the 2009 Directors’ Remuneration report and review
of the final outcome of AGM voting for the report;
r eview of all share plan performance measures against 2008/09
year end targets;
review and approval of all awards made under the Performance
Share Plan, taking into account the total value of all awards made
under these plans;
review of and agreement to all executive director and senior
manager joining and leaving arrangements, covering all elements
of their reward package. In particular the Committee approved the
joining arrangements for Marc Bolland, the new CEO and the
leaving arrangements for Sir Stuart Rose;
review of director shareholding guidelines and achievement of
these for each executive director;
half year review of Performance Share Plan awards against target
including ratification of vesting levels for ‘good leavers’ from the
Company;
review of and approval of the total reward framework for directors
and senior managers, including long-term and short-term
incentives and any associated performance measures;
review of tax efficiency of the reward framework;
consideration of advisory bodies and institutional investors current
guidelines on executive compensation;
annual review of all executive directors’ and senior managers’
base salaries and benefits;
ratification of any salary increases for executive directors and
senior managers in line with Company principles;
assessment of the risk environment surrounding the Company’s
current remuneration arrangements;
design and targets for the 2010/11 Annual Bonus Scheme;
consideration of the targets to be applied to the 2010
Performance Share Plan awards;
review of Committee performance in 2009/10; and
review of terms of reference.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Remuneration report continued

Senior remuneration framework continued

For executive directors, this can be summarised as follows:

Policy

Delivery

Base Pay

Benefits

Reviewed against:
–

salary levels in comparably-sized
companies and major retailers;
economic climate, market conditions and
Company performance;
the level of pay awards in the rest of the
business; and
the role and responsibility of the individual
director

–

–
–

–

provided on a market competitive basis
aligned to total reward structure for
all employees
affordability

–
–

monthly in cash
reviewed annually with any increases
normally awarded from 1 January

–

–
–

–

Group Pension Scheme: This
compromises a defined benefit section,
which closed to new entrants with effect
from 1 April 2002 and a defined
contribution section which has been open
to new members since 1 April 2003.
Executive directors who are not part of the
scheme receive a salary supplement in lieu
of pension
life assurance cover where the executive
director is not a member of the Group
Pension Scheme
car or car cash allowance plus driver
all-employee share schemes
(Save As You Earn)
employee product discount

bonus potential of up to 250% of salary
for ‘maximum performance’
compulsory deferral of 60% of bonus
earned into shares
shares vest after three years, with no
further performance condition other than
continued employment

annual Bonus Scheme:
with compulsory deferral into shares

Performance Share Plan

–

–
–

drive profitability and sales across the
whole organisation
stretching targets required to achieve
maximum payment
Group PBT with an individual performance
element
aligned to shareholder interests

primary long-term incentive
link individual reward with long-term
growth in the Company
aligned to shareholder interests
targets based on EPS over a three-year
performance period

–
–

–

annual awards
normally up to 200% of salary with
up to 400% of salary in exceptional
circumstances
awards vest after three years based on
achievement of performance targets

To find out more, visit marksandspencer.com/annualreport2010

Operating & Financial review p16 ß

Governance

Financial statements

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p78 

What is the expected value of future annual remuneration package for executive directors?

The following charts show the total remuneration package split between pay at risk and fixed pay for ‘on-target’ and ‘maximum’
performance.

MARC BOLLAnD

‘On-target’ performance

‘Maximum’ performance

Pay at risk

Long-term incentives 48%

Annual cash bonus 8%

Fixed pay

Salary 34%

Pension supplement 10%

KATE BOSTOCK, JOHn DIXOn, STEVEn SHARP

‘On-target’ performance

‘Maximum’ performance

Pay at risk

Long-term incentives 39%

Annual cash bonus 10%

Fixed pay

Salary 41%

Pension provision 10%

Pay at risk

Long-term incentives 77%

Annual cash bonus 10%

Fixed pay

Salary 10%

Pension supplement 3%

Pay at risk

Long-term incentives 69%

Annual cash bonus 14%

Fixed pay

Salary 14%

Pension provision 3%

assumptions
60% of salary annual bonus for on-target performance
400% of salary PSP award
Ignores all recruitment awards

assumptions
60% of salary annual bonus for on-target performance
200% of salary PSP award

The charts exclude:

–
–

–

all recruitment awards
Sir Stuart Rose, as his remuneration will change during the year to reflect his new role as Chairman. He will not receive an award under
the Company’s long-term incentive scheme in 2010
Ian Dyson, due to his resignation on 5 May 2010

The value placed on long-term incentives compromises the expected cash value to executive directors 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.

Rose

assumptions
60% of salary annual bonus for on-target performance
Pension supplement assumes 25% of salary provision based on salary at start of year

target

Maximum

Pay at risk

Long-term incentives 0%

Annual cash bonus 32%

Fixed pay

Salary 53%

Pension supplement 16%

Pay at risk

Long-term incentives 0%

Annual cash bonus 66%

Fixed pay

Salary 26%

Pension supplement 8%

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Remuneration report continued

What are the pay and benefits received by the Board?

Executive directors’ remuneration
Salary
In setting salary levels for 2010, the Committee considered current
market conditions, the Company’s performance in 2009/10 and the
general salary increase applying to the rest of the organisation. It
also took into account that no salary increases were awarded to
executive directors in 2009. Following this review, the Committee
agreed an increase of approximately 2.5% to executive director
salaries from January 2010. The average salary increase for the rest
of the business over the same two year period was 5.3% (3.3% in
2008/09 and 2% in 2009/10).

The Committee also approved salary adjustments of

approximately 12% in July 2009 for both Kate Bostock, to reflect
her new role as Executive Director, General Merchandise with an
extended remit covering per una and the Home business, and for
Steven Sharp, to reflect the continuing importance of the branding
and marketing of M&S.

Current annual salaries for executive directors are shown in the

Contract terms table on page 65.

Benefits
Where applicable, current executive directors receive a 25% salary
supplement in lieu of membership of the Group Pension Scheme,
with life assurance provided through a separate policy. Each
executive director also receives a car or car cash allowance and is
offered the benefit of a driver. The value of the benefits and
allowances for each director is shown within the Directors’
emoluments table on page 67. Employee product discount is also
received but no specific value is placed on this all-employee benefit.

Pension provision
Employees with a permanent employment date prior to 1 April 2002
are eligible to participate in the Company’s Defined Benefit Pension
Scheme. The scheme is non-contributory and subject of an
Independent Trust. The normal retirement age under this scheme
for senior management is 60. John Dixon is the only executive
director who is a member of this scheme. In addition, he receives a
25% salary supplement on a portion of his non-pensionable salary.
Further details of the Group Pension Scheme, including the Marks &
Spencer Retirement Plan for employees who joined the Company
on or after 1 April 2002 can be found in note 11 to the financial
statements on page 91 of this Annual Report.

Deputy Chairman
The fee for the Deputy Chairman reflects the level of commitment
and responsibility of the role and is determined by the Executive
Chairman and executive directors. It is paid monthly in cash, and is
inclusive of all committee memberships and Sir David Michels’
continuing role as Senior Independent Director. The fee has not
increased since his appointment to the role in June 2008. The fee is
not performance related or pensionable, and there are no other
benefits other than employee product discount.

Non-executive directors’ remuneration
The fees for non-executive directors are determined by the
Executive Chairman, Deputy Chairman and executive directors.
Fees are set at a level that ensures the Company can attract and
retain individuals with the required skills, experience and knowledge
so that the Board is able to effectively carry out its duties.

The fees recognise the responsibility of the role and the time

commitments required, and are not performance related or
pensionable. They are paid monthly in cash and there are no other
benefits other than employee product discount.

A review of non-executive director fees was last carried out in
February 2009 which indicated that they were appropriate for the
role in the current market. no increases were therefore made to
either the basic annual fee or for any Committee Chairman or
membership fee in 2009/10. The current fees are as follows:

basic annual fee:

Committee Chairman:

Committee member:

* Audit and Remuneration Committee only.

£55,000

£12,000*

£6,000*

The Directors’ emoluments table on page 67 shows the fees paid
during the year to each non-executive director.

What are the current short-term and long-term
incentive schemes?

annual Bonus Scheme – short-term incentive
Deferred Share Bonus Plan – long-term incentive
The Annual Bonus Scheme is reviewed annually and is designed to
drive individual performance and profitability across the whole
organisation. The bonus potential for executive directors is up to
250% of salary for ‘maximum’ performance. For all senior
managers, there is a compulsory deferral into shares. Further details
of the Deferred Share Bonus Plan can be found in note 12 to the
financial statements on page 95 of this Annual Report.

Bonus scheme outcome for 2009/10
75% of the executive directors’ bonus for 2009/10 was based on
Profit Before Tax (PBT) performance. The Committee, in line with
best practice, has used the same methodology for a number of
years for setting PBT targets, namely stretching targets set by
reference to the operating plan, believing it is appropriate to maintain
a consistent application of the scheme. This approach, coupled with
the Board’s track record of setting highly challenging plans, means
that even in years when significant profit has been delivered, no
bonus payments have been made, for example, in 2007/08, despite
the achievement of PBT in excess of £1bn (as the relevant operating
plan figure was higher).

For 2009/10, the PBT targets set by the Committee were
again highly demanding by reference to the internal operating
plan, analysts’ profit forecasts and external forecasts for the retail
sector. Higher levels of bonus payments required very significant
stretch above plan. Actual PBT performance of £694.6m was in
excess of the stretch target set for full payment and therefore the
Committee approved maximum bonus payments under this
measure for 2009/10.

The remaining 25% of the executive directors’ bonus for 2009/10

was based on individual director objectives aligned to business
strategy. The personal performance by each director against these
individual objectives for the year has been reviewed by the
Committee, and the agreed level of achievement is reflected in the
payments made.

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Operating & Financial review p16 ß

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Financial statements

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Bonus scheme for 2010/11
The scheme will have the same ‘maximum’ bonus potential as in
2009/10 of 250% of salary. PBT will continue to be the main target.
75% of the executive directors’ bonus will be based on this measure
with the exception of Sir Stuart Rose, who will have 60% of his
bonus based on this measure, reflecting his change in role during
the year. The remaining bonus potential will be based on pre-set
individual director objectives aligned to the Company’s strategic
priorities. In the case of Sir Stuart Rose, these objectives will relate
to both the performance of the Company during the year against
other financial measures and key strategic targets as well as
measures linked to the handover of his executive responsibilities.
However, no individual element can be earned unless a threshold
PBT target has been achieved. This policy for individual objectives
aligns executive directors, senior managers and other employees
within the Annual Bonus Scheme.

The PBT targets have again been set based on Company’s
own internal operating plan, external forecasts for the retail sector
and analysts’ profit forecasts. For there to be any payment under
the PBT measure in 2010/11 there is a requirement for both year
on year PBT growth and outperformance of the operating plan.
Very significant out-performance of the operating plan will be
required for higher bonus payments. As noted above, 60% of any
bonus earned is usually deferred into shares for three years with
no further performance conditions. However, due to his imminent
departure from the Company, and in line with the policy for ‘good
leavers’, any bonus earned by Sir Stuart Rose for 2010/11 would
be paid wholly in cash in July 2011.

Performance Share Plan (PSP) – long-term incentive
This continues to be the primary long-term incentive for executive
directors and senior managers in the Company. The plan normally
allows awards up to 200% of salary, although up to 400% of salary
may be awarded to recognise exceptional performance or to
address key recruitment and retention issues. The performance
targets are currently based on adjusted earnings per share (EPS)
over a three-year period.

Performance Share Plan Outcome 2009/10
The minimum EPS target of RPI+4% over the three-year
performance period for awards made in 2007 has not been achieved
and so no shares under this PSP award will vest in June 2010.

Performance Share Plan Awards 2010/11
The Committee has again reviewed alternative performance
measures for this scheme for this year, considering in each case the
current economic climate and their alignment to business strategy.
The Committee concluded that EPS is still the most effective
measure of management performance, being easy to understand
and a transparent measure of the Company’s success and
shareholder return.

The Committee intends to undertake a full strategic review of the
long-term incentive plan and assess the relevance of the associated
performance criteria, including the use of a sole metric such as EPS.
The Committee felt it advisable to undertake this review once Marc
Bolland has had a chance to assess the Company’s strategy.

When the PSP was adopted, shareholders were informed that the
Committee may set different EPS targets for awards made in future
years, provided that the Committee considers that any new targets
are at least as challenging in the circumstances as the previous
targets. On this basis, the Committee has considered the targets
for each year’s award in light of anticipated future growth. In recent
years, as the economic outlook worsened, the targets were
reduced. However, the Committee considers that for 2010, both
maximum vesting targets should be increased as well as the
minimum target for exceptional awards over 200% of salary.

For the 2010 award, the Committee has decided that 20% of
the award will vest if EPS growth is equal to RPI plus 3% p.a., rising
on a straight-line basis so that 100% vests for growth of RPI plus
9% p.a. This will be the target applying to all awards up to 200%
of salary. Should any awards over 200% of salary be made, the
principle of more stretching targets will apply. For the element
of awards over 200% of salary, 20% of the award will vest if EPS
growth is equal to RPI plus 4% p.a., increasing on a straight-line
basis so that 100% vests for growth of RPI plus 12%.

The Committee considers that these targets are challenging
and at least as demanding in the circumstances as targets set in
previous years.

The targets for all awards are:

Award

2007

2008

2009

2010

Average Annual EPS Growth in
excess of inflation (RPI)

20%

vesting1

4%
4%

3%
3%

3%
4%

100%

vesting1

10%
12%

6%
8%

9%
12%

Adjusted EPS
for start of
scheme

40.4p

43.6p

28.0p

30.0p2

The lower range is for awards up to 200% of salary and the upper range is for
awards between 200% and 400% of salary.
The adjusted EPS for the start of the 2010 scheme is based on the 52 week result,
ensuring a like-for-like measure.

Executive Share Option Scheme – long-term incentive
The scheme was adopted at the 2005 AGM, but there is currently
no intention to use the scheme on a regular basis. no grants have
been awarded under the Executive Share Option Scheme for
2009/10. The Committee will continue to review the use of the
scheme and may grant awards if appropriate.

All outstanding awards met their performance targets in previous

years and are exercisable by participants. Executive directors have
options granted in 2004 under the 2003 scheme as shown in the
Share Option Schemes table on page 70.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Remuneration report continued

all-Employee Share Schemes – long-term incentive
Executive directors can participate in Sharesave, the Company’s
Save As You Earn (SAYE) scheme which is open to all employees.
The current scheme was approved by shareholders for a 10-year
period at the 2007 AGM.

The scheme is subject to HMRC rules which limit the maximum

monthly savings to £250. 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, at a discounted price
set at the start of the scheme. Options cannot normally be
exercised until a minimum of three years has elapsed.

All executive directors have options granted in 2008, at a 20%
discount on the share price at the start of the scheme. The details
of the options granted are shown in the Share Option Schemes
table on page 70.

appointment of new Chief Executive
Marc Bolland was appointed Chief Executive from 1 May 2010.
His ongoing remuneration package is consistent with the standard
structure for executive directors previously outlined. He has a
starting salary of £975,000, a 30% salary supplement in lieu of
membership of the Group Pension Scheme, will participate in the
Annual Bonus Scheme and will receive an annual award of shares
under the Performance Share Plan. In addition, he will receive
relocation payments under the normal terms of the Company’s
relocation policy for new recruits.

In order to facilitate his recruitment, the Committee agreed to
compensate Marc Bolland for outstanding incentive awards, the
expected levels of which reflected the turnaround of his previous
employer’s performance during his tenure. These included his
2009/10 annual bonus award and share awards due to vest in
2010, 2011 and 2012. In determining the level and form of
compensation, the Committee took into account the extent to which
the performance conditions applying to these awards had been met
or were likely to be met, mindful of the Committee’s duty not to pay
more than was necessary to secure his recruitment.

The Committee’s assessment was that there was significant

value in all of his outstanding awards. Where an entitlement to
incentives existed and were due to be paid this year had Marc
Bolland remained in employment, the Committee agreed to pay the
value of these awards on joining. However, a proportion of awards
that had a certainty of vesting with his previous employer were
exchanged for awards that will be ‘at risk’ due to performance
conditions attached to the M&S incentive schemes.

Having undertaken this assessment, the Committee agreed
one-off awards to be made in June 2010. These compensatory
awards have only be granted without performance conditions where
the Committee was satisfied that Marc Bolland’s outstanding
awards from his previous employer due to vest in 2010 and 2011
had already satisfied or were likely to satisfy their performance
conditions in full, or to a significant degree. The Committee
therefore agreed:
–

As compensation for bonus and share awards that would have
vested in 2010 had he remained with his previous employer,
£1.6m in cash and £1m in shares, both subject to Income Tax
and national Insurance. These shares vest immediately but must
be retained in accordance with the Company’s shareholding
policy outlined later in this report;
As compensation for share awards that were on track and likely to
vest in 2011 and 2012 had he remained with his previous employer,
the Committee agreed awards that remain ‘at risk’ through:

–

(i) a restricted share award worth £1m. These shares will vest in
two tranches in December 2011 and June 2012, subject to
continued employment until the vesting date. He will also
receive the value of any dividends occurring on the awarded
shares between grant and vesting; and

(ii) a performance share award worth £3.9m (equivalent to 400%
of salary). These shares will vest in June 2012 subject normally
to continued employment until the vesting date and subject to
satisfaction of a performance condition. This is based on EPS
growth targets equivalent to those applying to awards granted
under the PSP during 2009. These targets are set out in the
table on page 63. To the extent that the performance shares
vest, he will also receive the value of any dividends occurring
on the shares between grant and vesting.

If, prior to the normal vesting date, Marc Bolland ceases to be an
employee then the restricted share and performance share awards
will lapse unless his departure is by reason of death, retirement,
redundancy, disability or in other circumstances at the Committee’s
discretion in which case the award shall vest subject (where
relevant) to performance and subject to time pro-rating (unless
disapplied at the Committee’s discretion). Similar provisions apply to
these awards in the event of vesting following a change
of control.

The restricted share and performance share awards, which

are not pensionable, were granted to facilitate Marc Bolland’s
recruitment on 1 May 2010 under the terms of the Listing Rules
9.4.2R(2).

The number of shares subject to Marc Bolland’s awards
described above may be adjusted in the event of any variation of
share capital or a demerger, special dividend or other similar event.
The awards cannot be transferred, charged or otherwise disposed
of by him. The awards will be satisfied with existing shares other
than treasury shares. The awards cannot be amended to the
advantage of Marc Bolland in relation to the basis for determining
his entitlement to, and the terms of, the shares and/or cash to be
provided under the awards and any adjustment that may be made
for any variation of share capital without prior shareholder approval
in general meeting except for minor amendments to benefit the
administration of the awards, to take account of a change in
legislation or to obtain or maintain favourable tax, exchange control
or regulatory treatment.

What is the current dilution of share capital by employee
share plans?

Awards granted under the Company’s Save As You Earn scheme
and the Executive Share Option scheme are met by the issue of
new shares when the options are exercised. All other share plans
are met by market purchase shares when the awards vest.
The Company monitors the number of shares issued under these
schemes and their impact on dilution limits. The Company’s usage
of shares compared to the relevant dilution limits set by the
Association of British Insurers (ABI) in respect of all share plans
(10% in any rolling 10 year period) and executive share plans (5%
in any rolling 10 year period) was 7.42% and 2.02% respectively
on 3 April 2010.

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Operating & Financial review p16 ß

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Financial statements

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p78 

Contracts

What are the current service contracts and terms of
employment for directors?

Executive directors
All executive directors and senior managers have service contracts
that can be terminated by the Company giving 12 months’ notice
and by the employee giving six months’ notice.

The Company retains the right to terminate the contract of any
executive director summarily, in accordance with the terms of their
service agreement, on payment of a sum equal to the contractual
notice entitlement of 12 months’ salary and specified benefits.

For all current executive directors, the Company reserves the right
on termination to make phased payments which are paid in monthly
instalments and subject to mitigation. Entitlement to participate in
share schemes ceases on termination.

Deputy Chairman
Sir David Michels has an agreement for service which requires
six months’ notice by either party.

Non-executive directors
non-executive directors have agreements for service with the
Company for an initial three-year term, which can be terminated
on three months’ notice by either party.

Contract terms and current annual salaries/fees for all members of the Board during the financial year

name

Executive Chairman
Sir Stuart Rose1

Deputy Chairman
Sir David Michels

Executive directors
Kate Bostock

John Dixon
Ian Dyson2

Steven Sharp

Non-executive directors
Jeremy Darroch

Martha Lane Fox

Steven Holliday

Louise Patten

Jan du Plessis

Date of appointment

notice period/
unexpired term

Basic
salary/fee
£000

Committee
member fee

£000

Committee
chair/SID fee
£000

31/05/2004

12 mths/6 mths

1,160

01/03/2006

6 mths/6 mths

10/03/2008

09/09/2009

27/06/2005

08/11/2005

01/02/2006

01/06/2007

15/07/2004

01/02/2006

01/11/2008

12 mths/6 mths

3 mths/3 mths

245

575

512

692

640

–

Current
annual
salary/fee

£000

1,160

245

575

512

692

640

The Company gave Sir Stuart Rose 12 months’ notice of termination of his contract on 18 March 2010. Sir Stuart Rose has agreed to reduce his salary from £1,160,000 to
£875,000 with effect from 31 July 2010 until the end of his notice period as recognition of his altered role once the new Chief Executive has been integrated into the Company.
Sir Stuart Rose’s maximum bonus potential for 2010/11 will be calculated by reference to the higher salary until 31 July 2010 and by reference to the reduced salary from
1 August 2010.
Ian Dyson resigned on 5 May 2010. His agreed leaving date will be 31 August 2010.

What are the executive directors’ external board appointments?

The Company recognises that executive directors may be invited to become non-executive directors of other companies and that these
appointments can broaden their knowledge and experience to the benefit of M&S. The individual director retains the fee, the details of
which are shown below for this financial year:

Sir Stuart Rose

Ian Dyson

Steven Sharp

Company

Land Securities Group plc

Betfair Group Ltd

Adnams plc

Fee

£000

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Remuneration report continued

Directors’ interests

What are the directors’ interests in the Company?

The beneficial interests of the directors and connected persons in the shares of the Company are shown below. Options granted under
the SAYE scheme and the Executive Share Options Scheme and shares awarded under the Performance Share Plan and Deferred Share
Bonus Plan are shown in Part 2 of this report. Further information regarding employee share option schemes is given in note 12 to the
financial statements on page 95 of the Annual Report.

There have been no changes in the directors’ interests in shares or options granted by the Company and its subsidiaries between the end
of the financial year and 24 May 2010. no director had an interest in any of the Company’s subsidiaries at the beginning or end of the year.

