Marks and Spencer Group PLC Annual Report 2015

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FY2015 Annual Report · Marks and Spencer Group PLC

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ANNUAL REPORT &
FINANCIAL STATEMENTS
2015

FINANCIAL OVERVIEW

GROUP REVENUE

£10.3bn

level

UNDERLYING PROFIT BEFORE TAX

GROUP PROFIT BEFORE TAX

£661.2m

+6.1%

£600.0m

+3.4%

INTERIM AND FINAL DIVIDEND

6.4p + 11.6p = 18.0p

+5.9%

UNDERLYING GROUP EARNINGS PER SHARE

GROUP EARNINGS PER SHARE

33.1p

+2.8%

29.7p

-8.6%

STRATEGIC PRIORITIES FOR THE YEAR

At the start of this ﬁ nancial year, we set out four strategic priorities to enable us to deliver our plan to
become a leading, international multi-channel retailer: Food sales growth, GM gross margin improvement,
improving GM performance and strong cash generation.

UK FOOD
REVENUE

GENERAL MERCHANDISE
GROSS MARGIN

UK GENERAL MERCHANDISE
REVENUE

FREE CASH FLOW
PRE DIVIDENDS

£5.2bn

+3.4%

52.6%

+190bps

£4.0bn

£524.2m

-2.5%

+22.5%

See Chief Executive’s strategic overview p08-09

ABOUT OUR REPORTING

NAVIGATING THE REPORT In this
document you will see a series of icons
that demonstrate how we’ve integrated
information about our business model
with details of our strategy and risk.
The easy to identify icons also tell you
where to look for further information.

STRATEGIC
PRIORITIES

PLAN A

RISK

LOOKING
AHEAD

LINKED TO
REMUNERATION

INTEGRATED REPORTING As members of the
International Integrated Reporting Council pilot,
we have committed to reporting the long-term
value created by sustainable business. Our
ambition is to have a report that fully meets
the principles of the IIRC framework by 2016.
Progress this year includes a revised depiction
of our business model, which better
demonstrates how we create long-term value
through the eff ective use of our resources and
relationships, and clear links between our KPIs
and remuneration.

PLAN A Plan A is integrated throughout
this report to demonstrate how it is
embedded in every part of our business.
This makes it easier for shareholders to
see how our sustainability programme is
creating value in our diff erent divisions.
More detailed information is available
in our online 2015 Plan A Report at
marksandspencer.com/plana2015

ONLINE INFORMATION To keep
shareholders fully up-to-date, we have
comprehensive ﬁ nancial and company
information on our website. It means that
shareholders can access the information
they require, 24 hours a day. To register,
go to marksandspencer.com/investors
and follow the ‘Electronic Shareholder
Communication’ link.

INVESTOR RELATIONS APP Our Marks &
Spencer Investor Relations app provides
information to investors and the ﬁ nancial
media in an iPad™ optimised format.
The app displays the latest share price
information and corporate news. It also
contains ﬁ nancial reports, presentations
and videos. For more information visit
marksandspencer.com/investors

01
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015
STRATEGIC REPORT

INTRODUCTION

M&S IS ONE OF THE UK’S
LEADING RETAILERS, WITH OVER
1,330 STORES WORLDWIDE.

WE ARE COMMITTED TO
DELIVERING SUSTAINABLE VALUE
FOR OUR SHAREHOLDERS AND
ENHANCING LIVES EVERY DAY
THROUGH THE HIGH QUALITY, OWN
BRAND FOOD, CLOTHING AND HOME
PRODUCTS WE OFFER IN OUR STORES
AND ONLINE BOTH IN THE UK
AND INTERNATIONALLY.

WHAT’S IN THIS REPORT?

OUR BUSINESS

GOVERNANCE

FINANCIAL STATEMENTS

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02 At a glance
04 Chairman’s statement
06 Creating sustainable value
08 Chief Executive’s strategic

overview

10 Our plan in action

OUR PERFORMANCE

14 Key performance indicators
16 Financial review
20 Marketplace
22 People behind the plan
23 Risk management
26 Operating performance*

*
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32 Chairman’s Governance overview
34 Leadership & eff ectiveness
34 Our Board
42 Nomination Committee Report

90 Consolidated ﬁ nancial statements
94 Notes to the ﬁ nancial statements
123 Company ﬁ nancial statements
124 Notes to the Company ﬁ nancial

44 Accountability
44 Risk in action
46 Audit Committee Report

51 Engagement
51 Stakeholder engagement

52 Remuneration
52 Remuneration overview
54 Remuneration Policy
62 Remuneration Report
77 Pensions governance

78 Other disclosures

83 Independent auditor’s report

statements

126 Group ﬁ nancial record

127 SHAREHOLDER INFORMATION*

* DIRECTORS’ REPORT

Operating performance and Shareholder
information form part of the Directors’ Report.

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02
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR BUSINESS

AT A GLANCE

M&S.COM

We sell high quality, great value
products to 33 million customers
through our 852 UK stores and our
e-commerce platform. Our business
has two divisions: Food, which accounts
for 57% of our turnover, and General
Merchandise, which accounts for the
remaining 43%. We have market leading
positions in Womenswear, Lingerie
and Menswear.

Our M&S.com ﬂ agship positions us as a
leading multi-channel retailer. Launched
in February 2014, the website gives us
ﬂ exibility to cater to customers’ changing
shopping habits, whether they are
shopping online via their mobile, on a
tablet, or at Shop Your Way points in our
stores. The site now has over 7 million
registered users.

Read more on the work of the Audit

Committee on p46-50.

APPOINTMENTS AND SUCCESSION

2014/15 saw signiﬁ cant changes to the
Board. Following the resignation of
Alan Stewart in July 2014 we undertook a
thorough search process resulting in the
appointment of Helen Weir, who joined the
business as Chief Finance Offi cer on 1 April
2015. Helen brings considerable retail and
ﬁ nance experience and we are delighted to
welcome her to the Board.

UK CORPORATE GOVERNANCE CODE

The UK Corporate Governance Code 2012 (the
‘Code’) is the standard against which we were
required to measure ourselves in 2014/15.

We are pleased to conﬁ rm that we complied
with all of the provisions set out in the Code
for the period under review.

A summary of our governance proﬁ le, outlining
our compliance with key areas of the Code, has
been set out on page 5 of the Strategic Report.

To keep this report interesting and engaging
we continue to focus on the key insights from
the business; however, further detail on how
we comply with the Code can be found in our
Corporate Governance Statement, available at
marksandspencer.com/thecompany.

In March 2015, Jan du Plessis retired after
six years on the Board. Jan has been
succeeded in his role of Senior Independent
Director by Vindi Banga, who maintains
his existing role as Chairman of the
Remuneration Committee. Subsequently,
I have joined the Remuneration Committee
and Miranda Curtis has joined the Audit
Committee.

As a result of Jan’s retirement, and in
order to provide the necessary balance,
Richard Solomons was appointed to the
Board on 13 April 2015. We had a clear
speciﬁ cation for this appointment and are
delighted that he has joined our Board,
bringing his experience as a serving CEO
with great knowledge of operating an
international, multi-channel consumer
business. Information on the inductions
that both Richard and Helen are
undertaking is provided on page 40.

These appointments bring new challenge
and oversight to the Board. Their skills
and experience build on our existing
talent, standing us in good stead for the
year ahead.

We are a more capable business following
a sustained period of investment in our
infrastructure and people. As outlined on
page 16, our focus will continue to be on
delivery of our strategy and improvement
in shareholder returns.

ROBERT SWANNELL CHAIRMAN

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34
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS

OUR BOARD

CHAIRMAN

EXECUTIVE DIRECTORS

Robert Swannell Chairman

Marc Bolland Chief Executive

Helen Weir Chief Finance Offi cer

Appointed: Chairman in January
2011, Non-Executive Director in
October 2010

Skills, competence and experience:
Robert is a Chartered Accountant
and a Barrister. He has extensive
government and regulatory
experience and possesses a wealth
of knowledge of many diff erent
business areas, banking and the
City acquired over a 33-year career
in investment banking. He has
signiﬁ cant experience as a director
and chairman across various sectors,
and his leadership in the area of
governance promotes robust debate
and drives a culture of openness in
the boardroom.

Other roles: Chairman of the
advisory board of the Shareholder
Executive, Trustee of Kew Foundation,
Advisory Board Member of Sutton
Trust.

Appointed: May 2010

Appointed: April 2015

Skills, competence and experience:
Marc has extensive international
experience in growing global
consumer brands, as well as
signiﬁ cant retail expertise from over
25 years in the industry. He joined
M&S from Morrisons where, as CEO,
he successfully led the development
and implementation of its long-term
strategy, turning around the business.
Since joining M&S, Marc has led the
store modernisation programme,
improved the positioning and
optimisation of the sub-brands and
driven international expansion. Marc
continues to work with the Board in
developing and implementing the
business strategy to become an
international, multi-channel retailer.

Other roles: Non-Executive Director,
The Coca-Cola Company, Honorary
Vice President of UNICEF UK and
Director of the Consumer Goods
Forum.

Skills, competence and experience:
Helen is an Accountant, with over 20
years’ experience in the ﬁ nance and
retail sectors. She brings substantial
strategic ﬁ nancial experience, and
a wealth of signiﬁ cant retail and
consumer experience to the Board.
Helen has strong listed company
experience having been group
ﬁ nance director, executive director,
and non-executive director on the
Board of a number of major listed
companies. Helen is a Fellow of the
Chartered Institute of Management
Accountants and was awarded a CBE
for services to Finance in 2008.

Other roles: Non-Executive Director,
SAB Miller, Trustee of Marie Curie
Cancer Care.

Patrick Bousquet-Chavanne
Executive Director, Marketing &
International

Appointed: July 2013

Skills, competence and experience:
Patrick brings over 25 years of strong
experience in the consumer goods
industry. His valuable strategic insight
is supported by his experience in
developing and marketing brands
globally, and a broad knowledge of
enhancing business performance
and customer experience in a
multi-channel environment. Patrick
played a key role in creating the
new marketing strategy for
Womenswear, and continues to lead
the transformation of M&S’s in-store
environment and the publishing
strategy for M&S.com. In addition
to his responsibility for Corporate
Strategy and Marketing, Patrick
assumed responsibility for the
International business from July 2014.

Other roles: Non-Executive Director,
Brown-Forman Inc, Non-Executive
Director, Collectively.org.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Vindi Banga Senior Independent
Director

Alison Brittain Non-Executive
Director

Miranda Curtis Non-Executive
Director

Martha Lane Fox Non-Executive
Director

Appointed: Senior Independent
Director in March 2015, Non-
Executive Director in September 2011

Skills, competence and experience:
Vindi has extensive consumer brand
knowledge and global business
experience, acquired over 33 years
in senior roles within the consumer
goods industry. His in-depth
knowledge of both UK and
international trade and industry
provides an invaluable insight into
business and enterprise across the
globe. He has strong experience
as a board member of other listed
companies, and is the recipient of
the Padma Bhushan, one of India’s
highest civilian honours.

Other roles: Partner at Clayton
Dubilier & Rice, Non-Executive
Director of Thomson Reuters,
Chairman of the Mauser Group,
Chairman of the Confederation of
British Industry’s (CBI) Economic
Growth Board, Non-Executive
Director of GlaxoSmithKline plc
(from 1 September 2015), and sits
on the Governing Board of the
Indian School of Business.

Appointed: January 2014

Appointed: February 2012

Appointed: June 2007

Skills, competence and experience:
Alison brings comprehensive
ﬁ nancial and commercial experience
to the Board, combined with
considerable knowledge of running
customer facing retail branch
networks. She has held a number of
senior positions in the ﬁ nancial sector
particularly in retail, and has valuable
regulatory insight. Alison has an
MBA from Cambridge University’s
Judge Institute.

Other roles: Group Director of
Lloyds Banking Group’s (LBG) Retail
Division, and Chair of the FCA’s
Practitioner Panel. Alison will be
leaving LBG in 2015 and will become
CEO of Whitbread plc in the early part
of 2016.

Skills, competence and experience:
Miranda’s substantial experience
of the international consumer and
technology sectors, and varied
knowledge of global industry provide
a valuable contribution to the Board.
During her 20-year career with
Liberty, Miranda led the company’s
investments in digital distribution
and content operations across
Continental Europe and Asia-Paciﬁ c,
most notably in Japan.

Other roles: Chairman of
Waterstones, Non-Executive Director
of Liberty Global plc, Board Member
of both the Institute for Government
and the Royal Shakespeare Company,
Deputy Chairman of Garsington
Opera and Chair of African girls’
education charity, Camfed.

Skills, competence and experience:
Martha brings signiﬁ cant experience
from the successful operation of
online and customer facing
businesses. Martha co-founded
Europe’s largest travel and leisure
website lastminute.com in 1998,
taking it public in 2000 and selling it in
2005. She has extensive knowledge
of the online sector, and her valuable
input continues to challenge and
inﬂ uence the development of our
multi-channel strategy. In 2013,
Martha was awarded a CBE and
appointed a crossbench peer in the
House of Lords. She was also the
UK’s Digital Champion until 2013.

Other roles: Chancellor of the
Open University, Chair of Go On UK,
MakieLab, Co-founder and Chair of
Lucky Voice, Non-Executive Director
of the Women’s Prize for Fiction,
Founder of charitable foundation
Antigone and Patron of AbilityNet,
Reprieve, Camfed and Just for
Kids Law.

35
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

FIND OUT MORE

See p36 for Governance and Board structures

See p38-39 for Board activities in 2014/15

See p36 for Board roles and responsibilities

John Dixon Executive Director,
General Merchandise

Appointed: September 2009

Skills, competence and experience:
John joined M&S in 1986 as a
management trainee and has worked
in many areas across the business.
His senior positions have covered
Director of M&S.com, Director of
Home and Executive Assistant to
the CEO until his appointment to the
Board in 2009 as Executive Director
of Food. John returned Food to
growth by focusing on what M&S
does best – meeting our customers’
desire for quality and innovation.
In October 2012 John became
Executive Director of GM where he
has applied the same focus to the
products we sell, strengthened
the management team, delivering
signiﬁ cant margin improvement and
returning the division to growth in Q4
for the ﬁ rst time in four years.

Steve Rowe Executive Director, Food

Appointed: October 2012

Skills, competence and experience:
Steve joined M&S in 1989 and
progressed through a variety of roles
within store management before
moving to head offi ce in 1992. He
has worked in several senior roles
across various areas of the business
including Director of Home, Director
of Retail, and Director of Retail and
E-commerce, before his appointment
as Executive Director of Food in
October 2012. Under his leadership,
the Food division has continued to
achieve strong growth, broadened
its range of quality and innovative
products, and maintained high
customer satisfaction ratings.

Laura Wade-Gery Executive Director,
Multi-channel

Appointed: July 2011

Skills, competence and experience:
Laura brings considerable retail,
e-commerce and customer
experience, gained from over 15 years
in senior roles in the retail sector.
Laura has been instrumental in the
improvement and modernisation of
our ecommerce and multi-channel
capabilities, which she continues to
lead. In July 2014, Laura’s role was
expanded, adding responsibility
for UK stores to provide greater
oversight and a fully integrated
approach to M&S’s multi-channel
strategy.

Other roles: Non-Executive Director
of British Land, Trustee of Royal
Opera House Covent Garden Limited,
Member of the Government’s Digital
Advisory Board, and Trustee of
Aldeburgh Music.

BOARD DIVERSITY

The Board Diversity Policy was launched
in 2012 with the intention of ensuring that
diversity, in its broadest sense, remains a
central feature of the Board.

The Board continues to take positive
steps towards broadening the diversity
of both the Board and our senior
management. Our Board Diversity
Policy on page 43 sets out our ambitions
with regard to diversity and what this
means for our business, customers and
stakeholders, as well as the progress
we continue to make against those
ambitions.

The tables and graphics below provide a
visual outline of our Board’s diversity in
terms of gender, range of experience and
length of tenure.

GENDER DIVERSITY

EXECUTIVE

NON-EXECUTIVE

MALE
67%
FEMALE
33%

MALE
57%
FEMALE
43%

GROUP
BOARD

MALE
62%
FEMALE
38%

BOARD EXPERIENCE

GROUP SECRETARY

RETAIL
100%

CONSUMER
100%

FINANCE
39%

E-COMMERCE
& TECHNOLOGY
46%

INTERNATIONAL EXPERIENCE

Andy Halford Non-Executive
Director

Richard Solomons Non-Executive
Director

Amanda Mellor Group Secretary
and Head of Corporate Governance

Appointed: January 2013

Appointed: April 2015

Appointed: July 2009

Skills, competence and experience:
A Chartered Accountant, Andy
has a strong ﬁ nance background
and signiﬁ cant recent and relevant
ﬁ nancial experience gained from CFO
positions in global listed companies.
His detailed knowledge of the UK
and international consumer market
provides the Board with valuable
strategic insight. Andy is a member
of the Business Forum on Tax and
Competitiveness and a Fellow of the
Institute of Chartered Accountants in
England and Wales.

Other roles: Group Finance Director
of Standard Chartered plc.

Skills, competence and experience:
Richard brings strong commercial,
ﬁ nancial, consumer, branding and
global experience to the Board.
His broad international retail and
consumer experience, and his
role as a CEO of an international
business, provides valuable insight
to the Board. During his career at
InterContinental Hotels Group (IHG),
Richard was integral in shaping and
implementing IHG’s asset-light
strategy, which has helped the
business grow signiﬁ cantly since
it was formed in 2003, as well as
supporting the return of $10.4 billion
to shareholders.

Other roles: CEO of IHG, Governor of
the Aviation Travel Industry Group of
the World Economic Forum, Member
of both the Executive Committee of
the World Travel and Tourism Council
and of the Industry Real Estate
Financing Advisory Council.

Other roles: Non-Executive Director
of Kier Group plc.

NON-EXECUTIVE TENURE

0-1 YEAR 14%
(1 DIRECTOR)
1-3 YEARS 29%
(2 DIRECTORS)
3-6 YEARS 43%
(3 DIRECTORS)
6-9 YEARS 14%
(1 DIRECTOR)

KEY TO COMMITTEES

Nomination
Audit
Remuneration
Committee Chair

Full details of each director are
available on
marksandspencer.com/thecompany

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36
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS
OUR BOARD CONTINUED

GROUP
BOARD

MANAGEMENT
COMMITTEE

EXECUTIVE
BOARD

PRINCIPAL COMMITTEES

Audit

Remuneration

Nomination

EXECUTIVE COMMITTEES

Property
Board

Fire, Health
& Safety

Business
Continuity

Customer
Insight Unit

How We Do
Business

BOARD RESPONSIBILITY

Responsibility for implementing operational
decisions and the day-to-day management
of the business is delegated to the Chief
Executive and the Executive Board. The
Management Committee supports the
Executive Board by monitoring the
development of the Group’s workstreams
against the Group’s three-year plan and
inputting annually into the Group’s
strategic plan. The executive directors
update the Board at each Group
Board meeting.

There is clear delegation and oversight
from the Executive Board to the Executive
Committees (outlined in our Governance
Framework at marksandspencer.com/
thecompany), which strengthens decision-
making across key areas of the business.
In addition, the Audit Committee receives
a business update at each meeting.

BOARD COLLABORATION

The work of the Board complements,
enhances and supports the work of the
Executive Board. We believe that eff ective
governance is realised through leadership
and team work. Collaboration across all
levels within the Board structure drives
a culture of continuous improvement

SINESS
UIT Y
MITTE E
TIN
N
M
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C
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E X ECUTIVE
BOARD

GROUP BOARD
AUDIT,
REMUNERATION,
AND NOMINATION
COMMITTEES

N
T

Y
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P
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B
P

STOMER
IN
SIGHTU
NIT

H O W W E
D O B U S I N
C O M M I T

S S
E
E

E
T

in standards and performance across
our business. Working together, all parts
of the Board structure conduct robust
interrogation of plans and actions, ensuring
high-quality decision-making in all areas
of strategy, performance, responsibility
and accountability.

BOARD OVERVIEW

This section looks at our Board members,
the role of the Board, its performance and
its oversight. We provide an overview of
the induction programme undertaken by
our two newly appointed directors,
highlighting the diff erences between
inductions for non-executive and executive
directors respectively. We also outline how
our Board contingency plan was tested
during the year.

We provide further transparency on activities
and discussions undertaken during the year by
sharing some of the actions arising from the
discussions and the progress against them.

We also provide insight relating to director:

> Independence Maintaining the right

balance of independence on the Board;

> Eff ectiveness The review this year
was externally facilitated. We update
on the output and the action plan
for the year ahead on page 41; and

> Ongoing development Business

training, engagement and mentoring.

ROLE OF THE BOARD AND COMMITTEES

The Board is responsible for ensuring
leadership through eff ective oversight
and review. Supported by its Principal
Committees – Audit, Remuneration, and
Nomination – the Board sets the strategic
direction and aims to deliver sustainable
shareholder value over the longer term.

Clear terms of reference outline the full
schedule of matters reserved for the
Board’s decision and that of its key
committees. These, along with the
individual roles of the Board members,
can be found in the Group’s formal
Governance Framework at
marksandspencer.com/thecompany.

BOARD MEETINGS

The Board held eight scheduled meetings
during the year, and individual attendance
is set out on the next page. Suffi cient time
is provided at the start and end of each
meeting for the Chairman to meet privately
with the Senior Independent Director and
non-executive directors to discuss any
matters arising. During the year the Board
held two meetings away from the offi ce, one
of which was its annual two-day strategy
meeting. A brief overview of the key areas of
discussion, the actions and the outcomes is
provided on the following pages.

See Board activities on p38-39

37
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

See Board activities overview on p38-39

See our Board biographies on p34-35

See our Remuneration Report on p52-76

BOARD COMPOSITION, ROLES AND ATTENDANCE

EXECUTIVE
DIRECTORS

ATTENDED

MAX
POSSIBLE

Chief Executive
Marc Bolland

Chief Finance Offi cer
Helen Weir1
(appointed 1 April 2015)

Alan Stewart
(resigned 10 July 2014)

Executive Director
Patrick Bousquet-Chavanne

Executive Director
John Dixon

Executive Director
Steve Rowe

Executive Director
Laura Wade-Gery

–

RESPONSIBILITY

Strategy & Group
performance

Group Financial
performance

Marketing & International
performance

General Merchandise
performance

Food
performance

UK Retail & Multi-channel
performance

LINKED TO
REMUNERATION

CHAIRMAN

ATTENDED

MAX
POSSIBLE

Robert Swannell

RESPONSIBILITY

Board governance
and performance,
and shareholder
engagement.

ATTENDED

MAX
POSSIBLE

RESPONSIBILITY

NON-EXECUTIVE
DIRECTORS

Vindi Banga

Alison Brittain

Miranda Curtis

Martha Lane Fox

Andy Halford

Steven Holliday2
(retired 8 July 2014)

Jan du Plessis3
(retired 4 March 2015)

Richard Solomons1
(appointed 13 April 2015)

–

Independent non-
executive directors
assess, challenge and
monitor the executive
directors’ delivery of
the strategy within the
Board’s risk and
governance structure.
In addition, they review
the integrity of ﬁ nancial
information, devise
appropriate succession
plans, and monitor
Board diversity.

–

This table provides details with regard to meetings held in the 2014/15 ﬁ nancial year.

1. Both Helen and Richard joined the business in the new ﬁ nancial period, and their attendance will be included in next year’s Annual Report.
2. Steven Holliday was unable to attend the meeting on 19 May due to business commitments with National Grid.
3. Jan du Plessis was unable to attend the meeting on 9 September due to overseas business commitments.

MONITORING AND OVERSIGHT

INDEPENDENCE OF DIRECTORS

RISK MONITORING AND OVERSIGHT

Protecting the business from operational,
ﬁ nancial and reputational risk is an
essential part of the Board’s role. As key
transformational projects came online
this year, the Board, supported by the
Audit Committee, looked to ensure that
key ﬁ nancial and operational controls
were robust throughout this change.
Progress was assessed and challenges
were managed within the context of the
Board’s appetite for risk.

The Group Risk Proﬁ le, owned by the
Board, is compiled by Group Risk using
business area risk registers and one-on-
one interviews with Board members and
business unit directors. Oversight and
independence is provided in the process
through the Audit Committee, which
ensures that the risks included in the
Group Risk Proﬁ le continue to reﬂ ect the
business’s strategic objectives. An Internal
Audit plan is then mapped to the Group
Risk Proﬁ le demonstrating where assurance
is provided over the mitigating activities.

STRATEGIC PROGRESS

Progress against the strategy is closely
monitored by the Executive Board and
discussed at each Group Board meeting.
The annual two-day strategy meeting held
away from the offi ce continues to provide
for more relaxed and free-ﬂ owing

discussion. This year the agenda focused on
the Castle Donington distribution centre
and M&S.com, GM, customer engagement,
our property portfolio and International
performance. Progress was reviewed
against the three-year plan and the longer-
term vision for the future.

The Board debated the priorities and
the longer-term challenges, identiﬁ ed
opportunities for improvement and agreed
an action plan. The non-executive directors
shared their expertise and provided
independent oversight to the discussion.

There has also been increased focus on
the people implementing the plans with
key skills and competencies improved
throughout the business.

See People Behind the Plan on p22.

GOVERNANCE IN ACTION

The role of the non-executives is not limited
to Board attendance. Examples of other
activities undertaken in the year:

Andy Halford: met with the Groceries
Code Adjudicator, visited Castle Donington,
the Mumbai store, and the Hong Kong
Sourcing Offi ce and store; and

Alison Brittain: visited Castle Donington
and undertook a store visit with a multi-
channel fashion retail expert from Boston
Consulting Group.

See our Risk management and Principal risks on p23-25, and Risk in action on p44-45.

The Board reviews the independence of its
non-executive directors as part of its annual
Board Eff ectiveness Review.

The Chairman is committed to ensuring the
Board comprises a majority of independent
non-executive directors who objectively
challenge management, balanced against
the need to ensure continuity on the Board.

The Board approved the appointment of
Martha Lane Fox for a third term in May 2013.
At the date of publication, Martha will have
served on the Board for eight years. Martha
continues to receive strong support from
shareholders as can be seen from the
voting results of the 2014 AGM. As Martha
has served more than six years with the
Company and, as required by the Code,
her appointment was again the subject of
particular review and scrutiny and it was
agreed that she continues to make a strong
independent contribution to the Board. With
the exception of Martha, all continuing non-
executive directors have served less than six
years on the Board.

See details and experience of each director

on p34-35.

The Board considers that all of the non-
executive directors bring strong independent
oversight and continue to demonstrate
independence. However, the Board recognises
the recommended term within the UK
Corporate Governance Code and is mindful
of the need for suitable succession.

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MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS
OUR BOARD CONTINUED

BOARD ACTIVITIES

TOPIC

ACTIVITIES/DISCUSSION

ACTIONS ARISING

PROGRESS

Strategy

Discussed the Group’s capital
structure and ﬁ nancial strategy,
including capital investments
and the dividend policy.

> Continue to invest for growth.
> Consider most appropriate use for
increased cash ﬂ ow now capital
expenditure has decreased.

> Higher growth margins and lower

than expected cost growth, delivering
stronger cash generation.

> Interim dividend increased by 3.2%, with
further 7.4% increase in the ﬁ nal dividend.

Reviewed the property strategy
including the property plan and
key priorities.

> Accelerate growth throughout

> Preferred target store locations

UK Simply Food portfolio.

identiﬁ ed.

> Deliver international presence
against planned objectives.

> Accelerated growth in India and

Hong Kong.

> Acquire, develop and manage the global

> Improved property asset management

property portfolio at optimal value.

across portfolio.

> Deliver new business unit
schemes and initiatives.

> Investigate opportunities for

development in existing stores.

> High level of in-store activity delivered.
> Ongoing investigation to ensure

optimal balance of in and out of town
retail space achieved.

Two-day off -site meeting provided time to:

> Review logistics agreements to ensure

> Logistics agreements reviewed

> Discuss and review GM and Food strategy.
> Consider customer engagement

and footfall.

> Review the property portfolio to

improve the quality of, and drive value
from, our property assets.

alignment with future strategy.
> Review of International operations.
> Debate and approve the Company’s
capital structure and funding plan.

> 102 Plan A commitments to be

achieved by 2020.

> Debate and evaluate International

> Improve in-store environment and

customer experience.

performance and growth.
> Test and review the corporate
strategy and ﬁ nancial plan.

> Review Plan A 2020.
> Debate, scrutinise and review performance

against the three-year plan and the
operating plan.

> Review the performance of M&S.com and
Castle Donington (see Customers on p39).

resulting in increased transparency
and understanding.

> Development opportunities identiﬁ ed.
> Full evaluation of international presence

undertaken. Greater focus on store
size, product off ering and availability
by region.

> Writedown of assets and closure of poor
performing stores in China. Investment
in ﬂ agship stores in growth regions.

> Plan A 2020 – over half of the

commitments achieved or on plan.

> Upgraded the store environment in many
of our stores, including new Menswear
departments in our top 70 stores, and
refreshed Womenswear departments
in 44 stores.

Governance
& risk

Reviewed the Group Risk Proﬁ le half
yearly, including core internal and
external risks, those driven by business
change and areas of emerging risk.

> Evaluate the completeness and

appropriateness of the Group Risk Proﬁ le
and identify any additional mitigating
activities to be undertaken.

> Robust set of Group level risks and
mitigating activities agreed and
monitored.

> Progress made in developing our

Discussed the UK Corporate Governance
Code requirements regarding risk appetite.

> Engage with external risk experts to

approach to risk appetite.

prepare draft risk appetite statements.
> Continue to foster debate on risk appetite.

Reviewed progress against the
2014/15 Board Action Plan.

> Review of Board decision-making

process and debate.

Discussed the outcome of the Board
evaluation process conducted by an
external facilitator, Fﬁ on Hague of
Independent Board Evaluation.

Discussed the 2015/16 Board
Action Plan.

> Review of all management information

and KPIs to improve quality, transparency
and consistency of data, and enable
clearer strategic context.

> Continue to reﬁ ne our approach to risk

appetite across the business.

> Improve tracking, review and debate

on quality of past investments, including
the role of the Board.

> Continue to encourage greater interaction
with Board members across the business.

> Progress has been made in addressing
some of the underlying infrastructure
issues of the business, Board members
were contributing well and there is a
positive Board ethos.

> Agreed 2015/16 Action Plan with clear
monitoring processes over the year.
> Plans in place to improve the review

and monitoring of past Board
decisions, and the quality of
supporting information.

Trust &
values

Discussed the evolution of Plan A to
Plan A 2020 incorporating the values
of Inspiration, Innovation, Integrity,
and In Touch, and the increased focus
on our customers.

Launched ‘Fit for the Future’,
incorporating the new M&S brand and
new values of Inspiration, Innovation,
Integrity, and In Touch.

> 102 commitments to be achieved by 2020. > 39 on plan; 2 behind plan.

> 47 achieved; 9 not achieved.
> 5 not started.

> Engage with employees across the

> Over 1,300 head offi ce employees took

business to increase awareness of the new
values and provide an opportunity for
employees to give their feedback.

part in the Fit for the Future focus groups,
including all our executive directors.
The feedback received helped shape
the ﬁ nal values.

39
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

See our Board Eff ectiveness Review on p41

BOARD ACTIVITIES CONTINUED

TOPIC

ACTIVITIES/DISCUSSION

ACTIONS ARISING

PROGRESS

Leadership
& employees

Discussed employee engagement
across the business from the results
of the annual ‘Your Say’ survey and
quarterly Pulse surveys.

Discussed talent and succession,
including gender diversity across
management and performance
management.

> Identify improvement opportunities

> Increased engagement with people

from the results.

managers and employees.

> Review the gender diversity policy and
performance management processes.
> Continue to support executive director
and senior management development.

> 38% of Board members are female.
> Implemented improved performance
management structures to align with
our values of Inspiration, Innovation,
Integrity, and In Touch.

> Continued with successful initiatives

including The Leadership Development
Service, and mentoring and coaching
schemes.

Reviewed the composition
and succession of the Board
and its Committees.

> Committed to maintaining the right
balance of skills and experience on
the Board and Committees.

> Approved the appointment of a new

Chief Finance Offi cer, Senior Independent
Director and non-executive director.

Discussed organisational culture,
structure and process.

> Reviewed ways of working to ensure

greater accountability across the business.

> Introduced more collaborative ways of
working throughout the Company to
speed up decision-making with the
launch of Fit for the Future.

Customers

Reviewed the GM strategy
and performance and agreed
2015/16 targets.

> Continue focus on further product
improvement, increased choice and
improved in-store environment.

> Strengthen the management team for

buying and supplier logistics, and increase
design experience within the business.

> Better buying and supplier models.
> Greater design experience in-house
delivering better product, stronger
margin improvements and faster delivery
through the network.

Greater customer engagement.

> Investigate opportunities for innovative

customer communication and
reward programme.

> Introduction of a new customer
engagement strategy, to bring a
centralised relationship between
the business and the customer.

> Introduction of the Shareholder Card,
in partnership with Equiniti (Company
registrar).

> Creation of one distinct brand across our

various off erings.

> Improving global brand relevance,

implemented experienced management
team, and re-enforced franchise
partnerships.

> Improve like-for-like performance across
owned and franchised existing estate.
> Grow the business proﬁ tably through new
stores, new countries and new formats.

> Redeﬁ ne ways of working with

franchise partners.

> Implement organisational structure
with clear accountability to drive the
growth in International.

Discussed the International business,
including historic and current
performance, negative factors
impacting the business, cross-culture
engagement with customers, building
relationships with key franchise
partners, and the vision going forward.

Reviewed the marketing strategy
including the operating model, and
improved customer engagement.

Reviewed and scrutinised the
performance of M&S.com and the
challenges faced at Castle Donington.

> Create one distinct brand across our

> M&S rebrand, including same branding

various off erings.

for GM and Food TV adverts.

> M&S.com site optimisation and review

> Customer satisfaction improved,

of delivery proposition.

over 7 million registered customers on
M&S.com, strong platform stability,
and regular cross-functional meetings
with representatives from M&S.com,
GM, and Castle Donington.

Shareholder
engagement

Strong engagement with stakeholders
and investors.

> Actively support engagement

> Investor conferences held on M&S.com

opportunities.

and International.

Reviewed shareholder feedback in
advance of the AGM.

> Focus areas of Chairman’s statement
to speciﬁ cally address issues raised
by shareholders.

> Fourth annual governance event.

> Communicate the key topics raised

by shareholders.

Continued discussions regarding
the off ering of a wider shareholder
reward scheme.

> Continue discussions with Equiniti to ﬁ nd
a solution to provide rewards reﬂ ective of
the level of investment.

> Discuss with nominees a solution to extend
initiatives to their beneﬁ cial shareholders.

> Shareholder Card launched in March 2015.
> Discussions to extend the M&S

shareholder card off er to beneﬁ cial
shareholders.

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40
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS
OUR BOARD CONTINUED

DIRECTOR INDUCTION

BOARD EFFECTIVENESS REVIEW

The assessment of the Marks &
Spencer Board was conducted
according to the guidance in
the UK Corporate Governance
Code and was facilitated by
Fﬁ on Hague of Independent
Board Evaluation. Neither
Fﬁ on Hague nor Independent
Board Evaluation have any other
connection with the Company.

The external evaluation
of our Board is an
important factor in
ensuring we are creating
an open, eff ective
Board and realising
our potential.

ROBERT SWANNELL CHAIRMAN

Shortly before the publication of this report,
two new directors joined the business;
Helen Weir, Chief Finance Offi cer, and
Richard Solomons, Non-Executive Director.
Both are receiving a tailored induction
programme led by the Chairman, which
includes time with each of the executive
directors, the group secretary, members of
the Management Committee, a wide range
of senior management from across the
business, and the opportunity to meet
with major shareholders.

Helen and Richard’s induction
programmes are comprehensive
and both cover:

Company structure and strategy,
including: Our history; strategy (including
details of all key investment decisions),
key people and succession plans; Board
procedures including the Governance
Framework, Code of Ethics and Behaviours;
Board calendar, minutes from previous
meetings, eff ectiveness reviews and action
plans; ﬁ nances, performance, operating
plans, current KPIs and targets, operational
overview of all business areas; key relationships,
including suppliers and major contracts;
Group Risk Proﬁ le and our approach to risk;
insight into key audits and areas of focus.

Industry and competitive environment,
including: Customer trends, consumer and
regulatory environment including governance
and all relevant consumer and industry
bodies, Corporate Social Responsibility,
environment and sustainability.

Sentiment and reputation, including:
Brand positioning and media proﬁ le;
marketing campaigns; brand values; analyst

and investor opinion; review of investor
surveys; share register and voting history;
key stakeholder relations including
employees, customers, suppliers and service
providers; opinion leaders; an overview of
our remuneration policy and pensions.

Richard’s induction as a non-executive was
supported by one-on-one meetings, and
aimed to provide a broad learning about
the business, its operations, its key markets
and its risks.

Helen’s induction was supported by a
greater number of one-on-one meetings
with the Chairman, the executive and
the non-executive directors, but also
management from Strategic Programmes,
Finance, HR (including visiting our
employee support team), GM (including our
overseas sourcing teams), Food, Customer
Insight, Communications and Investor
Relations (including some of our larger
shareholders and our corporate brokers),
Store operations (including visiting the
Castle Donington facility), Plan A, Health
& Safety, Pensions, M&S Bank, Internal
Audit & Risk, the Company Archive and
the Governance team.

Given that the two directors joined the
business within a short space of time,
we will take this opportunity to obtain
feedback on their experience of the
induction process and review the director
induction programme. Going forward
we will also seek feedback from Alison
Brittain, on her induction and her ﬁ rst year
with the business. Further information
on our induction can be found in the
Corporate Governance section of
marksandspencer.com/thecompany.

SUCCESSION

Succession planning and the succession
pipeline remain a key agenda item for
the Board.

During the year, our Board contingency plan
was tested when, shortly after the AGM,
Alan Stewart resigned from the Board. Given
Alan had accepted a role with another food
retailer, the Board felt it necessary for him
to leave the business immediately. Until a
suitable replacement was found for the
position, Paul Friston, our then Director of
Group Financial Control, was appointed
Interim Chief Finance Offi cer. Paul held the
position until Helen Weir joined the business
on 1 April 2015, at which point Paul took up
a new role within the business.

In August 2014, we also announced that
Jan du Plessis would be leaving the business
in the early part of 2015. Jan had served M&S
for six years as a non-executive director.
Having Jan remain with the business until
March 2015, and Paul cover the Finance role
for nine months, allowed the Board to focus
suffi cient attention on ensuring the new
appointments came with the required
qualiﬁ cations, experience and skills to meet
the challenges and opportunities ahead.

More detail on succession planning

can be found on pages 42-43.

41
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

BOARD REVIEW PROCESS

Stage 1 A comprehensive brief was given
to the assessment team by the Chairman,
Robert Swannell, and Group Secretary,
Amanda Mellor, in December 2014. The
evaluation team also observed Board and
committee meetings in December 2014, and
January and March 2015. Copies of all Board
papers were provided to the team for brieﬁ ng
purposes prior to the meeting.

In January and February, detailed interviews
were conducted with every Board member.
All participants were interviewed according
to a clear agenda, tailored for the Board. In
addition, the team spoke to the Director of HR,
the Interim Chief Finance Offi cer, Head of
Internal Audit & Risk, the Group Secretary,
the Company’s external remuneration
consultants, PwC, and the Company’s lead
Audit Partner from Deloitte.

Stage 2 The report was compiled by the
evaluation team based on information and
views supplied by the Board and those
interviewed. All recommendations were
based on best practice as described in the
UK Corporate Governance Code and other
current corporate governance guidelines.

Stage 3 Draft conclusions were discussed
with the Chairman and subsequently
discussed with the whole Board at its
meeting in April, with Fﬁ on Hague present.
The conclusions of that discussion were
recorded in the minutes of the meeting.
Robert Swannell also received a separate
report with feedback on individual directors.
Following the Board meeting, Fﬁ on Hague
gave feedback on the Chairman to the Senior
Independent Director, and to the Committee
Chairmen on the performance of each
committee. The Senior Independent Director
also met with the non-executive directors to
review the Chairman’s performance. This
review was then shared with the Chairman.

BOARD ACTION PLAN

As in previous years, the Board’s focus on
culture, values and people development
was felt to be strong. However, this year it
was felt that more could be done to
facilitate greater informal engagement
between the Board and the broader
management team.

After a thorough debate of the review with
Fﬁ on Hague present, the Board has agreed
an Action Plan for the year ahead. This plan
focuses on the quality of information to
support Board discussions, and broadening
Board debate and scope around risk.

Stage 1

Stage 2

Stage 3

BRIEFING
& BOARD
OBSERVATION

ONE-TO-ONE
INTERVIEWS
WITH BOARD

RESULTS
COLLATED,
REPORTED &
EVALUATED

DISCUSSION
WITH
COMMITTEE
CHAIRS

BOARD
DISCUSSION*

!
ACTION
PLAN
AGREED

Note: The above activities were undertaken by Fﬁ on Hague of Independent Board Evaluation.
*Fﬁ on Hague also attended the Board discussion.

BOARD REVIEW INSIGHTS 2014/15

The ethos and culture of the Board is
positive and remains in line with the last
independent review in 2012.

Overall, the Board rated its performance as
acceptable in the areas of governance and
compliance, shareholder accountability
and relationships, induction, and
succession planning. However, in other
areas performance was not considered to
be as strong, and progress had been slow
in relation to last year’s Action Plan. As a
result, this year members were clear that
there were several key areas that would
enable the Board to be more eff ective,
challenge business performance, and drive
strategic debate.

The Board review was conducted in
December 2014 and January 2015 when
M&S’s performance was under particular
scrutiny, with operational issues aff ecting
the Castle Donington distribution centre
and M&S.com. Given this context, members
were particularly open, objective and
critical with respect to Board performance

and the potential changes that should
be implemented to improve overall
Board eff ectiveness. A number of these
improvements have featured in previous
years and primarily relate to information
context, content and consistency, and
debate around business and strategic risk.
These now form the core of the 2015/16
Board action plan.

Board Committees Board Committees
were also reviewed and were all considered
well run, challenging, structured, trusted
and eff ective. Members noted that
committees were improved in terms of
quality of information and support from
management. Feedback from each
Committee meeting to the main Board was
felt to be full and transparent, particularly
in relation to Audit and Remuneration.

THE BOARD ACTION PLAN 2015/16 INCLUDES:

> Review of Board decision-making

> Improve tracking, review and debate

process and debate.

on quality of past investments.

> Review of all management information

> Continue to encourage greater

and KPIs to improve quality and
consistency of data, and enable clearer
strategic context.

> Continue to reﬁ ne our risk appetite
statements across the business,
building on the progress delivered
on risk in 2014/15.

interaction with Board members
across the business.

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42
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS

NOMINATION COMMITTEE
REPORT

We have an established mapping of the experience
We h
and skills requirements for our Board. This allowed us
and s
to move with clarity on the replacement and succession
to mo
of Jan du Plessis as Senior Independent Director.
of

ROBERT SWANNELL CHAIRMAN OF THE NOMINATION COMMITTEE

INTRODUCTION

We have seen further change to our Board
composition this year. I am pleased to
welcome our new Chief Finance Offi cer,
Helen Weir. We announced Helen’s
appointment in November 2014 and she
formally took up her position on 1 April 2015.
In August 2014 we announced that
Jan du Plessis would be stepping down in
the early part of 2015. He left the business on
4 March after nearly six years on the Board.
As part of our Board succession planning
process, we have established mapping of our
experience and skills requirements, future
Board and Committee requirements, and
director tenure. As a result, following Jan’s
retirement, we were well placed to appoint
Vindi Banga as Senior Independent Director,
in addition to his responsibilities as
Remuneration Committee Chairman,

and also appoint Miranda Curtis to the Audit
Committee, in addition to her membership of
the Remuneration Committee. Following the
retirement of Steven Holliday from the Board
in July 2014, we recognised the beneﬁ ts that
a serving CEO brings to our Board mix, along
with international, brand and consumer
experience. This clear brief underpinned
the appointment of Richard Solomons to
the Board in April 2015.

