Marks and Spencer Group PLC Annual Report 2017

← All annual reports

FY2017 Annual Report · Marks and Spencer Group PLC

Loading PDF…

Making
every
moment
special

ANNUAL REPORT
& FINANCIAL
STATEMENTS 2017

FINANCIAL OVERVIEW

GROUP REVENUE

£10.6bn

+2.2%

GROUP PROFIT BEFORE TAX

GROUP PROFIT BEFORE TAX AND
ADJUSTED ITEMS

£176.4m

-63.5%

£613.8m -10.3%

INTERIM AND FINAL DIVIDEND

6.8p + 11.9p = 18.7p Level

BASIC EARNINGS PER SHARE

ADJUSTED EARNINGS PER SHARE

7.2p

-70.7%

30.4p

-12.6%

Read more about our new Plan A

commitments marksandspencer.com/plana

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

26
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR PERFORMANCE

FINANCIAL REVIEW

We believe our strategy to recover and
grow M&S, alongside our strengthened approach
to capital management, will deliver proﬁ table,
sustainable growth for our shareholders.

HELEN WEIR CHIEF FINANCE OFFICER

FIND OUT MORE

Read about our operating performance on p23-25

See how performance links to Remuneration on p56

See our KPIs on p18-21

See our Strategic Update on p08-11

This year we are reporting on the 52 weeks to 1 April 2017 compared
with last year’s 53-week year. To provide a more meaningful
comparison with last year, all ﬁ nancial movements in this section
are reported relative to the 52 weeks to 26 March 2016, unless
otherwise noted.

During the year we set out our new strategy to put M&S on a more
sustainable footing and establish the basis for future growth.
Although we are conﬁ dent that these actions are the right ones to
recover and grow M&S, they have not come without signiﬁ cant cost.
As a result, on a 53-week reported basis Group proﬁ t before tax was
down 63.9% to £176.4m (last year £488.8m) and proﬁ t before tax and
adjusted items was £613.8m, down 11.0% (last year £689.6m).

OUR OPERATING PERFORMANCE

In Food, we continued to outperform a challenging grocery market,
with revenue up 4.2% to £5.6bn (last year £5.4bn). Driving growth
through our store opening programme, we opened 30 new owned
and 38 new franchise Food stores and increased market share by
20bps to 4.5%. Food gross margin was down 25bps year-on-year due
to input price pressure as a result of the fall in sterling, and higher
than anticipated waste.

Clothing & Home revenue was down 2.8% at £3.8bn (last year £4.0bn),
as sales were aff ected by our strategy to reduce our reliance on
promotions and sale activity. However, we are encouraged by the
increase in full-price sales, which were up 2.7%, and market share
stabilisation and we are conﬁ dent that we are taking the right action
for the long-term success of our clothing business. Clothing &
Home gross margin increased by 105bps to 56.1% as a result of lower
discounting and buying margin gains as we continue to leverage
our direct sourcing capabilities and scale. These factors more than
off set the signiﬁ cant headwind as a result of the decline in value
of sterling, which had a signiﬁ cant impact on our cost of goods.

UK operating costs were £3,390m (last year £3,266m), up 3.8%,
with the primary drivers being the costs associated with investment
in new space and IT, as we continue to upgrade our systems and
infrastructure to support future growth.

International operating proﬁ t before adjusted items was £64.4m,
up 15.4% (last year £55.8m). This improvement was due to a
signiﬁ cant reduction in losses in owned markets; of this, £7m is
a result of the provision for certain onerous leases taken as an
adjusted item following our decision to exit owned stores in ten
countries. Proﬁ ts from our franchise markets were slightly down
due to lower shipments to our franchise partners in the Middle East
in the ﬁ rst half of the year.

Group proﬁ t before tax was down to £176.4m (last year £488.8m on a
53-week basis) as a result of the signiﬁ cant charges associated with
the implementation of our revised strategy. This included £132.5m
for International store closures and impairments and £156.0m
relating to the closure of our UK deﬁ ned beneﬁ t pension scheme
and changes to pay and premiums. We also continued to incur
charges in relation to a provision by M&S Bank for insurance mis-
selling which this year were £44.1m (last year £50.3m). Of the £437.4m
of adjusting items, £80.9m were cash in the year.

Further details are on p28 and in note 5 on p103-104.

Cash generation in the business remains strong with free cash ﬂ ow
before shareholder returns of £585.4m (last year £539.3m on a
53-week basis). During the year, we further strengthened our capital
management disciplines. Capital investment was signiﬁ cantly down
as we have completed some of our larger infrastructure projects
and opened fewer full-line stores than last year. Net debt reduced
by £203.6m during the year to £1.9bn.

We issued a new £300m bond in December, in advance of a $500m
bond expiry in December 2017. We remain committed to a strong
balance sheet and maintaining an investment grade credit rating.
Our credit rating is BBB minus.

CAPITAL MANAGEMENT AND IMPROVING
SHAREHOLDER RETURNS

Following several years of investment, we now have the
infrastructure needed for sustainable growth. However, some
of these investments have not generated the returns we had
hoped for and some have cost more than they should. We are
also operating in a marketplace undergoing signiﬁ cant changes.
While we remain committed to investing in the growth of M&S,
we need to do this within a tighter investment framework. Under
this approach, we are already placing a greater emphasis on cash
payback when assessing investments to help improve the reliability
of returns. We also plan to reduce the average length of our leases,
giving us greater ﬂ exibility, and to ensure we have a better mix
between growth and ‘business as usual’ investments. We believe
this approach will enable us to prioritise key investments while
improving returns to our shareholders.

We recognise the importance of regular dividends and we are
committed to delivering sustainable shareholder returns. During
the year we returned £377.5m to shareholders, which included
£74.5m in the form of a special dividend. Notwithstanding the
decline in proﬁ ts but after considering the strong cash generation
characteristics of the Group, the Board decided to maintain the
full year dividend at 18.7p (last year 18.7p).

27
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

During the ﬁ rst half, we declared a special dividend of 4.6p per
share. However, given the potential cash costs associated with
our strategic changes and uncertain market conditions, the Board
took the prudent decision not to make an additional return of
cash to shareholders under our enhanced shareholder returns
programme in the second half.

Despite the fall in proﬁ t, we believe we have the right strategy in
place to recover and grow M&S and this, alongside our strengthened
approach to capital management, will deliver proﬁ table, sustainable
growth for our shareholders.

FULL YEAR REVIEW

Group revenue
UK revenue
International revenue
Adjusted Group operating
proﬁ t
Adjusted UK operating proﬁ t
Adjusted International
operating proﬁ t
Adjusted proﬁ t before tax
Adjusted items
Proﬁ t before tax

GROUP REVENUE

52 weeks ended

1 Apr 17
£m

10,622.0
9,441.7
1,180.3

26 Mar 16
£m

10,391.0
9,324.8
1,066.2

690.6
626.2

64.4
613.8
(437.4)
176.4

777.6
721.8

55.8
684.1
(200.8)
483.3

Change
on LY %

2.2
1.3
10.7

-11.2
-13.2

15.4
-10.3
n/a
-63.5

Group revenues were up 2.2% (up 1.1% on a constant currency basis).
UK revenues were up 1.3% in total with a like-for-like decrease.
International revenues were up 10.7% (-0.1% on a constant
currency basis).

GROSS MARGIN

UK gross margin was 42.0%. Clothing & Home gross margin was
ahead of expectations, up c.105bps year-on-year. Buying margin
increased by 100bps despite currency headwinds as we continued
to deliver beneﬁ ts from leveraging our direct sourcing capabilities
through retendering orders, and by moving business to lower-duty
locations. Reduced discounting beneﬁ ted margin by c.5bps on
the year with an 110bps improvement in the second half, as a result
of lower stock into sale and better sell through rates.

Food gross margin declined -25bps year-on-year, which was more
than expected. We generated gains from our ongoing value
optimisation programme of 70bps. However, these were more
than off set by an increase in input costs of 80bps, following the
depreciation of sterling and higher than expected waste.

UK OPERATING COSTS

52 weeks ended

1 Apr 17
£m

26 Mar 16
£m1

Change
on LY %

Store staffi ng
Other store costs
Distribution and warehousing
Marketing
Central costs
UK Operating Costs

1,010.3
1,000.7
519.6
162.7
697.1
3,390.4

974.4
974.4
475.4
186.1
655.8
3,266.1

1. Certain prior year costs have been reclassiﬁ ed to reﬂ ect changes in

UK organisation structure

UK operating costs were up by £124m (3.8%), with higher
depreciation accounting for £26m.

3.7
2.7
9.3
-12.6
6.3
3.8

Within other store costs, new space drove the increase, with
occupancy cost inﬂ ation largely off set by effi ciencies and
lower depreciation.

Distribution and warehousing costs increased by £44m. A signiﬁ cant
proportion of this increase was driven by increased capacity to
support growth in our business, with a new Food depot in Enﬁ eld
and Clothing & Home warehouse in Bradford. The balance was
largely attributable to increased food volumes and inﬂ ation.

Marketing costs declined by £23m. This was mostly a result of a
reduction in activity and the more eff ective use of our marketing
budget, such as our Christmas campaign where we increased
customer views while reducing costs, as well as the annualisation
of the launch of Sparks last year.

Central costs increased by £41m. This was largely driven by an
increase in IT related operating costs including higher depreciation
from new merchandising systems. A greater proportion of costs
are now being expensed as we transition to increased use of cloud
based software services. As expected, around half of the anticipated
c.£30m cost savings from our Head Offi ce restructuring were
delivered during the year.

BUILDING A SUSTAINABLE, PROFITABLE,
INTERNATIONAL BUSINESS

Franchise
Owned:

Retained
Exit
Revenue
Franchise
Owned:

Retained
Exit

Operating Proﬁ t

52 weeks ended

1 Apr 17
£m

314.0
866.3
686.9
179.4
1,180.3
81.9
(17.5)
17.2
(34.7)
64.4

26 Mar 16
£m

324.4
741.8
580.9
160.9
1,066.2
87.3
(31.5)
15.3
(46.8)
55.8

Change
on LY %

-3.2
16.8
18.2
11.5
10.7
-6.2
44.4
12.4
25.9
15.4

During the year, International revenues rose by 10.7% driven by
currency translation, with constant currency sales down 0.1%.
Proﬁ t before adjusted items increased by 15.4% to £64.4m.

In our franchise business, shipments to Asia beneﬁ ted from new
store openings and expansion of our Food business. We saw a good
performance from Europe, where shipments increased, driven by new
Food store openings in France. Revenues from the Middle East were
aff ected by de-stocking and weak retail markets, although the trend
improved in the second half of the year, with a similar trend in proﬁ ts.

In our retained owned business, constant currency revenues
increased by 2%. Our joint venture business in India performed well,
with seven new store openings during the year. Sales in the Republic
of Ireland and in Hong Kong were aff ected by our strategy to
reduce discounting. Proﬁ t in retained owned markets improved.
Lower operating proﬁ ts in Hong Kong were off set by an improved
performance in the Czech Republic and India.

International restructuring costs include £7m of lease costs relating
to stores either closed, or in the process of closing. This contributed to
the reduction of losses in exit markets. The remaining store closures
will be largely complete by the end of the ﬁ rst half and we now expect
to reduce the losses in exit markets by between £20 and £25m in the
current year. Total closure costs related to the International strategy
are expected to be at the lower end of the previously indicated range
at c.£150m. The cash costs associated are expected to be c.£135m,
with the vast majority incurred in 2017/18.

Store staff costs increased by £36m primarily driven by new space
with the cost of the annual pay review and investments in improved
store service largely off set by business effi ciencies.

ADJUSTED OPERATING PROFIT

Group adjusted operating proﬁ t was £613.8m (last year £684.1m).
UK operating proﬁ t was £626.2m.

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

28
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

FINANCIAL REVIEW CONTINUED

NET FINANCE COSTS

Interest payable
Interest income
Net interest payable
Pension net ﬁ nance income
Unwind of discount on
partnership liability
Unwind of discounts on ﬁ nancial
instruments and provisions
Net ﬁ nance cost

52 weeks ended

1 Apr 17
£m

(100.2)
6.6
(93.6)
29.3

26 Mar 16
£m

(99.1)
5.8
(93.3)
15.3

Change
on LY
£m

(1.1)
0.8
(0.3)
14.0

(12.6)

(14.7)

2.1

0.1
(76.8)

(0.8)
(93.5)

0.9
16.7

Net ﬁ nance cost reduced by £16.7m largely due to increased
pension net ﬁ nance income as a result of a higher UK deﬁ ned
beneﬁ t scheme surplus at the start of the year. Net interest payable
increased marginally to £93.6m. The interest payable on the new
£300m bond issued in December as we pre-ﬁ nanced an existing
bond expiring in December 2017 was almost fully off set by the
reduction in interest rates year-on-year.

GROUP PROFIT BEFORE TAX AND ADJUSTED ITEMS

Group proﬁ t before tax and adjusted items was £613.8m, down
10.3% on last year (down 11.0% on a 53-week basis). The decrease
was primarily due to the reduction in Clothing & Home gross proﬁ t
and the increase in operating costs in the year.

M&S Bank proﬁ ts were down £9.7m as a result of the reduction in
interchange fees, and lower interest bearing balances.

ADJUSTMENTS TO PROFIT BEFORE TAX

The Group makes certain adjustments to statutory proﬁ t
measures in order to derive alternative performance measures
that provide stakeholders with additional helpful information
on the performance of the business.

Adjusted items

Strategic programmes:
– changes to pay and pensions
– UK organisation
– UK store estate
– International store closures

and impairments

UK store impairments and onerous
lease charges
M&S Bank charges incurred in relation
to the insurance mis-selling provision
UK Logistics
Legal settlements
Other impairments
IAS 39 fair value movement of
embedded derivative
Net gain on acquisition of joint venture
holding Bradford warehouse
Adjustments to operating proﬁ t
and proﬁ t before tax

52 weeks ended

1 Apr 17
£m

26 Mar 16
£m

(156.0)
(24.0)
(51.6)

–
–
(37.0)

(132.5)

(31.6)

(48.8)

–

(44.1)
9.8
9.8
–

–

(50.3)
9.2
–
(94.5)

(2.0)

5.4

(437.4)

(200.8)

During the period, the Group announced changes to our pay and
pensions arrangements within the UK business. We closed our UK
deﬁ ned beneﬁ t pension scheme to future accrual eff ective from
1 April 2017 resulting in a one-off charge of £127.0m. In respect of pay,
we announced an increase in our base level of pay to £8.50 per hour
as well as the removal of a number of premium payments. The Group
has recognised a charge of £23.6m in the year in relation to this.
The Group anticipates making transition payments to employees

in relation to the closure of the deﬁ ned beneﬁ t scheme, of c. £25m
(in aggregate) over the next three years. These amounts will be
recognised within adjusted items as they are incurred.

During the period, following completion of a detailed review of the
UK organisation, the Group announced proposed changes to its UK
Head Offi ce structure. The changes have resulted in a net reduction
of c.590 Head Offi ce roles, with restructuring costs in the year of
£15.4m inclusive of fees. The Group also announced an 18-month
programme to centralise its London Head Offi ce functions into one
building. The Group has recognised a net charge of £8.6m associated
with this rationalisation.

In November, the Group announced a strategic programme in
relation to the UK store estate. As part of this programme, during
the year ten UK stores were approved for closure resulting in
closure costs of £47.3m relating to dilapidations, sub-let shortfalls,
accelerated depreciation of ﬁ xtures and ﬁ ttings and impairment
of assets. The balance of the charges of £4.3m in the period related
to the ongoing review of assumptions associated with previously
closed stores. We continue to expect total adjusted items related
to this programme of c.£350m.

The Group has announced its intention to close its owned stores in
ten international markets resulting in the recognition of a cost of
£130.5m in the period. The expected closure costs primarily relate
to redundancy, lease exit and property dilapidations. The closure
programmes are ongoing in all markets, with the exception of
China where the ﬁ nal store was closed on 1 April 2017. International
store impairment testing during the year identiﬁ ed a number of
stores where current and anticipated future performance does not
support the carrying value of the stores with a resulting impairment
charge of £9.0m being incurred. Off setting these store impairments
are credits of £7.0m relating to the reversal of historic impairments
against ﬁ ve stores in Ireland and the release of unutilised provisions
on completion of the exit from the Balkans.

UK store impairment testing during the year has identiﬁ ed a number
of stores where the current and anticipated future performance
does not support the carrying value of the stores. As a result,
a charge of £39.4m has been incurred in respect of the impairment
of assets associated with these stores. A further charge of £9.4m has
been incurred in respect of onerous lease provisions associated with
some of these stores.

The Group continues to incur charges in relation to M&S Bank
insurance mis-selling provision. The Group’s income from M&S
Bank has been reduced as a result of a further £44.1m of charges
in the year.

A net credit of £9.8m has been recognised in the year in relation
to an updated view of the estimated closure costs of legacy
logistics sites associated with the strategic transition to a single
tier distribution network.

During the year the Group has reached various legal settlements
resulting in a net credit of £9.8m.

The cash ﬂ ow impact of adjusted items was £80.9m in the year.

GROUP PROFIT BEFORE TAX

Group proﬁ t before tax was £176.4m, down from £483.3m last year
(£488.8m on a 53 week basis). The decrease was largely due to the
impact of the strategic programmes in the year including the
curtailment costs associated with the closure to future accrual of
the UK deﬁ ned beneﬁ t pension scheme, costs associated with the
closure of our owned stores in ten International markets and the
UK store estate.

TAXATION

The eff ective tax rate on proﬁ t before tax and adjusted items was
19.9% (last year 17.2%). The eff ective tax rate was 34.4% (last year
17.3%) due to the impact of disallowable adjusted items. The 2017/18
eff ective tax rate on adjusted proﬁ t before tax is expected to be
around 21% as a result of the Scottish Limited Partnership structure.

29
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

TOTAL TAX CONTRIBUTION

£881m

Corporation tax 10%
Customs duties 7%
Employer’s NI 9%
Employees’ NI 7%
Other taxes 1%
Business rates 21%
Excise duties 15%
VAT 17%
PAYE 13%

In 2017, our total cash tax contribution to the UK Exchequer was
£881m (2016: £857m); split between taxes ultimately borne by the
Company of £423m (2016: £419m) (i.e. corporation tax, customs
duties, employer’s NIC, business rates and sundry taxes) and taxes
attributable to the Company’s economic activity and which are
collected on behalf of the government of £458m (2016: £438m)
(i.e. PAYE, employees’ NIC, value added tax, excise duties and
sundry taxes).

EARNINGS PER SHARE

Basic earnings per share decreased by 70.7% to 7.2p (decreased
by 71.1% on a 53-week basis) largely as a result of the impact of the
adjusted items in the current year. The weighted average number
of shares in issue during the period was 1,623.1m (last year 1,635.9m).

Basic earnings per share before adjusted items decreased by 12.6%
to 30.4p (decreased by 13.1% on a 53-week basis) due to the lower
adjusted proﬁ t generated in the year.

CAPITAL EXPENDITURE

UK store environment
New UK stores
International
Supply chain and M&S.com
IT
Property maintenance
Proceeds from property
disposals
Total capital expenditure
excluding acquisition
Joint venture owning
Bradford warehouse
Total capital expenditure

52 weeks
ended
1 Apr 17
£m

53 weeks
ended
2 Apr 16
£m

22.6
75.0
13.4
46.1
110.8
90.3

36.9
106.4
26.4
89.1
161.1
79.6

Change
on LY £m

(14.3)
(31.4)
(13.0)
(43.0)
(50.3)
10.7

(27.0)

(30.6)

3.6

331.2

468.9

(137.7)

–
331.2

56.2
525.1

(56.2)
(193.9)

UK store environment spend included investment in increasing the
ﬂ exibility of our in-store layout in Womenswear, new store fascias
and rebranding our Food halls. Spend was down year-on-year due
to completion of a number of in-store schemes last year, primarily
in Lingerie and Kidswear.

New UK store spend was down as a result of fewer new full-line
stores opening. During the year, we opened 30 owned Simply Food,
three full-line stores and two relocations compared to 25 owned
Simply Food, ﬁ ve full-line stores and two relocations in the previous
year. Clothing & Home space increased by 0.9%.

International spend was signiﬁ cantly lower as a result of the decision
to exit stores in 10 markets. Spend in the year was largely focused
on new stores in India and refurbishment projects in Hong Kong.

We continue to invest in improving our supply chain and IT
infrastructure although the total spend has reduced as we have
completed some of our larger infrastructure projects. During the

year, we opened a new Food depot in Enﬁ eld as well as investing
in our warehouse in Bradford. Within M&S.com the reduction in
capital expenditure reﬂ ects the move towards customer focused
enhancements which are expensed and away from larger
infrastructure projects.

Investment in IT comprised of upgrading our in-store wiﬁ networks
and investing in additional handheld devices which improve
effi ciency and customer service in-store. In addition, as we move
towards more cloud based software solutions, a larger proportion
of costs are now being expensed.

Maintenance spend has increased primarily due to investment in
more energy effi cient in-store equipment such as lighting.

The proceeds from property disposals mainly relate to the ﬁ nal
instalment of deferred consideration from the sale of the White City
warehouse.

CASH FLOW AND NET DEBT

Adjusted operating proﬁ t
Depreciation and amortisation
before adjusted items
Non cash pension and
share charges
Adjusted items cash outﬂ ow
Working capital
Pension funding
Capex and disposals
Acquisition of joint venture
Interest and taxation
Share transactions
Free cash ﬂ ow pre-
shareholder returns
Dividends paid
Share buy back
Free cash ﬂ ow
Opening net debt
Exchange and other
non-cash movements
Closing net debt

52 weeks
ended
1 Apr 17
£m

690.6

53 weeks
ended
2 Apr 16
£m

784.9

Change
on LY £m

(94.3)

589.5

576.8

12.7

110.9
(80.9)
(9.1)
(135.3)
(383.2)
–
(202.6)
5.5

118.0
(63.2)
13.2
(118.4)
(519.5)
(56.2)
(206.0)
9.7

585.4
(377.5)
–
207.9
(2,138.3)

539.3
(301.7)
(150.7)
86.9
(2,223.2)

(7.1)
(17.7)
(22.3)
(16.9)
136.3
56.2
3.4
(4.2)

46.1
(75.8)
150.7
121.0
84.9

(4.3)
(1,934.7)

(2.0)
(2,138.3)

(2.3)
203.6

The reduction in capital and acquisition expenditure was partially
off set by weaker business performance, with adjusted operating
proﬁ t down £94.3m. Working capital was broadly ﬂ at on the year
with a reduction in Clothing & Home inventory off set by a reduction
in creditors. Pension funding was up £16.9m due to an increase
to the UK deﬁ ned beneﬁ t contributions rate following the 2015
triennial valuation. Additionally, cash payments associated with
adjusted items were £17.7m higher in the year driven by the
International strategy.

The business delivered free cash ﬂ ow pre-shareholder returns
of £585.4m, an increase of £46.1m on the prior year.

The Strategic Report, including pages 30 to 33, was approved
by a duly authorised Committee of the Board of Directors on
23 May 2017, and signed on its behalf by

HELEN WEIR CHIEF FINANCE OFFICER

23 May 2017

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

30
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR PERFORMANCE

RISK MANAGEMENT

As with any business, we face risks and uncertainties on a daily basis.
Eff ective risk management is essential to support the achievement
of our strategic and operational objectives.

APPROACH TO RISK MANAGEMENT

KEY AREAS OF FOCUS

PRINCIPAL RISKS AND UNCERTAINTIES

The Board is accountable for carrying out
a robust assessment of the principal risks
facing the Company, including those
threatening its customers, people, values,
reputation, business model, operations,
safety, future performance, solvency or
liquidity. On behalf of the Board, the Audit
Committee reviews the eff ectiveness of
the risk management process.

Each business area is responsible for
formally identifying and assessing its
risks half-yearly, measuring them against
a deﬁ ned set of criteria, and considering
the likelihood of occurrence and potential
impact to the Group. The Group Risk
function facilitates a similar exercise with
members of the Operating Committee,
before combining these perspectives to
create a consolidated view. In compiling this
complete risk proﬁ le, consideration is given
to risks that are external to our business,
core to our day-to-day operations, related
to business change and any other that may
impact achievement of our future strategy.

The principal risks identiﬁ ed by this process
form our Group Risk Proﬁ le, which is agreed
by the Operating Committee ahead of
ﬁ nal review and approval by the Board.
In addition to this periodic review, key areas
of risk are subject to regular oversight and
challenge by the Operating Committee and,
where appropriate, by the Board and Audit
Committee, during the course of the year.

The directors’ assessment of the long-term
viability of the Company is also reviewed
annually, mindful of the principal risks
faced. Further detail on our approach
to assessing long-term viability can be
found on page 31.

We continue to challenge and improve the
quality of risk information generated across
the business, while maintaining a simple
and practical approach. Our ways of
working with the Operating Committee
have evolved during the year. More detailed
discussion regarding the nature and extent
of our principal risks has enhanced our
understanding in the context of the
business’s risk appetite, as well as informing
our consideration of emerging risk areas.
By completing periodic ‘deep dives’ on
targeted, connected risks, we can also better
assess the eff ectiveness of the mitigating
activities in place and strengthen our
approach to risk management.

RISK APPETITE

The UK Corporate Governance Code
requires companies to determine their
risk appetite in terms of the nature and
extent of the principal risks faced and
those they are willing to take in achieving
strategic objectives. In addition to
assessing whether residual risk is at an
acceptable level in the context of overall
risk appetite, the Board has established
a set of risk appetite statements that
address key risk areas and speciﬁ c
operations. The statements articulate
risk parameters within which the Group
operates, supported by our policies
and procedures. In addition to ensuring
that our risk appetite statements remain
relevant and evolve with the business,
we recognise the importance of fostering
an environment where innovation can
thrive. Consequently, there are times
when there may be merit in operating
outside agreed risk parameters,
if appropriate approvals and mitigating
controls are in place.

The details of our principal risks and
uncertainties and the key mitigating activities
in place to address them can be found on
pages 32 and 33. We disclose those we
believe are likely to have the greatest impact
on our business at this moment in time
and which have consequently been the
subject of debate at recent Board or Audit
Committee meetings. The year 2016/17 has
been one of change and this is reﬂ ected in
the year-on-year evolution of the principal
risks and uncertainties.

The Company is exposed to a wide range
of risks in addition to those listed. These are
monitored for any increase in likelihood
or impact and to ensure that appropriate
mitigations are in place.

While our capacity to inﬂ uence external
risks is often limited, we recognise the
importance of operating a business model
that has the potential to ﬂ ex and adapt
to a changing environment. For example,
the consequences of the UK’s decision
to leave the European Union will directly
impact our business in a variety of ways.
While we have already been aff ected by the
depreciation of sterling, other risks are not
yet fully quantiﬁ able. Potential risks could
include trade tariff s, higher taxation and
limits to the free movement of people; all
will demand a proactive response as the
implications are better understood. We have
created a working group to monitor the
changing risk proﬁ le. Economic uncertainty
and socio-political unrest also fall under
this umbrella of external risk.

31
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

RISK INTERDEPENDENCY

We recognise that there is signiﬁ cant
interdependency between our key risks.
This diagram, based on an extract from
our current Group Risk Proﬁ le, highlights
how changes to one risk might impact
those connected to it. By understanding

the relationship between our key risks,
we are better placed to ensure we are
managing them appropriately and to
understand our broader risk exposure.
This is especially important when assessing
the Company’s long-term viability.

Proﬁ table
Growth

Technology

Customer
Proposition &
Experience

Brand

Talent &
Succession

The following is an illustrative
example of a potential scenario:

In order to drive long-term Proﬁ table
Growth, we need to ensure that we
proactively manage a number of our
principal risks and uncertainties. We must
off er and deliver a Customer Proposition
& Experience that is competitive and
reliable across all channels, keeping pace
with changing consumer behaviours
and enabling us to leverage growth
opportunities as they arise. In addition,
our Brand needs to evolve with consumer
lifestyles and attitudes, ensuring that it
resonates with customers and remains
relevant as they move from one life stage
to the next. To be able to realise growth
opportunities, we need to identify, keep
pace with and embrace developments in
Technology. This will enable us to both
meet and exceed customer expectations,
while ensuring that our business remains
innovative, resilient and ﬂ exible. All of these
aims are ultimately underpinned by the
strength of our people. Through eff ective
management of Talent & Succession,
we can ensure our people are best set up
for success to deliver business objectives
as they evolve.

OUR APPROACH TO ASSESSING LONG-TERM VIABILITY

The UK Corporate Governance Code requires
us to issue a ‘viability statement’ declaring
whether we believe the Company is able to
continue to operate and meet its liabilities,
taking into account its current position
and principal risks. The overriding aim is to
encourage directors to focus on the longer
term and be more actively involved in risk
management and internal controls.

The Board is required to assess the
Company’s viability over a period greater
than 12 months. The increased levels of
uncertainty within the global economic
and political environment and the macro-
economic challenges being experienced
within the retail sector, mean the Board
continues to believe a three-year period
is appropriate for business planning,
measuring performance and remunerating
at a senior level. Our assessment of viability
therefore continues to align with this
three-year outlook.

The process adopted to assess the viability
of the Company involves collaborative
input from a number of functions across
the business to model severe but plausible
scenarios in which a number of the Group’s
principal risks and uncertainties materialise
within the period of the three-year plan.

We have modelled scenarios which group
together principal risks where we believe
interdependencies exist between the risks,
in addition to scenarios where unconnected
risks occur simultaneously. The scenario
with the most signiﬁ cant adverse impact
was reviewed against the current and
projected liquidity position to conclude on
the Company’s viability. The assessment
also took account of additional potential
mitigations available in the event of further
downside factors, including a reduction in
capital expenditure and reduced returns to
shareholders. The Audit Committee reviews
the output of the viability assessment in
advance of ﬁ nal evaluation by the Board.

In assessing viability, the Board considered
a number of key factors, including our
business model see pages 12 and 13, our
strategy see page 9, risk appetite see
page 30 and our principal risks and
uncertainties see pages 32 and 33. These
have been reviewed in the context of our
ﬁ nancial plans, speciﬁ cally the annual
budget and three-year plan. The directors
also satisﬁ ed themselves that they have
the evidence necessary to support the
statement in terms of the eff ectiveness of
the internal control environment in place to
mitigate risk.

In making the statement, the directors
have applied the following assumptions
in preparing the scenarios:

> Bonds maturing during the assessment

period will be repaid through our
existing bank facilities.

> The actions included in our plan to grow
sales are not fully realised or are off set
by lower than expected market growth.

> The actions included in our plans to
mitigate input cost increases that
we expect are not delivered in full or
the input cost increases are greater
than expected.

> The UK government’s notiﬁ cation of its
intention to exit the European Union will
have adverse ﬁ nancial impacts, including
input cost inﬂ ation from increased tariff s
and a further weakening in sterling, as
well as reduced UK consumer spending.

The Board’s assessment is that M&S is a
viable business. The viability statement
can be found on page 83.

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

32
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

RISK MANAGEMENT CONTINUED

Our Group Risk Proﬁ le evolves as changes in circumstances elevate risk, mitigating activities reduce net risk over time, or as new risks emerge.
As a result of our new strategy, our business has undergone considerable change during the year, aff ecting our people and operations. This has
signiﬁ cantly inﬂ uenced the risks reﬂ ected in the Group Risk Proﬁ le, which forms the basis of the principal risks and uncertainties disclosed below.

RISK

DESCRIPTION

CURRENT CONTEXT

MITIGATING ACTIVITIES

PRINCIPAL RISKS AND UNCERTAINTIES

1 CLOTHING & HOME RECOVERY

Our future performance will be impacted
if we fail to meet customer expectations.
As we continue to reassert our Clothing & Home
credentials, we are focused on ensuring that
product relevance, pricing and quality meet
customer expectations. Meeting our customers’
needs in all respects is key to driving improved
performance in an increasingly competitive market.

2 FOOD SAFETY AND INTEGRITY

A food safety or integrity related incident
occurs or is not eff ectively managed. Our brand
is based on trust and our customers have high
expectations of both the quality and integrity of
our food. It is of paramount importance that we
eff ectively manage safety and integrity, especially
as we continue to grow our global food business.

3 CORPORATE RESPONSIBILITY

Our reputation as a sustainable retailer relies
on our ability to meet our social responsibility
agenda and stakeholder expectations. Our
sustainability credentials have historically been
a key diff erentiator in the retail market. As our
peers place greater focus on this and the
regulatory environment continues to develop,
it is essential that we continue to evolve our
aims, maintain strong ethical standards and
meet stakeholder expectations.

Early signs of improved
performance are being seen
in Clothing & Home following
ongoing eff orts to strengthen
product style and quality.
Irrespective of this, there is
no room for complacency and
achieving recovery and further
growth of our Clothing & Home
business remains a key priority.

While we set our own exacting
standards, the external
pressures facing the food
industry are continually
evolving. Fraudulent supply
chain behaviour, supplier cost
pressures, innovation demands
and stringent regulatory
requirements are just some
of the contributors to this risk.

Our business values and
practices are being inﬂ uenced
by a broader range of factors
than ever before, including
modern slavery and human
rights. It is essential that our
commitment to our ethical
standards remains at the
forefront of our behaviours,
especially during a period
of signiﬁ cant change.

> Clothing & Home strategy and supporting workstreams
in place to drive sales, target market share, control costs
and drive proﬁ tability.

> Monthly monitoring and challenge of delivery against

strategy and performance indicators.

> Continued focus on product quality and style, including

adherence to our Clothing Quality Charter.

> Ongoing engagement through customer panels and our

Customer Insight Unit.

> Dedicated Food Technology team responsible for ensuring

products are safe for consumption through rigorous
controls and processes.

> Long-established store, supplier and depot auditing

programme in place.

> Visible response to emerging customer concerns.
> Proactive horizon scanning for future issues, including focus

on fraud and adulteration.

> Crisis management plan in place.

> Continued commitment to and development of Plan A

objectives to allow risks to be identiﬁ ed, mitigated
and monitored.

> Overarching governance of processes through Plan A leadership.
> Mature supplier ethical auditing programme, including

independent third party auditors, across our Clothing & Home
and Food businesses.

> Policy on supplier selection processes.
> Business-wide human rights policy and ownership.
> Updated Global Sourcing Principles to incorporate

requirements of Modern Slavery Act.

> Signatory to United Nations Global Compact principles

covering human rights, the environment and ethical behaviour.

> Membership of the Ethical Trading Initiative.

4 INFORMATION SECURITY (INCLUDING CYBER)

We experience a major information security
breach. Our business, and society, continues
to be subject to external threats to security –
including external hackers and viruses, physical
security attacks or sensitive data being lost or
accessed without authorisation.

5 TECHNOLOGY

To support future proﬁ table growth, we need
to keep pace and develop our technology
capability. Our business needs to identify, keep pace
with and embrace developments in technology.
This will encompass a range of technology demands
driven by the needs of our customers, deployment
of tools that promote eff ective and ﬂ exible working
and maintaining an overarching IT infrastructure
that enables resilient business delivery.

Experiences across the
corporate landscape have
continued to highlight the real
threat of cyber and physical
attacks. The external threat
proﬁ le is ever changing,
becoming more sophisticated
and more unpredictable.
In addition, regulatory
responsibilities in relation to
data protection are becoming
increasingly stringent, including
the implementation of the
General Data Protection
Regulation from 2018.

> Established security controls, including policies, procedures

and use of security technologies.
> Dedicated Head of Data Governance.
> Data Governance Group in place.
> Dedicated Corporate Security team with ongoing focus

on improving physical security environment.

> Dedicated Head of Cyber Security, leading a team of

cyber security experts and analysts, with 24/7 monitoring
and defence tools.

> Third party cyber maturity assessment performed.
> Ongoing monitoring of developments in cyber security

threats, engaging with third party specialists as appropriate.

> Control of sensitive data through limited and monitored

access and the roll-out of systems with enhanced security.
> Speciﬁ c team dedicated to managing security requirements

for M&S.com.

The ever-increasing importance
of technology in meeting
customer needs, successfully
growing our business and
supporting our people means
this remains an area of change
and focus.

> Digital lab in place developing new technology-

enabled solutions.

> Proactive simpliﬁ cation of IT infrastructure through clearly

deﬁ ned technology roadmaps for all business areas.
> Structured deployment of Smarter Working principles

and enabling technologies.

> Overall review of future IT strategy under way.

Risk key

Nr New risk

Evolved from prior year

No material change to risk

33
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED

RISK

DESCRIPTION

CURRENT CONTEXT

MITIGATING ACTIVITIES

6 CUSTOMER PROPOSITION & EXPERIENCE

Our performance and reputation will be
impacted if we fail to deliver a competitive and
reliable customer proposition and experience
across all channels. Notwithstanding the
growth delivered and expected to continue in
our M&S.com business, we need to ensure that
we meet expectations however our customers
choose to shop or have their order delivered.

Our business recognises
the need to deliver a reliable
and competitive customer
proposition across all channels
to keep pace with changing
consumer behaviours, drive
performance and leverage
growth opportunities.

7 TALENT & SUCCESSION

We need to attract, develop, motivate and
retain the right individuals to achieve our
operational and strategic objectives. Eff ective
talent management is essential to deliver current
and future business requirements. We recognise
the importance of both developing internal talent
and successfully integrating external hires.

Our people continue to be
a key pillar of our business
and ensuring that the right
people are in the right roles
is a signiﬁ cant enabler to
leveraging performance
and growth.

8 MARGIN

Sourcing or cost pressures impact our margin
performance. While our business continues to
face challenging foreign currency headwinds,
other factors place signiﬁ cant pressure on margin
performance. These include the availability of raw
materials and pricing strategies in the context of
the overall retail market.

Ongoing sourcing and
cost pressures are placing
increasing focus on our margin
performance and the need
to further evolve our sourcing
strategies and ways of working
in response to this.

9 BRAND

Our brand needs to evolve with consumer
lifestyles and attitudes for us to successfully
attract and retain customers. We need to ensure
that we recruit, engage and retain customers
through the ongoing relevance of the M&S brand.

10 UK STORE ESTATE

We fail to maintain and develop a UK store
estate that is relevant to future customer
preferences and supports business performance.
As consumer behaviours continue to evolve,
our physical store estate planning must align
to our business strategy, providing better range
authority in more convenient locations, while
generating higher space productivity.

11 PROFITABLE GROWTH

To drive proﬁ table growth our business needs
to innovate as well as successfully deliver
additional space and strong like-for-like
performance. To generate long-term shareholder
value, we need to identify alternative revenue
streams and opportunities to leverage growth,
while also ensuring that we drive the performance
of our existing products and services.

To drive future performance
and leverage opportunities,
our brand needs to stay relevant
and appeal to customers as
they move from one stage of
life to the next. We recognise
the importance of ensuring that
the M&S brand resonates with
customers of diff ering lifestyles
and outlooks.

Stores are, and will remain, a
critical part of our customer focus
alongside a fully integrated
online off er. We recognise the
importance of proactively
managing our UK store estate
to ensure that our space is
relevant to the customer,
while supporting strong
business performance and
proﬁ table growth.

We must successfully drive
innovation and diversiﬁ cation
to secure future proﬁ table
growth for our business.

> Appointed dedicated Head of Customer Experience.
> Omnichannel approach adopted to drive consistent

experiences online and in store.

> Proactive monitoring of social media to observe and

respond to trends in customer experience.

> Further integration of M&S.com functions within core

teams to drive consistency across all channels.

> Robust business continuity plans, incident reporting and
management procedures in place across all channels.

> Ongoing review of future strategic opportunities to

meet customer needs.

> Completion of top tier talent review.
> Review of cross-Group talent management processes

under way.

> Third party review completed to help support

and develop skill set of senior leadership group.

> Targeted development programmes in place.
> Clear line manager responsibility for succession

planning supported by appropriate people forums.
> Ongoing focus on enhancing recruitment processes

across the business.

> Clearly deﬁ ned margin targets across the business with
performance monitored and reported to management.

> Comprehensive sourcing plans in place for key

products/suppliers.

> Currency strategy to actively manage foreign exchange

rate ﬂ uctuations.

> Ongoing monitoring of pricing strategy in the context

of the wider retail market.

> Strong engagement with buying teams to communicate

ﬂ uctuations in raw material prices and foreign exchange rates.

> Enhanced Clothing & Home product development system
in place, improving effi ciency to leverage margin growth.

> Focus on clearly deﬁ ned brand purpose to Make Every
Moment Special, connecting with customers through
our Spend It Well campaigns with greater focus on
lifestyle and outlook.

> Engagement with customers through our Customer
Insight Unit and focus groups, providing rich insights
and quantiﬁ able data.

> Strengthened Customer Insight Unit leadership.
> Continued investment in the development of Sparks.

> Full review of our UK store portfolio during 2016/17.
> Multi-year programme under way to improve our estate

to better meet customers’ needs.

> Strengthened property capabilities, including appointment

of senior external hires.

>Cross-business Steering Group and working groups set up

to manage and monitor the store estate change programme.

> Property Board approval process and governance

framework in place.

> Continued expansion of our Simply Food business alongside

improvements to the UK store estate.

> Customer Insight Unit provides horizon scanning of changes

in consumer behaviour.

> Review of innovation processes underway.
> New operating model implemented to drive effi ciency and

eff ective decision-making.

> Business restructure completed to help drive our business

objectives and strategic aims.

> Ongoing focus on establishing foundations for new paths

to growth.

12 THIRD PARTY MANAGEMENT

To drive value for our business we need to
successfully manage and leverage our third
party relationships and partnerships. Our
business relies on a number of signiﬁ cant third
party relationships. To ensure that we continue to
drive value for the business, it is essential that we
work collaboratively, clearly deﬁ ne requirements
and proactively manage our third parties.

A signiﬁ cant level of expertise
and eff ort is required to
eff ectively manage third parties.
As our business model evolves,
we need to maintain focus on
this area to continue to drive
commercial and cost beneﬁ ts.

> Ongoing Board-level review of key relationships

and partnerships.

> Dedicated personnel managing key contracts.
> Deﬁ ned service level agreements and key performance

indicator standards in place for key contracts.

> Deﬁ ned contract governance and oversight standards.
> Strong engagement with in-house Legal and

Procurement teams.

> Periodic, independent review of performance.

The risks listed do not comprise all those associated with Marks & Spencer and the numerical referencing does not denote an order of priority. Additional risks and uncertainties not
presently known to management, or currently deemed to be less material, may also have an adverse eff ect on the business. These less material risks are kept in view in case their likelihood
or impact should show signs of increasing. Further information on the ﬁ nancial risks we face and how they are managed is provided on pages 118 to 123.

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

34
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT

GOVERNANCE

CHAIRMAN’S
GOVERNANCE OVERVIEW

The importance of considering a company’s responsibilities
to a broad stakeholder group has long been core to the
M&S culture, values and decision making processes.

ROBERT SWANNELL CHAIRMAN

As I highlighted earlier in this report, this has
been a year of considerable change for the
Company. With the appointment of Steve
Rowe as CEO, the Board undertook a
comprehensive review of all aspects of
the business to ensure clarity around our
customers and our brand positioning, our
strategy and business model, our people,
our store portfolio, our offi ces and our assets.