Sir Stuart Rose

Sir David Michels

Kate Bostock

John Dixon

Ian Dyson

Steven Sharp

Jeremy Darroch

Martha Lane Fox

Steven Holliday

Louise Patten

Jan du Plessis

Ordinary shares
as at
29 March
2009
or date of
appointment

Ordinary
shares
as at
3 april
2010

1,224,284 1,265,873
113,984

113,984

140,039

165,443

70,405

237,906

238,210

2,000

20,100

2,500

8,000

71,434

286,485

299,538

2,000

20,100

2,500

8,000

20,000

What is the shareholding policy for executive directors?

From 1 June 2002, the Committee agreed that all executive directors are required to hold shares equivalent in value to a minimum
percentage of their salary (200% for the Executive Chairman and 100% for all other executive directors) within a five-year period from the
date of their appointment. The relevant salary is at date of appointment and the share market value is measured at the current date.
All current executive directors currently have met, or are on target to meet, their required shareholding.

total shareholder return

Performance graph

The 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.

total shareholder return

Marks and Spencer Group plc

FTSE 100 Index

Source: Thomson Reuters

300

280

260

240

220

200

180

160

140

120

100

0
2 april
2005

1 april
2006

31 March
2007

28 March
2008

28 March
2009

3 april
2010

The above graph looks at the value, at 3 April 2010, of £100 invested in Marks and Spencer Group plc on 2 April 2005 compared with the value of £100 invested
in the FTSE 100 Index over the same period. The other points plotted are the intervening monthly values.

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Operating & Financial review p16 ß

Governance

Financial statements



p78 

Part 2: AUDITED InFORMATIOn

Directors’ emoluments

Executive Chairman
Sir Stuart Rose1

Deputy Chairman
Sir David Michels

Executive directors
Kate Bostock2
John Dixon3
Ian Dyson4
Steven Sharp5

Non-executive directors
Jeremy Darroch

Martha Lane Fox

Steven Holliday

Louise Patten

Jan du Plessis
Former directors9,10

total

Salary/fee

£000

Cash
allowance6
£000

Benefits6
£000

Dividend
equivalents7
£000

1,138

304

245

549

294

679

614

–

188

187

155

–

Bonus8
£000

1,125

–

807

296

554

608

–

3,866

873

113

144

3,390

Termination
payments

£000

total
2010
£000

Total
2009
£000

–

2,606

1,765

245

217

1,612

654

1,514

1,402

892

–

1,009

882

181

187

8,567

1,170

6,240

1
2

4
5

6
7

Sir Stuart Rose received a salary increase from £1,130,000 to £1,160,000 effective 1 January 2010. His bonus earned in 2009/10 was £2,813,000.
Kate Bostock received a salary increase from £500,000 to £560,000 on 1 July 2009, and from £560,000 to £575,000 on 1 January 2010. Her cash allowance includes a
relocation payment of £51,000. Her bonus earned in 2009/10 under the Annual Bonus Scheme was £1,380,000. In addition, £255,000 was earned, which was the third and
final payment under a three-year cash retention arrangement.
John Dixon was promoted to the Board on 9 September 2009 on a salary of £500,000. He received a salary increase of £12,500 effective from 1 January 2010. His bonus
earned in 2009/10 was £1,268,438 of which £739,922 was earned as an executive director.
Ian Dyson received a salary increase from £675,000 to £692,000 effective 1 January 2010. His bonus earned in 2009/10 was £553,600.
Steven Sharp received a salary increase from £565,000 to £625,000 on 1 July 2009, and from £625,000 to £640,000 on 1 January 2010. His bonus earned in 2009/10 was
£1,520,000.
The elements included in the Cash allowance and Benefits columns of the table are described in detail in the Benefits section on page 62 and have been audited.
Dividend equivalents were accrued over the vesting period for the 2006 and 2007 Deferred Share Bonus Plan. For John Dixon these also include dividend equivalents
accrued for shares awarded in 2008 and 2009 under the Restricted Share Plan that vested during 2009/10.
For all executive directors, 40% of the total bonus earned is paid in cash as shown in the table, and 60% paid in shares as part of the Deferred Share Bonus Plan, as
described under the Annual Cash Bonus Scheme on page 62. The Deferred Share Bonus Plan awards will be granted in June 2010.
Steven Esom retired from the Board on 1 July 2008, and under the terms of his service contract, the termination payments are phased, made on monthly basis. The amounts
shown in the table above comprise of the final three month’s payments and benefits in line with this contract provision.
The payments to former directors under the Early Retirement Plan and the unfunded pension paid by the Company to Clinton Silver can be found on page 71 under
Directors’ pension information.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Remuneration report continued

Directors’ interests in long-term incentive schemes

Share Schemes

Maximum shares
receivable at
29 March 2009
or date of
appointment

Date of award

Shares
awarded
during

the year

Shares
vested
during

the year

Shares
lapsed
during the

year

Maximum
shares
receivable at
3 april 2010

Market value
on date of
award

(p)

Market value
on date of
vesting

(p)

Vesting
date

Executive Chairman

Sir Stuart rose
Performance Share
Plan1

Deferred Share Bonus
Plan2

total

Executive directors

Kate Bostock
Performance Share
Plan1

Deferred Share Bonus
Plan2

total

John Dixon
Performance Share
Plan1

Deferred Share Bonus
Plan2

Restricted Share Plan3

09/06/08

20/01/09

total

Ian Dyson9
Performance Share
Plan1

19/07/06

05/06/07

663,755

594,395

09/06/08

1,184,486

–

09/06/09

– 1,184,900

–

663,755

–

–
594,395
– 1,184,486
789,933

394,967

05/06/06

05/06/07

35,125
222,8984
2,700,659

6,4648
–

41,589

–

1,191,364

41,589

1,058,722

–
222,8984
2,791,712

19/07/06

05/06/07

09/06/08

09/06/09

05/06/06

05/06/07

09/06/08

09/06/09

24/11/09

05/06/07

09/06/08

157,205

169,827

262,054

–

349,528

–

25,404
28,9855
643,475

–

349,528

25,404
11,9145
37,318

62,270

144,129

314,575

–

26,178

–

18,8315
10,809

86,477
25,0005
662,091

–

26,178

7,7405
–

–
10,2765
18,016

19/07/06

05/06/07

331,878

297,197

09/06/08

530,660

–

09/06/09

–

471,862

–

157,205

–

157,205

–

169,827

262,054

349,528

–
17,0715
798,480

62,270

144,129

314,575

26,178

11,0915
10,809

86,477
14,7245
670,253

331,878

–

297,197

530,660

471,862

–
111,4496
1,411,168

572.5

706.6

381.6

286.1

550.0

706.6

572.5

706.6

381.6

286.1

550.0

706.6

381.6

286.1

382.0

706.6

381.6

228.2

572.5

706.6

381.6

286.1

550.0

706.6

–

19/07/09

05/06/10

09/06/11

09/06/12

285.6

05/06/09

–

05/07/10

–

19/07/09

05/06/10

09/06/11

06/06/12

285.6

342.8

05/06/09

05/06/10

–

05/06/10

09/06/11

09/06/12

24/11/12

342.8

05/06/10

–

09/06/11

01/09/11

342.8

05/06/10

–

19/07/09

05/06/10

09/06/11

06/06/12

285.6

342.8

05/06/09

05/06/10

Deferred Share Bonus
Plan2

total

05/06/06

05/06/07

48,579
111,4496
1,319,763

–

48,579

–

471,862

48,579

331,878

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Operating & Financial review p16 ß

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Financial statements

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p78 

Maximum shares
receivable at
29 March 2009
or date of
appointment

Date of award

Shares
awarded
during

the year

Shares
vested
during

the year

Shares
lapsed
during the

year

Maximum
shares
receivable at
3 april 2010

Market value
on date of
award

(p)

Market value
on date of
vesting

(p)

Vesting
date

Steven Sharp
Performance Share
Plan1

19/07/06

05/06/07

331,878

297,197

09/06/08

592,243

–

09/06/09

–

592,450

–

331,878

–

197,484

297,197

592,243

394,966

Deferred Share Bonus
Plan2

total

05/06/06

05/06/07

64,772
111,4497
1,397,539

11,9218
–

604,371

76,693
45,8097
122,502

–

–
65,6407
529,362 1,350,046

–

572.5

706.6

381.6

286.1

550.0

706.6

–

19/07/09

05/06/10

09/06/11

09/06/12

285.6

342.8

05/06/09

05/07/10

2
3
4
5

6
7

The number of performance shares is the maximum (100%) of the award that could be receivable by the executive director if the EPS performance conditions are fully met as
outlined on page 63. The award made in 2007 will lapse on 5 June 2010 as it has not met the minimum EPS target of RPI +4%.
Full details of the Deferred Share Bonus Plan are set out on page 97.
John Dixon was awarded the Restricted Shares before he was appointed an executive director.
For tax planning reasons, the vesting date for Sir Stuart Rose’s 2007 Deferred Share Bonus Plan award has been extended from 5 June 2010 to 5 July 2010.
For tax planning purposes, the 2007 Deferred Share Bonus Plan award for Kate Bostock and John Dixon was converted to a forfeitable shares award on 5 March 2010 and
a proportion of the award vested at that time so that sufficient shares could be sold to pay the Income Tax and national Insurance liability on the award. If the outstanding
award is forfeit before the vesting date then the director is obliged to pay back the value of the shares which vested in order to satisfy their Income Tax and national Insurance
liability. The same arrangement applies to Restricted Shares awarded to John Dixon in January 2009 which were also converted to a forfeitable share award on 5 March 2010.
For tax planning purposes, the 2007 Deferred Share Bonus Plan award for Ian Dyson was converted to a forfeitable shares award on 5 March 2010.
For tax planning purposes, the vesting date for Steven Sharp’s 2007 Deferred Share Bonus Plan award has been extended from 5 June 2010 to 5 July 2010. A proportion
of the award vested on 5 March 2010 so that sufficient shares could be sold to pay the Income Tax and national Insurance on the award. If this award is forfeit before the
extended vesting date then the director is obliged to pay back the value of the shares which vested in order to satsify his Income Tax and national Insurance liability.
These shares represent the dividends paid on this award over the vesting period.

8
9 All outstanding awards will lapse on leaving.

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Remuneration report continued

Share Option Schemes

Maximum
options
receivable at
29 March 2009
or date of
appointment

Date of grant

Options
granted
during

the year

Options
exercised
during

the year

Options
lapsed
during the

year

Maximum
options
receivable at
3 april
2010

Option
price
(p)

Option period

Executive Chairman

Sir Stuart rose
Executive Share
Option Scheme1
SAYE

total

Executive directors

Kate Bostock
Executive Share
Option Scheme1

SAYE

total

John Dixon
Executive Share
Option Scheme1

SAYE

total

Ian Dyson2
SAYE

total

Steven Sharp
Executive Share
Option Scheme1

SAYE

total

20/07/04

979,825

21/11/08

4,729

984,554

24/11/04

25/11/05

21/11/08

20/07/04

21/11/08

249,627

2,679

4,729

257,035

25,935

8,251

34,186

4,729

20/07/04

302,593

24/11/04

25/11/05

21/11/08

104,010

2,679

4,729

414,011

–

979,825

4,729

984,554

347.0

203.0

20/07/07 – 19/07/14

01/01/12 – 30/06/12

–

249,627

2,679

–

4,729

2,679

254,356

336.5

349.0

203.0

24/11/07 – 23/11/14

01/01/09 – 30/06/09

01/01/12 – 30/06/12

–

25,935

8,251

34,186

4,729

302,593

104,010

2,679

–

4,729

2,679

411,332

347.0

203.0

20/07/07 – 19/07/14

01/01/14 – 30/06/14

203.0

01/01/12 – 30/06/12

347.0

336.5

349.0

203.0

20/07/07 – 19/07/14

24/11/07 – 23/11/14

01/01/09 – 30/06/09

01/01/12 – 30/06/12

The Executive Share Options have all been held for three years and have met their performance targets and can therefore be exercised under the scheme rules;
All option prices were below the market value on 3 April 2010;
The performance criteria attached to the Executive Share Options Scheme is described on page 63.

2 All outstanding awards will lapse on leaving.

The market price of the shares at the end of the financial year was 371.9p; the highest and lowest share price during the financial year were 412.4p and 264.5p respectively.
The explanation of the performance criteria attached to the Performance Share Plan and the Executive Share Option Scheme in Long-Term Incentive Schemes on page 63
have been audited.

To find out more, visit marksandspencer.com/annualreport2010

Operating & Financial review p16 ß

Governance

Financial statements



p78 

Directors’ pension information

a) Pension benefits

John Dixon is the only executive director who is a member of the Company’s Defined Benefit Pension Scheme. Details of the pension
benefits earned by John Dixon during the year ending 3 April 2010 are shown below:

Accrued pension
entitlement at
09/09/09

accrued
pension
entitlement at
03/04/10

£000

114

£000

120

Age as at
03/04/10

Additional
pension earned
during the
period
£000

Additional
pension earned
during the
period above
inflation
£000

Transfer value
of accrued
pension at
09/09/09

transfer value
of accrued
pension at
03/04/10

£000

1,148

£000

1,307

Transfer value
of increase
in accrued
pension during
the period
above
inflation
£000

Increase in
transfer value
during the
period
£000

159

John Dixon

The accrued pension entitlement is the deferred pension amount that the director would receive at age 60 if he left the Company on
3 April 2010. The increase in entitlement is the difference between the accrued benefit at the year end and that at the date of appointment
to executive director. The Listing Rules require this to be disclosed excluding inflation.

All transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance note Gn 11. The

transfer values of the accrued entitlement represent the value of assets that the pension scheme would need to transfer to another pension
provider on transferring the scheme’s liability in respect of the director’s pension benefits. They do not represent sums payable to the
director and therefore cannot be added meaningfully to annual remuneration.

The increase in the transfer value less director’s contributions is the increase in the transfer value of the accrued benefits during the

year after deducting director’s pension contributions to the scheme.

no other executive director participates in the scheme. Instead they receive a salary supplement in lieu of membership of the Group

Pension Scheme as described on page 62.

b) Payments to former directors

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

Early retirement pensions (payable until)1

James Benfield (22 April 2009)

Derek Hayes (19 november 2008)
Unfunded pensions2
Clinton Silver

2010
£000

–

2009
£000

108

107

Under 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.
The pension entitlement for Clinton Silver is supplemented by an additional unfunded pension paid by the Company.

For 2009, the details of these pension payments were included within the Director’s emoluments table under Former directors.

Approved by the Board

Steven Holliday, Chairman of the Remuneration Committee
London

24 May 2010

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Other disclosures

Principal activities and Business review

Share capital

Marks and Spencer Group plc (the ‘Company’) is the holding
company of the Marks & Spencer Group of companies (the
‘Group’). We are one of the UK’s leading retailers with over
21 million customers visiting our stores every week. We sell high
quality, great value clothing and home products and outstanding
quality food. We source our products responsibly from 2,000
suppliers around the world, 76,000 people work for M&S both
in the UK and in 41 countries overseas where we have a growing
international business.

The Companies Act 2006 requires the Company to set out

in this report a fair review of the business of the Group during
the financial year ended 3 April 2010 including an analysis of
the position of the Group at the end of the financial year, and
a description of the principal risks and uncertainties facing the
Group (known as a ‘Business review’).

The information that fulfils the Business review requirements

can be found in the following sections of this report.
−
−
−
−
−
−
−

Chairman’s overview on pages 1 to 7
Performance overview and KPIs on pages 8 to 11
Brand and marketplace on pages 12 to 15
Operating and financial review on pages 16 to 43
Principal risks and uncertainties on pages 56 and 57
Financial risk management on pages 102 to 105
Social, environmental and ethical matters on pages 36 to 41.
More information is given in the How We Do Business report
available on our website at marksandspencer.com/
annualreport2010

Pages 1 to 76 inclusive (together with the sections of the Annual
Report incorporated by reference) consist of a Directors’ report
that has been drawn up and presented in accordance with and in
reliance upon applicable English company law and the liabilities of
the directors in connection with that report shall be subject to the
limitations and restrictions provided by such law.

An index to other Directors’ report disclosures are given on

page 76.

Profit and dividends

The profit for the financial year, after taxation, amounts to £526.3m
(last year £508.0m). The directors have declared dividends as
follows:

Ordinary shares

Paid interim dividend of 5.5p per share
(last year 8.3p per share)

Proposed final dividend of 9.5p per share
(last year 9.5p per share)

Total ordinary dividend, 15.0p per share
(last year 17.8p per share)

£m

86.4

150.4

236.8

The final ordinary dividend will be paid on 16 July 2010 to
shareholders whose names are on the Register of Members at the
close of business on 4 June 2010.

The Company’s authorised and issued ordinary share capital as at
3 April 2010 comprised a single class of ordinary shares. Details of
movements in the issued share capital can be found in note 25 to
the financial statements. Each share carries the right to one vote
at general meetings of the Company. During the period, 4,521,662
ordinary shares in the Company were issued as follows:
−

977,352 shares under the terms of the 2002 Executive Share
Option Scheme at prices between 215p and 352p; and
3,544,310 shares under the terms of the United Kingdom
Employees’ Save As You Earn Share Option Scheme at prices
between 203p and 349p.

−

Restrictions on transfer of securities

There are no specific restrictions on the transfer of securities
in the Company, which is governed by the Articles and prevailing
legislation. Nor is the Company aware of any agreements between
holders of securities that may result in restrictions on the transfer of
securities or that may result in restrictions on voting rights.

Variation of rights

Subject to applicable statutes, rights attached to any class of shares
may be varied with the written consent of the holders of at least
three quarters in nominal value of the issued shares of that class,
or by a special resolution passed at a separate general meeting
of the shareholders.

Rights and obligations attaching to shares

Subject to the provisions of the Companies Act 2006, any resolution
passed by the Company under the Companies Act 2006 and other
shareholder rights, shares may be issued with such rights and
restrictions as the Company may by ordinary resolution decide, or
(if there is no such resolution or so far as it does not make specific
provision) as the Board (as defined in the Articles) may decide.
Subject to the Articles, the Companies Act 2006 and other
shareholder rights, unissued shares are at the disposal of the Board.

Powers for the Company issuing or buying back
its own shares

The Company was authorised by shareholders, at the 2009 AGM,
to purchase in the market up to 10% of the Company’s issued
share capital, as permitted under the Company’s Articles. No shares
have been bought back under this authority. This standard authority
is renewable annually; the directors will seek to renew this authority
at the 2010 AGM. It is the Company’s present intention to cancel
any shares it buys back, rather than hold them in treasury.

There are no specific restrictions on the transfer of securities
in the Company, which is governed by the Articles and prevailing
legislation, nor is the Company aware of any agreements between
holders of securities that may result in restrictions on the transfer
of securities or that may result in restrictions on voting rights.

Subject to the Companies Act 2006, rights attached to any
class of share may be varied with the written consent of the holders
of at least 75% in nominal value of the issued shares of that class,
or by a special resolution passed at a separate general meeting of
the shareholders.

To find out more, visit marksandspencer.com/annualreport2010

Operating & Financial review p16 ß

Governance

Financial statements



p78 

−

the £250m puttable callable reset notes issued by the Company
to various institutions on 11 December 2007 under the Group’s
£3bn EMTN programme contain an option such that, upon a
change of control event, combined with a credit ratings
downgrade to below sub-investment level, any holder of an
MTN may require the Company to prepay the principal amount
of that MTN;

−

the $500m US Notes issued by the Company to various
institutions on 6 December 2007 under section 144a of the
US Securities Act contain an option such that, upon a change
of control event, combined with a credit ratings downgrade
to below sub-investment level, any holder of such a US Note
may require the Company to prepay the principal amount of
that US Note;

−

the $300m US Notes issued by the Company to various
institutions on 6 December 2007 under section 144a of the US
Securities Act contain an option such that, upon a change of
control event, combined with a credit ratings downgrade to below
sub-investment level, any holder of such a US Note may require
the Company to prepay the principal amount of that US Note;

−

the £1.2bn Credit Agreement dated 13 August 2004 and the
£400m Credit Facility Agreement dated 3 February 2008 between
the Company and various banks both contain a provision such
that, upon a change of control event, unless new terms are
agreed within 60 days, the facilities under these agreements will
be cancelled with all outstanding amounts becoming immediately
payable with interest;

−

the agreement between HSBC and the Company relating to
M&S Money dated 9 November 2004 (as amended and restated
on 1 March 2005) contains a clause such that, upon a change
of control of the Company, any new owner would be obliged to
give undertakings to HSBC in respect of the continuation of the
agreement, negotiate revised terms or terminate the agreement;

−

the agreement between Marks and Spencer plc and Marks
and Spencer Pension Trust Limited (as trustee of The Marks
and Spencer Pension Scheme) (the ‘Pension Fund’) dated
25 March 2009 relating to Marks and Spencer Scottish Limited
Partnership (the ‘Partnership’) contains a clause such that, upon
a change of control of the Company, Marks and Spencer plc
shall elect either to cause the Partnership to surrender its
discretion over the payment of annual distributions to the Pension
Fund or to increase the rate at which compensatory interest
accrues on any annual payments that Marks and Spencer plc
has elected to defer.

The Company does not have agreements with any director
or employee that would provide compensation for loss of office or
employment resulting from a takeover except that provisions of
the Company’s share schemes and plans may cause options and
awards granted to employees under such schemes and plans to
vest on a takeover.

The directors were granted authority at the 2009 AGM to allot
relevant securities up to a nominal amount of £132,511,272.
That authority will apply until the conclusion of this year’s AGM.
At this year’s AGM shareholders will be asked to grant an authority
to allot relevant securities (i) up to a nominal amount of £131,895,652,
and (ii) comprising equity securities up to a nominal amount of
£263,791,305 (after deducting from such limit any relevant
securities allotted under (i)), in connection with an offer of a rights
issue, (the Section 551 Amount), such Section 551 amount to apply
until the conclusion of the AGM to be held in 2011 or, if earlier,
on 2 October 2011.

A special resolution will also be proposed to renew the directors’
powers to make non pre-emptive issues for cash in connection with
rights issues and otherwise up to a nominal amount of £19,784,347.
A special resolution will also be proposed to renew the directors’

authority to repurchase the Company’s ordinary shares in the
market. The authority will be limited to a maximum of 158m ordinary
shares and sets the minimum and maximum prices which will be
paid.

Interests in voting rights

Information provided to the Company pursuant to the Financial
Services and Authority’s (FSA) Disclosure and Transparency Rules
(DTRs) is published on a Regulatory Information Service and on the
Company’s website. As at 24 May 2010, the Company had been
notified under DTR5 of the following significant holdings of voting
rights in its shares.

Brandes Investment
Partners, L.P.

AXA S.A.

Capital Research
& Management

Ordinary shares % of capital

Nature of holding

111,595,173

6.57% Indirect interest

89,374,221

5.66%

Direct and
indirect

78,591,394

4.98% Indirect interest

Legal & General Group plc 63,188,326

3.99% Direct interest

The Wellcome Trust

47,464,282

3.01% Direct interest

Deadlines for exercising voting rights

Votes are exercisable at a General Meeting of the Company in
respect of which the business being voted upon is being heard.
Votes may be exercised in person, by proxy, or in relation to
corporate members, by corporate representatives. The Articles
provide a deadline for submission of proxy forms of not than less
than 48 hours before the time appointed for the holding of the
meeting or adjourned meeting.