Vindi Banga succeeded Steven Holliday as
Remuneration Committee Chairman. Vindi
and Steve managed an exemplary handover,
including consultation and meetings with
investors ahead of the approval of our
Remuneration Policy at the AGM in July 2014.

In addition to these Board changes,
throughout the year, the Committee focused
on executive director development and

senior management talent development
and pipeline. We have continued to support
executive coaching and mentoring and are
pleased with the beneﬁ ts and insights these
initiatives have brought.

Building on initiatives in previous years, our
non-executive directors continue to engage
with both senior management and the
broader business, hosting lunches and
breakfast presentations. As highlighted in
our Action Plan, this is something we intend
to build on in the year ahead.

As a Board we continue to drive diversity
across the business. We are pleased that
women now represent almost 40% of our
Board membership. Our current diversity
percentage is also reﬂ ective of broader
senior management, where female
representation also accounts for almost 40%.

EFFECTIVENESS OF THE NOMINATION COMMITTEE

Independent review
The Committee’s performance was
reviewed externally this year by Fﬁ on Hague
of Independent Board Evaluation.
Performance was felt to have improved,
with better support and more professional
processes coming into eff ect. We intend to

build on this in the coming year with our
2015/16 Action Plan.

Nomination Committee activity
We continued to refresh and review non-
executive director tenure and skillset to
ensure an appropriate mix and diversity
of experience. As part of this, we agreed

MEMBER ATTENDANCE

Vindi Banga

Marc Bolland

Alison Brittain

Miranda Curtis

Martha Lane Fox

Andy Halford

Jan du Plessis1

Richard Solomons2

MEMBER
SINCE

3 Sep 2011

1 May 2010

1 Jan 2014

3 Feb 2012

1 Jun 2007

1 Jan 2013

1 Nov 2008

13 Apr 2015

Robert Swannell (Chairman)

4 Oct 2010

MAXIMUM
POSSIBLE
MEETINGS

NUMBER OF
MEETINGS
ATTENDED

% OF
MEETINGS
ATTENDED

100%

75%

100%

the process, timetable, shortlist and ﬁ nal
recommendation for the appointment of
Richard Solomons and succession planning
following the departure of Jan du Plessis.

We continued to support succession and
development of the executive directors,
implemented development initiatives for
senior executives, further international
business school training, executive coaching
and non-executive director mentoring.
Committee members also participated in
several employee-focused and diversity-
based initiatives, giving increased access to
the organisation, direct employee feedback
and greater visibility of high potential talent.

Action Plan 2015/16:

> Continue to review succession

plans for the Board and key roles
across the business;

> Continue to identify future talent

pipeline;

> Review development initiatives

for directors; and

1. Jan du Plessis was a member of the Committee until 4 March 2015, when he resigned from the Board. He was unable to

attend the meeting held on 8 September due to overseas business commitments.

2. Richard Solomons joined the business during the new ﬁ nancial period and his attendance will be included in next

> Continue to identify opportunities
for broader business engagement.

year’s report.

43
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

> The Leadership Development Service has
been in place for two years and continues
to identify and partner key senior talent
across the business, broadening their
skillsets and experience to prepare them
for future opportunities. This has been
supported through greater boardroom
exposure, non-executive and Trustee
roles outside of M&S, and participation
in mentoring schemes.

> Access to International Business

School Training.

> Senior management mentoring and

coaching schemes, including individual
leadership assessments, and non-
executive director sponsored lunches
and breakfasts.

Consider candidates for appointment as
non-executive directors from a wider pool,
including those with little or no listed
company board experience.
During the year, the Nomination Committee
discussed the Board’s successional needs,
and continues to work closely with executive
search agency JCA in compiling long and
short lists of candidates. During the search
for the most recent appointments, the
Board identiﬁ ed and interviewed a range of
candidates from various backgrounds and
industries, and all candidates were measured
against criteria agreed at the start of the
process. The Chairman also meets informally
with a range of people introduced by third
parties or through direct approaches.
Although we do not currently openly
advertise our non-executive director
positions, we appreciate the beneﬁ t of this
approach and will keep this under review.

Ensure long lists of potential
non-executive directors include 50%
female candidates.
The Board remains committed to ensuring
that high performing women from within the
business and from a variety of backgrounds,
who have the requisite skills, are given greater
exposure to the nomination committees of
FTSE100 companies. Once again, the Board
met its commitment, and all non-executive
director long lists in 2014/15 included 50%
female candidates.

Only engage executive search ﬁ rms who
have signed up to the voluntary Code
of Conduct on gender diversity and
best practice.
The Board continues to support the nine
principles of the Executive Search Firms
Voluntary Code of Conduct on gender
diversity, demonstrated by remaining
committed to only engaging executive
search ﬁ rms who are signatories to this code.
During the year, we continued to work closely
with JCA, and maintained our focus on
the targets and ambitions around female
representation on the Board. The Board
conﬁ rms that JCA has no other connection
with the Company.

Report annually against these objectives
and other initiatives taking place within the
Company which promote gender and other
forms of diversity.
The Board has made strong progress against
the key policy objectives during the year, as
reported above.

In addition, the business has continued to
promote diversity with the introduction or
continuation of key initiatives:

> The annual Board evaluation process
includes an assessment of the Board’s
diversity including gender, helping to
objectively consider its composition
and eff ectiveness.

> The M&S Inspiring Women’s Network,

launched in 2014, continues to support the
progress of women in our business, giving
access to a range of role models, providing
informal mentoring and networking
opportunities, and creating a forum for
discussion to explore and address the
career challenges women face.

> Taking part in a number of pilot schemes
including cross-business mentoring for
senior women, run by the government-
backed 30% Club, a female only
development programme.

> The MBA Leadership Programme is in its
fourth year, recruiting and developing
talented MBA graduates from international
business schools; to date intake into the
programme has been over 50% women.

> Partnering with a local school to provide

one-to-one mentoring support for around
50 female students between the ages of
15 and 17.

> A number of programmes to help people

in our communities, including Marks & Start,
Marks & Start Logistics, and Make Your
Mark, are successfully helping young
people, the homeless, lone parents and
those with disabilities, to ﬁ nd work in our
stores and distribution centre.

Report annually on the outcome of the
Board evaluation, the composition and
structure of the Board as well as any issues
and challenges the Board is facing when
considering the diverse make-up of the
Company.
We continue to regard the Board evaluation
process as an important means of monitoring
our progress. Full details of the 2014/15 Board
evaluation and the Action Plan are on page 41.
We remain committed to getting the right
balance of internal versus external hires and
work towards understanding and managing
some of the challenges we face, such as:

> International management experience

reﬂ ective of the customers and
communities we serve; and

> Any main challenges women face in

reaching regional management positions
and above, within the business.

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Our assessment of diversity in terms of
experience and background is covered in
further detail below. We also reviewed our
diversity policy this year to ensure it remains
ﬁ t for purpose.

BOARD DIVERSITY POLICY

Since the launch of the Board Diversity Policy
in 2012, the Board has made progress in
broadening the diversity of the Board and
senior management. In 2014, the Board
reviewed the policy to ensure that it
continues to drive the beneﬁ ts of a diverse
Board and workforce across the business.
The Board agreed that the ambitions and
objectives set out in the policy remain
relevant targets against which to measure
our progress.

For further information on employee

diversity, including gender, ethnicity
and age, see p23 of our Plan A Report
marksandspencer.com/plana2015.

BOARD DIVERSITY: PROGRESS UPDATE

Maintain a level of at least 30% female
directors on the Board over the short to
medium term.
As highlighted earlier in the report, the Board
made two appointments during the year
following one retirement and one resignation.
The appointments of Helen Weir and Richard
Solomons increased the female/male
balance on the Board from 31% female
membership at the start of July last year
to 38% in April this year.

The Board remains committed to maintaining
at least a 30% female representation on the
Board, whilst ensuring that diversity in its
broadest sense remains a central feature.
However, the Nomination Committee will
continue to recommend appointments
to the Board based on merit, measured
against objective criteria and the skills and
experience the individual off ers.

The Board remains committed to
strengthening the pipeline of senior female
executives within the business and has taken
steps to ensure that there are no barriers to
women succeeding at the highest levels
within M&S.

In 2015, M&S was again listed in The Times
Top 50 Employers for Women for the ﬁ fth
year running.

Assist the development of a pipeline of
high-calibre candidates by encouraging a
broad range of senior individuals within the
business to take on additional roles to gain
valuable Board experience.
During the year, the Board continued to
focus on strengthening the pipeline of
executive talent in the Company. It
committed to learning and building on
existing programmes while introducing new
initiatives to broaden and develop the strong
talent which exists across the business.

Key initiatives include:

> A comprehensive talent review presented

to the Board annually, mapping
successional candidates and opportunities
across all senior roles within the business.

44
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

ACCOUNTABILITY

RISK IN ACTION

RISK AND THE ROLE OF INTERNAL AUDIT

Internal Audit & Risk comprises both the
Group Risk function and Internal Audit.
Group Risk facilitates and manages the risk
process that is ultimately owned by the
Group Board. Internal Audit, accountable
to the Audit Committee, uses a risk-based
approach to provide independent
assurance over the adequacy and
eff ectiveness of the control environment,
including controls related to key risks
on the Group Risk Proﬁ le. Management
actions from all of our audits are tracked
to completion and the status of these
actions is reported to the Audit Committee
to ensure that the risks identiﬁ ed are
appropriately addressed. This will, in turn,
further mitigate the risks included in our
Group Risk Proﬁ le.

The following examples illustrate how
Internal Audit supports the business
through driving improvements to our
control environment and adding value
in core business areas.

RISK: INTERNATIONAL EXPANSION

In support of the Group’s international
growth plans, Internal Audit reviewed the
process to identify and approve new store
locations, with a focus on Asia. The audit
conﬁ rmed that we have a well deﬁ ned
governance structure in place through the
Property Board, from the review of initial

new stores proposals, to the formal post-
investment reviews that measure actual
performance against initial estimates.
The audit highlighted an opportunity to
improve the quality and consistency of data
supporting these initial estimates prepared
by the in-country teams, including greater
alignment with the process for UK stores.
This would support better decision-making
and enable more eff ective comparison of
proposals across countries. The audit also
recommended more robust tracking of
actions agreed at the post-investment
reviews through to their completion, to
drive proﬁ tability.

RISK: GM CUSTOMER ENGAGEMENT

The continuous improvement of our
customers’ online experience is an
important part of driving customer
engagement. Following last year’s M&S.com
website launch, Internal Audit reviewed the
process to maintain product content online,
including narrative product descriptions,
photographic images, and the navigation
paths supporting customer searches.
Our review conﬁ rmed that robust review
mechanisms are in place to minimise the
risk of errors or omissions in product
information on the website. However,
in instances where data is missing or
incorrect, delays in resolution can impact

the timeliness with which products are
launched online. The audit recommended
clearer deﬁ nition of roles and
responsibilities between the GM teams
developing and buying the products, and
the M&S.com team managing the website
content, and a more structured “critical
path” for product launches online.

RISK: IT CHANGE

In 2014/15 new agreements were
implemented with a number of third-party
IT service providers, covering areas such as
Infrastructure and Application Support
and End User Computing. Eff ective
management of our IT service providers is
a key element of managing IT change risk,
ensuring, for example, that IT changes
are executed in line with M&S IT policies.
Internal Audit conducted a review to assess
the eff ectiveness of IT service provider
management processes. The audit provided
assurance that signiﬁ cant focus had been
placed on the successful implementation
of the new agreements. At the time of the
audit there was further work required to
clearly deﬁ ne vendor management roles
and responsibilities and to implement
monitoring against all contractual service
levels, both of which have subsequently
been addressed.

RISK INTERDEPENDENCY

We recognise that there is signiﬁ cant
interdependency between our key risks.
This diagram, based on our current Group
Risk Proﬁ le, highlights how changes to one
risk could impact on those connected to it,
and therefore on the Group Risk Proﬁ le as a
whole. By understanding the relationship
between our key risks, if they were to
materialise, we are better placed to ensure
that we are managing them appropriately
and to understand the entirety of our
risk exposure.

The highlighted risks illustrate potential
interdependent risk scenarios:

The success of our business is highly
inﬂ uenced by our ability to retain quality
individuals 10. The loss of key product
developers would impact our ability to
provide a point of diff erence against our
competitors in terms of quality, value and
innovation 3 , whilst maintaining expertise
in our Food technology team enables us to
maintain high standards of food safety and
integrity across our products and supply
chain in an increasingly challenging
environment 2 . Our customers tell us

that they trust us to do the right thing.
By maintaining these high standards of
food safety and integrity, we continue to
stand out from our competitors 3 .

Strong GM customer engagement 1 is
inﬂ uenced by our ability to maximise
product availability and provide customers
with an effi cient and reliable delivery
proposition 12. The robustness of the
online business 7 will also impact this
supply chain and logistics network, as well
as having a direct inﬂ uence on customer
engagement through the provision of a
reliable online experience.

45
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

RISK APPETITE

This year, we have placed signiﬁ cant focus
on developing our approach to risk appetite
in line with the UK Corporate Governance
Code. By expressing the types and amount
of risk we are willing to take or accept to
achieve our plan, we aim to support
consistent, risk-informed decision-making
across the Group.

Our starting point has been to deﬁ ne
draft risk appetite statements for our
principal risks, and for key decisions made
by the Board. These statements provide
parameters within which we typically
expect the business to operate, facilitating
structured consideration of the risk and
reward trade-off in the decisions we make
and in how the Group conducts business.

We have covered a wide range of risks from
GM ethical sourcing and food safety and
integrity, through to investment decisions
and business resilience. Given the varied
nature and diversity of such risks, there is no
‘one size ﬁ ts all’ approach to establishing risk
parameters. We believe that taking the
time to get this right will yield the greatest
beneﬁ ts to our business and as such we are
currently working with management to
deﬁ ne a draft set of risk statements which
we will reﬁ ne over time to ensure that they
best reﬂ ect what the Group stands for.

Providing clear parameters is important;
however, it is essential that we also foster
an environment where innovation and
entrepreneurial activities thrive. At times,

there may be merit in operating outside
of these risk parameters but proposed
exceptions will need to be escalated to
senior management for debate and
approval before activities commence,
ensuring that appropriate mitigating
controls are in place.

Once ﬁ nalised, our risk appetite statements
will be incorporated into an operating
framework, integrated with our existing
Group Risk process, and used to monitor
business activities and decision-making.
We believe we have made good progress
this year and risk appetite remains a key
priority for the Board in 2015/16.

VIABILITY STATEMENT

Changes to the UK Corporate
Governance Code, which came into eff ect
in October 2014, will require companies to
state whether they believe they will be able
to continue to operate and meet their
liabilities, taking into account their current
position and principal risks. Companies
will need to state over what period they
have made their assessment and why they
consider that period to be appropriate.
The assessed period must be longer than
12 months and relative to business planning
processes and how business performance
is measured.

On the surface this might appear to be a
simple statement to make. However, the
Code changes emphasise the need for an
interconnected approach to assessing
viability. The Board must take into account
the Company’s business model (and the
inputs which support it) and the strategy,
ensuring that these are aligned with its risk
appetite, supporting risk framework and the
controls and activities in place to mitigate
risk. The Code requires statements to be
made as a ‘reasonable expectation’ rather
than a certainty.

Whilst the Code changes are not applicable
to M&S until next year’s Annual Report,
elements of the Code change are aligned
with the principles of integrated reporting.
Both require some changes to a number
of our ways of working and, as part of our
commitment to producing an integrated
report next year, we have already made
progress. We are committed to ensuring
that our response to the Code change is
meaningful and adds value both within the
business and to our stakeholders. The work
we have in progress means that we are in a
strong position to meet the requirements
in next year’s Annual Report.

8
International
expansion

5
Information
security

1
GM customer
engagement

7
M&S.com
business
resilience

12
GM supply
chain &
logistics
network

11
Programme
& workstream
management

6
IT
change

2
Food safety
& integrity

10
Staff
retention

3
Food
competition

4
GM
margin

9
Our
people

See more in our
Risk management
section p23-25.

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46
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

ACCOUNTABILITY

AUDIT COMMITTEE
REPORT

The Committee has covered much ground this year
T
with the auditor transition, a wider and enhanced
w
assurance scope and greater risk oversight.
We plan to build on this in the year ahead.

ANDY HALFORD CHAIRMAN OF THE AUDIT COMMITTEE

INTRODUCTION

The following pages aim to open up the
doors to the boardroom and provide
insight into the Audit Committee’s activities
in the year, as well as provide an update
on the Company’s new statutory auditor
(Deloitte), their eff ectiveness and the non-
audit fees they received. It provides the
Committee’s opinion on the Annual Report
when viewed as a whole, including how it
has assessed the narrative reporting in the
front of the report to accurately reﬂ ect the
ﬁ nancial statements in the back.

This report also shares some of the insight
we received from the executive updates
presented to us from across the business.
These continue to provide the Committee
with real insight into our challenges and
aspirations. These also tell us how the risks
are being managed and mitigated, as well
as helping the Committee members
understand the progress being made
towards the strategic plan. The updates
provide us with an opportunity to

challenge, discuss and debate with the
presenters whilst sharing our experience
and providing an independent perspective.

In October 2014, the UK Corporate
Governance Code was updated. The
Committee is looking closely at the
additional requirements introduced by
the new iteration of the Code to assess
which of our processes need updating
and to ensure that we are well positioned
to report against them in future.

EFFECTIVENESS OF THE AUDIT COMMITTEE

The Board is satisﬁ ed that one member
of the Committee, Andy Halford, has
recent and relevant ﬁ nancial experience.

Independent review

The Audit Committee’s performance
was reviewed externally this year by
Fﬁ on Hague of Independent Board
Evaluation, as part of the Board
Eff ectiveness Review. The Committee
received very positive feedback from Board
members and external participants. It is
seen as open, transparent and eff ective and
Board members value the feedback to the
wider Board. In particular, the Committee is
seen to have driven some improvement in

the business response to internal audits
and the overall quality of information
provided to members. The Committee
made good progress against the 2014/15
Action Plan, establishing good ways of
working with Deloitte and improving the
risk oversight in key business areas that
were critical to performance.

Audit Committee activity

> Remained focused on the audit,

assurance and risk processes within
the business, and maintained oversight
of ﬁ nancial and other regulatory
requirements.

MEMBER ATTENDANCE

Alison Brittain

Miranda Curtis

Martha Lane Fox

MEMBER
SINCE

11 Mar 2014

4 Mar 2015

1 Jun 2007

Andy Halford (Chairman)

1 Jan 2013

Steven Holliday1
(resigned 8 July 2014)

Jan du Plessis2
(resigned 4 March 2015)

15 Jul 2004

1 Nov 2008

MAXIMUM
POSSIBLE
MEETINGS

NUMBER OF
MEETINGS
ATTENDED

%
OF MEETINGS
ATTENDED

100%

75%

1. Steven Holliday was unable to attend the meeting held on 15 May due to business commitments with National Grid.
2. Jan du Plessis was unable to attend the meeting held on 8 September due to overseas business commitments.

> Reviewed their ways of working and
assurance following appointment of
Deloitte as the new Statutory Auditor.

> Updated the process for assessing the
eff ectiveness of the external auditor.

> Reviewed the design and scope

of the assurance plan, with particular
focus on key strategic priorities.

> Received and discussed speciﬁ c

business presentations relating to
risks within the Group Risk Proﬁ le.

Action plan 2015/16:

Looking ahead, the Committee will
remain focused on the audit, assurance
and risk processes within the business,
and maintain its oversight of ﬁ nancial
and other regulatory requirements.
The action plan for 2015/16 will focus on:

> Providing oversight of key business

risks with particular focus on
International retail and ethical sourcing;

> Supporting risk work achieved in
2014/15 and deﬁ nitions of risk
appetite across the business; and

> Continuing to support the

development, design and scope of
the assurance plan, with particular
focus on key strategic priorities.

47
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

EXTERNAL AUDITORS

TENURE OF THE AUDITORS

At the AGM last year shareholders
approved the appointment of Deloitte
as the Company’s new Statutory Auditor.

The proposed change in auditor was
communicated to shareholders in
December 2013. This extended lead time
provided a smooth handover process from
PwC, the previous Statutory Auditor, and
allowed Deloitte to shadow PwC through
areas of the 2014 year end process,
giving them a good understanding of
the business.

In the early part of the year, Deloitte
underwent a thorough induction process
to enhance their understanding of the
business. This included:

> Meetings with management and

executives across the business including
a large number of individuals outside of
the ﬁ nance function (trading managers,
buyers, property team, HR and others).

> A number of site visits across the UK

and International operations; including
16 UK distribution centres, 27 UK stores

(including audit partner attendance
at a stock count), operations in nine
overseas countries (China, Hong Kong,
India, Turkey, Greece, Czech, France,
Netherlands and Ireland).

In addition, Deloitte have participated in
workshops on material and judgemental
areas prior to their ﬁ rst half year review.
The Company and Deloitte adopted a
collaborative approach throughout
the year, encouraging ongoing, open
communication on current matters as
and when they arose.

NON-AUDIT FEES

A robust auditor engagement policy
is in place and adhered to. It is
reviewed annually and disclosed on
marksandspencer.com/thecompany.

In the interest of transparency, last year
we highlighted that business forecasting
and planning indicated that fees for non-
audit work with Deloitte were likely to be
impacted by additional items, much of
which were a direct result of the transition
between audit ﬁ rms.

Deloitte had provided several non-audit
services to the business prior to their
appointment and, although many of these
were complete by March 2014, some were
expected to run over into the 2014/15
ﬁ nancial year whilst they were tendered
to another ﬁ rm. Where non-audit work is
performed by Deloitte, both the Company
and Deloitte ensure robust processes to
prevent auditor independence from being
compromised.

> The non-audit fees to audit fees ratio
for the year was 0.49:1. Of this £0.5m
related to services now transitioned
to other companies (overseas payroll,
accountancy and tax compliance
services and two other small one-off
projects).

> All non-audit work performed by Deloitte

was put to the Audit Committee for
consideration and approval, regardless
of size.

EFFECTIVENESS OF THE EXTERNAL AUDITOR

The Committee believes the independence
and objectivity of the external auditor
and the eff ectiveness of the audit process
are safeguarded and remain strong, and
recommends the reappointment of
Deloitte LLP for the 2015/16 ﬁ nancial year.

The assessment of the eff ectiveness of our
external auditor is based on a framework
divided into ten structured components
setting out the key areas of the audit process
for the Audit Committee to consider, as well
as the role that management has contributed
to an eff ective process.

The framework provides the Audit
Committee with a mechanism to encourage
management to improve standards in a
number of key areas. These include ensuring
that information is presented with a culture
of ‘right ﬁ rst time’, that the quality of
management papers is high, that robust
internal systems and controls are maintained,
that the audit process is respected and
valued by the management team, and that
proposed audit adjustments are examined
seriously. The Committee believes that this
framework provides a robust process for
monitoring auditor eff ectiveness now, and
can be measured against the ﬁ ndings of
future external auditor eff ectiveness surveys.

For 2014/15 we tailored the approach to
the assessment process enabling senior
management to answer the detailed
questions on the Company-wide audit

process, and provide the Audit Committee
with suffi cient detail to establish an informed
view on the overall effi ciency, integrity and
eff ectiveness of the external audit.

communication and challenge. The
Committee had access to copies of the
completed ﬁ nance questionnaires (sections 1
and 2 above) to assist their considerations.

Questionnaires were tailored to the
following target groups:

1. Chief Finance Offi cer and Director of
Group Financial Control A full questionnaire,
covering all areas of the audit process, was
completed based on the individual’s close
knowledge of the audit process, their
interaction with the audit partner and
taking consideration of the questionnaire
completed by the Heads of Finance for Food,
GM and International.

2. Heads of Finance: Food, GM and
International Shorter questionnaire, focusing
on the audit team, planning, challenge and
interaction with the business.

3. Audit Committee A high level set of
questions with speciﬁ c focus on the audit
partner, planning, execution, value,

WHAT WAS THE OUTCOME?

As this is Deloitte’s ﬁ rst year with M&S, the
Committee was only able to assess their
work up until the end of the ﬁ nancial period
and not the year end audit itself. However,
the period assessed included the interim
reporting cycle, providing Committee
members with early insight into the level of
challenge and scrutiny Deloitte provide.
Feedback highlighted:

> A good understanding of the business and

its values;

> A team that were robustly challenging,

whilst supportive on technical matters; and

> A joined up approach towards the
signiﬁ cant issues for discussion.

Last year’s feedback identiﬁ ed:

How has this been addressed?

The Committee Chairman was felt to have
greater visibility of the overall audit process
as a result of his one-to-one meetings with
the audit partner.

Time has been made available prior to
each Committee meeting for the Chairman
to update Committee members, where
necessary, on his discussions.

The survey itself contained a level of detail
regarding processes that the Committee
may not have or need visibility of.

The content of the survey has been
reviewed and updated. An overview of
the new process is provided above.

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48
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

ACCOUNTABILITY
AUDIT COMMITTEE REPORT CONTINUED

SIGNIFICANT ISSUES

> Updated on the key changes to the M&S
ways of working to deliver the margin
initiatives, including changes in supplier
models and a better buying model.

The Audit Committee has assessed whether
suitable accounting policies have been
adopted and whether management has made
appropriate judgements and estimates.

AUDIT COMMITTEE UPDATES

The Committee receives a detailed update
from the business at each Committee meeting,
with one or more areas represented. Business
updates are planned on a rolling 12-month
basis and reviewed at every meeting. Some of
the 2014/15 updates are listed below:

ETHICAL SOURCING

> Updated our GM ethical trading approach,
including M&S standards and auditing.

> Discussed the monitoring process,

site rankings and escalation procedures
and improvements made in this area.

> Received examples of high, medium
and low risk suppliers, noting those
that M&S works with.

> Updated on training and innovation, and

> Noted the risks and impact of external

factors and mitigating actions, including
currency volatility risk.

> Discussed ways of working with our GM
supply base and how this has changed
over time and key areas of change going
forward, including change in culture.

HEDGING POLICY

> Updated on the key areas relating to

transaction and translation exposure, the
associated level of exposure and speciﬁ c
approaches to transactional hedging.

noted the introduction of new technologies
and methodologies in this area.

> Discussed the impact of currency
on overseas franchise income.

FOOD SUPPLIER TERMS AND
CONDITIONS REPORT

> Discussed the outcome and

recommendations of the internal audit into
Food Supplier Rebates, including the types
and mechanics of Food Supplier income
and proposed improvements in the control
environment.

> Updated on the areas of greater potential
risk and opportunities for an associated
higher level of risk-based monitoring.

> Discussed the importance of accounting

standards, controls and appropriate training.

INTERNATIONAL OPERATIONS

> Updated on the risks and mitigating actions

to deliver the international strategy,
including eff ective supply of goods.

> Discussed the challenges facing the
International business including the
impact of the social-economic and
geopolitical climates.

> Updated on the international growth

strategy, including the franchise model, the
international control environment and the
performance of the India business model.

> Discussed the International food strategy,
ﬁ re, health & safety, and improvements
in business continuity.

GM SOURCING

> Updated on the improvements in

GM margin and sourcing strategy, key
drivers to delivering the target growth
in the plan, and key areas of risk.

> Updated on net asset hedging and

approach, including risk appetite and
associated limits.

M&S.COM AND CASTLE DONINGTON
DISTRIBUTION CENTRE RESILIENCE

> Updated on Castle Donington business

continuity, including contingency options
and devising a plan for e-commerce
fulﬁ lment.

> Discussed the Castle Donington

operating model, including planning
and forecasting models and resourcing,
and operating procedures.

> Updated on the M&S.com platform

resilience and noted that the resilience
solution for the M&S.com platform had
been embedded, but would be regularly
re-tested.

> Discussed the recovery testing and

the process for evaluating and testing
management judgement for unplanned
recovery.

BUSINESS CONTINUITY

> Discussed the 2014/15 performance by
key incident areas and the beneﬁ ts from
tracking incident data.

> Updated on progress made in the

International business, including legacy
joint venture countries and franchise.

> Discussed the current national threat

level, level of preparedness and key areas
for improvement, including working with
our franchise partners.

> Discussed the strategy and focus for

2015/16 with the key areas of focus being
Castle Donington and International.

Throughout the year, the ﬁ nance team has
worked closely with Deloitte to ensure that
the business is transparent and provides
the required level of disclosure regarding
signiﬁ cant issues considered by the
Committee in relation to the ﬁ nancial
statements, as well as how these issues
were addressed, whilst being mindful of
matters that may be business sensitive.

The main areas of judgement that have been
considered by the Committee to ensure that
appropriate rigour has been applied are outlined
in this section. All accounting policies can be
found in note 1 on pages 94 to 97. Where
further information is provided in the notes to
the ﬁ nancial statements, we have included the
note reference.

Each of the areas of judgement below has
been identiﬁ ed as an area of focus and
therefore the Committee has also received
detailed reporting from Deloitte.

IMPAIRMENT OF GOODWILL,
BRANDS AND TANGIBLE ASSETS

The Committee has considered the
assessments made in relation to the impairment
of goodwill, brands and tangible ﬁ xed assets,
including land and buildings and store assets.
The Committee received detailed reports
from management outlining the treatment of
impairments where we are committed to close
a store, valuation methodology, the basis for
key assumptions (discount rate and long-term
growth rate) and the key drivers of the cash
ﬂ ow forecasts. The Committee has challenged
management and is satisﬁ ed that these
are appropriate. The Committee has also
understood the sensitivity analysis used by
management in their review of goodwill and
brand impairment. In addition, the business
plans detailing management’s expectations
of future performance of the businesses are
Board approved. The Committee is satisﬁ ed
that no impairment of goodwill or brand is
required and appropriate impairment of
tangible assets has been recognised.
See notes 14 and 15 on page 110-111

INVENTORY VALUATION
AND PROVISIONING

Inventory provisions include stock in transit,
obsolete stock, net realisable value below cost
and stock loss provisions. The Committee
has examined in detail management papers
outlining the judgements made regarding
provisioning for inventory balances and is
satisﬁ ed that a suffi ciently robust process was
followed to conﬁ rm quantities of inventory
and that net realisable value of inventory
exceeds its cost at year end.

49
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

FAIR, BALANCED AND UNDERSTANDABLE

At the request of the Board, the Committee
has considered whether, in its opinion, the
2014/15 Annual Report and Financial
Statements is fair, balanced and
understandable, and whether it provides the
information necessary for shareholders to
assess the Group’s performance, business
model and strategy.

As the Chairman advised in his opening
statement, the structure of the report has
been updated this year to provide greater
focus on the key strategic messages in the
Strategic Report. Therefore, it was important
for the Committee to ensure these changes
did not dilute the level of transparency
in disclosure that we know is useful for
stakeholders, and that the business
continued to provide a clear message that
was reﬂ ective of the Company as a whole.

A broad outline of the proposed changes
to the Annual Report was given to the
Committee early in the planning process,
along with a similarly broad indication of
content. The Committee received a full draft
of the report some two weeks prior to the
meeting at which it would be requested
to provide its ﬁ nal opinion. Feedback was
provided by the Committee in advance of
that meeting, highlighting any areas where
the Committee believed further clarity was
required. The draft report was then amended
to incorporate this feedback prior to being
tabled at the Audit Committee meeting for
ﬁ nal comment and approval.

The Committee was provided with a list of the
key messages included in the Annual Report,
highlighting which were positive and which
were reﬂ ective of the challenges from the
year. A supporting document was also
provided speciﬁ cally addressing the following
listed points, highlighting where these could
be evidenced in the report.

When forming its opinion, the Committee
reﬂ ected on the information it had received
and its discussions throughout the year.
In particular, the Committee considered:

IS THE REPORT FAIR?

> Is the whole story presented and has

any sensitive material been omitted that
should have been included?

> Is the reporting on the business segments
in the narrative reporting consistent with
those used for the ﬁ nancial reporting in
the ﬁ nancial statements?

> Are the key messages in the narrative
reﬂ ected in the ﬁ nancial reporting?

> Are the KPIs disclosed at an appropriate
level based on the ﬁ nancial reporting?

PRESENTATION OF THE
FINANCIAL STATEMENTS

The Committee gave consideration to the
presentation of the ﬁ nancial statements and in
particular the presentation of the Non-GAAP
measures in accordance with the Group
accounting policy. This policy states that
adjustments are only made to reported proﬁ t
before tax where income and charges are
one-off in nature, signiﬁ cant, and distort the
Group’s underlying performance. In the
current year, management has included
proﬁ t on property disposal, one-off pension
credits, interest income on tax repayments,
restructuring costs, international store
review, fair value movement of embedded
derivatives, strategic programme costs and
the reduction in M&S Bank income for the
impact of the ﬁ nancial product mis-selling
provision within this category. The Committee
has concluded that this presentation is
appropriate. See note 5 on p100

RETIREMENT BENEFITS

The Committee has reviewed the actuarial
assumptions such as discount rate, inﬂ ation
rate, expected return of scheme assets and
mortality which determine the pension cost
and the UK deﬁ ned beneﬁ t scheme valuation,
and has concluded that they are appropriate.
The assumptions have been disclosed in the
ﬁ nancial statements. See note 11 on p104

REVENUE RECOGNITION IN
RELATION TO REFUNDS, GIFT CARDS
AND LOYALTY SCHEMES

Revenue accruals for sales returns and
deferred income in relation to loyalty scheme
redemptions and gift card and credit voucher
redemptions are estimated based on historical
returns and redemptions. The Committee
has considered the basis of these accruals,
along with analysis of historical returns and
redemption rates and has agreed with the
judgements reached by management.

SUPPLIER INCOME (NEW DISCLOSURE)

The Committee has considered the
assessment made by management over the
accounting for supplier rebate arrangements
and has been actively involved in reviewing
the Group’s controls in place in this area.
The Committee has reviewed in detail
management’s paper, which set out the
nature and value of these arrangements
and the timing of recognition in the ﬁ nancial
statements, along with the related Internal
Audit ﬁ ndings reported. The Committee is
satisﬁ ed with management’s conclusion that
there is no risk of material misstatement in the
current and previous period. In addition,
the Committee decided to enhance the
disclosures in relation to supplier income by
publishing the accounting policy and disclosing
the eff ects of supplier income on certain
balance sheet accounts. See note 17 on p112

IS THE REPORT BALANCED?

> Is there a good level of consistency

between the narrative reporting in the
front and the ﬁ nancial reporting in
the back of the report, and does the
messaging reﬂ ected in each remain
consistent when read independently
of each other?

> Is the Annual Report properly a document

for shareholders?

> Are the statutory and adjusted measures

explained clearly with appropriate
prominence?

> Are the key judgements referred to in

the narrative reporting and the signiﬁ cant
issues reported in this Audit Committee
Report consistent with the disclosures
of key estimation uncertainties and
critical judgements set out in the
ﬁ nancial statements?

> How do these compare with the risks that
Deloitte plan to include in their report?

IS THE REPORT UNDERSTANDABLE?

> Is there a clear and understandable

framework to the report?

> Are the important messages highlighted
appropriately throughout the document?

> Is the layout clear with good linkage
throughout in a manner that reﬂ ects
the whole story?

CONCLUSION

Following its review, the Committee was of
the opinion that the 2015 Annual Report
and Accounts is representative of the
year and presents a fair, balanced and
understandable overview, providing the
necessary information for shareholders to
assess the Group’s performance, business
model and strategy.

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50
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

ACCOUNTABILITY
AUDIT COMMITTEE REPORT CONTINUED

ASSURANCE AND INTERNAL CONTROL ENVIRONMENT

The Board assumes ultimate responsibility
for the eff ective management of risk across
the Group, determining its risk appetite and
tolerance as well as ensuring that each
business area implements appropriate internal
controls. The Group’s risk management
systems are designed to manage rather
than eliminate the risk of failure to achieve
business objectives, and can only provide
reasonable and not absolute assurance
against material misstatement or loss.

See p23-25 of the Strategic Report for more

information on our material risks.

See p44-45 for further information on our

risk management processes.

The key features of the Group’s internal
control and risk management systems
that ensure the accuracy and reliability of
ﬁ nancial reporting include clearly deﬁ ned
lines of accountability and delegation of
authority, policies and procedures that
cover ﬁ nancial planning and reporting,
preparing consolidated accounts, capital
expenditure, project governance and
information security, and the Group’s
Code of Ethics and Behaviours.

The Board has delegated responsibility
for reviewing the eff ectiveness of the
Group’s systems of internal control to the
Audit Committee. This covers all material
controls including ﬁ nancial, operational and
compliance controls and risk management
systems. The Committee is supported by a
number of sources of internal assurance
from within the Group in order to complete
these reviews, in particular:

1. Internal Audit & Risk The Group’s
primary source of internal assurance
remains delivery of the Internal Audit
Plan, which is structured to align with the
Group’s strategic priorities and key risks
and is developed by Internal Audit &
Risk with input from management.
Recommendations from Internal Audit &
Risk are communicated to the relevant
business area for implementation of
appropriate corrective measures, with
results reported to the Committee.

2. Business Presentations Focusing primarily
on the key risks identiﬁ ed in the Group Risk
Proﬁ le, management continues to provide
updates to the Committee on how these
are managed in individual business areas.
These are complemented by independent
reviews conducted by Internal Audit & Risk.

3. Other control agencies Responsible for
maintaining control over critical areas of
risk, the processes and controls of these
agencies are tested by Internal Audit & Risk
during relevant audits. An overview of these
agencies and the manner in which they
provide assurance to the Committee is
indicated in the table below.

The Group was compliant throughout
the year with the provisions of the UK
Corporate Governance Code relating to
internal controls and the FRC’s revised
Turnbull Guidance on Internal Control.
No signiﬁ cant failings or weaknesses were
identiﬁ ed during the Committee’s review
in respect of the year ended 28 March 2015
and up to the date of this Annual Report.

Where the Committee identiﬁ ed areas
requiring improvement, processes are in
place to ensure that the necessary action
is taken and that progress is monitored.

Further details of these processes
can be found within our detailed
Corporate Governance Statement
which is available to view in the
Corporate Governance section of
marksandspencer.com/thecompany.

Andy Halford
Audit Committee Chairman

INTERNAL ASSURANCE FRAMEWORK

Fire, Health
& Safety

COMMITTEES

Plan A*

Business
Continuity

ANNUAL UPDATE BY RELEVANT EXECUTIVE

Information
Security

Whistle Blowing
& Fraud

REPORTS

GSCOP
(Grocery Supplier
Code of Practice)

ANNUAL PAPER

Bribery

Code
of Ethics

Food Safety & Integrity

Ethical Audits

OTHER CONTROL AGENCIES

Trading Safely & Legally

AUDIT TESTING BY INTERNAL AUDIT & RISK (AS APPROPRIATE)

* Reports directly to the Group Board.

Existing direct
line of reporting

Formal updates

Updates as
requested/
appropriate

AUDIT
COMMITTEE

51
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

ENGAGEMENT

STAKEHOLDER
ENGAGEMENT

ROBERT SWANNELL CHAIRMAN

As indicated earlier in this report, in 2014 we
refreshed our core business values as part
of our drive to ensure that our business is
ﬁ t for the future. These values, Inspiration,
Innovation, Integrity and In Touch, are not
in themselves entirely new to M&S; rather,
we have placed them at the heart of our
business as the essential behaviours
through which we aim to make everyday
life better for customers, employees and
investors alike. The latter of these four
values, In Touch, complements our attitude
towards engaging with our investors as we
believe that the foundation of our strong
relationship with them lies in regular, open
dialogue. Ensuring that we are in touch
means we are always available to discuss
particular areas of the business and to
address any concerns they might have.
This year, the business had over 566 contacts
with over 316 separately identiﬁ able institutions
via one-to-one or group meetings hosted
by an executive director or our Investor
Relations team. Additionally, I hosted the
annual M&S Governance Event. Details for
this year’s event are provided in the box on
the right.

AMANDA MELLOR GROUP SECRETARY

In last year’s report, I spoke of the
importance of maintaining our trusted
relationship with our shareholders and
outlined my role, as Company Secretary,
in engaging with stakeholders on a variety
of governance matters. These remain as
intrinsically important as ever and, over
the course of the year, I have again had
discussions with a number of investors and
representative bodies. I am also tasked with
safeguarding the important relationship
with our private investors, who are some of
our most loyal customers, and for whom
we have introduced a new loyalty scheme
this year in partnership with our registrar,
Equiniti.

See more on page p128.

We must also recognise that our unique
heritage positions us to engage more widely
beyond the traditional stakeholder group.
This is well illustrated by our acclaimed
Company Archive, which was relocated in
2012 to a purpose built facility within the
campus of the University of Leeds and
houses a collection of over 70,000 items
from the Company’s past. The facility’s
award-winning ‘Marks In Time’ exhibition
opens up our heritage to customers, schools
and the wider community. It has received
thousands of visitors, including over 8,000

We held an investor event in Paris, providing
an update on our International strategy,
and a seminar on the development of our
multi-channel capabilities. Presentations
at these events are made by directors or
senior managers and off er investors more
in-depth information on the progress being
made towards our strategic goals. No new,
material ﬁ nancial information is disclosed at
these events and no additional statements
are made regarding current trading
performance. The slides from the
presentations are available to view at
marksandspencer.com/thecompany.

To understand the views and opinions of
our private investors outside of the AGM,
we engage with a number of leading client
brokers who typically represent our private
shareholder base. For an independent
view, Makinson Cowell, the capital markets
advisory ﬁ rm, continues to provide
guidance to our Investor Relations team
and undertake an annual audit of our
major investors’ views on the Company’s
management and performance. The
results are presented to the Board.

school pupils aged between 5 and 18, who
took part in a range of educational sessions.
Demand from schools is overwhelming and
is met by our Education Offi cer who works
with Heritage Ambassadors across our stores
to share the history of M&S, Plan A and the
environment, with their local community.
The archive’s education programme has
received the prestigious Sandford Award for
excellence in heritage education and Visit
England’s VAQAS award for the quality of its
visitor off er.

The relocation of the archive laid the
foundation for a broader partnership with
the University of Leeds, encouraging close
collaboration in areas ranging from design,
food technology and product innovation
to business management and law. The
partnership is also a fantastic medium
through which to articulate our values; for
example, we have worked with the University
to produce a free, online educational course
on innovation, which was a huge success
and reached almost 15,000 people. For my
part, I am proud to help strengthen this
partnership as a member of the University
Council and to promote the importance of
ethical leadership as a visiting professor of
the University’s Ethics Centre.

M&S GOVERNANCE EVENT 2015

The M&S Governance Event is a regular
ﬁ xture on the calendar and is hosted by
the Chairman, Robert Swannell. Board
attendees for 2015 will be Vindi Banga
(Senior Independent Director and Chairman
of our Remuneration Committee), Andy
Halford (Chairman of our Audit Committee),
Martha Lane Fox (Non-Executive Director
and member of our Sustainable Retailer
Advisory Board) and Mike Barry (our
Director of Plan A).

Invitations are sent to our 30 largest
shareholders, representatives from the
inﬂ uential investor advisory ﬁ rms and
industry governance specialists. The event
is an opportunity to meet and discuss the
wide range of matters considered by the
Board, both during the year and going
forward. Presentations at the meeting
will focus on the following six areas:

The Board
Remuneration

Audit
Plan A

Risk
Q&As

The presentation will be available at
marksandspencer.com/thecompany.