This review, and the Board debate
throughout the year, resulted in a number
of signiﬁ cant decisions for the business. The
Board was acutely aware that these would
aff ect a broad range of our stakeholders.
While we sought to ensure that our decisions
were taken in a way that was fair and
consistent with our values, we recognised
the importance of balancing these with the
need to support the long-term future of the
business. The Board recognised that the
consequences of its decisions would lead
to signiﬁ cant adjustments to the business
and to our ﬁ nancial position this year, but
we believe that these were essential to
re-establish the foundations of the business
to deliver sustainable performance and
build an organisation that is ﬁ t and relevant
for the longer term. The Board and Audit
Committee’s debate and associated
judgements are covered on pages 40-41
and 48-51 of this report.

BOARD ACTIVITIES AND
CONSIDERATION OF ALL
STAKEHOLDERS

The tenets of Lord Sieff ’s words about the
importance of considering a company’s
responsibilities to a broad stakeholder
group, which I quoted earlier in the report
and which pre-date by decades the s.172
directors' duties of the Companies Act 2006,
have long been core to the M&S culture,
values and decision-making.

These were particularly evident in our
deliberations around the introduction of an
M&S living wage and the ambition to deliver
fairer pay for our store colleagues in a way
that was true and relevant to M&S. This led
us to go beyond the National Living Wage
and establish ourselves as one of the best
employers in the market. We had signiﬁ cant

debate around the closure of the long-
standing deﬁ ned beneﬁ t pension scheme,
but recognised that this was critical to
ensure a fairer reward framework for
all our colleagues.

We spent a lot of time considering the
consequences of the closures within our
international businesses to ensure we could
establish a structure and format which
would be stronger and more relevant for
our customers and markets, and a more
proﬁ table business with foundations for
growth. We also reviewed the conﬁ guration
of our UK store estate to ensure we could
establish a footprint to meet future
customer needs. We debated the necessary
changes and restructuring within our offi ces
to support our future plans. In each such
discussion, the Board carefully considered
the impact of its decision on our teams, our
customers, the communities in which we
trade, our shareholders, our supply base
and our Plan A aspirations.

EMPLOYEE AND RETAIL
SHAREHOLDER VOICE

We are pleased to have established regular
Board sessions for employee insight. The
feedback provided during our dedicated
Board sessions by the chairs of both the
Business Involvement Group (‘BIG’), which
represents the interests of all our 85,000
colleagues across the business, and of our
Deﬁ ned Beneﬁ t Pension Scheme, was
invaluable in ensuring the Board was able
to fully consider the views of these vital
stakeholders through the period of change.
We were grateful for their candid and open
feedback, which enabled the Board to
appreciate fully the potential impact on
those aff ected.

We also trialled our ﬁ rst Private Shareholder
Panel. The objective was to give our
private shareholders additional access
and information, as is provided to our major
institutional shareholders. The candour
and insights provided by these panel
discussions were helpful in ensuring we
were listening to this important stakeholder
group. The success of these trial panels
led to the formal launch of our Private

Shareholder Panel, which will form an active
part of our stakeholder engagement
programme. Details on this and our broader
stakeholder engagement are provided on
pages 44 to 45. This illustrates how we have
considered, listened and engaged with all
these stakeholders.

RISK AND CONTROLS

The progress made on our risk debate and
understanding of risk appetite in previous
years helped ensure the Board's decision-
making was supported by the right
discussions and considerations. The
enhanced level of risk debate and greater
involvement of the Operating Committee
was also critical in ensuring that appropriate
monitoring and mitigations were embedded
to support the proposals under discussion.

The Board spent time debating the market
environment and the potential impact
of the vote to leave the European Union.
It continues to assess the implications of
Brexit for our customers, communities and
the business, and the impact of currency
movements on the business and our
supply base.

We also undertook a thorough review
of our cyber environment to ensure that
we have appropriate data and information
governance processes and controls,
ecommerce defences, proactive security
and strong incident management
processes across the business. While the
Audit Committee will continue to monitor
business processes and provide assurance
over controls, the Board considers data
governance and cyber to be so signiﬁ cant
that it will review this at least twice a year.

TALENT, DEVELOPMENT
AND SUCCESSION

In addition to the strategic debate, the
Board and Nomination Committee also
focused on ensuring we had the right talent
in our business to support our plans. Senior
succession discussions have long featured
on the Board agenda, but we took this
substantially further this year to include
a comprehensive review of our people

35
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

capabilities and speciﬁ c development
needs against the future requirements
of our business. The Board reviewed
assessments for over 100 of our senior
leaders in the business and discussed their
leadership qualities, strengths, areas for
development, and medium and long-term
succession plans to ensure that we
have the right skills, career paths and
understanding of our talent to support
our future business growth.

As highlighted earlier, following the
appointment of Steve Rowe as CEO and
the announcement of our plans to build a
simpler and more relevant M&S, I considered
it was the right time to deal with my own
succession and for the business to appoint
a new Chairman. So, in December 2016,
I informed the Board that I intended to
retire as Chairman during 2017 after six
years in the post.

I am grateful to Vindi Banga, our Senior
Independent Director, for leading such
a rigorous process for the Nomination
Committee to appoint my successor. We are
delighted that Archie Norman will succeed
me in September 2017. Overviews of the
recruitment process undertaken by the
Nomination Committee and the induction
programme being undertaken by Archie
are provided on page 39. This programme
is extremely comprehensive and will
ensure that he has an extensive insight
into our business, our colleagues and
stakeholders prior to taking up his
appointment as Chairman.

When I joined M&S as Chairman I made it
clear that I regarded eff ective succession
planning as a vital responsibility for both

Over the next few pages we look at the Board, its
role, performance and oversight. As in previous
years, we provide detail on the Board activities
and discussions during the year (pages 41 and 42),
the actions arising from these and the progress
made against them. We also provide insight on:
director independence; eff ectiveness and our
Board evaluation; succession planning; and
induction and ongoing development.

Governance at M&S is an important element of
our Board environment. To support how we do
business and how we serve our stakeholders it
needs to be relevant, authentic and meaningful.
In line with previous years, we have used the key
themes of the Code to articulate the Board’s
activities during the year:

> Leadership and eff ectiveness – pages 36 to 43

and 46 to 47.

> Accountability – pages 30 to 33 within the
Strategic Report and pages 48 to 52 in the
Directors’ Report.

> Our stakeholders: how we listen and engage –

pages 44 to 45.

> Remuneration – pages 54 to 78.

Information on the governance of our Pension
Scheme is provided on page 53.

The required governance and regulatory
assurances are provided throughout this report
reﬂ ecting their relevance to the business. We
provide insight into how governance supports and
protects the M&S business and our stakeholders
in a practical way. Where information would
previously have been located within the Directors’

me and the Board. I am delighted that with
Steve and Archie's appointments this aspect
has been successfully achieved in a rigorous
way. I know that succession planning and the
development of talent at M&S will remain
very high priorities of the Board.

BOARD OVERSIGHT AND MONITORING

The Audit Committee played a key role
in ensuring that there was appropriate
challenge and governance around the
accounting treatment of the decisions
taken in the year and ensuring robust risk
management, controls and assurance
processes were in place. The Committee
continues to closely monitor the
management of our cyber and data
governance processes, health and safety
and business continuity plans for our
UK and international operations. The
Committee’s activities, considerations
and judgements are set out on
pages 48 to 50.

Fairness and pay has featured strongly in
the Board’s debate this year. To support
leadership and talent within our business,
the Remuneration Committee has reviewed
our remuneration framework, measures and
targets. This review was particularly topical
given the Business, Energy & Industrial
Strategy (BEIS) Green Paper on corporate
governance reform earlier in the year. The
Committee held a number of discussions
with shareholders on framework design
during the year. It also reviewed and
updated the Remuneration Policy to ensure
it remains both in line with best practice
and relevant to our business. It will be put
forward for formal shareholder approval

THIS REPORT'S KEY FEATURES

Report, and has now been incorporated into
the Strategic Report, a list of page references is
available within the ‘Other Disclosures’ section
on page 79.

Every year we review and benchmark our
Governance Framework against best practice.
The framework sets out the roles, accountabilities
and expectations for our directors and our
structures. This format has been adopted widely
across the business and can be viewed at
marksandspencer.com/thecompany.

UK CORPORATE GOVERNANCE CODE

The UK Corporate Governance Code 2016 (the
"Code") is the standard against which we measured
ourselves in 2016/17. A copy of the Code is available
from the Financial Reporting Council’s website.

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

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.

GOVERNANCE SUMMARY

Our compliance with key areas of the Code is
summarised as follows:

> Independence Over half of our Board

comprises independent non-executive
directors and the composition of all Board
Committees complies with the Code.

at the AGM in July 2017. The Committee’s
activities and its considerations on
remuneration, along with our Remuneration
Policy, are outlined in detail on pages 54
to 78.

In line with the requirements of the
Corporate Governance Code, the Board
was independently evaluated during the
year. We were pleased that, overall, the
Board has made signiﬁ cant progress since
the last external review in 2015, especially in
relation to the quality of Board debate and
decision-making, Board papers and process.
The ﬁ ndings of the review and the action
plans for the year ahead are set out on
page 42 of this report.

We have had to take some bold and tough
decisions to ensure M&S is set up for the
future. The Board made these changes as
they are the right and relevant thing to do.
From a strong core set of well-established
timeless values, we have sought to ensure
fairness, integrity and rigour with each
decision for all our stakeholders. We
recognise that the business has had to
deliver a signiﬁ cant scale of change
this year, but the feedback from our
stakeholders and the early progress we are
seeing encourages us to continue to be
bold, conﬁ dent, remain on the front foot,
and embrace the challenges ahead.

ROBERT SWANNELL CHAIRMAN

> Senior Independent Director Our Senior

Independent Director is Vindi Banga.

> Accountability and election Clear separation
of duties between Chairman and CEO roles,
all the directors are to stand for annual
re-election.

> Evaluation An externally facilitated performance

evaluation of the Board and its Committees
was undertaken during the year.

> Attendance The directors have all

attended an acceptable level of Board
and Committee meetings.

> Experience The Audit Committee chairman
met the speciﬁ c requirements with regard
to recent and relevant ﬁ nancial experience
throughout 2016/17.

> Auditor tenure We changed our auditor in

2014/15, following a thorough tender process.

> Non-audit policy This is disclosed on our
website, along with the limited non-audit
work undertaken during 2016/17.

> Auditor appointment We disclose our external
auditor appointment policy on our website.

> Internal Audit Details on the Internal Audit
function are provided within this report.

> Performance-related pay A signiﬁ cant part
of performance-related pay is delivered
through shares. Our reward framework is
simple, transparent and designed to support
and drive our business strategy.

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

36
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

LEADERSHIP AND EFFECTIVENESS

OUR BOARD

The Board is responsible for the
stewardship of the Company, overseeing its
conduct and aff airs to create sustainable
value for the beneﬁ t of its shareholders.

CHAIRMAN

EXECUTIVE DIRECTORS

N R

Robert Swannell
Chairman

Steve Rowe
Chief Executive

Helen Weir
Chief Finance Offi cer

Patrick Bousquet-Chavanne
Executive Director, Customer,
Marketing & M&S.com

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. Robert will retire
from the Board on 1 September 2017.

Other roles: Chairman of UK
Government Investments, Director
of the Investor Forum, Trustee of
Teach First, Advisory Board Member
of Sutton Trust and Spencer Stuart.

INCOMING CHAIRMAN

Archie Norman
Chairman Designate

Proposed appointment date:
1 September 2017 Archie brings
a breadth of experience with an
extensive track record in retail
and brands. He was instrumental in
transforming a number of major
British businesses including

Appointed:
Chief Executive in April 2016

Appointed:
April 2015

Appointed:
July 2013

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 1993. He has
worked in senior roles across various
areas of the business, including
Director of Home, Director of
Retail, and Director of Retail and
Ecommerce. He was appointed
to the Board as Executive Director,
Food in 2012, moving to the role
of Executive Director, General
Merchandise in July 2015. He was
appointed as CEO on 2 April 2016.
During his ﬁ rst year in the role he
has laid solid foundations for a more
relevant, customer-centric M&S,
including the repositioning of
Clothing & Home and the continued
growth of Food. More information
about Steve's work during the year
can be found in the Chief Executive's
Strategic Update starting on page 8.

Skills, competence and experience:
Helen is a qualiﬁ ed accountant,
with over 25 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 Finance Director, Executive
Director and Non-Executive Director
on the Board of a number of major
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: Trustee of Marie Curie,
Non-Executive Director of the
Rugby Football Union.

Skills, competence and experience:
Patrick brings over 25 years of
extensive experience in the
consumer goods industry.
His valuable strategic insight is
supported by his experience in
developing and marketing brands
globally and broad knowledge of
enhancing business performance
and customer experience in
a multi-channel environment.
Patrick played a key role in creating
the new Masterbrand marketing
strategy across Food and Clothing &
Home, and continues to lead the
digital transformation of M&S and
the global growth of M&S.com.
Patrick assumed overall responsibility
for Customer Experience, M&S.com
and Plan A in May 2016.

Other roles: Non-Executive Director
of Brown-Forman Inc.

Kingﬁ sher, Asda and Energis. Archie is
an experienced chairman and board
director having served as Chairman
of ITV, Lazard, and Hobbycraft and
Deputy Chairman of Coles Limited.
In 2016 he was appointed by the
Department for Business, Energy &
Industrial Strategy as its Lead Non-
Executive Board member. Further
information about Archie’s skills,
experience and suitability for the
role of Chairman can be found under
‘Succession & Induction’ on page 39.

Other roles: Adviser to the Board
of Wesfarmers Limited, Director of
Target Pty Limited, Chairman of
Lazard and Hobbycraft, Deputy
Chairman of Coles Limited, Lead Non-
Executive Board Member of BEIS.

KEY TO COMMITTEES

FIND OUT MORE

A Audit

N Nomination

R Remuneration

Committee Chair

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

See p43 for Governance
and Board structures

See p40-41 for

Board activities in 2016/17

See p43 for Board roles

and responsibilities

37
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

INDEPENDENT NON-EXECUTIVE DIRECTORS

RETIREMENTS IN 2016/17

Vindi Banga
Senior Independent Director

Miranda Curtis
Non-Executive Director

Andy Halford
Non-Executive Director

Laura Wade-Gery
Executive Director, Multi-channel

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 UK and international
trade and industry provides valuable
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, Director of Kedaara
Capital Investment Managers Ltd,
Kedaara Capital I Ltd and Kedaara
Holdings Ltd, Non-Executive Director
of Thomson Reuters and GSK,
Chairman of the Mauser Group and
the CBI’s Economic Growth Board,
member of the Governing Board of
the Indian School of Business.

Appointed:
February 2012

Appointed:
January 2013

Retired:
12 September 2016

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 extensive 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: Chief Financial Offi cer
of Standard Chartered plc.

Skills, competence and experience:
Miranda’s substantial experience
of the international consumer and
technology sectors, and extensive
knowledge of global industry,
provides 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.
Miranda will retire from the Board on
1 February 2018.

Other roles: Non-Executive Director
of Liberty Global plc, Lead Non-
Executive Director of the Foreign and
Commonwealth Offi ce, Trustee of the
Institute for Government, Deputy
Chair of the Royal Shakespeare
Company, Deputy Chair of
Garsington Opera, Chair of African
girls’ education charity, Camfed.

Laura stepped down from the
Board after ﬁ ve years of service
during which she was instrumental
in the improvement and
modernisation of our ecommerce
and multi-channel capabilities.

GROUP SECRETARY

Alison Brittain
Non-Executive Director

Richard Solomons
Non-Executive Director

Andrew Fisher
Non-Executive Director

Amanda Mellor
Group Secretary and
Head of Corporate Governance

Appointed:
January 2014

Appointed:
April 2015

Appointed:
December 2015

Appointed:
July 2009

Skills, competence and experience:
Alison brings extensive ﬁ nancial
and commercial experience to the
Board, combined with considerable
knowledge of running large-scale
consumer businesses. She is Chief
Executive of hospitality group
Whitbread, and was Group Director
of Lloyds Banking Group’s Retail
Division until July 2015. 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: Chief Executive of
Whitbread plc, Trustee of the
Prince's Trust Council.

Skills, competence and experience:
Richard brings strong commercial,
ﬁ nancial, consumer, branding and
global experience to the Board.
His extensive international retail and
consumer experience, plus his role
as CEO of a global business, provide
valuable insight. Richard has held
a number of senior roles at IHG and
is currently Chief Executive Offi cer,
a role from which he will retire on
1 July 2017. 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 $12.8bn
to shareholders.

Other roles: Chief Executive Offi cer
of IHG (retiring 1 July 2017), Governor
of the Aviation, Travel and Tourism
Industry Community of the World
Economic Forum, Member of the
Industry Real Estate Financing
Advisory Council.

Skills, competence and experience:
Andrew has substantial experience
of the international consumer and
technology sectors and has led the
successful growth of a number of
technology-focused enterprises
over the past 19 years. He is Executive
Chairman of Shazam Entertainment
Limited, having previously served as
Chief Executive Offi cer since 2005.
Prior to that, Andrew was European
Managing Director of Infospace Inc
(now Blucora) and founder and
Managing Director of TDLI.com.
He was a member of the Advisory
Board to the Secretary of State for
the Review of the BBC Charter and
was awarded an OBE for services to
the Digital Economy in 2016.

Other roles: Executive Chairman
of Shazam Entertainment Limited,
Non-Executive Director of
MoneySupermarket.com Group plc.

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

38
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

OUR BOARD CONTINUED

CHAIRMAN

Robert Swannell

EXECUTIVE DIRECTORS

Chief Executive
Steve Rowe

Chief Finance Offi cer
Helen Weir

Executive Director
Patrick Bousquet-Chavanne

Executive Director
Laura Wade-Gery

NON-EXECUTIVE DIRECTORS

Vindi Banga

Alison Brittain

Miranda Curtis

Andrew Fisher

Andy Halford

Richard Solomons1

BOARD COMPOSITION, ROLES AND ATTENDANCE AS AT YEAR END

ATTENDED

MAX
POSSIBLE

INDEPENDENT

RESPONSIBILITY IN 2016/17

LINKED TO
REMUNERATION

Board governance and performance, shareholder engagement

Strategy and Group performance

Group Financial Performance, Property,
IT and Clothing & Home distribution

Customer, Marketing and M&S.com

N/A

Laura was on maternity leave from September 2015 and was
therefore not expected to attend Board meetings during this time.
She retired from the business in September 2016.

Independent non-executive directors assess, challenge and monitor the executive
directors’ delivery of strategy within the risk and governance structure agreed by
the Board. As Board Committee members, they also review the integrity of the
Company's ﬁ nancial information, recommend appropriate succession plans and
monitor Board diversity.

This table provides details of scheduled meetings held in the 2016/17 ﬁ nancial year.
1. Richard Solomons was unable to attend the meeting on 20 May due to personal commitments which had been booked prior to the meeting being rescheduled for this date.

See Board Activities on p40-41

BOARD MEETINGS

The Board held nine scheduled meetings
during the year, and individual attendance
is set out above. 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 the
non-executive directors to discuss any
matters arising.

INDEPENDENCE OF DIRECTORS

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.

None of the non-executive directors
has served more than six full years
on the Board.

The Board considers that all of the
non-executive directors bring strong
independent oversight and continue
to demonstrate independence. The Board
recognises the recommended term within
the UK Corporate Governance Code.
It is mindful of the need for suitable
succession, and therefore maintains
a clear record of the time each non-
executive has served the Company
and the skill set that each provides.

See details and experience of each director
on p36-37

BOARD DIVERSITY

GENDER DIVERSITY 1 April 2017 (as at year end)

GROUP BOARD

Male

Female

30%

70%

EXECUTIVE

Male

Female

NON-EXECUTIVE

67%

Male

71%

33%

Female

29%

SECTOR EXPERIENCE

NON-EXECUTIVE DIRECTOR TENURE

90%90%0

100%
100%

60%
600%

400%
40%

RETAIL

CONSUMER

FINANCE

ECOMMERCE
& TECHNOLOGY

INTERNATIONAL EXPERIENCE

1-2 YEARS 28.57%

3-4 YEARS 28.57%

5-6 YEARS 42.86%

39
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

LEADERSHIP AND EFFECTIVENESS

SUCCESSION &
INDUCTION

CHAIRMAN RECRUITMENT

In December 2016 we announced that,
after six years in the role, Robert Swannell
intended to retire from the business in 2017.
Robert committed to continue in his role
until his replacement had been identiﬁ ed
and had joined the business.

Following this announcement we
commenced the process to recruit and
appoint a new Chairman. The search was
undertaken by the Nomination Committee
(the "Committee") and led by myself as the
Senior Independent Director. Steve Rowe
was fully involved in the entire process.

The Committee had a number of
discussions to scope out the key skills,
experience, characteristics and
requirements for the role. We then invited a
selection of recruitment ﬁ rms to participate
in a selection process focusing on a series
of key questions in order to identify
the appropriate executive recruitment
consultants to support our search. We
received very thorough and comprehensive

CHAIRMAN INDUCTION PROCESS

responses from each ﬁ rm and, following
further discussions, selected JCA. Aside
from assisting with recruitment, JCA has
no other connection to the Company.

Given the public proﬁ le of M&S the
Committee did not consider it necessary
to use open advertising for this role. The
announcement of Robert’s retirement had
been made to the market in December and
interested parties were able to contact
either myself or other Committee members.

A structured timetable was adopted for
the process and regular Committee
discussions and updates held throughout.
From a detailed understanding of our
requirements and speciﬁ cation of the role,
JCA put together an extensive range of
potential candidates for the Committee’s
consideration. After much debate, this was
narrowed down to a strong short list for
interview. Shortlisted candidates met with
the same members of the Committee to
ensure consistency. Steve Rowe also spent
signiﬁ cant time with the ﬁ nal candidates.

The Committee members and Steve were
unanimous in their ﬁ nal selection of the
new Chairman.

On 5 May 2017 we were pleased to
announce the appointment of Archie
Norman as Non-Executive Chairman with
eff ect from 1 September 2017. Archie was
an ideal match to our requirements for a
strong retail background and signiﬁ cant
board experience. He is one of the UK’s
most respected business leaders, with a
proven track record in retail and business.
He has been on the board of public
companies on and off since 1986, when
he became ﬁ nance director of Kingﬁ sher
at the age of 32. He went on to gain
experience as both a CEO and chairman of
a number of well known listed companies
including Asda and, more recently, ITV. The
Committee believes he is well placed to
support Steve and the team as they deliver
the plan that is already underway.

VINDI BANGA SENIOR INDEPENDENT DIRECTOR

STAGE 1
Understand the
M&S business

STAGE 2
Understand the
M&S environment

STAGE 3
Meet the
M&S teams

STAGE 4
Visit the M&S
operations

Stage 1. Company structure and strategy:
including Group structure, history, strategy,
vision, key people, succession plans; Board
procedures including governance framework
and Code of Ethics and Behaviours; Board
Committees, calendar, minutes, Board
eff ectiveness reviews and action plans; ﬁ nances
and 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.

Stage 2. Industry and competitive environment:
including customer trends; consumer and
regulatory environment including governance and
all relevant consumer and industry bodies, CSR
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, service providers, opinion leaders; an
overview of our remuneration policy and pensions.

Stage 3. Archie's programme will be supported by
one-on-one meetings with management from
Clothing & Home, Food, M&S.com, International,
Retail, Finance, Property, Plan A, Marketing,
Customer Insight Unit, Human Resources,
Communications and Investor Relations, Internal
Audit & Risk, Pensions, the Company Archive and
the Governance Group.

Stage 4. He will visit a number of our stores with
the Retail team as well as our distribution centre
with the Logistics team. He will also meet with
key investors and suppliers.

SENIOR SUCCESSION

The Operating Committee recently
undertook a full talent and succession
review of the top 120 senior roles within
the business, plus the succession planning
in place for these roles. As part of this,
a benchmarking review was undertaken
by Korn Ferry* for all relevant individuals.

This supported our talent agenda
by providing:

> A thorough benchmarking exercise of
our talent versus the external market.

> Additional feedback and insights for all
senior individuals which, combined with
our perspectives, are leading to robust
development plans for all our leaders.

> A catalyst for the broader M&S talent
agenda, enabling us to adapt and
simplify our talent processes for
the wider organisation.

This extensive review was discussed by the
Board as part of an ongoing drive to provide
greater clarity and achieve a common
understanding of talent within the business,
and to baseline our talent data at a senior
level. While it was recognised that there is
still some room for improvement before
our talent information is a true reﬂ ection
of our overall talent health, themes are
emerging that enable us to strengthen
our capabilities in the near term.

Ongoing and eff ective talent management
is key to achieving our strategic and
operational objectives and this is clearly
recognised by the Board, as reﬂ ected in the
Risk Management section on page 33.

There is work outstanding to embed some
of the identiﬁ ed core talent processes
deeply in all parts of the organisation, as
the principles of our new way of reviewing
talent represent a cultural shift for M&S.
These changes, although not always easy
to make, are important if we are to create
a sustainable, winning organisation.

* Korn Ferry is a market leading company that assists

organisations in attracting, engaging, developing and
retaining their people.

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

40
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

LEADERSHIP AND EFFECTIVENESS

BOARD ACTIVITIES

TOPIC

ACTIVITIES/DISCUSSION ACTIONS ARISING

PROGRESS

Strategy

Discussed strategic
priorities across
Food and Clothing
& Home.

> Agree a new three-year plan focused on recovery

and growth in Clothing & Home and growth in Food.

> Focus on simplifying organisational structure

and processes.

> Deliver signiﬁ cantly greater focus on customers
and drive improvements in our brand position.

> Three-year strategic plan agreed.
> Detailed implementation plans established and

robust processes in place to manage and monitor
their delivery.

> Key risks and opportunities identiﬁ ed.

Agreed the strategic
plan for the UK
store estate.

> Assess the optimisation of the Clothing & Home

network, based on practical and deliverable actions.

> Agreed expedited plan for reconﬁ guration of Clothing
& Home space to be achieved over the next ﬁ ve years.

> Deliver improved sales and proﬁ tability through

> Agreed necessary actions and costs associated

enhancing the quality of our UK estate.

with delivery of the proposed strategy.

> Continue to drive Food store roll-out programme.

> Roll-out of c.250 new Simply Food stores by 2019/20.

Reviewed the
Company's
International
operations and
set strategy for
the future.

> Review performance and ownership structure of

all International operations.

> Retain our position as an international retailer and

reaffi rm our clear commitment to continued growth
in international markets.

> Decision taken to exit loss-making, wholly-owned
retail businesses in speciﬁ c regions, following
completion of a thorough consultation process
with colleagues in the aff ected markets.

> Agreed the sale of three stores and head offi ce in

> Develop strategy to deliver a sustainable International
business built on a portfolio of proﬁ table markets.

Romania to an existing franchise partner.

> Agreed restructure of current franchise model

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

> Assess the medium-term capital and funding

structure in light of the three-year plan.

> Review the Company's cash ﬂ ow position, dividend
cover and enhanced shareholder returns policy in
the context of the wider market and our agreed
capital allocation priorities.

> Continue investing in the business for growth,
underpinned by strong investment disciplines.

> Challenge and develop our current technological
capabilities to enable further business growth.

> Deliver solutions that build on the strategic

investments in technology already made, with
greater focus on user experience, simpliﬁ cation
and use of more cost-eff ective technologies.

to increase competitiveness in our chosen markets.

> Discussed the balance sheet strategy, capital
effi ciency and leverage position of the Group.
> Continued strong cash generation and diligent

management of costs.

> Maintained a strong balance sheet, investment
grade credit rating and a progressive dividend
policy broadly twice covered by earnings.

> Full year ordinary dividend of 18.7p, plus an additional

special dividend of 4.6p paid in July 2016.
> Shareholder returns programme put on hold

during the year.

> Conducted a full review of the skills, capabilities,

systems and supplier landscapes needed
to deliver the strategy over the next few years.
> Substantial progress made through initiatives
focusing on simpliﬁ cation, cost reduction and
the future operating model.

> Discussed potential risks and mitigating actions.

Reviewed our
technological
capabilities and
debated future
requirements
and areas for
development.

Discussed the
logistics strategy
in Clothing & Home.

Values

Shareholder
engagement

Discussed continued
progress and
evolution of Plan A.

Identiﬁ ed
opportunities
to improve our
organisational culture
and ways of working.

Encouraged strong
engagement
with investors
and other
stakeholders.

Ensured shareholder
feedback was reviewed
and considered in
advance of the AGM.

> Consider the broader future of, and anticipated
long-term changes to, logistics and distribution
and how these might ﬁ t with the M&S business
model of the future.

> Agree plan for the development of the logistics

network and infrastructure over the next three years.

> Identify opportunities to maximise the potential
of the Company's distribution centres, improving
service and productivity.

> All major building projects now complete.
> Proportion of product handled through single tier

logistics network increased.

> Discussed the key initiatives included in the three-year
plan, including operating model, systems upgrades
and asset utilisation.

> Robust challenge and discussion around the logistics
network review, including planning processes and the
key risks and assumptions made.

> 107 total Plan A 2020 commitments.
> Review progress made in 2016/17 and set priorities

for 2017/18.

> 64 achieved, 6 not achieved.
> 25 on plan, 11 behind plan.
> 1 commitment cancelled.
> Strategic priorities for 2017/18 identiﬁ ed.

> Ensure the Company has the optimal organisational
structure in place to support our business strategy
and drive growth.

> Undertook a review of processes, activities, structures

and costs.

> Progress made in implementation of Smarter Working

workstream to optimise use of offi ce space.

> Actively support engagement opportunities.

> Strengthened links between the business and its

> Speciﬁ c issues raised by shareholders to be addressed

in the Chairman's AGM statement.

retail investors through the launch of our
Shareholder Panel.

> Largest shareholders invited to annual Governance

Event hosted by the Chairman.

> Reviewed independent report, from Makinson Cowell,
covering major investors' views on our management
and performance.

> Key topics raised by shareholders to be communicated
together with an update on the Company's progress
in these areas.

41
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

See Board Eff ectiveness on p42

TOPIC

ACTIVITIES/DISCUSSION ACTIONS ARISING

PROGRESS

Governance
& risk

Discussed the
evolving regulatory
environment and
the internal
governance processes
underpinning
programmes
and initiatives.

> Review the Company’s internal policies, procedures
and controls in respect of market abuse, market
manipulation and insider dealing prior to
implementation of the Market Abuse Regulation.
> Assess controls over internal ﬁ nancial reporting

processes to improve information ﬂ ows.

> Review key projects on completion and evaluate

the end-to-end delivery process.

> Internal systems and processes updated in line

with new requirements.

> Training on the new Market Abuse Regulation

conducted at Board level and for employees across
the relevant business units.

> Identiﬁ ed and implemented enhancements to controls
and processes relating to internal ﬁ nancial reporting.

> Undertook comprehensive post-implementation

Reviewed progress
against the 2016/17
Board Action Plan.

> Conduct an externally facilitated Board evaluation.
> Obtain and evaluate director feedback on the
processes, eff ectiveness and working of the
Board and its committees.

reviews of key projects.

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

> Agreed 2017/18 Action Plan with clear process for
ongoing monitoring over the course of the year.

Half yearly review
of Group Risk Proﬁ le,
covering core internal
and external risks,
risks driven by
business change and
areas of emerging risk.

> Assess the eff ectiveness of the Group risk process.
> Review completeness and ordering of the Group
Risk Proﬁ le, including key risk movements, and
consider appropriate mitigating activities.
> Ongoing robust debate around risk tolerance

and risk appetite.

> Agreed a robust set of Group-level risks and mitigating

activities, which are regularly monitored.

> Debated key changes in risk severity and the relevant

contributing factors, redeﬁ ning as appropriate.

> Discussed the potential business impact of Brexit and
the possible actions to mitigate the associated risks.

Reviewed the
Company's progress
on data governance
and cyber security.

> Review and assess the strength of the Company's
cyber security capabilities and potential risks in
light of the perpetually changing nature of
potential threats.

> Undertook a comprehensive, externally facilitated
assessment of the Company's cyber security risks.
> Key areas of risk identiﬁ ed and future priorities agreed.
> Updated programme for driving responsible use

Customer

Reviewed progress
of Sparks programme
and discussed future
development.

> Review customer perceptions of Sparks against

loyalty schemes off ered by peers.

> Assess overall performance of the scheme and
the extent to which it drives customer behaviour.
> Determine the overall vision for the future of the
programme, including growth prospects and
potential future applications.

of data throughout the business.

> Work underway to ensure the customer insights
gathered through Sparks are used to inform
future business decisions that generate growth.

> Plans in place to further develop and improve

the programme.

Discussed brand and
customer proposition.

> Evaluate insights from customer research and assess
recommendations in respect of our brand positioning.

> Key themes emerging from customer and employee

research discussed.

> Continue to reﬁ ne our customer understanding.

> Agreed actions to improve customer experience,

with emphasis on our brand purpose of Making Every
Moment Special.

> Review the Board's composition, diversity and

> Women comprised 30% of our Board as at close

Leadership
& employees

Discussed succession,
talent development
and diversity across
management.

succession plans.

> Facilitate the smooth succession of the Chairman.
> Deliver eff ective and sustainable management
of talent pipelines to ensure the right talent is in
the right place at the right time.

> Continue to support and encourage the professional

development of Board members and senior
management to provide them with the skills they
need both today and for the future.

Discussed employee
engagement.

> Promote stronger engagement between the
Board and colleagues across the business.

> Evaluate the results of the annual Your Say survey
from colleagues across the business and identify
areas for improvement.

of the 2016/17 ﬁ nancial year.

> Robust succession process for the Chairman

completed.

> Undertook a comprehensive review of talent and

succession among senior management during the
year, with clear development plans produced.

> Progress made in adapting and simplifying processes

for managing our talent pipelines.

> Ongoing development initiatives include the

Korn Ferry Leadership Development Review, and
Development Centres for high potential talent.

> Received a detailed update from the National Business
Involvement Group (BIG), the Company's employee
representative body, on its activities during the year
and discussed its role in providing an independent
colleague voice.

> Discussed colleague sentiment across the business,
including key areas of concern and the employee
perspective of M&S's future opportunities and risks.

> Regular engagement with our people across

the business.

Discussed employee
reward and pensions.

> Implement the agreed arrangements for pay and
pensions across the business following the full
review initiated during the previous ﬁ nancial year
and conclusion of the consultation period.

> Decision taken to cease future accrual in the Company’s
deﬁ ned beneﬁ t pension scheme, following a period of
consultation with National BIG on behalf of employees.

> Determined the Company’s future approach to pay

with emphasis on fairness, consistency and
sustainability, following a period of consultation
with National BIG.

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

42
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

LEADERSHIP AND EFFECTIVENESS

BOARD
EFFECTIVENESS

This is a period of crucial
and profound change for the
business and it is heartening
to see how committed the
Board is to eff ecting change.

ROBERT SWANNELL, CHAIRMAN

BOARD EVALUATION

The assessment of the Board was
conducted according to the guidance in
the UK Corporate Governance Code (the
"Code") and was facilitated by Fﬁ on Hague of
Independent Board Evaluation. Neither Fﬁ on
Hague or Independent Board Evaluation has
any other connection with the Company.

STAGE 1

A comprehensive brief was given to
Independent Board Evaluation by the
Chairman and Group Secretary in December
2016. The assessment team observed
the main Board and committee meetings
in December, January and February.
Access to Board papers was provided
electronically prior to the meetings via
a secure portal.

In January and February, detailed interviews
were conducted with each Board member.
All participants were interviewed according
to a clear agenda, tailored for M&S. The
team also met with the Group Secretary,
HR Director, Director of Group Finance,
Head of Internal Audit & Risk, Director
of Retail, audit partners from Deloitte,
PwC (remuneration consultant) and
Makinson Cowell (independent investor
relations consultants).

STAGE 2

The report was compiled by the
assessment team based on information
and views supplied by those interviewed.
All recommendations were based on best
practice as described in the Code and
other corporate governance guidelines.

STAGE 3

Draft conclusions were discussed with the
Chairman and subsequently with the whole
Board at its meeting in March, with Fﬁ on
Hague present. The conclusion of that
discussion was recorded in the minutes of
the meeting. Following the Board meeting,
Fﬁ on Hague gave feedback on the Chairman
to the Senior Independent Director (Vindi
Banga), and to the committee chairmen on
the performance of each committee. In
addition, the Chairman received a separate
report with feedback on individual directors.

STAGES OF THE BOARD EVALUATION

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 2016/17

The broad message from the directors
was that Board dynamics and the ﬂ ow of
information to the Board has improved
signiﬁ cantly. The Board rated itself as
satisfactory in its performance on issues
of Board focus, risk management, Board
culture, the relationship with senior
management, meeting schedules and the
Board support function. Areas for further
progress included consistency of papers
and management information, succession
planning and people development. As a
result, these areas feature in the Board
Action Plan for the year ahead. When the
review was undertaken, Steve Rowe had
been the CEO for a period of nine months.
The business had been through signiﬁ cant
change in that period and it was clear
from the review that the openness in
communication was a very positive
development. The directors felt that the
Board agenda covered the most important
topics. However, they felt a review of the
management information provided to
the Board would improve the pace of
the decision-making process. The culture

of the Board is seen as positive and
supportive. Board members described
it as well-balanced, respectful, open,
challenging and committed. However, it
agreed that a greater diversity of culture,
gender and experience might enhance
the Board's composition.

COMMITTEES

Board committees were also reviewed
and were considered highly regarded
in terms of eff ectiveness and decision
making. Senior managers felt signiﬁ cantly
challenged by the Audit Committee and
commented that the Audit Committee
Chairman is very engaged on the key issues.

The Remuneration Committee was seen as
eff ective and considered. Greater visibility
around remuneration is welcomed.

CHAIRMAN

The Chairman is much appreciated by staff ,
who feel he truly embodies the Company’s
brand through his employee recognition
work and his many store visits.

BOARD ACTION PLAN

THE BOARD ACTION PLAN FOR
2017/18 WILL ALSO INCLUDE:

> Continue tracking of KPIs and

management information and their
alignment with long-term strategy.

> Continue tracking of post-decision
reviews of major capital investment
and strategic changes.

> Continue to drive the people agenda
by creating speciﬁ c KPIs for people
and diversity.

> Increase the level of informal contact

between the Board and senior
individuals and the Board and the
broader business beyond Head Offi ce.

> Review the Board education

programme to ensure the induction of
new Board members is tailored to their
individual skills and experience.

43
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

LEADERSHIP AND EFFECTIVENESS

RESPONSIBILITIES, OVERSIGHT
& INDEPENDENCE

ROLE OF THE BOARD AND ITS COMMITTEES

The Board is responsible for the stewardship
of the Company, overseeing its conduct and
aff airs to create sustainable value for the
beneﬁ t of its stakeholders. In performing this
task, the Board recognises that to promote
success over the long term it must fulﬁ l its
wider duty to care for the interests of
employees, customers and the communities
in which the Company operates, and whose
support is required to create sustainable value.

and enhanced to create competitive
advantage for the Company.

The Board delegates the execution of the
Company’s strategy and the day-to-day
management and operation of the
Company’s business to the Operating
Committee. The Board is responsible for
overseeing, guiding and holding to
account management in carrying out
these responsibilities.

and Nomination – the Board sets the
strategic direction and aims to deliver
sustainable shareholder value over
the longer term.

> Overseeing the implementation of

appropriate risk assessment systems
and processes to identify, manage
and mitigate the principal risks of the
Company’s business. Much of this work
is delegated to the Audit Committee.

The Board discharges some of its
responsibilities directly and others through
its Board committees and through
management. The terms of reference
of the Board and its committees are
included in our Governance Framework.

The Board agrees, and has collective
responsibility for, the strategy of the
Company. For M&S, strategy means the
development of speciﬁ c actions aimed at
promoting the long-term sustainable
growth of the Company by meeting the
needs of our target customer groups,
across all our product categories and
channels. The articulation of our strategy
will include agreement on how our physical
and intellectual property and the skills of
our people should be used, developed

The Board is responsible for ensuring that
appropriate values, ethics and behaviours
for the conduct of the Company are agreed
and that appropriate procedures and training
are in place to ensure that these are observed
throughout the Company.

> Eff ective succession planning at Board
level and for assessing the processes in
place to ensure that there is appropriate
succession planning among senior
management. Much of this work is
delegated to the Nomination Committee.

The Board has discussed and agreed the
key values of Inspiration, Innovation,
Integrity and In Touch and these underpin
the required values, ethics and behaviours.

Clear terms of reference outline the full
schedule of matters reserved for the Board’s
decision and that of its key committees.

The Board is responsible for:

> Ensuring leadership through eff ective
oversight and review. Supported by its
principal committees – Audit, Remuneration,

In addition to the other matters referred to
in its Governance Framework, the Board is
responsible for speciﬁ c matters relating
to strategy, ﬁ nance, risk management,
internal control and audit, legal, reputation
and public company management.
These, along with the individual roles of
the Board members, are covered by the
Schedule of Matters Reserved to the
Board in the Marks and Spencer Group plc
governance framework, and can be found
at marksandspencer.com/thecompany.

MONITORING AND OVERSIGHT

BOARD COLLABORATION

Protecting the business from operational,
ﬁ nancial and reputational risk is an essential
part of the Board’s role. Both the directors
and senior management focus on not just
the short but also the longer term and
continue to be more actively involved in
risk management and internal controls,
an important part of stewardship and
key to ensuring the long-term viability
of the business.

The Group Risk Proﬁ le and risk appetite are
owned by the Board. Their compilation is
facilitated by Group Risk, using business area
risk registers and one-on-one interviews
with Board members and business unit
directors. Oversight and independence are
provided in the process through the Audit
Committee, which ensures that the risks the
Board include 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 mitigating activities.

The Group Board and committee structure is provided below and the reports from the
chairs of the principal committees can be found on the pages 46, 48 and 54. Following the
appointment of Steve Rowe as CEO, the business's operational processes were reviewed
and a new framework implemented, with the Operating Committee responsible for
monitoring, managing and providing executive input to support strategic and operational
decisions to create strong executive alignment on business priorities and actions.
Membership of this committee can be found on page 11 or on our corporate website.

Although the executive directors sit as part of the Operating Committee to debate
and understand opinion from key leaders from the business areas, they are ultimately
responsible for all for decisions on strategy and all non-property investments through
the Investment Committee, and capital expenditure for the Group’s UK and International
property portfolio in line with the Group’s strategic goals and business priorities through
the Property Committee.

The supporting committees provide oversight and regular updates to the Operating
Committee and annual assurance updates to either the Audit Committee or Group Board.
All committees have clear terms of reference and approval thresholds set and approved
by the Group Board.

GROUP BOARD

INVESTMENT
COMMITTEE

OPERATING
COMMITTEE

PROPERTY
COMMITTEE

PRINCIPAL COMMITTEES
Audit
Remuneration
Nomination

Fire, Health & Safety

SUPPORTING COMMITTEES
Business Continuity

Plan A

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

44
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

GOVERNANCE

OUR STAKEHOLDERS:
HOW WE LISTEN & ENGAGE

Our rich network of stakeholder relationships upholds the values on which
M&S was founded. These remain vital to building a sustainable business.

Annual Report and
Accounts We go beyond
our obligations to provide
a holistic and engaging
view of the business.

Annual General Meeting
(AGM) Our 2016 AGM was
well attended and all our
proposed resolutions
were passed, with votes
in favour ranging from
90.53% to 99.99%.

Webcasts We have been
providing live webcasts of
our AGMs and preliminary
and interim announcements
for over ten years.

Ongoing engagement
Members of our senior
management and Investor
Relations teams held 406
meetings with 245 diff erent
institutions during 2016.