Significant agreements – change of control

There are a number of agreements to which the Company is party
that take effect, alter or terminate upon a change of control of the
Company following a takeover bid. Details of the significant
agreements of this kind are as follows:
−

the £267m Medium Term Notes issued by the Company on
28 March 2007 and £400m Medium Term Notes issued by the
Company on 30 November 2009 both to various institutions
(‘MTN’) and under the Group’s £3bn Euro Medium Term Note
(EMTN) programme contain an option such that, upon a change
of control event, combined with a credit ratings downgrade to
below sub-investment level, any holder of an MTN may require
the Company to prepay the principal amount of that MTN;

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Other disclosures continued

Board of directors

Directors’ indemnities

The Company maintains directors’ and officers’ liability insurance
which gives appropriate cover for any legal action brought against
its directors. The Company has also granted indemnities to each of
its directors and the Group Secretary to the extent permitted by law.
Qualifying third party indemnity provisions (as defined by section
234 of the Companies Act 2006) were in force during the year
ended 3 April 2010 and remain in force, in relation to certain losses
and liabilities which the directors (or Group Secretary) may incur to
third parties in the course of acting as directors (or Group Secretary)
or employees of the Company or of any associated company.

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, personal letters to their home, email and Chairman
broadcasts at key points in the year to all head office employees
and store management. In addition many of our store colleagues
can join the briefings by telephone to hear directly from the Board.
These types of communication are supplemented by our employee
publications including, ‘Your M&S’ magazine, Plan A updates and
DVD presentations. More than 3,500 employees elected onto
Business Involvement Groups (‘BIGs’) across every store and head
office location represent their colleagues in two-way communication
and consultation with the Company. They have continued to play a
key role in a wide variety of business changes, in what has been a
very challenging year.

The fifteenth meeting of the European Works Council (‘EWC’)

(established in 1995) will take place in September 2010.
This Council provides an additional forum for informing, consulting
and involving employee representatives from the countries in the
European Community. The EWC includes members from our joint
venture companies established in the Czech Republic and Greece,
as well as representatives from the Republic of Ireland and the UK.
By holding the meeting in September this year, the new Chief
Executive will have the opportunity to address the EWC and update
on his observations following his first four months in office.

Directors and senior management regularly attend National BIG

meetings and visit stores and discuss with employees matters of
current interest and concern to them and the business through
meetings with local Business Involvement Groups, specific listening
groups and informal discussion.

Share schemes are a long-established and successful part of
our total reward package, encouraging and supporting employee
share ownership. In particular, around 25,000 employees currently
participate in Sharesave, the Company’s all employee Save As you
Earn Scheme. Full details of all schemes are given on pages 95 to 97.
We maintain contact with retired staff through communications

from the Company and the Pension Trust. Member-nominated
trustees have been elected to the Pension Trust Board, including
employees and pensioners. We continue to produce a regular
Pensions Update newsletter for members of our final salary pension
scheme and the M&S Retirement Plan.

The membership of the Board and biographical details of the
directors are given on page 44 and 45 and are incorporated into
this report by reference. Details of directors’ beneficial and non-
beneficial interests in the shares of the Company are shown on
page 66. Options granted under the Save As You Earn (SAYE)
Share Option and Executive Share Option Schemes are shown
on pages 68 to 70. Further information regarding employee share
option schemes is given in note 12 to the financial statements.

Marc Bolland was appointed to the Board as Chief Executive

on 1 May 2010 and will stand for election at the AGM in 2010,
along with John Dixon who was appointed to the Board as an
executive director on 9 September 2009. Sir Stuart Rose will
step down as Executive Chairman on 31 July 2010, when he will
become Chairman. He will leave the Company by March 2011.
On 5 May 2010 the Company announced the resignation of
Ian Dyson. He will step down from the Board following the AGM
on 14 July and will leave the Company on 31 August 2010.
On 8 July 2009 Graham Oakley was succeeded in his role as
Group Secretary by Amanda Mellor, who had been Head of
Investor Relations since 2004.

The appointment and replacement of directors is governed
by the Company’s Articles, the Combined Code on Corporate
Governance 2008 (the ‘Code’), the Companies Act 2006 and
related legislation. The Articles may be amended by a special
resolution of the shareholders. Subject to the Articles, the
Companies Act 2006 and any directions given by special resolution,
the business of the Company will be managed by the Board who
may exercise all the powers of the Company.

The Company may by ordinary resolution declare dividends not
exceeding the amount recommended by the Board. Subject to the
Companies Act 2006, the Board may pay interim dividends, and
also any fixed rate dividend, whenever the financial position of the
Company, in the opinion of the Board, justifies its payment.

Appointment and retirement of directors

The directors may from time to time appoint one or more directors.
The Board may appoint any person to be a director (so long as the
total number of directors does not exceed the limit prescribed in the
Articles). Any such director shall hold office only until the next AGM
and shall then be required to stand for election.

At each AGM at least one-third of the current directors must
retire as directors by rotation. All those directors who have been in
office at the time of the two previous AGMs and who did not retire
at either of them must retire as directors by rotation. In addition, a
director may at any AGM retire from office and stand for re-election.
In accordance with the Code, any director who has served more
than three three-year terms (other than as a director holding an
executive position) is subject to annual re-election. In addition
the Board has determined that Sir Stuart Rose will seek annual
re-election as a director until the Company’s governance reverts
to recommended best practice.

Directors’ conflicts of interest

The Company has procedures in place for managing conflicts
of interest in place. Should a director become aware that they,
or their connected parties, have an interest in an existing or
proposed transaction with Marks & Spencer, they should notify
the Board in writing or at the next Board meeting. Internal controls
are in place to ensure that any related party transactions involving
directors, or their connected parties, are conducted on an arm’s
length basis. Directors have a continuing duty to update any
changes to these conflicts.

To find out more, visit marksandspencer.com/annualreport2010

Operating & Financial review p16 ß

Governance

Financial statements



p78 

Equal opportunities

The Group is committed to an active Equal Opportunities Policy
from recruitment and selection, through training and development,
performance reviews 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 Company is responsive to the needs of its
employees, customers and the community at large and we are an
organisation which uses everyone’s talents and abilities and where
diversity is valued. For example, we are one of the few major
retailers or companies to operate without a Normal Retirement Age
and are experiencing a number of employees continuing to work
with us past the state retirement age.

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
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 through our innovative Marks & Start
scheme and by working closely with JobCentrePlus.

Essential contracts or arrangements

The Company is required to disclose any contractual or other
arrangements which it considers are essential to its business.
We have a wide range of suppliers for the production and
distribution of products to our customers. Whilst the loss of or
disruption to certain of these arrangements could temporarily
affect the operations of the Group, none are considered to be
essential, with the exception of certain warehouse operators
and the provider of the Company’s e-commerce platform.

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;
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 payments are received between 19 and 26
days after the stock was delivered;
food payments are received between 18 and 25 days after the
stock was delivered; 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
3 April 2010 were 18 days, or 12 working days (last year 20.5 days,
or 13.7 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 last formal valuation of the Group’s properties was carried out
in September 2006. Taking into account movements in the Group’s
property portfolio since that date, the directors are of the opinion
that the market value of the Group’s properties, at 3 April 2010
exceeded their net book value (including prepayments in respect
of leasehold land) of the fixed asset and leasehold properties by
approximately £0.8bn.

Charitable donations

In line with our Plan A commitments, during the year, the Group
made charitable donations to support the community of £13.2m
(last year £12.2m), excluding management costs and memberships.
These principally consisted of cash donations of £5.2m (last year
£5.2m) which included Breakthrough Breast Cancer, The Prostate
Cancer Charity, Groundwork, WWF, Shelter, our Marks & Start
programme and local community donations. We also donated
£1.6m (last year £1.3m) of employee time, principally on fundraising,
Marks & Start and school work experience programmes, and stock
donations of £6.3m (last year £5.7m) to a variety of charities
including Oxfam, Newlife Foundation for Disabled Children
and Shelter.

We also had a particularly successful year supporting the raising

of extra funds of £7.7m (last year £4.8m) for our charity partners.
This principally consisted of cash raised through the fundraising
activities of our 125 Year Anniversary and by generating funds for
our charity partners such as Groundwork and funds raised through
the sale of stock donations to Oxfam from The Clothing Exchange.

Political donations

No political donations were made during the year ended 3 April
2010. Marks & Spencer has a policy of not making donations
to political organisations or independent election candidates or
incurring political expenditure anywhere in the world as defined in
the Political Parties, Elections and Referendums Act 2000.

Post balance sheet events

−

On 12 May 2010 Marks and Spencer Group plc announced a
£800m funding plan for its UK defined benefit pension scheme.
The funding plan includes the following contributions from
Marks & Spencer:
−

Cash contributions of £35m per annum for the first three years
of the funding plan increasing to £60m per annum until 2018.
This has a present day cash value of £376m.
£300m of value through the granting of a further interest in the
Marks and Spencer Scottish Limited Partnership. This new
interest entitles the pension scheme to a fixed annual distribution
of c.£36m for 15 years commencing in 2017 and a capital sum
in 2031 equal to the lower of £350m or any funding deficit in the
pension scheme at that point in time.
£124m of value through the transfer of assets from existing
US$ debt hedge contracts held by Marks and Spencer plc.

−

Marks and Spencer Group plc Annual report and financial statements 2010

Directors’ report

Other disclosures continued

Going concern

In adopting the going concern basis for preparing the financial
statements, the directors have considered the business activities as
set out on pages 1 to 43 as well as the Group’s principal risks and
uncertainties as set out on pages 56 and 57. Based on the Group’s
cash flow forecasts and projections, the Board is satisfied that the
Group will be able to operate within the level of its facilities for the
foreseeable future. For this reason the Group continues to adopt
the going concern in preparing its financial statements.

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 2010 AGM.

Annual general meeting

−

the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of the
Group; and
the Business review contained in this report includes a fair review
of the development and performance of the business
and the position of the Group, together with a description of
the principal risks and uncertainties that it faces.

Disclosure of information to auditor

Each director confirms that, so far as he (she) is aware, there is no
relevant audit information of which the Company’s auditors are
unaware and that each director has taken all the steps that he (she)
ought to have taken as a director to make himself (herself) aware of
any relevant audit information and to establish that the Company’s
auditors are aware of that information.

The AGM of Marks and Spencer Group plc will be held at the Royal
Festival Hall, London on 14 July 2010. The Notice is given, together
with explanatory notes, in the booklet which accompanies this report.

Index to principal Directors’ report disclosures

Information required to be disclosed in the Directors’ report can be
found on the following pages:

Directors’ responsibilities

The directors are responsible for preparing the Annual Report, the
Remuneration report and the financial statements in accordance
with applicable law and regulations. Company law requires the
directors to prepare financial statements for each financial year.
Under that law the directors have prepared the Group and
Company financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the EU.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
the profit or loss of the Company and Group for that period.
In preparing these financial statements, the directors are

required to:

−

select suitable accounting policies and then apply them
consistently;
make judgements and accounting estimates that are reasonable
and prudent;
state whether applicable IFRSs as adopted by the EU have been
followed, subject to any material departures disclosed
and explained in the financial statements; and
prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.

The directors are responsible for keeping proper accounting records
that are sufficient to show and explain the Company's transactions
and disclose with reasonable accuracy at any time the financial
position of the Company and the Group and to enable them to
ensure that the financial statements and the Remuneration report
comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity

of the Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions. Each of the directors confirm
that, to the best of their knowledge:

Information

Annual general meeting

Appointment and retirement of directors

Auditors

Board of directors

Charitable donations

Creditor payment policy

Deadlines for exercising voting rights

Directors’ conflicts of interest

Directors’ indemnities

Directors’ responsibilities

Disclosure of information to auditor

Employee involvement

Employees with disabilities

Equal opportunities

Essential contracts or arrangements

Going concern

Interests in voting rights

Market value of properties

Political donations

Post balance sheet events

Powers for the Company issuing or buying
back its own shares

Principal activities and Business review

Profit and dividends

Restrictions on transfer of securities

Rights and obligations attaching to shares

Share capital

Significant agreements – change of control

Variation of rights

By order of the Board
Amanda Mellor, Group Secretary
London
24 May 2010

Page
number(s)

To find out more, visit marksandspencer.com/annualreport2010

Independent auditors’ report
to the members of Marks and Spencer Group plc

Operating & Financial review p16 ß

Governance

Financial statements



p78 

We have audited the Group and parent company financial statements
(the ‘financial statements’) of Marks and Spencer Group plc for the
53 weeks ended 3 April 2010 which comprise the Consolidated and
Company income statement, Consolidated statement of comprehensive
income, Consolidated and Company statement of financial position,
Consolidated statement of changes in equity and Company statement
of changes in shareholders’ equity, Consolidated cash flow
statement and Company statement of cash flows, and the related
notes. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.

Opinion on other matters prescribed by the
Companies Act 2006

In our opinion:
−

the part of the Remuneration report to be audited has been
properly prepared in accordance with the Companies
Act 2006;
the information given in the Directors’ report for the financial year
for which the financial statements are prepared is consistent with
the financial statements.

−

Matters on which we are required to report by exception

Respective responsibilities of directors and auditors

We have nothing to report in respect of the following:

−

Under the Companies Act 2006 we are required to report to you if,
in our opinion:
−

adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent company financial statements and the part of the
Remuneration report to be audited are not in agreement with the
accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are
not made; or
we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
the directors’ statement, set out on page 76, in relation to going
concern; and
the part of the Corporate Governance statement relating to
the Company’s compliance with the nine provisions of the
June 2008 Combined Code specified for our review.

−
−

−

Stuart Watson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
24 May 2010

As explained more fully in the Directors’ responsibilities statement
set out on page 76, the directors are responsible for the preparation
of the Group financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit the Group
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and

only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, 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.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s and the parent company’s circumstances and have
been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements.

Opinion on financial statements

In our opinion the financial statements:
−

give a true and fair view of the state of the Group’s and of the
parent company’s affairs as at 3 April 2010 and of the Group’s
and the parent company’s profit and cash flows for the 53 weeks
then ended;
have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
have been prepared in accordance with the requirements of
the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the lAS Regulation.

−

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Consolidated income statement

Revenue
Operating profit
Finance income
Finance costs
Profit on ordinary activities before taxation
Analysed between:
Before property disposals and exceptional items
Profit on property disposals
Exceptional costs
Exceptional pension credit
Income tax expense
Profit for the year

Attributable to:
Equity shareholders of the Company
Minority interests

Basic earnings per share
Diluted earnings per share

Non-GAAP measure:
Adjusted profit before taxation (£m)
Adjusted basic earnings per share
Adjusted diluted earnings per share

Consolidated statement of
comprehensive income

Profit for the year

Other comprehensive income:
Foreign currency translation differences
Actuarial losses on retirement benefit schemes
Deferred tax on retirement benefit scheme
Cash flow and net investment hedges
– fair value movements in equity
– reclassified and reported in net profit
– amount recognised in inventories
Tax on cash flow hedges and fair value hedges
Other comprehensive income for the year, net of tax
Total comprehensive income/(loss) for the year

Attributable to:
Equity shareholders of the Company
Minority interests

53 weeks
ended
3 April
2010
£m
9,536.6
852.0
12.9
(162.2)
702.7

694.6
8.1
–
–
(179.7)
523.0

52 weeks
ended
28 March
2009
£m
9,062.1
870.7
50.0
(214.5)
706.2

604.4
6.4
(135.9)
231.3
(199.4)
506.8

526.3
(3.3)
523.0

33.5p
33.2p

508.0
(1.2)
506.8

32.3p
32.3p

694.6
33.0p
32.7p

604.4
28.0p
28.0p

Notes
2, 3
2, 3
6
6
4

2, 3
5
5,11
7

8A
8B

1
8A
8B

53 weeks
ended
3 April
2010
£m
523.0

52 weeks
ended
28 March
2009
£m
506.8

(17.4)
(251.6)
71.7

52.1
(119.8)
4.8
25.9
(234.3)
288.7

33.1
(927.1)
254.9

304.8
(206.8)
(8.6)
(29.3)
(579.0)
(72.2)

292.0
(3.3)
288.7

(71.0)
(1.2)
(72.2)

To find out more, visit www.marksandspencer.com/annualreport2010

Consolidated statement of
financial position

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Investment in joint ventures
Other financial assets
Trade and other receivables
Derivative financial instruments
Deferred tax assets

Current assets
Inventories
Other financial assets
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents

Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings and other financial liabilities
Partnership liability to the Marks & Spencer UK Pension Scheme
Derivative financial instruments
Provisions
Current tax liabilities

Non-current liabilities
Retirement benefit deficit
Trade and other payables
Borrowings and other financial liabilities
Partnership liability to the Marks & Spencer UK Pension Scheme
Derivative financial instruments
Provisions
Deferred tax liabilities

Total liabilities
Net assets
Equity
Called-up share capital – equity
Share premium account
Capital redemption reserve
Hedging reserve
Other reserve
Retained earnings
Total shareholders’ equity
Minority interests in equity
Total equity

Directors’ report

Financial statements

Other information

p01 



p117 

As at
3 April
2010
£m

Restated
As at
28 March
2009
£m

Notes

13
14
15
16
17
18
22
24

17
18
22
19

20
21
21
22
23

11
20
21
21
22
23
24

452.8
4,722.0
22.4
11.5
3.0
287.7
132.9
0.7
5,633.0

613.2
171.7
281.4
48.1
405.8
1,520.2
7,153.2

1,153.8
482.9
71.9
27.1
25.6
129.2
1,890.5

366.5
280.3
2,278.0
–
–
25.5
126.5
3,076.8
4,967.3
2,185.9

400.3
4,834.0
24.8
13.8
3.0
336.8
254.0
1.6
5,868.3

536.0
53.1
285.2
92.6
422.9
1,389.8
7,258.1

1,073.5
942.8
71.9
76.2
63.6
78.9
2,306.9

152.2
243.8
2,117.9
68.0
3.0
40.2
225.5
2,850.6
5,157.5
2,100.6

395.5
247.5
2,202.6
11.6
(5,970.5)
5,281.9
2,168.6
17.3
2,185.9

394.4
236.2
2,202.6
62.6
(5,970.5)
5,156.4
2,081.7
18.9
2,100.6

The financial statements were approved by the Board and authorised for issue on 24 May 2010. The financial statements also comprise the
notes on pages 82 to 111.

Stuart Rose
Chairman

Ian Dyson
Group Finance and Operations Director

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Consolidated statement
of changes in equity

At 30 March 2008
Profit/(loss) for the year
Other comprehensive income:
Foreign currency translation
Actuarial losses on retirement benefit schemes
Cash flow and net investment hedges
– fair value movement in equity
– reclassified and reported in net profit3
– amount recognised in inventories
Tax on items taken directly to equity
Total comprehensive income
Transactions with owners:
Dividends
Derecognition of financial liability4
Transactions with minority shareholders
Transfer of exchange on net investment hedges
Shares issued on exercise of employee
share options
Shares purchased in buy-back
Charge for share-based payments
Deferred tax on share schemes
At 28 March 2009
At 29 March 2009
Profit/(loss) for the year
Other comprehensive income:
Foreign currency translation
Actuarial losses on retirement benefit schemes
Cash flow and net investment hedges
– fair value movement in equity
– reclassified and reported in net profit3
– amount recognised in inventories
Tax on items taken directly to equity
Total comprehensive income
Transactions with owners:
Dividends
Transactions with minority shareholders
Shares issued on exercise of employee
share options
Purchase of own shares held by employee
Charge for share-based payments
Deferred tax on share schemes
At 3 April 2010

Ordinary
share
capital
£m
396.6
–

Share
premium
account
£m
231.4
–

Capital
redemption
reserve
£m
2,199.9
–

Hedging
reserve
£m

Other
reserve1
£m

Retained
earnings2
£m

Total
£m
(36.9) (6,542.2) 5,707.9 1,956.7
508.0

508.0

–

Minority
interest
Total
£m
£m
7.3 1,964.0
506.8
(1.2)

33.9
(927.1)

33.1
(927.1)

–
–

33.1
(927.1)

–
–

–
–
–
–
–

–
–
–
–

–
–

–
–
–
–
–

–
–
–
–

–
–

–
–
–
–
–

–
–
–
–

(0.8)
–

317.2
(206.8)
(8.6)
(29.3)
71.7

–
–
–
27.8

–
–

–
–
–

–

(12.4)
–
–
254.9
(142.7)

304.8
(206.8)
(8.6)
225.6
(71.0)

–
571.7
–
–

(354.6)
–
–
(27.8)

(354.6)
571.7
–
–

0.5
(2.7)
–
–
394.4
394.4
–

4.8
–
–
–
236.2
236.2
–

–
2.7
–
–
2,202.6
2,202.6
–

–
–
–
–

–
(40.9)
14.3
0.2

5.3
(40.9)
14.3
0.2
62.6 (5,970.5) 5,156.4 2,081.7
62.6 (5,970.5) 5,156.4 2,081.7
526.3

526.3

–

–
–
–
–
(1.2)

(0.2)
–
13.0
–

304.8
(206.8)
(8.6)
225.6
(72.2)

(354.8)
571.7
13.0
–

–
–
–
–

5.3
(40.9)
14.3
0.2
18.9 2,100.6
18.9 2,100.6
523.0
(3.3)

–
–

–
–
–
–
–

–
–

–
–
–
–
–

–
–

–
–
–
–
–

–
–

0.1
–

38.0
(119.8)
4.8
25.9
(51.0)

–
–

–
–
–
–
–

–
–

(17.5)
(251.6)

(17.4)
(251.6)

–
–

(17.4)
(251.6)

14.1
–
–
71.7
343.0

52.1
(119.8)
4.8
97.6
292.0

–
–
–
–
(3.3)

52.1
(119.8)
4.8
97.6
288.7

(236.0)
–

–
1.7

(236.0)
1.7

1.1
–
–
–
395.5

11.3
–
–
–
247.5

–
–
–
–
2,202.6

–
–
–
–

12.4
(19.0)
28.5
9.0
11.6 (5,970.5) 5,281.9 2,168.6

–
(19.0)
28.5
9.0

–
–
–
–

12.4
(19.0)
28.5
9.0
17.3 2,185.9

1 The ‘Other reserve’ was created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the
capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of
Marks and Spencer plc at the date of the transaction. The reserve also includes discretionary distributions to the Marks Spencer UK Pension Scheme (see footnote 4).

Includes a cumulative £34.8m gain (last year £52.3m gain) in the currency reserve.