AGM

The 2015 AGM will be held at Wembley
Stadium in London on Tuesday 7 July
at 11am.

The Notice of Meeting sets out the
resolutions to be proposed and the
schedule for the day. A copy of the
Notice can be downloaded at
marksandspencer.com/thecompany.
The meeting will be webcast live and
a recording made available on our
website after the event.

The Board and M&S’s senior management
team will be available for shareholders
to speak to before the meeting.
Robert Swannell and the Chairs of our
Committees will be available to answer
shareholders’ questions during the
formal proceedings of the meeting.

The AGM in 2014 was well attended
and all of the proposed resolutions
were passed, with the percentage of the
Company’s share capital voted in favour
of each ranging from 88.25% to 99.99%.

See Shareholder information on p127

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52
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION

REMUNERATION
OVERVIEW

Our remuneration framework is designed
to ensure M&S is run with the skills and
expertise necessary to deliver our
long-term priorities.

VINDI BANGA CHAIRMAN OF THE REMUNERATION COMMITTEE

On behalf of the Board, I am pleased to
present our Remuneration Report for
2014/15, my ﬁ rst as the Chairman of the
Remuneration Committee. Following the
new reporting regulations adopted last year,
this report is split into two distinct sections.
Although we are not required to include the
policy report approved by shareholders
last year, the Committee has decided to
continue to do so in order to maintain full,
transparent reporting. For easy reference,
we have included a ‘summary’ of the
remuneration policy on pages 54 to 60.
Information on the policy since its approval
last year is shown on pages 60 and 61.

Our remuneration framework is designed to
support and drive our strategy, and ensure
our business is run by high-quality leaders
with the skills and expertise necessary to
deliver our long-term business priorities.

The Committee made good progress
against the action plan it set itself last year.
As planned, the Committee reviewed and
retendered the independent external
advisers to the Committee following the
appointment of Deloitte as the Company’s
auditor. After an extensive process, PwC
was appointed to advise the Committee.

REMUNERATION REVIEW AND
PROPOSED AMENDMENTS

This year, and with PwC’s support, we
undertook a thorough review of the current
executive remuneration framework and
targets to ensure they remained aligned
with the strategic business priorities and
were balanced against the Company-wide
remuneration off ering. The Committee
was particularly keen to ensure that the
incentive arrangements remained
suffi ciently motivating for management to
deliver while encouraging the behaviours,
values and ethics which underpin Fit for the
Future and the way we do business at M&S.

The timing of this review was also linked to
our requirement to renew our existing share
plans, as outlined last year. The Committee
has reviewed the Plan rules and framework,
along with changes in market practice and
feedback from stakeholders. Overall, the
Committee concluded that while the
structure of the framework remains
appropriate, it is time to refresh some
elements within the Performance Share
Plan in order to provide an even clearer ﬁ t
with the business’s current strategic
priorities, following four years of intensive
investment and transformation. The Plan
will continue to retain the metrics of EPS
and ROCE and their associated weightings
of 50% and 20% respectively.

The ﬁ nancial strategic scorecard element
will retain targets for International and
M&S.com sales as before as we continue to
grow these areas of the business, but will
now include targets for two key business
priorities of GM gross margin growth and
the delivery of free cash ﬂ ow, as set out in
the Company’s key performance indicators.
While these amendments are within the
parameters of the remuneration policy
approved by shareholders at last year’s
AGM, we value the views of, and input from,
our shareholders and therefore consulted
with them on the proposed amendments
and associated targets for the 2015/16
awards. As a result, we believe the proposed
changes and targets are timely and
appropriate and will ensure the awards
remain stretching but motivating for the
senior management team.

CLAWBACK

In updating the associated plan rules, the
Committee has also taken the opportunity
to introduce clawback in line with updated
UK corporate governance guidance.
Clawback provisions will apply to any

bonus awards in 2016 and beyond and
under any of the Company’s executive share
schemes from 2015 onwards. Details of this
are provided on page 60.

KEY POINTS FOR THE YEAR

Salary review
Executive director salaries were reviewed
and discussed by the Committee during
the year. The Committee took into account
the salary review applicable for the rest of
the organisation and directors’ individual
performance when assessing the
appropriateness of any increase. The
Committee was also mindful that the
executive directors had requested not to
receive an increase last year, despite a 2%
average pay review for the business. Further,
the annual salary review date has been
moved from January to July to ﬁ t better
with the annual performance cycle. In line
with previous years, Marc Bolland has again,
at his own request, not received an increase.
He has not received a salary increase since
his appointment in 2010. The highest
increase has been awarded to Steve Rowe
in recognition of his strong performance
over the period. However, while there is
some variation in salary increase across the
executive directors, the resulting average
salary increase awarded to the executive
directors as a group is in line with the rest
of the organisation and the market median
for the same period since the last review.
Further details of the directors’ salary
increases are shown on page 63.

Our new Chief Finance Offi cer, Helen Weir
joined the Board on 1 April, after our year
end on 28 March, and was not eligible for
this salary review. We provide full details
of her recruitment arrangement and future
pay on page 73.

53
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

REMUNERATION POLICY p54

REMUNERATION REPORT p62

IN THIS SECTION

Executive directors’
remuneration policy p54

Recruitment policy p57

Termination policy p58

Non-executive directors’
remuneration policy p59

Information on remuneration
policy since approval p60

Strategic alignment of pay p62

Performance Share Plan p66

Total single ﬁ gure remuneration p62

Directors’ share interests p68-71

Salary and beneﬁ ts p63

Annual Bonus Scheme p64

Non-executive directors’ remuneration p74

Remuneration Committee p75

Performance-related payments
The Committee also reviewed the
performance of both the business and each
director against targets set at the beginning
of the year for the Annual Bonus Scheme.
This year, the business met its corporate
Proﬁ t Before Tax (PBT) target and a bonus
was paid across the organisation.

The bonus payments outlined on page 64
reﬂ ect both the delivery against corporate
or business area targets and the progress
made by each director against their speciﬁ c
individual objectives. Underlying Group
PBT at £661.2m was above the minimum
threshold of £650m at which level payments
against ﬁ nancial targets were triggered
for directors. Performance against the
Company’s overall Plan A targets was also
taken into consideration by the Committee
in determining the resulting outturn for
each director. The Committee undertook a
rigorous review of the achievement against
ﬁ nancial and individual objectives to ensure
the level of bonus payment was appropriate
and fair given the overall business
performance. The highest bonus payment
was made to Steve Rowe, Executive
Director, Food at c.60% of maximum bonus
opportunity reﬂ ecting strong performance
in the Food business. The other bonus
payments range from 18% to around 30%
of maximum.

The Performance Share Plan awards
granted in 2012 were measured for the
three-year period up to 28 March 2015
against challenging Earnings per Share
(EPS), Return on Capital Employed (ROCE)
and Revenue targets. As a result of
performance against these targets,
executive directors will receive only 4.7%
of the original award when it vests in 2015.

This level of vesting reﬂ ects delivery against
ROCE targets; all other targets were not met.
Further details are shown on page 66.

SHAREHOLDER CONSULTATION

We remain committed to reporting openly
the details of our executive director pay
arrangements. Following constructive
shareholder feedback, we are providing
further disclosure around our bonus
targets this year. We will continue to
maintain a dialogue with investors
regarding our disclosures to ensure we
clearly communicate our arrangements
as far as possible without it impacting
our commerciality.

Together with the rest of the Board, I look
forward to hearing your views on our
remuneration arrangements and will be
available to answer any questions you
may have at the AGM.

Vindi Banga
Chairman of the Remuneration Committee

REMUNERATION COMMITTEE

The following independent non-executive directors were members of the Committee
during 2014/15:

MEMBER
SINCE

1 September 2011

MEMBER

Vindi Banga
(Chairman since
8 July 2014)

Robert Swannell1

1 March 2015

Miranda Curtis

1 February 2012

Jan du Plessis

8 September 2009

MAXIMUM
POSSIBLE
MEETINGS

NUMBER OF
MEETINGS
ATTENDED

% OF
MEETINGS
ATTENDED

100

Steven Holliday was the Chairman of the Remuneration Committee until his retirement from the Board on 8 July 2014.
Although there were no Committee meetings during this time, Steven ensured a smooth handover process and participated
in investor consultations.

Andy Halford was a member of the Remuneration Committee from 1 May 2014 to 19 June 2014, attending the maximum
possible one meeting during this time.

1. Robert Swannell attended Committee meetings by invitation prior to his appointment to the Committee on 1 March 2015.

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54
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION

REMUNERATION POLICY

This report sets out the Company’s policy
on remuneration for executive and non-
executive directors, and was approved by
shareholders at the AGM on 8 July 2014.
The policy remains unchanged from that
disclosed in recent ﬁnancial years. It took
eff ect from 8 July 2014 and may operate
for up to three years.

The Committee has therefore built in a
degree of ﬂexibility to ensure the practical
application of the policy over this period.
Where such discretion is reserved, the
extent to which it may be applied is
described.

The Company’s policy remains to attract,
retain and motivate its leaders and ensure
they are focused on delivering business
priorities within a framework designed to
promote the long-term success of M&S,
aligned with shareholder interests.

The directors’ remuneration policy has
been republished on pages 54 to 60 with
no alterations, with the exception of the
remuneration illustrations which have been
updated to accurately reﬂ ect the directors’
remuneration for 2015/16 (see page 61). In
addition, further information regarding the
implementation of this policy which does
not require shareholder approval is set out
on page 60.

EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 8 JULY 2014)

FIGURE 1: EXECUTIVE DIRECTORS’ REMUNERATION POLICY TABLE

Element

Base salary

Beneﬁts

PURPOSE
AND LINK
TO STRATEGY

To attract, retain and motivate
high calibre executives needed
to deliver our strategy and drive
business performance.

To provide market competitive beneﬁts
which drive employee engagement and
commitment in our business.

OPERATION

> Payable in cash.
> Reviewed annually by the

Committee considering a number
of factors, including:
– Salary increases awarded to

other employees in the wider
workforce; and

– Comparable salaries in

appropriate comparator groups

(e.g. major retailers, our peer

group of FTSE 25-75 companies
etc.).

> Salaries reﬂect the experience,
responsibility and contribution
of the individual and role within
the Group.

> Salaries for all employees are
typically reviewed annually on
a similar basis.

> Directors are eligible to receive
beneﬁts in line with our policies
which may include:
– A car or cash allowance;
– A driver; and
– Life assurance.

> Where appropriate, our Global/
Domestic Mobility Policy may
apply. This may include, but not be
limited to travel, relocation and tax
equalisation allowances.

> All employees, including directors,
are also off ered a number of other
beneﬁts such as employee discount
and salary sacriﬁce schemes such as
Cycle2Work.

> Directors are able to participate in a
Save As You Earn Scheme and/or a
Share Incentive Plan and any other
all-employee share schemes on the
same terms as other employees.

MAXIMUM
OPPORTUNITY

> Whilst there is no set maximum,
any increases are normally in line
with those in the wider workforce.
> Individual adjustments in excess
of this may be made outside of
this cycle at the discretion of the
Committee, where appropriate.
Such circumstances can include:
– Where the role scope has

> Whilst there is no set maximum, any
beneﬁ ts will be provided at a rate
commensurate with the market.

> Maximum participation in all-

employee share schemes is in line
with local statutory limits.

changed;

– Where comparable salaries
in the external market have
changed; or

– To apply salary progression for
newly appointed directors.

PERFORMANCE
CONDITIONS

N/A

55
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

Pension beneﬁts

Annual Bonus Scheme including Deferred
Share Bonus Plan (DSBP)

Performance Share Plan
(PSP)

To attract and retain
high calibre executives
through a commitment
to responsible, secure
retirement funding in line
with our Company values.

To drive annual proﬁtability, strategic change and individual
performance in line with our business plan.

To recognise and reward individual contributions to the way
we do business.

The deferral into shares provides alignment with shareholders’
long-term interests following the successful delivery of
short-term targets.

> Directors may participate

> Directors are eligible to participate in this non-contractual,

in the Your M&S
Pension Saving Plan (a
deﬁned contribution
arrangement) or receive
a cash supplement in lieu
of pension contributions
into this scheme.
> Directors who are

members of the Marks
& Spencer UK Pension
Scheme (a deﬁned
beneﬁt arrangement,
closed to new entrants)
will accrue beneﬁts
under that scheme.

> A maximum of 25% of
salary for executive
directors or 30% of salary
for the CEO.

discretionary Scheme.

> Payments are made subject to the satisfaction of predetermined
targets set at the start of the year, as approved by the Committee.

> Not less than 50% of any bonus earned is paid in deferred shares

under the DSBP, with the remainder payable in cash.

> Deferred shares vest after a period of three years subject to
continued service, but no further performance conditions.
> Malus provisions, good leaver and change of control provisions

apply to the deferred shares (see page 58).

> The value of any dividends during the deferred period will be

payable (see the explanatory notes on page 56).

> The Committee retains the right to exercise discretion, both

upwards and downwards, to ensure that the level of award payable
is appropriate and fair in the context of the director’s individual
performance and the Company’s overall performance. Where
exercised, the rationale for this discretion will be fully disclosed to
shareholders in the subsequent Annual Report.

> All employees are eligible to participate in a bonus scheme

measured against Group ﬁnancial/local targets and/or individual
performance. For the most senior managers, part of the bonus
earned is paid in deferred shares under the DSBP.

> A maximum annual potential of up to 200% of salary.

N/A

> Quantiﬁ able one-year performance measures and targets are

set by the Committee around ﬁ nancial and individual objectives
linked with the sustainable delivery of our business plan.

> Financial performance measures comprise at least 50% of awards
and may include, but not be limited to, Underlying Group Proﬁ t
Before Tax (PBT).

> Typically, no payment for individual objectives can be earned

unless a ‘threshold’ level of PBT has been achieved. This threshold
level is set by the Committee taking into account the previous
year’s performance and the business operating plan for the
current year.

> For threshold performance, up to 40% of maximum bonus
potential may be payable for the achievement of individual
objectives.

Measured against the key ﬁnancial drivers
of our business plan to deliver sustainable
value creation.

To encourage long-term shareholding to
retain directors, and provide greater alignment
with shareholders’ interests.

> The Company’s principal long-term incentive
scheme, ﬁrst approved by shareholders
in 2005.

> Directors are eligible to participate in this
non-contractual, discretionary Plan.
> Directors may receive an annual award
which vests after three years subject to
predetermined performance conditions.
> Malus provisions, good leaver and change of

control provisions apply (see page 58).

> The value of any dividends during the vesting
period will be payable (see the explanatory
notes on page 56).

> A signiﬁcant proportion of the most senior
managers may be invited to participate in
the PSP, on similar terms as the executive
directors.

> The maximum value of shares (at grant) which
can be made under an award to an individual
in respect of a ﬁ nancial year is 300% of salary.

> Performance is measured over a three-year
period against a balanced scorecard of
ﬁ nancial measures which currently include
Revenue, Earnings Per Share (EPS) and Return
on Capital Employed (ROCE) chosen as those
measures which support and drive top-line
and bottom-line performance in line with
business strategy.

> The measures are currently weighted

towards EPS.

> The threshold level of vesting is 20% of the

maximum.

> For performance between threshold and
maximum, awards vest on a straight-line
basis.

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56
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION POLICY
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION POLICY CONTINUED

FIGURE 2: POLICY TABLE

Executive directors may be in receipt of
awards under share plans outside of the
current remuneration framework detailed
on pages 54 to 55; these may have been

awarded upon recruitment or prior to their
appointment as an executive director.
While awards under these plans do not
form part of an executive director’s annual

remuneration, for transparency, details of
the plans are set out in the table below.

Element

PURPOSE AND
LINK TO STRATEGY

OPERATION

MAXIMUM
OPPORTUNITY

PERFORMANCE
CONDITIONS

Restricted
Share Plan
(RSP)

To enable the
recruitment of key
directors who are
necessary to the delivery
of business strategy.

> Restricted awards may be granted for the

> Whilst there is no

recruitment of directors.

> Awards vest after a restricted period, which
can vary by award but is typically between
one and three years.

> Malus provisions, good leaver and change of

control provisions apply (see page 58).
> The value of any dividends during the
restricted period will be payable (see
explanatory notes below).

maximum set in the
rules, the Committee
considers the scale
and structure
of awards on an
individual basis.

> The Committee may
choose to apply no
formal performance
conditions save for
continued service.

Executive
Share
Option
Scheme
(ESOS)

Measured against
the key drivers of our
business plan to deliver
sustainable value
creation.

To encourage long-term
shareholding to retain
directors, and provide
greater alignment with
shareholders’ interests.

> Approved by shareholders and HMRC in

2005, the Committee may choose to award
share options to directors if appropriate.
> Malus provisions, good leaver and change of

control provisions apply (see page 58).
> Options are normally exercised between
the third and tenth anniversaries of
grant, subject to the achievement of
any performance conditions set by the
Committee.

> Awards are capped
at 250% of salary in
respect of any ﬁ nancial
year of the Company
but in recruitment
circumstances awards
may be granted up to a
higher limit of 400% of
salary.

> Awards vest subject
to at least three-
year predetermined
performance
conditions.

EXPLANATORY NOTES

Laura Wade-Gery has unexercised RSP
awards which were made in connection
with her appointment to compensate her
for incentive awards that were forfeited on
cessation from her previous employer.

Steve Rowe has unexercised ESOS awards
which were made prior to his appointment
as executive director.

The Committee reserves the right to
make any remuneration payments
notwithstanding that they are not in line
with the policy set out above where
the terms of the payment were agreed
(i) before this policy was in force or (ii) at a
time when the relevant individual was not a
director of the Company and, in the opinion
of the Committee, the payment was not in
consideration of the individual becoming a
director of the Company.

For these purposes, payments include the
Committee satisfying awards of variable
remuneration and, in relation to an award
over shares, the terms of the payment are
agreed at the time the award is granted.

Awards granted under the PSP, DSBP and
RSP can be made in the form of conditional
share awards, forfeitable shares, options
or rights with the same economic eff ect.
In addition, awards may be settled in cash.
Awards may incorporate the right to receive
(in cash or shares) the value of dividends,
including any dividend tax credit, between
grant and vesting on the shares that vest.
This amount may be calculated on
a cumulative basis, assuming the
reinvestment of dividends into shares.

In the event of a variation of the Company’s
share capital or a demerger, special dividend
or other event which in the Committee’s
opinion may aff ect the price of shares, the
Committee may alter the terms of awards
and the number of shares subject to them.
The terms of awards may be amended in
accordance with the relevant plan rules
(which in the case of the PSP and the
ESOS were approved by shareholders
on 13 July 2005).

Any performance conditions applicable to
PSP and ESOS awards may be amended by
the Committee if an event occurs which
causes it to consider that the performance
condition would not achieve its original
purpose and the amended performance
condition is, in the opinion of the
Committee, no less difﬁcult to satisfy
but for the event in question.

57
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

EXECUTIVE DIRECTORS’ REMUNERATION POLICY CONTINUED

RECRUITMENT POLICY

The table below sets out the Company’s
policy on the recruitment of new executive
directors. Similar considerations may also
apply where a director is promoted within
the Board.

FIGURE 3: RECRUITMENT POLICY

In addition, the Committee in exceptional
circumstances has discretion to include any
other remuneration component or award
which it feels is appropriate, taking into
account the speciﬁc circumstances of the
individual, subject to the limit on variable
remuneration set out below. The rationale
for any such component would be

appropriately disclosed. For example, for
internal promotional appointments to the
Board, the Committee would honour any
pre-existing contractual remuneration
arrangements; these arrangements
may be outside of the policy detailed
on pages 54 to 55.

Element

Salary

RECRUITMENT
POLICY

> The Committee will take into consideration a number of factors including the current pay for other executive directors,
external market forces, skills and current level of pay at the previous employer in determining the pay on recruitment.
> For new appointments to the Board, the Committee may set the rate of pay at the lower end of the rate for other directors

with the intention of applying staged increases.

Beneﬁts

> The Committee will off er a package which is set in line with our policy to appropriately reﬂect the circumstances of the individual.

Pension
beneﬁts

Annual
Bonus
Scheme

> Maximum contribution in line with our policy for executive directors.

> Eligible to take part in the Annual Bonus Scheme with a maximum bonus of 200% of salary in line with our policy for

executive directors.

PSP

> An award of up to 300% of salary in line with our policy for executive directors.

Buy-out
awards

> Where an individual forfeits outstanding variable pay opportunities or contractual rights at a previous employer as a result
of appointment, the Committee may off er compensatory payments or buy-out awards, dependent on the individual
circumstances of recruitment, determined on a case-by-case basis.

> The Committee in its judgement normally intends that any such awards are made on a like-for-like basis and considers

issues such as the plan type, time horizons and valuation of the forfeited awards. The Committee’s intention would be to
ensure that the value awarded will be no greater than the value forfeited by the individual.

> Where appropriate, the Committee may choose to apply performance conditions to any of these awards.

SERVICE CONTRACTS

TERMINATION POLICY

It is the Company’s policy that all executive
directors have rolling service contracts
that can be terminated by the Company
giving 12 months’ notice and the employee
giving six months’ notice. The directors’
service contracts are available for
shareholder inspection at the Company’s
registered ofﬁce.

The Company may terminate the contract
of any executive director summarily in
accordance with the terms of their service
agreement, on payment in lieu of notice of
a sum equal to salary, beneﬁts and pension
as per their contractual notice entitlement
(see page 73).

The Company can make a series of phased
payments which are paid in monthly
instalments and subject to mitigation.
This mechanism allows for the amount of
any phased payments to be reduced by
the income from any alternative position
secured by the former director during the
phased payments period.

Service agreements may be terminated
without notice and without any payments
in certain circumstances, such as gross
misconduct. The Company may require the
individual to work during their notice period,
or may choose to place the individual on
garden leave. Such a decision would be
made to ensure the protection of the
Company’s and shareholders’ interests
where the individual has had access to
commercially sensitive information.

The table overleaf sets out key provisions
for directors leaving the Company under
their service contracts and the incentive
plan rules.

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58
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION POLICY
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION POLICY CONTINUED

FIGURE 4: KEY PROVISIONS UPON CONTRACT TERMINATION

Element

TERMINATION
POLICY

Salary, beneﬁts
and pension
beneﬁts

Annual Bonus
Scheme

Long-term
incentive
awards

Payment will be made up to the termination date in line with relevant contractual notice periods.

There is no contractual entitlement to annual bonus. Should a director be under notice or not in active service at either the
relevant year end or on the date of payment, awards (including any outstanding unvested deferred bonus shares) may lapse.
The Committee may use its discretion as described below to make a bonus award, which is normally prorated for time and based
on performance assessed at the end of the bonus period.

Where a director ceases to be an ofﬁcer or employee of the Group before the end of the relevant period, the treatment of outstanding
awards is determined in accordance with the plan rules.

In some circumstances, where a director leaves due to retirement, injury, ill-health, death or the sale of the director’s employing
company or business out of the Group, or any other reason at the discretion of the Committee and in accordance with the plan rules,
DSBP awards normally vest in full on cessation; PSP and ESOS awards which have been held for at least 12 months normally vest
when the level of performance has been assessed and agreed at the end of the three-year performance period. The Committee
may determine these awards vest upon cessation as permitted in the plan rules. In either circumstance, any relevant performance
conditions would still apply to the PSP and ESOS awards and, unless the Committee determines otherwise, would be time prorated.

Repatriation

Where a director has been recruited to the Company from overseas, the Company may pay for repatriation.

Legal
expenses and
outplacement

The Company may reimburse for reasonable legal fees in the event a director leaves by mutual consent. It may also pay for
professional outplacement services in these circumstances.

The Company’s policy toward exit payments
allows for a variety of circumstances
whereby a director may leave the business.
In some cases, where deemed suitable, the
Committee reserves the right to determine
exit payments, where the director leaves
by mutual agreement. In all circumstances,
the Committee does not intend to ‘reward
failure’ and will make decisions based on the
individual circumstances. The Committee’s
objective is that any such agreements are
determined on an individual basis and are
in the best interests of the Company and
shareholders at that time, and reﬂect the
director’s contractual and other legal rights.

CORPORATE EVENTS

In the event of a change of control or
winding-up of the Company, unvested share
awards will normally vest on the date that
the Board notiﬁes participants of such an
event. The number of shares which may
vest under awards in these circumstances
will be subject to any relevant performance
conditions and, in the case of PSP awards,
unless the Committee determines
otherwise, time prorating.

In the event of a demerger, special dividend
or other event which, in the opinion of the
Committee aff ects the price of shares, the
Committee may allow some or all of an
award to vest.

MALUS PROVISIONS

All share awards granted in 2013 onwards
are subject to malus provisions. These
provisions allow the Committee, in its
absolute discretion, to determine at any
time prior to the vesting of an award to
reduce the number of shares, cancel an
award or impose further conditions on
an award in circumstances which the
Committee considers such action to be
appropriate. Such circumstances may
include, but not be limited to, a material
misstatement of the Company’s
audited results.

CONSIDERATION OF WIDER
WORKFORCE PAY

The Committee monitors and reviews the
eff ectiveness of the senior remuneration
policy and has regard to its impact and
compatibility with remuneration policies
in the wider workforce.

The Committee is provided throughout
the year with information detailing pay in
the wider workforce which gives additional
context for the Committee to make
informed decisions. The Director of
Human Resources advises the Committee
of the approach which will be adopted
with the forthcoming UK pay review and
the Committee then considers the

executive directors’ pay review in line
with these arrangements.

The Director of Human Resources consults
on all executive director bonus objectives
and advises the Committee on how, and the
extent to which, these may be cascaded
throughout the Company. In approving
the budget for the annual bonus, the
Committee reviews all bonus costs for
the Company against the operating plan.
The Committee also reviews and approves
any PSP awards made to executive directors
and directors below the Board prior to
their grant.

The Committee also receives updates on a
variety of employee engagement initiatives
which form part of our normal employee
engagement practices. The annual ‘Your
Say’ employee survey asks employees
about the fairness and reasonableness of
employee pay and beneﬁts. Any comments
made through this survey or through
our network of elected employee
representatives via our Business
Involvement Groups are taken into account.
The Head of Reward & Global Mobility
annually provides these employee
representatives with an explanation of the
Company’s reward principles and director
pay arrangements during the year, and is
available to answer questions at this time.

59
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

EXECUTIVE DIRECTORS’ REMUNERATION POLICY CONTINUED

CONSIDERATION OF
SHAREHOLDER VIEWS

The Committee is committed to an
open and transparent dialogue with its
shareholders on the issue of executive
remuneration. Where appropriate, the
Committee will actively engage with
shareholders and shareholder
representative bodies, seeking views
which may be taken into account when
making any decisions about changes to
the directors’ remuneration policy.

The Committee seeks the views of the
largest shareholders when considering
making any signiﬁcant changes to the
remuneration policy; this may be done
annually or on an ad hoc basis, dependent
upon the issue. The Committee annually
engages in a process of investor
consultation, which is typically in written
format, but may be through face-to-face
meetings etc., if considered useful. The
Committee Chairman is available to answer
questions at the Annual General Meeting
(AGM) and the answers to speciﬁc questions
are posted on our website.

As part of our socially responsible reporting
strategy, an annual meeting is held and
the consideration of views on a variety of
topics, including executive pay, is taken
into account.

During the year, the Committee consulted
with shareholders regarding the minor
amendments made to the implementation
policy as detailed on page 76.

NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 8 JULY 2014)

Policy table The table below sets out our policy for the operation of non-executive director fees and beneﬁts at the Company.

FIGURE 5: NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY TABLE

Element

Chairman’s
fees

Non-executive
director basic fee

Additional
fees

Beneﬁts

PURPOSE
AND LINK TO
STRATEGY

To provide a fair fee at a
level that attracts and
retains a high-calibre
Chairman.

To provide a fair basic fee at a
rate that attracts and retains
high-calibre non-executive
directors.

To provide compensation
to non-executive directors
taking on additional Board
responsibility.

To facilitate the execution of
responsibilities and duties
required by the role.

OPERATION

> Paid in equal monthly
instalments; may be
made in cash and/or
shares.

> Fees are determined
by the Remuneration
Committee.
> Fees reﬂect the

time commitment,
demands and
responsibility of the
role.

> Reviewed annually,
taking into account
market practice
in appropriate
comparator groups,
e.g. major retailers, our
peer group of FTSE
25-75 companies, etc.

> Fees are paid in equal
monthly instalments
and may be made in
cash and/or shares.
> Fees are determined
by the Chairman and
executive directors.
> The fee level recognises
the scope of the role
and time commitment
required.

> Reviewed annually
taking into account
market practice
in appropriate
comparator groups
(e.g. major retailers, our
peer group of FTSE 25-
75 companies, etc.).

> The maximum

aggregate fees for non-
executive directors,
including the Chairman,
is £750,000 p.a., as set
out in the Company’s
Articles of Association.

> Additional fees are paid
for extra responsibilities
undertaken by non-
executive directors for the
role of Board Chairman, a
Committee Chairman or
the Senior Independent
Director role.

> In addition to the annual
fee, the Chairman is
entitled to the use of
a car and driver.
> In line with other
employees, the
Chairman and non-
executive directors
receive employee
product discount.
No other beneﬁts are
provided.

> The Chairman and
non-executive
directors do not
participate in pension
or performance-related
schemes.

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60
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION POLICY
CONTINUED

NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY CONTINUED

FIGURE 6: RECRUITMENT POLICY

The table opposite sets out the recruitment
policy for non-executive directors.

AGREEMENTS FOR SERVICE

All non-executive directors, including the
Chairman, have an agreement for service
for an initial three-year term; these are
available for shareholder inspection at the
Company’s registered ofﬁce. The Chairman
has an agreement for service which requires
six months’ notice by either party. Non-
executive directors’ service agreements
may be terminated by either party giving
three months’ notice. In line with the UK
Corporate Governance Code, all non-
executive directors are subject to annual
re-election by shareholders at our AGM.

Element

Fees

RECRUITMENT
POLICY

The Committee takes into account a number of factors when determining
an appropriate fee level for the Chairman. The CEO and executive directors
determine appropriate fee levels for the non-executive directors. This
consideration includes the time commitment and responsibility of the
individual role and market practice in appropriate comparator groups.

Beneﬁ ts

The Company may off er beneﬁ ts to the Chairman set in line with our policy
as detailed on page 59.

INFORMATION ON REMUNERATION POLICY SINCE APPROVAL

Since the approval of the remuneration
policy at the AGM held on 8 July 2014,
a number of changes concerning the
implementation of the approved policy
have been made. These amendments do
not require prior shareholder approval
and do not change the current approved
remuneration policy.

PERFORMANCE SHARE PLAN/
EXECUTIVE SHARE OPTION SCHEME

The Company’s Performance Share Plan
(PSP) and Executive Share Option Scheme
(ESOS) were ﬁ rst approved by shareholders
in 2005. As such, they are due to expire in
2015 and will be updated with replacement
plans if approved by shareholders at the
2015 AGM. The terms of the proposed new
plans are principally in line with those of
the 2005 Plans and are fully in line with the
policy approved by shareholders at the
2014 AGM. Further details of the proposed
replacement plans are set out in the
Notice of Meeting and on page 67.

CLAWBACK PROVISIONS

M&S is committed to ensuring its
remuneration arrangements motivate
participants to strive for exceptional
performance whilst also protecting
shareholder value from the Company
taking unnecessary risks. In line with
updated guidance in the UK Corporate
Governance Code, clawback provisions will
be introduced as part of the replacement
share scheme rules at the 2015 AGM. Upon
introduction, these clawback provisions will
apply to payments made under the 2015/16
Annual Bonus Scheme and any future
bonus schemes operated by M&S. Awards
made under any of the Company’s other
executive share schemes (including the
Performance Share Plan) in 2015 and
onwards will similarly be subject to clawback
provisions. These provisions enable the
Committee, in its absolute discretion, to
reclaim awards paid to individuals for up to
three years after the respective vesting or
payment date (or up to two years in the case
of PSP awards) where speciﬁ ed events occur.

The speciﬁ ed events include gross
misconduct or where a material
misstatement of the Company’s ﬁ nancial
statements has occurred. Clawback may be
eff ected, among other means, by requiring
the transfer of shares, payment of cash, or
reduction of awards.

All outstanding share awards made since
2013 will continue to be subject to the
malus provisions which were introduced
at that time and as reported on page 58
of this report. These malus provisions will
be renewed as part of the replacement
share plan rules.

UNVESTED AWARDS UNDER
RESTRICTED SHARE PLAN AND
EXECUTIVE SHARE OPTION SCHEME

As shown on page 56, Laura Wade-Gery and
Steve Rowe had unexercised Restricted
Share Plan and Executive Share Option
Scheme awards respectively, when the
remuneration policy was ﬁ rst implemented.
In both instances, these outstanding awards
have now been exercised during the year.

61
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

INFORMATION ON REMUNERATION POLICY SINCE APPROVAL CONTINUED

APPLICATION OF THE REMUNERATION POLICY

The charts below provide an illustration
of what could be received by each of the
executive directors in 2015/16.

These charts are illustrative as the actual
value which will ultimately be received will
depend on business performance in the
year 2015/16 (for the cash element of the
bonus scheme) and in the three-year period

to 2017/18 (for the PSP), as well as share price
performance to the date of the vesting of
the share element of the bonus scheme
and PSP awards in 2018.

FIGURE 7: REMUNERATION ILLUSTRATIONS

DIRECTOR

Marc Bolland
£000

6,000

4,000

2,000

£1,287

100%

Fixed

John Dixon
£000

Patrick Bousquet-Chavanne
£000

£5,674

43%

34%

23%

£2,749
18%

35%

47%

6,000

4,000

2,000

Target

Maximum

£719

100%

Fixed

£1,538
18%
35%

47%

Target

Steve Rowe
£000

6,000

4,000

2,000

6,000

4,000

2,000

£3,544

4,000

43%

35%

22%

2,000

Maximum

£1,708
18%
36%

46%

Target

£790

100%

Fixed

£738

100%

Fixed

£1,573
18%
35%

47%

Target

Helen Weir
£000

Laura Wade-Gery
£000

6,000

£766

100%

Fixed

£1,651
18%
36%

46%

Target

£3,421

4,000

43%

35%

22%

2,000

Maximum

£731

100%

Fixed

£1,585
18%
36%

46%

Target

KEY

ASSUMPTIONS

Fixed remuneration
Includes all elements of ﬁ xed
remuneration:

– Base salary (eff ective 1 July 2015,
as shown in the table on page 63);

– Pension beneﬁ ts (using the salary
supplement policy on pages 54
to 55); and

– Beneﬁ ts (using the value for 2014/15
included in the single ﬁ gure table
on page 62. For Helen Weir, the
average value of beneﬁ ts of the other
executive directors has been used
for the purpose of this calculation.

Annual Bonus Scheme (ABS)
Represents the potential value of the
annual bonus for 2015/16. Half of any
bonus would be deferred into shares
for three years and this is included in
the value shown. No share price growth
is assumed.

PSP
PSP represents the potential value of
the PSP to be awarded in 2015, which
would vest in 2018 subject to the
performance against the targets
disclosed on page 67. No share price
growth is assumed.

BASIS OF CALCULATIONS

Fixed remuneration only. No vesting
under the Annual Bonus Scheme
and PSP.

Includes the following assumptions
for the vesting of the incentive
components of the package:

– Annual Bonus Scheme: 50% of

maximum; and

– PSP: 20% of maximum.

Fixed

Target

Maximum Includes the following assumptions

for the vesting of the incentive
components of the package:

– Annual Bonus Scheme: 100%

of maximum; and

– PSP: 100% of maximum.

£3,176

43%

34%

23%

Maximum

£3,244

43%

34%

23%

Maximum

£3,292

43%

35%

22%

Maximum

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62
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION

REMUNERATION REPORT

EXECUTIVE DIRECTORS’ REMUNERATION

The Remuneration Committee annually
reviews the senior remuneration framework
and considers whether the existing incentive
arrangements remain strongly challenging
in the context of the business strategy,
current external guidelines and a range of
internal factors including the remuneration
policy and pay arrangements throughout
the rest of the organisation. The table below
shows the performance measures used in

FIGURE 8: STRATEGIC ALIGNMENT OF PAY

FINANCIAL OBJECTIVES

KPI

the 2014/15 incentive schemes and how
these align with the key performance
indicators detailed on pages 14-15. As
shown, there is a strong linkage between
the key performance indicators which
are integrated in the directors’ incentive
schemes. This ensures that directors are
clearly aligned and motivated to deliver
the strategy.

Looking ahead, for 2015/16, the executive
directors’ incentive arrangements will
include objectives against free cash ﬂ ow,
GM UK LFL sales, GM gross margin, M&S.com
sales growth and International sales and
operating proﬁ t. Further details are set out
on pages 65 and 67.

See KPIs on p14-15

Grow group revenue

Group revenue

Increase earnings & returns

Underlying Group PBT

NON-FINANCIAL OBJECTIVES

ROCE

EPS

KPI

Improving product sustainability

Products with Plan A qualities

INCENTIVE SCHEME

PSP

Annual Bonus Scheme

PSP

INCENTIVE SCHEME

Annual Bonus Scheme

STRATEGIC OBJECTIVES

KPI

INCENTIVE SCHEME

Driving growth

Improve proﬁ tability

International and M&S.com revenue

PSP

International operating proﬁ t and GM/Food gross margin

Annual Bonus Scheme

FIGURE 9: TOTAL SINGLE FIGURE REMUNERATION (audited)

See Policy table on p54-55

Marc Bolland

Patrick Bousquet-Chavanne1

John Dixon

Steve Rowe

Alan Stewart2

Laura Wade-Gery

Year

2014/15

2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
2013/14

Salary

Beneﬁ ts3

£000

975

975
525
380
600
600
525
525
162
579
552
552

£000

41
36
29
25
46
42
53
6
34
21
26

Total
Bonus4
£000

Total PSP
vested5
£000

Pension
beneﬁ ts6
£000

596

0
222
0
217
0
653
0
0
0
219
0

193

259
59
–
111
143
60
77
0
146
107
167

293

293
131
95
150
150
131
131
40
145
138
138

Total

£000

2,076

1,568
973
504
1,103
939
1,411
786
208
904
1,037
883

1. The amounts shown for 2013/14 reﬂ ect that Patrick Bousquet-Chavanne joined the Board on 10 July 2013.
2. The amounts shown for 2014/15 reﬂ ect that Alan Stewart resigned from the Board on 10 July 2014.
3. Beneﬁ ts include the value of car allowance and intrinsic value of SAYE in addition to the taxable value of car, driver and life assurance, as applicable to each director and as described

on page 63.

4. Half of any award will be deferred into Company shares for a period of three years. Further details of the 2014/15 Annual Bonus Scheme are shown on pages 64 and 65.
5. The value of awards vesting in 2013/14 has been restated to reﬂ ect the actual value of dividend equivalents and share price at the time of vesting. The value of awards vesting in 2014/15

has been estimated based on the three-month average share price from 2 January 2015 – 27 March 2015 as these awards do not vest until after the end of the ﬁ nancial year. This value also
includes the anticipated value of dividend equivalents which will be payable in July 2015 (and January 2016 for Patrick Bousquet-Chavanne). These estimated ﬁ gures will be restated in
next year’s report.

6. Pension beneﬁ ts comprise the value of cash provided in lieu of participation in the Your M&S Pension Saving Plan.

63
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

The following sections set out additional disclosure regarding each of the components set out in the previous ‘single ﬁgure’ table.

SALARY (audited)

When reviewing salary levels, the Committee
takes into account a number of internal
and external factors, including Company
performance during the year, external
market data and the salary review principles
applied to the rest of the organisation
to ensure a consistent approach.

No increases were awarded during the year.
The Committee also moved the annual pay
review date from January to July to better
align pay to year end performance and
hence these changes are being made after
18 months.

With eff ect from 1 July 2015, the following
salary increases will be made to the executive
directors, except for Marc Bolland.

Marc Bolland has, at his own request,
not received a salary increase since his
appointment in 2010. He has again proposed
not to receive any increase in July 2015.
The agreed increases take account of the
signiﬁ cant performance of Steve Rowe in
ensuring the continued success of the Food

business and Patrick Bousquet-Chavanne’s
excellent progress with marketing and
embedding the new global M&S brand.
Neither director has received a salary
increase since their respective
appointments to the Board; these increases
reﬂ ect both this fact in addition to their
signiﬁ cant contributions to the increased
performance of M&S.

The average increase made to the executive
directors is 3.0% (excluding Helen Weir)
which is in line with the average increase
awarded to the wider UK workforce over
the same 18-month period.

The table below details the executive
directors’ salaries as at 28 March 2015 and
those which will take eff ect from 1 July 2015.

FIGURE 10: EXECUTIVE DIRECTORS’ SALARIES

Marc Bolland

Patrick Bousquet-Chavanne

John Dixon

Steve Rowe

Laura Wade-Gery

Helen Weir1

Current
annual
salary
£000

Annual salary
as of
1st July 2015
£000

Change
in salary
% increase

975

525

600

525

552

590

975

546

612

557

569

590

–

1. Helen Weir’s current annual salary is from her date of appointment on 1 April 2015.

BENEFITS (audited)

PENSION BENEFITS (audited)

Each executive director receives a car or
cash allowance and is off ered the beneﬁt
of a driver. The Company also provides
each director with life assurance. Executive
directors receive employee product
discount and are eligible to participate
in salary sacriﬁce schemes such as
Cycle2Work in line with all other employees.

With the exception of the Chief Executive
Ofﬁcer (CEO), executive directors receive
a 25% salary supplement in lieu of
membership of the Your M&S Pension
Saving Plan. The CEO receives a supplement
of 30% of salary.

John Dixon and Steve Rowe are deferred
members of the Marks & Spencer UK
Pension Scheme. Details of the pension
accrued by them during the year ended
28 March 2015 are shown below.

FIGURE 11: PENSION BENEFITS

Accrued
pension
entitlement
as at
year end1
£000

138

147

Normal
retirement
age

Additional
value
on early
retirement
£000

Increase
in accrued
value
£000

Increase
in accrued
value
(net of
inﬂation)
£000

Transfer
value of
total
accrued
pension
£000

3,204

3,442

John Dixon

Steve Rowe

1. The accrued pension entitlement is the deferred pension amount that the director would receive at age 60 if they left

the Company on 28 March 2015. The Listing Rules require this to be disclosed excluding inﬂ ation.

All transfer values have been calculated on the basis of actuarial advice in accordance with the current Transfer Value

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

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64
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

ANNUAL BONUS SCHEME

ANNUAL BONUS SCHEME FOR 2014/15 (audited)

For 2014/15, directors had the opportunity
to earn an award of up to 200% of salary, with
half of any award being payable in deferred
shares. Performance measures used to
determine the entitlement to any payment
were set against challenging proﬁ tability
targets and individual objectives.
Proﬁ tability targets formed 60% of any
bonus award with the remaining 40%
payable for the achievement of stretching
measures relevant to each director’s
individual business accountabilities. For
those executive directors with business
unit responsibility, proﬁ tability measures
were equally split between Group PBT
and proﬁ t measures for their business
unit. As a result of his additional
International responsibilities, from July
2014, Patrick Bousquet-Chavanne’s
corporate element was calibrated to include
International operating proﬁ t from this time.
For Marc Bolland, proﬁ tability was wholly
measured against Group achievement. Each
director also had three individual objectives,
together accounting for 40% of the total
bonus. These objectives were set against
their key areas of focus and accountability
which reﬂ ect the primary drivers of short
and medium-term strategic success of the
Company.

See Figure 12.