Annual Governance Event
The Chairman hosts this
annual day of dialogue
and debate between
directors and the Company's
largest investors.

Annual perception study
Each year the Board receives
an independent report from
Makinson Cowell into our
major investors' views on our
management and performance.

Institutional
investors

Director breakfasts
Discussions between directors
and groups of employees from
all levels within the business.

Business Involvement
Group (BIG) Engagement with
our employees is facilitated
through BIG, our network
of elected employee
representatives from each
store and business area.

SHAREHOLDERS

Shareholder Panel
Regular discussions
between the directors
and groups of private
shareholders.

Private
shareholders

Performance Overview
Our annual business
overview designed and
written speciﬁ cally for
the private shareholder.

Listening groups In early 2017
our colleagues shared their
views on a range of customer-
focused questions.

Your Say survey Our
March 2017 employee survey
showed that engagement
was up by 3%.

Quarterly Skype updates
Our quarterly CEO/CFO
trading updates are
broadcast via Skype to our
store management teams.

Monthly CEO updates
We have introduced a monthly
CEO update to c.50,000
employees via social media.

EMPLOYEES

LORD SIEFF DEPUTY CHAIRMAN OF M&S, 1964

SHAREHOLDERS

EMPLOYEES

We are always looking for ways to develop
our engagement with shareholders. This year
we introduced our regular Shareholder
Panel, where a small group of private
shareholders is invited to participate in
face-to-face discussions with members
of the Board and senior management.
For our large institutional investors and
investor advisory ﬁ rms, we continue to hold
our Annual Governance Event. Our 2016
event was hosted by the Chairman and
attended by the Senior Independent
Director, the committee chairmen, Group
Secretary, and a senior representative
from our Plan A team.

The Board’s engagement with the Company’s
85,000 employees is facilitated through
our Business Involvement Group (BIG),
a network of 3,500 elected employee
representatives from across all parts of the
business. Local BIG teams regularly feed
back to National BIG, whose chairman in
turn represents the collective employee
voice through regular meetings with the
Chairman and CEO, plus attendance
at our Board. However, employee
engagement extends far beyond BIG: one
example from the year was a collaborative
exercise where we asked our store
colleagues what we all needed to do

45
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

Marks & Start Training,
work placements and
employment have been
provided to thousands of
disadvantaged people.

Spark Something Good
Over the last two years,
4,000 employee and
customer volunteers have
helped over 240 community
projects across 12 cities.

Global Community
Programme We continue
to improve the lives of over
40,000 people across our
global supply chain.

Business community
engagement We help shape
our business environment by
responding to government
and industry consultations
and contributing to industry
discussions and events.

A PLAN A

Our pioneering social
Plan A
and environmental
sustainability programme
continues to underpin the way
we do business at M&S.

Sparks Card 5.6m
customers now receive
tailored off ers plus
the chance to engage
with a Plan A charity
partner. Over £2m has
been raised to date.

Marketing We created our
2016 Christmas With Love
campaign in direct response
to feedback from thousands
of customers.

C
CUSTOMERS

Crunch Costs In 2016 we
asked all our employees how
we could drive down costs
and ineffi ciencies. We used the
£20m saved to add over 3,000
colleagues to our stores.

Making Every Moment
Special We held an extensive
programme of in-store
events to ﬁ nd out from our
employees how we could
make every moment special
for our customers.

Consumer Barometer
Each month we listen
to c.70,000 customers
to create a snapshot of
consumer sentiment.

Customer Insight Unit (CIU)
Our CIU gathers feedback
through surveys, reviews and
focus groups to learn what
customers want from M&S.

M&S COMPANY
ARCHIVE
M&S
Company
Our archive safeguards M&S’s
Archive
heritage and shares it with the
public through exhibitions and
events as well as online.

COMMUNITY

Exhibitions and events
Our Marks in Time exhibition
and programme of events
brought M&S’s heritage
to life for 38,000 people
during 2016/17.

Schools programme
Our award-winning
programme has reached
12,000 pupils since 2012,
having recently broadened
its reach through
videoconferencing.

Partnership with University
of Leeds Now in its ﬁ fth year,
our strategic partnership
delivers collaborative
research projects and unique
student work opportunities.

Customer Research
Panel Our dedicated
panel of c.231,000
customers gives us
valuable input on
products in development.

Reminiscence work
We provide support to
people with dementia and
their carers through drop-in
sessions and the newly
launched Memory Café.

CUSTOMERS

COMMUNITY

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

46
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

LEADERSHIP AND EFFECTIVENESS

NOMINATION
COMMITTEE REPORT

We are introducing new initiatives to broaden and develop
the strong talent that exists within the business.

ROBERT SWANNELL CHAIRMAN

INTRODUCTION

During the year the focus of the Nomination
Committee (the "Committee") was on the
search for a new Chairman to succeed me
and the succession of non-executives and
senior individuals within the business.
As outlined on page 39, the Chairman
search was led by Vindi Banga and I did
not participate in the process.

In September, following her maternity leave,
Laura Wade-Gery, Executive Director, Multi-
channel, left the business. Her responsibilities
were allocated to the other executive
directors, and the business now operates
with a smaller executive Board. Laura was
instrumental in modernising our ecommerce

and multi-channel capabilities, and we wish
her the very best for the future.

The Committee maintains a well-deﬁ ned
speciﬁ cation for each appointment, with
a clear understanding of the attributes
and values required to help the eff ective
functioning of the whole Board. It considers
the combination of skills and experience
required to fulﬁ l the Board’s purpose. As
Chairman of the Committee, I take an active
role in overseeing the progress made
towards improving diversity and women’s
representation on both the Operating
Committee and among its direct reports.

The business has a framework with clearly
identiﬁ ed individuals capable of covering
key management roles on an interim or

permanent basis. These individuals receive
the necessary coaching to ensure they have
the required skills to provide any critical
support when needed. Development for
directors and high performing individuals
below Board level is an essential area of
focus. Coaching and mentoring is provided
to develop and enhance speciﬁ c skill sets,
and the Committee believes the beneﬁ ts
of this approach are critical for developing
our own talent for the future.

The Committee continues to take a more
active interest in talent management, in
particular ensuring that initiatives are
in place to develop the talent pipeline
and to promote diversity in Board and
executive appointments.

EFFECTIVENESS OF THE NOMINATION COMMITTEE

Committee review
The Committee's performance was
externally evaluated during the year
by Fﬁ on Hague.

The Committee was considered to be
eff ective and remains independent.
Areas of focus identiﬁ ed for the year
ahead are provided below.

Nomination Committee activity
During the year, the Committee held a
signiﬁ cant number of unscheduled
meetings to support the search and
appointment of the new Chairman. In
addition, it continued to support the
development of the executive directors
and participated in several employee-
focused initiatives, giving increased
access to the organisation.

Looking ahead
An area of focus for the Committee over
the coming year will be the link between
diversity, strategy and developing the
business. More consideration will be given
to the nature, variety and frequency of
interaction between the Board and aspiring
candidates at all levels.

The Committee will play an active part
in the induction process for our new
Chairman, Archie Norman, who joins
the business in September 2017.

MEMBER ATTENDANCE

MEMBER
SINCE

NUMBER OF
MEETINGS
ATTENDED

MAXIMUM
POSSIBLE
MEETINGS

% OF MEETINGS
ATTENDED

Robert Swannell

4 Oct 2010

Vindi Banga

3 Sept 2011

Alison Brittain

1 Jan 2014

Miranda Curtis1

3 Feb 2012

Andrew Fisher

1 Dec 2015

Andy Halford

1 Jan 2013

Richard Solomons

13 Apr 2015

100%

80%

100%

1. Miranda Curtis was unable to attend the meeting on 14 March 2017 due to external business commitments.

ACTION PLAN 2017/18

> Continue to review succession plans for the Board and key roles across the business.

> Continue to review future talent pipeline.

> Review development initiatives for directors.

> Greater input when tailoring the induction of new Board members to their individual

skills and experience.

> Continue to identify opportunities for broader business engagement beyond

Head Offi ce.

47
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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. The policy
continues to drive the beneﬁ ts of a diverse
Board and workforce across the business.
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 p24 of our Plan A Report
marksandspencer.com/plana2017.

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, one
change to the Board was made during the
year to 1 April 2017, with the resignation of
Laura Wade-Gery. Despite the reduced size
of the Board, the percentage of women
on the Board remains on target at 30%
at the time of publication. The charts on
page 38 provide a clearer picture of our
Board diversity.

The Board remains committed to maintaining
at least a 30% female representation on the
Board, while 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 is also 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.

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 remains committed
to 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.

> A thorough approach to talent

development through initiatives including
the Korn Ferry Leadership Development
Review, and Development Centres for
high potential talent.

> The Leadership Development Service has
been in place for four years and continues
to identify and partner key senior talent
across the business, broadening their
skill sets 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, involvement in
senior pipeline programmes and
participation in mentoring schemes.

> Access to international business

school training.

> Senior management mentoring and

coaching schemes and non-executive
director sponsored lunches and breakfasts.

Consider candidates for appointment
as non-executive directors from a wider
pool, including those with experience
outside traditional listed boards.
Although no new appointments were made
during the year, the Nomination Committee
continued to discuss the successional needs
of the Board in respect of its non-executive
directors. Lists of potential candidates are
compiled with assistance from executive
search agencies and comprise candidates
from a range of diff erent industries and
backgrounds. Those subsequently identiﬁ ed
for interview are measured against criteria
set at the start of the search 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
FTSE 100 companies. All long lists for potential
future non-executive director appointments
will include at least 50% female candidates.

Only engage executive search ﬁ rms who
have signed up to the Voluntary Code
of Conduct for Executive Search Firms
on gender diversity and best practice.
The Board continues to support the ten
principles of the Voluntary Code
of Conduct for Executive Search Firms on
gender diversity and best practice and is
committed to only engaging executive
search ﬁ rms who are signatories to this
code. During the year, we worked closely
with Egon Zehnder and JCA and maintained
our focus on the targets and ambitions
around female representation on the
Board. The Board conﬁ rms that neither
Egon Zehnder nor JCA has any 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 through
a range 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.

> Five employee-led diversity networks that
focus on making M&S an inclusive place
to work for women and men (Gender
Equality Network), minority ethnic groups
(BAME at M&S), lesbian, gay, bisexual
and transgender people (LGBT+ at M&S),
parents (Parents Net), and people
with disabilities and health conditions
(The Buddy Network). These deliver
large-scale awareness-raising events
promoting inclusion and equality,
as well as mentoring, coaching,
roundtable discussions with senior
leaders and regular communication
across the business.

> Continued involvement in the government-

backed 30% Club, an organisation
committed to increasing female
representation on UK boards.

> Continued involvement running Business

in the Community (BITC) mentoring
circles which help us to promote and
develop BAME (Black, Asian and minority
ethnic) talent pipelines.

> Active involvement in key campaigns
including LGBT+ Pride celebrations,
International Women’s Day, Black History
Month, National Inclusion Week, and World
Disability Day, raising awareness and our
proﬁ le as an inclusive employer.

> A number of programmes to help people
in our communities, including Marks & Start
and Marks & Start Logistics, are successfully
helping young people, the homeless, lone
parents and those with disabilities to ﬁ nd
work in our stores and distribution centres.

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 2016/17
Board evaluation and the Action Plan are on
page 42. We remain committed to getting
the right balance of internal versus external
hires and work towards understanding and
managing the challenges we face, such as:

> International management experience

reﬂ ective of the customers and
communities we serve.

> Any challenges women face in reaching
regional management positions and
above within the business.

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

48
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

ACCOUNTABILITY

AUDIT COMMITTEE
REPORT

The Committee has played a key role in ensuring
appropriate challenge and governance around
accounting treatment, risk management and control
and assurance process.

ANDY HALFORD CHAIRMAN OF THE AUDIT COMMITTEE

INTRODUCTION

As Chairman of the Audit Committee
(the "Committee"), I am pleased to present
the Committee’s report for the year ended
1 April 2017.

Through this report I aim to share some
of the Committee's discussions from the
boardroom, off ering insight into its essential
role in protecting the interests of our
shareholders through ensuring the integrity
of the Company's published ﬁ nancial
information and the eff ectiveness of the
Internal Audit process. Our report will
provide an overview of the signiﬁ cant issues

the Committee has assessed during the year
and will off er the Committee's view of the
Annual Report as a whole, including the
methodology behind its assessment of the
narrative reporting as an accurate reﬂ ection
of the ﬁ nancial statements.

The report also shares some of the
executive updates that were presented to
the Committee by diff erent areas of the
business during the year. These updates are
essential in telling us how diff erent risks are
managed and mitigated throughout the
business, and assists the Committee in

understanding the progress being made
towards the strategic plan. They also
provide the Committee members with
an opportunity to share their own extensive
experience with the presenters, utilising
their independent perspective to add
value through robust challenge, discussion
and debate.

The report will also update you on our
assessment of the eff ectiveness of our
statutory auditor, Deloitte, and explain
our policy relating to any non-audit work
it was engaged to complete and the fees
it received for doing so.

EFFECTIVENESS OF THE AUDIT COMMITTEE

The expertise of the Committee members
is considered as part of the annual review of
the Committee's eff ectiveness. The Board
is satisﬁ ed that the Committee possesses
relevant sectoral competence and
appropriate levels of independence, and
that its members off er a depth of ﬁ nancial
and commercial experience across various
industries. It is further satisﬁ ed that Andy
Halford possesses recent and relevant
ﬁ nancial experience and the requisite
competence in accounting.

Audit Committee activities during 2016/17:

> Maintained focus on the audit, assurance
and risk processes within the business,
as well as oversight of ﬁ nancial and other
regulatory requirements.

> Reviewed the Group’s systems of internal
control and risk management, and any
changes in accounting policies and
impact on its ﬁ nancial statements.

> Provided oversight of particular business
risks, including those relating to ethical
sourcing and animal welfare.

> Provided increased oversight of the risks
and controls pertaining to cyber security.

> Monitored the ﬁ nancial reporting
process, the statutory audit of the
Group’s ﬁ nancial statements and the
independence of the statutory auditor.

> Discussed and reviewed adjusted items
that may impact business performance.

> Reviewed the mitigating controls over

the Group’s principal risks and assessed
the level of assurance provided.

> Continued to support assurance
mapping across the Group, with
particular focus on strategic priorities.

> Continued to monitor and respond to
the changing regulatory environment,
particularly in respect of implementation
of the EU Audit Regulation and Directive.

Members of senior management are
invited to attend Committee meetings
as and when their specialist technical
knowledge is required. The Committee

also meets privately, without management
present, before each meeting. Additionally,
separate private sessions attended by the
lead audit partner from Deloitte and the
Head of Internal Audit & Risk are held after
each meeting. As Committee Chair, I also
regularly meet on a one-to-one basis with
the Chief Finance Offi cer, Director of Group
Finance, Head of Internal Audit & Risk and
other members of senior management.
I also meet with the lead audit partner
in advance of Committee meetings.
Scheduling meetings in this way enables
me to better understand any key issues
and areas of concern, and allows suffi cient
time to facilitate meaningful discussion
during the subsequent meeting.

MEMBER ATTENDANCE

MEMBER
SINCE

NUMBER OF
MEETINGS
ATTENDED

MAXIMUM
POSSIBLE
MEETINGS

% OF MEETINGS
ATTENDED

Andy Halford

1 Jan 2013

Alison Brittain

11 Mar 2014

Miranda Curtis1

4 Mar 2015

Andrew Fisher

3 Feb 2016

100%

80%

100%

1. Miranda Curtis was unable to attend the meeting on 23 January 2017 due to illness.
Note: Detailed information on the experience, skills and qualiﬁ cations of all directors is available on pages 36 and 37.

49
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

EFFECTIVENESS OF THE AUDIT COMMITTEE CONTINUED

INDEPENDENT REVIEW AND
COMMITTEE ACTION PLAN

The Committee's performance was
reviewed externally this year by Fﬁ on Hague.
Feedback was positive, particularly relating
to the open debate encouraged during
meetings. It is regarded as thorough and
eff ective, and provides the Board with a high
level of assurance that audit matters are
dealt with appropriately. Areas in which it
was felt improvements could be achieved
were discussed by the Committee for
inclusion in its 2017/18 action plan.

The Committee made good progress on
the 2016/17 action plan by reviewing
controls over and assessing the levels
of assurance provided in respect of the
Group’s principal risks, supporting risk
assurance mapping across the Group,
increasing its oversight of cyber security
risks and monitoring regulatory change.

The action plan for 2017/18:

> Review the eff ectiveness of Internal

Audit in line with the Chartered Institute
of Internal Audit requirements and
monitor any key ﬁ ndings.

> Continue to oversee the Company-wide

risk and assurance mapping.

> Continue to monitor oversight of data
governance and information security
risk ahead of the implementation of
the General Data Protection Regulation
in May 2018.

> Oversee the reﬁ nement of the internal

control environment.

The Committee receives detailed updates
from one or more business areas at each
meeting. These updates are planned on a
rolling 12-month basis. Additional matters
identiﬁ ed by Internal Audit as requiring the
Committee’s attention are included in
the agendas of subsequent meetings. An
overview of some of the updates presented
during 2016/17 is provided below:

MANAGEMENT OF INTERNAL
CONTROL FAILURES

The Audit Committee receives updates on
internal control matters at each meeting.
This regular monitoring of the internal
control framework allows timely
identiﬁ cation of issues and formal tracking
of remediation plans. Instances where the
eff ectiveness of internal controls was
considered insuffi cient were discussed
during the year, either by the Audit
Committee or the full Board. These
have included controls over market
updates, third party oversight and IT asset
management. As part of the annual review
of internal control, the Audit Committee
again considered these matters, ensuring
that the agreed actions were being
implemented to support a programme
of maintaining and improving internal
control. Following its review, the
Committee recommended to the Board
that, although the matters identiﬁ ed were
important, they had been addressed at
the time of its review, with suitable controls
now in place.

FIRE, HEALTH AND SAFETY (FHS)

> Updated on performance across all
aspects of trading safely and legally
and the progress made in driving
compliance standards.

> Discussed the safety of sales ﬂ oor

equipment, ﬁ ttings and installations,
including progress made and the
key actions put in place.

> Updated on continuing improvements

to International governance and
compliance processes in respect of FHS,

AUDIT COMMITTEE UPDATES

including the reports of the third party
facilitated store inspection plan.

> Noted the reductions in reported accidents
in UK-owned stores as a result of work
undertaken with our Primary Authority
Partner, Birmingham City Council.

ETHICAL SOURCING AND
MODERN SLAVERY

> Updated on the controls in place to

ensure an uncompromising approach
to maintaining M&S's ethical standards
in an increasingly competitive
international sourcing environment.

> Discussed how risks are mitigated through

supplier selection, appraisal criteria
and regional improvement programmes
supported by a strict Internal Audit
and monitoring approach.

> Updated on the approach to supplier

inspections and the diff erent processes
adopted in Food and Clothing & Home,
noting the regular ethical audits
undertaken by an accredited third
party on all factories used by M&S.

> Updated on the ways in which the
business proactively supports the
human rights of colleagues across all
business operations, including
compliance with the Modern Slavery
Act and the steps taken to prevent
modern slavery throughout the
business and its supply chain.

GOVERNANCE AND COMPLIANCE

> Updated on the revisions to the auditor

engagement policy, implemented
following the introduction of the
EU Audit Regulation and Directive.

> Discussed and reviewed the Board's

approach in undertaking its assessment
of the long-term viability of the business.

> Updated on the annual circulation of

the M&S Code of Ethics and Behaviours,
including ongoing monitoring of
compliance, and noting plans for a full
review of the Code during 2017/18.

BUSINESS CONTINUITY

> Updated on the continued strengthening

of crisis management and business
recovery capability across all retail and
distribution operations.

> Discussed national preparedness in the
context of the UK's current threat level,
crisis simulation exercises undertaken
in collaboration with industry peers,
and the development of new training
tools for Duty Managers aimed at
raising levels of preparedness.

> Updated on preparedness and the

crisis management processes in place
internationally, region-speciﬁ c threat
assessments and crisis simulations, and
procedures relating to business travel
to areas deemed to be high risk.

> Updated on the disaster recovery plans
for the distribution centre at Castle
Donington, improvements in resilience
capability and key milestones achieved.

> Discussed the priorities for 2017/18,
including supply chain resilience in
international logistics, International
retail and sourcing, as well as global
terrorism and cyber security.

FOOD SAFETY AND INTEGRITY

> Updated on the governance and control
processes in respect of food safety, the
assessment of operational risks in key
areas and the regular reviews of the
risk model conducted in response to
internal and external issues.

> Discussed food safety and the processes

in place for resolution of complaints.

> Updated on the internal and external
inﬂ uences on risk mitigation strategy,
covering supply base, raw material
sourcing, product targeting and
regulatory developments.

> Discussed the food safety and integrity
risk proﬁ le and the greater focus placed
on supply base within the audit programme.

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

50
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

AUDIT COMMITTEE REPORT CONTINUED

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

Throughout the year, the Finance 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, while being mindful of
matters that may be business-sensitive.

This section outlines the main areas of
judgement that have been considered by
the Committee to ensure that appropriate
rigour has been applied. All accounting
policies can be found in note 1 to the
ﬁ nancial statements. 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 to the right
has been identiﬁ ed as an area of focus
and therefore the Committee has also
received detailed reporting from Deloitte.

SIGNIFICANT ISSUES

PRESENTATION OF THE
FINANCIAL STATEMENTS

The Committee gave consideration to the
presentation of the ﬁ nancial statements
and in particular the use of alternative
performance measures and the presentation
of adjusted items 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 signiﬁ cant in value and/or nature.
The Committee received detailed reports
from management outlining the
judgements applied in relation to the
disclosure of adjusted items. In the current
year, management has included in this
category: the reduction in M&S Bank income
for the impact of the M&S Bank provision
for ﬁ nancial product mis-selling; signiﬁ cant
charges arising in relation to changes to pay
and pensions; net costs associated with the
implementation of strategic programmes in
relation to UK organisation, UK logistics, UK
store estate and the closure of International
owned businesses; impairments of the
carrying value of UK and International stores
(including associated onerous leases); and
legal settlements. This was an area of focus
for the Committee in the current year due to

the number and value of these items
(£437.4m charge) and the recent guidelines
on the use of alternative performance
measures issued by the European Securities
and Markets Authority.

In addition, the prior year was a 53-week
statutory reporting period so consideration
had been given to the balance of 52-week
and 53-week metrics for the prior year
reported throughout the Annual Report.
The 52-week measures have been quoted
where relevant to ensure meaningful
comparison with this year’s 52-week period.
Following detailed review and active
discussion with management, the
Committee has concluded that the
presentation of the ﬁ nancial statements
is appropriate.

See note 5 on p103

IMPAIRMENT OF GOODWILL, BRANDS,
TANGIBLE AND INTANGIBLE ASSETS

The Committee has considered the
assessments made in relation to the
impairment of goodwill, brands, tangible
and intangible ﬁ xed assets, including land
and buildings, store assets and software
assets. The Committee received detailed

FAIR, BALANCED AND UNDERSTANDABLE

At the request of the Board, the Committee
has considered whether, in its opinion,
the 2017 Annual Report and Financial
Statements are fair, balanced and
understandable, and whether they provide
the information necessary for shareholders
to assess the Group’s position and
performance, business model and strategy.

The structure of the report continues
to focus strongly on the key strategic
messages in the Strategic Report. It was
therefore important for the Committee
to ensure that this emphasis did not dilute
the overall transparency in the disclosures
made throughout the report, which we
know our stakeholders ﬁ nd useful, and that
the messages presented by the business
are both clear and reﬂ ective of the
Company as a whole.

A broad outline of the structure of the
Annual Report was given to the Committee
early in the planning process, along with a
similarly broad indication of its content.
The Committee received a full draft of
the report 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 the areas it was felt would
beneﬁ t from further clarity. The draft
report was then amended to incorporate
this feedback prior to being tabled at the
May 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 within 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

performance 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?

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 presented within each
remain consistent when one is read
independently of the 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 the signiﬁ cant issues identiﬁ ed
compare with the risks that Deloitte
plans to include in its 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 2017 Annual
Report and Financial Statements are
representative of the year and present
a fair, balanced and understandable
overview, providing the necessary
information for shareholders to assess
the Group’s position, performance,
business model and strategy.

51
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

reports from management outlining the
treatment of impairments, 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 its review of impairments. In addition,
the business plans detailing management’s
expectations of future performance of
the businesses are Board approved. The
Committee is satisﬁ ed that appropriate
impairment of tangible and intangible
assets has been recognised.

See notes 5, 14 & 15 on p103-104 & 114-116

INVENTORY VALUATION AND
PROVISIONING

Inventory provisions include obsolete
stock, net realisable value below cost and
stock loss provisions. The Committee has
examined 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.

TENURE

Deloitte was appointed by shareholders
as the Group’s statutory auditor in 2014
following a formal tender process. The
lead audit partner, Ian Waller, has held
the position for three years. The external
audit contract will be put out to tender
at least every ten years.
The Committee recommends that Deloitte
be reappointed as the Company’s statutory
auditor for the 2017/18 ﬁ nancial year. We
believe the independence and objectivity of
the external auditor and the eff ectiveness
of the audit process are safeguarded and
remain strong. The Company has complied
with the Statutory Audit Services Order for
the ﬁ nancial year under review.

EFFECTIVENESS

The eff ectiveness of our external auditor
is assessed in accordance with a process
agreed by the Audit Committee, which is
divided into ten structured components
setting out the key areas of the audit
process for the Committee to consider.

This framework also recognises the
contribution of management in being fully
engaged with, and thereby enhancing the
eff ectiveness of, the external audit process.
It enables the Audit Committee to form
a view of management's role in an eff ective
audit process by considering whether
it believes in a culture of ‘right ﬁ rst time’,
produces high quality papers, ensures
robust internal systems and controls are
maintained, respects and values the

SIGNIFICANT ISSUES CONTINUED

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 p108-111

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

This continues to be monitored closely by
management and robust controls are in place
to ensure appropriate recognition in the

EXTERNAL AUDITOR

correct period. The Committee is satisﬁ ed
with management’s conclusion that there
is minimal risk of material misstatement.
Enhanced disclosure has been made again
in the current year through publication of
the accounting policy and disclosing the
eff ects of supplier income on certain
balance sheet accounts.

CLOSURE COSTS FOR INTERNATIONAL
OPERATIONS (NEW DISCLOSURE)

The Committee has considered the
assessments made in relation to the estimation
of closure costs and associated provisions
for the exit from certain International owned
markets. The Committee received detailed
reports from management outlining the
accounting treatment of the costs, the
basis for the key assumptions used in the
estimation of the costs (most notably
in relation to property exit costs and
redundancy) and the assessment of
assets to be impaired. The Committee has
challenged management and is satisﬁ ed
that these are appropriate. The Committee
is satisﬁ ed that appropriate costs and
associated provisions have been
recognised.

See notes 1, 5, 15 and 22 on p96, 103, 115

and 124

independent audit process and examines
any audit adjustments proposed by the
external auditor with appropriate rigour.

completed management questionnaires
(sections 1 and 2 above) to assist with its
own considerations.

WHAT WAS THE OUTCOME?

Feedback from each of the target groups
was positive overall, particularly in respect
of the technical insight and challenge
provided by the audit team; its level of
interaction with the business; its strong
understanding of M&S’s culture and values;
and the valuable guidance provided for the
Company’s strategic initiatives. It was felt
that areas identiﬁ ed during the 2015/16
review had improved during the year,
speciﬁ cally the communication between
the business and Deloitte during the audit
process; however, it was felt that further
improvements could still be achieved.

Areas for development identiﬁ ed in this
year's review were encouraging a more
joined-up approach during the audit and
ensuring the timely provision of accurate
information by M&S to the auditor.
Additionally, it was felt that further work by
both M&S and Deloitte would improve the
effi ciency of the overseas audit process.

This framework provides a robust process
for monitoring auditor eff ectiveness and
can be measured against the ﬁ ndings of
future external auditor eff ectiveness
surveys. The approach to the assessment
is tailored to enable senior management to
answer 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.

Questionnaires were tailored to the
following target groups:

1. Chief Finance Offi cer and Director
of Group Finance: A full questionnaire
was completed, covering all areas of the
audit process, while taking account of the
questionnaires completed by the Directors
of Finance for Food and Clothing & Home
and Head of Finance, International.

2. Directors of Finance: Food, Clothing
& Home and Head of Finance,
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
planning, execution, value, communication
and challenge of the audit and audit partner.
The Committee had access to copies of the

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

52
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

AUDIT COMMITTEE REPORT CONTINUED

EXTERNAL AUDITOR CONTINUED

NON-AUDIT FEES

A robust auditor engagement policy is
in place and adhered to. It is reviewed
annually and was updated during the year
to account for the tighter restrictions
on work permitted to be undertaken
by the statutory auditor introduced by
the Financial Reporting Council's (FRC)
Revised Ethical Standard 2016. The policy
is disclosed on marksandspencer.com/
thecompany. The business is committed
to maintaining non-audit fees at a low level.
The non-audit fees to audit fees ratio for
the ﬁ nancial year ended 1 April 2017 was
0.16:1, compared with the previous year’s
ratio of 0.17:1. During the year, the Company
was notiﬁ ed that Deloitte had acquired crisis
management specialists Regester Larkin
(RL), which the Company has engaged,
prior to acquisition, to develop crisis

management exercises. The fees for RL
were £32k. Since the bulk of the fees were
incurred prior to RL’s acquisition by Deloitte,
it was decided to complete the project as
planned and that alternative providers
would be reviewed for future engagements.
The majority of the £0.3m in non-audit fees
paid in total to Deloitte during 2016/17 were
incurred for assurance services it provided
during the year. These comprised fees in
respect of the Half Year review, turnover
certiﬁ cates, the annual Euro Medium Term
Note (EMTN) programme renewal, reviews
of quarterly trading statements, crisis
management reviews and overseas
engagements. It is normal practice for such
assurance services to be provided by the
Company’s statutory auditor. No additional
recurring or one-off non-audit services
were provided during the year.

The Committee is satisﬁ ed that the
Company was compliant during the year
with both the updated UK Corporate
Governance Code and the FRC's Ethical
and Auditing Standards in respect of the
scope and maximum permitted level of
fees incurred for non-audit services
provided by Deloitte. Where non-audit
work is performed by Deloitte, both the
Company and Deloitte ensure adherence
to robust processes to prevent the
objectivity and independence of the
auditor from being compromised.

All non-audit work performed by Deloitte
was put to the Audit Committee for
consideration and approval, regardless
of size. Further details on non-audit
services provided by Deloitte can be
found in note 4 on page 102.

ASSURANCE AND INTERNAL CONTROL ENVIRONMENT

The Board assumes ultimate responsibility
for the eff ective management of risk across
the Group, determining its risk appetite 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 p32-33 of the Strategic Report for

more information on our material risks

See p30 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 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 with
input from management. Recommendations
from Internal Audit 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.

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 Guidance on
Audit Committees and Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting. No
signiﬁ cant failings or weaknesses were
identiﬁ ed during the Committee’s review
in respect of the year ended 1 April 2017
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

Source of information

Frequency/nature of reporting

Committees

> Fire, Health & Safety Committee
> Plan A Committee*
> Business Continuity Committee

Direct reporting lines
to the Committee, with
annual updates from
the relevant executive

Business
areas

Papers produced on the
following subjects:

> Information Security
> Whistleblowing & Fraud
> Bribery
> Code of Ethics and Behaviours
> GSCOP (Grocery Supplier

Code of Practice)

Internal Audit testing
(as appropriate) in relation to:

> Food Safety & Integrity
> Ethical Audits
> Trading Safely & Legally

Other
control
agencies

* Note: also reports directly to the Board.

Formal updates
presented to the
Committee annually

Updates provided
to the Committee
as requested
or appropriate

AUDIT
COMMITTEE

53
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

GOVERNANCE

PENSIONS
GOVERNANCE

The Group operates a deﬁ ned beneﬁ t
pension scheme, the Marks & Spencer
UK Pension Scheme, (the "Scheme") for
employees with an appointment date prior
to 1 April 2002. The Scheme closed to future
accrual from 1 April 2017. Employees are
now eligible to join and are auto-enrolled
as required by legislation into a deﬁ ned
contribution pension scheme, Your M&S
Pension Saving Plan, which is part of a
mastertrust arrangement managed by
Legal & General.

The results of the triennial actuarial
valuation of the Scheme as at 31 March 2015
revealed a surplus of £204m on a technical
provisions basis. This represented a healthy
improvement from a deﬁ cit of £290m as at
31 March 2012 as a result of agreed recovery
plan contributions from the Company and
outperformance of return-seeking assets
over the period. The Scheme has also been
hedged against interest rate and inﬂ ation
risks and has thus been insulated from
the eff ect of falling real interest rates.
Scheme funding is closely and frequently
monitored and Scheme investment risks
are diversiﬁ ed.

The Scheme, the assets of which are held
under trust separately from those of the
Group, is 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 additional terms.

The Trustee Board operates a number of
committees including: Management and
Governance, Investment, and Audit to which
responsibilities are delegated. The Trustee
Board is supported by an executive team
which manages the governance and
operation of the Scheme.

The Trustee Board has a business plan
against which progress is measured
periodically in a similar approach to the
Group Board. There is also an annual
Trustee 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.
A majority of the Trustee Board members
hold the Pensions Management Institute
Award in Trusteeship.

All advisers and suppliers are appointed
through a rigorous tender process, and
in respect of investment manager
appointments are made with advice from
the Scheme’s appointed investment adviser.
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 Group’s Half Year
and Year End results.

The Scheme is a signatory to the UN
Principles for Responsible Investment
and the Financial Reporting Council’s
UK Stewardship Code. It 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 Board
policy, which addresses a range of
governance, social and environmental
issues. The engagement of EOS enhances
the Trustee Board’s stewardship and
governance oversight of investee
companies by engaging with companies
on a global basis. The results of these voting
and engagement activities are published
quarterly on the Scheme’s website.

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

54
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

GOVERNANCE

REMUNERATION
OVERVIEW

Our remuneration framework is aligned with
the strategic direction of M&S and the interests
of our shareholders, with a clear focus on customer,
simplicity and teamwork.

VINDI BANGA CHAIRMAN OF THE REMUNERATION COMMITTEE

On behalf of the Board, I am pleased to
present our 2017 Remuneration Report.
The Committee has sought to further
improve our disclosures once again this
year to provide not only the regulatory
information we are required to disclose while
balancing against commercial sensitivities,
but also the context surrounding pay
arrangements. Additional context has been
provided where we believe this will help to
present a complete picture of the structure
and scale of the remuneration framework,
its alignment with the business strategy and
the rest of the workforce, as well as the
payments made as a result of business
performance for this year.

As highlighted last year, and in line with
regulations, we are now seeking shareholder
support and approval for our Remuneration
Policy at the 2017 AGM. This year’s summary
‘Remuneration at a Glance’ highlights not
only the key elements of the payments
made to directors this year, but also gives an
outline of the proposed amendments to the
Remuneration Policy which will govern pay
arrangements in the next three years.

As required, this report is split into two
further distinct sections, the ﬁ rst covering
our updated Remuneration Policy, and the
second covering remuneration in action for
the 2016/17 and 2017/18 ﬁ nancial years. In
accordance with regulations, shareholders
will be requested to vote separately on
these reports at our AGM in July 2017, with
this Remuneration Overview and the Annual
Report on Remuneration being subject to
an advisory vote.

REMUNERATION FRAMEWORK
CONSIDERATIONS

The Board is committed to ensuring that
our remuneration framework supports our
strategy, and provides a balance between
motivating and challenging our senior
leaders to deliver our business priorities,
as set out by our CEO, and strong
performance while also driving the long-
term sustainable success of M&S. As a
result, a signiﬁ cant part of performance
related reward is delivered through shares.
This ensures that our leaders have

meaningful long-term investment in
our business, and that their interests are
closely aligned with our shareholders.

The Committee spent a considerable
amount of time this year liaising with
many of our shareholders and sharing
a wide variety of views on remuneration
generally, including the framework,
structures, measures and targets. It
explored a number of options taking into
account the various perspectives and
views and considering these against the
current framework, the current economic
and market environment, the business
strategy and progress against the goals
set out last year.

As we explained in the Annual Report
last year, we delayed granting the 2016
Performance Share Plan (PSP) awards until
December 2016 to ensure the targets set
were appropriately aligned to the strategic
review being undertaken by the new team
following Steve Rowe’s appointment
as CEO. As the focus of the business plan
announced in November 2016 remains
unchanged and the team has had less
than one year to start to implement
much of this, the Committee considered
that the structure of the current
remuneration framework continues
to support this strategy.

PROPOSED AMENDMENTS TO
REMUNERATION POLICY

Taking all of the above into account, the
Committee has therefore decided to
maintain the principles of the framework
ﬁ rst introduced in 2010 and approved
by shareholders in 2014, but to make
some minor amendments to incentive
arrangements to ensure sharper and
more relevant alignment between senior
remuneration, the strategic direction
of the Company, and the interests of
our shareholders.

The PSP will continue to be the primary
long-term incentive plan for executives.
We are maintaining the overall construct of
the plan, with the typical award being 250%
of salary. However, we will be introducing a
two-year holding period post vesting for all

long-term incentive awards made from
2017, to ensure greater alignment of our
leaders' remuneration with long-term
stakeholder interests.

Furthermore, we will be reducing the cash
supplement in lieu of pension contributions
for new executive director appointments.
The new threshold will be reduced from 30%
(for the CEO) and 25% (for all other directors)
to a maximum of 20% for all future executive
directors, including the CEO. Contractual
arrangements for current executive
directors will remain unchanged at 25%. This
removes any policy diff erential between the
CEO and other executive directors.

KEY ELEMENTS OF 2017/18
REMUNERATION ARRANGEMENTS

The Annual Bonus Scheme will continue to
be based on corporate ﬁ nancial targets
(currently 70%) and individual objectives
(currently 30%). The maximum opportunity
will remain 200% of salary. The ﬁ nancial
measure will continue to be Group PBT
before adjusted items (Group PBT). The
individual measures on page 69 highlight
the importance of collective and customer
focused measures to support the one
team behaviours which have the customer
at the heart of the business, in line with
the business strategy.

The PSP will be maintained but will also
now include a two-year holding period
post vesting as previously outlined. TSR will
be introduced as a key measure to both
reinforce alignment of executive interests
with shareholders, as well as being a relative
measure of value creation. TSR will replace
cash ﬂ ow as a measure, and the ﬁ nancial
measures of EPS and ROCE will be retained
as measures of proﬁ table and effi cient
business performance.

Each of the three measures will have equal
weightage; thus TSR will count for a third;
ROCE will count for a third and up from
the historical 20%; EPS will count for a third,
less than the historical 50%.

As in the past, the Committee will have
oversight into the quality of how the
outcomes of EPS and ROCE are delivered

55
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

IN THIS SECTION

EXECUTIVE DIRECTORS’ REMUNERATION AT A GLANCE p56-57

STRATEGIC ALIGNMENT OF PAY p56

REMUNERATION POLICY p58-65

ANNUAL REPORT ON REMUNERATION p66-77

Executive directors’
remuneration policy p58

Recruitment policy p62

Termination policy p63

Non-executive directors’
remuneration policy p64

Total single ﬁ gure remuneration p66

Performance Share Plan p70-71

Salary and beneﬁ ts p67

Directors’ share interests p72-73

Annual Bonus Scheme p68-69

Non-executive directors’ remuneration p76

Remuneration Committee p77-78

and will exercise discretion as necessary.
While the Committee believes that
introducing TSR at this stage provides an
important measure of the success of the
new strategy for the executive team, the
Committee also believes that certain
strategic and non-ﬁ nancial measures may
become more signiﬁ cant to M&S to warrant
consideration for PSP measurements in
future years.

Given the continued challenging economic
and market environment, consumer
concerns over Brexit, and ongoing currency
and inﬂ ationary headwinds, the Committee
has set the 2017/18 targets at what it
believes would represent stretching
business performance. For EPS and ROCE,
targets have been increased from those
set for the 2016 PSP award, which were
rebased against the new ﬁ nancial plan.
These increased targets reﬂ ect the plans
for the business to return to growth in the
next three years. TSR performance will be
measured against a bespoke group of
comparator companies, broadly similar
to that adopted by other companies in
our sector. In accordance with standard
market practice, targets for threshold
and maximum vesting will be set at median
and upper quartile performance of the
Group respectively.

REMUNERATION FOR 2016/17

As referenced earlier in the Annual Report,
since his appointment as Chief Executive,
Steve Rowe has set out clear and decisive
plans to accelerate the pace of change
to return the business to growth. A huge
amount of work has already begun to
implement and deliver this strategy,
including the investment in Clothing &
Home pricing and the reshaping of both
the UK store estate and the International
business. While these plans have laid the
groundwork to M&S’s long-term recovery,
the necessary investment has meant that
proﬁ ts delivered this year are lower than
last year, although above consensus
expectations. However, this was not
unexpected and our ﬁ nancial plan for
the year reﬂ ected this.

The Remuneration Committee is satisﬁ ed
that incentive payments for the executive
directors reﬂ ect both the overall ﬁ nancial
performance of the business and the hard
work undertaken by the team to achieve this

in the challenging environment. Total
payments are around 35% of the maximum
receivable, of both ﬁ xed and variable pay
together, if all stretch targets had been
achieved. This clearly demonstrates the
philosophy of the executive directors’
pay arrangements in action, including
the rigour of target setting; maximum
payments will only be payable for
exceptional performance.

As can been seen on page 56, there is a
clear and demonstrable link between
business strategy and payments for 2016/17
performance to the executive directors.
The key business priorities are referenced on
pages 8-11 of this report. Executive director
targets were aligned with these priorities
and achievement against the key ﬁ nancial
priorities are shown on pages 18-21.

ANNUAL BONUS OUTTURN

As highlighted earlier, the year has been one
of considerable change for M&S. When
approving payments, the Committee
considered the overall performance of
the business and of the executive directors
against this, as well as against their individual
targets. Details of the bonus payments to
each of the executive directors are outlined
on page 68. Bonus payments ranged from
37% to 42% of maximum opportunity. Bonus
payments made to directors reﬂ ected the
large proportion of collective measures for
the year, in support of focusing on teamwork
and simplicity within the pay arrangements.

PSP VESTING

The PSP awards granted in 2014 were
measured for the three-year period up to
1 April 2017 against EPS, ROCE and Revenue
targets. As the threshold targets were not
achieved, all awards held by executive
directors will lapse.

SALARY REVIEW

The Committee discussed the annual salary
review for all executive directors. In line with
the budget salary increases for the rest of
the organisation, the Committee approved
a 2% increase for all executive directors.
However, as clearly disclosed in last year’s
report the executive directors have, for the
second year in succession, chosen to not
accept this increase. Salaries for the
executive directors will therefore remain

at those levels set in July 2015, apart from
Steve Rowe, whose salary changed on his
appointment to CEO in April 2016.

BOARD CHANGES

In September 2016, we announced that
Laura Wade-Gery would not be returning
to the business following her maternity
leave. Laura’s remuneration terms, disclosed
at the time, were in line with the key
provisions for contract termination as per
the shareholder approved Remuneration
Policy. In addition, details in relation to
outstanding remuneration for Marc Bolland
following his departure are also provided on
page 75.