3 Amounts reclassified and reported in net profit have all been recorded in cost of sales.

4 The amounts derecognised as a financial liability relate to the amendments of the Scottish Limited Partnership agreement on 25 March 2009. In line with emerging best practice for

similar transactions by other companies this has been reclassified to other reserves. See note 25 for further details.

To find out more, visit www.marksandspencer.com/annualreport2010

Consolidated cash flow
information

Consolidated statement of cash flows
Cash flows from operating activities
Cash generated from operations
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Purchase of non-current financial assets
Purchase of current financial assets
Interest received
Net cash outflow from investing activities
Cash flows from financing activities
Interest paid
Cash inflow/(outflow) from borrowings
(Repayment)/drawdown of syndicated bank facility
Issue of medium-term notes
Redemption of medium-term notes
Payment of liability to the Marks & Spencer UK Pension Scheme
Decrease in obligations under finance leases
Equity dividends paid
Shares issued on exercise of employee share options
Shares purchased in buy back
Purchase of own shares by employee trust
Net cash outflow from financing activities
Net cash (outflow)/inflow from activities
Effects of exchange rate changes
Opening net cash
Closing net cash

Reconciliation of net cash flow to movement in net debt
Opening net debt
Net cash (outflow)/inflow from activities
Increase in current financial assets
Decrease/(increase) in debt financing
Partnership liability to the Marks & Spencer UK Pension Scheme (non-cash)
Exchange and other non-cash movements
Movement in net debt
Closing net debt

Directors’ report

Financial statements

Other information

p01 



p117 

Notes

53 weeks
ended
3 April
2010
£m

52 weeks
ended
28 March
2009
£m

1,349.7
(120.7)
1,229.0

1,371.9
(81.3)
1,290.6

(5.4)
(352.0)
20.9
(77.5)
–
(118.3)
2.7
(529.6)

(163.4)
30.7
(529.4)
397.2
(200.4)
(68.0)
(17.0)
(236.0)
12.4
–
(19.0)
(792.9)
(93.5)
(2.1)
298.3
202.7

–
(540.8)
58.3
(121.6)
(4.4)
(1.1)
12.7
(596.9)

(197.1)
(25.8)
108.1
–
–
(15.1)
(1.0)
(354.6)
5.3
(40.9)
–
(521.1)
172.6
7.8
117.9
298.3

53 weeks
ended
3 April
2010
£m

52 weeks
ended
28 March
2009
£m

Notes

(2,490.8)
(93.5)
118.3
386.9
–
10.7
422.4
(2,068.4)

(3,077.7)
172.6
1.1
(66.2)
539.6
(60.2)
586.9
(2,490.8)

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements

1 Accounting policies

Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union, International Financial Reporting Interpretations
Committee (IFRIC) interpretations and with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.

In adopting the going concern basis for preparing the financial
statements, the directors have considered the business activities
as set out on pages 1 to 43 as well as the Group’s principal risks and
uncertainties as set out on pages 56 and 57. Based on the Group’s
cash flow forecasts and projections, the Board is satisfied that the
Group will be able to operate within the level of its facilities for the
foreseeable future. For this reason the Group continues to adopt
the going concern basis in preparing its financial statements.

The following IFRSs, IFRIC interpretations and amendments have
been adopted in the financial statements for the first time in this
financial period:

– IFRS 8 – ‘Operating Segments’ replaces IAS 14 – ‘Segmental

Reporting’ and requires operating segments to be disclosed on
the same basis as that used for internal reporting. It has been
implemented by the Group from 29 March 2009, and has had no
impact on the results or net assets of the Group but has resulted
in revised disclosures.

– IAS 1 (Revised) – ‘Presentation of Financial Statements’ is effective
for the year ended 3 April 2010. The standard requires a change
in the format and presentation of the Group’s primary statements
but has had no impact on reported profits or equity.

– IFRS 7 – ‘Finance Instruments – Disclosures’ (amendment)
is effective for the year ended 3 April 2010. The amendment
requires enhanced disclosures about fair value measurement
and liquidity risk.

– Amendment to IAS 23 – ‘Borrowing Costs’ removes the option
of immediately expensing borrowing costs that are directly
attributable to a qualifying asset and requires such costs to be
capitalised. It has been adopted by the Group from 29 March
2009, and has had no impact on the results or net assets of
the Group.

The following IFRSs, IFRIC interpretations and amendments have
been issued but are not yet effective and have not been early
adopted by the Group:

– IFRS 3 (Revised) – ‘Business Combinations’ was issued in

January 2008. It will affect the accounting for any acquisitions
made by the Group after March 2010. Acquisitions made prior
to that date will not be affected.

– IFRIC 17 – ‘Distributions of Non-Cash Assets to Owners’ was
issued in November 2008. It is effective for annual periods
beginning on or after 1 July 2009. This is not currently applicable
to the Group, as it has not made any non-cash distributions.

– IFRIC 18 – ‘Transfers of Assets from Customers’ was issued in
January 2009. It is effective for transfer of assets received on or
after 1 July 2009. This is not relevant to the Group, as it has not
received any assets from customers.

Marks and Spencer Scottish Limited Partnership has taken
exemption under paragraph 7 of the Partnership and Unlimited
Companies (Accounts) Regulations 1993 (SI 1993/1820) from the
requirement to prepare and deliver accounts in accordance with the
Companies Act.

A summary of the Company’s and the Group’s accounting policies
is given below:

Accounting convention
The financial statements are drawn up on the historical cost basis
of accounting, except as disclosed in the accounting policies set
out below.

Basis of consolidation
The Group financial statements incorporate the financial statements
of Marks and Spencer Group plc and all its subsidiaries made up to
the year end date. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring the accounting policies
used in line with those used by the Group.

Subsidiary undertakings are all entities over which the Group has
the power to govern the financial and operating policies generally
accompanying a shareholding of more than one half of the voting
rights. Subsidiary undertakings acquired during the year are recorded
using the acquisition method of accounting and their results included
from the date of acquisition.

The separable net assets, both tangible and intangible, of the newly
acquired subsidiary undertakings are incorporated into the financial
statements on the basis of the fair value as at the effective date
of control.

Intercompany transactions, balances and unrealised gains
on transactions between Group companies are eliminated.

Revenue
Revenue comprises sales of goods to customers outside the Group
less an appropriate deduction for actual and expected returns,
discounts and loyalty scheme vouchers, and is stated net of value
added tax and other sales taxes. Revenue is recognised when the
significant risks and rewards of ownership have been transferred to
the buyer. Sales of furniture and online sales are recorded on delivery
to the customer.

Exceptional items
Exceptional income and charges are those items that are one-off
in nature and create significant volatility in reported earnings and are
therefore reported separately in the income statement. This includes
costs relating to strategy changes that are not regular running costs
of the underlying business and pension credits arising on changes
to the UK Defined Benefit Scheme.

Dividends
Final dividends are recorded in the financial statements in the period
in which they are approved by the Company’s shareholders. Interim
dividends are recorded in the period in which they are approved
and paid.

Pensions
Funded pension plans are in place for the Group’s UK employees
and some employees overseas. The assets of these pension plans
include a property partnership interest and various equities and
bonds. The equities and bonds are managed by third-party
investment managers and are held separately in trust.

Regular valuations are prepared by independent professionally
qualified actuaries in respect of the defined benefit schemes using
the projected unit credit method. These determine the level of
contribution required to fund the benefits set out in the rules of the
plans and allow for the periodic increase of pensions in payment.
The 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.

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1 Accounting policies continued

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

A charge is also made within finance income representing the
expected increase in the liabilities of the retirement benefit schemes
during the year. This arises from the liabilities of the schemes being
one year closer to payment.

The difference between the market value of the assets and the
present value of accrued pension liabilities is shown as an asset
or liability in the statement of financial position. Assets are only
recognised if they are recoverable.

Actuarial gains and losses are recognised immediately in the
statement of comprehensive income.

Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due.

Intangible assets
A. Goodwill Goodwill arising on consolidation represents the excess
of the cost of acquisitions over the Group’s interest in the fair value
of the identifiable assets and liabilities (including intangible assets)
of the acquired entity at the date of the acquisition. Goodwill is
recognised as an asset and assessed for impairment at least
annually. Any impairment is recognised immediately in the
income statement.

B. Brands Acquired brand values are held on the statement of
financial position at cost and amortised on a straight-line basis over
their estimated useful lives. Any impairment in value is recognised
immediately in the income statement.

C. Software intangibles Where computer software is not an integral
part of a related item of computer hardware, the software is treated
as an intangible asset. Capitalised software costs include external
direct costs of material and services and the payroll and payroll-
related costs for employees who are directly associated with
the project.

Capitalised software development costs are amortised on a straight-
line basis over their expected economic lives, normally between 3 to
10 years. Computer software under development is held at cost less
any recognised impairment loss.

Property, plant and equipment
The Group’s policy is to state property, plant and equipment at
cost less accumulated depreciation and any recognised impairment
loss. Assets in the course of construction are held at cost less any
recognised impairment loss. Cost includes professional fees and, for
qualifying assets, borrowing costs capitalised in accordance with the
Group’s accounting policy.

A. Land and buildings The Group’s policy is not to revalue property
for accounting purposes.

B. Depreciation Depreciation is provided to write off the cost of
tangible non-current assets (including investment properties), less
estimated residual values, by equal annual instalments as follows:

– freehold land – not depreciated;

– freehold and leasehold buildings with a remaining lease term over
50 years – depreciated to their residual value over their estimated
remaining economic lives;

– leasehold buildings with a remaining lease term of less than
50 years – over the remaining period of the lease; and

– fixtures, fittings and equipment – 3 to 25 years according

to the estimated life of the asset.

Residual values and useful economic lives are reviewed annually.
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 income statement.

C. Assets held under leases Where assets are financed by leasing
agreements where the risks and rewards are substantially transferred
to the Group (finance leases) the assets are treated as if they had
been purchased outright, and the corresponding liability to the
leasing company is included as an obligation under finance leases.
Depreciation on leased assets is charged to the income statement
on the same basis as owned assets. Leasing payments are treated
as consisting of capital and interest elements and the interest
is charged to the income statement.

All other leases are operating leases and the costs in respect of
operating leases are charged on a straight-line basis over the lease
term. The value of any lease incentive received to take on an
operating lease (for example, rent-free periods) is recognised as
deferred income and is released over the life of the lease.

Investment properties
Investment properties are properties held to earn rentals and/or
for capital appreciation. Investment properties are recorded at cost
less accumulated depreciation and any recognised impairment loss.

Leasehold prepayments
Payments made to acquire leasehold land are included in
prepayments at cost and are amortised over the life of the lease.

Inventories
Inventories are valued at the lower of cost and net realisable value
using the retail method, which is computed on the basis of selling
price less the appropriate trading margin. All inventories are
finished goods.

Provisions
Provisions are recognised when the Group has a present obligation
as a result of a past event, and it is probable that the Group will be
required to settle that obligation. Provisions are measured at the
directors’ best estimate of the expenditure required to settle the
obligation at the balance sheet date, and are discounted to present
value where the effect is material.

Share-based payments
The Group issues equity-settled share-based payments to certain
employees. A fair value for the equity-settled share awards is
measured at the date of grant. The Group measures the fair value
of each award using the Black-Scholes model where appropriate.

The fair value of each award is recognised as an expense over the
vesting period on a straight-line basis, after allowing for an estimate
of the share awards that will eventually vest. The level of vesting is
reviewed annually; and the charge is adjusted to reflect actual and
estimated levels of vesting.

Foreign currencies
The results of overseas 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
comprehensive income.

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

1 Accounting policies continued

Transactions denominated in foreign currencies are translated at the
exchange rate at the date of the transaction. Foreign currency assets
and liabilities held at the balance sheet date are translated at the
closing balance sheet rate. The resulting exchange gain or loss
is recognised within the income statement.

Taxation
The tax charge comprises current tax payable and deferred tax.

The current tax charge represents an estimate of the amounts
payable to tax authorities in respect of the Group’s taxable profits
and is based on an interpretation of existing tax laws.

Deferred tax is recognised on temporary differences between the
carrying amount of an asset or liability in the statement of financial
position and its tax base at tax rates that are expected to apply
when the asset is realised or the liability settled, based on tax rates
that have been enacted or substantively enacted by the balance
sheet date.

Deferred tax is not recognised in respect of:

– the initial recognition of goodwill that is not tax deductible; and

– the initial recognition of an asset or liability in a transaction which
is not a business combination and at the time of the transaction
does not affect accounting or taxable profits.

Deferred tax assets are only recognised when it is probable that
taxable profits will be available against which the deferred tax asset
can be utilised.

Deferred tax liabilities are not provided in respect of undistributed
profits of non-UK resident subsidiaries where (i) the Group
is able to control the timing of distribution of such profits; and
(ii) it is not probable that a taxable distribution will be made
in the foreseeable future.

Financial instruments
Financial assets and liabilities are recognised in the Group’s
statement of financial position when the Group becomes a party to
the contractual provisions of the instrument.

A. Trade receivables Trade receivables recorded initially at fair value
and subsequently measured at amortised cost. Generally, this results
in their recognition at nominal value less any allowance for any
doubtful debts.

B. Investments and other financial assets Investments and other
financial assets are classified as either ‘available-for- ale’ or ‘fair
value through profit or loss’. They are initially measured at fair value,
including transaction costs, with the exception of ‘fair value through
profit and loss’. Financial assets held at fair value through profit and
loss are initially recognised at fair value and transaction costs are
expensed.

Where securities are designated as ‘fair value through profit or loss’,
gains and losses arising from changes in fair value are included in net
profit or loss for the period. For ‘available-for-sale’ investments, gains
or losses arising from changes in fair value are recognised directly
in comprehensive income, until the security is disposed of or is
determined to be impaired, at which time the cumulative gain or loss
previously recognised in comprehensive income is included in the net
profit or loss for the period. Equity investments that do not have a
quoted market price in an active market and whose fair value cannot
be reliably measured by other means are held at cost.

Investments in subsidiaries are held at cost less impairment.
Dividends received from the pre-acquisition profits of subsidiaries
are deducted from the cost of investment.

C. Classification of financial liabilities and equity Financial liabilities and
equity instruments are classified according to the substance of the
contractual arrangements entered into. An equity instrument is any
contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.

D. Bank borrowings Interest-bearing bank loans and overdrafts
are initially recorded at the fair value, which equals the proceeds
received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue
costs, are accounted for on an effective interest rate method and
are added to the carrying amount of the instrument to the extent
that they are not settled in the period in which they arise.

E. Loan notes Long-term loans are initially measured at fair value
and are subsequently held at amortised cost unless the loan is
hedged by a derivative financial instrument in which case hedge
accounting treatment will apply.

F. Trade payables Trade payables are recorded initially at fair value
and subsequently measured at amortised cost. Generally this results
in their recognition at their nominal value.

G. Equity instruments Equity instruments issued by the Company are
recorded at the consideration received, net of direct issue costs.

Derivative financial instruments and hedging activities
The Group primarily uses interest rate swaps and forward foreign
currency contracts to manage its exposures to fluctuating interest
and foreign exchange rates. These instruments are initially recognised
at fair value on the trade date and are subsequently remeasured at
their fair value at the balance sheet date. The method of recognising
the resulting gain or loss is dependent on whether the derivative is
designated as a hedging instrument and the nature of the item
being hedged.

The Group designates certain hedging derivatives as either:

– a hedge of a highly probable forecast transaction or change in the
cash flows of a recognised asset or liability (a cash flow hedge);

– a hedge of the exposure to change in the fair value of a
recognised asset or liability (a fair value hedge); or

– a hedge of the exposure on the translation of net investments

in foreign entities (a net investment hedge).

Underlying the definition of fair value is the presumption that the
Group is a going concern without any intention of materially curtailing
the scale of its operations.

For those of the Group’s derivative instruments stated at fair value,
the fair value will be determined by the Group applying discounted
cash flow analysis using quoted market rates as an input into the
valuation model.

In determining the fair value of a derivative, the appropriate quoted
market price for an asset held is the bid price, and for a liability issued
is the offer price.

At inception of a hedging relationship, the hedging instrument and
the hedged item are documented and prospective effectiveness
testing is performed. During the life of the hedging relationship,
effectiveness testing is continued to ensure the instrument remains
an effective hedge of the transaction.

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1 Accounting policies continued

In order to qualify for hedge accounting, the following conditions
must be met:

– formal designation and documentation at inception of the hedging
relationship, detailing the risk management objective and strategy
for undertaking the hedge;

– the hedge is expected to be highly effective in achieving offsetting
changes in fair value or cash flows attributable to the hedged risk;

– for a cash flow hedge, a forecast transaction that is the subject

of the hedge must be highly probable;

– the effectiveness of the hedge can be reliably measured; and

– the hedge is assessed on an ongoing basis and determined
actually to have been highly effective throughout its life.

A. Cash flow hedges Changes in the fair value of derivative financial
instruments that are designated and effective as hedges of future
cash flows are recognised directly in comprehensive income and any
ineffective portion is recognised immediately in the income statement.
If the firm commitment or forecast transaction that is the subject of
a cash flow hedge results in the recognition of a non-financial asset
or liability, then, at the time the asset or liability is recognised, the
associated gains or losses on the derivative that had previously
been recognised in comprehensive income are included in the initial
measurement of the asset or liability. For hedges that do not result
in the recognition of an asset or a liability, amounts deferred in
comprehensive income are recognised in the income statement in
the same period in which the hedged items affect net profit or loss.

B. Fair value hedges For an effective hedge of an exposure to
changes in the fair value, the hedged item is adjusted for changes in
fair value attributable to the risk being hedged with the corresponding
entry in profit or loss. Gains and losses from remeasuring the
derivative, or for non-derivatives the foreign currency component
of its carrying amount, are recognised in profit or loss.

C. Net investment hedges Changes in the fair value of derivative
or non-derivative financial instruments that are designated and
effective as hedges of the net investments are recognised directly
in comprehensive income and any ineffective portion is recognised
immediately in the income statement.

Changes in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognised in the income statement
as they arise.

Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated or exercised, or no longer qualifies for
hedge accounting. At that time, any cumulative gain or loss on the
hedging instrument recognised in comprehensive income is retained
in equity until the forecast transaction occurs. If a hedged transaction
is no longer expected to occur, the net cumulative gain or loss
recognised in equity is transferred to net profit or loss for the period.

The Group does not use derivatives to hedge income statement
translation exposures.

Critical accounting estimates and judgements
The preparation of consolidated financial statements requires the
Group to make estimates and assumptions that affect the application
of policies and reported amounts. Estimates and judgements are
continually evaluated and are based on historical experience and
other factors including expectations of future events that are believed
to be reasonable under the circumstances. Actual results may differ
from these estimates. The estimates and assumptions which have
a significant risk of causing a material adjustment to the carrying
amount of assets and liabilities are discussed below:

A. Impairment of goodwill The Group is required to test, at
least annually, whether goodwill has suffered any impairment.
The recoverable amount is determined based on value in use
calculations. The use of this method requires the estimation of future
cash flows and the choice of a suitable discount rate in order to
calculate the present value of these cash flows. Actual outcomes
could vary from those calculated. See note 13 for further details.

B. Impairment of property, plant and equipment and computer
software Property, plant and equipment and computer software
are reviewed for impairment if events or changes in circumstances
indicate that the carrying amount may not be recoverable. When a
review for impairment is conducted, the recoverable amount is
determined based on value in use calculations prepared on the basis
of management’s assumptions and estimates. See notes 13 and 14
for further details.

C. Depreciation of property, plant and equipment and amortisation of
computer software Depreciation and amortisation is provided so as
to write down the assets to their residual values over their estimated
useful lives as set out above. The selection of these residual values
and estimated lives requires the exercise of management judgement.
See notes 13 and 14 for further details.

D. Post-retirement benefits The determination of the pension cost
and defined benefit obligation of the Group’s defined benefit pension
schemes depends on the selection of certain assumptions which
include the discount rate, inflation rate, salary growth, mortality and
expected return on scheme assets. Differences arising from actual
experiences or future changes in assumptions will be reflected in
subsequent periods. See note 11 for further details.

E. Refunds and loyalty scheme accruals Accruals for sales returns
and loyalty scheme redemption are estimated on the basis of
historical returns and redemptions and these are recorded so as
to allocate them to the same period as the original revenue is
recorded. These accruals are reviewed regularly and updated to
reflect management’s latest best estimates, however, actual returns
and redemptions could vary from these estimates.

Non-GAAP performance measures
The directors believe that the adjusted profit and earnings per share
measures provide additional useful information for shareholders on
the underlying performance of the business. These measures are
consistent with how underlying business performance is measured
internally. The adjusted profit before tax measure is not a recognised
profit measure under IFRS and may not be directly comparable with
adjusted profit measures used by other companies. The adjustments
made to reported profit before tax are to exclude the following:

– exceptional income and charges – These are one-off in nature

and therefore create significant volatility in reported earnings; and

– profits and losses on the disposal of properties – These can
vary significantly from year to year, again creating volatility in
reported earnings.

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

2 Segmental information

The Group has adopted IFRS 8 – ‘Operating Segments’ with effect from 29 March 2009. IFRS 8 requires operating segments to be identified
on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate
resources to the segments and to assess their performance. In contrast, the predecessor Standard (IAS 14 – ‘Segment Reporting’) required
the Group to identify two sets of segments (business and geographical), using a risks and rewards approach, with the Group’s system of
internal financial reporting to key management personnel serving only as the starting point for the identification of such segments.

The chief operating decision maker has been identified as the executive directors. The executive directors review the Group’s internal
reporting in order to assess performance and allocate resources. The operating segments are UK and International which are reported
in a manner consistent with the internal reporting to the executive directors.

The UK segment consists of the UK retail business and UK franchise operations. The International segment consists of Marks & Spencer
owned businesses in the Republic of Ireland, Europe and Asia, together with international franchise operations.

The executive directors assess the performance of the operating segments based on a measure of operating profit. This measurement
basis excludes the effects of exceptional items from the operating segments as well as gains or losses on the disposal of assets.
Central costs are all classified as UK costs and presented within UK operating profit. The executive directors also monitor revenue within
the segments. To increase transparency, the Group has decided to include an additional voluntary disclosure analysing revenue within the
reportable segments.

The following is an analysis of the Group’s revenue and results by reportable segment:

53 weeks ended 3 April 2010

52 weeks ended 28 March 2009

General erchandise
Food
UK revenue

Wholesale
Retail
International revenue
Group revenue

UK operating profit1
International operating profit
Group operating profit (adjusted)

Profit on property disposals
Exceptional costs
Exceptional pension credit

Group operating profit

Finance income
Finance costs

Profit before tax

Management
£m
4,186.2
4,455.5
8,641.7

Adjustment2
£m
(34.2)
(39.6)
(73.8)

297.7
673.1
970.8
9,612.5

701.2
142.7
843.9

–
(2.1)
(2.1)
(75.9)

–
–
–

Management
£m
3,944.4
4,282.3
8,226.7

Adjustment2
£m
(26.1)
(36.3)
(62.4)

272.3
627.2
899.5
9,126.2

652.8
116.1
768.9

–
(1.7)
(1.7)
(64.1)

–
–
–

Statutory
£m
4,152.0
4,415.9
8,567.9

297.7
671.0
968.7
9,536.6

701.2
142.7
843.9

8.1
–
–

852.0

12.9
(162.2)

702.7

1 UK operating profit includes a contribution of £30.4m (last year £24.8m) in respect of fees received from HSBC in relation to M&S Money.