Plan A (our environmental and ethical plan)
is an integral driver of the way we do
business; success against Plan A targets
underpinned the entire 2014/15 bonus

scheme. The Committee assessed
performance for each executive director
against all corporate and individual
measures. The Committee was also satisﬁ ed
that each director continued to ensure that
Plan A remained a major focus of the ways
of working at M&S and that the subsequent
performance supported this.

See Plan A Report for more detail.

M&S is committed to transparent
remuneration reporting within the context
of operating in a highly competitive
market. As disclosed in the 2013/14 Report,
and following feedback from shareholders
after the publication of last year’s report,
the Committee has reviewed its disclosure
regarding annual bonus targets. The
Committee will continue to assess the
extent to which speciﬁ c targets are
commercially sensitive, determining to
disclose wherever possible.

Figure 13 below illustrates each director’s
achievement against corporate proﬁ tability
and individual targets for the 2014/15
Scheme. As described in last year’s report,
in order to ensure the aff ordability of the
Scheme, no bonus payment may be made
without ﬁ rst achieving a threshold level of
PBT. Underlying PBT outturn for the ﬁ nancial
year was £661.2m which was above the
target set to trigger payments under both
elements of the Scheme. As a result of
performance, directors’ payments were
between 18% and 62% of maximum bonus
opportunity. Business unit proﬁ tability
targets, not being disclosed elsewhere
in the Annual Report, are deemed too
commercially sensitive to disclose. An
indication of achievement against the
respective targets is shown instead in
Figure 13 below.

FIGURE 12: EXAMPLES OF INDIVIDUAL OBJECTIVES 2014/15

Marc Bolland

Patrick Bousquet-Chavanne

John Dixon

Steve Rowe

Organisational
development
New platform
publishing house
GM sales

Food sales

Laura Wade-Gery

M&S.com market share

M&S.com
performance
International Lingerie
& Beauty stores
GM gross margin

Food proposition
development
New distribution
centre service delivery

FIGURE 13: ANNUAL BONUS SCHEME 2014/15

PROFITABILITY TARGETS

INDIVIDUAL OBJECTIVES

TOTAL PAYMENT

GROUP PBT

BUSINESS UNIT PROFIT

Target & performance

Achievement

Performance Achievement

DIRECTOR

Min

Max

Actual

%
bonus

%
salary

%
bonus

%
salary

%
bonus

%
salary

£000

Marc Bolland

£650m £732m £661m 12.4% 24.8%

–

18.2% 36.3%

61.1% 596

Patrick Bousquet-Chavanne

£650m £732m £661m 7.7% 15.4%

0.0% 0.0%

13.4% 26.9%

42.3% 222

John Dixon

£650m £732m £661m 6.2% 12.4%

1.9% 3.8%

10.0% 20.0%

36.2% 217

Steve Rowe

£650m £732m £661m 6.2% 12.4%

30.0% 60.0%

26.0% 52.0% 124.4% 653

Laura Wade-Gery

£650m £732m £661m 6.2% 12.4%

0.0% 0.0%

13.6% 27.3%

39.7% 219

Performance assessment key

Below Threshold

Threshold > Target

Target > Stretch

Stretch or above

Plan A underpin targeted objectives

65
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

ANNUAL BONUS SCHEME FOR 2015/16

The Annual Bonus Scheme has been
structured to drive proﬁ tability and
individual performance with performance
being measured against Underlying Group
Proﬁt Before Tax (PBT), business area proﬁ t
and individual objectives. During the year
the Remuneration Committee undertook
a thorough review of the bonus scheme.
It concluded that a similar approach would
continue to remain appropriate with only
minor changes to the 2015/16 Scheme
being required to ensure that the Scheme
continues to drive behaviours and
performance needed in line with the
priorities for the future success of
the business.

Maximum bonus opportunity will remain
unchanged at 200% of salary. Up to 60% of
an award is payable for achieving stretching
one-year corporate ﬁ nancial targets and
up to 40% of an award is measured against
individual performance.

The achievement of proﬁ tability targets
remains essential to M&S’s success and so
30% of any bonus award will be dependent
upon achievement of Group PBT targets.
The remaining 30% of the corporate
element of the Scheme will be set against
free cash ﬂ ow targets for the CEO and CFO
and against business unit proﬁ tability
targets for the remaining executive
directors. Changes made to the Scheme

for 2015/16 provide for even greater
alignment between the remuneration
framework and the wider strategic priorities
of M&S. The inclusion of free cash ﬂ ow for
the CEO and CFO recognises the increased
importance of cash generation in the
business post the period of heavy
transformative capital investment.

Individual performance will continue to be
measured independently of any ﬁnancial
targets. Individual objectives will be based
on three strategic priorities speciﬁ c to each
director’s business area. These measures are
set against quantiﬁ able targets which the
Committee deems to be important in the
delivery of short and medium-term goals
which will also provide a robust foundation
for the long-term sustainable success of
the business. In setting the individual
objectives for the forthcoming year, the
Committee has been mindful of ensuring
an overarching balance with ﬁ nancial
targets as well as customer and employee-
focused metrics.

No individual objective element of the
bonus can be earned unless a ‘threshold’
level of PBT has been achieved, subject to
the Committee’s overall assessment of the
Company’s performance during the period.
This maintains the important principle
that below a deﬁned level of ﬁnancial
performance, no bonus will be earned.

FIGURE 14: ANNUAL BONUS SCHEME TARGETS 2015/16

The table below shows further details of
the structure of this Scheme and provides
examples of the individual objectives which
each director will be measured against.

As with last year’s Scheme, the Committee
will judge overall performance against
our ecological, ethical and behavioural
achievements to ensure consistency with
M&S’s values. Success towards Plan A
targets and the M&S values which all
employees, including executive directors,
are required to uphold will underpin the
entire Scheme. Achievement against these
will be assessed by the Committee at the
end of the ﬁ nancial year. The Committee,
in its absolute discretion may use its
judgement to adjust overall payments
accordingly.

See Figure 14.

DEFERRED SHARE BONUS PLAN
(audited)

Currently 50% of any bonus award is
compulsorily deferred into nil-cost options/
conditional shares. These deferred awards
vest after three years subject to continued
employment as well as malus and, for
awards made from 2015/16 onwards,
clawback provisions. As no bonus was
payable last year, no deferred shares were
awarded during 2014/15.

DIRECTOR

Marc Bolland

PROFITABILITY TARGETS

INDIVIDUAL OBJECTIVES

GROUP
PBT

%
bonus

FREE
CASH
FLOW1

BUSINESS
UNIT
PROFIT

%
bonus

Examples of measures

30%

–

40% GM gross margin

People

Patrick Bousquet-Chavanne

30%

John Dixon

Steve Rowe

Laura Wade-Gery

30%

–

30%

40% Customer engagement

International LFL sales

strategy

30%

40% GM UK LFL sales

GM4 programme

30%

40% Food UK sales

Quality and innovation
of Food proposition

30%

40% New distribution centre

Customer journey

stability

Helen Weir

30%

–

40% Operating costs

End-to-end supply chain

1. Pre dividend and post returns.

Plan A and cultural values underpin

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66
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

PERFORMANCE SHARE PLAN

The Performance Share Plan (PSP) is the
primary long-term incentive for executive
directors and senior managers.

The Committee believes that long-term
share awards help retain and reward
executives for the delivery of long-term
business goals.

Following the remuneration review
undertaken during the year, the Committee
determined that the current Plan supports
the delivery of the long-term business
strategy. Minor amendments to
the performance measures and targets
however were felt necessary to better align
with the delivery of the operating plan.

FIGURE 15: PSP AWARDS MADE IN 2014/15

Marc Bolland

Patrick Bousquet-Chavanne

John Dixon

Steve Rowe

Laura Wade-Gery

These amendments will apply for awards
made in 2015/16.

As the current Plan was approved by
shareholders ten years ago, approval for a
replacement Plan is being sought at the 2015
AGM. The key rules of the Plan are set out in
the separate Notice of Meeting with further
details provided on page 67 of this report.
Proposed changes under the replacement
PSP are in line with the remuneration policy
approved by shareholders on 8 July 2014
with the addition of clawback provisions as
outlined on page 60, the introduction of
which does not require a change to the
remuneration policy.

PSP AWARDS MADE IN 2014/15 (audited)

In June 2014, executive directors were
awarded nil-cost options/conditional shares
of 250% of salary. These awards vest subject
to performance measured against EPS,
ROCE and Revenue, each measured
independently. Performance is measured
over the three-year period to the end of the
2016/17 ﬁnancial year. To the extent to which
performance is met, awards will vest on
23 June 2017. Further details of PSP awards
made in 2014/15 are detailed below.

See Figure 15.

Basis of award

250% of salary

Face value of award1
£000

End of performance period2

“Lorem ipsum dolor sit am
consectetur adipist enim ad m
culpa qui offi cia deserunt mollit

est laborum.”

2,437

1,312

1,500

1,312

1,380

01/04/2017

1. The face value of awards is calculated as the number of nil-cost options/conditional shares awarded multiplied by the average mid-market share price on the ﬁ ve dealing days prior to the
date of grant. For this year, the share price was calculated as being £4.37, being the average share price between 16 June 2014 and 20 June 2014. Further details of these awards are shown
in the table on pages 70 and 71.

2. For threshold performance, 20% of the shares awarded will vest.

FIGURE 16: PSP AWARDS VESTING IN 2014/15 (audited)

For directors in receipt of PSP awards
granted in 2012, the awards will vest on
1 June 2015, (5 December 2015 for
Patrick Bousquet-Chavanne) based on

three-year performance over the period
to 28 March 2015. Performance has been
assessed and it has been determined
that 4.7% of the award will vest.

Details of performance against the speciﬁc
targets set are set out in the table below.

Threshold performance targets1

Maximum performance targets1

Actual performance achieved

Percentage of maximum achieved

Cumulative
EPS2

Performance target

Revenue (£ 2014/15)

ROCE (%)

UK3

Multi-channel4

International5

50% of award

20% of award

10% of award

Total vesting6

110p

130p

99.7p

0.0%

15.0%

18.5%

15.2%

4.7%

£8,900m

£800m

£1,300m

£9,600m

£1,000m

£1,700m

£8,470m

£776m

£1,065m

0.0%

4.7%

1. 20% of an award vests for threshold performance with full vesting for achieving or exceeding maximum performance. Vesting is a straight line between these two points.
2. Actual performance achieved has been re-stated to Pre-IAS 19 values, to allow a like-for-like measurement against targets.
3. Excluding Multi-channel.
4. Net of VAT/gross of returns.
5. Excluding Multi-channel/including Republic of Ireland.
6. Details of the number of shares awarded to each director in 2012 are shown in the table on pages 70 and 71. As described above, 4.7% of these awards will vest.

The estimated value of these awards, including the dividend equivalents, are set out in the single ﬁ gure table on page 62.

67
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

PERFORMANCE SHARE PLAN CONTINUED

PSP AWARDS TO BE MADE IN 2015/16

Subject to shareholder approval of the
replacement Plan at the forthcoming AGM,
awards of nil-cost options/conditional
shares will be made in July 2015.

As described earlier, following a thorough
review of the directors’ remuneration
arrangements during the year, the
Committee concluded that no signiﬁ cant
changes to the current Plan were required.
Awards will continue to be assessed against
a number of measures and the maximum
value of awards at the time of grant will
remain at 300% of salary.

The Committee will continue to reference
awards at 250% of salary and it is intended
that executive directors will receive awards
in 2015/16 of 250% of salary.

Performance measures have historically
been set as those which appropriately
reﬂect the key drivers of the strategic plan
which takes into account shareholder value
as well as bottom-line and top-line growth.

During its review, the Committee
determined that EPS and ROCE
performance measures continue to
appropriately reﬂ ect the key drivers of
shareholder value for M&S and as such no
changes to the measures and weightings
have been proposed; 70% of awards made
in 2015/16 will continue to be measured
against stretching EPS and ROCE targets.

The remaining 30% of awards will be set
against a ﬁ nancial strategic scorecard of
measures designed to drive growth in key
areas for the business. Measurement of
performance against International and
M&S.com sales will be retained as before,
as M&S continues to grow these areas of the
business. This focus will continue to support
the delivery of the strategy to be a leading
international, multi-channel retailer. Sales
growth targets for awards to be made in
2015/16 have been calibrated to be as
challenging as the equivalent revenue
targets for 2014/15.

During the review process, the Committee
determined that the inclusion of two
additional, equally weighted performance
measures would further enhance the
alignment between the PSP and the
business’s current strategic priorities. As
such, three-year cumulative free cash ﬂ ow
and UK GM gross margin targets are being
introduced in the 2015/16 Plan. These
measures reﬂ ect the increased importance
of cash generation and the desire to return
cash to shareholders in addition to the
absolute importance of long-term
improvements in GM for the sustainable
success of the Company. The four targets
of International and M&S.com sales, UK GM
gross margin and three-year cumulative
free cash ﬂ ow are consistent with the top
four strategic priorities communicated to
shareholders for the coming year.

As with all other PSP measures, targets for
cash ﬂ ow and gross margin have been set
such that they are stretching yet achievable
for the delivery of consistent, ambitious
long-term performance.

Measures and targets for the 2015/16 PSP
awards are disclosed in the table below. At
this time, targets relating to UK GM gross
margin are deemed by the Board to be
too commercially sensitive to disclose.
All targets, including GM gross margin will
be fully retrospectively disclosed in the
report relating to the end of the relevant
three-year performance period.

At the end of the performance period,
Committee judgement will be applied in
determining overall vesting on the four
measures comprising the strategic
ﬁ nancial scorecard element of the PSP.
The Committee, in using its judgement,
will take into account the extent of
outperformance or underperformance
of the targets, their relative importance in
the circumstances, and any other matters
it sees ﬁ t.

FIGURE 17: PERFORMANCE TARGETS 2015/16

% vesting1

Annualised
EPS growth
(%)

ROCE
(%)

International
sales growth2
(%)

M&S.com
sales growth3
(%)

UK GM
gross margin

Cumulative
free cash ﬂ ow4

% of award

50% of award

20% of award

7.5% of award

Financial strategic scorecard

Threshold performance

Maximum performance

20%

100%

5.0%

12.0%

15.0%

16.5%

5.0%

15.0%

11.0%

18.0%

–

£1,350m

£1,650m

1. Vesting is a straight line between ‘threshold’ and ‘maximum’ performance.
2. Excluding M&S.com/including Republic of Ireland.
3. Net of VAT and post store returns.
4. Pre dividends and returns.

S
S
E
N
S
U
B
R
U
O

E
C
N
A
M
R
O
F
R
E
P
R
U
O

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F

68
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 18: PERFORMANCE CONDITIONS FOR OUTSTANDING PSP AWARDS (audited)

The details of outstanding PSP awards are
set out in the table on pages 70 and 71.

These awards vest subject to the extent that
the following three-year performance
conditions are met.

2013/14 Award

Threshold performance

Maximum performance

2014/15 Award

Threshold performance

Maximum performance

% vesting1

Annualised EPS
growth (%)

Performance target

Revenue (£)5

ROCE (%)

UK2

Multi-channel3

International4

% of award

50% of award

20% of award

10% of award

20%

100%

20%

100%

5.0%

12.0%

5.0%

12.0%

15.0%

18.5%

15.0%

16.5%

£8,900m

£9,600m

£900m

£1,100m

£1,400m

£1,800m

£8,900m

£9,600m

£1,100m

£1,300m

£1,400m

£1,800m

1. Vesting is a straight line between ‘threshold’ and ‘maximum’ performance.
2. Excluding Multi-channel.
3. Net of VAT/gross of returns.
4. Excluding Multi-channel/including Republic of Ireland.
5. Measured at the end of the 2015/16 for 2013/14 award and at the end of 2016/17 for 2014/15 award.

SHARESAVE (Save As You Earn) (audited)

As outlined in the remuneration policy on
pages 54 to 55, executive directors may
participate in ShareSave, the Company’s
Save As You Earn scheme, on the same

basis as all other eligible employees.
Marc Bolland, Patrick Bousquet-Chavanne,
John Dixon and Steve Rowe all participate
in existing schemes, saving the maximum

of £250 per month. Further details of
the Scheme are set out in note 13 to the
ﬁnancial statements on pages 108 to 109.

FIGURE 19: DIRECTORS’ SHAREHOLDINGS (audited)

The table below sets out the total number of
shares held at 28 March 2015 or date of
retirement by each executive director
serving on the Board during the year.

There have been no changes in the current
directors’ interests in shares or options
granted by the Company and its subsidiaries
between the end of the ﬁnancial year and

19 May 2015. No director had an interest in
any of the Company’s subsidiaries at the
statutory end of the year.

Marc Bolland

Patrick Bousquet-Chavanne

John Dixon

Steve Rowe

Alan Stewart1

Laura Wade-Gery

Unvested

With performance
conditions

Without
performance conditions

Shares owned
outright2

611,436

2,000

328,196

165,447

51,622

172,955

Performance
Share Plan

1,865,329

747,499

1,118,672

833,598

29,461

1,047,603

Deferred Share
Bonus Plan

Restricted
Share Plan

Vested but
unexercised3

196,790

26,195

124,704

83,210

91,126

174,258

39,789

1. Shareholding at 10 July 2014, the date Alan Stewart resigned from the Board. Please refer to footnote 3 on page 71 for further information on Alan Stewart’s shareholdings.
2. Includes shares held by connected persons.
3. Comprises all unexercised awards under these Plans.

69
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 20: SHAREHOLDING REQUIREMENTS (audited)

All executive directors are required to hold
shares equivalent in value to a minimum
percentage of their salary within a ﬁve-year
period from their date of appointment.
Shareholding targets were increased last
year to 250% of salary for the CEO and 150%
of salary for other executive directors.
Similar guidelines of 100% of salary also
apply to directors below Board level.

The chart below shows the extent to
which each director has met their target
shareholding as at 28 March 2015.

For the purposes of the requirements, the
net number of unvested shares awards
not subject to performance conditions is
included and is reﬂ ected in the chart below.
The Committee is satisﬁ ed that the current

Marc Bolland

Patrick Bousquet-Chavanne

109%

John Dixon

Steve Rowe

Laura Wade-Gery

212%

223%

level of shareholding requirements is
suffi ciently robust, providing an appropriate
level of investment in M&S for each director.
The Committee will continue to keep
this issue under review and will amend
accordingly if necessary.

389%

418%

Key

Shares owned outright

Vested and unexercised shares

Unvested DSBP/RSP shares

Shareholding requirement

SHARE CAPITAL & DILUTION

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. 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 dilution limits set by The Investment
Association in respect of all share plans (10%
in any rolling ten-year period) and executive
share plans (5% in any rolling ten-year
period) as at 28 March 2015 was as follows:

FIGURE 21: ALL SHARE PLANS

Actual

Limit

5.76%

10%

FIGURE 22: EXECUTIVE SHARE PLANS

Actual

Limit

S
S
E
N
S
U
B
R
U
O

E
C
N
A
M
R
O
F
R
E
P
R
U
O

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F

70
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 23: EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (audited)

Maximum
receivable at
30 March 2014
(or date of
appointment)

Date
of grant

Awarded
during
the year

Exercised
during
the year

Lapsed
during
the year

Maximum
receivable at
28 March 2015
(or date of
retirement)

Share
price
on date
of grant
(p)

Share
price on
date of
exercise
(p)

Option
price
(p)

Exercise period/
vesting date

Marc Bolland

Performance Share Plan1

25/07/11

687,200

18/06/12

749,769

24/06/13

557,780

–

23/06/14

– 557,780

–

Deferred Share Bonus Plan

09/06/11

162,263

– 162,263

52,227

634,973

–

0.0 354.7 469.9

–

749,769

557,780

0.0

325.1

437.0

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

– 23/06/17 – 22/06/24

–

0.0 378.4 469.9

–

101,968

94,822

0.0

325.1

437.0

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

–

319.0

397.6 439.5

–

2,222 405.0 505.6

– 01/01/17 – 30/06/17

18/06/12

101,968

24/06/13

94,822

25/11/10

21/11/13

2,821

2,222

–

2,821

–

2,358,845 557,780 217,311 634,973 2,064,341

Patrick Bousquet-Chavanne2

Performance Share Plan1

05/12/12

230,735

24/06/13

216,421

–

23/06/14

– 300,343

Deferred Share Bonus Plan

24/06/13

26,195

Restricted Share Plan

13/09/12

174,258

21/11/13

2,222

649,831 300,343

SAYE

Total

John Dixon

Performance Share Plan1

25/07/11

380,603

18/06/12

432,174

24/06/13

343,249

–

23/06/14

– 343,249

Deferred Share Bonus Plan

09/06/11

98,039

18/06/12

24/06/13

21/11/13

62,233

62,471

2,222

–

230,735

216,421

389.4

437.0

300,343

–

437.0

26,195

174,258

437.0

368.0

–

05/12/15

24/06/16

24/06/17

24/06/16

13/09/15

2,222 405.0 505.6

– 01/01/17 – 30/06/17

950,174

28,925

351,678

–

0.0 354.7 438.5

–

98,039

–

432,174

343,249

0.0

325.1

437.0

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

– 23/06/17 – 22/06/24

–

0.0 378.4 438.5

–

62,233

62,471

0.0

325.1

437.0

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

2,222 405.0 505.6

– 01/01/17 – 30/06/17

–

1,380,991 343,249 126,964

351,678 1,245,598

SAYE

Total

SAYE

Total

71
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

Maximum
receivable at
30 March 2014
(or date of
appointment)

Date
of grant

Awarded
during
the year

Exercised
during
the year

Lapsed
during
the year

Maximum
receivable at
28 March 2015
(or date of
retirement)

Share
price
on date
of grant
(p)

Share
price on
date of
exercise
(p)

Option
price
(p)

Exercise period/
vesting date

Steve Rowe

Performance Share Plan1

25/07/11

205,243

18/06/12

232,912

24/06/13

300,343

–

Deferred Share Bonus Plan

23/06/14

09/06/11

18/06/12

41,844

32,753

– 300,343

Executive Share Option Scheme 20/07/04

31,699

24/06/13

50,457

21/11/13

2,222

–

41,844

–

31,699

–

SAYE

Total

Alan Stewart3

15,598

189,645

–

0.0 354.7 424.4

–

232,912

300,343

0.0

325.1

437.0

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

– 23/06/17 – 22/06/24

–

0.0 378.4 453.2

–

32,753

50,457

0.0

325.1

437.0

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

–

347.0

347.0 453.2

–

2,222 405.0 505.6

– 01/01/17 – 30/06/17

897,473 300,343

89,141

189,645

919,030

Performance Share Plan1

25/07/11

387,651

18/06/12

436,019

24/06/13

331,235

–

23/06/14

– 331,235

Deferred Share Bonus Plan

09/06/11

18/06/12

24/06/13

24/11/11

SAYE

Total

Laura Wade-Gery4

39,789

53,194

56,310

3,488

–

Performance Share Plan1

25/07/11

444,037

18/06/12

416,025

24/06/13

315,789

–

23/06/14

– 315,789

Deferred Share Bonus Plan

18/06/12

37,442

Restricted Share Plan4

25/07/11

126,225

24/06/13

53,684

25/07/11

77,677

–

– 126,225

–

77,677

358,190

29,461

0.0 354.7

– 25/07/14 – 22/09/14

436,019

331,235

–

0.0

325.1

437.0

–

39,789

0.0 378.4

– 09/06/14 – 22/09/14

53,194

56,310

3,488

–

0.0

325.1

437.0

– 258.0 322.4

–

416,025

315,789

37,442

53,684

0.0

325.1

437.0

325.1

437.0

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

– 23/06/17 – 22/06/24

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

–

0.0 354.7

471.0

0.0 354.7

471.0

–

1,307,686 331,235

– 1,569,671

69,250

33,746

410,291

–

0.0 354.7

471.0

–

Total

1,470,879 315,789 237,648

410,291 1,138,729

1. The number of options/conditional shares shown under the Performance Share Plan is the maximum (100%) number that could be receivable by the executive director if the performance
conditions are fully met. The 2011 award vested in July 2014 at 7.6%. 4.7% of the 2012 award will vest in June 2015 (December 2015 for Patrick Bousquet-Chavanne) as set out on page 66.

2. Patrick Bousquet-Chavanne’s awards are structured as conditional shares. His RSP award was made prior to his appointment to executive director.
3. Alan Stewart resigned from the Board on 10 July 2014 and left the Company on 22 September 2014. Details of his leaving arrangements are set out on page 73. Awards made in 2012, 2013
and 2014 and his SAYE award all lapsed on leaving the Company. For transparency, these are shown in the ‘lapsed during the year’ column. PSP and DSBP awards made in 2011 vested and
were exercisable until he left the Company. These were exercised after he resigned from the Board (but before he left the Company) and so do not appear in the ‘exercised during the
year’ column.

4. Laura Wade-Gery’s RSP award was made in connection to her appointment to executive director to compensate her for incentive awards that were forfeited on cessation from her

previous employer.

The aggregate gains of directors arising in the year from the exercise of options granted under the PSP, DSBP, RSP, ESOS and SAYE totalled £2,976,739.

The market price of the shares at the end of the ﬁ nancial year was 530.0p; the highest and lowest share price during the ﬁ nancial year were 542.0p and 383.9p respectively.

S
S
E
N
S
U
B
R
U
O

E
C
N
A
M
R
O
F
R
E
P
R
U
O

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F

72
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 24: PERFORMANCE AND CEO REMUNERATION COMPARISON

This graph illustrates the Company’s
performance against the FTSE 100 over
the past six years. The FTSE 100 has been
chosen as the appropriate comparator
as M&S is a constituent of this index.
The calculation of TSR is in accordance
with the relevant remuneration
regulations. As required by the new
regulations, the table below the TSR
chart sets out the remuneration data for
directors undertaking the role of CEO
during each of the last six ﬁnancial years.

300

250

200

150

100

Marks and Spencer Group plc
FTSE 100 Index
Source: Thomson Reuters

CEO single ﬁgure of remuneration
(£000)

Annual bonus payment
(% of maximum)

PSP vesting
(% of maximum)

28 March 2009

3 April 2010

29 March 2011

2 April 2012

30 March 2013

29 March 2014

28 March 2015

CEO1

2009/10

Marc Bolland

Stuart Rose

Marc Bolland

–

4,294

–

Stuart Rose

97.00%

2010/11

5,998

269

45.80%

57.40%

2011/12

3,324

–

2012/13

2,142

–

2013/14

1,568

–

2014/15

2,076

–

34.00%

42.50%

0.00%

30.55%

–

Marc Bolland

–

31.96%

0.00%

7.60%

4.70%

Stuart Rose

0.00%

–

1. Marc Bolland was appointed CEO on 1 May 2010. His single ﬁ gure for 2010/11 includes recruitment awards made to him at that time to compensate him for incentive awards forfeited on

cessation from his previous employer. Sir Stuart Rose undertook the role of CEO from 31 May 2004 to 30 April 2010.

FIGURE 25: PERCENTAGE CHANGE IN CEO’S REMUNERATION

The table opposite sets out the change in
the CEO’s remuneration (i.e. salary, taxable
beneﬁts and annual bonus) compared with
the change in our UK-based employees.
This group has been chosen as the majority
of our workforce is UK-based. As can be
seen, average FTE salaries for UK employees
increased by 2%, in excess of that provided
to the CEO.

CEO

UK employees (average per FTE)

% change 2013/14 – 2014/15

Base salary

Beneﬁ ts

Annual bonus1

0.0%

2.0%

-46.3%

0.1%

–

1. As no bonus was paid to either the CEO or UK employees in 2013/14 a year-on-year comparison is not possible. The CEO

received a bonus of £596,000 for 2014/15 which is detailed in full in the single ﬁ gure table on page 62. A bonus was payable
to all eligible UK employees for 2014/15.

FIGURE 26: RELATIVE IMPORTANCE OF SPEND ON PAY

Total employee pay

Dividends

Underlying Group Proﬁt Before Tax

2013/14
£m

1,410.9

273.6

622.9

2014/15
£m

1406.2

280.7

661.2

% change

-0.3

2.6

6.1

In line with the new regulations, the table
opposite illustrates the Company’s
expenditure on pay in comparison to proﬁts
before tax and distributions to shareholders
by way of dividend payments.

The ﬁgures are as set out on pages 90, 103
and 104 in the ﬁ nancial statements to the
accounts. Total employee pay is the total
pay for all Group employees. Underlying
Group Proﬁt Before Tax has been used as a
comparison as this is the key ﬁnancial metric
which the Board consider when assessing
Company performance.

73
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 27: SERVICE AGREEMENTS

As detailed on page 57 of the remuneration
policy, all executive directors have rolling
contracts which may be terminated by the
Company giving 12 months’ notice or the
director giving six months’ notice.

Marc Bolland

Patrick Bousquet-Chavanne

John Dixon

Steve Rowe

Laura Wade-Gery

Date of appointment Notice period/unexpired term

01/05/2010

12 months/6 months

10/07/2013

12 months/6 months

09/09/2009

12 months/6 months

01/10/2012

12 months/6 months

04/07/2011

12 months/6 months

EXECUTIVE CHANGES TO THE BOARD DURING 2014/15

Directors appointed to the Board
There were no directors joining the Board
during the year.

Directors retiring from the Board
Alan Stewart Chief Finance Offi cer,
resigned from the Board on 10 July 2014 and
left the Company after a period of garden
leave on 22 September 2014. In line with his
contractual arrangements, Alan received
no further payments. Any awards which
had not vested prior to the date he left the
business lapsed at this time.

Payments to past directors (audited)
As reported last year, Steven Sharp retired
from the Board on 9 July 2013 and had two
outstanding awards under the Performance

Share Plan. In accordance with the rules of
the Performance Share Plan, 7.6% of his 2011
award (35,085 shares) vested in May 2014.
Steven has one outstanding award. After
the completion of the performance period,
it has been determined that 4.7% of the
original 2012 award (24,396 shares) will vest
in May 2015.

Payments for the loss of offi ce (audited)
There were no payments for loss of ofﬁce
made to directors during the year.

Changes to the Board in 2015/16
Helen Weir joined the Board on 1 April 2015
as Chief Finance Offi cer. Her remuneration
is in line with the approved recruitment
policy detailed on page 57 and approved

in July 2014. On appointment, Helen’s basic
annual salary is £590,000. Helen will receive
beneﬁ ts in line with those provided to the
other executive directors. In the ﬁ rst year,
she will receive a payment totalling £188,500
to compensate for the annual diff erential
in contractual pension that she will forfeit
to join M&S. This payment will be made
in 12 equal instalments, payable monthly.
No share awards have been granted to
Helen in relation to her appointment
although she is eligible for a PSP grant in
July 2015 in accordance with the annual
remuneration policy.

Director

Marc Bolland

Company

Manpower Inc.1

The Coca-Cola Company2

Patrick Bousquet-Chavanne

Brown-Forman3

Fee4
£000

109

171

1. Fees up until 11 February 2015 when Marc Bolland retired from the Manpower Inc. Board. Fees were paid in cash and stock

units in US dollars.

2. Marc Bolland joined the Board of The Coca-Cola Company on 18 February 2015. Fees are paid in cash and stock units in

US dollars and are for the period from his appointment to 28 March 2015.

3. Patrick Bousquet-Chavanne’s fees are paid in cash and stock units in US dollars.
4. For the purposes of this table, cash payments have been converted to UK sterling using the rolling average £:$ exchange
rates for the respective periods. Stock units have been converted to UK sterling using the appropriate £:$ spot rate at the
end of the relevant period.

FIGURE 28: EXTERNAL 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
the Company. The policy is for the individual
director to retain any fee.

The table opposite sets out the details
for these fees earned up to 28 March 2015.
For Marc Bolland, fees for Manpower Inc.
relate to the period to 11 February 2015, the
date at which he retired from Manpower Inc.
Board. Marc Bolland joined the Board of The
Coca-Cola Company on 18 February 2015.
Fees are paid quarterly in cash and shares
and so the fees shown in the table represent
those earned in respect of the period
18 February 2015 to 28 March 2015. These
were paid on 1 April 2015.

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74
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

NON-EXECUTIVE DIRECTORS’ REMUNERATION

FIGURE 29: NON-EXECUTIVE DIRECTORS TOTAL SINGLE FIGURE REMUNERATION (audited)

As detailed in the remuneration policy on
page 59, non-executive directors receive
fees reﬂective of the time commitment,
demands and responsibilities of the role.

The table opposite details the fees paid to
the non-executive directors for 2014/15
and 2013/14.

There was no increase to the fees during
the year.

Robert Swannell

Vindi Banga1

Alison Brittain2

Miranda Curtis

Martha Lane Fox

Andy Halford3

Steven Holliday4

Jan du Plessis5

Basic fees

£000

Additional
fees
£000

380

Year

2014/15

2013/14

2014/15

2013/14

2014/15

2013/14

2014/15

2013/14

2014/15

2013/14

2014/15

2013/14

2014/15

2013/14

2014/15

2013/14

Beneﬁ ts

Total

£000

468

471

100

1. The amounts shown reﬂ ect that Vindi Banga was appointed as Remuneration Committee Chair on 8 July 2014

and Senior Independent Director from 4 March 2015.

2. The amounts shown for 2013/14 reﬂ ect that Alison Brittain joined the Board on 1 January 2014.
3. The amounts shown for 2013/14 reﬂ ect that Andy Halford was appointed as Audit Committee Chair on 1 July 2013.
4. The amounts shown for 2014/15 reﬂ ect that Steven Holliday retired from the Board on 8 July 2014.
5. The amounts shown for 2014/15 reﬂ ect that Jan du Plessis retired from the Board on 4 March 2015.

FIGURE 30: NON-EXECUTIVE DIRECTORS SHAREHOLDINGS (audited)

The non-executive directors are not
permitted to participate in any of the
Company’s incentive arrangements. The
non-executive directors are required to
build and maintain a shareholding of at least
2,000 shares in the Company within two
months of their appointment to the Board.

Figure 30 opposite details the shareholding
of the non-executive directors who
served on the Board during the year as at
28 March 2015 (or upon their date of retiring
from the Board).

There have been no changes in the current
non-executive directors’ interests in shares
in the Company and its subsidiaries
between the end of the ﬁnancial year
and 19 May 2015.

Robert Swannell
Vindi Banga
Alison Brittain
Miranda Curtis
Martha Lane Fox

Andy Halford
Steven Holliday1
Jan du Plessis1

Number of shares held2

120,000
2,000
2,596
5,500
20,100

21,000
2,500
20,000

1. Shareholding as at the date of retirement from the Board.
2. Includes shares held by connected persons.

FIGURE 31: NON-EXECUTIVE DIRECTORS’ AGREEMENTS FOR SERVICE

Non-executive directors have an agreement
for service for an initial three-year term
which can be terminated by either party
giving three months’ notice (six months’
for the Chairman).

The table opposite sets out these terms
for all current members of the Board.

Robert Swannell

Vindi Banga

Alison Brittain

Miranda Curtis

Martha Lane Fox

Andy Halford

Date of appointment Notice period/unexpired term

23/08/2010

6 months/6 months

01/09/2011

3 months/3 months

01/01/2014

3 months/3 months

01/02/2012

3 months/3 months

01/06/2007

3 months/3 months

01/01/2013

3 months/3 months

75
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NON-EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

NON-EXECUTIVE DIRECTORS’ CHANGES TO THE BOARD DURING 2014/15

Directors appointed to the Board
No directors were appointed to the Board
during the year.

Directors retiring from the Board
Steven Holliday Chairman of the
Remuneration Committee, retired from
the Board on 8 July 2014. There were
no payments for loss of offi ce payable
to Steven.

Jan du Plessis Senior Independent Director,
retired from the Board on 4 March 2015.
There were no payments for loss of offi ce
payable to Jan.

Directors changing roles within the Board
Vindi Banga became Chairman of the
Remuneration Committee on 8 July 2014,
upon Steven Holliday’s retirement from the
Board. From this date, Vindi received
additional fees in accordance with the
responsibility of this role. In addition, Vindi
undertook the role of Senior Independent
Director upon Jan du Plessis’ retirement
from the Board. Vindi received additional
fees in accordance with the responsibility of
this role, as described in the remuneration
policy on page 59.

From his appointment as Senior
Independent Director, he no longer received
additional fees for the Remuneration
Committee chairmanship role.

Changes to the Board in 2015/16
Richard Solomons joined the Board on
13 April 2015 as a non-executive director.
Richard is a member of the Nomination
Committee. In accordance with the non-
executive director fees policy, Richard
receives an annual fee of £70,000.

REMUNERATION COMMITTEE

REMUNERATION COMMITTEE REMIT

The role of the Remuneration Committee
is to make recommendations regarding
the senior remuneration strategy and
framework to the Board to ensure the
executive directors and senior management
are appropriately rewarded for their
contribution to the Company’s
performance, taking into account the
ﬁnancial and commercial position of
the Company.

KEY RESPONSIBILITIES

> Setting a senior strategy that ensures the

most talented leaders are recruited,
retained and motivated to deliver results.

> Reviewing the eff ectiveness of the senior
remuneration policy with regard to its
impact.

> Considering the appropriateness of

the senior remuneration policy when
reviewed against the policy and
arrangements throughout the rest
of the organisation.

> Determining the terms of employment

and remuneration for executive directors
and senior managers including
recruitment and termination
arrangements.

> Approving the design, targets and
payments for all annual incentive
schemes that include executive directors
and senior managers.

> Agreeing the design, targets and annual
awards made for all share incentive plans
requiring shareholder approval.

> Assessing the appropriateness and

subsequent achievement of
performance targets relating to
any share incentive plan.

In line with its remit, the Committee
considered a number of key matters
during the year.

> Review of director shareholding

guidelines and achievement of these
for each executive director.

REMUNERATION COMMITTEE
AGENDA FOR 2014/15

Regular items
> Approval of the Directors’ Remuneration
Report for 2013/14 and review of the AGM
voting outcome for the report.

> Annual review of all executive directors’
and senior managers’ base salaries and
beneﬁ ts in line with Company policy and
approval of any salary increase.

> Review of achievement of Annual Bonus

Scheme proﬁ t against target.

> Review of achievement of executive

directors’ individual objectives for 2014/15.

> Review of the design and targets for the
2015/16 Annual Bonus Scheme including
the approval of individual objectives
for directors.

> Review and approval of all awards made
under the PSP taking into account the
total value of all awards made under
this plan.

> Half year and year end review of all share

plan performance against targets.

> Approval of the vesting level of the

2012/13 PSP awards.

> Consideration of the performance

measures and targets to be applied to
the 2015/16 PSP awards.

> Clear articulation of the Committee’s

reasoning and consideration for
vesting and payment levels to
executive directors.

> Signiﬁ cant consideration of institutional

investors’ current guidelines on executive
compensation.

> Consideration of remuneration

arrangements for the wider workforce.

> Assessment of the external environment

surrounding the Company’s current
remuneration arrangements.

> Consideration of external market

developments and best practice in
remuneration.

> Review of Committee performance

in 2014/15.

> Review of Committee terms of reference.

Other items
> Discussion of the application of the
new reporting regulations to ensure
transparent and clear disclosure
to shareholders.

> Review of, and agreement to new share

plan rules in anticipation of the expiration
of current Plan rules.

> Review of, and agreement to,

remuneration packages for new
senior managers.

> Induction of new Remuneration

Committee Chairman.

Note: The full terms of reference
for the Committee can be found
on the Company’s website at
marksandspencer.com/thecompany

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76
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

REMUNERATION COMMITTEE CONTINUED

REMUNERATION COMMITTEE ACTION
PLAN 2015/16

> Ensuring the continued strategic

alignment of the directors’ incentive
arrangement with business strategy.

> Debating the appropriateness of the

senior remuneration framework in the
context of the rest of the organisation
and the external environment.

> Ensuring that the remuneration policy
continues to be appropriate to attract
and retain exceptional senior leaders as
required.

> Assessing and mitigating against

potential risk in the senior remuneration
framework.

COMMITTEE ADVISERS

In carrying out its responsibilities, the
Committee is independently advised by
external advisers. The Committee was
advised by Deloitte and PwC during the
year. Both Deloitte and PwC are founding
members of the Remuneration Consultants
Group and voluntarily operate under the
code of conduct in relation to executive
remuneration consulting in the UK.
The code of conduct can be found at
remunerationconsultantsgroup.com.
Further, the Committee reviews the advice
it receives and determines whether it is
appropriately independent.1

PwC were appointed by the Committee as
its independent advisers in 2014 following a
rigorous and competitive tender process.
PwC provides independent commentary
on matters under consideration by the
Committee and updates on legislative
requirements, best practice and market

practice. PwC’s fees are typically charged on
an hourly basis with costs for work agreed
in advance. During the year, PwC charged
£119,800 for Remuneration Committee
matters. Deloitte’s fees were similarly
charged on an hourly basis. Their fees for
Remuneration Committee matters for
the period to 28 March 2015 were £28,500.
PwC has provided tax, consultancy and
risk consulting services to the Group in
the ﬁ nancial year.

The Committee also seeks internal support
from the CEO, Group Secretary, Director of
Human Resources and Head of Reward &
Global Mobility as necessary. All may attend
the Committee meetings by invitation but
are not present for any discussions that
relate directly to their own remuneration.

The Committee also reviews external survey
and bespoke benchmarking data including
that published by New Bridge Street (the
trading name of Aon Hewitt Limited), KPMG,
PwC and Towers Watson.

REMUNERATION COMMITTEE
STAKEHOLDER ENGAGEMENT

The Committee is committed to ensuring
that executive pay remains competitive,
appropriate and fair in the context of the
external market, Company performance
and the pay arrangements of the wider
workforce. In collaboration with the Head of
Reward & Global Mobility, the Committee
gives employees, through employee
representatives, the opportunity to raise
questions or concerns regarding the
remuneration of the executive directors.
During the year, the Head of Reward &
Global Mobility met with employee
representatives to discuss the directors’

pay arrangements. Details of the directors’
pay arrangements were discussed in the
context of the reward framework for the rest
of the organisation and external factors; no
concerns were raised. Upon reporting back
on the discussions and outcome of this
meeting, the Committee is satisﬁed that the
pay arrangements for 2014/15 and 2015/16
remain appropriate for M&S.

SHAREHOLDER CONSULTATION

The Committee is committed to a
continuous, open and transparent dialogue
with shareholders on the issue of executive
remuneration. The Committee held a
Governance Event in June 2014 to review
and debate remuneration with shareholders
and representative bodies. In addition,
Vindi Banga met with a number of investors
as part of the handover process and
ahead of consulting with the Company’s
largest shareholders on proposals for
the 2015/16 remuneration arrangements
for executive directors.

SHAREHOLDER SUPPORT
FOR THE 2013/14 DIRECTORS’
REMUNERATION REPORT

At the Annual General Meeting on 8 July
2014, 99.18% of shareholders voted in favour
of approving the Directors’ Remuneration
Report for 2013/14 with 98.27% of
shareholders approving the remuneration
policy. The Committee believes this
illustrates the strong level of shareholder
support for the senior remuneration
framework.

The table below shows full details of
the voting outcomes for the 2014/15
Directors’ Remuneration Report and
Remuneration Policy.

FIGURE 32: VOTING OUTCOMES FOR 2013/14 REMUNERATION REPORT

Votes for

% votes for

Votes against

% votes against

Votes withheld

1,022,785,815

1,012,469,256

99.18

98.27

8,489,388

17,840,854

0.82

1.73

8,102,103

9,040,797

Remuneration report

Remuneration policy

APPROVED BY THE BOARD

Vindi Banga Chairman of the Remuneration Committee
London, 19 May 2015

This remuneration policy and these remuneration reports have been prepared in accordance with the relevant provision of the Companies Act 2006 and
on the basis prescribed in the large and medium-sized Companies and Groups (Accounts and Reports) (Amendments) Regulations 2013 (‘the Regulations’).
Where required, data has been audited by Deloitte and this is indicated appropriately.
1. On the appointment of Deloitte as external auditors, a transition plan was put in place while a new Committee advisor was selected. This ensured that the remuneration advice provided

by Deloitte was consistent with ethical auditing guidelines and that their independence as auditors was not compromised.