STAKEHOLDER ENGAGEMENT

We are grateful to shareholders, shareholder
representative bodies, regulatory bodies
and remuneration advisers for their
engagement, feedback, challenge and
view on remuneration matters over the
past year. The Company has been actively
involved on the subject of executive
remuneration and stakeholder
engagement, and earlier this year
responded to the UK Government’s Green
Paper on Corporate Governance Reform.

Stakeholder engagement, including input
from M&S's Business Involvement Groups
are key to ensuring we continue to drive the
transparency around our decisions relating
to executive pay, provide clarity and quality
of our performance targets and associated
disclosures, and ensure the relevance of our
long-term executive pay incentives and
their alignment to the performance of the
business. We are grateful for this ongoing
dialogue. 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

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

56
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

GOVERNANCE

REMUNERATION
AT A GLANCE

This overview summarises our Remuneration Policy in action and
shows the alignment between our remuneration framework, the
Company’s performance and payments to directors for 2016/17.

Grow GGroup
revevenue

KPI
Grououp revenue

StrStrong cash
geneneration

KPIKPI
Free cash ﬂ oﬂ ow

STRATEGIC ALIGNMENT OF REMUNERATION FRAMEWORK WITH KPIs

Drive
growth
growth

KPI
Revenue

Increase ese earnings
andand returns

KPI
RetReturn on capital employed
(ROCE)

AAdjusted e

d earnings per share (EPS)

Total shareh

eholder return (TSR)

Group proﬁ t b
and adjus

t before tax (PBT)
usted items

Source
products with
integrity

KPI
Plan A

PERFORMANCE
SHARE
PLAN

ANNUAL
BONUS
SCHEME

Effi cient and
responsible
operations

KPI
Plan A

Improve
proﬁ tability

KPI
UK gross margin

Foster a skilled,
motivated and
engaged team

KPI
M&S values

2016/2017 PERFORMANCE

Reach customers

KPI
UK LFL revenue growth
Online site visits

See KPIs on p18-21

GROUP PBT BEFORE
ADJUSTED ITEMS

GROUP
REVENUE

RETURN ON CAPITAL
EMPLOYED

ADJUSTED EARNINGS
PER SHARE

FREE CASH FLOW (PRE
SHAREHOLDER RETURNS)

£613.8m

£10.6bn

13.7%

30.4p

£585.4m

Group PBT was above the
target set for bonus
payments to begin.
For executive directors,
19.5% of bonus opportunity
was payable as a result
of this Group PBT
performance.

Performance under all
revenue metrics was
below the threshold
required for payment
under the 2014 PSP award,
resulting in this element
of the award lapsing.

Average 3-year ROCE
performance of 14.5%
(including 13.7% for 2016/17)
was below the threshold
required for this element
of the 2014 PSP award
to vest.

EPS growth was -1.9%
over the three years
ending in 2016/17 (based
on the outturn of 30.4p
for this year), which was
below the 5% growth
required for vesting
under the 2014 PSP award.

Free cash ﬂ ow performance
for the year had no direct
impact on payments for
2016/17 but will impact PSP
payments for the next two
ﬁ nancial years, measured on
a cumulative 3-year basis.
The 2016/17 outturn is more
than 1/3 of the annualised
target under the respective
outstanding awards.

57
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

SINGLE FIGURE REMUNERATION 2016/17

The graph opposite summarises the total
payments made to executive directors in
respect of the 2016/17 ﬁ nancial year. These
ﬁ gures illustrate those detailed in the single
ﬁ gure table set out later in this report.

Fixed pay comprises salary, beneﬁ ts and
pension beneﬁ ts. Further information on
payments made under the Annual Bonus
Scheme is illustrated below, with further
details provided on page 68.

Performance Share Plan awards did not
meet the threshold performance required
for vesting this year and, as such, awards
will lapse in full on their vesting date.

Bonus payments made in respect of
performance for the year were between
37% and 42% of maximum bonus
opportunity. This resulted in payments
ranging from c.£459,000 to c.£600,000,
with half of all payments being deferred
into shares for three years, subject to
malus provisions being met.

Further detail on the performance
measures and targets and the extent
to which they were achieved are shown
on page 68 of this report.

Steve
Rowe

Patrick
Bousquet-Chavanne

Helen
Weir

£1,043

£705

£757

£599

£459

£496

Fixed pay

Total bonus PSP

Total
£000

£1,642

£1,164

£1,253

See Single ﬁ gure remuneration on p66

See Annual Bonus Scheme below and p68

See PSP on p71

ANNUAL BONUS SCHEME 2016/17

Corporate element 70%

Individual element 30%

Steve
Rowe

Patrick
Bousquet-Chavanne

Helen
Weir

19.5%

Maximum

Achieved

See Annual Bonus Scheme on p68

17.5%

22.5%

SUMMARY OF POLICY AND PROPOSED AMENDMENTS

Shareholders approved the Remuneration
Policy at the AGM in 2014. As such, the
Company is required to seek approval for
the new policy at the AGM to be held on
11 July 2017. Pages 58 to 65 provide the
full details of the proposed policy.

The Committee reviewed the senior
remuneration framework during the year
to ensure that it remains 'ﬁ t for purpose',
providing an appropriate framework to
fulﬁ l M&S's reward philosophy which is, in
turn, designed to support and drive the

business strategy. Changes proposed to the
policy are minimal as the Committee felt
the previously approved framework remains
broadly appropriate. For transparency, the
table below sets out an overview of the key
areas of the policy.

Base salary

Beneﬁ ts

Pension beneﬁ ts

Annual Bonus Scheme

Performance Share Plan

Non-executive directors
(including Chairman)

MAIN FEATURES OF CURRENT POLICY

> Increases awarded
are normally in line
with those elsewhere
in the business.
Adjustments in
excess of this may
be made where the
Committee deems
it appropriate.

> Beneﬁ ts provided at
a rate commensurate
with the market and
currently include
a car or cash
allowance, a driver,
and life assurance
plus other beneﬁ ts
provided to all
employees, including
employee discount.

POLICY CHANGE

> Directors may

> Maximum opportunity

of 200% of salary.

> Maximum award
of 300% of salary.

> Fees reviewed

annually.

participate in M&S's
deﬁ ned contribution
arrangement on the
same terms as other
employees, or receive
a cash supplement
in lieu of pension
contributions. Cash
alternative maximum
is currently 25% of
salary for other
executive directors
(30% for CEO).

> 50% of total bonus

> Performance

> Comprise basic fee

deferred into shares
for three years.

> Measured against

Adjusted Group PBT
(currently 70% of
award) and individual
objectives.

> Clawback and malus
provisions apply.

measured against
ﬁ nancial targets over
a three-year period.

> Clawback and malus
provisions apply.

plus additional fee for
extra responsibility of
Board or committee
chairman or Senior
Independent NED.

> In addition, the

Chairman may be
entitled to the use
of a car and driver.

> Salaries will be

> No change.

> For current executive

> No change.

> A two-year holding

> Fees will be

compared against
appropriately-sized
listed companies
which may be outside
of the FTSE 25-75
detailed in the
previous policy.

directors, the
maximum cash
allowance will be
limited to 25% of
salary for all
(including the CEO).

> For future

appointments, the
cash amount payable
will be capped at 20%
of salary for all.

compared against
appropriately-
sized companies
which may be outside
of the FTSE 25-75
detailed in the
previous policy.

period post
vesting will be
introduced.

> Performance

conditions may
include quantiﬁ able
non-ﬁ nancial/
strategic measures,
with ﬁ nancial
measures comprising
at least 50% of awards.

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

58
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

GOVERNANCE

REMUNERATION POLICY

FIGURE 1: EXECUTIVE DIRECTORS’ REMUNERATION POLICY TABLE (TO BE APPROVED ON 11 JULY)

Base salary

Beneﬁ ts

ELEMENT

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
which are typically reviewed
annually on a similar basis; and

– Comparable salaries in

appropriate comparator groups.

> Salaries reﬂect the experience,

responsibility and contribution of the
individual and role within the Group.

CHANGE FOR 2017
> Appropriate comparator groups
may include major retailers and
similarly-sized listed companies
which may be ranked outside of
the FTSE 25-75.

> 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.

> Directors are off ered a number of
other beneﬁts in line with all other
employees, such as employee
discount and salary sacriﬁce
schemes such as Cycle2Work.

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

MAXIMUM
OPPORTUNITY

> While there is no set maximum,

any increases are normally in line
with those in the wider workforce.

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

> Individual adjustments in excess

> Maximum participation in

all-employee share schemes is
in line with local statutory limits.

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

– To apply salary progression for
newly appointed directors.

PERFORMANCE
CONDITIONS

N/A

This report sets out the Company’s policy
on remuneration for executive and
non-executive directors, to be approved
by shareholders at the AGM on 11 July 2017,
from which date the policy will apply. The
policy remains largely unchanged from
that approved by shareholders in 2014;
for transparency, where amendments
have been made these are highlighted.
Once approved, this policy may operate
for up to three years.

As previously, the Committee has 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.

Further information regarding the
implementation of the previous remuneration
policy is set out on pages 66 to 77.

KEY CHANGES TO THE POLICY

Base salary

Pension
beneﬁ ts

Performance
Share Plan

> Base salaries will be

compared against major
retailers and
appropriately-sized
listed companies which
may be outside of those
ranked FTSE 25-75.
Previously, the peer
group comprised FTSE
25-75 ranked companies.
This change reﬂ ects
M&S's FTSE ranking.

> Maximum cash

payments will be limited
to 25% for all current
executive directors and
to 20% for all future
executive directors. This
reduction better reﬂ ects
pension arrangements
in the wider workforce.

> To further support

shareholder alignment, a
two-year holding period
post vesting will apply to
any awards granted to
executive directors after
the 2017 AGM.

> Performance conditions

may now include
quantiﬁ able non-ﬁ nancial
or strategic measures.
Previously, performance
conditions were limited to
ﬁ nancial measures only.
This change will ensure
strategic alignment of
the PSP.

59
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

Pension beneﬁ ts

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 the 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.

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

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

> Current directors may participate
in the Your M&S Pension Saving
Plan (a deﬁned contribution
arrangement) or an alternative
pension saving vehicle that the
Company may off er, on the same
terms as all other employees or
receive a cash supplement in lieu
of pension contributions into
this scheme.

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

> The Company’s principal long-term incentive
scheme, approved by shareholders in 2015.

> 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.

> Deferred shares vest after a period of three years subject to
continued service, but no further performance conditions.

> Clawback and malus rules apply to awards

(see explanatory notes).

> Clawback and malus rules apply to cash and DSBP

> Good leaver and change of control provisions

> A maximum cash payment of 25% of
salary for current executive directors.

> A maximum employer contribution
of 12% of salary where the employee
contributes 6% of salary.

CHANGE FOR 2017
> The cash alternative provided to
current executive directors will
be limited to 25% of salary for all
directors. For directors appointed
to the Board after 11 July 2017,
the cash alternative will be up to
a maximum of 20% of salary for
all directors.

N/A

awards respectively, see explanatory notes (page 60)
for more information.

> Good leaver and change of control provisions apply

to the deferred shares (see explanatory notes).

> The value of any dividends during the deferred period

will be payable (see explanatory notes).

> 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.

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

apply (see explanatory notes).

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

CHANGE FOR 2017
> Awards granted after 11 July 2017 will be

subject to a further two-year holding period
after the vesting date. Directors may sell
suffi cient shares to satisfy the tax liability
on exercise but must retain the net number
of shares until the end of this two-year period.

> 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.

> 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 the business plan.

> Financial performance measures comprise at least
50% of awards and may include, but not be limited
to Group PBT after adjusted items.

> Typically, no payment for individual objectives can

be earned unless a ‘threshold’ level of Group PBT after
adjusted items 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% (currently 30%)
of maximum bonus potential may be payable for the
achievement of individual objectives.

> Performance is measured over a three-year
period against a balanced scorecard of
appropriate measures as determined by the
Committee each year. This currently includes
EPS and ROCE chosen as those measures which
support and drive top-line and bottom-line
performance in line with business strategy,
as well as Total Shareholder Return (TSR).

> The threshold level of vesting is 20% of

the maximum.

> For performance between threshold and

maximum, awards vest on a straight-line basis.

CHANGE FOR 2017
> Awards may be measured against

appropriate ﬁ nancial, non-ﬁ nancial and/or
strategic measures. Financial measures
comprise at least 50% of awards.

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

60
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

GOVERNANCE 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 58
and 59; 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 a forward-looking policy, for transparency, details of the plans are set out in the table below:

ELEMENT

Restricted
Share Plan
(RSP)

PURPOSE AND
LINK TO STRATEGY

OPERATION

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

> Restricted awards may be granted
for the 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 pages 60 and 63).

> The value of any dividends during

the restricted period will be payable
(see explanatory notes below).

MAXIMUM
OPPORTUNITY

PERFORMANCE
CONDITIONS

> While there is no

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 2015,
the Committee may choose to award share
options to directors if appropriate.

> Malus provisions, good leaver and change of

control provisions apply (see pages 60 and 63).

> 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.

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 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 and shares) the value of dividends,
including any dividend tax credit where
applicable, 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.

EXPLANATORY NOTES

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 were approved by shareholders
on 7 July 2015).

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 for 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.

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 diffi cult to
satisfy but for the event in question.

CLAWBACK AND MALUS

M&S is committed to ensuring its
remuneration arrangements motivate
participants to strive for exceptional
performance while also protecting
shareholder value from the Company
taking unnecessary risks. As such, clawback
and malus provisions apply to the executive
directors’ incentive arrangements. All share
awards granted from 2013 onwards are
subject to malus provisions. These provisions

In addition, clawback provisions were
introduced in 2015 and apply to cash
payments made under the Annual Bonus
Scheme. 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.

61
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

EXPLANATORY NOTES CONTINUED

PERFORMANCE CONDITIONS AND
TARGET SETTING

REMUNERATION FRAMEWORK FOR
THE REST OF THE ORGANISATION

The Committee reviews annually the
measures, weightings and targets for the
incentive arrangements for the executive
directors. In doing so, the Committee
considers a number of factors which assist
in forming a view. These include, but are not
limited to, the strategic priorities for M&S
over the short- to long-term, shareholder
feedback, the risk proﬁ le of the business
and the macro-economic climate.

The Annual Bonus Scheme is measured
against a balance of proﬁ tability and
the delivery of key strategic areas of
importance for the business. The
proﬁ tability measure used is Group PBT
before adjusted items as this is used
internally to report and assess business
performance by the Board and Operating
Committee. Refer to the glossary on pages
133 to 134 for the deﬁ nition of Group PBT
before adjusted items, and to Note 1 of the
ﬁ nancial statements for a description of
adjusted items.

The PSP is assessed against a balance of
measures identiﬁ ed as those most relevant
to driving both sustainable top-line and
bottom-line business performance, as
well as providing value for shareholders.
This is reﬂ ected in the EPS and ROCE
measures which focus on a balance of
proﬁ tability, cost control and the effi cient
use of capital investment.

For 2017/18, relative TSR will be introduced
to ensure focus on the value delivered to
shareholders. This is measured against a
bespoke group of retail companies which
are believed to provide a balanced portfolio
of those most likely to be alternative
investment choices for M&S shareholders.

Targets are set against the respective annual
and long-term operating plans taking into
account analysts’ forecasts, M&S’s strategic
plans, prior year performance, estimated
vesting levels and the aff ordability of pay
arrangements. Targets are set to provide
a sustainable balance of risk and reward
to ensure that, while being motivational
for participants, maximum payments are
only made for exceptional performance.

M&S’s philosophy is to provide a fair and
consistent approach to pay. Remuneration
is determined by level and is broadly aligned
with those of the executive directors.

Base salaries are reviewed annually and
reﬂ ect the local labour market.

All UK employees are eligible to participate
in the Your M&S Pension Saving Plan on
the same terms as the executive directors.
In addition, all UK employees are provided
with life insurance and employee discount,
and may choose to participate in the
Company’s all-employee share schemes
and salary sacriﬁ ce arrangements.

All employees are eligible to be considered
to participate in an annual bonus scheme
which for the majority will be a cash-based
payment partially determined by Group
PBT performance. For M&S’s most senior
executives, part of the bonus is deferred
into shares for three years.

Around the top 120 of M&S’s senior
executives may be invited to participate
in the PSP, measured against the same
performance conditions as executive
directors. Award levels granted are
determined to be aligned with market
practice and reﬂ ect an individual’s level
of seniority as well as their performance
and potential within the business.

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 HR Director 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 in line with
these arrangements.

The HR Director 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. Employees were not
consulted on the development of the policy.
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
considered. The Head of Performance &
Reward 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.

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 considered when making
any decisions about changes to the
directors’ Remuneration Policy.

The Committee seeks the views of the
largest shareholders individually and
others through shareholder representative
bodies 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 AGM and the answers to speciﬁc
questions are posted on our website.

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

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

62
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

GOVERNANCE 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.

In addition, the Committee in exceptional
circumstances has discretion to include any
other remuneration component or award
which it feels is appropriate, considering
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 58 to 65.

FIGURE 3: RECRUITMENT POLICY

ELEMENT

RECRUITMENT POLICY

Salary

> 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

and/or other comparable roles within the market with the intention of applying staged increases.

Beneﬁ ts

Pension
beneﬁ ts

Annual
Bonus
Scheme

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

> Maximum contribution in line with our policy for future executive directors (up to 20% of salary).

> 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 payments 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 expected value awarded will be no greater than the expected value forfeited by the individual.

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

SERVICE CONTRACTS

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.

63
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

TERMINATION POLICY

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 75).

The Company can make a series of phased
payments which are paid in monthly
instalments, 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 below sets out key provisions
for directors leaving the Company under
their service contracts and the incentive
plan rules.

The Company’s policy towards 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 pro-rating.

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.

FIGURE 4: KEY PROVISIONS UPON CONTRACT TERMINATION

ELEMENT

TERMINATION POLICY

Salary, beneﬁ ts
and pension
beneﬁ ts

Annual
Bonus
Scheme

Long-term
incentive
awards

Repatriation

Legal
expenses and
outplacement

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

> There is no contractual entitlement to payments under the Annual Bonus Scheme. Should a director be under notice or not in active
service at either the relevant year end or on the date of payment, there will be no entitlement to any bonus payment, either in cash
or shares. The Committee may use its discretion as described below to make a bonus award, which is normally pro-rated for time
worked during the relevant ﬁ nancial year 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 vesting 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 pro-rated
and subject to the two-year holding period post vesting.

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

> 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.

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

64
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

GOVERNANCE CONTINUED

NON-EXECUTIVE DIRECTORS' REMUNERATION POLICY

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

FIGURE 5: NON-EXECUTIVE DIRECTORS' REMUNERATION POLICY TABLE

Chairman’s
fees

Non-executive
director basic fee

Additional
fees

Beneﬁ ts

ELEMENT

PURPOSE
AND LINK TO
STRATEGY

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

OPERATION

> Total fee comprised of

the non-executive director
basic fee and the additional
fee for undertaking the role.

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

> Fees are paid in equal
monthly instalments
and may be made in cash
and/or shares.

> Paid in equal monthly

> Fees are determined by

instalments; may be made
in cash and/or shares.

the Chairman and
executive directors.

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

> 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.

> 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,
appropriately-sized listed
companies, etc.

CHANGE FOR 2017
> Appropriate comparator

groups may include major
retailers and similarly-
sized listed companies
which may be ranked
outside of the FTSE 25-75.

> 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,
appropriately-sized
listed companies, etc.).

> The maximum aggregate
non-executive director
basic fees, including the
Chairman, is £750,000 p.a.,
as set out in the Company’s
Articles of Association.

CHANGE FOR 2017
> Appropriate comparator

groups may include major
retailers and similarly-
sized listed companies
which may be ranked
outside of the FTSE 25-75.

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

> In addition to the annual

fee, the Chairman may be
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.

FIGURE 6: RECRUITMENT POLICY

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

ELEMENT

RECRUITMENT POLICY

Fees

Beneﬁ ts

> 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.

> The Company may off er beneﬁ ts to the Chairman and non-executive directors as detailed in the non-executive director policy

table above.

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.

KEY CHANGES TO THE POLICY

Fees

> Fees will be compared against major retailers and
similarly-sized listed companies which may be
ranked outside of the FTSE 25-75 detailed in the
previous policy.

65
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

EXECUTIVE DIRECTORS’ REMUNERATION POLICY

FIGURE 7: SUMMARY OF REMUNERATION POLICY (TO BE APPROVED ON 11 JULY 2017)

See KPIs on p18-21

The diagram below illustrates the balance of pay and time period of each element of the proposed remuneration policy for executive
directors which, if approved, will take eff ect after the 2017 AGM. The Committee believes this mixture of short- and long-term incentives
ﬁ xed to performance-related pay is appropriate for M&S's strategy and risk proﬁ le.

Year 1

Year 2

Year 3

Year 4

Year 5

Fixed
pay

Base salary

Beneﬁ ts

Pension beneﬁ ts

Annual
Bonus
Scheme

y
a
p

l
a
t
o
T

Up to 100% salary

1-year performance

3-year deferral period

Clawback provisions
apply

No further performance conditions

Malus provisions apply

PSP

Awarded typically 250% salary

3-year performance

Malus provisions apply

2-year holding period post vesting

No further performance conditions

Clawback provisions apply

APPLICATION OF THE REMUNERATION POLICY

The charts below provide an illustration of what could be received by each of the executive directors in 2017/18. These charts are illustrative
as the actual value which will ultimately be received will depend on business performance in the year 2017/18 (for the cash element of the
Annual Bonus Scheme) and in the three-year period to 2019/20 (for the PSP), as well as share price performance to the date of the vesting of
the share element of the Annual Bonus Scheme and PSP awards in 2020.

FIGURE 8: REMUNERATION ILLUSTRATIONS

DIRECTORS

Steve Rowe
£000

Patrick Bousquet-Chavanne
£000

Helen Weir
£000

5,000

4,000

3,000

2,000

1,000

KEY

£4,688

43%

35%

22%

5,000

4,000

3,000

2,000

1,000

£2,258
18%

36%

46%

Target

Maximum

£705

100%

Fixed

£1,043

100%

Fixed

5,000

4,000

3,000

2,000

1,000

£3,162

43%

35%

22%

£1,524
18%
36%

46%

Target

Maximum

£3,409

43%

35%

22%

£1,639
18%
36%

46%

Target

Maximum

£754

100%

Fixed

Fixed remuneration

Includes all elements of ﬁ xed remuneration:

– Base salary (eff ective 1 July 2017, as shown in the table on page 67);

– Pension beneﬁ ts (using the cash supplement policy on pages 58 to 59); and

– Beneﬁ ts (using the value for 2016/17 included in the single ﬁ gure table on page 66.

Annual Bonus Scheme (ABS)

Represents the potential value of the annual bonus for 2017/18. 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 2017, which would
vest in 2020 subject to the performance against the targets disclosed on page 71.
Awards would then be held for a further two years. No share price growth is assumed.

BASIS OF CALCULATIONS

Fixed

Fixed remuneration only.
No vesting under the ABS and PSP.

Target

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

– ABS: 50% of maximum; and

– PSP: 20% of maximum.

Maximum Includes the following assumptions

for the vesting of the incentive
components of the package:

– ABS: 100% of maximum; and

– PSP: 100% of maximum.

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

66
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

GOVERNANCE

REMUNERATION REPORT

EXECUTIVE DIRECTORS’ REMUNERATION

The Remuneration Committee annually
reviews the senior remuneration framework
and considers whether the existing incentive
arrangements remain appropriately
challenging in the context of the business
strategy, current external guidelines and
a range of internal factors including the pay
arrangements and policies throughout the
rest of the organisation. In its discussions,
the Remuneration Committee aims to

ensure that not only is the framework
strategically aligned to the delivery of
business priorities, but also that payments
made during the year fairly reﬂ ect the
performance of the business. As illustrated
on page 56, a signiﬁ cant proportion of the
performance measures used in the incentive
schemes are integrated with M&S’s business
objectives and key performance indicators
detailed on pages 18 to 21.

The diagram below illustrates the extent
to which each executive director achieved
the maximum opportunity under the
Company’s incentive schemes as a result
of short- and long-term performance to
the end of the reported ﬁ nancial year
and summarises the main elements of
the senior remuneration framework.
Further details of payments made during
the year are set out in the single ﬁ gure
table below (Figure 10).

FIGURE 9: REMUNERATION STRUCTURE 2016/17

Fixed pay

Annual bonus

PSP

Base salary

Beneﬁ ts

Pension beneﬁ ts

200% salary maximum
bonus opportunity
(with 50% deferral)

Measured against a
balance of Group PBT and
individual performance.

250% salary awarded
in 2014/15

Measured against EPS,
ROCE and Revenue targets.
Achievement was below
threshold against these
measures.

No salary increase

Payments made are between
37% - 42% of maximum
bonus opportunity

0% of award vested

For more information see p68

For more information see p71

See KPIs on p18-21

Total pay
for 2016/17

Total
payments
range between
35% and 37%
of maximum
potential

FIGURE 10: TOTAL SINGLE FIGURE REMUNERATION (audited)

Director

Steve Rowe

Patrick Bousquet-Chavanne

Laura Wade-Gery
(to 12 September 2016)

Helen Weir

Year

2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16

Salary

Beneﬁ ts

£000

809
549
546
541
35
383
590
590

£000

32
34
22
38
8
18
19
208

Total
bonus
£000

Total PSP
vested
£000

Pension
beneﬁ ts
£000

599
230
459
366
0
207
496
620

0
56
0
40
0
59
0
0

202
137
137
135
63
141
148
148

Total

£000

1,642
1,006
1,164
1,120
106
808
1,253
1,566

Laura Wade-Gery left the Board on 12 September 2016 and, as such, the payments above relate to those made until that date.
Further details of Laura's leaving arrangements are detailed on page 75 of this report.

As disclosed in the 2015 report, for Helen Weir, beneﬁ ts for 2015/16 also included £188,500, the diff erential value in contractual pension she
forfeited to join M&S. This was paid in 12 monthly instalments.

Note that the value of awards vesting in 2015/16 has been restated to reﬂ ect the actual value of dividend equivalents and share price
at the time of vesting.

The following sections detail
additional disclosures regarding
each of the components set out
in the previous single ﬁgure table.

67
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

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.

As reported in last year’s report, all
executive directors were awarded a
salary increase of 2% for July 2016 but,
in support of the proposed new pay
arrangements being made elsewhere in
the UK organisation, they chose to decline
this increase. Further, they also indicated
that should an increase be awarded for
July 2017, they would be similarly minded
to decline that increase.

FIGURE 11: SALARIES

Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir

The Committee noted this intention but
for completeness, discussed the executive
directors’ annual salary review during the
year. All executive directors were eligible to
be considered for a review and after taking
into account several factors including the
average increases to be awarded to the
wider UK workforce, the Committee
approved a 2% pay increase.

All executive directors have again this year
declined their respective pay increases.
Their next annual review will be eff ective
in July 2018.

The table below details the executive
directors’ salaries as at 1 April 2017
and salaries which will take eff ect
from 1 July 2017.

Annual salary
as of
1 April 2017
£000

Annual salary
as of
1 July 2017
£000

Change
in salary
% increase

810
546
590

0
0
0

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.

Executive directors currently all receive
a 25% cash payment in lieu of participation
in an M&S pension scheme.

Steve Rowe is a deferred member of the
Marks & Spencer UK Pension Scheme.
Details of the pension accrued during the
year ended 1 April 2017 are shown below.

FIGURE 12: PENSION BENEFITS

Accrued
pension
entitlement
as at
year end
£000

Additional
value
on early
retirement
£000

Increase
in accrued
value
£000

Increase
in accrued
value
(net of
inﬂation)
£000

Normal
retirement
age

Steve Rowe

148

Transfer
value of
total
accrued
pension
£000

4,301

The accrued pension entitlement is the deferred pension amount that Steve Rowe would
receive at age 60 if he left the Company on 1 April 2017. All transfer values have been
calculated on the basis of actuarial advice in accordance with the current Transfer Value
Regulations. The transfer value of the accrued entitlement represents the value of the
assets that the pension scheme would transfer to another pension provider on transferring
the scheme’s liability in respect of a director’s pension beneﬁ ts. It does not represent sums
payable to a director and therefore cannot be added meaningfully to annual remuneration.

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

GOVERNANCE CONTINUED

ANNUAL BONUS SCHEME 2016/17
(audited)

Annual performance for 2016/17 was
measured against Group PBT (70% of
awards) and individual performance (30% of
awards). Group PBT is used in the bonus as
the Group considers this to be an important
measure of Group performance and
is consistent with how the business
performance is assessed internally by
the Board and Operating Committee.

Individual performance was measured
against both collective corporate
performance and performance aligned
with the individual’s speciﬁ c areas of
responsibility. Individual performance
measures for the year were aligned with the
key strategic business priorities identiﬁ ed at
the start of the year. Figure 13 provides an
overview of the key achievements against
each executive director’s accountabilities
over the period.

Group PBT outturn for the year was £613.8m
which was above the targets set to trigger
payments under both the corporate and
individual elements of the Scheme.

ANNUAL BONUS SCHEME

As shown in Figure 14 below, this meant
that executive directors were awarded
27.9% of maximum opportunity under the
corporate element of the Scheme and on
average c.70% of maximum for individual
performance.

The Committee reviewed achievement
to ensure that total payments were
appropriate in the context of several factors.
These included M&S’s overall ﬁ nancial
performance, the outturn of individual
objectives, the level of bonus payable
elsewhere in the business, and success
towards Plan A targets and M&S values
which underpinned the entire Scheme
again during the year.

See Plan A Report for more detail

The Committee was satisﬁ ed that each
director continued to ensure that the
delivery of Plan A commitments and the
behavioural ways of working supported
the delivery of the business priorities.
As such, the Committee determined that
no adjustments were required against the
underpin and that the ﬁ nal payments
calculated were appropriate.

The Committee ensures that targets set
are the relevant drivers of required annual
performance. Consequently, some of the
2016/17 targets are too commercially
sensitive to disclose as they are not
disclosed elsewhere in the report.
M&S remains committed to transparent
reporting within the context of operating
in a highly competitive market. The
Committee will continue to assess the
commercial sensitivity of targets with the
aim of disclosing wherever possible, while
ensuring that any measures set are those
most appropriate to grow the business.

Figure 14 below sets out the Group PBT
targets comprising 70% of awards and
illustrates the extent to which each director
achieved their three individual objectives.
Total payments shown below directly
correspond to the ﬁ gure included in the
single ﬁ gure table on page 66 .

FIGURE 13: KEY ACHIEVEMENTS OF INDIVIDUAL OBJECTIVES 2016/17

Director

Steve
Rowe

Patrick
Bousquet-Chavanne

Helen
Weir

Collective customer (10%)

Collective strategic (10%)

Local ﬁ nancial (10%)

Customer satisfaction over
the year improved. Net
Promoter Score (NPS), which
was the measure for this
element of bonus, increased
four points for Food and for
Clothing & Home remained
level, although improved
amongst frequent customers
and in larger stores. This led
to a payment against this
measure of 7.5%.

Action taken this year to
simplify the business included
the successful organisation
transformation and restructure
of Head Offi ce. Role reductions
were made and there was no
overall impact on engagement
scores for this population.
Employee engagement within
the total business increased
to 81%. As a result of this
performance, including above
target restructure cost savings,
maximum payment was made
under this measure (10%).

Performance impacted by reduction in
promotional and markdown activity leading to
below target UK LFL Clothing & Home revenue
growth of -3.4%. As a result, no payment was
made against this element.

Continued improvements in online sales
conversion and successful marketing
campaigns to help drive store footfall.
Target payment made as a result of
performance against these measures.

Continued to develop and strengthen a cost
control culture. Necessary investment in a
number of key business areas led to costs
increasing by 3.8%, broadly in line with plan.
Target payment was achieved.

FIGURE 14: ANNUAL BONUS SCHEME 2016/17

CORPORATE GROUP PBT (70%)

INDIVIDUAL (30%)

TOTAL PAYMENT

Director

Steve
Rowe

Patrick
Bousquet-Chavanne

Helen
Weir

Performance assessment key

Target/performance

Min £593m

27.9% of max bonus

£613.8m

27.9% of max bonus

£613.8m

27.9% of max bonus

£613.8m

Below Threshold

Threshold > Target

Target > Stretch

Above Stretch

Performance

Achievement

Max £685m

58.3% of max bonus

% salary

74.0%

£000

£599

75.0% of max bonus

84.0%

£459

75.0% of max bonus

84.0%

£496

69
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

ANNUAL BONUS SCHEME CONTINUED

FIGURE 15: DSBP AWARDS MADE IN 2015/16

Steve Rowe
Patrick Bousquet-Chavanne
Laura Wade-Gery
Helen Weir

Basis of award

50% of bonus
50% of bonus
50% of bonus
50% of bonus

Face value of
award1
£000

£115
£183
£104
£310

End of
deferral period

22/06/2019
22/06/2019
30/09/2016
22/06/2019

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 £3.558, being the average share price between 15 June 2016 and 21 June 2016.

maintain the important principle that below
a deﬁ ned level of ﬁ nancial performance no
bonus will be earned, no individual element
can be earned unless a ‘threshold’ level of
Group PBT has been achieved.

The bonus performance targets for 2017/18
are deemed by the Board to be too
commercially sensitive to disclose at
this time but, where possible, will be
disclosed in next year’s report.

As shown below, 70% of awards will once
again be measured against Group PBT
under the corporate element. The remaining
30% of the bonus will be measured against
individual objectives and will be a mixture of
collective objectives and measures bespoke
to each director. The individual element of
the Scheme will comprise three equally
weighted objectives identiﬁ ed as those key
priorities required to support the delivery of
the strategy. These will focus on LFL sales
growth improvement, delivering ﬁ nancial
effi ciencies, enhancing our customer
experience and satisfaction and building on
the beneﬁ ts of the customer loyalty Sparks
programme and our Plan A initiatives.

The Committee will continue to judge
overall performance against our ecological,
ethical and behavioural achievements to
ensure consistency with M&S’s values and
behaviours. 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.
The Committee, in its absolute discretion,
may use its judgement to adjust overall
ﬁ nal payments accordingly. Where any
adjustments are made, these will be fully
disclosed in next year's report.

DEFERRED SHARE BONUS PLAN
(audited)

Currently 50% of any bonus payment
is compulsorily deferred into nil-cost
options/conditional shares. These awards
vest after three years subject to continued
employment as well as malus provisions.
The table opposite provides details of share
awards made during the year in respect
of bonus payments made in 2015/16.
The face value of each award reﬂ ects half
of the value shown for 2015/16 bonus
payments in the single ﬁ gure table.

As reported at the time, Laura Wade-Gery's
award vested in full on the date she left
the Company.

ANNUAL BONUS SCHEME FOR 2017/18

During the year, the Committee reviewed
the 2017/18 Scheme, considering the drive
to continue the new strategic way forward
for M&S to grow the business. It determined
that the structure of the 2016/17 Scheme
remained appropriate and only minor
amendments were necessary to ensure
alignment with the delivery of the business
priorities. The 2017/18 Scheme is designed
to continue to focus on putting the
customer at the heart of the business
and driving the proﬁ table growth of M&S
while supporting the one team strategy,
as has been described to stakeholders.

Performance will again be partially
measured against collective corporate
performance as well as performance in
the individual’s speciﬁ c business area. As in
previous years, individual performance will
continue to be measured independently of
Group PBT performance. However, to

FIGURE 16: ANNUAL BONUS SCHEME TARGETS 2017/18

Director

Steve
Rowe

Patrick
Bousquet-Chavanne

Helen
Weir

CORPORATE TARGETS

INDIVIDUAL OBJECTIVES

GROUP PBT

Customer

Financial

Strategic

% bonus

Measure

70%

10%

10% Customer satisfaction
Total UK LFL sales
Strength of leadership succession

70%

10%

10% Customer satisfaction

70%

10%

Sparks
Plan A

10% Customer satisfaction
UK store estate
Cost effi ciencies

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

PERFORMANCE SHARE PLAN (PSP)

The Committee believes that long-term
share awards reward executives for the
delivery of long-term business goals and
so makes annual awards under the PSP to
incentivise executive directors and M&S's
most senior managers.

PSP AWARDS MADE IN 2016/17 (audited)

As was disclosed last year, PSP awards made
for 2016/17 were granted in December 2016
shortly after the announcement of the
Interim results. This was to ensure that
the measures and targets were aligned
to the long-term strategic business plan
developed by Steve Rowe and his leadership
team. As we communicated to shareholders
during this period of review, the strategy to
create a simpler, more sustainable business,
with the customer at its heart, and operating
as one team will require several actions.

These actions will lead to reduced proﬁ ts in
the short term but will deliver a stronger,
more sustainable business in the longer
term. These include an investment in pricing
in the Clothing & Home business to ensure
market competitiveness, reshaping the
UK store estate and restructuring the
International business. The revised ﬁ nancial
plan also took account of the signiﬁ cant
currency impact which has arisen since the
EU Referendum, which will adversely impact
proﬁ ts. In approving targets, the Committee
also considered the consensus forecasts for
the three ﬁ nancial years over which the Plan
would operate.

As shown in Figure 17 below, performance
for these awards is measured against EPS,
ROCE and cumulative free cash ﬂ ow.
Each performance condition is measured
independently over the three-year period.

The balance of measures has been
designed to drive the proﬁ table, effi cient
growth of M&S while also focusing on
providing returns to shareholders.

The Committee believes that the targets
set for the 2016/17 PSP award are very
stretching in the current environment and
achievement of these levels of performance
in 2018/19 would drive substantial value for
shareholders. The changes made are felt
necessary to provide suffi cient realignment
with the new strategic ﬁ nancial plan to
ensure the PSP supports and drives the
desired business performance. Consistent
with previous years, for achievement of
threshold performance, 20% of the relevant
portion of the award will vest increasing
to 100% on a straight-line basis between
the achievement of threshold and
maximum performance.

FIGURE 17: PERFORMANCE CONDITIONS FOR PSP AWARDS MADE IN 2016/17

2016/17 Award

Threshold performance
Maximum performance

1. Each measure is deﬁ ned in the glossary on pages 133 and 134.
2. Pre dividends and shareholder returns.

Adjusted EPS
in 2018/191

Average ROCE
(2016/17 – 2018/19)
(%)1

Cumulative free
cash ﬂ ow
(2016/17 – 2018/19)1,2

50% of award

20% of award

30% of award

28.9p
35.8p

13.0%
16.0%

£1,350m
£1,650m

Figure 18 below summarises the award made to each of the executive directors in December 2016. The maximum award permitted under
the Plan is 300% of salary although the Committee typically makes awards of 250% of salary to executive directors. For 2016/17, awards of
225% of salary were awarded to all executive directors. In approving this award level, the Committee noted that award levels for executives
have typically been 250% of salary. Upon discussion, the Committee decided that, in recognition of the rebased ﬁ nancial plan and
associated PSP performance measures, lower awards were appropriate for this particular grant only.

In line with the Remuneration Policy, awards to executive directors will vest on 5 December 2019, three years after the date of grant, to the
extent that the performance conditions are met.

FIGURE 18: PSP AWARDS MADE IN 2016/17

Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir

Basis of award

225% of salary
225% of salary
225% of salary

Face value
of award
£000

£1,823
£1,229
£1,328

End of
performance
period

05/12/2019
05/12/2019
05/12/2019

When calculating the face value of awards to be granted, the number of nil-cost options/conditional shares awarded is 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 £3.28,
being the average share price between 28 November 2016 and 2 December 2016.

71
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

PERFORMANCE SHARE PLAN (PSP) CONTINUED

FIGURE 19: PSP AWARDS VESTING IN 2016/17 (audited)

For directors in receipt of PSP awards granted in 2014, the awards will vest in June 2017 based on three-year performance over the period to
1 April 2017. Performance has been assessed and it has been determined that the award will lapse in full.

Details of performance against the speciﬁc targets set are shown in the table below. The total vesting values shown in Figure 20 directly
correspond to the ﬁ gure included in the single ﬁ gure table on page 66.

Annualised
adjusted EPS
growth
(%)

Average
ROCE
(%)

2016/17 Revenue (£)

UK1

Multi-channel2

International3

2014/15 Award

50% of award

20% of award

10% of award

Total vesting

Threshold performance
Maximum performance
Actual performance achieved
Percentage of maximum achieved

5.0%
12.0%
-1.9%
0

15.0%
16.5%
14.5%
0

£8,900m
£9,600m
£8,530m
0

£1,100m
£1,300m
£957m
0

£1,400m
£1,800m
£1,134m
0

0.0%

1. Excluding multi-channel.
2. Net of VAT/gross of returns.
3. Excluding multi-channel/including Republic of Ireland.

FIGURE 20: VESTING VALUE OF AWARDS VESTING IN 2016/17

Steve Rowe
Patrick Bousquet-Chavanne
Laura Wade-Gery
Helen Weir

PSP AWARDS TO BE MADE IN 2017/18

During the year, the Committee reviewed
the long-term incentive framework at
M&S, assessing the extent to which it
remained appropriate.

As part of these discussions, the Committee
deliberated on a number of possible
structures including those outlined in the
Investment Association's Executive
Remuneration Working Group report. After
extensive consideration, it was decided that
the current structural arrangements remain
those most appropriate to support the
delivery of the necessary development
and performance in M&S. That said, the
Committee determined that during this
period, the business must continue to
ensure a focus on returns to shareholders.
As such, relative Total Shareholder Return
(TSR) will for this year form one-third of PSP

On grant

At the end of performance period

Number of
shares granted

% of
salary granted

Number of
shares vesting

Number of
shares lapsing

Total vesting
value

300,343
300,343
315,789
-

250%
250%
250%
-

0
0
0
-

300,343
300,343
315,789
-

£0
£0
£0
£0

awards, although the Committee believes
that, in future years, other strategic or
non-ﬁ nancial measures may be more
appropriate and will consider this for
future grants.

Relative TSR will be measured against a
bespoke group of 15 companies taken from
the FTSE 350 General and Food & Drug
Retailers indices and are believed to be
appropriately aligned to M&S’s business
operations to reﬂ ect the value of
shareholder investment in M&S over the
performance period (see Figure 22 for
details of these companies).

The remainder of the award will be
measured equally against EPS and ROCE.
The balance of measures has been designed
to ensure an appropriate focus on all three
performance metrics.

As noted on the previous page, recognising
last year's rebased ﬁ nancial plan and
associated PSP performance targets, the
Remuneration Committee reduced the
2016/2017 awards to 225% of salary from
the typical level of 250%. However, the
Committee is mindful of the need to
strongly incentivise the CEO and
management team to deliver the agreed
strategy. In light of this, and given that EPS
targets are returning to a growth trajectory,
the Committee has determined that awards
in 2017 should revert to the previous normal
level of 250% of salary.

Performance will be measured as shown in
Figure 21 below, with 20% of awards vesting
for threshold performance and 100% for
maximum. In line with the new policy,
awards will vest three years after the date
of grant, and must then be held for a further
two years.

FIGURE 21: PERFORMANCE CONDITIONS FOR PSP AWARDS TO BE MADE IN 2017/18

2017/18 Award

Threshold performance
Maximum performance

Adjusted EPS
in 2019/20

1/3 of award

31.7p
38.7p

Average ROCE
(2017/18 – 2019/20)
(%)

1/3 of award

13.0%
17.0%

Relative TSR

1/3 of award

Median
Upper quartile

FIGURE 22: TSR COMPARATOR GROUP 2017/18 AWARD

J Sainsbury
Wm Morrisons
Tesco
Ocado Group
ASOS

B&M European
Debenhams
Dixons Carphone
Dunelm Group
JD Sports Fashion

Kingﬁ sher
N Brown Group
Next
Sports Direct International
WHSmith

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

FIGURE 23: DIRECTORS’ SHAREHOLDINGS (audited)

The table below sets out the total number of shares held at 1 April 2017 or date of retirement from the Board by each executive director
serving on the Board during the year. Shares owned outright include those held by connected persons.