2 Adjustments relate to revenue items recognised in cost of sales for management accounting purposes.

Other segmental information

Additions to tangible and intangible assets (excluding goodwill)
Depreciation and amortisation
Assets

UK
£m
360.0
398.7
6,242.7

International
£m
29.3
29.2
910.5

2010

Total
£m
389.3
427.9
7,153.2

UK
£m
611.8
384.4
6,530.8

International
£m
40.2
24.6
727.3

Statutory
£m
3,918.3
4,246.0
8,164.3

272.3
625.5
897.8
9,062.1

652.8
116.1
768.9

6.4
(135.9)
231.3

870.7

50.0
(214.5)

706.2

2009

Total
£m
652.0
409.0
7,258.1

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3 Expense analysis

Revenue
Cost of sales
Gross profit
Selling and marketing expenses
Administrative expenses
Other operating income
Profit on property disposals
Exceptional costs (see note 5)
Exceptional pension credit (see note 5)
Operating profit

Directors’ report

Financial statements

Other information

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2010

2009

Before
property
disposals
and
exceptional
items
£m
9,536.6
(5,918.1)
3,618.5
(2,216.6)
(614.9)
56.9
–
–
–
843.9

Property
disposals
and
exceptional
items
£m
–
–
–
–
–
–
8.1
–
–
8.1

Before
property
disposals
and
exceptional
items
£m
9,062.1
(5,690.2)
3,371.9
(2,074.4)
(570.1)
41.5
–
–
–
768.9

Property
disposals
and
exceptional
items
£m
–
–
–
–
–
–
6.4
(135.9)
231.3
101.8

Total
£m
9,536.6
(5,918.1)
3,618.5
(2,216.6)
(614.9)
56.9
8.1
–
–
852.0

Total
£m
9,062.1
(5,690.2)
3,371.9
(2,074.4)
(570.1)
41.5
6.4
(135.9)
231.3
870.7

2009

Total
£m
1,154.3
516.7
95.7
381.7
27.3
468.8
2,644.5

The selling and marketing expenses and administrative expenses in the table above are further analysed in the table below:

Employee costs (see note 10A)
Occupancy costs
Repairs, renewals and maintenance of property
Depreciation
Amortisation
Other costs
Operating expenses

4 Profit before taxation

Selling and
marketing
expenses
£m
1,007.5
463.2
88.3
354.8
30.3
272.5
2,216.6

Adminis-
trative
expenses
£m
251.9
81.7
22.1
39.4
3.4
216.4
614.9

2010

Total
£m
1,259.4
544.9
110.4
394.2
33.7
488.9
2,831.5

Selling and
marketing
expenses
£m
923.2
439.2
76.6
343.5
24.6
267.3
2,074.4

Adminis-
trative
expenses
£m
231.1
77.5
19.1
38.2
2.7
201.5
570.1

The following items have been included in arriving at profit before taxation:

Net foreign exchange (gains)/losses
Cost of inventories recognised as an expense
Depreciation of property, plant, and equipment
– owned assets
– under finance leases
Amortisation of intangibles
Profit on property disposals
Operating lease rentals payable
– property
– fixtures, fittings and equipment
Exceptional costs (see note 5)
Exceptional pension credit (see note 5)

2010
£m
(2.9)
5,683.5

2009
£m
3.6
5,426.7

380.4
13.8
33.7
(8.1)

220.7
10.8
–
–

371.5
10.2
27.3
(6.4)

200.5
10.1
135.9
(231.3)

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

4 Profit before taxation continued

Included in administrative expenses is the auditors’ remuneration, including expenses for audit and non-audit services, payable to the
Company’s auditors PricewaterhouseCoopers LLP and its associates as follows:

Statutory audit services
Annual audit of the Company and the consolidated accounts
Audit of subsidiary companies

Non-audit-related services
Other services pursuant to legislation
Tax advisory services
Other services

5 Exceptional items

2010
£m

2009
£m

0.4
1.0
1.4

0.1
0.6
0.1
0.8

0.4
0.9
1.3

0.1
0.3
0.2
0.6

The exceptional costs in 2008/09 related to a strategic restructure and are not regular running costs of the underlying business.
These included: £92.5m property-related costs including onerous lease provisions, property, plant and equipment disposals, leasehold
premium write-offs and decommissioning costs; £32.3m costs related to the rationalisation of IT and logistics networks; and £11.1m
redundancy costs.

The exceptional pension credit in 2008/09 arose due to changes in the UK Defined Benefit Pension Scheme relating to how members’
benefits build up. In January 2009 the Group announced that it had made changes to the scheme by capping employees’ annual increases
in pensionable pay to 1% and changing the early retirement benefits for members who joined the scheme before 1996. There was a credit
to the income statement to reflect the impact of adjusting employees’ projected final pensionable salaries.

There are no exceptional costs arising in the current year.

6 Finance income/costs

Bank and other interest receivable
Pension finance income (net) (see note 11E)
Finance income

One-off premium on repurchase of debt (see note 21)
Interest on bank borrowings
Interest payable on syndicated bank facility
Interest payable on medium-term notes
Interest payable on finance leases
Fair value movements on financial instruments designated as fair value through profit and loss
Unwinding of discount on partnership liability to the Marks & Spencer UK Pension Scheme
Finance costs
Net finance costs

2010
£m
2.1
10.8
12.9

13.5
7.1
5.9
117.9
5.3
8.5
4.0
162.2
149.3

2009
£m
14.6
35.4
50.0

–
6.2
41.0
113.9
4.9
10.5
38.0
214.5
164.5

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7 Income tax expense

A. Taxation charge

Current tax
UK corporation tax at 28% (last year 28%)
– current year
– prior years

Overseas current taxation
Total current taxation
Deferred tax (see note 24)
– current year
– prior years
Total deferred taxation
Total income tax expense

B. Taxation reconciliation

Profit before tax
Taxation at the standard UK corporation tax rate of 28% (last year 28%)
Depreciation, charges and other amounts on non-qualifying fixed assets
Other income and expenses not taxable or deductible
Exceptional costs
Overseas profits taxed at lower rates
Adjustments to tax charge in respect of prior periods
Total income tax expense

Directors’ report

Financial statements

Other information

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2010
£m

2009
£m

170.3
(5.2)
165.1
6.1
171.2

5.4
3.1
8.5
179.7

2010
£m
702.7
196.8
1.4
(10.1)
–
(6.3)
(2.1)
179.7

127.4
(10.7)
116.7
5.1
121.8

70.1
7.5
77.6
199.4

2009
£m
706.2
197.7
(4.0)
2.9
7.5
(1.5)
(3.2)
199.4

The post-exceptional effective tax rate was 25.6% (last year 28.2%) and the pre-exceptional effective tax rate was 25.6% (last year 27.0%).

8 Earnings per share

The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in issue
during the year.

The adjusted earnings per share figures have also been calculated based on earnings excluding the effect of property disposals and
exceptional items. These have been calculated to allow the shareholders to gain an understanding of the underlying trading performance
of the Group.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive
potential ordinary shares. The Group has only one class of dilutive potential ordinary shares being those share options granted to employees
where the exercise price is less than the average market price of the Company’s ordinary shares during the year.

Details of the adjusted earnings per share are set out below:

Earnings after tax
Property disposals (net of tax)
Exceptional costs (net of tax)
Exceptional pension credit (net of tax)
Adjusted earnings after tax

Weighted average number of ordinary shares in issue
Potentially dilutive share options under Group’s share option schemes
Weighted average number of diluted ordinary shares

2010
£m
526.3
(8.1)
–
–
518.2

2009
£m
508.0
(6.4)
105.7
(166.6)
440.7

Million
1,572.2
14.3
1,586.5

Million
1,573.2
0.8
1,574.0

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

8 Earnings per share continued

A. Basic earnings per share

Basic earnings per share
Property disposals per share
Exceptional costs per share
Exceptional pension credit per share
Adjusted basic earnings per share

B. Diluted earnings per share

Diluted earnings per share
Property disposals per share
Exceptional costs per share
Exceptional pension credit per share
Adjusted diluted earnings per share

9 Dividends

Dividends on equity ordinary shares
Paid final dividend
Paid interim dividend

Pence
33.5
(0.5)
–
–
33.0

Pence
33.2
(0.5)
–
–
32.7

2010
per share

2009
per share

2010
£m

9.5p
5.5p
15.0p

14.2p
8.3p
22.5p

149.6
86.4
236.0

Pence
32.3
(0.4)
6.7
(10.6)
28.0

2009
£m

224.1
130.5
354.6

In addition, the directors have proposed a final dividend in respect of the year ended 3 April 2010 of 9.5p per share amounting to a dividend
of £150.4m. It will be paid on 16 July 2010 to shareholders who are on the Register of Members on 4 June 2010. In line with the
requirements of IAS 10 – ‘Events after the Balance Sheet Date’, this dividend has not been recognised within these results.

10 Employees

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

Wages and salaries
Social security costs
Pension costs
Share-based payments
Employee welfare and other personnel costs
Ex-gratia costs
Capitalised staff costs1
Aggregate remuneration
Exceptional redundancy costs (see note 5)
Exceptional pension credit (see note 5)
Total

1 Staff costs are capitalised in the development of intangible assets – see note 1.

Details of key management compensation are given in note 30.

2010
Total
£m
1,080.3
73.2
57.3
28.5
36.2
3.6
(19.7)
1,259.4
–
–
1,259.4

2009
Total
£m
978.8
69.1
67.2
14.3
37.8
8.4
(21.3)
1,154.3
11.1
(231.3)
934.1

To find out more, visit www.marksandspencer.com/annualreport2010

10 Employees continued

B. Average number of employees

UK stores
– management and supervisory categories
– other
UK head office
– management and supervisory categories
– other
Overseas
Total average number of employees

Directors’ report

Financial statements

Other information

p01 



p117 

2010

2009

5,396
61,946

5,528
63,969

2,389
912
5,624
76,267

2,577
1,036
4,754
77,864

If the number of hours worked was converted on the basis of a normal working week, the equivalent average number of full-time employees
would have been 52,994 (last year 54,153).

C. Directors’ emoluments
Emoluments of directors of the Company are summarised below. Further details are given in the Remuneration report on pages 58 to 71.

Aggregate emoluments

The emoluments exclude payments to former directors of £187,000 (last year £252,000).

11 Retirement benefits

2010
£000
8,380

2009
£000
6,240

The Group provides pension arrangements for the benefit of its UK employees through the Marks & Spencer UK Pension Scheme. This has
a defined benefit section, which was closed to new entrants with effect from 1 April 2002, and a defined contribution section which has been
open to new members with effect from 1 April 2003.

The defined benefit section operates on a final salary basis and at the year end had some 15,000 active members (last year 21,000), 56,000
deferred members (last year 57,000) and 47,000 pensioners (last year 42,000). At the year end, the defined contribution section had some
8,000 active members (last year 8,000) and some 1,000 deferred members (last year 1,000).

The Group also operates a small funded defined benefit pension scheme in the Republic of Ireland. Retirement benefits also include a UK
post-retirement healthcare scheme and unfunded retirement benefits.

Within the total Group retirement benefit cost, excluding the exceptional pension credit, of £46.5m (last year £31.8m), £27.0 (last year
£14.0m) relates to the UK defined benefit section, £12.3m (last year £13.0m) to the UK defined contribution section and £7.2m (last year
£4.8m) to other retirement benefit schemes.

A. Pensions and other post-retirement liabilities

Total market value of assets
Present value of scheme liabilities
Net funded pension plan deficit
Unfunded retirement benefits
Post-retirement healthcare
Net retirement benefit deficit

2010
£m
4,948.6
(5,298.6)
(350.0)
(0.9)
(15.6)
(366.5)

2009
£m
3,977.0
(4,112.4)
(135.4)
(1.0)
(15.8)
(152.2)

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

11 Retirement benefits continued

B. Financial assumptions
A full actuarial valuation of the UK Defined Benefit Pension Scheme was carried out at 31 March 2009 and showed a deficit of £1.3bn.
A funding plan of £800m has been agreed with the Trustees (see note 31). The difference between the valuation and the funding plan is
expected to be met by investment returns on the existing assets of the pension scheme. 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 IAS 19 – ‘Retirement Benefits’ in order to assess the liabilities of the schemes:

Rate of increase in salaries
Rate of increase in pensions in payment for service
– pre-April 1997
– between April 1997 and July 2005
– post-July 2005
Discount rate
Inflation rate
Long-term healthcare cost increases

2010
%
1.0

2.7
3.5
2.3
5.5
3.6
8.6

2009
%
1.0

2.6
2.9
2.3
6.8
2.9
7.9

The amount of the deficit varies if the main financial assumptions change, particularly the discount rate. If the discount rate increased/
decreased by 0.1% the IAS 19 deficit would decrease/increase by c. £90m.

C. Demographic assumptions
The demographic assumptions are in line with those adopted for the last formal actuarial valuation of the scheme (31 March 2009). One of
the most significant demographic assumptions underlying the valuation is mortality. The post-retirement mortality assumptions are based
on an analysis of the pensioner mortality trends under the scheme for the period to March 2009 updated to allow for anticipated longevity
improvements over the subsequent years. The specific mortality rates used are based on the SAPS tables, adjusted to allow for the
experience of scheme pensioners. The life expectancies underlying the valuation are as follows:

Current pensioners (at age 65)

Future pensioners (at age 65)

– males
– females
– males
– females

D. Analysis of assets and expected rates of return
The major categories of assets as a percentage of total plan assets are:

Property partnership interest
UK equities
Overseas equities
Government bonds
Corporate bonds
Swaps1
Cash and other

1 The swaps hedge interest and inflation rate exposures within the scheme’s liabilities.

2010
years
21.9
23.3
23.1
24.2

2010
%
13
8
26
1
51
(5)
6
100

2009
years
21.2
23.6
22.0
24.3

2009
%
13
12
16
3
58
(5)
3
100

2010
£m
631.7
415.7
1,283.4
53.9
2,520.8
(245.1)
288.2
4,948.6

2009
£m
529.8
480.8
644.3
127.2
2,278.0
(214.9)
131.8
3,977.0

To find out more, visit www.marksandspencer.com/annualreport2010

11 Retirement benefits continued

The expected long-term rates of return are:

Property partnership interest
UK equities
Overseas equities
Government bonds
Corporate bonds
Swaps
Cash and other
Overall expected return

Directors’ report

Financial statements

Other information

p01 



p117 

2010
%
5.1
8.4
8.4
4.5
5.5
4.5
4.4
6.5

2009
%
7.1
8.0
8.0
4.2
6.8
4.2
4.2
7.2

The overall expected return on assets assumption is derived as the weighted average of the expected returns from each of the main asset
classes. The expected return for each asset class reflects a combination of historical performance analysis, the forward-looking views of
financial markets (as suggested by the yields available) and the views of investment organisations. Consideration is also given to the rate
of return expected to be available for reinvestment.

At year end, the UK scheme indirectly held 232,042 (last year 369,793) ordinary shares in the Company through its investment in an Aquila
Life UK Equity Index Fund.

E. Analysis of amount charged against profits

Operating cost
Current service cost
Curtailment charge/(gain)
Exceptional pension credit (see note 5)

Finance cost
Expected return on plan assets
Interest on scheme liabilities
Net finance income
Total

F. Scheme assets
Changes in the fair value of the scheme assets are as follows:

Fair value of scheme assets at start of year
Expected return on scheme assets1
Employer contributions2
Contributions from scheme members
Benefits paid
Actuarial gain/(loss)
Exchange movement
Fair value of scheme assets at end of year

1 The actual return on scheme assets was £1,149.1m (last year loss of £945.7m).

2010
£m

56.3
1.0
–
57.3

(281.4)
270.6
(10.8)
46.5

2009
£m

72.2
(5.0)
(231.3)
(164.1)

(334.6)
299.2
(35.4)
(199.5)

2010
£m
3,977.0
281.4
82.7
–
(257.0)
867.7
(3.2)
4,948.6

2009
£m
5,045.5
334.6
92.1
2.0
(226.5)
(1,280.3)
9.6
3,977.0

D
In 2007/08 the Group agreed to pre-fund £200.0m of its annual contribution to the UK efined enefit ension cheme for the next three years. The prepayment is in respect
of annual contributions to the UK scheme at the rate of 23.2% of pensionable salaries up to 30 September 2010 and then 22.9% up to the next financial year. It is estimated that
approximately £55.0m of the prepayment will relate to the year ended 2 April 2011.

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

11 Retirement benefits continued

G. Retirement benefit obligations
Changes in the present value of retirement benefit obligations are as follows:

Present value of obligation at start of year
Current service cost
Curtailment charge/(gain)
Exceptional pension credit
Interest cost
Contributions from scheme members
Benefits paid
Actuarial loss/(gain)
Exchange movement
Present value of obligation at end of year
Analysed as:
Present value of pension scheme liabilities
Unfunded pension plans
Post-retirement healthcare
Present value of obligation at end of year

H. Cumulative actuarial gains and losses recognised in equity

Loss at start of year
Net actuarial losses recognised in the year
Loss at end of year

I. History of experience gains and losses

Experience adjustments arising on scheme assets
Experience gains/(losses) arising on scheme liabilities
Changes in assumptions underlying the present value of scheme liabilities
Actuarial (losses)/gains recognised in equity

Fair value of scheme assets
Present value of scheme liabilities
Pension scheme (deficit)/asset

2010
£m
4,129.2
56.3
1.0
–
270.6
–
(257.0)
1,119.3
(4.3)
5,315.1

5,298.6
0.9
15.6
5,315.1

2009
£m
4,562.0
72.2
(5.0)
(231.3)
299.2
2.0
(226.5)
(353.2)
9.8
4,129.2

4,112.4
1.0
15.8
4,129.2

2010
£m
(1,257.3)
(251.6)
(1,508.9)

2009
£m
(330.2)
(927.1)
(1,257.3)

2010
£m
867.7
36.2
(1,155.5)
(251.6)

2009
£m
(1,280.3)
81.2
272.0
(927.1)

2008
£m
(422.6)
(61.5)
1,089.5
605.4

2007
£m
(80.4)
18.8
53.0
(8.6)

2006
£m
454.3
20.0
(643.6)
(169.3)

4,948.6
(5,298.6)
(350.0)

3,977.0
(4,112.4)
(135.4)

5,045.5
(4,542.3)
503.2

5,227.5
(5,487.0)
(259.5)

4,606.2
(5,381.3)
(775.1)

To find out more, visit www.marksandspencer.com/annualreport2010

Directors’ report

Financial statements

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

p117 

12 Share-based payments

The charge for share-based payments for the year was £28.5m (last year £14.3m). Further details of the option and share schemes that the
Group operates are provided in the Remuneration report on pages 58 to 71.

A. 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 HM Revenue & Customs (HMRC) approved Save As You Earn (SAYE) savings contract. HMRC rules
limit the maximum amount saved to £250 per month. The price at which options may be offered is 80% of the average mid-market price
for three consecutive dealing days preceding the offer date. The options may normally be exercised during the period of six months after
the completion of the SAYE contract, either three or five years after entering the scheme.

Outstanding at beginning of the period
Granted
Exercised
Forfeited
Expired
Outstanding at end of the period
Exercisable at end of period

2010

Weighted
average
exercise price
252.2p
292.0p
260.9p
277.6p
309.8p
249.9p
486.7p

Number of
options
28,444,760
42,551,459
(2,075,204)
(10,958,637)
(99,317)
57,863,061
6,169,324

2009

Weighted
average
exercise price
403.1p
203.0p
232.7p
456.4p
261.8p
252.2p
296.9p

Number of
options
57,863,061
8,566,762
(3,544,310)
(5,052,662)
(5,272,290)
52,560,561
1,705,532

For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 360.4p (last year 296.2p).

The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs
shown below:

Grant date
Share price at grant date
Exercise price
Option life in years
Risk-free rate
Expected volatility
Expected dividend yield
Fair value of option

2010
3-year plan
Nov 09
365p
292p
3 years
1.6%
44.1%
4.1%
113p

3-year plan
Nov 08
253p
203p
3 years
2.9%
39.2%
8.9%
54.6p

2009
5-year plan
Nov 08
253p
203p
5 years
3.2%
33.4%
8.9%
43.9p

Volatility has been estimated by taking the historic volatility in the Company’s share price over a three or five year period.

The resulting fair value is expensed over the service period of three or five years on the assumption that 20% of options will lapse over the
service period as employees leave the Group.

Outstanding options granted under the UK Employees’ SAYE Scheme are as follows:

Options granted
January 2004
January 2005
January 2006
January 2007
January 2008
January 2009
January 2010

2010
–
312,805
1,471,579
2,016,402
2,440,739
38,009,851
8,309,185
52,560,561

Number of options
2009
2,748,699
2,705,890
5,089,994
2,381,588
3,114,069
41,822,821
–
57,863,061

Weighted average remaining
contractual life (years)
2009
0.3
1.3
0.9
2.0
3.0
4.0
–
3.3

2010
–
0.2
1.2
0.9
2.0
3.0
3.2
2.9

Option price
228p
280p
349p
559p
517p
203p
292p
250p

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

12 Share-based payments continued

B. Executive Share Option Scheme
Under the terms of the Executive Share Option Scheme, last approved by shareholders in 2005, the Board may offer options to purchase
ordinary shares in the Company to executive directors and senior managers at the market price on a date to be determined prior to the date
of the offer. No further options may be granted under any schemes other than the 2005 scheme. No awards have been made under the
2005 scheme. Further details are set out in the Remuneration report on page 64.

Performance targets are assessed over a three year period from the date of grant with no ability to retest any grants. Once options have
vested they can be exercised during the period up to 10 years from grant date.

Outstanding at beginning of the period
Exercised
Forfeited
Expired
Outstanding at end of the period
Exercisable at end of period

2010

Weighted
average
exercise price
336.8p
328.0p
345.0p
358.0p
336.8p
336.8p

Number of
options
8,632,783
(977,352)
(1,159,290)
(98,880)
6,397,261
6,397,261

Number of
options
9,623,518
(142,559)
(678,888)
(169,288)
8,632,783
8,632,783

2009

Weighted
average
exercise price
341.0p
343.9p
340.7p
550.3p
336.8p
336.8p

For executive share options exercised during the period, the weighted average share price at the date of exercise was 370.8p
(last year 395.3p).