77
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

PENSIONS GOVERNANCE

GOVERNANCE

The Group operates a deﬁ ned beneﬁ t
pension scheme (the ‘Scheme’) for
employees with an appointment date
prior to 1 April 2002.

The results of the triennial actuarial
valuation of the Scheme as at 31 March 2012
revealed a deﬁ cit of £290m. This represents
a substantial reduction in deﬁ cit from £1.3bn
as at 31 March 2009. The next valuation is
due as at 31 March 2015. Funding progress
is closely monitored and the investment
derisking journey has continued since the
last valuation.

The assets of the pension scheme, which are
held under trust separately from those of
the Group, are managed by the Board of the
Pension Trust (‘Trustee Board’). The Trustee
Board comprises four company nominated
directors, including the Chairman, Graham
Oakley; three member nominated directors
and two independent directors. All directors
are appointed for a ﬁ ve-year term and
may stand for a second term. The Trustee
Board operates three main committees:
Management and Governance, Investment,
and Actuarial Valuation, which has been
convened earlier this year in preparation
for the 2015 valuation.

The Trustee Board has a business plan
against which progress is measured on an
ongoing basis in a similar approach to the
Group Board. There is also an annual Board
Eff ectiveness Review and both the Trustee
Board and the Investment Committee
hold annual strategy days which help drive
the long-term agenda and the business
plan priorities.

Each Trustee Board director has an
individual training plan, which is based on
the Pension Regulator’s Trustee Knowledge
and Understanding requirements and
tailored to address any skill gaps and
speciﬁ c committee roles. The majority of
the Trustee Board members hold the
Pensions Management Institute Award
in Trusteeship.

All advisers, investment managers and
suppliers are appointed through a rigorous
tender process. They are monitored via
quarterly reports and periodic meetings
and there is also a rolling programme of
both informal and formal adviser reviews.

In addition to six monthly reports from EY
as covenant adviser, the Trustee Board
also receives presentations from the Chief
Finance Offi cer after the Year and Half
Year results.

The Scheme is a signatory to the UN
Principles for Responsible Investment and
the Trustee has partnered with a specialist
engagement service, Hermes Equity
Ownership Services (EOS), to exercise its
global equity voting rights in accordance
with a detailed Trustee policy, which
addresses a range of governance, social
and environmental issues. EOS has also
enhanced the Trustee’s stewardship and
governance oversight of investee
companies by engaging with companies,
on a global basis, where management is
considered not to be acting in the best
long-term interests of investors. The
results of these voting and engagement
activities are published quarterly on the
M&S Pension Scheme’s website. The Scheme
is also a signatory to the Financial Reporting
Council’s UK Stewardship Code.

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78
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

GOVERNANCE

OTHER DISCLOSURES

DIRECTORS’ REPORT

BOARD OF DIRECTORS

Marks and Spencer Group plc (the
‘Company’) is the holding company of the
Marks & Spencer Group of companies (the
‘Group’). With our rich heritage, M&S is one
of the most recognisable brands in the UK
retail sector and is regularly voted as one
of its most trusted. Our business is driven
by a desire to inspire and innovate; to act
with integrity and to stay in touch with our
customers, shareholders and employees
alike. These are our corporate values and
they underpin everything we do. They are
what make the M&S diff erence across the
59 territories in which we operate.

The Directors’ Report (also the Management
Report) for the year ended 28 March 2015
comprises pages 26 to 82 and page 127 of
this report, together with the sections of the
Annual Report incorporated by reference.
As permitted by legislation, some of the
matters normally included in the Directors’
Report have instead been included in the
Strategic Report on pages 1 to 25, as the
Board considers them to be of strategic
importance. Speciﬁ cally, these are:

> Future business developments

(throughout the Strategic report)

> Research and development p21

> Risk management on p23-25

Details of branches operated by the
Company can be found on pages 28 and 29
of the Directors’ Report.

Both the Strategic Report and the Directors’
Report have 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. For information on our approach
to social, environmental and ethical
matters please refer to our Plan A Report,
available to view online at
marksandspencer.com/plana2015.
Other information to be disclosed in the
Directors’ Report is given in this section.

INFORMATION TO BE
DISCLOSED UNDER LR 9.8.4R

Listing Rule

Detail

9.8.4R (1) (2)
(5-14) (A) (B) Not applicable
9.8.4R (4)

Long-term
incentive
schemes

Page
reference

N/A
54-55
and
66-67

The membership of the Board and
biographical details of the directors
are given on pages 34 and 35 and are
incorporated into this report by reference.
Details of directors’ beneﬁ cial and non-
beneﬁ cial interests in the shares of the
Company are shown on pages 68 and 74.
Options granted under the Save As You Earn
(SAYE) Share Option and Executive Share
Option Schemes are shown on pages 70
to 71. Further information regarding
employee share option schemes is given
in note 8 to the ﬁ nancial statements.

Alan Stewart stepped down from the Board
as Chief Finance Offi cer on 10 July 2014 and
left the Company on 23 September 2014.
Helen Weir was appointed Chief Finance
Offi cer on 1 April 2015. Vindi Banga, who
joined the Board on 1 September 2011, was
appointed Chairman of the Remuneration
Committee following the retirement of
Steven Holliday at the AGM on 8 July
2014. Vindi was also appointed Senior
Independent Director following the
retirement of Jan du Plessis on 4 March
2015. Richard Solomons joined the Board
as a non-executive director on 13 April
2015 and was appointed a member of the
Nomination Committee with immediate
eff ect. Miranda Curtis, who joined the
Board on 1 February 2012, was appointed
a member of the Audit Committee on
4 March 2015. Robert Swannell, who joined
the Board as Chairman on 4 October
2010, was appointed as a member of the
Remuneration Committee on 4 March 2015.

The appointment and replacement of
directors is governed by the Company’s
Articles, the UK Corporate Governance
Code (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 ﬁ xed rate dividend, whenever the
ﬁ nancial position of the Company, in the
opinion of the Board, justiﬁ es 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).
Under the Articles, any such director shall
hold offi ce only until the next AGM and shall
then be eligible for election. The Articles
also require that at each AGM at least one-
third of the current directors should retire
as directors by rotation. All those directors
who have been in offi ce 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 offi ce and stand for
re-election. However, in line with the UK
Corporate Governance Code 2012, all
directors will stand for annual election at
the 2015 AGM.

DIRECTORS’ CONFLICTS OF INTEREST

The Company has procedures in place for
managing conﬂ icts of interest. 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 conﬂ icts.

DIRECTORS’ INDEMNITIES

The Company maintains directors’ and
offi cers’ 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 deﬁ ned by
section 234 of the Companies Act 2006)
were in force during the year ended
28 March 2015 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.

79
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

PROFIT AND DIVIDENDS

VARIATION OF RIGHTS

The proﬁ t for the ﬁ nancial year, after
taxation, amounts to £661.2m (last year
£662.9m). The directors have declared
dividends as follows:

Ordinary shares

£m

Paid interim dividend
of 6.4p per share
(last year 6.2p per share)
Proposed ﬁ nal dividend
of 11.6p per share
(last year 10.8p per share)
Total ordinary dividend of
18.0p per share
(last year 17.0p per share)

£104.5m

£191.2m

£296.7m

The ﬁ nal ordinary dividend will be paid on
10 July 2015 to shareholders whose names
are on the Register of Members at the close
of business on 29 May 2015.

SHARE CAPITAL

The Company’s issued ordinary share
capital as at 28 March 2015 comprised a
single class of ordinary share. Each share
carries the right to one vote at general
meetings of the Company.

During the period, 15,566,772 ordinary
shares in the Company were issued
as follows:

> 918,578 shares under the terms of the
2002 Executive Share Option Scheme
at prices between 347p and 352p.

> 14,602,805 shares under the terms of the
United Kingdom Employees’ Save As You
Earn Share Option Scheme at prices
between 203p and 405p.

> 45,389 shares under the terms of the

ROI Employees’ Save As You Earn Share
Option Scheme at prices between 258p
and 405p.

Details of movements in the Company’s
issued share capital can be found on page
119 in note 24 to the ﬁ nancial statements.

RESTRICTIONS ON
TRANSFER OF SECURITIES

There are no speciﬁ c restrictions on the
transfer of securities in the Company, which
is governed by its Articles of Association
and prevailing legislation. The Company
is not 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 applicable statutes, rights
attached to any class of share 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 shareholders’ 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 speciﬁ c provision)
as the Board (as deﬁ ned in the Articles)
may decide. Subject to the Articles,
the Companies Act 2006 and other
shareholders’ 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 2014 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 during
the year ended 28 March 2015. This standard
authority is renewable annually; the
directors will seek to renew this authority

at the 2015 AGM. It is the Company’s present
intention to cancel any shares it buys back,
rather than hold them in treasury.

The directors were granted authority at
the 2014 AGM to allot relevant securities
up to a nominal amount of £136,089,559.
This authority will apply until the conclusion
of the 2015 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 £137,372,598.67 and
(ii) comprising equity securities up to a
nominal amount of £274,745,197.33 (after
deducting from such limit any relevant
securities allotted under (i)), in connection
with an off er of a rights issue, (the Section
551 amount), such Section 551 amount
to apply until the conclusion of the
AGM to be held in 2016 or, if earlier, on
27 September 2016.

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 £20,605,889.80. 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 164 million 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 Conduct
Authority’s (FCA) Disclosure and
Transparency Rules (DTRs) is published
on a Regulatory Information Service
and on the Company’s website. As at
28 March 2015, the following information
has been received, in accordance with
DTR5, from holders of notiﬁ able interests
in the Company’s issued share capital.

The information provided below was
correct at the date of notiﬁ cation; however,
the date received may not have been
within the current ﬁ nancial year. It should
be noted that these holdings are likely to
have changed since the Company was
notiﬁ ed. However, notiﬁ cation of any
change is not required until the next
notiﬁ able threshold is crossed.

Notiﬁ able interests

Ordinary
shares

%
of capital

Nature of holding

Blackrock, Inc
The Capital Group Companies, Inc
The Wellcome Trust

81,834,738
66,681,922
47,464,282

5
4.049
3.01

Indirect (4.97%) & CFD (0.04%)
Indirect Interest
Direct Interest

Notiﬁ cations were also received from William Adderley and Majedie Asset Management Limited during the year to
disclose that they no longer held a notiﬁ able interest.

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80
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

OTHER DISCLOSURES
CONTINUED

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 less than 48 hours before the
time appointed for the holding of the
meeting or adjourned meeting. However,
when calculating the 48-hour period, the
directors can, and have, decided not to take
account of any part of a day that is not a
working day.

SIGNIFICANT AGREEMENTS –
CHANGE OF CONTROL

There are a number of agreements to which
the Company is party that take eff ect, alter
or terminate upon a change of control of the
Company following a takeover bid. Details
of the signiﬁ cant agreements of this kind are
as follows:

> The £400m Medium Term Notes issued by
the Company on 30 November 2009, the
£300m Medium Term Notes issued by the
Company on 6 December 2011 and the
£400m; Medium Term Notes issued by
the Company on 12 December 2012 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.

> 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 £1.325bn Credit Agreement dated

29 September 2011 between the
Company and various banks contains
a provision such that, upon a change
of control event, unless new terms are
agreed within 60 days, the facility under
this agreement will be cancelled with
all outstanding amounts becoming
immediately payable with interest; and

> The amended and restated Relationship

Agreement dated 6 October 2014
(originally dated 9 November 2004 as
amended on 1 March 2005), between
HSBC and the Company and relating to
M&S Bank, contains certain provisions
which address a change of control of the
Company. Upon a change of control the
existing rights and obligations of the
parties in respect of M&S Bank continue
and HSBC gains certain limited additional
rights in respect of existing customers
of the new controller of the Company.
Where a third-party arrangement is in
place for the supply of ﬁ nancial services
products to existing customers of the
new controller, the Company is required
to procure the termination of such
arrangement as soon as reasonably
practicable (whilst not being required
to do anything that would breach any
contract in place in respect of such
arrangement).

Where a third-party arrangement is so
terminated, or does not exist, HSBC gains
certain exclusivity rights in respect of
the sale of ﬁ nancial services products
to the existing customers of the new
controller. Where the Company
undertakes a re-branding exercise with
the new controller following a change of
control (which includes using any M&S
brand in respect of the new controller’s
business or vice versa), HSBC gains
certain termination rights (exercisable
at its election) in respect of the
Relationship Agreement.

The Company does not have agreements
with any director or employee that would
provide compensation for loss of offi ce 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.

EMPLOYEE INVOLVEMENT

We remain committed to employee
involvement throughout the business.
Employees are kept well informed of the
performance and strategy of the Group
through personal brieﬁ ngs, regular
meetings, email and broadcasts by the Chief

Executive and members of the Board at
key points in the year to all head offi ce and
distribution centre employees and store
management. Additionally, many of our
store colleagues can join the brieﬁ ngs
by telephone to hear directly from the
business. 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 are elected
onto Business Involvement Groups (‘BIGs’)
across every store, distribution centre and
head offi ce location to 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.

The 20th meeting of the European Works
Council (‘EWC’) (established in 1995) will
take place in September 2015. This Council
provides an additional forum for informing,
consulting and involving employee
representatives from the countries in the
European Community. The EWC includes
representatives from France, The
Netherlands, Czech Republic, Slovakia,
Greece, Bulgaria, Slovenia, Romania, Croatia,
Hungary, Lithuania, Latvia, Estonia, Poland,
the Republic of Ireland and the UK. The EWC
has the opportunity to be addressed by the
Chief Executive and other senior members
of the Company on issues that aff ect the
European business. This includes the
Directors of International and Multi-channel
and the Director of Plan A, who all have an
impact across the European Community.

Directors and senior management regularly
attend the national Business Involvement
Group (BIG) meetings. They visit stores and
discuss with employees matters of current
interest and concern to both employees
and the business through meetings with
local BIG representatives, speciﬁ c listening
groups and informal discussions. The
business has continued to engage with
employees and drive involvement through a
scheme called The BIG Idea. On a quarterly
basis the business poses a question to
gather ideas and initiatives on a number of
areas including how we can better serve
our customers. Several thousand ideas are
put forward each time and the winning
employee receives an award and the
chance to see how this is implemented
by the Company.

Share schemes are a long-established and
successful part of our total reward package,
encouraging and supporting employee
share ownership. In particular, around
24,000 employees currently participate
in Sharesave, the Company’s all employee
Save As you Earn Scheme. Full details of all
schemes are given on pages 70 to 71.

81
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

We have a well established interactive
wellbeing website designed exclusively
for M&S employees. It gives any employee
the opportunity to access a wealth of
information, help and support. We cover all
areas of wellbeing, from healthy eating and
exercise to help in overcoming issues such
as stress, ﬁ nancial challenges, achieving a
positive work-life balance and problems
with sleeping. Using this service, employees
can access our personal support teams,
such as counselling, as well as take part in a
calendar of wellbeing events and initiatives.

Employees are able to interact with one
another, post information about clubs and
groups in their area and can gain access
to information about corporate projects,
which link to their personal health, via our
employee social media platform, Yammer.

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 ﬁ nal salary
pension scheme and have a fully interactive
website for members of the deﬁ ned
contribution M&S Pension Savings Plan.

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. We
are an organisation which uses everyone’s
talents and abilities and where diversity
is valued. We were one of the ﬁ rst major
companies to remove the default
retirement age in 2001 and have continued
to see an increase in employees wanting to
work past the state retirement age. Our
oldest employee is 88 years old and joined
the business at age 80. In April 2015 the
Company once again featured in The Times
Top 50 Employers for Women, highlighting
how equal opportunities are available for
all at M&S.

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 fulﬁ l 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 JobCentre Plus. The
Marks & Start scheme was introduced into
our distribution centre at Castle Donington
in 2012/13, where we work with Remploy to
support people with disabilities and health
conditions into work.

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 aff ect the operations
of the Group, none are considered to be
essential, with the exception of certain
warehouse and logistic operators and
providers of services relating to the
Company’s e-commerce platform.

GROCERIES SUPPLY CODE
OF PRACTICE

The Groceries (Supply Chain Practices)
Market Investigation Order 2009 (‘Order’)
and The Groceries Supply Code of Practice
(‘GSCOP’) impose obligations on M&S
relating to relationships with its suppliers of
groceries. Under the Order and GSCOP, M&S
is required to submit an annual compliance
report to the Audit Committee for approval
and then to the Competition and Markets
Authority and Groceries Code Adjudicator.

M&S submitted its report to the Audit
Committee on 14 May 2015 covering the
period from 1 April 2014 to 31 March 2015.
In accordance with the Order, a summary
of that compliance report is set out below.

M&S believes that it has complied in full
with GSCOP and the Order during the
relevant period. No formal disputes have
arisen during the reporting period. Four
allegations regarding potential breaches
of GSCOP were made by suppliers during
the relevant period, but all complaints have
been withdrawn/resolved.

TOTAL GLOBAL M&S GREENHOUSE GAS EMISSIONS 2014/15

The disclosures required by law relating to the Group’s greenhouse gas emissions are included in the table below. For full details of
calculations and adjustments, as well as performance against 2006/07 voluntary baseline, see our 2015 Plan A Report.

Direct emissions (scope 1)
Indirect emissions from energy (scope 2)
Total statutory emissions (scope 1+2)
Transport, energy, waste and business travel (scope 3)
Total gross/location-based emissions
Carbon intensity measure (per 1,000 sq ft of salesﬂ oor)
Green tariff s and carbon off sets
Total net/marketplace emissions

2014/15
000 tonnes

2013/14
000 tonnes

%
change

167
367*
534
58
592
30
592
0

168
340
508
59
567
30
567
0

-1
+8*
+5
-2
+5
L
+4.4
–

Calculated based on operational control in accordance with 2014 DECC/DEFRA using Guidelines WRI/WBCSD GHG Reporting Protocols
(Revised edition) and 2014 Scope 2 Guidance.

*Increase caused by higher UK grid electricity carbon intensity.

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82
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

OTHER DISCLOSURES
CONTINUED

M&S operates systems and controls to
ensure compliance with the Order and
GSCOP including the following:

> The terms and conditions which govern
the trading relationship between M&S
and those of its suppliers that supply
groceries to M&S incorporate GSCOP;

> New suppliers are issued with information

as required by the Order;

> M&S has a Code Compliance Offi cer as
required under the Order, supported by
our in-house legal department; and

> Employee training on GSCOP is provided,
including annual refresher programmes
and new starter training.

POLITICAL DONATIONS

No political donations were made during
the year ended 28 March 2015. M&S has a
policy of not making donations to political
organisations or independent election
candidates or incurring political expenditure
anywhere in the world as deﬁ ned in the
Political Parties, Elections and Referendums
Act 2000.

GOING CONCERN

In adopting the going concern basis for
preparing the ﬁ nancial statements, the
directors have considered the business
activities as set out on pages 1 to 22 as
well as the Group’s principal risks and
uncertainties as set out on pages 23 to 25.
Based on the Group’s cash ﬂ ow forecasts
and projections, the Board is satisﬁ ed that
the Group will be able to operate within the
level of its facilities for the foreseeable
future. For this reason the Board considers
it appropriate for the Group to adopt
the going concern basis in preparing its
ﬁ nancial statements.

AUDITOR

Resolutions to reappoint Deloitte LLP as
auditor of the Company and to authorise
the Audit Committee to determine their
remuneration will be proposed at the
2015 AGM.

ANNUAL GENERAL MEETING

The AGM of Marks and Spencer Group plc
will be held at Wembley Stadium, London on
7 July 2015 at 11am. The Notice of Meeting is
given, together with explanatory notes, in a
booklet which accompanies this report.

DIRECTORS’ RESPONSIBILITIES

The Board is of the view that the Annual
Report should be truly representative of
the year and provide shareholders with the
information necessary to assess the Group’s
performance, business model and strategy.

This cannot be achieved by merely
reviewing the ﬁ nal document at the end
of the preparation process. The Board
ensured that its requirements were clearly
communicated from the outset to each
of the departments involved in the
production of the Annual Report.

The Board has advised that the narrative
reports should contain the key information
needed by investors and other users of the
report and should avoid being promotional
in nature. Furthermore, the narrative
reports in the front and the accounting
information in the back of the report should
be consistent and the teams involved in its
production work closely together to achieve
this. For an independent opinion, the Board
also requested the Audit Committee review
the Annual Report and provide feedback.
The Committee’s opinion on whether the
report is fair, balanced and understandable
is on page 49.

The directors are also responsible for
preparing the Annual Report, the
Remuneration Report and the ﬁ nancial
statements in accordance with applicable
law and regulations. Company law
requires the directors to prepare ﬁ nancial
statements for each ﬁ nancial year. Under
that law, the directors have prepared the
Group and Company ﬁ nancial statements
in accordance with International Financial
Reporting Standards (IFRSs) as adopted by
the EU. Under company law, the directors
must not approve the ﬁ nancial statements
unless they are satisﬁ ed that they give a true
and fair view of the state of aff airs of the
Group and the Company and of the proﬁ t
or loss of the Group and the Company for
that period. In preparing these ﬁ nancial
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 ﬁ nancial
statements; and

> Prepare the ﬁ nancial statements on a

going concern basis unless it is
inappropriate to presume that the
Company will continue in business.

The directors are responsible for keeping
adequate accounting records that are
suffi cient to show and explain the
Company’s transactions and disclose, at
any time and with reasonable accuracy,
the ﬁ nancial position of the Company and
the Group and to enable them to ensure

that the ﬁ nancial statements and the
Remuneration Report comply with the
Companies Act 2006 and, as regards the
Group ﬁ nancial statements, Article 4 of the
IAS Regulation. They are also responsible
for safeguarding the assets of the Group
and the Company 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 ﬁ nancial statements may
diff er from legislation in other jurisdictions.

Each of the directors, whose names and
functions are listed on pages 34 and 35 of
the Annual Report, conﬁ rm that, to the best
of their knowledge:

> The Group ﬁ nancial statements, which
have been prepared in accordance with
IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities,
ﬁ nancial position and proﬁ t of the Group;

> The Strategic Report and the Directors’
Report contained in this report include
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; and

> The Annual Report, taken as a whole,
is fair, balanced and understandable ,
and provides the necessary information
for shareholders to assess the Group’s
performance, business model and
strategy.

DISCLOSURE OF INFORMATION
TO AUDITORS

Each director conﬁ rms 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 Directors’ Report was approved by a
duly authorised committee of the Board
of Directors on 19 May 2015 and signed
on its behalf by

Amanda Mellor
Group Secretary
London, 19 May 2015

83
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MARKS AND SPENCER GROUP PLC

OPINION ON FINANCIAL STATEMENTS OF MARKS AND SPENCER GROUP PLC

In our opinion:

The ﬁ nancial statements give a true
and fair view of the state of the Group’s
and of the parent company’s aff airs
as at 28 March 2015 and of the Group’s
proﬁ t for the 52 weeks then ended.

The Group ﬁ nancial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union.

The parent company ﬁ nancial statements
have been properly prepared in
accordance with IFRSs as adopted by
the European Union and as applied
in accordance with the provisions
of the Companies Act 2006.

The ﬁ nancial statements have been
prepared in accordance with the
requirements of the Companies
Act 2006 and, as regards the Group
ﬁ nancial statements, Article 4 of
the IAS Regulation.

The ﬁ nancial statements comprise the
Consolidated Income Statement, the
Consolidated Statement of Comprehensive
Income, the Consolidated and Company
Statements of Financial Position, the
Consolidated and Company Statements
of Changes in Equity, the Consolidated
and Company Statements of Cash Flows,
the reconciliation of net cash ﬂ ow to
movement in net debt note, and the related
notes 1 to 28 and C1 to C7. The ﬁ nancial
reporting framework that has been applied
in their preparation is applicable law and
IFRS as adopted by the European Union and,
as regards the parent company ﬁ nancial
statements, as applied in accordance with
the provisions of the Companies Act 2006.

GOING CONCERN

As required by the Listing Rules we have
reviewed the directors’ statement contained
within the ‘Other disclosures’ section on
page 82 that the Group is a going concern.
We conﬁ rm that:

> We have concluded that the directors’ use
of the going concern basis of accounting
in the preparation of the ﬁ nancial
statements is appropriate.

However, because not all future events or
conditions can be predicted, this statement
is not a guarantee as to the Group’s ability to
continue as a going concern.

> We have not identiﬁ ed any material

uncertainties that may cast signiﬁ cant
doubt on the Group’s ability to continue
as a going concern.

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT

The key risks we identiﬁ ed are:

1 Presentation of non-GAAP measures

2 Impairment of store assets

3 Inventory valuation and provisions

4 Revenue recognition – gift cards,
loyalty schemes, returns and
franchise arrangements

5 Supplier rebates

6 Retirement beneﬁ ts

The assessed risks of material misstatement
are those that had the greatest eff ect on
our audit strategy, the allocation of
resources in the audit and directing the
eff orts of the engagement team.

The Audit Committee has requested that,
while not required under International
Standards on Auditing (UK and Ireland),
we include in our report any signiﬁ cant
ﬁ ndings in respect of these assessed
risks of material misstatement.

The description of risks below should be
read in conjunction with the signiﬁ cant
issues considered by the Audit Committee
discussed on pages 48 and 49.

Our audit procedures relating to these
matters were designed in the context of
our audit of the ﬁ nancial statements as a
whole, and not to express an opinion on
individual accounts or disclosures. Our
opinion on the ﬁ nancial statements is not
modiﬁ ed with respect to any of the risks
described below, and we do not express an
opinion on these individual matters.

See tables on p84-87 for more detail.

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84
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT
CONTINUED

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

PRESENTATION OF
NON-GAAP MEASURES

Risk description

The presentation of income and costs
within non-GAAP measures (to derive
‘underlying proﬁ t before tax’) under IFRS is
judgemental, with IFRS only requiring the
separate presentation of material items.
Judgement is required in determining the
classiﬁ cation of items as non-underlying.

In calculating the reported non-GAAP
measures, there are two risks which may
result in the underlying proﬁ t measure
being misstated and therefore not being
reliable to users of the ﬁ nancial statements:

> Items may be included in the non-
underlying adjustments which are
underlying or recurring items, distorting
the reported underlying earnings.

> Items may be omitted from the non-
underlying adjustments which are
material and one-off in nature.

Explanations of each adjustment to derive
underlying proﬁ t from the reported proﬁ t
before tax are set out in notes 1 and 5 to the
ﬁ nancial statements.

How the scope of our audit responded to the risk

We evaluated the appropriateness of the
inclusion of items, both individually and in
aggregate, within non-underlying proﬁ ts,
including assessing the consistency of
items included year-on-year and ensuring
adherence to IFRS requirements and
latest Financial Reporting Council (‘FRC’)
guidance. We also agreed these items to
supporting evidence.

We assessed all items, either highlighted by
management or identiﬁ ed through the
course of our audit, which were regarded as
one-off but included within underlying
earnings to ensure that these are not
material either individually or in aggregate.
For all adjustments recorded in calculating
underlying proﬁ ts, we discussed the
appropriateness of the item with the

Audit Committee and any disclosure
considerations.

Findings We are satisﬁ ed that the items
excluded from underlying earnings and the
related disclosure of these items in the
ﬁ nancial statements is appropriate.

IMPAIRMENT OF
STORE ASSETS

Risk description

As described in the Accounting Policies in
note 1 and in note 15 to the ﬁ nancial
statements, the Group held £5,031.1m
of property, plant and equipment at
28 March 2015. There is a risk that the
carrying value of stores and related ﬁ xed
assets may be higher than the recoverable
amount. When a review for impairment
is conducted, the recoverable amount
is determined based on value in use
calculations which rely on the directors’
assumptions and estimates of future
trading performance.

The key assumptions applied by the
directors in the impairment reviews are:

> Country-speciﬁ c discount rates.

> Future revenue growth.

> Trading margin.

> Store costs, including rent, staff payroll

costs and general operating costs.

The directors consider that each retail store
constitutes its own cash generating unit
(‘CGU’), with the exception of the outlet
stores which are used to clear old season

general merchandise stock at a discount,
and certain strategic stores. The outlet
stores are considered to represent one
CGU in aggregate and strategic stores are
evaluated as part of a country-wide
impairment review.

The Group’s accounting policy sets out a
relevant shelter period for new stores to
be taken into account when assessing
indicators of impairment during initial
years of trading to enable the store to
establish itself in the market.

How the scope of our audit responded to the risk

We considered the appropriateness of the
methodology applied by the directors in
calculating the impairment charges, and
the judgements applied in determining the
CGUs of the business.

We assessed the impairment models and
calculations by:

> Checking the mechanical accuracy of

the impairment models.

> Assessing the discount rates applied to

the impairment reviews for each country
and comparing the rates to our internal
benchmark data.

> Comparing forecast growth rates to

economic data.

> Evaluating the information included in
the impairment models through our
knowledge of the business gained
through reviewing trading plans,
strategic initiatives, and meeting with
senior trading managers from key
categories and our retail industry
knowledge.

We assessed the appropriateness of the
shelter period for each store opened within
that time frame, and compared the original
investment case for the store against its

current trading performance. Where stores
were trading signiﬁ cantly below the original
case, we considered the evidence available
to support future improvements in
performance, speciﬁ cally by assessing the
trading plans and actions being taken on an
individual store basis.

Findings We concluded that the
assumptions applied in the impairment
models were appropriate, including those
made around shelter periods and no
additional impairments were identiﬁ ed
from the work performed above.

85
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

INVENTORY VALUATION
AND PROVISIONS

Risk description

At 28 March 2015, the Group held
inventories of £797.8m. As described in
the Accounting Policies in note 1 to the
ﬁ nancial statements, inventories are carried
at the lower of cost and net realisable value.

As a result, the directors apply judgement
in determining the appropriate provisions
for obsolete stock based upon a detailed
analysis of old season inventory, net
realisable value below cost based upon

plans for inventory to go into sale and stock
loss based upon the run rate from recent
inventory counts.

How the scope of our audit responded to the risk

We obtained assurance over the
appropriateness of management’s
assumptions applied in calculating the
value of the inventory provisions by:

> Checking the eff ectiveness of key

inventory controls operating across the
Group, including those at 15 distribution
centres and 26 retail stores.

> Attending inventory counts at 15
distribution centres and 16 stores.

> Checking for a sample of individual
products that invoiced costs have
been correctly recorded and that the
allocation of directly attributable costs
has been correctly calculated.

> Comparing the net realisable value,

obtained through a detailed review of
sales subsequent to the year end using
audit analytics, to the cost price of
inventories to check for completeness
of the associated provision.

We evaluated consumer trends identiﬁ ed
through benchmarking and external
market data to challenge the assumptions
underlying sales forecasts by category to
assess the completeness of provisions for
obsolescence.

Findings The results of our testing were
satisfactory and we concur that the level
of inventory provisions is appropriate.

> Performing audit analytics on stock

holding and movement data to identify
product lines with indicators of low stock
turn or stock ageing.

> Meeting with buyers to validate the

assumptions applied by management
compared to the current purchasing
strategy and ranging plans.

> Reviewing the historical accuracy of

inventory provisioning, and the level of
inventory write-off s during the year in
relation to stock loss.

REVENUE RECOGNITION – GIFT CARDS, LOYALTY
SCHEMES, RETURNS AND FRANCHISE ARRANGEMENTS

Risk description

As described in the Accounting Policies
in note 1 to the ﬁ nancial statements, the
Group’s revenue recognition policies
require the directors to make a number of
assumptions in determining the reported
revenue for the period. The key
assumptions are:

> Gift cards, vouchers and loyalty schemes

– the directors apply an expected
redemption rate to the total value of
gift cards, vouchers and loyalty points
in issue based on historic trends.

> Returns – customers are entitled to
return products up to 35 days after
purchase, giving rise to a risk that sales
recognised during the period will be

reversed in the next ﬁ nancial period.
The directors apply judgement in
determining the provision required for
returns based on the prior ﬁ ve weeks’
sales and recent product return rates.
Returns from online sales are commonly
at a higher level than traditional store
retailing, resulting in this judgement
becoming more signiﬁ cant in
determining the level of provision
required.

The Group reported revenues in the
period from the sale of food and general
merchandise to international franchise
partners and the sale of food to UK
franchise partners.

The complexity of pricing structures
across franchise relationships, and the
Group’s expansion into new franchise
agreements, create a risk that revenue
may be misstated due to the speciﬁ c
terms of business agreed with each
franchise partner. In addition, as explained
on page 29 of the Strategic Report,
international franchise markets have
been particularly challenging due to the
economic and political environments
in the Middle East, Russia and Ukraine,
giving rise to a further risk that franchise
receivables may be irrecoverable.

Continues on p86

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86
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT
CONTINUED

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

REVENUE RECOGNITION – GIFT CARDS, LOYALTY
SCHEMES, RETURNS AND FRANCHISE ARRANGEMENTS CONTINUED

How the scope of our audit responded to the risk

We considered each revenue-impacting
provision individually, and assessed the
appropriateness of the assumptions and
judgements applied.

For the key assumptions used in the
gift card, voucher and loyalty scheme
provisions, we assessed the historic rates
of redemption and compared these to the
directors’ judgements.

We assessed the appropriateness of the
methodology applied in calculating the
returns provision, and compared the
calculated provision to the actual level
of returns recorded subsequent to the
period end.

We reviewed a sample of franchise
agreements, including new agreements
during the period. Our review speciﬁ cally
focused on:

> Assessing the pricing structure and

determining whether revenue has been
recognised in line with the terms of the
agreement including the consideration
of any rights to return old inventories.

> Considering the payment terms and
comparing them to the payment
patterns experienced with the
franchise partner.

We independently assessed the
recoverability of franchise receivables
more than 30 days past due under the
franchise agreement, and all receivables
from franchises in the Middle East, Russia
and Ukraine due to the risks identiﬁ ed
above. Our assessment included reviewing
historic payment patterns for selected
franchises, checking cash received
subsequent to the reporting date,

considering correspondence received
from franchise partners by the Group,
and challenging management on the
judgements applied in calculating any
provision for doubtful debts. For the most
signiﬁ cant franchises, we obtained external
conﬁ rmations of key agreement terms,
and the balance due for payment as at
28 March 2015.

Findings We are satisﬁ ed that the key
assumptions applied in calculating the
gift card, voucher and loyalty scheme
provisions are appropriate. The run-rate
applied to calculate the provision for
refunds is appropriate and testing
performed in relation to recognition of
revenues from franchise partners or the
recoverability of any amounts outstanding
at the year end proved satisfactory.

SUPPLIER
REBATES

Risk description

As described in the Accounting Policies in
note 1 and 17 to the ﬁ nancial statements,
the Group recognises a reduction in cost
of sales as a result of amounts receivable
from suppliers, primarily comprising
contributions in relation to promotions
in the Food business, strategic volume
moves and some annual volume-based

rebates. The majority of these
contributions tend to be small in unit value
but high in volume and span relatively
short periods of time, although these can
be across the ﬁ nancial year end. There are
a small number of larger arrangements,
which relate to multi-year periods.

Judgement is required in determining
the period over which the reduction in
cost of sales should be recognised,
requiring both a detailed understanding of
the contractual arrangements themselves
as well as complete and accurate source
data to apply the arrangements to.

How the scope of our audit responded to the risk

We tested that amounts recognised were
accurate and recorded in the correct
period based on the contractual
performance obligations by agreeing a
sample to individual supplier agreements.
We circularised a sample of suppliers to
test whether the arrangements recorded
were complete and interviewed a
sample of buyers to supplement our
understanding of the contractual
arrangements. Where responses were
not received, we performed alternative
procedures.

We tested the completeness and
accuracy of the systematic inputs to
the calculations for recording supplier
rebates and discounts by agreement to
supporting evidence, including volume
data and promotion dates.

We performed revenue and margin
analysis to understand detailed trends
by product category in order to identify
apparent anomalies which may indicate
potential rebate income errors. Such
anomalies were investigated to assess
whether they were indicative of a mis-
application of contractual terms or other
calculation errors.

We also tested a sample of invoices and
debit notes raised post year end to test the
completeness and accuracy of accrued
supplier income at 28 March 2015. In
addition we tested the recoverability of
the amounts due at the year end.

Findings The results of our testing were
satisfactory. We consider the disclosure
given around supplier rebates to provide
an accurate understanding of the types
of rebate income received and the impact
on the statement of ﬁ nancial position as at
28 March 2015.

87
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

RETIREMENT
BENEFITS

Risk description

As described in the Accounting Policies in
note 1 and in notes 11 and 12 to the ﬁ nancial
statements, the Group has a deﬁ ned beneﬁ t
pension plan for its UK employees, which
was closed to new entrants with eff ect from
1 April 2002, and a funded deﬁ ned beneﬁ t
pension scheme in the Republic of Ireland,

where no new beneﬁ ts have accrued since
31 October 2013.

At 28 March 2015, the Group recorded a net
retirement beneﬁ t asset of £449.0m, being
the net of scheme assets of £8,596.5m and
scheme liabilities of £8,147.5m. The Group’s

net retirement beneﬁ t asset has shown
signiﬁ cant volatility, as the valuation is
sensitive to changes in key assumptions
such as the discount rate and inﬂ ation
estimates. The setting of assumptions
is complex and an area of signiﬁ cant
judgement.

How the scope of our audit responded to the risk

We evaluated the directors’ assessment of
the assumptions made in the valuation of the
scheme assets and liabilities, and evaluated
the information contained within the
actuarial valuation reports for each scheme.

valuation performed and the key
assumptions applied, and evaluated their
expertise. We benchmarked and performed a
sensitivity analysis on the key variables in the
valuation model, including:

We tested the membership census data used
in the valuation of the schemes and, with
support from our own actuarial specialists,
we considered the valuation process applied
by the Group’s actuaries, the scope of the

> Salary increases.

> Inﬂ ation rates.

> Mortality rates.

> Discount rates.

We obtained asset conﬁ rmations or carried
out other audit procedures to test the
completeness and accuracy of the
scheme assets.

Findings From the work performed above
we are satisﬁ ed that all assumptions applied
in respect of the valuation of the scheme
assets and liabilities are appropriate.

IN THE PREVIOUS YEAR’S AUDIT REPORT, THE FOLLOWING RISKS WERE ALSO INCLUDED:

Impairment of goodwill and brands; and

Management override of controls.

These have not been included as key risks in
the current year.

Our application of materiality

We determined materiality for the
Group to be £32.0m.

We reported all audit diff erences
in excess of £1.0m.

We deﬁ ne materiality as the magnitude of
misstatement in the ﬁ nancial statements
that makes it probable that the economic
decisions of a reasonably knowledgeable
person would be changed or inﬂ uenced.
We use materiality both in planning the
scope of our audit work and in evaluating
the results of our work.

We determined materiality for the Group
to be £32.0m, which is approximately
5% of pre-tax proﬁ t and 1% of equity.
The materiality used by the predecessor
auditor in 2014 was £31.0m, which
represented 5% of pre-tax proﬁ t adjusted
for non-GAAP performance measures.

We agreed with the Audit Committee that
we would report to the Committee all audit
diff erences in excess of £1.0m (2014: the
predecessor auditor reported on all
diff erences identiﬁ ed above £1.5m) as well
as diff erences below that threshold that,

in our view, warranted reporting on
qualitative grounds. We also report
to the Audit Committee on disclosure
matters that we identiﬁ ed when assessing
the overall presentation of the ﬁ nancial
statements.

Materiality

£600m

£32m
5%

Group materiality
PBT

Group materiality
£32m

Component
materiality range
£21m to £2m

Audit Committee
reporting threshold
£1m

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88
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT
CONTINUED

AN OVERVIEW OF THE SCOPE OF OUR AUDIT

Scope of audit

Our Group audit was scoped by obtaining
an understanding of the Group and its
environment, including Group-wide
controls, and assessing the risks of material
misstatement at the Group level. The
Group has retail operations in 59 countries,
of which 17 are wholly-owned businesses,
two are joint ventures, and 40 operate
under franchise agreements (in addition
to two wholly-owned businesses which
also operate franchise agreements in
those territories).

Based on that assessment, we focused our
Group audit scope primarily on the audit
work at eight wholly-owned locations:
United Kingdom, Republic of Ireland, Czech
Republic, Greece, Turkey, India, China and
Hong Kong. All of these were subject to a
full audit. These locations represent the
principal business units and account for
99% of the Group’s revenue and 95% of
the Group’s proﬁ t before tax and 76% of
the Group’s net assets. They were also
selected to provide an appropriate basis

for undertaking audit work to address
the risks of material misstatement
identiﬁ ed above. Whilst we audit the
revenues received by the Group from
franchise operations, which account for
3% of the Group’s revenue, we do not audit
the underlying franchise operations.

Audit components

We performed a full scope audit on
components representing 99% of
the Group’s revenue and 95% of the
Group’s proﬁ t before tax and 76%
of the Group’s net assets.

At the parent entity level we also tested the
consolidation process and carried out
analytical procedures to conﬁ rm our
conclusion that there were no signiﬁ cant risks
of material misstatement of the aggregated
ﬁ nancial information of the remaining
components not subject to a full audit.

We visited all signiﬁ cant
components during the year
The most signiﬁ cant component of
the Group is its retail business in the
United Kingdom, which accounts for 89%
of the Group’s revenue, 91% of the Group’s
operating proﬁ t and 50% of the Group’s
net assets. The Group audit team performs
the audit of the UK business without
the involvement of a component team.
During the course of our audit, the Group
audit team conducted 16 distribution
centre and 27 retail store visits in the UK
to understand the current trading
performance and, at certain locations,
perform tests of internal controls and
validate levels of inventory held.

Since this was our ﬁ rst year as the Group’s
auditor, we visited each of the eight
signiﬁ cant locations outlined above at

Full scope audit
components

REVENUE

PROFIT BEFORE TAX

NET ASSETS

Analytical procedures
Speciﬁ c audit procedures
Full audit

1%
0%
99%

2%
3%
95%

7%
17%
76%

least once. Each component was visited
during our transition, planning and risk
assessment process, in order for a senior
member of the Group audit team to
obtain a thorough understanding of the
operations, risks and control environments
of each component. For more signiﬁ cant
or complex components, we conducted a
second visit during the audit to review the
component auditor’s working papers and
attend key meetings with component
management.

Going forward, we will follow a programme
of planned visits that has been designed so
that a senior member of the Group audit
team visits each of the locations where
the Group audit scope was focused at
least once every two years, and the most
signiﬁ cant of them at least once a year.

In years when we do not visit a signiﬁ cant
component we will include the component
audit team in our team brieﬁ ng, discuss
their risk assessment, and review
documentation of the ﬁ ndings from
their work.

In addition to our visits in these locations,
senior members of each component
audit team attended a two-day training
programme hosted by the Group audit
team covering topics which included
understanding the business and its core
strategy, a discussion of the signiﬁ cant
risks and workshops on our planned
audit approach.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion

> The part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with the
Companies Act 2006.

> The information given in the Strategic

Report and the Directors’ Report for the
ﬁ nancial year for which the ﬁ nancial
statements are prepared is consistent
with the ﬁ nancial statements.

89
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

Adequacy of explanations received
and accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:

> We have not received all the information
and explanations we require for our
audit.

> 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.

> The parent company ﬁ nancial

statements are not in agreement with
the accounting records and returns.

We have nothing to report in respect of
these matters.

Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if in our opinion certain
disclosures of directors’ remuneration have
not been made or the part of the Directors’
Remuneration Report to be audited is not
in agreement with the accounting records
and returns. We have nothing to report
arising from these matters.

Corporate Governance Statement
Under the Listing Rules we are also required
to review the part of the Corporate
Governance Statement relating to the
Company’s compliance with ten provisions
of the UK Corporate Governance Code.
We have nothing to report arising from
our review.

Our duty to read other information
in the Annual Report
Under International Standards on Auditing
(UK and Ireland), we are required to report
to you if, in our opinion, information in the
Annual Report is:

> Materially inconsistent with the

information in the audited ﬁ nancial
statements.

> Apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the Group acquired in the
course of performing our audit.

> Otherwise misleading.

In particular, we are required to consider
whether we have identiﬁ ed any
inconsistencies between our knowledge
acquired during the audit and the directors’
statement that they consider the Annual
Report is fair, balanced and understandable
and whether the Annual Report
appropriately discloses those matters that
we communicated to the Audit Committee
which we consider should have been
disclosed. We conﬁ rm that we have not
identiﬁ ed any such inconsistencies or
misleading statements.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

As explained more fully in the Directors’
Responsibilities Statement, the directors
are responsible for the preparation of the
ﬁ nancial statements and for being satisﬁ ed
that they give a true and fair view. Our
responsibility is to audit and express an
opinion on the ﬁ nancial 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.

We also comply with International Standard
on Quality Control 1 (UK and Ireland). Our
audit methodology and tools aim to ensure
that our quality control procedures are
eff ective, understood and applied. Our
quality controls and systems include our
dedicated professional standards review
team and independent partner reviews.

This report is made solely to the
Company’s members, as a body, in
accordance with Chapter 3 of Part 16

of the Companies Act 2006. Our audit work
has been undertaken so that we might
state to the Company’s members those
matters we are required to state to them
in an auditor’s report and for no other
purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
Company and the Company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.

or materially inconsistent with, the
knowledge acquired by us in the course of
performing the audit. If we become aware
of any apparent material misstatements
or inconsistencies we consider the
implications for our report.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

An audit involves obtaining evidence
about the amounts and disclosures in the
ﬁ nancial statements suffi cient to give
reasonable assurance that the ﬁ nancial
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 signiﬁ cant

accounting estimates made by the
directors.

> The overall presentation of the

ﬁ nancial statements.

In addition, we read all the ﬁ nancial and
non-ﬁ nancial information in the Annual
Report to identify material inconsistencies
with the audited ﬁ nancial statements
and to identify any information that is
apparently materially incorrect based on,

Ian Waller (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
19 May 2015

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90
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

Notes

2, 3

2, 3, 5

5, 6

4, 5

Revenue

Operating proﬁ t

Finance income
Finance costs

Proﬁ t before tax
Income tax expense
Proﬁ t for the year

Attributable to:
Owners of the parent
Non-controlling interests

Basic earnings per share
Diluted earnings per share

52 weeks ended 28 March 2015

52 weeks ended 29 March 2014

Underlying
£m

Non-underlying
£m

Total
£m

Underlying
£m

Non-underlying
£m

Total
£m

10,311.4

–

10,311.4

10,309.7

–

10,309.7

762.5

(61.2)

701.3

741.9

(47.4)

694.5

15.5
(116.8)

661.2
(124.8)
536.4

541.2
(4.8)
536.4

33.1p
32.9p

–
–

(61.2)
6.5
(54.7)

(54.7)
–
(54.7)

(3.4p)
(3.4p)

15.5
(116.8)

600.0
(118.3)
481.7

486.5
(4.8)
481.7

29.7p
29.5p

20.1
(139.1)

622.9
(117.1)
505.8

520.0
(14.2)
505.8

32.2p
31.9p

4.9
–

(42.5)
42.7
0.2

4.8
(4.6)
0.2

0.3p
0.3p

25.0
(139.1)

580.4
(74.4)
506.0

524.8
(18.8)
506.0

32.5p
32.2p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Proﬁ t for the year
Other comprehensive income/(expense):
Items that will not be classiﬁ ed to proﬁ t or loss
Remeasurements of retirement beneﬁ t schemes
Tax (charge)/credit on retirement beneﬁ t schemes

Items that may be reclassiﬁ ed subsequently to proﬁ t or loss
Foreign currency translation diff erences
Cash ﬂ ow and net investment hedges
– fair value movements in other comprehensive income
– reclassiﬁ ed and reported in net proﬁ t
– amount recognised in inventories
Tax (charge)/credit on cash ﬂ ow hedges and net investment hedges

Other comprehensive income/(expense) for the year, net of tax
Total comprehensive income for the year

Attributable to:
Owners of the parent
Non-controlling interests

52 weeks ended
28 March 2015
£m

52 weeks ended
29 March 2014
£m

Notes

481.7

506.0

193.7
(40.2)
153.5

(85.3)
31.8
(53.5)

(7.5)

(22.3)

221.2
(60.0)
(21.6)
(21.2)
110.9
264.4
746.1

750.9
(4.8)
746.1

(109.9)
36.4
18.7
12.2
(64.9)
(118.4)
387.6

406.4
(18.8)
387.6

91
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Investment in joint ventures
Other ﬁ nancial assets
Retirement beneﬁ t asset
Trade and other receivables
Derivative ﬁ nancial instruments
Deferred tax assets

Current assets
Inventories
Other ﬁ nancial assets
Trade and other receivables
Derivative ﬁ nancial instruments
Cash and cash equivalents

Total assets
Liabilities
Current liabilities
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
Borrowings and other ﬁ nancial liabilities
Derivative ﬁ nancial instruments
Provisions
Current tax liabilities

Non-current liabilities
Retirement beneﬁ t deﬁ cit
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
Borrowings and other ﬁ nancial liabilities
Derivative ﬁ nancial instruments
Provisions
Deferred tax liabilities

Total liabilities
Net assets
Equity
Issued share capital
Share premium account
Capital redemption reserve
Hedging reserve
Other reserve
Retained earnings
Total shareholders’ equity
Non-controlling interests in equity
Total equity

As at
28 March 2015
£m

As at
29 March 2014
£m

Notes

858.2
5,031.1
15.6
12.2
3.0
460.7
283.3
75.8
1.2
6,741.1

797.8
11.6
321.8
117.9
205.9
1,455.0
8,196.1

1,642.4
71.9
279.4
7.7
46.2
64.0
2,111.6

11.7
319.7
441.0
1,745.9
20.0
32.1
315.3
2,885.7
4,997.3
3,198.8

412.0
392.4
2,202.6
64.3
(6,542.2)
6,670.5
3,199.6
(0.8)
3,198.8

808.4
5,139.9
15.7
12.7
3.0
200.7
313.5
40.6
–
6,534.5

845.5
17.7
309.5
13.7
182.1
1,368.5
7,903.0

1,692.8
71.9
448.7
51.5
44.8
39.6
2,349.3

11.7
334.0
496.8
1,655.1
75.4
31.4
242.6
2,847.0
5,196.3
2,706.7

408.1
355.5
2,202.6
(41.8)
(6,542.2)
6,325.1
2,707.3
(0.6)
2,706.7

The ﬁ nancial statements were approved by the Board and authorised for issue on 19 May 2015. The ﬁ nancial statements also comprise
the notes on pages 94 to 125.

Marc Bolland Chief Executive Offi cer

Helen Weir Chief Finance Offi cer

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92
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 31 March 2013
Proﬁ t/(loss) for the year
Other comprehensive (expense)/income:

Foreign currency translation
Remeasurements of retirement
beneﬁ t schemes
Tax credit on retirement beneﬁ t schemes
Cash ﬂ ow and net investment hedges
– fair value movements in other

comprehensive income

– reclassiﬁ ed and reported in net proﬁ t³
– amount recognised in inventories
Tax on cash ﬂ ow hedges and net
investment hedges

Other comprehensive expense
Total comprehensive (expense)/income
Transactions with owners:

Dividends
Transactions with non-controlling
shareholders
Shares issued on exercise of employee
share options
Credit for share-based payments
Deferred tax on share schemes

As at 29 March 2014

As at 30 March 2014
Proﬁ t/(loss) for the year
Other comprehensive (expense)/income:

Foreign currency translation
Remeasurements of retirement
beneﬁ t schemes
Tax charge on retirement beneﬁ t schemes
Cash ﬂ ow and net investment hedges
– fair value movements in other

comprehensive income

– reclassiﬁ ed and reported in net proﬁ t³
– amount recognised in inventories
Tax on cash ﬂ ow hedges and net
investment hedges

Other comprehensive income
Total comprehensive (expense)/income
Transactions with owners:

Dividends
Transactions with non-controlling
shareholders
Shares issued on exercise of employee
share options
Purchase of own shares held by
employee trusts
Release of share-based payments
Deferred tax on share schemes

As at 28 March 2015

Ordinary
share
capital
£m

403.5
–

Share
premium
account
£m

Capital
redemption
reserve
£m

315.1 2,202.6
–

–

Hedging
reserve
£m

Other
reserve¹
£m

Retained
earnings²
£m

Non-
controlling
interest
£m

Total
£m

9.2
–

(6,542.2)
–

6,150.3 2,538.5
524.8

524.8

(19.0)
(18.8)

2,519.5
506.0

–

–
–

–
–
–

–

–
–

–
–
–

–

–
–

–
–
–

–

(0.7)

–
–

(117.6)
36.4
18.7

12.2
(51.0)
(51.0)

–

–
–

–
–
–

–

(21.6)

(22.3)

(85.3)
31.8

7.7
–
–

–
(67.4)
457.4

(109.9)
36.4
18.7

12.2
(118.4)
406.4

–

–
–

–
–
–

–
–
(18.8)

(22.3)

(85.3)
31.8

(109.9)
36.4
18.7

12.2
(118.4)
387.6

(273.6)

–

(273.6)

(39.3)

37.2

(2.1)

4.6
–
–
408.1

40.4
–
–

–
–
–
355.5 2,202.6

–
–
–
(41.8)

–
–
–
(6,542.2)

–
21.3
9.0
6,325.1

45.0
21.3
9.0
2,707.3

–
–
–
(0.6)

45.0
21.3
9.0
2,706.7

408.1
–

355.5 2,202.6
–

–

(41.8) (6,542.2) 6,325.1 2,707.3
486.5

486.5

–

–
–

–
–
–

–

–
–

–
–
–

–

3.9

36.9

–

–
–

–
–
–

–

(2.0)

–
–

210.9
(60.0)
(21.6)

(21.2)
106.1
106.1

–

(0.6) 2,706.7
481.7
(4.8)

–

–
–

–
–
–

–
–
(4.8)

(7.5)

193.7
(40.2)

221.2
(60.0)
(21.6)

(21.2)
264.4
746.1

–

–
–

–
–
–

(5.5)

(7.5)

193.7
(40.2)

10.3
–
–

–
158.3
644.8

221.2
(60.0)
(21.6)

(21.2)
264.4
750.9

–

(280.7)

–

(280.7)

–

4.6

40.8

–

40.8

–
–
–
412.0

–
–
–

–
–
–
392.4 2,202.6

–
–
–

(24.2)
(1.1)
6.6
64.3 (6,542.2) 6,670.5 3,199.6

(24.2)
(1.1)
6.6

–
–
–

(24.2)
(1.1)
6.6
(0.8) 3,198.8

1. The ‘Other reserve’ was originally created as part of the capital restructuring that took place in 2002. It represents the diff erence 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.

2. The ‘Retained earnings reserve’ includes a cumulative £12.6m loss (last year £7.1m loss) in the currency reserve.
3. Amounts reclassiﬁ ed and reported in proﬁ t have been recorded in cost of sales (£4.4m, last year £10.0m) and ﬁ nance costs (£55.6m, last year (£46.4m)).

93
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash ﬂ ows from operating activities
Cash generated from operations
Income tax paid
Net cash inﬂ ow from operating activities

Cash ﬂ ows from investing activities
Proceeds on property disposals
Purchase of property, plant and equipment
Purchase of intangible assets
Reduction/(purchase) of current ﬁ nancial assets
Interest received
Net cash used in investing activities

Cash ﬂ ows from ﬁ nancing activities
Interest paid1
Cash (outﬂ ow)/inﬂ ow from borrowings
(Repayment)/drawdown of syndicated loan notes
Redemption of medium-term notes
Decrease in obligations under ﬁ nance leases
Payment of liability to the Marks & Spencer UK Pension Scheme
Equity dividends paid
Shares issued on exercise of employee share options
Purchase of own shares by employee trust
Net cash used in ﬁ nancing activities

Net cash inﬂ ow from activities
Eff ects of exchange rate changes
Opening net cash
Closing net cash

1. Includes interest on the partnership liability to the Marks & Spencer UK Pension Scheme.

Reconciliation of net cash ﬂ ow to movement in net debt
Opening net debt
Net cash inﬂ ow from activities
(Decrease)/increase in current ﬁ nancial assets
Decrease in debt ﬁ nancing
Exchange and other non-cash movements
Movement in net debt
Closing net debt

Notes

52 weeks ended
28 March 2015
£m

52 weeks ended
29 March 2014
£m

1,349.1
(71.1)
1,278.0

1,175.5
(45.9)
1,129.6

35.4
(521.8)
(178.0)
6.0
9.3
(649.1)

(115.3)
(165.7)
(10.2)
–
(4.8)
(54.4)
(280.7)
40.8
(24.2)
(614.5)

14.4
(2.3)
175.7
187.8

25.0
(440.1)
(201.5)
(1.7)
3.4
(614.9)

(132.7)
167.5
154.1
(400.0)
(7.3)
(50.3)
(273.6)
44.2
–
(498.1)

16.6
(1.6)
160.7
175.7

52 weeks ended
28 March 2015
£m

52 weeks ended
29 March 2014
£m

Notes

(2,463.6)
14.4
(6.0)
235.1
(3.1)
240.4
(2,223.2)

(2,614.3)
16.6
1.7
136.0
(3.6)
150.7
(2,463.6)

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94
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

1 ACCOUNTING POLICIES

Basis of preparation
The ﬁ nancial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) and
IFRS Interpretations Committee (IFRS IC) interpretations, as
adopted by the European Union and with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.

In adopting the going concern basis for preparing the ﬁ nancial
statements, the directors have considered the business activities
as set out on pages 1 to 31 as well as the Group’s principal risks and
uncertainties as set out on pages 24 to 25. Based on the Group’s
cash ﬂ ow forecasts and projections, the Board is satisﬁ ed 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 ﬁ nancial statements.

The following IFRS, IFRS IC interpretations and amendments are
eff ective for the ﬁ rst time in this ﬁ nancial year:

IFRS 10 ‘Consolidated Financial Statements’, IFRS 11 ‘Joint
Arrangements’ and IFRS 12 ‘Disclosure of Interests in Other
Entities’ and the amendments to IAS 27 (2011) ‘Separate Financial
Statements’ and IAS 28 (2011) ‘Investments in Associates and Joint
Ventures’. These have not had a material impact on the Group.

There are no IFRS, IFRS IC interpretations or amendments that have
been issued but are not yet eff ective that would be expected to
have a material impact on the Group.

The Marks and Spencer Scottish Limited Partnership has taken
an exemption under paragraph 7 of the Partnership (Accounts)
Regulations 2008 for the requirement to prepare and deliver
ﬁ nancial statements in accordance with the Companies Act.

A summary of the Company’s and the Group’s accounting policies
is given below:

Accounting convention
The ﬁ nancial statements are drawn up on the historical cost basis
of accounting, as modiﬁ ed by ﬁ nancial assets and ﬁ nancial liabilities
(including derivative instruments) at fair value through proﬁ t
and loss.

Basis of consolidation
The Group ﬁ nancial statements incorporate the ﬁ nancial
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 ﬁ nancial statements of subsidiaries to bring the
accounting policies used in line with those used by the Group.

Subsidiaries
Subsidiary undertakings are all entities (including special purpose
entities) over which the Group has the power to govern the ﬁ nancial
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 are included from the
date of acquisition.

The separable net assets, including property, plant and equipment
and intangible assets, of the newly acquired subsidiary undertakings
are incorporated into the consolidated ﬁ nancial statements on the
basis of the fair value as at the eff ective 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 goods
are delivered and the signiﬁ cant risks and rewards of ownership have
been transferred to the buyer.

Supplier income
In line with industry practice, the Group enters into agreements with
suppliers to share the costs and beneﬁ ts of promotional activity
and volume growth. The Group receives income from its suppliers
based on the speciﬁ c agreements in place. This supplier income
received is recognised as a deduction from cost of sales based
on the entitlement that has been earned up to the balance
sheet date for each relevant supplier agreement. Marketing
contributions, equipment hire and other non-judgemental, ﬁ xed
rate supplier charges are not included in the Group’s deﬁ nition of
supplier income.

The types of supplier income recognised by the Group and the
recognition policies are:

A. Promotional contributions: Includes supplier contributions to
promotional giveaways and pre-agreed contributions to annual
‘spend and save’ activity.

Income is recognised as a deduction to cost of sales over the
relevant promotional period. Income is calculated and invoiced
at the end of the promotional period based on actual sales or
according to ﬁ xed contribution arrangements. Contributions
earned but not invoiced are accrued at the end of the
relevant period.

B. Volume-based rebates: Includes annual growth incentives,
seasonal contributions and contributions to share economies of
scale resulting from moving product supply.

Annual growth incentives are calculated and invoiced at the end of
the year, once earned, based on ﬁ xed percentage growth targets
agreed for each supplier at the beginning of the year. They are
recognised as a reduction in cost of sales in the year to which they
relate. Other rebates are agreed with the supplier and spread
over the relevant season/contract period to which they relate.
Contributions earned but not invoiced are accrued at the end of
the relevant period.

Uncollected supplier income at the balance sheet date is classiﬁ ed
within the ﬁ nancial statements as follows:

A. Trade and other payables: The majority of income due from
suppliers is netted against amounts owed to that supplier as
the Group has the right to off set these balances. As such the
outstanding supplier income within trade and other payables
at year end is immaterial.

B. Trade and other receivables: Supplier income that has been
earned but not invoiced at the balance sheet date is recognised in
Trade and other receivables and primarily relates to volume based
rebates that run up to the period end.

In order to provide users of the accounts with greater understanding
in this area, additional balance sheet disclosure is provided in note 17
to the ﬁ nancial statements.

Dividends
Final dividends are recorded in the ﬁ nancial 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.

For deﬁ ned beneﬁ t pension schemes, the diff erence between the
fair value of the assets and the present value of the deﬁ ned beneﬁ t
obligation is recognised as an asset or liability in the statement
of ﬁ nancial position. The deﬁ ned beneﬁ t obligation is actuarially
calculated using the projected unit credit method.

The service cost of providing retirement beneﬁ ts to employees
during the year, together with the cost of any beneﬁ ts relating to
past service, is charged to operating proﬁ t in the year.

95
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

1 ACCOUNTING POLICIES CONTINUED

Pensions continued
The net interest cost on the net retirement beneﬁ t asset/liability is
calculated by applying the discount rate, measured at the beginning
of the year, to the net deﬁ ned beneﬁ t asset/liability and is included
as a single net amount in ﬁ nance income.

Remeasurements being actuarial gains and losses, together with
the diff erence between actual investment returns and the return
implied by the net interest cost, are recognised immediately in the
statement of comprehensive income.

Payments to deﬁ ned contribution retirement beneﬁ t schemes are
charged as an expense as they fall due.

Intangible assets
A. Goodwill Goodwill arising on consolidation represents the
excess of the consideration transferred and the amount of any
non-controlling interest in the acquiree over the fair value of the
identiﬁ able 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 annually or as triggering
events occur. Any impairment is recognised immediately in the
income statement.

B. Brands Acquired brand values are held on the statement of
ﬁ nancial position initially at cost. Deﬁ nite life intangibles are
amortised on a straight-line basis over their estimated useful lives.
Indeﬁ nite life intangibles are tested for impairment annually or as
triggering events occur. 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 goods and services, as well as internal
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 three and ten years. Computer software under
development is held at cost less any recognised impairment
loss. Any impairment in value is recognised immediately in the
income statement.

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. Property is not revalued for accounting purposes. 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.

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 – depreciated over the remaining period of the lease.

> Fixtures, ﬁ ttings and equipment – three 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 recognised immediately in the
income statement.

Leasing
Where assets are ﬁ nanced by leasing agreements and the risks and
rewards are substantially transferred to the Group (ﬁ nance 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 ﬁ nance leases. Depreciation on leased assets
is charged to the income statement on the same basis as owned
assets, unless the term of the lease is shorter. 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, a rent free period) is recognised
as deferred income and is released over the life of the lease.

Leasehold prepayments
Payments made to acquire leasehold land and buildings are
included in prepayments at cost and are amortised over the life
of the lease.

Cash and cash equivalents
Cash and cash equivalents includes short-term deposits with banks
and other ﬁ nancial institutions, with an initial maturity of three
months or less and credit card payments received within 48 hours.

Inventories
Inventories are valued on a weighted average cost basis and carried
at the lower of cost and net realisable value. Cost includes all direct
expenditure and other attributable costs incurred in bringing
inventories to their present location and condition. All inventories
are ﬁ nished goods. Certain purchases of inventories may be subject
to cash ﬂ ow hedges for foreign exchange risk. The Group applies a
basis adjustment for those purchases in a way that the cost is initially
established by reference to the hedged exchange rate and not the
spot rate at the day of purchase.

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
best estimate of the expenditure required to settle the obligation at
the end of the reporting period, and are discounted to present value
where the eff ect 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 at each reporting period and the charge is adjusted to
reﬂ ect actual and estimated levels of vesting.

Foreign currencies
The results of overseas subsidiaries are translated at the weighted
average of monthly exchange rates for revenue and proﬁ ts. The
statements of ﬁ nancial position of overseas subsidiaries are
translated at year end exchange rates. The resulting exchange
diff erences are dealt with through reserves and reported in the
consolidated statement of comprehensive income.

Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction. Foreign currency
monetary assets and liabilities held at the end of the reporting
period are translated at the closing balance sheet rate. The resulting
exchange gain or loss is recognised within the income statement,
except when deferred in other comprehensive income as qualifying
cash ﬂ ow hedges and qualifying net investment hedges.

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96
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

1 ACCOUNTING POLICIES CONTINUED

Taxation
Tax expense comprises current and deferred tax. Tax is recognised
in the income statement, except to the extent it relates to items
recognised in other comprehensive income or directly in equity,
in which case the related tax is also recognised in other
comprehensive income or directly in equity.

Deferred tax is accounted for using a temporary diff erence
approach, and is the tax expected to be payable or recoverable
on temporary diff erences between the carrying amount of
assets and liabilities in the statement of ﬁ nancial position and the
corresponding tax bases used in the computation of taxable proﬁ t.
Deferred tax is calculated based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities, applying tax rates and laws enacted or substantively
enacted at the end of the reporting period.

Deferred tax liabilities are generally recognised for all taxable
temporary diff erences. Deferred tax liabilities are recognised
for taxable temporary diff erences arising on investments in
subsidiaries, associates and joint ventures, except where the
reversal of the temporary diff erence can be controlled by the
Group and it is probable that the diff erence will not reverse in
the foreseeable future.

Deferred tax liabilities are not recognised on temporary diff erences
that arise from goodwill which is not deductible for tax purposes.

Deferred tax assets are recognised to the extent it is probable
that taxable proﬁ ts will be available against which the deductible
temporary diff erences can be utilised. The carrying amount of
deferred tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is no longer probable that
suffi cient taxable proﬁ ts will be available to allow all or part of
the asset to be recovered.

Deferred tax assets and liabilities are not recognised in respect of
temporary diff erences that arise on initial recognition of assets
and liabilities acquired other than in a business combination.

Financial instruments
Financial assets and liabilities are recognised in the Group’s
statement of ﬁ nancial position when the Group becomes a party
to the contractual provisions of the instrument.

A. Trade and other receivables Trade receivables are recorded
initially at fair value and subsequently measured at amortised cost.
As such, this results in their recognition at nominal value less any
allowance for any doubtful debts.

B. Other ﬁ nancial assets Other ﬁ nancial assets consist of
investments in debt and equity securities and short-term
investments, and are classiﬁ ed as either ‘available-for-sale’ or ‘fair
value through proﬁ t or loss’. Available-for-sale ﬁ nancial assets are
initially measured at fair value, including transaction costs directly
attributable to the acquisition of the ﬁ nancial asset. Financial assets
held at fair value through proﬁ t or loss are initially recognised at fair
value and transaction costs are expensed.

Where securities are designated as ‘fair value through proﬁ t or loss’,
gains and losses arising from changes in fair value are included in
proﬁ t or loss for the period. For ‘available-for-sale’ investments,
gains or losses arising from changes in fair value are recognised
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 proﬁ t 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.

C. Classiﬁ cation of ﬁ nancial liabilities and equity Financial
liabilities and equity instruments are classiﬁ ed 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 fair value, which equals the proceeds received,
net of direct issue costs. They are subsequently held at amortised
cost. Finance charges, including premiums payable on settlement
or redemption and direct issue costs, are accounted for using an
eff ective 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 ﬁ nancial instrument in which case hedge
accounting treatment will apply.

F. Trade and other payables Trade and other 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 ﬁ nancial instruments and hedging activities
The Group primarily uses interest rate swaps and forward foreign
currency contracts to manage its exposures to ﬂ uctuations in
interest rates 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 end of the
reporting period. 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 ﬂ ows of a recognised asset or liability (a cash ﬂ ow hedge).

> A hedge of the exposure to change in the fair value of a

recognised asset or liability (a fair value hedge).

> A hedge of the exposure on the translation of net investments in

foreign entities (a net investment hedge).

At inception of a hedging relationship, the hedging instrument and
the hedged item are documented and prospective eff ectiveness
testing is performed. During the life of the hedging relationship,
eff ectiveness testing is performed to ensure the instrument
remains an eff ective hedge of the transaction. Changes in the fair
value of derivative ﬁ nancial instruments that do not qualify for
hedge accounting are recognised in the income statement as
they arise.

A. Cash ﬂ ow hedges Changes in the fair value of derivative ﬁ nancial
instruments that are designated and eff ective as hedges of future
cash ﬂ ows are recognised in other comprehensive income and any
ineff ective portion is recognised immediately in the income
statement. If the ﬁ rm commitment or forecast transaction that is
the subject of a cash ﬂ ow hedge results in the recognition of a non-
ﬁ nancial 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 aff ect proﬁ t or loss.

97
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

1 ACCOUNTING POLICIES CONTINUED

Derivative ﬁ nancial instruments and hedging activities
continued
B. Fair value hedges The changes in the fair value of a derivative
instrument designated in a fair value hedge, or for non-derivatives
the foreign currency component of carrying value, are recognised in
proﬁ t or loss. The hedged item is adjusted for changes in fair value
attributable to the risk being hedged with the corresponding entry
in proﬁ t or loss.

C. Net investment hedges Changes in the fair value of derivative
or non-derivative ﬁ nancial instruments that are designated and
eff ective as hedges of net investments are recognised in
comprehensive income in the hedging reserve and any ineff ective
portion is recognised immediately in the income statement.

Changes in the fair value of derivative ﬁ nancial instruments that
do not qualify for hedge accounting are recognised in the income
statement as they arise.

D. Discontinuance of hedge accounting Hedge accounting is
discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualiﬁ es 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 comprehensive income is transferred to proﬁ t or loss
for the period.

The Group does not use derivatives to hedge income statement
translation exposures.

Embedded derivatives
Derivatives embedded in other ﬁ nancial instruments or other host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contracts
and the host contracts are not carried at fair value, with unrealised
gains or losses reported in the income statement. Embedded
derivatives are carried in the statement of ﬁ nancial position at fair
value from the inception of the host contract.

Changes in fair value are recognised within the income statement
during the period in which they arise.

Critical accounting estimates and judgements
The preparation of consolidated ﬁ nancial statements requires
the Group to make estimates and assumptions that aff ect 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 diff er from these estimates. The estimates and
assumptions which have a signiﬁ cant risk of causing a material
adjustment to the carrying amount of assets and liabilities are:

A. Impairment of goodwill and brands The Group is required to
test annually or as triggering events occur, whether the goodwill
or brands have suff ered any impairment. The recoverable amount
is determined based on value in use calculations. The use of this
method requires the estimation of future cash ﬂ ows and the choice
of a suitable discount rate in order to calculate the present value of
these cash ﬂ ows. Where there is a non-controlling interest, goodwill
is tested for the business as a whole. This involves a notional increase
to goodwill, to reﬂ ect the non-controlling shareholders’ interest.
Actual outcomes could vary from those calculated. See note 14
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 14
and 15 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 14 and 15 for
further details.

D. Post-retirement beneﬁ ts The determination of the pension
cost and deﬁ ned beneﬁ t obligation of the Group’s deﬁ ned beneﬁ t
pension schemes depends on the selection of certain assumptions
which include the discount rate, inﬂ ation rate, salary growth,
mortality and expected return on scheme assets. Diff erences
arising from actual experiences or future changes in assumptions
will be reﬂ ected in subsequent periods. See note 11 for further
details of assumptions and note 12 for critical judgements
associated with the Marks & Spencer UK Pension Scheme interest
in the Marks and Spencer Scottish Limited Partnership.

E. Refunds, gift cards and loyalty schemes Accruals for sales
returns, deferred income in relation to loyalty scheme redemptions
and gift card and credit voucher redemptions are estimated on the
basis of historical returns and redemptions. These are recorded so as
to allocate them to the same period as that in which original revenue
is recorded. These balances are reviewed regularly and updated to
reﬂ ect management’s latest best estimates. However, actual returns
and redemptions could vary from those estimates.

F. Inventory valuation Inventories are stated at the lower of cost
and net realisable value, on a weighted average cost basis which
requires the estimation of the eventual sales price of goods to
customers in the future.

Non-underlying items
The directors believe that the underlying proﬁ t 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 underlying proﬁ t before
tax measure is not a recognised proﬁ t measure under IFRS and may
not be directly comparable with adjusted proﬁ t measures used by
other companies. The adjustments made to reported proﬁ t before
tax are to exclude the following:

> Proﬁ ts and losses on the disposal of properties or impairments of
properties where commitment to close has been demonstrated.

> One-off pension credits arising on changes to the deﬁ ned beneﬁ t

schemes’ rules and practices.

> Interest relating to signiﬁ cant and one-off repayments from tax

litigation claims.

> Restructuring costs.

> Signiﬁ cant and one-off impairment charges and provisions that

distort underlying trading.

> Fair value movement in ﬁ nancial instruments.

> Costs relating to strategy changes that are not considered

normal operating costs of the underlying business.

> Adjustment in income from HSBC in relation to M&S Bank due to a
non-recurring provision recognised by M&S Bank for the cost of
providing redress to customers in respect of possible mis-selling
of M&S Bank ﬁ nancial products.

> Ex-gratia payment received from HSBC in relation to the mis-

selling of ﬁ nancial products.

S
S
E
N
S
U
B
R
U
O

E
C
N
A
M
R
O
F
R
E
P
R
U
O

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F

98
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

2 SEGMENTAL INFORMATION

IFRS 8 requires operating segments to be identiﬁ ed on the basis of internal reporting on 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.

The chief operating decision maker has been identiﬁ ed as the executive directors. The executive directors review the Group’s internal
reporting in order to assess performance and allocate resources across each operating segment. 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 proﬁ t. This measurement
basis excludes the eff ects of non-underlying items from the operating segments. Central costs are all classiﬁ ed as UK costs and presented
within UK operating proﬁ t. The executive directors also monitor revenue within the segments and gross proﬁ t within the UK segment.
To increase transparency, the Group has decided to include an additional voluntary disclosure, analysing revenue within the reportable
segments by subcategory and gross proﬁ t within the UK segment by subcategory.

The following is an analysis of the Group’s revenue and results by reportable segment:

Management
£m

Adjustment¹
£m

General Merchandise revenue
Food revenue
UK revenue
Franchised
Owned
International revenue
Group revenue

General Merchandise gross proﬁ t
Food gross proﬁ t
UK gross proﬁ t
UK operating costs
M&S Bank
UK operating proﬁ t
International operating proﬁ t
Group operating proﬁ t

Finance income
Finance costs

3,987.4
5,234.7
9,222.1
341.3
747.0
1,088.3
10,310.4

2,098.9
1,718.5
3,817.4
(3,207.4)
60.2
670.2
92.3
762.5

15.5
(116.8)

1.0
–
1.0
–
–
–
1.0

(293.4)
277.6
(13.8)
(29.6)
(31.6)
(61.2)

2015

Statutory
£m

3,988.4
5,234.7
9,223.1
341.3
747.0
1,088.3
10,311.4

3,524.0
(2,929.8)
46.4
640.6
60.7
701.3

Management
£m

Adjustment¹
£m

4,094.5
5,063.2
9,157.7
404.0
750.0
1,154.0
10,311.7

2,074.9
1,646.7
3,721.6
(3,159.6)
57.2
619.2
122.7
741.9

20.1
(139.1)

(2.0)
–
(2.0)
–
–
–
(2.0)

(345.3)
377.2
(50.8)
(18.9)
(28.5)
(47.4)

4.9
–

2014

Statutory
£m

4,092.5
5,063.2
9,155.7
404.0
750.0
1,154.0
10,309.7

3,376.3
(2,782.4)
6.4
600.3
94.2
694.5

25.0
(139.1)

–
–

15.5
(116.8)

Proﬁ t before tax

661.2

(61.2)

600.0

622.9

(42.5)

580.4

1. Adjustments to revenue relate to an adjustment for refunds recognised in cost of sales for management accounting purposes (£1.3m credit, last year £2.0m charge) and an adjustment

for agency transactions presented gross in the management accounts (£0.3m charge, last year £nil). Management proﬁ t excludes the adjustments (income or charges) made to reported
proﬁ t before tax that are one-off in nature, signiﬁ cant and distort the Group’s underlying performance (see note 5). Management gross proﬁ t for the UK segment excludes certain
expenses resulting in an adjustment between cost of sales and selling and administrative expenses of £293.4m (last year £345.3m).

Other segmental information

Additions to property, plant and equipment
and intangible assets (excluding goodwill)
Depreciation and amortisation
Impairment and asset write-off s
Total assets
Non-current assets

UK
£m

International
£m

544.4
490.8
36.0
7,763.2
6,424.0

33.4
32.0
35.3
432.9
317.1

2015

Total
£m

577.8
522.8
71.3
8,196.1
6,741.1

UK
£m

International
£m

688.6
434.9
21.3
7,411.4
6,157.6

65.1
34.4
13.9
491.6
376.9

2014

Total
£m

753.7
469.3
35.2
7,903.0
6,534.5

99
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

3 EXPENSE ANALYSIS

Revenue
Cost of sales
Gross proﬁ t
Selling and administrative expenses
Other operating income
Underlying operating proﬁ t
Non-underlying items (see note 5)
Operating proﬁ t

The selling and administrative expenses are further analysed below:

Employee costs1
Occupancy costs
Repairs, renewals and maintenance of property
Depreciation, amortisation and asset write-off s
Other costs
Selling and administrative expenses

1. There are an additional £45.5m of employee costs recorded within cost of sales within the current year. These costs are included within note 10A.

4 PROFIT BEFORE TAXATION

The following items have been included in arriving at proﬁ t before taxation:

Net foreign exchange gains
Cost of inventories recognised as an expense
Depreciation of property, plant, and equipment
– owned assets
– under ﬁ nance leases
Amortisation of intangible assets
Loss/(proﬁ t) on property disposals
Operating lease rentals payable
– property
– ﬁ xtures, ﬁ tting and equipment

2015
Total
£m

10,311.4
(6,325.9)
3,985.5
(3,304.8)
81.8
762.5
(61.2)
701.3

2015
Total
£m

1,360.7
709.0
104.9
550.1
580.1
3,304.8

2015
£m

(12.7)
5,746.2

396.8
3.3
122.7
2.3

318.8
2.8

2014
Total
£m

10,309.7
(6,439.0)
3,870.7
(3,224.3)
95.5
741.9
(47.4)
694.5

2014
Total
£m

1,410.9
690.7
102.1
477.8
542.8
3,224.3

2014
£m

(5.1)
5,803.5

372.5
7.2
89.6
(82.2)

312.5
2.9

Included in administrative expenses is the auditor’s remuneration, including expenses for audit and non-audit services, payable to the
Company’s auditor Deloitte LLP and its associates (last year PricewaterhouseCoopers LLP) as follows:

Annual audit of the Company and the consolidated ﬁ nancial statements
Audit of subsidiary companies
Audit-related assurance services
Total audit and audit-related assurance services fees
Tax compliance services
Tax advisory services
Other services
Total non-audit fees

2015
£m

0.7
0.6
0.2
1.5
0.1
–
0.4
0.5

2014
£m

0.6
0.9
0.2
1.7
0.3
0.4
0.4
1.1

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E
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100
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

5 NON-UNDERLYING ITEMS

The adjustments made to reported proﬁ t before tax are income and charges that are one-off in nature, signiﬁ cant and distort the Group’s
underlying performance. These adjustments include:

> The Group has an economic interest in M&S Bank, a wholly-owned subsidiary of HSBC, by way of a Relationship Agreement that entitles

the Group to a 50% share of the proﬁ ts of M&S Bank after appropriate deductions. The Group does not share in any losses of M&S Bank and
is not obliged to refund any fees received from M&S Bank although future income may be impacted by signiﬁ cant one-off deductions.

Since the year ended 31 December 2012 M&S Bank has recognised an estimated liability for redress to customers in respect of possible
mis-selling of ﬁ nancial products in its audited ﬁ nancial statements. The Group’s fee income from M&S Bank has been reduced by the
deduction of this estimated liability (under the Relationship Agreement) in both the current and prior years. The total charge to date for
the deduction in the Group’s fee income is £139.2m. The deduction in the period is £53.7m. This has been treated as a non-underlying
adjustment to reported proﬁ t before tax, in line with previous periods.

On 26 September 2014 the Group reached agreement with M&S Bank and HSBC over a number of issues in connection with the
Relationship Agreement (including the extent of historical mis-selling charges). This resulted in an ex-gratia payment of £40.0m by HSBC
which was recognised as a non-underlying credit in the period (net of £0.1m legal fees), consistent with the deduction to the Group’s fee
income. On the same basis as previous periods, any future increase in the liability recognised by M&S Bank will result in a further reduction
in the Group’s fee income.

> Restructuring costs relating to the Group’s strategy to transition to a one tier distribution network and the closure costs of the legacy
logistics sites (current period cost of £10.2m). To date, £72.7m has been expensed in relation to this programme. Restructuring costs
have been incurred in Ireland in previous periods following a thorough commercial review of the Ireland business. In the current period,
resolution has been reached on a number of employee matters in Ireland resulting in the recognition of a net credit of £5.6m.

> IAS 39 fair value movement of the embedded derivative in a lease contract based upon the expected future RPI versus the lease contract

in which rent increases are capped at 2.5%, with a ﬂ oor of 1.5%.

> A small number of stores have been closed or are committed to close at year end resulting in a charge of £6.9m in the year from loss on
disposals (£2.3m) and asset impairments (£4.6m). The proﬁ t on property disposal in the prior year relates to the sale of a warehouse site
and mock shop in White City on 26 July 2013 to St James Group Ltd for a total consideration of £100m, £25m received on completion and
the remaining consideration to be deferred over three years.

> International store review in the current year relates to the impairment of assets (£34.9m) and onerous lease provisions (£2.3m) in

underperforming stores in Western Europe, Ireland and China. The prior year charge relates to the impairment of assets (£13.6m) and
onerous lease provisions (£8.3m) in underperforming International stores in non-strategic locations in China and the Czech Group.

> Pension credit recognised in the prior year as a result of changes to the Marks and Spencer Ireland deﬁ ned beneﬁ t scheme rules (£17.5m)
whereby the discretions for post-retirement pension increases were removed and prior year pension credit arising from the cessation of
the practice of granting pension increases to transferred-in pensions for all members in the UK deﬁ ned beneﬁ t scheme (£10.0m).

> Strategic programme costs relating to the strategy announcements made in November 2010, including the costs associated with

the initial Focus on the UK plans. These included asset write-off s and accelerated depreciation. These costs were not considered normal
operating costs of the business. We do not anticipate incurring any further cost in relation to this programme.

> Interest income (and related fees incurred) in the prior year on tax repayment relating to the successful outcome of litigation in relation

to the Group’s claim for UK tax relief of losses of its former European subsidiaries.

The adjustments made to reported proﬁ t before tax to arrive at underlying proﬁ t are:

Net M&S Bank charges incurred in relation to the insurance mis-selling provision
Restructuring costs
IAS 39 fair value movement of embedded derivative
(Loss)/proﬁ t on disposal and impairment once commitment to closure
International store review
UK and Ireland one-off pension credits
Strategic programme costs
Fees incurred on tax repayment
Adjustment to operating proﬁ t
Interest income on tax repayment
Adjustment to proﬁ t before tax

Notes

15, 22

2015
£m

(13.8)
(4.6)
1.3
(6.9)
(37.2)
–
–
–
(61.2)
–
(61.2)

2014
£m

(50.8)
(77.3)
(3.5)
82.2
(21.9)
27.5
(2.0)
(1.6)
(47.4)
4.9
(42.5)

101
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

6 FINANCE INCOME/COSTS

Bank and other interest receivable
Pension net ﬁ nance income (see note 11)
Underlying ﬁ nance income
Interest income on tax repayment (see note 7)
Finance income

Interest on bank borrowings
Interest payable on syndicated bank facility
Interest payable on medium-term notes
Interest payable on ﬁ nance leases
Unwind of discount on ﬁ nancial instruments
Unwind of discount on provisions
Unwinding of discount on partnership liability to the Marks & Spencer UK Pension Scheme (see note 12)
Finance costs
Net ﬁ nance costs

7 INCOME TAX EXPENSE

A. Taxation charge

Current tax
UK corporation tax on proﬁ ts for the year at 21% (last year 23%)
– current year
– adjustments in respect of prior years
UK current tax
Overseas current taxation
– current year
– adjustments in respect of prior years
Total current taxation
Deferred tax
– origination and reversal of temporary diff erences
– adjustments in respect of prior years
– changes in tax rate
Total deferred tax (see note 23)
Total income tax expense

2015
£m

5.0
10.5
15.5
–
15.5

(3.3)
(6.4)
(88.1)
(2.0)
(0.6)
(0.3)
(16.1)
(116.8)
(101.3)

2014
£m

8.4
11.7
20.1
4.9
25.0

(3.3)
(5.0)
(110.5)
(2.3)
(0.2)
–
(17.8)
(139.1)
(114.1)

2015
£m

2014
£m

106.5
(7.5)
99.0

12.3
(3.0)
108.3

5.8
4.5
(0.3)
10.0
118.3

97.1
(55.8)
41.3

14.5
(2.7)
53.1

17.7
26.2
(22.6)
21.3
74.4

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S
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B
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E
C
N
A
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P
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102
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

7 INCOME TAX EXPENSE CONTINUED

B. Taxation reconciliation
The eff ective tax rate was 19.7% (last year 12.8%) and is reconciled below:

Proﬁ t before tax
Notional taxation at the standard UK corporation tax rate of 21% (last year 23%)
Depreciation and other amounts in relation to ﬁ xed assets that do not qualify for tax relief
Other income and expenses that are not taxable or allowable for tax purposes
Retranslation of deferred tax balances due to the change in statutory UK tax rates
Overseas proﬁ ts taxed at rates diff erent to those of the UK
Overseas tax losses where there is no relief anticipated in the foreseeable future
Adjustments to current and deferred tax charges in respect of prior periods
Adjustments to underlying proﬁ t:
– International store review charges where no tax relief is available
– property disposal gain covered by other losses arising in the year
– deferred tax rate change beneﬁ t
– overseas rate diff erences
Non-underlying adjustment to current and deferred tax charges in respect of prior periods
Total income tax expense

2015
£m

600.0
126.0
5.3
(9.9)
(0.3)
(7.9)
4.8
(6.1)

7.7
(1.3)
0.1
(0.1)
–
118.3

2014
£m

580.4
133.5
4.3
(5.4)
(22.5)
(3.7)
8.7
(6.4)

4.9
(13.0)
–
–
(26.0)
74.4

After excluding non-underlying items the underlying eff ective tax rate was 18.9% (last year 18.8%).