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 23 May 2017. No director had an interest in any of the Company’s subsidiaries at the statutory end of the year.

Steve Rowe
Patrick Bousquet-Chavanne
Laura Wade-Gery (at 12 September 2016)
Helen Weir

Unvested

With
performance
conditions

Performance
Share Plan

1,116,809
930,790
340,460
681,252

Without
performance
conditions

Deferred Share
Bonus Plan

Vested but
unexercised shares

91,932
71,661
49,096
87,057

0
0
125,836
0

Shares owned
outright

253,408
123,098
172,955
50,000

FIGURE 24: 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 appointment date. For the CEO, this requirement is 250% of salary and for other executive directors the requirement is 150% of salary.
Similar guidelines of 100% of salary also apply to directors below board level.

The chart below shows the extent to which each executive director has met their target shareholding as at 1 April 2017. For Steve Rowe,
his 250% shareholding requirement is measured from the date he was appointed CEO.

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

Steve Rowe

Patrick Bousquet-Chavanne

150% of salary

250% of salary

125.7%

103.4%

Helen Weir

54.9%

Key

Shares owned outright

Vested and unexercised

Unvested DSBP shares

Shareholding requirement

EMPLOYEE SHARE SCHEMES

ALL-EMPLOYEE SHARE SCHEMES
(audited)

Executive directors may participate in both
ShareSave, the Company’s Save As You Earn
Scheme, and ShareBuy, the Company’s
Share Incentive Plan, on the same basis as
all other eligible employees. Further details
of the schemes are set out in note 13 to the
ﬁnancial statements on pages 112 and 113.

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 currently 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 1 April 2017
was as follows:

FIGURE 25: ALL SHARE PLANS

FIGURE 26: EXECUTIVE SHARE PLANS

Actual

Limit

7.21%

Actual

10%

Limit

73
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

EXECUTIVE DIRECTORS' REMUNERATION CONTINUED

FIGURE 27: EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (audited)

Steve Rowe
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total

Patrick Bousquet-Chavanne
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total

Laura Wade-Gery
Performance Share Plan
Deferred Share Bonus Plan
Total

Helen Weir
Performance Share Plan
Deferred Share Bonus Plan
SAYE
Total

Maximum
receivable at
3 April 2016

Awarded
during
the year

Exercised
during
the year

Lapsed
during
the year

861,512
110,013
2,222
973,747

772,669
46,448
2,222
821,339

555,640
32,376
3,461
591,477

374,542
51,408
0
425,950

917,582
111,064
1,028,646

0
29,158
29,158

276,527
0
2,083
278,610

404,725
87,057
3,461
495,243

14,416
50,457
0
64,873

10,388
26,195
0
36,583

0
0
0

0
0
0
0

285,927
0
0
285,927

206,033
0
0
206,033

542,412
0
542,412

0
0
2,083
2,083

Maximum
receivable at
1 April 2017
(or date of
retirement)

1,116,809
91,932
5,683
1,214,424

930,790
71,661
2,222
1,004,673

375,170
140,222
515,392

681,252
87,057
3,461
771,770

The aggregate gains of directors arising in the year from the exercise of awards granted under the PSP and DSBP totalled £303,435.
The market price of the shares at the end of the ﬁ nancial year was 337.0p; the highest and lowest share price during the ﬁ nancial year
were 446.1p and 285.2p respectively.

Laura Wade-Gery retired from the Board on 12 September 2016 and left the Company on 30 September 2016. Details of her leaving
arrangements are set out on page 75. Her outstanding Performance Share Plan awards were pro-rated for time held on leaving.
For transparency, these lapses are shown in the ‘lapsed during the year’ column.

Figure 28 shows the time horizons for each of the executive director's outstanding discretionary share awards (i.e. those granted under the
Performance Share Plan, the Deferred Share Bonus Plan and, if it had been applicable, the Restricted Share Plan). As detailed earlier in this
report, the 2014 PSP awards included within the totals shown in Figure 27 will lapse in full on their respective vesting dates. This has been
reﬂ ected below in the 2017/18 column to provide an accurate and transparent overview of directors' interests in discretionary share awards.

FIGURE 28: VESTING SCHEDULE OF EXECUTIVE DIRECTORS' OUTSTANDING DISCRETIONARY SHARE AWARDS

Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir

Maximum receivable at
1 April 2017
(all discretionary schemes)

1,208,741
1,002,451
768,309

2017/18

(300,343)
(300,343)
0

Maximum receivable in:

2018/19

320,382
276,158
276,527

2019/20

588,016
425,950
491,782

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

74
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

REMUNERATION REPORT CONTINUED

EXECUTIVE DIRECTORS' REMUNERATION CONTINUED

FIGURE 29: PERFORMANCE AND CEO REMUNERATION COMPARISON

This graph illustrates the Company’s performance against the FTSE 100 over the past eight 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. The table below the TSR chart sets out the remuneration data for directors undertaking the role of CEO during each of the
last eight ﬁnancial years.

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

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)

300

250

200

150

100

28/03/09

CEO1

Steve Rowe
Marc Bolland
Stuart Rose
Steve Rowe
Marc Bolland
Stuart Rose
Steve Rowe
Marc Bolland
Stuart Rose

28/03/15

01/04/17

03/04/10

30/03/13

02/04/12

29/03/14

02/04/16

29/03/11

–
–
4,294
–
–
97.00%
–
–
0.00%

–
5,998
269
–
45.80%
57.40%
–
–
0.00%

–
3,324
–
–
34.00%
–
–
31.96%
–

–
2,142
–
–
42.50%
–
–
0.00%
–

–
1,568
–
–
0.00%
–
–
7.60%
–

–
2,095
–
–
30.55%
–
–
4.70%
–

–
2,015
–
–
31.90%
–
–
4.80%
–

1,642
–
–
36.98%
–
–
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. Stuart Rose undertook the role of CEO from 31 May 2004 to 30 April 2010.

FIGURE 30: PERCENTAGE CHANGE IN CEO’S REMUNERATION

CEO
UK employees (average per FTE)

% change 2015/16 – 2016/17

Base salary

Beneﬁ ts

Annual bonus

-16.9
-1.1

-1.4
-12.0

-3.5
8.7

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.
The CEO comparison is Steve Rowe (for
2016/17) to Marc Bolland (for 2015/16).
The percentage changes for UK employees
is a consequence of organisational
transformation, including reduction in
senior management roles and the business
investment in store staffi ng levels.

FIGURE 31: RELATIVE IMPORTANCE OF SPEND ON PAY

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 and share buyback.

Total employee pay is the total pay for
all Group employees. Group proﬁ t before
tax and adjusted items has been used as a
comparison as this is the key ﬁnancial metric
which the Board considers when assessing
Company performance.

Total employee pay
Total returns to shareholders1
Proﬁ t before tax and adjusted items

2015/16
£m

1,486.7
451.7
684.1

2016/17
£m

1,552.6
377.5
613.8

% change

4.4
-16.4
-10.3

1. Total returns to shareholders for 2015/16 includes distribution to shareholders via share buyback. For 2016/17, this ﬁ gure is

inclusive of special dividend.

75
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

EXECUTIVE DIRECTORS' REMUNERATION CONTINUED

FIGURE 32: SERVICE AGREEMENTS

In line with our policy, directors have rolling
contracts which may be terminated by the
Company giving 12 months’ notice or the
director giving six months’ notice.

Steve Rowe
Patrick Bousquet-Chavanne
Helen Weir

EXECUTIVE CHANGES TO THE BOARD DURING 2016/17

DIRECTORS APPOINTED TO THE BOARD
There were no directors appointed to the
Board during the year.

PAYMENTS FOR THE LOSS OF OFFICE
(audited)
Laura Wade-Gery stepped down from the
Board on 12 September 2016 and left M&S
on 30 September 2016. Remuneration terms
on leaving were in line with the approved
Remuneration Policy. As was reported at
the time, Laura received monthly payments
of eight months' salary and beneﬁ ts, which
were subject to mitigation. Her unvested
nil-cost options granted under the
Deferred Share Bonus Plan vested in full
on termination. Unvested nil-cost options

awarded under the PSP were time pro-rated
and will vest, subject to performance
conditions on a wait and see basis at the
normal vesting date.

As reported earlier in this report, PSP awards
made in 2014 will lapse in full in June 2017.
Laura has one further unvested PSP award,
granted in 2015. This will vest next year, to
the extent that performance conditions
have been made and will be reported as
appropriate in next year's report.

PAYMENTS TO PAST DIRECTORS
(audited)
Marc Bolland retired from the Board on
2 April 2016. In line with his contractual
arrangements, Marc received salary,

Date of
appointment

02/04/2016
10/07/2013
01/04/2015

Notice period/unexpired term

12 months/6 months
12 months/6 months
12 months/6 months

beneﬁ ts and pension beneﬁ ts until the
end of his notice period on 7 January 2017.
Per the approved Remuneration Policy,
any unvested nil-cost options awarded to
Marc Bolland under the Deferred Share
Bonus Plan vested in full on leaving and may
be exercised in accordance with the Plan
rules. He had two outstanding PSP awards
on leaving, granted in June 2014 and July
2015 which were pro-rated for time held.
As reported on page 71 of this report, the
2014 award will lapse in full in June 2017 as
performance conditions have not been met.
Performance for the 2015 award and any
subsequent shares which will vest will be
disclosed in next year’s report.

Director

Patrick Bousquet-Chavanne
Laura Wade-Gery (to 12 September 2016)

Helen Weir

Company

Brown-Forman
British Land Company
SABMiller
Rugby Football Union

Fee
000

$283
£30
£61
£31

FIGURE 33: 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 for the period 3 April 2016
to 1 April 2017.

Fees for Laura Wade-Gery's appointment
at British Land Company are reported until
12 September 2016, the date she left the
M&S Board.

Fees for Helen Weir's appointment at
SABMiller are to 7 October 2016, the date
at which the company was acquired by
Anheuser-Busch InBev.

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

76
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

REMUNERATION REPORT CONTINUED

FIGURE 34: NON-EXECUTIVE DIRECTORS’ TOTAL SINGLE FIGURE REMUNERATION (audited)

NON-EXECUTIVE DIRECTORS' REMUNERATION

Non-executive directors receive fees
reﬂecting the time commitment,
demands and responsibilities of the
role. The table opposite details the fees
paid to the non-executive directors for
2016/17 and 2015/16.

In recognition and support of the proposed
new pay arrangements which were made
in the UK organisation during the year, the
Chairman and the non-executive directors
declined to accept any increase in their fees.

Director

Year

Basic fees
£000

Additional fees
£000

Beneﬁ ts
£000

Robert Swannell

Vindi Banga

Alison Brittain

Miranda Curtis

Andrew Fisher

Andy Halford

Richard Solomons

2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16

70
70
70
70
70
70
70
70
70
23
70
70
70
68

380
380
30
30
0
0
0
0
0
0
15
15
0
0

21
20
0
0
0
0
0
0
0
0
0
0
0
0

Total
£000

471
470
100
100
70
70
70
70
70
23
85
85
70
68

FIGURE 35: NON-EXECUTIVE DIRECTORS’ SHAREHOLDINGS (audited)

The non-executive directors are not
permitted to participate in any of the
Company’s incentive arrangements.
All 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.

The table opposite details the shareholding
of the non-executive directors who
served on the Board during the year as at
1 April 2017 (or upon their date of retiring
from the Board), including those held by
connected persons.

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 23 May 2017.

Director

Number of shares held

Robert Swannell
Vindi Banga
Alison Brittain
Miranda Curtis
Andrew Fisher
Andy Halford
Richard Solomons

169,298
93,700
5,096
5,500
3,536
21,000
5,000

FIGURE 36: 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.

Director

Robert Swannell
Vindi Banga
Alison Brittain
Miranda Curtis
Andrew Fisher
Andy Halford
Richard Solomons

Date of appointment

Notice period/unexpired term

23/08/2010
01/09/2011
01/01/2014
01/02/2012
01/12/2015
01/01/2013
13/04/2015

6 months/3 months
3 months/3 months
3 months/3 months
3 months/3 months
3 months/3 months
3 months/3 months
3 months/3 months

NON-EXECUTIVE DIRECTORS CHANGES TO THE BOARD DURING 2016/17

DIRECTORS APPOINTED TO THE BOARD
There were no changes to the Board during
the year.

DIRECTORS RETIRING FROM THE BOARD
No directors retired from the Board during
the year.

CHANGES TO THE BOARD DURING 2017/18
Robert Swannell will retire from the
Board on 1 September 2017. There will be
no payments for loss of offi ce payable
to Robert.

Miranda Curtis will retire from the Board on
1 February 2018. There will be no payments
for loss of offi ce payable to Miranda.

Archie Norman will join the Board as
Chairman on 1 September 2017, upon
Robert Swannell's retirement from the
business. In line with the policy set out on
page 64, Archie will receive the standard
non-executive director fee plus an
additional fee as the Board Chairman.
Archie's total annual fee will be £600,000.

77
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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 strategy that ensures the
most talented leaders are recruited,
retained and motivated to deliver results.

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

> Considering the appropriateness of
the senior remuneration framework
when reviewed against 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.

REMUNERATION COMMITTEE

REMUNERATION COMMITTEE AGENDA
FOR 2016/17

Governance and external market
> Approval of the Directors’ Remuneration

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

> Review of, and agreement to,

remuneration packages for new
senior managers.

Annual Bonus Scheme (ABS)
> Review of achievement of ABS
Group PBT against targets.

> Review of achievement of executive
directors’ individual objectives for
2016/17.

> Review of the structural design,

measures and approach to targets
for the 2017/18 ABS.

Performance Share Plan (PSP)
> 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
plan performance against targets.

> Approval of the vesting level of the

2014/15 PSP awards.

> Approval of the measures and targets
for the 2016/17 and 2017/18 PSP awards.

> Consideration of the approach to be
taken for the 2017/18 PSP awards.

> Clear articulation of the Committee’s

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

> Consideration and debate of the senior
remuneration framework in the context
of external guidance and views on
long-term incentives for the future.

Report for 2016/17 and review of the
AGM voting outcome for the 2015/16
Report.

> Review of Committee performance

in 2016/17.

> Review of Committee Terms of

Reference.

> Signiﬁ cant consideration of institutional

investors’ current guidelines on
executive compensation.

> Consideration of external market
developments and best practice
in remuneration.

> Assessment of the external

environment surrounding the
Company’s current remuneration
arrangements.

> Consideration of remuneration

arrangements for the wider workforce.

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

REMUNERATION COMMITTEE ACTION
PLAN 2017/18

> Ensure the continued strategic

alignment of the directors’ incentive
arrangements.

> Debate and agree the appropriateness
of the senior remuneration framework
in the context of the rest of the
organisation and external governance.

> Ensure a formal annual review of the
wider workforce reward framework.

> Review the eff ectiveness and

transparency of remuneration reporting.

FIGURE 37: REMUNERATION COMMITTEE MEETINGS

The following independent non-executive directors were members
of the Committee during 2016/17:

MEMBER
SINCE

MAXIMUM
POSSIBLE
MEETINGS

NUMBER OF
MEETINGS
ATTENDED

% OF
MEETINGS
ATTENDED

MEMBER

Vindi Banga
(Chairman)

1 September 2011

Robert Swannell

1 March 2015

Miranda Curtis

1 February 2012

Richard Solomons

21 July 2015

100

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

78
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

REMUNERATION REPORT CONTINUED

REMUNERATION COMMITTEE CONTINUED

COMMITTEE ADVISERS

In carrying out its responsibilities, the
Committee is independently advised by
external advisers. The Committee was
advised by PwC during the year. PwC is
a founding member of the Remuneration
Consultants Group and voluntarily operates
under the code of conduct in relation to
executive remuneration consulting in the
UK. The code of conduct can be found at
remunerationconsultantsgroup.com.

The Committee has not explicitly
considered the independence of the advice
it receives, although it regularly reﬂ ects
on the quality and objectivity of this advice.
The Committee is satisﬁ ed that any conﬂ icts
are appropriately managed.

PwC was 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
£116,200 for Remuneration Committee
matters. This is based on an agreed fee for
business as usual support with additional
work charged at hourly rates. 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,
HR Director and Head of Performance &
Reward 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 Willis Towers Watson.

SHAREHOLDER CONSULTATION

The Committee is committed to a
continuous, open and transparent
dialogue with shareholders on the issue of
executive remuneration. The Committee
was represented at the Company’s annual
Governance Event, held in June 2016, at
which major institutional investors and
representative bodies were provided with
the opportunity to review and debate
remuneration with the Committee
Chairman, Vindi Banga.

SHAREHOLDER SUPPORT FOR
THE 2015/16 DIRECTORS’
REMUNERATION REPORT

At the Annual General Meeting on
12 July 2016, 98.02% of shareholders
voted in favour of approving the Directors’
Remuneration Report for 2015/16. 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 2015/16 Directors’
Remuneration Report.

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 Performance & Reward, the
Committee gives employees, through
employee representatives, the opportunity
to raise questions or concerns regarding the
remuneration of the executive directors.
During the year, employee representatives
were given the opportunity to discuss in
detail 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.

FIGURE 38: VOTING OUTCOMES FOR 2015/16 REMUNERATION REPORT

Remuneration Report

986,080,026

98.02

19,885,063

1.98

1,979,099

Votes for

% Votes for

Votes against

% Votes against

Votes withheld

FIGURE 39: VOTING OUTCOMES FOR REMUNERATION POLICY (for 2013/14 when the policy was approved)

Remuneration Policy

1,012,469,256

98.27

17,840,854

1.73

9,040,797

Votes for

% Votes for

Votes against

% Votes against

Votes withheld

APPROVED BY THE BOARD

VINDI BANGA CHAIRMAN OF THE REMUNERATION COMMITTEE

London, 23 May 2017

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) (Amendment) Regulations 2013 (‘the Regulations’). Where required, data has been audited by Deloitte
and this is indicated appropriately.

79
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

OTHER
DISCLOSURES

DIRECTORS’ REPORT

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
55 territories in which we operate.

The Directors’ Report (which is also the
Management Report for the purpose of
Disclosure and Transparency Rule (DTR)
4.1.8R) for the year ended 1 April 2017,
comprises pages 34 to 83 and pages 135 to
136 of this report, together with the sections
of the Annual Report incorporated by
reference. As permitted by legislation,
some of the matters required to be included
in the Directors’ Report have instead been
included in the Strategic Report on pages 2
to 33, as the Board considers them to be of
strategic importance. Speciﬁ cally, these are:

> Future business developments

(throughout the Strategic Report).

> Research and development on p12-17.

> Risk management on p30-33.

> Details of branches operated by

the Company on p23-24.

Information relating to ﬁ nancial instruments
can be found on pages 118 to 123.

For information on our approach to social,
environmental and ethical matters, please
refer to our Plan A Report, available online
at marksandspencer.com/plana2017.

Other information to be disclosed in the
Directors’ Report is given in this section.

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 those reports shall be subject to the
limitations and restrictions provided by
such law.

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
56-65
and
69-71

BOARD OF DIRECTORS

The membership of the Board and
biographical details of the directors
are given on pages 36 and 37 and are
incorporated into this report by reference.
Changes to the directors during the year
and up to the date of this report are set out
below. Details of directors’ beneﬁ cial and
non-beneﬁ cial interests in the shares of the
Company are shown on pages 73 and 76.
Options granted to directors under the
Save As You Earn (SAYE) and Executive
Share Option Schemes are shown on
page 73. Further information regarding
employee share option schemes is given
in note 13 to the ﬁ nancial statements.

Name

Role

Laura
Wade-
Gery

Executive
Director,
Multi-channel

Robert
Swannell Chairman

Miranda
Curtis
Proposed Appointment

Non-Executive
Director

Archie
Norman Chairman

Eff ective date of
appointment/
retirement

Retired
12 September
2016
Retiring
1 September
2017
Retiring
1 February
2018

Eff ective
1 September
2017

The appointment and replacement of
directors is governed by the Company’s
Articles of Association (the "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.

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 current 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. In addition, a director may
at any AGM retire from offi ce and stand for
re-election. However, in line with the Code
and the Company's current practice, the
proposed new Articles will require all
directors to stand for annual election
(see resolution 24). All current directors will
stand for re-election at the 2017 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 any
of 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 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 1 April 2017
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.

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

80
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

OTHER DISCLOSURES CONTINUED

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.

The Company was authorised by
shareholders at the 2016 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 were
bought back under this authority during the
year ended 1 April 2017.

This standard authority is renewable
annually; the directors will seek to renew
this authority at the 2017 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
2016 AGM to allot relevant securities up
to a nominal amount of £135,313,863. This
authority will apply until the conclusion
of the 2017 AGM. At this year’s AGM,
shareholders will be asked to grant an
authority to allot relevant securities

£75m

POWERS FOR THE COMPANY ISSUING
OR BUYING BACK ITS OWN SHARES

(i) up to a nominal amount of £135,394,136
and (ii) comprising equity securities up to
a nominal amount of £270,788,271 (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 2018 or, if earlier, on 1 October 2018.

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 £20,309,120.
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 162 million ordinary shares
and sets the minimum and maximum prices
which will be paid.

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.

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 1 April
2017, the following information has been
received, in accordance with DTR 5, 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

Blackrock, Inc.

Ordinary
shares

% of capital
disclosed

Nature of holding as per disclosure

90,664,081

5.58 Indirect Interest (4.85%),

Securities lending (0.65%) &
CFD (0.06%)

Ameriprise Financial, Inc.
and its group
The Wellcome Trust

82,524,463

5.079 Indirect Interest (5.054%),

47,464,282

Direct (0.025%)
3.01 Direct Interest

Subsequent to year end, Majedie Asset Management Limited notiﬁ ed the Company in
accordance with DTR5 of an indirect holding of 81,569,767 ordinary shares, representing
5.02% of the Company's issued share capital.

Qualifying pension scheme indemnity
provisions (as deﬁ ned by Section 235 of the
Companies Act 2006) were in force during
the course of the ﬁ nancial year ended 1 April
2017 for the beneﬁ t of the Trustees of the
Marks & Spencer Pension Scheme, both
in the UK and the Republic of Ireland.

PROFIT AND DIVIDENDS

The proﬁ t for the ﬁ nancial year, after
taxation, amounts to £115.7m (last year
£404.4m). The directors have declared
dividends as follows:

Ordinary shares

£m

Special dividend
of 4.6p per share
Paid 15 July 2016
Paid interim dividend
of 6.8p per share
(last year 6.8p per share)
Proposed ﬁ nal dividend
of 11.9p per share
(last year 11.9p per share)
Total dividend of
18.7p per share for 2016/17
(last year 18.7p per share)

£110.3m

£193.3m

£303.6m

Subject to shareholder approval at this
year's AGM, the ﬁ nal ordinary dividend
will be paid on 14 July 2017 to shareholders
whose names were on the Register of
Members at the close of business on
2 June 2017.

SHARE CAPITAL

The Company’s issued ordinary share
capital as at 1 April 2017 comprised a single
class of ordinary share. Each share carries
the right to one vote at general meetings
of the Company.

During the period, 1,763,039 ordinary shares
in the Company were issued under the
terms of the United Kingdom Employees’
Save As You Earn Share Option Scheme
at prices between 258p and 432p.

Details of movements in the Company’s
issued share capital can be found on page
125 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.

VARIATION OF 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.

81
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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,
the £400m Medium Term Notes issued by
the Company on 12 December 2012 and
the £300m Medium Term Notes issued by
the Company on 8 December 2016 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 amended and restated £1.1bn

Credit Agreement dated 16 March 2016
(originally 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.

> 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 (while 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, emails and broadcasts by the
Chief Executive and members of the Board.
These take place at key points in the year to
all Head Offi ce, distribution centre and store
management employees. In addition, store
colleagues can also hear business brieﬁ ngs
by telephone and there are quarterly CEO/
CFO trading updates broadcast by Skype
to our store management teams. These
communications are supplemented by
various employee publications including
M&S World magazine, Plan A updates and
DVD presentations.

Our Making Every Moment Special
employee engagement programme was
launched last summer with two hours of
training to empower store colleagues to
put customers at the heart of the business
and to make decisions based on customers’
speciﬁ c needs. The programme engaged
with 70,000 employees through 75 regional
leadership events and 1,500 store events,
taking ideas from colleagues from across
the business and has had tremendous
results.

More than 3,500 employees from across
every store, distribution centre and Head
Offi ce location are elected to our Business

Involvement Groups (BIG) to represent
colleagues in two-way communication and
consultation with the Company. These
representatives have continued to play a
key role in a number of business changes
this year. The National BIG Chair meets with
the Group Chairman and CEO regularly, as
well as providing updates to and attending
Board meetings annually. In addition,
directors and senior management regularly
attend the National BIG meetings. They also
visit stores and discuss matters of interest
and concern to both employees and the
business through meetings with local BIG
representatives, listening groups and
informal discussions.

The 22nd meeting of the European Works
Council (EWC) (established in 1995) will
take place in November 2017. The EWC
provides an additional forum for informing,
consulting and involving employee
representatives from the countries in the
European Economic Area. The EWC has the
opportunity to be addressed by the Chief
Executive, International Director and other
senior members of the Company on issues
that aff ect the European business.

Share schemes are a long-established and
successful part of colleagues’ total reward
packages, encouraging and supporting
employee share ownership. The Company
operates both an all employee Save As
You Earn Scheme and Share Incentive Plan.
Approximately 25,000 employees currently
participate in ShareSave, the Company’s
Save As You Earn Scheme. Full details of all
schemes are given on pages 112 and 113.

There are websites for both pension
schemes – the deﬁ ned contribution
Scheme (Your M&S Pension Saving Plan)
and the deﬁ ned beneﬁ t scheme (the M&S
Pension Scheme) – which are fully accessible
to employees and former employees
who have retained beneﬁ ts in either
scheme. Employees are updated as
needed with any pertinent information
on their pension savings.

In April 2016, the business launched a
campaign which engaged all employees
in putting forward their ideas for how
M&S could drive down costs and reduce
ineffi ciency. The Crunch Costs campaign
received an overwhelming response with
colleagues submitting 1,300 ideas from
stores and offi ces. So far, the implemented
ideas have generated savings of £20m,
which has enabled the business to add
over 3,000 colleagues to our stores. By
recognising and celebrating employee ideas
and contributions, the Company has driven
high levels of engagement and motivation
from employees. The most recent results of
the Your Say employee survey show that the
employee engagement score has increased
by three percentage points on the previous
year, and currently sits at 81%.

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

82
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT: GOVERNANCE

OTHER DISCLOSURES CONTINUED

Over 1,500 employees took part in
Wellbeing Goals, a new initiative launched
to inspire people to take a more holistic
look at their overall wellbeing and follow
simple steps each week to improve what
matters to them, whether from a physical,
mental, social or ﬁ nancial perspective. The
business has also taken steps to connect
the two important agendas of Diversity
and Inclusion with Wellbeing in a bold
two-week campaign inviting people to
Be Yourself at work. This was supported
by hosted events and colleague videos
on what it means to be yourself at work
and how inclusivity at work positively
impacts wellbeing.

The Company continued to promote its
free service provided by a conﬁ dential
team of mental wellbeing specialists,
LiveWellWorkWell, by distributing wallet
cards with details of the service across all
stores and business areas. The Company
also invested in supporting the Buddy
Network, a peer-to-peer support group,
to provide colleagues with a way
to share experiences and support each
other in managing physical or mental
health conditions alongside work.

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. The Company’s policy is
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 or
civil partner 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. M&S is an organisation
which uses everyone’s talents and abilities
and where diversity is valued.

M&S was one of the ﬁ rst major companies
to remove the default retirement age in
2001 and has continued to see an increase
in employees wanting to work past the state
retirement age. Our oldest employee is
90 years old and joined the business at
age 80.

In April 2017, the Company once again
featured in The Times Top 50 Employers
for Women, highlighting how equal
opportunities are available for all at M&S.

Employee-led diversity networks give a voice
to under-represented groups, provide peer-
to-peer support and help to inﬂ uence the
Company to become more inclusive. These
networks cover gender, ethnicity, disability,
parents and sexual orientation/gender
identity. Each network has support from
a senior sponsor. Throughout the year
employees have been involved in celebrating
International Women’s Day, Pride, Black
History Month and the International Day
of Persons with Disabilities.

EMPLOYEES WITH DISABILITIES

The Company is clear in its policy that
people with disabilities should have full
and fair consideration for all vacancies.

M&S has continued to demonstrate its
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. M&S will
actively retrain and adjust employees’
environments where possible to allow
them to maximise their potential and will
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 the distribution centre at Castle
Donington in 2012/13, working with Remploy
to support people with disabilities and
health conditions into work.

GROCERIES SUPPLY CODE
OF PRACTICE

The Groceries (Supply Chain Practices)
Market Investigation Order 2009 (the 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, covering the
period from 3 April 2016 to 1 April 2017,
to the Audit Committee on 18 May 2017.
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. Two
allegations regarding potential breaches
of GSCOP were raised by suppliers during
the relevant period. Neither is being
pursued and both are considered closed
by M&S.

TOTAL GLOBAL M&S GREENHOUSE GAS EMISSIONS 2016/17

The disclosures required by law and additional information relating to the Group’s greenhouse gas emissions are included in the table below.
For full details of calculations and performance against our 2006/07 voluntary baseline, see the 2017 Plan A Report.

Direct emissions (scope 1)
Indirect emissions from energy (scope 2)
Total statutory emissions (scope 1 and 2)
Transport, energy T&D, waste and travel emissions (scope 3)
Total gross/location-based emissions
Carbon intensity measure (per 1,000 sq ft of salesﬂ oor)
Green tariff s and bio-methane procured
Remaining market-based emissions
Carbon off sets
Total net operational emissions

2016/17
000 tonnes

2013/14
000 tonnes

185
293
478
48
526
26
305
221
221
0

168
340
508
59
567
30
302
265
265
0

%
change

+10
-14
-6
-19
-7
-13
+1
-17
-17
Level

Emissions are from operationally controlled activities in accordance with WRI/WBCSD GHG Reporting Protocols (Revised edition) and
2014 Scope 2 Guidance using 2015 DEFRA/DECC conversion factors. 2013/14 is the mandatory baseline year. As these emissions account
for less than 10% of M&S’s total carbon footprint, we also engage with suppliers and customers to address the most signiﬁ cant sources.

83
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

POLITICAL DONATIONS

The Company did not make any political
donations or incur any political expenditure
during the year ended 1 April 2017. 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 2 to 25 as
well as the Group’s principal risks and
uncertainties as set out on pages 32 and 33.
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.

See note 20 to the Financial Statements

for more information on our Facilities

LONG-TERM VIABILITY STATEMENT

The directors have assessed the prospects
of the Company over a three-year period
to 28 March 2020. This has taken into
account the business model, strategic
aims, risk appetite, and principal risks and
uncertainties, along with the Company’s
current ﬁ nancial position. Based on this
assessment, the directors have a reasonable
expectation that the Company will be
able to continue in operation and meet
its liabilities as they fall due over the
three-year period under review.

See our approach to assessing long-term

viability on p31

AUDITOR

Resolutions to reappoint Deloitte LLP as
auditor of the Company and to authorise
the Audit Committee to determine its
remuneration will be proposed at the
2017 AGM.

ANNUAL GENERAL MEETING

The AGM of Marks and Spencer Group plc
will be held at Wembley Stadium, Wembley,
London on 11 July 2017 at 11am. The
Notice of Meeting is given, together with
explanatory notes, in the Performance
Overview 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
position, 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 50.

The directors are also responsible for
preparing the Annual Report, the
Remuneration Report and Policy 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.

> 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 current directors, whose names
and functions are listed on pages 36 and 37
of the Annual Report, conﬁ rms that, to the
best of their knowledge:

> The Group ﬁ nancial statements, prepared
in accordance with the applicable set of
accounting standards, give a true and
fair view of the assets, liabilities, ﬁ nancial
position and proﬁ t or loss of the Company
and the undertakings included in the
consolidation taken as a whole.

> The Management Report includes
a fair review of the development
and performance of the business
and the position of the Company and the
undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks
and uncertainties that they face.

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

DISCLOSURE OF INFORMATION
TO AUDITORS

Each of the persons who are Directors at the
time when this Directors' Report is approved
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
he/she 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 23 May 2017 and signed
on its behalf by

AMANDA MELLOR GROUP SECRETARY

London, 23 May 2017

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

84
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT
AUDITOR’S REPORT

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
1 April 2017 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 (IFRS) as adopted by the
European Union;

the parent Company ﬁ nancial statements
have been properly prepared in
accordance with IFRS as adopted by
the European Union and as applied in
accordance with the provisions of the
Companies Act 2006; and

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 C6.

The ﬁ nancial reporting framework that
has been applied in the preparation of the
ﬁ nancial statements 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.

SUMMARY OF OUR AUDIT APPROACH

KEY RISKS

MATERIALITY

The key risks that we identiﬁ ed in the
current year were:

> Accounting for exit costs of certain
of the wholly owned international
businesses

We determined materiality for the Group
to be £24.5 million (2016: £30 million),
based on a calculation of 5% of proﬁ t
before tax adjusted for certain adjusted
items due to the nature and signiﬁ cance
of these adjusted items.

> Presentation of adjusted performance
measures of the ﬁ nancial statements

SCOPING

> Impairment of UK store assets

> UK Clothing & Home inventory provision

> Retirement beneﬁ ts

> Manual adjustments to reported

revenue

> Accounting for supplier rebates

The description of risks below should be
read in conjunction with the signiﬁ cant
issues considered by the Audit Committee
discussed on pages 50 and 51. These
matters were addressed in the context
of our audit of the ﬁ nancial statements
as a whole, and in forming our opinion
thereon, and we do not provide a separate
opinion on these matters.

We performed a full scope audit on six
components of the business representing
97% of the Group’s revenue, 89% of the
Group’s proﬁ t before tax and 85% of the
Group’s net assets.

SIGNIFICANT CHANGES IN OUR
APPROACH

Our audit approach is consistent with
the previous year, with the exception of:

> We have included an additional risk

in respect of the accounting for the exit
costs of certain of the wholly owned
international businesses, given the
signiﬁ cance of the charge incurred
during the year and the level of
estimation uncertainty; and

Within this report, any new risks are
identiﬁ ed with ! , any risks which are
the same as the prior year identiﬁ ed with
and any risks which have increased

compared with the prior year are identiﬁ ed
with

> Specific audit procedures were performed

on certain signiﬁ cant balances for China
and analytical review procedures were
completed for Greece; in the previous
year these components were subject
to full audits.

SEPARATE OPINION IN RELATION TO IFRS AS ISSUED BY THE IASB

As explained in note 1 to the ﬁ nancial statements, in addition to complying with its legal
obligation to apply IFRS as adopted by the European Union, the Group has also applied
IFRS as issued by the International Accounting Standards Board (IASB).

In our opinion the Group ﬁ nancial statements comply with IFRS as issued by the IASB.

85
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

GOING CONCERN AND THE DIRECTORS’ ASSESSMENT OF THE PRINCIPAL RISKS
THAT WOULD THREATEN THE SOLVENCY OR LIQUIDITY OF THE GROUP

As required by the Listing Rules we have
reviewed the directors’ statement regarding
the appropriateness of the going concern
basis of accounting contained within
note 1 to the ﬁ nancial statements and the
directors’ statement on the longer-term
viability of the Group contained within the
“Other disclosures” section on page 31.

We have nothing material to add or draw
attention to in relation to:

> the directors' conﬁ rmation on page 30
that they have carried out a robust
assessment of the principal risks facing
the Group, including those that would
threaten its business model, future
performance, solvency or liquidity;

> the disclosures on pages 32-33 that

describe those risks and explain how
they are being managed or mitigated;

> the directors’ statement in note 1 to the
ﬁ nancial statements about whether they
considered it appropriate to adopt the
going concern basis of accounting in
preparing them and their identiﬁ cation of
any material uncertainties to the group’s
ability to continue to do so over a period
of at least twelve months from the date
of approval of the ﬁ nancial statements;

> the directors’ explanation on page 31 as

to how they have assessed the prospects
of the Group, over what period they
have done so and why they consider

that period to be appropriate, and their
statement as to whether they have a
reasonable expectation that the group
will be able to continue in operation
and meet its liabilities as they fall due
over the period of their assessment,
including any related disclosures
drawing attention to any necessary
qualiﬁ cations or assumptions.

We agreed with the directors’ adoption
of the going concern basis of accounting
and we did not identify any such material
uncertainties. 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.

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT

RISK

! ACCOUNTING FOR THE EXIT COSTS OF CERTAIN OF THE

WHOLLY OWNED INTERNATIONAL BUSINESSES

RISK DESCRIPTION

As set out on page 10 of the Strategic
Report, management announced their
proposal to close 53 stores across 10
international markets over the period
from November 2016 to October 2017.
The Group has recognised a cost of
£131 million in the year in respect of
exit costs, which is reported as an
adjusted item in the Group’s alternative
performance measures.

When calculating the exit costs, management has estimated future settlement and
exit costs where these are not yet known. The costs recognised in the period primarily
relate to:

> Property exit costs: estimation

uncertainty arises in management’s
assessment of likely exit costs where
these may diff er from the contracted
future obligations under lease
agreements.

> Staff restructuring costs: in certain
territories, estimation uncertainty
arises in the application of local staff
restructuring and redundancy laws
where there are a range of possible
outcomes dependent on factors
outside the group’s control.

Further detail of these estimates are
included in the sources of estimation
uncertainty disclosure in note 1.

Given the magnitude of the exit costs
and the level of estimation uncertainty,
we have directed a signiﬁ cant level of
our senior audit resource to assessing
the valuation of the costs recorded
during the year.

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

We have evaluated the assumptions applied in calculating the charge for the year and, where possible, agreed inputs to the cost
calculations to supporting factual evidence.

Our audit eff ort was focussed on the two key sources of estimation uncertainty described above.

> Property exit costs: we obtained an
understanding of management’s
assumptions in deriving estimated exit
costs for a sample of properties that
are being closed, assessing these in
the context of the possible maximum
obligations under the various lease
arrangements. This included meeting
with internal property experts,
reviewing lease agreements and
any correspondence with landlords,
consulting with our own property
experts in certain local markets, and
reviewing the actual settlements for
stores where the exit negotiations
had concluded.

> Staff restructuring costs: we evaluated

the calculations for redundancy
payments, agreeing the methodology
applied to local laws and regulations for
all signiﬁ cant countries. We tested the
accuracy of the underlying data in these
calculations on a sample basis. Where
a range of possible outcomes exists, we
performed a sensitivity analysis on the
key inputs to the valuation model and
consulted with our local experts in those
countries to validate key assumptions.

Key observations
The outcome of future exit negotiations
and other future events gives rise to
a source of estimation uncertainty.
We consider the restructuring charge
recorded in the year to have been
appropriately calculated. We have
reviewed the disclosure in note 1 and
consider it to be appropriate.

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

86
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT AUDITORS' REPORT CONTINUED

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

RISK

PRESENTATION OF ADJUSTED
PERFORMANCE METRICS

RISK DESCRIPTION

The presentation of income and costs
within adjusted measures (to derive
‘adjusted proﬁ t before tax') under IFRS is
judgemental, with IFRS only requiring the
separate presentation of material items.
Judgement is exercised by management
in determining the classiﬁ cation of items
as adjusted.

In the Group’s reported results, signiﬁ cant
adjustments have been made to statutory
proﬁ t before tax of £176 million to derive
adjusted proﬁ t before tax of £614 million.
Explanations of each adjustment are
set out in notes 1 and 5 to the ﬁ nancial
statements, and are summarised in the
graphic to the right:

£m

800

600

400

200

£156m

£24m

£44m

£-10m

£614m

£49m

£133m

£52m

£176m

Reported
PBT

International
Exit Costs

UK Store
impairments

UK store
estate
review

Changes
to Pay &
Pensions

UK
organisational
restructure

M&S
Bank

Logistics
review

Legal
settlements

Adjusted
PBT

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

> items may be included in the adjustments inappropriately, distorting the reported

adjusted earnings; and

> items may be omitted from the adjustments which are signiﬁ cant in nature and/or

quantum to the reported adjusted earnings.

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 adjusted items,
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 signiﬁ cant in nature and/or quantum,
but included within adjusted proﬁ t to
ensure that these are not material either
individually or in aggregate. For all
adjustments recorded in calculating
proﬁ ts before adjusted items, we

discussed the appropriateness of the
item with the Audit Committee and any
disclosure considerations.

Key observations
We are satisﬁ ed that the items excluded
from proﬁ t before adjusted items and the
related disclosure of these items in the
ﬁ nancial statements are appropriate.

RISK

IMPAIRMENT OF UK STORE ASSETS

RISK DESCRIPTION

On 8 November 2016, the Group
announced that a full review of the UK store
estate was to be performed. As a result, we
consider the risk of impairment of UK store
assets has increased due to the impact of
decisions resulting from the store review.
In addition, continuing economic
uncertainty, depreciation of sterling,
increases in business rates, the introduction
of the National Living Wage and the cost of
the Apprenticeship Levy impact the trading
performance of the UK store estate.

As described in the Accounting Policies
in note 1 and in note 15 to the Financial
Statements, the Group held £4,838 million
(2016: £5,027 million) of property, plant and
equipment at 1 April 2017. Included within
this value are assets which relate to UK
Stores and in light of the UK store portfolio
review and trading performance in certain
stores, there is a risk that the assets held
in, and associated with, each store are not
recoverable. Management has performed

a full impairment assessment for all stores,
other than those within their shelter period
(see below), to determine if the carrying
value of these UK assets is supported.
This assessment has included, where
appropriate, the Group’s ongoing strategic
review of the UK store estate, as described
on page 10 of the Strategic Report. As
a result, a total charge of £101 million
has been recorded in respect of
impairments and closure provisions.

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:

> forecast periods in the context of
strategic decisions made to exit
a location;

> future revenue growth;

> discount rates;

> gross margin; and

> store costs, including the impact

of the National Living Wage.

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 Clothing & Home inventories at a
discount. 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.

87
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

RISK

IMPAIRMENT OF UK STORE ASSETS
CONTINUED

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. In addition, we
assessed the design and implementation
of controls in respect of the impairment
review process, and considered the
adequacy of disclosures made in the
ﬁ nancial statements.

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 with support
from our internal valuations specialist,
and comparing the rates to our internal
benchmark data;

> comparing forecast growth rates to

economic data; and

> evaluating the information included in
the impairment models through our
knowledge of the business gained
through reviewing trading plans,
strategic initiatives, minutes of property
board and investment committee
meetings, and meeting with regional
store managers and senior trading
managers from key product 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.

Key observations
We assessed the level of impairment
recorded in respect of the UK business
and are satisﬁ ed that the judgements
applied by management and the level
of impairments recorded in the year
are appropriate.

RISK

UK CLOTHING & HOME INVENTORY
PROVISION

RISK DESCRIPTION

At 1 April 2017, the Group held UK Clothing
& Home inventories of £541 million
(2016: £583 million). As described in the
Accounting Policies in note 1 to the
Financial 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.