Outstanding options granted under all Executive Share Option Schemes are as follows:

Options granted
1997 Scheme
June 1999
2000 Scheme
September 2000
June 2001
December 2001
2002 Scheme
June 2002
November 2002
June 2003
November 2003
February 2004
July 2004
November 2004
June 2005

Number of options
2009

2010

–

98,880

–
65,581
18,087

421,031
14,042
1,103,230
11,390
33,111
3,443,824
533,164
753,801
6,397,261

232
135,989
18,087

579,237
47,150
1,398,584
36,109
33,111
4,417,613
806,193
1,061,598
8,632,783

Weighted average remaining
contractual life (years)
2009

2010

Option price

–

–
1.3
1.8

2.3
2.7
3.3
3.7
3.9
4.3
4.7
5.3
4.1

0.3

1.5
2.3
2.8

3.3
3.7
4.3
4.7
4.9
5.3
5.7
6.3
5.0

358p

215p
256p
350p

350p
353p
297p
270p
270p
347p
337p
352p
337p

C. Performance Share Plan
The Performance Share Plan is the primary long-term incentive plan for approximately 100 of the most senior managers and was first
approved by shareholders in 2005. Under the plan, annual awards, based on a percentage of salary, may be offered. The extent to which the
awards vest is based on adjusted earnings per share growth over three years. The value of any dividends earned on the vested shares during
the three years will also be paid on vesting. Further details are set out in the Remuneration report on page 63. Awards under this scheme
have been made in each year since 2005.

During the year, 7,617,094 shares (last year 6,835,938) were awarded under the plan. The weighted average fair value of the shares awarded
was 290.8p (last year 368.9p).

To find out more, visit www.marksandspencer.com/annualreport2010

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Financial statements

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12 Share-based payments continued

D. Deferred Share Bonus Plan
The Deferred Share Bonus Plan was introduced in 2005/06 as part of the Annual Bonus Scheme for approximately 450 of the most senior
managers. As part of the scheme, the managers are required to defer a proportion of any bonus paid into shares which will be held for
three years. There are no further performance conditions on these shares, other than continued employment, and the value of any dividends
earned during the deferred period will be paid on vesting.

During the year, 98,515 shares (last year 288,656) have been awarded under the plan in relation to the annual bonus. The fair value of
the shares awarded was 286.1p (last year 381.6p). As at 3 April 2010, 307,309 shares (last year 3,084,935) were outstanding under
the scheme.

E. Restricted Share Plan
The Restricted Share Plan was established in 2000 as part of the reward strategy for retention and recruitment of senior managers who are
vital to the success of the business. The plan operates for senior managers below executive director level. Awards under the plan are made
as part of ongoing reviews of reward packages, and for recruitment. The shares are held in trust for a period of between one and three years,
at which point they are released to the employee, subject to them still being in employment. The value of any dividends earned during the
restricted period will also be paid at the time of vesting.

During the year, 342,600 shares (last year 1,755,667) have been awarded under the plan. The weighted average fair value of the shares
awarded was 348.6p (last year 337.8p).

F. United Kingdom Share Incentive Plan
The Share Incentive Plan is a discretionary, all-employee plan, approved by HMRC, under which Freeshares may be allocated by the
Company. The last award was made in June 2003, which vested in June 2008.

G. Share Matching Deal Plan
The Share Matching Deal Plan was introduced in 2006 for those employees who were eligible to receive a cash-only bonus. The scheme was
not open to those employees who participated in the Deferred Share Bonus Plan. The plan allows employees to invest a proportion of their
bonus in shares of the Company. These investment shares must be held by the participant for three years, during which time they will receive
dividends. At the end of the three year holding period, if the participant is still in employment with the Company, and still holds the investment
shares, they will receive one matching share for every four that they bought.

No shares were awarded under the Share Matching Deal Plan during the year. As at 3 April 2010, 22,000 shares (last year 53,000) were
outstanding under the scheme.

H. Republic of Ireland Save As You Earn Scheme
Sharesave, the Company’s Save As You Earn Scheme was introduced in 2009 to all employees in the Republic of Ireland for a 10 year
period, after approval by shareholders at the 2009 AGM. The scheme is subject to Irish Revenue rules which limit the maximum monthly
saving to €500 per month. The Company chose in 2009 to set a monthly savings cap of €320 per month to align the maximum savings
amount allowed within the UK scheme. 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, at a discounted price set at the start of the scheme. The price at which the options may be
offered is 80% of the average mid-market price for three consecutive days preceding the offer date. Options cannot normally be exercised
until a minimum of three years has elapsed.

During the year, 287,235 options were granted, at a fair value of 113.1p.

I. Marks and Spencer Employee Benefit Trust
The Marks and Spencer Employee Benefit Trust (the Trust) holds 7,299,755 (last year 4,203,250) shares with a book value of £24.1m
(last year £27.8m) and a market value of £27.1m (last year £11.1m). 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 awarded to employees by the Trust in accordance with the wishes of Marks and Spencer plc under senior executive
share schemes, including the Restricted Share Plan. Dividends are waived on all of these plans except for the Deferred Bonus Share Plan
and Restricted Share Plan where dividends are paid via a Dividend Reinvestment Plan for awards made in the form of forfeitable shares.

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

13 Intangible assets

At 29 March 2008
Cost or valuation
Accumulated amortisation
Net book value
Year ended 28 March 2009
Opening net book value
Additions
Transfers
Exchange difference
Amortisation charge
Closing net book value
At 28 March 2009
Cost or valuation
Accumulated amortisation
Net book value
Year ended 3 April 2010
Opening net book value
Additions
Transfers
Exchange difference
Amortisation charge
Closing net book value
At 3 April 2010
Cost or valuation
Accumulated amortisation
Net book value

Goodwill relates to the following business units:

Cost and net book value at 28 March 2009
Additions
Exchange difference
Cost and net book value at 3 April 2010

Goodwill
£m

Brands
£m

Computer
software
under
development
£m

Computer
software
£m

117.9
–
117.9

117.9
1.3
–
–
–
119.2

119.2
–
119.2

119.2
8.3
–
0.4
–
127.9

127.9
–
127.9

80.0
(18.7)
61.3

61.3
–
–
–
(5.3)
56.0

80.0
(24.0)
56.0

56.0
–
–
–
(5.3)
50.7

80.0
(29.3)
50.7

82.9
(34.6)
48.3

48.3
1.9
18.0
0.1
(22.0)
46.3

102.9
(56.6)
46.3

46.3
20.6
115.7
–
(28.4)
154.2

239.2
(85.0)
154.2

78.0
–
78.0

78.0
118.8
(18.0)
–
–
178.8

178.8
–
178.8

178.8
56.9
(115.7)
–
–
120.0

120.0
–
120.0

Marks and
Spencer
Marinopoulos
B.V.
£m
34.4
–
–
34.4

Marks and
Spencer
Czech
Republic a.s.
£m
15.3
0.1
0.2
15.6

per una
£m
69.5
–
–
69.5

Supreme
Tradelinks
Private
Limited
£m
–
8.2
0.2
8.4

Total
£m

358.8
(53.3)
305.5

305.5
122.0
–
0.1
(27.3)
400.3

480.9
(80.6)
400.3

400.3
85.8
–
0.4
(33.7)
452.8

567.1
(114.3)
452.8

Total
£m
119.2
8.3
0.4
127.9

Goodwill is not amortised, but tested annually for impairment with the recoverable amount being determined from value in use calculations.
The key assumptions for the value in use calculations are those regarding the discount rate, growth rates and changes in income and costs.

The Group prepares discounted cash flow forecasts based on financial forecasts approved by management covering a three year period,
which takes account of both past performance and expectations for future market developments. Cash flows beyond this three year period
are extrapolated using a growth rate of 2%, which does not exceed the long-term average growth rate for the Group’s retail businesses.
The Group’s pre-tax weighted average cost of capital is used to discount the future cash flows. A risk adjustment is then made for the
countries in which the business unit operates: per una discount rate 8.6% (last year 10.2%); Marks and Spencer Marinopoulos B.V. 12.9%
(last year 12.2%), Marks and Spencer Czech Republic a.s. 10.2% (last year 13.2%) and Supreme Tradelinks Private Limited 12.6%. Based
on the discounted cash flows the valuations indicate sufficient headroom that any reasonably possible change in the assumptions is unlikely
to result in an impairment.

Brands consist of the per una brand which is being amortised on a straight-line basis over a period of 15 years.

To find out more, visit www.marksandspencer.com/annualreport2010

14 Property, plant and equipment

At 29 March 2008
Cost
Accumulated depreciation
Net book value
Year ended 28 March 2009
Opening net book value
Exchange difference
Additions
Transfers
Disposals
Depreciation charge
Closing net book value
At 28 March 2009
Cost
Accumulated depreciation
Net book value
Year ended 3 April 2010
Opening net book value
Exchange difference
Additions
Acquisition of subsidiary
Reclassification from investment property
Transfers
Disposals
Depreciation charge
Closing net book value
At 3 April 2010
Cost
Accumulated depreciation
Net book value

Directors’ report

Financial statements

Other information

p01 



p117 

Land and
buildings
£m

Fixtures,
fittings and
equipment
£m

Assets in the
course of
construction
£m

Total
£m

2,525.2
(103.8)
2,421.4

4,473.3
(2,377.0)
2,096.3

186.3
–
186.3

7,184.8
(2,480.8)
4,704.0

2,421.4
26.3
45.7
32.2
(58.4)
(9.2)
2,458.0

2,096.3
21.4
395.2
142.4
(17.3)
(372.5)
2,265.5

186.3
8.4
90.4
(174.6)
–
–
110.5

4,704.0
56.1
531.3
–
(75.7)
(381.7)
4,834.0

2,566.6
(108.6)
2,458.0

4,811.9
(2,546.4)
2,265.5

110.5
–
110.5

7,489.0
(2,655.0)
4,834.0

2,458.0
(9.8)
14.6
–
2.4
6.3
(4.2)
(9.6)
2,457.7

2,265.5
(7.5)
244.3
0.9
–
36.3
(11.8)
(384.6)
2,143.1

110.5
0.4
52.9
–
–
(42.6)
–
–
121.2

4,834.0
(16.9)
311.8
0.9
2.4
–
(16.0)
(394.2)
4,722.0

2,576.4
(118.7)
2,457.7

5,043.9
(2,900.8)
2,143.1

121.2
–
121.2

7,741.5
(3,019.5)
4,722.0

The net book value above includes land and buildings of £38.2m (last year £45.4m) and equipment of £45.4m (last year £58.7m) where the
Group is a lessee under a finance lease.

Additions to property, plant and equipment during the year amounting to £0.1m (last year £32.8m) were financed by new finance leases.

100

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

15 Investment property

Cost
At start of year
Reclassification to property, plant and equipment
At end of year
Depreciation
At start of year
Reclassification to property, plant and equipment
Depreciation charge
At end of year
Net book value

2010
£m

25.3
(2.4)
22.9

(0.5)
0.1
(0.1)
(0.5)
22.4

2009
£m

25.3
–
25.3

(0.3)
–
(0.2)
(0.5)
24.8

The investment properties were valued at £24.8m (last year £23.1m) as at 3 April 2010 by qualified professional valuers working for
CB Richard Ellis, 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 (calculated based on subleases
in place at the year end). All valuations were carried out in accordance with the RICS Appraisal and Valuation Standards. As the investment
properties are held at depreciated historical cost, this valuation has not been reflected in the carrying value of the assets. No impairment was
recognised on the one property which was carried at a higher value than its market value at 28 March 2009. The Group has reoccupied the
property during 2009/10 (and has subsequently been reclassified to property, plant and equipment) at which point its value in use exceeded
the net book value. The Group received rental income of £0.9m (last year £1.2m) in respect of these investment properties.

16 Investment in joint ventures

At start of year
Investment in new joint venture
Dividend from joint venture
Share of loss
At end of year

2010
£m
13.8
–
(2.0)
(0.3)
11.5

2009
£m
9.6
4.4
–
(0.2)
13.8

The joint ventures represent a 50% equity interest in Hedge End Park Limited, a property investment company incorporated in Great Britain,
and a 50% equity interest in Lima (Bradford) S.a.r.l, a property investment company incorporated in Luxembourg. The partner in the Hedge
End Park Limited joint venture is J Sainsbury plc and the partner in the Lima (Bradford) S.a.r.l joint venture is ProLogis UK Holdings S.A.

In relation to the Group’s interest in joint ventures, the assets and liabilities are shown below:

Non-current assets
Current assets
Current liabilities
Net assets

17 Other financial assets

Non-current
Unlisted investments
Current
Short-term investments1
Unlisted investments

2010
£m
5.5
6.1
(0.1)
11.5

2010
£m

3.0

165.0
6.7
171.7

2009
£m
4.9
9.1
(0.2)
13.8

2009
£m

3.0

47.1
6.0
53.1

Includes £132.8m of money market deposits held by the Marks and Spencer Scottish Limited Partnership.

Non-current unlisted investments are carried as available-for-sale assets. Other financial assets are measured at fair value with changes
in their value taken to the income statement.

To find out more, visit www.marksandspencer.com/annualreport2010

101

18 Trade and other receivables

Non-current
Other receivables
Prepaid pension contributions
Prepaid leasehold premiums
Other prepayments and accrued income

Current
Trade receivables
Less: Provision for impairment of receivables
Trade receivables – net
Other receivables
Prepaid pension contributions
Prepaid leasehold premiums
Other prepayments and accrued income

Directors’ report

Financial statements

Other information

p01 



p117 

2010
£m

34.6
8.0
244.7
0.4
287.7

93.2
(4.7)
88.5
27.3
55.3
8.5
101.8
281.4

2009
£m

27.1
60.7
247.6
1.4
336.8

87.7
(4.2)
83.5
37.0
65.7
10.6
88.4
285.2

Trade receivables that were past due but not impaired amounted to £0.7m (last year £9.9m) and are mainly sterling denominated.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.

19 Cash and cash equivalents

Cash and cash equivalents includes short-term deposits with banks and other financial institutions, with an initial maturity of three months
or less and credit card payment received within 48 hours. The carrying amount of these assets approximates their fair value.

The effective interest rate on short-term bank deposits is 0.29% (last year 0.33%); these deposits have an average maturity of five days
(last year three days).

20 Trade and other payables

Current
Trade and other payables
Social security and other taxes
Accruals and deferred income

Non-current
Other payables1

2010
£m

2009
£m

792.2
79.4
282.2
1,153.8

783.6
40.4
249.5
1,073.5

280.3

243.8

Includes the fair value of the put option over the 49% minority interest in the share capital of Marks and Spencer Czech Republic a.s. £63.5m (last year £56.3m) exercisable
on 4 April 2013.

102

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

21 Borrowings and other financial liabilities

Current
Bank loans and overdrafts1
Syndicated bank facility2
Finance lease liabilities

Partnership liability to the Marks & Spencer UK Pension Scheme (see note 25)

Non-current
Bank loans
6.375% £308m (last year £375m) medium-term notes 20113
5.875% £267m (last year £400m) medium-term notes 20123
5.625% £400m medium-term notes 20143
6.250% US$500m medium-term notes 20174
6.125% £400m medium-term notes 20193
7.125% US$300m medium-term notes 20374
6.875% £250m puttable callable reset medium-term notes 20373,5
Finance lease liabilities

Partnership liability to the Marks & Spencer UK Pension Scheme (see note 25)

Total

1 Bank loans and overdrafts includes a £5.0m (last year £5.0m) loan from the Hedge End Park Limited joint venture (see notes 16 and 30).

2 Relates to a £1.2bn committed bank revolving credit facility set to mature on 26 March 2013.

3 These notes are issued under Marks and Spencer plc’s £3bn European Medium-Term Note Programme and all pay interest annually.

Interest on these bonds is payable semi-annually.

5 These notes include an investor put and issuer call option exercisable in December 2012.

2010
£m

249.5
219.8
13.6
482.9
71.9
554.8

17.9
314.6
279.9
399.5
333.8
403.5
199.6
253.0
76.2
2,278.0
–
2,278.0
2,832.8

2009
£m

147.9
781.2
13.7
942.8
71.9
1,014.7

11.2
382.6
417.9
399.0
354.4
–
212.0
252.6
88.2
2,117.9
68.0
2,185.9
3,200.6

On 25 November the Group announced the successful tender offer for £67.4m of the November 2011 medium-term notes and £132.6m
of the May 2012 medium-term notes incurring a one-off premium of £13.5m on the buy-back. In conjunction, new medium-term notes
were issued totalling £400m at a coupon rate of 6.125%, of which £200m have been swapped to floating rate and designated in a fair value
hedge relationship.

Finance leases
The minimum lease payments under finance leases fall due as shown in the table on the following page. It is the Group’s policy to lease
certain of its properties and equipment under finance leases. The average lease term for equipment is 6 years and 125 years for property.
Interest rates are fixed at the contract rate. All leases are on a fixed repayment basis and no arrangements have been entered into for
contingent payments. The Group’s obligations under finance leases are secured by the lessors’ charges over the leased assets.

22 Financial instruments

Treasury policy and financial risk management
The Group operates a centralised treasury function to manage the Group’s funding requirements and financial risks in line with the Board
approved treasury policies and procedures, and their delegated authorities.

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 finance the Group’s
operations.

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

It remains the Group’s policy not to hold or issue financial instruments for trading purposes, except where financial constraints necessitate
the need to liquidate any outstanding investments. The treasury function is managed as a cost centre and does not engage in speculative
trading.

The principal financial risks faced by the Group are liquidity/funding, interest rate, foreign currency and counterparty risks. The policies
and strategies for managing these risks are summarised as follows:

To find out more, visit www.marksandspencer.com/annualreport2010

103

Directors’ report

Financial statements

Other information

p01 



p117 

22 Financial instruments continued

(a) Liquidity/funding risk
The risk that the Group could be unable to settle or meet its obligations as they fall due at a reasonable price.

– The Group’s funding strategy ensures a mix of funding sources offering flexibility and cost effectiveness to match the requirements

of the Group.

– Operating subsidiaries are financed by a combination of retained profits, bank borrowings, medium-term notes and committed syndicated

bank facilities.

At year end, the Group had a committed syndicated bank revolving credit facility of £1.2bn set to mature on 26 March 2013. This facility
contains only one financial covenant being the ratio of earnings before interest, tax, depreciation, amortisation and rents payable; to interest
plus rents payable. The covenant is measured semi-annually. The Group also has a number of undrawn uncommitted facilities available to it.
At year end, these amounted to £105m (last year £105m), all of which are due to be reviewed within a year. At the balance sheet date
a sterling equivalent of £220m (last year £764m) was drawn under the committed facilities and £nil (last year £nil) was drawn under the
uncommitted facilities.

In addition to the existing borrowings, the Group has a euro medium-term note programme of £3bn, of which £1.6bn (last year £1.4bn) was
in issuance as at the balance sheet date.

The contractual maturity of the Group’s non-derivative financial liabilities and derivatives is as follows:

Bank loans
and
overdrafts
£m

Syndicated
bank facility
£m

Medium-term
notes
£m

(147.9)
(11.2)
–
–
(159.1)

(781.2)
–
–
–
(781.2)

(123.8)
(123.8)
(1,476.8)
(1,706.2)
(3,430.6)

–
(159.1)

–
(781.2)

1,412.1
(2,018.5)

(249.5)
(17.9)
–
–
(267.4)

(219.8)
–
–
–
(219.8)

(134.1)
(441.7)
(960.1)
(2,115.5)
(3,651.4)

–
(267.4)

–
(219.8)

1,467.5
(2,183.9)

Finance
lease
liabilities
£m

(18.3)
(16.9)
(34.4)
(209.4)
(279.0)

177.1
(101.9)

(17.9)
(13.4)
(25.1)
(204.4)
(260.8)

171.0
(89.8)

Partnership
liability to the
M&S UK
Pension
Scheme
£m

Total
£m

Derivative
assets
£m

Derivative
liabilities
£m

(71.9)
(71.9)
–
–
(143.8)

949.4
(1,143.1)
70.4
(223.8)
114.0
(1,511.2)
(1,915.6) 1,003.8
(4,793.7) 2,137.6

(919.8)
(63.6)
(83.2)
(708.9)
(1,775.5)

3.9
(139.9)

1,593.1
(3,200.6)

(71.9)
–
–
–
(71.9)

970.1
(693.2)
51.1
(473.0)
106.7
(985.2)
(2,319.9)
909.5
(4,471.3) 2,037.4

(941.5)
(37.6)
(84.4)
(693.2)
(1,756.7)

–
(71.9)

1,638.5
(2,832.8)

Total
£m

29.6
6.8
30.8
294.9
362.1

28.6
13.5
22.3
216.3
280.7

Timing of cash flows
Within one year
Between one and two years
Between two and five years
More than five years

Effect of discounting and foreign
exchange
At 28 March 2009
Timing of cash flows
Within one year
Between one and two years
Between two and five years
More than five years

Effect of discounting and foreign
exchange
At 3 April 2010

This table does not include trade and other payables (see note 20) due to the low associated liquidity risk.

The present value of finance lease liabilities is as follows:

Within one year
Later than one year and not later than five years
Later than five years
Total

2010
£m
(13.7)
(26.7)
(49.4)
(89.8)

2009
£m
(13.7)
(36.5)
(51.7)
(101.9)

(b) Counterparty risk
Counterparty risk exists where the Group can suffer financial loss through default or non-performance by financial institutions.

Exposures are managed through Group treasury policy which limits the value that can be placed with each approved counterparty to
minimise the risk of loss. The counterparties are limited to the approved institutions with secure long-term credit ratings A+/A1 or better
assigned by Moody’s and Standard & Poor’s respectively, unless approved on an exception basis by a Board director. Limits are reviewed
regularly by senior management. The credit risk of these financial instruments is estimated as the fair value of the assets resulting from
the contracts.

104

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

22 Financial instruments continued

The table below analyses the Group’s short-term investments and derivative assets by credit exposure excluding bank balances, store cash
and cash in transit.

Short-term investments1
Derivative assets2
At 28 March 2009

Short-term investments1
Derivative assets2
At 3 April 2010

Credit rating of counterparty4

AAAm
£m
–
–
–

AAAm
£m
132.9
–
132.9

AAA
£m
4.8
105.4
110.2

AAA
£m
1.5
50.8
52.3

AA
£m
119.8
53.6
173.4

AA
£m
16.7
31.1
47.8

AA-
£m
25.3
–
25.3

AA-
£m
20.6
–
20.6

A+
£m
29.9
150.8
180.7

A+
£m
22.1
76.8
98.9

A3
£m
0.5
9.8
10.3

A3
£m
1.3
8.0
9.3

Total
180.3
319.6
499.9

Total
195.1
166.7
361.8

Includes cash on deposit in M

arks

& S

pencer

Scottish Limited Partnership, Marks & Spencer plc and Marks and Spencer General Insurance LP.

2 Excludes derivative asset option which is embedded within the £250m puttable callable reset medium-term notes due 2037.