The non-underlying adjustment to the tax charge in respect of prior periods arose from the successful outcome of litigation in relation to
the Group’s claim for UK tax relief of losses of its former European subsidiaries (£18.5m) and release of provisions following settlement of
disputes with the tax authorities (£7.5m).

C. Current tax reconciliation
The current tax reconciliation shows the main adjustments made to the Group’s accounting proﬁ ts in order to arrive at its taxable proﬁ ts.
The reconciling items diff er from those in note 7B as the eff ects of deferred tax timing diff erences are ignored below.

Proﬁ t before taxation
Notional taxation at standard UK corporation tax rate of 21% (last year 23%)
Disallowable accounting depreciation and other similar items
Deductible capital allowances
Allowable deductions for employee share schemes
Allowable deductions for employee pension schemes
Overseas proﬁ ts taxed at rates diff erent to those of the UK
Overseas tax losses where there is no immediate relief
Other income and expenses that are not taxable or allowable
Adjustments to underlying proﬁ t:
– International store review charges where no tax relief is available
– property disposal loss relievable in the future/(gain covered by other losses arising in the year)
– UK property and investment deduction where no tax relief is available
– embedded derivative
– overseas rate diff erences
Current year current tax charge

Represented by:
UK current year current tax
Overseas current year current tax

UK adjustments in respect of prior years
Overseas adjustments in respect of prior years
Total current taxation (note 7A)

2015
£m

600.0
126.0
86.1
(76.9)
(10.2)
(15.6)
(5.7)
4.8
1.9

7.7
0.5
0.6
(0.3)
(0.1)
118.8

106.5
12.3
118.8
(7.5)
(3.0)
108.3

2014
£m

580.4
133.5
85.8
(81.2)
(8.9)
(13.9)
(3.7)
8.7
(1.4)

4.9
(13.0)
–
0.8
–
111.6

97.1
14.5
111.6
(55.8)
(2.7)
53.1

103
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

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 underlying earnings per share ﬁ gures have also been calculated based on earnings before items that are one-off in nature, signiﬁ cant
and are not considered normal operating costs of the underlying business (see note 5). 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 four classes 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, unvested shares
granted under the Deferred Share Bonus Plan, unvested shares granted under the Restricted Share Plan and unvested shares within
the Performance Share Plan that have met the relevant performance conditions at the end of the reporting period.

Details of the underlying earnings per share are set out below:

Proﬁ t attributable to equity shareholders of the Company
Add/(less) (net of tax):
– Net M&S Bank charges incurred in relation to the insurance mis-selling provision
– Restructuring costs
– IAS 39 fair value movement of embedded derivative
– Loss/(proﬁ t) on disposal and impairment once commitment to closure
– International store review
– UK and Ireland one-off pension credits
– Fees incurred on tax repayment
– Strategic programme costs
– Non-underlying adjustment to tax charge in respect of prior periods
Underlying proﬁ t attributable to equity shareholders of the Company

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

Basic earnings per share
Diluted earnings per share
Underlying basic earnings per share
Underlying diluted earnings per share

9 DIVIDENDS

Dividends on equity ordinary shares
Paid ﬁ nal dividend
Paid interim dividend

2015
per share

2014
per share

10.8p
6.4p
17.2p

10.8p
6.2p
17.0p

2015
£m

486.5

10.9
3.9
(1.0)
4.3
36.6
–
–
–
–
541.2

2015
Million
1,635.6
11.3
1,646.9

2015
Pence
29.7
29.5
33.1
32.9

2015
£m

176.2
104.5
280.7

2014
£m

524.8

39.1
62.5
2.8
(76.3)
17.3
(23.3)
(2.5)
1.6
(26.0)
520.0

2014
Million
1,615.0
14.1
1,629.1

2014
Pence
32.5
32.2
32.2
31.9

2014
£m

173.6
100.0
273.6

The directors have proposed a ﬁ nal dividend in respect of the year ended 28 March 2015 of 11.6p per share amounting to a dividend of
£191.1m. It will be paid on 10 July 2015 to shareholders on the Register of Members as at close of business on 29 May 2015, subject to approval
of shareholders at the Annual General Meeting, to be held on 7 July 2015. In line with the requirements of IAS 10 ‘Events after the reporting
period’, this dividend has not been recognised within these results.

A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company.
The shares will go ex-dividend on 28 May 2015. For those shareholders electing to receive the DRIP the last date for receipt of a new election
is 19 June 2015.

The Group has a progressive dividend policy with dividends covered broadly twice by earnings, as explained in the Financial review on
page 16.

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104
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

10 EMPLOYEES

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

Wages and salaries
Social security costs
Other pension costs
Share-based payments (see note 13)
Employee welfare and other personnel costs
Capitalised staffi ng costs
Total aggregate remuneration

Details of key management compensation are given in note 28.

B. Average monthly number of employees

UK stores
– management and supervisory categories
– other
UK head offi ce
– management and supervisory categories
– other
UK operations
– management and supervisory categories
– other
Overseas
Total average number of employees

2015
Total
£m
1,224.3
80.9
85.4
(1.1)
49.7
(33.0)
1,406.2

2014
Total
£m
1,197.5
85.9
92.4
21.3
49.5
(35.7)
1,410.9

2015

2014

5,516
64,182

3,055
866

225
835
8,390
83,069

5,533
67,678

3,176
724

92
660
7,950
85,813

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 59,096 (last year 61,176).

C. Directors’ emoluments
Emoluments of directors of the Company are summarised below:

Aggregate emoluments

2015
£000

7,567

2014
£000

6,395

The emoluments include payments to directors who retired from the Board in 2014/15 of £362,000 (last year £430,000).

11 RETIREMENT BENEFITS

The Group provides pension arrangements for the beneﬁ t of its UK employees through the Marks & Spencer UK Pension Scheme (a deﬁ ned
beneﬁ t arrangement which was closed to new entrants with eff ect from 1 April 2002) and Your M&S Pension Saving Plan (a deﬁ ned
contribution arrangement which has been open to new members with eff ect from 1 April 2003).

The deﬁ ned contribution plan is a pension plan under which the Group pays contributions to an independently administered fund, such
contributions are based upon a ﬁ xed percentage of employees’ pay. The Group has no legal or constructive obligations to pay further
contributions to the fund once the contributions have been paid. Members’ beneﬁ ts are determined by the amount of contributions
paid by the Group and the member, together with investment returns earned on the contributions arising from the performance of each
individual’s chosen investments and the type of pension the member chooses to buy at retirement. As a result, actuarial risk (that beneﬁ ts
will be lower than expected) and investment risk (that assets invested in will not perform in line with expectations) fall on the employee.

The deﬁ ned beneﬁ t arrangement operates on a ﬁ nal salary basis and at the year end had some 12,000 active members (last year 13,000),
54,000 deferred members (last year 55,000) and 51,000 pensioners (last year 51,000). At the year end, the deﬁ ned contribution arrangement
had some 38,000 active members (last year 38,000) and some 6,000 deferred members (last year 5,000). The scheme is governed by a
Trustee board which is independent of the Group.

The Group also operates a small funded deﬁ ned beneﬁ t pension scheme in the Republic of Ireland. This scheme closed to future accrual
from 31 October 2013. Retirement beneﬁ ts also include a UK post-retirement healthcare scheme and unfunded retirement beneﬁ ts.

105
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

11 RETIREMENT BENEFITS CONTINUED

Within the total Group retirement beneﬁ t cost of £74.9m (last year £53.5m), £33.7m (last year £27.0m) relates to the UK deﬁ ned beneﬁ t
scheme, £36.4m (last year £39.2m) to the UK deﬁ ned contribution scheme and £4.8m (last year £12.7m) to other retirement beneﬁ t schemes.

The most recent actuarial valuation of the UK Deﬁ ned Beneﬁ t Pension Scheme was carried out at 31 March 2012 and showed a deﬁ cit of
£290m. As a result, a funding plan of £112m cash contributions was agreed with the Trustees. The Group contributed payments of £28m to
the UK deﬁ ned beneﬁ t scheme in March 2014 and March 2015 in the current ﬁ nancial year, and expects to contribute an additional £28m
each year until March 2017. The diff erence between the valuation and the funding plan is expected to be met by better than expected
investment returns on the scheme’s assets. Future contributions to meet the cost of accruing beneﬁ ts to the UK scheme are made at
the rate of 23.4% of pensionable salaries up to the next full actuarial valuation.

By funding its deﬁ ned beneﬁ t pension schemes, the Group is exposed to the risk that the cost of meeting its obligations is higher than
anticipated. This could occur for several reasons, for example:

> Investment returns on the schemes’ assets may be lower than anticipated, especially if falls in asset values are not matched by similar

falls in the value of the schemes’ liabilities.

> The level of price inﬂ ation may be higher than that assumed, resulting in higher payments from the schemes.

> Scheme members may live longer than assumed, for example due to unanticipated advances in medical healthcare. Members may
also exercise (or not exercise) options in a way that leads to increases in the schemes’ liabilities, for example through early retirement
or commutation of pension for cash.

> Legislative changes could also lead to an increase in the schemes’ liabilities.

In addition, the Group has an obligation to the UK deﬁ ned beneﬁ t scheme via the interest in the Scottish Limited Partnership (refer to
note 12), through which the Group is exposed to additional risks. In particular, under the legal terms of the Partnership, a default by the
Group on the rental payments to the Partnership or a future change in legislation could trigger earlier or higher payments, or an increase
in the collateral to be provided by the Group.

A. Pensions and other post-retirement liabilities

Total market value of assets
Present value of scheme liabilities
Net funded pension plan asset
Unfunded retirement beneﬁ ts
Post-retirement healthcare
Net retirement beneﬁ t asset

Analysed in the statement of ﬁ nancial position as:
Retirement beneﬁ t asset
Retirement beneﬁ t deﬁ cit

2015
£m

8,596.5
(8,135.8)
460.7
(0.7)
(11.0)
449.0

2014
£m

6,729.4
(6,528.7)
200.7
(0.7)
(11.0)
189.0

460.7
(11.7)
449.0

200.7
(11.7)
189.0

The asset recognised for the UK Deﬁ ned Beneﬁ t Scheme is based on the assumption that the full surplus will ultimately be available to the
Group as a future refund of surplus.

B. Financial assumptions
The ﬁ nancial assumptions for the UK scheme and the most recent actuarial valuations of the other post-retirement schemes have been
updated by independent qualiﬁ ed actuaries to take account of the requirements of IAS 19 ‘Employee Beneﬁ ts’ in order to assess the
liabilities of the schemes and are as follows:

Rate of increase in salaries
Rate of increase in pensions in payment for service
Discount rate
Inﬂ ation rate
Long-term healthcare cost increases

2015
%

1.0
1.9–3.0
3.10
3.1
7.1

2014
%

1.0
2.2–3.3
4.45
3.4
7.4

The inﬂ ation rate of 3.1% reﬂ ects the Retail Price Index (RPI) rate. Certain beneﬁ ts have been calculated with reference to the Consumer Price
Index (CPI) as the inﬂ ationary measure and in these instances a rate of 2.1% (last year 2.4%) has been used.

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106
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

11 RETIREMENT BENEFITS CONTINUED

C. Demographic assumptions
Apart from post-retirement mortality, the demographic assumptions are in line with those adopted for the last formal actuarial valuation of
the scheme performed as at 31 March 2012. The post-retirement mortality assumptions are based on an analysis of the pensioner mortality
trends under the scheme for the period to March 2012 updated to allow for anticipated longevity improvements over the subsequent
years. The speciﬁ c mortality rates used are based on the VITA lite tables, adjusted to allow for the experience of scheme pensioners.
The life expectancies underlying the valuation are as follows:

Current pensioners (at age 65) – males

Future pensioners (at age 65)

– females
– males
– females

Deferred pensioners (at age 65) – males

– females

2015

22.7
24.4
22.4
25.1
23.2
26.0

D. Sensitivity analysis
The table below summarises the estimated impact of changes in the principal actuarial assumptions on the pension scheme surplus:

(Decrease)/increase in scheme surplus caused by an increase in the discount rate of 0.25% (last year 0.5%)
Increase/(decrease) in scheme surplus caused by an increase in the inﬂ ation rate of 0.25%
Increase in scheme surplus caused by a decrease in the average life expectancy of one year

2015
£m

(70.0)
30.0
330.0

2014

22.4
24.1
21.8
24.6
22.6
25.4

2014
£m

50.0
(50.0)
230.0

The sensitivity analysis above is based on a change in one assumption while holding all others constant. Therefore interdependencies
between the assumptions have not been taken into account within the analysis.

E. Analysis of assets
The investment strategy of the UK deﬁ ned beneﬁ t pension scheme is driven by its liability proﬁ le, in particular its inﬂ ation-linked pension
beneﬁ ts. In addition to its interest in the Scottish Limited Partnership (refer to note 12), the scheme invests in diff erent types of bonds
(including corporate bonds and gilts) and derivative instruments (including inﬂ ation, interest rate, cross-currency and total return swaps) in
order to align movements in the value of its assets with movements in its liabilities arising from changes in market conditions. Broadly the
scheme has hedging that covers 90% of interest rate movements and 85% of inﬂ ation movements, as measured on the Trustee’s funding
assumptions which use a discount rate derived from gilt yields.

The fair value of the plan assets at the end of the reporting period for each category are as follows:

Debt investments
– government
– corporate bonds
– asset backed securities and structured debt
Scottish Limited Partnership interest (see note 12)
Equity investments – quoted
Equity investments – unquoted
Property
Derivatives
– interest and inﬂ ation rate swap contracts
– foreign exchange contracts and other derivatives
Hedge and reinsurance funds
Cash and cash equivalents
Other

2015
£m

2014
£m

4,180.0
1,211.0
363.9
531.3
1,131.8
178.0
327.1

(127.5)
190.9
313.6
306.2
(9.8)
8,596.5

2,319.0
1,255.7
232.0
574.7
998.1
110.1
278.6

51.3
123.3
329.8
444.1
12.7
6,729.4

The fair values of the above equity and debt investments are determined based on publicly available market prices wherever available.
Unquoted investments, hedge funds and reinsurance funds are stated at fair value estimates provided by the manager of the investment
or fund. Property includes both quoted and unquoted investments. The market value of the Scottish Limited Partnership interest is based
on the expected cash ﬂ ows and benchmark asset-backed credit spreads. It is the policy of the Scheme to hedge a proportion of interest rate
and inﬂ ation risk. The Scheme reduces its foreign currency exposure using forward foreign exchange contracts.

At year end, the UK scheme indirectly held 199,032 (last year 199,523) ordinary shares in the Company through its investment in UK Equity
Index Funds.

107
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

11 RETIREMENT BENEFITS CONTINUED

F. Analysis of amounts charged against proﬁ ts
Amounts recognised in comprehensive income in respect of retirement beneﬁ t plans are as follows:

Current service cost
Administration costs
Past service costs – curtailment charge
UK and Ireland one-off pension credits
Net interest income
Total

Remeasurement on the net deﬁ ned beneﬁ t surplus:
– actual return on scheme assets excluding amounts included in net interest income
– actuarial gain/(loss) – experience
– actuarial loss – demographic assumptions
– actuarial (loss)/gain – ﬁ nancial assumptions
Components of deﬁ ned beneﬁ t cost recognised in other comprehensive income
Total

G. Scheme assets
Changes in the fair value of the scheme assets are as follows:

Fair value of scheme assets at start of year
Interest income based on discount rate
Actual return on scheme assets excluding amounts included in net interest income¹
Employer contributions
Beneﬁ ts paid
Administration costs
Exchange movement
Fair value of scheme assets at end of year

1. The actual return on scheme assets was a gain of £2,015.4m (last year loss of £27.9m).

H. Pensions and other post-retirement liabilities
Changes in the present value of retirement beneﬁ t obligations are as follows:

Present value of obligation at start of year
Current service cost
Curtailment charge
One-off UK and Ireland pension credit (note 5)
Interest cost
Beneﬁ ts paid
Actuarial (gain)/loss – experience
Actuarial loss – demographic assumptions
Actuarial loss/(gain) – ﬁ nancial assumptions
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

The average duration of the deﬁ ned beneﬁ t obligation at 28 March 2015 is 18 years (last year 18 years).

2015
£m

82.4
2.0
1.0
–
(10.5)
74.9

1,722.4
33.7
(83.9)
(1,478.5)
193.7
268.6

2015
£m

6,729.4
293.0
1,722.4
143.0
(276.5)
(2.0)
(12.8)
8,596.5

2015
£m

6,540.4
82.4
1.0
–
282.5
(276.5)
(33.7)
83.9
1,478.5
(11.0)
8,147.5

8,135.8
0.7
11.0
8,147.5

2014
£m

88.7
3.0
1.0
(27.5)
(11.7)
53.5

(322.0)
(17.4)
–
254.1
(85.3)
(31.8)

2014
£m

6,930.0
294.0
(322.0)
92.1
(261.2)
(3.0)
(0.5)
6,729.4

2014
£m

6,694.0
88.7
1.0
(27.5)
282.3
(261.2)
17.4
–
(254.1)
(0.2)
6,540.4

6,528.7
0.7
11.0
6,540.4

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108
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

12 MARKS AND SPENCER SCOTTISH LIMITED PARTNERSHIP

Marks and Spencer plc is a general partner and the Marks & Spencer UK Pension Scheme is a limited partner of the Marks and Spencer
Scottish Limited Partnership (the Partnership). As such, the Partnership is consolidated into the results of the Group.

The Partnership holds £1.6bn (last year £1.6bn) of properties which have been leased back to Marks and Spencer plc at market rates. The
Group retains control over these properties, including the ﬂ exibility to substitute alternative properties. The limited partnership interest
(held by the Marks & Spencer UK Pension Scheme) entitles the Pension Scheme to receive an annual distribution of £71.9m from the proﬁ ts
of the Partnership earned from rental income.

The Partnership liability to the Marks & Spencer UK pension scheme of £512.9m (last year £568.7m) is valued at the net present value
of the future expected distributions from the Partnership.

During the year to 28 March 2015 an interest charge of £16.1m (last year £17.8m) was recognised in the income statement representing
the unwinding of the discount included in this obligation.

Under IAS 19, the Partnership interest of the Pension Scheme in the Partnership is included within the UK pension scheme assets, valued
at £531.3m (last year £574.7m), refer to note 11E.

13 SHARE-BASED PAYMENTS

This year a net credit of £1.1m was recognised for share-based payments (last year charge of £21.3m). The total balance comprises a credit
of £15.0m (last year charge of £4.1m) relating to Performance Share Plans off set by a charge of £9.0m (last year charge of £9.6m) relating to
the Save As You Earn Share Scheme. The remaining £4.9m charge is spread over the other schemes. Further details of the option and share
schemes that the Group operates are provided in the Remuneration Report on pages 52 to 76.

A. Save As You Earn scheme
Sharesave, the Company’s Save As You Earn scheme, was approved by shareholders at the 2007 AGM. Under the terms of the scheme,
the Board may off er options to purchase ordinary shares in the Company once in each ﬁ nancial year to those employees who enter into
Her Majesty’s Revenue & Customs (HMRC) approved Save As You Earn (SAYE) savings contract. The price at which options may be off ered is
80% of the average mid-market price for three consecutive dealing days preceding the off er date. The options may normally be exercised
during the six-month period after the completion of the SAYE contract.

Outstanding at beginning of the year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year

2015

2014

Number of options

Weighted average
exercise price

Number of
options

Weighted average
exercise price

34,423,922
14,389,736
(14,602,805)
(4,485,417)
(194,913)
29,530,523
1,352,847

311.6p
369.0p
256.8p
371.5p
302.8p
357.6p
268.7p

45,273,287
9,992,932
(16,921,571)
(3,058,210)
(862,516)
34,423,922
1,879,073

265.2p
405.0p
237.7p
300.6p
450.2p
311.6p
253.3p

For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 471.8p (last year 448.1p).

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

2015
3-year plan

2014
3-year plan

Nov 14
460p
369p
3 years
0.9%
23.6%
3.9%
91p

Nov 13
506p
405p
3 years
0.8%
24.2%
3.4%
105p

Volatility has been estimated by taking the historical volatility in the Company’s share price over a three-year period.

The resulting fair value is expensed over the service period of three years on the assumption that 10% (last year 10%) of options will lapse
over the service period as employees leave the Group.

109
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

13 SHARE-BASED PAYMENTS CONTINUED

Outstanding options granted under the UK Employees SAYE scheme are as follows:

Options granted

January 2009
January 2010
January 2011
January 2012
January 2013
January 2014
January 2015

Number of options

2015

2014

–
–
–
1,335,181
7,499,742
6,652,869
14,042,731
29,530,523

1,241,356
497
791,518
14,423,919
8,353,334
9,613,298
–
34,423,922

Weighted average remaining
contractual life (years)

2015

–
–
–
0.3
1.3
2.3
3.3
2.4

2014

0.3
–
0.3
1.3
2.3
3.3
–
2.0

Option price

203p
292p
319p
258p
312p
405p
369p
358p

B. Performance Share Plan*
The Performance Share Plan is the primary long-term incentive plan for approximately 150 of the most senior managers and was ﬁ rst
approved by shareholders at the 2005 AGM. Under the Plan, annual awards, based on a percentage of salary, may be off ered. The extent
to which an award vests is measured over a three-year period against a balanced scorecard of ﬁ nancial measures which currently include
Earnings Per Share (EPS), Return on Capital Employed (ROCE) and Revenue. 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 pages 66 to 68. Awards under this
scheme have been made in each year since 2005.

During the year, 7,338,609 shares (last year 7,113,690) were awarded under the Plan. The weighted average fair value of the shares awarded
was 439.3p (last year 440.7p). As at 28 March 2015, 18,805,388 shares (last year 21,170,536) were outstanding under the scheme.

As set out on page 66 of this Annual Report, the Company’s existing Performance Share Plan expires in 2015. The Company is therefore
seeking shareholder approval in 2015 for a replacement Plan, the rules and operation of which are substantially the same as the current Plan.
Further details of the replacement Performance Share Plan can be found in the Notice of Meeting 2015.

C. Deferred Share Bonus Plan*
The Deferred Share Bonus Plan was introduced in 2005/06 as part of the Annual Bonus Scheme for approximately 550 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 also be paid on vesting.

During the year, 20,882 shares (last year 1,658,133) have been awarded under the Plan in relation to the annual bonus. The fair value of the
shares awarded was 437.0p (last year 437.0p). As at 28 March 2015, 2,487,477 shares (last year 5,024,149) were outstanding under the scheme.

D. 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 vest at the end
of the restricted period (typically between one and three years) subject to the participant still being in employment of the Company on
the relevant vesting date. The value of any dividends earned during the restricted period will also be paid at the time of vesting.

During the year, 1,001,076 shares (last year 798,196) have been awarded under the Plan. The weighted average fair value of the shares
awarded was 450.5p (last year 479.2p). As at 28 March 2015, 1,963,139 shares (last year 2,271,826) were outstanding under the scheme.

E. 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 ten-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
off ered is 80% of the average mid-market price for three consecutive days preceding the off er date. Options cannot normally be exercised
until a minimum of three years has elapsed.

During the year, 121,086 (last year 62,734) options were granted, at a fair value of 90.8p (last year 105.1p). As at 28 March 2015, 288,162 options
(last year 251,545) were outstanding under the scheme.

F. Marks and Spencer Employee Beneﬁ t Trust
The Marks and Spencer Employee Beneﬁ t Trust (the Trust) holds 3,912,120 (last year 2,595,343) shares with a book value of £19.1m
(last year £8.6m) and a market value of £20.7m (last year £11.8m). These shares were acquired by the Trust in the market and are shown as
a reduction in retained earnings in the consolidated statement of ﬁ nancial position. Awards are granted to employees at the discretion
of Marks and Spencer plc and the Trust agrees to satisfy the awards in accordance with the wishes of Marks and Spencer plc under senior
executive share schemes. Dividends are waived on all of these plans.

* Nil cost options. For the purposes of calculating the number of shares awarded, the share price used is the average of the mid-market price for the ﬁ ve consecutive dealing days

preceding the grant date.

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110
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

14 INTANGIBLE ASSETS

At 30 March 2013
Cost or valuation
Accumulated amortisation and impairment
Net book value
Year ended 29 March 2014
Opening net book value
Additions
Transfers
Amortisation charge
Exchange diff erence
Closing net book value
At 29 March 2014
Cost or valuation
Accumulated amortisation and impairment
Net book value
Year ended 28 March 2015
Opening net book value
Additions
Transfers
Disposals
Asset write-off s
Amortisation charge
Exchange diff erence
Closing net book value
At 28 March 2015
Cost or valuation
Accumulated amortisation and impairment
Net book value

Goodwill
£m

127.0
(34.4)
92.6

92.6
3.3
–
–
(0.7)
95.2

129.6
(34.4)
95.2

95.2
–
–
–
–
–
0.1
95.3

129.7
(34.4)
95.3

Brands
£m

112.4
(45.2)
67.2

67.2
–
–
(5.3)
–
61.9

112.4
(50.5)
61.9

61.9
0.1
–
–
–
(5.3)
–
56.7

112.5
(55.8)
56.7

Goodwill and indeﬁ nite life intangibles relate to the following business units:

Net book value at 29 March 2014
Exchange diff erence
Net book value at 28 March 2015

Marks and
Spencer
Czech Republic
a.s.
£m
15.5
(0.1)
15.4

per una
£m
69.5
–
69.5

Supreme
Trademarks
Private
Limited
(India)
£m
6.9
0.2
7.1

613.4
(261.4)
352.0

352.0
128.0
137.4
(84.3)
(0.2)
532.9

878.6
(345.7)
532.9

532.9
79.4
130.1
(1.4)
(2.4)
(117.4)
(0.4)
620.8

1,087.7
(466.9)
620.8

Marks and
Spencer
(Hungary)
KFT
£m
3.3
–
3.3

Computer
software
£m

Computer
software under
development
£m

Total
£m

1,036.0
(341.0)
695.0

695.0
203.9
–
(89.6)
(0.9)
808.4

1,239.0
(430.6)
808.4

808.4
178.0
–
(1.4)
(3.6)
(122.7)
(0.5)
858.2

1,416.5
(558.3)
858.2

183.2
–
183.2

183.2
72.6
(137.4)
–
–
118.4

118.4
–
118.4

118.4
98.5
(130.1)
–
(1.2)
–
(0.2)
85.4

86.6
(1.2)
85.4

Total
goodwill
£m
95.2
0.1
95.3

M&S Mode
indeﬁ nite life
intangible
£m
32.4
–
32.4

Impairment testing
Goodwill is not amortised, but tested annually for impairment with the recoverable amount being determined from value in use
calculations. Goodwill has been allocated for impairment testing purposes to groups of cash-generating units (CGUs) which include
the combined retail and wholesale businesses for each location.

Brands include the per una brand cost of £80.0m (net book value £24.2m) and the M&S Mode brand cost of £32.4m. The per una brand is a
deﬁ nite life intangible asset and is amortised on a straight-line basis over a period of 15 years and is only assessed for impairment where
such indicators exist. The M&S Mode brands have been attributed an indeﬁ nite life as they give the Group the future right to use the ‘M&S’
brand across Europe. This is consistent with the Group’s expansion plans in Europe and existing M&S brand recognition from its current
presence. Similar to goodwill, the M&S Mode brands are assessed for impairment annually based on their value in use. The M&S Mode brands
have been allocated for impairment testing across the European business.

The value in use calculations use cash ﬂ ows based on detailed ﬁ nancial budgets prepared by management covering a three-year period.
These budgets have regard to historical performance and knowledge of the current market, together with management’s views on the
future achievable growth and the impact of committed initiatives. The cash ﬂ ows which derive from the budgets include ongoing capital
expenditure required to maintain the store network. Cash ﬂ ows beyond this three-year period are extrapolated using a long-term
growth rate.

The key assumptions in the value in use calculations are the long-term growth rate and the risk adjusted pre-tax discount rate. The long-
term growth rate has been determined with reference to forecast GDP growth for the territories in which these businesses operate.
Management believes this is the most appropriate indicator of long-term growth rates that is available. The long-term growth rate used
is purely for the impairment testing of goodwill and brands under IAS 36 ‘Impairment of Assets’ and does not reﬂ ect long-term planning
assumptions used by the Group for investment proposals or for any other assessments. These growth rates do not exceed the long-term
average growth rate for the Groups’ retail businesses. The pre-tax discount rate is based on the Group’s weighted average cost of capital,
taking into account the cost of capital and borrowings, to which speciﬁ c market-related premium adjustments are made.

111
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

14 INTANGIBLE ASSETS CONTINUED

Impairment testing continued
The values attributed to the key assumptions are as follows:

per una
Marks and Spencer Czech Republic a.s.
Supreme Trademarks Private Limited (India)
Marks and Spencer (Hungary) KFT

Long-term growth rate

Pre-tax discount rate

2015
%

2.0
1.9
6.8
1.4

2014
%

2.0
2.5
6.0
1.5

2015
%

8.6
10.1
15.4
11.0

2014
%

11.0
13.1
18.3
17.0

The M&S Mode brands are tested based on the regions operating in the European business which are covered under the brand rights
acquired. The discount rates used to calculate value in use range from 9.3% to 27.9% (last year 13.1% to 28.9%). Cash ﬂ ows beyond the
three-year period have been extrapolated at long-term growth rates ranging from 1.0% to 4.0% (last year 1.0% to 2.5%).

Sensitivity analysis
Whilst management believes the assumptions are realistic it is possible that an impairment would be identiﬁ ed if any of the above key
assumptions were changed signiﬁ cantly. A sensitivity analysis has been performed on each of these key assumptions with other variables
held constant. Management have concluded that there are no reasonably possible changes in any key assumptions that would cause the
carrying amount of goodwill or brands to exceed the value in use.

15 PROPERTY, PLANT AND EQUIPMENT

At 30 March 2013
Cost
Accumulated depreciation and asset write-off s
Net book value
Year ended 29 March 2014
Opening net book value
Additions
Transfers
Disposals
Asset impairments
Asset write-off s
Depreciation charge
Exchange diff erence
Closing net book value
At 29 March 2014
Cost
Accumulated depreciation, impairments and asset write-off s
Net book value
Year ended 28 March 2015
Opening net book value
Additions
Transfers
Disposals
Asset impairments
Asset write-off s
Depreciation charge
Exchange diff erence
Closing net book value
At 28 March 2015
Cost
Accumulated depreciation, impairments and asset write-off s
Net book value

Land and
buildings
£m

2,817.1
(305.5)
2,511.6

2,511.6
34.6
41.7
(15.2)
(11.6)
(2.7)
(15.0)
(3.7)
2,539.7

2,871.7
(332.0)
2,539.7

2,539.7
19.0
14.5
(12.5)
(13.3)
(1.0)
(14.8)
(16.3)
2,515.3

2,855.1
(339.8)
2,515.3

Fixtures,
ﬁ ttings and
equipment
£m

Assets in the
course of
construction
£m

6,198.1
(3,988.4)
2,209.7

2,209.7
362.7
169.1
(5.3)
(13.6)
(1.3)
(364.7)
(6.6)
2,350.0

6,686.8
(4,336.8)
2,350.0

2,350.0
213.0
268.4
(0.2)
(35.4)
(6.6)
(385.1)
(10.0)
2,394.1

7,066.4
(4,672.3)
2,394.1

312.4
–
312.4

312.4
155.8
(210.8)
–
–
(6.0)
–
(1.2)
250.2

256.2
(6.0)
250.2

250.2
167.8
(282.9)
–
–
(11.4)
(0.2)
(1.8)
121.7

133.3
(11.6)
121.7

Total
£m

9,327.6
(4,293.9)
5,033.7

5,033.7
553.1
–
(20.5)
(25.2)
(10.0)
(379.7)
(11.5)
5,139.9

9,814.7
(4,674.8)
5,139.9

5,139.9
399.8
–
(12.7)
(48.7)
(19.0)
(400.1)
(28.1)
5,031.1

10,054.8
(5,023.7)
5,031.1

The net book value above includes land and buildings of £42.7m (last year £43.7m) and equipment of £1.1m (last year £4.2m) where the Group
is a lessee under a ﬁ nance lease.

Additions to property, plant and equipment during the year amounting to £nil (last year £nil) were ﬁ nanced by new ﬁ nance leases.

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112
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

16 OTHER FINANCIAL ASSETS

Non-current
Unlisted investments
Current
Short-term investments¹
Unlisted investments

2015
£m

3.0

11.6
–
11.6

2014
£m

3.0

12.4
5.3
17.7

1. Includes £1.2m (last year £1.5m) of money market deposits held by Marks and Spencer plc in an escrow account.

Non-current unlisted investments are carried as available-for-sale assets. Other ﬁ nancial assets are measured at fair value with changes
in their value taken to the income statement.

17 TRADE AND OTHER RECEIVABLES

Non-current
Other receivables
Prepayments and accrued income

Current
Trade receivables
Less: Provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income

2015
£m

56.8
226.5
283.3

128.6
(4.9)
123.7
53.3
144.8
321.8

2014
£m

82.8
230.7
313.5

127.5
(0.7)
126.8
53.9
128.8
309.5

Trade and other receivables that were past due but not impaired amounted to £1.4m (last year £6.4m) and are mainly sterling denominated.
The directors consider that the carrying amount of trade and other receivables approximates their fair value. Included in prepayments and
accrued income is £13.5m (last year £9.3m) of accrued supplier income relating to rebates which have been earned but not yet invoiced.
Supplier income that has been invoiced but not yet settled against future trade creditor balances is included within trade creditors. The
amount is immaterial. The impact on inventory is also immaterial as these rebates relate to food stock which has been sold through by
the year end.

18 CASH AND CASH EQUIVALENTS

Cash and cash equivalents are £205.9m (last year £182.1m). The carrying amount of these assets approximates their fair value.

The eff ective interest rate on short-term bank deposits is 0.48% (last year 0.41%). These deposits have an average maturity of 42 days
(last year eight days).

19 TRADE AND OTHER PAYABLES

Current
Trade and other payables1
Social security and other taxes
Accruals and deferred income1, 2

Non-current
Other payables

1. The prior year balances have been re-presented to correctly classify accruals balances that were previously held in trade and other payables.
2. During the year £22.2m was reclassiﬁ ed from accruals and deferred income to provisions.

2015
£m

2014
£m

967.6
57.7
617.1
1,642.4

929.1
58.4
705.3
1,692.8

319.7

334.0

113
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

20 BORROWINGS AND OTHER FINANCIAL LIABILITIES

Current
Bank loans and overdrafts¹
Finance lease liabilities

Non-current
Bank loans
6.250% US$500m medium-term notes 2017³
6.125% £400m medium-term notes 2019²
6.125% £300m medium-term notes 2021²
4.75% £400m medium-term notes 2025²
7.125% US$300m medium-term notes 2037³
Finance lease liabilities

Total

2015
£m

278.9
0.5
279.4

0.1
341.9
428.8
302.5
420.2
204.3
48.1
1,745.9
2,025.3

2014
£m

445.5
3.2
448.7

0.2
306.3
422.3
302.1
392.3
182.9
49.0
1,655.1
2,103.8

1. Bank loans and overdrafts include a £5.0m (last year £5.0m) loan from the Hedge End Park Limited joint venture (see note 28).
2. These notes are issued under Marks and Spencer plc’s £3bn European medium-term note programme and all pay interest annually.
3. Interest on these bonds is payable semi-annually.

Finance leases
The minimum lease payments under ﬁ nance leases fall due as shown in the table on the following page. It is the Group’s policy to lease
certain properties and equipment under ﬁ nance leases. The average lease term for equipment is six years (last year ﬁ ve years) and 124 years
(last year 125 years) for property. Interest rates are ﬁ xed at the contract rate. All leases are on a ﬁ xed repayment basis and no arrangements
have been entered into for contingent payments. The Group’s obligations under ﬁ nance leases are secured by the lessors’ charges over the
leased assets.

21 FINANCIAL INSTRUMENTS

Treasury policy
The Group operates a centralised treasury function to manage the Group’s funding requirements and ﬁ nancial risks in line with the Board
approved treasury policies and procedures, and their delegated authorities.

The Group’s ﬁ nancial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items, such as trade
receivables and trade payables that arise directly from its operations. The main purpose of these ﬁ nancial instruments is to ﬁ nance the
Group’s operations.

The Group treasury function also enters into derivative transactions, principally interest rate swaps, cross-currency swaps and forward
currency contracts. The purpose of these transactions is to manage the interest rate and foreign currency risks arising from the Group’s
operations and ﬁ nancing.

It remains the Group’s policy not to hold or issue ﬁ nancial instruments for trading purposes, except where ﬁ nancial 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.

Financial risk management
The principal ﬁ nancial risks faced by the Group are liquidity and funding, interest rate, foreign currency and counterparty risks. The policies
and strategies for managing these risks are summarised on the following pages.

(a) Liquidity and funding risk
The risk that the Group could be unable to settle or meet its obligations at a reasonable price as they fall due:

> The Group’s funding strategy ensures a mix of funding sources off ering suffi cient headroom, maturity and ﬂ exibility and cost

eff ectiveness to match the requirements of the Group.

> Marks and Spencer plc is ﬁ nanced by a combination of retained proﬁ ts, bank borrowings, medium-term notes and committed syndicated

bank facilities.

> Operating subsidiaries are ﬁ nanced by a combination of retained proﬁ ts, bank borrowings and intercompany loans.

At year end, the Group had a committed syndicated bank revolving credit facility of £1.325bn set to mature on 28 September 2018. This
facility contains only one ﬁ nancial covenant being the ratio of earnings before interest, tax, depreciation, amortisation, rents payable
and exceptional items : 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 £100m (last year £80m), all of which are due to be reviewed within
a year. At the balance sheet date a sterling equivalent of £225m (last year £234m) was drawn under the committed facilities and £nil
(last year £23m) 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 £1.1bn (last year £1.1bn)
was in issuance as at the balance sheet date.

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114
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Financial risk management continued
The contractual maturity of the Group’s non-derivative ﬁ nancial liabilities (excluding trade and other payables (see note 19)) and derivatives
is as follows:

Timing of cash ﬂ ows
Within one year
Between one and two years
Between two and ﬁ ve years
More than ﬁ ve years

Eff ect of discounting and
foreign exchange
At 29 March 2014
Timing of cash ﬂ ows
Within one year
Between one and two years
Between two and ﬁ ve years
More than ﬁ ve years

Eff ect of discounting and
foreign exchange
At 28 March 2015

Bank loans
and
overdrafts
£m

Syndicated
bank facility
£m

Medium-
term
notes
£m

Finance
lease
liabilities
£m

Partnership
liability to
the Marks
& Spencer
UK Pension
£m

Total
borrowings
and other
ﬁ nancial
liabilities
£m

Derivative
assets1
£m

Derivative
liabilities1
£m

Total
£m

(29.7)
3.6
(31.0)
(53.4)
(110.5)

(211.6)
(0.2)
–
–
(211.8)

–
(211.8)

(54.0)
(0.1)
–
–
(54.1)

(233.9)
–
–
–
(233.9)

(93.5)
(93.5)
(562.6)
(1,737.4)
(2,487.0)

(5.5)
(2.9)
(6.9)
(185.6)
(200.9)

(71.9)
(71.9)
(215.6)
(287.3)
(646.7)

(616.4)
(168.5)
(785.1)
(2,210.3)
(3,780.3)

1,849.9
207.4
383.4
425.5
2,866.2

(1,879.6)
(203.8)
(414.4)
(478.9)
(2,976.7)

–
(233.9)

881.1
(1,605.9)

148.7
(52.2)

78.0
(568.7)

1,107.8
(2,672.5)

(224.9)
–
–
–
(224.9)

(97.2)
(97.2)
(985.2)
(1,310.3)
(2,489.9)

(2.5)
(2.4)
(7.2)
(180.5)
(192.6)

(71.9)
(71.9)
(215.6)
(215.6)
(575.0)

(450.5)
(171.6)
(1,208.0)
(1,706.4)
(3,536.5)

2,214.0 (2,092.4)
(224.5)
(390.0)
(440.8)
(3,147.7)

238.3
414.0
459.6
3,325.9

121.6
13.8
24.0
18.8
178.2

–
(54.1)

–
(224.9)

792.2
(1,697.7)

144.0
(48.6)

62.1
(512.9)

998.3
(2,538.2)

1. Derivative assets and derivative liabilities amounts represent the fair value as at the balance sheet date of the foreign exchange forward contracts and the forecasted interest payments
on the swap contracts together with the ﬁ nal exchange of notional at the end of the contracts. Such cash ﬂ ows were translated into sterling using spot rates as of the balance sheet date
for the cross-currency interest rate swaps.

The present value of ﬁ nance lease liabilities is as follows:

Within one year
Later than one year and not later than ﬁ ve years
Later than ﬁ ve years
Total

2015
£m

(0.5)
(1.0)
(47.1)
(48.6)

2014
£m

(3.2)
(1.2)
(47.8)
(52.2)

(b) Counterparty risk
Counterparty risk exists where the Group can suff er ﬁ nancial loss through default or non-performance by ﬁ nancial institutions with
whom it transacts.

Exposures are managed in accordance with the Group treasury policy which limits the value that can be placed with each approved
counterparty to minimise the risk of loss. The minimum long-term rating for all counterparties is long-term Standard & Poor’s(A-)/Moody’s
(A3). Credit ratings quoted on the following page are in line with Standard & Poor’s equivalent. In the event of a downgrade by one rating
agency and not the other, reference will be made to Fitch to determine the casting vote of the rating group. In the abscence of a Fitch rating
the lower rating will prevail. Limits are reviewed regularly by senior management. The credit risk of these ﬁ nancial instruments is estimated
as the fair value of the assets resulting from the contracts.

115
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Financial risk management continued
(b) Counterparty risk 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 29 March 2014

Short-term investments1
Derivative assets2
At 28 March 2015

AAAm
£m

–
–
–

AAA
£m

–
–
–

AAAm
£m

AAA
£m

–
–
–

Credit rating of counterparty³

AA
£m

–
–
–

AA
£m

–
–
–

AA-
£m

12.0
7.6
19.6

AA-
£m

3.5
21.5
25.0

A+
£m

12.0
0.5
12.5

A+
£m

39.9
21.8
61.7

A
£m

37.8
11.7
49.5

A
£m

57.4
52.1
109.5

A-
£m

–
5.5
5.5

A-
£m

–
46.9
46.9

BBB+4
£m

–
6.6
6.6

BBB+
£m

–
–
–

Total
£m

61.8
31.9
93.7

Total
£m

100.8
142.3
243.1

1. Includes cash on deposit and money market funds held by Marks and Spencer Scottish Limited Partnership, Marks and Spencer plc and Marks & Spencer General Insurance.
2. Excludes the embedded derivative within the lease host contract.
3. Standard & Poor’s equivalent rating shown as reference to the majority credit rating of the counterparty from either Standard & Poor’s, Moody’s or Fitch where applicable.
4. Exposure to a counterparty approved as an exception to Treasury policy.

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 £129m (last year £128m), other receivables
£110m (last year £136m), cash and cash equivalents £206m (last year £182m) and derivatives £194m (last year £54m).