We consider the assessment of inventory
provisions within UK Clothing & Home to
require the most judgement based on
the level of inventory held and recent
trading performance.

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 UK business, including those at 12
distribution centres and 13 retail stores;

> attending inventory counts at 12

distribution centres and 13 retail 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.

> performing audit analytics on stock

holding and movement data to identify
product lines with indicators of low
stock turn or signiﬁ cant levels of aged
stock; and

> meeting with buyers to validate the

assumptions applied by management
compared to the current purchasing
strategy and ranging plans.

Key observations
The results of our testing were satisfactory
and we concur that the level of UK
inventory provisions is appropriate.

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

88
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT AUDITORS' REPORT CONTINUED

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

RISK

RETIREMENT BENEFITS

RISK DESCRIPTION

As described in the Accounting Policies
in note 1 and in note 11 to the Financial
Statements the Group has a deﬁ ned
beneﬁ t pension plan for its UK employees,
which is closed to new entrants, 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, therefore the key risk relates to the
UK scheme only.

At 1 April 2017, the Group recorded a
net retirement beneﬁ t asset of £702
million (2016: £833 million), being the
net of scheme assets of £10,135 million
(2016: £8,515 million), scheme liabilities of

£9,433 million (2016: £7,682 million) and
unfunded retirement beneﬁ ts of £9
million (2016: £9 million). The Group
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, inﬂ ation
and mortality estimates. In addition,
curtailment charges have been
recognised in relation to the closure
of the deﬁ ned beneﬁ t pension scheme,
which occurred during the year, to
future accrual.

The setting of these assumptions is
complex and an area of signiﬁ cant
judgement; changes in any of these
assumptions can lead to a material
movement in the net surplus. The
increase/(decrease) in scheme surplus
caused by a change in each of the key
assumptions is set out below:

A decrease in the discount
rate of 0.25%

A decrease in the inﬂ ation
rate of 0.25%

A decrease in the average life
expectancy of one year

2017
£m

2016
£m

(70)

(90)

(20)

370

300

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 liabilities, and evaluated the
information contained within the actuarial
valuation reports for each scheme. We
assessed the design and implementation
of controls in respect of the pension
scheme valuation process.

We tested the membership census data
used in the valuation of the schemes
and, with support from our own actuarial

specialists, we considered the process
applied by the Group’s actuaries, the scope
of the 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:

> inﬂ ation rates;

> mortality rates; and

> discount rates.

We assessed the accounting treatment
applied to the scheme’s closure to
future accrual and the resulting
curtailment charge.

Key observations
We are satisﬁ ed that all assumptions
applied in respect of the valuation
of the scheme assets and liabilities are
appropriate.

RISK

MANUAL ADJUSTMENTS TO REPORTED REVENUE

RISK DESCRIPTION

As described in the Accounting Policies in
note 1 to the Financial Statements, the
group’s revenue recognition policies
require the directors to make a number of
adjustments and estimates in determining
the reported revenue for the period.
The most signiﬁ cant adjustments 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 most 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 actual sales data 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.

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

We considered each revenue-impacting
manual adjustment individually, and
assessed the appropriateness of the
assumptions and judgements applied
to each. We assessed the design and
implementation of controls in respect of
these revenue judgements, in addition to
testing the eff ectiveness of key revenue
controls operating across the UK business.

For the key assumptions used in the gift
card and voucher, and loyalty scheme
provisions, we assessed the historic rates
of redemption and compared these to the
directors’ judgements.

Key observations
We are satisﬁ ed that the key assumptions
applied in calculating the returns, gift
card, voucher and loyalty scheme
provisions are appropriate.

We assessed the appropriateness
of the methodology and inputs used in
calculating the returns provision.

89
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

RISK

ACCOUNTING FOR SUPPLIER REBATES

RISK DESCRIPTION

As described in the Accounting Policies
in note 1 and note 17 to the Financial
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 also conducted interviews with a
range of buyers and trading managers.
In addition, we circularised a sample of
15 suppliers to test whether the
arrangements recorded were complete.

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 rebates
recognised pre and post-year end to test
the completeness and accuracy of
accrued supplier income at 1 April 2017.

Key observations
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 1 April 2017.

We agreed with the Audit Committee that
we would report to the Committee all audit
diff erences in excess of £1 million (2016:
£1 million) 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.

OUR APPLICATION OF MATERIALITY

We determined materiality for the
group to be £24.5 million.

> Changes to pay and pensions –

£156 million

We reported all audit diff erences in
excess of £1m.

> International store closures and

impairments – £131 million

> Strategic programmes – UK organisation

and logistics – £14 million

The materiality applied by the component
auditors (see below) ranged from
£2.5 million to £22.5 million (2016: £2 million
to £27 million), depending on the scale of
the component’s operations and our
assessment of risks speciﬁ c to each
location.

MATERIALITY

£176m

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 £24.5 million (2016: £30 million), based
on a calculation of 5% of proﬁ t before tax
adjusted for certain adjusted items due to
the nature and signiﬁ cance of these items.

The adjusted proﬁ t used in our determination
of materiality was £479 million, which is
£301 million higher than statutory proﬁ t
before tax of £176 million. The items we
excluded from our determination are listed
below, and explained further in note 5
to the ﬁ nancial statements:

£24.5m

PBT

Group materiality

Group materiality
£24.5m

Component
materiality range
£2.5m to £22.5m

Audit Committee
reporting threshold
£1m

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

90
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

AN OVERVIEW OF THE SCOPE OF OUR AUDIT

We performed a full scope audit on six
components representing 97% of the
Group’s revenue, 89% of the Group’s
proﬁ t before tax and 85% of the Group’s
net assets.

We continue to adopt a rotational
approach to visiting the signiﬁ cant
locations of the Group’s activities.

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.
A summary of the Group’s retail operations
is set out below (including the UK business).

Number of countries

2017

2016

Wholly owned retail businesses

Retail joint ventures

Retail franchise operations*

Website only territories

Total

includes two countries where wholly owned businesses
also operate

Based on our assessment we focused our
Group audit scope primarily on the audit
work at six wholly owned locations: United
Kingdom, Republic of Ireland, Czech
Republic, France, China and Hong Kong, and
the joint venture in India. All of these were
subject to a full audit, with the exception of
China where speciﬁ c audit procedures were
performed on certain signiﬁ cant balances.
In the prior year, Greece was subject to a
full audit; however is subject to analytical
review procedures in the current year
following changes to the Group’s

international strategy. Analytical review
procedures were completed for the current
year for those locations not subject to full
audit procedures.

These components were selected to
provide an appropriate basis for undertaking
audit work to address the risks of material
misstatement identiﬁ ed above. All other
wholly owned and joint venture businesses
were subject to analytical review procedures.
Whilst we audit the revenues received by
the Group from franchise operations, which
account for 3% (2016: 3%) of the Group’s revenue,
we do not audit the underlying franchise
operations as part of our Group audit.

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.

REVENUE

Full audit

PROFIT
BEFORE TAX

NET ASSETS

Speciﬁc audit
procedures

Analytical
procedures

Full audit

Speciﬁ c audit
procedures

Analytical procedures

Proﬁ t
Before
Tax

Net
Assets

Revenue

97%

89%

85%

The most signiﬁ cant component of the
Group is its retail business in the United
Kingdom, which accounts for 89% (2016:
90%) of the Group’s reported revenue of
£10,622 million, and generates operating
proﬁ t of £253 million (2016: £627 million)
which is off set by operating losses from the
international segment resulting in a Group
operating proﬁ t of £253 million (2016: £584
million). 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 12 distribution centre and
13 retail store visits in the UK to understand
the current trading performance and, at
certain locations, performed tests of
internal controls and validated levels
of inventory held.

We operate a programme of planned visits
to signiﬁ cant locations so that a senior
member of the Group audit team visits
each of the components subject to a full
audit or speciﬁ c audit procedures at least
once every two years, and the most
signiﬁ cant of them at least once a year.

In addition to our programme of planned
visits, we send detailed instructions to our
component audit teams, include them in
our team brieﬁ ngs, discuss their risk
assessment, attend closing meetings,
and review their audit working papers.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion, based on the work
undertaken in the course of the audit:

> 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

> In the light of the knowledge and

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; and

> the Strategic Report and the Directors’

Report have been prepared in accordance
with applicable legal requirements.

understanding of the group and the
company and their environment
obtained in the course of the audit,
we have not identiﬁ ed any material
misstatements in the Strategic Report
or the Directors’ Report.

91
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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; or

> adequate accounting records have not
been kept by the parent Company, or
returns adequate for our audit have not
been received from branches not visited
by us; or

> the parent Company 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 part of the Corporate Governance
Statement relating to the company’s
compliance with certain 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; or

> apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the Group acquired in
the course of performing our audit; or

> otherwise misleading.

In particular, we are required to consider
whether we have identified 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). 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.

INDEPENDENCE

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

We are required to comply with the Financial
Reporting Council’s Ethical Standards
for Auditors and we conﬁ rm that we are
independent of the Group and we have
fulﬁ lled our other ethical responsibilities in
accordance with those standards. We also
conﬁ rm we have not provided any of the
prohibited non-audit services referred to
in those standards.

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, 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.

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 Company’s
circumstances and have been consistently
applied and adequately disclosed;

> the reasonableness of signiﬁ cant

accounting estimates made by the
directors; and

> the overall presentation of the ﬁ nancial

statements.

IAN WALLER (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF DELOITTE LLP
CHARTERED ACCOUNTANTS AND STATUTORY AUDITOR
LONDON, UNITED KINGDOM

23 May 2017

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

92
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

Revenue

52 weeks ended 1 April 2017

53 weeks ended 2 April 2016

Before
adjusted items
£m

10,622.0

Notes

2, 3

Adjusted items
£m

Total
£m

Before
adjusted items
£m

Adjusted items
£m

Total
£m

–

10,622.0

10,555.4

–

10,555.4

Operating proﬁ t

2, 3, 5

690.6

(437.4)

253.2

784.9

(200.8)

584.1

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

–
–

(437.4)
61.7
(375.7)

(375.7)

–
(375.7)

6
6

4, 5
7

8
8

36.2
(113.0)

613.8
(122.4)
491.4

492.8

(1.4)
491.4

30.4p
30.2p

36.2
(113.0)

176.4
(60.7)
115.7

117.1

(1.4)
115.7

7.2p
7.2p

21.1
(116.4)

689.6
(118.8)
570.8

573.3

(2.5)
570.8

35.0p
34.9p

–
–

(200.8)
34.4
(166.4)

(166.4)

–
(166.4)

21.1
(116.4)

488.8
(84.4)
404.4

406.9

(2.5)
404.4

24.9p
24.8p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Proﬁ t for the year
Other comprehensive income:
Items that will not be reclassiﬁ ed to proﬁ t or loss
Remeasurements of retirement beneﬁ t schemes
Tax charge/(credit) on items that will not be reclassiﬁ ed

Items that will be reclassiﬁ ed subsequently to proﬁ t or loss
Foreign currency translation diff erences
Cash ﬂ ow hedges and net investment hedges
– fair value movements recognised in other comprehensive income
– reclassiﬁ ed and reported in proﬁ t or loss
– amount recognised in inventories
Tax credit on cash ﬂ ow hedges and net investment hedges

Other comprehensive (expense)/income for the year, net of tax
Total comprehensive income for the year

Attributable to:
Owners of the parent
Non-controlling interests

52 weeks ended
1 April 2017
£m

53 weeks ended
2 April 2016
£m

Notes

115.7

404.4

(68.9)
25.3
(43.6)

346.2
(45.6)
300.6

31.0

7.3

56.1
(72.4)
(20.1)
4.1
(1.3)
(44.9)
70.8

72.2
(1.4)
70.8

(30.1)
(22.1)
5.9
6.5
(32.5)
268.1
672.5

675.0
(2.5)
672.5

93
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at
1 April 2017
£m

As at
2 April 2016
£m

Notes

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
Current tax assets
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

14
15

16
11
17
21
23

16
17
21

19
12
20
21
22

11
19
12
20
21
22
23

709.0
4,837.8
15.5
7.0
3.0
706.0
234.1
56.8
–
6,569.2

758.5
14.5
318.6
163.1
–
468.6
1,723.3
8,292.5

1,553.8
71.9
518.0
10.5
147.2
66.6
2,368.0

13.2
328.5
324.6
1,711.7
0.8
113.5
281.8
2,774.1
5,142.1
3,150.4

406.2
416.4
2,210.5
17.3
(6,542.2)
6,648.1
3,156.3
(5.9)
3,150.4

802.8
5,027.1
15.5
6.9
3.0
851.0
234.7
74.0
–
7,015.0

799.9
19.1
321.1
72.1
1.6
247.6
1,461.4
8,476.4

1,617.7
71.9
297.5
28.5
14.0
75.2
2,104.8

26.9
353.0
383.8
1,774.7
0.2
52.0
337.6
2,928.2
5,033.0
3,443.4

405.8
411.3
2,210.5
32.3
(6,542.2)
6,927.5
3,445.2
(1.8)
3,443.4

The ﬁ nancial statements were approved by the Board and authorised for issue on 23 May 2017. The ﬁ nancial statements also comprise the
notes on pages 96 to 127.

Steve Rowe Chief Executive Offi cer
Helen Weir Chief Finance Offi cer

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

94
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 29 March 2015
Proﬁ t/(loss) for the year
Other comprehensive (expense)/income:

Foreign currency translation
Remeasurements of retirement beneﬁ t schemes
Tax charge on items that will not be reclassiﬁ ed
Cash ﬂ ow hedges and net investment hedges
– fair value movement recognised in other

comprehensive income

– reclassiﬁ ed and reported in proﬁ t or loss2
– amount recognised in inventories
Tax on cash ﬂ ow hedges and net
investment hedges

Other comprehensive income/(expense)
Total comprehensive income/(expense)
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
Shares purchased in buy back
Credit for share-based payments
Deferred tax on share schemes

As at 2 April 2016

As at 3 April 2016
Proﬁ t/(loss) for the year
Other comprehensive (expense)/income:

Foreign currency translation
Remeasurements of retirement beneﬁ t schemes
Tax credit on items that will not be reclassiﬁ ed
Cash ﬂ ow hedges and net investment hedges
– fair value movement recognised in other

comprehensive income

– reclassiﬁ ed and reported in proﬁ t or loss2
– amount recognised in inventories
Tax on cash ﬂ ow hedges and net
investment hedges

Other comprehensive income/(expense)
Total comprehensive income/(expense)
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
Credit for share-based payments
Deferred tax on share schemes

As at 1 April 2017

Ordinary
share
capital
£m

Share
premium
account
£m

Capital
redemption
reserve
£m

Hedging
reserve
£m

Other
reserve¹
£m

Foreign
exchange
reserve3
£m

Retained
earnings
£m

Non-
controlling
interest
£m

Total
£m

412.0 392.4 2,202.6
–
–

–

64.3
–

(6,542.2)
–

(12.6) 6,683.1 3,199.6
406.9 406.9

–

(0.8) 3,198.8
(2.5) 404.4

–
–

–
–
–

–
–

–
–
–

–
–

–
–
–

–
–

(0.5)
–
–

(21.8)
(22.1)
5.9

6.5
(32.0)
(32.0)

–
–

–
–
–

–
–

7.8
–
–

–

7.3
346.2 346.2
(45.6)
(45.6)

–
–
–

(8.3)
–
–

(30.1)
(22.1)
5.9

–
–
–

7.3
346.2
(45.6)

(30.1)
(22.1)
5.9

–

6.5
–
7.8 292.3
268.1
7.8 699.2 675.0

–
–
(2.5)

6.5
268.1
672.5

–
–

(301.7)
–

–
1.5

(301.7)
1.5

1.7
–
(7.9)
–
–

–
18.9
–
–
7.9
–
–
–
–
–
405.8 411.3 2,210.5

–
–
–
–
–
32.3

–
–
–
–
–
(6,542.2)

–
–
–
–
–

20.6
–
(10.9)
(10.9)
(150.7)
(150.7)
17.2
17.2
(3.9)
(3.9)
(4.8) 6,932.3 3,445.2

–
–
–
–
–

20.6
(10.9)
(150.7)
17.2
(3.9)
(1.8) 3,443.4

405.8 411.3 2,210.5 32.3 (6,542.2)
–

–

–
–
–

–
–

–
–
–

–
–

–
–
–

–
–

(4.3)
–
–

77.7
(72.4)
(20.1)

4.1
(15.0)
(15.0)

–
–

–
–
–

–
–

(4.8) 6,932.3 3,445.2
117.1
117.1

–

(1.8)3,443.4
(1.4) 115.7

35.3
–
–

–
(68.9)
25.3

31.0
(68.9)
25.3

–
–
–

–
35.3
35.3

(21.6)
–
–

–
(65.2)
51.9

56.1
(72.4)
(20.1)

4.1
(44.9)
72.2

–
–
–

–
–
(1.4)

31.0
(68.9)
25.3

56.1
(72.4)
(20.1)

4.1
(44.9)
70.8

–
–

(377.5)
–

–
(2.7)

(377.5)
(2.7)

0.4
–
–
–

5.1
–
–
–
–
–
–
–
406.2 416.4 2,210.5

–
–
–
–

–
–
–
–
17.3 (6,542.2)

–
–
–
–

–
5.5
–
–
13.5
13.5
(2.6)
(2.6)
30.5 6,617.6 3,156.3

–
–
–
–

5.5
–
13.5
(2.6)
(5.9) 3,150.4

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. Amounts ‘reclassiﬁ ed and reported in proﬁ t or loss’ includes the revaluation of the cross currency swaps, off setting the revaluation of the US dollar hedged bonds within ﬁ nance costs.
3. In the prior year ﬁ nancial statements, the foreign exchange reserve was presented within Retained earnings.

95
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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
Acquisition of subsidiary
Net cash used in investing activities

Cash ﬂ ows from ﬁ nancing activities
Interest paid¹
Cash (outﬂ ow)/inﬂ ow from borrowings
Repayment of syndicated loan notes
Issuance 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
Share buy back
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
1 April 2017
£m

53 weeks ended
2 April 2016
£m

1,165.7
(98.0)
1,067.7

1,311.3
(99.3)
1,212.0

27.0
(309.1)
(101.1)
4.6
6.6
–
(372.0)

(111.2)
(32.7)
(215.3)
300.0
(2.0)
(57.9)
(377.5)
5.5
–
–
(491.1)

204.6
5.6
196.0
406.2

30.6
(363.3)
(186.8)
(7.2)
6.8
(56.2)
(576.1)

(113.5)
3.1
(19.9)
–
(2.4)
(56.0)
(301.7)
20.6
(10.9)
(150.7)
(631.4)

4.5
3.7
187.8
196.0

52 weeks ended
1 April 2017
£m

53 weeks ended
2 April 2016
£m

Notes

(2,138.3)
204.6
(4.6)
7.9
(4.3)
203.6
(1,934.7)

(2,223.2)
4.5
7.2
75.2
(2.0)
84.9
(2,138.3)

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

96
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

1 ACCOUNTING POLICIES

General information
The current ﬁ nancial statements are prepared for the 52-week
period ended 1 April 2017, whereas the prior ﬁ nancial period was the
53 weeks ended 2 April 2016.

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 33 including the Group’s principal risks and
uncertainties as set out on pages 30 to 33. 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 bank facilities
for the foreseeable future. For this reason, the Group continues to
adopt the going concern basis in preparing its ﬁ nancial statements.

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.

New accounting standards adopted by the Group
There have been no signiﬁ cant changes to accounting under IFRS
which have aff ected the Group’s results for the current ﬁ nancial
year. The only changes to the IFRS, IFRS IC interpretations and
amendments that are eff ective for the ﬁ rst time in this ﬁ nancial year,
and are applicable for the Group, are the Annual Improvements to
IFRSs: 2012-2014 cycle. These have not had a material impact on
the Group.

New accounting standards in issue but not yet eff ective
The following IFRS have been issued but are not yet eff ective:

> IFRS 9 ‘Financial Instruments’ replaces all phases of the ﬁ nancial

instruments project and IAS 39 ‘Financial Instruments:
Recognition and Measurement’. The standard is eff ective from
periods beginning on or after 1 January 2018 and introduces:

– new requirements for the classiﬁ cation and measurement

of ﬁ nancial assets and ﬁ nancial liabilities;

– a new model for recognising provisions based on expected

credit losses; and

– simpliﬁ ed hedge accounting by aligning hedge accounting

more closely with an entities risk management methodology.

Work is under way to assess the necessary changes to existing
IT systems that will be required to aid the Group's implementation
of the standard. The adoption of IFRS 9 is unlikely to have a
material impact on the consolidated results of the Group. Any
potential impact of IFRS 9 will be quantiﬁ ed in the Annual Report
and Financial Statements for the year ending 31 March 2018.

> IFRS 15 ‘Revenue from Contracts with Customers’ is eff ective

for periods beginning on or after 1 January 2018. The standard
establishes a principles based approach for revenue recognition
and is based on the concept of recognising revenue for
obligations only when they are satisﬁ ed and the control of
goods or services is transferred. It applies to all contracts with
customers, except those in the scope of other standards.
It replaces the separate models for goods, services and
construction contracts under the current accounting standards.
The Group has completed an assessment on the impact of IFRS 15
and it is expected adoption will not have a material impact on any
of the Group’s revenue streams.

> IFRS 16 ‘Leases’ was issued on 13 January 2016 and is eff ective for
periods beginning on or after 1 January 2019. Early adoption is
permitted if IFRS 15 ‘Revenue from Contracts with Customers’
has also been applied. IFRS 16 is not yet endorsed by the EU.

The standard represents a signiﬁ cant change in the accounting
and reporting of leases for lessees as it provides a single lessee
accounting model. As such it requires lessees to recognise assets
and liabilities for all leases unless the underlying asset has a low
value or the lease term is 12 months or less. The standard may
also require the capitalisation of a lease element of contracts
held by the Group which under the existing accounting standard
would not be considered a lease. Accounting requirements for
lessors are substantially unchanged from IAS 17.

The Group has established a working group to assess the impact
of the new standard. Work performed includes assessing the
accounting impacts of the change, the process of collecting
the required data from across the business and the necessary
changes to systems and processes. From work performed to
date, it is expected implementation of the new standard will have
a signiﬁ cant impact on the consolidated results of the Group.
On adoption, lease agreements will give rise to both a right
of use asset and a lease liability for future lease payables.
Depreciation of the right of use asset will be recognised in
the income statement on a straight-line basis, with interest
recognised on the lease liability. This will result in a change
to the proﬁ le of the net charge taken to the income statement
over the life of the lease. These charges will replace the lease
costs currently charged to the income statement.

The Group continues to assess the full impact of IFRS 16, however,
the impact will greatly depend on the facts and circumstances
at the time of adoption and upon transition choices adopted.
It is therefore not yet practicable to provide a reliable estimate
of the ﬁ nancial impact on the Group’s consolidated results.

Alternative Performance Measures
In reporting ﬁ nancial information, the Group presents alternative
performance measures, “APMs”, which are not deﬁ ned or speciﬁ ed
under the requirements of IFRS.

The Group believes that these APMs, which are not considered to be
a substitute for or superior to IFRS measures, provide stakeholders
with additional helpful information on the performance of the
business. The APMs are consistent with how the business
performance is planned and reported within the internal
management reporting to the Board and Operating Committee.
Some of these measures are also used for the purpose of setting
remuneration targets.

The key APMs that the Group uses include: like-for-like sales; gross
margin; proﬁ t before tax and adjusted items; adjusted earnings
per share; net debt; free cash ﬂ ow; and return on capital employed.
Each of these APMs, and others used by the Group, are set out in
the Glossary on pages 133 and 134 including explanations of how
they are calculated and how they can be reconciled to a statutory
measure where relevant.

The Group reports some ﬁ nancial measures, primarily International
sales, on both a reported and constant currency basis. The constant
currency basis, which is an APM, retranslates the previous year
revenues at the average actual periodic exchange rates used in
the current ﬁ nancial year. This measure is presented as a means of
eliminating the eff ects of exchange rate ﬂ uctuations on the year-
on-year reported results.

The Group makes certain adjustments to the statutory proﬁ t
measures in order to derive many of these APMs. The Group’s policy
is to exclude items that are considered to be signiﬁ cant in both
nature and/or quantum and where treatment as an adjusted item
provides stakeholders with additional useful information to assess
the year-on-year trading performance of the Group. On this basis,
the following items were included within adjusted items for the
52-week period ended 1 April 2017:

> Signiﬁ cant pension charges arising as a result of changes to the

deﬁ ned beneﬁ t scheme's rules and practices

97
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED

> Signiﬁ cant restructuring costs and other associated costs arising
from signiﬁ cant strategy changes that are not considered by the
Group to be part of the normal operating costs of the business.

>Net gains and losses on the disposal of properties or

impairments of properties where a commitment to close
has been demonstrated.

> Impairment charges and provisions that are considered to be
signiﬁ cant in nature and/or value to the trading performance
of the business.

> Adjustments to income from M&S Bank due to a 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.

> Various legal settlements that are signiﬁ cant in value to the

results of the Group or to a segment.

Refer to note 5 for a summary of the adjusted items.

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 period 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. This power is generally accompanied by the
Group having 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 to our franchise partners or the customer 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 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
associated recognition policies are:

A. Promotional contribution 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 ﬁ nancial 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 volume-based 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 curtailment, is charged
to operating proﬁ t in the year.

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 on an accruals basis.

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

1 ACCOUNTING POLICIES CONTINUED

Intangible assets
A. Goodwill Goodwill arising on consolidation represents the
excess of the consideration paid 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 in value is recognised
within 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
within 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 within 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 on a straight line basis 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 – 3 to 25 years according to

the estimated economic 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 within 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 booked into 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.

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 recognised in other comprehensive
income or directly in equity.

Provision is made for uncertain tax positions when it is considered
probable that there will be a future outﬂ ow of funds to a tax
authority. The provision is calculated using the single best estimate
where that outcome is more likely than not and a weighted average
probability in other circumstances. The position is reviewed on an
ongoing basis, to ensure appropriate provision is made for each
known tax risk.

99
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED

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.
Subsequently, 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 and 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 and loss are initially recognised at
fair value and transaction costs are expensed.

Where securities are designated as ‘fair value through proﬁ t and
loss’, gains and losses arising from changes in fair value are included
in the income statement for the period. For ‘available-for-sale’
investments, gains or losses arising from changes in fair value are
recognised in other 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 other
comprehensive income is included in the income statement 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
net of direct issue costs and are subsequently held at amortised
cost unless the loan is designated in a hedge relationship, in which
case hedge accounting treatment will apply.

F. Trade payables Trade payables are recorded initially at fair value
and subsequently measured at amortised cost. Generally this
results in their recognition at their nominal value.

G. Equity instruments Equity instruments issued by the Company
are recorded at the consideration received, net of direct issue costs.

Derivative ﬁ nancial instruments and hedging activities
The Group primarily uses interest rate swaps, cross-currency 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 the inception of a hedging relationship, the hedging instrument
and the hedged item are documented, along with the risk
management objectives and strategy for undertaking various
hedge transactions and prospective eff ectiveness testing is
performed. During the life of the hedging relationship, prospective
and retrospective 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
in the hedging reserve 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 other comprehensive income are
recognised in the income statement in the same period in which
the hedged items aff ect net proﬁ t or loss.

B. Fair value hedges 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 the income statement. The hedged item is adjusted for
changes in fair value attributable to the risk being hedged
with the corresponding entry in the income statement.

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

100
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED

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 other
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, the hedge relationship no longer
qualiﬁ es for hedge accounting, the forecast transaction is no
longer expected to occur or the Group de-designates the
hedge relationship.

When a cash ﬂ ow hedge is discontinued, any cumulative gain or loss
on the hedging instrument recognised in other comprehensive
income is retained in equity until the forecast transaction occurs.
Subsequent changes in the fair value of the hedging instruments
when the forecast transaction is no longer highly probable but is
still expected to occur, are recognised in the income statement.
If a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in comprehensive income is
transferred to the income statement for the period.

When a fair value hedge is discontinued, the fair value adjustment
to the carrying amount of the hedged item arising from the hedged
risk is amortised to the income statement from that date.

When a net investment hedge is discontinued, the subsequent
changes in fair value of a derivative (or foreign exchange gains/
losses on recognised ﬁ nancial liabilities) are recognised in the
income statement. The gain or loss on the hedging instrument
recognised in other comprehensive income is reclassiﬁ ed to the
income statement only on disposal of the net investment.

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 judgements and sources of estimation
uncertainty
The preparation of consolidated ﬁ nancial statements requires
the Group to make estimates and judgements that aff ect the
application of policies and reported amounts.

Critical judgements represent key decisions made by management
in the application of the Group accounting policies. Where a
signiﬁ cant risk of materially diff erent outcomes exists due to
management assumptions or sources of estimation uncertainty,
this will represent a critical accounting estimate. 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 judgements which have a signiﬁ cant risk of
causing a material adjustment to the carrying amount of assets
and liabilities are discussed below.

Critical accounting judgements
Adjusted items The directors believe that the adjusted proﬁ t
and earnings per share measures provide additional useful
information for shareholders on the performance of the business.

These measures are consistent with how business performance
is measured internally by the Board and Operating Committee.
The adjusted 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
classiﬁ cation of adjusted items requires signiﬁ cant management
judgement after considering the nature and intentions of
a transaction.

Note 5 provides further details on current year adjusted items and
their adherence to Group policy.

Sources of estimation uncertainty
Useful lives and residual values of property, plant and
equipment Depreciation is provided to write down the cost of
property, plant and equipment to their estimated residual values
over their estimated useful lives, as set out above. The selection
of the residual values and useful lives gives rise to estimation
uncertainty. The Group is undertaking a strategic multi-year
programme in relation to the UK store estate which will result
in future store closures. The timing of these closures and the
identiﬁ cation of the speciﬁ c stores that will be impacted are not
yet known, giving rise to additional estimation uncertainty when
assessing the residual values and useful lives as at 1 April 2017.
The useful lives of property, plant and equipment are reviewed
by management annually. See note 15 for further details.

Impairment of property, plant and equipment Property, plant
and equipment 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. This method requires the Group to determine the
appropriate period over which to assess future cash ﬂ ows and
discount rate assumptions. See notes 14 and 15 for further details
on the Group's assumptions and associated sensitivities.

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. The fair value of unquoted
investments within total plan assets is determined using fair value
estimates provided by the manager of the investment or fund.
See note 11 for further details on the impact of changes in the key
assumptions and estimates and note 12 for critical judgements
associated with the Marks & Spencer UK Pension Scheme interest
in the Marks and Spencer Scottish Limited Partnership.

Revenue recognition 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 be allocated
against revenue in the same period as that in which the 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.

International closure costs During the year the Group announced
its strategy for the International business resulting in the planned
exit from owned stores in ten international markets. The Group will
incur signiﬁ cant closure costs associated with the exits which gives
rise to estimation uncertainty at 1 April 2017, most notably in respect
of the expected costs to exit leases and the expected redundancy
costs. See note 5 for further details.

Inventory provisioning Inventory provisions are recognised where
the net realisable value from the sale of inventory is estimated to be
lower than its carrying value, requiring estimation of the expected
future sale price. The estimation includes judgement on a number
of factors including historic sales patterns, expected sales proﬁ les,
potential obsolescence and shrinkage.

101
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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 Operating Committee. The Operating Committee reviews 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 Operating Committee.

The UK segment consists of the UK retail business and UK franchise operations. The International segment consists of Marks & Spencer
owned businesses in Europe and Asia, together with international franchise operations.

The Operating Committee assesses the performance of the operating segments based on a measure of operating proﬁ t. This
measurement basis excludes the eff ects of adjusted items from the operating segments. The Operating Committee also monitors
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 sub-category and gross proﬁ t within the UK
segment by sub-category.

The following is an analysis of the Group's revenue and results by reportable segment:

52 weeks ended 1 April 2017

Management
£m

Logistics
adjustment¹
£m

Adjusted
items2
£m

Statutory
£m

Management
£m

53 weeks ended 2 April 2016

Logistics
adjustment1
£m

Adjusted
items2
£m

Clothing & Home revenue
Food revenue
UK revenue
Franchise
Owned
International revenue
Group revenue

Clothing & Home 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

Proﬁ t before tax

3,792.7
5,649.0
9,441.7
314.0
866.3
1,180.3
10,622.0

2,128.7
1,837.7
3,966.4
(3,390.4)
50.2
626.2
64.4
690.6

36.2
(113.0)

613.8

–
–
–
–
–
–
–

3,792.7
5,649.0
9,441.7
314.0
866.3
1,180.3
10,622.0

(360.5)
360.5
–
–
–
–

–
(254.5)
(44.1)
(298.6)
(138.8)
(437.4)

3,605.9
(3,284.4)
6.1
327.6
(74.4)
253.2

3,961.3
5,509.5
9,470.8
329.7
754.9
1,084.6
10,555.4

2,180.7
1,806.2
3,986.9
(3,320.1)
59.9
726.7
58.2
784.9

–
–

–

–
–

36.2
(113.0)

21.1
(116.4)

(437.4)

176.4

689.6

–
–
–
–
–
–
–

(300.9)
300.9
–
–
–
–

–
–

–

Statutory
£m

3,961.3
5,509.5
9,470.8
329.7
754.9
1,084.6
10,555.4

–
–
–
–
–
–
–

–
(49.1)
(50.3)
(99.4)
(101.4)
(200.8)

3,686.0
(3,068.3)
9.6
627.3
(43.2)
584.1

–
–

21.1
(116.4)

(200.8)

488.8

1. 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 £360.5m

(last year £300.9m). Updates to the methodology have been made in the current year to include depreciation of the relevant Distribution Centres within gross margin. This is to ensure
consistent treatment with the underlying warehousing costs. The prior year comparatives have not been restated.

2. Management proﬁ t excludes the adjusted items (income or charges) made to reported proﬁ t before tax that are signiﬁ cant in value and/or nature (see note 5). Please refer to the Glossary

on pages 133 and 134 for the deﬁ nition of these items.

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

2017

2016

UK
£m

International
£m

Total
£m

UK
£m

International
£m

Total
£m

374.1
549.1
72.7
7,917.3
6,324.4

12.2
29.1
31.2
375.2
244.8

386.3
578.2
103.9
8,292.5
6,569.2

624.9
531.9
60.8
8,062.3
6,751.9

20.0
30.9
98.8
414.1
263.1

644.9
562.8
159.6
8,476.4
7,015.0

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

102
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

3 EXPENSE ANALYSIS

Revenue
Cost of sales
Gross proﬁ t
Selling and administrative expenses
Other operating income
Operating proﬁ t before adjusted items
Adjusted 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 impairments and write-off s before adjusted items
Other costs
Selling and administrative expenses

2017
Total
£m

10,622.0
(6,534.2)
4,087.8
(3,460.4)
63.2
690.6
(437.4)
253.2

2017
Total
£m

1,491.4
757.2
95.1
589.5
527.2
3,460.4

2016
Total
£m

10,555.4
(6,427.0)
4,128.4
(3,412.9)
69.4
784.9
(200.8)
584.1

2016
Total
£m

1,435.7
723.2
99.5
576.8
577.7
3,412.9

1. There is an additional £61.2m (last year £51.0m) of employee costs recorded within cost of sales. These costs are included within the aggregate remuneration disclosures note 10A.

4 PROFIT BEFORE TAXATION

The following items have been included in arriving at proﬁ t before taxation:

Net foreign exchange (gains)/losses
Cost of inventories recognised as an expense
Write-down of inventories to net realisable value
Depreciation of property, plant, and equipment
– owned assets
– under ﬁ nance leases
Amortisation of intangible assets
Proﬁ t on property disposals
Impairments and write-off s of assets
Operating lease rentals payable
– property
– ﬁ xtures, ﬁ ttings and equipment

2017
£m

(0.2)
5,776.1
234.9

410.3
0.5
167.4
–
103.9

350.1
4.3

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 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
Other services
Total other services

2017
£m

0.9
0.7
0.3
1.9
–
–

2016
£m

6.9
5,778.6
239.7

412.7
1.4
148.7
(0.6)
159.6

337.1
3.5

2016
£m

0.7
0.7
0.2
1.6
0.1
0.1

103
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

5 ADJUSTED ITEMS

The total adjusted items reported for the 52-week period ended 1 April 2017 is a net charge of £437.4m. The adjustments made to reported
proﬁ t before tax to arrive at adjusted proﬁ t are:

Strategic programmes:
– changes to pay and pensions
– UK organisation
– UK store estate
– International store closures and impairments
UK store impairments and onerous lease charges
M&S Bank charges incurred in relation to the insurance mis-selling provision
UK logistics
Legal settlements
Other impairments1
IAS 39 fair value movement of embedded derivative
Net gain on acquisition of joint venture holding Bradford warehouse
Adjustments to proﬁ t before tax

Notes

22
15, 22
15, 22
15, 22
15, 22

15, 22

2017
£m

(156.0)
(24.0)
(51.6)
(132.5)
(48.8)
(44.1)
9.8
9.8
–
–
–
(437.4)

2016
£m

–
–
(37.0)
(31.6)
–
(50.3)
9.2
–
(94.5)
(2.0)
5.4
(200.8)

1. Other impairments in the prior year included the impairment of Czech and Hungary goodwill (£19.1m), the M&S Mode brand (£32.4m), an enterprise management system used by the

International business of (£19.3m) and impairment costs of (£23.7m) related to the Clothing & Home buying and merchandising systems.

Changes to pay and pensions (£156.0m)
On 25 May 2016, the Group announced proposals for a fairer, simpler and more consistent approach to pay and premia as well as proposals
to close the UK deﬁ ned beneﬁ t (DB) pension scheme to future accrual eff ective from 1 April 2017. The consultation with employees on these
changes completed on 2 September 2016.

The closure of the UK DB pension scheme to future accrual has resulted in a curtailment charge of £127.0m. As all remaining active members
of the scheme have transitioned to deferred status, all future pensionable increases will be in line with inﬂ ation (CPI) as opposed to the lower
1% salary cap applied to active members. Other costs of £5.4m directly associated with the closure, primarily in relation to third party
advisory costs, have also been incurred.

The Group considers the curtailment cost and directly associated costs to be an adjusted item on the basis that they relate to a signiﬁ cant
cost impacting the Group results.

Following the completion of the consultation in respect of pay and premia, the Group has committed to transition payments of £23.6m
in respect of the removal of premia. The full amount of £23.6m has been recognised as a liability at 1 April 2017 as the criteria for recognition
under IAS 37 have been met at this date.

The Group anticipates making further transition payments to impacted employees in relation to the closure of the UK DB scheme, expected
to be c. £25m in total over the next three years. These amounts will be recognised within adjusted items in future years as incurred.

The premia buyout costs are considered to be an adjusted item as they represent costs that are signiﬁ cant in value to the results of
the Group.

Strategic programmes – UK organisation (£24.0m)
During the year, the Group announced the results of a wide-ranging strategic review across a number of areas of the business including
customer, brand, UK organisation, UK store estate and International. The completion of this review has resulted in the Group incurring
a number of signiﬁ cant charges.

On 5 September 2016, following completion of a detailed review of the UK organisation, the Group announced changes to the UK Head Offi ce
structure. The changes have resulted in a net reduction of c.590 Head Offi ce roles achieved through a combination of fewer contractors,
natural attrition and redundancies and resulted in costs of £15.4m inclusive of fees.

On 2 March 2017, as part of the ongoing strategic programme, the Group announced an 18-month programme to centralise its London
Head Offi ce functions into one building. The Group has recognised a net charge of £8.6m associated with this rationalisation, inclusive of
the impairment and write-off of assets upon exit of vacated buildings, an expected net sub-let shortfall and the costs of relocation.

These costs are considered to be an adjusted item as they are signiﬁ cant in value and relate to a strategic initiative. As a result, they are not
considered to be normal operating costs of the business.

Strategic programmes – UK store estate (£51.6m)
The Group has revised its previously announced strategic programme in relation to the UK store estate. As part of this programme, ten UK
stores were approved for closure in the period, resulting in closure costs of £47.3m relating to dilapidations, sub-let shortfalls, accelerated
depreciation of ﬁ xtures and ﬁ ttings and impairment of assets. The balance of the charges of £4.3m in the period relate to the ongoing review
of assumptions associated with previously closed stores.

Whilst costs associated with the closure and re-conﬁ guration of the UK store estate will recur across ﬁ nancial years, the Group considers
that they should be treated as an adjusted item given they are part of a strategic programme and are signiﬁ cant in value to the results of
the Group.

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

104
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

5 ADJUSTED ITEMS CONTINUED

Strategic programmes – International store closures and impairments (£132.5m)
The Group has announced its intention to close its owned stores in ten international markets, resulting in the recognition of a cost of £130.5m
in the period. The expected closure costs primarily relate to redundancy, lease exit and property dilapidations. The closure programmes
are ongoing in all markets, with the exception of China, where the ﬁ nal store was closed on 1 April 2017. The costs are considered to be an
adjusted item as they are part of a strategic programme and are signiﬁ cant in both value and nature to the results of the Group.

International store impairment testing during the year identiﬁ ed a number of stores where current and anticipated future performance
does not support the carrying value of the stores, with a resulting impairment charge of £9.0m being incurred, which is considered
signiﬁ cant in value to the results of the International segment. Refer to note 15 for further details of these impairments.

Off setting these store impairments are credits of £7.0m relating to the reversal of historic impairments against ﬁ ve stores and the release of
unutilised provisions on completion of the exit from the Balkans. This impairment reversal and release are considered to be adjusted items,
consistent with treatment in previous periods when the original charges were recognised as adjusted items.

UK store impairments and onerous lease charges (£48.8m)
The UK store impairment testing during the year has identiﬁ ed a number of stores where the current and anticipated future performance
does not support the carrying value of the stores. As a result, a charge of £39.4m has been incurred in respect of the impairment of assets
associated with these stores. A future charge of £9.4m has been incurred in respect of onerous lease provisions associated with some of
these stores. Refer to note 15 for further details of these impairments.

The charges associated with the impairment of stores and associated onerous leases have been classiﬁ ed as an adjusted item on the basis
of the signiﬁ cant value of the charge in the year to the results of the Group.

M&S Bank charges incurred in relation to the insurance mis-selling provision (£44.1m)
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 proﬁ t share received from HSBC, although future income may be impacted by signiﬁ cant deductions.

Since the year ended 31 December 2010, M&S Bank has recognised in its audited ﬁ nancial statements an estimated liability for redress to
customers in respect of possible mis-selling of ﬁ nancial products. The Group’s income from M&S Bank has been reduced by the deduction
of our share of the estimated liability in both the current and prior years. The deduction in the period is £44.1m.

The Group considers this cost to be an adjusted item, despite its recurring nature, as the charges are signiﬁ cant in nature and value in each
period to the results of the Group.

UK logistics (£9.8m credit)
A net credit of £9.8m has been recognised in the year relating to an updated view of the estimated closure costs of legacy logistics sites
associated with the transition to a single tier distribution network. This credit largely arises following a decision to retain two logistics
warehouses within the network which had previously been identiﬁ ed for closure. This net credit is considered to be an adjusted item,
consistent with treatment in previous periods when the original charges were recognised as an adjusted item.

Legal settlements (£9.8m credit)
During the year, the Group has reached various legal settlements resulting in a net credit to the income statement of £9.8m. No further
detail is provided in respect of these legal settlements due to the requirement to comply with conﬁ dentiality clauses within the agreements.

The settlements are considered to be adjusted items as they are signiﬁ cant in value to the results of the Group or to the segment.