3 Exposure to a counterparty approved as an exception to treasury policy.

4 Standard & Poor’s equivalent rating shown as reference to the lowest credit rating of the counterparty from either Standard & Poor’s or Moody’s.

The Group has very low retail credit risk due to transactions being principally of a high volume, low value and short maturity.

The maximum exposure to credit risk at the balance sheet date was as follows: trade receivables £89m (last year £84m), other receivables
£62m (last year £64m), cash and cash equivalents £406m (last year £423m) and derivatives £181m (last year £347m).

(c) Foreign currency risk
Transactional foreign currency exposures arise from both the export of goods from the UK to overseas subsidiaries, and from the import
of materials and goods directly sourced from overseas suppliers.

Group treasury hedge these exposures principally using forward foreign exchange contracts progressively covering up to 100% out to
18 months. Where appropriate hedge cover can be taken out longer than 18 months, with Board approval. The Group is primarily exposed
to foreign exchange risk in relation to sterling against movements in US dollar and euro.

Forward foreign exchange contracts in relation to the Group’s forecast currency requirements are designated as cash flow hedges with
fair value movements recognised directly in comprehensive income. To the extent that these hedges cover actual currency payables or
receivables, then associated fair value movements previously recognised in comprehensive income are recorded in the income statement
in conjunction with the corresponding asset or liability. As at the balance sheet date the gross notional value in sterling terms of forward
foreign exchange sell or buy contracts amounted to £865m (last year £768m) with a weighted average maturity date of five months
(last year six months).

Gains and losses in equity on forward foreign exchange contracts as at 3 April 2010 will be released to the income statement at various
dates over the following 13 months (last year 14 months) from the balance sheet date.

At the balance sheet date the Group did not hold any derivatives to hedge balance sheet and profit and loss translation exposures.
However, the translation exposures arising on the overseas net assets are hedged with foreign currency debt. As at the balance sheet date,
€231m (last year €276m) and HK$180m (last year HK$178m) currency debt was hedging overseas net assets.

The Group also hedges foreign currency intercompany loans where these exist. Forward foreign exchange contracts in relation to the
hedging of the Group’s foreign currency intercompany loans are designated as held for trading with fair value movements being recognised
in the income statement. The corresponding fair value movement of the intercompany loan balance results in an overall nil impact on the
income statement. As at the balance sheet date, the gross notional value of intercompany loan hedges was £155m (last year £108m).

After taking into account the hedging derivatives entered into by the Group, the currency and interest rate exposure of the Group’s financial
liabilities is as set out below excluding short-term payables and the Marks and Spencer Czech Republic a.s. put option:

Currency
Sterling
Euro
Hong Kong dollar
Other

Fixed
rate
£m

Floating
rate
£m

2010

Total

£m

Fixed
rate
£m

Floating
rate
£m

2009

Total
£m

2,136.4
8.6
–
3.3
2,148.3

410.0
232.8
15.2
26.5
684.5

2,546.4
241.4
15.2
29.8
2,832.8

2,252.4
7.6
–
0.3
2,260.3

629.9
286.1
16.4
7.9
940.3

2,882.3
293.7
16.4
8.2
3,200.6

To find out more, visit www.marksandspencer.com/annualreport2010

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Directors’ report

Financial statements

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p01 



p117 

22 Financial instruments continued

The floating rate sterling and euro borrowings are linked to interest rates related to LIBOR. These rates are for periods between one and
three months.

As at the balance sheet date and excluding finance leases, the fixed rate sterling borrowings are at an average rate of 5.9% (last year 6.0%)
and the weighted average time for which the rate is fixed is ten years (last year nine years).

(d) Interest rate risk
The Group is exposed to interest rate risk in relation to the sterling, US dollar, euro and Hong Kong dollar variable rate financial assets
and liabilities.

The Group’s policy is to use derivative contracts where necessary to maintain a mix of fixed and floating rate borrowings to manage this risk.
The structure and maturity of these derivatives correspond to the underlying borrowings and are accounted for as fair value or cash flow
hedges as appropriate.

At the balance sheet date fixed rate borrowings amounted to £2,148.3m (last year £2,260.3m) representing the public bond issues and
finance leases, amounting to 76% (last year 71%) of the Group’s gross borrowings.

The effective interest rates at the balance sheet date were as follows:

Committed and uncommitted borrowings
Medium-term notes
Finance leases
Partnership liability to the Marks & Spencer UK Pension Scheme

Derivative financial instruments

Current
– held for trading
Options
Commodity swap
– cash flow hedge
Forward foreign exchange contracts – cash flow hedges

Interest rate swaps

– held for trading
– held for trading

Non-current
Commodity swap
– cash flow hedge
– cash flow hedges
Cross currency swaps
Forward foreign exchange contracts – cash flow hedges

2010
%
0.6
5.9
4.7
–

2009
%
4.0
6.2
4.8
5.7

2010

Assets
£m

Liabilities
£m

Assets
£m

2009

Liabilities
£m

14.3
–
30.1
3.7
–
48.1

–
132.8
0.1
132.9

(14.3)
(2.1)
(5.0)
(1.4)
(4.3)
(27.1)

–
–
–
–

27.0
–
59.9
5.7
–
92.6

–
253.9
0.1
254.0

(27.0)
(16.7)
(27.4)
(0.4)
(4.7)
(76.2)

(1.5)
–
(1.5)
(3.0)

At the balance sheet date, the Group held a number of cross currency swaps to redesignate its fixed rate US dollar debt to fixed rate sterling
debt. The attributes of these derivatives match the characteristics of the underlying debt hedged with rates of 7.034% (2017 bond) and
7.238% (2037 bond). The amounts reported as options held for trading in derivative assets and liabilities represent the fair value of the call
option with the puttable callable reset notes, mirrored by the fair value of the sold option to have this call assigned. During the year the Group
entered into a number of interest rate swaps to redesignate sterling fixed debt to floating debt. These swaps are accounted for as fair value
hedges. The ineffective portion recognised in the profit or loss that arises from fair value hedges amounts to a loss of £0.4m (last year £nil)
as the gain on the hedged item was £1.5m (last year £nil) and the loss on the hedging instrument was £1.9m (last year £nil). There was no
ineffectiveness on cash flow hedging or net investment hedging.

106

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

22 Financial instruments continued

Sensitivity analysis
The table below illustrates the estimated impact on the income statement and equity as a result of market movements in foreign exchange
and interest rates in relation to all of the Group’s financial instruments. The Group considers that a 2% +/- movement in interest rates and a
20% weakening or strengthening in sterling represents reasonable possible changes. However, this analysis is for illustrative purposes only.

The impact in the income statement due to changes in interest rates reflects the effect on the Group’s floating rate debt as at the balance
sheet date. The impact in equity reflects the fair value movement in relation to the Group’s cross currency swaps.

The impact in the income statement from foreign exchange movements reflects the change in the fair value of the Group’s transactional
foreign exchange cash flow hedges and the net investment hedges at the balance sheet date. The equity impact shown for foreign exchange
sensitivity relates to derivative and non-derivative financial instruments hedging net investments. This value is expected to be fully offset by the
retranslation of the hedged foreign currency net assets leaving a net equity impact of zero.

The table excludes financial instruments that expose the Group to interest rate and foreign exchange risk where such risk is fully hedged
with another financial instrument. Also excluded are trade receivables and payables as these are either sterling denominated or the foreign
exchange risk is hedged.

At 28 March 2009
Impact on income statement: gain/(loss)
Impact on equity: gain/(loss)
At 3 April 2010
Impact on income statement: gain/(loss)
Impact on equity: gain/(loss)

Fair value hierarchy

2% decrease
in interest
rates
£m

2% increase
in interest
rates
£m

20%
weakening
in sterling
£m

20%
strengthening
in sterling
£m

13.6
74.5

(8.3)
33.0

(15.1)
(38.6)

2.5
(24.7)

(15.2)
(11.1)

(15.9)
29.2

10.2
7.4

10.6
(19.5)

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

– Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

– Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly

or indirectly; and

– Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market

data. Unlisted equity investments are included in Level 3. The fair value of the embedded derivative is determined using the present value
of the estimated future cash flows based on financial forecasts.

As at 3 April 2010, the Group held the following financial instruments measured at fair value:

Assets measured at fair value
Financial assets at fair value through profit or loss
– Trading derivatives
Derivatives used for hedging
Available-for-sale financial assets
– equity securities

Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
– Trading derivatives
Derivative used for hedging
Embedded derivatives

Level 1
£m

Level 2
£m

Level 3
£m

2010
Total
£m

Level 1
£m

Level 2
£m

Level 3
£m

2009
Total
£m

–
–

–

–
–
–

18.0
163.0

–
–

18.0
163.0

–

3.0

(19.6)
(7.5)
–

–
–
(63.5)

(19.6)
(7.5)
(63.5)

–
–

–

–
–
–

32.7
313.9

–
–

32.7
313.9

–

3.0

(32.1)
(47.1)
–

–
–
(56.3)

(32.1)
(47.1)
(56.3)

During the reporting period ending 3 April 2010, there were no transfers between Level 1 and Level 2 fair value measurements, and no
transfers into and out of Level 3 fair value measurements.

To find out more, visit www.marksandspencer.com/annualreport2010

107

22 Financial instruments continued

The following table presents the changes in Level 3 instruments for the year ended 3 April 2010.

Opening balance
Gains and losses recognised in profit or loss
Closing balance

Directors’ report

Financial statements

Other information

p01 



p117 

2010
£m
(53.3)
(7.2)
(60.5)

2009
£m
(49.2)
(4.1)
(53.3)

A reasonably possible change in assumptions is unlikely to result in a significant change in the fair value of the Level 3 instruments.

Fair value of financial instruments
With the exception of the Group’s fixed rate bond debt, there were no material differences between the carrying value of non-derivative
financial assets and financial liabilities and their fair values as at the balance sheet date.

The carrying value of the Group’s fixed rate bond debt was £2,183.9m (last year £2,018.5m); the fair value of this debt was £2,107.7m
(last year £1,616.6m).

Capital policy
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide optimal returns
for shareholders and to maintain an efficient capital structure to reduce the cost of capital.

In doing so the Group’s strategy is to maintain a capital structure commensurate with an investment grade credit rating and to retain
appropriate levels of liquidity headroom to ensure financial stability and flexibility. To achieve this strategy the Group regularly monitors key
credit metrics such as the gearing ratio, cash flow to net debt (see note 29) and fixed charge cover to maintain this position. In addition the
Group ensures a combination of appropriate committed short-term liquidity headroom with a diverse and smooth long-term debt maturity
profile.

During the year the Group maintained an investment grade credit rating of Baa3 (stable) with Moody’s and BBB- (stable) with Standard &
Poor s, and through the successful tender of £200m of existing short-dated bonds in conjunction with a new £400m 10 year bond issue
extended the average fixed debt maturity by one year to ten years and increased short-term liquidity by £200m.

’

In order to maintain or re-align the capital structure, the Group may adjust the number of dividends paid to shareholders, return capital
to shareholders, issue new shares or sell assets to reduce debt.

23 Provisions

At 30 March 2008
Provided in the year
Released in the year
Utilised during the year
Exchange differences
At 28 March 2009
At 29 March 2009
Provided in the year
Released in the year
Utilised during the year
Exchange differences
At 3 April 2010

Analysis of total provisions:

Current
Non-current
Total provisions

UK
restructuring
£m
18.2
86.6
(0.7)
(8.5)
–
95.6
95.6
5.1
(11.2)
(43.0)
–
46.5

Overseas
restructuring
£m
7.5
–
–
(0.6)
1.3
8.2
8.2
–
(3.0)
(0.4)
(0.2)
4.6

2010
£m
25.6
25.5
51.1

Total
£m
25.7
86.6
(0.7)
(9.1)
1.3
103.8
103.8
5.1
(14.2)
(43.4)
(0.2)
51.1

2009
£m
63.6
40.2
103.8

The provision for UK restructuring is comprised of exceptional costs related to the strategic restructure in 2008/09 (see note 5), including
onerous leases and redundancies, as well as costs of closing Lifestore. An element of the provision for closing Lifestore was released during
the year. The provision for overseas restructuring costs primarily relates to future closure costs in respect of discontinued operations in
continental Europe.

The current element of the provision primarily relates to costs relating to the rationalisation of IT and logistics networks.

The non-current element of the provision relates to store closures, primarily onerous leases, and the closure costs of discontinued operations
in continental Europe, and are expected to be utilised over a period of seven years.

108

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

24 Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28% (last year 28%) for UK differences
and the local tax rates for overseas differences.

The movements in deferred tax assets and liabilities (after the offsetting of balances within the same jurisdiction as permitted by IAS 12 –
‘Income Taxes’) during the period are shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right
of offset and there is an intention to settle the balances net.

Deferred tax assets/(liabilities)

At 30 March 2008
Credited/(charged) to the income statement
Credited/(charged) to equity
At 28 March 2009
At 29 March 2009
Credited/(charged) to the income statement
Credited/(charged) to equity
At 3 April 2010

Fixed
assets
temporary
differences
£m
(76.9)
(2.0)
–
(78.9)
(78.9)
4.6
–
(74.3)

Accelerated
capital
allowances
£m
(144.6)
17.3
–
(127.3)
(127.3)
3.6
–
(123.7)

Pension
temporary
differences
£m
(139.4)
(87.0)
254.9
28.5
28.5
(19.0)
71.7
81.2

Other
short-term
temporary
differences
£m
(6.1)
(5.7)
(29.5)
(41.3)
(41.3)
(0.1)
38.2
(3.2)

Total
UK
deferred
tax
£m
(367.0)
(77.4)
225.4
(219.0)
(219.0)
(10.9)
109.9
(120.0)

Overseas
deferred
tax
£m
(5.1)
(0.2)
0.4
(4.9)
(4.9)
2.4
(3.3)
(5.8)

Total
£m
(372.1)
(77.6)
225.8
(223.9)
(223.9)
(8.5)
106.6
(125.8)

In arriving at the deferred tax on fixed assets, credit has been taken for capital losses with a tax value of £65.5m (last year £60.5m).
No deferred tax is recognised on the unremitted earnings of overseas subsidiaries. As the earnings are continually reinvested by the
Group, no tax is expected to be payable to them in the foreseeable future. Undistributed profits of overseas subsidiaries amount to
£396.5m (last year £380.6m).

The Group is claiming UK tax relief for losses incurred by some of its current and former European subsidiaries. In light of continuing litigation,
no asset has been recognised in respect of these claims.

25 Share capital and reserves

Authorised ordinary shares of 25p each
Allotted, called up and fully paid ordinary shares of 25p each:
At start of year
Shares issued on exercise of share options
Shares purchased in buy-back
At end of year

Shares
3,200,000,000

1,577,794,919
4,521,662
–
1,582,316,581

2010
£m

Shares
800.0 3,200,000,000

394.4 1,586,478,423
2,217,763
(10,901,267)
395.5 1,577,794,919

1.1
–

2009
£m
800.0

396.6
0.5
(2.7)
394.4

Issue of new shares
4,521,662 (last year 2,217,763) ordinary shares having a nominal value of £1.1m (last year £0.5m) were allotted during the year under the
terms of the Company’s schemes which are described in note 12. The aggregate consideration received was £12.4m (last year £5.3m).

Share buy-back
Last year 10,901,267 ordinary shares having a nominal value of £2.7m were bought back and subsequently cancelled during the year
in accordance with the authority granted by shareholders at the Annual General Meeting in July 2007. The aggregate consideration paid
was £40.9m.

Marks & Spencer UK Pension Scheme interest in the Scottish Limited Partnership
In previous years, a partnership liability was recorded relating to an amortising liability in respect of obligations of the Marks and Spencer
Scottish Limited Partnership to the Marks and Spencer UK Pension Scheme. On 25 March 2009 the terms of the Scottish Limited
Partnership agreement were amended to make the payment of annual distributions to the Pension Scheme discretionary from 2010/11
onwards. This discretion is exercisable if the Group does not pay a dividend or make any other form of return to its shareholders. As a result,
the distribution to the Pension Scheme in 2009 and 2010 remained as a financial liability, while the remaining financial instrument became an
equity interest. The fair value of the equity interest on the date of transfer was £571.7m. This amount has been reclassified to other reserves in
the year to better reflect the substance of the Group’s interest. Under the amended agreement the value of total discretionary scheduled
payments is approximately £862m.

The Group’s policy to grow dividends in line with adjusted earnings per share is explained in the Financial review on page 43.

The agreement includes a clause such that, following a default event (including the appointment of an administrator, liquidator, receiver or
similar officer in respect of Marks and Spencer plc or Marks and Spencer Group plc) or on a relevant change of law, the net present value
of the outstanding distributions becomes payable to the Pension Scheme by the Scottish Limited Partnership at the option of the Pension
Scheme. On the basis of the expected cash flows associated with such an event, the related financial liability has been fair valued at nil.

To find out more, visit www.marksandspencer.com/annualreport2010

109

26 Business combinations

Net liabilities at fair value (100%)
Net liabilities acquired
Cash consideration
Transaction costs
Total consideration
Goodwill arising on acquisition

Directors’ report

Financial statements

Other information

p01 



p117 

£m
(2.4)
(1.2)
6.1
0.9
7.0
8.2

On 31 March 2009, Marks and Spencer Reliance India Pvt Limited, a 51% subsidiary of the Group, completed the acquisition of 100%
of the issued share capital of Supreme Tradelinks Private Limited, which up until this date was the Group’s franchisee in India, for cash
consideration of £6.1m and transaction costs of £0.9m.

The acquisition has contributed £8.3m to sales and a £0.2m loss to operating profit in the period since acquisition, which is the same
contribution had the acquisition taken place on the first day of the financial period.

Goodwill has arisen on the acquisition due to the opportunities to facilitate a faster rate of growth and greater operating efficiency that do not
meet the criteria for recognition as an intangible asset at the date of acquisition.

27 Contingencies and commitments

A. Capital commitments

Commitments in respect of properties in the course of construction

2010
£m
69.0

2009
£m
52.1

In respect of its interest in a joint venture (see note 16), the Group is committed to incur capital expenditure of £0.9m (last year £19.3m).

B. 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
property, plant and equipment, at values ranging from historical net book value to market value, which are currently owned and operated by
them on the Group’s behalf.

C. Commitments under operating leases
The Group leases various stores, offices, warehouses and equipment under non-cancellable operating lease agreements. The leases have
varying terms, escalation clauses and renewal rights.

Total future minimum rentals payable under non-cancellable operating leases are as follows:
Within one year
Later than one year and not later than five years
Later than five years
Total

The total future sublease payments to be received are £51.9m (last year £64.9m).

2010
£m

2009
£m

228.6
815.2
3,005.2
4,049.0

215.1
778.1
3,173.1
4,166.4

110

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Notes to the financial statements continued

28 Analysis of cash flows given in the cash flow statement

Cash flows from operating activities

Profit on ordinary activities after taxation
Income tax expense
Finance costs
Finance income
Operating profit
Increase in inventories
Decrease in receivables
Payments to acquire leasehold properties
Increase in payables
Exceptional operating cash outflow
Depreciation and amortisation
Share-based payments
Profit on property disposals
Exceptional costs
Exceptional pension credit
Cash generated from operations

53 weeks
ended
3 April
2010
£m
523.0
179.7
162.2
(12.9)
852.0
(74.3)
25.3
–
132.5
(34.1)
427.9
28.5
(8.1)
–
–
1,349.7

52 weeks
ended
28 March
2009
£m
506.8
199.4
214.5
(50.0)
870.7
(46.0)
55.0
(14.1)
212.2
(27.4)
409.0
14.3
(6.4)
135.9
(231.3)
1,371.9

Exceptional operating cash outflows primarily relate to the utilisation of the provision for UK restructuring.

29 Analysis of net debt

A. Reconciliation of movement in net debt

Net cash
Bank loans, overdrafts and syndicated bank facility (see note 21)
Less: amounts treated as financing (see below)

Cash and cash equivalents (see note 19)
Net cash per cash flow statement
Current financial assets (see note 17)
Debt financing
Bank loans and overdrafts treated as financing (see above)
Syndicated bank facility (see note 21) (see above)
Medium-term notes (see note 21)
Finance lease liabilities (see note 21)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note 21)
Debt financing
Net debt

At
28 March
2009
£m

(923.3)
798.7
(124.6)
422.9
298.3
53.1

(34.5)
(764.2)
(1,801.7)
(101.9)
(139.9)
(2,842.2)
(2,490.8)

Exchange
and other
non-cash
movements
£m

Cash flow
£m

420.2
(498.7)
(78.5)
(15.0)
(93.5)
118.3

(30.7)
529.4
(196.8)
17.0
68.0
386.9
411.7

15.9
(15.9)
–
(2.1)
(2.1)
0.3

0.9
15.0
(2.5)
(4.9)
4.0
12.5
10.7

At
3 April
2010
£m

(487.2)
284.1
(203.1)
405.8
202.7
171.7

(64.3)
(219.8)
(2,001.0)
(89.8)
(67.9)
(2,442.8)
(2,068.4)

To find out more, visit www.marksandspencer.com/annualreport2010

111

29 Analysis of net debt continued

B. Reconciliation of net debt to statement of financial position

Statement of financial position and related notes
Cash and cash equivalents
Current financial assets (see note 17)
Bank loans and overdrafts (see note 21)
Syndicated bank facility (see note 21)
Medium-term notes (see note 21) – net of hedging derivatives
Finance lease liabilities (see note 21)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note 21)

Interest payable included within related borrowing
Total net debt

30 Related party transactions

Directors’ report

Financial statements

Other information

p01 



p117 

2010
£m

2009
£m

405.8
171.7
(267.4)
(219.8)
(2,048.2)
(89.8)
(71.9)
(2,119.6)
51.2
(2,068.4)

422.9
53.1
(159.1)
(781.2)
(1,848.1)
(101.9)
(139.9)
(2,554.2)
63.4
(2,490.8)

A. Subsidiaries
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Company and its subsidiaries are disclosed in the Company’s separate financial statements.

B. Hedge End joint venture
A loan of £5.0m was received from the joint venture on 9 October 2002. It is repayable on five business days’ notice and was renewed on
1 January 2010. Interest was charged on the loan at 2.0% until 31 December 2009 and 0.5% thereafter.

C. Lima (Bradford) joint venture
A loan facility was provided to the joint venture on 11 August 2008. At 3 April 2010, £25.4m (last year £13.6m) was drawn down on this
facility. Interest was charged on the loan at 1.1% above 3-month LIBOR.

D. Marks & Spencer Pension Scheme
Details of other transactions and balances held with the Marks & Spencer Pension Scheme are set out in notes 11 and 21.

E. Key management compensation

Salaries and short-term benefits
Termination benefits
Share-based payments
Total

2010
£m
9.6
0.2
3.1
12.9

2009
£m
6.0
1.1
1.8
8.9

Key management is comprised of Board directors only. Further information about the remuneration of individual directors is provided in
the Remuneration report. During the year, key management have purchased goods at the Group’s usual prices less a 20% discount.
This discount is available to all staff employed directly by the Group in the UK.