(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 hedges 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 for 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.

As at the balance sheet date the gross notional value in sterling terms of forward foreign exchange sell or buy contracts amounted to
£1,591m (last year £1,600m) with a weighted average maturity date of seven months (last year six months).

Gains and losses in equity on forward foreign exchange contracts as at 28 March 2015 will be released to the income statement at various
dates over the following 16 months (last year 16 months) from the balance sheet date.

The Group also holds a number of cross-currency swaps to re-designate its ﬁ xed rate US dollar debt to ﬁ xed rate sterling debt. These are
reported as cash ﬂ ow hedges.

The Group uses a combination of foreign currency debt and derivatives to hedge balance sheet translation exposures. As at the balance
sheet date €144m of currency debt (last year €162m of derivatives) and HK$1,398m (last year HK$698m) of derivatives were 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 £412m (last year £417m).

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C
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A
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A
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116
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

(c) Foreign currency risk continued
After taking into account the hedging derivatives entered into by the Group, the currency and interest rate exposure of the Group’s ﬁ nancial
liabilities excluding short-term payables and the liability to the Marks & Spencer UK Pension Scheme (which has no currency or interest rate
exposure) is set out below:

Currency
Sterling
Euro
Other

2015

Fixed rate
£m

Floating rate
£m

Total
£m

Fixed rate
£m

1,315.4
5.8
–
1,321.2

568.2
105.6
30.3
704.1

1,883.6
111.4
30.3
2,025.3

1,226.5
6.6
–
1,233.1

2014

Floating rate
£m

708.6
139.3
22.8
870.7

Total
£m

1,935.1
145.9
22.8
2,103.8

The ﬂ oating rate sterling and euro borrowings are linked to interest rates related to LIBOR. These rates are for periods between one and
six months.

As at the balance sheet date and excluding ﬁ nance leases, the ﬁ xed rate sterling borrowings are at an average rate of 5.3% (last year 5.3%)
and the weighted average time for which the rate is ﬁ xed is eight years (last year nine years).

(d) Interest rate risk
The Group is exposed to interest rate risk in relation to sterling, US dollar and euro variable rate ﬁ nancial assets and liabilities.

The Group’s policy is to use derivative contracts where necessary to maintain a mix of ﬁ xed and ﬂ oating 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 ﬂ ow
hedges as appropriate.

At the balance sheet date, ﬁ xed rate borrowings amounted to £1,321.2m (last year £1,233.1m) representing the public bond issues and
ﬁ nance leases, amounting to 66% (last year 59%) of the Group’s gross borrowings.

The eff ective interest rates at the balance sheet date were as follows:

Committed and uncommitted borrowings
Medium-term notes
Finance leases

Derivative ﬁ nancial instruments

Current
Forward foreign exchange contracts – cash ﬂ ow hedges

– held for trading
– net investment hedges

Non-current
Cross-currency swaps
– cash ﬂ ow hedges
Forward foreign exchange contracts – cash ﬂ ow hedges
Interest rate swaps
Embedded derivative (see note 5)

– fair value hedge

2015
%

0.9
5.3
4.1

2014
%

1.0
5.3
4.3

2015

Assets
£m

Liabilities
£m

2014

Assets
£m

Liabilities
£m

114.8
3.1
–
117.9

6.3
7.3
38.5
23.7
75.8

(7.2)
(0.4)
(0.1)
(7.7)

(19.9)
(0.1)
–
–
(20.0)

12.1
1.6
–
13.7

–
0.3
17.9
22.4
40.6

(50.9)
(0.6)
–
(51.5)

(62.3)
(0.9)
(12.2)
–
(75.4)

The Group holds a number of interest rate swaps to re-designate its sterling ﬁ xed debt to ﬂ oating debt. These are reported as fair value
hedges. The ineff ective portion recognised in the proﬁ t or loss that arises from fair value hedges amounts to £0.3m (last year £0.5m) as
the loss on the hedged item was £33.5m (last year £33.7m gain) and the gain on the hedging instrument was £33.8m (last year £34.2m loss).
The Group also holds a number of cross-currency swaps to re-designate its ﬁ xed rate US dollar debt to ﬁ xed rate sterling debt. These are
reported as cash ﬂ ow hedges.

117
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 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 the Group’s ﬁ nancial instruments. The directors consider that a 2% +/- (last year 2%) movement in interest
rates and a 20% +/- (last year 20%) weakening in sterling against the relevant currency represents a reasonable possible change. However
this analysis is for illustrative purposes only.

The table excludes ﬁ nancial instruments that expose the Group to interest rate and foreign exchange risk where such risk is fully hedged
with another ﬁ nancial instrument. Also excluded are trade receivables and payables as these are either sterling denominated or the foreign
exchange risk is hedged.

Interest rates: the impact in the income statement due to changes in interest rates reﬂ ects the eff ect on the Group’s ﬂ oating rate debt as
at the balance sheet date. The impact in equity reﬂ ects the fair value movement in relation to the Group’s cross-currency swaps.

Foreign exchange: the impact from foreign exchange movements reﬂ ects the change in the fair value of the Group’s transactional foreign
exchange cash ﬂ ow 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 ﬁ nancial instruments hedging net investments. This value is expected to be fully off set
by the re-translation of the hedged foreign currency net assets leaving a net equity impact of zero.

At 29 March 2014
Impact on income statement: gain/(loss)
Impact on other comprehensive income: (loss)/gain
At 28 March 2015
Impact on income statement: gain/(loss)
Impact on other comprehensive income: (loss)/gain

2% decrease in
interest rates
£m

2% increase in
interest rates
£m

20% weakening in
sterling
£m

20% strengthening
in sterling
£m

4.2
(17.9)

9.2
(15.2)

(16.1)
11.6

(12.5)
8.1

–
124.9

–
169.8

–
(141.3)

–
(113.2)

Off setting of ﬁ nancial assets and liabilities
The following tables set out the ﬁ nancial assets and ﬁ nancial liabilities which are subject to off setting, enforceable master netting
arrangements and similar agreements. Amounts which are set off against ﬁ nancial assets and liabilities in the Group’s statement of
ﬁ nancial position are set out below. For trade and other receivables and trade and other payables, amounts not off set in the statement
of ﬁ nancial position but which could be off set under certain circumstances are also set out.

At 28 March 2015
Trade and other receivables
Derivative ﬁ nancial assets
Cash and cash equivalents

Trade and other payables
Derivative ﬁ nancial liabilities
Bank loans and overdrafts

At 29 March 2014
Trade and other receivables
Derivative ﬁ nancial assets
Cash and cash equivalents

Trade and other payables
Derivative ﬁ nancial liabilities
Bank loans and overdrafts

Gross ﬁ nancial
assets/(liabilities)
£m

Gross ﬁ nancial
(liabilities)/assets
set off
£m

Net ﬁ nancial
assets/(liabilities)
per statement of
ﬁ nancial position
£m

Related amounts
not set off in the
statement of
ﬁ nancial position
£m

37.0
170.0
45.0
252.0

(295.0)
(27.7)
(60.3)
(383.0)

(37.0)
–
(42.1)
(79.1)

37.0
–
42.1
79.1

–
170.0
2.9
172.9

(258.0)
(27.7)
(18.2)
(303.9)

–
(27.7)
–
(27.7)

–
27.7
–
27.7

Gross ﬁ nancial
assets/(liabilities)
£m

Gross ﬁ nancial
(liabilities)/assets
set off
£m

Net ﬁ nancial
assets/(liabilities)
per statement of
ﬁ nancial position
£m

Related amounts
not set off in the
statement of
ﬁ nancial position
£m

33.5
31.9
45.2
110.6

(233.2)
(126.9)
(45.1)
(405.2)

(24.2)
–
(39.0)
(63.2)

24.2
–
39.0
63.2

9.3
31.9
6.2
47.4

(209.0)
(126.9)
(6.1)
(342.0)

(9.3)
(31.9)
–
(41.2)

9.3
31.9
–
41.2

Net
£m

–
142.3
2.9
145.2

(258.0)
–
(18.2)
(276.2)

Net
£m

–
–
6.2
6.2

(199.7)
(95.0)
(6.1)
(300.8)

The gross ﬁ nancial assets and liabilities set off in the balance sheet primarily relate to cash pooling arrangements with banks. Amounts
which do not meet the criteria for off setting on the statement of ﬁ nancial position but could be settled net in certain circumstances
principally relate to derivative transactions under ISDA (International Swaps and Derivatives Association) agreements where each party
has the option to settle amounts on a net basis in the event of default of the other party.

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E
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E
C
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A
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V
O
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S
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A
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S
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A
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A
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F

118
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of ﬁ nancial instruments by valuation technique:

> Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities.

> Level 2: not traded in an active market but the fair values are based on quoted market prices or alternative pricing sources with reasonable
levels of price transparency. The Group’s Level 2 ﬁ nancial instruments include interest rate and foreign exchange derivatives. Fair value is
calculated using discounted cash ﬂ ow methodology, future cash ﬂ ows are estimated based on forward exchange rates and interest rates
(from observable market curves) and contract rates, discounted at a rate that reﬂ ects the credit risk of the various counterparties for
those with a long maturity.

> Level 3: techniques which use inputs which have a signiﬁ cant eff ect on the recorded fair value that are not based on observable market
data. The fair value of the embedded derivative is calculated using an option valuation model based on the present value of a 35-year
lease with annual lease payments increasing by Retail Price Index (RPI), capped and ﬂ oored at 1.5% and 2.5% respectively and then
discounted back to the valuation date. The valuation is sensitive to changes in RPI.

At the end of the reporting period, the Group held the following ﬁ nancial instruments at fair value:

Level 1
£m

Level 2
£m

Level 3
£m

2015

Total
£m

Level 1
£m

Level 2
£m

Level 3
£m

Assets measured at fair value
Financial assets at fair value through
proﬁ t and loss
– trading derivatives
Derivatives used for hedging
Embedded derivatives (see note 5)
Short-term investments

Liabilities measured at fair value
Financial liabilities at fair value through
proﬁ t and loss
– trading derivatives
Derivatives used for hedging

–
–
–
–

–
–

3.1
166.9
–
11.6

–
–
23.7
–

3.1
166.9
23.7
11.6

(0.4)
(27.3)

–
–

(0.4)
(27.3)

–
–
–
–

–
–

2014

Total
£m

1.6
30.3
22.4
12.4

1.6
30.3
–
12.4

–
–
22.4
–

(0.6)
(126.3)

–
–

(0.6)
(126.3)

There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers out of Level 3 fair value measurements in
the current or prior reporting period. In addition to the above, the Group has £3.0m (last year £3.0m) in unlisted equity securities measured
at cost.

The following table represents the changes in Level 3 instruments:

Opening balance
Gains and losses recognised in the income statement
Closing balance

2015
£m
22.4
1.3
23.7

2014
£m
25.9
(3.5)
22.4

The gains recognised in the income statement relate to the valuation of the embedded derivative in a lease contract. The fair value
movement of the embedded derivative of £1.3m gain (last year £3.5m loss) is treated as adjustment to reported proﬁ t (see note 5).

Fair value of ﬁ nancial instruments
With the exception of the Group’s ﬁ xed rate bond debt and the Partnership liability to the Marks & Spencer UK Pension Scheme, there were
no material diff erences between the carrying value of non-derivative ﬁ nancial assets and ﬁ nancial liabilities and their fair values as at the
balance sheet date.

The carrying value of the Group’s ﬁ xed rate bond debt was £1,697.7m (last year £1,605.9m), the fair value of this debt was £1,883.6m (last year
£1,780.3m). The carrying value of the Partnership liability to the Marks & Spencer UK Pension scheme is £512.9m (last year £568.7m) and the
fair value of this liability is £501.3m (last year £555.7m).

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 effi cient 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, to operate within a
net debt/EBITDA ratio of 2.0x-1.5x and to retain appropriate levels of liquidity headroom to ensure ﬁ nancial stability and ﬂ exibility. To achieve
this strategy the Group regularly monitors key credit metrics such as the gearing ratio, cash ﬂ ow to net debt (see note 27) and ﬁ xed charge
cover to maintain this position. In addition, the Group ensures a combination of appropriate committed short-term liquidity headroom
with a diverse and balanced long-term debt maturity proﬁ le. As at the balance sheet date the Group’s average debt maturity proﬁ le was
eight years (last year nine years). During the year the Group maintained an investment grade credit rating of Baa3 (stable) with Moody’s and
BBB- (stable) with Standard & Poor’s.

In order to maintain or realign 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.

119
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

22 PROVISIONS

At start of year
Provided in the year
Released in the year
Utilised during the year
Exchange diff erences
Discount rate unwind
Reclassiﬁ cation from trade and other payables
At end of year
Analysed as:
Current
Non-current

Property
£m

Restructuring
£m

25.1
15.2
(3.6)
(15.7)
(0.6)
0.3
22.2
42.9

46.3
13.7
(15.6)
(15.1)
(1.4)
–
–
27.9

Other
£m

4.8
4.8
(0.1)
(2.0)
–
–
–
7.5

2015

Total
£m

76.2
33.7
(19.3)
(32.8)
(2.0)
0.3
22.2
78.3

46.2
32.1

2014

Total
£m

35.2
71.8
(4.3)
(25.6)
(0.9)
–
–
76.2

44.8
31.4

Property provisions relate to onerous lease contracts and dilapidations primarily arising as a result of the closure of stores in the UK,
China and the Czech Group (see note 5). These provisions are expected to be utilised over the period to the end of each speciﬁ c lease.
Restructuring provisions relate to the estimated costs of several strategic programmes including the closure of four stores in Ireland in the
prior year and the current restructure of the logistics network (see note 5). These provisions are expected to be utilised within seven years.

23 DEFERRED TAX

Deferred tax is provided under the balance sheet liability method using a tax rate of 20% (last year 20%) for UK diff erences and local tax rates
for overseas diff erences.

The movements in deferred tax assets and liabilities (after off setting balances within the same jurisdiction as permitted by IAS 12 ‘Income
Taxes’) during the year are shown below.

Deferred tax assets/(liabilities):

At 31 March 2013
Credited/(charged) to the income statement
Credited/(charged) to equity/other comprehensive income
At 29 March 2014
At 30 March 2014
Credited/(charged) to the income statement
(Charged)/credited to equity/other comprehensive income
At 28 March 2015

Land and
buildings
temporary
diff erences
£m

Capital
allowances
in excess of
depreciation
£m

Pension
temporary
diff erences
£m

Other
short-term
temporary
diff erences
£m

Total UK
deferred tax
£m

Overseas
deferred tax
£m

(52.5)
3.2
–
(49.3)
(49.3)
2.3
–
(47.0)

(90.6)
(9.3)
–
(99.9)
(99.9)
(6.1)
–
(106.0)

(96.6)
(0.8)
0.1
(97.3)
(97.3)
(2.3)
(55.2)
(154.8)

6.5
(12.5)
20.9
14.9
14.9
(4.3)
(13.7)
(3.1)

(233.2)
(19.4)
21.0
(231.6)
(231.6)
(10.4)
(68.9)
(310.9)

(7.4)
(1.9)
(1.7)
(11.0)
(11.0)
0.4
7.4
(3.2)

Total
£m

(240.6)
(21.3)
19.3
(242.6)
(242.6)
(10.0)
(61.5)
(314.1)

Other short-term temporary diff erences relate mainly to employee share options and ﬁ nancial instruments.

The deferred tax liability on land and buildings temporary diff erences is reduced by the beneﬁ t of capital losses with a tax value of £48.4m
(last year £46.5m). Due to uncertainty over their future use, no beneﬁ t has been recognised in respect of unexpired trading losses carried
forward in overseas jurisdictions with a tax value of £43.5m (last year £38.7m).

No deferred tax is recognised in respect of undistributed earnings of overseas subsidiaries and joint ventures, unless a material liability is
expected to arise on distribution of these earnings under applicable tax legislation. No deferred tax liability has been recognised in respect
of undistributed earnings of £17.5m with a tax value of £4.4m (last year £13.0m with a tax value of £3.3m) on the basis the distribution can be
controlled by the Group and it is probable that the temporary diff erence will not reverse in the foreseeable future.

24 ORDINARY SHARE CAPITAL

Issued and fully paid ordinary shares of 25p each
At start of year
Shares issued on exercise of share options
At end of year

2015

£m

1,632,247,974
15,566,772
1,647,814,746

408.1 1,613,888,192
18,359,782
412.0 1,632,247,974

3.9

2014

£m

403.5
4.6
408.1

Issue of new shares
15,567,772 (last year 18,359,782) ordinary shares having a nominal value of £3.9m (last year £4.6m) were allotted during the year under the
terms of the Company’s schemes which are described in note 13. The aggregate consideration received was £40.8m (last year £45.0m).

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E
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E
C
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A
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N
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E
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A
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120
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

25 CONTINGENCIES AND COMMITMENTS

A. Capital commitments

Commitments in respect of properties in the course of construction
Commitments in respect of computer software under development

2015
£m

102.9
25.5
128.4

2014
£m

86.1
–
86.1

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
the warehouse operators on the Group’s behalf.

See note 12 for details on the partnership arrangement with the Marks & Spencer UK Pension Scheme.

C. Commitments under operating leases
The Group leases various stores, offi ces, warehouses and equipment under non-cancellable operating lease agreements. The leases have
varying terms, escalation clauses and renewal rights.

2015
£m

2014
£m

Total future minimum rentals payable under non-cancellable operating leases are as follows:
– Within one year
– Later than one year and not later than ﬁ ve years
– Later than ﬁ ve years and not later than ten years
– Later than ten years and not later than 15 years
– Later than 15 years and not later than 20 years
– Later than 20 years and not later than 25 years
– Later than 25 years
Total

The total non-cancellable future sublease payments to be received are £41.2m (last year £44.9m).

26 ANALYSIS OF CASH FLOWS GIVEN IN THE STATEMENT OF CASH FLOWS

Cash ﬂ ows from operating activities

Proﬁ t on ordinary activities after taxation
Income tax expense
Finance costs
Finance income
Operating proﬁ t
Decrease/(increase) in inventories
Increase in receivables
Increase in payables
Non-underlying operating cash inﬂ ows/(outﬂ ows)
Depreciation, amortisation and write-off s
Share-based payments
Pension costs charged against operating proﬁ t
Cash contributions to pension schemes
Non-underlying non-cash items
Non-underlying operating proﬁ t items
Cash generated from operations

291.6
1,074.1
1,091.0
549.3
348.8
242.2
1,074.3
4,671.3

2015
£m

481.7
118.3
116.8
(15.5)
701.3
45.7
(13.0)
87.6
28.6
550.1
(1.1)
85.4
(143.0)
(53.7)
61.2
1,349.1

296.9
1,034.1
1,020.1
672.0
358.3
236.3
1,064.1
4,681.8

2014
£m

506.0
74.4
139.1
(25.0)
694.5
(86.4)
(45.8)
107.7
(17.4)
504.7
21.3
92.4
(92.1)
(50.8)
47.4
1,175.5

121
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

27 ANALYSIS OF NET DEBT

A. Reconciliation of movement in net debt

Net cash
Bank loans, overdrafts and syndicated bank facility (see note 20)
Less: amounts treated as ﬁ nancing (see below)

Cash and cash equivalents (see note 18)
Net cash per statement of cash ﬂ ows
Current ﬁ nancial assets (see note 16)
Debt ﬁ nancing
Bank loans, and overdrafts treated as ﬁ nancing (see above)
Medium-term notes (see note 20)
Finance lease liabilities (see note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12)
Debt ﬁ nancing
Net debt

B. Reconciliation of net debt to statement of ﬁ nancial position

At
30 March
2014
£m

(445.7)
439.3
(6.4)
182.1
175.7
17.7

(439.3)
(1,609.8)
(52.2)
(555.7)
(2,657.0)
(2,463.6)

Statement of ﬁ nancial position and related notes
Cash and cash equivalents (see note 18)
Current ﬁ nancial assets (see note 16)
Bank loans and overdrafts (see note 20)
Medium-term notes – net of hedging derivatives
Finance lease liabilities (see note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (see notes 12 and 21)

Interest payable included within related borrowing and the partnership liability to the Marks & Spencer
UK Pension Scheme
Total net debt

Exchange
and other
non-cash
movements
£m

Cash ﬂ ow
£m

164.2
(175.9)
(11.7)
26.1
14.4
(6.0)

175.9
–
4.8
54.4
235.1
243.5

2.5
(2.5)
–
(2.3)
(2.3)
(0.1)

2.5
(2.0)
(1.2)
–
(0.7)
(3.1)

2015
£m

205.9
11.6
(279.0)
(1,652.0)
(48.6)
(512.9)
(2,275.0)

51.8
(2,223.2)

At
28 March
2015
£m

(279.0)
260.9
(18.1)
205.9
187.8
11.6

(260.9)
(1,611.8)
(48.6)
(501.3)
(2,422.6)
(2,223.2)

2014
£m

182.1
17.7
(445.7)
(1,649.0)
(52.2)
(568.7)
(2,515.8)

52.2
(2,463.6)

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122
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

28 RELATED PARTY TRANSACTIONS

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 ﬁ nancial 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 ﬁ ve business days’ notice and was renewed on
1 January 2015. 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 28 March 2015, £24.0m (last year £24.0m) was drawn down on this
facility. Interest was charged on the loan at 2.7% above three-month LIBOR. The Group has entered into a rental agreement with the joint
venture and £4.9m (last year £4.6m) of rental charges were incurred. There was no outstanding balance at 28 March 2015.

D. Marks & Spencer Pension Scheme
Details of other transactions and balances held with the Marks & Spencer UK Pension Scheme are set out in notes 11 and 12.

E. Key management compensation

Salaries and short-term beneﬁ ts
Share-based payments
Total

2015
£m

7.5
0.8
8.3

2014
£m

7.3
3.2
10.5

Key management comprises the 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 Martha Lane Fox’s partner. Martha
is a non-executive director of the Group. These transactions related to the receipt of services and amounted to £2.5m during the year
(last year £1.8m) with an outstanding trade payable of £0.2m at 28 March 2015 (last year £0.4m).

123
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

COMPANY STATEMENT OF FINANCIAL POSITION

Assets
Non-current assets
Investments in subsidiary undertakings
Total assets
Liabilities
Current liabilities
Amounts owed to subsidiary undertakings
Total liabilities
Net assets
Equity
Ordinary share capital
Share premium account
Capital redemption reserve
Merger reserve
Retained earnings
Total equity

As at
28 March 2015
£m

As at
29 March 2014
£m

Notes

9,226.4
9,226.4

9,217.4
9,217.4

2,429.5
2,429.5
6,796.9

412.0
392.4
2,202.6
1,397.3
2,392.6
6,796.9

2,471.8
2,471.8
6,745.6

408.1
355.5
2,202.6
1,397.3
2,382.1
6,745.6

The ﬁ nancial statements were approved by the Board and authorised for issue on 19 May 2015. The ﬁ nancial statements also comprise the
notes on pages 124 and 125.

Marc Bolland Chief Executive Offi cer

Helen Weir Chief Finance Offi cer

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

At 31 March 2013
Proﬁ t for the year
Dividends
Capital contribution for share-based payments
Shares issued on exercise of employee share options
At 29 March 2014
At 30 March 2014
Proﬁ t for the year
Dividends
Capital contribution for share-based payments
Shares issued on exercise of employee share options
At 28 March 2015

Ordinary
share
capital
£m

Share
premium
account
£m

Capital
redemption
reserve
£m

Merger
reserve
£m

Retained
earnings
£m

Total
£m

403.5
–
–
–
4.6
408.1
408.1
–
–
–
3.9
412.0

315.1
–
–
–
40.4
355.5
355.5
–
–
–
36.9
392.4

2,202.6
–
–
–
–
2,202.6
2,202.6
–
–
–
–
2,202.6

1,397.3
–
–
–
–
1,397.3
1,397.3
–
–
–
–
1,397.3

2,372.5
273.6
(273.6)
9.6
–
2,382.1
2,382.1
282.2
(280.7)
9.0
–

6,691.0
273.6
(273.6)
9.6
45.0
6,745.6
6,745.6
282.2
(280.7)
9.0
40.8
2,392.6 6,796.9

COMPANY STATEMENT OF CASH FLOWS

Cash ﬂ ow from investing activities
Dividends received
Net cash generated from investing activities
Cash ﬂ ows from ﬁ nancing activities
Shares issued on exercise of employee share options
Repayment of intercompany loan
Equity dividends paid
Net cash used in ﬁ nancing activities
Net cash inﬂ ow from activities
Cash and cash equivalents at beginning and end of year

52 weeks ended
28 March
2015
£m

52 weeks ended
29 March
2014
£m

282.2
282.2

40.8
(42.3)
(280.7)
(282.2)
–
–

273.6
273.6

45.0
(45.0)
(273.6)
(273.6)
–
–

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124
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE COMPANY FINANCIAL STATEMENTS

C1 ACCOUNTING POLICIES

The Company’s accounting policies are the same as those set out in note 1 of the Group ﬁ nancial 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 reﬂ ected 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 ﬁ nancial risk is managed as part of the Group’s strategy and policies as discussed in note 21 of the Group ﬁ nancial
statements.

In accordance with the exemption allowed by Section 408(3) of the Companies Act 2006, the Company has not presented its own income
statement or statement of comprehensive income.

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 £960,000 (last year £986,000). The Company did not operate any pension schemes during the current or preceding year.

C3 AUDITOR’S REMUNERATION

Auditor’s 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 ﬁ nancial statements as required by Section 494(4)(a) of the
Companies Act 2006.

C4 DIVIDENDS

Dividends on equity ordinary shares
Paid ﬁ nal dividend
Paid interim dividend

2015
per share

2014
per share

10.8p
6.4p
17.2p

10.8p
6.2p
17.0p

2015
£m

176.2
104.5
280.7

2014
£m

173.6
100.0
273.6

In addition, the directors have proposed a ﬁ nal dividend in respect of the year ended 28 March 2015 of 11.6p per share amounting to a
dividend of £191.1m. It will be paid on 10 July 2015 to shareholders who are on the Register of Members on 29 May 2015. In line with the
requirements of IAS 10 ‘Events after the Reporting Period’, this dividend has not been recognised within these results.

C5 INVESTMENTS

A. Investments in subsidiary undertakings

Beginning of the year
Additional investment in subsidiary undertakings relating to share-based payments
End of year

2015
£m
9,217.4
9.0
9,226.4

2014
£m
9,207.8
9.6
9,217.4

Shares in subsidiary undertakings represent the Company’s investment in Marks and Spencer plc. The directors believe that the carrying
value of the investments is supported by their underlying net assets.

B. Principal subsidiary undertakings
The Company’s principal subsidiary undertakings are set out below. A schedule of interests in all undertakings is ﬁ led 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 Paciﬁ c) Limited
Marks and Spencer Simply Foods Limited
Marks and Spencer Marinopoulos Greece SA
M.S. General Insurance L.P.
per una Group Limited
Marks and Spencer Scottish Limited Partnership

1. Marks and Spencer plc is the general partner.

Country of incorporation
and operation
Principal activity
United Kingdom
Retailing
United Kingdom
Holding company
The Netherlands
Holding company
The Netherlands
Holding company
Czech Republic
Retailing
Republic of Ireland
Retailing
Hong Kong
Retailing
United Kingdom
Retailing
Greece
Retailing
Guernsey
Financial services
Procurement
United Kingdom
Property investment United Kingdom

Proportion of voting rights
and shares held by:

Company
100%
–
–
–
–
–
–
–
–
–
–
–

A subsidiary
–
100%
100%
100%
100%
100%
100%
100%
80%
100%
100%
–1

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 ﬁ nancial position, in the opinion of the directors, principally aff ected the
ﬁ nancial statements.

125
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

C6 RELATED PARTY TRANSACTIONS

During the year, the Company has received dividends from Marks and Spencer plc of £282.2m (last year £273.6m) and decreased its loan
from Marks and Spencer plc by £42.3m (last year £45.0m). The outstanding balance was £2,429.5m (last year £2,471.8m) and is non-interest
bearing. There were no other related party transactions.

C7 SUBSIDIARIES EXEMPT FROM AUDIT

The following UK subsidiaries will take advantage of the audit exemption set out within Section 479A of the Companies Act 2006 for the year
ended 28 March 2015.

Name

Marks & Spencer (Initial LP) Limited
Ruby Properties (Hardwick) Limited
Ruby Properties (Long Eaton) Limited
Ruby Properties (Thorncliff e) Limited
Ruby Properties (Tunbridge) Limited
Ruby Properties (Cumbernauld) Limited
Marks and Spencer 2005 (Brooklands Store) Limited
Marks and Spencer 2005 (Chester Store) Limited
Marks and Spencer 2005 (Chester Satellite Store) Limited
Marks and Spencer 2005 (Fife Road Kingston Store) Limited
Marks and Spencer 2005 (Glasgow Sauchiehall Store) Limited
Marks and Spencer 2005 (Hedge End Store) Limited
Marks and Spencer 2005 (Kensington Store) Limited
Marks and Spencer 2005 (Kingston-on-Thames Store) Limited
Marks and Spencer 2005 (Kingston-on-Thames Satellite Store) Limited
Marks and Spencer 2005 (Parman House Kingston Store) Limited
Marks and Spencer 2005 (Pudsey Store) Limited
Marks and Spencer 2005 (Warrington Gemini Store) Limited
Marks and Spencer Investments
Simply Food (Property Investments)
Simply Food (Property Ventures) Limited
Busyexport Limited
Marks and Spencer (Property Holdings) Limited
Marks and Spencer (Property Ventures) Limited
per una Group Limited
Amethyst Leasing (Properties) Limited
Morpheus Europe Limited

Reference

SC315365
04716018
04716031
04716110
04716032
04922798
05502608
05502542
05502519
05502598
05502546
05502538
05502478
05502520
05502523
05502588
05502544
05502502
04903061
05502543
02239799
04411320
02100781
05502513
05149488
04246934
08540784

The Company will guarantee the debts and liabilities of the above UK subsidiaries at the balance sheet date of £6.7m in accordance with
Section 479C of the Companies Act 2006. The Company has assessed the probability of loss under the guarantees as remote.

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E
C
N
A
N
R
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V
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G

S
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E
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126
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

GROUP FINANCIAL RECORD

Income statement
Revenue¹
UK
International

Operating proﬁ t¹
UK
International
Total operating proﬁ t

Net interest payable
Pension ﬁ nance income
Proﬁ t on ordinary activities before taxation

Analysed between:
Underlying proﬁ t before tax
Adjustments to reported proﬁ t
Income tax expense
Proﬁ t after taxation

Basic earnings per share¹

Underlying basic earnings per share¹

Basic earnings/Weighted average
ordinary shares in issue
Underlying basic earnings/Weighted
average ordinary shares in issue

Underlying earnings per share/
Dividend per share
Operating proﬁ t before depreciation
and operating lease charges/
Fixed charges

Dividend per share declared in
respect of the year
Dividend cover

Retail ﬁ xed charge cover

Statement of ﬁ nancial position
Net assets (£m)
Net debt² (£m)
Capital expenditure (£m)
Stores and space
UK stores
UK selling space (million sq ft)
International stores
International selling space (million sq ft)
Staffi ng (full-time equivalent)
UK
International

1. Based on continuing operations.
2. Excludes accrued interest.

2015
52 weeks
£m

2014
52 weeks
£m

2013
52 weeks
£m

2012
52 weeks
£m

2011
52 weeks
£m

9,223.1
1,088.3
10,311.4

9,155.7
1,154.0
10,309.7

8,951.4
1,075.4
10,026.8

8,868.2
1,066.1
9,934.3

8,733.0
1,007.3
9,740.3

640.6
60.7
701.3

(111.8)
10.5
600.0

661.2
(61.2)
(118.3)
481.7

600.3
94.2
694.5

(125.8)
11.7
580.4

622.9
(42.5)
(74.4)
506.0

632.8
120.2
753.0

(212.9)
7.1
547.2

648.1
(100.9)
(102.4)
444.8

658.0
88.5
746.5

(114.1)
25.6
658.0

705.9
(47.9)
(168.4)
489.6

679.0
157.9
836.9

(93.9)
37.6
780.6

714.3
66.3
(182.0)
598.6

2015
52 weeks

2014
52 weeks

2013
52 weeks

2012
52 weeks

2011
52 weeks

29.7p

32.5p

28.3p

32.5p

38.8p

33.1p

32.2p

31.9p

34.9p

34.8p

18.0p

17.0p

1.8x

1.9x

2.1x

2.0x

3.6x

3.4x

3.5x

3.9x

4.0x

3,198.8
2,223.2
526.6

2,706.7
2,463.6
710.0

2,519.5
2,614.3
821.3

2,778.8
1,857.1
737.5

2,677.4
1,900.9
491.5

852
16.8
480
6.0

798
16.6
455
5.8

766
16.4
418
5.4

731
16.0
387
4.7

703
15.6
361
4.2

52,247
6,849

54,678
6,498

51,835
5,683

51,938
5,116

49,922
4,753

127
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015

SHAREHOLDER INFORMATION

ANALYSIS OF SHARE REGISTER

Ordinary shares
As at 28 March 2015 the Company had 181,607 registered holders of ordinary shares. Their shareholdings are analysed below. It should be
noted that many of our private investors hold their shares through nominee companies, therefore the percentage of private holders is
much higher (we estimate approximately 30%) than that indicated.

Range of shareholding

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

Category of shareholder

Private
Institutional and corporate
Total

2015/16 ﬁ nancial calendar and key dates
28 May 2015
29 May 2015
07 July 2015
07 July 2015
10 July 2015
04 November 2015*
12 November 2015*
13 November 2015*
January 2016*
08 January 2016*

Number of
shareholders

Percentage
of total
shareholders

Number of
ordinary
shares

Percentage
of issued
share capital

94,339
35,125
26,896
17,944
4,608
2,143
387
165
181,607

51.95
19.34
14.81
9.88
2.54
1.18
0.21
0.09
100.00

18,006,086
26,306,780
38,677,377
55,109,204
31,828,681
49,307,034
137,360,658
1,291,218,926
1,647,814,746

1.09
1.60
2.35
3.34
1.93
2.99
8.34
78.36
100.00

Number of
shareholders

174,558
7,049
181,607

Percentage
of total
shareholders

Number of
ordinary
shares

Percentage
of issued
share capital

96.12
258,939,325
3.88 1,388,875,421
1,647,814,746

100.00

15.71
84.29
100.00

Ex-dividend date – Final dividend
Record date to be eligible for the ﬁ nal dividend
Results – Quarter 1 Interim Management Statement†
Annual General Meeting (11am)
Final dividend payment date for the year to 28 March 2015
Results – Half Year†
Ex-dividend date – Interim dividend
Record date to be eligible for the interim dividend
Results – Quarter 3 Interim Management Statement†
Interim dividend payment date

† Those who have registered for electronic communication or news alerts at marksandspencer.com/thecompany will receive notiﬁ cation by email when this is available.
* Provisional dates.

MANAGING YOUR SHARES ONLINE

Shareholders can manage their holdings
online by registering with Shareview, the
internet based platform provided by
Equiniti. Registration is a straightforward
process and allows shareholders to:

> Sign up for electronic shareholder

communication.

> Receive trading updates by email.

> View all of their shareholdings in

one place.

> Update their records following a

change of address.

> Have dividends paid into their bank

account.

> Vote in advance of company general

meetings.

M&S encourages shareholders to sign up
for electronic communication as the
reduction in printing costs and paper
usage makes a valuable contribution to our
Plan A commitments. It is also beneﬁ cial to
shareholders, who can be notiﬁ ed by email
whenever we release trading updates to
the London Stock Exchange, which are not
mailed to shareholders.

To ﬁ nd out more information about the
services off ered by Shareview and to
register, please visit shareview.co.uk.

ANNUAL GENERAL MEETING 2015

This year’s AGM will be held at Wembley
Stadium, Wembley, London HA9 0WS on
Tuesday 7 July 2015. The meeting will
start at 11am and registration will be open
from 9.30am.

DIVIDENDS

Paid in January and July each year (subject
to Board and shareholder approval). We
encourage shareholders to have their
dividends paid directly into their bank
account to ensure effi cient payment and
that cleared funds are received on the
payment date. Shareholders who receive
their dividend payments in this way receive a
single, consolidated tax voucher annually in
January, covering both dividend payments
made during the tax year. We are able to
send separate tax vouchers if preferred.

Shareholders can change their preferred
dividend payment method online at
shareview.co.uk or by contacting Equiniti.

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128
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: FINANCIAL STATEMENTS

SHAREHOLDER INFORMATION
CONTINUED

CHANGING YOUR ADDRESS

SHAREGIFT

You should inform Equiniti of your new
address as soon as possible to avoid missing
important correspondence relating to your
shareholding. If you hold 1,500 shares or
fewer and reside in the UK, this can be done
quickly over the telephone. Holdings of
more than 1,500 shares will require a written
instruction quoting your full name, 11-digit
shareholder reference number (if known)
and both your previous and new addresses.

DUPLICATE DOCUMENTS

Around 10,000 shareholders have more
than one account on the share register and
receive duplicate documentation from us
as a result. If you fall into this group, please
contact Equiniti to combine your accounts.

CORPORATE WEBSITE

You can access the corporate website at
marksandspencer.com/thecompany.

The M&S corporate website provides a wealth
of useful information for shareholders and
should be your ﬁ rst port of call for general
queries relating to the Company and your
shares. Shareholders are also encouraged
to sign up to receive news alerts by email.
These include all of the ﬁ nancial news
releases throughout the year that are
not sent to shareholders by post.

The directors are responsible for the
maintenance and integrity of the ﬁ nancial
information on our website. This information
has been prepared under the relevant
accounting standards and legislation.

NEW SHAREHOLDER LOYALTY SCHEME

2015 saw the launch of the Equiniti Payment
Plus Scheme, a new loyalty scheme for private
investors developed by Equiniti in collaboration
with M&S. The scheme enables M&S
shareholders to apportion anything up to a
maximum of £900 of their dividend payment
to purchase credit on an M&S Shareholder
Card, which can be used to shop in our stores
and online. This is similar to an M&S gift card,
however the credit is off ered to shareholders
at a 10% discount. So, a shareholder who
allocates the full £900 would receive £1,000
credit on their card. Our private investors are
some of our most loyal customers and we are
pleased to be able to introduce this fantastic
new scheme that directly rewards their level
of investment in the Company.

The scheme is not currently available for
investors whose shares are held in nominee
accounts. However, we will work with both
Equiniti and nominee companies to seek
a solution that will allow those whose
shares are held in this way to participate
in future years.

Further information on the scheme
and a detailed FAQ can be found at
shareview.co.uk/info/paymentplus.

USEFUL CONTACTS

M&S Registered Offi ce
Waterside House,
35 North Wharf Road,
London W2 1NW
Telephone +44 (0)20 7935 4422
Registered in England and Wales
(no. 4256886)

Registrar
Equiniti Limited,
Aspect House,
Spencer Road,
Lancing,
West Sussex BN99 6DA
United Kingdom
Telephone 0845 609 0810 and outside the
UK +44 (0) 121 415 7071
Online: help.shareview.co.uk (from here,
you will be able to securely email Equiniti
with your enquiry).

Group Secretary and Head
of Corporate Governance
Amanda Mellor

Additional documents
An interactive version of our 2014/15
Annual Report is available online at
marksandspencer.com/annualreport2015.

Additionally, both the Annual Report
and Strategic Report are available
for download in pdf format at
marksandspencer.com/thecompany.

Alternatively, call 0800 591 697.

Students
Please note, students are advised to
source information from our website.

General queries
Customer queries: 0845 302 1234
Shareholder queries: 0845 609 0810
Alternatively, email us at
chairman@marks-and-spencer.com.

If you have a very small shareholding
that is uneconomical to sell, you may
want to consider donating it to ShareGift
(Registered charity no. 1052686), a charity
that specialises in the donation of small,
unwanted shareholdings to good causes.
Find out more by visiting sharegift.org
or by calling +44 (0)207 930 3737.

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 ﬁ gure of
76.75p. Following the capital reorganisation
in March 2002, HMRC has conﬁ rmed 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
programme. 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

SHAREHOLDER QUERIES

The Company’s share register is maintained
by our Registrar, Equiniti. Shareholders with
queries relating to their shareholding should
contact Equiniti directly using one of the
methods listed to the right . For more
general queries, shareholders should
consult the ‘Investors’ section of our
corporate website.

SHAREHOLDER SECURITY

An increasing number of shareholders
have been contacting us to report
unsolicited and suspicious phone calls
received from purported ‘brokers’ who
off er to buy their shares at a price far in
excess of their market value. It is unlikely
that ﬁ rms authorised by the Financial
Conduct Authority (FCA) will contact you
with off ers like this. As such, we believe
these calls are part of a scam, commonly
referred to as a ‘boiler room’. The callers
obtain your details from publicly available
sources of information, including the
Company’s share register, and can be
extremely persistent and persuasive.

Shareholders are cautioned to be very
wary of any unsolicited advice, off ers to
buy shares at a discount, sell your shares
at a premium or requests to complete
conﬁ dentiality agreements with the
callers. Remember, if it sounds too good
to be true, it probably is!

More detailed information and guidance
is available on our corporate website.
An overview of current common scams
is available on the Action Fraud website
actionfraud.police.uk.

Remuneration Committee
Remuneration policy
Remuneration Report
Risk management

Page

53
54 to 61
62
23 to 25

Segmental information
Shareholder information
Share capital
Share schemes
Signiﬁ cant agreements
Statement of cash ﬂ ows
Statement of comprehensive income
Statement of ﬁ nancial position
Stores
Subsidiary undertakings

98
127
79, 119
108
80
93
90
91
28
124

Taxation
Total shareholder return
Trade and other payables
Trade and other receivables
Transfer of securities

Variation of rights

18
72
94
94
79

Page

INDEX

Accounting policies
Annual General Meeting
Appointment and retirement
of directors
Audit Committee Report
Auditor
Auditor’s remuneration
Auditor’s report

Board
Borrowing facilities
Brand
Business model

Capital commitments
Capital expenditure
Conﬂ icts of interest
Corporate governance
Cost of sales
Critical accounting estimates
and judgements

94
127

78
46
47
124
83

34
113
30
06

120
19
78
32
99

80
119
95, 98, 111
96
90
78
70, 74
82

Deadlines for exercising voting rights
Deferred tax
Depreciation
Derivatives
Diluted earnings per share
Directors’ indemnities
Directors’ interests
Directors’ responsibilities
Directors’ single ﬁ gure of
remuneration
Disclosure of information to auditor
Dividend cover
Dividend per share

62, 74
82
126
103, 124

Finance costs/income
Finance leases
Financial assets
Financial instruments
Financial liabilities
Financial review
Fixed charge cover
Food

General Merchandise
Going concern
Goodwill
Groceries Supply Code of Practice

Hedging reserve

Income statement
Intangible assets
Interests in voting rights
International
International Financial Reporting
Standards
Inventories
Investment property

Key performance indicators

Management Committee
Marketplace
M&S.com

Nomination Committee
Non-underlying items

Earnings per share
Employees
Employee involvement
Employees with disabilities
Equal opportunities
Essential contracts

18, 103
31
80
81
81
81

Plan A
Political donations
Power to issue shares
Principal risks and uncertainties
Proﬁ t and dividends

101
113
112
96
113
16
126
26

27
82
95
81

90
95
79
29

94
95
91

22
20
28

42
100

3
82
79
24
79

Back cover image:
The recipe for the Strawberry, White Chocolate
and Almond Semifreddo made using M&S
ingredients is available on the Cook with M&S
app, which can be downloaded on Apple and
Android devices.

This report is printed on Cocoon preprint 100 off set, a
100% recycled paper made from post-consumer waste.
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