6 FINANCE INCOME/COSTS

Bank and other interest receivable
Unwind of discount on ﬁ nancial instruments
Pension net ﬁ nance income (see note 11)
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

2017
£m

6.6
0.3
29.3
36.2

(2.8)
(4.3)
(91.2)
(1.9)
–
(0.2)
(12.6)
(113.0)
(76.8)

2016
£m

5.8
–
15.3
21.1

(3.6)
(5.5)
(89.9)
(1.9)
(0.4)
(0.4)
(14.7)
(116.4)
(95.3)

105
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

7 INCOME TAX EXPENSE

A. Taxation charge

Current tax
UK corporation tax on proﬁ ts for the year at 20% (last year 20%)
– 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

B. Taxation reconciliation
The eff ective tax rate was 34.4% (last year 17.3%) and is reconciled below:

Proﬁ t before tax
Notional taxation at standard UK corporation tax rate of 20% (last year 20%)
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 the current and deferred tax charges in respect of prior periods
Adjusted items:
– depreciation and other amounts in relation to ﬁ xed assets that do not qualify for tax relief
– UK store impairments and strategic programmes – UK store estate where no tax relief is available
– International store closures and impairments where no tax relief is available
– strategic programmes – UK organisation and logistics income and expenses that are not taxable

or allowable for tax purposes

– proﬁ ts and losses on property disposals
– acquisition of Lima (Bradford) S.à r.l
– 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
Total income tax expense

After excluding adjusted items, the adjusted eff ective tax rate was 19.9% (last year 17.2%).

2017
£m

2016
£m

98.3
(17.4)
80.9

8.9
7.3
97.1

(48.3)
11.5
0.4
(36.4)
60.7

2017
£m

176.4
35.3
4.7
(0.7)
(3.9)
(2.3)
0.5
1.4

–
7.7
26.0

(1.7)
–
–
4.3
(10.6)
60.7

111.6
(5.6)
106.0

12.4
(0.5)
117.9

(28.3)
2.6
(7.8)
(33.5)
84.4

2016
£m

488.8
97.8
2.3
(9.6)
(7.8)
(4.3)
3.7
(3.5)

2.6
–
15.3

–
(1.5)
(5.4)
–
(5.2)
84.4

On 15 September 2016, the Finance Bill received Royal Assent to enact the previously announced reductions in the rate of corporation tax
to 19% from 1 April 2017 and 17% from 1 April 2020. The Group has remeasured its UK deferred tax assets and liabilities at the end of the
reporting period at the rates of 19% and 17% based on an expectation of when those balances are expected to unwind. This has resulted in
the recognition of a deferred tax charge of £0.4m in the income statement and the recognition of a deferred tax credit of £11.0m in other
comprehensive income.

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

106
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

7 INCOME TAX EXPENSE CONTINUED

B. Taxation reconciliation continued

Proﬁ t before taxation
Notional taxation at standard UK corporation tax rate of 20% (last year 20%)
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
Adjusted items:
– UK store impairments and strategic programmes – UK store estate where no tax relief is available
– International store closures and impairments where no tax relief is available
– strategic programmes – UK organisation and logistics income and expenses that are not taxable

or allowable for tax purposes

– pay and pensions where tax relief is due in the future
– proﬁ ts and losses on property disposals
– UK property and investment deductions where no tax relief is available
– Lima (Bradford) S.à r.l acquisition accounting
– embedded derivative
– overseas proﬁ ts taxed at rates diff erent to those of the UK
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)

2017
£m

176.4
35.3
90.2
(67.2)
1.0
(11.7)
(2.3)
0.5
3.8

17.3
27.3

(1.8)
25.4
–
–
–
–
(10.6)
107.2

98.3
8.9
107.2
(17.4)
7.3
97.1

2016
£m

488.8
97.8
85.4
(71.5)
(3.4)
(13.4)
(4.3)
3.7
7.6

21.0
–

–
–
(0.5)
7.5
(5.4)
4.7
(5.2)
124.0

111.6
12.4
124.0
(5.6)
(0.5)
117.9

107
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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 adjusted earnings per share ﬁ gures have also been calculated based on earnings before adjusted items that are signiﬁ cant in nature
and/or value (see note 5). These have been presented to provide shareholders with an additional measure of the Group's year-on-year
performance.

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 types 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 adjusted earnings per share are set out below:

Proﬁ t attributable to equity shareholders of the Company
Add/(less) (net of tax):
Strategic programmes:
– changes to pay and pensions
– UK organisation
– UK store estate
– International store closures and impairments
UK store impairments and onerous lease charges
M&S Bank charges incurred in relation to the insurance mis-selling provision
UK logistics
Legal settlements
Other Impairments
IAS 39 fair value movement of embedded derivative
Net gain on acquisition of joint venture holding Bradford warehouse
Proﬁ t before adjusted items attributable to equity shareholders of the Company

Weighted average number of ordinary shares in issue
Potentially dilutive share options under the Group's share option schemes
Weighted average number of diluted ordinary shares

Basic earnings per share
Diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share

9 DIVIDENDS

Dividends on equity ordinary shares
Paid ﬁ nal dividend
Special dividend
Paid interim dividend

2017
per share

2016
per share

11.9p
4.6p
6.8p
23.3p

11.6p
–
6.8p
18.4p

2017
£m

117.1

128.6
20.3
46.5
120.8
41.3
35.3
(9.2)
(7.9)
–
–
–
492.8

2016
£m

406.9

–
–
30.5
25.2
–
40.2
(7.3)
–
85.9
1.6
(9.7)
573.3

Million

1,623.1
8.0
1,631.1

Million

1,635.9
6.3
1,642.2

Pence

7.2
7.2
30.4
30.2

2017
£m

192.7
74.5
110.3
377.5

Pence

24.9
24.8
35.0
34.9

2016
£m

190.8
–
110.9
301.7

The directors have proposed a ﬁ nal dividend in respect of the year ended 1 April 2017 of 11.9p per share (last year 11.9p), amounting to a
dividend of £193.3m(last year £192.7m). This payment is subject to approval of shareholders at the Annual General Meeting (AGM), to be
held on 11 July 2017.

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 1 June 2017. For those shareholders electing to receive the DRIP, the last date for receipt of a new election
is 23 June 2017.

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

108
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 (including the Operating Committee) were:

Wages and salaries
Social security costs
Pension costs
Share-based payments (see note 13)
Employee welfare and other personnel costs
Capitalised staffi ng costs
Total aggregate remuneration1

2017
Total
£m

1,333.8
89.7
100.3
10.6
47.1
(28.9)
1,552.6

2016
Total
£m

1,278.8
80.6
102.0
16.0
46.7
(37.4)
1,486.7

1. Excludes amounts recognised within adjusted items (see note 5) such as the transition payments the Group has committed to in respect of removal of premia and redundancy costs

associated with the UK and International strategic programmes.

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

2017

2016

5,617
66,385

3,172
862

191
1,267
7,445
84,939

5,696
63,733

3,191
881

257
1,127
8,063
82,948

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 59,764 (last year 58,895).

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 (DB) arrangement) and Your M&S Pension Saving Plan (a deﬁ ned contribution (DC) arrangement).

The UK DB pension scheme operated on a ﬁ nal salary basis and is governed by a Trustee board which is independent of the Group.
On closure of the UK DB pension scheme, all remaining active members moved to deferred status which resulted in a curtailment charge
of £127.0m. There will be no future service charge relating to the scheme and no future monthly employer contributions for current service.
At year end the UK DB pension scheme had no active members (last year 11,176), 62,655 deferred members (last year 53,589) and 51,198
pensioners (last year 51,047).

The most recent actuarial valuation of the Marks and Spencer UK Pension Scheme was carried out as at 31 March 2015 and showed a funding
surplus of £204m. During the year the Group paid the ﬁ nal contribution of £28m, as agreed at the 2012 actuarial valuation, in respect of
beneﬁ ts already accrued by members. In addition, the UK DB pension scheme will continue to receive income from the Scottish Limited
Partnership. See Note 12 for further details.

The DC 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 the investment returns earned on the contributions arising from the performance of each individual’s investments
and how each member chooses to receive their retirement beneﬁ ts. 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. At the year end, the deﬁ ned
contribution arrangement had some 53,661 active members (last year 40,712) and some 12,866 deferred members (last year 8,823).

The Group also operates a small funded DB pension scheme in the Republic of Ireland. This scheme closed to future accrual on
31 October 2013. Other retirement beneﬁ ts also include a UK post-retirement healthcare scheme and unfunded retirement beneﬁ ts.

The total Group retirement beneﬁ t cost was £198.4m (last year £86.7m). Of this, £148.0m (last year £41.0m) relates to the UK DB pension
scheme including curtailment charges, £45.1m (last year £40.3m) to the UK DC plan and £5.3m (last year £5.4m) to other retirement
beneﬁ t schemes.

109
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

11 RETIREMENT BENEFITS CONTINUED

By funding its DB 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 advances in healthcare. Members may also exercise (or not exercise)

options in a way that lead 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 is exposed to additional risks through its obligation to the UK DB pension scheme via its interest in the Scottish
Limited Partnership (see note 12). 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 to the pension scheme, 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 surplus

Analysed in the statement of ﬁ nancial position as:
Retirement beneﬁ t asset
Retirement beneﬁ t deﬁ cit
Net retirement beneﬁ t surplus

2017
£m

10,135.1
(9,433.3)
701.8
(1.0)
(8.0)
692.8

706.0
(13.2)
692.8

2016
£m

8,515.3
(7,682.3)
833.0
(0.9)
(8.0)
824.1

851.0
(26.9)
824.1

In the event of a plan wind-up, the pension scheme rules provide M&S with an unconditional right to a refund of surplus assets assuming
the full settlement of plan liabilities. In the ordinary course of business, the Trustees have no rights to wind up or change the beneﬁ ts due
to members of the scheme. As a result, any net surplus in the UK DB pension scheme is recognised in full.

B. Financial assumptions
The ﬁ nancial assumptions for the UK DB pension 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

1. Rate of increase in salaries is no longer applicable as the UK DB pension scheme is closed to future accrual.

2017
%

N/A1
2.0-3.2
2.55
3.20
7.20

2016
%

1.0
1.9-3.0
3.40
2.95
6.95

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

110
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

11 RETIREMENT BENEFITS CONTINUED

C. Demographic assumptions
The UK demographic assumptions are in line with those adopted for the last formal actuarial valuation of the scheme performed as at
31 March 2015. The UK post-retirement mortality assumptions are based on an analysis of the pensioner mortality trends under the
scheme for the period to March 2015. The speciﬁ c mortality rates used are based on the VITA lite tables. The life expectancies underlying
the valuation are as follows:

Current pensioners (at age 65)

Future pensioners – currently in active status (at age 65)

– males
– female
– males
– female
Future pensioners – currently in deferred status (at age 65) – males
– female

2017

23.2
24.7
N/A1
N/A1
24.7
27.1

2016

23.1
24.6
23.6
26.2
24.1
26.4

1. No future pensioners currently in an active status. All employees in the UK DB pension scheme are in deferred status due to the decision to close the scheme to future accrual from

1 April 2017.

D. Sensitivity analysis
The table below summarises the estimated impact of changes in the principal actuarial assumptions on the UK DB pension scheme surplus:

Decrease in scheme surplus caused by a decrease in the discount rate of 0.25%
Decrease in scheme surplus caused by a decrease in the inﬂ ation rate of 0.25%
Increase in scheme surplus caused by a decrease in the average life expectancy of one year

2017
£m

(70.0)
(20.0)
370.0

2016
£m

(90.0)
20.0
300.0

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 DB pension scheme is driven by its liability proﬁ le, including its inﬂ ation-linked pension beneﬁ ts.
In addition to its interest in the Scottish Limited Partnership (see 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 92% of interest rate movements and 90% of inﬂ ation movements, as measured on the Trustees’ funding
assumptions which use a discount rate derived from gilt yields.

The fair value of the total plan assets at the end of the reporting period for each category is as follows:

Debt investments
– government bonds net of repurchase agreements1
– 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

1. Repurchase agreements were £1,333.9m (last year £1,333.0m).

2017
£m

2016
£m

5,219.7
901.9
547.9
412.1
1,504.0
315.1
509.3

(28.9)
204.2
322.0
158.3
69.5
10,135.1

4,165.7
1,058.2
459.0
469.5
1,047.5
236.7
420.7

(101.5)
142.0
317.9
190.5
109.1
8,515.3

All pension assets have quoted prices in an active market with the exception of £1,444.9m (last year £1,219.1m) of unquoted assets. The fair
values of the above equity and debt investments are 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 fair 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 schemes (UK DB pension scheme and post-retirement healthcare) indirectly held 193,506 (last year 169,509) ordinary
shares in the Company through its investment in UK Equity Index Funds.

111
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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
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 – experience
– actuarial loss – demographic assumptions
– actuarial (gain)/loss – ﬁ nancial assumptions
Components of deﬁ ned beneﬁ t cost recognised in other comprehensive income

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 £1,828.7m (last year gain of £106.1m).

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
Administration costs
Curtailment charge
Interest cost
Beneﬁ ts paid
Actuarial gain – 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 1 April 2017 is 19 years (last year 18 years).

2017
£m

96.5
3.2
128.0
(29.3)
198.4

(1,543.8)
(1.5)
–
1,614.2
68.9

2017
£m

8,515.3
284.9
1,543.8
137.0
(347.7)
(3.0)
4.8
10,135.1

2017
£m

7,691.2
96.5
0.2
128.0
255.6
(347.7)
(1.5)
–
1,614.2
5.8
9,442.3

9,433.3
1.0
8.0
9,442.3

2016
£m

98.0
3.0
1.0
(15.3)
86.7

156.3
(164.8)
100.8
(438.5)
(346.2)

2016
£m

8,596.5
262.4
(156.3)
118.4
(311.7)
(3.0)
9.0
8,515.3

2016
£m

8,147.5
98.0
–
1.0
247.1
(311.7)
(164.8)
100.8
(438.5)
11.8
7,691.2

7,682.3
0.9
8.0
7,691.2

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

112
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). Under the partnership agreement, the limited partners have no involvement in the
management of the business and shall not take any part in the control of the partnership. The general partner is responsible for the
management and control of the partnership and 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 into the Partnership. The ﬁ rst limited
partnership interest (held by the Marks and Spencer UK Pension Scheme), entitles the Pension Scheme to receive an annual distribution of
£71.9m until 2022 from the Partnership. The second partnership interest (also held by the Marks and Spencer UK Pension Scheme), entitles
the Pension Scheme to receive a further £36.4m annually from 2017 until 2031.

The partnership liability in relation to the ﬁ rst interest of £396.5m (last year £455.7m) is valued at the net present value of the future
expected distributions from the Partnership. During the year to 1 April 2017 an interest charge of £12.6m (last year £14.7m) was recognised
in the income statement representing the unwind of the discount included in this obligation.

The ﬁ rst limited partnership interest of the Pension Scheme is included within the UK DB Pension Scheme assets, valued at £412.1m
(last year £469.5m). It is also included as a liability on the Group's statement of ﬁ nancial position as it is a transferable ﬁ nancial instrument.
The second partnership interest is not a transferable ﬁ nancial instrument and therefore is not included as a plan asset in accordance
with IAS 19. The associated liability is eliminated on consolidation.

13 SHARE-BASED PAYMENTS

This year a charge of £10.6m was recognised for share-based payments (last year charge of £16.0m). Of the total share-based payments
charge, £10.9m (last year £9.5m) relates to the Save As You Earn Scheme and a credit of £3.6m (last year charge of £1.1m) relates to the
Performance Share Plan. The remaining charge of £3.3m (last year £5.4m) is spread over the other share plans. An additional charge of £1.3m
was recognised in relation to the Annual Bonus Scheme for 2016/17 under the Deferred Share Bonus Plan. Further details of the operation
of the Group share plans are provided in the Remuneration Report on pages 66 to 78.

A. Save As You Earn Scheme
The SAYE Scheme was last approved by shareholders in 2007 and shareholder approval is being sought at the 2017 AGM to renew the
scheme for a further ten years. 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 an Her Majesty’s Revenue & Customs (HMRC) approved SAYE savings
contract. The Company has chosen to cap the maximum monthly saving amount at £250 which is below the £500 per month allowed
under HMRC approved schemes. 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

2017

2016

Number of
options

Weighted average
exercise price

Number of
options

Weighted average
exercise price

30,154,547
28,166,455
(1,763,039)
(12,881,484)
(382,385)
43,294,094
4,928,971

393.3p
260.0p
312.8p
391.8p
355.2p
310.6p
403.5p

29,530,523
10,437,215
(6,645,922)
(2,967,697)
(199,572)
30,154,547
1,936,860

357.6p
432.0p
302.6p
382.5p
317.2p
393.3p
315.3p

For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 387.4p (last year 443.9p).

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
Incremental fair value of option

2017

2016

3-year plan

3-year plan 2016
modiﬁ ed1

3-year plan 2015
modiﬁ ed1

3-year plan

Nov 16
335p
260p
3 years
0.2%
28.5%
5.6%
66p
N/A

Nov 16
335p
432p
3 years
0.2%
28.5%
5.6%
19p
47p

Nov 16
335p
369p
3 years
0.2%
28.5%
5.6%
30p
36p

Nov 15
520p
432p
3 years
0.9%
23.4%
3.7%
96p
–

1. In the current year, there has been a modiﬁ cation to the 2017 scheme relating to employees cancelling awards from previous years in subsitution for awards granted under the 2017

scheme. The fair value of the modiﬁ ed awards will be amortised based on the incremental fair value. The incremental fair value is the diff erence between the fair value of the 2017 options,
being 66p, and the fair value of repriced previous awards, calculated using 2017 award assumptions, keeping the initial exercise price consistent. The fair value of the modiﬁ ed options,
being 19p for 2016 modiﬁ ed options and 30p for 2015 modiﬁ ed options, is already recognised in operating proﬁ t.

113
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

13 SHARE-BASED PAYMENTS CONTINUED

Volatility has been estimated by taking the historic 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.

Outstanding options granted under the UK Employees SAYE Scheme are as follows:

Options granted

January 2013
January 2014
January 2015
January 2016
January 2017

Number of options

2017

2016

–
4,854,749
6,280,741
4,676,198
27,482,406
43,294,094

1,917,252
5,918,608
12,334,645
9,984,042
–
30,154,547

Weighted average remaining
contractual life (years)

2017

–
0.2
1.2
2.2
3.2
2.5

2016

Option price

0.2
1.2
2.2
3.2
–
2.3

312p
405p
369p
432p
260p
311p

B. Performance Share Plan*
The Performance Share Plan is the primary long-term incentive plan for approximately 120 of the most senior managers within the Group.
It was ﬁ rst approved by shareholders at the 2005 AGM and again at the 2015 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 ﬁ nancial targets which for 2016/17
included Adjusted Earnings Per Share, Return on Capital Employed and free cash ﬂ ow. 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 78.
Awards under this plan have been made in each year since 2005.

During the year, 7,569,499 shares (last year 5,850,134) were awarded under the plan. The weighted average fair value of the shares awarded
was 328.0p (last year 533.2p). As at 1 April 2017, there were 14,816,764 shares (last year 15,749,605) outstanding under the plan.

C. Deferred Share Bonus Plan*
The Deferred Share Bonus Plan was introduced in 2005/06 as part of the Annual Bonus Scheme for approximately 500 of the most senior
managers within the Group. 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 within the
Group and the value of any dividends earned on the vested shares during the deferred period will also be paid on vesting.

During the year, 1,563,439 shares (last year 1,044,961) have been awarded under the plan in relation to the annual bonus. The fair value of
the shares awarded was 355.8p (last year 548.3p). As at 1 April 2017, there were 3,033,709 shares (last year 2,586,096) outstanding under
the plan.

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 the employment of the Company on the
relevant vesting date. The value of any dividends earned on the vested shares during the restricted period will also be paid on vesting.

During the year, 321,229 shares (last year 221,681) have been awarded under the plan. The weighted average fair value of the shares awarded
was 326.6p (last year 454.4p). As at 1 April 2017, there were 888,027 shares (last year 1,285,666) outstanding under the plan.

E. Republic of Ireland Save As You Earn Scheme
Sharesave, the Company’s SAYE 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 to
that allowed within the UK scheme. 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.

During the year, 324,768 options (last year 160,113) were granted, at a fair value of 66.3p (last year 95.6p). As at 1 April 2017, there were
521,837 options (last year 312,826) outstanding under the scheme.

F. Marks and Spencer Employee Beneﬁ t Trust
The Marks and Spencer Employee Beneﬁ t Trust (the Trust) holds 2,173,101 (last year 4,087,837) shares with a book value of £10.7m (last year
£20.6m) and a market value of £7.3m (last year £16.6m). 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
plans described above. Dividends are waived on all of these shares.

G. ShareBuy
ShareBuy, the Company’s Share Incentive Plan enables the participants to buy shares directly from their gross salary. This scheme does not
attract an IFRS 2 charge.

* 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.

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

114
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

Goodwill
£m

Brands
£m

Computer
software
£m

Computer software
under
development
£m

14 INTANGIBLE ASSETS

At 28 March 2015
Cost or valuation
Accumulated amortisation and impairments
Net book value
Year ended 2 April 2016
Opening net book value
Additions
Transfers
Asset impairments
Asset write-off s
Amortisation charge
Exchange diff erence
Closing net book value
At 2 April 2016
Cost or valuation
Accumulated amortisation, impairments and write-off s
Net book value
Year ended 1 April 2017
Opening net book value
Additions
Transfers
Asset impairments
Asset write-off s
Amortisation charge
Other1
Exchange diff erence
Closing net book value
At 1 April 2017
Cost or valuation
Accumulated amortisation, impairments and write-off s
Net book value

Goodwill relates to the following:

Net book value at 2 April 2016
Exchange diff erence
Other1
Net book value at 1 April 2017

129.7
(34.4)
95.3

95.3
6.2
–
(19.1)
–
–
0.3
82.7

136.2
(53.5)
82.7

82.7
–
–
–
–
–
(5.5)
1.2
78.4

137.4
(59.0)
78.4

112.5
(55.8)
56.7

56.7
–
–
(32.5)
–
(5.3)
(0.2)
18.7

112.3
(93.6)
18.7

18.7
–
–
–
–
(5.3)
–
–
13.4

112.3
(98.9)
13.4

per una
£m

69.5
–
–
69.5

1,087.7
(466.9)
620.8

620.8
92.9
91.2
(22.1)
(11.9)
(143.4)
0.2
627.7

1,272.0
(644.3)
627.7

627.7
0.3
95.8
6.1
(9.6)
(162.1)
–
0.2
558.4

1,368.3
(809.9)
558.4

India
£m

7.0
1.2
–
8.2

Total
£m

1,416.5
(558.3)
858.2

858.2
193.0
–
(73.7)
(26.4)
(148.7)
0.4
802.8

1,609.9
(807.1)
802.8

802.8
101.1
(11.8)
1.0
(12.5)
(167.4)
(5.5)
1.3
709.0

1,700.5
(991.5)
709.0

86.6
(1.2)
85.4

85.4
93.9
(91.2)
–
(14.5)
–
0.1
73.7

89.4
(15.7)
73.7

73.7
100.8
(107.6)
(5.1)
(2.9)
–
–
(0.1)
58.8

82.5
(23.7)
58.8

UK
£m

Total goodwill
£m

6.2
–
(5.5)
0.7

82.7
1.2
(5.5)
78.4

1. Other adjustments relate to the adjustment of provision values for business combinations related to the acquisition of Lima (Bradford) S.à r.l in the prior year.

115
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

14 INTANGIBLE ASSETS CONTINUED

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.

The costs in relation to the per una brand are £80.0m (net book value £13.4m). The per una brand is a deﬁ nite life intangible asset amortised
on a straight-line basis over a period of 15 years and is only assessed for impairment where such indicators exist.

The value in use calculations are based on the Group’s latest budget and forecast cash ﬂ ows, covering a three-year period, which have
regard to historic performance and knowledge of the current market, together with the Group’s views on the future achievable growth
and the impact of committed cash ﬂ ows. The cash ﬂ ows include ongoing capital expenditure required to maintain the store network, but
exclude any growth capital initiatives not committed. Cash ﬂ ows beyond this three-year period are extrapolated using a ﬂ at long-term
growth rate for the UK and with reference to forecast GDP growth for India. These growth rates do not exceed the long-term growth rates
for the Group’s retail businesses in these territories.

While management believes the assumptions used are realistic, it is possible that a further impairment could be identiﬁ ed for per una,
Bradford or India 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 has 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 28 March 2015
Cost
Accumulated depreciation, impairments and write-off s
Net book value
Year ended 2 April 2016
Opening net book value
Additions
Transfers
Disposals
Asset impairments
Asset write-off s
Depreciation charge
Exchange diff erence
Closing net book value
At 2 April 2016
Cost
Accumulated depreciation, impairments and write-off s
Net book value
Year ended 1 April 2017
Opening net book value
Additions
Transfers
Disposals
Asset impairments
Asset write-off s
Depreciation charge
Exchange diff erence
Closing net book value
At 1 April 2017
Cost
Accumulated depreciation, impairments and write-off s
Net book value

Land and buildings
£m

Fixtures, ﬁ ttings
and equipment
£m

Assets in the
course of
construction
£m

2,855.1
(339.8)
2,515.3

2,515.3
115.2
1.7
(5.0)
(30.4)
–
(13.3)
11.4
2,594.9

2,981.6
(386.7)
2,594.9

2,594.9
–
17.4
(0.6)
(11.6)
(6.0)
(16.3)
10.0
2,587.8

3,008.4
(420.6)
2,587.8

7,066.4
(4,672.3)
2,394.1

2,394.1
204.6
186.8
(0.6)
(24.3)
(2.9)
(400.8)
5.9
2,362.8

7,476.3
(5,113.5)
2,362.8

2,362.8
76.2
189.6
(1.0)
(68.6)
(1.8)
(394.5)
9.2
2,171.9

7,750.3
(5,578.4)
2,171.9

133.3
(11.6)
121.7

121.7
138.3
(188.5)
–
(1.9)
–
–
(0.2)
69.4

82.9
(13.5)
69.4

69.4
209.0
(196.2)
–
(1.9)
(2.5)
–
0.3
78.1

96.0
(17.9)
78.1

Total
£m

10,054.8
(5,023.7)
5,031.1

5,031.1
458.1
–
(5.6)
(56.6)
(2.9)
(414.1)
17.1
5,027.1

10,540.8
(5,513.7)
5,027.1

5,027.1
285.2
10.8
(1.6)
(82.1)
(10.3)
(410.8)
19.5
4,837.8

10,854.7
(6,016.9)
4,837.8

The net book value above includes land and buildings of £42.1m (last year £42.6m) and equipment of nil (last year £0.2m) 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 ﬁ nance leases.

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

116
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

15 PROPERTY, PLANT AND EQUIPMENT CONTINUED

Impairment of property, plant and equipment
For impairment testing purposes, the Group has determined that each store is a separate CGU with the exception of outlet stores which are
considered together as one CGU. Each CGU is tested for impairment at the balance sheet date if any indicators of impairment have been
identiﬁ ed. The recoverable value of each CGU is determined to be the higher of value in use and fair value less costs to sell.

The value in use of each CGU is calculated based on the Group’s latest budget and forecast cash ﬂ ows, covering a three-year period, which
have regard to historic performance and knowledge of the current market, together with the Group’s views on the future achievable growth
and the impact of committed initiatives. The cash ﬂ ows include ongoing capital expenditure required to maintain the store network, but
exclude any growth capital initiatives not committed. Cash ﬂ ows beyond this three-year period are extrapolated using a ﬂ at long-term
growth rate for UK stores and with reference to forecast GDP growth for other territories. These growth rates do not exceed the long-term
growth rate for the Group’s retail businesses in these territories.

The key assumptions in the value in use calculations are the growth rates of sales and gross proﬁ t margins, changes in the operating cost
base, long-term growth rates and the risk-adjusted pre-tax discount rate. The pre-tax discount rates are derived from 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 for each territory. The pre-tax discount rates range from 7% to 21% (last year 7% to 24%).

Where appropriate, fair value less cost to sell is determined with regard to the expected rent and yield for each property and reﬂ ect the
speciﬁ c characteristics relevant to each property and the location in which it is based. The fair values have been determined with the
assistance of independent, professional valuers.

During the year the Group has recognised a net impairment charge of £43.4m (gross impairment charge of £47.5m off set by an impairment
reversal of £4.1m) as a result of store impairment testing. The gross impairment charge relates primarily to stores in the UK and Hong Kong,
with the reversal of impairment relating to stores in Ireland due largely to the movement in the Sterling to Euro currency rate. These
impairments, including the reversal, have been recognised within adjusted items (see Note 5).

The Group has performed a sensitivity analysis on the impairment tests for its UK store portfolio using various reasonably possible
scenarios. An increase of one percentage point in the post-tax discount rate would have resulted in an increase to the impairment charge
of £6.5m. Neither a 2% reduction in year one sales growth nor a 20bps reduction in total UK margin would result in a signiﬁ cant increase to
the impairment charge.

In addition the Group has recognised additional impairment charges of £27.3m associated with stores approved for closure during the year,
£13.1m associated with the exit from owned stores in ten international markets and £5.7m associated with the rationalisation of UK Head
Offi ces. Off setting these charges were impairment reversals of £7.4m following an updated view of the logistics strategy. These net charges
have been recognised within adjusted items (see Note 5).

16 OTHER FINANCIAL ASSETS

Non-current
Unlisted investments
Current
Short-term investments¹

2017
£m

3.0

14.5

2016
£m

3.0

19.1

1. Includes £5.3m (last year £3.6m) of money market deposit 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

2017
£m

15.1
219.0
234.1

111.0
(1.7)
109.3
28.5
180.8
318.6

2016
£m

12.9
221.8
234.7

116.5
(0.7)
115.8
50.4
154.9
321.1

Trade and other receivables that were past due but not impaired amounted to £20.8m (last year £19.6m) 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 £31.5m (last year £19.4m) 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 where there is a right to off set. The remaining amount is immaterial.

117
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

18 CASH AND CASH EQUIVALENTS

Cash and cash equivalents are £468.6m (last year £247.6m). The carrying amount of these assets approximates their fair value.

The eff ective interest rate on short-term bank deposits is 0.21% (last year 0.51%). These deposits have an average maturity of eight days
(last year 48 days).

19 TRADE AND OTHER PAYABLES

Current
Trade and other payables
Social security and other taxes
Accruals and deferred income

Non-current
Other payables , accruals and deferred income

20 BORROWINGS AND OTHER FINANCIAL LIABILITIES

Current
Bank loans and overdrafts1
Finance lease liabilities
6.250% US$500m medium-term notes 20173&4
Interest accrued on medium-term notes6
Revaluation of medium-term notes6

Non-current
Bank loans
6.250% US$500m medium-term notes 20173&4
6.125% £400m medium-term notes 20192&5
6.125% £300m medium-term notes 20212
3.00% £300m medium-term notes 20232
4.750% £400m medium-term notes 20252&5
7.125% US$300m medium-term notes 20373&4
Interest accrued on medium-term notes6
Revaluation of medium-term notes6
Finance lease liabilities

Total

2017
£m

967.5
55.0
531.3
1,553.8

2016
£m

1,021.9
49.8
546.0
1,617.7

328.5

353.0

2017
£m

70.3
0.4
328.1
46.4
72.8
518.0

–
–
400.2
297.8
296.3
397.1
191.9
–
80.1
48.3
1,711.7
2,229.7

2016
£m

297.1
0.4
–
–
–
297.5

0.2
327.9
399.3
297.3
–
396.8
191.8
42.2
71.0
48.2
1,774.7
2,072.2

1. Bank loans and overdrafts include a £5.0m (last year £5.0m) loan from the Hedge End Park Limited joint venture.
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.
4. US$500m and US$300m medium-term notes exposure swapped to sterling (ﬁ xed-to-ﬁ xed cross-currency interest rate swaps).
5. The Group occasionally enters into interest swaps to manage interest rate exposure. At year end, £425m (last year £425m) was swapped from ﬁ xed to ﬂ oating rate.
6. The prior year comparatives have been split to show the interest accrued on medium-term notes and revaluation of medium-term notes on individual line items to be in line with the

format of the current year note disclosure.

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 weighted average lease term for equipment is three years (last year four years)
and 95 years (last year 96 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.

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

118
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

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
liquidation of 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, counterparty, foreign currency and interest rate 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 the year end, the Group had a committed syndicated bank revolving credit facility of £1.1bn set to mature on 15 April 2022. During the
current ﬁ nancial year, the Group extended the facility by one year. This facility contains only one ﬁ nancial covenant, being the ratio of
earnings before interest, tax, depreciation, amortisation and rents payable, to interest plus rents payable. The covenant is measured semi-
annually. The Group also has a number of undrawn uncommitted facilities available to it. At the year end, these amounted to £150m (last
year £100m), all of which are due to be reviewed within a year. At the balance sheet date, a sterling equivalent of £nil (last year £205m) was
drawn under the committed facilities and £nil (last year £30m) 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 £1.4bn (last year £1.1bn) was in
issuance as at the balance sheet date. A new £300m bond, set to mature in 2023, was issued under the Euro Medium Term Note programme
during the ﬁ nancial year.

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:

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
(note 12)
£m

Total
borrowings
and other
ﬁ nancial
liabilities
£m

Derivative
assets1
£m

Derivative
liabilities1
£m

Total
derivative
assets and
liabilities
£m

(92.2)
–
–
–
(92.2)
–
(92.2)

(70.3)
–
–
–
(70.3)
–
(70.3)

(205.1)
–
–
–
(205.1)
–
(205.1)

–
–
–
–
–
–
–

(98.6)
(448.1)
(605.9)
(1,329.3)
(2,481.9)
755.6
(1,726.3)

(514.2)
(88.0)
(915.1)
(1,309.0)
(2,826.3)
715.6
(2,110.7)

(2.4)
(2.6)
(7.1)
(176.9)
(189.0)
140.4
(48.6)

(2.5)
(2.6)
(7.3)
(176.0)
(188.4)
139.7
(48.7)

(71.9)
(71.9)
(215.6)
(143.7)
(503.1)
47.4
(455.7)

(71.9)
(71.9)
(215.6)
(71.9)
(431.3)
34.8
(396.5)

(470.2)
(522.6)
(828.6)
(1,649.9)
(3,471.3)
943.4
(2,527.9)

(658.9)
(162.5)
(1,138.0)
(1,556.9)
(3,516.3)
890.1
(2,626.2)

117.5
399.3
61.4
465.6
1,043.8

543.6
26.7
63.9
519.5
1,153.7

(62.8)
(362.6)
(41.2)
(427.0)
(893.6)

(373.4)
(14.5)
(41.2)
(413.2)
(842.3)

54.7
36.7
20.2
38.6
150.2

170.2
12.2
22.7
106.3
311.4

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
At 2 April 2016
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
At 1 April 2017

1. Derivative cash ﬂ ows are disclosed based on actual settlement. All derivatives are settled net, except for currency swaps.

119
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Financial risk management continued
(a) Liquidity and funding risk continued

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

2017
£m

(0.4)
(1.6)
(46.7)
(48.7)

2016
£m

(0.4)
(1.6)
(46.6)
(48.6)

(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’s 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) ((BBB+/Baa1 for committed lending banks). In the event of a rating by one agency being diff erent to the other, reference will be made
to Fitch to determine the casting vote of the rating group. In the absence 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.

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 2 April 2016

Short-term investments1
Derivative assets2
At 1 April 2017

AAAm
£m

–
–
–

AAAm
£m

–
–
–

AAA
£m

–
–
–

AAA
£m

–
–
–

AA
£m

–
–
–

AA
£m

–
–
–

Credit rating of counterparty

AA-
£m

25.1
42.6
67.7

AA-
£m

17.4
62.8
80.2

A+
£m

60.6
33.3
93.9

A+
£m

149.3
84.1
233.4

A
£m

63.5
23.4
86.9

A
£m

185.0
19.0
204.0

A-
£m

–
–
–

A-
£m

–
–
–

BBB+
£m

–
18.2
18.2

BBB+
£m

–
41.0
41.0

Total
£m

149.2
117.5
266.7

Total
£m

351.7
206.9
558.6

1. Includes cash on deposit and money market funds held by Marks & Spencer Scottish Limited Partnership, Marks and Spencer plc and Marks and Spencer General Insurance. Excludes cash

at hand and in transit of £116.9m (last year £98.4m).

2. 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.

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 £111m (last year £114m), other receivables
£44m (last year £63m), cash and cash equivalents £469m (last year £248m) and derivatives £220m (last year £146m).

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

120
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Financial risk management continued
(c) Foreign currency risk
Transactional foreign currency exposures arise primarily from the import of goods sourced from overseas suppliers and also from the
export of goods from the UK to overseas subsidiaries. The most signiﬁ cant exposure is to the US dollar incurred in the sourcing of clothing
and home products from Asia.

Group Treasury hedges these exposures principally using forward foreign exchange contracts progressively based on dynamic forecasts
from the business. Hedging begins around 15 months ahead of the start of the season and is between 80% and 100% hedged nine months
before the start of the season.

Other exposures from the export of goods to overseas subsidiaries are also hedged progressively over the course of the year before
they are incurred. As at the balance sheet date, the gross notional value in sterling terms of forward foreign exchange sell or buy contracts
amounted to £2,023m (last year £1,640m) with a weighted average maturity date of six months (last year ﬁ ve months).

Gains and losses in equity on forward foreign exchange contracts designated in cash ﬂ ow hedge relationships as at 1 April 2017 will be
released to the income statement at various dates over the following 17 months (last year 15 months) from the balance sheet date.

The Group also holds a number of cross-currency swaps to 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 €26m (last year €nil) and HK$190m (last year HK$1,245m) 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 resulted in a £2.3m gain (last year £nil)
in the income statement. As at the balance sheet date, the gross notional value of intercompany loan hedges was £367m (last year £289m).

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, is set out below:

Currency
Sterling
Euro
Other

2017

Fixed rate
£m

Floating rate
£m

Total
£m

Fixed rate
£m

1,727.8
6.6
0.1
1,734.5

492.3
0.7
2.2
495.2

2,220.1
7.3
2.3
2,229.7

1,343.7
6.2
0.1
1,350.0

2016

Floating rate
£m

716.7
0.8
4.7
722.2

Total
£m

2,060.4
7.0
4.8
2,072.2

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 5.0% (last year 5.3%)
and the weighted average time for which the rate is ﬁ xed is six years (last year seven 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 £1,734.5m (last year £1,350.0m) representing the public bond issues and
ﬁ nance leases, amounting to 78% (last year 65%) 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

2017
%

0.3
5.0
4.3

2016
%

1.0
5.3
4.1

121
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Financial risk management continued
(d) Interest rate risk continued

Derivative ﬁ nancial instruments

Current
Cross-currency swaps
– cash ﬂ ow hedges
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
– fair value hedges
Interest rate swaps

2017

Assets
£m

Liabilities
£m

2016

Assets
£m

Liabilities
£m

72.6
89.1
0.7
0.7
163.1

14.0
1.3
41.5
56.8

–
(9.0)
(1.5)
–
(10.5)

–
(0.8)
–
(0.8)

–
69.7
1.6
0.8
72.1

27.3
5.4
41.3
74.0

–
(26.7)
(1.8)
–
(28.5)

–
(0.2)
–
(0.2)

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 £0.2m) as the
loss on the hedged items was £0.3m (last year £3.0m loss) and the gain on the hedging instruments was £nil (last year £2.8m gain). 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.

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 and
a 20% +/- (last year 20%) weakening in sterling against the relevant currency represents a reasonably 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 transactional foreign exchange cash
ﬂ ow hedges and the net investment hedges 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 2 April 2016
Impact on income statement: gain/(loss)
Impact on other comprehensive income: (loss)/gain
At 1 April 2017
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

9.2
(0.8)

7.8
(2.2)

(11.1)
1.0

(2.1)
0.3

–
136.0

–
246.4

–
(90.7)

–

(164.3)

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

122
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

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 balance sheet are
set out below. For trade and other receivables and trade and other payables, amounts not off set in the balance sheet but which could be
off set under certain circumstances are also set out.

At 2 April 2016
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 1 April 2017
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

31.6
146.1
39.3
217.0

(259.3)
(28.7)
(90.8)
(378.8)

(29.5)
–
(39.3)
(68.8)

29.5
–
39.3
68.8

2.1
146.1
–
148.2

(229.8)
(28.7)
(51.5)
(310.0)

–
(28.7)
–
(28.7)

–
28.7
–
28.7

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

25.1
219.9
42.4
287.4

(279.2)
(11.3)
(103.9)
(394.4)

(22.8)
–
(41.6)
(64.4)

22.8
–
41.6
–

2.3
219.9
0.8
223.0

(256.4)
(11.3)
(62.3)
(330.0)

–
(11.3)
–
(11.3)

–
11.3
–
11.3

Net
£m

2.1
117.4
–
119.5

(229.8)
–
(51.5)
(281.3)

Net
£m

2.3
208.6
0.8
211.7

(256.4)
–
(62.3)
(318.7)

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.

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.

123
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Fair Value Hierarchy continued
At the end of the reporting period, the Group held the following ﬁ nancial instruments at fair value:

Level 1
£m

2017

Level 2
£m

Level 3
£m

Total
£m

Level 1
£m

2016

Level 2
£m

Level 3
£m

Total
£m

Assets measured at fair value
Financial assets at fair value
through proﬁ t or loss
– trading derivatives
Derivatives used for hedging
Short- term investments

Liabilities measured at fair value
Financial liabilities at fair value
through proﬁ t or loss
– trading derivatives
Derivatives used for hedging

–
–
–

–
–

0.7
219.2
14.5

(1.5)
(9.8)

–
–
–

–
–

0.7
219.2
14.5

(1.5)
(9.8)

–
–
–

–
–

1.4
144.7
19.1

(1.8)
(26.9)

–
–
–

–
–

1.4
144.7
19.1

(1.8)
(26.9)

The Marks & Spencer DB Pension Schemes holds a number of ﬁ nancial instruments which make up the pension asset of £10,135.1m (last year
£8,515.3m). Level 1 and Level 2 ﬁ nancial assets measured at fair value through other comprehensive income amounted to £8,690.2m (last
year £7,296.2m). Additionally, the pension scheme assets include £1,444.9m (last year £1,219.1m) of Level 3 ﬁ nancial assets. See note 11 for
information on the Group's retirement beneﬁ ts.

There were no transfers between the levels of the fair value hierarchy. In addition to the above, the Group has £3.0m (last year £3.0m)
in unlisted equity securities measured at cost (see note 16).

The following table represents the changes in Level 3 instruments held by the Pension Schemes:

Opening balance
Fair value gain recognised in other comprehensive income
Additional investment/(derecognition)
Closing balance

2017
£m

1,219.1
100.6
125.2
1,444.9

2016
£m

1,093.6
70.3
55.2
1,219.1

In the prior year the Group purchased Lima (Bradford) S.à r.l. This resulted in the derecognition of the embedded derivative as the lease
contract was between subsidiaries of the Group. Gains recognised in the prior year income statement related to the valuation of the
embedded derivative in the lease contract up until the acquisition date. The fair value movement of the embedded derivative of £2.0m
loss and subsequent derecognition of the asset (£21.7m) was treated as an adjustment to reported proﬁ t in the prior year (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 (Level 1 equivalent) was £2,110.7m (last year £1,726.4m); the fair value of this debt
was £2,236.7m (last year £1,868.3m).