F. Other related party transactions
Supplier transactions occurred during the year between the Group and a company controlled by a close family member of Kate Bostock,
an executive director of the Group. These transactions amounted to £6.5m during the year (last year £5.2m) with an outstanding trade
payable of £0.4m at 3 April 2010 (last year £nil). The company was a supplier prior to Kate’s employment by the Group.

Supplier transactions occurred during the year between the Group and a company controlled by Martha Lane Fox’s partner. Martha is a
non-executive director of the Group. These transactions amounted to £1.7m during the year (last year £0.1m) with an outstanding trade
payable of £0.8m at 3 April 2010 (last year £nil).

31 Subsequent events

On 12 May 2010, Marks and Spencer Group plc announced a £800m funding plan for its UK Defined Benefit Pension Scheme.
The funding plan includes the following contributions from Marks

Spencer:

– cash contributions of £35m per annum for the first three years of the funding plan increasing to £60m per annum until 2018. This has

a present day cash value of £376m.

– £300m of value through the granting of a further interest in the Marks and Spencer Scottish Limited Partnership. This new interest entitles
the Pension Scheme to a fixed annual distribution of c. £36m for 15 years commencing in 2017 and a capital sum in 2031 equal to the
lower of £350m or any funding deficit in the Pension Scheme at that point in time.

– £124m of value through the transfer of assets from existing US$ debt hedge contracts held by Marks and Spencer plc.

112

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Company income statement

Operating profit
Income from shares in Group undertakings
Profit and total comprehensive income for the year attributable to shareholders

Company statement of
financial position

Assets
Non-current assets
Investments in Group undertakings
Total assets
Liabilities
Current liabilities
Amounts owed to Group undertakings
Total liabilities
Net assets
Equity
Called up share capital – equity
Share premium account
Capital redemption reserve
Merger reserve
Retained earnings
Total equity

Notes
C2, C3

53 weeks
ended
3 April
2010
£m
–
239.4
239.4

52 weeks
ended
28 March
2009
£m
–
356.3
356.3

Notes

2010
£m

2009
£m

9,168.6
9,168.6

9,158.5
9,158.5

2,603.5
2,603.5
6,565.1

395.5
247.5
2,202.6
1,397.3
2,322.2
6,565.1

2,619.3
2,619.3
6,539.2

394.4
236.2
2,202.6
1,397.3
2,308.7
6,539.2

The financial statements were approved by the Board and authorised for issue on 24 May 2010. The financial statements also comprise the
notes on pages 114 and 115.

Stuart Rose
Chairman

Ian Dyson
Group Finance and Operations Director

To find out more, visit www.marksandspencer.com/annualreport2010

113

Company statement of changes
in shareholders’ equity

Directors’ report

Financial statements

Other information

p01 



p117 

At 30 March 2008
Profit for the year
Dividends
Capital contribution for share-based payments
Shares purchased in buy-back
Shares issued on the exercise of employee share options
At 28 March 2009
At 29 March 2009
Profit for the year
Dividends
Capital contribution for share-based payments
Shares issued on the exercise of employee share options
At 3 April 2010

Called up
share capital
£m
396.6
–
–
–
(2.7)
0.5
394.4
394.4
–
–
–
1.1
395.5

Share
premium
account
£m
231.4
–
–
–
–
4.8
236.2
236.2
–
–
–
11.3
247.5

Capital
redemption
reserve
£m
2,199.9
–
–
–
2.7
–
2,202.6
2,202.6
–
–
–
–
2,202.6

Merger
reserve
£m
1,397.3
–
–
–
–
–
1,397.3
1,397.3
–
–
–
–
1,397.3

Retained
earnings
£m
2,336.8
356.3
(354.6)
11.1
(40.9)
–
2,308.7
2,308.7
239.4
(236.0)
10.1
–
2,322.2

Total
£m
6,562.0
356.3
(354.6)
11.1
(40.9)
5.3
6,539.2
6,539.2
239.4
(236.0)
10.1
12.4
6,565.1

Company statement of
cash flows

Cash flows from operating activities
Cash generated from operations
Working capital movements
Net cash outflow from operating activities
Cash flows from investing activities
Dividends received
Net cash inflow from investing activities
Cash flows from financing activities
Shares purchased in buy-back
Shares issued on exercise of employee share options
(Repayment)/drawdown of intercompany loan
Equity dividends paid
Net cash outflow from financing activities
Net cash inflow from activities
Cash and cash equivalents at beginning and end of year

53 weeks
ended
3 April
2010
£m

52 weeks
ended
28 March
2009
£m

–
–
–

–
(0.8)
(0.8)

239.4
239.4

356.3
356.3

–
12.4
(15.8)
(236.0)
(239.4)
–
–

(40.9)
5.3
34.7
(354.6)
(355.5)
–
–

114

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Company notes to the
financial statements

C1 Accounting policies

The Company’s accounting policies are the same as those set out in note 1 of the Group financial statements, except as noted below.

Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. The Company grants share-based
payments to the employees of subsidiary companies. Each period the fair value of the employee services received by the subsidiary
as a capital contribution from the Company is reflected as an addition to investments in subsidiaries.

Loans from other Group undertakings and all other payables are initially recorded at fair value, which is generally the proceeds received.
They are then subsequently carried at amortised cost. The loans are non-interest bearing and repayable on demand.

The Company’s financial risk is managed as part of the Group’s strategy and policies as discussed in note 22 of the Group financial
statements.

C2 Employees

The Company had no employees during the current or prior year. Directors received emoluments in respect of their services to the Company
during the year of £592,000 (last year £597,000). The Company did not operate any pension schemes during the current or preceding year.

C3 Auditors’ remuneration

Auditors’ remuneration in respect of the Company’s annual audit has been borne by its subsidiary Marks and Spencer plc and has been
disclosed on a consolidated basis in the Company’s consolidated financial statements as required by section 494 of the Companies
Act 2006.

C4 Dividends

Dividends on equity ordinary shares
Paid final dividend
Paid interim dividend

2010
per share

2009
per share

2010
£m

9.5p
5.5p
15.0p

14.2p
8.3p
22.5p

149.6
86.4
236.0

2009
£m

224.1
130.5
354.6

C5 Investments

A. Investments in Group undertakings

Beginning of the year
Additional investment in subsidiary relating to share-based payments
End of year

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

2010
£m
9,158.5
10.1
9,168.6

2009
£m
9,147.4
11.1
9,158.5

To find out more, visit www.marksandspencer.com/annualreport2010

115

Directors’ report

Financial statements

Other information

p01 



p117 

C5 Investments continued

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 and Spencer Marinopoulos BV
Marks and Spencer Czech Republic a.s.
Marks and Spencer (Ireland) Limited
Marks and Spencer (Asia Pacific) Limited
Marks and Spencer Simply Foods Limited
Marks and Spencer Marinopoulos Greece SA
M.S. Insurance L.P.
Marks and Spencer SCM Limited
per una Group Limited
Marks and Spencer Scottish Limited Partnership

1 Marks and Spencer plc is the general partner.

Principal activity
Retailing
Holding Company
Holding Company
Holding Company
Retailing
Retailing
Retailing
Retailing
Retailing
Financial Services
Procurement
Procurement
Property Investment

Country of incorporation and operation
Great Britain
Great Britain
The Netherlands
The Netherlands
Czech Republic
Republic of Ireland
Hong Kong
Great Britain
Greece
Guernsey
Great Britain
Great Britain
Great Britain

Proportion of voting rights
and shares held by:
Company A subsidiary
–
100%
100%
50%
51%
100%
100%
100%
100%
100%
100%
100%
–1

100%
–
–
–
–
–
–
–
–
–
–
–
–

The Company has taken advantage of the exemption under section 410 of the Companies Act 2006 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.

C6 Related party transactions

During the year, the Company has received dividends from Marks and Spencer plc of £239.4m (last year £356.3m) and has decreased
its loan from Marks and Spencer plc by £15.7m (last year increase of £34.7m). The outstanding balance was £2,603.6m (last year
£2,619.3m) and is non-interest bearing. There were no other related party transactions.

116

Marks and Spencer Group plc Annual report and financial statements 2010

Financial statements

Key performance measures

Income statement
Revenue – continuing operations
UK
International

Operating profit – continuing operations
UK
International
Total operating profit

Net interest payable
Pension finance income
Profit on ordinary activities before taxation – continuing operations

Analysed between:
Before property disposals and exceptional items
Property disposals and exceptional items
Income tax expense
Profit after taxation

Net margin1

Net margin excluding property
disposals and exceptional items
Basic earnings per share1

Earnings per share adjusted
for property disposals and
exceptional items1
Dividend per share declared
in respect of the year
Dividend cover

Retail fixed charge cover

Net debt2 (£m)

1 Based on continuing operations.

2 Excludes accrued interest.

Operating profit/
Revenue

Basic earnings/
Weighted average ordinary shares
in issue

Profit attributable to shareholders/
Dividend payable
Operating profit before depreciation
and operating lease charges/
Fixed charges

2010
53 weeks
£m

2009
52 weeks
£m

2008
52 weeks
£m

2007
52 weeks
£m

2006
52 weeks
£m

8,567.9
968.7
9,536.6

8,164.3
897.8
9,062.1

8,309.1
712.9
9,022.0

7,977.5
610.6
8,588.1

7,275.0
522.7
7,797.7

701.1
150.9
852.0

(160.1)
10.8
702.7

694.6
8.1
(179.7)
523.0

755.0
115.7
870.7

1,095.9
115.4
1,211.3

956.7
89.2
1,045.9

(199.9)
35.4
706.2

(141.1)
58.9
1,129.1

(130.0)
20.8
936.7

604.4
101.8
(199.4)
506.8

1,007.1
122.0
(308.1)
821.0

965.2
(28.5)
(277.5)
659.2

784.5
65.6
850.1

(121.9)
17.5
745.7

751.4
(5.7)
(225.1)
520.6

2010
53 weeks
8.9%

2009
52 weeks
9.6%

2008
52 weeks
13.4%

2007
52 weeks
12.2%

2006
52 weeks
10.9%

8.8%
33.5p

8.5%
32.3p

12.1%
49.2p

12.2%
39.1p

11.0%
31.3p

33.0p

28.0p

43.6p

40.4p

31.4p

15.0p
2.2x

17.8p
1.8x

22.5p
2.3x

18.3p
2.1x

14.0p
2.2x

4.0x

3.5x

5.3x

5.9x

4.9x

2,068.4

2,490.8

3,077.7

1,949.5

1,729.3

To find out more, visit marksandspencer.com/annualreport2010

117

Shareholder information

Directors’ report

Financial statements

Other information

p01 

p82 



Electronic Shareholder Communication

Managing your shares

In 2007 we mailed 20,000 full Annual Reports (102 page
document) and 240,000 Annual Reviews (45 page document)
to shareholders. Since then, legislation has helped us reduce
this distribution to 5,000 copies of our Annual Report and
40,000 copies of our Annual Review. A huge saving, both
environmentally and financially, but we need our shareholders
to help us reduce these numbers further.

The change in legislation provided greater flexibility and
efficiencies when communicating with shareholders, allowing
companies to use their website as the primary method of
communicating messages. We call this ‘Electronic Shareholder
Communication’ and it allows global distribution of messages
in an instant.

Shareholders who register for this are more informed,
receiving emails notifying them when our results are released.
Paper versions of these results are not mailed to shareholders
unless they have specifically requested them, even then it’s only
our year end results which we mail.

Communicating with shareholders electronically provides
clear savings. Therefore, as a thank you to those who register,
we will give a voucher for 10% off when shopping online at
marksandspencer.com

Registering for electronic communication is very straight
forward, and is done via Shareview. Shareview is an internet
based platform provided by Equiniti, our Registrar, that allows
you to manage your shares online.

Go to marksandspencer.com/annualreport2010

to find out more and to read the terms and conditions.

The Company’s register of shareholders is maintained by our Registrar,
Equiniti. Shareholders with queries relating to their shareholding
should contact Equiniti directly using the details overleaf.

Capital Gains Tax

For the purpose of Capital Gains Tax, the price of an ordinary share
on 31 March 1982 was 153.5p, which when adjusted for the 1 for
1 scrip issue in 1984, gives a figure of 76.75p. Following the capital
reorganisation in March 2002, HMRC has confirmed the base cost
for CGT purposes was 372.35p (81.43%) for an ordinary share and
68.75p (18.75%) for a B share.

American Depositary Receipts (ADRs)

The Company has a level 1 ADR program. This enables US
investors to purchase Marks & Spencer American Depository
Shares (ADS) in US dollars ‘over the counter’. The Company has
chosen to have the ADRs quoted on the OTC market’s highest tier,
International PremierQX.

For information on OTCQX go to otcqx.com
For Deutsche Bank email: DB@amstock.com
ADR website: adr.db.com
Toll free callers within the US: 1 866 249 2593
For those calling outside the US: +1 (718) 921 8137

Corporate website

Missing shareholders

Whether you are looking for information about our Heritage, our
Social, Environmental and Ethical responsibilities, our approach
to Governance or the latest Press releases, our Corporate website
provides a wealth of information for shareholders.

Furthermore, much of the information requested from our
shareholder helpline can be found in the investor section of our
website. Shareholders can also sign up for News Alerts to receive
an email when news on M&S is released. These include additional
financial news releases throughout the year, which are not mailed
to shareholders.

The directors are responsible for the maintenance and integrity
of the financial information on our website. The information has been
prepared under the relevant accounting standards and legislation.

Working with Prosearch, (an asset reunification company), we
continue to look for shareholders who have failed to keep their
details up to date. We have funds waiting to be claimed and we are
committed to doing what we can to pay these funds to their rightful
owner. Shareholders are reminded that if they move house they
must contact Equiniti and advise them of their new address.

Duplicate documents

Around 10,000 shareholders still receive duplicate documentation
and split dividend payments from having more than one account
on the share register. If you think you fall into this group and would
like to combine your accounts, please contact Equiniti.

Shareholder security

It sounds obvious, but if a stranger rings you out of the blue and
tries to sell you shares take great care. They may be part of a
financial scam. Shareholders are advised to be very wary of any
unsolicited advice, offers to buy shares at a discount, or offers of
free reports about the Company. If it sounds to good to be true,
it probably is. Go to moneymadeclear.org.uk to find out more.

ShareGift

Do you have a small shareholding which is uneconomical to sell?
You may want to consider donating it to ShareGift (Registered
charity no. 1052686) Find out more at sharegift.org or
call +44 (0)20 930 3737.

Dividends

Paid in January and July each year. We encourage shareholders
to have dividends paid directly into their bank account to ensure
efficient payment and cleared funds on the payment date. Those
selecting this payment method receive an annual consolidated tax
voucher in January, showing both payments in the respective tax
year. However, we are able to send a tax voucher with each
payment, if preferred.

To change how you receive your dividends either log on to

shareview.co.uk or contact Equiniti.

118

Marks and Spencer Group plc Annual report and financial statements 2010

Other information

Shareholder information continued

Analysis of share register

Ordinary shares

As at 3 April 2010, there were 217,541 holders of ordinary shares whose shareholdings are analysed below.

Range
1 – 500

501 –1,000

1,001 – 2,000

2,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 – 1,000,000

1,000,001 – HIGHEST

Total

Number of
holdings

108,735

43,817

33,458

22,468

5,709

2,714

452

188

217,541

Percentage
of total
shareholders

Number of
ordinary shares

49.98

20.14

15.38

10.33

2.62

1.25

0.21

0.09

21,582,412

32,780,554

47,897,697

68,859,124

39,645,480

62,120,241

152,384,856

1,157,046,217

100.00

1,582,316,581

Percentage
of ordinary
shares

1.36

2.07

3.03

4.35

2.51

3.93

9.63

73.12

100.00

Many private investors hold their shares through nominee companies, therefore the percentage of private holders is much higher than
that shown – we estimate approximately 30%.

Holders

Private

Institutional and Corporate holders

Total

Number of
holdings

208,497

9,044

217,541

Percentage
of total
shareholders

95.84

4.16

100.00

Number of
ordinary shares

295,630,971

1,286,685,610

1,582,316,581

Percentage
of ordinary
shares

18.68

81.32

100.00

To find out more, visit marksandspencer.com/annualreport2010

119

Directors’ report

Financial statements

Other information

p01 

p82 



Key dates for your diary

2 June 2010

4 June 2010

7 July 2010

14 July 2010

16 July 2010

Ex-dividend date – Final dividend

6 October 2010

Results – Quarter 2 Trading update†

Record date to be eligible for the
final dividend

Results – Quarter 1 Interim
Management Statement†

Annual General Meeting

Final dividend payment date
for the year to 3 April 2010

9 November 2010

Results – Half Year†

17 November 2010*

Ex-dividend date – Interim dividend

19 November 2010*

Record date to be eligible for
the interim dividend

14 January 2011*

Interim dividend payment date

* Provisional dates.

† Those registered for news alerts at marksandspencer.com/thecompany will receive notification

by email when this is available.

How to get in touch

Registered office and Head office

Additional documents

Waterside House, 35 North Wharf Road,
London W2 1NW
Telephone +44 (0)20 7935 4422
Registered in England and Wales (no. 4256886)

Registrars

Equiniti Limited,
Aspect House, Spencer Road, Lancing,
West Sussex BN99 6DA
Telephone 0845 609 0810
and outside the UK +44 (0) 121 415 7071

Group Secretary and Head of Corporate Governance

Amanda Mellor

For both the Annual Report or Annual Review
go to marksandspencer.com/thecompany

Alternatively, call 0800 591 697

Please note, students are advised to source information
from our website where possible.

email us at chairman@marks-and-spencer.com

Customer queries: 0845 302 1234

Shareholder queries: 0845 609 0810

120

Marks and Spencer Group plc Annual report and financial statements 2010

Index

A
Accountability and audit
Accounting policies
Audit Committee
Auditors’ remuneration
Auditors’ report
Authorised share capital

B
Board
Bonus
Borrowing facilities
Brand

C
Capital commitments
Capital expenditure
Cash flow statement
Corporate governance
Cost of sales
Critical accounting estimates
and judgements

D
Deferred tax
Depreciation
Derivatives
Diluted earnings per share
Directors’ emoluments
Directors’ interests
Directors’ report index
Directors’ responsibilities
Dividend cover
Dividend per share

E
Earnings per share
Employees
Environment
Exceptional items

Page
54
82
48, 51, 52
88
77
108

44
42
102
12

109
43, 86
81
44
87

108
83, 87, 99
105
90
91
66
76
76
116
72, 116

116, 89
74
36
88

F
Finance costs/income
Finance leases
Financial assets
Financial instruments
Financial liabilities
Financial record
Financial review
Fixed charge cover
Food
Footfall

G
Going concern
Goodwill

H
Hedging reserve
Home

I
Income statement
Intangible assets
Interests in voting rights
International Financial Reporting
Standards
International
Inventories
Investment property

J
Joint venture

K
Key Performance Indicators
Key Performance Measures
Kidswear

L
Lingerie

M
Management Board
Margin (gross)
Marketplace
Market value of properties
Market share
Menswear
Multi-channel

Page
88
102
100
102
84, 102
116
42
116
24
10

76
98

80
23

78, 112
98
73
82

32
83
100

100

10
116
22

06
08
14
75
10
21
28

N
Nomination and Governance
Committee

Page

48, 51, 52

P
People
Plan A
Principal risks and uncertainties

40
36
56

R
Remuneration Committee
Remuneration report

48, 51, 52
58

S
Segmental information
Shareholder information
Share capital
Share schemes
Sourcing and supply chain
Statement of comprehensive income
Statement of financial position
Stores
Subsidiary undertakings

86
117
72, 108
68
34, 36
78
79
28
115

T
Taxation
TSR
Trade and other payables
Trade and other receivables

W
Womenswear

89, 108
66
101
102

Our core values of Quality, Value, Service, Innovation and Trust are as important to us today
as they were when M&S was founded over 125 years ago.

What we sell Our core UK business

With an annual turnover of £8.4bn*, our UK business has a broadly even
split between General Merchandise (clothing and home) and Food.

Page 16 

Market share (value)

11.0%
11.2%

Market share (volume)

Source: Kantar Worldpanel

Market share

3.8%

Source: Kantar Worldpanel

How we sell Multi-channel

Page 28 

Customers shop with M&S in many ways – in stores, online or over the phone. Our aim is that
everyone receives the same consistently high level of service from purchase through to delivery.

690 UK stores:

10 Premiere

42 Major

242 High Street

46 Outlets

156 Simply Food wholly-owned

194 Simply Food franchises

M&S Direct:

E-commerce website

Home catalogue

Flowers & wine delivery

Hampers

Food to Order

lunchtogo

Highlights from the past year

In September 2009 Kantar Worldpanel adjusted its market share data for the
period to March 2009. The market share data in this report is based on these
more accurate figures.

Group revenue

£9.5bn
+5.2%

(53 weeks)

£9.3bn
+3.2%

(52 weeks)

Adjusted Group operating profit

£843.9m
+9.8%

(53 weeks)

£779.3m
+1.4%

(52 weeks)

Group profit before tax

Adjusted Group profit before tax

£702.7m
–0.5%

(53 weeks)

£640.6m
–9.3%

(52 weeks)

Interim + final dividend

5.5p+9.5p

Total dividend 2009/10

=15.0p

£694.6m
+14.9%

(53 weeks)

£632.5m
+4.6%

(52 weeks)

Adjusted earnings per share

33.0p
+17.9%

(53 weeks)

30.0p
+7.1%

(52 weeks)

For all our full and detailed key
performance indicators See p10

10%
off

Where we sell International

Page 32 

How we do business Plan A

Page 36 

It’s a more engaging and interactive experience

It’s printable as individual pages

It saves paper and costs

*52 weeks.

Designed and produced by Radley Yeldar ry.com
Printed by Royle Print

marksandspencer.com

Read our online Annual Report and How We Do Business
Report at marksandspencer.com/annualreport2010

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What’s in this report?
Table of contents



About Us
See under
flap for the
M&S Overview

Annual report and financial statements 2010

Directors’ report

Overview

01 Chairman’s overview by Sir Stuart Rose
06 Management Board
07

Introduction from Marc Bolland

Performance & KPIs

08 Performance overview by Ian Dyson
10 Key performance indicators

Brand & Marketplace

12 Our brand by Steven Sharp
14 Our marketplace

Operating & Financial review

16 What we sell
Womenswear
Lingerie
Menswear
Kidswear
Home
Food

28 How we sell Multi-channel
32 Where we sell International
34 Efficient delivery IT, Logistics & Supply Chain
36 How we do business Plan A
40 Our people Being an employer of choice
42

Financial review

Governance

44 Overview and Board of Directors
46 Governance report
58 Remuneration report
72 Other disclosures
77 Auditors report

p01



p08



p12



p16



p44



Financial statements and other information


Financial statements

p78

116 Key performance measures
117 Shareholder information
120

Index