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 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 seven years (last year eight 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.

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

124
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

22 PROVISIONS

At 2 April 2016
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 1 April 2017
Analysed as:
Current
Non-current

Property
£m

Restructuring
£m

52.4
104.5
(19.4)
(9.4)
0.4
0.2
–
128.7

9.8
116.8
(5.8)
(20.9)
2.9
–
(1.2)
101.6

Other
£m

3.8
24.7
(1.1)
0.1
0.1
–
2.8
30.4

2017
£m

66.0
246.0
(26.3)
(30.2)
3.4
0.2
1.6
260.7

147.2
113.5

2016
£m

78.3
40.0
(31.5)
(21.6)
0.4
0.4
–
66.0

14.0
52.0

Property provisions relate to onerous lease contracts and dilapidations primarily arising as a result of the closure of stores in the UK, as part
of the UK store estate strategic programme, together with the centralisation of the London Head Offi ce functions into one central London
location. These provisions are expected to be utilised over the period to the end of each speciﬁ c lease.

Restructuring provisions primarily relate to the estimated costs associated with the International exit strategy which include lease exit costs.
These provisions are expected to be utilised within the next year.

Other provisions include £23.6m of transition payments due following completion of the consultation in respect of pay and premia.

Please see note 5 for further information on these provisions.

23 DEFERRED TAX

Deferred tax is provided under the balance sheet liability method using the tax rate at which the balances are expected to unwind of
19% and 17% (last year 20%, 19% and 18%) for UK diff erences and local tax rates for overseas diff erences. Details of the changes to the
UK corporation tax rate and the impact on the Group are described in note 7.

The movements in deferred tax assets and liabilities (after the off setting of balances within the same jurisdiction as permitted by
IAS 12 ‘Income Taxes’) during the year are shown below.

Deferred tax assets/(liabilities):

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

At 28 March 2015

(47.0)

(106.0)

(154.8)

Credited/(charged)
to income statement
Credited/(charged)
to equity/other
comprehensive income
Other balance
sheet movement

At 2 April 2016
At 3 April 2016

Credited/(charged)
to income statement
Credited/(charged)
to equity/other
comprehensive income
Other balance
sheet movement

At 1 April 2017

6.4

25.9

0.7

–

(6.2)
(46.8)
(46.8)

–

(51.4)

–
(80.1)
(80.1)

–
(205.5)
(205.5)

3.5

17.7

14.5

–

–
(43.3)

–

21.6

–
(62.4)

–
(169.4)

(3.1)

3.0

(1.8)

–
(1.9)
(1.9)

1.4

4.8

(1.6)
2.7

Total UK
deferred tax
£m

(310.9)

36.0

(53.2)

(6.2)
(334.3)
(334.3)

37.1

26.4

(1.6)
(272.4)

Overseas
deferred tax
£m

(3.2)

(2.5)

2.4

–
(3.3)
(3.3)

(0.7)

(5.2)

(0.2)
(9.4)

Total
£m

(314.1)

33.5

(50.8)

(6.2)
(337.6)
(337.6)

36.4

21.2

(1.8)
(281.8)

Other short-term temporary diff erences relate mainly to employee share options and ﬁ nancial instruments.

Other balance sheet movements, categorised as other short-term temporary diff erences, include £1.4m in relation to recognition of
a deferred tax liability on the acquisition of the remaining 50% stake in Lima (Bradford) S.à r.l.

The deferred tax liability on land and buildings temporary diff erences is reduced by the beneﬁ t of capital losses with a gross value of
£254.5m (last year £249.5m) and a tax value of £48.4m (last year £49.9m).

125
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

23 DEFERRED TAX CONTINUED

Due to uncertainty over their future use, no beneﬁ t has been recognised in respect of trading losses carried forward in overseas jurisdictions
with a gross value of £147.9m (last year £106.6m) and a tax value of £34.2m (last year £22.3m).

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 an anticipated distribution of these earnings under applicable tax legislation. Undistributed earnings with a gross value
of £38.2m (last year £30.6m) and a potential tax liability of £9.0m (last year £7.2m) have not been recognised on the basis that the distribution
can be controlled by the Group.

24 ORDINARY SHARE CAPITAL

Issued and fully paid ordinary shares of 25p each
At start of year
Shares issued on exercise of share options
Shares cancelled through share buy back
At end of year

2017

2016

£m

1,622,964,807
1,763,039
–
1,624,727,846

405.8 1,647,814,746
6,797,209
(31,647,148)
406.2 1,622,964,807

0.4
–

412.0
1.7
(7.9)
405.8

Issue of new shares
1,763,039 (last year 6,797,209) ordinary shares having a nominal value of £0.4m (last year £1.7m) were allotted during the year under the terms
of the Company's schemes which are described in note 13. The aggregate consideration received was £5.5m (last year £20.6m).

Share buy back
Last year 31,647,148 ordinary shares having a nominal value of £7.9m were bought back and subsequently cancelled during the year.
The aggregate consideration paid, including directly attributable costs was £150.7m. There was no buyback programme in the current year.

25 CONTINGENCIES AND COMMITMENTS

A. Capital commitments

Commitments in respect of properties in the course of construction
Software capital commitments

2017
£m

156.4
11.0
167.4

2016
£m

129.2
17.1
146.3

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 which are currently owned and operated by the warehouse operators on the Group’s behalf (at values
ranging from historical net book value to market value).

See note 12 for details on the Partnership arrangement with the Marks & Spencer UK DB 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.

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

2017
£m

2016
£m

342.0
1,115.9
964.1
421.9
285.3
166.8
1,069.5
4,365.5

311.3
1,108.4
1,099.4
542.8
351.9
225.8
970.3
4,609.9

The total non-cancellable future sub-lease payments to be received are £34.6m (last year £36.1m).

Of the total commitments under operating leases disclosed above, £70m are already provided for on the balance sheet with regards to
expected lease exit costs arising from the International strategic programme.

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

126
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

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
Depreciation, amortisation and asset impairments and write-off s before adjusted items
Share-based payments charge
Pension costs charged against operating proﬁ t
Adjusted proﬁ t items
Decrease/(increase) in inventories
(Increase)/decrease in receivables
(Decrease)/increase in payables
Adjusted items cash outﬂ ows
Adjusted items non-cash
Cash contributions to pension schemes
Cash generated from operations

2017
£m

115.7
60.7
113.0
(36.2)
253.2
589.5
10.6
100.3
437.4
53.9
(9.9)
(53.1)
(36.8)
(44.1)
(135.3)
1,165.7

Adjusted items cash outﬂ ows relate to the utilisation of the provisions for international store closures, strategic programme costs
associated with the UK store estate, UK organisation and UK logistics and legal settlements. Adjusted items non-cash relate to the
reduction in M&S Bank income for the impact of the ﬁ nancial product mis-selling provision.

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

At 3 April
2016
£m

(297.3)
245.7
(51.6)
247.6
196.0
19.1

(245.7)
(1,613.8)
(48.6)
(445.3)
(2,353.4)
(2,138.3)

Exchange and
other non-cash
movements
£m

Cash ﬂ ow
£m

237.2
(248.0)
(10.8)
215.4
204.6
(4.6)

248.0
(300.0)
2.0
57.9
7.9
207.9

(10.2)
10.2
–
5.6
5.6
–

(10.2)
2.4
(2.1)
–
(9.9)
(4.3)

2016
£m

404.4
84.4
116.4
(21.1)
584.1
576.8
16.0
102.0
200.8
(22.5)
3.3
32.4
(12.9)
(50.3)
(118.4)
1,311.3

At 1 April
2017
£m

(70.3)
7.9
(62.4)
468.6
406.2
14.5

(7.9)
(1,911.4)
(48.7)
(387.4)
(2,355.4)
(1,934.7)

127
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE FINANCIAL STATEMENTS CONTINUED

27 ANALYSIS OF NET DEBT CONTINUED

B. Reconciliation of net debt to statement of ﬁ nancial position

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

2017
£m

2016
£m

468.6
14.5
(70.3)
(1,957.8)
(48.7)
(396.5)
(1,990.2)

55.5
(1,934.7)

247.6
19.1
(297.3)
(1,656.1)
(48.6)
(455.7)
(2,191.0)

52.7
(2,138.3)

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. Marks & Spencer UK Pension Scheme
Details of other transactions and balances held with the Marks & Spencer UK Pension Scheme are set out in notes 11 and 12.

D. Key management compensation

The Group has determined that the key management personnel constitute the Board for the whole year and the members of the
Operating Committee with eff ect from November 2016, when the terms of reference of the Operating Committee were ratiﬁ ed.
For the whole of the prior year the Group had determined that only members of the Board were key management personnel.

Salaries and short-term beneﬁ ts
Share-based payments
Total

2017
£m

8.1
–
8.1

2016
£m

7.5
0.3
7.8

E. Other related party transactions
There were no related party transactions during the year to 1 April 2017. Last year, supplier transactions occurred between the Group and a
company controlled by Martha Lane Fox’s partner. Martha was a non-executive director of the Group, retiring from the Board on 2 April 2016.
These transactions amounted to £2.6m during the year with an outstanding trade payable of £0.2m at 2 April 2016.

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

128
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

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

Notes

As at
1 April 2017
£m

As at
2 April 2016
£m

9,249.3
9,249.3

9,235.8
9,235.8

2,552.2
2,552.2
6,697.1

406.2
416.4
2,210.5
1,397.3
2,266.7
6,697.1

2,559.2
2,559.2
6,676.6

405.8
411.3
2,210.5
1,397.3
2,251.7
6,676.6

The Company's proﬁ t for the year was £379.0m (last year £302.1m)

The Company ﬁ nancial statements were approved by the Board and authorised for issue on 23 May 2017. The ﬁ nancial statements also
comprise the notes on pages 129 to 131.

Steve Rowe Chief Executive Offi cer Helen Weir Chief Finance Offi cer

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

At 29 March 2015
Proﬁ t for the year
Dividends
Capital contribution for share-based payments
Shares purchased in buy-back
Shares issued on exercise of employee share options
At 2 April 2016
At 3 April 2016
Proﬁ t for the year
Dividends
Capital contribution for share-based payments
Shares issued on exercise of employee share options
At 1 April 2017

Ordinary
share capital
£m

Share premium
account
£m

Capital redemption
reserve
£m

412.0
–
–
–
(7.9)
1.7
405.8
405.8
–
–
–
0.4
406.2

392.4
–
–
–
–
18.9
411.3
411.3
–
–
–
5.1
416.4

2,202.6
–
–
–
7.9
–
2,210.5
2,210.5
–
–
–
–
2,210.5

Merger
reserve
£m

1,397.3
–
–
–
–
–
1,397.3
1,397.3
–
–
–
–
1,397.3

Retained
earnings
£m

2,392.6
302.1
(301.7)
9.4
(150.7)
–
2,251.7
2,251.7
379.0
(377.5)
13.5
–
2,266.7

Total
£m

6,796.9
302.1
(301.7)
9.4
(150.7)
20.6
6,676.6
6,676.6
379.0
(377.5)
13.5
5.5
6,697.1

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
Shares purchased in buy-back
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
1 April 2017
£m

53 weeks ended
2 April 2016
£m

379.0
379.0

5.5
–
(7.0)
(377.5)
(379.0)
–
–

302.1
302.1

20.6
(150.7)
129.7
(301.7)
(302.1)
–
–

129
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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 £936,000 (last year £956,000). 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
Special dividend
Paid interim dividend

2017
per share

2016
per share

11.9p
4.6p
6.8p
23.3p

11.6p
–
6.8p
18.4p

2017
£m

192.7
74.5
110.3
377.5

2016
£m

190.8
–
110.9
301.7

The directors have proposed a ﬁ nal dividend in respect of the year ended 1 April 2017 of 11.9p per share (last year 11.9p), amounting to a
dividend of £193.3m (last year £192.7m). This payment is subject to approval of shareholders at the Annual General Meeting, to be held on
11 July 2017.

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 1 June 2017. For those shareholders electing to receive the DRIP the last date for receipt of a new election
is 23 June 2017.

C5 RELATED PARTY TRANSACTIONS

During the year, the Company has received dividends from Marks and Spencer plc of £379.0m (last year £302.1m) and decreased its loan
from Marks and Spencer plc by £7.0m (last year increased by £129.7m). The outstanding balance was £2,552.2m (last year £2,559.2m) and
is non-interest bearing. There were no other related party transactions.

C6 INVESTMENTS

A. Investments in subsidiary undertakings

Beginning of the year
Additional investment in subsidiary undertakings relating to share-based payments
End of the year

2017
£m

9,235.8
13.5
9,249.3

2016
£m

9,226.4
9.4
9,235.8

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.

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

130
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

C6 INVESTMENTS CONTINUED

B Related undertakings
In accordance with Section 409 of the Companies Act 2006, a full list of related undertakings, the country of incorporation and the eff ective
percentage of equity owned, as at 1 April 2017 is disclosed below.

Subsidiary undertakings registered in the UK(i)

Name

Amethyst Leasing (Holdings) Limited

Hedge End Park Limited
Registered Offi ce: 33 Holborn, London, EC1N 2HT

M&S Limited

Manford (Textiles) Limited

Marks & Spencer Company Archive CIC

Marks & Spencer Outlet Limited

Marks & Spencer Simply Foods Limited

Marks and Sparks Limited

Marks and Spencer (Northern Ireland) Limited
Registered Offi ce: 8 Laganbank Road, Belfast, BT1 3LR

Share Class

£1 Ordinary

Marks and Spencer (Property Investments) Limited

£1 Ordinary

Marks and Spencer Chester Limited

Marks and Spencer France Limited

£1 Ordinary

Marks and Spencer Guernsey Investments LLP

£1 Ordinary

Marks and Spencer International Holdings Limited

£1 Ordinary

Proportion
of shares
held by the
Company
(%)

Proportion
of shares
held by
subsidiary
(%)

100

Name

Marks and Spencer Pension Trust
Investments Limited

Share Class

£1 Ordinary

Marks and Spencer Pension Trust Limited(ii)

£1 A Ordinary

Marks and Spencer plc

£1 B Ordinary

£1 C Ordinary

£0.25 Ordinary

Marks and Spencer Property Developments Limited £1 Ordinary

Marks and Spencer Scottish Limited Partnership(iii)
Registered Offi ce: 2-28 St Nicholas Street,
Aberdeen, AB10 1BU

Partnership interest

Marks and Spencer Shared Services Limited

£1 Ordinary

Minterton Services Limited

Marks and Spencer (Bradford) Limited

Ruby Properties (Enﬁ eld) Limited

St. Michael (Textiles) Limited

St. Michael Finance plc

£1 Ordinary

Proportion
of shares
held by the
Company
(%)

Proportion
of shares
held by
subsidiary
(%)

100

UK registered 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 1 April 2017. Unless otherwise stated, the undertakings listed below are registered at Waterside House, 35 North Wharf Road, London,
W2 1NW, United Kingdom, and all have a single class of ordinary share with a nominal value of £1.

Proportion of
shares held by the
Company (%)

Proportion
of shares
held by
subsidiary
(%)

Company
Number

Name

Proportion of
shares held by the
Company (%)

Proportion
of shares
held by
subsidiary
(%)

Company
Number

Name

Amethyst Leasing (Properties) Limited

Busyexport Limited

Marks and Spencer (Initial LP) Limited
Registered Offi ce: No. 2 Lochrin Square,
96 Fountainbridge, Edinburgh, Midlothian, EH3 9QA

100

Marks and Spencer (Property Ventures) Limited

Marks and Spencer 2005 (Brooklands Store) Limited 0

Marks and Spencer 2005
(Chester Satellite Store) Limited

Marks and Spencer 2005 (Chester 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 0

Marks and Spencer 2005
(Kingston-on-Thames Satellite Store) Limited

Marks and Spencer 2005
(Kingston-on-Thames Store) Limited

100

04246934

04411320

SC315365

Marks and Spencer 2005
(Parman House Kingston Store) Limited

Marks and Spencer 2005 (Pudsey Store) Limited

Marks and Spencer 2005
(Warrington Gemini Store) Limited

100

05502513

Marks and Spencer Hungary Limited

05502608

Marks and Spencer Investments

05502519

Marks and Spencer Property Holdings Limited

05502542

05502598

Ruby Properties (Cumbernauld) Limited

Ruby Properties (Hardwick) Limited

Ruby Properties (Long Eaton) Limited

100

05502546

Ruby Properties (Thorncliff e) Limited

Ruby Properties (Tunbridge) Limited

Simply Food (Property Investments)

Simply Food (Property Ventures) Limited

100

05502538

05502478

05502523

100

05502520

100

05502588

100

05502544

05502502

08540784

04903061

02100781

04922798

04716018

04716031

04716110

04716032

05502543

02239799

The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date of £6.3m in accordance with section 479C of the Companies Act 2006.
The Company has assessed the probability of loss under the guarantee as remote.

(i) All companies registered at Waterside House, 35 North Wharf Road, London, W2 1NW, United Kingdom, unless otherwise stated.
(ii) In accordance with the articles of association of Marks and Spencer Pension Trust Limited, the holders of B and C Ordinary shares are both directors of that company.
(iii) Marks and Spencer (Initial LP) Limited and Marks and Spencer Pension Trust Limited are the limited partners; Marks and Spencer plc is the General Partner.

131
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

Proportion
of shares
held by
subsidiary
(%)

100

CAD 1 Common

CAD NPV

CAD 1 Pref

CAD 1 Common

CAD 1
Preference Class
A

CAD 1 Common

Registered
Capital

C6 INVESTMENTS CONTINUED

B Related undertakings continued
International subsidiary undertakings(i)

Name

Registered Address

Country

Share Class

Marks and Spencer
(Australia) Pty Limited

Aurora Place, 88 Phillip Street,
Sydney, NSW 2000, Australia

Australia

AUD 2 Ordinary

Marks and Spencer
GmbH in Liqu.
(in liquidation)

Sterngasse 13, Vienna, Austria Austria

€35,000 Ordinary

Marks and Spencer
(Belgium) SPRL

4th Floor, 97 Rue Royale,
1000 Brussels, Belgium

Belgium

€1.21 Ordinary

Marks & Spencer
Canada Incorporated

40 Wellington Row, Saint John
NB E2L 4S3, Canada

Canada

Marks & Spencer
Holdings Canada
Incorporated

40 Wellington Row, Saint John
NB E2L 4S3, Canada

Canada

Marks & Spencer Inc.

40 Wellington Row, Saint John
NB E2L 4S3, Canada

Canada

Unit 03-04, 6/F, ECO City 1788,
1788 West Nan Jing Road,
Shanghai, China

China

863 Nanjing Road West,
Jin An District, Shanghai, China

China

Marks and Spencer
(Shanghai) Limited

Marks and Spencer
Commercial
(Shanghai) Ltd

Marks and Spencer
Croatia d.o.o.
(in liquidation)

Draškovic´eva ul. 82, 10000,
Zagreb, Croatia

Croatia

HRK Ordinary

100

Marks and Spencer
Czech Republic a.s

Praha 4, Michle, Vyskocilova
1481/4, Czech Republic

Czech Republic

Marks and Spencer
Services S.R.O

Vyskocilova 1481/4, 14000
Praha 4, Michle, Czech Republic

Czech Republic

Oü MSF Estonia

Andis SARL

Marks & Spencer
Marinopoulos
Greece SA

Ignazia Limited

Paldiski mnt 102, Tallinn,
13522, Estonia

Estonia

48 Rue de la Chaussée-d'Antin,
75009 Paris, France

France

33-35 Ermou Street, Athens ,
Greece

Greece

CZK 1,000
Ordinary

CZK 100,000
Ordinary

CZK 1,000,000
Ordinary

Registered
Capital

Registered
capital

€1,060 Ordinary

€3 Ordinary

100

Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4JH, Guernsey

Guernsey

£1 Ordinary

99.99

Guernsey

£1 Ordinary

100

Guernsey

£1 Ordinary

99.99

Marks and Spencer
(Alderney) Limited

Linwood, Alles es Fees,
Alderney

Teranis Limited

Marks and Spencer
(Asia Paciﬁ c) Limited

Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4HY, Guernsey

Suite 1009, 10/F, Tower 6,
The Gateway, 9 Canton Road,
Kowloon, Hong Kong,

Marks and Spencer
(Hong Kong)
Investments Limited

Suite 1009, 10/F, Tower 6,
The Gateway, 9 Canton Road,
Kowloon, Hong Kong

Marks and Spencer
(Hungary) Kft

Fehérvári út 50-52, 1117
Budapest, Hungary

Hungary

Marks and Spencer
(India) pvt Limited

Marks and Spencer
Reliance India Pvt Ltd

Tower C, RMZ Millenia, 4th Floor,
Lake Wing, #1 Murphy Road,
Bangalore, 560008, India

India

4th Floor, Court House,
Lokmanya Tilak Marg, Dhobi
Talao, Mumbai, 400 002, India

India

Supreme Tradelinks
Private Limited

First Floor, Anand Bhawan,
Sansar Chandra Road, Jaipur,
302 001, India

India

HUF280,500,000
Quota

INR10 Ordinary

INR 10 Class A

INR 10 Class B

INR 10 Class C(ii)

INR 10 Ordinary

Aprell Limited

24-29 Mary Street,
Dublin 1, Ireland

Marks and Spencer
(Ireland) Limited

24-27 Mary Street,
Dublin 1, Ireland

Ireland

€1.25 Ordinary

Ireland

€1.25 Ordinary

Marks and Spencer
Pension Trust
(Ireland) Limited(iii)

24-27 Mary Street,
Dublin 1, Ireland

Ireland

Limited by
guarantee

100

Name

Registered Address

Country

Marks and Spencer
(Israel) Limited

31 Ahad Haam Street,
TEL AVIV 65202, Israel

Per Una Italia SRL
(in liquidation)

via Giotto 25 - 59100
Prato, Italy

Marks and Spencer
(Jersey) Limited

7-11 Britannia Place,
Bath Street, St Helier

MSF Latvia SIA
(in liquidation)

Ieriku iela 3, Riga,
LV-1084, Latvia

Israel

Italy

Jersey

Latvia

Share Class

NIS Ordinary

€ Quota

£1 Ordinary

€142 Ordinary

UAB MSF Lithuania

Gedimino pr. 20, Vilnius,
Lithuania

Lithuania

€28.96 Ordinary

Montenegro

€ Ordinary

Marks and Spencer
Montenegro DOO
Podgorica
(under liquidation)

C/O Eurofast Global Limited,
112 Bul Svetog Petra
Cetinjskog, 8100 Podgorica,
Montenegro

M & S Mode
International B.V.

Prins Bernhardplein 200,
1097JB Amsterdam,
Netherlands

Netherlands

€100 Ordinary

100

Proportion
of shares
held by
subsidiary
(%)

100

Marks and Spencer
(Nederland) B.V.

Prins Bernhardplein 200, 1097
JB , Amsterdam, Netherlands

Netherlands

€450 Ordinary

Marks and Spencer BV Prins Bernhardplein, 1097 JB,

Netherlands

€100 Ordinary

Amsterdam, Netherlands

Marks and Spencer
Nederland (Retail) B.V.

Muntplein 10C, 1012 WR
Amsterdam, Netherlands

Netherlands

€100.00 Ordinary

Marks and Spencer
Stores B.V.

Prins Bernhardplein 200, 1097
JB, Amsterdam, Netherlands

Netherlands

€450 Ordinary

Marks and Spencer
Poland Sp z o.o.

Ul. Marszałkowska 104/122,
00-017 Warszawa, Poland

Poland

PLN 50.00
Ordinary

Marks & Spencer
(Portugal) Lda.

Avenida da Liberdade 249,
1250-143, Lisbon, Portugal

Portugal

€1 Ordinary

Marks and Spencer
Romania SA

No. 262 Timisoara Boulevard,
Anchor Plaza, 3rd Floor
premises 3B-1, 6th District,
Bucharest, Romania

Romania

RON 18.30
Ordinary

100

Marks and Spencer Doo
Beograd (in liquidation)

Patrisa Lumumbe no. 70,
11000 Belgrade

Serbia

RSD Quotas

100

Marks and Spencer
(Singapore) Investments
Pte. Ltd.

77 Robinson Road #13-00
Robinson 77 Singapore 068896
Singapore

Singapore

No Par Value
Ordinary

MSF Slovakia S.R.O

Ivanská cesta 16 , Bratislava, 821
04 , Slovakia

Slovakia

Registered
capital

Marks and Spencer
(SA) (Pty) Limited

Woolworths House, 93
Longmarket Street, Cape Town
8001, South Africa

South Africa

ZAR 2 Ordinary

M&S (Spain) S.L.

Marks and Spencer
(Thailand) Limited

Calle Fuencarral No. 119,
28010, Madrid, Spain

1011 Supalai Grand Tower,
24th Floor, Rama 3 Road,
Kwaeng Chongnonsi, Khet
Yannawa, Bangkok
10120, Thailand

Spain

€1 Ordinary

Thailand

THB 100.00
Ordinary

100

Marks & Spencer
Services Inc.

Marks & Spencer
Ventures Finance LLC

2711 Centerville Road, Suite
400, Wilmington DE 19808,
United States

United States

USD 1 Common

100

United States

USD 1 Common

100

Hong Kong

HKD 1 Ordinary

100

Hong Kong

HKD1 Ordinary

100

Marks and Spencer
Clothing Textile
Trading L.L.C

Havalani Karsisi istanbul
Dunya Ticaret Merkezi, A3 Blok,
Kat:11 Yesilkoy, Bakirkoy,
Istanbul, Turkey

Turkey

TRL 25.00
Ordinary

NOTE: A number of the companies listed are legacy companies which no longer serve any operational purpose.

(i) The shares of all international subsidiary undertakings are held by companies within the Group other than the Company (Marks and Spencer Group plc).
(ii) INR 10 Class C shares 100% owned by JV partner.
(iii) No share capital as the company is limited by guarantee.

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

132
MARKS AND SPENCER GROUP PLC

GROUP FINANCIAL RECORD

Income statement
Revenue¹
UK
International

Operating proﬁ t/(loss)¹
UK
International
Total operating proﬁ t
Net interest payable
Pension ﬁ nance income
Proﬁ t on ordinary activities before taxation

Analysed between:
Proﬁ t before tax and adjusted items
Adjustments to reported proﬁ t
Income tax expense
Proﬁ t after taxation

Basic earnings per share¹

Adjusted basic earnings
per share¹

Dividend per share declared
in respect of the year3
Dividend cover

Retail ﬁ xed charge cover

Proﬁ t after tax/
Weighted average
ordinary shares in issue
Adjusted proﬁ t after tax/
Weighted average ordinary
shares in issue

Adjusted basic earnings per
share/Dividend per share
Operating proﬁ t before
depreciation and operating
lease charges/Fixed charges

Statement of ﬁ nancial position
Net assets (£m)
Net debt² (£m)
Capital expenditure (£m)
Stores and space
UK stores
UK selling space (m sq ft)
International stores
International selling space (m sq ft)
Staffi ng (full-time equivalent)
UK
International

1. Based on continuing operations.
2. Excludes accrued interest.
3. Excludes special dividend.

2017
52 weeks
£m

2016
53 weeks
£m

2015
52 weeks
£m

2014
52 weeks
£m

2013
52 weeks
£m

9,441.7
1,180.3
10,622.0

9,470.8
1,084.6
10,555.4

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

327.6
(74.4)
253.2
(106.1)
29.3
176.4

613.8
(437.4)
(60.7)
115.7

627.3
(43.2)
584.1
(110.6)
15.3
488.8

689.6
(200.8)
(84.4)
404.4

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

2017
52 weeks

2016
53 weeks

2015
52 weeks

2014
52 weeks

2013
52 weeks

7.2p

24.9p

29.7p

32.5p

28.3p

30.4p

18.7p

1.6x

35.0p

18.7p

1.9x

33.1p

18.0p

1.8x

32.2p

17.0p

1.9x

31.9p

17.0p

1.9x

3.4x

3.7x

3.6x

3.4x

3.5x

3,150.4
1,934.7
331.2

979

454
5.9

3,443.4
2,138.3
525.1

914
17.0
468
6.1

3,198.8
2,223.2
526.6

852
16.8
480
6.0

2,706.7
2,463.6
710.0

798
16.6
455
5.8

2,519.5
2,614.3
821.3

766
16.4
418
5.4

53,562
6,202

52,388
6,507

52,247
6,849

54,678
6,498

51,835
5,683

133
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

APM

Closest equivalent
statutory measure

Reconciling
items to statutory
measure

Deﬁ nition and purpose

GLOSSARY

Income Statement Measures
Like-for-like
revenue growth

Movement in
revenue per the
Income Statement

Sales from non like-
for-like stores

M&S.com revenue/
Online revenue

None

Not applicable

Revenue growth at
constant currency

None

Not applicable

Gross margin

Gross proﬁ t
margin1

Certain
downstream
logistics costs
(see Note 2)

Adjusted items

None

Not applicable

EBIT before
adjusted items

EBIT2

Adjusted items
(See Note 5)

Proﬁ t before tax Adjusted items (see

Note 5)

The period on period change in revenue (excluding VAT) from stores which
have been trading and where there has been no signiﬁ cant change in footage
for at least 52 weeks and online sales. The measure is used widely in the retail
industry as an indicator of sales performance. It excludes the impact of new
stores, closed stores or stores with signiﬁ cant footage change.

UK Revenue
Like-for-like
Net space change
Total
Week 53
Statutory

FY 16/17
£m

FY 15/16
£m

9,039.2
402.5

9,213.0
111.7
9,441.7 9,324.7
146.1
9,441.7 9,470.8

–

-1.9%

1.3%

-0.3%

Total revenue through the Group’s online platforms. These revenues
are reported within the relevant UK and International segment results.
The growth in revenues on a year-on-year basis is a good indicator of the
performance of the online channel and is a measure used within the Group’s
incentive plans. Refer to the Remuneration Report for explanation of why
this measure is used within incentive plans.
The period on period change in revenue retranslating the previous year
revenue at the average actual periodic exchange rates used in the current
ﬁ nancial year. This measure is presented as a means of eliminating the eff ects
of exchange rate ﬂ uctuations on the period-on-period reported results.

International Revenue
At reported currency
Impact of FX translation
At constant currency

FY 16/17
£m

FY 15/16
£m

1,180.3 1,066.3
115.2
1,181.5

–
1,180.3

10.7%

-0.1%

Where referred to throughout the Annual Report, gross margin is calculated
as gross proﬁ t before adjusted items on a management basis divided by
revenue. The gross proﬁ t used in this calculation is based on an internal
measure of margin rather than the statutory margin, which excludes certain
downstream logistics costs. This is a key internal management metric for
assessing category performance.
Those items which the Group excludes from its adjusted proﬁ t metrics in
order to present a further measure of the Group’s performance. Each of
these items (costs or incomes) is considered to be signiﬁ cant in nature
and/or value. Excluding these items from proﬁ t metrics provides readers
with helpful additional information on the performance of the business
across periods because it is consistent with how the business performance
is reported to the Board and the Operating Committee.
Calculated as proﬁ t before the impact of adjusted items, net ﬁ nance costs
and tax. This measure is used in calculating the Return on Capital Employed
for the Group.
Proﬁ t before the impact of adjusted items and tax. The Group considers this
to be an important measure of Group performance and is consistent with
how the business performance is reported to and assessed by the Board
and the Operating Committee.

Earnings per share Adjusted items (see

Note 5)

This is a measure used within the Group’s incentive plans. Refer to the
Remuneration Report for explanation of why this measure is used within
incentive plans.
Proﬁ t after tax attributable to owners of the parent and before the impact of
adjusted items, divided by the weighted average number of ordinary shares
in issue during the ﬁ nancial year.

This is a measure used within the Group’s incentive plans. Refer to the
Remuneration Report for explanation of why this measure is used within
incentive plans.

Proﬁ t before tax
and adjusted items

Adjusted earnings
per share

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

134
MARKS AND SPENCER GROUP PLC

GLOSSARY CONTINUED

APM

Closest equivalent
statutory measure

Reconciling
items to statutory
measure

Deﬁ nition and purpose

Income Statement Measures continued
Diluted earnings
Adjusted diluted
per share
earnings per share

Adjusted items
(See Note 5)

Eff ective tax rate
before adjusted items

Eff ective tax rate Adjusted items and

52-week
period ended
26 March 2016

53-week
period ended
2 April 2016

Balance Sheet Measures
Net debt

None

their tax impact
(See Note 5)

Results for the
53rd week in
the statutory
reporting
period ended
2 April 2016

Proﬁ t after tax attributable to owners of the parent and before the impact of
adjusted items, divided by the weighted average number of ordinary shares
in issue during the ﬁ nancial year adjusted for the eff ects of any potentially
dilutive options.
Total income tax charge for the Group excluding the tax impact of adjusted
items divided by the proﬁ t before tax and adjusted items.

This measure is an indicator of the ongoing tax rate for the Group.
Every 6 years an additional week is included within the statutory period to
ensure that the year end date stays in line with the end of March. The prior
year statutory ﬁ nancial measures were based on such a 53 week reporting
period.

In order to provide a meaningful comparison with this year’s 52 week period,
all ﬁ nancial movements in commentary relative to the prior year are provided
on a 52 week basis and exclude the 53rd week, unless otherwise noted. The
Group considers that presentation of comparatives on this basis enables
stakeholders to more appropriately compare the performance of the
business year on year.

The 52 week period for the prior year has been used for management
incentive purposes.

Reconciliation
of net debt
(see note 27)

Net debt comprises total borrowings (bank, bonds and ﬁ nance lease
liabilities net of accrued interest), net derivative ﬁ nancial instruments that
hedge the borrowings and the Scottish Limited Partnership liability to
the UK pension scheme less cash, cash equivalents and unlisted and
short-term investments.

This measure is a good indication of the strength of the Group’s balance
sheet position and is widely used by credit rating agencies.

Capital employed

Net assets

Refer to deﬁ nition The net total of assets and liabilities as reported in the annual ﬁ nancial

Cash Flow Measures
Free cash ﬂ ow

Free cash ﬂ ow
pre-shareholder
returns

Net cash inﬂ ow
from operating
activities

statement excluding assets and liabilities in relation to investment property,
net retirement beneﬁ t position, derivatives, current and deferred tax
liabilities, Scottish Limited Partnership liability, non-current borrowings
and provisions in respect of adjusted items.

This measure is used in the calculation of Return on Capital Employed.

See Financial
Review

The cash generated from the Group’s operating activities less capital
expenditure and interest paid.

See Financial
Review

This measure shows the cash retained by the Group in the year.
Calculated as the cash generated from the Group’s operating activities less
capital expenditure and interest paid excluding returns to shareholders
(dividends and share buyback).

This measure shows the cash generated by the Group during the year that
is available for returning to shareholders and is used within the Group’s
incentive plans.

Other Measures
Capital expenditure None

Refer to deﬁ nition Calculated as the purchase of property, plant and equipment, investment

Return on Capital
Employed

None

Not applicable

property and intangible assets during the year less proceeds of asset
disposals excluding any assets acquired as part of a business combination.
Calculated as EBIT before adjusted items divided by the average of opening
and closing capital employed.

This measure is used within the Group’s incentive plans. Refer to the
Remuneration Report for explanation of why this measure is used within
incentive plans.

1. Gross proﬁ t margin is not deﬁ ned within IFRS but is a widely accepted proﬁ t measure being derived from revenue less cost of sales divided by revenue.
2. EBIT is not deﬁ ned within IFRS but is a widely accepted proﬁ t measure being earnings before interest and tax.

135
ANNUAL REPORT AND FINANCIAL STATEMENTS 2017

SHAREHOLDER
INFORMATION

ANALYSIS OF SHARE REGISTER

Ordinary shares
As at 1 April 2017, the Company had 166,083 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 actual number of shares held
privately is estimated to be around 30% higher than 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

Number of
holdings

87,113
31,960
24,254
16,132
4,119
1,941
407
157
166,083

Balance as at
1 April 2017

16,514,336
52.45
23,920,896
19.24
34,835,196
14.60
49,329,942
9.71
28,449,793
2.48
45,369,711
1.17
0.25
141,605,826
0.10 1,284,702,146
100.00 1,624,727,846

1.02
1.47
2.14
3.04
1.75
2.79
8.72
79.07
100.00

Number of
shareholders

161,053
5,030
166,083

Percentage
of total
shareholders

Number of
ordinary
shares

Percentage
of issued
share capital

96.97

185,490,855
3.03 1,439,236,991
100.00 1,624,727,846

11.42
88.58
100.00

2017/18 FINANCIAL CALENDAR AND KEY DATES
1 June 2017
2 June 2017
11 July 2017
11 July 2017
14 July 2017
8 November 2017*
16 November 2017*
17 November 2017*
January 2018*
12 January 2018*

Ex-dividend date – Final dividend
Record date to be eligible for the ﬁ nal dividend
Results – Quarter 1 Trading update†
Annual General Meeting (11am)
Final dividend payment date for the year to 1 April 2017
Results – Half Year†
Ex-dividend date – Interim dividend
Record date to be eligible for the interim dividend
Results – Quarter 3 Trading update†
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.

For more information about the services
off ered by Shareview and to register,
please visit shareview.co.uk.

DIVIDENDS

Dividends are paid in January and July each
year, subject to the relevant Board and
shareholder approvals. These can be paid
quickly and securely directly into your bank
account. You may also choose to have your
dividends invested in further M&S shares
through our dividend reinvestment plan
(DRIP) (terms and conditions apply). To
arrange either of these options, simply call
Equiniti on the numbers provided on the
following page. Alternatively, you can
manage your dividend payment choices
by registering with shareview.co.uk.

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

136
MARKS AND SPENCER GROUP PLC
DIRECTORS' REPORT

SHAREHOLDER INFORMATION CONTINUED

ANNUAL GENERAL MEETING 2017

CHANGING YOUR ADDRESS

SHAREHOLDER QUERIES

This year’s AGM will be held at Wembley
Stadium, Wembley, London HA9 0WS
on Tuesday 11 July 2017. The meeting will
start at 11am and registration will be open
from 9.30am.

DUPLICATE DOCUMENTS

Many 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 its shares. Through the
website you can also register to receive
news alerts by email; simply click on 'alerts'
in the top right corner and enter your details.

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.

You should inform Equiniti of your new
address as soon as possible to avoid missing
important correspondence relating to your
shareholding. If you hold 2,500 shares or
fewer and reside in the UK, this can be done
quickly over the telephone. Holdings of
more than 2,500 shares will require a written
instruction quoting your full name, 11-digit
shareholder reference number (if known)
and both your previous and new addresses.

SHAREGIFT

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 (CGT),
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 that the
base cost for CGT purposes was 372.35p
(81.43%) for an ordinary share and 68.75p
(18.75%) for a B share.

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 below. For more general
queries, shareholders should consult the
‘Investors’ section of our corporate website.

AMERICAN DEPOSITARY
RECEIPTS (ADRS)

The Company has a sponsored Level 1
ADR programme with Deutsche Bank.
This enables US investors to purchase
Marks & Spencer American Depositary
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@astﬁ nancial.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

M&S Registered Offi ce
Waterside House
35 North Wharf Road
London W2 1NW
United Kingdom
Telephone: +44 (0)20 7935 4422
Registered in England and Wales
(no. 4256886)

General queries
Customer queries: 0345 302 1234
Alternatively, email us at
chairman@marks-and-spencer.com.

USEFUL CONTACTS

Registrar/Shareholder queries
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
United Kingdom
Telephone: 0345 609 0810
If calling from outside the UK:
+44 (0) 121 415 7071
Online: help.shareview.co.uk (from here,
you will be able to email Equiniti securely
with your enquiry).

Students
Please note, students are advised to
source information from our website.

SHAREHOLDER SECURITY

Additional documents
An interactive version of our 2016/17
Annual Report is available online at
marksandspencer.com/
annualreport2017.

Additionally, both the Annual Report
and Strategic Report are available
for download in pdf format at
marksandspencer.com/thecompany.
Alternatively, call 0800 591 697.

Group Secretary and Head
of Corporate Governance
Amanda Mellor

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 ﬁrms 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 the shareholder information
pages of our corporate website. We also
encourage shareholders to read the
FCA’s guidance on how to avoid scams
at fca.org.uk/consumers/scams.
An overview of current common
scams can be found on the Action
Fraud website actionfraud.police.uk.

Page

INDEX

Accounting policies
Adjusted items
Appointment and retirement
of directors
Audit Committee Report
Auditor
Auditor’s remuneration
Auditor’s report
Annual General Meeting

Board
Borrowing facilities
Business model

Capital commitments
Capital expenditure
Conﬂ icts of interest
Corporate governance
Cost of sales
Critical accounting judgements

96
103

79
48
51
102
84
83

36
117
12

125
29
79
34
102
100

80
124
98, 100, 115
99
92
79
73
83

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

FINANCIAL STATEMENTS

Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of
ﬁ nancial position
Consolidated statement of
changes in equity
Consolidated cash ﬂ ow statement

Note
1 Accounting policies
2 Segmental information
3 Expense analysis
4 Proﬁ t before taxation
5 Adjusted items
6 Finance income/costs
7
Income tax expense

57, 66
83
132
107

94
95

96
101
102
102
103
104
105

Earnings per share
Employees
Employee involvement
Employees with disabilities
Equal opportunities

Finance costs/income
Finance leases
Financial assets
Financial instruments
Financial liabilities
Financial review
Fixed charge cover

Glossary of alternative
performance measures
Going concern
Goodwill
Groceries Supply Code of Practice

Hedging reserve

Income statement
Intangible assets
Interests in voting rights
International Financial Reporting
Standards
Inventories
Investment property

Key performance indicators

Market and customer insights

8 Earnings per share
9 Dividends
10 Employees
11 Retirement beneﬁ ts
12 Marks and Spencer

Scottish Limited Partnership

13 Share-based payments
14 Intangible assets
15 Property, plant and equipment
16 Other ﬁ nancial assets
17 Trade and other receivables
18 Cash and cash equivalents
19 Trade and other payables
20 Borrowings and other
ﬁ nancial liabilities

107
108
81
82
82

104
117
116
118
117
26
132

133
83
98
82

92
114
80

96
98
93

107
107
108
108

112
112
114
115
116
116
117
117

117

Nomination Committee

Operating Committee

Plan A
Principal risks and uncertainties
Proﬁ t and dividends
Power to issue shares
Political donations

Risk management
Remuneration policy
Remuneration Committee
Remuneration Report

Page

03
32
80
80
83

30-33
58
77
66

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
Subsidiary undertakings

101
135
80, 125
72, 112
81
95
92
93
129

Taxation
Total shareholder return
Trade and other payables
Trade and other receivables
Transfer of securities

Variation of rights
Viability statement

28
74
97
97
80

80
83

Page

21 Financial instruments
118
22 Provisions
124
23 Deferred tax
124
24 Ordinary share capital
125
25 Contingencies and commitments 125
26 Analysis of cash ﬂ ows given in the

statement of cash ﬂ ows

27 Analysis of net debt
28 Related party transactions

Company ﬁ nancial statements
Notes to the company
ﬁ nancial statements

126
126
127

128

129

This report is printed on Cocoon preprint 100 off set, a 100% recycled
paper made from post-consumer waste. Cocoon is manufactured to
the certiﬁ ed environmental management system ISO 14001.

Designed and produced by Friend www.friendstudio.com
Printed by CPI Colour.

CPI Colour are ISO 14001 certiﬁ ed, CarbonNeutral®, Alcohol Free.